<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 18, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE J. H. HEAFNER COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 5014 56-0754594
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
SEE TABLE OF ADDITIONAL REGISTRANTS
2105 WATER RIDGE PARKWAY, SUITE 500
CHARLOTTE, NORTH CAROLINA 28217
(704) 423-8989
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DONALD C. ROOF
SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
THE J. H. HEAFNER COMPANY, INC.
2105 WATER RIDGE PARKWAY, SUITE 500
CHARLOTTE, NORTH CAROLINA 28217
(704) 423-8989
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH A COPY TO:
SCOTT F. SMITH, ESQ.
HOWARD, SMITH & LEVIN LLP
1330 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 841-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, check the following box and
list the Securities Act registration statement 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: [ ]
- ---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PER UNIT PRICE(1) REGISTRATION FEE(2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10% Senior Notes Due 2008......... $100,000,000 $1,000 $100,000,000 $29,500
- ------------------------------------------------------------------------------------------------------------------------------
Subsidiary Guaranties of 10%
Senior Notes Due 2008........... -- -- -- (3)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(f)(2) under the Securities Act.
(2) Calculated pursuant to Rule 457(f)(2) under the Securities Act.
(3) Pursuant to Rule 457(n) under the Securities Act, no registration fee is
payable with respect to the Subsidiary Guaranties.
------------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
JURISDICTION OF PRIMARY STANDARD
INCORPORATION OR INDUSTRIAL CLASSIFICATION IRS EMPLOYER
NAME ORGANIZATION CODE NUMBER IDENTIFICATION NUMBER
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Oliver & Winston, Inc....................... California 5598 95-2407343
- ------------------------------------------------------------------------------------------------------------------------
ITCO Logistics Corporation.................. Delaware 5014 56-2001697
- ------------------------------------------------------------------------------------------------------------------------
ITCO Holding Company, Inc. ................. North Carolina 5014 56-1020830
- ------------------------------------------------------------------------------------------------------------------------
ITCO Tire Company........................... North Carolina 5014 56-1418417
- ------------------------------------------------------------------------------------------------------------------------
ITCO Tire Company of Georgia................ Virginia 5014 54-1260520
- ------------------------------------------------------------------------------------------------------------------------
The Speed Merchant, Inc. ................... California 5014 94-2414221
- ------------------------------------------------------------------------------------------------------------------------
Phoenix Racing, Inc. ....................... California 5598 77-0474076
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
CROSS-REFERENCE SHEET PURSUANT TO RULE 404(a) AND ITEM 501 OF REGULATION S-K,
SHOWING THE LOCATION IN THE PROSPECTUS OF THE INFORMATION
REQUIRED TO BE INCLUDED THEREIN IN ACCORDANCE WITH PART I OF FORM S-4
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING ON FORM S-4 CAPTION OR LOCATION IN PROSPECTUS
- ----------------------------------- ---------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus.............................. Facing Page and Outside Front Cover Page
of the Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Inside Front and Outside Back Cover
Pages of the Prospectus; Available
Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges, and
Other Information..................................... Forepart of Prospectus; Summary; Risk
Factors; Summary Historical and
Unaudited Pro Forma Financial Data;
Selected Historical Condensed Combined
Financial Data; The Exchange Offer
4. Terms of the Transaction................................ Summary; The Exchange Offer; Description
of the New Notes; Certain U.S. Federal
Income Tax Considerations; Risk
Factors
5. Pro Forma Financial Information......................... Summary Historical and Unaudited Pro
Forma Financial Data; Unaudited Pro
Forma Condensed Combined Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations
6. Material Contacts with Company Being Acquired........... *
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters......... *
8. Interests of Named Experts and Counsel.................. *
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities............................ *
10. Information with Respect to S-3 Registrants............. *
11. Incorporation of Certain Information by Reference....... *
12. Information with Respect to S-2 or S-3 Registrants...... *
13. Incorporation of Certain Information by Reference....... *
14. Information with Respect to Registrants Other Than S-3
or S-2 Registrants.................................... Summary; Risk Factors; Summary
Historical and Unaudited Pro Forma
Financial Data; Selected Historical
Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Description of New Credit
Facility; Description of the New Notes
15. Information with Respect to S-3 Companies............... *
16. Information with Respect to S-2 or S-3 Companies........ *
17. Information with Respect to Companies Other Than S-3 or
S-2 Companies......................................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
18. Information if Proxies, Consents or Authorizations Are
to be Solicited....................................... *
19. Information if Proxies, Consents or Authorizations Are
Not to be Solicited, or in an Exchange Offer.......... Management; Principal Stockholders;
Certain Relationships and Related
Transactions; The Exchange Offer
</TABLE>
- ---------------
* Item is inapplicable or response thereto is in the negative.
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO 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 ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 18, 1998
PROSPECTUS
THE J. H. HEAFNER COMPANY, INC.
OFFER TO EXCHANGE ITS
10% SENIOR NOTES DUE 2008 WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT
FOR ANY AND ALL OF ITS OUTSTANDING
10% SENIOR NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED
The J. H. Heafner Company, Inc., a North Carolina corporation (the "Issuer"
and, together with its subsidiaries, the "Company"), hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange (the "Exchange Offer") $1,000 principal amount of its
10% Senior Notes Due 2008 (the "New Notes") which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), for each $1,000
principal amount tendered of its outstanding 10% Senior Notes Due 2008 (the "Old
Notes" and, together with the New Notes, the "Notes"), of which $100.0 million
aggregate principal amount is outstanding. The form and terms of the New Notes
are identical in all material respects to the form and terms of the Old Notes,
except for certain transfer restrictions and registration and other rights
relating to the exchange of Old Notes for New Notes. The New Notes evidence the
same debt as the Old Notes and will be issued under the Indenture (as defined
herein) governing the Old Notes. See "The Notes Exchange Offer" and "Description
of the New Notes."
Interest on the New Notes is payable semi-annually on May 15 and November
15 of each year, commencing November 15, 1998. The Notes are redeemable at the
option of the Issuer, in whole or in part, at any time, on or after May 15, 2003
at the redemption prices set forth herein, plus accrued and unpaid interest, if
any, to the date of redemption. In addition, up to 35% of the original aggregate
principal amount of the Notes may be redeemed from time to time prior to May 15,
2001 at the redemption price set forth herein, plus accrued and unpaid 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 $65.0 million principal
amount of the Notes remains outstanding immediately after each such redemption.
Upon a Change of Control (as defined), each holder of Notes may require the
Issuer to repurchase such holder's outstanding Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
purchase.
The Notes are unsecured, senior obligations of the Issuer and are
unconditionally guaranteed on an unsecured, senior basis by all of the Issuer's
subsidiaries, other than certain immaterial subsidiaries (the "Subsidiary
Guarantors"). The Notes rank pari passu in right of payment with all other
existing and future unsecured senior indebtedness of the Issuer and senior in
right of payment to any existing and future subordinated indebtedness of the
Issuer. The Notes are effectively subordinated to all existing and future
secured indebtedness of the Issuer and the Subsidiary Guarantors, including
indebtedness under the New Credit Facility (as defined), to the extent of the
value of the assets securing such indebtedness. The Notes are structurally
subordinated to all existing and future indebtedness of any subsidiary of the
Issuer (other than the Subsidiary Guarantors). As of June 30, 1998, the Company
had outstanding, either directly or through guarantees, approximately $170.9
million of indebtedness, all of which was senior indebtedness and approximately
$66.1 million of which was secured. The Indenture relating to the Notes permits
the Company to incur additional indebtedness, including additional senior
indebtedness, subject to certain limitations. See "Description of the New
Notes."
(cover continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BEFORE TENDERING NOTES IN THE EXCHANGE OFFER.
THE NOTES 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.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 5
(cover continued)
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on , 1998,
unless extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is subject to certain customary conditions. See "The Exchange
Offer."
Prior to this offering, there has been no public market for the Notes. The
Company does not intend to list the New Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. Although
there can be no assurance, the New Notes may be made eligible for trading in The
PORTAL(SM) Market ("PORTAL"), a subsidiary of The Nasdaq Stock Market, Inc.
There can be no assurance that an active market for the New Notes will develop.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement (as
defined herein). Based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission") set forth in no-action letters issued to
third parties, the Company believes the New Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than Restricted Holders
(as defined herein) or Participating Broker-Dealers (as defined herein)) without
compliance with the registration and prospectus delivery requirements of the
Securities Act. Any holder who tenders Old Notes in the Exchange Offer with the
intention to participate, or for the purpose of participating, in a distribution
of the New Notes or who is an affiliate of the Company may not rely upon such
interpretations by the staff of the Commission and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Holders of Notes wishing to accept the Exchange Offer must
represent to the Company in the Letter of Transmittal that such conditions have
been met.
Each broker-dealer (other than a Restricted Holder) that receives New Notes
for its own account pursuant to the Exchange Offer (a "Participating
Broker-Dealer") must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution." Any broker-dealer who is an
affiliate of the Company may not rely on such no-action letters and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction.
This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. See "Plan of Distribution."
The Company will not receive any proceeds from this Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer.
Interest on the New Notes shall accrue from the last May 15 or November 15
on which interest was paid on the Old Notes so surrendered or, if no interest
has been paid, from May 20, 1998.
2
<PAGE> 6
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with any amendments, exhibits, annexes and schedules thereto, the
"Registration Statement,") under the Securities Act with respect to the New
Notes being offered by this Prospectus. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document are not necessarily complete. With respect to each such
contract, agreement or other document filed or incorporated by reference as an
exhibit to the Registration Statement, reference is made to such exhibit for a
more complete description of the matter involved, and each such statement is
qualified in its entirety by such reference. The Registration Statement
(including the exhibits and schedules thereto) may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be
available for inspection and copying at the regional offices of the Commission
located at Seven World Trade Center, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
Upon consummation of the Exchange Offer, the Company will become subject to
the information requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
periodic reports and other information with the Commission. In the event that
the Company is not subject to the reporting requirements of the Exchange Act at
any time following consummation of the Exchange Offer, the Company will be
required under the Indenture, dated as of May 15, 1998 (the "Indenture"), among
the Issuer, the Subsidiary Guarantors and First Union National Bank, as trustee
(the "Trustee"), pursuant to which the Old Notes were, and the New Notes will
be, issued, to continue to file with the Commission, and to furnish holders of
the Notes with (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Company were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" with
respect to the Company, and, with respect to the annual information only, a
report on the financial statements therein by the Company's certified
independent accountants, and (ii) all reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports. In addition, for so long as any of the Old Notes remain outstanding,
the Company has agreed to make available to any prospective purchaser of the Old
Notes or beneficial owner of the Old Notes in connection with any sale thereof
the information required by Rule 144A(d)(4) under the Securities Act.
3
<PAGE> 7
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 related notes, appearing elsewhere in this Prospectus. As used in
this Prospectus, unless the context otherwise requires, (i) the "Issuer" refers
to The J.H. Heafner Company, Inc., (ii) "Heafner" refers to the Issuer and its
subsidiaries without giving effect to the ITCO Merger and the CPW Acquisition
(each as defined), (iii) the "Company" refers to Heafner after giving effect to
the ITCO Merger and the CPW Acquisition, (iv) "ITCO Logistics" refers to ITCO
Logistics Corporation, (v)"ITCO" refers to ITCO Logistics Corporation and its
subsidiaries, (vi) "Speed Merchant" refers to The Speed Merchant, Inc., (vii)
"CPW" refers to Speed Merchant, d/b/a Speed Merchant and Competition Parts
Warehouse, and its subsidiary and (viii) "New Businesses" refers to ITCO and
CPW. The pro forma statements of operations and other sales-related information
give effect to the Transactions (as defined) as if the Transactions had occurred
at January 1, 1997. For purposes of the financial and other information
appearing in this Prospectus, references to a fiscal year relate to a December
31 fiscal year end for the Company, the Issuer and Heafner, to a September 30
fiscal year end for ITCO and to an October 31 fiscal year end for CPW;
references to years relate to calendar years. The purchase of the New
Businesses, obtaining financing under the New Credit Facility, the offering of
the Old Notes (the "Offering"), the application of proceeds of the Old Notes and
under the New Credit Facility, the Reclassification (as defined) and the related
transactions are collectively referred to in this Prospectus as the
"Transactions."
THE COMPANY
General. The Company is one of the largest independent suppliers of tires
to the replacement tire market in the United States. With over 65 distribution
centers servicing 20 states, the Company believes that it is the largest
independent distributor of new replacement tires in the Southeast and in
California. Through this distribution network, the Company's wholesale divisions
supplied 9.7 million tires in 1997 and currently serve an average of 20,000
customers each month. The Company's wholesale distribution operations accounted
for approximately 82.5% of the Company's total net sales, on a pro forma basis,
in 1997. Through its retail division, the Company operates over 215 retail tire
and automotive service outlets in California and Arizona which sold over 1.2
million tires in 1997. The Company's Oliver & Winston, Inc. subsidiary
("Winston"), which currently operates 176 of the Company's retail tire and
automotive service outlets, was the fourth largest independent tire dealer in
the United States in 1997 based on number of locations. The Company generally
stocks over 18,000 stock keeping units ("SKUs") of tires in its distribution
centers, and supplies premium, economy and private-label brands of tires
manufactured by the major tire manufacturers, including Michelin (which
manufactures the B.F. Goodrich and Uniroyal brands), Kelly-Springfield (a
division of Goodyear), Dunlop, Bridgestone/Firestone and Pirelli. The Company's
private-label tires are sold under the Winston and Regul trademarks. In addition
to its tire sales, the Company believes that it is a significant independent
distributor and retailer of aftermarket wheels, automotive replacement parts and
accessories and automotive service equipment. On a pro forma basis, the Company
generated net sales and EBITDA of $830.7 million and $28.1 million,
respectively, in fiscal 1997. In 1997, on a pro forma basis, sales of tires
accounted for approximately 78.6% of the Company's total net sales, sales of
automotive service, 7.7%, sales of custom wheels, 6.8%, sales of automotive
service equipment, 3.1%, and sales of parts and other products, 3.8%.
Industry Overview. Purchasers in the United States spent approximately
$18.1 billion on new replacement tires in 1997. Of that amount, passenger tires
accounted for approximately 58% of sales, light truck tires accounted for
approximately 15%, truck tires accounted for approximately 21% and farm,
specialty and other types of tires accounted for approximately 6%. Consumers of
new replacement tires in the United States obtain them from several principal
sources, including independent tire dealers, manufacturer-owned retail stores,
mass merchandisers such as Sears and Wal-Mart, auto supply chain stores and
wholesale clubs and discounters. Independent tire dealers, which represent the
largest customer base served by the Company, are the largest point of sale
suppliers of new replacement tires to the United States market. Independent tire
dealers accounted for approximately 59.5% of retail sales of domestic
replacement passenger tires in 1997.
4
<PAGE> 8
The replacement tire market for passenger cars and light trucks consists of
three primary types of tires: "flag" brands, which are premium tires made by the
major tire manufacturers; associate or "house" brands, which are primarily
economy brand tires made by the major tire manufacturers; and private-label
brands, which are brands made by tire manufacturers generally for independent
tire wholesale distributors and retailers. In 1997, flag brands constituted
approximately 50.0% of the United States passenger and light truck replacement
tire markets, private-label brands constituted approximately 29.9% of those
markets and house brands made up approximately 20.1% of those markets.
Recent Acquisitions. On May 20, 1998, as part of the Transactions, the
Issuer acquired CPW and a wholly owned subsidiary of the Issuer was merged with
ITCO. The Company believes that the combination of Heafner, ITCO and CPW
represents a distinct opportunity to broaden product offerings, strengthen
manufacturer relationships, develop new competencies in its organization and
strengthen the Company's presence in the Southeast and the West. The Company
believes that the merger with ITCO will enable the Company's Eastern wholesale
division to provide more cost-effective service and will increase its
distribution capacity, positioning the Company for expansion into new geographic
areas. The Company believes that the acquisition of CPW and its distribution
facilities will establish a broader supply network with more frequent delivery
capabilities for the Company's Winston retail stores, improving the Company's
ability to restock inventory and obtain customer-requested products on a more
timely basis. In addition, the Company expects to realize significant cost
savings and operating efficiencies and improvements that will contribute to its
goal of increasing future profitability.
COMPETITIVE STRENGTHS AND BUSINESS STRATEGY
The Company's strategy is to increase net sales and EBITDA while becoming
the leading national distributor of tires and automotive equipment and services
through wholesale distribution centers and retail tire outlets. To achieve this
objective, the Company intends to continue to build upon the following
strengths:
Leading Market Positions. The Company believes that it is one of the
nation's largest buyers of new replacement passenger and light truck tires,
purchasing in excess of 10.9 million tires in 1997, representing approximately
5.2% of the total U.S. replacement tire market. Through its Eastern and Western
wholesale divisions, the Company also believes that it is the leading wholesale
distributor of tires to the replacement tire market in the Southeast and in
California, with over 65 distribution centers servicing 20 states. In addition,
through its retail division, the Company currently operates over 215 retail tire
and automotive service outlets in California and Arizona, including 176 tire and
automotive service outlets operated by Winston. Winston was the fourth largest
independent tire dealer in the United States in 1997 based on number of
locations. The Company intends to strengthen and expand its existing network of
distribution centers and retail outlets by pursuing a strategy of selective
expansion and acquisition focusing on geographic areas it does not currently
serve.
Strong Relationships with Major Tire Manufacturers. The Company has
established strong relationships with the major tire manufacturers, including
Michelin (which manufactures the B.F. Goodrich and Uniroyal brands),
Kelly-Springfield (a division of Goodyear), Dunlop, Bridgestone/Firestone and
Pirelli. The Company has conducted business with its major tire suppliers for a
combined average of 26 years. In terms of replacement tires purchased, the
Company believes that it is the largest U.S. customer of Dunlop, one of the
largest U.S. customers of Michelin (including the B.F. Goodrich and Uniroyal
brands) and one of the largest U.S. customers of Bridgestone/Firestone. The
Company recently negotiated an arrangement with Goodyear for the placement of
Goodyear flag-branded products in the Company's Winston retail stores. The
Company's network of retail points of sale offers tire manufacturers a desirable
platform for their branded products and allows the Company to relay important
feedback from tire consumers to the manufacturers. The Company believes that
this combination of factors improves tire manufacturers' access to the
replacement tire market and, in turn, enhances the Company's relationship with
its suppliers.
Private-Label Brands. The Company offers two private-label brands of
tires, Regul (manufactured by Michelin and Kelly-Springfield) and Winston
(manufactured by Kelly-Springfield), which are supplied exclusively by the
Company. In general, private-label brands allow the independent wholesale
distributor and
5
<PAGE> 9
its retail dealer customer to realize higher gross profit margins than are
obtainable through sales of flag or house brands. Sales of private-label tires
account for a significant portion of the Company's total net sales ($101.0
million on a pro forma basis in 1997). The Company also sells other
private-label products, including ICW and Pacer custom wheels and Magnum
automotive lifts. The Company intends to continue to build the brand identity of
its private-label products through advertising, promotions and continued
emphasis on the quality of those products, and plans to introduce its
private-label brand tires as leading value-priced products in the new markets it
serves.
Supply Practices and Customer Service. The Company distributes tires and
other products to dealers and other customers generally on a same-day basis and,
in certain markets, makes multiple deliveries in a single day. By offering
reliable, timely and frequent deliveries and using sophisticated inventory
management systems, the Company's wholesale divisions assist customers in
reducing investment in inventories while still enabling them to provide a full
range of products. In addition, the integration of the New Businesses will allow
the Company to implement the best inventory management practices of its existing
businesses and those of the New Businesses on a company-wide basis as it
continues to emphasize value-added customer service and supply practices in all
aspects of its business. The Company believes that its strong inventory
management systems and retail expertise will allow it to successfully integrate
the New Businesses, expand its customer base and provide a strong platform for
future expansion.
THE TRANSACTIONS AND USE OF PROCEEDS
On May 20, 1998 (the "Closing Date"), a newly formed subsidiary of the
Issuer was merged with ITCO Logistics, with ITCO Logistics surviving the merger
as a wholly owned subsidiary of the Issuer (the "ITCO Merger"). The total
consideration paid to the stockholders of ITCO Logistics in connection with the
ITCO Merger consisted of $18.0 million in cash, 1,400,667 newly issued shares of
Class B Common Stock, $.01 par value (the "Class B Common Stock"), of the Issuer
and $1.4 million payable to holders of ITCO stock appreciation rights upon
exercise of such rights. Also on the Closing Date, the Issuer acquired from the
stockholders of Speed Merchant all of the issued and outstanding shares of Speed
Merchant (the "CPW Acquisition") for aggregate consideration equal to $45.0
million in cash, of which $35.0 million was paid on the Closing Date in exchange
for the stock of Speed Merchant, $7.4 million is payable in installments for
five years after the Closing Date in exchange for certain non-compete covenants
and $2.6 million is payable in the form of other contingent payouts to selling
stockholders. Also on the Closing Date, the Issuer applied a portion of the
proceeds of the offering of the Old Notes to repay $16.0 million of subordinated
debt and $10.3 million outstanding under a term loan of the Issuer outstanding
at the Closing Date.
Financing necessary to complete the acquisition of the New Businesses and
the repayment of Heafner's outstanding subordinated debt was obtained from the
proceeds of the offering of the Old Notes on the Closing Date and amounts
outstanding under an amended and restated senior revolving credit facility
entered into on the Closing Date (the "New Credit Facility"). The New Credit
Facility replaced an existing Heafner senior credit facility (the "Old Credit
Facility"), under which $33.5 million was outstanding on the Closing Date
(without giving effect to the Transactions). An ITCO facility with Fleet Capital
Corporation (the "ITCO Facility"), under which $26.3 million was outstanding on
the Closing Date, was repaid and terminated on July 15, 1998. For purposes of
the financial and other information in this Prospectus, amounts outstanding
under the Old Credit Facility and the ITCO Facility have been treated as repaid
on the Closing Date and borrowed under the New Credit Facility on the Closing
Date. The aggregate amount of commitments under the New Credit Facility is
currently $100.0 million.
6
<PAGE> 10
The following table sets forth the approximate sources and uses of funds as
of the Closing Date (amounts in thousands):
<TABLE>
<S> <C>
SOURCES OF FUNDS
New Credit Facility....................................... $ 48,054
Notes..................................................... 100,000
Assumption of indebtedness(a)............................. 11,106
Deferred payments(b)...................................... 11,390
Class B Common Stock...................................... 14,959
--------
Total Sources..................................... $185,509
========
USES OF FUNDS
ITCO Merger(c)............................................ $ 34,349
CPW Acquisition(d)........................................ 45,000
Repayment/refinancing of existing indebtedness(e)......... 87,054
Assumption of indebtedness(a)............................. 11,106
Estimated transaction fees and expenses(f)................ 8,000
--------
Total Uses........................................ $185,509
========
</TABLE>
- ---------------
(a) Represents assumption of (i) ITCO building mortgages of $2.5 million and
(ii) vendor loans and other amounts at ITCO and CPW.
(b) Includes (i) $7.4 million payable in installments over five years after the
Closing Date in exchange for certain non-compete covenants of the
stockholders of Speed Merchant, (ii) $2.6 million in other contingent
payouts to the stockholders of Speed Merchant and (iii) $1.4 million for the
exercise of stock appreciation rights by certain employees of ITCO.
(c) Includes 1,400,667 shares of Class B Common Stock appraised at approximately
$15.0 million and $1.4 million payable to holders of ITCO stock appreciation
rights.
(d) Includes the amounts described in clauses (i) and (ii) of footnote (b).
(e) Represents repayment or refinancing of (i) $59.8 million of long-term
indebtedness of Heafner (including $16.0 million of subordinated debt), (ii)
$26.3 million of long-term indebtedness of ITCO and (iii) $1.0 million of
long-term indebtedness of CPW.
(f) Fees and expenses include the Initial Purchasers' (as defined) discount and
other fees and expenses of the Offering and other fees and direct expenses
incurred in connection with the Transactions, including lenders' fees
(including prepayment fees), legal fees, accounting fees and other
out-of-pocket expenses.
The Company's executive offices are located at 2105 Water Ridge Parkway,
Suite 500, Charlotte, North Carolina 28217, and its telephone number is (704)
423-8989.
7
<PAGE> 11
THE OFFERING
The Issuer.................... The Old Notes were sold by the Issuer on May
20, 1998 to "qualified institutional buyers"
(as defined in Rule 144A under the Securities
Act) in reliance upon Rule 144A under the
Securities Act.
Registration Rights
Agreement..................... In connection with the sale of the Old Notes,
the Issuer and the Subsidiary Guarantors
entered into a Registration Rights Agreement,
dated May 20, 1998 (the "Registration Rights
Agreement"), providing for, among other things,
the Exchange Offer.
THE EXCHANGE OFFER
The Exchange Offer............ The Company is offering to exchange up to
$100,000,000 aggregate principal amount of New
Notes for up to $100,000,000 aggregate
principal amount of Old Notes issued in the
Offering in reliance upon an exemption from
registration under the Securities Act. Upon
consummation of the Exchange Offer, the terms
of the New Notes (including principal amount,
interest rate, maturity and ranking) will be
identical in all material respects to the terms
of the Old Notes for which they may be
exchanged pursuant to the Exchange Offer,
except that the New Notes will have been
registered under the Securities Act and
therefore will not bear legends restricting
their transfer and will not contain terms
providing for an increase in the interest rate
thereon under certain circumstances described
in the Registration Rights Agreement.
Based on interpretations by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company believes
that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by
a holder thereof (other than a Restricted
Holder (as defined) or a Participating
Broker-Dealer) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that such New
Notes are acquired in the ordinary course of
such holder's business and that such holder is
not engaged in, and does not intend to engage
in, and has no arrangement or understanding
with any person to participate in, the
distribution of such New Notes.
Any Participating Broker-Dealer that receives
New Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired
by such broker or dealer as a result of market-
making activities or other trading activities,
must acknowledge that it will deliver a
prospectus in connection with any resale of
such New Notes. The Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that
it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may
be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in
connection with the resale of New Notes
received in exchange for Old Notes where such
Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making
activities or other trading activities. The
8
<PAGE> 12
Company has agreed that, for a period of 180
days after the Expiration Date, it will make
this Prospectus available to any Participating
Broker-Dealer for use in connection with any
such resale. See "Plan of Distribution."
Any holder who tenders Old Notes in the
Exchange Offer with the intention of
participating, or for the purpose of
participating, in a distribution of the New
Notes may not rely on the position of the staff
of the Commission enunciated in no-action
letters and, in the absence of an exemption
therefrom, must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with any resale.
Expiration Date............... 5:00 p.m., New York City time, on ,
1998, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange
Offer is extended.
Conditions to the Exchange
Offer......................... The obligation of the Company to consummate the
Exchange Offer is subject to certain
conditions. See "The Exchange Offer --
Conditions." The Company reserves the right to
terminate or amend the Exchange Offer at any
time prior to the Expiration Date upon the
occurrence of any such condition.
Procedures for Tendering Old
Notes......................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof,
or transmit an Agent's Message (as defined
herein) in connection with a book-entry
transfer, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal,
such facsimile or such Agent's Message,
together with the Old Notes and any other
required documentation to the exchange agent
(the "Exchange Agent") at the address set forth
herein. By executing the Letter of Transmittal
or Agent's Message, each holder will represent
to the Company that, among other things, the
New Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course
of business of the person receiving such New
Notes, whether or not such person is the
holder, that neither the holder nor any such
other person (i) has any arrangement or
understanding with any person to participate in
the distribution of such New Notes, (ii) is
engaging or intends to engage in the
distribution of such New Notes or (iii) is an
"affiliate," as defined under Rule 405 of the
Securities Act, of the Company. See "The
Exchange Offer -- Purpose and Effect of the
Exchange Offer," "-- Procedures for Tendering"
and "Plan of Distribution."
Special Procedures for
Beneficial Owners............. Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such
owner must, prior to completing and executing
the Letter of Transmittal and delivering such
owner's Old Notes, either make appropriate
arrangements to
9
<PAGE> 13
register ownership of the Old Notes in such
owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take
considerable time. See "The Exchange
Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures.................... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not entirely
available or who cannot deliver their Old
Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal
to the Exchange Agent prior to the Expiration
Date must tender their Old Notes according to
the guaranteed delivery procedures set forth in
"The Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights............. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date. See "The Offer -- Withdrawal
of Tenders."
Acceptance of Old Notes and
Delivery of New Notes......... The Company will accept for exchange any and
all Old Notes which are properly tendered in
the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date and not
withdrawn. The New Notes issued pursuant to the
Exchange Offer will be delivered promptly
following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange Offer."
Exchange Agent................ The Chase Manhattan Bank is serving as Exchange
Agent in connection with the Exchange Offer.
See "The Exchange Offer -- Exchange Agent."
10
<PAGE> 14
THE NEW NOTES
The Exchange Offer applies to $100.0 million aggregate principal amount of
Old Notes. The terms of the New Notes are identical in all material respects to
the Old Notes, except for certain transfer restrictions and registration rights
relating to the exchange of Old Notes for New Notes. The New Notes will evidence
the same debt as the Old Notes and will be entitled to the benefits of the
Indenture under which the Old Notes were issued and the New Notes will be
issued. See "Description of the New Notes."
Securities Offered............ $100,000,000 principal amount of 10% Senior
Notes Due 2008 of the Issuer.
Maturity Date................. May 15, 2008.
Interest Payment Dates........ May 15 and November 15 of each year, commencing
November 15, 1998.
Optional Redemption........... The Notes are redeemable at the option of the
Issuer, in whole or in part, at any time, on or
after May 15, 2003 at the redemption prices set
forth herein, plus accrued and unpaid interest,
if any, to the date of redemption. In addition,
up to 35% of the original aggregate principal
amount of the Notes may be redeemed from time
to time prior to May 15, 2001 at the redemption
price set forth herein, plus accrued and unpaid
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 $65.0 million principal amount of the
Notes remains outstanding immediately after
each such redemption. See "Description of the
New Notes -- Optional Redemption."
Change of Control............. Upon a Change of Control (as defined), each
holder of Notes may require the Issuer to
repurchase such holder's Notes at 101% of the
principal amount thereof, plus accrued and
unpaid interest, if any, to the date of
repurchase. There can be no assurance that the
Issuer will have sufficient funds to purchase
all the Notes in the event of a Change of
Control. See "Risk Factors -- Limitations on
Repurchases of Notes upon Change of Control"
and "Description of the New Notes -- Change of
Control."
Subsidiary Guaranties......... The obligations of the Issuer under the Notes
and the Indenture are guaranteed (the
"Subsidiary Guaranties") on an unsecured,
senior basis by all of the Subsidiary
Guarantors. Each Subsidiary Guaranty is
irrevocable and unconditional, but limited in
amount to the extent required by laws relating
to fraudulent transfer or similar laws. See
"Description of the New Notes -- Subsidiary
Guaranties."
Ranking....................... The Notes are unsecured, senior obligations of
the Issuer and are unconditionally guaranteed
on an unsecured, senior basis by the Subsidiary
Guarantors. The Notes rank pari passu in right
of payment with all other existing and future
unsecured senior indebtedness of the Issuer and
senior in right of payment to any existing and
future subordinated indebtedness of the Issuer.
The Notes are effectively subordinated to all
existing and future secured indebtedness of the
Issuer and the Subsidiary Guarantors, including
indebtedness under the New Credit Facility, to
the extent of the value of the assets securing
such indebtedness. The Notes are structurally
subordinated to all existing and future
indebtedness of any subsidi-
11
<PAGE> 15
ary of the Issuer (other than the Subsidiary
Guarantors). The Subsidiary Guaranties are
unsecured, senior obligations of the Subsidiary
Guarantors and rank pari passu in right of
payment with all other senior, unsecured
indebtedness of the Subsidiary Guarantors and
senior in right of payment to any existing and
future subordinated indebtedness of the
Subsidiary Guarantors. The Subsidiary
Guaranties are effectively subordinated to all
existing and future secured indebtedness of the
Subsidiary Guarantors to the extent of the
value of the assets securing such indebtedness.
As of June 30, 1998, the Company had
outstanding, either directly or through
guarantees, approximately $170.9 million of
indebtedness, all of which was senior
indebtedness and approximately $66.1 million of
which was secured. The Indenture relating to
the Notes permits the Issuer and its
subsidiaries to incur additional indebtedness,
including senior indebtedness, subject to
certain limitations. See "Description of the
New Notes -- Ranking."
Restrictive Covenants......... The Indenture under which the Notes are issued
contains certain covenants that, among other
things, will limit (i) the incurrence of
additional indebtedness by the Issuer and its
Restricted Subsidiaries (as defined), (ii) the
payment of dividends and other restricted
payments by the Issuer and its Restricted
Subsidiaries, (iii) the creation of
restrictions on distributions from Restricted
Subsidiaries, (iv) asset sales, (v) certain
transactions with affiliates, (vi) the
incurrence of liens and sale/leaseback
transactions and (vii) certain consolidations,
mergers and transfers of assets. However, all
of these limitations are subject to a number of
important qualifications. See "Description of
the New Notes -- Certain Covenants."
Use of Proceeds............... There will be no proceeds to the Company from
any exchange pursuant to the Exchange Offer.
Book-Entry Only............... The Notes will be issued in book-entry form
through the facilities of The Depository Trust
Company ("DTC" or the "Depository") for the
accounts of its participants and will trade in
DTC's Same-Day Funds Settlement System. For a
description of certain procedures relating to
clearance and settlement, see "Description of
the New Notes -- Book-Entry, Delivery and
Form."
RISK FACTORS
Holders of Notes should carefully consider the specific matters set forth
under "Risk Factors" as well as the other information and data included in this
Prospectus prior to tendering Old Notes in the Exchange Offer.
12
<PAGE> 16
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following summary historical consolidated financial data with respect
to Heafner and unaudited pro forma financial data with respect to the Company
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical consolidated
financial statements of Heafner and the related notes. The consolidated
financial statements of Heafner for each of the years in the three-year period
ended December 31, 1997 are included elsewhere in this Prospectus and have been
audited by Arthur Andersen LLP, independent certified public accountants. The
summary historical financial data for the six months ended June 30, 1997 and
1998 have been derived from financial statements that are included elsewhere
herein which are unaudited but which, in the opinion of management, include all
adjustments, except as otherwise described therein, necessary for the fair
presentation of the financial position and results of operations for such
period. The pro forma data have been derived from the Unaudited Pro Forma
Condensed Combined Financial Data of the Company included elsewhere in this
Prospectus. The Unaudited Pro Forma Condensed Combined Financial Data do not
purport to represent what the Company's results of operations actually would
have been if the transactions referred to therein had been consummated on the
date or for the periods indicated, or what such results will be for any future
date or any future period.
<TABLE>
<CAPTION>
HEAFNER
----------------------------------------------------
SIX MONTHS ENDED
JUNE 30, COMPANY COMPANY PRO FORMA
------------------- PRO FORMA SIX MONTHS ENDED
1995 1996 1997(A) 1997(A) 1998(B) 1997(C) JUNE 30, 1998(C)
-------- -------- -------- -------- -------- --------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales.................. $169,031 $190,535 $311,839 $127,377 $243,179 $830,749 $453,266
Cost of goods sold......... 140,811 158,880 233,941 99,677 182,131 659,335 354,697
-------- -------- -------- -------- -------- -------- --------
Gross profit............... 28,220 31,655 77,898 27,700 61,048 171,414 98,569
Selling, general and
administrative
expenses................. 26,584 29,660 74,441 26,128 57,262 160,616 90,149
-------- -------- -------- -------- -------- -------- --------
Income from operations..... 1,636 1,995 3,457 1,572 3,786 10,798 8,420
Interest and other expense,
net...................... 946 944 3,710 1,687 5,899 14,486 8,556
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations before
provision (benefit) for
income taxes and
extraordinary charge..... 690 1,051 (253) (115) (2,113) (3,688) (136)
Provision (benefit) for
income taxes............. -- -- (239) (49) (837) 681 851
-------- -------- -------- -------- -------- -------- --------
Net income (loss) from
operations before
extraordinary charge..... 690 1,051 (14) (66) (1,276) (4,369) (987)
Extraordinary charge....... -- -- -- -- 2,198 -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).......... $ 690 $ 1,051 $ (14) $ (66) $ (3,474) $ (4,369) $ (987)
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
Depreciation and
amortization............. $ 1,062 $ 1,331 $ 5,399 $ 1,551 $ 4,029 $ 16,961 $ 8,737
EBITDA(d).................. 3,060 3,848 9,988 3,108 3,684 28,060 16,583
Capital expenditures....... 2,205 7,865 4,908 2,849 1,905 9,958 2,538
Ratio of earnings to fixed
charges(e)............... 1.4x 1.5x -- -- -- -- --
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............ $ 19,148 $ 16,913 $ 20,582 $ 19,905 $ 42,023
Total assets............... 55,458 59,551 146,508 149,390 411,368
Total debt................. 15,632 21,003 64,658 67,072 170,864
Stockholders' equity....... 11,719 11,574 20,296 20,424 31,711
</TABLE>
- ---------------
(a) In May 1997, Heafner acquired Winston. The transaction was accounted for
using the purchase method of accounting.
13
<PAGE> 17
(b) In May 1998, the ITCO Merger and the CPW Acquisition occurred. Each
transaction was accounted for using the purchase method of accounting.
(c) The pro forma statements of operations data for 1997 and for the six months
ended June 30, 1998 give effect to: (i) the Winston acquisition; (ii) the
ITCO Merger; (iii) the CPW Acquisition; (iv) the completion of the Offering
of the Old Notes and the application of the net proceeds; and (v) the
initial borrowing under the New Credit Facility, as if each had been
consummated on January 1, 1997.
(d) EBITDA represents net income plus income taxes, depreciation and
amortization and interest expense. EBITDA for the pro forma period ended
June 30, 1998 also adds a restructuring charge of $1.4 million and an
extraordinary charge of $3.7 million (pre-tax) for the write-off of
unamortized financing expenses and discounts and the payment of prepayment
penalties. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service or incur indebtedness. However,
EBITDA should not be considered an alternative to net income as a measure of
operating results or to cash flows from operations as a measure of liquidity
in accordance with generally accepted accounting principles.
(e) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense (which includes amortization of deferred financing costs
and debt issuance cost) and one-third of rental expense, deemed
representative of that portion of rental expense estimated to be
attributable to interest. For the year ended December 31, 1997, the six
months ended June 30, 1997 and 1998, and the pro forma periods ended
December 31, 1997 and June 30, 1998, earnings were insufficient to cover
fixed charges by $253,000, $115,000, $2.1 million, $3.7 million and
$136,000, respectively.
14
<PAGE> 18
RISK FACTORS
Holders of Notes should carefully consider the following Risk Factors, as
well as the other information and data included in this Prospectus, prior to
tendering Old Notes in the Exchange Offer.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
As of June 30, 1998, the Company had approximately $170.9 million of
long-term debt outstanding, approximately $66.1 million of which was secured.
The degree to which the Company is leveraged could have important consequences
to holders of the Notes, including: (i) the Company's ability to obtain
additional financing, whether for working capital, acquisitions, capital
expenditures, or other purposes, may be impaired; (ii) a substantial portion of
the Company's cash flow from operations will be required for debt service,
thereby reducing funds available to the Company for its operations; (iii)
certain of the Company's indebtedness contains financial and other restrictive
covenants which, if breached, would result in an event of default under such
indebtedness; (iv) the Company's flexibility in planning for or reacting to
changes in market conditions may be limited; (v) the Company may be more
vulnerable upon a downturn in its business or in the industry in which it
operates; and (vi) to the extent that the Company incurs any indebtedness at
variable rates, including under the New Credit Facility, the Company will be
vulnerable to increases in interest rates.
The Company's ability to meet its debt service obligations will be
dependent upon its future performance which, in turn, will be subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control. Based on the current level of operations, the
Company believes that its operating cash flow, together with available
borrowings under the New Credit Facility, will be sufficient to meet the debt
service requirements on its indebtedness, meet its working capital needs and
fund its capital expenditures and other operating expenses for the near future.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." However, there can be no
assurance that the Company's business will generate cash flow at levels
sufficient to meet these requirements. If it is unable to do so, the Company may
be required to refinance all or a portion of its indebtedness, including the
Notes, to sell assets or to obtain additional financing. There can be no
assurance that any such refinancing would be possible, that any assets could be
sold (or, if sold, of the timing of such sales and the amount of proceeds
realized therefrom) or that additional financing could be obtained.
RESTRICTIVE COVENANTS
The terms of the New Credit Facility, the Indenture and the other
agreements governing the Company's indebtedness impose certain operating and
financing restrictions on the Company. Such restrictions affect, and in many
respects limit, among other things, the ability of the Company to incur
additional indebtedness, make certain payments or investments, loans and
guarantees, create liens or other encumbrances, sell assets, or enter into
mergers or consolidations. The New Credit Facility requires the Company to
comply with certain financial ratios (minimum net worth) and tests (minimum loan
availability). The restrictions could limit the ability of the Company to plan
for or react to market conditions or meet extraordinary capital needs or
otherwise could restrict corporate activities. There can be no assurance that
such restrictions will not adversely affect the Company's ability to finance its
future operations or capital needs or to engage in other business activities
that would be in the interest of the Company. Moreover, a breach of any of these
covenants or the inability of the Company to comply with the required financial
ratios and tests could result in an event of default under the New Credit
Facility or the Indenture. Upon the occurrence of an event of default, the
lenders under the New Credit Facility could elect to declare all amounts
borrowed thereunder, together with accrued interest, to be due and payable. If
the Company were unable to repay such borrowings, such lenders could proceed
against the collateral for 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 such indebtedness and the
Notes in full.
15
<PAGE> 19
EFFECTIVE SUBORDINATION
The Notes and the Subsidiary Guaranties are unsecured, senior obligations
of the Issuer and the Subsidiary Guarantors, respectively, and rank pari passu
in right of payment with all other existing and future senior indebtedness of
the Issuer and the Subsidiary Guarantors and senior in right of payment to any
existing and future subordinated indebtedness of the Issuer and the Subsidiary
Guarantors, respectively. The Notes and the Subsidiary Guaranties are
effectively subordinated to all existing and future secured indebtedness of the
Issuer and the Subsidiary Guarantors including indebtedness under the New Credit
Facility, to the extent of the value of the assets securing such indebtedness.
Indebtedness under the New Credit Facility is secured by a lien on all inventory
and accounts receivable of the Issuer and its material subsidiaries (all of
which are Subsidiary Guarantors). See "Description of New Credit Facility."
Holders of existing or future secured indebtedness of the Issuer and the
Subsidiary Guarantors permitted under the Indenture, including holders of
indebtedness under the New Credit Facility, will have claims with respect to
assets constituting collateral that are prior to the claims of the holders of
the Notes. The Notes are and will be structurally subordinated to all existing
and future indebtedness of any subsidiary of the Issuer (other than the
Subsidiary Guarantors). As of June 30, 1998, the Company had outstanding, either
directly or through guarantees, approximately $170.9 million of indebtedness,
all of which was senior indebtedness and approximately $66.1 million of which
was secured. At August 14, 1998, the Company could have borrowed an additional
$34.1 million under the New Credit Facility, all of which would have been
secured. See "Description of the New Notes." The Indenture will permit the
Company to incur additional indebtedness, including senior indebtedness (some of
which may be secured), subject to certain limitations.
ABILITY TO INTEGRATE NEW BUSINESSES AND FUTURE ACQUISITIONS
Although the Company and the New Businesses have been in operation for some
time, there can be no assurance that the Company will be able to successfully
integrate the business, operations or assets of either or both of the New
Businesses. The integration of the New Businesses may result in unforeseen
difficulties that require a disproportionate amount of management's attention
and the Company's resources. The ITCO Merger and CPW Acquisition represented the
largest acquisitions by the Company to date and the most significant expansion
of its business. The Company may face significant challenges in integrating the
New Businesses because of their magnitude. There can be no assurance that the
Company will be able to achieve the synergies it anticipates from the ITCO
Merger and CPW Acquisition. Although the Company has established a reserve of
$5.2 million and has taken a restructuring charge of $1.4 million for shut down
costs related to the Transactions and a non-recurring extraordinary charge of
$3.7 million for the write-off of unamortized financing discounts and payment of
prepayment penalties, there can be no assurance that such amounts will be
adequate to cover such costs or that the ITCO Merger and CPW Acquisition will
not have an adverse effect upon the Company's operating results, particularly in
the fiscal quarters immediately following the consummation of the Transactions,
while the operations of the New Businesses are being integrated into the
Company's operations.
As part of its business strategy, the Company intends to expand its network
of distribution centers and retail stores through selective acquisitions. There
can be no assurance that the Company will be able to identify or complete such
acquisitions and, if completed, no assurance that the Company will be able to
successfully integrate the businesses, operations or assets of acquired
companies into its existing operations. In addition, the New Credit Facility
will prohibit the Company from committing funds to new acquisitions beyond $25
million in any fiscal year and $40 million during the term of the New Credit
Facility. There can be no assurance that the Company would be able to obtain any
waiver of such limits in the future.
RELIANCE ON VENDORS
There are a limited number of tire manufacturers worldwide. Accordingly,
the Company relies on a limited number of tire manufacturers for its products.
In particular, the Company relied on Michelin and Kelly-Springfield, its top two
suppliers, for 35% and 34%, respectively, of the tires it sold in 1997. Although
in most cases the Company has long-term relationships with these manufacturers,
the Company's contracts with all but one of its suppliers are short-term in
nature, and there can be no assurance that these suppliers will continue to
supply products to the Company on favorable terms, or at all. Furthermore,
although the Company does not believe that it will be materially adversely
affected and believes that vendor response has been
16
<PAGE> 20
generally positive, the ITCO Merger and CPW Acquisition may cause certain of the
Company's vendors to reduce or eliminate the number of product lines or SKUs
carried by the Company or otherwise affect the Company's relationship with its
suppliers. For example, Tire and Battery Corporation, which had supplied less
than 4% of the products sold by the Company, notified the Company that it would
be discontinuing its relationship with the Company following the consummation of
the ITCO Merger. In addition, in the event that any of the Company's vendors
were to experience financial, operational, production, supply or quality
assurance difficulties that could result in a reduction or interruption in
supply to the Company, or otherwise failed to meet the Company's requirements
and specifications, the Company could be materially adversely affected. For
example, in 1997, two of the Company's principal suppliers experienced labor
strikes. Although the Company was not materially adversely affected by these
labor actions, the strikes did affect the Company's suppliers' ability to meet
the Company's supply orders. To the extent that the Company would be required to
find replacements for its suppliers, a change in suppliers could result in cost
increases, time delays in deliveries and a loss of customers, any of which could
have a material adverse effect on the Company. Finally, although the majority of
tires manufactured by the major tire manufacturers are sold to the replacement
tire market, the manufacturers pay disproportionate attention to automobile
manufacturers that purchase tires for use as original equipment on vehicles sold
to consumers. Increased demand from the original equipment market could also
result in cost increases and time delays in deliveries from manufacturers to the
Company, any of which could have a material adverse effect on the Company.
POSSIBLE LOSS OF CUSTOMERS
Although the Company believes that its relationships with its customers are
good and that customer response to the ITCO Merger and the CPW Acquisition has
been generally positive, the Company could lose some of its customers as a
result of the ITCO Merger and the CPW Acquisition. Some of CPW's customers, in
particular independent tire dealers, might discontinue their relationships due
to CPW's alignment with a chain of retail stores that compete with those
customers, even though CPW currently has retail operations itself. In the case
of ITCO, some of its customers may prefer to maintain relationships with
multiple suppliers. As ITCO and Heafner supply many of the same geographic areas
and in some cases share customers, those customers may look to alternative
suppliers for a portion of their product needs.
COMPETITION
The industry in which the Company competes is highly competitive, and many
of the Company's competitors have resources significantly greater than the
Company's. Tire manufacturers distribute tires to the retail market by direct
shipments to independent tire dealers, national retail chains such as Sears and
Wal-Mart and manufacturer-owned retail stores as well as through shipments to
independent wholesale distributors. A number of independent wholesale tire
distributors also compete in the regions in which the Company does business. In
its retail business, the Company also faces competition from national chains and
department stores, other independent tire stores, tire manufacturer-owned
stores, discount and warehouse clubs and other automotive product retailers.
Although the Company believes that it has been able to compete successfully in
its markets to date, there can be no assurance that it will be able to continue
to do so in the future. See "Business -- Competition."
ENVIRONMENTAL RISKS
The Company's operations and properties are subject to federal, state and
local laws, regulations and ordinances relating to the use, storage, handling,
generation, transportation, treatment, emission, release, discharge and disposal
of certain materials, substances and wastes under which the Company could be
held strictly, jointly and severally liable for costs associated with the
investigation and clean-up of contaminated properties. The nature of the
Company's existing and historical operations exposes it to the risk of
liabilities or claims with respect to environmental matters, including off-site
disposal matters. For example, the Company handles waste motor oil and hydraulic
brake fluid, the storage and disposal of which is strictly regulated by federal
and state authorities, in its automotive service operations. The Company
contracts with outside services to handle disposal of these materials. Although
the Company believes that it complies with all
17
<PAGE> 21
relevant environmental regulations and does not incur significant costs
maintaining compliance therewith, there can be no assurance that material costs
will not be incurred in connection with environmental liabilities or claims or
that future events, such as changes in existing laws and regulations or their
interpretation, will not give rise to additional compliance costs or liabilities
that could have a material adverse effect on the Company.
CONSUMER FAIR PRACTICES
Retail tire dealers and providers of automotive services have been the
subject of scrutiny by state and local officials regarding their sales tactics
and pricing practices. For example, in the early 1990s, the California Bureau of
Automotive Repair (which is charged with policing improper selling practices by
automobile repair shops and investigating companies alleged to have engaged in
such improper practices) investigated a number of automobile repair and service
centers, including Winston, for unfair consumer practices. That investigation
resulted in fines against Winston (in 1993) and others and directly led to a
change in Winston's consumer practices. Although the Company believes that it
materially complies with applicable laws regarding consumer practices, there can
be no assurance that a future investigation will not be conducted or result in
disruptions in the Company's operations, changes in practices or fines against
the Company.
DEPENDENCE ON MANAGEMENT
The Company is dependent upon the services of its executive officers for
management of the Company. The loss or interruption of the continued full-time
services of certain of these executives could have a material adverse effect on
the Company, and there can be no assurance that the Company would be able to
find replacements with equivalent skills or experience. The success of the
Company's integration of the New Businesses may depend on the retention of
certain current management of ITCO and CPW. Although the Company intends to
retain such employees, substantially all of whom have employment contracts with
the Company, there can be no assurance that such individuals will remain with
the Company. The Company has no key person life insurance policies with respect
to any of its senior executives.
SEASONALITY
Demand for tires tends to fluctuate from quarter to quarter, with the
highest demand generally from March through October of each calendar year and
the lowest demand typically from November through February of each calendar
year. In addition, the popularity, supply and demand for particular tire
products may change from year to year based on consumer confidence, the volume
of tires reaching the replacement tire market, the level of personal
discretionary income and other factors. Local economic, weather, transportation
and other conditions also affect the volume of tire sales, on both a wholesale
and retail basis.
LIMITATIONS ON REPURCHASES OF NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined in the Indenture),
the holders of the Notes have the right to require the Issuer to offer to
purchase all of the outstanding Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the date of purchase. There
can be no assurance that the Issuer will have sufficient funds available or will
be permitted by its other debt agreements to purchase the Notes upon the
occurrence of a Change of Control. In addition, the occurrence of a Change of
Control may require the Issuer to offer to purchase other outstanding
indebtedness and may cause a default under the New Credit Facility. The
inability to purchase all of the tendered Notes would constitute an Event of
Default (as defined) under the Indenture. See "Description of the New
Notes -- Change of Control."
FRAUDULENT CONVEYANCE STATUTES
Each of the Issuer and the Subsidiary Guarantors believes that the
indebtedness incurred by the Issuer in connection with the issuance of the Notes
and the Subsidiary Guaranties given by the Subsidiary Guarantors are being
incurred for proper purposes and in good faith and that, based on present
forecasts, asset valuations and other financial information, the Issuer and each
Subsidiary Guarantor is, after the consummation of the Transactions was, and
after the consummation of the Exchange Offer will be, solvent, will have
sufficient
18
<PAGE> 22
capital for carrying on its business and will be able to pay its debts as they
mature. However, if a court of competent jurisdiction were to find that the
Issuer or such Subsidiary Guarantor did not receive fair consideration or
reasonably equivalent value for incurring such indebtedness or obligation
(including any guarantee thereof) and, at the time of such incurrence, the
Issuer or such Subsidiary Guarantor (i) was insolvent, (ii) was rendered
insolvent by reason of such incurrence or the acquisition of the New Businesses,
(iii) was engaged in a business or transaction for which the assets remaining in
the Issuer or such Subsidiary Guarantor, as the case may be, constituted
unreasonably small capital, or (iv) intended to incur or believed it would incur
debts beyond its ability to pay such debts as they mature, such court, subject
to applicable statutes of limitation, could, among other things, (a) invalidate,
in whole or in part, such indebtedness and obligation (including any guarantee
thereof) as fraudulent conveyances, the effect of which could be that the
holders of the Notes may not be repaid in full, and/or (b) subordinate such
indebtedness and obligation (including any guarantee thereof) to existing or
future creditors of the Issuer or such Subsidiary Guarantor, as the case may be,
the effect of which would be to entitle such other creditors to be paid in full
before any payment could be made on the Notes. If a court were to find that the
Issuer or any Subsidiary Guarantor, as the case may be, satisfied the measures
of insolvency or capital inadequacy described in (i) through (iv) above, such
court could avoid any previous distribution by such entity in respect of such
indebtedness (including, without limitation, any payment of principal or
interest) or obligation (including any guarantee thereof) and order that it be
returned to the Issuer or such Subsidiary Guarantor, as the case may be, or to a
fund for the benefit of the creditors of such entity.
With respect to each Subsidiary Guaranty, a court may compare its estimate
of the value received by each Subsidiary Guarantor with the magnitude of its
obligation under such Subsidiary Guaranty. If the value received by the
Subsidiary Guarantor is found to be disproportionately small as compared with
its obligation under such Subsidiary Guaranty, then, to that extent, there would
be a lack of fair consideration for the giving of the Subsidiary Guaranty and if
the Subsidiary Guaranty came within any of clauses (i) through (iv) above, such
Subsidiary Guaranty could be held invalid to such extent. The obligation of each
Subsidiary Guarantor under its Subsidiary Guaranty will be limited in a manner
intended to avoid it being deemed a fraudulent conveyance under applicable law.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, the Issuer or
any of the Subsidiary Guarantors would be considered insolvent at a particular
time if the sum of its debts was then greater than all of its property at a fair
valuation or if the present fair saleable value of its assets was then less than
the amount that would be required to pay its probable liabilities on its
existing debts as they became absolute and matured. The Issuer believes, based
upon the financial information contained elsewhere in the Prospectus, the recent
operating history as discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other factors, that, after
giving effect to the issuance of the Notes and the Subsidiary Guaranties, none
of the Issuer or any of the Subsidiary Guarantors will be rendered insolvent and
each such entity will have sufficient capital for the businesses in which it is
engaged and will be able to pay its debts as they mature. While the Issuer
believes that it is and each Subsidiary Guarantor is, after the consummation of
the Transactions was, and after the consummation of the Exchange Offer will be,
solvent, there can be no assurance as to whether a court would concur with such
beliefs.
CONTROL BY PRINCIPAL STOCKHOLDERS
The Issuer's Chairperson, Ann H. Gaither, and its President and Chief
Executive Officer, William H. Gaither, own or control 71.1% of the combined
voting power of the Issuer's outstanding capital stock (including shares of
stock held by other members of the Gaither family voted under the voting trust
described in the next sentence) on a fully-diluted basis. A Voting Trust
Agreement among Ann H. Gaither and William H. Gaither and other members of their
immediate family who own shares of common stock also gives Ann H. Gaither and
William H. Gaither the right to vote such other stockholders' shares of common
stock. Consequently, Ann H. Gaither and William H. Gaither have the ability to
control the business and affairs of the Issuer by virtue of their ability to
elect a majority of the Issuer's Board of Directors and its voting power with
respect to actions requiring stockholder approval. If the Company encounters
financial difficulties, or is
19
<PAGE> 23
unable to pay certain of its debts as they mature, the interests of the
principal stockholders might conflict with those of the holders of the Notes. In
addition, the principal stockholders may have an interest in pursuing
acquisitions, divestitures or other transactions that, in their judgment, could
enhance their equity investment, even though such transactions might involve
risks to the holders of the Notes. See "Principal Stockholders."
ABSENCE OF PUBLIC MARKET
The New Notes are being offered exclusively to holders of the Old Notes.
The Old Notes were issued to a limited number of institutional investors on May
20, 1998. There is currently no established market for the New Notes. There can
be no assurance as to the liquidity of any markets that may develop for the New
Notes, the ability of the holders of the New Notes to sell their Notes or the
price at which holders would be able to sell their Notes. Future trading prices
of the New Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's operating results and the market for
similar securities. The Company does not intend to apply for listing of the New
Notes on any securities exchange.
The liquidity of, and trading market for, the New Notes may also be
materially and adversely affected by declines in the market for high yield
securities generally. Such a decline may materially and adversely affect such
liquidity and trading independent of the financial performance of, and prospects
for, the Company.
To the extent Old Notes are tendered and accepted in the Exchange Offer,
the principal amount of outstanding Old Notes will decrease with a resulting
decrease in the liquidity in the market for the Old Notes. Following the
consummation of the Exchange Offer, holders of Old Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for the Old Notes will be adversely affected. The Old Notes will continue
to be eligible for trading in PORTAL.
CONSEQUENCES OF FAILURE TO EXCHANGE
Issuance of the New Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Old Notes desiring to tender
such Old Notes in exchange for New Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of defects or
irregularities with respect to tenders of Old Notes for exchange.
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer, including holders of Old Notes whose Old Notes
are tendered but not accepted, will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon and, except in
certain limited circumstances, will no longer have any registration rights with
respect to the Old Notes. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register the Old Notes under the Securities Act.
New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold or otherwise transferred by holders thereof
(other than Restricted Holders or Participating Broker-Dealers) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such holder represents, among other things, that
such holder is not an "affiliate" of the Company or any Guarantor (as defined in
Rule 405 of the Securities Act), that such New Notes are acquired in the
ordinary course of such holder's business and that such holder is not engaged
in, and does not intend to engage in, and has no arrangement or understanding
with any person to participate in, the distribution of such New Notes. Any
holder unable to make such representations will not be able to participate in
the Exchange Offer and may only sell its Old Notes pursuant to a registration
statement and prospectus meeting the requirements of the Securities Act, or
pursuant to an exemption from the registration requirements of the Securities
Act.
Each Participating Broker-Dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that, by so acknowledging and by delivering a
20
<PAGE> 24
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. See "Plan of
Distribution." However, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available and is complied with.
To the extent that Old Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Old Notes will be
adversely affected.
FORWARD-LOOKING STATEMENTS
Certain information included in this Prospectus is forward-looking,
including statements contained in "Summary," "Risk Factors," "Unaudited Pro
Forma Condensed Combined Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business," and includes
statements regarding the intent, belief and current expectations of the Company
and its directors and officers. Such forward-looking information involves
important risks and uncertainties that could materially alter results in the
future from those expressed in any forward-looking statements made by, or on
behalf of, the Company. These risks and uncertainties include, but are not
limited to, the ability of the Company to maintain existing relationships with
long-standing vendors or customers, the ability of the Company to successfully
implement its business strategy, the ability of the Company to integrate the New
Businesses and the ability of the Company to market and sell new products and to
continue to comply with environmental laws, rules and regulations. Other risks
and uncertainties include uncertainties relating to economic conditions,
acquisitions and divestitures, government and regulatory policies, technological
developments and changes in the competitive environment in which the Company
operates. Persons reading this Prospectus are cautioned that such statements are
only predictions and that actual events or results may differ materially. In
evaluating such statements, readers should specifically consider the various
factors which could cause actual events or results to differ materially from
those indicated by such forward-looking statements, including those discussed in
"Risk Factors."
THE TRANSACTIONS
THE ITCO MERGER AND THE RECLASSIFICATION
On the Closing Date, a wholly owned subsidiary of the Issuer merged with
ITCO Logistics pursuant to an Agreement and Plan of Merger (the "ITCO Merger
Agreement") with ITCO Logistics and the stockholders of ITCO Logistics (the
"ITCO Stockholders"). The total consideration paid on the Closing Date upon
completion of the ITCO Merger to the ITCO Stockholders consisted of $18.0
million in cash and 1,400,667 newly issued shares of Class B Common Stock. In
addition, approximately $5.1 million of ITCO's total indebtedness remained
outstanding, with the balance repaid as part of the Transactions. At the Closing
Date, ITCO's long-term indebtedness was approximately $31.4 million.
The ITCO Merger Agreement contains certain representations, warranties and
covenants made by the Issuer on the one hand and the ITCO Stockholders on the
other hand. With certain limited exceptions, such representations and warranties
expire two years after the Closing Date. In general, the ITCO Merger Agreement
provides for indemnification of the Issuer by the ITCO Stockholders, and for the
indemnification of the ITCO Stockholders by the Issuer, for losses relating to
misrepresentations or breaches of such representations, warranties and
covenants. With certain limited exceptions, the ITCO Merger Agreement provides
that a party has recourse with respect to claims for indemnification only
against, in the case of indemnification claims against the ITCO Stockholders,
their shares of Class B Common Stock and, in the case of indemnification claims
against the Issuer, up to 1,400,667 newly issued shares of Class B Common Stock.
21
<PAGE> 25
In connection with the ITCO Merger, the Issuer's authorized common stock
was reclassified into shares of Class A Common Stock, $.01 par value (the "Class
A Common Stock"), and shares of Class B Common Stock (the "Reclassification").
As a result of the Reclassification, all outstanding shares of the Issuer's
common stock, and all options, warrants and other rights exercisable into or
exchangeable for the Issuer's common stock, became shares of Class A Common
Stock or became exercisable into or exchangeable for shares of Class A Common
Stock, as the case may be. The Class A Common Stock and the Class B Common Stock
have identical rights, powers and privileges, except that the shares of Class A
Common Stock are entitled to 20 votes per share and the shares of Class B Common
Stock are entitled to one vote per share, in each case, on all matters submitted
to a vote of the Issuer's stockholders.
In conjunction with the ITCO Merger, the Issuer entered into a number of
ancillary agreements with the ITCO Stockholders providing for, among other
things, (i) the granting of certain registration rights to such stockholders
with respect to the shares of Class B Common Stock that were issued to such
stockholders, (ii) the granting to such stockholders of the right to designate a
person to the Issuer's Board of Directors, (iii) certain restrictions on the
transfer of shares of Class B Common Stock that were issued to such
stockholders, (iv) certain restrictions on the Issuer selling or issuing shares
of Common Stock, or securities convertible into or exchangeable for shares of
Common Stock, at a price per share that is less than the fair market value of
such Common Stock, (v) certain limitations on transactions between the Company
and any affiliate of the Company, and (vi) the granting to the ITCO Stockholders
of the right to require the Issuer to redeem all of the outstanding shares of
Class B Common Stock that were issued to such stockholders according to an
agreed upon formula upon the occurrence of certain events or January 4, 2005, if
earlier.
THE CPW ACQUISITION
On the Closing Date, the Issuer acquired all of the outstanding shares of
Speed Merchant pursuant to a Stock Purchase Agreement (the "CPW Acquisition
Agreement") between the Issuer and the stockholders of Speed Merchant (the "CPW
Stockholders"). The total consideration payable to the CPW Stockholders in
connection with the CPW Acquisition is $45.0 million in cash, of which $35.0
million was paid on the Closing Date upon consummation of the CPW Acquisition in
exchange for the stock of Speed Merchant, $7.4 million is payable in
installments for five years after the CPW Acquisition in exchange for covenants
not to compete given by the CPW Stockholders and $2.6 million is payable in the
form of contingent payouts to the CPW Stockholders. At the request of the
Issuer, the agent under the New Credit Facility issued a letter of credit under
the New Credit Facility to be held in escrow to secure the Issuer's obligations
to make such non-compete payments. In addition, at the Closing Date,
approximately $1.0 million of CPW's long-term indebtedness was repaid.
The CPW Acquisition Agreement contains certain representations, warranties
and covenants made by the Issuer on the one hand and the CPW Stockholders on the
other hand. With certain limited exceptions, such representations and warranties
expire two years after the Closing Date. In general, the CPW Acquisition
Agreement provides for indemnification of the Issuer by the CPW Stockholders,
and for the indemnification of the CPW Stockholders by the Issuer, for losses
relating to misrepresentations or breaches of such representations, warranties
and covenants.
The CPW Acquisition Agreement provides that the purchase price payable for
the stock of Speed Merchant will be reduced dollar for dollar if Speed
Merchant's net worth or working capital as at the Closing Date falls below
certain specified amounts. An additional adjustment amount is payable by the
Issuer to the CPW Stockholders (or by the CPW Stockholders to the Issuer) if the
net earnings attributable to certain Arizona retail stores acquired by Phoenix
Racing, Inc., a wholly owned subsidiary of Speed Merchant, exceed (or fall short
of) specified targets for the year following the Closing Date.
On the Closing Date, Arthur C. Soares, the President of the Company's
Western wholesale division and a CPW Stockholder, entered into a two-year
employment agreement with the Issuer which provides for an annual base salary,
stay-put bonuses payable at the end of each year of the two-year term, a
"synergy" bonus payable at the end of the first year based on the attainment of
specified performance targets for CPW and an annual incentive and performance
bonus to be determined in the discretion of the Board of Directors of the
Issuer. On the Closing Date, Ray C. Barney, the Chief Operating Officer of the
Company's Speed Merchant
22
<PAGE> 26
subsidiary and a CPW Stockholder, entered into a three-year employment
agreement, which provides for an annual base salary, stay-put bonuses payable at
the end of each year of the three-year term, a "synergy" bonus payable at the
end of the first year based on the attainment of specified performance targets
for CPW and an annual incentive and performance bonus to be determined in the
discretion of the Board of Directors of the Issuer. Both employment agreements
contain non-compete, non-solicitation and confidentiality provisions.
FINANCING TRANSACTIONS
Financing necessary to complete the acquisition of the New Businesses and
the repayment of Heafner's outstanding subordinated debt was obtained from the
proceeds of the offering of the Old Notes on the Closing Date and amounts
outstanding under the New Credit Facility. The New Credit Facility replaced the
Old Credit Facility, under which $33.5 million was outstanding on the Closing
Date (without giving effect to the Transactions). The ITCO Facility, under which
$26.3 million was outstanding on the Closing Date, was repaid and terminated on
July 15, 1998. For purposes of the financial and other information in this
Prospectus, amounts outstanding under the Old Credit Facility and the ITCO
Facility have been treated as repaid on the Closing Date and borrowed under the
New Credit Facility on the Closing Date. The aggregate amount of commitments
under the New Credit Facility is currently $100.0 million.
Also on the Closing Date, the Issuer applied a portion of the proceeds of
the offering of the Old Notes to repay $16.0 million of subordinated debt and
$10.3 million outstanding under a term loan of the Issuer outstanding at the
Closing Date.
SOURCES AND USES OF FUNDS
The following table sets forth the approximate sources and uses of funds on
the Closing Date (amounts in thousands):
<TABLE>
<S> <C>
SOURCES OF FUNDS
New Credit Facility......................................... $ 48,054
Notes....................................................... 100,000
Assumption of indebtedness(a)............................... 11,106
Deferred payments(b)........................................ 11,390
Class B Common Stock........................................ 14,959
--------
Total Sources..................................... $185,509
========
USES OF FUNDS
ITCO Merger(c).............................................. $ 34,349
CPW Acquisition(d).......................................... 45,000
Repayment/refinancing of existing indebtedness(e)........... 87,054
Assumption of indebtedness(a)............................... 11,106
Estimated transaction fees and expenses(f).................. 8,000
--------
Total Uses........................................ $185,509
========
</TABLE>
- ---------------
(a) Represents assumption of (i) ITCO building mortgages of $2.5 million and
(ii) vendor loans and other amounts at ITCO and CPW.
(b) Includes (i) $7.4 million payable in installments over five years after the
Closing Date in exchange for certain non-compete covenants of the
stockholders of Speed Merchant, (ii) $2.6 million in other contingent
payouts to the stockholders of Speed Merchant and (iii) $1.4 million for the
exercise of stock appreciation rights by certain employees of ITCO.
(c) Includes 1,400,667 shares of Class B Common Stock appraised at approximately
$15.0 million and $1.4 million payable to holders of ITCO stock appreciation
rights.
(d) Includes the amounts described in clauses (i) and (ii) of footnote (b).
23
<PAGE> 27
(e) Represents repayment or refinancing of (i) $59.8 million of long-term
indebtedness of Heafner (including $16.0 million of subordinated debt), (ii)
$26.3 million of long-term indebtedness of ITCO and (iii) $1.0 million of
long-term indebtedness of CPW.
(f) Fees and expenses include the Initial Purchasers' (as defined) discount and
other fees and expenses of the Offering and other fees and direct expenses
incurred in connection with the Transactions, including lenders' fees
(including prepayment fees), legal fees, accounting fees and other
out-of-pocket expenses.
USE OF PROCEEDS
There will be no proceeds to the Company from any exchange pursuant to the
Exchange Offer.
24
<PAGE> 28
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Issuer on the Closing Date to Credit Suisse
First Boston Corporation and BancBoston Securities Inc. (together, the "Initial
Purchasers") who resold the Old Notes to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) in reliance upon Rule 144A under
the Securities Act. In connection therewith, the Issuer, the Subsidiary
Guarantors and the Initial Purchasers entered into the Registration Rights
Agreement.
The Issuer has agreed pursuant to the Registration Rights Agreement, for
the benefit of the holders of the Old Notes, that the Issuer will, at its cost,
(i) within 90 days after the date of original issue of the Old Notes, file a
registration statement (the "Exchange Offer Registration Statement") with the
SEC with respect to a registered offer to exchange the Old Notes for New Notes
and (ii) use its best efforts to cause the Exchange Offer Registration Statement
to be declared effective under the Securities Act within 150 days after the date
of original issue of the Old Notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Issuer will offer the New Notes in exchange for
surrender of the Old Notes. The Issuer will keep the Exchange Offer open for not
less than 20 Business Days (or longer if required by applicable law) after the
date notice of the Exchange Offer is mailed or otherwise transmitted to the
holders of the Old Notes. For each Old Note surrendered to the Issuer pursuant
to the Exchange Offer, the holder of such Old Note will receive a New Note
having a principal amount equal to that of the surrendered Old Note. Interest on
each New Note will accrue from the last interest payment date on which interest
was paid on the Old Note surrendered in exchange therefor or, if no interest has
been paid on such Old Note, from the date of its original issue.
A Holder of Old Notes (other than certain specified holders) who wishes to
exchange such Old Notes for New Notes in the Exchange Offer will be required to
represent that any New Notes to be received by it will be acquired in the
ordinary course of its business and that at the time of the commencement of the
Exchange Offer it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the New Notes and that it is not an "affiliate" of the Issuer, as defined in
Rule 405 of the Securities Act, or if it is an affiliate, that it will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable (a holder of Notes unable to make the foregoing
representation is referred to as a "Restricted Holder"). A Restricted Holder
will not be able to participate in the Exchange Offer and may only sell its Old
Notes pursuant to a registration statement containing the selling security
holder information required by Item 507 of Regulation S-K under the Securities
Act, or pursuant to an exemption from the registration requirement of the
Securities Act.
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by any holder of such New Notes (other than Restricted
Holders or Participating Broker-Dealers) without compliance with the
registration and prospectus delivery provisions of the Securities Act. Any
holder of Notes who tenders Old Notes in the Exchange Offer for the purpose of
participating in a distribution of the New Notes cannot rely on the staff
position enunciated in the no-action letters issued to third parties referred to
above and must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction.
Each Participating Broker-Dealer must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
New Notes received pursuant to the Exchange Offer. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. Based upon interpretations by the staff of the Commission,
the Company believes that New Notes issued pursuant to the Exchange Offer to
Participating Broker-Dealers may be offered for resale, resold and otherwise
transferred by a Participating Broker-Dealer upon compliance with the prospectus
delivery requirements, but without compliance with the registration
requirements, of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-
25
<PAGE> 29
making activities or other trading activities. The Company has agreed that, for
a period of 180 days after the date the Exchange Offer Registration Statement is
declared effective by the Commission, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. By acceptance of
this Exchange Offer, each broker-dealer that receives New Notes pursuant to the
Exchange Offer agrees to notify the Company prior to using this Prospectus in
connection with the sale or transfer of New Notes. See "Plan of Distribution."
As a result of the filing and the effectiveness of the Exchange Offer
Registration Statement and the consummation of the Exchange Offer, the Company's
obligation to make certain semi-annual payments with respect to the Old Notes
will be terminated. The Old Notes were issued to a limited number of
institutional investors on the Closing Date and there is no public market for
them at present. To the extent Old Notes are tendered and accepted in the
exchange, the principal amount of outstanding Old Notes will decrease with a
resulting decrease in the liquidity in the market therefor. Following the
consummation of the Exchange Offer, holders of Old Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for the Old Notes could be adversely affected.
In the event that applicable interpretations of the staff of the Commission
do not permit the Issuer to effect such an Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 180 days of the Issue Date,
or if the Initial Purchasers so request with respect to Old Notes not eligible
to be exchanged for New Notes in the Exchange Offer, or if any holder of Old
Notes is not eligible to participate in the Exchange Offer or does not receive
freely tradeable New Notes in the Exchange Offer (provided that a Participating
Broker-Dealer which has a prospectus delivery requirement with respect to New
Notes received in the Exchange Offer will not be deemed, for purposes of this
sentence, to have failed to receive freely tradeable New Notes), the Issuer
will, at its cost, (a) as promptly as practicable, file a shelf registration
statement (a "Shelf Registration Statement") covering resales of the Notes or
the New Notes, as the case may be, (b) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act and (c)
keep the Shelf Registration Statement effective until the time when the Notes
covered by the Shelf Registration Statement can be sold by non-affiliates of the
Issuer pursuant to Rule 144 without any limitations under clauses (c), (e), (f)
and (h) of Rule 144. The Issuer will, in the event a Shelf Registration
Statement is filed, among other things, provide to each holder for whom such
Shelf Registration Statement was filed copies of the prospectus which is a part
of the Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the Notes or the New Notes, as
the case may be. A holder selling such Notes or New Notes pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations).
If (i) by August 18, 1998, neither the Exchange Offer Registration
Statement nor a Shelf Registration Statement has been filed with the SEC; (ii)
by November 16, 1998, the Exchange Offer is not consummated and, if applicable,
the Shelf Registration Statement is not declared effective; or (iii) after
either the Exchange Offer Registration Statement or the Shelf Registration
Statement is declared effective, such Registration Statement thereafter ceases
to be effective or usable (subject to certain exceptions) in connection with
resales of Old Notes or New Notes in accordance with and during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (i) through (iii) a "Registration Default"), additional interest will
accrue on the applicable Old Notes and the New Notes at the rate of 0.50% per
annum from and including the date on which any such Registration Default shall
occur to but excluding the date on which all Registration Defaults have been
cured. Such interest is payable in addition to any other interest payable from
time to time with respect to the Old Notes and the New Notes; provided that such
interest shall be the sole remedy for a Registration Default.
Pursuant to the Registration Rights Agreement, the Issuer is entitled to
close the Exchange Offer 20 Business Days after the commencement thereof
provided that it has accepted all Notes theretofore validly tendered in
accordance with the terms of the Exchange Offer.
26
<PAGE> 30
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Issuer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. As of the date of this Prospectus, an aggregate of $100.0
million principal amount of the Old Notes is outstanding. The Company will issue
$1,000 principal amount at maturity of New Notes in exchange for each $1,000
principal amount at maturity of outstanding Old Notes accepted in the Exchange
Offer. Holders may tender some or all of their Old Notes pursuant to the
Exchange Offer. However, Old Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes will
have been registered under the Securities Act and therefore will not bear
legends restricting the transfer thereof. The New Notes will evidence the same
debt as the Old Notes and will be entitled to the benefits of the Indenture
under which the Old Notes were, and the New Notes will be, issued.
Holders of the Old Notes do not have any appraisal or dissenters' rights
under law or the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral (promptly confirmed in writing) or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering holders for the purpose of receiving the New Notes from
the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on ,
1998, unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral (promptly confirmed in writing) or written notice
and will make a public announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date unless otherwise required by applicable law or regulation.
The Company reserves the right, in its reasonable discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth below under "Conditions" shall not have been satisfied, to
terminate the Exchange Offer, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by a public
announcement thereof. If the Exchange Offer is amended in a manner determined by
the Company to constitute a material change, the Company will promptly disclose
such amendment by means of a prospectus
27
<PAGE> 31
supplement that will be distributed to the registered holders, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the amendment and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder of Old Notes must complete, sign and
date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
the Old Notes (or a confirmation of an appropriate book-entry transfer into the
Exchange Agent's account at DTC as described below) and any other required
documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date. To be tendered effectively, the Old Notes (or a timely
confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC as described below), Letter of Transmittal and other
required documents must be received by the Exchange Agent at the address set
forth below under "Exchange Agent" prior to 5:00 p.m., New York City time, on
the Expiration Date. The tender by a holder will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
The Exchange Agent has established an account with respect to the Old Notes
at DTC, and any financial institution which is a participant in DTC may make
book-entry delivery of the Old Notes by causing DTC to transfer such Old Notes
into the Exchange Agent's account in accordance with DTC's procedure for such
transfer. Although delivery of Old Notes may be effected through book-entry
transfer into the Exchange Agent's account at DTC, the Letter of Transmittal,
with any required signature guarantees and any other required documents, must in
any case be transmitted to and received by the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date at one of its addresses set
forth below under "Exchange Agent", or the guaranteed delivery procedure
described below must be complied with. Delivery of documents to DTC in
accordance with its procedures does not constitute delivery to the Exchange
Agent. All references in this Prospectus to deposit or delivery of Old Notes
shall be deemed to include DTC's book-entry delivery method.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent, including delivery through DTC,
is at the election and risk of the Holder. Instead of delivery by mail, it is
recommended that Holders use an overnight or hand delivery service. If Old Notes
are sent by mail, registered mail with return receipt requested, properly
insured, is recommended. In all cases, sufficient time should be allowed to
assure delivery to the Exchange Agent before the Expiration Date. No Letter of
Transmittal or Old Notes should be sent to the Company.
Holders may request their respective brokers, dealers, commercial banks,
trust companies or nominees to effect the above transactions for such holders.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Old Notes, either make appropriate arrangements to register ownership of
the Old Notes in such owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
28
<PAGE> 32
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders
(or, in the case of Old Notes delivered by book-entry transfer within DTC, will
be credited to the account maintained within DTC by the participant in DTC which
delivered such Old Notes), unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date or, as set forth below under "Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer.
By tendering, each holder of Old Notes will represent to the Company that,
among other things, such holder is not a Restricted Holder. In addition, each
Participating Broker-Dealer must acknowledge that it will deliver a prospectus
in connection with any resale of New Notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will establish a new account or utilize an existing
account with respect to the Old Notes at the Depository promptly after the date
of this Prospectus, and any financial institution that is a participant in the
Depository and whose name appears on a security position listing as the owner of
Old Notes may make a book-entry tender of Old Notes by causing the Depository to
transfer such Old Notes into the Exchange Agent's account in accordance with the
Depository's procedures for such transfer. However, although tender of Old Notes
may be effected through book-entry transfer into the Exchange Agent's account at
the Depository, the Letter of Transmittal (or a manually-signed facsimile
thereof), properly completed and validly executed, with any required signature
guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and any
other required documents, must, in any case, be received by the Exchange Agent
at its
29
<PAGE> 33
address set forth below under the caption "Exchange Agent" on or prior to the
Expiration Date, or the guaranteed delivery procedures described below must be
complied with. The confirmation of book-entry transfer of Old Notes into the
Exchange Agent's account at the Depository as described above is referred to
herein as a "Book-Entry Confirmation." Delivery of documents to the Depository
in accordance with the Depository's procedures does not constitute delivery to
the Exchange Agent.
The term "Agent's Message" means a message transmitted by the Depository
to, and received by, the Exchange Agent and forming a part of a Book-Entry
Confirmation, which states that the Depository has received an express
acknowledgment from the participant in the Depository tendering Old Notes
stating (i) the aggregate principal amount of Old Notes which have been tendered
by such participant, (ii) that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal and (iii) that the Company may
enforce such agreement against the participant.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes (or a
confirmation of book-entry transfer of Old Notes into the Exchange Agent's
account at DTC), the Letter of Transmittal or any other required documents to
the Exchange Agent prior to the Expiration Date or (iii) who cannot complete the
procedure for book-entry transfer on a timely basis, may effect a tender if:
(a) the tender is made by or through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of such Old Notes and the
principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within three (3) New York Stock
Exchange, Inc. trading days after the Expiration Date, a duly executed
Letter of Transmittal (or facsimile thereof) together with the Old Notes
(or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC), and any other documents required by the
Letter of Transmittal and the instructions thereto, will be deposited by
such Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), and all tendered Old Notes in proper form for transfer
(or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within three (3)
New York Stock Exchange, Inc. trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m.. New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the holder
of such Old Notes in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such Old
Notes into the name of the person withdrawing the tender and (iv) specify the
name in which any such Old Notes are to be registered, if different from that of
the Depositor. If the Old Notes have
30
<PAGE> 34
been delivered pursuant to the book-entry procedure set forth above under
"-- Procedures for Tendering," any notice of withdrawal must specify the name
and number of the participant's account at DTC to be credited with the withdrawn
Old Notes. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company in its sole
discretion, which determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no New Notes will be issued with respect
thereto unless the Old Notes so withdrawn are validly retendered. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "-- Procedures for Tendering" at any time prior to the
Expiration Date.
Any Old Notes which are tendered but which are not accepted due to
withdrawal, rejection of tender or termination of the Exchange Offer will be
returned as soon as practicable to the holder thereof without cost to such
holder (or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Old Notes will be credited
to an account maintained with such Book-Entry Transfer Facility for the Old
Notes).
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate the Exchange Offer as provided herein before the acceptance of
such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company, or
any material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its subsidiaries
has occurred which, in the reasonable judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer or materially impair the contemplated benefits of the Exchange Offer
to the Company; or
(c) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in the reasonable judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company; or
(d) there shall have occurred (i) any general suspension of trading
in, or general limitation on prices for, securities on the New York Stock
Exchange, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation by any
governmental agency or authority that adversely affects the extension of
credit to the Company or (iii) a commencement of war, armed hostilities or
other similar international calamity directly or indirectly involving the
United States; or, in the event that any of the foregoing exists at the
time of commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(e) any governmental approval has not been obtained, which approval
the Company shall in its reasonable judgment deem necessary, for the
consummation of the Exchange Offer as contemplated hereby.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering holders thereof (or, in the
case of Old Notes delivered by book-entry transfer within DTC, credit such Old
Notes to the account maintained within DTC by the participant in DTC which
delivered such Notes), (ii) extend the Exchange Offer and retain all Old Notes
tendered prior to the expiration of the Exchange Offer, subject,
31
<PAGE> 35
however, to the rights of holders thereof to withdraw such tenders of Old Notes
(see "Withdrawal of Tenders" above) or (iii) waive such unsatisfied conditions
with respect to the Exchange Offer and accept all properly tendered Old Notes
which have not been withdrawn. If such waiver constitutes a material change to
the Exchange Offer, the Company will promptly disclose such waiver by means of a
prospectus supplement that will be distributed to the registered holders of
Notes, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders of Notes, if the Exchange Offer would
otherwise expire during such five to ten business day period.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notices of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
The Chase Manhattan Bank, Exchange Agent
<TABLE>
<S> <C>
By Mail, Hand or Overnight Courier: Facsimile Transmission Number
55 Water Street (Eligible Institutions only):
Room 234, North Building (212) 638-7375 or
New York, New York 10041 (212) 344-9367
Attention: Carlos Esteves
To Confirm Facsimile
(If by Mail, Registered or or for Information Call
Certified Mail Recommended) (212) 638-0828
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by facsimile, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for services and will reimburse it
for its reasonable out-of-pocket expenses in connection therewith and will pay
the reasonable fees and expenses of one firm acting as counsel for the holders
of Old Notes should such holders deem it advisable to appoint such counsel.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, New Notes or Old Notes
for principal amounts not tendered or accepted for exchange are to be
registered, or are to be issued in the name of, or delivered to, any person
other than the registered holder, or if tendered Old Notes are registered in the
name of any person other than the person signing the Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by the Company. The expenses of the Exchange Offer
and the unamortized expenses relating to the issuance of the Old Notes will be
amortized over the term of the New Notes.
32
<PAGE> 36
CAPITALIZATION
The following table sets forth, as of December 31, 1997, and June 30, 1998,
the consolidated capitalization of Heafner and the Company, respectively. This
table should be read in conjunction with the consolidated financial statements
of Heafner and the New Businesses and the related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
HEAFNER COMPANY
----------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 2,502 $ 3,879
Long-term debt, including current maturities:
Old Credit Facility....................................... $31,949 $ --
New Credit Facility....................................... -- 54,305
10% Senior Notes Due 2008................................. -- 100,000
Vendor loans.............................................. 5,654 11,038
Other debt................................................ 27,055 5,522
------- --------
Total debt........................................ 64,658 170,865
------- --------
Stockholders' equity:
Preferred Stock Series A -- 4% cumulative, $.01 par value,
7,000 shares authorized, 7,000 shares issued........... 7,000 7,000
Preferred Stock Series B -- variable rate cumulative, $.01
par value, 4,500 shares authorized, 4,500 shares
issued................................................. 4,500 4,500
Class A Common Stock, $.01 par value, 10,000,000 shares
authorized; 3,691,000 shares issued at December 31,
1997 and June 30, 1998(a).............................. 37 37
Class B Common Stock, $.01 par value, 1,400,667 shares
authorized; no shares issued at December 31, 1997;
1,400,667 shares issued at June 30, 1998............... -- 14
Warrants.................................................. 1,137 1,137
Additional paid-in capital................................ 7,256 22,200
Notes receivable from stock sales......................... (248) (177)
Retained earnings (deficit)............................... 614 (3,000)
------- --------
Total stockholders' equity........................ 20,296 31,711
------- --------
Total capitalization.............................. $84,954 $206,455
======= ========
</TABLE>
- ---------------
(a) Gives effect to the Reclassification as if it had occurred as of December
31, 1997, and excludes 1,034,000 shares issuable upon exercise of warrants
and 256,000 shares issuable upon exercise of options.
33
<PAGE> 37
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL DATA
The following unaudited pro forma condensed combined statement of
operations ("Pro Forma Statement of Operations") for the year ended December 31,
1997 has been derived by the application of pro forma adjustments to the
historical statements of operations of Heafner, Winston, ITCO and CPW which are
included elsewhere in this Prospectus. The historical accounts of ITCO for the
year ended September 30, 1997, and the historical accounts of CPW for the year
ended October 31, 1997, have been derived from the audited financial statements
included elsewhere in this Prospectus. The unaudited Pro Forma Statement of
Operations for the six months ended June 30, 1998, includes the unaudited
condensed consolidated statement of operations for the six months ended June 30,
1998 for the Company, and the unaudited condensed statements of operations for
the five months ended May 20, 1998 and May 31, 1998, for ITCO and CPW,
respectively. The unaudited Pro Forma Statements of Operations for the year
ended December 31, 1997, and for the six months ended June 30, 1998, give effect
to the Winston acquisition and the Transactions as if they had all occurred on
January 1, 1997.
The pro forma adjustments are described in the accompanying notes and are
based upon available information and certain assumptions that the Company
believes are reasonable, including assumptions relating to the preliminary
allocation of the consideration paid in connection with the ITCO Merger and CPW
Acquisition to the assets and liabilities of the New Businesses based on
estimates of their respective fair values. The actual purchase price allocation
may differ from that reflected in the Pro Forma Statements of Operations.
The unaudited Pro Forma Statements of Operations do not purport to
represent what the Company's results would have been if the Winston acquisition
and the Transactions had occurred on the date or for the periods indicated, or
to project what the Company's results of operations for any future period or
date will be. The unaudited Pro Forma Statements of Operations should be read in
conjunction with "Selected and Historical and Unaudited Financial Data of
Heafner," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Financial Statements of Heafner, Winston, ITCO
and CPW, and notes thereto included elsewhere in this Prospectus.
34
<PAGE> 38
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA (NOTE 3)
----------------------------------- ---------------------------------------
ITCO CPW ACQUISITION FINANCING
HEAFNER (5/20/98) (5/31/98) ADJUSTMENTS ADJUSTMENTS PRO FORMA
6/30/98 (5 MONTHS) (5 MONTHS) (NOTE 1) (NOTE 2) COMBINED
-------- ---------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................ $243,179 $149,123 $60,964 $453,266
Cost of goods sold....... 182,131 126,920 44,411 $ 1,235(a) 354,697
-------- -------- ------- --------- --------
Gross profit........ 61,048 22,203 16,553 (1,235) 98,569
General, selling and
administrative
expenses............... 55,462 17,531 13,484 (1,900)(b) 84,577
Amortization expense..... 1,800 375 -- 3,397(c) 5,572
-------- -------- ------- --------- --------
Income from operations... 3,786 4,297 3,069 (2,732) 8,420
OTHER EXPENSE:
Interest expense,
net................. 4,286 1,526 212 247(d) $ 2,031(d) 8,302
Other expense, net..... 204 -- 50 254
-------- -------- ------- --------- ------- --------
Total nonoperating
expense........... 4,490 1,526 262 247 2,031 8,556
-------- -------- ------- --------- ------- --------
Income (loss) before
income taxes........... (704) 2,771 2,807 (2,979) (2,031) (136)
Provision (benefit) for
income taxes........... (277) 1,179 1,125 (368)(e) (808)(e) 851
-------- -------- ------- --------- ------- --------
Net income (loss)
before extraordinary
item................ $ (427)(h) $ 1,592 $ 1,682 $ (2,611) $(1,223) $ (987)
======== ======== ======= ========= ======= ========
OTHER DATA:
Depreciation and
amortization........ 4,029 1,065 246 3,397 8,737
EBITDA(f).............. 7,291 5,362 3,265 665 16,583
Capital expenditures... 1,908 292 338 2,538
Ratio of earnings to
fixed charges(g).... -- 2.2x 5.2x --
</TABLE>
35
<PAGE> 39
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ACQUISITIONS PRO FORMA (NOTE 4)
---------- ------------------------------------- ---------------------------------------
ACQUISITION FINANCING
HEAFNER WINSTON ITCO CPW ADJUSTMENTS ADJUSTMENTS PRO FORMA
12/31/97 (4 MONTHS) (9/30/97) (10/31/97) (NOTE 1) (NOTE 2) COMBINED
---------- ---------- --------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $311,839 $44,504 $351,996 $122,410 $830,749
Cost of goods sold........... 233,941 27,475 301,970 98,289 $(2,340)(a) 659,335
-------- ------- -------- -------- ------- --------
Gross profit............... 77,898 17,029 50,026 24,121 2,340 171,414
General, selling and
administrative expenses.... 72,893 16,788 46,995 20,087 (6,233)(b) 150,530
Amortization expense......... 1,548 -- 872 -- 7,666(c) 10,086
-------- ------- -------- -------- ------- --------
Income from operations....... 3,457 241 2,159 4,034 907 10,798
OTHER (INCOME) EXPENSE:
Interest expense (income),
net...................... 4,842 (165) 3,710 156 286(d) $ 5,958(d) 14,787
Other expense (income),
net...................... (1,132) 424 340 67 (301)
-------- ------- -------- -------- ------- ------- --------
Total nonoperating
expense................ 3,710 259 4,050 223 286 5,958 14,486
-------- ------- -------- -------- ------- ------- --------
Income (loss) before income
taxes...................... (253) (18) (1,891) 3,811 621 (5,958) (3,688)
Provision (benefit) for
income taxes............... (239) (7) (452) 1,531 2,223(e) (2,375)(e) 681
-------- ------- -------- -------- ------- ------- --------
Net income (loss).......... $ (14) $ (11) $ (1,439) $ 2,280 $(1,602) $(3,583) $ (4,369)
======== ======= ======== ======== ======= ======= ========
OTHER DATA:
Depreciation and
amortization............. $ 5,399 $ 632 $ 2,493 $ 484 $ 7,953 $ 16,961
EBITDA(f).................. 9,988 449 4,312 4,451 8,860 28,060
Capital expenditures....... 4,908 373 1,188 3,489 9,958
Ratio of earnings to fixed
charges(g)............... -- -- -- 3.9x --
</TABLE>
36
<PAGE> 40
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
NOTE 1: ACQUISITIONS
Following is a description of the ITCO Merger, the CPW Acquisition and the
Winston Acquisition which are reflected in the accompanying unaudited Pro Forma
Statements of Operations:
ITCO Merger
The ITCO Merger occurred on May 20, 1998. The ITCO Merger has been
accounted for as a purchase, with the excess of the purchase price over the fair
value of the net assets acquired allocated to goodwill, which is being amortized
over 15 years.
A summary of the purchase price and related preliminary purchase allocation
follows:
AGGREGATE PURCHASE PRICE
<TABLE>
<S> <C>
Cash paid to holders of ITCO common and preferred stock..... $18,000
Appraised value of Class B Common Stock issued in connection
with the ITCO Merger (1,400,667 shares at $10.68 per
share).................................................... 14,959
Severance, facility closing expenses and other exit costs
incurred in connection with the ITCO Merger............... 4,380(a)
Amount payable upon settlement of ITCO stock appreciation
rights.................................................... 1,390
Financial advisors, accounting, legal and other direct
acquisition costs......................................... 929
-------
Aggregate purchase price.................................. $39,658
=======
</TABLE>
PRELIMINARY ALLOCATION OF PURCHASE PRICE
<TABLE>
<S> <C>
Aggregate purchase price.................................... $39,658
Less net book value of assets acquired.................... (7,152)
-------
Excess of cost over net book value of assets acquired....... 32,506
Adjustments to record assets and liabilities at fair market
value:
Property and equipment.................................... (153)
Deferred tax asset........................................ (1,944)(b)
Goodwill (historical)..................................... 13,963
Accrued expenses.......................................... 644
-------
Total adjustments...................................... 12,510
-------
Goodwill.................................................. $45,016(c)(d)
=======
</TABLE>
- ---------------
(a) Reflects exit costs incurred in connection with the ITCO Merger in
accordance with EITF 95-3, "Recognition of Liabilities in Connection with a
Purchase Business Combination."
(b) Represents a deferred tax asset related to the temporary difference between
the financial statement carrying amount and the tax basis of certain
liabilities recorded in the opening balance sheet at an assumed income tax
rate of 40%.
(c) Upon completion of its determination of fair values, Heafner may identify
other intangible assets to which a portion of the purchase price will be
allocated. The Company believes that the amortization period for such
identifiable intangible assets will be up to 15 years.
37
<PAGE> 41
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS -- (CONTINUED)
(d) For purposes of the accompanying Pro Forma Statements of Operations,
goodwill resulting from the ITCO Merger will not be deductible for income
tax reporting purposes.
CPW Acquisition
On May 20, 1998, Heafner acquired the common stock of CPW. The CPW
Acquisition has been accounted for as a purchase, with the excess of the
purchase price over the fair value of the net assets acquired allocated to
goodwill, which is being amortized over 15 years.
A summary of the purchase price and related preliminary purchase allocation
follows:
AGGREGATE PURCHASE PRICE
<TABLE>
<S> <C>
Cash paid to CPW Stockholders............................... $35,000
Amount payable for non-compete agreement and other deferred
payments.................................................. 10,000
Repayment of long-term indebtedness......................... 976
Severance, facility closing expenses and other costs
incurred in connection with the CPW Acquisition........... 862(a)
Financial, accounting, legal and other direct acquisition
costs..................................................... 633
-------
Aggregate purchase price.................................. $47,471
=======
</TABLE>
PRELIMINARY ALLOCATION OF PURCHASE PRICE
<TABLE>
<S> <C>
Aggregate purchase price.................................... $47,471
Less net book value of assets acquired.................... (9,472)
-------
Excess of cost over net book value of assets acquired....... 37,999
Less adjustments to record assets and liabilities at fair
market value:
Inventory................................................. 1,018
Other current assets...................................... (22)
Non-compete agreement and other deferred payments......... (10,000)
Other assets.............................................. 267(b)
Deferred tax asset........................................ (1,353)
Accounts payable.......................................... 276
Accrued expenses.......................................... 971
-------
Total adjustments...................................... (8,843)
-------
Goodwill.................................................. $29,156(d)
=======
</TABLE>
- ---------------
(a) Reflects exit costs incurred in connection with the CPW Acquisition in
accordance with EITF 95-3, "Recognition of Liabilities in Connection with a
Purchase Business Combination."
(b) Upon completion of its determination of fair values, the Company may
identify other intangible assets to which a portion of the purchase price
will be allocated. The Company believes that the amortization period for
such identifiable intangible assets will be up to 15 years.
(c) Represents a deferred tax asset related to the temporary difference between
the financial statement carrying amount and the tax basis of certain
liabilities recorded in the opening balance sheet at an assumed income tax
rate of 40%.
(d) For purposes of the accompanying Pro Forma Statements of Operations,
goodwill resulting from the CPW Acquisition will not be deductible for
income tax purposes.
38
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS -- (CONTINUED)
Winston Acquisition
On May 7, 1997, the Company acquired all of the outstanding common stock of
Winston for approximately $43,133. The acquisition was accounted for as a
purchase and accordingly, the operating results of Winston have been included in
the Company's consolidated statement of operations since May 7, 1997.
Accordingly, management adjusted, on a pro forma basis, the historical accounts
for Winston based upon its actual results of operations for the year ended
December 31, 1997.
NOTE 2: FINANCING TRANSACTIONS
These represent adjustments for the Offering of the Notes and the New
Credit Facility.
NOTE 3: PRO FORMA ADJUSTMENTS -- CONDENSED COMBINED STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 1998
The following pro forma adjustments have been applied to the unaudited
statement of operations for the six months ended June 30, 1998, for Heafner and
for the five months ended May 20, 1998 and May 31, 1998, for ITCO and CPW,
respectively, to reflect the ITCO Merger, the CPW Acquisition and the Financing
Transactions (Note 2) as if they had all occurred on January 1, 1997.
(a) To reflect CPW vendor rebate programs.
(b) To reflect the reduction in selling, general and administrative
expenses of ITCO corporate offices and other administrative expenses to be
eliminated upon the ITCO Merger.
(c) Amortization Expense -- To reflect adjustments to record the
following:
<TABLE>
<CAPTION>
ACQUISITIONS
------------
<S> <C>
Amortization of ITCO goodwill............................... $1,250(1)
To eliminate ITCO historical goodwill....................... (285)
To eliminate ITCO other intangibles amortization............ (78)
Amortization of CPW goodwill................................ 810(1)
Amortization of CPW non-compete covenants and other deferred
payments.................................................. 1,700(2)
------
Total..................................................... $3,397
======
</TABLE>
- ---------------
(1) ITCO and CPW goodwill is being amortized over 15 years and is assumed to be
non-deductible for tax reporting purposes.
(2) The noncompete covenants and other deferred payments are being amortized
over the terms of the related agreements with the related amortization
expense assumed to be deductible for tax reporting purposes.
39
<PAGE> 43
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS -- (CONTINUED)
(d) Interest Expense -- To reflect adjustments to record the
following:
<TABLE>
<CAPTION>
ACQUISITIONS FINANCING
------------ ---------
<S> <C> <C>
To record interest expense on notes payable to CPW
stockholders for noncompete agreements............... $247
Increase interest expense related to Notes issued in
Offering at an assumed interest rate of 10.0% per
annum................................................ $4,167
Increase in interest expense related to New Credit
Facility at an assumed interest rate of 7.5% per
annum................................................ 1,802
Increase in amortization of deferred financing costs
incurred related to the Offering of $4,710........... 196
Increase in amortization of deferred financing costs
incurred related to the New Credit Facility of
$1,727............................................... 144
To eliminate historical interest expense for long-term
debt to be repaid from the Offering proceeds......... (4,030)
To eliminate Heafner historical amortization expense on
discount on long term debt to be repaid from the
Offering proceeds.................................... (66)
To eliminate historical amortization of deferred
financing costs on Heafner's existing credit facility
to be repaid......................................... (182)
---- ------
Total................................................ $247 $2,031
==== ======
</TABLE>
(e) Income Taxes -- To reflect adjustments to record the following:
<TABLE>
<CAPTION>
ACQUISITIONS FINANCING
------------ ---------
<S> <C> <C>
Income tax benefit attributable to ITCO Merger and CPW
Acquisition adjustments.............................. $(368)
Income tax benefit attributable to Financing
adjustments.......................................... $(808)
----- -----
Total................................................ $(368) $(808)
===== =====
</TABLE>
The income tax benefit has been adjusted to reflect the income tax effects
of pro forma adjustments based upon an assumed 40% tax rate.
Net deferred tax assets and liabilities related to the temporary
differences between the financial statement carrying amount and the tax basis of
the acquired assets and liabilities has been recorded at an assumed income tax
rate of 40% for the years in which those differences are expected to be
recovered or settled.
(f) EBITDA -- Represents net income plus income taxes, depreciation,
amortization and interest expense. EBITDA is presented because it is a
widely accepted financial indicator of a company's ability to service or
incur indebtedness. However, EBITDA should not be considered an alternative
to net income as a measure of operating results or to cash flows from
operations as a measure of liquidity in accordance with generally accepted
accounting principles.
(g) Ratio of Earnings to Fixed Charges -- In calculating the ratio of
earnings to fixed charges, earnings consist of income before income taxes
plus fixed charges. Fixed charges consist of interest expense (which
includes amortization of deferred financing costs) whether expensed or
capitalized and one-third of rental expense, deemed representative of that
portion of rental expense estimated to be attributable to interest. For the
periods shown for Heafner and combined pro forma earnings were insufficient
to cover fixed charges by $704 and $136, respectively.
(h) Net income (loss) before extraordinary item excludes a $1,409
nonrecurring restructuring charge and the related tax benefit of $559.
40
<PAGE> 44
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS -- (CONTINUED)
NOTE 4: PRO FORMA ADJUSTMENTS -- CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
The following pro forma adjustments have been applied to the accompanying
historical statements of operations for Heafner, Winston, ITCO and CPW to
reflect the ITCO Merger, the CPW Acquisition and the acquisition of Winston
(Note 1) and the Financing Transactions (Note 2) as if they had all occurred on
January 1, 1997:
(a) To reflect CPW vendor rebate programs.
(b) Selling, general, and administrative expenses -- To reflect
adjustments to record the following:
<TABLE>
<CAPTION>
ACQUISITIONS
------------
<S> <C>
Additional depreciation expense in connection with the
write-up of Winston property and equipment to fair
value..................................................... $ 287
Elimination of duplicate corporate selling, general and
administrative expenses of ITCO corporate offices and
other administrative expenses to be eliminated upon the
ITCO Merger............................................... (3,800)
Full year effect of a reduction of selling, general and
administrative expenses related to the elimination of ITCO
field staff personnel made during fiscal 1997............. (2,720)
-------
Total............................................. $(6,233)
=======
</TABLE>
(c) Amortization Expense -- To reflect adjustments to record the
following:
<TABLE>
<CAPTION>
ACQUISITIONS
------------
<S> <C>
Amortization of Winston goodwill prior to May 7, 1997....... $ 812
Amortization of ITCO goodwill............................... 3,001(1)
To eliminate ITCO historical goodwill amortization.......... (684)
To eliminate amortization of other intangibles -- ITCO...... (187)
Amortization of CPW goodwill................................ 1,944(1)
Amortization of CPW non-compete covenants and other deferred
payments.................................................. 2,780(2)
------
Total..................................................... $7,666
======
</TABLE>
- ---------------
(1) ITCO and CPW goodwill is being amortized over 15 years and is assumed to be
non-deductible for tax reporting purposes.
(2) The noncompete covenants and other deferred payments are being amortized
over the terms of the related agreements with the related amortization
expense assumed to be deductible for tax reporting purposes.
41
<PAGE> 45
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS -- (CONTINUED)
(d) Interest Expense -- To reflect adjustments to record the
following:
<TABLE>
<CAPTION>
ACQUISITIONS FINANCING
------------ ---------
<S> <C> <C>
To record interest expense on notes payable to CPW
stockholders for noncompete agreements............... $ 592
To eliminate historical interest expense related to
Winston prior to May 7, 1997......................... (306)
Increase interest expense related to Notes issued in
Offering at an assumed interest rate of 10.0% per
annum................................................ $10,000
Increase in interest expense related to New Credit
Facility at an assumed interest rate of 7.5% per
annum................................................ 3,604
Increase in amortization of deferred financing costs
incurred related to the Offering of $4,710........... 471
Increase in amortization of deferred financing costs
incurred related to the New Credit Facility of
$1,727............................................... 345
To eliminate historical interest expense for long-term
debt to be repaid from the Offering proceeds......... (8,065)
To eliminate Heafner historical amortization expense on
discount on long term debt to be repaid from the
Offering proceeds.................................... (106)
To eliminate historical amortization of deferred
financing costs on Heafner's existing credit facility
to be repaid......................................... (291)
------ -------
Total................................................ $ 286 $ 5,958
====== =======
</TABLE>
(e) Income Taxes -- To reflect adjustments to record the following:
<TABLE>
<CAPTION>
ACQUISITIONS FINANCING
------------ ---------
<S> <C> <C>
Income tax provision attributable to ITCO Merger and
CPW Acquisition adjustments.......................... $2,227
Income taxes of Winston prior to May 7, 1997........... (4)
Income tax benefit attributable to Financing
adjustments.......................................... $(2,375)
------ -------
Total................................................ $2,223 $(2,375)
====== =======
</TABLE>
The income tax provision (benefit) has been adjusted to reflect the
income tax effects of pro forma adjustments based upon an assumed 40% tax
rate.
Net deferred tax assets and liabilities related to the temporary
differences between the financial statement carrying amount and the tax
basis of the acquired assets and liabilities has been recorded at an
assumed income tax rate of 40% for the years in which those differences are
expected to be recovered or settled.
(f) EBITDA -- Represents net income plus income taxes, depreciation,
amortization and interest expense. EBITDA is presented because it is a
widely accepted financial indicator of a company's ability to service or
incur indebtedness. However, EBITDA should not be considered an alternative
to net income as a measure of operating results or to cash flows from
operations as a measure of liquidity in accordance with generally accepted
accounting principles.
(g) Ratio of Earnings to Fixed Charges -- In calculating the ratio of
earnings to fixed charges, earnings consist of income before income taxes
plus fixed charges. Fixed charges consist of interest expense (which
includes amortization of deferred financing costs) whether expensed or
capitalized and one-third of rental expense, deemed representative of that
portion of rental expense estimated to be attributable to interest. For the
periods shown for Heafner, Winston, ITCO and combined pro forma earnings
were insufficient to cover fixed charges by $253, $18, $1,891 and $3,688
respectively.
42
<PAGE> 46
SELECTED HISTORICAL FINANCIAL DATA
HEAFNER
The following table sets forth selected historical consolidated financial
data of Heafner for the periods indicated. The selected historical financial
data as of and for the years ended December 31, 1993 through 1997 are derived
from the historical consolidated financial statements of Heafner as of and for
the years ended December 31, 1993 through 1997 which have been audited by Arthur
Andersen LLP, independent certified public accountants. The consolidated
financial statements of Heafner for each of the years in the three-year period
ended December 31, 1997 are included elsewhere in this Prospectus. The selected
historical financial data for the six months ended June 30, 1997 and 1998 have
been derived from financial statements that are included elsewhere herein which
are unaudited but which, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments except as otherwise described
therein, necessary for fair presentation of the financial position and results
of operations for such period. The following selected historical consolidated
financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of Heafner and the related notes included
elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1993 1994 1995 1996 1997(A) 1997(A) 1998(B)
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales.................. $157,603 $161,786 $169,031 $190,535 $311,839 $127,377 $243,179
Costs of goods sold........ 131,837 134,625 140,811 158,880 233,941 99,677 182,131
-------- -------- -------- -------- -------- -------- --------
Gross profit............... 25,766 27,161 28,220 31,655 77,898 27,700 61,048
Selling, general and
administrative
expenses................. 24,384 25,420 26,584 29,660 74,441 26,128 57,262
-------- -------- -------- -------- -------- -------- --------
Income from operations..... 1,382 1,741 1,636 1,995 3,457 1,572 3,786
Interest and other expense,
net...................... 227 520 946 944 3,710 1,687 5,899
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations before benefit
for income taxes and
extraordinary charge..... 1,155 1,221 690 1,051 (253) (115) (2,113)
Benefit for income taxes... -- -- -- -- (239) (49) (837)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) from
operations before
extraordinary charge..... 1,155 1,221 690 1,051 (14) (66) (1,276)
Extraordinary charge....... -- -- -- -- -- -- 2,198
-------- -------- -------- -------- -------- -------- --------
Net income (loss).......... $ 1,155 $ 1,221 $ 690 $ 1,051 $ (14) $ (66) $ (3,474)
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
Depreciation and
amortization............. $ 1,380 $ 1,232 $ 1,062 $ 1,331 $ 5,399 $ 1,551 $ 4,029
EBITDA(c).................. 3,316 3,352 3,060 3,848 9,988 3,108 3,684
Capital expenditures....... 1,422 1,687 2,205 7,865 4,908 2,849 1,905
Ratio of earnings to fixed
charges(d)............... 1.9x 1.9x 1.4x 1.5x -- -- --
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............ $ 18,807 $ 16,957 $ 19,148 $ 16,913 $ 20,582 $ 19,905 $ 42,023
Total assets............... 49,609 44,844 55,458 59,551 146,508 149,390 411,368
Total debt................. 14,304 12,515 15,632 21,003 64,658 67,072 170,864
Stockholders' equity....... 11,306 11,640 11,719 11,574 20,296 20,424 31,711
</TABLE>
43
<PAGE> 47
- ---------------
(a) In May 1997, Heafner acquired Winston. The transaction was accounted for
using the purchase method of accounting.
(b) In May 1998, the ITCO Merger and the CPW Acquisition occurred. Each
transaction was accounted for using the purchase method of accounting.
(c) EBITDA represents net income plus income taxes, depreciation and
amortization and interest expense. EBITDA is presented because it is a
widely accepted financial indicator of a company's ability to service or
incur indebtedness. However, EBITDA should not be considered an alternative
to net income as a measure of operating results or to cash flows from
operations as a measure of liquidity in accordance with generally accepted
accounting principles.
(d) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense (which includes amortization of deferred financing costs
and debt issuance cost) and one-third of rental expense, deemed
representative of that portion of rental expense estimated to be
attributable to interest. For the year ended December 31, 1997 and the six
months ended June 30, 1997 and 1998, earnings were insufficient to cover
fixed charges by $253,000, $115,000 and $2.1 million.
44
<PAGE> 48
WINSTON
The following table sets forth selected historical financial data of
Winston for the periods indicated. The selected historical data as of and for
the years ended September 30, 1993 through 1996 are derived from the historical
consolidated financial statements of Winston as of and for the years ended
September 30, 1993 through 1996 which have been audited by Deloitte & Touche
LLP, independent certified public accountants. The selected historical financial
data for the six months ended March 31, 1996 and 1997 have been derived from
financial statements that are included elsewhere herein which are unaudited but
which, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for such period. The consolidated financial
statements of Winston for each of the years in the three year period ended
September 30, 1996 are included elsewhere in this Prospectus. The following
selected historical financial information should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of Winston and the related notes
included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED SEPTEMBER 30, MARCH 31,
----------------------------------------- -----------------
1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales..................... $147,053 $134,921 $135,593 $143,070 $68,634 $67,846
Cost of goods sold............ 82,965 78,876 78,783 83,542 40,029 39,023
-------- -------- -------- -------- ------- -------
Gross profit.................. 64,088 56,045 56,810 59,528 28,605 28,823
Selling, general and
administrative expenses.... 63,489 56,323 56,068 58,388 28,632 29,159
-------- -------- -------- -------- ------- -------
Income (loss) from
operations................. 599 (278) 742 1,140 (27) (336)
Interest and other expense.... 313 385 535 675 363 447
-------- -------- -------- -------- ------- -------
Income (loss) before income
taxes...................... 286 (663) 207 465 (390) (783)
Income taxes (benefit)........ 7 -- 3 11 -- --
Minority interest in earnings
of subsidiary(a)........... 221 (16) -- -- -- --
-------- -------- -------- -------- ------- -------
Net income (loss)............. $ 58 $ (647) $ 204 $ 454 $ (390) $ (783)
======== ======== ======== ======== ======= =======
OTHER DATA:
Depreciation and
amortization............... $ 2,868 $ 2,753 $ 2,338 $ 2,130 $ 1,088 $ 1,144
EBITDA(b)..................... 3,467 2,475 3,080 3,270 1,061 808
Capital expenditures.......... 1,501 1,394 2,319 2,149 989 888
Ratio of earnings to fixed
charges(c)................. 1.1x -- 1.1x 1.1x -- --
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............... $ (1,572) $ (3,288) $ (1,021) $ (575) $ (810) $(1,404)
Total assets.................. 41,802 37,714 39,587 38,844 36,359 36,886
Total debt(d)................. 2,581 3,658 7,568 8,279 7,181 10,070
Stockholders' equity.......... 6,620 4,201 4,405 4,359 4,015 3,576
</TABLE>
- ---------------
(a) Prior to June 1, 1994, Winston had a 79% ownership in a subsidiary, Winston
Indemnity, Ltd., which was a captive insurance company based in Bermuda and
provided workers' compensation insurance solely for Winston employees. The
consolidated financial statements for the years ended September 30, 1993 and
1994 include the accounts of Winston and its 79% owned subsidiary. All
significant intercompany transactions and balances have been eliminated.
45
<PAGE> 49
(b) EBITDA represents net income plus income taxes, depreciation and
amortization and interest expense, net and minority interest in earnings of
subsidiary. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service or incur indebtedness. However,
EBITDA should not be considered an alternative to net income as a measure of
operating results or to cash flows from operations as a measure of liquidity
in accordance with generally accepted accounting principles.
(c) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense (which includes amortization of deferred financing costs
and debt issuance cost) and one-third of rental expense, deemed
representative of that portion of rental expense estimated to be
attributable to interest. For the year ended September 30, 1994 and the six
month periods ended March 31, 1996 and 1997, earnings were insufficient to
cover fixed charges by $663,000, $390,000 and $783,000, respectively.
(d) Excludes all related party debt and certain amounts representing ledger
balance financing arrangements with vendors that are included in accounts
payable.
46
<PAGE> 50
ITCO
The following table sets forth selected historical consolidated financial
data of ITCO for the periods indicated. The selected historical data are derived
from the historical consolidated financial statements of ITCO as of and for the
years ended October 2, 1993, October 1, 1994 and September 30, 1995 which have
been audited by Deloitte & Touche LLP, independent certified public accountants.
The remaining selected historical data is derived from the historical
consolidated financial statements of ITCO for the period from inception
(November 13, 1995) to September 30, 1996 and for the year ended September 30,
1997 which have been audited by Ernst & Young LLP, independent auditors. The
consolidated financial statements of ITCO for each of the years in the three
year period ended September 30, 1997 are included elsewhere in this Prospectus.
The selected historical financial data for the eight months ended May 31, 1997
and the period ended May 20, 1998 have been derived from financial statements
that are included elsewhere herein which are unaudited but which, in the opinion
of management, include all adjustments, consisting only of normal recurring
adjustments except as otherwise described therein, necessary for a fair
presentation of the financial position and results of operations for such
period. The following selected historical consolidated financial information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of ITCO and the related notes included elsewhere herein.
<TABLE>
<CAPTION>
EIGHT
MONTHS PERIOD
FISCAL YEAR ENDED ENDED
---------------------------------------------------- MAY 31, MAY 20,
1993 1994 1995 1996(A) 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Sales...................... $204,586 $252,526 $294,113 $290,982 $351,996 $225,804 $232,277
Cost of goods sold......... 178,561 221,034 257,040 253,629 301,970 194,203 198,701
-------- -------- -------- -------- -------- -------- --------
Gross profit............... 26,025 31,492 37,073 37,353 50,026 31,601 33,576
Selling, general and
administration
expenses................. 23,531 29,134 34,177 36,946 47,867 31,097 29,957
-------- -------- -------- -------- -------- -------- --------
Income from operations..... 2,494 2,358 2,896 407 2,159 504 3,619
Interest and other
expense.................. 802 1,105 2,147 3,659 4,050 2,280 1,961
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes.................... 1,692 1,253 749 (3,252) (1,891) (1,776) 1,658
Income taxes (benefit)..... 707 545 121 (1,296) (452) (700) 811
Cumulative effect of change
in accounting for income
tax(b)................... -- 408 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).......... $ 985 $ 1,116 $ 628 $ (1,956) $ (1,439) $ (1,076) $ 847
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
Depreciation and
amortization............. $ 1,298 $ 1,394 $ 1,313 $ 2,179 $ 2,493 $ 1,683 $ 1,616
EBITDA(c).................. 4,547 4,816 5,107 2,411 4,312 2,252 5,626
Capital expenditures....... 3,563 3,520 869 1,133 1,188 1,033 711
Ratio of earnings to fixed
charges(d)............... 1.8x 1.4x 1.2x -- -- -- 1.4x
BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital............ $ 4,006 $ 5,717 $ 5,062 $ 24,869 $ 16,402 $ 12,714 $ 9,012
Total assets............... 72,897 89,433 98,287 124,218 123,320 116,557 131,274
Total debt................. 19,805 29,717 30,651 47,163 39,482 37,780 32,556
Stockholders' equity
(deficit)................ 9,811 10,927 11,555 (1,751) (4,103) (3,427) (3,218)
</TABLE>
- ---------------
(a) On November 13, 1995, ITCO changed ownership. The operations data disclosed
for the year ended September 30, 1996 include operational information from
November 13, 1995 to September 30, 1996.
47
<PAGE> 51
(b) Effective October 3, 1993, ITCO adopted prospectively SFAS No. 109. SFAS No.
109 requires a change from the deferred method as required under APB Opinion
No. 11 to the asset and liability method of accounting for income taxes. The
cumulative effect of the change in accounting for income taxes was $408,000.
(c) EBITDA represents net income plus income taxes, depreciation and
amortization and interest expense less the cumulative effect of change in
accounting for income taxes. EBITDA is presented because it is a widely
accepted financial indicator of a company's ability to service or incur
indebtedness. However, EBITDA should not be considered an alternative to net
income as a measure of operating results or to cash flows from operations as
a measure of liquidity in accordance with generally accepted accounting
principles.
(d) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense (which includes amortization of deferred financing costs
and debt issuance cost) and one-third of rental expense, deemed
representative of that portion of rental expense estimated to be
attributable to interest. For the years ended September 30, 1996 and 1997,
and the eight months ended May 31, 1997, earnings were insufficient to cover
fixed charges by $3.3 million, $1.9 million and $1.8 million, respectively.
48
<PAGE> 52
CPW
The following table sets forth selected historical financial data of CPW
for the periods indicated. The selected historical data are derived from the
unaudited financial statements of CPW as of and for the years ended October 31,
1993 and 1994. The selected historical data are derived from the historical
financial statements of CPW as of and for the years ended October 31, 1995
through 1997 which have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The financial statements of CPW for each of the
years in the three-year period ended October 31, 1997 are included elsewhere in
this Prospectus. The selected historical financial data for the six months ended
April 30, 1997 and 1998 have been derived from financial statements that are
included elsewhere herein which are unaudited but which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for such period. The following selected historical
financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of CPW and the related notes included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR APRIL 30,
-------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- -------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................ $38,290 $61,091 $107,683 $122,930 $122,410 $56,589 $67,578
Cost of goods sold................... 29,694 49,148 88,363 101,355 98,289 45,295 49,013
------- ------- -------- -------- -------- ------- -------
Gross profit......................... 8,596 11,943 19,320 21,575 24,121 11,294 18,565
Selling, general and administrative
expenses........................... 7,470 11,119 17,786 18,660 20,087 9,580 13,963
------- ------- -------- -------- -------- ------- -------
Income from operations............... 1,126 824 1,534 2,915 4,034 1,714 4,602
Interest and other expense........... 77 96 265 162 223 113 324
------- ------- -------- -------- -------- ------- -------
Income before income taxes........... 1,049 728 1,269 2,753 3,811 1,601 4,278
Income taxes......................... 369 329 537 1,070 1,531 638 1,710
Minority interest(a)................. 267 144 6 3 -- -- --
------- ------- -------- -------- -------- ------- -------
Net income........................... $ 413 $ 255 $ 726 $ 1,680 $ 2,280 $ 963 $ 2,568
======= ======= ======== ======== ======== ======= =======
OTHER DATA:
Depreciation and amortization........ $ 116 $ 216 $ 338 $ 404 $ 484 $ 203 $ 328
EBITDA(b)............................ 1,241 1,044 1,905 3,202 4,450 1,888 4,833
Capital expenditures................. 108 1,639 788 655 3,489 2,587 745
Ratio of earnings to fixed
charges(c)......................... 4.2x 2.6x 1.9x 3.3x 3.9x 3.3x 5.6x
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital...................... $ 1,716 $ 1,375 $ 4,217 $ 4,827 $ 4,883 $ 3,093 $ 6,446
Total assets......................... 12,212 28,303 38,784 45,724 46,674 41,103 55,427
Total debt(d)........................ 1,270 4,236 9,819 6,359 5,452 6,735 9,758
Stockholders' equity................. 962 1,217 2,336 4,016 6,296 4,980 8,865
</TABLE>
- ---------------
(a) CPW's consolidated financial statements include the consolidation of its
majority interests in Speed Merchant of San Jose, a California partnership,
and Arthur Enterprises, a California corporation. All significant
intercompany transactions and balances are eliminated in consolidation.
(b) EBITDA represents net income plus income taxes, depreciation and
amortization and interest expense, net and minority interest. EBITDA is
presented because it is a widely accepted financial indicator of a company's
ability to service or incur indebtedness. However, EBITDA should not be
considered an
49
<PAGE> 53
alternative to net income as a measure of operating results or to cash flows
from operations as a measure of liquidity in accordance with generally
accepted accounting principles.
(c) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense (which includes amortization of deferred financing costs
and debt issuance cost) and one-third of rental expense, deemed
representative of that portion of rental expense estimated to be
attributable to interest.
(d) Excludes all related party debt.
50
<PAGE> 54
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations,
financial condition and liquidity of the Company, Heafner, Winston, ITCO, and
CPW should be read in conjunction with the financial statements and the
"Unaudited Pro Forma Condensed Combined Financial Data" and the related notes
thereto included elsewhere in this Prospectus.
OVERVIEW
Most of the Company's sales consist of passenger and light truck tires,
which in 1997 would have represented approximately 78.6% of its pro forma net
sales. The remainder of such sales would have been derived from automotive
service (7.7%), custom wheels (6.8%), automotive service equipment (3.1%) and
parts and other products (3.8%). The Company sells its products to a variety of
markets, both in terms of end-use and geography. The Company's distribution
channels consist of (i) Eastern wholesale, (ii) Western retail tires and
automotive service and (iii) Western wholesale. In 1997, on a pro forma basis,
net sales through such channels accounted for approximately 65.7%, 20.0% and
14.3%, respectively. The Company believes that the diversity of its markets
helps stabilize the Company's sales and earnings.
In connection with the Transactions completed on May 20, 1998, the Company
has recorded a non-recurring extraordinary charge of $3.7 million for the
write-off of unamortized financing expenses and discounts and to pay prepayment
penalties. The Company has also recorded a non-recurring restructuring charge to
operations of $1.4 million, and is establishing reserves of $5.2 million related
to costs to be incurred in consolidation of distribution, retail, and corporate
office facilities, severance obligations, and other related exit costs. Cash
payments during the 12 months following the consummation of the Transactions
from these items are estimated to be approximately $5.0 million.
The Company has identified a number of areas in which it expects to realize
annual cost savings as a result of the Transactions. For example, the Company
anticipates cost reductions based on elimination of duplicate corporate
expenses, warehouse consolidations and optimization of transportation,
distribution and delivery systems. In addition, the Company expects to realize
improvements as a result of lower purchase prices on tires and other products as
supplier programs are coordinated and the Company's combined purchasing power is
utilized. Although management believes that cost savings in these areas are
achievable, there can be no assurance that any such cost reductions or savings
will be achieved.
RESULTS OF OPERATIONS -- COMPANY AND HEAFNER
The Issuer acquired Winston on May 7, 1997 and CPW on May 20, 1998. The
ITCO Merger occurred on May 20, 1998. Therefore, results for 1998 include the
operations of ITCO and CPW only after May 20, 1998. Results for 1997 exclude
results of ITCO and CPW, and include the operations of Winston after May 7,
1997. Results for 1996 and 1995 include solely the results of the Issuer without
ITCO, CPW, or Winston.
51
<PAGE> 55
The following table sets forth each category of statements of operations
data as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED DEC. 31, ENDED JUNE 30,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................. 83.3 83.4 75.0 78.3 74.9
Gross profit....................................... 16.7 16.6 25.0 21.7 25.1
Selling, general and administrative expenses....... 15.7 15.6 23.9 20.5 23.5
Income from operations............................. 1.0 1.0 1.1 1.2 1.6
Interest and other expense......................... 0.6 0.4 1.2 1.3 2.4
Income (loss) from operations before benefit for
income taxes..................................... 0.4 0.6 (0.1) (0.1) (0.8)
Income taxes....................................... 0.0 0.0 (0.1) 0.0 (0.3)
Net income (loss) before extraordinary charge...... 0.4 0.6 -- (0.1) (0.5)
Extraordinary charge............................... -- -- -- -- 0.9
Net income (loss).................................. 0.4 0.6 -- (0.1) (1.4)
EBITDA............................................. 1.8 2.0 3.2 2.4 1.6
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net sales were $243.2 million for the six months ended June 30, 1998, an
increase of $115.8 million, or 90.9%, from $127.4 million in the corresponding
period in 1997. The inclusion of sales for Winston (6 months versus 2), ITCO (1
month), and CPW (1 month) accounted for $96.8 million, or 83.6%, of the increase
in sales in 1998. Most of the remaining increase was due to strong wholesale
distribution sales in the first six months of 1998, which grew by more than
15.0% during the period over the first six months of 1997. Strong market
conditions and additional market share gains contributed to this increase.
Gross profit was $61.0 million for the six months ended June 30, 1998, an
increase of $33.3 million, or 120.4%, from $27.7 million in the six months ended
June 30, 1997. As a percentage of net sales, gross profit was 25.1% and 21.7%,
respectively, for the six months ended June 30, 1998 and 1997. The increase in
gross profit dollars was also due to the inclusion of the acquired operations,
which accounted for $28.6 million, or 85.8%, of the gross dollar increase. Most
of the increase in gross margin percents was due to the higher percentage of
retail to total sales in the 1998 period. Retail sales generally result in
higher margins than distribution sales. Both the Issuer and Winston improved
their gross margins by more than 1.0% during the six-month period ended June 30,
1998.
Selling, general and administrative expenses were $57.3 million in the six
months ended June 30, 1998, an increase of $31.1 million, or 119.2%, from $26.1
million in the corresponding 1997 period. As a percentage of net sales, these
expenses were 23.5% and 20.5%, respectively, for the six months ended June 30,
1998 and 1997. The inclusion of Winston and the New Businesses accounted for
$28.3 million, or 90.9%, of the increase in selling, general and administrative
expenses in the six-month period ended June 30, 1998. The increase in selling,
general and administrative costs as a percent of sales was primarily due to the
higher percentage of retail operations in 1998, which generally have higher
selling, general and administrative expense percentages than distribution
operations.
Interest and other expense increased from $1.7 million in the first six
months of 1997 to $5.9 million in the corresponding 1998 period. Interest
expense increased by $2.6 million in the 1998 period as a result of increased
borrowings incurred in connection with the Winston acquisition and, to a lesser
extent, the Transactions. Included in other expense in the six-month period
ended June 30, 1998 was a non-recurring restructuring charge of $1.4 million
related to costs to be incurred by Heafner in the consolidation of distribution
and corporate office facilities and integration of management information
systems.
52
<PAGE> 56
The results of operations for the six months ended June 30, 1998 also
include a non-recurring extraordinary charge of $3.7 million ($2.2 million net
of taxes) for the write-off of unamortized financing expenses and discounts and
the payment of prepayment penalties.
EBITDA, excluding restructuring and extraordinary charges, was $7.3 million
for the six months ended June 30, 1998, an increase of $4.2 million, or 134.6%
from $3.1 million for the first six months in 1997 due to the factors discussed
above. EBITDA, excluding restructuring and extraordinary charges, as a
percentage of net sales increased to 3.0% in the 1998 period from 2.4% in the
corresponding period in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales were $311.8 million for 1997, an increase of $121.3 million, or
63.7%, from $190.5 million in 1996. The increase was primarily due to the
acquisition of Winston on May 7, 1997. Winston sales included in reported 1997
results totaled $101.1 million, or 83.3% of the total sales increase for the
year. Wholesale distribution sales for Heafner in 1997 totaled $210.8 million,
an increase of $20.3 million, or 10.7%, from 1996 sales. This increase resulted
primarily from additional market share gains in the Southeast.
Gross profit was $77.9 million in 1997, an increase of $46.2 million, or
146.1%, from $31.7 million in 1996. As a percentage of net sales, gross profit
was 25.0% and 16.6%, respectively. Gross profit increased primarily due to the
acquisition of Winston. Excluding Winston's gross profits included in 1997
results, gross profit would have been $35.1 million, or 16.7% of net sales.
Retail sales generally result in higher gross profit margins than sales from
wholesale distribution.
Selling, general and administrative expenses were $74.4 million in 1997, an
increase of $44.8 million, or 151.0%, from $29.7 million in 1996. As a
percentage of net sales, these expenses were 23.9% and 15.6%, respectively.
Excluding the results of Winston subsequent to May 7, 1997, selling, general and
administrative expenses in Heafner's wholesale distribution business were $32.7
million, or 15.5%, of wholesale sales. Although as a percentage of sales these
costs were slightly lower in 1997 on an absolute basis, the increase of $3.0
million reflects Heafner's investment in both field and corporate capabilities
as it prepared for higher levels of activity in 1998 and beyond.
Interest and other expense increased from $0.9 million in 1996 to $3.7
million in 1997 due to additional debt incurred in connection with the
acquisition of Winston.
Income taxes were $(0.2) million in 1997 as a result of the change in the
status of Heafner as of May 7, 1997 from a Subchapter S corporation to a
Subchapter C corporation.
EBITDA was $10.0 million in 1997, an increase of $6.1 million, or 159.6%,
from $3.8 million in 1996 due to the factors discussed above. EBITDA as a
percentage of net sales increased to 3.2% in 1997 from 2.0% in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales were $190.5 million for 1996, an increase of $21.5 million, or
12.7%, from $169.0 million in 1995. The increase came as a result of Heafner
adding a new distribution center, improved performance of the custom wheel and
service business and additional market share gains.
Gross profit was $31.7 million in 1996, an increase of $3.4 million, or
12.2%, from $28.2 million in 1995. As a percentage of net sales, gross profit
was 16.6% and 16.7%, respectively.
Selling, general and administrative expenses were $29.7 million in 1996, an
increase of $3.1 million, or 11.6%, from $26.6 million in 1995. As a percentage
of net sales, these expenses were 15.6% and 15.7%, respectively. Although
slightly lower as a percentage of sales, the dollar increase reflected Heafner's
decision to begin significant investments primarily in personnel designed to
upgrade its ability to handle increased business in the Southeast and its
overall capacity to grow its business in future years.
Interest and other expense remained flat at $0.9 million in 1995 and 1996
with slightly increased interest expense being offset by higher levels of other
income.
53
<PAGE> 57
Income taxes were not applicable in both periods due to Heafner's tax
status as a Subchapter S corporation.
EBITDA was $3.8 million in 1996, an increase of $0.8 million, or 25.7%,
from $3.1 million in 1995 due to the factors discussed above. EBITDA as a
percentage of net sales increased to 2.0% in 1996 from 1.8% in 1995.
RESULTS OF OPERATIONS -- WINSTON
Winston was acquired by Heafner on May 7, 1997. Results subsequent to that
date are included with those of the Company above.
The following table sets forth each category of statements of operations
data as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS
SEPTEMBER 30, ENDED MARCH 31,
----------------------- ----------------
1994 1995 1996 1996 1997
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................. 58.5 58.1 58.4 58.3 57.5
Gross profit....................................... 41.5 41.9 41.6 41.7 42.5
Selling, general and administrative expenses....... 41.7 41.4 40.8 41.7 43.0
Income (loss) from operations...................... (0.2) 0.5 0.8 0.0 (0.5)
Interest and other expense......................... 0.3 0.3 0.5 0.6 0.7
Net income (loss).................................. (0.5) 0.2 0.3 (0.6) (1.2)
EBITDA............................................. 1.8 2.3 2.3 1.5 1.2
</TABLE>
SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO SIX MONTHS ENDED MARCH 31, 1996
Net sales were $67.8 million for the six months ended March 31, 1997, a
decrease of $0.8 million, or 1.1%, from $68.6 million in the corresponding
period in 1996. The decrease in net sales was due principally to the reduction
in tire sales by 3.6% in 1997 from 1996 levels, which Winston believes was due
in part to softness in the California marketplace. Mechanical service revenue
for the six months increased by 2.2%, offsetting a portion of the overall
decrease. Tire sales revenue represented 57% and 58% of the total revenues in
the 1997 and 1996 periods, respectively.
Gross profit was $28.8 million for the six months ended March 31, 1997, an
increase of $0.2 million, or 0.8%, from $28.6 million in the six months ended
March 31, 1996. As a percentage of net sales, gross profit was 42.5% and 41.7%,
respectively. The increase in gross profit amounts and percentages in the 1997
period was due to the shift in Winston's business from tires to mechanical
service revenue, which generate higher gross profit margins.
Selling, general and administrative expenses were $29.2 million in the six
months ended March 31, 1997, an increase of $0.5 million, or 1.8%, from $28.6
million in the corresponding 1996 period. As a percentage of net sales, these
expenses were 43.0% and 41.7%, respectively. Selling, general and administrative
expenses were basically unchanged during the two periods, reflecting salary and
other cost controls instituted by Winston.
Interest and other expense was relatively flat at $0.4 million in the six
months ended March 31, 1997 and 1996.
Income taxes were not applicable for either period due to Winston's status
as a Subchapter S corporation.
EBITDA was $0.8 million for the six months ended March 31, 1997, a decrease
of $0.3 million, or 23.8%, from $1.1 million for the first six months in fiscal
1996 due to the factors discussed above. EBITDA as a percentage of net sales
decreased to 1.2% in the 1997 period from 1.5% in the corresponding period in
1996.
54
<PAGE> 58
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
Net sales were $143.1 million for fiscal 1996, an increase of $7.5 million,
or 5.5%, from $135.6 million in fiscal 1995. The increase primarily reflected
increased selling efforts on the part of Winston and an increase in mechanical
service revenue. Tire sale revenue represented 59.7% and 59.5% of the total
revenues in the 1996 and 1995 periods, respectively.
Gross profit was $59.5 million in fiscal 1996, an increase of $2.7 million,
or 4.8% from $56.8 million in fiscal 1995. As a percentage of net sales, gross
profit was 41.6% and 41.9%, respectively. Gross profit margins decreased
slightly as Winston priced products and services more competitively in
connection with Winston's increased selling efforts.
Selling, general and administrative expenses were $58.4 million in fiscal
1996, an increase of $2.3 million, or 4.1% from $56.1 million in fiscal 1995. As
a percentage of net sales, these expenses were 40.8% and 41.4%, respectively.
Selling, general and administrative expenses increased in dollar amounts due to
normal increases in salaries and other costs. However, these cost increases were
more than offset by increased revenues and therefore selling, general and
administrative expenses as a percentage of net sales decreased.
Interest and other expense increased from $0.5 million in fiscal 1995 to
$0.7 million in fiscal 1996 due to slightly higher levels of average inventory
during the year.
Income taxes were not applicable for both periods due to Winston's tax
status as a Subchapter S corporation.
EBITDA was $3.3 million in fiscal 1996, an increase of $0.2 million, or
6.5%, from $3.1 million in fiscal 1995 due to the factors discussed above.
EBITDA as a percentage of net sales remained constant at 2.3% of net sales in
both years.
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994
Net sales were $135.6 million for fiscal 1995, an increase of $0.7 million,
or 0.5%, from $134.9 million fiscal 1994. This nominal increase in net sales
reflected the continuing effects of the slowdown in sales which began in 1993 as
the result of the investigation of Winston for alleged unfair selling practices
by the California Bureau of Automotive Repair. Tire sale revenue represented
59.5% and 59.9% of the total net sales in the 1995 and 1994 periods,
respectively.
Gross profit was $56.8 million in fiscal 1995, an increase of $0.8 million,
or 1.4%, from $56.0 million in fiscal 1994. As a percentage of net sales, gross
profit was 41.9% and 41.5%, respectively.
Selling, general and administrative expenses were $56.1 million in fiscal
1995, a decrease of $0.3 million, or 0.5%, from $56.3 million in fiscal 1994. As
a percentage of net sales, these expenses were 41.4% and 41.7%, respectively.
The reduction in selling, general and administrative expenses reflected salary
and other cost controls instituted by Winston.
Interest and other expense increased from $0.4 million in fiscal 1994 to
$0.5 million in fiscal 1995 due to an increase in inventory stocking levels at
the end of fiscal 1995 in preparation for higher sales levels leading into the
next fiscal year.
Income taxes were not applicable for either period due to Winston's tax
status a Subchapter S corporation.
EBITDA was $3.1 million in fiscal 1995, an increase of $0.6 million, or
24.4%, from $2.5 million in fiscal 1994 due to the factors discussed above.
EBITDA as a percentage of net sales increased to 2.3% in fiscal 1995 from 1.8%
in fiscal 1994.
RESULTS OF OPERATIONS -- ITCO
The ITCO Merger took place on May 20, 1998. Results subsequent to that date
are included with those of the Company above. ITCO acquired the assets of ITCO
Holdings in a transaction accounted for as a
55
<PAGE> 59
purchase at the close of business on November 30, 1995. Therefore, the reported
results for fiscal 1996 only include the 10-month period from December 1, 1995
to September 30, 1996.
The following table sets forth each category of statements of operations
data as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED EIGHT
SEPTEMBER 30, MONTHS
----------------------- ENDED PERIOD ENDED
1995 1996 1997 MAY 31, 1997 MAY 20, 1998
----- ----- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold....................... 87.4 87.2 85.8 86.0 85.5
Gross profit............................. 12.6 12.8 14.2 14.0 14.5
Selling, general and administrative
expenses............................... 11.6 12.7 13.6 13.8 12.9
Income from operations................... 1.0 0.1 0.6 0.2 1.6
Interest and other expense............... 0.7 1.2 1.1 1.0 0.9
Income (loss) before income taxes........ 0.3 (1.1) (0.5) (0.8) 0.7
Income taxes............................. 0.1 (0.4) (0.1) (0.3) 0.3
Net income (loss)........................ 0.2 (0.7) (0.4) (0.5) 0.4
EBITDA................................... 1.7 0.8 1.2 1.0 2.4
</TABLE>
PERIOD ENDED MAY 20, 1998 COMPARED TO EIGHT MONTHS ENDED MAY 31, 1997
Net sales were $232.3 million for the period ended May 20, 1998, an
increase of $6.5 million, or 2.9%, from $225.8 million for the eight months
ended May 31, 1997. The increase was due to strong sales in the March-May 1998
period as a result of aggressive marketing by ITCO of its products, offset
partially by strong economic activity and related sales in the prior year's
November-December 1996 period combined with a decision by ITCO in the
October-December 1997 period to concentrate on higher margin business.
Gross profit was $33.6 million for the period ended May 20, 1998, an
increase of $2.0 million, or 6.2%, over the eight months ended May 31, 1997. As
a percentage of net sales, gross profit was 14.5% and 14.0%, respectively, for
the periods ended May 20, 1998 and May 31, 1997. Gross profit margins improved
in the current period as a result of the concentration by ITCO on higher margin
products.
Selling, general and administrative expenses were $30.0 million in the
period ended May 20, 1998, a decrease of $1.1 million, or 3.7%, from $31.1
million for the eight months ended May 31, 1997. As a percentage of net sales,
these expenses were 12.9% and 13.8%, respectively, for the periods ended May 20,
1998 and May 31, 1997. Selling, general and administrative expenses decreased by
almost 1.0% for the 1998 period as a percentage of sales due to certain
headcount reductions instituted during the latter half of the prior fiscal year,
offset slightly by increased spending on sales and operations management
personnel in the current period. In fiscal 1997, ITCO reduced field headcounts
by approximately 125 persons.
Interest and other expense decreased to $2.0 million in the period ended
May 20, 1998 from $2.3 million in the comparable period in 1997.
Income taxes increased to an expense of $0.8 million for the period ended
May 20, 1998 from a credit of $0.7 million in the comparable 1997 period as a
result of improved pre-tax earnings and provisions for permanent timing
differences on the expected fiscal 1998 earnings.
EBITDA was $5.6 million for the period ended May 20, 1998, an increase of
$3.4 million, or 149.8%, from $2.2 million for the first eight months in fiscal
1997 due to the combination of higher sales, better margins, and lower expenses
as discussed above. EBITDA as a percentage of net sales increased to 2.4% in the
1998 period from 1.0% in the comparable period in 1997.
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO PERIOD ENDED SEPTEMBER 30, 1996
Sales were $352.0 million for fiscal 1997, an increase of $61.0 million, or
21.0%, from $291.0 million fiscal 1996. However, fiscal 1996 included only 10
months of operating results. If 1996 results were restated for a full
56
<PAGE> 60
12 months of operations, sales in fiscal 1997 increased by $10.5 million, or
3.1%. This increase, as adjusted, was due to the full-year sales effect from
companies acquired during fiscal 1996 of $17.5 million, partially offset by a
decline in the sale of custom wheels, and a change in the recording of truck
tire sales to national fleets. The change in truck tire sales accounting reduced
sales by $4.0 million, with no effect on earnings.
Gross profit was $50.0 million in fiscal 1997, an increase of $12.7
million, or 33.9%, from $37.4 million in fiscal 1996. Giving effect to a full 12
months in fiscal 1996, gross profit rose in fiscal 1997 by $6.8 million, or
15.7%. As a percentage of sales, gross profit rose from 12.7% in the adjusted
fiscal 1996 period to 14.2% in fiscal 1997. Gross profit increased largely due
to improved field pricing programs implemented during the years.
Selling, general and administrative expenses were $47.9 million in fiscal
1997, or 13.6% of net sales, an increase of $10.9 million, or 29.6%, from $36.9
million in fiscal 1996. On a full-year basis, fiscal 1996 selling, general and
administrative expenses would have been $40.8 million, or 12.0%, of restated
sales. Increases in these expenses were primarily caused by the full-year effect
in fiscal 1997 of the 1996 acquisition of companies with higher operating
expense ratios and by increased bad debt expense during fiscal 1997 from a
company acquired in late fiscal 1996.
Interest and other expense increased from $4.0 million in fiscal 1996 on a
12 month basis to $4.1 million in fiscal 1997.
Income taxes decreased from a credit of $1.3 million in fiscal 1996 to a
credit of $0.5 million in fiscal 1997 as a result of the reduced pre-tax loss
amount.
EBITDA was $4.3 million in fiscal 1997, an increase of $1.9 million, or
78.8%, from both reported and restated fiscal 1996 results, due to the factors
discussed above. EBITDA as a percentage of sales increased to 1.2% in fiscal
1997 from 0.8% in fiscal 1996.
PERIOD ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
Sales were $291.0 million for fiscal 1996, a decrease of $3.1 million, or
1.1%, from $294.1 million fiscal 1995. Restating fiscal 1996 on a 12 month
basis, sales would have reflected an increase of $47.3 million, or 16.1%. This
increase was primarily due both to the partial-year inclusion of sales from
companies acquired during fiscal 1996 along with continued growth in existing
locations
Gross profit was $37.4 million in fiscal 1996, an increase of $0.3 million,
or 0.8%, from $37.1 million in fiscal 1995. Full-year gross profit in fiscal
1996 would have been $43.3 million, or 12.7%, of sales in restated fiscal 1996
versus 12.6% in fiscal 1995. Gross profit increased in full-year fiscal 1996,
coinciding with the overall increase in sales levels.
Selling, general and administrative expenses were $36.9 million in fiscal
1996, an increase of $2.8 million, or 8.1%, from $34.2 million in fiscal 1995.
As a percentage of sales, these expenses were 12.7% and 11.6%, respectively. On
a full-year basis, fiscal 1996 selling, general and administrative expenses
would have been $40.8 million, or 12.0% of net sales. The increase of $6.6
million in full-year fiscal 1996 expense was due both to expenses of companies
acquired during fiscal 1996, and to increased investment in sales personnel,
drivers, and warehouse facilities during 1996.
Interest and other expense increased from $2.1 million in fiscal 1995 to
$3.7 million fiscal 1996 and $4.0 million for fiscal 1996 on a full-year basis.
The primary cause for the increase was increased debt incurred as a part of the
acquisition of ITCO Holdings by ITCO coupled with higher borrowings caused by
higher levels of inventory.
Income taxes decreased from $0.1 million in fiscal 1995 to a credit of $1.3
million in fiscal 1996 as a result of the pre-tax loss incurred in fiscal 1996.
EBITDA was $2.4 million in fiscal 1996, both on a 10 month and full-year
basis, a decrease of $2.7 million, or 52.8%, from $5.1 million in fiscal 1995
due to the factors discussed above, particularly the increase
57
<PAGE> 61
in selling, general and administrative expenses. EBITDA as a percentage of sales
decreased to 0.8% in fiscal 1996 from 1.7% in fiscal 1995.
RESULTS OF OPERATIONS -- CPW
CPW was acquired by Heafner on May 20, 1998. Results subsequent to that
date are included with those of the Company above.
The following table sets forth each category of statements of operations
data as a percentage of net sales:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
OCTOBER 31, APRIL 30,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................. 82.1 82.4 80.3 80.0 72.5
Gross profit....................................... 17.9 17.6 19.7 20.0 27.5
Selling, general and administrative expenses....... 16.5 15.2 16.4 17.0 20.7
Income from operations............................. 1.4 2.4 3.3 3.0 6.8
Interest and other expense......................... 0.2 0.1 0.2 0.2 0.5
Income before income taxes......................... 1.2 2.3 3.1 2.8 6.3
Income taxes....................................... 0.5 0.9 1.2 1.1 2.5
Net income......................................... 0.7 1.4 1.9 1.7 3.8
EBITDA............................................. 1.8 2.6 3.6 3.3 7.2
</TABLE>
SIX MONTHS ENDED APRIL 30, 1998 COMPARED TO SIX MONTHS ENDED APRIL 30, 1997
Net sales were $67.6 million for the six months ended April 30, 1998, an
increase of $11.0 million, or 19.4%, from $56.6 million in the corresponding
period in 1997. The increase was due to aggressive sales efforts by CPW during
the 1998 period, combined with sales contributions of two small retail
acquisitions completed in February and April 1998.
Gross profit was $18.6 million for the six months ended April 30, 1998, an
increase of $7.3 million, or 64.4%, from $11.3 million in the six months ended
April 30, 1997. As a percentage of net sales, gross profit was 27.5% and 20.0%,
respectively, for the six months ended April 30, 1998 and 1997. Gross profit
margins increased significantly during the period ended April 30, 1998 primarily
due to improved vendor program receipts. Increased retail sales, with their
corresponding higher margins, also contributed somewhat to the overall margin
improvements.
Selling, general and administrative expenses were $14.0 million in the six
months ended April 30, 1998, an increase of $4.4 million, or 45.8%, from $9.6
million in the corresponding 1997 period. As a percentage of net sales, these
expenses were 20.7% and 17.0%, respectively, for the six months ended April 30,
1998 and 1997. Selling, general and administrative expenses increased as a
result of the two retail acquisitions in February 1998, installation of a new
telemarketing group in the 1998 period, and higher bonus expenses associated
with the increased earnings levels.
Net interest expense increased to $0.3 million for the six months ended
April 30, 1998 from $0.1 million in the comparable period in 1997.
Income taxes increased to $1.7 million for the six months ended April 30,
1998 from $0.6 million in the comparable 1997 period as a result of the
increased earnings levels.
EBITDA was $4.8 million for the six months ended April 30, 1998, an
increase of $2.9 million, or 156.0%, from $1.9 million for the six months ended
April 30, 1997 due to the strong sales increases and margin improvements
discussed above. EBITDA as a percentage of net sales increased to 7.2% in the
1998 period from 3.3% in the corresponding period in 1997.
58
<PAGE> 62
YEAR ENDED OCTOBER 31, 1997 COMPARED TO YEAR ENDED OCTOBER 31, 1996
Net sales were $122.4 million for fiscal 1997, a decrease of $0.5 million,
or 0.4%, from $122.9 million fiscal 1996. The decrease was due to efforts on the
part of CPW to focus during fiscal 1997 on more profitable product lines,
particularly high performance and light truck tires, and the effect of very high
levels of sales during late fiscal 1996.
Gross profit was $24.1 million in fiscal 1997, an increase of $2.5 million,
or 11.8%, from $21.6 million in fiscal 1996. As a percentage of sales, gross
profit was 19.7% and 17.6%, respectively. Gross profit increased primarily due
to favorable pricing programs provided by CPW's vendors during the year, along
with the product mix change in fiscal 1997 towards higher margin product lines.
Selling, general and administrative expenses were $20.1 million in fiscal
1997, an increase of $1.4 million, or 7.6%, from $18.7 million in fiscal 1996.
As a percentage of sales, these expenses were 16.4% and 15.2%, respectively.
Selling, general and administrative expenses increased due to a decision to
expand CPW's "just-in-time" delivery service in many of its major markets.
Interest and other expense remained flat at $0.2 million in fiscal 1996 and
1997.
Income taxes increased from $1.1 million in fiscal 1996 to $1.5 million
fiscal 1997 as a result of the higher levels of pre-tax earnings.
EBITDA was $4.5 million in fiscal 1997, an increase of $1.2 million, or
39.0%, from $3.2 million in fiscal 1996 due to the factors discussed above.
EBITDA as a percentage of sales increased to 3.6% in fiscal 1997 from 2.6% in
fiscal 1996.
YEAR ENDED OCTOBER 31, 1996 COMPARED TO YEAR ENDED OCTOBER 31, 1995
Net sales were $122.9 million for fiscal 1996, an increase of $15.2
million, or 14.2%, from $107.7 million fiscal 1995. The increase was due to an
acquisition early in fiscal 1996, and very high sales late in fiscal 1996 in
connection with CPW's twenty-fifth anniversary sale.
Gross profit was $21.6 million in fiscal 1996, an increase of $2.3 million,
or 11.7%, from $19.3 million in fiscal 1995. As a percentage of sales, gross
profit was 17.6% and 17.9%, respectively. Gross profit margins decreased
primarily due to lower margin product lines from a company acquired in late
fiscal 1995 compared with CPW's normal profitability on its product mix.
Selling, general and administrative expenses were $18.7 million in fiscal
1996, an increase of $0.9 million, or 4.9%, from $17.8 million in fiscal 1995.
As a percentage of sales, these expenses were 15.2% and 16.5%, respectively.
Selling, general and administrative expenses decreased as a percent of sales due
to CPW's ability to incorporate the sales and operations of an acquisition in
late fiscal 1995 without any significant increase in selling, general and
administrative expenses.
Interest and other expense decreased from $0.3 million in fiscal 1995 to
$0.2 million in fiscal 1996 due to the repayment of sums borrowed in connection
with the acquisition in late fiscal 1995.
Income taxes increased from $0.5 million in fiscal 1995 to $1.1 million in
fiscal 1996 as a result of the increase in pre-tax earnings.
EBITDA was $3.2 million in fiscal 1996, an increase of $1.3 million, or
68.1%, from $1.9 million in fiscal 1995 due to the factors discussed above.
EBITDA as a percentage of sales increased to 2.6% in fiscal 1996 from 1.8% in
fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company required approximately $148.1 million of financing in
connection with the Transactions for (i) the consummation of the ITCO Merger,
(ii) the completion of the CPW Acquisition, (iii) the repayment of existing
credit facilities (treating amounts outstanding under the Old Credit Facility
and under the ITCO Facility as repaid and borrowed under the New Credit Facility
on the Closing Date) and subordinated
59
<PAGE> 63
debt, and (iv) the payment of related fees and expenses. The Company obtained
the necessary funds from, among other sources, (i) the issuance and sale of the
Notes in the Offering and (ii) outstanding borrowings under the New Credit
Facility. See "Transactions," "Use of Proceeds," and "Capitalization."
The Transactions had a significant impact on the capitalization of the
Company. At June 30, 1998, the combined indebtedness of the Company was $170.9
million compared to $64.7 million for Heafner on a stand-alone basis at December
31, 1997. Financing committed by the lenders under the New Credit Facility is
$100.0 million under a revolving line of credit, approximately $55.5 million of
which is drawn as of August 14, 1998. See "Unaudited Pro Forma Condensed
Combined Financial Data" and "Capitalization."
Heafner's principal sources of cash during the six months ended June 30,
1998, and the years ended 1997, 1996 and 1995 were from operations, borrowings
under credit facilities and the issuance of long-term subordinated debt and
preferred stock in connection with the acquisition of Winston. Cash generated
(used) from operating activities totaled $(4.9) million, $6.7 million, $4.0
million and $(.4) million, respectively, during each of those periods.
Capital expenditures during the six months ended June 30, 1998 and the
years ended 1997, 1996, and 1995 amounted to $1.9 million, $4.9 million, $7.9
million and $2.2 million, respectively. Capital spending during the six months
ended June 30, 1998 was primarily for new equipment in retail operations.
Expenditures during 1997 and 1996 were primarily for the construction and
purchase of warehouse distribution locations, including Heafner's primary
"mixing" warehouse in Lincolnton, North Carolina. Historically, the majority of
capital spending by Heafner has been for the construction or purchase of
additional distribution facilities, or for maintenance of existing fixed assets.
The Company intends to make capital expenditures in excess of $30.0 million
over the next five years, principally for the renovation and addition of retail
facilities and for general corporate expenditures. It is estimated that
approximately $9.0 million of such capital expenditures will be made in 1998. On
an ongoing basis, the Company estimates its maintenance level of annual capital
expenditures to be approximately $4.0 million. In addition, the Company
anticipates making further acquisitions of retail and wholesale operations that
may become available and that meet the Company's overall strategic guidelines.
Such acquisition spending may be incremental to the capital expenditures
forecast above. See "Business -- Business Strategy."
The New Credit Facility will mature on May 20, 2003. Interest on loans
under the New Credit Facility bear interest at a floating rate based upon
federal funds or Eurodollar rates plus an applicable margin. Loans under the New
Credit Facility are guaranteed by all material subsidiaries of the Issuer and
secured by inventory and accounts receivable of the Company. See "Risk
Factors -- Substantial Leverage; Restrictive Covenants," and "Description of New
Credit Facility."
The Company has entered into interest rate swap agreements from time to
time to manage exposure to fluctuations in interest rates. As of June 30, 1998,
interest rate swap agreements were in place covering notional amounts of
approximately $25.0 million of indebtedness expiring at various dates through
October 2000, at an average interest rate of 8.53%. The Company does not
anticipate entering into additional swap agreements or hedging arrangements at
this time.
The Company plans to evaluate the arrangements under which it uses certain
distribution facilities it owns, and expects to enter into sale-and-leaseback
arrangements with respect to certain of the sites, and to sell and vacate
others.
The Company anticipates that its principal use of cash going forward will
be to meet working capital and debt service requirements and to make capital
expenditures. In addition, the Company expects to pay $5.0 million relating to
consolidation of warehouse and office facilities, severance obligations and
other exit costs over the next 12 months. In connection with the CPW
Acquisition, the Company also expects to pay an aggregate of $10.0 million to
the CPW Stockholders for certain non-compete covenants and other contingent
payments over the next five years. Based upon current and anticipated levels of
operations, the Company believes that its cash flow from operations, together
with amounts available under the New Credit Facility, will be adequate to meet
its anticipated requirements. There can be no assurance, however, that the
Company's business will continue to generate sufficient cash flow from
operations in the future to be applied to
60
<PAGE> 64
meet these requirements or to service its debt, and the Company may be required
to refinance all or a portion of its existing debt, or to obtain additional
financing. These increased borrowings may result in higher interest payments. In
addition, there can be no assurance that any such refinancing would be possible
or that any additional financing could be obtained. The inability to obtain
additional financing could have a material adverse effect on the Company.
Certain minority stockholders of the Company have been granted redemption
rights commencing in 2004, subject to certain conditions, which if exercised
would obligate the Company to redeem the shares of capital stock held by such
stockholders at agreed valuations (based upon a multiple of EBITDA formula). See
"Transactions" and "Certain Relationships and Related Party
Transactions -- Warrants" and "-- Preferred Stock." There can be no assurance
that sufficient funds will be available to redeem the shares of capital stock
held by such stockholders if the Company is required to do so or whether the
terms of the Company's outstanding indebtedness at such time (including the
Indenture) will permit such redemption.
61
<PAGE> 65
BUSINESS
The market share information, descriptions of markets and industry
statistics contained in the "Prospectus Summary" and "Business" sections and
elsewhere in this Prospectus are based on the good faith estimates of the
Company's management. Such estimates are based on, among other things, the
following factors: (i) industry publications including Modern Tire Dealer and
Tire Business and industry statistics published by organizations such as the
Rubber Manufacturers Association (RMA); (ii) management's knowledge of the
market based on its historical business and industry experience; (iii)
management's discussions with customers and competitors in the markets in which
the Company competes; and (iv) the Company's product sales compared to
management's good faith estimates of the total product sales in the relevant
market. The Company has not independently verified any of this information and
makes no representation as to its accuracy. This Prospectus contains trademarks,
tradenames or registered marks of the Company and other entities, including
Regul(R) tires, Winston(R) tires, Pacer(R) custom wheels, Monarch(R) tires and
Magnum(R) automotive lifts.
HISTORY
Heafner. Founded in 1935, Heafner is one of the largest tire distributors
and retailers in the country, based on tires distributed and number of outlets
at December 1997, and believes that it is a significant distributor of
mechanical service equipment to the automotive service and repair industry in
the United States. With over 30 distribution facilities, Heafner distributes
private-label, house and flag brands of passenger, light truck, truck and
specialty tires, wheels, mechanical service equipment and related products to
the automotive replacement market in over 18 states. Excluding sales by Winston,
Heafner generated net sales of $210.8 million and sold more than 3.3 million
tires in 1997. Heafner's products include flag brands manufactured by Michelin
(including the B.F. Goodrich and Uniroyal brands), private-label products such
as Regul tires, Winston tires and Pacer custom wheels, and house brand products
such as Monarch tires (manufactured by Kelly-Springfield, a division of
Goodyear). Heafner also distributes alignment service equipment manufactured by
Hunter Engineering Company and tire changers and balancers built by Hennessey
Industries, Inc. (a division of the Danaher Corporation), both leading
manufacturers in their respective fields. Tire sales represented approximately
76.0% of Heafner's fiscal 1997 net sales.
Winston. On May 7, 1997, Heafner entered the retail tire business with its
acquisition of Winston. Founded in 1962, Winston has grown to become the fourth
largest independent tire dealer in the country in 1997, based on the number of
company-owned retail stores. Winston sold more than 1.1 million tires as well as
other automotive products in 1997 through its chain of 176 retail stores in
California and Arizona for net sales in excess of $145.0 million. Each Winston
store offers customers multiple choices of flag brands, including Michelin
(including the B.F. Goodrich and Uniroyal brands), Pirelli and, beginning in
June 1998, Goodyear, as well as the Winston tire private-label brand and related
automotive products and services, including Quaker State oil products and Monroe
and Raybestos ride control products. Tire sales represented approximately 57.9%
of Winston's fiscal 1997 net sales.
ITCO. Heafner acquired ITCO on May 20, 1998. Founded in 1962, ITCO is one
of the largest wholesale distributors of tires, custom wheels, equipment and
tire dealer supplies in the United States, with net sales for fiscal 1997 of
approximately $352.0 million. ITCO shipped more than 4.8 million passenger and
light truck tires and 175,000 medium truck tires in fiscal 1997. ITCO's products
include flag brand tires such as Michelin (including the B.F. Goodrich and
Uniroyal brands), Bridgestone, Firestone and Dunlop and private-label brand
tires manufactured by Michelin, Bridgestone/Firestone, Kelly-Springfield and
Dunlop, custom wheels manufactured by Ultra and private-branded under the ICW
name and supplies and equipment manufactured by Ingersoll-Rand and Hennessey.
Tire sales represented approximately 85.5% of ITCO's net sales in fiscal 1997.
CPW. Heafner acquired CPW on May 20, 1998. Started in 1971 as a
performance automotive shop, CPW is now primarily a wholesale distributor
specializing in replacement market sales of tires, parts, wheels and equipment.
CPW also operates a network of 40 retail stores in California and Arizona. Of
CPW's retail stores, 35 sell flag brand high performance as well as regular
grade tires, wheels and related automotive
62
<PAGE> 66
products, while the remaining five retail stores sell only automotive parts.
CPW's net sales for fiscal 1997 were approximately $122.0 million. CPW shipped
more than 1.5 million passenger and light truck tires in fiscal 1997. CPW's flag
brand tire offerings include Michelin, Dunlop, B.F. Goodrich, Uniroyal and
Pirelli. Its private-label brand tire offerings include Lee, Centennial, Mickey
Thompson, Starfire, Cooper and Nankang. CPW believes that it is the largest
distributor of high performance tires in California. CPW also sells parts,
wheels, and equipment built by nationally recognized manufacturers. Tire sales
represented approximately 72% of CPW's total sales for fiscal 1997. Sales of
high performance tires represented approximately 40% of CPW's total net sales
for the same period.
GENERAL
Following the acquisition of the New Businesses, the Company is one of the
largest independent suppliers of tires to the replacement tire market in the
United States. The Company's wholesale distribution operations accounted for
approximately 82.5% of the Company's total net sales, on a pro forma basis, in
1997. With over 65 distribution centers servicing 20 states, the Company
believes that it is the largest independent distributor of new replacement tires
in the Southeast and in California. Through this distribution network, the
Company's wholesale divisions supplied 9.7 million tires in 1997 and currently
serve an average of 20,000 customers each month. Through its retail division,
the Company also operates over 215 retail tire and automotive service outlets in
California and Arizona which sold over 1.2 million tires in 1997. The Company's
Winston subsidiary, which operates 176 of the Company's retail tire and
automotive service outlets, was the fourth largest independent tire dealer in
the United States in 1997 based on number of locations. The Company generally
stocks over 18,000 SKUs of tires in its distribution centers. The Company
supplies premium, economy and private-label brands of tires manufactured by the
major tire manufacturers, including Michelin (which manufactures the B.F.
Goodrich and Uniroyal brands), Kelly-Springfield (a division of Goodyear),
Dunlop, Bridgestone/Firestone and Pirelli. The Company's private-label tires are
sold under the Winston and Regul trademarks. In addition to its tire sales, the
Company believes that it is a significant independent distributor and retailer
of aftermarket wheels, automotive replacement parts and accessories and
automotive service equipment.
The Company believes that the combination of Heafner and the New Businesses
represents a distinct opportunity to broaden product offerings, strengthen
manufacturer relationships, develop new competencies in its organization and
strengthen the Company's presence in the Southeast and the West. The Company
believes that the ITCO Merger will enable the Company's Eastern wholesale
division to provide more cost-effective service and will increase its
distribution capacity, positioning the Company for expansion into new geographic
areas. The Company believes that the acquisition of CPW and its distribution
facilities will establish a broader supply network with more frequent delivery
capabilities for the Company's Winston retail stores, improving the Company's
ability to restock inventory and obtain customer-requested products on a more
timely basis. In addition, the Company expects to realize significant cost
savings and operating efficiencies and improvements that will contribute to its
goal of increasing future profitability.
On a pro forma basis, the Company generated net sales and EBITDA of $830.7
million and $28.1 million, respectively, in fiscal 1997. In 1997, on a pro forma
basis, sales of tires accounted for approximately 78.6% of the Company's total
net sales, sales of automotive service, 7.7%, sales of custom wheels, 6.8%,
sales of automotive service equipment, 3.1%, and sales of parts and other
products, 3.8%.
INDUSTRY OVERVIEW
Purchasers in the United States spent approximately $18.1 billion on new
replacement tires in 1997. Of that amount, passenger tires accounted for
approximately 58% of sales, light truck tires accounted for approximately 15%,
truck tires accounted for approximately 21% and farm, specialty and other types
of tires accounted for approximately 6%. The number of new replacement tires
shipped in the United States for passenger cars and light trucks increased from
164.6 million tires in 1986 to 208.1 million tires in 1997, a compound annual
growth rate of approximately 2.2%. The Company believes that the factors that
have contributed to this growth include increases in both the number and average
age of cars as well as passenger miles driven in the United States.
63
<PAGE> 67
Consumers of new replacement tires in the United States obtain them from
several principal sources, including independent tire dealers,
manufacturer-owned retail stores, mass merchandisers such as Sears and Wal-Mart,
auto supply chain stores and wholesale clubs and discounters. Independent tire
dealers, which represent the largest customer base served by the Company, are
the largest point of sale suppliers of new replacement tires to the United
States market. Independent tire dealers accounted for approximately 59.5% of
retail sales of domestic replacement passenger tires in 1997.
Independent tire dealers obtain their inventory of new replacement tires
through three principal sources: tire manufacturers, independent wholesale
distributors (such as the Company) and dealer-owned warehouses. Other sources
include discount or price clubs and tire outlet chains. Industry estimates
indicate that independent wholesale distributors provided approximately
one-third of the passenger and light truck new replacement tires supplied to
independent tire dealers, and approximately 25% of all passenger and light truck
new replacement tires reaching the consumer market, in 1997. The Company
believes that, in recent years, certain tire manufacturers have reduced their
supply to small independent tire dealers due to the inefficiencies of supplying
a small amount of product to a large number of locations. At the same time,
manufacturers have increased their supplies to independent wholesale
distributors, such as the Company, who are able to deliver tires to a large
number of independent tire dealers with greater efficiency.
The replacement tire market for passenger cars and light trucks consists of
three primary types of tires: "flag" brands, which are premium tires made by the
major tire manufacturers; associate or "house" brands, which are primarily
economy brand tires made by the major tire manufacturers; and private-label
brands, which are brands made by tire manufacturers generally for independent
tire wholesale distributors and retailers. In 1997, flag brands constituted
approximately 50.0% of the United States passenger and light truck replacement
tire markets in 1997, private-label brands constituted approximately 29.9% of
those markets and house brands made up approximately 20.1% of those markets.
COMPETITIVE STRENGTHS AND BUSINESS STRATEGY
The Company's strategy is to increase net sales and EBITDA while becoming
the leading national distributor of tires and automotive equipment and services
through wholesale distribution centers and retail tire outlets. To achieve this
objective, the Company intends to continue to build upon the following
strengths:
Leading Market Positions. The Company believes that it is one of the
nation's largest buyers of new replacement passenger and light truck tires,
purchasing in excess of 10.9 million tires in 1997, representing approximately
5.2% of the total U.S. replacement tire market. Through its Eastern and Western
wholesale divisions, the Company also believes that it is the leading wholesale
distributor of tires to the replacement tire market in the Southeast and in
California, with over 65 distribution centers servicing 20 states. In addition,
through its retail division, the Company currently operates over 215 retail tire
and automotive service outlets in California and Arizona, including 176 tire and
automotive service outlets operated by Winston. Winston was the fourth largest
independent tire dealer in the United States in 1997 based on number of
locations. The Company intends to strengthen and expand its existing network of
distribution centers and retail outlets by pursuing a strategy of selective
expansion and acquisition focusing on geographic areas it does not currently
serve.
Strong Relationships with Major Tire Manufacturers. The Company has
established strong relationships with the major tire manufacturers, including
Michelin (which manufactures the B.F. Goodrich and Uniroyal brands),
Kelly-Springfield (a division of Goodyear), Dunlop, Bridgestone/Firestone and
Pirelli. The Company has conducted business with its major tire suppliers for a
combined average of 26 years. In terms of replacement tires purchased, the
Company believes that it is the largest U.S. customer of Dunlop, one of the
largest U.S. customers of Michelin (including the B.F. Goodrich and Uniroyal
brands) and one of the largest U.S. customers of Bridgestone/Firestone. The
Company recently negotiated an arrangement with Goodyear for the placement of
Goodyear flag-branded products in the Company's Winston retail stores. The
Company's network of retail points of sale offers tire manufacturers a desirable
platform for their branded products and allows the Company to relay important
feedback from tire consumers to the manufacturers. The Company
64
<PAGE> 68
believes that this combination of factors improves tire manufacturers' access to
the replacement tire market and, in turn, enhances the Company's relationship
with its suppliers.
Private-Label Brands. The Company offers two private-label brands of
tires, Regul (manufactured by Michelin and Kelly-Springfield) and Winston
(manufactured by Kelly-Springfield), which are supplied exclusively by the
Company. In general, private-label brands allow the independent wholesale
distributor and its retail dealer customer to realize higher gross profit
margins than are obtainable through sales of flag or house brands. Sales of
private-label tires account for a significant portion of the Company's total net
sales ($101.0 million on a pro forma basis in 1997). The Company also sells
other private-label products, including ICW and Pacer custom wheels and Magnum
automotive lifts. The Company intends to continue to build the brand identity of
its private-label products through advertising, promotions and continued
emphasis on the quality of those products, and plans to introduce its
private-label brand tires as leading value-priced products in the new markets it
serves.
Supply Practices and Customer Service. The Company distributes tires and
other products to dealers and other customers generally on a same-day basis and,
in certain markets, makes multiple deliveries in a single day. By offering
reliable, timely and frequent deliveries and using sophisticated inventory
management systems, the Company's wholesale divisions assist customers in
reducing investment in inventories while still enabling them to provide a full
range of products. In addition, the integration of the New Businesses will allow
the Company to implement the best inventory management practices of its existing
businesses and those of the New Businesses on a company-wide basis as it
continues to emphasize value-added customer service and supply practices in all
aspects of its business. The Company believes that its strong inventory
management systems and retail expertise will allow it to successfully integrate
the New Businesses, expand its customer base and provide a strong platform for
future expansion.
OPERATIONS
Wholesale Divisions. The Company's Eastern and Western wholesale divisions
accounted for approximately 82.5% of the Company's net sales, on a pro forma
basis, in 1997. With over 65 distribution centers servicing 20 states, the
Company believes that it is the largest independent distributor of replacement
tires in the Southeast and in California. Through this distribution network, in
1997 the Company supplied 9.7 million tires and provided service to an average
of 20,000 active customers in each month.
The Company's distribution network provides daily delivery to its tire
dealer customers in most areas and, in major markets, provides delivery two to
four times a day. The Company has been able to offer reliable, timely and
frequent deliveries to its customers by utilizing its inventory management
systems that link its distribution facilities to its major customers and
electronic data links directly with Michelin and Kelly-Springfield, its two
largest suppliers. This level of just-in-time service is intended to allow the
Company's customers to reduce investment in inventories while still enabling
them to provide a full range of products to consumers. The Company believes that
software and on-line programs, such as the Company's "HeafNet" electronic
interlink service, will play an increasingly important role for its distribution
customers. See "-- Information Systems and Technology." The Company's fleet of
approximately 650 trucks also facilitates frequent deliveries to its
distribution customers.
In order to improve efficiency in its Southeastern operations, the Company
utilizes a large "mixing" warehouse located in Lincolnton, North Carolina where
products are sorted for shipments to customers located outside the territories
typically served by the distribution network. The mixing warehouse also enables
the Company to make volume purchases from suppliers when advantageous and ship
the resulting inventory to distribution centers within its network. The Company
believes that this mixing and accessibility of inventory enables the Company's
customers to expand sales opportunities without the burden and expense of large
investments in inventory.
As an additional service to its customers, the Company may pass through to
its distribution customers all or a portion of credits from tire manufactures
for advertising or special promotions on tires or other products. These credits
assist the Company's customers in budgeting for their advertising and similar
operating expenses. The Company also participates in and sponsors dealer
conferences among its customers in order to
65
<PAGE> 69
keep them informed of industry trends and new product offerings. In addition, as
the Company's retail expertise grows, the Company intends to continue to make
this expertise available to its independent tire retailer customers in order to
enhance customer relations.
Retail Division. The Company's retail division operates over 215 retail
tire and service outlets in California and Arizona, including 176 tire and
automotive service outlets operated by Winston. Winston was the fourth largest
independent tire dealer in the United States in 1997 based on number of
locations. The Company believes that the strength of the Winston retail
franchise in California may make it suitable for expansion in the West. The
Company's CPW subsidiary, which began as a performance automotive shop in 1971,
currently operates 40 of the Company's retail stores in California and Arizona.
Of these retail stores, 35 sell flag brand high performance as well as regular
grade tires, wheels and related automotive products, while the remaining five
sell only automotive parts.
The following chart shows the geographical distribution of the Company's
retail locations:
<TABLE>
<CAPTION>
REGION WINSTON CPW TOTAL
- ------ ------- --- -----
<S> <C> <C> <C>
Southern California................................. 124 9 132
Sacramento/California Central Valley................ 29 5 34
Northern California................................. 20 15 35
Arizona............................................. 3 11 14
--- -- ---
Totals.................................... 176 40 216
</TABLE>
Through Winston's retail locations, the average size of which is
approximately 4,400 square feet, the Company also provides automotive repair and
service, such as wheel alignment, oil changes and brake repair. These services
accounted for approximately 42.1% of Winston's total net sales in 1997.
Winston provides its customers with a guarantee on all products and
services and believes that its emphasis on customer service distinguishes it
from many of its competitors. Winston also conducts an eight-week training
course for its store managers and mechanics and routinely monitors the
performance of its customer service representatives. Through its strong consumer
protection program, which includes sending "mystery shoppers" to store
locations, Winston seeks to ensure that services and sales tactics comply with
California consumer protection regulations covering the automotive services
industry. Winston's programs have been highlighted by the California Bureau of
Automotive Repair in its publications as examples of how compliance with such
regulations can and should be achieved.
PRODUCTS
The Company sells a broad selection of tires, custom wheels, automotive
service equipment and related products manufactured by the leading
manufacturers. The Company's products include flag brand tires manufactured by
Michelin, including the B.F. Goodrich and Uniroyal brands, private-label
products such as Regul tires, Winston tires and Pacer custom wheels, and house
brand products such as Monarch tires, manufactured by Kelly-Springfield (a
division of Goodyear). The Company generally stocks over 18,000 SKUs of tires in
its distribution centers. The Company also distributes alignment service
equipment manufactured by Hunter Engineering Company and tire changers and
balancers built by Hennessey Industries, Inc. (a division of the Danaher
Corporation), both leading manufacturers in their respective fields. The Company
sells many other products, including tires for the medium truck, farm and
industrial markets, automotive service equipment, wheel weights and tubes. In
addition, through CPW's operations, the Company supplies over 200,000 SKUs of
automotive parts and accessories. Through Winston's retail tire and automotive
service outlets, the Company offers other automotive products such as Quaker
State oil products and Monroe and Raybestos ride control products. The Company
believes that products sold by the New Businesses will complement Heafner's
existing product line and, in the case of CPW, increase the Company's sales of
high-performance tires and automotive parts and accessories. Although the
Company anticipates some consolidation of product lines following completion of
the Transactions, it intends to continue to provide its customers with a broad
choice of flag and private-label products. In 1997, on a pro forma basis sales
of tires accounted
66
<PAGE> 70
for approximately 78.6% of the Company's total net sales, sales of automotive
service, 7.7%, sales of custom wheels, 6.8%, sales of automotive service
equipment, 3.1%, and sales of parts and other products, 3.8%.
SUPPLIERS
The Company purchases its products in finished form from all major tire
manufacturers and other suppliers. In 1997, the Company purchased in excess of
10.9 million tires, representing approximately 5.2% of the total U.S.
replacement tire market. Approximately 90% of the Company's total tire purchases
(in units) in 1997 were supplied by Michelin, Kelly-Springfield, Dunlop and
Bridgestone/Firestone. Michelin and Kelly-Springfield, a division of Goodyear,
are the Company's two largest tire suppliers, supplying 35% and 34%,
respectively, of all tires sold by the Company in 1997. In addition, the Company
has recently negotiated an arrangement with Goodyear for the placement of
Goodyear flag-branded products in the Company's Winston retail stores.
Of the total 1997 U.S. new replacement passenger tire market, Michelin
(which manufactures the B.F. Goodrich and Uniroyal brands) accounted for 15.5%,
Bridgestone/Firestone accounted for 13.0% and the leader, Goodyear, accounted
for 16.0%. Of the total 1997 U.S. replacement light truck tire market, Michelin
accounted for 18.5%, Bridgestone/Firestone accounted for 12.5% and Goodyear
accounted for 13.0%. Of the Company's principal private-label brands, Winston
tires are manufactured exclusively by Kelly-Springfield and Regul tires are
manufactured by both Michelin and Kelly-Springfield.
There are a number of worldwide manufacturers of wheels and other
automotive products and equipment. Most of the wheels purchased by the Company
are private-label custom brands, such as Pacer and ICW, and are produced by a
variety of manufacturers. The Company purchases equipment and other products
from multiple sources, including industry leaders such as Hunter Engineering
Company and Hennessey Industries, Inc. (a division of the Danaher Corporation).
With the exception of a long-term contract (the "Kelly-Springfield Supply
Agreement") with Kelly-Springfield, a division of Goodyear, the Company's supply
arrangements with its major suppliers generally are pursuant to oral or written
arrangements, which are renegotiated annually. Although there can be no
assurance that these arrangements will be renewed, or renewed on favorable
terms, the Company has conducted business with its major tire suppliers for a
combined average of 26 years and believes that it has strong relationships with
all of its major suppliers. See "Risk Factors -- Reliance on Vendors."
The Company purchases certain private-label and house brand tires,
including the Winston and Monarch products, from Kelly-Springfield, a division
of Goodyear. Purchases are made pursuant to the Kelly-Springfield Supply
Agreement at prices specified from time to time in the manufacturer's pricing
schedule. Pursuant to the agreement, the Company must purchase all of its
requirements of Winston brand tires from Kelly-Springfield during the term of
the agreement, but may purchase such tires from other manufacturers if
Kelly-Springfield is unable or unwilling to meet its supply obligations under
the agreement. The initial term of the Kelly-Springfield Supply Agreement
expires on May 7, 2007 and the agreement is automatically renewable for
successive three-year terms thereafter. The supply agreement may be terminated
by either party upon twelve months' advance notice. Kelly-Springfield is the
sole holder of the Issuer's Preferred Stock (as defined). See "Certain
Relationships and Related Transactions -- Preferred Stock."
CUSTOMERS
Wholesale. Through its Eastern and Western wholesale divisions, the
Company distributes tires and related automotive products principally to
independent tire dealers. The Company's other customers include national retail
chains, service stations, general automotive repair facilities, auto parts
stores, automobile dealers and specialty automotive repair facilities. The
Company generally requires payment from its customers within 30 days, although
it may tailor programs for its larger customers. In 1997, the Company's
wholesale divisions served an average of more than 20,000 customers in each
month. The Company's largest customer accounted for less than 0.5% of the
Company's pro forma net sales for 1997 and the Company's top 25 customers
accounted for less than 5% of the Company's pro forma net sales for 1997.
67
<PAGE> 71
Retail. The Company's retail operations attract a variety of individual
consumers in the areas they serve. Through the Winston retail chain, the Company
also offers accounts to its corporate retail customers. Winston's corporate
accounts represent approximately 9.2% of its tire business.
COMPETITION
The industry in which the Company competes is highly competitive, and many
of the Company's competitors have resources significantly greater than the
Company's. Tire manufacturers distribute tires to the retail market by direct
shipments to independent tire dealers, national retail chains such as Sears and
Wal-Mart and manufacturer-owned retail stores as well as through shipments to
independent wholesale distributors. A number of independent wholesale tire
distributors also compete in the regions in which the Company does business. In
its retail business, the Company also faces competition from national chains and
department stores, other independent tire stores, tire manufacturer-owned
stores, discount and warehouse clubs and other automotive product retailers.
The Company believes that the principal competitive factors in its business
are reputation, breadth of product offering, delivery frequency, price and
service. The Company believes that it competes effectively in all aspects of its
business due to its ability to offer a broad selection of flag and private-label
branded products, its competitive prices and its ability to provide quality
services in a timely manner.
SEASONALITY AND INVENTORY
The Company's wholesale distribution and retail service operations
typically experience their highest levels of sales from March through October of
each fiscal year, with the period from November through February generally
experiencing the lowest levels of sales. The Company's inventories generally
fluctuate with anticipated seasonal sales volumes. The Company believes it
maintains levels of inventory that are adequate to meet its customers' needs on
short notice. The average of beginning- and end-of-year inventories of the
Company in 1997 was $108.5 million.
INFORMATION SYSTEMS AND TECHNOLOGY
The Company believes that software and on-line programs will play an
increasingly important role in linking the Company to its distribution and
retail customers and improving the Company's management of inventories of tires,
wheels and related products.
The Company is able to offer reliable, timely and frequent deliveries to
its customers by utilizing its inventory-management systems that link directly
to its major customers and among its distribution facilities and electronic data
interlinks directly with Michelin and Kelly-Springfield, its two largest
suppliers. Heafner supplies a number of customers with its proprietary "HeafNet"
system, which allows customers to electronically access Heafner's warehouses to
locate, price and order inventory. Heafner believes this system allows its
customers to respond more quickly and efficiently to retail customers' requests
for products. The Company intends to implement a company-wide inventory
management system based on the strongest attributes of Heafner's, CPW's and
ITCO's existing systems in order to improve the operation of its overall
distribution network.
The Company also intends to make available certain interactive software
programs focused on the retail customer that are currently offered by CPW to
independent tire dealers in the West to the Company's retail stores in the West
and independent tire dealer customer base in the Southeast. For example, CPW
currently is a distributor of a software product called Wheel Wizard that allows
customers to view a wide assortment of wheels in combination with the make and
color of their automobiles. The Company believes that interactive software
programs such as these enhance its ability to market wheels by providing retail
dealers devices that take up little floor space, are relatively easy to use and
are customer oriented.
68
<PAGE> 72
YEAR 2000
The Company has implemented a program designed to ensure that all of its
accounting and operational systems and software will manage and manipulate data
involving the transition from 1999 to 2000 without functional or data
abnormality and without inaccurate results related to such data. The Company
does not expect that the costs associated with any required conversions of
systems to ensure year 2000 compliance will be significant. The Company does not
currently have any information concerning year 2000 compliance problems on the
part of its suppliers and customers.
EMPLOYEES
The Company employs approximately 3,230 people as of June 30, 1998, of whom
approximately 1,600 were employed in its wholesale divisions and approximately
1,630 were employed in its retail division. None of the Company's employees is
represented by unions. The Company believes its employee relations are
satisfactory.
LEGAL PROCEEDINGS
The Company's Winston subsidiary was named as a defendant in a class action
lawsuit filed on June 10, 1998 in Los Angeles County Superior Court on behalf of
certain Winston employees alleging violations of certain California wage
regulations and unfair business practices statutes. The Company believes that
Winston's operations, including its wage practices, fully comply with applicable
California and federal legal requirements and that the plaintiffs' claims are
without merit. The Company is vigorously defending the matter in coordination
with its liability insurers. The Company believes that these insurers will be
responsible for defending some of the claims involved in the lawsuit, and that a
portion of any potential losses may be covered under applicable insurance
policies.
The Company has also been named as a defendant in various other claims and
lawsuits arising in the normal course of business. The Company believes that the
facts do not support the plaintiffs' claims and intends to vigorously contest
each of them. To the Company's knowledge, except as described in the previous
paragraph, it is not currently a party to any litigation that would have a
material adverse effect on the Company.
PROPERTIES
The principal properties of the Company are geographically situated to meet
sales and operating requirements. All of the properties of the Company are
considered to be both suitable and adequate to meet current operating
requirements. The Company is reviewing its properties to determine whether
certain facilities could be consolidated into other locations following
completion of the Transactions. At present, the Company plans to close 11 to 13
distribution warehouses in the Southeast and is considering closing two
distribution warehouses in California in order to eliminate redundancies within
its Eastern and Western wholesale divisions. Although there can be no assurance
that it will be successful in doing so, the Company believes that, in particular
with respect to its distribution centers, it may obtain cost savings and
synergies by closing or consolidating certain facilities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
69
<PAGE> 73
Distribution Centers. The following table sets forth certain information
regarding the Company's warehouse and distribution facilities as of June 30,
1998:
<TABLE>
<CAPTION>
OWNED/
LOCATION COMPANY LEASED
- -------- ------- ------
<S> <C> <C>
Alabama:
Birmingham............................................. Heafner Leased
Cullman................................................ ITCO Leased
Mobile................................................. Heafner Leased
Montgomery............................................. ITCO Leased
Arizona:
Mesa................................................... CPW Leased
Arkansas:
Little Rock............................................ Heafner Leased
Texarkana.............................................. Heafner Owned
California:
Fresno................................................. CPW Owned
Hayward................................................ Winston Leased
Moorpark............................................... CPW Leased
Rancho Cucamonga....................................... Winston Leased
Sacramento............................................. CPW Leased
San Jose(a)............................................ CPW Leased
Santa Fe Springs....................................... CPW Leased
Florida:
Fort Myers............................................. ITCO Leased
Jacksonville........................................... ITCO Leased
Medley................................................. ITCO Leased
Orlando................................................ Heafner Leased
Orlando................................................ ITCO Leased
Pensacola.............................................. Heafner Owned
Tallahassee............................................ Heafner Owned
Tampa.................................................. ITCO Leased
West Palm Beach........................................ ITCO Leased
Georgia:
Atlanta................................................ Heafner Leased
Augusta................................................ Heafner Leased
Rome................................................... ITCO Leased
Savannah............................................... ITCO Leased
Tucker................................................. ITCO Leased
Warner Robins.......................................... ITCO Leased
Kentucky:
Lexington.............................................. Heafner Leased
Louisville............................................. Heafner Leased
Maryland:
Baltimore.............................................. ITCO Leased
Landover............................................... ITCO Leased
Salisbury.............................................. ITCO Owned
Mississippi:
Jackson................................................ Heafner Leased
</TABLE>
70
<PAGE> 74
<TABLE>
<CAPTION>
OWNED/
LOCATION COMPANY LEASED
- -------- ------- ------
<S> <C> <C>
Missouri:
Springfield............................................ Heafner Leased
North Carolina:
Asheville.............................................. Heafner Owned
Burlington............................................. ITCO Leased
Charlotte.............................................. Heafner Owned
Charlotte.............................................. ITCO Owned
Fayetteville........................................... ITCO Leased
Greensboro............................................. Heafner Leased
Lincolnton............................................. Heafner Owned
Lumberton.............................................. Heafner Owned
Raleigh................................................ Heafner Owned
Wilmington............................................. ITCO Leased
Wilson(a).............................................. ITCO Leased
Winston-Salem.......................................... Heafner Leased
Oklahoma:
Oklahoma City.......................................... CPW Leased
South Carolina:
Charleston............................................. ITCO Leased
Columbia............................................... Heafner Leased
Columbia............................................... ITCO Leased
Florence............................................... Heafner Leased
Mauldin................................................ Heafner Owned
Mauldin................................................ ITCO Owned
Tennessee:
Chattanooga............................................ Heafner Leased
Johnson City........................................... ITCO Leased
Knoxville.............................................. Heafner Owned
Knoxville.............................................. ITCO Leased
Memphis (two properties)............................... Heafner Leased
Nashville.............................................. Heafner Leased
Nashville.............................................. ITCO Leased
Virginia:
Harrisonburg........................................... ITCO Leased
Norfolk................................................ Heafner Owned
Norfolk................................................ ITCO Leased
Richmond............................................... Heafner Owned
Richmond............................................... ITCO Leased
Roanoke................................................ Heafner Owned
Wytheville............................................. ITCO Leased
</TABLE>
- ---------------
(a) Includes corporate office space.
71
<PAGE> 75
Retail Stores. As of June 30, 1998, the Company operated over 215 retail
tire and service outlets in California and Arizona, including 176 tire and
automotive service outlets operated by Winston. The Company intends to
consolidate the management of all retail stores under its retail division.
Corporate and Executive Offices. The Company currently has corporate
offices in four locations. In connection with the ITCO Merger, ITCO's corporate
offices are expected to be consolidated into Heafner's corporate offices in
Lincolnton, North Carolina.
<TABLE>
<CAPTION>
LOCATION COMPANY USE
- -------- ------- -----------------
<S> <C> <C>
Charlotte, North Carolina....................... Heafner Executive offices
Lincolnton, North Carolina...................... Heafner Corporate offices
Burbank, California............................. Winston Corporate offices
San Jose, California............................ CPW Corporate offices
Wilson, North Carolina.......................... ITCO Corporate offices
</TABLE>
72
<PAGE> 76
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the directors
and executive officers of the Issuer as of June 30, 1998. Directors hold their
positions until the annual meeting of the stockholders at which their term
expires or until their respective successors are elected and qualified.
Executive officers hold their positions until the annual meeting of the Board of
Directors or until their respective successors are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ann H. Gaither............................. 66 Chairperson
William H. Gaither......................... 42 President, Chief Executive Officer and
Director
Donald C. Roof............................. 46 Senior Vice President, Chief Financial
Officer and Treasurer
J. Michael Gaither......................... 46 Senior Vice President/Strategic Planning,
General Counsel and Secretary
Daniel K. Brown............................ 45 Senior Vice President/Sales and Marketing
Thomas J. Bonburg.......................... 49 President, Retail Division
Arthur C. Soares........................... 49 President, Western Wholesale Division
Richard P. Johnson......................... 50 President, Eastern Wholesale Division
Joseph P. Donlan........................... 52 Director
V. Edward Easterling, Jr................... 38 Director
Victoria B. Jackson........................ 43 Director
William M. Wilcox.......................... 71 Director
</TABLE>
Ann H. Gaither -- Chairperson. Ms. Gaither joined the Issuer in 1972 and
succeeded her father as Chief Executive Officer in 1984. She served as President
of the Issuer from 1986 until 1989 and has served as Chairperson since 1988. Ms.
Gaither currently serves on the Board of Directors of C200, a national women's
business owners organization, and is a Commissioner on the North Carolina
Department of Transportation Board. Ms. Gaither is the mother of William H.
Gaither, the President, Chief Executive Officer and a Director of the Issuer.
William H. Gaither -- President, Chief Executive Officer and Director. Mr.
Gaither joined the Issuer in 1978 as a management trainee, subsequently serving
as an Assistant Manager in various locations. In 1986, Mr. Gaither was named
Executive Vice President, a position he held until 1989. He has served as
President of the Issuer since 1989. Mr. Gaither also has served as the Chief
Executive Officer of the Issuer since 1996 and has been a Director of the Issuer
since 1986. He holds a B.A. from Davidson College. Mr. Gaither is the son of Ann
H. Gaither, the Chairperson of the Issuer.
Donald C. Roof -- Senior Vice President, Chief Financial Officer and
Treasurer. Mr. Roof has served as the Issuer's Senior Vice President, Chief
Financial Officer and Treasurer since April 1997. Prior to that time, from 1987
to November 1996, he served in a variety of positions with Yale
International/Spreckels Industries, a global industrial manufacturing and food
processing company. From 1990 to 1994, Mr. Roof was Treasurer and Chief
Financial Officer of Yale International/Spreckels Industries, and from 1994 to
1996, Senior Vice President and Chief Financial Officer. He received his B.B.A.
from Eastern Michigan University.
J. Michael Gaither -- Senior Vice President/Strategic Planning, General
Counsel and Secretary. Mr. Gaither has served in his present capacity since
joining the Issuer in 1991. Prior to that time, he was a lawyer in private
practice for several years. He holds a B.A. from Duke University and received
his J.D. from the University of North Carolina-Chapel Hill. Mr. Gaither also
serves on the Board of Directors of Ridgeview, Inc.
Daniel K. Brown -- Senior Vice President/Sales and Marketing. Mr. Brown
joined the Issuer in 1975 and held various field sales assignments before
becoming Marketing Manager in 1979. He advanced to
73
<PAGE> 77
Director of Marketing and to Vice President of Marketing during the 1980's and
was named Vice President of Sales and Marketing in 1991. In 1997 he was named
Senior Vice President of Sales and Marketing with responsibility for vendor
relations and program negotiations as well as the sales and marketing activities
for the Company. Mr. Brown holds a B.A. from Western Carolina University.
Thomas J. Bonburg -- President, Retail Division. Mr. Bonburg joined
Winston in 1990 as President, Chief Executive Officer and Vice Chairman. He
served in those positions until Winston was acquired by the Issuer in May 1997.
Mr. Bonburg served as President of Winston from May 1997 until October 1997, and
as Senior Vice President of the Issuer from October 1997 until the consummation
of the Transactions. Prior to joining Winston, he held senior management
positions with Autoworks/Crown Auto, Northern Automotive and Pep Boys. Mr.
Bonburg holds a B.S. from Ohio State University and an M.B.A. from the
University of Southern California.
Arthur C. Soares -- President, Western Wholesale Division. Mr. Soares is
the founder and principal owner of CPW, and currently serves as its Chairman,
President and Chief Executive Officer. Mr. Soares started CPW in 1971 with a
single retail outlet, which grew over the years to its current level of
operations. He holds a B.A. from Santa Clara University.
Richard P. Johnson -- President, Eastern Wholesale Division. Mr. Johnson
joined ITCO as President and Chief Operating Officer in February 1997. He served
with Albert Fisher Distribution as Senior Vice President from 1991 to 1994, and
as President and Chief Operating Officer from 1994 to 1996. Prior to that time,
Mr. Johnson held a variety of management positions with Leprino Foods, Sargento
Cheese and Kraft Foods. He holds an A.A. from Palm Beach College.
Joseph P. Donlan -- Director. Mr. Donlan has been a director since May
1997. He is currently a Senior Manager of Brown Brothers Harriman & Co., where
he has served in a variety of capacities beginning in 1970 when he joined Brown
Brothers' commodities lending group. He was promoted to run this group in 1976,
and in 1981 was named Senior Credit Officer and a member of Brown Brothers'
Credit Committee, on which he continues to serve. In 1996 he co-founded the 1818
Mezzanine Fund. He is a 1968 graduate of Georgetown University and received an
M.B.A. from Rutgers University in 1970. Mr. Donlan also serves on the Board of
Directors of National Auto Finance, Incorporated.
V. Edward Easterling, Jr. -- Director. Mr. Easterling has been a director
since June 1998. He is currently a principal of Wingate Partners, a private
equity investment firm based in Dallas, Texas. Prior to joining Wingate in 1994,
he was part of the investment and executive management group that acquired 12
troubled thrifts in Texas and created American Federal Bank in 1988. Previously,
Mr. Easterling was Vice President and Treasurer of Swift Independent Packing
Company and Treasurer of Valley View Capital Corporation. He received a B.B.A.,
a B.A. in Psychology, and an M.B.A. from Southern Methodist University. Mr.
Easterling also serves as Chairman of the Board of Directors for NSG
Corporation.
Victoria B. Jackson -- Director. Ms. Jackson has been a director since
June 1997. She has been with DSS/Pro Diesel, a diesel parts manufacturer,
remanufacturer and distribution company based in Nashville, Tennessee since 1977
and currently serves as its President and Chief Executive Officer. She received
an M.B.A. from the Owen Graduate School of Management at Vanderbilt University
and a B.A. in Business Administration and A.A. from Belmont University. Ms.
Jackson also serves on the Boards of Directors of AmSouth Bancorporation,
Hussman Econometrics Advisors, Inc. and Whitman Corporation.
William M. Wilcox -- Director. Mr. Wilcox has been a director since March
1998. Mr. Wilcox served for over 41 years with both B.F. Goodrich and Uniroyal
Goodrich. At B.F. Goodrich, he served in various capacities, including Executive
Vice President/Sales. He retired from Uniroyal Goodrich after serving as
President, Company Brands and President, Sales Worldwide.
74
<PAGE> 78
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation for
services in all capacities to the Issuer for the years ended December 31, 1997,
1996 and 1995 of those persons who (i) served during the fiscal year ended
December 31, 1997 as the Chief Executive Officer of the Issuer and (ii) were, at
December 31, 1997, the other four most highly compensated executive officers of
the Issuer who earned more than $100,000 in salary and bonus in fiscal 1997
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
-------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION ENDED ($) ($) ($)(A) (#)(B) ($)
- --------------------------- -------- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William H. Gaither.......... 12/31/97 318,000 49,000 25,000 62,500 41,741(c)
President, Chief Executive 12/31/96 303,387 -- -- -- 25,604(d,e)
Officer and Officer 12/31/95 273,586 -- -- -- --
Donald C. Roof.............. 12/31/97 161,253(f) 60,000 25,000 25,000 --
Senior Vice President,
Chief Financial Officer
and Treasurer
J. Michael Gaither.......... 12/31/97 191,883 60,000 15,000 25,000 --
Senior Vice President, 12/31/96 155,652 26,000 15,000 -- 23,761(e)
General Counsel and 12/31/95 148,896 26,000 -- -- 6,169(e)
Secretary
Daniel K. Brown............. 12/31/97 164,499 51,000 15,000 25,000 24,935(e)
Senior Vice President/ 12/31/96 112,335 39,599 15,000 -- 28,073(e)
Sales and Marketing 12/31/95 106,480 50,199 -- -- 16,378(e)
Thomas J. Bonburg(g)........ 12/31/97 96,952(g) 75,000 -- 37,500 --
President, Retail Division
</TABLE>
- ---------------
(a) This column includes nothing for perquisites and other personal benefits
because in no case did the aggregate amount of such perquisites and other
personal benefits exceed the reporting threshold (the lesser of $50,000 or
10% of total annual salary and bonus), but includes amounts for the annual
contribution for deferred compensation for such Named Executive Officer for
the year.
(b) This column includes stock options granted pursuant to the Option Plan (as
defined). Ten percent of the options have vested and are exercisable within
60 days. The remaining options vest as described in "-- Stock Option Plan,"
below.
(c) Consists of certain Board-designated discretionary compensation paid in
1997.
(d) Consists of directors' fees paid during 1996 of $10,000.
(e) Consists of taxable amounts reported in connection with vendor-sponsored
trips.
(f) Mr. Roof joined the Issuer in April 1997. Salary represents payments to Mr.
Roof during the period of his employment in fiscal 1997. On an annualized
basis, Mr. Roof's salary for fiscal 1997 would have been $215,000.
(g) Mr. Bonburg was the Chief Executive Officer of Winston, which was acquired
by the Issuer on May 7, 1997.
75
<PAGE> 79
OPTION/SAR GRANTS IN 1997
No stock appreciation rights were granted during the twelve months ended
December 31, 1997. The following table sets forth information concerning the
grant of stock options to each of the Named Executive Officers during the twelve
months ended December 31, 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED ANNUAL
NUMBER OF OPTIONS EXERCISE RATES OF STOCK
SECURITIES GRANTED TO OR PRICE APPRECIATION
UNDERLYING EMPLOYEES BASE FOR OPTION
TERM(B) OPTIONS IN FISCAL PRICE EXPIRATION ------------------------
NAME GRANTED(A) YEAR ($/SH) DATE 5%($) 10%($)
- ------- ----------- ---------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
William H. Gaither........ 62,500 24.4% $1.10 5/28/07 $43,237 $109,570
Donald C. Roof............ 25,000 9.8 1.10 5/28/07 17,295 43,828
J. Michael Gaither........ 25,000 9.8 1.10 5/28/07 17,295 43,828
Daniel K. Brown........... 25,000 9.8 1.10 5/28/07 17,295 43,828
Thomas J. Bonburg......... 37,500 14.6 1.10 5/28/07 25,942 65,742
</TABLE>
- ---------------
(a) The securities underlying the options, which were granted pursuant to the
Option Plan, are shares of the Issuer's Class A Common Stock. Pursuant to
the Option Plan, 10% of the options granted to each of the Named Executive
Officers have vested and are exercisable within 60 days. The remaining
options will vest as set forth in "-- Stock Option Plan", below.
(b) The potential realizable value columns illustrate the value that might be
realized upon exercise of the options immediately prior to the expiration of
their term, assuming the specified compound rates of appreciation of the
Class A Common Stock over the term of the options. These amounts represent
certain assumed rates of appreciation only, assuming a fair market value on
the date of grant of $1.10 per share. Because the Class A Common Stock is
privately held, a per-share fair market value on the date of grant of the
options equal to $1.10 was assumed based on the per-share amount paid to
certain selling shareholders in May 1997. Actual gains on the exercise of
the options are dependent on the future performance of the Class A Common
Stock. There can be no assurance that the potential values reflected in this
table will be the actual values realized. All amounts have been rounded to
the nearest whole dollar.
No options to purchase common stock were exercised by the Named Executive
Officers during the 12 months ended December 31, 1997.
STOCK OPTION PLAN
In 1997, the Issuer adopted The J.H. Heafner Company 1997 Stock Option Plan
(the "Option Plan"), which is designed to motivate designated employees,
officers, directors and independent contractors of the Company by encouraging
them to acquire a proprietary interest in the Company. The Board of Directors of
the Issuer, acting through a committee of at least two members of the Board (the
"Plan Committee"), administers the Option Plan, selects eligible participants,
determines the number of shares subject to each option granted under the Option
Plan and sets other terms and conditions applicable to participants in the
Option Plan. Giving effect to the Reclassification, an aggregate of 275,000
shares of Class A Common Stock are reserved for issuance under the Option Plan.
The Option Plan provides for the grant of options to purchase shares of
Class A Common Stock to designated employees, officers, directors and
independent contractors of the Company. The Plan Committee has sole authority to
select those individuals to whom options may be granted and to determine the
number of shares of Class A Common Stock to be subject to options granted. The
purchase price for shares of Class A Common Stock to be subject to options
granted is fixed by the Committee, but cannot be less than their fair market
value (as determined in good faith by the Board of Directors) if the
corresponding option is intended to qualify as an incentive stock option under
the Internal Revenue Code. All options granted under the Option Plan are subject
to the terms and conditions of a Stock Option Agreement ("Option Agreement")
entered into by each option recipient.
76
<PAGE> 80
The Option Agreement entered into by each option recipient generally
requires the recipient to be bound by the terms of a stockholder agreement
between certain management stockholders and the Issuer in the event he or she
elects to exercise options. Options generally vest in installments of 10%, 20%,
30% and 40% of the total number of underlying shares on the first, second, third
and fourth anniversaries of the date of grant, respectively. Options are not
transferable by the recipient other than by will or by the laws of descent and
distribution and are exercisable during the recipient's lifetime only by the
recipient. Under the terms of the Option Plan, options terminate no later than
the tenth anniversary of the date of grant. Options are also subject to
adjustment to avoid dilution in the event of a change in the capital structure
of the Issuer.
If an option recipient dies or his or her employment with the Company is
terminated for permanent disability or for any other reason (other than for
cause, as defined in the Option Agreement), the recipient or his or her personal
representative may exercise the option within 180 days after the date of
termination to the extent the option has vested on the date of termination or
otherwise would have vested in the 12 months thereafter, beyond which time the
options lapse. If an option recipient's employment with the Company is
terminated for cause, the recipient may exercise the option within 30 days after
the date of termination to the extent the option has vested on the date of
termination, beyond which time the options lapse.
In the event that (i) any person or entity not controlled by the Issuer's
stockholders acquires more than 50% of the shares of the common stock of the
Issuer, (ii) all or substantially all of the assets of the Issuer are sold,
(iii) the majority of the Board of Directors no longer comprises persons
currently serving on the Board (or persons designated by the current Board
majority), (iv) Ann H. Gaither, William H. Gaither, Susan G. Jones and Thomas R.
Jones collectively own less than 50% of the combined voting power of the then
outstanding shares of common stock of the Issuer or (v) the Issuer issues common
stock in a public offering (each such event a "change in control"), then all
options outstanding under the Option Plan will become fully vested and
immediately exercisable immediately prior to such event. To the extent not
exercised, all options outstanding under the Option Plan expire upon a change in
control.
As of December 31, 1997, options to purchase an aggregate of 256,000 shares
of common stock of the Issuer (which, upon the Reclassification, became
exercisable for an equal number of shares of Class A Common Stock) at $1.10 per
share were outstanding under the Option Plan.
RESTRICTED STOCK PLAN
In 1997, the Issuer adopted The J.H. Heafner Company 1997 Restricted Stock
Plan (the "Restricted Stock Plan"), which is designed to motivate designated
employees, officers, directors and independent contractors of the Company by
encouraging them to acquire a proprietary interest in the Company. The Board of
Directors of the Issuer, acting through the Plan Committee, administers the
Restricted Stock Plan, selects eligible participants, determines the number of
shares to be awarded to each participant and sets other terms and conditions
applicable to participants in the Restricted Stock Plan. As of December 31,
1997, an aggregate of 225,000 shares of Class A Common Stock (giving effect to
the Reclassification) had been issued to participants in the Restricted Stock
Plan for a purchase price of $1.10 per share. The shares issued pursuant to the
Restricted Stock Plan were issued in exchange for promissory notes given by the
participants. The principal of the notes is forgiven over time by the Issuer
depending upon the attainment of certain earnings targets.
The Restricted Stock Plan enables designated employees, officers, directors
and independent contractors of the Company to purchase shares of Class A Common
Stock. The Plan Committee has sole authority to select those individuals to whom
the opportunity to participate in the Restricted Stock Plan may be offered and
to determine the number of shares of Class A Common Stock to be issued. The
purchase price for shares of Class A Common Stock issued pursuant to the
Restricted Stock Plan is fixed by the Plan Committee, which has the authority to
impose additional terms and conditions in connection with issuances to
participants. All shares that have been issued under the Restricted Stock Plan
are subject to the terms and conditions of a Securities Purchase and
Stockholders' Agreement ("Restricted Stock Agreement") entered into by each
option recipient.
The Restricted Stock Agreement prohibits the transfer of stock issued
pursuant to the Restricted Stock Plan except for transfers (i) to the Issuer
upon the termination of employment of a participating stockholder,
77
<PAGE> 81
(ii) to other management employees of the Company who have executed and
delivered agreements substantially similar to the Restricted Stock Agreement,
(iii) by will or by the laws of descent or distribution or (iv) if and to the
extent repurchase rights in favor of the Issuer on termination of employment
have not been exercised, to third parties (subject to rights of first refusal in
favor of the Issuer and the other holders of restricted stock). The Issuer has
the right to repurchase all of a participating stockholder's shares upon the
termination of such stockholder's employment with the Company due to cause (as
defined in the Restricted Stock Agreement) or death. A participating stockholder
may require the Issuer to repurchase all of such stockholder's shares if that
stockholder terminates his employment for good reason (as defined in the
Restricted Stock Agreement). In all cases, the repurchase price for shares of
stock subject to the Restricted Stock Agreement is the higher of the original
purchase price and a price derived from the Net Equity Value of the Issuer (as
defined in the Restricted Stock Agreement) at the time of repurchase.
COMPENSATION OF DIRECTORS
During the year ended December 31, 1997, directors who were not members of
the Gaither family or nominees of The 1818 Mezzanine Fund, L. P. or Wingate
Partners II, L.P. were paid a fee of $2,500 for each Board meeting attended. The
Issuer intends to continue this compensation policy for directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, William H. Gaither, Donald C. Roof, J. Michael Gaither
and Daniel K. Brown served on an executive committee of the Issuer which
reviewed and recommended executive compensation for the Named Executive Officers
and other executives of Heafner. All compensation recommendations of the
executive committee were reviewed by and subject to the approval of the Board of
Directors of the Issuer. In June 1998, the Board of Directors of the Issuer
designated a Compensation Committee consisting of Ann H. Gaither, William M.
Wilcox and Victoria B. Jackson to review, modify and recommend executive
compensation arrangements for the Named Executive Officers and certain other key
executives of the Company.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Articles of Incorporation of the Issuer provide for the release of any
person serving as a director of the Issuer from liability to the Issuer or its
stockholders for damages for breach of fiduciary duty and for the
indemnification by the Issuer of any person serving as a director, officer,
employee or agent or other authorized person to the fullest extent permissible
under the North Carolina Business Corporation Act. In addition, the Issuer has
purchased a directors' and officers' insurance policy covering the Issuer, its
officers and directors for liabilities that they may incur as a result of any
action, or failure to act, by such officers and directors in their capacity as
such.
EMPLOYMENT AGREEMENTS; SEVERANCE
The Issuer has entered into employment agreements with each of Messrs.
William H. and J. Michael Gaither, Roof, Brown and Bonburg, providing for annual
base salaries of approximately $354,444, $222,459.96, $241,335.96, $191,004 and
$250,000, respectively, for the current year. Mr. Bonburg's employment agreement
provides for an annual base salary of $250,000 for calendar year 1999.
The employment agreements with Messrs. William H. and J. Michael Gaither,
Roof and Brown provide for fixed bonus payments ranging from 15% to 30% of
annual base salary, with additional incentive bonus payments to be made in the
discretion of the Board of Directors of the Issuer. Fixed bonus payments made to
William H. Gaither are reduced by the amount received by him under the Issuer's
Board-designated discretionary compensation plan.
The employment agreement with Mr. Bonburg provides for additional base
salary payments of $50,000 on June 30, 1998 and $150,000 on December 31, 1998
and for additional incentive bonus payments based on the attainment of specified
performance targets. The June 30, 1998 payment of $50,000 has been made to Mr.
Bonburg. Payment of the additional base salary and incentive bonus is contingent
on Mr. Bonburg's continued employment with the Company.
The employment agreements may be terminated at any time by the Issuer. Upon
termination of employment with the Issuer on account of death or disability, for
cause, or without good reason (as defined in
78
<PAGE> 82
each employment agreement), the employee is entitled to receive his base salary
and target bonus payable for 12 months after the date of termination (base
salary, additional base salary and incentive bonus, in the case of Mr. Bonburg).
Upon termination of employment by the Issuer without cause or by the employee
with good reason, the employee is entitled to receive an additional payment
equal to base salary and target bonus for one year (base salary and additional
base salary through December 31, 1999, in the case of Mr. Bonburg). In the event
of a termination by the Issuer as a result of or in anticipation of a change in
control (as defined in the employment agreements) or a constructive termination,
each of the employment agreements provides that the employee is entitled to
receive his base salary and target bonus for a period of 24 months from the date
of termination or constructive termination, as the case may be.
The employment agreements with Messrs. William H. and J. Michael Gaither,
Roof and Brown expire on May 6, 1999, subject to automatic one-year extensions
unless either party gives 120 days' notice not to renew. The employment
agreement with Mr. Bonburg expires on December 31, 1999. All of the employment
agreements contain non-compete, non-solicitation and confidentiality provisions.
In conjunction with the CPW Acquisition, the Company entered into
employment agreements with each of Arthur C. Soares, the current President and
Chief Executive Officer, and Ray C. Barney, the current Executive Vice President
and Chief Operating Officer, of Speed Merchant.
Mr. Soares' employment agreement provides for a two year term and an annual
base salary of $250,000, a stay-put bonus of $2,000,000 ($1,250,000 payable at
the end of the first year and $750,000 at the end of the second year after the
Closing Date), a "synergy" bonus payable at the end of the first year based on
the attainment of specified performance targets for CPW and an annual incentive
and performance bonus to be determined in good faith by the Board of Directors
of the Issuer. Mr. Barney's employment agreement provides for a three-year term
and an annual base salary of $140,000, a stay-put bonus of $600,000 ($200,000 at
the end of each of the first three years after the Closing Date), a "synergy"
bonus payable at the end of the first year based on the attainment of specified
performance targets for CPW and an annual incentive and performance bonus to be
determined in good faith by the Board of Directors of the Issuer. Both
employment agreements contain non-compete, non-solicitation and confidentiality
provisions.
The employment agreements with Messrs. Soares and Barney are terminable at
any time by the Company. Upon termination of employment for any reason
(including death or permanent disability) the employee (or his heirs, as the
case may be) is entitled to receive the employee's base salary and incentive
bonus earned through the date of termination and the synergy bonus for the first
year of the employment term. Upon termination of employment by the Company
without cause or by the employee with good reason (as defined in the employment
agreements), the employee is entitled to receive an additional payment equal to
the employee's base salary through the end of the term of employment and the
incentive bonus payable for the first year. Payment of the stay-put bonus is
contingent upon the employee's continued employment with the Company except in
the case of death, permanent disability or termination by the employer without
cause or by the employee for good reason.
In connection with the consummation of the Transactions, the Company
entered into an employment agreement with Richard P. Johnson, who serves as
President, Eastern Wholesale Division of the Company. Mr. Johnson is paid an
annual base salary of $250,000, a fixed bonus and an annual incentive bonus to
be determined in the discretion of the Board of Directors of the Issuer. Upon
termination of Mr. Johnson's employment by the Company without cause, or by Mr.
Johnson for good reason, or upon a change of control (as defined in the
employment agreement), Mr. Johnson is entitled to a severance payment ranging
from 12 to 24 months' salary and bonus (depending on the date of termination)
from and after the date of termination. The employment agreement contains
non-compete, non-solicitation and confidentiality provisions.
EXECUTIVE BONUS PLAN
The Company awards annual cash bonuses to up to 20 of its top executives.
Bonuses are payable only if the Company attains specified annual performance
targets, and can range from up to 5% of salary for executives in the lowest
bonus bracket to up to 60% of salary for those in the highest. The executive
bonus plan may be altered in the discretion of the Board of Directors of the
Issuer.
79
<PAGE> 83
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Issuer's Common Stock as of June 30, 1998 (giving effect to the
Reclassification and the other Transactions) of (i) each person known by the
Issuer to own beneficially more than 5% of the Class A Common Stock, (ii) each
person known by the Issuer to own beneficially more than 5% of the Class B
Common Stock, (iii) each director of the Issuer, (iv) the Named Executive
Officers and (v) all directors and executive officers of the Issuer as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF PERCENT OF
NAME AND ADDRESS OF BENEFICIALLY CLASS A COMMON CLASS B COMMON
BENEFICIAL OWNER(A) OWNED STOCK(B) STOCK(B)
- ------------------- ---------------- -------------- --------------
<S> <C> <C> <C>
Ann H. Gaither............................... 1,992,293(c) 53.9%
1,066,538(c,
William H. Gaither........................... d) 28.8
Susan Jones.................................. 475,919 12.9
The 1818 Mezzanine Fund, L.P................. 1,034,000(e) 21.9
Wingate Partners II, L.P..................... 1,301,264(f) 92.9%
Donald C. Roof............................... 27,500(g) 1.4
J. Michael Gaither........................... 27,500(h) 1.4
Daniel K. Brown.............................. 27,500(i) 1.4
Thomas J. Bonburg............................ 41,250(j) 2.0
Joseph P. Donlan............................. 1,034,000(e) 21.9
V. Edward Easterling, Jr..................... --(k)
Victoria B. Jackson.......................... 5,000(l) *
Richard P. Johnson........................... 27,110(f) 1.9
Arthur C. Soares............................. --
William M. Wilcox............................ 5,000(l) *
All directors and executive officers of
Issuer as a group (11 persons)............. 4,253,691(m) 98.7 1.9
</TABLE>
- ---------------
* Indicates less than 1% of the outstanding Class A Common Stock or Class B
Common Stock, as the case may be.
(a) Unless otherwise indicated, the address for each person listed in the table
is in care of The J.H. Heafner Company, Inc., 2105 Water Ridge Parkway,
Suite 500, Charlotte, North Carolina 28217.
(b) Shares beneficially owned, as recorded in this table, are expressed as a
percentage of the shares of Class A Common Stock outstanding or Class B
Common Stock outstanding, as the case may be. For purposes of computing the
percentage of outstanding shares held by each person or group of persons
named in this table, any securities which such person or group of persons
has the right to acquire within 60 days of the date hereof are deemed to be
outstanding for purposes of computing the percentage ownership of such
person or persons, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person. Shares of Class A
Common Stock possess 20 votes per share and shares of Class B Common Stock
possess one vote per share.
(c) Excludes 475,919 shares of Class A Common Stock that Ann H. Gaither and
William H. Gaither have the power to vote pursuant to a voting trust
agreement among certain members of the Gaither family.
(d) Includes 6,250 shares of Class A Common Stock issuable upon the exercise of
options which are exercisable within 60 days.
(e) Represents shares issuable upon the exercise of Warrants (as defined). Mr.
Donlan is the co-manager of The 1818 Mezzanine Fund, L.P. and in that
capacity will have authority to vote and exercise investment power over the
shares. See "Certain Relationships and Related Transactions -- Warrants."
80
<PAGE> 84
(f) Represents shares of Class B Common Stock issued in exchange for shares of
ITCO Logistics as part of the consideration for the ITCO Merger. Share
numbers for Wingate Partners II, L.P. include shares of Class B Common Stock
held by its affiliate, Wingate Affiliates II, L.P. See "Transactions."
(g) Includes 2,500 shares of Class A Common Stock issuable upon the exercise of
options which are exercisable within 60 days.
(h) Includes 2,500 shares of Class A Common Stock issuable upon the exercise of
options which are exercisable within 60 days.
(i) Includes 2,500 shares of Class A Common Stock issuable upon the exercise of
options which are exercisable within 60 days.
(j) Includes 3,750 shares of Class A Common Stock issuable upon the exercise of
options which are exercisable within 60 days.
(k) Does not include an aggregate of 1,301,264 shares of Class B Common Stock
owned by Wingate Partners II, L.P. and its affiliate, Wingate Affiliates II,
L.P. Mr. Easterling is a general partner of Wingate Affiliates II, L.P., and
an indirect general partner of Wingate Partners II, L.P., and, accordingly,
may be deemed to be the beneficial owner of such shares.
(l) Consists of 5,000 shares of Class A Common Stock issuable upon the exercise
of options which are exercisable within 60 days.
(m) Includes (i) 27,110 shares of Class B Common Stock and (ii) 4,221,581 shares
of Class A Common Stock, of which 1,034,000 are shares issuable upon the
exercise of Warrants to The 1818 Mezzanine Fund, L.P., of which Mr. Donlan
is co-manager and will, in that capacity, have voting and investment power
over the shares.
81
<PAGE> 85
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
WARRANTS
In connection with the incurrence of subordinated debt to finance the
acquisition of its Winston subsidiary on May 7, 1997, the Issuer issued warrants
(the "Warrants") to purchase shares of its common stock to The 1818 Mezzanine
Fund, L. P. (the "Fund"). Joseph P. Donlan, a member of the Issuer's Board of
Directors, is a Senior Manager of Brown Brothers Harriman & Co., the Fund's
general partner. Mr. Donlan and Robert R. Gould, a Partner of Brown Brothers
Harriman & Co., are co-managers of the Fund and in that capacity exercise voting
and investment power over the Fund's shares. The Warrants were initially
exercisable for a total of 977,590 shares of common stock of the Issuer. Giving
effect to a subsequent issuance of shares of restricted stock and grant of stock
options to certain key management employees and the Reclassification, the
Warrants are exercisable for 1,034,000 shares of Class A Common Stock. The
Warrants may be exercised at any time, in whole or in part, but in no event
after the earlier of (i) May 7, 2007, (ii) the date of an initial public
offering of Class A Common Stock yielding gross proceeds of at least $25 million
or representing at least 20% of the Class A Common Stock on a fully-diluted
basis or (iii) the merger or consolidation with or into another entity by the
Issuer or the sale of all or substantially all of the assets of the Company.
The number of shares issuable upon the exercise of the Warrants is subject
to adjustment from time to time to reflect stock dividends, splits, combinations
and reclassifications. In addition, the Warrants provide for upward adjustment
of the number of issuable shares if the Issuer issues Class A Common Stock at a
price per share that is less than its current fair market value (as determined
by reference to closing prices of the Class A Common Stock on a national
exchange or, if the Class A Common Stock is not publicly traded, in good faith
by the Board of Directors of the Issuer or a nationally recognized investment
banking firm, if requested by the holders of 33% of the Class A Common Stock on
a fully-diluted basis).
The Warrants provide that the holders of a majority in interest of the
Warrants issued on May 7, 1997 have the right, exercisable (i) upon a Change of
Control (as defined in the Warrants) or (ii) at any time after May 7, 2004, to
require the Issuer to redeem the Warrants, provided, that no such right may be
exercised after the consummation of an initial public offering of the Class A
Common Stock yielding gross proceeds of at least $25 million or representing at
least 20% of the Class A Common Stock on a fully-diluted basis. If the requested
redemption right is exercised, the Issuer must redeem all of the outstanding
Warrants at an agreed redemption price (calculated based on an EBITDA multiple
of the Issuer at the time of redemption) unless otherwise prevented by law. The
Issuer has no right to call for the redemption of the Warrants.
The Issuer and the Fund are also parties to a Note and Warrant Purchase
Agreement and Registration Rights Agreement, each dated as of May 7, 1997, which
contain provisions restricting the transferability of the Warrants (including a
right of first offer in favor of the Issuer) and grant registration rights with
respect to shares of Class A Common Stock issuable upon exercise of the
Warrants.
PREFERRED STOCK
In connection with entering into the Kelly-Springfield Supply Agreement,
Kelly-Springfield purchased from the Issuer 7,000 newly issued shares of the
Issuer's Series A Cumulative Redeemable Preferred Stock, par value $.01 (the
"Series A Preferred Stock") and 4,500 newly issued shares of the Issuer's Series
B Cumulative Redeemable Preferred Stock, par value $.01 (the "Series B Preferred
Stock" and, together with the Series A Preferred Stock, the "Preferred Stock"),
for an aggregate purchase price of $11.5 million. Kelly-Springfield is the sole
holder of the Preferred Stock. The Preferred Stock has a stated value and
liquidation preference equal to $1,000 per share, except the liquidation
preference of the Series B Preferred Stock is reduced from time to time based
upon purchases of certain types of tires by the Company from Kelly-Springfield.
Kelly-Springfield is entitled to receive monthly dividends on the
liquidation preference of the Series A Preferred Stock at a rate of 4% per
annum, which may be increased if annual tire purchases fall below certain
levels. The Issuer is not required to pay dividends on the Series B Preferred
Stock unless annual tire purchases by the Company from Kelly-Springfield fall
below certain levels.
82
<PAGE> 86
Subject to the limitations summarized below, beginning in December 2002 and
ending in June 2007, the Issuer is required to redeem 700 shares of Series A
Preferred Stock per year on a semi-annual basis at 100% of the liquidation
preference of such shares plus all accrued and unpaid dividends. Subject to the
same limitations, the Issuer is required to redeem all of the outstanding shares
of Series B Preferred Stock in June 2007 at the same redemption price. Unless
restricted by the limitations summarized below, the Issuer also is required to
redeem the Preferred Stock if the Kelly-Springfield Supply Agreement is
terminated or, at the request of Kelly-Springfield, if a change of control of
the Issuer occurs. The Preferred Stock also is redeemable at any time at the
Issuer's option.
So long as any amounts are outstanding under the Issuer's existing credit
facility or subordinated notes, or any amending or replacing agreement for such
debt, or any commitments to lend exist under such debt, the Issuer is prohibited
from making any payment in respect of any mandatory or optional redemption of
the Preferred Stock, or declaring, making or paying any dividend or distribution
in respect of the Preferred Stock if any event of default or default under any
such debt or any event which, upon notice or lapse of time, or both, would
constitute an event of default has occurred or is continuing or would result
therefrom and has not been cured or waived in accordance with such debt.
SHARE REPURCHASES
In February 1997, the Issuer offered to repurchase shares of common stock
from members of the Gaither family not actively involved in the operation of the
Issuer at a price equal to $.8058 per share ($2,644 per share without giving
effect to a 3,281-for-1 stock split that occurred on May 7, 1997). Pursuant to
the offer, the Issuer repurchased (and subsequently canceled and retired)
3,359,744 shares of common stock from such family members (1,024 shares without
giving effect to the stock split) for an aggregate purchase price of $2.7
million. In 1986, the Issuer repurchased from Carolyn H. Williams (and
subsequently canceled and retired) all of her shares of common stock in the
Issuer in exchange for a promissory note in the original principal amount of
$1.4 million. Carolyn H. Williams is the sister of Ann H. Gaither, the
Chairperson of the Issuer. The note is payable in annual installments of
$124,600 (including interest at a rate per annum of 7.5%) through January 2006.
The outstanding principal amount of the note at June 30, 1998 was approximately
$730,000.
RELATED PARTY LEASES; LOAN GUARANTEE
The Issuer leases corporate office space in Lincolnton, North Carolina from
Ann H. Gaither, the Chairperson of the Issuer, and her sister, Carolyn H.
Williams, for an annual rent equal to approximately $87,000. The Issuer leases
its Winston-Salem, North Carolina distribution center from Ann H. Gaither, the
Chairperson of the Issuer, for an annual rent equal to approximately $55,200.
The Issuer leases the data processing and human resources buildings adjacent to
its corporate headquarters in Lincolnton, North Carolina from Evangeline
Heafner, Ann H. Gaither's mother, for an annual rent equal to approximately
$37,000. The expiration dates of these leases are September 30, 2002, August 1,
1998 and December 30, 2002, respectively. The Company believes that these leases
are on terms no less favorable to the Company than could have been obtained from
an independent third party.
Pursuant to a guaranty dated March 31, 1997, the Issuer has agreed to
guarantee all obligations of William H. Gaither, President and Chief Executive
Officer of the Issuer, under a mortgage loan in an aggregate principal amount
not to exceed $890,000.
83
<PAGE> 87
DESCRIPTION OF NEW CREDIT FACILITY
The following is a summary description of the principal terms of the New
Credit Facility. The description set forth below does not purport to be complete
and is qualified in its entirety by reference to the agreements setting forth
the principal terms and conditions of the New Credit Facility. Copies of such
agreements (other than schedules and exhibits) are available from the Company
upon request.
The Issuer and certain of its subsidiaries (the "Borrowers") entered into
the New Credit Facility on the Closing Date. At August 14, 1998, approximately
$55.5 million was outstanding and an additional $34.1 million was available for
additional borrowings under the New Credit Facility. It is expected that the New
Credit Facility will be syndicated among the several lenders parties thereto
(collectively, the "Lenders"), with BankBoston, N.A., as Agent, and Fleet
Capital Corporation and First Union National Bank, as Co-Agents (together, the
"Agents"). The New Credit Facility provides for a senior secured revolving
credit facility, which may be borrowed in the aggregate principal amount of up
to $100 million (of which up to $10 million may be utilized in the form of
commercial and standby letters of credit).
Guaranties and Security. All obligations of the Borrowers under the New
Credit Facility are guaranteed (the "Credit Facility Guaranties") by certain
subsidiaries of the Company which are not direct obligors thereunder (the
"Credit Facility Guarantors"). The Borrowers' obligations under the New Credit
Facility, and the Credit Facility Guarantors' obligations under their respective
Credit Facility Guaranties, are secured by all of the inventory and accounts
receivable (and proceeds thereof) of the Borrowers and the Credit Facility
Guarantors (collectively, the "Collateral"). Future subsidiaries of the Company
may be required to become Credit Facility Guarantors or Borrowers under the New
Credit Facility.
Availability and Maturity. Provided that no event of default exists, loans
made pursuant to the New Credit Facility may be drawn, repaid and reborrowed
from time to time until May 2003, subject to the satisfaction of certain
conditions on the date of any such borrowing. The New Credit Facility will be
permanently reduced by an amount equal to any Net Available Cash (as defined in
the Indenture), and the Company will be required to prepay the New Credit
Facility to the extent necessary at the time of any such permanent reduction.
The New Credit Facility will mature and become due and payable in May 2003,
except that the Borrowers and the Agent may agree to extend the New Credit
Facility for up to an additional five years.
Interest. Indebtedness under the New Credit Facility bears interest, at
the Company's option, (i) at the "Base Rate" (a floating rate per annum equal to
the greater of the federal funds rate plus 0.5% or the rate announced by the
Agent from time to time as its base or prime lending rate) plus the Applicable
Margin or (ii) at the "Eurodollar Rate" (a fixed rate per annum based on LIBOR)
for one, two, three, six or (subject to the Lenders' agreement) twelve months
plus the Applicable Margin. The "Applicable Margin" for Base Rate Loans will be
0.25% and the Applicable Margin for Eurodollar Rate Loans will be 1.75%, subject
in each case to performance based step-downs based on the Company's ratio of
Funded Debt to EBITDA (as defined). Overdue sums under the New Credit Facility
will bear interest at a default rate equal to the applicable interest rate plus
2% per annum.
Certain Fees. The Company is required to pay to the Lenders a commitment
fee equal to 0.375% per annum on the committed undrawn amount of the New Credit
Facility, subject to performance based step-downs based upon the Company's ratio
of Funded Debt to EBITDA, letter of credit fees equal to the Applicable Margin
applicable to Eurodollar Rate Loans on a per annum basis and a fronting fee of
0.125% per annum to be paid to the issuer of letters of credit. The Company has
also agreed to pay certain other fees and expenses of the Lenders and the Agent.
Covenants. The New Credit Facility requires the Company to meet certain
financial tests, including minimum Net Worth and minimum Loan Availability (as
defined therein). The New Credit Facility also contains covenants which, among
other things, restrict the ability of the Company to incur additional
indebtedness; enter into guaranties; make loans and investments (provided that
the Company will be permitted to make investments in respect of new acquisitions
up to $25 million in any fiscal year and $40 million during the term of the
agreement); make capital expenditures in excess of $12 million in any fiscal
84
<PAGE> 88
year; declare dividends; engage in mergers, consolidations and asset sales;
enter into transactions with affiliates; create or suffer to exist liens and
encumbrances; enter into sale/leaseback transactions; modify material agreements
or constitutive documents; and change the business it conducts. The covenants
also require the Company to provide periodic financial reports to the Lenders;
observe certain practices and procedures with respect to the Collateral; comply
with applicable laws; maintain and preserve the properties and corporate
existence of the Company and its subsidiaries; and maintain insurance.
Events of Default. The New Credit Facility contains customary events of
default, including payment defaults, breaches of representations and warranties,
covenant defaults, cross-default and cross-acceleration, bankruptcy, asserted
invalidity of any loan documents, failure of security interests, material
judgments, ERISA liabilities, the failure of the Issuer directly or indirectly
to own 100% of any Borrower or Credit Facility Guarantor under the New Credit
Facility (except to the extent such Borrower is merged into the Issuer or one of
its wholly owned subsidiaries) or the occurrence of a Change of Control (as
defined in the New Credit Facility).
Although no definitive plan or arrangement for repayment of borrowings
under the New Credit Facility has been made, the Company anticipates such
borrowings will be repaid with internally generated funds (including those of
the New Businesses) and from other sources which may include the proceeds of
future bank refinancings, asset sales or the public or private sale of debt or
equity securities. No decision has been made concerning the method the Company
will use to repay the borrowings under the New Credit Facility. Such decision
will be made based on the Company's review from time to time of the advisability
of particular actions, as well as prevailing interest rates, financial and other
economic conditions and such other factors as the Company may deem appropriate.
85
<PAGE> 89
DESCRIPTION OF THE NEW NOTES
GENERAL
The New Notes will be issued pursuant to the Indenture, dated as of May 15,
1998 (the "Indenture"), between the Issuer and First Union National Bank, as
Trustee (the "Trustee"), which has been filed as an exhibit to the Exchange
Offer Registration Statement of which this Prospectus constitutes a part. The
following is a summary of certain provisions of the Indenture and the Notes. The
following summary of certain provisions of the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of 1939,
as amended.
On May 20, 1998, the Issuer issued $100.0 million aggregate principal
amount of Old Notes under the Indenture. The terms of the New Notes are
identical in all material respects to the Old Notes, except for certain transfer
restrictions and registration and other rights relating to the exchange of the
Old Notes for New Notes. The Trustee will authenticate and deliver New Notes for
original issue only in exchange for a like principal amount of Old Notes. Any
Old Notes that remain outstanding after the consummation of the Exchange Offer,
together with the New Notes, will be treated as a single class of securities
under the Indenture.
The New 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 of transfer or exchange of New
Notes, but the Issuer may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
TERMS OF THE NEW NOTES
The Notes will be unsecured senior obligations of the Issuer, limited to
$100.0 million aggregate principal amount, and will mature on May 15, 2008. The
New Notes will bear interest at the rate per annum shown on the cover page
hereof from May 20, 1998, 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 May 1 or November 1 immediately preceding the interest
payment date on May 15 and November 15 of each year, commencing November 15,
1998. The Issuer will pay interest on overdue principal at 1% per annum in
excess of such rate, and it will pay interest on overdue installments of
interest at such higher rate to the extent lawful.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Issuer prior to May 15, 2003. Thereafter, the
Notes will be redeemable, at the Issuer'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 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 May
15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------ ----------
<S> <C>
2003...................................................... 105.000
2004...................................................... 103.333
2005...................................................... 101.667
2006 and thereafter....................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to May 15, 2001, the
Issuer may redeem in the aggregate up to 35% of the original principal amount of
the Notes with the proceeds of one or more Public Equity Offerings following
which there is a Public Market, at a redemption price (expressed as a percentage
of principal amount) of 110.0% plus accrued interest to the redemption date
(subject to the right of Holders of
86
<PAGE> 90
record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least $65.0 million aggregate
principal amount of the Notes must remain outstanding and be held, directly or
indirectly, by Persons other than the Issuer and its Affiliates, 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.
SUBSIDIARY GUARANTIES
The obligations of the Issuer pursuant to the Notes, including the
repurchase obligation resulting from a Change of Control, are unconditionally
guaranteed, jointly and severally, on a senior unsecured basis, by each of the
Subsidiary Guarantors. Each Subsidiary Guaranty will be limited in amount to an
amount not to exceed the maximum amount that can be guaranteed by the applicable
Subsidiary Guarantor without rendering the Subsidiary Guaranty, as it relates to
such Subsidiary Guarantor, voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally. If a Subsidiary Guaranty were to be rendered voidable, it
could be subordinated by a court to all other indebtedness (including guarantees
and other contingent liabilities) of the applicable Subsidiary Guarantor, and,
depending on the amount of such indebtedness, a Subsidiary Guarantor's liability
on its Subsidiary Guaranty could be reduced to zero. See "Risk
Factors -- Fraudulent Conveyance Statutes".
Upon the sale or other disposition of a Subsidiary Guarantor or the sale or
disposition of all or substantially all the assets of a Subsidiary Guarantor (in
each case other than to the Issuer or an Affiliate of the Issuer) permitted by
the Indenture, such Subsidiary Guarantor will be released and relieved from all
its obligations under its Subsidiary Guaranty.
RANKING
The indebtedness evidenced by the Notes constitutes a senior unsecured
obligation of the Issuer, ranks pari passu in right of payment with all existing
and future senior indebtedness of the Issuer and is senior in right of payment
to all future subordinated indebtedness of the Issuer. The Subsidiary Guaranties
rank pari passu in right of payment with all existing and future senior
indebtedness of the Subsidiary Guarantors and are senior in right of payment to
all future subordinated indebtedness of the Subsidiary Guarantors. The Notes are
effectively subordinated to all existing and future secured indebtedness of the
Issuer and the Subsidiary Guarantors, including indebtedness under the New
Credit Facility, to the extent of the value of the assets securing such
indebtedness.
As of June 30, 1998, the Issuer and the Subsidiary Guarantors had
outstanding, either directly or through guarantees, approximately $170.9 million
of indebtedness, all of which was senior indebtedness and approximately $66.1
million of which was secured. In addition, at August 14, 1998, the Company could
have borrowed an additional $34.1 million under the New Credit Facility, all of
which would have been secured.
A portion of the operations of the Issuer are conducted through its
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by such subsidiaries, and claims of preferred stockholders (if any) of
such subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Issuer,
including holders of the Notes. The Notes, therefore, are effectively
subordinated to creditors (including trade creditors) and preferred stockholders
(if any) of subsidiaries of the Issuer (other than the Subsidiary Guarantors).
At June 30, 1998, the total liabilities of the Issuer's subsidiaries (all of
whom are Subsidiary Guarantors, with immaterial exceptions) was approximately
$205.6 million, including trade payables. Although the Indenture limits the
incurrence of Indebtedness and preferred stock of certain of the Issuer's
subsidiaries, such limitation is subject to a number of significant
qualifications. Moreover, the Indenture does not impose any limitation on the
incurrence by such subsidiaries of liabilities that are not
87
<PAGE> 91
considered Indebtedness or Preferred Stock under the Indenture. See "-- Certain
Covenants -- Limitation on Indebtedness."
BOOK-ENTRY, DELIVERY AND FORM
The Old Notes were initially issued in the form of a Global Note (the "Old
Global Note"). The New Notes will initially be issued in the form of a Global
Note (the "New Global Note"). The Old Global Note was deposited on the date of
the closing of the sale of the Old Notes, and the New Global Note will be
deposited with, or on behalf of, the Depository and registered in the name of
the Depository or its nominee on the date of closing of the Exchange Offer.
Except as set forth below, the New Global Note may be transferred, in whole and
not in part, only to the Depository or another nominee of the Depository.
Investors may hold their beneficial interests in the New Global Note directly
through the Depository if they have an account with the Depository or indirectly
through organizations which have accounts with the Depository.
Notes that are issued as described under "-- Certificated Notes" will be
issued in definitive form. Upon the transfer of a Note in definitive form, such
Note will, unless the New Global Note has previously been exchanged for Notes in
definitive form, be exchanged for an interest in the New Global Note
representing the principal amount of Notes being transferred.
The Depository has advised the Issuer as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (which may
include the Initial Purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depository's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
Upon the issuance of the New Global Note, the Depository will credit, on
its book-entry registration and transfer system, the principal amount of the New
Notes represented by such New Global Note to the accounts of participants. The
accounts to be credited shall be designated by the Trustee. Ownership of
beneficial interests in the New Global Note will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests in the New Global Note will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by the
Depository (with respect to participants' interest) and such participants (with
respect to the owners of beneficial interests in the New Global Note other than
participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the New Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the New Global Note, the Depository or such nominee, as the case may
be, will be considered the sole legal owner and holder of the related Notes for
all purposes of such Notes and the Indenture. Except as set forth below, owners
of beneficial interests in the New Global Note will not be entitled to have the
Notes represented by the New Global Note registered in their names, will not
receive or be entitled to receive physical delivery of certificated Notes in
definitive form and will not be considered to be the owners or holders of any
Notes under the New Global Note. The Issuer understands that under existing
industry practice, in the event an owner of a beneficial interest in the New
Global Note desires to take any action that the Depository, as the holder of the
New Global Note, is entitled to take, the Depository would authorize the
participants to take such action, and that the participants would authorize
beneficial owners owning through such participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
Payment of principal of and interest on Notes represented by the New Global
Note registered in the name of and held by the Depository or its nominee will be
made to the Depository or its nominee, as the case may be, as the registered
owner and holder of the New Global Note.
88
<PAGE> 92
The Issuer expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the New Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. The Issuer also expects
that payments by participants to owners of beneficial interests in the New
Global Note held through such participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants. The Issuer will not have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the New Global Note for any Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between the Depository and
its participants or the relationship between such participants and the owners of
beneficial interests in the New Global Note owning through such participants.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, the New Global Note may not be transferred except as a whole
by the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the New Global Note among participants of
the Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Issuer will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
The Notes represented by the New Global Note are exchangeable for
certificated Notes in definitive form of like tenor as such Notes in
denominations of U.S. $1,000 and integral multiples thereof if (i) the
Depository notifies the Issuer that it is unwilling or unable to continue as
Depository for the New Global Note or if at any time the Depository ceases to be
a clearing agency registered under the Exchange Act and a successor Depository
is not appointed by the Issuer within 90 days, (ii) the Issuer in its discretion
at any time determines not to have all of the Notes represented by the New
Global Note or (iii) an Event of Default has occurred and is continuing. Any
Note that is exchangeable pursuant to the preceding sentence is exchangeable for
certificated Notes issuable in authorized denominations and registered in such
names as the Depository shall direct, subject to certain ownership certification
requirements imposed by Regulation S under the Securities Act. Subject to the
foregoing, the New Global Note is not exchangeable, except for a New Global Note
of the same aggregate denomination to be registered in the name of the
Depository or its nominee.
SAME-DAY PAYMENT
The Indenture requires that payments in respect of Notes (including
principal, premium and interest) be made by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address.
REGISTRATION RIGHTS
Holders of New Notes are not entitled to any registration rights with
respect to the New Notes. The Company has agreed for a period of 180 days from
the consummation of the Exchange Offer to make available a prospectus meeting
the requirements of the Securities Act to any broker-dealer for use in
connection with any resale of any New Notes. The Registration Statement of which
this Prospectus is a part constitutes the Exchange Offer Registration Statement
which is the subject of the Registration Rights Agreement. Upon the closing of
the Exchange Offer, subject to certain limited exceptions, Holders of untendered
Old Notes will not retain any rights under the Registration Rights Agreement.
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 Issuer
repurchase, pursuant to the offer procedure described below, such
89
<PAGE> 93
Holder's Notes at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date):
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that for purposes of this clause (i) such person shall
be deemed to have "beneficial ownership" of all shares that any 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 Voting Stock of the Issuer; (for the
purposes of this clause (i), such other person shall be deemed to
beneficially own any Voting Stock of a specified corporation held by a
parent corporation, if such other person is the beneficial owner (as
defined in this clause (i)), directly or indirectly, of more than 50% of
the voting power of the Voting Stock of such parent corporation);
(ii) during any period of two consecutive years, 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 Issuer was approved by
(x) a vote of 66 2/3% of the directors of the Issuer 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 or (y) Permitted
Holders holding a majority of the aggregate voting power of the Voting
Stock of the Company held by all Permitted Holders) cease for any reason to
constitute a majority of the Board of Directors then in office;
(iii) the adoption of a plan relating to the liquidation or
dissolution of the Issuer; or
(iv) the merger or consolidation of the Issuer with or into another
Person or the merger of another Person with or into the Issuer, or the sale
of all or substantially all the assets of the Issuer to another Person
(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 Issuer
that are outstanding immediately prior to such transaction and which
represent 100% of the aggregate voting power of the Voting Stock of the
Issuer 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 that represent immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation.
Within 30 days following any Change of Control, the Issuer shall mail a
notice to each Holder with a copy to the Trustee (the "Change of Control Offer")
stating: (1) that a Change of Control has occurred and that such Holder has the
right to require the Issuer to purchase such Holder's Notes at a purchase price
in cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest on the relevant interest
payment date); (2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income, cash
flow and capitalization after giving effect to 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
Issuer, consistent with the covenant described hereunder, that a Holder must
follow in order to have its Notes purchased.
The Issuer will not be required to make a Change of Control Offer following
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Issuer and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Issuer 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 described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Issuer shall comply with the
90
<PAGE> 94
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the covenant described hereunder by virtue
thereof.
The Change of Control purchase feature is a result of negotiations between
the Issuer and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Issuer would decide to do so in the future. Subject to the limitations
discussed below, the Issuer 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 Issuer's capital structure or credit ratings. Restrictions on the
ability of the Issuer to incur additional Indebtedness are contained in the
covenants described under "-- Certain Covenants -- Limitation on Indebtedness",
"-- Limitation on Liens" and "-- Limitation on Sale/Leaseback Transactions."
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 of the Notes protection in
the event of a highly leveraged transaction.
The New Credit Facility contains and future indebtedness of the Issuer may
contain prohibitions on the occurrence of certain events that would constitute a
Change of Control or require such indebtedness to be repurchased upon a Change
of Control. Moreover, the exercise by the holders of their right to require the
Issuer 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 Issuer. There can be no assurance that in the event of a
Change of Control the Issuer will be able to obtain the consents from such
lenders needed to consummate a Change of Control Offer without causing such a
default. Finally, the Issuer's ability to pay cash to the holders of Notes
following the occurrence of a Change of Control may be limited by the Issuer'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 relative to the Issuer'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.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Issuer shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Issuer may Incur Indebtedness if, on the date of
such Incurrence and after giving effect thereto, the Consolidated Coverage Ratio
exceeds 2 to 1 if such Indebtedness is Incurred prior to May 15, 2000 or 2.25 to
1 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Issuer and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred pursuant to the New Credit Facility;
provided, however, that, after giving effect to any such Incurrence, the
aggregate principal amount of such Indebtedness then outstanding does not
exceed the greater of (i) $100 million less the sum of all principal
payments with respect to such Indebtedness pursuant to paragraph (a)(ii)(A)
of the covenant described under "-- Limitation on Sales of Assets and
Subsidiary Stock" and (ii) the sum of (x) 65% of the book value of the
inventory of the Issuer and its Restricted Subsidiaries and (y) 85% of the
book value of the accounts receivables of the Issuer and its Restricted
Subsidiaries;
(2) Indebtedness owed to and held by the Issuer or a Restricted
Subsidiary; provided, however, that (i) any subsequent issuance or transfer
of any Capital Stock which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Issuer or a Restricted Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness by
the obligor thereon and (ii) if the Issuer is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all obligations with respect to the Notes;
91
<PAGE> 95
(3) the Notes and the New Notes;
(4) Vendor Financing, and Refinancing Indebtedness in respect thereof,
in an aggregate amount which does not exceed, when taken together with all
other Indebtedness Incurred pursuant to this clause (4) and then
outstanding, including Vendor Financing outstanding on the Issue Date, $20
million;
(5) Attributable Debt in respect of Sale/Leaseback Transactions, and
Refinancing Indebtedness in respect thereof, in an amount which does not
exceed, when taken together with all other Indebtedness Incurred pursuant
to this clause (5) and then outstanding, $15 million; provided that such
Sale/ Leaseback Transactions comply with the covenant described under
"-- Limitation on Sale/Leaseback Transactions";
(6) Indebtedness outstanding (or Incurred pursuant to commitments
outstanding) on the Issue Date (other than Indebtedness described in clause
(1), (2), (3), (4) or (5) of this covenant);
(7) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Subsidiary was acquired by the Issuer
(other than Indebtedness 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
Subsidiary became a Subsidiary or was acquired by the Issuer); provided,
however, that on the date of such acquisition and after giving effect
thereto, the Issuer would have been able to Incur at least $1.00 of
additional Indebtedness pursuant to paragraph (a) of this covenant;
(8) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3), (6), (7) or this
clause (8); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness of a Subsidiary
Incurred pursuant to clause (7), such Refinancing Indebtedness shall be
Incurred only by such Subsidiary; provided further, however, that
Indebtedness outstanding on the Issue Date pursuant to the ITCO Facility
shall not be Refinanced pursuant to this clause (8) but shall only be
Refinanced pursuant to the Incurrence of Indebtedness under clause (b)(1)
above;
(9) Hedging Obligations consisting of Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the Issuer
pursuant to the Indenture;
(10) the Subsidiary Guaranties of the Subsidiary Guarantors; and
(11) Indebtedness of the Issuer in an aggregate principal amount
which, together with all other Indebtedness of the Issuer outstanding on
the date of such Incurrence (other than Indebtedness permitted by clauses
(1) through (10) above or paragraph (a)) does not exceed $15 million.
(c) Notwithstanding the foregoing, the Issuer 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 foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Issuer, 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 Restricted Payments. (a) The Issuer shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Issuer or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Issuer is not able to Incur an additional $1.00
of Indebtedness pursuant to
92
<PAGE> 96
paragraph (a) of the covenant described under "-- Limitation on Indebtedness";
or (3) the aggregate amount of such Restricted Payment and all other Restricted
Payments since the Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the Notes are
originally issued to the end of the most recent fiscal quarter ending at
least 45 days prior to the date of such Restricted Payment (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 Issuer 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 Issuer and other than an issuance or sale to an employee
stock ownership plan or to a trust established by the Issuer or any of its
Subsidiaries for the benefit of their employees);
(C) the aggregate Net Cash Proceeds received by the Issuer from the
issuance or sale of its Capital Stock (other than Disqualified Stock) to an
employee stock ownership plan (including a 401(k) plan that holds Capital
Stock of the Company) subsequent to the Issue Date; provided, however, that
if such employee stock ownership plan incurs any Indebtedness, such
aggregate amount shall be limited to an amount equal to any increase in the
Consolidated Net Worth of the Issuer resulting from principal repayments
made by such employee stock ownership plan with respect to Indebtedness
incurred by it to finance the purchase of such Capital Stock;
(D) the amount by which Indebtedness of the Issuer is reduced on the
Issuer's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Issuer) subsequent to the Issue Date of any Indebtedness
of the Issuer convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Issuer (less the amount of any cash, or the fair
value of any other property, distributed by the Issuer upon such conversion
or exchange);
(E) an amount equal to the sum of (i) the net reduction in Investments
in a Person resulting from dividends, repayments of loans or advances or
other transfers of assets, in each case to the Issuer or any Restricted
Subsidiary from such Person and (ii) the portion (proportionate to the
Issuer'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 Person, the amount
of Investments previously made on or after the Issue Date (and included in
the calculation of Restricted Payments) by the Issuer or any Restricted
Subsidiary in such Person; and
(F) $5 million.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any acquisition of any Capital Stock of the Issuer made out of the
proceeds of the substantially concurrent sale of, or made by exchange for,
Capital Stock of the Issuer (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary of the Issuer or an employee
stock ownership plan or to a trust established by the Issuer or any of its
Subsidiaries for the benefit of their employees); provided, however, that
(A) such acquisition of Capital Stock shall be excluded in the calculation
of the amount of Restricted Payments and (B) the Net Cash Proceeds from
such sale shall be excluded from the calculation of amounts under clause
(3)(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 Issuer 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 this covenant; provided, however, that at the time of payment of
93
<PAGE> 97
such dividend, no other Default shall have occurred and be continuing (or
result therefrom); provided further, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments;
(iv) the repurchase or other acquisition of shares of, or options to
purchase shares of, common stock of the Issuer or any of its Subsidiaries
from employees, former employees, directors or former directors of the
Issuer or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors), (x) upon
death, retirement, severance or termination of employment or service or (y)
pursuant to the terms of the agreements (including employment agreements)
or plans (or amendments thereto) approved by the Board of Directors under
which such individuals purchase or sell or are granted the option to
purchase or sell, shares of such common stock; provided, however, that the
aggregate amount of such repurchases and other acquisitions shall not
exceed $1.0 million in any calendar year; provided further, however, that
such repurchases and other acquisitions shall be excluded in the
calculation of the amount of Restricted Payments;
(v) the payment to The Kelly Springfield Tire Company or its
successors or assigns of dividends on the 7,000 shares of Series A
Cumulative Redeemable Preferred Stock or the 4,500 shares of Series B
Cumulative Redeemable Preferred Stock held by The Kelly Springfield Tire
Company to the extent required to be paid by the Issuer pursuant to the
terms of such stock as in existence on the Issue Date; provided, however,
that such payment shall be excluded in the calculation of the amount of
Restricted Payments; or
(vi) payments to employees of ITCO in respect of certain stock
appreciation rights granted by ITCO and required to be made upon
consummation of the Transactions not to exceed $1.5 million in the
aggregate; provided, however, that such payments shall be excluded from the
calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Issuer shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions on its Capital
Stock to the Issuer or a Restricted Subsidiary or pay any Indebtedness owed to
the Issuer, (b) make any loans or advances to the Issuer or (c) transfer any of
its property or assets to the Issuer, except:
(i) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date or the New Credit Facility as in
effect 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 Issuer (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 Issuer) 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, taken as
a whole, materially less favorable to the Noteholders than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in such
predecessor agreements;
(iv) any such encumbrance or restriction consisting of customary
provisions restricting (x) assignments, subletting or other transfers
contained in leases, licenses and similar agreements to the extent such
provisions restrict the transfer of the property subject thereto, or (y)
the assignment or other transfer of any lease or other contract;
94
<PAGE> 98
(v) in the case of clause (c) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary or Permitted Liens to the extent such restrictions restrict the
transfer of the property subject to such security agreements or mortgages
or Permitted Liens; and
(vi) 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 Issuer shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Issuer or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to 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 Issuer 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 Issuer (or such
Restricted Subsidiary, as the case may be) (A) first, to the extent the Issuer
elects (or is required by the terms of any Indebtedness), to prepay, repay,
redeem or purchase Senior Indebtedness or Indebtedness (other than any
Disqualified Stock) of a Wholly Owned Subsidiary (in each case other than
Indebtedness owed to the Issuer or an Affiliate of the Issuer) within one year
from the later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (B) second, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), to the extent the Issuer
elects, to acquire Additional Assets within one year from the later of the date
of such Asset Disposition or the receipt of such Net Available Cash; (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 to the holders of the
Notes (and to holders of other Senior Indebtedness designated by the Issuer) to
purchase Notes (and such other Senior Indebtedness) pursuant to and subject to
the conditions contained in the Indenture; and (D) fourth, to the extent of any
balance of such Net Available Cash after application in accordance with clauses
(A), (B) and (C), in any manner that does not violate the Indenture; provided,
however, that in connection with any prepayment, repayment or purchase of
Indebtedness pursuant to clause (A) or (C) above, the Issuer or such Restricted
Subsidiary shall permanently retire such Indebtedness and shall cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions of this paragraph, the Issuer and the Restricted
Subsidiaries shall not be required to apply any 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 million. Pending application of Net Available Cash pursuant
to this covenant, such Net Available Cash shall be invested in Permitted
Investments.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Indebtedness of the Issuer or any
Restricted Subsidiary and the release of the Issuer or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition and (y) securities received by the Issuer or any Restricted
Subsidiary from the transferee that are promptly converted by the Issuer or such
Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Indebtedness) pursuant to clause (a)(ii)(C) above, the
Issuer will be required to purchase Notes tendered pursuant to an offer by the
Issuer for the Notes (and other Senior Indebtedness) at a purchase price of 100%
of their principal amount (without premium) plus accrued but unpaid interest
(or, in respect of such other Senior Indebtedness, such lesser price, if any, as
may be provided for by the terms of such Senior Indebtedness) in accordance with
the procedures (including prorating in the event of oversubscription) set forth
in the Indenture. If the aggregate purchase price of Notes (and any other Senior
Indebtedness) tendered pursuant to such offer is less than the Net Available
Cash allotted to the purchase thereof, the Issuer shall apply the remaining Net
Available Cash in accordance with clause (a)(ii)(D) above. The Issuer shall not
be required to make such an offer to purchase Notes (and other Senior
Indebtedness) pursuant to this covenant if the Net Available Cash available
therefor is less than $5 million (which lesser amount shall be carried
95
<PAGE> 99
forward for purposes of determining whether such an offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition).
(c) The Issuer 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 Issuer 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 Issuer shall not, and shall
not permit any Restricted Subsidiary to, enter into any transaction (including
the purchase, sale, lease or exchange of any property, employee compensation
arrangements or the rendering of any service) with any Affiliate of the Issuer
(an "Affiliate Transaction") unless the terms thereof (1) are no less favorable
to the Issuer or such Restricted Subsidiary than those that could be obtained at
the time of such 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 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 personal stake
in such Affiliate Transaction and (3) if such Affiliate Transaction involves an
amount in excess of $7.5 million, have been determined by a nationally
recognized investment banking firm to be fair, from a financial standpoint, to
the Issuer and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any transaction permitted pursuant to the covenant described under
"-- Limitation on Restricted Payments", or explicitly excluded from the
definition of "Restricted Payment", (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors, (iii) the grant of stock options or similar
rights to employees and directors of the Issuer pursuant to plans approved by
the Board of Directors, (iv) loans or advances to employees in the ordinary
course of business in accordance with the past practices of the Issuer or its
Restricted Subsidiaries, but in any event not to exceed $1 million in the
aggregate outstanding at any one time, (v) the payment of reasonable fees to
directors of the Issuer and its Restricted Subsidiaries who are not employees of
the Issuer or its Restricted Subsidiaries, (vi) any Affiliate Transaction
between the Issuer and a Restricted Subsidiary or between Restricted
Subsidiaries; provided, however, that no Affiliate of the Issuer (other than
another Restricted Subsidiary) owns the Capital Stock of any such Restricted
Subsidiary, (vii) the issuance or sale of any Capital Stock (other than
Disqualified Stock) of the Issuer or (viii) the amendment or extension or
renewal of any transaction in effect on the Issue Date on terms no less
favorable to the Issuer and its Restricted Subsidiaries than the terms in effect
on the Issue Date.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Issuer shall not sell or otherwise dispose of any 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
of its Capital Stock except (i) to the Issuer or a Wholly Owned Subsidiary, (ii)
directors' qualifying shares, (iii) if, immediately after giving effect to such
issuance, sale or other disposition, neither the Issuer nor any of its
Subsidiaries own any Capital Stock of such Restricted Subsidiary or (iv) if,
immediately after giving effect to such issuance, sale or other disposition,
such Restricted Subsidiary would no longer constitute a Restricted Subsidiary
and any Investment in such Person remaining after giving effect thereto would
have been permitted to be made under the covenant described under "-- Limitation
on Restricted Payments" if made on the date of such issuance, sale or other
disposition.
Limitation on Liens. The Issuer shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on any of its properties (including Capital Stock
of a Restricted Subsidiary), whether owned at the Issue Date or thereafter
acquired, other than Permitted Liens, without effectively providing that the
Notes shall be secured equally and ratably with (or prior to) the obligations so
secured for so long as such obligations are so secured.
Limitation on Sale/Leaseback Transactions. The Issuer shall not, and shall
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) the Issuer or such
Subsidiary would be entitled to (A) Incur Indebtedness in an amount equal to the
Attributable Debt
96
<PAGE> 100
with respect to such Sale/Leaseback Transaction pursuant to the covenant
described under "-- Limitation on Indebtedness" and (B) create a Lien on such
property securing such Attributable Debt without equally and ratably securing
the Notes pursuant to the covenant described under "-- Limitation on Liens",
(ii) the net proceeds received by the Issuer or any Restricted Subsidiary in
connection with such Sale/Leaseback Transaction are at least equal to the fair
value (as determined by the Board of Directors) of such property and (iii) the
Issuer applies the proceeds of such transaction in compliance with the covenant
described under "-- Limitation on Sale of Assets and Subsidiary Stock".
Merger and Consolidation. The Issuer shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless: (i)
the resulting, surviving or transferee Person (the "Successor Issuer") 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 Issuer (if not
the Issuer) 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 Issuer 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 Issuer or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Issuer 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 Issuer would be able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness"; (iv) immediately after giving effect to such
transaction, the Successor Issuer shall have Consolidated Net Worth in an amount
that is not less than the Consolidated Net Worth of the Issuer immediately prior
to such transaction; (v) the Issuer shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel addressed to the Trustee with
respect to the foregoing matters; provided, however, that the requirements set
forth in clauses (iii) and (iv) above shall not apply to a merger between the
Issuer and any Wholly Owned Subsidiary; and (vi) the Issuer shall have delivered
to the Trustee an Opinion of Counsel to the effect that the Holders will not
recognize income, gain or loss for Federal income tax purposes as a result of
such transaction 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
transaction had not occurred.
The Issuer will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to any Person (other
than in a transaction or transactions resulting in a release of such Subsidiary
Guarantor as described under "-- Subsidiary Guaranties" above provided that the
Issuer certifies to the Trustee that the Issuer will comply with the covenant
described under "-- Limitation on Sales of Assets and Subsidiary Stock") unless:
(i) the resulting, surviving or transferee Person (if not such Subsidiary) (the
"Successor Guarantor") shall be a Person organized and existing under the laws
of the United States of America, or any State thereof or the District of
Columbia, and such Person shall expressly assume, by a Guaranty Agreement, in a
form satisfactory to the Trustee, all the obligations of such Subsidiary, if
any, under its Subsidiary Guaranty; (ii) immediately after giving effect to such
transaction or transactions on a pro forma basis (and treating any Indebtedness
which becomes an obligation of the resulting, surviving or transferee Person as
a result of such transaction as having been issued by such Person at the time of
such transaction), no Default shall have occurred and be continuing; and (iii)
the Issuer delivers to the Trustee an Officers' Certificate and an Opinion of
Counsel addressed to the Trustee with respect to the foregoing matters.
The Successor Issuer shall be the successor to the Issuer and shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under the Indenture, but the predecessor Issuer 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. The Successor Guarantor shall be the
successor to such Subsidiary Guarantor and shall succeed to, and be substituted
for, and may exercise every right and power of, such Subsidiary Guarantor under
the Indenture, but such predecessor Subsidiary Guarantor 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.
Future Guarantors. The Issuer shall cause each domestic Restricted
Subsidiary (other than an Immaterial Subsidiary that is neither a borrower nor a
guarantor under the New Credit Facility) to execute
97
<PAGE> 101
and deliver to the Trustee a Guaranty Agreement pursuant to which such
Restricted Subsidiary will Guarantee payment of the Notes on the same terms and
conditions as those set forth in the Indenture.
SEC Reports. Notwithstanding that the Issuer may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Issuer
shall file with the SEC (to the extent such filings are accepted by the SEC) and
provide the Trustee and Noteholders with 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 declaration or otherwise,
(iii) the failure by the Issuer to comply with its obligations under "-- Certain
Covenants -- Merger and Consolidation" above, (iv) the failure by the Issuer to
comply for 30 days after 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" under "-- Limitation on Indebtedness",
"-- Limitation on Restricted Payments", "-- Limitation on Restrictions on
Distributions from Restricted Subsidiaries", "-- Limitation on Sales of Assets
and Subsidiary Stock" (other than a failure to purchase Notes), "-- Limitation
on Affiliate Transactions", "-- Limitation on the Sale or Issuance of Capital
Stock of Restricted Subsidiaries", "-- Limitation on Liens", "-- Limitation on
Sale/Leaseback Transactions", "-- Future Guarantors" or "-- SEC Reports", (v)
the failure by the Issuer to comply for 60 days after notice with its other
agreements contained in the Indenture, (vi) Indebtedness of the Issuer, any
Subsidiary Guarantor or any Significant Subsidiary is not paid within any
applicable grace period after final maturity or is accelerated by the holders
thereof because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $10 million (the "cross acceleration provision"), (vii)
certain events of bankruptcy, insolvency or reorganization of the Issuer or a
Significant Subsidiary (the "bankruptcy provisions"), (viii) any final,
non-appealable judgment or decree for the payment of money in excess of $10
million is entered against the Issuer or a Significant Subsidiary, remains
outstanding for a period of 60 days following such judgment and is not
discharged, waived or stayed within 10 days after notice (the "judgment default
provision") or (ix) a Subsidiary Guaranty ceases to be in full force and effect
(other than in accordance with the terms of such Subsidiary Guaranty) or a
Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary
Guaranty. However, a default under clauses (iv), (v) and (viii) will not
constitute an Event of Default until the Trustee or the holders of 25% in
principal amount of the outstanding Notes notify the Issuer of the default and
the Issuer does not cure such default within the time specified after receipt of
such notice.
If an Event of Default 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 certain events of
bankruptcy, insolvency or reorganization of the Issuer 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 of the Notes. Under certain circumstances, the
holders of a majority in principal amount of the outstanding Notes may rescind
any such acceleration with respect to the Notes and its consequences. Subject to
the provisions of the Indenture relating to the duties of the Trustee, in case
an Event of Default occurs and is continuing, the Trustee will be under no
obligation to exercise any of the rights or powers under the Indenture at the
request or direction of any of the holders of the Notes 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 notice that an Event of Default is continuing, (ii)
holders of at least 25% in principal amount of the outstanding Notes
98
<PAGE> 102
have requested 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 of a Note 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 of the Notes 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 a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the Notes.
In addition, the Issuer 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 Issuer
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 Issuer 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. However, without the consent of each
holder of an outstanding Note affected thereby, no amendment may, among other
things, (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 amount payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "-- Optional
Redemption", (v) make any Note payable in money other than that stated in the
Note, (vi) impair the right of any holder of the Notes 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) make any change in any Subsidiary Guaranty that would adversely affect
the Noteholders.
Without the consent of any holder of the Notes, the Issuer, the Subsidiary
Guarantors 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 Issuer or the Subsidiary Guarantors 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 Issuer or the Subsidiary Guarantors for the benefit of
the holders of the Notes or to surrender any right or power conferred upon the
Issuer, to make any change that does not adversely affect the rights of any
holder of the Notes or to comply with any requirement of the SEC in connection
with the qualification of the Indenture under the Trust Indenture Act.
The consent of the holders of the Notes 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.
99
<PAGE> 103
After an amendment under the Indenture becomes effective, the Issuer is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
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 Issuer may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable in connection with certain transfers and
exchanges (other than those contemplated by the Exchange Offer).
DEFEASANCE
The Issuer at any time may terminate all 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. The Issuer 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"), 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)
under "-- Certain Covenants -- Merger and Consolidation" above ("covenant
defeasance").
The Issuer may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Issuer exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Issuer exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "-- Defaults" above or because of the
failure of the Issuer to comply with clause (iii) or (iv) under "-- Certain
Covenants -- Merger and Consolidation" above. If the Issuer exercises its legal
defeasance option or its covenant defeasance option, each Subsidiary Guarantor
will be released from all of its obligations with respect to its Subsidiary
Guaranty.
In order to exercise either defeasance option, the Issuer must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal 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 of the Notes 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 amounts 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 change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE
First Union National Bank is the Trustee under the Indenture and has been
appointed by the Issuer as Registrar and Paying Agent with regard to the Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuer, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, however, if it acquires any conflicting interest it must
either eliminate such conflict within 90 days, apply to the SEC for permission
to continue or resign.
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
100
<PAGE> 104
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.
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.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by contacting the Company at 2105 Water Ridge Parkway, Suite 500,
Charlotte, North Carolina 28217 or by telephone at (704) 423-8989.
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 Issuer 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 clauses (ii) or (iii) above is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. 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. For
purposes of the provisions described under "-- Certain Covenants -- Limitation
on Restricted Payments", "-- Certain Covenants -- Limitation on Affiliate
Transactions" and "-- Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 5% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Issuer or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Issuer or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (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 Issuer or a
Restricted Subsidiary), (ii) all or substantially all the assets of any division
or line of business of the Issuer or any Restricted Subsidiary or (iii) any
other assets of the Issuer or any Restricted Subsidiary outside of the ordinary
course of business of the Issuer or such Restricted Subsidiary (other than, in
the case of (i), (ii) and (iii) above, (A) a disposition by a Restricted
Subsidiary to the Issuer or by the Issuer or a Restricted Subsidiary to a
Restricted Subsidiary, (B) for purposes of the covenant described under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock"
only, a transaction either permitted by the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments" or excluded from the definition
of "Restricted Payment", (C) any transfer of properties or assets (including
Capital Stock) that is governed by, and made in accordance with, the provisions
described under "-- Certain Covenants -- Merger and Consolidation" and (D) any
disposition of assets with a fair market value of less than $250,000).
101
<PAGE> 105
"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 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 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.
"Banks" means the Lenders as defined in the New Credit Facility.
"Bank Indebtedness" means all Obligations pursuant to the New Credit
Facility.
"Board of Directors" means the Board of Directors of the Issuer 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 that with respect to Indebtedness Incurred under a revolving
credit facility, instead of such historical interest, there shall be included
pro forma interest on the one year projected average balance of such
Indebtedness as determined in good faith by senior management of the Company);
provided, however, that
(1) if the Issuer or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, or both, other than in
either such case Indebtedness Incurred under a revolving credit facility,
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
to the application of the proceeds of such Indebtedness, including without
limitation the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged, or the acquisition of assets with the
proceeds of such new Indebtedness, as if such application had occurred on
the first day of such period,
(2) if the Issuer or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on the
date of the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for
such period shall be calculated on a pro forma basis as if such discharge
had occurred on the first day of such period and as if the Issuer or such
Restricted Subsidiary had not earned the interest income actually earned
during such period in respect of
102
<PAGE> 106
cash or Temporary Cash Investments used to repay, repurchase, defease or
otherwise discharge such Indebtedness,
(3) if since the beginning of such period the Issuer or any Restricted
Subsidiary shall have made any Asset Disposition or disposition of a
Permitted Investment ("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 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
(other than Indebtedness Incurred under a revolving credit facility) of the
Issuer or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Issuer and its continuing
Restricted Subsidiaries in connection with such 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 (other than Indebtedness Incurred under a revolving credit
facility) of such Restricted Subsidiary to the extent the Issuer and its
continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale),
(4) if since the beginning of such period the Issuer 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 a Permitted Investment 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, segment or location 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 other than under a revolving credit facility) as if such
Investment or acquisition occurred on the first day of such period and
(5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Issuer or any Restricted Subsidiary since the beginning of such period)
shall have made any Disposition, any Investment or acquisition of assets
that would have required an adjustment pursuant to clause (3) or (4) above
if made by the Issuer 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 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 Issuer. 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 Issuer and its consolidated Restricted Subsidiaries, plus, to the
extent not included in such total interest expense, and to the extent incurred
by the Issuer or its Restricted Subsidiaries, without duplication, (i) interest
expense attributable to capital leases and the interest expense attributable to
leases constituting part of a Sale/ Leaseback Transaction (provided that
interest expense attributable to leases constituting part of Sale/ Leaseback
Transactions in respect of currently owned warehouses with a value not in excess
of $10 million shall be excluded from this calculation), (ii) amortization of
debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash
interest expenses, (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) Preferred Stock dividends in respect of all Preferred Stock held by
Persons other than the Issuer or a Wholly Owned Subsidiary (other than non-cash
dividends in respect of Preferred Stock that is not Disqualified Stock of the
Issuer), (viii) interest incurred in
103
<PAGE> 107
connection with Investments in discontinued operations, (ix) interest accruing
on any Indebtedness of any other Person to the extent such Indebtedness is
Guaranteed by (or secured by the assets of) the Issuer or any Restricted
Subsidiary and (x) the cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than the Issuer) in connection with
Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of the
Issuer and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(i) any net income of any Person (other than the Issuer) if such
Person is not a Restricted Subsidiary, except that (A) subject to the
exclusion contained in clause (iv) below, the Issuer'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 Issuer 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
limitation contained in clause (iii) below) and (B) the Issuer's equity in
a net loss of any such Person for such period shall be included in
determining such Consolidated Net Income;
(ii) any net income (or loss) of any Person acquired by the Issuer or
a Subsidiary 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 such
Restricted Subsidiary is subject to prohibitions, directly or indirectly,
on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Issuer, except that
the Issuer's equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income;
(iv) any gain or loss realized upon the sale or other disposition of
any assets of the Issuer, its consolidated Subsidiaries or any other Person
(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.
Notwithstanding the foregoing, for the purposes of the covenant described
under "Certain Covenants -- Limitation on Restricted Payments" only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Issuer or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(D).
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Issuer and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Issuer ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Issuer 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 designed to protect
such Person against fluctuations in currency values.
"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 at the option of the holder) or upon the
happening of any event (i) matures or is mandatorily redeemable pursuant to a
sinking fund
104
<PAGE> 108
obligation or otherwise, (ii) is convertible or exchangeable at the holder's
option for Indebtedness or Disqualified Stock or (iii) is redeemable or must be
purchased, upon the occurrence of certain events or otherwise, by such Person at
the option of the holder thereof, in whole or in part, in each case on or prior
to the first anniversary of 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
purchase 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 (x) 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 terms applicable to
the Notes and described under "-- Certain Covenants -- Limitation on Sales of
Assets and Subsidiary Stock" and "-- Certain Covenants -- Change of Control" and
(y) any such requirement only becomes operative after compliance with such terms
applicable to the Notes, including the purchase of any Notes tendered pursuant
thereto; provided further, however, that any class of Capital Stock of such
Person that, by its terms, authorizes such Person to satisfy in full its
obligations with respect to the payment of dividends or upon maturity,
redemption (pursuant to a sinking fund or otherwise) or repurchase thereof or
otherwise by the delivery of Capital Stock that is not Disqualified Stock shall
not be deemed to be Disqualified Stock.
"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
Issuer and its consolidated Restricted Subsidiaries, (b) depreciation expense of
the Issuer and its consolidated Restricted Subsidiaries, (c) amortization
expense of the Issuer and its consolidated Restricted Subsidiaries and (d) all
other non-cash charges of the Issuer and its consolidated Restricted
Subsidiaries (excluding any such other non-cash charge to the extent that it
represents an accrual of or reserve for cash expenditures in any future period),
in each case for such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and non-cash charges of, a Restricted Subsidiary 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 Restricted Subsidiary was included in calculating
Consolidated Net Income.
"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 in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) 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 other 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 or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by 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.
"Guaranty Agreement" means a supplemental indenture, in a form satisfactory
to the Trustee, pursuant to which a Subsidiary Guarantor guarantees the Issuer's
obligations with respect to the Notes on the terms provided for in the
Indenture.
105
<PAGE> 109
"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.
"Immaterial Subsidiary" means any Subsidiary with total assets not greater
than $50,000.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock 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.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal 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, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(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, 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 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, the liquidation preference
with respect to, 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.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person 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 lender) or other
extensions of credit (other than leases of equipment to customers in the
ordinary course of business)
106
<PAGE> 110
(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 Issuer's equity interest in such Subsidiary)
of the fair market value of the net assets of any Subsidiary of the Issuer at
the time that such Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Issuer shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary equal to an amount (if positive)
equal to (x) the Issuer's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Issuer'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 on which the Notes are originally issued.
"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).
"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 and proceeds
from the sale or other disposition of any securities received as consideration,
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, commissions and other fees and expenses incurred, 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, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Disposition, or by
applicable law, be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest
holders in Restricted Subsidiaries as a result of such Asset Disposition and
(iv) the deduction of appropriate amounts provided by the seller as a reserve,
in accordance with GAAP, against any liabilities associated with the property or
other assets disposed in such Asset Disposition and retained by the Issuer or
any Restricted Subsidiary after such Asset Disposition.
"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.
"New Credit Facility" means the Amended and Restated Loan and Security
Agreement to be entered into by and among the Issuer, certain of its
Subsidiaries, the lenders referred to therein, BankBoston, N.A., as Agent, and
Fleet Capital Corporation and First Union National Bank, as Co-Agents, together
with the related documents thereto (including the notes, guarantees and security
documents thereunder), as amended, extended, renewed, restated, supplemented or
otherwise modified (in whole or in part, and without limitation as to amount,
terms, conditions, covenants and other provisions) from time to time, and any
agreement (and related document) governing Indebtedness incurred to Refinance,
in whole or in part, the borrowings and commitments then outstanding or
permitted to be outstanding thereunder or under a successor credit agreement,
whether by the same or any other lender or group of lenders.
"Permitted Holders" means Ann H. Gaither and William H. Gaither and members
of their immediate families and any spouse, parent or descendant of the
foregoing, any trust the beneficiaries of which include only any of the
foregoing, and any corporation, partnership or other entity all of the Capital
Stock of which (other than directors' qualifying shares) is owned by any of the
foregoing.
107
<PAGE> 111
"Permitted Investment" means an Investment by the Issuer or any Restricted
Subsidiary in (i) the Issuer, 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 Issuer 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 Issuer 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
Issuer 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 made in the ordinary course of business
consistent with past practices of the Issuer or such Restricted Subsidiary;
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Issuer or any Restricted
Subsidiary or in satisfaction of judgments; (viii) promissory notes issued by
members of management of the Issuer and its Subsidiaries as payments for
restricted shares of Capital Stock of the Issuer not to exceed $500,000 per
year; 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 worker's 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 of 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 or other 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;
(c) Liens for property taxes not yet subject to penalties for
non-payment or which are being contested in good faith and by appropriate
proceedings;
(d) 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;
(e) 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 property or Liens incidental to
the conduct of the business of such Person or to the ownership of its
properties which were not Incurred to secure 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;
(f) Liens securing Indebtedness, including Indebtedness Incurred
pursuant to clause (b)(4) under "-- Certain Covenants -- Limitation on
Indebtedness," Incurred to finance the construction, purchase or lease of,
or repairs, improvements or additions to, property of such Person;
provided, however, that the Lien may not extend to any other property
(other than improvements thereon) owned by such Person or any of its
Subsidiaries at the time the Lien is Incurred, and the Indebtedness (other
than any interest thereon) secured by the Lien may not be Incurred more
than 180 days after the later of the acquisition,
108
<PAGE> 112
completion of construction, repair, improvement, addition or commencement
of full operation of the property subject to the Lien;
(g) Liens to secure Indebtedness permitted under the provisions
described in clauses (b)(1) and (5) under "-- Certain Covenants --
Limitation on Indebtedness";
(h) Liens existing (or Incurred in connection with Indebtedness
committed on) on the Issue Date;
(i) Liens on property or shares of Capital Stock of another Person at
the time such other Person becomes a Subsidiary of such Person; provided,
however, that such Liens are not created, Incurred or assumed in connection
with, or in contemplation of, such other Person becoming such a Subsidiary;
provided further, however, that such Lien may not extend to any other
property (other than improvements thereon) owned by such Person or any of
its Subsidiaries;
(j) Liens on property at the time such Person or any of its
Subsidiaries acquires the property, including any acquisition by means of a
merger or consolidation with or into such Person or a Subsidiary of such
Person; provided, however, that such Liens are not created, Incurred or
assumed in connection with, or in contemplation of, such acquisition;
provided further, however, that the Liens may not extend to any other
property (other than improvements thereon) owned by such Person or any of
its Subsidiaries;
(k) Liens securing Indebtedness or other obligations of a Subsidiary
of such Person owing to such Person or a Restricted Subsidiary of such
Person;
(l) Liens securing Hedging Obligations so long as such Hedging
Obligations relate to Indebtedness that is, and is permitted to be under
the Indenture, secured by a Lien on the same property securing such Hedging
Obligations;
(m) any interest or title of a lessor in property subject to any
Capital Lease Obligation or operating lease;
(n) any attachment of a judgment Lien that does not give rise to an
Event of Default;
(o) Liens on inventory deemed to arise by reason of the consignment of
inventory in the ordinary course of business of the Issuer and its
Restricted Subsidiaries; and
(p) Liens to secure any Refinancing (or successive Refinancings) as a
whole, or in part, of any Indebtedness secured by any Lien referred to in
the foregoing clauses (f), (h), (i) and (j); provided, however, that (x)
such new Lien shall be limited to all or part of the same property that
secured the original Lien (plus improvements to or on such property) and
(y) the Indebtedness secured by such Lien at such time is not increased to
any amount greater than the sum of (A) the outstanding principal amount or,
if greater, committed amount of the Indebtedness described under clauses
(f), (h), (i) or (j) at the time the original Lien became a Permitted Lien
and (B) an amount necessary to pay any fees and expenses, including
premiums, related to such refinancing, refunding, extension, renewal or
replacement.
Notwithstanding the foregoing, "Permitted Liens" will not include any Lien
described in clauses (f), (i) or (j) above to the extent such Lien applies to
any Additional Assets acquired directly or indirectly from Net Available Cash
pursuant to the covenant described under "-- Certain Covenants -- Limitation on
Sale of Assets and Subsidiary Stock". For purposes of this definition, the term
"Indebtedness" shall be deemed to include interest on such Indebtedness.
"Person" means any individual, corporation, partnership, limited liability
company, 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 Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
109
<PAGE> 113
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Issuer pursuant to an effective registration statement under
the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of the Issuer has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 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 Issuer 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 or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Issuer or (y) Indebtedness of the
Issuer 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 Issuer and the Restricted Subsidiaries 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) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions to the extent payable to the Issuer or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to the extent made to minority
stockholders (or owners of an equivalent interest in the case of a Subsidiary
that is an entity other than a corporation)), (ii) the purchase, redemption or
other acquisition or retirement for value on or subsequent to the Issue Date of
any Capital Stock of the Issuer held by any Person or of any Capital Stock of a
Restricted Subsidiary held by any Affiliate of the Issuer (other than the Issuer
or a Restricted Subsidiary), including the exercise of any option to exchange
any Capital Stock (other than into Capital Stock of the Issuer 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 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 (other
than a Permitted Investment) in any Person.
"Restricted Subsidiary" means any Subsidiary of the Issuer that is a
Subsidiary on the Issue Date and any other Subsidiary that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Issuer or a Restricted Subsidiary
transfers such property to a Person and the Issuer or a Restricted Subsidiary
leases it from such Person.
110
<PAGE> 114
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" of a Person means (i) Indebtedness of such Person,
whether outstanding on the Issue Date or thereafter Incurred, and (ii) accrued
and unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to such Person to the
extent post-filing interest is allowed in such proceeding) 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 unless, in the case of (i) and (ii), in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinate in right of
payment to the Notes; provided, however, that Senior Indebtedness shall not
include (1) any obligation of the Issuer to any Subsidiary or of any Subsidiary
Guarantor to the Issuer or any other Subsidiary, (2) any liability for Federal,
state, local or other taxes owed or owing by such Person, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness of such Person (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in any respect to
any other Indebtedness or other obligation of such Person or (5) that portion of
any Indebtedness which at the time of Incurrence is Incurred in violation of the
Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Issuer within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Issuer (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,
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.
"Subsidiary Guarantor" means each Subsidiary of the Issuer that is a
Subsidiary on the Issue Date (other than certain Immaterial Subsidiaries) and
any other Subsidiary that Guarantees the Issuer's obligations with respect to
the Notes.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the
Issuer's obligations with respect to the Notes.
"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 360 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 $50,000,000
(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,
111
<PAGE> 115
(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 360 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Issuer) 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 Investors
Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings
Group,
(v) investments in split dollar life insurance policies on various
officers, directors and shareholders of the Issuer and its Subsidiaries in
the ordinary course of business consistent with past practices, and
(vi) investments in securities with maturities of 12 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 Standard & Poor's Ratings Group or "A" by Moody's Investors Service,
Inc.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Issuer 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
(other than Subsidiary Guarantors) of the Issuer (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 Issuer or any other Subsidiary of the
Issuer 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) the Issuer
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 to the Trustee by promptly filing with the
Trustee a copy of the resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Vendor Financing" means Indebtedness Incurred to finance the cost to
acquire inventory to the extent such Indebtedness is issued to and held by the
supplier of such inventory.
"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. The "voting power"
of Voting Stock means the number of votes which such Voting Stock is normally
entitled (without regard to the occurrence of any contingency) to vote in such
an election.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Issuer
or one or more Wholly Owned Subsidiaries.
112
<PAGE> 116
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material United States federal income
tax consequences generally applicable to the exchange of Old Notes for New Notes
and the ownership and disposition of Notes. The federal income tax
considerations set forth below are based upon currently existing provisions of
the Code, applicable Treasury Regulations ("Treasury Regulations"), judicial
authority, and current administrative rulings and pronouncements of the Internal
Revenue Service (the "IRS"). There can be no assurance that the IRS will not
take a contrary view, and no ruling from the IRS has been, or will be, sought on
the issues discussed herein. Legislative, judicial, or administrative changes or
interpretations may be forthcoming that could alter or modify the statements and
conclusions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences discussed below.
As used in this summary, "Note" means either a New Note or an Old Note,
and, where the context so requires, "the Note" or "such Note" includes a Note
for which a relevant Note was exchanged pursuant to the Exchange Offer.
As used in this summary, the term "U.S. Holder" means the beneficial owner
of a Note that is for U.S. federal income tax purposes (i) an individual citizen
or resident of the United States, (ii) a corporation or other entity taxable as
a corporation created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income tax regardless of its source, (iv) a
trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust or (v) a person
whose worldwide income and gain is otherwise subject to U.S. federal income tax
on a net income basis . The term "Non-United States Holder" means an owner of a
Note that is not a U.S. Holder.
The summary is not a complete analysis or description of all potential
federal tax considerations that may relevant to, or of the actual tax effect
that any of the matters described herein will have on, particular U.S. Holders
and Non-United States Holders (collectively, "Holders"), and does not address
foreign, state, local or other tax consequences. This summary does not address
the federal income tax consequences to (a) special classes of taxpayers (such as
S corporations, mutual funds, insurance companies, financial institutions, small
business investment companies, regulated investment companies, real estate
investment trusts, dealers in securities or currencies, broker-dealers and
tax-exempt organizations) who are subject to special treatment under the federal
income tax laws, (b) Holders that hold Notes as part of a position in a
"straddle," or as part of a "hedging," "conversion," or other integrated
investment transaction for federal income tax purposes, (c) Holders that do not
hold the Notes as capital assets within the meaning of section 1221 of the Code,
(d) Holders whose functional currency is not the U.S. dollar or (e) Holders that
did not purchase the Old Notes for cash at original issue. Furthermore, estate
and gift tax consequences are not discussed herein.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF THE NOTES IS
STRONGLY URGED TO CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO HIS OR HER
PARTICULAR TAX SITUATION AND AS TO ANY FEDERAL, FOREIGN, STATE, LOCAL OR OTHER
TAX CONSIDERATIONS (INCLUDING ANY POSSIBLE CHANGES IN TAX LAW) AFFECTING THE
PURCHASE, HOLDING AND DISPOSITION OF THE NOTES.
TAX CONSEQUENCES TO U.S. HOLDERS
Interest
Generally, interest paid on the Notes will be taxable to a U.S. Holder as
ordinary income at the time it accrues or is received in accordance with such
U.S. Holder's method of accounting for U.S. federal income tax purposes.
113
<PAGE> 117
Tax Consequences of the Exchange Offer
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be a taxable event for U.S. federal income tax purposes. As a result,
there should be no U.S. federal income tax consequences to the U.S. Holders
exchanging the Old Notes for the New Notes pursuant to the Exchange Offer, and a
U.S. Holder should have the same tax basis and holding period in the New Notes
as the Old Notes.
Disposition of the Notes
Upon the sale, exchange or retirement of a Note, a U.S. Holder will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (except to the extent attributable
to accrued interest, which will be taxable as ordinary interest income) and such
U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis
in a Note will generally equal the U.S. Holder's purchase price for such Note
(net of accrued interest) less any principal payments received by the U.S.
Holders. Gain or loss realized on the sale, exchange or retirement of a Note
generally will constitute capital gain or loss and will constitute long-term
capital gain or loss if the underlying Note has been held by a U.S. Holder for
more than 12 months as of the date of such disposition (the "Disposition Date").
Capital gains of individuals derived with respect to capital assets held for
more than one year are eligible for reduced rates of taxation. The deduction of
capital losses is subject to certain limitations. Prospective investors should
consult their tax advisors regarding the treatment of capital gains and losses.
Backup Withholding
Under section 3406 of the Code and applicable Treasury Regulations, a
noncorporate U.S. Holder of the Notes may be subject to backup withholding at
the rate of 31 percent with respect to "reportable payments," which include
interest paid on or the proceeds of a sale, exchange or redemption of, the
Notes. The payor will be required to deduct and withhold the prescribed amounts
if (i) the payee fails to furnish a correct Taxpayer Identification Number
("TIN") to the payor in the manner required, (ii) the IRS notifies the payor
that the TIN furnished by the payee is incorrect, (iii) there has been a
"notified payee underreporting" described in section 3406(c) of the Code or (iv)
there has been a failure of the payee to certify under penalties of perjury that
the payee is not subject to withholding under section 3406(a)(1)(C) of the Code.
As a result, if any one of the events listed above occurs, the payor will be
required to withhold an amount equal to 31 percent from any interest payment
made with respect to the Notes or any payment of proceeds of a redemption of the
Notes to a noncorporate U.S. Holder. Amounts paid as backup withholding do not
constitute an additional tax and will be credited against the U.S. Holder's
federal income tax liability, so long as the required information is provided to
the IRS. The payor generally will report to the U.S. Holders of the Notes and to
the IRS the amount of any "reportable payments" for each calendar year and the
amount of tax withheld, if any, with respect to payment on those securities.
TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
Interest paid by the issuer to a Non-United States Holder will not be
subject to United States federal income or withholding tax if such interest is
not effectively connected with the conduct of a trade or business within the
United States (or a permanent establishment therein, if a tax treaty applies) by
such Non-United States Holder and such Non-United States Holder (i) does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Issuer; (ii) is not a controlled foreign corporation
that is related to the Issuer through stock ownership; (iii) is not a bank whose
receipt of interest on a Note is described in Section 881(c)(3)(A) of the Code;
and (iv) certifies, under penalties of perjury, that such Holder is not a United
States person and provides the Issuer or its paying agent with such Holder's
name and address or a securities clearing organization, bank, or other financial
institution that holds customers' securities in the ordinary course of its trade
or business certifies, under penalties of perjury, that such certification and
information has been received by it or a qualifying intermediary from the
Non-United States Holder and furnished the Issuer with a copy thereof.
114
<PAGE> 118
If a Non-United States Holder of a Note is engaged in a trade or business
in the United States, and if interest on the Note (or gain realized on its sale,
exchange or other disposition) is effectively connected with the conduct of such
trade or business, the Non-United States Holder, although exempt from the
withholding tax discussed in the preceding paragraph, will generally be subject
to regular United States Income tax on such effectively connected income in the
same manner as if it were a U.S. Holder. See "U.S. Holders" above. Such Holder
will be required to provide to the withholding agent a properly executed IRS
Form 4224 (or, after December 31, 1999, a Form W-8) to claim an exemption from
withholding tax. In addition, if such Non-United States Holder is a foreign
corporation, it may be subject to a 30% branch profits tax (unless reduced or
eliminated by an applicable treaty) of its effectively connected earnings and
profits from the taxable year, subject to certain adjustments. For purposes of
the branch profits tax, interest on, and any gain recognized on the sale,
exchange or other disposition of, a Note will be included in the effectively
connected earnings and profits of such Non-United States Holder if such interest
or gain, as the case may be, is effectively connected with the conduct by the
Non-United States Holder of a trade or business in the United States.
Gain on Disposition
A Non-United States Holder will generally not be subject to United States
federal income tax on gain recognized on a sale, redemption or other disposition
of a Note unless (i) the gain is effectively connected with the conduct of a
trade or business within the United States (or a permanent establishment
therein, if a tax treaty applies) by Non-United States Holder, (ii) in the case
of a Non-United States Holder who is a nonresident alien individual and holds
the Note as a capital asset, such Holder is present in the United States for 183
or more days in the taxable year and certain other requirements are met or (iii)
the Holder is subject to tax pursuant to the provisions of the Code applicable
to certain United States expatriates.
Information Reporting and Backup Withholding
The Issuer will, where required, report to the Non-United States Holders of
Notes and the IRS the amount of any interest paid on the Notes in each calendar
year and the amounts of tax withheld, if any, with respect to such payments.
Copies of those information returns also may be made available, under the
provisions of a specific treaty or agreement, to the taxing authorities of the
country in which the Non-U.S. Holder resides or is incorporated.
In the case of payments of interest to Non-United States Holders, Treasury
regulations provide that the 31% backup withholding tax and certain information
reporting will not apply to such payments with respect to which either the
requisite certification, as described above, has been received or an exemption
has otherwise been established; provided that neither the Issuer nor its payment
agent has actual knowledge that the Non-United States Holder is a United States
person or that the conditions of any other exemption are not in fact satisfied.
Under Treasury regulations, these information reporting and backup withholding
requirements will apply, however, to the gross proceeds paid to a Non-United
States Holder on the disposition of the Notes by or through a United States
office of a United States or foreign broker, unless such Holder certifies to the
broker under penalties of perjury as to its name, address and status as a
foreign person or the Holder otherwise establishes an exemption provided that
the broker does not have actual knowledge that such Holder is a U.S. person or
that the conditions of an exemption are not in fact satisfied. Information
reporting requirements, but not backup withholding, will also apply to a payment
of the proceeds of a disposition of the Notes by or through a foreign office of
a United States broker or foreign brokers with certain types of relationships to
the United States unless such broker has documentary evidence in its file that
the Non-United States Holder of the Notes is not a United States person, and
such broker has no actual knowledge to the contrary, or the Non-United States
Holder establishes an exemption. Neither information reporting nor backup
withholding generally will apply to a payment of the proceeds of a disposition
of the Notes by or through a foreign office of a foreign broker not subject to
the preceding sentence.
The Treasury Department recently adopted regulations regarding the
withholding and information reporting rules discussed above. In general, the
final regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify reliance standards. These regulations will become effective for payments
made after December 31, 1999, subject to certain transition rules.
115
<PAGE> 119
PLAN OF DISTRIBUTION
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an "affiliate" (as defined
in Rule 405 of the Securities Act) of the Company or any Subsidiary Guarantor
(ii) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a distribution
of the New Notes and (iii) it is acquiring the New Notes in the ordinary course
of its business. A Restricted Holder will not be able to participate in the
Exchange Offer and may only sell its Old Notes pursuant to a registration
statement containing the selling security holder information required by Item
507 of Regulation S-K under the Securities Act, or pursuant to an exemption from
the registration requirement of the Securities Act.
Each Participating Broker-Dealer must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such New Notes. Based upon interpretations by the staff of the Commission, the
Company believes that New Notes issued pursuant to the Exchange Offer to
Participating Broker-Dealers may be offered for resale, resold, and otherwise
transferred by a Participating Broker-Dealer upon compliance with the prospectus
delivery requirements, but without compliance with the registration
requirements, of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any Participating Broker-Dealer for use in connection with any such
resale. If the Company is not so notified by any Participating Broker-Dealers
that they may be subject to such requirements or if it is later notified by all
such Participating Broker-Dealers that they are no longer subject to such
requirements, the Company will not be required to maintain the effectiveness of
the Exchange Offer Registration Statement or to amend or supplement this
Prospectus following the consummation of the Exchange Offer or following such
date of notification, as the case may be. The Company believes that during such
period of time, delivery of this Prospectus, as it may be amended or
supplemented, will satisfy the prospectus delivery requirements of a
Participating Broker-Dealer engaged in market-making or other trading
activities.
Based on interpretations by the staff of the Commission, the Company
believes that New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold, and other transferred by a Holder thereof (other than a
Restricted Holder or a Participating Broker-Dealer) without compliance with the
registration and prospectus delivery requirements of the Securities Act.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers (including Participating Broker-Dealers). New Notes received by
Participating Broker-Dealers for their own accounts pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-the-
counter market, in negotiated transactions, through the writing of options on
the New Notes or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or negotiated prices. Any such resale may be made directly to purchasers
or to or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Participating Broker-Dealer and/or the
purchasers of any such New Notes. Any Participating Broker-Dealer that resells
New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in the
Registration Rights Agreement.
By acceptance of the Exchange Offer, each Participating Broker-Dealer that
receives New Notes pursuant to the Exchange Offer hereby agrees to notify the
Company prior to using the Prospectus in
116
<PAGE> 120
connection with the sale or transfer of New Notes, and acknowledges and agrees
that, upon receipt of notice from the Company of the happening of any event that
makes any statement in the Prospectus untrue in any material respect or which
requires the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such Participating Broker-Dealer), such Participating Broker-Dealer
will suspend use of the Prospectus until the Company has amended or supplemented
the Prospectus to correct such misstatement or omission and has furnished copies
of the amended or supplemented prospectus to such Participating Broker-Dealer.
LEGAL MATTERS
The validity of the New Notes will be passed upon on behalf of the Issuer
by Howard, Smith & Levin LLP, New York, New York.
EXPERTS
The consolidated financial statements of Heafner as of December 31, 1996
and 1997 and for each of the three years in the period ended December 31, 1997
included in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts (or, as experts in
accounting and auditing) in giving said reports.
The financial statements of Winston for each of the three years in the
period ended September 30, 1996 included in this Prospectus have been audited by
Deloitte & Touche, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The consolidated financial statements of ITCO as of September 30, 1996 and
1997 and for the year ended September 30, 1997 and the period from inception
(November 13, 1995) to September 30, 1996 included in this Prospectus and the
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their respective report thereon appearing elsewhere
herein, and is included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing. The consolidated financial
statements of ITCO Holding Company, Inc. for the year ended September 30, 1995
included in this Prospectus have been audited by Deloitte & Touche, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The financial statements of CPW as of October 31, 1996 and 1997 and for
each of the years in the three-year period ended October 31, 1997 included in
this Prospectus have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, as stated in their report appearing herein.
117
<PAGE> 121
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE J.H. HEAFNER COMPANY, INC. -- CONSOLIDATED FINANCIAL
STATEMENTS
Report of Independent Public Accountants.................... F-3
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-4
Consolidated Statements of Operations for the three years
ended December 31, 1997................................... F-5
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1997....................... F-6
Consolidated Statements of Cash Flows for the three years
ended December 31, 1997................................... F-7
Notes to Consolidated Financial Statements.................. F-8
THE J.H. HEAFNER COMPANY, INC. -- UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997..................................... F-21
Condensed Consolidated Statements of Operations for the six
month periods ended June 30, 1998 and 1997................ F-22
Condensed Consolidated Statements of Stockholders' Equity
for the six month period ended June 30, 1998.............. F-23
Condensed Consolidated Statements of Cash Flows for the six
month periods ended June 30, 1998 and 1997................ F-24
Notes to Condensed Consolidated Financial Statements........ F-25
OLIVER & WINSTON, INC. -- FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-30
Statements of Operations and Retained Earnings for the
three-year period ended September 30, 1996................ F-31
Statements of Cash Flows for the three-year period ended
September 30, 1996........................................ F-32
Notes to Financial Statements............................... F-33
OLIVER & WINSTON, INC. -- UNAUDITED CONDENSED FINANCIAL
STATEMENTS
Condensed Balance Sheet as of March 31, 1997................ F-38
Condensed Statements of Operations for the six-month periods
ended March 31, 1997 and 1996............................. F-39
Condensed Statements of Stockholders' Equity for the
six-month periods ended March 31, 1997 and 1996........... F-40
Condensed Statements of Cash Flows for the six-month periods
ended March 31, 1997 and 1996............................. F-41
Notes to Condensed Financial Statements..................... F-42
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES -- CONSOLIDATED
FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-48
Consolidated Balance Sheets as of September 30, 1997 and
1996...................................................... F-49
Consolidated Statements of Operations for the year then
ended September 30, 1997 and for the period from inception
(November 13, 1995) to September 30, 1996................. F-50
Consolidated Statements of Shareholders' Deficit for the
year ended September 30, 1997 and for the period from
inception (November 13, 1995) to September 30, 1996....... F-51
Consolidated Statements of Cash Flows for the year ended
September 30, 1997 and for the period from inception
(November 13, 1995) to September 30, 1996................. F-52
Notes to Consolidated Financial Statements.................. F-53
</TABLE>
F-1
<PAGE> 122
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITCO HOLDING COMPANY AND SUBSIDIARIES -- CONSOLIDATED
FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-62
Consolidated Statements of Earnings for the year ended
September 30, 1995........................................ F-63
Consolidated Statement of Stockholders' Equity for the year
ended September 30, 1995.................................. F-64
Consolidated Statement of Cash Flows for the year ended
September 30, 1995........................................ F-65
Notes to Consolidated Financial Statements.................. F-66
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES -- UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheet as of May 20, 1998..... F-69
Unaudited Consolidated Statement of Operations for the
eight-month periods ended May 20, 1998 and May 31, 1997... F-70
Unaudited Consolidated Statements of Shareholders' Deficit
for the eight-month periods ended May 20, 1998 and May 31,
1997...................................................... F-71
Unaudited Consolidated Statement of Cash Flows for the
eight-month periods ended May 20, 1998 and May 31, 1997... F-72
Notes to Unaudited Interim Consolidated Financial
Statements................................................ F-73
THE SPEED MERCHANT, INC. (FORMERLY THE SPEED MERCHANT, INC.
AND SUBSIDIARY) -- FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-74
Balance Sheets as of October 31, 1996 and 1997 and April 30,
1998 (Unaudited).......................................... F-75
Statements of Income and Retained Earnings for each of the
years in the three-year period ended October 31, 1997 and
for the six-month periods ended April 30, 1997 and 1998
(Unaudited)............................................... F-76
Statements of Cash Flows for each of the years in the
three-year period ended October 31, 1997 and for the
six-month periods ended April 30, 1997 and 1998
(Unaudited)............................................... F-77
Notes to Financial Statements............................... F-78
</TABLE>
F-2
<PAGE> 123
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
The J. H. Heafner Company, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of The J. H.
Heafner Company, Inc. (a North Carolina Corporation) and subsidiary as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements and schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The J. H.
Heafner Company, Inc. and subsidiary as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
March 11, 1998.
F-3
<PAGE> 124
THE J.H. HEAFNER COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 2,502,286 $ 1,006,062
Accounts receivable, less allowance for doubtful accounts
of $400,000 and $200,000 in 1997 and 1996,
respectively........................................... 31,809,291 21,843,162
Inventories............................................... 41,529,430 20,399,616
Deferred tax assets....................................... 2,101,624 0
Prepaid expenses and other current assets................. 1,085,381 642,099
------------ -----------
Total current assets................................... 79,028,012 43,890,939
------------ -----------
Property and equipment, at cost:
Land...................................................... 1,639,367 1,115,469
Buildings and leasehold improvements...................... 14,500,615 10,004,829
Machinery and equipment................................... 10,924,751 1,555,149
Furniture and fixtures.................................... 6,335,726 4,400,802
Vehicles and other........................................ 1,720,271 1,788,659
------------ -----------
35,120,730 18,864,908
Less -- Accumulated depreciation.......................... (9,129,642) (6,400,518)
------------ -----------
25,991,088 12,464,390
------------ -----------
Goodwill, net............................................... 34,978,580 0
Deferred tax assets......................................... 1,655,079 0
Other assets................................................ 4,855,519 3,196,046
------------ -----------
$146,508,278 $59,551,375
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 43,456,901 $24,213,345
Accrued expenses.......................................... 12,409,878 2,281,253
Current maturities of long-term debt...................... 2,579,316 483,014
------------ -----------
Total current liabilities.............................. 58,446,095 26,977,612
------------ -----------
Revolving credit facility................................... 31,948,605 13,544,039
------------ -----------
Long-term debt.............................................. 15,161,397 6,975,490
------------ -----------
Other liabilities........................................... 5,687,157 480,716
------------ -----------
Subordinated debt........................................... 14,969,000 0
------------ -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock series A -- 4% cumulative, 7,000 shares
authorized, issued and outstanding..................... 7,000,000 0
Preferred stock series B -- variable rate cumulative,
4,500 shares authorized, issued and outstanding........ 4,500,000 0
Common stock, par value $.01 and $100 per share in 1997
and 1996, respectively; authorized 10,000,000 and 5,000
shares; 3,691,000 and 2,080 shares issued and
outstanding in 1997 and 1996, respectively............. 36,910 208,000
Warrants.................................................. 1,137,400 0
Additional paid in capital................................ 7,255,190 0
Notes receivable from stock sales......................... (247,500) 0
Retained earnings......................................... 614,024 11,365,518
------------ -----------
20,296,024 11,573,518
------------ -----------
$146,508,278 $59,551,375
============ ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-4
<PAGE> 125
THE J.H. HEAFNER COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales......................................... $311,838,506 $190,535,412 $169,031,156
Cost of goods sold................................ 233,940,589 158,880,254 140,810,888
------------ ------------ ------------
Gross profit................................. 77,897,917 31,655,158 28,220,268
General, selling and administrative expenses...... 74,441,386 29,660,119 26,584,266
------------ ------------ ------------
Income from operations....................... 3,456,531 1,995,039 1,636,002
------------ ------------ ------------
Other income (expense):
Interest expense................................ (4,841,790) (1,465,259) (1,308,388)
Interest income................................. 606,409 491,237 334,161
Other income.................................... 525,422 30,116 27,738
------------ ------------ ------------
Income (loss) from operations before benefit for (253,428) 1,051,133 689,513
income taxes....................................
Benefit for income taxes (Notes 1 and 6)........ 239,829 0 0
------------ ------------ ------------
Net (loss) income................................. (13,599) 1,051,133 689,513
Pro forma provision for income taxes (Notes 1 and 0 (439,000) (325,000)
6)..............................................
------------ ------------ ------------
Pro forma net income (loss).................. $ (13,599) $ 612,133 $ 364,513
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE> 126
THE J.H. HEAFNER COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
PREFERRED STOCK NOTES
----------------------------------------- RECEIVABLE
SERIES A SERIES B COMMON STOCK ADDITIONAL FROM
------------------- ------------------- -------------------- PAID-IN STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS SALES
------ ---------- ------ ---------- --------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994, as previously
reported............. 0 $ 0 0 $ 0 2,080 $208,000 $ 0 $ 0 $ 0
Retroactive effect on
prior years of change
in accounting
principle............ 0 0 0 0 0 0 0 0 0
----- ---------- ----- ---------- --------- -------- ---------- ---------- ---------
Balance, December 31,
1994, as restated.... 0 0 0 0 2,080 208,000 0 0 0
Net income............ 0 0 0 0 0 0 0 0 0
Dividends............. 0 0 0 0 0 0 0 0 0
----- ---------- ----- ---------- --------- -------- ---------- ---------- ---------
Balance, December 31,
1995................. 0 0 0 0 2,080 208,000 0 0 0
Net income............ 0 0 0 0 0 0 0 0 0
Dividends............. 0 0 0 0 0 0 0 0 0
----- ---------- ----- ---------- --------- -------- ---------- ---------- ---------
Balance, December 31,
1996................. 0 0 0 0 2,080 208,000 0 0 0
Net (loss)............ 0 0 0 0 0 0 0 0 0
Dividends............. 0 0 0 0 0 0 0 0 0
Issuance of preferred
stock series A....... 7,000 7,000,000 0 0 0 0 0 0 0
Issuance of preferred
stock series B....... 0 0 4,500 4,500,000 0 0 0 0 0
Repurchase of common
shares............... 0 0 0 0 (1,024) (102,400) 0 0 0
Stock split........... 0 0 0 0 3,464,944 (70,940) 70,940 0 0
Warrants issued....... 0 0 0 0 0 0 0 1,137,400 0
Shares issued for
notes receivable..... 0 0 0 0 225,000 2,250 245,250 0 (247,500)
Reclassification of S
Corporation retained
earnings to
additional paid-in
capital (Note 1)..... 0 0 0 0 0 0 6,939,000 0 0
----- ---------- ----- ---------- --------- -------- ---------- ---------- ---------
Balance, December 31,
1997................. 7,000 $7,000,000 4,500 $4,500,000 3,691,000 $ 36,910 $7,255,190 $1,137,400 $(247,500)
===== ========== ===== ========== ========= ======== ========== ========== =========
<CAPTION>
RETAINED
EARNINGS TOTAL
----------- -----------
<S> <C> <C>
Balance, December 31,
1994, as previously
reported............. $ 9,704,001 $ 9,912,001
Retroactive effect on
prior years of change
in accounting
principle............ 1,727,722 1,727,722
----------- -----------
Balance, December 31,
1994, as restated.... 11,431,723 11,639,723
Net income............ 689,513 689,513
Dividends............. (609,864) (609,864)
----------- -----------
Balance, December 31,
1995................. 11,511,372 11,719,372
Net income............ 1,051,133 1,051,133
Dividends............. (1,196,987) (1,196,987)
----------- -----------
Balance, December 31,
1996................. 11,365,518 11,573,518
Net (loss)............ (13,599) (13,599)
Dividends............. (1,193,603) (1,193,603)
Issuance of preferred
stock series A....... 0 7,000,000
Issuance of preferred
stock series B....... 0 4,500,000
Repurchase of common
shares............... (2,605,292) (2,707,692)
Stock split........... 0 0
Warrants issued....... 0 1,137,400
Shares issued for
notes receivable..... 0 0
Reclassification of S
Corporation retained
earnings to
additional paid-in
capital (Note 1)..... (6,939,000) 0
----------- -----------
Balance, December 31,
1997................. $ 614,024 $20,296,024
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE> 127
THE J.H. HEAFNER COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income....................................... $ (13,599) $ 1,051,133 $ 689,513
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities, net of
Winston acquisition --
Depreciation and amortization......................... 5,399,363 1,331,460 1,062,301
Deferred taxes........................................ (527,514) 0 0
(Gain) loss on sale of property and equipment......... (114,393) (390,266) 7,626
Loss on investment.................................... 0 0 75,000
Change in assets and liabilities:
Accounts receivable, net........................... (5,758,490) (1,671,892) (3,351,060)
Inventories, net................................... (2,376,988) 4,955,559 (6,143,421)
Prepaid expenses and other current assets.......... 199,722 (136,202) (120,410)
Accounts payable and accrued expenses.............. 9,580,874 (1,145,008) 7,443,579
Other.............................................. 314,255 13,672 (25,726)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING 6,703,230 4,008,456 (362,598)
ACTIVITIES.......................................
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Winston, net of cash acquired.......... (42,194,588) 0 0
Purchase of property and equipment.................... (4,908,021) (7,865,313) (2,205,426)
Proceeds from sale of property and equipment.......... 363,031 1,089,970 761,268
Purchases of real estate held for sale................ 0 (541,860) (513,570)
Other................................................. 281,051 (309,146) (242,565)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (46,458,527) (7,626,349) (2,200,293)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.............. 28,000,000 6,447,000 1,350,000
Net proceeds from revolving credit facility and other 18,404,566 1,429,039 1,887,300
notes..............................................
Proceeds from issuance of preferred stock............. 11,500,000 0 0
Principal payments on long-term debt.................. (10,557,878) (2,505,895) (120,320)
Cash paid for stock repurchase........................ (2,707,692) 0 0
Cash paid for financing costs......................... (2,377,828) 0 0
Cash dividends paid................................... (1,193,603) (1,196,987) (609,864)
Collection (issuance) of notes receivable, net........ 183,956 (461,780) 122,653
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 41,251,521 3,711,377 2,629,769
NET INCREASE IN CASH.................................... 1,496,224 93,484 66,878
Cash, beginning of year................................. 1,006,062 912,578 845,700
----------- ----------- -----------
Cash, end of year....................................... $ 2,502,286 $ 1,006,062 $ 912,578
=========== =========== ===========
Supplemental disclosures of cash flow information--Cash $ 3,585,000 $ 1,428,000 $ 1,288,000
payments for--Interest................................
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
During 1997, the Company received $2,643,000 in accounts
payable credits from a vendor in exchange for a note
payable.
In connection with the issuance of Subordinated Debt
(Note 8), the Company issued detachable warrants,
which resulted in a discount on the Senior
Subordinated Debt in the amount of $1,137,400.
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
<PAGE> 128
THE J.H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
The J. H. Heafner Company, Inc. (the Company), a North Carolina
corporation, is engaged in the wholesale distribution of tires and tire
accessories. The Company sells primarily to retail distributors throughout the
southeastern United States. In May 1997, the Company acquired all outstanding
shares of common stock of Oliver and Winston, Inc. (Winston), a California-based
operation of 175 retail tire and automotive service centers in California and
Arizona (Note 2).
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.
ACCOUNTING CHANGE
During 1997, the Company changed its method of determining the cost of
inventories from the last-in, first-out (LIFO) method to the first-in, first-out
(FIFO) method. Under the current economic environment of low inflation, the
Company believes that the FIFO method will result in a better measurement of
operating results and a better matching of costs with product sales. This change
has been applied by retroactively restating the accompanying financial
statements for prior years. The balances of retained earnings for the years
ended December 31, 1996 and 1995, have been adjusted for the effect of applying
retroactively the new method of valuing inventories. The following summarizes
the effect on net income of changing the accounting method for valuing
inventories.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net income, as previously reported.......................... $1,919,306 $ 384,536
Effect of change in accounting method for inventories....... (868,173) 304,977
---------- ----------
Net income, as restated..................................... $1,051,133 $ 689,513
========== ==========
</TABLE>
For income tax reporting purposes, the income from the change in accounting
method will be recognized on a straight-line basis over a six-year period.
CASH AND CASH EQUIVALENTS
The Company includes cash, demand deposits and highly liquid investments
with maturities of less than three months in cash and cash equivalents in its
consolidated financial statements.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
For its wholesale operations, the Company recognizes revenue upon shipment
from its distribution centers/warehouse to the customer. For its retail
operations, the Company recognizes revenue at the point of sale.
In the normal course of business, the Company extends credit, on open
accounts, to its customers after performing a credit analysis based on a number
of financial and other criteria. The Company performs ongoing credit evaluations
of its customers financial conditions and does not normally require collateral,
however, letters of credit and other security are occasionally required for
certain new and existing customers.
F-8
<PAGE> 129
THE J.H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
Allowances are maintained for potential credit losses and such losses have been
within management's expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, other current assets, accounts payable and
accrued liabilities are reflected in the financial statements at fair value
because of the short-term maturity of those instruments. A reasonable estimate
of the fair values of the Company's notes receivable, for which there are no
quoted market prices, could not be made without incurring excessive costs. The
fair values of the Company's cash value of life insurance and debt are disclosed
in Notes 3 and 7, respectively. The fair value of the Company's interest rate
swaps is disclosed in Note 7.
INVENTORIES
Inventories consist primarily of automotive tires, wheels, parts and
accessories and are valued at the lower of cost, determined on the first-in,
first-out (FIFO) method or market.
PROPERTY AND EQUIPMENT
Depreciation is determined by using a combination of the straight-line
method and declining-balance method based on the following estimated useful
lives:
<TABLE>
<S> <C>
Building and leasehold improvements........................ 10-39 years
Service equipment.......................................... 5-10 years
Furniture and equipment.................................... 5-7 years
Vehicles................................................... 4-5 years
</TABLE>
Expenditures for repairs and maintenance are charged to expense as
incurred. Renewals or improvements of significant items are capitalized. When
assets are sold or otherwise disposed of, the cost and related accumulated
depreciation or amortization are removed from the respective accounts and any
resulting gain or loss is recognized.
DEFERRED FINANCING COSTS
Costs incurred in connection with financing activities (Notes 6, 7 and 8),
are capitalized and amortized using the effective interest method and charged to
interest expense in the accompanying consolidated statements of operations.
Total costs deferred and included in other assets in the accompanying
consolidated balance sheet were $2,378,000 at December 31, 1997.
LONG-LIVED ASSETS
During 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." This statement requires that
long-lived assets and certain identifiable intangible assets to be held and used
by an entity be reviewed for impairment whenever events occur which indicate
that the carrying amount of the asset might not be recoverable. The review
should assess fair value based on estimated future cash flows expected from the
use and disposition of the asset. The asset should be reported at the lower of
carrying amount or fair value less cost to sell. The adoption of SFAS No. 121
did not have a material effect on the Company's results of operations.
F-9
<PAGE> 130
THE J.H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
GOODWILL
Goodwill, which represents the excess of the purchase price over the fair
value of the net assets of Winston is being amortized on a straight-line basis
over a period of 15 years. Amortization of goodwill applicable to continuing
operations for 1997 was $1,548,000. The carrying value of goodwill will be
reviewed periodically based on the nondiscounted cash flows and pretax income of
the acquired entity over the remaining amortization period. Should this review
indicate that the goodwill balance will not be recoverable, the Company's
carrying value of the goodwill will be reduced. At December 31, 1997, the
Company believes goodwill of $34,979,000 is fully recoverable.
INCOME TAXES
In connection with the Winston acquisition in May 1997, the Company
terminated its S Corporation status for federal and state income tax purposes.
Accordingly, the Company has adopted the provisions of SFAS 109 "Accounting for
Income Taxes." This statement requires the use of asset and liability method of
accounting for deferred income taxes. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
reporting purposes, at the applicable enacted tax rates.
In connection with the Company's S Corporation termination, the Company
reclassified its undistributed S Corporation earnings of $6,939,000 as of May 7,
1997, to additional paid-in capital.
The pro forma provision for income taxes in the accompanying statements of
operations for the years ended December 31, 1996 and 1995, reflect the pro forma
effect of income taxes as if the Company had been taxed as a C Corporation for
those periods. The pro forma effect of income taxes for the period from January
1, 1997 to May 7, 1997 was not significant.
STOCK OPTION PLAN
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Accordingly,
compensation expense is being recognized on the date of grant only if the
current market price of the underlying stock exceeds the exercise price. The
Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
which permits entities to recognize, as expense over the vesting period, the
fair value of all stock-based awards on the date of grant, but also allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income disclosures for employee stock option grants made in 1997
and future years as if the fair-value based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provision of APB
Opinion No. 25 and provide the pro forma disclosure provision of SFAS No. 123.
DEFERRED COMPENSATION
The Company has unfunded deferred compensation agreements with certain
officers and other key employees. The agreements provide for monthly payments
beginning at age 58 and continuing for 10 years. The Company also has unfunded
deferred compensation agreements with two former employees. Vested benefits
under these agreements are payable in installments over a 15-year period, upon
death or retirement. The present value of the liability for these benefits
($3,047,000) has been accrued over the term of the active service of the
employees.
F-10
<PAGE> 131
THE J.H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
SELF-INSURANCE COVERAGE
Prior to June 1, 1994, Winston (see Note 2) maintained self-insurance for
its worker's compensation program which was terminated on June 1, 1994.
Winston's self insurance reserve which amounted to $2,020,000 at December 31,
1997, has been determined based on a certified estimate from an independent
actuary for claims incurred on or before June 1, 1994. These estimates are
reviewed periodically and are subject to the impact of future changes in such
factors as claim severity and frequency. While management believes that the
amounts are fairly stated, the ultimate liability may be in excess of or less
than the amounts provided, and any adjustments will be reflected in the periods
in which they become known.
DEFERRED SERVICE AND WARRANTY REVENUE
The Company defers a portion of revenue from the sale of service and
warranty contracts. Deferred service revenue is recognized over the estimated
lives of such contracts. Warranty revenue is recognized in proportion to costs
incurred in satisfaction of the terms of such contracts.
Deferred service and warranty revenue is included in other long-term
liabilities in the accompanying consolidated balance sheet to the extent that
the deferred revenue is estimated to be recognized in income beyond the next
fiscal year. Deferred revenue estimated to be recognized in income during the
next fiscal year is included in accrued expenses in the accompanying
consolidated balance sheet.
INTEREST RATE SWAPS
The Company periodically enters into interest rate swap agreements to
manage exposure to fluctuations in interest rates. The swap agreements represent
contracts to exchange floating rate for fixed interest payments periodically
over the life of the agreements without exchange of the underlying notional
amounts. The notional amounts of interest rate agreements are used to measure
interest to be paid or received and do not represent the amount of exposure to
credit loss. The differential paid or received on interest rate agreements is
recognized as an adjustment to interest expense.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain 1996 and 1995 amounts have been reclassified to conform with the
1997 presentation.
2. ACQUISITION:
On May 7, 1997, the Company acquired all outstanding shares of common stock
of Oliver and Winston, Inc. (Winston), a California-based operator of retail
tire and automotive service centers, for approximately $43,133,000, consisting
of $42,447,000 in cash and $686,000 in direct acquisition costs. The acquisition
was funded primarily through proceeds from a revolving credit facility with a
bank ($3,633,000), proceeds from a term loan with a bank ($12,000,000), issuance
of 12% Senior Subordinated Notes ($16,000,000) and issuance of Series A and
Series B preferred stock ($11,500,000).
F-11
<PAGE> 132
THE J.H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
The acquisition has been accounted for as a purchase and, accordingly, the
operating results of Winston have been included in the Company's consolidated
financial statements since May 7, 1997.
A summary of the purchase price and preliminary purchase price allocation
follows:
<TABLE>
<S> <C>
Purchase price--
Cash..................................................... $42,447,000
Direct acquisition costs................................. 686,000
----------
Total purchase price.................................. $43,133,000
==========
Preliminary purchase price allocation--
Current assets........................................... $26,426,000
Current liabilities...................................... (26,466,000)
----------
(40,000)
Property, plant and equipment............................ 12,291,000
Goodwill................................................. 36,527,000
Other assets............................................. 1,786,000
Other noncurrent liabilities............................. (7,431,000)
----------
Cash paid for common stock............................... $43,133,000
==========
</TABLE>
In connection with the acquisition, the Company recorded a reserve of
approximately $1.4 million for estimated costs related to employee severance and
other exit activities in accordance with EITF 95-3, "Recognition of Liabilities
in Connection with a Purchase Business Combination." As of December 31, 1997,
the Company had charged approximately $400,000 to this reserve.
Prior to the acquisition, Winston had a fiscal year-end of September 30.
Winston results have been restated to conform with the Company's year-end. The
following unaudited pro forma summary information, which is not covered by the
report of independent accountants, presents information for the years ended
December 31, 1997 and 1996, as if the Winston acquisition occurred as of January
1, 1996 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net sales................................................... $357,282 $333,605
Net loss.................................................... $ (1,373) $ (2,919)
</TABLE>
The unaudited pro forma information is provided for informational purposes
only and is not necessarily indicative of the actual results that would have
occurred had the acquisition taken place on January 1, 1996, nor is it
indicative of future results of the combined companies.
3. CASH SURRENDER VALUE OF LIFE INSURANCE:
The Company maintains life insurance policies with a face amount of
$14,402,000 for certain key employees and stockholders as well as certain former
employees and stockholders. The carrying amount of the cash value of life
insurance of $1,645,000, net of policy loans of $645,000, approximates its fair
value at December 31, 1997. Net cash surrender value is included in other assets
in the accompanying consolidated balance sheets.
F-12
<PAGE> 133
THE J.H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
4. ACCRUED EXPENSES:
Accrued expenses at December 31, 1997 and 1996, consist of:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Payroll and employee benefits............................... $ 4,006,000 $ 1,936,000
Deferred service and warranty income........................ 2,813,000 0
Other....................................................... 5,591,000 345,000
----------- -----------
$12,410,000 $ 2,281,000
=========== ===========
</TABLE>
5. INCOME TAXES:
Through May 7, 1997, the Company was an S Corporation for federal and state
income tax purposes. Accordingly, all income and losses of the Company through
May 7, 1997, were recognized by the Company's stockholders in their individual
income tax returns. The Company terminated its S Corporation status upon
completion of the Winston acquisition. In accordance with Statement of Financial
Accounting Standards No. 109, the effect of the Company's change in tax status
has been recorded in the income tax provision for the year ended December 31,
1997.
The accompanying financial statements reflect the provision for income
taxes for the year ended December 31, 1997, and a pro forma income tax provision
for the years ended December 31, 1996 and 1995, as if the Company had been
subject to federal and state income taxes for those years.
The following historical and pro forma income tax information summarizes
the components of the Company's income tax provision (benefit) for the year
ended December 31, 1997, and the Company's pro forma income tax provision
(benefit) for each of the years ended December 31, 1996 and 1995, as if the
Company had been subject to federal and state income taxes for those years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
PRO FORMA
----------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal--
Current provision................................... $ 252,000 $ 304,000 $ 401,000
Deferred (benefit) provision........................ (473,000) 69,000 (125,000)
--------- --------- ---------
(221,000) 373,000 276,000
State--
Current provision................................... 65,000 54,000 71,000
Deferred (benefit) provision........................ (84,000) 12,000 (22,000)
--------- --------- ---------
(19,000) 66,000 49,000
--------- --------- ---------
Total (benefit) provision................... $(240,000) $ 439,000 $ 325,000
========= ========= =========
</TABLE>
F-13
<PAGE> 134
THE J.H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
Actual and pro forma income tax expense differed from the amounts computed
by applying the statutory federal income tax rate of 34% as a result of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
PRO FORMA
----------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Income tax (benefit) provision computed at the $ (85,000) $ 357,000 $ 234,000
federal statutory rate..............................
Adoption of SFAS No.109 upon termination of S (383,000) 0 0
Corporation status..................................
Amortization of nondeductible goodwill................ 109,000 0 0
State income taxes, net of federal income tax 65,000 54,000 71,000
benefit.............................................
Other................................................. 54,000 28,000 20,000
--------- --------- ---------
Income tax (benefit) provision........................ $(240,000) $ 439,000 $ 325,000
========= ========= =========
</TABLE>
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax reporting purposes and
(b) operating loss and tax credit carryforwards. The tax effects of the
significant temporary differences which comprise deferred tax assets and
liabilities at December 31, 1997, are as follows:
<TABLE>
<S> <C>
Deferred tax assets--
Accrued expenses and reserves not currently deductible... $1,796,000
Accrued Warranty costs................................... 1,191,000
Self Insurance reserves.................................. 651,000
Other.................................................... 428,000
----------
Gross deferred tax assets............................. 4,066,000
----------
Deferred tax liabilities--
Accounting method change from LIFO to FIFO (Note 1)...... $ (288,000)
Other.................................................... (21,000)
----------
Gross deferred tax liabilities........................ (309,000)
----------
Net deferred tax asset................................ $3,757,000
==========
</TABLE>
6. REVOLVING CREDIT FACILITY:
In May 1997, the Company entered into a $65,000,000 loan and security
agreement with a bank (Security Agreement) which is comprised of a $53,000,000
revolving credit (the Revolver) and a $12 million term loan (Term Loan) (see
Note 7). The Revolver provides for up to the lesser of $53,000,000 or the
Borrowing Base, as defined in the agreement based on 85% of eligible accounts
receivable and 65% of eligible tire inventory and 50% of all other eligible
inventory. The Security Agreement is collateralized by substantially all of the
Company's assets. At December 31, 1997, the maximum loan amount available was
$36,771,000 of which $31,949,000 was outstanding which was comprised of
$28,000,000 of Eurodollar rate revolving credit loans (the Eurodollar Revolving
Loans) and $3,949,000 of base rate revolving credit loans (the Base Rate
Revolving Loans). In addition, the Company had trade letters of credit
outstanding at December 31, 1997, of $1,858,000, which reduces the availability
under the Revolver at December 31, 1997. The Revolver provides for payment in
full on May 7, 2002, and therefore is classified as noncurrent as of December
31, 1997.
F-14
<PAGE> 135
THE J.H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
The Eurodollar Revolving Loans bear interest based on the quotient of LIBOR
and one less the percentage in effect under Regulation D of the Board of
Governors of the Federal Reserve System plus the applicable margin (Applicable
Margin) of 2.25% (8.05% at December 31, 1997). The Base Rate Revolving Loans
bear interest at the greater of the bank's base rate in effect at the time of
the loan or the Federal Funds effective rate plus 1/2% plus the Applicable
Margin of 0.25% (8.75% at December 31, 1997).
7. DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
$12 million term loan with a bank, payable in monthly
principal installments of $142,857 beginning on June 1,
1997, with the final installment for the remaining balance
due on May 7, 2002........................................ $11,000,000 $ 0
Unsecured note payable to a supplier, due in 24 monthly
principal installments commencing January 15, 2000.
Interest accrues at prime and is payable annually
commencing January 15, 1999. Interest payable can be
adjusted downward or eliminated, based on achievement of
annual purchase requirements.............................. 4,000,000 0
Unsecured note payable to a supplier, due in monthly
installments of $4,000 plus interest at 4% through
December 1999, at which time the agreement provides for
monthly installments of $67,000 plus interest through
December 2002............................................. 904,000 0
Unsecured note payable to a former stockholder, due in
annual installments of $124,600 including interest at 7.5%
through January 2006...................................... 794,000 856,000
Special credit terms extended from a supplier. Agreement
requires that the Company at all times carry a stock of
the supplier's tires of value not less than the total
amount outstanding on credit extension. The Company must
also maintain certain purchase levels, as defined in the
agreement................................................. 750,000 0
Note payable to a bank in monthly installments of $63,900
including interest at 8.613% through October 31, 2001,
with a balloon payment of $5,156,151 plus accrued interest
due December 1, 2001. The note is collateralized by first
mortgages on six pieces of land and six buildings......... 0 6,403,000
Other....................................................... 292,000 200,000
----------- ----------
17,740,000 7,459,000
Less--Current maturities.................................... (2,579,000) (483,000)
----------- ----------
$15,161,000 $6,976,000
=========== ==========
</TABLE>
At December 31, 1997, there was $11,000,000 outstanding under the
$12,000,000 Term Loan which was comprised of $10,000,000 in Eurodollar loans
(Eurodollar Term Loans) and $1,000,000 in base rate loans (Base Rate Term
Loans). The Eurodollar Term Loans bear interest based on the quotient of LIBOR
and one less the percentage in effect under Regulation D of the Board of
Governors of the Federal Reserve System plus the Applicable Margin of 2.75%
(8.55% at December 31, 1997). The Base Rate Term Loans bear interest at the
greater of the bank's base rate in effect at the time of the loan or the federal
funds effective rate plus 1/2% plus the Applicable Margin of 0.75% (9.25% at
December 31, 1997). The Applicable Margin is subject to quarterly adjustments
beginning with quarter ending June 30, 1998, in accordance with the Security
Agreements.
F-15
<PAGE> 136
THE J.H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
Aggregate maturities required on long-term debt including subordinated debt
(Note 8), at December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998...................................................... $ 2,579,000
1999...................................................... 1,845,000
2000...................................................... 2,539,000
2001...................................................... 5,875,000
2002...................................................... 1,816,000
Thereafter................................................ 19,086,000
-----------
$33,740,000
===========
</TABLE>
Using a discounted cash flow analysis, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements, the
carrying amount of the Company's debt, in the aggregate, at December 31, 1997,
approximates fair value.
DEBT COVENANTS
The Security Agreement and the Subordinated Notes Agreement, contain
certain restrictive covenants which, among other things, require the Company to
maintain minimum levels of net worth and EBITDA. The agreements also contain
certain restrictions on dividends, mergers, capital expenditures, indebtedness
and investments.
INTEREST RATE SWAP AGREEMENTS
The Company uses interest rate swaps (Swaps) to manage interest rate risk
related to its borrowings. At December 31, 1997, the Company had five Swaps in
place, each with a notional amount of $5,000,000, which effectively fix the
variable portion of the interest rates on $25,000,000 of the Company's debt. The
fixed rates paid by the Company range from 5.75% to 6.22% and expire from May
1998 through October 2000. The fair value of the Swaps is the estimated amount
that the Company would pay or receive to terminate the agreement at the
reporting date, taking into account current interest rates. The estimated fair
value of the Swaps at December 31, 1997, results in a payable position of
approximately $145,000 which does not necessarily reflect the potential expense
that would be realized on an actual settlement of the liability.
8. SUBORDINATED DEBT:
In May 1997, the Company issued $16 million of 12% Senior Subordinated Debt
(Subordinated Debt) due on May 7, 2004, with interest payable quarterly. The
Subordinated Debt has a mandatory redemption clause, which states that upon a
change in control or public offering (other than an initial public offering),
the holder has the right to require the Company to redeem all outstanding
Subordinated Debt at a price equal to a percentage, as specified, of the
outstanding principal plus accrued interest. The Company also has the right to
redeem the Subordinated Debt in whole, with 30 days notice, at a price equal to
a percentage, as specified, of the outstanding principal plus accrued interest.
In connection with the issuance of Subordinated Debt, the Company issued
detachable warrants which permit the holder to acquire up to 20.68% of the
Company's common stock at $.01 per share. The warrants became exercisable
immediately upon issuance and expire on May 7, 2007. The warrants may be
exercised in whole or in part, but in no event later than the date of an initial
public offering or a sale transaction. The Company has recorded the warrants at
fair value ($1,137,400), which resulted in a discount on the Subordinated Debt
in the same amount, which is being amortized over the life of the Subordinated
Debt. The unamortized discount at December 31, 1997, is $1,031,000.
F-16
<PAGE> 137
THE J.H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
As discussed in Note 13, the Company is in the process of conducting a
$100,000,000 private debt placement, the proceeds of which will be used in part
to retire the Subordinated Debt.
9. EMPLOYEE BENEFITS:
PROFIT SHARING PLAN
The Company and Winston have qualified profit-sharing and 401(k) plans for
all eligible employees. All accounts are funded based on employee contributions
to the plans, with the limits of such contributions determined by the Board of
Directors. The Company matches 50% of the participant's contributions, up to 6%
of their compensation. Winston matches 100% of the first 1% of participant
contributions and 5% of the next 5% of participant contributions. The Company
plan also provides for contributions in such amounts as the Board of Directors
may annually determine for the profit-sharing portion of the plan. The amount
charged to expense during the years ended December 31, 1997, 1996 and 1995, was
$413,000, $346,000 and $274,000, respectively.
POSTRETIREMENT BENEFITS
The Company provides certain life insurance benefits for several key
officers of the Company. On January 1, 1996, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." Under
SFAS No. 106, the cost of the life insurance benefits is accrued over relevant
employee service periods. Previously, these costs were charged to expense when
paid. The Company elected to amortize the expense for years prior to December
31, 1995, over future periods. The effect of the adoption of SFAS No. 106 and
related liability was not significant.
STOCK OPTION PLAN
In 1997, the Company adopted a Stock Option Plan (the Plan) for certain key
employees. The Plan was designed to attract and retain key employees of the
Company. The Plan authorizes the issuance of up to 265,000 shares of voting
common stock to be issued to officers and key employees under terms and
conditions to be set by the Company's Board of Directors. During 1997, 256,000
options were granted to various members of management at a fair value price of
$1.10 per share, as determined by an independent appraisal. The options vest as
specified by the stock option agreements over a period of approximately four
years and are generally exercisable beginning in May 1998. All options expire 10
years from the date of grant. No options have vested and accordingly no options
have been exercised as of December 31, 1997.
The Company has elected to account for stock option grants in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25") and its related interpretations. Pursuant to APB No.
25, compensation expense is recognized for financial reporting purposes using
the intrinsic value method when it becomes probable that the options will be
exercisable. The amount of compensation expense to be recognized is determined
by the excess of the fair value of common stock over the exercise price of the
related option at the measurement date.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation", which established an alternative
method of expense recognition for stock-based compensation awards to employees
based on fair values. The Company has elected not to adopt SFAS No. 123 for
expense recognition purposes, but is required to provide certain pro forma
disclosures.
F-17
<PAGE> 138
THE J.H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
The following information is presented as if the Company had accounted for
its employee stock options under the fair value method prescribed by SFAS No.
123:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Net loss.................................................... $(14,000)
Pro forma................................................... $(42,000)
========
</TABLE>
For the above information, the fair value of options granted in 1997 were
determined using a Black-Scholes option pricing model with the following
assumptions: a risk-free interest rate of 6.42%, no dividend yield, expected
life of 10 years which equals the lives of the grants, and no expected
volatility.
10. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases land, buildings, equipment and vehicles under various
operating leases which expire between 1998 and 2012, including two properties
which are leased from individual stockholders. The Company also has obligations
totaling $1,125,000 related to properties which have been subleased.
Future minimum lease commitments at December 31, 1997 (excluding subleased
properties) are as follows:
<TABLE>
<S> <C>
1998...................................................... $11,379,000
1999...................................................... 9,594,000
2000...................................................... 8,262,000
2001...................................................... 5,911,000
2002...................................................... 4,413,000
Thereafter................................................ 16,755,000
-----------
$56,314,000
===========
</TABLE>
Rent expense under these operating leases was $8,954,000 in 1997,
$2,385,000 in 1996 and $1,984,000 in 1995. Related-party rent expense was
$222,000 for 1997, $369,000 for 1996 and $386,000 in 1995. Obligations under
capital leases are not significant.
PURCHASE COMMITMENTS
In May 1997, the Company entered into a purchase agreement with a supplier
(the Tire Supply Agreement--see Note 11) which expires May 2007. Under the terms
of the agreement, the Company has agreed to purchase all requirements of its
"Winston" brand tires at a negotiated price specified in the agreement.
LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising out of the ordinary
conduct of its business. While the ultimate results of these lawsuits cannot be
predicted with certainty, management does not expect that these matters will
have a material adverse effect on the financial position of the Company.
F-18
<PAGE> 139
THE J.H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
ENVIRONMENTAL
The Company is also subject to a claim pursuant to environmental laws and
regulations that may require the Company to take action to correct the effects
on the environment. While it is not possible at this time to predict the outcome
of the claim, in the opinion of management, the disposition of the claim will
not have a material effect on the financial position of the Company.
11. REDEEMABLE PREFERRED STOCK:
On May 2, 1997, the Company issued 11,500 shares of preferred stock with
par value of $.01 per share to a supplier (the Supplier). Of the 11,500 shares,
7,000 shares are designated Series A Cumulative Redeemable Preferred Stock (the
Series A Preferred Stock) and 4,500 shares are designated Series B Cumulative
Redeemable Preferred Stock (the Series B Preferred Stock).
The Series A and B Preferred Stock each contain a provision whereby upon
the termination of the Tire Supply Agreement (see Note 10), the Company shall
redeem all shares of Preferred Stock outstanding at a price equal to the sum of
the stated value and the applicable premium, as defined, plus all accrued and
unpaid dividends. If at any time a change of control occurs, as defined, the
Supplier may request redemption of all outstanding shares. The Company may not
make payment in respect of any of the above or below redemption requirements, so
long as amounts are outstanding under the Loan and Security Agreement, the
Senior Notes and other agreements entered into in connection therewith,
including any replacement agreement which results in a greater principal amount
outstanding.
SERIES A PREFERRED STOCK
The stated value of Series A Preferred Stock is $1,000 per share. Holders
of Series A Preferred Stock are entitled to receive, when and if declared by the
Board of Directors, cumulative cash dividends at an annual rate of 4%, subject
to adjustment based on the volume of purchases from the Supplier. Additional
dividends will accrue, when and if declared by the Board of Directors, and are
payable on the last business day of January, beginning in 1999. In June 1997,
the Company declared a dividend based on a 4% rate. The Series A Preferred Stock
will be redeemed by the Company, beginning on the last business day of December
2002 and on the last business day of each June and December thereafter, through
June 2007.
SERIES B PREFERRED STOCK
The stated value of Series B Preferred Stock is initially $1,000, to be
adjusted based on Tire Purchase Credits as determined by the number of units
purchased under the Tire Supply Agreement (see Note 10). Dividends on Series B
Preferred Stock are payable, when and if declared by the Board of Directors, at
the prime rate if the Company does not meet certain tire purchase requirements.
The remaining value of Series B Preferred Stock shall be redeemed by the Company
on the last business day of June 2007 at a price equal to the adjusted stated
value plus all accrued and unpaid dividends.
12. COMMON STOCK:
STOCK REPURCHASE AND STOCK SPLIT
At December 31, 1996, the Company had 5,000 shares of $100 par value common
stock authorized with 2,080 shares issued and outstanding. On May 2, 1997, the
Company amended its Articles of Incorporation to authorize 10,000,000 shares of
common stock, and reduce the par value of common stock from $100 to $.01 per
share.
F-19
<PAGE> 140
THE J.H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
On May 7, 1997, the Board of Directors approved the repurchase and
subsequent cancellation and retirement of 1,024 outstanding shares of common
stock at a price equal to $2,644 per share on a pre-stock split basis. On the
same date, the Board of Directors authorized a 3,281-for-1 stock split on all
outstanding shares of common stock at the close of business on that date.
STOCK ISSUANCE
On May 28, 1997, the Company issued 225,000 shares of common stock to
certain members of management pursuant to The J. H. Heafner Company 1997
Restricted Stock Plan. The shares were issued at a price of $1.10 per share, as
determined by an independent appraisal, in exchange for notes receivable for the
amounts owed. The notes bear interest at the federal funds effective rate and
are forgivable as to principal in equal amounts over four years upon the Company
achieving certain annual financial targets. These notes have been included as a
component of stockholders' equity in the accompanying consolidated balance
sheet.
13. SUBSEQUENT EVENTS:
MERGER AGREEMENT
On March 10, 1998, the Company entered into an Agreement and Plan of Merger
with ITCO Logistics Corporation and Subsidiaries, a wholesaler of tires and
related accessories in the eastern part of the United States. The total
consideration expected to be paid upon completion of the merger will consist of
$18 million in cash and 1,400,667 newly issued shares of the Company's Class B
Common Stock with an appraised value of approximately $14.9 million.
ACQUISITION AGREEMENT
On March 11, 1998, Company entered into a Stock Purchase Agreement with the
stockholders of The Speed Merchant Inc., a wholesaler and retailer of tires,
parts and accessories located in California and Arizona. The total consideration
to be paid to the stockholders is $45 million in cash, of which $35 million is
payable upon consummation of the acquisition, $7.4 million is payable in
installments over five years in consideration for noncompete agreements, and
$2.6 million is payable in the form of contingent payments to the stockholders.
PRIVATE PLACEMENT DEBT OFFERING
The Company is proceeding with a plan to offer $100,000,000 of Senior Notes
(Senior Notes) through a private placement debt offering to be completed May
1998. The net proceeds of the offering will be used to repay the Revolver, Term
Loan and the Subordinated Debt (see Notes 6, 7 and 8). The Senior Notes are
unsecured senior obligations of the Company and will include certain
restrictions on incurring additional indebtedness and payment of dividends. In
addition, the Senior Notes will impose certain operational and financial
restrictions on the Company.
F-20
<PAGE> 141
THE J.H. HEAFNER COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 3,879,161 $ 2,502,286
Accounts receivable, less allowance for doubtful accounts
of $2,704,000 and $400,000............................. 104,235,158 31,809,291
Inventories, net.......................................... 122,646,790 41,529,430
Deferred tax assets....................................... 9,947,921 2,101,624
Prepaid expenses and other current assets................. 2,611,224 1,085,381
------------ ------------
Total current assets................................... 243,320,254 79,028,012
------------ ------------
PROPERTY AND EQUIPMENT, NET................................. 39,572,640 25,991,088
GOODWILL, NET............................................... 107,997,959 34,978,580
OTHER INTANGIBLE ASSETS..................................... 9,768,334 0
OTHER ASSETS................................................ 9,529,336 4,855,519
DEFERRED TAX ASSETS......................................... 1,179,482 1,655,079
------------ ------------
$411,368,005 $146,508,278
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $159,966,307 $ 43,456,901
Accrued expenses.......................................... 35,660,250 12,409,878
Current maturities of long-term debt...................... 5,670,384 2,579,316
------------ ------------
Total current liabilities.............................. 201,296,941 58,446,095
------------ ------------
LONG-TERM DEBT.............................................. 110,889,079 15,161,397
------------ ------------
REVOLVING CREDIT FACILITY................................... 54,305,114 31,948,605
------------ ------------
OTHER LIABILITIES........................................... 13,166,004 5,687,157
------------ ------------
SUBORDINATED DEBT........................................... 0 14,969,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock series A -- 4% cumulative, 7,000 shares
authorized, issued and outstanding..................... 7,000,000 7,000,000
Preferred stock series B -- Variable rate cumulative,
4,500 shares authorized, issued and outstanding........ 4,500,000 4,500,000
Class A Common Stock -- Par value of $.01 per share;
authorized 10,000,000 shares; 3,691,000 shares issued
and outstanding........................................ 36,910 36,910
Class B Common Stock -- Par value of $.01 per share;
authorized 20,000,000 and 0; 1,400,667 and 0 shares
issued and outstanding................................. 14,007 0
Warrants.................................................. 1,137,400 1,137,400
Additional paid-in capital................................ 22,200,307 7,255,190
Notes receivable from stock sales......................... (177,374) (247,500)
Retained earnings (deficit)............................... (3,000,383) 614,024
------------ ------------
31,710,867 20,296,024
------------ ------------
$411,368,005 $146,508,278
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-21
<PAGE> 142
THE J. H. HEAFNER COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1997
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
NET SALES................................................... $243,178,526 $127,377,225
COST OF GOODS SOLD.......................................... 182,130,539 99,677,295
------------ ------------
Gross profit.............................................. 61,047,987 27,699,930
GENERAL, SELLING AND ADMINISTRATIVE EXPENSES................ 57,262,067 26,128,057
------------ ------------
Income from operations.................................... 3,785,920 1,571,873
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (4,286,471) (1,672,421)
Special charges (Note 6).................................. (1,409,000) 0
Interest income........................................... 330,467 298,574
Other expense............................................. (533,569) (313,234)
------------ ------------
LOSS FROM OPERATIONS BEFORE BENEFIT FOR INCOME TAXES AND
EXTRAORDINARY CHARGE...................................... (2,112,653) (115,208)
Benefit for income taxes.................................. 836,518 48,673
------------ ------------
LOSS FROM OPERATIONS BEFORE EXTRAORDINARY CHARGE............ (1,276,135) (66,535)
Extraordinary charge from early extinguishment of debt, net
of income tax benefits of $1,466,000 (Note 7)............. (2,198,272) 0
------------ ------------
NET LOSS.................................................... $ (3,474,407) $ (66,535)
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-22
<PAGE> 143
THE J. H. HEAFNER COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------------------------- -----------------------------------------
SERIES A SERIES B CLASS A CLASS B ADDITIONAL
------------------- ------------------- ------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ---------- ------ ---------- --------- ------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997................... 7,000 $7,000,000 4,500 $4,500,000 3,691,000 $36,910 0 $ 0 $ 7,255,190
Issuance of shares in
connection with ITCO
Merger................. 0 0 0 0 0 0 1,400,667 14,007 14,945,117
Dividends paid on
preferred stock........ 0 0 0 0 0 0 0 0 0
Forgiveness of
management notes
receivables related to
common stock........... 0 0 0 0 0 0 0 0 0
Net (loss).............. 0 0 0 0 0 0 0 0 0
----- ---------- ----- ---------- --------- ------- --------- ------- -----------
Balance, June 30,
1998................... 7,000 $7,000,000 4,500 $4,500,000 3,691,000 $36,910 1,400,667 $14,007 $22,200,307
===== ========== ===== ========== ========= ======= ========= ======= ===========
<CAPTION>
NOTES
RECEIVABLE
FROM
STOCK RETAINED
WARRANTS SALES EARNINGS TOTAL
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31,
1997................... $1,137,400 $(247,500) $ 614,024 $20,296,024
Issuance of shares in
connection with ITCO
Merger................. 0 0 0 14,959,124
Dividends paid on
preferred stock........ 0 0 (140,000) (140,000)
Forgiveness of
management notes
receivables related to
common stock........... 0 70,126 0 70,126
Net (loss).............. 0 0 (3,474,407) (3,474,407)
---------- --------- ----------- -----------
Balance, June 30,
1998................... $1,137,400 $(177,374) $(3,000,383) $31,710,867
========== ========= =========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-23
<PAGE> 144
THE J. H. HEAFNER COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1997
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income......................................... $ (3,474,407) $ (66,535)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities, net of the
ITCO merger, CPW acquisition and the Winston
acquisition --
Depreciation and amortization........................... 4,029,059 1,550,778
Extraordinary charge.................................... 2,198,272 0
Special charge.......................................... 1,409,000 0
Deferred taxes.......................................... (151,648) (335,796)
Loss on sale of property and equipment.................. 281,945 18,263
Change in assets and liabilities:
Accounts receivable, net.............................. (8,307,040) (3,846,843)
Accounts payable and accrued expenses................. (2,229,599) 6,402,230
Inventories, net...................................... (194,744) (5,137,612)
Prepaid expenses and other current assets............. 301,210 (309,658)
Other................................................. 1,263,738 1,445,495
------------ ------------
Net cash used in operating activities............... (4,874,214) (279,678)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of CPW, net of cash acquired.................. (36,086,212) 0
Acquisition of ITCO, net of cash acquired................. (16,138,271) 0
Acquisition of Winston, net of cash acquired.............. 0 (42,194,588)
Purchase of property and equipment........................ (1,905,167) (2,849,433)
Proceeds from sale of property and equipment.............. 883,789 60,804
------------ ------------
Net cash used in investing activities................... (53,245,861) (44,983,217)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................. 100,000,000 28,000,000
Principal payments on long-term debt...................... (28,287,198) (9,221,390)
Cash paid for financing costs............................. (6,384,883) (2,377,828)
Net proceeds (payments) from revolving credit facility and
other notes............................................. (5,690,969) 22,205,630
Proceeds from issuance of preferred stock................. 0 11,500,000
Cash dividends paid....................................... (140,000) (1,012,381)
Cash paid for stock repurchase............................ 0 (2,707,692)
------------ ------------
Net cash provided by financing activities............... $ 59,496,950 $ 46,386,339
------------ ------------
Net increase in cash........................................ $ 1,376,875 $ 1,123,444
Cash, beginning of year..................................... 2,502,286 1,006,062
------------ ------------
Cash, end of year........................................... $ 3,879,161 $ 2,129,506
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest................................ $ 3,516,602 $ 1,130,561
============ ============
Cash payments for income taxes............................ $ 612,528 $ 0
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
In connection with the issuance of subordinated debt in
1997, the Company issued detachable warrants, which
resulted in a discount on the senior subordinated debt
in the amount of $1,137,400.
In May 1998, the Company issued 1,400,667 shares of Class
B Common Stock with an appraised value of $14,959,000.
In connection with the CPW acquisition, the Company
entered into noncompete agreements in the amount of
$7,400,000 and other deferred payments in the amount of
$2,600,000.
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-24
<PAGE> 145
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
1. ORGANIZATION:
The J. H. Heafner Company, Inc. (the Company), a North Carolina
corporation, is engaged in the wholesale distribution of tires and tire
accessories and the operation of retail tire and auto service stores. In May
1997, the Company acquired all outstanding shares of common stock of Oliver and
Winston, Inc. (Winston), a California-based operation of 176 retail tire and
automotive service centers in California and Arizona. In May 1998, the Company,
through a newly formed wholly owned subsidiary, merged with ITCO Logistics
Corporation and Subsidiaries (ITCO), a wholesaler of tires and related
accessories in the eastern part of the United States. Concurrent with the ITCO
merger, the Company acquired all outstanding shares of common stock of The Speed
Merchant, Inc. (CPW), a wholesaler and retailer of tires, parts and accessories
located in California and Arizona.
2. BASIS OF PRESENTATION:
The unaudited condensed consolidated balance sheet as of June 30, 1998, and
the condensed consolidated statements of operations, stockholders' equity and
cash flows for the six months ended June 30, 1998 and 1997, have been prepared
by the Company and have not been audited. In the opinion of management, all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the financial position of the Company, the results of its
operations and cash flows have been made.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's consolidated financial statements for the fiscal year ended December
31, 1997.
The results of the operations for the six months ended are not necessarily
indicative of the operating results for the full fiscal year.
3. COMMON STOCK:
On May 12, 1998, the Company's Board of Directors amended the Articles of
Incorporation of the Company to create two classes of common stock. At June 30,
1998, the Company has authorized for issuance 10,000,000 shares that have been
designated Class A Common Stock (the Class A Common Stock) and 20,000,000 shares
that have been designated Class B Common Stock (the Class B Common Stock).
Class A Common Stock and Class B Common Stock have equal rights related to
dividends and distributions and liquidation, dissolution or winding up. However,
Class A Common Stock is entitled to 20 votes per share and Class B Common Stock
is entitled to one vote per share.
Class B Common Stock shall automatically convert into one share of Class A
Common Stock without the requirement of any further action on the part of the
Corporation or it stockholders upon the earliest of (i) an initial public
offering of the Class A Common Stock in connection with the registration of the
Class A Common Stock under the Securities Act of 1933, as amended (ii) the
occurrence of any condition or event which results in the acceleration of the
maturity of the indebtedness evidenced by the Debt Documents, or (iii) an order
for relief under Title 11 of the United States Code is entered against the
Company.
4. ACQUISITIONS:
During the six months ended June 30, 1998, the Company completed the
following business combinations, both of which were accounted for by the
purchase method. Accordingly, results of operations for the acquired businesses
have been included in the condensed consolidated statement of operations from
the May 20, 1998, acquisition date. A preliminary allocation of the purchase
price has been recorded in the
F-25
<PAGE> 146
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accompanying condensed consolidated financial statements as of June 30, 1998,
based on management's best estimate of assets acquired and liabilities assumed.
ITCO Merger
On May 20, 1998, a wholly owned subsidiary of the Company merged with ITCO.
The purchase price included $18,000,000 in cash and 1,400,667 newly issued
shares of the Company's Class B Common Stock with an appraised value of
approximately $14,959,000. The excess of the purchase price over the net
tangible assets acquired (goodwill) was $45,016,000, which is being amortized
over 15 years.
A summary of the purchase price and related preliminary purchase allocation
for the ITCO Merger follows (in 000's):
AGGREGATE PURCHASE PRICE
<TABLE>
<S> <C>
Cash paid to holders of ITCO common and preferred stock..... $18,000
Appraised value of Class B Common Stock issued in connection
with the ITCO Merger (1,400,667 shares at $10.68 per
share).................................................... 14,959
Severance, facility closing expenses and other exit costs
incurred in connection with the ITCO Merger............... 4,380
Amount payable upon settlement of ITCO stock appreciation
rights.................................................... 1,390
Financial advisors, accounting, legal and other direct
acquisition costs......................................... 929
-------
Aggregate purchase price.................................. $39,658
=======
</TABLE>
PRELIMINARY ALLOCATION OF PURCHASE PRICE
<TABLE>
<S> <C>
Aggregate purchase price.................................... $39,658
Less net book value of assets acquired.................... (7,152)
-------
Excess of cost over net book value of assets acquired....... 32,506
Adjustments to record assets and liabilities at fair market
value:
Deferred tax asset........................................ (1,944)
Goodwill (historical)..................................... 13,963
Other..................................................... 491
-------
Total adjustments...................................... 12,510
-------
Goodwill.................................................. $45,016
=======
</TABLE>
In connection with the ITCO merger, the Company recorded a $4,380,000
liability for estimated costs related to employee severance, facilities closing
expense and other related exit costs in accordance with EITF 95-3, "Recognition
of Liabilities in Connection with a Purchase Business Combination." No charges
were made against the reserve at June 30, 1998.
CPW Acquisition
On May 20, 1998, the Company acquired all of the outstanding common stock
of CPW for $45,000,000 in cash, of which $35,000,000 was paid on May 20, 1998,
with $7,400,000 payable in installments over five years in consideration for
noncompete agreements and $2,600,000 payable in the form of contingent payments
to CPW stockholders. The excess purchase price over the net tangible assets
acquired was allocated to
F-26
<PAGE> 147
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
goodwill ($29,156,000) which is being amortized over a 15 year period, and
$10,000,000 to other intangible assets which are being amortized over a two to
five year period.
A summary of the purchase price and related preliminary purchase allocation
for the CPW acquisition follows (in 000's):
AGGREGATE PURCHASE PRICE
<TABLE>
<S> <C>
Cash paid to CPW Stockholders............................... $35,000
Amount payable for non-compete agreement and other deferred
payments.................................................. 10,000
Repayment of long-term indebtedness......................... 976
Severance, facility closing expenses and other costs
incurred in connection with the CPW acquisition........... 862
Financial, accounting, legal and other direct acquisition
costs..................................................... 633
-------
Aggregate purchase price.................................. $47,471
=======
</TABLE>
PRELIMINARY ALLOCATION OF PURCHASE PRICE
<TABLE>
<S> <C>
Aggregate purchase price.................................... $ 47,471
Less -- Net book value of assets acquired................. (9,472)
--------
Excess of cost over net book value of assets acquired....... 37,999
Less adjustments to record assets and liabilities at fair
market value:
Inventory................................................. 1,018
Other current assets...................................... (22)
Noncompete agreement and other deferred payments.......... (10,000)
Other assets.............................................. 267
Deferred tax assets....................................... (1,353)
Accounts payable.......................................... 276
Accrued expenses.......................................... 971
--------
Total adjustments................................. (8,843)
--------
Goodwill.................................................. $ 29,156
========
</TABLE>
In connection with the CPW acquisition, the Company recorded an $862,000
liability for estimated costs related to employee severance, facilities closing
expense and other related exit costs in accordance with EITF 95-3 "Recognition
of Liabilities in Connection with a Purchase Business Combination." No charges
were made against the reserve at June 30, 1998.
The following unaudited pro forma results of operations give effect to the
acquisitions of Winston, ITCO and CPW as if they had occurred on January 1,
1997. These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which would
have resulted had the acquisitions occurred on January 1, 1997, or which may
result in the future.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
1998 1997
------------ ------------
<S> <C> <C>
Net sales................................................... $453,266,000 $408,678,000
Loss from continuing operations before extraordinary
charge.................................................... (2,235,000) (4,684,000)
Net loss.................................................... $ (4,433,000) $ (4,684,000)
</TABLE>
F-27
<PAGE> 148
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Senior Notes, interest due semiannually at 10.0%, commencing
on November 15, 1998, due May 2008........................ $100,000,000 $ --
$12,000,000 term loan with a bank, payable in monthly
principal installments of $142,857 beginning June 1, 1997,
with the final installment for the remaining balance due
on May 7, 2002............................................ -- 11,000,000
Unsecured note payable to a supplier, due in monthly
installments of $4,000 plus interest at 4% through
December 1999 at which time the agreement provides for
monthly installments of $167,000 plus interest through
December 2002............................................. 4,000,000 4,000,000
Installment notes payable to suppliers, due through 1999,
bearing no interest; collateralized by inventories
purchased from these suppliers............................ 2,333,000 --
Other....................................................... 10,226,000 2,740,000
------------ -----------
116,559,000 17,740,000
Less - Current Maturities................................... 5,670,000 2,579,000
------------ -----------
$110,899,000 $15,161,000
============ ===========
</TABLE>
Revolving Credit Facility:
On May 20, 1998, the Company replaced its existing loan and security
agreement with a new credit facility that provides for a senior secured
revolving credit facility (the Revolver), which may be borrowed in the aggregate
principal amount of up to $100,000,000 (of which up to $10,000,000 may be
utilized in the form of letters of credit). At the closing date of the ITCO
merger and CPW acquisition, $48,054,000 was borrowed under the Revolver.
The Revolver has a five-year term expiring in May 2003, extendable by the
Company and the banks for an additional five years. Indebtedness under the new
credit facility bears interest, at the Company's option, (i) at the Base Rate,
as defined, plus the applicable margin or (ii) at the Eurodollar Rate, as
defined, plus the applicable margin. The applicable margin for base rate loans
will be 0.25% and the applicable margin for Eurodollar Rate Loans will be 1.75%,
subject in each case to performance based step-downs.
The Company is required to pay commitment fees on the committed undrawn
amount of the Revolver, and a fronting fee to the issuer of letters of credit.
The Company has also agreed to pay certain other fees and expenses of the
Lenders and the Agent.
The Revolver requires the Company to meet certain financial tests,
including minimum net worth and minimum loan availability and contains certain
covenants which, among other things, restrict the ability of the Company to
incur additional indebtedness; enter into guaranties; make loans and
investments; make capital expenditures; declare dividends; engage in mergers,
consolidations and asset sales; enter into transactions with affiliates; create
liens and encumbrances; enter into sale/leaseback transactions; modify material
agreements; and change the business it conducts.
The Company's obligations under the Revolver, are secured by all of the
inventory and accounts receivable of the Company.
F-28
<PAGE> 149
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Senior Notes Offering:
On May 15, 1998, the Company sold $100,000,000 of Senior Notes due May 15,
2008, resulting in net proceeds of approximately $97,000,000. The Senior Notes
have an annual coupon of 10% and are redeemable at the Company's option, in
whole or in part, at any time, on or after May 15, 2003, at certain redemption
prices. In addition, the Company may redeem up to 35% of the original principal
amount of the Notes at 110% of par with one or more public equity offerings.
Interest on the Senior Notes is payable semiannually on May 15 and November 15
of each year beginning on November 15, 1998.
The Indenture contains certain covenants that, among other things, limit
the ability of the Company to incur indebtedness, make restricted payments, make
certain distributions, sell assets and subsidiary stock, enter into certain
affiliate transactions, sell or issue of capital stock of restricted
subsidiaries, incur liens, enter into sale/leaseback transactions, and engage in
mergers and consolidations.
Proceeds from the Revolver and the Senior Notes were used to finance the
$18,000,000 cash portion of the ITCO merger and the $35,000,000 cash portion of
the CPW acquisition. Proceeds were also used to repay $86,792,000 of existing
long-term indebtedness of Heafner and ITCO and to pay approximately $8,000,000
of transaction fees and expenses.
6. SPECIAL CHARGES:
In the second quarter of 1998, the Company recorded a special charge of
$1,409,000, related to the restructuring of its southeast wholesale business,
which includes the closing of 13 distribution centers commencing in the third
quarter. The second quarter charges include lease commitments for certain
distribution centers, asset writedowns, severance and employee related costs and
costs to shut down certain facilities.
7. EXTRAORDINARY CHARGE:
The Company recorded an extraordinary charge in May 1998 related to the
early extinguishment of debt resulting in a noncash write-off of deferred
financing fees and unamortized discounts of subordinated debt of $1,691,000, net
of applicable income tax benefits of $1,128,000. The Company also had
pre-payment penalties associated with the extinguishment of debt that resulted
in a cash charge of $507,000, net of applicable income tax benefits of $338,000.
F-29
<PAGE> 150
INDEPENDENT AUDITORS' REPORT
To Oliver & Winston, Inc.:
We have audited the accompanying statements of operations and retained
earnings and of cash flows of Oliver and Winston, Inc. (the Company) for each of
the three years in the period ended September 30, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Company's operations and its cash
flows for each of the three years in the period ended September 30, 1996, in
conformity with generally accepted accounting principles.
/s/ DELOITTE AND TOUCHE LLP
Los Angeles, California
January 15, 1997
F-30
<PAGE> 151
OLIVER & WINSTON, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales......................................... $143,070,000 $135,593,000 $134,921,000
Cost of sales..................................... 83,542,000 78,783,000 78,876,000
------------ ------------ ------------
Gross profit................................. 59,528,000 56,810,000 56,045,000
Selling, general, and administrative expenses..... 58,388,000 56,068,000 56,323,000
------------ ------------ ------------
Income (loss) from operations................ 1,140,000 742,000 (278,000)
Interest expense, net (Notes 2, 3 and 4).......... 675,000 535,000 385,000
------------ ------------ ------------
Income (loss) before provision for income taxes
and minority interest in net loss of
subsidiary...................................... 465,000 207,000 (663,000)
Provision for income taxes...................... 11,000 3,000
------------ ------------ ------------
Net income (loss) before minority interest in net
loss of subsidiary.............................. 454,000 204,000 (663,000)
Minority interest in net loss of subsidiary (Note
1).............................................. 16,000
------------ ------------ ------------
Net income (loss)................................. 454,000 204,000 (647,000)
Retained earnings, beginning of year.............. 3,207,000 3,003,000 6,450,000
Dividends......................................... (500,000) 0 (2,800,000)
------------ ------------ ------------
Retained earnings, end of year.................... $ 3,161,000 $ 3,207,000 $ 3,003,000
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE> 152
OLIVER & WINSTON, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 454,000 $ 204,000 $ (647,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 2,130,000 2,338,000 2,753,000
Provision for losses on accounts receivable............... 293,000 181,000 247,000
Minority interest in net loss of subsidiary............... 0 0 (16,000)
Interest income from note receivable from related party... (140,000) 0 0
Gain on sale of property and equipment.................... (94,000) 0
Change in operating assets and liabilities:
Accounts receivable..................................... (471,000) (114,000) (656,000)
Other receivables....................................... 313,000 (106,000) (1,708,000)
Inventories............................................. 83,000 (3,560,000) (731,000)
Prepaid expenses........................................ 132,000 (12,000) (127,000)
Accounts payable........................................ (1,105,000) 1,722,000 1,075,000
Accrued expenses........................................ 152,000 1,291,000 1,169,000
Self-insurance loss reserves............................ (89,000) (1,533,000) (2,849,000)
Deferred compensation................................... (287,000) 14,000 (58,000)
Warranty and adjustment liability....................... (316,000) (498,000) 814,000
Other liabilities....................................... 103,000 (143,000) (316,000)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES..... 1,158,000 (216,000) (1,050,000)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (2,149,000) (2,319,000) (1,394,000)
Other assets................................................ (9,000) (289,000) 120,000
Proceeds from sale of property and equipment................ 555,000 73,000 0
Certificates of deposit--restricted......................... 0 2,021,000 0
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES................... (1,603,000) (514,000) (1,274,000)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable.................................. 1,000,000 0 0
Repayments of long-term debt................................ (1,006,000) (810,000) (1,364,000)
Net borrowings on line of credit............................ 902,000 1,663,000 2,441,000
Receivables from affiliates................................. 87,000 84,000 (4,000)
Net payments to related parties............................. (115,000) (37,000) (487,000)
(Advances to) repayments from related parties............... 0 (21,000) 2,078,000
Payment of dividends........................................ 0 0 (2,800,000)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES..... 868,000 879,000 (136,000)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH............................. $ 423,000 $ 149,000 $(2,460,000)
Cash, beginning of year..................................... 437,000 288,000 2,748,000
---------- ---------- ----------
Cash, end of year........................................... $ 860,000 $ 437,000 $ 288,000
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year:
Interest.................................................. $ 530,000 $ 451,000 $ 408,000
Income taxes................................................ $ 0 $ 24,000 $ 0
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Effective September 30, 1994, 10,782 shares of Oliver &
Winston, Inc. common stock were issued in exchange for the
$1,028,000 minority interest in Winston Indemnity, Ltd.
(see Note 1)
During 1995, a trade payable was renegotiated into notes
totaling $3,057,000 (see Note 3)
During 1996, the Company declared a $500,000 dividend in
exchange for $436,000 of notes receivable from related
parties and $64,000 of notes payable to related parties.
As a result of discounting the $1,000,000 unsecured note
payable to a vendor during 1996, the Company reclassified
$185,000 from long-term debt to accrued expenses (see Note
3)
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE> 153
OLIVER & WINSTON, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
Oliver & Winston, Inc., (the "Company") operates retail tire and automotive
service centers (d/b/a Winston Tire) in California. In addition, in 1994, its
79% owned subsidiary, Winston Indemnity, Ltd., operated as a captive insurance
company based in Bermuda that provided workers' compensation insurance solely
for the Company. The 1994 financial statements include the accounts of the
Company and its 79% owned subsidiary, Winston Indemnity, Ltd. All significant
intercompany transactions and balances have been eliminated.
In October 1994, the Company and the minority stockholders of Winston
Indemnity, Ltd. reached an agreement, effective September 30, 1994 (the
Effective Date), whereby, pursuant to a plan of reorganization, the Company
acquired all of the assets and assumed all of the liabilities of Winston
Indemnity, Ltd. in exchange for 51,348 shares of Oliver & Winston, Inc. common
stock. Simultaneously, under the plan of reorganization, these shares of Oliver
& Winston, Inc. stock were distributed to the stockholders of Winston Indemnity,
Ltd. in proportion to their respective ownership percentages, and Winston
Indemnity, Ltd. was dissolved. The Company received 40,566 of such shares,
representing its 79% interest in Winston Indemnity, Ltd., which were immediately
retired. The minority stockholders of Winston Indemnity, Ltd., consisting of the
same stockholders and with the same proportionate ownership percentages as the
minority ownership of Oliver & Winston, Inc., received 10,782 shares of Oliver &
Winston, Inc. common stock in exchange for their $1,028,000 minority interest.
The accompanying 1994 financial statements give effect to this transaction as if
it had occurred on September 30, 1994.
INCOME TAXES
The Company has elected S Corporation status for federal income tax
purposes. Accordingly, earnings are taxed at the individual shareholder level,
and the Company incurs no federal income tax liability. The Company is, however,
subject to California S Corporation franchise taxes of 1.5% of taxable income.
INVENTORIES
Inventories, consisting of tires and automotive parts, are valued at the
lower of cost or market, in aggregate, cost being determined using the last-in,
first-out (LIFO) method. Net income for the years ended September 30, 1996, 1995
and 1994, would have been $871,000, $638,000 and $(1,040,000), respectively,
using FIFO costs for inventories, compared to $454,000, $204,000 and $(647,000),
respectively, using LIFO cost.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives using the straight-line method. Generally, estimated
useful lives range from 4 to 20 years for automobiles, machinery, equipment and
buildings.
Leasehold improvements are amortized on the straight-line basis over the
shorter of ten years or the remaining lease terms.
DEFERRED COMPENSATION
The Company has unfunded deferred compensation agreements with certain
officers and other key employees. The agreements provide for monthly payments
beginning at age 58 and continuing for 10 years. The present value of the
estimated cost of these payments, discounted at 7.5%, is accrued over the period
of
F-33
<PAGE> 154
OLIVER & WINSTON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
active employment of the covered individuals. Operating expense has been charged
with $206,000 in 1996, $208,000 in 1995 and $210,000 in 1994 to provide for the
benefits accrued. In addition, certain executives have agreements which provide
for severance payments.
SELF-INSURANCE RESERVES
Prior to June 1, 1994, the Company was self-insured for workers'
compensation insurance and employee medical insurance. Prior to September 1,
1992, the Company was also self-insured with respect to general liability
insurance.
The self-insurance loss reserves and loss adjustment expenses include an
amount determined from loss reports and individual cases and an amount, based on
the Company's available loss history and industry data, for losses incurred but
not reported. These estimates are reviewed and are necessarily subject to the
impact of future changes in such factors as claim severity and frequency. While
management believes that the amounts are fairly stated, the ultimate liability
may be in excess of or less than the amounts provided, and any adjustments will
be reflected in the periods in which they become known.
REVENUE RECOGNITION
The Company recognizes revenue at the point of sale as it relates to tires
and mechanical services.
DEFERRED SERVICE AND WARRANTY REVENUE
The Company defers a portion of revenue from the sale of service and
warranty contracts. Deferred service revenue is recognized over the estimated
effective lives of such contracts. Warranty revenue is recognized proportionally
to historical costs incurred in satisfaction of the terms of such contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In connection with the death of the Company's principal stockholder in
1995, the Company has incurred certain costs related to the settlement of
various related estate and corporate matters. Such costs approximated $220,000
in 1996 and are included in selling, general and administrative expense in the
accompanying statement of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
PROSPECTIVE ACCOUNTING CHANGES
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement
is effective for fiscal years beginning after December 15, 1995; however,
earlier application is permitted. Among other provisions, the statement
standardizes the accounting practices for the recognition and measurement of
impairment losses on certain long-lived assets. The Company has decided not to
elect early adoption of the statement; however, the Company anticipates that
adoption of the change will not have a material impact on its financial
statements.
F-34
<PAGE> 155
OLIVER & WINSTON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
2. RELATED-PARTY TRANSACTIONS:
NOTES RECEIVABLE FROM RELATED PARTY
The notes receivable from related party are unsecured and bear interest at
5.19%. The notes require minimum annual payments of $450,000 with the remaining
balance due on September 30, 1998.
NOTES RECEIVABLE FROM AFFILIATES
Notes receivable from affiliates are due on demand and accrue interest at
prime plus 1.5% per annum. The notes represent advances for the purchase of real
estate to partnerships whose general partner is the estate of the Company's
principal stockholder. The receivables are collateralized by trust deeds on the
real estate.
NOTES PAYABLE TO RELATED PARTY
Notes payable to related parties are due on demand and bear interest at
various rates ranging from 9.5% to 10% per annum. Interest expense related to
these notes totaled $248,000, $244,000 and $267,000 in 1996, 1995, and 1994,
respectively.
MINORITY INTEREST IN SUBSIDIARY
In 1994, stockholders of the Company owned a 21% interest in the Company's
subsidiary (See Note 1).
3. BORROWING ARRANGEMENTS:
The Company has a credit agreement with a bank which provides for maximum
borrowings of $12,000,000 through April 14, 1998, under a revolving line of
credit, a term loan facility and letters of credit.
The revolving line of credit provides for borrowings limited to a borrowing
base formula, as defined. Borrowings under the revolving line bear interest at
the bank's prime rate plus 1.5% (9.75% at September 30, 1996).
Borrowings under the above credit agreement are collateralized by
substantially all of the Company's assets. The terms of the credit agreement
contain certain restrictive covenants, including maintenance of minimum working
capital, tangible net worth, current ratio, and debt coverage ratio and provides
for immediate repayment on changes in control under certain circumstances. The
agreement also restricts dividend payments and capital expenditures. At
September 30, 1996, the Company was in violation of certain of these covenants,
for which the bank has waived compliance as of September 30, 1996.
The Company has two notes payable to a tire vendor for $1,700,000 and
$1,357,000. The $1,700,000 note is payable in monthly principal installments of
$56,667 plus interest at 6% through June 1997. At September 30, 1996 and 1995,
$510,000 and $1,190,000, respectively, were outstanding under this note. The
$1,357,000 note accrues interest at prime plus 1% (9.25% at September 30, 1996),
with monthly interest-only payments due through June 1997, at which time the
agreement provides for 36 equal monthly principal payments. The notes are
secured by the related inventories.
In December 1995, the Company signed a $1,000,000 unsecured note payable to
another vendor. The note is payable in monthly principal installments of $4,167
plus interest at 4% through December 1999, at which time the agreement provides
for monthly payments of $66,667 plus interest through December 2000. This note
was discounted at an imputed interest rate of 10.75%, resulting in an
unamortized discount of approximately $185,000 at September 30, 1996. The note
is subject to accelerated repayment if minimum levels of purchases from the
vendor are not maintained.
F-35
<PAGE> 156
OLIVER & WINSTON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Future principal payments on long-term debt at September 30, 1996 are as
follows:
<TABLE>
<S> <C>
1997........................................................ $627,000
1998........................................................ $454,000
1999........................................................ $453,000
2000........................................................ $913,000
2001........................................................ $201,000
</TABLE>
4. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases land, buildings and equipment under various operating
and capital leases. Future minimum obligations under capital leases are as
follows:
<TABLE>
<S> <C>
1997........................................................ $280,000
1998........................................................ 213,000
1999........................................................ 147,000
2000........................................................ 55,000
2001........................................................ 21,000
Thereafter.................................................. 6,000
--------
Total minimum lease payments................................ 722,000
Less -- Amount representing interest........................ 97,000
--------
Net present value of future minimum lease payments.......... $625,000
========
</TABLE>
As of September 30, 1996, future minimum lease payments and sublease
rentals under the noncancellable operating leases are summarized as follows:
<TABLE>
<CAPTION>
RELATED NONRELATED SUBLEASE
OPERATING LEASES PARTIES PARTIES RENTALS TOTAL
---------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1997..................................... $ 458,000 $ 9,426,000 $ 299,000 $ 9,585,000
1998..................................... 460,000 8,932,000 214,000 9,178,000
1999..................................... 460,000 7,669,000 187,000 7,942,000
2000..................................... 460,000 6,566,000 164,000 6,862,000
2001..................................... 460,000 4,762,000 63,000 5,159,000
Thereafter............................... 1,383,000 17,031,000 63,000 18,351,000
---------- ----------- ----------- -----------
Total minimum lease payment......... $3,681,000 $54,386,000 $ 990,000 $57,077,000
========== =========== =========== ===========
</TABLE>
Rent expense, net of sublease income of $392,000, $393,000 and $365,000
under operating leases was $9,281,000, $9,030,000 and $8,406,000 for the years
ended September 30, 1996, 1995 and 1994, respectively.
LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising out of the ordinary
conduct of its business. While the ultimate results of these lawsuits cannot be
predicted with certainty, management does not expect that these matters will
have a material adverse effect on the financial position of the Company.
The Company is also subject to a claim pursuant to environmental laws and
regulations that may require the Company to take action to correct the effects
on the environment. While it is not possible at this time to
F-36
<PAGE> 157
OLIVER & WINSTON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
predict the outcome of the claim, in the opinion of management, the disposition
of the claim will not have a material effect on the financial position of the
Company.
On October 26, 1993, the California Bureau of Automotive Repair reached an
agreement with the Company in connection with alleged violations related to the
performance of unnecessary repairs and replacement of unneeded parts. Under the
terms of the agreement, the Company was obligated to pay an aggregate of
$1,400,000 for restitution, civil penalty and investigation costs to the State
of California, the counties of Sacramento and Ventura, and former customers over
a two-year period.
During May 1994, the Company terminated a tire supply agreement with a
vendor. Under the terms of the termination agreement, the Company received
$1,500,000 from the vendor to provide all warranty and adjustment privileges to
purchasers of these tires. The Company believes that this amount approximates
the ultimate cost of providing the related warranty and adjustment privileges.
5. PROFIT SHARING PLAN AND 401(K) PLAN:
The Company has a profit sharing plan that covers substantially all
employees of the Company. Contributions are made to the plan annually at the
discretion of the Board of Directors. No contribution to the plan was made for
the years ended September 30, 1996, 1995 and 1994. The Company also has a 401(k)
defined contribution plan that covers full-time employees of the Company who
have completed six months of service. All accounts are funded based on employee
contributions. Employer contributions are determined by the Board of Directors.
No employer contributions were granted in 1996, 1995 or 1994.
F-37
<PAGE> 158
OLIVER & WINSTON, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 315,000
Accounts receivable, net of allowance for doubtful
accounts of $317,000 at March 31, 1997................. 2,758,000
Other receivables......................................... 1,611,000
Inventories............................................... 20,222,000
Prepaid expenses.......................................... 542,000
Notes receivable from related party and affiliates........ 558,000
-----------
Total current assets.............................. 26,006,000
-----------
Property and equipment
Land...................................................... 315,000
Building.................................................. 121,000
Leased facilities under capital leases.................... 3,357,000
Leasehold improvements.................................... 8,659,000
Machinery and equipment................................... 21,069,000
-----------
Total............................................. 33,521,000
-----------
Less -- Accumulated depreciation and amortization......... (25,517,000)
-----------
Net property and equipment................................ 8,004,000
-----------
Notes receivable from related party......................... 1,988,000
Other assets................................................ 888,000
-----------
$36,886,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit............................................ $ 6,986,000
Accounts payable.......................................... 8,200,000
Accrued expenses.......................................... 8,663,000
Notes payable to related parties.......................... 2,326,000
Current portion of long-term debt......................... 735,000
Other current liabilities................................. 500,000
-----------
Total current liabilities......................... 27,410,000
-----------
Commitments and contingencies (Notes 4 and 5)
Long-term debt.............................................. 2,349,000
Deferred compensation....................................... 1,789,000
Other liabilities........................................... 1,762,000
Stockholders' equity
Common stock, $.10 par value, 1,000,000 shares authorized;
181,942 shares issued and outstanding in 1996 and
1995................................................... 18,000
Additional paid-in capital................................ 1,180,000
Retained earnings......................................... 2,378,000
-----------
Total stockholders' equity........................ 3,576,000
-----------
$36,886,000
===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this balance sheet.
F-38
<PAGE> 159
OLIVER & WINSTON, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
NET SALES................................................... $67,846,000 $68,634,000
COST OF SALES............................................... 39,023,000 40,029,000
----------- -----------
Gross profit........................................... 28,823,000 28,605,000
GENERAL, SELLING AND ADMINISTRATIVE EXPENSES................ 29,159,000 28,632,000
----------- -----------
Loss from operations................................... (336,000) (27,000)
INTEREST EXPENSE, NET....................................... (447,000) (363,000)
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES...................... (783,000) (390,000)
Provision for income taxes (Note 1)....................... 0 0
----------- -----------
NET LOSS.................................................... $ (783,000) $ (390,000)
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-39
<PAGE> 160
OLIVER & WINSTON, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES DOLLARS CAPITAL EARNINGS TOTAL
------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1995....... 181,942 $18,000 $1,180,000 $3,207,000 $4,405,000
Net loss........................ 0 0 0 (390,000) (390,000)
------- ------- ---------- ---------- ----------
Balance, March 31, 1996........... 181,942 $18,000 $1,180,000 $2,817,000 $4,015,000
======= ======= ========== ========== ==========
Balance, September 30, 1996....... 181,942 $18,000 $1,180,000 $3,161,000 $4,359,000
Net loss........................ 0 0 0 (783,000) (783,000)
------- ------- ---------- ---------- ----------
Balance, March 31, 1997........... 181,942 $18,000 $1,180,000 $2,378,000 $3,576,000
======= ======= ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-40
<PAGE> 161
OLIVER & WINSTON, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (783,000) $ (390,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 1,144,000 1,088,000
Provision for losses on accounts receivable............ 117,000 146,000
Interest income from note receivable from related
party................................................. (43,000) (82,000)
Gain on sale of property and equipment................. 0 (94,000)
Change in operating assets and liabilities:
Accounts receivable.................................. 120,000 191,000
Other receivables.................................... 378,000 363,000
Inventories.......................................... 396,000 1,344,000
Prepaid expenses..................................... (109,000) 9,000
Accounts payable..................................... (2,567,000) (2,362,000)
Accrued expenses..................................... (222,000) 486,000
Other current liabilities............................ (216,000) (446,000)
Deferred compensation................................ (16,000) (262,000)
Other liabilities.................................... 86,000 (253,000)
---------- ----------
Net cash used in operating activities............. (1,715,000) (262,000)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (888,000) (989,000)
Other assets.............................................. 264,000 381,000
Proceeds from sale of property and equipment.............. 0 450,000
---------- ----------
Net cash used in investing activities............. (624,000) (158,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayment) on line of credit.............. 1,980,000 (893,000)
Net borrowings to related parties and affiliates.......... 3,000 459,000
Proceeds from note payable................................ 300,000 1,000,000
Repayments of long-term debt.............................. (489,000) (495,000)
---------- ----------
Net cash provided by financing activities......... 1,794,000 71,000
---------- ----------
NET DECREASE IN CASH........................................ $ (545,000) $ (349,000)
CASH, BEGINNING OF PERIOD................................... 860,000 437,000
---------- ----------
CASH, END OF PERIOD......................................... $ 315,000 $ 88,000
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year:
Interest............................................... $ 515,000 $ 445,000
Income taxes........................................... $ 0 $ 0
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
As a result of discounting the $1,000,000 unsecured
note payable to a vendor during 1996, the Company
reclassified $185,000 from long-term debt to accrued
expenses (see Note 3)
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-41
<PAGE> 162
OLIVER & WINSTON, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
Oliver & Winston, Inc., (the Company) operates retail tire and automotive
service centers (d/b/a Winston Tire) in California.
Basis of Presentation
The unaudited condensed balance sheet as of March 31, 1997, and the
condensed statements of operations, stockholders' equity and cash flows for the
six months ended March 31, 1997 and 1996, have been prepared by the Company and
have not been audited. In the opinion of management, all adjustments, consisting
of only normal recurring adjustments, necessary for a fair presentation of the
financial position of the Company, the results of its operations and cash flows
have been made.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's consolidated financial statements for the fiscal year ended September
30, 1996.
The results of the operations for the six months ended are not necessarily
indicative of the operating results for the full fiscal year.
INCOME TAXES
The Company has elected to be treated as an S Corporation status for
federal income tax purposes. Accordingly, earnings are taxed at the individual
shareholder level, and the Company incurs no federal income tax liability. The
Company is, however, subject to California S Corporation franchise taxes of 1.5%
of taxable income.
INVENTORIES
Inventories, consisting of tires and automotive parts, are valued at the
lower of cost or market, in aggregate, cost being determined using the last-in,
first-out (LIFO) method. LIFO inventory cost was approximately $1,000 less than
first-in, first-out (FIFO) cost at March 31, 1997. Net loss for the six months
ended March 31, 1997 and 1996, would have been $548,000 and $602,000,
respectively, using FIFO costs for inventories, compared to $783,000 and
$390,000, respectively, using LIFO cost.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives using the straight-line method. Generally, estimated
useful lives range from 4 to 20 years for automobiles, machinery, equipment and
buildings.
Leasehold improvements are amortized on the straight-line basis over the
shorter of ten years or the remaining lease terms.
DEFERRED COMPENSATION
The Company has unfunded deferred compensation agreements with certain
officers and other key employees. The agreements provide for monthly payments
beginning at age 58 and continuing for 10 years. The present value of the
estimated cost of these payments, discounted at 7.5%, is accrued over the period
of
F-42
<PAGE> 163
OLIVER & WINSTON, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
active employment of the covered individuals. Operating expense has been charged
with $98,000 and $107,000 for the six-month period ended March 31, 1997 and
1996, respectively, to provide for the benefits accrued. In addition, certain
executives have agreements which provide for severance payments.
SELF-INSURANCE RESERVES
Prior to June 1, 1994, the Company was self-insured for workers'
compensation insurance and employee medical insurance. Prior to September 1,
1992, the Company was also self-insured with respect to general liability
insurance.
The self-insurance loss reserves and loss adjustment expenses include an
amount determined from loss reports and individual cases and an amount, based on
the Company's available loss history and industry data, for losses incurred but
not reported. These estimates are reviewed and are necessarily subject to the
impact of future changes in such factors as claim severity and frequency. While
management believes that the amounts are fairly stated, the ultimate liability
may be in excess of or less than the amounts provided, and any adjustments will
be reflected in the periods in which they become known.
DEFERRED SERVICE AND WARRANTY REVENUE
The Company defers a portion of revenue from the sale of service and
warranty contracts. Deferred service revenue is recognized over the estimated
effective lives of such contracts. Warranty revenue is recognized proportionally
to historical costs incurred in satisfaction of the terms of such contracts.
The Company deferred revenue of $3,646,000 under these programs at March
31, 1997. Deferred service and warranty revenue is reflected in the balance
sheet of the Company to the extent that the deferred revenue is estimated to be
recognized in income after the next fiscal year. Deferred revenue estimated to
be recognized in income during the next fiscal year is included with accrued
expenses in the accompanying balance sheet.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In connection with the death of the Company's principal stockholder in
1995, the Company has incurred certain costs related to the settlement of
various related estate and corporate matters. Such costs approximated $110,000
as of March 31, 1996, and are included in selling, general and administrative
expense in the accompanying statement of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable, other receivables, accounts
payable and accrued expenses approximate fair value because of the short
maturity of these instruments. The carrying values of the line of credit and
various loan balances included in long-term debt approximate their fair value
either due to their variable rate nature or due to the short maturity of these
items. The fair value of the notes receivable from related parties and
affiliates and the notes payable to related parties cannot be determined due to
the related party nature of the transactions.
F-43
<PAGE> 164
OLIVER & WINSTON, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
PROSPECTIVE ACCOUNTING CHANGES
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement
requires that long-lived assets and certain identifiable intangible assets to be
held and used by an entity be reviewed for impairment whenever events occur
which indicate that the carrying amount of the asset might not be recoverable.
The review should assess fair value based on estimated future cash flows
expected from the use and disposition of the asset. The asset should be reported
at the lower of the carrying amount or fair value less cost to sell. The
adoption of SFAS No. 121 did not have a material effect on the Company's results
of operations.
2. RELATED-PARTY TRANSACTIONS:
NOTES RECEIVABLE FROM RELATED PARTY
The note receivable from related party is unsecured and bears interest at
5.19%. The note requires minimum annual payments of $450,000 with the remaining
balance due on September 30, 1998. The note was repaid in full in connection
with the acquisition by Heafner (see Note 6).
NOTES RECEIVABLE FROM AFFILIATES
Notes receivable from affiliates are due on demand and accrue interest at
prime plus 1.5% per annum. The notes represent advances for the purchase of real
estate to partnerships whose general partner is the estate of the Company's
principal stockholder. The receivables are collateralized by trust deeds on the
real estate.
NOTES PAYABLE TO RELATED PARTY
Notes payable to related parties are due on demand and bear interest at
various rates ranging from 9.5% to 10% per annum. Interest expense related to
these notes totaled $114,000 and $127,000 as of March 31, 1997, and 1996,
respectively.
3. BORROWING ARRANGEMENTS:
The Company has a revolving line of credit agreement with a bank which
provides for maximum borrowings of $12,000,000 through April 14, 1998, certain
vendor notes, a term loan and letters of credit.
REVOLVING LINE OF CREDIT
The revolving line of credit provides for borrowings limited to a borrowing
base formula, as defined. Borrowings under the revolving line bear interest at
the bank's prime rate plus 1.5% (10% at March 31, 1997). Outstanding borrowings
under the line of credit were $6,986,000 at March 31, 1997. No amounts were
outstanding under the term loan facility.
The revolving line of credit agreement also provides for the issuance of
letters of credit to a maximum of $7,000,000 which reduce availability under the
revolving line of credit. The Company pays a fee equal to 2% per annum of the
face amount of each letter of credit. At March 31, 1997, letters of credit
totaling $1,525,000 were outstanding under this agreement (see Note 4).
Borrowings under the revolving line of credit agreement are collateralized
by substantially all of the Company's assets. The terms of the credit agreement
contain certain restrictive covenants, including maintenance of minimum working
capital, tangible net worth, current ratio, and debt coverage ratio and provides
for immediate repayment on changes in control under certain circumstances. The
agreement also restricts dividend payments and capital expenditures. At March
31, 1997, the Company was in violation of
F-44
<PAGE> 165
OLIVER & WINSTON, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
certain of these covenants, however the revolving line of credit was paid in
full in connection with the acquisition by Heafner (see Note 6).
VENDOR NOTES
The Company has two notes payable to a tire vendor for $1,700,000 and
$1,357,000. The $1,700,000 note is payable in monthly principal installments of
$57,000 plus interest at 6% through June 1997. At March 31, 1997, $170,000 was
outstanding under this note. The $1,357,000 note accrues interest at prime plus
1% (9.5% at March 31, 1997), with monthly interest-only payments due through
June 1997, at which time the agreement provides for 36 equal monthly principal
payments. The notes are secured by the related inventories.
In December 1995, the Company signed a $1,000,000 unsecured note payable to
another vendor. The note is payable in monthly principal installments of $4,167
plus interest at 4% through December 1999, at which time the agreement provides
for monthly payments of $66,667 plus interest through December 2000. This note
was discounted at an imputed interest rate of 10.75%, resulting in an
unamortized discount of approximately $185,000 at March 31, 1997. At March 31,
1997, $756,000 was outstanding under this note. The note is subject to
accelerated repayment if minimum levels of purchases from the vendor are not
maintained.
TERM LOAN
In December 1996, the Company signed a note payable in the amount of
$300,000 plus interest, secured by a building and land. The note bears interest
at a variable rate equal to two points above the bank's prime rate prevailing 30
days prior to the effective date of rate change. The effective date of rate
change is every three months beginning April 1, 1997. Principal and interest are
payable in 180 monthly installments commencing February 1, 1997, with the
remaining balance due in full on January 1, 2012. Payment amounts are subject to
change based on interest rate in effect at the time. At March 31, 1997, $298,000
was outstanding under this note.
Future principal payments on long-term debt at March 31, 1997, are as
follows:
<TABLE>
<S> <C>
1998..................................................... $ 735,000
1999..................................................... 652,000
2000..................................................... 760,000
2001..................................................... 667,000
2002..................................................... 17,000
Thereafter............................................... 253,000
----------
$3,084,000
==========
</TABLE>
F-45
<PAGE> 166
OLIVER & WINSTON, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases land, buildings and equipment under various operating
and capital leases. Future minimum obligations under capital leases are as
follows:
<TABLE>
<S> <C>
1998........................................................ $263,000
1999........................................................ 169,000
2000........................................................ 103,000
2001........................................................ 34,000
2002........................................................ 4,000
--------
Total minimum lease payments...................... 573,000
Less -- Amount representing interest........................ 70,000
--------
Net present value of future minimum lease payments.......... $503,000
========
</TABLE>
The current portion of the obligation under capital leases at March 31,
1997, is $222,000.
The net book value of leased facilities under capital leases was $246,000
at March 31, 1997.
As of March 31, 1997, future minimum lease payments and sublease rentals under
the noncancellable operating leases are summarized as follows:
<TABLE>
<CAPTION>
RELATED NONRELATED SUBLEASE
OPERATING LEASES PARTIES PARTIES RENTALS TOTAL
- ---------------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
1998.................................... $ 481,000 $ 8,981,000 ($214,000) $ 9,248,000
1999.................................... 481,000 8,600,000 (187,000) 8,894,000
2000.................................... 481,000 7,518,000 (168,000) 7,831,000
2001.................................... 481,000 6,393,000 (79,000) 6,795,000
2002.................................... 464,000 4,551,000 (63,000) 4,952,000
Thereafter.............................. 1,196,000 16,641,000 (68,000) 17,769,000
---------- ----------- --------- -----------
Total minimum lease
payments.................... $3,584,000 $52,684,000 ($779,000) $55,489,000
========== =========== ========= ===========
</TABLE>
Rent expense, net of sublease income of $182,000 and $197,000 under
operating leases was $4,797,000 and $4,606,000 six-month period ended March 31,
1997 and 1996.
LETTERS OF CREDIT
At March 31, 1997, a bank issued letters of credit totaling $1,525,000 to
support reinsurance requirements, workers' compensation and personal injury
exposure.
LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising out of the ordinary
conduct of its business. While the ultimate results of these lawsuits cannot be
predicted with certainty, management does not expect that these matters will
have a material adverse effect on the financial position of the Company.
On October 26, 1993, the California Bureau of Automotive Repair reached an
agreement with the Company in connection with alleged violations related to the
performance of unnecessary repairs and replacement of unneeded parts. Under the
terms of the agreement, the Company was obligated to pay an aggregate of
$1,400,000 for restitution, civil penalty and investigation costs to the State
of California, the counties of Sacramento and Ventura, and former customers over
a two-year period. At March 31, 1997, an
F-46
<PAGE> 167
OLIVER & WINSTON, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
aggregate of $67,000 related to this matter is included in accrued expenses in
the accompanying balance sheets.
During May 1994, the Company terminated a tire supply agreement with a
vendor. Under the terms of the termination agreement, the Company received
$1,500,000 from the vendor to provide all warranty and adjustment privileges to
purchasers of these tires. The Company believes that this amount approximates
the ultimate cost of providing the related warranty and adjustment privileges.
At March 31, 1997, an aggregate of $103,000 is included in accrued expense and
the warranty and adjustment liability in the accompanying balance sheets as an
estimate of such future cost.
ENVIRONMENTAL
The Company is also subject to a claim pursuant to environmental laws and
regulations that may require the Company to take action to correct the effects
on the environment. While it is not possible at this time to predict the outcome
of the claim, in the opinion of management, the disposition of the claim will
not have a material effect on the financial position of the Company.
5. PROFIT SHARING PLAN AND 401(k) PLAN:
The Company has a profit sharing plan that covers substantially all
employees of the Company. Contributions are made to the plan annually at the
discretion of the Board of Directors. No contribution to the plan was made for
the six-month periods ended March 31, 1997 and 1996. The Company also has a
401(k) defined contribution plan that covers full-time employees of the Company
who have completed six-months of service. All accounts are funded based on
employee contributions. Employer contributions are determined by the Board of
Directors. No employer contributions were granted during the six-month periods
ended March 31, 1997 and 1996.
6. SUBSEQUENT EVENT
On May 7, 1997, the Company's common stock was purchased by The J.H.
Heafner Company, Inc. (Heafner) for approximately $42,447,000. In connection
with the acquisition, the note receivables from a related party were collected
in full and the revolving line of credit and note payable to related parties
were repaid.
F-47
<PAGE> 168
REPORT OF INDEPENDENT AUDITORS
Board of Directors
ITCO Logistics Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of ITCO
Logistics Corporation and its subsidiaries as of September 30, 1997 and 1996 and
the related consolidated statements of operations, shareholders' deficit and
cash flows for the year ended September 30, 1997 and for the period from
inception (November 13, 1995) to September 30, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ITCO Logistics Corporation and its subsidiaries at September 30, 1997 and 1996
and the consolidated results of their operations and their cash flows for the
year ended September 30, 1997 and for the period from inception (November 13,
1995) to September 30, 1996 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Raleigh, North Carolina
October 31, 1997,
except for Note 13, as to which the date is
January 14, 1998
F-48
<PAGE> 169
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,855,590 $ 1,753,583
Receivables:
Trade, net of allowance for doubtful accounts of
$664,000 and $758,513................................ 42,557,956 43,545,804
Other including supplier rebates....................... 7,369,671 7,460,392
------------ ------------
51,783,217 52,759,779
Inventories............................................... 43,187,911 41,483,793
Deferred income tax asset................................. 1,174,247 2,127,728
Income tax recoverable.................................... -- 99,146
Prepaid expenses.......................................... 528,310 350,633
------------ ------------
Total current assets........................................ 96,673,685 96,821,079
Property and equipment, net................................. 10,905,001 11,995,317
Intangible assets, net...................................... 14,560,994 15,250,240
Deferred income tax asset................................... 630,875 --
Other assets................................................ 549,924 151,670
------------ ------------
TOTAL ASSETS........................................... $123,320,479 $124,218,306
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 75,146,475 $ 67,396,239
Accrued expenses.......................................... 3,086,404 2,476,382
Current maturities of long-term debt...................... 2,038,463 1,999,754
Current obligations under capital leases.................. -- 79,288
------------ ------------
TOTAL CURRENT LIABILITIES.............................. 80,271,342 71,951,663
Revolving credit agreement.................................. 32,122,667 37,572,884
Long-term debt.............................................. 5,321,135 7,589,980
Deferred income taxes....................................... -- 59,684
------------ ------------
TOTAL LIABILITIES...................................... 117,715,144 117,174,211
Commitments and contingencies
Redeemable preferred stock, Class A, $.01 par value; $1,000
stated value; 16,200 shares authorized; 8,100 shares
issued and outstanding.................................... 9,708,591 8,795,504
Shareholders' deficit:
Common stock, $.01 par value; 250,000 shares authorized;
90,000 shares issued and outstanding................... 900 900
Additional paid in capital................................ 899,100 899,100
Accumulated deficit....................................... (5,003,256) (2,651,409)
------------ ------------
Total shareholders' deficit................................. (4,103,256) (1,751,409)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT............ $123,320,479 $124,218,306
============ ============
</TABLE>
See accompanying notes.
F-49
<PAGE> 170
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTH
YEAR ENDED PERIOD ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996
------------ ------------
<S> <C> <C>
Sales....................................................... $351,996,122 $290,982,083
Cost of sales............................................... 301,969,811 253,629,352
------------ ------------
Gross profit................................................ 50,026,311 37,352,731
Selling, general and administrative expenses................ 47,867,120 36,945,539
------------ ------------
Income from operations...................................... 2,159,191 407,192
Other income (expense):
Interest expense.......................................... (3,709,869) (3,484,178)
Rental income............................................. 331,559 314,175
Other, net................................................ (671,641) (489,394)
------------ ------------
Total other expense......................................... (4,049,951) (3,659,397)
------------ ------------
Loss before income taxes.................................... (1,890,760) (3,252,205)
Income tax benefit.......................................... 452,000 1,296,300
------------ ------------
Net loss.................................................... $ (1,438,760) $ (1,955,905)
============ ============
</TABLE>
See accompanying notes.
F-50
<PAGE> 171
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at inception (November 13, 1995)...... $ -- $ -- $ -- $ --
Issuance of Common stock.................... 900 899,100 -- 900,000
Net loss.................................... -- -- (1,955,905) (1,955,905)
Accrued dividends on Preferred Stock, Class -- -- (695,504) (695,504)
A........................................
---- -------- ----------- -----------
Balance at September 30, 1996................. 900 899,100 (2,651,409) (1,751,409)
Net loss.................................... -- -- (1,438,760) (1,438,760)
Accrued dividends on Preferred Stock, Class -- -- (913,087) (913,087)
A........................................
---- -------- ----------- -----------
Balance at September 30, 1997................. $900 $899,100 $(5,003,256) $(4,103,256)
==== ======== =========== ===========
</TABLE>
See accompanying notes.
F-51
<PAGE> 172
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
YEAR ENDED (NOVEMBER 13, 1995)
SEPTEMBER 30 TO SEPTEMBER 30
1997 1996
------------ ---------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss................................................... $(1,438,760) $(1,955,905)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization on property and 1,621,564 1,511,167
equipment.............................................
Amortization on intangible assets........................ 871,627 668,103
Net loss on disposal of property and equipment........... 28,171 34,409
Deferred income tax...................................... 262,922 (1,230,000)
Changes in assets and liabilities, net of effects from
purchases of business:
Receivables, net...................................... 1,078,569 (11,627,826)
Inventories........................................... (1,704,118) 12,678,926
Prepaid expenses...................................... (177,677) 176,190
Accounts payable...................................... 7,750,236 6,477,969
Accrued expenses...................................... 610,022 237,438
Other liabilities/assets.............................. (398,254) (43,962)
Income tax payable/receivable......................... 99,146 (456,825)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES............. 8,603,448 6,469,684
INVESTING ACTIVITIES
Payments for purchase of property and equipment............ (1,187,836) (1,133,380)
Proceeds from sale of equipment............................ 446,036 335,177
Acquisitions of businesses, net of cash acquired........... -- (15,351,554)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES................. (741,800) (16,149,757)
FINANCING ACTIVITIES
Proceeds from issuance of Common Stock..................... -- 900,000
Proceeds from issuance of Preferred Stock, Class A......... -- 8,100,000
Net payments on revolving credit agreement................. (5,450,217) (481,468)
Proceeds from issuance of long-term debt................... -- 4,250,000
Repayment of long-term debt................................ (2,230,136) (1,277,338)
Principal paid on capital lease obligations................ (79,288) (57,538)
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES... (7,759,641) 11,433,656
----------- -----------
NET INCREASE IN CASH....................................... 102,007 1,753,583
Cash at beginning of period................................ 1,753,583 --
----------- -----------
Cash at end of period...................................... $ 1,855,590 $ 1,753,583
=========== ===========
Interest paid............................................ $ 3,692,913 $ 3,399,150
=========== ===========
Income taxes paid........................................ $ -- $ 434,200
=========== ===========
</TABLE>
See accompanying notes.
F-52
<PAGE> 173
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
ITCO Logistics Corporation (formerly known as ITCO Acquisition Company,
Inc.) a Delaware corporation was formed on November 13, 1995. At the close of
business on November 30, 1995, ITCO Logistics Corporation through its
wholly-owned subsidiary ITCO Acquisition Company, Inc. of North Carolina,
purchased all the outstanding capital stock of ITCO Holding Company, Inc. ITCO
Acquisition Company, Inc. of North Carolina subsequently merged with and changed
its name to ITCO Holding Company, Inc. The total cost of acquisition was
approximately $21,000,000. The acquisition costs were allocated on the basis of
the estimated fair value of the assets acquired and liabilities assumed which
totaled approximately $13,500,000. Therefore resulting goodwill of approximately
$7,500,000 was recorded. The acquisition was accounted for as a purchase and,
accordingly, the results of operations of ITCO Holding Company, Inc. are
included in the consolidated operations of the ITCO Logistics Corporation from
the date of acquisition.
ITCO Logistics Corporation and subsidiaries (collectively referred to as
the "Company" throughout) are principally engaged in the business of wholesale
distribution of car and truck tires and related accessories generally in the
eastern part of the United States.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the ITCO Logistics Corporation and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation.
ACCOUNTING PERIODS
The Company uses a four, four, five week accounting period for each quarter
with a 52 week year ending closest to September 30 of each year. Fiscal year
1997 ended September 26, 1997. Fiscal year 1996 was a stub period from inception
(November 13, 1995) to year end which ended September 28, 1996. For purposes of
financial statement presentation, each fiscal year is described as having ended
on September 30.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain 1996 financial statements amounts have been reclassified to conform
with 1997 classifications. These reclassifications had no affect on net loss or
shareholders' equity as previously reported.
ACCOUNTS RECEIVABLE
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the number of entities comprising the Company's customer base.
The Company's trade receivables are with companies in the retail and commercial
car and truck tire and accessories lines of business. The Company provides
credit in the normal course of business and performs ongoing credit evaluations
on its customers' financial condition, but generally does not require collateral
to support such receivables. The Company also establishes an allowance
F-53
<PAGE> 174
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
for doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information. The allowance for doubtful
accounts was $664,000 and $758,513 at September 30, 1997 and 1996, respectively,
which management believes is adequate to provide for credit loss in the normal
course of business.
INVENTORIES
Inventories consist primarily of tires, custom wheels and accessories and
are stated at the lower of cost (first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost.
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the related assets. Amortization of leasehold
improvements is provided over the useful life of the asset or the remaining
lease term, whichever is shorter. The estimated useful lives of property and
equipment are:
<TABLE>
<S> <C>
Buildings................................................ 20 to 40 years
Furniture and equipment.................................. 3 to 5 years
Transportation equipment................................. 5 years
</TABLE>
INTANGIBLE AND LONG-LIVED ASSETS
Intangible assets relate primarily to the acquisition of wholesale tire
distribution businesses and costs involved in arranging and obtaining long-term
financing. Amortization is provided on a straight-line basis over the estimated
useful lives ranging from three to forty years.
The carrying values of intangible and long-lived assets are reviewed if
facts and circumstances indicate potential impairment of their carrying amount.
Any impairment in the carrying value of such assets is recorded when identified.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time ownership of goods
transfers to the customer and the earnings process is complete.
ADVERTISING COSTS
The cost of advertising is expensed as incurred. The Company incurred
$627,456 and $291,843 in advertising costs during the year ended September 30,
1997 and for the period from inception (November 13, 1995) to September 30,
1996, respectively.
INCOME TAXES
ITCO Logistics Corporation and its wholly-owned subsidiaries file a
consolidated federal income tax return and separate state income tax returns.
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
Deferred income taxes (benefits) are provided on temporary differences between
the financial statement carrying values and the tax bases of assets and
liabilities.
F-54
<PAGE> 175
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
SUPPLIERS
The Company currently buys the majority of its tires from four suppliers.
Although there are a limited number of suppliers of particular brands of tires,
management believes that other suppliers could adapt to provide similar tires on
comparable terms.
2. INVENTORIES
Under security agreements with several suppliers, the Company has pledged
all inventories purchased from these suppliers as collateral for amounts owed to
them. At September 30, 1997 and 1996, the Company owed approximately $68,721,860
and $66,047,000 to these suppliers, respectively, which was collateralized by
approximately $33,217,632 and $30,638,000 in inventories for the respective
periods.
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30 consists of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land........................................................ $ 2,385,891 $ 2,385,891
Buildings................................................... 6,179,593 5,993,596
Furniture and equipment..................................... 2,789,757 2,134,720
Transportation equipment.................................... 1,021,395 2,057,941
Leasehold improvements...................................... 801,594 682,904
Land and buildings under capital leases..................... -- 180,000
----------- -----------
13,178,230 13,435,052
Less accumulated depreciation and amortization.............. 2,273,229 1,439,735
----------- -----------
Property and equipment, net................................. $10,905,001 $11,995,317
=========== ===========
</TABLE>
4. INTANGIBLE ASSETS AND ACQUISITIONS
Intangible assets consist of the following at September 30:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Goodwill.................................................... $15,491,089 $15,308,708
Noncompete agreements....................................... 554,500 554,500
Other....................................................... 55,135 55,135
----------- -----------
16,100,724 15,918,343
Accumulated amortization.................................... (1,539,730) (668,103)
----------- -----------
Intangible assets, net...................................... $14,560,994 $15,250,240
=========== ===========
</TABLE>
Amortization expense related to these intangible assets totaled $871,627
and $668,103 during the year ended September 30, 1997 and for the period from
inception (November 13, 1995) to September 30, 1996, respectively.
On January 15, 1996, February 12, 1996, and April 29, 1996, the Company
acquired three businesses (Acme, McGriff, and Palmer, respectively), in business
combinations accounted for as purchases for an aggregate purchase price of
approximately $15,300,000. These businesses are principally engaged in the
F-55
<PAGE> 176
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
wholesale distribution of car and truck tires located in Florida (Acme),
Alabama, Tennessee (McGriff), and Georgia (Palmer). The results of operations of
the three acquired businesses are included in the consolidated operations of the
Company from the respective dates of acquisition. Goodwill of approximately
$5,100,000 associated with the transactions is being amortized using the
straight-line method over fifteen years.
Assuming the acquisitions had been combined as the beginning of the period,
the unaudited consolidated proforma sales and net loss for the ten month period
ended September 30, 1996 would have been $307,682,083 and $(2,495,905),
respectively.
5. REVOLVING CREDIT AGREEMENT
A subsidiary of the Company has a revolving credit agreement which expires
December 1, 1998 and permits borrowings up to $50,000,000, of which $32,122,667
and $37,572,884 were outstanding at September 30, 1997 and 1996, respectively.
Borrowings under the agreement cannot exceed the sum of 85% of the subsidiary's
total outstanding eligible receivable balances, as defined, and 60% of eligible
inventories as defined. Interest is payable at the lesser of prime (8.5% at
September 30, 1997) plus 1.25% or LIBOR (6% at September 30, 1997) plus 3.25%.
All trade accounts receivable and certain eligible inventories as referenced
above are pledged as collateral for the loan. The terms of the agreement require
the subsidiary to maintain specific levels of minimum book net worth, minimum
current ratio, minimum quarterly earnings and applies restrictions on capital
expenditures, cash dividends and other capital distributions as defined. (See
Note 13)
F-56
<PAGE> 177
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
6. LONG-TERM DEBT
Long-term debt at September 30 consists of the following (ITCO Logistics
Corporation is not an obligor on any of the debt):
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Installment notes payable to suppliers, due through 1998
with interest at 8.25% to 9.5%; collateralized by
inventories purchased from these suppliers................ $ 520,758 $ 1,778,282
Installment notes payable to suppliers, due through 1999,
bearing no interest; collateralized by inventories
purchased from these suppliers (see below)................ 2,750,000 3,081,141
Notes payable to a bank, payable in monthly installments of
$4,712, which includes interest at the lesser of prime
plus .75% or the adjusted certificate of deposit base rate
plus 2.80% but not in excess of 9.85%..................... -- 322,293
Notes payable to a bank, payable in monthly principal and
interest installments of $14,878 through November 2002
with a balloon payment due December 2002 for the remaining
principal and interest; interest payable at prime (8.5% at
September 30, 1997) plus .5%; subject to an interest rate
cap of 10.5% and an interest rate floor of 6% through
November 1997; collateralized by land and a warehouse with
a carrying value of $1,192,179............................ 720,506 823,785
Notes payable to a bank, payable in monthly principal and
interest installments of $17,725 through December 2003
with a balloon payment due December 2003 for the remaining
principal and interest; interest payable at prime (8.5% at
September 30, 1997) plus .75%; subject to an adjustable
interest rate cap ranging from 8.5% to 9.75% and an
interest rate floor of 5% through December 2000;
collateralized by land and a warehouse with a carrying
value of $1,864,796....................................... 1,252,087 1,353,423
Notes payable to a bank, payable in monthly principal and
interest installments of $8,040 through July 2004 with a
balloon payment due July 2004 for the remaining principal
and interest; interest payable at prime (8.5% at September
30, 1997) plus .75%; subject to an adjustable interest
rate cap ranging from 9.5% to 10.25% through July 1999;
collateralized by land and a warehouse with a carrying
value of $865,209......................................... 671,367 701,197
Notes payable to a bank, payable in monthly installments of
$11,905 through May 1999 with a balloon payment due May
1999 for the remaining principal and interest; interest
payable at 8.5%; collateralized by land and a warehouse
with a carrying value of $1,189,796....................... 1,049,286 1,099,317
Notes payable to a finance corporation, payable in monthly
principal installments of $6,301 plus interest payable at
prime (8.5% at September 30, 1997) plus 1.25% through June
2005; secured by an airplane with a carrying value of
$582,773.................................................. 395,594 430,296
----------- -----------
Total....................................................... 7,359,598 9,589,734
Less current maturities..................................... 2,038,463 1,999,754
----------- -----------
Long-term debt.............................................. $ 5,321,135 $ 7,589,980
=========== ===========
</TABLE>
F-57
<PAGE> 178
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
As part of the Company's normal operating activities, a subsidiary of the
Company obtained a supplier loan which had an aggregate outstanding balance of
$2,750,000 at September 30, 1997. As part of the loan agreements, the subsidiary
is required to purchase an annual minimum amount of inventory from the supplier
in exchange for an interest-free loan. If the subsidiary does not purchase the
minimum level of inventory from the supplier, interest will accrue at prime plus
1%.
The Company estimates that the fair value of notes payable approximates the
carrying value based upon its effective current borrowing rate for debt with
similar terms and remaining maturities. Disclosure about fair value of financial
instruments is based upon information available to management as of September
30, 1997. Although management is not aware of any factors that would
significantly affect the fair value of amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
September 30, 1997.
Principal maturities of long-term debt for years subsequent to September
30, 1997 are as follows:
<TABLE>
<S> <C>
1998....................................................... $2,038,463
1999....................................................... 2,933,922
2000....................................................... 367,064
2001....................................................... 401,316
2002....................................................... 438,770
Thereafter................................................. 1,180,063
----------
Total...................................................... $7,359,598
==========
</TABLE>
7. EMPLOYEE BENEFIT PLANS
A subsidiary of the Company sponsors the ITCO Holding Company 401(k) Plan
(the "401(k) Plan") for substantially all employees. The subsidiary matches 50%
of eligible employees' contributions to the 401(k) Plan up to 4% of that
individual's salary. The subsidiary also pays certain other expenses of the
401(k) Plan as determined by the Board of Directors. Total subsidiary
contributions to the 401(k) Plan amounted to $234,531 and $194,443 for the year
ended September 30, 1997 and for the period from inception (November 13 1995) to
September 30, 1996, respectively.
8. INCOME TAXES
Income tax benefit is comprised of the following at September 30:
<TABLE>
<CAPTION>
1997 1996
--------- -----------
<S> <C> <C>
Current benefit:
Federal................................................... $(638,400) $ (949,800)
State..................................................... (91,600) (152,400)
--------- -----------
Total current benefit....................................... (730,000) (1,102,200)
Deferred benefit:
Federal................................................... 242,300 (166,600)
State..................................................... 35,700 (27,500)
--------- -----------
Total deferred expense (benefit)............................ 278,000 (194,100)
--------- -----------
Total income tax benefit.................................... $(452,000) $(1,296,300)
========= ===========
</TABLE>
F-58
<PAGE> 179
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
A reconciliation of the federal statutory rate to the pretax loss for the
year ended September 30 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Statutory rate.............................................. $ 642,900 $1,105,800
Non-deductible goodwill and other certain expenses.......... (116,400) (91,400)
State income tax benefit.................................... 69,000 134,000
Other....................................................... (143,500) 147,900
--------- ----------
Income tax benefit.......................................... $ 452,000 $1,296,300
========= ==========
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The balances of deferred
income tax accounts at September 30, are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net current deferred income tax assets relate to:
Allowance for doubtful accounts........................... $ 271,000 $ 256,800
Inventory capitalization.................................. 675,100 713,700
Accrued expenses.......................................... (27,000) --
Covenant amortization..................................... (23,000) --
Inventory obsolescence.................................... 111,500 --
Self-insurance reserves................................... (106,400) 40,000
Rebate allowance.......................................... 73,000 77,000
Section 481 adjustment.................................... -- (5,000)
---------- ----------
Subtotal.................................................... 974,200 1,082,500
Net operating loss carrybacks/forwards.................... 200,000 1,045,200
---------- ----------
Total....................................................... $1,174,200 $2,127,700
========== ==========
Net non-current deferred income tax assets (liabilities)
relate to:
Depreciation.............................................. $ (68,300) $ (186,400)
Section 481 adjustment.................................... 87,900 87,900
Deferred gain............................................. (1,900) 19,000
Capital leases............................................ -- 19,500
---------- ----------
Subtotal.................................................... 17,700 (60,000)
Net operating loss carrybacks/forwards.................... 613,200 --
---------- ----------
Total....................................................... $ 630,900 $ (60,000)
========== ==========
</TABLE>
At September 30, 1997, the Company had net operating loss carryforwards of
approximately $2 million for income tax purposes. If not used, these
carryforwards begin to expire in 2011.
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has various operating lease agreements for warehouse
facilities, office equipment, transportation equipment and other facilities.
F-59
<PAGE> 180
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial or remaining terms of one year or more, consist of
the following at September 30, 1997:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1998...................................................... $ 4,703,300
1999...................................................... 4,189,224
2000...................................................... 2,875,090
2001...................................................... 1,846,174
2002...................................................... 1,775,712
Thereafter................................................ 5,146,550
-----------
$20,536,050
===========
</TABLE>
Total rent expense was approximately $5,858,923 and $4,777,600 for the year
ended September 30, 1997 and for the period from inception (November 13, 1995)
to September 30, 1996, respectively.
In March 1997, a subsidiary of the Company entered into a master lease
agreement with a major trucking company. The terms of the lease include the
leasing of 213 vehicles for lease terms ranging from 24-78 months. Monthly lease
payments are based on a fixed charge plus a charge for mileage. The lease is
cancelable by either party with a 120 day notice. Rental expense incurred during
1997 from this master lease agreement totaled $842,254.
LITIGATION
The Company is involved in litigation primarily arising in the normal
course of its business. In the opinion of management, the Company's liability,
if any, or the Company's recovery, if any, under any pending litigation would
not materially affect its financial position or results of operations.
10. PREFERRED STOCK
The Company has authorized 50,000 shares of preferred stock, $.01 par
value, of which 16,200 have been designated Class A preferred stock.
The Company's Class A preferred stock is convertible at the discretion of
the Company for 10% Debentures to be used by the Company at the rate of $1,000
principal amount of Debentures for each $1,000 of liquidation preference of
Class A preferred stock being exchanged. Cumulative dividends accrue quarterly
at the rate of 10% per annum per share and are payable in cash or additional
Class A preferred stock at the option of the Company. The Class A preferred
stock has a liquidation preference of $1,000 per share and a par value of $0.01
per share. The Class A preferred stock shall be redeemed on or before the
earlier to occur of (a) December 1, 2005, or (b) 90 days following a change in
control of the Company. The Class A preferred stock may be redeemed at the
option of the Company, at any time as a whole or from time to time in part, at a
cash redemption price per share equal to $1,000 per share plus accrued and
unpaid dividends. The holders of the Class A preferred stock are not entitled to
vote on any matter submitted to a vote of stockholders. Cumulative accrued
dividends on preferred stock at September 30, 1997 were $1,608,591 and is
included in preferred stock. Accrued dividends for the year ended September 30,
1997 and the ten months ended September 30, 1996 were $913,087, or $113 per
share and $695,504, or $86 per share, respectively.
F-60
<PAGE> 181
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
11. SHAREHOLDERS' DEFICIT
STOCK APPRECIATION RIGHTS
During 1995, 1996 and 1997, the Company granted 11,850 stock appreciation
rights ("SARs") to officers and directors of the Company with respect to shares
of the Common Stock of ITCO Logistics Corporation ("Parent Company"). The SARs
entitle an optionee to surrender unexercised Parent Company SARs for cash equal
to the excess of the fair market value of the Parent Company shares over the
stated value of the SARs, which is $0.01 per share. The amount payable upon
exercise of the SAR's will be paid by the Company. Any Parent Company SARs that
are available for awards that are not utilized in a given year will be available
for use in subsequent years. The SARs vest 20% per year over five years. Certain
restrictions apply to these granted SARs. The vested SARs may be exercised by
each individual only upon the occurrence of one of the following events: (i) the
consummation of an IPO of the Parent Company Common Stock; (ii) the consummation
of a merger of the Parent Company; (iii) the sale of substantially all of the
Parent Company's assets; or (iv) the sale by the primary shareholder of the
Parent Company of all or any portion of its investment in the Parent Company. No
SARs have been exercised as of September 30, 1997.
12. RELATED PARTY TRANSACTIONS
On November 30, 1995, a subsidiary the Company entered into a financial
advisory agreement with the primary shareholder of the Company whereby the
subsidiary agreed to pay the primary shareholder of the Company a quarterly
management fee of $75,000 over five years beginning November 30, 1995 as
compensation for its continuing financial advisory services. During the year
ended September 30, 1997 and the period from inception (November 13, 1995) to
September 30, 1996, management fees of approximately $300,000 and $250,000,
respectively, (included in selling, general and administrative expenses) were
incurred and paid to the primary shareholder of the Company.
13. SUBSEQUENT EVENTS
On January 14, 1998, a subsidiary of the Company executed an amendment to
the revolving credit agreement described in Note 5. In the amendment, the
subsidiary and a financial institution agreed to amend certain financial
covenants and defined terms in the revolving credit agreement and extend the
term to December 1, 1999, among other items.
14. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT
On March 10, 1998, the Company and J. H. Heafner Company, Inc. ("Heafner")
entered into a merger agreement. On May 20, 1998, a newly formed subsidiary of
Heafner was merged with and into the Company, with the Company surviving the
merger as a wholly owned subsidiary of Heafner (the "ITCO Merger"). The total
consideration paid to the stockholders of the Company in connection with the
ITCO Merger was $18 million in cash plus 1,400,667 newly issued shares of Class
B common stock, $.01 par value of Heafner and $1.1 million paid to the holders
of the Company's stock appreciation rights.
F-61
<PAGE> 182
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
ITCO Holding Company
and Subsidiaries
Wilson, North Carolina
We have audited the accompanying consolidated statements of earnings,
stockholders' equity and cash flows of ITCO Holding Company and subsidiaries
(the "Company") for the year ended September 30, 1995. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of the operations and cash flows of ITCO
Holding Company and subsidiaries for the year ended September 30, 1995 in
conformity with generally accepted accounting principles.
/s/ Deloitte and Touche LLP
Raleigh, North Carolina
December 7, 1995
F-62
<PAGE> 183
ITCO HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
SALES....................................................... $294,113,425
Cost of Sales............................................... 257,039,830
------------
Gross profit.............................................. 37,073,595
Selling and Administrative Expenses (Notes 2, 3 and 6)...... 34,177,603
------------
Income from Operations...................................... 2,895,992
Other Income (Expenses):
Interest expense (Notes 2 and 6).......................... (3,045,366)
Interest income........................................... 807,594
Rental income (Note 6).................................... 434,440
Other, net................................................ (343,785)
------------
TOTAL OTHER EXPENSES................................... (2,147,117)
------------
Income Before Taxes......................................... 748,875
Income Taxes (Note 4)....................................... (121,000)
------------
NET INCOME............................................. $ 627,875
============
</TABLE>
See notes to consolidated financial statements.
F-63
<PAGE> 184
ITCO HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
COMMON RETAINED TOTAL
STOCK EARNINGS STOCKHOLDERS' EQUITY
------- ----------- --------------------
<S> <C> <C> <C>
Balance, October 1, 1994......................... $32,118 $10,894,835 $10,926,953
Net income....................................... 627,875 627,875
------- ----------- -----------
Balance, September 30, 1995...................... $32,118 $11,522,710 $11,554,828
======= =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-64
<PAGE> 185
ITCO HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Cash received from customers................................ $289,193,721
Cash paid to suppliers and employees........................ (286,707,646)
Interest received........................................... 807,594
Interest paid............................................... (3,001,784)
Income taxes paid........................................... (163,319)
Net cash paid to stockholders and affiliates................ (20,765)
------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 107,801
------------
INVESTING ACTIVITIES:
Payments for purchase of property and equipment............. (868,764)
Proceeds from sale of equipment............................. 200,821
------------
NET CASH USED IN INVESTING ACTIVITIES.................. (667,943)
------------
FINANCING ACTIVITIES:
Net increase in short-term borrowings....................... 1,187,061
Proceeds from issuance of long-term debt.................... 1,000,000
Repayment of long-term debt................................. (1,127,681)
Principal paid on capital lease obligations................. (192,562)
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............. 866,818
------------
NET INCREASE IN CASH........................................ 306,676
Cash, beginning of year..................................... 1,283,848
------------
Cash, end of year........................................... $ 1,590,524
============
RECONCILIATION OF NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES --
Net income.................................................. $ 627,875
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation.............................................. 1,167,109
Provision for deferred income taxes....................... (335,000)
Amortization of noncompete agreements..................... 31,223
Amortization of goodwill.................................. 114,624
Net gain on disposals of property and equipment........... (40,497)
Changes in assets and liabilities:
Receivables, net....................................... (4,583,109)
Inventories............................................ (3,561,870)
Prepaid expenses....................................... 124,705
Other assets........................................... (969,588)
Accounts payable and accrued expenses.................. 7,239,648
Income taxes payable................................... 292,681
------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. $ 107,801
============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1995, the Company reached an agreement with a third party to settle
a dispute regarding unpaid amounts owed by the Company under a noncompete
agreement. As part of the agreement, $125,000 of the unpaid amount was forgiven.
Accordingly, the noncompete asset and related liability were decreased by
$125,000 with no effect on cash.
See notes to consolidated financial statements.
F-65
<PAGE> 186
ITCO HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1995
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
BASIS OF PRESENTATION
ITCO Holding Company and subsidiaries (the "Company") is principally
engaged in the business of wholesale distribution of car and truck tires, custom
wheels and related accessories. The accompanying consolidated financial
statements include the accounts of the Company and its four wholly-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated.
SIGNIFICANT ACCOUNTING POLICIES
The significant policies are summarized below:
a. Cash and Cash Equivalents--For purposes of the statement of cash flows, the
Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. The Company had no cash
equivalents at September 30, 1995.
b. Inventories--Inventories consist primarily of tires, custom wheels and
accessories and are stated at the lower of cost (first-in, first-out
method) or market.
c. Property and Equipment--Depreciation and amortization are provided using
the declining-balance and straight-line methods. Amortization of leasehold
improvements and assets under capital leases is provided over the useful
life of the asset or the remaining lease term, whichever is shorter. The
estimated useful lives of property and equipment are:
<TABLE>
<S> <C>
Buildings................................................... 20 to 40 years
Furniture and equipment..................................... 3 to 5 years
Transportation equipment.................................... 5 years
Leasehold improvements...................................... 3 to 10 years
Buildings under capital leases.............................. 8 to 20 years
Equipment under capital leases.............................. 3 to 5 years
</TABLE>
d. Revenue Recognition--Revenue from product sales is recognized at the time
ownership of goods transfers to the customer and the earnings process is
complete.
e. Income Taxes--The Company and its wholly-owned subsidiaries file a
consolidated federal and separate state income tax returns. The Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes, in 1994. Deferred income taxes (benefits) are
provided on temporary differences between the financial statement carrying
values and the tax bases of assets and liabilities.
f. Fiscal Year--The Company's fiscal year ends on the Saturday closest to the
end of September. The financial statements for the year ended September 30,
1995 cover a period of 53 weeks.
g. Other Assets--Other assets include intangible assets related to the
Company's 1992 acquisition of Luke Floyd Tire and Douglas Duggin
Incorporated and the Company's 1995 acquisition of Volume Tire Company,
Inc., and are being amortized using the straight line method. The estimated
useful lives of these intangible assets are:
<TABLE>
<S> <C>
Goodwill.................................................... 20 years
Noncompete agreements....................................... 3 to 5 years
</TABLE>
F-66
<PAGE> 187
ITCO HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1995 -- (CONTINUED)
2. RELATED PARTY TRANSACTIONS
The Company has lease agreements with two companies, Viking Development
Company ("Viking") and TAG Development Company ("TAG"), that are owned by a
stockholder/officer of the Company. Such leases provide for the rental of the
Company's headquarters, main warehouse and several other warehouses. Rents paid
to Viking and TAG on operating leases totaled $982,198 during fiscal year 1995.
Principal and interest paid to Viking on capital leases totaled $92,291 in
fiscal year 1995. See also Note 6.
3. EMPLOYEE BENEFIT PLANS
The Company sponsors the ITCO Holding Company 401(k) Plan (the "Plan") for
substantially all employees. The Company matches 50% of eligible employees'
contributions to the Plan up to 4% of that individual's salary. The Company also
pays certain other expenses of the Plan as determined by the Board of Directors.
The Company contributed $183,995 to the Plan and paid $16,946 in administrative
expenses for fiscal year ended in 1995.
The Company sponsors the ITCO Holding Company Employee Stock Ownership Plan
(the "ESOP") a non-contributory employee stock ownership plan for substantially
all employees. The Company makes annual contributions as determined by the Board
of Directors to a trust for the exclusive benefit of participating employees.
The Company also pays certain expenses of the ESOP as determined by the Board of
Directors. The Company contributed $94,650 to the ESOP and paid $12,802 in
administrative expenses for fiscal year ended in 1995.
4. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
The provision for income taxes includes the following:
<TABLE>
<S> <C>
Currently payable:
Federal................................................... $ 373,000
State..................................................... 83,000
---------
Total currently payable..................................... 456,000
---------
Deferred expense (benefit):
Federal................................................... (292,000)
State..................................................... (43,000)
---------
Total deferred expense (benefit)............................ (335,000)
---------
Total taxes on income....................................... $ 121,000
=========
</TABLE>
For the year ended September 30, 1995, reported income tax expense differs
from income tax expense that would result from applying the federal statutory
rate to pretax income due primarily to state income taxes net of federal
benefits, certain expenses not deductible for tax purposes and other
miscellaneous adjustments.
F-67
<PAGE> 188
ITCO HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1995 -- (CONTINUED)
5. DEFERRED REVENUE
Deferred revenue consists primarily of non-compete agreements related to
the sale of previous operations and is being amortized over the five year life
of the agreements. The Company recognized income on the amortization of the
agreements of $48,777 for fiscal year 1995.
6. COMMITMENTS AND CONTINGENCIES
CAPITAL AND OPERATING LEASES
The Company has various capital and operating lease agreements for
warehouse facilities, office equipment, transportation equipment and retail
outlets, including several with related parties (Note 2). Rents charged to
operations in fiscal year 1995 was $4,003,975.
The Company subleases four retail locations to unrelated third parties.
These subleases expire from August of 1997 to January of 2000 and provide for
minimum sublease rentals of $188,060 in 1996, $182,120 in 1997, $48,950 in 1998,
$45,500 in 1999 and $45,500 in 2000. Rental income recorded in fiscal 1995 under
these subleases was $434,440.
7. LITIGATION
The Company is involved in litigation primarily arising in the normal
course of its business. In the opinion of management, the Company's liability,
if any, or the Company's recovery, if any, under any pending litigation would
not materially affect its financial position or results of operations.
8. SUBSEQUENT EVENTS
ITCO Acquisition Company of North Carolina, Inc. ("Merger Subsidiary") was
incorporated in the State of North Carolina in November 1995. The Merger
Subsidiary is a wholly-owned subsidiary of ITCO Acquisition Company, Inc.
("Purchaser"), a Delaware corporation. On November 30, 1995, the Purchaser
acquired all of the outstanding capital stock of the Company by means of a
merger of the Merger Subsidiary with and into the Company for an aggregate
purchase price of $18,114,834 (the "Acquisition").
Pursuant to the Acquisition, the Company was released as guarantor of all
loans on behalf of Viking, TAG and a stockholder/officer of the Company; all of
the outstanding capital stock of L&N (an affiliate) was transferred to the
Company; and the Company increased its credit facility from $30,000,000 to
$50,000,000.
The aforementioned stockholder/officer's share of the purchase price was
reduced by the fair market value of assets distributed to such
stockholder/officer and the amounts receivable by the Company from such
stockholder/officer. The total of the purchase price reduction was $1,066,237.
Additionally, the Company and either TAG or Viking entered into new long-term
real estate leases with respect to nine properties currently leased by the
Company.
F-68
<PAGE> 189
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
MAY 20, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,204,497
Receivables:
Trade, net of allowance for doubtful accounts of
$1,463,486............................................ 42,822,098
Other including supplier rebates....................... 6,093,492
------------
50,120,087
Inventories............................................... 52,988,948
Deferred income tax asset................................. 1,558,631
Prepaid expenses.......................................... 740,590
------------
Total current assets........................................ 105,408,256
Property and equipment, net................................. 10,310,418
Goodwill, net............................................... 13,962,907
Other assets................................................ 1,134,498
Deferred income tax asset................................... 457,991
------------
Total assets................................................ $131,274,070
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 86,986,319
Accrued expenses.......................................... 3,555,930
Current maturities of long-term debt...................... 4,828,972
Income tax payable........................................ 1,024,542
------------
Total current liabilities................................... 96,395,763
Revolving credit agreement.................................. 26,254,556
Long-term debt.............................................. 1,471,858
------------
Total liabilities........................................... 124,122,177
Commitments and contingencies
Preferred stock, Class A, $0.01 par value; $1,000 stated
value; 50,000 shares authorized; 8,100 shares issued and
outstanding............................................... 10,370,090
Shareholders' deficit:
Common stock, $0.01 par value; 250,000 shares authorized;
93,000 shares issued and outstanding................... 930
Additional paid in capital................................ 1,599,070
Accumulated deficit....................................... (4,818,197)
------------
Total shareholders' deficit................................. (3,218,197)
------------
Total liabilities and shareholders' deficit................. $131,274,070
============
</TABLE>
See accompanying notes.
F-69
<PAGE> 190
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDED EIGHT MONTHS
MAY 20, ENDED MAY 31,
1998 1997
------------ -------------
<S> <C> <C>
Sales....................................................... $232,277,464 $225,804,195
Cost of sales............................................... 198,701,340 194,202,890
------------ ------------
Gross profit................................................ 33,576,124 31,601,305
Selling, general and administrative expenses................ 29,956,972 31,097,067
------------ ------------
Income (loss) from operations............................... 3,619,152 504,238
Other income (expense):
Interest expense.......................................... (2,352,238) (2,344,975)
Rental income............................................. 265,137 239,207
Other, net................................................ 125,607 (174,473)
------------ ------------
Total other expense......................................... (1,961,494) (2,280,241)
------------ ------------
Income (loss) before income taxes........................... 1,657,658 (1,776,003)
Income tax (expense) benefit................................ (811,100) 700,000
------------ ------------
Net income (loss)........................................... $ 846,558 $ (1,076,003)
============ ============
</TABLE>
See accompanying notes.
F-70
<PAGE> 191
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at September 30, 1997.............. $900 $ 899,100 $(5,003,256) $(4,103,256)
Net income............................... -- -- 846,558 846,558
Issuance of common stock................. 30 699,970 -- 700,000
Accrued dividends on Preferred Stock,
Class A............................... -- -- (661,499) (661,499)
---- ---------- ----------- -----------
Balance at May 20, 1998.................... $930 $1,599,070 $(4,818,197) $(3,218,197)
==== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at September 30, 1996.............. $900 $ 899,100 $(2,651,409) $(1,751,409)
Net loss................................. -- -- (1,076,003) (1,076,003)
Accrued dividends on Preferred Stock,
Class A............................... -- -- (599,286) (599,286)
---- ---------- ----------- -----------
Balance at May 31, 1997.................... $900 $ 899,100 $(4,326,698) $(3,426,698)
==== ========== =========== ===========
</TABLE>
See accompanying notes.
F-71
<PAGE> 192
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD ENDED MAY 20, 1998 AND THE
EIGHT MONTHS ENDED MAY 31, 1997
<TABLE>
<CAPTION>
PERIOD ENDED EIGHT MONTHS
MAY 20, ENDED MAY 31,
1998 1997
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 846,558 $ (1,076,003)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization on property and equipment... 1,017,841 1,105,496
Amortization on intangible assets......................... 598,087 577,684
Non-cash charge (Note 3).................................. 670,000 --
Net (gain) loss on disposal of property and equipment..... (182,903) 55,471
Deferred income tax....................................... (211,500) 13,743
Changes in assets and liabilities:
Receivables, net....................................... 1,012,037 4,213,065
Inventories............................................ (9,801,037) 3,733,339
Prepaid expenses....................................... (212,280) (374,594)
Accounts payable....................................... 11,839,844 4,812,251
Accrued expenses....................................... 469,526 427,020
Other liabilities/assets............................... (584,574) (482,335)
Income tax payable/receivable.......................... 1,024,542 (539,920)
----------- ------------
Net cash provided by operating activities................... 6,486,141 12,465,217
INVESTING ACTIVITIES
Expenditures for property and equipment..................... (711,103) (1,032,581)
Proceeds from sale of property and equipment................ 470,748 446,036
----------- ------------
Net cash used in investing activities....................... (240,355) (586,545)
FINANCING ACTIVITIES
Net payments on revolving credit agreement.................. (5,868,111) (8,374,507)
Repayment of long-term debt................................. (1,058,768) (3,316,311)
Proceeds from issue of common stock......................... 30,000 --
Principal paid on capital lease obligations................. -- (74,177)
----------- ------------
Net cash used in financing activities....................... (6,896,879) (11,764,995)
----------- ------------
Net increase in cash........................................ (651,093) 113,677
Cash at beginning of period................................. 1,855,590 1,753,583
----------- ------------
Cash at end of period....................................... $ 1,204,497 $ 1,867,260
=========== ============
Interest paid............................................... $ 2,395,411 $ 2,243,826
=========== ============
Income taxes paid........................................... $ 11,558 $ --
=========== ============
</TABLE>
See accompanying notes.
F-72
<PAGE> 193
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MAY 20, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
Organization
ITCO Logistics Corporation and subsidiaries (the "Company") are principally
engaged in the business of wholesale distribution of car and truck tires and
related accessories generally in the eastern part of the United States.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the period ended May 20, 1998 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 1998. For further information, refer to the audited consolidated
financial statements and notes thereto for the year ended September 30, 1997
included elsewhere in this document.
2. MERGER
On March 10, 1998, the Company and J. H. Heafner Company, Inc. ("Heafner")
entered into a merger agreement. On May 20, 1998, a newly formed subsidiary of
Heafner was merged with and into the Company, with the Company surviving the
merger as a wholly owned subsidiary of Heafner (the "ITCO Merger"). The total
consideration paid to the stockholders of the Company in connection with the
ITCO Merger was $18 million in cash plus 1,400,667 newly issued shares of Class
B common stock, $.01 par value of Heafner and $1.1 million paid to the holders
of the Company's stock appreciation rights.
3. STOCK PURCHASE AGREEMENT
In January 1998, the Company entered into a stock purchase agreement in
which two employees acquired 3,000 shares of common stock at $10.00 per share.
In accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"), the transaction resulted in a non-cash
charge of approximately $670,000 (which is included in selling, general and
administrative expenses), based upon the estimated fair value of the stock at
the date of issuance.
4. INCOME TAXES
The major contributing factor for the difference between the federal
statutory rate and the effective rate for the period ended May 20, 1998 is
non-deductible goodwill.
F-73
<PAGE> 194
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Speed Merchant, Inc.:
We have audited the accompanying balance sheets of The Speed Merchant, Inc.
as of October 31, 1996 and 1997, and the related statements of income and
retained earnings and cash flows for each of the years in the three-year period
ended October 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Speed Merchant, Inc. as
of October 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended October 31, 1997, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Mountain View, California
December 23, 1997, except as to Note 10,
which is as of January 21, 1998
F-74
<PAGE> 195
THE SPEED MERCHANT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
------------------------- APRIL 30,
1996 1997 1998
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 17,139 841,623 879,380
Short-term investments.............................. 409,184 71,451 8,257
Accounts receivable, net of allowance of $118,910,
$251,313, and $234,171, respectively............. 15,250,571 12,509,038 15,327,527
Current portion of related party notes receivable... 447,971 61,658 65,747
Other receivables................................... 434,377 333,221 286,217
Current portion of net investment in direct
financing leases................................. 125,749 294,297 317,712
Inventories......................................... 25,242,274 25,582,340 29,891,817
Prepaid expenses.................................... 182,495 174,327 181,021
Deferred income taxes............................... 349,091 413,226 413,226
----------- ---------- ----------
Total current assets........................ 42,458,851 40,281,181 47,370,904
Net investment in direct financing leases, less
current portion..................................... 260,217 397,103 302,052
Property and equipment, net........................... 2,516,602 5,006,583 6,506,136
Related party notes receivable, less current
portion............................................. 336,318 782,639 835,104
Other assets.......................................... 151,600 206,653 412,336
----------- ---------- ----------
Total assets................................ $45,723,588 46,674,159 55,426,532
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit...................................... $ 1,405,826 -- 2,719,240
Current portion of trade notes payable.............. 1,034,000 603,110 1,433,566
Current portion of long-term obligations............ 48,852 111,113 209,918
Related party note payable.......................... 115,237 158,151 211,896
Accounts payable.................................... 31,548,656 31,132,210 32,980,159
Accrued liabilities................................. 3,117,556 2,909,348 2,829,131
Income taxes payable................................ 361,867 484,132 540,752
----------- ---------- ----------
Total current liabilities................... 37,631,994 35,398,064 40,924,662
Trade notes payable, less current portion............. 3,762,000 3,038,890 2,509,990
Long-term obligations, less current portion........... 108,311 1,699,037 2,885,430
Deferred income taxes................................. 204,901 241,766 241,766
----------- ---------- ----------
Total liabilities........................... 41,707,206 40,377,757 46,561,848
----------- ---------- ----------
Shareholders' equity:
Common stock, $1.00 par value; 1,000,000 shares
authorized; 14,118 shares issued and
outstanding...................................... 405,869 405,869 405,869
Retained earnings................................... 3,610,513 5,890,533 8,458,815
----------- ---------- ----------
Total shareholders' equity.................. 4,016,382 6,296,402 8,864,684
----------- ---------- ----------
Commitments
Total liabilities and shareholders'
equity.................................... $45,723,588 46,674,159 55,426,532
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-75
<PAGE> 196
THE SPEED MERCHANT, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
YEARS ENDED OCTOBER 31, APRIL 30,
------------------------------------------ -------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales........................ $107,683,262 $122,930,224 $122,410,452 $56,588,551 $67,578,573
Cost of goods sold........... 88,363,232 101,355,329 98,289,369 45,294,460 49,013,332
------------ ------------ ------------ ----------- -----------
Gross profit............... 19,320,030 21,574,895 24,121,083 11,294,091 18,565,241
Operating expenses........... 17,785,957 18,659,917 20,087,450 9,580,158 13,963,007
------------ ------------ ------------ ----------- -----------
Income from operations..... 1,534,073 2,914,978 4,033,633 1,713,933 4,602,234
Other income (expense):
Interest expense, net...... (298,461) (44,628) (155,477) (83,812) (227,275)
Other income (expense),
net..................... 33,397 (117,459) (67,136) (29,384) (97,358)
------------ ------------ ------------ ----------- -----------
Income before income taxes
and minority interest... 1,269,009 2,752,891 3,811,020 1,600,737 4,277,601
Income taxes................. 537,000 1,070,000 1,531,000 637,493 1,709,319
------------ ------------ ------------ ----------- -----------
Income before minority
interest................ 732,009 1,682,891 2,280,020 963,244 2,568,282
Minority interest............ 6,329 2,818 -- -- --
------------ ------------ ------------ ----------- -----------
Net income................. 725,680 1,680,073 2,280,020 963,244 2,568,282
Retained earnings:
Beginning of year/period... 1,204,760 1,930,440 3,610,513 3,610,513 5,890,533
------------ ------------ ------------ ----------- -----------
End of year/period......... $ 1,930,440 $ 3,610,513 $ 5,890,533 $ 4,573,757 $ 8,458,815
============ ============ ============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-76
<PAGE> 197
THE SPEED MERCHANT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
YEARS ENDED OCTOBER 31, APRIL 30,
--------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 725,680 1,680,073 2,280,020 963,244 2,568,282
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization................. 337,647 403,807 483,746 203,283 327,796
Allowance for doubtful accounts............... 5,114 48,025 132,403 61,925 (17,142)
Minority interest............................. 6,329 2,818 -- -- --
Loss on partnership dissolution............... -- 40,773 -- -- --
Increase in cash value of life insurance...... -- -- (64,615) -- (34,647)
Deferred income taxes......................... 95,000 (11,265) (27,270) -- --
Financing revenue received under leases....... -- (24,924) (102,755) (48,165) (37,375)
Changes in operating assets and liabilities:
Accounts receivable......................... (4,617,842) (3,751,395) 2,609,130 3,108,839 (2,721,842)
Other receivables........................... (1,048,046) 755,238 101,156 326,481 75,318
Inventories................................. (1,706,660) (3,177,815) (340,066) 3,168,693 (3,120,347)
Prepaid expenses............................ (64,911) (19,178) 8,168 (3,902) 9,005
Accounts payable............................ 3,518,485 7,362,351 (416,446) (4,614,279) 1,816,658
Accrued liabilities......................... 410,791 1,267,692 (208,208) (1,309,177) (395,134)
Income taxes payable........................ 114,921 68,439 122,265 (61,692) 56,620
----------- ---------- ---------- ---------- ----------
Net cash (used in) provided by operating
activities.............................. (2,223,492) 4,644,639 4,577,528 1,795,250 (1,472,808)
----------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Change in short-term investments................ -- (409,184) 337,733 384,576 63,194
Purchase of property and equipment.............. (788,369) (224,496) (2,943,468) (2,255,571) (654,048)
Purchase of equipment to be leased.............. -- (430,440) (545,578) (330,718) (90,507)
Purchase of property and equipment in connection
with acquisition.............................. -- -- -- -- (828,104)
Purchase of net current assets in connection
with acquisition.............................. -- -- -- -- (519,750)
Payments received under direct financing
leases........................................ -- 69,398 342,899 148,976 199,518
Other assets.................................... (57,422) -- 26,629 19,703 (17,726)
----------- ---------- ---------- ---------- ----------
Net cash used in investing activities..... (845,791) (994,722) (2,781,785) (2,033,034) (1,847,423)
----------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Borrowings (payments) under line of credit...... 2,469,406 (3,013,497) (1,405,826) (368,887) 2,719,240
Borrowings under long-term obligations, net of
costs......................................... -- -- 1,687,775 1,610,904 990,000
Payments on long-term obligations............... (436,566) (62,246) (82,114) (24,121) (49,999)
Change in related party notes receivable and
payable, net.................................. (132,886) (307,915) (17,094) (87,608) (2,809)
Payments on trade notes payable................. (932,558) (384,000) (1,154,000) (842,000) (298,444)
----------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities.............................. 967,396 (3,767,658) (971,259) 288,288 3,357,988
----------- ---------- ---------- ---------- ----------
Net (decrease) increase in cash................... (2,101,887) (117,741) 824,484 50,504 37,757
Cash, beginning of year/period.................... 2,236,767 134,880 17,139 17,139 841,623
----------- ---------- ---------- ---------- ----------
Cash, end of year/period.......................... $ 134,880 17,139 841,623 67,643 879,380
=========== ========== ========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year/period:
Interest...................................... $ 304,423 200,969 248,920 112,501 208,717
=========== ========== ========== ========== ==========
Income taxes.................................. $ 329,742 1,012,826 1,065,671 699,185 708,188
=========== ========== ========== ========== ==========
Noncash investing and financing activities:
Property and equipment acquired under capital
leases...................................... $ 132,498 -- 15,326 -- 269,840
=========== ========== ========== ========== ==========
Inventories received in exchange for trade
notes payable............................... $ 4,350,000 -- -- -- 600,000
=========== ========== ========== ========== ==========
Property and equipment acquired through
assumption of long-term obligation.......... -- -- -- -- 75,357
=========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-77
<PAGE> 198
THE SPEED MERCHANT, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995, 1996, AND 1997
(INFORMATION AS OF APRIL 30, 1998 AND FOR THE SIX-MONTH
PERIODS ENDED APRIL 30, 1997 AND 1998, IS UNAUDITED.)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
The Speed Merchant, Inc. (the Company), a California corporation, is a
specialty wholesaler and retailer of automobile tires, parts, and accessories
located in California and Arizona. The Company operates under the names of
Competition Parts Warehouse, Performance Leasing, Economy Imports, Main Auto,
Wheel King, and The Speed Merchant. The 1995 and 1996 financial statements
include the Company's majority interest in The Speed Merchant of San Jose, a
California partnership. The partnership was dissolved during 1996.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue upon shipment of product.
Short-Term Investments
Short-term investments consist of money market funds, certificates of
deposit, U.S. Treasury notes, and corporate equity securities. The Company
classifies all instruments with original maturities in excess of three months as
short-term investments. All securities held by the Company are classified as
trading securities and are recorded at fair value. Unrealized holding gains and
losses are included in earnings. Dividends and interest income are recognized
when earned.
Inventories
Merchandise inventories are stated at the lower of cost (first in, first
out) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over estimated useful lives of 5 to 30 years. Leasehold
improvements and equipment under capital leases are amortized over the shorter
of the lease term or estimated useful life of the asset.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-78
<PAGE> 199
THE SPEED MERCHANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk
The Company offers credit terms to customers after an evaluation of a
customer's financial condition. These customers are located throughout
California and Arizona and no one customer accounts for a substantial part of
sales or receivables. The Company generally requires collateral for all large
customers.
Unaudited Balances
The accompanying unaudited financial statements include all adjustments
(consisting of only normal recurring adjustments) that management considers
necessary for a fair presentation of the financial position and results of
operations as of the date and for the periods indicated.
(2) RELATED PARTY NOTES RECEIVABLE AND NOTE PAYABLE
The related party notes receivable consisted of amounts that are due in
monthly installments over 10 years, bear interest at 6.5%, and are secured. The
related party note payable consisted of an amount that is payable on demand and
bears interest at 10%.
(3) NET INVESTMENT IN DIRECT FINANCING LEASES
The Company leases equipment to customers under direct financing leases,
which are carried at the gross investment in the leases less unearned income.
Unearned income is recognized in such a manner as to produce a constant periodic
rate of return on the net investment in the direct financing lease.
The following lists the components of the net investment in direct
financing leases:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------- APRIL 30,
1996 1997 1998
--------- -------- ---------
<S> <C> <C> <C>
Total minimum lease payments to be received....... $ 495,381 854,677 753,812
Less unearned income.............................. (109,415) (163,277) (134,048)
--------- -------- --------
Net investment in direct financing leases......... $ 385,966 691,400 619,764
========= ======== ========
</TABLE>
As of October 31, 1997, minimum lease payments to be received for each of
the five succeeding fiscal years are as follows: $363,797 in 1998; $280,821 in
1999; $146,434 in 2000; $54,232 in 2001; and $9,393 in 2002.
F-79
<PAGE> 200
THE SPEED MERCHANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
------------------------- APRIL 30,
1996 1997 1998
----------- ---------- ----------
<S> <C> <C> <C>
Land.......................................... $ -- 455,000 455,000
Building and improvements..................... 43,655 1,793,847 1,741,471
Equipment..................................... 1,725,767 1,870,297 3,230,186
Leasehold improvements........................ 1,118,615 1,122,483 1,261,690
Office equipment, furniture, and fixtures..... 657,991 1,015,860 1,306,257
Transportation equipment...................... 373,988 519,327 678,766
Equipment held for lease...................... -- 71,985 --
----------- ---------- ----------
3,920,016 6,848,799 8,673,370
Accumulated depreciation and amortization..... (1,403,414) (1,842,216) (2,167,234)
----------- ---------- ----------
$ 2,516,602 5,006,583 6,506,136
=========== ========== ==========
</TABLE>
Included in property and equipment as of October 31, 1996 and 1997, and
April 30, 1998, is $257,376, $269,443, and $539,283, respectively, of equipment
under capital leases. Accumulated amortization related to this equipment was
$69,497, $106,612, and $132,569 as of October 31, 1996 and 1997, and April 30,
1998, respectively.
(5) LINE OF CREDIT
The Company has an $8,000,000 line of credit with no borrowings as of
October 31, 1997. Advances on the line of credit bear interest at the prime rate
(8.50% as of October 31, 1997) plus 0.25%. Substantially all assets of the
Company are pledged as collateral for the line of credit.
(6) LONG-TERM OBLIGATIONS/TRADE NOTES PAYABLE
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------- APRIL 30,
1996 1997 1998
-------- --------- ---------
<S> <C> <C> <C>
Note payable to bank; monthly installments of
$15,756 including interest at 8.5% to March
2012; secured by property....................... $ -- 1,568,377 1,539,999
Note payable to bank; monthly installments of
$1,483 including interest at 8.875% to October
2027; secured by property....................... -- 119,776 119,776
Note payable to financial institution; monthly
installments of $16,667 plus variable interest
at the 30-day commercial paper rate plus 2.7% to
April 2003; secured by property................. -- -- 966,667
Other notes payable............................... -- -- 124,636
Capital lease obligations (see Note 7)............ 157,163 121,997 344,270
-------- --------- ---------
157,163 1,810,150 3,095,348
Less current portion.............................. 48,852 111,113 209,918
-------- --------- ---------
$108,311 1,699,037 2,885,430
======== ========= =========
</TABLE>
F-80
<PAGE> 201
THE SPEED MERCHANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Trade notes payable include notes to various suppliers for inventory
purchases. These notes bear interest at rates ranging from the prime rate to
120% of the prime rate. The interest is forgiven provided the Company meets
certain future minimum purchase requirements. Future minimum payments pursuant
to these agreements are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
OCTOBER 31,
- ------------------
<S> <C>
1998...................................... $ 603,110
1999...................................... 1,718,890
2000...................................... 180,000
2001...................................... 180,000
2002...................................... 180,000
Thereafter................................ 780,000
----------
Total trade notes payable................. 3,642,000
Less current portion of trade notes
payable................................. 603,110
----------
$3,038,890
==========
</TABLE>
(7) LEASE OBLIGATIONS
The Company leases warehouses, retail facilities, and vehicles under
long-term operating leases that expire at various dates through fiscal 2005. The
Company also leases certain equipment under capital leases.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
OCTOBER 31, CAPITAL LEASES OPERATING LEASES
------------------ -------------- ----------------
<S> <C> <C>
1998........................................... $ 64,390 2,193,943
1999........................................... 48,063 1,617,955
2000........................................... 22,791 1,340,938
2001........................................... 3,892 1,094,728
2002........................................... 1,297 849,518
Thereafter..................................... -- 615,156
-------- ----------
Total.......................................... 140,433 $7,712,238
==========
Less amount representing interest.............. 18,436
--------
Present value of capital lease payments........ 121,997
Less current portion of capital lease
obligations................................. 53,131
--------
$ 68,866
========
</TABLE>
Rent expense was $3,486,000, $3,517,000, $3,491,000, and $2,121,000 for the
years ended October 31, 1995, 1996, and 1997, and for the six-month period ended
April 30, 1998, respectively.
F-81
<PAGE> 202
THE SPEED MERCHANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
----------------------------------
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Current:
Federal......................................... $350,000 817,265 1,204,170
State........................................... 92,000 264,000 354,100
Deferred:
Federal......................................... 65,000 (7,265) (24,170)
State........................................... 30,000 (4,000) (3,100)
-------- --------- ---------
Total................................... $537,000 1,070,000 1,531,000
======== ========= =========
</TABLE>
Income tax expense differed from the amounts computed by applying the
federal income tax rate of 34% to pretax income as the result of the following:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
----------------------------------
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax expense................... $431,463 935,983 1,295,747
State income taxes, net of federal income tax
benefit......................................... 72,789 169,696 202,268
Other............................................. 32,748 (35,679) 32,985
-------- --------- ---------
$537,000 1,070,000 1,531,000
======== ========= =========
</TABLE>
The tax effects of temporary differences that give rise to significant
components of the deferred tax assets and liabilities as of October 31, 1996 and
1997, are presented below:
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Deferred tax assets:
Reserves and accruals not currently deductible............ $ 104,231 172,401
Inventories -- costs inventoried for tax purposes......... 155,027 121,490
State income taxes........................................ 89,833 119,335
--------- --------
Total gross deferred tax assets................... 349,091 413,226
Deferred tax liabilities:
Property and equipment -- depreciation differences........ (204,901) (241,766)
--------- --------
Net deferred tax assets........................... $ 144,190 171,460
========= ========
</TABLE>
A valuation allowance against the deferred tax assets was not required as
management believes it is more likely than not the Company will generate
sufficient taxable income to realize the deferred tax assets.
(9) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) tax deferred savings plan to which participants
may contribute up to $9,500 per year. The Company does not make contributions to
the plan.
(10) SUBSEQUENT EVENT
On January 21, 1998, the Company acquired certain assets and liabilities of
Tire Outlet's 10 retail stores in Arizona for approximately $898,000. The
acquired net assets primarily consisted of receivables, inventory, property and
equipment and certain liabilities. The acquisition was accounted for using the
purchase method of accounting.
F-82
<PAGE> 203
THE SPEED MERCHANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(11) EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
In April 1998, the Company acquired certain assets of Tires One retail
stores in California and Arizona for approximately $750,000. The acquired assets
consisted primarily of inventory and property and equipment. The acquisition was
accounted for using the purchase method of accounting and the operating results
subsequent to the acquisition date are included in the statement of income.
On May 20, 1998, the Company sold all of its common stock for $45 million.
F-83
<PAGE> 204
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS 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 ISSUER OR THE SUBSIDIARY GUARANTORS. 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 AN 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 CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE ISSUER OR THE SUBSIDIARY GUARANTORS SINCE SUCH
DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Summary............................... 4
Risk Factors.......................... 15
The Transactions...................... 21
Use of Proceeds....................... 24
The Exchange Offer.................... 25
Capitalization........................ 33
Unaudited Pro Forma Condensed Combined
Financial Data...................... 34
Selected Historical Financial Data.... 43
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 51
Business.............................. 62
Management............................ 73
Principal Stockholders................ 80
Certain Relationships and Related
Transactions........................ 82
Description of New Credit Facility.... 84
Description of the New Notes.......... 86
Certain U.S. Federal Income Tax
Considerations...................... 113
Plan of Distribution.................. 116
Legal Matters......................... 117
Experts............................... 117
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1998 (90 DAYS AFTER THE COMMENCEMENT OF THE EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN SELLING NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES HELD FOR
THEIR OWN ACCOUNT. SEE "PLAN OF DISTRIBUTION."
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
THE J.H. HEAFNER
COMPANY, INC.
OFFER TO EXCHANGE ITS
10% SENIOR NOTES
DUE 2008
FOR ANY AND ALL OF ITS
OUTSTANDING
10% SENIOR NOTES
DUE 2008
-----------------
PROSPECTUS
-----------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 205
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The J.H. Heafner Company, Inc., ITCO Holding Company, Inc. and ITCO Tire
Company
The Issuer, ITCO Holding Company, Inc. ("ITCO Holding") and ITCO Tire
Company ("ITCO Tire") are North Carolina corporations. Part 5 of the North
Carolina Business Corporation Act (the "NCBCA") permits a North Carolina
corporation to indemnify any individual who was or is a defendant or respondent,
or is threatened to be made a defendant or respondent, to any threatened,
pending, or completed civil, criminal, administrative or investigative action,
suit or proceeding, whether formal or informal, by reason of the fact that such
individual is or was a director, officer, employee or agent of the corporation,
or is or was serving as such with respect to another corporation or entity at
the request of the corporation, provided that such person acted in good faith
and in a manner such person reasonably believed to be (i) in the case of conduct
in such individual's official capacity with the corporation, in the best
interests of the corporation and (ii) in all other cases, not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, without reasonable cause to believe the conduct was unlawful. A
corporation may not indemnify such individual where the action or suit is by or
in the right of the corporation and such individual is adjudged liable to the
corporation or in any other action, suit or proceeding where such individual is
charged with, and found liable of, receiving improper personal benefit. Each of
the Issuer and ITCO Tire, in their respective Articles of Incorporation, and
ITCO Holding, in its By-laws, has provided that its directors and officers will
be indemnified and held harmless to the fullest extent provided by the NCBCA.
Section 55-8-56 of the NCBCA also permits a North Carolina corporation to
purchase insurance for the benefit of any person who is or was a director,
officer, employee or agent of the corporation against any liability incurred by
such person, whether or not the corporation would have the power to indemnify
such person against such liability.
Oliver & Winston, Inc., The Speed Merchant, Inc. and Phoenix Racing, Inc.
Winston, Speed Merchant and Phoenix Racing, Inc. ("Phoenix") are California
corporations. Section 317 of the California General Corporation Law ("CGCL")
permits a California corporation to indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending, or completed
civil, criminal, administrative or investigative action, suit or proceeding by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving as such with respect to the
predecessor corporation or another corporation or entity at the request of the
corporation, provided that such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, without
reasonable cause to believe the conduct was unlawful. Where the action or suit
is by or in the right of the corporation, the corporation may not indemnify such
person for any claim, issue or matter as to which the person shall have been
adjudged liable to the corporation, except as otherwise determined by the court
in which the action or suit was brought. Each of Winston, Speed Merchant and
Phoenix has provided in its By-laws that its directors and officers will be
indemnified and held harmless against all expenses, liability and loss
(including attorneys' fees, judgments, fines, and other amounts actually and
reasonably incurred in connection with the proceeding) to the extent provided by
the CGCL, except that Winston and Speed Merchant have provided in their By-laws
that such directors and officers shall not be indemnified for amounts paid in
settling or otherwise disposing of a pending or threatened action, whether with
or without court approval. The By-laws of Phoenix allow amounts paid in settling
or otherwise disposing of a pending or threatened action to be paid as provided
by the CGCL. Winston's Articles of Incorporation allow Winston to provide
indemnification to its directors and officers for breach of duty of such
directors and officers, though by-law provisions or individual agreements with
such directors and officers, in excess of the indemnification otherwise
permitted by Section 317 of the CGCL, subject to the limits of Section 204 of
the CGCL.
II-1
<PAGE> 206
Section 317(i) of the CGCL also permits a California corporation to
purchase insurance for the benefit of any person who is or was a director,
officer, employee, or agent of the corporation against any liability incurred by
such person, whether or not the corporation would have the power to indemnify
such person against such liability. The By-laws of each of Winston and Speed
Merchant specifically permit each corporation to purchase such insurance.
ITCO Logistics Corporation
ITCO Logistics is a Delaware corporation. Section 145 of the Delaware
General Corporation Law ("DGCL") permits a Delaware corporation to indemnify any
person who was or is a party, or is threatened to be made a party, to any
threatened, pending, or completed civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that such person
is or was a director, officer, employee or agent of the corporation, or is or
was serving as such with respect to another corporation or entity at the request
of the corporation, provided that such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, without reasonable cause to believe the conduct was unlawful. Where
the action or suit is by or in the right of the corporation, the corporation may
not indemnify such person for any claim, issue or matter as to which the person
shall have been adjudged liable to the corporation, except as otherwise
determined by the Delaware Court of Chancery or the court in which the action or
suit was brought. ITCO Logistics has provided in its By-laws that its directors
and officers will be indemnified and held harmless against all expenses,
liability and loss (including attorneys' fees, judgments, fines and amounts paid
in settlement) to the fullest extent provided by the law as it exists or may
hereafter be amended.
Section 145 of the DGCL and the By-laws of ITCO Logistics also permit ITCO
Logistics to purchase insurance for the benefit of any person who is or was a
director, officer, employee, or agent of the corporation against any liability
incurred by such person, whether or not the corporation would have the power to
indemnify such person against such liability.
ITCO Tire Company of Georgia
ITCO Tire Company of Georgia ("ITCO Georgia") is a Virginia corporation.
Sections 13.1-697 and 13.1-702 of the Virginia Stock Corporation Act ("VSCA")
permits a Virginia corporation to indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending, or completed
civil, criminal, administrative or investigative action, suit or proceeding,
whether formal or informal, by reason of the fact that such person is or was a
director, officer, partner, trustee, employee or agent of the corporation, or is
or was serving as such with respect to another corporation or entity at the
request of the corporation, provided that such person acted in good faith and in
a manner such person reasonably believed to be, with respect to conduct in the
course of an official capacity with the corporation, in or, in all other cases,
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, without reasonable cause to believe the conduct
was unlawful. Where the action or suit is by or in the right of the corporation,
the corporation may not indemnify such person for any claim, issue or matter as
to which the person shall have been adjudged liable to the corporation, or in
connection with any other proceeding charging improper personal benefit to him,
whether or not involving action in his official capacity, in which he was
adjudged liable on the basis that personal benefit was improperly received by
him. ITCO Georgia has provided in its By-laws that its directors and officers
will be indemnified and held harmless against all expenses, liability and loss
(including counsel fees, judgments, fines, excise taxes or penalties and amounts
paid in settlement) to the fullest extent provided by the law as it exists or
may hereafter be amended.
Section 13.1-703 of the VSCA and the By-laws of ITCO Georgia also permit
ITCO Georgia to purchase insurance for the benefit of any person who is or was a
director, officer, employee, or agent of the corporation against any liability
incurred by such person, whether or not the corporation would have the power to
indemnify such person against such liability under sections 13.1-697 or
12.1-698.
II-2
<PAGE> 207
Liability Insurance; Indemnification Under Employment Agreements
The Company maintains directors and officers liability insurance policies,
in such amounts as it deems reasonable, against certain liabilities that may be
asserted against, or incurred by, the directors and officers of each registrant
in their capacities as directors or officers of such corporation, including
liabilities under federal and state securities laws.
Each of the Named Executive Officers is indemnified by the Company against
certain liabilities that may be asserted against, or incurred by, such persons
in their capacities as employees pursuant to employment agreements with the
Company more fully described in the Prospectus that forms a part of this
Registration Statement.
II-3
<PAGE> 208
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<C> <S>
3.1 Second Amended and Restated Articles of Incorporation of The
J.H. Heafner Company, Inc. (the "Company")
3.2 By-laws of the Company
3.3 Articles of Incorporation of Oliver & Winston, Inc.
3.4 By-laws of Oliver & Winston, Inc.
3.5 Certificate of Incorporation of ITCO Logistics Corporation
3.6 By-laws of ITCO Logistics Corporation
3.7 Articles of Incorporation of ITCO Holding Company, Inc.
3.8 By-laws of ITCO Holding Company, Inc.
3.9 Articles of Incorporation of ITCO Tire Company
3.10 By-laws of ITCO Tire Company
3.11 Articles of Incorporation of ITCO Tire Company of Georgia*
3.12 By-laws of ITCO Tire Company of Georgia
3.13 Articles of Incorporation of The Speed Merchant, Inc.
3.14 By-laws of The Speed Merchant, Inc.
3.15 Articles of Incorporation of Phoenix Racing, Inc.
3.16 By-laws of Phoenix Racing, Inc.
4.1 Indenture, dated as of May 15, 1998, among the Company,
First Union National Bank, as Trustee (the "Trustee"), and
Oliver & Winston, Inc., ITCO Logistics Corporation, ITCO
Holding Company, Inc., ITCO Tire Company, ITCO Tire Company
of Georgia, The Speed Merchant, Inc., and Phoenix Racing,
Inc. (collectively, the "Subsidiary Guarantors")
4.2 Form of Global Note (attached as Exhibit A to the Indenture
filed as Exhibit 4.1 to the Registration Statement)
5.1 Opinion of Howard, Smith & Levin LLP as to the Legality of
the New Notes*
9.1 Voting Trust Agreement, dated as of October 15, 1996, by and
among Ann Heafner Gaither, William H. Gaither, Albert C.
Gaither, Susan Gaither Jones, Lawson H. Gaither, Albert
Comer Gaither and Thomas R. Jones, as Stockholders, and Ann
Heafner Gaither and William H. Gaither, as Trustees
10.1 Amended and Restated Loan and Security Agreement, dated as
of May 20, 1998, among the Company, Oliver & Winston, Inc.,
ITCO Holding Company, Inc. and The Speed Merchant, Inc., as
Borrowers, BankBoston, N.A., as Agent (the 'Agent'), Fleet
Capital Corporation and First Union National Bank as
Co-Agents (the "Co-Agents") and the various financial
institutions from time to time party thereto, as Lenders
10.2 Letter, dated May 20, 1998, from the Company, Oliver &
Winston, Inc., ITCO Holding Company, Inc., The Speed
Merchant, Inc., ITCO Tire Company, ITCO Tire Company of
Georgia and Phoenix Racing, Inc. to the Agent and the
Co-Agents
10.3 Guaranties, dated as of May 20, 1998, by each of ITCO Tire
Company, ITCO Tire Company of Georgia, ITCO Logistics
Corporation and Phoenix Racing, Inc. in favor of the Agent
10.4 Subsidiary Security Agreements, dated as of May 20, 1998,
between the Agent and each of ITCO Tire Company, ITCO Tire
Company of Georgia, ITCO Logistics Corporation and Phoenix
Racing, Inc.
10.5 Senior Subordinated Note and Warrant Purchase Agreement,
dated as of May 7, 1997, by and among The J. H. Heafner
Company, Inc. and The 1818 Mezzanine Fund, L.P.
10.6 Registration Rights Agreement, dated as of May 7, 1997, by
and among The J. H. Heafner Company, Inc. and The 1818
Mezzanine Fund, L.P.
10.7 Warrant No. 2 exercisable for 1,034,000 shares of Class A
Common Stock in the name of The 1818 Mezzanine Fund, L.P.
</TABLE>
II-4
<PAGE> 209
<TABLE>
<C> <S>
10.8 Securities Purchase Agreement, dated as of May 7, 1997, between The J. H. Heafner Company, Inc. and The
Kelly-Springfield Tire and Rubber Company
10.9 Agreement and Plan of Merger, dated March 10, 1998, among the Company, ITCO Merger Corporation, ITCO
Logistics Corporation and Wingate Partners II, L.P., Armistead Burwell, Jr., William E. Berry, Richard P.
Johnson, Leon R. Ellin, Wingate Affiliates II, L.P. and Callier Investment Company (the "ITCO
Stockholders")
10.10 Class B Stockholder Agreement, dated as of May 20, 1998, among the Company and the ITCO Stockholders
10.11 Class B Registration Rights Agreement, dated as of May 20, 1998, among the Company and the ITCO
Stockholders
10.12 Escrow Agreement, dated as of May 20, 1998, among the Company, the ITCO Stockholders and the Chase
Manhattan Bank, as escrow agent
10.13 Stock Purchase Agreement, dated as of March 11, 1998, among the Company, Arthur C. Soares and Ray C.
Barney
10.14 Escrow Agreement, dated as of May 20, 1998, among the Company, Arthur C. Barney, Ray C. Barney and First
Union National Bank, as escrow agent (the "CPW Escrow Agent")
10.15 Letter of Credit, dated as of May 20, 1998, issued to First Union National Bank, as CPW Escrow Agent.
10.16 Stock Purchase Agreement, dated as of April 9, 1997, among the Company and the shareholders of Oliver &
Winston, Inc.
10.17 Guaranty, dated March 31, 1997, of the Company*
10.18 1998 Michelin North America, Inc. Distributor Agreement, dated January 1, 1998, by and between Michelin
North America, Inc. and the Company*
10.19 The J.H. Heafner Company 1997 Stock Option Plan (the "Stock Option Plan")
10.20 Form of Stock Option Agreement (incentive stock options)
10.21 Form of Stockholder Agreement (pursuant to the Stock Option Plan)
10.22 Stockholders' Agreement, dated as of October 15, 1996, by and among Ann Heafner Gaither, William H.
Gaither, Albert C. Gaither, Susan Gaither Jones, Lawson H. Gaither, Albert Comer Gaither and Thomas R.
Jones.
10.23 The J.H. Heafner Company 1997 Restricted Stock Plan
10.24 Securities Purchase and Stockholders Agreement, dated as of May 28, 1997, among the Company and various
management stockholders
10.25 Employment and Severance Agreements between the Company and William H. Gaither, J. Michael Gaither,
Donald C. Roof, Daniel K. Brown and Thomas J. Bonburg*
10.26 Employment Agreement, dated as of May 20, 1998, between the Company and Richard P. Johnson
10.27 Employment Agreement, dated as of May 20, 1998, between the Company and Arthur C. Soares
10.28 Employment Agreement, dated as of May 20, 1998, between The Speed Merchant, Inc. and Ray C. Barney
10.29 Lease Agreement, dated October 1, 1992, by and between Carolyn Heafner, Ann H. Gaither, Albert C. Gaither
and the Company, as amended
10.30 Lease, dated August 1, 1988, by and between Ann Heafner Gaither and the Company, as amended
10.31 Lease by and between Ann H. Gaither and the Company*
11.1 Statement re: Computation of Per Share Earnings*
12.1 Statement re: Computation of Ratios
21.1 Chart of Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Deloitte & Touche LLP
</TABLE>
II-5
<PAGE> 210
<TABLE>
<C> <S>
23.3 Consent of Ernst & Young LLP
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of Arthur Andersen LLP
23.6 Consent of Howard, Smith & Levin LLP*
24.1 Power of Attorney of Directors and Officers (set forth on
signature pages of this Registration Statement)
25.1 Statement of Eligibility of Trustee on Form T-1 related to
the Notes
27.1 Financial Data Schedules (Filed as Item 21(b))*
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Exchange Agent Agreement
</TABLE>
(b) Financial Data Schedules*
- ---------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
Each undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933 (the "Securities Act"), each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering;
(4) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrants pursuant to the provisions described under Item 20 or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or controlling
person of the registrants 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 registrants will, unless in
the opinion of their 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
Securities Act and will be governed by the final adjudication of such issue;
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request; and
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
II-6
<PAGE> 211
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Charlotte, State of North
Carolina, on August 18, 1998.
THE J. H. HEAFNER COMPANY, INC.
By: /s/ WILLIAM H. GAITHER
------------------------------------
Name: William H. Gaither
Title: President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of William H. Gaither, Donald C. Roof and J.
Michael Gaither and each of them, with full power to act alone, as his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the SEC, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
/s/ WILLIAM H. GAITHER Director, President and Chief August 18, 1998
- ------------------------------------------------ Executive Officer
William H. Gaither
/s/ DONALD C. ROOF Senior Vice President, Chief August 18, 1998
- ------------------------------------------------ Financial Officer and Treasurer
Donald C. Roof
/s/ ANN H. GAITHER Chairperson of the Board August 18, 1998
- ------------------------------------------------
Ann H. Gaither
/s/ VICTORIA B. JACKSON Director August 18, 1998
- ------------------------------------------------
Victoria B. Jackson
/s/ JOSEPH P. DONLAN Director August 18, 1998
- ------------------------------------------------
Joseph P. Donlan
/s/ WILLIAM M. WILCOX, JR. Director August 18, 1998
- ------------------------------------------------
William M. Wilcox, Jr.
/s/ V. EDWARD EASTERLING, JR. Director August 18, 1998
- ------------------------------------------------
V. Edward Easterling, Jr.
</TABLE>
II-7
<PAGE> 212
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Charlotte, State of North
Carolina, on August 18, 1998.
OLIVER & WINSTON, INC.
By: /s/ WILLIAM H. GAITHER
------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of William H. Gaither, Donald C. Roof and J.
Michael Gaither and each of them, with full power to act alone, as his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the SEC, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
/s/ WILLIAM H. GAITHER Director and Chief Executive August 18, 1998
- ------------------------------------------------ Officer
William H. Gaither
/s/ THOMAS J. BONBURG Director, President and Chief August 18, 1998
- ------------------------------------------------ Operating Officer
Thomas J. Bonburg
/s/ DONALD C. ROOF Vice President and Treasurer August 18, 1998
- ------------------------------------------------
Donald C. Roof
/s/ ANN H. GAITHER Chairperson of the Board August 18, 1998
- ------------------------------------------------
Ann H. Gaither
</TABLE>
II-8
<PAGE> 213
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Charlotte, State of North
Carolina, on August 18, 1998.
ITCO LOGISTICS CORPORATION
By: /s/ WILLIAM H. GAITHER
------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of William H. Gaither, Donald C. Roof and J.
Michael Gaither and each of them, with full power to act alone, as his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the SEC, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
/s/ WILLIAM H. GAITHER Director and Chief Executive August 18, 1998
- ------------------------------------------------ Officer
William H. Gaither
/s/ RICHARD P. JOHNSON President and Chief Operating August 18, 1998
- ------------------------------------------------ Officer
Richard P. Johnson
/s/ DONALD C. ROOF Director, Vice President, Chief August 18, 1998
- ------------------------------------------------ Financial Officer and Treasurer
Donald C. Roof
/s/ ANN H. GAITHER Chairperson of the Board August 18, 1998
- ------------------------------------------------
Ann H. Gaither
/s/ J. MICHAEL GAITHER Director, Vice President, General August 18, 1998
- ------------------------------------------------ Counsel and Secretary
J. Michael Gaither
</TABLE>
II-9
<PAGE> 214
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Charlotte, State of North
Carolina, on August 18, 1998.
ITCO HOLDING COMPANY, INC.
By: /s/ WILLIAM H. GAITHER
------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of William H. Gaither, Donald C. Roof and J.
Michael Gaither and each of them, with full power to act alone, as his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the SEC, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
/s/ WILLIAM H. GAITHER Director and Chief Executive August 18, 1998
- ------------------------------------------------ Officer
William H. Gaither
/s/ RICHARD P. JOHNSON President and Chief Operating August 18, 1998
- ------------------------------------------------ Officer
Richard P. Johnson
/s/ DONALD C. ROOF Director, Vice President, Chief August 18, 1998
- ------------------------------------------------ Financial Officer and Treasurer
Donald C. Roof
/s/ ANN H. GAITHER Chairperson of the Board August 18, 1998
- ------------------------------------------------
Ann H. Gaither
/s/ J. MICHAEL GAITHER Director, Vice President, General August 18, 1998
- ------------------------------------------------ Counsel and Secretary
J. Michael Gaither
</TABLE>
II-10
<PAGE> 215
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Charlotte, State of North
Carolina, on August 18, 1998.
ITCO TIRE COMPANY
By: /s/ WILLIAM H. GAITHER
------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of William H. Gaither, Donald C. Roof and J.
Michael Gaither and each of them, with full power to act alone, as his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the SEC, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
/s/ WILLIAM H. GAITHER Director and Chief Executive August 18, 1998
- ------------------------------------------------ Officer
William H. Gaither
/s/ RICHARD P. JOHNSON President and Chief Operating August 18, 1998
- ------------------------------------------------ Officer
Richard P. Johnson
/s/ DONALD C. ROOF Director, Vice President, Chief August 18, 1998
- ------------------------------------------------ Financial Officer and Treasurer
Donald C. Roof
/s/ ANN H. GAITHER Chairperson of the Board August 18, 1998
- ------------------------------------------------
Ann H. Gaither
/s/ J. MICHAEL GAITHER Director, Vice President, General August 18, 1998
- ------------------------------------------------ Counsel and Secretary
J. Michael Gaither
</TABLE>
II-11
<PAGE> 216
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Charlotte, State of North
Carolina, on August 18, 1998.
ITCO TIRE COMPANY OF GEORGIA
By: /s/ WILLIAM H. GAITHER
------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of William H. Gaither, Donald C. Roof and J.
Michael Gaither and each of them, with full power to act alone, as his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the SEC, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
/s/ WILLIAM H. GAITHER Director and Chief Executive August 18, 1998
- ------------------------------------------------ Officer
William H. Gaither
/s/ RICHARD P. JOHNSON President and Chief Operating August 18, 1998
- ------------------------------------------------ Officer
Richard P. Johnson
/s/ DONALD C. ROOF Director, Vice President, Chief August 18, 1998
- ------------------------------------------------ Financial Officer and Treasurer
Donald C. Roof
/s/ ANN H. GAITHER Chairperson of the Board August 18, 1998
- ------------------------------------------------
Ann H. Gaither
/s/ J. MICHAEL GAITHER Director, Vice President, General August 18, 1998
- ------------------------------------------------ Counsel and Secretary
J. Michael Gaither
</TABLE>
II-12
<PAGE> 217
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Charlotte, State of North
Carolina, on August 18, 1998.
THE SPEED MERCHANT, INC.
By: /s/ WILLIAM H. GAITHER
------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of William H. Gaither, Donald C. Roof and J.
Michael Gaither and each of them, with full power to act alone, as his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the SEC, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
/s/ WILLIAM H. GAITHER Director and Chief Executive August 18, 1998
- ------------------------------------------------ Officer
William H. Gaither
/s/ ARTHUR C. SOARES President and Chief Operating August 18, 1998
- ------------------------------------------------ Officer
Arthur C. Soares
/s/ DONALD C. ROOF Director, Vice President, Chief August 18, 1998
- ------------------------------------------------ Financial Officer and Treasurer
Donald C. Roof
/s/ ANN H. GAITHER Chairperson of the Board August 18, 1998
- ------------------------------------------------
Ann H. Gaither
/s/ J. MICHAEL GAITHER Director, Vice President, General August 18, 1998
- ------------------------------------------------ Counsel and Secretary
J. Michael Gaither
</TABLE>
II-13
<PAGE> 218
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Charlotte, State of North
Carolina, on August 18, 1998.
PHOENIX RACING, INC.
By: /s/ WILLIAM H. GAITHER
------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of William H. Gaither, Donald C. Roof and J.
Michael Gaither and each of them, with full power to act alone, as his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the SEC, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
/s/ WILLIAM H. GAITHER Director and Chief Executive August 18, 1998
- ------------------------------------------------ Officer
William H. Gaither
/s/ ARTHUR C. SOARES President and Chief Operating August 18, 1998
- ------------------------------------------------ Officer
Arthur C. Soares
/s/ DONALD C. ROOF Director, Vice President, Chief August 18, 1998
- ------------------------------------------------ Financial Officer and Treasurer
Donald C. Roof
/s/ ANN H. GAITHER Chairperson of the Board August 18, 1998
- ------------------------------------------------
Ann H. Gaither
/s/ J. MICHAEL GAITHER Director, Vice President, General August 18, 1998
- ------------------------------------------------ Counsel and Secretary
J. Michael Gaither
</TABLE>
II-14
<PAGE> 219
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
3.1 Second Amended and Restated Articles of Incorporation of The
J.H. Heafner Company, Inc. (the "Company")
3.2 By-laws of the Company
3.3 Articles of Incorporation of Oliver & Winston, Inc.
3.4 By-laws of Oliver & Winston, Inc.
3.5 Certificate of Incorporation of ITCO Logistics Corporation
3.6 By-laws of ITCO Logistics Corporation
3.7 Articles of Incorporation of ITCO Holding Company, Inc.
3.8 By-laws of ITCO Holding Company, Inc.
3.9 Articles of Incorporation of ITCO Tire Company
3.10 By-laws of ITCO Tire Company
3.11 Articles of Incorporation of ITCO Tire Company of Georgia*
3.12 By-laws of ITCO Tire Company of Georgia
3.13 Articles of Incorporation of The Speed Merchant, Inc.
3.14 By-laws of The Speed Merchant, Inc.
3.15 Articles of Incorporation of Phoenix Racing, Inc.
3.16 By-laws of Phoenix Racing, Inc.
4.1 Indenture, dated as of May 15, 1998, among the Company,
First Union National Bank, as Trustee (the "Trustee"), and
Oliver & Winston, Inc., ITCO Logistics Corporation, ITCO
Holding Company, Inc., ITCO Tire Company, ITCO Tire Company
of Georgia, The Speed Merchant, Inc., and Phoenix Racing,
Inc. (collectively, the "Subsidiary Guarantors")
4.2 Form of Global Note (attached as Exhibit A to the Indenture
filed as Exhibit 4.1 to the Registration Statement)
5.1 Opinion of Howard, Smith & Levin LLP as to the Legality of
the New Notes*
9.1 Voting Trust Agreement, dated as of October 15, 1996, by and
among Ann Heafner Gaither, William H. Gaither, Albert C.
Gaither, Susan Gaither Jones, Lawson H. Gaither, Albert
Comer Gaither and Thomas R. Jones, as Stockholders, and Ann
Heafner Gaither and William H. Gaither, as Trustees
10.1 Amended and Restated Loan and Security Agreement, dated as
of May 20, 1998, among the Company, Oliver & Winston, Inc.,
ITCO Holding Company, Inc. and The Speed Merchant, Inc., as
Borrowers, BankBoston, N.A., as Agent (the 'Agent'), Fleet
Capital Corporation and First Union National Bank as
Co-Agents (the "Co-Agents") and the various financial
institutions from time to time party thereto, as Lenders
10.2 Letter, dated May 20, 1998, from the Company, Oliver &
Winston, Inc., ITCO Holding Company, Inc., The Speed
Merchant, Inc., ITCO Tire Company, ITCO Tire Company of
Georgia and Phoenix Racing, Inc. to the Agent and the
Co-Agents
10.3 Guaranties, dated as of May 20, 1998, by each of ITCO Tire
Company, ITCO Tire Company of Georgia, ITCO Logistics
Corporation and Phoenix Racing, Inc. in favor of the Agent
10.4 Subsidiary Security Agreements, dated as of May 20, 1998,
between the Agent and each of ITCO Tire Company, ITCO Tire
Company of Georgia, ITCO Logistics Corporation and Phoenix
Racing, Inc.
</TABLE>
II-15
<PAGE> 220
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
10.5 Senior Subordinated Note and Warrant Purchase Agreement,
dated as of May 7, 1997, by and among The J. H. Heafner
Company, Inc. and The 1818 Mezzanine Fund, L.P.
10.6 Registration Rights Agreement, dated as of May 7, 1997, by
and among The J. H. Heafner Company, Inc. and The 1818
Mezzanine Fund, L.P.
10.7 Warrant No. 2 exercisable for 1,034,000 shares of Class A
Common Stock in the name of The 1818 Mezzanine Fund, L.P.
10.8 Securities Purchase Agreement, dated as of May 7, 1997,
between The J. H. Heafner Company, Inc. and The
Kelly-Springfield Tire and Rubber Company
10.9 Agreement and Plan of Merger, dated March 10, 1998, among
the Company, ITCO Merger Corporation, ITCO Logistics
Corporation and Wingate Partners II, L.P., Armistead
Burwell, Jr., William E. Berry, Richard P. Johnson, Leon R.
Ellin, Wingate Affiliates II, L.P. and Callier Investment
Company (the "ITCO Stockholders")
10.10 Class B Stockholder Agreement, dated as of May 20, 1998,
among the Company and the ITCO Stockholders
10.11 Class B Registration Rights Agreement, dated as of May 20,
1998, among the Company and the ITCO Stockholders
10.12 Escrow Agreement, dated as of May 20, 1998, among the
Company, the ITCO Stockholders and the Chase Manhattan Bank,
as escrow agent
10.13 Stock Purchase Agreement, dated as of March 11, 1998, among
the Company, Arthur C. Soares and Ray C. Barney
10.14 Escrow Agreement, dated as of May 20, 1998, among the
Company, Arthur C. Barney, Ray C. Barney and First Union
National Bank, as escrow agent (the "CPW Escrow Agent")
10.15 Letter of Credit, dated as of May 20, 1998, issued to First
Union National Bank, as CPW Escrow Agent.
10.16 Stock Purchase Agreement, dated as of April 9, 1997, among
the Company and the shareholders of Oliver & Winston, Inc.
10.17 Guaranty, dated March 31, 1997, of the Company*
10.18 1998 Michelin North America, Inc. Distributor Agreement,
dated January 1, 1998, by and between Michelin North
America, Inc. and the Company*
10.19 The J.H. Heafner Company 1997 Stock Option Plan (the "Stock
Option Plan")
10.20 Form of Stock Option Agreement (incentive stock options)
10.21 Form of Stockholder Agreement (pursuant to the Stock Option
Plan)
10.22 Stockholders' Agreement, dated as of October 15, 1996, by
and among Ann Heafner Gaither, William H. Gaither, Albert C.
Gaither, Susan Gaither Jones, Lawson H. Gaither, Albert
Comer Gaither and Thomas R. Jones.
10.23 The J.H. Heafner Company 1997 Restricted Stock Plan
10.24 Securities Purchase and Stockholders Agreement, dated as of
May 28, 1997, among the Company and various management
stockholders
10.25 Employment and Severance Agreements between the Company and
William H. Gaither, J. Michael Gaither, Donald C. Roof,
Daniel K. Brown and Thomas J. Bonburg*
10.26 Employment Agreement, dated as of May 20, 1998, between the
Company and Richard P. Johnson
10.27 Employment Agreement, dated as of May 20, 1998, between the
Company and Arthur C. Soares
</TABLE>
II-16
<PAGE> 221
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
10.28 Employment Agreement, dated as of May 20, 1998, between The
Speed Merchant, Inc. and Ray C. Barney
10.29 Lease Agreement, dated October 1, 1992, by and between
Carolyn Heafner, Ann H. Gaither, Albert C. Gaither and the
Company, as amended
10.30 Lease, dated August 1, 1988, by and between Ann Heafner
Gaither and the Company, as amended
10.31 Lease by and between Ann H. Gaither and the Company*
11.1 Statement re: Computation of Per Share Earnings*
12.1 Statement re: Computation of Ratios
21.1 Chart of Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of Arthur Andersen LLP
23.6 Consent of Howard, Smith & Levin LLP*
24.1 Power of Attorney of Directors and Officers (set forth on
signature pages of this Registration Statement)
25.1 Statement of Eligibility of Trustee on Form T-1 related to
the Notes
27.1 Financial Data Schedules (Filed as Item 21(b))*
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Exchange Agent Agreement
</TABLE>
(b) Financial Data Schedules*
- ---------------
* To be filed by amendment.
II-17
<PAGE> 1
Exhibit 3.1
C-0066792
FILED
2:26 PM
MAY 12 1998
EFFECTIVE_________________
ELAINE F MARSHALL
SECRETARY OF STATE
NORTH CAROLINA
ARTICLES OF RESTATEMENT
OF
THE J.H. HEAFNER COMPANY, INC.
Pursuant to Section 55-10-07 of the General Statutes of North
Carolina, the undersigned corporation hereby submits the following for the
purpose of amending and restating its Articles of Incorporation:
1. The name of the Corporation is The J.H. Heafner Company, Inc.
2. The text of the Second Amended and Restated Articles of
Incorporation is attached hereto.
3. These Second Amended and Restated Articles of Incorporation
contain amendments requiring approval by the holders of the Corporation's common
stock, and such approval was obtained as required by Chapter 55 of the General
Statutes of North Carolina.
IN WITNESS WHEREOF, this statement is signed by the Corporation this
11 day of May, 1998.
THE J.H. HEAFNER COMPANY, INC.
By: /s/ WILLIAM H. GAITHER
----------------------------------
William H. Gaither
President and Chief Executive Officer
<PAGE> 2
THE J. H. HEAFNER COMPANY, INC.
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
These Second Amended and Restated Articles of Incorporation of The
J. H. Heafner Company, Inc. (the "Corporation") have been duly adopted by its
board of directors (the "Board of Directors") and its stockholders in accordance
with Sections 55-10-03 and 55-10-07 of the North Carolina Business Corporation
Act (as the same may amended, supplemented or repealed from time to time, the
"Act"). The original Articles of Incorporation of the Corporation were filed
with the Secretary of State of the State of North Carolina on February 27, 1962,
were last amended on May 2, 1997 and are hereby amended and restated in their
entirety as follows:
ARTICLE 1. CORPORATE NAME. The name of the Corporation is The J. H.
Heafner Company, Inc.
ARTICLE 2. REGISTERED AGENT. The address, including street, number,
city, and county, of the registered office of the Corporation in the State of
North Carolina is 814 East Main Street in the Town of Lincolnton, County of
Lincoln, and the name of the registered agent of the Corporation in the State of
North Carolina at such address is William H. Gaither.
ARTICLE 3. PURPOSE. The purpose of the Corporation is to conduct any
lawful business, to promote any lawful purpose, and to engage in any lawful act
or activity for which a corporation may be organized under the Act.
ARTICLE 4. CAPITAL STOCK.
Section 4.1. Shares Authorized. The total number of shares of
capital stock which the Corporation shall have authority to issue is (i)
30,000,000 shares of Common Stock, par value of $.01 per share (the "Common
Stock"), and (ii) 11,500 shares of Preferred Stock with a par value of $.01 per
share (the "Preferred Stock").
Section 4.2. Common Stock. The Common Stock shall have such rights,
powers and privileges as provided in these Articles, in any amendment to these
Articles and under applicable law. Of the 30,000,000 shares of Common Stock
authorized for issuance by the Corporation, 10,000,000 shall initially be
designated Class A Common Stock (the "Class A Common Stock") and 20,000,000
shall initially be designated Class B Common Stock (the "Class B Common Stock").
Section 4.3. Preferred Stock. The Preferred Stock shall have such
voting powers, designations, preferences, such other relative, participating,
optional and other special rights, and such qualifications, limitations and
restrictions as provided in these Articles and in any amendment to these
Articles. Of the 11,500 shares of Preferred Stock authorized for issuance by the
Corporation, 7,000 shares shall initially be designated Series A Cumulative
Redeemable Preferred Stock (the "Series A Preferred Stock") and 4,500 shares
shall initially be designated Series B Cumulative Redeemable Preferred Stock
(the "Series B Preferred Stock" and, together with the Series A Preferred Stock,
the "Kelly Preferred Stock"). The stated value of the Series A Preferred Stock
(the "Series A Liquidation Preference") shall be $1,000.00 per share. The stated
value of the Series B Preferred Stock (the "Series B Liquidation Preference")
<PAGE> 3
shall initially be $1,000.00 per share and shall be adjusted from time to time
as provided in Section 6.3.
Section 4.4. Rank of Capital Stock. With respect to dividend rights
and other rights upon liquidation, dissolution or winding up of the Corporation,
(i) the Series A Preferred Stock and the Series B Preferred Stock shall rank on
a parity with each other and senior to the Common Stock and (ii) the Class A
Common Stock and the Class B Common Stock shall rank on a parity with each
other. Other classes or series of capital stock may, subject to the provisions
of these Articles and applicable law, be authorized by the Board of Directors
that rank (as to payment of dividends or distribution of assets upon
liquidation, dissolution or winding up) senior to ("Senior Stock"), on a parity
with ("Parity Stock") or junior to ("Junior Stock") other classes or series of
capital stock.
Section 4.5. No Preemptive Rights. No holder of shares of capital
stock of the Corporation shall have preemptive rights to acquire unissued shares
of capital stock of the Corporation under these Articles.
Section 4.6. Reclassification. Upon the effectiveness of these
Articles, all shares of Common Stock outstanding immediately prior to the
effectiveness of these Articles shall be automatically reclassified as Class A
Common Stock.
ARTICLE 5. COMMON STOCK.
Section 5.1. Voting Rights. (a) Each outstanding share of Class A
Common Stock shall be entitled to vote on each matter on which the stockholders
of the Corporation shall be entitled to vote, and each holder of Class A Common
Stock shall be entitled to twenty votes for each share of such stock held by
such holder.
(b) Each outstanding share of Class B Common Stock shall be entitled
to vote on each matter on which the stockholders of the Corporation shall be
entitled to vote, and each holder of Class B Common Stock shall be entitled to
one vote for each share of such stock held by such holder.
(c) Except as otherwise provided by the Act, the holders of Class A
Common Stock and the holders of Class B Common Stock shall vote together as a
single class on all matters on which the stockholders of the Corporation shall
be entitled to vote.
Section 5.2. Dividends and Distributions. The holders of shares of
Class A Common Stock and the holders of Class B Common Stock shall be entitled
to receive dividends or other distributions, which must be identical for each of
the Class A Common Stock and the Class B Common Stock, out of the assets of the
Corporation legally available therefor when, as and if declared by the Board of
Directors.
Section 5.3. Liquidation, Dissolution or Winding Up. In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, holders of Common Stock shall be entitled to share ratably in the
net assets of the Corporation remaining after payment or provision for payment
of the debts and liabilities of the Corporation and all amounts payable to
holders of Senior Stock.
Section 5.4. Automatic Conversion of Class B Stock. Each share of
Class B Common Stock shall automatically convert into one share of Class A
Common Stock without the requirement of any further action on the part of the
Corporation or its stockholders upon the earliest to occur of (i) an initial
public offering of the Class A Common Stock in connection with
-2-
<PAGE> 4
a registration of the Class A Common Stock under the Securities Act of 1933, as
amended, (ii) the occurrence of any condition or event which results in the
acceleration of the maturity of the indebtedness evidenced by the Debt Documents
(as defined below in Section 6.6), and (iii) an order for relief under Title 11
of the United States Code is entered against the Company.
Section 5.6. Other Rights. Except as otherwise required by the Act
or as otherwise provided in these Articles, each share of Class A Common Stock
and each share of Class B Common Stock shall have identical powers, rights and
privileges.
ARTICLE 6. KELLY PREFERRED STOCK. The Kelly Preferred Stock shall
have the following voting powers, preferences and other rights, qualifications,
limitations and restrictions:
Section 6.1. Series A Dividends and Distributions. (a) Holders of
shares of Series A Preferred Stock, in preference to the holders of shares of
Common Stock and any shares of other capital stock of the Corporation other than
shares of Parity Stock or Senior Stock with respect to the Series A Preferred
Stock, shall be entitled to receive, when, as and if declared by the Board of
Directors, out of the assets of the Corporation legally available therefor,
cumulative cash dividends (the "4% Series A Dividends") on the Series A
Liquidation Preference of such shares at an annual rate of 4.0%; provided that,
if as of December 31, 1997 (i) the Corporation and its subsidiaries are not
ordering all of their respective requirements of "Winston" brand tires from The
Kelly-Springfield Tire Company, a division of The Goodyear Tire and Rubber
Company (together with its affiliates, "Kelly-Springfield"), and (ii)
Kelly-Springfield is otherwise ready, willing and able to supply the Corporation
and its subsidiaries with such "Winston" brand tires in accordance with the
terms set forth in the Supply Agreement (as defined below in Section 6.5(c)),
then, beginning immediately thereafter and continuing until such time as the
earlier of (1) the Corporation and its affiliates are ordering all of such
"Winston" brand tires from Kelly-Springfield and (2) the Kelly Preferred Stock
has been redeemed in full, the annual rate of the 4% Series A Dividends shall be
at the greater of (x) 4% and (y) 120% of the Prime Rate (as defined below in
Section 6.1(b)) (the "Adjusted Series A Dividend Rate"). The 4% Series A
Dividends shall be calculated on the basis of a 360-day year consisting of
twelve 30-day months, and shall accrue and be payable, in immediately available
funds, due on the last Business Day of each calendar month (each a "4% Dividend
Monthly Payment Date"). Payment of 4% Series A Dividends on shares of Series A
Preferred Stock shall commence on the first 4% Dividend Monthly Payment Date
following the date of original issue of such shares (the "Series A Issue Date").
The first payment of 4% Series A Dividends on such shares shall be in an amount
equal to the product of (i) the quotient obtained by dividing (1) the product of
the Series A Liquidation Preference of such shares and 4.0% by (2) 12 and (ii)
the quotient obtained by dividing (x) the number of days from and including the
Series A Issue Date up to and excluding the initial 4% Dividend Monthly Payment
Date by (y) 30. If holders of shares of Series A Preferred Stock are entitled to
receive 4% Series A Dividends on a date other than a 4% Dividend Monthly Payment
Date (a "4% Dividend Special Payment Date"), such payment shall be in an amount
equal to the product of (i) the quotient obtained by dividing (1) the product of
the Series A Liquidation Preference of such shares and 4.0% or the Adjusted
Series A Dividend Rate, as applicable, by (2) 12 and (ii) the quotient obtained
by dividing (x) the number of days from and including the date of such
immediately preceding 4% Dividend Monthly Payment Date up to and excluding the
4% Dividend Special Payment Date by (y) 30. All other payments of 4% Series A
Dividends shall accrue from and including the immediately preceding 4% Dividend
Monthly Payment Date or 4% Dividend Special Payment Date, as applicable, to but
excluding the following 4% Dividend Monthly Payment Date or 4% Dividend Special
Payment Date, as applicable. "Business Day" means any day other than a Saturday,
Sunday or other day on which banks in Atlanta, Georgia are authorized to close.
-3-
<PAGE> 5
(b) In addition to the 4% Series A Dividends, holders of Series A
Preferred Stock, in preference to the holders of shares of Common Stock and any
shares of other capital stock of the Corporation other than shares of Parity
Stock or Senior Stock with respect to the Series A Preferred Stock, shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
the assets of the Corporation legally available therefor, cumulative cash
dividends (the "Series A Additional Dividends" and, together with the 4% Series
A Dividends, the "Series A Dividends") in an amount equal to the product of the
Series A Liquidation Preference of such shares and the Applicable Rate (as
defined below). The Series A Additional Dividends shall accrue and be payable in
immediately available funds on the last Business Day of January of each year
(each an "Additional Dividend Payment Date"), with the first such Series A
Additional Dividend to accrue and be payable on the last Business Day of January
1999; provided that, if in any calendar year immediately preceding an Additional
Dividend Payment Date a 4% Series A Dividend accrues and becomes payable at the
Adjusted Series A Dividend Rate, the amount of the Series A Additional Dividend
that accrues and becomes payable on such Additional Dividend Payment Date shall
be reduced by an amount equal to the excess, if any, of (x) the aggregate amount
of the 4% Series A Dividends that accrued and became payable in such calendar
year over (y) the aggregate amount of such Series A Dividends that would have
accrued and become payable in such calendar year if the Adjusted Series A
Dividend Rate had not applied in such calendar year. The "Applicable Rate" for
determining the amount of the Series A Additional Dividend for each Additional
Dividend Payment Date shall be the percentage rate set forth opposite such date
(and corresponding to the applicable number of Units Purchased (as defined
below)) set forth below:
<TABLE>
<CAPTION>
------------------------------------------------------------------
Additional Dividend
Payment Date Units Purchased Applicable Rate
------------------------------------------------------------------
<S> <C> <C>
January 1999 Less than 1,000,000 Standard Rate
1,000,000-1,099,999 4.0
1,100,000-1,199,999 3.0
1,200,000-1,299,999 2.0
1,300,000-1,399,999 1.0
1,400,000 or more 0.0
------------------------------------------------------------------
January 2000 Less than 1,100,000 Standard Rate
1,100,000-1,199,999 4.0
1,200,000-1,299,999 3.0
1,300,000-1,399,999 2.0
1,400,000-1,499,999 1.0
1,500,000 or more 0.0
------------------------------------------------------------------
January 2001 Less than 1,144,000 Standard Rate
1,144,001-1,247,999 4.0
1,248,000-1,351,999 3.0
1,352,000-1,455,999 2.0
1,456,000-1,559,999 1.0
1,560,000 or more 0.0
------------------------------------------------------------------
</TABLE>
-4-
<PAGE> 6
<TABLE>
<CAPTION>
------------------------------------------------------------------
Additional Dividend
Payment Date Units Purchased Applicable Rate
------------------------------------------------------------------
<S> <C> <C>
January 2002 Less than 1,189,760 Standard Rate
1,189,761-1,297,919 4.0
1,297,920-1,406,079 3.0
1,406,080-1,514,239 2.0
1,514,240-1,622,399 1.0
1,622,400 or more 0.0
------------------------------------------------------------------
January 2003 Less than 1,237,350 Standard Rate
1,237,351-1,349,836 4.0
1,349,837-1,462,322 3.0
1,462,323-1,574,809 2.0
1,574,810-1,687,295 1.0
1,687,296 or more 0.0
------------------------------------------------------------------
January 2004 Less than 1,286,844 Standard Rate
1,286,845-1,403,829 4.0
1,403,830-1,520,815 3.0
1,520,816-1,637,801 2.0
1,637,802-1,754,787 1.0
1,754,788 or more 0.0
------------------------------------------------------------------
January 2005 Less than 1,338,318 Standard Rate
1,338,319-1,459,982 4.0
1,459,983-1,581,648 3.0
1,581,649-1,703,313 2.0
1,703,314-1,824,978 1.0
1,824,979 or more 0.0
------------------------------------------------------------------
January 2006 Less than 1,391,851 Standard Rate
1,391,852-1,518,381 4.0
1,518,382-1,644,914 3.0
1,644,915-1,771,446 2.0
1,771,447-1,897,977 1.0
1,897,978 or more 0.0
------------------------------------------------------------------
January 2007 Less than 1,447,525 Standard Rate
1,447,526-1,579,116 4.0
1,579,117-1,710,711 3.0
1,710,712-1,842,304 2.0
1,842,305-1,973,896 1.0
1,973,897 or more 0.0
------------------------------------------------------------------
</TABLE>
-5-
<PAGE> 7
<TABLE>
<CAPTION>
------------------------------------------------------------------
Additional Dividend
Payment Date Units Purchased Applicable Rate
------------------------------------------------------------------
<S> <C> <C>
January 2008 Less than 1,505,426 Standard Rate
1,505,427-1,642,281 4.0
1,642,282-1,779,139 3.0
1,779,140-1,915,996 2.0
1,915,997-2,052,852 1.0
2,052,853 or more 0.0
------------------------------------------------------------------
</TABLE>
provided that, in no event shall the Applicable Rate be higher than the Standard
Rate. "Standard Rate" means the excess, if any, of (x) the Prime Rate over (y)
4%. "Prime Rate" means the rate of interest publicly announced from time to time
by BankBoston, N.A., at its head office at 100 Federal Street, Boston,
Massachusetts as its "base" rate as in effect on the Business Day immediately
preceding the applicable dividend payment date. "Units Purchased" means, for any
Additional Dividend Payment Date, the net number of tires (other than "Monarch"
brand tires) purchased by the Corporation and its subsidiaries from
Kelly-Springfield during the calendar year immediately preceding such Additional
Dividend Payment Date, which number of tires shall not include an amount equal
to the sum of (x) 250,000 and (y) an amount equal to the number of premium tires
purchased by the Corporation and its affiliates from Kelly-Springfield in 1996.
(c) If, as of the close of business on any 4% Dividend Monthly
Payment Date, there is a 4% Series A Dividend Arrearage (as hereinafter
defined), an additional dividend (the "4% Series A Makewhole Dividend") shall
accrue on each share of the Series A Preferred Stock for the period from and
including such 4% Dividend Monthly Payment Date to the earlier of (x) the date
on which such 4% Series A Dividend Arrearage is paid in full and (y) the next
succeeding 4% Dividend Monthly Payment Date, in an amount equal to the product
of (i) the Prime Rate (calculated for such period in accordance with Section
6.1(a)) and (ii) the amount of such 4% Series A Dividend Arrearage as of such 4%
Dividend Monthly Payment Date. "4% Series A Dividend Arrearage" means, with
respect to each share of Series A Preferred Stock, as of any 4% Dividend Monthly
Payment Date, the excess, if any, of (i) all 4% Series A Dividends accrued to
(but excluding) such 4% Dividend Monthly Payment Date on such share over (ii)
all 4% Series A Dividends actually paid with respect to such share on or before
the close of business on such 4% Dividend Monthly Payment Date.
(d) If, as of the close of business on any Additional Dividend
Payment Date, there is a Series A Additional Dividend Arrearage (as hereinafter
defined), an additional dividend (the "Additional Series A Makewhole Dividend")
shall accrue on each share of the Series A Preferred Stock for the period from
and including such Additional Dividend Payment Date to the earlier of (x) the
date on which such Additional Series A Dividend Arrearage is paid in full and
(y) the next succeeding Additional Dividend Payment Date, in an amount equal to
the product of (i) the Prime Rate and (ii) the amount of such Additional Series
A Dividend Arrearage as of such Additional Dividend Payment Date. "Additional
Series A Dividend Arrearage" means, with respect to each share of Series A
Preferred Stock, as of any Additional Dividend Payment Date, the excess, if any,
of (i) all Series A Additional Dividends accrued to (but excluding) such
Additional Dividend Payment Date on such share over (ii) all Series A Additional
Dividends actually paid with respect to such share on or before the close of
business on such Additional Dividend Payment Date.
-6-
<PAGE> 8
(e) The 4% Series A Dividends shall accrue, and shall be cumulative
from the Series A Issue Date of the underlying shares, whether or not declared
by the Board of Directors. The Series A Additional Dividends shall accrue, and
shall be cumulative from the first day on which such dividends are due, whether
or not declared by the Board of Directors. The 4% Series A Makewhole Dividend
and the Additional Series A Makewhole Dividend, if any, shall accrue, and shall
be cumulative from the date on which a 4% Series A Dividend Arrearage or Series
A Additional Dividend Arrearage arises, whether or not declared by the Board of
Directors. If the Corporation makes a dividend payment on shares of Series A
Preferred Stock in an amount less than the total amount of accrued and payable
dividends on the underlying shares at such time, then the dividends paid shall
be allocated ratably on a share-by-share basis among all shares of Series A
Preferred Stock then outstanding. The Board of Directors may fix a record date
that is no more than sixty days and no less than ten days prior to any date
fixed for payment of a dividend declared on shares of Series A Preferred Stock
to determine the holders of shares of Series A Preferred Stock entitled to
receive such payment. Accumulated but unpaid dividends for any past dividend
periods or payment dates may be declared and paid at any time (without reference
to any regular payment date) to holders of record on a record date fixed by the
Board of Directors that is no more than sixty days and no less than ten days
preceding the date fixed for payment of such dividends.
(f) The holders of shares of Series A Preferred Stock shall not be
entitled to receive, and the Corporation shall not declare or pay thereon, any
dividends or other distributions except as provided herein. No interest or sum
of money in lieu of interest shall be payable in respect of any dividend payment
or payments on the shares of Series A Preferred Stock which may be in arrears.
Section 6.2. Series B Dividends and Distributions. (a) If during any
calendar year beginning with 1998 the Corporation and its affiliates do not
purchase from Kelly-Springfield tires with an aggregate purchase price in an
amount equal to or greater than (i) for 1998, $60,000,000, (ii) for 1999,
$80,000,000, and (iii) for each calendar year thereafter, an amount averaging at
least 104% of the aggregate purchase price for tires purchased from
Kelly-Springfield in the prior calendar year, holders of shares of Series B
Preferred Stock, in preference to the holders of shares of Common Stock and any
shares of other capital stock of the Corporation other than shares of Parity
Stock or Senior Stock with respect to the Series B Preferred Stock, shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
the assets of the Corporation legally available therefor, cumulative cash
dividends (the "Series B Dividends") on the Series B Liquidation Preference of
such shares at the Prime Rate. The Series B Dividends shall accrue and be
payable in immediately available funds on the last Business Day of the month of
January following each such calendar year during which the applicable aggregate
purchase price threshold is not equaled or exceeded (each a "Series B Dividend
Payment Date").
(b) If, as of the close of business on any Series B Dividend Payment
Date, there is a Series B Dividend Arrearage (as hereinafter defined), an
additional dividend (the "Series B Makewhole Dividend") shall accrue on each
share of the Series B Preferred Stock for the period from and including such
Series B Dividend Payment Date to the earlier of (x) the date on which such
Series B Dividend Arrearage is paid in full and (y) the next succeeding Series B
Dividend Payment Date, in an amount equal to the product of (i) the Prime Rate
and (ii) the amount of such Series B Dividend Arrearage as of such Series B
Dividend Payment Date. "Series B Dividend Arrearage" means, with respect to each
share of Series B Preferred Stock, as of any Series B Dividend Payment Date, the
excess, if any, of (i) all Series B Dividends accrued to (but excluding) such
Series B Dividend Payment Date on such share over (ii) all Series B Dividends
actually paid with respect to such share on or before the close of business on
such Series B Dividend Payment Date.
-7-
<PAGE> 9
(c) Series B Dividends shall accrue, and shall be cumulative from
the first day on which such dividends are due, whether or not declared by the
Board of Directors. Series B Makewhole Dividends, if any, shall accrue, and
shall be cumulative from the date on which a Series B Dividend Arrearage arises.
If the Corporation makes a dividend payment on the shares of Series B Preferred
Stock in an amount less than the total amount of accrued and payable dividends
on the underlying shares at such time, then the dividends paid shall be
allocated ratably on a share-by-share basis among all shares of Series B
Preferred Stock then outstanding. The Board of Directors may fix a record date
that is no more than sixty days and no less than ten days prior to any date
fixed for payment of a dividend declared on shares of Series B Preferred Stock
to determine the holders of shares of Series B Preferred Stock entitled to
receive such payment. Accumulated but unpaid dividends for any past dividend
periods or payment dates may be declared and paid at any time (without reference
to any regular payment date) to holders of record on a record date fixed by the
Board of Directors that is no more than sixty days and no less than ten days
preceding the date fixed for payment of such dividends.
(d) The holders of shares of Series B Preferred Stock shall not be
entitled to receive, and the Corporation shall not declare or pay, any dividends
or other distributions except as provided herein. No interest or sum of money in
lieu of interest shall be payable in respect of any dividend payment or payments
on the shares of Series B Preferred Stock which may be in arrears.
Section 6.3. Adjustment of Series B Liquidation Preference. After
the date of original issue of the shares of Series B Preferred Stock (the
"Series B Issue Date"), the Series B Liquidation Preference for the outstanding
shares of Series B Preferred Stock on any date (a "Series B Valuation Date")
shall be an amount per share equal to the excess, if any, of (i) $1,000 over
(ii) the quotient obtained by dividing (x) the aggregate Tire Purchase Credit
(as defined below) as of such Series B Valuation Date by (y) the total number of
shares of Series B Preferred Stock outstanding as of such Series B Valuation
Date. The "Tire Purchase Credit" as of any Series B Valuation Date shall be an
amount equal to (x) $1.00 per unit of "Broad Line" tires and (y) $2.00 per unit
of "HV&Z Performance" tires, in each case purchased by the Corporation and its
affiliates from and including the Series B Issue Date through such Series B
Valuation Date; provided that, for purposes of calculating the amount of the
Tire Purchase Credit, purchases of "Value Line" and "OPP" tires shall not be
counted.
Section 6.4. Voting Rights.
(a) Ownership of shares of Kelly Preferred Stock shall entitle the
holders to no voting rights except as provided in this Section 6.4 and under
applicable law.
(b) So long as any shares of either Series A Preferred Stock or
Series B Preferred Stock shall be outstanding, the Corporation shall not,
without the affirmative vote or written consent of the holders of a majority of
the aggregate number of shares of Series A Preferred Stock or Series B Preferred
Stock then outstanding, as applicable, each considered as a separate series, (i)
alter or change the powers, preferences or rights given to the Series A
Preferred Stock or Series B Preferred Stock, as applicable, by these Articles or
(ii) amend these Articles to increase the authorized amount of Series A
Preferred Stock or Series B Preferred Stock or to authorize or create any Senior
Stock or Parity Stock with respect to the Series A Preferred Stock or Series B
Preferred Stock. The amendment of these Articles to authorize or create, or to
increase the authorized amount of, any Junior Stock shall not be deemed to alter
or change the powers, preferences or rights given to the Series A Preferred
Stock or the Series B Preferred Stock by these Articles. Notwithstanding the
foregoing provisions, the affirmative vote or consent of the holders of the
Series A Preferred Stock or the Series B Preferred Stock, as applicable, shall
not be required for any alteration or change on which the holders would
-8-
<PAGE> 10
otherwise be entitled to vote if, at or prior to the time that any such
alteration or change takes effect, due provision is made for the redemption of
all such shares of Series A Preferred Stock or Series B Preferred Stock at the
time outstanding.
(c) So long as Kelly-Springfield holds (of record and beneficially)
all of the outstanding shares of Kelly Preferred Stock, if on any date (1) any
condition or event shall occur which results in the acceleration of the maturity
of the indebtedness evidenced by the Debt Documents or (2) without the requisite
vote or consent of the holders of Series A Preferred Stock or Series B Preferred
Stock, as applicable, the Corporation adversely alters or changes the powers,
preferences or rights given to such series by these Articles, then the number of
directors constituting the Board of Directors shall, without further action, be
increased by the Specified Number (as defined below) and the holders of shares
of Kelly Preferred Stock shall have, in addition to the other voting rights set
forth in these Articles, the exclusive right, voting separately as a single
class, to elect such Specified Number of directors of the Corporation to fill
such newly created directorships, by written consent as provided herein, or at a
special meeting of such holders called as provided herein. Any such additional
directors shall continue as directors (subject to reelection or removal as
provided in Section 6.4(d)(ii)) and the holders of Kelly Preferred Stock shall
have such additional voting rights until such time as (A) Kelly-Springfield no
longer holds (of record and beneficially) all of the outstanding shares of Kelly
Preferred Stock, (B) in the case of any event described in clause (1) above,
such acceleration of the indebtedness evidenced by the Debt Documents shall have
been rescinded or such indebtedness shall have been repaid in full, (C) in the
case of clause (2) above, such adverse alteration or change of the powers,
preferences or rights given to the Series A Preferred Stock or the Series B
Preferred Stock, as applicable, shall have been rescinded or (D) all of the
outstanding shares of Kelly Preferred Stock shall have been redeemed pursuant to
Section 6.5, whichever is earlier, at which time such additional directors shall
cease to be directors and such additional voting rights of the holders of Kelly
Preferred Stock shall terminate subject to revesting in the event of each and
every subsequent event of the character indicated above. "Specified Number"
means a number of directors equal to the number required so that the holders of
Kelly Preferred Stock will have the right to elect, voting separately as a
single class, a majority of the Board of Directors at any time.
(d) (i) The right of holders of shares of Kelly Preferred Stock to
take any action as provided in Section 6.4(c) may be exercised at any annual
meeting of stockholders or at a special meeting of holders of shares of Kelly
Preferred Stock held for such purpose as hereinafter provided or at any
adjournment thereof, or by the written consent, delivered to the Secretary of
the Corporation, of the holders of the minimum number of shares required to take
such action, which shall be a majority of the outstanding shares of Kelly
Preferred Stock unless otherwise required by law.
So long as such right to vote continues (and unless such right has
been exercised by written consent of the minimum number of shares required to
take such action), the President of the Company may call, and upon the written
request of holders of record of at least 10% of the outstanding shares of Kelly
Preferred Stock, addressed to the Secretary of the Company at the principal
office of the Company, shall call, a special meeting of the holders of shares
entitled to vote as provided herein. Such meeting shall be held within 30 days
after delivery of such request to the Secretary, at the place and upon the
notice provided by law and in the by-laws of the Company for the holding of
meetings of stockholders.
(ii) At each meeting of stockholders at which the holders of
shares of Kelly Preferred Stock shall have the right, voting separately as a
single class, to elect the directors of the Corporation as provided in Section
6.4(c), the presence in person or by proxy of the holders of record of a
majority of the total number of shares of Kelly Preferred Stock then
-9-
<PAGE> 11
outstanding and entitled to vote on the matter shall be necessary and sufficient
to constitute a quorum. At any such meeting or at any adjournment thereof:
(A) the absence of a quorum of the holders of shares of Kelly
Preferred Stock shall not prevent the election of directors other than
those to be elected by the holders of shares of Kelly Preferred Stock, and
the absence of a quorum of the holders of shares of any other class or
series of capital stock shall not prevent the election of directors to be
elected by the holders of shares of Kelly Preferred Stock; and
(B) in the absence of a quorum of the holders of shares of
Kelly Preferred Stock, a majority of the holders of such shares present in
person or by proxy shall have the power to adjourn the meeting as to the
actions to be taken by the holders of shares of Kelly Preferred Stock from
time to time and place to place without notice other than announcement at
the meeting until a quorum shall be present.
For taking of any action as provided in Section 6.4(c) by the
holders of shares of Kelly Preferred Stock, each such holder shall have one vote
for each share of such stock standing in his name on the transfer books of the
Corporation as of any record date fixed for such purpose or, if no such date be
fixed, at the close of business on the Business Day next preceding the day on
which notice is given, or if notice is waived, at the close of business on the
Business Day next preceding the day on which the meeting is held or, if action
is taken by written consent, at the close of business on the Business Day next
preceding the day on which such consent is entered into; provided that shares of
Kelly Preferred Stock owned by the Corporation or any Affiliate of the
Corporation shall not be deemed to be outstanding for purposes of taking any
action as provided in Section 6.4(c).
Each director elected by the holders of shares of Kelly Preferred
Stock as provided in Section 6.4(c) shall, unless his or her term shall expire
earlier in accordance with the provisions hereof, hold office until the annual
meeting of stockholders next succeeding his or her election or until his or her
successor, if any, is elected and qualified.
If any director so elected by the holders of Kelly Preferred Stock
shall cease to serve as a director before his or her term shall expire (except
by reason of the termination of the voting rights accorded to the holders of
Kelly Preferred Stock with respect to the Specified Number of directors in
accordance with Section 6.4(c)), the holders of the Kelly Preferred Stock then
outstanding and entitled to vote for such director may, by written consent as
provided herein, or at a special meeting of such holders called as provided
herein, elect a successor to hold office for the unexpired term of the director
whose place shall be vacant.
Any director elected by the holders of shares of Kelly Preferred
Stock voting separately as a single class may be removed from office with or
without cause by the vote or written consent of the holders of at least a
majority of the then outstanding shares of Kelly Preferred Stock, at the time of
removal.
Section 6.5. Redemption.
(a) Subject to the restrictions contained in Section 6.6, beginning
on the last Business Day of December 2002, and on the last Business Day of each
June and December thereafter ending on the last Business Day of June 2007 (each
a "Series A Fixed Redemption Date"), the Corporation shall redeem, out of the
assets of the Corporation legally available therefor, a number of outstanding
shares of Series A Preferred Stock equal to the lesser of (x) 700 and (y) the
total number of shares of Series A Preferred Stock outstanding on such Series A
Fixed Redemption Date at a price per share equal to the sum of (1) 100% of the
Series A
-10-
<PAGE> 12
Liquidation Preference and (2) an amount per share equal to all accrued and
unpaid Series A Dividends, 4% Series A Makewhole Dividends and Additional Series
A Makewhole Dividends on such shares, whether or not declared or payable, to
such Series A Fixed Redemption Date, in immediately available funds. If less
than all of the outstanding shares of Series A Preferred Stock are to be
redeemed pursuant to this Section 6.5(a), shares shall be redeemed from all
holders of outstanding Series A Preferred Stock on the date the redemption
notice specified in Section 6.5(g) is mailed, pro rata in proportion (to the
extent practicable) to the number of shares of Series A Preferred Stock held by
each such holder. No fractions of shares shall be redeemed pursuant to this
Section 6.5(a).
(b) Subject to the restrictions contained in Section 6.6, on the
last business day of June 2007 (the "Series B Fixed Redemption Date"), the
Corporation shall redeem, out of the assets of the Corporation legally available
therefor, all of the outstanding shares of Series B Preferred Stock at a price
per share equal to the sum of (1) 100% of the Series B Liquidation Preference
and (2) an amount per share equal to all accrued and unpaid Series B Dividends
and Series B Makewhole Dividends on such shares, whether or not declared or
payable, to the Series B Fixed Redemption Date, in immediately available funds.
(c) Subject to the restrictions contained in Section 6.6, no later
than 30 Business Days after the termination of the Supply Agreement (the "Supply
Agreement") to be entered into by and between the Corporation and
Kelly-Springfield in connection with Kelly-Springfield's purchase of the Kelly
Preferred Stock (the "Kelly Mandatory Redemption Date"), the Corporation shall
redeem, out of the assets of the Corporation legally available therefor, all of
the shares of Kelly Preferred Stock outstanding on the Kelly Mandatory
Redemption Date at a price per share equal to the sum of (1) the product of (x)
100% of the Series A Liquidation Preference or the Series B Liquidation
Preference, as applicable, and (y) the Applicable Premium then in effect as
provided in paragraph (f) below and (2) an amount per share equal to all accrued
and unpaid Series A Dividends, 4% Series A Makewhole Dividends and Additional
Series A Makewhole Dividends or Series B Dividends and Series B Makewhole
Dividends, as applicable, whether or not declared or payable, to the Kelly
Mandatory Redemption Date, in immediately available funds.
(d) Subject to the restrictions contained in Section 6.6, if, at any
time after the Series A Issue Date a Change of Control (as defined below)
occurs, the Corporation shall, within 10 Business Days after such occurrence,
send notice of such occurrence to the holders of Kelly Preferred Stock. If,
within 10 Business Days of such notice, (i) the holders of all (but not less
than all) of the outstanding shares of Kelly Preferred Stock send notice to the
Corporation specifying that such holders thereby request that the Corporation
redeem all of the outstanding shares of Kelly Preferred Stock held by each such
holder and (ii) Kelly-Springfield agrees in writing to the termination of the
Supply Agreement, the Corporation shall redeem, out of the assets of the
Corporation legally available therefor, all such shares within 30 Business Days
of the Corporation's receipt of all such requests (the "Change of Control
Redemption Date") at a price per share equal to the sum of (1) the product of
(x) 100% of the Series A Liquidation Preference or the Series B Liquidation
Preference, as applicable, and (y) the Applicable Premium then in effect as
provided in paragraph (f) below and (2) an amount per share equal to all accrued
and unpaid Series A Dividends, 4% Series A Makewhole Dividends and Additional
Series A Makewhole Dividends or Series B Dividends and Series B Makewhole
Dividends, as applicable, whether or not declared or payable, to the Change of
Control Redemption Date, in immediately available funds.
"Change of Control" means such time as (i) any person or "group"
(within the meaning of Section 13(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") other than the Principal Shareholders (as defined below), Family
Members (as defined below) or
-11-
<PAGE> 13
Kelly-Springfield is or becomes the beneficial owner, directly or indirectly, of
outstanding shares of capital stock of the Corporation, entitling such person or
persons to exercise 50% or more of the total votes entitled to be cast at a
regular or special meeting, or by action by written consent, of stockholders of
the Corporation (the term "beneficial owner" shall be determined in accordance
with Rule 13d-3, promulgated by the Securities and Exchange Commission under the
Exchange Act), (ii) a majority of the Board of Directors shall consist of
persons other than Continuing Directors (the term "Continuing Director" shall
mean any member of the Board of Directors on the Series A Issue Date, any member
of the Board of Directors elected by Kelly-Springfield pursuant to Section
6.4(c) of these Articles and any other member of the Board of Directors who
shall be recommended or elected to succeed or become a Continuing Director by a
majority of Continuing Directors who are then members of the Board of
Directors), (iii) the stockholders of the Corporation shall have approved a
recapitalization, reorganization, merger, consolidation or similar transaction,
in each case, with respect to which all or substantially all the persons who
were the respective beneficial owners of the outstanding shares of capital stock
of the Corporation immediately prior to such recapitalization, reorganization,
merger, consolidation or similar transaction will beneficially own, directly or
indirectly, less than 50% of the combined voting power of the then outstanding
shares of capital stock of the Corporation resulting from such recapitalization,
reorganization, merger consolidation or similar transaction; or (iv) the
stockholders of the Corporation shall have approved the sale or other
disposition of all or substantially all the assets of the Corporation in one
transaction or in a series of related transactions to a person not owning or
controlling, or any entity not owned or controlled by the holders of, directly
or indirectly, 50% or more of the combined voting power of the outstanding
shares of capital stock of the Corporation immediately prior to such
disposition. "Family Member" means (i) a member of a Principal Shareholder's
family, which shall include her or his ancestors, spouse, siblings, descendants
or spouses (or surviving spouse) of descendants, or (ii) a trust, corporation,
partnership or other entity, all of the beneficial interests in which shall be
held by a Principal Shareholder or one or more persons described in clause (i);
provided, that during the period any such trust, corporation, partnership or
other entity holds any right, title or interest in any Common Stock, no Person
other than such Principal Shareholder or one or more Family Members of such
Principal Shareholder of the type listed in clause (i) may be or become
beneficiaries, stockholders or limited or general partners or owners thereof.
"Principal Shareholders" means Ann Heafner Gaither, William H. Gaither, Susan
Gaither Jones and Thomas R. Jones.
(e) Subject to the restrictions contained in Section 6.6, at any
time after the Series A Issue Date, the Corporation may, in its sole discretion,
redeem all (but not less than all) of the outstanding shares of Kelly Preferred
Stock, out of the assets of the Corporation legally available therefor, at a
price per share equal to the sum of (1) the product of (x) 100% of the Series A
Liquidation Preference or the Series B Liquidation Preference, as applicable,
and (y) the Applicable Premium then in effect as provided in paragraph (f) below
and (2) an amount per share equal to all accrued and unpaid Series A Dividends,
4% Series A Makewhole Dividends and Additional Series A Makewhole Dividends or
Series B Dividends and Series B Makewhole Dividends, as applicable, whether or
not declared or payable, to the Optional Redemption Date (as defined below), in
immediately available funds. "Optional Redemption Date" means, with respect to a
redemption pursuant to this Section 6.5(e), the date specified for such
redemption in the notice to the holders of the Kelly Preferred Stock required
under Section 6.5(g).
(f) The "Applicable Premium" for each of the following periods shall
be the number set forth opposite such period below:
-12-
<PAGE> 14
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Period Applicable Premium
-----------------------------------------------------------------------
<S> <C>
Series A Issue Date through first anniversary 1.22
-----------------------------------------------------------------------
After first anniversary through second anniversary 1.20
-----------------------------------------------------------------------
After second anniversary through third anniversary 1.18
-----------------------------------------------------------------------
After third anniversary through fourth anniversary 1.15
-----------------------------------------------------------------------
After fourth anniversary through fifth anniversary 1.10
-----------------------------------------------------------------------
After fifth anniversary 1.00
-----------------------------------------------------------------------
</TABLE>
(g) Notice of any redemption of shares of Kelly Preferred Stock
pursuant to this Section 6.5 shall be mailed at least 10, but not more than 30,
days prior to the date fixed for redemption to each holder of shares of Kelly
Preferred Stock to be redeemed, at such holder's address as it appears on the
transfer books of the Corporation. Such notice shall include instructions for
the surrender of the Kelly Preferred Stock to be redeemed and the receipt of
payment therefor. In order to facilitate the redemption of shares of Kelly
Preferred Stock pursuant to this Section 6.5, the Board of Directors may fix a
record date for the determination of shares of Kelly Preferred Stock to be
redeemed, or may cause the transfer books of the Corporation for the Kelly
Preferred Stock to be closed, not more than 30 days or less than 10 days prior
to the date fixed for such redemption.
(h) Notice of redemption having been given as aforesaid, upon the
date fixed for redemption in respect of shares of Kelly Preferred Stock to be
redeemed pursuant to this Section 6.5, notwithstanding that any certificates for
such shares shall not have been surrendered for cancellation, from and after the
date of redemption designated in the notice of redemption, (i) the shares of
Kelly Preferred Stock represented thereby shall no longer be deemed outstanding,
(ii) the rights to receive dividends thereon shall cease to accrue, and (iii)
all rights of the holders of shares of Kelly Preferred Stock to be redeemed
shall cease and terminate, excepting only the right to receive the applicable
redemption price.
Section 6.6. Limitations on Mandatory Redemption and Dividends.
Notwithstanding anything to the contrary in these Articles, so long as any
amounts are outstanding under any Debt Documents (as defined below) or any
commitments to lend under the Debt Documents have not been terminated, the
Corporation shall not make payment in respect of any redemption permitted or
otherwise required by Section 6.5, or declare, make or pay any dividend or
distribution in respect of any shares of Kelly Preferred Stock if any Event of
Default (as defined in the Debt Documents) or default under any of the Debt
Documents or any event which, upon notice or lapse of time, or both, would
constitute an Event of Default has occurred and is continuing or would result
therefrom and has not been cured or waived in writing by the requisite vote of
the holders of the indebtedness represented by the Debt Documents. "Debt
Documents" means the Loan and Security Agreement, dated as of the Series A Issue
Date between the Corporation, Oliver & Winston, Inc., the financial institutions
party thereto and BankBoston, N.A., as agent, and the Senior Subordinated Note
and Warrant Purchase Agreement, dated the Series A Issue Date, by and among the
Corporation and The 1818 Mezzanine Fund, L.P., and the notes, mortgages,
security documents, guaranties and other agreements entered into in connection
therewith (each as amended, modified, supplemented and/or restated from time to
time in accordance with its terms, including any replacement agreement therefor
and any refinancing of the debt incurred thereunder, which refinancing may
result in a greater principal amount outstanding in connection therewith).
-13-
<PAGE> 15
Section 6.7. Reacquired Shares. Any shares of Kelly Preferred Stock
exchanged, redeemed, purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares of Kelly Preferred Stock shall upon their cancellation
become authorized but unissued shares of preferred stock, par value $.01 per
share, of the Corporation and, upon the filing of an appropriate charter
amendment with the Secretary of State of the State of North Carolina, may be
reissued as part of another series of preferred stock, par value $.01 per share,
of the Corporation subject to the conditions or restrictions on issuance set
forth herein, but in any event may not be reissued as shares of Kelly Preferred
Stock or other Parity Stock unless all of the shares of Kelly Preferred Stock
shall have already been redeemed.
Section 6.8. Liquidation, Dissolution or Winding Up. (a) If the
Corporation shall commence a voluntary case under the United States bankruptcy
laws or any applicable bankruptcy, insolvency or similar law of any other
country, or consent to the entry of an order for relief in an involuntary case
under any such law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the United States bankruptcy laws or any applicable
bankruptcy, insolvency or similar law of any other country, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and on account of any
such event the Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up, no distribution
shall be made (i) to the holders of shares of Junior Stock with respect to the
Kelly Preferred Stock unless, prior thereto, the holders of shares of Kelly
Preferred Stock shall have received an amount equal to the Series A Liquidation
Preference or the Series B Liquidation Preference, as applicable, plus all
accrued and unpaid dividends, whether or not declared or currently payable, to
the date of distribution, with respect to each outstanding share, or (ii) to the
holders of shares of Parity Stock with respect to the Kelly Preferred Stock,
except distributions made ratably on the Kelly Preferred Stock and all other
Parity Stock in proportion to the total amounts to which the holders of all
shares of Kelly Preferred Stock and other Parity Stock are entitled upon such
liquidation, dissolution or winding up.
(b) Neither the consolidation or merger of the Corporation with or
into any other person or entity nor the sale, lease, exchange (for cash, shares
of stock, securities or other consideration) or other distribution to another
person or entity of all or substantially all the assets, property or business of
the Corporation shall be deemed to be a liquidation, dissolution or winding up
of the Corporation for purposes of this Section 6.8.
Section 6.9. Exercise of Rights. (a) The rights of holders of shares
of Kelly Preferred Stock to take any action as provided in Article 6 hereof may
be exercised at any annual meeting of stockholders or by the written consent,
delivered to the Secretary of the Corporation, of the holders of the minimum
number of shares required to take such action, which shall be a majority of the
outstanding shares of Series A Preferred Stock or Series B Preferred Stock, as
applicable, unless otherwise required by law.
(b) For taking of any action as provided in this Article 6 by the
holders of shares of Kelly Preferred Stock, each such holder shall have one vote
for each share of such stock standing in its name on the transfer books of the
Corporation as of any record date fixed for such purpose or, if no such date be
fixed, at the close of business on the Business Day next preceding
-14-
<PAGE> 16
the day on which notice is given, or if notice is waived, at the close of
business on the Business Day next preceding the day on which the meeting is
held.
ARTICLE 7. CORPORATE EXISTENCE. The Corporation is to have perpetual
existence.
ARTICLE 8. CORPORATE GOVERNANCE. For the management of the business
and for the conduct of the affairs of the Corporation, and in further
definition, limitation, and regulation of the powers of the Corporation and of
its directors and of its stockholders or any class thereof, as the case may be,
it is further provided:
Section 8.1. Management. The management of the business and the
conduct of the affairs of the Corporation shall be vested in its Board of
Directors. The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the By-laws. The
election of directors need not be by written ballot except and to the extent
provided in the By-laws of the Corporation.
Section 8.2. Amendment of Articles. From time to time any of the
provisions of these Articles may be amended, altered or repealed, and other
provisions authorized by the laws of the State of North Carolina at the time in
force may be added or inserted in the manner and at the time prescribed by said
laws, and all rights at any time conferred upon the stockholders of the
Corporation by these Articles are granted subject to the provisions of this
Section 8.2.
Section 8.3. Amendment of By-laws. The Board of Directors shall,
subject to Section 55-10-22 of the Act, have the power to adopt, amend, or
repeal the By-laws of the Corporation.
Section 8.4. Indemnification of Directors. To the fullest extent
permitted by the Act, no director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. No amendment, modification or repeal of this Section 8.4
shall adversely affect any right or protection of a director that exists at the
time of such amendment, modification or repeal.
Section 8.5. Indemnification of Authorized Persons. The Corporation
shall, to the fullest extent permitted by the Act, indemnify any and all persons
whom it shall have power to indemnify thereunder from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by the Act
and may advance funds to such persons in respect of such expenses, liabilities
or other matters. The indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent, and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
-15-
<PAGE> 17
IN WITNESS WHEREOF, the Corporation has caused these Second Amended
and Restated Articles of Incorporation to be signed in its name by its President
and Chief Executive Officer on May 11, 1998.
/s/ WILLIAM H. GAITHER
-----------------------------
William H. Gaither
President and Chief Executive
Officer
-16-
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
of
Heafner Tire Company, Inc.
ARTICLE I.
OFFICES:
Section 1. Principal Office: The principal office of the Corporation shall be
located at Lincolnton, North Carolina, but the corporation may have offices at
such other places, either within or without the State of North Carolina, as the
Board of Directors may from time to time determine, or as the affairs of the
corporation may require.
ARTICLE II.
MEETING OF SHAREHOLDERS
Section 1. Place of Meetings: All meetings of shareholders shall be held at the
principal office of the corporation, or at such other place, either within or
without the state of North Carolina, as shall be designated in the notice of the
meeting or agreed upon by a majority of the shareholders entitled to vote
thereat.
Section 2. Annual Meetings: The annual meeting of shareholders shall be held at
10:00 am. on the 1st day in March of each year, if not a legal holiday, but if a
legal holiday, then on the next day following not a legal holiday, for the
purpose of electing directors of the corporation and for the transaction of such
other business as may be properly brought before the meeting.
Section 3. Substitute Annual Meeting: If the annual meeting shall not be held on
the day designated by these by-laws, a substitute annual meeting may be called
in accordance with the provisions of Section 4 of this Article. A meeting so
called shall be designated and treated for all purposes as the annual meeting.
Section 4. Special Meetings: Special meetings of the shareholders may be called
at any time by the President, Secretary or Board of Directors of the
corporation, or by any shareholder pursuant to the written request of the
holders of not less than one-tenth of all the shares entitled to vote at the
meeting.
Section 5. Notice of Meetings: Written or printed notice stating the time and
place of the meeting shall be delivered not less than
<PAGE> 2
By-Laws Page 2
ten or more than fifty days before the date thereof, either personally or by
mail, by or at the direction of the President, the Secretary or other person
calling the meeting, to each shareholder of record entitled to vote at such
meeting.
In the case of an annual or substitute annual meeting, the notice of meeting
need not specifically state the business to be transacted thereat. In the case
of a special meeting the notice of meeting shall specifically state the purpose
or purposes for which the meeting is called.
When a meeting is adjourned for thirty days or more, notice of the adjourned
meeting shall be given as in the case of an original meeting. When a meeting is
adjourned for less than thirty days in any one adjournment, it is not necessary
to give any notice of the adjourned meeting other than by announcement at the
meeting at which the adjournment is taken.
Section 6. Voting Lists: At least ten days before each meeting of shareholders
the Secretary of the corporation shall prepare an alphabetical list of the
corporation shareholders entitled to vote at such meetings, with the address of
and number of shares held by each, which list shall be kept on file at the
registered office of the corporation for a period of ten days prior to such
meeting, and shall be subject to inspection by any shareholder at any time
during the usual business hours.
Section 7. Quorum: The holders of a majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at meetings of
shareholders.
Section 8. Informal Action by Shareholders: Any action which may be taken at a
meeting of the shareholders maybe taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
persons who would be entitled to vote upon such action at a meeting, and filed
with the Secretary of the corporation to be kept in the Corporate Minute Book.
<PAGE> 3
By-laws Page 3
ARTICLE III.
DIRECTORS
Section 1. General Powers: The business and affairs of the Corporation
shall be managed by the Board of Directors or by such Executive Committees
as the Board may establish pursuant to these by-laws.
Section 2. Number, Term and Qualifications: The minimum number of Directors of
the corporation shall be three. Each director shall hold office until his death,
resignation, retirement, removal, disqualification, or his successor is elected
and qualified. Directors need not be residents of the State of North Carolina or
shareholders of the corporation.
Section 3. Election of Directors: Except as provided in Section 4 of this
article, the directors shall be elected at the annual meeting of shareholders;
and these persons who receive the highest number of votes shall be deemed to
have been elected. If any shareholder so demands, election of Directors shall be
by ballot.
Section 4. Vacancies: A vacancy occurring in the Board of Directors may be
filled by a majority of the remaining Directors; though such remainder be less
than a quorum, or by the sole remaining Director; but a vacancy created by an
increase in the authorized number of Directors shall be filled only by election
at an annual meeting or at a special meeting of shareholders called for that
purpose. The shareholders may elect a director at any time to fill any vacancy
not filled by the directors.
Section 5. Chairman: There may be a Chairman of the Board of Directors elected
by the directors from their number at any meeting of the Board. The Chairman
shall preside at all meetings of the Board of Directors and perform such other
duties as may be directed by the Board.
Section 6. Executive Committee: The Board of Directors may, by resolution
adopted by a majority of the number of directors fixed by these by-laws,
designate two or more directors to constitute an executive committee, which
committee to the extent provided in such resolution shall have and may exercise
all of the authority of the Board of Directors in the management of the
Corporation.
<PAGE> 4
By-laws Page 4
ARTICLE IV.
MEETING OF DIRECTORS
Section 1. Regular Meetings: A regular meeting of that Board of Directors shall
be held immediately after, and at the same place, as the annual meeting of
shareholders. In addition, the Board of Directors may provide, by resolution,
the time and place, either within or without the State of North Carolina, for
the holding of additional regular meetings.
Section 2. Special Meetings: Special meetings of the Board of Directors
may be called by or at the request of the President of the company of any
two directors. Such meetings may be held either within or without the
State of North Carolina.
Section 3. Notice of Meetings: Regular meetings of the Board of Directors may be
held without notice.
The person or persons calling a special meeting of the Board of Directors shall,
at least two days before the meeting, give notice thereof by any usual means of
communication. Such notice need not specify the purpose for which the meeting is
called.
Attendance by a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called.
Section 4. Quorum: A majority of the directors fixed by these bylaws shall
constitute a quorum for the transaction of business at my meeting of the
Board of Directors.
Section 5. Manner of Action: Except as otherwise provided in this section, the
act of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
The vote of a majority of the number of directors fixed by these bylaws shall be
required to adopt a resolution constituting an executive committee. The vote of
a majority of the directors then holding office shall be required to adopt,
amend or repeal, a by-law, or to adopt a resolution dissolving the corporation
without action by the shareholders. Vacancies in the Board of Directors may be
filled as provided in Article III, Section 4 of these bylaws.
Section 6. Informal Action by Directors: Action taken by a majority of the
directors without a meeting is nevertheless Board action if written consent to
the action in question is signed by all the directors and filed with the minutes
of the proceedings of the Board, whether done before or after the action so
taken.
<PAGE> 5
By-laws Page 5
ARTICLE V.
OFFICERS
Section 1. Number: The officers of the Corporation shall consist of President, a
Secretary, a Treasurer, and such Vice-Presidents, Assistant Secretaries,
Assistant Treasurers and other officers as the Board of Directors may from time
to time elect. Any two or more offices may be held by the same person, except
the office of President and Secretary.
Section 2. Election and Term: The officers of the corporation shall be elected
by the Board of Directors. Such elections may be held at any regular or special
meeting of the Board. Each officer shall hold office until his death,
resignation, retirement, removal, disqualification, or his successor is elected
and qualifies.
Section 3. Removal: Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board with or without cause; but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
Section 4. Compensation: The compensation of all officers of the corporation
shall be fixed by the Board of Directors.
Section 5. President: The President shall be the principal executive officer of
the corporation, and, subject to the control of the Board of Directors, shall
supervise and control the management of the corporation in accordance with these
by-laws.
He shall, when present, preside at all meetings of shareholders. He shall sign,
with any other proper officer, certificates for shares of the corporation and
any deeds, mortgages, bonds, contracts or other instruments which may be
lawfully executed on behalf of the corporation except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be delegated by the Board of Directors to
some other officer or agent; and, in general, he shall perform all duties
incident to the office of President and such other duties as may be prescribed
by the Board of Directors from time to time.
Section 6. Vice-Presidents: The Vice-Presidents in the order of their election,
unless otherwise determined by the Board of Directors, shall in the absence of
or disability of the President, perform the duties and exercise the powers of
that office. In addition, they shall perform such other duties and have such
other powers as the Board of Directors shall prescribe.
<PAGE> 6
By-laws Page 6
Section 7. Secretary: The Secretary shall keep accurate records of the acts and
proceedings of all meetings of shareholders and directors. He shall give all
notices required by law and by these by-laws. He shall have general charge of
the corporate books and records and of the corporate seal, and he shall affix
the corporate seal to any lawfully executed instrument requiring it. He shall
have general charge of the stock transfer books of the corporation and shall
keep, at the registered or principal office of the corporation, a record of
shareholders showing the name and address of each shareholder and the number of
shares and class of the shares held by each. He shall sign such instruments as
say require his signature, and, in general, shall perform all duties incident to
the office of the Secretary and such other duties as may be assigned from time
to time by the President or by the Board of Directors.
Section 8. Treasurer: The Treasurer shall have custody of all funds and
securities belonging to the Corporation and shall receive, deposit or disburse
the same under the direction of the Board of Directors. He shall keep full and
accurate accounts of the finances of the Corporation in books especially
provided for that purpose; and he shall cause a true statement of its assets and
liabilities as of the close of each fiscal year and of the results of its
operations and of changes in surplus for such fiscal year, all in reasonable
detail, including particulars as to convertible securities then outstanding, to
be made and filed at the registered or principal office of the corporation
within four months after the end of such fiscal year. The statement so filed
shall be kept available for inspection by any shareholder for a period of ten
years; and the Treasurer shall mail or otherwise deliver a copy of the latest
such statement to any shareholder upon his written request therefor. The
treasurer shall, in general, perform all duties incident to this office and such
other duties as may be assigned to him from time to time by the President or by
the Board of Directors.
Section 9. Assistant Secretaries and Treasurers: The Assistant Secretaries and
Assistant Treasurers shall, in the absence or disability of the Secretary or the
Treasurer, respectively, perform the duties and exercise the powers of these
offices, and they shall, in general, perform such other duties as shall be
assigned to them by the Secretary or the Treasurer, respectively, or by the
President or by the Board of Directors.
<PAGE> 7
By-laws Page 7
ARTICLE VI.
CERTIFICATES FOR
SHARES AND THEIR
TRANSFER
Section 1. Certificates for Shares: Certificates representing shares of the
corporation shall be issued, in such form as the Board of Directors shall
determine, to every shareholder for the fully paid shares owned by him. These
certificates shall be signed by the President or any Vice-President and the
Secretary, Assistant Secretary, Treasurer or Assistant Treasurer. They shall be
consecutively numbered or otherwise identified; and the name and address of the
persons to whom they are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation.
Section 2. Transfer of Shares: Transfer of shares shall be made on the stock
transfer books of the corporation only upon surrender of the certificates for
the shares sought to be transferred by the record holder thereof or by his duly
authorized agent, transferee or legal representative. All certificates
surrendered for transfer shall be cancelled before new certificates for the
transferred shares shall be issued.
<PAGE> 8
By-laws Page 8
ARTICLE VII.
GENERAL PROVISIONS
Section l. Dividends: The Board of Directors may from time to time declare, and
the Corporation may pay, dividends on its outstanding shares in the manner and
upon the terms and conditions provided by law and by its charter.
Section 2. Seal: The corporate seal of the corporation shall consist of two
concentric circles between which is the name of the corporation and in the
center of which is inscribed SEAL; and such seal, as impressed on the margin
hereof, is hereby adopted as the corporate seal of the corporation.
Section 3. Waiver of Notice: Whenever any notice is required to be given to any
shareholder or director under the provisions of the North Carolina Business
Corporation Act or under the provisions of the Charter or By-laws of this
corporation, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be equivalent to the giving of such notice.
Section 4. Amendments: Except as otherwise provided herein, these by-laws may be
amended or repealed and new by-laws may be adopted by the affirmative vote of a
majority of the directors then holding office at any regular or special meeting
of the Board of Directors.
The Board of Directors shall have no power to adopt a by-law: (1) Requiring more
than a majority of the voting shares for a quorum at a meeting of shareholders
or more than a majority of the votes cast to constitute action by the
shareholders, except where higher percentages are required by law; (2) Providing
for management of the Corporation otherwise than by the Board of Directors or
its Executive Committees; (3) Increasing or decreasing the number of directors;
(4) Classifying and staggering the election of directors.
No by-law adopted or amended by the shareholders shall be altered or repealed by
the Board of Directors.
<PAGE> 1
EXHIBIT 3.3
FILED
In the office of the Secretary of State
of the State of California
AUG 4 1964
FRANK M. JORDAN, Secretary of State
By /s/ JAMES E. HARRIS
-------------------
Deputy
ARTICLES OF INCORPORATION
OF
OLIVER AND WINSTON, INC.
I
The name of this corporation is OLIVER AND WINSTON, INC.
II
The primary business in which this corporation intends initially to
engage is the purchase and sale of tires and other rubber products.
III
In addition to the foregoing, the general purposes for which said
corporation is formed are:
(a) To purchase, acquire, own, hold, use, lease, either as lessor or
lessee, grant, sell, exchange, subdivide, mortgage, convey in trust, manage,
improve, construct, operate and generally deal in any and all real estate,
improved or unimproved, stores, office buildings, dwelling houses, apartment
houses, hotels, manufacturing plants and other buildings, and any and all other
property of every kind or description, real, personal and mixed and wheresoever
situated, either in California, other states of the United States, the District
of Columbia, territories and colonies of the United States, or foreign
countries.
(b) To acquire, by purchase or otherwise, the goodwill, business,
property rights, franchises and assets of every kind, with or without
undertaking, either wholly or in part, the liabilities of any person, firm,
association or corporation; and to acquire any property or business as a going
concern or otherwise (i) by purchase of the assets thereof wholly or in part
(ii) by acquisition of the shares or any part thereof, or (iii) in any other
manner, and to pay for the same in cash or shares or bonds or other evidences of
indebtedness of this corporation, or otherwise; to hold, maintain and operate,
or in any manner dispose of, the whole or any part of the goodwill, business,
rights and property so acquired, and to conduct, in any lawful manner, the whole
or any part of any business so acquired; and to exercise all the powers
necessary or convenient in and about the management of such business.
-1-
<PAGE> 2
(c) To acquire by purchase, lease or otherwise, lands of any and
every description and leasehold estates and other interests therein; to improve
and hold lands for investment purposes; to construct improvements upon lands
owned by this corporation or held under leasehold or otherwise; to deal in
lands, buying and selling real property of any description; to deal in leasehold
estates and other estates in land less than the fee thereof; to sublet real
property of every kind and character, and to relet and underlet any and all such
real property to engage in the business of subdividing lands and to hire, buy,
sell and deal in any and all classes of real property and improvements thereon
and interests therein.
(d) To hold for investment purposes securities of any kind and every
description in whatsoever manner acquired; to exchange any real or personal
property of this corporation for other real or personal property, including
corporate shares of other corporations or bonds or other obligations thereof;
and to generally deal in any and all classes of real or personal property
hereinbefore mentioned.
(e) To buy, exchange, contract for, lease, and in any and all other
ways acquire, take, hold and own, and to deal in, sell, mortgage, lease or
otherwise dispose of lands, mining claims, mineral rights, oil wells, gas wells,
oil lands, gas lands and other real property, and rights and interests in and to
real property, and to manage, operate, maintain, improve, and develop the said
properties, and each and all of them.
(f) To contract for, purchase, acquire, take, hold, own, use and
enjoy, and to sell, lease, transfer, pledge, mortgage and otherwise dispose of,
mortgage or hypothecate, and generally to invest, trade, deal in and with
royalties covering, affecting or representing interests in oil or gas leases, or
other hydrocarbon or mineral rights.
(g) To supervise and manage all classes or properties, income
bearing or otherwise, for other persons, corporations and associations; to act
as agent, broker or attorney in fact, on a commission basis or otherwise, for
any other person, corporation or association; to negotiate sales, leases,
mortgages, deeds of trust and other encumbrances or properties of other persons,
-2-
<PAGE> 3
corporations and associations, real, personal and mixed and wheresoever
situated; and generally to maintain, conduct and carry on the business of real
estate agent and broker.
(h) To have and exercise all the powers conferred by the laws of the
State of California upon corporations formed under the laws pursuant to and
under which this corporation is formed, as such laws are now in effect or may at
any time hereafter be amended.
(i) To engage in any one or more other businesses or transactions
which the board of this corporation may from time to time authorize or approve,
whether related to the business described in II above or to any other business
then or thereafter done by this corporation.
(j) To become a partner, either general or limited or both, and to
enter into agreements of partnership, with one or more other persons or
corporations, for the purpose of carrying on any business whatsoever which this
corporation may deem proper or convenient in connection with any of the purposes
herein set forth or otherwise, or which may be calculated, directly or
indirectly, to promote the interests of this corporation or to enhance the value
of its property or business.
IV
The county in the State of California in which the principal office
for the transaction of the business of this corporation is to be located is Los
Angeles County.
V
The shares of stock of this corporation shall be of one class only:
the total number of shares of stock which this corporation shall have the
authority to issue is one thousand (1,000) shares of stock, having a One Hundred
Dollar ($100.00) par value, with an aggregate par value of One Hundred Thousand
Dollars ($100,000.00).
VI
The number of directors of the corporation shall be three (3). The
names and addresses of the persons who are appointed to act as the first
directors of this corporation are:
-3-
<PAGE> 4
Ray W. Oliver 1516 Remah Vista Drive
Glendale, California
Sam M. Winston 1926 1/2 North Verdugo Road
Glendale, California
Ann M. Oliver 1516 Remah Vista Drive
Glendale, California
IN WITNESS WHEREOF, for the purpose of forming this corporation
under the laws of the State of California, the undersigned, constituting the
incorporators of this corporation, including the persons named therein as the
first directors of this corporation, have executed these Articles of
Incorporation this 27 day of July, 1964.
/s/ RAY W. OLIVER
-------------------------------
Ray W. Oliver
/s/ SAM M. WINSTON
-------------------------------
Sam M. Winston
/s/ ANN M. OLIVER
-------------------------------
Ann M. Oliver
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
On this 27 day of July, 1964, before me, the undersigned, a Notary
Public in and for said County and State, residing therein, duly commissioned and
sworn, personally appeared RAY W. OLIVER, SAM M. WINSTON and ANN M. OLIVER,
known to me to be the persons whose names are subscribed to the foregoing
Articles of Incorporation, and acknowledged to me that they executed the same.
WITNESS my hand and official seal.
/s/ ERIC A. ASHTON
-------------------------------
Notary Public in and for said
County and State
[SEAL]
-4-
<PAGE> 5
NA CHGD TO: OLIVER & WINSTON, INC.
FILED
In the office of the Secretary of State
of the State of California
MARCH 26 1976
MARCH FONG EU, Secretary of State
By /s/ JAMES E. HARRIS
-------------------
Deputy
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
SAM M. WINSTON and WILLIAM S. JOHNSTONE, JR. certify:
1. That they are the president and the secretary, respectively, of
OLIVER AND WINSTON, INC., a California corporation.
2. That at a meeting of the board of directors of said corporation, duly
held at Burbank, California, on March 16, 1976, the following resolutions were
adopted:
"RESOLVED, that Article I of the Articles of Incorporation of this
corporation be amended to read as follows: 'The name of this corporation is
OLIVER & WINSTON, INC.'.
RESOLVED FURTHER, that Article V of the Articles of Incorporation of
this corporation be amended to read as follows 'The shares of this corporation
shall be of one class only: The total number of shares which this corporation
shall have authority to issue is one million shares, each having a ten cent
($.10) par value, with an aggregate par value of One Hundred Thousand Dollars
($100,000.00). Upon the amendment of this Article to read as hereinabove set
forth each outstanding share of a par value of $100.00 is split up and converted
into one thousand shares with a par value of ten cents ($.10) each'."
3. That the shareholders have adopted said amendments by written
consent. That the wording of the amended articles, as set forth in the
shareholders' written consent, is the same as that set forth in the directors'
resolutions in Paragraph 2 above.
4. That the number of shares represented by written consent is 256.2.
That the total number of share entitled to vote on or consent to the amendments
is 256.2.
/s/ SAM M. WINSTON
-------------------------------
SAM M. WINSTON, President
/s/ WILLIAM S. JOHNSTONE JR.
-------------------------------
WILLIAM S. JOHNSTONE JR. Secretary
Each of the undersigned declares under penalty of perjury
<PAGE> 6
that the matters set forth in the foregoing certificate are true and
correct. Executed at Pasadena, California, on March 18, 1976.
/s/ SAM M. WINSTON
----------------------------------
SAM M. WINSTON
/s/ WILLIAM S. JOHNSTONE, JR.
----------------------------------
WILLIAM S. JOHNSTONE, JR.
2.
<PAGE> 7
FILED
In the office of the Secretary of State
of the State of California
MAR 14 1997
/s/ BILL JONES
--------------
BILL JONES, Secretary of State
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
THOMAS J. BONBURG and WILLIAM S. JOHNSTONE, JR. certify that:
1. They are the President and the Secretary, respectively, of OLIVER &
WINSTON, INC., a California Corporation.
2. Articles VII and VIII are added to the Articles of Incorporation of this
Corporation, which new Articles are to read as follows:
"VII
The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.
VIII
The Corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the Corporations Code) for breach of duty
to the Corporation and its stockholders through bylaw provisions or
through agreements with the agents, or both, in excess of the
indemnification otherwise permitted by Section 317 of the Corporations
Code, subject to the limits on such excess indemnification set forth in
Section 204 of the Corporations Code."
3. The foregoing amendment of Articles of Incorporation has been duly approved
by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has been duly approved
by the required vote of shareholders in accordance with Section 902 of the
Corporations Code. The total number of outstanding shares of the corporation
is 171,160. The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.
DATE: 3/10/97
/s/ THOMAS J. BONBURG
-----------------------------------
Thomas J. Bonburg, President
/s/ WILLIAM S. JOHNSTONE, JR.
------------------------------------
William S. Johnstone, Jr., Secretary
[SEAL]
<PAGE> 1
EXHIBIT 3.4
ACTION OF SHAREHOLDERS
OF
OLIVER & WINSTON, INC.
a California corporation
Pursuant to Section 211 and Section 603 of the General Corporations Law
of the State of California the shareholders of the above corporation hereby:
1. Repeal the existing bylaws of said corporation.
2. Adopt the bylaws attached hereto, which are incorporated herein by
this reference, as and for the bylaws of said corporation.
The Secretary of said corporation is instructed to insert this written
consent and the attached bylaws in the minute book of said corporations.
Dated: March , 1977.
/s/ SAM M. WINSTON
--------------------------------
SAM M. WINSTON
/s/ ROBERT W. EBERLE
--------------------------------
ROBERT W. EBERLE
/s/ WILLIAM S. JOHNSTONE, JR.
--------------------------------
WILLIAM S. JOHNSTONE, JR.
<PAGE> 2
OLIVER & WINSTON INC.
TABLE OF CONTENTS
BYLAWS
<TABLE>
<CAPTION>
ARTICLE I - OFFICES Page
<S> <C> <C>
Section 1 - Principal Offices...................... 1
Section 2 - Other Offices.......................... 1
ARTICLE II - MEETINGS OF SHAREHOLDERS
Section 1 - Place of Meeting...................... 1
Section 2 - Annual Meeting........................ 1
Section 3 - Special Meeting....................... 1
Section 4 - Notice of Shareholders' Meetings...... 2
Section 5 - Manner of Giving Notice............... 3
Section 6 - Quorum................................ 3
Section 7 - Adjourned Meeting; Notice............. 4
Section 8 - Voting................................ 4
Section 9 - Waiver of Notice or Consent by
Absent Shareholders............ 5
Section 10 - Shareholder Action by Written
Consent Without a Meeting...... 6
Section 11 - Record Date for Shareholder Notice,
Voting, & Giving Consents...... 7
Section 12 - Proxies............................... 7
Section 13 - Inspectors of Election................ 8
ARTICLE III - DIRECTORS
Section 1 - Powers................................ 9
Section 2 - Number & Qualification of Directors... 9
Section 3 - Election and Term of Office
of Directors................... 9
Section 4 - Vacancies............................. 9
Section 5 - Place of Meetings and Meetings
by Telephone................... 10
Section 6 - Annual Meeting........................ 11
Section 7 - Other Regular Meetings................ 11
Section 8 - Special Meetings...................... 11
Section 9 - Quorum................................ 11
Section 10 - Waiver of Notice...................... 12
Section 11 - Adjournment........................... 12
Section 12 - Notice of Adjournment................. 12
Section 13 - Action without Meeting................ 12
Section 14 - Fees and Compensation of Directors.... 12
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE IV - COMMITTEES Page
<S> <C> <C>
Section 1 - Committees of Directors.............. 13
Section 2 - Meetings and Action of Committees.... 13
ARTICLE V - OFFICERS
Section 1 - Officers............................. 14
Section 2 - Election of Officers................. 14
Section 3 - Subordinate Officers................. 14
Section 4 - Removal and Resignation of
Officers..................... 14
Section 5 - Vacancies in Offices................. 15
Section 6 - Chairman of the Board................ 15
Section 7 - President............................ 15
Section 8 - Vice Presidents...................... 15
Section 9 - Secretary............................ 16
Section 10 - Chief Financial Officer.............. 16
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1 - Agents, Proceedings and Expenses..... 17
Section 2 - Actions other than by the Corporation 17
Section 3 - Actions by the Corporation........... 18
Section 4 - Successful Defense by Agent.......... 18
Section 5 - Required Approval.................... 19
Section 6 - Advance of Expenses.................. 19
Section 7 - Other Contractual Rights............. 19
Section 8 - Limitations.......................... 19
Section 9 - Insurance............................ 20
Section 10 - Fiduciaries of Corporate
Employee Benefit Plan........ 20
ARTICLE VII - RECORDS AND REPORTS
Section 1 - Maintenance and Inspection of Share
Register........................ 20
Section 2 - Maintenance and Inspection of Bylaws. 21
Section 3 - Maintenance and Inspection of
Other Corporate Records......... 21
Section 4 - Inspection by Directors.............. 21
Section 5 - Annual Report to Shareholders........ 22
Section 6 - Financial Statements................. 22
Section 7 - Annual Statement of General
Information..................... 23
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE VIII - GENERAL CORPORATE MATTERS Page
<S> <C> <C>
Section 1 - Record Date for Purposes Other Than
Notice and Voting............ 23
Section 2 - Checks, Drafts, Evidences of
Indebtedness................. 24
Section 3 - Corporate Contracts & Instruments...... 24
` Section 4 - Certificates for Shares................ 24
Section 5 - Lost Certificates...................... 24
Section 6 - Representation of Shares of Other
Corporations................. 25
Section 7 - Construction and Definitions........... 25
ARTICLE IX - AMENDMENTS
Section 1 - Amendment by Shareholders.............. 25
Section 2 - Amendment by Directors................. 26
</TABLE>
(iii)
<PAGE> 5
BYLAWS
OF
OLIVER & WINSTON, INC.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES. The board of directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office it
located outside this state, and the corporation has one or more business offices
in this state, the board of directors shall fix and designate a principal
business office in the State of California.
Section 2. OTHER OFFICES. The board of directors may at any time establish
branch or subordinate offices at any place or places where the corporation is
qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at
any place within or outside the State of California designated by the board of
directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING. The annual meeting of shareholders shall be
hold each year on a date and at a time designated by the board of directors;
provided, however, that the date so designated shall be within five (5) months
of the end of the fiscal year of the corporation and within fifteen (15) months
after the last annual meeting. At each annual meeting directors shall be
elected, and any other proper business may be transacted.
Section 3. SPECIAL MEETING. A special meeting of the shareholders may be
called at any time by the board of directors, or by the chairman of the board,
or by the president, or by one or more shareholders holding shares in
<PAGE> 6
the aggregate entitled to cast not less than 10% of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, any
vice president, or the secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the shareholders entitled to
vote, in accordance with the provisions of Sections 4 and 5 of this Article II,
that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, the person or persons requesting the
meeting may give the notice. Nothing contained in this paragraph of this Section
3 shall be construed as limiting, fixing or affecting the time when a meeting of
shareholders called by action of the board of directors may be held.
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date and hour of the
meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted, or (ii) in the case of the annual meeting, those
matters which the board of directors, at the time of giving the notice, intends
to present for action by the shareholders. The notice of any meeting at which
directors are to be elected shall include the name of any nominee or nominees
whom, at the time of the notice, management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California, (ii)
an amendment of the articles of incorporation, pursuant to Section 902 of that
Code, (iii) a reorganization of the
2.
<PAGE> 7
corporation, pursuant to Section 1201 of that Code, (iv) a voluntary dissolution
of the corporation, pursuant to Section 1900 of that Code, or (v) a distribution
in dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to Section 2007 of that Code, the notice shall also state the
general nature of that proposal.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either personally or by first-class mail
or telegraphic or other written communication, charges prepaid, addressed to the
shareholder at the address of that shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or is given,
notice shall be deemed to have been given if sent to that shareholder by
first-class mail or telegraphic or other written communication to the
corporation's principal executive office, or if published at least once in a
newspaper of general circulation in the county where that office is located.
Notice shall be deemed to have been given at the time when delivered personally
or deposited in the mail or sent by telegram or other means of written
communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, all future notices or reports shall be deemed to have been duly
given without further mailing if these shall be available to the shareholder on
written demand of the shareholder at the principal executive office of the
corporation for a period of one year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the secretary, assistant secretary,
or any transfer agent of the corporation giving the notice, and shall be filed
and maintained in the minute book of the corporation.
Section 6. QUORUM. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum
3.
<PAGE> 8
for the transaction of business. The shareholders present at a duly called or
held meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum.
Section 7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting, annual or
special, whether or not a quorum is present, may be adjourned from time to time
by the vote of the majority of the shares represented at that meeting, either in
person or by proxy, but in the absence of a quorum, no other business may be
transacted at that meeting, except as provided in Section 6 of this Article II.
When any meeting of shareholders, either annual or special, is adjourned
to another time or place, notice need not be given of the adjourned meeting if
the time and place are announced at a meeting at which the adjournment is taken,
unless a new record date for the adjourned meeting is fixed, or unless the
adjournment is for more than forty-five (45) days from the date set for the
original meeting, in which case the board of directors shall set a new record
date. Notice of any such adjourned meeting shall be given to each shareholder of
record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 4 and 5 of this Article II. At any adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting.
Section 8. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section 11
of this Article II, subject to the provisions of Sections 702 to 704, inclusive,
of the Corporations Code of California (relating to voting shares held by a
fiduciary, in the name of a corporation, or in joint ownership). The
shareholders' vote may be by voice vote or by ballot; provided, however, that
any election for directors must be by ballot if demanded by any shareholder
before the voting has begun. On any matter other than elections of directors,
any shareholder may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or vote them against the proposal, but, if the
shareholder fails to specify the number of shares which the shareholder is
voting affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to all shares that the shareholder is entitled to
vote. If a
4.
<PAGE> 9
quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on any matter (other than the
election of directors) shall be the act of the shareholders, unless the vote of
a greater number or voting by classes is required by California General
Corporation Law or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or more
candidates a number of votes greater than the number of the shareholder's
shares) unless the candidates' names have been placed in nomination prior to
commencement of the voting and a shareholder has given notice prior to
commencement of the voting of the shareholder's intention to cumulate votes. If
any shareholder has given such a notice, then every shareholder entitled to vote
may cumulate votes for candidates in nomination and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which that shareholder's shares are entitled, or distribute the
shareholder's votes on the same principle among any or all of the candidates, as
the shareholder thinks fit. The candidates receiving the highest number of
votes, up to the number of directors to be elected, shall be elected.
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, who was not present in person or by proxy, signs a written
waiver of notice or a consent to a holding of the meeting, or an approval of the
minutes. The waiver of notice or consent need not specify either the business to
be transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 4 of this Article II,
the waiver of notice or consent shall state the general nature of the proposal.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of the
meetings, to the transaction of any business because the meeting is not
5.
<PAGE> 10
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at the meeting.
Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action which may be taken at any annual or special meeting of shareholders may
be taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take that action at a meeting at which all shares entitled to
vote on that action were present and voted. In the case of election of
directors, such a consent shall be effective only if signed by the holders of
all outstanding shares entitled to vote for the election of directors; provided,
however, that a director may be elected at any time to fill a vacancy on the
board of directors that has not been filled by the directors, by the written
consent of the holders of a majority of the outstanding shares entitled to vote
for the election of directors. All such consents shall be filed with the
secretary of the corporation and shall be maintained in the corporate records.
Any shareholder giving a written consent, or the shareholder's proxy holders; or
a transferee of the shares or a personal representative of the shareholder or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting.
This notice shall be given in the manner specified in Section 5 of this Article
II. In the case of approval of (i) contracts or transactions in which a director
has a direct or indirect financial interest, pursuant to Section 310 of the
Corporations Code of California, (ii) indemnification of agents of the
corporation, pursuant to Section 317 of that Code, (iii) a reorganization of the
corporation, pursuant to Section 1201 of that Code, and (iv) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to section 2007 of that Code, the notice shall be given at
least ten (10) days before the consummation of any action authorized by that
approval.
6.
<PAGE> 11
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING
CONSENTS. For purposes of determining the shareholders entitled to notice of any
meeting or to vote or entitled to give consent to corporate action without a
meeting, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) days nor less than ten (10) days before the date of
any such meeting nor more than sixty (60) days before any such action without a
meeting, and in this event only shareholders of record on the date so fixed are
entitled to notice and to vote or to give contents, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the California General
Corporation Law.
If the board of directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day on which notice is given or, if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action of the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
Section 12. PROXIES. Every person entitled to vote for directors or on any
other matter shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the shareholder or the
shareholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the corporation stating that the proxy is revoked, or by a
subsequent proxy executed by, or
7.
<PAGE> 12
attendance at the meeting and voting in person by, the person executing the
proxy; or (ii) written notice of the death or incapacity of the maker of that
proxy is received by the corporation before the vote pursuant to that proxy is
counted; provided, however, that no proxy shall be valid after the expiration of
eleven (11) months from the date of the proxy, unless otherwise provided in the
proxy. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of
the Corporations Code of California.
Section 13. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the board of directors may appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may, and on
the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (1) or three (3). If inspectors are appointed at a meeting on the request of
one or more shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, the chairman of the meeting may, and upon
the request of any shareholder or a shareholder's proxy shall, appoint a person
to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
8.
<PAGE> 13
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the California General
Corporation Law and any limitations in the articles of incorporation and these
bylaws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of
directors shall be three (3) until changed by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw adopted by the vote
or written consent of holders of a majority of the outstanding shares entitled
to vote; provided, however, that an amendment reducing the number of directors
to a number less than five (5) cannot be adopted it the votes cast against its
adoption at a meeting, or the shares not consenting in the case of action by
written consent, are equal to more than 16-2/3% of the outstanding shares
entitled to vote.
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be
elected at each annual meeting of the shareholders to hold office until the next
annual meeting. Each director, including a director elected to fill a vacancy,
shall hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
Section 4. VACANCIES. Vacancies in the board of directors may be filled by
a majority of the remaining directors, though less than a quorum, or by a sole
remaining director, except that a vacancy created by the removal of a director
by the vote or written consent of the shareholders or by court order may be
filled only by the vote of a majority of the shares entitled to vote represented
at a duly held meeting at which a quorum is present, or by the written consent
of holders of a majority of the outstanding shares entitled to vote. Each
director so elected shall hold office until the next annual meeting of the
shareholders and until a successor has been elected and qualified.
9.
<PAGE> 14
A vacancy or vacancies in the board of directors shall be deemed to exist
in the event of the death, resignation, or removal of any director, or if the
board of directors by resolution declares vacant the office of a director who
has been declared of unsound mind by an order of court or convicted of a felony,
or if the authorized number of directors is increased, or if the shareholders
fail, at any meeting of shareholders at which any director or directors are
elected, to elect the number of directors to be voted for at that meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary, or the board of directors, unless
the notice specifies a later time for that resignation to become effective. If
the resignation of a director is effective at a future time, the board of
directors may elect a successor to take office when the resignation becomes
effective.
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
Section 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular meetings
of the board of directors may be held at any place within or outside the State
of California that has been designated from time to time by resolution of the
board. In the absence of such a designation, regular meetings shall be held at
the principal executive office of the corporation. Special meetings of the board
shall be held at any place within or outside the State of California that has
been designated in the notice of the meeting or, if not stated in the notice or
there is no notice, at the principal executive office of the corporation. Any
meeting, regular or special, may be held by conference telephone or similar
communication equipment, so long as all directors participating in the meeting
can hear one another, and all such directors shall be deemed to be present in
person at the meeting.
10.
<PAGE> 15
Section 6. ANNUAL MEETING. Immediately following each annual meeting of
shareholders, the board of directors shall hold a regular meeting for the
purpose of organization, any desired election of officers, and the transaction
of other business. Notice of this meeting shall not be required.
Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the board of
directors shall be held without call at such time as shall from time to time be
fixed by the board of directors. Such regular meetings may be held without
notice.
Section 8. SPECIAL MEETINGS. Special meetings of the board of directors
for any purpose or purposes may be called at any time by the chairman of the
board or the president or any vice president or the secretary or any two
directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. In case the notice is mailed,
it shall be deposited in the United States mail at least four (4) days before
the time of the holding of the meeting. In case the notice is delivered
personally, or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours before the
time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting nor the place if the meeting is to be held at the
principal executive office of the corporation.
Section 9. QUORUM. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 11 of this Article III. Every act or decision done or made
by a majority of the directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the board of directors, subject to
the provisions of Section 310 of the Corporations Code of California (as to
approval of contracts or transactions in which a director has a direct or
indirect material financial interest), Section 311 of that Code (as to
appointment of committees), and Section 317(e)
11.
<PAGE> 16
of that Code (as to indemnification of directors). A meeting at which a quorum
is initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for that meeting.
Section 10. WAIVER OF NOTICE. The transactions of any meeting of the board
of directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice if a quorum is
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding the meeting or an
approval of the minutes. The waiver of notice or consent need not specify the
purpose of the meeting. All such waivers, consents, and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting. Notice
of a meeting shall also be deemed given to any director who attends the meeting
without protesting before or at its commencement, the lack of notice to that
director.
Section 11. ADJOURNMENT. A majority of the directors present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.
Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of holding
an adjourned meeting need not be given, unless the meeting is adjourned for more
than twenty-four hours, in which case notice of the time and place shall be
given before the time of the adjourned meeting, in the manner specified in
Section 8 of this Article III, to the directors who were not present at the time
of the adjournment.
Section 13. ACTION WITHOUT MEETING. Any action required or permitted to be
taken by the board of directors may be taken without a meeting, if all members
of the board shall individually or collectively consent in writing to that
action. Such action by written consent shall have the same force and effect as a
unanimous vote of the board of directors. Such written consent or consents shall
be filed with the minutes of the proceedings of the board.
Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
board of directors. This Section 14 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
12.
<PAGE> 17
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF DIRECTORS. The board of directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the pleasure of the board. The board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any committee, to the extent provided in
the resolution of the board, shall have all the authority of the board, except
with respect to:
(a) the approval of any action which, under the General Corporation
Law of California, also requires shareholders' approval or approval of the
outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or on any committee;
(d) the amendment or repeal of bylaws or the adoption of new bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at
a rate or in a periodic amount or within a price range determined by the board
of directors; or
(g) the appointment of any other committees of the board of
directors or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Sections 5 (place of meetings), 7
(regular meetings), 8 (special meetings and notice), 9 (quorum), 10 (waiver of
notice), 11 (adjournment), 12 (notice of adjournment), and 13 (action without
meeting), with such changes in the context of those bylaws as are necessary to
substitute
13.
<PAGE> 18
the committee and its members for the board of directors and its members, except
that the time of regular meetings of committees may be determined either by
resolution of the board of directors or by resolution of the committee; special
meetings of committees may also be called by resolution of the board of
directors; and notice of special meetings of committees shall also be given to
all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a president,
a secretary and a chief financial officer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, a vice chairman
of the board, one or more vice presidents, one or more assistant secretaries, a
treasurer, one or more assistant treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 3 of this Article V. Any
number of offices may be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the corporation, except
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article V, shall be chosen by the board of directors, and
each shall serve at the pleasure of the board, subject to the rights, if any, of
an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The board of directors may appoint, and
may empower the president to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in the bylaws or as the
board of directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if
any, of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the board of directors, at any regular or
14.
<PAGE> 19
special meeting of the board, or, except in case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these bylaws for regular appointments to that office.
Section 6. CHAIRMAN OF THE BOARD AND VICE CHAIRMAN. The chairman of the
board, if such an officer be elected, shall, if present, preside at meetings of
the board of directors and exercise and perform such other powers and duties as
may be from time to time assigned to him by the board of directors or prescribed
by the bylaws. If there is no president, the chairman of the board shall in
addition be the chief executive officer of the corporation and shall have the
powers and duties prescribed in Section 7 of this Article V. The vice chairman
of the board, if there shall be such an officer, shall in the absence or
disability of the chairman of the board, exercise and perform the powers and
duties of the chairman of the board, and perform such other duties as may from
time to time be assigned to him by the board of directors or prescribed by the
bylaws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may
be given by the board of directors to the chairman of the board, if there be
such an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction, and control of the business and the officers of
the corporation. He shall preside at all meetings of the shareholders and, in
the absence of the chairman of the board, or if there be none, at all meetings
of the board of directors. He shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the board of directors
or the bylaws.
Section 8. VICE PRESIDENTS. In the absence or disability of the president,
the vice presidents, if any, in
15.
<PAGE> 20
order of their rank as fixed by the board of directors or, if not ranked, a vice
president designated by the board of directors, shall perform all the duties of
the president, and when so acting shall have all the powers of, and be subject
to all the restrictions upon, the president. The vice presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors or the bylaws, and
the president, or the chairman of the board.
Section 9. SECRETARY. The secretary shall keep or cause to be kept, at the
principal executive office or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice given, the names
of those present at directors' meetings or committee meetings, the number of
shares present or represented at shareholders' meetings, and the proceedings.
The secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent or registrar, as
determined by resolution of the board of directors, a share register, or a
duplicate share register, showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same, and the number and date of cancellation of
every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required by the bylaws or by law
to be given, and he shall keep the seal of the corporation, if one be adopted,
in safe custody, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by the bylaws.
Section 10. CHIEF FINANCIAL OFFICER. The chief financial officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any director.
16.
<PAGE> 21
The chief financial officer shall deposit all moneys and other valuables
in the name and to the credit of the corporation with such depositories as may
be designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have other powers and perform such other duties as may be
prescribed by the board of directors or the bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS, AND EXPENSES. For the purposes of this
Article, "agent" means any person who is or was a director, officer, employee,
or other agent of this corporation, or is or was serving at the request of this
corporation as a director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
was a director, officer, employee, or agent of a foreign or domestic corporation
which was a predecessor corporation of this corporation or of another enterprise
at the request of such predecessor corporation; "proceeding" means any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative, or investigative; and "expenses" includes, without limitations,
attorneys' fees and any expenses of establishing a right to indemnification
under Section 4 or Section 5(c) of this Article.
Section 2. ACTIONS OTHER THAN BY THE CORPORATION. This corporation shall
indemnify any person who was or is a party, or is threatened to be made a party,
to any proceeding (other than an action by or in the right of this corporation)
by reason of the fact that such person is or was an agent of this corporation,
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding if that person acted in
good faith and in a manner that person reasonably believed to be in the best
interests of this corporation and, in the case of a criminal proceeding, had no
reasonable
17.
<PAGE> 22
cause to believe the conduct of that person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which the person reasonably
believed to be in the best interests of this corporation or that the person had
reasonable cause to believe that the person's conduct was unlawful.
Section 3. ACTIONS BY THE CORPORATION. This corporation shall indemnify
any person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action by or in the right of this corporation
to procure a judgment in its favor by reason of the fact that that person is or
was an agent of this corporation, against expenses actually and reasonably
incurred by that person in connection with the defense or settlement of that
action if that person acted in good faith, in a manner that person believed to
be in the best interests of this corporation and with such care, including
reasonable inquiry, as an ordinarily prudent person in a like position would use
under similar circumstances. No indemnification shall be made under this Section
3:
(a) in respect of any claim, issue or matter as to which that person
shall have been adjudged to be liable to this corporation in the performance of
that person's duty to this corporation, unless and only to the extent that the
court in which that action was brought shall determine upon application that, in
view of all the circumstances of the case, that person is fairly and reasonably
entitled to indemnity for the expenses which the court shall determine;
(b) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval; or
(c) Of expenses incurred in defending a threatened or pending action
which is settled or otherwise disposed of without court approval.
Section 4. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
this corporation has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article, or in defense of any claim,
issue, or matter therein, the agent shall be indemnified against expenses
actually and reasonably incurred by the agent in connection therewith.
18.
<PAGE> 23
Section 5. REQUIRED APPROVAL. Except as provided in Section 4 of this
Article, any indemnification under this Article shall be made by this
corporation only if authorized in the specific case on a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in Sections 2 or 3 of this
Article; by:
(a) A majority vote of a quorum consisting of directors who are not
parties to the proceeding;
(b) Approval by the affirmative vote of a majority of the shares of
this corporation entitled to vote represented at a duly held meeting at which a
quorum is present or by the written consent of holders of a majority of the
outstanding shares entitled to vote. For this purpose, the shares owned by the
person to be indemnified shall not be considered outstanding or entitled to vote
thereon; or
(c) The court in which the proceeding is or was pending, on
application made by this corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney, or other person is opposed by this
corporation.
Section 6. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this corporation before the final disposition of
the proceedings on receipt of an undertaking by or on behalf of the agent to
repay the amount of the advance unless it shall be determined ultimately that
the agent is entitled to be indemnified as authorized in this Article.
Section 7. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than directors
and officers of this corporation or any subsidiary hereof may be entitled by
contract or otherwise.
Section 8. LIMITATIONS. No indemnification or advance shall be made under
this Article, except as provided in Section 4 or Section 5(c), in any
circumstance where it appears:
(a) That it would be inconsistent with a provision of the articles,
a resolution of the shareholders, or an agreement in effect at the time of the
accrual of the alleged cause of action asserted in the proceeding in which the
expenses were incurred or other amounts were paid, which prohibits or otherwise
limits indemnification; or
19.
<PAGE> 24
(b) That is would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 9. INSURANCE. Upon and in the event of a determination by the
board of directors of this corporation to purchase such insurance, this
corporation shall purchase and maintain insurance on behalf of any agent of the
corporation against any liability asserted against or incurred by the agent in
such capacity or arising out of the agent's status as such whether at not this
corporation would have the power to indemnify the agent against that liability
under the provisions of this section.
Section 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN. This Article
does not apply to any proceeding against any trustee, investment manager, or
other fiduciary of an employee benefit plan in that person's capacity as such,
even though that person may also be an agent of the corporation as defined in
Section 1 of this Article. Nothing contained in this Article shall limit any
right to indemnification to which such a trustee, investment manager or other
fiduciary may be entitled by contract or otherwise, which shall be enforceable
to the extent permitted by applicable law other than this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The corporation
shall keep at its principal execute office, or at the office of its transfer
agent or registrar, if either be appointed and as determined by resolution of
the board of directors, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of shares held by each
shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and shareholdings during usual business hours on five days prior
written demand on the corporation, and (ii) obtain from the transfer agent of
the corporation, on written demand and on the tender of such transfer agent's
usual charges for such list, a list of the shareholders' names and addresses,
who are entitled to vote for the election of directors, and their shareholdings,
as of the most recent record date for which that list has been compiled or as of
20.
<PAGE> 25
a date specified by the shareholder after the date of demand. This list shall be
made available to any such shareholder by the transfer agent on or before the
later of five (5) days after the demand is receive or the date specified in the
demand as the date as of which the list is to be compiled. The record of
shareholders shall also be open to inspection on the written demand of any
shareholder or holder of a voting trust certificate, at any time during usual
business hours, for a purpose reasonably related to the holder's interests as a
shareholder or as the holder of a voting trust certificate. Any inspection and
copying under this Section 1 may be made in person or by an agent or attorney of
the shareholder or holder of a voting trust certificate making the demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall
keep at its principal executive office, or if its principal executive office is
not in the State of California, at its principal business office in this state,
the original or a copy of the bylaws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is outside the State of
California and the corporation has no principal business office in this state,
the Secretary shall, upon the written request of any shareholder, furnish to
that shareholder a copy of the bylaws as amended to date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The
accounting books and records and minutes of proceedings of the shareholders and
the board of directors and any committee or committees of the board of directors
shall be kept at such place or places designated by the board of directors, or,
in the absence of such designation, at the principal executive office of the
corporation. The minutes shall be kept in written form and the accounting books
and records shall be kept either in written form or in any other form capable of
being converted into written form. The minutes and accounting books and records
shall be open to inspection upon the written demand of any shareholder or holder
of a voting trust certificate, at any reasonable time during usual business
hours, for a purpose reasonably related to the holder's interests as a
shareholder or as the holder of a voting trust certificate. The inspection may
be made in person or by an agent or attorney, and shall include the right to
copy and make extracts. These rights of inspection shall extend to the records
of each subsidiary corporation of the corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the absolute
right at any reasonable time to inspect
21.
<PAGE> 26
all books, records and documents of every kind and the physical properties of
the corporation and each of its subsidiary corporations. This inspection by a
director may be made in person or by an agent or attorney and the right of
inspection includes the right to copy and make extracts of documents.
Section 5. ANNUAL REPORT TO SHAREHOLDERS. The annual report to
shareholders referred to in Section 1501 of the California General Corporations
Law is expressly dispensed with, but nothing herein shall be interpreted as
prohibiting the board of directors from issuing annual or other periodic reports
to the shareholders of the corporation as they consider appropriate.
Section 6. FINANCIAL STATEMENTS. A copy of any annual financial statement
and any income statement of the corporation for each quarterly period of each
fiscal year, and any accompanying balance sheet of the corporation as of the end
of each such period, that has been prepared by the corporation shall be kept on
file in the principal executive office of the corporation for twelve (12) months
and each such statement shall be exhibited at all reasonable times to any
shareholder demanding an examination of any such statement or a copy shall be
mailed to any such shareholder.
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month, or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and a balance
sheet of the corporation as of the end of that period, the chief financial
officer shall cause that statement to be prepared, if not already prepared, and
shall deliver personally or mail that statement or statements to the person
making the request within thirty (30) days after the receipt of the request. If
the corporation has not sent to the shareholders its annual report for the last
fiscal year, this report shall likewise be delivered or mailed to the
shareholder or shareholders within thirty (30) days after the request.
The corporation shall also, on the written request of any shareholder,
mail to the shareholder a copy of the last annual, semi-annual, or quarterly
income statement which it has prepared, and a balance sheet as of the end of
that period.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the
22.
<PAGE> 27
financial statements were prepared without audit from the books and records of
the corporation.
Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION. The corporation shall,
during the period commencing on March 1 and ending on August 31 in each year,
file with the secretary of State of the State of California, on the prescribed
form, a statement setting forth the authorized number of directors, the names
and complete business or residence addresses of all incumbent directors, the
names and complete business or residence addresses of the chief executive
officer, secretary, and chief financial officer, the street address of its
principal executive office or principal business office in this state, and the
general type of business constituting the principal business activity of the
corporation, together with a designation of the agent of the corporation for the
purpose of service of process, all in compliance with Section 1502 of the
Corporations Code of California.
ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For
purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the board of directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
before any such action, and in that case only shareholders of record on the date
so fixed are entitled to receive the dividend, distribution, or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided in the California General Corporation Law.
If the board of directors does not so fix a record date, the record date
for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
23.
<PAGE> 28
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts,
or other orders for payment of money, notes, or other evidences of indebtedness,
issued in the name of or payable to the corporation, shall be signed or endorsed
by such person or persons and in such manner as, from time to time, shall be
determined by resolution of the board of directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board of
directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, agent or agents to enter into any contract or execute any
instrument in the name of and on behalf of the corporation, and this authority
may be general or confined to specific instances; and, unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent, or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
shareholder when any of these shares are fully paid, and the board of directors
may authorize the issuance of certificates or shares as partly paid provided
that these certificates shall state the amount of the consideration to be paid
for them and the amount paid. All certificates shall be signed in the name of
the corporation by the chairman of the board or vice chairman of the board or
the president or vice president and by the chief financial officer or an
assistant treasurer or the secretary or any assistant secretary, certifying the
number Of shares and the class or series of shares owned by the shareholder. Any
or all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed on a certificate shall have ceased to be that officer,
transfer agent, or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an officer,
transfer agent, or registrar at the date of issue.
Section 5. LOST CERTIFICATES. Except as provided in this Section 5, no new
certificates for shares shall be issued to replace an old certificate unless the
latter is surrendered to the corporation and cancelled at the same
24.
<PAGE> 29
time. The board of directors may, in case any share certificate or certificate
for any other security is lost, stolen, or destroyed, authorize the issuance of
a replacement certificate on such terms and conditions as the board may require,
including provision for indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft, or destruction of the certificate or the issuance of
the replacement certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of
the board, the president, or any vice president, or any other person authorized
by resolution of the board of directors or by any of the foregoing designated
officers, is authorized to vote on behalf of the corporation any and all shares
of any other corporation or corporations, foreign, or domestic, standing in the
name of the corporation. The authority granted to these officers to vote or
represent on behalf of the corporation any and all share held by the corporation
in any other corporation or corporations may be exercised by any of these
officers in person or by any person authorized to do so by a proxy duly executed
by these officers.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
California General Corporation Law shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural persons.
ARTICLE IX
AMENDMENTS
Section l. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or these
bylaws may be amended or repealed by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote; provided, however, that if
the articles of incorporation of the corporation set forth the number of
authorized directors of the corporation, the authorized number of directors may
be changed only by an amendment of the articles of incorporation.
25.
<PAGE> 30
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
shareholders as provided in Section 1 of this Article IX, bylaws, other than a
bylaw or an amendment of a bylaw changing the authorized number of directors,
may be adopted, amended, or repealed by the board of directors.
26.
<PAGE> 31
ACTION OF SHAREHOLDERS WITHOUT MEETING
OF
OLIVER & WINSTON, INC.
Pursuant to Section 603 of the California Corporations Code, the
undersigned being the shareholders holding all of the issued and outstanding
stock of Oliver & Winston, Inc. hereby take the following action without a
meeting:
RESOLVED, that Article III, Section 2 of the bylaws of this corporation is
amended to provide that the number of directors of this corporation shall be six
(6).
The Secretary of this corporation is instructed to file this action with
the minutes of this corporation and to indicate the amendment to the bylaws
hereinabove provided for in that portion of the minute book at which the bylaws
of this corporation are kept. Dated: May l, 1986.
/s/ SAM M. WINSTON
------------------------------------
SAM M. WINSTON
/s/ WILLIAM S. JOHNSTONE, JR.
------------------------------------
WILLIAM S. JOHNSTONE, Jr.
individually and as Trustee of
various trusts
<PAGE> 1
Exhibit 3.5
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:30 PM 05/23/1997
971170800 - 2557884
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ITCO ACQUISITION COMPANY, INC.
Pursuant to Section 242 of the Delaware General Corporation
Law (the "DGCL"), ITCO Acquisition Company, Inc., a Delaware corporation (the
"Corporation"), for purposes of amending its Certificate of Incorporation, DOES
HEREBY CERTIFY AS FOLLOWS:
FIRST, that the Corporation's Certificate of Incorporation is
amended by deleting in its entirety existing Article First and inserting the
following in lieu thereof:
"FIRST: The name of the Corporation is ITCO Logistics
Corporation."
SECOND, that this Certificate of Amendment of the
Corporation's Certificate of Incorporation has been duly adopted by the Board of
Directors of the Corporation in accordance with the provisions of Section 242 of
the DGCL and has been approved by the written consent of the holders of all of
the Corporation's issued and outstanding Common Stock in accordance with the
provisions of Section 228 of the DGCL.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to be signed by V. Edward Easterling, Jr., its
President and Secretary as of the 25th day of March, 1997.
ITCO ACQUISITION COMPANY, INC.
By: /s/ V. EDWARD EASTERLING, JR.
--------------------------------
V. Edward Easterling, Jr.
President and Treasurer
<PAGE> 2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 12:00 PM 11/29/1995
950276034 - 2557884
CERTIFICATE OF CORRECTION FILED TO CORRECT
A CERTAIN ERROR IN THE CERTIFICATE OF INCORPORATION
OF ITCO ACQUISITION COMPANY, INC.
FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON NOVEMBER 13, 1995
ITCO Acquisition Company, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is ITCO Acquisition Company, Inc.
2. That a Certificate of Incorporation was filed by the Secretary
of State of Delaware on November 13, 1995 and that said Certificate requires
correction as permitted by Section 103 of the General Corporation Law of the
State of Delaware.
3. The inaccuracy or defect of said Certificate to be corrected
is as follows: the total number of shares of stock which the Corporation shall
have authority to issue is 300,000. This correction will accurately reflect the
sum of 250,000 shares of common stock, $.01 par value, and 50,000 shares of
preferred stock, $.01 par value, authorized by the Certificate of Incorporation
filed on November 13, 1995.
4. The first paragraph of Article Fourth of the Certificate is
corrected to read as follows:
A. The total number of shares of stock which the
Corporation shall have authority to issue is 300,000 shares of
capital stock, classified as (i) 250,000 shares of common
stock, $.01 par value ("Common Stock") and (ii) 50,000 shares
of preferred stock, $.01 par value ("Preferred Stock").
<PAGE> 3
IN WITNESS WHEREOF, ITCO Acquisition Company, Inc. has caused
this certificate to be executed as of the 28th day of November, 1995.
ITCO ACQUISITION COMPANY, INC.
By: /s/ V. Edward Easterling, Jr.
V. Edward Easterling, Jr.
President
-2-
<PAGE> 4
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 02:00 PM 11/13/1995
950263251 - 2557884
CERTIFICATE OF INCORPORATION
OF
ITCO ACQUISITION COMPANY, INC.
FIRST: The name of the Corporation is ITCO Acquisition
Company, Inc.
SECOND: The address of the registered office of the
Corporation in the State of Delaware is 1201 North Market Street in the City of
Wilmington, County of New Castle. The name and address of its registered agent
is Delaware Corporation Organizers, Inc., Wilmington, Delaware 19801.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of the State of Delaware.
FOURTH:
A. The total number of shares of stock which the Corporation
shall have authority to issue is 1,001,000 shares of capital stock, classified
as (i) 250,000 shares of common stock, $.01 par value ("Common Stock") and (ii)
50,000 shares of preferred stock, $.01 par value ("Preferred Stock").
The designation and the powers, preferences, rights,
qualifications, limitations, and restrictions of the Preferred Stock and the
Common Stock are as follows:
1. Provisions Relating to the Preferred Stock.
(a) The Preferred Stock may be issued from time to time in one
or more classes or series, the shares of each class or series to have such
designations and powers, preferences, and rights, and qualifications,
limitations, and restrictions thereof, as are stated and expressed herein and in
the resolution or resolutions providing for the issue of such class or series
adopted, as hereinafter prescribed, by the entire Board of Directors of the
Corporation (the "Board of Directors") or (to the extent permitted by law) by
any duly designated committee thereof ("Committee").
(b) Authority is hereby expressly granted to and vested in the
Board of Directors or Committee to authorize the issuance of the Preferred Stock
from time to time in one or more classes or series, and with respect to each
class or series of the
<PAGE> 5
Preferred Stock, to fix and state by the resolution or resolutions from time to
time adopted providing for the issuance thereof the following:
(i) whether or not the class or series is to have
voting rights, full, special, or limited, or is to be without
voting rights, and whether or not such class or series is to
be entitled to vote as a separate class either alone or
together with the holders of one or more classes or series of
stock;
(ii) the number of shares to constitute the class or
series and the designations thereof;
(iii) the preferences, and relative, participating,
optional, or other special rights, if any, and the
qualifications, limitations, or restrictions thereof, if any,
with respect to any class or series;
(iv) whether or not the shares of any class or
series shall be redeemable at the option of the Corporation or
the holders thereof or upon the happening of any specified
event, and, if redeemable, the redemption price or prices
(which may be payable in the form of cash, notes, securities,
or other property), and the time or times at which, and the
terms and conditions upon which, such shares shall be
redeemable and the manner of redemption;
(v) whether or not the shares of a class or series
shall be subject to the operation of retirement or sinking
funds to be applied to the purchase or redemption of such
shares for retirement, and, if such retirement or sinking fund
or funds are to be established, the annual amount thereof, and
the terms and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are
payable in cash, stock of the Corporation, or other property,
the conditions upon which and the times when such dividends
are payable, the preference to or the relation to the payment
of dividends payable on any other class or classes or series
of stock, whether or not such dividends shall be cumulative or
noncumulative, and if cumulative, the date or dates from which
such dividends shall accumulate;
(vii) the preferences, if any, and the amounts
thereof which the holders of any class or series thereof shall
be entitled to receive upon
-2-
<PAGE> 6
the voluntary or involuntary dissolution of, or upon any
distribution of the assets of, the Corporation;
(viii) whether or not the shares of any class or
series, at the option of the Corporation or the holder thereof
or upon the happening of any specified event, shall be
convertible into or exchangeable for, the shares of any other
class or classes of stock, securities, or other property of
the Corporation and the conversion price or prices or ratio or
ratios or the rate or rates at which such exchange may be
made, with such adjustments, if any, as shall be stated and
expressed or provided for in such resolution or resolutions;
and
(ix) such other special rights and protective
provisions with respect to any class or series as may to the
Board of Directors or Committee seem advisable.
(c) The shares of each class or series of the Preferred
Stock may vary from the shares of any other class or series thereof in any or
all of the foregoing respects. The Board of Directors or Committee may increase
the number of shares of the Preferred Stock designated for any existing class or
series by a resolution adding to such class or series authorized and unissued
shares of the Preferred Stock not designated for any other class or series. The
Board of Directors or Committee may decrease the number of shares of the
Preferred Stock designated for any existing class or series by a resolution
subtracting from such class or series authorized and unissued shares of the
Preferred Stock designated for such existing class or series, and the shares so
subtracted become authorized, unissued, and undesignated shares of the Preferred
Stock.
2. Provisions Relating to the Common Stock.
(a) Each share of Common Stock of the Corporation shall have
identical rights and privileges in every respect. The holders of shares of
Common Stock shall be entitled to vote upon all matters submitted to a vote of
the stockholders of the Corporation and shall be entitled to one vote for each
share of Common Stock.
(b) Subject to the prior rights and preferences, if any,
applicable to shares of the Preferred Stock or any series thereof, the holders
of shares of the Common Stock shall be entitled to receive such dividends
(payable in cash, stock or otherwise) as may be declared thereon by the Board of
Directors or Committee at any time and from time to time out of any funds of the
Corporation legally available therefor.
-3-
<PAGE> 7
(c) In the event of any voluntary or involuntary liquidation,
dissolution, or winding-up of the Corporation, after distribution in full of the
preferential amounts, if any, to be distributed to the holders of shares of the
Preferred Stock or any series thereof, the holders of shares of the Common Stock
shall be entitled to receive all of the remaining assets of the Corporation
available for distribution to its stockholders, ratably in proportion to the
number of shares of the Common Stock held by them. A liquidation, dissolution,
or winding-up of the Corporation, as such terms are used in this paragraph (c),
shall not be deemed to be occasioned by or to include any consolidation or
merger of the Corporation with or into any other corporation or corporations or
other entity or a sale, lease, exchange, or conveyance of all or a part of the
assets of the Corporation.
3. General
(a) Subject to the foregoing provisions of this Certificate of
Incorporation, the Corporation may issue shares of its Preferred Stock and
Common Stock from time to time for such consideration (not less than the par
value thereof) as may be fixed by the Board of Directors or Committee, which is
expressly authorized to fix the same in its absolute and uncontrolled discretion
subject to the foregoing conditions. Shares so issued for which the
consideration shall have been paid or delivered to the Corporation shall be
deemed fully paid stock and shall not be liable to any further call or
assessment thereon, and the holders of such shares shall not be liable for any
further payments in respect of such shares.
(b) The Corporation shall have authority to create and issue
rights and options entitling their holders to purchase shares of the
Corporation's capital stock of any class or series or other securities of the
Corporation, and such rights and options shall be evidenced by instrument(s)
approved by the Board of Directors or Committee. The Board of Directors or
Committee shall be empowered to set the exercise price, duration, times for
exercise, and other terms of such options or rights; provided, however, that the
consideration to be received for any shares of capital stock subject thereto
shall not be less than the par value thereof.
B. The holders of capital stock of the Corporation shall not have
preemptive rights to acquire additional, unissued, or treasury shares of the
Corporation, or securities of the Corporation convertible into or carrying a
right to subscribe to or acquire shares.
C. Cumulative voting shall not be allowed in the election of
directors or for any other purpose.
-4-
<PAGE> 8
FIFTH: From time to time the Corporation may issue its authorized shares
for such consideration per share (with respect to shares having a par value, not
less than the par value thereof), either in money or money's worth of property
or services, and for such other consideration, whether greater or less, now or
from time to time hereafter permitted by law, as may be fixed by the Board of
Directors; and all shares so issued shall be fully paid and nonassessable.
No holder of any shares of any class shall as such holder have any
preemptive right to subscribe for or purchase any other shares or securities of
any class, whether now or hereafter authorized, which at any time may be offered
for sale or sold by the Corporation.
SIXTH: The name and the mailing address of the incorporator is:
Name: Mailing Address
----- ---------------
David H. Oden 901 Main Street
Suite 3100
Dallas, TX 75219
SEVENTH: The number of directors shall be fixed by the bylaws of the
Corporation and until changed in accordance with the manner prescribed by the
bylaws shall be one (1). The names and addresses of those who are to serve as
directors until the first annual meeting of stockholders, or until their
successors be elected and qualified, are as follows:
Name: Address
----- -------
V. Edward Easterling, Jr. 750 North St. Paul
Suite 1200
Dallas, TX 75201
EIGHTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(a) To make, alter or repeal the bylaws of the Corporation;
(b) To authorize and cause to be executed mortgages and liens
upon the real and personal property of the Corporation;
-5-
<PAGE> 9
(c) To set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purpose and to
abolish any such reserve in the manner in which it was created;
(d) By a majority of the whole Board of Directors, to
designate one or more committees, each committee to consist of two or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. Any such committee, to
the extent provided in the resolution or in the bylaws of the Corporation, shall
have and may exercise the powers of the Board of Directors in the management of
the business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require it; provided, however,
the bylaws may provide that in the absence or disqualification of any member of
such committee or committees the member or members thereof present at any
meeting and not disqualified from voting whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member; and
(e) When and as authorized by the affirmative vote of the
holders of a majority of the stock issued and outstanding having voting power
given at a stockholders' meeting duly called upon such notice as is required by
statute, or when authorized by the written consent of the holders of a majority
of the voting stock issued and outstanding, to sell, lease or exchange all or
substantially all of the property and assets of the Corporation, including its
goodwill and its corporate franchises, upon such terms and conditions and for
such consideration, which may consist in whole or in part of money or property
including securities of any other corporation or corporations, as the Board of
Directors shall deem expedient and for the best interests of the Corporation;
NINTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
-6-
<PAGE> 10
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
TENTH: Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of the Corporation. Elections of directors
need not be by written ballot unless the bylaws of the Corporation shall so
provide.
ELEVENTH: The Corporation is to have perpetual existence.
TWELFTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
THIRTEENTH: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (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 that involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law hereafter is amended
to authorize the further elimination or limitation of the liability of
directors, then the liability of a director of the Corporation, in addition to
the limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended Delaware General Corporation Law. Any
repeal or modification of this Section by the stockholders of the Corporation
shall be prospective only and shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of such
repeal or modification.
-7-
<PAGE> 11
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this Certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 13th day of November, 1995.
/s/ DAVID H. ODEN
---------------------------
David H. Oden, Incorporator
-8-
<PAGE> 12
CERTIFICATE OF MERGER
MERGING
ITCO MERGER CORPORATION
INTO
ITCO LOGISTICS CORPORATION
------------------------------------------------
Pursuant to Sections 103 and 251 of the
General Corporation Law of the State of Delaware
------------------------------------------------
ITCO Logistics Corporation hereby certifies that:
FIRST: The name and state of incorporation of each of the constituent
corporations are as follows:
Name State of Incorporation
ITCO Merger Corporation Delaware
ITCO Logistics Corporation Delaware
SECOND: An agreement and plan of merger (the "Merger Agreement") in
connection with the merger (the "Merger") of ITCO Merger Corporation
("Acquisition") into ITCO Logistics Corporation (the "Corporation") has been
approved, adopted, certified, executed and acknowledged by Acquisition and the
Corporation in accordance with the provisions Section 251 of the General
Corporation Law of Delaware (the "Act").
THIRD: The name of the surviving corporation (the "Surviving Corporation")
is ITCO Logistics Corporation.
FOURTH: The Certificate of Incorporation of the Surviving Corporation
shall be the Certificate of Incorporation of the Surviving Corporation.
FIFTH: The executed Merger Agreement is on file at an office of the
Surviving Corporation located at 814 East Main Street, Lincolnton, NC 28093.
SIXTH: A copy of the Merger Agreement will be furnished by the Surviving
Corporation, on request and without cost, to any stockholder of Acquisition or
the Corporation.
SEVENTH: The Merger shall be effective upon the filing of this Certificate
of Merger with the Secretary of State of the State of Delaware.
<PAGE> 13
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Merger
to be executed by its duly authorized officer, on this 20 day of May, 1998.
ITCO LOGISTICS CORPORATION
By: /s/ WILLIAM H. GAITHER
William H. Gaither
President and Chief Executive Officer
<PAGE> 1
Exhibit 3.6
BY-LAWS
OF
ITCO MERGER CORPORATION
ARTICLE I
Stockholders
Section 1.1. Annual Meetings. An annual meeting of
stockholders shall be held for the election of directors at such date, time and
place either within or without the State of Delaware as may be designated by the
Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
Section 1.2. Special Meetings. Special meetings of
stockholders may be called at any time by the Chairman of the Board, if any, the
Vice Chairman of the Board, if any, the President or the Board of Directors, to
be held at such date, time and place either within or without the State of
Delaware as may be stated in the notice of the meeting. A special meeting of
stockholders shall be called by the Secretary upon the written request, stating
the purpose of the meeting, of stockholders who together own of record a
majority of the outstanding shares of each class of stock entitled to vote at
such meeting.
Section 1.3. Notice of Meetings. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, the written
notice of any meeting shall be given not less than ten nor more than sixty days
before the date of the meeting to each stockholder entitled to vote at such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the stockholder at such
stockholder's address as it appears on the records of the Corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual
or special, may be adjourned from time to time, to reconvene at the same or some
other place, and notice need not be given of any such adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 1.5. Quorum. At each meeting of stockholders, except
where otherwise provided by law or the certificate of incorporation or these
by-laws, the holders of one-third of the outstanding shares of stock entitled to
vote on a matter at the meeting, present in person or represented by proxy,
shall constitute a quorum. For purposes of the foregoing, where a separate vote
by class or classes is required for any matter, the holders of one-third of the
outstanding shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum to take action with respect to that vote on
that matter. Two or more classes or series of
<PAGE> 2
stock shall be considered a single class if the holders thereof are entitled to
vote together as a single class at the meeting. In the absence of a quorum of
the holders of any class of stock entitled to vote on a matter, the holders of
such class so present or represented may, by majority vote, adjourn the meeting
of such class from time to time in the manner provided by Section 1.4 of these
by-laws until a quorum of such class shall be so present or represented. Shares
of its own capital stock belonging on the record date for the meeting to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither by entitled to vote nor be counted
for quorum purposes; provided, that the foregoing shall not limit the right of
the Corporation to vote stock, including but not limited to its own stock, held
by it in a fiduciary capacity.
Section 1.6. Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board if any, or in the absence of the
Chairman of the Board by the Vice Chairman of the Board, if any, or in the
absence of the Vice Chairman of the Board by the President, or in the absence of
the President by a Vice President, or in the absence of the foregoing persons by
a chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary, or in the
absence of the Secretary an Assistant Secretary, shall act as secretary of the
meeting, but in the absence of the Secretary and any Assistant Secretary the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 1.7. Voting; Proxies. Unless otherwise provided in the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. If the
certificate of incorporation provides for more or less than one vote for any
share on any matter, every reference in these by-laws to a majority or other
proportion of stock shall refer to such majority or other proportion of the
votes of such stock.
Each stockholder entitled to vote at a meeting of stockholders
or to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for such stockholder by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. A duly executed proxy shall
be irrevocable if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an irrevocable
power, regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the Corporation.
Voting at meetings of stockholders need not be by written
ballot and need not be conducted by inspectors unless the holders of a majority
of the outstanding shares of all classes of stock entitled to vote thereon
present in person or represented by proxy at such meeting shall so determine.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. In all other matters, unless otherwise provided by law or
by the certificate of incorporation or these by-laws, the affirmative vote of
the holders of a majority of the shares present in person or represented by
proxy at the meeting and entitled to vote on the subject matter shall be the act
of the stockholders. Where a separate vote by class or classes is required, the
affirmative vote of the holders of a majority of the shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class, except as otherwise provided by law or by the certificate of
incorporation or these by-laws.
-2-
<PAGE> 3
Section 1.8. Fixing Date for Determination of Stockholders of
Record. In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which record date shall not be more than sixty nor
less than ten days before the date of such meeting. If no record date is fixed
by the Board of Directors, the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, that the Board of Directors may fix a new record date
for the adjourned meeting.
In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 1.9. List of Stockholders Entitled to Vote. The
Secretary shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present.
-3-
<PAGE> 4
Section 1.10. Consent of Stockholders in Lieu of Meeting.
Unless otherwise provided in the certificate of incorporation or by law, any
action required by law to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted and shall be delivered to the Corporation by
delivery to (a) its registered office in the State of Delaware by hand or by
certified mail or registered mail, return receipt requested, (b) its principal
place of business, or (c) an officer or agent of the Corporation having custody
of the book in which proceedings of meetings of stockholders are recorded.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required by this by-law to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to (a) its registered office
in the State of Delaware by hand or by certified or registered mail, return
receipt requested, (b) its principal place of business, or (c) an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded.
Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE II
Board of Directors
Section 2.1. Powers; Number; Qualifications. The business and
affairs of the Corporation shall be managed by or under the direction of the
Board of Directors, except as may be otherwise provided by law or in the
certificate of incorporation. The Board of Directors shall consist of one or
more members, the number thereof to be determined from time to time by the
Board. Directors need not be stockholders.
Section 2.2. Election; Term of Office; Resignation; Removal;
Vacancies. Each director shall hold office until his or her successor is elected
and qualified or until his or her earlier resignation or removal. Any director
may resign at any time upon written notice to the Board of Directors or to the
President or the Secretary of the Corporation. Such resignation shall take
effect at the time specified therein, and unless otherwise specified therein no
acceptance of such resignation shall be necessary to make it effective. Any
director or the entire Board of Directors may be removed, with or without cause,
by the holders of a majority of the shares then entitled to vote at an election
of directors. Whenever the holders of any class or series of stock are entitled
to elect one or more directors by the certificate of incorporation, the
provisions of the preceding sentence shall apply, in respect to the removal
without cause of a director or directors so elected, to the vote of the holders
of the outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole. Unless otherwise provided in the certificate of
incorporation or these by-laws, vacancies and newly created directorships
resulting from any increase in the authorized number of directors elected by all
of the stockholders having the right to vote as a single class or from any other
cause may be filled by a majority of the directors then in office, although less
than a quorum, or by the sole remaining director. Whenever the holders
-4-
<PAGE> 5
of any class or classes of stock or series thereof are entitled to elect one or
more directors by the certificate of incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by a majority of
the directors elected by such class or classes or series thereof then in office,
or by the sole remaining director so elected.
Section 2.3. Regular Meetings. Regular meetings of the Board
of Directors may be held at such places within or without the State of Delaware
and at such times as the Board may from time to time determine, and if so
determined notice thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board
of Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, if any, by the Vice
Chairman of the Board, if any, by the President or by any two directors.
Reasonable notice thereof shall be given by the person or persons calling the
meeting.
Section 2.5. Participation in Meetings by Conference Telephone
Permitted. Unless otherwise expressly restricted by the certificate of
incorporation or these by-laws, members of the Board of Directors, or any
committee designated by the Board, may participate in a meeting of the Board or
of such committee, as the case may be, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
by-law shall constitute presence in person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings
of the Board of Directors one-third of the entire Board shall constitute a
quorum for the transaction of business. The vote of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
unless the certificate of incorporation or these by-laws shall require a vote of
a greater number. In case at any meeting of the Board a quorum shall not be
present, the members of the Board present may adjourn the meeting from time to
time until a quorum shall be present.
Section 2.7. Organization. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, if any, or in the absence
of the Chairman of the Board by the Vice Chairman of the Board, if any, or in
the absence of the Vice Chairman of the Board by the President, or in their
absence by a chairman chosen at the meeting. The Secretary, or in the absence of
the Secretary an Assistant Secretary, shall act as secretary of the meeting, but
in the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 2.8. Action by Directors Without a Meeting. Unless
otherwise restricted by the certificate of incorporation or these by-laws, any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or of such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 2.9. Compensation of Directors. Unless otherwise
restricted by the certificate of incorporation or these by-laws, the Board of
Directors shall have the authority to fix the compensation of directors.
-5-
<PAGE> 6
ARTICLE III
Committees
Section 3.1. Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors or
in these by-laws, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation (except that
a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors,
fix the designations and any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, removing or
indemnifying directors or amending these by-laws; and, unless the resolution,
these by-laws or the certificate of incorporation expressly so provides, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock or to adopt a certificate of ownership and merger.
Section 3.2. Committee Rules. Unless the Board of Directors
otherwise provides, each committee designated by the Board may adopt, amend and
repeal rules for the conduct of its business. In the absence of a provision by
the Board or a provision in the rules of such committee to the contrary, a
majority of the entire authorized number of members of such committee shall
constitute a quorum for the transaction of business, the vote of a majority of
the members present at a meeting at the time of such vote if a quorum is then
present shall be the act of such committee, and in other respects each committee
shall conduct its business in the same manner as the Board conducts its business
pursuant to Article II of these by-laws.
ARTICLE IV
Officers
Section 4.1. Officers; Election. As soon as practicable after
the annual meeting of stockholders in each year, the Board of Directors shall
elect a President and a Secretary, and it may, if it so determines, elect from
among its members a Chairman of the Board and a Vice Chairman of the Board. The
Board may also elect one or more Vice Presidents, one or more Assistant Vice
Presidents, one or more Assistant Secretaries, a Treasurer and one or more
Assistant Treasurers and such other officers as the Board may deem desirable or
appropriate and
-6-
<PAGE> 7
may give any of them such further designations or alternate titles as it
considers desirable. Any number of offices may be held by the same person unless
the certificate of incorporation or these by-laws otherwise provide.
Section 4.2. Term of Office; Resignation; Removal; Vacancies.
Unless otherwise provided in the resolution of the Board of Directors electing
any officer, each officer shall hold office until his or her successor is
elected and qualified or until his or her earlier resignation or removal. Any
officer may resign at any time upon written notice to the Board or to the
President or the Secretary of the Corporation. Such resignation shall take
effect at the time specified therein, and unless otherwise specified therein no
acceptance of such resignation shall be necessary to make it effective. The
Board may remove any officer with or without cause at any time. Any such removal
shall be without prejudice to the contractual rights of such officer, if any,
with the Corporation, but the election of an officer shall not of itself create
contractual rights. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise may be filled by the Board at any
regular or special meeting.
Section 4.3. Powers and Duties. The officers of the
Corporation shall have such powers and duties in the management of the
Corporation as shall be stated in these by-laws or in a resolution of the Board
of Directors which is not inconsistent with these by-laws and, to the extent not
so stated, as generally pertain to their respective offices, subject to the
control of the Board.
Section 4.4. Chairman of the Board. The Chairman of the Board,
if any, shall preside at all meeting of the Board of Directors and of the
stockholders at which he or she shall be present and shall have and may exercise
such powers as may, from time to time, be assigned to him or her by the Board or
as may be provided by law.
Section 4.5. Vice Chairman of the Board. In the absence of the
Chairman of the Board, the Vice Chairman of the Board, if any, shall preside at
all meetings of the Board of Directors and of the stockholders at which he or
she shall be present and shall have and may exercise such powers as may, from
time to time, be assigned to him or her by the Board or as may be provided by
law.
Section 4.6. President. In the absence of the Chairman of the
Board and Vice Chairman of the Board, the President shall preside at all
meetings of the Board of Directors and of the stockholders at which he or she
shall be present. The President shall be the chief executive officer and shall
have general charge and supervision of the business of the Corporation and, in
general, shall perform all duties incident to the office of president of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or as may be provided by law.
Section 4.7. Vice Presidents. The Vice President or Vice
Presidents, at the request or in the absence of the President or during the
President's inability to act, shall perform the duties of the President, and
when so acting shall have the powers of the President. If there be more than one
Vice President, the Board of Directors may determine which one or more of the
Vice Presidents shall perform any of such duties; or if such determination is
not made by the Board, the President may make such determination; otherwise any
of the Vice Presidents may perform any of such duties. The Vice President or
Vice Presidents shall have such other powers and shall perform such other duties
as may, from time to time, be assigned to him or her or them by the Board or the
President or as may be provided by law.
-7-
<PAGE> 8
Section 4.8. Secretary. The Secretary shall have the duty to
record the proceedings of the meetings of the stockholders, the Board of
Directors and any committees in a book to be kept for that purpose, shall see
that all notices are duly given in accordance with the provisions of these
by-laws or as required by law, shall be custodian of the records of the
Corporation, may affix the corporate seal to any document the execution of
which, on behalf of the Corporation, is duly authorized, and when so affixed may
attest the same, and, in general, shall perform all duties incident to the
office of secretary of a corporation and such other duties as may, from time to
time, be assigned to him or her by the Board or the President or as may be
provided by law.
Section 4.9. Treasurer. The Treasurer shall have charge of and
be responsible for all funds, securities, receipts and disbursements of the
Corporation and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by or under
authority of the Board of Directors. If required by the Board, the Treasurer
shall give a bond for the faithful discharge of his or her duties, with such
surety or sureties as the Board may determine. The Treasurer shall keep or cause
to be kept full and accurate records of all receipts and disbursements in books
of the Corporation, shall render to the President and to the Board, whenever
requested, an account of the financial condition of the Corporation, and, in
general, shall perform all the duties incident to the office of treasurer of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or the President or as may be provided by law.
Section 4.10. Other Officers. The other officers, if any, of
the Corporation shall have such powers and duties in the management of the
Corporation as shall be stated in a resolution of the Board of Directors which
is not inconsistent with these by-laws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board. The Board may require any officer, agent or employee to give security for
the faithful performance of his or her duties.
Section 4.11. Fidelity Bonds. If required by the Board of
Directors, any officer shall give the Corporation a bond in a sum and with one
or more sureties satisfactory to the Board, for the faithful performance of the
duties of his or her office, and for the restoration to the Corporation, in case
of his or her death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his or her
possession or under his or her control belonging to the Corporation.
-8-
<PAGE> 9
ARTICLE V
Stock
Section 5.1. Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by or in the name of
the Corporation by the Chairman or Vice Chairman of the Board of Directors, if
any, or the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, of the Corporation,
representing the number of shares of stock in the Corporation owned by such
holder. If such certificate is manually signed by one officer or manually
countersigned by a transfer agent or by a registrar, any other signature on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Each certificate representing shares shall state upon the face
thereof that the Corporation is formed under the laws of the State of Delaware,
the name of the person or persons to whom such shares have been issued and the
number and class of such shares, and the designation of the class or series, if
any, which such certificate represents.
If the Corporation is authorized to issue more than one class
of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications or restrictions of
such preferences and/or rights shall be set forth in full or summarized on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock; provided, that, except as otherwise provided by
law, in lieu of the foregoing requirements, there may be set forth on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock a statement that the Corporation will furnish without
charge to each stockholder who so requests the powers, designations, preferences
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificates. The Corporation may issue a new certificate of
stock in the place of any certificate theretofore issued by it, alleged to have
been lost, stolen or destroyed, and the Corporation may require the owner of the
lost, stolen or destroyed certificate, or such owner's legal representative, to
give the Corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
Section 5.3. Transfers of Stock. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by his attorney, lawfully constituted in writing, and upon surrender of the
certificate therefor, together with such evidence of the payment of transfer
taxes and compliance with other provisions of law as the Corporation or its
transfer agent may require.
Section 5.4. Registered Stockholders. The Corporation may
treat the holder of record of any share or shares of stock as the holder
thereof, and shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, save as expressly provided by the laws of
Delaware.
-9-
<PAGE> 10
ARTICLE VI
Miscellaneous
Section 6.1. Fiscal Year. The fiscal year of the Corporation
shall be determined by the Board of Directors.
Section 6.2. Seal. The Corporation may have a corporate seal
which shall have the name of the Corporation inscribed thereon and shall be in
such form as may be approved from time to time by the Board of Directors. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced.
Section 6.3. Waiver of Notice of Meetings of Stockholders,
Directors and Committees. Whenever notice is required to be given by law or
under any provision of the certificate of incorporation or these by-laws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors or members of a committee of directors need be specified
in any written waiver of notice unless so required by the certificate of
incorporation or these by-laws.
Section 6.4. Indemnification of Directors, Officers and
Employees. The Corporation shall indemnify to the full extent permitted by law
any person made or threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person or such person's testator or intestate is or was a
director, officer or employee of the Corporation or serves or served at the
request of the Corporation any other enterprise as a director, officer or
employee. Expenses incurred by any such person in defending any such action,
suit or proceeding shall be paid or reimbursed by the Corporation promptly upon
receipt by it of an undertaking of such person to repay such expenses if it
shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation. The rights provided to any person by this by-law
shall be enforceable against the Corporation by such person who shall be
presumed to have relied upon it in serving or continuing to serve as a director,
officer or employee as provided above. No amendment of this by-law shall impair
the rights of any person arising at any time with respect to events occurring
prior to such amendment. For purposes of this by-law, the term "Corporation"
shall include any predecessor of the Corporation and any constituent corporation
(including any constituent of a constituent) absorbed by the Corporation in a
consolidation or merger; the term "other enterprise" shall include any
corporation, partnership, joint venture, trust or employee benefit plan; service
"at the request of the Corporation" shall include service as a director, officer
or employee of the Corporation which imposes duties on, or involves services by,
such director, officer or employee with respect to an employee benefit plan, its
participants or beneficiaries; any excise taxes assessed on a person with
respect to an employee benefit plan shall be deemed to be indemnifiable
expenses; and action by a person with respect to an employee benefit plan which
such person reasonably believes to be in the interest of the participants and
beneficiaries of such plan shall be deemed to be action not opposed to the best
interests of the Corporation.
-10-
<PAGE> 11
Section 6.5. Interested Directors; Quorum. No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
her or their votes are counted for such purpose, if: (1) the material facts as
to his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the Board or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative vote of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (2) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (3) the contract or transaction is fair as to the Corporation as of the time
it is authorized, approved or ratified, by the Board, a committee thereof or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 6.6. Form of Records. Any records maintained by the
Corporation in the regular course of its business, including its stock ledger,
books of account and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 6.7. Amendment of By-Laws. These by-laws may be
amended or repealed, and new by-laws adopted, by the Board of Directors, but the
stockholders entitled to vote may adopt additional by-laws and may amend or
repeal any by-law whether or not adopted by them.
ARTICLE VII
Offices
Section 7.1. Registered Office. The registered office of the
Corporation in the State of Delaware shall be at 1209 Orange Street, City of
Wilmington, County of New Castle, and the registered agent in charge thereof
shall be The Corporation Trust Company.
Section 7.2. Other Offices. The Corporation may also have an
office or offices at other places within or without the State of Delaware.
-11-
<PAGE> 1
EXHIBIT 3.7
ARTICLES OF INCORPORATION
OF
ITCO CORPORATION
WE, THE UNDERSIGNED NATURAL PERSONS OF THE AGE OF EIGHTEEN YEARS OR
MORE, DO HEREBY ASSOCIATE OURSELVES INTO A BUSINESS CORPORATION UNDER THE LAWS
OF THE STATE OF NORTH CAROLINA, AS CONTAINED IN CHAPTER 55 OF THE GENERAL
STATUTES OF NORTH CAROLINA, ENTITLED "BUSINESS CORPORATION ACT", AND THE SEVERAL
AMENDMENTS THERETO, AND TO THAT END DO HEREBY SET FORTH:
1. THE NAME OF THE CORPORATION IS ITCO CORPORATION.
2. THE PERIOD OF DURATION OF THE CORPORATION SHALL BE PERPETUAL.
3. THE PURPOSES FOR WHICH THE CORPORATION IS ORGANIZED ARE:
A. TO CONDUCT AND OPERATE A BUSINESS FOR THE
DISTRIBUTION AND SALE, AT WHOLESALE OR
RETAIL, OF TIRES, BATTERIES, TREAD RUBBER,
ACCESSORIES AND OTHER RELATED PRODUCTS
PERTAINING TO THE TIRE INDUSTRY.
B. TO DO ALL SUCH THINGS AS MAY BE NECESSARY OR
INCIDENTAL TO CONDUCTING AND OPERATING A
BUSINESS FOR THE DISTRIBUTION AND SALE, AT
WHOLESALE OR RETAIL, OF TIRES, BATTERIES,
TREAD RUBBER, ACCESSORIES AND OTHER RELATED
PRODUCTS PERTAINING TO THE TIRE INDUSTRY.
C. TO ENGAGE IN ANY OTHER LAWFUL ACTIVITY
INCLUDING, BUT NOT LIMITED TO, CONSTRUCTING,
MANUFACTURING, RAISING, OR OTHERWISE CARING
FOR ANY TYPE OF STRUCTURE, COMMODITY, OR
LIVESTOCK WHATSOEVER; PROCESSING, SELLING,
BROKERING, FACTORING OR DISTRIBUTING ANY
TYPE OF PROPERTY, WHETHER REAL OR PERSONAL;
EXTRACTING AND PROCESSING NATURAL RESOURCES;
TRANSPORTING FREIGHT OR PASSENGERS BY LAND,
SEA, OR AIR; COLLECTING AND DISSEMINATING
INFORMATION OR ADVERTISEMENT THROUGH ANY
MEDIUM WHATSOEVER; PERFORMING PERSONAL
SERVICES OF ANY NATURE; AND ENTERING INTO OR
SERVING IN ANY TYPE OF MANAGEMENT,
INVESTIGATIVE, ADVISORY, PROMOTIONAL,
FIDUCIARY OR REPRESENTATIVE CAPACITY OR
RELATIONSHIP FOR ANY PERSONS OR CORPORATIONS
WHATSOEVER.
4. THE AGGREGATE NUMBER OF SHARES WHICH THE CORPORATION SHALL HAVE
AUTHORITY TO ISSUE IS NINE THOUSAND (9,000) SHARES, DIVIDED INTO THREE CLASSES.
THE DESIGNATION OF EACH CLASS, NUMBER OF SHARES OF EACH CLASS, SERIES, IF ANY,
WITHIN EACH CLASS, AND THE PAR VALUE, IF ANY, OF THE SHARES OF EACH CLASS, OR A
STATEMENT THAT THE SHARES OF ANY CLASS ARE WITHOUT PAR VALUE, IS AS FOLLOWS:
<PAGE> 2
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES PAR VALUE
----- ---------------- ---------
<S> <C> <C>
A COMMON 3,000 $100.00
B COMMON 3,000 $100.00
PREFERRED 3,000 $100.00
</TABLE>
THE PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS WITH RESPECT TO
THE SHARES OF EACH CLASS ARE AS FOLLOWS:
A. THE CLASS A COMMON STOCK SHALL HAVE THE EXCLUSIVE
RIGHT TO VOTE IN ALL MEETINGS OF THE SHAREHOLDERS.
B. THE CLASS B COMMON STOCK SHALL HAVE NO RIGHT TO VOTE
AT MEETINGS OF THE SHAREHOLDERS EXCEPT AS
SPECIFICALLY PROVIDED BY STATUTE. IN ALL OTHER
RESPECTS IT SHALL HAVE THE SAME RIGHTS, PREFERENCES,
AND LIMITATIONS AS THE CLASS A COMMON STOCK.
C. THE PREFERRED STOCK SHALL BE ENTITLED TO RECEIVE AND
THE CORPORATION SHALL BE BOUND TO PAY, OUT OF THE NET
EARNINGS AND ACCUMULATED PROFITS OF THE CORPORATION,
DIVIDENDS PAYABLE ANNUALLY AT THE RATE OF SIX PERCENT
(6%) PER ANNUM ON THE PAR VALUE THEREOF.
D. DIVIDENDS ON THE PREFERRED STOCK SHALL BE CUMULATIVE
AND SHALL BE PAID WITHOUT INTEREST BEFORE ANY
DIVIDENDS ARE DECLARED OR PAID ON THE COMMON STOCK,
BUT THE PREFERRED STOCK SHALL NOT FURTHER SHARE IN
THE EARNINGS OF THE CORPORATION.
E. UPON A DISSOLUTION OF THE CORPORATION, THE PREFERRED
STOCK SHALL BE REPAID ITS PAR VALUE, TOGETHER WITH
ALL ACCUMULATED AND UNPAID DIVIDENDS, BEFORE ANY
AMOUNT IS PAID ON THE COMMON STOCK, BUT AFTER SUCH
PAYMENT, THE PREFERRED STOCK SHALL NOT FURTHER SHARE
IN THE ASSETS OF THE CORPORATION.
F. THE PREFERRED STOCK SHALL HAVE NO VOTES IN ANY
MEETINGS OF THE STOCKHOLDERS OF THE CORPORATION.
G. ALL PREFERRED STOCK, WHENEVER ISSUED, SHALL WITH
RELATION TO ALL OTHER PREFERRED STOCK, HAVE AN EQUAL,
PROPORTIONAL, AND COORDINATE LIEN UPON THE ASSETS OF
THE CORPORATION.
5. THE MINIMUM AMOUNT OF CONSIDERATION FOR ITS SHARES TO BE RECEIVED BY
THE CORPORATION BEFORE IT SHALL COMMENCE BUSINESS IS THREE-HUNDRED AND No/100
DOLLARS ($300.00).
6. THE MAILING ADDRESS FOR THE INITIAL REGISTERED OFFICE OF THE
CORPORATION IS P.O. BOX 641, WILSON, WILSON COUNTY, NORTH CAROLINA, AND THE
STREET ADDRESS OF THE INITIAL REGISTERED OFFICE
<PAGE> 3
OF THE CORPORATION IS CARGILL AVENUE, WILSON, WILSON COUNTY, NORTH CAROLINA, AND
THE NAME OF THE INITIAL REGISTERED AGENT AT SUCH ADDRESS IS JOHN C. BOLT, JR.
7. THE NUMBER OF DIRECTORS OF THE CORPORATION MAY BE FIXED BY THE
BY-LAWS, BUT SHALL NOT BE LESS THAN THREE. THE NUMBER OF DIRECTORS CONSTITUTING
THE INITIAL BOARD OF DIRECTORS SHALL BE THREE, AND THE NAMES AND ADDRESSES OF
THE PERSONS WHO ARE TO SERVE AS DIRECTORS UNTIL THE FIRST MEETING OF
SHAREHOLDERS OR UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED ARE:
NAMES ADDRESSES
JOHN C. BOLT, JR. 1109 LAKESIDE DRIVE, WILSON,
NORTH CAROLINA
LEONARD TURNAGE ROUTE 5, BOX 106, WILSON,
NORTH CAROLINA
CLAUDIUS TURNAGE 2514 McNAIR STREET, WILSON,
NORTH CAROLINA
8. THE NAMES AND ADDRESSES OF ALL THE INCORPORATORS ARE:
NAMES ADDRESSES
JOHN C. BOLT, JR. 1109 LAKESIDE DRIVE, WILSON,
NORTH CAROLINA
LEONARD TURNAGE ROUTE 5, BOX 106, WILSON,
NORTH CAROLINA
CLAUDIUS TURNAGE 2514 McNAIR STREET, WILSON,
NORTH CAROLINA
IN TESTIMONY WHEREOF, WE HAVE HEREUNTO SET OUR HANDS THIS THE 14th DAY
OF SEPTEMBER, 1972.
/s/ JOHN C. BOLT, JR.
------------------------------
JOHN C. BOLT, JR.
/s/ LEONARD TURNAGE
------------------------------
LEONARD TURNAGE
/s/ CLAUDIUS TURNAGE
------------------------------
CLAUDIUS TURNAGE
<PAGE> 4
STATE OF NORTH CAROLINA
COUNTY OF WILSON
THIS IS TO CERTIFY THAT ON THE 14th DAY OF SEPTEMBER, 1972, BEFORE ME, A
NOTARY PUBLIC, PERSONALLY APPEARED JOHN C. BOLT, JR., LEONARD TURNAGE, AND
CLADIUS TURNAGE, WHO I AM SATISFIED ARE THE PERSONS NAMED IN AND WHO EXECUTED
THE FOREGOING ARTICLES OF INCORPORATION, AND I HAVING FIRST MADE KNOWN TO THEM
THE CONTENTS THEREOF, THEY DID ACKNOWLEDGE THAT THEY SIGNED AND DELIVERED THE
SAME AS THEIR VOLUNTARY ACT AND DEED FOR THE USES AND PURPOSES THEREIN
EXPRESSED.
IN TESTIMONY WHEREOF, I HAVE HEREUNTO SET MY HAND AND AFFIXED MY
OFFICIAL SEAL, THIS THE 14th DAY OF SEPTEMBER, 1972.
/s/ [illegible signature]
-----------------------------------
NOTARY PUBLIC
MY COMM. EXPIRES:
11/29/76
- ------------------------
<PAGE> 5
FILED
MAY 2 1:04 PM '73
THAD EURE
SECRETARY OF STATE
NORTH CAROLINA
ARTICLES OF MERGER OF
FLEET TIRE SERVICE, INC.
INTO
ITCO CORPORATION
Fleet Tire Service, Inc., a North Carolina Corporation, and ITCO
Corporation, a North Carolina Corporation, do hereby execute these Articles of
Merger for the purpose of merging Fleet Tire Service, Inc., into ITCO
Corporation, and to that end do hereby set forth:
1. The plan of merger, which has been approved by the Board of
Directors of each of the undersigned corporations as provided by law, is as
follows:
PLAN OF MERGER OF FLEET TIRE SERVICE, INC.
INTO
ITCO CORPORATION
1. MERGER. Fleet Tire Service, Inc., a North Carolina Corporation,
proposes to merge into ITCO Corporation, a North Carolina Corporation. ITCO
Corporation shall be the surviving corporation.
2. NAME. The name of the surviving corporation shall be ITCO
Corporation.
3. TERMS OF MERGER. The terms and conditions of the merger are as
follows:
A. Fleet Tire Service, Inc., shall be merged into ITCO Corporation in
accordance with the statutory procedure set forth in North Carolina General
Statutes, Sections 55-106, et. seq.
<PAGE> 6
B. ITCO Corporation shall be the surviving corporation, and the
corporate identity, existence, purposes, powers, franchises, rights, and
immunities of ITCO Corporation shall continue unaffected and unimpaired by the
merger.
C. The merger shall be effective as of the time duly executed Articles
of Merger are filed with the Secretary of State of North Carolina.
D. As of the effective date of the merger, the separate existence of
Fleet Tire Service, Inc., shall cease, and Fleet Tire Service, Inc., and ITCO
Corporation shall become a single corporation, which said single corporation
shall be ITCO Corporation.
E. ITCO Corporation shall, as of the effective date of the merger,
possess all the rights, privileges, immunities, and franchises, as well of a
public as of a private nature, of each of the merging corporations; and all
property, real, personal and mixed, and all debts due on whatever account, and
all other choses in action, and all and every other interest, of or belonging to
or due to each of the merging corporations shall be taken and deemed to be
transferred to and vested in ITCO Corporation without further act or deed; and
the title to any real estate or any interest therein, vested in any of the
parties of this plan of merger shall not revest or be in any way impaired by
reason of such merger.
F. As of the effective date of the merger, ITCO Corporation shall
thenceforth be liable for all the liabilities, obligations, and penalties of
each of the merging corporations, and any claim existing or action or
proceeding, civil or criminal, pending by or against any of said corporations
may be prosecuted as if such merger had not taken place, or ITCO Corporation may
be substituted in its place. Any judgment rendered against any of the merging
corporation
<PAGE> 7
may be enforced against ITCO Corporation. Neither the rights of creditors nor
any liens upon the property of any of the merging corporations shall be impaired
by the merger.
4. BASIS OF EXCHANGE. The manner and basis of converting the shares of
each of the merging corporations into shares or other securities or other
obligations of ITCO Corporation shall be as follows:
A. As of the effective date of the merger, each common share of Fleet
Tire Service, Inc., held by ITCO Corporation shall cease to exist and shall be
deemed cancelled, retired, and eliminated, and no shares of common stock of ITCO
Corporation shall be issued in respect thereof.
B. As of the effective date of the merger, each share of stock of Fleet
Tire Service, Inc., outstanding in the hands of the public (being all of the
shares of Fleet Tire Service, Inc., other than shares thereof held by ITCO
Corporation), ipso facto, and without any action on the part of the holder
thereof, shall automatically become and be converted into common stock of ITCO
Corporation at the rate of One Class A common share of ITCO Corporation for each
two hundred and fifty shares of common stock of Fleet Tire Service, Inc. The
holders of the shares of Fleet Tire Service, Inc., as defined in this
subparagraph after the effective date of the merger, shall surrender the
certificates representing said shares to ITCO Corporation, and such holder shall
thereupon be entitled to receive in exchange a certificate representing the
number of shares of common Stock of ITCO Corporation into which the shares of
stock represented by the certificate or certificates so surrendered shall have
been converted.
<PAGE> 8
5. CHANGES IN CHARTER. A statement of any changes in the charter of
ITCO Corporation to be effected by said merger is as follows: None.
6. DISSENTING SHAREHOLDERS. Any shareholder not voting in person or by
proxy in favor of this plan of merger is entitled, upon compliance with North
Carolina General Statutes, Section 55-113, including the twenty-day notice
requirement, to be paid the fair value of their shares as provided in said
section.
2. As to each of the undersigned corporations, the number of shares
outstanding, and the designation and number of outstanding shares of each class
entitled to vote as a class on such plan, were as follows:
<TABLE>
<CAPTION>
NUMBER OF ENTITLED TO VOTE
NAME OF CORPORATION SHARES OUTSTANDING AS A CLASS
------------------- ------------------ -------------------------------------------
Designation of Class Number of Shares
<S> <C> <C> <C> <C>
Fleet Tire Service, Inc. 1000 Common 1000
ITCO Corporation 1352 Class A Common 852
Class B Common 500
</TABLE>
3. As to each of the undersigned corporations, the total number of
shares voted for and against such plan, respectively, and, as to each class
entitled to vote thereon as a class, the number of shares of such class voted
for and against such plan, respectively, were as follows:
<TABLE>
<CAPTION>
ENTITLED TO VOTE AS A CLASS
---------------------------------------------------
NAME OF CORPORATION TOTAL VOTED FOR TOTAL VOTED AGAINST CLASS VOTED FOR VOTED AGAINST
- ------------------- --------------- ------------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fleet Tire Service, Inc. 1000 0 Common 1000 0
ITCO Corporation 1352 0 Class A Common 852 0
Class B Common 500 0
</TABLE>
<PAGE> 9
IN WITNESS WHEREOF, The President and Secretary of each of the
above named corporations have executed these Articles of Merger, this the 1st
day of May, 1973.
ATTEST: FLEET TIRE SERVICE, INC.
/s/ LEONARD TURNAGE BY: /s/ JOHN C. BOLT, JR.
- ------------------------ --------------------------------
Secretary President
ATTEST: ITCO CORPORATION
/s/ JAMES L. MATTHEWS BY: /s/ JOHN C. BOLT, JR.
- ------------------------ --------------------------------
Secretary President
NORTH CAROLINA
ROWAN COUNTY Verification by Officers of
a corporation
John C. Bolt, Jr. AND Leonard Turnage being the
President and Secretary, respectively, of Fleet Tire Service, Inc., each being
duly sworn, deposes and says that the facts stated in the foregoing "Articles of
Merger" are true and correct.
/s/ JOHN C. BOLT, JR.
-----------------------------------
President
/s/ LEONARD TURNAGE
-----------------------------------
Secretary
Sworn to and subscribed before me this 1st day of May, A. D. 1973.
/s/ ANN K. PROCTOR
-----------------------------------
Notary Public
My Comm. Expires:
8-29-77
- ------------------------
<PAGE> 10
NORTH CAROLINA
ROWAN COUNTY Verification by Officers of
a corporation
John C. Bolt, Jr. AND James L. Matthews being the President and
Secretary, respectively, of ITCO Corporation, each being duly sworn, deposes and
says that the facts stated in the foregoing "Articles of Merger"" are true and
correct.
/s/ JOHN C. BOLT, JR.
-----------------------------------
President
/s/ JAMES L. MATTHEWS
-----------------------------------
Secretary
Sworn to and subscribed before me this 1st day of May, A. D. 1973.
/s/ ANN K. PROCTOR
-----------------------------------
Notary Public
My Comm. Expires:
8-29-77
- ------------------------
<PAGE> 11
FILED
OCT 28 9:14 AM '75
THAD EURE
SECRETARY OF STATE
NORTH CAROLINA
ARTICLES OF AMENDMENT
TO THE CHARTER OF
ITCO CORPORATION
The undersigned corporation, for the purpose of amending its Articles
of Incorporation and pursuant to the provisions of Section 55-103 the General
Statutes of North Carolina, hereby executes the following Articles of Amendment:
1. Name of Corporation: ITCO Corporation.
2. At a regularly convened meeting of the shareholders of the
corporation held on the 17th day of October, A.D. 1975, the following amendment
to the charter of the corporation was adopted by vote of the shareholders:
BE IT RESOLVED that Paragraph 4, in its entirety, of the Articles of
Incorporation of ITCO Corporation is hereby deleted, and in lieu thereof, the
following is hereby substituted:
4. The aggregate number of shares which the corporation shall have
authority to issue is one million (1,000,000) shares of common stock. Said
shares of the common stock shall be without par value.
BE IT FURTHER RESOLVED that new stock certificates for shares of the
corporation shall be issued on the basis of 442.478 shares for each one share of
the $100.00 par value stock surrendered, whether the same shall be Class A
Common shares, or Class B Common shares, and that the shareholder be notified
and directed to surrender the share certificates which are presently issued and
outstanding in exchange for new certificates to be issued.
3. The number of shares of the corporation outstanding at the time of
the adoption of said amendment or amendments was 1356, and the number of shares
entitled to vote thereon was 1356. The designation of each class entitled to
vote as a class on the adoption of said amendment or amendments, and the number
of shares of each class was as follows:
<PAGE> 12
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES
----- ----------------
<S> <C>
Class A Common 856
Class B Common 500
</TABLE>
4. The number of shares voted for amendment was 1356; and the number of
shares voted against the amendment or amendments was -0-. Voting within each
class entitled to vote as a class was as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES VOTED
CLASS FOR AGAINST
- ----- --- -------
<S> <C> <C>
Class A Common 856 0
Class B Common 500 0
</TABLE>
5. Any exchange, reclassification or cancellation of issued shares will
be effected in the following manner: See paragraph 2. above.
6. Any change in the stated capital of the corporation will be effected
in the following manner: None.
7. The amendment herein effected does not give rise to dissenter's
right to payment: All shareholders of the corporation were present at the
meeting of shareholders and voted in favor of the proposals.
IN TESTIMONY WHEREOF, THIS statement is signed by the President and
Secretary this 27th day of October, A.D. 1975.
/s/ JOHN C. BOLT, JR.
-----------------------------------
President
/s/ JAMES L. MATTHEWS
-----------------------------------
Secretary
STATE OF NORTH CAROLINA
COUNTY OF WILSON
This is to certify that on this the 27th day of October, A.D. 1975,
personally appeared before me JOHN C. BOLT, JR., and JAMES L. MATTHEWS, each of
whom, being by me first duly sworn, deposes and says that the foregoing
"Articles of Amendment" in the capacity indicated, that he was authorized so to
sign, and that the statements therein contained are true.
/s/ ANN PROCTOR
-----------------------------------
Notary Public
My Comm. Expires: 5-7-78
<PAGE> 13
FILED
DEC 9 3:39 PM '80
THAD EURE
SECRETARY OF STATE
NORTH CAROLINA
ARTICLES OF AMENDMENT
AND
REDUCTION OF CAPITAL
The undersigned corporation hereby executes these Articles of Amendment
for the purpose of amending its charter and effecting a reduction of capital.
1. The name of the corporation is ITCO Corporation.
2. The following amendment to the charter of the corporation was
adopted by its shareholders on the 1st day of December, 1980, in the manner
prescribed by law:
Paragraph 4 of the Articles of Incorporation (as previously amended) is
hereby deleted, and in lieu thereof, the following is hereby
substituted:
4. The aggregate number of shares which the corporation shall
have authority to issue is one million (1,000,000) shares of
common stock. Said shares of common stock shall have a par
value of ten cents ($0.10) each.
3. The number of shares of the corporation outstanding at the time of
such adoption was 600,000; and the number of shares entitled to vote thereon was
600,000.
4. The number of shares voted for such amendment was 600,000; and the
number of shares voted against such amendment was - 0 -.
5. The purpose of this amendment is to assign a par value to the
corporation's capital stock and to reduce the stated capital of the corporation.
6. The number of issued shares and the amount of stated capital
represented thereby, before and after reduction, is as follows:
<TABLE>
<CAPTION>
Before Reduction After Reduction
Number of Stated Number of Stated
Class Shares Capital Shares Capital
----- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Common 600,000 $135,600.00 600,000 $ 60,000.00
</TABLE>
<PAGE> 14
7. The total amount by which the stated capital of the corporation is
being reduced by virtue of this amendment is $75,600.00.
8. All shareholders will be notified and directed to surrender the
share certificates which are presently outstanding in exchange for new
certificates to be issued. New certificates shall be issued on the basis of one
share of ten cent par value stock for each one share of no par value stock
surrendered.
9. The amendment herein does not give rise to dissenter's rights to
payment: All shareholders of the corporation were present at the meeting of
shareholders and voted in favor of the proposals.
IN WITNESS WHEREOF, these articles are signed by the President and
Secretary of the corporation this 1st day of December, 1980.
ITCO CORPORATION
By: /s/ JAMES L. MATTHEWS
-------------------------------
President
By: /s/ JOHN C. BOLT, JR.
------------------------------
Secretary
STATE OF NORTH CAROLINA
COUNTY OF WILSON
I, Goldie P. Shadding, a Notary Public, hereby certify that on this 1st day of
December, 1980, personally appeared before me James L. Matthews and John C.
Bolt, Jr. each of whom being by me first duly sworn, declared that he signed the
foregoing document in the capacity indicated, that he was authorized so to sign,
and that the statements therein contained are true.
/s/ GOLDIE P. SHADDING
-----------------------------------
Notary Public
<PAGE> 15
FILED
JUN 30 12:41 PM '81
THAD EURE
SECRETARY OF STATE
NORTH CAROLINA
ARTICLES OF AMENDMENT TO THE CHARTER OF
ITCO CORPORATION
The undersigned corporation hereby executes these Articles of Amendment for
the purpose of amending its charter:
1. The name of the corporation is ITCO Corporation.
2. The following amendment to the charter of the corporation was
adopted by its shareholders on the 23rd day of June, 1981, in the manner
prescribed by law:
Resolved, that the name of the corporation be and the same is hereby
changed to Interstate Tire Company.
3. The number of shares of the corporation outstanding at the time of
such adoption was 600,000; and the number of shares entitled to vote thereon was
600,000 shares.
4. The designation and number of outstanding shares of each class
entitled to vote on such amendment as a class were as follows:
Class Common Number of Shares 600,000
5. The number of shares voted for such amendment was 600,000 and the
number of shares voted against such amendment was 0.
6. The amendment herein effected does not give right to dissenter's
rights to payment for the reason that the only effect of such amendment is to
change the name of the corporation.
IN WITNESS WHEREOF, these articles are signed by the President and
Secretary of the corporation this 23rd day of June, 1981.
ITCO CORPORATION
BY: /s/ JAMES L. MATTHEWS
--------------------------------
President
BY: /s/ JOHN C. BOLT, JR.
--------------------------------
Secretary
<PAGE> 16
STATE OF NORTH CAROLINA
COUNTY OF WILSON
I, Goldie P. Shadding, a notary public, hereby certify that on this 23
day of June, 1981, personally appeared before me James L. Matthews and John C.
Bolt, Jr., each of whom being by me first duly sworn, declared that he signed
the foregoing document in the capacity indicated, that he was authorized so to
sign, and that the statements therein contained are true.
/s/ GOLDIE P. SHADDING
-----------------------------------
Notary Public
My Comm. Expires: Aug. 13, 1981
<PAGE> 17
ARTICLES OF MERGER
OF
METRO TIRE COMPANY, INC.
INTO
INTERSTATE TIRE COMPANY
The undersigned corporations hereby executes these Articles of Merger
for the purpose of merging the wholly-owned subsidiary corporation into its
parent corporation:
I. The following Plan of Merger as duly approved by the board of
directors of each of the undersigned corporations in the manner prescribed by
law:
PLAN OF MERGER
A. CORPORATIONS PARTICIPATING IN MERGER.
The following corporations (the "Merging Corporations") propose to
merge:
METRO TIRE COMPANY, INC.
INTERSTATE TIRE COMPANY
B. NAME OF SURVIVING CORPORATION.
INTERSTATE TIRE COMPANY will be the surviving corporation (the
"Surviving Corporation").
After the merger, the Surviving Corporation will have the name
"INTERSTATE TIRE COMPANY".
C. MERGER.
Pursuant to the terms and conditions of this Plan, the Merging
Corporations will merge into the Surviving Corporation. Upon the merger's
becoming effective, the corporate existence of the Merging Corporations will
cease, and the corporate existence of the Surviving Corporation will continue.
The time when the merger becomes effective is October 1, 1985 and is hereinafter
referred to as the "Effective Date".
D. CONVERSION AND EXCHANGE OF SHARES.
On the Effective Date, the outstanding shares of the Merging
Corporations will be converted and exchanged as follows:
Surviving Corporation. The outstanding shares of the Surviving
Corporation will not be converted or altered in any manner as a result of the
merger and will remain outstanding as shares of the Surviving Corporation.
<PAGE> 18
E. ABANDONMENT.
After the approval of this Plan by the shareholders of each Merging
Corporation, and at any time prior to the merger's becoming effective, the
directors of the Surviving Corporation may, in their discretion, abandon the
merger.
II. On October 1, 1985, at the time of the approval of the foregoing
Plan of Merger by the board of directors of each of the undersigned corporations
the surviving corporation was the owner of all the outstanding shares of the
other corporation; and the foregoing Plan of Merger does not provide for any
changes in the charter of, or the issuance of any shares by, the surviving
corporation.
IN WITNESS WHEREOF, these articles are signed by the Vice President and
Asst. Secretary of each corporation as of the 1st day of October, 1985.
METRO TIRE COMPANY, INC.
BY: /s/ LEONARD TURNAGE
------------------------------
Vice President
BY: /s/ WILLIAM E. BERRY
------------------------------
Asst. Secretary
INTERSTATE TIRE COMPANY
BY: /s/ LEONARD TURNAGE
------------------------------
Vice President
BY: /s/ WILLIAM E. BERRY
------------------------------
Asst. Secretary
NORTH CAROLINA
WILSON COUNTY
I, Goldie P. Shadding, a Notary Public, hereby certified that on this 3
day of Nov., 1988, personally appeared before me Leonard Turnage and William E.
Berry, each of whom being by me first duly sworn, declared that he signed the
foregoing document in the capacity indicated as an officer of Interstate Tire
Company that he was authorized so to sign, and that the statements therein
contained are true.
/s/ GOLDIE P. SHADDING
-----------------------------------
Notary Public
My Commission Expires:
Sept. 17, 1991
- ------------------------
<PAGE> 19
NORTH CAROLINA
WILSON COUNTY
I, Goldie P. Shadding, a Notary Public, hereby certified that
on this 3 day of November, 1988, personally appeared before me Leonard Turnage
and William E. Berry, each of whom being by me first duly sworn, declared that
he signed the foregoing document in the capacity indicated as an officer of
Metro Tire Company, Inc. that he was authorized so to sign, and that the
statements therein contained are true.
/s/ GOLDIE P. SHADDING
-----------------------------------
Notary Public
My Commission Expires:
Sept. 17, 1991
- ------------------------
<PAGE> 20
DOCUMENT #510048
DATE 7/23/91 TIME 00:
FILED
RUFUS L. EDMISTEN
SECRETARY OF STATE
NORTH CAROLINA
ARTICLES OF AMENDMENT OF
INTERSTATE TIRE COMPANY
The undersigned corporation hereby executes these Articles of Amendment
for the purpose of amending its charter:
l. The name of the corporation is Interstate Tire Company.
2. The following amendment to the charter of the corporation was
adopted by its shareholders on the 13th day of June, 1991, in the manner
prescribed by law:
The name of said corporation is hereby changed to ITCO Tire Company.
3. The number of shares of the corporation outstanding at the time of
such adoption was 600,000; and the number of shares entitled to vote thereon was
600,000.
4. The number of shares voted for such amendment was 600,000; and the
number of shares voted against such amendment was zero.
5. Any exchange, reclassification or cancellation of issued shares will
be effected in the following manner:
None .
6. Any change in the stated capital of the corporation will be effected
in the following manner:
None .
7. The amendment herein effected does not give rise to dissenter's
rights to payment for the reason that the only effect of such amendment is to
change the name of said corporation.
IN WITNESS WHEREOF, these articles are signed by the President and
Secretary of the corporation this 13th day of June, 1991.
INTERSTATE TIRE COMPANY
BY: /s/ ARMISTEAD BURWELL
------------------------------
President, Armistead Burwell
BY: /s/ WILLIAM E. BERRY
------------------------------
Secretary, William E. Berry
<PAGE> 21
NORTH CAROLINA
WILSON COUNTY
I, Goldie P. Shadding, a notary public, hereby certify that on this
14th day of June, 1991, personally appeared before me Armistead Burwell and
William E. Berry, each of whom being by me first duly sworn, declared that he
signed the foregoing document in the capacity indicated, that he was authorized
so to sign, and that the statements therein contained are true.
/s/ GOLDIE P. SHADDING
-----------------------------------
Notary Public
My Commission Expires:
Sept. 14, 1991
- ------------------------
<PAGE> 22
0-0075180
FILED
9:00 AM
EFFECTIVE SEP 30 1993
RUFUS L. EDMISTEN
SECRETARY OF STATE
NORTH CAROLINA
ARTICLES OF AMENDMENT OF
ITCO TIRE COMPANY
The undersigned corporation hereby executes these Articles of Amendment
for the purpose of amending its charter:
l. The name of the corporation is ITCO Tire Company.
2. The following amendment to the charter of the corporation was
adopted by its shareholders on the 5th day of October, 1992, in the manner
prescribed by law:
The name of said corporation is hereby changed to ITCO Holding Company,
Inc.
3. The number of shares of the corporation outstanding at the time of
such adoption was 600,000; and the number of shares entitled to vote thereon was
600,000.
4. The number of shares voted for such amendment was 600,000; and the
number of shares voted against such amendment was zero.
5. Any exchange, reclassification or cancellation of issued shares will
be effected in the following manner:
None.
6. Any change in the stated capital of the corporation will be effected
in the following manner:
None.
7. The amendment herein effected does not give rise to dissenter's
rights to payment for the reason that the only effect of such amendment is to
change the name of said corporation.
IN WITNESS WHEREOF, these articles are signed by the President and
Secretary of the corporation this 5th day of October, 1992.
ITCO TIRE COMPANY
BY: /s/ ARMISTEAD BURWELL
------------------------------
President
BY: /s/ WILLIAM E. BERRY
------------------------------
Secretary
<PAGE> 23
NORTH CAROLINA
WILSON COUNTY
I, Kathy Tant Webb, a notary public, hereby certify that on this 5th
day of October, 1992, personally appeared before me Armistead Burwell and
William E Berry, each of whom being by me first duly sworn, declared that he
signed the foregoing document in the capacity indicated, that he was authorized
so to sign, and that the statements therein contained are true.
/s/ KATHY TANT WEBB
-----------------------------------
Notary Public
My Commission Expires:
6-5-94
- ------------------------
<PAGE> 24
0-0075180
FILED
1:54 PM
EFFECTIVE NOV 30 1995
RUFUS L. EDMISTEN
SECRETARY OF STATE
NORTH CAROLINA
ARTICLES OF MERGER
OF
ITCO ACQUISITION COMPANY OF NORTH CAROLINA, INC.,
a North Carolina Corporation,
INTO
ITCO HOLDING COMPANY, INC.,
a North Carolina Corporation
ITCO Holding Company, Inc., a corporation organized under the laws of
the State of North Carolina (the "Surviving Corporation"), hereby submits these
Articles of Merger for the purpose of merging ITCO Acquisition Company of North
Carolina, Inc., a corporation organized under the laws of the State of North
Carolina (the "Merging Corporation"), into the Surviving Corporation.
1. With respect to each corporation that is a party to the merger:
(a) The Plan of Merger affected hereto and made a part hereof
as Exhibit A was duly approved on and as of November 30, 1995 by the
sole shareholder of the Merging Corporation, as required by the North
Carolina Business Corporation Act.
(b) The Plan of Merger attached hereto and made a part hereof
as Exhibit A was duly approved on and as of November 30, 1995 by the
shareholders of the Surviving Corporation, as required by the North
Carolina Business Corporation Act.
2. These Articles of Merger shall become effective upon filing with the
North Carolina Secretary of State.
Dated: November 30, 1995.
ITCO HOLDING COMPANY, INC.
By: /s/ ARMISTEAD BURWELL, JR.
------------------------------
Name: ARMISTEAD BURWELL, JR.
-----------------------
Title: PRESIDENT
-----------------------
<PAGE> 25
PLAN OF MERGER
of
ITCO ACQUISITION COMPANY OF NORTH CAROLINA, INC.
A North Carolina corporation
into
ITCO HOLDING COMPANY, INC.
A North Carolina corporation
ARTICLE I
ITCO Acquisition Company of North Carolina, Inc., a North Carolina
corporation, which is sometimes referred to herein as the "Merging Corporation,"
shall be merged into ITCO Holding Company, Inc., a North Carolina corporation,
which shall be the surviving corporation and which is sometimes referred to
herein as the "Surviving Corporation." Merging Corporation, ITCO Holding
Company, Inc. and the shareholders of ITCO Holding Company, Inc. are parties to
that certain Agreement and Plan of Merger dated as of November 16, 1995, as
amended November 30, 1995 (the "Merger Agreement"), pursuant to which such
parties have agreed to cause the merger (the "Merger") of the Merging
Corporation into ITCO Holding Company, Inc., subject to certain terms and
conditions set forth herein.
ARTICLE II
After the merger, the Surviving Corporation will have the name ITCO
Holding Company, Inc.
ARTICLE III
The terms and conditions of the Merger are set forth in the Merger
Agreement, and include, among other things, the following:
(a) The Articles of Incorporation of ITCO Acquisition Company
of North Carolina, Inc. as of the effective time of the Merger shall be
the Articles of Incorporation of the Surviving Corporation until
changed as provided by law.
(b) The Bylaws of ITCO Acquisition Company of North Carolina,
Inc. as of the effective time of the Merger shall be the Bylaws of the
Surviving Corporation until altered, amended or repealed as provided
therein.
(c) The Directors of ITCO Acquisition Company of North
Carolina, Inc. as of the effective time of the Merger shall be the
Directors of the Surviving Corporation until their successors are
elected or appointed according to the Bylaws of the Surviving
Corporation.
(d) The Officers of the ITCO Acquisition Company of North
Carolina, Inc. as of the effective time of the Merger shall be the
Officers of the Surviving Corporation until their successors are
elected or appointed according to the Bylaws of the Surviving
Corporation.
<PAGE> 26
(e) Except insofar as the same may be continued by law or in
order to carry out the purposes of this Plan of Merger, and except as
continued in and merged into the Surviving Corporation, the separate
existence of the Merging Corporation shall cease as of the effective
time of the Merger and the Surviving Corporation shall have and possess
all the rights, privileges, powers, amenities and franchises and all
property of the Merging Corporation, and shall be responsible and
liable for all debts, duties, contracts, liabilities and obligations of
the Merging Corporation.
ARTICLE IV
Subject to the terms and conditions of the Merger Agreement, the manner
and basis of converting the shares of the corporations participating in the
Merger shall be as follows:
(a) The 321,185 shares of common stock, par value $.10, of
ITCO Holding Company, Inc. outstanding as of the effective time of the
Merger shall be cancelled and retired and converted into and become
rights to receive cash consideration in the amount of $56.40 per share.
(b) The shares of common stock, par value $.01, of ITCO
Acquisition Company of North Carolina, Inc. outstanding as of the
effective time of the Merger shall be automatically converted into an
aggregate of 1,000 shares of common stock, $.01 par value, of the
Surviving Corporation on a pro rata basis.
ARTICLE V
The Merger shall be effective upon the filing of Articles of Merger
with the Secretary of State of the State of North Carolina.
ARTICLE VI
As set forth in the Merger Agreement, the Plan of Merger may be
terminated and the Merger contemplated herein may be abandoned at any time, but
only prior to the effective time of the Merger, by mutual written consent of the
Boards of Directors of the Merging Corporation and the Surviving Corporation.
2
<PAGE> 1
EXHIBIT 3.8
BYLAWS
OF
ITCO ACQUISITION COMPANY OF NORTH CAROLINA, INC.
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of the corporation
shall be located in Wilson, North Carolina, or at such other place as the Board
of Directors shall determine.
Section 2. Registered Office. The registered office of the corporation
required by law to be maintained in the State of North Carolina may be, but need
not be, identical to the principal office. The address of the registered office
may be changed from time to time by the Board of Directors.
Section 3. Other Offices. The corporation may, from time to time, have
offices at such places, either within or without the State of North Carolina, as
the Board of Directors may designate or as the business of the corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders shall
be held on the first Friday in the month of June in each year, beginning with
the year 1996, at the hour of 10:00 a.m. or such other time on such day
designated in the notice of meeting, for the purpose of electing directors and
for the transaction of such other business as may come before the meeting. If
the day fixed for the annual meeting shall be a legal holiday in the State of
North Carolina, such meeting shall be held on the next succeeding business day.
Section 2. Substitute Annual Meeting. If the annual meeting shall not
be held on the day designated by these bylaws for the annual meeting of
shareholders, or at any adjournment thereof, then a substitute annual meeting
may be called in accordance with Section 3 of this Article and the meeting so
called may be designated and treated for all purposes as the annual meeting.
Section 3. Special Meetings. Special meetings of the shareholders may
be called by the President or by the Board of Directors or shall be called by
the Secretary within thirty (30) days after the delivery to the Secretary of the
written request
Page 1 of 16
<PAGE> 2
of the holder or holders of not less than one-tenth of all shares entitled to
vote at the meeting. Such request must be signed, dated and delivered to the
Secretary and must describe the purpose or purposes for which the meeting is to
be held.
Section 4. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of North Carolina, as the place of
meeting for any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all shareholders entitled to vote at a
meeting may designate any place, either within or without the State of North
Carolina, as the place for the holding of such meeting. If no designation is
made, or if a special meeting be otherwise called, the place of meeting shall be
the principal office of the corporation.
Section 5. Notice of Meeting. Written or printed notice stating the
time and place of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60), or in case of a special meeting called at the
request of the shareholders, not more than thirty (30), days before the date of
the meeting, either personally or by mail, by or at the direction of the
President, the Secretary, or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his address as it appears on the record of
shareholders of the corporation, with postage thereon prepaid. In addition to
the foregoing, notice of a substitute annual meeting shall state that the annual
meeting was not held on the day designated by these bylaws and that such
substitute annual meeting is being held in lieu of and is designated as such
annual meeting.
If a meeting of shareholders is adjourned to a different date, time or
place, notice need not be given of the new date, time or place if the new date,
time or place is announced at the meeting before adjournment. If a new record
date for the adjourned meeting is fixed, however, notice of the adjourned
meeting must be given to persons who are shareholders as of the new record date.
Section 6. Waiver of Notice.
(a) A shareholder may waive any notice required by law, the
articles of incorporation, or these bylaws before or after the date and
time stated in the notice. The waiver must be in writing, be signed by
the shareholder entitled to the notice, and be delivered to the
corporation for inclusion in the minutes or filing with the corporate
records.
Page 2 of 16
<PAGE> 3
(b) A shareholder's attendance at a meeting:
(1) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder at the beginning
of the meeting objects to holding the meeting or transacting
business at the meeting; and
(2) waives objection to consideration of a particular
matter at the meeting that is not within the purpose or
purposes described in the meeting notice, unless the
shareholder objects to considering the matter before it is
voted upon.
Section 7. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, seventy (70) days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least ten
(10) days immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than seventy days and, in the
case of a meeting of shareholders, not less than ten (10) full days prior to the
date on which the particular action, requiring such determination of
shareholders, is to be taken.
If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof except where the determination has been made
through the closing of the stock transfer books and the stated period of closing
has expired, and except where the Board of Directors fixes a new record date,
which it must do if the meeting is adjourned to a date more than 120 days after
the date fixed for the original meeting.
Page 3 of 16
<PAGE> 4
Section 8. Voting Lists. After fixing a record date for a meeting, the
Secretary of the corporation shall prepare an alphabetical list of the names of
all its shareholders who are entitled to notice of a shareholders' meeting. The
list shall be arranged by voting group (and within each voting group by class or
series of shares) and show the address of and number of shares held by each
shareholder. The shareholder's list shall be available for inspection by any
shareholder, beginning two (2) business days after notice of the meeting is
given for which the list was prepared and continuing through the meeting, at the
corporation's principal office or at a place identified in the meeting notice in
the city where the meeting will be held. A shareholder, or his agent or
attorney, is entitled on written demand to inspect and, subject to the
requirements of N.C. Gen. Stat. Section 55-16-02(c), as may be hereafter
amended, to copy the list, during regular business hours and at his expense,
during the period it is available for inspection. The Secretary of the
corporation shall make the shareholders' list available at the meeting, and any
shareholder or his agent or attorney is entitled to inspect the list at any time
during the meeting or any adjournment.
Section 9. Voting Groups. All shares of one or more classes or series
that under the articles of incorporation or the North Carolina Business
Corporation Act are entitled to vote and be counted together collectively on a
matter at a meeting of shareholders constitute a voting group. All shares
entitled by the articles of incorporation or the North Carolina Business
Corporation Act to vote generally on a matter are for that purpose a single
voting group. Classes or series of shares shall not be entitled to vote
separately by voting group unless expressly authorized by the articles of
incorporation or specifically required by law.
Section 10. Quorum. Shares entitled to vote as a separate voting group
may take action on a matter at the meeting only if a quorum of those shares
exists. A majority of the votes entitled to be cast on the matter by the voting
group constitutes a quorum of that voting group for action on that matter.
The shareholders at a meeting at which a quorum is present may continue
to do business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
In the absence of a quorum at the opening of any meeting of
shareholders, such meeting may be adjourned from time to time by a vote of the
majority of the shares voting on the motion to adjourn; and at any adjourned
meeting at which a quorum is present, any business may be transacted which might
have been transacted at the original meeting.
Section 11. Proxies. Shares may be voted either in person or by one or
more agents authorized by a written proxy executed by the shareholder or by his
duly authorized attorney in fact.
Page 4 of 16
<PAGE> 5
An appointment of a proxy is effective when received by the Secretary
or other officer or agent authorized to tabulate votes. An appointment is valid
for eleven (11) months unless a different period is expressly provided in the
appointment form.
Section 12. Voting of Shares. Each outstanding share entitled to vote
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders.
Except as otherwise provided by law, the articles of incorporation or
these bylaws, if a quorum exists, action on a matter by a voting group is
approved if the votes cast within the voting group favoring the action exceed
the votes cast opposing the action.
Shares of its own stock owned by the corporation directly, or
indirectly through a corporation in which it owns, directly or indirectly, a
majority of the shares entitled to vote for directors, shall not be voted at any
meeting and shall not be counted in determining the total number of outstanding
shares at a given time entitled to vote; provided that this provision does not
limit the power of the corporation to vote its own shares held by it in a
fiduciary capacity.
Section 13. Votes Required. The vote of a majority of the shares voted
at a meeting of shareholders, duly held at which a quorum is present, shall be
sufficient to take or authorize action upon any matter which may properly come
before the meeting except as otherwise provided by law, by the articles of
incorporation or by these bylaws. Any provision in these bylaws prescribing the
vote required for any purpose as permitted by law may not itself be amended by a
vote less than the vote prescribed therein.
Section 14. Action of Shareholders Without Meeting. Any action which
may be taken at a meeting of the shareholders may be taken without a meeting if
the action is taken by all the shareholders entitled to vote on the action. The
action must be evidenced by one or more written consents signed by all the
shareholders before or after such action, describing the action taken and
delivered to the corporation for inclusion in the minutes or filing with the
corporate records. A consent signed under this Section has the effect of a
meeting vote and may be described as such in any document.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the corporation
managed under the direction of, the Board of Directors.
Page 5 of 16
<PAGE> 6
Section 2. Number, Tenure and Qualifications. The number of directors
which shall constitute the whole board shall not be less than one (1) nor more
than ten (10). The first board shall consist of one (1) director. Thereafter,
within such limits, the number of directors shall be determined by the
shareholders. Directors need not be residents of the State of North Carolina or
shareholders of the corporation.
The directors shall be elected at the annual meeting of the
shareholders (except as herein otherwise provided for the filling of vacancies).
Those persons who receive the highest number of votes at a meeting at which a
quorum is present shall be deemed to have been elected.
Each initial director shall hold office until the first shareholders'
meeting at which directors are elected, or until such director's death,
resignation or removal. The term of every other director shall expire at the
next annual shareholder's meeting following the director's election or upon such
director's death, resignation or removal. The term of a director elected to fill
a vacancy expires at the next shareholders' meeting at which directors are
elected. A decrease in the number of directors shall not shorten an incumbent
director's term. Despite the expiration of a director's term, such director
shall continue to serve until a successor shall be elected or qualifies or until
there is a decrease in the number of directors.
Section 3. Vacancies. Except as otherwise provided by law or the
articles of incorporation, any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining directors even
though less than a quorum or by the sole remaining director.
At a special meeting of shareholders the shareholders may elect a
director to fill any vacancy not filled by the directors.
Section 4. Removal. Any director may be removed at any time with or
without cause by a vote of the shareholders holding a majority of the
outstanding shares entitled to vote at an election of directors. If cumulative
voting is authorized, a director may not be removed if the number of votes
sufficient to elect him under cumulative voting is voted against his removal.
A director may not be removed by the shareholders at a meeting unless
the notice of the meeting states that the purpose, or one of the purposes, of
the meeting is removal of the director.
Section 5. Compensation. The Board of Directors may compensate
directors for their services as such and may provide for the payment of all
expenses incurred by directors in attending meetings of the Board.
Page 6 of 16
<PAGE> 7
Section 6. Chairman of the Board. There may be a Chairman of the Board
of Directors elected by the directors from their number at the annual meeting of
the Board of Directors. The Chairman shall preside at all meetings of the Board
of Directors and perform such other duties as may be directed by the Board.
ARTICLE IV
MEETINGS OF DIRECTORS
Section 1. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of North Carolina for the holding of additional regular
meetings without other notice than such resolution.
Section 2. Special Meetings. Special meetings of the Board of Directors
may be called by the President or any two directors. The person or persons
authorized to call special meetings of the Board of Directors may fix any place,
either within or without the State of North Carolina, as the place for holding
any special meeting of the Board of Directors called by them.
Section 3. Notice. The person calling the meeting shall give or cause
to be given oral or written notice of special meetings of the Board of Directors
to each director not less than three (3) days before the date of the meeting.
Neither the business to be transacted at, nor the purposes of any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
Section 4. Waiver of Notice.
(a) A director may waive any notice required by law, the
articles of incorporation, or these bylaws before or after the date and
time stated in the notice. Except as provided by subsection (b), the
waiver must be in writing, signed by the director entitled to the
notice, and delivered to the corporation for filing with the minutes or
corporate records.
(b) A director's attendance at or participation in a meeting
waives any required notice to him of the meeting unless the director at
the beginning of the meeting (or promptly upon his arrival) objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
Section 5. Quorum. Except as otherwise provided by law, the articles of
incorporation or these bylaws, a quorum of the
Page 7 of 16
<PAGE> 8
Board of Directors consists of (a) a majority of the fixed number of directors
if the corporation has a fixed board size, or (b) a majority of the number of
directors prescribed, or if no number is prescribed, the number in office
immediately before the meeting begins, if the corporation has a variable-range
size board.
Section 6. Manner of Acting. If a quorum is present when a vote is
taken, the affirmative act of the majority of the directors present is the act
of the Board of Directors, except as otherwise provided in these bylaws.
Section 7. Presumption of Assent. A director who is present at a
meeting of the Board of Directors or a committee of the Board of Directors when
corporate action is taken is deemed to have assented to the action taken unless:
(a) He objects at the beginning of the meeting (or promptly
upon his arrival) to holding it or transacting business at the meeting;
(b) His dissent or abstention from the action taken is entered
in the minutes of the meeting; or
(c) He files written notice of his dissent or abstention with
the presiding officer of the meeting before its adjournment or with the
corporation immediately after adjournment of the meeting. The right of
dissent or abstention is not available to a director who votes in favor
of the action taken.
Section 8. Action by Directors Without Meeting. Action required or
permitted by law to be taken at a Board of Directors' meeting may be taken
without a meeting if the action is taken by all members of the Board. The action
must be evidenced by one or more written consents signed by each director before
or after such action, describing the action taken, and included in the minutes
or filed with the corporate records. Action taken under this Section is
effective when the last director signs the consent unless the consent specifies
a different effective date. A consent signed under this Section has the effect
of a meeting vote and may be described as such in any document.
Section 9. Meetings by Conference Telephone. Any one or more directors
may participate in a meeting of the Board or a committee by means of a
conference telephone or similar communications device by which all directors
participating may simultaneously hear each other during the meeting, and such
participation in a meeting shall be deemed presence in person at such meeting.
Page 8 of 16
<PAGE> 9
ARTICLE V
COMMITTEES OF THE BOARD
Section 1. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the number of directors fixed by these bylaws, may
designate two or more directors to constitute an Executive Committee, which
committee, to the extent provided in such resolution, shall have and may
exercise all of the authority of the Board of Directors to the extent permitted
by applicable law.
Section 2. Other Committees. The Board of Directors may create one or
more other committees and appoint members of the Board of Directors to serve on
them. Each committee must have two or more members who serve at the pleasure of
the Board of Directors. The creation of a committee and appointment of members
to it must be approved by the greater of:
(a) A majority of all the directors in office when the action
is taken; or
(b) The number of directors constituting a quorum under the
articles of incorporation or these bylaws.
Section 3. Vacancy. Any vacancy occurring in any committee shall be
filled by a majority of the number of directors fixed by these bylaws at a
regular or special meeting of the Board of Directors.
Section 4. Removal. Any member of a committee may be removed at any
time with or without cause by a majority of the number of directors fixed by
these bylaws.
Section 5. Minutes. Each committee shall keep regular minutes of its
proceedings and report the same to the Board when required.
Section 6. Responsibility of Directors. The designation of a committee
and the delegation thereto of authority shall not operate to relieve the Board
of Directors, or any member thereof, of any responsibility or liability imposed
upon it or him by law.
Any resolutions adopted or other action taken by a committee within the
scope of the authority delegated to it by the Board of Directors shall be deemed
for all purposes to be adopted or taken by the Board of Directors.
If action taken by a committee is not thereafter formally considered by
the Board, a director may dissent from such action by filing his written
objection with the Secretary with reasonable promptness after learning of such
action.
Page 9 of 16
<PAGE> 10
ARTICLE VI
OFFICERS
Section 1. Officers of the Corporation. The officers of the corporation
shall consist of a President, a Secretary, a Treasurer and such Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers as the Board of
Directors may from time to time appoint. The same individual may simultaneously
hold more than one office in the corporation, but no individual may act in more
than one capacity where action of two or more officers is required.
Section 2. Appointment and Term. The officers of the corporation shall
be appointed by the Board of Directors and each officer shall hold office until
his death, resignation, retirement, removal, disqualification or his successor
shall have been appointed.
Section 3. Compensation of Officers. The compensation of all officers
of the corporation shall be fixed by the Board of Directors and no officer shall
serve the corporation in any other capacity and receive compensation therefor
unless such additional compensation be authorized by the Board of Directors. The
appointment of an officer does not itself create contract rights.
Section 4. Removal of Officers. The Board of Directors may remove any
officer at any time with or without cause, but such removal shall not itself
affect the officer's contract rights, if any, with the corporation.
Section 5. Resignation. An officer may resign at any time by
communicating his or her resignation to the corporation, orally or in writing. A
resignation is effective when communicated unless it specifies in writing a
later effective date. If a resignation is made effective at a later date that is
accepted by the corporation, the Board of Directors may fill the pending vacancy
before the effective date if the Board provides that the successor does not take
office until the effective date. An officer's resignation does not affect the
corporation's contract rights, if any, with the officer.
Section 6. Bonds. The Board of Directors may by resolution require an
officer, agent, or employee of the corporation to give bond to the corporation,
with sufficient sureties, conditioned upon the faithful performance of the
duties of his respective office or position, and to comply with such other
conditions as may from time to time be required by the Board of Directors.
Page 10 of 16
<PAGE> 11
Section 7. President. The President shall be the chief executive
officer of the corporation, subject to the control of the Board of Directors,
and shall in general supervise and control all of the business and affairs of
the corporation. He shall, when present, preside at all meetings of the
shareholders.
He shall sign any deeds, mortgages, bonds, contracts or other
instruments which the Board of Directors has authorized to be executed, except
in cases where the signing and execution thereof shall be expressly delegated by
the Board of Directors or by these Bylaws to some other officer or agent of the
corporation, or shall be required by law to be otherwise signed or executed; and
in general shall perform all duties incident to the office of President and such
other duties as may be prescribed by the Board of Directors from time to time.
Section 9. Vice Presidents. In the absence of the President or in the
event of his death, inability or refusal to act, the Vice Presidents, in the
order of the seniority of their titles or if they shall all be the same level of
Vice President, in the order of their length of uninterrupted service at such
level of Vice President, unless otherwise determined by the Board of Directors,
shall perform the duties of the President, and when so acting shall have all the
powers of and be subject to all the restrictions upon the President. Each Vice
President shall perform such other duties as from time to time be assigned to
him by the President or Board of Directors.
Section 10. Secretary. The Secretary shall: (a) attend all meetings of
the shareholders and of the Board of Directors, keep the minutes of such
meetings in one or more books provided for that purpose, and perform like duties
for the standing committees when required; (b) see that all notices are duly
given in accordance with the provisions of these bylaws or as required by law;
(c) be custodian of the corporate records and of the seal of the corporation and
see that the seal of the corporation is affixed to all documents, the execution
of which on behalf of the corporation under its seal is duly authorized; (d)
keep a register of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (e) have general charge of the
stock transfer books of the corporation; and (f) in general perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Board of Directors or by the President, under
whose supervision he shall be.
The Secretary shall keep or cause to be kept at the corporation's
principal office a record of the corporation's shareholders, giving the names
and addresses of all shareholders and the number and class of shares held by
each, and such other records as are required to be kept at the corporation's
principal office by N.C. Gen. Stat. Section 55-16-01 and any successor to such
statute.
Page 11 of 16
<PAGE> 12
Section 11. Assistant Secretaries. In the absence of the Secretary or
in the event of his death, inability or refusal to act, any Assistant Secretary,
unless otherwise determined by the Board of Directors, shall perform the duties
of the Secretary, and when so acting shall have all the powers of and be subject
to all the restrictions upon the Secretary. They shall perform such other duties
as may be assigned to them by the Secretary, by the President or by the Board of
Directors.
Section 12. Treasurer. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; receive
and give receipts for money due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
depositories as shall be selected in accordance with the provisions of Article
VII, Section 4 of these bylaws; and (b) in general perform all of the duties
incident to the office of Treasurer, including preparing, or causing to be
prepared, all financial statements required by law, and such other duties as
from time to time may be assigned to him by the President or by the Board of
Directors.
Section 13. Assistant Treasurers. In the absence of the Treasurer or in
the event of his death, inability or refusal to act, the Assistant Treasurers in
the order of their length of service as Assistant Treasurer, unless otherwise
determined by the Board of Directors, shall perform the duties of the Treasurer,
and when so acting shall have all the powers of and be subject to all the
restrictions upon the Treasurer. They shall perform such other duties as may be
assigned to them by the Treasurer, by the President or by the Board of
Directors.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 3. Checks and Drafts. All checks, drafts or other orders for
the payment of money, issued in the name of the corporation, shall be signed by
such officer or officers, agent or agents of the corporation and in such manner
as shall from time to time be determined by resolution of the Board of
Directors.
Page 12 of 16
<PAGE> 13
Section 4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such depositories as the Board of Directors may select.
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. The Board of Directors may
authorize the issuance of some or all of the shares of the corporation's classes
or series without issuing certificates to represent such shares. If shares are
represented by certificates, the certificates shall be in such form as shall be
determined by the Board of Directors. Certificates shall be signed by the
President or a Vice President and by the Secretary or an Assistant Secretary.
All certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number and class of shares and the date of issue,
shall be entered on the stock transfer books of the corporation. When shares are
represented by certificates, the corporation shall issue and deliver, to each
shareholder to whom such shares have been issued or transferred, certificates
representing the shares owned by him. When shares are not represented by
certificates, then within a reasonable time after the issuance or transfer of
such shares, the corporation shall send the shareholder to whom such shares have
been issued or transferred a written statement of the information required by
law to be on certificates.
Section 2. Transfer of Shares. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, and, when shares
are represented by certificates, on surrender for cancellation of the
certificate for such shares.
Section 3. Lost Certificates. The Board of Directors or the President
may direct a new certificate to be issued in place of any certificate
theretofore issued by the corporation claimed to have been lost or destroyed,
upon receipt of an affidavit of such fact from the shareholder. When authorizing
such issuance of a new certificate, the Board of Directors or the President may
require that the shareholder give the corporation a bond in such sum as the
Board or the President may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate claimed to have
been lost or destroyed or may require the shareholder to agree to indemnify the
corporation against any claims that may be made against the corporation with
respect to the certificate claimed to have been lost or destroyed.
Page 13 of 16
<PAGE> 14
Section 4. Holder of Record. The corporation may treat as an absolute
owner of shares the person in whose name the shares stand of record on its books
just as if that person had full competency, capacity and authority to exercise
all rights of ownership irrespective of any knowledge or notice to the contrary
or any description indicating a representative, pledge or other fiduciary
relation or any reference to any other instrument or to the rights of any other
person appearing upon its records or upon the share certificate except that any
person furnishing to the corporation proof of his appointment as a fiduciary
shall be treated as if he were a holder of record of its shares.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Distributions. The Board of Directors may from time to time
authorize, and the corporation may grant, distributions and share dividends
pursuant to law and subject to the provisions of its articles of incorporation.
Section 2. Seal. The corporate seal of the corporation shall consist of
two concentric circles between which is the name of the corporation and in the
center of which is inscribed SEAL; and such seal, as impressed on the margin
hereof, is hereby adopted as the corporate seal of the corporation.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
fixed by the Board of Directors.
Section 4. Pronouns. Each reference to pronouns herein shall be
construed in the masculine, feminine, neuter, singular or plural, as the context
may require.
Section 5. Amendments. The Board of Directors may amend or repeal the
bylaws, except to the extent otherwise provided by law, the articles of
incorporation or a Bylaw adopted by the shareholders, and except that a Bylaw
adopted, amended or repealed by the shareholders may not be readopted, amended
or repealed by the Board of Directors unless the articles of incorporation or a
Bylaw adopted by the shareholders authorizes the Board of Directors to adopt,
amend or repeal that particular Bylaw or the bylaws generally.
Section 6. Voting of Shares of Other Corporations. Authority to vote
shares of another corporation or of any association held by this corporation,
and to execute proxies and written waivers and consents in relation thereto,
shall be vested exclusively in the President or such officer(s) and employee(s)
of this corporation as shall be expressly identified by name or title from time
to time by the Board of Directors of this corporation in resolutions formally
adopted for that purpose.
Page 14 of 16
<PAGE> 15
ARTICLE X
INDEMNIFICATION
Section 1. Coverage. Any person who at any time serves or has served as
a director or officer of the corporation, or in such capacity at the request of
the corporation for any other corporation, partnership, joint venture, trust or
other enterprise, or as a trustee or administrator under an employee benefit
plan, shall have a right to be indemnified by the corporation to the fullest
extent permitted by law against (a) reasonable expenses, including reasonable
attorneys' fees, actually incurred by him in connection with any threatened,
pending or completed action, suit or proceeding (and any appeal thereof),
whether civil, criminal, administrative, investigative or arbitrative, and
whether or not brought by or on behalf of the corporation, seeking to hold him
liable by reason of the fact that he is or was acting in such capacity, and (b)
reasonable payments made by him in satisfaction of any judgment, money decree,
fine (including, without limitation, any excise tax assessed with respect to an
employee benefit plan), penalty or settlement for which he may have become
liable in any such action, suit or proceeding.
Section 2. Payment. Expenses incurred by such person shall be paid in
advance of the final disposition of such investigation, action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount unless it shall ultimately be determined that he is entitled
to be indemnified by the corporation.
Section 3. Evaluation. The Board of Directors of the corporation shall
take all such action as may be necessary and appropriate to authorize the
corporation to pay the indemnification required by this Article X, including,
without limitation, to the extent needed, making a determination that
indemnification is permissible under the circumstances and a good faith
evaluation of the manner in which the claimant for indemnity acted and of the
amount of indemnity due him, and giving notice to and obtaining approval by the
shareholders of the corporation.
Section 4. Consideration. Any person who at any time after the adoption
of this Article X serves or has served in any of the aforesaid capacities for or
on behalf of the corporation shall be deemed to be doing or to have done so in
reliance upon, and as consideration for, the right of indemnification provided
herein. Such right shall inure to the benefit of the legal representatives of
any such person and shall not be exclusive of any other rights to which such
person may be entitled apart from the provisions of this Article X. Any repeal
or modification of these indemnification provisions shall not affect any rights
or obligations existing at the time of such repeal or modification.
Page 15 of 16
<PAGE> 16
Section 5. Definitions. For purposes of this Article X, terms defined
by the North Carolina Business Corporation Act and used but not defined herein
shall have the meanings assigned to them by the Act.
Page 16 of 16
<PAGE> 1
May 31 8:46 AM '84
[illegible]
SECRETARY OF STATE
[illegible] EXHIBIT 3.9
ARTICLES OF INCORPORATION
OF
TOWN & COUNTRY TIRE SERVICE, INC.
I, the undersigned natural person of the age of eighteen (18)
years or more, for the purpose of forming a business corporation under the laws
of the State of North Carolina, as contained in Chapter 55 of the General
Statutes of North Carolina, entitled Business Corporation Act, and the several
amendments thereto, hereby set forth Articles of Incorporation as follows:
ARTICLE I
Name. The name of the corporation is TOWN & COUNTRY TIRE
SERVICE, INC.
ARTICLE II
Period of Duration. The period of duration of the Corporation
shall be perpetual.
ARTICLE III
Purpose. The purpose or purposes for which the corporation is
organized are:
In general, to have and exercise any and all powers that
corporations have and may exercise under the laws of the State of North Carolina
and as the same may be amended, except such powers as are inconsistent with the
express provisions of these Articles.
ARTICLE IV
Capital Stock. The aggregate number of shares that the
corporation shall have authority to issue is One Hundred Thousand (100,000),
divided into one class. The designation of the class, number of shares of the
class, series, if any, within the class, and the par value, if any, of the
shares of each class, or statement that the shares of any class are without par
value, is as follows:
<TABLE>
<CAPTION>
Number of Par Value
Class Series Shares Per Share
- ----- ------ ------ ---------
<S> <C> <C> <C>
Common A 100,000 $1.00
</TABLE>
<PAGE> 2
-2-
ARTICLE V
Preferences, Etc. The preferences, limitations and relative
rights in respect of the shares of each class are as follows: None.
ARTICLE VI
Consideration for Shares. The minimum amount of consideration
for shares to be received by the corporation before it shall commence business
is $500.00.
ARTICLE VII
Registered Office and Registered Agent. The address of the
initial registered office of the corporation is: 5 West Hargett Street, Suite
1000, City of Raleigh, County of Wake, State of North Carolina 27601, and the
name of the initial registered agent at such address is William D. Harazin.
ARTICLE VIII
Directors. The number of Directors of the corporation may be
fixed by the bylaws, but shall not be less than one. The number of Directors
constituting the initial Board of Directors shall be three, and the names and
addresses of the persons who are to serve as Directors until the first meeting
of shareholders or until their successors shall be elected and qualified are:
Ernie Ray Sears, Route 1, Fuquay-Varina, NC 27526; Emerson D. Beecher, 3920
Westra Drive, Raleigh, NC 27604; and Robert Mitchell Kinton, Route 1,
Fuquay-Varina, NC 27526.
ARTICLE IX
Incorporator. The name and address of the Incorporator is
William D. Harazin, 5 West Hargett Street, Suite 1000, Raleigh, NC 27601.
IN TESTIMONY WHEREOF, I have hereunto set my hand this 30th
day of May, 1984, A.D.
/s/ WILLIAM D. HARAZIN
<PAGE> 3
-3-
NORTH CAROLINA
WAKE COUNTY
This is to certify that on the 30th day of May, 1984, before
me a Notary Public, personally appeared William D. Harazin, who I am satisfied
is the person named in and who executed the foregoing Articles of Incorporation,
and I, having first made known to him the contents thereof, he did acknowledge
that he signed and delivered the same as his voluntary act and deed for the uses
and purposes therein expressed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed
my official seal this 30th day of May 1984, A.D.
/s/ ELIZABETH A. ROBERTS
Notary Public
My Commission Expires: 8-23-88
<PAGE> 4
FILED
9:00 AM
SEP 30 1993
EFFECTIVE_____________________
RUFUS L. EDMISTEN
SECRETARY OF STATE
NORTH CAROLINA
ARTICLES OF AMENDMENT OF
TOWN & COUNTRY TIRE SERVICE, INC.
The undersigned corporation hereby executes these Articles of
Amendment for the purpose of amending its charter:
1. The name of the corporation is Town & Country Tire Service,
Inc.
2. The following amendment to the charter of the corporation
was adopted by its shareholders on the 5th day of October, 1992, in the manner
prescribed by law:
The name of said corporation is hereby changed to ITCO Tire
Company.
3. The number of shares of the corporation outstanding at the
time of such adoption was 6,000; and the number of shares entitled to vote
thereon was 6,000.
4. The number of shares voted for such amendment was 6,000;
and the number of shares voted against such amendment was zero.
5. Any exchange, reclassification or cancellation of issued
shares will be effected in the following manner:
None.
6. Any change in the stated capital of the corporation will be
effected in the following manner:
None.
7. The amendment herein effected does not give rise to
dissenter's rights to payment for the reason that the only effect of such
amendment is to change the name of said corporation.
IN WITNESS WHEREOF, these articles are signed by the President
and Secretary of the corporation this 5th day of October 1992.
TOWN & COUNTRY TIRE SERVICE, INC.
BY: /s/ A. BURWELL
------------------------------------
President
BY: /s/ WILLIAM E. BERRY
------------------------------------
Secretary
<PAGE> 5
NORTH CAROLINA
WILSON COUNTY
I, Kathy Tant Webb, a notary public, hereby certify that on
this 5th day of October, 1992, personally appeared before me Armistead Burwell
and William E. Berry, each of whom being by me first duly sworn, declared that
he signed the foregoing document in the capacity indicated, that he was
authorized so to sign, and that the statements therein contained are true.
/s/ KATHY TANT WEBB
--------------------------
Notary Public
My Commission Expires:
6-5-94
- ---------------------------
<PAGE> 1
EXHIBIT 3.10
ITCO TIRE COMPANY
BY-LAWS
ARTICLE I
Offices
Section 1. Principal Place of Business. The principal place of business
of the corporation shall be located at Commerce Road, Wilson, North Carolina.
Section 2. Registered Office. The registered office of the corporation,
which by law is required to be maintained within the State of North Carolina,
shall be located at Commerce Road, Wilson, North Carolina.
ARTICLE II
Stock
Section 1. Issuance. The Board of Directors may issue, from time to
time, the stock of this corporation for such consideration as the Board of
Directors may deem advisable. All shares of stock so issued shall be fully paid
and not subject to further call or assessment, and in the absence of actual
fraud in the transaction, the valuation of the consideration as fixed by the
Board of Directors shall be conclusive.
Section 2. Certificate. Certificates of stock shall be issued, when
authorized by the Board of Directors, in numerical order from the stock
certificate book. Each certificate shall have designated upon its fact the type
of share. Each certificate shall be signed by the President and by the
Secretary, and the Company's seal shall be affixed thereto by the Secretary. A
record of each certificate shall be kept on the stub thereof.
Section 3. Transfer. Transfers of stock shall be made only upon the
books of the company, and before a new certificate is issued, the old
certificate must be surrendered for cancellation and marked cancelled, with the
date of cancellation, by the Secretary. The stock books of the company shall be
closed for transfer thirty days before general elections and ten days before
dividend days.
ARTICLE III
Stockholders
Section 1. Annual Meetings. The annual meeting of the stockholders of
this corporation shall be held in the principal place of business of the
corporation at 10:00 a.m. on the 2nd day of August of each year, if not a legal
holiday, but if a legal
<PAGE> 2
but if a legal holiday, then on the day following.
Section 2. Special Meetings. Special meetings of the stockholders may
be held at the principal place of business of the corporation at any time, upon
the call of the Board of Directors, or of the stockholders, holding together at
least one-tenth of the stock of said corporation.
Section 3. Notice of Meeting. Notice of meetings, written or printed,
for every regular or special meeting of the stockholders shall be prepared and
mailed to the last known post office address of each stockholder not less than
ten days before any such meeting, and, if for a special meeting, such notice
shall state the object or objects thereof. Provided, no notice shall be required
if all of the stockholders waive notice of such meeting.
Section 4. Quorum. A quorum of any meeting of the stockholders shall
consist of a majority of the voting stock of the corporation, represented in
person or by proxy. A majority of those voting shall decide any questions that
may come before said meeting.
Section 5. Presiding Officer. The President of the corporation shall
preside at stockholders meetings and the Secretary of the corporation shall act
as secretary thereof. In the absence of the President of the corporation, the
Vice-President shall preside.
Section 6. Order of Business. The order of business at the annual
meeting, and as far as possible at all other meetings of the stockholders, shall
be:
(a) Calling of roll,
(b) Proof of notice or waiver,
(c) Reading and disposal of any unapproved minutes,
(d) Annual reports of officers,
(e) Election of directors,
(f) Unfinished business,
(g) New business, and
(h) Adjournment.
ARTICLE IV
Directors
Section 1. Board of Directors. There shall be a Board of Directors
consisting of no less than one and no more than six persons who shall be elected
annually by ballot by the stockholders for the term of one year, and they shall
serve until the election and acceptance of their duly qualified successors. The
directors do not have to be stockholders. Any directorship not filled by the
shareholders shall be treated as vacancies to be filled by and in the discretion
of the Board of Directors. If the number of shareholders is less than three,
then the number of directors shall
<PAGE> 3
be determined as provided by G.S. 55-25.
Section 2. Regular Meetings. The regular meetings of the Board of
Directors shall be held at the principal place of business of the corporation at
10:00 a.m. on the 2nd day of August of each year, if not a legal holiday, but if
a legal holiday, then on the day following.
Section 3. Special Meetings. Special meetings of the corporation shall
be held in the principal place of business of the corporation at any time upon
call by the president.
Section 4. Notice. Notice of both regular and special meetings shall be
mailed by the Secretary to each member of the Board not less than ten days
before any such meetings, and notice of a special meeting shall state the
purpose thereof. Provided that no notice of such meeting shall be required if
all of the directors waive notice of such meeting.
Section 5. Quorum. A quorum at any meeting shall consist of a majority
of the entire membership of the Board. A majority of those voting shall decide
any question that may come before the meeting.
Section 6. Officers. Officers of the company shall be elected by ballot
by the Board of Directors at their first meeting after the election of directors
each year. If any office becomes vacant during the year, the Board of Directors
shall fill the same for the unexpired term. The Board of Directors shall fix the
compensation of the officers and agents of the company.
Section 7. Order of Business. The order of business at any regular or
special meeting of the Board of Directors shall be:
(a) Reading and disposal of any unapproved minutes,
(b) Reports of officers,
(c) Unfinished business,
(d) New business, and
(e) Adjournment.
Section 8. The corporation shall indemnify and hold harmless any of its
officers, directors, employees or agents and anyone serving in any capacity at
the request of the corporation in any other corporation, partnership, joint
venture, trust or other enterprise or at the request of the corporation as a
trustee or administrator under an employee benefit plan, when and if they shall
be entitled to same under the terms and conditions of G.S. 55-20, as it may be
modified and amended from time to time hereafter.
Section 9. The corporation shall indemnify and hold harmless any one or
more of its officers, directors, employees or agents against liability and
litigation expense, including reasonable attorney's fees, arising out of their
status as such or their
<PAGE> 4
activities in any of said capacities as and to the extent permitted under G.S.
55-19(a) as the same may be modified and amended from time to time. The
corporation shall further indemnify and hold harmless any person who, at the
request of the corporation, is or was serving as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise or as a trustee or administrator under an employee benefit plan, to
the extent and as permitted by G.S. 55-19(a).
ARTICLE V
Officers
Section 1. Officers. The officers of the company shall be a president,
a vice-president, a secretary, a treasurer and such assistant secretaries as may
be necessary to conduct the business of the corporation, who shall be elected
for one year and shall hold office until their successors are elected and
qualified.
Section 2. President. The president shall preside at all meetings;
shall have general supervision of the affairs of the corporation; shall sign all
certificates of stock, contracts, and other business documents and instruments
of the corporation; may sign checks; shall make reports to the directors and
stockholders, and shall perform all such other duties as are incident to his
office or are properly required of him by the Board of Directors.
Section 3. Vice-President. In the absence of the president, the
vice-president shall exercise all his functions.
Section 4. Secretary. The Secretary shall have the custody of all books
of the company and at all reasonable times exhibit the same to any director or
stockholder of the corporation upon application at the office of the corporation
during business hours. He shall make such reports and perform such other duties
as are properly required of him by the Board of Directors. The Secretary shall
issue notices for all meetings, shall keep minutes of all meetings, shall have
charge of the seal and minute book and shall countersign all stock certificates.
Assistant secretaries will perform such duties as may be required of them by the
Board of Directors.
Section 5. Treasurer. The treasurer shall have custody of all funds and
securities of the company, shall deposit the same in the name of the corporation
in such bank or banks as the directors may appoint and shall have custody of all
books of account. He shall make such reports and perform such other duties as
are properly required of him by the Board of Directors, including the signing
and countersigning of checks.
Section 6. Number of Offices. No more than one office may be held by
one person, subject to G.S. 55-34.
<PAGE> 5
ARTICLE VI
General Provisions
Section l. Dividends. Dividends shall be declared only from the net
profit at such times as the Board of Directors shall deem it prudent to direct,
and no dividend shall be declared out of the capital of the company or that will
diminish the capital of the company.
Section 2. Seal. The corporate seal of the company shall consist of two
concentric circles, between which is the name of the company, and in the center
shall be inscribed the words "corporate seal" and the year incorporated.
Section 3. Amendments. These by-laws or any part hereof may be
repealed, altered, or amended and new by-laws adopted by any meeting of the
Board of Directors upon the affirmative vote of a majority of the entire
membership of the Board of Directors as then constituted.
Section 4. Checks, Drafts, Etc. All notes, drafts, acceptances, checks,
and endorsements or other of indebtedness may be signed by the president or
vice-president or by the secretary or treasurer, or all of said officers, or in
such other manner as the Board of Directors from time to time may determine.
Endorsements for deposit to the credit of the corporation in any of its duly
authorized depositories may be made by the president, or the vice-president, or
the secretary, or the treasurer, or all of said officers, or by any other
officer or agent who may be designated by resolution of the Board of Directors
in such a manner as such resolution may provide.
Section 5. Fiscal Year. The fiscal year of the corporation shall be
established by resolution of the Board of Directors.
<PAGE> 1
Exhibit 3.12
RADIAL TIRE STORES, INC.
BY-LAWS
ARTICLE I
Offices
Section 1. Principal Place of Business. The principal place of business of
the corporation shall be located at Commerce Road, Wilson, North Carolina.
Section 2. Registered office. The registered office of the corporation,
which by law is required to be maintained within the State of North Carolina,
shall be located at Commerce Road, Wilson, North Carolina.
ARTICLE II
Stock
Section 1. Issuance. The Board of Directors may issue, from time to time,
the stock of this corporation for such consideration as the Board of Directors
may deem advisable. All shares of stock so issued shall be fully paid and not
subject to further call or assessment, and in the absence of actual fraud in the
transaction, the valuation of the consideration as fixed by the Board of
Directors shall be conclusive.
Section 2. Certificate. Certificates of stock shall be issued, when
authorized by the Board of Directors, in numerical order from the stock
certificate book. Each certificate shall have designated upon its fact the type
of share. Each certificate shall be signed by the President and by the
Secretary, and the Company's seal shall be affixed thereto by the Secretary. A
record of each certificate shall be kept on the stub thereof.
Section 3. Transfer. Transfers of stock shall be made only upon the books
of the company, and before a new certificate is issued, the old certificate must
be surrendered for cancellation and marked cancelled, with the date of
cancellation, by the Secretary. The stock books of the company shall be closed
for transfer thirty days before general elections and ten days before dividend
days.
ARTICLE III
Stockholders
Section 1. Annual Meetings. The annual meeting of the stockholders of this
corporation shall be held in the principal place of business of the corporation
at 10 o'clock a.m. on the 2nd day of August of each year, if not a legal
holiday, but if a legal
<PAGE> 2
holiday, then on the day following.
Section 2. Special Meetings. Special meetings of the stockholders may be
held at the principal place of business of the corporation at any time, upon the
call of the Board of Directors, or of the stockholders, holding together at
least one-tenth of the stock of said corporation.
Section 3. Notice of Meeting. Notice of meetings, written or printed, for
every regular or special meeting of the stockholders shall be prepared and
mailed to the last known post office address of each stockholder not less than
ten days before any such meeting, and, if for a special meeting, such notice
shall state the object or objects thereof. Provided, no notice shall be required
if all of the stockholders waive notice of such meeting.
Section 4. Quorum. A quorum of any meeting of the stockholders shall
consist of a majority of the voting stock of the corporation, represented in
person or by proxy. A majority of those voting shall decide any questions that
may come before said meeting.
Section 5. Presiding Officer. The President of the corporation shall
preside at stockholders meetings and the Secretary of the corporation shall act
as secretary thereof. In the absence of the President of the corporation, the
Vice-President shall preside.
Section 6. Order of Business. The order of business at the annual
meeting, and as far as possible at all other meetings of the stockholders,
shall be:
(a) Calling of roll,
(b) Proof of notice or waiver,
(c) Reading and disposal of any unapproved minutes,
(d) Annual reports of officers,
(e) Election of directors,
(f) Unfinished business,
(g) New business, and
(h) Adjournment.
ARTICLE IV
Directors
Section 1. Board of Directors. There shall be a Board of Directors
consisting of no less than one and no more than six persons who shall be elected
annually by ballot by the stockholders for the term of one year, and they shall
serve until the election and acceptance of their duly qualified successors. The
directors do not have to be stockholders. Any directorship not filled by the
shareholders shall be treated as vacancies to be filled by and in the discretion
of the Board of Directors. If the number of shareholders is less than three,
then the number of directors shall
<PAGE> 3
be determined as provided by G.S. 55-25.
Section 2. Regular Meetings. The regular meetings of the Board of
Directors shall be held at the principal place of business of the corporation
at 10 o'clock a.m. on the 2nd day of August of each year, if not a legal
holiday, but if a legal holiday, then on the day following.
Section 3. Special Meetings. Special meetings of the corporation
shall be held in the principal place of business of the corporation at any
time upon call by the president.
Section 4. Notice. Notice of both regular and special meetings shall be
mailed by the Secretary to each member of the Board not less than ten days
before any such meetings, and notice of a special meeting shall state the
purpose thereof. Provided that no notice of such meeting shall be required if
all of the directors waive notice of such meeting.
Section 5. Quorum. A quorum at any meeting shall consist of a
majority of the entire membership of the Board. A majority of those voting
shall decide any question that may come before the meeting.
Section 6. Officers. Officers of the company shall be elected by ballot by
the Board of Directors at their first meeting after the election of directors
each year. If any office becomes vacant during the year, the Board of Directors
shall fill the same for the unexpired term. The Board of Directors shall fix the
compensation of the officers and agents of the company.
Section 7. Order of Business. The order of business at any regular or
special meeting of the Board of Directors shall be:
(a) Reading and disposal of any unapproved minutes,
(b) Reports of officers,
(c) Unfinished business,
(d) New business, and
(e) Adjournment.
Section 8. The corporation shall indemnify and hold harmless any of its
officers, directors, employees or agents and anyone serving in any capacity at
the request of the corporation in any other corporation, partnership, joint
venture, trust or other enterprise or at the request of the corporation as a
trustee or administrator under an employee benefit plan, when and if they shall
be entitled to same under the terns and conditions of G.S. 55-20, as it may be
modified and amended from time to time hereafter.
Section 9. The corporation shall indemnify and hold harmless any one or
more of its officers, directors, employees or agents against liability and
litigation expense, including reasonable attorney's fees, arising out of their
status as such or their
<PAGE> 4
activities in any of said capacities as and to the extent permitted under G.S.
55-19(a) as the same may be modified and amended from time to time. The
corporation shall further indemnify and hold harmless any person who, at the
request of the corporation, is or was serving as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise or as a trustee or administrator under an employee benefit plan, to
the extent and as permitted by G.S. 55-19(a).
ARTICLE V
Officers
Section 1. Officers. The officers of the company shall be a president, a
vice-president, a secretary, a treasurer and such assistant secretaries as may
be necessary to conduct the business of the corporation, who shall be elected
for one year and shall hold office until their successors are elected and
qualified.
Section 2. President. The president shall preside at all meetings; shall
have general supervision of the affairs of the corporation; shall sign all
certificates of stock, contracts, and other business documents and instruments
of the corporation; may sign checks; shall make reports to the directors and
stockholders, and shall perform all such other duties as are incident to his
office or are properly required of him by the Board of Directors.
Section 3. Vice-President. In the absence of the president, the
vice-president shall exercise all his functions.
Section 4. Secretary. The Secretary shall have the custody of all books of
the company and at all reasonable times exhibit the same to any director or
stockholder of the corporation upon application at the office of the corporation
during business hours. He shall make such reports and perform such other duties
as are properly required of him by the Board of Directors. The Secretary shall
issue notices for all meetings, shall keep minutes of all meetings, shall have
charge of the seal and minute book and shall countersign all stock certificates.
Assistant secretaries will perform such duties as may be requited of them by the
Board of Directors.
Section 5. Treasurer. The treasurer shall have custody of all funds and
securities of the company, shall deposit the same in the name of the corporation
in such bank or banks as the directors may appoint and shall have custody of all
books of account. He shall make such reports and perform such other duties as
are properly required of him by the Board of Directors, including the signing
and countersigning of checks.
Section 6. Number of Offices. No more than one office may be held by one
person, subject to G.S. 55-34.
<PAGE> 5
ARTICLE VI
General Provisions
Section 1. Dividends. Dividends shall be declared only from the net profit
at such times as the Board of Directors shall deem it prudent to direct, and no
dividend shall be declared out of the capital of the company or that will
diminish the capital of the company.
Section 2. Seal. The corporate seal of the company shall consist of two
concentric circles, between which is the name of the company, and in the center
shall be inscribed the words "corporate seal" and the year incorporated.
Section 3. Amendments. These by-laws or any part hereof may be repealed,
altered, or amended and new by-laws adopted by any meeting of the Board of
Directors upon the affirmative vote of a majority of the entire membership of
the Board of Directors as then constituted.
Section 4. Checks, Drafts, Etc. All notes, drafts, acceptances, checks and
endorsements or other evidences of indebtedness may be signed by the president
or vice-president or by the secretary or treasurer, or all of said officers, or
in such other manner as the Board of Directors from time to time may determine.
Endorsements for deposit to the credit of the corporation in any of its duly
authorized depositories may be made by the president, or the vice-president, or
the secretary, or the treasurer, or all of said officers, or by any other
officer or agent who may be designated by resolution of the Board of Directors
in such a manner as such resolution may provide.
Section 5. Fiscal Year. The fiscal year of the corporation shall be
established by resolution of the Board of Directors.
<PAGE> 1
Exhibit 3.13
809140
FILED
In the office of the
Secretary of State
of the State of California
FEB 11 1977
MARCH FUNG EU Secretary of State
By: /s/ James E. Harris
-----------------------------
Deputy
ARTICLES OF INCORPORATION
OF
SPEED MERCHANTS, INC.
ONE: The name of this corporation is SPEED MERCHANTS, INC.
TWO: The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust company
business, or the practice of a profession permitted to be incorporated by the
California Corporations Code.
THREE: The name and address in this state of the corporation's
initial agent for service of process is ARTHUR C. SOARES, 345 Lincoln Avenue,
San Jose, CA,
FOUR: The total number of shares which the corporation is authorized
to issue is one million (1,000,000).
DATED: February 7, 1977
/s/ Michael T. Morrissey
-------------------------------------------
MICHAEL T. MORRISSEY, incorporator
I declare that I am the person who executed the above Articles of
Incorporation, and such instrument is my act and deed.
/s/ Michael T. Morrissey
-------------------------------------------
MICHAEL T. MORRISSEY
<PAGE> 2
NA CHANGED TO: THE SPEED MERCHANT, INC.
A178699
809140
FILED
In the office of the Secretary of State
of the State of California
JUN 14 1977
MARCH FUNG EU, Secretary of State
By: /s/ James E. Harris
-------------------------
Deputy
CERTIFICATE OF AMENDMENT
OF ARTICLES OF INCORPORATION OF
SPEED MERCHANTS, INC.
ARTHUR C. SOARES and UFA M. SOARES certify:
1. That they constitute all of the directors of SPEED MERCHANTS,
INC., a California corporation.
2. That at a meeting of the Board of Directors of said corporation,
duly held at San Jose, California on May 12, 1977 the following resolution was
adopted by all of the directors:
RESOLVED, that Article ONE of the Articles of Incorporation of
this corporation be amended to read as follows:
"The name of this corporation is THE SPEED MERCHANT, INC."
3. That no shares have been issued and there are no shares
subscriptions outstanding.
/s/ Arthur C. Soares
--------------------------------------------
ARTHUR C. SOARES, Director
/s/ Ufa M. Soares
--------------------------------------------
UFA M. SOARES, Director
Each of the undersigned declares under penalty of perjury that the
matters set forth in the foregoing certificate are true and correct.
Executed at San Jose, California, on May 31, 1977.
/s/ Arthur C. Soares
--------------------------------------------
ARTHUR C. SOARES
/s/ Ufa M. Soares
--------------------------------------------
UFA M. SOARES
<PAGE> 3
A453447
FILED
In the office of the Secretary of State
of the State of California
OCT 31 1994
/s/ Tony Miller
-----------------------------
Acting Secretary of State
0809140 SUN
AGREEMENT OF MERGER
OF
THE SPEED MERCHANT, INC.
AND
ARTHUR ENTERPRISES, INC.
THIS AGREEMENT OF MERGER ("Agreement") is entered into as of October 31,
1994, between The Speed Merchant, Inc., a California corporation (the "Surviving
Corporation"), and Arthur Enterprises, Inc., a California corporation (the
"Merging Corporation").
1. Surviving Corporation is a California corporation organized on February
11, 1977 and has 12,000 shares of its capital stock outstanding.
2. Merging Corporation is a California corporation organized on February
6, 1992 and has 10,000 shares of its capital stock outstanding, of which
5,100 shares are owned by Surviving Corporation.
3. Merging Corporation shall be merged into Surviving Corporation.
4. Upon such merger, each outstanding share of Merging Corporation, other
than shares held by Surviving Corporation, shall be converted into .432244
shares of the capital stock of Surviving Corporation. Upon issuance, the
total of such shares will comprise 16% of the then outstanding and issued
capital stock of the Surviving Corporation. Upon such merger, shares of
Merging Corporation held by Surviving Corporation shall be cancelled.
5. Upon such merger, the outstanding shares of Surviving Corporation shall
remain outstanding and are not affected by the merger.
6. Merging Corporation shall from time to time, as and when requested by
Surviving Corporation, execute and deliver all such documents and
instruments and take all such action necessary or desirable to evidence or
carry out this Agreement.
7. The Articles of Incorporation of the Surviving Corporation are not
affected by the merger.
8. The conversion of shares as provided by this Agreement shall occur
automatically upon the effective date without action by the holders
thereof. Each holder of such shares thereupon shall surrender his share
certificate(s) to the Secretary of Surviving Corporation and shall be
entitled to receive in exchange therefor a certificate or certificates
<PAGE> 4
representing the number of shares into which his shares shall have been
converted as provided above.
9. Upon such merger, the separate existence of Merging Corporation ceases
and Surviving Corporation shall succeed, without other transfer, to all
the rights and property of Merging Corporation and shall be subject to all
the debts and liabilities thereof in the same manner as if the Surviving
Corporation had itself incurred them. All rights of creditors and all
liens upon the property of each corporation shall be preserved unimpaired,
provided that such liens upon the property of Merging Corporation shall be
limited to the property affected thereby immediately prior to the time the
merger is effective.
10. The Agreement may be terminated and the proposed merger abandoned at
any time prior to the effective date of the merger, whether before or
after approval of this Agreement by the Board of Directors or shareholders
of either corporation, by either corporation if in the opinion of its
Board of Directors the consummation of this Agreement and the merger are
not, for any reason, in the best interests of such corporation and its
shareholders.
11. The effective date of the merger is October 31, 1994.
IN WITNESS WHEREOF the parties have executed this Agreement of Merger at
San Jose, Santa Clara County, California on October 28, 1994.
THE SPEED MERCHANT, INC.
By: /s/ Arthur Soares
-------------------------------------------
Arthur Soares
President
By: /s/ Liz Roberts
-------------------------------------------
Liz Roberts
Secretary
ARTHUR ENTERPRISES, INC.
By: /s/ Ray Barney
-------------------------------------------
Ray Barney
President
By: /s/ Liz Roberts
-------------------------------------------
Liz Roberts
Secretary
<PAGE> 5
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
BY
THE SPEED MERCHANT, INC.
Arthur Soares and Liz Roberts certify that:
1. They are the President and Secretary, respectively, of The Speed
Merchant, Inc., a California corporation.
2. The Agreement of Merger in the form attached was duly approved by the
Board of Directors and the shareholders of the corporation.
3. The shareholder approval was by the holders of 100% of the outstanding
shares of the corporation, which equaled or exceeded the vote required.
4. There is only one class of shares of the corporation and the number of
shares outstanding is l2,000.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Executed at San Jose, Santa Clara County, California on October 28, 1994.
/s/ Arthur Soares
--------------------------------------------
Arthur Soares
President
/s/ Liz Roberts
--------------------------------------------
Liz Roberts
Secretary
<PAGE> 6
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
BY
ARTHUR ENTERPRISES, INC.
Ray Barney and Liz Roberts certify that:
1. They are the President and Secretary, respectively, of Arthur
Enterprises, Inc., a California corporation.
2. The Agreement of Merger in the form attached was duly approved by the
Board of Directors and the shareholders of the corporation.
3. The shareholder approval was by the holders of 100% of the outstanding
shares of the corporation, which equaled or exceeded the vote required.
4. There is only one class of shares of the corporation and the number of
shares outstanding is l0,000.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Executed at San Jose, Santa Clara County, California on October 28, 1994.
/s/ Ray Barney
--------------------------------------------
Ray Barney
President
/s/ Liz Roberts
--------------------------------------------
Liz Roberts
Secretary
<PAGE> 1
Exhibit 3.14
BY-LAWS
TABLE OF CONTENTS
Article I - Directors; Management
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
1.a. Powers 1
1.b. Standard of Care 2
1.c. Exception for Close Corporation 2
2. Number and Qualification 2
3. Election and Term of Office 2
4. Vacancies 3
5. Removal of Directors 3
6. Notice, Place and Manner of Meetings 3
7. Annual Meeting 4
8. Other Regular Meetings 4
9. Special Meetings - Notices - Waivers 4
10. Sole Director Provided by Articles of Incorporation 5
11. Directors Acting by Unanimous Written Consent 5
12. Quorum 5
13. Adjourned Meetings 5
14. Compensation of Directors 5
15. Committees of Directors 6
16. Committee Procedure 6
17. Advisory Directors 7
18. Resignations 7
Article II - Officers
1. Officers 7
2. Election of Officers 7
3. Subordinate Officers 8
</TABLE>
i
<PAGE> 2
<TABLE>
<S> <C> <C>
4. Removal and Resignation of Officers 8
5. Vacancies 8
6. Chairman of the Board 8
7. President 8
8. Vice Presidents 9
9. Secretary 9
10. Chief Financial Officer 9
Article III - Indemnification of Directors,
Officers, Employees, and Other Agents
l. Agents, Proceedings, and Expenses 10
2. Actions Other than by the Corporation 10
3. Actions by the Corporation 11
4. Successful Defense by Agent 11
5. Required Approval 11
6. Advance of Expenses 12
7. Other Contractual Rights 12
8. Limitations 12
9. Insurance 12
10. Fiduciaries of Corporate Employee Benefit Plan 13
Article IV - Shareholders' Meetings
l. Place of Meetings 13
2. Annual Meetings 13
3. Special Meetings 13
4. Notice of Meetings 14
5. Manner of Giving Notice 14
6. Quorum 15
7. Adjourned Meeting; Notice 15
8. Voting Rights; Cumulative Voting 16
9. Record Date 16
10. Proxies 17
11. Organization 17
12. Inspectors of Election 18
13. Shareholders' Agreements 18
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C>
14. Waiver of Notice or Consent by Absent Shareholders 19
15. Shareholder Action by Written Consent Without a Meeting 19
Article V - Certificates and Transfer of Shares
l. Certificates for Shares 20
2. Transfer on the Books 21
3. Lost or Destroyed Certificates 21
4. Transfer Agents and Registrars 21
5. Legend Condition 21
6. Close Corporation Certificates 22
Article VI - Records and Reports
1 Maintenance and Inspection of Share Register 22
2. Maintenance and Inspection of By-Laws 22
3. Maintenance and Inspection of Other Corporate Records 23
4. Inspection by Directors 23
5. Annual Report to Shareholders 23
6. Waiver of Annual Report 24
7. Financial Statements 24
8. Annual Statement of General Information 25
Article VII - Amendments
l. Amendment by Shareholders 25
2. Amendment by Directors 25
3. Record of Amendments 25
Article VIII - Miscellaneous
1. References to Code Sections 26
2. Effect of Shareholders' Agreement 26
3. Representation of Shares in Other Corporations 26
4. Subsidiary Corporations 26
</TABLE>
iii
<PAGE> 4
BY-LAWS
of
SPEED MERCHANTS, INC.
A California Corporation
ARTICLE I
DIRECTORS: MANAGEMENT
Section 1. a. Powers
Subject to the provisions of the General Corporation Law of California,
effective January 1, 1977 (to which the various Section numbers quoted herein
relate) and subject to any limitation in the Articles of Incorporation and the
By-Laws relating to action required to be approved by the Shareholders (Sec.
153) or by the outstanding shares (Sec. 152), the business and affairs of this
corporation shall be managed by and all corporate powers shall be exercised by
or under direction of the Board of Directors.
Without prejudice to these general powers, and subject to the same
limitations, the directors shall have the power to:
(1) Select and remove all officers, agents, and employees of
the corporation; prescribe any powers and duties for them that are consistent
with law, with the Articles of Incorporation, and with these By-Laws; fix their
compensation; and require from them security for faithful service.
(2) Change the principal executive office or the principal
business office in the State of California from one location to another; cause
the corporation to be qualified to do business in any other state, territory,
dependency, or country, and conduct business within or without the State of
California; and designate any place within or without the State of California
for the holding of any shareholders' meeting, or meetings, including annual
meetings.
(3) Adopt, make, and use a corporate seal; prescribe the forms
of certificates of stock; and alter the form of the seal and certificates.
(4) Authorize the issuance of shares of stock of the
corporation on any lawful terms, in consideration of money paid, labor done,
services actually rendered, debts
-1-
<PAGE> 5
or securities cancelled, or tangible or intangible property actually received.
(5) Borrow money and incur indebtedness on behalf of the
corporation, and cause to be executed and delivered for the corporation's
purposes, in the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations, and other evidences of debt and
securities.
b. Standard of Care
Each Director shall exercise such powers and otherwise perform such
duties in good faith, in the manner such Director believes to be in the best
interests of the corporation, and with such care, including reasonable inquiry,
using ordinary prudence, as a person in a like position would use under similar
circumstances. (Sec. 309)
c. Exception for Close Corporation
Notwithstanding the provisions of Section 1, in the event that this
corporation shall elect to become a close corporation as defined in Sec. 158,
its Shareholders may enter into a Shareholders' Agreement as provided in Sec.
300(b). Said agreement may provide for the exercise of corporate powers by the
Shareholders, provided however such agreement shall, to the extent and so long
as the discretion or the powers of the Board in its management of corporate
affairs is controlled by such agreement, impose upon each Shareholder who is a
party thereof, liability for managerial acts performed or omitted by such person
pursuant thereto otherwise imposed upon Directors as provided in Sec. 300 (d).
Section 2. Number and Qualification
The authorized number of directors shall be two (2) until changed by a
duly adopted amendment to the Articles of Incorporation or by an amendment to
this By-Law adopted by the vote or written consent of holders of a majority of
the outstanding shares entitled to vote; provided, however, that an amendment
reducing the number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of action by written consent, are equal to more than
16-2/3% of the outstanding shares entitled to vote.
Section 3. Election and Term of Office
Directors shall be elected at each annual meeting of the Shareholders
to hold office until the next annual meeting. Each Director, including a
Director elected to fill a vacancy, shall hold office until the expiration of
the term for which elected and until a successor has been elected and qualified.
-2-
<PAGE> 6
Section 4. Vacancies
Vacancies in the Board of Directors may be filled by a majority of the
remaining Directors, though less than a quorum, or by a sole remaining Director,
and each Director so elected shall hold office until his successor is elected at
an annual meeting of Shareholders or at a special meeting called for that
purpose.
The Shareholders may at any time elect a Director to fill any vacancy
not filled by the Directors, and may elect the additional Directors at the
meeting at which an amendment of the By-Laws is voted authorizing an increase in
the number of Directors.
A vacancy or vacancies shall be deemed to exist in case of the death,
resignation or removal of any Director, or if the Shareholders shall increase
the authorized number of Directors but shall fail at the meeting at which such
increase is authorized, or at an adjournment thereof, to elect the additional
Director so provided for, or in case the Shareholders fail at any time to elect
the full number of authorized Directors.
If the Board of Directors accepts the resignation of a Director
tendered to take effect at a future times, the Board, or the Shareholders, shall
have power to elect a successor to take office when the resignation shall become
effective.
No reduction of the number of Directors shall have the effect of
removing any Director prior to the expiration of his term of office.
Section 5. Removal of Directors
The entire Board of Directors or any individual Director may be removed
from office as provided by Secs. 302, 303 and 304 of the Corporations Code of
the State of California. In such case, the remaining Board members may elect a
successor Director to fill such vacancy for the remaining unexpired term of the
Director so removed.
Section 6. Notice, Place and Manner of Meetings
Meetings of the Board of Directors may be called by the Chairman of the
Board, or the President, or any Vice President, or the Secretary, or any two (2)
Directors, and shall be held at the principal executive office of the
corporation in the State of California, unless some other place is designated in
the notice of the meeting. Members of the Board may participate in a meeting
through use of a conference telephone or similar communications equipment so
long as all members participating in such a meeting can hear one another.
Accurate minutes of any meeting of the Board or any committee
-3-
<PAGE> 7
thereof, shall be maintained as required by Sec. 312 of the Code by the
Secretary or other officer designated for that purpose.
Section 7. Annual Meeting
Immediately following each annual meeting of Shareholders, the Board of
Directors shall hold a regular meeting for the purpose of organization, any
desired election of officers, and the transaction of other business. Notice of
this meeting shall not be required.
Section 8. Other Regular Meetings
Other regular meetings of the Board of Directors shall be held without
call at such time as shall from time to time be fixed by the Board of Directors.
Such regular meetings may be held without notice.
Section 9. Special Meetings - Notices - Waivers
Special meetings of the Board may be called at any time by the Chairman
of the Board, the President or, if he is absent or unable or refuses to act, by
any Vice President or the Secretary or by any two Directors, or by one Director
if only one is provided.
At least forty-eight (48) hours' notice of the time and place of
special meetings shall be delivered personally to the Directors or personally
communicated to them by a corporate officer by telephone or telegraph. If the
notice is sent to a Director by letter, it shall be addressed to him at his
address as it is shown upon the records of the corporation, (or if it is not so
shown on such records or is not readily ascertainable, at the place in which the
meetings of the Directors are regularly held). In case such notice is mailed, it
shall be deposited in the United States mail, postage prepaid, in the place in
which the principal executive office of the corporation is located at least four
(4) days prior to the time of the holding of the meeting. Such mailing,
telegraphing, telephoning or delivery as above provided shall be due, legal and
personal notice to such Director.
When all of the Directors are present at any Directors' meeting,
however called or noticed, and either (i) sign a written consent thereto on the
records of such meeting or, (ii) if a majority of the Directors are present and
if those not present sign a waiver of notice of such meeting or a consent to
holding the meeting or an approval of the minutes thereof, whether prior to or
after the holding of such meeting, which said waiver, consent or approval shall
be filed with the Secretary of the corporation, or (iii) if a Director attends a
meeting without notice but without protesting, prior thereto
-4-
<PAGE> 8
at its commencement, the lack of notice to him, then the transactions thereof
are as valid as if had at a meeting regularly called and noticed.
Section 10. Sole Director Provided by Articles of Incorporation
In the event only one Director is required by the By-Laws or Articles
of Incorporation, then any reference herein to notices, waivers, consents,
meetings or other actions by a majority or quorum of the Directors shall be
deemed to refer to such notice, waiver, etc., by such sole Director, who shall
have all the rights and duties and shall be entitled to exercise all of the
powers and shall assume all the responsibilities otherwise herein described as
given to a Board of Directors.
Section 11. Directors Acting by Unanimous Written Consent
Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting and with the same force and effect as if taken by
a unanimous vote of Directors, if authorized by a writing signed individually or
collectively by all members of the Board. Such consent shall be filed with the
regular minutes of the Board.
Section 12. Quorum
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in section
13 of this Article I. Every act or decision done or made by a majority of the
Directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the Board of Directors, subject to the provisions of Sec.
310 (as to approval of contacts or transactions in which a director has a direct
or indirect material financial interest), Sec. 311 (as to appointment of
committees), and Sec. 317(e) (as to indemnification of Directors). A meeting at
which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for that meeting.
Section 13. Adjourned Meetings
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place. Notice of the time
and place of holding an adjourned meeting need not be given to absent Directors
if the time and place be fixed at the meeting adjourned and held within
twenty-four (24) hours, but if adjourned more than twenty-four (24) hours,
notice shall be given to all Directors not present at the time of the
adjournment.
Section 14. Compensation of Directors
Directors, as such, shall not receive any stated
-5-
<PAGE> 9
salary for their services, but by resolution of the Board a fixed sum and
expense of attendance, if any, may be allowed for attendance at each regular and
special meeting of the Board; provided that nothing herein contained shall be
construed to preclude any Director from serving the Company in any other
capacity and receiving compensation therefor.
Section 15. Committees of Directors
The Board of Directors may, by resolution adopted by a majority of the
authorized number of Directors, designate one or more committees, each
consisting of two or more Directors, to serve at the pleasure of the Board. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent member at any meeting of the committee. Any
committee, to the extent provided in the resolution of the Board, shall have all
the authority of the Board, except with respect to:
(a) the approval of any action which, under the General
Corporation Law of California, also requires the Shareholders' approval or
approval of the outstanding shares;
(b) the filling of vacancies on the Board of Directors or in
any committee;
(c) the fixing of compensation of the Directors for serving on
the board or on any committee;
(d) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;
(f) a distribution to the Shareholders of the corporation,
except at a rate or in a periodic amount or within a price range determined by
the Board of Directors; or
(g) the appointment of any other committees of the Board of
Directors or the members of these committees.
Section 16. Committee Procedure
Meetings and action of committees shall be governed by, and held and
taken in accordance with, the provisions of Article I Sections 6 (notice, place
and manner of meetings), 8 (other regular meetings), 9 (special meetings), 10
(sole director), 11 (unanimous written consent), 12 (quorum), and 13 (adjourned
meetings), with such changes in the context of those By-Laws as are necessary to
substitute the committee and its members for the Board of Directors and its
members, except that the time of regular meetings of committees may be
determined either by resolution of the Board of Directors or
-6-
<PAGE> 10
by resolution of the committee; special meetings of committees may also be
called by resolution of the Board of Directors; and notice of special meetings
of committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The Board of Directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these By-Laws.
Section 17. Advisory Directors
The Board of Directors from time to time may elect one or more persons
to be Advisory Directors who shall not by such appointment be members of the
Board of Directors. Advisory Directors shall be available from time to time to
perform special assignments specified by the President, to attend meetings of
the Board of Directors upon invitation, and to furnish consultation to the
Board. The period during which the title shall be held may be prescribed by the
Board of Directors. If no period is prescribed, the title shall be held at the
pleasure of the Board.
Section 18. Resignations
Any Director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary, or the Board of Directors
of the corporation, unless the notice specifies a later time for the
effectiveness of such resignation. If the resignation is effective at a future
time, a successor may be elected to take office when the resignation becomes
effective.
ARTICLE II
OFFICERS
Section 1. Officers
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion of
the Board of Directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
3 of this Article. Any number of offices may be held by the same person.
Section 2. Election of Officers
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 3 or Section 5 of this
Article, shall be chosen by the Board of Directors, and each shall serve at the
pleasure of the Board, subject to the rights, if any, of an officer under any
contract of employment.
-7-
<PAGE> 11
Section 3. Subordinate Officers
The Board of Directors may appoint, and may empower the President to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in the By-Laws or as the Board of Directors may from
time to time determine.
Section 4. Removal and Resignation of Officers
Subject to the rights, it any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
Board of Directors, at any regular or special meeting of the Board, or, except
in case of an officer chosen by the Board of Directors, by any officer upon whom
such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
Section 5. Vacancies
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
the By-Laws for regular appointments to such office.
Section 6. Chairman of the Board
The Chairman of the Board, if there shall be such an officer, shall, if
present preside at all meetings of the Board of Directors, and exercise and
perform such other powers and duties as may be from time to time assigned to him
by the Board of Directors or prescribed by the By-Laws.
Section 7. President
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the Chairman of the Board, if there be such an officer,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence of the
Chairman of the Board, or if there be none, at all meetings of the Board of
Directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed by the Board of Directors or the By-Laws.
-8-
<PAGE> 12
Section 8. Vice Presidents
In the absence or disability of the President, the Vice Presidents, if
any, in order of their rank as fixed by the Board of Directors, or, if not
ranked, a Vice President designated by the Board of Directors, shall perform all
the duties of the President, and when so acting shall have all the powers of,
and be subject to all the restrictions upon, the President. The Vice Presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board of Directors or the
By-Laws, and the President, or the Chairman of the Board.
Section 9. Secretary
The Secretary shall keep or cause to be kept at the principal executive
office or such other place as the Board of Directors may direct, a book of
minutes of all meetings and actions of Directors, committees of Directors, and
Shareholders, with the time and place of holding, whether regular or special,
and, if special, how authorized, the notice given, the names of those present at
Directors' meetings or committee meetings, the number of shares present or
represented at Shareholders' meetings, and the proceedings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all Shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the Shareholders and of the Board of Directors required by the By-Laws or by
law to be given, and he shall keep the seal of the corporation if one be
adopted, in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or by the By-Laws.
Section 10. Chief Financial Officer
This officer shall keep and maintain, or cause to be kept and
maintained in accordance with generally accepted accounting principles, adequate
and correct accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, earnings (or surplus) and shares, The
books of account shall at all reasonable times be open to inspection by any
Director.
-9-
<PAGE> 13
This officer shall deposit all moneys and other valuables in the name
and to the credit of the corporation with such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the corporation as may
be ordered by the Board of Directors, shall render to the President and
Directors, whenever they request it, an account of all of his transactions and
of the financial condition of the corporation, and shall have such other powers
and perform such other duties as may be prescribed by the Board of Directors or
the By-Laws.
ARTICLE III
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS
Section 1. Agents, Proceedings, and Expenses
For the purposes of this Article, "agent" means any person who is or
was a director, officer, employee, or other agent of this corporation, or is or
was serving at the request of this corporation as a director, officers employee,
or agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was a director, officer, employee, or agent of a
foreign or domestic corporation which was a predecessor corporation of this
corporation or of another enterprise at the request if such predecessor
corporation; "proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative, or investigative; and
"expenses" includes, without limitation, attorneys' fees and any expenses of
establishing a right to indemnification under Section 4 or Section 5(c) of this
Article.
Section 2. Actions Other Than by the Corporation
This corporation shall indemnify any person who was or is a party, or
is threatened to be made a party, to any proceeding (other than an action by or
in the right of this corporation) by reason of the fact that such person is or
was an agent of this corporation, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceeding if that person acted in good faith and in a manner that
person reasonably believed to be in the best interests of this corporation and,
in the case of a criminal proceeding, had no reasonable cause to believe that
the conduct of that person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in the best interests of this corporation or that the person had reasonable
cause to believe that the person's conduct was unlawful.
-10-
<PAGE> 14
Section 3. Actions by the Corporation
This corporation shall indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or completed action
by or in the right of this corporation to procure a judgment in its favor by
reason of the fact that that person is or was an agent of this corporation,
against expenses actually and reasonably incurred by that person in connection
with the defense or settlement of that action if that person acted in good
faith, in a manner that person believed to be in the best interests of this
corporation and with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar circumstances. No
indemnification shall be made under this Section 3:
(a) In respect of any claim, issue or matter as to which that
person shall have been adjudged to be liable to this corporation in the
performance of that person's duty to this corporation, unless and only to the
extent that the court in which that action was brought shall determine upon
application that, in view of all the circumstances of the case, that person is
fairly and reasonably entitled to indemnity for the expenses which the court
shall determine;
(b) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval; or
(c) Of expenses incurred in defending a threatened or pending
action which is settled or otherwise disposed of without court approval.
Section 4. Successful Defense by Agent
To the extent that an agent of this corporation has been successful on
the merits in defense of any proceeding referred to in Sections 2 or 3 of this
Article, or in defense of any claim, issue, or matter therein, the agent shall
be indemnified against expenses actually and reasonably incurred by the agent in
connection therewith.
Section 5. Required Approval
Except as provided in Section 4 of this Article, any indemnification
under this Article shall be made by this corporation only if authorized in the
specific case on a determination that indemnification of the agent is proper in
the circumstances because the agent has met the applicable standard of conduct
set forth in Sections 2 or 3 of this Article, by:
(a) A majority vote of a quorum consisting of directors who
are not parties to the proceeding;
-11-
<PAGE> 15
(b) Approval by the affirmative vote of a majority of the
shares of this corporation entitled to vote represented at a duly held meeting
at which a quorum is present or by the written consent of holders of a majority
of the outstanding shares entitled to vote. For this purpose, the shares owned
by the person to be indemnified shall not be considered outstanding or entitled
to vote thereon; or
(c) The court in which the proceeding is or was pending, on
application made by this corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by this
corporation.
Section 6. Advance of Expenses
Expenses incurred in defending any proceeding may be advanced by this
corporation before the final disposition of the proceeding on receipt of an
undertaking by or on behalf of the agent to repay the amount of the advance
unless it shall be determined ultimately that the agent is entitled to be
indemnified as authorized in this Article.
Section 7. Other Contractual Rights
Nothing contained in this Article shall affect any right to
indemnification to which persons other than directors and officers of this
corporation or any subsidiary hereof may be entitled by contract or otherwise.
Section 8. Limitations
No indemnification or advance shall be made under this Article, except
as provided in Section 4 or Section 5(c), in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the
Articles, a resolution of the Shareholders, or an agreement in effect at the
time of the accrual of the alleged cause of action asserted in the proceeding in
which the expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 9. Insurance
Upon and in the event of a determination by the Board of Directors of
this corporation to purchase such insurance, this corporation shall purchase and
maintain insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in such capacity or
-12-
<PAGE> 16
arising out of the agent's status as such whether or not this corporation would
have the power to indemnify the agent against that liability under the
provisions of this section.
Section 10. Fiduciaries of Corporate Employee Benefit Plan
This Article does not apply to any proceeding against any trustee,
investment manager, or other fiduciary of an employee benefit plan in that
person's capacity as such, even though that person may also be an agent of the
corporation as defined in Section 1 of this Article. Nothing contained in this
Article shall limit any right to indemnification to which such a trustee,
investment manager, or other fiduciary may be entitled by contract or otherwise,
which shall be enforceable to the extent permitted by applicable law other than
this Article.
ARTICLE IV
SHAREHOLDERS' MEETINGS
Section 1. Place of Meetings
Meetings of Shareholders shall be held at any place within or outside
the State of California designated by the Board of Directors. In the absence of
any such designation, Shareholders' meetings shall be held at the principal
executive office of the corporation.
Section 2. Annual Meetings
The annual meetings of the Shareholders shall be held each year at the
time and on the day following:
Time of Meeting: 1:00 p.m.
Date of Meeting: January 5th
If this day shall be a legal holiday, then the meeting shall be held on
the next succeeding business day, at the same hour. At the annual meeting, the
Shareholders shall elect a Board of Directors, consider reports of the affairs
of the corporation, and transact such other business as may be properly brought
before the meeting.
Section 3. Special Meetings
Special meetings of the Shareholders may be called at any time by the
Board of Directors, the Chairman of the Board, the President, a Vice President,
the Secretary, or by one or more of the Shareholders holding not less than one-
tenth (1/10th) of the voting power of the corporation. Except as next provided,
notice shall be given as for the annual meeting.
Upon receipt of a written request addressed to the Chairman, President,
Vice President, or Secretary, mailed or delivered personally to such officer by
any person (other than the Board) entitled to call a special meeting of
Shareholders, such officer shall cause notice to be given, to the Shareholders
entitled to vote, that a meeting will be held at a time requested by the person
or persons calling the meeting,
-13-
<PAGE> 17
not less than thirty-five (35) nor more than sixty (60) days after the receipt
of such request. If such notice is not given within twenty (20) days after
receipt of such request, the persons calling the meeting may give notice thereof
in the manner provided by these By-Laws or apply to the Superior Court as
provided in Sec. 305(c).
Section 4. Notice of Meetings
All notices of meetings of Shareholders shall be sent or otherwise
given in accordance with Section 5 of this Article not less than ten (10) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting, and (i) in the case of a
special meeting, the general nature of the business to be transacted, or (ii) in
the case of the annual meeting, those matters which the Board of Directors, at
the time of giving the notice, intends to present for action by the
Shareholders. The notice of any meeting at which Directors are to be elected
shall include the name of any nominee or nominees whom, at the time of the
notice, management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a Director has a direct or indirect financial
interest, pursuant to Sec. 310, (ii) an amendment of the Articles of
Incorporation, pursuant to Sec. 902, (iii) a reorganization of the corporation,
pursuant to Sec. 1201, (iv) a voluntary dissolution of the corporation, pursuant
to Sec. 1900, or (v) a distribution in dissolution other than in accordance with
the rights of outstanding preferred shares, pursuant to Sec. 2007, the notice
shall also state the general nature of that proposal.
Section 5. Manner of Giving Notice
Notice of any meeting of Shareholders shall be given either personally
or by first-class mail or telegraphic or other written communication, charges
prepaid, addressed to the Shareholder at the address of that Shareholder
appearing on the books of the corporation or given by the Shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that Shareholder by first-class mail or telegraphic or other written
communication to the corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where that
office is located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by telegram or other means
of written communication.
If any notice addressed to a Shareholder at the address of that
Shareholder appearing on the books of the
-14-
<PAGE> 18
corporation is returned to the corporation by the United States Postal Service
marked to indicate that the United States Postal Service is unable to deliver
the notice to the Shareholder at that address, all future notices or reports
shall be deemed to have been duly given without further mailing if these shall
be available to the Shareholder on written demand of the Shareholder at the
principal executive office of the corporation for a period of one year from the
date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
Shareholders' meeting shall be executed by the Secretary, Assistant Secretary,
or any transfer agent of the Corporation giving the notice, and shall be filed
and maintained in the minute book of the corporation.
Section 6. Quorum
The holders of a majority of the shares entitled to vote thereat,
present in person, or represented by proxy, shall constitute a quorum at all
meetings of the Shareholders for the transaction of business except as otherwise
provided by law, by the Articles of Incorporation, or by these By-Laws. If,
however, such majority shall not be present or represented at any meeting of the
Shareholders, the Shareholders entitled to vote thereat, present in person, or
by proxy, shall have the power to adjourn the meeting from time to time, until
the requisite amount of voting shares shall be present. At such adjourned
meeting at which the requisite amount of voting shares shall be represented, any
business may be transacted which might have been transacted at a meeting as
originally notified.
If a quorum be initially present, the Shareholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
Shareholders to leave less than a quorum, if any action taken is approved by a
majority of the Shareholders required to initially constitute a quorum.
Section 7. Adjourned Meeting; Notice
Any Shareholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the shares represented at that meeting, either in person or by proxy, but in the
absence of a quorum, no other business may be transacted at that meeting, except
as provided in Section 6 of this Article.
When any meeting of Shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at a meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed,
-15-
<PAGE> 19
or unless the adjournment is for more than forty-five (45) days from the date
set for the original meeting, in which case the Board of Directors shall set a
new record date. Notice of any such adjourned meeting shall be given to each
Shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Sections 4 and 5 of this Article. At any adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting.
Section 8. Voting Rights; Cumulative Voting
Only persons in whose names shares entitled to vote stand on the stock
records of the corporation on the day of any meeting of Shareholders, unless
some other day be fixed by the Board of Directors for the determination of
Shareholders of record, and then on such other day, shall be entitled to vote at
such meeting.
Provided the candidate's name has been placed in nomination prior to
the voting and one or more Shareholders has given notice at the meeting prior to
the voting of the Shareholder's intent to cumulate the Shareholder's votes,
every Shareholder entitled to vote at any election for Directors of any
corporation for profit may cumulate his votes and give one candidate a number of
votes equal to the number of Directors to be elected multiplied by the number of
votes to which his shares are entitled, or distribute his votes on the same
principle among as many candidates as he things fit.
The candidates receiving the highest number of votes up to the number
of Directors to be elected are elected.
Section 9. Record Date
The Board of Directors may fix a time in the future not exceeding sixty
(60) days nor less than ten (10) days preceding the date of any meeting of
Shareholders or the date fixed for the payment of any dividend or distribution,
or for the allotment of rights, or when any change or conversion or exchange of
shares shall go into effect, as a record date for the determination of the
Shareholders entitled to notice of and to vote at any such meeting, or entitled
to receive any such dividend or distribution, or any allotment of rights, or to
exercise the rights in respect to any such change, conversion or exchange of
shares. In such case only Shareholders of record on the date so fixed shall be
entitled to notice of and to vote at such meeting, or to receive such dividends,
distribution or allotment of rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any share on the books of the company after
any record date fixed as aforesaid, The Board of Directors may close the books
of the company against transfers of shares during the whole or any part of such
period.
-16-
<PAGE> 20
In determining the Shareholders entitled to give consent to corporate
action without a meeting, the date set by the Board of Directors shall not be
more than sixty (60) days before any such action without a meeting.
If the Board of Directors does not so fix a record date:
(a) The record date for determining Shareholders entitled to
notice of or to vote at a meeting of Shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
(b) The record date for determining Shareholders entitled to
give consent to corporate action in writing without a meeting, (i) when no prior
action by the Board has been taken, or (ii) when prior action of the Board has
been taken, shall be at the close of business on the day on which the Board
adopts the resolution relating to that action, or the sixtieth (60th) day before
the date of such other action, whichever is later.
Section 10. Proxies
Every person entitled to vote for Directors or on any other matter
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the Secretary
of the corporation. A proxy shall be deemed signed if the Shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission, or otherwise) by the Shareholder or the Shareholder's attorney in
fact. A validly executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) revoked by the person executing it,
before the vote pursuant to that proxy, by a writing delivered to the
corporation stating that the proxy is revoked or by a subsequent proxy executed
by, or attendance at the meeting and voting in person by, the person executing
the proxy; or (ii) written notice of the death or incapacity of the maker of
that proxy is received by the corporation before the vote pursuant to that proxy
is counted; provided, however, that no proxy shall be valid after the expiration
of eleven (11) months from the date of the proxy, unless otherwise provided in
the proxy. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Sec. 705(e) and 705(f) of the
Code.
Section 11. Organization
The President, or in the absence of the President, any Vice President,
shall call the meeting of the Share-
-17-
<PAGE> 21
holders to order, and shall act as Chairman of the meeting. In the absence of
the President and all of the Vice Presidents, Shareholders shall appoint a
Chairman for such meeting. The Secretary of the corporation shall act as
Secretary of all meetings of Shareholders, but in the absence of the Secretary
at any meeting of the Shareholders, the presiding officer may appoint any person
to act as Secretary of the meeting.
Section 12. Inspectors of Election
Before any meeting of Shareholders, the Board of Directors may appoint
any persons other than nominees for office to act as inspectors of election at
the meeting or its adjournment. If no inspectors of election are so appointed,
the Chairman of the meeting may, and on the request of any Shareholder or a
Shareholder's proxy shall, appoint inspectors of election at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more Shareholders or proxies,
the holders of a majority of shares or their proxies present at the meeting
shall determine whether one or three inspectors are to be appointed. If any
person appointed as inspector fails to appear or fails or refuses to act, the
Chairman of the meeting may, and upon the request of any Shareholder or a
Shareholder's proxy shall, appoint a person to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the
election or vote with fairness to all Shareholders.
Section 13. Shareholders' Agreements
Notwithstanding the above provisions in the event this corporation
elects to become a close corporation, an agreement between two or more
Shareholders thereof, if in writing and
-18-
<PAGE> 22
signed by the parties thereof, may provide that in exercising any voting rights
the shares held by them shall be voted as provided therein or in Sec. 706, and
may otherwise modify these provisions as to Shareholders' meetings and actions.
Section 14. Waiver of Notice or Consent by Absent Shareholders
The transactions of any meeting of Shareholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice, if a quorum be
present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to a holding of the
meeting, or an approval of the minutes. The waiver of notice of consent need not
specify either the business to be transacted or the purpose of any annual or
special meeting of Shareholders, except that if action is taken or proposed to
be taken for approval of any of those matters specified in the second paragraph
of Section 4 of this Article, the waiver of notice or consent shall state the
general nature of the proposal. All such waivers, consents or approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the meeting.
Section 15. Shareholder Action By Written Consent Without a Meeting
Any action which may be taken at any annual or special meeting of
Shareholders may be taken without a meeting and without prior notice, if a
content in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted. In the case of
election of Directors, such a consent shall be effective only if signed by the
holders of all outstanding shares entitled to vote for the election of
Directors; provided, however, that a director may be elected at any time to fill
a vacancy on the Board of Directors that has not been filled by the Directors,
by the written consent of the holders of a majority of the outstanding shares
entitled to vote for the election of Directors. All such consents shall be filed
with the Secretary of the corpo-
-19-
<PAGE> 23
ration and shall be maintained in the corporate records. Any Shareholder giving
a written consent, or the Shareholder's proxy holders, or a transferee of the
shares or a personal representative of the Shareholder or their respective proxy
holders, may revoke the consent by a writing received by the Secretary of the
corporation before written consents of the number of shares required to
authorize the proposed action have been filed with the Secretary.
If the consents of all Shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
Shareholders shall not have been received, the Secretary shall give prompt
notice of the corporate action approved by the Shareholders without a meeting.
This notice shall be given in the manner specified in Section 5 of this Article.
In the case of approval of (i) contracts or transactions in which a Director has
a direct or indirect financial interest, pursuant to Sec. 310, (ii)
indemnification of agents of the corporation, pursuant to Sec. 317, (iii) a
reorganization of the corporation, pursuant to Sec. 1201, and (iv) a
distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, pursuant to Sec. 2007, the notice shall be given
at least ten (10) days before the consummation of any action authorized by that
approval.
ARTICLE V
CERTIFICATES AND TRANSFER OF SHARES
Section 1. Certificates for Shares
A certificate or certificates for shares of the capital stock of the
corporation shall be issued to each Shareholder when any of these shares are
fully paid, and the Board of Directors may authorize the issuance of
certificates or shares as partly paid provided that these certificates shall
state the amount of the consideration to be paid for them and the amount paid.
Certificates for shares shall be of such form and device as the Board of
Directors may designate and shall state the name of the record holder of the
shares represented thereby; its number, date of issuance; the number of shares
for which it is issued; a statement of the rights, privileges, preferences and
restrictions, if any; a statement as to the redemption or conversion, if any; a
statement of liens or restrictions upon transfer or voting, if any; if the
shares are assessable or, if assessments are collectible by personal action, a
plain statement of such facts.
All certificates shall be signed in the name of the Corporation by the
Chairman of the Board or Vice Chairman of the Board or the President or Vice
President, and by the
-20-
<PAGE> 24
Chief Financial Officer or an assistant treasurer or the Secretary or any
assistant secretary, certifying the number of shares and the class or series of
shares owned by the Shareholder. Any or all of the signatures on the certificate
may be facsimile. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed on a certificate shall have
ceased to be that officer, transfer agent, or registrar before that certificate
is issued, it may be issued by the corporation with the same effect as if that
person were an officer, transfer agent, or registrar at the date of issue.
Section 2. Transfer on the Books
Upon surrender to the Secretary or transfer agent of the corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction upon its books.
Section 3. Lost or Destroyed Certificates
Any person claiming a certificate of stock to be lost, stolen, or
destroyed shall make an affidavit or affirmation of that fact and file it with
the Secretary or Chief Financial Officer, or their assistant. The Board of
Directors may then authorize the issuance of a replacement certificate on such
terms and conditions as the Board may require, including provision for
indemnification of the corporation secured by a bond or other adequate security
sufficient to protect the corporation against any claim that may be made against
it, including any expense or liability, on account of the alleged loss, theft,
or destruction of the certificate or the issuance of the replacement
certificate.
Section 4. Transfer Agents and Registrars
The Board of Directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, which shall be an incorporated bank
or trust company - either domestic or foreign, who shall be appointed at such
times and places as the requirements of the corporation may necessitate and the
Board of Directors may designate.
Section 5. Legend Condition
In the event any shares of this corporation are issued pursuant to a
permit or exemption therefrom requiring the imposition of a legend condition the
person or persons issuing or transferring said shares shall make sure said
legend appears on the certificate and on the stub relating thereto in the stock
record book, and shall not be required to transfer
-21-
<PAGE> 25
any shares free of such legend unless an amendment to such permit or a new
permit be first issued so authorizing such a deletion.
Section 6. Close Corporation Certificates
All certificates representing shares of this corporation, in the event
it shall elect to become a close corporation, shall contain the legend required
by Sec. 418c.
ARTICLE VI
RECORDS AND REPORTS
Section 1. Maintenance and Inspection of Share Register
The corporation shall keep at its principal executive office, or at the
office of its transfer agent or registrar, if either be appointed and as
determined by resolution of the Board of Directors, a record of its
Shareholders, giving the names and addresses of all Shareholders and the number
and class of shares held by each Shareholder.
A Shareholder or Shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of Shareholders' names and
addresses and shareholdings during usual business hours on five days' prior
written demand on the corporation, and (ii) obtain from the transfer agent of
the corporation, on written demand and on the tender of such transfer agent's
usual charges for such list, a list of the Shareholders' names and addresses,
who are entitled to vote for the election of directors, and their shareholdings,
as of the most recent record date for which that list has been compiled or as of
a date specified by the Shareholder after the date of demand. This list shall be
made available to any such Shareholder by the transfer agent on or before the
later of five (5) days after the demand is received or the date specified in the
demand as the date of which the list is to be compiled. The record of
Shareholders shall also be open to inspection on the written demand of any
Shareholder or holder of a voting trust certificate, at any time during usual
business hours, for a purpose reasonably related to the holder's interests as a
Shareholder or as the holder of a voting trust certificate. Any inspection and
copying under this Section 1 may be made in person or by an agent or attorney of
the Shareholder or holder of a voting trust certificate making the demand.
Section 2. Maintenance and Inspection of By-Laws
The corporation shall keep at its principal executive office, or if its
principal executive office is not
-22-
<PAGE> 26
in the State of California, at its principal business office in this state, the
original or a copy of the By-laws as amended to date, which shall be open to
inspection by the Shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is outside the State of
California and the corporation has no principal business office in this state,
the Secretary shall, upon the written request of any Shareholder, furnish to
that Shareholder a copy of the By-Laws as amended to date.
Section 3. Maintenance and Inspection of Other Corporate Records
The accounting books and records and minutes of proceedings of the
Shareholders and the Board of Directors and any committee or committees of the
Board of Directors shall be kept at such place or places designated by the Board
of Directors or, in the absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form. The minutes and
accounting books and records shall be open to inspection upon the written demand
of any Shareholder or holder of a voting trust certificate, at any reasonable
time during usual business hours, for a purpose reasonably related to the
holder's interests as a Shareholder or as the holder of a voting trust
certificate. The inspection may be made in person or by an agent or attorney,
and shall include the right to copy and make extracts. These rights of
inspection shall extend to the records of each subsidiary corporation of the
corporation.
Section 4. Inspection by Directors
Every Director shall have the absolute right at any reasonable time to
inspect all books, records and documents of every kind and the physical
properties of the corporation and each of its subsidiary corporations. This
inspection by a Director may be made in person or by an agent or attorney and
the right of inspection includes the right to copy and make extracts of
documents.
Section 5. Annual Report to Shareholders
The Board of Directors shall cause an annual report to be sent to the
Shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. This report shall be sent at least
fifteen (15) days before the annual meeting of Shareholders to be held during
the next fiscal year and in the manner specified in Section 5 of Article IV of
these By-Laws for giving notice to Shareholders of the corporation. The annual
report shall contain a balance sheet as of the end of
-23-
<PAGE> 27
the fiscal year and an income statement and statement of changes in financial
position for the fiscal year, accompanied by any report of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the corporation that the statements were prepared without audit from
the books and records of the corporation.
Section 6. Waiver of Annual Report
The foregoing requirement of an annual report may be waived by the
Board so long as this corporation shall have less than one hundred (100)
shareholders.
Section 7. Financial Statements
A copy of any annual financial statement and any income statement of
the corporation for each quarterly period of each fiscal year, and any
accompanying balance sheet of the corporation as of the end of each such period,
that has been prepared by the corporation shall be kept on file in the principal
executive office of the corporation for twelve (12) months and each such
statement shall be exhibited at all reasonable times to any shareholder
demanding an examination of any such statement or a copy shall be mailed to any
such Shareholder.
If a Shareholder or Shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month, or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and a balance
sheet of the corporation as of the end of that period, the Chief Financial
Officer shall cause that statement to be prepared, if not already prepared, and
shall deliver personally or mail that statement or statements to the person
making the request within thirty (30) days after the receipt of the request. If
the corporation has not sent to the Shareholders its annual report for the last
fiscal year, this report shall likewise be delivered or mailed to the
shareholder or Shareholders within thirty (30) days after the request.
The corporation shall also, on the written request of any Shareholder,
mail-to the Shareholder a copy of the last annuals, semi-annual, or quarterly
income statement which it has prepared, and a balance sheet as of the end of
that period.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer
-24-
<PAGE> 28
of the corporation that the financial statements were prepared without audit
from the books and records of the corporation.
Section 8. Annual Statement of General Information
Within ninety (90) days after the filing of the Articles, and annually
thereafter during the applicable filing period in each year, the corporation
shall file with the Secretary of State of the State of California, on the
prescribed form, a statement setting forth the authorized number of directors,
the names and complete business or residence addresses of all incumbent
directors, the names and complete business or residence addresses of the Chief
Executive Officer, Secretary, and Chief Financial Officer, the street address of
its principal executive office or principal business office in this state, and
the general type of business constituting the principal business activity of the
corporation, together with a designation of the agent of the corporation for the
purpose of service of process, all in compliance with Sec. 1502 of the Code.
When changing the agent for service of process or the address of such agent, the
corporation shall file a complete current statement.
ARTICLE VII
AMENDMENTS
Section 1. Amendment by Shareholders
New By-Laws may be adopted or there By-Laws may be amended or repealed
by the vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that if the Articles of
Incorporation of the corporation set forth the number of authorize directors of
the corporation, the authorized number of Directors may be changed only by an
amendment of the Articles of Incorporation.
Section 2. Amendment by Directors
Subject to the rights of the Shareholders as provided by Section 1 of
this Article, by-laws, other than a by-law or an amendment of a by-law changing
the authorized number of directors, may be adopted, amended, or repealed by the
Board of Directors.
Section 3. Record of Amendments
Whenever an amendment or new by-law is adopted, it shall be copied in
the book of By-Laws with the original By-Laws, in the appropriate place. If any
by-law is repealed, the fact of repeal with the date of the meeting at which the
repeal was enacted or written assent was filed shall be stated in said book.
-25-
<PAGE> 29
ARTICLE VIII
MISCELLANEOUS
Section 1. References to Code Sections
"Sec." references herein refer to the equivalent Sections of the
General Corporation Law effective January 1, 1977, as amended.
Section 2. Effect of Shareholders' Agreement
Any Shareholders' Agreement authorized by Sec. 300(b) shall only be
effective to modify the terms of these By-Laws if this corporation elects to
become a close corporation with appropriate filing of or amendment to its
Articles as required by Sec. 202, and shall terminate when this corporation
ceases to be a close corporation. Such an agreement cannot waive or alter Secs.
158 (defining close corporations), 202 (requirements of Articles of
Incorporation), 500 and 501 relative to distributions, 111 (merger), 1201(e)
(reorganization), or Chapters 15 (Records and Reports), 16 (Rights of
Inspection), 18 (Involuntary Dissolution), or 22 (Crimes and Penalties). Any
other provisions of the Code or these By-laws may be altered or waived thereby,
but to the extent they are not so altered or waived, these By-Laws shall be
applicable.
Section 3. Representation of Shares in Other Corporations
Shares of other corporations standing in the name of this Corporation
may be voted or represented and all incidents thereto may be exercised on behalf
of the corporation by the Chairman of the Board, the President or any Vice
President and the Secretary or an Assistant Secretary.
Section 4. Subsidiary Corporations
Shares of this corporation owned by a subsidiary shall not be entitled
to vote on any matter. A subsidiary for these purposes is defined as a
corporation, the shares of which possessing more than twenty-five percent (25%)
of the total combined voting power of all classes of shares entitled to vote,
are owned directly or indirectly through one or more subsidiaries.
-26-
<PAGE> 30
CERTIFICATE OF ADOPTION OF BY-LAWS
Adoption by Incorporator or First Director(s)
The undersigned, being all of the persons appointed in the Articles of
Incorporation to act as the Incorporator or First Directors(s) of the above
named corporation hereby adopt the same as the By-Laws of said corporation.
Executed this 18th day of February, 1977.
/s/ MICHAEL T. MORRISSEY
------------------------------------------
MICHAEL T. MORRISSEY, Incorporator
Certificate by Secretary
I DO HEREBY CERTIFY AS FOLLOWS:
That I am the duly elected, qualified and acting Secretary of the above
named corporation; that the foregoing By-Laws were adopted as the By-Laws of
said corporation on the date set forth above by the person(s) appointed in the
Articles of Incorporation to act as the Incorporator or First Directors(s) of
said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and affixed the
corporate seal this 12th day of May, 1977.
/s/ UFA SOARES
------------------------------------------
Secretary
(Seal)
Certificate by Secretary of Adoption by Shareholders' Vote
THIS IS TO CERTIFY:
That I am the duly elected, qualified and acting Secretary of the
above-named corporation and that the above and foregoing Code of By-Laws was
submitted to the Shareholders at their first meeting held on the date set forth
in the By-Laws and recorded in the Minutes thereof, was ratified by the vote of
Shareholders entitled to exercise the majority of the voting power of said
corporation.
IN WITNESS WHEREOF I have hereunto set my hand this 12th day of May,
1977.
/s/ UFA SOARES
------------------------------------------
Secretary
-27-
<PAGE> 31
ARTICLE VIII
(As amended October 28, 1994)
Section 1. Restrictions on Transfer of Shares.
The sale or transfer of shares of the corporation by any of the holders
thereof is restricted as follows:
Before there can be a valid sale or transfer, except as hereinafter
provided, of any of the shares of the corporation by any holder thereof to any
person or entity, the holder of the shares to be sold or transferred shall first
give notice (the "notice") in writing to the secretary of the corporation of his
intention to sell or transfer such shares. The notice shall specify the proposed
purchaser or purchasers, the number of shares to be sold or transferred, the
price per share, and the terms upon which the holder intends to make such sale
or transfer. In the event that the consideration to be received by the
transferor is other than cash, the notice shall fully describe such
consideration and state the fair market value thereof. The corporation, at its
option and at the transferor's expense, may require the transferor to have the
fair market value of such consideration determined by an independent appraiser
selected by the corporation. In the case of a noncash consideration, the price
per share shall be based upon the fair market value of the consideration as
stated in the notice, unless the corporation exercises its option to require the
aforementioned independent appraisal, in which case the price per share shall be
based upon such independently appraised fair market value.
A sale or transfer shall be deemed to have occurred for the purpose of
this Article VIII whenever any interest in any share of stock of the corporation
is transferred voluntarily, involuntarily or by operation of law, irrespective
of whether any change in the record ownership results therefrom and without
regard to whether or not any consideration is received for such transfer. The
following are the only sales or transfers excluded from the provisions of this
Article VIII: transfer by bequest, intestate succession or gift to the spouse,
lineal descendants, brothers or sisters, ancestors, or adopted children, or to
the spouses or adopted children of the lineal descendants, brothers or sisters,
ancestors, or adopted children, or to the spouses or adopted children of the
lineal descendants, brothers or sisters or ancestors, of the holder of the
shares to be transferred, or to any custodian or trustee for the account of such
persons. A sale or transfer which is so excluded from the provisions of this
Article VIII shall not remove those shares so transferred from the restrictions
contained herein and any subsequent sale or transfer shall be subject to, and
comply in all respects with, said restrictions.
The corporation shall have the prior right to purchase the shares
referred to in the notice at the price and upon the terms and conditions stated
in the notice. The corporation may elect to purchase any portion or all of the
shares referred to in the notice at the price and upon the terms and conditions
stated therein. If none or only a portion of the shares referred to in the
notice are, elected to be purchased by the corporation in the foregoing manner,
the shareholders who were holders of record of the corporation on the date the
notice was received by the secretary of the corporation shall have the right to
purchase the shares referred to in the notice which the corporation has not
elected to purchase at the price and upon the terms and conditions stated in the
notice and in accordance with the following provisions. The secretary of the
corporation shall, within ten (10) days after receiving the notice, mail or
deliver a copy thereof, and a statement of the number of shares, if any, which
the corporation has elected to purchase
<PAGE> 32
thereunder, to each of the other shareholders of the corporation who were
holders of record on the date the notice was received by the secretary. The
notice and statement may be delivered to such shareholders personally or may be
mailed to them at their last known address as the same may appear on the books
of the corporation. Within twenty (20) days after the notice and statement are
mailed or delivered to such shareholders, each shareholder who desires to
acquire any part or all of the shares referred to in the notice, and which the
corporation has not elected to purchase, shall deliver by mail or otherwise to
the secretary of the corporation a written offer to purchase a specific number
of such shares at the price and upon the terms and conditions stated in the
notice.
If the total number of shares specified in all such shareholder offers
exceeds the number of shares referred to in the notice and statement and
available for purchase by the shareholders, each offering shareholder shall be
entitled to purchase such proportion of the shares so referred to as the number
of shares of the corporation which he held of record on the date the notice was
received by the secretary bears to the total number of shares held of record by
all offering shareholders on the date the notice was received by the secretary.
If all of the shares referred to in the notice and statement are not
disposed of under such apportionment, each offering shareholder desiring to
purchase shares in a number in excess of his proportionate share, as provided
above, shall be entitled to purchase such proportion of the shares which remain
thus undisposed of as-the total number of shares which he held of record on the
date the notice was received by the secretary bears to the total number of
shares held of record on the date the notice was received by the secretary by
all shareholders who desire to purchase shares in excess of those to which they
are entitled under such apportionment.
After receipt of the offering shareholder(s)' notice(s), to the extent
that all of the shares referred to in the transferor's notice and statement are
not disposed of under the preceding provisions, the corporation shall have the
right to increase the number of said shares it has elected to purchase.
Within forty (40) days after the notice is mailed or delivery to the
secretary, the corporation shall deliver, by mail or otherwise, to the
shareholder giving such notice a written statement of the number of shares
referred to in the notice which the corporation and/or the shareholders have
elected to purchase.
If (i) none or only a part of the shares referred to in the notice are
contracted for in the foregoing manner within the aforesaid forty (40) day
period, or (ii) prior to the expiration of the aforesaid forty (40) day period,
the holders of two-thirds (2/3) or more of the shares of the corporation on the
date the notice was received by the secretary file with the secretary their
consent in writing that such sale or transfer be made as proposed in the notice
and waive their right to acquire such shares as hereinabove provided, then the
shareholder desiring to sell or transfer shares may, within a period of ninety
(90) days after the date of the notice, sell or transfer to the proposed
purchaser or purchasers all or any part of the shares referred to in the notice;
provided, however, that he shall not sell or transfer any such shares at a lower
price or on terms or conditions more favorable to the purchaser or transferee
than those specified in the notice. If the shareholder desiring to sell or
transfer shares does not sell or transfer all shares referred to in the notice
within the aforesaid ninety (90) day period, the shares which remain thus
undisposed shall become again subject to the restrictions imposed by this
Article VIII.
Any sale or transfer, or purported sale or transfer, of shares of the
corporation shall be null and void unless made in accordance with the terms,
conditions and provisions of this Article VII.
-2-
<PAGE> 1
EXHIBIT 3.15
FILED
in the office of the Secretary of State
of the State of California
JAN 12 1998
/s/BILL JONES
BILL JONES, Secretary of State
ARTICLES OF INCORPORATION
OF
PHOENIX RACING, INC.
ARTICLE ONE: The name of this corporation is Phoenix Racing, Inc.
ARTICLE TWO: The purpose of this corporation is to engage in any lawful
act or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust company
business, or the practice of a profession permitted to be incorporated by the
California Corporations Code.
ARTICLE THREE: The name and address in this state of the corporation's
initial agent for service in this state of the corporation's initial agent for
service of process is: Reed Guest, One Post Street, Suite 2100, San Francisco,
CA 94104.
ARTICLE FOUR: This corporation is authorized to issue only one class of
shares of stock; and the total number of shares which it is authorized to issue
is 1,000,000.
Dated: January 9, 1998
/s/ REED GUEST
------------------------------
Reed Guest, Incorporator
Each of the undersigned declares that he or she is the person who
executed the above Articles of Incorporation, and such execution is his or her
act or deed.
/s/ REED GUEST
------------------------------
Reed Guest
<PAGE> 1
EXHIBIT 3.16
BY-LAWS OF
PHOENIX RACING, INC.
A Corporation Organized Pursuant to The
California Corporations Code of 1977, As Amended
ARTICLE I. OFFICES
The principal executive office of the corporation shall be located
at 1140 Campbell Avenue, San Jose, CA 95126.
The Board of Directors (hereinafter referred to as the Board) shall
have the authority to change the principal executive office. The corporation may
have such other offices, either within or without the State of California as the
Board may designate or as the business of the corporation may from time to time
require.
ARTICLE II. SHAREHOLDERS MEETINGS
1. Place of Meetings. Meetings of shareholders shall be held at the
principal executive office of the corporation or at any other place designated
by the Board or by consent, in writing, of all persons entitled to vote thereat,
given before or after the meeting and filed with the Secretary.
2. Annual Meetings. The annual meeting of the shareholders shall be on
the first Tuesday of October in each year, beginning with the year next
following the adoption of the bylaws at 10:00 o'clock A.M., for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday such meeting shall be held on the next succeeding business day.
3. Special Meetings. Special meetings of the shareholders may be called
at any time by the Board, Chairman of the Board, President, a Vice President,
Secretary or by holders of shares entitled to cast not less than 10 percent of
the votes at the meeting. Except as hereafter provided notice shall be given in
the same manner as notice for an annual meeting. Upon receipt of a mailed or
personally delivered written request addressed to the Chairman of the Board,
President, Vice President or Secretary by any person (other than the Board),
entitled to call a special meeting of shareholders the officer shall, within 20
days after receipt of the request, cause to be given to the shareholders
entitled to vote, a notice that a meeting will be held at a time requested by
the person(s) calling the meeting, not less than 35 nor more than 60 days after
receipt of such request. The person entitled to call the meeting may give the
notice if the notice was not given within 20 days after receipt of the request.
BY-LAWS OF PHOENIX RACING, INC. Page 1
<PAGE> 2
4. Notice Of Meetings And Reports. Notice of annual or special meetings
shall be given in writing not less than 10 nor more than 60 days before the date
of the meeting, to shareholders entitled to vote thereat by the Secretary or an
Assistant Secretary, or if there be no such officer, or in the case of neglect
or refusal, by any director or shareholder. The notice or any reports shall be
given personally or by mail or other means of written communication as provided
in Corporations Code Section 601 and shall be sent to the shareholder's address
appearing on the books of the corporation, or supplied to the corporation by the
shareholder for the purpose of notice. In the absence thereof, notice shall be
deemed to have been given if mailed to the principal executive office of the
corporation or published at least once in a newspaper of general circulation in
the county in which the principal executive office is located.
Notice of any meeting of shareholders shall specify the place, the day
and the hour of meeting, and (a) in case of a special meeting, the general
nature of the business to be transacted, or (b) in the case of annual meeting,
those matters which the directors at date of mailing intend to present for
action by the shareholders. At any meetings where directors are to be elected,
notice shall include the names of the nominees, if any, intended at date of
notice to be presented by management for election.
Notice shall be deemed given at the time it is delivered personally or
deposited in the mail or sent by other means of written communication The
officer giving such notice or report shall prepare and file an affidavit or
declaration thereof. It shall not be necessary to give any notice of adjournment
or of the business to be transacted at an adjourned meeting other than by
announcement at the meeting at which such adjournment is taken; however, when a
meeting is adjourned for 45 days or more, notice of the adjourned meeting shall
be given in the same manner as an original meeting.
5. Quorum. At any meeting of shareholders a majority of the outstanding
shares entitled to vote, represented in person or by proxy, shall constitute a
quorum. If less than said number of the outstanding shares are represented at a
meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally noticed. The shareholders present
at a duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
6. Voting. The shareholders entitled to notice of any meeting or to
vote at any meeting shall be only the persons in
BY-LAWS OF PHOENIX RACING, INC. Page 2
<PAGE> 3
whose names shares stand on the share records of the corporation on the record
date determined in accordance with these bylaws.
If no record date is determined, (a) the record date for determining
shareholders entitled to notice of, or to vote at a meeting of shareholders
shall be at the close of business on the business day next preceding the day on
which notice is given, or if notice is waived, at the close of business on the
business day next preceding the day on which the meeting is held, (b) the record
date for determining shareholders entitled to give consent to corporate actions
in writing without a meeting when no prior action by the Board is necessary,
shall be at the close of business on the day on which the first written consent
is given, and (c) the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board adopts
the resolution relating thereto, or the 60th day prior to the date of such other
action, whichever is later.
Every shareholder entitled to vote shall be entitled to one vote for
each share held, except for the election of directors. In an election for
directors, if a candidate's name has been placed in nomination prior to the
voting and one or more names has been placed in nomination prior to the voting
and one or more shareholders has given notice at the meeting prior to the voting
of the shareholder's intent to cumulate the shareholder's votes, then every
shareholder entitled to vote may cumulate votes and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of shares which the shareholder is entitled to vote, or distribute the votes on
the same principal among as many candidates as the shareholder chooses. The
candidates receiving the highest number of votes up to the number of directors
to be elected shall be elected. Upon the demand of any shareholder made before
the voting begins, the election of directors shall be by ballot.
7. Proxies. Every person entitled to vote shares may do so by one or
more persons authorized by proxy in writing executed by such shareholder and
filed with the Secretary.
Every proxy continues in full force and effect until revoked by the
person executing it prior to the vote pursuant thereto, provided however, that
no proxy shall be Valid after the expiration of eleven (11) months from the date
thereof unless otherwise provided in the proxy.
8. Waivers and Consents. Actions taken at a meeting of shareholders
however called and noticed, where a quorum is present in person or by proxy, are
as valid as if taken after regular call and notice, provided that each person
entitled to vote either before or after the meeting signs a written waiver of
notice or consent to the holding of the meeting or an approval of the minutes
thereof. All waivers, consents and approvals shall be made
BY-LAWS OF PHOENIX RACING, INC. Page 3
<PAGE> 4
part of the minutes of the meeting. Neither the business to be conducted nor the
purpose of any regular or special meeting must be set forth in any waiver of
notice, except as provided by Section 601(f) of the Corporations Code.
Attendance shall constitute a waiver of notice unless objection is made as
provided in Section 601(e) of the Corporations Code.
9. Action Without Meeting. Any action which may be taken at an annual
or special meeting of shareholders may be taken without a meeting and without
prior notice if a consent in writing, setting forth the action taken, shall be
signed by the shareholders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all sharers entitled to vote thereon were present and
voted.
Unless the consents of all shareholders entitled to vote have been
solicited in writing, notice of any shareholders' approval of (a) a contract or
other transaction between the corporation and one or more of its directors or
another corporation, firm or association in which one or more of its directors
has a material financial interest pursuant to Section 310 of the Corporations
Code, (b) indemnification of an agent of the corporation, pursuant to Section
317 of the Corporations Code, (c) the principal terms of reorganization pursuant
to Section 1201 of the Corporations Code, and (d) a plan of distribution as part
of the winding up of the corporation pursuant to Section 2007 of the
Corporations Code, without a meeting by less than unanimous written consent,
shall be given at least ten (10) days before the consummation of the action
authorized by such approval.
Prompt notice shall be given of any corporate action taken by
shareholders without a meeting by less than a unanimous written consent to those
shareholders entitled to vote who have not consented in writing.
Notwithstanding any of the foregoing provisions of this section,
directors may not be elected by written consent except by the unanimous written
constant of all shares entitled to vote for the election of directors.
A written consent may be revoked by a writing received by the
corporation prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary of
the corporation, but may not be revoked thereafter. Such revocation is effective
upon its receipt by the Secretary of the corporation.
Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares of a personal representative of the
shareholder or their respective proxyholders, may revoke the consent by a
writing received by the
BY-LAWS OF PHOENIX RACING, INC. Page 4
<PAGE> 5
corporation prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary of
the corporation, but may not do so thereafter. Such revocation is effective upon
its receipt by the Secretary of the corporation.
10. Organization of Meetings. The President, or in the absence of the
President any Vice President, shall call the meeting of the shareholders to
order and shall act at chairman of the meeting. In the absence of the President
and all of the Vice Presidents, shareholders shall appoint a chairman for such
meeting. The Secretary shall act as secretary of all meetings of the
shareholders, but in the absence of the Secretary, the Chairman may appoint any
person to act as Secretary of the meeting.
The order of business at all meetings of the shareholders shall be as
follows:
(1) Roll call.
(2) Proof of notice of meeting or waiver of notice.
(3) Reading of the minutes of the preceding meeting.
(4) Reports of officers.
(5) Reports of committees.
(6) Election of directors.
(7) Unfinished business.
(8) New business.
ARTICLE III. BOARD OF DIRECTORS
1. General Powers. The business and affairs of the corporation shall be
managed and its corporate powers exercised by its Board of Directors. The
directors shall in all cases act as a board, and they may adopt such rules and
regulations for the conduct of their meetings and the management of the
corporation as they may deem proper, not inconsistent with these By-laws, the
Articles of Incorporation, the California Corporations Code and any
shareholders' agreement relating to any of the affairs of the corporation as
long as it remains a close corporation.
2. Number and Tenure. The number of directors of the corporation shall
be three (3). Each director shall hold office until the next annual meeting of
shareholders and until the director's successor shall have been elected and
qualified. The number of directors may be changed only by an amendment of the
Articles of Incorporation or by a by-law adopted by the share-
BY-LAWS OF PHOENIX RACING, INC. Page 5
<PAGE> 6
holders amending this section.
3. Meetings. Immediately following each annual meeting of shareholders
the Board shall hold a regular meeting for the purposes of organization,
election of officers, and the transaction of other business.
Regular or special meetings of the Board shall be held at any place
within or without the State of California which has been designated from time to
time by the Board. In the absence of such designation, regular meetings shall be
held at the principal executive office of the corporation. Call and notice of
all regular meetings of the Board are hereby dispensed with.
Special meetings of the Board for any purpose or purposes may be called
at any time by the Chairman, the President, any Vice President, the Secretary,
or by any two directors.
Special meetings of the Board shall be held upon four days' written
notice or 48 hours' notice given personally or by telephone or telegraph.
If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail addressed to the director at the director's address
shown in the records of the corporation, with postage thereon prepaid. If notice
be given by telegram, such notice shall be deemed to be delivered when the
telegram is delivered to the telegraph company. The attendance of a director at
a meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Directors may participate in a meeting using communication equipment,
provided that all participants can hear each other.
4. Quorum. A majority of the authorized number of directors is a quorum
for the transaction of business, except to adjourn. Action taken by a majority
of the directors present at a meeting held at which a quorum is present is an
act of the Board of Directors unless a greater number is required by law or the
Articles of Incorporation. A meeting at which a quorum is initially present may
continue to transact business despite the withdrawal of directors if any action
taken is approved by at least a majority of the required quorum for such
meeting.
5. Vacancies In The Board Of Directors. A director may resign effective
upon giving written notice to the Chairman, the President, the Secretary or the
Board, unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to take office when the resignation becomes effective.
BY-LAWS OF PHOENIX RACING, INC. Page 6
<PAGE> 7
Vacancies, except those existing as a result of removal of a director,
may be filled by a majority of the remaining directors, and each director so
elected shall hold office until the next annual meeting and until such
director's successor has been elected and qualified.
A vacancy shall be deemed to exist in case of the death, resignation,
or removal of any director, or if the authorized number of directors be
increased, or if the shareholders fail at any annual or special meeting of
shareholders at which any director or directors are elected, to elect the full
authorized number of directors to be voted for at that meeting. The Board may
declare vacant the office of a director who has been declared of unsound mind by
an order of court or convicted of a felony.
The shareholders may elect a director at any time to fill a vacancy not
filled by the directors. Any such election by written consent requires the
consent of a majority of the outstanding shares entitled to vote. A reduction of
the authorized number of directors shall not cause the removal of any director
prior to the expiration of the director's term of office.
6. Removal. Directors may be removed without cause if the removal is
approved by a majority of all the outstanding shares entitled to vote. The
remaining directors may elect a successor to complete the unexpired term of the
director so removed.
7. Waiver of Notice. Action taken at a meeting of the Board, however
called and noticed or wherever held, are as valid as though taken at a meeting
duly held after regular call and notice if a quorum be present and if, either
before or after the meeting, each of the directors not present signs, a written
waiver of notice, a consent to holding such meeting or an approval of the
minutes thereof. All such waivers, consents, or approvals shall be filed with
the minutes of the meeting.
8. Adjournment. A majority of the directors present, whether or not a
quorum is present, may adjourn any director's meeting to another time and place,
Notice of the time and place of holding an adjourned meeting need not be given
to absent directors if the time and place be fixed at the meeting adjourned,
except if the meeting is adjourned for more than 24 hours. In such case notice
of any adjournment to another time or place shall be given prior to the time of
the adjourned meeting to the directors who were not present at the time of
adjournment.
9. Compensation. No compensation shall be paid to directors, as such,
for their services, but by resolution of the Board a fixed sum and expenses for
actual attendance at each regular or special meeting of the Board may be
authorized. Nothing herein contained shall be construed to preclude any director
from serving the corporation in any other capacity and receiving
BY-LAWS OF PHOENIX RACING, INC. Page 7
<PAGE> 8
compensation therefor.
10. Action Taken Without Meeting. Any action required or permitted to
be taken by the Board may be taken without a formal board meeting, provided that
all board members shall individually or collectively consent in writing to such
action. The consent or consents shall have the same effect as a unanimous vote
of the Board and shall be filed with the minutes of the proceedings of the
Board.
11. Committees. Committees of the Board consisting of two or more
directors may be appointed by resolution passed by a majority of the Board.
Committees shall have such powers as shall be expressly delegated to them by
resolution of the Board, except those powers expressly made non-delegable by
Section 311 of the Corporations Code.
ARTICLE IV. OFFICERS
1. Officers. The officers of the corporation shall be a president, a
secretary and a chief financial officer. A chairman of the Board, one or more
vice presidents and assistant officers as may be deemed necessary, may be
elected or appointed by the directors. A person may hold more than one office
but may not execute, acknowledge or verify an instrument in more than one
capacity.
2. Election And Term Of Office. The officers of the corporation shall
be elected annually at the first meeting of the directors held after each annual
meeting of the shareholders. Each officer shall hold office until a successor is
elected and qualified or until death, resignation or removal.
3. Removal. Any officer or agent elected or appointed by the Board may
be removed by the Board whenever in their judgment the best interests of the
corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
4. Resignation. An officer may resign at any time upon written notice
given to the Board, the President, or the Secretary. A resignation shall take
effect on the day of receipt or any other time specified in the notice.
Acceptance of a resignation shall not be necessary to make it effective.
5. Chairman of the Board. The Chairman of the Board, if there shall be
one, shall preside at all meetings of the Board and exercise and perform such
other powers and duties as may be authorized by the Board.
6. President. Subject to such powers, if any, as may be given by the
Board to the Chairman of the Board, if there be
BY-LAWS OF PHOENIX RACING, INC. Page 8
<PAGE> 9
one, the President shall be the chief executive of officer of the corporation
and shall, subject to the control of the Board, have general supervision,
direction and control of the business and officers of the corporation. The
President shall preside at all meetings of the shareholders and in the absence
of the Chairman, or if there be none, at all meetings of the Board. The
President shall be ex officio a member of all the standing committees, including
the executive committee, if any, and shall have the general powers and duties of
management usually vested in the office of the President of the corporation, and
shall have such other powers and duties as may be prescribed by the Board.
7. Vice President. In the absence or disability of the President, the
Vice Presidents, in order of their rank as fixed by the Board, or if not ranked,
the Vice President designated by the Board shall perform all the duties of the
President, and when so acting shall have all the powers of, and be subject to
all the restrictions upon the President. The Vice President shall have such
other powers and perform such other duties as may be prescribed for them by the
Board.
8. Secretary. The Secretary shall keep, or cause to be kept, a book of
minutes at the principal executive office or such other place as the Board may
designate. The book of minutes shall include minutes of all meetings of
directors and shareholders with the time and place of holding, whether regular
or special, and if special, how authorized, the notice thereof given, the names
of those present at director's meetings, and the number of shares present or
represented at shareholders' meetings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent, if any, a
share register, or duplicate share register, showing the names of the
shareholders and their addresses, the number and classes of shares held by each,
the number and date of certificates issued for the same, and the number and date
of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the shareholders and directors required by the By-Laws or by law,
and shall keep the seal of the corporation in the safe custody, and shall have
such other powers and perform such other duties as may be prescribed by the
Board.
9. Chief Financial Officer. The Treasurer is the chief financial
officer and shall keep and maintain, or cause to be kept and maintained in
accordance with generally accepted accounting principles, adequate and correct
accounts of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, earnings (or surplus) and shares. The books of account
BY-LAWS OF PHOENIX RACING, INC. Page 9
<PAGE> 10
shall at all reasonable times be open to inspection by any director.
10. Compensation of Officers. The salaries of the officers shall be
fixed, from time to time, by the Board.
ARTICLE V. CORPORATE RECORDS AND REPORTS
1. Records. The corporation shall maintain adequate and correct
accounts, books and records of its business and properties in accordance with
generally accepted accounting principles. All of such books, records and
accounts shall be kept at its principal executive office.
The original or a copy of these By-Laws, as amended to date, certified
by the Secretary, shall be kept at the corporation's principal executive office.
2. Inspection By Shareholders. The share register, accounting books and
records and minutes of proceedings of the shareholders, the Board and committees
of the Board shall be open to inspection and copying by any shareholder or
holder of a voting trust certificate at any time during usual business hours
upon written demand on the corporation, for a purpose reasonably related to such
holder's interest as a shareholder or holder of a voting trust certificate.
Inspection and copying may be made in person, by agent, or by attorney.
Shareholders shall also have the right to inspect the original or
certified copy of these By-Laws, as amended to date, kept at the corporation's
principal executive office, at all reasonable times during business hours.
If any record subject to inspection pursuant to this chapter is not
maintained in written form, a request for inspection is not complied with unless
and until the corporation at its expense makes such record available in written
form.
3. Inspection By Directors. Each director shall have the absolute right
at any reasonable time to inspect and copy all books, records, and documents of
every kind and to inspect the physical properties of the corporation and also
all of its subsidiary corporations. Inspection by a director may be made in
person or by agent or by attorney and includes the right to copy and obtain
extracts.
4. Waiver of Annual Report. The annual report to shareholders,
described in Section 1501 of the Corporations Code is hereby expressly waived.
5. Contracts, Etc. The Board of Directors, except as otherwise provided
in the By-Laws may authorize any officer or
BY-LAWS OF PHOENIX RACING, INC. Page 10
<PAGE> 11
officers, agent or agents, to enter into any contract or execute any instrument
in the name and on behalf of the corporation. Such authority may be general or
confined to specific instances. Unless so authorized by the Board, no officer,
agent or employee shall have any power or authority to bind the corporation by
any contract or engagement, or to pledge its credit, or to render it liable for
any purpose or to any amount.
6. Checks, Drafts, Etc. All checks, drafts or other orders for payment
of money, notes or other evidences of indebtedness, issued in the name of or
payable to the corporation, shall be signed or endorsed by such person(s) and in
such manner as shall be determined from time to time by the Board.
ARTICLE VI. SHARES
1. Certificates For Shares. Certificates representing shares of the
corporation shall be in such form as shall be determined by the Board.
Certificates shall be signed by the President and by the Secretary or by such
other officers authorized by law and by the Board. They shall state the name of
the record holder of the shares represented thereby, the total authorized issue,
the number of shares represented by the particular certificate, the designation,
if any, and class or series of shares represented thereby, and any statement or
legend required by the Corporations Code. All certificates for shares shall be
consecutively numbered and issued in consecutive order with the date of issuance
entered thereon.
Any or all the signatures on the certificates may be made by facsimile
provided that they are countersigned by a transfer agent or transfer clerk and
registered by an incorporated bank or trust company, either domestic or foreign,
as registrar of transfers.
2. Transfer On The Books. Upon surrender to the Secretary or transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its share register.
3. Lost Or Destroyed Certificates. Any person claiming a share
certificate to be lost or destroyed shall make an affidavit or affirmation of
that fact and shall, if the Board so require, give the corporation a bond of
indemnity, in form and with one or more sureties satisfactory to the Board, in
at least double the value of the shares represented by the lost certificates,
whereupon a new certificate may be issued in the same tenor and for the same
number of shares as the one alleged to be lost or destroyed.
BY-LAWS OF PHOENIX RACING, INC. Page 11
<PAGE> 12
4. Record Date and Closing of Transfer Books. The Board may fix in
advance a record date for the determination of the shareholders entitled to
notice of and to vote at any meeting of shareholders, or entitled to receive
payment of any dividend or distribution, or any allotment of rights, or to
exercise rights in respect to any other lawful action. The record date so fixed
shall not be more than sixty (60) nor less than ten (10) days prior to the date
of the meeting or event for the purpose for which it is fixed. When a record
date is fixed, only shareholders of record on that date are entitled to notice
of and to vote at that meeting, or to receive the dividend, distribution, or
allotment of rights, or to exercise the rights as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date. The Board may close the books of the corporation against
transfers of shares during the whole or any part of a period of not more than
sixty (60) days prior to the date of a shareholders' meeting, or the date when
the right to any dividend, distribution, or allotment of rights vests, or the
effective date of any change, conversion or exchange of shares.
ARTICLE VII. MISCELLANEOUS
1. Indemnification. The corporation shall have the power to indemnify
any person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that such person is or was an agent of the
corporation, against expenses, judgments, fines, settlements and other amounts,
actually and reasonably incurred in connection with such proceeding if the
person acted in good faith, reasonably believing the acts to be in the best
interest of the corporation and having no reason to believe the conduct
unlawful. The corporation shall advance the expenses reasonably expected to be
incurred by such agent in defending any such proceeding upon receipt of the
undertaking required by Section 317(f) of the Corporations Code. The definition
of "agent," "proceeding" and "expenses" in Section 317 of the Corporations Code
shall apply herein.
2. Construction, Definition and References. The general provisions,
rules of construction and definitions contained in the General Provisions of the
California Corporations Code and in the California General Corporation Law shall
govern the construction of these By-Laws, unless the context requires otherwise.
Corporations Code section references herein refer to the equivalent sections of
the General Corporation Law, effective January 1, 1977, as amended.
3. Corporate Seal. The Board shall provide a corporate seal which shall
be circular in form and shall have inscribed thereon the name of the
corporation, the state of incorporation, the date of incorporation and the words
"Corporate Seal" or "incorporated."
BY-LAWS OF PHOENIX RACING, INC. Page 12
<PAGE> 13
ARTICLE VIII. AMENDMENTS
By-Laws may be adopted, amended or repealed either by affirmative vote
by a majority of the outstanding shares entitled to vote or by the Board. A
By-Law changing the number of directors must be approved by the shareholders.
Each adopted, amended and repealed by-law shall be inserted at the appropriate
place in the original or certified copy of the By-Laws kept at the principal
executive office of the corporation and the date of such adoption, amendment and
repeal shall be noted therein.
BY-LAWS OF PHOENIX RACING, INC. Page 13
<PAGE> 14
CERTIFICATION OF THE ADOPTION OF THE BY-LAWS
The undersigned, Secretary of the corporation, hereby certifies that the
foregoing is a true and correct copy of the By-Laws of the corporation adopted
as of January 28, 1998, by the Board of Directors of the corporation.
Dated: January 28, 1998
/s/ LIZ ROBERTS
------------------------------
LIZ ROBERTS
Corporate Secretary
CERTIFICATION OF ADOPTION OF THE BY-LAWS Page 1
<PAGE> 1
Exhibit 4.1
EXECUTION COPY
================================================================================
THE J.H. HEAFNER COMPANY, INC.
Issuer
10% Senior Notes Due 2008
the
Subsidiary Guarantors
named herein
--------------------
INDENTURE
Dated as of May 15, 1998
---------------------
FIRST UNION NATIONAL BANK
Trustee
================================================================================
<PAGE> 2
2
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- -------
310(a)(1) .............................. 7.10
(a)(2) .............................. 7.10
(a)(3) .............................. N.A.
(a)(4) .............................. N.A.
(b) .............................. 7.08; 7.10
(c) .............................. N.A.
311(a) .............................. 7.11
(b) .............................. 7.11
(c) .............................. N.A.
312(a) .............................. 2.05
(b) .............................. 11.03
(c) .............................. 11.03
313(a) .............................. 7.06
(b)(1) .............................. N.A.
(b)(2) .............................. 7.06
(c) .............................. 11.02
(d) .............................. 7.06
314(a) .............................. 4.02;
4.13; 11.02
(b) .............................. N.A.
(c)(1) .............................. 11.04
(c)(2) .............................. 11.04
(c)(3) .............................. N.A.
(d) .............................. N.A.
(e) .............................. 11.05
(f) .............................. 4.13
315(a) .............................. 7.01
(b) .............................. 7.05; 11.02
(c) .............................. 7.01
(d) .............................. 7.01
(e) .............................. 6.11
316(a)(last sentence) .............................. 11.06
(a)(1)(A) .............................. 6.05
(a)(1)(B) .............................. 6.04
(a)(2) .............................. N.A.
(b) .............................. 6.07
317(a)(1) .............................. 6.08
(a)(2) .............................. 6.09
(b) .............................. 2.04
318(a) .............................. 11.01
N.A. means Not Applicable.
- ----------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE> 3
3
TABLE OF CONTENTS
Page
----
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions ........................................ 1
SECTION 1.02. Other Definitions .................................. 25
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act .................................... 26
SECTION 1.04. Rules of Construction .............................. 26
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating .................................... 27
SECTION 2.02. Execution and Authentication ....................... 27
SECTION 2.03. Registrar and Paying Agent ......................... 28
SECTION 2.04. Paying Agent To Hold Money in Trust................. 29
SECTION 2.05. Securityholder Lists ............................... 29
SECTION 2.06. Replacement Securities ............................. 29
SECTION 2.07. Outstanding Securities ............................. 30
SECTION 2.08. Temporary Securities ............................... 30
SECTION 2.09. Cancellation ....................................... 30
SECTION 2.10. Defaulted Interest ................................. 31
SECTION 2.11. CUSIP Numbers ...................................... 31
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee ................................. 31
SECTION 3.02. Selection of Securities To Be
Redeemed ......................................... 31
SECTION 3.03. Notice of Redemption ............................... 32
SECTION 3.04. Effect of Notice of Redemption ..................... 33
SECTION 3.05. Deposit of Redemption Price ........................ 33
SECTION 3.06. Securities Redeemed in Part ........................ 33
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities .............................. 33
SECTION 4.02. SEC Reports ........................................ 34
SECTION 4.03. Limitation on Indebtedness ......................... 36
SECTION 4.04. Limitation on Restricted Payments .................. 39
SECTION 4.05. Limitation on Restrictions on
<PAGE> 4
4
Distributions from Subsidiaries .................. 41
SECTION 4.06. Limitation on Sales of Assets and
Subsidiary Stock ................................. 41
SECTION 4.07. Limitation on Affiliate Transactions ............... 44
SECTION 4.08. Limitation on the Sale or Issuance
of Capital Stock of Restricted
Subsidiaries ..................................... 45
SECTION 4.09. Change of Control .................................. 46
SECTION 4.10. Limitation on Liens ................................ 48
SECTION 4.11. Limitation on Sale/Leaseback
Transactions ..................................... 48
SECTION 4.12. Future Guarantors .................................. 48
SECTION 4.13. Compliance Certificate ............................. 48
SECTION 4.14. Further Instruments and Acts ....................... 49
ARTICLE 5
Successor Company
SECTION 5.01. When Company May Merge or Transfer
Assets ........................................... 49
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default .................................. 51
SECTION 6.02. Acceleration ....................................... 53
SECTION 6.03. Other Remedies ..................................... 54
SECTION 6.04. Waiver of Past Defaults ............................ 54
SECTION 6.05. Control by Majority ................................ 54
SECTION 6.06. Limitation on Suits ................................ 55
SECTION 6.07. Rights of Holders To Receive Payment ............... 55
SECTION 6.08. Collection Suit by Trustee ......................... 55
SECTION 6.09. 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
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee .................................. 57
SECTION 7.02. Rights of Trustee .................................. 58
SECTION 7.03. Individual Rights of Trustee ....................... 59
SECTION 7.04. Trustee's Disclaimer ............................... 59
SECTION 7.05. Notice of Defaults ................................. 59
SECTION 7.06. Reports by Trustee to Holders ...................... 59
<PAGE> 5
5
SECTION 7.07. Compensation and Indemnity ......................... 60
SECTION 7.08. Replacement of Trustee ............................. 61
SECTION 7.09. Successor Trustee by Merger ........................ 62
SECTION 7.10. Eligibility; Disqualification ...................... 62
SECTION 7.11. Preferential Collection of Claims
Against Company .................................. 62
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities;
Defeasance ....................................... 63
SECTION 8.02. Conditions to Defeasance ........................... 64
SECTION 8.03. Application of Trust Money ......................... 65
SECTION 8.04. Repayment to Company ............................... 65
SECTION 8.05. Indemnity for Government
Obligations ...................................... 66
SECTION 8.06. Reinstatement ...................................... 66
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders ......................... 66
SECTION 9.02. With Consent of Holders ............................ 67
SECTION 9.03. Compliance with Trust Indenture .................... 68
SECTION 9.04. Revocation and Effect of Consents
and Waivers ...................................... 68
SECTION 9.05. Notation on or Exchange of
Securities ....................................... 69
SECTION 9.06. Trustee To Sign Amendments ......................... 69
SECTION 9.07. Payment for Consent ................................ 69
ARTICLE 10
Subsidiary Guaranties
SECTION 10.01. Guaranties............................................ 69
SECTION 10.02. Limitation on Liability............................... 71
SECTION 10.03. Successors and Assigns ............................... 72
SECTION 10.04. No Waiver............................................. 72
SECTION 10.05. Modification.......................................... 72
SECTION 10.06. Release of Subsidiary Guarantor....................... 72
<PAGE> 6
6
ARTICLE 11
Miscellaneous
SECTION 11.01. Trust Indenture Act Controls ......................... 73
SECTION 11.02. Notices............................................... 73
SECTION 11.03. Communication by Holders with Other
Holders................................. 74
SECTION 11.04. Certificate and Opinion as to
Conditions Precedent.................... 74
SECTION 11.05. Statements Required in Certificates
or Opinion.............................. 74
SECTION 11.06. When Securities Disregarded........................... 74
SECTION 11.07. Rules by Trustee, Paying Agent
and Registrar........................... 75
SECTION 11.08. Legal Holidays........................................ 75
SECTION 11.09. Governing Law......................................... 75
SECTION 11.10. No Recourse Against Others............................ 75
SECTION 11.11. Successors............................................ 75
SECTION 11.12. Multiple Originals.................................... 75
SECTION 11.13. Table of Contents; Headings........................... 76
Rule 144A/Regulation S Appendix
Exhibit 1 - Form of Initial Security
Exhibit A - Form of Exchange Security
<PAGE> 7
INDENTURE dated as of May 15, 1998, among THE J.H.
HEAFNER COMPANY, INC., a North Carolina corporation (the
"Company"), OLIVER & WINSTON, INC., a California
corporation, ITCO LOGISTICS CORPORATION, a Delaware
corporation, PHOENIX RACING INC., a California
corporation, THE SPEED MERCHANT, INC., a California
corporation, ITCO HOLDING COMPANY, INC., a North
Carolina corporation, ITCO TIRE COMPANY, a North
Carolina corporation, ITCO TIRE COMPANY OF GEORGIA, a
Virginia corporation (collectively, the "Subsidiary
Guarantors"), and FIRST UNION NATIONAL BANK, a national
banking association, 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 10%
Senior Notes Due 2008 (the "Initial Securities") and, if and when issued
pursuant to a registered exchange for Initial Securities, the Company's 10%
Senior Notes Due 2008 (the "Exchange Securities") and if and when issued
pursuant to a private exchange for Initial Securities, the Company's 10% Senior
Notes Due 2008 (the "Private Exchange Securities", together with the Exchange
Securities and the Initial Securities, the "Securities"):
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. 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 clauses (ii) or (iii) above is primarily
engaged in a Related Business.
"Affiliate" of any specified Person means any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person
<PAGE> 8
2
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. For purposes of Sections 4.04, 4.06 and 4.07 only,
"Affiliate" shall also mean any beneficial owner of Capital Stock representing
5% or more of the total voting power of the Voting Stock (on a fully diluted
basis) of the Company or of rights or warrants to purchase such Capital Stock
(whether or not currently exercisable) and any Person who would be an Affiliate
of any such beneficial owner pursuant to the first sentence hereof.
"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, consolidation or similar transaction (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, (A) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Restricted Subsidiary, (B) for purposes of Section 4.06 only, a
transaction permitted by Section 4.04, or excluded from the definition of
"Restricted Payment", (C) any transfer of properties or assets (including
Capital Stock) that is governed by, and made in accordance with, Section 5.01
and (D) any disposition of assets with a fair market value of less than
$250,000).
"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
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
<PAGE> 9
3
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.
"Banks" means the Lenders as defined in the New Credit
Facility.
"Bank Indebtedness" means all Obligations pursuant to the New
Credit Facility.
"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.
"Change of Control" means the occurrence of any of the
following events:
(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 any 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 Voting Stock of the Company
<PAGE> 10
4
(for the purposes of this clause (i), such other person shall be deemed
to beneficially own any Voting Stock of a specified corporation held by
a parent corporation, if such other person is the beneficial owner (as
defined in this clause (i)), directly or indirectly, of more than 50%
of the voting power of the Voting Stock of such parent corporation);
(ii) during any period of two consecutive years, 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 (x) 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 or (y) Permitted Holders holding a majority of
the aggregate voting power of the Voting Stock of the Company held by
all Permitted Holders) cease for any reason to constitute a majority of
the Board of Directors then in office;
(iii) the adoption of a plan relating to the liquidation or
dissolution of the Company; or
(iv) 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 (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 that represent immediately after such transaction, at least
a majority of the aggregate voting power of the Voting Stock of the
surviving corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture
until a successor replaces it and, thereafter, means the successor and, for
purposes of any provision
<PAGE> 11
5
contained herein and required by the TIA, each other obligor on the indenture
securities.
"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 that with respect to Indebtedness Incurred under a
revolving credit facility, instead of such historical interest, there shall be
included pro forma interest on the one year projected average balance of such
Indebtedness as determined in good faith by senior management of the Company);
provided, however, that
(1) if the Company or any Restricted Subsidiary has Incurred
any Indebtedness since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, other than in either such case Indebtedness Incurred under a
revolving credit facility, 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 to the application of the proceeds of
such Indebtedness, including the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged, or the
acquisition of assets with the proceeds of such new Indebtedness, as if
such application had occurred on the first day of such period,
(2) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since
the beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on
the date of the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense
for such period shall be calculated on a pro forma basis as if such
discharge had occurred on the first day of such period and as if the
Company or such Restricted Subsidiary had not earned the interest
income actually earned during such period in respect of cash or
Temporary Cash Investments
<PAGE> 12
6
used to repay, repurchase, defease or otherwise discharge such
Indebtedness,
(3) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition or
disposition of a Permitted Investment ("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 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 (other than Indebtedness incurred
under a revolving credit facility) 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 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
(other than Indebtedness Incurred under a revolving credit facility) of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale),
(4) 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 that becomes a
Restricted Subsidiary) or a Permitted Investment 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, segment or
location 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 other than under a
revolving credit facility) as if such Investment or acquisition
occurred on the first day of such period and
(5) 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
<PAGE> 13
7
period) shall have made any Disposition, any Investment or acquisition
of assets that would have required an adjustment pursuant to clause (3)
or (4) 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
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 interest expense, and to
the extent incurred by the Company or its Restricted Subsidiaries, without
duplication, (i) interest expense attributable to capital leases and the
interest expense attributable to leases constituting part of a Sale/Leaseback
Transaction (provided that interest expense attributable to leases constituting
part of Sale/Leaseback Transactions in respect of warehouses owned on the date
of this Indenture with a value not in excess of $10 million shall be excluded
from this calculation), (ii) amortization of debt discount and debt issuance
cost, (iii) capitalized interest, (iv) non-cash interest expenses, (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) Preferred Stock
dividends in respect of all Preferred Stock held by Persons other than the
Company or a Wholly Owned Subsidiary (other than non-cash dividends in respect
of Preferred Stock that is not Disqualified Stock of the Company), (viii)
interest incurred in connection with Investments in discontinued operations,
(ix) interest accruing on any Indebtedness of any other Person to the extent
such Indebtedness is Guaranteed by (or secured by the assets of) the Company or
any Restricted Subsidiary and
<PAGE> 14
8
(x) the cash contributions to any employee stock ownership plan or similar trust
to the extent such contributions are used by such plan or trust to pay interest
or fees to any Person (other than the Company) in connection with Indebtedness
Incurred by such plan or trust.
"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 (other than the Company) if
such Person is not a Restricted Subsidiary, except that (A) 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 limitation contained in clause (iii)
below) and (B) the Company's equity in a net loss of any such Person
for such period shall be included in determining such Consolidated Net
Income;
(ii) any net income (or loss) of any Person acquired by the
Company or a Subsidiary 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 such Restricted Subsidiary is subject to prohibitions, 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 the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining
such Consolidated Net Income;
(iv) any gain or loss realized upon the sale or other
disposition of any assets of the Company or its consolidated
Subsidiaries or any other Person (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;
<PAGE> 15
9
(v) extraordinary gains or losses; and
(vi) the cumulative effect of a change in accounting
principles.
Notwithstanding the foregoing, for the purpose of Section 4.04 only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted pursuant to
Section 4.04(a)(3)(D).
"Consolidated Net Worth" means the total of the amounts shown
on the balance sheet of the Company and its consolidated Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of the Company ending at least 45 days prior to the
taking of any action for the purpose of which the determination is being made,
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 designed
to protect such Person against fluctuations in currency values.
"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 at the option of the holder) or
upon the happening of any event (i) matures or is mandatorily redeemable
pursuant to a sinking fund obligation or otherwise, (ii) is convertible or
exchangeable at the holder's option for Indebtedness or Disqualified Stock or
(iii) is redeemable or must be purchased, upon the occurrence of certain events
or otherwise, by such Person at the option of the holder thereof, in whole or in
part, in each case on or prior to the first anniversary of the Stated Maturity
of the Securities; provided, however that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right
<PAGE> 16
10
to require such Person to purchase 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 (x) 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 Sections 4.06 and 4.09 and (y) any such requirement only
becomes operative after compliance with such terms applicable to the Securities,
including the purchase of any Securities tendered pursuant thereto; provided
further, however, that any class of Capital Stock of such Person that, by its
terms, authorizes such Person to satisfy in full its obligations with respect to
the payment of dividends or upon maturity, redemption (pursuant to a sinking
fund or otherwise) or repurchase thereof or otherwise by the delivery of Capital
Stock that is not Disqualified Stock shall not be deemed to be Disqualified
Stock.
"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 and its consolidated Restricted Subsidiaries, (b) depreciation
expense of the Company and its consolidated Restricted Subsidiaries, (c)
amortization expense of the Company and its consolidated Restricted Subsidiaries
and (d) all other non-cash charges of the Company and its consolidated
Restricted Subsidiaries (excluding any such other non-cash charge to the extent
that it represents an accrual of or reserve for cash expenditures in any future
period), in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization and non-cash charges of, a Restricted Subsidiary 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 Restricted Subsidiary was included in
calculating Consolidated Net Income.
"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 in (i) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
<PAGE> 17
11
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) 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. All ratios and
computations based on GAAP contained in this Indenture shall be computed in
conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness of any other
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 or other obligation of such Person (whether
arising by virtue of partnership arrangements, or by 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.
"Guaranty Agreement" means a supplemental indenture, in a form
satisfactory to the Trustee, pursuant to which a Subsidiary Guarantor guarantees
the Company's obligations with respect to the Securities on the terms provided
for herein.
"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.
"Immaterial Subsidiary" means a Subsidiary with total assets
not greater than $50,000.
"Incur" means issue, assume, Guarantee, incur or otherwise
become liable for; provided, however, that any Indebtedness or Capital Stock of
a Person existing at the
<PAGE> 18
12
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.
"Indebtedness" means, with respect to any Person on any date
of determination (without duplication):
(i) the principal 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, including, in each case, any
premium on such indebtedness to the extent such premium has become due
and payable;
(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, 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 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,
the liquidation preference with respect to, 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,
<PAGE> 19
13
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.
"Indenture" means this Indenture as amended or supplemented
from time to time.
"Interest Rate Agreement" means in respect of a Person any
interest rate swap agreement, interest rate cap agreement or other financial
agreement or arrangement designed to protect such Person 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
lender) or other extensions of credit (other than leases of equipment to
customers in the ordinary course of business) (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 4.04, (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 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 equal to an amount (if
<PAGE> 20
14
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 on which the Initial Securities
are originally issued.
"ITCO" means ITCO Logistics Corporation.
"ITCO Facility" means the loan facility pursuant to the Loan
and Security Agreement, by and among ITCO Holding Company, Inc., ITCO Tire
Company of Georgia, ITCO Tire Company, Doug Duggan, Inc. and Barclays Business
Credit, Inc. (now Fleet Capital Corporation), dated as of August 6, 1993, as
amended.
"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).
"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 and proceeds from the sale or other disposition of any securities
received as consideration, 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, commissions and other fees and expenses incurred,
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, in accordance with the terms of any Lien upon
or other security agreement of any kind with respect to such assets, or which
must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
minority interest holders in Restricted Subsidiaries as a
<PAGE> 21
15
result of such Asset Disposition and (iv) the deduction of appropriate amounts
provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the property or other assets disposed in such Asset
Disposition and retained by the Company or any Restricted Subsidiary after such
Asset Disposition.
"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.
"New Credit Facility" means the Amended and Restated Loan and
Security Agreement to be entered into by and among the Company, certain of its
Subsidiaries, the lenders referred to therein, BankBoston, N.A., as Agent, and
Fleet Capital Corporation and First Union National Bank, as Co-Agents, together
with the related documents thereto (including the notes, guarantees and security
documents thereunder), as amended, extended, renewed, restated, supplemented or
otherwise modified (in whole or in part, and without limitation as to amount,
terms, conditions, covenants and other provisions) from time to time, and any
agreement (and related document) governing Indebtedness incurred to Refinance,
in whole or in part, the borrowings and commitments then outstanding or
permitted to be outstanding under such Credit Agreement or a successor Credit
Agreement, whether by the same or any other lender or group of lenders.
"Officer" means the Chairman of the Board, the Chief Executive
Officer, President, Chief Financial Officer, any Vice President, the Treasurer
or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two
Officers.
"Opinion of Counsel" means a written opinion from legal
counsel who is acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Holders" means Ann H. Gaither and William H.
Gaither and members of their immediate families and any spouse, parent or
descendant of the foregoing, any trust the beneficiaries of which include only
any of the foregoing, and any corporation, partnership or other entity
<PAGE> 22
16
all of the Capital Stock of which (other than directors' qualifying shares) is
owned by any of the foregoing.
"Permitted Investment" means an Investment by the Company or
any Restricted Subsidiary in (i) the Company, 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 made in the ordinary
course of business consistent with past practices of the Company or such
Restricted Subsidiary; (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)
promissory notes issued by members of management of the Company and its
Subsidiaries as payments for restricted shares of Capital Stock of the Company
not to exceed $500,000 per year; 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 Section 4.06.
"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 of cash or United States
government bonds to secure surety or appeal bonds to which such Person
is a party, or
<PAGE> 23
17
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 or other 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;
(c) Liens for property taxes not yet subject to penalties for
non-payment or which are being contested in good faith by appropriate
proceedings;
(d) 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;
(e) 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 property or Liens
incidental to the conduct of the business of such Person or to the
ownership of its properties which were not Incurred to secure
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;
(f) Liens securing Indebtedness, including Indebtedness
Incurred pursuant to Section 4.03(b)(4), Incurred to finance the
construction, purchase or lease of, or repairs, improvements or
additions to, property of such Person; provided, however, that the Lien
may not extend to any other property (other than improvements thereon)
owned by such Person or any of its Subsidiaries at the time the Lien is
Incurred, and the Indebtedness (other than any interest thereon)
secured by the Lien may not be Incurred more than 180 days after the
later of the acquisition, completion of construction, repair,
improvement, addition or commencement of full operation of the property
subject to the Lien;
(g) Liens to secure Indebtedness permitted under Section
4.03(b)(1) or Section 4.03(b)(5);
<PAGE> 24
18
(h) Liens existing on (or Incurred in connection with
Indebtedness committed on) the Issue Date;
(i) Liens on property or shares of Capital Stock of another
Person at the time such other Person becomes a Subsidiary of such
Person; provided, however, that such Liens are not created, incurred or
assumed in connection with, or in contemplation of, such other Person
becoming such a Subsidiary; provided further, however, that such Lien
may not extend to any other property (other than improvements thereon)
owned by such Person or any of its Subsidiaries;
(j) Liens on property at the time such Person or any of its
Subsidiaries acquires the property, including any acquisition by means
of a merger or consolidation with or into such Person or a Subsidiary
of such Person; provided, however, that such Liens are not created,
Incurred or assumed in connection with, or in contemplation of, such
acquisition; provided further, however, that the Liens may not extend
to any other property (other than improvements thereon) owned by such
Person or any of its Subsidiaries;
(k) Liens securing Indebtedness or other obligations of a
Subsidiary of such Person owing to such Person or a Restricted
Subsidiary of such Person;
(l) Liens securing Hedging Obligations so long as such Hedging
Obligations relate to Indebtedness that is, and is permitted to be
under this Indenture, secured by a Lien on the same property securing
such Hedging Obligations;
(m) any interest or title of a lessor in property subject to
any Capital Lease Obligation or operating lease;
(n) any attachment of a judgment Lien that does not give rise
to an Event of Default;
(o) Liens on inventory deemed to arise by reason of the
consignment of inventory in the ordinary course of business of the
Company and its Restricted Subsidiaries; and
(p) Liens to secure any Refinancing (or successive
Refinancings) as a whole, or in part, of any Indebtedness secured by
any Lien referred to in the foregoing clauses (f), (h), (i) and (j);
provided, however, that (x) such new Lien shall be limited to all
<PAGE> 25
19
or part of the same property that secured the original Lien (plus
improvements to or on such property) and (y) the Indebtedness secured
by such Lien at such time is not increased to any amount greater than
the sum of (A) the outstanding principal amount or, if greater,
committed amount of the Indebtedness described under clauses (f), (h),
(i) or (j) at the time the original Lien became a Permitted Lien and
(B) an amount necessary to pay any fees and expenses, including
premiums, related to such refinancing, refunding, extension, renewal or
replacement.
Notwithstanding the foregoing, "Permitted Liens" will not include any Lien
described in clauses (f), (i) or (j) above to the extent such Lien applies to
any Additional Assets acquired directly or indirectly from Net Available Cash
pursuant to Section 4.06. For purposes of this definition, the term
"Indebtedness" shall be deemed to include interest on such Indebtedness.
"Person" means any individual, corporation, partnership,
limited liability company, 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
Person, means Capital Stock of any class or classes (however designated) which
is preferred as to the payment of dividends or distributions, or as to the
distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such Person, over shares of Capital Stock of any other class of
such Person.
"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.
"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.
"Public Market" means any time after (x) a Public Equity
Offering has been consummated and (y) at least 15% of the total issued and
outstanding common stock of the Company has been distributed by means of an
effective registration statement under the Securities Act or sales pursuant to
Rule 144 under the Securities Act.
<PAGE> 26
20
"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) 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 or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
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 and the Restricted Subsidiaries
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) or similar payment to the direct or indirect holders of
its Capital Stock (other than dividends or distributions payable solely
in its Capital Stock (other than Disqualified Stock) and dividends or
distributions to the extent payable to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions
made by a Subsidiary that is not a Wholly Owned Subsidiary to the
extent made to minority stockholders (or owners of an
<PAGE> 27
21
equivalent interest in the case of a Subsidiary that is an entity other
than a corporation)),
(ii) the purchase, redemption or other acquisition or
retirement for value on or subsequent to the Issue Date 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
the Company or 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 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 (other than a Permitted
Investment) in any Person.
"Restricted Subsidiary" means any Subsidiary of the Company
that is a Subsidiary on the Issue Date and any other Subsidiary 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.
"Securities" means the Securities issued under this Indenture.
"Senior Indebtedness" of a Person means (i) Indebtedness of
such Person, whether outstanding on the Issue Date or thereafter Incurred, and
(ii) accrued and unpaid interest (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to such
Person to the extent post-filing interest is allowed in such proceeding) in
respect of (A) indebtedness of such Person for money borrowed and
<PAGE> 28
22
(B) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable
unless, in the case of (i) and (ii), in the instrument creating or evidencing
the same or pursuant to which the same is outstanding, it is provided that such
obligations are subordinate in right of payment to the Securities; provided,
however, that Senior Indebtedness shall not include (1) any obligation of the
Company to any Subsidiary or of any Subsidiary Guarantor to the Company or any
other Subsidiary, (2) any liability for Federal, state, local or other taxes
owed or owing by such Person, (3) any accounts payable or other liability to
trade creditors arising in the ordinary course of business (including guarantees
thereof or instruments evidencing such liabilities), (4) any Indebtedness of
such Person (and any accrued and unpaid interest in respect thereof) which is
subordinate or junior in any respect to any other Indebtedness or other
obligation of such Person or (5) that portion of any Indebtedness which at the
time of Incurrence is Incurred in violation 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 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, 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.
<PAGE> 29
23
"Subsidiary Guarantor" means each Subsidiary of the Company
that is a Subsidiary on the Issue Date (other than any Immaterial Subsidiary
which is neither a borrower nor a guarantor under the New Credit Facility) and
any other Subsidiary that Guarantees the Company's obligations with respect to
the Securities.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary
Guarantor of the Company's obligations with respect to the Securities.
"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 360 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 $50,000,000 (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
360 days 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
<PAGE> 30
24
Investors Service, Inc. or "A-1" (or higher) according to Standard and
Poor's Ratings Group,
(v) investments in split dollar life insurance policies on
various officers, directors and shareholders of the Company and its
Subsidiaries in the ordinary course of business consistent with past
practices, and
(vi) investments in securities with maturities of 12 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 Standard & Poor's Ratings Group or "A" by Moody's
Investors Service, Inc.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the Issue Date.
"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 (other than Subsidiary Guarantors) 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
4.04. The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to
<PAGE> 31
25
such designation (x) the Company could Incur $1.00 of additional Indebtedness
under Section 4.03(a) and (y) no Default shall have occurred and be continuing.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Vendor Financing" means Indebtedness Incurred to finance the
cost to acquire inventory to the extent such Indebtedness is issued to and held
by the supplier of such inventory.
"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.
The "voting power" of Voting Stock means the number of votes which such Voting
Stock is normally entitled (without regard to the occurrence of any contingency)
to vote in such an election.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all
the Capital Stock of which (other than directors' qualifying shares) is owned by
the Company or one or more Wholly Owned Subsidiaries.
SECTION 1.02. Other Definitions.
Defined in
Term Section
---- ----------
"Affiliate Transaction" .......................... 4.07
"Bankruptcy Law" ................................. 6.01
"covenant defeasance option" ..................... 8.01(b)
"Custodian" ...................................... 6.01
"Event of Default" ............................... 6.01
"legal defeasance option" ........................ 8.01(b)
"Legal Holiday" .................................. 11.08
"Offer" .......................................... 4.06(b)
<PAGE> 32
26
"Paying Agent" ................................... 2.03
"Registrar"....................................... 2.03
"Successor Company" .............................. 5.01
SECTION 1.03. 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; and
"obligor" on the indenture 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 1.04. Rules of Construction. Unless the context
otherwise requires:
(1) a term has the meaning assigned to it;
(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) unsecured Indebtedness shall not be deemed to be
subordinate or junior to Secured Indebtedness merely by virtue of its
nature as unsecured Indebtedness;
<PAGE> 33
27
(7) the principal amount of any noninterest 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;
(8) the principal amount of any Preferred Stock shall be (i)
the maximum liquidation value of such Preferred Stock or (ii) the
maximum mandatory redemption or mandatory repurchase price with respect
to such Preferred Stock, whichever is greater; and
(9) all references to the date the Securities were originally
issued shall refer to the date the Initial Securities were originally
issued.
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating. Provisions relating to the
Initial Securities, the Private Exchange Securities and the Exchange Securities
are set forth in the Rule 144A/Regulation S Appendix attached hereto (the
"Appendix") which is hereby incorporated in and expressly made part of this
Indenture. The Initial Securities and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit 1 to the Appendix
which is hereby incorporated in and expressly made a part of this Indenture. The
Exchange Securities, the Private Exchange 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 rule, 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 the Appendix and Exhibit A are part of
the terms of this Indenture.
SECTION 2.02. Execution and Authentication. Two Officers 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 authenti-
<PAGE> 34
28
cates 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 deliver Securities for
original issue in an aggregate principal amount of $100,000,000 upon a written
order of the Company signed by two Officers or by an Officer and either an
Assistant Treasurer or an Assistant Secretary 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 2.07.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate the Securities. 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 2.03. 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
shall keep a register 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 7.07. The
Company or any of its
<PAGE> 35
29
domestically incorporated Wholly Owned Subsidiaries 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 2.04. Paying Agent To Hold Money in Trust. 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. If the Company or a Subsidiary acts as Paying Agent, it shall segregate
the money held by it as Paying Agent and hold it as a separate trust fund. 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 2.05. 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.
SECTION 2.06. Replacement Securities. If a mutilated Security
is surrendered to the Registrar or if the 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. If required by the Trustee or
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
<PAGE> 36
30
the Trustee may charge the Holder for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.07. 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. 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 2.06, 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 money
sufficient to pay all principal and interest payable on that date with respect
to the Securities (or portions thereof) to be redeemed or maturing, as the case
may be, then on and after that date such Securities (or portions thereof) cease
to be outstanding and interest on them ceases to accrue.
SECTION 2.08. Temporary Securities. Until definitive
Securities are ready for delivery, the Company may prepare and 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 2.09. 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 and destroy (subject to the record retention requirements of the Exchange
Act) all Securities surrendered for registration of transfer, exchange, payment
or cancellation and deliver a certificate of such destruction to the Company
unless the Company directs the Trustee to deliver canceled Securities to the
Company. The Company may not issue new Securities to replace Securities
<PAGE> 37
31
it has redeemed, paid or delivered to the Trustee for cancellation.
SECTION 2.10. 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 2.11. 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, however, 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.
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee. If the Company elects to
redeem Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date and the principal amount of Securities
to be redeemed.
The Company shall give each notice to the Trustee provided for
in this Section at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein.
SECTION 3.02. Selection of Securities To Be Redeemed. If fewer
than all the Securities are to be redeemed, the Trustee shall select the
Securities to be
<PAGE> 38
32
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 in its sole
discretion shall deem to be 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.
SECTION 3.03. 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 each Holder of Securities to
be redeemed at such Holder's registered address.
The notice shall identify the Securities to be redeemed and
shall state:
(1) the redemption date;
(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; and
(7) 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
<PAGE> 39
33
Company's expense. In such event, the Company shall provide the Trustee with the
information required by this Section.
SECTION 3.04. 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
(subject to the right of Holders of record on the relevant record date to
receive interest due on the related interest payment date). 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 3.05. Deposit of Redemption Price. Prior to the
redemption date, the Company shall deposit with the Paying Agent (or, if 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 on all
Securities 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 3.06. Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in principal amount to the unredeemed portion of the Security surrendered.
ARTICLE 4
Covenants
SECTION 4.01. 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.
<PAGE> 40
34
SECTION 4.02. SEC Reports. Notwithstanding that the Company
may not be subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the SEC (to the extent such filings
are accepted by the SEC) and provide the Trustee and Securityholders with 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 reports to
be so filed and provided at the times specified for the filing of such
information, documents and reports under such Sections.
SECTION 4.03. Limitation on Indebtedness. (a) The Company
shall not, and shall not permit any Restricted Subsidiary to, Incur, directly or
indirectly, any Indebtedness; provided, however, that the Company may Incur
Indebtedness if, on the date of such Incurrence and after giving effect thereto,
the Consolidated Coverage Ratio exceeds 2 to 1 if such Indebtedness is Incurred
prior to May 15, 2000 or 2.25 to 1 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding Section 4.03(a), the Company and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred pursuant to the New Credit Facility
Agreement; provided, however, that, after giving effect to any such
Incurrence, the aggregate principal amount of such Indebtedness then
outstanding does not exceed the greater of (i) $100 million less the
sum of all principal payments with respect to such Indebtedness
pursuant to paragraph Section 4.06(a)(ii)(A) and (ii) the sum of (x)
65% of the book value of the inventory of the Company and its
Restricted Subsidiaries and (y) 85% of the book value of the accounts
receivables of the Company and its Restricted Subsidiaries;
(2) Indebtedness owed to and held by the Company or a
Restricted Subsidiary; provided, however, that (i) any subsequent
issuance or transfer of any Capital Stock which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or
a Restricted Subsidiary) shall be deemed, in each case, to constitute
the Incurrence of such Indebtedness by the obligor thereon and (ii) if
the Company is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior
<PAGE> 41
35
payment in full in cash of all obligations with respect to the
Securities;
(3) the Securities and the Exchange Securities;
(4) Vendor Financing, and Refinancing Indebtedness in respect
thereof, in an aggregate amount which does not exceed, when taken
together with all other Indebtedness Incurred pursuant to this clause
(4) and then outstanding, including Vendor Financing outstanding on the
Issue Date, $20 million;
(5) Attributable Debt in respect of Sale/Leaseback
Transactions, and Refinancing Indebtedness in respect thereof, in an
amount which does not exceed, when taken together with all other
Indebtedness Incurred pursuant to this clause (5) and then outstanding,
$15 million; provided that such Sale/Leaseback Transactions comply with
Section 4.11;
(6) Indebtedness outstanding (or Incurred pursuant to
commitments outstanding) on the Issue Date (other than Indebtedness
described in clause (1), (2), (3), (4) or (5) of this Section 4.03);
(7) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on or prior to the date on which such Subsidiary was
acquired by the Company (other than Indebtedness 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 Subsidiary became a 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 4.03(a);
(8) Refinancing Indebtedness in respect of Indebtedness
Incurred pursuant to Section 4.03(a) or pursuant to Section 4.03(b)(3),
(6), (7) or (8); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness of a
Subsidiary Incurred pursuant to Section 4.03(b)(7), such Refinancing
Indebtedness shall be Incurred only by such Subsidiary; provided
further however, that Indebtedness outstanding on the Issue Date
pursuant to the ITCO Facility shall not be Refinanced pursuant this
clause (8) but shall only be Refinanced pursuant to the Incurrence of
Indebtedness under clause (b)(1) above;
<PAGE> 42
36
(9) Hedging Obligations consisting of Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the
Company pursuant to this Section 4.03;
(10) the Subsidiary Guaranties of the Subsidiary Guarantors;
and
(11) Indebtedness of the Company 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 Section 4.03(b)(1) through (10) or Section 4.03(a)), does
not exceed $15 million.
(c) Notwithstanding the foregoing, the Company shall not Incur
any Indebtedness pursuant to Section 4.03(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
4.03, (i) in the event that an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described herein, 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 herein.
SECTION 4.04. Limitation on Restricted Payments. (a) The
Company shall not, and shall not permit any Restricted Subsidiary, directly or
indirectly, to make a Restricted Payment if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would
result therefrom);
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a); or
(3) the aggregate amount of such Restricted Payment and all
other Restricted Payments since the Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during
the period (treated as one accounting period) from the
beginning of the fiscal
<PAGE> 43
37
quarter immediately following the fiscal quarter during which
the Securities are originally issued to the end of the most
recent fiscal quarter ending at least 45 days prior to the
date of such Restricted Payment (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 and
other than an issuance or sale to an employee stock ownership
plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees);
(C) the aggregate Net Cash Proceeds received by the
Company from the issuance or sale of its Capital Stock (other
than Disqualified Stock) to an employee stock ownership plan
(including a 401(k) plan that holds Capital Stock of the
Company) subsequent to the Issue Date; provided, however, that
if such employee stock ownership plan incurs any Indebtedness,
such aggregate amount shall be limited to an amount equal to
any increase in the Consolidated Net Worth of the Company
resulting from principal repayments made by such employee
stock ownership plan with respect to Indebtedness incurred by
it to finance the purchase of such Capital Stock;
(D) the amount by which Indebtedness of the Company
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 convertible or exchangeable for Capital Stock (other
than Disqualified Stock) of the Company (less the amount of
any cash, or the fair value of any other property, distributed
by the Company upon such conversion or exchange);
(E) an amount equal to the sum of (i) the net
reduction in Investments in a Person resulting from dividends,
repayments of loans or advances or other transfers of assets,
in each case to the Company or any Restricted Subsidiary from
such Person and (ii) the portion (proportionate to the
Company's equity interest in such Subsidiary) of
<PAGE> 44
38
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 Person,
the amount of Investments previously made on or after the
Issue Date (and included in the calculation of Restricted
Payments) by the Company or any Restricted Subsidiary in such
Person; and
(F) $5 million.
(b) The provisions of Section 4.04(a) shall not prohibit:
(i) any acquisition of any Capital Stock of the Company made
out of the proceeds of the substantially concurrent sale of, or made by
exchange for, Capital Stock of the Company (other than Disqualified
Stock and other than Capital Stock issued or sold to a Subsidiary of
the Company or an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the benefit
of their employees); provided, however, that (A) such acquisition of
Capital Stock shall be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale shall
be excluded from the calculation of amounts under Section
4.04(a)(3)(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 proceeds of the substantially
concurrent sale of, Indebtedness of the Company which is permitted to
be Incurred pursuant to Section 4.03; 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 this Section 4.04; provided, however, that at the
time of payment of such dividend, no other Default shall have occurred
and be continuing (or result therefrom); provided further, however,
that such dividend shall be included in the calculation of the amount
of Restricted Payments;
(iv) the repurchase or other acquisition of shares of, or
options to purchase shares of, common stock of
<PAGE> 45
39
the Company or any of its Subsidiaries from employees, former
employees, directors or former directors of the Company or any of its
Subsidiaries (or permitted transferees of such employees, former
employees, directors or former directors), (x) upon death, retirement,
severance or termination of employment or service or (y) pursuant to
the terms of the agreements (including employment agreements) or plans
(or amendments thereto) approved by the Board of Directors under which
such individuals purchase or sell or are granted the option to purchase
or sell, shares of such common stock; provided, however, that the
aggregate amount of such repurchases and other acquisitions shall not
exceed $1.0 million in any calendar year; provided further, however,
that such repurchases and other acquisitions shall be excluded in the
calculation of the amount of Restricted Payments;
(v) the payment to The Kelly Springfield Tire Company or its
successors and assigns of dividends on the 7,000 shares of Series A
Cumulative Redeemable Preferred Stock or the 4,500 shares of Series B
Cumulative Redeemable Preferred Stock held by The Kelly Springfield
Tire Company to the extent required to be paid by the Company pursuant
to the terms of such stock as in existence on the Issue Date; provided,
however that such payment shall be excluded in the calculation of the
amount of Restricted Payments; or
(vi) payments to employees of ITCO in respect of certain stock
appreciation rights granted by ITCO and required to be made after
consummation of the Transactions (as defined in the Purchase
Agreement), not to exceed $1.5 million in the aggregate; provided,
however, that such payments shall be excluded in the calculation of the
amount of Restricted Payments.
SECTION 4.05. Limitation on Restrictions on Distributions from
Restricted Subsidiaries. The Company shall not, and shall not permit any
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions on
its Capital Stock to the Company or a Restricted Subsidiary or pay any
Indebtedness owed to the Company, (b) make any loans or advances to the
<PAGE> 46
40
Company or (c) 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 or the New Credit Facility
as in effect 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 Section 4.05(i) or (ii) or this clause (iii)
or contained in any amendment to an agreement referred to in Section
4.05(i) or (ii) 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, taken as a whole, materially less favorable to the Securityholders
than encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such predecessor agreements;
(iv) any such encumbrance or restriction consisting of
customary provisions restricting (x) assignment, subletting or other
transfers contained in leases, licenses and similar agreements to the
extent such provisions restrict the transfer of the lease or the
property subject thereto, or (y) the assignment or other transfer of
any lease or other contract;
(v) in the case of clause (c) of this Section 4.05,
restrictions contained in security agreements or mortgages securing
Indebtedness of a Restricted Subsidiary or Permitted Liens to the
extent such restrictions restrict the transfer of the property subject
to such security agreements or mortgages or Permitted Liens; and
<PAGE> 47
41
(vi) 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 4.06. 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 as to 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 Senior Indebtedness or
Indebtedness (other than any Disqualified Stock) of a Wholly Owned Subsidiary
(in each case other than Indebtedness owed to the Company or an Affiliate of the
Company) within one year from the later of the date of such Asset Disposition or
the receipt of such Net Available Cash; (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 within one year from
the later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (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
to the holders of the Securities (and to holders of other Senior Indebtedness
designated by the Company) to purchase Securities (and such other Senior
Indebtedness) pursuant to and subject to the conditions of Section 4.06(b) and
(c); and (D) fourth, to the extent of any balance of such Net Available Cash
after application in accordance with clauses (A), (B) and (C), in any manner
that does not violate this Indenture; provided, however, that in connection with
any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) or
(C) above, the Company or such Restricted Subsidiary shall permanently retire
such Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing
<PAGE> 48
42
provisions of this paragraph, the Company and the Restricted Subsidiaries shall
not be required to apply any Net Available Cash in accordance with this Section
4.06(a) except to the extent that the aggregate Net Available Cash from all
Asset Dispositions which are not applied in accordance with this Section 4.06(a)
exceeds $5 million. Pending application of Net Available Cash pursuant to this
Section 4.06, such Net Available Cash shall be invested in Permitted
Investments.
For the purposes of this Section 4.06, the following are
deemed to be cash or cash equivalents: (x) the 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 promptly converted by the
Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the
purchase of Securities (and other Senior Indebtedness) pursuant to Section
4.06(a)(ii)(C), the Company shall be required to purchase Securities tendered
pursuant to an offer by the Company for the Securities (and other Senior
Indebtedness) (the "Offer") at a purchase price of 100% of their principal
amount (without premium) plus accrued but unpaid interest (or, in respect of
such other Senior Indebtedness, such lesser price, if any, as may be provided
for by the terms of such Senior Indebtedness) in accordance with the procedures
(including prorating in the event of oversubscription) set forth in Section
4.06(c). If the aggregate purchase price of Securities (and any other Senior
Indebtedness) tendered pursuant to such Offer is less than the Net Available
Cash allotted to the purchase thereof, the Company shall apply the remaining Net
Available Cash in accordance with Section 4.06(a)(ii)(D). The Company shall not
be required to make an Offer to purchase Securities (and other Senior
Indebtedness) pursuant to this Section 4.06 if the Net Available Cash available
therefor is less than $5 million (which lesser amount shall be carried forward
for purposes of determining whether such an Offer is required with respect to
the Net Available Cash from any subsequent Asset Disposition).
(c) (1) Promptly, and in any event within 20 days after the
Company becomes obligated to make an Offer, the Company shall be obligated to
deliver to the Trustee and send or, at the request of the Company have the
Trustee send, in the name and on behalf of the Company, by first-class mail to
each Holder, a written notice stating that the
<PAGE> 49
43
Holder may elect to have his Securities purchased by the Company either in whole
or in part (subject to prorating as hereinafter described in the event the Offer
is oversubscribed) in integral multiples of U.S. $1,000 of principal amount, at
the applicable purchase price. The notice shall specify a purchase date not less
than 30 days nor more than 60 days after the date of such notice (the "Purchase
Date") and shall contain such information concerning the business of the Company
which the Company in good faith believes will enable such Holders to make an
informed decision (which at a minimum will include (i) the most recently filed
Annual Report on Form 10-K (including audited consolidated financial statements)
of the Company, the most recent subsequently filed Quarterly Report on Form 10-Q
and any Current Report on Form 8-K of the Company filed subsequent to such
Quarterly Report, other than Current Reports describing Asset Dispositions
otherwise described in the offering materials (or corresponding successor
reports), (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such Reports, and (iii) if material,
appropriate pro forma financial information) and all instructions and materials
necessary to tender Securities pursuant to the Offer, together with the
information contained in clause (3).
(2) Not later than the date upon which written notice of an
Offer is delivered to the Trustee as provided above, 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 4.06(a). On such date, the
Company shall also irrevocably deposit with the Trustee or with a paying agent
(or, if the Company is acting as its own paying agent, segregate and hold in
trust) in Temporary Cash Investments, maturing not later than the last day prior
to the Purchase Date or the Purchase Date if funds are immediately available by
open of business, an amount equal to the Offer Amount to be held for payment in
accordance with the provisions of this Section. 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. The
Trustee shall, on the Purchase Date, mail or deliver payment to each tendering
Holder in the amount of the purchase price. In the event that the aggregate
purchase price of the Securities delivered by the Company to the Trustee is less
than the Offer Amount, the Trustee shall deliver the excess funds (including
income earned thereon)
<PAGE> 50
44
to the Company immediately after the expiration of the Offer Period for
application in accordance with this Section.
(3) Holders electing to have a Security purchased shall be
required to surrender the Security, with an appropriate form duly completed, to
the Company at the address specified in the notice at least three Business Days
prior to the Purchase Date. Holders shall be entitled to withdraw their election
if the Trustee (or paying agent if applicable) or the Company receives not later
than one Business Day prior to the Purchase Date, a telex, 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 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 U.S. $1,000, or integral multiples thereof, shall
be purchased). Holders whose Securities are purchased only in part shall be
issued new Securities equal in principal amount to the unpurchased portion of
the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee
which are to be accepted for purchase, the Company shall also deliver an
Officers' Certificate stating that such Securities are to be accepted by the
Company pursuant to and in accordance with the terms of this Section. 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.
(d) 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.
SECTION 4.07. 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
<PAGE> 51
45
of any property, employee compensation arrangements or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
the terms thereof (i) are no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate, (ii) if such
Affiliate Transaction involves an amount in excess of $1 million, (1) are set
forth in writing and (2) have been approved by a majority of the members of the
Board of Directors having no personal stake in such Affiliate Transaction and
(iii) if such Affiliate Transaction involves an amount in excess of $7.5
million, have been determined by a nationally recognized investment banking firm
to be fair, from a financial standpoint, to the Company and its Restricted
Subsidiaries.
(b) The provisions of Section 4.07(a) shall not prohibit (i)
any transaction permitted pursuant to Section 4.04, or explicitly excluded from
the definition of "Restricted Payment", (ii) any issuance of securities, or
other payments, awards or grants in cash, securities or otherwise pursuant to,
or the funding of, employment arrangements, stock options and stock ownership
plans approved by the Board of Directors, (iii) the grant of stock options or
similar rights to employees and directors of the Company pursuant to plans
approved by the Board of Directors, (iv) loans or advances to employees in the
ordinary course of business in accordance with the past practices of the Company
or its Restricted Subsidiaries, but in any event not to exceed $1 million in the
aggregate outstanding at any one time, (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 Restricted Subsidiary or between Restricted
Subsidiaries; provided, however, that no Affiliate of the Company (other than
another Restricted Subsidiary) owns the Capital Stock of any such Restricted
Subsidiary, (vii) the issuance or sale of any Capital Stock (other than
Disqualified Stock) of the Company or (viii) the amendment or extension or
renewal of any transaction in effect on the Issue Date on terms no less
favorable to the Company and its Restricted Subsidiaries than the terms in
effect on the Issue Date.
SECTION 4.08. Limitation on the Sale or Issuance of Capital
Stock of Restricted Subsidiaries. The Company shall not sell or otherwise
dispose of any 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 of its Capital Stock except (i) to
<PAGE> 52
46
the Company or a Wholly Owned Subsidiary, (ii) directors' qualifying shares,
(iii) if, immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries own any Capital
Stock of such Restricted Subsidiary or (iv) if, immediately after giving effect
to such issuance, sale or other disposition, such Restricted Subsidiary would no
longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect thereto would have been permitted to be made under
Section 4.04 if made on the date of such issuance, sale or other disposition.
SECTION 4.09. Change of Control. (a) Upon the occurrence of a
Change of Control, each Holder shall have the right to require that the Company
repurchase 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 purchase (subject to the right of holders of record on the relevant
record date to receive interest on the relevant interest payment date), in
accordance with the terms set forth in Section 4.09(b). In the event that at the
time of such Change of Control the terms of the Senior Indebtedness of the
Company restrict or prohibit the repurchase of Securities pursuant to this
Section, then prior to the mailing of the notice to Holders provided for in
Section 4.09(b) below but in any event within 30 days following any Change of
Control, the Company shall (i) repay in full all such Senior Indebtedness or
offer to repay in full all such Senior Indebtedness and repay such Senior
Indebtedness of each lender who has accepted such offer or (ii) obtain the
requisite consent under the agreements governing such Senior Indebtedness to
permit the repurchase of the Securities as provided for in Section 4.09(b).
(b) Within 30 days following any Change of Control, the
Company shall mail a notice to each Holder with a copy to the Trustee (the
"Change of Control Offer") 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
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
purchase (subject to the right of Holders of record on the relevant
record date to receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change
of Control (including information with
<PAGE> 53
47
respect to pro forma historical income, cash flow and capitalization,
each after giving effect to 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 purchased.
(c) Holders electing to have a Security purchased will be
required to surrender the Security, with an appropriate form 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 telegram, telex, 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 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 by 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) Notwithstanding the foregoing provisions of this Section,
the Company will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in this
Section applicable to a Change of Control Offer made by the Company and
purchases all Securities validly tendered and not withdrawn under such Change of
Control Offer.
(f) 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> 54
48
SECTION 4.10. Limitation on Liens. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, Incur or
permit to exist any Lien of any nature whatsoever on any of its properties
(including Capital Stock of a Restricted Subsidiary), whether owned at the Issue
Date or thereafter acquired, other than Permitted Liens, without effectively
providing that the Securities shall be secured equally and ratably with (or
prior to) the obligations so secured for so long as such obligations are so
secured.
SECTION 4.11. 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 Subsidiary would be entitled to (A) Incur Indebtedness in an
amount equal to the Attributable Debt with respect to such Sale/Leaseback
Transaction pursuant to Section 4.03 and (B) create a Lien on such property
securing such Attributable Debt without equally and ratably securing the
Securities pursuant to Section 4.10, (ii) the net proceeds received by the
Company or any Restricted Subsidiary in connection with such Sale/Leaseback
Transaction are at least equal to the fair value (as determined by the Board of
Directors) of such property and (iii) the Company applies the proceeds of such
transaction in compliance with Section 4.06; provided that the sale by ITCO
Holding Company, Inc. of its facility in Orlando owned as of the Issue Date,
Florida and the subsequent lease by ITCO Holding Company, Inc. of such facility
as contemplated as of the date of this Indenture, shall not be a Sale/Leaseback
Transaction for purposes for this Section 4.11.
SECTION 4.12. Future Guarantors. The Company shall cause each
domestic Restricted Subsidiary (other than an Immaterial Subsidiary that is
neither a borrower nor a guarantor under the New Credit Facility) to execute and
deliver to the Trustee a Guaranty Agreement pursuant to which such Restricted
Subsidiary will Guarantee payment of the Securities on the same terms and
conditions as those set forth in Article 10.
SECTION 4.13. 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 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
<PAGE> 55
49
proposes to take with respect thereto. The Company also shall comply with TIA
Section 314(a)(4).
SECTION 4.14. 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.
ARTICLE 5
Successor Company
SECTION 5.01. When Company or Subsidiary Guarantors May Merge
or Transfer Assets. (a) The Company shall not consolidate with or merge with or
into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets 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 hereto, 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 the Successor
Company or any Subsidiary as a result of such transaction as having
been Incurred by the 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 would be able to Incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a);
(iv) 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 immediately
prior to such transaction;
<PAGE> 56
50
(v) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel addressed to the
Trustee with respect clauses (i) through (iv); provided, however, that
the requirements set forth in clauses (iii) and (iv) above shall not
apply to a merger between the Company and any Wholly Owned Subsidiary;
and
(vi) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the Holders will not recognize
income, gain or loss for Federal income tax purposes as a result of
such transaction 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 transaction had not occurred.
(b) The Company shall not permit any Subsidiary Guarantor to
consolidate with or merge with or into, or convey, transfer or lease, in one
transaction or series of transactions, all or substantially all of its assets to
any Person (other than in a transaction or transactions to which Section 10.06
applies, provided that the Company certifies to the Trustee that the Company
will comply with Section 4.06) unless: (i) the resulting, surviving or
transferee Person shall be a Person (if not such Subsidiary) (the "Successor
Guarantor") organized and existing under the laws of the United States of
America, or any State thereof or the District of Columbia, and such Person shall
expressly assume, by a Guaranty Agreement, in a form acceptable to the Trustee,
all the obligations of such Subsidiary, if any, under its Subsidiary Guaranty;
(ii) immediately after giving effect to such transaction or transactions on a
pro forma basis (and treating any Indebtedness which becomes an obligation of
the resulting, surviving or transferee Person as a result of such transaction as
having been issued by such Person at the time of such transaction), no Default
shall have occurred and be continuing; and (iii) the Company delivers to the
Trustee an Officers' Certificate and an Opinion of Counsel with respect to
clauses (i) and (ii). Notwithstanding the foregoing, if any Subsidiary Guarantor
is released from its obligations under its Subsidiary Guaranty pursuant to
Section 10.06, then such Subsidiary Guarantor's successor or transferee shall be
released from all of such Subsidiary Guarantor's obligations under its
Subsidiary Guaranty.
(c) 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 this Indenture, but the predecessor
Company in the case of a
<PAGE> 57
51
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Securities. The Successor Guarantor shall
be the successor to such Subsidiary Guarantor and shall succeed to, and be
substituted for, and may exercise every right and power of, such Subsidiary
Guarantor under this Indenture, but such predecessor Subsidiary Guarantor 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 Securities.
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of Default" occurs
if:
(1) 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;
(2) the Company (i) 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
declaration or otherwise, or (ii) fails to redeem or purchase
Securities when required pursuant to this Indenture or the Securities;
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04,
4.05, 4.06 (other than a failure to purchase Securities), 4.07, 4.08,
4.09 (other than a failure to purchase Securities), 4.10, 4.11 or 4.12
and such failure continues for 30 days after the notice specified
below;
(5) the Company fails to comply with any of its agreements in
the Securities or this Indenture (other than those referred to in
clause (1), (2), (3) or (4) above) and such failure continues for 60
days after the notice specified below;
(6) Indebtedness of the Company or any Significant Subsidiary
is not paid within any applicable grace period after final maturity or
is accelerated by the
<PAGE> 58
52
holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $10 million (the "cross
acceleration provision");
(7) the Company or any Significant Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief
against it in an involuntary case;
(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;
(8) 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 in an involuntary case;
(B) appoints a Custodian of the Company or any
Significant Subsidiary or for any substantial part of its
property; or
(C) orders the winding up or liquidation of the
Company or any Significant Subsidiary;
or any similar relief is granted under any foreign laws, and, in any
such case referred to in this clause (8), the order or decree remains
unstayed and in effect for 60 days;
(9) any final, non-appealable judgment or decree for the
payment of money in excess of $10 million is entered against the
Company or any Significant Subsidiary, remains outstanding for a period
of 60 days following the entry of such judgment or decree and is not
discharged, waived or the execution thereof stayed within 10 days after
the notice specified below; or
<PAGE> 59
53
(10) a Subsidiary Guaranty ceases to be in full force and
effect (other than in accordance with the terms of such Subsidiary
Guaranty) or a Subsidiary Guarantor denies or disaffirms its
obligations under its Subsidiary Guaranty.
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.
The term "Bankruptcy Law" means Title 11, United States Code,
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 clauses (4), (5) or (9) is not an Event of
Default until the Trustee or the holders of at least 25% in 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 (6) or (10) and any event which with the
giving of notice or the lapse of time would become an Event of Default under
clause (4), (5) or (9), its status and what action the Company is taking or
proposes to take with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default (other than
an Event of Default specified in Section 6.01(7) or (8) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in principal amount of the 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 6.01(7) or (8) with respect to the Company occurs,
the principal of and interest on all the Securities shall ipso facto become and
be immediately due and payable without any declaration or other act on the part
of the Trustee or
<PAGE> 60
54
any Securityholders. The Holders of a majority in principal amount of the
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.
SECTION 6.03. 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 cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a
majority in principal amount of the Securities by notice to the Trustee may
waive an existing Default and its consequences except (i) a Default in the
payment of the principal of or interest on a Security (ii) a Default arising
from the failure to redeem or purchase any Security when required pursuant to
this Indenture or (iii) a Default in respect of a provision that under Section
9.02 cannot be amended without the consent of each Securityholder affected. When
a Default is waived, it is deemed cured, but no such waiver shall extend to any
subsequent or other Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority
in principal amount of the Securities 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 7.01, 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 indemni-
<PAGE> 61
55
fication satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
SECTION 6.06. Limitation on Suits. Except to enforce the right
to receive payment of principal, premium (if any) or interest when due, no
Securityholder may pursue any remedy with respect to this Indenture or the
Securities unless:
(1) the Holder has given to the Trustee written notice stating
that an Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the
Securities have made a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders have offered to the Trustee
reasonable security or indemnity against any loss, liability or
expense;
(4) the Trustee has not complied 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 principal amount of the
Securities has not given 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 6.07. 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 6.08. Collection Suit by Trustee. If an Event of
Default specified in Section 6.01(1) or (2) 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 7.07.
<PAGE> 62
56
SECTION 6.09. 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 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
7.07.
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:
FIRST: to the Trustee for amounts due under Section 7.07;
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 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, 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
<PAGE> 63
57
pursuant to Section 6.07 or a suit by Holders of more than 10% in principal
amount of the Securities.
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 7.01. 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, the Trustee shall examine the certificates and
opinions to determine whether or not they conform on their face 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 wilful misconduct,
except that:
<PAGE> 64
58
(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 6.05.
(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.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
(g) 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.
(h) 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 7.02. Rights of Trustee. (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.
<PAGE> 65
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 wilful misconduct or negligence.
(e) The Trustee may consult with counsel, 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.
SECTION 7.03. 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 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 7.04. 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 the 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 7.05. Notice of Defaults. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the Default within 90 days after it occurs. 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 7.06. Reports by Trustee to Holders. As promptly as
practicable after each May 1 beginning with the May 1 following the date of this
Indenture, and in any event
<PAGE> 66
60
prior to July 1 in each year, the Trustee shall mail to each Securityholder a
brief report dated as of May 1 that complies with TIA " 313(a). The Trustee also
shall comply with TIA Section 313(b).
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 7.07. Compensation and Indemnity. The Company shall
pay to the Trustee from time to time reasonable compensation for its services.
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 the compensation for its services.
Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
experts. The Company shall indemnify the Trustee against any and all loss,
liability or expense (including attorneys' fees) incurred by it in connection
with the 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, except to the extent that the
Company has been prejudiced by such failure. The Company shall defend the claim
and the Trustee shall cooperate in the defense of any such claim. If, in the
opinion of the Trustee's counsel, the Trustee has an interest adverse to the
Company or a potential conflict of interest exists between the Trustee and the
Company, the Trustee may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel. The Company need not reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Trustee through the Trustee's own wilful misconduct, negligence or bad faith.
The Company need not pay for any settlement made without its consent, which
consent shall not be unreasonably withheld.
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.
<PAGE> 67
61
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 6.01(7) or (8) with
respect to the Company, the expenses are intended to constitute expenses of
administration under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign
at any time by so notifying the Company. The Holders of a majority in principal
amount of the Securities may remove the Trustee by so notifying the Trustee and
may appoint a successor Trustee, which successor Trustee shall be reasonably
acceptable to the Company. 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.
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 7.07.
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.
<PAGE> 68
62
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 7.07 accrued or arising
with respect to the period during which the retiring Trustee served shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. 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.
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 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 Section 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 Section 310(b); provided, however, that there shall be excluded from the
operation of TIA Section 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 Section 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against
Company. The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
<PAGE> 69
63
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. 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 2.06) 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 the Company irrevocably deposits with the
Trustee funds sufficient to pay at maturity or upon redemption all outstanding
Securities, including interest thereon to maturity or such redemption date
(other than Securities replaced pursuant to Section 2.07), and if in either case
the Company pays all other sums payable hereunder by the Company, then this
Indenture shall, subject to Sections 8.01(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
and at the cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any
time may terminate (i) all its obligations under the Securities and this
Indenture ("legal defeasance option") or (ii) its obligations under Sections
4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11 and 4.12 and the
operation of Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8), 6.01(9) (but, in the
case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries)
and 6.01(10) and the limitations contained in Sections 5.01(a)(iii) and (iv) and
Section 5.01(b) ("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 because of an Event of Default
specified in Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8), 6.01(9) (but, in the
case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries)
and 6.01(10) or because of the failure of the Company to comply with Section
5.01(a)(iii) or (iv) or Section 5.01(b). If the Company exercises its legal
defeasance option or its covenant defeasance option, each Subsidiary Guarantor
shall
<PAGE> 70
64
be released from all its obligations with respect to its Subsidiary Guaranty.
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 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 7.07 and 7.08 and in
this Article 8 shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall
survive.
SECTION 8.02. Conditions to Defeasance. The Company may
exercise its legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee
money or U.S. Government Obligations for the payment of principal of
and interest on the Securities 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 the Securities to maturity or redemption, as the case
may be;
(3) 123 days pass after the deposit is made and during the
123-day period no Default specified in Sections 6.01(7) or (8) 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
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
<PAGE> 71
65
Opinion of Counsel stating that (i) the Company has 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 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 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
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 (provided that
such Opinion need only pass upon clause (4) above with respect to
material agreements known to such counsel after due inquiry).
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 8.03. 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 through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities.
SECTION 8.04. Repayment to Company. The Trustee and the Paying
Agent shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee
and the Paying Agent shall pay to the Company
<PAGE> 72
66
upon 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 8.05. 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.
SECTION 8.06. 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, if the
Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its 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.
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders. The Company, the
Subsidiary Guarantors 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
<PAGE> 73
67
uncertificated Securities are described in Section 163(f)(2)(B) of the
Code;
(4) to add guarantees with respect to the Securities, or to
secure the Securities;
(5) to add to the covenants of the Company or the Subsidiary
Guarantors for the benefit of the Holders or to surrender any right or
power herein conferred upon the Company or the Subsidiary Guarantors;
(6) to comply with any requirements of the SEC in connection
with qualifying, or maintaining the qualification of, this Indenture
under the TIA; or
(7) to make any change that does not adversely affect the
rights of any Securityholder.
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 9.02. With Consent of Holders. The Company, the
Subsidiary Guarantors and the Trustee may amend this Indenture or the Securities
without notice to any Securityholder but with the written consent of the Holders
of at least a majority in principal amount of the Securities then outstanding
(including consents obtained in connection with a tender offer or exchange for
the Securities). However, without the consent of each Securityholder affected
thereby, 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;
<PAGE> 74
68
(6) make any change in Section 6.04 or Section 6.07 or the
second sentence of this Section; or
(7) make any change in any Subsidiary Guaranty that would
adversely affect the Securityholders.
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 9.03. Compliance with Trust Indenture Act. Every
amendment to this Indenture or the Securities shall comply with the TIA as then
in effect.
SECTION 9.04. 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. However, any such
Holder or subsequent Holder may revoke the consent or waiver as to such Holder's
Security or portion of the Security if the Trustee receives the notice of
revocation before the date the amendment or waiver becomes effective. After an
amendment or waiver becomes effective, it shall bind every Securityholder. An
amendment or waiver becomes effective upon the execution of such amendment or
waiver by the Trustee.
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.
<PAGE> 75
69
SECTION 9.05. 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 determines, 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 9.06. 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 reasonably
satisfactory to it and to receive, and (subject to Section 7.01) shall be fully
protected in relying upon, an Officers' Certificate and an Opinion of Counsel
stating that such amendment is authorized or permitted by this Indenture.
SECTION 9.07. Payment for Consent. Neither the Company nor any
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
ARTICLE 10
Subsidiary Guaranties
SECTION 10.01. Guaranties. Each Subsidiary Guarantor hereby
unconditionally and irrevocably guarantees, jointly and severally, to each
Holder and to the Trustee and its successors and assigns (a) the full and
punctual payment of principal of and interest on the Securities when due,
whether at maturity, by acceleration, by redemption or otherwise, and all other
monetary obligations of the Company under this Indenture and the Securities and
(b) the full and punctual performance within applicable grace periods of all
other obligations of the Company under this Indenture and the Securities (all
the foregoing being hereinafter
<PAGE> 76
<PAGE> 77
70
collectively called the "Obligations"). Each Subsidiary Guarantor further agrees
that the Obligations may be extended or renewed, in whole or in part, without
notice or further assent from such Subsidiary Guarantor and that such Subsidiary
Guarantor will remain bound under this Article 10 notwithstanding any extension
or renewal of any Obligation.
Each Subsidiary Guarantor waives presentation to, demand of,
payment from and protest to the Company of any of the Obligations and also
waives notice of protest for nonpayment. Each Subsidiary Guarantor waives notice
of any default under the Securities or the Obligations. The obligations of each
Subsidiary Guarantor hereunder shall not be affected by (a) the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any right or
remedy against the Company or any other Person under this Indenture, the
Securities or any other agreement or otherwise; (b) any extension or renewal of
any thereof; (c) any rescission, waiver, amendment or modification of any of the
terms or provisions of this Indenture, the Securities or any other agreement;
(d) the release of any security held by any Holder or the Trustee for the
Obligations or any of them; (e) the failure of any Holder or the Trustee to
exercise any right or remedy against any other guarantor of the Obligations; or
(f) any change in the ownership of such Subsidiary Guarantor.
Each Subsidiary Guarantor further agrees that its Subsidiary
Guaranty herein constitutes a guarantee of payment, performance and compliance
when due (and not a guarantee of collection) and waives any right to require
that any resort be had by any Holder or the Trustee to any security held for
payment of the Obligations.
Except as expressly set forth in Sections 8.01(b), 10.02 and
10.06, the obligations of each Subsidiary Guarantor hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including any claim of waiver, release, surrender, alteration or compromise, and
shall not be subject to any defense of setoff, counterclaim, recoupment or
termination whatsoever or by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of each Subsidiary Guarantor herein
shall not be discharged or impaired or otherwise affected by the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any remedy
under this Indenture, the Securities or any other agreement, by any waiver or
modification of any thereof, by any default, failure or delay, willful or
otherwise, in the performance of the obligations, or by any other act or thing
<PAGE> 78
71
or omission or delay to do any other act or thing which may or might in any
manner or to any extent vary the risk of such Subsidiary Guarantor or would
otherwise operate as a discharge of such Subsidiary Guarantor as a matter of law
or equity.
Each Subsidiary Guarantor further agrees that its Guarantee
herein shall continue to be effective or be reinstated, as the case may be, if
at any time payment, or any part thereof, of principal of or interest on any
Obligation is rescinded or must otherwise be restored by any Holder or the
Trustee upon the bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any
other right which any Holder or the Trustee has at law or in equity against any
Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay
the principal of or interest on any Obligation when and as the same shall become
due, whether at maturity, by acceleration, by redemption or otherwise, or to
perform or comply with any other Obligation, each Subsidiary Guarantor hereby
promises to and will, upon receipt of written demand by the Trustee, forthwith
pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal
to the sum of (i) the unpaid amount of such Obligations, (ii) accrued and unpaid
interest on such Obligations (but only to the extent not prohibited by law) and
(iii) all other monetary Obligations of the Company to the Holders and the
Trustee.
Each Subsidiary Guarantor agrees that, as between it, on the
one hand, and the Holders and the Trustee, on the other hand, (x) the maturity
of the Obligations Guaranteed hereby may be accelerated as provided in Article 6
for the purposes of such Subsidiary Guarantor's Subsidiary Guaranty herein,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Obligations guaranteed hereby, and (y) in the
event of any declaration of acceleration of such obligations as provided in
Article 6, such Obligations (whether or not due and payable) shall forthwith
become due and payable by such Subsidiary Guarantor for the purposes of this
Section.
Each Subsidiary Guarantor also agrees to pay any and all costs
and expenses (including reasonable attorneys' fees) incurred by the Trustee or
any Holder in enforcing any rights under this Section.
SECTION 10.02. Limitation on Liability. Any term or provision
of this Indenture to the contrary notwithstanding, the maximum, aggregate amount
of the
<PAGE> 79
72
Obligations guaranteed hereunder by any Subsidiary Guarantor shall not exceed
the maximum amount that can be hereby guaranteed without rendering this
Indenture, as it relates to such Subsidiary Guarantor, voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
SECTION 10.03. Successors and Assigns. This Article 10 shall
be binding upon each Subsidiary Guarantor and its successors and assigns and
shall enure to the benefit of the successors and assigns of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges conferred upon that party in this
Indenture and in the Securities shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions of this
Indenture.
SECTION 10.04. No Waiver. Neither a failure nor a delay on the
part of either the Trustee or the Holders in exercising any right, power or
privilege under this Article 10 shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise of any
right, power or privilege. The rights, remedies and benefits of the Trustee and
the Holders herein expressly specified are cumulative and not exclusive of any
other rights, remedies or benefits which either may have under this Article 10
at law, in equity, by statute or otherwise.
SECTION 10.05. Modification. No modification, amendment or
waiver of any provision of this Article 10, nor the consent to any departure by
any Subsidiary Guarantor therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Trustee, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. No notice to or demand on any Subsidiary Guarantor in any case
shall entitle such Subsidiary Guarantor to any other or further notice or demand
in the same, similar or other circumstances.
SECTION 10.06. Release of Subsidiary Guarantor. Upon the sale
or other disposition (including by way of consolidation or merger) of a
Subsidiary Guarantor or the sale or disposition of all or substantially all the
assets of such Subsidiary Guarantor (in each case other than to the Company or
an Affiliate of the Company) permitted by this Indenture, such Subsidiary
Guarantor shall be deemed released from all obligations under this Article 11
without any further action required on the part of the Trustee or
<PAGE> 80
73
any Holder. At the request of the Company, the Trustee shall execute and deliver
an appropriate instrument evidencing such release.
ARTICLE 11
Miscellaneous
SECTION 11.01. 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.
SECTION 11.02. Notices. Any notice or communication shall be
in writing and delivered in person or mailed by first-class mail addressed as
follows:
if to the Company or any Subsidiary Guarantor:
The J.H. Heafner Company, Inc.
2105 Water Ridge Parkway, Suite 500
Charlotte, NC 28217
Attention of Chief Financial Officer
if to the Trustee:
First Union National Bank
230 South Tryon Street, 9th Floor
Charlotte, NC 28288
Attention: Corporate Trust Group
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 to a Securityholder shall
be mailed 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
mailed within the time prescribed.
Failure to mail 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 mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
<PAGE> 81
74
SECTION 11.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA " 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 " 312(c).
SECTION 11.04. 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 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.
SECTION 11.05. 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.
SECTION 11.06. When Securities Disregarded. In determining
whether the Holders of the required principal amount of Securities have
concurred in any direction, waiver
<PAGE> 82
75
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 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 11.07. Rules by Trustee, Paying Agent and Registrar.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar and the Paying Agent may make reasonable rules
for their functions.
SECTION 11.08. Legal Holidays. A "Legal Holiday" is a
Saturday, a Sunday or a day on which banking institutions are not required to be
open in the State of New York or the State of North Carolina. 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 11.09. Governing Law. This Indenture and the
Securities shall be governed by, and construed in accordance with, the laws of
the State of New York but without giving effect to applicable principles of
conflicts of law to the extent that the application of the laws of another
jurisdiction would be required thereby.
SECTION 11.10. No Recourse Against Others. A director,
officer, employee or stockholder, as such, of the Company shall not have any
liability for any obligations of the Company under the Securities or this
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
shall waive and release all such liability. The waiver and release shall be part
of the consideration for the issue of the Securities.
SECTION 11.11. Successors. All agreements of the Company in
this Indenture and the Securities shall bind its successors. All agreements of
the Trustee in this Indenture shall bind its successors.
SECTION 11.12. 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
<PAGE> 83
76
represent the same agreement. One signed copy is enough to prove this Indenture.
SECTION 11.13. Table of Contents; Headings. The table of
contents, cross-reference sheet and headings of 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.
<PAGE> 84
77
IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed as of the date first written above.
THE J.H. HEAFNER COMPANY, INC.,
by /s/ J. MICHAEL GAITHER
----------------------------------
Name: J. Michael Gaither
Title: Secretary
OLIVER & WINSTON, INC.,
by /s/ J. MICHAEL GAITHER
----------------------------------
Name: J. Michael Gaither
Title: Secretary
by /s/ DONALD C. ROOF
----------------------------------
Name: Donald C. Roof
Title: Chief Financial Officer
THE SPEED MERCHANT, INC.,
by /s/ J. MICHAEL GAITHER
----------------------------------
Name: J. Michael Gaither
Title: Secretary
by /s/ DONALD C. ROOF
----------------------------------
Name: Donald C. Roof
Title: Chief Financial Officer
PHOENIX RACING, INC.,
by /s/ J. MICHAEL GAITHER
----------------------------------
Name: J. Michael Gaither
Title: Secretary
by /s/ DONALD C. ROOF
----------------------------------
Name: Donald C. Roof
Title: Chief Financial Officer
<PAGE> 85
78
ITCO LOGISTICS CORPORATION,
by /s/ J. MICHAEL GAITHER
----------------------------------
Name: J. Michael Gaither
Title: Secretary
ITCO HOLDING COMPANY, INC.,
by /s/ J. MICHAEL GAITHER
----------------------------------
Name: J. Michael Gaither
Title: Secretary
ITCO TIRE COMPANY,
by /s/ J. MICHAEL GAITHER
----------------------------------
Name: J. Michael Gaither
Title: Secretary
ITCO TIRE COMPANY OF GEORGIA,
by /s/ J. MICHAEL GAITHER
----------------------------------
Name: J. Michael Gaither
Title: Secretary
FIRST UNION NATIONAL BANK, as Trustee,
by /s/ LEONARD TRUEBLOOD
----------------------------------
Name: Leonard Trueblood
Title: Vice President
<PAGE> 86
RULE 144A/REGULATION S APPENDIX
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT
TO RULE 144A, AND TO CERTAIN PERSONS IN OFFSHORE
TRANSACTIONS IN RELIANCE ON REGULATION S.
PROVISIONS RELATING TO INITIAL SECURITIES,
PRIVATE EXCHANGE SECURITIES
AND EXCHANGE SECURITIES
1. Definitions
1.1 Definitions
For the purposes of this Appendix the following terms shall have the
meanings indicated below:
"Depository" means The Depository Trust Company, its nominees
and their respective successors.
"Exchange Securities" means the 10% Senior Notes Due 2008 to
be issued pursuant to this Indenture in connection with a Registered Exchange
Offer pursuant to the Registration Rights Agreement.
"Initial Purchasers" means Credit Suisse First Boston
Corporation and BancBoston Securities Inc.
"Initial Securities" means the 10% Senior Notes Due 2008,
issued under this Indenture on or about the date hereof.
"Private Exchange" means the offer by the Company, pursuant to
the Registration Rights Agreement, to the Initial Purchasers to issue and
deliver to each Initial Purchaser, in exchange for the Initial Securities held
by the Initial Purchaser as part of its initial distribution, a like aggregate
principal amount of Private Exchange Securities.
"Purchase Agreement" means the Purchase Agreement dated May
15, 1998 among the Company, the Subsidiary Guarantors and the Initial
Purchasers.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Registered Exchange Offer" means the offer by the Company,
pursuant to the Registration Rights Agreement, to certain Holders of Initial
Securities, to issue and deliver to such Holders, in exchange for the Initial
Securities, a like aggregate principal amount of Exchange Securities registered
under the Securities Act.
<PAGE> 87
2
"Registration Rights Agreement" means the Registration Rights
Agreement dated May 15, 1998, among the Company, the Subsidiary Guarantors and
the Initial Purchasers.
"Securities" means the Initial Securities, the Exchange
Securities and the Private Exchange Securities, treated as a single class.
"Securities Act" means the Securities Act of 1933.
"Securities Custodian" means the custodian with respect to a
Global Security (as appointed by the Depository), or any successor person
thereto and shall initially be the Trustee.
"Shelf Registration Statement" means the registration
statement issued by the Company, in connection with the offer and sale of
Initial Securities or Private Exchange Securities, pursuant to the Registration
Rights Agreement.
"Transfer Restricted Securities" means Securities that bear or
are required to bear the legend set forth in Section 2.3(b) hereto.
1.2 Other Definitions
Defined in
Term Section:
"Agent Members".....................................................2.1(b)
"Global Security"...................................................2.1(a)
"Regulation S"......................................................2.1(a)
"Rule 144A".........................................................2.1(a)
2. The Securities.
2.1 Form and Dating.
The Initial Securities are being offered and sold by the Company
pursuant to the Purchase Agreement.
(a) Global Securities. Initial Securities offered and sold to a QIB in
reliance on Rule 144A under the Securities Act ("Rule 144A") or in reliance on
Regulation S under the Securities Act ("Regulation S"), in each case as provided
in the Purchase Agreement, shall be issued initially in the form of one or more
permanent global Securities in
<PAGE> 88
3
definitive, fully registered form without interest coupons with the global
securities legend and restricted securities legend set forth in Exhibit 1 hereto
(each, a "Global Security"), which shall be deposited on behalf of the
purchasers of the Initial Securities represented thereby with the Trustee, at
its North Carolina office, as custodian for the Depository (or with such other
custodian as the Depository may direct), 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 as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a
Global Security deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with
this Section 2.1(b), authenticate and deliver initially one or more Global
Securities that (a) shall be registered in the name of the Depository for such
Global Security or Global Securities or the nominee of such Depository and (b)
shall be delivered by the Trustee to such Depository or pursuant to such
Depository's instructions or held by the Trustee as custodian for the
Depository.
Members of, or participants in, the Depository ("Agent Members") 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 Depository
or impair, as between the Depository and its Agent Members, 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.
(c) Certificated Securities. Except as provided in Section 2.3 or 2.4,
owners of beneficial interests in Global Securities will not be entitled to
receive physical delivery of certificated Securities.
<PAGE> 89
4
2.2 Authentication. The Trustee shall authenticate and deliver: (1)
Initial Securities for original issue in an aggregate principal amount of
$100,000,000 and (2) Exchange Securities or Private Exchange Securities for
issue only in a Registered Exchange Offer or a Private Exchange, respectively,
pursuant to the Registration Rights Agreement, for a like principal amount of
Initial Securities, in each case upon a written order of the Company signed by
two Officers or by an Officer and either an Assistant Treasurer or an Assistant
Secretary 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 and whether the Securities are to be Initial Securities,
Exchange Securities or Private Exchange Securities. The aggregate principal
amount of Securities outstanding at any time may not exceed $100,000,000 except
as provided in Section 2.06 of this Indenture.
2.3 Transfer and Exchange. (a) Transfer and Exchange of Global
Securities.
(i) The transfer and exchange of Global Securities or
beneficial interests therein shall be effected through the Depository,
in accordance with this Indenture (including applicable restrictions on
transfer set forth herein, if any) and the procedures of the Depository
therefor. A transferor of a beneficial interest in a Global Security
shall deliver to the Registrar a written order given in accordance with
the Depository's procedures containing information regarding the
participant account of the Depository to be credited with a beneficial
interest in the Global Security. The Registrar shall, in accordance
with such instructions instruct the Depository to credit to the account
of the Person specified in such instructions a beneficial interest in
the Global Security and to debit the account of the Person making the
transfer the beneficial interest in the Global Security being
transferred.
(ii) Notwithstanding any other provisions of this Appendix
(other than the provisions set forth in Section 2.4), a Global Security
may not be transferred as a whole except by the Depository to a nominee
of the Depository or by a nominee of the Depository to the Depository
or another nominee of the Depository or by the Depository or any such
nominee to a successor Depository or a nominee of such successor
Depository.
(iii) In the event that a Global Security is exchanged for
Securities in definitive registered form pursuant to Section 2.4 of
this Appendix or Section 2.08 of the
<PAGE> 90
5
Indenture, prior to the consummation of a Registered Exchange
Offer or the effectiveness of a Shelf Registration Statement, in either
case with respect to such Securities, such Securities may be exchanged
only in accordance with such procedures as are substantially consistent
with the provisions of this Section 2.3 (including the certification
requirements set forth on the reverse of the Initial Securities
intended to ensure that such transfers comply with Rule 144A or
Regulation S, as the case may be) and such other procedures as may from
time to time be adopted by the Company.
(b) Legend.
(i) Except as permitted by the following paragraphs (ii),
(iii) and (iv), each Security certificate evidencing the Global
Securities (and all Securities issued in exchange therefor or in
substitution thereof) shall bear a legend in substantially the
following form:
"THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS
SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED
THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE
ISSUER THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED ONLY (i) INSIDE THE U.S. TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (ii) OUTSIDE THE U.S. IN A TRANSACTION IN
ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (iii)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE),
(iv) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, OR (v) TO THE ISSUER, IN EACH OF CASES (i)
THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL,
AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
<PAGE> 91
6
PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Securities Act, in the
case of any Transfer Restricted Security that is represented by a
Global Security, the Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security for a certificated Security
that does not bear the legend set forth above and rescind any
restriction on the transfer of such Transfer Restricted Security, if
the Holder certifies in writing to the Registrar that its request for
such exchange was made in reliance on Rule 144 (such certification to
be in the form, and accompanied by the opinions and other information,
set forth on the reverse of the Security).
(iii) After a transfer of any Initial Securities or Private
Exchange Securities pursuant to an effective Shelf Registration
Statement with respect to such Initial Securities or Private Exchange
Securities, as the case may be, all requirements pertaining to legends
on such Initial Security or such Private Exchange Security will cease
to apply, the requirements requiring any such Initial Security or such
Private Exchange Security issued to certain Holders be issued in global
form will cease to apply, and a certificated Initial Security or
Private Exchange Security without legends will be available to the
transferee of the Holder of such Initial Securities or Private Exchange
Securities upon exchange of such transferring Holder's certificated
Initial Security or Private Exchange Security or directions to transfer
such Holder's interest in the Global Security, as applicable.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to the Initial Securities pursuant to which Holders of such
Initial Securities are offered Exchange Securities in exchange for
their Initial Securities, subject to the last sentence of Section
2.4(a) of this Appendix, all requirements pertaining to such Initial
Securities that Initial Securities issued to certain Holders be issued
in global form will cease to apply and certificated Initial Securities
with the restricted securities legend set forth in Exhibit 1 hereto
will be available to Holders of such Initial Securities that do not
exchange their Initial Securities, and Exchange Securities in
certificated or global form will be available to Holders
<PAGE> 92
7
that exchange such Initial Securities in such Registered Exchange
Offer.
(v) Upon the consummation of a Private Exchange with respect
to the Initial Securities pursuant to which Holders of such Initial
Securities are offered Private Exchange Securities in exchange for
their Initial Securities, all requirements pertaining to such Initial
Securities that Initial Securities issued to certain Holders be issued
in global form will still apply, and Private Exchange Securities in
global form with the Restricted Securities Legend set forth in Exhibit
1 hereto will be available to Holders that exchange such Initial
Securities in such Private Exchange.
(c) Cancellation or Adjustment of Global Security. At such
time as all beneficial interests in a Global Security have either been exchanged
for certificated Securities, redeemed, repurchased or canceled, such Global
Security shall be returned to the Depository for cancellation or retained and
canceled by the Trustee. At any time prior to such cancellation, if any
beneficial interest in a Global Security is exchanged for certificated or
Definitive Securities, redeemed, repurchased or canceled, the principal amount
of Securities represented by such Global Security shall be reduced and an
adjustment shall be made on the books and records of the Trustee (if it is then
the Securities Custodian for such Global Security) with respect to such Global
Security, by the Trustee or the Securities Custodian, to reflect such reduction.
(d) Obligations with Respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges,
subject to the requirements of this Appendix, the Company shall execute
and the Trustee shall authenticate certificated Securities and Global
Securities at the Registrar's or co-registrar's request.
(ii) No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax, assessments, or similar
governmental charge payable in connection therewith (other than any
such transfer taxes, assessments or similar governmental charge payable
upon exchange or transfer pursuant to Sections 3.06, 4.09 and 9.05).
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of
<PAGE> 93
8
(a) any certificated Security selected for redemption in whole
or in part pursuant to Article 3 of this Indenture, except the
unredeemed portion of any certificated Security being redeemed in part,
or (b) any Security for a period beginning 15 Business Days before the
mailing of a notice of an offer to repurchase or redeem Securities or
15 Business Days before an interest payment date.
(iv) 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.
(v) All Securities issued upon any transfer or exchange
pursuant to the terms of this Indenture shall evidence the same debt
and shall be entitled to the same benefits under this Indenture as the
Securities surrendered upon such transfer or exchange.
(e) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to
any beneficial owner of a Global Security, a member of, or a
participant in the Depository or other Person with respect to the
accuracy of the records of the Depository or its nominee or of any
participant or member thereof, with respect to any ownership interest
in the Securities or with respect to the delivery to any participant,
member, beneficial owner or other Person (other than the Depository) of
any notice (including any notice of redemption) or the payment of any
amount, under or with respect to such Securities. All notices and
communications to be given to the Holders and all payments to be made
to Holders under the Securities shall be given or made only to or upon
the order of the registered Holders (which shall be the Depository or
its nominee in the case of a Global Security). The rights of beneficial
owners in any Global Security shall be exercised only through the
Depository subject to the applicable rules and procedures of the
Depository. The Trustee may rely and shall be fully protected in
relying upon information furnished by the Depository with respect to
its members, participants and any beneficial owners.
<PAGE> 94
9
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to
any transfer of any interest in any Security (including any transfers
between or among Depository participants, members or beneficial owners
in any Global Security) other than to require delivery of such
certificates and other documentation or evidence as are expressly
required by, and to do so if and when expressly required by, the terms
of this Indenture, and to examine the same to determine substantial
compliance as to form with the express requirements hereof.
2.4 Certificated Securities.
(a) A Global Security deposited with the Depository or with
the Trustee as custodian for the Depository pursuant to Section 2.1 shall be
transferred to the beneficial owners thereof in the form of certificated
Securities in an aggregate principal amount equal to the principal amount of
such Global Security, in exchange for such Global Security, only if such
transfer complies with Section 2.3 and (i) the Depository notifies the Company
that it is unwilling or unable to continue as Depository for such Global
Security or if at any time such Depository ceases to be a "clearing agency"
registered under the Exchange Act and a successor Depository is not appointed by
the Company within 90 days of such notice, or (ii) an Event of Default has
occurred and is continuing or (iii) the Company, in its sole discretion,
notifies the Trustee in writing that it elects to cause the issuance of
certificated Securities under this Indenture. Notwithstanding the provisions of
Section 2.3 or this Section 2.4, the issuance of certificated Securities shall
be subject to the ownership certification requirements of Rule 903(c)(3)(ii)(B)
of Regulation S under the Securities Act.
(b) Any Global Security that is transferable to the beneficial
owners thereof pursuant to this Section shall be surrendered by the Depository
to the Trustee located in the Borough of Manhattan, The City of New York, to be
so transferred, in whole or from time to time in part, without charge, and the
Trustee shall authenticate and deliver, upon such transfer of each portion of
such Global Security, an equal aggregate principal amount of certificated
Initial Securities of authorized denominations and registered in such names as
the Depository shall direct. Any portion of a Global Security transferred
pursuant to this Section shall be executed, authenticated and delivered only in
denominations of $1,000 and any integral multiple thereof and registered in such
names as the Depository shall direct. Any certificated
<PAGE> 95
10
Initial Security delivered in exchange for an interest in the Global Security
shall, except as otherwise provided by Section 2.3(b), bear the restricted
securities legend set forth in Exhibit 1 hereto.
(c) Subject to the provisions of Section 2.4(b), the
registered Holder of a Global Security may grant proxies and otherwise authorize
any Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
(d) In the event of the occurrence of any of the events
specified in Section 2.4(a), the Company will promptly make available to the
Trustee a reasonable supply of certificated Securities in definitive, fully
registered form without interest coupons.
<PAGE> 96
EXHIBIT 1
to
RULE 144A/REGULATION S APPENDIX
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
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 TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
"THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF
THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5
OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) THIS
SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i)
INSIDE THE U.S. TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (ii) OUTSIDE THE U.S. IN A
TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (iii) PURSUANT
TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE), (iv) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, OR (v) TO THE ISSUER, IN EACH OF CASES (i) THROUGH
(iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
<PAGE> 97
2
OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO IN (A) ABOVE."
<PAGE> 98
3
THE J.H. HEAFNER COMPANY, INC.
No._______ $________
10% Senior Notes Due 2008
The J.H. Heafner Company, Inc., a North Carolina corporation, promises
to pay to _________________________, or registered assigns, the principal sum
of _____________________ Dollars on May 15, 2008.
Interest Payment Dates: May 15 and November 15.
Record Dates: May 1 and November 1.
Additional provisions of this Security are set forth on the other side
of this Security.
Dated:
THE J.H. HEAFNER COMPANY, INC.
by
______________________________
______________________________
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
FIRST UNION NATIONAL BANK,
as Trustee, certifies
that this is one of the
Securities referred
to in the Indenture.
by______________________________
Authorized Signatory
<PAGE> 99
4
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
10% Senior Note Due 2008
1. Interest
The J.H. Heafner Company, Inc., a North Carolina corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above; provided,
however, that if a Registration Default (as defined in the Registration Rights
Agreement) occurs, interest will accrue on this Security at a rate of .50% per
annum from and including the date on which any such Registration Default shall
occur to but excluding the date on which all Registration Defaults have been
cured. The Company will pay interest semiannually on May 15 and November 15 of
each year. 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 May 20,
1998. 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 plus 1% per annum, 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 May 1 or November 1 next 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. Payments in respect of the Securities represented by a
Global Security (including principal, premium and interest) will be made by wire
transfer of immediately available funds to the accounts specified by The
Depository Trust Company. The Company will make all payments in respect of a
certificated Security (including principal, premium and interest) by mailing a
check to the registered address of each Holder thereof; provided, however,
<PAGE> 100
5
that payments on a certificated Security will be made by wire transfer to a U.S.
dollar account maintained by the payee with a bank in the United States if such
Holder elects payment by wire transfer by giving written notice to the Trustee
or the Paying Agent to such effect designating such account no later than 30
days immediately preceding the relevant due date for payment (or such other date
as the Trustee may accept in its discretion).
3. Paying Agent and Registrar
Initially, First Union National Bank, a national banking
association ("the Trustee"), will act as Paying Agent and Registrar. The Company
may appoint and change any Paying Agent, Registrar or co-registrar without
notice. The Company or any of its domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as
of May 15, 1998 ("Indenture"), among the Company, the Subsidiary Guarantors 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. Sections 77aaa-77bbbb) as in effect on the date of the Indenture
(the "Act"). 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 Act for a
statement of those terms.
The Securities are general unsecured senior obligations of the
Company limited to $100,000,000 aggregate principal amount (subject to Section
2.06 of the Indenture). The Indenture contains certain covenants that, among
other things, limit the Incurrence of Additional Indebtedness by the Company and
its Restricted Subsidiaries, the making of Restricted Payments, the creation of
restrictions on distributions from Restricted Subsidiaries, Asset Dispositions,
certain transactions with Affiliates, the Incurrence of Liens and Sale/Leaseback
Transactions and certain consolidations, mergers and transfers of assets.
To guarantee the due and punctual payment of principal and
interest, if any, on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same shall be due and
payable,
<PAGE> 101
6
whether at maturity, by acceleration or otherwise, according to the terms of the
Securities and the Indenture, the Subsidiary Guarantors have, jointly and
severally, unconditionally guaranteed such obligations on a senior basis
pursuant to the terms of the Indenture.
5. Optional Redemption
Except as set forth in the following paragraph, the Securities
will not be redeemable at the option of the Company prior to May 15, 2003.
Thereafter, the Securities 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 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 May 15 of
the years set forth below:
Redemption
Period Price
------ --------
2003.............................................. 105.000%
2004.............................................. 103.333
2005 ............................................. 101.667
2006 and thereafter............................... 100.000
In addition, at any time and from time to time prior to May
15, 2001, the Company may redeem in the aggregate up to 35% of the original
principal amount of the Securities with the proceeds of one or more Public
Equity Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount) of 110.0% 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 relevant interest payment
date); provided, however, that at least $65.0 million aggregate principal amount
of the Securities must remain outstanding and be held, directly or indirectly,
by Persons other than the Company and its Affiliates, after each such
redemption.
In the case of any partial redemption, selection of the
Securities 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 Security of $1,000 in original principal
amount or less shall be redeemed in part. If any Security is to be
<PAGE> 102
7
redeemed in part only, the notice of redemption relating to such Security shall
state the portion of the principal amount thereof to be redeemed. A new Security
in principal amount equal to the unredeemed portion thereof will be issued in
the name of the Holder thereof upon cancelation of the original Security.
6. Notice of Redemption
Notice of redemption will be mailed 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 shall cease to accrue on such
Securities (or such portions thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have
the right to cause the Company to repurchase all or any part of the Securities
of such Holder at a repurchase price equal to 101% of the principal amount of
the Securities to be repurchased plus accrued 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. 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.
<PAGE> 103
8
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 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.
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 written consent of the
Holders of at least a majority in principal amount outstanding of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written 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, the Subsidiary
Guarantors and the Trustee may amend the Indenture or the Securities to cure any
ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the
Indenture, or to provide for uncertificated Securities in addition to or in
place of certificated Securities, or to add guarantees with respect to the
Securities or to secure the Securities, or to add additional covenants or
surrender rights and powers conferred on the Company or the Subsidiary
Guarantors, or to comply with any requirement of the SEC in connection with
qualifying the Indenture under the Act, or to make any change that does not
adversely affect the rights of any Securityholder.
<PAGE> 104
9
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 the Securities at maturity, upon redemption pursuant to paragraph 5
of the Securities, upon acceleration or otherwise, or failure by the Company to
redeem or purchase Securities when required; (iii) 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) certain accelerations (including
failure to pay within any grace period after final maturity) of other
Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds $10
million; (v) certain events of bankruptcy or insolvency with respect to the
Company and the Significant Subsidiaries; and (vi) certain final non-appealable
judgments or decrees for the payment of money in excess of $10 million and (vii)
certain events pertaining to the Subsidiary Guaranties. If an Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Securities may declare all the Securities to be due and
payable immediately. 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 Act, 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 its Affiliates and may otherwise deal
with the Company or its Affiliates with the same rights it would have if it were
not Trustee.
<PAGE> 105
10
15. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
16. 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.
17. 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).
18. Holders' Compliance with Registration Rights Agreement.
Each Holder of a Security, by acceptance hereof, acknowledges
and agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Company to the extent provided
therein.
19. Governing Law.
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
<PAGE> 106
11
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 to:
The J.H. Heafner Company, Inc.
2105 Water Ridge Parkway, Suite 500
Charlotte, NC 28217
Attention: Chief Financial Officer
<PAGE> 107
12
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.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original issuance
of such Securities and the last date, if any, on which such Securities were
owned by the Company or any Affiliate of the Company, the undersigned confirms
that such Securities are being transferred in accordance with their terms:
CHECK ONE BOX BELOW
(1) [ ] to the Company; or
(2) [ ] pursuant to an effective registration statement under
the Securities Act of 1933; or
(3) [ ] inside the United States to a "qualified
institutional buyer" (as defined in Rule 144A under
the Securities Act of 1933) that purchases for its
own account or for the account of a qualified
institutional buyer to whom notice is given that such
transfer is being made in reliance on Rule 144A, in
each case pursuant to and in compliance with Rule
144A under the Securities Act of 1933; or
<PAGE> 108
13
(4) [ ] outside the United States in an offshore
transaction within the meaning of Regulation S under
the Securities Act in compliance with Rule 904 under
the Securities Act of 1933; or
(5) [ ] pursuant to another available exemption from
registration provided by Rule 144 under the
Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register
any of the Securities evidenced by this certificate in the name of any
person other than the registered holder thereof; provided, however,
that if box (4) or (5) is checked, the Trustee may require, prior to
registering any such transfer of the Securities, such legal opinions,
certifications and other information as the Company has reasonably
requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption
provided by Rule 144 under such Act.
_____________________________
Signature
Signature Guarantee:
____________________________ _____________________________
Signature must be guaranteed Signature
________________________________________________________________________________
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A or
has determined not to
<PAGE> 109
14
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated: ________________ ______________________________
NOTICE: To be executed by
an executive officer
<PAGE> 110
15
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security
have been made:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Date of Amount of decrease Amount of increase Principal amount of Signature of
Exchange in Principal in Principal Amount this Global Security authorized officer
Amount of this of this Global following such of Trustee or
Global Security Security decrease or increase) Securities Custodian
</TABLE>
<PAGE> 111
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.06 or 4.09 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 4.06 or 4.09 of the Indenture,
state the amount in principal amount: $
Date: _______________ Your Signature: _____________________________
(Sign exactly as your name
appears on the other side of
this Security.)
Signature Guarantee: _______________________________________
(Signature must be guaranteed by a
member firm of the New York Stock
Exchange or a commercial bank or trust
company)
<PAGE> 112
EXHIBIT A
[FORM OF FACE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE SECURITY]
[*/]
[**/]
THE J.H. HEAFNER COMPANY, INC.
No. $
10% Senior Notes Due 2008
The J.H. Heafner Company, Inc., a North Carolina corporation, promises to pay to
________________, or registered assigns, the principal sum of ______________
Dollars on May 15, 2008.
Interest Payment Dates: May 15 and November 15
Record Dates: May 1 and November 1.
Additional provisions of this Security are set forth on the other side of this
Security.
Dated:
THE J.H. HEAFNER COMPANY, INC.
by _________________________
_________________________
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
FIRST UNION NATIONAL BANK,
as Trustee, certifies
that this is one of the
Securities referred to in
the Indenture.
by
__________________________________
Authorized Signatory
______________________________________
*/ [If the Security is to be issued in global form add the Global Securities
Legend from Exhibit 1 to Appendix A and the attachment from such Exhibit 1
captioned "[TO BE ATTACHED TO GLOBAL SECURITIES] - SCHEDULE OF INCREASES OR
DECREASES IN GLOBAL SECURITY".]
**/ [If the Security is a Private Exchange Security issued in a Private Exchange
to an Initial Purchaser holding an unsold portion of its initial allotment, add
the Restricted Securities Legend from Exhibit 1 to Appendix A and replace the
Assignment Form included in this Exhibit A with the Assignment Form included in
such Exhibit 1.]
<PAGE> 113
2
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE SECURITY]
10% Senior Note Due 2008
1. Interest
The J.H. Heafner Company, Inc., a North Carolina corporation
(such corporation, and its successors and assigns under the Indenture
hereinafter referred to, being herein called the "Company"), promises to pay
interest on the principal amount of this Security at the rate per annum shown
above [; provided, however, that if a Registration Default (as defined in the
Registration Rights Agreement) occurs, interest will accrue on this Security at
a rate of .50% per annum from and including the date on which any such
Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured] ***/. The Company will pay interest
semiannually on May 15 and November 15 of each year. 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 May 20, 1998. 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 plus 1% per annum, and
it shall pay interest on overdue installments of interest at the same rate to
the extent lawful.
_________________________
***/ Insert if at the time of issuance of the Exchange Security or Private
Exchange Security (as the case may be) neither the Registered Exchange Offer has
been consummated nor a Shelf Registration Statement has been declared effective
in accordance with the Registration Rights Agreement.
<PAGE> 114
3
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 May 1 or November 1 next 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. Payments in respect of Securities
(including principal, premium and interest) will be made by wire transfer of
immediately available funds to the accounts specified by the holders thereof or,
if no U.S. dollar account maintained by the payee with a bank in the United
States is designated by any holder to the Trustee or the Paying Agent at least
30 days prior to the relevant due date for payment (or such other date as the
Trustee may accept in its discretion), by mailing a check to the registered
address of such holder.
3. Paying Agent and Registrar
Initially, First Union National Bank, a national banking
association ("the Trustee"), will act as Paying Agent and Registrar. The Company
may appoint and change any Paying Agent, Registrar or co-registrar without
notice. The Company or any of its domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as
of May 15, 1998 ("Indenture"), among the Company, the Subsidiary Guarantors 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. Sections 77aaa-77bbbb) as in effect on the date of the Indenture
(the "Act"). 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 Act for a
statement of those terms.
<PAGE> 115
4
The Securities are general unsecured obligations of the
Company limited to $100,000,000 aggregate principal amount (subject to Section
2.06 of the Indenture). The Indenture contains certain covenants that among
other things, limit, the Incurrence of Additional Indebtedness by the Company
and its Restricted Subsidiaries, the making of Restricted Payments, the creation
of restrictions on distributions from Restricted Subsidiaries, Asset
Dispositions, certain transactions with Affiliates, the Incurrence of Liens and
Sale/Leaseback Transactions and certain consolidations, mergers and transfers of
assets.
To guarantee the due and punctual payment of principal and
interest, if any, on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture, the Subsidiary Guarantors have,
jointly and severally, unconditionally guaranteed such obligations on a senior
basis pursuant to the terms of the Indenture.
5. Optional Redemption
Except as set forth in the following paragraph, the Securities
will not be redeemable at the option of the Company prior to May 15, 2003.
Thereafter, the Securities 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 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 May 15,
of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Period Price
------ --------
<S> <C>
2003............................................. 105.000%
2004............................................. 103.333
2005............................................. 101.667
2006 and thereafter.............................. 100.000
</TABLE>
In addition, at any time and from time to time prior to May
15, 2001, the Company may redeem in the aggregate up to 35% of the original
principal amount of the Securities with the proceeds of one or more Public
Equity Offerings following which there is a Public Market, at a redemption price
<PAGE> 116
5
(expressed as a percentage of principal amount) of 110.0% 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 relevant interest payment
date); provided, however, that at least $65.0 million aggregate principal amount
of the Securities must remain outstanding and be held, directly or indirectly,
by Persons other than the Company and its Affiliates, after each such
redemption.
In the case of any partial redemption, selection of the
Securities 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 Security of $1,000 in original principal
amount or less shall be redeemed in part. If any Security is to be redeemed in
part only, the notice of redemption relating to such Security shall state the
portion of the principal amount thereof to be redeemed. A new Security in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancelation of the original Security.
6. Notice of Redemption
Notice of redemption will be mailed 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 shall cease to accrue on such
Securities (or such portions thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have
the right to cause the Company to repurchase all or any part of the Securities
of such Holder at a repurchase price equal to 101% of the principal amount of
the Securities to be repurchased plus accrued 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
<PAGE> 117
6
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. 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 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.
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.
<PAGE> 118
7
12. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written 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, the Subsidiary
Guarantors and the Trustee may amend the Indenture or the Securities to cure any
ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the
Indenture, or to provide for uncertificated Securities in addition to or in
place of certificated Securities, or to add guarantees with respect to the
Securities or to secure the Securities, or to add additional covenants or
surrender rights and powers conferred on the Company, or to comply with any
requirements of the SEC in connection with qualifying the Indenture under the
Act, or to make any change that does not adversely affect the rights of any
Securityholder.
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 the Securities at maturity, upon redemption pursuant to paragraph 5
of the Securities, upon acceleration or otherwise, or failure by the Company to
redeem or purchase Securities when required; (iii) 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) certain accelerations (including
failure to pay within any grace period after final maturity) of other
Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds $10
million; (v) certain events of bankruptcy or insolvency with respect to the
Company and the Significant Subsidiaries; and (vi) certain final, non-appealable
judgments or decrees for the payment of money in excess of $10 million and (vii)
certain events pertaining to the Subsidiary Guaranties. If an Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Securities may declare all the Securities to be due and
payable immediately. 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.
<PAGE> 119
8
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 Act, 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 its Affiliates and may otherwise deal
with the Company or its Affiliates with the same rights it would have if it were
not Trustee.
15. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
16. 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.
17. 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).
<PAGE> 120
9
18. 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 has 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.
19. Holders' Compliance with Registration Rights Agreement.
Each Holder of a Security, by acceptance hereof, acknowledges
and agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Company to the extent provided
therein.
20. Governing Law.
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
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 TO:
THE J.H. HEAFNER COMPANY, INC.
2105 WATER RIDGE PARKWAY, SUITE 500
CHARLOTTE, NC 28217
ATTENTION: CHIEF FINANCIAL OFFICER
<PAGE> 121
10
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.
<PAGE> 122
11
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.06 or 4.09 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 4.06 or 4.09 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 by a
member firm of the New York Stock
Exchange or a commercial bank or trust company)
<PAGE> 1
EXHIBIT 9.1
VOTING TRUST AGREEMENT, dated as of October 15, 1996, by and among
Ann Heafner Gaither, William H. Gaither, Albert C. Gaither, Susan
Gaither Jones, Lawson H. Gaither, Albert Comer Gaither and Thomas R.
Jones (each a "Stockholder" and collectively, the "Stockholders")
relating to The J. H. Heafner Company, Inc., a North Carolina
corporation (the "Corporation"), and Ann Heafner Gaither and William
H. Gaither, as trustees (the "Trustees").
The Stockholders are respectively owners of shares of the common
stock of the Corporation in the amount set opposite their signature.
With a view to the safe and competent management of the Corporation
in the interests of the Stockholders, and as contemplated by the Stockholders'
Agreement, dated October 15, 1996 (the "Stockholders' Agreement"), the
Stockholders desire to create this Voting Trust.
The Stockholders agree as follows:
1. Transfer of Stock to Trustees. Each of the Stockholders by
execution of the stock power in the form attached hereto as Exhibit A assigns
and delivers to the Trustees any certificate held by such Stockholder
representing shares of stock owned by such Stockholder and shall do all things
necessary for the transfer of shares to the Trustees on the books of the
Corporation.
2. Trustees to Hold Subject to Agreement. The Trustees shall hold
the said shares of stock so transferred to them for the common benefit of the
Stockholders, under the terms and conditions hereinafter set forth.
3. Issuance of Stock Certificates to Trustees. The Trustees shall
surrender to the proper officers of the Corporation for cancellation of all
certificates of stock which shall be assigned and delivered to them as
hereinafter provided, and in their stead shall procure new certificates to be
issues to them as Trustees under this Agreement.
4. Voting Trust Certificates. The Trustees shall issue to each of
the Stockholders a Voting Trust Certificate for the number of shares represented
by the certificates of stock by such Stockholder transferred to the Trustees.
Each such Trust Certificate shall state that it is issued under the Agreement,
and shall set forth the nature and proportional amount of the beneficial
interest thereunder of the person to whom it is issued, and shall be assignable,
subject to the provisions of the Stockholders' Agreement, after the manner of
certificates of stock on books to be kept by the Trustees. The Trustees shall
keep a list of the shares of the Trust transferred to them, and shall also keep
a record of all Voting Trust Certificates issued or transferred on their books,
which
<PAGE> 2
records shall contain the names and addresses of the Trust Certificate holders
and the number of shares represented by each such certificate. Such list and
record shall be open at all reasonable times to the inspection upon the books of
the Trustees of any Trust Certificate, and the transferee shall succeed to all
the rights hereunder of the transferor.
The Voting Trust Certificate shall be substantially in the following
form:
TRUSTEE'S CERTIFICATE
This is to certify that the undersigned Trustees have received a
certificate or certificates issued in the name of _______________________,
evidencing the ownership of _______ shares of Common Stock of the Corporation,
and that such shares are held subject to all the terms and conditions of the
Voting Trust Agreement, dated as of October 15, 1996, by and between Ann Heafner
Gaither and William H. Gaither, as Trustees, and the Stockholders. During the
period of ten years from and after October 15, 1996, the Trustees, or their
successors, shall, as provided in said agreement, possess and be entitled to
exercise the vote and otherwise represent all of the said shares for all
purposes, being agreed that no voting right shall pass to the holder hereof by
virtue of the ownership of this certificate.
Upon the termination of said Trust, this certificate shall be
surrendered to the Trustees by the holder hereof upon delivery to such holder of
a stock certificate representing a like number of shares.
The undersigned Trustees have executed this certificate as of the _____
day of __________________, 199_.
________________________________________
________________________________________
Trustees
5. Restriction on Transfer. Each of the beneficiaries agrees that
during the term of this Agreement, the Trustees' Certificate will not be sold or
transferred except in accordance with the terms and conditions of the
Stockholders' Agreement, so long as such Agreement remains in effect. The
Trustees' Certificates shall be regarded as stock of the Corporation, within the
meaning of any provision of the By-laws or other agreement (including the
Stockholders' Agreement) of said Corporation imposing conditions and
restrictions upon the sale of stock of the Corporation.
6. Voting. It shall be the duty of the Trustees, and they shall have
full power and authority, and they are hereby fully empowered and authorized, to
represent the holders of such Voting Trust Certificates and the stock
transferred to the Trustees as aforesaid, and to vote upon said stock, as in the
judgment of the Trustees may be for the best interest of the Corporation, at all
meetings of the Stockholders of the Corporation, in
-2-
<PAGE> 3
the election of Directors and upon any and all matters in question, which may be
brought before such meetings, as fully as any Stockholder might do if personally
present.
7. Liability. The Trustees shall use their business judgment in
voting upon the stock transferred to them, but shall not be liable for any vote
cast, or consent given to them, in good faith, and in the absence of gross
negligence.
8. Dividends. The Trustees shall collect and receive all dividends
that may accrue upon the shares of stock subject to this Trust, and shall divide
the same among the Trust Certificate holders in proportion to the number of
shares respectively represented by their Trust Certificate.
9. Indemnity. The Trustees shall be entitled to be indemnified fully
against all costs, charges, expenses and other liabilities properly incurred by
them in the exercise of any power conferred upon them by these presents; and the
Stockholders, and each of them hereby covenant with the Trustees that in the
event of the monies and securities in their hands being insufficient for that
purpose, the Stockholders and each of them will in proportion to the amount of
their respective shares and interests hold harmless and keep indemnified the
Trustees of and from all loss or damage which they may sustain or be put to by
reason of anything they may lawfully do in the execution of this Trust.
10. Vacancies. In the event of any Trustee's dying or resigning or
refusing or becoming unable to act, the surviving or other Trustee or Trustees
shall appoint Trustee or Trustees to fill the vacancy or vacancies, and any
person so appointed shall thereupon be vested with all the duties, powers and
authority of a Trustee hereunder as if originally named herein. Prior to the
commencement of his duties, each original Voting Trustee and each Voting Trustee
subsequently appointed shall sign a copy of the Stockholders' Agreement,
relating to the shares of the Corporation and shall thus signify his consent to
be bound thereby and his agreement to perform the terms thereof. All of the
terms, provisions and conditions of the Stockholders' Agreement shall apply to
all Voting Trustees hereof and hereunder with the same force and effect as if
such Voting Trustees had originally signed said Stockholders' Agreement.
11. Continuance and Termination of Trust. The Trust hereby created
shall be continued until October 14, 2006, and shall then terminate, provided
that this Voting Trust Agreement shall terminate upon the occurrence of the
events for termination set forth in the Stockholders' Agreement. Upon
termination of the Trust, the Trustees shall, upon surrender of the Trust
Certificates by the respective holders thereof, assign and transfer to them the
number of shares thereby represented.
12. Legend. All Voting Trust Certificates issued by the Voting
Trustees hereunder shall have endorsed thereon a statement that they are held in
accordance with and subject to the terms of the Stockholders' Agreement.
13. Miscellaneous. (a) This Voting Trust Agreement is entered into
in
-3-
<PAGE> 4
accordance with and in pursuance of the requirement of Article III of the
Stockholders' Agreement. In the event of a conflict in the provisions of said
Stockholders' Agreement, the provisions of said Stockholders' Agreement shall
prevail.
(b) An executed copy of this Agreement shall be filed with the
Secretary of the Corporation. The Stockholders shall cause the Corporation to
furnish free of charge to any stockholder thereof a copy of this Agreement upon
written request.
(c) Any and all notices, designations, consents, offers, acceptances
or any other communication provided for herein shall be made by hand delivery,
first-class mail (registered or certified, return receipt requested), or
overnight air courier guaranteeing next day delivery to the address set forth on
Schedule I to this Agreement. Any Stockholder may change the address listed in
the foregoing sentence by giving written notice to the Corporation and the other
Stockholders. Except as otherwise provided in this Agreement, each such notice
shall be deemed effective at the time delivered by hand, if personally
delivered; five business days after being deposited in the mail, postage
prepaid, if mailed; and the next business day after timely delivery to the
courier, if sent by overnight air courier guaranteeing next day delivery.
(d) This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
(e) This Agreement shall be governed and construed in accordance
with the law of the State of North Carolina.
(f) This Agreement shall be binding upon and shall inure to the
benefit of each of the Stockholders and their respective executors,
administrators and personal representatives and heirs and assigns.
-4-
<PAGE> 5
The Stockholders and the Trustees have duly executed this Agreement.
/s/ ANN H. GAITHER
-------------------------
TRUSTEE
/s/ WILLIAM H. GAITHER
-------------------------
TRUSTEE
/s/ ANN H. GAITHER 911 shares
-------------------------
ANN HEAFNER GAITHER
/s/ WILLIAM H. GAITHER 304 shares
-------------------------
WILLIAM H. GAITHER
/s/ ALBERT C. GAITHER 15 shares
-------------------------
ALBERT C. GAITHER
/s/ SUSAN GAITHER JONES 282 shares
-------------------------
SUSAN GAITHER JONES
/s/ LAWSON H. GAITHER 282 shares
-------------------------
LAWSON H. GAITHER
/s/ ALBERT COMER GAITHER 282 shares
-------------------------
ALBERT COMER GAITHER
/s/ THOMAS R. JONES 4 shares
-------------------------
THOMAS R. JONES
-5-
<PAGE> 6
EXHIBIT A
Addresses
The J.H. Heafner Company, Inc.
814 East Main Street
P.O. Box 837
Lincolnton, NC 28093-0837
Ann Heafner Gaither
Albert C. Gaither
821 Woodson Road
Newton, NC 28658
William H. Gaither
814 E. Main Street
Lincolnton, NC 28092
Susan Gaither and Thomas R. Jones
126 W. 6th Street
Newton, NC 28658
Lawson H. Gaither
814 E. Main Street
Lincolnton, NC 28092
Albert Comer Gaither
301 Watts Street
Durham, NC 27701
<PAGE> 1
EXHIBIT 10.1
$100,000,000
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Dated as of May 20, 1998
Between
THE J.H. HEAFNER COMPANY, INC.
OLIVER & WINSTON, INC.
ITCO HOLDING COMPANY, INC.
THE SPEED MERCHANT, INC.
(the Borrowers)
and
THE FINANCIAL INSTITUTIONS PARTY
HERETO FROM TIME TO TIME
(the Lenders)
and
BANKBOSTON, N.A.
(the Agent)
and
FLEET CAPITAL CORPORATION
FIRST UNION NATIONAL BANK
(the Co-Agents)
<PAGE> 2
TABLE OF CONTENTS(1)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions............................................... 1
SECTION 1.2 General Interpretive Rules................................ 29
SECTION 1.3 Exhibits and Schedules.................................... 31
ARTICLE 2
COMMITMENTS
SECTION 2.1 Loans..................................................... 32
SECTION 2.2 Manner of Borrowing....................................... 32
SECTION 2.3 Repayment................................................. 34
SECTION 2.4 Notes..................................................... 35
SECTION 2.5 Extension of Commitments.................................. 35
ARTICLE 3
LETTER OF CREDIT FACILITY
SECTION 3.1 Agreement to Issue........................................ 36
SECTION 3.2 Amounts................................................... 36
SECTION 3.3 Conditions................................................ 36
SECTION 3.4 Issuance of Letters of Credit............................. 37
SECTION 3.5 Duties of BankBoston...................................... 37
SECTION 3.6 Payment of Reimbursement Obligations...................... 38
SECTION 3.7 Participations............................................ 38
SECTION 3.8 Indemnification, Exoneration.............................. 39
SECTION 3.9 Supporting Letter of Credit; Cash Collateral Account...... 41
ARTICLE 4
GENERAL LOAN PROVISIONS
SECTION 4.1 Interest.................................................. 42
SECTION 4.2 Certain Fees.............................................. 43
SECTION 4.3 Manner of Payment......................................... 44
</TABLE>
- --------
(1) This Table of Contents is included for reference purposes only and does not
constitute part of the Loan and Security Agreement.
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 4.4 General................................................... 45
SECTION 4.5 Loan Accounts; Statements of Account...................... 45
SECTION 4.6 Reduction of Commitments; Termination of Agreement........ 45
SECTION 4.7 Making of Loans........................................... 47
SECTION 4.8 Settlement Among Lenders.................................. 48
SECTION 4.9 Mandatory Prepayments..................................... 51
SECTION 4.10 Payments Not at End of Interest Period; Failure to Borrow. 51
SECTION 4.11 Notice of Conversion or Continuation...................... 51
SECTION 4.12 Conversion or Continuation................................ 51
SECTION 4.13 Duration of Interest Periods; Maximum Number of Eurodollar
Rate Loans; Minimum Increments............................ 52
SECTION 4.14 Changed Circumstances..................................... 52
SECTION 4.15 Cash Collateral Account; Investment Accounts.............. 53
SECTION 4.16 Allocation of Payments from Borrowers..................... 54
SECTION 4.17 Borrowers' Representative................................. 55
SECTION 4.18 Joint and Several Liability............................... 55
SECTION 4.19 Obligations Absolute...................................... 56
SECTION 4.20 Waiver of Suretyship Defenses............................. 57
ARTICLE 5
CONDITIONS PRECEDENT
SECTION 5.1 Conditions Precedent to Initial Loans..................... 58
SECTION 5.2 All Loans; Letters of Credit.............................. 61
SECTION 5.3 Conditions as Covenants................................... 62
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BORROWERS
SECTION 6.1 Representations and Warranties............................ 63
SECTION 6.2 Survival of Representations and Warranties, Etc........... 71
ARTICLE 7
SECURITY INTEREST
SECTION 7.1 Security Interest......................................... 72
SECTION 7.2 Continued Priority of Security Interest................... 72
ARTICLE 8
COLLATERAL COVENANTS
SECTION 8.1 Collection of Receivables................................. 74
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 8.2 Verification and Notification............................. 75
SECTION 8.3 Disputes, Returns and Adjustments......................... 75
SECTION 8.4 Invoices.................................................. 76
SECTION 8.5 Delivery of Instruments................................... 76
SECTION 8.6 Sales of Inventory........................................ 76
SECTION 8.7 Ownership and Defense of Title............................ 76
SECTION 8.8 Insurance................................................. 77
SECTION 8.9 Location of Offices and Collateral........................ 78
SECTION 8.10 Records Relating to Collateral............................ 78
SECTION 8.11 Inspection................................................ 78
SECTION 8.12 Information and Reports................................... 79
SECTION 8.13 Power of Attorney......................................... 80
SECTION 8.14 Assignment of Claims Act.................................. 80
ARTICLE 9
AFFIRMATIVE COVENANTS
SECTION 9.1 Preservation of Corporate Existence and Similar Matters... 81
SECTION 9.2 Compliance with Applicable Law............................ 81
SECTION 9.3 Maintenance of Property................................... 81
SECTION 9.4 Conduct of Business....................................... 81
SECTION 9.5 Insurance................................................. 81
SECTION 9.6 Payment of Taxes and Claims............................... 82
SECTION 9.7 Accounting Methods and Financial Records.................. 82
SECTION 9.8 Use of Proceeds........................................... 82
SECTION 9.9 Hazardous Waste and Substances; Environmental Requirements 82
SECTION 9.10 Additional Subsidiaries................................... 83
SECTION 9.11 Compliance with Senior Note Indenture..................... 83
ARTICLE 10
INFORMATION
SECTION 10.1 Financial Statements...................................... 84
SECTION 10.2 Accountants' Certificate.................................. 85
SECTION 10.3 Officer's Certificate..................................... 85
SECTION 10.4 Copies of Other Reports................................... 85
SECTION 10.5 Notice of Litigation and Other Matters.................... 86
SECTION 10.6 ERISA..................................................... 86
ARTICLE 11
NEGATIVE COVENANTS
SECTION 11.1 Financial Covenant........................................ 88
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 11.2 Debt...................................................... 88
SECTION 11.3 Guaranties................................................ 88
SECTION 11.4 Acquisitions.............................................. 89
SECTION 11.5 Capital Expenditures...................................... 90
SECTION 11.6 Restricted Distributions and Payments, Etc................ 90
SECTION 11.7 Merger, Consolidation and Sale of Assets.................. 91
SECTION 11.8 Transactions with Affiliates.............................. 91
SECTION 11.9 Liens..................................................... 91
SECTION 11.10 Sales and Leasebacks...................................... 91
SECTION 11.11 Amendments of Other Agreements............................ 91
SECTION 11.12 Commingling............................................... 91
ARTICLE 12
DEFAULT
SECTION 12.1 Events of Default......................................... 92
SECTION 12.2 Remedies.................................................. 95
SECTION 12.3 Application of Proceeds................................... 97
SECTION 12.4 Power of Attorney......................................... 97
SECTION 12.5 Miscellaneous Provisions Concerning Remedies.............. 98
SECTION 12.6 Trademark License......................................... 99
ARTICLE 13
ASSIGNMENTS
SECTION 13.1 Successors and Assigns; Participations................... 100
SECTION 13.2 Representation of Lenders................................ 102
ARTICLE 14
AGENT
SECTION 14.1 Appointment of Agent..................................... 103
SECTION 14.2 Delegation of Duties..................................... 103
SECTION 14.3 Exculpatory Provisions................................... 103
SECTION 14.4 Reliance by Agent........................................ 104
SECTION 14.5 Notice of Default........................................ 104
SECTION 14.6 Non-Reliance on Agents and Other Lenders................. 104
SECTION 14.7 Indemnification.......................................... 105
SECTION 14.8 Agent in Its Individual Capacity......................... 106
SECTION 14.9 Successor Collateral Agent............................... 106
SECTION 14.10 Notices from Agent to Lenders............................ 107
SECTION 14.11 Declaring Events of Default.............................. 108
SECTION 14.12 Co-Agents................................................ 108
</TABLE>
(iv)
<PAGE> 6
<TABLE>
<S> <C> <C>
ARTICLE 15
MISCELLANEOUS
SECTION 15.1 Notices.................................................. 109
SECTION 15.2 Expenses................................................. 110
SECTION 15.3 Stamp and Other Taxes.................................... 111
SECTION 15.4 Setoff................................................... 111
SECTION 15.5 Consent to Advertising and Publicity..................... 112
SECTION 15.6 Reversal of Payments..................................... 112
SECTION 15.7 Injunctive Relief........................................ 112
SECTION 15.8 Accounting Matters....................................... 112
SECTION 15.9 Amendments............................................... 112
SECTION 15.10 Assignment............................................... 114
SECTION 15.11 Performance of Borrowers' Duties......................... 114
SECTION 15.12 Indemnification.......................................... 114
SECTION 15.13 All Powers Coupled with Interest......................... 115
SECTION 15.14 Survival................................................. 115
SECTION 15.15 Titles and Captions...................................... 115
SECTION 15.16 Severability of Provisions............................... 115
SECTION 15.17 Governing Law............................................ 116
SECTION 15.18 Counterparts............................................. 116
SECTION 15.19 Reproduction of Documents................................ 117
SECTION 15.20 Term of Agreement........................................ 117
SECTION 15.21 Increased Capital........................................ 117
SECTION 15.22 Pro-Rata Participation................................... 117
SECTION 15.23 Effect of Effectiveness of this Agreement................ 118
</TABLE>
(v)
<PAGE> 7
ANNEX A COMMITMENTS
ANNEX B PRICING MATRIX
EXHIBIT A FORM OF AMENDED AND RESTATED PROMISSORY NOTE
EXHIBIT B FORM OF BORROWING BASE CERTIFICATE
EXHIBIT C FORM OF SETTLEMENT REPORT
EXHIBIT D FORM OF ASSIGNMENT AND ACCEPTANCE
EXHIBIT E FORM OF COMPLIANCE CERTIFICATE
EXHIBIT F FORM OF SUBSIDIARY GUARANTY
Schedule 1.1A Permitted Investments
Schedule 1.1B Permitted Liens
Schedule 1.1C Clearing Banks
Schedule 1.1D CPW Acquisition Documents
Schedule 1.1E ITCO Merger Documents
Schedule 6.1(a) Jurisdictions in Which Borrowers are Qualified as
Foreign Corporations
Schedule 6.1(b) Capitalization
Schedule 6.1(c) Subsidiaries; Ownership of Stock
Schedule 6.1(e) Compliance with Laws
Schedule 6.1(f) Business of Borrowers
Schedule 6.1(g) Governmental Approvals
Schedule 6.1(h) Title to Properties
Schedule 6.1(i) Liens
Schedule 6.1(j) Indebtedness and Guaranties
Schedule 6.1(k) Litigation
Schedule 6.1(l) Tax Matters
Schedule 6.1(m) Burdensome Provisions
Schedule 6.1(n) Undisclosed Material Obligations
Schedule 6.1(p) ERISA
Schedule 6.1(t) Location of Offices and Receivables
Schedule 6.1(u) Location of Inventory and Equipment
Schedule 6.1(v) Corporate and Fictitious Names
Schedule 6.1(y) Employee Relations
Schedule 6.1(aa) Trade Names
Schedule 6.1(bb) Bank Accounts
Schedule 6.1(dd) Real Property
Schedule 9.8 Use of Proceeds
Schedule 11.8 Affiliate Transactions
(vi)
<PAGE> 8
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is made as of
May 20, 1998 by and between THE J.H. HEAFNER COMPANY, INC., OLIVER & WINSTON,
INC., THE SPEED MERCHANT, INC., ITCO HOLDING COMPANY, INC., the financial
institutions party to this Agreement from time to time as the Lenders FLEET
CAPITAL CORPORATION and FIRST UNION NATIONAL BANK as Co-Agents, and BANKBOSTON,
N.A., as administrative agent for the Lenders.
PRELIMINARY STATEMENT
The J.H. Heafner Company, Inc., Oliver & Winston, Inc., BankBoston,
N.A., Fleet Capital Corporation and, by assignment from BankBoston N.A. and
Fleet Capital Corporation, First Union National Bank, are parties to a Loan and
Security Agreement dated as of May 7, 1997 (as amended to date, the "Existing
Loan Agreement").
At the request of The J.H. Heafner Company, Inc., the parties to the
Existing Loan Agreement have agreed to increase the amount available to be
borrowed on a revolving credit basis, permit the outstanding Term Loans (under
and as defined in the Existing Loan Agreement) to be prepaid without premium or
penalty, consent to additional acquisitions, adjust the applicable interest
rates, modify certain covenants and make other changes to the Existing Loan
Agreement, and for the convenience of the parties, to effect such increase,
permission, consent, adjustments, modifications and other changes by amending
and restating the Existing Loan Agreement in its entirety as hereinafter set
forth, upon and subject to all of the terms, conditions and provisions hereof.
Accordingly, in consideration of the Existing Loan Agreement, the
financial accommodations outstanding thereunder, the mutual promises hereinafter
set forth and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. For the purposes of this Agreement:
"Account Debtor" means a Person who is obligated on a Receivable.
"Acquire" or "Acquisition", as applied to any Business Unit or
Investment, means the acquisition of such Business Unit or Investment by
purchase, exchange, issuance of stock or other securities, or by merger,
reorganization or any other method.
<PAGE> 9
"Acquired Debt" means Debt of a Person that becomes a Consolidated
Subsidiary after the Effective Date or is otherwise Acquired by a Loan Party
after the Effective Date and Debt secured by property included in a Business
Unit Acquired by a Loan Party after the Effective Date, which Debt was
outstanding immediately prior to such Acquisition but was not incurred or
created in contemplation of such Acquisition.
"Additional Reserves" means reserves other than the Letter of Credit
Reserve, the Rent Reserve or the Dilution Reserve against the Borrowing Base
established by the Agent from time to time in the exercise of its reasonable
credit judgment.
"Affiliate" (and with corollary meaning, "Affiliated") means, with
respect to a Person, (a) any partner, officer, shareholder (if holding more than
ten percent (10%) of the outstanding shares of capital stock of such Person),
member, director, employee, manager or managing agent of such Person, (b) any
spouse, parents, siblings, children or grandchildren of such Person, and (c) any
other Person (other than a Subsidiary) that, (i) directly or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, such given Person, (ii) directly or indirectly beneficially owns
or holds ten percent (10%) or more of any class of voting stock or partnership
or other voting interest of such Person or any Subsidiary of such Person, or
(iii) ten percent (10%) or more of the voting stock or partnership or other
voting interest of which is directly or indirectly beneficially owned or held by
such Person or a Subsidiary of such Person. The term "control" 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 ownership
of voting securities or partnership or other voting interest, by contract or
otherwise. So long as it is not a holder, beneficially or of record, of issued
and outstanding shares of common stock of Heafner or otherwise in control of
Heafner, The 1818 Mezzanine Fund, L.P. will not be deemed to be an Affiliate of
Heafner by reason of its holding the Warrant nor will Wingate Partners II, L.P.
(or any of its Affiliates) be deemed to be an Affiliate of Heafner solely by
reason of its ownership of the Class B Stock issued on or about the Effective
Date.
"Agency Account" means an account of a Loan Party maintained by it
with a Clearing Bank pursuant to an Agency Account Agreement.
"Agency Account Agreement" means an agreement among a Loan Party, the
Agent and a Clearing Bank, in form and substance satisfactory to the Agent,
concerning the collection and transfer of payments which represent the proceeds
of Receivables or of any other Collateral.
"Agent" means BankBoston, N.A., a national banking association, and
any successor agent appointed pursuant to SECTION 14.9 hereof.
"Agent's Office" means the office of the Agent specified in or
determined in accordance with the provisions of SECTION 15.1.
2
<PAGE> 10
"Agreement" means and includes this Amended and Restated Loan and
Security Agreement, including all Schedules, Exhibits and other attachments
hereto, and all amendments, modifications and supplements hereto and thereto and
restatements hereof and thereof.
"Agreement Date" means the date as of which this Agreement is dated.
"Applicable Law" means all applicable provisions of constitutions,
statutes, rules, regulations and orders of all governmental bodies and of all
orders and decrees of all courts and arbitrators, including, without limitation,
Environmental Laws.
"Applicable Margin" means (a) as to Base Rate Loans, 0.25% and (b) as
to Eurodollar Rate Loans, 1.75%, subject to quarterly adjustment as follows:
From and after the delivery of the consolidated quarterly financial statements
of Heafner and its Consolidated Subsidiaries for the Fiscal Quarter ending
December 31, 1998 and the related officer's certificate in accordance with the
respective provisions of SECTIONS 10.1(b) and 10.3, the foregoing percentages
will be adjusted, PROVIDED that no Default or Event of Default has occurred and
is continuing, effective the first day of the calendar month that begins at
least 10 days after delivery of such financial statements for such Fiscal
Quarter or any succeeding Fiscal Quarter, to the percentages set forth in ANNEX
B that correspond to the Funded Debt to EBITDA reflected in such financial
statements and the related certificate.
"Assignment and Acceptance" means an assignment and acceptance in the
form attached hereto as EXHIBIT D assigning all or a portion of a Lender's
interests, rights and obligations under this Agreement pursuant to SECTION 13.1.
"Attributable Debt" in respect of a sale leaseback transaction means,
as at the date of determination, the present value (discounted at the interest
rate borne by the Senior Notes, compounded annually) of the total 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).
"BankBoston" means BankBoston, N.A., a national banking association in
its individual capacity and not as Agent hereunder.
"Base Rate" means at any time an interest rate per annum equal to the
greater of (i) the rate of interest publicly announced from time to time by
BankBoston at its head office at 100 Federal Street, Boston, Massachusetts as
its "base" rate as in effect at such time, and (ii) the Federal Funds Effective
Rate plus 1/2 of 1% per annum (rounded upward, if necessary, to the next 1/8 of
1%).
"Base Rate Loan" means each Borrowing of Base Rate Loans on the same
day, a specified principal amount of Base Rate Loans outstanding, and any
Non-Ratable Loan.
"Benefit Plan" means an "employee pension benefit plan" as defined in
Section 3(3) of ERISA (other than a Multiemployer Plan) in respect of which a
Borrower or any Related Company is, or within the immediately preceding six
years was, an "employer" as defined in Section 3(5) of ERISA, including such
plans as may be established after the Agreement Date.
3
<PAGE> 11
"Borrower" means each of Heafner, Winston, CPW and ITCO.
"Borrowing" means Loans of the same Type hereunder made (or continued
or converted) by the Lenders Ratably on the same date, and, in the case of
Eurodollar Rate Loans, for the same Interest Period.
"Borrowing Base" means at any time an amount equal to the lesser of:
(a) the aggregate Commitments, MINUS the sum of
(i) the Letter of Credit Reserve, PLUS
(ii) the Rent Reserve, PLUS
(iii) any Additional Reserves, and
(b) an amount equal to
(i) 85% (or such lesser percentage as the Agent may in its
reasonable credit judgment determine from time to time) of the face
value of Eligible Receivables due and owing at such time, PLUS
(ii) 65% as to Inventory consisting of tires and 50% as to all
other Inventory (or in either case, such lesser percentage as the
Agent may in its reasonable credit judgment determine from time to
time) of the lesser of cost determined on a FIFO (or
first-in-first-out) accounting basis and fair market value of
applicable Eligible Inventory, at such time, MINUS
(iii) the sum of
(A) the Letter of Credit Reserve, PLUS
(B) the Rent Reserve, PLUS
(C) the Dilution Reserve, PLUS
(D) any Additional Reserves.
"Borrowing Base Certificate" means a certificate in the form attached
hereto as EXHIBIT B or in such other form as the Borrowers and the Agent may
agree.
"Business Day" means any day other than a Saturday, Sunday or other
day on which banks in Atlanta, Georgia are authorized to close and, when used
with respect to Eurodollar Rate Loans, means any such day on which dealings are
also carried on in the applicable interbank Eurodollar market.
"Business Unit" means assets constituting a business, whether all of
the assets of any Person or the assets of a division or operating unit of any
Person.
4
<PAGE> 12
"CPW" means The Speed Merchant, Inc., a California corporation, doing
business as "The Speed Merchant" and as "Competition Parts Warehouse" and a
Wholly Owned Subsidiary of Heafner.
"CPW Acquisition" means the Acquisition by Heafner of all of the
issued and outstanding capital stock of CPW pursuant to the CPW Acquisition
Agreement and the consummation of the other transactions contemplated to occur
on or before the Closing Date pursuant to (and as such term is defined in) the
CPW Acquisition Agreement.
"CPW Acquisition Agreement" means the Stock Purchase Agreement dated
as of March 11, 1998 between Heafner and each stockholder of CPW named as a
"Seller" therein, as amended and in effect on the Agreement Date and as
thereafter amended in accordance with the provisions thereof and hereof.
"CPW Acquisition Documents" means the CPW Acquisition Agreement and
the other instruments, certificates, opinions, agreements and other documents
contemplated thereby to be executed and delivered on or prior to the Closing
Date (as defined in the CPW Acquisition Agreement), including, without being
limited to, the items listed on SCHEDULE 1.1D -- CPW ACQUISITION DOCUMENTS.
"Capital Expenditures" means, with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets (other
than Inventory or assets that constitute a Business Unit) which are not, in
accordance with GAAP, treated as expense items for such Person in the year made
or incurred or as a prepaid expense applicable to a future year or years.
"Capitalized Lease" means a lease that is required to be capitalized
for financial reporting purposes in accordance with GAAP.
"Capitalized Lease Obligation" means Indebtedness represented by
obligations under a Capitalized Lease, and the amount of such Indebtedness shall
be the capitalized amount of such obligations determined in accordance with
GAAP.
"Cash Collateral" means collateral consisting of cash or Cash
Equivalents on which the Agent, for the benefit of itself as Agent and the
Lenders, has a first priority Lien.
"Cash Collateral Account" means a special interest-bearing deposit
account consisting of cash maintained at the principal office of the Agent and
under the sole dominion and control of the Agent, for its benefit and for the
benefit of the Lenders, established pursuant to the provisions of SECTION
4.15(a) for purposes set forth therein.
"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;
5
<PAGE> 13
(b) commercial paper maturing no more than one year from the date
issued and, at the time of acquisition thereof, rated at least A-1 by S&P or at
least P-1 by Moody's;
(c) certificates of deposit or bankers' acceptances issued in Dollar
denominations and maturing within one year from the date of issuance thereof
issued by 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 $100,000,000 and, unless issued by the Agent or a
Lender, not subject to set-off or offset rights in favor of such bank arising
from any banking relationship with such bank; and
(d) repurchase agreements in form and substance and for amounts
satisfactory to the Agent.
"Class B Stock" means Heafner's Class B Common Stock, par value $.01
per share, issued pursuant to the recapitalization of Heafner on the Effective
Date.
"Clearing Bank" means each bank listed on SCHEDULE 1.1C - CLEARING
BANKS and any other banking institution with which an Agency Account has been
established pursuant to an Agency Account Agreement.
"Co-Agent" means each of Fleet and FUNB.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" means and includes all of each Loan Party's right, title
and interest in and to each of the following, wherever located and whether now
or hereafter existing or now owned or hereafter acquired or arising:
(a) (i) all rights to the payment of money or other forms of
consideration of any kind (whether classified under the UCC as accounts,
contract rights, chattel paper, general intangibles or otherwise) including, but
not limited to, accounts receivable, insurance proceeds, letters of credit and
the right to receive payment thereunder, chattel paper, any rights under
contracts not yet earned by performance and not evidenced by an instrument or
chattel paper, notes, drafts, instruments, documents, acceptances and all other
debts, obligations and liabilities in whatever form from any Person, but
excluding tax refunds and insurance proceeds not arising out of the Collateral,
(ii) all guaranties, security and Liens securing payment thereof, (iii) all
goods, whether now owned or hereafter acquired, and whether sold, delivered,
undelivered, in transit or returned, which may be represented by, or the sale or
lease of which may have given rise to, any such right to payment or other debt,
obligation or liability, and (iv) all proceeds of any of the foregoing (the
foregoing, collectively, "Receivables"),
(b) (i) all inventory, (ii) all goods intended for sale or lease or
for display or demonstration, (iii) all work in process, (iv) all raw materials
and other materials and supplies of every nature and description used or which
might be used in connection with the manufacture, packing, shipping,
advertising, selling, leasing or furnishing of goods or services or otherwise
used or consumed in the conduct of business, and (v) all documents of title,
including bills of
6
<PAGE> 14
lading and warehouse receipts, and other documents evidencing and general
intangibles relating to any of the foregoing (the foregoing, collectively,
"Inventory"),
(c) any demand, time, savings, passbook, money market or like
depository account, and all certificates of deposit, maintained with a bank,
savings and loan association, credit union or like organization (other than an
account evidenced by a certificate of deposit that is an instrument under the
UCC) to which proceeds of Collateral are deposited (the foregoing, collectively,
"Deposit Accounts"),
(d) all certificated and uncertificated securities, all security
entitlements, all securities accounts, all commodity contracts and all commodity
accounts (EXCLUDING, HOWEVER, the equity securities of any Subsidiary), to the
extent acquired directly with proceeds of Collateral (the foregoing,
collectively, "Investment Property"),
(e) (i) any investment account maintained by or on behalf of a Loan
Party with the Agent or any Lender or any Affiliate of the Agent or any Lender,
(ii) any agreement governing such account, (iii) all cash proceeds and
Investment Property now or hereafter held by the Agent or any Lender or any
Affiliate of the Agent or any Lender on behalf of a Loan Party in connection
with such investment account and (iv) all documents evidencing and general
intangibles related to the foregoing (the foregoing, collectively, "Investment
Accounts"),
(f) all cash or other property deposited with the Agent or any Lender
or any Affiliate of the Agent or any Lender or which the Agent, for its benefit
and for the benefit of the Lenders, or any Lender or such Affiliate is entitled
to retain or otherwise possess as collateral pursuant to the provisions of this
Agreement or any of the Loan Documents or any agreement relating to any Letter
of Credit, including, without limitation, amounts on deposit in the Cash
Collateral Account,
(g) all goods and other property, whether or not delivered, (i) the
sale or lease of which gives or purports to give rise to any Receivable,
including, but not limited to, all merchandise returned or rejected by or
repossessed from customers, or (ii) securing any Receivable, including, without
limitation, all rights as an unpaid vendor or lienor (including, without
limitation, stoppage in transit, replevin and reclamation) with respect to such
goods and other properties,
(h) all mortgages, deeds to secure debt and deeds of trust on real or
personal property, guaranties, leases, security agreements and other agreements
and property which secure or relate to any Receivable or other Collateral or are
acquired for the purpose of securing and enforcing any item thereof,
(i) all files, correspondence, computer programs, tapes, disks and
related data processing software which contain information identifying or
pertaining to any of the Collateral or any Account Debtor or showing the amounts
thereof or payments thereon or otherwise necessary or helpful in the realization
thereon or the collection thereof,
7
<PAGE> 15
(j) any and all products and cash and non-cash proceeds of the
foregoing (including, but not limited to, any claims to any items referred to in
this definition and any claims against third parties for loss of, damage to or
destruction of any or all of the Collateral or for proceeds payable under or
unearned premiums with respect to policies of insurance) in whatever form,
including, but not limited to, cash, negotiable instruments and other
instruments for the payment of money, chattel paper, security agreements and
other documents.
"Commitment" means, as to each Lender, the amount set forth opposite
such Lender's name on ANNEX A hereto or, from and after the date hereof, as set
forth in the Register, representing such Lender's obligation, upon and subject
to the terms and conditions of this Agreement (including the applicable
provisions of SECTION 13.1), to make its Proportionate Share of Loans and to
purchase participations in Letters of Credit.
"Commitment Percentage" means, as to any Lender at the time of
determination, the percentage obtained by dividing such Lender's Commitment at
such time by the aggregate amount of the Commitments at such time.
"Consolidated Subsidiary" means each Subsidiary of Heafner the
financial results of which, at the time in question, are consolidated with those
of Heafner in accordance with GAAP.
"Contaminant" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, or any constituent of any such substance or waste.
"Controlled Disbursement Account" means one or more accounts
maintained by and in the name of the Borrowers (or any of them) with a
Disbursing Bank for the purposes of disbursing Loan proceeds and amounts
deposited thereto.
"Current Assets" means, with respect to any Person, the aggregate
amount of assets of such Person which should properly be classified as current
assets in accordance with GAAP, after deducting adequate reserves in each case
where a reserve is appropriate in accordance with GAAP.
"Current Liabilities" means, with respect to any Person, the aggregate
amount of all Liabilities of such Person which should properly be classified as
current liabilities in accordance with GAAP.
"Debt" means
(a) Indebtedness for money borrowed,
(b) Indebtedness, whether or not in any such case the same was for
money borrowed,
8
<PAGE> 16
(i) represented by notes payable, drafts accepted and
reimbursement obligations under letters of credit, including
Reimbursement Obligations, and similar instruments that represent
extensions of credit,
(ii) constituting obligations evidenced by bonds, debentures,
notes or similar instruments, or
(iii) upon which interest charges are customarily paid or that
was issued or assumed as full or partial payment for property (other
than trade credit that is incurred in the ordinary course of
business),
(c) Capitalized Lease Obligations, and
(d) Indebtedness that is such by virtue of CLAUSE (c) of the
definition thereof, but only to the extent that the obligations Guaranteed are
Debt.
The KS Preferred is not Debt for purposes of this Agreement or the other Loan
Documents.
"Default" means any of the events specified in SECTION 12.1 which with
the passage of time or giving of notice or both would constitute an Event of
Default.
"Default Margin" means 2.0%.
"Deposit Account" has the meaning set forth in the definition
"Collateral."
"Dilution Reserve" means an amount equal to the EXCESS of (i) non-cash
reductions to the Loan Parties' Receivables (on a combined basis) during a
12-month period prior to the date of determination as established by the Loan
Parties' records or by a field examination conducted by the Agent's or a
Co-Agent's employees or representatives, expressed as a percentage of the Loan
Parties' Receivables (on a combined basis) outstanding during the same period
OVER (ii) 5%, MULTIPLIED by an amount equal to Eligible Receivables as of the
date of determination.
"Disbursing Bank" means any commercial bank with which a Controlled
Disbursement Account is maintained after the Effective Date.
"Dollar" and "$" means freely transferable United States dollars.
"EBIT" for any specified accounting period means Net Income of Heafner
and its Consolidated Subsidiaries on a consolidated basis for such period before
provision for net interest expense and income taxes.
"EBITDA" for any specified accounting period means EBIT for such
period PLUS depreciation and amortization expense deducted in computing EBIT,
with any part of such accounting period that occurred prior to the Effective
Date being adjusted on a pro forma basis in such manner as may be acceptable to
the Agent, for the effect of events occurring on or after the Effective Date,
including the CPW Acquisition, the ITCO Merger, the issuance of the Senior
9
<PAGE> 17
Notes and the Class B Stock, the repayment of Debt (including the Acquisition
Sub Debt, as defined in the Existing Loan Agreement), and any other event.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
in effect from time to time.
"ERISA Event" means (a) a "Reportable Event" as defined in Section
4043(c) of ERISA, but excluding any such event as to which the provision for 30
days' notice to the PBGC is waived under applicable regulations, (b) the filing
of a notice of intent to terminate a Benefit Plan subject to Title IV of ERISA
under a distress termination under Section 4041(c) of ERISA or the treatment of
an amendment to such a Benefit Plan as a termination under Section 4041(c) of
ERISA, (c) the institution of proceedings by the PBGC to terminate a Benefit
Plan subject to Title IV of ERISA or the appointment of a trustee to administer
any such Benefit Plan or an event or condition that might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Benefit Plan subject to Section
4042, (d) the imposition of any liability under Title IV of ERISA other than for
PBGC premiums due but not yet payable, (e) the filing of an application for a
minimum funding waiver under Section 412 of the Code, (f) a withdrawal by a
Borrower or any Related Company from a Benefit Plan subject to Section 4063 of
ERISA during a plan year in which it was a "substantial employer" as defined in
Section 4001(a)(2) of ERISA), (g) a Benefit Plan intending to qualify under
Section 401(a) of the Code losing such qualified status (other than because of a
Remediable Defect), (h) the failure to make a material required contribution to
a Benefit Plan, (i) a Borrower or any Related Company being in "default" (as
defined in Section 4219(c)(5) of ERISA) with respect to payments to a
Multiemployer Plan because of its complete or partial withdrawal (as described
in Section 4203 or 4205 of ERISA) from such Multiemployer or Plan, or (j) the
occurrence of a material non-exempt prohibited transaction within the meaning of
Section 4975 of the Code or Section 406 of ERISA with respect to any Benefit
Plan that is not cured within 60 days after a Borrower has knowledge thereof.
"Effective Date" means the later of:
(a) the Agreement Date, and
(b) the first date on which all of the conditions set forth in ARTICLE
5 shall have been fulfilled.
"Effective Interest Rate" means each rate of interest per annum on the
Loans in effect from time to time pursuant to the provisions of SECTIONS 4.1(a),
(b) AND (d).
"Eligible Assignee" means (i) a commercial bank organized under the
laws of the United States, or any State thereof, having total assets in excess
of $10,000,000,000; (ii) any commercial finance or asset based lending company
that is an Affiliate of a commercial bank having total assets in excess of
$10,000,000,000; and (iii) any Lender listed on the signature page of this
Agreement; PROVIDED that the representation contained in SECTION 13.2 hereof
shall be applicable with respect to any such Person.
10
<PAGE> 18
"Eligible Inventory" means items of Inventory of a Loan Party held for
sale in the ordinary course of the business of such Loan Party (but not
including packaging or shipping materials or maintenance supplies) that meet all
of the following requirements: (a) such Inventory is owned by a Loan Party, is
subject to the Security Interest, which is perfected as to such Inventory, and
is subject to no other Lien whatsoever other than a Permitted Lien; (b) such
Inventory consists of raw materials or finished goods and does not consist of
work-in-process, supplies or consigned goods; (c) such Inventory is in good
condition and meets all standards applicable to such goods, their use or sale
imposed by any governmental agency, or department or division thereof, having
regulatory authority over such matters; (d) such Inventory is currently either
usable or saleable, at prices approximating at least the cost thereof, in the
normal course of the applicable Loan Party's business; (e) such Inventory is not
obsolete or returned or repossessed or used goods taken in trade; (f) such
Inventory is located within the United States at one of the Permitted Inventory
Locations; (g) such Inventory is in the possession and control of a Loan Party
and not any third party and if located in a warehouse or other facility leased
by a Loan Party, the lessor has delivered to the Agent a waiver and consent in
form and substance satisfactory to the Agent or such facility is reflected in
the Rent Reserve; and (h) such Inventory is not determined by the Agent, in the
exercise of its reasonable credit judgment, to be ineligible for any reason.
"Eligible Receivable" means the unpaid portion of a Receivable payable
in Dollars to a Loan Party net of any returns, discounts, credits, or other
allowances or deductions agreed to by a Loan Party and net of any amounts owed
by a Loan Party to the Account Debtor on such Receivable, which Receivable meets
all of the following requirements: (a) such Receivable is owned by a Loan Party
and represents a complete bona fide transaction which requires no further act
under any circumstances on the part of any Loan Party to make such Receivable
payable by the Account Debtor; (b) such Receivable is not past due more than 60
days after its due date, which due date shall not be later than 90 days after
the invoice date; (c) such Receivable does not arise out of any transaction with
any Subsidiary, Affiliate, creditor, lessor or supplier of a Loan Party; (d)
such Receivable is not owing by an Account Debtor more than 15% of whose
then-existing accounts owing to the Loan Parties do not meet the requirements
set forth in CLAUSE (B) above; (e) if the Account Debtor with respect thereto is
located outside of the United States of America, Canada or Puerto Rico, the
goods which gave rise to such Receivable were shipped after receipt by the
applicable Loan Party from the Account Debtor of an irrevocable letter of credit
that has been confirmed by a financial institution acceptable to the Agent and
is in form and substance acceptable to the Agent, payable in the full face
amount of the face value of the Receivable in Dollars at a place of payment
located within the United States and has been duly assigned to the Agent, except
that up to $1,000,000 of such Receivables outstanding at any time that are
otherwise Eligible Receivables, may be included in Eligible Receivables without
such letter of credit support; (f) the Account Debtor with respect to such
Receivable is not located in a state which imposes conditions on the
enforceability of Receivables with which the applicable Loan Party has not
complied; (g) such Receivable is not subject to the Assignment of Claims Act of
1940, as amended from time to time, or any applicable law now or hereafter
existing similar in effect thereto, as determined in the sole discretion of the
Agent, or to any provision prohibiting its assignment or requiring notice of or
consent to such assignment; (h) the Loan Party that is the obligee thereof is
not in breach of any
11
<PAGE> 19
express or implied representation or warranty with respect to the goods the sale
of which gave rise to such Receivable; (i) the Account Debtor with respect to
such Receivable is not insolvent or the subject of any bankruptcy or insolvency
proceedings of any kind or of any other proceeding or action, threatened or
pending, which might, in the Agent's judgment, have a Materially Adverse Effect
on such Account Debtor; (j) the goods the sale of which gave rise to such
Receivable were shipped or delivered to the Account Debtor on an absolute sale
basis and not on a bill and hold sale basis, a consignment sale basis, a
guaranteed sale basis, a sale or return basis or on the basis of any other
similar understanding, and such goods have not been returned or rejected; (k)
such Receivable is not owing by an Account Debtor or a group of affiliated
Account Debtors whose then-existing accounts owing to the Loan Parties exceed in
face amount 20% of the Loan Parties' total Eligible Receivables; (l) such
Receivable is evidenced by an invoice or other documentation in form acceptable
to the Agent containing only terms normally offered by the applicable Loan
Party, and dated no later than the date of shipment; (m) such Receivable is a
valid, legally enforceable obligation of the Account Debtor with respect thereto
and is not subject to any present, or contingent (and no facts exist which are
the basis for any future), offset, deduction or counterclaim, dispute or other
defense on the part of such Account Debtor; (n) such Receivable is not evidenced
by chattel paper or an instrument of any kind; (o) other than mechanical
services performed by Winston or CPW, such Receivable does not arise from the
performance of services, including services under or related to any warranty
obligation of a Loan Party or out of service charges by a Loan Party or other
fees for the time value of money; (p) such Receivable is subject to the Security
Interest, which is perfected as to such Receivable, and is subject to no other
Lien whatsoever other than a Permitted Lien and the goods giving rise to such
Receivable were not, at the time of the sale thereof, subject to any Lien other
than a Permitted Lien; and (q) such Receivable is not determined by the Agent,
in the exercise of its reasonable credit judgment, to be ineligible for any
reason.
"Environmental Laws" means all federal, state, local and foreign laws
now or hereafter in effect relating to pollution or protection of the
environment, including laws relating to emissions, discharges, Releases or
threatened Releases of pollutants, Contaminants, chemicals, or industrial, toxic
or hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water, or land), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, removal, transport, or handling of pollutants, Contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes, and any and
all regulations, notices or demand letters issued, entered, promulgated or
approved thereunder; such laws and regulations include but are not limited to
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., as
amended; the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq., as amended; the Toxic Substances Control
Act, 15 U.S.C. Section 2601 et seq., as amended; the Clean Air Act, 46 U.S.C.
Section 7401 et seq., as amended; and state and federal lien and environmental
cleanup programs.
"Environmental Lien" means a Lien in favor of any governmental entity
for (a) any liability under Environmental Laws or (b) damages arising from, or
costs incurred by such governmental entity in response to, a Release or
threatened Release of Contaminant into the environment.
12
<PAGE> 20
"Eurodollar Rate" means, with respect to any Eurodollar Rate Loan for
the Interest Period applicable thereto, a simple per annum interest rate
determined pursuant to the following formula:
Eurodollar Rate = Interbank Offered Rate
------------------------------------------------
1 - Eurodollar Reserve Percentage
The Eurodollar Rate shall be adjusted automatically as of the effective date of
any change in the Eurodollar Reserve Percentage.
"Eurodollar Rate Loan" means any Loan (or Loans made (or converted or
continued) by the Lenders Ratably on the same date for the same Interest
Period), bearing interest determined with reference to the Eurodollar Rate.
"Eurodollar Reserve Percentage" means that percentage (expressed as a
decimal) which is in effect from time to time under Regulation D of the Board of
Governors of the Federal Reserve System, as such regulation may be amended from
time to time, or any successor regulation, as the maximum reserve requirement
(including, without limitation, any basic, supplemental, emergency, special, or
marginal reserves) applicable with respect to Eurocurrency liabilities as that
term is defined in Regulation D (or against any other category of liabilities
that includes deposits by reference to which the interest rate of Eurodollar
Rate Loans is determined), whether or not any Lender has any Eurocurrency
liabilities subject to such reserve requirement at that time. Eurodollar Rate
Loans shall be deemed to constitute Eurocurrency liabilities and as such shall
be deemed subject to reserve requirements without benefits of credits for
proration, exceptions or offsets that may be available from time to time to any
Lender.
"Existing Loan Agreement" has the meaning specified in the Preliminary
Statement.
"Event of Default" means any of the events specified in SECTION 12.1,
PROVIDED that any requirement for notice or lapse of time or any other condition
has been satisfied.
"FUNB" means First Union National Bank, a national banking
association.
"Federal Funds Effective Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to 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 for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by BankBoston from three federal funds brokers of
recognized standing selected by BankBoston.
"Financed Capex" means Capital Expenditures funded with the proceeds
of Debt (excluding Loans) or represented by Capitalized Lease Obligations.
13
<PAGE> 21
"Financial Officer" means the chief financial officer, Treasurer or
Controller of Heafner.
"Financing Statements" means any and all Uniform Commercial Code
financing statements, in form and substance satisfactory to the Agent, executed
and delivered by a Loan Party to the Agent or assigned to the Agent by
BankBoston, naming the Agent, for the benefit of the Lenders, as secured party
or assignee and the applicable Loan Party as debtor, in connection with this
Agreement.
"Fiscal Quarter" means each three-month accounting period of Heafner
ending March 31, June 30, September 30 and December 31 of each Fiscal Year.
"Fiscal Year" means the fiscal year of Heafner commencing on January 1
of each year and ending on December 31 of the same year.
"Fleet" means Fleet Capital Corporation, a Rhode Island corporation.
"Fleet Financing" means the Loan and Security Agreement dated as of
August 4, 1993, as amended and in effect on the Effective Date, to which Fleet
(f/k/a Barclays Business Credit, Inc.) and ITCO (f/k/a ITCO Tire Company) are
parties, and the transactions contemplated thereby.
"Funded Debt" means the outstanding principal amount of all Debt of
Heafner and its Consolidated Subsidiaries on a consolidated basis (other than
the Funded Debt Exclusions).
"Funded Debt to EBITDA" means for any specified accounting period, the
ratio of Funded Debt as of the last day of such period to EBITDA for such
period. For purposes of computing such ratio, Loans shall be included in "Funded
Debt" in an amount equal to the average daily outstanding principal amount
thereof during the period of four consecutive Fiscal Quarters preceding the date
of determination (or, if a shorter period, during the period from the Effective
Date through the last day of the Fiscal Quarter ended on or immediately prior to
the date of determination).
"GAAP" means generally accepted accounting principles consistently
applied and maintained throughout the period indicated and, when used with
reference to a Borrower or any Subsidiary, consistent with the prior financial
practice of Heafner, as reflected on the financial statements referred to in
SECTION 6.1(n); PROVIDED, HOWEVER, that, in the event that changes shall be
mandated by the Financial Accounting Standards Board or any similar accounting
authority of comparable standing, or shall be recommended by Heafner's
independent public accountants, such changes shall be included in GAAP as
applicable to Heafner and its Consolidated Subsidiaries only from and after such
date as the Borrowers, the Required Lenders, the Agent and the Co-Agents shall
have amended this Agreement to the extent necessary to reflect any such changes
in the financial covenants set forth in ARTICLE 11.
"Governmental Approvals" means all authorizations, consents,
approvals, licenses and exemptions of, registrations and filings with, and
reports to, all governmental bodies, whether federal, state, local or foreign
national or provincial and all agencies thereof.
14
<PAGE> 22
"Guaranty", "Guaranteed" or to "Guarantee" as applied to any
obligation of another Person shall mean and include
(a) a guaranty (other than by endorsement of negotiable instruments
for collection in the ordinary course of business), directly or indirectly, in
any manner, of any part or all of such obligation of such other Person, and
(b) an agreement, direct or indirect, contingent or otherwise, and
whether or not constituting a guaranty, the practical effect of which is to
assure the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation of such other Person
whether by
(i) the purchase of securities or obligations,
(ii) the purchase, sale or lease (as lessee or lessor) of
property or the purchase or sale of services primarily for the
purpose of enabling the obligor with respect to such obligation to
make any payment or performance (or payment of damages in the event
of nonperformance) of or on account of any part or all of such
obligation, or to assure the owner of such obligation against loss,
(iii) the supplying of funds to or in any other manner
investing in the obligor with respect to such obligation,
(iv) repayment of amounts drawn down by beneficiaries of
letters of credit, or
(v) the supplying of funds to or investing in a Person on
account of all or any part of such Person's obligation under a
Guaranty of any obligation or indemnifying or holding harmless, in
any way, such Person against any part or all of such obligation.
"Heafner" means The J.H. Heafner Company, Inc., a North Carolina
corporation.
"ITCO" means ITCO Holding Company, Inc., a North Carolina corporation
and a Wholly Owned Subsidiary of Heafner.
"ITCO Logistics" means ITCO Logistics Corporation, a Delaware
corporation, the surviving corporation of the ITCO Merger and a Wholly Owned
Subsidiary of Heafner.
"ITCO Merger" means the merger of ITCO Merger Corporation, a Delaware
corporation and a Wholly Owned Subsidiary of Heafner formed for the purpose of
effecting such merger, with and into ITCO Logistics Corporation, a Delaware
corporation, with the result that upon completion Heafner owns of all of the
issued and outstanding capital stock of ITCO Logistics, and the consummation of
the other transactions contemplated to occur at or before the Effective Time
pursuant to (and as such term is defined in) the ITCO Merger Agreement.
15
<PAGE> 23
"ITCO Merger Agreement" means the Agreement and Plan of Merger dated
as of March 10, 1998 among Heafner, ITCO Merger Corporation, a Delaware
corporation, ITCO Logistics Corporation, a Delaware corporation, and the
stockholders of said ITCO Logistics Corporation, as amended and in effect on the
Agreement Date and as thereafter amended in accordance with the provisions
thereof and hereof.
"ITCO Merger Documents" means the ITCO Merger Agreement and the other
instruments, certificates, opinions, agreements and other documents contemplated
thereby to be executed and delivered at or prior to the Effective Time (as
defined in the ITCO Merger Agreement), including, without being limited to, the
items listed on SCHEDULE 1.1E -- ITCO MERGER DOCUMENTS.
"Indebtedness" of any Person means, without duplication, all
Liabilities of such Person, and to the extent not otherwise included in
Liabilities, the following:
(a) all obligations for money borrowed or for the deferred purchase
price of property or services or in respect of drafts accepted or similar
instruments or reimbursement obligations under letters of credit,
(b) all obligations (including, during the noncancellable term of any
lease in the nature of a title retention agreement, all future payment
obligations under such lease discounted to their present value in accordance
with GAAP) secured by any Lien to which any property or asset owned or held by
such Person is subject, whether or not the obligation secured thereby shall have
been assumed by such Person,
(c) all obligations of other Persons which such Person has Guaranteed,
including, but not limited to, all obligations of such Person consisting of
recourse liability with respect to accounts receivable sold or otherwise
disposed of by such Person,
(d) all obligations of such Person in respect of Interest Rate
Protection Agreements, and
(e) in the case of the Borrowers (without duplication) all obligations
under the Loans and the Reimbursement Obligations.
"Initial Notice of Borrowing" means the Notice of Borrowing given by
the Borrowers with respect to the Initial Loans which shall also specify the
method of disbursement.
"Initial Loans" means the Loans made to the Borrowers on the Effective
Date pursuant to the Initial Notice of Borrowing.
"Interbank Offered Rate" for an Interest Period means the rate per
annum (rounded upwards, if necessary to the nearest 1/100 of 1%) appearing on
Telerate Page 3750 (or any successor page) as the London interbank offered rate
for deposits in Dollars at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period for a term comparable to
such Interest Period. If for any reason such rate is not available, the term
"Interbank Offered Rate" shall mean, for any Eurodollar Rate Loan for any
Interest Period
16
<PAGE> 24
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on the Reuters Screen LIBO Page as the London interbank
offered rate for deposits in Dollars at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period; PROVIDED, HOWEVER, that if more than one
rate is specified on the Reuters Screen LIBO Page, the applicable rate shall be
the arithmetic mean of all such rates.
"Interest Payment Date" means the first day of each calendar month
commencing June 1, 1998.
"Interest Period" means with respect to each Eurodollar Rate Loan, the
period commencing on the date of the making or continuation of or conversion to
such Eurodollar Rate Loan and ending one, two, three, six or, if available in
the Agent's reasonable judgment, twelve months thereafter, as the Borrowers may
elect in the applicable Notice of Borrowing or Notice of Conversion or
Continuation; PROVIDED, that:
(i) any Interest Period that would otherwise end on a day that
is not a Business Day shall, subject to the provisions of CLAUSE
(iii) below, be extended to the next succeeding Business Day unless
such Business Day falls in the next calendar month, in which case
such Interest Period shall end on the immediately preceding Business
Day;
(ii) 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 CLAUSE (iii) below, end on the last
Business Day of a calendar month;
(iii) any Interest Period that would otherwise end after the
Termination Date shall end on the Termination Date; and
(iv) notwithstanding CLAUSE (iii) above, no Interest Period
shall have a duration of less than one month and if any applicable
Interest Period would be for a shorter period, such Interest Period
shall not be available hereunder.
"Interest Rate Protection Agreement" shall mean an interest rate swap,
cap or collar agreement or similar arrangement between any Person and a
financial institution providing for the transfer or mitigation of interest risks
either generally or under specific contingencies.
"Inventory" has the meaning set forth in the definition "Collateral."
"Investment" means, with respect to any Person:
(a) the acquisition or ownership by such Person of any share of
capital stock, evidence of Indebtedness or other security issued by any other
Person,
17
<PAGE> 25
(b) any loan, advance or extension of credit to, or contribution to
the capital of, any other Person, excluding advances to employees in the
ordinary course of business for business expenses,
(c) any Guaranty of the obligations of any other Person,
(d) any other investment (other than the Acquisition of a Business
Unit) in any other Person, and
(e) any commitment or option to make any of the investments listed in
CLAUSES (a) through (d) above if, in the case of an option, the consideration
therefor exceeds $100.
"Investment Account" has the meaning set forth in the definition
"Collateral."
"Investment Property" has the meaning set forth in the definition
"Collateral."
"IRS" means the Internal Revenue Service.
"KS Preferred" means up to 7,000 shares of Series A Cumulative
Redeemable Preferred Stock and up to 4,500 shares of Series B Cumulative
Redeemable Preferred Stock of Heafner issued by Heafner and sold to The
Kelly-Springfield Tire Company, a division of The Goodyear Tire and Rubber
Company, pursuant to the KS Preferred Stock Purchase Agreement.
"KS Preferred Stock Purchase Agreement" means the Securities Purchase
Agreement dated May 7, 1997 between Heafner and The Kelly-Springfield Tire
Company, a division of The Goodyear Tire and Rubber Company, as modified in
accordance with the terms of the Existing Loan Agreement and this Agreement.
"Lender" means at any time any financial institution party to this
agreement at such time, including any such Person becoming a party hereto
pursuant to the provisions of ARTICLE 13 and including BankBoston as an issuer
of Letters of Credit and as lender of Non-Ratable Loans.
"Letter of Credit" means (i) each letter of credit issued by
BankBoston for the account of Heafner or Winston under the Existing Loan
Agreement and outstanding on the Effective Date and (ii) any Letter of Credit
issued by BankBoston for the account of a Borrower or any Subsidiary pursuant to
ARTICLE 3.
"Letter of Credit Amount" means, at any time with respect to any
Letter of Credit, the aggregate maximum amount at any time available for drawing
under such Letter of Credit at such time (assuming all conditions to drawing are
satisfied).
"Letter of Credit Availability" means, as of the date of
determination, the aggregate face amount of Letter of Credit Obligations
available to be incurred hereunder at the time of determination in accordance
with SECTION 3.2, which shall be an amount equal to the lesser of (i) the Letter
of Credit Facility MINUS the Letter of Credit Obligations and (ii) the Loan
Availability, on such date.
18
<PAGE> 26
"Letter of Credit Facility" means a subfacility under the Commitments,
providing for the issuance of Letters of Credit as described in ARTICLE 3, up to
an aggregate amount of Letter of Credit Obligations at any one time outstanding
not to exceed $10,000,000.
"Letter of Credit Obligations" means, at any time, the sum of (a) the
Reimbursement Obligations at such time, PLUS (b) the aggregate Letter of Credit
Amount of Letters of Credit outstanding at such time, PLUS (c) the aggregate
Letter of Credit Amount of Letters of Credit the issuance of which has at such
time been authorized by the Agent and BankBoston pursuant to SECTION 3.4(b) but
that have not yet been issued, in each case as determined by the Agent.
"Letter of Credit Reserve" means, at any time, the aggregate Letter of
Credit Obligations at such time, other than Letter of Credit Obligations that
are fully secured by Cash Collateral.
"Liabilities" of any Person means all items (except for items of
capital stock, including specifically as to Heafner the KS Preferred, additional
paid-in capital or retained earnings, or of general contingency or deferred tax
reserves) which in accordance with GAAP would be included in determining total
liabilities as shown on the liability side of a balance sheet of such Person as
at the date as of which Liabilities are to be determined.
"Lien" as applied to the property of any Person means:
(a) any mortgage, deed to secure debt, deed of trust, lien, pledge,
charge, lease constituting a Capitalized Lease Obligation, conditional sale or
other title retention agreement, or other security interest, security title or
encumbrance of any kind in respect of any property of such Person, or upon the
income or profits therefrom,
(b) any arrangement, express or implied, under which any property of
such Person is transferred, sequestered or otherwise identified for the purpose
of subjecting the same to the payment of Indebtedness or performance of any
other obligation in priority to the payment of the general, unsecured creditors
of such Person,
(c) any Indebtedness which is unpaid more than 30 days after the same
shall have become due and payable and which if unpaid might by law (including,
but not limited to, bankruptcy and insolvency laws), or otherwise, be given any
priority whatsoever over the claims of general unsecured creditors of such
Person, except to the extent being disputed or contested by such Person by
appropriate proceedings and in respect of which any reserve required by GAAP has
been appropriately established and maintained,
(d) the filing of, or any agreement to give, any financing statement
under the UCC or its equivalent in any jurisdiction (excluding informational
financing statements relating to property leased by a Borrower or any
Subsidiary), and
(e) in the case of Real Estate, reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances.
19
<PAGE> 27
"Loan" means (i) each Revolving Credit Loan under and as defined in
the Existing Loan Agreement outstanding on the Effective Date, (ii) each advance
made to the Borrowers by a Lender pursuant to SECTION 2.1, including any
Non-Ratable Loan, and (iii) a specified principal amount of such advances
outstanding hereunder.
"Loan Account" and "Loan Accounts" have the meanings specified in
SECTION 4.5.
"Loan Availability" means, as of the date of determination, the
aggregate principal amount of Loans available to be borrowed by the Borrowers
hereunder at the time in accordance with SECTION 2.1, which shall be an amount
equal to the remainder derived by subtracting the aggregate principal amount of
Loans outstanding on such date from the Borrowing Base on such date.
"Loan Documents" means collectively this Agreement, the Notes, the
Security Documents and each other instrument, agreement or document executed by
a Loan Party or any Affiliate or Subsidiary of a Loan Party in connection with
this Agreement whether prior to, on or after the Effective Date and each other
instrument, agreement or document referred to herein or contemplated hereby.
"Loan Party" means any Borrower or Subsidiary Guarantor.
"Lockbox" means each U. S. Post Office Box specified in a Lockbox
Agreement.
"Lockbox Agreement" means each agreement between a Borrower and a
Clearing Bank concerning the establishment of a Lockbox for the collection of
Receivables.
"Margin Stock" means margin stock as defined in Section 221.1(h) of
Regulation U, as the same may be amended or supplemented from time to time.
"Materially Adverse Effect" means any act, omission, situation,
circumstance, event or undertaking which would, singly or in any combination
with one or more other acts, omissions, situations, circumstances, events or
undertakings, have, or reasonably be expected by the Agent to have, a materially
adverse effect upon (a) the business, assets, properties, liabilities, condition
(financial or otherwise), results of operations or business prospects of Heafner
and its Consolidated Subsidiaries taken as a whole, (b) the value of the whole
or any material part of the Collateral, (c) the Security Interest or the
priority of the Security Interest, (d) the ability of Heafner and its
Consolidated Subsidiaries taken as a whole to perform any material obligation
under this Agreement or any other Loan Document, or (e) other than solely and
directly by reason of any release given or other action taken by the Agent or
any Lender, the legality, validity, binding effect, enforceability or
admissibility into evidence of any Loan Document or the ability of the Agent or
the Lenders to enforce in any material respect any rights or remedies under or
in connection with any Loan Document.
"Minimum Commitment" means $10,000,000.
"Moody's" means Moody's Investors Service, Inc.
20
<PAGE> 28
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which a Borrower or a Related Company is required
to contribute or has contributed within the immediately preceding six years.
"Net Amount" means, with respect to any Investments made by any
Person, the gross amount of all such Investments MINUS the aggregate amount of
all cash received and the fair value, at the time of receipt by such Person, of
all property received as payments of principal or premiums, returns of capital,
liquidating dividends or distributions, proceeds of sale or other dispositions
with respect to such Investments.
"Net Income" or "Net Loss" means, as applied to any Person for any
accounting period, the net income or net loss, as the case may be, of such
Person for the period in question after giving effect to deduction of or
provision for all operating expenses, all taxes and reserves (including reserves
for deferred taxes) and all other proper deductions, all determined in
accordance with GAAP, PROVIDED that there shall be excluded:
(a) the net income or net loss of any Person accrued prior to the date
it becomes a Subsidiary of, or is merged into or consolidated with, the Person
whose Net Income is being determined or a Subsidiary of such Person,
(b) the net income or net loss of any Person in which the Person whose
Net Income is being determined or any Subsidiary of such Person has an ownership
interest, except, in the case of net income, to the extent that any such income
has actually been received by such Person or such Subsidiary in the form of cash
dividends or similar distributions,
(c) any restoration of any contingency reserve, except to the extent
that provision for such reserve was made out of income during such period,
(d) any net gains or losses on the sale or other disposition, not in
the ordinary course of business, of Investments, Business Units and other
capital assets, provided that there shall also be excluded any related charges
for taxes thereon,
(e) any net gain arising from the collection of the proceeds of any
insurance policy,
(f) any write-up of any asset, and
(g) any other extraordinary item.
"Net Outstandings" of any Lender means, at any time, the sum of (a)
all amounts paid by such Lender (other than pursuant to SECTION 14.7) to the
Agent in respect of Loans by such Lender, MINUS (b) all amounts received by the
Agent and paid by the Agent to such Lender for application, pursuant to this
Agreement, to reduction of the outstanding principal balance of the outstanding
Loans of such Lender.
"Net Worth" means, with respect to any Person, such Person's total
shareholder's equity (including specifically as to Heafner the KS Preferred and
including any other capital
21
<PAGE> 29
stock, additional paid-in capital and retained earnings, after deducting
treasury stock) which would appear as such on a balance sheet of such Person
prepared in accordance with GAAP.
"Non-Ratable Loan" means a Base Rate Loan made by BankBoston in
accordance with the provisions of SECTION 4.8(c).
"Note" means each Amended and Restated Promissory Note made by the
Borrowers payable to the order of a Lender evidencing the obligation of the
Borrowers to pay the aggregate unpaid principal amount of the Loans made to it
by such Lender (and any promissory note or notes that may be issued from time to
time in substitution, renewal, extension, replacement or exchange therefor
whether payable to such Lender or to a different Lender in connection with a
Person becoming a Lender after the Effective Date or otherwise) substantially in
the form of EXHIBIT A hereto, with all blanks properly completed, either as
originally executed or as the same may from time to time be supplemented,
modified, amended, renewed, extended or refinanced.
"Notice of Borrowing" means a written notice, or telephonic notice
followed by a confirming same-day written notice, requesting a Borrowing of Base
Rate Loans or Eurodollar Rate Loans, which is given by telex or facsimile
transmission in accordance with the applicable provisions of SECTION 2.2 and
which specifies (i) the amount of the requested Borrowing, (ii) the date of the
requested Borrowing, and (iii) if the requested Borrowing is of Eurodollar Rate
Loans, the duration of the applicable Interest Period.
"Notice of Conversion or Continuation" has the meaning specified in
SECTION 4.13.
"Overadvance" means at any time the amount by which the aggregate
outstanding principal amount of Loans exceeds the Borrowing Base.
"Overadvance Condition" means and is deemed to exist any time the
aggregate outstanding principal amount of Loans exceeds the Borrowing Base.
"Overadvance Loan" means a Base Rate Loan made at a time an
Overadvance Condition exists or which results in an Overadvance Condition.
"PBGC" means the Pension Benefit Guaranty Corporation and any
successor agency.
"Permitted Inventory Locations" means each location listed on SCHEDULE
6.1(u) and from time to time each other location within the continental United
States which Heafner has notified the Agent is a location at which Inventory of
a Loan Party is maintained together with such evidence as the Agent may
reasonably require that the Inventory at such location is subject to the
Security Interest and to no other Lien other than Permitted Liens.
"Permitted Investments" means
(a) Investments of Heafner and its Consolidated Subsidiaries in:
22
<PAGE> 30
(i) cash and Cash Equivalents in an aggregate amount not greater than
$5,000,000,
(ii) sales of inventory on credit in the ordinary course of business,
(iii) shares of capital stock, evidence of Debt or other security
acquired in consideration for or as evidence of past-due or restructured
Receivables in an aggregate face amount of such Receivables as to Heafner
and its Subsidiaries at any time not to exceed $2,500,000,
(iv) any Loan Party, and
(v) those items described on SCHEDULE 1.1A - PERMITTED INVESTMENTS;
and
(b) Investments of any Loan Party in any Subsidiary that is not a Loan
Party to the extent in existence on the Effective Date, as such Investments may
increase by reason of the profitable operations of such Subsidiary.
"Permitted Liens" means:
(a) Liens securing taxes, assessments and other governmental charges
or levies (excluding any Lien imposed pursuant to any of the provisions of
ERISA) or the claims of materialmen, mechanics, carriers, warehousemen or
landlords for labor, materials, supplies or rentals incurred in the ordinary
course of business, but (i) in all cases only if payment shall not at the time
be required to be made in accordance with SECTION 9.6, and (ii) in the case of
warehousemen or landlords, only if such liens are junior to the Security
Interest in any of the Collateral or the relevant premises are reflected in the
Rent Reserve,
(b) Liens consisting of deposits or pledges made in the ordinary
course of business in connection with, or to secure payment of, obligations
under workers' compensation, unemployment insurance or similar legislation or
under payment or performance bonds,
(c) Liens constituting encumbrances in the nature of zoning
restrictions, easements, and rights or restrictions of record on the use of real
property, which do not materially detract from the value of such property or
impair the use thereof in the business of the applicable Borrower,
(d) Liens shown on SCHEDULE 1.1B - PERMITTED LIENS and any additional
Liens exclusively affecting tire Inventory of a Loan Party, for the benefit of
the vendor of such Inventory, as security for the payment or repayment of
amounts (including trade accounts) owing by such Loan Party to such vendor),
(e) Liens of the Agent, for the benefit of the Lenders, arising under
this Agreement and the other Loan Documents,
(f) Liens on Margin Stock,
23
<PAGE> 31
(g) Liens in existence immediately prior to the Effective Date that
are satisfied in full and released on the Effective Date or promptly thereafter
by application of the proceeds of the Loans or cash on hand,
(h) the Lien of FUNB as Trustee under the Senior Note Indenture
pursuant to Section 7.07 thereof on certain property in its possession as
security for payment of fees and other amounts owing to it in its capacity as
such Trustee, and
(i) additional Liens in accordance with the provisions of SECTION
11.9.
"Person" means an individual, corporation, limited liability company,
partnership, association, trust or unincorporated organization, or a government
or any agency or political subdivision thereof.
"Projections" means the forecasted (a) balance sheets, (b) income
statements and (c) cash flow statements of the Borrowers for each Fiscal Year,
prepared annually by the Borrowers on a consolidated monthly basis, together
with appropriate supporting details (including stand-alone forecasts for each
Borrower) and a statement of underlying assumptions.
"Proportionate Share" or "Ratable Share" or "Ratable" (and with
corollary meaning, "Ratably") means, as to a Lender, such Lender's share of an
amount in Dollars or of other property at the time of determination equal to (i)
the Commitment Percentage of such Lender, or (ii) if the Commitments are
terminated, the percentage obtained by dividing the principal amount of the
Loans then owing to such Lender by the total principal amount of all Loans then
owing to all Lenders, or (iii) if no Loans are outstanding, the percentage
obtained by dividing such Lender's participation in the total Letter of Credit
Obligations then outstanding by the total Letter of Credit Obligations then
outstanding.
"Proprietary Rights" means as to any Person, such Person's rights,
title and interest in and to intellectual property and all other rights
(including rights as a licensee thereof) under any patents, trademarks, trade
names, tradestyles, copyrights and all extensions, renewals, reissues,
divisions, continuations, and continuations-in-part of any of the foregoing, and
all rights to sue for past, present and future infringement of any of the
foregoing.
"Purchase Money Lien" means any Lien securing Debt created to finance
the payment of all or any part of the purchase price (not in excess of the fair
market value thereof) of any tangible personal property (other than Inventory)
and incurred at the time of or within 10 days prior to or after the acquisition
of such tangible asset, but only if such Lien shall at all times be confined
solely to the property (other than Inventory) the purchase price of which was
financed through the incurrence of such Debt.
"Purchase Price" has the meaning specified in SECTION 11.4.
"Real Estate" means all real property now or hereafter owned or leased
by Heafner or any Subsidiary, including, without limitation, all fees,
leaseholds and future interests.
"Receivables" has the meaning set forth in the definition
"Collateral."
24
<PAGE> 32
"Register" has the meaning specified in SECTION 13.1(d).
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System (or any successor), as the same may be amended or
supplemented from time to time.
"Reimbursement Agreement" means, with respect to a Letter of Credit,
such form of application therefor and form of reimbursement agreement therefor
(whether in a single document or several documents) as BankBoston may employ in
the ordinary course of business for its own account, with such modifications
thereto as may be agreed upon by BankBoston and the Borrowers, PROVIDED that
such application and agreement and any modifications thereto are not
inconsistent with the terms of this Agreement.
"Reimbursement Obligations" means the unsatisfied reimbursement or
repayment obligations of the Borrowers to BankBoston pursuant to SECTION 3.6 or
(but without duplication) pursuant to a Reimbursement Agreement with respect to
amounts that have been drawn under Letters of Credit.
"Related Company" means any (i) corporation which is a member of the
same controlled group of corporations (within the meaning of Section 414(b) of
the Code) as Heafner; (ii) partnership or other trade or business (whether or
not incorporated) under common control (within the meaning of Section 414(c) of
the Code) with Heafner; or (iii) member of the same affiliated service group
(within the meaning of Section 414(m) of the Code) as Heafner, any corporation
described in CLAUSE (i) above or any partnership, trade or business described in
CLAUSE (ii) above.
"Release" means release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment or into or out of any property, including the movement of
Contaminants through or in the air, soil, surface water or groundwater.
"Remediable Defect" means an operational defect or violation that
could disqualify a Benefit Plan intended to qualify under Section 401(a) (and,
if applicable, Section 401(k)) of the Code and that can be remedied under the
IRS's Closing Agreement Program, Voluntary Compliance Resolution Program, or
Administrative Policy Regarding Self-Correction, without in any case a payment
to any governmental authority with respect to such Benefit Plan and any other
Benefit Plan of more than $100,000 in any calendar year.
"Remedial Action" means actions required to (i) clean up, remove,
treat or in any other way address Contaminants in the indoor or outdoor
environment; (ii) prevent the Release or threat of Release or minimize the
further Release of Contaminants so they do not migrate or endanger or threaten
to endanger public health or welfare or the indoor or outdoor environment; or
(iii) perform pre-remedial studies and investigations and post-remedial
monitoring and care.
"Rent Reserve" means an amount approximately equal to the aggregate
monthly rental payable by the Borrowers on all leased Real Estate in respect of
which landlord's or
25
<PAGE> 33
warehouseman's waivers, in form and substance acceptable to the Agent, are not
in effect or such greater amount as the Agent may, in its reasonable credit
judgment, determine to be appropriate after notice to the Borrowers.
"Required Lenders" means, at any time, any combination of two or more
Lenders whose Commitment Percentages at such time aggregate in excess of 50%.
"Restricted Distribution" by any Person means (a) its retirement,
redemption, purchase, or other acquisition or retirement for value of any
capital stock or other equity securities (except equity securities acquired on
the conversion or exercise thereof into other equity securities of such Person)
or partnership interests issued by such Person, (b) the declaration or payment
of any dividend or distribution in cash or property on or with respect to any
such securities (other than dividends payable solely in shares of its capital
stock) or partnership interests, EXCLUDING, HOWEVER, any such dividend,
distribution or payment to a Loan Party by any of its Subsidiaries, (c) any
Investment (other than a Permitted Investment) by such Person in, the holder of
any of such securities or partnership interests, and (d) any other payment by
such Person in respect of such securities or partnership interests.
"Restricted Payment" means (a) any redemption or prepayment or other
retirement, prior to the stated maturity thereof or prior to the due date of any
regularly scheduled installment or amortization payment with respect thereto, of
any Debt (other than the Loans) or of any Indebtedness that is junior and
subordinate to the Secured Obligations, (b) any payment on or with respect to
any Subordinated Debt other than in accordance with the subordination provisions
thereof, (c) the payment by any Person of the principal amount of or interest on
any Indebtedness (other than trade accounts payable and employee compensation in
the ordinary course of business, consistent with past practices and non-compete
payments or bonuses in accordance with the provisions of the CPW Acquisition
Agreement) owing to an Affiliate of such Person or to any Affiliate of any such
Affiliate and (d) the payment of any management, consulting or similar fee by
any Person to any Affiliate of such Person.
"S&P" means Standard & Poor's Ratings Group.
"Schedule of Inventory" means a schedule delivered by the Borrowers to
the Agent pursuant to the provisions of SECTION 8.12(b).
"Schedule of Receivables" means a schedule delivered by the Borrowers
to the Agent pursuant to the provisions of SECTION 8.12(a).
"Secured Obligations" means, in each case whether now in existence or
hereafter arising,
(a) the principal of and interest on the Loans,
(b) the Reimbursement Obligations and all other obligations of the
Borrowers to the Agent or any Lender arising in connection with the issuance of
Letters of Credit,
26
<PAGE> 34
(c) all obligations of the Borrowers to any Lender or any Affiliate of
a Lender under any Interest Rate Protection Agreement, and
(d) all indebtedness, liabilities, obligations, covenants and duties
of the Borrowers or any Subsidiary to the Agent or to the Lenders or to any
Affiliate of the Agent or any Lender of every kind, nature and description
arising under or in respect of this Agreement, the Notes or any of the other
Loan Documents, whether direct or indirect, absolute or contingent, due or not
due, contractual or tortious, liquidated or unliquidated, and whether or not
evidenced by any note, and whether or not for the payment of money, including
without limitation, fees required to be paid pursuant to ARTICLE 4 and expenses
required to be paid or reimbursed pursuant to SECTION 15.2.
"Security Documents" means the Financing Statements, the Subsidiary
Security Agreements and each other writing executed and delivered by a Loan
Party or any other Person securing the Secured Obligations or assuring rights of
the Agent or the Lenders in respect of the Collateral.
"Security Interest" means the Liens of the Agent, for the benefit of
itself as the Agent and the Lenders and Affiliates of the Lenders, on and in the
Collateral effected hereby or by any of the Security Documents or pursuant to
the terms hereof or thereof.
"Senior Note Indenture" means the Indenture dated as of May 15, 1998
between Heafner and First Union National Bank, Trustee.
"Senior Notes" means Heafner's 10% Senior Notes due 2008 in the
original principal amount of $100,000,000, issued pursuant to the Senior Note
Indenture, including any "Exchange Securities" and "Private Exchange Securities"
issued (and as defined) thereunder.
"Settlement Date" means each Business Day after the Effective Date
selected by the Agent in its sole discretion subject to and in accordance with
the provisions of SECTION 4.8(b)(i) as of which a Settlement Report is delivered
by the Agent and on which settlement is to be made among the Lenders in
accordance with the provisions of SECTION 4.8.
"Settlement Report" means each report substantially in the form of
EXHIBIT C or as the Agent and the Lenders may otherwise agree, prepared by the
Agent and delivered to each Lender and setting forth, among other things, as of
the Settlement Date indicated thereon and as of the next preceding Settlement
Date, the aggregate principal balance of all Loans outstanding, each Lender's
Proportionate Share thereof, each Lender's Net Outstandings and all Non-Ratable
Loans made, and all payments of principal and interest in respect of Loans and
of fees received by the Agent from the Borrower during the period beginning on
such next preceding Settlement Date and ending on such Settlement Date.
"Subordinated Debt" means any Debt of Heafner or any Subsidiary that
is subordinated to the Secured Obligations on terms and conditions acceptable to
the Required Lenders in their sole discretion.
27
<PAGE> 35
"Subsidiary" (a) when used to determine the relationship of a Person
to another Person, means a Person of which an aggregate of 50% or more of the
stock of any class or classes or 50% or more of other ownership interests is
owned of record or beneficially by such other Person, or by one or more
Subsidiaries of such other Person, or by such other Person and one or more
Subsidiaries of such Person,
(i) if the holders of such stock, or other ownership
interests, (A) are ordinarily, in the absence of contingencies,
entitled to vote for the election of a majority of the directors (or
other individuals performing similar functions) of such Person, even
though the right so to vote has been suspended by the happening of
such a contingency, or (B) are entitled, as such holders, to vote
for the election of a majority of the directors (or individuals
performing similar functions) of such Person, whether or not the
right so to vote exists by reason of the happening of a contingency,
or
(ii) in the case of such other ownership interests, if such
ownership interests constitute a majority voting interest and
(b) when used without other designation of ownership, means a
Subsidiary of Heafner.
"Subsidiary Guarantor" means ITCO Tire Company, Inc., ITCO Tire
Company of Georgia, Inc., Phoenix Racing, Inc. and each other Subsidiary of
Heafner that is not a Borrower and that has, at the Agent's request or with its
consent, executed and delivered a Subsidiary Guaranty and a Subsidiary Security
Agreement.
"Subsidiary Guaranty" means a Guaranty of the Secured Obligations
substantially in the form of EXHIBIT F attached hereto or as otherwise
acceptable to the Agent and Heafner.
"Subsidiary Security Agreement" means one or more agreements in form
and substance satisfactory to the Agent in its reasonable judgment, sufficient
to create in favor of the Agent a security interest in all of the Receivables,
Inventory and proceeds thereof of any Subsidiary Guarantor.
"Termination Date" means May 20, 2003, such earlier date as all
Secured Obligations shall have been irrevocably paid in full and the Commitments
shall have been terminated, or such later date to which the same may be extended
pursuant to the provisions of SECTION 2.5.
"Type" when used in respect of any Loan or Borrowing, shall refer to
the rate by reference to which interest on such Loan or on the Loans comprising
such Borrowing is determined.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the applicable jurisdiction.
28
<PAGE> 36
"Unfunded Vested Accrued Benefits" means at any time, with respect to
any Benefit Plan that is a pension plan within the meaning of Section 3(2) of
ERISA, the amount (if any) by which (a) the present value of all vested
nonforfeitable benefits under such Benefit Plan exceeds (b) the fair market
value of all such Benefit Plan assets allocable to such benefits, as determined
using the valuation date and such reasonable actuarial assumptions and methods
as are specified in the Schedule B (Actuarial Information) to the most recent
Annual Report (Form 5500) filed with respect to such Benefit Plan.
"Unused Commitments" has the meaning specified in SECTION 4.2(b).
"Warrant" means the warrant to purchase common stock of Heafner issued
to The 1818 Mezzanine Fund II, L.P. pursuant to the Senior Subordinated Note and
Warrant Purchase Agreement dated as of May 7, 1997 between Heafner and said
Fund, as amended in accordance with the provisions of the Existing Loan
Agreement and this Agreement.
"Wholly Owned Subsidiary" when used to determine the relationship of a
Subsidiary to a Person means a Subsidiary all of the issued and outstanding
shares (other than directors' qualifying shares) of the capital stock of which
shall at the time be owned by such Person or one or more of such Person's Wholly
Owned Subsidiaries or by such Person and one or more of such Person's Wholly
Owned Subsidiaries.
"Winston" means Oliver & Winston, Inc., a California corporation and a
Wholly Owned Subsidiary of Heafner.
"Winston Purchase Agreement" means the Stock Purchase Agreement dated
as of April 9, 1997, between Heafner, William S. Johnstone as trustee of The Sam
M. Winston Separate Property Trust dated July 26, 1989, the Trust dated December
20, 1976 f/b/o Melissa Winston Alfieri, the Trust dated December 20, 1976 f/b/o
Sam M. Winston, II, the Trust dated December 21, 1982 f/b/o Melissa Winston
Alfieri, the Trust dated December 21, 1982 f/b/o Sam M. Winston, II, The William
S. Johnstone, Jr. Separate Property Trust dated October 5, 1993 and as Sellers'
Representative (as defined in said Agreement) and Thomas J. Bonburg.
"Year 2000 Compliant" as to any Person means that all software,
embedded microchips and other processing capabilities utilized by, and material
to the business operations or financial condition of, such Person are able to
interpret and manipulate data on and involving all calendar dates correctly and
without causing any abnormal ending scenario, including in relation to dates in
and after the calendar year 2000.
SECTION 1.2 General Interpretive Rules.
(a) All terms of an accounting nature not specifically defined herein
shall have the meaning ascribed thereto by GAAP.
(b) The terms accounts, chattel paper, contract rights, documents,
equipment, instruments, general intangibles, inventory and proceeds, as and when
used in this Agreement or the Security Documents, shall have the meanings given
those terms in the UCC.
29
<PAGE> 37
(c) Unless otherwise specified, the words "hereof," "herein,"
"hereunder" and words of similar import, when used in this Agreement, refer to
this Agreement as a whole and not to any particular provision, section or
subsection of this Agreement.
(d) Wherever from the context it appears appropriate, each term stated
in either the singular or plural shall include the singular and plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter. Words denoting individuals include
corporations and vice versa.
(e) References to any legislation or statute or code, or to any
provisions of any legislation or statute or code, shall include any modification
or reenactment of, or any legislative, statutory or code provision substituted
for, such legislation, statute or code or provision thereof.
(f) References to any document or agreement (including this Agreement)
shall include references to such document or agreement as amended, novated,
supplemented, modified or replaced from time to time, so long as and to the
extent that such amendment, novation, supplement, modification or replacement is
not prohibited by the terms of this Agreement or is consented to, if such
consent is required, in accordance with the applicable provisions of this
Agreement.
(g) Except where specifically restricted in a Loan Document,
references to any Person include its successors or permitted substitutes and
assigns permitted or not prohibited under such Loan Document.
(h) References to the time of day are to the time of day in the city
in which the Agent's Office is located.
(i) The terms "payment", "prepayment", "distribution" and similar
terms used in the definitions of "Restricted Distribution" and "Restricted
Payment" and in SECTION 11.6, shall include payment by means of the transfer of
funds or of property and, in the event of a transfer of property, the payment
shall be deemed to be in an amount equal to the greater of the fair market value
and the book value of the property at the time of the transfer.
(j) Titles of Articles and Sections in this Agreement are for
convenience only, do not constitute part of this Agreement and neither limit nor
amplify the provisions of this Agreement, and all references in this Agreement
to Articles, Sections, subsections, paragraphs, clauses, subclauses, Schedules
or Exhibits shall refer to the corresponding Article, Section, subsection,
paragraph, clause or subclause of, or Schedule or Exhibit attached to, this
Agreement, unless specific reference is made to the articles, sections or other
subdivisions or divisions of, or to schedules or exhibits to, another document
or instrument.
(k) Whenever from the context it appears appropriate, the term "Loan",
including such terms as used as part of a defined term including the term
"Loan", shall mean and include a Loan made by all Lenders to the Borrowers as
well as a Lender's Proportionate Share of any Loan.
30
<PAGE> 38
(l) Whenever the phrase "to the knowledge of the Borrower" or words of
similar import relating to the knowledge of the Borrowers (or any of them) are
used herein, such phrase shall mean and refer to the actual knowledge of the
President or chief financial officer of such Borrower.
(m) Unless otherwise specified herein, any Lien created or purported
to be created hereby or by or pursuant to any Loan Documents in favor of the
Agent and each payment made to the Agent, is and shall be deemed to have been
created in favor of the Agent, for its benefit as the Agent and for the Ratable
benefit of the Lenders, or made to and received by the Agent for the Ratable
benefit of the Lenders, as the case may be.
SECTION 1.3 Exhibits and Schedules. All Exhibits and Schedules
attached hereto are by reference made a part hereof.
31
<PAGE> 39
ARTICLE 2
COMMITMENTS
SECTION 2.1 Loans. Upon the terms and subject to the conditions of, and
in reliance upon the representations and warranties made under, this Agreement,
each Lender agrees, severally, but not jointly, to make Loans to the Borrowers
from time to time from the Effective Date to but not including the Termination
Date, as requested or deemed requested by the Borrowers in accordance with the
terms of SECTION 2.2, in amounts equal to such Lender's Proportionate Share of
each Loan requested or deemed requested hereunder up to an aggregate amount at
any one time outstanding equal to such Lender's Proportionate Share of the
Borrowing Base; PROVIDED, HOWEVER, that no Borrowing shall exceed the Loan
Availability at the time and the aggregate principal amount of all outstanding
Loans (after giving effect to the Loans requested) shall not exceed the
Borrowing Base. It is expressly understood and agreed that the Lenders may and
at present intend to use the Borrowing Base as a maximum ceiling on Loans made
to the Borrower; PROVIDED, HOWEVER, that it is agreed that should the aggregate
outstanding amount of such Loans exceed the ceiling so determined or any other
limitation set forth in this Agreement, such Loans shall nevertheless constitute
Secured Obligations and, as such, shall be entitled to all benefits thereof and
security therefor. The principal amount of any Loans which is repaid may be
reborrowed by the Borrowers, subject to the terms and conditions of this
Agreement, in accordance with the terms of this SECTION 2.1. The Agent's and
each Lender's books and records reflecting the date and the amount of each Loan
and each repayment of principal thereof shall constitute prima facie evidence of
the accuracy of the information contained therein, subject to the provisions of
SECTION 4.5.
SECTION 2.2 Manner of Borrowing. Borrowings shall be made as follows:
(a) Requests for Borrowing.
(i) Base Rate Loans. A request for the Borrowing of Base Rate
Loans shall be made, or shall be deemed to be made, in the following
manner:
(A) with respect to the Initial Loans, which shall be
Base Rate Loans, the Borrowers' representative shall give the
Agent the Initial Notice of Borrowing at least two Business
Days prior to the proposed date of the Borrowing, and, with
respect to each subsequent Borrowing, the Borrowers may
request a Base Rate Loan by giving the Agent a Notice of
Borrowing, before noon on the proposed date of the Borrowing,
PROVIDED that if such notice is received after noon on the
proposed date of Borrowing, the proposed Borrowing may be
postponed by the Agent to the next Business Day;
(B) whenever a check or other item is presented to a
Disbursing Bank for payment against a Controlled Disbursement
Account in an amount greater than the then available balance
in such account, such Disbursing
32
<PAGE> 40
Bank shall, and is hereby irrevocably authorized by the
Borrowers to, give the Agent notice thereof, which notice
shall be deemed to be a request for a Base Rate Loan on the
date of such notice in an amount equal to the excess of such
check or other item over such available balance, and such
request shall be irrevocable;
(C) unless payment is otherwise made by the
Borrowers, the becoming due of any amount required to be paid
under this Agreement or any of the Notes as interest shall be
deemed to be a request for a Base Rate Loan on the due date in
the amount required to pay such interest, and such request
shall be irrevocable;
(D) unless payment is otherwise made by the
Borrowers, a becoming due of any other Secured Obligation
shall be deemed to be a request for a Base Rate Loan on the
due date in the amount then so due, and such request shall be
irrevocable; and
(E) the receipt by the Agent of notification from
BankBoston to the effect that a drawing has been made under a
Letter of Credit and that the Borrowers have failed to
reimburse BankBoston therefor in accordance with the terms of
the Letter of Credit, the Reimbursement Agreement and ARTICLE
3, shall be deemed to be a request for a Base Rate Loan on the
date such notification is received in the amount of such
drawing which is so unreimbursed.
(ii) Eurodollar Rate Loans. At any time after the Effective
Date, and so long as no Default or Event of Default has occurred and is
continuing, the Borrowers may request a Eurodollar Rate Loan by giving
the Agent a Notice of Borrowing (which notice shall be irrevocable) not
later than 11:30 a.m. on the date three Business Days before the day on
which the requested Eurodollar Rate Loan is to be made. The Borrowers
may direct the Agent to apply the proceeds of a Eurodollar Rate Loan to
Secured Obligations as described in SECTIONS 2.2(a)(i)(B), (C), (D) and
(E) and the Agent shall comply with such direction to the extent that
proceeds of a Borrowing of Eurodollar Rate Loans are available to be so
applied and in such case, no duplicative Borrowing of Base Rate Loans
will be deemed to have been requested.
(iii) Notification of Lenders. In the case of each Eurodollar
Rate Loan and, unless the Agent has elected periodic settlements
pursuant to SECTION 4.8, in the case of each Base Rate Loan, the Agent
shall promptly notify the Lenders of any notice of Borrowing given or
deemed given pursuant to this SECTION 2.2(a) by 12:00 noon on the
proposed Borrowing date (in the case of Base Rate Loans) or by 3:00
p.m. three Business Days before the proposed Borrowing date (in the
case of Eurodollar Rate Loans). If the Agent does so promptly notify
the Lenders, then not later than 1:30 p.m. on the proposed Borrowing
date, each Lender will make available to the Agent, for the account of
the Borrowers, at the Agent's Office in
33
<PAGE> 41
funds immediately available to the Agent, such Lender's Proportionate
Share of the Base Rate Loan or Eurodollar Rate Loan, as the case may
be.
(b) Disbursement of Loans. The Borrowers hereby irrevocably authorize
the Agent to disburse the proceeds of each Borrowing requested, or deemed to be
requested, pursuant to this SECTION 2.2(a) as follows:
(i) the proceeds of each Borrowing requested under SECTIONS
2.2(a)(i)(A) (other than the Borrowing of the Initial Loans) or (B) or
2.2(a)(ii) shall be disbursed by the Agent in Dollars in immediately
available funds by wire transfer to a Controlled Disbursement Account
or, in the absence of a Controlled Disbursement Account, by wire
transfer to such other account as may be agreed upon by the Borrowers
and the Agent from time to time, and the proceeds of the Initial Loans
under SECTION 2.2(a)(i)(A) shall be disbursed in accordance with the
Initial Notice of Borrowing.
(ii) the proceeds of each Borrowing deemed requested under
SECTION 2.2(a)(i)(C) or (D) shall be disbursed by the Agent by way of
direct payment of the relevant Secured Obligation, and
(iii) the proceeds of each Borrowing deemed requested under
SECTION 2.2(a)(i)(E) shall be disbursed by the Agent directly to
BankBoston on behalf of the Borrowers for application to the
Reimbursement Obligations.
SECTION 2.3 Repayment. The Loans will be repaid as follows:
(a) The outstanding principal amount of all Loans is due and payable,
and shall be repaid by the Borrowers, as their joint and several obligation, in
full, not later than the Termination Date;
(b) If at any time the aggregate outstanding unpaid principal amount of
the Loans exceeds the Borrowing Base in effect at such time, but subject to the
provisions of SECTION 4.7(d), the Borrowers shall repay the Loans in an amount
sufficient to reduce the aggregate unpaid principal amount of the Loans by an
amount equal to such excess, together with accrued and unpaid interest on the
amount so repaid to the date of repayment; and
(c) The Borrowers hereby instruct the Agent to repay the Loans
outstanding on any day in an amount equal to the amount received by the Agent on
such day pursuant to SECTION 8.1(c); PROVIDED that payments received in excess
of outstanding Loans or payments received (when no Default or Event of Default
exists) on account of Eurodollar Rate Loans which would otherwise result in
prepayment of such Loans prior to the end of the Interest Period applicable
thereto may, upon the instruction of the Borrowers to the Agent not later than
1:00 p.m. on any Business Day, be applied to the Cash Collateral Account or any
Investment Account.
Repayments pursuant to SECTION 2.3(b) or (c) shall be applied first to the Base
Rate Loans and then to Eurodollar Rate Loans.
34
<PAGE> 42
SECTION 2.4 Notes. Each Lender's Loans and the joint and several
obligation of the Borrowers to repay such Loans shall also be evidenced by a
Note payable to the order of such Lender. Each Note shall be dated the Effective
Date (or later "effective date" under any Assignment and Acceptance) and be duly
and validly executed and delivered by the Borrowers.
SECTION 2.5 Extension of Commitments. Upon the request of the
Borrowers, all, but not less than all, of the Lenders may, in their sole
discretion, effective as of any anniversary of the Effective Date, agree to
extend the Commitments for a period such that the Termination Date would fall on
a date that is up to but not in excess of five years after such anniversary
date. Any such extension may be effected solely by the delivery to the Borrowers
of a written notice to that effect by the Lenders, not less than 30 days prior
to such anniversary date.
35
<PAGE> 43
ARTICLE 3
LETTER OF CREDIT FACILITY
SECTION 3.1 Agreement to Issue. Upon the terms and subject to the
conditions of, and in reliance upon the representations and warranties made
under, this Agreement, BankBoston agrees to issue for the account of any
Borrower or Subsidiary one or more Letters of Credit in accordance with this
ARTICLE 3, from time to time during the period commencing on the Effective Date
and ending on the Termination Date.
SECTION 3.2 Amounts. BankBoston shall not have any obligation to issue
any Letter of Credit at any time:
(a) if, after giving effect to the issuance of the requested Letter of
Credit, (i) the aggregate Letter of Credit Obligations of the Borrowers would
exceed the Letter of Credit Facility then in effect or (ii) the aggregate
principal amount of Loans outstanding would exceed the Borrowing Base (after
reduction for the Letter of Credit Reserve in respect of such Letter of Credit)
or (iii) if no Loans are outstanding, the aggregate Letter of Credit Obligations
would exceed the Borrowing Base; or
(b) which has a term longer than one calendar year or an expiration
date after the last Business Day that is more than 30 days prior to the
Termination Date.
SECTION 3.3 Conditions. The obligation of BankBoston to issue any
Letter of Credit is subject to the satisfaction of (a) the applicable conditions
precedent contained in ARTICLE 5 and (b) the following additional conditions
precedent in a manner satisfactory to the Agent and BankBoston:
(i) the Borrower shall have delivered to BankBoston and the
Agent at such times and in such manner as BankBoston or the Agent may
prescribe an application in form and substance satisfactory to
BankBoston and the Agent for the issuance of the Letter of Credit, a
Reimbursement Agreement and such other documents as may be required
pursuant to the terms thereof, and the form and terms of the proposed
Letter of Credit shall be satisfactory to BankBoston and the Agent; and
(ii) as of the date of issuance, no order of any court,
arbitrator or governmental authority having jurisdiction or authority
over BankBoston shall purport by its terms to enjoin or restrain banks
generally from issuing letters of credit of the type and in the amount
of the proposed Letter of Credit, and no law, rule or regulation
applicable to banks generally and no request or directive (whether or
not having the force of law) from any governmental authority with
jurisdiction over banks generally shall prohibit, or request that
BankBoston refrain from, the issuance of letters of credit generally or
the issuance of such Letter of Credit.
36
<PAGE> 44
SECTION 3.4 Issuance of Letters of Credit.
(a) Request for Issuance. A Borrower shall give BankBoston and the
Agent written notice of such Borrower's request for the issuance of a Letter of
Credit no later than six Business Days prior to the proposed date of issuance of
the Letter of Credit. Such notice shall be irrevocable and shall specify the
name of the Subsidiary (if other than such Borrower) which should appear as the
account party on the face of such Letter of Credit, the original face amount of
the Letter of Credit requested, the effective date (which date shall be a
Business Day) of issuance of such requested Letter of Credit, whether such
Letter of Credit may be drawn in a single or in multiple draws, the date on
which such requested Letter of Credit is to expire (which date shall be a
Business Day earlier than the 30th day prior to the Termination Date), the
purpose for which such Letter of Credit is to be issued and the beneficiary of
the requested Letter of Credit. The Borrower shall attach to such notice the
form of the Letter of Credit that the Borrower requests be issued.
(b) Responsibilities of the Agent; Issuance. The Agent shall determine,
as of the Business Day immediately preceding the requested effective date of
issuance of the Letter of Credit set forth in the notice from the Borrowers
pursuant to SECTION 3.4(a), the amount of Letter of Credit Availability. If (i)
the form of the Letter of Credit delivered by the Borrowers to the Agent is
acceptable to BankBoston and the Agent in their sole, reasonable discretion,
(ii) the undrawn face amount of the requested Letter of Credit is less than or
equal to the Letter of Credit Availability and (iii) the Agent has received a
certificate from the Borrowers stating that the applicable conditions set forth
in ARTICLE 5 have been satisfied, then BankBoston will cause the Letter of
Credit to be issued.
(c) Notice of Issuance. Promptly after the issuance of any Letter of
Credit, BankBoston shall give the Agent written or facsimile notice, or
telephonic notice confirmed promptly thereafter in writing, of the issuance of
such Letter of Credit, and the Agent shall give each Lender a periodic written
report, not less frequently than monthly, of each Letter of Credit outstanding
as of the date thereof, the amount available to be drawn thereunder and the
expiration date thereof.
(d) No Extension or Amendment. No Letter of Credit shall be extended or
amended unless the requirements of this SECTION 3.4 are met as though a new
Letter of Credit were being requested and issued.
SECTION 3.5 Duties of BankBoston. Any action taken or omitted to be
taken by BankBoston under or in connection with any Letter of Credit, if taken
or omitted in the absence of gross negligence or willful misconduct, shall not
result in any liability of BankBoston to any Lender or relieve any Lender of its
obligations hereunder to BankBoston. In determining whether to pay under any
Letter of Credit, BankBoston shall have no obligation to any Lender other than
to confirm that any documents required to be delivered under such Letter of
Credit in connection with such drawing have been presented and appear on their
face to comply with the requirements of such Letter of Credit.
37
<PAGE> 45
SECTION 3.6 Payment of Reimbursement Obligations.
(a) Payment to Issuer. Notwithstanding any provisions to the contrary
in any Reimbursement Agreement, the Borrowers agree to reimburse BankBoston for
any drawings (whether partial or full) under each Letter of Credit issued by
BankBoston and agrees to pay to BankBoston the amount of all other Reimbursement
Obligations and other amounts payable to BankBoston under or in connection with
such Letter of Credit immediately when due, irrespective of any claim, set-off,
defense or other right which the Borrowers may have at any time against
BankBoston or any other Person.
(b) Recovery or Avoidance of Payments. In the event any payment by or
on behalf of the Borrowers with respect to any Letter of Credit (or any
Reimbursement Obligation relating thereto) received by BankBoston, or by the
Agent and distributed by the Agent to the Lenders on account of their respective
participations therein, is thereafter set aside, avoided or recovered from
BankBoston or the Agent in connection with any receivership, liquidation or
bankruptcy proceeding, the Lenders shall, upon demand by the Agent, pay to the
Agent, for the account of the Agent or BankBoston, their respective
Proportionate Shares of such amount set aside, avoided or recovered together
with interest at the rate required to be paid by the Agent upon the amount
required to be repaid by it.
SECTION 3.7 Participations.
(a) Purchase of Participations. Immediately upon the Effective Date as
to Letters of Credit outstanding on the Effective Date and immediately upon
issuance by BankBoston of any other Letter of Credit, each Lender shall be
deemed to have irrevocably and unconditionally purchased and received without
recourse or warranty, an undivided interest and participation in such Letter of
Credit, equal to such Lender's Proportionate Share of the face amount thereof
(including, without limitation, all obligations of the Borrowers with respect
thereto, other than amounts owing to BankBoston under SECTION 4.2(d), and any
security therefor or guaranty pertaining thereto).
(b) Sharing of Letter of Credit Payments. In the event that BankBoston
makes a payment under any Letter of Credit and BankBoston shall not have been
repaid such amount pursuant to SECTION 3.6, then BankBoston shall be deemed to
have made a Non-Ratable Loan in the amount of such payment, and notwithstanding
the occurrence or continuance of a Default or Event of Default at the time of
such payment, such Non-Ratable Loan shall be deemed to satisfy the Borrowers'
Reimbursement Obligations in respect to such payment and such Non-Ratable Loan
shall be subject to the provisions of SECTION 4.8(b) and the absolute
obligations of the Lenders to pay for their respective participation interests
therein.
(c) Sharing of Reimbursement Obligation Payments. Whenever BankBoston
receives a payment from or on behalf of the Borrowers on account of a
Reimbursement Obligation as to which the Agent has previously received for the
account of BankBoston payment from a Lender pursuant to this SECTION 3.7,
BankBoston shall promptly pay to the Agent, for the benefit of such Lender, such
Lender's Proportionate Share of the amount of such payment from the Borrowers in
Dollars. Each such payment shall be made by BankBoston on
38
<PAGE> 46
the Business Day on which BankBoston receives immediately available funds from
the Agent pursuant to the immediately preceding sentence, if received prior to
11:00 a.m. on such Business Day, and otherwise on the next succeeding Business
Day.
(d) Documentation. Upon the request of any Lender, the Agent shall
furnish to such Lender copies of any Letter of Credit, Reimbursement Agreement
or application for any Letter of Credit and such other documentation as may
reasonably be requested by such Lender.
(e) Obligations Irrevocable. The obligations of each Lender to make
payments to the Agent with respect to any Letter of Credit and their
participations therein pursuant to the provisions of SECTION 4.8(b) hereof or
otherwise and the obligations of the Borrower to make payments to BankBoston or
to the Agent, for the account of Lenders, shall be irrevocable, shall not be
subject to any qualification or exception whatsoever and shall be made in
accordance with the terms and conditions of this Agreement (assuming, in the
case of the obligations of the Lenders to make such payments, that the Letter of
Credit has been issued in accordance with SECTION 3.4), including, without
limitation, any of the following circumstances:
(i) Any lack of validity or enforceability of this Agreement
or any of the other Loan Documents;
(ii) The existence of any claim, set-off, defense or other
right which the Borrowers (or any of them) may have at any time against
a beneficiary named in a Letter of Credit or any transferee of any
Letter of Credit (or any Person for whom any such transferee may be
acting), any Lender, BankBoston or any other Person, whether in
connection with this Agreement, any Letter of Credit, the transactions
contemplated herein or any unrelated transactions (including any
underlying transactions between the Borrowers or any other Person and
the beneficiary named in any Letter of Credit);
(iii) Any draft, certificate or any other document presented
under the Letter of Credit upon which payment has been made in good
faith and according to its terms proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect;
(iv) The surrender or impairment of any Collateral or any
other security for the Secured Obligations or the performance or
observance of any of the terms of any of the Loan Documents;
(v) The occurrence of any Default or Event of Default; or
(vi) BankBoston's or the Agent's failure to deliver the notice
provided for in SECTION 3.4(c).
SECTION 3.8 Indemnification, Exoneration.
(a) Indemnification. In addition to amounts payable as elsewhere
provided in this ARTICLE 3, the Borrowers, jointly and severally, agree to
protect, indemnify, pay and save
39
<PAGE> 47
harmless the Lenders and the Agent from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
attorneys' fees) which any Lender or the Agent may incur or be subject to as a
consequence, directly or indirectly, of
(i) the issuance of any Letter of Credit, other than as a
result of its gross negligence or willful misconduct, as determined by
a court of competent jurisdiction, or
(ii) the failure of BankBoston to honor a drawing under any
Letter of Credit as a result of any act or omission, whether rightful
or wrongful, of any present or future de jure or de facto governmental
authority (all such acts or omissions being hereinafter referred to
collectively as "Government Acts").
(b) Assumption of Risk by the Borrowers. As among the Borrowers, the
Lenders and the Agent, the Borrowers assume all risks of the acts and omissions
of, or misuse of any of the Letters of Credit by, the respective beneficiaries
of such Letters of Credit. In furtherance and not in limitation of the
foregoing, subject to the provisions of the applications for the issuance of
Letters of Credit, the Lenders and the Agent shall not be responsible for:
(i) the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted by any Person in connection with
the application for and issuance of and presentation of drafts with
respect to any of the Letters of Credit, even if it should prove to be
in any or all respects invalid, insufficient, inaccurate, fraudulent or
forged;
(ii) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any
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;
(iii) the failure of the beneficiary of any Letter of Credit
to comply duly with conditions required in order to draw upon such
Letter of Credit;
(iv) 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;
(v) errors in interpretation of technical terms;
(vi) any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any Letter of Credit
or of the proceeds thereof;
(vii) the misapplication by the beneficiary of any Letter of
Credit of the proceeds of any drawing under such Letter of Credit; or
40
<PAGE> 48
(viii) any consequences arising from causes beyond the control
of the Lenders or the Agent, including, without limitation, any
Government Acts.
None of the foregoing shall affect, impair or prevent the vesting of any of the
Agent's rights or powers under this SECTION 3.8.
(c) Exoneration. In furtherance and extension, and not in limitation,
of the specific provisions set forth above, any action taken or omitted by the
Agent, BankBoston or any Lender under or in connection with any of the Letters
of Credit or any related certificates, if taken or omitted in good faith, shall
not result in any liability of any Lender or the Agent to the Borrowers or
relieve any Borrower of any of its obligations hereunder to any such Person.
SECTION 3.9 Supporting Letter of Credit; Cash Collateral Account. Upon
the occurrence of an Event of Default or, if, notwithstanding the provisions of
SECTION 3.2(b), any Letter of Credit is outstanding on the Termination Date,
then on or prior to the Termination Date, the Borrowers shall, as their joint
and several obligation, promptly on demand by the Agent, deposit with the Agent,
for the ratable benefit of the Lenders, with respect to each Letter of Credit
then outstanding, as the Agent shall specify, either (a) a standby letter of
credit (a "Supporting Letter of Credit") in form and substance satisfactory to
the Agent, issued by an issuer satisfactory to the Agent in its sole and
absolute judgment in an amount equal to the greatest amount for which such
Letter of Credit may be drawn, under which Supporting Letter of Credit the Agent
shall be entitled to draw amounts necessary to reimburse the Agent and the
Lenders for payments made by the Agent and the Lenders under such Letter of
Credit or under any reimbursement or guaranty agreement with respect thereto, or
(b) Cash Collateral in an amount necessary to reimburse the Agent and the
Lenders for payments made by the Agent and the Lenders under such Letter of
Credit or under any reimbursement or guaranty agreement with respect thereto.
Such Supporting Letter of Credit or Cash Collateral shall be held by the Agent
for the benefit of the Lenders, as security for, and to provide for the payment
of, the Reimbursement Obligations. In addition, the Agent may at any time after
such Event of Default or the Termination Date apply any or all of such Cash
Collateral to the payment of any or all of the Secured Obligations then due and
payable. The Cash Collateral shall be deposited in the Cash Collateral Account
or an Investment Account and shall be administered in accordance with the
provisions of SECTION 4.15.
41
<PAGE> 49
ARTICLE 4
GENERAL LOAN PROVISIONS
SECTION 4.1 Interest.
(a) Base Rate Loans. Subject to the provisions of SECTION 4.1(d), the
Borrowers will pay interest on the unpaid principal amount of each Base Rate
Loan, for each day from the day such Loan is made (or is converted to a Base
Rate Loan) until such Loan is paid (whether at maturity, by reason of
acceleration, or otherwise) or is converted to a Loan of a different Type, at a
rate per annum equal to the sum of (i) the Applicable Margin and (ii) the Base
Rate, payable monthly in arrears as it accrues on each Interest Payment Date.
(b) Eurodollar Rate Loans. Subject to the provisions of SECTION 4.1(d),
the Borrowers will pay interest on the unpaid principal amount of each
Eurodollar Rate Loan for the applicable Interest Period at a rate per annum
equal to the sum of (i) the Applicable Margin and (ii) the Eurodollar Rate,
payable on the last day of such Interest Period and, if such Interest Period is
longer than three months, at three-month intervals during such Interest Period.
(c) Other Secured Obligations. The Borrowers will, to the extent
permitted by Applicable Law, pay interest on the unpaid principal amount of any
Secured Obligation that is due and payable other than the Loans in accordance
with SECTIONS 4.1(a) or (d), as applicable, as if such Secured Obligation were a
Base Rate Loan.
(d) Default Rate. If a payment default pursuant to SECTION 12.1(a)
shall occur and be continuing or there shall occur and be continuing, uncured
and unwaived for 30 days, any other Event of Default, at the election of the
Required Lenders, the unpaid principal amount of the Loans and other Secured
Obligations shall no longer bear interest in accordance with the terms of
SECTION 4.1(a), 4.1(b) or 4.1(c), as applicable, but shall bear interest for
each day from the date of such payment default or the 30th day after such other
Event of Default until such payment default or other Event of Default shall have
been cured or waived at a rate per annum equal to the sum of (i) the Default
Margin and (ii) the rate otherwise applicable to such Loan, payable on demand.
The interest rate provided for in the preceding sentence shall, to the extent
permitted by Applicable Law, apply to and accrue on the amount of any judgment
entered with respect to any Secured Obligation and shall continue to accrue at
such rate during any proceeding described in SECTION 12.1(g) or (h).
(e) Calculation of Interest. The interest rates provided for in
SECTIONS 4.1(a), (b), (c) and (d) shall be computed on the basis of a year of
360 days and the actual number of days elapsed. Each interest rate determined
with reference to the Base Rate shall be adjusted automatically as of the
opening of business on the effective date of each change in the Base Rate.
(f) Maximum Rate. It is not intended by the Lenders, and nothing
contained in this Agreement or the Notes shall be deemed, to establish or
require the payment of a rate of interest in excess of the maximum rate
permitted by Applicable Law (the "Maximum Rate"). If, in any month, the
Effective Interest Rate, absent such limitation, would have exceeded the
42
<PAGE> 50
Maximum Rate, then the Effective Interest Rate for that month shall be the
Maximum Rate, and, if in future months, the Effective Interest Rate would
otherwise be less than the Maximum Rate, then the Effective Interest Rate shall
remain at the Maximum Rate until such time as the amount of interest paid
hereunder equals the amount of interest which would have been paid if the same
had not been limited by the Maximum Rate. In the event that, upon payment in
full of the Secured Obligations, the total amount of interest paid or accrued
under the terms of this Agreement is less than the total amount of interest
which would have been paid or accrued if the Effective Interest Rate (without
regard to any limitation hereunder) had at all times been in effect, then the
Borrowers shall, to the extent permitted by Applicable Law, pay to the Lenders
an amount equal to the excess, if any, of (i) the lesser of (A) the amount of
interest which would have been charged if the Maximum Rate had, at all times,
been in effect and (B) the amount of interest which would have accrued had the
Effective Interest Rate (without reference to any limitation hereunder), at all
times, been in effect and (ii) the amount of interest actually paid or accrued
under this Agreement. In the event the Lenders receive, collect or apply as
interest any sum in excess of the Maximum Rate, such excess amount shall be
applied to the reduction of the principal balance of the Secured Obligations,
and if no such principal is then outstanding, such excess or part thereof
remaining, shall be paid to the Borrowers. For the purposes of computing the
Maximum Rate, to the extent permitted by applicable law, all interest and
charges, discounts, amounts, premiums or fees deemed to constitute interest
under applicable law, shall be amortized, prorated, allocated and spread in
substantially equal parts throughout the full term of this Agreement. The
provisions of this SECTION 4.1(f) shall be deemed to be incorporated into every
Loan Document (whether or not any provision of this SECTION 4.1(f) is
specifically referred to therein).
SECTION 4.2 Certain Fees.
(a) Agent Fee. For administration and other services performed by the
Agent in connection with its continuing administration of this Agreement, the
Borrowers, jointly and severally, shall pay to the Agent, for its own account,
and not for the account of the Lenders, an annual fee of $50,000, payable
annually in advance, on the Effective Date and on each anniversary thereof for
so long as any Secured Obligations shall remain outstanding or the Commitments
shall not have been terminated.
(b) Commitment Fee. In connection with and as consideration for the
holding available for the use of the Borrowers hereunder the full amount of the
Commitments, the Borrowers will pay a fee to the Agent, for the Ratable benefit
of the Lenders, for each day from the Effective Date until the Termination Date,
in an amount equal to 0.375% per annum of the Unused Commitments for such day,
SUBJECT, HOWEVER to quarterly adjustment in accordance with the pricing matrix
attached hereto as ANNEX B, on the dates specified for adjustments to the
Applicable Margin. "Unused Commitments" means an amount equal to the aggregate
Commitments, LESS the aggregate outstanding principal amount of Loans, LESS the
total amount of Letter of Credit Obligations, in each case on the date of
determination. Such fee shall be payable monthly in arrears on each Interest
Payment Date and on the date of any permanent reduction in the aggregate
Commitments.
43
<PAGE> 51
(c) Facility Fee. As compensation to BankBoston for its activity in
structuring and approving the credit facilities available hereunder, on the
Effective Date the Borrowers shall pay to BankBoston a facility fee in an amount
agreed upon between them pursuant to a separate letter agreement.
(d) Letter of Credit Fees.
(i) The Borrowers, jointly and severally, agree to pay to the
Agent, for the Ratable benefit of the Lenders, Letter of Credit fees on
each Letter of Credit equal to the Applicable Margin per annum (or, in
the case of commercial or documentary Letters of Credit, such
Applicable Margin minus 0.50%) applicable to Eurodollar Rate Loans on
the date of issuance of such Letter of Credit payable quarterly in
arrears on the first day of each January, April, July and October on
the average daily Letter of Credit Amount of such Letters of Credit
outstanding during the preceding Fiscal Quarter. Such fees shall be
calculated based on a year of 360 days and the actual number of days
elapsed.
(ii) The Borrowers agree to pay to Agent, for the account of
BankBoston, the standard fees and charges of BankBoston for issuing,
administering, amending, renewing, paying and canceling letters of
credit, as and when assessed as to any Letters of Credit, and an
additional "up-front" or fronting fee at a rate of 0.125% per annum of
the Letter of Credit Amount of each Letter of Credit, payable quarterly
in arrears on the first day of each January, April, July and October,
on the average daily Letter of Credit Amounts of all Letters of Credit
from time to time outstanding during the preceding Fiscal Quarter.
(e) General. All fees provided for in this SECTION 4.2 and otherwise in
this Agreement or any other Loan Document, shall be fully earned when due and
payable and, except as otherwise set forth herein or required by applicable law,
shall not be subject to refund or rebate. All such fees are for compensation for
services and are not, and shall not be deemed to be, interest or a charge for
the use of money.
SECTION 4.3 Manner of Payment.
(a) Except as otherwise expressly provided in SECTION 8.1(c), each
payment (including prepayments) by the Borrowers on account of the principal of
or interest on the Loans or of any other amounts payable to the Agent or the
Lenders under this Agreement or any Note or other Loan Document shall be made
not later than 12:00 noon on the date specified for payment under this Agreement
to the Agent, at the Agent's Office, in Dollars, in immediately available funds
and shall be made without any setoff, counterclaim or deduction whatsoever. Any
payment received after such time but before 2:00 p.m. on such day shall be
deemed a payment on such date for the purposes of SECTION 12.1, but for all
other purposes shall be deemed to have been made on the next succeeding Business
Day.
(b) The Borrowers hereby irrevocably authorize each Lender and each
Affiliate of such Lender and each participant herein to charge any account of a
Borrower
44
<PAGE> 52
maintained with such Lender or such Affiliate or participant with such amounts
as may be necessary from time to time to pay any Secured Obligations (whether or
not owed to such Lender, Affiliate or participant) which are not paid when due.
SECTION 4.4 General. If any payment under this Agreement or any Note
shall be specified to be made on a day which is not a Business Day, it shall be
made on the next succeeding day which is a Business Day and such extension of
time shall in such case be included in computing interest, if any, in connection
with such payment.
SECTION 4.5 Loan Accounts; Statements of Account.
(a) Each Lender shall open and maintain on its books a loan account in
Heafner's name (each, a "Loan Account" and collectively, the "Loan Accounts").
Each such Loan Account shall show as debits thereto each Loan made under this
Agreement by such Lender to the Borrowers and as credits thereto all payments
received by such Lender and applied to principal of such Loans, so that the
balance of the Loan Account at all times reflects the principal amount due such
Lender from the Borrowers.
(b) The Agent shall maintain on its books a control account for the
Borrowers in which shall be recorded (i) the amount of each disbursement made
hereunder, (ii) the amount of any principal or interest due or to become due
from the Borrowers hereunder, and (iii) the amount of any sum received by the
Agent hereunder from or on behalf of the Borrowers and each Lender's share
therein.
(c) The entries made in the accounts pursuant to SUBSECTIONS (a) and
(b) shall be prima facie evidence, in the absence of manifest error, of the
existence and amounts of the obligations of the Borrowers therein recorded and
in case of discrepancy between such accounts, in the absence of manifest error,
the accounts maintained pursuant to SUBSECTION (b) shall be controlling.
(d) The Agent will account separately to the Borrowers monthly with a
statement of Loans, charges and payments made to and by the Borrowers pursuant
to this Agreement, and such accounts rendered by the Agent shall be deemed
final, binding and conclusive, save for manifest error, unless the Agent is
notified by the Borrowers in writing to the contrary within 30 days of the date
the account to the Borrowers was so rendered. Such notice by the Borrowers shall
be deemed an objection to only those items specifically objected to therein.
Failure of the Agent to render such account shall in no way affect the rights of
the Agent or of the Lenders hereunder.
SECTION 4.6 Reduction of Commitments; Termination of Agreement.
(a) Reduction of Commitments.
(i) The Borrowers shall have the right, at any time and from
time to time, upon at least seven days' prior irrevocable, written
notice to the Agent, to reduce permanently and Ratably in part the
Commitments; PROVIDED, HOWEVER, that any such partial reduction shall
be in an amount equal to $5,000,000 or any larger
45
<PAGE> 53
integral, multiple of $1,000,000 and shall not reduce the aggregate
Commitments below an amount equal to the sum of the Letter of Credit
Reserve PLUS the Rent Reserve PLUS any Additional Reserves. As of the
date of reduction set forth in such notice, the Commitments shall be
permanently reduced to the amount stated in the Borrowers' notice (and
each Lender's Commitment shall be reduced Ratably) for all purposes
herein, and the Borrowers shall pay the amount necessary to reduce the
amount of the outstanding Loans to any amount that does not exceed the
aggregate Commitments (as reduced), together with accrued interest on
any amounts so prepaid and an early termination fee in an amount equal
to (A) 1% of the amount of such reduction if effected prior to the
first anniversary of the Effective Date or (B) 1/2 of 1% of the amount
of such reduction if effected on or after the first anniversary of the
Effective Date but prior to the second anniversary of the Effective
Date.
(ii) The aggregate Commitments shall be automatically reduced
to zero on the Termination Date.
(iii) The aggregate Commitments shall be reduced as provided
in SECTION 4.9.
(iv) The Commitments or any portion thereof terminated or
reduced pursuant to this SECTION 4.6 may not be reinstated.
(b) Termination of Agreement. The Borrowers shall have the right, at
any time, to terminate this Agreement upon not less than 10 Business Days' prior
written notice, which notice shall specify the effective date of such
termination. Upon receipt of such notice, the Agent shall promptly notify each
Lender thereof. On the date specified in such notice, such termination shall be
effected, PROVIDED, that the Borrowers shall, on or prior to such date, pay to
the Agent, for its account and the account of the Lenders, in same day funds, an
amount equal to all Secured Obligations (other than with respect to Letter of
Credit Obligations) outstanding on such date, including, without limitation, all
(i) accrued interest thereon, (ii) all accrued fees provided for hereunder,
(iii) any amounts payable to the Agent or the Lenders pursuant to SECTIONS 4.10,
4.15, 15.2, 15.3, 15.14 and 15.23, and, in addition thereto, shall deliver to
the Agent, in respect of each outstanding Letter of Credit, either a Supporting
Letter of Credit or Cash Collateral as provided in SECTION 3.9, and (iv) if such
termination occurs prior to the first anniversary of the Effective Date, an
early termination fee in an amount equal to 1% of the amount of the Commitments
so terminated or if such termination occurs on or after the first anniversary of
the Effective Date but prior to the second anniversary of the Effective Date, an
early termination fee in an amount equal to 1/2 of 1% of the amount of the
Commitments so terminated, PROVIDED, that such fee shall be payable only if
contemporaneously with such termination and repayment, the Borrowers (or any of
them) issue additional Debt in a private placement, a public offering, or to one
or more institutional lenders, PROVIDED FURTHER, that if Loan Availability has
been reduced by 10% or more during the six-month period preceding such
termination as a result of the Agent's having, without the agreement of Heafner,
reduced any advance rate specified in the definition "Borrowing Base" or
declared in the exercise of its reasonable credit judgment any otherwise
Eligible Inventory or Eligible Receivables to be ineligible, then such early
termination fee will not be payable notwithstanding that any such other
46
<PAGE> 54
Debt is incurred. Additionally, the Borrowers shall provide the Agent and the
Lenders with indemnification in form and substance satisfactory to the Agent in
its reasonable judgment with respect to such customary matters as the Agent and
the Lenders shall reasonably require. Following a notice of termination as
provided for in this SECTION 4.6(b) and upon payment in full of the amounts
specified in this SECTION 4.6(b), and execution and delivery of any required
indemnification, this Agreement shall be terminated and the Agent, the Lenders
and the Borrowers shall have no further obligations to any other party hereto,
except for the obligations to the Agent and the Lenders pursuant to SECTION
15.12 hereof, which shall survive any termination of this Agreement.
SECTION 4.7 Making of Loans.
(a) Nature of Obligations of Lenders to Make Loans. The obligations of
the Lenders under this Agreement to make the Loans are several and are not joint
or joint and several.
(b) Assumption by Agent. Subject to the provisions of SECTION 4.8 and
notwithstanding the occurrence or continuance of a Default or Event of Default
or other failure of any condition to the making of Loans hereunder subsequent to
the Initial Loans, unless the Agent shall have received notice from a Lender
prior to a proposed Borrowing date that such Lender will not make available to
the Agent such Lender's Proportionate Share of the Loan to be borrowed on such
date, the Agent may assume that such Lender will make such Proportionate Share
available to the Agent in accordance with SECTION 2.2(a), and the Agent may, in
reliance upon such assumption, make available to the Borrowers on such date a
corresponding amount. If and to the extent a Lender shall not make its
Proportionate Share of any Loan available to the Agent, and the Agent has made a
corresponding amount available to the Borrowers, such Lender, on the one hand,
and the Borrowers, jointly and severally on the other hand, severally agree to
repay to the Agent forthwith on demand such corresponding amount (the
"Make-Whole Amount"), together with interest thereon for each day from the date
such amount is made available to the Borrowers until the date such amount is
repaid to the Agent at (i) the Federal Funds Effective Rate if repaid by the
Lender or (ii) the Effective Interest Rate or, if lower, subject to SECTION
4.1(f), the Maximum Rate, if repaid by the Borrowers. If such Lender shall repay
to the Agent such corresponding amount, the amount so repaid shall constitute
such Lender's Proportionate Share of the Loan made on such Borrowing date for
purposes of this Agreement. The Agent shall not be required to make any Loan as
to which it shall have received notice by a Lender of such Lender's intention
not to make its Ratable Share of such Loan available to the Agent. The failure
of any Lender to make its Proportionate Share of any Loan available shall not
(without regard to whether the Borrowers shall have returned the amount thereof
to the Agent in accordance with this SECTION 4.7) relieve it or any other Lender
of its obligation, if any, hereunder to make its Proportionate Share of the Loan
available on such Borrowing date, but no Lender shall be responsible for the
failure of any other Lender to make its Proportionate Share of a Loan available
on the Borrowing date.
(c) Delegation of Authority to Agent. Without limiting the generality
of SECTION 14.1, each Lender expressly authorizes the Agent to determine on
behalf of such Lender (i) any reduction or increase of advance rates applicable
to the Borrowing Base, so long as such
47
<PAGE> 55
advance rates do not at any time exceed the rates set forth in the Borrowing
Base definition as in effect on the Agreement Date, (ii) the creation or
elimination of Additional Reserves and (iii) whether or not Inventory or
Receivables shall be deemed to constitute Eligible Inventory or Eligible
Receivables. Any withdrawal of authorization under this SECTION 4.7(c) shall not
affect the validity of any Loans made prior to the effectiveness thereof.
(d) Overadvances. Notwithstanding anything to the contrary contained
elsewhere in this SECTION 4.7 or this Agreement or the other Loan Documents and
whether or not a Default or Event of Default exists at the time, the Agent may
in its discretion require all Lenders to honor requests or deemed requests by
the Borrowers for Loans at a time that an Overadvance Condition exists or which
would result in an Overadvance Condition and each Lender shall be obligated to
continue to make its Proportionate Share of any such Overadvance Loan up to a
maximum amount outstanding equal to its Commitment, so long as such Overadvance
is not known by the Agent to exceed $3,000,000 or to exist for more than five
consecutive Business Days or more than 10 days in any Fiscal Year.
SECTION 4.8 Settlement Among Lenders.
(a) Loans. It is agreed that each Lender's Net Outstandings are
intended by the Lenders to be equal at all times to such Lender's Ratable Share
of the aggregate principal amount of all Loans outstanding. Notwithstanding such
agreement, the several and not joint obligation of each Lender to make its
Ratable Share of Loans in accordance with the terms of this Agreement and each
Lender's right to receive its Ratable Share of principal payments on Loans, the
Lenders agree that in order to facilitate the administration of this Agreement
and the Loan Documents that settlement among them may take place on a periodic
basis in accordance with the provisions of this SECTION 4.8.
(b) Settlement Procedures. To the extent and in the manner hereinafter
provided in this SECTION 4.8, settlement among the Lenders as to Base Rate Loans
may occur periodically on Settlement Dates determined from time to time by the
Agent, which may occur before or after the occurrence or during the continuance
of a Default or Event of Default and whether or not all of the conditions set
forth in SECTION 5.2 have been met. On each Settlement Date payments shall be
made by or to BankBoston and the other Lenders in the manner provided in this
SECTION 4.8 in accordance with the Settlement Report delivered by the Agent
pursuant to the provisions of this SECTION 4.8 in respect of such Settlement
Date, so that as of each Settlement Date, and after giving effect to the
transactions to take place on such Settlement Date, each Lender's Net
Outstandings shall equal such Lender's Ratable Share of the Loans.
(i) Selection of Settlement Dates. If the Agent elects, in its
discretion, but subject to the consent of BankBoston, to settle
accounts among the Lenders with respect to principal amounts of Base
Rate Loans less frequently than each Business Day, then the Agent shall
designate periodic Settlement Dates which may occur on any Business Day
after the Effective Date; PROVIDED, HOWEVER, that (A) the Agent shall
designate as a Settlement Date any Business Day which is an Interest
Payment Date, (B) a Settlement Date shall occur not less often than
every five Business Days, and (C) settlements with respect to
Eurodollar Rate Loans shall take place on the
48
<PAGE> 56
Borrowing date for such Loan, on the last day of each Interest Period
applicable thereto and on any other date during such Interest Period on
which interest is payable thereon. The Agent shall designate a
Settlement Date by delivering to each Lender a Settlement Report not
later than 12:00 noon on the proposed Settlement Date, which Settlement
Report shall be with respect to the period beginning on the next
preceding Settlement Date and ending on such designated Settlement
Date.
(ii) Non-Ratable Loans and Payments. Between Settlement Dates,
the Agent shall request and BankBoston may (but shall not be obligated
to) advance to the Borrower out of BankBoston's own funds, the entire
principal amount of any Base Rate Loan requested or deemed requested
pursuant to SECTION 2.2(a) (any such Base Rate Loan being referred to
as a "Non-Ratable Loan"). The making of each Non-Ratable Loan by
BankBoston shall be deemed to be a purchase by BankBoston of a 100%
participation in each other Lender's Proportionate Share of such
Non-Ratable Loan. All payments of principal, interest and any other
amount with respect to such Non-Ratable Loan shall be payable to and
received by the Agent for the account of BankBoston. Upon demand by
BankBoston, with notice thereof to the Agent, each other Lender shall
pay to BankBoston, as the repurchase of such participation, an amount
equal to 100% of such Lender's Proportionate Share of the principal
amount of such Non- Ratable Loan. Any payments received by the Agent
between Settlement Dates which in accordance with the terms of this
Agreement are to be applied to the reduction of the outstanding
principal balance of the Loans, shall be paid over to and retained by
BankBoston for such application, and such payment to and retention by
BankBoston shall be deemed, to the extent of each other Lender's
Proportionate Share of such payment, to be a purchase by each such
other Lender of a participation in the Loans (including the repurchase
of participations in Non-Ratable Loans) held by BankBoston. Upon demand
by another Lender, with notice thereof to the Agent, BankBoston shall
pay to the Agent, for the account of such other Lender, as a repurchase
of such participation, an amount equal to such other Lender's
Proportionate Share of any such amounts (after application thereof to
the repurchase of any participations of BankBoston in such other
Lender's Proportionate Share of any Non-Ratable Loans) paid only to
BankBoston by the Agent.
(iii) Settlement. On each Settlement Date each Lender shall
transfer to the Agent and the Agent shall transfer to each Lender such
amounts as are necessary to insure that, after giving effect to all
such transfers, each Lender's Net Outstandings are equal to such
Lenders Proportionate Share of the aggregate principal amount of all
Loans then outstanding.
(iv) Return of Payments. If any amounts received by BankBoston
in respect of the Secured Obligations are later required to be returned
or repaid by BankBoston to the Borrower or any other obligor or their
respective representatives or successors in interest, whether by court
order, settlement or otherwise, in excess of the BankBoston's
Proportionate Share of all such amounts required to be returned by all
Lenders, each other Lender shall, upon demand by BankBoston with notice
to
49
<PAGE> 57
the Agent, pay to the Agent for the account of BankBoston, an amount
equal to the excess of such Lender's Proportionate Share of all such
amounts required to be returned by all Lenders over the amount, if any,
returned directly by such Lender.
(v) Payments to Agent, Lenders.
(A) Payment by any Lender to the Agent pursuant to
this SECTION 4.8 shall be made not later than 1:00 p.m. on the
Business Day such payment is due, PROVIDED that if such
payment is due on demand by another Lender, such demand is
made on the paying Lender not later than 10:00 a.m. on such
Business Day. Payment by the Agent to any Lender shall be made
by wire transfer, promptly following the Agent's receipt of
funds for the account of such Lender and in the type of funds
received by the Agent, PROVIDED that if the Agent receives
such funds at or prior to 1:00 p.m., the Agent shall pay such
funds to such Lender by 2:00 p.m. on such Business Day. If a
demand for payment is made after the applicable time set forth
above, the payment due shall be made by 2:00 p.m. on the first
Business Day following the date of such demand.
(B) If a Lender shall, at any time, fail to make any
payment to the Agent required hereunder, the Agent may, but
shall not be required to, retain payments that would otherwise
be made to such Lender hereunder and apply such payments to
such Lender's defaulted obligations hereunder, at such time,
and in such order, as the Agent may elect in its sole
discretion.
(C) With respect to the payment of any funds under
this SECTION 4.8(b), whether from the Agent to a Lender or
from a Lender to the Agent, the party failing to make full
payment when due pursuant to the terms hereof shall, upon
demand by the other party, pay such amount together with
interest on such amount at the Federal Funds Effective Rate.
(c) Settlement of Other Secured Obligations. All other amounts received
by the Agent on account of, or applied by the Agent to the payment of, any
Secured Obligation owed to the Lenders (including, without limitation, fees
payable to the Lenders pursuant to SECTIONS 4.2(b) and (d) and proceeds from the
sale of, or other realization upon, all or any part of the Collateral following
an Event of Default) that are received by the Agent on or prior to 1:00 p.m. on
a Business Day will be paid by the Agent to each Lender on the same Business
Day, and any such amounts that are received by the Agent after 1:00 p.m. will be
paid by the Agent to each Lender on the following Business Day. Unless otherwise
stated herein, the Agent shall distribute to each Lender such Lender's
Proportionate Share of fees payable to the Lenders pursuant to SECTIONS 4.2(b)
and (d) and shall distribute to each Lender such Lender's Proportionate Share
(or if different, such Lender's share based upon the amount of the Secured
Obligations then owing to each Lender) of the proceeds from the sale of, or
other realization upon, all or any part of the Collateral following an Event of
Default.
50
<PAGE> 58
SECTION 4.9 Mandatory Prepayments.
The Borrowers shall permanently reduce the Commitments (Ratably) by an
amount equal to any amount that would otherwise constitute "Net Available Cash"
as defined in the Senior Note Indenture and be required by the terms thereof to
be applied to the prepayment of the Senior Notes. To the extent necessary to
comply with the provisions of SECTION 2.3(b) after giving effect to such
reduction, the Borrowers shall also prepay the Loans. Any such prepayment
pursuant to this SECTION 4.9 shall be applied first to Base Rate Loans to the
extent thereof and then to Eurodollar Rate Loans. If any payments are received
which result in prepayment of Eurodollar Rate Loans prior to the end of the
applicable Interest Period, the Borrowers shall also pay any amounts due
pursuant to SECTION 4.10.
SECTION 4.10 Payments Not at End of Interest Period; Failure to Borrow.
If for any reason any payment of principal with respect to any Eurodollar Rate
Loan is made on any day prior to the last day of the Interest Period applicable
to such Eurodollar Rate Loan or, after having given a Notice of Borrowing with
respect to any Eurodollar Rate Loan or a Notice of Conversion or Continuation
with respect to any Loan to be continued as or converted into a Eurodollar Rate
Loan, such Loan is not made or is not continued as or converted into a
Eurodollar Rate Loan due to the Borrowers' failure to borrow or to fulfill the
applicable conditions set forth in ARTICLE 5, the Borrowers shall pay to each
Lender, an amount equal to such Lender's costs and expenses incurred as a result
of such failure, including in connection with obtaining deposits to fund its
Ratable Share of such new (or continued or converted) Loan and redeploying such
deposits. The Borrowers shall pay such amount upon presentation by the Agent of
a statement setting forth the amount and the applicable Lender's calculation
thereof in reasonable detail, which statement shall be deemed true and correct
absent manifest error.
SECTION 4.11 Notice of Conversion or Continuation. Whenever the
Borrowers desire, subject to the provisions of SECTION 4.7, to convert an
outstanding Loan into a Loan or Loans of a different Type or to continue all or
a portion of an outstanding Eurodollar Rate Loan for a subsequent Interest
Period, the Borrowers shall notify the Agent in writing (which notice shall be
irrevocable) by telecopy not later than 11:30 a.m. on the date two Business Days
before the day on which such proposed conversion or continuation is to be
effective (and such effective date of any continuation shall be the last day of
the Interest Period for the Eurodollar Rate Loan). Each such notice (a "Notice
of Conversion or Continuation") shall (i) identify the Loan to be converted or
continued, the aggregate outstanding principal balance thereof and, if a
Eurodollar Rate Loan, the last day of the Interest Period applicable to such
Loan, (ii) specify the effective date of such conversion or continuation, (iii)
specify the principal amount of such Loan to be converted or continued and, if
converted, the Type or Types into which the same is to be converted, and (iv)
the Interest Period to be applicable to the Eurodollar Rate Loan as converted or
continued, and shall be immediately followed by a written confirmation thereof
by the Borrowers in a form acceptable to the Agent, PROVIDED that if such
written confirmation differs in any respect from the action taken by the
Lenders, the records of the Agent shall control absent manifest error.
SECTION 4.12 Conversion or Continuation. Provided that no Event of
Default shall have occurred and be continuing (but subject to the provisions of
SECTIONS 4.11 and
51
<PAGE> 59
4.13), the Borrowers may request that all or any part of any outstanding Loan be
converted into a Loan or Loans of a different Type or be continued as a Loan or
Loans of the same Type, in the same aggregate principal amount, on any Business
Day (which, in the case of continuation of a Eurodollar Rate Loan, shall be the
last day of the Interest Period applicable to such Loan), upon notice (which
notice shall be irrevocable) given in accordance with SECTION 4.11.
SECTION 4.13 Duration of Interest Periods; Maximum Number of Eurodollar
Rate Loans; Minimum Increments.
(a) Subject to the provisions of the definition "Interest Period," the
duration of each Interest Period applicable to a Eurodollar Rate Loan shall be
as specified in the applicable Notice of Borrowing or Notice of Conversion or
Continuation. The Borrowers may elect a subsequent Interest Period to be
applicable to any Eurodollar Rate Loan by giving a Notice of Conversion or
Continuation with respect to such Loan in accordance with SECTION 4.11.
(b) If the Agent does not receive a notice of election in accordance
with SECTION 4.11 with respect to the continuation of Eurodollar Rate Loan
within the applicable time limits specified in said SECTION 4.11, or if, when
such notice must be given, an Event of Default exists or such Type of Loan is
not available, the Borrowers shall be deemed to have elected to convert such
Eurodollar Rate Loan in whole into a Base Rate Loan on the last day of the
Interest Period therefor.
(c) Notwithstanding the foregoing, the Borrowers may not select an
Interest Period that would end, but for the provisions of the definition
"Interest Period," after the Termination Date.
(d) In no event shall there be more than six Eurodollar Rate Loans
outstanding hereunder at any time. For the purpose of this SUBSECTION (d), each
Loan having a distinct Interest Period shall be deemed to be a separate Loan
hereunder.
(e) Each Eurodollar Rate Loan shall be in a minimum amount of
$1,000,000 or an integral multiple of $250,000 in excess thereof.
SECTION 4.14 Changed Circumstances.
(a) If the introduction of or any change in or in the interpretation of
(in each case, after the date hereof) any law or regulation makes it unlawful,
or any Governmental Authority asserts, after the date hereof, that it is
unlawful, for any Lender to perform its obligations hereunder to make Eurodollar
Rate Loans or to fund or maintain Eurodollar Rate Loans hereunder, such Lender
shall notify the Agent of such event and the Agent shall notify the Borrowers of
such event, and the right of the Borrowers to select Eurodollar Rate Loan for
any subsequent Interest Period or in connection with any subsequent conversion
of any Loan shall be suspended until the Agent shall notify the Borrowers that
the circumstances causing such suspension no longer exist, and the Borrowers
shall forthwith prepay in full all Eurodollar Rate Loans then outstanding and
shall pay all interest accrued thereon through the date of such prepayment or
conversion, unless the Borrowers, within three Business Days after such notice
52
<PAGE> 60
from the Agent, request the conversion of all Eurodollar Rate Loans then
outstanding into Base Rate Loans; PROVIDED, that if the date of such repayment
or proposed conversion is not the last day of the Interest Period applicable to
such Eurodollar Rate Loans, the Borrowers shall also pay any amount due pursuant
to SECTION 4.10.
(b) If the Agent shall, at least one Business Day before the date of
any requested Borrowing or the effective date of any conversion or continuation
of an existing Loan to be made or continued as or converted into a Eurodollar
Rate Loan (each such requested Borrowing made and Loan to be converted or
continued, a "Pending Loan"), notify the Borrowers that the Eurodollar Rate will
not adequately reflect the cost to the Lenders of making or funding such Pending
Loan as a Eurodollar Rate Loan or that the Interbank Offered Rate is not
determinable from any interest rate reporting service of recognized standing,
then the right of the Borrowers to select Eurodollar Rate Loan for such Pending
Loan, any subsequent Loan or in connection with any subsequent conversion or
continuation of any Loan shall be suspended until the Agent shall notify the
Borrowers that the circumstances causing such suspension no longer exist, and
each Pending Loan and each such subsequent Loan requested to be made, continued
or converted shall be made or continued as or converted into a Base Rate Loan.
SECTION 4.15 Cash Collateral Account; Investment Accounts.
(a) Cash Collateral Account. The Borrowers shall establish a Cash
Collateral Account in which to deposit Collateral consisting of cash or Cash
Equivalents from time to time
(i) representing payments received pursuant to SECTION 2.3(c)
in excess of then outstanding Loans or on account of Eurodollar Rate
Loans which would otherwise result in repayment of such Loans prior to
the end of the Interest Period applicable thereto,
(ii) with respect to Letter of Credit Obligations (x) at the
request of the Agent upon the occurrence of an Event of Default, or (y)
for the purposes set forth in SECTION 4.6 in the event of termination
of this Agreement, or
(iii) for any other purpose as may be agreed between the Agent
and the Borrowers to provide security for the Secured Obligations.
On the last day of the applicable Interest Period as to any amounts deposited to
the Cash Collateral Account pursuant to CLAUSE (i) above or if a drawing under a
Letter of Credit occurs with respect to any amounts deposited to the Cash
Collateral Account pursuant to CLAUSE (ii) above, the Borrowers hereby authorize
the Agent to use the monies deposited in the Cash Collateral Account to make
payment to the payee with respect to such Loan or drawing. The Cash Collateral
Account shall be in the name of the Agent and the Agent shall have sole dominion
and control over, and sole access to, the Cash Collateral Account. Neither any
Borrower nor any Person claiming on behalf of or through any Borrower shall have
any right to withdraw any of the funds held in the Cash Collateral Account. The
Borrowers agree that they will not at any time (x) sell or otherwise dispose of
any interest in the Cash Collateral Account or any funds held therein or (y)
create or permit to exist any Lien upon or with respect to the Cash Collateral
Account or any funds held therein, except as
53
<PAGE> 61
provided in or contemplated by this Agreement. The Agent shall exercise
reasonable care in the custody and preservation of any funds held in the Cash
Collateral Account and shall be deemed to have exercised such care if such funds
are accorded treatment substantially equivalent to that which the Agent accords
other funds deposited with the Agent, it being understood that the Agent shall
not have any responsibility for taking any necessary steps to preserve rights
against any parties with respect to any funds held in the Cash Collateral
Account. Subject to the right of the Agent to withdraw funds from the Cash
Collateral Account as provided herein, the Agent will, so long as no Default or
Event of Default shall have occurred and be continuing, from time to time invest
funds on deposit in the Cash Collateral Account, reinvest proceeds of any such
investments which may mature or be sold, and invest interest or other income
received from any such investments, in each case, in Cash Equivalents, as the
Borrowers may direct prior to the occurrence of a Default or Event of Default
and as the Agent may select after the occurrence and during the continuance of a
Default or Event of Default. Such proceeds, interest and income which are not so
invested or reinvested in Cash Equivalents shall be deposited and held by the
Agent in the Cash Collateral Account. The Agent makes no representation or
warranty as to, and shall not be responsible for, the rate of return, if any,
earned in any Cash Collateral. Any earnings on Cash Collateral shall be held as
additional Cash Collateral on the terms set forth in this SECTION 4.15.
(b) Investment Accounts. The Borrowers may from time to time establish
one or more Investment Accounts with the Agent, any Lender or any Affiliate of a
Lender, for the purpose of investing in Cash Equivalents any Cash Collateral
representing payments received pursuant to SECTION 2.3(c) in excess of then
outstanding Loans or on account of Eurodollar Rate Loans which would otherwise
result in repayment of such Loans prior to the end of the Interest Period
applicable thereto. The Borrowers hereby acknowledge and agree that each such
Investment Account shall constitute Collateral hereunder and shall be maintained
with the Agent, a Lender or Affiliate of a Lender as security for the Secured
Obligations. Notwithstanding the foregoing, until such time as the Agent shall
otherwise instruct the Lender or the Affiliate of a Lender maintaining such
account, the Borrowers shall be entitled to direct the investment of the funds
deposited therein. The Borrowers agree that they will not at any time (x) sell
or otherwise dispose of any interest in any Investment Account or any funds held
therein other than by application thereof to any Secured Obligation, or (y)
create or permit to exist any Lien upon or with respect to any Investment
Account or any funds held therein, except as provided in or contemplated by this
Agreement. The Borrowers agree that at any time, and from time to time, at the
expense of the Borrowers, the Borrowers will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Agent or any Lender may request, in order to
perfect and protect any security interest in any Investment Account granted or
purported to be granted hereby or to enable the Borrowers, for their respective
benefit and the benefit of the Lenders, to exercise and enforce its rights and
remedies hereunder with respect to such Investment Account.
SECTION 4.16 Allocation of Payments from Borrowers. All monies to be
applied to the Secured Obligations, whether such monies represent voluntary
payments by the Borrowers or are received pursuant to demand for payment or
realized from any disposition of Collateral, shall be allocated among the Agent
and such of the Lenders and other holders of the Secured Obligations as are
entitled thereto (and, with respect to monies allocated to the Lenders, on a
Ratable basis unless otherwise provided in this SECTION 4.16): (i) first, to
BankBoston to pay
54
<PAGE> 62
principal and accrued interest on any portion of any Non-Ratable Loan which
BankBoston may have advanced on behalf of any Lender and for which BankBoston
has not been reimbursed by such Lender or the Borrowers; (ii) second, to the
Agent to pay the amount of expenses that have not been reimbursed to the Agent
by the Borrowers or the Lenders, together with interest accrued thereon; (iii)
third, to the Agent to pay any indemnified amount that has not been paid to the
Agent by the Borrowers or the Lenders, together with interest accrued thereon;
(iv) fourth, to the Agent to pay any fees due and payable to the Agent under
this Agreement; (v) fifth, to the Lenders for any indemnified amount that they
have paid to the Agent and for any expenses that they have reimbursed to the
Agent; (vi) sixth, to the Lenders in payment of the unpaid principal and accrued
interest in respect of the Loans and any other Secured Obligations then
outstanding and held by any Lender to be shared among Lenders on a Ratable
basis, or on such other basis as may be agreed upon in writing by all of the
Lenders (which agreement or agreements may be entered into without notice to or
the consent or approval of the Borrowers); and (vii) seventh, to the holders of
the other Secured Obligations who are not Lenders on a pro rata basis. The
allocations set forth in this SECTION 4.16 are solely to determine the rights
and priorities of the Agent and the Lenders as among themselves and may be
changed by the Agent and the Lenders without notice to or the consent or
approval of the Borrowers or any other Person. Whenever allocation is made
pursuant to this SECTION 4.16 to the holder of Secured Obligations in which
another Lender acquires a participation, the monies received by such holder
shall be shared as between such holder and such participants on a Ratable basis.
SECTION 4.17 Borrowers' Representative. Heafner shall act under this
Agreement as the representative of all Borrowers, and each other Borrower hereby
appoints Heafner as its representative, hereunder, for all purposes, including,
without being limited to, requesting borrowings and receiving account statements
and other notices and communications to the Borrowers (or any of them) from the
Agent or any Lender. The Agent and the Lenders may rely, and shall be fully
protected in relying, on any request for borrowing, disbursement instruction,
report, information or any other notice or communication made or given by
Heafner, whether in its own name, on behalf of any other Borrower or on behalf
of "the Borrowers," and neither the Agent nor any Lender shall have any
obligation to make any inquiry or request any confirmation from or on behalf of
any other Borrower as to the binding effect on it of any such request,
instruction, report, information, notice or communication, nor shall the joint
and several character of the Borrowers' liability for the Secured Obligations be
affected. The Agent and each Lender intend to maintain a single Loan Account in
the name of "The J.H. Heafner Company, Inc." hereunder and each Borrower
expressly agrees to such arrangement and confirms that such arrangement shall
have no effect on the joint and several character of its liability for the
Secured Obligations.
SECTION 4.18 Joint and Several Liability.
(a) Joint and Several Liability. The Secured Obligations shall
constitute one joint and several direct and general obligation of all of the
Borrowers. Notwithstanding anything to the contrary contained herein, each of
the Borrowers shall be jointly and severally, with each other Borrower, directly
and unconditionally liable to the Agent and the Lenders for all Secured
Obligations and shall have the obligations of co-maker with respect to the
Loans, the Notes, and the Secured Obligations, it being agreed that the advances
to each Borrower inure to the benefit
55
<PAGE> 63
of all Borrowers, and that the Agent and the Lenders are relying on the joint
and several liability of the Borrowers as co-makers in extending the Loans
hereunder. Each Borrower hereby unconditionally and irrevocably agrees that upon
default in the payment when due (whether at stated maturity, by acceleration or
otherwise) of any principal of, or interest on, any Loan or other Secured
Obligation payable to the Agent or any Lender, it will forthwith pay the same,
without notice or demand.
(b) No Modification or Release of Obligations. No payment or payments
made by any of the Borrowers or any other Person or received or collected by the
Agent or any Lender from any of the Borrowers or any other Person by virtue of
any action or proceeding or any set-off or appropriation or application at any
time or from time to time in reduction of or in payment of the Secured
Obligations shall be deemed (except to the extent Secured Obligations are
satisfied) to modify, release or otherwise affect the liability of each Borrower
under this Agreement, which shall remain liable for the Secured Obligations
until the Secured Obligations are paid in full and the Commitments are
terminated.
SECTION 4.19 Obligations Absolute. Each Borrower agrees that the
Secured Obligations will be paid strictly in accordance with the terms of the
Loan Documents, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Agent or any Lender with respect thereto. All Secured Obligations shall be
conclusively presumed to have been created in reliance hereon. The liabilities
under this Agreement shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of any Loan Documents or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payments of, or in any
other term of, all or any part of the Secured Obligations, or any other
amendment or waiver thereof or any consent to departure therefrom, including,
but not limited to, any increase in the Secured Obligations resulting from the
extension of additional credit to any Borrower or otherwise;
(c) any taking, exchange, release or non-perfection of any collateral,
or any release or amendment or waiver of or consent to departure from any
guaranty for all or any of the Secured Obligations;
(d) any change, restructuring or termination of the corporate structure
or existence of any Borrower; or
(e) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, any Borrower or a guarantor.
This Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Secured Obligations is rescinded or
must otherwise be returned by the Agent or any Lender upon the insolvency,
bankruptcy or reorganization of any Borrower or otherwise, all as though such
payment had not been made.
56
<PAGE> 64
SECTION 4.20 Waiver of Suretyship Defenses. Each Borrower agrees that
the joint and several liability of the Borrowers provided for in SECTION 4.18
shall not be impaired or affected by any modification, supplement, extension or
amendment or any contract or agreement to which the other Borrowers may
hereafter agree (other than an agreement signed by the Agent and the Lenders
specifically releasing such liability), nor by any delay, extension of time,
renewal, compromise or other indulgence granted by the Agent or any Lender with
respect to any of the Secured Obligations, nor by any other agreements or
arrangements whatever with the other Borrowers or with anyone else, each
Borrower hereby waiving all notice of such delay, extension, release,
substitution, renewal, compromise or other indulgence, and hereby consenting to
be bound thereby as fully and effectually as if it had expressly agreed thereto
in advance. The liability of each Borrower is direct and unconditional as to all
of the Secured Obligations, and may be enforced without requiring the Agent or
any Lender first to resort to any other right, remedy or security. Each Borrower
hereby expressly waives promptness, diligence, notice of acceptance and any
other notice with respect to any of the Secured Obligations, the Notes, this
Agreement or any other Loan Document (other than notices expressly required in
this Agreement or by any of the Loan Documents) and any requirement that the
Agent or any Lender protect, secure, perfect or insure any Lien or any property
subject thereto or exhaust any right or take any action against any Borrower or
any other Person or any collateral, including any rights any Borrower may
otherwise have under the New York General Obligations Law.
57
<PAGE> 65
ARTICLE 5
CONDITIONS PRECEDENT
SECTION 5.1 Conditions Precedent to Initial Loans. Notwithstanding any
other provision of this Agreement, this Agreement shall not become effective nor
shall the Lenders have any obligation to make the Initial Loans unless and until
the following conditions precedent are satisfied:
(a) Documents. The Agent shall have received on or before the Effective
Date the following, each in form and substance satisfactory to the Agent, its
special counsel and the Lenders and (except for the Notes) in sufficient copies
for each Lender:
(1) Agreement. This Agreement, duly executed and delivered by
the Borrowers and the other Lenders;
(2) Notes. The Notes, each dated the Effective Date and duly
executed and delivered by the Borrowers;
(3) Articles, Bylaws and Resolutions. A certificate, dated the
Effective Date, of the Secretary or an Assistant Secretary of each Loan
Party, as to and having attached thereto copies of the articles of
incorporation and by-laws and shareholder agreements of such Loan Party
as in effect on the Effective Date and all corporate action, including
shareholder approval, if necessary, taken by such Loan Party and/or its
shareholders to authorize the execution, delivery and performance of
this Agreement and the other Loan Documents to which such Loan Party is
a party and, in the case of each Borrower, the Borrowings under this
Agreement;
(4) Incumbency Certificates. A certificate, dated the
Effective Date, of the Secretary or an Assistant Secretary of each Loan
Party, as to the incumbency and specimen signatures of each of the
officers of such Loan Party who is authorized to execute and deliver
this Agreement or any other Loan Document on behalf of such Loan Party
or any document, certificate or instrument to be delivered in
connection with this Agreement or the other Loan Documents to which
such Loan Party is a party and, in the case of each Borrower, to
request Borrowings under this Agreement;
(5) Good Standing Certificates. A certificate as of a recent
date evidencing the good standing of each Loan Party in the
jurisdiction of its incorporation and in each other jurisdiction in
which it is qualified as a foreign corporation to transact business;
(6) Financing Statements. The Financing Statements to be
delivered by the Loan Parties duly executed and delivered by the Loan
Parties, and evidence satisfactory to the Agent that the Financing
Statements have been filed in each jurisdiction where such filing may
be necessary or appropriate to perfect the Security Interest or, at the
Agent's discretion, in appropriate form for such filing;
58
<PAGE> 66
(7) Landlord's Waiver. Landlord's waiver and consent
agreements duly executed on behalf of each landlord of real property on
which any Collateral is located, except to the extent that the Rent
Reserve appropriately reflects the absence of such a waiver;
(8) Schedules of Inventory and Receivables. A Schedule of
Inventory and a Schedule of Receivables, each prepared as of a recent
date;
(9) Insurance Coverage. Certificates or binders of insurance
relating to each of the policies of insurance covering any of the
Collateral together with loss payable clauses which comply with the
terms of SECTION 8.8(b);
(10) Solvency Letter. A certificate of the chief financial
officer of Heafner as to the solvency of the Borrowers, having attached
thereto the pro forma opening balance sheet and projections referred to
in SECTION 6.1(n) and a pro forma opening balance sheet of the
Borrowers prepared on the same basis as such first-mentioned pro forma
but reflecting the fair values of the Borrowers' assets;
(11) Agency Account Agreements. Such Agency Account Agreements
duly executed by the applicable Clearing Bank and Loan Party and
confirmations of effective directions to pay the Agent affecting each
account of a Loan Party to which Collateral proceeds are deposited, as
may be required by the Agent;
(12) Borrowing Base Certificate. A Borrowing Base Certificate
prepared as of the Effective Date duly executed and delivered by the
Financial Officer demonstrating Loan Availability of not less than
$25,000,000, after giving effect to the Initial Loans, the consummation
of the CPW Acquisition and the ITCO Merger, the issuance of the Senior
Notes and the Class B Stock, the repayment of Debt of Heafner and other
Loan Parties, and the completion of the other transactions contemplated
by this Agreement, the CPW Acquisition Documents or the ITCO Merger
Documents to occur on or before the Effective Date;
(13) Notice of Borrowing. The Initial Notice of Borrowing
dated the Effective Date from the Borrowers to the Agent requesting the
Initial Loans and specifying the method of disbursement;
(14) Financial Statements. Copies of all the financial
statements referred to in SECTION 6.1(n) and meeting the requirements
thereof;
(15) Officer's Certificate. A certificate of the President or
a Vice President of Heafner stating that, to the best of his knowledge
and based on an examination sufficient to enable him to make an
informed statement, (a) all of the representations and warranties made
or deemed to be made under this Agreement are true and correct as of
the Effective Date, both with and without giving effect to the Initial
Loans and the application of the proceeds thereof, and (b) as of the
Effective Date, no Default or Event of Default exists;
59
<PAGE> 67
(16) Release of Liens. Payoff letters as of the Effective Date
or the Business Day next prior to the Effective Date, from Fleet, in
its capacity as a lender to ITCO Logistics and its Subsidiaries, and
Deutsche Bank, in its capacity as a lender to CPW, together with
evidence satisfactory to the Agent of the release and termination of
(or agreement to release and terminate or to assign to the Agent at its
request) all Liens other than Permitted Liens;
(17) Fact Certificate. A certification from an appropriate
officer of each Borrower as to such factual matters as shall be
required by the Agent;
(18) Other Loan Documents. Copies of each of the other Loan
Documents dated the Effective Date, duly executed by the parties
thereto with evidence satisfactory to the Agent and its counsel of the
due authorization, binding effect and enforceability of each such Loan
Document on each such party and such other documents and instruments as
the Agent may reasonably request;
(19) Legal Opinions. An opinion dated the Effective Date of
each of J. Michael Gaither, general counsel of Heafner, Howard Darby &
Levin, counsel for the Borrowers, Hahn & Hahn, counsel for Winston,
Beaman & King, P.A., counsel for ITCO, Jackson, Tufts, Cole Black,
counsel for CPW and of such local counsel as the Agent shall deem
necessary or desirable, opining as to such matters in connection with
this Agreement as the Agent or its counsel may reasonably request;
(20) Fees. The Agent shall have received from the Borrowers
all of the fees payable on the Effective Date referred to herein;
(21) Priority. The Agent shall have received satisfactory
evidence that the Agent (for the benefit of Lenders) has a valid and
perfected first priority security interest as of such date in all of
the Collateral, subject only to Permitted Liens; and
(22) Fleet Financing. A letter agreement, in form and
substance satisfactory to the Agent, each Lender and each Loan Party,
setting forth the conditions pursuant to which the Fleet Financing will
be permitted by the Lenders and the Agent to remain in effect, subject
to the conditions of such letter agreement and SECTION 12.1(p) duly
executed by each Lender and each Loan Party.
(b) Litigation. The Agent shall have received evidence satisfactory to
it that no action, proceeding, investigation, regulation or legislation, shall
have been instituted, threatened or proposed before any court, governmental
agency or legislative body to enjoin, restrain or prohibit, or to obtain
substantial damages in respect of, or which is related to or arises out of, the
CPW Acquisition, the ITCO Acquisition, this Agreement, or the consummation of
the transactions contemplated thereby or hereby, or which may otherwise have a
Materially Adverse Effect.
(c) CPW Acquisition. The CPW Acquisition shall have been consummated in
accordance with the terms of the CPW Acquisition Agreement, without any waiver
of any
60
<PAGE> 68
material provision thereof by Heafner; and the Agent shall have received copies
of the CPW Acquisition Agreement and all agreements, documents and instruments
delivered in connection with the consummation of the transactions thereunder,
including, without being limited to, copies of the legal opinions issued in
connection therewith, addressed to the Agent and the Lenders or accompanied by
reliance letters in favor of the Agent and the Lenders.
(d) ITCO Merger. The ITCO Merger shall have been consummated in
accordance with the terms of the ITCO Merger Agreement, without any waiver of
any material provision thereof by Heafner; and the Agent shall have received
copies of the ITCO Merger Agreement and all other agreements, documents and
instruments delivered in connection with the consummation of the transactions
contemplated thereby, including, without being limited to, copies of the legal
opinions issued in connection therewith, addressed to the Agent and the Lenders
or accompanied by reliance letters in favor of the Agent and the Lenders.
(e) Senior Notes. Heafner shall have received gross proceeds equal to
at least $100,000,000 from the issuance of Senior Notes in accordance with the
terms and provisions of the Senior Note Indenture and the Agent shall have
received copies of the Senior Note Indenture and all instruments (other than the
Senior Notes), certificates and other documents delivered in connection with the
issuance of the Senior Notes thereunder.
(f) No Material Adverse Change. There shall not have occurred any
event or series of events or circumstances or group of circumstances which
individually or in the aggregate, in the sole judgment of the Agent, would have
a Materially Adverse Effect.
SECTION 5.2 All Loans; Letters of Credit. The obligation of the
Lenders to make (but not to continue or convert any outstanding Loan, which
shall be subject to the provisions of SECTION 4.12) any Loan hereunder,
including the Loans constituting the Initial Loans and all subsequent Loans, and
of BankBoston to issue any Letter of Credit are further subject to the
following:
(a) at such time, both with and without giving effect to the Loans to
be made or Letters of Credit to be issued at such time and the application of
the proceeds thereof, (1) no Default or Event of Default shall exist nor (2)
shall any event have occurred or condition exist that could reasonably be
expected to have a Materially Adverse Effect, and
(b) the corporate actions of the Loan Parties referred to in SECTION
5.1(a)(3) shall remain in full force and effect and the incumbency of officers
shall be as stated in the certificates of incumbency delivered pursuant to
SECTION 5.1(a)(4) or as subsequently modified and reflected in a certificate of
incumbency delivered to the Agent.
Each request or deemed request for any Borrowing or other advance or submission
of any application for any Letter of Credit hereunder shall be deemed to be a
certification by the Borrowers to the Agent and the Lenders as to the matters
set forth in SECTION 5.2(a) and (b) and the Agent and the Lenders may, without
waiving either condition, consider the conditions specified in SECTIONS 5.2(a)
and (b) fulfilled and a representation by the Borrowers to such effect made, if
no written
61
<PAGE> 69
notice to the contrary is received by the Agent prior to the making of the Loan
then to be made or the issuance of the Letter of Credit so requested.
SECTION 5.3 Conditions as Covenants. In the event that the Lenders
permit this Agreement to become effective and make the Initial Loans or permit
BankBoston to issue a Letter of Credit prior to the satisfaction of all
conditions precedent set forth in SECTION 5.1, and such conditions are not
waived in writing by the Agent, the Borrowers shall nevertheless cause such
condition or conditions to be satisfied within thirty days after the making of
such Initial Loans or the issuance of such Letter of Credit.
62
<PAGE> 70
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BORROWERS
SECTION 6.1 Representations and Warranties. The Borrowers represent
and warrant to the Agent and to the Lenders as follows:
(a) Organization; Power; Qualification. Each Borrower and each of its
Subsidiaries is a corporation, duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, having the power
and authority to own its properties and to carry on its business as now being
and hereafter proposed to be conducted and is duly qualified and authorized to
do business in each jurisdiction in which the character of its properties or the
nature of its business requires such qualification or authorization. The
jurisdictions in which each of the Borrowers and each of their respective
Subsidiaries is qualified to do business as a foreign corporation are listed on
SCHEDULE 6.1(a).
(b) Capitalization; Shareholder Agreements. The outstanding capital
stock of the Borrowers has been duly and validly issued and is fully paid and
nonassessable, and the number and owners of such shares of capital stock of the
Borrowers are set forth on SCHEDULE 6.1(b). Except as set forth on SCHEDULE
6.1(b), the issuance and sale of the Borrowers' capital stock have been
registered or qualified under applicable federal and state securities laws or
are exempt therefrom and there are no shareholders agreements, options,
subscription agreements or other agreements or understandings to which any
Borrower is a party in effect with respect to the capital stock of a Borrower,
including, without limitation, agreements providing for special voting
requirements or arrangements for approval of corporate actions or other matters
relating to corporate governance or restrictions on share transfer or providing
for the issuance of any securities convertible into shares of the capital stock
of any Borrower, any warrants or other rights to acquire any shares or
securities convertible into such shares, or any agreement that obligates a
Borrower, either by its terms or at the election of any other Person, to
repurchase such shares under any circumstances.
(c) Subsidiaries. SCHEDULE 6.1(c) correctly sets forth the name of
each Subsidiary of any Borrower, its jurisdiction of incorporation, the name of
its immediate parent or parents, and the percentage of its issued and
outstanding securities owned by the Borrowers or any other Subsidiary of any
Borrower. Except as set forth on SCHEDULE 6.1(c),
(i) no Subsidiary has issued any securities convertible into
shares of such Subsidiary's capital stock or any options, warrants or
other rights to acquire any shares or securities convertible into such
shares,
(ii) the outstanding stock and securities of each Subsidiary
are owned by a Borrower or a Wholly Owned Subsidiary of a Borrower, or
by a Borrower and one or more of its Wholly Owned Subsidiaries, free
and clear of all Liens, warrants, options and rights of others of any
kind whatsoever, and
(iii) no Borrower has any Subsidiaries.
63
<PAGE> 71
The outstanding capital stock of each Subsidiary has been duly and validly
issued and is fully paid and nonassessable by the issuer, and the number and
owners of the shares of such capital stock are set forth on SCHEDULE 6.1(c).
(d) Authorization of Agreement, Notes, Loan Documents and Borrowing.
Each Loan Party has the right and power, and has taken all necessary action to
authorize it, to execute, deliver and perform this Agreement and each of the
Loan Documents to which it is a party in accordance with their respective terms.
This Agreement and each of the Loan Documents have been duly executed and
delivered by the duly authorized officers of each Loan Party and each is, or
each when executed and delivered in accordance with this Agreement will be, a
legal, valid and binding obligation of each such Loan Party, enforceable in
accordance with its terms.
(e) Compliance of Agreement, Notes, Loan Documents and Borrowing with
Laws, Etc. Except as set forth on SCHEDULE 6.1(e), the execution, delivery and
performance of this Agreement and each of the Loan Documents in accordance with
their respective terms and the borrowings hereunder do not and will not, by the
passage of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any
Applicable Law relating to a Borrower or any of its Subsidiaries,
(ii) conflict with, result in a breach of or constitute a
default under the articles or certificate of incorporation, by-laws or
any shareholders' agreement of a Borrower or any of its Subsidiaries,
(iii) conflict with, result in a breach of or constitute a
default under any material provisions of any indenture, agreement or
other instrument to which a Borrower or any of its Subsidiaries is a
party or by which a Borrower, any of its Subsidiaries or any of any
Borrower's or such Subsidiaries' property may be bound or any
Governmental Approval relating to a Borrower or any of its
Subsidiaries, or
(iv) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter
acquired by a Borrower other than the Security Interest.
(f) Business. Each Borrower is engaged in the business described on
SCHEDULE 6.1(f).
(g) Compliance with Law; Governmental Approvals. Except as set forth in
SCHEDULE 6.1(g), each Borrower and each of its Subsidiaries
(i) has all Governmental Approvals, including permits relating
to federal, state and local Environmental Laws, ordinances and
regulations, required by any Applicable Law for it to conduct its
business, each of which is in full force and effect, is final and not
subject to review on appeal and is not the subject of any
64
<PAGE> 72
pending or, to the knowledge of any Borrower, threatened attack by
direct or collateral proceeding, and
(ii) is in compliance with each Governmental Approval
applicable to it and in compliance with all other Applicable Laws
relating to it, including, without being limited to, all Environmental
Laws and all occupational health and safety laws applicable to any
Borrower, any of its Subsidiaries or their respective properties,
except for instances of noncompliance which would not, singly or in the
aggregate, cause a Default or Event of Default or have a Materially Adverse
Effect and in respect of which appropriate reserves have been established.
(h) Title to Properties. Except as set forth in SCHEDULE 6.1(h), each
Borrower and each of the Subsidiaries has valid and legal title to or leasehold
interest in all personal property, Real Estate and other assets used in its
business, including, but not limited to, those reflected on the most recent
balance sheet of the Borrowers delivered pursuant to SECTION 6.1(n).
(i) Liens. Except as set forth in SCHEDULE 6.1(i), none of the
properties and assets of any Borrower or any Subsidiary is subject to any Lien,
except Permitted Liens. Other than the Financing Statements, no financing
statement under the UCC of any State or other instrument evidencing a Lien which
names a Borrower or any Subsidiary as debtor has been filed (and has not been
terminated) in any State or other jurisdiction, and neither any Borrower nor any
Subsidiary has signed any such financing statement or other instrument or any
security agreement authorizing any secured party thereunder to file any such
financing statement or instrument, except to perfect those Liens listed on
SCHEDULE 6.1(i).
(j) Indebtedness and Guaranties. SCHEDULE 6.1(j) is a complete and
correct listing of all (i) Debt and (ii) Guaranties of each Borrower and each of
its Subsidiaries. Each Borrower and each of its Subsidiaries has performed and
is in compliance in all material respects with all of the terms of such Debt and
Guaranties and all instruments and agreements relating thereto, and no default
or event of default, or event or condition which with notice or lapse of time,
or both, would constitute such a default or event of default, exists with
respect to any such Debt or Guaranty.
(k) Litigation. Except as set forth on SCHEDULE 6.1(k), as of the
Effective Date there are no actions, suits or proceedings pending (nor, to the
knowledge of any Borrower, are there any actions, suits or proceedings
threatened, or any reasonable basis therefor) against or in any other way
relating to or affecting a Borrower or its Subsidiaries or any of their
respective properties in any court or before any arbitrator of any kind or
before or by any governmental body, EXCEPT actions, suits or proceedings of the
character normally incident to the kind of business conducted by the Borrowers
and their Subsidiaries which, if adversely determined, would not singly or in
the aggregate have a Materially Adverse Effect, and there are no strikes or
walkouts in progress, pending or contemplated relating to any labor contracts to
which a Borrower or any of its Subsidiaries is a party, relating to any labor
contracts being negotiated, or otherwise.
65
<PAGE> 73
(l) Tax Returns and Payments. Except as set forth on SCHEDULE 6.1(l),
all United States federal, state and local as well as foreign national,
provincial and local and other tax returns of each Borrower and each of its
Subsidiaries required by Applicable Law to be filed have been duly filed, and
all United States federal, state and local and foreign national, provincial and
local and other taxes, assessments and other governmental charges or levies upon
a Borrower or any of its Subsidiaries or their respective property, income,
profits and assets which are due and payable have been paid, except any such
nonpayment which is at the time permitted under SECTION 9.6. The charges,
accruals and reserves on the books of the Borrowers and each Subsidiary as of
the Effective Date in respect of United States federal, state and local and
foreign national, provincial and local taxes for all fiscal years and portions
thereof since January 1, 1988 are in the judgment of the Borrowers adequate, and
the Borrowers know of no reason to anticipate any additional assessments for any
of such years which, singly or in the aggregate, might have a Materially Adverse
Effect.
(m) Burdensome Provisions. Except as set forth on SCHEDULE 6.1(m),
neither Borrower nor any Subsidiary is a party to any indenture, agreement,
lease or other instrument, or subject to any charter or corporate restriction,
Governmental Approval or Applicable Law compliance with the terms of which is
reasonably likely to have a Materially Adverse Effect.
(n) Financial Statements.
(i) The Borrowers have furnished to the Agent and the Lenders
(1) the audited closing balance sheet of Winston as of May 7, 1997, (2)
copies of Heafner's consolidating and audited consolidated balance
sheets as at December 31, 1997 and the related consolidating and
audited consolidated statements of income, cash flow and shareholders
equity for the Fiscal Year then ended, which financial statements
present fairly and in all material respects in accordance with GAAP the
financial positions of Heafner and its consolidated Subsidiaries as at
December 31, 1997, and the results of operations of Heafner and its
consolidated Subsidiaries for such Fiscal Year, together with the
report of Arthur Andersen LLP on such consolidated financial
statements, (3) copies of the audited consolidated balance sheet of CPW
and its consolidated Subsidiaries as of October 31, 1997 and the
related audited consolidated statements of income, cash flow and
stockholders equity of CPW and its consolidated Subsidiaries for its
fiscal year then ended, reported on by KPMG Peat Marwick L.L.P. and of
the unaudited consolidated balance sheet of CPW and its consolidated
Subsidiaries as of January 31, 1998 and the related unaudited
consolidated statements of income, cash flow and stockholders equity of
CPW and its consolidated Subsidiaries for the fiscal quarter of CPW
then ended, (5) copies of the audited consolidated balance sheet of
ITCO Logistics and its consolidated Subsidiaries as of September 30,
1997 and the related audited consolidated statements of income, cash
flow and stockholders equity of ITCO Logistics and its consolidated
Subsidiaries for its fiscal year then ended, reported on by Ernst &
Young L.L.P. and of the unaudited consolidated balance sheet of ITCO
Logistics and its consolidated Subsidiaries as of December 31, 1997 and
the related unaudited consolidated statements of income, cash flow and
stockholders equity of ITCO Logistics and its consolidated Subsidiaries
for the fiscal quarter of ITCO then ended,
66
<PAGE> 74
and (6) a pro forma opening consolidated balance sheet of Heafner and
its Consolidated Subsidiaries (in the form attached to the solvency
certificate delivered pursuant to SECTION 5.1(a)(10)), as of a date on
or about the Effective Date, giving effect to the consummation of the
CPW Acquisition, the ITCO Merger, the issuance of the Senior Notes, and
the Class B Stock, the repayment of Debt of CPW and its Subsidiaries,
of ITCO Logistics and its Subsidiaries and of the Acquisition Sub Debt
(as defined in the Existing Loan Agreement), the making of the Initial
Loans, and all related transactions contemplated by this Agreement, the
CPW Acquisition Documents, the ITCO Merger Documents or the Senior Note
Indenture to occur on or before the Effective Date.
(ii) Except as set forth on SCHEDULE 6.1(n) or as disclosed or
reflected in the financial statements described in CLAUSE (i) above,
neither Heafner nor any other Borrower nor any of their respective
Subsidiaries has any material liabilities, contingent or otherwise.
(iii) The pro forma balance sheet described in SECTION
6.1(n)(i)(6) presents fairly the Borrowers' good faith estimate of
their consolidated financial condition of Heafner, the other Borrowers
and their respective Subsidiaries as of the Effective Date on the basis
recited therein, subject to normal year-end adjustments and to purchase
accounting adjustments.
(o) Adverse Change. Since the date of the latest financial statements
referred to in SECTION 6.1(n)(i),
(i) no material adverse change has occurred in the business,
assets, liabilities, financial condition, results of operations or
business prospects of such Heafner, the other Borrowers and their
respective Subsidiaries taken as a whole, and
(ii) no event has occurred or failed to occur which has had,
or may have, singly or in the aggregate, a Materially Adverse Effect.
(p) ERISA. Neither any Borrower nor any Related Company maintains or
contributes to any Benefit Plan other than those listed on SCHEDULE 6.1(p).
Except as set forth on SCHEDULE 6.1(p), and subject to correction of possible
Remediable Defects, each Benefit Plan is in substantial compliance with ERISA
and the Code, including but not limited to those provisions thereof relating to
reporting and disclosure, and neither any Borrower nor any Related Company has
received any notice asserting that a Benefit Plan is not in compliance with
ERISA. No material liability to the PBGC or to a Multiemployer Plan has been, or
is expected to be, incurred by any Borrower or any Related Company. Except as
set forth on SCHEDULE 6.1(p), and subject to correction of possible Remediable
Defects, each Benefit Plan intended to qualify under Section 401(a) of the Code
so qualifies and any related trust is exempt from federal income tax under
Section 501(a) of the Code. A favorable determination letter from the IRS has
been issued or applied for with respect to each such plan and trust and nothing
that is not a Remediable Defect has occurred since the date of such
determination letter that would adversely affect such qualification or
tax-exempt status. No Benefit Plan subject to the minimum funding
67
<PAGE> 75
standards of the Code has failed to meet such standards. Neither the Borrower or
any Related Company has transferred any pension plan liability in a transaction
that could be subject to Sections 4069 or 4212(c) of ERISA. Except as set forth
on SCHEDULE 6.1(p), neither any Borrower nor any Related Company has any
liability, actual or contingent, with respect to any Benefit Plan other than to
make payments to the Benefit Plan in accordance with its terms, and there are no
pending or threatened claims against a Benefit Plan. No non-exempt prohibited
transaction with the meaning of Section 4975 of the Code or Section 406 of ERISA
has occurred with respect to a Benefit Plan. Except under plans listed on
SCHEDULE 6.1(p), no employee or former employee of any Borrower or any Related
Company is or may become entitled to any benefit under a Benefit Plan that is a
"welfare plan" within the meaning of Section 3(1) of ERISA following such
employee's termination of employment. Except as set forth on SCHEDULE 6.1(p),
each such welfare plan that is a group health plan has been operated in
compliance with the provision of Section 4980B of the Code and Sections 601-609
of ERISA and any applicable provisions of state law that are similar.
(q) Absence of Defaults. No Borrower nor any Subsidiary is in default
under its articles or certificate of incorporation or by-laws and no event has
occurred, which has not been remedied, cured or waived,
(i) which constitutes a Default or an Event of Default, or
(ii) which constitutes, or which with the passage of time or
giving of notice, or both, would constitute, a default or event of
default by a Borrower or any of its Subsidiaries under any material
agreement (other than this Agreement) or judgment, decree or order to
which such Borrower or any of its Subsidiaries is a party or by which
such Borrower, any of its Subsidiaries or any of such Borrower's or any
of its Subsidiaries' properties may be bound or which would require a
Borrower or any Subsidiary to make any payment under any thereof prior
to the scheduled maturity date therefor, except, in the case only of
any such agreement, for alleged defaults which are being contested in
good faith by appropriate proceedings and with respect to which
reserves in respect of a Borrower's or such Subsidiary's reasonably
anticipated liability have been established on the appropriate books.
(r) Accuracy and Completeness of Information.
(i) As of the Effective Date, no fact is known to the
Borrowers which has had, or is reasonably likely in the future to have
(so far as the Borrowers can reasonably foresee), a Materially Adverse
Effect which has not been set forth in the financial statements or
disclosure delivered to the Agent and the Lenders prior to the
Effective Date. No document furnished or written statement made to the
Agent or any Lender by the Borrowers (or any of them) prior to the
Agreement Date, in connection with the negotiation, preparation or
execution of this Agreement or any of the Loan Documents contained,
except to the extent corrected or superseded prior to the Agreement
Date, any untrue statement of a fact material to the creditworthiness
of a Borrower or omitted to state a material fact necessary in order to
make the statements contained therein not misleading.
68
<PAGE> 76
(ii) The Borrowers have no reason to believe that any document
furnished or written statement made to the Agent or any Lender prior to
the Agreement Date by any Person other than the Borrowers in connection
with the negotiation, preparation or execution of this Agreement or any
of the Loan Documents contained any incorrect statement of a material
fact or omitted to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they were
made, not misleading, that has not been corrected or superseded prior
to the Effective Date.
(s) Solvency. In each case after giving effect to the Debt represented
by the Loans outstanding and to be incurred, the transactions contemplated by
this Agreement, the CPW Acquisition Documents and the ITCO Merger Documents, the
issuance of the Senior Notes and the Class B Stock, the repayment of the
Acquisition Sub Debt (as defined in the Existing Loan Agreement) and other Debt
of Heafner, CPW, ITCO Logistics and their respective Subsidiaries, each Borrower
and each of its Subsidiaries is solvent, having assets of a fair salable value
which exceeds the amount required to pay its debts as they become absolute and
matured (including contingent, subordinated, unmatured and unliquidated
liabilities), and each Borrower and each of its Subsidiaries is able to and
anticipates that it will be able to meet its debts as they mature and has
adequate capital to conduct the business in which it is or proposes to be
engaged.
(t) Receivables.
(i) Status.
(1) Each Receivable reflected in the computations
included in any Borrowing Base Certificate meets the criteria
enumerated in CLAUSES (a) through (p) of the definition
"Eligible Receivables," except as disclosed in such Borrowing
Base Certificate or as disclosed in a timely manner in a
subsequent Borrowing Base Certificate or otherwise in writing
to the Agent.
(2) No Borrower has any knowledge of any fact or
circumstance not disclosed to the Agent in a Borrowing Base
Certificate or otherwise in writing which would impair the
validity or collectibility of any Receivable of $250,000 or
more or of Receivables which (regardless of the individual
amount thereof) aggregate $500,000 or more.
(ii) Chief Executive Office. The chief executive office of
each Borrower and the books and records relating to the Receivables are
located on the Effective Date at the address or addresses set forth on
SCHEDULE 6.1(t).
(u) Inventory.
(i) Schedule of Inventory. All Inventory included in any
Schedule of Inventory or Borrowing Base Certificate delivered to the
Agent on or prior to the Effective Date meets the criteria enumerated
in CLAUSES (a) through (g) of the
69
<PAGE> 77
definition "Eligible Inventory," except as disclosed in such Schedule
of Inventory or Borrowing Base Certificate.
(ii) Condition. All Inventory is in good condition, meets all
standards imposed by any governmental agency, or department or division
thereof, having regulatory authority over such goods, their use or
sale, and is currently either usable or salable in the normal course of
the applicable Borrower's business, except to the extent reserved
against in the financial statements referred to in SECTION 6.1(n) or a
Borrowing Base Certificate delivered pursuant to SECTION 5.1.
(iii) Location. All Inventory is located at a Permitted
Inventory Location or is in transit to a Permitted Inventory Location.
(v) Corporate and Fictitious Names. Except as otherwise disclosed on
SCHEDULE 6.1(v), during the five-year period preceding the Agreement Date,
neither any Borrower nor any predecessor thereof has been known as or used any
corporate or fictitious name other than the corporate name of such Borrower on
the Effective Date.
(w) Federal Reserve Regulations. Neither any Borrower nor any of its
Subsidiaries is engaged, principally or as one of its important activities, in
the business of extending credit for the purpose of "purchasing" or "carrying"
any "margin stock" (as each of the quoted terms is defined or used in
Regulations G and U of the Board of Governors of the Federal Reserve System).
(x) Investment Company Act. No Borrower is an "investment company" or a
company "controlled" by an "investment company" (as each of the quoted terms is
defined or used in the Investment Company Act of 1940, as amended).
(y) Employee Relations. The Borrowers and each Subsidiary have stable
work forces in place and none of them is, except as set forth on SCHEDULE
6.1(y), party to any collective bargaining agreement nor has any labor union
been recognized as the representative of a Borrower's or any of its
Subsidiaries' employees, and the Borrowers know of no pending, threatened or
contemplated strikes, work stoppage or other labor disputes involving a
Borrower's or any Subsidiary's employees.
(z) Proprietary Rights. Each Borrower owns or has the right to use all
Proprietary Rights necessary or desirable in the conduct of its business as
conducted on the Agreement Date and as expected on the Agreement Date to be
conducted in the future. To the best of the Borrowers' knowledge, none of such
Proprietary Rights infringes on or conflicts with any other Person's property,
and no other Person's property infringes on or conflicts with the Proprietary
Rights.
(aa) Trade Names. All trade names or styles under which any Loan Party
sells Inventory or creates Receivables, or to which instruments in payment of
Receivables are made payable, all as of the Effective Date, are listed on
SCHEDULE 6.1(aa).
70
<PAGE> 78
(bb) Bank Accounts. Attached hereto as SCHEDULE 6.1(bb) is a complete
and correct list of all checking accounts, depository accounts, special deposit
accounts and other accounts maintained by any Borrower or Subsidiary with any
commercial bank or savings bank as of the Effective Date and each such account
(except any account indicated by an asterisk (*)) is either (i) subject to an
Agency Account Agreement or (ii) subject to directions from the account holder
to the institution maintaining such account, in form and substance approved by
the Agent, to transfer all collected funds therein daily to the Agent.
(cc) Equipment. All machinery, equipment, fixtures and other tangible
property (other than Inventory) of each Borrower and their respective
Subsidiaries, other than obsolete equipment no longer used or useful in the
business of the Borrowers and their Subsidiaries, is in good order and repair,
ordinary wear and tear excepted.
(dd) Real Property. No Borrower nor any Subsidiary owns any Real Estate
nor leases any Real Estate other than that described on SCHEDULE 6.1(dd) and
other than Real Estate acquired or leased after the Effective Date.
(ee) Year 2000 Compliant. Each Borrower has (i) undertaken a detailed
inventory, review and assessment of all areas within its business and operations
that could be adversely affected by the failure of such Borrower to be Year 2000
Compliant on a timely basis, (ii) developed a detailed plan and time schedule
for becoming Year 2000 Compliant on a timely basis, and (iii) as of the
Agreement Date, has implemented such plan in accordance with such time schedule
in all material respects, such that the Borrowers anticipate that they will be
Year 2000 Compliant on a timely basis.
SECTION 6.2 Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this ARTICLE 6 and all statements
contained in any certificate, financial statement, or other instrument,
delivered by or on behalf of the Borrowers pursuant to or in connection with
this Agreement or any of the Loan Documents (including, but not limited to, any
such representation, warranty or statement made in or in connection with any
amendment thereto) shall constitute representations and warranties made under
this Agreement. All representations and warranties made under this Agreement
shall be made or deemed to be made at and as of the Agreement Date and at and as
of the Effective Date, except that representations and warranties which, by
their terms are applicable only to one such date shall be deemed to be made only
at and as of such date. All representations and warranties made or deemed to be
made under this Agreement shall survive and not be waived by the execution and
delivery of this Agreement, any investigation made by or on behalf of the Lender
or any borrowing hereunder.
71
<PAGE> 79
ARTICLE 7
SECURITY INTEREST
SECTION 7.1 Security Interest.
(a) Heafner and Winston hereby confirm the mortgage, pledge and
assignment to the Agent under the Existing Loan Agreement of the Collateral and
the creation in favor of the Agent, of a continuing security interest in the
Collateral, all as security for the Secured Obligations, and each Borrower
hereby mortgages, pledges and assigns all of the Collateral to the Agent, for
the benefit of itself as Agent and the Lenders and Affiliates of the Lenders,
and grants to the Agent, for the benefit of itself as Agent and the Lenders and
Affiliates of the Lenders, a continuing security interest in, and a continuing
Lien upon, all of the Collateral as security for the payment, observance and
performance of the Secured Obligations.
(b) As additional security for all of the Secured Obligations, the
Borrowers grant to the Agent, for the benefit of itself as Agent and the Lenders
and Affiliates of the Lenders, a security interest in, and assigns to the Agent,
for the benefit of itself as Agent and the Lenders and Affiliates of the
Lenders, all of the Borrowers' right, title and interest in and to, any deposits
or other sums at any time credited by or due from each Lender and each Affiliate
of a Lender to a Borrower, or credited by or due from any participant of any
Lender to a Borrower, with the same rights therein as if the deposits or other
sums were credited by or due from such Lender. Each Borrower hereby authorizes
each Lender and each Affiliate of such Lender and each participant to pay or
deliver to the Agent, for the account of the Lenders, without any necessity on
the Agent's or any Lender's part to resort to other security or sources of
reimbursement for the Secured Obligations, at any time during the continuation
of any Event of Default or in the event that the Agent, on behalf of the
Lenders, should make demand for payment hereunder in accordance with the terms
hereof, then and without further notice to any Borrower (such notice being
expressly waived), any of the aforesaid deposits (general or special, time or
demand, provisional or final) or other sums for application to any Secured
Obligation, irrespective of whether any demand has been made or whether such
Secured Obligation is mature, and the rights given the Agent, the Lenders, their
Affiliates and participants hereunder are cumulative with such Person's other
rights and remedies, including other rights of set-off. The Agent will promptly
notify the Borrowers of its receipt of any such funds for application to the
Secured Obligations, but failure to do so will not affect the validity or
enforceability thereof. The Agent may give notice of the above grant of a
security interest in and assignment of the aforesaid deposits and other sums,
and authorization, to, and make any suitable arrangements with, any Lender, any
such Affiliate of any Lender or participant for effectuation thereof, and each
Borrower hereby irrevocably appoints the Agent as its attorney to collect any
and all such deposits or other sums to the extent any such payment is not made
to the Agent or any Lender by such Lender, Affiliate or participant.
SECTION 7.2 Continued Priority of Security Interest.
(a) The Security Interest granted by the Borrowers shall at all times
be valid, perfected and enforceable against each Borrower and all third parties
in accordance with the
72
<PAGE> 80
terms of this Agreement, as security for the Secured Obligations, and the
Collateral shall not at any time be subject to any Liens that are prior to, on a
parity with or junior to the Security Interest, other than Permitted Liens.
(b) The Borrowers shall, at their sole cost and expense, take all
action that may be necessary or desirable, or that the Agent may reasonably
request, so as at all times to maintain the validity, perfection, enforceability
and rank of the Security Interest in the Collateral in conformity with the
requirements of SECTION 7.2(a), or to enable the Agent and the Lenders to
exercise or enforce their rights hereunder, including, but not limited to:
(i) paying all taxes, assessments and other claims lawfully
levied or assessed on any of the Collateral, except to the extent that
such taxes, assessments and other claims constitute Permitted Liens,
(ii) obtaining, after the Agreement Date, landlords',
mortgagees', bailees', warehousemen's or processors' releases,
subordinations or waivers (except as to premises reflected in the Rent
Reserve), and using all reasonable efforts to obtain mechanics'
releases, subordinations or waivers,
(iii) delivering to the Agent, for the benefit of the Lenders,
endorsed or accompanied by such instruments of assignment as the Agent
may specify, and stamping or marking, in such manner as the Agent may
specify, any and all chattel paper, instruments, letters and advices of
guaranty and documents evidencing or forming a part of the Collateral,
and
(iv) executing and delivering financing statements, pledges,
designations, hypothecations, notices and assignments in each case in
form and substance satisfactory to the Agent relating to the creation,
validity, perfection, maintenance or continuation of the Security
Interest under the UCC or other Applicable Law.
(c) The Agent is hereby authorized to file one or more financing or
continuation statements or amendments thereto without the signature of or in the
name of a Borrower for any purpose described in SECTION 7.2(b). The Agent will
give the Borrowers notice of the filing of any such statements or amendments,
which notice shall specify the locations where such statements or amendments
were filed. A carbon, photographic, xerographic or other reproduction of this
Agreement or of any of the Security Documents or of any financing statement
filed in connection with this Agreement is sufficient as a financing statement.
(d) Each Borrower shall mark its books and records as directed by the
Agent and as may be necessary or appropriate to evidence, protect and perfect
the Security Interest and shall cause its financial statements to reflect the
Security Interest.
73
<PAGE> 81
ARTICLE 8
COLLATERAL COVENANTS
Each Borrower covenants and agrees that until the Commitments have been
terminated and all the Secured Obligations have been paid in full, unless the
Required Lenders shall otherwise consent in the manner provided in SECTION
15.11:
SECTION 8.1 Collection of Receivables.
(a) The Borrowers will and will cause each other Loan Party to cause
all monies, checks, notes, drafts and other payments relating to or constituting
proceeds of trade accounts receivable, other Receivables and other Collateral to
be deposited in (i) an Agency Account in accordance with the procedures set out
in the corresponding Agency Account Agreement or (ii) an account subject to
instructions from the account holder, in form and substance satisfactory to the
Agent, requiring the transfer of collected balances in such account to the Agent
not less often than each Business Day. In particular, each Borrower will and
will cause each other Loan Party to advise each Account Debtor that makes
payment to such Borrower or other Loan Party by wire transfer, automated
clearinghouse ("ACH") transfer or similar means to make payment directly to an
Agency Account or, if the applicable Borrower or other Loan Party is not party
to an Agency Account Agreement, then to an account subject to such instructions.
(b) If average Loan Availability is less than $20,000,000 for any
period of 10 Business Days or is at any time less than $15,000,000, without
limiting the ability of the Agent and the Lenders to exercise other rights and
remedies hereunder, the Required Lenders may require that any or all of the Loan
Parties establish Lockboxes to which monies, checks, notes, drafts and other
payments relating to or constituting proceeds of Collateral shall be sent and if
such requirement is imposed, each Borrower will and will cause each other Loan
Party to:
(i) advise each Account Debtor on trade accounts receivable
that does not make payments directly to an Agency Account to address
all remittances with respect to amounts payable on account thereof to a
specified Lockbox, and
(ii) stamp all invoices relating to trade accounts receivable
with a legend satisfactory to the Agent indicating that payment is to
be made to such Borrower or other Loan Party via a specified Lockbox.
(c) The Borrowers and the Agent shall cause all collected balances in
each Agency Account and the Borrowers shall, and shall cause each other Loan
Party to, cause all collected balances in each other bank account subject to
transfer instructions approved by the Agent, to be transmitted daily by wire
transfer, ACH transfer, depository transfer check or other means in accordance
with the procedures set forth in the corresponding Agency Account Agreement or
such instructions, to the Agent at the Agent's Office:
(i) for application, on account of the Secured Obligations, as
provided in SECTIONS 2.3(c), 12.2, and 12.3, such credits to be entered
as of the Business Day they are received if they are received prior to
1:30 p.m. and to be conditioned upon
74
<PAGE> 82
final payment in cash or solvent credits of the items giving rise to
them (PROVIDED that a collection fee shall be payable by the Borrowers
with respect to any such credit received in other than immediately
available funds, equal to one day's interest, at the rate applicable to
Base Rate Loans, on such amount), and
(ii) with respect to the balance, so long as no Default or
Event of Default has occurred and is continuing, for transfer by wire
transfer, ACH transfer or depository transfer check to a Controlled
Disbursement Account.
(d) Any monies, checks, notes, drafts or other payments referred to in
SUBSECTION (a) or (b) of this SECTION 8.1 which, notwithstanding the terms of
such subsection, are received by or on behalf of the applicable Borrower will be
held in trust for the Agent and will be delivered to the Agent or a Clearing
Bank or a bank with which an account subject to satisfactory transfer
instructions is maintained, as promptly as possible, in the exact form received,
together with any necessary endorsements for application by the Agent directly
to the Secured Obligations or, as applicable, for deposit in the Agency Account
maintained with such Clearing Bank and processing in accordance with the terms
of the corresponding Agency Account Agreement or for deposit in such account and
processing and transfer in accordance with such instructions.
SECTION 8.2 Verification and Notification. The Agent shall have the
right at any time and from time to time,
(a) in the name of the Agent, the Lenders or in the name of a Borrower,
to verify the validity, amount or any other matter relating to any Receivables
by mail, telephone, telegraph or otherwise,
(b) to review, audit and make extracts from all records and files
related to any of the Receivables, and
(c) if a Default or Event of Default has occurred and is continuing, to
notify the Account Debtors or obligors under any Receivables of the assignment
of such Receivables to the Agent, for the benefit of the Lenders, and to direct
such Account Debtor or obligors to make payment of all amounts due or to become
due thereunder directly to the Agent, for the account of the Lenders, and, upon
such notification and at the expense of the Borrowers, to enforce collection of
any such Receivables and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as the applicable Borrower
might have done.
SECTION 8.3 Disputes, Returns and Adjustments.
(a) In the event any amounts due and owing under any Receivable for an
amount in excess of $250,000 are in dispute between the Account Debtor and the
applicable Borrower, the Borrowers shall provide the Agent with prompt written
notice thereof.
(b) The Borrowers shall notify the Agent promptly of all returns and
credits in excess of $250,000 in respect of any Receivable, which notice shall
specify the Receivable affected.
75
<PAGE> 83
(c) The Borrowers may, in the ordinary course of business unless a
Default or an Event of Default has occurred and is continuing, grant any
extension of time for payment of any Receivable or compromise, compound or
settle the same for less than the full amount thereof, or release wholly or
partly any Person liable for the payment thereof, or allow any credit or
discount whatsoever therein; PROVIDED that (i) no such action results in the
reduction of more than $250,000 in the amount payable with respect to any
Receivable or of more than $1,000,000 with respect to all Receivables in any
Fiscal Year (in each case, excluding the allowance of credits or discounts
generally available to Account Debtors in the ordinary course of the applicable
Borrower's business), and (ii) the Agent is promptly notified of the amount of
such adjustments and the Receivable(s) affected thereby (by reflecting such
reduction in an appropriate Borrowing Base Certificate or Schedule of
Receivables).
SECTION 8.4 Invoices.
(a) No Borrower will issue invoices other than in its own name or in a
trade name of which the Agent has received prior written notice, accompanied by
such evidence as the Agent may reasonably require that all actions required
pursuant to ARTICLE 7 with respect to Receivables or other Collateral created or
held in such name have been taken.
(b) The Borrowers will not use any invoices other than invoices in the
forms delivered to the Agent prior to the Agreement Date without giving the
Agent prior notice of the intended use of a different form of invoice together
with a copy of such different form and such evidence as the Agent may reasonably
require that any actions required pursuant to ARTICLE 7 with respect to any (i)
name, (ii) address or (iii) remittance instructions appearing on such invoice
have been taken.
(c) Upon the request of the Agent, the Borrowers shall deliver to the
Agent, at the Borrowers' expense, copies of customers' invoices or the
equivalent, original shipping and delivery receipts or other proof of delivery,
customers' statements, customer address lists, the original copy of all
documents, including, without limitation, repayment histories and present status
reports, relating to Receivables and such other documents and information
relating to the Receivables as the Agent shall specify.
SECTION 8.5 Delivery of Instruments. In the event any Receivable is at
any time evidenced by a promissory note, trade acceptance or any other
instrument for the payment of money, the Borrowers will, promptly upon request
by the Agent, deliver such instrument to the Agent, appropriately endorsed to
the Agent, for the benefit of the Lenders.
SECTION 8.6 Sales of Inventory. All sales of Inventory will be made in
compliance with all requirements of Applicable Law.
SECTION 8.7 Ownership and Defense of Title.
(a) Except for Permitted Liens, the Borrowers shall be or shall cause
another Loan Party to be at all times the sole owners or lessees of each and
every item of Collateral and shall not create nor permit any other Loan Party to
create any lien on, or sell, lease, exchange,
76
<PAGE> 84
assign, transfer, pledge, hypothecate, grant a security interest or security
title in or otherwise dispose of, any of the Collateral or any interest therein,
except for sales of Inventory in the ordinary course of business, for cash or on
open account or on terms of payment ordinarily extended to its customers, and
except for dispositions that are otherwise expressly permitted under this
Agreement or any Subsidiary Security Agreement.
(b) Each Borrower shall defend and cause each other Loan Party to
defend its title or leasehold interest in and to, and the Security Interest in,
the Collateral against the claims and demands of all Persons.
SECTION 8.8 Insurance.
(a) The Borrowers shall at all times maintain and cause the other Loan
Parties to maintain insurance on the Collateral and their other property against
loss or damage by fire, theft (excluding theft by employees), burglary,
pilferage, loss in transit and such other hazards as the Agent shall reasonably
specify, in amounts not to exceed those obtainable at commercially reasonable
rates and under policies issued by insurers acceptable to the Agent in the
exercise of its reasonable judgment. All premiums on such insurance shall be
paid by the Borrowers and copies of the policies delivered to the Agent. The
Borrowers will not use or permit the Inventory or its other property to be used
in violation of Applicable Law or in any manner which might render inapplicable
any insurance coverage.
(b) All insurance policies required under SECTION 8.8(a) relating to
Collateral shall name the Agent, for the benefit of the Lenders, as an
additional insured and shall contain loss payable clauses in the form submitted
to the Borrowers by the Agent, or otherwise in form and substance satisfactory
to the Required Lenders, naming the Agent, for the benefit of the Lenders, as
loss payee, as its interests may appear, and providing that
(i) all proceeds thereunder shall be payable to the Agent, for
the benefit of the Lenders,
(ii) no such insurance shall be affected by any act or neglect
of the insurer or owner of the property described in such policy, and
(iii) such policy and loss payable clauses may be canceled,
amended or terminated only upon at least 10 days' prior written notice
given to the Agent.
(c) Any proceeds of insurance referred to in this SECTION 8.8 which are
paid to the Agent, for the account of the Lenders, shall be, at the option of
the Required Lenders in their sole discretion, either (i) applied to replace the
damaged or destroyed property, or (ii) applied to the payment or prepayment of
the Secured Obligations, PROVIDED that in the event that the proceeds from any
single casualty do not exceed $250,000, then, upon the Borrowers' written
request to the Agent, provided that no Default or Event of Default shall have
occurred and be continuing, such proceeds shall be disbursed by the Agent to the
Borrowers pursuant to such procedures as the Agent shall reasonably establish
for application to the replacement of the damaged or destroyed property.
77
<PAGE> 85
SECTION 8.9 Location of Offices and Collateral.
(a) No Borrower will change the location of its chief executive office
or the place where it keeps its books and records relating to the Collateral
from the address set forth for it on SCHEDULE 6.1(t) or change its name, its
identity or corporate structure from that in effect on the Effective Date, or
use any trade name not listed on SCHEDULE 6.1(aa), without giving the Agent 30
days' prior written notice thereof accompanied by such evidence as the Agent may
reasonably require that all actions required to be taken pursuant to ARTICLE 7
have been taken.
(b) All Inventory, other than Inventory in transit to any such
location, will at all times be kept by the applicable Borrower at one or more
Permitted Inventory Locations and shall not, without the prior written consent
of the Agent, be kept elsewhere (except as a result of sales of Inventory
permitted under SECTION 8.7(a)).
(c) If any Inventory is in the possession or control of any of a
Borrower's agents or processors, the Borrowers shall notify such agents or
processors of the Security Interest (and shall promptly provide copies of any
such notice to the Agent and the Lenders) and, upon the occurrence of an Event
of Default, shall instruct them (and cause them to acknowledge such instruction)
to hold all such Inventory for the account of the account of the Lenders,
subject to the instructions of the Agent.
SECTION 8.10 Records Relating to Collateral.
(a) The Borrowers will and will cause their Subsidiaries to at all
times
(i) keep complete and accurate records of Inventory on a basis
consistent with past practices of Heafner so as to permit comparison of
Inventory records relating to different time periods, itemizing and
describing the kind, type and quantity of Inventory and the applicable
Borrower's or Subsidiary's cost thereof and a current price list for
such Inventory, and
(ii) keep complete and accurate records of all other
Collateral.
(b) The Borrowers will prepare a physical listing of all Inventory,
wherever located, at least annually.
SECTION 8.11 Inspection. The Agent and each Lender (by any of their
officers, employees or agents) shall have the right, to the extent that the
exercise of such right shall be within the control of a Borrower, at any time or
times to
(a) visit the properties of the Borrowers and the Subsidiaries, inspect
the Collateral and the other assets of the Borrowers and the Subsidiaries and
inspect and make extracts from the books and records of the Borrowers and the
Subsidiaries, including but not limited to management letters prepared by
independent accountants, all during customary business hours at such premises;
78
<PAGE> 86
(b) discuss the Borrowers' and the Subsidiaries' business, assets,
liabilities, financial condition, results of operations and business prospects,
insofar as the same are reasonably related to the rights of the Agent or the
Lenders hereunder or under any of the Loan Documents, with the Borrowers' and
the Subsidiaries' (i) principal officers, (ii) independent accountants, and
(iii) any other Person (except that any such discussion with any third parties
shall be conducted only in accordance with the Agent's or such Lender's standard
operating procedures relating to the maintenance of the confidentiality of
confidential information of borrowers); and
(c) verify the amount, quantity, value and condition of, or any other
matter relating to, any of the Collateral and in this connection to review,
audit and make extracts from all records and files related to any of the
Collateral.
The Borrowers will deliver to the Agent, upon the Agent's request, any
instrument necessary for it to obtain records from any service bureau
maintaining records on behalf of the Borrowers or any Subsidiary.
SECTION 8.12 Information and Reports.
(a) Schedule of Receivables. The Borrowers shall deliver to the Agent
on or before the Effective Date and not later than the 20th day of each calendar
month thereafter a Schedule of Receivables which
(i) shall be as of the last Business Day of the immediately
preceding month,
(ii) shall be reconciled to the Borrowing Base Certificate as
of such last Business Day, and
(iii) shall set forth a detailed aged trial balance of all of
the Borrowers' then existing Receivables, specifying the names,
addresses and balance due for each Account Debtor obligated on a
Receivable so listed.
(b) Schedule of Inventory. The Borrowers shall deliver to the Agent on
or before the Effective Date and not later than the 20th day of each calendar
month thereafter a Schedule of Inventory as of the last Business Day of the
immediately preceding month of the Borrowers, itemizing and describing the kind,
type and quantity of Inventory, the applicable Borrower's cost thereof and the
location thereof.
(c) Borrowing Base Certificate. The Borrowers shall deliver to the
Agent on the 20th day of each month, subject to the provisions of SECTION
8.12(e), a Borrowing Base Certificate prepared as of the last Business Day of
the preceding month.
(d) Notice of Diminution of Value. The Borrowers shall give prompt
notice to the Agent of any matter or event which has resulted in, or may result
in, the diminution in excess of $500,000 in the value of any of its Collateral,
except for any such diminution in the value of any Receivables or Inventory in
the ordinary course of business which has been
79
<PAGE> 87
appropriately reserved against, as reflected in financial statements previously
delivered to the Agent and the Lenders pursuant to ARTICLE 10.
(e) Additional Information. The Agent may in its reasonable discretion
from time to time request that the Borrowers deliver the schedules and
certificates described in SECTIONS 8.12(a), (b), (c) and (d) more or less often
and on different schedules than specified in such Sections and the Borrowers
will comply with such requests. The Borrowers will also furnish to the Agent and
each Lender such other information with respect to the Collateral as the Agent
or any Lender may from time to time reasonably request.
SECTION 8.13 Power of Attorney. Each Borrower hereby appoints the Agent
as its attorney, with power
(a) to endorse the name of such Borrower on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into the Agent's or any Lender's possession, and
(b) if a Default or Event of Default exists, to sign the name of such
Borrower on any invoice or bill of lading relating to any Receivable, Inventory
or other Collateral, on any drafts against customers related to letters of
credit, on schedules and assignments of Receivables furnished to the Agent or
any Lender by such Borrower, on notices of assignment, financing statements and
other public records relating to the perfection or priority of the Security
Interest, verifications of account and notices to or from customers.
SECTION 8.14 Assignment of Claims Act. Upon the request of the Agent,
the Borrowers shall execute any documents or instruments and shall take such
steps or actions reasonably required by the Agent so that all monies due or to
become due under any contract with the United States of America, the District of
Columbia or any state, county, municipality or other domestic or foreign
governmental entity, or any department, agency or instrumentality thereof, will
be assigned to the Agent, for the benefit of itself and the Lenders, and notice
given thereof in accordance with the requirements of the Assignment of Claims
Act of 1940, as amended, or any other laws, rules or regulations relating to the
assignment of any such contract and monies due to or to become due.
80
<PAGE> 88
ARTICLE 9
AFFIRMATIVE COVENANTS
The Borrowers covenant and agree that the Borrowers will, as their
joint and several obligation, duly and punctually pay the principal of, and
interest on, and all other amounts payable with respect to, the Loans and all
other Secured Obligations in accordance with the terms of the Loan Documents and
that until the Commitments have been terminated and all the Secured Obligations
have been paid in full, unless the Required Lenders shall otherwise consent in
the manner provided for in SECTION 15.11, each of the Borrowers will, and will
cause each of the Subsidiaries to:
SECTION 9.1 Preservation of Corporate Existence and Similar Matters.
Preserve and maintain its corporate existence, rights, franchises, licenses and
privileges in the jurisdiction of its incorporation and qualify and remain
qualified as a foreign corporation and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization (except where any failure
so to qualify could not reasonably be expected to have a Materially Adverse
Effect).
SECTION 9.2 Compliance with Applicable Law. Comply in all material
respects with all Applicable Law relating to the Borrowers or such Subsidiary
except to the extent being contested in good faith by appropriate proceedings
and for which reserves in respect of a Borrower's or such Subsidiary's
reasonably anticipated liability have been established in accordance with GAAP.
SECTION 9.3 Maintenance of Property. In addition to, and not in
derogation of, the requirements of SECTION 8.7 and of the Security Documents,
(a) protect and preserve all properties material to its business,
including copyrights, patents, trade names and trademarks, and maintain in good
repair, working order and condition in all material respects, with reasonable
allowance for wear and tear, all tangible properties, and
(b) from time to time make or cause to be made all needed and
appropriate repairs, renewals, replacements and additions to such properties
necessary for the conduct of its business, so that the business carried on in
connection therewith in the ordinary course and in a manner consistent with past
practices of Heafner.
SECTION 9.4 Conduct of Business. At all times conduct its business in
accordance with sound business practices and engage only in the business(es)
described in SCHEDULE 6.1(f).
SECTION 9.5 Insurance. Maintain, in addition to the coverage required
by SECTION 8.8 and the Security Documents, insurance with responsible insurance
companies against such risks and in such amounts as is customarily maintained by
similar businesses or as may be required by Applicable Law, and from time to
time deliver to the Agent or any Lender upon its request a detailed list of the
insurance then in effect, stating the names of the insurance
81
<PAGE> 89
companies, the amounts and rates of the insurance, the dates of the expiration
thereof and the properties and risks covered thereby.
SECTION 9.6 Payment of Taxes and Claims. Pay or discharge when due
(a) all taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits or upon any properties belonging to it,
except that real property ad valorem taxes shall be deemed to have been so paid
or discharged if the same are paid before they become delinquent, and
(b) all lawful claims of materialmen, mechanics, carriers,
warehousemen and landlords for labor, materials, supplies and rentals which, if
unpaid, might become a Lien on any properties of any Borrower;
except that this SECTION 9.6 shall not require the payment or discharge of any
such tax, assessment, charge, levy or claim which is being contested in good
faith by appropriate proceedings and for which reserves in respect of reasonably
anticipated liability have been established in accordance with GAAP.
SECTION 9.7 Accounting Methods and Financial Records. Maintain a
system of accounting, and keep such books, records and accounts (which shall be
true and complete), as may be required or as may be necessary to permit the
preparation of financial statements in accordance with GAAP and notify the Agent
promptly, and in any event within five days after any such account is opened, of
the existence, location, number and title of any bank account of a Loan Party
not listed on SCHEDULE 6.1(bb).
SECTION 9.8 Use of Proceeds.
(a) Use the proceeds of
(i) the Initial Loans to pay amounts indicated on SCHEDULE 9.8
to the Persons indicated thereon, and
(ii) all subsequent Loans only for working capital and general
business purposes, including, without being limited to, payment of
interest on the Senior Notes and dividends on the KS Preferred in
accordance with the provisions of this Agreement, and
(b) not use any part of such proceeds to purchase or, to carry or
reduce or retire or refinance any credit incurred to purchase or carry, any
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System) or, in any event, for any purpose which would
involve a violation of such Regulation U or of Regulation T or X of such Board
of Governors, or for any purpose prohibited by law or by the terms and
conditions of this Agreement.
SECTION 9.9 Hazardous Waste and Substances; Environmental
Requirements. In addition to, and not in derogation of, the requirements of
SECTION 9.2 and of
82
<PAGE> 90
the Security Documents, comply with all Environmental Laws and all Applicable
Laws relating to occupational health and safety (except for instances of
noncompliance that are being contested in good faith by appropriate proceedings
if reserves in respect of any Borrower's or such Subsidiary's reasonably
anticipated liability therefor have been appropriately established), promptly
notify the Agent of its receipt of any notice of a violation of any such
Environmental Laws or other such Applicable Laws and indemnify and hold harmless
the Agent and the Lenders from all loss, cost, damage, liability, claim and
expense incurred by or imposed upon the Agent or any Lender on account of a
Borrower's failure to perform its obligations under this SECTION 9.9.
SECTION 9.10 Additional Subsidiaries. Cause each Person that becomes a
domestic Subsidiary of Heafner after the Effective Date, promptly upon request
by the Agent, to execute and deliver a Subsidiary Guaranty and a Subsidiary
Security Agreement or, if requested by the Agent, enter into and cause any such
new Subsidiary or any existing Subsidiary Guarantor to enter into an amendment
to this Agreement or such other documents as may reasonably be determined by the
Agent to be necessary or desirable to add such Subsidiary as an additional
"Borrower" hereunder, in each case together with such allonges to the Notes,
restated promissory notes, Financing Statements, legal opinions and other
certificates, instruments and documents as the Agent may reasonably request.
SECTION 9.11 Compliance with Senior Note Indenture. Comply with the
terms and provisions of the Senior Note Indenture and the Senior Notes and cause
each Guarantor of Heafner's obligations under the Senior Notes to comply with
the terms of the Guaranty applicable to it.
83
<PAGE> 91
ARTICLE 10
INFORMATION
Until the Commitments have been terminated and all the Secured
Obligations have been paid in full, unless the Required Lenders shall otherwise
consent in the manner set forth in SECTION 15.11, the Borrowers will furnish to
the Agent and to each Lender at its offices then designated for notices pursuant
to SECTION 15.1, the statements, reports, certificates, and other information
provided for in this ARTICLE 10. All written information, reports, statements
and other papers and data furnished to the Agent or any Lender by or at the
request of the Borrowers, whether pursuant to this ARTICLE 10 or any other
provision of this Agreement or of any other Loan Document, shall be, at the time
the same is so furnished, complete and correct in all material respects to the
extent necessary to give the Agent and the Lenders true and accurate knowledge
of the subject matter. Specifically, the Borrowers will so furnish:
SECTION 10.1 Financial Statements.
(a) Audited Year-End Statements. As soon as available, but in any
event within 90 days after the end of each Fiscal Year, copies of the
consolidated and consolidating balance sheets of Heafner and its Consolidated
Subsidiaries as at the end of such Fiscal Year and the related consolidated and
consolidating statements of income, shareholders' equity and cash flows of
Heafner and its Consolidated Subsidiaries for such Fiscal Year, in each case
setting forth in comparative form the figures for the previous Fiscal Year, and,
as to such consolidated financial statements, reported on, without
qualification, by Arthur Andersen LLP or other independent certified public
accountants of nationally recognized standing;
(b) Monthly Financial Statements. As soon as available after the end
of each accounting month, but in any event within 30 days after the end of each
accounting month (or 45 days after the end of any such month that is the last
month of a Fiscal Quarter), copies of the unaudited consolidated and
consolidating balance sheets of Heafner and its Consolidated Subsidiaries as at
the end of such accounting month and the related unaudited consolidated and
consolidating statements of income and cash flows for Heafner and its
Consolidated Subsidiaries for such month and for the portion of the Fiscal Year
through such month, certified by a Financial Officer as presenting fairly the
financial condition and results of operations of the Borrowers (subject to
normal year-end audit adjustments) for the applicable period(s);
(c) Opening Balance Sheet. As soon as available after the Effective
Date, but in any event on or before July 15, 1998, the opening consolidating and
consolidated balance sheets of Heafner and its Consolidated Subsidiaries as of
the Effective Date, prepared by Arthur Andersen LLP;
all such financial statements to be complete and correct in all material
respects and prepared in accordance with GAAP (except, with respect to interim
financial statements, for the omission of notes and for the effect of normal
year-end audit adjustments) applied consistently throughout the periods
reflected therein; and
84
<PAGE> 92
(d) Projections. As soon as available, but in any event not later than
30 days after the first day of each Fiscal Year beginning after the Effective
Date, Projections for such Fiscal Year in such format and detail as the Agent
may reasonably specify.
SECTION 10.2 Accountants' Certificate. Together with the financial
statements referred to in SECTION 10.1(a), a certificate of such accountants
addressed to the Agent
(a) stating that in making the examination necessary for the
certification of such financial statements, nothing has come to their attention
to lead them to believe that any Default or Event of Default exists and, in
particular, they have no knowledge of any Default or Event of Default or, if
such is not the case, specifying such Default or Event of Default and its
nature, and
(b) having attached the calculations, prepared by the Borrowers and
reviewed by such accountants, required to establish whether or not the Borrowers
are in compliance with the covenants contained in SECTIONS 11.1, 11.2, 11.4 and
11.5 as at the date of such financial statements.
SECTION 10.3 Officer's Certificate. At the time that the Borrowers
furnish the financial statements pursuant to SECTION 10.1(b) for the last month
in a Fiscal Quarter, a certificate of the President of Heafner or of a Financial
Officer in substantially the form attached hereto as EXHIBIT E,
(a) setting forth as at the end of such Fiscal Quarter or Fiscal Year,
as the case may be, the calculations required to establish whether or not the
Borrowers were in compliance with the requirements of SECTIONS 11.1, 11.2, 11.4
and 11.5 as at the end of each respective period, and
(b) stating that, based on a reasonably diligent examination, no
Default or Event of Default exists, or, if such is not the case, specifying such
Default or Event of Default and its nature, when it occurred, whether it is
continuing and the steps being taken by the Borrowers with respect to such
Default or Event of Default.
SECTION 10.4 Copies of Other Reports.
(a) Promptly upon receipt thereof, copies of all reports, if any,
submitted to the Borrowers or the Board of Directors of Heafner by the
Borrowers' independent public accountants, including, without limitation, any
management report.
(b) As soon as practicable, copies of all financial statements and
reports that Heafner sends to its shareholders generally in their capacity as
such and of all registration statements and all regular or periodic reports
which any Borrower shall file with the Securities and Exchange Commission or any
successor commission.
(c) From time to time and as soon as reasonably practicable following
each request, such data, certificates, reports, statements, opinions of counsel,
documents or further information regarding the business, assets, liabilities,
financial condition, results of operations or
85
<PAGE> 93
business prospects of a Borrower or any Subsidiary as the Agent or any Lender
may reasonably request and that a Borrower has or (except in the case of legal
opinions relating to the perfection or priority of the Security Interest)
without unreasonable expense can obtain; PROVIDED, HOWEVER, that the Lenders
shall, to the extent reasonably practicable, coordinate examinations of the
Borrowers' records by their respective internal examiners. The rights of the
Agent and the Lenders under this SECTION 10.4 are in addition to and not in
derogation of their rights under any other provision of this Agreement or of any
other Loan Document.
(d) If requested by the Agent or any Lender, the Borrowers will
furnish to the Agent and the Lenders statements in conformity with the
requirements of Federal Reserve Form U-1 referred to in Regulation U of the
Board of Governors of the Federal Reserve System.
SECTION 10.5 Notice of Litigation and Other Matters. Prompt notice of:
(a) the commencement, to the extent a Borrower is aware of the same,
of all proceedings and investigations by or before any governmental or
nongovernmental body and all actions and proceedings in any court or before any
arbitrator against or in any other way relating to or affecting any Borrower,
any of its Subsidiaries or any of a Borrower's or any of its Subsidiaries'
properties, assets or businesses, which is reasonably likely to, singly or
together with other pending proceedings or investigations, result in the
occurrence of a Default or an Event of Default, or have a Materially Adverse
Effect,
(b) any amendment of the articles of incorporation or by-laws of a
Borrower or any of its Subsidiaries,
(c) any change in the business, assets, liabilities, financial
condition, results of operations or business prospects of a Borrower or any of
its Subsidiaries which has had or is reasonably likely to have, singly or in the
aggregate, a Materially Adverse Effect and any change in the executive officers
of a Borrower,
(d) the discovery or determination by any Loan Party that any computer
application (including any computer application of any key supplier, vendor or
customer) that is material to the business or operations of any Borrower will
not be Year 2000 Compliant on a timely basis, except to the extent that such
failure could not reasonably be expected to have a Materially Adverse Effect,
(e) the receipt of any notice from or giving of any notice to the
trustee under the Senior Note Indenture, together with a copy of such notice,
and
(f) any Default or Event of Default or any event which constitutes or
which with the passage of time or giving of notice or both would constitute a
default or event of default by a Borrower or any of its Subsidiaries under any
material agreement (other than this Agreement) to which such Borrower or any of
its Subsidiaries is a party or by which any Borrower, any of its Subsidiaries or
any Borrower's or any Subsidiary's properties may be bound.
SECTION 10.6 ERISA. As soon as possible and in any event within 30
days after a Borrower knows, or has reason to know, that:
86
<PAGE> 94
(a) any ERISA Event with respect to a Benefit Plan has occurred or
will occur, or
(b) the aggregate present value of the Unfunded Vested Accrued
Benefits under all Benefit Plans is equal to an amount in excess of $0, or
(c) a Borrower or any Subsidiary is in "default" (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Benefit
Plan required by reason of a Borrower's or such Subsidiary's complete or partial
withdrawal (as described in Section 4203 or 4205 of ERISA) from such
Multiemployer Plan,
the Borrowers will furnish to the Agent a certificate of the President of
Heafner or a Financial Officer setting forth the details of such event and the
action which is proposed to be taken with respect thereto, together with any
notice or filing which may be required by the PBGC or other agency of the United
States government with respect to such event.
87
<PAGE> 95
ARTICLE 11
NEGATIVE COVENANTS
Until the Commitments have been terminated and all the Secured
Obligations have been paid in full, unless the Required Lenders shall otherwise
consent in the manner set forth in SECTION 15.11, the Borrowers will not
directly or indirectly and, in the case of SECTIONS 11.2 through 11.12, will not
permit any Subsidiaries to:
SECTION 11.1 Financial Covenants. (a) Permit Net Worth of Heafner and
its Consolidated Subsidiaries on a consolidated basis as of the Effective Date
to be less than $25,000,000, adjusted by adding to such amount, the excess of
the consolidated Net Worth of the Borrowers reflected in the opening balance
sheet of Heafner and its Consolidated Subsidiaries, including purchase
accounting adjustments thereto, through the Effective Date, over $32,600,000,
or, if the consolidated Net Worth of the Borrowers, as adjusted, reflected in
such opening balance sheet is less than $32,600,000, by subtracting the amount
of such deficit from $25,000,000.
(b) Permit Loan Availability at any time to be less than $15,000,000.
SECTION 11.2 Debt. Create, assume, or otherwise become or remain
obligated in respect of, or permit or suffer to exist or to be created, assumed
or incurred or to be outstanding any Debt, except that this SECTION 11.2 shall
not apply to:
(a) Debt of the Loan Parties represented by the Loan Documents,
(b) Subordinated Debt,
(c) Debt of the Loan Parties represented by the Senior Notes,
(d) Debt reflected on SCHEDULE 6.1(j) and refinancings thereof that do
not result in an increase in the principal amount of any such Debt outstanding
on the date of refinancing or in any other Person becoming obligated thereon,
but excluding any such scheduled Debt that is to be paid in full on the
Effective Date,
(e) Acquired Debt permitted in accordance with SECTION 11.4 and
Attributable Debt permitted in accordance with SECTION 11.10,
(f) vendor loans, advances and similar financings in an aggregate
principal amount outstanding at any time not to exceed $20,000,000, and
(g) other Debt in an aggregate principal amount outstanding at any
time not to exceed $15,000,000.
SECTION 11.3 Guaranties. Become or remain liable with respect to any
Guaranty of any obligation of any other Persons, except as listed on SCHEDULE
6.1(j) or pursuant
88
<PAGE> 96
to a Guaranty by a Borrower or any Subsidiary of the obligations of a Loan Party
(including specifically the Subsidiaries' Guarantees of Heafner's obligations in
respect of the Senior Notes).
SECTION 11.4 Acquisitions. (a) Acquire, after the Agreement Date, any
Business Unit or Investment or, after the Agreement Date, maintain any
Investment other than Permitted Investments and the Investments contemplated by
the CPW Acquisition Agreement and the ITCO Merger Agreement, EXCEPT that this
SECTION 11.4 shall not apply to Acquisitions by Heafner or another Loan Party
after the Effective Date of (A) Investments in the capital stock of any other
Person organized under the laws of the United States of America or any state
thereof which thereupon becomes a Wholly Owned Subsidiary or (B) Business Units
located in the United States, provided, that:
(i) the aggregate Purchase Price of all such Acquisitions does
not exceed $25,000,000 in any Fiscal Year or $40,000,000 during the
term of this Agreement,
(ii) Heafner or the applicable Loan Party has made available
to the Agent, not later than 10 Business Days prior to the proposed
date of such Acquisition, the results of any investigation performed
by or on behalf of such Loan Party of the target and copies of the
Acquisition documents and historical financial statements of the
target for at least the three previous years.
(iii) the Agent shall have received evidence satisfactory to
it of the Loan Parties' continued compliance with the provisions of
this Agreement and the other Loan Documents, including, without being
limited to, the provisions of SECTIONS 9.4, 9.11 and 11.1, on a pro
forma basis after giving effect to such Acquisition,
(iv) to the extent financed with Debt other than Acquired Debt
or Loans, such Debt shall be payable to the seller and shall be
subordinated to the prior payment of the Secured Obligations on terms
and conditions satisfactory to the Agent and the Required Lenders,
(v) the Agent shall have received evidence satisfactory to it
demonstrating on a pro forma basis that Net Income of the target,
before provision for interest expense, taxes, depreciation and
amortization for the period of 12 consecutive calendar months ended
nearest the date of determination, is at least equal to the sum of
interest expense and scheduled principal payments on any Debt incurred
in connection with payment of the Purchase Price (including Loans and
Acquired Debt), and
(vi) as requested by the Agent, any new Subsidiary shall have
executed and delivered the Subsidiary Guaranty and a Subsidiary
Security Agreement, or all Loan Parties, as appropriate, and such new
Subsidiary shall have executed and delivered an amendment to this
Agreement sufficient to cause such new Subsidiary to become a
"Borrower" hereunder, and in either case shall have delivered or
caused to be delivered as to such Subsidiary the items referred to in
SECTIONS 5.1(a)(3), (4), (5), (6), and (8) and an opinion of counsel
for such Subsidiary as to such matters in connection with the
89
<PAGE> 97
transactions contemplated by the Subsidiary Guaranty and Subsidiary
Security Agreement or such amendment to this Agreement as the Agent
may reasonably request.
"Purchase Price" means an amount equal to the total consideration paid for such
Acquisition, including all cash payments (whether classified as purchase price,
noncompete payments, consulting payments, "earn out" or otherwise and without
regard to whether such amount is paid in whole or in part at the closing of the
Acquisition or over time thereafter, but excluding any finance charges
attributable to deferred payments and excluding any salary or other employment
compensation paid to a seller for the purpose of retaining such seller's
services as an active employee of a Borrower or a Subsidiary), the principal
amount of all Acquired Debt and of any Subordinated Debt owing to the seller,
and the value (as determined by the board of directors of Heafner, including
pursuant to the applicable purchase agreement between the relevant Borrower and
the seller, in the case of any property, the fair value of which is not readily
ascertainable) of all other property, other than capital stock of Heafner,
transferred by Heafner to the seller.
(b) Notwithstanding any provision of this Agreement to the contrary,
in connection with any merger (or other distribution of the assets) of a
Subsidiary that is not a Loan Party with and into (or to) a Loan Party, or any
Acquisition of a Business Unit, whether by purchase of stock, merger, or
purchase of assets and whether in a single transaction or series of related
transactions, by a Borrower, where the value of the assets of such Subsidiary or
the Purchase Price of such Acquisition, as the case may be:
(i) is less than $10,000,000, Heafner shall have the right to
determine whether the Inventory and Receivables so acquired are
included in the Borrowing Base, subject to the provision of the
definitions "Borrowing Base," "Eligible Inventory" and Eligible
Receivables" and any other provisions of this Agreement and the other
Loan Documents applicable to the computation and reporting of the
Borrowing Base, and if Heafner elects so to include such acquired
Inventory and Receivables, then any Subsidiary that owns any such
acquired Inventory or Receivables shall execute and deliver to the
Agent the agreements, certificates, instruments and other documents
referred to in SECTION 11.4(a)(vi) or
(ii) is $10,000,000 or more, the Required Lenders shall have
the right to determine whether any Inventory or Receivables so
acquired are included in the Borrowing Base (subject to the other
applicable provisions of this Agreement).
SECTION 11.5 Capital Expenditures. Make or incur any Capital
Expenditures (excluding Financed Capex and expenditures pursuant to SECTION
11.4) in the aggregate in excess of $12,000,000 for any Fiscal Year, PROVIDED
that any amount of such allowance not used in a Fiscal Year may be carried
forward, but only to the succeeding Fiscal Year.
SECTION 11.6 Restricted Distributions and Payments, Etc. Declare or
make any Restricted Distribution or Restricted Payment which, when added to all
other Restricted Distributions and Restricted Payments made in the same Fiscal
Year of Heafner, would exceed $2,000,000 (exclusive of payments in an aggregate
amount not greater than
90
<PAGE> 98
$1,500,000 made on or prior to the first anniversary of the Effective Date to
employees of ITCO in respect of stock appreciation rights).
SECTION 11.7 Merger, Consolidation and Sale of Assets. Merge or
consolidate with any other Person or sell, lease or transfer or otherwise
dispose of all or a substantial portion of its assets to any Person other than
sales of Inventory in the ordinary course of business, EXCEPT that any Loan
Party may merge with and into another Loan Party (provided that Heafner shall be
the surviving corporation of any merger to which it is a party) and, subject to
the provisions of SECTION 11.4(b). any Subsidiary may merge into a Loan Party
with such Loan Party as the surviving corporation.
SECTION 11.8 Transactions with Affiliates. Except as described on
SCHEDULE 11.8, effect any transaction with any Affiliate on a basis less
favorable to a Loan Party than would be the case if such transaction had been
effected with a Person not an Affiliate.
SECTION 11.9 Liens. Create, assume or permit or suffer to exist or to
be created or assumed any Lien on any of the Collateral or its other assets,
other than Liens listed in CLAUSES (a) through (g) of the definition "Permitted
Liens" and (a) Liens securing Acquired Debt, which Liens affect solely capital
or fixed assets (and not Receivables or Inventory or proceeds thereof) of the
Business Unit Acquired, existing on the date of the related Acquisition and not
created in contemplation thereof, (b) Liens securing vendor loans permitted
pursuant to SECTION 11.2(f) and (c) Purchase Money Liens (including Capitalized
Lease Obligations) securing Debt otherwise permitted pursuant to SECTION 11.2.
SECTION 11.10 Sales and Leasebacks. Enter into any arrangement with
any Person providing for a Loan Party's leasing from such Person any real or
personal property which has been or is to be sold or transferred, directly or
indirectly, by a Loan Party to such Person, if the associated Attributable Debt,
when added to all other outstanding Attributable Debt (exclusive of any
Attributable Debt arising out of the sale/leaseback by ITCO of its Orlando,
Florida facility, as contemplated on the Effective Date), would exceed
$15,000,000.
SECTION 11.11 Amendments of Other Agreements. Amend the interest rate
or principal amount or schedule of payments of principal and interest with
respect to any Debt (other than the Secured Obligations) or any dividend rate or
redemption schedule, applicable to any preferred stock of a Borrower, other than
to reduce the interest or dividend rate or to extend any such schedule of
payments or redemption schedule, or amend or cause or permit to be amended in
any material respect or in any respect that may be adverse to the interests of
the Agent or the Lenders, (i) the KS Preferred Stock Purchase Agreement, (ii)
the Senior Note Indenture, (iii) prior to consummation of the transactions
contemplated thereby, the CPW Acquisition Documents or the ITCO Merger Documents
or (iv) the articles or certificate of incorporation of any Loan Party.
SECTION 11.12 Commingling. Commingle or permit the commingling of
Collateral or proceeds of Collateral with other property of or under the control
of any of Heafner or any of its Subsidiaries that is not Collateral or proceeds
thereof.
91
<PAGE> 99
ARTICLE 12
DEFAULT
SECTION 12.1 Events of Default. Each of the following shall constitute
an Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
governmental or nongovernmental body:
(a) Default in Payment. The Borrowers shall default in any payment of
principal of or interest on any Loan or any Note when and as due (whether at
maturity, by reason of acceleration or otherwise).
(b) Other Payment Default. The Borrowers shall default in the payment,
as and when due, of principal of or interest on, any other Secured Obligation,
and such default shall continue for a period of 10 days after written notice
thereof has been given to the Borrowers by the Agent.
(c) Misrepresentation. Any representation or warranty made or deemed
to be made by the Borrowers under this Agreement or any Loan Document, or any
amendment hereto or thereto, shall at any time prove to have been incorrect or
misleading in any material respect when made.
(d) Default in Performance. The Borrowers shall default in the
performance or observance of any term, covenant, condition or agreement to be
performed by the Borrowers, contained in
(i) ARTICLES 8 (other than SECTIONS 8.3 and 8.4(a)) or 11, or
SECTIONS 9.1 (insofar as it requires the preservation of the corporate
existence of the Borrowers), 9.8, 10.1, 10.2 OR 10.3, and the Agent
shall have delivered to the Borrowers written notice of such default,
or
(ii) this Agreement (other than as specifically provided for
otherwise in this SECTION 12.1) and such default shall continue for a
period of 30 days after written notice thereof has been given to the
Borrowers by the Agent.
(e) Debt Cross-Default.
(i) A Borrower or any Subsidiary shall fail to pay when due
and payable the principal of or interest on any Debt (other than the
Loans) in an amount in excess of $1,000,000, or
(ii) the maturity of any such Debt outstanding in a principal
amount greater than $1,000,000 shall have (A) been accelerated in
accordance with the provisions of any indenture, contract or
instrument providing for the creation of or concerning such
Indebtedness, or (B) been required to be prepaid prior to the stated
92
<PAGE> 100
maturity thereof, including, without being limited to, upon a "Change
of Control" as defined in the Senior Note Indenture, or
(iii) any event shall have occurred and be continuing which
would permit any holder or holders of such Debt outstanding in an
amount in excess of $1,000,000, any trustee or agent acting on behalf
of such holder or holders or any other Person so to accelerate such
maturity, and the Borrowers shall have failed to cure such default
prior to the expiration of any applicable cure or grace period.
(f) Other Cross-Defaults; Mandatory Redemption. A Borrower or any
Subsidiary shall default in the payment when due, or in the performance or
observance, of any obligation or condition of any agreement, contract or lease
(other than this Agreement, the Security Documents or any such agreement,
contract or lease relating to Debt), if the existence of any such defaults,
singly or in the aggregate, could in the reasonable judgment of the Agent have a
Materially Adverse Effect, PROVIDED, that for the purposes of this provision,
where such a default could result only in a monetary loss, a Material Adverse
Effect shall not be deemed to have occurred unless the aggregate of such losses
would exceed $1,000,000, or any event shall occur or circumstances exist that
would result in or permit the holder thereof to require the redemption of the KS
Preferred.
(g) Voluntary Bankruptcy Proceeding. A Borrower or any Subsidiary
shall
(i) commence a voluntary case under the federal bankruptcy
laws (as now or hereafter in effect),
(ii) file a petition seeking to take advantage of any other
laws, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or composition for adjustment of debts,
(iii) consent to or fail to contest in a timely and
appropriate manner any petition filed against it in an involuntary
case under such bankruptcy laws or other laws,
(iv) apply for or consent to, or fail to contest in a timely
and appropriate manner, the appointment of, or the taking of
possession by, a receiver, custodian, trustee, or liquidator of itself
or of a substantial part of its property, domestic or foreign,
(v) admit in writing its inability to pay its debts as they
become due,
(vi) make a general assignment for the benefit of creditors,
or
(vii) take any corporate action for the purpose of authorizing
any of the foregoing.
(h) Involuntary Bankruptcy Proceeding. A case or other proceeding
shall be commenced against a Borrower or any Subsidiary in any court of
competent jurisdiction seeking
93
<PAGE> 101
(i) relief under the federal bankruptcy laws (as now or
hereafter in effect) or under any other laws, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, winding up or
adjustment of debts,
(ii) the appointment of a trustee, receiver, custodian,
liquidator or the like of a Borrower, any Subsidiary or of all or any
substantial part of the assets, domestic or foreign, of a Borrower or
any Subsidiary,
and such case or proceeding shall continue undismissed or unstayed for a period
of 60 consecutive calendar days, or an order granting the relief requested in
such case or proceeding against such Borrower or Subsidiary (including, but not
limited to, an order for relief under such federal bankruptcy laws) shall be
entered.
(i) Loan Documents. Any "Event of Default" under any Loan Document
(other than this Agreement) shall occur or a Borrower shall default in the
performance or observance of any material term, covenant, condition or agreement
contained in, or the payment of any other sum covenanted to be paid by the
Borrowers under any Loan Document (other than this Agreement) that does not
expressly provide for "Events of Default," or any provision thereof, other than
any nonmaterial provision rendered unenforceable by operation of law, shall
cease to be valid and binding.
(j) Failure of Agreements. A Borrower shall challenge the validity and
binding effect of any provision of any Loan Document after delivery thereof
hereunder or shall state in writing its intention to make such a challenge, or
any Security Document, after delivery thereof hereunder, shall for any reason
(except to the extent permitted by the terms thereof) cease to create a valid
and perfected first priority Lien (except for Permitted Liens) on, or security
interest in, any of the Collateral purported to be covered thereby.
(k) Judgment. A final, unappealable judgment or order for the payment
of money in an amount that exceeds the uncontested insurance available therefor
by $1,000,000 or more shall be entered against a Borrower by any court and such
judgment or order shall continue undischarged or unstayed for 30 days.
(l) Attachment. A warrant or writ of attachment or execution or
similar process which exceeds $1,000,000 in value shall be issued against any
property of a Borrower and such warrant or process shall continue undischarged
or unstayed for 30 days.
(m) ERISA. In addition to the breach of any other representation and
warranty, any ERISA Event with respect to a Benefit Plan shall occur.
(n) Qualified Audits. The independent certified public accountants
retained by Heafner shall refuse to deliver an opinion in accordance with
SECTION 10.1(a) with respect to the annual consolidated financial statements of
Heafner and its Consolidated Subsidiaries.
(o) Change of Control. Heafner shall cease to own, directly or
indirectly, 100% of the issued and outstanding stock of each other Loan Party or
a "Change of Control" for purposes of the Senior Note Indenture, the Class B
Stock or the Warrant shall occur.
94
<PAGE> 102
(p) Fleet Financing. After July 15, 1998, any amount owed to Fleet
under and pursuant to the Fleet Financing shall remain outstanding and unpaid or
the Fleet Financing shall not have been terminated in writing or any Lien of a
tire company vendor to ITCO or its Subsidiaries affecting accounts or other
property, other than Inventory, of ITCO or any of its Subsidiaries, shall remain
in effect (unless such Lien shall have been subordinated to the Security
Interest at least to the same extent that it is subordinated to the Lien in
favor of Fleet under the Fleet Financing, or otherwise to the satisfaction of
the Agent, such that such accounts or other property, to the extent they
otherwise constitute Eligible Receivables, could be included in the computation
of the Borrowing Base).
SECTION 12.2 Remedies.
(a) Automatic Acceleration and Termination of Facilities. Upon the
occurrence of an Event of Default specified in SECTION 12.1(g) or (h), (i) the
principal of and the interest on the Loans and any Note at the time outstanding,
and all other amounts owed to the Agent or the Lenders under this Agreement or
any of the other Loan Documents and all other Secured Obligations, shall
thereupon become due and payable without presentment, demand, protest, or other
notice of any kind, all of which are expressly waived, anything in this
Agreement or any of the Loan Documents to the contrary notwithstanding, and (ii)
the Commitments and the right of the Borrowers to request Borrowings under this
Agreement shall immediately terminate.
(b) Other Remedies. If any Event of Default shall have occurred, and
during the continuance of any Event of Default, the Agent may, and at the
direction of the Required Lenders in their sole and absolute discretion shall,
do any of the following:
(i) declare the principal of and interest on the Loans and any
Note at the time outstanding, and all other amounts owed to the Agent
or the Lenders under this Agreement or any of the other Loan Documents
and all other Secured Obligations, to be forthwith due and payable,
whereupon the same shall immediately become due and payable without
presentment, demand, protest or other notice of any kind, all of which
are expressly waived, anything in this Agreement or the Loan Documents
to the contrary notwithstanding;
(ii) terminate the Commitments and any other right of the
Borrowers to request borrowings hereunder;
(iii) notify, or request the Borrowers to notify, in writing
or otherwise, any Account Debtor or obligor with respect to any one or
more of the Receivables to make payment to the Agent, for the benefit
of the Lenders, or any agent or designee of the Agent, at such address
as may be specified by the Agent and if, notwithstanding the giving of
any notice, any Account Debtor or other such obligor shall make
payments to the Borrowers, the Borrowers shall hold all such payments
received in trust for the Agent, for the account of the Lenders,
without commingling the same with other funds or property of, or held
by, the Borrowers, and shall deliver the same to the Agent or any such
agent or designee of the Agent
95
<PAGE> 103
immediately upon receipt by the Borrowers in the identical form
received, together with any necessary endorsements;
(iv) settle or adjust disputes and claims directly with
Account Debtors and other obligors on Receivables for amounts and on
terms which the Agent considers advisable and in all such cases only
the net amounts received by the Agent, for the account of the Lenders,
in payment of such amounts, after deductions of costs and attorneys'
fees, shall constitute Collateral and the Borrowers shall have no
further right to make any such settlements or adjustments or to accept
any returns of merchandise;
(v) enter upon any premises in which Inventory may be located
and, without resistance or interference by the Borrowers, take
physical possession of any or all thereof and maintain such possession
on such premises or move the same or any part thereof to such other
place or places as the Agent shall choose, without being liable to the
Borrowers on account of any loss, damage or depreciation that may
occur as a result thereof, so long as the Agent shall act reasonably
and in good faith;
(vi) require the Borrowers to and the Borrowers shall, without
charge to the Agent or any Lender, assemble the Inventory and maintain
or deliver it into the possession of the Agent or any agent or
representative of the Agent at such place or places as the Agent may
designate and as are reasonably convenient to both the Agent and the
applicable Borrower;
(vii) at the expense of the Borrowers, cause any of the
Inventory to be placed in a public or field warehouse, and the Agent
shall not be liable to the Borrowers on account of any loss, damage or
depreciation that may occur as a result thereof, so long as the Agent
shall act reasonably and in good faith;
(viii) without notice, demand or other process, and without
payment of any rent or any other charge, enter any of the Borrowers'
premises and, without breach of the peace, until the Agent, on behalf
of the Lenders, completes the enforcement of its rights in the
Collateral, take possession of such premises or place custodians in
exclusive control thereof, remain on such premises and use the same
and any of the Borrowers' equipment, for the purpose of (A) completing
any work in process, preparing any Inventory for disposition and
disposing thereof, and (B) collecting any Receivable, and the Agent
for the benefit of the Lenders is hereby granted a license or
sublicense and all other rights as may be necessary, appropriate or
desirable to use the Proprietary Rights in connection with the
foregoing, and the rights of the Borrowers under all licenses,
sublicenses and franchise agreements shall inure to the Agent for the
benefit of the Lenders (PROVIDED, HOWEVER, that any use of any
federally registered trademarks as to any goods shall be subject to
the control as to the quality of such goods of the owner of such
trademarks and the goodwill of the business symbolized thereby);
96
<PAGE> 104
(ix) exercise any and all of its rights under any and all of
the Security Documents;
(x) apply any Collateral consisting of cash to the payment of
the Secured Obligations in any order in which the Agent, on behalf of
the Lenders, may elect or use such cash in connection with the
exercise of any of its other rights hereunder or under any of the
Security Documents;
(xi) establish or cause to be established one or more
Lockboxes or other arrangement for the deposit of proceeds of
Receivables, and, in such case, the Borrowers shall cause to be
forwarded to the Agent at the Agent's Office, on a daily basis, copies
of all checks and other items of payment and deposit slips related
thereto deposited in such Lockboxes, together with collection reports
in form and substance satisfactory to the Agent; and
(xii) exercise all of the rights and remedies of a secured
party under the UCC and under any other Applicable Law, including,
without limitation, the right, without notice except as specified
below and with or without taking possession thereof, to sell the
Collateral or any part thereof in one or more parcels at public or
private sale, at any location chosen by the Agent, for cash, on credit
or for future delivery, and at such price or prices and upon such
other terms as the Agent may deem commercially reasonable. Each
Borrower agrees that, to the extent notice of sale shall be required
by law, at least 10 days' notice to the Borrowers 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, but notice given
in any other reasonable manner or at any other reasonable time shall
constitute reasonable notification. The Agent shall not be obligated
to make any sale of Collateral regardless of notice of sale having
been given. The 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.
SECTION 12.3 Application of Proceeds. All proceeds from each sale of,
or other realization upon, all or any part of the Collateral following an Event
of Default shall be applied or paid over in accordance with the provisions of
SECTION 4.16.
THE BORROWERS SHALL REMAIN LIABLE AND WILL PAY, ON DEMAND, ANY DEFICIENCY
REMAINING IN RESPECT OF THE SECURED OBLIGATIONS, TOGETHER WITH INTEREST THEREON
AT A RATE PER ANNUM EQUAL TO THE HIGHEST RATE THEN PAYABLE HEREUNDER ON SUCH
SECURED OBLIGATIONS, WHICH INTEREST SHALL CONSTITUTE PART OF THE SECURED
OBLIGATIONS.
SECTION 12.4 Power of Attorney. In addition to the authorizations
granted to the Agent under SECTION 9.13 or under any other provision of this
Agreement or of any other Loan Document, during the continuance of an Event of
Default, each Borrower hereby irrevocably designates, makes, constitutes and
appoints the Agent (and all Persons designated by the Agent from time to time)
as the Borrower's true and lawful attorney, and agent in fact, and the
97
<PAGE> 105
Agent, or any agent of the Agent, may, without notice to the Borrowers, and at
such time or times as the Agent or any such agent in its sole discretion may
determine, in the name of a Borrower, the Agent or the Lenders,
(a) demand payment of the Receivables,
(b) enforce payment of the Receivables by legal proceedings or
otherwise,
(c) exercise all of any Borrower's rights and remedies with respect to
the collection of Receivables,
(d) settle, adjust, compromise, extend or renew any or all of the
Receivables,
(e) settle, adjust or compromise any legal proceedings brought to
collect the Receivables,
(f) discharge and release the Receivables or any of them,
(g) prepare, file and sign the name of a Borrower on any proof of
claim in bankruptcy or any similar document against any Account Debtor,
(h) prepare, file and sign the name of a Borrower on any notice of
Lien, assignment or satisfaction of Lien, or similar document in connection with
any of the Collateral,
(i) endorse the name of a Borrower upon any chattel paper, document,
instrument, notice, freight bill, bill of lading or similar document or
agreement relating to the Receivables, the Inventory or any other Collateral,
(j) use the stationery of the Borrowers and sign the names of the
Borrowers to verifications of the Receivables and on any notice to the Account
Debtors,
(k) open the Borrowers' mail,
(l) notify the post office authorities to change the address for
delivery of the Borrowers' mail to an address designated by the Agent, and
(m) use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the
Receivables, Inventory or other Collateral to which any Borrower has access.
SECTION 12.5 Miscellaneous Provisions Concerning Remedies.
(a) Rights Cumulative. The rights and remedies of the Agent and the
Lenders under this Agreement, the Notes and each of the Loan Documents shall be
cumulative and not exclusive of any rights or remedies which it or they would
otherwise have. In exercising such rights and remedies the Agent and the Lenders
may be selective and no failure or delay by the Agent or any Lender in
exercising any right shall operate as a waiver of it, nor shall any single or
98
<PAGE> 106
partial exercise of any power or right preclude its other or further exercise or
the exercise of any other power or right.
(b) Waiver of Marshalling. Each Borrower hereby waives any right to
require any marshalling of assets and any similar right.
(c) Limitation of Liability. Nothing contained in this ARTICLE 12 or
elsewhere in this Agreement or in any of the Loan Documents shall be construed
as requiring or obligating the Agent, any Lender or any agent or designee of the
Agent or any Lender to make any demand, or to make any inquiry as to the nature
or sufficiency of any payment received by it, or to present or file any claim or
notice or take any action, with respect to any Receivable or any other
Collateral or the monies due or to become due thereunder or in connection
therewith, or to take any steps necessary to preserve any rights against prior
parties, and the Agent, the Lenders and their agents or designees shall have no
liability to the Borrowers for actions taken pursuant to this ARTICLE 12, any
other provision of this Agreement or any of the Loan Documents so long as the
Agent or such Lender shall act in good faith and in a commercially reasonable
manner.
(d) Appointment of Receiver. In any action under this ARTICLE 12, the
Agent shall be entitled during the continuance of an Event of Default, to the
fullest extent permitted by Applicable Law, to the appointment of a receiver,
without notice of any kind whatsoever, to take possession of all or any portion
of the Collateral and to exercise such power as the court shall confer upon such
receiver.
SECTION 12.6 Trademark License. Each Borrower hereby grants to the
Agent for its benefit as Agent and for the benefit of the Lenders, the
nonexclusive right and license to use its trademarks for the purposes set forth
in SECTION 12.2(b)(viii) and for the purpose of enabling the Agent to realize on
the Collateral and to permit any purchaser of any portion of the Collateral
through a foreclosure sale or any other exercise of the Agent's rights and
remedies under this Agreement and the other Security Documents to use, sell or
otherwise dispose of the Collateral bearing any such trademark. Such right and
license is granted free of charge, without the requirement that any monetary
payment whatsoever be made to the Borrowers or any other Person by the Lenders
or the Agent or any purchaser or purchasers of the Collateral. The Borrowers
hereby represent, warrant, covenant and agree that they presently have, and
shall continue to have, the right, without the approval or consent of others, to
grant the license set forth in this SECTION 12.6.
99
<PAGE> 107
ARTICLE 13
ASSIGNMENTS
SECTION 13.1 Successors and Assigns; Participations.
(a) This Agreement shall be binding upon and inure to the benefit of
the Borrowers, the Lenders, the Agent, all future holders of the Notes, and
their respective successors and assigns, except that the Borrowers may not
assign or transfer any of their rights or obligations under this Agreement
without the prior written consent of each Lender.
(b) Each Lender may with the consent of the Agent and, so long as no
Default or Event of Default has occurred and is continuing, Heafner (which
consent shall not be unreasonably withheld) assign to one or more Eligible
Assignees all or a portion of its interests, rights and obligations under this
Agreement (including, without limitation, all or a portion of the Loans at the
time owing to it and the Notes held by it) (PROVIDED that no consent shall be
required with respect to any assignment to an Eligible Assignee as part of the
assigning Lender's Transfer of all or substantially all of its assets of a
similar type in connection with any acquisition or divestiture or otherwise);
PROVIDED, HOWEVER, that (i) each such assignment shall be of a constant, and not
a varying, percentage of all the assigning Lender's rights and obligations under
this Agreement, (ii) the amount of the Commitment of the assigning Lender that
is subject to each such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the Agent) shall in
no event be less than the Minimum Commitment (or the assigning Lender's entire
remaining Commitment, if less) (except that a Lender may assign less than the
Minimum Commitment to its Affiliate), (iii) in the case of a partial assignment,
the amount of the Commitment that is retained by the assigning Lender
(determined as of the date the Assignment and Acceptance with respect to such
assignment is delivered to the Agent) shall in no event be less than the Minimum
Commitment, (iv) the parties to each such assignment shall execute and deliver
to the Agent, for its acceptance and recording in the Register an Assignment and
Acceptance, together with any Note or Notes subject to such assignment and an
assignment fee in the amount of $2,500, (v) such assignment shall not, without
the consent of the Borrowers, require the Borrowers to file a registration
statement with the Securities and Exchange Commission or apply to or qualify the
Loans or the Notes under the blue sky laws of any state, and (vi) the
representation contained in SECTION 13.2 hereof shall be true with respect to
any such proposed assignee. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five Business Days after the
execution thereof, (A) the assignee thereunder shall be a party hereto and, to
the extent provided in such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder, and (B) the Lender assignor thereunder shall,
to the extent provided in such assignment, be released from its obligations
under this Agreement.
(c) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim,
100
<PAGE> 108
such Lender assignor 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 execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any other instrument or document furnished pursuant hereto; (ii) such Lender
assignor makes no representation or warranty and assumes no responsibility with
respect to the financial condition of the Borrowers or the performance or
observance by the Borrowers of any of their obligations under this Agreement or
any other instrument or document furnished pursuant hereto; (iii) such assignee
confirms that it has received a copy of this Agreement, together with copies of
the financial statements referred to in SECTION 6.1(n) and 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; (iv) such assignee will,
independently and without reliance upon the Agent, such Lender assignor 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; (v) such assignee confirms that it is an
Eligible Assignee; (vi) such assignee appoints and authorizes the 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 the Agent by the
terms hereof and thereof, together with such powers as are reasonably incidental
thereto; and (vii) 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.
(d) The Agent shall maintain a copy of each Assignment and Acceptance
delivered to it and a register for the recordation of the names and addresses of
the Lenders and the Commitment and Proportionate Share of, and principal amount
of the Loans and owing to, each Lender from time to time (the "Register"). The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrowers, the Agent and the Lenders may treat each person whose name is
recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrowers or
any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Eligible Assignee together with any Note or Notes and
evidence satisfactory to the Agent of the Borrowers' consent thereto (if
applicable), subject to such assignment, the Agent shall, if such Assignment and
Acceptance has been completed and is in the form of EXHIBIT D, (i) accept such
Assignment and Acceptance, (ii) record the information contained therein in the
Register, (iii) give prompt notice thereof to the Lenders and the Borrowers, and
(vi) promptly deliver a copy of such Acceptance and Assignment to the Borrowers.
Within five Business Days after receipt of notice, the Borrowers shall execute
and deliver to the Agent in exchange for the surrendered Note or Notes a new
Note or Notes to the order of such Eligible Assignee in amounts equal to the
Commitment assumed by such Eligible Assignee pursuant to such Assignment and
Acceptance and a new Note or Notes to the order of the assigning Lender in an
amount equal to the Commitment retained by it hereunder. Such new Note or Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Note or Notes, shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the form
of the assigned Notes. Each surrendered Note or Notes shall be canceled and
returned to the Borrowers.
101
<PAGE> 109
(f) Each Lender may sell participations to one or more banks or other
entities in all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment hereunder and
the Loans owing to it and the Notes held by it); PROVIDED, HOWEVER, that (i)
each such participation (other than to a Lender's own Affiliate) shall be in an
amount not less than the Minimum Commitment, (ii) such Lender's obligations
under this Agreement (including, without limitation, its Commitment hereunder)
shall remain unchanged, (iii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iv) such Lender
shall remain the holder of the Notes held by it for all purposes of this
Agreement, (v) the Borrowers, the Agent and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement; PROVIDED, that such Lender may
agree with any participant that such Lender will not, without such participant's
consent, agree to or approve any waivers or amendments which would reduce the
principal of or the interest rate on any Loans, extend the term or increase the
amount of the commitments of such participant, reduce the amount of any fees to
which such participant is entitled, extend any scheduled payment date for
principal or release Collateral securing the Loans (other than Collateral
disposed of pursuant to SECTION 8.7 hereof or otherwise in accordance with the
terms of this Agreement or the Security Documents), and (vi) any such
disposition shall not, without the consent of the Borrowers, require any
Borrower to file a registration statement with the Securities and Exchange
Commission to apply to qualify the Loans or the Notes under the blue sky law of
any state. The Lender selling a participation to any bank or other entity that
is not an Affiliate of such Lender shall give prompt notice thereof to the
Agent, the other Lenders and the Borrowers.
(g) Any Lender may, in connection with any assignment, proposed
assignment, participation or proposed participation pursuant to this SECTION
13.1, disclose to the assignee, participant, proposed assignee or proposed
participant, any information relating to the Borrowers furnished to such Lender
by or on behalf of the Borrowers, PROVIDED that, prior to any such disclosure,
each such assignee, proposed assignee, participant or proposed participant shall
agree with the Borrowers or such Lender (which in the case of an agreement with
only such Lender, the Borrowers shall be recognized as third party beneficiaries
thereof) to preserve the confidentiality of any confidential information
relating to the Borrowers received from such Lender.
SECTION 13.2 Representation of Lenders. Each Lender hereby represents
that it will make each Loan hereunder as a commercial loan for its own account
in the ordinary course of its business; PROVIDED, HOWEVER, that subject to
SECTION 13.1 hereof, the disposition of the Notes or other evidence of the
Secured Obligations held by any Lender shall at all times be within its
exclusive control.
102
<PAGE> 110
ARTICLE 14
AGENT
SECTION 14.1 Appointment of Agent. Each Lender hereby irrevocably
designates and appoints (1) BankBoston as the Agent of such Lender and (2) each
of Fleet and FUNB as a Co-Agent under this Agreement and the other Loan
Documents, and each Lender irrevocably authorizes the Agent, as the Agent for
such Lender, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement and such other Loan Documents, including, without limitation, to make
determinations as to the eligibility of Inventory and Receivables, to establish
Additional Reserves and to adjust the advance ratios contained in the definition
of "Borrowing Base" (so long as such advance ratios, as adjusted, do not exceed
those set forth in the definition of "Borrowing Base" as of the Agreement Date),
together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement or the
other Loan Documents, the Agent shall not have any duties or responsibilities
except those expressly set forth herein and therein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or the other Loan Documents or otherwise exist against the Agent.
SECTION 14.2 Delegation of Duties. The Agent may execute any of its
duties under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care. The Agent hereby appoints, authorizes and directs each Lender
to act as collateral sub-agent for the Agent for the purposes of perfecting
security interests and Liens in Collateral held by such Lender.
SECTION 14.3 Exculpatory Provisions. Neither the Agent nor any of its
trustees, officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall be (i) liable to any Lender (or any Lender's participants) for
any action lawfully taken or omitted to be taken by it or such Person under or
in connection with this Agreement or the other Loan Documents (except for its or
such Person's, as the case may be, own gross negligence or willful misconduct),
or (ii) responsible in any manner to any Lender (or any Lender's participants)
for any recitals, statements, representations or warranties made by the
Borrowers or any of its Subsidiaries, any Affiliate thereof or any other Person
or any officer thereof contained in this Agreement or the other Loan Documents
or in any certificate, report, statement or other document referred to or
provided for in, or received by the Agent under or in connection with, this
Agreement or the other Loan Documents or for the existence, value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
the other Loan Documents or any Collateral or the Security Interest or other
Lien or other interest therein or for any failure of the Borrowers, or any
Subsidiary of the Borrower or any Affiliate of the Borrowers to perform its
obligations hereunder or thereunder. The Agent shall not be under any obligation
to any Lender to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement, or to
inspect the properties, books or records of the Borrowers.
103
<PAGE> 111
SECTION 14.4 Reliance by Agent. The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any Note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrowers), independent
accountants and other experts selected by the Agent. The Agent may deem and
treat the payee of any Note as the owner thereof for all purposes unless such
Note shall have been transferred in accordance with SECTION 13.1. The Agent
shall be fully justified in failing or refusing to take any action under this
Agreement and the other Loan Documents unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate and shall be
indemnified to its satisfaction by the Lenders against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action. The Agent shall in all cases be fully protected in acting, or
in refraining from acting, under this Agreement and the Notes in accordance with
a request of the Required Lenders (or all Lenders if such action or inaction
would have the effect of amending or waiving a breach of any provision of this
Agreement that only all the Lenders may amend or waive in accordance with the
provisions of SECTION 15.11(b)), and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders and all
future holders of the Notes.
SECTION 14.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender or the Borrowers
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the Agent
receives such a notice, the Agent shall promptly give notice thereof to the
Lenders. The Agent shall take such action with respect to such Default or Event
of Default as shall be directed by the Required Lenders; PROVIDED that unless
and until the Agent shall have received such directions, the Agent may (but
shall not be obligated to) continue making Loans to the Borrowers on behalf of
the Lenders in reliance on the provisions of SECTION 4.7 and take such other
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable and in the best interests of the
Lenders.
SECTION 14.6 Non-Reliance on Agents and Other Lenders. Each Lender
expressly acknowledges that neither the Agent nor any Co-Agent nor any of their
respective officers, directors, counsel, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to it and that no act by
the Agent or any Co-Agent hereafter taken, including any review of the affairs
of the Borrowers, any Subsidiary or any Affiliate of the Borrowers, shall be
deemed to constitute any representation or warranty by the Agent or any Co-Agent
to any Lender. Each Lender represents to the Agent and each Co-Agent that it
has, independently and without reliance upon the Agent or any Co-Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial (and other) condition and creditworthiness of
the Borrowers and the Subsidiaries, and made its own decision to make its Loans
hereunder and enter into this Agreement. Each Lender also represents that it
will, independently and without reliance upon the Agent or any Co-Agent or any
other Lender, and
104
<PAGE> 112
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial (and other) condition and
creditworthiness of the Borrowers and the Subsidiaries. Except for notices,
reports and other documents expressly required to be furnished to the Lenders by
the Agent hereunder or under the other Loan Documents neither the Agent nor any
Co-Agent shall have any duty or responsibility to provide any Lender with any
credit or other information concerning the business, operations, property,
financial (and other) condition or creditworthiness of the Borrowers or the
Subsidiaries or the Affiliates of the Borrowers which may come into the
possession of the Agent, any Co-Agent or any of their respective officers,
directors, employees, agents, attorneys-in-fact or Affiliates.
SECTION 14.7 Indemnification.
(a) The Lenders agree to indemnify the Agent in its capacity as such
(to the extent not reimbursed by the Borrowers and without limiting the
obligation of the Borrowers or any other Person to do so), Ratably according to
their respective Commitment Percentages, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
attorneys' fees, costs, expenses or disbursements of any kind whatsoever which
may at any time (including, without limitation, at any time following the
payment of the Notes) be imposed on, incurred by or asserted against the Agent
in any way relating to or arising out of this Agreement or the other Loan
Documents, or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or any action taken or omitted
by the Agent under or in connection with any of the foregoing; PROVIDED that no
Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, attorneys'
fees, costs, expenses or disbursements resulting from the Agent's gross
negligence or willful misconduct or resulting solely from transactions or
occurrences that occur at a time after such Lender has assigned all of its
interests, rights and obligations under this Agreement pursuant to SECTION 13.1
or, in the case of a Lender to which an assignment is made hereunder pursuant to
SECTION 13.1, at a time before such assignment. The agreements in this SECTION
14.7 shall survive the payment of the Notes, the Secured Obligations and all
other amounts payable hereunder and the termination of this Agreement.
(b) Without limiting the generality of the foregoing provisions of
this SECTION 14.7, if the Agent should be sued by any receiver, trustee in
bankruptcy, debtor-in-possession or other Person on account of any alleged
preference or fraudulent transfer received or alleged to have been received from
the Borrowers, any Subsidiary or any other Person as the result of any
transaction under the Loan Documents, then any monies paid by the Agent in
settlement or satisfaction of such suit, together with all costs and expenses
(including attorneys' fees and expenses) incurred by Agent in the defense of
same, shall be promptly reimbursed to the Agent by the Lenders to the extent of
each Lender's Proportionate Share.
(c) Further, without limiting the generality of the foregoing
provisions of this SECTION 14.7, if at any time (whether prior to or after the
Termination Date) any action or proceeding shall be brought against the Agent by
the Borrowers, any Subsidiary, or by any other
105
<PAGE> 113
Person claiming by, through or under the Borrowers or any Subsidiary, to recover
damages for any act taken or omitted by the Agent under any of the Loan
Documents or in the performance of any rights, powers or remedies of the Agent
against the Borrowers, any Account Debtor, any Subsidiary, the Collateral or
with respect to any Loans, or to obtain any other relief of any kind on account
of any transaction between the Agent and the Borrowers, any Subsidiary or any
other Person under or in relation to any of the Loan Documents, the Lenders
agree to indemnify and hold the Agent harmless with respect thereto and to pay
to Agent their respective Proportionate Shares of such amount as the Agent shall
be required to pay by reason of a judgment, decree or other order entered in
such action or proceeding or by reason of any compromise or settlement agreed to
by the Agent, including all interest and costs assessed against the Agent in
defending or compromising such action, together with attorneys' fees and other
legal expenses paid or incurred by the Agent in connection therewith; PROVIDED,
HOWEVER, that no Lender shall be liable to the Agent for any of the foregoing to
the extent that they arise from the willful misconduct or gross negligence of
the Agent. In the Agent's discretion, the Agent may also reserve for or satisfy
any such judgment, decree or order from proceeds of Collateral prior to any
distributions therefrom to or for the account of Lenders.
SECTION 14.8 Agent in Its Individual Capacity. The institution at the
time acting as the Agent and its Affiliates may make loans to, issue letters of
credit to or for the account of, accept deposits from and generally engage in
any kind of business with the Borrowers, any Subsidiary or any Affiliate of the
Borrowers as if it were not the Agent hereunder. With respect to its Commitment,
the Loans made or renewed by it and any Note issued to it and any Letter of
Credit issued by it, such institution shall have and may exercise the same
rights and powers under this Agreement and the other Loan Documents and shall be
subject to the same obligations and liabilities as and to the extent set forth
herein and in the other Loan Documents for any other Lender. The terms "Lenders"
and "Required Lenders" or any other term shall, unless the context clearly
otherwise indicates, include such institution in its individual capacity as a
Lender or one of the Required Lenders.
SECTION 14.9 Successor Collateral Agent.
(a) The Agent may resign as Agent upon 30 days' notice to the Lenders
and the Borrowers or may be removed by the Lenders (other than the Lender who is
also the Agent), or, if there are more than two other Lenders by the Lenders
whose Commitment Percentages equal at least 51% of the total Commitment
Percentage of all other Lenders; PROVIDED, HOWEVER that such resignation shall
not take effect until a successor agent has been appointed. If the Agent shall
resign as Agent under this Agreement or be removed, then the Required Lenders
shall appoint from among the Lenders a successor agent for the Lenders and, so
long as no Event of Default has occurred and is continuing, subject to approval
by the Borrowers (which approval shall not be unreasonably withheld), whereupon
such successor agent shall succeed to the rights, powers and duties of the
Agent, and the term "Agent" shall mean such successor agent effective upon its
appointment, and the former Agent's rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement or any holders of the Notes. If
the Required Lenders have failed to appoint a successor Agent within 30 days of
the resignation notice given by the Agent as provided above, then the Agent
shall be entitled to appoint a successor agent from among the
106
<PAGE> 114
Lenders, subject, so long as no Event of Default has occurred and is continuing,
to approval by the Borrowers (which approval shall not be unreasonably
withheld). After any retiring Agent's resignation hereunder as Agent or the
removal of any Agent, the provisions of SECTION 14.7 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Agent under
this Agreement.
(b) It is intended that there shall be no violation of any Applicable
Law denying or restricting the right of financial institutions to transact
business as agent in any jurisdiction. It is recognized that, in case of
litigation under any of the Loan Documents, or in case the Agent deems that by
reason of present or future laws of any jurisdiction the Agent might be
prohibited from or restricted in exercising any of the powers, rights or
remedies granted to the Agent or the Lenders hereunder or under any of the Loan
Documents or from holding title to or a Lien upon any Collateral or from taking
any other action which may be necessary or desirable hereunder or under any of
the Loan Documents, the Agent may appoint an additional individual or
institution as a separate collateral agent or co-collateral agent which is not
so prohibited from or restricted in taking any of such actions or exercising any
of such powers, rights or remedies. If the Agent shall appoint an additional
individual or institution as a separate collateral agent or co-collateral agent
as provided above, each and every remedy, power, right, claim, demand or cause
of action intended by any of the Loan Documents to be exercised by or vested in
or conveyed to the Agent with respect thereto shall be exercisable by and vested
in such separate collateral agent or co-collateral agent, but only to the extent
necessary to enable such separate collateral agent or co-collateral agent to
exercise such powers, rights and remedies, and every covenant and obligation
necessary to the exercise thereof by such separate collateral agent or
co-collateral agent shall run to and be enforceable by either of them. Should
any instrument from the Lenders be required by the separate collateral agent or
co-collateral agent so appointed by Agent in order more fully and certainly to
vest in and confirm to him or it such rights, powers, duties and obligations,
including without limitation indemnification of such collateral agent or
co-collateral agent, any and all of such instruments shall, on request, be
executed, acknowledged and delivered by the Lenders. In case any separate
collateral agent or co-collateral agent, or a successor to either, shall die,
become incapable of acting, resign or be removed, all the estates, properties,
rights, powers, duties and obligations of such separate collateral agent or
co-collateral agent, so far as permitted by Applicable Law, shall vest in and be
exercised by the Agent until the appointment of a new collateral agent or
successor to such separate collateral agent or co-collateral agent.
SECTION 14.10 Notices from Agent to Lenders. The Agent shall promptly,
upon receipt thereof, forward to each Lender copies of any updated Schedules and
of any written notices, reports or other information supplied to it by the
Borrowers or any Subsidiary (but which such Person is not required to supply
directly to the Lenders). Except to the extent expressly provided in this
Agreement or in the other Loan Documents, the Agent shall not be obligated to
deliver or disclose to any Lender any of the Agent's internal reports, analysis
or investigation or any records or other information in its possession relating
to the Borrowers or any of the Subsidiaries or the Affiliates of the Borrowers.
107
<PAGE> 115
SECTION 14.11 Declaring Events of Default. Upon the occurrence of a
Default, the Agent may, and at the direction of the Required Lenders shall, give
such notice or take such other action as may be required hereunder to declare an
Event of Default.
SECTION 14.12 Co-Agents. For avoidance of doubt, it is expressly
acknowledged and agreed by the Agent and each Lender for the benefit of the
Co-Agents that, other than any rights or obligations explicitly reserved to or
imposed upon the Co-Agents under this Agreement, no Co-Agent, in such capacity,
has any rights or obligations hereunder nor shall any Co-Agent, in such
capacity, be responsible or accountable to any other party hereto for any action
or failure to act hereunder, other than in connection with such explicitly
reserved rights or such obligations and then only for claims, damages, losses
(other than consequential losses) and other liabilities arising out of such
Co-Agent's own gross negligence or willful misconduct.
108
<PAGE> 116
ARTICLE 15
MISCELLANEOUS
SECTION 15.1 Notices.
(a) Method of Communication. Except as specifically provided in this
Agreement or in any of the Loan Documents, all notices and the communications
hereunder and thereunder shall be in writing or by telephone, subsequently
confirmed in writing. Notices in writing shall be delivered personally or sent
by certified or registered mail, postage pre-paid, or by overnight courier,
telex or facsimile transmission and shall be deemed received in the case of
personal delivery, when delivered, in the case of mailing, when receipted for,
in the case of overnight delivery, on the next Business Day after delivery to
the courier, and in the case of telex and facsimile transmission, upon
transmittal, PROVIDED that in the case of notices to the Agent, notice shall be
deemed to have been given only when such notice is actually received by the
Agent. A telephonic notice to the Agent, as understood by the Agent, will be
deemed to be the controlling and proper notice in the event of a discrepancy
with or failure to receive a confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent to it at
the following addresses, or any other address of which all the other parties are
notified in writing by such first party:
If to the Borrowers: The J.H. Heafner Company, Inc.
814 East Main Street
P.O. Box 837
Lincolnton, NC 28093
Attn: Donald C. Roof
Facsimile No.: 704 735-6699
with a copy to: J. Michael Gaither, Esq.
The J.H. Heafner Company, Inc.
814 East Main Street
P.O. Box 837
Lincolnton, NC 28093
Facsimile No.: 704 732-6480
If to the Agent: BankBoston, N.A.
115 Perimeter Center Place, N.E.
Suite 500
Atlanta, GA 30346
Attn: Christopher R. Nairne
Facsimile No.: 770 393-4166
If to a Lender: At the address of such Lender set forth on the
signature pages hereof.
109
<PAGE> 117
(c) Agent's Office. The Agent hereby designates its office located at
100 Federal Street, Boston, Massachusetts 02110, or any subsequent office which
shall have been specified for such purpose by written notice to the Borrowers,
as the office to which payments due are to be made and at which Loans will be
disbursed.
SECTION 15.2 Expenses. The Borrowers agree, jointly and severally, to
pay or reimburse on demand all costs and expenses reasonably (other than
pursuant to subsection (b) below as to which such requirement shall not apply)
incurred
(a) by or on behalf of the Agent, including, without limitation, the
reasonable fees and disbursements of counsel, in connection with
(i) the negotiation, preparation, execution, delivery,
administration, enforcement and termination of this Agreement and each
of the other Loan Documents, whenever the same shall be executed and
delivered, including, without limitation
(A) reasonable out-of-pocket costs and expenses incurred
in connection with the administration and interpretation of
this Agreement and the other Loan Documents;
(B) reasonable costs and expenses of appraisals of the
Collateral;
(C) the costs and expenses of lien searches; and
(D) taxes, fees and other charges for filing the
Financing Statements and continuations and the costs and
expenses of taking other actions to perfect, protect, and
continue the Security Interests;
(ii) the preparation, execution and delivery of any waiver,
amendment, supplement or consent by the Agent and the Lenders relating
to this Agreement or any of the Loan Documents;
(iii) sums paid or incurred to pay any amount or take any
action required of the Borrowers under the Loan Documents that the
Borrowers fail to pay or take;
(iv) costs of inspections and verifications of the Collateral,
including, without limitation, standard per diem fees charged by the
Agent or the Lenders, travel, lodging, and meals for inspections of
the Collateral and the Borrowers' operations and books and records by
the Agent's and/or the Lenders' agents up to two times per year and
whenever an Event of Default exists;
(v) costs and expenses of forwarding loan proceeds, collecting
checks and other items of payment, and establishing and maintaining
each Controlled Disbursement Account, Agency Account and Lockbox; and
(vi) costs and expenses of preserving and protecting the
Collateral; and
110
<PAGE> 118
(b) by or on behalf of the Agent or any Lender in connection with
(i) consulting, after the occurrence of a Default, with one or
more Persons, including appraisers, accountants and lawyers,
concerning the value of any Collateral for the Secured Obligations or
related to the nature, scope or value of any right or remedy of the
Agent or any Lender hereunder or under any of the Loan Documents,
including any review of factual matters in connection therewith, which
expenses shall include the fees and disbursements of such Persons; and
(ii) costs and expenses paid or incurred to obtain payment of
the Secured Obligations, enforce the Security Interests, sell or
otherwise realize upon the Collateral, and otherwise enforce the
provisions of the Loan Documents, or to prosecute or defend any claim
in any way arising out of, related to or connected with, this
Agreement or any of the Loan Documents, which expenses shall include
the reasonable fees and disbursements of counsel and of experts and
other consultants retained by the Agent or any Lender.
The foregoing shall not be construed to limit any other provisions of the Loan
Documents regarding costs and expenses to be paid by the Borrowers. The
Borrowers hereby authorize the Agent and the Lenders to debit the Borrowers'
Loan Accounts (by increasing the principal amount of the Loans) in the amount of
any such costs and expenses owed by the Borrowers when due.
SECTION 15.3 Stamp and Other Taxes. The Borrowers will pay any and all
stamp, registration, recordation and similar taxes, fees or charges and shall
indemnify the Agent and the Lenders against any and all liabilities with respect
to or resulting from any delay in the payment or omission to pay any such taxes,
fees or charges, which may be payable or determined to be payable in connection
with the execution, delivery, performance or enforcement of this Agreement and
any of the Loan Documents or the perfection of any rights or security interest
thereunder, including, without limitation, the Security Interest.
SECTION 15.4 Setoff. In addition to any rights now or hereafter
granted under Applicable Law and not by way of limitation of any such rights,
during the continuance of any Event of Default, each Lender, any participant
with such Lender in the Loans and each Affiliate of each Lender are hereby
authorized by the Borrowers at any time or from time to time, without notice to
the Borrowers or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and to apply any and all deposits (general
or special, including, but not limited to, indebtedness evidenced by
certificates of deposit, whether matured or unmatured) and any other
indebtedness at any time held or owing by any Lender or any Affiliate of any
Lender or any participant to or for the credit or the account of the Borrowers
against and on account of the Secured Obligations irrespective or whether or not
(a) the Agent or such Lender shall have made any demand under this
Agreement or any of the Loan Documents, or
111
<PAGE> 119
(b) the Agent or such Lender shall have declared any or all of the
Secured Obligations to be due and payable as permitted by SECTION 12.2 and
although such Secured Obligations shall be contingent or unmatured.
SECTION 15.5 Consent to Advertising and Publicity. With the prior
written consent of the Borrowers, which consent shall not be unreasonably
withheld, the Agent, on behalf of the Lenders, may issue and disseminate to the
public information describing the credit accommodation entered into pursuant to
this Agreement, including the name and address of the Borrowers, the amount,
interest rate, maturity, collateral for and a general description of the credit
facilities provided hereunder and of the Borrowers' business.
SECTION 15.6 Reversal of Payments. The Agent and each Lender shall
have the continuing and exclusive right to apply, reverse and re-apply any and
all payments to any portion of the Secured Obligations in a manner consistent
with the terms of this Agreement. To the extent the Borrowers make a payment or
payments to the Agent, for the account of the Lenders, or any Lender receives
any payment or proceeds of the Collateral for the Borrowers' benefit, which
payment(s) or proceeds 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
payment or proceeds received, the Secured Obligations or part thereof intended
to be satisfied shall be revived and continued in full force and effect, as if
such payment or proceeds had not been received by the Agent or such Lender.
SECTION 15.7 Injunctive Relief. The Borrowers recognize that, in the
event the Borrowers fail to perform, observe or discharge any of their
obligations or liabilities under this Agreement, any remedy at law may prove to
be inadequate relief to the Agent and the Lenders; therefore, the Borrowers
agree that if any Event of Default shall have occurred and be continuing, the
Agent and the Lenders, if the Agent or any Lender so requests, shall be entitled
to temporary and permanent injunctive relief without the necessity of proving
actual damages.
SECTION 15.8 Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by the
Borrowers to determine whether they are in compliance with any covenant
contained herein, shall, unless this Agreement otherwise provides or unless
Required Lenders shall otherwise consent in writing, be performed in accordance
with GAAP.
SECTION 15.9 Amendments.
(a) Except as set forth in SUBSECTION (b) below, any term, covenant,
agreement or condition of this Agreement or any of the other Loan Documents may
be amended or waived, and any departure therefrom may be consented to by the
Required Lenders, if, but only if, such amendment, waiver or consent is in
writing signed by the Required Lenders and, in the case of an amendment (other
than an amendment described in SECTION 15.9(d)), by the Borrowers, PROVIDED that
no such amendment, unless consented to by the Agent, shall alter or affect the
rights or responsibilities of the Agent, and in any such event, the failure to
observe,
112
<PAGE> 120
perform or discharge any such term, covenant, agreement or condition (whether
such amendment is executed or such waiver or consent is given before or after
such failure) shall not be construed as a breach of such term, covenant,
agreement or condition or as a Default or an Event of Default. Unless otherwise
specified in such waiver or consent, a waiver or consent given hereunder shall
be effective only in the specific instance and for the specific purpose for
which given. In the event that any such waiver or amendment is requested by the
Borrowers, the Agent and the Lenders may require and charge a fee in connection
therewith and consideration thereof in such amount as shall be determined by the
Agent and the Required Lenders in their discretion.
(b) Without the prior unanimous written consent of the Lenders,
(i) no amendment, consent or waiver shall (A) affect the
amount or extend the time of the obligation of any Lender to make
Loans or (B) extend the originally scheduled time or times of payment
of the principal of any Loan or (C) alter the time or times of payment
of interest on any Loan or of any fees payable for the account of the
Lenders or (D) alter the amount of the principal of any Loan or the
rate of interest thereon (except with respect to application of the
Default Margin under SECTION 5.1(d)) or (E) alter the amount of any
commitment fee or other fee payable hereunder for the account of the
Lenders or (F) permit any subordination of the principal of or
interest on any Loan or (G) permit the subordination of the Security
Interests in any Collateral,
(ii) no Collateral having an aggregate value greater than
$250,000 shall be released by the Agent in any 12-month period other
than as specifically permitted in this Agreement or the Security
Documents nor shall any Collateral be released at a time when the
Agent is entitled to exercise remedies hereunder upon default, nor
shall the Borrower or the Guarantor be released from its liability for
the Secured Obligations,
(iii) except to the extent expressly provided in SECTIONS 4.7
and 14.1, no amendment shall be made to the definition of any of the
following terms, "Applicable Margin", "Borrowing Base" (except as
otherwise expressly contemplated hereunder) and the defined terms used
in such definition, "Eligible Assignee", "Proportionate Share",
"Ratable", "Ratable Share", "Commitment Percentage", "Secured
Obligations", or "Commitment",
(iv) none of the provisions of this SECTION 15.9, the
definitions "Lenders" or "Required Lenders", or the provisions of
ARTICLE 12 shall be amended, and
(v) neither the Agent nor any Lender shall consent to any
amendment to or waiver of the amortization, deferral or subordination
provisions of any instrument or agreement evidencing or relating to
obligations (whether or not Debt) of the Borrowers that are expressly
subordinate to any of the Secured Obligations if such amendment or
waiver would be adverse to the Lenders in their capacities as Lenders
hereunder;
113
<PAGE> 121
(vi) no amendment shall be made to any provision in ARTICLE
14, and
(vii) no extension of the Termination Date shall be effected;
PROVIDED, HOWEVER, that anything herein to the contrary notwithstanding, the
Required Lenders shall have the right to waive any Default or Event of Default
and the consequences hereunder of such Default or Event of Default provided only
that such Default or Event of Default does not arise under SECTION 12.1(g) OR
(h) or out of a breach of or failure to perform or observe any term, covenant or
condition of this Agreement or any other Loan Document (other than the
provisions of ARTICLE 12 of this Agreement) the amendment of which requires the
unanimous consent of the Lenders. The Required Lenders shall have the right,
with respect to any Default or Event of Default that may be waived by them, to
enter into an agreement with the Borrowers providing for the forbearance from
the exercise of any remedies provided hereunder or under the other Loan
Documents without thereby waiving any such Default or Event of Default.
(c) The making of Loans hereunder by the Lenders during the existence
of a Default or Event of Default shall not be deemed to constitute a waiver of
such Default or Event of Default.
(d) Notwithstanding any provision of this Agreement or the other Loan
Documents to the contrary, no consent, written or otherwise, of the Borrowers
shall be necessary or required in connection with any amendment to ARTICLE 14 or
Section 4.8, and any amendment to such provisions may be effected solely by and
among the Agent and the Lenders, PROVIDED that no such amendment shall impose
any obligation on the Borrowers or limit or reduce any right granted hereunder
or thereunder to the Borrowers.
SECTION 15.10 Assignment. All the provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrowers may not assign or
transfer any of their rights under this Agreement.
SECTION 15.11 Performance of Borrowers' Duties.
(a) The Borrowers' obligations under this Agreement and each of the
Loan Documents shall be performed by the Borrowers at their sole cost and
expense.
(b) If the Borrowers shall fail to do any act or thing which they have
covenanted to do under this Agreement or any of the Loan Documents, the Agent,
on behalf of the Lenders, may (but shall not be obligated to) do the same or
cause it to be done either in the name of the Agent or the Lenders or in the
name and on behalf of the Borrowers, and each Borrower hereby irrevocably
authorizes the Agent so to act.
SECTION 15.12 Indemnification. The Borrowers agree to reimburse the
Agent and the Lenders for all costs and expenses, including reasonable counsel
fees and disbursements, incurred, and to indemnify and hold harmless the Agent
and the Lenders from and against all losses suffered by, the Agent or any Lender
in connection with
114
<PAGE> 122
(a) the exercise by the Agent or any Lender of any right or remedy
granted to it under this Agreement or any of the Loan Documents,
(b) any claim, and the prosecution or defense thereof, arising out of
or in any way connected with this Agreement or any of the Loan Documents, and
(c) the collection or enforcement of the Secured Obligations or any of
them,
other than such costs, expenses and liabilities arising out of the Agent's or
any Lender's gross negligence or willful misconduct.
SECTION 15.13 All Powers Coupled with Interest. All powers of attorney
and other authorizations granted to the Agent and the Lenders and any Persons
designated by the Agent or the Lenders pursuant to any provisions of this
Agreement or any of the Loan Documents shall be deemed coupled with an interest
and shall be irrevocable so long as any of the Secured Obligations remain unpaid
or unsatisfied.
SECTION 15.14 Survival. Notwithstanding any termination of this
Agreement,
(a) until all Secured Obligations have been irrevocably paid in full
or otherwise satisfied, the Agent, for the benefit of the Lenders, shall retain
its Security Interest and shall retain all rights under this Agreement and each
of the Security Documents with respect to such Collateral as fully as though
this Agreement had not been terminated,
(b) the indemnities to which the Agent and the Lenders are entitled
under the provisions of this ARTICLE 15 and any other provision of this
Agreement and the Loan Documents shall continue in full force and effect and
shall protect the Agent and the Lenders against events arising after such
termination as well as before, and
(c) in connection with the termination of this Agreement and the
release and termination of the Security Interests, the Agent, on behalf of
itself as agent and the Lenders, may require such assurances and indemnities as
it shall reasonably deem necessary or appropriate to protect the Agent and the
Lenders against loss on account of such release and termination, including,
without limitation, with respect to credits previously applied to the Secured
Obligations that may subsequently be reversed or revoked.
SECTION 15.15 Titles and Captions. Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and neither
limit nor amplify the provisions of this Agreement.
SECTION 15.16 Severability of Provisions. Any provision of this
Agreement or any Loan Document which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
115
<PAGE> 123
SECTION 15.17 Governing Law; Waiver of Jury Trial.
(a) This Agreement and the Notes shall be governed by and construed in
accordance with the laws of the State of New York.
(b) Each Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court for the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or the other Loan Documents, or for recognition or enforcement of any
judgment and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State court or, to the extent permitted by law,
in such federal court. Each of the parties hereto agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law. Nothing in this Agreement shall affect any right that the Agent, BankBoston
as the issuer of any Letter of Credit or any Lender may otherwise have to bring
any action or proceeding relating to this Agreement or the other Loan Documents
against any Borrower or its properties in the courts of any jurisdiction.
(c) Each Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the other Loan
Documents in any court referred to in PARAGRAPH (b) of this Section. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in SECTION 15.1. Nothing in this
Agreement will affect the right of any party to this Agreement to service of
process in any other manner permitted by law.
(e) Each Borrower, the Agent and each Lender hereby knowingly,
intentionally and voluntarily waive trial by jury in any action or proceeding of
any kind or nature in any court in which an action may be commenced by or
against a Borrower, the Agent or such Lender arising out of this Agreement, the
Collateral or any assignment thereof or by reason of any other cause or dispute
whatsoever between the Borrowers and the Agent or any Lender of any kind or
nature.
SECTION 15.18 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and shall be
binding upon all parties, their successors and assigns, and all of which taken
together shall constitute one and the same agreement.
116
<PAGE> 124
SECTION 15.19 Reproduction of Documents. This Agreement, each of the
Loan Documents and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by the Agent or any Lender, and (c) financial
statements, certificates and other information previously or hereafter furnished
to the Agent or any Lender, may be reproduced by the Agent or such Lender by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and such Person may destroy any original document so produced.
Each party hereto stipulates that, to the extent permitted by Applicable Law,
any such reproduction shall be as admissible in evidence as the original itself
in any judicial or administrative proceeding (whether or not the original shall
be in existence and whether or not such reproduction was made by the Agent or
such Lender in the regular course of business), and any enlargement, facsimile
or further reproduction of such reproduction shall likewise be admissible in
evidence.
SECTION 15.20 Term of Agreement. This Agreement shall remain in effect
from the Agreement Date through the Termination Date and thereafter until all
Secured Obligations shall have been irrevocably paid and satisfied in full. No
termination of this Agreement shall affect the rights and obligations of the
parties hereto arising prior to such termination.
SECTION 15.21 Increased Capital. If any Lender shall have determined
that the adoption of any applicable law, rule, regulation, guideline, directive
or request (whether or not having force of law) regarding capital requirements
for banks or bank holding companies, or any change therein or in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, in each case after the Agreement Date, or compliance by such Lender
with any of the foregoing, imposes or increases a requirement by such Lender to
allocate capital resources to such Lender's Commitment to make Loans hereunder
which has or would have the effect of reducing the return on such Lender's
capital to a level below that which such Lender could have achieved (taking into
consideration such Lender's then existing policies with respect to capital
adequacy and assuming full utilization of such Lender's capital) but for such
adoption, change or compliance by any amount deemed by such Lender to be
material: (i) such Lender shall promptly after its determination of such
occurrence give notice thereof to the Borrower; and (ii) the Borrowers shall pay
to such Lender as an additional fee from time to time on demand such amount as
such Lender certifies to be the amount that will compensate it for such
reduction. A certificate of such Lender claiming compensation under this SECTION
15.21 shall be conclusive in the absence of manifest error. Such certificate
shall set forth the nature of the occurrence giving rise to such compensation,
the additional amount or amounts to be paid to it hereunder and the method by
which such amounts were determined. In determining such amount, such Lender may
use any reasonable averaging and attribution methods.
SECTION 15.22 Pro-Rata Participation.
(a) Each Lender agrees that if, as a result of the exercise of a right
of setoff, banker's lien or counterclaim or other similar right or the receipt
of a secured claim it receives any payment in respect of the Secured
Obligations, it shall promptly notify the Agent thereof (and the Agent shall
promptly notify the other Lenders). If, as a result of such payment, such
117
<PAGE> 125
Lender receives a greater percentage of the Secured Obligations owed to it under
this Agreement than the percentage received by any other Lender, such Lender
shall purchase a participation (which it shall be deemed to have purchased
simultaneously upon the receipt of such payment) in the Secured Obligations then
held by such other Lenders so that all such recoveries of principal and interest
with respect to all Secured Obligations owed to each Lender shall be pro rata on
the basis of its respective amount of the Secured Obligations owed to all
Lenders, PROVIDED that if all or part of such proportionately greater payment
received by such purchasing Lender is thereafter recovered by or on behalf of
the Borrower from such Lender, such purchase shall be rescinded and the purchase
price paid for such participation shall be returned to such Lender to the extent
of such recovery, together with interest thereon at the rate, if any, required
to be paid on the amount recovered from such purchasing Lender.
(b) Each Lender which receives such a secured claim shall, to the
extent practicable, exercise its rights in respect of such secured claim in a
manner consistent with the rights of the Lenders entitled under this SECTION
15.22 to share in the benefits of any recovery on such secured claim.
(c) Each Lender shall include in any arrangement or agreement it
enters into with any participant in such Lender's interests hereunder, an
undertaking by such participant substantially similar to the foregoing
SUBSECTIONS (a) and (b).
(d) The Borrowers expressly consent to the foregoing arrangements and
agree that any holder of a participation in any Secured Obligation so purchased
or otherwise acquired of which such Borrower has received notice may exercise
any and all rights of banker's lien, set-off or counterclaim with respect to any
and all monies owing by such Borrower to such holder as fully as if such holder
were a holder of such Secured Obligation in the amount of the participation held
by such holder.
SECTION 15.23 Effect of Effectiveness of this Agreement. From and
after the Effective Date, all references in this Agreement or in any other Loan
Document (whether delivered pursuant to this Agreement or pursuant to the
Existing Loan Agreement) to this Agreement or the "Loan Agreement," and the
words "herein," "hereof" and words of like import referring to the Existing Loan
Agreement, shall mean and be references to the Existing Loan Agreement as
amended and restated in its entirety by this Agreement and all references in
this Agreement, in any other Loan Documents (whether delivered pursuant to this
Agreement or pursuant to the Existing Loan Agreement) or in any Note to a
"Revolving Credit Note," a "Note" and the words "hereof," "herein" and words of
like import referring to any Note, shall mean and be references to the Amended
and Restated Notes in the form attached to this Agreement as EXHIBIT A,
appropriately completed and duly executed and delivered by the Borrowers.
118
<PAGE> 126
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers in several counterparts all as of
the day and year first written above.
BORROWERS:
THE J.H. HEAFNER COMPANY, INC.
[CORPORATE SEAL]
Attest: By: /s/ WILLIAM H. GAITHER
-------------------------------------
William H. Gaither
/s/ J. MICHAEL GAITHER Chief Executive Officer and President
- ------------------------------
J. Michael Gaither
Secretary
OLIVER & WINSTON, INC.
[CORPORATE SEAL]
Attest: By: /s/ WILLIAM H. GAITHER
------------------------------------
William H. Gaither
/s/ J. MICHAEL GAITHER Chairman and Chief Executive Officer
- ------------------------------
J. Michael Gaither
Secretary
By: /s/ DONALD C. ROOF
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
ITCO LOGISTICS CORPORATION
[CORPORATE SEAL]
Attest: By: /s/ WILLIAM H. GAITHER
-------------------------------------
Name:
--------------------------------
/s/ J. MICHAEL GAITHER Title:
- ------------------------------- -------------------------------
Secretary
<PAGE> 127
THE SPEED MERCHANT, INC.
[CORPORATE SEAL]
Attest: By: /s/ WILLIAM H. GAITHER
-------------------------------------
Name:
--------------------------------
/s/ J. MICHAEL GAITHER Title:
- -------------------------------- -------------------------------
Secretary
By: /s/ DONALD C. ROOF
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE> 128
AGENT:
BANKBOSTON, N.A.
By: /s/ CHRISTIAN B. COLSON
-----------------------------------
Christian B. Colson
Managing Director
<PAGE> 129
CO-AGENTS AND LENDERS:
FLEET CAPITAL CORPORATION, as
Co-Agent and as a Lender
By: /s/ ELIZABETH L. WALLER
-------------------------------------
Name:
--------------------------------
Title: V.P.
-------------------------------
Address: Fleet Capital Corporation
300 Galleria Parkway
Suite 800
Atlanta, Georgia 30339
Attn: Loan Officer
Facsimile No.: (770) 859-2437
<PAGE> 130
FIRST UNION NATIONAL BANK, as Co-Agent
and as a Lender
By: /s/ DOUG BOOTHE
------------------------------------
Name: Doug Boothe
Title: Vice President
Address: First Union National Bank
301 South College Street, DC-5
Charlotte, North Carolina 28288
Attn:
Facsimile No.: (704) 374-2703
<PAGE> 131
BANKBOSTON, N.A., as a Lender
By: /s/ CHRISTIAN B. COLSON
Christian B. Colson
Managing Director
Address: BankBoston, N.A.
115 Perimeter Center Place, NE
Suite 500
Atlanta, Georgia 30346
Attn: Christian B. Colson
Facsimile No.: (770) 393-4166
<PAGE> 1
EXHIBIT 10.2
[J. H. HEAFNER COMPANY, INC. LETTERHEAD]
May 20, 1998
BankBoston, N.A.
Boston, Massachusetts
Fleet Capital Corporation
Atlanta, Georgia
First Union National Bank
Charlotte, North Carolina
Amended and Restated
Loan and Security Agreement
dated as of May 20, 1998
Ladies and Gentlemen:
We refer to the captioned agreement (the "1998 Loan Agreement") to
which each of you is a party as a Lender with one or more of us and to the Loan
and Security Agreement dated as of August 4, 1993 (as amended and in effect on
the date hereof, the "Fleet Loan Agreement") to which Fleet Capital Corporation
is a party as the lender with one or more of us. Unless otherwise defined
herein, terms defined in the 1998 Loan Agreement are used herein as therein
defined.
Pursuant to the Fleet Financing, Fleet makes loans and extends other
financial accommodations to ITCO, secured by a security interest in, among other
things, the accounts receivable of ITCO and the proceeds thereof ("ITCO's
Accounts"). Certain of ITCO's Accounts, at least to the extent they constitute
proceeds of ITCO tire inventory, are also subject to security interests in favor
of the tire company vendors to ITCO and its Affiliates listed on Annex A hereto
(each, a "Vendor"). At or about the date of the Fleet Loan Agreement, ITCO
obtained for Fleet's benefit an agreement with each such Vendor to the effect
that such Vendor's security interest in ITCO's tire inventory (or a specified
part thereof) was senior to the security interest of Fleet in such inventory,
while Fleet's interest in ITCO's Accounts was senior to any interest of such
Vendor in ITCO's Accounts (the "Vendor Subordination Agreements"), copies of
which have been furnished to the Lenders and the Agent.
<PAGE> 2
BankBoston, N.A.
Fleet Capital Corporation
First Union National Bank
May 20, 1998
Page 2
It is not clear that the Vendor Subordination Agreements can
effectively be assigned by Fleet to the Agent for the benefit of the Lenders
under the 1998 Loan Agreement in connection with the repayment of all amounts
outstanding under the Fleet Financing. Heafner is unable to obtain release of
the Vendor's liens or confirmation of the Vendor Subordination Agreements or
new, acceptable subordination agreements in favor of the Agent prior to the date
established as the closing date of the ITCO Merger and the CPW Acquisition. So
long as the Vendors' security interests in ITCO's Accounts are or may be prior
to the Lien in favor of the Agent thereon, ITCO's Accounts cannot be included as
"Eligible Receivables" in the computation of the Borrowing Base under the 1998
Loan Agreement.
Heafner has requested that the Fleet Financing be permitted to remain
in effect in accordance with its terms, but subject to the terms, conditions and
provisions of this letter agreement, until the Vendors' security interests in
ITCO's Accounts are released or Heafner can obtain confirmation of the Vendor
Subordination Agreements or new subordination agreements, in either case in
favor of the Agent for the benefit of the Lenders, and the Agent and the Lenders
and Fleet, in its capacity as the lender under the Fleet Loan Agreement, have
agreed to grant such request, upon and subject to the terms, conditions and
provisions of this letter agreement.
Accordingly, this letter will, upon your execution and delivery
thereof, evidence the agreement of the undersigned Loan Parties and each of you
in your respective capacities as Lenders, Co-Agents and Agent under the 1998
Loan Agreement and, as to Fleet, in its capacity as lender under the Fleet Loan
Agreement as follows (notwithstanding any contrary provision in the 1998 Loan
Agreement or any Loan Document or the Fleet Loan Agreement or related loan
documents):
1. The Fleet Financing may remain in effect in accordance with its terms
until the earlier of
(a) July 15, 1998 and
(b) the date on which Heafner has delivered to the Agent from each
Vendor (i) a confirmation that the Vendor Subordination Agreement to which such
Vendor is a party continues in effect for the benefit of the Agent and the
Lenders under the 1998 Loan Agreement or (ii) a new subordination agreement at
least as favorable to the Agent and the Lenders as the existing Vendor
Subordination Agreement to which such Vendor is a party or (iii) evidence
satisfactory to the Agent of the complete release of the security interest in
favor of such Vendor in the ITCO Accounts, together with appropriate UCC-3s or
other necessary release documents in form and substance satisfactory to the
Agent.
<PAGE> 3
BankBoston, N.A.
Fleet Capital Corporation
First Union National Bank
May 20, 1998
Page 3
2. On the earlier of July 15, 1998 and the date on which the condition specified
in paragraph 1(b) is satisfied, all amounts outstanding and unpaid under the
Fleet Financing, including any charge for prepayment, shall be paid in full, any
other obligations provided for to Fleet's satisfaction, the Fleet Financing
terminated in writing and Heafner shall obtain and furnish to the Agent signed
UCC-3 termination statements and any other documents necessary to evidence of
record the release of any and all Liens existing in favor of Fleet as security
for the Fleet Financing.
3. During the period from the Effective Date to (but excluding) the date on
which the conditions specified in paragraph 2 are satisfied (the "Exception
Period"), no Collateral of ITCO or any Subsidiary of ITCO shall be included in
computing the Borrowing Base and the aggregate Commitments shall be equal to $50
million (with each Lender's Commitment being proportionately reduced to 50% of
the amount shown on Annex A to the 1998 Loan Agreement).
4. During the Exception Period, Fleet shall continue to administer the Fleet
Financing in accordance with its past practices and its discretion as the lender
thereunder, and neither ITCO nor any of its Subsidiaries shall, nor shall
Heafner cause ITCO or any of its Subsidiaries to, (1) make any dividend payment,
loan, advance or other distribution to any Loan Party other than ITCO or its
Subsidiaries, (2) transfer any assets to any other Person other than in the
ordinary course of business of ITCO or such Subsidiary, consistent with past
practices, or (3) change the location of any of its offices, the location(s) at
which it maintains its books and records or the locations at which Inventory is
located, provided that, notwithstanding any provisions of the Fleet Financing to
the contrary, unless the Lenders and the Agent otherwise agree in writing,
(a) consummation of the ITCO Merger and the execution, delivery and
performance (subject to the provisions of this letter agreement) by ITCO, ITCO
Logistics and ITCO's Subsidiaries of the Loan Documents to which they are
parties shall not constitute a default or event of default under the Fleet
Financing,
(b) any Event of Default under the 1998 Loan Agreement shall constitute
an event of default under the Fleet Loan Agreement, and
(c) Fleet shall not declare any default or event of default under the
Fleet Loan Agreement or accelerate the obligations owing to Fleet under the
Fleet Financing or exercise or attempt to exercise any remedies available to it
in respect of the Fleet Financing on default if no Event of Default under the
1998 Loan Agreement or default under the provisions of this paragraph 4 has
occurred and is continuing.
<PAGE> 4
BankBoston, N.A.
Fleet Capital Corporation
First Union National Bank
May 20, 1998
Page 4
5. During the Exception Period, none of the existence of the Fleet Financing,
the Liens securing the Fleet Financing, the application of proceeds of
collateral for the Fleet Financing to amounts owing to Fleet thereunder, or any
other aspect of the Fleet Financing shall constitute a Default or Event of
Default under the 1998 Loan Agreement.
6. During the Exception Period, the Borrowers will make no Acquisitions (without
the prior approval of the Agent and the Required Lenders).
7. In addition to any other fees or charges payable on the Effective Date or
thereafter to the Agent or the Lenders under the Loan Agreement, the borrowers
shall pay to the Agent for the ratable benefit of the Lenders, in consideration
of the transactions contemplated by this letter agreement, a fee in the amount
of $150,000.
The parties acknowledge and agree that their intention is to permit
ITCO's Accounts to remain acceptable collateral for loans to ITCO (including by
Fleet in accordance with the terms and subject to the conditions of the Fleet
Financing) without materially increasing the overall amount of Debt that would
have been available to the Borrowers had ITCO's Accounts been Eligible
Receivables from and after the Effective Date and without subjecting either
Fleet under the Fleet Financing or the Agent and the Lenders under the 1998 Loan
Agreement to risks not contemplated by the Fleet Financing or the 1998 Loan
Agreement, as the case may be. The parties agree that they will cooperate
reasonably with each other to give effect to such shared intention and will take
such actions and execute and deliver such additional documents and instruments
as may reasonably be requested by any other party and necessary to give effect
to such shared intention.
By their signatures below, each of the Loan Parties, Fleet and each
Lender, Co-Agent and the Agent, in their various capacities under the Fleet
Financing and the 1998 Loan Agreement, evidence their agreement to the foregoing
and their ratification, as applicable, of the terms of the Fleet Financing, the
1998 Loan Agreement and the other Loan Documents, except to the extent expressly
modified hereby.
Very truly yours,
THE J.H. HEAFNER COMPANY, INC.
By: /s/ WILLIAM H. GAITHER
Name: _________________
Title: __________________
<PAGE> 5
BankBoston, N.A.
Fleet Capital Corporation
First Union National Bank
May 20, 1998
Page 5
OLIVER & WINSTON, INC.
By: /s/ WILLIAM H. GAITHER
Name: _________________
Title: __________________
THE SPEED MERCHANT, INC.
By: /s/ WILLIAM H. GAITHER
Name: _________________
Title: __________________
ITCO HOLDING COMPANY, INC.
By: /s/ WILLIAM H. GAITHER
Name: _________________
Title: __________________
ITCO TIRE COMPANY
By: /s/ WILLIAM H. GAITHER
Name: _________________
Title: __________________
ITCO TIRE COMPANY OF GEORGIA
By: /s/ WILLIAM H. GAITHER
Name: _________________
Title: __________________
PHOENIX RACING, INC.
By: /s/ WILLIAM H. GAITHER
Name: _________________
Title: __________________
<PAGE> 6
BankBoston, N.A.
Fleet Capital Corporation
First Union National Bank
May 20, 1998
Page 6
Acknowledged and agreed this 20th day of May 1998:
BANK BOSTON, N.A.
By: /s/ CHRISTIAN B. COLSON
Christian B. Colson
Managing Director
FLEET CAPITAL CORPORATION
By:_________________________
Name:____________________
Title:___________________
FIRST UNION NATIONAL BANK
By:_________________________
Name:____________________
Title:___________________
<PAGE> 7
BankBoston, N.A.
Fleet Capital Corporation
First Union National Bank
May 20, 1998
Page 6
Acknowledged and agreed this 20th day of May 1998:
BANK BOSTON, N.A.
By:____________________________
Christian B. Colson
Managing Director
FLEET CAPITAL CORPORATION
By: /s/ ELIZABETH L. WALLER
Name: E. L. Waller
Title: V.P.
FIRST UNION NATIONAL BANK
By:____________________________
Name:_______________________
Title:______________________
<PAGE> 8
BankBoston, N.A.
Fleet Capital Corporation
First Union National Bank
May 20, 1998
Page 6
Acknowledged and agreed this 20th day of May 1998:
BANK BOSTON, N.A.
By:____________________________
Christian B. Colson
Managing Director
FLEET CAPITAL CORPORATION
By:____________________________
Name:_______________________
Title:______________________
FIRST UNION NATIONAL BANK
By: /s/ DOUG BOOTHE
Name: Doug Boothe
Title: Vice President
<PAGE> 9
ANNEX A
VENDORS
Pirelli Armstrong Tire Corporation
Dayton Tire, Division of Bridgestone/Firestone, Inc.
Michelin Tire Corporation
The Uniroyal Goodrich Tire Company
The Kelly-Springfield Tire Company
TBC Corporation
Lee Tire & Rubber Company
Dunlop Tire Corporation
Bridgestone Tire, a division of Bridgestone/Firestone, Inc.
<PAGE> 1
EXHIBIT 10.3
GUARANTY
(Subsidiary)
Dated as of May 20, 1998
ITCO TIRE COMPANY, a North Carolina corporation (the
"Guarantor"), hereby agrees in favor of BANKBOSTON, N.A., a national banking
association, in its capacity as administrative agent for the financial
institutions party from time to time to the Loan Agreement (as defined below),
as follows:
Section 1. Cross References and Definitions.
(a) Reference is made to the Amended and Restated Loan and
Security Agreement, dated on or about the date hereof (the same as it may
hereafter be amended, modified, supplemented or restated from time to time being
referred to as the "Loan Agreement"), by and among The J.H. Heafner Company,
Inc., a California corporation, Oliver & Winston, Inc., a North Carolina
corporation, ITCO Holding Company, Inc., a North Carolina corporation, The Speed
Merchant, Inc., a California corporation (each a "Borrower" and collectively,
the "Borrowers"), the Lenders parties thereto from time to time, the Co-Agents
and the Agent.
(b) For the purposes of this Guaranty:
"Agent" and "Lender" each have the meaning ascribed
to such term in the Loan Agreement and "Lender" also means and includes
each subsequent holder of a Note.
"Obligor" means any obligor, maker, endorser,
acceptor, surety or guarantor (other than the Guarantor), from time to
time, of any Secured Obligation.
(c) Unless otherwise defined in this Guaranty, terms used
herein which are defined in the Loan Agreement shall have the same meaning
herein as therein ascribed to them.
Section 2. Guaranty.
(a) Guaranty. In consideration of the execution and delivery
by the Lenders of the Loan Agreement and as a condition precedent to the making
of loans and other financial accommodations to the Borrowers by the Lenders
thereunder, the Guarantor, as primary obligor and not as surety merely, hereby
guarantees absolutely and unconditionally to the Agent and the Lenders the due
and punctual payment, when and as due (whether upon demand, at maturity, by
reason of acceleration or otherwise), and performance of all Secured
Obligations, whether now existing or hereafter arising (hereinafter referred to
as the "Guaranteed Obligations"), and agrees to pay any and all expenses
(including, but not limited to, reasonable legal fees and disbursements) which
may be incurred by the Agent or any Lender in enforcing their respective rights
under this Guaranty. The liability of the Guarantor under this Guaranty is
primary, unlimited and unconditional, and shall be enforceable before,
concurrently or after any claim or demand is made or suit is filed against any
Borrower or any other Obligor and before,
<PAGE> 2
concurrently or after any proceeding by the Agent against any Collateral or
other security for the Guaranteed Obligations and shall be effective regardless
of the solvency or insolvency of any Borrower or any other Obligor at any time,
the extension or modification of any of the Guaranteed Obligations by operation
of law or the subsequent reorganization, merger or consolidation of any Borrower
or any change in its composition, nature, ownership, personnel or location, and
this Guaranty shall be a continuing guaranty of any and all notes given in
extension or renewal of the Guaranteed Obligations. The Guarantor acknowledges,
agrees and confirms that this is a guaranty of payment and not of collection
only and that demand for payment may be made hereunder on any number of
occasions in the amount of all or any portion of the Guaranteed Obligations then
due and no single demand shall exhaust the rights of the Agent or the Lenders
hereunder. Further, the Guarantor hereby agrees that all proceeds of Collateral
owned by it shall be applied to the Secured Obligations on a daily basis as and
when received by the Agent as provided in the Loan Agreement as fully as if such
Collateral and proceeds were owned by the Borrowers.
(b) Payment by Guarantor. If the Borrowers shall fail to pay,
when due and payable, any Guaranteed Obligation, the Guarantor will, without
demand or notice, immediately pay the same to the Agent for the account of the
Lenders. If any Guaranteed Obligation would be subject to acceleration, but such
acceleration is enjoined or stayed, the Guarantor will to the extent permitted
by Applicable Law, purchase such Guaranteed Obligation for a price equal to the
outstanding principal amount thereof, plus such accrued interest and other
amounts as would have been payable had such Guaranteed Obligation been paid or
prepaid at the time of such purchase. All payments by the Guarantor under this
Guaranty shall be made without any setoff, counterclaim or deduction whatsoever,
and in the same currency and funds as are required to be paid by the Borrowers.
(c) Waiver. The Guarantor waives without any requirement of
any notice to or further assent by the Guarantor, to the fullest extent
permitted by Applicable Law, (i) diligence, presentment, demand, protest and
notice of any kind whatsoever, (ii) any requirement that the Agent or any Lender
exhaust any right or take any action against any Obligor or other Person or any
of the Collateral or other security for the Guaranteed Obligations, (iii) the
benefit of all principles or provisions of Applicable Law which are or might be
in conflict with the terms of this Guaranty, (iv) notice of acceptance hereof,
(v) notice of Default or Event of Default, (vi) notice of any and all favorable
and unfavorable information, financial or other, about the Borrowers, any
Obligor or other Person, heretofore, now or hereafter learned or acquired by the
Agent or any Lender, (vii) all other notice to which such Guarantor or Obligor
might otherwise be entitled, (viii) all defenses, set-offs and counterclaims of
any kind whatsoever (but not the right to bring an independent action), (ix)
notice of the existence or creation of any Guaranteed Obligations, (x) notice of
any alteration, amendment, increase, extension or exchange of any of the
Guaranteed Obligations, (xi) notice of any amendments, modifications or
supplements to the Loan Agreement or any Loan Document, (xii) notice of any
release of Collateral or other security for the Guaranteed Obligations or any
compromise or settlement with respect thereto, (xiii) all diligence in
collection or protection of or realization upon the Collateral
2
<PAGE> 3
or any of the Guaranteed Obligations, and (xiv) the right to require the Agent
to proceed against any Obligor.
(d) Consents. The Guarantor consents without the requirement
of any notice to or further assent by the Guarantor, to the fullest extent
permitted by Applicable Law, that (i) the time of payment of any Guaranteed
Obligation may be extended, (ii) any provision of the Loan Agreement or any Loan
Document may be amended, waived or modified, (iii) any Obligor may be released
from its obligations or other obligors or Guarantor substituted therefor or
added, (iv) any Collateral or other property now or hereafter securing the
Guaranteed Obligations may be released, exchanged, substituted, compromised or
subordinated in whole or in part or any security may be added, and (v) the Agent
may proceed against the Guarantor or any Obligor without proceeding against any
other Obligor.
(e) Guarantor Bound. The Guarantor will remain bound under
this Guaranty notwithstanding any changes, extensions, exchanges, substitutions,
releases, compromises, subordinations, amendments, waivers or modifications or
any other circumstances, whether or not referred to in CLAUSES (c) OR (d) above,
which might otherwise constitute a legal or equitable discharge of a guaranty.
(f) Absolute Obligation. The obligations of the Guarantor
hereunder are irrespective of and shall not be dependent upon or affected by (i)
the validity, legality or enforceability of the Loan Agreement, the Note(s) or
any Loan Document, (ii) the existence, value or condition of any of the
Collateral or other security for the Guaranteed Obligations, (iii) the validity,
perfection or priority of the Security Interest in any of the Collateral or
other security, (iv) any action or failure to take action by the Agent or any
Lender under, or with respect to, the Loan Agreement, the Note(s), any Loan
Document, any Guaranteed Obligation, any Obligor or any of the Collateral or
other security, (v) any other dealings among the Agent, the Lenders, the
Borrowers or any Obligor, or (vi) any present or future law or order of any
government or agency thereof purporting to reduce, amend or otherwise affect any
obligations of the Borrowers or any Guarantor.
(g) Recovery of Payments. In the event that any or all of the
amounts guaranteed by the Guarantor are or were paid by the Borrowers or any
other Obligor or are or were paid or reduced by application of the proceeds of
any Collateral, and all or any part of such payment is recovered from the Agent
or any Lender under any applicable bankruptcy or insolvency law or otherwise,
the liability of the Guarantor under this Guaranty shall continue and remain in
full force and effect to the extent permitted by Applicable Law.
(h) Waiver of Reimbursement, Subrogation. The Guarantor hereby
waives, to the fullest extent permitted by Applicable Law, any and all rights of
subrogation, indemnification, reimbursement, contribution or similar rights
which the Guarantor may have against the Borrowers or any Obligor or any
Collateral, other security or otherwise until all Secured Obligations have been
paid in full. The provisions of this SUBSECTION (h) shall survive the
termination of this Guaranty.
3
<PAGE> 4
(i) Binding Nature of Certain Adjudications. Upon written
notice of the institution by the Agent or any Lender of any action or
proceedings, legal or otherwise, for the adjudication of any controversy with
the Borrowers, the Guarantor will be conclusively bound by the adjudication in
any such action or proceedings and by a judgment, award or decree entered
therein. The Guarantor waives the right to assert in any action or proceeding
brought by the Agent or any Lender, upon the Loan Agreement, the Note(s) or any
Loan Document, any offsets or counterclaims which such Guarantor may have with
respect thereto (other than (subject to SECTION 2(g)) payment of the Secured
Obligations).
(j) Validity and Enforceability of Guaranty. The Guarantor
will take all action required so that the guaranty contained herein will at all
times be a binding obligation of the Guarantor enforceable in accordance with
its terms.
Section 3. Representations and Warranties. The Guarantor
represents and warrants to the Agent and the Lenders as follows:
(a) Organization; Power; Qualification. The Guarantor is a
corporation, duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, has the power and authority to own
its properties and to carry on its business as now being and hereafter proposed
to be conducted and is duly qualified and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization.
(b) Authorization of Guaranty. The Guarantor has the right and
power and has taken all necessary action to authorize it to guarantee the
Guaranteed Obligations hereunder and to execute, deliver and perform this
Guaranty in accordance with its terms. This Guaranty has been duly executed and
delivered by the duly authorized officers of the Guarantor and is a legal, valid
and binding obligation of the Guarantor enforceable in accordance with its
terms.
(c) Compliance of Guaranty With Laws, Etc. The execution,
delivery and performance of this Guaranty in accordance with its terms and the
guaranty of the Guaranteed Obligations hereunder do not and will not, by the
passage of time, the giving of notice or otherwise, (i) require any Government
Approval or violate any Applicable Law relating to the Guarantor, (ii) conflict
with, result in a breach of or constitute a default under (A) the articles of
incorporation or by-laws of the Guarantor, (B) any material provisions of any
indenture, agreement or other instrument to which the Guarantor is a party or by
which it or any of its properties may be bound or (C) any Governmental Approval,
or (iii) result in or require the creation or imposition of any Lien upon or
with respect to any property now owned or hereafter acquired by the Guarantor,
except Liens created pursuant to the Loan Documents.
(d) Financial Interest. The Guarantor is a Wholly Owned
Subsidiary of The J.H. Heafner Company and is engaged in a related and mutually
interdependent business with the Borrowers and will derive indirect financial
and business advantages and benefits from the Loans and other financial
accommodations that the Lenders may make to the Borrowers
4
<PAGE> 5
Section 4. Litigation. THE GUARANTOR, THE AGENT AND EACH
LENDER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVE TRIAL BY JURY IN
ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION
MAY BE COMMENCED BY OR AGAINST THE GUARANTOR ARISING OUT OF THIS GUARANTY OR OUT
OF THE GUARANTOR'S SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT AMONG OR
BETWEEN THE GUARANTOR, ANY LENDER AND THE AGENT, OR BY REASON OF ANY OTHER CAUSE
OR DISPUTE WHATSOEVER BETWEEN THE GUARANTOR AND THE AGENT OR ANY LENDER OF ANY
KIND OR NATURE. THE GUARANTOR, THE AGENT AND EACH LENDER HEREBY AGREE THAT THE
SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND THE UNITED
STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE
COURT FROM ANY THEREOF, SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE GUARANTOR AND THE AGENT OR SUCH
LENDER, PERTAINING DIRECTLY OR INDIRECTLY TO THIS GUARANTY OR THE LOAN DOCUMENTS
OR TO ANY MATTER ARISING THEREFROM. THE GUARANTOR EXPRESSLY SUBMITS AND CONSENTS
IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH
COURTS, HEREBY WAIVING PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER
PROCESS OR PAPERS ISSUED THEREIN AND AGREEING THAT SERVICE OF SUCH SUMMONS AND
COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE GUARANTOR AT THE ADDRESS OF THE GUARANTOR SET FORTH HEREIN. THE
NONEXCLUSIVE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO
PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF
ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY APPROPRIATE JURISDICTION.
Section 5. Right of Setoff. Upon the occurrence and during the
continuation of any Event of Default, each Lender is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such
Lender to or for the credit or the account of the Guarantor against any and all
of the Guaranteed Obligations now or hereafter existing, whether or not demand
shall have been made under this Guaranty and although such Guaranteed
Obligations may be contingent and unmatured. Each Lender agrees promptly to
notify the Guarantor after any such setoff and application made by such Lender,
provided that the failure to give such notice shall not affect the validity of
such setoff and application. The rights of each Lender under this Section are in
addition to any other rights and remedies (including, without limitation, other
rights of setoff) which such Lender may have.
Section 6. Titles and Captions. Titles and captions of
Sections and subsections in this Guaranty are for convenience only, and neither
limit nor amplify the provisions of this Guaranty.
5
<PAGE> 6
Section 7. Severability of Provisions. Any provision of this
Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remainder of such provision or the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
Section 8. Governing Law. This Guaranty shall be construed in
accordance with and governed by the law of the State of New York, without regard
to principles of conflicts of laws.
Section 9. Counterparts. This Guaranty may be executed in any
number of counterparts, each of which shall be deemed to be an original and
shall be binding upon all parties, their successors and assigns.
Section 10. Miscellaneous. This Guaranty and the other
agreements contemplated by this Guaranty supersede all prior negotiations,
agreements and understandings, and constitute the entire agreement between the
parties with respect to the subject matter thereof. All the provisions of this
Guaranty shall be binding upon the Guarantor and its successors and assigns, and
each Lender may assign or transfer any of its rights under this Guaranty in
connection with the transfer of its interests under the Loan Agreement in
accordance with the terms thereof. Any term, covenant, agreement or condition of
this Guaranty may be amended or waived, and any departure therefrom may be
consented to, if, but only if, such amendment, waiver or consent is in writing
and is signed by the Agent and the Required Lenders and, in the case of any
amendment, also by the Guarantor. Unless otherwise specified in such waiver or
consent, a waiver or consent given hereunder shall be effective only in the
instance and for the specific purpose for which given and no waiver of any
condition, or of the breach of any term, provision, warranty, representation,
agreement or covenant contained in this Guaranty, whether by conduct or
otherwise, in any one or more instances shall be deemed or construed as a
further or continuing waiver of any such condition or breach or a waiver of any
other condition or of the breach of any other term, provision, warranty,
representation, agreement or covenant contained in this Guaranty. The failure of
the Agent or any Lender at any time or times to require performance of any
provisions of this Guaranty shall in no manner affect the right to enforce the
same. Whenever the context so requires, the singular number shall include the
plural and the plural shall include the singular, and the gender of any pronoun
shall include the other genders.
Section 11. Notices. All notices and other communications
provided for hereunder shall be in writing and given in accordance with the
provisions of SECTION 15.1 of the Loan Agreement and such provisions are hereby
incorporated herein by this reference as if fully set forth herein. The address
of the Guarantor for such purposes shall be as set forth on the signature page
hereof, or such other address notice of which is given in accordance with the
provisions hereof, and the address of the Lenders shall be as provided from time
to time pursuant to SECTION 15.1 of the Loan Agreement. The Guarantor agrees
that if any notification of intended disposition of Collateral or other security
for the Guaranteed Obligations or of any other act by the Agent or any Lender is
required by law and a specific time period is not stated therein, such
6
<PAGE> 7
notification given in accordance with the provisions of this SECTION 11, at
least ten (10) days prior to such disposition or act shall be deemed reasonable
and properly given.
Section 12. Limitation on Guaranteed Obligations. The
obligations of the Guarantor hereunder shall be limited to an aggregate amount
that is equal to the largest amount that would not render the obligations of the
Guarantor hereunder subject to avoidance under Section 548 of the United States
Bankruptcy Code (Title 11 of the United States Code) or any comparable provision
of Applicable Law.
7
<PAGE> 8
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to
be executed by its duly authorized officer(s) as of the day and year first
written above.
[Corporate Seal] ITCO TIRE COMPANY
By: /s/ WILLIAM H. GAITHER
Name:________________________
Title:_______________________
Address:
2708 Commerce Road
P.O. Box 641
Wilson, North Carolina 27893
Attest: /s/ J. MICHAEL GAITHER
Name:___________________
Title:__________________
8
<PAGE> 9
GUARANTY
(Subsidiary)
Dated as of May 20, 1998
ITCO TIRE COMPANY OF GEORGIA, a Virginia corporation (the
"Guarantor"), hereby agrees in favor of BANKBOSTON, N.A., a national banking
association, in its capacity as administrative agent for the financial
institutions party from time to time to the Loan Agreement (as defined below),
as follows:
Section 1. Cross References and Definitions.
(a) Reference is made to the Amended and Restated Loan and
Security Agreement, dated on or about the date hereof (the same as it may
hereafter be amended, modified, supplemented or restated from time to time being
referred to as the "Loan Agreement"), by and among The J.H. Heafner Company,
Inc., a California corporation, Oliver & Winston, Inc., a North Carolina
corporation, ITCO Holding Company, Inc., a North Carolina corporation, The Speed
Merchant, Inc., a California corporation (each a "Borrower" and collectively,
the "Borrowers"), the Lenders parties thereto from time to time, the Co-Agents
and the Agent.
(b) For the purposes of this Guaranty:
"Agent" and "Lender" each have the meaning ascribed
to such term in the Loan Agreement and "Lender" also means and includes
each subsequent holder of a Note.
"Obligor" means any obligor, maker, endorser,
acceptor, surety or guarantor (other than the Guarantor), from time to
time, of any Secured Obligation.
(c) Unless otherwise defined in this Guaranty, terms used
herein which are defined in the Loan Agreement shall have the same meaning
herein as therein ascribed to them.
Section 2. Guaranty.
(a) Guaranty. In consideration of the execution and delivery
by the Lenders of the Loan Agreement and as a condition precedent to the making
of loans and other financial accommodations to the Borrowers by the Lenders
thereunder, the Guarantor, as primary obligor and not as surety merely, hereby
guarantees absolutely and unconditionally to the Agent and the Lenders the due
and punctual payment, when and as due (whether upon demand, at maturity, by
reason of acceleration or otherwise), and performance of all Secured
Obligations, whether now existing or hereafter arising (hereinafter referred to
as the "Guaranteed Obligations"), and agrees to pay any and all expenses
(including, but not limited to, reasonable legal fees and disbursements) which
may be incurred by the Agent or any Lender in enforcing their respective rights
under this Guaranty. The liability of the Guarantor under this Guaranty is
primary, unlimited and unconditional, and shall be enforceable before,
concurrently or after any claim or demand is made or suit is filed against any
Borrower or any other Obligor and before,
<PAGE> 10
concurrently or after any proceeding by the Agent against any Collateral or
other security for the Guaranteed Obligations and shall be effective regardless
of the solvency or insolvency of any Borrower or any other Obligor at any time,
the extension or modification of any of the Guaranteed Obligations by operation
of law or the subsequent reorganization, merger or consolidation of any Borrower
or any change in its composition, nature, ownership, personnel or location, and
this Guaranty shall be a continuing guaranty of any and all notes given in
extension or renewal of the Guaranteed Obligations. The Guarantor acknowledges,
agrees and confirms that this is a guaranty of payment and not of collection
only and that demand for payment may be made hereunder on any number of
occasions in the amount of all or any portion of the Guaranteed Obligations then
due and no single demand shall exhaust the rights of the Agent or the Lenders
hereunder. Further, the Guarantor hereby agrees that all proceeds of Collateral
owned by it shall be applied to the Secured Obligations on a daily basis as and
when received by the Agent as provided in the Loan Agreement as fully as if such
Collateral and proceeds were owned by the Borrowers.
(b) Payment by Guarantor. If the Borrowers shall fail to pay,
when due and payable, any Guaranteed Obligation, the Guarantor will, without
demand or notice, immediately pay the same to the Agent for the account of the
Lenders. If any Guaranteed Obligation would be subject to acceleration, but such
acceleration is enjoined or stayed, the Guarantor will to the extent permitted
by Applicable Law, purchase such Guaranteed Obligation for a price equal to the
outstanding principal amount thereof, plus such accrued interest and other
amounts as would have been payable had such Guaranteed Obligation been paid or
prepaid at the time of such purchase. All payments by the Guarantor under this
Guaranty shall be made without any setoff, counterclaim or deduction whatsoever,
and in the same currency and funds as are required to be paid by the Borrowers.
(c) Waiver. The Guarantor waives without any requirement of
any notice to or further assent by the Guarantor, to the fullest extent
permitted by Applicable Law, (i) diligence, presentment, demand, protest and
notice of any kind whatsoever, (ii) any requirement that the Agent or any Lender
exhaust any right or take any action against any Obligor or other Person or any
of the Collateral or other security for the Guaranteed Obligations, (iii) the
benefit of all principles or provisions of Applicable Law which are or might be
in conflict with the terms of this Guaranty, (iv) notice of acceptance hereof,
(v) notice of Default or Event of Default, (vi) notice of any and all favorable
and unfavorable information, financial or other, about the Borrowers, any
Obligor or other Person, heretofore, now or hereafter learned or acquired by the
Agent or any Lender, (vii) all other notice to which such Guarantor or Obligor
might otherwise be entitled, (viii) all defenses, set-offs and counterclaims of
any kind whatsoever (but not the right to bring an independent action), (ix)
notice of the existence or creation of any Guaranteed Obligations, (x) notice of
any alteration, amendment, increase, extension or exchange of any of the
Guaranteed Obligations, (xi) notice of any amendments, modifications or
supplements to the Loan Agreement or any Loan Document, (xii) notice of any
release of Collateral or other security for the Guaranteed Obligations or any
compromise or settlement with respect thereto, (xiii) all diligence in
collection or protection of or realization upon the Collateral
2
<PAGE> 11
or any of the Guaranteed Obligations, and (xiv) the right to require the Agent
to proceed against any Obligor.
(d) Consents. The Guarantor consents without the requirement
of any notice to or further assent by the Guarantor, to the fullest extent
permitted by Applicable Law, that (i) the time of payment of any Guaranteed
Obligation may be extended, (ii) any provision of the Loan Agreement or any Loan
Document may be amended, waived or modified, (iii) any Obligor may be released
from its obligations or other obligors or Guarantor substituted therefor or
added, (iv) any Collateral or other property now or hereafter securing the
Guaranteed Obligations may be released, exchanged, substituted, compromised or
subordinated in whole or in part or any security may be added, and (v) the Agent
may proceed against the Guarantor or any Obligor without proceeding against any
other Obligor.
(e) Guarantor Bound. The Guarantor will remain bound under
this Guaranty notwithstanding any changes, extensions, exchanges, substitutions,
releases, compromises, subordinations, amendments, waivers or modifications or
any other circumstances, whether or not referred to in CLAUSES (c) OR (d) above,
which might otherwise constitute a legal or equitable discharge of a guaranty.
(f) Absolute Obligation. The obligations of the Guarantor
hereunder are irrespective of and shall not be dependent upon or affected by (i)
the validity, legality or enforceability of the Loan Agreement, the Note(s) or
any Loan Document, (ii) the existence, value or condition of any of the
Collateral or other security for the Guaranteed Obligations, (iii) the validity,
perfection or priority of the Security Interest in any of the Collateral or
other security, (iv) any action or failure to take action by the Agent or any
Lender under, or with respect to, the Loan Agreement, the Note(s), any Loan
Document, any Guaranteed Obligation, any Obligor or any of the Collateral or
other security, (v) any other dealings among the Agent, the Lenders, the
Borrowers or any Obligor, or (vi) any present or future law or order of any
government or agency thereof purporting to reduce, amend or otherwise affect any
obligations of the Borrowers or any Guarantor.
(g) Recovery of Payments. In the event that any or all of the
amounts guaranteed by the Guarantor are or were paid by the Borrowers or any
other Obligor or are or were paid or reduced by application of the proceeds of
any Collateral, and all or any part of such payment is recovered from the Agent
or any Lender under any applicable bankruptcy or insolvency law or otherwise,
the liability of the Guarantor under this Guaranty shall continue and remain in
full force and effect to the extent permitted by Applicable Law.
(h) Waiver of Reimbursement, Subrogation. The Guarantor hereby
waives, to the fullest extent permitted by Applicable Law, any and all rights of
subrogation, indemnification, reimbursement, contribution or similar rights
which the Guarantor may have against the Borrowers or any Obligor or any
Collateral, other security or otherwise until all Secured Obligations have been
paid in full. The provisions of this SUBSECTION (h) shall survive the
termination of this Guaranty.
3
<PAGE> 12
(i) Binding Nature of Certain Adjudications. Upon written
notice of the institution by the Agent or any Lender of any action or
proceedings, legal or otherwise, for the adjudication of any controversy with
the Borrowers, the Guarantor will be conclusively bound by the adjudication in
any such action or proceedings and by a judgment, award or decree entered
therein. The Guarantor waives the right to assert in any action or proceeding
brought by the Agent or any Lender, upon the Loan Agreement, the Note(s) or any
Loan Document, any offsets or counterclaims which such Guarantor may have with
respect thereto (other than (subject to SECTION 2(g)) payment of the Secured
Obligations).
(j) Validity and Enforceability of Guaranty. The Guarantor
will take all action required so that the guaranty contained herein will at all
times be a binding obligation of the Guarantor enforceable in accordance with
its terms.
Section 3. Representations and Warranties. The Guarantor
represents and warrants to the Agent and the Lenders as follows:
(a) Organization; Power; Qualification. The Guarantor is a
corporation, duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, has the power and authority to own
its properties and to carry on its business as now being and hereafter proposed
to be conducted and is duly qualified and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization.
(b) Authorization of Guaranty. The Guarantor has the right and
power and has taken all necessary action to authorize it to guarantee the
Guaranteed Obligations hereunder and to execute, deliver and perform this
Guaranty in accordance with its terms. This Guaranty has been duly executed and
delivered by the duly authorized officers of the Guarantor and is a legal, valid
and binding obligation of the Guarantor enforceable in accordance with its
terms.
(c) Compliance of Guaranty With Laws, Etc. The execution,
delivery and performance of this Guaranty in accordance with its terms and the
guaranty of the Guaranteed Obligations hereunder do not and will not, by the
passage of time, the giving of notice or otherwise, (i) require any Government
Approval or violate any Applicable Law relating to the Guarantor, (ii) conflict
with, result in a breach of or constitute a default under (A) the articles of
incorporation or by-laws of the Guarantor, (B) any material provisions of any
indenture, agreement or other instrument to which the Guarantor is a party or by
which it or any of its properties may be bound or (C) any Governmental Approval,
or (iii) result in or require the creation or imposition of any Lien upon or
with respect to any property now owned or hereafter acquired by the Guarantor,
except Liens created pursuant to the Loan Documents.
(d) Financial Interest. The Guarantor is a Wholly Owned
Subsidiary of The J.H. Heafner Company and is engaged in a related and mutually
interdependent business with the Borrowers and will derive indirect financial
and business advantages and benefits from the Loans and other financial
accommodations that the Lenders may make to the Borrowers
4
<PAGE> 13
Section 4. Litigation. THE GUARANTOR, THE AGENT AND EACH
LENDER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVE TRIAL BY JURY IN
ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION
MAY BE COMMENCED BY OR AGAINST THE GUARANTOR ARISING OUT OF THIS GUARANTY OR OUT
OF THE GUARANTOR'S SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT AMONG OR
BETWEEN THE GUARANTOR, ANY LENDER AND THE AGENT, OR BY REASON OF ANY OTHER CAUSE
OR DISPUTE WHATSOEVER BETWEEN THE GUARANTOR AND THE AGENT OR ANY LENDER OF ANY
KIND OR NATURE. THE GUARANTOR, THE AGENT AND EACH LENDER HEREBY AGREE THAT THE
SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND THE UNITED
STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE
COURT FROM ANY THEREOF, SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE GUARANTOR AND THE AGENT OR SUCH
LENDER, PERTAINING DIRECTLY OR INDIRECTLY TO THIS GUARANTY OR THE LOAN DOCUMENTS
OR TO ANY MATTER ARISING THEREFROM. THE GUARANTOR EXPRESSLY SUBMITS AND CONSENTS
IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH
COURTS, HEREBY WAIVING PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER
PROCESS OR PAPERS ISSUED THEREIN AND AGREEING THAT SERVICE OF SUCH SUMMONS AND
COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE GUARANTOR AT THE ADDRESS OF THE GUARANTOR SET FORTH HEREIN. THE
NONEXCLUSIVE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO
PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF
ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY APPROPRIATE JURISDICTION.
Section 5. Right of Setoff. Upon the occurrence and during the
continuation of any Event of Default, each Lender is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such
Lender to or for the credit or the account of the Guarantor against any and all
of the Guaranteed Obligations now or hereafter existing, whether or not demand
shall have been made under this Guaranty and although such Guaranteed
Obligations may be contingent and unmatured. Each Lender agrees promptly to
notify the Guarantor after any such setoff and application made by such Lender,
provided that the failure to give such notice shall not affect the validity of
such setoff and application. The rights of each Lender under this Section are in
addition to any other rights and remedies (including, without limitation, other
rights of setoff) which such Lender may have.
Section 6. Titles and Captions. Titles and captions of
Sections and subsections in this Guaranty are for convenience only, and neither
limit nor amplify the provisions of this Guaranty.
5
<PAGE> 14
Section 7. Severability of Provisions. Any provision of this
Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remainder of such provision or the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
Section 8. Governing Law. This Guaranty shall be construed in
accordance with and governed by the law of the State of New York, without regard
to principles of conflicts of laws.
Section 9. Counterparts. This Guaranty may be executed in any
number of counterparts, each of which shall be deemed to be an original and
shall be binding upon all parties, their successors and assigns.
Section 10. Miscellaneous. This Guaranty and the other
agreements contemplated by this Guaranty supersede all prior negotiations,
agreements and understandings, and constitute the entire agreement between the
parties with respect to the subject matter thereof. All the provisions of this
Guaranty shall be binding upon the Guarantor and its successors and assigns, and
each Lender may assign or transfer any of its rights under this Guaranty in
connection with the transfer of its interests under the Loan Agreement in
accordance with the terms thereof. Any term, covenant, agreement or condition of
this Guaranty may be amended or waived, and any departure therefrom may be
consented to, if, but only if, such amendment, waiver or consent is in writing
and is signed by the Agent and the Required Lenders and, in the case of any
amendment, also by the Guarantor. Unless otherwise specified in such waiver or
consent, a waiver or consent given hereunder shall be effective only in the
instance and for the specific purpose for which given and no waiver of any
condition, or of the breach of any term, provision, warranty, representation,
agreement or covenant contained in this Guaranty, whether by conduct or
otherwise, in any one or more instances shall be deemed or construed as a
further or continuing waiver of any such condition or breach or a waiver of any
other condition or of the breach of any other term, provision, warranty,
representation, agreement or covenant contained in this Guaranty. The failure of
the Agent or any Lender at any time or times to require performance of any
provisions of this Guaranty shall in no manner affect the right to enforce the
same. Whenever the context so requires, the singular number shall include the
plural and the plural shall include the singular, and the gender of any pronoun
shall include the other genders.
Section 11. Notices. All notices and other communications
provided for hereunder shall be in writing and given in accordance with the
provisions of SECTION 15.1 of the Loan Agreement and such provisions are hereby
incorporated herein by this reference as if fully set forth herein. The address
of the Guarantor for such purposes shall be as set forth on the signature page
hereof, or such other address notice of which is given in accordance with the
provisions hereof, and the address of the Lenders shall be as provided from time
to time pursuant to SECTION 15.1 of the Loan Agreement. The Guarantor agrees
that if any notification of intended disposition of Collateral or other security
for the Guaranteed Obligations or of any other act by the Agent or any Lender is
required by law and a specific time period is not stated therein, such
6
<PAGE> 15
notification given in accordance with the provisions of this SECTION 11, at
least ten (10) days prior to such disposition or act shall be deemed reasonable
and properly given.
Section 12. Limitation on Guaranteed Obligations. The
obligations of the Guarantor hereunder shall be limited to an aggregate amount
that is equal to the largest amount that would not render the obligations of the
Guarantor hereunder subject to avoidance under Section 548 of the United States
Bankruptcy Code (Title 11 of the United States Code) or any comparable provision
of Applicable Law.
7
<PAGE> 16
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to
be executed by its duly authorized officer(s) as of the day and year first
written above.
[Corporate Seal] ITCO TIRE COMPANY OF GEORGIA
By: /s/ WILLIAM H. GAITHER
Name:________________________
Title:_______________________
Address:
2708 Commerce Road
P.O. Box 641
Wilson, North Carolina 27893
Attest: /s/ J. MICHAEL GAITHER
Name:___________________
Title:__________________
8
<PAGE> 17
GUARANTY
(Subsidiary)
Dated as of May 20, 1998
ITCO LOGISTICS CORPORATION, a Delaware corporation (the
"Guarantor"), hereby agrees in favor of BANKBOSTON, N.A., a national banking
association, in its capacity as administrative agent for the financial
institutions party from time to time to the Loan Agreement (as defined below),
as follows:
Section 1. Cross References and Definitions.
(a) Reference is made to the Amended and Restated Loan and
Security Agreement, dated on or about the date hereof (the same as it may
hereafter be amended, modified, supplemented or restated from time to time being
referred to as the "Loan Agreement"), by and among The J.H. Heafner Company,
Inc., a California corporation, Oliver & Winston, Inc., a North Carolina
corporation, ITCO Holding Company, Inc., a North Carolina corporation, The Speed
Merchant, Inc., a California corporation (each a "Borrower" and collectively,
the "Borrowers"), the Lenders parties thereto from time to time, the Co-Agents
and the Agent.
(b) For the purposes of this Guaranty:
"Agent" and "Lender" each have the meaning ascribed
to such term in the Loan Agreement and "Lender" also means and includes
each subsequent holder of a Note.
"Obligor" means any obligor, maker, endorser,
acceptor, surety or guarantor (other than the Guarantor), from time to
time, of any Secured Obligation.
(c) Unless otherwise defined in this Guaranty, terms used
herein which are defined in the Loan Agreement shall have the same meaning
herein as therein ascribed to them.
Section 2. Guaranty.
(a) Guaranty. In consideration of the execution and delivery
by the Lenders of the Loan Agreement and as a condition precedent to the making
of loans and other financial accommodations to the Borrowers by the Lenders
thereunder, the Guarantor, as primary obligor and not as surety merely, hereby
guarantees absolutely and unconditionally to the Agent and the Lenders the due
and punctual payment, when and as due (whether upon demand, at maturity, by
reason of acceleration or otherwise), and performance of all Secured
Obligations, whether now existing or hereafter arising (hereinafter referred to
as the "Guaranteed Obligations"), and agrees to pay any and all expenses
(including, but not limited to, reasonable legal fees and disbursements) which
may be incurred by the Agent or any Lender in enforcing their respective rights
under this Guaranty. The liability of the Guarantor under this Guaranty is
primary, unlimited and unconditional, and shall be enforceable before,
concurrently or after any claim or demand is made or suit is filed against any
Borrower or any other Obligor and before,
<PAGE> 18
concurrently or after any proceeding by the Agent against any Collateral or
other security for the Guaranteed Obligations and shall be effective regardless
of the solvency or insolvency of any Borrower or any other Obligor at any time,
the extension or modification of any of the Guaranteed Obligations by operation
of law or the subsequent reorganization, merger or consolidation of any Borrower
or any change in its composition, nature, ownership, personnel or location, and
this Guaranty shall be a continuing guaranty of any and all notes given in
extension or renewal of the Guaranteed Obligations. The Guarantor acknowledges,
agrees and confirms that this is a guaranty of payment and not of collection
only and that demand for payment may be made hereunder on any number of
occasions in the amount of all or any portion of the Guaranteed Obligations then
due and no single demand shall exhaust the rights of the Agent or the Lenders
hereunder. Further, the Guarantor hereby agrees that all proceeds of Collateral
owned by it shall be applied to the Secured Obligations on a daily basis as and
when received by the Agent as provided in the Loan Agreement as fully as if such
Collateral and proceeds were owned by the Borrowers.
(b) Payment by Guarantor. If the Borrowers shall fail to pay,
when due and payable, any Guaranteed Obligation, the Guarantor will, without
demand or notice, immediately pay the same to the Agent for the account of the
Lenders. If any Guaranteed Obligation would be subject to acceleration, but such
acceleration is enjoined or stayed, the Guarantor will to the extent permitted
by Applicable Law, purchase such Guaranteed Obligation for a price equal to the
outstanding principal amount thereof, plus such accrued interest and other
amounts as would have been payable had such Guaranteed Obligation been paid or
prepaid at the time of such purchase. All payments by the Guarantor under this
Guaranty shall be made without any setoff, counterclaim or deduction whatsoever,
and in the same currency and funds as are required to be paid by the Borrowers.
(c) Waiver. The Guarantor waives without any requirement of
any notice to or further assent by the Guarantor, to the fullest extent
permitted by Applicable Law, (i) diligence, presentment, demand, protest and
notice of any kind whatsoever, (ii) any requirement that the Agent or any Lender
exhaust any right or take any action against any Obligor or other Person or any
of the Collateral or other security for the Guaranteed Obligations, (iii) the
benefit of all principles or provisions of Applicable Law which are or might be
in conflict with the terms of this Guaranty, (iv) notice of acceptance hereof,
(v) notice of Default or Event of Default, (vi) notice of any and all favorable
and unfavorable information, financial or other, about the Borrowers, any
Obligor or other Person, heretofore, now or hereafter learned or acquired by the
Agent or any Lender, (vii) all other notice to which such Guarantor or Obligor
might otherwise be entitled, (viii) all defenses, set-offs and counterclaims of
any kind whatsoever (but not the right to bring an independent action), (ix)
notice of the existence or creation of any Guaranteed Obligations, (x) notice of
any alteration, amendment, increase, extension or exchange of any of the
Guaranteed Obligations, (xi) notice of any amendments, modifications or
supplements to the Loan Agreement or any Loan Document, (xii) notice of any
release of Collateral or other security for the Guaranteed Obligations or any
compromise or settlement with respect thereto, (xiii) all diligence in
collection or protection of or realization upon the Collateral
2
<PAGE> 19
or any of the Guaranteed Obligations, and (xiv) the right to require the Agent
to proceed against any Obligor.
(d) Consents. The Guarantor consents without the requirement
of any notice to or further assent by the Guarantor, to the fullest extent
permitted by Applicable Law, that (i) the time of payment of any Guaranteed
Obligation may be extended, (ii) any provision of the Loan Agreement or any Loan
Document may be amended, waived or modified, (iii) any Obligor may be released
from its obligations or other obligors or Guarantor substituted therefor or
added, (iv) any Collateral or other property now or hereafter securing the
Guaranteed Obligations may be released, exchanged, substituted, compromised or
subordinated in whole or in part or any security may be added, and (v) the Agent
may proceed against the Guarantor or any Obligor without proceeding against any
other Obligor.
(e) Guarantor Bound. The Guarantor will remain bound under
this Guaranty notwithstanding any changes, extensions, exchanges, substitutions,
releases, compromises, subordinations, amendments, waivers or modifications or
any other circumstances, whether or not referred to in CLAUSES (c) OR (d) above,
which might otherwise constitute a legal or equitable discharge of a guaranty.
(f) Absolute Obligation. The obligations of the Guarantor
hereunder are irrespective of and shall not be dependent upon or affected by (i)
the validity, legality or enforceability of the Loan Agreement, the Note(s) or
any Loan Document, (ii) the existence, value or condition of any of the
Collateral or other security for the Guaranteed Obligations, (iii) the validity,
perfection or priority of the Security Interest in any of the Collateral or
other security, (iv) any action or failure to take action by the Agent or any
Lender under, or with respect to, the Loan Agreement, the Note(s), any Loan
Document, any Guaranteed Obligation, any Obligor or any of the Collateral or
other security, (v) any other dealings among the Agent, the Lenders, the
Borrowers or any Obligor, or (vi) any present or future law or order of any
government or agency thereof purporting to reduce, amend or otherwise affect any
obligations of the Borrowers or any Guarantor.
(g) Recovery of Payments. In the event that any or all of the
amounts guaranteed by the Guarantor are or were paid by the Borrowers or any
other Obligor or are or were paid or reduced by application of the proceeds of
any Collateral, and all or any part of such payment is recovered from the Agent
or any Lender under any applicable bankruptcy or insolvency law or otherwise,
the liability of the Guarantor under this Guaranty shall continue and remain in
full force and effect to the extent permitted by Applicable Law.
(h) Waiver of Reimbursement, Subrogation. The Guarantor hereby
waives, to the fullest extent permitted by Applicable Law, any and all rights of
subrogation, indemnification, reimbursement, contribution or similar rights
which the Guarantor may have against the Borrowers or any Obligor or any
Collateral, other security or otherwise until all Secured Obligations have been
paid in full. The provisions of this SUBSECTION (h) shall survive the
termination of this Guaranty.
3
<PAGE> 20
(i) Binding Nature of Certain Adjudications. Upon written
notice of the institution by the Agent or any Lender of any action or
proceedings, legal or otherwise, for the adjudication of any controversy with
the Borrowers, the Guarantor will be conclusively bound by the adjudication in
any such action or proceedings and by a judgment, award or decree entered
therein. The Guarantor waives the right to assert in any action or proceeding
brought by the Agent or any Lender, upon the Loan Agreement, the Note(s) or any
Loan Document, any offsets or counterclaims which such Guarantor may have with
respect thereto (other than (subject to SECTION 2(g)) payment of the Secured
Obligations).
(j) Validity and Enforceability of Guaranty. The Guarantor
will take all action required so that the guaranty contained herein will at all
times be a binding obligation of the Guarantor enforceable in accordance with
its terms.
Section 3. Representations and Warranties. The Guarantor
represents and warrants to the Agent and the Lenders as follows:
(a) Organization; Power; Qualification. The Guarantor is a
corporation, duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, has the power and authority to own
its properties and to carry on its business as now being and hereafter proposed
to be conducted and is duly qualified and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization.
(b) Authorization of Guaranty. The Guarantor has the right and
power and has taken all necessary action to authorize it to guarantee the
Guaranteed Obligations hereunder and to execute, deliver and perform this
Guaranty in accordance with its terms. This Guaranty has been duly executed and
delivered by the duly authorized officers of the Guarantor and is a legal, valid
and binding obligation of the Guarantor enforceable in accordance with its
terms.
(c) Compliance of Guaranty With Laws, Etc. The execution,
delivery and performance of this Guaranty in accordance with its terms and the
guaranty of the Guaranteed Obligations hereunder do not and will not, by the
passage of time, the giving of notice or otherwise, (i) require any Government
Approval or violate any Applicable Law relating to the Guarantor, (ii) conflict
with, result in a breach of or constitute a default under (A) the articles of
incorporation or by-laws of the Guarantor, (B) any material provisions of any
indenture, agreement or other instrument to which the Guarantor is a party or by
which it or any of its properties may be bound or (C) any Governmental Approval,
or (iii) result in or require the creation or imposition of any Lien upon or
with respect to any property now owned or hereafter acquired by the Guarantor,
except Liens created pursuant to the Loan Documents.
(d) Financial Interest. The Guarantor is a Wholly Owned
Subsidiary of The J.H. Heafner Company and is engaged in a related and mutually
interdependent business with the Borrowers and will derive indirect financial
and business advantages and benefits from the Loans and other financial
accommodations that the Lenders may make to the Borrowers
4
<PAGE> 21
Section 4. Litigation. THE GUARANTOR, THE AGENT AND EACH
LENDER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVE TRIAL BY JURY IN
ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION
MAY BE COMMENCED BY OR AGAINST THE GUARANTOR ARISING OUT OF THIS GUARANTY OR OUT
OF THE GUARANTOR'S SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT AMONG OR
BETWEEN THE GUARANTOR, ANY LENDER AND THE AGENT, OR BY REASON OF ANY OTHER CAUSE
OR DISPUTE WHATSOEVER BETWEEN THE GUARANTOR AND THE AGENT OR ANY LENDER OF ANY
KIND OR NATURE. THE GUARANTOR, THE AGENT AND EACH LENDER HEREBY AGREE THAT THE
SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND THE UNITED
STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE
COURT FROM ANY THEREOF, SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE GUARANTOR AND THE AGENT OR SUCH
LENDER, PERTAINING DIRECTLY OR INDIRECTLY TO THIS GUARANTY OR THE LOAN DOCUMENTS
OR TO ANY MATTER ARISING THEREFROM. THE GUARANTOR EXPRESSLY SUBMITS AND CONSENTS
IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH
COURTS, HEREBY WAIVING PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER
PROCESS OR PAPERS ISSUED THEREIN AND AGREEING THAT SERVICE OF SUCH SUMMONS AND
COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE GUARANTOR AT THE ADDRESS OF THE GUARANTOR SET FORTH HEREIN. THE
NONEXCLUSIVE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO
PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF
ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY APPROPRIATE JURISDICTION.
Section 5. Right of Setoff. Upon the occurrence and during the
continuation of any Event of Default, each Lender is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such
Lender to or for the credit or the account of the Guarantor against any and all
of the Guaranteed Obligations now or hereafter existing, whether or not demand
shall have been made under this Guaranty and although such Guaranteed
Obligations may be contingent and unmatured. Each Lender agrees promptly to
notify the Guarantor after any such setoff and application made by such Lender,
provided that the failure to give such notice shall not affect the validity of
such setoff and application. The rights of each Lender under this Section are in
addition to any other rights and remedies (including, without limitation, other
rights of setoff) which such Lender may have.
Section 6. Titles and Captions. Titles and captions of
Sections and subsections in this Guaranty are for convenience only, and neither
limit nor amplify the provisions of this Guaranty.
5
<PAGE> 22
Section 7. Severability of Provisions. Any provision of this
Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remainder of such provision or the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
Section 8. Governing Law. This Guaranty shall be construed in
accordance with and governed by the law of the State of New York, without regard
to principles of conflicts of laws.
Section 9. Counterparts. This Guaranty may be executed in any
number of counterparts, each of which shall be deemed to be an original and
shall be binding upon all parties, their successors and assigns.
Section 10. Miscellaneous. This Guaranty and the other
agreements contemplated by this Guaranty supersede all prior negotiations,
agreements and understandings, and constitute the entire agreement between the
parties with respect to the subject matter thereof. All the provisions of this
Guaranty shall be binding upon the Guarantor and its successors and assigns, and
each Lender may assign or transfer any of its rights under this Guaranty in
connection with the transfer of its interests under the Loan Agreement in
accordance with the terms thereof. Any term, covenant, agreement or condition of
this Guaranty may be amended or waived, and any departure therefrom may be
consented to, if, but only if, such amendment, waiver or consent is in writing
and is signed by the Agent and the Required Lenders and, in the case of any
amendment, also by the Guarantor. Unless otherwise specified in such waiver or
consent, a waiver or consent given hereunder shall be effective only in the
instance and for the specific purpose for which given and no waiver of any
condition, or of the breach of any term, provision, warranty, representation,
agreement or covenant contained in this Guaranty, whether by conduct or
otherwise, in any one or more instances shall be deemed or construed as a
further or continuing waiver of any such condition or breach or a waiver of any
other condition or of the breach of any other term, provision, warranty,
representation, agreement or covenant contained in this Guaranty. The failure of
the Agent or any Lender at any time or times to require performance of any
provisions of this Guaranty shall in no manner affect the right to enforce the
same. Whenever the context so requires, the singular number shall include the
plural and the plural shall include the singular, and the gender of any pronoun
shall include the other genders.
Section 11. Notices. All notices and other communications
provided for hereunder shall be in writing and given in accordance with the
provisions of SECTION 15.1 of the Loan Agreement and such provisions are hereby
incorporated herein by this reference as if fully set forth herein. The address
of the Guarantor for such purposes shall be as set forth on the signature page
hereof, or such other address notice of which is given in accordance with the
provisions hereof, and the address of the Lenders shall be as provided from time
to time pursuant to SECTION 15.1 of the Loan Agreement. The Guarantor agrees
that if any notification of intended disposition of Collateral or other security
for the Guaranteed Obligations or of any other act by the Agent or any Lender is
required by law and a specific time period is not stated therein, such
6
<PAGE> 23
notification given in accordance with the provisions of this SECTION 11, at
least ten (10) days prior to such disposition or act shall be deemed reasonable
and properly given.
Section 12. Limitation on Guaranteed Obligations. The
obligations of the Guarantor hereunder shall be limited to an aggregate amount
that is equal to the largest amount that would not render the obligations of the
Guarantor hereunder subject to avoidance under Section 548 of the United States
Bankruptcy Code (Title 11 of the United States Code) or any comparable provision
of Applicable Law.
7
<PAGE> 24
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to
be executed by its duly authorized officer(s) as of the day and year first
written above.
[Corporate Seal] ITCO LOGISTICS CORPORATION
By: /s/ WILLIAM H. GAITHER
Name:________________________
Title:_______________________
Address:
2708 Commerce Road
P.O. Box 641
Wilson, North Carolina 27893
Attest: /s/ J. MICHAEL GAITHER
Name: ____________________
Title:____________________
8
<PAGE> 25
GUARANTY
(Subsidiary)
Dated as of May 20, 1998
PHOENIX RACING, INC., a California corporation (the
"Guarantor"), hereby agrees in favor of BANKBOSTON, N.A., a national banking
association, in its capacity as administrative agent for the financial
institutions party from time to time to the Loan Agreement (as defined below),
as follows:
Section 1. Cross References and Definitions.
(a) Reference is made to the Amended and Restated Loan and
Security Agreement, dated on or about the date hereof (the same as it may
hereafter be amended, modified, supplemented or restated from time to time being
referred to as the "Loan Agreement"), by and among The J.H. Heafner Company,
Inc., a California corporation, Oliver & Winston, Inc., a North Carolina
corporation, ITCO Holding Company, Inc., a North Carolina corporation, The Speed
Merchant, Inc., a California corporation (each a "Borrower" and collectively,
the "Borrowers"), the Lenders parties thereto from time to time, the Co-Agents
and the Agent.
(b) For the purposes of this Guaranty:
"Agent" and "Lender" each have the meaning ascribed
to such term in the Loan Agreement and "Lender" also means and includes
each subsequent holder of a Note.
"Obligor" means any obligor, maker, endorser,
acceptor, surety or guarantor (other than the Guarantor), from time to
time, of any Secured Obligation.
(c) Unless otherwise defined in this Guaranty, terms used
herein which are defined in the Loan Agreement shall have the same meaning
herein as therein ascribed to them.
Section 2. Guaranty.
(a) Guaranty. In consideration of the execution and delivery
by the Lenders of the Loan Agreement and as a condition precedent to the making
of loans and other financial accommodations to the Borrowers by the Lenders
thereunder, the Guarantor, as primary obligor and not as surety merely, hereby
guarantees absolutely and unconditionally to the Agent and the Lenders the due
and punctual payment, when and as due (whether upon demand, at maturity, by
reason of acceleration or otherwise), and performance of all Secured
Obligations, whether now existing or hereafter arising (hereinafter referred to
as the "Guaranteed Obligations"), and agrees to pay any and all expenses
(including, but not limited to, reasonable legal fees and disbursements) which
may be incurred by the Agent or any Lender in enforcing their respective rights
under this Guaranty. The liability of the Guarantor under this Guaranty is
primary, unlimited and unconditional, and shall be enforceable before,
concurrently or after any claim or demand is made or suit is filed against any
Borrower or any other Obligor and before,
<PAGE> 26
concurrently or after any proceeding by the Agent against any Collateral or
other security for the Guaranteed Obligations and shall be effective regardless
of the solvency or insolvency of any Borrower or any other Obligor at any time,
the extension or modification of any of the Guaranteed Obligations by operation
of law or the subsequent reorganization, merger or consolidation of any Borrower
or any change in its composition, nature, ownership, personnel or location, and
this Guaranty shall be a continuing guaranty of any and all notes given in
extension or renewal of the Guaranteed Obligations. The Guarantor acknowledges,
agrees and confirms that this is a guaranty of payment and not of collection
only and that demand for payment may be made hereunder on any number of
occasions in the amount of all or any portion of the Guaranteed Obligations then
due and no single demand shall exhaust the rights of the Agent or the Lenders
hereunder. Further, the Guarantor hereby agrees that all proceeds of Collateral
owned by it shall be applied to the Secured Obligations on a daily basis as and
when received by the Agent as provided in the Loan Agreement as fully as if such
Collateral and proceeds were owned by the Borrowers.
(b) Payment by Guarantor. If the Borrowers shall fail to pay,
when due and payable, any Guaranteed Obligation, the Guarantor will, without
demand or notice, immediately pay the same to the Agent for the account of the
Lenders. If any Guaranteed Obligation would be subject to acceleration, but such
acceleration is enjoined or stayed, the Guarantor will to the extent permitted
by Applicable Law, purchase such Guaranteed Obligation for a price equal to the
outstanding principal amount thereof, plus such accrued interest and other
amounts as would have been payable had such Guaranteed Obligation been paid or
prepaid at the time of such purchase. All payments by the Guarantor under this
Guaranty shall be made without any setoff, counterclaim or deduction whatsoever,
and in the same currency and funds as are required to be paid by the Borrowers.
(c) Waiver. The Guarantor waives without any requirement of
any notice to or further assent by the Guarantor, to the fullest extent
permitted by Applicable Law, (i) diligence, presentment, demand, protest and
notice of any kind whatsoever, (ii) any requirement that the Agent or any Lender
exhaust any right or take any action against any Obligor or other Person or any
of the Collateral or other security for the Guaranteed Obligations, (iii) the
benefit of all principles or provisions of Applicable Law which are or might be
in conflict with the terms of this Guaranty, (iv) notice of acceptance hereof,
(v) notice of Default or Event of Default, (vi) notice of any and all favorable
and unfavorable information, financial or other, about the Borrowers, any
Obligor or other Person, heretofore, now or hereafter learned or acquired by the
Agent or any Lender, (vii) all other notice to which such Guarantor or Obligor
might otherwise be entitled, (viii) all defenses, set-offs and counterclaims of
any kind whatsoever (but not the right to bring an independent action), (ix)
notice of the existence or creation of any Guaranteed Obligations, (x) notice of
any alteration, amendment, increase, extension or exchange of any of the
Guaranteed Obligations, (xi) notice of any amendments, modifications or
supplements to the Loan Agreement or any Loan Document, (xii) notice of any
release of Collateral or other security for the Guaranteed Obligations or any
compromise or settlement with respect thereto, (xiii) all diligence in
collection or protection of or realization upon the Collateral
2
<PAGE> 27
or any of the Guaranteed Obligations, and (xiv) the right to require the Agent
to proceed against any Obligor.
(d) Consents. The Guarantor consents without the requirement
of any notice to or further assent by the Guarantor, to the fullest extent
permitted by Applicable Law, that (i) the time of payment of any Guaranteed
Obligation may be extended, (ii) any provision of the Loan Agreement or any Loan
Document may be amended, waived or modified, (iii) any Obligor may be released
from its obligations or other obligors or Guarantor substituted therefor or
added, (iv) any Collateral or other property now or hereafter securing the
Guaranteed Obligations may be released, exchanged, substituted, compromised or
subordinated in whole or in part or any security may be added, and (v) the Agent
may proceed against the Guarantor or any Obligor without proceeding against any
other Obligor.
(e) Guarantor Bound. The Guarantor will remain bound under
this Guaranty notwithstanding any changes, extensions, exchanges, substitutions,
releases, compromises, subordinations, amendments, waivers or modifications or
any other circumstances, whether or not referred to in CLAUSES (c) OR (d) above,
which might otherwise constitute a legal or equitable discharge of a guaranty.
(f) Absolute Obligation. The obligations of the Guarantor
hereunder are irrespective of and shall not be dependent upon or affected by (i)
the validity, legality or enforceability of the Loan Agreement, the Note(s) or
any Loan Document, (ii) the existence, value or condition of any of the
Collateral or other security for the Guaranteed Obligations, (iii) the validity,
perfection or priority of the Security Interest in any of the Collateral or
other security, (iv) any action or failure to take action by the Agent or any
Lender under, or with respect to, the Loan Agreement, the Note(s), any Loan
Document, any Guaranteed Obligation, any Obligor or any of the Collateral or
other security, (v) any other dealings among the Agent, the Lenders, the
Borrowers or any Obligor, or (vi) any present or future law or order of any
government or agency thereof purporting to reduce, amend or otherwise affect any
obligations of the Borrowers or any Guarantor.
(g) Recovery of Payments. In the event that any or all of the
amounts guaranteed by the Guarantor are or were paid by the Borrowers or any
other Obligor or are or were paid or reduced by application of the proceeds of
any Collateral, and all or any part of such payment is recovered from the Agent
or any Lender under any applicable bankruptcy or insolvency law or otherwise,
the liability of the Guarantor under this Guaranty shall continue and remain in
full force and effect to the extent permitted by Applicable Law.
(h) Waiver of Reimbursement, Subrogation. The Guarantor hereby
waives, to the fullest extent permitted by Applicable Law, any and all rights of
subrogation, indemnification, reimbursement, contribution or similar rights
which the Guarantor may have against the Borrowers or any Obligor or any
Collateral, other security or otherwise until all Secured Obligations have been
paid in full. The provisions of this SUBSECTION (h) shall survive the
termination of this Guaranty.
3
<PAGE> 28
(i) Binding Nature of Certain Adjudications. Upon written
notice of the institution by the Agent or any Lender of any action or
proceedings, legal or otherwise, for the adjudication of any controversy with
the Borrowers, the Guarantor will be conclusively bound by the adjudication in
any such action or proceedings and by a judgment, award or decree entered
therein. The Guarantor waives the right to assert in any action or proceeding
brought by the Agent or any Lender, upon the Loan Agreement, the Note(s) or any
Loan Document, any offsets or counterclaims which such Guarantor may have with
respect thereto (other than (subject to SECTION 2(g)) payment of the Secured
Obligations).
(j) Validity and Enforceability of Guaranty. The Guarantor
will take all action required so that the guaranty contained herein will at all
times be a binding obligation of the Guarantor enforceable in accordance with
its terms.
Section 3. Representations and Warranties. The Guarantor
represents and warrants to the Agent and the Lenders as follows:
(a) Organization; Power; Qualification. The Guarantor is a
corporation, duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, has the power and authority to own
its properties and to carry on its business as now being and hereafter proposed
to be conducted and is duly qualified and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization.
(b) Authorization of Guaranty. The Guarantor has the right and
power and has taken all necessary action to authorize it to guarantee the
Guaranteed Obligations hereunder and to execute, deliver and perform this
Guaranty in accordance with its terms. This Guaranty has been duly executed and
delivered by the duly authorized officers of the Guarantor and is a legal, valid
and binding obligation of the Guarantor enforceable in accordance with its
terms.
(c) Compliance of Guaranty With Laws, Etc. The execution,
delivery and performance of this Guaranty in accordance with its terms and the
guaranty of the Guaranteed Obligations hereunder do not and will not, by the
passage of time, the giving of notice or otherwise, (i) require any Government
Approval or violate any Applicable Law relating to the Guarantor, (ii) conflict
with, result in a breach of or constitute a default under (A) the articles of
incorporation or by-laws of the Guarantor, (B) any material provisions of any
indenture, agreement or other instrument to which the Guarantor is a party or by
which it or any of its properties may be bound or (C) any Governmental Approval,
or (iii) result in or require the creation or imposition of any Lien upon or
with respect to any property now owned or hereafter acquired by the Guarantor,
except Liens created pursuant to the Loan Documents.
(d) Financial Interest. The Guarantor is a Wholly Owned
Subsidiary of The J.H. Heafner Company and is engaged in a related and mutually
interdependent business with the Borrowers and will derive indirect financial
and business advantages and benefits from the Loans and other financial
accommodations that the Lenders may make to the Borrowers
4
<PAGE> 29
Section 4. Litigation. THE GUARANTOR, THE AGENT AND EACH
LENDER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVE TRIAL BY JURY IN
ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION
MAY BE COMMENCED BY OR AGAINST THE GUARANTOR ARISING OUT OF THIS GUARANTY OR OUT
OF THE GUARANTOR'S SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT AMONG OR
BETWEEN THE GUARANTOR, ANY LENDER AND THE AGENT, OR BY REASON OF ANY OTHER CAUSE
OR DISPUTE WHATSOEVER BETWEEN THE GUARANTOR AND THE AGENT OR ANY LENDER OF ANY
KIND OR NATURE. THE GUARANTOR, THE AGENT AND EACH LENDER HEREBY AGREE THAT THE
SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND THE UNITED
STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE
COURT FROM ANY THEREOF, SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE GUARANTOR AND THE AGENT OR SUCH
LENDER, PERTAINING DIRECTLY OR INDIRECTLY TO THIS GUARANTY OR THE LOAN DOCUMENTS
OR TO ANY MATTER ARISING THEREFROM. THE GUARANTOR EXPRESSLY SUBMITS AND CONSENTS
IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH
COURTS, HEREBY WAIVING PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER
PROCESS OR PAPERS ISSUED THEREIN AND AGREEING THAT SERVICE OF SUCH SUMMONS AND
COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE GUARANTOR AT THE ADDRESS OF THE GUARANTOR SET FORTH HEREIN. THE
NONEXCLUSIVE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO
PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF
ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY APPROPRIATE JURISDICTION.
Section 5. Right of Setoff. Upon the occurrence and during the
continuation of any Event of Default, each Lender is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such
Lender to or for the credit or the account of the Guarantor against any and all
of the Guaranteed Obligations now or hereafter existing, whether or not demand
shall have been made under this Guaranty and although such Guaranteed
Obligations may be contingent and unmatured. Each Lender agrees promptly to
notify the Guarantor after any such setoff and application made by such Lender,
provided that the failure to give such notice shall not affect the validity of
such setoff and application. The rights of each Lender under this Section are in
addition to any other rights and remedies (including, without limitation, other
rights of setoff) which such Lender may have.
Section 6. Titles and Captions. Titles and captions of
Sections and subsections in this Guaranty are for convenience only, and neither
limit nor amplify the provisions of this Guaranty.
5
<PAGE> 30
Section 7. Severability of Provisions. Any provision of this
Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remainder of such provision or the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
Section 8. Governing Law. This Guaranty shall be construed in
accordance with and governed by the law of the State of New York, without regard
to principles of conflicts of laws.
Section 9. Counterparts. This Guaranty may be executed in any
number of counterparts, each of which shall be deemed to be an original and
shall be binding upon all parties, their successors and assigns.
Section 10. Miscellaneous. This Guaranty and the other
agreements contemplated by this Guaranty supersede all prior negotiations,
agreements and understandings, and constitute the entire agreement between the
parties with respect to the subject matter thereof. All the provisions of this
Guaranty shall be binding upon the Guarantor and its successors and assigns, and
each Lender may assign or transfer any of its rights under this Guaranty in
connection with the transfer of its interests under the Loan Agreement in
accordance with the terms thereof. Any term, covenant, agreement or condition of
this Guaranty may be amended or waived, and any departure therefrom may be
consented to, if, but only if, such amendment, waiver or consent is in writing
and is signed by the Agent and the Required Lenders and, in the case of any
amendment, also by the Guarantor. Unless otherwise specified in such waiver or
consent, a waiver or consent given hereunder shall be effective only in the
instance and for the specific purpose for which given and no waiver of any
condition, or of the breach of any term, provision, warranty, representation,
agreement or covenant contained in this Guaranty, whether by conduct or
otherwise, in any one or more instances shall be deemed or construed as a
further or continuing waiver of any such condition or breach or a waiver of any
other condition or of the breach of any other term, provision, warranty,
representation, agreement or covenant contained in this Guaranty. The failure of
the Agent or any Lender at any time or times to require performance of any
provisions of this Guaranty shall in no manner affect the right to enforce the
same. Whenever the context so requires, the singular number shall include the
plural and the plural shall include the singular, and the gender of any pronoun
shall include the other genders.
Section 11. Notices. All notices and other communications
provided for hereunder shall be in writing and given in accordance with the
provisions of SECTION 15.1 of the Loan Agreement and such provisions are hereby
incorporated herein by this reference as if fully set forth herein. The address
of the Guarantor for such purposes shall be as set forth on the signature page
hereof, or such other address notice of which is given in accordance with the
provisions hereof, and the address of the Lenders shall be as provided from time
to time pursuant to SECTION 15.1 of the Loan Agreement. The Guarantor agrees
that if any notification of intended disposition of Collateral or other security
for the Guaranteed Obligations or of any other act by the Agent or any Lender is
required by law and a specific time period is not stated therein, such
6
<PAGE> 31
notification given in accordance with the provisions of this SECTION 11, at
least ten (10) days prior to such disposition or act shall be deemed reasonable
and properly given.
Section 12. Limitation on Guaranteed Obligations. The
obligations of the Guarantor hereunder shall be limited to an aggregate amount
that is equal to the largest amount that would not render the obligations of the
Guarantor hereunder subject to avoidance under Section 548 of the United States
Bankruptcy Code (Title 11 of the United States Code) or any comparable provision
of Applicable Law.
7
<PAGE> 32
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to
be executed by its duly authorized officer(s) as of the day and year first
written above.
[Corporate Seal] PHOENIX RACING, INC.
By: /s/ WILLIAM H. GAITHER
Name:_________________________
Title:________________________
By: /s/ DONALD C. ROOF
Name: Donald C. Roof
Title: Treasurer
Address:
1140 Campbell Avenue
San Jose, California 95126
Attest: /s/ J. MICHAEL GAITHER
Name: ____________________
Title:____________________
8
<PAGE> 1
EXHIBIT 10.4
SECURITY AGREEMENT
(SUBSIDIARY)
THIS SECURITY AGREEMENT, dated as of May 20, 1998, is made by ITCO
TIRE COMPANY OF GEORGIA, a Virginia corporation (the "Grantor"), in favor of
BANKBOSTON, N.A., a national banking association, in its capacity as
administrative agent (the "Agent") for the financial institutions (the
"Lenders") party from time to time to the Amended and Restated Loan and Security
Agreement dated on or about the date hereof (the same as it may be amended,
modified or supplemented or restated, the "Loan Agreement") by and among The
J.H. Heafner Company, Inc., a North Carolina corporation ("Heafner"), Oliver &
Winston, Inc., a North Carolina corporation, ITCO Holding Company, Inc., a North
Carolina corporation, The Speed Merchant, Inc., a California corporation (each a
"Borrower" and collectively, the "Borrowers"), the Lenders, the Co-Agents and
the Agent (the Agent together with any successor agent under the Loan Agreement
also referred to as the "Secured Party" herein). Unless otherwise defined
herein, terms defined in the Loan Agreement are used herein as therein defined.
Preliminary Statement
As a condition precedent to the Lenders' making loans and other
financial accommodations to the Borrowers under the Loan Agreement, the
obligations of the Borrowers under which have been guaranteed by the Grantor
pursuant to a Guaranty dated as of even date herewith (the principal, interest,
fees, expenses and other indebtedness, obligations and liabilities of Grantor
under said Guaranty, (including, without being limited to, the Guaranteed
Obligations as defined therein) and this Agreement and all other indebtedness,
obligations and liabilities of the Grantor to the Secured Party and the Lenders,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising under the Loan Documents (as defined in the Loan
Agreement), being hereinafter referred to collectively as the "Secured
Obligations"), the Agent and the Lenders have required that Grantor shall have
granted the security interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to continue to make loans and other financial accommodations
to the Borrowers, the Grantor hereby agrees as follows:
SECTION 1. Grant of Security. As security for payment and
performance of the Secured Obligations, the Grantor hereby conveys, mortgages,
pledges, assigns, transfers, sets over, grants and delivers to the Secured Party
a continuing security interest in all of the Grantor's right, title and interest
in and to the following property, wherever located, whether now owned or
existing or hereafter acquired or arising (hereinafter referred to as the
"Collateral"):
(a) (i) all rights to the payment of money or other forms of
consideration of any kind (whether classified under the UCC as accounts,
contract rights, chattel paper, general intangibles or otherwise) including, but
not limited to, accounts receivable, insurance proceeds, letters of credit and
the right to receive payment thereunder, chattel paper, any rights under
contracts not yet earned by performance and not evidenced by an instrument or
chattel paper,
<PAGE> 2
notes, drafts, instruments, documents, acceptances and all other debts,
obligations and liabilities in whatever form from any Person, but excluding tax
refunds and insurance proceeds not arising out of the Collateral, (ii) all
guaranties, security and Liens securing payment thereof, (iii) all goods,
whether now owned or hereafter acquired, and whether sold, delivered,
undelivered, in transit or returned, which may be represented by, or the sale or
lease of which may have given rise to, any such right to payment or other debt,
obligation or liability, and (iv) all proceeds of any of the foregoing (the
foregoing, collectively, "Receivables"),
(b) (i) all inventory, (ii) all goods intended for sale or lease or
for display or demonstration, (iii) all work in process, (iv) all raw materials
and other materials and supplies of every nature and description used or which
might be used in connection with the manufacture, packing, shipping,
advertising, selling, leasing or furnishing of goods or services or otherwise
used or consumed in the conduct of business, and (v) all documents of title,
including bills of lading and warehouse receipts, and other documents evidencing
and general intangibles relating to any of the foregoing (the foregoing,
collectively, "Inventory"),
(c) any demand, time, savings, passbook, money market or like
depository account, and all certificates of deposit, maintained with a bank,
savings and loan association, credit union or like organization (other than an
account evidenced by a certificate of deposit that is an instrument under the
UCC) to which proceeds of Collateral are deposited (the foregoing, collectively,
"Deposit Accounts"),
(d) all certificated and uncertificated securities, all security
entitlements, all securities accounts, all commodity contracts and all commodity
accounts, EXCLUDING, HOWEVER, the equity securities of any Subsidiary, to the
extent acquired directly with proceeds of Collateral (the foregoing,
collectively, "Investment Property"),
(e) (i) any investment account maintained by or on behalf of the
Grantor with the Agent or any Lender or any Affiliate of the Agent or any
Lender, (ii) any agreement governing such account, (iii) all cash proceeds and
Investment Property now or hereafter held by the Agent or any Lender or any
Affiliate of the Agent or any Lender on behalf of the Grantor in connection with
such investment account and (iv) all documents evidencing and general
intangibles related to the foregoing (the foregoing, collectively, "Investment
Accounts"),
(f) all cash or other property deposited with the Agent or any
Lender or any Affiliate of the Agent or any Lender or which the Agent, for its
benefit and for the benefit of the Lenders, or any Lender or such Affiliate is
entitled to retain or otherwise possess as collateral pursuant to the provisions
of this Agreement or any of the Loan Documents or any agreement relating to any
Letter of Credit, including, without limitation, amounts on deposit in the Cash
Collateral Account,
(g) all goods and other property, whether or not delivered, (i) the
sale or lease of which gives or purports to give rise to any Receivable,
including, but not limited to, all merchandise returned or rejected by or
repossessed from customers, or (ii) securing any Receivable, including, without
limitation, all rights as an unpaid vendor or lienor (including,
2
<PAGE> 3
without limitation, stoppage in transit, replevin and reclamation) with respect
to such goods and other properties,
(h) all mortgages, deeds to secure debt and deeds of trust on real
or personal property, guaranties, leases, security agreements and other
agreements and property which secure or relate to any Receivable or other
Collateral or are acquired for the purpose of securing and enforcing any item
thereof,
(i) all files, correspondence, computer programs, tapes, disks and
related data processing software which contain information identifying or
pertaining to any of the Collateral or any Account Debtor or showing the amounts
thereof or payments thereon or otherwise necessary or helpful in the realization
thereon or the collection thereof,
(j) any and all products and cash and non-cash proceeds of the
foregoing (including, but not limited to, any claims to any items referred to in
this definition and any claims against third parties for loss of, damage to or
destruction of any or all of the Collateral or for proceeds payable under or
unearned premiums with respect to policies of insurance) in whatever form,
including, but not limited to, cash, negotiable instruments and other
instruments for the payment of money, chattel paper, security agreements and
other documents.
SECTION 2. Grantor Remains Liable. Anything contained herein to the
contrary notwithstanding, (a) the Grantor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Secured Party of any of the rights hereunder shall not release the Grantor from
any of its duties or obligations under the contracts and agreements included in
the Collateral, and (c) the Secured Party shall not have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall the Secured Party be obligated to perform
any of the obligations or duties of the Grantor thereunder or to take any action
to collect or enforce any claim for payment assigned hereunder.
SECTION 3. Representations and Warranties. The Grantor represents
and warrants as follows:
(a) The Grantor is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, has
the power and authority to own its properties and to carry on its business as
now being and as hereafter proposed to be conducted and is duly qualified and
authorized to do business in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification or
authorization.
(b) The Grantor has the right and power, and has taken all necessary
action to authorize it, to execute, deliver and perform this Agreement in
accordance with its terms. This Agreement has been duly executed and delivered
by the duly authorized officers of the Grantor and is a legal, valid and binding
obligation of the Grantor, enforceable in accordance with its terms.
3
<PAGE> 4
(c) The execution, delivery and performance of this Agreement in
accordance with its terms does not and will not, by the passage of time, the
giving of notice or otherwise,
(i) require any Governmental Approval or violate any
Applicable Law relating to the Grantor,
(ii) conflict with, result in a breach of or constitute a
default under the articles of incorporation or by-laws of the Grantor, any
material provisions of any indenture, agreement or other instrument to
which the Grantor is a party or by which it or any of its property may be
bound or any Governmental Approval relating to the Grantor or
(iii) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter acquired
by the Grantor other than the security interest contemplated by this
Agreement.
(d) There is no pending or threatened action or proceeding affecting
the Grantor before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of the
Grantor.
(e) All of the Inventory is located at the address(es) set forth in
PART I of EXHIBIT A hereto.
(f) The address of the chief executive office of the Grantor is set
forth in PART II of EXHIBIT A hereto. The address(es) of such chief executive
office has not been changed during the year preceding the date hereof.
(g) The office(s) where the Grantor keeps its records concerning the
Receivables and originals of chattel paper, if any, which evidences Receivables
is located at the address set forth in PART III of EXHIBIT A hereto and except
as otherwise indicated in said PART III of EXHIBIT A, such office(s) has (have)
been located at such address(es) continuously for the past year. None of the
Receivables is evidenced by a promissory note or other instrument which has not
been delivered to the Secured Party at its request.
(h) If the business of the Grantor has been conducted under a
different name or names during the last five years, such name(s) is (are) set
forth in PART IV of EXHIBIT A hereto.
(i) The Grantor owns the Collateral free and clear of any lien,
security interest, charge or encumbrance except for the security interest
created by this Agreement, Permitted Liens, and except as may be set forth in
EXHIBIT B attached hereto and made a part hereof. Except as may be set forth on
EXHIBIT B, no effective financing statement or other instrument similar in
effect covering all or any part of the Collateral is on file in any recording
office, except such as may have been filed in favor of the Secured Party
relating to this Agreement.
4
<PAGE> 5
(j) This Agreement creates a valid security interest in the
Collateral, securing the payment of the Secured Obligations and upon completion
of the filings and other actions set forth on EXHIBIT B, all actions necessary
to perfect such security interest as a first priority security interest (subject
to Permitted Liens) will have been duly taken.
(k) Except for the filing of UCC financing statements in the
appropriate jurisdictions, no authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required either (i) for the grant by the Grantor of the security interest
granted hereby or for the execution, delivery or performance of this Agreement
by the Grantor or (ii) for the exercise by the Secured Party of its rights and
remedies hereunder.
SECTION 4. Further Assurances. (a) The Grantor agrees that from time
to time, at the expense of the Grantor, the Grantor shall promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Secured Party may reasonably request,
in order to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Secured Party to exercise and enforce its rights
and remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, the Grantor shall take all actions contemplated by
SECTION 7.2(b) of the Loan Agreement.
(b) The Grantor hereby authorizes the Secured Party to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of the Grantor where
permitted by law and agrees that a photographic or other reproduction of this
Agreement of this may be used and filed as a financing statement.
(c) The Grantor shall furnish to the Secured Party from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Secured Party may
reasonably request, all in reasonable detail.
SECTION 5. As to Inventory. The Grantor shall:
(a) Keep the Inventory (other than Inventory in transit to any such
location or sold in the ordinary course of business) at Permitted Inventory
Locations or, with the prior consent of the Secured Party, at such other places
in jurisdictions where all action required by SECTION 4 shall have been taken
with respect to the Inventory.
(b) Pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Inventory, except to the
extent the validity thereof is being contested in good faith by appropriate
proceedings.
SECTION 6. Insurance. The Grantor shall take all actions
contemplated by SECTION 8.8 of the Loan Agreement.
5
<PAGE> 6
SECTION 7. As to Receivables. (a) the Grantor shall keep its chief
place of business and chief executive office and the office(s) where it keeps
its records concerning the Receivables, and all originals of all chattel paper
which evidence Receivables, at the location(s) therefor specified in EXHIBIT A
or, upon 30 days' prior written notice to the Secured Party, at such other
location(s) in a jurisdiction where all action required by SECTION 4 shall have
been taken with respect to the Receivables. The Grantor will hold and preserve
such records and chattel paper and will permit representatives of the Secured
Party at any time during normal business hours to inspect and make abstracts
from such records and chattel paper.
(b) Except as otherwise provided in this SUBSECTION (b) or SECTION
8.1 of the Loan Agreement, the Grantor shall continue to collect, at its own
expense, all amounts due or to become due the Grantor under the Receivables. In
connection with such collections, the Grantor may take (and, during the
continuation of an Event of Default, at the Secured Party's direction, shall
take) such action as the Grantor or the Secured Party may deem necessary or
advisable to enforce collection of the Receivables; PROVIDED, HOWEVER, that the
Secured Party shall have the right at any time, upon the occurrence and during
the continuation of an Event of Default, to notify the Account Debtors or
obligors under any Receivables of the assignment of such Receivables to the
Secured Party and to direct such Account Debtors or obligors to make payment of
all amounts due or to become due to the Grantor thereunder directly to the
Secured Party and, upon such notification and at the expense of the Grantor, to
enforce collection of any such Receivables, and to adjust, settle or compromise
the amount or payment thereof, in the same manner and to the same extent as the
Grantor might have done. After receipt by the Grantor of the notice from the
Secured Party referred to in the PROVISO to the preceding sentence and during
the continuation of an Event of Default, (i) all amounts and proceeds (including
instruments) received by the Grantor in respect of the Receivables shall be
received in trust for the benefit of the Secured Party hereunder, shall be
segregated from other funds of the Grantor and shall be forthwith paid over to
the Secured Party in the same form as so received (with any necessary
endorsement) to be held as cash collateral and either (A) released to the
Grantor so long as no Event of Default shall have occurred and be continuing or
(B) if any Event of Default shall have occurred and be continuing, applied as
provided by SECTION 13(b), and (ii) the Grantor shall not adjust, settle or
compromise the amount or payment of any Receivable, or release wholly or partly
any account debtor or obligor thereof, or allow any credit or discount thereon.
SECTION 8. Transfers and Other Liens. The Grantor shall not without
the prior written consent of the Secured Party:
(a) Sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral except Inventory in the ordinary course of
business, subject to the limitations set forth in the Loan Agreement.
(b) Create or suffer to exist any Lien upon or with respect to any
of the Collateral to secure Indebtedness of any person or entity, except for the
security interest created by this Agreement and Permitted Liens.
SECTION 9. Secured Party Appointed Attorney-in-Fact. The Grantor
hereby irrevocably appoints the Secured Party the Grantor's attorney-in-fact,
with full authority in the
6
<PAGE> 7
place and stead of the Grantor and in the name of the Grantor, the Secured Party
or otherwise, during the continuation of an Event of Default, to take any action
and to execute any instrument which the Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement (subject to the rights of
the Grantor under SECTION 7), including, without limitation:
(i) to obtain and adjust insurance required to be paid to the
Secured Party pursuant to SECTION 6,
(ii) 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,
(iii) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with CLAUSE (i) or
(ii) above, and
(iv) to file any claims or take any action or institute any
proceedings which the Secured Party may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce the rights
of the Secured Party with respect to any of the Collateral.
SECTION 10. Secured Party May Perform. If the Grantor fails to
perform any agreement contained herein, the Secured Party may itself perform, or
cause performance of, such agreement, and the expenses of the Secured Party
incurred in connection therewith shall be payable by the Grantor under SECTION
14(b).
SECTION 11. The Secured Party's Duties. The powers conferred on the
Secured Party hereunder are solely to protect its interest (for the benefit of
the Lenders), in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the
Secured Party shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
SECTION 12. Events of Default. The occurrence of any "Event of
Default" as defined in the Loan Agreement shall constitute an Event of Default
hereunder.
SECTION 13. Remedies. If any Event of Default shall have occurred
and be continuing:
(a) The Secured Party may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it under Applicable Law or in equity or otherwise, all the rights and
remedies of a secured party on default under the applicable Uniform Commercial
Code (the "Code") (whether or not the Code applies to the affected Collateral)
and also may do any or all of the following:
(i) Declare any or all of the Secured Obligations then
existing to be immediately due and payable and they shall thereupon become
forthwith due and payable,
7
<PAGE> 8
without notice of any kind to the Grantor and without any other
presentment, demand, protest, or notice of any kind, all of which are
hereby expressly waived;
(ii) Terminate the Lenders' obligations, if any, to make or to
permit the Borrowers to make further Loans or extensions of credit or
other financial accommodations to the Grantor;
(iii) In the name of the Secured Party or in the name of the
Grantor or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange
for, or make any compromise or settlement deemed desirable with respect
to, any of the Collateral, but the Secured Party shall be under no
obligation so to do, and the Secured Party may extend the time of payment,
arrange for payment installments, or otherwise modify the terms of, or
release, any of the Collateral without thereby incurring responsibility
to, or discharging or otherwise affecting any liability of, the Grantor;
(iv) Enter upon the premises, or wherever the Collateral may
be, and take possession thereof, and demand and receive such possession
from any Person who has possession thereof;
(v) Require the Grantor to, and the Grantor hereby agrees that
it will at its expense and upon request of the Secured Party forthwith,
assemble all or part of the Collateral as directed by the Secured Party
and make it available to the Secured Party at a place to be designated by
the Secured Party which is reasonably convenient to both parties;
(vi) Without notice except as specified below and with or
without taking the possession thereof, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any location
chosen by the Secured Party, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as the Secured Party
may deem commercially reasonable. The Grantor agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice to the
Grantor 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,
but notice given in any other reasonable manner or at any other reasonable
time shall constitute reasonable notification. The Secured Party shall not
be obligated to make any sale of Collateral regardless of notice of sale
having been given. The Secured Party may adjourn any public or private
sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned;
(vii) In any action hereunder, the Secured Party shall be
entitled to the appointment of a receiver, without notice, to take
possession of all or any portion of the Collateral and to exercise such
power as the court shall confer upon the receiver; and
(viii) Apply, without notice, any cash or cash items
constituting Collateral in the Secured Party's possession to payment of
any of the Secured Obligations.
8
<PAGE> 9
The undersigned waives, to the extent permitted by Applicable Law,
all rights it has to prior notice (except as set forth in Section 13(a)(vi)) and
hearing under the Constitution of the United States and the Uniform Commercial
Codes and constitutions of the States of New York, California and under any
other applicable statute or constitution.
(b) All cash proceeds received by the Secured Party in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Secured Party, be held by the Secured
Party as collateral for, and/or then or at any time thereafter applied (after
payment of any amounts payable to the Secured Party pursuant to SECTION 14) in
whole or in part by the Secured Party against, all or any part of the Secured
Obligations in accordance with the provisions of Section 12.3 of the Loan
Agreement. Any surplus of such cash or cash proceeds held by the Secured Party
and remaining after payment in full of all the Secured Obligations shall be paid
over to the Grantor or to whomsoever may be lawfully entitled to receive such
surplus. The Grantor shall remain liable for any deficiency.
SECTION 14. Amendments; Etc. No amendment or waiver of any provision
of this Agreement, nor consent to any departure by the Grantor herefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Secured Party, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 15. Notices. All notices and other communications hereunder
shall be given in accordance with the provisions of Section 15.1 of the Loan
Agreement, to the Grantor at its address set forth on the signature pages hereof
(with a copy to the Borrowers), to the Secured Party at its address set forth on
the signature pages hereof, or as to either party at such other address as shall
be designated by such party in a written notice to each other party complying as
to delivery with the terms of this Section.
SECTION 16. Continuing Security Interest; Transfer of Obligations.
This Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until payment in full of the Secured
Obligations, (ii) be binding upon the Grantor, its successors and assigns, and
(iii) inure to the benefit of the Secured Party and its successors, transferees
and assigns. Without limiting the generality of the foregoing clause (iii), any
Lender may assign or otherwise transfer the Secured Obligations to another
Person in accordance with the provisions of the Loan Agreement and such Person
shall thereupon become vested with all the benefits in respect thereof granted
to the Secured Party herein or otherwise. Upon the payment in full of the
Secured Obligations, the security interest granted hereby shall terminate and
all rights to the Collateral shall revert to the Grantor. Upon any such
termination, the Secured Party will, at the Grantor's expense, execute and
deliver to the Grantor such documents as the Grantor shall reasonably request to
evidence such termination.
SECTION 17. Governing Law; Terms. (a) This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
except as required by mandatory provisions of law and except to the extent that
the validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of New York. Unless otherwise defined herein,
9
<PAGE> 10
terms used in Article 9 of the Uniform Commercial Code of the State of New York
are used herein as therein defined.
(b) The Grantor hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court for the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment and both parties
hereto hereby irrevocably and unconditionally agree that all claims in respect
of any such action or proceeding may be heard and determined in such New York
State court or, to the extent permitted by law, in such federal court. Both
parties hereto agree that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that the Agent or any Lender may otherwise have to bring any
action or proceeding relating to this Agreement against the Grantor or its
properties in the courts of any jurisdiction.
SECTION 18. Conflict with Loan Agreement. To the extent any
provision hereof shall be in conflict with or inconsistent with any provision of
the Loan Agreement, the provision of the Loan Agreement shall control.
SECTION 19. Grantor's Representative. Heafner shall act under this
Agreement as the representative of the Grantor, and the Grantor hereby appoints
Heafner as its representative hereunder for all purposes, including receiving
notices and communications to the Grantor from the Agent or any Lender. The
Agent and the Lenders may rely, and shall be fully protected in relying, on any
report, information or any other notice or communication made or given by
Heafner, whether in its own name or on behalf of the Grantor and neither the
Agent nor any Lender shall have any obligation to make any inquiry or request
any confirmation from or on behalf of the Grantor as to the binding effect on it
of any such report, information, notice or communication.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective duly authorized officer(s) as
of the date first above written.
GRANTOR:
ITCO TIRE COMPANY OF GEORGIA
By: /s/ WILLIAM H. GAITHER
Name:____________________________
Title:___________________________
Address: 2708 Commerce Road
P.O. Box 641
Wilson, N.C. 27893
SECURED PARTY:
BANKBOSTON, N.A., AS AGENT
By: /s/ CHRISTIAN B. COLSON
Name:____________________________
Title:___________________________
Address: 115 Perimeter Center Place
Suite 500
Atlanta, Georgia 30346
Attention: Christopher R. Nairne
11
<PAGE> 12
SECURITY AGREEMENT
(SUBSIDIARY)
THIS SECURITY AGREEMENT, dated as of May 20, 1998, is made by ITCO
TIRE COMPANY, a North Carolina corporation (the "Grantor"), in favor of
BANKBOSTON, N.A., a national banking association, in its capacity as
administrative agent (the "Agent") for the financial institutions (the
"Lenders") party from time to time to the Amended and Restated Loan and Security
Agreement dated on or about the date hereof (the same as it may be amended,
modified or supplemented or restated, the "Loan Agreement") by and among The
J.H. Heafner Company, Inc., a North Carolina corporation ("Heafner"), Oliver &
Winston, Inc., a North Carolina corporation, ITCO Holding Company, Inc., a North
Carolina corporation, The Speed Merchant, Inc., a California corporation (each a
"Borrower" and collectively, the "Borrowers"), the Lenders, the Co-Agents and
the Agent (the Agent together with any successor agent under the Loan Agreement
also referred to as the "Secured Party" herein). Unless otherwise defined
herein, terms defined in the Loan Agreement are used herein as therein defined.
Preliminary Statement
As a condition precedent to the Lenders' making loans and other
financial accommodations to the Borrowers under the Loan Agreement, the
obligations of the Borrowers under which have been guaranteed by the Grantor
pursuant to a Guaranty dated as of even date herewith (the principal, interest,
fees, expenses and other indebtedness, obligations and liabilities of Grantor
under said Guaranty, (including, without being limited to, the Guaranteed
Obligations as defined therein) and this Agreement and all other indebtedness,
obligations and liabilities of the Grantor to the Secured Party and the Lenders,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising under the Loan Documents (as defined in the Loan
Agreement), being hereinafter referred to collectively as the "Secured
Obligations"), the Agent and the Lenders have required that Grantor shall have
granted the security interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to continue to make loans and other financial accommodations
to the Borrowers, the Grantor hereby agrees as follows:
SECTION 1. Grant of Security. As security for payment and
performance of the Secured Obligations, the Grantor hereby conveys, mortgages,
pledges, assigns, transfers, sets over, grants and delivers to the Secured Party
a continuing security interest in all of the Grantor's right, title and interest
in and to the following property, wherever located, whether now owned or
existing or hereafter acquired or arising (hereinafter referred to as the
"Collateral"):
(a) (i) all rights to the payment of money or other forms of
consideration of any kind (whether classified under the UCC as accounts,
contract rights, chattel paper, general intangibles or otherwise) including, but
not limited to, accounts receivable, insurance proceeds, letters of credit and
the right to receive payment thereunder, chattel paper, any rights under
contracts not yet earned by performance and not evidenced by an instrument or
chattel paper, notes, drafts, instruments, documents, acceptances and all other
debts, obligations and liabilities
<PAGE> 13
in whatever form from any Person, but excluding tax refunds and insurance
proceeds not arising out of the Collateral, (ii) all guaranties, security and
Liens securing payment thereof, (iii) all goods, whether now owned or hereafter
acquired, and whether sold, delivered, undelivered, in transit or returned,
which may be represented by, or the sale or lease of which may have given rise
to, any such right to payment or other debt, obligation or liability, and (iv)
all proceeds of any of the foregoing (the foregoing, collectively,
"Receivables"),
(b) (i) all inventory, (ii) all goods intended for sale or lease or
for display or demonstration, (iii) all work in process, (iv) all raw materials
and other materials and supplies of every nature and description used or which
might be used in connection with the manufacture, packing, shipping,
advertising, selling, leasing or furnishing of goods or services or otherwise
used or consumed in the conduct of business, and (v) all documents of title,
including bills of lading and warehouse receipts, and other documents evidencing
and general intangibles relating to any of the foregoing (the foregoing,
collectively, "Inventory"),
(c) any demand, time, savings, passbook, money market or like
depository account, and all certificates of deposit, maintained with a bank,
savings and loan association, credit union or like organization (other than an
account evidenced by a certificate of deposit that is an instrument under the
UCC) to which proceeds of Collateral are deposited (the foregoing, collectively,
"Deposit Accounts"),
(d) all certificated and uncertificated securities, all security
entitlements, all securities accounts, all commodity contracts and all commodity
accounts, EXCLUDING, HOWEVER, the equity securities of any Subsidiary, to the
extent acquired directly with proceeds of Collateral (the foregoing,
collectively, "Investment Property"),
(e) (i) any investment account maintained by or on behalf of the
Grantor with the Agent or any Lender or any Affiliate of the Agent or any
Lender, (ii) any agreement governing such account, (iii) all cash proceeds and
Investment Property now or hereafter held by the Agent or any Lender or any
Affiliate of the Agent or any Lender on behalf of the Grantor in connection with
such investment account and (iv) all documents evidencing and general
intangibles related to the foregoing (the foregoing, collectively, "Investment
Accounts"),
(f) all cash or other property deposited with the Agent or any
Lender or any Affiliate of the Agent or any Lender or which the Agent, for its
benefit and for the benefit of the Lenders, or any Lender or such Affiliate is
entitled to retain or otherwise possess as collateral pursuant to the provisions
of this Agreement or any of the Loan Documents or any agreement relating to any
Letter of Credit, including, without limitation, amounts on deposit in the Cash
Collateral Account,
(g) all goods and other property, whether or not delivered, (i) the
sale or lease of which gives or purports to give rise to any Receivable,
including, but not limited to, all merchandise returned or rejected by or
repossessed from customers, or (ii) securing any Receivable, including, without
limitation, all rights as an unpaid vendor or lienor (including, without
limitation, stoppage in transit, replevin and reclamation) with respect to such
goods and other properties,
2
<PAGE> 14
(h) all mortgages, deeds to secure debt and deeds of trust on real
or personal property, guaranties, leases, security agreements and other
agreements and property which secure or relate to any Receivable or other
Collateral or are acquired for the purpose of securing and enforcing any item
thereof,
(i) all files, correspondence, computer programs, tapes, disks and
related data processing software which contain information identifying or
pertaining to any of the Collateral or any Account Debtor or showing the amounts
thereof or payments thereon or otherwise necessary or helpful in the realization
thereon or the collection thereof,
(j) any and all products and cash and non-cash proceeds of the
foregoing (including, but not limited to, any claims to any items referred to in
this definition and any claims against third parties for loss of, damage to or
destruction of any or all of the Collateral or for proceeds payable under or
unearned premiums with respect to policies of insurance) in whatever form,
including, but not limited to, cash, negotiable instruments and other
instruments for the payment of money, chattel paper, security agreements and
other documents.
SECTION 2. Grantor Remains Liable. Anything contained herein to the
contrary notwithstanding, (a) the Grantor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Secured Party of any of the rights hereunder shall not release the Grantor from
any of its duties or obligations under the contracts and agreements included in
the Collateral, and (c) the Secured Party shall not have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall the Secured Party be obligated to perform
any of the obligations or duties of the Grantor thereunder or to take any action
to collect or enforce any claim for payment assigned hereunder.
SECTION 3. Representations and Warranties. The Grantor represents
and warrants as follows:
(a) The Grantor is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, has
the power and authority to own its properties and to carry on its business as
now being and as hereafter proposed to be conducted and is duly qualified and
authorized to do business in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification or
authorization.
(b) The Grantor has the right and power, and has taken all necessary
action to authorize it, to execute, deliver and perform this Agreement in
accordance with its terms. This Agreement has been duly executed and delivered
by the duly authorized officers of the Grantor and is a legal, valid and binding
obligation of the Grantor, enforceable in accordance with its terms.
(c) The execution, delivery and performance of this Agreement in
accordance with its terms does not and will not, by the passage of time, the
giving of notice or otherwise,
3
<PAGE> 15
(i) require any Governmental Approval or violate any
Applicable Law relating to the Grantor,
(ii) conflict with, result in a breach of or constitute a
default under the articles of incorporation or by-laws of the Grantor, any
material provisions of any indenture, agreement or other instrument to
which the Grantor is a party or by which it or any of its property may be
bound or any Governmental Approval relating to the Grantor or
(iii) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter acquired
by the Grantor other than the security interest contemplated by this
Agreement.
(d) There is no pending or threatened action or proceeding affecting
the Grantor before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of the
Grantor.
(e) All of the Inventory is located at the address(es) set forth in
PART I of EXHIBIT A hereto.
(f) The address of the chief executive office of the Grantor is set
forth in PART II of EXHIBIT A hereto. The address(es) of such chief executive
office has not been changed during the year preceding the date hereof.
(g) The office(s) where the Grantor keeps its records concerning the
Receivables and originals of chattel paper, if any, which evidences Receivables
is located at the address set forth in PART III of EXHIBIT A hereto and except
as otherwise indicated in said PART III of EXHIBIT A, such office(s) has (have)
been located at such address(es) continuously for the past year. None of the
Receivables is evidenced by a promissory note or other instrument which has not
been delivered to the Secured Party at its request.
(h) If the business of the Grantor has been conducted under a
different name or names during the last five years, such name(s) is (are) set
forth in PART IV of EXHIBIT A hereto.
(i) The Grantor owns the Collateral free and clear of any lien,
security interest, charge or encumbrance except for the security interest
created by this Agreement, Permitted Liens, and except as may be set forth in
EXHIBIT B attached hereto and made a part hereof. Except as may be set forth on
EXHIBIT B, no effective financing statement or other instrument similar in
effect covering all or any part of the Collateral is on file in any recording
office, except such as may have been filed in favor of the Secured Party
relating to this Agreement.
(j) This Agreement creates a valid security interest in the
Collateral, securing the payment of the Secured Obligations and upon completion
of the filings and other actions set
4
<PAGE> 16
forth on EXHIBIT B, all actions necessary to perfect such security interest as a
first priority security interest (subject to Permitted Liens) will have been
duly taken.
(k) Except for the filing of UCC financing statements in the
appropriate jurisdictions, no authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required either (i) for the grant by the Grantor of the security interest
granted hereby or for the execution, delivery or performance of this Agreement
by the Grantor or (ii) for the exercise by the Secured Party of its rights and
remedies hereunder.
SECTION 4. Further Assurances. (a) The Grantor agrees that from time
to time, at the expense of the Grantor, the Grantor shall promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Secured Party may reasonably request,
in order to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Secured Party to exercise and enforce its rights
and remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, the Grantor shall take all actions contemplated by
SECTION 7.2(b) of the Loan Agreement.
(b) The Grantor hereby authorizes the Secured Party to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of the Grantor where
permitted by law and agrees that a photographic or other reproduction of this
Agreement of this may be used and filed as a financing statement.
(c) The Grantor shall furnish to the Secured Party from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Secured Party may
reasonably request, all in reasonable detail.
SECTION 5. As to Inventory. The Grantor shall:
(a) Keep the Inventory (other than Inventory in transit to any such
location or sold in the ordinary course of business) at Permitted Inventory
Locations or, with the prior consent of the Secured Party, at such other places
in jurisdictions where all action required by SECTION 4 shall have been taken
with respect to the Inventory.
(b) Pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Inventory, except to the
extent the validity thereof is being contested in good faith by appropriate
proceedings.
SECTION 6. Insurance. The Grantor shall take all actions
contemplated by SECTION 8.8 of the Loan Agreement.
SECTION 7. As to Receivables. (a) the Grantor shall keep its chief
place of business and chief executive office and the office(s) where it keeps
its records concerning the
5
<PAGE> 17
Receivables, and all originals of all chattel paper which evidence Receivables,
at the location(s) therefor specified in EXHIBIT A or, upon 30 days' prior
written notice to the Secured Party, at such other location(s) in a jurisdiction
where all action required by SECTION 4 shall have been taken with respect to the
Receivables. The Grantor will hold and preserve such records and chattel paper
and will permit representatives of the Secured Party at any time during normal
business hours to inspect and make abstracts from such records and chattel
paper.
(b) Except as otherwise provided in this SUBSECTION (b) or SECTION
8.1 of the Loan Agreement, the Grantor shall continue to collect, at its own
expense, all amounts due or to become due the Grantor under the Receivables. In
connection with such collections, the Grantor may take (and, during the
continuation of an Event of Default, at the Secured Party's direction, shall
take) such action as the Grantor or the Secured Party may deem necessary or
advisable to enforce collection of the Receivables; PROVIDED, HOWEVER, that the
Secured Party shall have the right at any time, upon the occurrence and during
the continuation of an Event of Default, to notify the Account Debtors or
obligors under any Receivables of the assignment of such Receivables to the
Secured Party and to direct such Account Debtors or obligors to make payment of
all amounts due or to become due to the Grantor thereunder directly to the
Secured Party and, upon such notification and at the expense of the Grantor, to
enforce collection of any such Receivables, and to adjust, settle or compromise
the amount or payment thereof, in the same manner and to the same extent as the
Grantor might have done. After receipt by the Grantor of the notice from the
Secured Party referred to in the PROVISO to the preceding sentence and during
the continuation of an Event of Default, (i) all amounts and proceeds (including
instruments) received by the Grantor in respect of the Receivables shall be
received in trust for the benefit of the Secured Party hereunder, shall be
segregated from other funds of the Grantor and shall be forthwith paid over to
the Secured Party in the same form as so received (with any necessary
endorsement) to be held as cash collateral and either (A) released to the
Grantor so long as no Event of Default shall have occurred and be continuing or
(B) if any Event of Default shall have occurred and be continuing, applied as
provided by SECTION 13(b), and (ii) the Grantor shall not adjust, settle or
compromise the amount or payment of any Receivable, or release wholly or partly
any account debtor or obligor thereof, or allow any credit or discount thereon.
SECTION 8. Transfers and Other Liens. The Grantor shall not without
the prior written consent of the Secured Party:
(a) Sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral except Inventory in the ordinary course of
business, subject to the limitations set forth in the Loan Agreement.
(b) Create or suffer to exist any Lien upon or with respect to any
of the Collateral to secure Indebtedness of any person or entity, except for the
security interest created by this Agreement and Permitted Liens.
SECTION 9. Secured Party Appointed Attorney-in-Fact. The Grantor
hereby irrevocably appoints the Secured Party the Grantor's attorney-in-fact,
with full authority in the place and stead of the Grantor and in the name of the
Grantor, the Secured Party or otherwise, during the continuation of an Event of
Default, to take any action and to execute any instrument
6
<PAGE> 18
which the Secured Party may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the rights of the Grantor under SECTION
7), including, without limitation:
(i) to obtain and adjust insurance required to be paid to the
Secured Party pursuant to SECTION 6,
(ii) 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,
(iii) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with CLAUSE (i) or
(ii) above, and
(iv) to file any claims or take any action or institute any
proceedings which the Secured Party may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce the rights
of the Secured Party with respect to any of the Collateral.
SECTION 10. Secured Party May Perform. If the Grantor fails to
perform any agreement contained herein, the Secured Party may itself perform, or
cause performance of, such agreement, and the expenses of the Secured Party
incurred in connection therewith shall be payable by the Grantor under SECTION
14(b).
SECTION 11. The Secured Party's Duties. The powers conferred on the
Secured Party hereunder are solely to protect its interest (for the benefit of
the Lenders), in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the
Secured Party shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
SECTION 12. Events of Default. The occurrence of any "Event of
Default" as defined in the Loan Agreement shall constitute an Event of Default
hereunder.
SECTION 13. Remedies. If any Event of Default shall have occurred
and be continuing:
(a) The Secured Party may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it under Applicable Law or in equity or otherwise, all the rights and
remedies of a secured party on default under the applicable Uniform Commercial
Code (the "Code") (whether or not the Code applies to the affected Collateral)
and also may do any or all of the following:
(i) Declare any or all of the Secured Obligations then
existing to be immediately due and payable and they shall thereupon become
forthwith due and payable, without notice of any kind to the Grantor and
without any other presentment, demand, protest, or notice of any kind, all
of which are hereby expressly waived;
7
<PAGE> 19
(ii) Terminate the Lenders' obligations, if any, to make or to
permit the Borrowers to make further Loans or extensions of credit or
other financial accommodations to the Grantor;
(iii) In the name of the Secured Party or in the name of the
Grantor or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange
for, or make any compromise or settlement deemed desirable with respect
to, any of the Collateral, but the Secured Party shall be under no
obligation so to do, and the Secured Party may extend the time of payment,
arrange for payment installments, or otherwise modify the terms of, or
release, any of the Collateral without thereby incurring responsibility
to, or discharging or otherwise affecting any liability of, the Grantor;
(iv) Enter upon the premises, or wherever the Collateral may
be, and take possession thereof, and demand and receive such possession
from any Person who has possession thereof;
(v) Require the Grantor to, and the Grantor hereby agrees that
it will at its expense and upon request of the Secured Party forthwith,
assemble all or part of the Collateral as directed by the Secured Party
and make it available to the Secured Party at a place to be designated by
the Secured Party which is reasonably convenient to both parties;
(vi) Without notice except as specified below and with or
without taking the possession thereof, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any location
chosen by the Secured Party, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as the Secured Party
may deem commercially reasonable. The Grantor agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice to the
Grantor 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,
but notice given in any other reasonable manner or at any other reasonable
time shall constitute reasonable notification. The Secured Party shall not
be obligated to make any sale of Collateral regardless of notice of sale
having been given. The Secured Party may adjourn any public or private
sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned;
(vii) In any action hereunder, the Secured Party shall be
entitled to the appointment of a receiver, without notice, to take
possession of all or any portion of the Collateral and to exercise such
power as the court shall confer upon the receiver; and
(viii) Apply, without notice, any cash or cash items
constituting Collateral in the Secured Party's possession to payment of
any of the Secured Obligations.
The undersigned waives, to the extent permitted by Applicable Law,
all rights it has to prior notice (except as set forth in Section 13(a)(vi)) and
hearing under the Constitution of the
8
<PAGE> 20
United States and the Uniform Commercial Codes and constitutions of the States
of New York, California and under any other applicable statute or constitution.
(b) All cash proceeds received by the Secured Party in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Secured Party, be held by the Secured
Party as collateral for, and/or then or at any time thereafter applied (after
payment of any amounts payable to the Secured Party pursuant to SECTION 14) in
whole or in part by the Secured Party against, all or any part of the Secured
Obligations in accordance with the provisions of Section 12.3 of the Loan
Agreement. Any surplus of such cash or cash proceeds held by the Secured Party
and remaining after payment in full of all the Secured Obligations shall be paid
over to the Grantor or to whomsoever may be lawfully entitled to receive such
surplus. The Grantor shall remain liable for any deficiency.
SECTION 14. Amendments; Etc. No amendment or waiver of any provision
of this Agreement, nor consent to any departure by the Grantor herefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Secured Party, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 15. Notices. All notices and other communications hereunder
shall be given in accordance with the provisions of Section 15.1 of the Loan
Agreement, to the Grantor at its address set forth on the signature pages hereof
(with a copy to the Borrowers), to the Secured Party at its address set forth on
the signature pages hereof, or as to either party at such other address as shall
be designated by such party in a written notice to each other party complying as
to delivery with the terms of this Section.
SECTION 16. Continuing Security Interest; Transfer of Obligations.
This Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until payment in full of the Secured
Obligations, (ii) be binding upon the Grantor, its successors and assigns, and
(iii) inure to the benefit of the Secured Party and its successors, transferees
and assigns. Without limiting the generality of the foregoing clause (iii), any
Lender may assign or otherwise transfer the Secured Obligations to another
Person in accordance with the provisions of the Loan Agreement and such Person
shall thereupon become vested with all the benefits in respect thereof granted
to the Secured Party herein or otherwise. Upon the payment in full of the
Secured Obligations, the security interest granted hereby shall terminate and
all rights to the Collateral shall revert to the Grantor. Upon any such
termination, the Secured Party will, at the Grantor's expense, execute and
deliver to the Grantor such documents as the Grantor shall reasonably request to
evidence such termination.
SECTION 17. Governing Law; Terms. (a) This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
except as required by mandatory provisions of law and except to the extent that
the validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of New York. Unless otherwise defined herein,
terms used in Article 9 of the Uniform Commercial Code of the State of New York
are used herein as therein defined.
9
<PAGE> 21
(b) The Grantor hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court for the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment and both parties
hereto hereby irrevocably and unconditionally agree that all claims in respect
of any such action or proceeding may be heard and determined in such New York
State court or, to the extent permitted by law, in such federal court. Both
parties hereto agree that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that the Agent or any Lender may otherwise have to bring any
action or proceeding relating to this Agreement against the Grantor or its
properties in the courts of any jurisdiction.
SECTION 18. Conflict with Loan Agreement. To the extent any
provision hereof shall be in conflict with or inconsistent with any provision of
the Loan Agreement, the provision of the Loan Agreement shall control.
SECTION 19. Grantor's Representative. Heafner shall act under this
Agreement as the representative of the Grantor, and the Grantor hereby appoints
Heafner as its representative hereunder for all purposes, including receiving
notices and communications to the Grantor from the Agent or any Lender. The
Agent and the Lenders may rely, and shall be fully protected in relying, on any
report, information or any other notice or communication made or given by
Heafner, whether in its own name or on behalf of the Grantor and neither the
Agent nor any Lender shall have any obligation to make any inquiry or request
any confirmation from or on behalf of the Grantor as to the binding effect on it
of any such report, information, notice or communication.
10
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective duly authorized officer(s) as
of the date first above written.
GRANTOR:
ITCO TIRE COMPANY
By: /s/ WILLIAM H. GAITHER
Name:____________________________
Title:___________________________
Address: 2708 Commerce Road
P.O. Box 641
Wilson, N.C. 27893
SECURED PARTY:
BANKBOSTON, N.A., AS AGENT
By: /s/ CHRISTIAN B. COLSON
Name:____________________________
Title:___________________________
Address: 115 Perimeter Center Place
Suite 500
Atlanta, Georgia 30346
Attention: Christopher R. Nairne
11
<PAGE> 23
SECURITY AGREEMENT
(SUBSIDIARY)
THIS SECURITY AGREEMENT, dated as of May 20, 1998, is made by
PHOENIX RACING, INC., a California corporation (the "Grantor"), in favor of
BANKBOSTON, N.A., a national banking association, in its capacity as
administrative agent (the "Agent") for the financial institutions (the
"Lenders") party from time to time to the Amended and Restated Loan and Security
Agreement dated on or about the date hereof (the same as it may be amended,
modified or supplemented or restated, the "Loan Agreement") by and among The
J.H. Heafner Company, Inc., a North Carolina corporation ("Heafner"), Oliver &
Winston, Inc., a North Carolina corporation, ITCO Holding Company, Inc., a North
Carolina corporation, The Speed Merchant, Inc., a California corporation (each a
"Borrower" and collectively, the "Borrowers"), the Lenders, the Co-Agents and
the Agent (the Agent together with any successor agent under the Loan Agreement
also referred to as the "Secured Party" herein). Unless otherwise defined
herein, terms defined in the Loan Agreement are used herein as therein defined.
Preliminary Statement
As a condition precedent to the Lenders' making loans and other
financial accommodations to the Borrowers under the Loan Agreement, the
obligations of the Borrowers under which have been guaranteed by the Grantor
pursuant to a Guaranty dated as of even date herewith (the principal, interest,
fees, expenses and other indebtedness, obligations and liabilities of Grantor
under said Guaranty, (including, without being limited to, the Guaranteed
Obligations as defined therein) and this Agreement and all other indebtedness,
obligations and liabilities of the Grantor to the Secured Party and the Lenders,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising under the Loan Documents (as defined in the Loan
Agreement), being hereinafter referred to collectively as the "Secured
Obligations"), the Agent and the Lenders have required that Grantor shall have
granted the security interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to continue to make loans and other financial accommodations
to the Borrowers, the Grantor hereby agrees as follows:
SECTION 1. Grant of Security. As security for payment and
performance of the Secured Obligations, the Grantor hereby conveys, mortgages,
pledges, assigns, transfers, sets over, grants and delivers to the Secured Party
a continuing security interest in all of the Grantor's right, title and interest
in and to the following property, wherever located, whether now owned or
existing or hereafter acquired or arising (hereinafter referred to as the
"Collateral"):
(a) (i) all rights to the payment of money or other forms of
consideration of any kind (whether classified under the UCC as accounts,
contract rights, chattel paper, general intangibles or otherwise) including, but
not limited to, accounts receivable, insurance proceeds, letters of credit and
the right to receive payment thereunder, chattel paper, any rights under
contracts not yet earned by performance and not evidenced by an instrument or
chattel paper,
<PAGE> 24
notes, drafts, instruments, documents, acceptances and all other debts,
obligations and liabilities in whatever form from any Person, but excluding tax
refunds and insurance proceeds not arising out of the Collateral, (ii) all
guaranties, security and Liens securing payment thereof, (iii) all goods,
whether now owned or hereafter acquired, and whether sold, delivered,
undelivered, in transit or returned, which may be represented by, or the sale or
lease of which may have given rise to, any such right to payment or other debt,
obligation or liability, and (iv) all proceeds of any of the foregoing (the
foregoing, collectively, "Receivables"),
(b) (i) all inventory, (ii) all goods intended for sale or lease or
for display or demonstration, (iii) all work in process, (iv) all raw materials
and other materials and supplies of every nature and description used or which
might be used in connection with the manufacture, packing, shipping,
advertising, selling, leasing or furnishing of goods or services or otherwise
used or consumed in the conduct of business, and (v) all documents of title,
including bills of lading and warehouse receipts, and other documents evidencing
and general intangibles relating to any of the foregoing (the foregoing,
collectively, "Inventory"),
(c) any demand, time, savings, passbook, money market or like
depository account, and all certificates of deposit, maintained with a bank,
savings and loan association, credit union or like organization (other than an
account evidenced by a certificate of deposit that is an instrument under the
UCC) to which proceeds of Collateral are deposited (the foregoing, collectively,
"Deposit Accounts"),
(d) all certificated and uncertificated securities, all security
entitlements, all securities accounts, all commodity contracts and all commodity
accounts, EXCLUDING, HOWEVER, the equity securities of any Subsidiary, to the
extent acquired directly with proceeds of Collateral (the foregoing,
collectively, "Investment Property"),
(e) (i) any investment account maintained by or on behalf of the
Grantor with the Agent or any Lender or any Affiliate of the Agent or any
Lender, (ii) any agreement governing such account, (iii) all cash proceeds and
Investment Property now or hereafter held by the Agent or any Lender or any
Affiliate of the Agent or any Lender on behalf of the Grantor in connection with
such investment account and (iv) all documents evidencing and general
intangibles related to the foregoing (the foregoing, collectively, "Investment
Accounts"),
(f) all cash or other property deposited with the Agent or any
Lender or any Affiliate of the Agent or any Lender or which the Agent, for its
benefit and for the benefit of the Lenders, or any Lender or such Affiliate is
entitled to retain or otherwise possess as collateral pursuant to the provisions
of this Agreement or any of the Loan Documents or any agreement relating to any
Letter of Credit, including, without limitation, amounts on deposit in the Cash
Collateral Account,
(g) all goods and other property, whether or not delivered, (i) the
sale or lease of which gives or purports to give rise to any Receivable,
including, but not limited to, all merchandise returned or rejected by or
repossessed from customers, or (ii) securing any Receivable, including, without
limitation, all rights as an unpaid vendor or lienor (including,
2
<PAGE> 25
without limitation, stoppage in transit, replevin and reclamation) with respect
to such goods and other properties,
(h) all mortgages, deeds to secure debt and deeds of trust on real
or personal property, guaranties, leases, security agreements and other
agreements and property which secure or relate to any Receivable or other
Collateral or are acquired for the purpose of securing and enforcing any item
thereof,
(i) all files, correspondence, computer programs, tapes, disks and
related data processing software which contain information identifying or
pertaining to any of the Collateral or any Account Debtor or showing the amounts
thereof or payments thereon or otherwise necessary or helpful in the realization
thereon or the collection thereof,
(j) any and all products and cash and non-cash proceeds of the
foregoing (including, but not limited to, any claims to any items referred to in
this definition and any claims against third parties for loss of, damage to or
destruction of any or all of the Collateral or for proceeds payable under or
unearned premiums with respect to policies of insurance) in whatever form,
including, but not limited to, cash, negotiable instruments and other
instruments for the payment of money, chattel paper, security agreements and
other documents.
SECTION 2. Grantor Remains Liable. Anything contained herein to the
contrary notwithstanding, (a) the Grantor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Secured Party of any of the rights hereunder shall not release the Grantor from
any of its duties or obligations under the contracts and agreements included in
the Collateral, and (c) the Secured Party shall not have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall the Secured Party be obligated to perform
any of the obligations or duties of the Grantor thereunder or to take any action
to collect or enforce any claim for payment assigned hereunder.
SECTION 3. Representations and Warranties. The Grantor represents
and warrants as follows:
(a) The Grantor is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, has
the power and authority to own its properties and to carry on its business as
now being and as hereafter proposed to be conducted and is duly qualified and
authorized to do business in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification or
authorization.
(b) The Grantor has the right and power, and has taken all necessary
action to authorize it, to execute, deliver and perform this Agreement in
accordance with its terms. This Agreement has been duly executed and delivered
by the duly authorized officers of the Grantor and is a legal, valid and binding
obligation of the Grantor, enforceable in accordance with its terms.
3
<PAGE> 26
(c) The execution, delivery and performance of this Agreement in
accordance with its terms does not and will not, by the passage of time, the
giving of notice or otherwise,
(i) require any Governmental Approval or violate any
Applicable Law relating to the Grantor,
(ii) conflict with, result in a breach of or constitute a
default under the articles of incorporation or by-laws of the Grantor, any
material provisions of any indenture, agreement or other instrument to
which the Grantor is a party or by which it or any of its property may be
bound or any Governmental Approval relating to the Grantor or
(iii) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter acquired
by the Grantor other than the security interest contemplated by this
Agreement.
(d) There is no pending or threatened action or proceeding affecting
the Grantor before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of the
Grantor.
(e) All of the Inventory is located at the address(es) set forth in
PART I of EXHIBIT A hereto.
(f) The address of the chief executive office of the Grantor is set
forth in PART II of EXHIBIT A hereto. The address(es) of such chief executive
office has not been changed during the year preceding the date hereof.
(g) The office(s) where the Grantor keeps its records concerning the
Receivables and originals of chattel paper, if any, which evidences Receivables
is located at the address set forth in PART III of EXHIBIT A hereto and except
as otherwise indicated in said PART III of EXHIBIT A, such office(s) has (have)
been located at such address(es) continuously for the past year. None of the
Receivables is evidenced by a promissory note or other instrument which has not
been delivered to the Secured Party at its request.
(h) If the business of the Grantor has been conducted under a
different name or names during the last five years, such name(s) is (are) set
forth in PART IV of EXHIBIT A hereto.
(i) The Grantor owns the Collateral free and clear of any lien,
security interest, charge or encumbrance except for the security interest
created by this Agreement, Permitted Liens, and except as may be set forth in
EXHIBIT B attached hereto and made a part hereof. Except as may be set forth on
EXHIBIT B, no effective financing statement or other instrument similar in
effect covering all or any part of the Collateral is on file in any recording
office, except such as may have been filed in favor of the Secured Party
relating to this Agreement.
4
<PAGE> 27
(j) This Agreement creates a valid security interest in the
Collateral, securing the payment of the Secured Obligations and upon completion
of the filings and other actions set forth on EXHIBIT B, all actions necessary
to perfect such security interest as a first priority security interest (subject
to Permitted Liens) will have been duly taken.
(k) Except for the filing of UCC financing statements in the
appropriate jurisdictions, no authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required either (i) for the grant by the Grantor of the security interest
granted hereby or for the execution, delivery or performance of this Agreement
by the Grantor or (ii) for the exercise by the Secured Party of its rights and
remedies hereunder.
SECTION 4. Further Assurances. (a) The Grantor agrees that from time
to time, at the expense of the Grantor, the Grantor shall promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Secured Party may reasonably request,
in order to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Secured Party to exercise and enforce its rights
and remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, the Grantor shall take all actions contemplated by
SECTION 7.2(b) of the Loan Agreement.
(b) The Grantor hereby authorizes the Secured Party to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of the Grantor where
permitted by law and agrees that a photographic or other reproduction of this
Agreement of this may be used and filed as a financing statement.
(c) The Grantor shall furnish to the Secured Party from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Secured Party may
reasonably request, all in reasonable detail.
SECTION 5. As to Inventory. The Grantor shall:
(a) Keep the Inventory (other than Inventory in transit to any such
location or sold in the ordinary course of business) at Permitted Inventory
Locations or, with the prior consent of the Secured Party, at such other places
in jurisdictions where all action required by SECTION 4 shall have been taken
with respect to the Inventory.
(b) Pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Inventory, except to the
extent the validity thereof is being contested in good faith by appropriate
proceedings.
SECTION 6. Insurance. The Grantor shall take all actions
contemplated by SECTION 8.8 of the Loan Agreement.
5
<PAGE> 28
SECTION 7. As to Receivables. (a) the Grantor shall keep its chief
place of business and chief executive office and the office(s) where it keeps
its records concerning the Receivables, and all originals of all chattel paper
which evidence Receivables, at the location(s) therefor specified in EXHIBIT A
or, upon 30 days' prior written notice to the Secured Party, at such other
location(s) in a jurisdiction where all action required by SECTION 4 shall have
been taken with respect to the Receivables. The Grantor will hold and preserve
such records and chattel paper and will permit representatives of the Secured
Party at any time during normal business hours to inspect and make abstracts
from such records and chattel paper.
(b) Except as otherwise provided in this SUBSECTION (b) or SECTION
8.1 of the Loan Agreement, the Grantor shall continue to collect, at its own
expense, all amounts due or to become due the Grantor under the Receivables. In
connection with such collections, the Grantor may take (and, during the
continuation of an Event of Default, at the Secured Party's direction, shall
take) such action as the Grantor or the Secured Party may deem necessary or
advisable to enforce collection of the Receivables; PROVIDED, HOWEVER, that the
Secured Party shall have the right at any time, upon the occurrence and during
the continuation of an Event of Default, to notify the Account Debtors or
obligors under any Receivables of the assignment of such Receivables to the
Secured Party and to direct such Account Debtors or obligors to make payment of
all amounts due or to become due to the Grantor thereunder directly to the
Secured Party and, upon such notification and at the expense of the Grantor, to
enforce collection of any such Receivables, and to adjust, settle or compromise
the amount or payment thereof, in the same manner and to the same extent as the
Grantor might have done. After receipt by the Grantor of the notice from the
Secured Party referred to in the PROVISO to the preceding sentence and during
the continuation of an Event of Default, (i) all amounts and proceeds (including
instruments) received by the Grantor in respect of the Receivables shall be
received in trust for the benefit of the Secured Party hereunder, shall be
segregated from other funds of the Grantor and shall be forthwith paid over to
the Secured Party in the same form as so received (with any necessary
endorsement) to be held as cash collateral and either (A) released to the
Grantor so long as no Event of Default shall have occurred and be continuing or
(B) if any Event of Default shall have occurred and be continuing, applied as
provided by SECTION 13(b), and (ii) the Grantor shall not adjust, settle or
compromise the amount or payment of any Receivable, or release wholly or partly
any account debtor or obligor thereof, or allow any credit or discount thereon.
SECTION 8. Transfers and Other Liens. The Grantor shall not without
the prior written consent of the Secured Party:
(a) Sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral except Inventory in the ordinary course of
business, subject to the limitations set forth in the Loan Agreement.
(b) Create or suffer to exist any Lien upon or with respect to any
of the Collateral to secure Indebtedness of any person or entity, except for the
security interest created by this Agreement and Permitted Liens.
SECTION 9. Secured Party Appointed Attorney-in-Fact. The Grantor
hereby irrevocably appoints the Secured Party the Grantor's attorney-in-fact,
with full authority in the
6
<PAGE> 29
place and stead of the Grantor and in the name of the Grantor, the Secured Party
or otherwise, during the continuation of an Event of Default, to take any action
and to execute any instrument which the Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement (subject to the rights of
the Grantor under SECTION 7), including, without limitation:
(i) to obtain and adjust insurance required to be paid to the
Secured Party pursuant to SECTION 6,
(ii) 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,
(iii) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with CLAUSE (i) or
(ii) above, and
(iv) to file any claims or take any action or institute any
proceedings which the Secured Party may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce the rights
of the Secured Party with respect to any of the Collateral.
SECTION 10. Secured Party May Perform. If the Grantor fails to
perform any agreement contained herein, the Secured Party may itself perform, or
cause performance of, such agreement, and the expenses of the Secured Party
incurred in connection therewith shall be payable by the Grantor under SECTION
14(b).
SECTION 11. The Secured Party's Duties. The powers conferred on the
Secured Party hereunder are solely to protect its interest (for the benefit of
the Lenders), in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the
Secured Party shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
SECTION 12. Events of Default. The occurrence of any "Event of
Default" as defined in the Loan Agreement shall constitute an Event of Default
hereunder.
SECTION 13. Remedies. If any Event of Default shall have occurred
and be continuing:
(a) The Secured Party may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it under Applicable Law or in equity or otherwise, all the rights and
remedies of a secured party on default under the applicable Uniform Commercial
Code (the "Code") (whether or not the Code applies to the affected Collateral)
and also may do any or all of the following:
(i) Declare any or all of the Secured Obligations then
existing to be immediately due and payable and they shall thereupon become
forthwith due and payable,
7
<PAGE> 30
without notice of any kind to the Grantor and without any other
presentment, demand, protest, or notice of any kind, all of which are
hereby expressly waived;
(ii) Terminate the Lenders' obligations, if any, to make or to
permit the Borrowers to make further Loans or extensions of credit or
other financial accommodations to the Grantor;
(iii) In the name of the Secured Party or in the name of the
Grantor or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange
for, or make any compromise or settlement deemed desirable with respect
to, any of the Collateral, but the Secured Party shall be under no
obligation so to do, and the Secured Party may extend the time of payment,
arrange for payment installments, or otherwise modify the terms of, or
release, any of the Collateral without thereby incurring responsibility
to, or discharging or otherwise affecting any liability of, the Grantor;
(iv) Enter upon the premises, or wherever the Collateral may
be, and take possession thereof, and demand and receive such possession
from any Person who has possession thereof;
(v) Require the Grantor to, and the Grantor hereby agrees that
it will at its expense and upon request of the Secured Party forthwith,
assemble all or part of the Collateral as directed by the Secured Party
and make it available to the Secured Party at a place to be designated by
the Secured Party which is reasonably convenient to both parties;
(vi) Without notice except as specified below and with or
without taking the possession thereof, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any location
chosen by the Secured Party, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as the Secured Party
may deem commercially reasonable. The Grantor agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice to the
Grantor 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,
but notice given in any other reasonable manner or at any other reasonable
time shall constitute reasonable notification. The Secured Party shall not
be obligated to make any sale of Collateral regardless of notice of sale
having been given. The Secured Party may adjourn any public or private
sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned;
(vii) In any action hereunder, the Secured Party shall be
entitled to the appointment of a receiver, without notice, to take
possession of all or any portion of the Collateral and to exercise such
power as the court shall confer upon the receiver; and
(viii) Apply, without notice, any cash or cash items
constituting Collateral in the Secured Party's possession to payment of
any of the Secured Obligations.
8
<PAGE> 31
The undersigned waives, to the extent permitted by Applicable Law,
all rights it has to prior notice (except as set forth in Section 13(a)(vi)) and
hearing under the Constitution of the United States and the Uniform Commercial
Codes and constitutions of the States of New York, California and under any
other applicable statute or constitution.
(b) All cash proceeds received by the Secured Party in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Secured Party, be held by the Secured
Party as collateral for, and/or then or at any time thereafter applied (after
payment of any amounts payable to the Secured Party pursuant to SECTION 14) in
whole or in part by the Secured Party against, all or any part of the Secured
Obligations in accordance with the provisions of Section 12.3 of the Loan
Agreement. Any surplus of such cash or cash proceeds held by the Secured Party
and remaining after payment in full of all the Secured Obligations shall be paid
over to the Grantor or to whomsoever may be lawfully entitled to receive such
surplus. The Grantor shall remain liable for any deficiency.
SECTION 14. Amendments; Etc. No amendment or waiver of any provision
of this Agreement, nor consent to any departure by the Grantor herefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Secured Party, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 15. Notices. All notices and other communications hereunder
shall be given in accordance with the provisions of Section 15.1 of the Loan
Agreement, to the Grantor at its address set forth on the signature pages hereof
(with a copy to the Borrowers), to the Secured Party at its address set forth on
the signature pages hereof, or as to either party at such other address as shall
be designated by such party in a written notice to each other party complying as
to delivery with the terms of this Section.
SECTION 16. Continuing Security Interest; Transfer of Obligations.
This Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until payment in full of the Secured
Obligations, (ii) be binding upon the Grantor, its successors and assigns, and
(iii) inure to the benefit of the Secured Party and its successors, transferees
and assigns. Without limiting the generality of the foregoing clause (iii), any
Lender may assign or otherwise transfer the Secured Obligations to another
Person in accordance with the provisions of the Loan Agreement and such Person
shall thereupon become vested with all the benefits in respect thereof granted
to the Secured Party herein or otherwise. Upon the payment in full of the
Secured Obligations, the security interest granted hereby shall terminate and
all rights to the Collateral shall revert to the Grantor. Upon any such
termination, the Secured Party will, at the Grantor's expense, execute and
deliver to the Grantor such documents as the Grantor shall reasonably request to
evidence such termination.
SECTION 17. Governing Law; Terms. (a) This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
except as required by mandatory provisions of law and except to the extent that
the validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of New York. Unless otherwise defined herein,
9
<PAGE> 32
terms used in Article 9 of the Uniform Commercial Code of the State of New York
are used herein as therein defined.
(b) The Grantor hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court for the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment and both parties
hereto hereby irrevocably and unconditionally agree that all claims in respect
of any such action or proceeding may be heard and determined in such New York
State court or, to the extent permitted by law, in such federal court. Both
parties hereto agree that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that the Agent or any Lender may otherwise have to bring any
action or proceeding relating to this Agreement against the Grantor or its
properties in the courts of any jurisdiction.
SECTION 18. Conflict with Loan Agreement. To the extent any
provision hereof shall be in conflict with or inconsistent with any provision of
the Loan Agreement, the provision of the Loan Agreement shall control.
SECTION 19. Grantor's Representative. Heafner shall act under this
Agreement as the representative of the Grantor, and the Grantor hereby appoints
Heafner as its representative hereunder for all purposes, including receiving
notices and communications to the Grantor from the Agent or any Lender. The
Agent and the Lenders may rely, and shall be fully protected in relying, on any
report, information or any other notice or communication made or given by
Heafner, whether in its own name or on behalf of the Grantor and neither the
Agent nor any Lender shall have any obligation to make any inquiry or request
any confirmation from or on behalf of the Grantor as to the binding effect on it
of any such report, information, notice or communication.
10
<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective duly authorized officer(s) as
of the date first above written.
GRANTOR:
PHOENIX RACING, INC.
By: /s/ WILLIAM H. GAITHER
Name:____________________________
Title:___________________________
By: /s/ J. MICHAEL GAITHER
Name:____________________________
Title:___________________________
Address: 1140 Campbell Avenue
San Jose, California 95126
SECURED PARTY:
BANKBOSTON, N.A., AS AGENT
By: /s/ CHRISTIAN B. COLSON
Name:____________________________
Title:___________________________
Address: 115 Perimeter Center Place
Suite 500
Atlanta, Georgia 30346
Attention: Christopher R. Nairne
11
<PAGE> 34
SECURITY AGREEMENT
(SUBSIDIARY)
THIS SECURITY AGREEMENT, dated as of May 20, 1998, is made by ITCO
LOGISTICS CORPORATION, a Delaware corporation (the "Grantor"), in favor of
BANKBOSTON, N.A., a national banking association, in its capacity as
administrative agent (the "Agent") for the financial institutions (the
"Lenders") party from time to time to the Amended and Restated Loan and Security
Agreement dated on or about the date hereof (the same as it may be amended,
modified or supplemented or restated, the "Loan Agreement") by and among The
J.H. Heafner Company, Inc., a North Carolina corporation ("Heafner"), Oliver &
Winston, Inc., a North Carolina corporation, ITCO Holding Company, Inc., a North
Carolina corporation, The Speed Merchant, Inc., a California corporation (each a
"Borrower" and collectively, the "Borrowers"), the Lenders, the Co-Agents and
the Agent (the Agent together with any successor agent under the Loan Agreement
also referred to as the "Secured Party" herein). Unless otherwise defined
herein, terms defined in the Loan Agreement are used herein as therein defined.
Preliminary Statement
As a condition precedent to the Lenders' making loans and other
financial accommodations to the Borrowers under the Loan Agreement, the
obligations of the Borrowers under which have been guaranteed by the Grantor
pursuant to a Guaranty dated as of even date herewith (the principal, interest,
fees, expenses and other indebtedness, obligations and liabilities of Grantor
under said Guaranty, (including, without being limited to, the Guaranteed
Obligations as defined therein) and this Agreement and all other indebtedness,
obligations and liabilities of the Grantor to the Secured Party and the Lenders,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising under the Loan Documents (as defined in the Loan
Agreement), being hereinafter referred to collectively as the "Secured
Obligations"), the Agent and the Lenders have required that Grantor shall have
granted the security interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to continue to make loans and other financial accommodations
to the Borrowers, the Grantor hereby agrees as follows:
SECTION 1. Grant of Security. As security for payment and
performance of the Secured Obligations, the Grantor hereby conveys, mortgages,
pledges, assigns, transfers, sets over, grants and delivers to the Secured Party
a continuing security interest in all of the Grantor's right, title and interest
in and to the following property, wherever located, whether now owned or
existing or hereafter acquired or arising (hereinafter referred to as the
"Collateral"):
(a) (i) all rights to the payment of money or other forms of
consideration of any kind (whether classified under the UCC as accounts,
contract rights, chattel paper, general intangibles or otherwise) including, but
not limited to, accounts receivable, insurance proceeds, letters of credit and
the right to receive payment thereunder, chattel paper, any rights under
contracts not yet earned by performance and not evidenced by an instrument or
chattel paper,
<PAGE> 35
notes, drafts, instruments, documents, acceptances and all other debts,
obligations and liabilities in whatever form from any Person, but excluding tax
refunds and insurance proceeds not arising out of the Collateral, (ii) all
guaranties, security and Liens securing payment thereof, (iii) all goods,
whether now owned or hereafter acquired, and whether sold, delivered,
undelivered, in transit or returned, which may be represented by, or the sale or
lease of which may have given rise to, any such right to payment or other debt,
obligation or liability, and (iv) all proceeds of any of the foregoing (the
foregoing, collectively, "Receivables"),
(b) (i) all inventory, (ii) all goods intended for sale or lease or
for display or demonstration, (iii) all work in process, (iv) all raw materials
and other materials and supplies of every nature and description used or which
might be used in connection with the manufacture, packing, shipping,
advertising, selling, leasing or furnishing of goods or services or otherwise
used or consumed in the conduct of business, and (v) all documents of title,
including bills of lading and warehouse receipts, and other documents evidencing
and general intangibles relating to any of the foregoing (the foregoing,
collectively, "Inventory"),
(c) any demand, time, savings, passbook, money market or like
depository account, and all certificates of deposit, maintained with a bank,
savings and loan association, credit union or like organization (other than an
account evidenced by a certificate of deposit that is an instrument under the
UCC) to which proceeds of Collateral are deposited (the foregoing, collectively,
"Deposit Accounts"),
(d) all certificated and uncertificated securities, all security
entitlements, all securities accounts, all commodity contracts and all commodity
accounts, EXCLUDING, HOWEVER, the equity securities of any Subsidiary, to the
extent acquired directly with proceeds of Collateral (the foregoing,
collectively, "Investment Property"),
(e) (i) any investment account maintained by or on behalf of the
Grantor with the Agent or any Lender or any Affiliate of the Agent or any
Lender, (ii) any agreement governing such account, (iii) all cash proceeds and
Investment Property now or hereafter held by the Agent or any Lender or any
Affiliate of the Agent or any Lender on behalf of the Grantor in connection with
such investment account and (iv) all documents evidencing and general
intangibles related to the foregoing (the foregoing, collectively, "Investment
Accounts"),
(f) all cash or other property deposited with the Agent or any
Lender or any Affiliate of the Agent or any Lender or which the Agent, for its
benefit and for the benefit of the Lenders, or any Lender or such Affiliate is
entitled to retain or otherwise possess as collateral pursuant to the provisions
of this Agreement or any of the Loan Documents or any agreement relating to any
Letter of Credit, including, without limitation, amounts on deposit in the Cash
Collateral Account,
(g) all goods and other property, whether or not delivered, (i) the
sale or lease of which gives or purports to give rise to any Receivable,
including, but not limited to, all merchandise returned or rejected by or
repossessed from customers, or (ii) securing any Receivable, including, without
limitation, all rights as an unpaid vendor or lienor (including,
2
<PAGE> 36
without limitation, stoppage in transit, replevin and reclamation) with respect
to such goods and other properties,
(h) all mortgages, deeds to secure debt and deeds of trust on real
or personal property, guaranties, leases, security agreements and other
agreements and property which secure or relate to any Receivable or other
Collateral or are acquired for the purpose of securing and enforcing any item
thereof,
(i) all files, correspondence, computer programs, tapes, disks and
related data processing software which contain information identifying or
pertaining to any of the Collateral or any Account Debtor or showing the amounts
thereof or payments thereon or otherwise necessary or helpful in the realization
thereon or the collection thereof,
(j) any and all products and cash and non-cash proceeds of the
foregoing (including, but not limited to, any claims to any items referred to in
this definition and any claims against third parties for loss of, damage to or
destruction of any or all of the Collateral or for proceeds payable under or
unearned premiums with respect to policies of insurance) in whatever form,
including, but not limited to, cash, negotiable instruments and other
instruments for the payment of money, chattel paper, security agreements and
other documents.
SECTION 2. Grantor Remains Liable. Anything contained herein to the
contrary notwithstanding, (a) the Grantor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Secured Party of any of the rights hereunder shall not release the Grantor from
any of its duties or obligations under the contracts and agreements included in
the Collateral, and (c) the Secured Party shall not have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall the Secured Party be obligated to perform
any of the obligations or duties of the Grantor thereunder or to take any action
to collect or enforce any claim for payment assigned hereunder.
SECTION 3. Representations and Warranties. The Grantor represents
and warrants as follows:
(a) The Grantor is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, has
the power and authority to own its properties and to carry on its business as
now being and as hereafter proposed to be conducted and is duly qualified and
authorized to do business in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification or
authorization.
(b) The Grantor has the right and power, and has taken all necessary
action to authorize it, to execute, deliver and perform this Agreement in
accordance with its terms. This Agreement has been duly executed and delivered
by the duly authorized officers of the Grantor and is a legal, valid and binding
obligation of the Grantor, enforceable in accordance with its terms.
3
<PAGE> 37
(c) The execution, delivery and performance of this Agreement in
accordance with its terms does not and will not, by the passage of time, the
giving of notice or otherwise,
(i) require any Governmental Approval or violate any
Applicable Law relating to the Grantor,
(ii) conflict with, result in a breach of or constitute a
default under the articles of incorporation or by-laws of the Grantor, any
material provisions of any indenture, agreement or other instrument to
which the Grantor is a party or by which it or any of its property may be
bound or any Governmental Approval relating to the Grantor or
(iii) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter acquired
by the Grantor other than the security interest contemplated by this
Agreement.
(d) There is no pending or threatened action or proceeding affecting
the Grantor before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of the
Grantor.
(e) All of the Inventory is located at the address(es) set forth in
PART I of EXHIBIT A hereto.
(f) The address of the chief executive office of the Grantor is set
forth in PART II of EXHIBIT A hereto. The address(es) of such chief executive
office has not been changed during the year preceding the date hereof.
(g) The office(s) where the Grantor keeps its records concerning the
Receivables and originals of chattel paper, if any, which evidences Receivables
is located at the address set forth in PART III of EXHIBIT A hereto and except
as otherwise indicated in said PART III of EXHIBIT A, such office(s) has (have)
been located at such address(es) continuously for the past year. None of the
Receivables is evidenced by a promissory note or other instrument which has not
been delivered to the Secured Party at its request.
(h) If the business of the Grantor has been conducted under a
different name or names during the last five years, such name(s) is (are) set
forth in PART IV of EXHIBIT A hereto.
(i) The Grantor owns the Collateral free and clear of any lien,
security interest, charge or encumbrance except for the security interest
created by this Agreement, Permitted Liens, and except as may be set forth in
EXHIBIT B attached hereto and made a part hereof. Except as may be set forth on
EXHIBIT B, no effective financing statement or other instrument similar in
effect covering all or any part of the Collateral is on file in any recording
office, except such as may have been filed in favor of the Secured Party
relating to this Agreement.
4
<PAGE> 38
(j) This Agreement creates a valid security interest in the
Collateral, securing the payment of the Secured Obligations and upon completion
of the filings and other actions set forth on EXHIBIT B, all actions necessary
to perfect such security interest as a first priority security interest (subject
to Permitted Liens) will have been duly taken.
(k) Except for the filing of UCC financing statements in the
appropriate jurisdictions, no authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required either (i) for the grant by the Grantor of the security interest
granted hereby or for the execution, delivery or performance of this Agreement
by the Grantor or (ii) for the exercise by the Secured Party of its rights and
remedies hereunder.
SECTION 4. Further Assurances. (a) The Grantor agrees that from time
to time, at the expense of the Grantor, the Grantor shall promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Secured Party may reasonably request,
in order to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Secured Party to exercise and enforce its rights
and remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, the Grantor shall take all actions contemplated by
SECTION 7.2(b) of the Loan Agreement.
(b) The Grantor hereby authorizes the Secured Party to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of the Grantor where
permitted by law and agrees that a photographic or other reproduction of this
Agreement of this may be used and filed as a financing statement.
(c) The Grantor shall furnish to the Secured Party from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Secured Party may
reasonably request, all in reasonable detail.
SECTION 5. As to Inventory. The Grantor shall:
(a) Keep the Inventory (other than Inventory in transit to any such
location or sold in the ordinary course of business) at Permitted Inventory
Locations or, with the prior consent of the Secured Party, at such other places
in jurisdictions where all action required by SECTION 4 shall have been taken
with respect to the Inventory.
(b) Pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Inventory, except to the
extent the validity thereof is being contested in good faith by appropriate
proceedings.
SECTION 6. Insurance. The Grantor shall take all actions
contemplated by SECTION 8.8 of the Loan Agreement.
5
<PAGE> 39
SECTION 7. As to Receivables. (a) the Grantor shall keep its chief
place of business and chief executive office and the office(s) where it keeps
its records concerning the Receivables, and all originals of all chattel paper
which evidence Receivables, at the location(s) therefor specified in EXHIBIT A
or, upon 30 days' prior written notice to the Secured Party, at such other
location(s) in a jurisdiction where all action required by SECTION 4 shall have
been taken with respect to the Receivables. The Grantor will hold and preserve
such records and chattel paper and will permit representatives of the Secured
Party at any time during normal business hours to inspect and make abstracts
from such records and chattel paper.
(b) Except as otherwise provided in this SUBSECTION (b) or SECTION
8.1 of the Loan Agreement, the Grantor shall continue to collect, at its own
expense, all amounts due or to become due the Grantor under the Receivables. In
connection with such collections, the Grantor may take (and, during the
continuation of an Event of Default, at the Secured Party's direction, shall
take) such action as the Grantor or the Secured Party may deem necessary or
advisable to enforce collection of the Receivables; PROVIDED, HOWEVER, that the
Secured Party shall have the right at any time, upon the occurrence and during
the continuation of an Event of Default, to notify the Account Debtors or
obligors under any Receivables of the assignment of such Receivables to the
Secured Party and to direct such Account Debtors or obligors to make payment of
all amounts due or to become due to the Grantor thereunder directly to the
Secured Party and, upon such notification and at the expense of the Grantor, to
enforce collection of any such Receivables, and to adjust, settle or compromise
the amount or payment thereof, in the same manner and to the same extent as the
Grantor might have done. After receipt by the Grantor of the notice from the
Secured Party referred to in the PROVISO to the preceding sentence and during
the continuation of an Event of Default, (i) all amounts and proceeds (including
instruments) received by the Grantor in respect of the Receivables shall be
received in trust for the benefit of the Secured Party hereunder, shall be
segregated from other funds of the Grantor and shall be forthwith paid over to
the Secured Party in the same form as so received (with any necessary
endorsement) to be held as cash collateral and either (A) released to the
Grantor so long as no Event of Default shall have occurred and be continuing or
(B) if any Event of Default shall have occurred and be continuing, applied as
provided by SECTION 13(b), and (ii) the Grantor shall not adjust, settle or
compromise the amount or payment of any Receivable, or release wholly or partly
any account debtor or obligor thereof, or allow any credit or discount thereon.
SECTION 8. Transfers and Other Liens. The Grantor shall not without
the prior written consent of the Secured Party:
(a) Sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral except Inventory in the ordinary course of
business, subject to the limitations set forth in the Loan Agreement.
(b) Create or suffer to exist any Lien upon or with respect to any
of the Collateral to secure Indebtedness of any person or entity, except for the
security interest created by this Agreement and Permitted Liens.
SECTION 9. Secured Party Appointed Attorney-in-Fact. The Grantor
hereby irrevocably appoints the Secured Party the Grantor's attorney-in-fact,
with full authority in the
6
<PAGE> 40
place and stead of the Grantor and in the name of the Grantor, the Secured Party
or otherwise, during the continuation of an Event of Default, to take any action
and to execute any instrument which the Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement (subject to the rights of
the Grantor under SECTION 7), including, without limitation:
(i) to obtain and adjust insurance required to be paid to the
Secured Party pursuant to SECTION 6,
(ii) 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,
(iii) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with CLAUSE (i) or
(ii) above, and
(iv) to file any claims or take any action or institute any
proceedings which the Secured Party may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce the rights
of the Secured Party with respect to any of the Collateral.
SECTION 10. Secured Party May Perform. If the Grantor fails to
perform any agreement contained herein, the Secured Party may itself perform, or
cause performance of, such agreement, and the expenses of the Secured Party
incurred in connection therewith shall be payable by the Grantor under SECTION
14(b).
SECTION 11. The Secured Party's Duties. The powers conferred on the
Secured Party hereunder are solely to protect its interest (for the benefit of
the Lenders), in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the
Secured Party shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
SECTION 12. Events of Default. The occurrence of any "Event of
Default" as defined in the Loan Agreement shall constitute an Event of Default
hereunder.
SECTION 13. Remedies. If any Event of Default shall have occurred
and be continuing:
(a) The Secured Party may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it under Applicable Law or in equity or otherwise, all the rights and
remedies of a secured party on default under the applicable Uniform Commercial
Code (the "Code") (whether or not the Code applies to the affected Collateral)
and also may do any or all of the following:
(i) Declare any or all of the Secured Obligations then
existing to be immediately due and payable and they shall thereupon become
forthwith due and payable,
7
<PAGE> 41
without notice of any kind to the Grantor and without any other
presentment, demand, protest, or notice of any kind, all of which are
hereby expressly waived;
(ii) Terminate the Lenders' obligations, if any, to make or to
permit the Borrowers to make further Loans or extensions of credit or
other financial accommodations to the Grantor;
(iii) In the name of the Secured Party or in the name of the
Grantor or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange
for, or make any compromise or settlement deemed desirable with respect
to, any of the Collateral, but the Secured Party shall be under no
obligation so to do, and the Secured Party may extend the time of payment,
arrange for payment installments, or otherwise modify the terms of, or
release, any of the Collateral without thereby incurring responsibility
to, or discharging or otherwise affecting any liability of, the Grantor;
(iv) Enter upon the premises, or wherever the Collateral may
be, and take possession thereof, and demand and receive such possession
from any Person who has possession thereof;
(v) Require the Grantor to, and the Grantor hereby agrees that
it will at its expense and upon request of the Secured Party forthwith,
assemble all or part of the Collateral as directed by the Secured Party
and make it available to the Secured Party at a place to be designated by
the Secured Party which is reasonably convenient to both parties;
(vi) Without notice except as specified below and with or
without taking the possession thereof, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any location
chosen by the Secured Party, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as the Secured Party
may deem commercially reasonable. The Grantor agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice to the
Grantor 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,
but notice given in any other reasonable manner or at any other reasonable
time shall constitute reasonable notification. The Secured Party shall not
be obligated to make any sale of Collateral regardless of notice of sale
having been given. The Secured Party may adjourn any public or private
sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned;
(vii) In any action hereunder, the Secured Party shall be
entitled to the appointment of a receiver, without notice, to take
possession of all or any portion of the Collateral and to exercise such
power as the court shall confer upon the receiver; and
(viii) Apply, without notice, any cash or cash items
constituting Collateral in the Secured Party's possession to payment of
any of the Secured Obligations.
8
<PAGE> 42
The undersigned waives, to the extent permitted by Applicable Law,
all rights it has to prior notice (except as set forth in Section 13(a)(vi)) and
hearing under the Constitution of the United States and the Uniform Commercial
Codes and constitutions of the States of New York, California and under any
other applicable statute or constitution.
(b) All cash proceeds received by the Secured Party in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Secured Party, be held by the Secured
Party as collateral for, and/or then or at any time thereafter applied (after
payment of any amounts payable to the Secured Party pursuant to SECTION 14) in
whole or in part by the Secured Party against, all or any part of the Secured
Obligations in accordance with the provisions of Section 12.3 of the Loan
Agreement. Any surplus of such cash or cash proceeds held by the Secured Party
and remaining after payment in full of all the Secured Obligations shall be paid
over to the Grantor or to whomsoever may be lawfully entitled to receive such
surplus. The Grantor shall remain liable for any deficiency.
SECTION 14. Amendments; Etc. No amendment or waiver of any provision
of this Agreement, nor consent to any departure by the Grantor herefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Secured Party, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 15. Notices. All notices and other communications hereunder
shall be given in accordance with the provisions of Section 15.1 of the Loan
Agreement, to the Grantor at its address set forth on the signature pages hereof
(with a copy to the Borrowers), to the Secured Party at its address set forth on
the signature pages hereof, or as to either party at such other address as shall
be designated by such party in a written notice to each other party complying as
to delivery with the terms of this Section.
SECTION 16. Continuing Security Interest; Transfer of Obligations.
This Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until payment in full of the Secured
Obligations, (ii) be binding upon the Grantor, its successors and assigns, and
(iii) inure to the benefit of the Secured Party and its successors, transferees
and assigns. Without limiting the generality of the foregoing clause (iii), any
Lender may assign or otherwise transfer the Secured Obligations to another
Person in accordance with the provisions of the Loan Agreement and such Person
shall thereupon become vested with all the benefits in respect thereof granted
to the Secured Party herein or otherwise. Upon the payment in full of the
Secured Obligations, the security interest granted hereby shall terminate and
all rights to the Collateral shall revert to the Grantor. Upon any such
termination, the Secured Party will, at the Grantor's expense, execute and
deliver to the Grantor such documents as the Grantor shall reasonably request to
evidence such termination.
SECTION 17. Governing Law; Terms. (a) This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
except as required by mandatory provisions of law and except to the extent that
the validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of New York. Unless otherwise defined herein,
9
<PAGE> 43
terms used in Article 9 of the Uniform Commercial Code of the State of New York
are used herein as therein defined.
(b) The Grantor hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court for the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment and both parties
hereto hereby irrevocably and unconditionally agree that all claims in respect
of any such action or proceeding may be heard and determined in such New York
State court or, to the extent permitted by law, in such federal court. Both
parties hereto agree that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that the Agent or any Lender may otherwise have to bring any
action or proceeding relating to this Agreement against the Grantor or its
properties in the courts of any jurisdiction.
SECTION 18. Conflict with Loan Agreement. To the extent any
provision hereof shall be in conflict with or inconsistent with any provision of
the Loan Agreement, the provision of the Loan Agreement shall control.
SECTION 19. Grantor's Representative. Heafner shall act under this
Agreement as the representative of the Grantor, and the Grantor hereby appoints
Heafner as its representative hereunder for all purposes, including receiving
notices and communications to the Grantor from the Agent or any Lender. The
Agent and the Lenders may rely, and shall be fully protected in relying, on any
report, information or any other notice or communication made or given by
Heafner, whether in its own name or on behalf of the Grantor and neither the
Agent nor any Lender shall have any obligation to make any inquiry or request
any confirmation from or on behalf of the Grantor as to the binding effect on it
of any such report, information, notice or communication.
10
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective duly authorized officer(s) as
of the date first above written.
GRANTOR:
ITCO LOGISTICS CORPORATION
By: /s/ WILLIAM H. GAITHER
Name:____________________________
Title:___________________________
Address: 2708 Commerce Road
P.O. Box 641
Wilson, N.C. 27893
SECURED PARTY:
BANKBOSTON, N.A., AS AGENT
By: /s/ CHRISTIAN B. COLSON
Name:____________________________
Title:___________________________
Address: 115 Perimeter Center Place
Suite 500
Atlanta, Georgia 30346
Attention: Christopher R. Nairne
11
<PAGE> 1
Exhibit 10.5
SENIOR SUBORDINATED NOTE AND
WARRANT PURCHASE AGREEMENT
By and Among
THE J.H. HEAFNER COMPANY, INC.
and
THE 1818 MEZZANINE FUND, L.P.
Dated May 7, 1997
<PAGE> 2
Table of Contents
Page
----
ARTICLE 1 DEFINITIONS.....................................................1
1.1 Definitions.....................................................1
1.2 Accounting Terms; Financial Covenants..........................15
ARTICLE 2 PURCHASE AND SALE..............................................16
2.1 Purchase and Sale of Senior Subordinated Note and Warrants.....16
2.2 Fees...........................................................16
2.3 Closing........................................................16
ARTICLE 3 CONDITIONS TO THE OBLIGATION
OF THE PURCHASER TO CLOSE ..................................17
3.1 Representations and Warranties True............................17
3.2 Compliance with this Agreement.................................17
3.3 Officer's Certificate..........................................17
3.4 Secretary's Certificate........................................17
3.5 Documents......................................................17
3.6 Purchase Permitted by Applicable Laws; Legal Investment........17
3.7 Filing of Amended and Restated Articles........................18
3.8 Opinion of Counsel.............................................18
3.9 Approval of Counsel to the Purchaser...........................18
3.10 Consents and Approvals.........................................18
3.11 No Material Adverse Change.....................................18
3.12 Due Diligence..................................................18
3.13 Employment Agreements..........................................18
3.14 Registration Rights Agreement..................................18
3.15 Articles of Incorporation and By-Laws of the
Company and the Subsidiaries...................................19
3.16 Market Conditions..............................................19
3.17 No Litigation..................................................19
3.18 No Default or Breach...........................................19
3.19 O&W Purchase Agreement/KSTC Preferred Stock Purchase
Agreement......................................................19
3.20 Senior Financing...............................................20
3.21 Facilities Fee.................................................20
ARTICLE 4 CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE ...................................20
4.1 Representations and Warranties True............................20
4.2 Compliance with this Agreement.................................20
4.4 Approval of Counsel to the Company.............................20
4.5 Consents and Approvals.........................................20
i
<PAGE> 3
4.6 O&W Purchase Agreement/KSTC Preferred Stock Purchase
Agreement......................................................21
4.7 Senior Financing...............................................21
ARTICLE 5 REPRESENTATIONS AND
WARRANTIES OF THE COMPANY....................................21
5.1 Corporate Existence and Power..................................21
5.2 Corporate Authorization; No Contravention......................22
5.3 Governmental Authorization; Third Party Consents...............22
5.4 Binding Effect.................................................23
5.5 No Legal Bar...................................................23
5.6 Litigation.....................................................23
5.7 No Default or Breach...........................................24
5.8 Title to Properties............................................24
5.9 Financial Condition; No Undisclosed Liabilities................24
5.10 No Material Adverse Change.....................................25
5.11 Investment Company.............................................25
5.12 Subsidiaries...................................................25
5.13 Capitalization.................................................25
5.14 Solvency.......................................................26
5.15 Private Offering...............................................26
5.16 Broker's, Finder's or Similar Fees.............................26
5.17 Full Disclosure................................................27
5.18 Anti-Dilution Protection.......................................27
5.19 Registration Rights Agreements.................................27
5.20 O&W Purchase Agreement/KSTC Preferred Stock Purchase
Agreement......................................................27
5.21 Labor Relations................................................27
5.22 ERISA and Employee Benefit Plans...............................28
5.23 Environmental Matters..........................................29
5.24 Taxes..........................................................30
5.25 Patents, Trademarks, Etc.......................................31
5.26 Potential Conflicts of Interest................................31
5.27 Trade Relations................................................32
5.28 Material Contracts.............................................32
5.29 Insurance. Schedule 5.29......................................33
5.30 Projections....................................................33
5.31 Compliance with Laws...........................................33
ARTICLE 6 REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER..................................33
6.1 Existence and Power............................................34
6.2 Authorization; No Contravention................................34
6.3 Binding Effect.................................................34
ii
<PAGE> 4
6.4 No Legal Bar...................................................34
6.5 Purchase for Own Account.......................................34
6.6 Investment Company.............................................35
6.7 Broker's, Finder's or Similar Fees.............................35
ARTICLE 7 INDEMNIFICATION................................................36
7.1 Indemnification by the Company.................................36
7.2 Notification...................................................37
7.3 Registration Rights Agreement..................................37
ARTICLE 8 PRE-CLOSING AFFIRMATIVE COVENANTS..............................38
8.1 Operation of Company...........................................38
8.2 Exclusivity....................................................38
8.3 Use of Proceeds................................................38
8.4 Taxes..........................................................38
ARTICLE 9 AFFIRMATIVE COVENANTS..........................................39
9.1 Financial Statements...........................................39
9.2 Certificates; Other Information................................40
9.3 Preservation of Corporate Existence............................40
9.4 Payment of Obligations.........................................40
9.5 Compliance with Laws...........................................41
9.6 Notices........................................................41
9.7 Issue Taxes....................................................41
9.8 Reservation of Shares..........................................42
9.9 Inspection.....................................................42
9.10 Board Representation; Visitation Rights........................43
9.11 Registration and Listing.......................................44
9.12 Use of Proceeds................................................45
9.13 Payment of Notes...............................................45
9.14 Dispositions by the Fund.......................................45
9.15 Right of First Offer...........................................45
9.16 Tag-Along Rights on the Principal Shareholders.................46
9.17 Anti-dilution Protection.......................................48
9.18 Sale of Company................................................49
9.19 Allocation for Tax Purposes....................................49
ARTICLE 10 NEGATIVE AND FINANCIAL COVENANTS...............................49
10.1 1997 Financial Covenants.......................................49
10.2 Financial Covenants ...........................................50
10.3 Capital Expenditures...........................................50
10.4 Consolidations and Mergers.....................................50
10.5 Transactions with Affiliates...................................51
10.6 No Inconsistent Agreements.....................................51
iii
<PAGE> 5
10.7 Limitation on Debt.............................................52
10.8 Limitation on Liens............................................53
10.9 Investments....................................................53
10.10 Limitations on Restricted Payments.............................53
10.11 Dispositions of Assets.........................................53
10.12 Articles of Incorporation and By-Laws of the Company and the
Subsidiaries...................................................54
ARTICLE 11 DEFAULTS AND REMEDIES..........................................54
11.1 Events of Default..............................................54
11.2 Acceleration...................................................55
ARTICLE 12 SUBORDINATION..................................................56
12.1 Definitions....................................................56
12.2 General........................................................57
12.3 Limitation on Payment and Remedies.............................57
12.4 Subordination Upon Certain Events..............................58
12.5 Payments and Distributions Received............................59
12.6 Subrogation....................................................59
12.7 Relative Rights................................................59
12.8 Subordination May Not Be Impaired by the Company...............60
12.9 Payments.......................................................60
12.10 Section Not to Prevent Events of Default.......................60
ARTICLE 13 PREPAYMENT.....................................................60
ARTICLE 14 MISCELLANEOUS..................................................60
14.1 Survival of Provisions.........................................60
14.2 Notices........................................................61
14.3 Successors and Assigns.........................................62
14.4 Assignments....................................................62
14.5 Amendment and Waiver...........................................63
14.6 Counterparts...................................................64
14.7 Headings.......................................................64
14.8 Determinations.................................................64
14.9 Governing Law..................................................64
14.10 Jurisdiction...................................................64
14.11 Severability...................................................64
14.12 Rules of Construction..........................................65
14.13 Remedies.......................................................65
14.14 Entire Agreement...............................................65
14.15 Attorneys' Fees................................................65
14.16 Publicity......................................................65
14.17 Expenses.......................................................66
iv
<PAGE> 6
EXHIBITS
Exhibit A Form of Senior Subordinated Note
Exhibit B Form of Warrant
Exhibit C Form of Amended and Restated Articles of Incorporation
Exhibit D Form of Registration Rights Agreement
Exhibit E O&W Purchase Agreement
Exhibit F KSTC Preferred Stock Purchase Agreement
v
<PAGE> 7
SENIOR SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT, dated as of
May 7, 1997 by and among THE J.H. HEAFNER COMPANY, INC., a corporation organized
under the laws of North Carolina (the "Company"), and THE 1818 MEZZANINE FUND,
L.P., a Delaware limited partnership (the "Purchaser").
WHEREAS, the Company proposes to acquire (the "Acquisition") all of the
outstanding capital stock of Oliver & Winston, Inc., a California corporation
("O&W"), pursuant to the O&W Purchase Agreement; and
WHEREAS, concurrently with the Acquisition, the Company proposes to
issue and sell to the Purchaser (i) a Senior Subordinated Promissory Note with a
final maturity of May 7, 2004 in the aggregate principal amount of $16,000,000
(the "Senior Subordinated Note" and together with all notes issued in connection
with the substitution, replacement or transfer thereof, the "Notes") and (ii)
977,590 detachable warrants exercisable immediately to purchase initially
977,590 shares of the Company's common stock, par value $.01 per share (the
"Common Stock") at an exercise price of $.01 per share (the "Warrants"), in each
case upon the terms and subject to the conditions set forth in this Agreement.
In consideration of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Acquire" or "Acquisition," as applied to any Business Unit or
Investment, means the acquisition of such Business Unit or Investment by
purchase, exchange, issuance of stock or other securities, or by merger,
reorganization or any other method.
"Acquisition" has the meaning assigned to that term in the first
Whereas clause.
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Exchange Act.
<PAGE> 8
2
"Agreement" means this Agreement, as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"Amended and Restated Articles" means the Company's Amended and
Restated Articles of Incorporation in the form attached hereto as Exhibit C.
"BBH & Co." means Brown Brothers Harriman and Co., a New York limited
partnership.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in the City of New York or the City of Atlanta are
authorized or required by law or executive order to close.
"Business Unit" means assets constituting a business, whether all of
the assets of any Person or the assets of a division or operating unit of any
Person.
"Capital Expenditures" means, with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets (other
than Inventory or assets that constitute a Business Unit) which are not, in
accordance with GAAP, treated as expense items for such Person in the year made
or incurred or as a prepaid expense applicable to a future year or years.
"Capital Lease Obligations" means, as to any Person, Indebtedness
represented by obligations under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP, and the amount of such
Indebtedness shall be the capitalized amount of such obligations determined in
accordance with GAAP.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
common stock and preferred stock and any rights, warrants or options to purchase
such Person's capital stock.
"Change of Control" of the Company shall mean such time as:
(i) Any Person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) other than the Principal Shareholders,
Family Members or the Purchaser is or becomes the beneficial owner,
directly or indirectly, of outstanding shares of capital stock of the
Company, entitling such Person or Persons to exercise 50% or more of
the total votes entitled to be cast at a regular or special meeting, or
by action by written consent, of stockholders of the Company (the term
"beneficial owner" shall be determined
<PAGE> 9
3
in accordance with Rule 13d-3, promulgated by the Commission under the
Exchange Act);
(ii) A majority of the Board of Directors of the Company
shall consist of Persons other than Continuing Directors. The term
"Continuing Director" shall mean any member of the Board of Directors
of the Company on the Closing Date, any member of the Board of
Directors elected by KSTC pursuant to Section 6.4(c) of the Amended and
Restated Articles, any member of the Board of Directors of the Company
designated by the Fund to be elected to the Board of Directors pursuant
to Section 9.10 of this Agreement and any other member of the Board of
Directors who shall be recommended or elected to succeed or become a
Continuing Director by a majority of Continuing Directors who are then
members of the Board of Directors of the Company;
(iii) The stockholders of the Company shall have approved
a recapitalization, reorganization, merger, consolidation or similar
transaction, in each case, with respect to which all or substantially
all the Persons who were the respective beneficial owners of the
outstanding shares of capital stock of the Company immediately prior to
such recapitalization, reorganization, merger or consolidation,
beneficially own, directly or indirectly, will own less than 50% of the
combined voting power of the then outstanding shares of capital stock
of the Company resulting from such recapitalization, reorganization,
merger, consolidation or similar transaction; or
(iv) The stockholders of the Company shall have approved
of the sale or other disposition of all or substantially all the assets
of the Company in one transaction or in a series of related
transactions.
"Closing" has the meaning assigned to that term in Section 2.3.
"Closing Date" means the date specified in Section 2.3.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" has the meaning assigned to that term in the second
Whereas clause.
"Contingent Obligation" means, as to any Person, any direct or indirect
liability of that Person with respect to any Indebtedness, lease, dividend,
guaranty, letter of credit or other obligation (each a "primary obligation") of
another Person (the "primary obligor"), whether or not contingent, (a) to
purchase, repurchase or
<PAGE> 10
4
otherwise acquire any such primary obligation or any property constituting
direct or indirect security therefor, or (b) to advance or provide funds (i) for
the payment or discharge of any such primary obligation, or (ii) to maintain
working capital or equity capital of the primary obligor in respect of any such
primary obligation or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of such primary
obligor, or (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor in respect thereof to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the primary obligation in respect
of which such Contingent Obligation is made or, if not stated or determinable,
the maximum reasonably anticipated liability in respect thereof.
"Contractual Obligations" means as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Debt" means
(a) Indebtedness for money borrowed,
(b) Indebtedness, whether or not in any such case the same was for
money borrowed,
(i) represented by notes payable, drafts accepted and
reimbursement obligations under letters of credit, including
Reimbursement Obligations (as defined in the Credit Agreement), and
similar instruments that represent extensions of credit,
(ii) constituting obligations evidenced by bonds, debentures,
notes or similar instruments, or
(iii) upon which interest charges are customarily paid or that
was issued or assumed as full or partial payment for property (other
than trade credit that is incurred in the ordinary course of business),
(c) Capital Lease Obligations, and
(d) Indebtedness that is such by virtue of clause (c) of the
definition thereof, but only to the extent that the obligations Guaranteed are
Debt.
<PAGE> 11
5
The shares of Series A Preferred Stock and Series B Preferred Stock issued to
KSTC on the date hereof are not Debt for purposes of this Agreement.
"EBIT" means Net Income of the Company on a consolidated basis before
provision for net interest expense and income taxes.
"EBITDA" means EBIT plus depreciation and amortization expense deducted
in computing EBIT. All references contained herein to EBITDA of the Company
shall be to the EBITDA of the Company and its Subsidiaries, determined on a
consolidated basis.
"Environment" means navigable waters, waters of the contiguous zone,
ocean waters, natural resources, surface waters, ground water, drinking water
supply, land surface, subsurface strata, ambient air, both inside and outside of
buildings and structures, man-made buildings and structures, and plant and
animal life on earth.
"Environmental Claims" means any notification, whether direct or
indirect, formal or informal, written or oral, pursuant to Safety and
Environmental Laws or principles of common law relating to pollution, protection
of the Environment or health and safety, that any of the current or past
operations of the Company or any of the Subsidiaries, or any by-product thereof,
or any of the property currently or formerly owned, leased or operated by the
Company or any of the Subsidiaries, or the operations or property of any
predecessor of the Company or any of the Subsidiaries, is or may be implicated
in or subject to any Claim, Requirement of Law, hearing, notice, agreement or
evaluation by any Governmental Authority or any other person.
"Environmental Compliance Costs" means any expenditures, costs,
assessments or expenses (including any expenditures, costs, assessments or
expenses in connection with the conduct of any Remedial Action, as well as
reasonable fees, disbursements and expenses of attorneys, experts, personnel and
consultants), whether direct or indirect, necessary to cause the operations,
real property, assets, equipment or facilities owned, leased, operated or used
by the Company or any of its Subsidiaries to be in compliance with any and all
requirements, as in effect at the Closing Date, of Safety and Environmental
Laws, principles of common law concerning pollution, protection of the
Environment or health and safety, or Permits issued pursuant to Safety and
Environmental Laws; provided, however, that Environmental Compliance Costs do
not include expenditures, costs, assessments or expenses necessary in connection
with normal maintenance of such real property, assets, equipment or facilities
or the replacement of equipment in the normal course of events due to ordinary
wear and tear.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
<PAGE> 12
6
"Event of Default" has the meaning assigned such term in Section 11.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission hereunder.
"Family Member" means (x) a member of a Principal Shareholder's
immediate family, which shall include her or his ancestors, spouse, siblings,
descendants or spouses (or surviving spouses) of descendants, or (y) a trust,
corporation, partnership or other entity, all of the beneficial interests in
which shall be held by such Principal Shareholder or one or more persons
described in clause (x); provided, however, that during the period any such
trust, corporation, partnership or other entity holds any right, title or
interest in any Common Stock, no Person other than such Principal Shareholder or
one or more Family Members of such Principal Shareholder of the type listed in
clause (x) may be or become beneficiaries, stockholders or limited or general
partners or owners thereof.
"Financials" has the meaning assigned to that term in Section 5.9.
"Fiscal Quarter" means the three-month accounting period of the Company
ending March 31, June 30, September 30 and December 31 of each Fiscal Year.
"Fiscal Year" means the fiscal year of the Company commencing on
January 1 of each year and ending on December 31 of the same year.
"Fixed Charge Coverage Ratio" means, as the last day of any specified
accounting period, the result obtained by dividing (i) EBITDA minus cash outlays
for income taxes and actual Capital Expenditures (other than Financed Capex (as
defined in the Credit Agreement)) for such accounting period minus Permitted
Subchapter S Distributions (as defined in the Credit Agreement) of the Company
and its Subsidiaries by (ii) the sum of interest expense plus scheduled
principal payments of Debt (including scheduled payments of Capital Lease
Obligations) of the Company and its Subsidiaries during such accounting period,
all on a consolidated basis.
"Fund" means the Purchaser, but shall not mean any assignee of the
rights of the Purchaser under this Agreement or any transferee of any securities
of the Company purchased by the Purchaser hereunder.
"Funded Debt" means all Debt of the Company and its Subsidiaries on a
consolidated basis (other than the Funded Debt Exclusions (as defined in the
Credit Agreement)) that by their terms or by the terms of any instrument or
agreement relating thereto matures more than one year after, or is renewable or
extendable at the option of the obligor to a date more than one year after, the
date of creation thereof (including an option of the obligor under a revolving
credit or similar arrangement
<PAGE> 13
7
obligating the lender or lenders to extend credit over a period of one year or
more), and includes any current maturities of any such Debt.
"Funded Debt to EBITDA" means for any specified accounting period, the
ratio of Funded Debt as of the last day of such period (or, as to Revolving
Credit Loans (as defined in the Credit Agreement) constituting Funded Debt, the
average daily amount over the prior four consecutive Fiscal Quarters (or the
period from the Effective Date (as defined in the Credit Agreement) to the last
day of a Fiscal Quarter ending on or prior to the date of determination if
shorter) of the outstanding principal amount of Revolving Credit Loans) to
EBITDA for such period.
"GAAP" means generally accepted United States accounting principles in
effect from time to time.
"Governmental Authority" means the government of any nation, state,
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"Guaranty," "Guaranteed" or to "Guarantee" as applied to any obligation
of another Person shall mean and include:
(a) a guaranty (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), directly or
indirectly, in any manner, of any part or all of such obligation of such other
Person, and
(b) an agreement, direct or indirect, contingent or otherwise, and
whether or not constituting a guaranty, the practical effect of which is to
assure the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation of such other Person
whether by
(i) the purchase of securities or obligations,
(ii) the purchase, sale or lease (as lessee or lessor) of
property or the purchase or sale of services primarily for the purpose
of enabling the obligor with respect to such obligation to make any
payment or performance (or payment of damages in the event of
nonperformance) of or on account of any part of all of such obligation,
or to assure the owner of such obligation against loss,
(iii) the supplying of funds to or in any other manner
investing in the obligor with respect to such obligation,
<PAGE> 14
8
(iv) repayment of amounts drawn down by beneficiaries of
letters of credit, or
(v) the supplying of funds to or investing in a Person on
account of all or any part of such Person's obligation under a Guaranty
of any obligation or indemnifying or holding harmless, in any way, such
Person against any part or all of such obligation.
"Hazardous Substance" means any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste, industrial
substance or waste, petroleum or petroleum-derived substance or waste,
radioactive substance or waste, or any constituent of any such substance or
waste, or any other substance regulated under or defined by any Safety and
Environmental Law.
"Holder" means the Purchaser and any subsequent direct or indirect
transferee of Notes or Warrants or shares of Common Stock issuable upon exercise
of Warrants other than a transferee who has acquired Notes or Warrants or shares
of Common Stock issuable upon exercise of Warrants that have been the subject of
a distribution pursuant to a registered public offering, or, in the case of
Warrants or shares of Common Stock issuable upon exercise of Warrants, a
transferee who has acquired such Warrants or shares of Common Stock issuable
upon exercise of Warrants after such shares have been the subject of a
distribution to the public pursuant to Rule 144 or otherwise distributed under
circumstances not requiring a legend.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indebtedness" of any Person means, without duplication, all
Liabilities of such Person, and to the extent not otherwise included in
Liabilities, the following:
(a) all obligations for money borrowed or for the deferred
purchase price of property or services or in respect of drafts accepted or
similar instruments or reimbursement obligations under letters of credit,
(b) all obligations (including, during the noncancallable term of
any lease in the nature of a title retention agreement, all future payment
obligations under such lease discounted to their present value in accordance
with GAAP) secured by any Lien to which any property or asset owned or held by
such Person is subject, whether or not the obligation secured thereby shall have
been assumed by such Person,
(c) all obligations of other Persons which such Person has
Guaranteed, including, but not limited to, all obligations of such Person
consisting of recourse liability with respect to accounts receivable sold or
otherwise disposed of by such Person,
<PAGE> 15
9
(d) all obligations of such Person in respect of Interest Rate
Protection Agreements, and
(e) in the case of the Company and O&W (without duplication) all
obligations under the Revolving Credit Loans (as defined in the Credit
Agreement) and the Term Loan (as defined in the Credit Agreement) and
Reimbursement Obligations (as defined in the Credit Agreement).
"Initial Public Offering" shall mean the date when the initial public
offering of the Company's Common Stock with gross proceeds of at least $25
million or representing at least 20% of the Common Stock on a fully diluted
basis and such Common Stock is listed on the New York Stock Exchange, Inc. or
quoted or listed on any other national securities exchange or Nasdaq.
"Interest Coverage Ratio" means for any specified accounting period,
the ratio of EBITDA for such period to total net interest expense of the Company
and its Subsidiaries on a consolidated basis for such period.
"Interest Rate Protection Agreement" shall mean an interest rate swap,
cap or collar agreement or similar arrangement between any Person and a
financial institution providing for the transfer or mitigation of interest risks
either generally or under specific contingencies.
"Inventory" means, for the Company and its Subsidiaries, all inventory,
all goods intended for sale or lease or for display or demonstration, all work
in process, all raw materials and other materials and supplies of every nature
and description used or which might be used in connection with the manufacture,
packing, shipping, advertising, selling, leasing, or furnishing of goods or
services or otherwise used or consumed in the conduct of business, and all
documents evidencing and general intangibles relating to any of the foregoing.
"Investment" means, with respect to any Person:
(a) the acquisition or ownership by such Person of any share of
Capital Stock, evidence of Indebtedness or other security issued by any other
Person,
(b) any loan, advance or extension of credit to, or contribution
to the capital of, any other Person, excluding advances to employees in the
ordinary course of business for business expenses,
(c) any Guaranty of the obligations of any other Person,
(d) any other investment (other than the Acquisition of a Business
Unit) in any other Person, and
<PAGE> 16
10
(e) any commitment or option to make any of the investments listed
in clauses (a) through (d) above if, in the case of an option, the consideration
therefor exceeds $100.
"KSTC" means The Kelly Springfield Tire Company, a division of The
Goodyear Tire and Rubber Company, an Ohio corporation.
"KSTC Preferred Stock Purchase Agreement" means the Securities Purchase
Agreement, dated as of May 7, 1997, among the Company and KSTC in the form
attached hereto as Exhibit F, pursuant to which the Company is issuing and
selling 7,000 shares of Series A Preferred Stock and 4,500 shares of Series B
Preferred Stock to KSTC for the aggregate amount of $11.5 million.
"Liabilities" of any Person means all items (except for items of
capital stock, additional paid-in capital or retained earnings, or of general
contingency or deferred tax reserves) which in accordance with GAAP would be
included in determining total liabilities as shown on the liability side of a
balance sheet of such Person as at the date as of which Liabilities are to be
determined.
"Lien" as applied to the property of any Person means:
(a) any mortgage, deed to secure debt, deed of trust, lien,
pledge, charge, lease constituting a Capital Lease Obligation, conditional sale
or other title retention agreement, or other security interest, security title
or encumbrance of any kind in respect of any property of such Person, or upon
the income or profits therefrom,
(b) any arrangement, express or implied, under which any property
of such Person is transferred, sequestered or otherwise identified for the
purpose of subjecting the same to the payment of Indebtedness or performance of
any other obligation in priority to the payment of the general, unsecured
creditors of such Person,
(c) any Indebtedness which is unpaid more than 30 days after the
same shall have become due and payable and which if unpaid might by law
(including, but not limited to, bankruptcy and insolvency laws), or otherwise,
be given any priority whatsoever over the claims of general unsecured creditors
of such Person, except to the extent being disputed or contested by the Company
or its Subsidiaries by appropriate proceedings and in respect of which any
reserve required by GAAP has been appropriately established and maintained,
(d) the filing of, or any agreement to give, any financing
statement under the UCC or its equivalent in any jurisdiction, excluding
informational financial statements relating to property leased by the Company or
its Subsidiaries, and
<PAGE> 17
11
(e) in the case of Real Estate, reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances.
"Nasdaq" means the National Market System of Nasdaq Stock Market.
"Net Income" or "Net Loss" means, as applied to any Person for any
accounting period, the net income or net loss, as the case may be, of such
Person for the period in question after giving effect to deduction of or
provision for all operating expenses, all taxes and reserves (including reserves
for deferred taxes) and all other proper deductions, all determined in
accordance with GAAP, provided that there shall be excluded:
(a) the net income or net loss of any Person accrued
prior to the date it becomes a Subsidiary of, or is merged into or consolidated
with, the Person whose Net Income is being determined or a Subsidiary of such
Person,
(b) the net income or net loss of any Person in which the
Person whose Net Income is being determined or any Subsidiary of such Person has
an ownership interest, except, in the case of net income, to the extent that any
such income has actually been received by such Person or such Subsidiary in the
form of cash dividends or similar distributions,
(c) any restoration of any contingency reserve, except to
the extent that provision for such reserve was made out of income during such
period,
(d) any net gains or losses on the sale or other
disposition, not in the ordinary course of business, of Investments, Business
Units and other capital assets, provided that there shall also be excluded any
related charges for taxes thereon,
(e) any net gain arising from the collection of the
proceeds of any insurance policy,
(f) any write-up of any asset, and
(g) any other extraordinary item.
All references contained herein to the Net Income of the Company shall be to the
Net Income of the Company and its Subsidiaries, determined on a consolidated
basis.
"Net Worth" means, as of the date of determination with respect to any
Person, such Person's total stockholders' equity (including capital stock,
additional paid-in capital and retained earnings, after deducting treasury
stock) which would appear on a balance sheet of such Person prepared in
accordance with GAAP.
<PAGE> 18
12
"NYSE" means the New York Stock Exchange, Inc.
"O&W" has the meaning assigned to that term in the first Whereas
clause.
"O&W Purchase Agreement" means the Stock Purchase Agreement, dated as
of April 9, 1997, by and among all of the shareholders of O&W and the Company in
the form attached hereto as Exhibit E.
"Permit" means any license, permit, exemption, consent, waiver,
authorization, right, order or approval of, and required registration with, any
Governmental Authority.
"Person" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of any such entity.
"PORTAL" means the PORTAL market.
"Principal Shareholders" means Ann Heafner Gaither, William H. Gaither,
Susan Gaither Jones and Thomas R. Jones.
"Purchase Price" has the meaning assigned to that term in Section 2.1.
"Real Estate" means all of the Company's and its Subsidiaries' now or
hereafter owned or leased estates in real property, including, without
limitation, all fees, leaseholds and future interests, together with all of the
Company's and its Subsidiaries' now or hereafter owned or leased interests in
the improvements and emblements thereon, the fixtures attached thereto and the
easements appurtenant thereto.
"Receivables" means all rights to the payment of money or other forms
of consideration of any kind (whether classified under the UCC as accounts,
contract rights, chattel paper, general intangibles or otherwise) including, but
not limited to, accounts receivable, letters of credit and the right to receive
payment thereunder, chattel paper, tax refunds, insurance proceeds, any rights
under contracts not yet earned by performance and not evidenced by an instrument
or chattel paper, notes, drafts, instruments, documents, acceptances and all
other debts, obligations and liabilities in whatever form from any Person, (ii)
all guaranties, security and Liens securing payment thereof, (iii) all goods,
whether now owned or hereafter acquired, and whether sold, delivered,
undelivered, in transit or returned, which may be represented by, or the sale or
lease of which may have given rise to, any such right to payment or other debt,
obligation or liability, and (iv) all proceeds of any of the foregoing.
<PAGE> 19
13
"Registration Rights Agreement" means the Registration Rights Agreement
substantially in the form attached hereto as Exhibit D, as the same may be
amended or modified from time to time in accordance with its terms.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
or through the indoor or outdoor Environment or into, through or out of any
property, including the movement of Hazardous Substances through or in the air,
soil, surface water, ground water or property.
"Remedial Action" means all actions, whether voluntary or involuntary,
reasonably necessary to comply with, or discharge any obligation under, Safety
and Environmental Laws to (i) clean up, remove, treat, cover or in any other way
adjust Hazardous Substances in the indoor or outdoor Environment; (ii) prevent
or control the Release of Hazardous Substances so that they do not migrate or
endanger or threaten to endanger public health or welfare or the Environment; or
(iii) perform remedial studies, investigations, restoration and post-remedial
studies, investigations and monitoring on, about or in any real property.
"Requirements of Law" means, as to any Person, any law, treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
"Restricted Payment" means (a) any dividend or other distribution on
any share of the Company's or any Subsidiary's capital stock (except dividends
payable solely in shares of their capital stock) or (b) any payment by the
Company or any of its Subsidiaries on account of the direct or indirect
purchase, redemption, retirement or other acquisition of (i) any shares of the
Company's or any such Subsidiary's capital stock (except shares acquired upon
the conversion or exercise thereof into other shares of their capital stock),
(ii) any option, warrant or other right to acquire shares of the Company's or
any such Subsidiary's capital stock (except upon the conversion or exercise
thereof into shares of capital stock) or (iii) any Debt of the Company or any
such Subsidiary (other than indebtedness incurred pursuant to the Notes or the
Credit Agreement) prior to any date set forth for mandatory repayment of
principal or interest thereon.
"Safety and Environmental Laws" means all Requirements of Law relating
to pollution, protection of the Environment, public or worker health and safety,
or the emission, discharge, release or threatened release of Hazardous
Substances into the Environment or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances including the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sec. 9601 et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Sec. 6901 et seq., the Toxic
Substances Control Act, 15 U.S.C. Sec. 2601
<PAGE> 20
14
et seq., the Federal Water Pollution Control Act, 33 U.S.C. Sec. 1251 et seq.,
the Clean Air Act, 42 U.S.C. Sec. 7401 et seq., the Federal Insecticide,
Fungicide and Rodenticide Act, 7 U.S.C. Sec. 121 et seq., the Occupational
Safety and Health Act, 29 U.S.C. Sec. 651 et seq., the Asbestos Hazard Emergency
Response Act, 15 U.S.C. Sec. 2601 et seq., the Safe Drinking Water Act, 42
U.S.C. Sec. 300f et seq., the Oil Pollution Act of 1990, 33 U.S.C. Sec. 2701 et
seq., and analogous state acts.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Senior Financing, Preferred Investment and Acquisition Documents"
means (i) the Loan and Security Agreement, dated as of May 7, 1997 between the
Company, O&W, the financial institutions party thereto and BankBoston, N.A., as
agent, and the notes and agreements entered into in connection therewith (each
as amended or modified from time to time in accordance with its terms)
(collectively, the "Credit Agreement") pursuant to which the Company will incur
up to $65 million of senior debt, (ii) the KSTC Preferred Stock Purchase
Agreement and the agreements entered into in connection therewith pursuant to
which the Company will issue and sell to KSTC 7,000 shares of Series A Preferred
Stock and 4,500 shares of Series B Preferred Stock for the aggregate amount of
$11.5 million and (iii) the O&W Purchase Agreement and the agreements entered
into in connection therewith.
"Senior Subordinated Note" has the meaning assigned to that term in the
second Whereas clause.
"Series A Preferred Stock" means the Company's Series A Cumulative
Redeemable Preferred Stock, $.01 par value per share.
"Series B Preferred Stock" means the Company's Series B Cumulative
Redeemable Preferred Stock, $.01 par value per share.
"Solvent" means, as to any Person, that the fair saleable value on a
going concern basis of the assets and property of such Person is, on the date of
determination, greater than the total amount of liabilities (including
contingent and unliquidated liabilities) of such Person as of such date and
that, as of such date, such Person is able to pay all liabilities of such Person
as such liabilities mature. In computing the amount of contingent or
unliquidated liabilities at any time, such liabilities will be computed as the
amount which, in light of all the facts and circumstances existing at such time,
represents the amount that is probable to become an actual or matured liability.
"Subsidiary" means, with respect to any Person, a corporation or other
entity of which 50% or more of the combined voting power of the then outstanding
securities ordinarily (and apart from rights accruing under special
circumstances)
<PAGE> 21
15
having the right to vote in the election of directors is owned, directly or
indirectly, by such Person.
"Tax" or "Taxes" means all federal, state, county, local, foreign and
other taxes (including, without limitation, income, profits, premium, estimated,
excise, sales, use, occupancy, gross receipts, franchise, ad valorem, severance,
capital levy, production, transfer, withholding, employment, unemployment
compensation, payroll-related and property taxes, import duties and other
governmental charges and assessments), whether or not measured in whole or in
part by net income, and including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto, and including expenses associated
with any proposed adjustment relating to any of the foregoing (including advice
in connection with contesting such adjustment).
"Temporary Cash Investment" means (i) negotiable certificates of
deposit and time deposits issued by BankBoston, N.A. or by any United States
bank or trust company having capital, surplus and undivided profits in excess of
$100,000,000 or (ii) any direct obligation of the United States of America or
any agency or instrumentality thereof which has a remaining maturity at the time
of purchase of not more than one year and repurchase agreements relating to the
same.
"Transaction Documents" has the meaning assigned to that term in
Section 5.17.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the applicable jurisdiction.
"Warrants" has the meaning assigned to that term in the second Whereas
clause.
1.2 Accounting Terms; Financial Covenants. All accounting terms used
herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent accountants regularly retained by the Company,
conforms at the time to GAAP applied on a consistent basis. If any changes in
accounting principles are hereafter occasioned by promulgation of rules,
regulations, pronouncements or opinions by or are otherwise required by the
Financial Accounting Standards Board or the American Institute of Certified
Public Accountants (or successors thereto or agencies with similar functions),
and any of such changes results in a change in the method of calculation of, or
affects the results of such calculation of, any of the financial covenants,
standards or terms found herein, then the parties hereto agree to enter into and
diligently pursue negotiations in order to amend such financial covenants,
standards or terms so as to reflect fairly and equitably such changes, with the
desired result that
<PAGE> 22
16
the criteria for evaluating the Company's financial condition and results of
operations shall be the same after such changes as if such changes had not been
made.
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale of Senior Subordinated Note and Warrants. Subject
to the terms and conditions set forth herein, the Company agrees that it will
issue to the Purchaser, and the Purchaser agrees that it will acquire from the
Company, at the Closing, the principal amount of the Senior Subordinated Note,
with such Senior Subordinated Note being substantially in the form attached
hereto as Exhibit A, appropriately completed in conformity herewith, and 977,590
Warrants, with such Warrants being substantially in the form attached hereto as
Exhibit B, for an aggregate purchase price of $16,000,000.00 (the "Purchase
Price"), in cash, by wire transfer of immediately available funds to an account
designated in a notice delivered to the Purchaser not later than two Business
Days prior to the Closing Date.
2.2 Fees. The Company hereby agrees that it will pay to the Purchaser,
at the Closing, a facility fee of 2.0% of the Purchase Price (less any portion
thereof previously paid by the Company to the Purchaser), payable in cash by
wire transfer of immediately available funds to an account designated in a
notice delivered to the Company not later than two Business Days prior to the
Closing Date. At the Company's option by notice to the Purchaser at least two
Business Days prior to the Closing Date, such facility fee may be paid by the
Purchaser by deducting such amount from the Purchase Price.
2.3 Closing. The purchase and issuance of the Senior Subordinated Note
and the Warrants shall take place at the closing (the "Closing") to be held at
the offices of Howard, Darby & Levin, 1330 Avenue of the Americas, New York, New
York 10019 on May 7, 1997 (the "Closing Date"), at 10:00 a.m., New York City
time, or on such other date and at such other time as the Purchaser and the
Company may mutually agree. At the Closing, subject to the terms and conditions
set forth herein, the Company shall sell the Senior Subordinated Note and the
Warrants to the Purchaser by delivering to the Purchaser, the Senior
Subordinated Note and the Warrants registered in the name of the Purchaser, with
appropriate issue stamps, if any, affixed at the expense of the Company, free
and clear of any Lien, and the Purchaser shall purchase the Senior Subordinated
Note and the Warrants for the Purchase Price.
<PAGE> 23
17
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASER TO CLOSE
The obligation of the Purchaser to purchase the Senior Subordinated
Note and the Warrants, to pay the Purchase Price at the Closing, and to perform
any of its obligations hereunder shall be subject to the satisfaction or waiver
of the following conditions on or before the Closing Date:
3.1 Representations and Warranties True. The representations and
warranties of the Company contained in Article 5 hereof shall be true and
correct (a) at and as of the Closing Date and (b) after giving effect to the
transactions contemplated by the Transaction Documents and the Senior Financing,
Preferred Investment and Acquisition Documents, as if made at and as of such
date.
3.2 Compliance with this Agreement. The Company shall have performed
and complied with all of its agreements and conditions set forth or contemplated
herein that are required to be performed or complied with by the Company on or
before the Closing Date.
3.3 Officer's Certificate. The Purchaser shall have received a
certificate, dated the Closing Date and signed by the President or a
Vice-President of the Company, certifying that the conditions set forth in
Sections 3.1 and 3.2 hereof have been satisfied on and as of such date.
3.4 Secretary's Certificate. The Purchaser shall have received a
certificate, dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, attaching a good standing certificate from the North
Carolina Secretary of State with respect to the Company and certifying the truth
and correctness of attached copies of the articles of incorporation and by-laws
of the Company and resolutions of the Board of Directors of the Company
approving this Agreement and the transactions contemplated hereby.
3.5 Documents. The Purchaser shall have received copies of such
documents as it reasonably may request in connection with the sale of the Senior
Subordinated Note and the Warrants and the transactions contemplated hereby, all
in form and substance reasonably satisfactory to the Purchaser.
3.6 Purchase Permitted by Applicable Laws; Legal Investment. The
acquisition of and payment for the Senior Subordinated Note and Warrants and the
consummation of the transactions contemplated hereby (a) shall not be prohibited
by any applicable law or governmental regulation, (b) shall not subject the
Purchaser to any penalty or, in its reasonable judgment, other onerous condition
under or pursuant
<PAGE> 24
18
to any applicable law or governmental regulation and (c) shall be permitted by
the laws and regulations of the jurisdictions to which it is subject.
3.7 Filing of Amended and Restated Articles. The Amended and Restated
Articles in the form attached hereto shall have been duly filed by the Company
with the Secretary of State of the State of North Carolina.
3.8 Opinion of Counsel. The Purchaser shall have received the opinions
of Howard, Darby & Levin and J. Michael Gaither, Esq., counsel to the Company,
dated the Closing Date, each in form and substance reasonably acceptable to the
Purchaser.
3.9 Approval of Counsel to the Purchaser. All actions and proceedings
hereunder and all documents required to be delivered by the Company hereunder or
in connection with the consummation of the transactions contemplated hereby, and
all other related matters, shall have been reasonably acceptable to Paul, Weiss,
Rifkind, Wharton & Garrison, counsel to the Purchaser, as to their form and
substance.
3.10 Consents and Approvals. All consents, waivers, exemptions,
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons necessary or required in connection
with the execution, delivery or performance by the Company or enforcement
against the Company of this Agreement or any other Transaction Document shall
have been obtained and be in full force and effect, and the Purchaser shall have
been furnished with appropriate evidence thereof.
3.11 No Material Adverse Change. Since December 31, 1996, there shall
have been no material adverse change, nor shall any such change be threatened,
in the assets, business, properties, prospects, operations or financial or other
condition of the Company and its Subsidiaries, taken as a whole.
3.12 Due Diligence. The Purchaser shall have completed its due
diligence review of the assets, business, properties, operations and financial
and other condition of each of O&W and the Company, and shall be reasonably
satisfied with the results of such review.
3.13 Employment Agreements. Each of William Gaither, J. Michael
Gaither, Thomas J. Bonburg and Donald C. Roof shall have duly executed and
delivered employment agreements with the Company, the terms and conditions of
which are reasonably acceptable to the Purchaser.
3.14 Registration Rights Agreement. The Company shall have duly
executed and delivered to the Purchaser the Registration Rights Agreement.
<PAGE> 25
19
3.15 Articles of Incorporation and By-Laws of the Company and the
Subsidiaries. Except for the Amended and Restated Articles, no amendments to the
articles of incorporation or by-laws of the Company or any of its Subsidiaries
as in effect on the date hereof shall have been effected.
3.16 Market Conditions. Prior to the Closing Date, (a) trading in
securities generally on the NYSE shall not have been suspended or limited or
minimum or maximum prices shall not have been generally established on such
exchange, or additional material governmental restrictions, not in force on the
date of this Agreement, shall not have been imposed upon trading in securities
generally by such exchange or by order of the Commission or any court or other
Governmental Authority, (b) a general banking moratorium shall not have been
declared by either federal or New York State authorities or (c) any material
adverse change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any outbreak
or material escalation of hostilities or declaration by the United States of a
national emergency or war or other calamity or crisis shall not have occurred.
3.17 No Litigation. No action, suit, proceeding, claim or dispute shall
have been brought or otherwise arisen at law, in equity, in arbitration or
before any Governmental Authority against the Company or O&W which would, if
adversely determined, in the reasonable judgment of the Purchaser, (a) after
giving effect to the transactions contemplated hereby, have a material adverse
effect on the assets, business, properties, operations or financial or other
condition of the Company and its Subsidiaries, taken as a whole, or (b) have a
material adverse effect on the ability of the Company to perform its obligations
under this Agreement or any other Transaction Document or the Senior Financing,
Preferred Investment and Acquisition Documents.
3.18 No Default or Breach. The Company shall not have been in default
under or with respect to any of the Transaction Documents or the Senior
Financing, Preferred Investment and Acquisition Documents and, after giving
effect to the transactions contemplated hereby and thereby, the Company will not
be in default under any of the Transaction Documents or the Senior Financing,
Preferred Investment and Acquisition Documents.
3.19 O&W Purchase Agreement/KSTC Preferred Stock Purchase Agreement.
The closing of the transactions contemplated by the O&W Purchase Agreement and
the KSTC Preferred Stock Purchase Agreement shall simultaneously occur with the
Closing hereof. All of the conditions set forth in Section 4.1 of the O&W
Purchase Agreement and Article VII of the KSTC Preferred Stock Purchase
Agreement shall have been satisfied or waived; provided, that any such waiver
shall have been given only with the prior written consent of the Purchaser.
<PAGE> 26
20
3.20 Senior Financing. The Company shall have obtained senior financing
pursuant to the Credit Agreement in an amount not exceeding $65 million
(including a revolving credit facility not in excess of $53 million) in
connection with the Acquisition on terms reasonably satisfactory to the
Purchaser.
3.21 Facilities Fee. The Company shall have paid to the Purchaser the
fees provided for in Section 2.2 hereof or given notice under such Section that
such amount should be subtracted from the Purchase Price to be paid on the
Closing Date.
ARTICLE 4
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Senior
Subordinated Note and Warrants and to perform any of its other obligations
hereunder, shall be subject to the satisfaction or waiver of the following
conditions on or before the Closing Date:
4.1 Representations and Warranties True. The representations and
warranties of the Purchaser contained in Article 6 hereof shall be true and
correct in all material respects at and as of the Closing Date as if made at and
as of such date.
4.2 Compliance with this Agreement. The Purchaser shall have performed
and complied with all of its agreements and conditions set forth or contemplated
herein that are required to be performed or complied with by the Purchaser on or
before the Closing Date.
4.3 General Partner's Certificate. The Company shall have received a
certificate, dated the Closing Date and signed by the general partner of the
Purchaser, (i) certifying that the conditions set forth in Sections 4.1 and 4.2
hereof have been satisfied on and as of such date and (ii) attaching a good
standing certificate from the Delaware Secretary of State with respect to the
Purchaser.
4.4 Approval of Counsel to the Company. All actions and proceedings
hereunder and all documents required to be delivered by the Purchaser hereunder
or in connection with the consummation of the transactions contemplated hereby,
and all other related matters, shall have been reasonably acceptable to Howard,
Darby & Levin, counsel to the Company, as to their form and substance.
4.5 Consents and Approvals. All consents, exemptions, authorizations,
waivers or other actions by, or notices to, or filings with, Governmental
Authorities and other Persons necessary or required in connection with
<PAGE> 27
21
the execution, delivery or performance by the Purchaser or enforcement against
the Purchaser of this Agreement shall have been obtained and be in full force
and effect, and the Company shall have been furnished with appropriate evidence
thereof.
4.6 O&W Purchase Agreement/KSTC Preferred Stock Purchase Agreement. The
closing of the transactions contemplated by the O&W Purchase Agreement and the
KSTC Preferred Stock Purchase Agreement shall simultaneously occur with the
Closing hereof.
4.7 Senior Financing. The Company shall have obtained senior financing
pursuant to the Credit Agreement in an amount not exceeding $65 million
(including a revolving credit facility not in excess of $53 million) in
connection with the Acquisition.
ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as follows:
5.1 Corporate Existence and Power.
The Company and each of its Subsidiaries:
(a) is, and after giving effect to the transactions contemplated
by the Transaction Documents and the Senior Financing, Preferred Investment and
Acquisition Documents, will be duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization;
(b) has, and after giving effect to the transactions contemplated
hereby (including the Acquisition and the transactions contemplated by the KSTC
Preferred Stock Purchase Agreement), will have (i) full corporate power and
authority and (ii) all governmental licenses, authorizations, consents and
approvals to own and operate its property, to lease the property it operates as
lessee and to conduct the business in which it is currently, or is currently
proposed to be, engaged;
(c) is, and after giving effect to the transactions contemplated
hereby (including the Acquisition and the transactions contemplated by the KSTC
Preferred Stock Purchase Agreement), will be duly qualified as a foreign
corporation, licensed and in good standing under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires such qualification; and
<PAGE> 28
22
(d) is, and after giving effect to the transactions contemplated
hereby, will be in compliance with (i) its articles or certificate of
incorporation and by-laws or other organizational or governing documents and
(ii) all Requirements of Law;
except, in the case of (b)(ii), (c) or (d)(ii) of this Section 5.1, to the
extent that the failure to do so could not reasonably be expected to have a
material adverse effect on the assets, business, properties, operations or
financial or other condition of the Company and its Subsidiaries, taken as a
whole.
5.2 Corporate Authorization; No Contravention. The execution, delivery
and performance by the Company of this Agreement, the Registration Rights
Agreement, any other Transaction Document and the transactions contemplated
hereby and thereby, including without limitation, the issuance of the Senior
Subordinated Note and the Warrants:
(a) is within the Company's corporate power and authority and has
been duly authorized by all necessary corporate action; and
(b) does not, and will not after giving effect to the transactions
contemplated hereby, contravene the terms of the articles or certificate of
incorporation or by-laws or other organizational or governing documents or any
amendment thereof of the Company or any of its Subsidiaries; and
(c) except as set forth on Schedule 5.2, does not, and will not
after giving effect to the transactions contemplated hereby, violate, conflict
with or result in any breach of, contravention of or the creation of any Lien
(other than Liens permitted pursuant to Section 10.8) under, any Contractual
Obligation of the Company or any of its Subsidiaries or any order or decree
directly relating to the Company or any of its Subsidiaries, other than any such
violations, conflicts, contraventions or Liens that, individually or in the
aggregate, could not reasonably be expected to (1) have a material adverse
effect on the assets, business, properties, operations or financial or other
condition of the Company and its Subsidiaries, taken as a whole, (2) impair the
ability of the Company to perform its obligations under the Transaction
Documents or (3) prevent or materially delay consummation of the transactions
contemplated by the Transaction Documents.
5.3 Governmental Authorization; Third Party Consents. No approval,
consent, exemption, authorization, or other action by, or notice to, or filing
with, any Governmental Authority or any other Person, is necessary or required
in connection with the execution, delivery or performance by the Company or
enforcement against the Company of this Agreement, the Senior Subordinated Note,
the Warrants, the Registration Rights Agreement, any other Transaction Document
or the transactions contemplated hereby or thereby, other than those that have
been obtained or made on or prior to the Closing.
<PAGE> 29
23
5.4 Binding Effect. This Agreement has been duly executed and delivered
by the Company, and at the Closing the Senior Subordinated Note, the
Registration Rights Agreement, the Warrants and each other Transaction Document
to which the Company is a party will be duly executed and delivered by the
Company, and this Agreement constitutes the legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms, and
at the Closing the Registration Rights Agreement, the Senior Subordinated Note
and the Warrants will constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms.
5.5 No Legal Bar. Neither the execution, delivery and performance of
this Agreement, the Registration Rights Agreement, or any other Transaction
Document or the Senior Financing, Preferred Investment and Acquisition Documents
nor the issuance of or performance of the terms of the Senior Subordinated Note
or the Warrants will violate any Requirement of Law or any Contractual
Obligation of the Company, other than any such violations that, individually or
in the aggregate, could not reasonably be expected to (1) have a material
adverse effect on the assets, business, properties, operations or financial or
other condition for the Company and its Subsidiaries, taken as a whole, (2)
impair the ability of the Company to perform its obligations under the
Transaction Documents and the Senior Financing, Preferred Investment and
Acquisition Documents or (3) prevent or materially delay consummation of the
transactions contemplated by the Transaction Documents and the Senior Financing,
Preferred Investment and Acquisition Documents.
5.6 Litigation. Except as set forth on Schedule 5.6, there are no, and
after giving effect to the transactions contemplated hereby there will not be,
any actions, suits, proceedings, claims or disputes pending, or to the best
knowledge of the Company threatened, at law, in equity, in arbitration or before
any Governmental Authority against the Company or the Subsidiaries:
(a) with respect to any Transaction Document or any Senior
Financing, Preferred Investment and Acquisition Documents or any of the
transactions contemplated hereby or thereby; or
(b) which could reasonably be expected to, after giving effect to
the Transaction Documents and the Senior Financing, Preferred Investment and
Acquisition Documents and the transactions contemplated hereby and thereby, if
adversely determined, (i) have a material adverse effect on the assets,
business, properties, prospects, operations or financial or other condition of
the Company and its Subsidiaries, taken as a whole (after giving effect to the
transactions contemplated hereby) or (ii) have a material adverse effect on the
ability of the Company to perform its obligations under this Agreement, the
Senior Subordinated Note, the Warrants, the Registration Rights Agreement or any
other Transaction Document or any Senior Financing, Preferred Investment and
Acquisition Documents. No injunction, writ, temporary restraining order, decree
or any order of any nature has
<PAGE> 30
24
been issued by any court or other Governmental Authority purporting to enjoin or
restrain the execution, delivery and performance of this Agreement, the Senior
Subordinated Note, the Warrants, the Registration Rights Agreement or any other
Transaction Document or any Senior Financing, Preferred Investment and
Acquisition Documents.
5.7 No Default or Breach. No event has occurred and is continuing or
would result from the incurring of obligations by the Company under this
Agreement, the Registration Rights Agreement or any other Transaction Document
or any Senior Financing, Preferred Investment and Acquisition Documents which
constitutes a default under or breach of any of the provisions hereof or of the
Notes and no such event will occur or will be continuing after giving effect to
the transactions contemplated hereby. Neither the Company or any of its
Subsidiaries is, and after giving effect to the transactions contemplated by the
Transaction Documents and the Senior Financing, Preferred Investment and
Acquisition Documents will not be, in default under or with respect to any
Contractual Obligation, Transaction Document or Senior Financing, Preferred
Investment and Acquisition Documents in any respect, other than any such
violations that, individually or in the aggregate, could not reasonably be
expected to (1) have a material adverse effect on the assets, business,
properties, operations or financial or other condition for the Company and its
Subsidiaries, taken as a whole, (2) impair the ability of the Company to perform
its obligations under the Transaction Documents and the Senior Financing,
Preferred Investment and Acquisition Documents or (3) prevent or materially
delay consummation of the transactions contemplated by the Transaction Documents
and the Senior Financing, Preferred Investment and Acquisition Documents.
5.8 Title to Properties. The Company and each of its Subsidiaries has,
and after giving effect to the transactions contemplated by the Transaction
Documents and the Senior Financing, Preferred Investment and Acquisition
Documents will have, good record and marketable title to, or hold leases in full
force and effect in all their real property, except for such defects in title as
could not, individually or in the aggregate, have a materially adverse effect on
the assets, business, properties, operations or financial or other conditions of
the Company and its Subsidiaries, taken as a whole, or the ability of the
Company to perform its obligations under this Agreement, the Senior Subordinated
Note, the Warrants or the Registration Rights Agreement or any other Transaction
Document or any Senior Financing, Preferred Investment and Acquisition
Documents.
5.9 Financial Condition; No Undisclosed Liabilities. The Company
heretofore has delivered to the Purchaser true and correct copies of (i)
financial statements of the Company for the fiscal year ended December 31, 1995
(audited) and December 31, 1996 (unaudited) (the "Financials") and (ii) the
unaudited balance sheet of the Company as of March 31, 1997 and the related
statements of operations for the three month period then ended (the "Interim
Financials"), certified by the President or a Vice President of the Company. The
Financials have been prepared in accordance
<PAGE> 31
25
with GAAP applied consistently throughout the periods covered thereby, and
present fairly in all material respects the financial condition of the Company
as of the dates thereof, and the results of operations of the Company for the
period then ended. The Interim Financials present fairly in all material
respects the financial condition of the Company as of the date thereof and the
results of operations of the Company for the period then ended, all in
conformity with GAAP applied in a consistent basis, subject to the normal
year-end audit adjustments and the absence of footnotes required by GAAP and
subject to the adjustments described in Schedule 5.9 hereto. Except as set forth
on Schedule 5.9, the Company and its Subsidiaries, after giving effect to the
transactions contemplated hereby, will not have any material direct or indirect
indebtedness, liability or obligation, whether known or unknown, fixed or
unfixed, contingent or otherwise, and whether or not of a kind required by GAAP
to be set forth on a financial statement, other than (i) those fully and
adequately reflected on the Financials and the Interim Financials, (ii) those
fully and adequately reflected on the audited balance sheet of O&W as of
September 30, 1996 and the unaudited balance sheet of O&W as of December 31,
1996, true and correct copies of which have heretofore been delivered by the
Company to the Purchaser (collectively, the "O&W Balance Sheets"), (iii) those
incurred since the date of the Financials and the O&W Balance Sheets in the
ordinary course of business and (iv) those incurred pursuant to the Transaction
Documents and the Senior Financing, Preferred Investment and Acquisition
Documents.
5.10 No Material Adverse Change. Since December 31, 1996, there has not
been any material adverse change, nor to the knowledge of the Company is any
such change threatened, in the assets, business, properties, operations or
financial or other condition of (a) the Company and its Subsidiaries, taken as a
whole, or (b) the business being acquired by the Company under the O&W Purchase
Agreement.
5.11 Investment Company. Neither the Company nor any Person controlling
the Company is, and no such Person after giving effect to the transactions
contemplated hereby will be, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
5.12 Subsidiaries. Prior to the consummation of the Acquisition, the
Company had no Subsidiaries. Upon consummation of the Acquisition, O&W will be
the only Subsidiary of the Company.
5.13 Capitalization. As of the Closing Date, after giving effect to the
transactions contemplated hereby and by the KSTC Preferred Stock Purchase
Agreement (i) the authorized capital stock of the Company will consist of
10,011,500 shares, consisting of 10,000,000 shares of Common Stock, 7,000 shares
of Series A Preferred Stock and 4,500 shares of Series B Preferred Stock, (ii)
3,466,000 of such shares of Common Stock, 7,000 of such shares of Series A
Preferred Stock and 4,500 of such shares of Series B Preferred Stock will be
issued and outstanding and
<PAGE> 32
26
(iii) 6,534,000 shares of Common Stock, no shares of Series A Preferred Stock
and no shares of Series B Preferred Stock will be authorized but not issued. All
such shares of capital stock of the Company have been duly authorized and all of
the issued and outstanding shares of Common Stock, Series A Preferred Stock and
Series B Preferred Stock are fully paid and non-assessable. The Warrants to be
issued at the Closing are exercisable into 22.0% of the Common Stock of the
Company on a fully diluted basis as of the Closing Date and after taking into
account the transactions contemplated by the Transaction Documents and the
Senior Financing, Preferred Investment and Acquisition Documents. Except as set
forth in Schedule 5.13, there are no shares of capital stock of the Company
reserved for issuance. The Common Stock when issued upon exercise of the
Warrants are duly authorized, and, when so issued, will be fully paid and
non-assessable. Except for the Warrants and as set forth in Schedule 5.13, there
are no options, warrants or other rights to purchase shares of capital stock or
other securities of the Company, nor is the Company obligated in any manner to
issue shares of its capital stock or other securities. Except as contemplated
hereby and for relevant state and federal securities laws, there are no
restrictions on the Company's ability to transfer shares of capital stock of the
Company other than certain provisions of the agreements set forth in Schedule
5.13.
5.14 Solvency. On and as of the Closing Date, after giving effect to
the transactions contemplated by the Transaction Documents and the Senior
Financing, Preferred Investment and Acquisition Documents, the Company will be
Solvent.
5.15 Private Offering. No form of general solicitation or general
advertising was used by the Company or, to its knowledge, its representatives in
connection with the offer or sale of the Senior Subordinated Note, the Warrants,
the Common Stock issuable upon exercise of the Warrants or the Preferred Stock
issued on the Closing Date. No registration of the Senior Subordinated Note, the
Warrants, the Common Stock issuable upon exercise of the Warrants or the
Preferred Stock issued on the Closing Date pursuant to the provisions of the
Securities Act or any state securities or "blue sky" laws will be required by
the offer, sale or issuance of any such securities pursuant to the transactions
contemplated hereby. The Company agrees that neither it, nor anyone acting on
its behalf, will offer or sell the Senior Subordinated Note, the Warrants or any
other security so as to require the registration of the Senior Subordinated Note
or the Warrants or any other security pursuant to the provisions of the
Securities Act or any state securities or "blue sky" laws, unless such
securities are so registered.
5.16 Broker's, Finder's or Similar Fees. Except as set forth on
Schedule 5.16, there are no brokerage commissions, finder's fees or similar fees
or commissions payable in connection with the offer or sale of the Senior
Subordinated Note or Warrants contemplated hereby based on any agreement,
arrangement or understanding with the Company, or any action taken by any such
entity.
<PAGE> 33
27
5.17 Full Disclosure. No statement by the Company contained in (i) the
Senior Financing, Preferred Investment and Acquisition Agreements and (ii) this
Agreement, the Senior Subordinated Note, the Warrants, the Registration Rights
Agreement, or any other document, certificate, notice or consent related to any
of the foregoing (collectively, "Transaction Documents") delivered to the
Purchaser in connection with the purchase and sale of the Senior Subordinated
Note and the Warrants at or prior to the Closing contains (or will contain) an
untrue statement of a material fact or omits (or will omit) to state a material
fact required to be stated therein or necessary to make the statements made, in
light of the circumstances in which made, not materially false or misleading.
5.18 Anti-Dilution Protection. Other than pursuant to the agreements
listed on Schedule 5.18, no holder of shares of Common Stock (or securities
convertible into or exchangeable or exercisable for any of the foregoing) has
any rights to purchase or receive additional or other securities upon the
occurrence of an event that might dilute such holder's percentage interest in
the Company.
5.19 Registration Rights Agreements. As of the Closing Date, the
Company will not be a party to any agreement granting any registration rights to
any Person except as set forth on Schedule 5.19. The registration rights set
forth on Schedule 5.19 are not inconsistent with the rights granted to the
Purchaser in the Registration Rights Agreement.
5.20 O&W Purchase Agreement/KSTC Preferred Stock Purchase Agreement.
(a) The O&W Purchase Agreement in the form attached hereto as
Exhibit E (a) is a true and correct copy thereof, (b) has not been amended or
modified since it was executed and delivered and (c) is in full force and effect
and will be in full force and effect as of the Closing Date. On the Closing
Date, each of the representations and warranties made by the Company and, to the
best knowledge of the Company, the shareholders (individually or as a group) of
O&W in the O&W Purchase Agreement is true and correct in all material respects.
(b) The KSTC Stock Purchase Agreement in the form attached hereto
as Exhibit F (a) is a true and correct copy thereof, (b) has not been amended or
modified since it was executed and delivered and (c) is in full force and effect
as of the Closing Date. On the Closing Date, each of the representations and
warranties made by the Company, and, to the best knowledge of the Company, KSTC
in the KSTC Preferred Stock Purchase Agreement is true and correct in all
material respects.
5.21 Labor Relations. Neither the Company nor any of its Subsidiaries
is engaged in any unfair labor practice. There is (a) no unfair labor practice
complaint pending or, to the best knowledge of the Company, threatened
<PAGE> 34
28
against the Company or any of its Subsidiaries before the National Labor
Relations Board and no grievance or arbitration proceeding arising out of or
under any collective bargaining agreement is so pending or, to the best
knowledge of the Company, threatened, (b) no strike, labor dispute, slowdown or
stoppage pending or, to the best knowledge of the Company, threatened against
the Company or any of its Subsidiaries, and (c) no union representation question
existing with respect to the employees of the Company or any of its Subsidiaries
and, to the knowledge of the Company, no union organizing activities are taking
place.
5.22 ERISA and Employee Benefit Plans.
(a) There are no employee benefit plans, arrangements, policies or
commitments of any type (including, but not limited to, plans described in
section 3(3) of ERISA) maintained by the Company or any of its Subsidiaries, or
with respect to which the Company or any of its Subsidiaries has or could have
any direct or indirect liability, other than those described in Schedule 5.22
("Benefit Plans").
(b) Accurate and complete copies of all plan text and agreements,
the most recent annual report, the most recent annual and periodic accounting of
plan assets, and the most recent actuarial valuation with respect to each
Benefit Plan have been made available to the Purchaser.
(c) No Benefit Plan is subject to Title IV of ERISA or section 412
of the Code. No Benefit Plan is a "multiple employer plan" within the meaning of
the Code or ERISA.
(d) With respect to each Benefit Plan, except as set forth in
Schedule 5.22: (i) if it is intended to qualify under section 401(a) or 403(a)
of the Code, such plan so qualifies; (ii) such Benefit Plan has been maintained
and administered at all times in compliance in all material respects with its
terms and applicable laws and regulations; (iii) no event has occurred and there
exists no circumstances under which the Company or any of its Subsidiaries could
incur material liability under ERISA, the Code or otherwise (other than routine
claims for benefits) with respect to such plan or with respect to any other
entity's employee benefit plan; and (iv) all material contributions and premiums
due with respect to such plan have been made on a timely basis.
(e) With respect each Benefit Plan that is a "welfare plan" (as
defined in ERISA section 3(1)): (i) no such plan provides medical or death
benefits with respect to current or former employees of the Company or any of
its Subsidiaries beyond their termination of employment (other than as required
to avoid an excise tax under Code section 4980B); and (ii) except as set forth
on Schedule 5.22, the Company and each of its Subsidiaries has complied with the
requirements of Code section 4980B.
<PAGE> 35
29
(f) Except as set forth on Schedule 5.22, the consummation of the
transactions contemplated by this Agreement will not: (i) entitle any individual
to severance or termination pay; (ii) accelerate the time of payment or vesting,
or increase the amount of compensation due to any individual; or (iii) result in
a payment or other benefit that will constitute an "excess parachute payment"
under Code section 280G(b)(1).
5.23 Environmental Matters.
Except as set forth on Schedule 5.23:
(a) Neither the Company nor any of its Subsidiaries is in
violation in any material respect of any applicable Safety and Environmental
Law, other than any such violations or obligations that, individually could not
reasonably be expected to result in a liability to the Company or its
Subsidiaries in excess of $50,000 or in the aggregate, could not reasonably be
expected to result in liabilities to the Company or its Subsidiaries in excess
of $1,500,000.
(b) The Company and the Subsidiaries have all Permits required
pursuant to Safety and Environmental Laws that are material to the conduct of
the business of the Company or any of the Subsidiaries, all such Permits are in
full force and effect, no action, cause of action, suit, claim, complaint,
demand, litigation or legal, administrative or arbitral proceeding or
investigation (collectively, "Claims") to revoke, limit or modify any of such
Permits is pending and the Company and each of the Subsidiaries is in compliance
in all material respects with all terms and conditions thereof except for
instances of non-compliance that individually could not reasonably be expected
to result in a liability to the Company or its Subsidiaries in excess of $50,000
or in the aggregate could not reasonably be expected to result in liabilities to
the Company or its Subsidiaries in excess of $1,500,000.
(c) The Company and the Subsidiaries have filed all notices
required under Safety and Environmental Laws indicating the past or present
Release, generation, treatment, storage or disposal of Hazardous Substances,
except for instances of non-compliance that individually could not reasonably be
expected to result in a liability to the Company or its Subsidiaries in excess
of $50,000 or in the aggregate could not reasonably be expected to result in
liabilities to the Company or its Subsidiaries in excess of $1,500,000.
(d) Except in cases which could not reasonably be expected to give
rise to any liability to the Company or its Subsidiaries under any Safety and
Environmental Law in excess of $50,000 individually or $1,500,000 in the
aggregate, there is not now and has not been at any time in the past at, on or
in any of the real properties owned, leased or operated by the Company or any of
its Subsidiaries, and, to the knowledge of the Company, there was not at, on or
in any real property previously owned, leased or operated by the Company or any
of its Subsidiaries or
<PAGE> 36
30
any predecessor: (i) any UST, surface impoundment, lagoon, landfill, solid waste
disposal area, or other containment facility (past or present) for the temporary
or permanent storage, treatment or disposal of Hazardous Substances; or (ii) any
Release or threatened Release, or any visible signs of Releases or threatened
Releases, of a Hazardous Substance to the Environment in form or quantity
requiring Remedial Action under Safety and Environmental Laws.
(e) No Environmental Claim is pending, and, to the knowledge of
the Company, there is no basis for any Environmental Claim or Environmental
Compliance Costs in circumstances where the liability to the Company or its
Subsidiaries individually could reasonably be expected to exceed $50,000, and in
the aggregate could reasonably be expected to exceed $1,500,000.
(f) Neither the Company nor any of its Subsidiaries has
transported, stored, treated or disposed, nor, to the knowledge of the Company,
has it allowed or arranged for any third persons to transport, store, treat or
dispose, any Hazardous Substance to or at: (i) any location other than a site
lawfully permitted to receive such substances for such purposes, or (ii) any
location designated for Remedial Action pursuant to Safety and Environmental
Laws; nor has it performed, arranged for or, to its knowledge, allowed by any
method or procedure such transportation or disposal in contravention of any
Safety and Environmental Laws which may result in Environmental Compliance Costs
or in an Environmental Claim to or against the Company or its Subsidiaries which
could reasonably be expected to exceed $50,000 individually or $1,500,000 in the
aggregate.
5.24 Taxes.
(a) The Company and each of its Subsidiaries have timely filed all
returns with respect to Taxes required to be filed through the date hereof in a
manner consistent with prior years and applicable laws and regulations and all
such Tax returns are true and complete in all material respects. The Company and
each of its Subsidiaries have timely paid all Taxes shown on the Tax Returns to
be due and payable through the date hereof, or that are claimed or asserted by
any taxing authority to be due through the date hereof, except for those Taxes
that are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves have been set aside. With respect to any
period for which Tax returns have not yet been filed, or for which Taxes are not
yet due or owing, the Company and each of its Subsidiaries have no liability for
Taxes in each case other than Taxes incurred in the ordinary course of business
or for which accruals are reflected in the December 31, 1996 Financials.
(b) No audit or other proceeding by any court, taxing authority,
or similar person is pending or, to the knowledge of the Company or any of its
Subsidiaries, threatened with respect to any Taxes due from or with respect to
the operations of the Company or any of its Subsidiaries, or any Tax return
filed by
<PAGE> 37
31
or with respect to the operations of the Company or any of any its Subsidiaries.
To the best knowledge of the Company, no assessment of Taxes is proposed against
the Company, any of its Subsidiaries or their assets.
(g) For all taxable periods ending on or before the Closing Date,
the Company has had a valid election in effect to be treated as an "S
corporation," within the meaning of Section 1361(a) (1) of the Code, and has had
similar elections in effect under comparable provisions of state and local laws
in each jurisdiction in which it does business.
5.25 Patents, Trademarks, Etc.
(a) The Company and each of its Subsidiaries owns or has licensed
or otherwise has the right to use all patents, trademarks, service marks, trade
names, copyrights, licenses, franchises, computer software (including the source
codes thereto) and other intellectual property rights that are material to the
operation of their businesses as presently conducted or proposed to be
conducted.
(b) The Company uses and has used its best efforts to secure and
maintain its intellectual property rights in any and all computer software it
owns. Duplicates of all such computer software, including the source codes
thereto, are at a secure off-site location.
(c) To the best knowledge of the Company, no product, process,
method, substance or other material presently owned, sold, licensed or employed
by the Company or any of its Subsidiaries, or which the Company or any of its
Subsidiaries contemplates owning, selling, licensing or employing, (i) infringes
upon the patents, trademarks, service marks, copyrights or licenses that are
owned by others or (ii) is being infringed upon by any other Person. No
litigation is pending and no claim has been made against the Company or any of
its Subsidiaries or, to the best knowledge of the Company, is threatened,
contesting the right of the Company or any of its Subsidiaries to own, sell,
license or use any product, process, method, substance or other material
presently owned, sold, licensed or employed by the Company or any of its
Subsidiaries or which the Company or any of its Subsidiaries intends to acquire
an ownership interest in, sell, license or employ.
5.26 Potential Conflicts of Interest. To the best knowledge of the
Company, except as set forth on Schedule 5.26, no executive officer, director or
Affiliate of the Company or any of its Subsidiaries, and no relative or spouse
of any such officer, director or Affiliate: (a) owns, directly or indirectly,
any interest in (excepting less than 1% stock holdings for investment purposes
in securities of publicly held and traded companies), or is an officer,
director, employee or consultant of, any Person which is, or is engaged in
business as, a competitor, lessor, lessee, supplier, distributor, sales agent or
customer of, or lender to or borrower from, the Company or any of its
Subsidiaries; (b) owns, directly or indirectly, in whole or in
<PAGE> 38
32
part, any tangible or intangible property that the Company or any of its
Subsidiaries uses in the conduct of its business; or (c) has any cause of action
or other claim whatsoever against, or owes any amount to, the Company or any of
its Subsidiaries, except for claims in the ordinary course of business such as
for accrued vacation pay, accrued benefits under employee benefit plans, and
similar matters and agreements arising in the ordinary course of business.
5.27 Trade Relations. Except as set forth in Schedule 5.27, to the best
knowledge of the Company, there exists no actual or threatened termination,
cancellation or material limitation of, or any material adverse modification or
change in, the business relationship or business of the Company and its
Subsidiaries taken as a whole, or their business with, any customer or any group
of customers whose use of their services are individually or in the aggregate
material to the business of the Company and its Subsidiaries taken as a whole,
or with any material supplier, and there exists no condition or state of facts
or circumstances with respect thereto that would materially and adversely affect
the assets, business, properties, operations or financial or other condition of
the Company and its Subsidiaries, taken as a whole, or prevent the Company or
its Subsidiaries from conducting their business after the consummation of the
transactions contemplated by the Transaction Documents and the Senior Financing,
Preferred Investment and Acquisition Documents in substantially the same manner
in which it heretofore has been conducted.
5.28 Material Contracts. Other than the Transaction Documents and the
Senior Financing, Preferred Investment and Acquisition Documents, Schedule 5.28
lists as of the date of this Agreement each contract (other than purchase orders
and standard sales contracts in the ordinary course of business), agreement,
arrangement, commitment and lease of the Company and any Subsidiary currently in
effect which by its terms (i) is not terminable at will within six months and
requires future expenditures or receipts or other performance with respect to
goods or services having a value per annum in excess of $175,000, (ii) was not
entered into in the ordinary course of business, or (iii) is material to the
assets, business, properties, operations or financial or other condition of the
Company and its Subsidiaries, taken as a whole. Copies of all such documents
have previously been made available to the Purchaser. All of such contracts,
agreements, arrangements, commitments and leases are in full force and effect
and binding upon the parties thereto in accordance with their terms. Neither the
Company nor any of its Subsidiaries, nor to the knowledge of the Company, any
other party to such contracts, agreements, arrangements, commitments and leases
is in default of any material obligation thereunder or has given notice of
default to any other party thereunder and, to the knowledge of the Company, no
condition exists that with notice or lapse of time would constitute a material
default thereunder. Neither the Company nor any of its Subsidiaries has any
knowledge of any proposed, pending, or likely cancellation or termination of any
such contract, agreement, arrangement, commitment or lease (other than any
expiration pursuant to the terms thereof).
<PAGE> 39
33
5.29 Insurance. Schedule 5.29 sets forth all policies of fire,
liability, workman's compensation, vehicular, life or other insurance held by or
on behalf of the Company and its Subsidiaries (specifying the insurer, the
coverage amounts and describing each pending claim thereunder of more than
$100,000). Such policies and binders are in full force and effect. Neither the
Company nor any of its Subsidiaries is in default in any material respect with
respect to any provision contained in any such policy or binder and, to the best
knowledge of the Company, has not failed to give any notice or present any claim
under such policy or binder in due and timely fashion.
5.30 Projections. Prior to the date hereof, the Company delivered to
the Purchaser financial projections, copies of which are attached hereto as
Schedule 5.30 (the "Projections"). The assumptions used in preparation of the
Projections were reasonable when made and continue to be reasonable as of the
Closing Date. The Projections have been prepared in good faith and the
Projections give effect to the transactions contemplated by the Transaction
Documents and the Senior Financing, Preferred Investment and Acquisition
Documents. The Purchaser acknowledges that the Company is not warranting its
actual performance, and that the Projections contain assumptions about future
events and that actual results during the period or periods covered may differ
from the data and results contained in such Projections.
5.31 Compliance with Laws. Except as disclosed on Schedule 5.31 or on
other Schedules to this Agreement, neither the Company nor its Subsidiaries'
operations, nor any of the assets owned, leased, occupied or used by Company or
its Subsidiaries in the operation of the businesses thereof materially violates
or fails to comply in any material respect with applicable health, fire,
environmental, safety, zoning or building codes, laws or ordinances, rules or
regulations, other than any such violations or failures to comply that,
individually or in the aggregate, could not reasonably be expected to have a
material adverse effect on the assets, business, properties, operations or
financial or other condition of the Company and its Subsidiaries, taken as a
whole.
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to, and covenants and agrees
with, the Company as follows:
<PAGE> 40
34
6.1 Existence and Power. The Purchaser:
(a) is duly organized and validly existing under the laws of the
jurisdiction of its organization; and
(b) has the power and authority to own and operate its property,
to lease the property it operates as lessee and to conduct the business in which
it is currently, or is currently proposed to be, engaged.
6.2 Authorization; No Contravention. The execution, delivery and
performance by the Purchaser of this Agreement and the Registration Rights
Agreement:
(a) is within the Purchaser's power and authority and has been
duly authorized by all necessary action;
(b) does not contravene the terms of the Purchaser's Agreement of
Limited Partnership, or any amendment thereof;
(c) will not violate, conflict with or result in any breach or
contravention of or the creation of any Lien under, any Contractual Obligation
of the Purchaser, or any order or decree directly relating to the Purchaser; and
(d) does not require approval, consent, exemption, authorization
or other action by, or notice to, or filing with, any Governmental Authority or
any other Person, other than those that have been obtained or made on or prior
to the Closing.
6.3 Binding Effect. Each of this Agreement and the Registration Rights
Agreement has been duly executed and delivered by the Purchaser, and constitutes
the legal, valid and binding obligation of the Purchaser enforceable against it
in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the enforcement of
creditors' rights generally or by equitable principles relating to
enforceability.
6.4 No Legal Bar. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement will not violate any Requirement
of Law.
6.5 Purchase for Own Account. The Senior Subordinated Note and the
Warrants (including, for purposes of this Section 6.5, the Common Stock issuable
upon exercise of the Warrants) to be acquired by the Purchaser pursuant to this
Agreement are being acquired for its own account and with no intention of
distributing or reselling such securities or any part thereof in any transaction
that would be in violation of the securities laws of the United States of
America, or any
<PAGE> 41
35
state, without prejudice, however, to the rights of such Purchaser at all times
to sell or otherwise dispose of all or any part of the Senior Subordinated Note
and the Warrants under an effective registration statement under the Securities
Act, or under an exemption from such registration available under the Securities
Act, and subject, nevertheless, to the disposition of the Purchaser's property
being at all times within its control. If the Purchaser should in the future
decide to dispose of any of the Senior Subordinated Note or Warrants, the
Purchaser understands and agrees that it may do so only in compliance with the
Securities Act and applicable state securities laws, as then in effect, and that
stop-transfer instructions to that effect, where applicable, will be in effect
with respect to such securities. If the Purchaser should decide to dispose of
such securities (other than pursuant to its registration rights under the
Registration Rights Agreement), the Purchaser, if requested by the Company, will
have the obligation in connection with such disposition, at the Purchaser's
expense, of delivering an opinion of counsel of recognized standing in
securities law, in connection with such disposition to the effect that the
proposed disposition of such securities would not be in violation of the
Securities Act or any applicable state securities laws and, assuming such
opinion is required and is otherwise appropriate in form and substance under the
circumstances, the Company will accept, and will recommend to any applicable
transfer agent or trustee for such securities that it accept, such opinion. The
Purchaser agrees to the imprinting, so long as required by law, of a legend on
certificates representing all of the Warrants to the following effect: "THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED, QUALIFIED,
APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR
SUCH LAWS AND NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR
ANY OTHER FEDERAL OR STATE REGULATORY AUTHORITY HAS PASSED ON OR ENDORSED THE
MERITS OF THESE SECURITIES."
6.6 Investment Company. Neither the Purchaser nor any Person
controlling the Purchaser is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
6.7 Broker's, Finder's or Similar Fees. Except as otherwise set forth
in this Agreement, there are no brokerage commissions, finder's fees or similar
fees or commissions payable in connection with the offer or sale of the Senior
Subordinated Note and the Warrants contemplated hereby based on any agreement,
arrangement or understanding with the Purchaser or any action taken by the
Purchaser.
<PAGE> 42
36
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification by the Company. In addition to all other sums due
hereunder or provided for in this Agreement, the Company agrees to indemnify and
hold harmless the Purchaser and its Affiliates (including, without limitation,
BBH & Co.) and their respective officers, directors, agents, employees and
partners (each, an "indemnified party") to the fullest extent permitted by law
from and against any and all losses, claims, damages, expenses (including
reasonable fees, disbursements and other charges of counsel), damages or other
liabilities ("Losses") resulting from any breach of any representation or
warranty, covenant or agreement of the Company in the Transaction Documents or
any legal, administrative or other actions (including actions brought by any
equity holders of the Company or derivative actions brought by any Person
claiming through the Company or in the Company's name), proceedings or
investigations (whether formal or informal), or written threats thereof, based
upon, relating to or arising out of this Agreement, the Senior Subordinated
Note, the Warrants, the Registration Rights Agreement, any other Transaction
Document, the transactions contemplated hereby, or any indemnified person's role
therein or in the transactions contemplated hereby; provided, however, that the
Company shall not be liable under this Section 7.1: (a) for any amount paid in
settlement of claims without the Company's consent (which consent shall not be
unreasonably withheld), (b) with respect to Losses arising solely out of actions
brought by the partners of the Fund against an indemnified party or by one
indemnified party against another, (c) to the extent that it is finally
judicially determined that such Losses resulted primarily from the willful
misconduct, bad faith or gross negligence of such indemnified party or a breach
of the Purchaser's representations in Article 6 or of the Purchaser's
obligations under this Agreement, the Warrants or the Registration Rights
Agreement, or (d) for any Losses arising solely from the transfer of the Senior
Subordinated Note, the Warrants or the Common Stock issued upon exercise of the
Warrants by the Purchaser to any Person other than the Company; provided,
further, that if and to the extent that such indemnification is unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of such indemnified liability which shall be permissible under
applicable laws. In connection with the obligation of the Company to indemnify
for expenses as set forth above, the Company further agrees to reimburse each
indemnified party for all such expenses (including reasonable fees,
disbursements and other charges of counsel) as they are reasonably incurred by
such indemnified party; provided, however, that if an indemnified party is
reimbursed here under for any expenses, such reimbursement of expenses shall be
refunded to the extent it is finally judicially determined that the Losses in
question resulted primarily from the willful misconduct, bad faith or gross
negligence of such indemnified party.
<PAGE> 43
37
7.2 Notification. Each indemnified party under this Article 7 will,
promptly after the receipt of notice of the commencement of any action or other
proceeding against such indemnified party in respect of which indemnity may be
sought from the Company under this Article 7, notify the Company in writing of
the commencement thereof. The omission of any indemnified party so to notify the
Company of any such action shall not relieve the Company from any liability
which it may have to such indemnified party other than pursuant to this Article
7 or, unless, and only to the extent that, such omission results in the
Company's forfeiture of substantive rights or defenses. In case any such action
or other proceeding shall be brought against any indemnified party and it shall
notify the Company of the commencement thereof, the Company shall be entitled to
participate therein and, to the extent that it may wish, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that any indemnified party may, at its own expense, retain
separate counsel to participate in such defense. Notwithstanding the foregoing,
in any action or proceeding in which both the Company and an indemnified party
is, or is reasonably likely to become, a party, such indemnified party shall
have the right to employ separate counsel at the Company's expense and to
control its own defense of such action or proceeding if, in the reasonable
opinion of counsel to such indemnified party, (a) there are or may be legal
defenses available to such indemnified party or to other indemnified parties
that are different from or additional to those available to the Company or (b)
any conflict or potential conflict exists between the Company and such
indemnified party that would make such separate representation advisable;
provided, however, that in no event shall the Company be required to pay fees
and expenses under this Section 7 for more than one firm of attorneys in any
jurisdiction in any one legal action or group of related legal actions. The
Company shall not, without the consent of the indemnified party (which consent
shall not be unreasonably withheld), consent to the entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation or which
requires action other than the payment of money by the Company. The rights
accorded to indemnified parties hereunder shall be in addition to any rights
that any indemnified party may have at common law, by separate agreement or
otherwise.
7.3 Registration Rights Agreement. Notwithstanding anything to the
contrary in this Article 7, the indemnification and contribution provisions of
the Regis tration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or sales made thereunder.
<PAGE> 44
38
ARTICLE 8
PRE-CLOSING AFFIRMATIVE COVENANTS
8.1 Operation of Company. From and after the date hereof through the
Closing Date, the Company and its Subsidiaries shall not enter into any
transaction or take any action other than in the ordinary course of business,
except that the Company and its Subsidiaries may enter into such transactions
and take such other actions outside of the ordinary course of business, in each
case as may be specifically approved in writing by the Purchaser.
8.2 Exclusivity. From the date hereof through the earlier of the
Closing Date and May 31, 1997, the Company shall not enter into discussions or
negotiations with any Persons other than the Purchaser in respect of any
transaction similar in nature to any transaction contemplated by this Agreement.
8.3 Use of Proceeds. The Company shall use the proceeds of the sale of
the Senior Subordinated Note and Warrants hereunder only (a) to finance the
acquisition of O&W pursuant to the O&W Purchase Agreement, (b) to repurchase
from Albert Gaither, Susan Jones, Comer Gaither, Lawson Gaither and Ann Gaither
on the Closing Date an aggregate amount of 3,360,970 shares of Common Stock for
an aggregate consideration of not more than $2,714,600, (c) to repay existing
senior indebtedness of the Company and O&W owing to BankBoston, N.A., SouthTrust
Bank of Alabama, N.A. and Fleet Capital Corporation, respectively, in an
aggregate amount of approximately $26 million and (d) for the payment of fees
and expenses in connection with the transactions contemplated in the Transaction
Agreements.
8.4 Taxes. The Company and its Subsidiaries shall prepare and timely
file, in a manner consistent with prior years and applicable laws and
regulations, all Tax returns required to be filed on or before the Closing Date,
and all such Tax returns will be true and complete in all material respects. The
Company and its Subsidiaries shall timely pay all Taxes required to be paid by
them on or before the Closing Date, or that are claimed or asserted by any
taxing authority to be due on or before the Closing Date, except for those Taxes
that are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves have been set aside.
<PAGE> 45
39
ARTICLE 9
AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees (a) with the Fund, with
respect to all of this Article 9, and (b) with any other Holder, with respect to
all of this Article 9 except Sections 9.1(c), 9.9 and 9.10, that, unless the
Purchaser or any other Holder, as the case may be, waives compliance in writing:
9.1 Financial Statements. The Company shall deliver to the Purchaser
and any other Holder:
(a) as soon as available, but not later than one hundred
twenty (120) days after the end of each fiscal year of the Company, a copy of
the audited consolidated balance sheet of the Company and its Subsidiaries as of
the end of such year and the related consolidated statements of income and cash
flows for such fiscal year, setting forth in each case in comparative form the
figures for the previous year, all in reasonable detail and accompanied by a
management summary and analysis of the operations of the Company and its
Subsidiaries for such fiscal year and by the opinion of Arthur Andersen LLP (or
any successor thereto) or another nationally recognized independent public
accounting firm which report shall state that such consolidated financial
statements present fairly the financial position for the periods indicated in
conformity with GAAP applied on a basis consistent, except as otherwise stated
therein, with prior years;
(b) as soon as available and, in any event, within 45 days of
each of the first three fiscal quarters of each year (including, however, for
the fiscal quarter ended December 31, 1997, if statements were not provided for
the fiscal quarter ended September 30, 1997) the unaudited consolidated balance
sheet of the Company and its Subsidiaries, and the related consolidated
statements of income and cash flow for such quarter and for the period
commencing on the first day of the fiscal year and ending on the last day of
such quarter, all certified by an appropriate officer of the Company;
(c) to the extent prepared by the Company, budgets,
documentation of material financial transactions, projections, operating
reports, acquisition analyses, presentations to banks, financial institutions or
potential investors, consultants' reports and such other financial and operating
data of the Company and its Subsidiaries as the Fund reasonably may request (any
such information to be subject to the provisions of Section 9.9(b));
(d) at any time when it is not subject to Section 13 or 15(d)
of the Exchange Act, upon request, to the Purchaser and prospective purchaser of
Notes or Warrants, information of the type that would satisfy the requirement of
<PAGE> 46
40
subsection (d)(4)(i) of Rule 144A (or any similar successor provision) under the
Securities Act; and
(e) if and when the Company becomes subject to the Securities
Act or the Exchange Act, promptly after the same are filed, copies of all
reports, statements and other documents filed with the Commission, at which
point Sections 9.1(a) and (b) shall expire and no longer be binding upon the
Company.
9.2 Certificates; Other Information. The Company shall furnish to
the Purchaser and to any other holder of the Notes:
(a) concurrently with the delivery of the financial statements
referred to in Section 9.1(a) and (b) above, a certificate of the Company's
Chief Financial Officer stating that, to the best of such officer's knowledge,
there exists no default under or breach of Articles 9 and 10, except as
specified in such certificates; and
(b) concurrently with the delivery of the financial statements
referred to in Sections 9.1(a) and (b) above, a certificate of an officer of the
Company including calculations set forth in reasonable detail showing the
Company's compliance with the financial covenants contained in Sections 10.1,
10.2 and 10.3.
9.3 Preservation of Corporate Existence. The Company shall, and
shall cause each of its Subsidiaries to:
(a) preserve and maintain in full force and effect its
corporate existence and good standing under the laws of its jurisdiction of
incorporation or organization; and
(b) preserve and maintain in full force and effect all
material rights, privileges, qualifications, licenses and franchises necessary
in the normal conduct of its business.
9.4 Payment of Obligations. The Company shall, and shall cause
its Subsidiaries to, pay and discharge as the same shall become due and payable,
all their respective obligations and liabilities, including without limitation:
(a) all tax liabilities, assessments and governmental charges
or levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such Subsidiary;
(b) all lawful claims which the Company and each of its
Subsidiaries are obligated to pay, which are due and which, if unpaid, might by
law become a Lien upon its property, unless the same are being contested in good
faith by
<PAGE> 47
41
appropriate proceedings and adequate reserves in accordance with GAAP are being
maintained by the Company or such Subsidiary; and
(c) all payments of principal and interest when due (giving
effect to any grace periods relating thereto) on Indebtedness.
9.5 Compliance with Laws. The Company shall comply, and shall cause
each Subsidiary to comply, in all material respects with its articles or
certificate of incorporation and by-laws or other organizational or governing
documents and all Requirements of Law and with the directions of any
Governmental Authority having jurisdiction over it or its business, except (i)
such as to which such failure to comply could not reasonably be expected to have
a material adverse effect on the assets, business, operations, properties or
financial or other condition of the Company or its Subsidiaries, taken as a
whole or (ii) to the extent being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP are being
maintained by the Company or such Subsidiary.
9.6 Notices. Upon actual knowledge of the Chief Executive Officer,
the President or the Chief Financial Officer of the Company of the events
described below, the Company shall give prompt written notice (but in any event
within 10 days) to each holder of Notes:
(a) of the occurrence of any default under, or breach of, any
of the provisions of Articles 9 or 10 accompanied by a certificate specifying
the nature of such default or breach, the period of existence thereof and the
action that the Company has taken or proposes to take with respect thereto;
(b) of any (i) material default or event of default under the
Senior Indebtedness (as defined in Section 12.1) of the Company or any other
material Contractual Obligation of the Company or any of its Subsidiaries, or
(ii) material dispute, litigation, investigation, proceeding or suspension which
may exist at any time between the Company or any of its Subsidiaries and any
Governmental Authority; and
(c) Each notice pursuant to this Section 9.6 shall be
accompanied by a statement by the Chief Executive Officer, President or Chief
Financial Officer of the Company setting forth details of the occurrence
referred to therein and stating what action the Company proposes to take with
respect thereto.
9.7 Issue Taxes. The Company shall pay, or cause to be paid, all
documentary and similar taxes levied under the laws of any applicable
jurisdiction in connection with the issuance of the Senior Subordinated Note and
the Warrants, the Common Stock to be issued upon exercise of the Warrants and
the execution and delivery of the other agreements and documents contemplated
hereby and any modification of the Senior Subordinated Note and the Warrants or
such other
<PAGE> 48
42
agreements and documents and will hold the Purchaser harmless, without
limitation as to time, against any and all liabilities with respect to all such
taxes.
9.8 Reservation of Shares. The Company shall at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issue or delivery upon exercise of all outstanding Warrants as provided therein,
such number of shares of Common Stock as shall then be issuable or deliverable
upon the exercise of all outstanding Warrants. Such shares of Common Stock
shall, when issued or delivered in accordance with the terms of the Warrants, be
duly and validly issued and fully paid and non-assessable. The Company shall
issue the Common Stock into which the Warrants are convertible upon the proper
surrender of the Warrants in accordance with the provisions therein and shall
otherwise comply with the terms thereof.
9.9 Inspection.
(a) The Company will permit, and will cause each of its
Subsidiaries to permit, representatives of the Fund to visit and inspect any of
its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested, upon reasonable advance notice to the
Company.
(b) The Purchaser will (subject to the Company's sole
discretion to waive compliance) utilize best efforts to maintain as confidential
any confidential or proprietary information obtained from the Company pursuant
to Sections 9.9(a) or 9.1 (other than information which (i) at the time of
disclosure or thereafter is generally available to and known by the public
(other than as a result of a disclosure directly or indirectly by the Purchaser
or any of its representatives), (ii) is available to the Purchaser on a
non-confidential basis from a source other than the Company or its Subsidiaries,
provided that such source was not known by the Purchaser to be bound by a
confidentiality agreement (or other duty not to disclose) with the Company or
any of its Subsidiaries or (iii) has been independently developed by the
Purchaser), and shall not disclose any information obtained from the Company
pursuant to Section 9.9(a) or 9.1 and required to be maintained as confidential
pursuant hereto, except (a) to BBH & Co. and its advisors, representatives,
agents, partners and employees who need to know such information (provided that
the Purchaser shall be responsible for any breach of this Section 9.9(b) by any
such Person), (b) to its advisors, representatives, agents, partners (and their
representatives and advisors) and employees (provided that the Purchaser shall
be responsible for any breach of this Section 9.9(b) by any such Person), (c) to
any prospective transferee of the Senior Subordinated Note, the Warrants or the
shares of Common Stock issued upon the exercise of the Warrants or of an
interest in the Purchaser (provided that (x) the Purchaser shall not disclose to
any such Person that is a potential transferee
<PAGE> 49
43
the information (other than budgets) referred to in Section 9.1(c) without the
prior written consent of the Board of Directors of the Company, such consent not
to be unreasonably withheld, and (y) such prospective transferee enters into a
confidentiality agreement with respect to any confidential information on
substantially the same terms as agreed to by the Purchaser in this Section
9.9(b)) or in a successor fund sponsored by BBH & Co., (d) as may be required by
law (including a court order, subpoena or other administrative order or process)
or applicable regulations to which the Purchaser is or becomes subject, (e) in
connection with any litigation arising out of or related to this Agreement, (f)
to the executive officers of the Company or any of its Subsidiaries, or (g) with
the prior written consent of the Company.
9.10 Board Representation; Visitation Rights.
(a) The Company shall at or prior to the Closing Date cause
one vacancy to be created on its Board of Directors (by increasing the number of
members of the Board of Directors or otherwise) and at the Closing Date shall
cause the person designated by the Fund to be elected to its Board of Directors.
Such designee shall serve until the annual meeting of stockholders of the
Company immediately following the election of such person to the Board of
Directors.
(b) Commencing with the annual meeting of stockholders of the
Company immediately following the election of such persons to the Board of
Directors, and at each annual meeting of stockholders of the Company thereafter,
the Fund shall be entitled to nominate (in addition to any rights granted to the
holders of Common Stock as set forth in the Company's articles or certificate of
incorporation), from time to time, one director to the Company's Board of
Directors; provided, that if the Fund at any time holds less than (i) 50% of the
aggregate principal amount of the Notes outstanding and (ii) 33% of the total
number of shares of the Common Stock into which the Warrants are exercisable
(assuming exercise of any unexercised Warrants), the Fund shall no longer be
entitled to elect a member of the Board of Directors. The Company shall cause
such nominee of the Fund to be included in the slate of nominees recommended by
the Board to the Company's stockholders for election as directors, and the
Company shall use its best efforts to cause the election of such nominee or
nominees, including voting all shares for which the Company holds proxies
(unless otherwise directed by the stockholder submitting such proxy) or is
otherwise entitled to vote, in favor of the election of such person.
(c) In the event any such nominee of the Fund shall cease to
serve as a director for any reason, other than by reason of the Fund not being
entitled to nominate a nominee as provided in Section 9.10(b), the Company shall
use its best efforts to cause the vacancy resulting thereby to be filled by a
nominee of the Fund acceptable to a majority of the Board of Directors of the
Company, acting reasonably.
<PAGE> 50
44
(d) In the event that the Board of Directors of the Company
establishes committees from time to time, the nominee of the Fund shall have the
right, upon the Fund's request, to serve on each such committee.
(e) So long as the Fund owns more than (i) 50% of the
aggregate outstanding principal amount of the Notes and (ii) 33% of the total
number of shares of the Common Stock into which the Warrants are exercisable
(assuming exercise of any unexercised Warrants), in addition to the rights
granted pursuant to Sections 9.1(a) and (b) above, the Fund shall have the right
to have a representative attend all regular and special meetings of the Board of
Directors of the Company and any committees thereof. The visitation rights set
forth above shall include the right to receive the same notice and materials
provided to Board and Committee members.
(f) So long as the Fund owns more than (i) 50% of the
aggregate outstanding principal amount of the Notes or (ii) 33% of the total
number of shares of the Common Stock into which the Warrants are exercisable
(assuming exercise of any unexercised Warrants), the Fund shall have the right
to approve the nomination of any director to the Board of Directors of the
Company that is not a full-time employee of the Company, which approval shall
not be unreasonably withheld; provided, however, that the Fund shall not have
the right to approve the nomination of any director to the Board of Directors of
the Company that is appointed by KSTC pursuant to Section 6.4 of the Amended and
Restated Articles.
9.11 Registration and Listing. If any shares of Common Stock
required to be reserved for purposes of exercise of the Warrants as provided in
the Warrants, require registration with or approval of any Governmental
Authority under any federal or state or other applicable law before such Common
Stock may be issued or delivered upon exercise of the Warrants, the Company will
in good faith and as expeditiously as possible endeavor to cause such Common
Stock to be duly registered or approved, as the case may be, unless such
registration or approval is required solely because of a breach of the
Purchaser's representation contained in Section 6.5. In the event that, and so
long as, the Common Stock is listed on the NYSE or quoted or listed on any other
national securities exchange or Nasdaq, the Company will, if permitted by the
rules of such system or exchange, quote or list and keep quoted or listed on
such exchange or Nasdaq, upon official notice of issuance, all Common Stock
issuable or deliverable upon exercise of the Warrants. In addition, the Company
will in good faith and as expeditiously as possible endeavor (i) to obtain
private placement numbers for the Warrants and the Common Stock issued pursuant
to the exercise thereof, assigned by the CUSIP Service Bureau of Standard &
Poor's Corporation and (ii) at the request of the Purchaser, to cause the
Warrants and the Common Stock issued pursuant to the exercise thereof to be
eligible for the PORTAL trading system (it being understood that the Company
shall not be required to amend this Agreement in any material way so as to cause
the Common Stock to be eligible to trade on the PORTAL system).
<PAGE> 51
45
9.12 Use of Proceeds. The proceeds of the Senior Subordinated Note
and the Warrants shall be used by the Company as specified in Section 8.3.
9.13 Payment of Notes. The Company shall pay the principal of,
interest on and other amounts due in respect of, the Notes on the dates and in
the manner provided herein and in the Notes.
9.14 Dispositions by the Fund. At any time prior to the earlier to
occur of (x) the Fund ceasing to own at least 25% of the shares of Common Stock
of the Company issuable upon exercise of the Warrants (assuming exercise of any
unexercised Warrants), (y) a Change of Control of the Company or (z) the
occurrence of an Event of Default, the Fund covenants and agrees that it will
not sell or otherwise dispose of the Warrants or the Common Stock issuable upon
exercise of the Warrants except (a) pursuant to the exercise of its rights under
the Registration Rights Agreement, (b) in a sale or other distribution pursuant
to Rule 144 or Rule 144A (or any successor provisions) under the Securities Act,
(c) in compliance with Section 9.15 of this Agreement or (d) to its partners in
pro rata distribution so long as such partners agree to be bound by the terms
and conditions of this Agreement to the same extent as the Fund.
9.15 Right of First Offer.
(a) If, at any time the Fund wishes to transfer, directly or
indirectly, shares of the Common Stock (assuming exercise of unexercised
Warrants) issued to it pursuant to this Agreement (the "Offered Shares"), to a
third party that is not an Affiliate of the Fund (a "Third Party Buyer"), the
Fund shall first offer (the "First Offer") to sell the Offered Shares to the
Company.
(b) The Fund shall send written notice of the First Offer (the
"First Offer Notice") to the Company, which First Offer Notice shall state that
the Fund proposes to effect a transfer of shares of Warrants or Common Stock, as
the case may be, and the number and type of the Offered Shares and (ii) contain
a copy of the terms and conditions of the First Offer. Upon receipt of a First
Offer Notice, the Company shall be entitled to purchase all, but not less than
all, of the Offered Shares upon the terms and conditions set forth in the First
Offer Notice.
(c) The right of First Offer shall be exercisable by delivery
of written notice of exercise (an "Exercise Notice") to the Fund within 10 days
after receipt of the First Offer Notice (the "Option Period"). If the Company
shall fail to respond to the Fund within the Option Period, such failure shall
be regarded as a rejection of the First Offer by the Company.
(d) The closing of any purchase of Offered Shares by the
Company under this Section 9.15 shall be held at the principal office of the
Company on or before the 30th day following delivery of the Exercise Notice (or
such later
<PAGE> 52
46
time as may be necessary to comply with the HSR Act, and other applicable laws)
or at such other time and place as the parties to the transaction may agree. At
such closing, the Fund shall deliver certificates representing the Offered
Shares being purchased by the Company, duly endorsed for transfer and
accompanied by all requisite stock transfer taxes, and such shares shall be free
and clear of any Liens and the Fund shall so represent and warrant, and further
represent and warrant that it is the record and beneficial owner of all such
shares, with full authority and power to transfer such shares. The Fund shall
not be required to make any other representations or warranties. The Company
shall deliver at the closing payment in full for such shares. At such closing,
all of the parties to the transaction shall execute and/or deliver such
additional documents as are otherwise necessary or appropriate to effectuate the
transfer of the Offered Shares.
(e) Notwithstanding anything to the contrary contained in this
Section 9.15, if the Company does not purchase all of the Offered Shares within
the period specified in Section 9.15(d), the Fund may transfer to any Third
Party Buyer, all, but not less than all, of the Offered Shares (i) for a
purchase price that is no lower than 100% of that stated in the First Offer
Notice and (ii) upon terms and conditions otherwise no more favorable to any
Third Party Buyer than those stated in the First Offer Notice; provided,
however, that such transfer is bona fide and made before the later of 90 days
from the later of (i) the date of the rejection of the First Offer, if it is
rejected or the failure to consummate and purchase, if the First Offer is not
rejected and (ii) the date which is ten days after the expiration or waiver of
any applicable waiting period to such proposed transfer pursuant to the HSR Act.
If such sale is not consummated within the period described in the proviso in
the preceding sentence, the restrictions provided for in this Section 9.15 shall
again become effective, and no transfer of shares otherwise subject to this
Section 9.15 may be made thereafter without again offering the same to the
Company in accordance with the terms and conditions of this Agreement.
(f) The provisions of this Section 9.15 shall expire and be of
no further force and effect upon the earlier to occur of (i) an Initial Public
Offering by the Company or (ii) a Change of Control of the Company; provided,
that the provisions of this Section 9.15 shall not be applicable in the event of
any transfer by the Fund to its partners in pro rata distribution so long as
such partners agree to be bound by the terms and conditions of this Agreement to
the same extent as the Fund. Compliance by the Fund with its obligations under
this Section 9.15 may only be waived at the sole discretion of the Company.
9.16 Tag-Along Rights on the Principal Shareholders.
(a) (i) If, at any time, any of the Principal Shareholders,
acting alone or in concert with others (including other Principal Shareholders),
desires to transfer to any person (other than a Family Member thereof), directly
or indirectly, in one or a series of related transfers, 20% or more of the
aggregate shares of
<PAGE> 53
47
Common Stock owned collectively by them (each such transferring Principal
Shareholder is referred to herein as a "Transferor"), such Principal
Shareholders shall comply with the requirements of this Section 9.16.
(ii) Each Transferor shall, prior to making any
transfer, first notify the Fund of such transfer and otherwise comply with this
Section 9.16 and such notice (the "Transferor's Notice") shall (x) specify the
proposed transferee thereof (if known), the number of shares of Common Stock
proposed to be transferred, and the amount of consideration proposed to be
received therefor, and (y) contain the Tag-Along Offer.
(b) The Transferor shall offer (the "Tag-Along Offer") to
include in the proposed transfer a number of shares of Common Stock and Warrants
designated by the Fund, provided that the sum of the number of shares and the
number of shares into which such Warrants are exercisable do not exceed the
product of (x) the number of shares of Common Stock to be sold by the Transferor
and (y) a fraction, the numerator of which is the number of shares of Common
Stock (assuming full exercise of the Warrants) held by the Fund and the
denominator of which is the number of shares of Common Stock outstanding on a
fully diluted basis. The Tag-Along Offer shall be conditioned upon the
Transferor consummating a transfer on substantially the terms described in the
Transferor's Notice to the transferee named in the Transferor's Notice; provided
that the Transferor shall not be obligated to consummate any such transfer.
(c) The rights set forth in this Section 9.16 shall be
exercisable by the Fund by delivery of written notice of exercise (an
"Acceptance Notice") to the Transferor within 10 business days after receipt of
the Transferors Notice (the "Tag-Along Period"). If the Fund fails to respond to
the Transferor within the Tag-Along Period, such failure shall be regarded as a
rejection of the Tag-Along Offer by such Person.
(d) If the Fund did not indicate its desire to exercise its
Tag-Along Rights in the Acceptance Notice provided for in Section 9.16(c) or it
failed to provide such an Acceptance Notice in a timely manner, its rights under
this Section 9.16 shall be deemed to have been waived (for purposes only of the
particular transfer described in the Transferor's Notice). The Transferor and
the Fund, if it indicated its desire to exercise its Tag Along Rights in an
Acceptance Notice, shall be deemed to have accepted the Tag-Along Offer by
virtue of such Acceptance Notice. The Transferor may and, if the Transferor
transfers its shares and the Fund accepted the Tag-Along Offer (the Transferor
and the Fund if it accepts being hereinafter sometimes called "Sellers") shall
transfer the shares and warrants described in the Transferor's Notice and the
shares and warrants included by the Fund pursuant to the Tag-Along Offer to the
proposed transferee, in accordance with substantially the terms of such transfer
set forth in the Transferor's Notice, so long as such transfer occurs on or
before the later of 120 days after the date the Transferor's Notice
<PAGE> 54
48
provided in Section 9.16(a) was received by the Fund or the date which is five
days after the expiration or waiver of any waiting period applicable to such
proposed transfer pursuant to the HSR Act; provided, that if such transfer does
not occur within such period, the provisions of this Section shall be effective
anew. The price per share and form of consideration if the Fund accepts the
Tag-Along Offer, for sales of Warrants or Common Stock shall be the same as the
Transferor's consideration received for Common Stock (except in the case of
Warrants, less the exercise price thereof) and shall be subject, on a several
and not joint basis, to the same representations and warranties, covenants,
indemnities, holdbacks and escrow provisions, if any, and any similar components
of the Tag-Along Offer to which the Transferor is subject; provided, that to the
extent the Sellers are required to provide indemnities in connection with the
transfer of their shares, no Seller shall be required to provide indemnification
that would result in an aggregate liability to such Seller in excess of such
Seller's proceeds from the sale of its securities pursuant to this Section 9.16
and such indemnities shall be made by the Sellers severally and not jointly. All
fees and expenses incurred by the Sellers (including, without limitation, with
respect to financial advisors, accountants and counsel to the Sellers) in
connection with a transfer pursuant to this Section 9.16 shall be borne by the
party incurring such fees and expenses.
(e) The provisions of this Section 9.16 shall not apply to
transfers (i) to Family Members or (ii) from one Principal Shareholder to
another Principal Shareholder. Any securities transferred in accordance with
this Section 9.16 shall not thereafter be subject to the provisions of this
Section 9.16.
(f) The provisions of this Section 9.16 shall expire and be of
no further force and effect once the Fund owns less than 10% of the shares of
Common Stock issuable upon exercise of the Warrants (assuming exercise of any
unexercised Warrants).
9.17 Anti-dilution Protection. Immediately preceding the earliest to
occur of (i) an Initial Public Offering, (ii) the Redemption Date (as defined in
the Warrants) and (iii) the sale by the Fund of all of its Common Stock of the
Company (the earliest to occur being referred to herein as the "Adjustment
Event"), to the extent that the Fund has previously exercised all or a portion
of the Warrants (such Warrants so exercised being, "Exercised Warrants"), the
Company hereby covenants and agrees to sell to the Fund that number of
additional shares of Common Stock of the Company, each at a price per share
equal to the par value of the Common Stock, equal to the difference of (x) the
number of shares that would have been issued to the Fund had the Fund exercised
the Exercised Warrants concurrently with the Adjustment Event less (y) the
number of shares of Common Stock previously issued to the Fund upon the exercise
of those Exercised Warrants. To the extent that the foregoing computation would
result in the issuance by the Company of a fractional share of Common Stock, in
lieu thereof the Company shall pay therefore an amount
<PAGE> 55
49
in cash equal to such fraction multiplied by the Current Market Price (as
defined in the Warrants) of a share of Common Stock on the date of such
Adjustment Event.
9.18 Sale of Company. In the event of a contemplated sale of all of
the capital stock of the Company (by way of merger or otherwise), the Company
shall, if requested by the Purchaser, use its reasonable best efforts to cause
such sale transaction to be structured in a manner that requires the
purchaser(s) to purchase the Warrants from the Purchaser at a price equal to the
consideration the Purchaser would have received had it exercised the Warrants
immediately prior to the consummation of such sale transaction less the exercise
price of such Warrants.
9.19 Allocation for Tax Purposes. The Company hereby covenants and
agrees that it shall allocate $1,137,400 of the Purchase Price to the purchase
by the Purchaser of the Warrants.
ARTICLE 10
NEGATIVE AND FINANCIAL COVENANTS
Until the payment of all principal of and interest on the Notes and
all other amounts due at the time of payment of such principal and interest
under this Agreement, including, without limitation, all expenses and amounts
due at such time in respect of indemnity obligations under Article 7 (except
with respect to Sections 10.5, 10.10 and 10.12, which shall be binding upon the
Company until the earlier of (x) the consummation of an Initial Public Offering,
(y) the expiration of the Warrants without exercise or (z) the sale or
distribution by the Fund of more than 66% of its shares of Common Stock
(assuming exercise of any unexercised Warrants)), the Company covenants and
agrees as follows:
10.1 1997 Financial Covenants.
(a) The Company shall not permit the Net Worth of the Company
and O&W on a consolidated basis as of (1) September 30, 1997 to be less than
$16,000,000 or (2) December 31, 1997 to be less than $16,000,000, as adjusted in
each case by adding to (or subtracting from) such amount, the excess (or
deficit) of the consolidated Net Worth of the Company and O&W reflected in the
opening balance sheet of the Company and its Subsidiaries, including purchase
accounting adjustments thereto, through September 30, 1997, over (or as compared
to) $21,709,000; or
(b) The Company shall not permit EBITDA (but computed on a
basis approximating a consolidated basis in accordance with GAAP that is
satisfactory to the Fund) for the Fiscal Quarter ending (1) June 30, 1997 to be
less
<PAGE> 56
50
than $2,000,000, (2) September 30, 1997 to be less than $3,150,000 or (3)
December 31, 1997, to be less than $100,000.
10.2 Financial Covenants After 1997.
(a) The Company shall not permit the Interest Coverage Ratio
for the period of four consecutive Fiscal Quarters ending (1) March 31, 1998 to
be less than 1.0 to 1.0, (2) June 30, 1998 to be less than 1.2 to 1.0, (3)
September 30, 1998 to be less than 1.3 to 1.0, (4) December 31, 1998 to be less
than 1.4 to 1.0 or (5) March 31, 1999 or thereafter, to be less than 1.6 to 1.0.
(b) The Company shall not permit the Fixed Charge Coverage
Ratio for the period of four consecutive Fiscal Quarters ending (1) March 31,
1998 to be less than .45 to 1.0, (2) June 30, 1998 to be less than .60 to 1.0,
(3) September 30, 1998 or December 31, 1998 to be less than .75 to 1.0, or (4)
March 31, 1999 or thereafter, to be less than 1.0 to 1.0.
(c) The Company shall not permit Funded Debt to EBITDA as of
(1) March 31, 1998 to be greater than 8.75 to 1.0, (2) June 30, 1998 to be
greater than 7.8 to 1.0, (3) September 30, 1998 to be greater than 6.8 to 1.0,
(4) December 31, 1998 to be greater than 6.6 to 1.0, or (5) the last day of any
Fiscal Quarter ending March 31, 1999 or thereafter, to be greater than 6.25 to
1.0.
10.3 Capital Expenditures. The Company shall not make or incur
any Capital Expenditures in the aggregate in excess of the amount set forth
below for the Fiscal Year (or portion thereof) set forth opposite such amount:
Fiscal Year Amount
----------- ------
1997 (Closing Date through $3,000,000
December 31, 1997)
1998 $4,250,000
1999 and thereafter $4,500,000
10.4 Consolidations and Mergers. The Company shall not merge,
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whenever acquired), and the Company shall not allow any of
its Subsidiaries to merge or consolidate with or into any other Person except
another Subsidiary of the Company, except the Company may consolidate or merge
with or into, or sell all or substantially all of its assets to, any Person if:
(a) The corporation or partnership formed by such
consolidation or surviving such merger or the Person which acquires all or
substantially all of the assets of the Corporation shall be (after giving effect
to such
<PAGE> 57
51
transaction) a Solvent corporation or partnership organized or formed, as the
case may be, and existing under, the laws of the United States, any state
thereof, or the District of Columbia and shall expressly assume in writing all
of the obligations of the Company under this Agreement, the Senior Subordinated
Note, the Warrants and the Registration Rights Agreement;
(b) immediately after giving effect to such transaction, no
default under, or breach of, any material Contractual Obligation of the Company
or of the provisions of Articles 9 and 10 exists;
(c) the corporation or partnership formed by or surviving any
such transaction or the Person that acquires all or substantially all of the
assets of the Company shall have a Net Worth on a consolidated basis at least
equal to the Net Worth on a consolidated basis of the Company and its
Subsidiaries immediately prior to such transaction; and
(d) the Company shall have furnished to the Holders (i) an
opinion of counsel reasonably satisfactory to the holders of a majority in
interest of the Notes, addressing the matters (other than solvency) set forth in
clause (a) above and (ii) the certificate of the Chief Financial Officer of the
Company to the effect that such transaction has been consummated in compliance
with the foregoing requirements; provided that nothing in this Section 10.4
shall affect the rights of any holder of the Notes or the Warrants under this
Agreement, the Notes, the Warrants or the Registration Rights Agreement.
10.5 Transactions with Affiliates. Except as set forth in Schedule
10.5 or as otherwise permitted by this Agreement, the Company shall not, and
shall not permit any of its Subsidiaries to, enter into any transaction with any
Affiliate of the Company or of any such Subsidiary, except (i) in the ordinary
course of business and pursuant to the reasonable requirements of the business
of the Company or such Subsidiary, (ii) on terms no less favorable to the
Company or such Subsidiary than those the Company or such Subsidiary would
obtain in a comparable arm's-length transaction with a Person not an Affiliate
of the Company or such Subsidiary, (iii) transactions between the Company and
its Subsidiaries or between Subsidiaries and (iv) following the prior approval
of a majority of the members of the Board of Directors of the Company (excluding
Principal Shareholders and Family Members).
10.6 No Inconsistent Agreements. Except as permitted by Section 10.7
hereof, neither the Company nor any of its Subsidiaries shall (a) enter into any
loan or other agreement after the date hereof or (b) amend or modify the Credit
Agreement or any other currently existing loan or other agreement, which new
loan or other agreement or amendment or modification by its terms restricts or
prohibits the ability of the Company to pay the principal of or interest on the
Notes or to issue Common Stock upon exercise of the Warrants; provided, however,
that the foregoing
<PAGE> 58
52
shall not prevent the Company from entering into loan or other agreements that
contain, or any amendment or other modification to any currently existing credit
agreement to provide, restrictions on the ability of the Company to optionally
redeem or prepay the Notes, following the occurrence of a default or event of
default under such agreements.
10.7 Limitation on Debt. Neither the Company nor any of its
Subsidiaries shall, directly or indirectly, issue, assume or otherwise incur any
Debt, other than: (a) Debt under this Agreement and the Notes; (b) Debt under
the Revolving Credit Facility (as defined in the Credit Agreement) portion of
the Credit Agreement in a principal amount not exceeding $53 million; (c) Debt
under the Term Loan (as defined in the Credit Agreement) portion of the Credit
Agreement in the original principal amount of $12 million, as the principal
balance thereof is reduced from time to time in accordance with its terms; (d)
Debt secured by a Lien permitted under Section 10.8(v) hereof; (e) additional
unsecured Debt at any one time outstanding in a principal amount not exceeding
$4,000,000; (f) the Debt reflected in Schedule 10.7; and (g) refinancings,
refundings and extensions of the foregoing, provided that such refinancing,
refunding or extension shall not:
(a) be in a principal amount greater than (x) the amount
permitted above or (y) as to any refinancing of the Revolving Credit Facility
(as defined in the Credit Agreement) portion of the Credit Agreement, an amount
equal to $53 million plus the amount (the "Cushion Amount") by which the
unsecured Debt of the Company and it Subsidiaries outstanding under subsection
(e) of this Section 10.7 is less than $4,000,000 at the time of any such
refinancing; provided, that the amount of additional unsecured Debt thereafter
permitted under subsection (e) of this Section 10.7 shall be equal to $4,000,000
less the Cushion Amount; or
(b) be pursuant to any agreement that provides for a final
maturity of such Debt that occurs after May 6, 2004; or
(c) be pursuant to any agreement that purports to restrict the
Company's ability to pay, without conflict with the terms of such agreement,
principal of, or interest (or premium, if any) on, the Debt outstanding under
this Agreement and the Notes in accordance with the terms thereof, other than by
reason of the existence of an event of default that would permit the holder of
such Debt to accelerate the maturity thereof or of an event which, with the
giving of notice or lapse of time, or both, would constitute such an event of
default; or
(d) be pursuant to any agreement that purports otherwise to
alter the rights and obligations of any Holder of Notes under Article 12 of this
Agreement or any subordination provisions applicable immediately prior to the
effectiveness of such refinancing, refunding or extension, to the Debt so
refinanced, refunded or extended.
<PAGE> 59
53
10.8 Limitation on Liens. Neither the Company nor any of its
Subsidiaries shall create, incur, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by it, other than: (i) Liens existing on
the date of this Agreement and disclosed on Schedule 10.8; (ii) Liens for taxes,
statutory Liens of landlords and Liens of carriers, warehousemen, mechanics and
materialmen, in each case only to the extent the obligations thereto are not yet
due or are being contested in good faith by appropriate proceedings diligently
pursued; (iii) Liens to secure performance of tenders, bids, statutory
obligations or government contracts, and similar Liens not securing Indebtedness
and arising in the ordinary course of business; (iv) Liens to secure Debt
permitted under Section 10.7(b); and (v) any Lien on inventory, equipment or
real property securing Debt up to $3,000,000 in any 12-month period incurred or
assumed for the sole purpose of financing all or part of the cost of acquiring
such inventory, equipment or real property, provided that, in the case of clause
(v) above, such Lien attaches to such asset concurrently with or within 10 days
after the acquisition thereof.
10.9 Investments. Neither the Company nor any of its Subsidiaries
shall make any Investment, except for (i) Investments in Temporary Cash
Investments, (ii) loans and advances to employees for reasonable travel and
business expenses in the ordinary course of business, (iii) prepaid expenses
incurred in the ordinary course of business, (iv) trade accounts receivable
created in the ordinary course of business, (v) Investments which are listed on
Schedule 10.9, (vi) Investments by the Company in its Subsidiaries (whether or
not existing on the date hereof), (vii) additional Investments not to exceed
$500,000 individually or $1,000,000 in the aggregate in any Fiscal Year and
(viii) shares of capital stock, evidence of Indebtedness or other security
acquired by the Company or O&W in consideration for or as evidence of past-due
or restructured Receivables in an aggregate face amount of such Receivables at
any time not to exceed $1,000,000 as to the Company and O&W.
10.10 Limitations on Restricted Payments. Except as set forth on
Schedule 10.10 or as otherwise permitted under this Agreement (including,
without limitation, pursuant to Section 10.7 hereof), neither the Company nor
any of its Subsidiaries will declare or make any Restricted Payment except that
the Company may (i) declare and pay dividends on the Series A Preferred Stock
and Series B Preferred Stock, or redeem in accordance with Section 6.5(a) of the
Amended and Restated Articles the Series A Preferred Stock and (ii) make
supplemental discretionary payments in an amount up to an aggregate of $300,000
in any calendar year to Ann Heafner Gaither, William H. Gaither and Susan
Gaither Jones, in each case so long as, both immediately preceding and
immediately following the making of such Restricted Payment, there is no default
or Event of Default under this Agreement or the Notes.
10.11 Dispositions of Assets. Neither the Company nor any of its
Subsidiaries shall sell, transfer, lease or otherwise dispose of (in one
transaction or in
<PAGE> 60
54
a series of transactions) all or any part of the assets or properties of the
Company or any of its Subsidiaries other than (i) assets or properties sold in
the ordinary course of business or (ii) assets or properties, sales of which do
not exceed in the aggregate $2,000,000 any 12-month period.
10.12 Articles of Incorporation and By-Laws of the Company and the
Subsidiaries. The Company shall not amend in any material respect or in any
respect that may be adverse to the interests of the Fund, the articles or
certificate of incorporation or by-laws of the Company or any of its
Subsidiaries.
ARTICLE 11
DEFAULTS AND REMEDIES
11.1 Events of Default. An "Event of Default" shall occur if:
(i) the Company shall default in the payment of any
installment of principal of any Note, when and as the same shall become due and
payable, whether at maturity or at a date fixed for prepayment or by
acceleration or otherwise; or
(ii) the Company shall default in the payment of any
installment of interest on any Note according to the terms thereof, when and as
the same shall become due and payable and such default shall continue for a
period of five days; or
(iii) the Company or any of its Subsidiaries shall default in
the due observance or performance of any covenant to be observed or performed
pursuant to Sections 9.1(a), 9.1(b), 9.8, 9.10 or Article 10 hereof; or
(iv) the Company or any of its Subsidiaries, as the case may
be, shall default in the due observance or performance of any other covenant,
condition or agreement on the part of the Company or any of its Subsidiaries to
be observed or performed pursuant to the terms of this Agreement, and such
default shall continue for 30 days after the date written notice thereof shall
have been given to the Company by the holder of any of the Notes; or
(v) any representation, warranty, certification or statement
made by or on behalf of the Company in this Agreement or in any certificate or
other document delivered pursuant hereto shall have been incorrect in any
material respect when made; or
(vi) any (A) default in any payment when due of principal of
or interest on any Debt of the Company or any of its Subsidiaries other than the
<PAGE> 61
55
Notes, in an aggregate amount outstanding at any one time equal to or exceeding
$250,000, and such default shall continue for a period of ten days or (B)
default in the observance or performance of any other agreement or condition
relating to any such Debt or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition results
in the acceleration of such Indebtedness prior to its stated maturity; or
(vii) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(a) relief in respect of the Company or any of its Subsidiaries, or of a
substantial part of their property or assets, under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar law, (b) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Company or any of its Subsidiaries, or for a substantial part of their
property or assets, or (c) the winding up or liquidation of the Company or any
of its Subsidiaries; and such proceeding or petition shall continue undismissed
or unstayed for 60 days, or an order or decree approving or ordering any of the
foregoing shall be entered; or
(viii) the Company or any Subsidiary thereof shall (a)
voluntarily commence any proceeding or file any petition seeking relief under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other Federal or state bankruptcy, insolvency, receivership or similar law,
(b) consent to the institution of or the entry of an order for relief against
it, or fail to contest in a timely and appropriate manner, any proceeding or the
filing of any petition described in paragraph (vii) of this Section 11.1, (c)
apply for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Company or any of its
Subsidiaries, or for a substantial part of their property or assets, (d) file an
answer admitting the material allegations of a petition filed against it in any
such proceeding, (e) make a general assignment for the benefit of creditors, (f)
become unable, admit in writing its inability or fail generally to pay its debts
as they become due or (g) take any action for the purpose of effecting any of
the foregoing; or
(ix) one or more judgments for the payment of money in an
aggregate amount in excess of $250,000 (to the extent not covered by insurance)
shall be rendered against the Company or any of its Subsidiaries and the same
shall remain undischarged for a period of 30 days during which execution shall
not be effectively stayed, or any action shall be legally taken by a judgment
creditor to levy upon assets or properties of the Company or any of its
Subsidiaries to enforce any such judgment.
11.2 Acceleration. If an Event of Default occurs under clauses (vii)
or (viii) of Section 11.1, then the outstanding principal of and all accrued
interest on the Notes and all other amounts owing under this Agreement and the
Note shall
<PAGE> 62
56
automatically become immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are expressly waived. If any other
Event of Default occurs and is continuing, the holders of 51% of the aggregate
principal amount of the Notes outstanding, by written notice to the Company, may
declare the principal of and accrued interest on the Notes and all other amounts
owing under this Agreement to be due and payable immediately. Upon such
declaration, such principal and interest and other amounts shall become
immediately due and payable. The holders of 51% of the aggregate principal
amount of the Notes outstanding may rescind an acceleration and its consequences
if all existing Events of Default have been cured or waived, except nonpayment
of principal or interest or other amounts that has become due solely because of
the acceleration, and if the rescission would not conflict with any judgment or
decree. Any notice or rescission shall be given in the manner specified in
Section 14.2 hereof.
ARTICLE 12
SUBORDINATION
Notwithstanding anything to the contrary contained herein, the
Subordinated Indebtedness (as defined below) shall at all times be wholly
subordinate and junior in right of payment to all Senior Indebtedness (as
defined below) to the extent and in the manner provided in this Article 12.
12.1 Definitions. As used in this Article 12, the following terms
shall have the following meanings:
"Junior Securities" means any debt or equity securities distributed
to the holders of the Notes issued pursuant to this Agreement, but only if they
are subordinated to at least the same extent as the Subordinated Indebtedness is
subordinated to the Senior Indebtedness and any securities issued in exchange
for Senior Indebtedness.
"Senior Default" shall mean a Senior Payment Default or a Senior
Event of Default.
"Senior Event of Default" shall mean any default, other than a
Senior Payment Default, that occurs and is continuing with respect to Senior
Indebtedness that permits the holders thereof to accelerate the maturity of such
Senior Indebtedness.
"Senior Indebtedness" shall mean (i) the principal of and interest
on (including without limitation any interest that accrues after the
commencement of any case, proceeding or other legal action relating to the
bankruptcy, insolvency or reorganization of the Company to the extent such
interest constitutes an allowed
<PAGE> 63
57
claim) the Debt permitted under Section 10.7(b) (including permitted
refinancings, refundings or extensions thereof) and (ii) any other monetary
obligations of the Company arising out of or in connection with any Senior
Indebtedness.
"Senior Payment Default" shall mean any default in the payment of
any Senior Indebtedness that occurs and is continuing beyond any applicable
period of grace.
"Subordinated Indebtedness" shall mean (i) the principal of and
interest on the Notes; and (ii) any other monetary obligations of the Company or
any of its Subsidiaries arising out of or in connection with this Agreement or
the Notes.
12.2 General. Subject to the rights of the holders of the
Subordinated Indebtedness to receive Junior Securities and any distributions
provided in this Article 12, upon the maturity of any Senior Indebtedness by
lapse of time, acceleration, required prepayment or otherwise, all Senior
Indebtedness then so due and payable shall first be paid or provided for in
full, before any payment is made or provided for on account of the Subordinated
Indebtedness then so due and payable or any Notes issued pursuant to this
Agreement are redeemed.
12.3 Limitation on Payment and Remedies.
(a) Upon receipt by the Company and the holders of the Notes
of a Blockage Notice (as defined below), then unless and until (1) all Senior
Defaults that gave rise to the Blockage Notice shall have been remedied or
effectively waived or shall have ceased to exist or (2) the Senior Indebtedness
in respect of which such Senior Defaults shall have occurred shall have been
paid or provided for in full, no direct or indirect payment (in cash, property,
securities or by set-off or otherwise) of or on account of the principal of or
interest on the Notes or as a sinking fund for the Notes or in respect of any
redemption, retirement, purchase or other acquisition of the Notes, with the
exception of Junior Securities, shall be made during any period prior to the
expiration of the Blockage Period (as defined below).
(b) For purposes of this Article 12, a "Blockage Notice" is a
notice of a Senior Default that in fact has occurred and is continuing, given to
the Company and the holders of the Notes by the holders of a majority in
principal amount of the Senior Indebtedness then outstanding (or their
authorized agent); provided, however, that no such notice shall be effective as
a Blockage Notice if an effective Blockage Notice shall have been given within
360 days prior thereto.
(c) For purposes of this Article 12, a "Blockage Period" with
respect to a Blockage Notice is the period commencing upon the Company's receipt
of such Blockage Notice and having a duration of 180 days therefrom. Upon the
expiration or termination of any Blockage Period, the holders of the Notes shall
be entitled to be paid accrued but unpaid interest then due on the Notes.
<PAGE> 64
58
(d) As long as any Senior Indebtedness remains outstanding,
upon the occurrence of an Event of Default under this Agreement or the Notes,
the holders of the Subordinated Indebtedness shall not declare or join in any
declaration of the Notes to be due and payable by reason of such Event of
Default or otherwise take any action against the Company prior to the expiration
of (x) 20 days in the case of any default in payment when due (after expiration
of any applicable grace period) of any amount payable hereunder or (y) 60 days
in the case of any other Event of Default (a "Remedy Standstill Period") after
the written notice of intention to accelerate on account of the occurrence of
such Event of Default, specifying same (the "Remedy Notice") shall have been
given by the holders of the principal amount of the Subordinated Indebtedness
necessary to cause acceleration thereof to the Company and the holders of the
Senior Indebtedness (or their authorized agent) unless the holders of any Senior
Indebtedness shall have caused such Senior Indebtedness to become due prior to
its stated maturity or any case or proceeding of the type referred to in Section
11.1(viii) or 11.1(ix) shall have commenced; provided, however, that such Remedy
Standstill Period shall be extended (to up to 200 or 240 days, as applicable) to
coincide with any Blockage Period commenced pursuant to an effective Blockage
Notice given during the first 20 or 60 days, as the case may be, of such Remedy
Standstill Period. Upon the expiration or termination of any Remedy Standstill
Period, the holders of the Notes shall be entitled to exercise any of their
rights with respect to the Notes other than any right to accelerate the maturity
date of the Notes based upon the occurrence of any Event of Default which has
been cured or otherwise remedied or waived by the requisite holders during the
Remedy Standstill Period.
(e) Notwithstanding the foregoing, any Blockage Period or
Remedy Standstill Period shall be inapplicable or cease to be effective if an
Event of Default pursuant to Section 11.1(vii) or 11.1(viii) shall have
occurred. In addition, any Blockage Period or Remedy Standstill Period shall
cease to be effective if at any time during such period: (i) substantial assets
of the Company are sold or otherwise disposed of outside of the ordinary course
of business for less than fair value or (ii) payment or any distribution of any
character, whether in cash, securities or other property of the Company shall be
made to or received by any creditor on any Indebtedness which is on the same
level of priority with or junior and subordinate in right of payment to the
Notes.
12.4 Subordination Upon Certain Events. Upon the occurrence of any
Event of Default under Sections 11.1(vii) or (viii) of this Agreement:
(i) Upon any payment or distribution of assets of the Company
to creditors of the Company, holders of Senior Indebtedness shall be entitled to
receive payment in full before the holders of Subordinated Indebtedness shall be
entitled to receive any payment in respect of the Subordinated Indebtedness,
except that the holders of Subordinated Indebtedness may receive Junior
Securities.
<PAGE> 65
59
(ii) Until all Senior Indebtedness is paid in full, any
distribution to which the holders of Subordinated Indebtedness would be entitled
but for this Article 12 shall be made to holders of Senior Indebtedness, as
their interests may appear, except that the holders of Subordinated Indebtedness
may receive Junior Securities.
(iii) Notwithstanding the foregoing provisions of this Section
12.4, if payment or delivery by the Company of Junior Securities to the holders
of Subordinated Indebtedness is authorized by an order or decree giving effect,
and stating in such order or decree that effect is given, to the subordination
of the Subordinated Indebtedness to the Senior Indebtedness, and made by a court
of competent jurisdiction in a proceeding under any applicable bankruptcy or
reorganization law, payment or delivery by the Company of such Junior Securities
shall be made to the holders of the Subordinated Indebtedness in accordance with
such order or decree.
12.5 Payments and Distributions Received. If the holders of the
Subordinated Indebtedness shall have received any payment from or distribution
of assets of the Company in respect of the Subordinated Indebtedness in
contravention of the terms of this Article 12 before all Senior Indebtedness is
paid in full, then and in such event such payment or distribution shall be
received and held in trust for and shall be paid over or delivered to the
holders of Senior Indebtedness (or their authorized agent) to the extent
necessary to pay all such Senior Indebtedness in full.
12.6 Subrogation. After all amounts payable under or in respect of
Senior Indebtedness are paid in full, the holders of the Subordinated
Indebtedness shall be subrogated to the rights of holders of Senior Indebtedness
to receive payments or distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the holders of the Subordinated
Indebtedness have been applied to the payment of Senior Indebtedness. A
distribution made under this Article 12 to a holder of Senior Indebtedness which
otherwise would have been made to the holders of the Subordinated Indebtedness
is not, as between the Company and the holders of the Subordinated Indebtedness,
a payment by the Company on Senior Indebtedness.
12.7 Relative Rights. This Article defines the relative rights of
the holders of the Subordinated Indebtedness and the holders of Senior
Indebtedness. Nothing in this Section shall: (i) impair, as between the Company
and the holders of the Subordinated Indebtedness, the obligation of the Company,
which is absolute and unconditional, to pay principal of and interest (including
default interest) on Subordinated Indebtedness in accordance with its terms;
(ii) effect the relative rights of holders of Subordinated Indebtedness and
creditors of the Company other than holders of Senior Indebtedness; or (iii)
prevent the holders of Subordinated Indebtedness from exercising their available
remedies upon a default or Event of Default, subject to the rights, if any,
under this Article 12 of holders of Senior
<PAGE> 66
60
Indebtedness to receive distributions otherwise payable to the holders of
Subordinated Indebtedness.
12.8 Subordination May Not Be Impaired by the Company. No
right of any holder of any Senior Indebtedness to enforce the subordination of
the Subordinated Indebtedness shall be impaired by any failure by the Company to
comply with this Agreement.
12.9 Payments. A payment with respect to principal of or
interest on the Subordinated Indebtedness shall include, without limitation,
payment of principal of, and interest on the Subordinated Indebtedness, any
depositing of funds for the defeasance of the Subordinated Indebtedness and any
payment on account of mandatory prepayment or optional prepayment provisions.
12.10 Section Not to Prevent Events of Default. The failure to
make a payment on account of principal of or interest on or other amounts
constituting Subordinated Indebtedness by reason of any provision of this
Article 12 shall not be construed as preventing the occurrence of an Event of
Default under Article 11.
ARTICLE 13
PREPAYMENT
The Company shall prepay outstanding principal (together with
accrued interest) on the Notes in accordance with the "Mandatory Prepayment"
provisions set forth in Section 3 of the Notes. The Company may prepay
outstanding principal (together with accrued interest) on the Notes only if the
Notes are prepaid in accordance with the "Optional Prepayment" provisions set
forth in Section 4 of the Notes.
ARTICLE 14
MISCELLANEOUS
14.1 Survival of Provisions. All of the representations and
warranties made herein shall survive the execution and delivery of this
Agreement, any investigation by or on behalf of the Purchaser or any Affiliate,
acceptance of the Senior Subordinated Note, Warrants and shares of Common Stock
issued pursuant to the exercise of the Warrants and payment therefor, payment of
the Senior Subordinated Note upon redemption or otherwise, exercise of the
Warrants or termination of this Agreement.
<PAGE> 67
61
14.2 Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier services or personal delivery to the following addresses, or to such
other addresses as shall be designated from time to time by a party in
accordance with this Section 14.2:
(a) if to the Purchaser:
The 1818 Mezzanine Fund, L.P.
c/o Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
Attention: Joseph P. Donlan
Telecopier No.: (212) 493-8429
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Marilyn Sobel, Esq.
Telecopier No.: (212) 757-3990
(b) if to the Company:
The J.H. Heafner Company, Inc.
814 East Main Street
P.O. Box 837
Lincolntown, North Carolina 28093-0837
Attention: William Gaither
Telecopier No.: (704) 732-6480
with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, New York 10019
Attention: Scott F. Smith, Esq.
Telecopier No.: (212) 841-1010
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; when delivered
to a
<PAGE> 68
62
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
14.3 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns and
permitted transferees of the parties hereto. Except as provided in Articles 7
and 12, no Person other than the parties hereto and their successors and
permitted assigns is intended to be a beneficiary of this Agreement, the Notes
and the Warrants.
14.4 Assignments.
(a) The Company may not assign any of its rights or
obligations under this Agreement without the written consent of the Purchaser
(prior to Closing) or the holders of a majority (x) in aggregate principal
amount of the Notes (following Closing) and (y) of the shares of Common Stock
issuable upon conversion of the Warrants.
(b) The Purchaser and any subsequent holder of Notes or
Warrants may, at any time or from time to time sell, agree to sell or assign to
one or more other Persons who agree to be bound by all of the terms of this
Agreement, all or any portion of the Notes; provided, however, that any sale or
assignment of a portion of the Notes shall be in denominations of no less than
$250,000 (except in the case of a distribution by the Fund to its partners);
provided further, however, that without the prior written consent of the
Company, the Purchaser shall not sell or assign all or any portion of the Notes
to any Person that is in the good faith judgment of the Board of Directors of
the Company a supplier to, or direct or indirect competitor of, the Company.
Notwithstanding anything to the contrary contained herein, the provisos
contained in the foregoing sentence shall cease to be effective in the event of
an Event of Default under this Agreement or the Notes. Any transfer in violation
of this paragraph 14.4(b) shall be void. In the event of any such sale or
assignment of a Note, upon surrender for exchange of any Note at the office of
the Company designated for notices in accordance with Section 14.2, the Company
shall execute and deliver in exchange therefor, without expense to the holder,
one or more new Notes in the same aggregate principal amount as the then unpaid
principal amount of the Note so surrendered as such holder shall specify, dated
as of the date to which interest has been paid on the Note so surrendered (or,
if no interest has been paid, the date of such surrendered Note), in the name of
such Person or Persons as may be designated by such holder in writing, and
otherwise of the same form and tenor as the Note so surrendered for exchange.
Every Note surrendered for transfer shall be duly endorsed, or accompanied by a
written instrument of transfer duly executed by the holder of such Note or its
attorney duly authorized in writing.
<PAGE> 69
63
14.5 Amendment and Waiver.
(a) No failure or delay on the part of any Holder, in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to any holder of a
Note at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement or the Notes, any waiver of any provision of this
Agreement or the Notes, and any consent to any departure by the Company from the
terms of any provision of this Agreement or the Notes, shall be effective (i)
only if it is made or given in writing and signed by the Company and the holders
of 51% of the aggregate principal amount of the Notes outstanding and holders of
at least 51% of the shares of Common Stock issued or issuable upon conversion of
the Warrants, and (ii) only in the specific instance and for the specific
purpose for which made or given. However, without the consent of each holder of
a Note affected, an amendment may not:
(1) reduce the rate of or extend the time for payment
of interest on any Note;
(2) reduce the principal of or extend the maturity of
any Note;
(3) change the time at which any Note shall or may be
prepaid in accordance with Sections 3 and 4 of the
Notes;
(4) make any Note payable in money other than that
stated in the Notes;
(5) make any change in Article 12 that adversely
affects the rights of any holder of a Note under
Article 12; or
(6) make any change in the first or second sentence of
this Section 14.5(b).
Except where notice is specifically required by this Agreement, no notice to or
demand on the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances.
<PAGE> 70
64
14.6 Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
14.7 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
14.8 Determinations. All determinations to be made by the
Company, the Purchaser or any Holder hereunder in its opinion or judgment or
with its approval or otherwise shall be made by it in its sole discretion.
14.9 Governing Law. This Agreement has been negotiated,
executed and delivered in the State of New York and shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law.
14.10 Jurisdiction. Each party to this Agreement hereby
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or any agreements or transactions contemplated hereby
may be brought in the courts of the State of New York located in New York City
or of the United States of America for the Southern District of New York and
hereby expressly submits to the personal jurisdiction and venue of such courts
for the purposes thereof and expressly waives any claim of improper venue and
any claim that such courts are an inconvenient forum. Each party hereby
irrevocably consents to the service of process of any of the aforementioned
courts pursuant to a contractual provision in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 14.2, such service to
become effective 10 days after such mailing. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HEREBY WAIVES, AND COVENANTS
THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY
RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND,
ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE
SUBJECT MATTER HEREOF OR ANY FUNDAMENTAL DOCUMENT, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR OTHERWISE.
14.11 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired,
unless the provisions held invalid,
<PAGE> 71
65
illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
14.12 Rules of Construction. Unless the context otherwise requires,
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Agreement.
14.13 Remedies. If a breach of this Agreement, the Notes or the
Warrants by the Company occurs and is continuing, the Purchaser or any holder of
Notes or Warrants may pursue any available remedy by proceeding at law or in
equity to enforce the performance (including, without limitation, the specific
performance) of any provision of the Notes, the Warrants or this Agreement. The
Purchaser or any holder of Notes or Warrants may maintain a proceeding even if
it does not possess any of the Notes or Warrants or does not produce any of them
in the proceeding. Except as otherwise provided by law, a delay or omission by
the Purchaser or any holder of Notes or Warrants in exercising any right or
remedy accruing upon any such breach shall not impair the right or remedy or
constitute a waiver of or acquiescence in any such breach. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
14.14 Entire Agreement. This Agreement, together with the exhibits
and schedules hereto, the Senior Subordinated Note, the Warrants and the
Registration Rights Agreement is intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein or
therein. This Agreement, together with the exhibits and schedules hereto, the
Senior Subordinated Note, the Warrants and the Registration Rights Agreement
supersede all prior agreements and understandings among the parties with respect
to such subject matter.
14.15 Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, the Notes, the Warrants and the
Registration Rights Agreement or any other document or instrument contemplated
hereby or thereby, or where any provision hereof or thereof is validly asserted
as a defense, the successful party shall be entitled to recover reasonable
attorneys' fees, charges and disbursements in addition to any other available
remedy.
14.16 Publicity. Except as may be required by applicable law, no
party hereto shall issue a publicity release or announcement or otherwise make
any public disclosure concerning this Agreement or the transactions contemplated
hereby, without prior approval by the other parties hereto. If any announcement
is required by law to be made by a party hereto, prior to making such
announcement such party will deliver a draft of such announcement to the other
parties and shall give the other parties an opportunity to comment thereon.
<PAGE> 72
66
14.17 Expenses. The Company acknowledges and agrees that whether or
not the transactions contemplated hereby are consummated, the Company shall
reimburse the Purchaser for all out-of-pocket expenses, all legal fees and
expenses of the Purchaser incurred in connection with the negotiation, execution
and delivery of this Agreement and the other Transaction Documents.
<PAGE> 73
67
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective officers or partners hereunto duly
authorized as of the date first above written.
THE J.H. HEAFNER COMPANY, INC.
By: /s/ WILLIAM H. GAITHER
-------------------------------------------
Name: William Gaither
Title: President and Chief Executive
Officer
THE 1818 MEZZANINE FUND, L.P.
Per Pro Brown Brothers Harriman &
Co., General Partner
By: /s/ JOSEPH P. DONLAN
-------------------------------------------
Name:
IN WITNESS WHEREOF, William Gaither, Ann Heafner Gaither, Susan
Gaither Jones and Thomas R. Jones have duly executed this Agreement as of the
date first above written solely for purposes of covenanting and agreeing to be
bound by Section 9.16 of this Agreement.
/s/ WILLIAM H. GAITHER
-----------------------------
William Gaither
/s/ ANN HEAFNER GAITHER
-----------------------------
Ann Heafner Gaither
/s/ SUSAN GAITHER JONES
-----------------------------
Susan Gaither Jones
/s/ THOMAS R. JONES
-----------------------------
Thomas R. Jones
<PAGE> 1
Exhibit 10.6
REGISTRATION RIGHTS AGREEMENT
between
THE J.H. HEAFNER COMPANY, INC.
and
THE 1818 MEZZANINE FUND, L.P.
---------------------------------------
Dated May 7, 1997
---------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
1. Background.......................................................1
2. Registration Under Securities Act, etc...........................1
2.1 Registration on Request....................................1
2.2 Incidental Registration....................................3
2.3 Registration Procedures....................................5
2.4 Underwritten Offerings.....................................8
2.5 Preparation; Reasonable Investigation......................9
2.6 Limitations, Conditions and Qualifications to
Obligations under Registration Covenants ..................9
2.7 Indemnification...........................................10
3. Definitions.....................................................13
4. Rule 144 and Rule 144A..........................................15
5. Amendments and Waivers..........................................15
6. Nominees for Beneficial Owners..................................15
7. Notices.........................................................15
8. Assignment......................................................16
9. Calculation of Percentage Interests in Registrable Securities...16
10. No Inconsistent Agreements......................................16
11. Remedies........................................................17
12. Certain Distributions...........................................17
13. Severability....................................................17
14. Entire Agreement................................................17
15. Headings........................................................17
16. GOVERNING LAW...................................................17
17. Counterparts....................................................18
i
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT, dated May 7, 1997, between THE J.H.
HEAFNER COMPANY, INC., a North Carolina corporation (the "Company"), and THE
1818 MEZZANINE FUND, L.P., a Delaware limited partnership (the "Purchaser").
1. Background. Pursuant to a Senior Subordinated Note and Warrant
Purchase Agreement, dated May 7, 1997, between the Company and the Purchaser
(the "Purchase Agreement"), the Purchaser has agreed to purchase from the
Company, and the Company has agreed to issue to the Purchaser, $16 million of
the Company's Senior Subordinated Promissory Notes due May 7, 2004 (the "Notes")
and 977,590 detachable warrants exercisable immediately to purchase initially
977,590 shares of the Company's common stock, par value $.01 per share, at an
exercise price of $.01 per share (the "Warrants"). Capitalized terms used herein
but not otherwise defined shall have the meanings given them in the Purchase
Agreement or in Section 3.
2. Registration Under Securities Act, etc.
2.1 Registration on Request.
(a) Request. At any time, or from time to time following
an Initial Public Offering, one or more holders (the "Initiating Holders") of
33% or more of the shares of Common Stock issued upon exercise of the Warrants
(assuming exercise of any unexercised Warrants), may, upon written request,
require the Company to effect the registration under the Securities Act of any
Registrable Securities held by such Initiating Holders. The Company promptly
will give written notice of such requested registration to all other holders of
Registrable Securities who may join in such registration, and thereupon the
Company will use its reasonable best efforts to effect, at the earliest possible
date, the registration under the Securities Act, including by means of an
"evergreen" shelf registration on Form S-3 (or any successor form) pursuant to
Rule 415 under the Securities Act if so requested in such request (but only if
the Company is then eligible to use such a shelf registration and if Form S-3
(or such successor form) is then available to the Company), of
(i) the Registrable Securities that the Company
has been so requested to register by such Initiating Holders, and
(ii) all other Registrable Securities that the
Company has been requested to register by the holders thereof (such
holders together with the Initiating Holders hereinafter are
referred to as the "Selling Holders") by written request given to
the Company within 20 days after the giving of such written notice
by the Company, all to the extent requisite to permit the
disposition of the Registrable Securities so to be registered.
<PAGE> 4
2
(b) Registration of Other Securities. Whenever the
Company shall effect a registration pursuant to this Section 2.1, no securities
other than Registrable Securities or securities to be offered and sold by the
Company for its own account shall be included among the securities covered by
such registration unless the Selling Holders of not less than 51% of all
Registrable Securities to be covered by such registration shall have consented
in writing to the inclusion of such other securities.
(c) Registration Statement Form. Registrations under
this Section 2.1 shall be on such appropriate registration form of the
Commission as shall be reasonably selected by the Company.
(d) Effective Registration Statement. A registration
requested pursuant to this Section 2.1 shall not be deemed to have been effected
(i) unless a registration statement with respect thereto has become effective
and remained effective in compliance with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities covered by such
registration statement until the earlier of (x) such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in such
registration statement and (y) 180 days after the effective date of such
registration statement, except with respect to any registration statement filed
pursuant to Rule 415 under the Securities Act, in which case the Company shall
use its best efforts to keep such registration statement effective until such
time as all of the Registrable Securities cease to be Registrable Securities,
(ii) if after it has become effective, such registration is interfered with by
any stop order, injunction or other order or requirement of the Commission or
other governmental agency or court for any reason not attributable to the
Selling Holders and has not thereafter become effective, or (iii) if the
conditions to closing specified in the underwriting agreement, if any, entered
into in connection with such registration are not satisfied or waived, other
than by reason of a failure on the part of the Selling Holders.
(e) Selection of Underwriters. The underwriter or
underwriters of each underwritten offering of the Registrable Securities so to
be registered shall be selected by the Company and shall be reasonably
acceptable to the Selling Holders of more than 50% of each class of Registrable
Securities to be included in such registration.
(f) Priority in Requested Registration. If the managing
underwriter of any underwritten offering shall advise the Company in writing
(and the Company shall so advise each Selling Holder of Registrable Securities
requesting registration of such advice) that, in its opinion, the number of
securities requested to be included in such registration exceeds the number that
can be sold in such offering within a price range acceptable to the Selling
Holders of 66-2/3% of the Registrable Securities requested to be included in
such registration, the Company, except as provided in the following sentence,
will include in such registration, to the extent of the number and type that the
Company is so advised can
<PAGE> 5
3
be sold in such offering, prior to the inclusion of any securities which are not
Registrable Securities the number of Registrable Securities requested to be
included in such registration, pro rata among the Selling Holders requesting
such registration on the basis of the estimated gross proceeds from the sale
thereof. If the total number of Registrable Securities requested to be included
in such registration cannot be included as provided in the preceding sentence,
holders of Registrable Securities requesting registration thereof pursuant to
Section 2.1, representing not less than 33-1/3% of the Registrable Securities
with respect to which registration has been requested and constituting not less
than 66-2/3% of the Initiating Holders, shall have the right to withdraw the
request for registration by giving written notice to the Company within 15 days
after receipt of such notice by the Company and, in the event of such
withdrawal, such request shall not be counted for purposes of the requests for
registration to which holders of Registrable Securities are entitled pursuant to
Section 2.1 hereof.
(g) Limitations on Registration on Request.
Notwithstanding anything in this Section 2.1 to the contrary, in no event will
the Company be required to (i) effect, in the aggregate, more than two
registrations pursuant to this Section 2.1 or (ii) effect more than one
registration pursuant to this Section 2.1 within the twelve-month period
occurring immediately subsequent to the effectiveness (within the meaning of
Section 2.1(d)) of a registration statement filed pursuant to this Section 2.1.
(h) Listing. The Company shall list the Registrable
Securities subject to Section 2.1(a) on the National Market System of the Nasdaq
Stock Market or another of the national securities exchanges or automated
quotation systems.
(i) Expenses. The Company will pay all Registration
Expenses (except for any underwriting commissions or discounts) in connection
with any registration requested pursuant to this Section 2.1.
2.2 Incidental Registration.
(a) Right to Include Registrable Securities. If the
Company at any time, other than in connection with an Initial Public Offering,
proposes to register any shares of Common Stock or any securities convertible
into Common Stock under the Securities Act by registration on any form other
than Forms S-4 or S-8, whether or not for sale for its own account, it will each
such time give prompt written notice to all registered holders of Registrable
Securities of its intention to do so and of such holders' rights under this
Section 2.2. Upon the written request of any such holder (a "Requesting Holder")
made as promptly as practicable and in any event within 20 days after the
receipt of any such notice, the Company will use its reasonable best efforts to
effect the registration under the Securities Act of all Registrable Securities
that the Company has been so requested to register by the Requesting Holders
thereof; provided, however, that prior to the effective date of the
<PAGE> 6
4
registration statement filed in connection with such registration, immediately
upon notification to the Company from the managing underwriter of the price at
which such securities are to be sold, if such price is below the price that any
Requesting Holder shall have indicated to be acceptable to such Requesting
Holder, the Company shall so advise such Requesting Holder of such price, and
such Requesting Holder shall then have the right to withdraw its request to have
its Registrable Securities included in such registration statement; provided
further, that if, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each Requesting Holder of Registrable Securities and (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from any obligation of the Company to pay the Registration Expenses in
connection therewith), without prejudice, however, to the rights of any holder
or holders of Registrable Securities entitled to do so to cause such
registration to be effected as a registration under Section 2.1, and (ii) in the
case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities, for the same period as the delay in
registering such other securities. Notwithstanding anything contained in this
Section 2.2(a), the Company shall not, if any Requesting Holder shall have
requested the registration of shares of Common Stock issuable upon exercise of
any Warrant in the registration, consummate the sale of the securities included
in the registration until such time as any applicable waiting period under the
Hart-Scott-Rodino Act shall have expired or early termination thereunder shall
have been granted if such Requesting Holder notifies the Company that it is
required to make a filing under the Hart-Scott-Rodino Act before it may exercise
its Warrants. No registration effected under this Section 2.2 shall relieve the
Company of its obligation to effect any registration upon request under Section
2.1.
(b) Priority in Incidental Registrations. If the
managing underwriter of any underwritten offering shall inform the Company in
writing of its opinion that the number or type of Registrable Securities
requested to be included in such registration would materially adversely affect
such offering, and the Company has so advised the Requesting Holders in writing,
then the Company will include in such registration, to the extent of the number
and type that the Company is so advised can be sold in (or during the time of)
such offering, first, all securities proposed by the Company to be sold for its
own account, second, if such offering has been requested by a Person pursuant to
any registration rights agreement between the Company and such Person and by the
terms of such registration rights agreement the securities subject to such
registration rights agreement must be included in such registration prior to
those held by the Requesting Holders, the securities requested to be included in
such offering by such Person, third, Registrable Securities requested to be
included in such registration pursuant to this Agreement and such other
securities proposed to be registered by the Company for the accounts of each
other Person that by the terms of any applicable registration rights agreement
in effect as of the date
<PAGE> 7
5
hereof between the Company and such Person must be included in the same
proportion as the Registrable Securities of any Requesting Holder under this
Agreement, pro rata among such Requesting Holders and such other Persons on the
basis of the estimated proceeds from the sale thereof and fourth, all other
securities proposed to be registered.
(c) Expenses. The Company will pay all Registration
Expenses in connection with any registration effected pursuant to this Section
2.2.
2.3 Registration Procedures. If and when-ever the Company is
required to effect the registration of any Registrable Securities under the
Securities Act as provided in Sections 2.1 and 2.2, the Company will, as
expeditiously as possible:
(i) prepare and (within 90 days after the end of the
period within which requests for registration may be given to the Company
or in any event as soon thereafter as practicable) file with the
Commission the requisite registration statement to effect such
registration and thereafter use its reasonable best efforts to cause such
registration statement to become effective; provided, however, that the
Company may discontinue any registration of its securities that are not
Registrable Securities (and, under the circumstances specified in Section
2.2(a), its securities that are Registrable Securities) at any time prior
to the effective date of the registration statement relating thereto;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Securities covered by such registration statement until the earlier of (a)
such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or
sellers thereof set forth in such registration statement and (b) 180 days
after the effective date of such registration statement, except with
respect to any registration statement filed pursuant to Rule 415 under the
Securities Act if the Company is eligible to file a registration statement
on Form S-3, in which case the Company shall use its reasonable best
efforts to keep the registration statement effective and updated, from the
date such registration statement is declared effective until such time as
all of the Registrable Securities cease to be Registerable Securities;
(iii) furnish to each seller of Registrable Securities
covered by such registration statement, such number of conformed copies of
such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus contained in such registration statement (including each
preliminary
<PAGE> 8
6
prospectus and any summary prospectus) and any other prospectus filed
under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such
seller may reasonably request;
(iv) use its reasonable best efforts (x) to register or
qualify all Registrable Securities and other securities covered by such
registration statement under such other securities or blue sky laws of
such States of the United States of America where an exemption is not
available and as the sellers of Registrable Securities covered by such
registration statement shall reasonably request, (y) to keep such
registration or qualification in effect for so long as such registration
statement remains in effect and (z) to take any other action that may be
reasonably necessary or advisable to enable such sellers to consummate the
disposition in such jurisdictions of the securities to be sold by such
sellers, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in
any jurisdiction wherein it would not but for the requirements of this
subdivision (iv) be obligated to be so qualified or to consent to general
service of process in any such jurisdiction;
(v) use its reasonable best efforts to cause all
Registrable Securities covered by such registration statement to be
registered with or approved by such other federal or state governmental
agencies or authorities as may be necessary in the opinion of counsel to
the Company and counsel to the seller or sellers of Registrable Securities
to enable the seller or sellers thereof to consummate the disposition of
such Registrable Securities;
(vi) in the case of an underwritten or "best efforts"
offering, furnish, if reasonably available, at the effective date of such
registration statement to each seller of Registrable Securities, and each
such seller's underwriters, if any, a signed counterpart of:
(x) an opinion of counsel for the Company, dated
the effective date of such registration statement and, if applicable, the
date of the closing under the underwriting agreement, and
(y) a "comfort" letter signed by the independent
public accountants who have certified the Company's financial statements
included or incorporated by reference in such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' comfort letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' comfort letters delivered to the
underwriters in
<PAGE> 9
7
underwritten public offerings of securities and, in the case of the
accountants' comfort letter, such other financial matters, and, in the
case of the legal opinion, such other legal matters, as the underwriters
may reasonably request;
(vii) cause representatives of the Company to
participate in any "road show" or "road shows" reasonably requested by any
underwriter of an underwritten or "best efforts" offering of any
Registrable Securities;
(viii) notify each seller of Registrable Securities
covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, in the light of the circumstances under
which they were made, and at the request of any such seller promptly
prepare and furnish to it a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made;
(ix) otherwise use its reasonable best efforts to comply
with all applicable rules and regulations of the Commission, and, if
required, make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve
months, but not more than eighteen months, beginning with the first full
calendar month after the effective date of such registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act and Rule 158 promulgated thereunder, and promptly
furnish to each such seller of Registrable Securities a copy of any
amendment or supplement to such registration statement or prospectus;
(x) provide and cause to be maintained a transfer agent
and registrar (which, in each case, may be the Company) for all
Registrable Securities covered by such registration statement from and
after a date not later than the effective date of such registration; and
(xi) use its reasonable best efforts to list all
Registrable Securities covered by such registration statement on the
National Market System of the Nasdaq Stock Market or any national
securities exchange on which Registrable Securities of the same class
covered by such registration statement are then listed and, if no such
Registrable Securities are so listed, on
<PAGE> 10
8
the National Market System of the Nasdaq Stock Market or any national
securities exchange on which the Common Stock is then listed.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company in a reasonably prompt
manner such information regarding such seller and the distribution of such
securities as the Company may from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (viii) of this
Section 2.3, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (viii) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
2.4 Underwritten Offerings.
(a) Requested Underwritten Offerings. If requested by
the underwriters for any underwritten offering by holders of Registrable
Securities pursuant to a registration requested under Section 2.1, the Company
will use its reasonable best efforts to enter into an underwriting agreement
with such underwriters for such offering, such agreement to be reasonably
satisfactory in substance and form to the Company, each such holder and the
underwriters and to contain such representations and warranties by the Company
and such other terms as are generally prevailing in agreements of that type,
including, without limitation, indemnities to the effect and to the extent
provided in Section 2.7. The holders of the Registrable Securities proposed to
be sold by such underwriters will reasonably cooperate with the Company in the
negotiation of the underwriting agreement. Such holders of Registrable
Securities to be sold by such underwriters shall be parties to such underwriting
agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities. No holder of Registrable Securities shall be
required to make any representations or warranties to, or agreements with, the
Company other than representations, warranties or agreements regarding such
holder, such holder's Registrable Securities and such holder's intended method
of distribution or any other representations required by applicable law.
<PAGE> 11
9
(b) Incidental Underwritten Offerings. If the Company
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any
Requesting Holder of Registrable Securities, use its reasonable best efforts to
arrange for such underwriters to include all the Registrable Securities to be
offered and sold by such Requesting Holder among the securities of the Company
to be distributed by such underwriters, subject to the provisions of Section
2.2(b). The holders of Registrable Securities to be distributed by such
underwriters shall be parties to the underwriting agreement between the Company
and such underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities. Any such Requesting Holder of Registrable
Securities shall not be required to make any representations or warranties to or
agreements with the Company other than representations, warranties or agreements
regarding such Requesting Holder, such Requesting Holder's Registrable
Securities and such Requesting Holder's intended method of distribution or any
other representations required by applicable law.
(c) Underwriting Discounts and Commission. The holders
of Registrable securities sold in any offering pursuant to Section 2.4(a) or
Section 2.4(b) shall pay all underwriting discounts and commissions of the
underwriter or underwriters with respect to the Registrable Securities sold
thereby.
2.5 Preparation; Reasonable Investigation. In connection with
the preparation and filing of each registration statement under the Securities
Act pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the Commission, and each amendment thereof or supplement thereto, and
will give each of them such reasonable access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of such holders' and such underwriters'
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
2.6 Limitations, Conditions and Qualifications to Obligations
under Registration Covenants. The Company shall be entitled to postpone for a
reasonable period of time (but not exceeding 90 days) the filing of any
registration statement otherwise required to be prepared and filed by it
pursuant to Section 2.1 if the Company determines, in its good faith judgment,
that such registration and offering would interfere with any material financing,
acquisition, corporate
<PAGE> 12
10
reorganization or other material transaction involving the Company or any of its
affiliates and promptly gives the holders of Registrable Securities requesting
registration thereof pursuant to Section 2.1 written notice of such
determination, containing a general statement of the reasons for such
postponement and an approximation of the anticipated delay. If the Company shall
so postpone the filing of a registration statement, holders of Registrable
Securities requesting registration thereof pursuant to Section 2.1, representing
not less than 33-1/3% of the Registrable Securities with respect to which
registration has been requested and constituting not less than 66-2/3% of the
Initiating Holders, shall have the right to withdraw the request for
registration by giving written notice to the Company within 30 days after
receipt of the notice of postponement and, in the event of such withdrawal, such
request shall not be counted for purposes of the requests for registration to
which holders of Registrable Securities are entitled pursuant to Section 2.1
hereof.
2.7 Indemnification.
(a) Indemnification by the Company. The Company will,
and hereby does, indemnify and hold harmless, in the case of any registration
statement filed pursuant to Section 2.1 or 2.2, each seller of any Registrable
Securities covered by such registration statement and each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls such seller or any such underwriter
within the meaning of the Securities Act, and their respective directors,
officers, partners, members, agents and affiliates against any losses, claims,
damages or liabilities, joint or several, to which such seller or underwriter or
any such director, officer, partner, member, agent, affiliate or controlling
person may become subject under the Securities Act or otherwise, including,
without limitation, the reasonable fees and expenses of legal counsel (including
those incurred in connection with any claim for indemnity hereunder), insofar as
such losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, 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 under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, and the Company will
reimburse such seller or underwriter and each such director, officer, partner,
member, agent, affiliate and controlling Person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information
<PAGE> 13
11
furnished to the Company by or on behalf of such seller or underwriter, as the
case may be, specifically stating that it is for use in the preparation thereof;
and provided further, that the Company shall not be liable to any Person who
participates as an underwriter in the offering or sale of Registrable Securities
or any other Person, if any, who controls such underwriter within the meaning of
the Securities Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the final prospectus, as
the same may be then supplemented or amended, to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
Person if such statement or omission was corrected in such final prospectus.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director, officer,
partner, member, agent or controlling person and shall survive the transfer of
such securities by such seller.
(b) Indemnification by the Sellers. As a condition to
including any Registrable Securities in any registration statement, the Company
shall have received an undertaking satisfactory to it from the prospective
seller of such Registrable Securities, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in Section 2.7(a)) the Company,
and each director of the Company, each officer of the Company and each other
Person, if any, who participates as an underwriter in the offering or sale of
such securities and each other Person who controls the Company or any such
underwriter within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by such seller specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; provided, however, that
the liability of such indemnifying party under this Section 2.7(b) shall be
limited to the amount of the net proceeds received by such indemnifying party in
the offering giving rise to such liability. Such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person and shall survive
the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 2.7(a) or (b), such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party,
give written notice to the latter of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 2.7, except to the extent that the
indemnifying party is actually prejudiced by
<PAGE> 14
12
such failure to give notice. In case any such action shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it may wish, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party; provided, however,
that any indemnified party may, at its own expense, retain separate counsel to
participate in such defense. Notwithstanding the foregoing, in any action or
proceeding in which both the Company and an indemnified party is, or is
reasonably likely to become, a party, such indemnified party shall have the
right to employ separate counsel at the Company's expense and to control its own
defense of such action or proceeding if, in the reasonable opinion of counsel to
such indemnified party, (a) there are or may be legal defenses available to such
indemnified party or to other indemnified parties that are different from or
additional to those available to the Company or (b) any conflict or potential
conflict exists between the Company and such indemnified party that would make
such separate representation advisable; provided, however, that in no event
shall the Company be required to pay fees and expenses under this Section 2.7
for more than one firm of attorneys in any jurisdiction in any one legal action
or group of related legal actions. No indemnifying party shall be liable for any
settlement of any action or proceeding effected without its written consent,
which consent shall not be unreasonably withheld. No indemnifying party shall,
without the consent of the indemnified party, consent to entry of any judgment
or enter into any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation or which
requires action other than the payment of money by the indemnifying party.
(d) Contribution. If the indemnification provided for in
this Section 2.7 shall for any reason be held by a court to be unavailable to an
indemnified party under Section 2.7(a) or (b) hereof in respect of any loss,
claim, damage or liability, or any action in respect thereof, then, in lieu of
the amount paid or payable under Section 2.7(a) or (b), the indemnified party
and the indemnifying party under Section 2.7(a) or (b) shall contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating the same,
including those incurred in connection with any claim for indemnity hereunder),
(i) in such proportion as is appropriate to reflect the relative fault of the
Company and the prospective sellers of Registrable Securities covered by the
registration statement which resulted in such loss, claim, damage or liability,
or action or proceeding in respect thereof, with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action or
proceeding in respect thereof, as well as any other relevant equitable
considerations or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as shall be appropriate to
reflect the relative benefits received by the Company and such prospective
sellers from the offering of the securities covered by such registration
statement; provided, however, that for purposes of this clause (ii), the
relative benefits received by the prospective sellers shall be deemed not to
exceed the amount of proceeds received by such prospective sellers. No Person
guilty of
<PAGE> 15
13
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. Such prospective sellers'
obligations to contribute as provided in this Section 2.7(d) are several in
proportion to the relative value of their respective Registrable Securities
covered by such registration statement and not joint. In addition, no Person
shall be obligated to contribute hereunder any amounts in payment for any
settlement of any action or claim effected without such Person's consent, which
consent shall not be unreasonably withheld.
(e) Other Indemnification. Indemnification and
contribution similar to that specified in the preceding subdivisions of this
Section 2.7 (with appropriate modifications) shall be given by the Company and
each seller of Registrable Securities with respect to any required registration
or other qualification of securities under any federal or state law or
regulation of any governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and
contribution required by this Section 2.7 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred.
3. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
"Commission" means the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean and include the common stock, par value
$.01 per share, of the Company and each other class of capital stock of the
Company that does not have a preference over any other class of capital stock of
the Company as to dividends or upon liquidation, dissolution or winding up of
the Company and, in each case, shall include any other class of capital stock of
the Company into which such stock is reclassified or reconstituted.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Securities Exchange Act of 1934, as amended,
shall include a reference to the comparable section, if any, of any such similar
Federal statute.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.
<PAGE> 16
14
"Initial Public Offering" means the initial public offering of the
Common Stock and such Common Stock is listed on the New York Stock Exchange,
Inc. or quoted or listed on the National Market System of the Nasdaq Stock
Market.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Registrable Securities" means any shares of Common Stock issuable
upon exercise of the Warrants and any Related Registrable Securities and any
shares of Common Stock owned by the Purchaser. As to any particular Registrable
Securities, once issued, such securities shall cease to be Registrable
Securities when (a) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been sold as permitted by Rule 144 (or any
successor provision) under the Securities Act and the purchaser thereof does not
receive "restricted securities" as defined in Rule 144, (c) they shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent public distribution of them shall not, in the opinion of counsel for
the holders, require registration of them under the Securities Act or (d) they
shall have ceased to be outstanding. All references to percentages of
Registrable Securities shall be calculated pursuant to Section 9.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 2, including, without limitation, all
registration and filing fees, all fees of the New York Stock Exchange, Inc.,
other national securities exchanges or the National Association of Securities
Dealers, Inc., all fees and expenses of complying with securities or blue sky
laws, all word processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of "cold comfort"
letters required by or incident to such performance and compliance, any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities (excluding any underwriting discounts or commissions with respect to
the Registrable Securities) and the reasonable fees and expenses of one counsel
to the Selling Holders (selected by Selling Holders representing at least 50% of
the Registrable Securities covered by such registration). Notwithstanding the
foregoing, in the event the Company shall determine, in accordance with Section
2.2(a) or Section 2.6, not to register any securities with respect to which it
had given written notice of its intention to so register to holders of
Registrable Securities, all of the costs of the type (and subject to any
limitation to the extent) set forth in this definition and incurred by
Requesting Holders in connection with such registration on or prior to the date
the Company notifies the Requesting Holders of such determination shall be
deemed Registration Expenses.
<PAGE> 17
15
"Related Registrable Securities" means with respect to shares of
Common Stock issuable upon exercise of the Warrants, any securities of the
Company issued or issuable with respect to such shares of Common Stock by way of
a dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of any such similar Federal
statute.
4. Rule 144 and Rule 144A. Following an Initial Public Offering, the
Company shall take all actions reasonably necessary to enable holders of
Registrable Securities to sell such securities without registration under the
Securities Act within the limitation of the provisions of (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, (b) Rule 144A
under the Securities Act, as such Rule may be amended from time to time, or (c)
any similar rules or regulations hereafter adopted by the Commission. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied with such
requirements.
5. Amendments and Waivers. This Agreement may be amended with the
consent of the Company and the Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, only if the
Company shall have obtained the written consent to such amendment, action or
omission to act, of the holder or holders of at least 50% of the Registrable
Securities affected by such amendment, action or omission to act. Each holder of
any Registrable Securities at the time or thereafter outstanding shall be bound
by any consent authorized by this Section 5, whether or not such Registrable
Securities shall have been marked to indicate such consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request or other action by any holder or holders of Registrable Securities
pursuant to this Agreement or any determination of any number or percentage of
shares of Registrable Securities held by any holder or holders of Registrable
Securities contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities.
7. Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by
<PAGE> 18
16
registered or certified first-class mail, return receipt requested, telecopier,
courier service or personal delivery:
(a) if to the Purchaser, addressed to it in the manner
set forth in the Purchase Agreement, or at such other address as it shall have
furnished to the Company in writing in the manner set forth herein;
(b) if to any other holder of Registrable Securities, at
the address that such holder shall have furnished to the Company in writing in
the manner set forth herein, or, until any such other holder so furnishes to the
Company an address, then to and at the address of the last holder of such
Registrable Securities who has furnished an address to the Company; or
(c) if to the Company, addressed to it in the manner set
forth in the Purchase Agreement, or at such other address as the Company shall
have furnished to each holder of Registrable Securities at the time outstanding
in the manner set forth herein.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; when delivered
to a courier, if delivered by overnight courier service; five Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is acknowledged, if telecopied.
8. Assignment. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and, with respect to
the Company, its respective successors and permitted assigns and, with respect
to the Purchaser, any holder of any Registrable Securities, subject to the
provisions respecting the minimum numbers of percentages of shares of
Registrable Securities required in order to be entitled to certain rights, or
take certain actions, contained herein. Except by operation of law, this
Agreement may not be assigned by the Company without the prior written consent
of the holders of a majority in interest of the Registrable Securities
outstanding at the time such consent is requested.
9. Calculation of Percentage Interests in Registrable
Securities. For purposes of this Agreement, all references to a percentage of
the Registrable Securities shall be calculated based upon the number of shares
of Registrable Securities outstanding at the time such calculation is made,
assuming the conversion of all Warrants into shares of Common Stock.
10. No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the holders of Registrable Securities in this
Agreement. Without limiting the generality of the foregoing, the Company will
not hereafter enter into any agreement with respect to its securities that
grants, or modify any existing agreement with respect to its securities to
grant, to the holder of its securities in connection with
<PAGE> 19
17
an incidental registration of such securities higher priority to the rights
granted to the Purchasers under Section 2.2(b).
11. Remedies. Each holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
12. Certain Distributions. The Company shall not at any time
make a distribution on or with respect to the Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the resulting or surviving corporation and such Registrable
Securities are not changed or exchanged) of securities of another issuer if
holders of Registrable Securities are entitled to receive such securities in
such distribution as holders of Registrable Securities and any of the securities
so distributed are registered under the Securities Act, unless the securities to
be distributed to the holders of Registrable Securities are also registered
under the Securities Act.
13. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
Purchaser shall be enforceable to the fullest extent permitted by law.
14. Entire Agreement. This Agreement, together with the
Purchase Agreement (including the exhibits and schedules thereto) and the Notes
and the Warrants, is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This
Agreement, the Purchase Agreement (including the exhibits and schedules thereto)
and the Notes and the Warrants supersede all prior agreements and understandings
between the parties with respect to such subject matter.
15. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF
<PAGE> 20
18
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE.
17. Counterparts. This Agreement may be executed in multiple
counterparts, each of which when so executed shall be deemed an original and all
of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective representatives
hereunto duly authorized as of the date first above written.
THE J.H. HEAFNER COMPANY, INC.
By: /s/ WILLIAM H. GAITHER
---------------------------
Name: William Gaither
Title: President and Chief Executive Officer
THE 1818 MEZZANINE FUND, L.P.
Per Pro Brown Brothers Harriman & Co.,
General Partner
By: /s/ JOSEPH P. DONLAN
----------------------
Name: Joseph P. Donlan
<PAGE> 1
Exhibit 10.7
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED,
QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS AND NEITHER THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY AUTHORITY HAS
PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.
WARRANT NO. 2
WARRANT
TO PURCHASE SHARES OF CLASS A COMMON STOCK,
PAR VALUE $.01 PER SHARE,
OF
THE J.H. HEAFNER COMPANY, INC.
THIS IS TO CERTIFY THAT THE 1818 MEZZANINE FUND, L.P. or its
registered assigns (the "Purchaser"), is the owner of one million thirty-four
thousand (1,034,000) Warrants (the "Warrants"), each of which entitles the
registered holder thereof to purchase from THE J.H. HEAFNER COMPANY, INC., a
North Carolina corporation (the "Company"), one fully paid, duly authorized and
nonassessable share of Class A Common Stock, par value $.01 per share, of the
Company (the "Common Stock"), at any time or from time to time on or before 5:00
p.m., New York City time, on May 7, 2007 (subject to earlier expiration in
certain events), at an exercise price of $.01 per share (the "Exercise Price"),
all on the terms and subject to the conditions hereinafter set forth.
The number of shares of Common Stock issuable upon exercise of each
such Warrant (the "Number Issuable"), which is initially one (1) share, is
subject to adjustment from time to time pursuant to the provisions of Section 2
of this Warrant Certificate.
<PAGE> 2
2
Capitalized terms used herein but not otherwise defined shall have
the meanings given them in Section 12 hereof or, if not therein defined, in the
Note and Warrant Purchase Agreement.
Section 1. Exercise of Warrant. Subject to the last paragraph of
this Section 1, the Warrants evidenced hereby may be exercised, in whole or in
part, by the registered holder hereof at any time or from time to time on or
before 5:00 p.m., New York City time, on May 7, 2007, but in any event no later
than the date of the consummation of the earlier to occur of an IPO or a Sale
Transaction upon delivery to the Company at the principal executive office of
the Company in the United States of America, of (a) this Warrant Certificate,
(b) a written notice stating that such holder elects to exercise the Warrants
evidenced hereby in accordance with the provisions of this Section 1 and
specifying the name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued and (c) payment of the
Exercise Price for the shares of Common Stock issuable upon exercise of such
Warrants, which shall be payable (i) in cash, (ii) by a certified or official
bank check payable to the order of the Company or (iii) by surrender of the
Notes in a principal amount at least equal to the Exercise Price (collectively,
the "Warrant Exercise Documentation").
As promptly as practicable, and in any event within five Business
Days after receipt of the Warrant Exercise Documentation, the Company shall
deliver or cause to be delivered (a) certificates representing the number of
validly issued, fully paid and nonassessable shares of Common Stock specified in
the Warrant Exercise Documentation, (b) if applicable, cash in lieu of any
fraction of a share, as hereinafter provided, and (c) if less than the full
number of Warrants evidenced hereby are being exercised, a new Warrant
Certificate or Certificates, of like tenor, for the number of Warrants evidenced
by this Warrant Certificate, less the number of Warrants then being exercised.
Such exercise shall be deemed to have been made at the close of business on the
date of delivery of the Warrant Exercise Documentation so that the Person
entitled to receive shares of Common Stock upon such exercise shall be treated
for all purposes as having become the record holder of such shares of Common
Stock at such time. No such surrender shall be effective to constitute the
person entitled to receive such shares as the record holder thereof while the
transfer books of the Company for the Common Stock are closed for any purpose
(but not for any period in excess of five days); but any such surrender of this
Warrant Certificate for exercise during any period while such books are so
closed shall become effective for exercise immediately upon the reopening of
such books, as if the exercise had been made on the date this Warrant
Certificate was surrendered and for the Number Issuable of Common Stock
specified in the Warrant Exercise Documentation and at the Exercise Price.
The Company shall pay all expenses in connection with, and all taxes
and other governmental charges (other than income taxes of the holder) that may
be imposed in respect of, the issue or delivery of any shares of Common Stock
issuable upon the exercise of the Warrants evidenced hereby. The Company shall
not be required, however, to pay any tax or
<PAGE> 3
3
other charge imposed in connection with any transfer involved in the issue of
any certificate for shares of Common Stock in any name other than that of the
registered holder of the Warrants evidenced hereby.
In case of the redemption of any Warrants pursuant to Section 3(b),
the right of exercise shall cease and terminate, as to the Warrants to be
redeemed, at the close of business on the date fixed for redemption, unless the
Company shall default in the payment of the applicable redemption price for the
Warrants to be redeemed.
In connection with the exercise of any Warrants evidenced hereby, no
fractions of shares of Common Stock shall be issued, but in lieu thereof the
Company shall pay a cash adjustment in respect of such fractional interest in an
amount equal to such fractional interest multiplied by the Current Market Price
per share of Common Stock on the Business Day which next precedes the day of
exercise. If more than one such Warrant shall be exercised by the holder thereof
at the same time, the number of full shares of Common Stock issuable on such
exercise shall be computed on the basis of the total number of Warrants so
exercised.
Section 2. Adjustments.
(a) Adjustment of Number Issuable. The Number Issuable shall be
subject to adjustment from time to time as follows:
(i) In case the Company shall at any time or from time to time
after the Issue Date:
(A) pay a dividend or make a distribution on the
outstanding shares of Common Stock in capital stock of the Company;
(B) subdivide the outstanding shares of Common Stock
into a larger number of shares;
(C) combine the outstanding shares of Common Stock into
a smaller number of shares; or
(D) issue any shares of its capital stock in a
reclassification of the Common Stock;
then, and in each such case, the Number Issuable in effect immediately
prior to such event shall be adjusted (and any other appropriate actions
shall be taken by the Company) so that the holder of any Warrant evidenced
hereby thereafter exercised shall be entitled to receive the number of
shares of Common Stock or other securities of the Company which such
holder would have owned or had been entitled to receive upon or by reason
of any of the events described above, had such Warrant been exercised
<PAGE> 4
4
immediately prior to the happening of such event. An adjustment made
pursuant to this clause (i) shall become effective retroactively (x) in
the case of any such dividend or distribution, to a date immediately
following the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of any such subdivision, combination or
reclassification, to the close of business on the date upon which such
corporate action becomes effective.
(ii) If after the Issue Date, the Company shall at any time or
from time to time issue or sell (x) shares of Common Stock or (y)
securities convertible into or exchangeable for shares of Common Stock, or
any options, warrants or other rights to acquire shares of Common Stock
(other than (A) shares of Common Stock issued upon exercise of the
Warrants outstanding on the Issue Date, (B) up to 300,000 shares of Common
Stock issued pursuant to an employee stock option plan, stock bonus plan,
or other incentive compensation plan or award, each as approved by the
Company's Board of Directors on or prior to the Issue Date, but not to the
extent issued to Thomas J. Bonburg or any Family Member, (C) shares of
Common Stock repurchased by the Company from stockholders following the
Issue Date and which are subsequently reissued to Family Members within
360 days following such repurchase, at a price equal to or greater than
the price at which such shares of Common Stock were repurchased and (D)
shares issued as a result of adjustments made under agreements related to
shares described in clauses (A), (B) and (C)) at a price per share that is
less than the Current Market Price per share of Common Stock then in
effect as of the record date or issue date, as the case may be, referred
to in the following sentence (the "Relevant Date") (treating the price per
share of Common Stock, in the case of the issuance of any security
convertible or exchangeable or exercisable into Common Stock as equal to
(x) the sum of the price for such security convertible, exchangeable or
exercisable into Common Stock plus any additional consideration payable
(without regard to any anti-dilution adjustments) upon the conversion,
exchange or exercise of such security into Common Stock divided by (y) the
number of shares of Common Stock initially underlying such convertible,
exchangeable or exercisable security), in each case, other than issuances
or sales for which an adjustment is made pursuant to another paragraph of
this Section 2, then, and in each such case, the Number Issuable then in
effect shall be adjusted by multiplying the Number Issuable in effect on
the day immediately prior to the Relevant Date by a fraction, (1) the
numerator of which shall be the sum of the number of shares of Common
Stock, on a fully diluted basis, outstanding on the Relevant Date, plus
the number of additional shares of Common Stock issued or to be issued (or
the maximum number into which such convertible or exchangeable securities
initially may convert or exchange or for which such options, warrants or
other rights initially may be exercised), and (2) the denominator of which
<PAGE> 5
5
shall be the sum of the number of shares of Common Stock, on a fully
diluted basis, outstanding on the Relevant Date, plus the number of shares
of Common Stock which the aggregate consideration for the total number of
such additional shares of Common Stock so issued (or into which such
convertible or exchangeable securities may convert or exchange or for
which such options, warrants or other rights may be exercised plus the
aggregate amount of any additional consideration initially payable upon
conversion, exchange or exercise of such security) would purchase at the
Current Market Price per share of Common Stock on the Relevant Date. Such
adjustment shall be made whenever such shares, securities, options,
warrants or other rights are issued, and shall become effective
retroactively to a date immediately following the close of business (x) in
the case of an issuance to the stockholders of the Company, as such, on
the record date for the determination of stockholders entitled to receive
such shares, securities, options, warrants or other rights and (y) in all
other cases, on the date (the "issue date") of such issuance; provided,
that if any convertible or exchangeable securities, options, warrants, or
other rights (or any portions thereof) which shall have given rise to an
adjustment pursuant to this Section 2(a)(ii) shall have expired or
terminated without the exercise thereof, then the Number Issuable
hereunder shall be readjusted (but to no greater extent than originally
adjusted) on the basis of eliminating from the computation any additional
shares of Common Stock corresponding to such convertible or exchangeable
securities, options, warrants or other rights as shall have expired or
terminated. Solely for purposes of this clause (ii), (I) Common Stock
shall include the Common Stock, par value $.01 per share, of the Company
and each other class of capital stock of the Company that does not have a
preference over any other class of capital stock of the Company as to
dividends or upon liquidation, dissolution or winding up of the Company
and, in each case, shall include any other class of capital stock of the
Company into which such stock is reclassified or reconstituted and (II) if
the provisions of any securities convertible into or exchangeable for
shares of Common Stock or options, warrants or other rights to acquire
shares of Common Stock are amended after the date of issuance so as to
reduce the applicable conversion price, exchange price or exercise price
such amendment shall be deemed to be a new issuance of such securities.
(iii) In case the Company shall at any time or from time to
time after the Issue Date distribute to any holder of shares of its Common
Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the resulting or surviving
corporation and the Common Stock is not changed or exchanged) cash,
evidences of indebtedness of the Company or another issuer, securities of
the Company or another issuer or other assets (excluding dividends or
other distributions of shares of Common Stock or other capital stock for
which adjustment is made under Section 2(a)(i) or dividends or other
distributions received by or set aside for the benefit of the holders of
Common Stock pursuant to Section 2(c) below) or rights or warrants to
subscribe for or purchase securities of the Company (excluding those in
respect of which adjustments in the Number Issuable is made
<PAGE> 6
6
pursuant to Section 2(a)(i) or Section 2(a)(ii)), then, and in each such
case, the Number Issuable then in effect shall be adjusted by multiplying
the Number Issuable in effect immediately prior to the date of such
distribution by a fraction (x) the numerator of which shall be the Current
Market Price per share of Common Stock on the record date referred to
below and (y) the denominator of which shall be such Current Market Price
per share of Common Stock less the then Fair Market Value (as determined
in good faith by the Board of Directors of the Company, a certified
resolution with respect to which shall be mailed to the holder of the
Warrants evidenced hereby) of the portion of the cash, evidences of
indebtedness, securities or other assets so distributed or of such
subscription rights or warrants applicable to one share of Common Stock
(but such denominator shall in no event be zero). Such adjustment shall be
made whenever any such distribution is made and shall become effective
retroactively to a date immediately following the close of business on the
record date for the determination of stockholders entitled to receive such
distribution.
(iv) In case the Company at any time or from time to time
shall take any action which could have a dilutive effect on the number of
shares of Common Stock that may be issued upon exercise of the Warrants,
other than an action described in any of Section 2(a)(i) through
2(a)(iii), inclusive, or Section 2(b), then, the Number Issuable shall be
adjusted in such manner and at such time as the Board of Directors of the
Company reasonably determines to be equitable under the circumstances
(such determination to be evidenced in a resolution, a certified copy of
which shall be mailed to the holder of the Warrants evidenced hereby).
(v) Notwithstanding anything herein to the contrary, no
adjustment under this Section 2(a) need be made to the Number Issuable
unless such adjustment would require an increase or decrease of at least
2% of the Number Issuable then in effect. Any lesser adjustment shall be
carried forward and shall be made at the time of and together with the
next subsequent adjustment, which, together with any adjustment or
adjustments so carried forward, shall amount to an increase or decrease of
at least 2% of such Number Issuable. Any adjustment to the Number Issuable
carried forward and not theretofore made shall be made immediately prior
to the exercise of any Warrants pursuant hereto.
(vi) The Company promptly shall deliver to each registered
holder of Warrants at least five Business Days prior to effecting any
transaction which would result in an increase or decrease in the Number
Issuable pursuant to this Section 2 a notice thereof, together with a
certificate, signed by the Chief Executive Officer or an Executive
Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Company, setting forth in
reasonable detail the event requiring the adjustment and the method by
which such adjustment was calculated and specifying the increased or
decreased Number Issuable then in effect following such adjustment.
<PAGE> 7
7
(vii) Notwithstanding anything contrary contained in this
Section 2(a), the Company shall be entitled to make such upward
adjustments in the Number Issuable, in addition to those otherwise
required by this Section 2(a), as the Board of Directors of the Company in
their discretion shall determine to be advisable in order that any stock
dividend, subdivision or combination of shares, distribution of rights or
warrants to purchase stock or securities, or distribution of securities
convertible into or exchangeable for Common Stock, hereafter made by the
Company to its shareholders shall not be taxable; provided, however, that
any such adjustment shall be made, as nearly as practicable, in a manner
which treats all holders of Warrants with similar protections on an equal
basis.
(b) Reorganization, Reclassification, Consolidation, Merger or Sale
of Assets. In case of any capital reorganization or reclassification or other
change of outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another Person (other than a consolidation or
merger in which the Company is the resulting or surviving person and which does
not result in any reclassification or change of outstanding Common Stock) (any
of the foregoing, a "Transaction"), the Company, or such successor or purchasing
Person, as the case may be, shall execute and deliver to each holder of the
Warrants evidenced hereby, at least five Business Days prior to effecting any of
the foregoing Transactions, a certificate that the holder of each such Warrant
then outstanding shall have the right thereafter to exercise such Warrant into
the kind and amount of shares of stock or other securities (of the Company or
another issuer) or property or cash receivable upon such Transaction by a holder
of the number of shares of Common Stock into which such Warrant could have been
exercised immediately prior to such Transaction. Such certificate shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 2 and shall contain other terms
identical to the terms hereof. If, in the case of any such Transaction, the
stock, other securities, cash or property receivable thereupon by a holder of
Common Stock includes shares of stock or other securities of a Person other than
the successor or purchasing Persons and other than the Company, which controls
or is controlled by the successor or purchasing Person or which, in connection
with such Transaction, issues stock, securities, other property or cash to
holders of Common Stock, then such certificate also shall be executed by such
Person, and such Person shall, in such certificate, specifically assume the
obligations of such successor or purchasing Person and acknowledge its
obligations to issue such stock, securities, other property or cash to holders
of the Warrants upon exercise thereof as provided above. The provisions of this
Section 2(b) similarly shall apply to successive Transactions.
<PAGE> 8
8
(c) Special Distributions. If the holder so elects by sending a
Special Notice to the Company, in the event that the Company shall declare a
dividend or make any other distribution (including, without limitation, in cash,
in capital stock (which shall include, without limitation, any options, warrants
or other rights to acquire capital stock) of the Company, whether or not
pursuant to a shareholder rights plan, "poison pill" or similar arrangement) in
other property or assets, to holders of Common Stock (a "Special Distribution"),
then the Board of Directors shall set aside the amount of such dividend or
distribution that any holder of Warrants would have been entitled to receive had
it exercised such Warrants prior to the record date for such dividend or
distribution; provided, however, that the provisions of this Section 2(c) shall
not be applicable to distributions (whether or not on a pro rata basis) of up to
an aggregate of $300,000 in any calendar year so long as the Company, at the
time of any such distribution, is in compliance with the covenants contained in
Articles 9 and 10 of the Note and Warrant Purchase Agreement. Upon the exercise
of a Warrant evidenced hereby, the holder shall be entitled to receive, such
dividend or distribution that such holder would have received had such Warrant
been exercised immediately prior to the record date for such dividend or
distribution. Prior to any Special Distribution described in this section 2(c),
the Company shall as provided in Section 4 hereof notify each holder (not less
than ten Business Days prior to the occurrence of each Special Distribution) of
its intent to make such Special Distribution and the holder, if it elects to
have such distribution set aside the amount thereof rather than have an
adjustment to the Number Issuable as provided in Section 2(a)(iii), shall notify
the Company by sending a Special Notice prior to the date of any such Special
Distribution.
Section 3. Redemption.
(a) Company's Right to Require Redemption. The Company shall not
have any right to redeem any of the Warrants evidenced hereby.
(b) Holder's Right to Require Redemption. At the request of the
holders of a majority in interest of the Warrants issued on the Issue Date
pursuant to the Note and Warrant Purchase Agreement, made (i) upon a Change of
Control (unless pursuant to such Change of Control all of the Capital Stock of
the Company is being sold and the Purchaser is to receive in connection
therewith (x) cash or (y) securities listed on the NYSE or quoted or listed on
any other national securities exchange or the Nasdaq for its shares of the
Common Stock of the Company (assuming exercise of any unexercised Warrants)),
(ii) after the fifth anniversary of the Issue Date (provided that, until the
Senior Notes of the Company, due 2008, to be offered and sold on or about May
20, 1998 have been repaid in full, this clause (ii) shall not be operative and
no such request shall be made) or (iii) after the seventh anniversary of the
Issue Date, the Company shall redeem (unless otherwise prevented by law), at a
redemption price equal to the Equity Value, all of the then outstanding
Warrants; provided, however, that the right of the holders of the Warrants to
require redemption pursuant to this Section 3(b) shall expire and be of no
further force or effect upon the consummation of an IPO. Notice of a request for
redemption pursuant to this Section 3(b) shall be sent in
<PAGE> 9
9
accordance with Section 13 of this Warrant and the Company shall redeem the
Warrants no later than the 180th day after the Company receives such notice (the
"Redemption Date"). At any time on or after the Redemption Date, each holder of
Warrants shall be entitled to receive its pro rata share of the Equity Value
upon actual delivery to the Company or its transfer agent of such holder's
Warrant Certificate or Certificates.
Section 4. Notice of Certain Events. In case at any time or from
time to time the Company shall declare any dividend or any other distribution to
the holders of its Common Stock, or shall authorize the granting to the holders
of its Common Stock of rights or warrants to subscribe for or purchase any
additional shares of stock of any class or any other right, or shall authorize
the issuance or sale of any other shares or rights which would result in an
adjustment to the Number Issuable pursuant to Section 2(a)(i) or (ii) or would
result in a Special Distribution pursuant to Section 2(c) hereof, or there shall
be any capital reorganization or reclassification of the Common Stock of the
Company or consolidation or merger of the Company with or into another Person,
or any sale or other disposition of all or substantially all the assets of the
Company, or there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company, then, in any one or more of such cases the Company
shall mail to each holder of the Warrants evidenced hereby at such holder's
address as it appears on the transfer books of the Company, as promptly as
practicable but in any event at least 20 days prior to the applicable date
hereinafter specified, a notice stating (a) the date on which a record is to be
taken for the purpose of such dividend, distribution, rights or warrants or, if
a record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights or warrants are to
be determined, (b) the issue date (as defined in Section 2(a)(ii) hereof) or (c)
the date on which such reclassification, consolidation, merger, sale,
conveyance, dissolution, liquidation or winding up is expected to become
effective; provided that in the case of any event to which Section 2(b) applies,
the Company shall give at least ten Business Days' prior written notice as
aforesaid. Such notice also shall specify the date as of which it is expected
that the holders of Common Stock of record shall be entitled to exchange their
Common Stock for shares of stock or other securities or property or cash
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, conveyance, dissolution, liquidation or winding up.
Section 5. Certain Covenants. The Company covenants and agrees that
all shares of capital stock of the Company which may be issued upon the exercise
of the Warrants evidenced hereby will be duly authorized, validly issued and
fully paid and nonassessable. The Company shall at all times reserve and keep
available for issuance upon the exercise of the Warrants, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the exercise of all outstanding Warrants, and shall take
all action required to increase the authorized number of shares of Common Stock
if at any time there shall be insufficient authorized but unissued shares of
Common Stock to permit such
<PAGE> 10
10
reservation or to permit the exercise of all outstanding Warrants. The Company
shall prepare and file, and cooperate with the holder of this Warrant so that it
may prepare and file, in each case within five Business Days of a request by
such holder, notification and report forms in compliance with the HSR Act, and
shall otherwise fully comply with the requirements of the HSR Act, to the extent
required in connection with the exercise of the Warrant. The Company shall bear
all of its own expenses and all of its own out-of-pocket expenses (including
reasonable attorneys' fees, charges and expenses) and filing fees of such holder
in connection with any such preparation and filing.
Section 6. Registered Holder. The person in whose name this Warrant
Certificate is registered shall be deemed the owner hereof and of the Warrants
evidenced hereby for all purposes. The registered holder of this Warrant
Certificate, in its capacity as such, shall not be entitled to any rights
whatsoever as a stockholder of the Company, except as herein provided.
Section 7. Transfer of Warrants. Any transfer of the rights
represented by this Warrant Certificate shall be subject to compliance with
Sections 9.14 and 9.15 of the Note and the Warrant Purchase Agreement and shall
be effected by the surrender of this Warrant Certificate, along with the form of
assignment attached hereto, properly completed and executed by the registered
holder hereof, at the principal executive office of the Company in the United
States of America, together with an appropriate investment letter, if deemed
reasonably necessary by counsel to the Company to assure compliance with
applicable securities laws. Thereupon, the Company shall issue in the name or
names specified by the registered holder hereof and, in the event of a partial
transfer, in the name of the registered holder hereof, a new Warrant Certificate
or Certificates evidencing the right to purchase such number of shares of Common
Stock as shall be equal to the number of shares of Common Stock then purchasable
hereunder.
Section 8. Denominations. The Company covenants that it will, at its
expense, promptly upon surrender of this Warrant Certificate at the principal
executive office of the Company in the United States of America, execute and
deliver to the registered holder hereof a new Warrant Certificate or
Certificates in denominations specified by such holder for an aggregate number
of Warrants equal to the number of Warrants evidenced by this Warrant
Certificate.
Section 9. Replacement of Warrants. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant Certificate and, in the case of loss, theft or destruction, upon
delivery of an indemnity reasonably satisfactory to the Company (in the case of
an insurance company or other institutional investor, its own unsecured
indemnity agreement shall be deemed to be reasonably satisfactory), or, in the
case of mutilation, upon surrender and cancellation thereof, the Company will
issue a new Warrant Certificate of like tenor for a number of Warrants equal to
the number of Warrants evidenced by this Warrant Certificate.
<PAGE> 11
11
Section 10. Governing Law. THIS WARRANT CERTIFICATE SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL
BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
Section 11. Rights Inure to Registered Holder. The Warrants
evidenced by this Warrant Certificate will inure to the benefit of and be
binding upon the registered holder thereof and the Company and their respective
successors and permitted assigns. Nothing in this Warrant Certificate shall be
construed to give to any Person other than the Company and the registered holder
thereof any legal or equitable right, remedy or claim under this Warrant
Certificate, and this Warrant Certificate shall be for the sole and exclusive
benefit of the Company and such registered holder. Nothing in this Warrant
Certificate shall be construed to give the registered holder hereof any rights
as a holder of shares of Common Stock until such time, if any, as the Warrants
evidenced by this Warrant Certificate are exercised in accordance with the
provisions hereof.
Section 12. Definitions. For the purposes of this Warrant
Certificate, the following terms shall have the meanings indicated below:
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York or the City of
Atlanta, are authorized or required by law or executive order to close.
"Business Value" shall mean the product of 6 times the EBITDA of the
Company for the Calculation Period.
"Calculation Period" shall mean the twelve month period ending on
the last day of the most recently completed month preceding the date of notice
of a request for redemption pursuant to Section 3(b).
"Capital Lease Obligations" means, as to any Person, any obligation
of such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligation is required to be classified and accounted
for as a capital lease on a balance sheet of such Person under GAAP and, for the
purposes of the Notes, the amount of any such obligation at any time shall be
the capitalized amount thereof at such time determined in accordance with GAAP
consistently applied.
<PAGE> 12
12
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
common stock and preferred stock and any rights, warrants or options to purchase
such Person's capital stock.
"Contingent Obligation" means, as to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (each a "primary
obligation") of another Person (the "primary obligor"), whether or not
contingent, (a) to purchase, repurchase or otherwise acquire any such primary
obligation or any property constituting direct or indirect security therefor, or
(b) to advance or provide funds (i) for the payment or discharge of any such
primary obligation, or (ii) to maintain working capital or equity capital of the
primary obligor in respect of any such primary obligation or otherwise to
maintain the net worth or solvency or any balance sheet item, level of income or
financial condition of such primary obligor, or (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor in respect thereof
to make payment of such primary obligation, or (d) otherwise to assure or hold
harmless the owner of any such primary obligation against loss or failure or
inability to perform in respect thereof. The amount of any Contingent Obligation
shall be deemed to be an amount equal to the stated or determinable amount of
the primary obligation in respect of which such Contingent Obligation is made
or, if not stated or determinable, the maximum reasonably anticipated liability
in respect thereof.
"Current Market Price" per share shall mean, on any date specified
herein for the determination thereof, (a) the average daily Market Price of the
Common Stock for those days during the period of 15 days, ending on such date,
on which the national securities exchanges were open for trading, and (b) if the
Common Stock is not then listed or quoted in the over-counter market, the Market
Price on such date.
"EBITDA" shall mean, with respect to any Person for any period, the
sum of (a) Net Income for such period (excluding therefrom, to the extent
included in determining Net Income, any items of extraordinary gain or loss,
including net gains or losses on sale of assets other than asset sales in the
ordinary course of business), (b) Interest Expense deducted from revenue in
determining such Net Income, (c) Federal, state and local income and franchise
taxes deducted from revenue in determining such Net Income, (d) depreciation and
amortization and all non-cash charges to the extent deducted from revenue in
determining such Net Income, (e) the sum of all supplemental discretionary
payments made to Ann Heafner Gaither, William H. Gaither and Susan Gaither Jones
pursuant to Section 10.10(ii) of the Note and Warrant Purchase Agreement
deducted from revenue in determining such Net Income, less (f) interest income
and all non-cash items which increase such Net Income. For purposes of
<PAGE> 13
13
calculating (d) and (e) above, all items that would not be considered operating
items in the ordinary course of business or would result in changes in long-term
asset or liability accounts shall be excluded. All references contained herein
to EBITDA of the Company shall be to the EBITDA of the Company and its
Subsidiaries, determined on a consolidated basis.
"Equity Value" shall mean the percentage of Common Stock of the
Company on a fully diluted basis into which the unexercised Warrants are
exercisable multiplied by the Redemption Value.
"Exercise Price" shall have the meaning given it in the first
paragraph hereof.
"Fair Market Value" shall mean the amount which a willing buyer,
under no compulsion to buy, would pay a willing seller, under no compulsion to
sell, in an arm's-length transaction.
"Funded Debt" means all Indebtedness for borrowed money of the
Company and its Subsidiaries on a consolidated basis that by its terms or by the
terms of any instrument or agreement relating thereto matures more than one year
from, or is renewable or extendable at the option of the debtor to a date more
than on year from, the date of creation thereof (including an option of the
debtor under a revolving credit or similar arrangement obligating the lender or
lenders to extend credit over a period of one year or more), and includes any
current maturities of any such Indebtedness.
"GAAP" means generally accepted United States accounting principles
in effect from time to time.
"Governmental Authority" means the government of any nation, state,
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"Indebtedness" means as to any Person, (a) all obligations of such
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations evidenced by notes,
bonds, debentures or similar instruments, (c) all obligations to pay the
deferred purchase price of property or services, except trade accounts payable
and accrued liabilities arising in the ordinary course of business, (d) all
interest rate and currency swaps and similar agreements under which payments are
obligated to be made, whether periodically or upon the happening of a
contingency, (e) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property),
<PAGE> 14
14
(f) all obligations under Capital Lease Obligations, (g) 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, and (h) any
Contingent Obligation.
"Interest Expense" shall mean, with respect to any Person for any
period, the sum of (a) gross interest expense of such Person for such period in
accordance with GAAP consistently applied, including (i) the amortization of
debt discounts, (ii) the amortization of all fees payable in connection with the
incurrence of Indebtedness to the extent included in interest expense and (iii)
the portion of any payments or accruals with respect to Capital Lease
Obligations allocable to interest expense, and (b) any other capitalized
interest of such Person determined in accordance with GAAP. All references
contained herein to the Interest Expense of the Company shall be to the Interest
Expense of the Company and its Subsidiaries, determined on a consolidated basis.
"HSR Act" shall mean the Hart-Scott-Rodino Anti-Trust Improvements
Act of 1976, as amended and the rules and regulations of the Federal Trade
Commission promulgated thereunder.
"Investment" means (i) the acquisition (whether for cash, property,
services, securities or otherwise) of Capital Stock, bonds, notes, debentures,
partnership or other ownership interests or other securities of any other Person
or any agreement to make any such acquisition; and (ii) the making of any
advance, loan or other extension of credit to, any Person (including the
purchase of property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such Person, but
excluding any accounts receivable created in the ordinary course of business).
"IPO" shall mean the initial public offering of the Company's Common
Stock with gross proceeds of at least $25 million or representing at least 20%
of the Common Stock on a fully diluted basis and such Common Stock is listed on
the NYSE or quoted or listed on any other national securities exchange or the
Nasdaq.
"Issue Date" shall mean May 7, 1997.
"Market Price" shall mean, per share of Common Stock, on any date
specified herein: (a) if the Common Stock is then listed or admitted to trading
on any national securities exchange, the closing price of the Common Stock on
such date; (b) if the Common Stock is not then listed or admitted to trading on
any national securities exchange but is designated as a national market system
security, the last sale price of the Common Stock on such date; or (c) if there
shall have been no trading on such date or if the Common Stock is not so
designated, the average of the reported closing bid and asked price of the
Common Stock, on such date as shown by Nasdaq and reported by any member firm of
the NYSE selected by the Company; or (d) if neither (a), (b) nor (c) is
applicable, the Fair Market Value per share
<PAGE> 15
15
determined in good faith by the Board of Directors of the Company which shall be
deemed to be Fair Market Value unless holders of at least 33% of Common Stock
issued or issuable upon exercise of the Warrants request that the Company obtain
an opinion of a nationally recognized investment banking firm chosen by the
Company (who shall bear the expense) and reasonably acceptable to such
requesting holders of the Warrants, in which event the Fair Market Value shall
be as determined by such investment banking firm.
"Nasdaq" shall mean the National Market System of the Nasdaq Stock
Market.
"Net Income" shall mean for any period, the net income (loss) of any
Person, determined in accordance with GAAP, after deducting all operating
expenses, provisions for taxes and reserves and all other proper deductions in
accordance with GAAP. All references contained herein to the Net Income of the
Company shall be to the Net Income of the Company and its Subsidiaries,
determined on a consolidated basis.
"Notes" shall mean the Senior Subordinated Promissory Notes issued
by the Company pursuant to the Note and Warrant Purchase Agreement.
"Note and Warrant Purchase Agreement" shall mean that certain
Subordinated Note and Warrant Purchase Agreement, dated as of May 7, 1997,
between the Company and The 1818 Mezzanine Fund, L.P., as the same may be
amended or modified from time to time in accordance with its terms.
"Number Issuable" shall have the meaning given it in the second
paragraph hereof.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Person" shall mean any individual, corporation, limited liability
company, partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Redemption Value" shall mean the Business Value plus the cash and
Temporary Cash Investments of the Company and its Subsidiaries as of the last
day of the Calculation Period minus the sum of the Funded Debt and Capital Lease
Obligations of the Company and its Subsidiaries as of the last day of the
Calculation Period.
"Sale Transaction" means the merger or consolidation with or into
another entity by the Company or the conveyance, transfer, lease or other
disposition of (whether in one transaction or in a series of transactions) all
or substantially all of the Company's assets (whenever acquired).
<PAGE> 16
16
"Special Notice" shall mean the notice sent by a holder to the
Company indicating its preference to have any special distribution set aside for
its benefit upon exercise of the Warrant.
"Temporary Cash Investment" means any Investment in (i) United
States Government Obligations, (ii) commercial paper rated at least A or the
equivalent thereof by Moody's Investors Services, Inc. or a similar nationally
recognized credit rating agency or (iii) time deposits (including certificates
of deposit) with any bank or trust company which is organized, licensed or
otherwise regulated under the laws of the United States or any state thereof,
the long-term debt securities of which are rated at least A or the equivalent
thereof by Moody's Investors Service, Inc. or a similar nationally recognized
credit rating agency; provided, in each case, that such Investment matures
within one (1) year from the date of acquisition thereof by the Company, or any
of its Subsidiaries.
"United States Government Obligations" means direct non-callable
obligations of, or non-callable obligations guaranteed by the United States for
the payment of which obligation the full faith and credit of the United States
is pledged.
"Warrant Exercise Documentation" shall have the meaning given it in
Section 1 hereof.
Section 13. Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, courier
services or personal delivery, (a) if to the holder of a Warrant, at such
holder's last known address appearing on the books of the Company; and (b) if to
the Company, at its principal executive office in the United States located at
the address designated for notices in the Note and Warrant Purchase Agreement,
or such other address as shall have been furnished to the party given or making
such notice, demand or other communication. All such notices and communications
shall be deemed to have been duly given: when delivered by hand, if personally
delivered; when delivered to a courier if delivered by commercial overnight
courier service; and five Business Days after being deposited in the mail,
postage prepaid, if mailed.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed as of May 14, 1998.
THE J.H. HEAFNER COMPANY, INC.
By: /s/ William H. Gaither
-------------------------------------------------
Name: William H. Gaither
Title: President and Chief Executive Officer
<PAGE> 17
17
[Form of Assignment Form]
[To be executed upon assignment of Warrants]
The undersigned hereby assigns and transfers this Warrant
Certificate to ____________________ whose Social Security Number or Tax ID
Number is _________________ and whose record address is ________________, and
irrevocably appoints ________________ as agent to transfer this security on the
books of the Company. Such agent may substitute another to act for such agent.
Signature:
____________________________________
Signature Guarantee:
____________________________________
Date: __________________________
<PAGE> 1
Exhibit 10.8
SECURITIES PURCHASE AGREEMENT
BETWEEN
THE J.H. HEAFNER COMPANY, INC.
AND
THE KELLY-SPRINGFIELD TIRE COMPANY
A DIVISION OF THE GOODYEAR TIRE AND RUBBER COMPANY
Dated: May 7, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction...................................................................................... 1
ARTICLE I
Purchase and Sale................................................................................. 1
SECTION 1.1. Purchase and Sale of Kelly Preferred Stock.......................................... 1
SECTION 1.2 Closing.............................................................................. 2
ARTICLE II
Representations and Warranties of the Company..................................................... 2
SECTION 2.1. Organization and Standing........................................................... 2
SECTION 2.2. Authority; Binding Agreements....................................................... 2
SECTION 2.3. Conflicts; Consents................................................................. 2
SECTION 2.4. Capitalization...................................................................... 3
SECTION 2.5. Financial Condition; No Undisclosed Liabilities..................................... 3
ARTICLE III
Representations and Warranties of the Purchaser................................................... 4
SECTION 3.1. Organization and Standing........................................................... 4
SECTION 3.2. Authority; Binding Agreements....................................................... 4
SECTION 3.3. Conflicts; Consents................................................................. 4
SECTION 3.4. Purchase for Own Account............................................................ 4
SECTION 3.5. Investment Company.................................................................. 5
SECTION 3.6. Broker's, Finder's or Similar Fees.................................................. 5
SECTION 3.7. Nature of Purchaser................................................................. 5
ARTICLE IV
Covenants of the Company.......................................................................... 5
SECTION 4.1. Winston Tires....................................................................... 5
SECTION 4.2. Change of Control Notice............................................................ 6
SECTION 4.3. Issue Taxes......................................................................... 6
SECTION 4.4. Financial Statements................................................................ 6
SECTION 4.5. Notices............................................................................. 6
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE V
Covenants of the Purchaser........................................................................ 7
SECTION 5.1. Confidentiality..................................................................... 7
SECTION 5.2. Stock Transfer Restrictions......................................................... 7
ARTICLE VI
Conditions to the Obligation of the Purchaser..................................................... 8
SECTION 6.1. Representations and Warranties...................................................... 8
SECTION 6.2. Compliance with this Agreement...................................................... 9
SECTION 6.3. Officer's Certificate............................................................... 9
SECTION 6.4. Secretary's Certificate............................................................. 9
SECTION 6.5. Filing of Amended and Restated Articles............................................. 9
SECTION 6.6. Opinions of Counsel................................................................. 9
SECTION 6.7. Pro Forma Balance Sheet............................................................. 9
SECTION 6.8. No Litigation....................................................................... 9
SECTION 6.9. Stock Purchase Agreement............................................................ 9
SECTION 6.10. Financing.......................................................................... 10
SECTION 6.11. Tire Supply Agreement.............................................................. 10
SECTION 6.12. Documents.......................................................................... 10
ARTICLE VII
Conditions to the Obligation of the Company....................................................... 10
SECTION 7.1. Representations and Warranties...................................................... 10
SECTION 7.2. Compliance with this Agreement...................................................... 10
SECTION 7.3. Purchaser's Certificate............................................................. 10
SECTION 7.4. Stock Purchase Agreement............................................................ 10
SECTION 7.5. Financing........................................................................... 10
SECTION 7.6. Tire Supply Agreement............................................................... 10
ARTICLE VIII
Miscellaneous..................................................................................... 11
SECTION 8.1. Survival of Provisions.............................................................. 11
SECTION 8.2. Notices............................................................................. 11
SECTION 8.3. Successors and Assigns.............................................................. 12
SECTION 8.4. Amendment and Waiver................................................................ 12
SECTION 8.5. Counterparts........................................................................ 12
SECTION 8.6. Headings............................................................................ 12
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 8.7. GOVERNING LAW....................................................................... 12
SECTION 8.8. JURISDICTION........................................................................ 12
SECTION 8.9. Severability........................................................................ 13
SECTION 8.10. Entire Agreement................................................................... 13
SECTION 8.11. Publicity.......................................................................... 13
SECTION 8.12. Expenses........................................................................... 13
SECTION 8.13. Certain Definitions and Rules of Interpretation.................................... 13
SECTION 8.14. Legends............................................................................ 14
SCHEDULES
Schedule 2.4. Capitalization
Schedule 2.5. Liabilities
EXHIBITS
Exhibit A Tire Supply Agreement
Exhibit B Amended and Restated Articles
Exhibit C Opinion of Company Counsel
</TABLE>
-iii-
<PAGE> 5
SECURITIES PURCHASE AGREEMENT, dated as of May 7, 1997,
between THE J. H. HEAFNER COMPANY, INC., a North Carolina
corporation (the "Company"), and THE KELLY-SPRINGFIELD TIRE
COMPANY (the "Purchaser"), a division of The Goodyear Tire and
Rubber Company, an Ohio corporation ("Goodyear").
Introduction
In order to provide equity financing for the proposed
acquisition (the "Acquisition") by the Company of all of the outstanding shares
of capital stock of Oliver & Winston, Inc., a California corporation
("Winston"), pursuant to the Stock Purchase Agreement, dated as of April 9,
1997, between the Company and the shareholders of Winston (the "Stock Purchase
Agreement"), the Company desires to issue and sell to the Purchaser, and the
Purchaser desires to purchase from the Company, 7,000 shares of the Company's
Series A Cumulative Redeemable Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock"), and (ii) 4,500 shares of the Company's Series B
Cumulative Redeemable Preferred Stock, par value $.01 per share (the "Series B
Preferred Stock" and, together with the Series A Preferred Stock, the "Kelly
Preferred Stock"), upon the terms and subject to the conditions set forth in
this Agreement.
In connection with the issuance, sale and purchase of the
shares of Kelly Preferred Stock, the Company and the Purchaser are entering into
a Purchase Agreement, substantially in the form of Exhibit A to this Agreement
(the "Tire Supply Agreement"), pursuant to which the Purchaser will supply to
the Company, and the Company will purchase from the Purchaser, tires
manufactured by the Purchaser.
The parties agree as follows:
ARTICLE I
Purchase and Sale
SECTION 1.1. Purchase and Sale of Kelly Preferred Stock.
Subject to the terms and conditions set forth in this Agreement, the Company
shall issue and sell to the Purchaser, and the Purchaser shall acquire from the
Company, at the Closing (as defined below in Section 1.2), 7,000 shares (the
"Series A Preferred Shares") of Series A Preferred Stock and 4,500 shares (the
"Series B Preferred Shares" and, together with the Series A Preferred Shares,
the "Kelly Preferred Shares") of Series B Preferred Stock, for an aggregate
purchase price of $11,500,000.00 (the "Purchase Price"), in cash, by wire
transfer of immediately available funds to an account designated in a notice
delivered to the Purchaser not later than two business days prior to the Closing
Date (as defined below in Section 1.2). The Series A Preferred Shares and the
Series B Preferred Shares shall have the respective rights and preferences set
forth in the Company's Amended and Restated Articles of Incorporation, a copy of
which is attached to this Agreement
<PAGE> 6
as Exhibit B (as may be amended from time to time, the "Amended and Restated
Articles"). If, subsequent to the date of this Agreement, any shares or other
securities are issued with respect to, or in exchange for, any of the Kelly
Preferred Shares by reason of any reincorporation, stock dividend, stock split,
consolidation of shares, reclassification or consolidation involving the Company
or otherwise, such shares or securities shall be deemed to be Kelly Preferred
Shares for all purposes of this Agreement.
SECTION 1.2. Closing. The issuance, sale and purchase of the
Kelly Preferred Shares shall take place at the closing (the "Closing") to be
held at the offices of Howard, Darby & Levin, 1330 Avenue of the Americas, New
York, New York 10019 or such other place or places as the Company and the
Purchaser shall agree, at 10:00 a.m., New York City time, on May 7, 1997 or on
such other date and at such other time as the Purchaser and the Company may
mutually agree (such date, the "Closing Date"). At the Closing, subject to the
terms and conditions set forth in this Agreement, the Company shall issue and
sell the Series A Preferred Shares and the Series B Preferred Shares to the
Purchaser by delivering to the Purchaser duly executed certificates representing
the Series A Preferred Shares and the Series B Preferred Shares registered in
the name of the Purchaser, with appropriate issue stamps, if any, affixed at the
expense of the Company, free and clear of all security interests, liens,
pledges, charges, escrows, options, rights of first refusal, mortgages,
indentures, security agreements or other claims, encumbrances, agreements,
arrangements or commitments of any kind or character, whether written or oral
and whether or not relating in any way to credit or the borrowing of money
("Claims"), and the Purchaser shall purchase the Series A Preferred Shares and
the Series B Preferred Shares for the Purchase Price.
ARTICLE II
Representations and Warranties of the Company
The Company represents and warrants to the Purchaser as
follows:
SECTION 2.1. Organization and Standing. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of North Carolina.
SECTION 2.2. Authority; Binding Agreements. The Company has
all requisite corporate power and authority to enter into this Agreement and the
Tire Supply Agreement and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Tire Supply
Agreement by the Company and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action on the part of the Company. This Agreement has been duly
executed and delivered by the Company, and constitutes the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms. The Tire Supply Agreement, when executed and delivered by the
Company, will constitute the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
SECTION 2.3. Conflicts; Consents. The execution and delivery
by the Company of this Agreement and the Tire Supply Agreement and the
consummation of the transactions
-2-
<PAGE> 7
contemplated hereby and thereby and compliance by the Company with any of the
provisions hereof and thereof does not and will not (i) conflict with or result
in a breach of the articles of incorporation, by-laws or other constitutive
documents of the Company, (ii) conflict with or result in a default (or give
rise to any right of termination, cancellation or acceleration) under any of the
provisions of any note, bond, lease, mortgage, indenture, or any license,
franchise, permit, agreement or other instrument or obligation to which the
Company is a party, or by which the Company or any of the Company's properties
or assets may be bound or affected, except for such conflicts, breaches or
defaults as to which requisite waivers or consents have been, or before the
Closing will be, obtained, (iii) violate any law, statute, rule or regulation or
order, writ, injunction or decree applicable to the Company or any of the
Company's properties or assets or (iv) result in the creation or imposition of
any Claim upon any of the Company's properties or assets. No consent or approval
by, or notification of or filing with, any person is required in connection with
the execution, delivery and performance by the Company of this Agreement and the
Tire Supply Agreement and the consummation of the transactions contemplated
hereby and thereby.
SECTION 2.4. Capitalization. As of the Closing Date, after
giving effect to the transactions contemplated by this Agreement, the authorized
capital stock of the Company will consist of 10,000,000 shares of common stock,
par value $.01 per share ("Common Stock"), 7,000 shares of Series A Preferred
Stock and 4,500 shares of Series B Preferred Stock, and as of the Closing Date,
all of such securities will be issued and outstanding except for 6,534,000
shares of Common Stock authorized but not issued. All issued and outstanding
shares of Common Stock have been duly authorized and are fully paid and
non-assessable. The Kelly Preferred Shares are duly authorized and, when issued
upon payment of the Purchase Price, will be fully paid and non-assessable.
Except as set forth on Schedule 2.4, there are no shares of capital stock of the
Company reserved for issuance. Except as set forth on Schedule 2.4, there are no
options, warrants or other rights to purchase shares of capital stock or other
securities of the Company, nor is the Company obligated in any manner to issue
shares of its capital stock or other securities. Schedule 2.4 sets forth a list
of all of the stockholders of the Company as of the Closing Date.
SECTION 2.5. Financial Condition; No Undisclosed Liabilities.
The Company has delivered to the Purchaser true and correct copies of audited
financial statements of the Company for the fiscal year ended December 31, 1996
(the "Company Financials") and audited financial statements of Winston for the
fiscal year ended September 30, 1996 (the "Winston Financials"). The Company
Financials and the Winston Financials have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied consistently
throughout the periods covered thereby, and present fairly in all material
respects the financial condition of the Company and Winston, respectively, as of
the dates thereof, and the results of operations of the Company and Winston,
respectively, for the period then ended. Except as set forth on Schedule 2.5,
the Company and Winston, after giving effect to the Acquisition, the financing
of the acquisition and related transactions, will not have any material direct
or indirect indebtedness, liability or obligation, whether known or unknown,
fixed or unfixed, contingent or otherwise, and whether or not of a kind required
by GAAP to be set forth on a financial statement (collectively, "Liabilities"),
other than (i) Liabilities fully and adequately reflected on the Company
Financials or the Winston Financials, (ii) those incurred since the date of the
Company Financials and the Winston Financials in the ordinary course of business
and (iii) Liabilities incurred pursuant to the Debt Documents (as defined in the
Amended and Restated Articles).
-3-
<PAGE> 8
ARTICLE III
Representations and Warranties of the Purchaser
The Purchaser represents and warrants to the Company as
follows:
SECTION 3.1. Organization and Standing. The Purchaser is an
unincorporated division of Goodyear. Goodyear is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio.
SECTION 3.2. Authority; Binding Agreements. The Purchaser has
all requisite power and authority to enter into this Agreement and the Tire
Supply Agreement and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Tire Supply
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
on the part of the Purchaser and Goodyear. This Agreement has been duly executed
and delivered by the Purchaser as an unincorporated division of Goodyear, and
constitutes the valid and binding obligation of the Purchaser and Goodyear,
enforceable against the Purchaser and Goodyear in accordance with its terms. The
Tire Supply Agreement, when executed and delivered by the Purchaser, will
constitute the valid and binding obligation of the Purchaser and Goodyear,
enforceable against the Purchaser and Goodyear in accordance with its respective
terms.
SECTION 3.3. Conflicts; Consents. The execution and delivery
by the Purchaser of this Agreement and the Tire Supply Agreement, the
consummation of the transactions contemplated hereby and thereby and compliance
by the Purchaser with any of the provisions hereof and thereof does not and will
not (i) conflict with or result in a breach of the articles of incorporation,
by-laws or other constitutive documents of the Purchaser or Goodyear, (ii)
conflict with or result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the provisions of any note, bond,
lease, mortgage, indenture, or any license, franchise, permit, agreement or
other instrument or obligation to which the Purchaser or Goodyear is a party, or
by which the Purchaser or Goodyear or any of the Purchaser's or Goodyear's
properties or assets may be bound or affected, except for such conflicts,
breaches or defaults as to which requisite waivers or consents have been, or
before the Closing will be, obtained, (iii) violate any law, statute, rule or
regulation or order, writ, injunction or decree applicable to the Purchaser or
Goodyear or any of the Purchaser's or Goodyear's properties or assets or (iv)
result in the creation or imposition of any Claim upon any of the Purchaser's or
Goodyear's properties or assets. No consent or approval by, or notification of
or filing with, any person is required in connection with the execution,
delivery and performance by the Purchaser of this Agreement and the Tire Supply
Agreement and the consummation of the transactions contemplated hereby and
thereby.
SECTION 3.4. Purchase for Own Account. The Kelly Preferred
Shares to be acquired by the Purchaser pursuant to this Agreement are being
acquired for its own account and the Purchaser has no intention of distributing
or reselling such securities or any part thereof in any transaction that would
be in violation of the securities laws of the United States of America, or
-4-
<PAGE> 9
any state, without prejudice, however, to the rights of such Purchaser at all
times to sell or otherwise dispose of all or any number of the Kelly Preferred
Shares under an effective registration statement under the Securities Act of
1933, as amended, and the rules and regulations of the Securities and Exchange
Commission thereunder (the "Securities Act"), or under an exemption from such
registration available under the Securities Act, and subject, nevertheless, to
the disposition of the Purchaser's property being at all times within its
control. If the Purchaser should in the future decide to dispose of any of the
Kelly Preferred Shares, the Purchaser understands and agrees that it may do so
only in compliance with the Securities Act and applicable state securities laws,
as then in effect, and that stop-transfer instructions to that effect, where
applicable, will be in effect with respect to such securities. If the Purchaser
should decide to dispose of such securities, the Purchaser, if requested by the
Company, will have the obligation in connection with such disposition, at the
Purchaser's expense, of delivering an opinion of counsel of recognized standing
in securities law, in connection with such disposition to the effect that the
proposed disposition of such securities would not be in violation of the
Securities Act or any applicable state securities laws and, assuming such
opinion is required and is otherwise appropriate in form and substance under the
circumstances, the Company will accept, and will recommend to any applicable
transfer agent or trustee for such securities that it accept, such opinion. The
Purchaser agrees to the imprinting, so long as required by law, of a legend on
certificates representing all of the Kelly Preferred Shares to the effect set
forth in Section 8.14.
SECTION 3.5. Investment Company. Neither the Purchaser nor any
person controlling the Purchaser is an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
SECTION 3.6. Broker's, Finder's or Similar Fees. There are no
brokerage commissions, finder's fees or similar fees or commissions payable in
connection with the offer or sale of the Kelly Preferred Shares contemplated
hereby based on any agreement, arrangement or understanding with the Purchaser
or any action taken by the Purchaser.
SECTION 3.7. Nature of Purchaser. The Purchaser is an
"accredited investor" within the meaning of Rule 501 of Regulation D promulgated
under the Securities Act.
ARTICLE IV
Covenants of the Company
SECTION 4.1. Winston Tires. (a) If as of December 31, 1997 (i)
the Company and its subsidiaries are not ordering all of their respective
requirements of "Winston" brand tires (the "Winston Brand Products") from the
Purchaser, and (ii) the Purchaser is otherwise ready, willing and able to supply
the Company and its subsidiaries with such Winston Brand Products in accordance
with the terms set forth in the Tire Supply Agreement, then, beginning
thereafter and continuing until such time as the earlier of (1) the Company and
its subsidiaries are ordering all of such Winston Brand Products from the
Purchaser and (2) the Kelly Preferred Shares have been redeemed in full, the
Company shall (a) commence the sale of "Winston" brand tires manufactured by the
Purchaser in the Eastern Region of the United States where the Company currently
operates its wholesale distribution business, (b) cause Winston to convert
Winston's "Delta"
-5-
<PAGE> 10
brand tire business to a "house" brand that is manufactured and sold by the
Purchaser in an amount equal to at least 100,000 units or two-thirds of
Winston's "Delta" tire business, whichever is greater, (c) order from the
Purchaser the maximum number of "Winston" brand tires, if any, that the Company
and its affiliates can order from the Purchaser without violating any of the
Company's or its subsidiaries' existing supply contracts, (d) purchase from the
Purchaser an additional 250,000 units per year of premium tires (the makeup of
which to be agreed upon by the Company and the Purchaser) and (e) meet with the
Purchaser to discuss such other additional business opportunities as may be
available.
(b) If, in any year that Kelly Preferred Shares are
outstanding, (i) the Purchaser is unable or unwilling to sell to the Company and
its subsidiaries, in accordance with the Tire Supply Agreement, such number of
tires that the Company and its subsidiaries would have otherwise purchased from
the Purchaser and (ii) as a result of such circumstances, (1) the Company is
required to pay a greater amount of Series A Additional Dividends or Series B
Dividends (each as defined in the Amended and Restated Articles) than it would
otherwise have paid or (2) the Tire Purchase Credit (as defined in the Amended
and Restated Articles) is less than it otherwise would have been, the Company
and the Purchaser agree to negotiate in good faith an appropriate equitable
adjustment, if any, of the amount of such dividends or credit, as the case may
be.
SECTION 4.2. Change of Control Notice. So long as the
Purchaser holds all of the outstanding Kelly Preferred Shares, at least 15 days
prior to the occurrence of any Change of Control (as defined in the Amended and
Restated Articles), the Company shall notify the Purchaser of such pending
Change of Control.
SECTION 4.3. Issue Taxes. The Company shall pay, or cause to
be paid, all documentary and similar taxes levied under the laws of any
applicable jurisdiction in connection with the issuance of the Kelly Preferred
Shares and any modification of the Kelly Preferred Shares and will hold the
Purchaser harmless, without limitation as to time, against any and all
liabilities with respect to all such taxes.
SECTION 4.4. Financial Statements. So long as the Purchaser
holds all of the outstanding Kelly Preferred Shares, the Company shall deliver
to the Purchaser:
(a) as soon as available, but not later than 120 days after
the end of each fiscal year of the Company, a copy of the audited consolidated
balance sheet of the Company and its subsidiaries as of the end of such year and
the related consolidated statements of income and cash flows for such fiscal
year, setting forth in each case in comparative form the figures for the
previous year, accompanied by the opinion of Arthur Andersen LLP (or any
successor thereto) or another nationally recognized independent public
accounting firm which report shall state that such consolidated financial
statements present fairly the financial position for the periods indicated in
conformity with GAAP applied on a basis consistent, except as otherwise stated
therein, with prior years;
(b) as soon as available and, in any event, within 45 days of
each of the first three fiscal quarters of each year (including, however, for
the fiscal quarter ended December 31, 1997, if statements were not provided for
the fiscal quarter ended September 30, 1997) the unaudited
-6-
<PAGE> 11
consolidated balance sheet of the Company and its subsidiaries, and the related
consolidated statements of income and cash flow for such quarter and for the
period commencing on the first day of the fiscal year and ending on the last day
of such quarter, all certified by an appropriate officer of the Company; and
(c) if and when the Company becomes subject to the Securities
Act or the Securities Exchange Act of 1934, promptly after the same are filed,
copies of all reports, statements and other documents filed with the Commission,
at which point Section 4.4(a) and (b) shall expire and no longer be binding upon
the Company.
SECTION 4.5. Notices. So long as the Purchaser holds all of
the outstanding Kelly Preferred Shares, upon actual knowledge of the Chief
Executive Officer, the President or the Chief Financial Officer of the Company
of the events described in this Section 4.5, the Company shall give prompt
written notice (but in any event within 15 days) to the Purchaser of the
occurrence of any material default or event of default under any of the Debt
Documents specifying the nature of such default or event of default, the period
of existence thereof and the action that the Company had taken or proposes to
take with respect thereto.
ARTICLE V
Covenants of the Purchaser
SECTION 5.1. Confidentiality. The Purchaser shall not disclose
any Confidential Information (as defined below) to anyone, other than those of
its employees, agents or consultants (i) who need to know the Confidential
Information in order to assist the Purchaser in evaluating whether to purchase
the Kelly Preferred Shares or in connection with the Purchaser's performance
under the Tire Supply Agreement and (ii) who agreed not to disclose the
Confidential Information to anyone and not to make use of the Confidential
Information for any purpose other than as described in clause (i) above, except
to the extent such information has become publicly available or the disclosure
is required by law or judicial decree. The Purchaser shall not make use of the
Confidential Information for any purpose other than to evaluate and monitor its
holdings of the Kelly Preferred Shares and in connection with its performance
under the Tire Supply Agreement. "Confidential Information" means, as the
following items relate to the Company and its businesses or proposed businesses,
trade secrets, research and development activities, books and records, actual or
projected financial condition and results of operations, nature and location of
businesses, customer lists, vendor lists, pricing information, private
processes, agreements, data, licenses, permits, approvals, offering memoranda,
business plans and any other confidential or proprietary technical or business
information.
SECTION 5.2. Stock Transfer Restrictions. The Purchaser shall
not sell, pledge or otherwise transfer (each a "Transfer") any Kelly Preferred
Shares except in accordance with the following procedures:
(a) Except as otherwise set forth in subsection (c) below, in
the event the Purchaser desires to Transfer the Kelly Preferred Shares, the
following procedures apply:
-7-
<PAGE> 12
(i) The Purchaser shall deliver to the Company a written
notice, which shall be irrevocable for a period of 45 days after delivery,
offering all of the Kelly Preferred Shares owned by the Purchaser at the
purchase price and on the terms specified in the written notice. The Company
shall have the first right and option, for a period of 30 days after delivery of
such written notice, to purchase the Kelly Preferred Shares so offered at the
purchase price and on the terms specified in the notice. Such acceptance shall
be made by delivering a written notice to the Purchaser within such 30-day
period.
(ii) If the Company does not elect to purchase in the
aggregate all of the offered Kelly Preferred Shares, then the Purchaser may sell
all (but not less than all) of the Kelly Preferred Shares then held by the
Purchaser to one purchaser at a price per share not less than the price, and on
terms not more favorable to the purchaser than the terms, stated in the original
written notice of intention to sell, at any time within 30 days after the
expiration of the period in which the Company could elect to purchase any Kelly
Preferred Shares. In the event all such Kelly Preferred Shares are not sold by
the Purchaser in such manner during such 30-day period, the right of the
Purchaser to sell such Kelly Preferred Shares shall expire and the obligations
of this Section 5.2(a) shall be reinstated.
(b) Any proposed Transfer of Kelly Preferred Shares by a
holder of the Kelly Preferred Shares (including the Purchaser) shall be void
unless (i) the Purchaser complies with the provisions of Section 3.4 and this
Section 5.2, (ii) any purchaser of the Kelly Preferred Shares (other than the
Company) shall agree in writing to be bound by and comply with the provisions of
this Agreement (including Section 3.4 and this Section 5.2), and (iii) the
Company's Board of Directors has concluded that any purchaser of the Kelly
Preferred Shares pursuant to this Section 5.2 is not a competitor of the Company
or the Purchaser and that such purchaser's holding of the Kelly Preferred Shares
would not have an adverse effect on the Company. Notwithstanding anything to the
contrary set forth herein, so long as the Tire Supply Agreement (or any
successor agreement or arrangement) has not been terminated by the Company, the
Purchaser shall not Transfer any Kelly Preferred Shares (other than to the
Company or, pursuant to subsection (c) below, to a wholly-owned subsidiary or
another division of Goodyear).
(c) Subject only to compliance with Section 5.2(b)(ii), the
Purchaser may, in its sole discretion any time after the date of this Agreement,
Transfer all (but not less than all) of the Kelly Preferred Shares to a
wholly-owned subsidiary or another division of Goodyear.
ARTICLE VI
Conditions to the Obligation of the Purchaser
The obligation of the Purchaser to purchase the Kelly
Preferred Shares, to pay the Purchase Price at the Closing, and to perform any
of its obligations hereunder shall be subject to the satisfaction or waiver of
the following conditions on or before the Closing Date:
SECTION 6.1. Representations and Warranties. The
representations and warranties of the Company contained in Article II of this
Agreement shall be true and correct in all material respects at and as of the
Closing Date as if made at and as of such date.
-8-
<PAGE> 13
SECTION 6.2. Compliance with this Agreement. The Company shall
have performed and complied with all of its agreements and conditions set forth
or contemplated herein that are required to be performed or complied with by the
Company on or before the Closing Date.
SECTION 6.3. Officer's Certificate. The Purchaser shall have
received a certificate, dated the Closing Date and signed by the President or a
Vice-President of the Company, certifying that the conditions set forth in
Sections 6.1 and 6.2 hereof have been satisfied on and as of such date.
SECTION 6.4. Secretary's Certificate. The Purchaser shall have
received a certificate, dated the Closing Date and signed by the Secretary or an
Assistant Secretary of the Company, attaching a good standing certificate from
the Secretary of State of the State of North Carolina with respect to the
Company and certifying the truth and correctness of attached copies of the
Amended and Restated Articles and By-laws of the Company and resolutions of the
Board of Directors of the Company approving this Agreement and the Tire Supply
Agreement and the transactions contemplated hereby and thereby.
SECTION 6.5. Filing of Amended and Restated Articles. The
Amended and Restated Articles in the form attached to this Agreement as Exhibit
B shall have been duly filed by the Company with the Secretary of State of the
State of North Carolina.
SECTION 6.6. Opinion of Counsel. The Purchaser shall have
received the opinion of counsel to the Company, dated the Closing Date, in
substantially the form of Exhibit C to this Agreement.
SECTION 6.7. Pro Forma Balance Sheet. The Purchaser shall have
received from the Company a pro forma opening consolidated balance sheet of the
Company and Winston, as of a date on or about the Closing Date, giving effect to
the Acquisition and the related financings and transactions (including the
borrowing under the senior credit facility and the issuance of the subordinated
debt and the Kelly Preferred Shares).
SECTION 6.8. No Litigation. No action, suit, proceeding, claim
or dispute shall have been brought or otherwise arisen at law, in equity, in
arbitration or before any governmental authority against the Company or Winston
which could, in the reasonable judgment of the management of the Company, (a)
after giving effect to the transactions contemplated hereby, have a material
adverse effect on the assets, business, properties or financial or other
condition of the Company and Winston, taken as a whole, or (b) have a material
adverse effect on the ability of the Company to perform its obligations under
this Agreement, the Kelly Preferred Shares or the Tire Supply Agreement.
SECTION 6.9. Stock Purchase Agreement. The closing of the
transactions contemplated by the Stock Purchase Agreement shall simultaneously
occur with the Closing and all of the conditions precedent set forth in the
Stock Purchase Agreement shall have been satisfied or waived.
-9-
<PAGE> 14
SECTION 6.10. Financing. The Company shall have obtained, or
is simultaneously obtaining, senior financing in an amount not exceeding
$65,000,000 and subordinated debt financing in an amount not exceeding
$16,000,000 in connection with the Acquisition, in each case, on terms
reasonably satisfactory to the Company.
SECTION 6.11. Tire Supply Agreement. The Company shall have
duly executed and delivered to the Purchaser the Tire Supply Agreement.
SECTION 6.12. Documents. The Purchaser shall have received
copies of such documents as it reasonably may request in connection with the
sale of the Kelly Preferred Shares and the transactions contemplated hereby, all
in form and substance reasonably satisfactory to the Purchaser.
ARTICLE VII
Conditions to the Obligation of the Company
The obligations of the Company to issue and sell the Kelly
Preferred Shares and to perform any of its other obligations under this
Agreement shall be subject to the satisfaction or waiver of the following
conditions on or before the Closing Date:
SECTION 7.1. Representations and Warranties. The
representations and warranties of the Purchaser contained in Article III of this
Agreement shall be true and correct in all material respects at and as of the
Closing Date as if made at and as of such date.
SECTION 7.2. Compliance with this Agreement. The Purchaser
shall have performed and complied with all of its agreements and conditions set
forth or contemplated herein that are required to be performed or complied with
by the Purchaser on or before the Closing Date.
SECTION 7.3. Purchaser's Certificate. The Company shall have
received a certificate, dated the Closing Date and signed by the Purchaser,
certifying that the conditions set forth in Sections 7.1 and 7.2 hereof have
been satisfied on and as of such date.
SECTION 7.4. Stock Purchase Agreement. The closing of the
transactions contemplated by the Stock Purchase Agreement shall simultaneously
occur with the Closing hereof.
SECTION 7.5. Financing. The Company shall have obtained, or is
simultaneously obtaining, senior financing in an amount not exceeding
$65,000,000 and subordinated debt financing in an amount not exceeding
$16,000,000 in connection with the Acquisition.
SECTION 7.6. Tire Supply Agreement. The Purchaser shall have
duly executed and delivered to the Company the Tire Supply Agreement.
-10-
<PAGE> 15
ARTICLE VIII
Miscellaneous
SECTION 8.1. Survival of Provisions. All of the
representations, warranties and covenants made in this Agreement and each of the
provisions of this Agreement shall survive the Closing.
SECTION 8.2. Notices. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be by registered or certified first-class mail, return receipt requested,
telecopier, courier services or personal delivery to the following addresses, or
to such other addresses as shall be designated from time to time by a party in
accordance with this Section 8.2:
(a) if to the Purchaser:
The Kelly-Springfield Tire Company
A Division of The Goodyear Tire and Rubber Company
12501 Willow Brook Road, S.E.
Cumberland, Maryland 21502-2599
Attention: Dane E. Taylor
Secretary/Attorney
Telecopier No.: (301) 777-6493
(b) if to the Company:
The J.H. Heafner Company, Inc.
814 East Main Street
P.O. Box 837
Lincolnton, North Carolina 28093-0837
Attention: President
Telecopier No.: (704) 732-6480
with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, New York 10019
Attention: Scott F. Smith, Esq.
Telecopier No.: (212) 841-1010
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; one business
day after delivery to a courier, if
-11-
<PAGE> 16
delivered by commercial overnight courier service; five business days after
being deposited in the mail, postage prepaid, if mailed; and when receipt is
acknowledged, if telecopied.
SECTION 8.3. Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors and permitted assigns
of the parties hereto. Except as otherwise expressly set forth in this
Agreement, this Agreement and the rights and obligations under this Agreement
shall not be assignable or transferable by any party without the prior written
consent of the other party.
SECTION 8.4. Amendment and Waiver. No failure or delay on the
part of the Company or the Purchaser in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. No waiver
of or consent to any departure by the Company or the Purchaser from any
provision of this Agreement shall be effective unless signed in writing by the
party entitled to the benefit thereof; provided that notice of any such waiver
shall be given to each party as set forth below. Except as otherwise provided
herein, no amendment, modification or termination of any provision of this
Agreement shall be effective unless signed in writing by or on behalf of the
Company and the Purchaser.
Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by the Company or the Purchaser from the terms of
any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given. Except where
notice is specifically required by this Agreement, no notice to or demand on the
Company or the Purchaser in any case shall entitle the Company or the Purchaser
to any other or further notice or demand in similar or other circumstances.
SECTION 8.5. Counterparts. This Agreement may be executed in
any number of counterparts and by the parties in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
SECTION 8.6. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
SECTION 8.7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 8.8. JURISDICTION. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK SITTING IN NEW YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS WHICH
ARISE OUT OF OR RELATE TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY, AND EACH SUCH
-12-
<PAGE> 17
PARTY AGREES NOT TO COMMENCE ANY LEGAL PROCEEDING RELATED THERETO EXCEPT IN SUCH
COURT. EACH OF THE PARTIES TO THIS AGREEMENT IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY SUCH PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN ANY INCONVENIENT FORUM.
SECTION 8.9. Severability. In the event that any one or more
of the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions hereof shall not be in any way
impaired, unless the provisions held invalid, illegal or unenforceable shall
substantially impair the benefits of the remaining provisions hereof.
SECTION 8.10. Entire Agreement. This Agreement, together with
the exhibits and schedules hereto, the Series A Preferred Shares, the Series B
Preferred Shares and the Tire Supply Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein. This Agreement, together with the exhibits and schedules
hereto, the Series A Preferred Shares, the Series B Preferred Shares and the
Tire Supply Agreement supersede all prior agreements and understandings among
the parties with respect to such subject matter.
SECTION 8.11. Publicity. Except as may be required by
applicable law, no party hereto shall issue a publicity release or announcement
or otherwise make any public disclosure concerning this Agreement or the
transactions contemplated hereby, without prior approval by the other parties
hereto. If any announcement is required by law to be made by a party hereto,
prior to making such announcement such party will deliver a draft of such
announcement to the other parties and shall give the other parties an
opportunity to comment thereon.
SECTION 8.12. Expenses. Each party to this Agreement shall
each bear its own costs incurred in connection with the negotiation, execution
and delivery and enforcement of this Agreement, including the fees and expenses
of its lawyers, financial advisors and accountants.
SECTION 8.13. Certain Definitions and Rules of Interpretation.
Except as otherwise expressly provided in this Agreement, the following rules of
interpretation apply to this Agreement: (i) the singular includes the plural and
the plural includes the singular; (ii) "or" and "any" are not exclusive and
"include" and "including" are not limiting; (iii) a reference to any agreement
or other contract includes permitted supplements and amendments; (iv) a
reference to a law includes any amendment or modification to such law and any
rules or regulations issued thereunder; (v) a reference to a person includes its
permitted successors and assigns; (vi) a reference to GAAP or generally accepted
accounting principles refers to United States generally accepted accounting
principles; and (vii) a reference in this Agreement to an Article, Section,
Annex, Exhibit or Schedule is to the Article, Section, Annex, Exhibit or
Schedule of this Agreement. For purposes of this Agreement, a "person" means an
individual, corporation,
-13-
<PAGE> 18
partnership, joint venture, association, trust, unincorporated organization or
other entity (governmental or private).
SECTION 8.14. Legends. The Purchaser agrees to the imprinting,
so long as required by the terms of this Agreement, of a legend on certificates
representing all of the Kelly Preferred Shares, as applicable, owned by it to
the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED, QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT
OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR
SUCH LAWS AND NEITHER THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY AUTHORITY HAS
PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A
SECURITIES PURCHASE AGREEMENT ON FILE AT THE OFFICE OF THE COMPANY."
-14-
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be executed and delivered by their respective
duly authorized officers as of the date first above written.
THE J. H. HEAFNER COMPANY, INC.
By: /s/ WILLIAM H. GAITHER
--------------------------------------------
Name:
Title:
THE KELLY-SPRINGFIELD TIRE COMPANY, a
division of The Goodyear Tire and Rubber Company
By: /s/ LEE R. FEIDLER
--------------------------------------------
Name:
Title:
-15-
<PAGE> 1
Exhibit 10.9
================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
THE J.H. HEAFNER
COMPANY, INC.
ITCO MERGER CORPORATION
ITCO LOGISTICS CORPORATION
AND
THE STOCKHOLDERS OF
ITCO LOGISTICS CORPORATION
DATED: MARCH 10, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
INTRODUCTION.................................................................1
ARTICLE I
THE MERGER
SECTION 1.1. The Merger......................................................1
SECTION 1.2. Effective Time..................................................2
SECTION 1.3. Closing.........................................................2
SECTION 1.4. Effects of the Merger...........................................2
SECTION 1.5. Certificate of Incorporation and By-laws........................2
SECTION 1.6. Directors and Officers of Surviving Corporation.................2
SECTION 1.7. Conversion of Capital Stock.....................................2
(a) Acquisition Common Stock............................................2
(b) Cancellation of Treasury Stock and Company-Owned Stock..............2
(c) Exchange of Shares; Payment of Cash Consideration...................3
(d) Effect on Company Stock.............................................3
(e) Escrow Amount.......................................................3
SECTION 1.8. Tax Treatment...................................................3
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. Representations and Warranties of the Company and the
Company Stockholders as a Group.........................................4
(a) Organization, Standing and Power....................................4
(b) Authority; Binding Agreements.......................................4
(c) Capitalization; Subsidiaries........................................5
(d) Conflicts; Consents.................................................6
(e) Financial Information...............................................6
(f) Absence of Changes..................................................7
(g) Assets, Property and Related Matters; Real Property.................9
(h) Intellectual Property..............................................11
(i) Insurance..........................................................12
(j) Agreements.........................................................12
(k) Litigation.........................................................13
(l) Compliance; Governmental Authorizations............................13
(m) Labor Relations; Employees.........................................14
(n) Related Party Transactions.........................................17
(o) Taxes..............................................................17
(p) Disclosure.........................................................19
(q) Bank Accounts; Powers-of-Attorney..................................19
(r) Inventory..........................................................19
(s) Brokers............................................................19
(t) Investment Company.................................................19
i
<PAGE> 3
SECTION 2.2. Representations and Warranties of the Company
Stockholders Individually..............................................19
(a) Authority; Binding Agreements; Title to Shares.....................19
(b) Conflicts; Consents................................................20
(c) Brokers............................................................21
(d) Pending Challenges.................................................21
(e) Investment Company.................................................21
SECTION 2.3. Representations and Warranties of Heafner.....................21
(a) Organization, Standing and Power...................................21
(b) Authority; Binding Agreements......................................21
(c) Capitalization; Subsidiaries.......................................22
(d) Conflicts; Consents................................................23
(e) Financial Information..............................................24
(f) Absence of Changes.................................................25
(g) Litigation.........................................................26
(h) No Default or Breach...............................................26
(i) Title to Properties................................................27
(j) Investment Company.................................................27
(k) Full Disclosure....................................................27
(l) Compliance; Governmental Authorizations............................27
(m) Labor Relations; Employees.........................................28
(n) Taxes..............................................................30
(o) Patents, Trademarks, Etc...........................................32
(p) Potential Conflicts of Interest....................................32
(q) Trade Relations....................................................32
(r) Material Contracts.................................................33
(s) Insurance..........................................................33
(t) Inventory..........................................................33
(u) Brokers............................................................33
(v) Financing..........................................................34
ARTICLE III
ADDITIONAL AGREEMENTS
SECTION 3.1. Transaction Costs..............................................34
SECTION 3.2. Conduct of Business............................................34
SECTION 3.3. HSR Act Filings; Reasonable Efforts; Further Assurances........35
SECTION 3.4. No Shopping....................................................37
SECTION 3.5. Access and Information.........................................37
SECTION 3.6. Releases; Prior Compensation...................................38
SECTION 3.7. Public Announcements...........................................39
SECTION 3.8. Tax Matters....................................................39
(a) Transfer Taxes.....................................................39
(b) Responsibility for Company Taxes...................................39
(c) Tax Treatment......................................................40
(d) Filing of Returns..................................................40
(e) Cooperation in Tax Matters.........................................40
ii
<PAGE> 4
(f) Tax Audits and Assessments.........................................41
(g) Activities between Signing and Closing.............................41
SECTION 3.9. Other Documents...............................................41
SECTION 3.10. Officers and Directors........................................41
SECTION 3.11. Pending Heafner Acquisitions..................................41
SECTION 3.12. Company Confidential Information; Non-Competition.............42
(a) Confidential Information...........................................42
(b) Covenant Not To Compete............................................42
(c) Enforceability.....................................................44
(d) Remedies...........................................................44
(e) Acknowledgment.....................................................44
SECTION 3.13. Indemnification...............................................45
SECTION 3.14. Financing Arrangement.........................................45
SECTION 3.15. Confidentiality...............................................46
SECTION 3.16. Disclosure Supplements........................................49
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1. Conditions to Obligations of Heafner and Acquisition...........50
(a) Representations, Warranties and Covenants..........................50
(b) Certificates.......................................................50
(c) Opinion of Counsel.................................................51
(d) HSR Act............................................................51
(e) No Legal Bar.......................................................51
(f) Consents, Amendments and Terminations..............................51
(g) Due Diligence......................................................51
(h) Escrow, Stockholder and Registration Rights Agreements;
Investment Letter..................................................51
(i) Share Certificates and Corporate Records...........................51
(j) Financial Statements...............................................52
(k) Financing..........................................................52
(l) Additional Documents...............................................52
SECTION 4.2. Conditions of Obligations of the Company Stockholders..........52
(a) Representations, Warranties and Covenants..........................52
(b) Certificate........................................................53
(c) Opinion of Counsel.................................................53
(d) HSR Act............................................................53
(e) No Legal Bar.......................................................53
(f) Consents...........................................................53
(g) Escrow, Stockholder and Registration Rights Agreements.............53
(h) Filing of Amended and Restated Articles............................53
(i) Financing..........................................................53
(j) Due Diligence......................................................54
(k) Financial Statements...............................................54
(l) Additional Documents...............................................54
iii
<PAGE> 5
ARTICLE V
INDEMNITY
SECTION 5.1. Indemnification................................................54
(a) Indemnification by Company Stockholders as a Group.................54
(b) Indemnification by Company Stockholders Individually...............55
(c) Indemnification by Heafner.........................................55
(d) Indemnification Procedures.........................................55
(e) Treatment of Payments..............................................56
SECTION 5.2. Limitations....................................................56
(a) Expiration Date....................................................56
(b) Cap................................................................56
(c) Deductible.........................................................57
(d) Form of Payment....................................................57
(e) Tax Benefits.......................................................58
(f) Insurance Proceeds.................................................58
(g) Sole Remedy........................................................58
SECTION 5.3. No Election....................................................59
SECTION 5.4. Company Stockholders' Representative...........................59
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Entire Agreement...............................................59
SECTION 6.2. Termination....................................................59
SECTION 6.3. Descriptive Headings; Certain Interpretations..................60
SECTION 6.4. Notices........................................................61
SECTION 6.5. Counterparts...................................................62
SECTION 6.6. Survival.......................................................62
SECTION 6.7. Benefits of Agreement..........................................62
SECTION 6.8. Amendments and Waivers.........................................62
SECTION 6.9. Assignment.....................................................63
SECTION 6.10. Enforceability.................................................63
SECTION 6.11. Governing Law..................................................63
SECTION 6.12. Dispute Resolution; Consent To Jurisdiction....................63
SCHEDULES
Company Disclosure Schedule
Heafner Disclosure Schedule
ANNEXES
A Company Stockholders; Ownership of Shares
B Dispute Resolution Procedure
iv
<PAGE> 6
EXHIBITS
A Form of Class B Stockholder Agreement
B Form of Class B Registration Rights Agreement
C Form of Investment Letter
D Form of Second Amended and Restated Articles
v
<PAGE> 7
AGREEMENT AND PLAN OF MERGER, dated as of March 10, 1998 (the
"Agreement"), among The J.H. Heafner Company, Inc., a North Carolina
corporation ("Heafner"), ITCO Merger Corporation, a Delaware
corporation ("Acquisition"), ITCO Logistics Corporation, a Delaware
corporation (the "Company"), and each of the stockholders of the
Company (each, a "Company Stockholder" and, collectively, the
"Company Stockholders")
--------------------------------------------------------------------
INTRODUCTION
The Company, together with its Subsidiaries (as defined below in
Section 2.1(c)), owns and operates a wholesale tire business with its principal
executive offices located in Wilson, North Carolina.
The Company Stockholders and the Boards of Directors of each of
Heafner, Acquisition and the Company have unanimously approved the merger of
Acquisition with and into the Company (the "Merger") on the terms and subject to
the conditions set forth in this Agreement. As a result of the Merger, each
issued and outstanding share of common stock, $0.01 par value, of the Company
(the "Company Common Stock") and each issued and outstanding share of preferred
stock, $0.01 par value, of the Company (the "Company Preferred Stock" and,
together with the Company Common Stock, the "Company Capital Stock") not owned
directly or indirectly by Heafner or the Company will be converted into the
right to receive the consideration provided in this Agreement.
The parties to this Agreement desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
As further inducement for the parties to enter into this Agreement,
Heafner and the Company Stockholders desire to enter into an Escrow Agreement in
the form described in Section 4.1(h)) (the "Escrow Agreement"), a Class B
Stockholder Agreement in the form attached hereto as Exhibit A (the "Class B
Stockholder Agreement") and a Class B Registration Rights Agreement in the form
attached hereto as Exhibit B (the "Class B Registration Rights Agreement").
The parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement and in accordance with the Delaware General
Corporation Law (the "DGCL"), at the Effective Time (as defined below),
Acquisition shall be merged with and into the Company.
<PAGE> 8
Following the Merger, the separate corporate existence of Acquisition shall
cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of Acquisition in accordance with the DGCL.
SECTION 1.2. Effective Time. At the Closing (as defined below), upon
the satisfaction of all conditions and taking of all actions set forth in
Article IV, the parties hereto shall cause a copy of a certificate of merger
(executed in accordance with the relevant provisions of the DGCL) in customary
form and other appropriate documents to be filed in the office of the Delaware
Secretary of State (the "Certificate of Merger"), and the parties shall make all
other filings or recordings required under the DGCL. The Merger shall become
effective at such time as the Certificate of Merger is duly filed with the
Delaware Secretary of State (the time the Merger becomes effective, the
"Effective Time").
SECTION 1.3. Closing. The closing (the "Closing") for the consummation
of the transactions contemplated by this Agreement shall take place at the
offices of Howard, Darby & Levin, 1330 Avenue of the Americas, New York, New
York 10019, or such other place or places as the Company Stockholders and
Heafner shall agree, at 10:00 a.m. (New York time) on the later of April 29,
1998 and two business days following the date on which all conditions set forth
in Article IV shall have been satisfied or waived, or such other date and time
agreed to by the Company Stockholders and Heafner (such date, the "Closing
Date").
SECTION 1.4. Effects of the Merger. The Merger shall have the effects
set forth in the DGCL.
SECTION 1.5. Certificate of Incorporation and By-laws. The Certificate
of Incorporation of the Company as in effect immediately prior to the Effective
Time shall be the Certificate of Incorporation of the Surviving Corporation
until amended. The By-laws of the Company as in effect immediately prior to the
Effective Time shall be the By-laws of the Surviving Corporation until amended.
SECTION 1.6. Directors and Officers of Surviving Corporation. The
directors and officers of Acquisition at the Effective Time shall be the
directors and officers, respectively, of the Surviving Corporation, until the
earlier of their resignation or removal or until their successors are duly
elected and qualified.
SECTION 1.7. Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Company Capital Stock or any shares of common stock, $.01 par value
("Acquisition Common Stock"), of Acquisition:
(a) Acquisition Common Stock. Each issued and outstanding share of
Acquisition Common Stock shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Company-Owned Stock. Each share
of Company Capital Stock that is held by the Company as treasury stock or owned
by the Company
2
<PAGE> 9
or any subsidiary of the Company, in each case immediately prior to the
Effective Time, shall be canceled and retired and shall cease to exist and no
consideration shall be delivered in exchange therefor.
(c) Exchange of Shares; Payment of Cash Consideration. All of the
issued and outstanding shares of Company Capital Stock (all of which are and,
immediately prior to the Effective Time, will be owned by the Company
Stockholders) shall be converted into and become the right to receive (i)
$18,000,000 (the "Cash Consideration"), to be allocated to holders of shares of
Company Preferred Stock and holders of shares of Company Common Stock in
accordance with a schedule to be delivered by the Company at the Closing, and
(ii) 1,400,667 shares of Class B Common Stock, $.01 par value, of Heafner (which
shares shall represent, at the Closing, 22% of the outstanding shares of Heafner
common stock on a fully diluted basis) (the "Class B Stock Consideration" and,
together with the Cash Consideration, the "Merger Consideration"). Each Company
Stockholder shall be entitled to receive that portion of the aggregate Merger
Consideration set forth opposite such Company Stockholder's name on Annex A to
this Agreement in exchange for such Company Stockholder's shares of Company
Capital Stock. At the Closing, Heafner shall make, or shall cause Acquisition to
make, payment of the Cash Consideration by wire transfer of immediately
available funds to accounts designated by the Company Stockholders no later than
two business days prior to the Closing Date.
(d) Effect on Company Stock. Upon receipt by the Company Stockholders
of the Merger Consideration (other than the Escrow Amount (as defined below)
which shall be delivered to the Escrow Agent (as defined below) at Closing), the
Company Stockholders shall deliver to Heafner the certificates formerly
representing all of the issued and outstanding shares of Company Capital Stock.
From and after the Effective Time, (i) all shares of Company Capital Stock shall
no longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, (ii) each holder of a certificate representing any shares
of Company Capital Stock shall cease to have any rights with respect thereto
(except the right to receive the Merger Consideration allocable to the shares of
Company Capital Stock formerly represented by such certificate) and (iii) the
stock transfer books of the Company shall be closed and there shall be no
further registration of transfers of the shares of Company Capital Stock.
(e) Escrow Amount. At the Closing, Heafner shall deliver, or shall
cause Acquisition to deliver, all of the Class B Stock Consideration to the
Escrow Agent (the "Escrow Agent") named in the Escrow Agreement (such Class B
Stock Consideration being delivered to the Escrow Agent at the Closing are
together referred to in this Agreement as the "Escrow Amount"). The Escrow
Amount consists of a portion of the Merger Consideration that, subject to the
terms of Article V and the Escrow Agreement, would otherwise be payable to the
holders of Company Capital Stock in accordance with Section 1.7(c). Prior to the
Closing, Heafner shall select a bank or trust company to act as the Escrow
Agent, which bank or trust company shall be reasonably acceptable to the Company
Stockholders.
SECTION 1.8. Tax Treatment. The parties to this Agreement agree and
acknowledge that the Merger will be treated as a taxable purchase of the
outstanding shares of Company Capital Stock (and not as a "reorganization"
within the meaning of Section 368 of the
3
<PAGE> 10
Internal Revenue Code of 1986, as amended (the "Code")), for United States
federal, state and local tax purposes.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. Representations and Warranties of the Company and the
Company Stockholders as a Group. Each of the Company and the Company
Stockholders, severally and not jointly, represent and warrant to Heafner as
follows:
(a) Organization, Standing and Power. Each of the Company and each of
its Subsidiaries (i) is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated and
(ii) has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. Each of the
Company and each of its Subsidiaries is duly qualified to do business and is in
good standing in each jurisdiction in which such qualification is necessary
because of the property owned, leased or operated by it or because of the nature
of its business as now being conducted, other than in such jurisdictions where
the failure to be so qualified or in good standing would not, individually or in
the aggregate, have a material adverse effect on the business, assets, condition
(financial or otherwise), liabilities or operations of the Company and its
Subsidiaries taken as a whole or on the Company's ability to consummate the
Merger or perform its obligations under this Agreement (a "Company Material
Adverse Effect"). Each such jurisdiction in which the Company or any of its
Subsidiaries is so qualified is listed in Section 2.1(a) of the disclosure
schedule being delivered by the Company simultaneously with the execution of
this Agreement (the "Company Disclosure Schedule"). The Company has delivered to
Heafner complete and correct copies of its articles of incorporation and by-laws
and the certificate of incorporation and by-laws of each of its Subsidiaries, in
each case as amended to the date of this Agreement, and has made available to
Heafner its and each of its Subsidiaries' minute books and stock records.
Section 2.1(a) of the Company Disclosure Schedule contains a true and correct
list of the directors and officers of the Company and each of its Subsidiaries
as of the date of this Agreement and at all times since the last action of the
board of directors and the stockholders of the Company and of each of its
Subsidiaries, as the case may be.
(b) Authority; Binding Agreements. The Company has the requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by the Company has been duly authorized by all necessary action on the
part of the Company and the Company Stockholders. This Agreement has been duly
executed and delivered by the Company, and, assuming the due execution and
delivery of this Agreement by Heafner and Acquisition, constitutes the valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency
or other similar laws affecting the enforcement of creditors' rights generally
and except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.
4
<PAGE> 11
(c) Capitalization; Subsidiaries. (i) The authorized capital stock of
the Company consists of 250,000 shares of Company Common Stock and 50,000 shares
of Company Preferred Stock. At the time of execution of this Agreement, 93,000
shares of Company Common Stock were issued and outstanding and 8,100 shares of
Company Preferred Stock were issued and outstanding. The Company Stockholders
own of record and beneficially all of the outstanding capital stock of the
Company. Except as set forth above, at the time of execution of this Agreement,
no shares of capital stock or other voting securities of the Company are issued,
reserved for issuance or outstanding. Except as set forth in Section 2.1(c) of
the Company Disclosure Schedule, all outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. There are no bonds, debentures, notes or other
indebtedness or securities of the Company having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which stockholders of the Company may vote. There are no
securities, options, warrants, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company is a party or by which the Company
is bound obligating the Company to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other voting
securities of the Company or obligating the Company to issue, grant, extend or
enter into any such security, option, warrant, right, commitment, agreement,
arrangement or undertaking. There are no outstanding rights, commitments,
agreements, arrangements or undertakings of any kind obligating the Company to
repurchase, redeem or otherwise acquire any shares of capital stock or other
voting securities of the Company or any securities of the type described in the
two immediately preceding sentences. The Company is not subject to any liability
for any claim that the Company violated any applicable Federal or state
securities laws in connection with the issuance of capital stock. For purposes
of this Agreement, a "Subsidiary" of any person means another person under the
control of such person (where "control" means the direct or indirect possession
of the power to elect at least a majority of the Board of Directors or other
governing body of a person through the ownership of voting securities, ownership
or partnership interests, by contract or otherwise, or if no such governing body
exists, the direct or indirect ownership of 50% or more of the equity interests
of a person); and a "person" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity (governmental or private).
(ii) Section 2.1(c) of the Company Disclosure Schedule sets forth a
complete list of all of the Company's Subsidiaries as of the date of this
Agreement, together with their respective jurisdictions of incorporation,
authorized capital stock, number of shares issued and outstanding and record
ownership of such shares. Except as set forth in Section 2.1(c) of the Company
Disclosure Schedule, the Company does not have any Subsidiaries or own or hold
any equity or other security interest in any other entity. All issued and
outstanding shares of capital stock of the Company's Subsidiaries have been duly
authorized, were validly issued, are fully paid and non-assessable and subject
to no preemptive rights and, except as set forth in Section 2.1(c) of the
Company Disclosure Schedule, are directly or indirectly owned beneficially and
of record by the Company, free and clear of all security interests, liens,
pledges, charges, escrows, options, rights of first refusal, mortgages,
indentures, security agreements or other claims, encumbrances, agreements,
arrangements or commitments of any kind or character, whether written or oral
and whether or not relating in any way to credit or the borrowing of money
(collectively, "Claims"),
5
<PAGE> 12
and free of any other limitation or restriction (including any restriction on
the right to vote, sell or otherwise dispose of such capital stock). None of the
Company's Subsidiaries is subject to any liability for any claim that it
violated any applicable Federal or state securities laws in connection with the
issuance of capital stock.
(d) Conflicts; Consents. The execution and delivery by the Company of
this Agreement, the consummation of the transactions contemplated hereby and
compliance by the Company with any of the provisions hereof does not and will
not (i) conflict with or result in a breach of the articles of incorporation,
by-laws or other constitutive documents of the Company or any of its
Subsidiaries, (ii) except as set forth in Section 2.1(d) of the Company
Disclosure Schedule, conflict with or result in a default (or give rise to any
right of termination, cancellation or acceleration) under any of the provisions
of any note, bond, lease, mortgage, indenture, or any license, franchise,
permit, agreement or other instrument or obligation to which the Company or any
of its Subsidiaries is a party, or by which any properties or assets of the
Company or any of its Subsidiaries may be bound or affected, except for (1) such
conflicts, breaches or defaults that are, individually and in the aggregate,
immaterial and (2) such conflicts, breaches or defaults as to which requisite
waivers or consents have been obtained or will be obtained before the Closing at
no material cost to the Company and without giving to any person any material
additional rights, (iii) violate any law, statute, rule or regulation or order,
writ, injunction or decree applicable to the Company or any of its Subsidiaries
or any of their respective properties or assets (except for such violations that
are, individually and in the aggregate, immaterial) or (iv) result in the
creation or imposition of any Claim upon any shares of Company Capital Stock or
capital stock of any of the Company's Subsidiaries or any property or assets
used or held by the Company or any of its Subsidiaries. No consent or approval
by, or notification of or filing with, any governmental authority or agency is
required in connection with the execution, delivery and performance by the
Company of this Agreement, or the consummation of the transactions contemplated
hereby except for (x) the filing of a premerger notification and report form
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder (the "HSR Act"), and the
expiration or early termination of the applicable waiting period under the HSR
Act, (y) the filing of the Certificate of Merger with the Delaware Secretary of
State and (z) such other consents, approvals or notifications that are,
individually and in the aggregate, immaterial.
(e) Financial Information. (i) The following financial statements
are contained in Section 2.1(e) of the Company Disclosure Schedule:
(A) the consolidated balance sheets of the Company at
September 30, 1996 and 1997 and the related consolidated statements of
income and retained earnings and cash flows for the fiscal years then
ended together with the opinion of Ernst & Young LLP thereon;
(B) the consolidated balance sheets of the Company at
September 30, 1995 and the related consolidated statements of income and
retained earnings and cash flows for the fiscal years then ended together
with the opinion of Deloitte & Touche, L.L.P. thereon; and
6
<PAGE> 13
(C) the unaudited, internally prepared monthly consolidated
balance sheets of the Company as of the end of each calendar month
commencing October 31, 1997 through the most recent month end that is at
least 20 days prior to the date of this Agreement and the related
consolidated statements of income and retained earnings and cash flows for
each such calendar month.
Except as set forth in Section 2.1(e) of the Company Disclosure Schedule, all
such financial statements have been prepared in conformity with generally
accepted accounting principles ("GAAP") applied on a basis consistent with prior
periods and fairly present in all material respects the consolidated financial
condition, results of operations and cash flows of the Company and its
Subsidiaries (except, in the case of unaudited financial statements, subject to
normal, recurring year-end audit adjustments). The consolidated balance sheets
of the Company as at the dates set forth fairly present in all material respects
the consolidated financial position of the Company and its Subsidiaries as at
the dates thereof, and the related consolidated statements of income and
retained earnings and cash flows of the Company for each of the respective
specified periods then ended fairly present in all material respects the
consolidated results of operations of the Company and its Subsidiaries for each
of the respective periods then ended (except, in the case of unaudited financial
statements, subject to normal, recurring year-end audit adjustments). For the
purposes of this Agreement, all financial statements referred to in this
paragraph shall include any notes and schedules to such financial statements.
(ii) Except as set forth in Section 2.1(e)(ii) of the Company
Disclosure Schedule, each of the Company and each of its Subsidiaries does not
have, and as a result of the transactions contemplated herein, will not have,
any liabilities or obligations (whether absolute, accrued, contingent or
otherwise, and whether due or to become due), except for liabilities and
obligations (A) reflected on the balance sheets of the Company referred to in
Section 2.1(e)(i) or (B) incurred in the ordinary course of business consistent
with past practice since February 20, 1998, and which, individually, do not
exceed $250,000. All reserves established by the Company are reflected on the
balance sheets of the Company or in the footnotes to the financial statements of
the Company and are reasonable based upon facts and circumstances known by the
Company on the date hereof and there are no loss contingencies that are required
to be accrued by Statement of Financial Accounting Standard No. 5 of the
Financial Accounting Standards Board which are not provided for on such balance
sheets.
(f) Absence of Changes. Except as set forth in Section 2.1(f) of the
Company Disclosure Schedule, since September 30, 1997, the Company and its
Subsidiaries have been operated in the ordinary course consistent with past
practice and there has not been:
(i) any event, violation or other matter that could,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect;
(ii) any obligation or liability (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) incurred by the
Company or any of its Subsidiaries, other than obligations under customer
contracts, current obligations and liabilities incurred in the ordinary
course of business and consistent with past practice;
7
<PAGE> 14
(iii) any payment, discharge, satisfaction or settlement of
any claim or obligation of the Company or any of its Subsidiaries, except
in the ordinary course of business and consistent with past practice;
(iv) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of the
Company or any of its Subsidiaries or any direct or indirect redemption,
purchase or other acquisition of any such shares;
(v) any issuance or sale, or any contract entered into for the
issuance or sale, of any shares of capital stock or securities convertible
into or exercisable for shares of capital stock of the Company or any of
its Subsidiaries;
(vi) any sale, assignment, pledge, encumbrance, transfer or
other disposition of any tangible asset of the Company or any of its
Subsidiaries (other than sales of inventory to customers in the ordinary
course of business consistent with past practice), or any sale,
assignment, transfer or other disposition of any patents, trademarks,
service marks, trade names, copyrights, licenses, franchises, know-how or
any other intangible assets of the Company or any of its Subsidiaries;
(vii) any creation of any Claim on any property of the Company
or any of its Subsidiaries, except in the ordinary course of business
consistent with past practice or such Claims which, individually or in the
aggregate, could not reasonably be expected to have a Company Material
Adverse Effect;
(viii) any write-down of the value of any asset of the Company
or any of its Subsidiaries or any write-off as uncollectible of any
accounts or notes receivable or any portion thereof, other than
write-downs or write-offs which, in the aggregate, equal approximately
$112,000 as of the date of this Agreement and which, individually, do not
exceed $10,000;
(ix) any cancellation of any debts or claims or any amendment,
termination or waiver of any rights of value to the Company or any of its
Subsidiaries;
(x) any capital expenditure or commitment or addition to
property, plant or equipment of the Company or any of its Subsidiaries,
other than capital expenditures or commitments or additions to property,
plant or equipment of the Company or any of its Subsidiaries which, in the
aggregate, equal approximately $383,000 as of the date of this Agreement
and which, individually, do not exceed $10,000;
(xi) any general increase in the compensation of employees of
the Company or any of its Subsidiaries (including any increase pursuant to
any written bonus, pension, profit-sharing or other benefit or
compensation plan, policy or arrangement or commitment), or any increase
in any such compensation or bonus payable to any officer, stockholder,
director, consultant or agent of the Company or any of its Subsidiaries
having an annual salary or remuneration in excess of $75,000;
8
<PAGE> 15
(xii) any damage, destruction or loss (whether or not covered
by insurance) affecting any asset or property of the Company or any of its
Subsidiaries resulting in liability or loss in excess of $50,000;
(xiii) any change in the independent public accountants of the
Company and its Subsidiaries or any material change in the accounting
methods or accounting practices followed by the Company or any material
change in depreciation or amortization policies or rates; or
(xiv) any agreement, whether in writing or otherwise, to take
any of the actions specified in the foregoing items (i) through (xiii),
subject to any dollar thresholds set forth in items (i) through (xiii)
above.
(g) Assets, Property and Related Matters; Real Property. (i) The
Company and its Subsidiaries have good title to, or a valid leasehold interest
in, as applicable, all of the assets reflected on the financial statements
contained in Section 2.1(e) of the Company Disclosure Schedule, free and clear
of all Claims, except as set forth in Section 2.1(g)(i) of the Company
Disclosure Schedule. Such assets (A) are in good operating condition and repair,
subject to ordinary wear and tear, and (B) constitute all of the properties,
interests, assets and rights held for use or used in connection with the
business and operations of the Company and its Subsidiaries and constitute all
those necessary to continue to operate the business of the Company and its
Subsidiaries consistent with current and historical practice. All items of
personal property owned by the Company and its Subsidiaries with current value
or book value in excess of $5,000 are listed in Section 2.1(g)(i) of the Company
Disclosure Schedule.
(ii) Section 2.1(g)(ii) of the Company Disclosure Schedule
sets forth a list of all real property owned or leased by the Company or its
Subsidiaries (each a "Company Property"). The Company or one of its
Subsidiaries, as the case may be, is the sole owner or holder of, and has, good
and marketable fee title to, or a good, valid and existing leasehold estate in,
each Company Property, free and clear of all liens, encumbrances, restrictions
and other matters affecting title to, or the use and occupancy of, such Company
Property, except as disclosed in Section 2.1(g)(ii) of the Company Disclosure
Schedule (such items, together with the related items set forth in Section
2.1(g)(i) of the Company Disclosure Schedule, being collectively referred to
herein as the "Permitted Encumbrances"). No Company Property violates in any
material respect the terms or conditions of any Permitted Encumbrance.
(iii) With respect to each Company Property leased by the
Company or one of its Subsidiaries, (A) the Company or one of its Subsidiaries,
as the case may be, is the owner and holder of all the leasehold interests and
estates purported to be granted by such leases, (B) all leases to which the
Company or one of its Subsidiaries is a party are in writing and in full force
and effect and constitute valid and binding obligations of the Company or such
Subsidiary and, to the knowledge of the Company or any Company Stockholder, of
the other parties thereto, enforceable in accordance with their terms, except as
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought, and (C) the
9
<PAGE> 16
Company has delivered to Heafner true and complete copies of all such leases.
There exists no default, or any event which upon notice or the passage of time,
or both, would give rise to any default, in the performance by the Company or
one of its Subsidiaries, as the case may be, or by any lessor under any lease
(except for such defaults that are, individually and in the aggregate,
immaterial). Except as set forth in Section 2.1(g)(ii) of the Company Disclosure
Schedule, the Company has not, and to the knowledge of the Company or any
Company Stockholder, no other person has, granted any oral or written right to
anyone other than the Company and its Subsidiaries to lease, sublease or
otherwise occupy any of the properties described in Section 2.1(g)(ii) of the
Company Disclosure Schedule through the end of the applicable lease periods.
(iv) Each Company Property and all appurtenances and
improvements, as used, constructed or maintained by the Company or any of its
Subsidiaries at any time, conform in all material respects to applicable
Federal, state, local and foreign laws, rules, regulations and orders ("Legal
Requirements"), and, except as otherwise disclosed on Section 2.1(g)(iv) of the
Company Disclosure Schedule, no notices of violation of any Legal Requirements
have been received by the Company or any of its Subsidiaries or, to the
knowledge of the Company and the Company Stockholders, issued by any
governmental authority, in each case with respect to any Company Property,
including all building, fire, health, zoning, setback, subdivision and
environmental laws, regulations or ordinances (except for notices with respect
to possible violations that are, individually and in the aggregate, immaterial).
Without limiting the foregoing, each Company Property is in good operating
condition and repair, ordinary wear and tear excepted, and no condition exists
which would interfere in any material respect with the Company's and its
Subsidiaries' customary use and operation thereof. The use of the buildings and
structures located on each Company Property or any appurtenances or equipment
does not violate in any material respect any restrictive covenants or encroach
on any property owned by others. No condemnation proceeding is pending or, to
the knowledge of the Company or any Company Stockholder, threatened which would
preclude or impair in any material respect the use of any Company Property by
the Company or any of its Subsidiaries for the uses for which they are intended.
(v) Section 2.1(g)(v) of the Company Disclosure Schedule lists
each permit necessary or appropriate for the Company and its Subsidiaries to
own, lease or use any Company Property (except for permits that are,
individually or in the aggregate, immaterial). Each such permit was duly issued
and obtained, currently is in full force and effect, and has the term set forth
therefor on Section 2.1(g)(v) of the Company Disclosure Schedule. No default or
violation, or event which with the passage of time or giving of notice or both
would become a default or violation, has occurred in the due observance of any
permit (except for such defaults or violations that are, individually or in the
aggregate, immaterial). The Company has delivered to Heafner true and complete
copies of all such permits.
(vi) Except as set forth in Section 2.1(g)(vi) of the Company
Disclosure Schedule, no part of any Company Property is subject to any building
or use restrictions that would restrict in any material respect or prevent the
present use and operation of such Company Property, and each Company Property is
properly and duly zoned for its current use, and such current use is in all
material respects a conforming use. Neither the Company nor any of its
Subsidiaries has received a notice or order from a governmental authority having
jurisdiction over
10
<PAGE> 17
any Company Property that adversely affects in any material respect the use or
operation of any Company Property, or requires, as of the date hereof or a
specified date in the future, any repairs, alterations, additions or
improvements thereto, or the payment or dedication of any money, fee, exaction
or property and, to the knowledge of the Company and the Company Stockholders no
such governmental authority has issued, or threatened to issue, any such notice
or order. The Company Stockholders have no knowledge of any actual or pending
imposition of any assessments for public improvements with respect to any
Company Property and, to the knowledge of the Company or any Company
Stockholder, no such improvements have been constructed or planned that would be
paid for by means of assessments upon any Company Property.
(vii) Each Company Property is located on public roads and
streets with adequate ingress and egress available between such streets and the
Company Property, and, to the knowledge of the Company or any Company
Stockholder, all utility systems required in connection with the use, occupancy
and operation of each Company Property are sufficient for their present
purposes, are fully operational and in working order, and are benefited by
customary utility easements providing for the continued use and maintenance of
such systems. Each Company Property consists of sufficient land, parking areas,
sidewalks, driveways and other improvements to permit the continued use of such
Company Property in the manner and for the purposes to which it is presently
devoted.
(viii) Except as set forth in Section 2.1(g)(viii) of the
Company Disclosure Schedule, no portion of any Company Property is located in
any flood zone area designated as Zone A or Zone Z (or any Zone having the
prefix A or Z) (or any successor designation) pursuant to applicable regulations
of the Federal Emergency Management Agency, or any successor thereto.
(ix) None of the Company Stockholders is a "foreign person" as
defined in Section 1445 of the Code.
(x) Except as set forth in Section 2.1(d) of the Company
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated by this Agreement will create
a breach of, or constitute a default under, any lease of real property held by
the Company or any of its Subsidiaries. No consent from the lessor or any other
person under any such lease is required in connection with the execution or
delivery of this Agreement or the consummation of the transactions contemplated
by this Agreement, except for those obtained prior to the Closing and listed in
Section 2.1(d) of the Company Disclosure Schedule.
(h) Intellectual Property. The Company and its Subsidiaries own or
validly license all patents, trademarks, service marks, trade names and
copyrights, in each case registered or unregistered, inventions, software
(including documentation and object and source code listings), know-how, trade
secrets and other intellectual property rights (collectively, the "Intellectual
Property") used in their respective businesses as presently conducted. Section
2.1(h) of the Company Disclosure Schedule contains a list of all patents,
registered trademarks and registered copyrights and applications therefor owned
and used by the Company and its Subsidiaries and any
11
<PAGE> 18
Intellectual Property which is expressly licensed for use by others. As used in
the business of the Company and its Subsidiaries, to the knowledge of the
Company and the Company Stockholders, no Intellectual Property infringes any
rights owned or held by any other person. There is no pending or, to the
knowledge of the Company and the Company Stockholders, threatened claim or
litigation against the Company or any of its Subsidiaries contesting its right
to use any Intellectual Property. To the knowledge of the Company and the
Company Stockholders, no person is infringing the rights of the Company or any
of its Subsidiaries in any Intellectual Property. To the knowledge of the
Company and the Company Stockholders, no product or service sold by the Company
or any of its Subsidiaries violates or infringes any intellectual property right
owned or held by any other person. In the case of commercially available
"shrink-wrap" software programs, to the knowledge of the Company and the Company
Stockholders, neither the Company nor any of its Subsidiaries nor any of their
respective employees has made or is using any unauthorized copies of any such
software programs.
(i) Insurance. Section 2.1(i) of the Company Disclosure Schedule
contains a true and complete list of all policies of casualty, liability, theft,
fidelity, life and other forms of insurance currently held by the Company or any
of its Subsidiaries. True and complete copies of such policies have been
delivered to Heafner. All insurance policies currently outstanding are in the
name of the Company and its Subsidiaries and are in full force and effect, all
premiums with respect to such policies are currently paid and such policies will
not be affected by, or terminated or lapse by reason of, the transactions
contemplated by this Agreement. None of the Company or any of its Subsidiaries
has received notice of cancellation or termination of any such policy, nor has
any such person been denied or had revoked or rescinded any policy of insurance,
nor borrowed against any such policies. No significant claim under any such
policy is pending.
(j) Agreements. Section 2.1(j) of the Company Disclosure Schedule
contains a true and complete list of all contracts, agreements and other
instruments to which the Company or any of its Subsidiaries is a party (A)
relating to indebtedness for money borrowed or capital leases, (B) of duration
of six months or more from the date hereof, not cancelable without penalty on 30
days or less notice and relating to commitments, individually, in excess of
$100,000, (C) relating to commitments, individually, in excess of $200,000
(other than purchases of inventory in the ordinary course of business consistent
with past practice), (D) relating to the employment or compensation of any
stockholder, director, officer, employee, consultant or other agent of the
Company or any of its Subsidiaries, (E) relating to the sale or other
disposition of any assets, properties or rights (other than in the ordinary
course of business consistent with past practice), (F) relating to the lease of
(or similar arrangement with respect to) any machinery, equipment, motor
vehicles, furniture, fixture or similar property and with an annual commitment,
individually, in excess of $50,000, (G) between the Company and any Company
Stockholder or affiliate of any Company Stockholder, (H) that restricts (other
than in immaterial respects) the operation of the Company or any of its
Subsidiaries anywhere in the world or (I) that is otherwise material to the
Company and its Subsidiaries (taken as a whole). None of the Company or any of
its Subsidiaries is in default under any such agreement or instrument where such
default, singly or in the aggregate with defaults under other agreements or
instruments, could reasonably be expected to have a Company Material Adverse
Effect and, to the knowledge of the Company or any Company Stockholder, all such
agreements or instruments are in full force and effect. Except as set forth in
Section 2.1(j) of the Company Disclosure Schedule, neither the execution and
delivery of this
12
<PAGE> 19
Agreement nor the consummation of the transactions contemplated by this
Agreement will create a breach of, or constitute a default under, any agreement
required to be listed in Section 2.1(j) of the Company Disclosure Schedule
(except for such breaches that are, individually or in the aggregate,
immaterial). The Company has delivered to Heafner true and complete copies of
all documents described in Section 2.1(j) of the Company Disclosure Schedule.
(k) Litigation. Except as set forth in Section 2.1(k) of the Company
Disclosure Schedule, there have not been for the past two years (other than
routine matters occurring in the ordinary course of business of the Company and
its Subsidiaries), nor are there, any suits, actions, claims, investigations or
legal or administrative or arbitration proceedings in respect of the Company or
any of its Subsidiaries, pending or, to the knowledge of the Company or any
Company Stockholder, threatened, whether at law or in equity, or before or by
any Federal, foreign, state or municipal or other governmental department,
commission, board, bureau, agency or instrumentality. Except as set forth in
Section 2.1(k) of the Company Disclosure Schedule, there have not been for the
past two years (other than routine matters occurring in the ordinary course of
business of the Company and its Subsidiaries), nor are there, any judgments,
decrees, injunctions or orders of any court, governmental department,
commission, agency, instrumentality or arbitrator against the Company or any of
its Subsidiaries or any of their respective assets or properties.
(l) Compliance; Governmental Authorizations. (i) Each of the Company
and each of its Subsidiaries has complied and is in compliance in all material
respects with all Federal, state, local and foreign laws, ordinances, rules,
regulations and orders (including those relating to disposal of materials,
environmental protection and occupational safety and health) applicable to the
Company, any of its Subsidiaries or their respective businesses, and there are
no present or past conditions relating to the Company or any of its
Subsidiaries, or relating to any Company Property or any appurtenances thereto
or improvements thereon, that could reasonably be expected to lead to any
material liability against the Company or any of its Subsidiaries, or reasonably
be expected to have a Company Material Adverse Effect, for violation of any
health or safety laws. Each of the Company and each of its Subsidiaries has all
Federal, state, local and foreign governmental licenses and permits that are
material to the conduct of their respective businesses as presently being
conducted, which licenses and permits (and any exceptions thereto) are set forth
in Section 2.1(l) of the Company Disclosure Schedule. Such licenses and permits
are in full force and effect, no material violations are or have been recorded
in respect of any thereof, no proceeding is pending or, to the knowledge of the
Company or any Company Stockholder, threatened, to revoke or limit any thereof,
and the Company Stockholders do not know of any basis for any such proceeding
and the consummation of the transactions contemplated in this Agreement will not
result in the non-renewal, revocation or termination of any such license or
permit.
(ii) The Company and each of its Subsidiaries validly hold all
permits required under all applicable Federal, state, county or local laws,
ordinances, regulations and orders relating to disposal of materials or the
discharge of chemicals, gases or other substances or Hazardous Materials
(defined below) into the environment or to the safety or protection of the
environment (the "Environmental Laws") that are material to the conduct of their
respective businesses as presently being conducted. None of the Company or any
of its Subsidiaries has
13
<PAGE> 20
violated, nor is the Company or any of its Subsidiaries in violation of, in any
material respect, any requirements of any Environmental Laws in connection with
the conduct of its business or in connection with the use, maintenance or
operation of any Company Property. There are no present or past conditions
relating to the Company or any of its Subsidiaries or relating to any Company
Property, or, to the knowledge of the Company and the Company Stockholders,
relating to any real property previously owned, leased or operated by the
Company or any of its Subsidiaries or any of their respective present or past
affiliates, that in any such case could reasonably be expected to lead to any
material liability of the Company or any of its Subsidiaries under any
Environmental Law. Except as set forth on Section 2.1(l)(ii) of the Company
Disclosure Schedule, each of the Company and each of its Subsidiaries has
operated each Company Property and has received, handled, used, stored, treated,
shipped and disposed of all hazardous or toxic materials, substances and wastes
(whether or not on its properties or properties owned or operated by others) in
compliance in all material respects with all applicable Environmental Laws. None
of the Company or any of its Subsidiaries has engaged in or permitted the sale
or dispensation (to customers, employees or other persons), handling,
transportation, discharge, emission, treatment, storage or disposal of gasoline
or other motor vehicle fuels at or under any Company Property or, to the
knowledge of the Company and the Company Stockholders, any property or facility
previously owned, leased or operated by the Company or any of its Subsidiaries
or one of their respective past or present affiliates. "Hazardous Materials"
means (A) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended; (B)
any "hazardous waste" or "petroleum," as defined by the Resource Conservation
and Recovery Act, as amended; (C) any petroleum product; (D) any pollutant or
contaminant or hazardous, dangerous or toxic chemical, material or substance
within the meaning of any other Environmental Law, as amended or hereafter
amended; or (E) any radioactive material, including any source, special nuclear
or by-product material as defined at 42 U.S.C. ss. 2011 et seq., as amended or
hereafter amended.
(m) Labor Relations; Employees. (i) (A) There is no labor strike,
dispute, slowdown, stoppage or lockout pending, affecting, or, to the knowledge
of the Company or any Company Stockholder, threatened against the Company or any
of its Subsidiaries, and during the last five years there has not been any such
action; (B) there are no union claims to represent the employees of the Company
or any of its Subsidiaries nor have there been any such claims within the last
five years; (C) there is no written or oral contract, commitment, agreement,
understanding or other arrangement with any labor organization, nor work rules
or practices agreed to with any labor organization or employee association,
applicable to employees of the Company or any of its Subsidiaries, nor is the
Company or any of its Subsidiaries a party to or bound by any collective
bargaining or similar agreement; (D) there is, and within the last two years
there has been, no representation of the employees of the Company or any of its
Subsidiaries by any labor organization and, to the knowledge of the Company or
any Company Stockholder, there are no union organizing activities among the
employees of the Company or any of its Subsidiaries, nor does any question
concerning representation exist concerning such employees; (E) Section 2.1(m)(i)
of the Company Disclosure Schedule sets forth all personnel policies, rules or
procedures (whether written or oral) applicable to employees of the Company or
any of its Subsidiaries, and the Company has delivered to Heafner complete and
accurate copies of all such
14
<PAGE> 21
written policies, rules or procedures plus summaries of all oral policies, rules
or procedures; (F) none of the Company or any of its Subsidiaries has engaged in
any act or practice which could reasonably be expected to constitute an unfair
labor practice as defined in the National Labor Relations Act or other
applicable law, ordinance, regulation, interpretation or order and each of the
Company and each of its Subsidiaries is, and has for the past five years been,
in compliance in all material respects with all applicable laws, ordinances,
regulations, interpretations or orders respecting employment and employment
practices, terms and conditions of employment, wages, hours of work and
occupational safety and health; (G) there is no unfair labor practice charge or
complaint against the Company or any of its Subsidiaries (or against any Company
Stockholder with respect to the Company or any of its Subsidiaries) pending or,
to the knowledge of the Company or any Company Stockholder, threatened before
the National Labor Relations Board or any similar state or foreign agency and,
to the knowledge of the Company or any Company Stockholder, there are no
existing or prior facts, circumstances or conditions that could reasonably be
expected to form the basis therefor; (H) there is no grievance pending or, to
the knowledge of the Company or any Company Stockholder, threatened against the
Company or any of its Subsidiaries arising out of any collective bargaining
agreement or other grievance procedure; (I) except as set forth in Section
2.1(m)(i)(I) of the Company Disclosure Schedule, there are no charges with
respect to or relating to the Company or any of its Subsidiaries pending or, to
the knowledge of the Company or any Company Stockholder, threatened before the
Equal Employment Opportunity Commission or any other governmental entity
responsible for the prevention of unlawful employment practices; (J) neither the
Company nor any of its Subsidiaries nor any Company Stockholder has received
notice of the intent of any governmental entity responsible for the enforcement
of labor or employment laws to conduct an investigation with respect to or
relating to the Company or any of its Subsidiaries and no such investigation is
in progress; and (K) no complaints, lawsuits or other proceedings are pending
or, to the knowledge of the Company or any Company Stockholder, threatened in
any forum by or on behalf of any present or former employee of the Company or
any of its Subsidiaries, any applicant for employment or classes of the
foregoing alleging breach of any express or implied contract, commitment,
agreement, understanding or other arrangement for employment, any law governing
employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with any employment relationship.
(ii) Section 2.1(m)(ii) of the Company Disclosure Schedule
contains a list of each pension, retirement, savings, deferred compensation, and
profit-sharing plan and each stock option, stock appreciation, stock purchase,
performance share, bonus or other incentive plan, severance plan, health, group
insurance or other welfare plan, or other similar plan and any "employee benefit
plan" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA"), under which the Company or any of its
Subsidiaries has any current or future obligation or liability (including any
potential, contingent or secondary liability under Title IV of ERISA) or under
which any employee or former employee (or beneficiary of any employee or former
employee) of the Company or any of its Subsidiaries has or may have any current
or future right to benefits (the term "plan" shall include any contract,
agreement, policy or understanding, each such plan being hereinafter referred to
individually as a "Plan"). The Company has delivered to Heafner true and
complete copies of (A) each Plan, (B) the summary plan description for each
Plan, (C) the latest annual report, if any, which has been filed with the
15
<PAGE> 22
IRS for each Plan, (D) the most recent IRS determination letter for each Plan
that is a pension plan (as defined in ERISA) intended to be qualified under Code
Section 401(a) and (E) copies of any existing reports for the three most recent
Plan years showing compliance with discrimination rules under those of Code
Sections 401(a), 401(k), 401(m), 419, 419A, 505. 501(c)(9), 105(h), 125 or 129
applicable to such Plan. Except as set forth in Section 2.1(m)(ii) of the
Company Disclosure Schedule, each Plan intended to be tax qualified under
Sections 401(a) and 501(a) of the Code is and has been determined by the IRS to
be tax qualified under Sections 401(a) and 501(a) of the Code and, since such
determination, no amendment to or failure to amend any such Plan and, to the
knowledge of the Company and the Company Stockholders, no other event or
circumstance has occurred that could reasonably be expected to adversely affect
its tax qualified status. There has been no prohibited transaction within the
meaning of Section 4975 of the Code and Section 406 of Title I of ERISA with
respect to any Plan.
(iii) Except as set forth in Section 2.1(m)(iii) of the
Company Disclosure Schedule, no Plan is subject to the provisions of Section 412
of the Code or Part 3 of Subtitle B of Title I of ERISA. Except as set forth in
Section 2.1(m)(iii) of the Company Disclosure Schedule, no Plan is subject to
Title IV of ERISA. Except as set forth in Section 2.1(m)(iii) of the Company
Disclosure Schedule, during the past five years, neither the Company or any of
its Subsidiaries nor any business or entity then controlling, controlled by, or
under common control with the Company or any of its Subsidiaries contributed to
or was obliged to contribute to an employee pension plan that was subject to
Title IV of ERISA.
(iv) Except as set forth in Section 2.1(m)(iv) of the Company
Disclosure Schedule, there are no actions, claims, lawsuits or arbitrations
(other than routine claims for benefits) pending, or, to the knowledge of the
Company or any Company Stockholder, threatened, with respect to any Plan or the
assets of any Plan, and no Company Stockholder has knowledge of any facts which
could give rise to any such actions, claims, lawsuits or arbitrations (other
than routine claims for benefits). Each Plan has been administered in all
material respects in accordance with its terms and with all applicable laws
(including, without limitation, ERISA). The Company and each of its Subsidiaries
have satisfied all funding, compliance and reporting requirements for all Plans.
With respect to each Plan, the Company and each of its Subsidiaries have paid
all contributions (including employee salary reduction contributions) and all
insurance premiums that have become due and any such expense accrued but not yet
due has been properly reflected in the financial information in Section 2.1(e)
of the Company Disclosure Schedule.
(v) Except as set forth in Section 2.1(m)(v) of the Company
Disclosure Schedule, no Plan provides or is required to provide, now or in the
future, health, medical, dental, accident, disability, death or survivor
benefits to or in respect of any person beyond termination of employment, except
to the extent required under any state insurance law or under Part 6 of Subtitle
B of Title I of ERISA and under Section 4980(B) of the Code. Except as set forth
in Section 2.1(m)(v) of the Company Disclosure Schedule, no Plan covers any
individual other than employees of the Company or any of its Subsidiaries, other
than spouses and dependents of employees under health and child care policies
listed in Section 2.1(m)(ii) of the Company Disclosure Schedule, true and
complete copies of which have been delivered to Heafner.
16
<PAGE> 23
(vi) Except as set forth in Section 2.1(m)(vi) of the Company
Disclosure Schedule, the consummation of the transactions contemplated by this
Agreement will not (A) entitle any employee of the Company or any of its
Subsidiaries to severance pay or termination benefits, (B) accelerate the time
of payment or vesting, or increase the amount of compensation due to any such
employee or former employee or (C) obligate Heafner or the Company or any of its
Subsidiaries or any of their respective affiliates, to pay or otherwise be
liable for any compensation, vacation days, pension contribution or other
benefits to any employee, consultant or agent of the Company or any of its
Subsidiaries for periods before the Closing Date or for personnel whom Heafner
does not employ.
(n) Related Party Transactions. Except as set forth in Section
2.1(n) of the Company Disclosure Schedule, no current or former partner,
director, officer or stockholder of the Company or any of its Subsidiaries or
any associate or affiliate (as defined in the rules promulgated under the
Securities Exchange Act of 1934) thereof, or any relative with a relationship of
not more remote than first cousin of any of the foregoing, is presently, or
during the 12-month period ending on the date hereof has been, (i) a party to
any transaction with the Company or any of its Subsidiaries (including any
contract, agreement or other arrangement providing for the furnishing of
services by, or rental of real or personal property from, or otherwise requiring
payments to, any such director, officer or stockholder or such associate) or
(ii) to the knowledge of the Company or any Company Stockholder, the direct or
indirect owner of an interest in any corporation, firm, association or business
organization which is a competitor, supplier or customer of the Company or any
of its Subsidiaries, nor does any such person receive income from any source
other than the Company or any of its Subsidiaries which relates to the Company'
or such Subsidiaries' businesses or should properly accrue to the Company or its
Subsidiaries.
(o) Taxes. (i) All Federal, state, local and foreign tax returns and
tax reports required to be filed on or prior to the Closing Date by the Company
or any of its Subsidiaries have been or will be filed or a valid request for
extension has been or will be filed with respect thereto, on a timely basis
(including any extensions) with the appropriate governmental agencies in all
jurisdictions in which such returns and reports are required to be filed. All
such returns and reports were or will be prepared in the manner required by
applicable law, and reflect or will reflect the liability for taxes of the
Company and its Subsidiaries in all material respects. All Federal, state, local
and foreign income, profits, franchise, sales, use, occupation, property,
excise, employment and other taxes (including interest, penalties and
withholdings of tax) due from and payable by the Company or any of its
Subsidiaries on or prior to the Closing Date have been or will be fully paid on
a timely basis or will be adequately reserved for on the Closing Date Financial
Statement (as defined in Section 4.1(k)). Except as set forth in Section 2.1(o)
of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is currently the beneficiary of any extension of time within which
to file any tax return. There are no liens for taxes upon the assets of the
Company or any of its Subsidiaries except for statutory liens for current taxes
not yet due.
(ii) No claim has ever been made by an authority in a
jurisdiction where the Company or any Subsidiary of the Company does not file
tax returns that it is or may be subject
17
<PAGE> 24
to taxation by that jurisdiction, and neither the Company or any such Subsidiary
has received any notice, or request for information from any such authority.
(iii) No issues have been raised with the Company or any of
its Subsidiaries by the Internal Revenue Service (the "IRS") or any other taxing
authority in connection with any tax return or report filed by the Company or
any of its Subsidiaries where such issue is unresolved and there are no issues
that have been raised by a taxing authority which, either individually or in the
aggregate, could result in any liability for tax obligations of the Company or
any of its Subsidiaries relating to periods ending on or before September 30,
1997 in excess of the accrued liability for taxes shown on the combined
financial statements contained in Section 2.1(e)(i) of the Company Disclosure
Schedule. No waivers of statutes of limitations have been given or requested
with respect to the Company or any of its Subsidiaries.
(iv) No material differences exist between the amounts of the
book basis and the tax basis of assets that are not accounted for by an accrual
on the books of the Company or any of its Subsidiaries for Federal income tax
purposes. Except as set forth in Section 2.1(o)(iv) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries is required to include
in income any adjustment pursuant to Section 481(a) of the Code by reason of a
voluntary change in accounting method initiated by the Company or any of its
Subsidiaries, and the IRS has proposed no adjustment or change in accounting
method.
(v) All transactions or methods of accounting that could give
rise to an understatement of Federal income tax (within the meaning of Section
6661 of the Code for tax returns filed on or before December 31, 1990, and
within the meaning of Section 6662 of the Code for tax returns filed after
December 31, 1990) have been adequately disclosed on the tax returns in
accordance with Section 6661(b)(2)(B) of the Code for tax returns filed on or
prior to December 31, 1990, and in accordance with Section 6662(d)(2)(B) of the
Code for tax returns filed after December 31, 1990.
(vi) Neither the Company nor any of its Subsidiaries is or has
been a United States real property holding company (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(ii) of the Code.
(vii) The Company and each of its Subsidiaries has complied
(and until the Closing will comply) in all material respects with all applicable
laws relating to the payment and withholding of taxes (including withholding and
reporting requirements under Section 1441 through 1464, 3401 through 3406, 6041
and 6049 of the Code and similar provisions under any other laws) and, within
the time and in the manner prescribed by law, has withheld from wages, fees and
other payments and paid over to the proper governmental or regulatory
authorities all amounts required.
(viii) Neither the Company nor any of its Subsidiaries is a
party to any tax-sharing or tax indemnity agreement or any other agreement of a
similar nature that remains in effect.
18
<PAGE> 25
(p) Disclosure. No representation or warranty of the Company
Stockholders contained in this Agreement, and (except for forward-looking
projections or information relating to future performance) no statement
contained in any certificate, schedule, annex, list or other writing furnished
to Heafner, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statement contained herein or therein, in
light of the circumstances under which they were made, not misleading. None of
the written information supplied or to be supplied by the Company specifically
for inclusion or incorporation by reference in the preliminary or the final
confidential offering memorandum to be prepared and distributed to potential
purchasers and purchasers of the High Yield Notes (as defined below in Section
3.14) will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
(q) Bank Accounts; Powers-of-Attorney. Section 2.1(q) of the Company
Disclosure Schedule contains a true and complete list of (A) all bank accounts
and safe deposit boxes of the Company and its Subsidiaries and all persons who
are signatories thereunder or who have access thereto and (B) the names of all
persons holding general or special powers-of-attorney from the Company or any of
its Subsidiaries and a summary of the terms thereof.
(r) Inventory. The inventory included in the financial statements
contained in Section 2.1(e) of the Company Disclosure Schedule is the only
inventory used or held for use in the Company's and its Subsidiaries' business,
is valued for financial statement purposes at the lower of cost or market value,
and is useable and salable in the ordinary course of business, except for
obsolete items and items of below standard quality, all of which have been
written off, written down or reserved on the accounting records of the Company
as of the date hereof.
(s) Brokers. No agent, broker, investment banker, person or firm
acting on behalf of the Company or any of its Subsidiaries or under the
authority of the Company or any of its Subsidiaries is or will be entitled to
any broker's or finder's fee or any other commission or similar fee directly or
indirectly from any of the parties hereto in connection with any of the
transactions contemplated hereby.
(t) Investment Company. Neither the Company nor any person
controlling the Company is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
SECTION 2.2. Representations and Warranties of the Company
Stockholders Individually. Each Company Stockholder, severally and not jointly,
represents and warrants to Heafner as follows:
(a) Authority; Binding Agreements; Title to Shares. (i) Such Company
Stockholder has the requisite power, capacity and authority to enter into this
Agreement, the Escrow Agreement, the Class B Stockholder Agreement and the Class
B Registration Rights Agreement and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement, the Escrow
Agreement, the Class B Stockholder Agreement and the Class B Registration Rights
Agreement by such Company Stockholder have been duly authorized
19
<PAGE> 26
by all necessary action on the part of such Company Stockholder. This Agreement
has been duly executed and delivered by such Company Stockholder, and, assuming
the due execution and delivery of this Agreement by Heafner and Acquisition,
constitutes the valid and binding obligation of such Company Stockholder,
enforceable against such Company Stockholder in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally and except that
the availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding therefor may
be brought. Each of the Escrow Agreement, the Class B Stockholder Agreement and
the Class B Registration Rights Agreement, when executed and delivered by such
Company Stockholder at the Closing, will, assuming the due authorization,
execution and delivery of such agreements by Heafner, constitute the valid and
binding obligation of such Company Stockholder, enforceable against such Company
Stockholder in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought.
(ii) Such Company Stockholder is the lawful owner of record
and beneficially of the number of shares of Company Capital Stock set forth
opposite such Company Stockholder's name on Annex A, and such Company
Stockholder has, and will transfer to Acquisition at the Closing, good title to
such number of shares, free and clear of all Claims, and with no restriction on
the voting rights or other incidents of record and beneficial ownership
attaching to such shares.
(b) Conflicts; Consents. The execution and delivery by such Company
Stockholder of this Agreement, the Escrow Agreement, the Class B Stockholder
Agreement and the Class B Registration Rights Agreement, the consummation of the
transactions contemplated hereby or thereby and compliance by such Company
Stockholder with any of the provisions hereof or thereof does not and will not
(i) conflict with or result in a breach of the articles of incorporation,
by-laws or other constitutive documents, if any, of the Company, any of its
Subsidiaries or such Company Stockholder, (ii) conflict with or result in a
default (or give rise to any right of termination, cancellation or acceleration)
under any of the provisions of any note, bond, lease, mortgage, indenture, or
any license, franchise, permit, agreement or other instrument or obligation to
which the Company, any of its Subsidiaries or such Company Stockholder is a
party, or by which any properties or assets of the Company, any of its
Subsidiaries or such Company Stockholder may be bound or affected, except for
(1) such conflicts, breaches or defaults that are, individually and in the
aggregate, immaterial and (2) such conflicts, breaches or defaults as to which
requisite waivers or consents have been obtained or will be obtained before the
Closing at no cost to the Company and without giving to any person any
additional rights (which waivers or consents are set forth in Section 2.2(b) of
the Company Disclosure Schedule), (iii) violate any law, statute, rule or
regulation or order, writ, injunction or decree applicable to the Company, any
of its Subsidiaries or such Company Stockholder or any of their respective
properties or assets (except for such violations that are, individually and in
the aggregate, immaterial) or (iv) result in the creation or imposition of any
Claim upon any shares of Company Capital Stock or capital stock of any of the
Company's Subsidiaries or any property or assets used or held by the Company or
any of its Subsidiaries. No consent or approval by, or notification of or filing
with, any governmental authority or agency is required in connection with the
execution, delivery and
20
<PAGE> 27
performance by such Company Stockholder of this Agreement, the Escrow Agreement,
the Class B Stockholder Agreement or the Class B Registration Rights Agreement
or the consummation of the transactions contemplated hereby or thereby except
for (x) the filing of a premerger notification and report form under the HSR
Act, and the expiration or early termination of the applicable waiting period
under the HSR Act, (y) the filing of the Certificate of Merger with the Delaware
Secretary of State and (z) such other consents, approvals or notifications that
are, individually and in the aggregate, immaterial.
(c) Brokers. No agent, broker, investment banker, person or firm
acting on behalf of such Company Stockholder or under the authority of such
Company Stockholder is or will be entitled to a broker's or finder's fee or any
other commission or similar fee directly or indirectly from any of the parties
hereto in connection with any of the transactions contemplated thereby.
(d) Pending Challenges. There is no legal or regulatory proceeding
pending or, to the knowledge of such Company Stockholder, threatened that could
reasonably be expected to have a material adverse effect on such Company
Stockholder's ability to consummate the transactions contemplated by this
Agreement, the Escrow Agreement, the Class B Stockholder Agreement or the Class
B Registration Rights Agreement.
(e) Investment Company. Neither such Company Stockholder nor any
person controlling such Company Stockholder is an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
SECTION 2.3. Representations and Warranties of Heafner. Heafner
represents and warrants to the Company Stockholders as follows:
(a) Organization, Standing and Power. Each of Heafner and each of
its Subsidiaries (i) is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated and
(ii) has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. Each of
Heafner and each of its Subsidiaries is duly qualified to do business and is in
good standing in each jurisdiction in which such qualification is necessary
because of the property owned, leased or operated by it or because of the nature
of its business as now being conducted, other than in such jurisdictions where
the failure to be so qualified or in good standing would not, individually or in
the aggregate, have a material adverse effect on the business, assets, condition
(financial or otherwise), liabilities or operations of Heafner and its
Subsidiaries taken as a whole or on Heafner's or Acquisition's ability to
consummate the Merger or perform their respective obligations under this
Agreement (a "Heafner Material Adverse Effect"). Each such jurisdiction in which
Heafner or any of its Subsidiaries is so qualified is listed in Section 2.3(a)
of the disclosure schedule being delivered by Heafner simultaneously with the
execution of this Agreement (the "Heafner Disclosure Schedule"). Heafner has
delivered to the Company complete and correct copies of its articles of
incorporation and by-laws and the certificate of incorporation and by-laws of
each of its Subsidiaries, in each case as amended to the date of this Agreement,
and has made available to the Company its and each of its Subsidiaries' minute
books and stock records. Section 2.3(a) of the Heafner Disclosure Schedule
contains a true and correct list of the directors and officers of Heafner and
each of its Subsidiaries as of the date of this
21
<PAGE> 28
Agreement and at all times since the last action of the board of directors and
the stockholders of Heafner and of each of its Subsidiaries, as the case may be.
(b) Authority; Binding Agreements. Each of Heafner and Acquisition
(to the extent Acquisition is a party) has the requisite corporate power and
authority to enter into this Agreement, the Escrow Agreement, the Class B
Registration Rights Agreement and the Class B Stockholder Agreement and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement, the Escrow Agreement, the Class B Registration
Rights Agreement and the Class B Stockholder Agreement by Heafner and
Acquisition (to the extent Acquisition is a party) have been duly authorized by
all necessary action on the part of Heafner and Acquisition (to the extent
Acquisition is a party). This Agreement has been duly executed and delivered by
Heafner and Acquisition, and, assuming the due execution and delivery of this
Agreement by the Company and the Company Stockholders, constitutes the valid and
binding obligation of Heafner and Acquisition, enforceable against Heafner and
Acquisition in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought. At the Closing, each
of the Escrow Agreement, the Class B Registration Rights Agreement and the Class
B Stockholder Agreement will be duly executed and delivered by Heafner and
Acquisition, and, assuming the due execution and delivery thereof by the Company
Stockholders, will constitute the valid and binding obligation of Heafner,
enforceable against Heafner in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought.
(c) Capitalization; Subsidiaries. (i) The authorized capital stock
of Heafner consists of 10,000,000 shares of common stock, par value $.01, 7,000
shares of Series A Cumulative Redeemable Preferred Stock, $.01 par value (the
"Series A Preferred Stock"), and 4,500 shares of Series B Cumulative Redeemable
Preferred Stock, $.01 par value (the "Series B Preferred Stock"), and all of
such securities are issued and outstanding except for 6,319,000 shares of
Heafner common stock. After giving effect to the filing of the Second Amended
and Restated Articles (as defined in Section 4.1(h)) and to the Merger, the
authorized capital stock of Heafner will consist of 10,000,000 shares of Class A
Common Stock, $.01 par value ("Class A Common Stock"), 20,000,000 shares of
Class B Common Stock, $.01 par value ("Class B Common Stock"), 7,000 shares of
Series A Preferred Stock and 4,500 shares of Series B Preferred Stock, and all
of such securities will be issued and outstanding except for 6,319,000 shares of
Class A Common Stock and 18,599,333 shares of Class B Common Stock. The
authorized capital stock of Acquisition consists of 1,000 shares of common
stock, $.01 par value, all of which are issued and outstanding. Except as set
forth above and in Section 2.3(c) of the Heafner Disclosure Schedule, at the
time of execution of this Agreement, no shares of capital stock or other voting
securities of Heafner are issued, reserved for issuance or outstanding. Except
as set forth in Section 2.3(c) of Heafner Disclosure Schedule, all outstanding
shares of capital stock of Heafner are duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. At and upon the
Closing, the shares of Class B Common Stock to be issued to the
22
<PAGE> 29
Company Stockholders will be validly issued, fully paid, non-assessable and not
subject to preemptive rights. Except as set forth in Section 2.3(c) of the
Heafner Disclosure Schedule, there are no bonds, debentures, notes or other
indebtedness or securities of Heafner having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any matters
on which stockholders of Heafner may vote. Except as set forth in Section 2.3(c)
of the Heafner Disclosure Schedule, there are no securities, options, warrants,
rights, commitments, agreements, arrangements or undertakings of any kind to
which Heafner is a party or by which Heafner is bound obligating Heafner to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of Heafner or obligating
Heafner to issue, grant, extend or enter into any such security, option,
warrant, right, commitment, agreement, arrangement or undertaking. Except as set
forth in Section 2.3(c) of the Heafner Disclosure Schedule, there are no
outstanding rights, commitments, agreements, arrangements or undertakings of any
kind obligating Heafner to repurchase, redeem or otherwise acquire any shares of
capital stock or other voting securities of Heafner or any securities of the
type described in the two immediately preceding sentences. Heafner is not
subject to any liability for any claim that Heafner violated any applicable
Federal or state securities laws in connection with the issuance of capital
stock.
(ii) Section 2.3(c) of the Heafner Disclosure Schedule sets forth a
complete list of all of Heafner's Subsidiaries as of the date of this Agreement,
together with their respective jurisdictions of incorporation, authorized
capital stock, number of shares issued and outstanding and record ownership of
such shares. Except as set forth on Section 2.3(c) of the Heafner Disclosure
Schedule, Heafner does not have any Subsidiaries or own or hold any equity or
other security interest in any other entity. All issued and outstanding shares
of capital stock of Heafner's Subsidiaries have been duly authorized, were
validly issued, are fully paid and non-assessable and subject to no preemptive
rights and are directly or indirectly owned beneficially and of record by
Heafner, free and clear of all Claims, and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock). None of Heafner's Subsidiaries is subject to any
liability for any claim that it violated any applicable Federal or state
securities laws in connection with the issuance of capital stock.
(d) Conflicts; Consents. The execution and delivery by Heafner and
Acquisition (to the extent Acquisition is a party) of this Agreement, the Escrow
Agreement, the Class B Stockholder Agreement and the Class B Registration Rights
Agreement, the consummation of the transactions contemplated hereby and thereby
and compliance by Heafner and Acquisition (to the extent Acquisition is a party)
with any of the provisions hereof and thereof does not and will not (i) conflict
with or result in a breach of the articles of incorporation, by-laws or other
constitutive documents of Heafner or any of its Subsidiaries, (ii) except as set
forth in Section 2.3(d) of the Heafner Disclosure Schedule, conflict with or
result in a default (or give rise to any right of termination, cancellation or
acceleration) under any of the provisions of any note, bond, lease, mortgage,
indenture, or any license, franchise, permit, agreement or other instrument or
obligation to which Heafner or any of its Subsidiaries is a party, or by which
any properties or assets of Heafner or any of its Subsidiaries may be bound or
affected, except for (1) such conflicts, breaches or defaults that are,
individually and in the aggregate, immaterial and (2) such conflicts, breaches
or defaults as to which requisite waivers or consents have been obtained or will
be obtained before the Closing at no material cost to Heafner and without giving
to any person any
23
<PAGE> 30
material additional rights, (iii) violate any law, statute, rule or regulation
or order, writ, injunction or decree applicable to Heafner or any of its
Subsidiaries or any of their respective properties or assets (except for such
violations that are, individually and in the aggregate, immaterial) or (iv)
result in the creation or imposition of any Claim upon any shares of capital
stock of Heafner or capital stock of any of Heafner's Subsidiaries or any
property or assets used or held by Heafner or any of its Subsidiaries. No
consent or approval by, or notification of or filing with, any governmental
authority or agency is required in connection with the execution, delivery and
performance by Heafner and Acquisition of this Agreement or the consummation of
the transactions contemplated hereby except for (x) the filing of a premerger
notification and report form under the HSR Act, and the expiration or early
termination of the applicable waiting period under the HSR Act, (y) the filing
of the Certificate of Merger with the Delaware Secretary of State and (z) such
other consents, approvals or notifications that are, individually and in the
aggregate, immaterial.
(e) Financial Information. (i) The following financial statements
are contained in Section 2.3(e) of the Heafner Disclosure Schedule:
(A) the unaudited, internally prepared consolidated balance
sheet of Heafner at December 31, 1997 and the related consolidated
statement of income and retained earnings and cash flows for the fiscal
year then ended; and
(B) the balance sheets of Heafner at December 31, 1996 and
1995 and the related consolidated statements of income and retained
earnings and cash flows for the fiscal years then ended together with the
opinion of Arthur Andersen LLP thereon.
Except as set forth in Section 2.3(e) of the Heafner Disclosure Schedule, all
such financial statements have been prepared in conformity with GAAP applied on
a basis consistent with prior periods and fairly present in all material
respects the consolidated financial condition, results of operations and cash
flows of Heafner and its Subsidiaries (except, in the case of unaudited
financial statements, subject to normal, recurring year-end audit adjustments).
The consolidated balance sheets of Heafner as at the dates set forth fairly
present in all material respects the consolidated financial position of Heafner
and its Subsidiaries as at the dates thereof, and the related consolidated
statements of income and retained earnings and cash flows of Heafner for each of
the respective specified periods then ended fairly present in all material
respects the consolidated results of operations of Heafner and its Subsidiaries
for each of the respective periods then ended (except, in the case of unaudited
financial statements, subject to normal, recurring year-end audit adjustments).
For the purposes of this Agreement, all financial statements referred to in this
paragraph shall include any notes and schedules to such financial statements.
(ii) Except as set forth in Section 2.3(e)(ii) of the Heafner
Disclosure Schedule, each of Heafner and each of its Subsidiaries does not have,
and as a result of the transactions contemplated herein, will not have, any
liabilities or obligations (whether absolute, accrued, contingent or otherwise,
and whether due or to become due), except for liabilities and obligations (A)
reflected on the balance sheets of Heafner referred to in Section 2.3(e)(i) or
(B) incurred in the ordinary course of business consistent with past practice
since December 31, 1997, and which,
24
<PAGE> 31
individually, do not exceed $250,000. All reserves established by Heafner are
reflected on the balance sheets of Heafner or in the footnotes to the financial
statements of Heafner and are reasonable based upon facts and circumstances
known by Heafner on the date hereof and there are no loss contingencies that are
required to be accrued by Statement of Financial Accounting Standard No. 5 of
the Financial Accounting Standards Board which are not provided for on such
balance sheets.
(f) Absence of Changes. Except as set forth in Section 2.3(f) of the
Heafner Disclosure Schedule, since December 31, 1997, Heafner and its
Subsidiaries have been operated in the ordinary course consistent with past
practice and there has not been:
(i) any event, violation or other matter that could,
individually or in the aggregate, reasonably be expected to have a Heafner
Material Adverse Effect;
(ii) any obligation or liability (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) incurred by
Heafner or any of its Subsidiaries, other than obligations under customer
contracts, current obligations and liabilities incurred in the ordinary
course of business and consistent with past practice;
(iii) any payment, discharge, satisfaction or settlement of
any claim or obligation of Heafner or any of its Subsidiaries, except in
the ordinary course of business and consistent with past practice;
(iv) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of
Heafner or any of its Subsidiaries or any direct or indirect redemption,
purchase or other acquisition of any such shares;
(v) any issuance or sale, or any contract entered into for the
issuance or sale, of any shares of capital stock or securities convertible
into or exercisable for shares of capital stock of Heafner or any of its
Subsidiaries;
(vi) any sale, assignment, pledge, encumbrance, transfer or
other disposition of any tangible asset of Heafner or any of its
Subsidiaries (other than sales of inventory to customers in the ordinary
course of business consistent with past practice), or any sale,
assignment, transfer or other disposition of any patents, trademarks,
service marks, trade names, copyrights, licenses, franchises, know-how or
any other intangible assets of Heafner or any of its Subsidiaries;
(vii) any creation of any Claim on any property of Heafner or
any of its Subsidiaries, except in the ordinary course of business
consistent with past practice or such Claims which, individually or in the
aggregate, could not reasonably be expected to have a Heafner Material
Adverse Effect;
(viii) any write-down of the value of any asset of Heafner or
any of its Subsidiaries or any write-off as uncollectible of any accounts
or notes receivable or any portion thereof, other than write-downs or
write-offs which, in the aggregate, equal
25
<PAGE> 32
approximately $56,913.20 as of the date of this Agreement and which,
individually, do not exceed $10,000;
(ix) any cancellation of any debts or claims or any amendment,
termination or waiver of any rights of value to Heafner or any of its
Subsidiaries;
(x) any capital expenditure or commitment or addition to
property, plant or equipment of Heafner or any of its Subsidiaries, other
than capital expenditures or commitments or additions to property, plant
or equipment of Heafner or any of its Subsidiaries which, in the
aggregate, equal approximately $55,564.80 as of the date of this Agreement
and which, individually, do not exceed $10,000;
(xi) any general increase in the compensation of employees of
Heafner or any of its Subsidiaries (including any increase pursuant to any
written bonus, pension, profit-sharing or other benefit or compensation
plan, policy or arrangement or commitment), or any increase in any such
compensation or bonus payable to any officer, stockholder, director,
consultant or agent of Heafner or any of its Subsidiaries having an annual
salary or remuneration in excess of $75,000;
(xii) any damage, destruction or loss (whether or not covered
by insurance) affecting any asset or property of Heafner or any of its
Subsidiaries resulting in liability or loss in excess of $50,000;
(xiii) any change in the independent public accountants of
Heafner and its Subsidiaries or any material change in the accounting
methods or accounting practices followed by Heafner or any material change
in depreciation or amortization policies or rates; or
(xiv) any agreement, whether in writing or otherwise, to take
any of the actions specified in the foregoing items (i) through (xiv),
subject to any dollar thresholds set forth in items (i) through (xiii)
above.
(g) Litigation. Except as set forth in Section 2.3(g) of the Heafner
Disclosure Schedule, there are no actions, suits, proceedings, claims or
disputes pending, or to the knowledge of Heafner threatened, at law, in equity,
in arbitration or before any governmental entity against Heafner or any of its
Subsidiaries (i) with respect to this Agreement, the Escrow Agreement, the Class
B Stockholder Agreement or the Class B Registration Rights Agreement or any of
the transactions contemplated hereby or thereby; or (ii) which could reasonably
be expected to, if adversely determined, have a Heafner Material Adverse Effect.
No injunction, writ, temporary restraining order, decree or any order of any
nature has been issued by any court or other governmental authority purporting
to enjoin or restrain the execution, delivery and performance by Heafner or
Acquisition (to the extent Acquisition is a party) of this Agreement, the Escrow
Agreement, the Class B Stockholder Agreement or the Class B Registration Rights
Agreement.
26
<PAGE> 33
(h) No Default or Breach. Neither Heafner nor any of its
Subsidiaries is in default under or with respect to any of such person's
Contractual Obligations in any respect, other than any such defaults that,
individually or in the aggregate, could not reasonably be expected to have a
Heafner Material Adverse Effect. "Contractual Obligations" means as to any
person, any provision of any security issued by such person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument to
which such person is a party or by which it or any of its property is bound.
(i) Title to Properties. Heafner and each of its Subsidiaries has
good record and marketable title to, or hold leases in full force and effect in,
all their real property, except for such defects in title as could not,
individually or in the aggregate, have a Heafner Material Adverse Effect.
(j) Investment Company. Neither Heafner nor any person controlling
Heafner is an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
(k) Full Disclosure. No representation or warranty of Heafner
contained in this Agreement, and (except for forward-looking projections or
information relating to future performance) no statement contained in any other
certificate, schedule, annex, list or other writing furnished by Heafner to the
Company or the Company Stockholders, contains an untrue statement of a material
fact or omits to state a material fact necessary to make the statements made, in
light of the circumstances in which made, not misleading. None of the
information supplied or to be supplied by Heafner for inclusion or incorporation
by reference in the preliminary or final confidential offering memorandum to be
prepared and distributed to potential purchasers and purchasers of the High
Yield Notes (as defined below in Section 3.14) will contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(l) Compliance; Governmental Authorizations. (i) Each of Heafner and
each of its Subsidiaries has complied and is in compliance in all material
respects with all Federal, state, local and foreign laws, ordinances, rules,
regulations and orders (including those relating to disposal of materials,
environmental protection and occupational safety and health) applicable to
Heafner, any of its Subsidiaries or their respective businesses, and there are
no present or past conditions relating to Heafner or any of its Subsidiaries, or
relating to any real property owned or leased by Heafner or its Subsidiaries
(each, a "Heafner Property") or any appurtenances thereto or improvements
thereon, that could reasonably be expected to lead to any material liability
against Heafner or any of its Subsidiaries, or reasonably be expected to have a
Heafner Material Adverse Effect, for violation of any health or safety laws.
Each of Heafner and each of its Subsidiaries has all Federal, state, local and
foreign governmental licenses and permits that are material to the conduct of
their respective businesses as presently being conducted, which licenses and
permits (and any exceptions thereto) are set forth in Section 2.3(l) of the
Heafner Disclosure Schedule. Such licenses and permits are in full force and
effect, no material violations are or have been recorded in respect of any
thereof, no proceeding is pending or, to the knowledge of Heafner, threatened,
to revoke or limit any thereof, and Heafner does not know of any basis for any
such
27
<PAGE> 34
proceeding and the consummation of the transactions contemplated in this
Agreement will not result in the non-renewal, revocation or termination of any
such license or permit.
(ii) Heafner and each of its Subsidiaries validly hold all permits
required under all applicable Environmental Laws that are material to the
conduct of their respective businesses as presently being conducted. None of
Heafner or any of its Subsidiaries has violated, nor is Heafner or any of its
Subsidiaries in violation of, in any material respect, any requirements of any
Environmental Laws in connection with the conduct of its business or in
connection with the use, maintenance or operation of any Heafner Property. There
are no present or past conditions relating to Heafner or any of its Subsidiaries
or relating to any Heafner Property, or, to the knowledge of Heafner, relating
to any real property previously owned, leased or operated by Heafner or any of
its Subsidiaries or any of their respective present or past affiliates, that in
any such case could reasonably be expected to lead to any material liability of
Heafner or any of its Subsidiaries under any Environmental Law. Except as set
forth on Section 2.3(l)(ii) of the Heafner Disclosure Schedule, each of Heafner
and each of its Subsidiaries has operated each Heafner Property and has
received, handled, used, stored, treated, shipped and disposed of all hazardous
or toxic materials, substances and wastes (whether or not on its properties or
properties owned or operated by others) in compliance in all material respects
with all applicable Environmental Laws. Except as set forth in Section
2.3(l)(ii) of the Heafner Disclosure Schedule, none of Heafner or any of its
Subsidiaries has engaged in or permitted the sale or dispensation (to customers,
employees or other persons), handling, transportation, discharge, emission,
treatment, storage or disposal of gasoline or other motor vehicle fuels at or
under any Heafner Property or, to the knowledge of Heafner, any property or
facility previously owned, leased or operated by Heafner or any of its
Subsidiaries or one of their respective past or present affiliates.
(m) Labor Relations; Employees. (i) (A) There is no labor strike,
dispute, slowdown, stoppage or lockout pending, affecting, or, to the knowledge
of Heafner, threatened against Heafner or any of its Subsidiaries, and during
the last five years there has not been any such action; (B) there are no union
claims to represent the employees of Heafner or any of its Subsidiaries nor have
there been any such claims within the last five years; (C) there is no written
or oral contract, commitment, agreement, understanding or other arrangement with
any labor organization, nor work rules or practices agreed to with any labor
organization or employee association, applicable to employees of Heafner or any
of its Subsidiaries, nor is Heafner or any of its Subsidiaries a party to or
bound by any collective bargaining or similar agreement; (D) there is, and
within the last two years there has been, no representation of the employees of
Heafner or any of its Subsidiaries by any labor organization and, to the
knowledge of Heafner, there are no union organizing activities among the
employees of Heafner or any of its Subsidiaries, nor does any question
concerning representation exist concerning such employees; (E) Section 2.3(m)(i)
of the Heafner Disclosure Schedule sets forth all personnel policies, rules or
procedures (whether written or oral) applicable to employees of Heafner or any
of its Subsidiaries, and Heafner has delivered to the Company complete and
accurate copies of all such written policies, rules or procedures plus summaries
of all oral policies, rules or procedures; (F) none of Heafner or any of its
Subsidiaries has engaged in any act or practice which could reasonably be
expected to constitute an unfair labor practice as defined in the National Labor
Relations Act or other applicable law, ordinance, regulation, interpretation or
order and each of Heafner and each of its Subsidiaries is, and has for the past
five years been, in compliance in all material respects with all
28
<PAGE> 35
applicable laws, ordinances, regulations, interpretations or orders respecting
employment and employment practices, terms and conditions of employment, wages,
hours of work and occupational safety and health; (G) there is no unfair labor
practice charge or complaint against Heafner or any of its Subsidiaries pending
or, to the knowledge of Heafner, threatened before the National Labor Relations
Board or any similar state or foreign agency and, to the knowledge of Heafner,
there are no existing or prior facts, circumstances or conditions that could
reasonably be expected to form the basis therefor; (H) there is no grievance
pending or, to the knowledge of Heafner, threatened against Heafner or any of
its Subsidiaries arising out of any collective bargaining agreement or other
grievance procedure; (I) there are no charges with respect to or relating to
Heafner or any of its Subsidiaries pending or, to the knowledge of Heafner,
threatened before the Equal Employment Opportunity Commission or any other
governmental entity responsible for the prevention of unlawful employment
practices; (J) neither Heafner nor any of its Subsidiaries has received notice
of the intent of any governmental entity responsible for the enforcement of
labor or employment laws to conduct an investigation with respect to or relating
to Heafner or any of its Subsidiaries and no such investigation is in progress;
and (K) no complaints, lawsuits or other proceedings are pending or, to the
knowledge of Heafner, threatened in any forum by or on behalf of any present or
former employee of Heafner or any of its Subsidiaries, any applicant for
employment or classes of the foregoing alleging breach of any express or implied
contract, commitment, agreement, understanding or other arrangement for
employment, any law governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with any employment
relationship.
(ii) Section 2.3(m)(ii) of the Heafner Disclosure Schedule
contains a list of each pension, retirement, savings, deferred compensation, and
profit-sharing plan and each stock option, stock appreciation, stock purchase,
performance share, bonus or other incentive plan, severance plan, health, group
insurance or other welfare plan, or other similar plan and any "employee benefit
plan" within the meaning of Section 3(3) of ERISA, under which Heafner or any of
its Subsidiaries has any current or future obligation or liability (including
any potential, contingent or secondary liability under Title IV of ERISA) or
under which any employee or former employee (or beneficiary of any employee or
former employee) of Heafner or any of its Subsidiaries has or may have any
current or future right to benefits (the term "plan" shall include any contract,
agreement, policy or understanding, each such plan being hereinafter referred to
in this Section 2.3(m) individually as a "Plan"). Heafner has delivered to the
Company true and complete copies of (A) each Plan, (B) the summary plan
description for each Plan, (C) the latest annual report, if any, which has been
filed with the IRS for each Plan, (D) the most recent IRS determination letter
for each Plan that is a pension plan (as defined in ERISA) intended to be
qualified under Code Section 401(a) and (E) copies of any existing reports for
the three most recent Plan years showing compliance with discrimination rules
under those of Code Sections 401(a), 401(k), 401(m), 419, 419A, 505. 501(c)(9),
105(h), 125 or 129 applicable to such Plan. Except as set forth in Section
2.3(m)(ii) of the Heafner Disclosure Schedule, each Plan intended to be tax
qualified under Sections 401(a) and 501(a) of the Code is and has been
determined by the IRS to be tax qualified under Sections 401(a) and 501(a) of
the Code and, since such determination, no amendment to or failure to amend any
such Plan and, to the knowledge of Heafner, no other event or circumstance has
occurred that could reasonably be expected to adversely affect its tax qualified
status. There has been no prohibited transaction within the
29
<PAGE> 36
meaning of Section 4975 of the Code and Section 406 of Title I of ERISA with
respect to any Plan.
(iii) Except as set forth in Section 2.3(m)(iii) of the
Heafner Disclosure Schedule, no Plan is subject to the provisions of Section 412
of the Code or Part 3 of Subtitle B of Title I of ERISA. Except as set forth in
Section 2.3(m)(iii) of the Heafner Disclosure Schedule, no Plan is subject to
Title IV of ERISA. Except as set forth in Section 2.3(m)(iii) of the Heafner
Disclosure Schedule, during the past five years, neither Heafner or any of its
Subsidiaries nor any business or entity then controlling, controlled by, or
under common control with Heafner or any of its Subsidiaries contributed to or
was obliged to contribute to an employee pension plan that was subject to Title
IV of ERISA.
(iv) There are no actions, claims, lawsuits or arbitrations
(other than routine claims for benefits) pending, or, to the knowledge of
Heafner, threatened, with respect to any Plan or the assets of any Plan, and
Heafner has no knowledge of any facts which could give rise to any such actions,
claims, lawsuits or arbitrations (other than routine claims for benefits). Each
Plan has been administered in all material respects in accordance with its terms
and with all applicable laws (including, without limitation, ERISA). Heafner and
each of its Subsidiaries have satisfied all funding, compliance and reporting
requirements for all Plans. With respect to each Plan, Heafner and each of its
Subsidiaries have paid all contributions (including employee salary reduction
contributions) and all insurance premiums that have become due and any such
expense accrued but not yet due has been properly reflected in the financial
information in Section 2.3(e) of the Heafner Disclosure Schedule.
(v) Except as set forth in Section 2.3(m)(v) of the Heafner
Disclosure Schedule, no Plan provides or is required to provide, now or in the
future, health, medical, dental, accident, disability, death or survivor
benefits to or in respect of any person beyond termination of employment, except
to the extent required under any state insurance law or under Part 6 of Subtitle
B of Title I of ERISA and under Section 4980(B) of the Code. Except as set forth
in Section 2.3(m)(v) of the Heafner Disclosure Schedule, no Plan covers any
individual other than employees of Heafner or any of its Subsidiaries, other
than spouses and dependents of employees under health and child care policies
listed in Section 2.3(m)(ii) of the Heafner Disclosure Schedule, true and
complete copies of which have been delivered to the Company.
(vi) Except as set forth in Section 2.3(m)(vi) of the Heafner
Disclosure Schedule, the consummation of the transactions contemplated by this
Agreement will not (A) entitle any employee of Heafner or any of its
Subsidiaries to severance pay or termination benefits, (B) accelerate the time
of payment or vesting, or increase the amount of compensation due to any such
employee or former employee or (C) obligate Heafner or Heafner or any of its
Subsidiaries or any of their respective affiliates, to pay or otherwise be
liable for any compensation, vacation days, pension contribution or other
benefits to any employee, consultant or agent of Heafner or any of its
Subsidiaries for periods before the Closing Date or for personnel whom Heafner
does not employ.
(n) Taxes. (i) All Federal, state, local and foreign tax returns and
tax reports required to be filed on or prior to the Closing Date by Heafner or
any of its Subsidiaries have been
30
<PAGE> 37
or will be filed or a valid request for extension has been or will be filed with
respect thereto, on a timely basis (including any extensions) with the
appropriate governmental agencies in all jurisdictions in which such returns and
reports are required to be filed. All such returns and reports were or will be
prepared in the manner required by applicable law, and reflect or will reflect
the liability for taxes of Heafner and its Subsidiaries in all material
respects. All Federal, state, local and foreign income, profits, franchise,
sales, use, occupation, property, excise, employment and other taxes (including
interest, penalties and withholdings of tax) due from and payable by Heafner or
any of its Subsidiaries on or prior to the Closing Date have been or will be
fully paid on a timely basis or will be adequately reserved for on Heafner's
financial statements. Except as set forth in Section 2.3(n) of the Heafner
Disclosure Schedule, neither Heafner nor any of its Subsidiaries is currently
the beneficiary of any extension of time within which to file any tax return.
There are no liens for taxes upon the assets of Heafner or any of its
Subsidiaries except for statutory liens for current taxes not yet due.
(ii) No claim has ever been made by an authority in a
jurisdiction where Heafner or any Subsidiary of Heafner does not file tax
returns that it is or may be subject to taxation by that jurisdiction, and
neither Heafner or any such Subsidiary has received any notice, or request for
information from any such authority.
(iii) No issues have been raised with Heafner or any of its
Subsidiaries by the IRS or any other taxing authority in connection with any tax
return or report filed by Heafner or any of its Subsidiaries where such issue is
unresolved and there are no issues that have been raised by a taxing authority
which, either individually or in the aggregate, could result in any liability
for tax obligations of Heafner or any of its Subsidiaries relating to periods
ending on or before December 31, 1997 in excess of the accrued liability for
taxes shown on the combined financial statements contained in Section 2.3(e)(i)
of the Heafner Disclosure Schedule. No waivers of statutes of limitations have
been given or requested with respect to Heafner or any of its Subsidiaries.
(iv) No material differences exist between the amounts of the
book basis and the tax basis of assets that are not accounted for by an accrual
on the books of Heafner or any of its Subsidiaries for Federal income tax
purposes. Neither Heafner nor any of its Subsidiaries is required to include in
income any adjustment pursuant to Section 481(a) of the Code by reason of a
voluntary change in accounting method initiated by Heafner or any of its
Subsidiaries, and the IRS has proposed no adjustment or change in accounting
method.
(v) All transactions or methods of accounting that could give
rise to an understatement of Federal income tax (within the meaning of Section
6661 of the Code for tax returns filed on or before December 31, 1990, and
within the meaning of Section 6662 of the Code for tax returns filed after
December 31, 1990) have been adequately disclosed on the tax returns in
accordance with Section 6661(b)(2)(B) of the Code for tax returns filed on or
prior to December 31, 1990, and in accordance with Section 6662(d)(2)(B) of the
Code for tax returns filed after December 31, 1990.
31
<PAGE> 38
(vi) Neither Heafner nor any of its Subsidiaries is or has
been a United States real property holding company (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(ii) of the Code.
(vii) Heafner and each of its Subsidiaries has complied (and
until the Closing will comply) in all material respects with all applicable laws
relating to the payment and withholding of taxes (including withholding and
reporting requirements under Section 1441 through 1464, 3401 through 3406, 6041
and 6049 of the Code and similar provisions under any other laws) and, within
the time and in the manner prescribed by law, has withheld from wages, fees and
other payments and paid over to the proper governmental or regulatory
authorities all amounts required.
(viii) Neither Heafner nor any of its Subsidiaries is a party
to any tax-sharing or tax indemnity agreement or any other agreement of a
similar nature that remains in effect.
(o) Patents, Trademarks, Etc.
(i) Heafner and each of its Subsidiaries owns or has licensed
or otherwise has the right to use all patents, trademarks, service marks, trade
names, copyrights, licenses, franchises, computer software (including the source
codes thereto) and other intellectual property rights that are material to the
operation of their businesses as presently conducted or proposed to be
conducted.
(ii) Heafner uses and has used its best efforts to secure and
maintain its intellectual property rights in any and all computer software it
owns. Duplicates of all such computer software, including the source codes
thereto, are at a secure off-site location.
(iii) To the best knowledge of Heafner, no product, process,
method, substance or other material presently owned, sold, licensed or employed
by Heafner or any of its Subsidiaries, or which Heafner or any of its
Subsidiaries contemplates owning, selling, licensing or employing, (1) infringes
upon the patents, trademarks, service marks, copyrights or licenses that are
owned by others or (2) is being infringed upon by any other person. No
litigation is pending and no claim has been made against Heafner or any of its
Subsidiaries or, to the best knowledge of Heafner, is threatened, contesting the
right of Heafner or any of its Subsidiaries to own, sell, license or use any
product, process, method, substance or other material presently owned, sold,
licensed or employed by Heafner or any of its Subsidiaries or which Heafner or
any of its Subsidiaries intends to acquire an ownership interest in, sell,
license or employ.
(p) Potential Conflicts of Interest. To the best knowledge of
Heafner, except as set forth in Section 2.3(p) of the Heafner Disclosure
Schedule, no executive officer, director or affiliate of Heafner or any of its
Subsidiaries, and no relative or spouse of any such officer, director or
affiliate: (i) owns, directly or indirectly, any interest in (excepting less
than 1% stock holdings for investment purposes in securities of publicly held
and traded companies), or is an officer, director, employee or consultant of,
any person which is, or is engaged in business as, a competitor, lessor, lessee,
supplier, distributor, sales agent or customer of, or lender to or borrower
from, Heafner or any of its Subsidiaries; (ii) owns, directly or indirectly, in
whole or in
32
<PAGE> 39
part, any tangible or intangible property that Heafner or any of its
Subsidiaries uses in the conduct of its business; or (iii) has any cause of
action or other claim whatsoever against, or owes any amount to, Heafner or any
of its Subsidiaries, except for claims in the ordinary course of business such
as for accrued vacation pay, accrued benefits under employee benefit plans, and
similar matters and agreements arising in the ordinary course of business.
(q) Trade Relations. Except as set forth in Section 2.3(q) of the
Heafner Disclosure Schedule, to the knowledge of Heafner, there exists no actual
or threatened termination, cancellation or material limitation of, or any
material adverse modification or change in, the business relationship or
business of Heafner and its Subsidiaries taken as a whole, or their business
with, any customer or any group of customers whose use of their services are
individually or in the aggregate material to the business of Heafner and its
Subsidiaries taken as a whole, or with any material supplier, and to the
knowledge of Heafner there exists no condition or state of facts or
circumstances with respect thereto that could reasonably be expected to result
in a Heafner Material Adverse Effect.
(r) Material Contracts. Section 2.3(r) of the Heafner Disclosure
Schedule lists as of the date of this Agreement each contract (other than
purchase orders and standard sales contracts in the ordinary course of
business), agreement, arrangement, commitment and lease of Heafner and its
Subsidiaries currently in effect which by its terms (1) is not terminable at
will within six months and requires future expenditures or receipts or other
performance with respect to goods or services having a value per annum in excess
of $200,000, (2) was not entered into in the ordinary course of business, or (3)
is material to the assets, business, properties, operations or financial or
other condition of Heafner and its Subsidiaries, taken as a whole. Copies of all
such documents have previously been made available to the Company. All of such
contracts, agreements, arrangements, commitments and leases are in full force
and effect and binding upon the parties thereto in accordance with their terms.
Neither Heafner nor any of its Subsidiaries, nor to the knowledge of Heafner,
any other party to such contracts, agreements, arrangements, commitments and
leases is in default of any material obligation thereunder or has given notice
of default to any other party thereunder and, to the knowledge of Heafner, no
condition exists that with notice or lapse of time would constitute a material
default thereunder. Heafner has no knowledge of any proposed, pending, or likely
cancellation or termination of any such contract, agreement, arrangement,
commitment or lease (other than any expiration pursuant to the terms thereof).
(s) Insurance. Section 2.3(s) of the Heafner Disclosure Schedule
sets forth all policies of fire, liability, workman's compensation, vehicular,
life or other insurance held by or on behalf of Heafner and its Subsidiaries
(specifying the insurer, the coverage amounts and describing each pending claim
thereunder of more than $100,000). Such policies and binders are in full force
and effect. Neither Heafner nor any of its Subsidiaries is in default in any
material respect with respect to any provision contained in any such policy or
binder and, to the knowledge of Heafner, has not failed to give any notice or
present any claim under such policy or binder in due and timely fashion.
(t) Inventory. The inventory included in the financial statements
contained in Section 2.3(e)(i) of the Heafner Disclosure Schedule is the only
inventory used or held for use in
33
<PAGE> 40
Heafner's and its Subsidiaries' business, is valued for financial statement
purposes at the lower of cost or market value, and is useable and salable in the
ordinary course of business, except for obsolete items and items of below
standard quality, all of which have been written off, written down or reserved
on the accounting records of Heafner as of the date hereof.
(u) Brokers. Except for T & Co., no agent, broker, investment
banker, person or firm acting on behalf of Heafner or any of its Subsidiaries or
under the authority of Heafner or any of its Subsidiaries is or will be entitled
to any broker's or finder's fee or any other commission or similar fee directly
or indirectly from any of the parties hereto in connection with any of the
transactions contemplated hereby.
(v) Financing. As of the date hereof, Heafner is highly confident
that it can obtain the financing contemplated by Section 3.14, regardless of
whether or not the Pending Acquisition (as defined below in Section 3.11) is
consummated.
ARTICLE III
Additional Agreements
SECTION 3.1. Transaction Costs. Any fees, costs and expenses in
connection with the transactions contemplated by this Agreement and the
negotiation and preparation of the Escrow Agreement, Class B Stockholder
Agreement, Class B Registration Rights Agreement, Certificate of Merger and
Second Amended and Restated Articles, including fees and expenses of counsel,
financial advisors and accountants and filing fees in connection with compliance
with the HSR Act (collectively, "Transaction Costs"), that are incurred by
Heafner and Acquisition shall be paid or reimbursed by Heafner. Any Transaction
Costs that are incurred by the Company, any of its Subsidiaries or any Company
Stockholder (collectively, "Company Transaction Costs") shall be paid or
reimbursed by the Company; provided that if the aggregate amount of such Company
Transaction Costs exceeds $500,000, the amount of such excess shall be paid or
reimbursed by the Company Stockholders. For purposes of this Section 3.1,
"Company Transaction Costs" shall not include any severance payments under any
existing employment agreements with employees of the Company or any of its
Subsidiaries, which agreements are listed in Section 3.1 of the Company
Disclosure Schedule, or up to $1,500,000 in the aggregate payable at Closing
under any and all stock appreciation rights agreements with employees of the
Company or any of its Subsidiaries, which agreements are listed in Section 3.1
of the Company Disclosure Schedule; provided that any amounts paid in excess of
$1,500,000 at Closing under such stock appreciation rights agreements shall be
deemed to be Company Transaction Costs.
SECTION 3.2. Conduct of Business. From the date of this Agreement
until the Closing Date, except as otherwise consented to by Heafner in writing,
the Company shall, and shall cause its Subsidiaries to, operate their respective
businesses only in the ordinary course of business consistent with past practice
and, to the extent consistent therewith, use all commercially reasonable efforts
to (i) preserve intact the present organization of the Company and its
Subsidiaries; (ii) keep available the services of the present officers and
employees of the Company and its Subsidiaries; (iii) preserve the Company's
goodwill and relationships with customers, suppliers, licensors, licensees,
contractors, distributors, lenders and other persons having
34
<PAGE> 41
significant business dealings with the Company and its Subsidiaries; (iv)
continue all current sales, marketing and other promotional policies, programs
and activities; (v) maintain the assets of the Company and its Subsidiaries in
good repair, order and condition; and (vi) maintain the insurance policies and
risk management programs of the Company and each of its Subsidiaries and in the
event of casualty, loss or damage to any assets of the Company and its
Subsidiaries, repair or replace such assets with assets of reasonably comparable
quality, as the case may be. Without limiting the generality of the foregoing,
the Company shall not, without the prior written consent of Heafner, directly or
indirectly (i) causing or permitting any state of affairs, action or omission
described in clauses (i) through (xiv) of Section 2.1(f) or (ii) taking, or
agreeing in writing or otherwise to take, any action which would make any
representation or warranty of the Company or any Company Stockholder contained
in this Agreement untrue or incorrect in any material respect as of the date
when made or as of any future date or which could reasonably be expected to
prevent the satisfaction of any condition to Closing set forth in Article IV.
SECTION 3.3. HSR Act Filings; Reasonable Efforts; Further
Assurances. (a) Each of Heafner and the Company shall (i) promptly make or cause
to be made the filings required of such party (including the ultimate parent
entity of such party) or any of its subsidiaries under the HSR Act with respect
to the transactions contemplated by this Agreement, (ii) comply at the earliest
practicable date with any request under the HSR Act for additional information,
documents, or other material received by such party (including the ultimate
parent entity of such party) or any of its subsidiaries from the Federal Trade
Commission or the Department of Justice or any other governmental entity in
respect of such filings or such transactions, and (iii) cooperate with the other
party in connection with any such filing and in connection with resolving any
investigation or other inquiry of any such agency or other governmental entity
under any Antitrust Laws (as defined below) with respect to any such filing or
any such transaction. Each party shall promptly inform the other party of any
communication with, and any proposed understanding, undertaking, or agreement
with, any governmental entity regarding any such filings or any such
transaction. Neither party shall participate in any meeting with any
governmental entity in respect of any such filings, investigation, or other
inquiry without giving the other party notice of the meeting and, to the extent
permitted by such governmental entity, the opportunity to attend and
participate.
(b) Each of Heafner and the Company shall use all commercially
reasonable efforts to resolve such objections, if any, as may be asserted by any
governmental entity with respect to the transactions contemplated by this
Agreement under the HSR Act, the Sherman Act, as amended, the Clayton Act, as
amended, the Federal Trade Commission Act, as amended, and any other federal,
state or foreign statutes, rules, regulations, orders or decrees that are
designed to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade (collectively, "Antitrust Laws"). In
connection therewith, if any administrative or judicial action or proceeding is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Antitrust Law, and if by
mutual agreement Heafner and the Company decide that litigation is in their best
interests, each of Heafner and the Company shall cooperate and use all
commercially reasonable efforts vigorously to contest and resist any such action
or proceeding and to have vacated, lifted, reversed, or overturned any decree,
judgment, injunction or other order, whether temporary, preliminary or permanent
(each an "Order"), that is in effect and that prohibits, prevents, or restricts
consummation of any such
35
<PAGE> 42
transaction. Each of Heafner and the Company shall use all commercially
reasonable efforts to take such action as may be required to cause the
expiration of the notice periods under the HSR Act or other Antitrust Laws with
respect to such transactions as promptly as possible after the execution of this
Agreement.
(c) Heafner, the Company and the Company Stockholders each agree to
use all commercially reasonable efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations, to consummate and make
effective the transactions contemplated by this Agreement as expeditiously as
practicable and to ensure that the conditions set forth in Article IV are
satisfied, insofar as such matters are within the control of any of them. In
case at any time after the Closing Date, any further action is necessary or
desirable to carry out the purposes of this Agreement, each of the parties to
this Agreement shall take or cause to be taken all such necessary action,
including the execution and delivery of such further instruments and documents,
as may be reasonably requested by any party for such purposes or otherwise to
complete or perfect the transactions contemplated by this Agreement.
(d) Notwithstanding anything to the contrary in Section 3.3(a), (b)
or (c), (i) neither Heafner nor any of its Subsidiaries shall be required to
divest any of their respective businesses, product lines or assets, (ii) neither
Heafner nor any of its Subsidiaries shall be required to take or agree to take
any other action or agree to any limitation that could reasonably be expected to
have a material adverse effect on the business, assets, financial condition,
results of operations or prospects of Heafner and its Subsidiaries or of Heafner
combined with the Surviving Corporation after the Effective Time, (iii) neither
the Company nor its Subsidiaries shall be required to divest any of their
respective businesses, product lines or assets, or to take or agree to take any
other action or agree to any limitation that could reasonably be expected to
have a Company Material Adverse Effect, (iv) no party shall be required to agree
to the imposition of, or to comply with, any condition, obligation or
restriction on Heafner or any of its Subsidiaries or on the Surviving
Corporation or any of its Subsidiaries restraining or prohibiting Heafner's or
Acquisition's ownership or operation (or that of their respective Subsidiaries
or affiliates) of all or any portion of the business or assets of the Company
and its Subsidiaries, taken as a whole, or of Heafner and its Subsidiaries or
compelling Heafner or any of its Subsidiaries or affiliates to hold separate all
or any portion of the business or assets of the Company and its Subsidiaries,
taken as a whole, or of Heafner and its Subsidiaries, taken as a whole, and (v)
neither Heafner nor Acquisition shall be required to waive any of the conditions
set forth in Article IV.
(e) Each party shall give prompt notice to the other parties upon
learning of (i) any representation or warranty made by it contained in this
Agreement becoming untrue or inaccurate in any respect or (ii) the failure by it
to comply with or satisfy in any respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement; provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
(f) The Company and the Company Stockholders shall give prompt
notice to Heafner, and Heafner shall give prompt notice to the Company, of:
36
<PAGE> 43
(i) any notice or other communication from any person alleging
that the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental
entity in connection with the transactions contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or
proceedings commenced or, to the best of their knowledge, threatened against,
relating to or involving or otherwise affecting any such person or any of its
Subsidiaries (x) which if pending on the date of this Agreement would have been
required to have been disclosed pursuant to Section 2.1 or Section 2.2 with
respect to the Company and the Company Stockholders and Section 2.3 with respect
to Heafner or (y) which relate to the consummation of the transactions
contemplated by this Agreement.
SECTION 3.4. No Shopping. From the date of this Agreement until the
earlier of (i) the Closing Date and (ii) the date this Agreement is terminated
in accordance with Section 6.2, the Company and each Company Stockholder shall
not, and shall not permit any partner, director, officer or agent of the Company
or any of its Subsidiaries to, directly or indirectly, solicit or initiate,
enter into or conduct, discussions concerning, or exchange information
(including by way of furnishing information concerning the Company, any of its
Subsidiaries or any of their respective businesses) or enter into any
negotiations concerning, or favorably respond to any inquiries or solicit,
entertain or agree to any proposals for, the acquisition of the assets of, or
any substantial part thereof, or a merger involving, the Company or any of its
Subsidiaries or the transfer of all or a substantial part of the capital stock
of the Company or any of its Subsidiaries to any person other than Heafner or
one of its affiliates or the formation of any joint venture or strategic
alliance involving the Company or any of its Subsidiaries. In addition, during
such time period, neither the Company nor any Company Stockholder shall
authorize, direct or knowingly permit any employee or agent of the Company or
any of its Subsidiaries to do any of the foregoing and the Company Stockholders
shall notify Heafner of the identity of any person who approaches any Company
Stockholder or the Company with respect to any of the foregoing.
SECTION 3.5. Access and Information. (a) From the date of this
Agreement until the first to occur (i) of the Closing Date and (ii) the
termination of this Agreement in accordance with Section 6.2, the Company and
its Subsidiaries shall permit Heafner, its financing parties and their
respective representatives to make such investigation of the business,
operations and properties of the Company and its Subsidiaries as Heafner or such
financing parties deem reasonably necessary in connection with the transactions
contemplated by this Agreement and the financing thereof. Such investigation
shall include reasonable access to the respective directors, officers,
employees, agents and representatives (including legal counsel and independent
accountants) of the Company and its Subsidiaries and the properties, books,
records and commitments of the Company and its Subsidiaries. The Company shall
furnish Heafner and its representatives with such financial, operating and other
data and information, and copies of documents with respect to the Company and
its Subsidiaries or any of the transactions contemplated by this Agreement, as
Heafner or such financing parties shall from time to time reasonably request.
Such access and investigation shall be made upon reasonable notice and at
reasonable places and times, and shall not unreasonably disrupt the personnel
and operations of
37
<PAGE> 44
the Company and its Subsidiaries. All requests for such access shall be made
only to such representatives of the Company as are listed in Section 3.5 of the
Company Disclosure Schedule, which representatives shall be solely responsible
for coordinating all such requests and all such access. Such access and
information shall not in any way affect or diminish any of the representations
or warranties hereunder. Without limiting the foregoing, during such period, the
Company shall keep Heafner reasonably informed as to the business and operations
of the Company and its Subsidiaries and shall consult with Heafner as
appropriate. Heafner and the Company each agree to consult and coordinate with
each other in good faith with respect to the timing and substance of any
discussions prior to the Closing with suppliers, vendors and employees of the
Company and its Subsidiaries regarding the transactions contemplated by this
Agreement; provided that no such discussions may take place without the prior
written consent of the Company, which consent shall not be unreasonably
withheld.
(b) From the date of this Agreement until the first to occur (i) of
the Closing Date and (ii) the termination of this Agreement in accordance with
Section 6.2, Heafner shall permit the Company and its representatives to make
such investigation of the business, operations and properties of the Heafner and
its Subsidiaries as the Company deems reasonably necessary in connection with
the transactions contemplated by this Agreement. Such investigation shall
include reasonable access to the respective directors, officers, employees,
agents and representatives (including legal counsel and independent accountants)
of Heafner and its Subsidiaries and the properties, books, records and
commitments of Heafner and its Subsidiaries. Heafner shall furnish the Company
and its representatives with such financial, operating and other data and
information, and copies of documents with respect to Heafner and its
Subsidiaries or any of the transactions contemplated by this Agreement, as the
Company shall from time to time reasonably request. Such access and
investigation shall be made upon reasonable notice and at reasonable places and
times and shall not unreasonably disrupt the personnel and operations of Heafner
and its Subsidiaries. All requests for such access shall be made only to such
representatives of Heafner as are listed in Section 3.5 of the Heafner
Disclosure Schedule, which representatives shall be solely responsible for
coordinating all such requests and all such access. Such access and information
shall not in any way affect or diminish any of the representations or warranties
hereunder. Without limiting the foregoing, during such period, Heafner shall
keep the Company reasonably informed as to the business and operations of
Heafner and its Subsidiaries and shall consult with the Company as appropriate.
Heafner and the Company each agree to consult and coordinate with each other in
good faith with respect to the timing and substance of any discussions prior to
the Closing with suppliers, vendors and employees of Heafner and its
Subsidiaries regarding the transactions contemplated by this Agreement; provided
that no such discussions may take place without the prior written consent of
Heafner, which consent shall not be unreasonably withheld.
SECTION 3.6. Releases; Prior Compensation. Except as set forth in
Section 3.6 of the Company Disclosure Schedule, each Company Stockholder agrees
and acknowledges that such Company Stockholder has been paid in full for all
services rendered to the Company or any of its Subsidiaries and has no
outstanding claims against the Company, any of its Subsidiaries or Heafner for
any amounts arising because of such employment or otherwise. Except as set forth
in Section 3.6 of the Company Disclosure Schedule, each Company Stockholder
hereby releases effective as of the Closing Date the Company and each of its
Subsidiaries and their respective
38
<PAGE> 45
successors and affiliates from all rights such Company Stockholder may have to
acquire any securities of the Company or any of its Subsidiaries and all
actions, suits, debts, promises, agreements, damages, demands or claims of any
kind whatsoever arising from any event or action prior to the Closing Date that
any Company Stockholder had, has or may in the future have against the Company
or any of its Subsidiaries, except for the matters arising under this Agreement,
the Class B Stockholder Agreement, the Class B Registration Rights Agreement or
the Second Amended and Restated Articles or related to the transactions
contemplated hereby and thereby.
SECTION 3.7. Public Announcements. Heafner and Acquisition, on the
one hand, and the Company and the Company Stockholders, on the other hand, will
mutually agree in writing with each other before issuing, and provide each other
the opportunity to review and comment upon, any press release or other public
statements with respect to the transactions contemplated by this Agreement, and
shall not issue any such press release or make any such public statement prior
to such consultation.
SECTION 3.8. Tax Matters.
(a) Transfer Taxes. The Company Stockholders shall be responsible
for all transfer, excise, stamp, sales, use, recording or similar taxes or fees
arising out of the sale, transfer, conveyance or assignment of the shares of
Company Capital Stock by the Company Stockholders pursuant to this transaction
and the transactions contemplated hereby.
(b) Responsibility for Company Taxes.
(i) Notwithstanding any other provision of this Agreement or the
Class B Stockholder Agreement, the Class B Registration Rights Agreement or the
Second Amended and Restated Articles, but subject to all of the limitations and
other provisions set forth in Section 5.2, in the event that the Closing occurs,
the Company Stockholders shall be liable for and shall indemnify Heafner and the
Surviving Corporation for taxes of the Company or any of its Subsidiaries for
any taxable years or periods that end on or before the Closing Date and, with
respect to any taxable years or periods beginning before and ending after the
Closing, the portion of such taxable years ending on and including the Closing
Date but only to the extent such taxes exceed the aggregate amount accrued (to
the extent such accruals are consistent with past practice) for taxes on the
Closing Date Financial Statement.
(ii) Notwithstanding any other provision of this Agreement or the
Class B Stockholder Agreement, the Class B Registration Rights Agreement or the
Second Amended and Restated Articles, but subject to all of the limitations and
other provisions set forth in Section 5.2, in the event that the Closing occurs,
Heafner and the Surviving Corporation shall be liable for and shall indemnify
the Company Stockholders for taxes of the Surviving Corporation or any
Subsidiaries of the Company for any taxable years or periods that begins after
the Closing Date and, with respect to any taxable years or periods beginning
before and ending after the Closing, the portion of the taxable years beginning
on the day after the Closing Date.
39
<PAGE> 46
(iii) For purposes of subparagraphs (b)(i) and (b)(ii) above,
whenever it is necessary to determine the liability for taxes of the Surviving
Corporation for a portion of a taxable year or period that begins before and
ends after the Closing Date, the determination of such taxes for the portion of
the year or period ending on, and the portion of the year or period beginning
after, the Closing Date, shall be determined by assuming that the Surviving
Corporation had a taxable year or period which ended at the close of business on
the Closing Date, except that exemptions, allowances or deductions that are
calculated on an annual basis, such as the deduction for depreciation, shall be
apportioned based on the number of days in the year elapsed to and including the
Closing Date.
(c) Tax Treatment. Any payment by Heafner or any Company Stockholder
under this Section 3.8 will be treated for tax purposes as an adjustment (an
increase or a reduction) to the Merger Consideration.
(d) Filing of Returns. All tax returns with respect to the Company
(i) shall, to the extent required to be filed on or before the Closing Date
(taking into account any valid extensions), be caused by the Company
Stockholders to be filed by the Company and its Subsidiaries when due in
accordance with all applicable laws and (ii) shall, as of the time of filing,
correctly reflect in all material respects the facts regarding the income,
business, assets, operations, activities and status of the Company and any other
information required to be shown therein.
(e) Cooperation in Tax Matters.
After the Closing Date, Heafner and each Company Stockholder shall:
(i) assist in all reasonable respects (and cause their
respective affiliates to assist) the other party in preparing any tax
returns or reports which such other party is responsible for preparing and
filing in accordance with this Section 3.8;
(ii) cooperate in all reasonable respects in preparing for any
audits of, or disputes with taxing authorities regarding, and tax returns
of the Company or any of its Subsidiaries and the Surviving Corporation;
(iii) make available to the other and to any taxing authority
as reasonably requested all information, records and documents relating to
taxes of the Company or any of its Subsidiaries and the Surviving
Corporation;
(iv) provide timely notice to the other in writing of any
pending or threatened tax audit or assessments of the Company or any of
its Subsidiaries and the Surviving Corporation for taxable periods for
which the other may have a liability under this Section 3.8; and
(v) furnish the other with copies of all correspondence
received from any taxing authority in connection with any tax audit or
information request with respect to any such taxable period.
40
<PAGE> 47
(f) Tax Audits and Assessments.
(i) Heafner shall notify the Company Stockholders in writing upon
receipt by Heafner or the Surviving Corporation of notice of any pending or
threatened Federal, state, local or foreign tax audits or assessments which may
affect the tax liabilities of the Surviving Corporation for which the Company
Stockholders would be required to indemnify Heafner and the Surviving
Corporation. The Company Stockholders shall have the right to full and active
participation in all aspects of, and consent (which consent shall not be
unreasonably withheld taking into consideration all facts and circumstances that
affect any party with respect to such tax matter or any other tax matter) to,
the resolution of any such tax audit or assessment.
(ii) The Company Stockholders shall notify Heafner in writing upon
receipt by any of the Company Stockholders of notice of any pending or
threatened federal, state, local or foreign tax audits or assessments which may
affect the tax liabilities of the Company or any of its Subsidiaries for which
Heafner and the Surviving Corporation would be required to indemnify the Company
Stockholders. Heafner shall have the right to full and active participation in
all aspects of, and consent (which consent shall not be unreasonably withheld
taking into consideration all facts and circumstances that affect any party with
respect to such tax matter or any other tax matter) to, the resolution of any
such tax audit or assessment.
(g) Activities between Signing and Closing. From the date hereof
until the Closing, without the prior written consent of Heafner, the Company
Stockholders shall cause the Company and each of its Subsidiaries not to make or
change any tax election, change any annual tax accounting period, adopt or
change any method of tax accounting, file any amended tax return, enter into any
closing agreement, settle any tax claim or assessment, surrender any right to
claim a tax refund, consent to any extension or waiver of the limitations period
applicable to any tax claim or assessment or take or omit to take any other
action, if any such other action or omission would have the effect of materially
increasing the tax liability of the Company or any of its Subsidiaries.
SECTION 3.9. Other Documents. At the Closing, Heafner and the
Company Stockholders will execute and deliver the Escrow Agreement, the Class B
Stockholder Agreement and the Class B Registration Rights Agreement.
SECTION 3.10. Officers and Directors. The Company Stockholders will
cause all of the directors and corporate officers of the Company and its
Subsidiaries to relinquish (effective no later than immediately prior to the
Effective Time) such titles but such actions shall not affect their employment
contracts or their employment capacities as employees of the Company.
SECTION 3.11. Pending Heafner Acquisition. Within two days after the
date of this Agreement, Heafner will make available to the Company Stockholders
documents and financial information concerning a pending acquisition by Heafner
of another business (the "Pending Acquisition Company") (with respect to which
there is a letter of intent dated December 5, 1997 (the "Pending Acquisition"))
that Heafner deems relevant to, or that the Company Stockholders may reasonably
request in connection with, the determination referred to in Section 6.2(a)(v).
Following the execution of this Agreement but prior to the Closing, the Company
shall have the right to inquire of Heafner as to the status of the Pending
Acquisition and, upon any such inquiry,
41
<PAGE> 48
Heafner shall promptly disclose on a confidential basis such status to the
Company and shall provide any details with respect to any anticipated delays in
the consummation of the Pending Acquisition that would affect the transactions
contemplated hereby or the financing contemplated by Section 3.14.
SECTION 3.12. Company Confidential Information; Non-Competition.
(a) Confidential Information. Each Company Stockholder recognizes
and hereby acknowledges that, as a stockholder and/or senior executive of the
Company, such Company Stockholder knows of, and has been exposed to,
confidential business information concerning the Company's and its Subsidiaries'
information, ideas, know how, trade secrets, processes, computer software,
methods, practices, techniques, technical plans, customer lists, pricing
techniques and information, marketing plans, financial information, and all
other compilations of information that relate to the Company's and its
Subsidiaries' businesses and their current and prospective customers ("Company
Confidential Information"). Each Company Stockholder recognizes and hereby
acknowledges that such Company Confidential Information is a valuable asset of
the Company and its Subsidiaries. Each Company Stockholder agrees to safeguard
such Company Confidential Information for the exclusive benefit of the Company
and its affiliates and agrees that, after the Closing, such Company Stockholder
will not disclose, distribute or publish such Company Confidential Information
to any person, company, business or corporation (other than to the Company and
its affiliates); provided that the term "Company Confidential Information" does
not include information which (i) is or becomes generally available to the
public other than as a result of a disclosure by such Company Stockholder in
violation of this Agreement, (ii) was within the possession of such Company
Stockholder prior to its being furnished to such Company Stockholder by or on
behalf of the Company, provided that the source of such information was not
known by such Company Stockholder to be bound by an agreement with or other
contractual, legal or fiduciary obligation of confidentiality to the Company or
any other party with respect to such information, or (iii) becomes available to
such Company Stockholder on a non-confidential basis from a source other than
the Company, provided that such source was not known by such Company
Stockholder, after reasonable inquiry, to be bound by an agreement with or other
contractual, legal or fiduciary obligation of confidentiality to the Company or
any other party with respect to such information.
(b) Covenant Not To Compete. (i) Each Company Stockholder (other
than the Management Stockholders (as defined below in Section 3.12(b)(ii))
acknowledges and recognizes such Company Stockholder's possession of
Confidential Information and acknowledges and recognizes the highly competitive
nature of the business of the Company, its Subsidiaries, Heafner and their
respective affiliates. Accordingly, in consideration of Heafner entering into
this Agreement, the transactions contemplated by this Agreement and the premises
contained herein, such Company Stockholder agrees that, during the four-year
period commencing on the Closing Date and ending on the fourth anniversary of
the Closing Date, such Company Stockholder will not, for any reason whatsoever,
either individually or as an officer, director, stockholder, partner, agent or
principal or another business or firm, and will cause such Company Stockholder's
directors, officers, stockholders, partners, employees, agents and
representatives not to, directly or indirectly (1) engage in any manner in the
United States in the businesses of wholesale distribution of tires, custom
wheels or tire dealer supplies or in the retail businesses of tire sales,
42
<PAGE> 49
tire installations or automotive services, (2) divert, take away or solicit, or
attempt to divert, take away or solicit any businesses or individuals that were
customers of the Company, the Surviving Corporation, Heafner or their respective
affiliates, (3) contact or communicate with any employee of the Company, the
Surviving Corporation, Heafner or their respective affiliates for the purpose of
inducing or otherwise encouraging such employee to terminate his or her
employment with such person, or (4) assist others in engaging in any of the
foregoing actions described in clauses (1), (2) or (3) above.
(ii) Each Management Stockholder agrees, for so long as such
Management Stockholder is employed by the Company and during the Non-Competition
Period (as defined below) applicable to such Management Stockholder, in
consideration of the transactions contemplated by this Agreement, not to:
(A) directly or indirectly, engage or invest in, own, manage,
operate, control or participate in the ownership, management, operation or
control of, be employed by, associated or in any manner connected with, or
render services or advice to, any Competing Business (as defined below);
provided, however, that such Management Stockholder may invest in the
securities of any enterprise (but without otherwise participating in the
activities of such enterprise) if (x) such securities are listed on any
national or regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended, and (y)
such Management Stockholder does not beneficially own (as defined in Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended)
in excess of 1% of the outstanding capital stock of such enterprise;
(B) directly or indirectly, either as principal, agent, independent
contractor, consultant, director, officer, employee, employer, advisor
(whether paid or unpaid), stockholder, partner or in any other individual
or representative capacity whatsoever, either for his own benefit or for
the benefit of any other person or entity, solicit, divert or take away
any suppliers or customers of the Company or any of its Subsidiaries; or
(C) directly or indirectly, either as principal, agent, independent
contractor, consultant, director, officer, employee, employer, advisor
(whether paid or unpaid), stockholder, partner or in any other individual
or representative capacity whatsoever, either for his own benefit or for
the benefit of any other person or entity, either (i) hire, attempt to
hire, contact or solicit with respect to hiring, any employee of the
Company or any of its Subsidiaries, (ii) induce or otherwise counsel,
advise or encourage any employee of the Company or any of its Subsidiaries
to leave the employment of the Company or any of its Subsidiaries, or
(iii) induce any representative or agent of the Company or any of its
Subsidiaries to terminate or modify its relationship with the Company or
any such Subsidiary; unless, in the case of clause (A), (B) or (C) above,
prior written approval has been granted by Heafner's Board of Directors.
For purposes of this Section 3.12(b)(ii), "Non-Competition Period" shall mean,
with respect to a Management Stockholder, (i) if such Management Stockholder is
terminated for Cause (as
43
<PAGE> 50
defined in such Management Stockholder's employment agreement as of the date
hereof with the Company) or voluntarily terminates his employment under the
employment agreement between such Management Stockholder and the Company, a
period of two years immediately following the date of termination of employment
(unless such period is extended, as provided elsewhere in such employment
agreement), and (ii) if such Management Stockholder is terminated without Cause,
a period of one year immediately following the date of termination employment
(unless such period is extended, as provided elsewhere in such employment
agreement). For purposes of this Section 3.12(b)(ii), "Management Stockholder"
shall mean each of Armistead Burwell, Jr., William E. Berry, Leon R. Ellin and
Richard P. Johnson. For purposes of this Section 3.12(b)(ii), "Competing
Business" with respect to any Management Stockholder shall mean any individual,
business, firm, company, partnership, joint venture, organization, or other
entity engaged in the wholesale distribution of name brand or private label
automobile tires, custom automobile wheels, or tire dealer supplies in the
states of Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee,
Alabama, and Virginia, or in any other market (domestic or international) in
which the Company or any of its Subsidiaries does business at any time during
such Management Stockholder's employment with the Company.
(c) Enforceability. It is the desire and intent of the parties
hereto that the provisions of this Section 3.12 shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, although the Company
Stockholders and Heafner consider the restrictions contained in this Section
3.12 to be reasonable for the purposes of preserving the Company's goodwill and
proprietary rights, if any particular provision of this Section 3.12 shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made. It
is expressly understood and agreed that, although the Company Stockholders and
Heafner consider the restrictions contained in Section 3.12 to be reasonable, if
a final determination is made by a court of competent jurisdiction that the time
or territory or any other restriction contained in this Section 3.12 is
unenforceable against any Company Stockholder, the provisions of this 3.12 shall
be deemed amended to apply as to such maximum time and territory and to such
maximum extent as such court may judicially determine or indicate to be
enforceable.
(d) Remedies. The parties acknowledge that Heafner's damages at law
would be an inadequate remedy for the breach by any Company Stockholder of any
provision of this Section 3.12, and agree in the event of such breach that
Heafner may obtain temporary and permanent injunctive relief restraining such
Company Stockholder from such breach, and, to the extent permissible under
applicable statutes and rules of procedure, a temporary injunction may be
granted immediately upon the commencement of any such suit. Nothing contained in
this Agreement shall be construed as prohibiting Heafner from pursuing other
remedies available at law or equity for such breach or threatened breach of this
Section 3.12 of this Agreement.
(e) Acknowledgment. Each Company Stockholder acknowledges that such
Company Stockholder is entering into the covenants contained in this Section
3.12, inter alia, due to such Company Stockholder's position, prior to the
Closing Date, as a stockholder of the Company.
44
<PAGE> 51
SECTION 3.13. Indemnification. (a) For six years after the Effective
Time, Heafner will cause the Surviving Corporation to indemnify and hold
harmless the present and former officers, directors, employees and agents of the
Company and its Subsidiaries in respect of acts or omissions occurring on or
prior to the Effective Time to the extent provided under the Company's
certificate of incorporation and bylaws in effect on the date hereof; provided
that such indemnification shall be subject to any limitation imposed from time
to time under applicable law. For three years after the Effective Time, Heafner
will cause the Surviving Corporation to provide officers' and directors'
liability insurance in respect of acts or omissions occurring on or prior to the
Effective Time covering each such person currently covered by the Company's
officers' and directors' liability insurance policy on terms substantially
similar to those of such policy in effect on the date hereof, provided that in
satisfying its obligation under this Section 3.13, Heafner shall not be
obligated to cause the Surviving Corporation to pay premiums in excess of the
amount per annum the Company paid in its last full fiscal year, which amount has
been disclosed to Heafner, and if the Surviving Corporation is unable to obtain
the insurance required by this Section 3.13, it shall obtain as much comparable
insurance as possible for an annual premium equal to such maximum amount.
(b) In the event the Surviving Corporation or any of its successors
or assigns (i) consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision shall be made so
that the successors and assigns of the Surviving Corporation shall assume the
obligations set forth in this Section 3.13.
(c) The obligations of Heafner and the Surviving Corporation under
this Section 3.13 shall not be terminated or modified in such a manner as to
adversely affect any present or former officer, director, employee or agent to
whom this Section 3.13 applies without the consent of each such affected person
(it being expressly agreed that the present or former officers, directors,
employees and agents to whom this Section 3.13 applies shall be third-party
beneficiaries of this Section 3.13).
(d) Heafner understands that the Company has entered into
contractual indemnification arrangements with each of its current directors, a
list of which arrangements is set forth in Section 3.13 of the Company
Disclosure Schedule and true and correct copies of which have previously been
delivered to Heafner.
SECTION 3.14. Financing Arrangement. (a) Heafner shall use its
commercially reasonable efforts to obtain adequate financing to enable it to
consummate the transactions contemplated by this Agreement, all on terms
satisfactory to Heafner and to the Company. Following the execution of this
Agreement but prior to Closing, the Company shall have the right to inquire of
Heafner as to the status of any proposed financing arrangement contemplated by
this Section 3.14 and, upon any such inquiry, Heafner shall promptly disclose on
a confidential basis such status to the Company and shall provide any details
with respect to any anticipated delays affecting such proposed financing
arrangement.
45
<PAGE> 52
(b) The Company and the Company Stockholders acknowledge that
Heafner intends to obtain the financing necessary to consummate the Merger and
the Pending Acquisition (including the refinancing of existing indebtedness of
Heafner, the Company, the Pending Acquisition Company and their respective
subsidiaries) through borrowings under senior bank facilities (the "Senior
Facilities") and the placement and sale of unsecured, "high yield" notes (the
"High Yield Notes"). The Company and the Company Stockholders agree to provide,
and to cause their Representatives (as defined below) to provide, reasonable
cooperation and assistance in connection with Heafner's efforts to arrange the
Senior Facilities and the placement and sale of the High Yield Notes. Without
limiting the generality of the foregoing, the Company and the Company
Stockholders acknowledge and agree that certain financial and other information
(including the financial statements referred to in Section 2.1(e)) concerning
the Company and its Subsidiaries can and will be included in a "confidential
offering memorandum" that will be sent by the placement agent for the High Yield
Notes to potential purchasers thereof. Heafner shall use its commercially
reasonable efforts to prepare and finalize a "preliminary confidential offering
memorandum" for the High Yield Notes by no later than the date that is 30 days
after the date of this Agreement.
SECTION 3.15. Confidentiality. (a) From the date of this Agreement
until the first to occur of (i) the Closing Date and (ii) the third anniversary
of the termination of this Agreement in accordance with Section 6.2, the Company
and Heafner each agree to treat any information, both oral and written (herein
collectively referred to as the "Confidential Material"), received by such party
(hereinafter referred to as the "Receiving Party") concerning the other party,
whether prepared by such other party, its Representatives (as defined below) or
otherwise, and irrespective of the form of communication, which is furnished by
or on behalf of such other party (hereinafter referred to as the "Delivering
Party") in accordance with the provisions of this Agreement, and to take or
abstain from taking certain other actions as hereinafter set forth. As used in
this Section 3.15, a party's "Representatives" shall include the directors,
officers, stockholders, employees, agents, partners or advisors of such party
(including, without limitation, attorneys, accountants, consultants, bankers and
financial advisors) and those of such party's stockholders, subsidiaries,
affiliates and financiers and potential financiers.
The term "Confidential Material" also shall be deemed to include all
notes, analyses, compilations, studies, interpretations or other documents
prepared by the Receiving Party or its Representatives which contain, reflect or
are based upon, in whole or in part, the information furnished to the Receiving
Party or its Representatives by the Delivering Party or its Representatives
pursuant hereto. The term "Confidential Material" does not include information
which (i) is or becomes generally available to the public other than as a result
of a disclosure by the Receiving Party or its Representatives in violation of
this Agreement, (ii) was within the possession of the Receiving Party or its
Representatives prior to its being furnished to the Receiving Party or its
Representatives by or on behalf of the Delivering Party or its Representatives,
provided that the source of such information was not known by the Receiving
Party or its Representatives to be bound by an agreement with or other
contractual, legal or fiduciary obligation of confidentiality to the Delivering
Party or any other party with respect to such information, or (iii) becomes
available to the Receiving Party or its Representatives on a non-confidential
basis from a source other than the Delivering Party, provided that such source
was not known by the Receiving Party or its Representatives, after reasonable
inquiry, to be
46
<PAGE> 53
bound by an agreement with or other contractual, legal or fiduciary obligation
of confidentiality to the Delivering Party or any other party with respect to
such information.
(b) Except as otherwise provided herein, each of Heafner and the
Company agrees that it shall use the other party's Confidential Material solely
for the purpose of evaluating the transactions contemplated by this Agreement
and for no other purpose, that it shall not use the other party's Confidential
Material in connection with the operation of its own business, that the other
party's Confidential Material will be kept confidential and that such party and
its Representatives will not disclose any of the other party's Confidential
Material in any manner whatsoever; provided that a Receiving Party and its
Representatives may make any disclosure of Confidential Material (i) to which
the Delivering Party gives its prior written consent, (ii) to its
Representatives who need to know the Confidential Information for the purpose of
evaluating the transactions contemplated by this Agreement and who (excluding
attorneys) agree in writing to be bound by the terms of this Section 3.15 to the
same extent as if they were parties hereto (other than (A) with respect to
Sections 3.15(e) and 3.15(f), which shall not be binding upon any of the
auditors, attorneys, banks, financing sources or third party advisors of the
Receiving Party, and (B) with respect to Section 3.15(g), which shall not be
binding upon any Representatives of the Receiving Party), and (iii) as required
by law, government regulation, court order or other lawful process. Each
Receiving Party agrees to undertake reasonable precautions to safeguard and
protect the confidentiality of the Delivering Party's Confidential Material, to
accept responsibility for any breach of this Agreement by any of its
Representatives, and at its sole expense to take all reasonable measures
(including but not limited to court proceedings) to restrain its Representatives
from prohibited or unauthorized disclosure or uses of the Delivering Party's
Confidential Material.
Neither party shall disclose, either directly or indirectly, to any
manufacturer or customer of the other party any aspect of the transactions
contemplated by this Agreement or the potential for any such transaction. In
addition, except as otherwise provided herein, each Receiving Party agrees that,
without the prior written consent of the Delivering Party, it will not disclose
to any other person the fact that the Delivering Party's Confidential Material
has been made available to such party, that discussions or negotiations are
taking place concerning the Agreement or any of the terms, conditions or other
facts with respect thereto (including the status thereof). It is understood and
agreed that nothing contained herein shall be deemed to inhibit, impair or
restrict Heafner's ability or the ability of its Representatives to have
discussions or negotiations with other persons for the purposes of discussing or
negotiating potential financing of the transactions contemplated hereby as long
as each of such persons agrees in writing to be bound by the terms of this
Section 3.15 (other than potential purchasers of the High Yield Notes). It is
further understood and agreed that in any discussions with third parties
regarding the transactions contemplated by this Agreement (including any
discussions pursuant to Section 3.5 or discussions arising as a result of a
breach of this Section 3.15), Heafner and the Company, together with their
respective Representatives, shall characterize such transactions as a "merger of
equals" and not as an acquisition by one party of the other party.
(c) In the event that a Receiving Party or any of its
Representatives is requested or required (by oral questions, interrogatories,
requests for information or documents in legal proceedings, subpoena, civil
investigative demand or other similar process) to disclose any of the
47
<PAGE> 54
Delivering Party's Confidential Material, it shall provide the Delivering Party
with prompt written notice of any such request or requirement so that the
Delivering Party may seek a protective order or other appropriate remedy and/or
waive compliance with the provisions of this Section 3.15. If, in the absence of
a protective order or other remedy or the receipt of a waiver by the Delivering
Party, the Receiving Party or any of its Representatives are nonetheless, upon
the advice of counsel, legally compelled to disclose the Delivering Party's
Confidential Material to any tribunal or else stand liable for contempt or
suffer other censure or penalty, the Receiving Party or its Representatives may,
without liability hereunder, disclose to such tribunal only that portion of the
Delivering Party's Confidential Material which such counsel advises such party
is legally required to be disclosed, provided that it exercises its reasonable
best efforts (at the Delivering Party's reasonable cost and expense) to preserve
the confidentiality of the Delivering Party's Confidential Material, including
by cooperating with the Delivering Party to obtain an appropriate protective
order or other reliable assurance that confidential treatment will be accorded
the Delivering Party's Confidential Material by such tribunal.
(d) In the event this Agreement is terminated pursuant to Section
6.2 hereof, each Receiving Party will promptly deliver to the Delivering Party
all Confidential Material (and all copies thereof) furnished to such Receiving
Party or its Representatives by or on behalf of the Delivering Party pursuant
hereto; provided that any portion of documentation prepared solely by a
Receiving Party or its Representatives in connection with the evaluation of the
transactions contemplated hereby, including, without limitation,
computer-generated information, analyses, compilations, studies, word
processing, visual or auditory records or recordings, that contains or is
derived from the Delivering Party's Confidential Material shall be destroyed by
such party (and, at the request of the Delivering Party, the Receiving Party
shall certify in writing to the Delivering Party as to such destruction).
Notwithstanding the return of the Delivering Party's Confidential Material, each
Receiving Party and its Representatives will continue to be bound by its
obligations of confidentiality and other obligations hereunder.
(e) From the date of this Agreement until the earlier of (1) the
Closing Date and (2) the first anniversary of the termination of this Agreement
in accordance with Section 6.2, each of the Company and Heafner hereby agrees
not to solicit for employment, offer employment to, or employ or hire in any
manner any person who (x) is employed by the other party or one of its
Subsidiaries at any time from and after the date hereof and prior to the
termination of this Agreement in accordance with Section 6.2 and (y) whose total
annual compensation is then in excess of $25,000; provided, however, that the
foregoing restriction shall not apply with respect to any such person whose
employment is involuntarily terminated by such other party.
(f) The parties agree and acknowledge that each of the Company and
Heafner currently has employment agreements with various members of such party's
management that contain covenants not to compete against such party following
termination of employment. Each of the Company and Heafner agrees at all times
to respect such covenants of which such party has knowledge (after reasonable
inquiry), and not to take any actions that may violate or conflict with such
covenants of which such party has knowledge (after reasonable inquiry), to the
extent that such party engages in discussions with any such employees following
the termination of their employment with such other party for any reason.
48
<PAGE> 55
(g) From the date of this Agreement until the earlier of (i) the
Closing Date and (ii) the first anniversary of the termination of this Agreement
in accordance with Section 6.2, neither the Company nor Wingate Partners II,
L.P. nor any affiliate of either of them shall, directly or indirectly, solicit
or initiate, enter into or conduct, discussions concerning, or exchange
information or enter into any negotiations concerning, the acquisition of the
capital stock or assets of, or a merger involving, the Pending Acquisition
Company regarding a possible acquisition transaction; provided that the
foregoing restriction shall be void and of no force and effect if the Pending
Acquisition Company currently conducts any of its operations in the Company's
current market area (which area consists of Maryland, Virginia, North Carolina,
Tennessee, South Carolina, Georgia, Alabama, Florida, Mississippi, West
Virginia, Delaware and Kentucky).
(h) It is further understood and agreed that money damages would not
be a sufficient remedy for any breach of this Section 3.15 by a Receiving Party
or any of its Representatives and that the Delivering Party shall be entitled to
equitable relief, including injunction and specific performance, as a remedy for
any such breach. Such remedies shall not be deemed to be the exclusive remedies
for a breach by a Receiving Party of this Section 3.15 but shall be in addition
to all other remedies available at law or equity to the Delivering Party. No
failure or delay by the Delivering Party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any right, power or privilege hereunder.
SECTION 3.16. Disclosure Supplements. (a) From time to time prior to
the Closing, the Company and the Company Stockholders shall promptly supplement
their disclosure to Heafner with respect to (i) any matter arising after the
date of this Agreement that, if existing or occurring on or prior to the date of
this Agreement, would have been required to be set forth or described in the
Company Disclosure Schedule or (ii) any information with respect to any matter
arising after the date of this Agreement that is necessary to complete or
correct any information in such Company Disclosure Schedule or in any
representation and warranty of the Company and the Company Stockholders set
forth in Section 2.1 that has been rendered inaccurate thereby. Upon the
delivery of such supplement to Heafner, the relevant representations and
warranties set forth in Section 2.1 and the relevant portions of the Company
Disclosure Schedule shall be deemed to have been amended by such additional
information and, if such additional information set forth in such supplement
(together with any additional information set forth in any prior supplement)
reveal facts, events or circumstances that, individually or in the aggregate,
could reasonably be expected to have a Company Material Adverse Effect, then the
condition stated in Section 4.1(a) shall be deemed not to have been satisfied
and this Agreement may be terminated by Heafner in accordance with the
provisions of Section 6.2(a)(iii), subject to the cure period specified therein;
provided that, if this Agreement is not so terminated and thereafter the Closing
occurs, then all rights to seek indemnification pursuant to Section 5.1(a) of
this Agreement based upon such additional information set forth in such
supplement and the alleged breach of any representation or warranty so amended
shall be deemed to have been waived.
(b) From time to time prior to the Closing, Heafner shall promptly
supplement its disclosure to the Company and the Company Stockholders with
respect to (i) any matter arising after the date of this Agreement that, if
existing or occurring on or prior to the date of this Agreement, would have been
required to be set forth or described in the Heafner Disclosure
49
<PAGE> 56
Schedule or (ii) any information with respect to any matter arising after the
date of this Agreement that is necessary to complete or correct any information
in such Heafner Disclosure Schedule or in any representation and warranty of
Heafner set forth in Section 2.3 that has been rendered inaccurate thereby. Upon
the delivery of such supplement to the Company and the Company Stockholders, the
relevant representations and warranties set forth in Section 2.3 and the
relevant portions of the Heafner Disclosure Schedule shall be deemed to have
been amended by such additional information and, if such additional information
set forth in such supplement (together with any additional information set forth
in any prior supplement) reveal facts, events or circumstances that,
individually or in the aggregate, could reasonably be expected to have a Heafner
Material Adverse Effect, then the condition stated in Section 4.2(a) shall be
deemed not to have been satisfied and this Agreement may be terminated by the
Company in accordance with the provisions of Section 6.2(a)(iv), subject to the
cure period specified therein; provided that, if this Agreement is not so
terminated and thereafter the Closing occurs, then all rights to seek
indemnification pursuant to Section 5.1(b) of this Agreement based upon such
additional information set forth in such supplement and the alleged breach of
any representation or warranty so amended shall be deemed to have been waived.
(c) Nothing set forth in this Section 3.16 shall relieve any party
of any liability for a breach by such party of a covenant or agreement of such
party set forth in this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1. Conditions to Obligations of Heafner and Acquisition.
The obligations of Heafner and Acquisition to perform this Agreement are subject
to the satisfaction of each of the following conditions unless waived on or
prior to the Closing Date by Heafner:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Company and the Company Stockholders made in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as if made on and as of the Closing
Date (except for those representations and warranties expressly made as of a
particular date, which shall be true and correct only as of such date); provided
that the foregoing condition shall be deemed satisfied if the facts, events or
circumstances underlying any inaccuracies in any such representations and
warranties as of the Closing Date (without giving effect to any "Company
Material Adverse Effect" or other material adverse effect qualification or any
other materiality qualification or similar qualifications contained therein),
individually or in the aggregate, could not reasonably be expected to have a
Company Material Adverse Effect, and the Company and the Company Stockholders
shall have performed and complied with in all material respects all covenants
and agreements required to be performed or complied with on or prior to the
Closing Date.
(b) Certificates. Heafner shall have received a certificate of the
chief executive officer and the chief financial officer of the Company and a
certificate of each Company Stockholder, in each case in customary form
reasonably satisfactory to the parties.
50
<PAGE> 57
(c) Opinion of Counsel. Heafner shall have received the opinion
dated the Closing Date of counsel to the Company Stockholders and the Company,
in customary form reasonably satisfactory to the parties.
(d) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger and the transactions contemplated by this Agreement
under the HSR Act shall have been terminated or shall have expired.
(e) No Legal Bar. No action or proceeding by or before any
governmental authority or agency shall be pending or threatened challenging or
seeking to restrain or prohibit the Merger or any of the transactions
contemplated by this Agreement, the Escrow Agreement, the Class B Stockholder
Agreement, the Class B Registration Rights Agreement or the Second Amended and
Restated Articles. No statute, rule, regulation, executive order, decree,
temporary restraining order, preliminary injunction, permanent injunction or
other order enacted, entered, promulgated, enforced or issued by any
governmental authority or agency or other legal restraint or prohibition
preventing the transactions contemplated by this Agreement, the Escrow
Agreement, the Class B Stockholder Agreement, the Class B Registration Rights
Agreement or the Second Amended and Restated Articles shall be in effect.
(f) Consents, Amendments and Terminations. Heafner shall have
received duly executed and delivered copies of all waivers, consents,
terminations and approvals listed in Section 2.1(d) of the Company Disclosure
Schedule, all in form and substance reasonably satisfactory to Heafner. Other
than the filing of the Certificate of Merger with the Delaware Secretary of
State, all consents, notices, authorizations and approvals legally required for
the consummation of the Merger and the transactions contemplated by this
Agreement, the Escrow Agreement, the Class B Stockholder Agreement, the Class B
Registration Rights Agreement and the Second Amended and Restated Articles shall
have been filed, occurred or been obtained.
(g) Due Diligence. Heafner and its representatives shall have
completed a due diligence review of the condition (financial or otherwise),
assets, liabilities, operations and business of, and any other matters relating
to, the Company and its Subsidiaries, and the results of such due diligence
shall be satisfactory to Heafner; provided that the condition set forth in this
Section 4.1(g) shall be deemed to have been satisfied unless Heafner notifies
the Company and the Company Stockholders in writing by the close of business on
March 27, 1998 that the results of such due diligence are not satisfactory to
Heafner.
(h) Escrow, Stockholder and Registration Rights Agreements;
Investment Letter. Each of the Company Stockholders shall have duly executed and
delivered to Heafner the Escrow Agreement in customary form as agreed to by the
parties and the Escrow Agent, the Class B Stockholder Agreement, the
Registration Rights Agreement and the Investment Letter, which Investment Letter
shall be in substantially the form of Exhibit C.
(i) Share Certificates and Corporate Records. Heafner shall have
received certificates representing all issued and outstanding shares of Company
Capital Stock, together with stock powers duly endorsed in blank, and Heafner
shall have received the complete stock ledgers, minute books and similar
corporate records of the Company.
51
<PAGE> 58
(j) Financial Statements. Heafner shall have received an unaudited
balance sheet of the Company and related statements of income and retained
earnings and cash flows for the most recent month end that is at least 20 days
prior to the Closing Date (the "Closing Date Financial Statement"), certified by
the chief executive officer and chief financial officer of the Company.
(k) Financing. Heafner shall have received adequate financing to
consummate the transactions contemplated by this Agreement, all on terms
satisfactory to Heafner and the Company; provided that the terms of such
financing shall be deemed to be satisfactory to Heafner and the Company if (i)
the gross proceeds from such financing shall be sufficient to consummate the
transactions contemplated by this Agreement; (ii) the interest rate on any
revolving indebtedness included in such financing would be no more than 9.0%;
(iii) the interest rate on any other indebtedness included in such financing
would no more than 10.5%; and (iv) the other terms of the financing would be
reasonably customary for financings of such type (other than any requirement
that warrants or other equity securities be issued by Heafner in connection with
such financing); and provided, further, that the terms of such financing shall
also be deemed to be satisfactory to Heafner and the Company if such financing
could be obtained upon the terms listed above if (x) Heafner's existing
subordinated borrowings from The 1818 Mezzanine Fund, L.P. (the "1818 Fund")
were to remain in place following Closing (without considering the interest rate
on such subordinated borrowings for purposes of the interest rate parameters set
forth above in this subsection (k) and without issuing any equity securities
described above in this subsection (k)), and (y) the consent of the 1818 Fund,
which would be required in order to leave such subordinated borrowings in place,
could be obtained with the use of commercially reasonable efforts by Heafner.
(l) Additional Documents. Heafner shall have received such other
documents, certificates or instruments as it may reasonably request.
SECTION 4.2. Conditions of Obligations of the Company Stockholders.
The obligations of the Company and the Company Stockholders to perform this
Agreement are subject to the satisfaction of each of the following conditions
unless waived on or prior to the Closing Date by all of the Company
Stockholders:
(a) Representations, Warranties and Covenants. The representations
and warranties of Heafner made in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as of the Closing
Date as if made on and as of the Closing Date (except for those representations
and warranties expressly made as of a particular date, which shall be true and
correct only as of such date); provided that the foregoing condition shall be
deemed satisfied if the facts, events or circumstances underlying any
inaccuracies in any such representations and warranties as of the Closing Date
(without giving effect to any "Heafner Material Adverse Effect" or other
material adverse effect qualification or any other materiality qualification or
similar qualifications contained therein), individually or in the aggregate,
could not reasonably be expected to have a Heafner Material Adverse Effect, and
Heafner and Acquisition shall have performed and complied with in all material
respects all covenants and agreements required to be performed or complied with
on or prior to the Closing Date.
52
<PAGE> 59
(b) Certificate. The Company Stockholders shall have received a
certificate of the chief executive officer and the chief financial officer of
Heafner, in customary form reasonably satisfactory to the parties.
(c) Opinion of Counsel. The Company Stockholders shall have received
the opinion dated the Closing Date of counsel to Heafner and Acquisition in
customary form reasonably satisfactory to the parties.
(d) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger and the transactions contemplated by this Agreement
under the HSR Act shall have been terminated or shall have expired.
(e) No Legal Bar. No action or proceeding by or before any
governmental authority or agency shall be pending or threatened challenging or
seeking to restrain or prohibit the Merger or any of the transactions
contemplated by this Agreement, the Escrow Agreement, the Class B Stockholder
Agreement, the Class B Registration Rights Agreement or the Second Amended and
Restated Articles. No statute, rule, regulation, executive order, decree,
temporary restraining order, preliminary injunction, permanent injunction or
other order enacted, entered, promulgated, enforced or issued by any
governmental authority or agency or other legal restraint or prohibition
preventing the transactions contemplated by this Agreement, the Escrow
Agreement, the Class B Stockholder Agreement, the Class B Registration Rights
Agreement or the Second Amended and Restated Articles shall be in effect.
(f) Consents. Other than the filing of the Certificate of Merger
with the Delaware Secretary of State, all consents, notices, authorizations and
approvals legally required for the consummation of the Merger and the
transactions contemplated by this Agreement, the Escrow Agreement, the Class B
Stockholder Agreement, the Class B Registration Rights Agreement and the Second
Amended and Restated Articles shall have been filed, occurred or been obtained.
(g) Escrow, Stockholder and Registration Rights Agreements. Heafner
shall have duly executed and delivered to the Company Stockholders the Escrow
Agreement, the Class B Stockholder Agreement and the Class B Registration Rights
Agreement.
(h) Filing of Amended and Restated Articles. The Second Amended and
Restated Articles of Incorporation of Heafner, in substantially the form
attached hereto as Exhibit D (the "Second Amended and Restated Articles"), shall
have been duly filed by Heafner with the Secretary of State of North Carolina.
(i) Financing. Heafner shall have received adequate financing to
consummate the transactions contemplated by this Agreement, all on terms
satisfactory to Heafner and the Company; provided that the terms of such
financing shall be deemed to be satisfactory to Heafner and the Company if (i)
the gross proceeds from such financing shall be sufficient to consummate the
transaction contemplated by this Agreement; (ii) the interest rate on any
revolving indebtedness included in such financing would be no more than 9.0%;
(iii) the interest rate on any other indebtedness included in such financing
would no more than 10.5%; and (iv) the other terms of the financing would be
reasonably customary for financings of such type (other than any
53
<PAGE> 60
requirement that warrants or other equity securities be issued by Heafner in
connection with such financing); and provided, further, that the terms of such
financing shall also be deemed to be satisfactory to Heafner and the Company if
such financing could be obtained upon the terms listed above if (x) Heafner's
existing subordinated borrowings from The 1818 Mezzanine Fund, L.P. (the "1818
Fund") were to remain in place following Closing (without considering the
interest rate on such subordinated borrowings for purposes of the interest rate
parameters set forth above in this subsection (i) and without issuing any equity
securities described above in this subsection (i)), and (y) the consent of the
1818 Fund, which would be required in order to leave such subordinated
borrowings in place, could be obtained with the use of commercially reasonable
efforts by Heafner.
(j) Due Diligence. The Company Stockholders and their
representatives shall have completed a due diligence review of the condition
(financial or otherwise), assets, liabilities, operations and business of, and
any other matters relating to, Heafner and its Subsidiaries, and the results of
such due diligence shall be satisfactory to the Company Stockholders; provided
that the condition set forth in this Section 4.2(j) shall be deemed to have been
satisfied unless the Company Stockholders notify Heafner in writing by the close
of business on March 27, 1998 that the results of such due diligence are not
satisfactory to the Company Stockholders.
(k) Financial Statements. The Company Stockholders shall have
received the audited consolidated financial statements of Heafner and its
Subsidiaries for the year ended December 31, 1997 (the "Audited Financial
Statements") and such Audited Financial Statements shall not differ in any
material respect from the unaudited financial statements for such period
referred to in Section 2.3(e)(i)(A) (the "Unaudited Financial Statements");
provided that, upon receipt of such Audited Financial Statements, such Audited
Financial Statements shall be deemed to replace for all purposes under this
Agreement the Unaudited Financial Statements.
(l) Additional Documents. The Company Stockholders shall have
received such other documents, certificates or instruments as they may
reasonably request.
ARTICLE V
Indemnity
SECTION 5.1. Indemnification.
(a) Indemnification by Company Stockholders as a Group. From and
after the Closing, the Company Stockholders, severally and not jointly,
indemnify and hold harmless Heafner and its subsidiaries, affiliates, directors,
officers, employees and other agents and representatives from and against any
and all liabilities, judgments, claims, settlements, losses, damages (excluding
punitive damages and other special damages), fees, liens, taxes, penalties,
obligations and expenses (collectively, "Losses") incurred or suffered by any
such person arising from, by reason of or in connection with:
(i) any misrepresentation by, or breach of any representation,
warranty, covenant or agreement of, the Company or the Company
Stockholders as a group contained
54
<PAGE> 61
in this Agreement or any certificate or other document delivered by the
Company or the Company Stockholders as a group under this Agreement;
(ii) the breach of, or failure to perform by, the Company or
the Company Stockholders as a group of any agreement made by the Company
or the Company Stockholders as a group in this Agreement; and
(iii) any and all actions, suits, proceedings, demands,
judgments, costs and reasonable legal and other expenses incident to any
of the matters referred to in clauses (i) through (ii) of this Section
5.1(a).
(b) Indemnification by Company Stockholders Individually. From and
after the Closing, and without duplication with respect to any matters within
the scope of the provisions of Section 5.1(a), each Company Stockholder,
severally and not jointly, indemnifies and holds harmless Heafner, and its
subsidiaries, affiliates, directors, officers, employees and other agents and
representatives from and against any and all Losses incurred or suffered by any
such person arising from, by reason of or in connection with:
(i) any misrepresentation by, or breach of any representation,
warranty, covenant or agreement of, such Company Stockholder individually
contained in this Agreement or in any certificate or other document
delivered by such Company Stockholder individually hereunder;
(ii) the breach of, or failure to perform by, such Company
Stockholder individually of any agreement made by such Company Stockholder
in this Agreement; and
(iii) any and all actions, suits, proceedings, demands,
judgments, costs and reasonable legal and other expenses incident to any
of the matters referred to in clauses (i) and (ii) of this Section 5.1(b).
(c) Indemnification by Heafner. From and after the Closing, Heafner
indemnifies and holds harmless the Company Stockholders, and their respective
agents and representatives, from and against any and all Losses incurred or
suffered by any such person arising from, by reason of or in connection with:
(i) any misrepresentation by, or breach of any representation,
warranty, covenant or agreement of, Heafner or Acquisition contained in
this Agreement or any certificate or other document delivered by Heafner
or Acquisition under this Agreement;
(ii) the breach of, or failure to perform by, Heafner or
Acquisition of any agreement made by it in this Agreement; and
(iii) any and all actions, suits, proceedings, demands,
judgments, costs and reasonable legal and other expenses incident to any
of the matters referred to in clauses (i) and (ii) of this Section 5.1(c).
55
<PAGE> 62
(d) Indemnification Procedures. If any party (the "Indemnified
Party") receives notice of any third-party claim or commencement of any
third-party action or proceeding (an "Asserted Liability") with respect to which
any other party hereto (an "Indemnifying Party") is obligated to provide
indemnification pursuant to Section 5.1(a), (b) or (c), the Indemnified Party
shall promptly give the Indemnifying Party notice thereof. The Indemnified
Party's failure so to notify the Indemnifying Party shall not cause the
Indemnified Party to lose its right to indemnification under this Article,
except to the extent that such failure materially prejudices the Indemnifying
Party's ability to defend against an Asserted Liability that such Indemnified
Party has the right to defend against hereunder. Such notice shall describe the
Asserted Liability in reasonable detail. The Indemnifying Party may defend
against an Asserted Liability on behalf of the Indemnified Party utilizing
counsel reasonably acceptable to the Indemnified Party, unless (i) the
Indemnified Party reasonably objects to such assumption of the defense on the
ground that counsel for such Indemnifying Party cannot represent both the
Indemnified Party and the Indemnifying Party because such representation would
be reasonably likely to result in a conflict of interest or because there may be
defenses available to the Indemnified Party that are not available to such
Indemnifying Party, (ii) the Indemnifying Party is not, in the reasonable
judgment of the Indemnified Party, capable (by reason of insufficient financial
capacity, bankruptcy, receivership, liquidation, managerial deadlock, managerial
neglect or similar events) of maintaining a reasonable defense of such action or
proceeding, or (iii) the action or proceeding seeks injunctive or other
equitable relief against the Indemnified Party. If the Indemnifying Party
defends an Asserted Liability, it shall do so at its own expense and shall not
be responsible for the costs of defense, investigative costs, attorney's fees or
other expenses incurred to defend the Asserted Liability (collectively, "Defense
Costs") of the Indemnified Party (which may continue to defend, at its own
expense). If the Indemnified Party assumes or maintains the defense of an
Asserted Liability by reason of clause (i), (ii) or (iii) above, or because the
Indemnifying Party has not elected to assume the defense, then such Indemnifying
Party shall indemnify the Indemnified Party for its reasonable Defense Costs.
The Indemnifying Party may settle any Asserted Liability only with the consent
of the Indemnified Party, which consent shall not be unreasonably withheld.
(e) Treatment of Payments. Any payment made pursuant to this Section
5.1 shall be treated as an adjustment to the Merger Consideration for income tax
purposes.
SECTION 5.2. Limitations.
(a) Expiration Date. The indemnification and reimbursement
obligations hereunder shall expire on the second anniversary of the Closing Date
(the "Expiration Date"), except (i) as to any claims for, or any claims that may
result in, any Loss for which indemnity may be sought hereunder of which the
Indemnifying Party has received written notice from the Indemnified Party on or
before the Expiration Date or (ii) as to any representations, warranties,
covenants or agreements expressly surviving such two year period as set forth in
Section 6.6.
(b) Cap. The total indemnification obligations of the Company
Stockholders (other than for claims relating to or arising out of Section
2.1(c), 2.2(a), 3.1, 3.12 or 3.15 (collectively, the "Heafner Excluded Claims"))
to Heafner pursuant to this Article V and Section 3.8 shall not exceed (i) for
all Company Stockholders in the aggregate $17,500,000 and (ii) for each Company
Stockholder an amount equal to the product of (x) $17,500,000 and (y) a
fraction, the numerator
56
<PAGE> 63
of which is the amount of the Cash Consideration received by such Company
Stockholder and the denominator of which is $18,000,000; provided that, after
the first anniversary of the Closing Date, the amount of the total
indemnification obligations of the Company Stockholders (other than for claims
relating to or arising out of Heafner Excluded Claims and other than with
respect to indemnification claims against the Company Stockholders that were
paid on or prior to such first anniversary) to Heafner pursuant to this Article
V and Section 3.8 shall not exceed an amount equal to the sum of (x) $8,750,000
and (y) the amount of all indemnification claims against the Company
Stockholders pending on such anniversary date (which sum shall not exceed (1)
$17,500,000 less (2) the aggregate amount of all payments made on or prior to
such anniversary date by the Company Stockholders with respect to
indemnification claims against the Company Stockholders). The total
indemnification obligations of Heafner to the Company Stockholders pursuant to
this Article V and Section 3.8 shall not exceed in the aggregate $17,500,000;
provided that, after the first anniversary of the Closing Date, the amount of
the total indemnification obligations of Heafner to the Company Stockholders
(other than with respect to indemnification claims against Heafner that were
paid on or prior to such first anniversary date) pursuant to this Article V and
Section 3.8 shall not exceed an amount equal to the sum of (x) $8,750,000 and
(y) the amount of all indemnification claims against Heafner pending on such
anniversary date (which sum shall not exceed (1) $17,500,000 less (2) the
aggregate amount of all payments made on or prior to such anniversary date by
Heafner with respect to indemnification claims against Heafner). Notwithstanding
anything to the contrary set forth in this Agreement, the indemnification
obligations of the Company Stockholders to Heafner with respect to Heafner
Excluded Claims shall not count towards, or be subject to, the limitations set
forth in the first sentence of this paragraph (b) or the $300,000 deductible set
forth in Section 5.2(c), and there shall be no limitation on such
indemnification obligations.
(c) Deductible. Heafner shall not be entitled to indemnification
pursuant to this Article V or Section 3.8 with respect to any claim for
indemnification (other than in connection with Heafner Excluded Claims), unless
the aggregate Losses to Heafner, with respect to all claims for indemnification
pursuant to Section 5.1(a) and (b) and Section 3.8, exceed $300,000, in which
case the Company Stockholders shall be obligated, subject to the limitations set
forth in paragraph (b) of this Section 5.2, to pay an amount equal to all such
Losses (excluding such first $300,000). The Company Stockholders shall not be
entitled to indemnification pursuant to this Article V or Section 3.8 with
respect to any claim for indemnification (other than claims relating to or
arising out of Section 2.3(c), 3.1 or 3.13), unless the aggregate Losses to the
Company Stockholders, with respect to all claims for indemnification pursuant to
Section 5.1(c) and Section 3.8, exceeds $300,000 in which case Heafner shall be
obligated, subject to the limitations set forth in paragraph (b) of this Section
5.2, to pay an amount equal to all such Losses (excluding such first $300,000).
(d) Form of Payment. (i) The sole recourse for all claims for
indemnification made against the Company Stockholders pursuant to this Article V
or Section 3.8 shall be to the Class B Stock Consideration, except with respect
to Heafner Excluded Claims and claims relating to fraudulent acts or omissions.
With respect to claims for indemnification made against the Company Stockholders
pursuant to this Article V or Section 3.8, upon the Company Stockholders
agreeing to satisfy any such claims or upon a determination of the Company
Stockholders' liability hereunder with respect to any such claims, the Company
Stockholders may satisfy any such obligations using (at their sole option)
57
<PAGE> 64
cash or shares of the Class B Stock Consideration deposited with the Escrow
Agent pursuant to the Escrow Agreement.
(ii) The sole recourse for all claims for indemnification made
against Heafner pursuant to this Article V or Section 3.8 shall be to up to
1,400,667 newly issued shares of Class B Common Stock (as reduced after the
first anniversary of the Closing Date pursuant to this Article V) (appropriately
adjusted to reflect stock splits (including reverse stock splits) of Class B
Common Stock), except with respect to fraudulent acts or omissions. With respect
to claims for indemnification made against Heafner pursuant to this Article V or
Section 3.8, upon Heafner agreeing to satisfy any such claims or upon a
determination of Heafner's liability hereunder with respect to any such claims,
such claims shall be satisfied by (at Heafner's sole option) payment of cash or
issuance and payment by Heafner of additional shares of Class B Common Stock.
(iii) Solely for purposes of satisfying and paying
indemnification obligations pursuant to this Article V and Section 3.8, each
share of Class B Common Stock being paid or issued to satisfy such
indemnification obligations shall be valued at an amount equal to $12.49
(appropriately adjusted to reflect stock splits (including reverse stock splits)
of Class B Common Stock).
(e) Tax Benefits. The amount of any and all Losses for which
indemnification is provided pursuant to this Article V and Section 3.8 shall be
(i) increased to take account of any net tax cost incurred by the Indemnified
Party arising from the receipt of indemnity payments hereunder ("grossed-up" for
taxes on such increase) and (ii) reduced to take account of any net tax benefit
realized by the Indemnified Party arising from the incurrence or payment of any
such Losses. In computing the amount of any such tax cost or tax benefit, the
Indemnified Party shall be deemed to recognize all other items of income, gain,
loss, deduction or credit before recognizing any item arising from the receipt
of any indemnity payment hereunder or the incurrence or payment of any and all
Losses.
(f) Insurance Proceeds. The amount of any and all Losses for which
indemnification is provided pursuant to this Article V or Section 3.8 shall be
net of any amounts actually received by the Indemnified Party under insurance
policies with respect to such Losses. In the event that any claim for
indemnification asserted under this Article V or Section 3.8 is, or may be, the
subject of the Company's or any party's hereto insurance coverages or other
right to indemnification or contribution from any third party (a "Third Party
Contributor"), the Indemnified Party agrees to promptly notify the applicable
insurance carrier of such claim and tender defense thereof to such carrier, and
shall also promptly notify any potential Third Party Contributor. Each
Indemnified Party agrees to pursue, at the sole cost and expense of the
Indemnifying Party, such claims diligently and to reasonably cooperate, at the
sole cost and expense of the Indemnifying Party, with each such insurance
carrier and Third Party Contributor, and to make no claim for indemnification
under this Article V or Section 3.8 for a period of 180 days after making a
claim for such insurance or contribution. If insurance coverage or contribution
is denied (in whole or in part), or if no resolution of an insurance or
contribution claim shall have occurred within such 180 days, the Indemnified
Party may proceed for indemnification under this Article V or Section 3.8, and
such Indemnifying Party shall be subrogated to the rights of the Indemnified
Party against such insurance carrier or Third Party Contributor.
58
<PAGE> 65
(g) Sole Remedy. Upon and after the Closing, and except with respect
to matters referred to in Sections 3.12 and 3.15, the provisions of this Article
V and Section 3.8 represent the sole remedy available to any party hereto for a
misstatement or omission from any representation, or a breach of any warranty,
covenant or agreement contained in this Agreement, and, except with respect to
fraudulent acts or omissions, effective upon and after the Closing, each party
hereby unconditionally waives any other rights that they may have at law or in
equity for a misstatement or omission from any representation, or a breach of
any warranty or covenant or agreement contained in this Agreement.
SECTION 5.3. No Election Subject to Section 5.2(g), nothing
contained in this Article V or Section 3.8 shall be deemed an election of
remedies under this Agreement or limit in any way the liability of any party
under this Agreement in the event the Closing does not occur or under any other
agreement to which such party is a party relating to this Agreement, the Escrow
Agreement, the Class B Stockholder Agreement, the Class B Registration Rights
Agreement or the Second Amended or Restated Articles or the transactions
contemplated by hereby or thereby.
SECTION 5.4. Company Stockholders' Representative. Each of the
Company Stockholders hereby constitutes and appoints Wingate Management Company
II, L.P. (the "Representative") to act as its representative for all purposes
under this Article V, and the Representative agrees to accept such appointment.
The Representative shall have the authority to act on behalf of, and to bind,
each Company Stockholder for all purposes of the provisions of this Article V.
Without limiting the generality of the foregoing, each Company Stockholder
hereby irrevocably constitutes and appoints, with full power of substitution,
the Representative its true and lawful attorney-in-fact, with full power and
authority in its name, place and stead, to execute, certify, acknowledge,
deliver, file and record all agreements, certificates, instruments and other
documents and any amendment thereto, which the Representative deems necessary or
appropriate in connection with the Company Stockholders' obligations under this
Article V. Each Company Stockholder's appointment of the Representative as its
attorney-in-fact shall be deemed to be a power coupled with an interest and
still survive the incompetency, bankruptcy or dissolution of the such Company
Stockholder giving such power. No new representative may be appointed or
substituted without the prior written consent of Heafner.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Entire Agreement. This Agreement, the Certificate of
Merger, the Escrow Agreement, the Class B Stockholder Agreement, the Class B
Registration Rights Agreement and the Second Amended and Restated Articles and
the schedules, annexes and exhibits hereto and thereto contain the entire
agreement among the parties with respect to the transactions contemplated by
this Agreement and supersede all prior agreements or understandings among the
parties. The Letter of Intent, dated January 20, 1998, is expressly superseded,
void and no longer of any force or effect.
SECTION 6.2. Termination. (a) This Agreement shall terminate on the
first to occur of any of the following events:
59
<PAGE> 66
(i) the mutual written agreement of Heafner and the Company;
(ii) by written notice of Heafner or the Company to the other,
if the Closing shall not have occurred prior to the close of business on
June 15, 1998;
(iii) by written notice of Heafner to the Company, in the
event (1) the Company or any Company Stockholder shall have materially
breached any of its representations, warranties or agreements contained in
this Agreement if the Company or such Company Stockholder fails to cure
such breach within five business days following notification thereof by
Heafner or (2) the satisfaction of any condition to Heafner's obligations
under this Agreement becomes impossible or impracticable with the use of
commercially reasonable efforts if the failure of such condition to be
satisfied is not caused by a breach of this Agreement by Heafner or
Acquisition;
(iv) by written notice of the Company to Heafner, in the event
(1) Heafner shall have materially breached any of its representations,
warranties or agreements contained in this Agreement if Heafner fails to
cure such breach within five business days following notification thereof
by the Company or (2) the satisfaction of any condition to the obligations
of the Company or the Company Stockholders under this Agreement becomes
impossible or impracticable with the use of commercially reasonable
efforts if the failure of such condition to be satisfied is not caused by
a breach of this Agreement by the Company or any Company Stockholder;
(v) by written notice of the Company to Heafner, if the
Company Stockholders, in their collective determination, find the
information disclosed pursuant to Section 3.11 to be unsatisfactory (such
written notice to be submitted to Heafner by no later than the close of
business on March 27, 1998); or
(vi) by written notice of the Company to Heafner, if by the
date that is 14 days after the date of this Agreement, Heafner has not
provided the Company with copies of a "commitment" letter with respect to
the Senior Facilities from the bank or banks providing such facilities and
a "highly confident" letter from each placement agent or co-agent with
respect to the High Yield Notes, in each case in customary form for
financings of such type, with respect to the financing contemplated by
Section 3.14; provided that the termination right granted to the Company
pursuant to this Section 6.2(a) shall be deemed to be waived and expired,
if such right is not exercised by the Company within three business days
after the end of such 14-day period.
(b) Nothing in this Section shall relieve any party of any liability
for a breach of this Agreement prior to its termination. Except as aforesaid,
upon the termination of this Agreement, all rights and obligations of the
parties under this Agreement shall terminate, except their obligations under
Sections 3.1, 3.7, 3.15, 6.11 and 6.12.
60
<PAGE> 67
SECTION 6.3. Descriptive Headings; Certain Interpretations. (a)
Descriptive headings are for convenience only and shall not control or affect
the meaning or construction of any provision of this Agreement.
(b) Whenever any party makes any representation, warranty or other
statement to such party's knowledge, such party will be deemed to have made due
inquiry into the subject matter of such representation, warranty or other
statement.
(c) Except as otherwise expressly provided in this Agreement, the
following rules of interpretation apply to this Agreement: (i) the singular
includes the plural and the plural includes the singular; (ii) "or" and "any"
are not exclusive and "include" and "including" are not limiting; (iii) a
reference to any agreement or other contract includes permitted supplements and
amendments; (iv) a reference to a law includes any amendment or modification to
such law and any rules or regulations issued thereunder; (v) a reference to a
person includes its permitted successors and assigns; (vi) a reference to
generally accepted accounting principles refers to United States generally
accepted accounting principles; and (vii) a reference in this Agreement to an
Article, Section, Annex, Exhibit or Schedule is to the Article, Section, Annex,
Exhibit or Schedule of this Agreement.
SECTION 6.4. Notices. All notices, requests and other communications
to any party hereunder shall be in writing and sufficient if delivered
personally or sent by facsimile (with confirmation of receipt) or by registered
or certified mail, postage prepaid, return receipt requested, addressed as
follows:
If to Heafner, to:
The J.H. Heafner Company, Inc.
814 East Main Street
P.O. Box 837
Lincolnton, NC 28093-0837
Facsimile: (704) 732-6480
Attention: President
61
<PAGE> 68
with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, New York 10019
Facsimile: (212) 841-1010
Attention: Scott F. Smith
If to the Company, to:
ITCO Logistics Corporation
c/o Wingate Partners
750 N. St. Paul, Suite 1200
Dallas, Texas 75201
Facsimile: (214) 871-8799
Attention: V. Edward Easterling, Jr.
with a copy to:
Haynes and Boone, L.L.P.
901 Main Street, Suite 3100
Dallas, Texas 75202
Facsimile: (214) 651-5940
Attention: David H. Oden, Esq.
If to any Company Stockholder, to the address or facsimile number of
such Company Stockholder set forth on the signature pages of this
Agreement, with a copy to:
Haynes and Boone, L.L.P.
901 Main Street, Suite 3100
Dallas, Texas 75202
Facsimile: (214) 651-5940
Attention: David H. Oden, Esq.
or to such other address or facsimile number as the party to whom notice is to
be given may have furnished to the other party in writing in accordance
herewith. Each such notice, request or communication shall be effective when
received or, if given by mail, when delivered at the address specified in this
Section or on the fifth business day following the date on which such
communication is posted, whichever occurs first.
62
<PAGE> 69
SECTION 6.5. Counterparts. This Agreement may be executed in any
number of counterparts, and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement.
SECTION 6.6. Survival. Except as set forth in 5.2, all
representations and warranties, agreements and covenants contained in this
Agreement or in any document delivered pursuant to this Agreement or in
connection with this Agreement (unless otherwise expressly provided) shall
survive the Closing and shall remain in full force and effect until the
Expiration Date; provided, that the representations and warranties in Sections
2.1(c), 2.2(a) and 2.3(c) and the covenants and agreements in Sections 3.1, 3.6,
3.8, 3.12, 3.13, 3.15, 6.11 and 6.12 and Article V (solely with respect to
claims regarding the foregoing sections) shall not expire on the Expiration Date
and shall survive, as set forth in such Sections or Articles, or, if not set
forth, shall survive forever or until the expiration of the applicable statute
of limitations.
SECTION 6.7. Benefits of Agreement. All of the terms and provisions
of this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, including in the
case of Heafner, to its financing parties. This Agreement is for the sole
benefit of the parties hereto and not for the benefit of any third party.
SECTION 6.8. Amendments and Waivers. No modification, amendment or
waiver of any provision of, or consent required by, this Agreement, nor any
consent to any departure herefrom, shall be effective unless it is in writing
and signed by the parties hereto. Such modification, amendment, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
SECTION 6.9. Assignment. This Agreement and the rights and
obligations hereunder shall not be assignable or transferable by any party
hereto without the prior written consent of the other parties; except that
Heafner may assign all of its rights hereunder to persons providing Heafner with
financing to enable it to consummate the transactions described herein. Any
instrument purporting to make an assignment in violation of this Section shall
be void.
SECTION 6.10. Enforceability. It is the desire and intent of the
parties hereto that the provisions of this Agreement shall be enforced to the
fullest extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
63
<PAGE> 70
SECTION 6.11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.
SECTION 6.12. DISPUTE RESOLUTION; CONSENT TO JURISDICTION. EACH OF
THE PARTIES TO THIS AGREEMENT AGREES TO BE BOUND BY THE PROVISIONS SET FORTH IN
ANNEX B TO THIS AGREEMENT. EACH OF THE COMPANY AND THE COMPANY STOCKHOLDERS
HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF
THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE FOR PURPOSES OF
ALL LEGAL PROCEEDINGS WHICH ARE NOT GOVERNED BY ANNEX B AND WHICH ARISE OUT OF
OR RELATE TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND EACH OF
THE COMPANY AND THE COMPANY STOCKHOLDERS AGREES NOT TO COMMENCE ANY LEGAL
PROCEEDING RELATED THERETO EXCEPT IN SUCH COURT. EACH OF THE COMPANY AND THE
COMPANY STOCKHOLDERS IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE IN
ANY SUCH COURT OR ANY CLAIM THAT A LEGAL PROCEEDING COMMENCED IN SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
64
<PAGE> 71
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be duly executed and delivered as of the day and year first above written.
THE J.H. HEAFNER COMPANY, INC.
By: /s/ J. Michael Gaither
------------------------------------------------
Name: J. Michael Gaither
Title: Senior Vice President and General Counsel
ITCO MERGER CORPORATION
By: /s/ J. Michael Gaither
------------------------------------------------
Name: J. Michael Gaither
Title: Secretary
ITCO LOGISTICS CORPORATION
By:
------------------------------------------------
Name: V. Edward Easterling, Jr.
Title: President
COMPANY STOCKHOLDERS:
WINGATE PARTNERS II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT COMPANY II, L.P.,
its general partner
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
------------------------------------------------
V. Edward Easterling, Jr., Principal
65
<PAGE> 72
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be duly executed and delivered as of the day and year first above written.
THE J.H. HEAFNER COMPANY, INC.
By:
------------------------------------------------
Name:
Title:
ITCO MERGER CORPORATION
By:
------------------------------------------------
Name:
Title:
ITCO LOGISTICS CORPORATION
By: /s/ V. Edward Easterling, Jr.
------------------------------------------------
Name: V. Edward Easterling, Jr.
Title: President
COMPANY STOCKHOLDERS:
WINGATE PARTNERS II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT COMPANY II, L.P.,
its general partner
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By: /s/ V. Edward Easterling, Jr.
------------------------------------------------
V. Edward Easterling, Jr., Principal
65
<PAGE> 73
----------------------------------------------------
Armistead Burwell, Jr.
1311 Forest Hills Road, B-8
Wilson, NC 27896
/s/ William E. Berry
----------------------------------------------------
William E. Berry
1213 Waverly Road
Wilson NC 27896
/s/ Richard P. Johnson
----------------------------------------------------
Richard P. Johnson
4229 Lomo Alto Court
Dallas, TX 75219
/s/ Leon R. Ellin
----------------------------------------------------
Leon R. Ellin
7308 Bay Hill Court
Raleigh, NC 27615
WINGATE AFFILIATES II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By: /s/ V. Edward Easterling, Jr.
------------------------------------------------
V. Edward Easterling, Jr., Principal
CALLIER INVESTMENT COMPANY
c/o Wingate
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: /s/ James T. Callier
------------------------------------------------
James T. Callier
President
66
<PAGE> 74
/s/ Armistead Burwell, Jr.
----------------------------------------------------
Armistead Burwell, Jr.
1311 Forest Hills Road, B-8
Wilson, NC 27896
/s/ William E. Berry
----------------------------------------------------
William E. Berry
1213 Waverly Road
Wilson NC 27896
/s/ Richard P. Johnson
----------------------------------------------------
Richard P. Johnson
4229 Lomo Alto Court
Dallas, TX 75219
/s/ Leon R. Ellin
----------------------------------------------------
Leon R. Ellin
7308 Bay Hill Court
Raleigh, NC 27615
WINGATE AFFILIATES II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
------------------------------------------------
V. Edward Easterling, Jr., Principal
CALLIER INVESTMENT COMPANY
c/o Wingate
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By:
------------------------------------------------
James T. Callier
President
66
<PAGE> 75
Annex A
to the Agreement and Plan of Merger
Company Stockholders; Ownership of Shares
<TABLE>
<CAPTION>
Stockholder Preferred Shares % Common Shares % Cash Consideration* Stock Consideration*
- ----------- ---------------- --- ------------- --- ------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
1. Wingate Partners II, L.P. 7,632 94.2 84,800 91.2
2. Armistead Burwell, Jr. 162 2.0 1,800 1.9
3. William E. Berry 108 1.3 1,200 1.3
4. Richard P. Johnson -- -- 1,800 1.9
5. Leon R. Ellin -- -- 1,200 1.3
6. Wingate Affiliates II, L.P. 144 1.8 1,600 1.7
7. Callier Investment Company 54 0.7 600 0.7
----- ------ ------ ----------- ----------------
8,100 100.00% 93,000 100.00% $18,000,000 1,400,667 shares
</TABLE>
- ----------
* To be allocated in accordance with a schedule to be delivered by the
Company at the Closing.
A-1
<PAGE> 76
ANNEX B
TO AGREEMENT AND PLAN OF MERGER
DISPUTE RESOLUTION PROCEDURE
1. Scope of Arbitration. The parties to the Agreement and Plan of
Merger to which this Annex B is attached (the "Agreement") will submit to final
and binding arbitration as the sole and exclusive remedy for all claims for
damages arising out of, involving, or relating to (a) the Agreement or (b) the
events giving rise to the Agreement, including any and all non-contractual
claims for damages related to the Agreement or the events giving rise to it
(including claims for fraudulent inducement of contract). Notwithstanding the
foregoing, the dispute resolution procedure set forth in this Annex B shall not
apply to (i) claims for injunctive or other equitable relief pursuant to Section
3.12 or 3.15 of the Agreement or any other agreement entered into in connection
with the Agreement (including the Class B Stockholder Agreement, the Class B
Registration Rights Agreement and the Second Amended and Restated Articles) or
(ii) any claims for damages arising out of, involving, or relating to the Class
B Stockholder Agreement, the Class B Registration Rights Agreement or the Second
Amended and Restated Articles (including claims for fraudulent inducement of
contract).
2. Notice of Dispute. Any party shall give the other parties written
notice of the existence and nature of any dispute proposed to be arbitrated
pursuant to this Annex B (the "Written Notice"). Such Written Notice must be
served on the other parties as described below. The party serving Written Notice
shall be referred to as the "Claiming Party." The party to whom the claims are
directed shall be referred to as the "Responding Party."
3. Appointment of Arbitrators. Each party shall appoint one person
to serve as an arbitrator within 15 days of receipt of the Written Notice. The
two arbitrators thus appointed shall within seven days of their appointment
together select a third arbitrator with such knowledge and expertise as
necessary to serve as chairman of the panel of arbitrators, and this person
shall serve as chairman. The three arbitrators shall determine all matters,
including the panel's final decision with respect to the claims presented in the
arbitration, by majority vote. If the two arbitrators selected by the parties
are unable to agree upon the appointment of the third arbitrator within seven
days of their appointment, both shall give written notice of such failure to
agree to the parties, and if the parties fail to agree upon the selection of
such third arbitrator within five days thereafter, such third arbitrator shall
be appointed from, and pursuant to the rules for commercial arbitration of, the
American Arbitration Association. Prior to appointment, each arbitrator shall
agree to conduct such arbitration in strict accordance with the terms of this
Annex B.
4. Initial Meeting of the Arbitrators. Within seven days of the
selection of the third arbitrator, the arbitrators shall conduct an initial
meeting with the parties (the "Initial Meeting"). All meetings between the
arbitrators, or between the arbitrators and the parties, including the Initial
Meeting, may be conducted by telephone, with the exception of the arbitration
hearing at which evidence is presented. At the Initial Meeting, the parties and
the arbitrators shall agree upon a schedule for the arbitration proceedings,
with dates no later than the deadlines
B-1
<PAGE> 77
provided in Section 7 below. The statement of claim, the response to the
statement of claim and counterclaims (if any), and the response to the
counterclaims (if any) (collectively, the "Pleadings") shall be submitted to
each arbitrator on the date they are served, unless service occurs prior to
appointment of all three arbitrators. If service of any of the Pleadings occurs
prior to the appointment of any of the arbitrators, copies of any such Pleadings
shall be submitted to such arbitrator promptly after such arbitrator's
appointment.
5. Conduct of the Arbitration. With respect to each dispute to be
arbitrated pursuant to this Annex B, no more than eleven months shall pass
between the selection of the third arbitrator and the release of a decision by
the arbitration panel; no more than eight depositions (lasting in total for all
eight depositions no more than 50 hours) may be taken by each of the Claiming
Party or the Responding Party, and no more than 30 interrogatories may be asked
for by each of the Claiming Party or the Responding Party. Any arbitration held
pursuant to this Annex B shall take place in Charlotte, North Carolina. The law
of the State of Delaware shall supply the substantive law of the arbitration
proceedings, and any claims or counterclaims alleged pursuant to federal law
shall be adjudicated as if pled in a federal court in Delaware. All proceedings,
including discovery, depositions, and the arbitration hearings shall be governed
by the Federal Rules of Civil Procedure and the Local Rules of Civil Procedure
of the United States District Court for the District of Delaware, unless such
rules conflict with the provisions of this Annex B, in which case the provisions
of this Annex B control; provided, however, that the parties agree that the
provisions of Federal Rule of Civil Procedure 26(a) shall not apply.
6. Motions. The parties may make applications to the panel of
arbitrators regarding issues of discovery, procedure and privilege. Any such
motions shall be made to and resolved by the arbitrators as soon as practicable.
No party shall be permitted to file any motions for dismissal of claims
(including dismissal based upon failure to join an indispensable party), or for
summary judgment, concerning the claims or counterclaims asserted in any
arbitration under this Annex B.
7. Schedule of Arbitration Proceedings. At the Initial Meeting, the
parties and the arbitrators shall agree to a schedule that conforms with the
following deadlines:
Event Deadline Not Later Than
----- -----------------------
Service of a statement of 15 days after service of the Written Notice
claim by the Claiming Party
Service of response to the
statement of claim and
counterclaims (if any) by 21 days after receipt of the statement of
the Responding Party claim
Service of response to
counterclaims (if any) by Seven days after receipt of counterclaims (if
the Claiming Party any)
B-2
<PAGE> 78
Commencement of document One day after service of response to the
discovery statement of claim
Commencement of deposition 75 days after service of the statement of
discovery claim
Completion of all discovery 200 days after service of the statement of
claim
Commencement of the 28 days after completion of discovery
arbitration hearing
Issuance of a decision by 14 days after receipt of the last hearing
the arbitrators transcript by the arbitrators. All sessions of
the arbitration hearings shall be promptly
transcribed and transcripts shall be promptly
provided to the parties and the arbitrators.
8. Decision Binding on the Parties. Unless the parties agree
otherwise in writing, the arbitrators' decision shall become binding on the
parties at such time as the decision is confirmed by order of the Delaware Court
of Chancery. The parties hereby irrevocably and unconditionally submit to the
jurisdiction of such court for any and all proceedings relating to such
confirmation. Any award ordered shall be paid within 10 days of confirmation of
the arbitrators' decision.
9. Cost of Arbitration Proceeding. Except as provided herein, the
costs incurred by the parties in conjunction with an arbitration proceeding
pursuant to this Annex B, including reasonable attorney's fees, fees paid to
experts, and fees for obtaining transcripts shall be paid or reimbursed in
accordance with the provisions of Article V of the Agreement. In the event that
the arbitrators determine that no party is entitled to indemnification by any
other party, then (a) each party shall pay its own expenses, including
attorney's fees, fees paid to experts, fees for obtaining transcripts, expenses
of witnesses called solely by that party, and all fees charged by the arbitrator
appointed by such party and (b) the parties shall each pay fifty percent of all
remaining expenses of the arbitration proceeding.
10. Extensions of Time. The parties may jointly agree, in writing,
to extend any of the deadlines set forth in Section 7 above.
11. Service of Documents. Any process, notice, memorandum, motion,
demand, or other paper or communication, or application to the panel of
arbitrators shall be deemed to have been sufficiently served or submitted if (a)
personally delivered, or (b) sent by a nationally recognized overnight courier
service.
B-3
<PAGE> 1
Exhibit 10.10
CLASS B STOCKHOLDER AGREEMENT (the "Agreement"), dated as of May 20,
1998, between The J. H. Heafner Company, Inc., a North Carolina
corporation (the "Company"), and the former stockholders (the "ITCO
Stockholders") of ITCO Logistics Corporation, a Delaware corporation
("ITCO").
--------------------------------------------------------------------
INTRODUCTION
Pursuant to an Agreement and Plan of Merger, dated as of March 10,
1998 (the "Merger Agreement"), among Heafner, ITCO Merger Corporation, a
Delaware corporation, ITCO and each of the ITCO Stockholders, the parties have
agreed to merge Acquisition with and into ITCO (the "ITCO Merger"). In
connection with the ITCO Merger, the ITCO Stockholders are receiving, among
other things, newly issued shares of Class B Common Stock, $.01 par value, of
the Company (the "Class B Stock") in exchange for their shares of ITCO common
stock.
As a condition to the consummation of the transactions contemplated
in the Merger Agreement, the parties have agreed to enter into this Agreement.
The Company and each of the ITCO Stockholders are also parties to a
Class B Registration Rights Agreement, dated as of the date hereof (the "Class B
Registration Rights Agreement"), with respect to the Class B Stock.
Capitalized terms used and not otherwise defined in the text of this
Agreement shall have the meanings given in Annex A to this Agreement.
The parties agree as follows:
ARTICLE I
TRANSFERS
SECTION 1.1. Transfers and Purchases by the ITCO Stockholders. Prior
to the earlier of (x) an Initial Public Offering or (y) a Change of Control,
without the prior written consent of the Company and without complying with
Section 1.5 of this Agreement, no ITCO Stockholder shall Transfer any ITCO
Shares to (i) Brown Brothers Harriman and Company, The 1818 Mezzanine Fund L.P.,
or any of their respective Affiliates or (ii) any Person that is in the good
faith judgment of the Company's Board of Directors a supplier to, or competitor
of, the Company and its Subsidiaries. Except as set forth in the immediately
preceding sentence, the ITCO Stockholders may transfer ITCO Shares (i) pursuant
to the exercise of registration rights under the Registration Rights
<PAGE> 2
Agreement, (ii) in a sale or other distribution pursuant to Rule 144 or Rule
144A (or any successor provisions) under the Securities Act, (iii) to another
ITCO Stockholder or to an Affiliate of an ITCO Stockholder (including any
limited partners of Wingate Partners II, L.P.) who agrees in writing to become
bound by all of the provisions of this Agreement (a "Permitted Transferee") or
(iv) in accordance with Section 1.2, 1.3, 1.4 or 1.5 of this Agreement. From and
after the date of this Agreement, the ITCO Stockholders shall not, and shall
cause their respective Affiliates not to, purchase, offer to purchase or enter
into any negotiations or discussions regarding the purchase of any shares of
capital stock or equity securities of the Company or any of its Subsidiaries
without the prior written consent of the Company other than in connection with a
Transfer to a Permitted Transferee. When used in this Agreement, "Transfer"
means any sale, disposition, pledge or other transfer of ITCO Shares, whether
directly or indirectly, and including by means of a change of control of the
Person holding such ITCO Shares.
SECTION 1.2. Tag-Along Right.
(a) Applicability. If, at any time, any of the Principal
Stockholders, acting alone or in concert with others (including other Principal
Stockholders), desires to transfer to any Person (other than to a Principal
Stockholder or a Family Member of such Principal Stockholder), directly or
indirectly, in one or a series of related transfers, any of the shares of Common
Stock then owned by the Principal Stockholders (each such transferring Principal
Stockholder is referred to herein as a "Transferor"), such Principal Stockholder
shall comply with the requirements of this Section 1.2; provided, that (i) Susan
Gaither Jones may sell up to 462,790 shares of Common Stock (as reduced by any
shares of Common Stock sold by Ann Heafner Gaither pursuant to clause (ii)
below), and (ii) Ann Heafner Gaither may sell up to 350,000 shares of Common
Stock (as reduced by any shares of Common Stock sold by Susan Jones pursuant to
clause (i) above), without complying with the requirements of this Section 1.2.
(b) Tag-Along Offer. Prior to making any transfer, the Transferor
shall submit a written notice to the ITCO Stockholders (the "Transferor's
Notice") (i) specifying the number of shares of Common Stock proposed to be
transferred (the "Subject Shares"), the identity of the proposed transferee (if
known) and the amount of consideration proposed to be received and (ii)
containing the Tag-Along Offer. The Transferor shall offer (the "Tag-Along
Offer") to include in the proposed transfer a number of ITCO Shares designated
by the ITCO Stockholders (the "Tag-Along Shares"), provided, that the number of
Tag-Along Shares shall not exceed the product of (x) the number of Subject
Shares and (y) a fraction, the numerator of which is the number of ITCO Shares
held by the ITCO Stockholders and the denominator of which is the number of
shares of Common Stock outstanding on a fully diluted basis. The Tag-Along Offer
shall be conditioned upon the Transferor consummating a transfer on
substantially the terms described in the Transferor's Notice to the transferee
named in the Transferor's Notice, and nothing in this Agreement shall be
construed as an obligation on the part of the Transferor to consummate any such
transfer.
2
<PAGE> 3
(c) Acceptance. The rights set forth in this Section 1.2 shall be
exercisable by each ITCO Stockholder by delivery of written notice of exercise
(an "Acceptance Notice") to the Transferor within ten business days after
receipt of the Transferor's Notice indicating such ITCO Stockholder's desire to
exercise such rights and specifying the number of Tag-Along Shares such ITCO
Stockholder desires to include. If an ITCO Stockholder does not indicate its
desire to exercise the rights set forth in this Section 1.2 in an Acceptance
Notice or fails to provide an Acceptance Notice in a timely manner, its rights
under this Section 1.2 shall be deemed to have been waived with respect to the
particular transfer described in the Transferor's Notice. If an ITCO Stockholder
fails to submit an Acceptance Notice to the Transferor within such time period,
such failure shall be regarded as a rejection of the Tag-Along Offer by such
ITCO Stockholder. Any ITCO Stockholder indicating its desire to transfer
Tag-Along Shares in a timely Acceptance Notice is referred to herein as a
"Participating ITCO Stockholder."
(d) Sale of Shares. If a Transferor consummates a transfer of
Subject Shares pursuant to a Transferor's Notice, it shall transfer (or cause
the transfer of) (i) all of the Tag-Along Shares included in such transfer by
Participating ITCO Stockholders pursuant to timely Acceptance Notices and (ii)
the Subject Shares identified in the Transferor's Notice (reduced by the amount
of such Tag-Along Shares and by the amount of any shares of Common Stock subject
to transfer pursuant to the exercise of tag-along rights granted in the
Subordinated Financing Documents) to the proposed transferee in accordance with
the terms of such transfer set forth in such Transferor's Notice. The price per
share and form of consideration for Tag-Along Shares shall be the same as the
Transferor's consideration received for Subject Shares and shall be subject, on
a several and not joint basis, to the same representations and warranties,
covenants, indemnities, holdbacks and escrow provisions, if any, and any similar
components of the Tag-Along Offer to which the Transferor is subject; provided,
that (i) to the extent the Participating ITCO Stockholders are required to
provide indemnities in connection with the transfer of Tag-Along Shares, no
Participating ITCO Stockholder shall be required to provide indemnification that
would result in an aggregate liability to such Participating ITCO Stockholder in
excess of such Participating ITCO Stockholder's proceeds from the sale of
Tag-Along Shares pursuant to this Section 1.2 and (ii) such indemnities shall be
made by the Participating ITCO Stockholders severally and not jointly. All fees
and expenses incurred by the Participating ITCO Stockholders (including, without
limitation, with respect to financial advisors, accountants and counsel to the
Participating ITCO Stockholders) in connection with a transfer pursuant to this
Section 1.2 shall be borne by the Person incurring such fees and expenses,
unless the proposed transferee or the Company is paying the Transferor's fees
and expenses, in which case such Person shall to the same extent pay the fees
and expenses of the Participating ITCO Stockholders. If a transfer pursuant to a
Transferor's Notice does not occur on or before the later of 120 days after the
date such Transferor's Notice was received by the ITCO Stockholders or five days
after the expiration or waiver of any waiting period applicable to such proposed
transfer pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, the provisions of this Section 1.2 shall apply anew as if no such
Transferor's Notice had been given and no Tag-Along Offer made.
3
<PAGE> 4
(e) Termination of Tag-Along Right. The provisions of this Section
1.2 shall terminate and be of no further force and effect from and after the
date on which less than 10% of the ITCO Shares are owned by ITCO Stockholders.
Any securities transferred in accordance with this Section 1.2 shall not
thereafter be subject to the provisions of this Section 1.2.
SECTION 1.3. Drag-Along Obligation. In the event that any Person or
group (as such term is defined in Section 13(d) of the Exchange Act) desires to
acquire at least 90% of the capital stock of the Company, whether directly or
indirectly, and the Board of Directors of the Company and the holders of at
least 66-2/3% of the voting power of the outstanding shares of capital stock of
the Company approve of such acquisition, each ITCO Stockholder agrees to sell to
such Person or group all of the shares of capital stock of the Company owned by
such ITCO Stockholder and to execute and deliver all such documents and
instruments and take all such other actions as may be reasonably necessary to
effectuate such sale, provided that the ITCO Stockholders receive in connection
with such acquisition the same price per share and form of consideration
(including any consideration allocated to employment, consulting or
non-competition agreements) as all of the other holders of shares of Common
Stock (including the Class A Stock) on a pro rata basis (without regard to any
control premium or minority discount that may be applied); provided, further,
that the provisions of this Section 1.3 shall terminate and be of no further
force and effect from and after the consummation of an Initial Public Offering.
The parties intend this Section 1.3 to inure to the benefit of, and be
enforceable against the ITCO Stockholders by, the Principal Stockholders.
SECTION 1.4. Put Right.
(a) Exercise. The ITCO Stockholders shall have the right,
exercisable by the ITCO Stockholder Majority, upon (i) a Change of Control
(unless pursuant to such Change of Control all of the Capital Stock of the
Company is being sold and the ITCO Stockholders are to receive in connection
therewith (x) cash or (y) registered or publicly tradeable securities listed on
the NYSE or quoted or listed on any other national securities exchange or the
Nasdaq for their shares of the Common Stock of the Company) or (ii) the date
that is eight months after the earlier to occur of (x) May 4, 2004 and (y) the
date on which the holders of a majority in interest of the Warrants have
exercised their right to require redemption of the Warrants, to request the
Company to redeem all of the issued and outstanding ITCO Shares on the terms set
forth in this Section 1.4. Notice of a request for redemption pursuant to this
Section 1.4 shall be given in accordance with Section 4.6 of this Agreement and
the Company shall redeem (unless otherwise prevented by law) the ITCO Shares on
a date (the "Redemption Date") no later than the 180th day after receipt by the
Company of such notice.
(b) Redemption Price. At any time on or after the Redemption Date,
each ITCO Stockholder shall be entitled to receive such ITCO Stockholder's pro
rata share of the Equity Value upon actual delivery to the Company or its
transfer agent of the certificate representing such ITCO Stockholder's ITCO
Shares.
4
<PAGE> 5
(c) Termination of Put Right. The provisions of this Section 1.4
shall terminate and be of no further force and effect from and after the
consummation of an Initial Public Offering.
SECTION 1.5. Right of First Offer.
(a) Applicability. If (i) an ITCO Stockholder (the "ITCO
Transferor") wishes at any time to Transfer ITCO Shares to a third party (other
than a Permitted Transferee) and (ii) Section 1.1 is otherwise inapplicable or
unenforceable with respect to such proposed Transfer, such ITCO Stockholder
shall first offer (the "First Offer") to sell the Offered Shares to the Company.
(b) First Offer. Prior to making any Transfer, the ITCO Stockholder
shall submit a written notice to the Company (the "First Offer Notice") (i)
specifying the number of ITCO Shares the ITCO Stockholder proposes to Transfer
(the "Offered Shares") and (ii) containing a copy of the terms and conditions of
the First Offer. Upon receipt of a First Offer Notice, the Company shall be
entitled to purchase all, but not less than all, of the Offered Shares upon the
terms and conditions set forth in the First Offer Notice. The rights set forth
in this Section 1.5 shall be exercisable by the Company by delivery of written
notice of exercise (an "Exercise Notice") to the ITCO Transferor within 10 days
after receipt of the First Offer Notice. If the Company shall fail to respond to
the ITCO Transferor within such 10 day period, such failure shall be regarded as
a rejection of the First Offer by the Company.
(c) Sale of Shares. The closing of any purchase of Offered Shares by
the Company under this Section 1.5 shall be held at the principal office of the
Company on or before the 30th day following delivery of the Exercise Notice (or
such later time as may be necessary to comply with any applicable Requirement of
Law) or at such other time and place as the parties to the transaction may
agree. At such closing, the ITCO Transferor shall deliver certificates
representing the Offered Shares being purchased by the Company, duly endorsed
for transfer and accompanied by all requisite stock transfer taxes, and such
shares shall be free and clear of any Liens (and the ITCO Transferor shall so
represent and warrant), and the ITCO Transferor shall further represent and
warrant that it is the record and beneficial owner of all such shares, with full
authority and power to transfer such shares. The ITCO Transferor shall not be
required to make any other representations or warranties in connection with such
transfer. The Company shall deliver at the closing payment in full in cash for
such shares. At such closing, all of the parties to the transaction shall
execute and/or deliver such additional documents as are otherwise necessary or
appropriate to effectuate the transfer of the Offered Shares.
(d) Failure to Purchase. Notwithstanding anything to the contrary
contained in this Section 1.5, if the Company does not purchase all of the
Offered Shares within the period specified in Section 1.5(c), the ITCO
Transferor may Transfer to any other Person all, but not less than all, of the
Offered Shares (i) for a purchase price that is no lower than 100% of that
stated in the First Offer Notice and (ii) upon terms and conditions otherwise no
more favorable to such other Person than those stated in the First Offer Notice;
5
<PAGE> 6
provided, however, that such transfer is bona fide and made before 90 days from
the later of (i) the date of the rejection of the First Offer, if it is
rejected, or the failure to consummate the purchase of the Offered Shares, if
the First Offer is not rejected and (ii) the date which is 10 days after the
expiration or waiver of any applicable waiting period to such proposed transfer
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act, as amended. If
such sale is not consummated within the period described in the proviso in the
preceding sentence, the restrictions provided for in this Section 1.5 shall
again become effective, and no transfer of shares otherwise subject to this
Section 1.5 may be made thereafter without again offering the same to the
Company in accordance with the terms and conditions of this Agreement.
(e) Termination of Right of First Offer. The provisions of this
Section 1.5 shall terminate and be of no further force and effect upon the
earlier to occur of (i) the consummation of an Initial Public Offering or (ii) a
Change of Control of the Company. The Company shall be entitled to refuse to
waive compliance with this Section 1.5 in its sole discretion.
ARTICLE II
AFFIRMATIVE COVENANTS
SECTION 2.1. Financial Statements. The Company shall deliver to each
ITCO Stockholder:
(a) as soon as available, but not later than 120 days after the end
of each fiscal year of the Company, a full copy of the audit report containing a
copy of the consolidated balance sheet of the Company and its Subsidiaries as of
the end of such year and the related consolidated statements of income and cash
flows for such fiscal year, setting forth in each case in comparative form the
figures for the previous year, all in reasonable detail with footnotes and
accompanied by a management summary and analysis of the operations of the
Company and its Subsidiaries for such fiscal year and by the opinion of Arthur
Andersen LLP (or any successor thereto) or another nationally recognized
independent public accounting firm which report shall state that such
consolidated financial statements present fairly the financial position for the
periods indicated in conformity with GAAP applied on a basis consistent, except
as otherwise stated therein, with prior years;
(b) as soon as available, but not later than 45 days after the end
of each of the first three fiscal quarters of each year the unaudited
consolidated balance sheet of the Company and its Subsidiaries, and the related
consolidated statements of income and cash flow for such quarter and for the
period commencing on the first day of the fiscal year and ending on the last day
of such quarter, all certified by an appropriate officer of the Company;
(c) to the extent prepared by the Company, budgets, documentation of
material financial transactions, projections, operating reports, acquisition
analyses,
6
<PAGE> 7
presentations to banks, financial institutions or potential investors,
consultants' reports and such other financial and operating data of the Company
and its Subsidiaries as any ITCO Stockholder reasonably may request;
(d) at any time when it is not subject to Section 13 or 15(d) of the
Exchange Act, upon request, to any ITCO Stockholder and prospective Permitted
Transferee of ITCO Shares, information of the type that would satisfy the
requirement of subsection (d)(4)(i) of Rule 144A (or any similar successor
provision) under the Securities Act; and
(e) if and when the Company becomes subject to Section 13 or 15(d)
of the Exchange Act or files a registration statement under the Securities Act,
promptly after the same are filed, copies of all reports, statements and other
documents filed with the Securities and Exchange Commission, at which point
Section 2.1(a) and (b) shall expire and no longer be binding upon the Company.
Any documents or information supplied by the Company pursuant to clauses (a),
(b), (c) or (d) above shall be subject to the confidentiality obligations
contained in Section 4.1.
SECTION 2.2. Certificates; Other Information. The Company shall
furnish to each ITCO Stockholder concurrently with the delivery of the financial
statements referred to in Section 2.1(a) and (b) above, a certificate of the
Company's Chief Financial Officer stating that, to the best of such officer's
knowledge, there exists no default under or breach of Articles 2 and 3, except
as specified in such certificates.
SECTION 2.3. Notices. Upon actual knowledge of the Chief Executive
Officer, the President or the Chief Financial Officer of the Company of the
events described below, the Company shall give prompt written notice (but in any
event within 10 days) to each ITCO Stockholder of any of the following events:
(a) the occurrence of any default under, or breach of, any of the
provisions of Articles 2 or 3 accompanied by a certificate specifying the nature
of such default or breach, the period of existence thereof and the action that
the Company has taken or proposes to take with respect thereto; and
(b) any (i) material default or event of default under the Senior
Indebtedness of the Company or any other material Contractual Obligation of the
Company or any of its Subsidiaries, or (ii) material dispute, litigation,
investigation, proceeding or suspension which may exist at any time between the
Company or any of its Subsidiaries and any Governmental Authority.
Each notice pursuant to this Section 2.3 shall be accompanied by a
statement by the Chief Executive Officer, President or Chief Financial Officer
of the Company setting forth details of the occurrence referred to therein and
stating what action the Company proposes to take with respect thereto.
7
<PAGE> 8
SECTION 2.4. Preservation of Corporation Existence. The Company
shall, and shall cause each of its Subsidiaries to, preserve and maintain in
full force and effect (i) its corporate existence and good standing under the
laws of its jurisdiction of incorporation or organization and (ii) all material
rights, privileges, qualifications, licenses and franchises necessary in the
normal conduct of its business.
SECTION 2.5. Payment of Obligations. The Company shall, and shall
cause each of its Subsidiaries to, pay and discharge as the same shall become
due and payable, all their respective obligations and liabilities, including,
without limitation (i) all tax liabilities, assessments and governmental charges
or levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such Subsidiary in
respect thereof; (ii) all lawful claims which the Company and/or its
Subsidiaries are obligated to pay, which are due and which, if unpaid, might by
law become a Lien upon its property, unless the same are being contested in good
faith by appropriate proceedings and adequate reserves in accordance with GAAP
are being maintained by the Company or such Subsidiary; and all payments of
principal and interest when due (giving effect to any grace periods relating
thereto) on Indebtedness.
SECTION 2.6. Compliance with Laws. The Company shall comply, and
shall cause each of its Subsidiaries to comply, in all material respects with
its articles or certificate of incorporation and by-laws or other organizational
or governing documents and all Requirements of Law and with the directions of
any Governmental Authority having jurisdiction over it or its business, except
(i) for such failures to comply as could not reasonably be expected to have a
material adverse effect on the assets, business, operations, properties or
financial or other condition of the Company and its Subsidiaries, taken as a
whole or (ii) to the extent being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP are being
maintained by the Company or such Subsidiary in respect thereof.
SECTION 2.7. Inspection. As often as may be reasonably requested by
any ITCO Stockholder, the Company will permit, and will cause each of its
Subsidiaries to permit, representatives of such ITCO Stockholder to visit and
inspect any of its properties, to examine its corporate, financial and operating
records and make copies thereof or abstracts therefrom, and to discuss its
affairs, finances and accounts with its directors, officers and independent
public accountants, in each case, at reasonable times during normal business
hours and upon reasonable advance notice to the Company.
SECTION 2.8. Board Representation.
(a) ITCO Stockholder Nominee. The Company and the Principal
Stockholders shall promptly after the date hereof cause a person designated by
the ITCO Stockholder Majority to be elected to its Board of Directors, which
person shall be either a principal of Wingate Partners II, L.P. or any other
individual reasonably acceptable to a majority of members of the existing Board
of Directors. Such designee shall serve until the annual meeting of stockholders
of the Company immediately following the election of
8
<PAGE> 9
such person to the Board of Directors. Commencing with the annual meeting of
stockholders of the Company immediately following the election of such person to
the Board of Directors, and at each annual meeting of stockholders of the
Company thereafter, the ITCO Stockholder Majority shall be entitled from time to
time to nominate (in addition to any rights granted to holders of Class B Common
Stock as set forth in the Company's articles of incorporation and by-laws) one
director to the Company's Board of Directors. The Company shall cause such
nominee of the ITCO Stockholder Majority to be included in the slate of nominees
recommended by the Board to the Company's stockholders for election as
directors, and the Company shall use its best efforts to cause the election of
such nominee or nominees, including voting all shares for which the Company
holds proxies (unless otherwise directed by the stockholder submitting such
proxy) or is otherwise entitled to vote, in favor of the election of such
person. In addition, each Principal Stockholder agrees to vote all shares of
Common Stock for which such Principal Stockholder holds proxies or is otherwise
entitled to vote in favor of the election of such person. The Company shall pay
the reasonable out-of-pocket expenses incurred by such director in connection
with attending meetings of the Board of Directors or any committee thereof.
(b) Vacancies. In the event any nominee of the ITCO Stockholder
Majority shall cease to serve as a director for any reason (other than by reason
of the termination of this Section 2.8 in accordance with Section 2.8(h)), the
Company shall use its best efforts to cause the vacancy resulting thereby to be
filled by a nominee of the ITCO Stockholder Majority reasonably acceptable to a
majority of the Board of Directors of the Company. In addition, each Principal
Stockholder agrees to vote all shares of Common Stock for which such Principal
Stockholder holds proxies or is otherwise entitled to vote in favor of the
election of such person.
(c) Committee Representation. In the event that the Board of
Directors of the Company establishes committees from time to time, the director
nominated by the ITCO Stockholder Majority pursuant to this Section 2.8 shall
have the right, upon the request of the ITCO Stockholder Majority, to serve on
each such committee.
(d) Visitation Rights. In addition to the rights granted pursuant to
Section 2.8(a), (b) and (c) above, the ITCO Stockholder Majority shall have the
right to have a representative attend all regular and special meetings of the
Board of Directors of the Company and any committees thereof. The visitation
rights set forth above shall include the right to receive the same notice and
materials provided to Board and Committee members.
(e) Non-Employee Directors. The ITCO Stockholder Majority shall have
the right to approve the nomination of any director to the Board of Directors of
the Company who is not a full-time employee of the Company, which approval shall
not be unreasonably withheld; provided, however, that the ITCO Stockholder
Majority shall not have the right to approve the nomination of any director who
is nominated by the holders of shares of any series or class of preferred stock
of the Company or by The 1818
9
<PAGE> 10
Mezzanine Fund, L.P. or who is a Principal Stockholder or a Family Member of a
Principal Stockholder.
(f) Inconsistency with Organizational Documents. In the event that
any provision of the Company's articles of incorporation or bylaws is
inconsistent with any provision of this Section 2.8, the Company shall take such
action as may be necessary to amend any such provision in the Company's articles
of incorporation or bylaws to remedy such inconsistency.
(g) Irrevocable Proxy; Conflicting Agreements. Each Principal
Stockholder represents that such Principal Stockholder has not granted and is
not a party to any proxy, voting trust or other agreement which is inconsistent
with or conflicts with the provisions of this Section 2.8 of this Agreement, and
no Principal Stockholder shall grant any proxy or become party to any voting
trust or other agreement which is inconsistent with or conflicts with the
provisions of this Section 2.8 of this Agreement.
(h) Termination of Rights. The provisions of this Section 2.8 shall
terminate and be of no further force and effect from and after the date on which
less than 33% of the ITCO Shares are owned by ITCO Stockholders.
SECTION 2.9. Listing. In the event that, and so long as, the Common
Stock is listed on the NYSE or quoted or listed on any other national securities
exchange or Nasdaq, the Company will quote or list and keep quoted or listed on
such exchange or Nasdaq, upon official notice of issuance, all Common Stock
issuable or deliverable to the ITCO Stockholders.
SECTION 2.10. Class B Common Stock. The Company represents and
warrants to the ITCO Stockholders that, pursuant to the Company's articles of
incorporation, the Class A Common Stock and the Class B Common Stock have
identical rights, powers and privileges, except that the shares of Class A
Common Stock are entitled to 20 votes per share and the shares of Class B Common
Stock are entitled to one vote per share, in each case on all matters submitted
to a vote of the Company's Stockholders. In the event of an Initial Public
Offering of the shares of Class A Common Stock, pursuant to the Company's
articles of incorporation, all of the outstanding shares of Class B Common Stock
shall automatically convert into shares of Class A Common Stock on a one-for-one
basis.
SECTION 2.11. Anti-Dilution. After the date of this Agreement and
prior to the earlier of an Initial Public Offering and the date the ITCO
Stockholders own no ITCO Shares, without the prior written consent of the ITCO
Stockholder Majority, the Company shall not at any time or from time to time
issue or sell (x) shares of Common Stock or (y) securities convertible into or
exchangeable for shares of Common Stock, or any options, warrants or other
rights to acquire shares of Common Stock (other than shares of Common Stock
issued upon exercise of the options and warrants outstanding on the date of this
Agreement) ("Convertible Securities") (1) to any Principal Stockholder or Family
Member or Affiliate of any of them or (2) at a price per share that is less than
the
10
<PAGE> 11
Current Market Price per share of Common Stock then in effect (treating the
price per share of Common Stock, in the case of the issuance of any Convertible
Security as equal to (x) the sum of the price for such Convertible Security,
plus any additional consideration payable (without regard to any anti-dilution
adjustments) upon the conversion, exchange or exercise of such Convertible
Security into Common Stock divided by (y) the number of shares of Common Stock
initially underlying such Convertible Security. Additionally, if a majority of
the members of the Company's Board of Directors that are not Principal
Stockholders, Family Members or employees of the Company formally object, the
Company may not issue or sell Common Stock or Convertible Securities at a price
per share of Common Stock (treating the price per share of Common Stock, in the
case of the issuance of any Convertible Security, as set forth above in this
Section 2.11) of less than $10.00 (as adjusted to reflect stock splits
(including reverse stock splits) of Common Stock) other than in connection with
a bona fide acquisition of a business to the owner(s) thereof.
SECTION 2.12. Termination of Covenants. The provisions of Sections
2.1, 2.2, 2.3 and 2.7 shall terminate and be of no further force and effect upon
the consummation of an Initial Public Offering. The provisions of Sections 2.1,
2.2 and 2.3 shall terminate and be of no further force or effect on the date on
which less than 33% of the ITCO Shares are owned by ITCO Stockholders.
ARTICLE III
NEGATIVE COVENANTS
SECTION 3.1. Articles of Incorporation and By-laws. The Company
shall not amend the articles or certificate of incorporation or by-laws of the
Company or any of its Subsidiaries in any way that would or could reasonably be
expected to have an adverse effect on the interests of the ITCO Stockholders.
SECTION 3.2. Transactions with Affiliates. Except as set forth on
Schedule 3.2 or as otherwise permitted by this Agreement, the Company shall not,
and shall not allow any of its Subsidiaries to, enter into any transaction with
any Affiliate of the Company or of any such Subsidiary, except (i) on terms no
less favorable to the Company or such Subsidiary than those the Company or such
Subsidiary would obtain in a comparable arm's-length transaction with a Person
not an Affiliate of the Company or such Subsidiary, (ii) transactions between
the Company and its Subsidiaries or between Subsidiaries and (iii) following the
prior approval of a majority of the members of the Board of Directors of the
Company (excluding Principal Stockholders and Family Members).
SECTION 3.3. Limitations on Restricted Payments. Except as set forth
on Schedule 3.3 or as otherwise permitted under this Agreement, neither the
Company nor any of its Subsidiaries will declare or make any Restricted Payment
except that the Company may (i) declare and pay dividends on its Series A
Preferred Stock and Series B Preferred Stock, or redeem in accordance with the
Amended and Restated Articles the
11
<PAGE> 12
Series A Preferred Stock and (ii) make supplemental discretionary payments in an
amount up to an aggregate of $250,000 in any calendar year to Ann Heafner
Gaither, William H. Gaither and Susan Gaither Jones, in each case so long as the
making of such Restricted Payment is not prohibited pursuant to the Subordinated
Financing Documents.
SECTION 3.4. Termination of Covenants. The provisions of this
Article III shall terminate and be of no further force and effect upon the
earlier to occur of (i) the consummation of an Initial Public Offering or (ii)
the date on which less than 33% of the ITCO Shares are owned by ITCO
Stockholders.
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4.1. Confidentiality. Each ITCO Stockholder will (subject to
the Company's sole discretion to waive compliance) utilize such ITCO
Stockholder's reasonable best efforts to maintain as confidential any
confidential or proprietary information obtained from the Company (including,
without limitation, pursuant to Section 2.1), other than information which (i)
at the time of disclosure or thereafter is generally available to and known by
the public (other than as a result of a disclosure directly or indirectly by
such ITCO Stockholder or any of its representatives), (ii) is available to the
ITCO Stockholder on a non-confidential basis from a source other than the
Company or its Subsidiaries, provided, that such source was not known by such
ITCO Stockholder to be bound by a confidentiality agreement (or other duty not
to disclose) with the Company or any of its Subsidiaries or (iii) has been
independently developed by such ITCO Stockholder, and shall not disclose any
information obtained from the Company pursuant to Section 2.1 and 2.7 and
required to be maintained as confidential pursuant hereto, except (a) to its
advisors, representatives, agents, partners (and their representatives and
advisors) and employees (provided that such ITCO Stockholder shall be
responsible for any breach of this Section 4.1 by any such Person), (b) in the
case of a Transfer expressly permitted by Article I of this Agreement, to any
prospective transferee of such ITCO Stockholder's ITCO Shares or of an interest
in such ITCO Stockholder (provided, that (x) the ITCO Stockholder shall not
disclose to any such Person that is a potential transferee the information
(other than budgets) referred to in Section 2.1(c) without the prior written
consent of the Board of Directors of the Company, such consent not to be
unreasonably withheld, and (y) such prospective transferee enters into a
confidentiality agreement with respect to any confidential information on
substantially the same terms as agreed to by such ITCO Stockholder in this
Section 4.1), (c) as may be required by law (including by court order, subpoena
or other administrative order or process) or applicable regulations to which
such ITCO Stockholder is or becomes subject, (d) in connection with any
litigation arising out of or related to this Agreement, (e) to the executive
officers of the Company or any of its Subsidiaries, or (f) with the prior
written consent of the Company.
SECTION 4.2. Successors and Assigns. Except as otherwise expressly
provided herein, the provisions of this Agreement shall be binding upon and
inure to the
12
<PAGE> 13
benefit of the parties hereto and their respective successors and permitted
assigns. No party hereto may assign any of its rights or obligations hereunder
without the prior written consent of each other party hereto, except that an
ITCO Stockholder may assign its rights and obligations to a Permitted Transferee
that agrees in writing to be bound by the provisions of this Agreement. Any
purported assignment in violation of this Section 4.2 shall be void.
SECTION 4.3. Entire Agreement. This Agreement, the Merger Agreement
and the Registration Rights Agreement embody the entire agreement and
understanding of the parties hereto and supersede all other agreements or
understandings, written or oral, with respect to the subject matter hereof.
SECTION 4.4. Parties In Interest. Except as otherwise expressly
provided herein, this Agreement is for the sole benefit of the parties hereto
and their respective successors and permitted assigns, and no term or provision
in this agreement is for the benefit of any other Person.
SECTION 4.5. Amendment and Waiver. No modification, amendment or
waiver of any provision of, or consent required by, this Agreement, nor any
consent to any departure from the terms of this Agreement, shall be effective
unless it is in writing and signed by the Company and the ITCO Stockholder
Majority. Such modification, amendment, waiver or consent shall be effective
only in the specific instance and for the purpose given.
SECTION 4.6. Notices. All notices, demands and other communications
provided for or permitted under this Agreement shall be made in writing and
shall be by registered or certified first-class mail, return receipt requested,
telecopier, courier service or personal delivery (a) if to any ITCO Stockholder,
addressed to it at the address set forth on the signature page to this
Agreement, or at such other address as it shall have furnished to the Company in
writing in the manner set forth herein; (b) if to any other holder of ITCO
Shares, at the address that such holder shall have furnished to the Company in
writing in the manner set forth herein, or, until any such other holder so
furnishes to the Company an address, then to and at the address of the last
holder of such ITCO Shares who has furnished an address to the Company; or (c)
if to the Company, addressed to it at the address set forth on the signature
page to this Agreement, or at such other address as the Company shall have
furnished to each holder of ITCO Shares at the time outstanding in the manner
set forth herein. All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; when delivered
to a courier, if delivered by overnight courier service; five Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is acknowledged, if sent by facsimile.
SECTION 4.7. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions
13
<PAGE> 14
contained herein shall not be in any way impaired thereby, it being intended
that all of the rights and privileges of the parties hereto shall be enforceable
to the fullest extent permitted by law.
SECTION 4.8. Rules of Interpretation. Descriptive headings are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement. Except as otherwise expressly provided in this
Agreement, the following rules of interpretation apply to this Agreement: (i)
the singular includes the plural and the plural includes the singular; (ii) "or"
and "any" are not exclusive and "include" and "including" are not limiting;
(iii) a reference to any agreement or other contract includes permitted
supplements and amendments; (iv) a reference to a law includes any amendment or
modification to such law and any rules or regulations issued thereunder; (v) a
reference to a Person includes its permitted successors and assigns; (vi) a
reference to generally accepted accounting principles refers to United States
generally accepted accounting principles; (vii) a reference in this Agreement to
an Article, Section, Annex, Exhibit or Schedule is to the Article, Section,
Annex, Exhibit or Schedule of this Agreement; and (viii) a reference to an
agreement or instrument includes any annexes, exhibits or schedules to the
specified agreement or instrument.
SECTION 4.9. Remedies. The parties to this Agreement acknowledge
that damages at law would be an inadequate remedy for the breach of any
provision contained in Article I or Sections 4.1 or 4.2 of this Agreement, and
agree in the event of such breach or threatened breach that the non-breaching
party may (i) obtain temporary and permanent injunctive relief restraining the
breaching party from such breach or threatened breach, and, to the extent
permissible under the applicable statutes and rules of procedure, that a
temporary injunction may be granted immediately upon the commencement of a
proceeding commenced under this Section 4.9 and (ii) enforce specifically such
provisions in any legal proceeding. Nothing contained in the preceding sentence
shall be construed as prohibiting any party from pursuing any other remedies
available at law or in equity for such breach or threatened breach of any such
provision of this Agreement.
SECTION 4.10. LEGAL PROCEEDINGS; WAIVER OF JURY TRIAL. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE (WITHOUT GIVING EFFECT TO ANY PROCEDURAL LAW OF SUCH STATE
REQUIRING THE APPLICATION OF THE LAWS OF A DIFFERENT JURISDICTION). EACH PARTY
TO THIS AGREEMENT HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED
STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE AND OF ANY DELAWARE STATE
COURT FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY TO THIS AGREEMENT
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT
IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
14
<PAGE> 15
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 4.11. Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which will be deemed an
original, but all of which together will constitute one and the same Agreement.
15
<PAGE> 16
IN WITNESS WHEREOF, the parties to this Agreement have executed and
delivered this Agreement as of the date first written above.
Company: THE J. H. HEAFNER COMPANY, INC.
By: /s/ Michael Gaither
-----------------------------------------------
Name: Michael Gaither
Title: Senior Vice President and General Counsel
ITCO Stockholders: WINGATE PARTNERS II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT COMPANY II,
L.P., its general partner
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By: /s/ V. Edward Easterling, Jr.
-----------------------------------------------
V. Edward Easterling, Jr., Principal
------------------------------------------------
Armistead Burwell, Jr.
3214 Rutherford Drive
Raleigh, NC 27609
------------------------------------------------
William E. Berry
1213 Waverly Road
Wilson NC 27896
------------------------------------------------
Richard P. Johnson
4229 Lomo Alto Court
Dallas, TX 75219
<PAGE> 17
IN WITNESS WHEREOF, the parties to this Agreement have executed and
delivered this Agreement as of the date first written above.
Company: THE J. H. HEAFNER COMPANY, INC.
By:
-----------------------------------------------
Name: Michael Gaither
Title: Senior Vice President and General Counsel
ITCO Stockholders: WINGATE PARTNERS II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT COMPANY II,
L.P., its general partner
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
-----------------------------------------------
V. Edward Easterling, Jr., Principal
/s/ Armistead Burwell, Jr.
------------------------------------------------
Armistead Burwell, Jr.
3214 Rutherford Drive
Raleigh, NC 27609
------------------------------------------------
William E. Berry
1213 Waverly Road
Wilson NC 27896
------------------------------------------------
Richard P. Johnson
4229 Lomo Alto Court
Dallas, TX 75219
<PAGE> 18
IN WITNESS WHEREOF, the parties to this Agreement have executed and
delivered this Agreement as of the date first written above.
Company: THE J. H. HEAFNER COMPANY, INC.
By:
-----------------------------------------------
Name: Michael Gaither
Title: Senior Vice President and General Counsel
ITCO Stockholders: WINGATE PARTNERS II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT COMPANY II,
L.P., its general partner
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
-----------------------------------------------
V. Edward Easterling, Jr., Principal
------------------------------------------------
Armistead Burwell, Jr.
3214 Rutherford Drive
Raleigh, NC 27609
/s/ William E. Berry
------------------------------------------------
William E. Berry
1213 Waverly Road
Wilson NC 27896
------------------------------------------------
Richard P. Johnson
4229 Lomo Alto Court
Dallas, TX 75219
<PAGE> 19
IN WITNESS WHEREOF, the parties to this Agreement have executed and
delivered this Agreement as of the date first written above.
Company: THE J. H. HEAFNER COMPANY, INC.
By:
-----------------------------------------------
Name: Michael Gaither
Title: Senior Vice President and General Counsel
ITCO Stockholders: WINGATE PARTNERS II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT COMPANY II,
L.P., its general partner
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
-----------------------------------------------
V. Edward Easterling, Jr., Principal
------------------------------------------------
Armistead Burwell, Jr.
3214 Rutherford Drive
Raleigh, NC 27609
------------------------------------------------
William E. Berry
1213 Waverly Road
Wilson NC 27896
/s/ Richard P. Johnson
------------------------------------------------
Richard P. Johnson
4229 Lomo Alto Court
Dallas, TX 75219
<PAGE> 20
/s/ Leon R. Ellin
------------------------------------------------
Leon R. Ellin
7308 Bay Hill Court
Raleigh, NC 27615
WINGATE AFFILIATES II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
----------------------------------------------
V. Edward Easterling, Jr., Principal
CALLIER INVESTMENT COMPANY
c/o Wingate
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By:
----------------------------------------------
James T. Callier
Managing Partner
Principal Stockholders
(solely for purposes of
evidencing their acceptance
of and agreement with
Section 1.2 and Section 2.8):
----------------------------------------
Ann H. Gaither
-----------------------------------------
William H. Gaither
-----------------------------------------
Susan G. Jones
------------------------------------------
Thomas R. Jones
<PAGE> 21
------------------------------------------------
Leon R. Ellin
7308 Bay Hill Court
Raleigh, NC 27615
WINGATE AFFILIATES II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By: /s/ V. Edward Easterling, Jr.
----------------------------------------------
V. Edward Easterling, Jr., Principal
CALLIER INVESTMENT COMPANY
c/o Wingate
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By:
----------------------------------------------
James T. Callier
Managing Partner
Principal Stockholders
(solely for purposes of
evidencing their acceptance
of and agreement with
Section 1.2 and Section 2.8):
----------------------------------------
Ann H. Gaither
-----------------------------------------
William H. Gaither
-----------------------------------------
Susan G. Jones
------------------------------------------
Thomas R. Jones
<PAGE> 22
------------------------------------------------
Leon R. Ellin
7308 Bay Hill Court
Raleigh, NC 27615
WINGATE AFFILIATES II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
----------------------------------------------
V. Edward Easterling, Jr., Principal
CALLIER INVESTMENT COMPANY
c/o Wingate
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: /s/ James T. Callier
----------------------------------------------
James T. Callier
Managing Partner
Principal Stockholders
(solely for purposes of
evidencing their acceptance
of and agreement with
Section 1.2 and Section 2.8):
----------------------------------------
Ann H. Gaither
-----------------------------------------
William H. Gaither
-----------------------------------------
Susan G. Jones
------------------------------------------
Thomas R. Jones
<PAGE> 23
Principal Stockholders
(solely for purposes of
evidencing their acceptance
of and agreement with
Section 1.2 and Section 2.8):
/s/ Ann H. Gaither
----------------------------------------
Ann H. Gaither
/s/ William H. Gaither
-----------------------------------------
William H. Gaither
/s/ Susan G. Jones
-----------------------------------------
Susan G. Jones
/s/ Thomas R. Jones
------------------------------------------
Thomas R. Jones
<PAGE> 24
ANNEX A
TO CLASS B STOCKHOLDER AGREEMENT
DEFINED TERMS
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in the City of New York or the City of Atlanta are
authorized or required by law or executive order to close.
"Business Value" shall mean the product of 6 times the EBITDA of the
Company for the Calculation Period.
"Calculation Period" shall mean the twelve month period ending on the last
day of the most recently completed month preceding the date of notice of a
request for redemption pursuant to Section 1.4.
"Capital Lease Obligations" shall mean, as to any Person, Indebtedness
represented by obligations under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP, and the amount of such
Indebtedness shall be the capitalized amount of such obligations determined in
accordance with GAAP.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
common stock and preferred stock and any rights, warrants or options to purchase
such Person's capital stock.
"Change of Control" of the Company shall mean such time as:
(i) The Principal Stockholders and Family Members shall collectively cease
to beneficially own outstanding shares of capital stock of the Company,
entitling such Principal Stockholders and Family Members to exercise more than
50% of the total votes entitled to be cast at a regular or special meeting, or
by action by written consent, of stockholders of the Company (the term
"beneficial owner" shall be determined in accordance with Rule 13d-3,
promulgated by the Commission under the Exchange Act);
(ii) A majority of the Board of Directors of the Company shall consist of
Persons other than Continuing Directors. The term "Continuing Director" shall
mean any member of the Board of Directors of the Company on the date of this
Agreement, any member of the Board of Directors elected by holders of preferred
stock of the Company, any member of the Board of Directors of the Company
designated by The 1818 Mezzanine Fund, L.P. or the ITCO Stockholder Majority to
be elected to the Board of Directors and any other member of the Board of
Directors who shall be recommended or
<PAGE> 25
elected to succeed or become a Continuing Director by a majority of Continuing
Directors who are then members of the Board of Directors of the Company;
(iii) The stockholders of the Company shall have approved a
recapitalization, reorganization, merger, consolidation or similar transaction,
in each case, with respect to which all or substantially all the Persons who
were the respective beneficial owners of the outstanding shares of capital stock
of the Company immediately prior to such recapitalization, reorganization,
merger or consolidation, will directly or indirectly own beneficially less than
50% of the combined voting power of the then outstanding shares of capital stock
of the Company resulting from such recapitalization, reorganization, merger,
consolidation or similar transaction; or
(iv) The stockholders of the Company shall have approved of the sale or
other disposition of all or substantially all the assets of the Company in one
transaction or in a series of related transactions.
"Class A Stock" shall mean the Class A Common Stock, $.01 par value, of
the Company.
"Class B Stock" shall mean the Class B Common Stock, $.01 par value, of
the Company.
"Common Stock" shall mean the Class B Stock and the Class A Stock.
"Contingent Obligation" shall mean, as to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (each a "primary
obligation") of another Person (the "primary obligor"), whether or not
contingent, (a) to purchase, repurchase or otherwise acquire any such primary
obligation or any property constituting direct or indirect security therefor, or
(b) to advance or provide funds (i) for the payment or discharge of any such
primary obligation, or (ii) to maintain working capital or equity capital of the
primary obligor in respect of any such primary obligation or otherwise to
maintain the net worth or solvency or any balance sheet item, level of income or
financial condition of such primary obligor, or (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor in respect thereof
to make payment of such primary obligation, or (d) otherwise to assure or hold
harmless the owner of any such primary obligation against loss or failure or
inability to perform in respect thereof. The amount of any Contingent Obligation
shall be deemed to be an amount equal to the stated or determinable amount of
the primary obligation in respect of which such Contingent Obligation is made
or, if not stated or determinable, the maximum reasonably anticipated liability
in respect thereof.
"Contractual Obligation" shall mean, as to any Person, any provision of
any security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
A-2
<PAGE> 26
"Current Market Price" per share shall mean, on any date specified herein
for the determination thereof, (a) the average daily Market Price of the Common
Stock for those days during the period of 15 days, ending on such date, on which
the national securities exchanges were open for trading, and (b) if the Common
Stock is not then listed or quoted in the over-counter market, the Market Price
on such date.
"EBITDA" shall mean, with respect to any Person for any period, the sum of
(a) Net Income for such period (excluding therefrom, to the extent included in
determining Net Income, any items of extraordinary gain or loss, including net
gains or losses on sale of assets other than asset sales in the ordinary course
of business), (b) Interest Expense deducted from revenue in determining such Net
Income, (c) Federal, state and local income and franchise taxes deducted from
revenue in determining such Net Income, (d) depreciation and amortization and
all non-cash charges to the extent deducted from revenue in determining such Net
Income, (e) the sum of all supplemental discretionary payments made to Ann
Heafner Gaither, William H. Gaither and Susan Gaither Jones pursuant to the
Subordinated Financing Documents deducted from revenue in determining such Net
Income, less (f) interest income and all non-cash items which increase such Net
Income. For purposes of calculating (d) and (e) above, all items that would not
be considered operating items in the ordinary course of business or would result
in changes in long-term asset or liability accounts shall be excluded. All
references contained herein to EBITDA of the Company shall be to the EBITDA of
the Company and its Subsidiaries, determined on a consolidated basis.
"Equity Value" shall mean an amount equal to the product of (x) the
percentage of outstanding Common Stock on a fully diluted basis owned by the
ITCO Stockholders, in the aggregate, and (y) the Redemption Value.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Securities and Exchange Commission hereunder.
"Fair Market Value" shall mean the amount which a willing buyer, under no
compulsion to buy, would pay a willing seller under no compulsion to sell, in an
arm's-length transaction (without consideration of any minority investment
discounts).
"Family Member" shall mean (x) a member of a Principal Stockholder's
immediate family, which shall include her or his ancestors, spouse, siblings,
descendants or spouses (or surviving spouses) of descendants, or (y) a trust,
corporation, limited liability company, partnership or other entity, all of the
beneficial interests in which shall be held by such Principal Stockholder or one
or more persons described in clause (x); provided, however, that during the
period any such trust, corporation, limited liability company, partnership or
other entity holds any right, title or interest in any Common Stock, no Person
other than such Principal Stockholder or one or more Family Members of such
Principal Stockholder of the type listed in clause (x) may be or become
beneficiaries, stockholders or limited or general partners or owners thereof.
A-3
<PAGE> 27
"Funded Debt" shall mean all Indebtedness for borrowed money of the
Company and its Subsidiaries on a consolidated basis that by its terms or by the
terms of any instrument or agreement relating thereto matures more than one year
from, or is renewable or extendable at the option of the debtor to a date more
than one year from, the date of creation thereof (including an option of the
debtor under a revolving credit or similar arrangement obligating the lender or
lenders to extend credit over a period of one year or more), and includes any
current maturities of any such Indebtedness.
"GAAP" shall mean generally accepted United States accounting principles
in effect from time to time.
"Governmental Authority" shall mean the government of any nation, state,
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"Initial Public Offering" shall mean the initial public offering of the
Common Stock with gross proceeds of at least $25 million or representing at
least 20% of the Common Stock on a fully diluted basis and such Common Stock is
listed or quoted on the NYSE or quoted or listed on any other national
securities exchange or the Nasdaq.
"Indebtedness" shall mean, as to any Person, (a) all obligations of such
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations evidenced by notes,
bonds, debentures or similar instruments, (c) all obligations to pay the
deferred purchase price of property or services, except trade accounts payable
and accrued liabilities arising in the ordinary course of business, (d) all
interest rate and currency swaps and similar agreements under which payments are
obligated to be made, whether periodically or upon the happening of a
contingency, (e) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (f) all obligations under Capital Lease Obligations, (g) 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, and (h)
any Contingent Obligation.
"Interest Expense" shall mean, with respect to any Person for any period,
the sum of (a) gross interest expense of such Person for such period in
accordance with GAAP consistently applied, including (i) the amortization of
debt discounts, (ii) the amortization of all fees payable in connection with the
incurrence of Indebtedness to the extent included in interest expense and (iii)
the portion of any payments or accruals with respect to Capital Lease
Obligations allocable to interest expense, and (b) any other capitalized
interest of such Person determined in accordance with GAAP. All references
A-4
<PAGE> 28
contained herein to the Interest Expense of the Company shall be to the Interest
Expense of the Company and its Subsidiaries, determined on a consolidated basis.
"Investment" means (i) the acquisition (whether for cash, property,
services, securities or otherwise) of Capital Stock, bonds, notes, debentures,
partnership or other ownership interests or other securities of any other Person
or any agreement to make any such acquisition; and (ii) the making of any
advance, loan or other extension of credit to, any Person (including the
purchase of property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such Person, but
excluding any accounts receivable created in the ordinary course of business).
"ITCO Shares" shall mean the shares of Class B Stock issued to the ITCO
Stockholders in connection with the ITCO Merger, and shall be deemed for
purposes of this Agreement to include any and all shares of capital stock of the
Company or any of its successors or assigns (whether by merger, consolidation,
sale of assets or otherwise) or securities convertible into or exchangeable for
shares of capital stock of the Company, in each case, that may be issued in
respect of, in exchange for or in substitution of such ITCO Shares by reason of
any stock dividend, split, reverse split, combination or other adjustment,
conversion, recapitalization, reclassification, merger, consolidation or
otherwise.
"ITCO Stockholder Majority" shall mean the holders of a majority of the
ITCO Shares (excluding for purposes of this Agreement any ITCO Shares owned by
the Company or any of its Affiliates).
"ITCO Stockholders" shall have the meaning given in the preamble to this
Agreement, and shall be deemed for purposes of this Agreement to include and
refer to any Permitted Transferees (as defined in Section 1.1).
"Liabilities" of any Person shall mean all items (except for items of
capital stock, additional paid-in capital or retained earnings, or of general
contingency or deferred tax reserves) which in accordance with GAAP would be
included in determining total liabilities as shown on the liability side of a
balance sheet of such Person as at the date as of which Liabilities are to be
determined.
"Lien" as applied to the property of any Person means:
(a) any mortgage, deed to secure debt, deed of trust, lien, pledge,
charge, lease constituting a Capital Lease Obligation, conditional sale or other
title retention agreement, or other security interest, security title or
encumbrance of any kind in respect of any property of such Person, or upon the
income or profits therefrom,
(b) any arrangement, express or implied, under which any property of such
Person is transferred, sequestered or otherwise identified for the purpose of
subjecting the same to the payment of Indebtedness or performance of any other
obligation in priority to the payment of the general, unsecured creditors of
such Person,
A-5
<PAGE> 29
(c) any Indebtedness which is unpaid more than 30 days after the same
shall have become due and payable and which if unpaid might by law (including,
but not limited to, bankruptcy and insolvency laws), or otherwise, be given any
priority whatsoever over the claims of general unsecured creditors of such
Person, except to the extent being disputed or contested by the Company or its
Subsidiaries by appropriate proceedings and in respect of which any reserve
required by GAAP has been appropriately established and maintained,
(d) the filing of, or any agreement to give, any financing statement under
the UCC or its equivalent in any jurisdiction, excluding informational financial
statements relating to property leased by the Company or its Subsidiaries, and
(e) in the case of any interest in real estate, reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances.
"Market Price" shall mean, per share of Common Stock, on any date
specified herein: (a) if the Common Stock is then listed or admitted to trading
on any national securities exchange, the closing price of the Common Stock on
such date; (b) if the Common Stock is not then listed or admitted to trading on
any national securities exchange but is designated as a national market system
security, the last sale price of the Common Stock on such date; or (c) if there
shall have been no trading on such date or if the Common Stock is not so
designated, the average of the reported closing bid and asked price of the
Common Stock, on such date as shown by Nasdaq and reported by any member firm of
the NYSE selected by the Company; or (d) if neither (a), (b) nor (c) is
applicable, the Fair Market Value per share determined in good faith by the
Board of Directors of the Company which shall be deemed to be Fair Market Value
unless holders of at least 33% of the ITCO Shares request that the Company
obtain an opinion of a nationally recognized investment banking firm chosen by
the Company (who shall bear the expense) and reasonably acceptable to such
requesting holders of the ITCO Shares, in which event the Fair Market Value
shall be as determined by such investment banking firm.
"Nasdaq" shall mean the National Market System of the Nasdaq Stock Market.
"Net Income" shall mean, for any period, the net income (loss) of any
Person, determined in accordance with GAAP, after deducting all operating
expenses, provisions for taxes and reserves and all other proper deductions in
accordance with GAAP. All references contained herein to the Net Income of the
Company shall be to the Net Income of the Company and its Subsidiaries,
determined on a consolidated basis.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Person" shall mean any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint
A-6
<PAGE> 30
stock company, Governmental Authority or other entity of any kind, and shall
include any successor (by merger or otherwise) of any such entity.
"Principal Stockholders" shall mean Ann Heafner Gaither, William H.
Gaither, Susan Gaither Jones and Thomas R. Jones.
"Redemption Value" shall mean the Business Value plus the cash and
Temporary Cash Investments of the Company and its Subsidiaries as of the last
day of the Calculation Period minus the sum of the Funded Debt and Capital Lease
Obligations of the Company and its Subsidiaries as of the last day of the
Calculation Period.
"Requirements of Law" shall mean, as to any Person, any law, treaty, rule
or regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
"Restricted Payment" shall mean (a) any dividend or other distribution on
any share of the Company's or any Subsidiary's capital stock (except dividends
payable solely in shares of their capital stock) or (b) any payment by the
Company or any of its Subsidiaries on account of the direct or indirect
purchase, redemption, retirement or other acquisition of (i) any shares of the
Company's or any such Subsidiary's capital stock (except shares acquired upon
the conversion or exercise thereof into other shares of their capital stock),
(ii) any option, warrant or other right to acquire shares of the Company's or
any such Subsidiary's capital stock (except upon the conversion or exercise
thereof into shares of capital stock) or (iii) any Indebtedness of the Company
or any such Subsidiary (other than Indebtedness of the Company or any Subsidiary
existing on the date hereof (including without limitation the Indebtedness
described on Schedule 3.3), as amended, modified, supplemented and/or restated
from time to time in accordance with its terms, including any replacement
agreement therefor and any refinancing of the debt incurred thereunder, prior to
any date set forth for mandatory repayment of principal or interest thereon.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
"Subordinated Financing Documents" shall mean the Senior Subordinated Note
and Warrant Purchase Agreement, dated as of May 7, 1997, between the Company and
The 1818 Mezzanine Fund, L.P., and the notes and agreements entered into in
connection therewith, including the warrants to acquire initially 977,590 shares
of Class A Stock of the Company at an exercise price of $.01 per share (the
"Warrants") issued to The 1818 Mezzanine Fund, L.P., each as amended or modified
from time to time in accordance with its terms.
"Subsidiary" shall mean, with respect to any Person, a corporation or
other entity of which 50% or more of the combined voting power of the then
outstanding securities ordinarily (and apart from rights accruing under special
circumstances) having
A-7
<PAGE> 31
the right to vote in the election of directors is owned, directly or indirectly,
by such Person.
"Temporary Cash Investment" means any Investment in (i) United States
Government Obligations, (ii) commercial paper rated at least A or the equivalent
thereof by Moody's Investors Services, Inc. or a similar nationally recognized
credit rating agency or (iii) time deposits (including certificates of deposit)
with any bank or trust company which is organized, licensed or otherwise
regulated under the laws of the United States or any state thereof, the
long-term debt securities of which are rated at least A or the equivalent
thereof by Moody's Investors Service, Inc. or a similar nationally recognized
credit rating agency; provided, in each case, that such Investment matures
within one (1) year from the date of acquisition thereof by the Company, or any
of its Subsidiaries.
"United States Government Obligations" means direct non-callable
obligations of, or non-callable obligations guaranteed by the United States for
the payment of which obligation the full faith and credit of the United States
is pledged.
A-8
<PAGE> 1
Exhibit 10.11
CLASS B REGISTRATION RIGHTS AGREEMENT, dated as of May 20, 1998 (the
"Agreement"), among The J. H. Heafner Company, Inc., a North Carolina
corporation (the "Company"), and the former stockholders (the "ITCO
Stockholders") of ITCO Logistics Corporation, a Delaware corporation
("ITCO")
----------------------------------------------------------------------
INTRODUCTION
Pursuant to an Agreement and Plan of Merger, dated as of March 10,
1998 (the "Merger Agreement"), among Heafner, ITCO Merger Corporation, a
Delaware corporation ("Acquisition"), ITCO and each of the ITCO Stockholders,
the parties have agreed to merge Acquisition with and into ITCO (the "ITCO
Merger"). In connection with the ITCO Merger, the ITCO Stockholders are
receiving, among other things, newly issued shares of Class B Common Stock, $.01
par value, of the Company (the "Class B Stock") in exchange for their shares of
ITCO common stock.
As a condition to the consummation of the transactions contemplated
in the Merger Agreement, the parties have agreed to enter into this Agreement.
The Company and each of the ITCO Stockholders are also parties to a
Class B Stockholder Agreement, dated as of the date hereof (the "Class B
Stockholder Agreement"), with respect to the Class B Stock.
The parties agree as follows:
ARTICLE I
REGISTRATION RIGHTS
SECTION 1.1. Requested Registration.
(a) Exercise of Rights. At any time, or from time to time following
an Initial Public Offering, one or more holders (the "Initiating Holders") of
33% or more of the shares of Class B Stock issued to the ITCO Stockholders in
connection with the ITCO Merger may, upon written request, require the Company
to effect the registration under the Securities Act of any Registrable
Securities held by such Initiating Holders. The Company promptly will give
written notice of such requested registration to all other holders of
Registrable Securities who may join in such registration, and thereupon the
Company will use its reasonable best efforts to effect, at the earliest possible
date, the registration under the Securities Act, including by means of an
"evergreen" shelf registration on Form S-3 (or any successor form) pursuant to
Rule 415 under the Securities Act if so requested in such request (but only if
the Company is then eligible to use such a shelf registration and if Form S-3
(or such successor form) is then available to the Company), of
<PAGE> 2
(i) the Registrable Securities that the Company has been so
requested to register by such Initiating Holders, and
(ii) all other Registrable Securities that the Company has
been requested to register by the holders thereof (such holders together
with the Initiating Holders hereinafter are referred to as the "Selling
Holders") by written request given to the Company within 20 days after the
giving of such written notice by the Company, all to the extent requisite
to permit the disposition of the Registrable Securities so to be
registered.
(b) Registration of Other Securities. Whenever the Company shall
effect a registration pursuant to this Section 1.1, no securities (other than
(i) Registrable Securities, (ii) securities to be offered and sold by the
Company for its own account or (iii) securities to be included in such
registration pursuant to Section 2.2 of the Registration Rights Agreement dated
May 7, 1997 (the "1818 Registration Rights Agreement") between the Company and
The 1818 Mezzanine Fund, L.P.) shall be included among the securities covered by
such registration unless the Selling Holders of not less than 51% of all
Registrable Securities to be covered by such registration shall have consented
in writing to the inclusion of such other securities.
(c) Registration Statement Form. Registrations under this Section
1.1 shall be on such appropriate registration form of the Commission as shall be
reasonably selected by the Company.
(d) Effective Registration Statement. A registration requested
pursuant to this Section 1.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective and
remained effective in compliance with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement until the earlier of (x) such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in such
registration statement and (y) 180 days after the effective date of such
registration statement, except with respect to any registration statement filed
pursuant to Rule 415 under the Securities Act, in which case the Company shall
use its best efforts to keep such registration statement effective until such
time as all of the Registrable Securities cease to be Registrable Securities,
(ii) if after it has become effective, such registration is interfered with by
any stop order, injunction or other order or requirement of the Commission or
other governmental agency or court for any reason not attributable to the
Selling Holders and has not thereafter become effective, or (iii) if the
conditions to closing specified in the underwriting agreement, if any, entered
into in connection with such registration are not satisfied or waived, other
than by reason of a failure on the part of the Selling Holders.
(e) Selection of Underwriters. The underwriter or underwriters of
each underwritten offering of the Registrable Securities so to be registered
shall be selected by the Company and shall be reasonably acceptable to the
Selling Holders of more than 50% of each class of Registrable Securities to be
included in such registration.
(f) Priority in Requested Registration. If the managing underwriter
of any underwritten offering shall advise the Company in writing (and the
Company shall so advise each
2
<PAGE> 3
Selling Holder of Registrable Securities requesting registration of such advice)
that, in its opinion, the number of securities requested to be included in such
registration exceeds the number that can be sold in such offering within a price
range acceptable to the Selling Holders of 66 2/3% of the Registrable Securities
requested to be included in such registration, the Company, except as provided
in the following sentence, will include in such registration, to the extent of
the number and type that the Company is so advised can be sold in such offering,
prior to the inclusion of any securities which are not Registrable Securities
the number of Registrable Securities requested to be included in such
registration, pro rata among the Selling Holders requesting such registration on
the basis of the estimated gross proceeds from the sale thereof. If the total
number of Registrable Securities requested to be included in such registration
cannot be included as provided in the preceding sentence, holders of Registrable
Securities requesting registration thereof pursuant to Section 1.1, representing
not less than 33 1/3% of the Registrable Securities with respect to which
registration has been requested and constituting not less than 66 2/3% of the
Initiating Holders, shall have the right to withdraw the request for
registration by giving written notice to the Company within 15 days after
receipt of such notice by the Company and, in the event of such withdrawal, such
request shall not be counted for purposes of the requests for registration to
which holders of Registrable Securities are entitled pursuant to Section 1.1
hereof.
(g) Limitations on Registration on Request. Notwithstanding anything
in this Section 1.1 to the contrary, in no event will the Company be required to
(i) effect, in the aggregate, more than two registrations pursuant to this
Section 1.1 or (ii) effect more than one registration pursuant to this Section
1.1 within the twelve-month period occurring immediately subsequent to the
effectiveness (within the meaning of Section 1.1(d)) of a registration statement
filed pursuant to this Section 1.1.
(h) Listing. The Company shall list the Registrable Securities
subject to Section 1.1(a) on the National Market System of the Nasdaq Stock
Market or another of the national securities exchanges or automated quotation
systems.
(i) Expenses. The Company will pay all Registration Expenses (except
for any underwriting commissions or discounts) in connection with any
registration requested pursuant to this Section 1.1.
SECTION 1.2. Incidental Registration.
(a) Right to Include Registrable Securities. If the Company at any
time, other than in connection with an Initial Public Offering, proposes to
register any shares of Common Stock or any securities convertible into Common
Stock under the Securities Act by registration on any form other than Forms S-4
or S-8, whether or not for sale for its own account, it will each such time give
prompt written notice to all registered holders of Registrable Securities of its
intention to do so and of such holders' rights under this Section 1.2. Upon the
written request of any such holder (a "Requesting Holder") made as promptly as
practicable and in any event within 20 days after the receipt of any such notice
given by the Company, the Company will use its reasonable best efforts to effect
the registration under the Securities Act of all Registrable Securities that the
Company has been so requested to register by the Requesting Holders thereof;
provided, however, that prior to the effective date of the registration
statement filed in connection with such
3
<PAGE> 4
registration, immediately upon notification to the Company from the managing
underwriter of the price at which such securities are to be sold, if such price
is below the price that any Requesting Holder shall have indicated to be
acceptable to such Requesting Holder, the Company shall so advise such
Requesting Holder of such price, and such Requesting Holder shall then have the
right to withdraw its request to have its Registrable Securities included in
such registration statement; provided further, that if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, in its sole discretion,
give written notice of such determination to each Requesting Holder of
Registrable Securities and (i) in the case of a determination not to register,
shall be relieved of its obligation to register any Registrable Securities in
connection with such registration (but not from any obligation of the Company to
pay the Registration Expenses in connection therewith), without prejudice,
however, to the rights of any holder or holders of Registrable Securities
entitled to do so to cause such registration to be effected as a registration
under Section 1.1, and (ii) in the case of a determination to delay registering,
shall be permitted to delay registering any Registrable Securities, for the same
period as the delay in registering such other securities; provided further, that
the rights of the Requesting Holders under this Section 1.2 are subject to
Section 2.1(b) of the 1818 Registration Rights Agreement. No registration
effected under this Section 1.2 shall relieve the Company of its obligation to
effect any registration upon request under Section 1.1.
(b) Priority in Incidental Registrations. If the managing
underwriter of any underwritten offering shall inform the Company in writing of
its opinion that the number or type of Registrable Securities requested pursuant
to Section 1.2(a) to be included in such registration would materially adversely
effect such offering, and the Company has so advised the Requesting Holders in
writing, then the Company will include in such registration, to the extent of
the number and type that the Company is so advised can be sold in (or during the
time of) such offering, first, all securities proposed by the Company to be sold
for its own account, second, if such offering has been requested by a Person
pursuant to any registration rights agreement between the Company and such
Person and by the terms of such registration rights agreement the securities
subject to such registration rights agreement must be included in such
registration prior to those held by the Requesting Holders, the securities
requested to be included in such offering by such Person, third, if a Person has
requested that the Company include securities of such Person in such offering
and by the terms of any registration rights agreement in effect as of the date
hereof between the Company and such Person the securities subject to such
registration rights agreement must be included in such offering prior to those
held by the Requesting Holders, the securities requested to be included in such
offering by such Person, fourth, Registrable Securities requested to be included
in such registration pursuant to this Agreement and fifth, all other securities
proposed to be registered.
(c) Expenses. The Company will pay all Registration Expenses (except
for any underwriting commissions or discounts) in connection with any
registration effected pursuant to this Section 1.2.
4
<PAGE> 5
SECTION 1.3. Registration Procedures. If and whenever the Company is
required to effect the registration of any Registrable Securities under the
Securities Act as provided in Sections 1.1 and 1.2, the Company will, as
expeditiously as possible:
(i) prepare and (within 90 days after the end of the period
within which requests for registration may be given to the Company or in
any event as soon thereafter as practicable) file with the Commission the
requisite registration statement to effect such registration and
thereafter use its reasonable best efforts to cause such registration
statement to become effective; provided, however, that the Company may
discontinue any registration of its securities that are not Registrable
Securities (and, under the circumstances specified in Section 1.2(a), its
securities that are Registrable Securities) at any time prior to the
effective date of the registration statement relating thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities covered
by such registration statement until the earlier of (a) such time as all
of such Registrable Securities have been disposed of in accordance with
the intended methods of disposition by the seller or sellers thereof set
forth in such registration statement and (b) 180 days after the effective
date of such registration statement, except with respect to any
registration statement filed pursuant to Rule 415 under the Securities Act
if the Company is eligible to file a registration statement on Form S-3,
in which case the Company shall use its reasonable best efforts to keep
the registration statement effective and updated, from the date such
registration statement is declared effective until such time as all of the
Registrable Securities cease to be Registrable Securities;
(iii) furnish to each seller of Registrable Securities covered
by such registration statement, such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents, as
such seller may reasonably request;
(iv) use its reasonable best efforts (x) to register or
qualify all Registrable Securities and other securities covered by such
registration statement under such other securities or blue sky laws of
such States of the United States of America where an exemption is not
available and as the sellers of Registrable Securities covered by such
registration statement shall reasonably request, (y) to keep such
registration or qualification in effect for so long as such registration
statement remains in effect and (z) to take any other action that may be
reasonably necessary or advisable to enable such sellers to consummate the
disposition in such jurisdictions of the securities to be sold by such
sellers, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in
any jurisdiction wherein it would not but for the requirements of this
5
<PAGE> 6
subdivision (iv) be obligated to be so qualified or to consent to general
service of process in any such jurisdiction;
(v) use its reasonable best efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such other federal or state governmental agencies or
authorities as may be necessary in the opinion of counsel to the Company
and counsel to the seller or sellers of Registrable Securities to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
(vi) in the case of an underwritten or "best efforts"
offering, furnish, if reasonably available, at the effective date of such
registration statement to each seller of Registrable Securities, and each
such seller's underwriters, if any, a signed counterpart of (x) an opinion
of counsel for the Company, dated the effective date of such registration
statement and, if applicable, the date of the closing under the
underwriting agreement, and (y) a "comfort" letter signed by the
independent public accountants who have certified the Company's financial
statements included or incorporated by reference in such registration
statement, covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of the accountants' comfort letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' comfort letters delivered
to the underwriters in underwritten public offerings of securities and, in
the case of the accountants' comfort letter, such other financial matters,
and, in the case of the legal opinion, such other legal matters, as the
underwriters may reasonably request;
(vii) cause representatives of the Company to participate in
any "road show" or "road shows" reasonably requested by any underwriter of
an underwritten or "best efforts" offering of any Registrable Securities;
(viii) notify each seller of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, upon discovery that,
or upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, in the light of the circumstances under which they were
made, and at the request of any such seller promptly prepare and furnish
to it a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were
made;
(ix) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission, and, if required,
make available to its security holders, as soon as reasonably practicable,
an earnings statement covering the period of at least twelve months, but
not more than eighteen months, beginning with the first full calendar
month after the effective date of such registration statement, which
earnings statement shall
6
<PAGE> 7
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
promulgated thereunder, and promptly furnish to each such seller of
Registrable Securities a copy of any amendment or supplement to such
registration statement or prospectus;
(x) provide and cause to be maintained a transfer agent and
registrar (which, in each case, may be the Company) for all Registrable
Securities covered by such registration statement from and after a date
not later than the effective date of such registration; and
(xi) use its reasonable best efforts to list all Registrable
Securities covered by such registration statement on the National Market
System of the Nasdaq Stock Market or any national securities exchange on
which Registrable Securities of the same class covered by such
registration statement are then listed and, if no such Registrable
Securities are so listed, on the National Market System of the Nasdaq
Stock Market or any national securities exchange on which the Common Stock
is then listed.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company in a reasonably prompt
manner such information regarding such seller and the distribution of such
securities as the Company may from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (viii) of this
Section 1.3, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (viii) of this
Section 1.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
SECTION 1.4. Underwritten Offerings.
(a) Requested Underwritten Offerings. If requested by the
underwriters for any underwritten offering by holders of Registrable Securities
pursuant to a registration requested under Section 1.1, the Company will use its
reasonable best efforts to enter into an underwriting agreement with such
underwriters for such offering, such agreement to be reasonably satisfactory in
substance and form to the Company, each such holder and the underwriters and to
contain such representations and warranties by the Company and such other terms
as are generally prevailing in agreements of that type, including, without
limitation, indemnities to the effect and to the extent provided in Section 1.7.
The holders of the Registrable Securities proposed to be sold by such
underwriters will reasonably cooperate with the Company in the negotiation of
the underwriting agreement. Such holders of Registrable Securities to be sold by
such underwriters shall be parties to such underwriting agreement and may, at
their option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such
7
<PAGE> 8
underwriters under such underwriting agreement be conditions precedent to the
obligations of such holders of Registrable Securities. No holder of Registrable
Securities shall be required to make any representations or warranties to, or
agreements with, the Company other than representations, warranties or
agreements regarding such holder, such holder's Registrable Securities and such
holder's intended method of distribution or any other representations required
by applicable law.
(b) Incidental Underwritten Offerings. If the Company proposes to
register any of its securities under the Securities Act as contemplated by
Section 1.2 and such securities are to be distributed by or through one or more
underwriters, the Company will, if requested by any Requesting Holder of
Registrable Securities, use its reasonable best efforts to arrange for such
underwriters to include all the Registrable Securities to be offered and sold by
such Requesting Holder among the securities of the Company to be distributed by
such underwriters, subject to the provisions of Section 1.2(b). The holders of
Registrable Securities to be distributed by such underwriters shall be parties
to the underwriting agreement between the Company and such underwriters and may,
at their option, require that any or all of the representations and warranties
by, and the other agreements on the part of, the Company to and for the benefit
of such underwriters shall also be made to and for the benefit of such holders
of Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. Any such
Requesting Holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company other than
representations, warranties or agreements regarding such Requesting Holder, such
Requesting Holder's Registrable Securities and such Requesting Holder's intended
method of distribution or any other representations required by applicable law.
(c) Underwriting Discounts and Commission. The holders of
Registrable Securities sold in any offering pursuant to Section 1.4(a) or
Section 1.4(b) shall pay all underwriting discounts and commissions of the
underwriter or underwriters with respect to the Registrable Securities sold
thereby.
SECTION 1.5. Preparation; Reasonable Investigation. In connection
with the preparation and filing of each registration statement under the
Securities Act pursuant to this Agreement, the Company will give the holders of
Registrable Securities registered under such registration statement, their
underwriters, if any, and their respective counsel the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such reasonable access to its
books and records and such opportunities to discuss the business of the Company
with its officers and the independent public accountants who have certified its
financial statements as shall be necessary, in the opinion of such holders' and
such underwriters' respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
SECTION 1.6. Limitations, Conditions and Qualifications to
Obligations under Registration Covenants. The Company shall be entitled to
postpone for a reasonable period of time (but not exceeding 90 days) the filing
of any registration statement otherwise required to be
8
<PAGE> 9
prepared and filed by it pursuant to Section 1.1 if the Company determines, in
its good faith judgment, that such registration and offering would interfere
with any material financing, acquisition, corporate reorganization or other
material transaction involving the Company or any of its affiliates and promptly
gives the holders of Registrable Securities requesting registration thereof
pursuant to Section 1.1 written notice of such determination, containing a
general statement of the reasons for such postponement and an approximation of
the anticipated delay. If the Company shall so postpone the filing of a
registration statement, holders of Registrable Securities requesting
registration thereof pursuant to Section 1.1, representing not less than 33 1/3%
of the Registrable Securities with respect to which registration has been
requested and constituting not less than 66 2/3% of the Initiating Holders,
shall have the right to withdraw the request for registration by giving written
notice to the Company within 30 days after receipt of the notice of postponement
and, in the event of such withdrawal, such request shall not be counted for
purposes of the requests for registration to which holders of Registrable
Securities are entitled pursuant to Section 1.1 hereof. The delay right in favor
of the Company contemplated by this Section 1.6 may be exercised no more
frequently than once during any calendar year.
SECTION 1.7. Indemnification.
(a) Indemnification by the Company. The Company will, and hereby
does, indemnify and hold harmless, in the case of any registration statement
filed pursuant to Section 1.1 or 1.2, each seller of any Registrable Securities
covered by such registration statement and each other Person who participates as
an underwriter in the offering or sale of such securities and each other Person,
if any, who controls such seller or any such underwriter within the meaning of
the Securities Act, and their respective directors, officers, partners, members,
agents and affiliates against any losses, claims, damages, expenses or
liabilities, joint or several, to which such seller or underwriter or any such
director, officer, partner, member, agent, affiliate or controlling person may
become subject under the Securities Act or otherwise, including, without
limitation, the reasonable fees and expenses of legal counsel (including those
incurred in connection with any claim for indemnity hereunder), insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, 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 under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, and the Company will
reimburse such seller or underwriter and each such director, officer, partner,
member, agent, affiliate and controlling Person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such seller
or underwriter, as the case may be, specifically stating that it is for use in
the preparation thereof; and provided further, that the Company shall
9
<PAGE> 10
not be liable to any Person who participates as an underwriter in the offering
or sale of Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or amended,
to the Person asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of the sale
of Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller
or any such director, officer, partner, member, agent or controlling person and
shall survive the transfer of such securities by such seller.
(b) Indemnification by the Sellers. As a condition to including any
Registrable Securities in any registration statement, the Company shall have
received an undertaking satisfactory to it from the prospective seller of such
Registrable Securities, to indemnify and hold harmless (in the same manner and
to the same extent as set forth in Section 1.7(a)) the Company, and each
director of the Company, each officer of the Company and each other Person, if
any, who participates as an underwriter in the offering or sale of such
securities and each other Person who controls the Company or any such
underwriter within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by such seller specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; provided, however, that
the liability of such indemnifying party under this Section 1.7(b) shall be
limited to the amount of the net proceeds received by such indemnifying party in
the offering giving rise to such liability. Such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person and shall survive
the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in Section 1.7(a) or (b), such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 1.7, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it may
wish, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party; provided, however, that any indemnified party may, at
its own expense, retain separate counsel to participate in such defense.
Notwithstanding the foregoing, in any action or proceeding in which both the
Company and an indemnified party is, or is reasonably likely to become, a party,
such indemnified party shall have
10
<PAGE> 11
the right to employ separate counsel at the Company's expense and to control its
own defense of such action or proceeding if, in the reasonable opinion of
counsel to such indemnified party, (a) there are or may be legal defenses
available to such indemnified party or to other indemnified parties that are
different from or additional to those available to the Company or (b) any
conflict or potential conflict exists between the Company and such indemnified
party that would make such separate representation advisable; provided, however,
that in no event shall the Company be required to pay fees and expenses under
this Section 1.7 for more than one firm of attorneys in any jurisdiction in any
one legal action or group of related legal actions. No indemnifying party shall
be liable for any settlement of any action or proceeding effected without its
written consent, which consent shall not be unreasonably withheld. No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement that does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation or which requires action other than the payment of money by the
indemnifying party.
(d) Contribution. If the indemnification provided for in this
Section 1.7 shall for any reason be held by a court to be unavailable to an
indemnified party under Section 1.7(a) or (b) hereof in respect of any loss,
claim, damage or liability, or any action in respect thereof, then, in lieu of
the amount paid or payable under Section 1.7(a) or (b), the indemnified party
and the indemnifying party under Section 1.7(a) or (b) shall contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating the same,
including those incurred in connection with any claim for indemnity hereunder),
(i) in such proportion as is appropriate to reflect the relative fault of the
Company and the prospective sellers of Registrable Securities covered by the
registration statement which resulted in such loss, claim, damage or liability,
or action or proceeding in respect thereof, with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action or
proceeding in respect thereof, as well as any other relevant equitable
considerations or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as shall be appropriate to
reflect the relative benefits received by the Company and such prospective
sellers from the offering of the securities covered by such registration
statement; provided, however, that for purposes of this clause (ii), the
relative benefits received by the prospective sellers shall be deemed not to
exceed the amount of proceeds received by such prospective sellers. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation. Such prospective sellers'
obligations to contribute as provided in this Section 1.7(d) are several in
proportion to the relative value of their respective Registrable Securities
covered by such registration statement and not joint. In addition, no Person
shall be obligated to contribute hereunder any amounts in payment for any
settlement of any action or claim effected without such Person's consent, which
consent shall not be unreasonably withheld.
(e) Other Indemnification. Indemnification and contribution similar
to that specified in the preceding subdivisions of this Section 1.7 (with
appropriate modifications) shall be given by the Company and each seller of
Registrable Securities with respect to any required registration or other
qualification of securities under any federal or state law or regulation of any
governmental authority other than the Securities Act.
11
<PAGE> 12
(f) Indemnification Payments. The indemnification and contribution
required by this Section 1.7 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
SECTION 1.8. Transfer of Registration Rights. The rights of the ITCO
Stockholders set forth in this Agreement may be assigned only in connection with
a transfer or assignment of Registrable Securities by a holder thereof; provided
that such transfer of Registrable Securities (i) may otherwise be effected in
accordance with applicable securities laws and (ii) is effected in compliance
with the restrictions on transfer applicable to such Registrable Securities, if
any, contained in the Company's certificate of incorporation or bylaws or any
agreement between the Company and any of its stockholders; provided, further,
that any such assignment is subject to the provisions herein respecting the
minimum numbers or percentages of shares of Registrable Securities required in
order to be entitled to certain rights, or take certain actions, contained
herein. No transfer or assignment will divest a holder of Registrable Securities
or any subsequent owner of such rights and powers unless all Registrable
Securities are transferred or assigned. This Section 1.8 is not intended to
modify or waive any restrictions on transfer of the Registrable Securities that
may exist under the Company's certificate of incorporation or bylaws or any
agreement between the Company and any of its stockholders.
ARTICLE II
DEFINITIONS
As used in this Agreement, unless the context otherwise requires,
the following terms have the following respective meanings:
"Commission" means the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean and include the Class A Common Stock, par
value $.01, of the Company, the Class B Stock and each other class of capital
stock of the Company that does not have a preference over any other class of
capital stock of the Company as to dividends or upon liquidation, dissolution or
winding up of the Company and, in each case, shall include any other class of
capital stock of the Company into which such stock is reclassified or
reconstituted.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Securities Exchange Act of 1934, as amended,
shall include a reference to the comparable section, if any, of any such similar
Federal statute.
"Initial Public Offering" means the initial public offering of the
Common Stock and such Common Stock is listed on the New York Stock Exchange,
Inc. or quoted or listed on the National Market System of the Nasdaq Stock
Market.
12
<PAGE> 13
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Registrable Securities" means any shares of Class B Stock issued to
the ITCO Stockholders in connection with the ITCO Merger and any Related
Registrable Securities and any shares of Common Stock owned by an ITCO
Stockholder. As to any particular Registrable Securities, once issued, such
securities shall cease to be Registrable Securities when (a) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) they shall have been sold
as permitted by Rule 144 (or any successor provision) under the Securities Act
and the purchaser thereof does not receive "restricted securities" as defined in
Rule 144, (c) they shall have been otherwise transferred, new certificates for
them not bearing a legend restricting further transfer shall have been delivered
by the Company and subsequent public distribution of them shall not, in the
opinion of counsel for the holders, require registration of them under the
Securities Act or (d) they shall have ceased to be outstanding. All references
to percentages of Registrable Securities shall be calculated pursuant to Section
3.6.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Article I, including, without limitation, all
registration and filing fees, all fees of the New York Stock Exchange, Inc.,
other national securities exchanges or the National Association of Securities
Dealers, Inc., all fees and expenses of complying with securities or blue sky
laws, all word processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of "cold comfort"
letters required by or incident to such performance and compliance, any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities (excluding any underwriting discounts or commissions with respect to
the Registrable Securities) and the reasonable fees and expenses of one counsel
to the Selling Holders (selected by Selling Holders representing at least 50% of
the Registrable Securities covered by such registration). Notwithstanding the
foregoing, in the event the Company shall determine, in accordance with Section
1.2(a) or Section 1.6, not to register any securities with respect to which it
had given written notice of its intention to so register to holders of
Registrable Securities, all of the costs of the type (and subject to any
limitation to the extent) set forth in this definition and incurred by
Requesting Holders in connection with such registration on or prior to the date
the Company notifies the Requesting Holders of such determination shall be
deemed Registration Expenses.
"Related Registrable Securities" means with respect to shares of
Class B Stock, any securities of the Company issued or issuable with respect to
such shares of Class B Stock by way of a dividend or stock split, or in exchange
for or in replacement of the Class B Stock, or in connection with a combination
of shares, recapitalization, merger, consolidation or other reorganization or
otherwise.
13
<PAGE> 14
"Securities Act" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of any such similar Federal
statute.
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.1. Rule 144 and Rule 144A. Following an Initial Public
Offering, the Company shall take all actions reasonably necessary to enable
holders of Registrable Securities to sell such securities without registration
under the Securities Act within the limitation of the provisions of (a) Rule 144
under the Securities Act, as such Rule may be amended from time to time, (b)
Rule 144A under the Securities Act, as such Rule may be amended from time to
time, or (c) any similar rules or regulations hereafter adopted by the
Commission. Upon the request of any holder of Registrable Securities, the
Company will deliver to such holder a written statement as to whether it has
complied with such requirements.
SECTION 3.2. Amendments and Waivers. This Agreement may be amended
with the consent of the Company and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company shall have obtained the written consent to such amendment,
action or omission to act, of the holder or holders of at least 50% of the
Registrable Securities affected by such amendment, action or omission to act.
Each holder of any Registrable Securities at the time or thereafter outstanding
shall be bound by any consent authorized by this Section 3.2, whether or not
such Registrable Securities shall have been marked to indicate such consent.
SECTION 3.3. Nominees for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request or other action by any holder or holders of Registrable Securities
pursuant to this Agreement or any determination of any number or percentage of
shares of Registrable Securities held by any holder or holders of Registrable
Securities contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities.
SECTION 3.4. Notices. All notices, demands and other communications
provided for or permitted under this Agreement shall be made in writing and
shall be by registered or certified first-class mail, return receipt requested,
telecopier, courier service or personal delivery (a) if to any ITCO Stockholder,
addressed to it in the manner set forth in the Merger Agreement, or at such
other address as it shall have furnished to the Company in writing in the manner
set forth herein; (b) if to any other holder of Registrable Securities, at the
address that such holder shall have furnished to the Company in writing in the
manner set forth herein, or, until any such other holder so furnishes to the
Company an address, then to and at the address of the last holder of such
Registrable Securities who has furnished an address to the Company; or (c) if to
the
14
<PAGE> 15
Company, addressed to it in the manner set forth in the Merger Agreement, or at
such other address as the Company shall have furnished to each holder of
Registrable Securities at the time outstanding in the manner set forth herein.
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; when delivered to a courier, if
delivered by overnight courier service; five Business Days after being deposited
in the mail, postage prepaid, if mailed; and when receipt is acknowledged, if
sent by facsimile.
SECTION 3.5. Assignment. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and, with
respect to the Company, its respective successors and permitted assigns and,
with respect to any holder of any Registrable Securities, subject to the
provisions respecting the minimum numbers of percentages of shares of
Registrable Securities required in order to be entitled to certain rights, or
take certain actions, contained herein. Except by operation of law, this
Agreement may not be assigned by the Company without the prior written consent
of the holders of a majority in interest of the Registrable Securities
outstanding at the time such consent is requested.
SECTION 3.6. Calculation of Percentage Interests in Registrable
Securities. For purposes of this Agreement, all references to a percentage of
the Registrable Securities shall be calculated based upon the number of shares
of Registrable Securities outstanding at the time such calculation is made.
SECTION 3.7. No Inconsistent Agreements. The Company will not
hereafter enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the holders of Registrable Securities in
this Agreement. Without limiting the generality of the foregoing, the Company
will not hereafter enter into any agreement with respect to its securities that
grants, or modify any existing agreement with respect to its securities to
grant, to the holder of its securities in connection with an incidental
registration of such securities higher priority to the rights granted to the
ITCO Stockholders under Section 1.2(b).
SECTION 3.8. Remedies. Each holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
SECTION 3.9. Certain Distributions. The Company shall not at any
time make a distribution on or with respect to the Class B Stock (including any
such distribution made in connection with a consolidation or merger in which the
Company is the resulting or surviving corporation and such Registrable
Securities are not changed or exchanged) of securities of another issuer if
holders of Registrable Securities are entitled to receive such securities in
such distribution as holders of Registrable Securities and any of the securities
so distributed are registered under the Securities Act, unless the securities to
be distributed to the holders of Registrable Securities are also registered
under the Securities Act.
15
<PAGE> 16
SECTION 3.10. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
Purchaser shall be enforceable to the fullest extent permitted by law.
SECTION 3.11. Entire Agreement. This Agreement, together with the
Class B Stockholder Agreement and the Merger Agreement (in each case, including
the exhibits and schedules thereto), is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. This Agreement, the Class B
Stockholder Agreement and the Merger Agreement (in each case, including the
exhibits and schedules thereto) supersede all prior agreements and
understandings between the parties with respect to such subject matter.
SECTION 3.12. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
SECTION 3.13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
SECTION 3.14. Counterparts. This Agreement may be executed in
multiple counterparts, each of which when so executed shall be deemed an
original and all of which taken together shall constitute one and the same
instrument.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective representatives hereunto duly
authorized as of the date first above written.
THE J.H. HEAFNER COMPANY, INC.
By: /s/ Michael Gaither
--------------------------------------
Name: Michael Gaither
Title: Senior Vice President and General
Counsel
ITCO STOCKHOLDERS:
WINGATE PARTNERS II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT COMPANY II, L.P.,
its general partner
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By: /s/ V. Edward Easterling, Jr.,
--------------------------------------
V. Edward Easterling, Jr., Principal
------------------------------------------
Armistead Burwell, Jr.
3214 Rutherford Drive
Raleigh, NC 27609
------------------------------------------
William E. Berry
1213 Waverly Road
Wilson NC 27896
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective representatives hereunto duly
authorized as of the date first above written.
THE J.H. HEAFNER COMPANY, INC.
By:
--------------------------------------
Name: Michael Gaither
Title: Senior Vice President and
General Counsel
ITCO STOCKHOLDERS:
WINGATE PARTNERS II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT COMPANY II, L.P.,
its general partner
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
--------------------------------------
V. Edward Easterling, Jr., Principal
/s/ Armistead Burwell, Jr.
------------------------------------------
Armistead Burwell, Jr.
3214 Rutherford Drive
Raleigh, NC 27609
------------------------------------------
William E. Berry
1213 Waverly Road
Wilson NC 27896
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective representatives hereunto duly
authorized as of the date first above written.
THE J.H. HEAFNER COMPANY, INC.
By:
--------------------------------------
Name: Michael Gaither
Title: Senior Vice President and
General Counsel
ITCO STOCKHOLDERS:
WINGATE PARTNERS II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT COMPANY II, L.P.,
its general partner
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
--------------------------------------
V. Edward Easterling, Jr., Principal
------------------------------------------
Armistead Burwell, Jr.
3214 Rutherford Drive
Raleigh, NC 27609
/s/ William E. Berry
------------------------------------------
William E. Berry
1213 Waverly Road
Wilson NC 27896
<PAGE> 20
/s/ Richard P. Johnson
------------------------------------------
Richard P. Johnson
4229 Lomo Alto Court
Dallas, TX 75219
------------------------------------------
Leon R. Ellin
7308 Bay Hill Court
Raleigh, NC 27615
WINGATE AFFILIATES II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
--------------------------------------
V. Edward Easterling, Jr., Principal
CALLIER INVESTMENT COMPANY
c/o Wingate
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By:
--------------------------------------
James T. Callier
Managing Partner
<PAGE> 21
------------------------------------------
Richard P. Johnson
4229 Lomo Alto Court
Dallas, TX 75219
/s/ Leon R. Ellin
------------------------------------------
Leon R. Ellin
7308 Bay Hill Court
Raleigh, NC 27615
WINGATE AFFILIATES II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
--------------------------------------
V. Edward Easterling, Jr., Principal
CALLIER INVESTMENT COMPANY
c/o Wingate
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By:
--------------------------------------
James T. Callier
Managing Partner
<PAGE> 22
------------------------------------------
Richard P. Johnson
4229 Lomo Alto Court
Dallas, TX 75219
------------------------------------------
Leon R. Ellin
7308 Bay Hill Court
Raleigh, NC 27615
WINGATE AFFILIATES II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By: /s/ V. Edward Easterling, Jr.
--------------------------------------
V. Edward Easterling, Jr., Principal
CALLIER INVESTMENT COMPANY
c/o Wingate
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By:
--------------------------------------
James T. Callier
Managing Partner
<PAGE> 23
------------------------------------------
Richard P. Johnson
4229 Lomo Alto Court
Dallas, TX 75219
------------------------------------------
Leon R. Ellin
7308 Bay Hill Court
Raleigh, NC 27615
WINGATE AFFILIATES II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
--------------------------------------
V. Edward Easterling, Jr., Principal
CALLIER INVESTMENT COMPANY
c/o Wingate
750 North St. Paul, Suite 1200
Dallas, Texas 75201
By: /s/ James T. Callier
--------------------------------------
James T. Callier
Managing Partner
<PAGE> 1
Exhibit 10.12
ESCROW AGREEMENT (the "Agreement"), dated as of May 20,
1998, among The J. H. Heafner Company, Inc., a North
Carolina corporation ("Heafner"), the stockholders (the
"Company Stockholders") of ITCO Logistics Corporation, a
Delaware corporation (the "Company"), and The Chase
Manhattan Bank, a New York State chartered bank, as escrow
agent (the "Escrow Agent").
----------------------------------------------------------
INTRODUCTION
The Agreement and Plan of Merger, dated as of March 10, 1998 (the
"Merger Agreement") among Heafner, ITCO Merger Corporation, the Company and the
Company Stockholders requires as a condition to the consummation of the
transactions contemplated thereby that Heafner, the Company Stockholders and the
Escrow Agent enter into this Agreement and that the Company Stockholders deliver
the Escrow (as defined below) to the Escrow Agent in order to provide a fund for
indemnity payments that the Company Stockholders may become obligated to make to
Heafner as provided in Article V of the Merger Agreement. Capitalized terms used
and not otherwise defined herein have the meaning set forth in the Merger
Agreement.
Heafner, the Company Stockholders and the Escrow Agent agree as
follows:
1. Appointment of the Escrow Agent; Delivery of Escrow. Each of
Heafner and the Company Stockholders constitutes and appoints the Escrow Agent
as, and the Escrow Agent agrees to assume and perform the duties of, the escrow
agent under and pursuant to this Agreement. The Escrow Agent acknowledges
receipt from each Company Stockholder of (i) the stock certificates set forth
opposite such Company Stockholder's name on the signature pages to this
Agreement (the "Stock Certificates") representing an aggregate number of
1,400,667 shares (the "Shares") of Class B Common Stock, par value $.01 per
share, of Heafner (the "Class B Common Stock"), and (ii) stock powers
corresponding to the Stock Certificates duly executed in blank by the Company
Stockholders (together with the Stock Certificates and any dividends or
distributions in stock or other securities on the Shares, the "Escrow").
2. Acceptance and Undertaking of the Escrow Agent. The Escrow Agent
hereby acknowledges receipt of the documents and instruments comprising the
Escrow and covenants and agrees to hold all of the same in escrow, and
subsequently to release and distribute, or return, as the case may be, the
Escrow or any part thereof, only pursuant to and in strict accordance with all
of the terms and conditions of this Agreement.
3. Taxes. All taxes in respect of the Escrow shall be the obligation
of and shall be paid when due by the Company Stockholders, which shall indemnify
and hold Heafner
<PAGE> 2
and the Escrow Agent harmless from and against all such taxes. The Escrow Agent
shall have no responsibility for any tax reporting, and, subject to this
Agreement, any income on the Escrow shall be paid directly to the Company
Stockholders.
4. Claims Against the Escrow.
(a) Concurrently with the delivery of a notice to the Representative
(as defined in Section 14) of a claim for indemnification pursuant to Article V
of the Merger Agreement (a "Claim Notice"), or within a reasonable period
thereafter, Heafner will deliver to the Escrow Agent a certificate in
substantially the form of Annex I (a "Certificate of Instruction"). No
Certificate of Instruction may be delivered without the prior or simultaneous
delivery of a Claim Notice. No Certificate of Instruction may be delivered by
Heafner after the close of business on the business day immediately preceding
the Termination Date (as defined in Section 5). The Escrow Agent shall give
written notice to the Company Stockholders and the Representative of its receipt
of a Certificate of Instruction not later than the second business day next
following receipt thereof, together with a copy of such Certificate of
Instruction.
(b) If the Escrow Agent (i) shall not, within 45 calendar days
following its receipt of a Certificate of Instruction (the "Objection Period"),
have received from the Representative a certificate in substantially the form of
Annex II (an "Objection Certificate") disputing the Company Stockholders'
obligation to pay the Owed Amount (as defined and referred to in such
Certificate of Instruction), or (ii) shall have received such an Objection
Certificate within the Objection Period and shall thereafter have received
either (x) a certificate from Heafner and the Representative substantially in
the form of Annex III (a "Resolution Certificate") stating that Heafner and the
Representative have agreed that the Owed Amount referred to in such Certificate
of Instruction (or a specified portion thereof) is payable to Heafner or (y) a
copy of a final, nonappealable order of a court of competent jurisdiction or
arbitration panel, each as contemplated by Section 6.12 of the Merger Agreement
(accompanied by a certificate of Heafner substantially in the form of Annex IV
(an "Arbitration Certificate")), stating that the Owed Amount referred to in
such Certificate of Instruction (or a specified portion thereof) is payable to
one or more of the Indemnified Parties by the Company Stockholders, then the
Escrow Agent shall (1) in the case of (b)(i) or (b)(ii)(x), on the second
business day next following the first to occur of (A) the expiration of the
Objection Period or (B) the Escrow Agent's receipt of a Resolution Certificate
or (2) in the case of (b)(ii)(y), on the fifth business day next following the
day on which written notice of the Escrow Agent's receipt of an Arbitration
Certificate is given by the Escrow Agent to the Representative, deliver to
Heafner a number of shares having an aggregate value equal to the Owed Amount
(or such specified portion) (based on a valuation, solely for these purposes, of
$12.49 per share, appropriately adjusted to reflect stock splits and reverse
stock splits).
(c) Subject to Section 4(b) above, deliveries to Heafner shall be
made upon its written instruction to the Escrow Agent, specifying the number of
shares to be delivered. In the event that the number of Shares being delivered
pursuant to paragraph (b) above is less than all of the Shares in the Escrow,
then Heafner shall deliver or cause to be delivered to the Escrow Agent, in
exchange for the original Stock Certificates (or Replacement Stock Certificates,
as the
2
<PAGE> 3
case may be), a new certificate (or new certificates) in the names of the
Company Stockholders representing shares not being delivered pursuant to
paragraph (b) (together with any stock certificates delivered pursuant to
Section 5(a) below, the "Replacement Stock Certificates") and, if requested by
the Escrow Agent, the Company Stockholders shall deliver additional stock powers
executed by the Company Stockholders in blank. The Escrow shall thereafter
consist of the Replacement Stock Certificates and corresponding stock powers.
The Escrow Agent shall have no obligation to verify the calculations made to
determine the number of shares to be delivered or the allocations made.
(d) The Escrow Agent shall give written notice to Heafner of its
receipt of an Objection Certificate not later than the second business day next
following receipt thereof, together with a copy of such Objection Certificate.
The Escrow Agent shall give written notice to the Representative of its receipt
of an Arbitration Certificate not later than the second business day next
following receipt thereof, together with a copy of such Arbitration Certificate.
(e) Upon delivery by the Escrow Agent of the shares representing the
Owed Amount referred to in a Certificate of Instruction, such Certificate of
Instruction shall be deemed canceled. Upon the receipt by the Escrow Agent of a
Resolution Certificate or an Arbitration Certificate and the payment by the
Escrow Agent of the Owed Amount referred to therein, the related Certificate of
Instruction shall be deemed canceled.
(f) Upon Heafner's determination that it has no claim or has
released its claim with respect to an Owed Amount referred to in a Certificate
of Instruction (or a specified portion thereof), Heafner will deliver to the
Escrow Agent prior to the expiration of the applicable Objection Period a
certificate substantially in the form of Annex V (a "Heafner Cancellation
Certificate") canceling such Certificate of Instruction (or such specified
portion thereof, as the case may be), and such Certificate of Instruction (or
portion thereof) shall thereupon be deemed canceled. The Escrow Agent shall give
written notice to the Representative of its receipt of a Heafner Cancellation
Certificate not later than the second business day next following receipt
thereof, together with a copy of such Heafner Cancellation Certificate.
(g) Upon receipt of a final, nonappealable order of a court of
competent jurisdiction to the effect that none of the Owed Amount referred to in
a Certificate of Instruction as to which the Representative delivered an
Objection Certificate within the Objection Period is payable to Heafner by the
Company Stockholders, the Representative may, provided no Resolution Certificate
or Arbitration Certificate shall have previously been received by the Escrow
Agent, deliver a copy of such order (accompanied by a certificate of the
Representative substantially in the form of Annex VI (a "Company Stockholder
Cancellation Certificate")) canceling such Certificate of Instruction, and such
Certificate of Instruction shall thereupon be deemed canceled. The Escrow Agent
shall give written notice to Heafner of its receipt of a Company Stockholder
Cancellation Certificate not later than the second business day next following
receipt thereof, together with a copy of such Company Stockholder Cancellation
Certificate.
3
<PAGE> 4
(h) The Escrow Agent shall have no obligation to verify that the
order attached to an Arbitration Certificate or Company Stockholder Cancellation
Certificate constitutes a final, nonappealable order of a court of competent
jurisdiction, and shall be entitled to rely upon Heafner's or the
Representative's statement to that effect.
(i) In no event shall the aggregate amount of claims paid out from
this Escrow to Heafner pursuant to this Agreement exceed the amount of property
constituting the Escrow.
5. Release of Shares and Termination.
(a) On May 20, 1999 (the "Release Date"), the Escrow Agent shall
deliver to the Representative a number of Shares (the "Released Shares") (as
then constituted after any necessary exchanges of share certificates have been
made in accordance with Sections 4(b) and (c) and Section 5(a) hereof) at a
location designated by the Representative such that the aggregate value of the
remaining Shares constituting the Escrow is $8,750,000 plus an amount equal to
the total of Owed Amounts subject to any Objection Certificates that have not
been canceled in accordance with paragraph (e), (f) or (g) of Section 4 (based
in each case on a valuation, solely for these purposes, of $12.49 per share,
appropriately adjusted to reflect stock splits and reverse stock splits). The
Representative shall cause to be delivered to the Escrow Agent, as necessary, in
exchange for the original Stock Certificates (or Replacement Stock Certificates,
as the case may be), a Replacement Stock Certificate or Replacement Stock
Certificates in the names of the Company Stockholders representing shares not
being delivered pursuant hereto and, if requested by the Escrow Agent, the
Company Stockholders shall deliver additional stock powers executed by the
Company Stockholders in blank. The Escrow shall thereafter consist of the
Replacement Stock Certificates and corresponding stock powers. The Escrow Agent
shall have no obligation to verify the calculations made to determine the number
of shares to be delivered or the allocations made. At such time on or following
the Release Date as all Certificates of Instruction received by the Escrow Agent
have been canceled in accordance with paragraph (e), (f) or (g) of Section 4 and
no further Certificates of Instruction have been received by the Escrow Agent,
the Escrow Agent shall promptly notify the Representative and, upon the written
instruction of the Representative, shall deliver the Released Shares to the
Representative at a location designated by the Representative.
(b) On May 20, 2000 (the "Termination Date"), the Escrow Agent shall
deliver to the Representative the Escrow (as then constituted after any
necessary exchanges of share certificates have been made in accordance with
Sections 4(b) and (c) and Section 5(a) hereof) at a location designated by the
Representative, less that number of Shares which represents (based upon a
valuation of $12.49 per share, appropriately adjusted to reflect stock splits
and reverse stock splits) an amount equal to the total of Owed Amounts subject
to any Certificate(s) of Instruction that have not been canceled in accordance
with paragraph (e), (f) or (g) of Section 4. At such time on or following the
Termination Date as all Certificates of Instruction received by the Escrow Agent
on or prior to the Termination Date have been canceled in accordance with
paragraph (e), (f) or (g) of Section 4, the Escrow Agent shall promptly deliver
to the Representative at a location designated by the Representative, the
remaining Escrow (as it
4
<PAGE> 5
shall then be constituted after any necessary exchanges of share certificates
have been made in accordance with Sections 4(b) and (c) hereof) and this
Agreement (other than Sections 6, 7 and 8) shall automatically terminate. The
Escrow Agent shall be entitled to require payment of amounts owed to it under
Section 8 before distributing the Escrow in accordance with this Section 5.
6. Duties and Obligations of the Escrow Agent. The duties and
obligations of the Escrow Agent shall be limited to and determined solely by the
provisions of this Agreement and the certificates delivered in accordance with
this Agreement, and the Escrow Agent is not charged with knowledge of or any
duties or responsibilities in respect of any other agreement or document. In
furtherance and not in limitation of the foregoing:
(i) the Escrow Agent shall be fully protected in relying in good
faith upon any written certification, notice, direction, request, waiver,
consent, receipt or other document that the Escrow Agent reasonably
believes to be genuine and duly authorized, executed and delivered;
(ii) the Escrow Agent shall not be liable for any error of judgment,
or for any act done or omitted by it, or for any mistake in fact or law,
or for anything that it may do or refrain from doing in connection with
this Agreement; provided, however, that notwithstanding any other
provision in this Agreement, the Escrow Agent shall be liable for its
willful misconduct or gross negligence;
(iii) the Escrow Agent may seek the advice of legal counsel selected
with reasonable care in the event of any dispute or question as to the
construction of any of the provisions of this Agreement or its duties
under this Agreement, which counsel shall not be attorneys of any of the
Representative, the Company Stockholders, Heafner or their respective
Affiliates, and it shall incur no liability and shall be fully protected
in respect of any action taken, omitted or suffered by it in good faith in
accordance with the opinion of such counsel;
(iv) in the event that the Escrow Agent shall in any instance, after
seeking the advice of legal counsel pursuant to the immediately preceding
clause, in good faith be uncertain as to its duties or rights under this
Agreement, it shall be entitled to refrain from taking any action in that
instance and its sole obligation, in addition to those of its duties under
this Agreement as to which there is no such uncertainty, shall be to keep
safely all property held in the Escrow until it shall be directed
otherwise in writing by each of the parties to this Agreement or by a
final, nonappealable order of a court of competent jurisdiction; provided
that in the event that the Escrow Agent has not received such written
direction or court order within 180 calendar days after requesting the
same, it may interplead Heafner, the Representative and the Company
Stockholders in any court of competent jurisdiction and request that such
court determine its rights and duties under this Agreement unless the
parties to this Agreement otherwise agree;
(v) the Escrow Agent may execute any of its powers or
responsibilities under this Agreement and exercise any rights under this
Agreement either directly or by or
5
<PAGE> 6
through agents or attorneys selected with reasonable care, which shall not
be agents or the attorneys of any of Heafner, the Representative, the
Company Stockholders or their respective Affiliates. Nothing in this
Agreement shall be deemed to impose upon the Escrow Agent any duty to
qualify to do business or to act as fiduciary or otherwise in any
jurisdiction other than the State of New York and the Escrow Agent shall
not be responsible for and shall not be under a duty to examine into or
pass upon the validity, binding effect, execution or sufficiency of any
certificates or Shares in the Escrow, this Agreement, the Merger Agreement
or of any amendment or supplement to this Agreement. The Escrow Agent
shall not be liable for any other party's failure to comply with its
covenants relating to the transactions contemplated by the Merger
Agreement, including without limitation under applicable securities laws;
(vi) other than the obligations as specifically set forth herein,
the Escrow Agent shall not be obligated to preserve or protect any rights
with respect to the property comprising the Escrow or to receive or give
any notice with respect thereto, all of which shall remain the sole
responsibility of the Representative; and
(vii) Anything in this Agreement to the contrary notwithstanding, in
no event shall the Escrow Agent be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not
limited to lost profits), even if the Escrow Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action.
7. Cooperation. The Representative, the Company Stockholders and
Heafner shall provide to the Escrow Agent all instruments and documents within
their respective powers to provide that are necessary for the Escrow Agent to
perform its duties and responsibilities under this Agreement. Each of the
Representative, the Company Stockholders and Heafner have provided the Escrow
Agent with a certificate setting forth the names of officers authorized to
deliver instructions hereunder and a sample of the genuine signature of such
officers and the Escrow Agent shall be entitled to rely upon such certificates
until a substitute certificate is delivered hereunder.
8. Fees and Expenses; Indemnity. The Representative and Heafner
shall each be liable to the Escrow Agent for one-half of the fees of the Escrow
Agent for its services under this Agreement as and when billed to the
Representative and Heafner by the Escrow Agent. Each of the Representative, the
Company Stockholders and Heafner shall be jointly and severally liable to
reimburse and indemnify the Escrow Agent and its employees, officers, directors
and agents, for, and hold it harmless against, any loss, liabilities, damages,
cost or expense, including but not limited to reasonable attorneys' fees,
reasonably incurred by the Escrow Agent in connection with the Escrow Agent's
performance of its duties and obligations under this Agreement, as well as the
reasonable costs and expenses of defending against any claim or liability
relating to this Agreement; provided that notwithstanding the foregoing, none of
such persons shall be required to indemnify the Escrow Agent for any such loss,
liability, cost or expense arising as a result of the Escrow Agent's willful
misconduct or gross negligence. The Escrow Agent shall be entitled to recover
the full amount of such losses, liabilities, damages,
6
<PAGE> 7
costs and expenses from any of the Representative, the Company Stockholders and
Heafner; provided that in the event that the Representative and the Company
Stockholders, on the one hand, and Heafner, on the other hand, pays an amount in
excess of one-half of the full amount of such losses, liabilities, damages,
costs and expenses, the Representative and the Company Stockholders shall be
entitled to reimbursement from Heafner, and Heafner shall be entitled to
reimbursement from the Representative and the Company Stockholders, jointly and
severally, of the amount of such excess. The Escrow Agent shall have a lien on
and right of setoff against the Escrow for unpaid amounts owed to it hereunder.
9. Resignation and Removal of the Escrow Agent.
(a) The Escrow Agent may resign 30 calendar days following the
giving of prior written notice thereof to Heafner and the Representative. In
addition, the Escrow Agent may be removed and replaced on a date designated in a
written instrument signed by Heafner and the Representative and delivered to the
Escrow Agent. Notwithstanding the foregoing, no such resignation or removal
shall be effective until a successor escrow agent has acknowledged its
appointment as such as provided in paragraph (c) below. In either event, upon
the effective date of such resignation or removal, the Escrow Agent shall
deliver the property comprising the Escrow to such successor escrow agent,
together with such records maintained by the Escrow Agent in connection with its
duties under this Agreement and other information with respect to the Escrow as
such successor may reasonably request.
(b) If a successor escrow agent shall not have acknowledged its
appointment as such as provided in paragraph (c) below, in the case of a
resignation, prior to the expiration of 30 calendar days following the date of a
notice of resignation or, in the case of a removal, on the date designated for
the Escrow Agent's removal, as the case may be, because Heafner and the
Representative are unable to agree on a successor escrow agent, or for any other
reason, the Escrow Agent may select a successor escrow agent and any such
resulting appointment shall be binding upon all of the parties to this
Agreement.
(c) Upon written acknowledgment by a successor escrow agent
appointed in accordance with Sections 9(b) and (c) of its agreement to serve as
escrow agent under this Agreement and the receipt of the property then
comprising the Escrow, the Escrow Agent shall be fully released and relieved of
all duties, responsibilities and obligations under this Agreement, subject to
the proviso contained in clause (ii) of Section 6 and subject to survival of
Section 8, and such successor escrow agent shall for all purposes of this
Agreement be the Escrow Agent.
10. Notices. All notices, requests and other communications under
this Agreement must be in writing and will be deemed to have been duly given if
delivered personally, by overnight courier or by facsimile transmission or
mailed (first class postage prepaid) to the parties at the following addresses
or facsimile numbers:
if to the Company Stockholders or the Representative, to:
Wingate Management Partners II, L.P.
750 N. St. Paul, Suite 1200
7
<PAGE> 8
Dallas, Texas 75201
Facsimile: (214) 871-8799
Attention: V. Edward Easterling, Jr.
with a copy to:
Haynes & Boone, L.L.P.
901 Main Street, Suite 3100
Dallas, Texas 75202
Facsimile: (214) 651-5940
Attention: David H. Oden, Esq.
if to Heafner, to:
The J. H. Heafner Company, Inc.
814 East Main Street
Lincolnton, North Carolina 28093
Facsimile: (704) 732-6480
Attention: President
with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, New York 10019
Telephone: (212) 841-1000
Telecopy: (212) 841-1010
Attention: Scott F. Smith, Esq.
If to the Escrow Agent, to:
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Facsimile: (212) 946-8156
Attention: Escrow Administration, 15th Floor
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt,
8
<PAGE> 9
and (iii) if delivered by mail or overnight courier in the manner described
above to the address as provided in this Section, be deemed given upon receipt
(in each case regardless of whether such notice, request or other communication
is received by any other person to whom a copy of such notice is to be delivered
pursuant to this Section). Any party from time to time may change its address,
facsimile number or other information for the purpose of notices to that party
by giving notice specifying such change to the other parties to this Agreement.
11. Amendments, etc. This Agreement may be amended or modified, and
any of the terms of this Agreement may be waived, only by a written instrument
duly executed by or on behalf of the Representative, Heafner and the Escrow
Agent. No waiver by any party of any term or condition contained of this
Agreement, in any one or more instances, shall be deemed to be or construed as a
waiver of the same or any other term or condition of this Agreement on any
future occasion.
12. GOVERNING LAW; JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
CONTRACTS EXECUTED AND PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PRINCIPLES THEREOF. THE PARTIES HERETO EACH HEREBY IRREVOCABLY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF DELAWARE IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID
COURT. THE PARTIES HERETO EACH IRREVOCABLY WAIVES, TO THE FULLEST EXTENT SUCH
PARTY MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY
OBJECTION THAT SUCH PARTY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.
13. Business Day. For all purposes of this Agreement, the term
"business day" shall mean a day other than Saturday, Sunday or any day on which
banks located in New York City are authorized or obligated to close.
14. Appointment of Representative. Each of the Company Stockholders
hereby constitutes and appoints Wingate Management Company II, L.P. (the
"Representative") to act as its representative for all purposes under this
Agreement, and the Representative agrees by executing this Agreement to accept
such appointment. The Representative shall have the authority to act on behalf
of, and to bind, each Company Stockholder for all purposes of this Agreement.
Without limiting the generality of the foregoing, each Company Stockholder
hereby irrevocably constitutes and appoints the Representative its true and
lawful attorney-in-fact, with full power of substitution, and with full power
and authority in its name, place and stead, to
9
<PAGE> 10
execute, certify, acknowledge, deliver, file and record all agreements,
certificates, instruments and other documents and any amendment thereto, which
the Representative deems necessary or appropriate in connection with the
performance of this Agreement by such Company Stockholder. Each Company
Stockholder's appointment of the Representative as its attorney-in-fact shall be
deemed to be a power coupled with an interest and still survive the
incompetency, bankruptcy or dissolution of the such Company Stockholder giving
such power. No new representative may be appointed or substituted without the
prior written consent of Heafner.
15. Miscellaneous.
(a) This Agreement is binding upon and will inure to the benefit of
the parties to this Agreement and their respective successors and permitted
assigns. The headings used in this Agreement have been inserted for convenience
of reference only and do not define or limit the provisions of this Agreement.
This Agreement may be executed in any number of counterparts, each of which will
be deemed an original, but all of which together will constitute one and the
same instrument.
(b) The parties agree that the shares in Escrow may not be sold,
pledged or otherwise transferred or disposed of during the term of this
Agreement, except as provided in Section 4(c), 5 and 9(a) hereof.
(c) While the Shares are in Escrow, the Company Stockholders shall
have the right to vote the shares.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be executed as of the date first above written.
COMPANY STOCKHOLDERS:
Certificate No. CB-1 WINGATE PARTNERS II, L.P.
representing 1,277,167 Shares
By: WINGATE MANAGEMENT COMPANY II, L.P.,
its general partner
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By: /s/ V. EDWARD EASTERLING, JR.
----------------------------------------
V. Edward Easterling, Jr., Principal
Certificate No. ____
representing ______ Shares --------------------------------------------
Armistead Burwell, Jr.
Certificate No. ____
representing ______ Shares --------------------------------------------
William E. Berry
Certificate No. ____
representing ______ Shares --------------------------------------------
Richard P. Johnson
Certificate No. ____
representing ______ Shares --------------------------------------------
Leon R. Ellin
<PAGE> 12
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be executed as of the date first above written.
COMPANY STOCKHOLDERS:
Certificate No. ____ WINGATE PARTNERS II, L.P.
representing _________ Shares
By: WINGATE MANAGEMENT COMPANY II, L.P.,
its general partner
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
----------------------------------------
V. Edward Easterling, Jr., Principal
Certificate No. CB-2 /s/ ARMISTEAD BURWELL, JR.
representing 27,110 Shares --------------------------------------------
Armistead Burwell, Jr.
Certificate No. ____
representing ______ Shares --------------------------------------------
William E. Berry
Certificate No. ____
representing ______ Shares --------------------------------------------
Richard P. Johnson
Certificate No. ____
representing ______ Shares --------------------------------------------
Leon R. Ellin
<PAGE> 13
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be executed as of the date first above written.
COMPANY STOCKHOLDERS:
Certificate No. ____ WINGATE PARTNERS II, L.P.
representing _________ Shares
By: WINGATE MANAGEMENT COMPANY II, L.P.,
its general partner
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
----------------------------------------
V. Edward Easterling, Jr., Principal
Certificate No. ____
representing ______ Shares --------------------------------------------
Armistead Burwell, Jr.
Certificate No. CB-3 /s/ WILLIAM E. BERRY
representing 18,073 Shares --------------------------------------------
William E. Berry
Certificate No. ____
representing ______ Shares --------------------------------------------
Richard P. Johnson
Certificate No. ____
representing ______ Shares --------------------------------------------
Leon R. Ellin
<PAGE> 14
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be executed as of the date first above written.
COMPANY STOCKHOLDERS:
Certificate No. ____ WINGATE PARTNERS II, L.P.
representing _________ Shares
By: WINGATE MANAGEMENT COMPANY II, L.P.,
its general partner
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
----------------------------------------
V. Edward Easterling, Jr., Principal
Certificate No. ____
representing ______ Shares --------------------------------------------
Armistead Burwell, Jr.
Certificate No. ____
representing ______ Shares --------------------------------------------
William E. Berry
Certificate No. CB-4 /s/ RICHARD P. JOHNSON
representing 27,110 Shares --------------------------------------------
Richard P. Johnson
Certificate No. ____
representing ______ Shares --------------------------------------------
Leon R. Ellin
<PAGE> 15
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be executed as of the date first above written.
COMPANY STOCKHOLDERS:
Certificate No. ____ WINGATE PARTNERS II, L.P.
representing _________ Shares
By: WINGATE MANAGEMENT COMPANY II, L.P.,
its general partner
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
----------------------------------------
V. Edward Easterling, Jr., Principal
Certificate No. ____
representing ______ Shares --------------------------------------------
Armistead Burwell, Jr.
Certificate No. ____
representing ______ Shares --------------------------------------------
William E. Berry
Certificate No. ____
representing ______ Shares --------------------------------------------
Richard P. Johnson
Certificate No. CB-5 /s/ LEON R. ELLIN
representing 18,073 Shares --------------------------------------------
Leon R. Ellin
<PAGE> 16
Certificate No. CB-6 WINGATE AFFILIATES II, L.P.
representing 24,097 Shares
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By: /s/ V. EDWARD EASTERLING, JR.
----------------------------------------
V. Edward Easterling, Jr., Principal
Certificate No. ____ CALLIER INVESTMENT COMPANY
representing _____ Shares
By:
----------------------------------------
James T. Callier, Jr., President
REPRESENTATIVE: WINGATE MANAGEMENT COMPANY II, L.P.
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its general partner
By: /s/ V. EDWARD EASTERLING, JR.
----------------------------------------
Name: V. Edward Easterling, Jr.
Title: Principal
HEAFNER: THE J.H. HEAFNER COMPANY, INC.
By:
----------------------------------------
J. Michael Gaither
Senior Vice President and General Counsel
ESCROW AGENT:
By:
----------------------------------------
<PAGE> 17
Certificate No. ____ WINGATE AFFILIATES II, L.P.
representing ______ Shares
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
----------------------------------------
V. Edward Easterling, Jr., Principal
Certificate No. CB-7 CALLIER INVESTMENT COMPANY
representing 9,037 Shares
By: /s/ JAMES T. CALLIER, JR.
----------------------------------------
James T. Callier, Jr., Managing Partner
REPRESENTATIVE: WINGATE MANAGEMENT COMPANY II, L.P.
By: ___________________, its general partner
By:
----------------------------------------
Name:
Title:
HEAFNER: THE J.H. HEAFNER COMPANY, INC.
By: /s/ J. MICHAEL GAITHER
----------------------------------------
J. Michael Gaither
Senior Vice President and General Counsel
ESCROW AGENT:
By:
----------------------------------------
<PAGE> 18
Certificate No. ____ WINGATE AFFILIATES II, L.P.
representing ______ Shares
By: WINGATE MANAGEMENT LIMITED, L.L.C.,
its sole general partner
By:
----------------------------------------
V. Edward Easterling, Jr., Principal
Certificate No. CB-7 CALLIER INVESTMENT COMPANY
representing 9,037 Shares
By:
----------------------------------------
James T. Callier, Jr., President
REPRESENTATIVE: WINGATE MANAGEMENT COMPANY II, L.P.
By: ___________________, its general partner
By:
----------------------------------------
Name:
Title:
HEAFNER: THE J.H. HEAFNER COMPANY, INC.
By:
----------------------------------------
J. Michael Gaither
Senior Vice President and General Counsel
ESCROW AGENT: THE CHASE MANHATTAN BANK
By: /s/ SAVERIO A. LUNETTA
----------------------------------------
Saverio A. Lunetta
Vice President
<PAGE> 1
EXHIBIT 10.13
================================================================================
STOCK PURCHASE AGREEMENT
BETWEEN
THE J.H. HEAFNER
COMPANY, INC.
AND
THE SHAREHOLDERS OF
THE SPEED MERCHANT, INC.
DATED AS OF MARCH 11, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
INTRODUCTION...................................................................1
ARTICLE I
PURCHASE AND SALE OF THE SHARES
SECTION 1.1. The Shares........................................................1
SECTION 1.2. Purchase Price....................................................1
SECTION 1.3. Closing...........................................................1
SECTION 1.4. Purchase Price Adjustment.........................................2
(a) Closing Date Balance Sheet.....................................2
(b) Cooperation....................................................2
(c) Adjustments to Purchase Price..................................2
(d) Payment of Adjustments.........................................2
(e) Disputes.......................................................2
SECTION 1.5. Changes in Closing Date and Non-Compete Payments..................3
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. Representations and Warranties of the Sellers.....................3
(a) Organization, Standing and Power...............................3
(b) Authority; Binding Agreements; Title to Shares.................3
(c) Capitalization; Equity Interests...............................4
(d) Conflicts; Consents............................................5
(e) Financial Information..........................................5
(f) Absence of Changes.............................................6
(g) Assets, Property and Related Matters; Real Property............7
(h) Intellectual Property.........................................10
(i) Insurance.....................................................10
(j) Agreements....................................................11
(k) Litigation....................................................11
(l) Compliance; Governmental Authorizations.......................11
(m) Labor Relations; Employees....................................13
(n) Related Party Transactions....................................15
(o) Taxes.........................................................16
(p) Disclosure....................................................17
(q) Bank Accounts; Powers-of-Attorney.............................17
(r) Inventory.....................................................17
(s) Brokers.......................................................17
(t) Parnelli-Jones................................................17
(u) Phase III Materials..........................................18
SECTION 2.2. Representations and Warranties by the Purchaser.................18
(a) Organization and Standing.......................................18
(b) Authority; Binding Agreements...................................18
i
<PAGE> 3
(c) Conflicts; Consents.............................................18
(d) Investment Representation.......................................18
(e) Brokers.........................................................18
ARTICLE III
ADDITIONAL AGREEMENTS
SECTION 3.1. Costs and Expenses...............................................19
SECTION 3.2. Conduct of Business..............................................19
SECTION 3.3. Reasonable Efforts; Further Assurances...........................20
SECTION 3.4. No Shopping......................................................20
SECTION 3.5. Access and Information...........................................21
(a) Access Prior to Closing.........................................21
(b) Confidentiality.................................................21
(c) Equitable Relief................................................22
SECTION 3.6. Confidentiality; Non-Competition.................................22
(a) Confidential Information........................................22
(b) Covenant Not To Compete.........................................22
(c) Enforceability..................................................24
(d) Remedies........................................................24
(e) Acknowledgment..................................................24
SECTION 3.7. Releases; Prior Compensation.....................................25
SECTION 3.8. Public Announcements.............................................25
SECTION 3.9. Tax Matters......................................................25
(a) Transfer Taxes..................................................25
(b) Responsibility for Company Taxes................................25
(c) Tax Treatment...................................................26
(d) Filing of Returns...............................................26
(e) Cooperation in Tax Matters......................................26
(f) Tax Audits and Assessments......................................26
(g) Activities between Signing and Closing..........................27
(h) Payment of Pre-Closing Date Taxes...............................27
SECTION 3.10. Fresno Warehouse................................................27
SECTION 3.11. Additional Adjustment Amount....................................27
(a) Management of Arizona Business..................................28
(b) Additional Adjustment Amount....................................28
(c) Payment.........................................................28
SECTION 3.12. Additional Information..........................................29
(a) Delivery of Final Disclosure Schedule...........................29
(b) Phase III Materials.............................................29
(c) Disclosure Supplements..........................................30
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1. Conditions to Obligations of the Purchaser.......................30
(a) Authorization...................................................30
(b) Representations, Warranties and Covenants.......................30
(c) Consents, Amendments and Terminations...........................30
ii
<PAGE> 4
(d) Certificates....................................................31
(e) Opinion of Counsel..............................................31
(f) Financial Statements............................................31
(g) Due Diligence...................................................31
(h) Financing.......................................................31
(i) Employment Agreements...........................................31
(j) Corporate Directors and Officers................................31
(k) Share Certificates and Corporation Records......................31
(l) HSR Act.........................................................31
(m) No Legal Bar....................................................31
(n) No Legal Bar....................................................32
(n) Other Documents.................................................32
SECTION 4.2. Conditions of Obligations of the Sellers.........................39
(a) Authorization...................................................32
(b) Representations, Warranties and Covenants.......................32
(c) Certificate.....................................................32
(f) Employment Agreements...........................................32
(g) HSR Act.........................................................32
(h) No Legal Bar....................................................32
(i) Other Documents.................................................33
ARTICLE V
INDEMNITY
SECTION 5.1. Indemnification..................................................33
(a) Indemnification by Sellers......................................33
(b) Indemnification by Purchaser....................................33
(c) Indemnification Procedures......................................33
(d) Tax Benefits....................................................34
(e) Insurance Proceeds..............................................34
(f) Treatment of Payments...........................................35
SECTION 5.2. Limitations......................................................35
(a) Expiration Date.................................................35
(b) Cap.............................................................35
(c) Threshold.......................................................35
(d) Sole Remedy.....................................................35
(e) Several Liability; Certain Representations......................36
SECTION 5.3. No Election......................................................36
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Entire Agreement.................................................36
SECTION 6.2. Termination......................................................36
SECTION 6.3. Descriptive Headings; Certain Interpretations....................37
SECTION 6.4. Notices..........................................................37
SECTION 6.5. Counterparts.....................................................38
SECTION 6.6. Survival.........................................................38
SECTION 6.7. Benefits of Agreement............................................38
iii
<PAGE> 5
SECTION 6.8. Amendments and Waivers...........................................38
SECTION 6.9. Assignment.......................................................39
SECTION 6.10. Enforceability..................................................39
SECTION 6.11. Governing Law...................................................39
SECTION 6.12. Dispute Resolution; Consent To Jurisdiction.....................39
ANNEXES
A Shareholders; Ownership of Shares
B Dispute Resolution Procedure
EXHIBITS
A-1 Form of Officers' Certificate
A-2 Form of Seller's Certificate
B Form of Opinion of Counsel of the Company and the Sellers
C-1 Form of Soares Employment Agreement
C-2 Form of Barney Employment Agreement
C-3 Form of Roberts Employment Agreement
D Form of Fresno Warehouse Sale/Leaseback
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT, dated as of March 11, 1998 (the "Agreement"),
between The J. H. Heafner Company, Inc., a North Carolina corporation
(the "Purchaser"), and each of the Stockholders (each, a "Seller" and,
collectively, the "Sellers") of The Speed Merchant, Inc., a California
corporation d/b/a the Speed Merchant and Competition Parts Warehouse
(the "Company").
INTRODUCTION
The Company owns and operates a wholesale and retail tire and
automotive parts business located in California and Arizona. The Sellers desire
to sell all of the outstanding shares (the "Shares") of common stock, no par
value (the "Common Stock"), of the Company to the Purchaser, and the Purchaser
desires to purchase the Shares on the terms and conditions set forth in this
Agreement.
The parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
SECTION 1.1. The Shares. Upon the terms and subject to the conditions
set forth in this Agreement, at the Closing (defined below), each Seller shall
sell, convey, assign, transfer and deliver to the Purchaser, and the Purchaser
shall purchase, acquire and accept from each Seller, all of the Shares owned by
such Seller (which Shares are listed on Annex A), free and clear of all security
interests, liens, pledges, charges, escrows, options, rights of first refusal,
mortgages, indentures, security agreements or other claims, encumbrances,
agreements, arrangements or commitments of any kind or character, whether
written or oral and whether or not relating in any way to credit or the
borrowing of money (collectively, "Claims").
SECTION 1.2. Purchase Price. The purchase price (the "Purchase Price")
for the Shares and the non-compete agreements set forth in Section 3.6 shall be
cash in the amount of $42,400,000, of which $35,000,000 is payable as
consideration for the Shares (the "Closing Date Payment") and $7,400,000 is
payable as set forth in Section 3.6(b) as consideration for such non-compete
agreements (the "Non-Compete Payments"). The Closing Date Payment shall be made
to the Sellers at Closing in proportion to their ownership of Shares as set
forth on Annex A and shall be made by wire transfer of immediately available
funds to accounts designated by the Sellers no later than two business days
prior to the Closing Date. The Non-Compete Payments shall be due and payable
according to the terms set forth in Section 3.6(b).
SECTION 1.3. Closing. The closing (the "Closing") for the consummation
of the transactions contemplated by this Agreement shall take place at the
offices of Howard, Darby & Levin, 1330 Avenue of the Americas, New York, New
York 10019, or such other place or places as the Sellers and the Purchaser shall
agree, at 10:00 a.m. (New York time) on the later of April 29, 1998 and two
business days following the date on which all conditions set forth in Article IV
<PAGE> 7
shall have been satisfied or waived, or such other date and time agreed to by
the Sellers and the Purchaser (such date, the "Closing Date").
SECTION 1.4. Purchase Price Adjustment.
(a) Closing Date Balance Sheet. Within 90 days after the Closing Date,
the Purchaser and the Sellers shall cause Arthur Andersen LLP to audit the
balance sheet of the Company as of the Closing Date (the "Closing Date Balance
Sheet"), in accordance with generally accepted accounting principles.
Notwithstanding the foregoing sentence, the parties have reviewed the accounting
principles applied in connection with the Company's October 31, 1997 balance
sheet (as referred to in Section 2.1(e)(i)(A)) and hereby agree that such
accounting principles shall be applied in connection with the preparation of the
Closing Date Balance Sheet.
(b) Cooperation. The Sellers shall be responsible for preparing the
Closing Date Balance Sheet. Each of the Sellers, the Purchaser and their
respective representatives shall have the right to review the others' work
papers or records of the Company used or prepared in connection with the
preparation of the Closing Date Balance Sheet, and shall, if requested, make
available such work papers or records and direct the auditors or other
representatives to allow the Sellers, the Purchaser, or their respective
representatives to review any and all work papers or records of such auditors or
other representatives used in connection with the preparation of the Closing
Date Balance Sheet.
(c) Adjustments to Purchase Price. If (i) the Company's net worth (the
difference between the Company's assets and liabilities) as of the Closing Date
as shown on the Closing Date Balance Sheet is less than an amount equal to the
sum of (x) $6,296,402 plus (y) an amount equal to the Company's net earnings for
the period beginning on October 31, 1997 and ending on the Closing Date or (ii)
the Company's working capital (the difference between the Company's current
assets and current liabilities) as of the Closing Date as shown on the Closing
Date Balance Sheet is less than $4,000,000, the Sellers shall pay to the
Purchaser an amount equal to the largest of the differences in dollar amount
under clauses (i) or (ii) above. The amounts described in clauses (i) and (ii)
of the preceding sentence shall be computed in accordance with the accounting
principles used in the preparation of the Closing Date Balance Sheet and shall
each be further adjusted to give effect to the acquisition of certain assets
(the "Arizona Business") by Phoenix Racing, Inc., a California corporation and a
wholly owned subsidiary of the Company ("Phoenix"), and to give effect to the
transaction costs incurred by the Company in connection with the acquisition of
certain assets from RPJ Tire Company, Inc. and Dob's Tire Stores, Inc.
("Parnelli-Jones") and the acquisition itself, if it is consummated on or prior
to the Closing Date.
(d) Payment of Adjustments. Any payment under this Section shall be
made within 10 days after the later of (i) the date of delivery of the Closing
Date Balance Sheet and (ii) the date on which any dispute referred to in clause
(e) is resolved. The Sellers shall be jointly and severally liable with respect
to any such payment.
(e) Disputes. Each of the Sellers and the Purchaser shall have the
right to dispute any amounts shown on the Closing Date Balance Sheet by giving
written notice to the other
2
<PAGE> 8
within 15 days after receipt of the Closing Date Balance Sheet as audited and
opined on by Arthur Andersen LLP, which notice shall specify in reasonable
detail the nature and extent of such disagreement. If the Sellers and the
Purchaser have not resolved the dispute within 15 days of such notice, the
dispute shall be submitted to an independent accountant of national standing
reasonably acceptable to the Sellers and the Purchaser, whose decision shall be
binding on the parties hereto. The cost of such accountant shall be shared
equally by the Sellers and the Purchaser.
SECTION 1.5. Changes in Closing Date and Non-Compete Payments.
Notwithstanding Section 1.2, if the Sellers determine in good faith that the
security to be arranged by the Purchaser pursuant to Section 3.6(b)(v) is not
reasonably satisfactory to the Sellers, the Purchaser and the Sellers agree for
all purposes of this Agreement that the aggregate amount of the Closing Date
Payment shall be increased to $40,000,000 and the aggregate amount of the
Non-Compete Payment shall be reduced to $2,400,000 (payable in each case as set
forth in Section 1.2), whereupon the covenant set forth in Section 3.6(b)(v)
shall be deemed to have been performed and complied with for purposes of Section
4.2(b). Annex A shall be amended to reflect any changes made pursuant to this
Section 1.5.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. Representations and Warranties of the Sellers. The Sellers
jointly and severally represent and warrant to the Purchaser as follows:
(a) Organization, Standing and Power. Each of the Company and Phoenix
(i) is a corporation duly organized, validly existing and in good standing under
the laws of the State of California and (ii) has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each of the Company and Phoenix is duly
qualified to do business and is in good standing in each jurisdiction in which
such qualification is necessary because of the property owned, leased or
operated by it or because of the nature of its business as now being conducted,
and each such jurisdiction is listed in Section 2.1(a) of the disclosure
schedule being delivered to the Purchaser simultaneously with the execution of
this Agreement (the "Disclosure Schedule"). Each of the Company and Phoenix has
delivered to the Purchaser complete and correct copies of its articles of
incorporation and by-laws, in each case as amended to the date of this
Agreement, and has made available to the Purchaser its minute books and stock
records. Section 2.1(a) of the Disclosure Schedule contains a true and correct
list of the directors and officers of the Company and Phoenix as of the date of
this Agreement and at all times since the last action of the board of directors
and the shareholders of the Company.
(b) Authority; Binding Agreements; Title to Shares. Each Seller has the
legal power and capacity to enter into this Agreement, and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of the Sellers, and constitutes the valid and binding
obligation of each Seller, enforceable against such Seller in accordance with
its terms, subject to the laws of general application relating to
3
<PAGE> 9
bankruptcy, insolvency and the relief of debtors and rules and laws governing
specific performance, injunctive relief and other equitable remedies. Each
Seller is the lawful owner of record and beneficially of the number of Shares
set forth opposite such Sellers' name on Annex A, and such Seller has, and will
transfer to the Purchaser at the Closing, good and marketable title to such
number of Shares, free and clear of all Claims, and with no restriction on the
voting rights or other incidents of record and beneficial ownership attaching to
such Shares.
(c) Capitalization; Equity Interests. The authorized capital stock of
the Company consists of 1,000,000 shares of Common Stock and no shares of
preferred stock. At the time of execution of this Agreement, 14,118 shares of
Common Stock were issued and outstanding. The authorized capital stock of
Phoenix consists of 1,000,000 shares of common stock, no par value, and no
shares of preferred stock. At the time of execution of this Agreement, 1,000,000
shares of common stock of Phoenix were issued and outstanding. The Sellers own
of record and beneficially all of the outstanding capital stock of the Company,
and the Company owns of record and beneficially all of the outstanding capital
stock of Phoenix. Except as set forth above, at the time of execution of this
Agreement, no shares of capital stock or other voting securities of the Company
or Phoenix are issued, reserved for issuance or outstanding. All outstanding
shares of capital stock of the Company and Phoenix are duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights. There
are no bonds, debentures, notes or other indebtedness or securities of the
Company or Phoenix having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
shareholders of the Company or Phoenix, as applicable, may vote. There are no
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Company or Phoenix is a
party or by which the Company or Phoenix is bound obligating the Company or
Phoenix to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of the Company or
Phoenix or obligating the Company or Phoenix to issue, grant, extend or enter
into any such security, option, warrant, call right, commitment, agreement,
arrangement or undertaking. There are no outstanding rights, commitments,
agreements, arrangements or undertakings of any kind obligating the Company or
Phoenix to repurchase, redeem or otherwise acquire any shares of capital stock
or other voting securities of the Company or Phoenix or any securities of the
type described in the two immediately preceding sentences. The Company does not
have any subsidiaries or own or hold any equity or other security interests in
any other entity other than Phoenix, and Phoenix does not have any subsidiaries
or own or hold any equity or other security interests in any other entity.
Except as set forth in Section 2.1(c) of the Disclosure Schedule, neither the
Company nor Phoenix is subject to any liability for any claim that the Company
or Phoenix violated any applicable Federal or state securities laws in
connection with the issuance of capital stock. For purposes of this Agreement, a
"subsidiary" of any person means another person under the control of such person
(where "control" means the direct or indirect possession of the power to elect
at least a majority of the Board of Directors or other governing body of a
person through the ownership of voting securities, ownership or partnership
interests, by contract or otherwise, or if no such governing body exists, the
direct or indirect ownership of 50% or more of the equity interests of a
person); and a "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity (governmental or private).
4
<PAGE> 10
(d) Conflicts; Consents. The execution and delivery by the Sellers of
this Agreement, the consummation of the transactions contemplated hereby and
compliance by the Sellers with any of the provisions hereof does not and will
not (i) conflict with or result in a breach of the articles of incorporation,
by-laws or other constitutive documents of the Company or Phoenix, (ii) conflict
with or result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the provisions of any note, bond,
lease, mortgage, indenture, or any license, franchise, permit, agreement or
other instrument or obligation to which the Company or Phoenix or any Seller is
a party, or by which the Company or Phoenix or any Seller or any of the
Company's or Phoenix's or any Seller's properties or assets, may be bound or
affected, except for such conflicts, breaches or defaults as to which requisite
waivers or consents have been obtained before the Closing (which waivers or
consents are set forth in Section 2.1(d) of the Disclosure Schedule), (iii)
violate any law, statute, rule or regulation or order, writ, injunction or
decree applicable to the Company or Phoenix or any Seller or any of the
Company's or Phoenix's or any Seller's properties or assets or (iv) result in
the creation or imposition of any Claim upon any Shares or any property or
assets used or held by the Company or Phoenix. Except as set forth in Section
2.1(d) of the Disclosure Schedule, no consent or approval by, or notification of
or filing with, any person is required in connection with the execution,
delivery and performance by any Seller of this Agreement or the consummation of
the transactions contemplated hereby except for the filing of a premerger
notification and report form under the Hart-Scott-Rodino Act of 1976, as
amended, and the rules and regulations promulgated thereunder (the "HSR Act")
and the expiration or early termination of the applicable waiting period under
the HSR Act.
(e) Financial Information. (i) The following financial statements are
contained in Section 2.1(e) of the Disclosure Schedule:
(A) the consolidated balance sheets of the Company at October
31, 1995, 1996 and 1997 and the related consolidated statements of
income and retained earnings and cash flows for the fiscal years then
ended together with the opinion of KPMG Peat Marwick LLP thereon; and
(B) (i) the unaudited, internally prepared quarterly
consolidated balance sheets of the Company at January 31, April 30,
July 31 and October 31, 1997 and (ii) the unaudited, internally
prepared monthly consolidated balance sheets of the Company at November
30 and December 31, 1997, together with the related consolidated
statements of income for each such fiscal quarter or calendar month, as
applicable.
Except as set forth in Section 2.1(e) of the Disclosure Schedule, all such
financial statements have been prepared in conformity with generally accepted
accounting principles applied on a basis consistent with prior periods and
fairly present the financial condition, results of operations and cash flows of
the Company. The consolidated balance sheets of the Company as at the dates set
forth present fairly the financial position of the Company as at the dates
thereof, and the related consolidated statements of income and retained earnings
and cash flows of the Company for each of the respective specified periods then
ended present fairly the results of operations of the Company for each of the
respective periods then ended. For the purposes of this Agreement,
5
<PAGE> 11
all financial statements referred to in this paragraph shall include any notes
and schedules to such financial statements.
(ii) Except as set forth in Section 2.1(e)(ii) of the Disclosure
Schedule, the Company does not have, and as a result of the transactions
contemplated herein, will not have, any liabilities or obligations (whether
absolute, accrued, contingent or otherwise, and whether due or to become due),
except for liabilities and obligations (A) reflected on the balance sheets of
the Company referred to in Section 2.1(e)(i), (B) liabilities and obligations in
respect of acquisitions of inventory made in the ordinary course of business,
and (C) liabilities and obligations not described in clause (B) that have been
(1) incurred in the ordinary course of business consistent with past practice
since December 31, 1997 or (2) which individually do not exceed $50,000 or in
the aggregate do not exceed $100,000. All reserves established by the Company
are reflected on the balance sheets of the Company or in the footnotes to the
financial statements of the Company and are adequate and there are no loss
contingencies that are required to be accrued by Statement of Financial
Accounting Standard No. 5 of the Financial Accounting Standards Board which are
not provided for on such balance sheets.
(f) Absence of Changes. Except as set forth in Section 2.1(f) of the
Disclosure Schedule, since October 31, 1997, the Company and Phoenix have been
operated in the ordinary course consistent with past practice and there has not
been:
(i) any material adverse change in the condition (financial or
otherwise), assets, liabilities, operations, business or prospects of
the Company and Phoenix taken as a whole;
(ii) any obligation or liability (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) incurred by
the Company or Phoenix, other than obligations under customer
contracts, current obligations and liabilities incurred in the ordinary
course of business and consistent with past practice;
(iii) any payment, discharge, satisfaction or settlement of
any claim or obligation of the Company or Phoenix, except in the
ordinary course of business and consistent with past practice;
(iv) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of
the Company or Phoenix or any direct or indirect redemption, purchase
or other acquisition of any such shares;
(v) any issuance or sale, or any contract entered into for the
issuance or sale, of any shares of capital stock or securities
convertible into or exercisable for shares of capital stock of the
Company or Phoenix;
(vi) any sale, assignment, pledge, encumbrance, transfer or
other disposition of any tangible asset of the Company or Phoenix
(other than sales of inventory to customers in the ordinary course of
business consistent with past practice), or any sale, assignment,
6
<PAGE> 12
transfer or other disposition of any patents, trademarks, service
marks, trade names, copyrights, licenses, franchises, know-how or any
other intangible assets;
(vii) any creation of any claim or other encumbrance on any
property of the Company or Phoenix, except in the ordinary course of
business consistent with past practice and which claims or encumbrances
together with all other such claims and encumbrances would not have a
material adverse effect on the business of the Company and Phoenix,
taken as a whole;
(viii) any write-down of the value of any asset of the Company
or Phoenix or any write-off as uncollectible of any accounts or notes
receivable or any portion thereof, other than write-downs or write-offs
which, individually or in the aggregate, do not exceed $25,000;
(ix) any cancellation of any debts or claims or any amendment,
termination or waiver of any rights of value to the Company or Phoenix,
other than debts, claims or rights which individually do not exceed
$25,000 or in the aggregate do not exceed $50,000;
(x) any capital expenditure or commitment or addition to
property, plant or equipment of the Company or Phoenix, individually in
excess of $10,000;
(xi) any general increase in the compensation of employees of
the Company or Phoenix (including any increase pursuant to any written
bonus, pension, profit-sharing or other benefit or compensation plan,
policy or arrangement or commitment), or any increase in any such
compensation or bonus payable to any officer, shareholder, director,
consultant or agent of the Company or Phoenix having an annual salary
or remuneration in excess of $75,000;
(xii) any damage, destruction or loss (whether or not covered
by insurance) affecting any asset or property of the Company or Phoenix
resulting in liability or loss in excess of $25,000;
(xiii) any change in the independent public accountants of the
Company or Phoenix or in the accounting methods or accounting practices
followed by the Company or Phoenix or any change in depreciation or
amortization policies or rates;
(xiv) to the knowledge of the Sellers any agreement or action
not otherwise referred to in items (i) through (xiii) above entered
into or taken that is material to the Company or Phoenix; or
(xv) any agreement, whether in writing or otherwise, to take
any of the actions specified in the foregoing items (i) through (xiv).
(g) Assets, Property and Related Matters; Real Property. (i) The
Company has good title to, or a valid leasehold interest in, as applicable, all
of the assets reflected on the financial statements contained in Section 2.1(e)
of the Disclosure Schedule, free and clear of all
7
<PAGE> 13
Claims except as set forth in Section 2.1(g)(i) of the Disclosure Schedule. Such
assets (A) are in good operating condition and repair, subject to ordinary wear
and tear and (B) constitute all of the properties, interests, assets and rights
held for use or used in connection with the business and operations of the
Company and constitute all those necessary (in the reasonable business judgment
of the Sellers) to continue to operate the business of the Company consistent
with current and historical practice. All items of personal property owned by
the Company with an original cost or book value in excess of $10,000 are listed
in Section 2.1(g)(i) of the Disclosure Schedule.
(ii) Section 2.1(g)(ii) of the Disclosure Schedule sets forth
a list of all real property owned or leased by the Company or Phoenix (each a
"Company Property"). The Company or Phoenix is the sole owner or holder of, and
has, good and marketable fee title to, or a good, valid and existing leasehold
estate in each Company Property, free and clear of all liens, encumbrances and
restrictions affecting title to or the use and occupancy of such Company
Property, except as disclosed in Section 2.1(g)(ii) of the Disclosure Schedule
("Permitted Encumbrances"). No Company Property violates the terms or conditions
of any Permitted Encumbrance.
(iii) With respect to each Company Property leased by the
Company or Phoenix, (A) the Company or, to the knowledge of the Sellers, Phoenix
is the owner and holder of all the leasehold interests and estates purported to
be granted by such leases, (B) all leases to which the Company or Phoenix is a
party are in writing and in full force and effect and constitute valid and
binding obligations of the Company or Phoenix and, to the knowledge of the
Sellers, of the other parties thereto, enforceable in accordance with their
terms, subject to the laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules and laws governing specific
performance, injunctive relief and other equitable remedies, and (C) the Company
has delivered to the Purchaser true and complete copies of all such leases.
There exists no default, or any event which upon notice or the passage of time,
or both, would give rise to any default, in the performance by the Company or
Phoenix or, to the knowledge of the Sellers, by any lessor under any lease
(except for such defaults that are, individually and in the aggregate,
immaterial). Except as set forth in Section 2.1(g)(ii) of the Disclosure
Schedule, neither the Company nor Phoenix, and to the knowledge of the Sellers,
no other person has, granted any oral or written right to anyone other than the
Company or Phoenix to lease, sublease or otherwise occupy any of the properties
described in Section 2.1(g)(ii) of the Disclosure Schedule through the end of
the applicable lease periods.
(iv) Each Company Property owned or leased by the Company and,
to the knowledge of the Sellers, each Company Property owned or leased by
Phoenix, together with all appurtenances and improvements, as used, constructed
or maintained by the Company or Phoenix at any time, conform in all material
respects to applicable Federal, state, local and foreign laws, rules,
regulations and orders ("Legal Requirements"), and, except as otherwise
disclosed on Section 2.1(g)(iv) of the Disclosure Schedule, no notices of
violation of any Legal Requirements have been issued by any governmental
authority with respect to any Company Property owned or leased by the Company
or, to the knowledge of the Sellers, owned or leased by Phoenix, including all
building, fire, health, zoning, setback, subdivision and environmental
8
<PAGE> 14
laws, regulations or ordinances. Without limiting the foregoing, each Company
Property is in good operating condition and repair and, to the knowledge of the
Sellers, no condition exists which would interfere with the Company's or
Phoenix's customary use and operation thereof. The use of the buildings and
structures located on each Company Property owned or leased by the Company or,
to the knowledge of the Sellers, owned or leased by Phoenix or any appurtenances
or equipment does not violate any restrictive covenants or encroach on any
property owned by others. No condemnation proceeding is pending or, to the
knowledge of the Sellers, threatened which would preclude or impair the use of
any Company Property by the Company or Phoenix for the uses for which they are
intended.
(v) Section 2.1(g)(v) of the Disclosure Schedule lists each
permit necessary or appropriate for the Company and, to the knowledge of the
Sellers, for Phoenix in connection with its ownership, lease or use of any
Company Property. Each such permit held by the Company and, to the knowledge of
the Sellers, each such permit held by Phoenix was duly issued and obtained,
currently is in full force and effect, and shall remain in full force and effect
for the term set forth therefor on Section 2.1(g)(v) of the Disclosure Schedule.
To the knowledge of the Sellers, no default or violation, or event which with
the passage of time or giving of notice or both would become a default or
violation, has occurred in the due observance of any permit (except for such
defaults or violations as are, in the aggregate, immaterial). The Sellers have
delivered to the Purchaser true and complete copies of all such permits.
(vi) Each Company Property owned or leased by the Company and,
to the knowledge of the Sellers, each Company Property owned or leased by
Phoenix is properly and duly zoned for its current use, and such current use is
in all respects a lawful use. No governmental authority having jurisdiction over
any Company Property has issued or, to the knowledge of the Sellers, has
threatened to issue any notice or order that requires, as of the date hereof or
a specified date in the future, any repairs, alterations, additions or
improvements thereto. The Sellers have no knowledge of any actual or pending
imposition of any assessments for public improvements with respect to any
Company Property and, to the knowledge of the Sellers, no such improvements have
been constructed or planned that would be paid for by means of assessments upon
any Company Property.
(vii) Each Company Property is located on public roads and
streets with adequate ingress and egress available between such streets and the
Company Property, and, to the knowledge of the Sellers, all utility systems
required in connection with the use, occupancy and operation of each Company
Property are sufficient for their present purposes, are fully operational and in
working order, and are benefited by customary utility easements providing for
the continued use and maintenance of such systems. In the reasonable business
judgment of the Sellers, each Company Property consists of sufficient land,
parking areas, sidewalks, driveways and other improvements to permit the
continued use of such Company Property in the manner and for the purposes to
which it is presently devoted.
(viii) Except as set forth in Section 2.1(g)(viii) of the
Disclosure Schedule, no portion of any Company Property is located in any flood
zone area designated as Zone A or Zone
9
<PAGE> 15
Z (or any Zone having the prefix A or Z) (or any successor designation) pursuant
to applicable regulations of the Federal Emergency Management Agency, or any
successor thereto.
(ix) None of the Sellers is a "foreign person" as defined in
Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code").
(x) Except as set forth in Section 2.1(g)(x) of the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated by this Agreement will create a
breach of, or constitute a default under, any lease of the Company or, to the
knowledge of the Sellers, any lease to which Phoenix is a party. No consent from
the lessor or any other person under any lease is required in connection with
the execution or delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement, except for those obtained prior to
the Closing and listed in Section 2.1(d) of the Disclosure Schedule.
(h) Intellectual Property. Except as set forth on Section 2.1(h) of the
Disclosure Schedule, the Company owns or licenses all patents, trademarks,
service marks, trade names and copyrights, in each case registered or
unregistered, inventions, software (including documentation and object and
source code listings relating to software other than commercially available
software used by the Company pursuant to "shrink-wrap" licenses), know-how,
trade secrets and other intellectual property rights (collectively, the
"Intellectual Property") used in its business as presently conducted. Section
2.1(h) of the Disclosure Schedule contains a list of all Intellectual Property
owned and used by the Company (excluding all commercially available software
used by the Company pursuant to "shrink-wrap" licenses) and any Intellectual
Property which is licensed for use by others. No use by the Company in its
business of Intellectual Property owned by the Company, and (to the knowledge of
the Sellers) no use by the Company in its business of Intellectual Property
licensed from third parties for use by the Company, infringes any rights owned
or held by any other person. There is no pending or, to the knowledge of the
Sellers, threatened claim or litigation against the Company contesting its right
to use any Intellectual Property. To the knowledge of the Sellers, no person is
infringing the rights of the Company in any Intellectual Property. Neither the
Company nor any Seller has received any notice that a product or service sold by
the Company violates or infringes any intellectual property right owned or held
by any other person. In the case of commercially available "shrink-wrap"
software programs, neither the Company nor, to the knowledge of the Sellers, any
of its employees has made or is using any unauthorized copies of any such
software programs.
(i) Insurance. Section 2.1(i) of the Disclosure Schedule contains a
true and complete list of all policies of casualty, liability, theft, fidelity,
life and other forms of insurance held by the Company or Phoenix. True and
complete copies of such policies have been delivered to the Purchaser. Except as
set forth in Section 2.1(i) of the Disclosure Schedule, all insurance policies
are in the name of the Company or Phoenix, outstanding and in full force and
effect, all premiums with respect to such policies are currently paid and such
policies will not be affected by, or terminated or lapse by reason of, the
transactions contemplated by this Agreement. Neither the Company nor Phoenix has
received notice of cancellation or termination of any such
10
<PAGE> 16
policy, nor has it been denied or had revoked or rescinded any policy of
insurance, nor borrowed against any such policies. Except as set forth in
Section 2.1(i) of the Disclosure Schedule, no claim under any such policy is
pending.
(j) Agreements. Section 2.1(j) of the Disclosure Schedule contains a
true and complete list of all contracts, agreements and other instruments to
which the Company or Phoenix is a party (A) relating to indebtedness for money
borrowed or capital leases, (B) of duration of six months or more from the date
hereof and not cancelable without penalty on 30 days or less notice, (C)
relating to commitments in excess of $100,000, (D) relating to the employment or
compensation of any stockholder, director, officer, employee, consultant or
other agent of the Company or Phoenix which are not terminable at will by the
Company or Phoenix, (E) relating to the sale or other disposition of any assets,
properties or rights which were entered into outside the ordinary course of the
business of the Company or Phoenix, (F) relating to the lease of or similar
arrangement with respect to any machinery, equipment, motor vehicles, furniture,
fixture or similar property which individually provide for annual payments by
the Company or Phoenix in excess of $50,000, (G) between the Company or Phoenix
and any Seller or affiliate of any Seller, (H) that restricts the operation of
the Company or Phoenix anywhere in the world or (I) that is entered into other
than in the ordinary course of business. Each of the Company and Phoenix is not
in default under any such agreement or instrument where such default could,
singly or in the aggregate with defaults under other agreements or instruments,
have a material adverse effect on the condition (financial or otherwise),
assets, liabilities, operations, business or prospects of the Company and
Phoenix, taken as a whole, and, to the knowledge of the Sellers, all such
agreements or instruments are in full force and effect. Except as set forth in
Section 2.1(j) of the Disclosure Schedule, neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated by this
Agreement will create a breach of, or constitute a default under, any Agreement
required to be listed in Section 2.1(j) of the Disclosure Schedule. The Company
has delivered to the Purchaser true and complete copies of all documents
described in Section 2.1(j) of the Disclosure Schedule.
(k) Litigation. Except as set forth in Section 2.1(k) of the Disclosure
Schedule, there have not been for the past five years, nor are there, any suits,
actions, claims, investigations or legal or administrative or arbitration
proceedings in respect of the Company or Phoenix pending or, to the knowledge of
the Sellers, threatened, whether at law or in equity, or before or by any
Federal, foreign, state or municipal or other governmental department,
commission, board, bureau, agency or instrumentality. Except as set forth in
Section 2.1(k) of the Disclosure Schedule, there have not been for the past five
years, nor are there any judgments, decrees, injunctions or orders of any court,
governmental department, commission, agency, instrumentality or arbitrator
against the Company or Phoenix or any Seller or any of their respective assets
or properties.
(l) Compliance; Governmental Authorizations. (i) The Company and
Phoenix have complied and are in compliance with all Federal, state, local and
foreign laws, ordinances, rules, regulations, interpretations and orders
(including those relating to disposal of materials, environmental protection and
occupational safety and health) applicable to the Company or Phoenix or their
respective businesses (except for instances of non-compliance which
11
<PAGE> 17
individually and in the aggregate are immaterial and could not lead to criminal
liability), and, to the knowledge of the Sellers, there are no present or past
conditions relating to the Company or Phoenix, or relating to any Company
Property or any appurtenances thereto or improvements thereon, that could lead
to any material liability against, or have a material adverse effect on, the
Company and Phoenix (taken together), for violation of any health or safety
laws. Each of the Company and Phoenix has all Federal, state, local and foreign
governmental licenses and permits necessary to conduct its business as presently
being conducted, which licenses and permits (and any exceptions thereto) are set
forth in Section 2.1(l)(i) of the Disclosure Schedule. Such licenses and permits
are in full force and effect, no violations are or have been recorded in respect
of any thereof, no proceeding is pending or, to the knowledge of the Sellers,
threatened, to revoke or limit any thereof, and the Sellers do not know of any
basis for any such proceeding, and the consummation of the transactions
contemplated in this Agreement will not result in the non-renewal, revocation or
termination of any such license or permit (except, in each case, for such
violations, proceedings, non-renewals, revocations or terminations as are, in
the aggregate, immaterial).
(ii) Each of the Company and Phoenix validly holds all permits
required under all applicable Federal, state, county or local laws, ordinances,
regulations, official interpretations and orders relating to disposal of
materials or the discharge of chemicals, gases or other substances or Hazardous
Materials (defined below) into the environment or to the safety or protection of
the environment (the "Environmental Laws"). Neither the Company nor Phoenix has
violated, nor is the Company or Phoenix in violation of, any requirements of any
Environmental Laws in connection with the conduct of its business or in
connection with the use, maintenance or operation of any Company Property
(except for violations which individually and in the aggregate are immaterial
and could not lead to criminal liability). There are no present or past
conditions relating to the Company or Phoenix or relating to any Company
Property, or, to the knowledge of the Sellers, relating to any real property
previously owned, leased or operated by the Company or Phoenix or any of their
respective present or past affiliates, that in any such case could lead to any
material liability of the Company or Phoenix under any Environmental Law. Except
as set forth on Section 2.1(l)(ii) of the Disclosure Schedule, the Company and
Phoenix have operated each Company Property and have received, handled, used,
stored, treated, shipped and disposed of all hazardous or toxic materials,
substances and wastes (whether or not on its properties or properties owned or
operated by others) in compliance with all applicable Environmental Laws (except
for instances of non-compliance which individually and in the aggregate are
immaterial and could not lead to criminal liability). Except as set forth in
Section 2.1(l)(ii) of the Disclosure Schedule, neither the Company nor Phoenix
has engaged in or permitted the sale or dispensation (to customers, employees or
other persons), handling, transportation, discharge, emission, treatment,
storage or disposal of gasoline or other motor vehicle fuels at or under any
Company Property or any property or facility previously owned, leased or
operated by the Company. "Hazardous Materials" means (A) any "hazardous
substance" as defined by the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended; (B) any "hazardous waste" or "petroleum,"
as defined by the Resource Conservation and Recovery Act, as amended; (C) any
petroleum product; (D) any pollutant or contaminant or hazardous, dangerous or
toxic chemical, material or substance within the meaning of any other
Environmental Law, as amended or hereafter amended; or (E) any
12
<PAGE> 18
radioactive material, including any source, special nuclear or by-product
material as defined at 42 U.S.C. Section 2011 et seq., as amended or hereafter
amended.
(m) Labor Relations; Employees. (i) (A) There is no labor strike,
slowdown, stoppage or lockout pending, affecting, or, to the knowledge of any
Seller, threatened against the Company or Phoenix, and during the last five
years there has not been any such action with respect to the Company or, to the
knowledge of the Sellers, Phoenix; (B) there are no union claims to represent
the employees of the Company or, to the knowledge of the Sellers, Phoenix, nor
have there been any such claims within the last five years with respect to the
Company or, to the knowledge of the Sellers, Phoenix; (C) there is no written or
oral contract, commitment, agreement, understanding or other arrangement with
any labor organization, nor work rules or practices agreed to with any labor
organization or employee association, applicable to employees of the Company or,
to the knowledge of the Sellers, applicable to Phoenix, nor is the Company or,
to the knowledge of the Sellers, Phoenix a party to or bound by any collective
bargaining or similar agreement; (D) there is, and within the last five years
has been, no representation of the employees of the Company or, to the knowledge
of the Sellers, Phoenix by any labor organization and, to the knowledge of the
Sellers, there are no union organizing activities among the employees of the
Company or Phoenix; (E) Section 2.1(m)(i) of the Disclosure Schedule sets forth
all written personnel policies, rules or procedures applicable to employees of
the Company and, to the knowledge of the Sellers, applicable to employees of
Phoenix, and the Sellers have delivered to the Purchaser complete and accurate
copies of all such written policies, rules or procedures; (F) neither the
Company nor, to the knowledge of the Sellers, Phoenix has engaged in any unfair
labor practices as defined in the National Labor Relations Act or other
applicable law, ordinance, regulation, interpretation or order and each of the
Company and, to the knowledge of the Sellers, Phoenix is, and has for the past
five years been, in compliance with all applicable laws, ordinances,
regulations, interpretations or orders respecting employment and employment
practices, terms and conditions of employment, wages, hours of work and
occupational safety and health; (G) there is no unfair labor practice charge or
complaint against the Company (or against any Seller with respect to the
Company) or, to the knowledge of the Sellers, Phoenix pending or, to the
knowledge of any Seller, threatened before the National Labor Relations Board or
any similar state or foreign agency; (H) there is no grievance pending or, to
the knowledge of any Seller, threatened against the Company or, to the knowledge
of the Sellers, Phoenix arising out of any collective bargaining agreement or
other grievance procedure; (I) there are no charges with respect to or relating
to the Company or, to the knowledge of the Sellers, Phoenix pending or, to the
knowledge of any Seller, threatened before the Equal Employment Opportunity
Commission or any other governmental entity responsible for the prevention of
unlawful employment practices; (J) none of the Company or any Seller or, to the
knowledge of the Sellers, Phoenix has received notice of the intent of any
governmental entity responsible for the enforcement of labor or employment laws
to conduct an investigation with respect to or relating to the Company or, to
the knowledge of the Sellers, Phoenix and, to the knowledge of the Sellers, no
such investigation is in progress; and (K) no complaints, lawsuits or other
proceedings are pending or, to the knowledge of any Seller, threatened in any
forum by or on behalf of any present or former employee of the Company or any
applicant for employment by the Company or classes of the foregoing alleging
breach of any express or implied contract, commitment, agreement, understanding
or other arrangement for employment, any law
13
<PAGE> 19
governing employment or the termination thereof or other discriminatory,
wrongful or tortious conduct in connection with any employment relationship, nor
to the knowledge of the Sellers is any such complaint, lawsuit or other
proceeding pending or threatened by or on behalf of any present or former
employee of Phoenix or any applicant for employment by Phoenix or classes of the
foregoing.
(ii) Section 2.1(m)(ii) of the Disclosure Schedule contains a list of
each pension, retirement, savings, deferred compensation, and profit-sharing
plan and each stock option, stock appreciation, stock purchase, performance
share, bonus or other incentive plan, severance plan, health, group insurance or
other welfare plan, or other similar plan and any "employee benefit plan" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974 ("ERISA"), under which the Company has any current or future obligation or
liability (including any potential, contingent or secondary liability under
Title IV of ERISA) or under which any employee or former employee (or
beneficiary of any employee or former employee) of the Company has or may have
any current or future right to benefits (the term "plan" shall include any
contract, agreement, policy or understanding, each such plan being hereinafter
referred to individually as a "Plan"). The Company has delivered to the
Purchaser true and complete copies of (A) each Plan, (B) the summary plan
description for each Plan, (C) the latest annual report, if any, which has been
filed with the IRS for each Plan, (D) the most recent IRS determination letter
for each Plan that is a pension plan (as defined in ERISA) and (E) copies of
reports for the three most recent Plan years showing compliance with
discrimination rules under those of Code Sections 401(a), 401(k), 401(m), 419,
419A, 505. 501(c)(9), 105(h), 125 or 129 applicable to such Plan. Each Plan
intended to be tax qualified under Sections 401(a) and 501(a) of the Code is and
has been determined by the IRS to be tax qualified under Sections 401(a) and
501(a) of the Code and, since such determination, no amendment to or failure to
amend any such Plan and to the knowledge of the Sellers no other event or
circumstance has occurred that could adversely affect its tax qualified status.
There has been no prohibited transaction within the meaning of Section 4975 of
the Code and Section 406 of Title I of ERISA with respect to any Plan.
(iii) No Plan is subject to the provisions of Section 412 of the Code
or Part 3 of Subtitle B of Title I of ERISA. No Plan is subject to Title IV of
ERISA. During the past five years, neither the Company nor any business or
entity then controlling, controlled by, or under common control with the Company
contributed to or was obliged to contribute to an employee pension plan that was
subject to Title IV of ERISA.
(iv) There are no actions, claims, lawsuits or arbitrations (other than
routine claims for benefits) pending, or, to the knowledge of the Sellers,
threatened, with respect to any Plan or the assets of any Plan, and no Seller
has knowledge of any facts which could give rise to any such actions, claims,
lawsuits or arbitrations (other than routine claims for benefits). Each Plan has
been administered in all material respects in accordance with its terms and with
all applicable laws (including, without limitation, ERISA). The Company has
satisfied all funding, compliance and reporting requirements for all Plans. With
respect to each Plan, the Company has paid all contributions (including employee
salary reduction contributions) and all insurance
14
<PAGE> 20
premiums that have become due and any such expense accrued but not yet due has
been properly reflected in the financial information in Section 2.1(e) of the
Disclosure Schedule.
(v) No Plan provides or is required to provide, now or in the
future, health, medical, dental, accident, disability, death or survivor
benefits to or in respect of any person beyond termination of employment, except
to the extent required under any state insurance law or under Part 6 of Subtitle
B of Title I of ERISA and under Section 4980(B) of the Code. No Plan covers any
individual other than employees of the Company, other than spouses and
dependents of employees under health and child care policies listed in Section
2.1(m)(ii) of the Disclosure Schedule, true and complete copies of which have
been delivered to the Purchaser.
(vi) Except as set forth in Section 2.1(m)(vi) of the
Disclosure Schedule, the consummation of the transactions contemplated by this
Agreement will not (A) entitle any employee of the Company to severance pay or
termination benefits, (B) accelerate the time of payment or vesting, or increase
the amount of compensation due to any such employee or former employee or (C)
(by itself) obligate the Purchaser or the Company, or any of their respective
affiliates, to pay or otherwise be liable for any compensation, vacation days,
pension contribution or other benefits to any employee, consultant or agent of
the Company for periods before the Closing Date or for personnel whom the
Purchaser does not employ.
(vii) The Company has not made any representations or
warranties (whether written or oral, express or implied) contractually or
otherwise to any client or customer of the Company that the Company employees
rendering services to such client or customer are not "leased employees" (within
the meaning of Section 414(n) of the Code) or that such employees would not be
required to participate under any pension benefit plan (within the meaning of
Section 3(2) of ERISA) (a "Pension Benefit Plan") of such client or customer
relating either to (A) providing benefits to employees of the Company under a
Pension Benefit Plan of the Company or (B) making contributions to or
reimbursing such client or customer for any contributions made to a Pension
Benefit Plan of such client or customer on behalf of employees of the Company.
(n) Related Party Transactions. Except as set forth in Section 2.1(n)
of the Disclosure Schedule, no current or former partner, director, officer,
employee or shareholder of the Company or Phoenix or any associate or affiliate
(as defined in the rules promulgated under the Securities Exchange Act of 1934)
thereof, or any relative with a relationship of not more remote than first
cousin of any of the foregoing, is presently, or during the 12-month period
ending on the date hereof has been, (i) a party to any transaction with the
Company or Phoenix (including any contract, agreement or other arrangement
providing for the furnishing of services by, or rental of real or personal
property from, or otherwise requiring payments to, any such director, officer,
employee or shareholder or such associate) or (ii) to the knowledge of the
Sellers, the direct or indirect owner of an interest in any corporation, firm,
association or business organization which is a present (or potential)
competitor, supplier or customer of the Company or Phoenix, nor does any such
person receive income from any source other than the Company or Phoenix which
relates to the businesses of the Company or Phoenix or should properly accrue to
the Company or Phoenix.
15
<PAGE> 21
(o) Taxes. (i) All Federal, state, local and foreign tax returns and
tax reports required to be filed on or prior to the Closing Date by the Company
and Phoenix have been or will be filed or a valid request for extension has been
or will be filed with respect thereto, on a timely basis (including any
extensions) with the appropriate governmental agencies in all jurisdictions in
which such returns and reports are required to be filed. All such returns and
reports are and will be true, correct and complete. All Federal, state, local
and foreign income, profits, franchise, sales, use, occupation, property,
excise, employment and other taxes (including interest, penalties and
withholdings of tax) due from and payable by the Company or Phoenix on or prior
to the Closing Date have been or will be fully paid on a timely basis or will be
adequately reserved for on the Closing Date Balance Sheet. Neither the Company
nor Phoenix is not currently the beneficiary of any extension of time within
which to file any tax return.
(ii) No claim has ever been made by an authority in a
jurisdiction where the Company or Phoenix does not file tax returns that it is
or may be subject to taxation by that jurisdiction, and neither the Company nor
Phoenix has received any notice, or request for information from any such
authority.
(iii) No issues have been raised with the Company or Phoenix
by the Internal Revenue Service (the "IRS") or any other taxing authority in
connection with any tax return or report filed by the Company or Phoenix and
there are no issues which, either individually or in the aggregate, could result
in any liability for tax obligations of the Company or Phoenix relating to
periods ending on or before October 31, 1997 in excess of the accrued liability
for taxes shown on the combined financial statements contained in Section
2.1(e)(i) of the Disclosure Schedule. No waivers of statutes of limitations have
been given or requested with respect to the Company or Phoenix.
(iv) No differences exist between the amounts of the book
basis and the tax basis of assets that are not accounted for by an accrual on
the books of the Company and Phoenix for Federal income tax purposes. Neither
the Company nor Phoenix required to include in income any adjustment pursuant to
Section 481(a) of the Code by reason of a voluntary change in accounting method
initiated by the Company or Phoenix, and the IRS has proposed no adjustment or
change in accounting method.
(v) All transactions or methods of accounting that could give
rise to an understatement of Federal income tax (within the meaning of Section
6661 of the Code for tax returns filed on or before December 31, 1990, and
within the meaning of Section 6662 of the Code for tax returns filed after
December 31, 1990) have been adequately disclosed on the tax returns in
accordance with Section 6661(b)(2)(B) of the Code for tax returns filed on or
prior to December 31, 1990, and in accordance with Section 6662(d)(2)(B) of the
Code for tax returns filed after December 31, 1990.
(vi) Neither the Company nor Phoenix has been a United States
real property holding company (as defined in Section 897(c)(2) of the Code)
during the applicable period specified in Section 897(c)(1)(ii) of the Code.
16
<PAGE> 22
(vii) Each of the Company and Phoenix has complied (and until
the Closing will comply) with all applicable laws relating to the payment and
withholding of taxes (including withholding and reporting requirements under
Section 1441 through 1464, 3401 through 3406, 6041 and 6049 of the Code and
similar provisions under any other laws) and, within the time and in the manner
prescribed by law, has withheld from wages, fees and other payments and paid
over to the proper governmental or regulatory authorities all amounts required.
(viii) Neither the Company nor Phoenix is a party to any
tax-sharing or tax indemnity agreement or any other agreement of a similar
nature that remains in effect.
(p) Disclosure. To the knowledge of the Sellers, there have been no
events, transactions or information relating to the Company or Phoenix which,
singly or in the aggregate, could reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), assets, liabilities,
operations or business of the Company and Phoenix, taken as a whole. No
representation or warranty of the Sellers contained in this Agreement, and no
statement contained in any certificate, schedule, annex, list or other writing
furnished to the Purchaser, contains any untrue statement of a material fact.
(q) Bank Accounts; Powers-of-Attorney. Section 2.1(q) of the Disclosure
Schedule contains a true and complete list of (A) all bank accounts and safe
deposit boxes of the Company and Phoenix and all persons who are signatories
thereunder or who have access thereto and (B) the names of all persons holding
general or special powers-of-attorney from the Company or Phoenix and a summary
of the terms thereof.
(r) Inventory. The inventory included in the financial statements
contained in Section 2.1(e) of the Disclosure Schedule is the only inventory
used or held for use in the Company's business, is valued for financial
statement purposes at the lower of cost or market value, and, except as set
forth in Section 2.1(r) of the Disclosure Schedule, is useable and salable in
the ordinary course of business. All inventory used or held for use in the
business of Phoenix is valued for financial statement purposes at the lower of
cost or market value and, except as set forth in Section 2.1(r) of the
Disclosure Schedule, is useable and salable in the ordinary course of business.
(s) Brokers. No agent, broker, investment banker, person or firm acting
on behalf of any Seller or the Company or Phoenix or under the authority of any
Seller or the Company or Phoenix is or will be entitled to any broker's or
finder's fee or any other commission or similar fee directly or indirectly from
any of the parties hereto in connection with any of the transactions
contemplated hereby.
(t) Parnelli-Jones. Notwithstanding any provision to the contrary in
this Section 2.1, the Sellers make no representations or warranties of any kind
with respect to the business to be acquired by Phoenix from Parnelli-Jones,
including, without limitation, the condition (financial or otherwise), assets,
liabilities, operations, business or prospects of the business to be acquired by
Phoenix from Parnelli-Jones.
17
<PAGE> 23
(u) Phase III Materials. Section 2.1(u) of the Disclosure Schedule sets
forth a description of certain information relating to the Company's
miscellaneous income, including certain information relating to the tire
supplier annual volume bonus (AVB) programs in which the Company participates.
SECTION 2.2. Representations and Warranties by the Purchaser. The
Purchaser represents and warrants to the Sellers as follows:
(a) Organization and Standing. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
North Carolina.
(b) Authority; Binding Agreements. The Purchaser has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of the
Purchaser. This Agreement has been duly executed and delivered by the Purchaser,
and constitutes the valid and binding obligation of the Purchaser, enforceable
against the Purchaser in accordance with its terms, subject to the laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and rules and laws governing specific performance, injunctive relief and other
equitable remedies.
(c) Conflicts; Consents. The execution and delivery by the Purchaser of
this Agreement, the consummation of the transactions contemplated hereby and
compliance by the Purchaser with the provisions hereof do not and will not (i)
conflict with or result in a breach of the certificate of incorporation, by-laws
or other constitutive documents of the Purchaser, (ii) violate any law, statute,
rule or regulation or order, writ, injunction or decree applicable to the
Purchaser or (iii) conflict with or result in a default under (or give rise to
any right of acceleration under) any material term of any material agreement
relating to indebtedness for borrowed money to which the Purchaser is a party or
the material terms of any securities issued by the Purchaser or instruments
convertible or exchangeable for such securities, except for conflicts, breaches
or defaults as to which requisite waivers or consents will have been obtained
before the Closing. No consent or approval by, or notification of or filing
with, any person is required in connection with the execution, delivery and
performance by the Purchaser of this Agreement and the consummation of the
transactions contemplated hereby, except for (i) the filing of a premerger
notification and report form under the HSR Act and the expiration or early
termination of the applicable waiting period under the HSR Act and (ii) the
consent of the Purchaser's senior and subordinated lenders (it being understood
and agreed that obtaining or failing to obtain the consent of the Purchaser's
senior and subordinated lenders is deemed to be within the control of the
Purchaser solely for purposes of Section 3.1(b)(i)).
(d) Investment Representation. The Purchaser is acquiring the Shares
for its own account and not with a view to distribution within the meaning of
the applicable Federal securities laws.
(e) Brokers. No agent, broker, investment banker, person or firm acting
on behalf of the Purchaser or under the authority of the Purchaser is or will be
entitled to any broker's or
18
<PAGE> 24
finder's fee or any other commission or similar fee directly or indirectly from
any of the parties hereto in connection with any of the transactions
contemplated hereby.
ARTICLE III
ADDITIONAL AGREEMENTS
SECTION 3.1. Costs and Expenses. (a) All fees, costs and expenses
incurred in the pursuit of the transactions contemplated by this Agreement,
including the fees and expenses of its counsel, financial advisors and
accountants (collectively, "Transaction Costs"), incurred by the Purchaser shall
be paid by the Purchaser. Any Transaction Costs incurred by the Sellers or the
Company shall be paid or reimbursed by the Purchaser up to an aggregate maximum
of $100,000 (plus any Transaction Costs incurred in connection with the
additional legal opinion work done by the Sellers' counsel after the date hereof
relating to the issues of enforceability of the covenant not to compete,
employment agreements and choice of law provisions), and any Transaction Costs
incurred by the Sellers or the Company in excess of such $100,000 shall be paid
or reimbursed by the Sellers.
(b) The Purchaser shall pay the Sellers a fee in immediately available
funds of $1,000,000 if (i) the Closing does not occur on or prior to the close
of business on June 22, 1998 for any reason in the control of the Purchaser
(including the failure to satisfy the condition set forth in Section 4.1(h)) and
this Agreement is terminated pursuant to Section 6.2 and (ii) (A) the condition
set forth in Section 4.1(g) has been satisfied or deemed satisfied and (B) the
condition set forth in Section 4.1(b) has been satisfied (assuming for purposes
of this Section 3.1(b) that the date of termination of this Agreement is the
Closing Date).
(c) In the event that the Closing does not occur on or prior to the
close of business on June 22, 1998 for any reason in the control of the Company
or the Sellers not precipitated by the Purchaser and this Agreement is
terminated pursuant to Section 6.2, the Sellers shall pay the Purchaser a fee in
immediately available funds of $1,000,000; provided that the Purchaser has
performed or complied with all covenants and agreements required to be performed
or complied with on or prior to the date of termination of this Agreement and
the representations and warranties of the Purchaser as set forth in Section 2.2
above are true and correct as of such date.
(d) Any fee due pursuant to Section 3.1(b) or (c) (i) shall be paid
within five business days after the termination of this Agreement pursuant to
Section 6.2, (ii) is in addition to, and not in lieu of, any other remedies
available at law or equity for a breach of this Agreement prior to its
termination and (iii) shall be paid without deduction, set-off or counterclaim
of any kind.
SECTION 3.2. Conduct of Business. From the date of this Agreement until
the Closing Date, except as set forth in Section 3.2 of the Disclosure Schedule
or as otherwise consented to by the Purchaser in writing, the Sellers shall
cause the Company and Phoenix to operate their respective businesses only in the
ordinary course of business consistent with past practice. The Sellers shall use
all commercially reasonable efforts to cause the Company and Phoenix to preserve
intact the present organization of the Company and Phoenix; keep available
19
<PAGE> 25
the services of the present officers and employees of the Company and Phoenix;
preserve the Company's and Phoenix's goodwill and relationships with customers,
suppliers, licensors, licensees, contractors, distributors, lenders and other
persons having significant business dealings with the Company or Phoenix;
continue all current sales, marketing and other promotional policies, programs
and activities; maintain the assets of the Company and Phoenix in good repair,
order and condition; and maintain the Company's and Phoenix's insurance policies
and risk management programs and in the event of casualty, loss or damage to any
assets of the Company or Phoenix, repair or replace such assets with assets of
comparable quality, as the case may be. Without limiting the generality of the
foregoing, the Sellers shall not (and shall not permit the Company or Phoenix
to), without the prior written consent of the Purchaser, directly or indirectly
(i) cause or permit any state of affairs, action or omission described in
Section 2.1(f) (substituting $25,000 for $10,000 in clause (x) of Section 2.1(f)
for purposes of this Section 3.2), (ii) enter into or give any material waiver,
amendment or consent under the definitive purchase agreement between the Company
and Parnelli-Jones, or (iii) take, or agree in writing or otherwise to take, any
action which would make any representation or warranty of any Seller contained
in this Agreement untrue or incorrect as of the date when made or as of any
future date or which could prevent the satisfaction of any condition to closing
set forth in Article IV. The Sellers shall promptly notify the Purchaser if they
intend to take any action with respect to the acquisition of assets or
properties from Parnelli Jones that could reasonably be expected to be of
material interest to the Purchaser, and shall refrain from taking such actions
if the Purchaser so instructs (such instruction to be delivered within
twenty-four hours).
SECTION 3.3. Reasonable Efforts; Further Assurances. The Purchaser and
the Sellers each agree to use all commercially reasonable efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary and reasonably appropriate under applicable laws and regulations, to
consummate and make effective the transactions contemplated by this Agreement as
expeditiously as practicable and to ensure that the conditions set forth in
Article IV are satisfied, insofar as such matters are within the control of any
of them. In case at any time after the Closing Date, any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
parties to this Agreement shall take or cause to be taken all such necessary
action, including the execution and delivery of such further instruments and
documents, as may be reasonably requested by any party for such purposes or
otherwise to complete or perfect the transactions contemplated by this
Agreement.
SECTION 3.4. No Shopping. From the date of this Agreement until the
earlier of (i) the Closing Date and (ii) the date this Agreement is terminated
in accordance with Section 6.2, no Seller shall, and no Seller shall permit the
Company or Phoenix or any partner, director, officer or agent of the Company or
Phoenix to, directly or indirectly, solicit or initiate, enter into or conduct,
discussions concerning, or exchange information (including by way of furnishing
information concerning the Company or Phoenix or their respective businesses) or
enter into any negotiations concerning, or respond to any inquiries or solicit,
receive, entertain or agree to any proposals for, the acquisition of the assets
of, or any substantial part thereof (except for sales of inventory in the
ordinary course of the Company's or Phoenix's business), or a merger involving,
the Company or Phoenix or the transfer of all or a substantial part of the
capital stock of the Company or Phoenix to any person other than the Purchaser
or one of its affiliates or the formation of any joint venture or
20
<PAGE> 26
strategic alliance involving the Company or Phoenix. In addition, during such
time period, no Seller shall authorize, direct or knowingly permit any employee
or agent of the Company or Phoenix to do any of the foregoing and the Sellers
shall notify the Purchaser of the identity of any person who approaches any
Seller or the Company or Phoenix with respect to any of the foregoing.
SECTION 3.5. Access and Information.
(a) Access Prior to Closing. From the date of this Agreement until the
first to occur (i) of the Closing Date and (ii) the termination of this
Agreement in accordance with Section 6.2, the Sellers shall cause the Company
and Phoenix to permit the Purchaser, its financing parties and their respective
representatives to make such investigation of the business, operations and
properties of the Company and Phoenix as the Purchaser deems necessary or
desirable in connection with the transactions contemplated by this Agreement.
Such investigation shall include access to the respective directors, officers,
employees, agents and representatives (including legal counsel and independent
accountants) of the Company and Phoenix and the properties, books, records and
commitments of the Company and Phoenix. Sellers shall furnish the Purchaser and
its representatives with such financial, operating and other data and
information, and copies of documents with respect to the Company or Phoenix or
any of the transactions contemplated by this Agreement, as the Purchaser shall
from time to time request. Such access and investigation shall be coordinated
through Sellers (or Company representatives as designated by Sellers) and shall
occur only during periods reasonably determined by Sellers so as not to disrupt
the operations of the Company and Phoenix. Such access and information shall not
in any way affect or diminish any of the representations or warranties
hereunder. Without limiting the foregoing, during such period, Sellers shall
keep the Purchaser informed as to the business and operations of the Company and
Phoenix and shall consult with the Purchaser as appropriate. Notwithstanding
this Section 3.5, it is understood and agreed that the Sellers may refuse to
permit the Purchaser to commence employee interviews until the Purchaser has
notified the Sellers of its acceptance of the materials furnished pursuant to
Section 3.12(b).
(b) Confidentiality. Until Closing and at all times following the
termination of this Agreement pursuant to Section 6.2, the Purchaser and the
Sellers each agree that all financial or other information about the Purchaser,
the Company or any Seller, or other information of a confidential or proprietary
nature, disclosed to the other at any time in connection with the proposed
transaction shall be kept confidential by the party receiving such information
and shall not be disclosed to any person or used by the receiving party (other
than to its agents or employees, and, in the case of the Purchaser, its
financing parties which have been bound by confidentiality obligations similar
to those contained in this Section 3.5(b)), in connection with the transactions
contemplated by this Agreement) except: (i) with the prior written consent of
the disclosing party; (ii) as may be required by applicable law or court
process; (iii) such information which may have been acquired or obtained by
lawful means by such party (other than through disclosure by the other party in
connection with the transaction contemplated by this Agreement); or (iv) such
information which is or becomes generally available to the public other than as
a result of a violation of this provision.
21
<PAGE> 27
(c) Equitable Relief. The parties acknowledge that damages at law would
be an inadequate remedy for the breach by any party of Section 3.5(b), and agree
in the event of such breach that any non-breaching party may obtain temporary
and permanent injunctive relief restraining the breaching party from such
breach, and, to the extent permissible under applicable statutes and rules of
procedure, a temporary injunction may be granted immediately upon the
commencement of any such suit.
SECTION 3.6. Confidentiality; Non-Competition.
(a) Confidential Information. Each Seller recognizes and hereby
acknowledges that, as a stockholder and senior executive of the Company, he
knows of, and has been exposed to, confidential business information concerning
information, ideas, know how, trade secrets, processes, computer software,
methods, practices, techniques, technical plans, customer lists, pricing
techniques and information, marketing plans, financial information, and all
other compilations of information that relate to the business of the Company
Group and its current and prospective customers ("Confidential Information").
Each Seller recognizes and hereby acknowledges that such Confidential
Information is a valuable asset of the Company Group. Each Seller agrees to
safeguard such Confidential Information for the exclusive benefit of the members
of the Company Group and agrees that, after the Closing, he will not disclose,
distribute or publish such Confidential Information to any person, company,
business or corporation, provided that Confidential Information shall not
include information that is or becomes generally available to the public (other
than as a result of a disclosure in violation of this Agreement by such Seller
or by a person who received such information from such Seller in violation of
this Agreement). "Company Group" shall mean the Purchaser, the Company and their
respective subsidiaries and affiliates.
(b) Covenant Not To Compete. (i) Each Seller acknowledges and
recognizes his possession of Confidential Information and acknowledges and
recognizes the highly competitive nature of the business of the members of the
Company Group. Accordingly, in consideration of the Purchaser entering into this
Agreement, the transactions contemplated by this Agreement, the payments
specified in subsections (ii) and (iii) below and the premises contained herein,
each Seller agrees that, during the Covenant Period (defined below), such Seller
will not, for any reason whatsoever, either individually or as an officer,
director, stockholder, partner, agent or principal or another business or firm,
directly or indirectly (1) engage in the States of Arizona, California, New
Mexico, Nevada, Oregon, Utah and Washington in any Competing Business, (2)
divert, take away or solicit, or attempt to divert, take away or solicit any
businesses or individuals that were customers of the Company Group, (3) contact
or communicate with any employee of any member of the Company Group for the
purpose of inducing or otherwise encouraging such employee to terminate his or
her employment with such person, provided, however, that this Section 3.6(b)
shall not preclude such Seller from giving an employment reference at the
request of a prospective employer of such employee, or (4) assist others in
engaging in any of the foregoing actions described in clauses (1), (2) or (3)
above. "Covenant Period" means the five-year period commencing on the Closing
Date and ending on the fifth anniversary of the Closing Date. "Competing
Business" means any business that is competitive
22
<PAGE> 28
with the business of any member of the Company Group (including, without
limitation, the wholesale or retail tires or automotive parts businesses).
(ii) The covenant not to compete of the Sellers set forth in
Section 3.6(b)(i) is in further consideration of the payment by the Purchaser to
Arthur C. Soares ("Soares") of a Non-Compete Payment in an amount equal to
$6,500,000 payable in annual installments as follows: $500,000 on the first-year
anniversary of the Closing Date, $1,000,000 on the second-year anniversary of
the Closing Date, $1,670,000 on each of the third-year and fourth-year
anniversaries of the Closing Date, and $1,660,000 on the fifth-year anniversary
of the Closing Date. Notwithstanding the foregoing sentence, if the aggregate
amount of the Non-Compete Payment is reduced pursuant to Section 1.5, the
Non-Compete Payment payable to Soares shall be in an amount equal to $2,250,000
payable in installments as follows: $750,000 on each of the third-year,
fourth-year and fifth-year anniversaries of the Closing Date. The Purchaser
shall also pay Soares interest on the unpaid balance of such Non-Compete Payment
at a rate of 8% per annum for the period from and including the Closing Date to
but excluding the date payment is due under this Section 3.6. Such interest
payments shall be made annually at the same time as the payment of the annual
installment of such Non-Compete Payment. Soares acknowledges and agrees that the
Purchaser shall be entitled to set off or apply all or a portion of the unpaid
Non-Compete Payment (including the interest payments thereon) payable to Soares
against any obligations of Soares to the Purchaser or its affiliates now or
hereafter existing under Article V. In the event Purchaser intends to set-off
any amount payable to Soares under this Section 3.6 against any such
obligations, the Purchaser shall notify Soares no later than the date on which
such amount is payable.
(iii) The covenant not to compete of the Sellers set forth in
Section 3.6(b)(i) is in further consideration of the payment by the Purchaser to
Ray C. Barney ("Barney") of a Non-Compete Payment in an amount equal to $900,000
payable in installments as follows: $100,000 on the second-year anniversary of
the Closing Date, $200,000 on the third-year anniversary of the Closing Date,
and $300,000 on each of the fourth-year and fifth-year anniversaries of the
Closing Date. Notwithstanding the foregoing sentence, if the aggregate amount of
the Non-Compete Payment is reduced pursuant to Section 1.5, the Non-Compete
Payment payable to Barney shall be in an amount equal to $150,000 payable in
installments as follows: $50,000 on each of the third-year, fourth-year and
fifth-year anniversaries of the Closing Date. The Purchaser shall also pay
Barney interest on the unpaid balance of such Non-Compete Payment at a rate of
8% per annum for the period from and including the Closing Date to but excluding
the date payment is due under this Section 3.6. Such interest payments shall be
made annually at the same time as the payment of the annual installment of such
Non-Compete Payment. Barney acknowledges and agrees that the Purchaser shall be
entitled to set off or apply all or a portion of the unpaid Non-Compete Payment
(including the interest payments thereon) payable to Barney against any
obligations of Barney to the Purchaser or its affiliates now or hereafter
existing under Article V. In the event Purchaser intends to set-off any amount
payable to Barney under this Section 3.6 against any such obligations, the
Purchaser shall notify Barney no later than the date on which such amount is
payable.
23
<PAGE> 29
(iv) Any amount payable by the Purchaser to either Seller
pursuant to this Section 3.6 and not paid when due shall bear interest, payable
on demand, for each day from and including the date payment thereof was due to
but excluding the date of actual payment at a rate of 10% per annum.
(v) The Purchaser agrees on or prior to the Closing to use all
commercially reasonable efforts to arrange for security for the Non-Compete
Payments on terms and conditions reasonably satisfactory to each Seller and to
execute and deliver or obtain such security agreements, letters of credit or
other documents and instruments in favor of the Sellers as are necessary in
connection therewith.
(c) Enforceability. It is the desire and intent of the parties hereto
that the provisions of this Section 3.6 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, although the Sellers and the Purchaser
consider the restrictions contained in this Section 3.6 to be reasonable for the
purposes of preserving the Company's goodwill and proprietary rights, if any
particular provision of this Section 3.6 shall be adjudicated to be invalid or
unenforceable, such provision shall be deemed amended to delete therefrom the
portion thus adjudicated to be invalid or unenforceable, such deletion to apply
only with respect to the operation of such provision in the particular
jurisdiction in which such adjudication is made. It is expressly understood and
agreed that, although the Sellers and the Purchaser consider the restrictions
contained in Section 3.6 to be reasonable, if a final determination is made by a
court of competent jurisdiction that the time or territory or any other
restriction contained in this Section 3.6 is unenforceable against any Seller,
the provisions of this 3.6 shall be deemed amended to apply as to such maximum
time and territory and to such maximum extent as such court may judicially
determine or indicate to be enforceable.
(d) Remedies. The parties acknowledge that the Purchaser's damages at
law would be an inadequate remedy for the breach by any Seller of any provision
of this Section 3.6, and agree in the event of such breach that the Purchaser
may obtain temporary and permanent injunctive relief restraining such Seller
from such breach, and, to the extent permissible under the applicable statutes
and rules of procedure, a temporary injunction may be granted immediately upon
the commencement of any such suit. Nothing contained in this Agreement shall be
construed as prohibiting the Purchaser from pursuing other remedies available at
law or equity for such breach or threatened breach of this Section 3.6 of this
Agreement. Without limiting the generality of the foregoing, the Sellers
acknowledge that, in the event of a breach or threatened breach by any Seller of
any of the provisions of subsection (b) of this Section 3.6, the Purchaser's
damages may exceed the amount paid to the Sellers (singly or in the aggregate)
in consideration of their covenants set forth in such paragraph (b).
(e) Acknowledgment. Each Seller acknowledges that he is entering into
the covenants contained in this Section 3.6, inter alia, due to his position,
prior to the Closing Date, as a stockholder of the Company.
24
<PAGE> 30
SECTION 3.7. Releases; Prior Compensation. Each Seller will agree and
acknowledge, effective upon the Closing, that such Seller has been paid in full
for all services rendered to the Company and Phoenix and has no outstanding
claims against the Company or Phoenix or the Purchaser for any amounts arising
because of such employment or otherwise except as contemplated by this Agreement
or by the employment agreements referred to in Section 4.1(i). Each Seller
agrees to release, effective as of the Closing Date, the Company and all of the
Company's subsidiaries and affiliates from all rights such Seller may have to
acquire any securities of the Company or any of its subsidiaries and affiliates
and all actions, suits, debts, promises, agreements, damages, demands or claims
of any kind whatsoever arising from any event or action prior to the Closing
Date that any Seller had, has or may in the future have against the Company or
any of its subsidiaries and affiliates (including, without limitation, all
claims or rights either of the Sellers may have at any time as a result of the
failure to take any action described in Section 2.1(c) of the Disclosure
Schedule), except for the matters arising under this Agreement or related to the
transactions contemplated hereby.
SECTION 3.8. Public Announcements. The Purchaser, on the one hand, and
the Sellers, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the transactions contemplated by this
Agreement, and shall not issue any such press release or make any such public
statement prior to such consultation.
SECTION 3.9. Tax Matters.
(a) Transfer Taxes. The Sellers shall be responsible for all transfer,
excise, stamp, sales, use, recording or similar taxes or fees arising out of the
sale, transfer, conveyance or assignment of the Shares by the Sellers and the
transactions contemplated hereby.
(b) Responsibility for Company Taxes.
(i) Notwithstanding any other provision of this Agreement
(including, without limitation, Section 5.1), in the event that the Closing
occurs, the Sellers shall be liable for and shall indemnify the Purchaser and
the Company for taxes of the Company and Phoenix for any taxable years or
periods that end on or before the Closing Date and, with respect to any taxable
years or periods beginning before and ending after the Closing, the portion of
such taxable years ending on and including the Closing Date but only to the
extent such taxes exceed the aggregate amount accrued (to the extent such
accruals are consistent with past practice) for taxes on the Closing Date
Balance Sheet.
(ii) In the event that the Closing occurs, the Purchaser and
the Company and Phoenix shall be liable for and shall indemnify the Sellers for
taxes of the Company and Phoenix for any taxable years or periods that begins
after the Closing Date and, with respect to any taxable years or periods
beginning before and ending after the Closing, the portion of the taxable years
beginning on the day after the Closing Date.
(iii) For purposes of subparagraphs (b)(i) and (b)(ii) above,
whenever it is necessary to determine the liability for taxes of the Company or
Phoenix for a portion of a taxable year or
25
<PAGE> 31
period that begins before and ends after the Closing Date, the determination of
such taxes for the portion of the year or period ending on, and the portion of
the year or period beginning after, the Closing Date, shall be determined by
assuming that the Company or Phoenix had a taxable year or period which ended at
the close of business on the Closing Date, except that exemptions, allowances or
deductions that are calculated on an annual basis, such as the deduction for
depreciation, shall be apportioned based on the number of days in the year
elapsed to and including the Closing Date.
(c) Tax Treatment. Any payment by the Purchaser or any Seller under
this Section 3.9 will be treated for tax purposes as an adjustment (an increase
or a reduction) to the Purchase Price.
(d) Filing of Returns. All tax returns with respect to the Company and
Phoenix (i) shall, to the extent required to be filed on or before the Closing
Date (taking into account any valid extensions), be caused by the Sellers to be
filed by the Company or Phoenix when due in accordance with all applicable laws
and (ii) shall, as of the time of filing, correctly reflect in all material
respects the facts regarding the income, business, assets, operations,
activities and status of the Company or Phoenix, as applicable, and any other
information required to be shown therein.
(e) Cooperation in Tax Matters.
After the Closing Date, the Purchaser and each Seller shall:
(i) assist in all reasonable respects (and cause their
respective affiliates to assist) the other party in preparing any tax
returns or reports which such other party is responsible for preparing
and filing in accordance with this Section 3.9;
(ii) cooperate in all reasonable respects in preparing for any
audits of, or disputes with taxing authorities regarding, and tax
returns of the Company or Phoenix;
(iii) make available to the other and to any taxing authority
as reasonably requested all information, records and documents relating
to taxes of the Company or Phoenix;
(iv) provide timely notice to the other in writing of any
pending or threatened tax audit or assessments of the Company or
Phoenix for taxable periods for which the other may have a liability
under this Section 3.9; and
(v) furnish the other with copies of all correspondence
received from any taxing authority in connection with any tax audit or
information request with respect to any such taxable period.
(f) Tax Audits and Assessments.
26
<PAGE> 32
(i) The Purchaser shall notify the Sellers in writing upon
receipt by the Purchaser or the Company or Phoenix of notice of any pending or
threatened Federal, state, local or foreign tax audits or assessments which may
materially affect the tax liabilities of the Company or Phoenix for which the
Sellers would be required to indemnify the Purchaser and the Company or Phoenix.
The Sellers shall have the right to participate in the resolution of any such
tax audit or assessment.
(ii) The Sellers shall notify the Purchaser in writing upon
receipt by any of the Sellers of notice of any pending or threatened federal,
state, local or foreign tax audits or assessments which may materially affect
the tax liabilities of the Company or Phoenix for which the Purchaser and the
Company or Phoenix would be required to indemnify the Sellers. The Purchaser
shall have the right to participate in the resolution of any such tax audit or
assessment.
(g) Activities between Signing and Closing. From the date hereof until
the Closing, without the prior written consent of Purchaser, neither the Company
nor Phoenix shall make or change any tax election, change any annual tax
accounting period, adopt or change any method of tax accounting, file any
amended tax return, enter into any closing agreement, settle any tax claim or
assessment, surrender any right to claim a tax refund, consent to any extension
or waiver of the limitations period applicable to any tax claim or assessment or
take or omit to take any other action, if any such other action or omission
would have the effect of materially increasing the tax liability of the Company
or Phoenix.
(h) Payment of Pre-Closing Date Taxes. All taxes that are not due and
payable on or prior to the Closing Date but which relate to a tax period ending
on or prior to the Closing Date shall be paid by Seller when due but only to the
extent such taxes exceed the amount accrued (to the extent such accruals are
consistent with past practice) on the Closing Date Balance Sheet.
SECTION 3.10. Fresno Warehouse. On or prior to the Closing Date, the
Sellers shall have the right, at their option, to (i) cause the Company to sell
to the Sellers the premises known as 5333 North Cornelia Ave., Fresno,
California (the "Fresno Warehouse") and (ii) enter into a long-term lease with
the Company relating to the continued use and occupation by the Company of the
Fresno Warehouse, in each case pursuant to definitive documentation in form and
substance reasonably satisfactory to the Purchaser containing the terms and
conditions set forth in Exhibit D. In the event that any taxes, charges or fees
are payable by the Company in connection with the transfer of the Fresno
Warehouse to the Sellers (including, without limitation, in connection with the
repayment or assumption of any indebtedness relating to the Fresno Warehouse) or
such transfer has an adverse effect on the earnings of the Company, the Sellers
shall pay to the Company any additional amounts necessary for the Company to be
in the same economic position (after taking into account any taxes imposed as a
result of the payment of such additional amounts) as if such taxes, charges or
fees had not been imposed or such adverse effect had not occurred.
SECTION 3.11. Additional Adjustment Amount.
27
<PAGE> 33
(a) Management of the Company and the Arizona Business. The Purchaser
agrees that the Sellers shall be given the opportunity, during the period
beginning on the Closing Date and ending on the first-year anniversary of the
Closing Date (the "Management Period"), to manage the Company and the Arizona
Business, subject only to (i) the exercise of reasonable and prudent business
judgment on the part of each Seller, (ii) the terms of the employment agreements
between the Company and each Seller and (iii) the fiduciary duties of the
members of the Board of Directors of the Purchaser. It is the intent of the
parties to this Agreement that the Sellers be given broad managerial discretion
and responsibility within the Company Group during the Management Period for
decisions affecting the Company and the Arizona Business, including those
affecting earnings and profitability. The Sellers shall promptly notify the
Purchaser in writing in the event they believe that any corporate-level decision
made during the Management Period could reasonably be expected to have an net
adverse impact on the earnings and profitability of the Company or the Arizona
Business, such notice to set forth in reasonable detail the basis for the
Sellers' belief. The Purchaser and the Sellers agree to negotiate in good faith
to make appropriate adjustments to the EBITDA of the Arizona Business (when
calculating the Additional Adjustment Amount, as defined below) and the EBITDA
of the Company (when calculating the Synergy Bonus and Incentive Bonus, each as
defined in the employment agreements between the Company and each Seller) to the
extent such decision has a net negative effect on EBITDA of the Arizona Business
or the Company, as applicable.
(b) Additional Adjustment Amount. An Additional Adjustment Amount
relating to the Arizona Business shall be payable by the Purchaser to the
Sellers in accordance with Section 3.11(c). "Additional Adjustment Amount" shall
mean an amount (to be calculated by the Purchaser within 30 days following the
end of the Management Period) equal to (i) the product of (A) the earnings
before interest, taxes, depreciation and amortization ("EBITDA") of the Arizona
Business during the Management Period and (B) 6.0, minus (ii) the aggregate
purchase price paid by the Company for the Arizona Business, minus (iii) the
amount of any additional costs or expenses incurred, or purchase price payable,
by the Company, in connection with the acquisition of the Arizona Business
(including amounts reserved against such costs, expenses or payments). For
purposes of calculating the Additional Adjustment Amount, (x) the Purchaser
shall account for the Arizona Business on a stand-alone basis using the
accounting principles applied in preparing the Closing Date Balance Sheet and
(y) no corporate-level overhead costs incurred by the Purchaser shall be
allocated to the Arizona Business.
(c) Payment. If the Additional Adjustment Amount with respect to the
Arizona Business is less than zero, the Purchaser shall be entitled to set off
or apply all or a portion of any such Additional Adjustment Amount against the
Non-Compete Payments due to the Sellers under Section 3.6. Any such set-off
shall be made pro rata in proportion to the Sellers' ownership of Shares on the
Closing Date as set forth on Annex A. If the Additional Adjustment Amount with
respect to the Arizona Business is greater than zero, the Purchaser shall pay
such Additional Adjustment Amount to the Sellers as an addition to the Purchase
Price within 30 days following the calculation of such Additional Adjustment
Amount in accordance with Section 3.11(b). Any Additional Adjustment Amount
payable to the Sellers shall be payable in cash or, at the election of any
Seller, (i) in shares of common stock of the Purchaser having a fair market
value equal to such Additional Adjustment Amount or (ii) options or warrants to
acquire the
28
<PAGE> 34
number of shares of common stock of the Purchaser referred to in clause (i). Any
Additional Adjustment Amounts payable to the Sellers shall be allocated among
the Sellers in proportion to their ownership of Shares on the Closing Date as
set forth on Annex A.
SECTION 3.12. Additional Information.
(a) Delivery of Final Disclosure Schedule. (i) As soon as practicable,
but in no event more than seven days, after the date of this Agreement, the
Sellers shall deliver to the Purchaser and its representatives a final draft of
the Disclosure Schedule (as of the date of this Agreement) (the "Final Draft
Disclosure Schedule"), together with true and complete copies of all documents
and information relating to any item set forth on such Final Draft Disclosure
Schedule which the Purchaser and its representatives have not had the
opportunity to review as of the time of such delivery. The Sellers shall
promptly furnish any other supporting documents or information reasonably
necessary to verify the disclosures made on the Final Draft Disclosure Schedule
which may be requested by the Purchaser after the date of delivery of the Final
Draft Disclosure Schedule. Delivery of such documents and information shall in
no way limit the Sellers' obligations under Section 3.5(a).
(ii) On or before the fourteenth day from and after delivery
of the Final Draft Disclosure Schedule and all supporting documentation referred
to in the first two sentences of Section 3.12(a)(i), the Purchaser shall inform
the Sellers in writing whether the Final Draft Disclosure Schedule is acceptable
to the Purchaser. The Purchaser shall have the opportunity to request
modifications to the Final Draft Disclosure Schedule during such fourteen-day
period, and the Purchaser and the Sellers shall attempt in good faith to resolve
any disputes regarding the Final Draft Disclosure Schedule. If as of such
fourteenth day the Purchaser has not informed the Sellers in writing that the
Final Draft Disclosure Schedule is acceptable, this Agreement shall terminate
forthwith with no liability or obligations whatsoever from any party to any
other party hereto. It is understood and agreed that the Purchaser may deem the
Final Draft Disclosure Schedule acceptable or unacceptable in its sole
discretion, and may elect to terminate this Agreement as set forth in this
Section 3.12(a)(ii) for any reason or no reason.
(iii) If the Purchaser does not elect to terminate this
Agreement as set forth in Section 3.12(a)(ii), the Final Draft Disclosure
Schedule (as modified through and including the date of acceptance by the
Purchaser by mutual agreement of the Purchaser and the Sellers) shall be deemed
for all purposes of this Agreement to be the Disclosure Schedule as of the date
of this Agreement. Notwithstanding anything contained in this Section 3.12(a),
any modification, supplement or amendment to the Final Draft Disclosure Schedule
that arises from or relates to facts, events or circumstances occurring after
the date of this Agreement shall not be deemed to be a part of the Disclosure
Schedule as of the date accepted by the Purchaser but shall be deemed to be a
supplement or amendment to the Disclosure Schedule made pursuant to Section
3.12(c).
(b) Phase III Materials. Promptly upon the Purchaser's request, but in
no event more than five days after the date the Disclosure Schedule has been
accepted by the Purchaser pursuant to Section 3.12(a), the Sellers shall deliver
to the Purchaser and its representatives true and complete copies of all
documents and information relating to the items described in Section
29
<PAGE> 35
2.1(u) of the Disclosure Schedule. Delivery of such documents and information
shall in no way limit the Sellers' obligations under Section 3.5(a).
(c) Disclosure Supplements. Each Seller shall have the continuing
obligation until the Closing promptly to supplement or amend the Disclosure
Schedule with respect to any matter hereafter arising or discovered which, if
existing or known at the date of this Agreement, would have been required to be
set forth or described in the Disclosure Schedule (a "Subsequent Development");
provided, that (i) if the Purchaser is notified by way of any such supplement or
amendment of a Subsequent Development that occurs or arises after the date of
this Agreement and the Closing thereafter occurs, then all rights of the
Purchaser to seek indemnification pursuant to Section 5.1(a)(i) based upon a
breach of representation or warranty caused by such Subsequent Development shall
be deemed to have been waived, and (ii) no supplement or amendment to the
Disclosure Schedule delivered to the Purchaser shall have any effect for the
purpose of determining whether the condition set forth in Section 4.1(b) has
been satisfied unless such supplement or amendment has previously been accepted
in writing by the Purchaser.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1. Conditions to Obligations of the Purchaser. The
obligations of the Purchaser to perform this Agreement are subject to the
satisfaction of each of the following conditions unless waived on or prior to
the Closing Date by the Purchaser:
(a) Authorization. All actions necessary to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated by this Agreement shall have been duly and validly
taken by each of the Sellers and each of the Sellers shall have full power and
authority to enter into and deliver this agreement and to consummate the
transactions contemplated by this Agreement.
(b) Representations, Warranties and Covenants. The representations and
warranties of the Sellers shall be true and correct in all respects as of the
date of this Agreement and as of the Closing Date as if made on and as of the
Closing Date; provided, that the foregoing condition shall be deemed to have
been satisfied if the facts, events or circumstances underlying any inaccuracies
in any such representations and warranties as of the Closing Date (without
giving effect to any material adverse effect qualification or any other
materiality or similar qualifications contained therein) individually or in the
aggregate could not reasonably be expected to have a material adverse effect on
the condition (financial or otherwise), assets, liabilities, operations,
business or prospects of the Company and Phoenix (taken as a whole). The Sellers
shall have performed and complied with all covenants and agreements required to
be performed or complied with on or prior to the Closing Date. As of the Closing
Date, there shall have been no material adverse change in the condition
(financial or otherwise), assets, liabilities, operations, business or prospects
of the Company and Phoenix (taken as a whole).
(c) Consents, Amendments and Terminations. The Purchaser shall have
received duly executed and delivered copies of all waivers, consents,
terminations and approvals listed in
30
<PAGE> 36
Section 2.1(d) of the Disclosure Schedule, all in form and substance reasonably
satisfactory to the Purchaser.
(d) Certificates. The Purchaser shall have received a certificate of
the chief executive officer and the chief financial officer of the Company and a
certificate of each Seller, each in substantially the form of Exhibits A-1 and
A-2, respectively.
(e) Opinion of Counsel. The Purchaser shall have received the opinion
dated the Closing Date of counsel to the Sellers and the Company, in
substantially the form of Exhibit B.
(f) Financial Statements. The Purchaser shall have received a balance
sheet of the Company and related statements of income and retained earnings and
cash flows for the most recent month end prior to the Closing Date (the "Closing
Date Financial Statement"), certified by the chief executive officer and chief
financial officer of the Company.
(g) Due Diligence. The Purchaser and its representatives shall have
completed a due diligence review of the condition (financial or otherwise),
assets, liabilities, operations and business of, and any other matters relating
to, the Company and Phoenix and the Sellers, and the results of such due
diligence shall be satisfactory to the Purchaser; provided, that the condition
set forth in this Section 4.1(g) shall be deemed to have been satisfied unless
the Purchaser notifies the Sellers in writing within five business days after
the date all materials required to be delivered to the Purchaser pursuant to
Section 3.12(b) have been delivered that such materials are not substantially as
represented to the Purchaser in Section 2.1(u).
(h) Financing. The Purchaser shall have received adequate financing to
consummate the transactions contemplated by this Agreement, all on terms
satisfactory to the Purchaser.
(i) Employment Agreements. Each of Arthur C. Soares, Ray C. Barney and
Elizabeth Roberts shall have duly executed and delivered to the Purchaser
Employment Agreements in substantially the forms of Exhibits C-1, C-2 and C-3,
respectively.
(j) Corporate Directors and Officers. At the request of Purchaser, the
Purchaser shall have received the resignations (effective upon Closing) of the
officers and directors of the Company so requested to resign.
(k) Share Certificates and Corporate Records. The Purchaser shall have
received certificates representing all of the Shares, together with stock powers
duly endorsed in blank and the Purchaser shall have received the complete stock
ledgers, minute books and similar corporate records of the Company.
(l) HSR Act. The waiting period (and any extension thereof) applicable
to the transactions contemplated by this Agreement under the HSR Act shall have
been terminated or shall have expired.
(m) No Legal Bar. No action or proceeding by or before any governmental
authority or agency shall be pending or threatened challenging or seeking to
restrain or prohibit any of the
31
<PAGE> 37
transactions contemplated by this Agreement. No statute, rule, regulation,
executive order, decree, temporary restraining order, preliminary injunction,
permanent injunction or other order enacted, entered, promulgated, enforced or
issued by any governmental authority or agency or other legal restraint or
prohibition preventing the transactions contemplated by this Agreement shall be
in effect.
(n) Releases. The Purchaser shall have received a release from each
Seller effective upon the Closing with respect to all matters set forth in
Section 3.7, each in form and substance satisfactory to the Purchaser.
(o) Other Documents. The Purchaser shall have received such other
customary documents, certificates or instruments as it may reasonably request.
SECTION 4.2. Conditions of Obligations of the Sellers. The obligations
of the Sellers to perform this Agreement are subject to the satisfaction of each
of the following conditions unless waived on or prior to the Closing Date by all
of the Sellers:
(a) Authorization. All actions necessary to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated by this Agreement shall have been duly and validly
taken by the Purchaser and the Purchaser shall have full power and authority to
enter into and deliver such agreements and to consummate transactions
contemplated by this Agreement.
(b) Representations, Warranties and Covenants. The representations and
warranties of the Purchaser contained herein shall be true and correct in all
respects as of the date of this Agreement and as of the Closing Date as if made
on and as of the Closing Date, and the Purchaser shall have performed and
complied with all covenants and agreements required to be performed or complied
with on or prior to the Closing Date.
(c) Certificate. The Sellers shall have received a certificate of the
President or a Vice President of the Purchaser confirming the matters set forth
in Section 4.2(b) in form and substance reasonably satisfactory to the Sellers.
(f) Employment Agreements. Each of Arthur C. Soares, Ray C. Barney and
Elizabeth Roberts shall have duly executed and delivered to the Purchaser
Employment Agreements in substantially the forms of Exhibits C-1, C-2 and C-3,
respectively
(g) HSR Act. The waiting period (and any extension thereof) applicable
to the transactions contemplated by this Agreement under the HSR Act shall have
been terminated or shall have expired.
(h) No Legal Bar. No action or proceeding by or before any governmental
authority or agency shall be pending or threatened challenging or seeking to
restrain or prohibit any of the transactions contemplated by this Agreement. No
statute, rule, regulation, executive order, decree, temporary restraining order,
preliminary injunction, permanent injunction or other order enacted, entered,
promulgated, enforced or issued by any governmental authority or agency or
32
<PAGE> 38
other legal restraint or prohibition preventing the transactions contemplated by
this Agreement shall be in effect.
(i) Other Documents. The Sellers shall have received such other
customary documents, certificates or instruments as it may reasonably request.
ARTICLE V
INDEMNITY
SECTION 5.1. Indemnification.
(a) Indemnification by Sellers. The Sellers jointly and severally
indemnify and hold harmless the Purchaser and its affiliates, directors,
officers, employees and other agents and representatives from and against any
and all liabilities, judgments, claims, settlements, losses, damages, lost
profits, diminutions in value, fees, liens, taxes, penalties, obligations and
expenses (collectively, "Losses") incurred or suffered by any such person
arising from, by reason of or in connection with:
(i) any misrepresentation or breach of any representation,
warranty, covenant or agreement of any Seller contained in this
Agreement or any certificate or other document delivered by any Seller
or the Company under this Agreement;
(ii) the non-fulfillment by any Seller of any agreement made
by such Seller in this Agreement; or
(iii) any and all actions, suits, proceedings, demands,
judgments, costs and legal and other expenses incident to any of the
matters referred to in clauses (i) through (ii) of this Section 5.1(a).
(b) Indemnification by Purchaser. The Purchaser indemnifies and holds
harmless the Sellers, and their respective agents and representatives, from and
against any and all Losses incurred or suffered by any such person arising from,
by reason of or in connection with:
(i) any misrepresentation or breach of any representation,
warranty, covenant or agreement of the Purchaser contained in this
Agreement or any certificate or other document delivered by the
Purchaser under this Agreement;
(ii) the non-fulfillment by the Purchaser of any agreement
made by it in this Agreement; or
(iii) any and all actions, suits, proceedings, demands,
judgments, costs and legal and other expenses incident to any of the
matters referred to in clauses (i) through (ii) of this Section 5.1(b).
(c) Indemnification Procedures. In case any claim or litigation which
might give rise to any obligation of a party under the indemnity and
reimbursement provisions of this Agreement
33
<PAGE> 39
(each an "Indemnifying Party") shall come to the attention of the party seeking
indemnification hereunder (the "Indemnified Party"), the Indemnified Party shall
notify in writing promptly the Indemnifying Party of the existence, nature and
amount of potential loss. Failure to give such notice shall not prejudice the
rights of the Indemnified Party, except to the extent that the Indemnifying
Party shall have been materially prejudiced by such failure. With respect to
claims or litigation concerning third parties, the Indemnifying Party shall be
entitled to participate in and, if (i) in the judgment of the Indemnified Party
such claim can properly be resolved by money damages alone and the Indemnifying
Party has the financial resources to pay such damages and (ii) the Indemnifying
Party admits that this indemnity fully covers the claim or litigation, the
Indemnifying Party shall be entitled to direct the defense of any claim at its
expense, but such defense shall be conducted by legal counsel reasonably
satisfactory to the Indemnified Party. The parties shall cooperate in all
reasonable respects in the preparation and conduct of any such defense,
including making available (upon reasonable notice and during normal business
hours) to the other party and legal counsel books and records of such party
relevant to such defense. No Indemnifying Party in the defense of any third
parties claim or litigation shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which (i)
contains any equitable order, judgment or term that affects, restrains or
interferes with the business of an Indemnified Party and (ii) does not include
as an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation.
(d) Tax Benefits. The amount of any and all Losses for which
indemnification is provided pursuant to this Article V shall be (i) increased to
take account of any net tax cost incurred by the Indemnified Party arising from
the receipt of indemnity payments hereunder ("grossed-up" for taxes on such
increase) and (ii) reduced to take account of any net tax benefit realized by
the Indemnified Party arising from the incurrence or payment of any such Losses.
In computing the amount of any such tax cost or tax benefit, the Indemnified
Party shall be deemed to recognize all other items of income, gain, loss,
deduction or credit before recognizing any item arising from the receipt of any
indemnity payment hereunder or the incurrence or payment of any and all Losses.
(e) Insurance Proceeds. The amount of any and all Losses for which
indemnification is provided pursuant to this Article V shall be net of any
amounts actually received by the Indemnified Party under insurance policies with
respect to such Losses. In the event that any claim for indemnification asserted
under this Article V is, or may be, the subject of the Company's or any party's
hereto insurance coverages or other right to indemnification or contribution
from any third party (a "Third Party Contributor"), the Indemnified Party agrees
to promptly notify the applicable insurance carrier of such claim and tender
defense thereof to such carrier, and shall also promptly notify any potential
Third Party Contributor. Each Indemnified Party agrees to pursue, at the sole
cost and expense of the Indemnifying Party, such claims diligently and to
reasonably cooperate, at the sole cost and expense of the Indemnifying Party,
with each such insurance carrier and Third Party Contributor, and to make no
claim for indemnification under this Article V for a period of 180 days after
making a claim for such insurance or contribution. If insurance coverage or
contribution is denied (in whole or in part), or if no resolution of an
insurance or contribution claim shall have occurred within such 180 days, the
Indemnified Party may proceed for indemnification
34
<PAGE> 40
under this Article V, and such Indemnifying Party shall be subrogated to the
rights of the Indemnified Party against such insurance carrier or Third Party
Contributor.
(f) Treatment of Payments. Any payment made pursuant to this Section
5.1 shall be treated as an adjustment to the Purchase Price for income tax
purposes.
SECTION 5.2. Limitations.
(a) Expiration Date. The indemnification and reimbursement obligations
hereunder shall expire on the second anniversary of the Closing Date (the
"Expiration Date"), except (i) as to any claims for, or any claims that may
result in, any Loss for which indemnity may be sought hereunder of which the
Indemnifying Party has received written notice from the Indemnified Party on or
before the Expiration Date or (ii) as to any representations, warranties,
covenants or agreements expressly surviving such two year period as set forth in
Section 6.6.
(b) Cap. The total indemnification obligations of the Sellers (other
than for claims relating to or arising out of Section 1.4, Section 2.1(b), (c),
(o) or (s), Section 3.1, Section 3.6, Section 3.7, Section 3.9, Section 3.10 or
Section 3.11 (collectively, the "Purchaser Excluded Claims")) to the Purchaser
pursuant to this Article V shall not exceed (i) for all Sellers in the aggregate
$9,000,000 and (ii) for each Seller an amount equal to the product of (x)
$9,000,000 and (y) the quotient obtained by dividing (1) the number of Shares
owned by such Seller as specified on Annex A by (2) 14,118. Notwithstanding
anything to the contrary set forth in this Agreement, the indemnification
obligations of the Sellers to the Purchaser with respect to Purchaser Excluded
Claims shall not count towards, or be subject to, the limitations set forth in
the first sentence of this paragraph (b) or the $250,000 threshold set forth in
Section 5.2(c), and there shall be no limitation on such indemnification
obligations. The total indemnification obligations of the Purchaser (other than
for claims relating to or arising out of Section 2.2(b), Section 3.1, Section
3.6(b)(ii), Section 3.6(b)(iii), Section 3.9 or Section 3.11) to the Sellers
pursuant to this Article V shall not exceed in the aggregate $9,000,000.
(c) Threshold. The Purchaser shall not be entitled to indemnification
pursuant to this Article V with respect to any claim for indemnification (other
than in connection with Purchaser Excluded Claims), unless the aggregate Losses
to the Purchaser, with respect to all claims for indemnification pursuant to
Section 5.1(a), exceed $250,000, in which case the Sellers shall be obligated,
subject to the limitations set forth in paragraph (b) of this Section 5.2, to
pay an amount equal to all such Losses (including such first $250,000). The
Sellers shall not be entitled to indemnification pursuant to this Article V with
respect to any claim for indemnification (other than claims relating to or
arising out of Section 2.2(b), Section 3.1, Section 3.6(b)(ii), Section
3.6(b)(iii), Section 3.9 or Section 3.11), unless the aggregate Losses to the
Sellers, with respect to all claims for indemnification pursuant to Section
5.1(c), exceeds $250,000, in which case the Purchaser shall be obligated,
subject to the limitations set forth in paragraph (b) of this Section 5.2, to
pay an amount equal to all such Losses (including such first $250,000).
(d) Sole Remedy. If the Closing occurs, and except for the Purchaser's
rights of set-off contained in Sections 3.6(b)(ii) and (iii) and 3.11(c), the
provisions of this Article V shall represent the sole remedy available to any
party hereto for a claim for money damages arising from,
35
<PAGE> 41
by reason of or in connection with any misrepresentation or breach or
non-fulfillment of any representation, warranty, covenant or agreement contained
in this Agreement or otherwise.
(e) Several Liability; Certain Representations. Notwithstanding any
provision in this Agreement to the contrary, (i) the representations and
warranties made in Sections 2.1(b) and 2.1(d) (but only to the extent Section
2.1(d) relates to agreements binding on, legal requirements applicable to, and
properties or assets of, any Seller) are hereby deemed to be made by each Seller
severally in proportion to such Seller's ownership of Shares on the Closing Date
and not jointly and severally by the Sellers and (ii) the representation and
warranty made in Section 2.1(c) is hereby deemed for purposes of this Article V
to have been made without reference to any matter described in Section 2.1(c) of
the Disclosure Schedule.
SECTION 5.3. No Election. Subject to Section 5.2(d), nothing contained
in this Article V shall be deemed an election of remedies under this Agreement
or limit in any way the liability of any party under any other agreement to
which such party is a party relating to this Agreement or the transactions
contemplated by this Agreement.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Entire Agreement. This Agreement and the Employment
Agreements and the schedules, annexes and exhibits hereto and thereto contain
the entire agreement among the parties with respect to the transactions
contemplated by this Agreement and the Employment Agreements and supersede all
prior agreements or understandings among the parties. The Letter of Intent,
dated December 5, 1997, is expressly superseded, void and no longer of any force
or effect.
SECTION 6.2. Termination. (a) This Agreement shall terminate on the
first to occur of any of the following events:
(i) the mutual written agreement of the Purchaser and the
Sellers;
(ii) by written notice of the Purchaser, on one hand, or the
Sellers, on the other hand, to the other, if the Closing shall not have
occurred prior to the close of business on June 22, 1998;
(iii) by written notice of the Purchaser to the Sellers, in
the event any Seller shall have materially breached any of its
representations, warranties or agreements contained in this Agreement
if such Seller fails to cure such breach within five business days
following notification thereof by the Purchaser;
(iv) by written notice of the Sellers to the Purchaser, in the
event the Purchaser shall have materially breached any of its
representations, warranties or agreements contained in this Agreement
if the Purchaser fails to cure such breach within five business days
following notification thereof by the Sellers; or
36
<PAGE> 42
(v) by written notice of the Purchaser to the Sellers, as set
forth in Section 3.12(a)(ii).
(b) Nothing in this Section shall relieve any party of any liability
for a breach of this Agreement prior to its termination. Except as aforesaid,
upon the termination of this Agreement, all rights and obligations of the
parties under this Agreement shall terminate, except their obligations under
Sections 3.1, 3.5(b) and 3.8.
SECTION 6.3. Descriptive Headings; Certain Interpretations. (a)
Descriptive headings are for convenience only and shall not control or affect
the meaning or construction of any provision of this Agreement.
(b) Whenever any party makes any representation, warranty or other
statement to such party's knowledge, such party will be deemed to have made due
inquiry into the subject matter of such representation, warranty or other
statement.
(c) Except as otherwise expressly provided in this Agreement, the
following rules of interpretation apply to this Agreement: (i) the singular
includes the plural and the plural includes the singular; (ii) "or" and "any"
are not exclusive and "include" and "including" are not limiting; (iii) a
reference to any agreement or other contract includes permitted supplements and
amendments; (iv) a reference to a law includes any amendment or modification to
such law and any rules or regulations issued thereunder; (v) a reference to a
person includes its permitted successors and assigns; (vi) a reference to
generally accepted accounting principles refers to United States generally
accepted accounting principles; and (vii) a reference in this Agreement to an
Article, Section, Annex, Exhibit or Schedule is to the Article, Section, Annex,
Exhibit or Schedule of this Agreement.
SECTION 6.4. Notices. All notices, requests and other communications to
any party hereunder shall be in writing and sufficient if delivered personally
or sent by facsimile (with confirmation of receipt) or by registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
If to the Purchaser, to:
The J.H. Heafner Company, Inc.
814 East Main Street
P.O. Box 837
Lincolnton, NC 28093-0837
Facsimile: (704) 732-6480
Attention: President
37
<PAGE> 43
with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, New York 10019
Facsimile: (212) 841-1010
Attention: Scott F. Smith
If to any Seller, to the address or facsimile number of such Seller set
forth on the signature pages of this Agreement, with a copy to:
Jackson Tufts Cole & Black, LLP
60 South Market Street
10th Floor
San Jose, California 95113-2336
Facsimile: (408) 998-4889
Attention: Richard Scudellari
or to such other address or facsimile number as the party to whom notice is to
be given may have furnished to the other party in writing in accordance
herewith. Each such notice, request or communication shall be effective when
received or, if given by mail, when delivered at the address specified in this
Section or on the fifth business day following the date on which such
communication is posted, whichever occurs first.
SECTION 6.5. Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 6.6. Survival. Except as set forth in 5.2, all representations
and warranties, agreements and covenants contained in this Agreement or in any
document delivered pursuant to this Agreement or in connection with this
Agreement (unless otherwise expressly provided) shall survive the Closing and
shall remain in full force and effect until the Expiration Date; provided that
the representations and warranties in Section 2.1(a), (b) (c), (l) and (o) and
the covenants and agreements in Section 3.1, 3.3, 3.5(b), 3.6, 3.7 and 3.9 shall
not expire on the Expiration Date and shall survive, as set forth in such
Sections, or, if not set forth, shall survive forever or until the expiration of
the applicable statute of limitations.
SECTION 6.7. Benefits of Agreement. All of the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, including in the case of the
Purchaser, to its financing parties. This Agreement is for the sole benefit of
the parties hereto and not for the benefit of any third party.
SECTION 6.8. Amendments and Waivers. No modification, amendment or
waiver of any provision of, or consent required by, this Agreement, nor any
consent to any departure
38
<PAGE> 44
herefrom, shall be effective unless it is in writing and signed by the parties
hereto. Such modification, amendment, waiver or consent shall be effective only
in the specific instance and for the purpose for which given.
SECTION 6.9. Assignment. This Agreement and the rights and obligations
hereunder shall not be assignable or transferable by any party hereto without
the prior written consent of the other parties; except that the Purchaser may
assign this Agreement and all of its rights and obligations to an affiliate of
the Purchaser provided that the Purchaser guarantees such affiliate's
obligations under this Agreement. Any instrument purporting to make an
assignment in violation of this Section shall be void.
SECTION 6.10. Enforceability. It is the desire and intent of the
parties hereto that the provisions of this Agreement shall be enforced to the
fullest extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
SECTION 6.11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 6.12. DISPUTE RESOLUTION; CONSENT TO JURISDICTION. EACH OF THE
PARTIES TO THIS AGREEMENT AGREES TO BE BOUND BY THE PROVISIONS SET FORTH IN
ANNEX B TO THIS AGREEMENT. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY
IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK SITTING IN
NEW YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS WHICH ARE NOT GOVERNED BY
ANNEX B AND WHICH ARISE OUT OF OR RELATE TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. EACH OF THE PARTIES TO THIS AGREEMENT IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY SUCH COURT OR ANY CLAIM THAT A
LEGAL PROCEEDING COMMENCED IN SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.
39
<PAGE> 45
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed and delivered as of the day and year first above written.
THE J.H. HEAFNER COMPANY, INC.
By: /s/ J. MICHAEL GAITHER
------------------------------
J. Michael Gaither
Senior Vice President and General Council
SELLERS:
Agreed and acknowledged by:
/s/ ARTHUR C. SOARES
- ------------------------------ ------------------------------
Name: Arthur C. Soares
(Spouse) Address: 16641 Harwood Road
Los Gatos, CA 95032
Agreed and acknowledged by:
/s/ KATHY L. BARNEY /s/ RAY C. BARNEY
- ------------------------------ ------------------------------
Name: Ray C. Barney
(Spouse) Address: 216 Fieldcrest Court
Danville, CA 94506
<PAGE> 1
Exhibit 10.14
ESCROW AGREEMENT (the "Agreement"), dated as of May 20,
1998, among The J. H. Heafner Company, Inc., a North
Carolina corporation ("Heafner"), the former stockholders
(the "CPW Stockholders") of The Speed Merchant, Inc., a
California corporation (the "Company"), and First Union
National Bank, a national banking association, as escrow
agent (the "Escrow Agent").
---------------------------------------------------------
INTRODUCTION
The Stock Purchase Agreement, dated as of March 11, 1998 (the "Stock
Purchase Agreement") between Heafner and the CPW Stockholders contemplates the
payment following the closing of the transactions contemplated thereby of
certain amounts (the "Non-Compete Payments") by Heafner to each of the CPW
Stockholders in exchange for certain non-compete covenants as set forth on
Schedule A to this Agreement.
Pursuant to the Stock Purchase Agreement, Heafner has agreed to use
all commercially reasonable efforts to arrange for security for the Non-Compete
Payments on terms and conditions reasonably satisfactory to the CPW
Stockholders. In order to provide for such security, Heafner and the CPW
Stockholders desire to arrange for the delivery of the Escrow (as defined below)
to the Escrow Agent. Capitalized terms used and not otherwise defined herein
have the meaning set forth in the Stock Purchase Agreement.
Heafner, the CPW Stockholders and the Escrow Agent agree as follows:
1. Appointment of the Escrow Agent; Delivery of Escrow. Each of
Heafner and the CPW Stockholders constitutes and appoints the Escrow Agent as,
and the Escrow Agent agrees to assume and perform the duties of, the escrow
agent under and pursuant to this Agreement. The Escrow Agent acknowledges
receipt from Heafner of a letter of credit in the form attached hereto as
Exhibit A (as the same may be amended, renewed, replaced, reduced or extended
from time to time, the "Letter of Credit" or the "Escrow").
2. Acceptance and Undertaking of the Escrow Agent. The Escrow Agent
hereby acknowledges receipt of the documents and instruments comprising the
Escrow and covenants and agrees to hold all of the same in escrow, and
subsequently to release and distribute, or return, as the case may be, the
Escrow or any part thereof, only pursuant to and in strict accordance with all
of the terms and conditions of this Agreement.
3. Notice of Payment. Heafner shall give written notice to the
issuer of the Letter of Credit and the Escrow Agent promptly upon making each
Non-Compete Payment of the amount and date of such payment.
<PAGE> 2
4. Claims Against the Escrow.
(a) Concurrently with the delivery by the Representative (as defined
in Section 14) of a written notice to Heafner of a claim by either CPW
Stockholder that all or a portion of any Non-Compete Payment shall not have been
made when due (a "Claim Notice"), or within a reasonable period thereafter, the
Representative will deliver to the Escrow Agent a certificate in substantially
the form of Annex I (a "Certificate of Instruction"). No Certificate of
Instruction may be delivered without the prior or simultaneous delivery of a
Claim Notice. No Certificate of Instruction may be delivered by the
Representative after the close of business on the third business day immediately
preceding the Termination Date (as defined in Section 5). The Escrow Agent shall
give written notice to Heafner of its receipt of a Certificate of Instruction
not later than the second business day next following receipt thereof, together
with a copy of such Certificate of Instruction and Claim Notice.
(b) If the Escrow Agent
(i) shall not, within 30 calendar days following its receipt of a
Certificate of Instruction (the "Objection Period"), have received from
Heafner a certificate in substantially the form of Annex II (an "Objection
Certificate") disputing Heafner's obligation to pay all or a portion of
the Owed Amount (as defined and referred to in such Certificate of
Instruction), or
(ii) shall have received such an Objection Certificate within the
Objection Period which objects to the payment of all or a portion of the
Owed Amount and shall thereafter have received either (x) a certificate
from Heafner and the Representative substantially in the form of Annex III
(a "Resolution Certificate") stating that Heafner and the Representative
have agreed that the Owed Amount referred to in such Certificate of
Instruction (or a specified portion thereof) is payable to one or more CPW
Stockholders or (y) a copy of a final, nonappealable order of an
arbitrator or court of competent jurisdiction (accompanied by a
certificate of the Representative substantially in the form of Annex IV (a
"Litigation Certificate")) stating that the Owed Amount referred to in
such Certificate of Instruction (or a specified portion thereof) is
payable to one or more of the CPW Stockholders by Heafner, or
(iii) shall have received such an Objection Certificate within the
Objection Period which objects to the payment of only a portion of the
Owed Amount
then the Escrow Agent shall
(1) in the case of (b)(i), on the second business day next following
the expiration of the Objection Period,
(2) in the case of (b)(ii)(x), on the second business day next
following the Escrow Agent's receipt of a Resolution Certificate,
2
<PAGE> 3
(3) in the case of (b)(ii)(y), on the fifth business day next
following the day on which written notice of the Escrow Agent's receipt of
a Litigation Certificate is given by the Escrow Agent to Heafner and
(4) in the case of (b)(iii), on the second business day next
following the Escrow Agent's receipt of an Objection Certificate described
in (b)(iii),
draw under the Letter of Credit an amount equal to the Owed Amount (or, in the
case of (b)(iii), the undisputed portion thereof) and within two business days
after such draw has been honored pay over and distribute such amount by bank
check made payable to the Representative or by wire transfer of immediately
available funds to an account designated in writing by the Representative. The
Escrow Agent shall have no responsibility to invest any funds drawn under the
Letter of Credit for the benefit of any other party to this Agreement nor any
liability for any failure to invest such funds.
(c) The Escrow Agent shall give written notice to the Representative
of its receipt of an Objection Certificate not later than the second business
day next following receipt thereof, together with a copy of such Objection
Certificate. The Escrow Agent shall give written notice to Heafner of its
receipt of a Litigation Certificate not later than the second business day next
following receipt thereof, together with a copy of such Litigation Certificate.
(d) Upon delivery by the Escrow Agent of the Owed Amount referred to
in a Certificate of Instruction, such Certificate of Instruction shall be deemed
canceled. Upon the receipt by the Escrow Agent of a Resolution Certificate or a
Litigation Certificate and the payment by the Escrow Agent of the Owed Amount
referred to therein, the related Certificate of Instruction shall be deemed
canceled.
(e) Upon the Representative's determination that the CPW
Stockholders have no claim or have released their claim with respect to an Owed
Amount referred to in a Certificate of Instruction (or a specified portion
thereof), the Representative will deliver to the Escrow Agent prior to the
expiration of the applicable Objection Period a certificate substantially in the
form of Annex V (a "CPW Stockholder Cancellation Certificate") canceling such
Certificate of Instruction (or such specified portion thereof, as the case may
be), and such Certificate of Instruction (or portion thereof) shall thereupon be
deemed canceled. The Escrow Agent shall give written notice to Heafner of its
receipt of a CPW Stockholder Cancellation Certificate not later than the second
business day next following receipt thereof, together with a copy of such CPW
Stockholder Cancellation Certificate.
(f) Upon receipt of a final, nonappealable order of an arbitrator or
court of competent jurisdiction to the effect that none of the Owed Amount
referred to in a Certificate of Instruction as to which Heafner delivered an
Objection Certificate within the Objection Period is payable to the CPW
Stockholders by Heafner, Heafner may, provided no Resolution Certificate or
Litigation Certificate shall have previously been received by the Escrow Agent
with respect to such Certificate of Instruction, deliver a copy of such order
(accompanied by a certificate of Heafner substantially in the form of Annex VI
(a "Heafner Cancellation Certificate")) canceling such Certificate of
Instruction, and such Certificate of Instruction shall thereupon be deemed
3
<PAGE> 4
canceled. The Escrow Agent shall give written notice to the Representative of
its receipt of a Heafner Cancellation Certificate not later than the second
business day next following receipt thereof, together with a copy of such
Heafner Cancellation Certificate.
(g) The Escrow Agent shall have no obligation to verify that the
order attached to a Litigation Certificate or Heafner Cancellation Certificate
constitutes a final, nonappealable order of an arbitrator or court of competent
jurisdiction, and shall be entitled to rely upon Heafner's or the
Representative's written certification to that effect.
(h) Heafner and the Representative shall notify the Escrow Agent of
each payment by Heafner of all or a portion of a Non-Compete Payment to the CPW
Stockholders by delivering a certificate to the Escrow Agent, substantially in
the form of Annex VII (a "Payment Certificate"). Within five business days after
receipt of a Payment Certificate, the Escrow Agent shall deliver to the issuer
of the Letter of Credit a certificate, in the form of Annex C to the Letter of
Credit (or such other form as the issuer of the Letter of Credit may require),
reducing the Letter of Credit by the amount set forth in such Payment
Certificate.
(i) Within 20 days (but in no event later than 10 days prior to the
Termination Date (as defined in the Letter of Credit)) of its receipt of (a) a
notice that an Event of Default has occurred and is continuing under (and as
defined in) the Amended and Restated Loan and Security Agreement, dated as of
May 20, 1998, among Heafner, certain of its subsidiaries, the financial
institutions from time to time party thereto, Fleet Capital Corporation and
First Union National Bank, as co-agents, and BankBoston, N.A., as administrative
agent, or (b) a notice that the Letter of Credit will not be renewed, the Escrow
Agent shall draw on the Letter of Credit in the full amount thereof by
delivering to the issuer of the Letter of Credit a certificate in the form of
Annex B thereto (or such other form as such issuer may require) and deposit the
amount so drawn in an account maintained by the Escrow Agent. From and after the
time any such deposit is made, the terms of this Escrow Agent with respect to
the Letter of Credit and the Escrow shall be deemed to refer to the amount on
deposit with the Escrow Agent, and the Escrow Agent shall disburse the funds so
deposited upon the instructions of Heafner or the Representative, as the case
may be, all in accordance with the terms of this Agreement; provided that upon
the Escrow Agent's receipt of a Payment Certificate to which the Representative
has not objected within the time specified in Section 4(h), the Escrow Agent
shall deliver to Heafner the amount described in such Payment Certificate.
(j) In no event shall the aggregate amount of claims paid out from
this Escrow to the Representative on behalf of the CPW Stockholders pursuant to
this Agreement exceed the amount of the Letter of Credit as in effect on the
date of this Agreement.
5. Termination Date. On May 25, 2003 (the "Termination Date"), the
Escrow Agent shall return the Letter of Credit to the issuer thereof for
cancellation, provided that there is no Certificate of Instruction that has not
been canceled in accordance with paragraph (d), (e) or (f) of Section 4. At such
time on or following the Termination Date as all Certificates of Instruction
received by the Escrow Agent on or prior to the Termination Date have been
canceled in accordance with paragraph (d), (e) or (f) of Section 4, the Escrow
Agent shall promptly return
4
<PAGE> 5
the Letter of Credit to the issuer thereof for cancellation of the Letter of
Credit and this Agreement (other than Sections 6, 7 and 8) shall automatically
terminate. The Escrow Agent shall be entitled to require payment of amounts owed
to it under Section 8 before returning the Letter of Credit in accordance with
this Section 5.
6. Duties and Obligations of the Escrow Agent. The duties and
obligations of the Escrow Agent shall be limited to and determined solely by the
provisions of this Agreement and the certificates delivered in accordance with
this Agreement and shall have no implied duties or obligations, and the Escrow
Agent is not charged with knowledge of or any duties or responsibilities in
respect of any other agreement or document. In furtherance and not in limitation
of the foregoing:
(i) the Escrow Agent shall be fully protected in relying in good
faith upon any written certification, notice, direction, request, waiver,
consent, receipt or other document that the Escrow Agent reasonably
believes to be genuine and duly authorized, executed and delivered;
(ii) the Escrow Agent shall not be liable for any error of judgment,
or for any act done or omitted by it, or for any mistake in fact or law,
or for anything that it may do or refrain from doing in connection with
this Agreement (provided, however, that notwithstanding any other
provision in this Agreement, the Escrow Agent shall be liable for its
willful misconduct or gross negligence), and in no event shall the Escrow
Agent be liable for any incidental, special, consequential or punitive
damages;
(iii) the Escrow Agent may seek the advice of legal counsel selected
by it in the event of any dispute or question as to the construction of
any of the provisions of this Agreement or its duties under this
Agreement, which counsel shall not be attorneys of any of the CPW
Stockholders, Heafner or their respective Affiliates, and it shall incur
no liability and shall be fully protected in respect of any action taken,
omitted or suffered by it in good faith in accordance with the opinion of
such counsel;
(iv) in the event that the Escrow Agent shall in any instance, after
seeking the advice of legal counsel pursuant to the immediately preceding
clause, in good faith be uncertain as to its duties or rights under this
Agreement, it shall be entitled to refrain from taking any action in that
instance and its sole obligation, in addition to those of its duties under
this Agreement as to which there is no such uncertainty, shall be to keep
safely all property held in the Escrow until it shall be directed
otherwise in writing by each of the parties to this Agreement or by a
final, nonappealable order of a court of competent jurisdiction; provided
that in the event that the Escrow Agent has not received such written
direction or court order within 180 calendar days after requesting the
same, it may interplead Heafner and the CPW Stockholders in any court of
competent jurisdiction and request that such court determine its rights
and duties under this Agreement unless the parties to this Agreement
otherwise agree;
(v) the Escrow Agent may execute any of its powers or
responsibilities under this Agreement and exercise any rights under this
Agreement either directly or by or
5
<PAGE> 6
through agents or attorneys selected with reasonable care, which shall not
be agents or the attorneys of any of Heafner, the CPW Stockholders or
their respective Affiliates. Nothing in this Agreement shall be deemed to
impose upon the Escrow Agent any duty to qualify to do business or to act
as fiduciary or otherwise in any jurisdiction other than North Carolina
and the Escrow Agent shall not be responsible for and shall not be under a
duty to examine into or pass upon the validity, binding effect, execution
or sufficiency of any Letter of Credit in the Escrow, this Agreement, the
Stock Purchase Agreement or of any amendment or supplement to this
Agreement. The Escrow Agent shall not be liable for any other party's
failure to comply with its covenants relating to the transactions
contemplated by the Stock Purchase Agreement;
(vi) the Escrow Agent shall not be obligated to take any legal
action or commence any proceedings in connection with this Agreement, or
to appear in, prosecute or defend any such legal action or proceeding; and
(vii) other than the obligations as specifically set forth herein,
the Escrow Agent shall not be obligated to preserve or protect any rights
with respect to the property comprising the Escrow or to receive or give
any notice with respect thereto.
7. Cooperation. The CPW Stockholders and Heafner shall provide to
the Escrow Agent all instruments and documents within their respective powers
and capacity to provide that are necessary for the Escrow Agent to perform its
duties and responsibilities under this Agreement. Each of the CPW Stockholders
and Heafner have provided the Escrow Agent with a certificate setting forth the
names of persons authorized to deliver instructions hereunder and a sample of
the genuine signature of such persons and the Escrow Agent shall be entitled to
rely upon such certificates until a substitute certificate is delivered
hereunder.
8. Fees and Expenses; Indemnity. The CPW Stockholders shall be
jointly and severally liable to the Escrow Agent for the fees of the Escrow
Agent for its services under this Agreement as and when billed to the
Representative by the Escrow Agent. The Representative shall be entitled to
reimbursement from Heafner for fees paid by the Representative to the extent
such fees exceed $2,500 per year. Each of the Representative and Heafner shall
be jointly and severally liable to reimburse and indemnify the Escrow Agent and
its employees, officers, directors and agents, for, and hold it harmless
against, any loss, liabilities, damages, cost or expense, including but not
limited to reasonable attorneys' fees, reasonably incurred by the Escrow Agent
in connection with the Escrow Agent's performance of its duties and obligations
under this Agreement, as well as the reasonable costs and expenses of defending
against any claim or liability relating to this Agreement; provided that
notwithstanding the foregoing, none of such persons shall be required to
indemnify the Escrow Agent for any such loss, liability, cost or expense arising
as a result of the Escrow Agent's willful misconduct or gross negligence. The
Escrow Agent shall be entitled to recover the full amount of such losses,
liabilities, damages, costs and expenses from any of the CPW Stockholders or
Heafner; provided that in the event that any such person pays any such amount
hereunder, the CPW Stockholders, on the one hand, and Heafner, on the other,
shall be entitled to reimbursement of one-half such amount from Heafner or the
CPW Stockholders (as the case may be). The Escrow
6
<PAGE> 7
Agent shall be entitled to set off amounts drawn on the Letter of Credit against
unpaid amounts owed to it hereunder. The obligations of Heafner, the
Representative and the CPW Stockholders under this Section 8 shall survive the
termination of this Agreement and inure to the benefit of each Escrow Agent
serving under this Agreement regardless of the resignation or removal of such
Escrow Agent. All amounts owing under this Section 8 shall immediately become
due and payable on the effective date of the Escrow Agent's resignation or
removal.
9. Resignation and Removal of the Escrow Agent.
(a) The Escrow Agent may resign 30 calendar days following the
giving of prior written notice thereof to Heafner and the Representative. In
addition, the Escrow Agent may be removed and replaced on a date designated in a
written instrument signed by Heafner and the Representative and delivered to the
Escrow Agent. Notwithstanding the foregoing, no such resignation or removal
shall be effective until a successor escrow agent has acknowledged its
appointment as such as provided in paragraph (c) below. In either event, upon
the effective date of such resignation or removal, the Escrow Agent shall
deliver the property comprising the Escrow to such successor escrow agent,
together with such records maintained by the Escrow Agent in connection with its
duties under this Agreement, such documents and instruments as are necessary to
amend or reissue the Letter of Credit in the name of the successor escrow agent
and such other information with respect to the Escrow as such successor may
reasonably request.
(b) If a successor escrow agent shall not have acknowledged its
appointment as such as provided in paragraph (c) below, in the case of a
resignation, prior to the expiration of 30 calendar days following the date of a
notice of resignation or, in the case of a removal, on the date designated for
the Escrow Agent's removal, as the case may be, because Heafner and the
Representative are unable to agree on a successor escrow agent, or for any other
reason, the Escrow Agent may select a successor escrow agent and any such
resulting appointment shall be binding upon all of the parties to this
Agreement.
(c) Upon written acknowledgment by a successor escrow agent
appointed in accordance with Sections 9(b) and (c) of its agreement to serve as
escrow agent under this Agreement and the receipt of the property then
comprising the Escrow, the Escrow Agent shall be fully released and relieved of
all duties, responsibilities and obligations under this Agreement, subject to
the proviso contained in clause (ii) of Section 6, and such successor escrow
agent shall for all purposes of this Agreement be the Escrow Agent.
10. Notices. All notices, requests and other communications under
this Agreement must be in writing and will be deemed to have been duly given if
delivered personally, by overnight courier or by facsimile transmission or
mailed (first class postage prepaid) to the parties at the following addresses
or facsimile numbers:
if to the CPW Stockholders or the Representative, to:
Arthur C. Soares
16641 Harwood Road
Los Gatos, CA 95032
7
<PAGE> 8
Facsimile: (408) 356-9918
with a copy to:
Jackson Tufts Cole & Black, LLP
60 South Market Street, 10th Floor
San Jose, CA 95113-2336
Facsimile: (408) 998-4889
Attention: Richard Scudellari, Esq.
if to Heafner, to:
The J. H. Heafner Company, Inc.
2105 Water Ridge Parkway, Suite 500
Charlotte, NC 28217
Facsimile: (704) 423-8987
Attention: Secretary
with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, New York 10019
Facsimile: (212) 841-1010
Attention: Scott F. Smith, Esq.
If to the Escrow Agent, to:
First Union National Bank
Corporate Trust Department, 9th Floor
230 South Tryon Street
Charlotte, NC 28288-1179
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail or overnight courier in the manner described above to the address as
provided in this Section, be deemed given upon receipt (in each case regardless
of whether such notice, request or other communication is received by any other
person to whom a copy of such notice is to be delivered pursuant to this
Section). Any party from time to time may change its
8
<PAGE> 9
address, facsimile number or other information for the purpose of notices to
that party by giving notice specifying such change to the other parties to this
Agreement.
11. Amendments, etc. This Agreement may be amended or modified, and
any of the terms of this Agreement may be waived, only by a written instrument
duly executed by or on behalf of the Representative, Heafner and the Escrow
Agent. No waiver by any party of any term or condition contained of this
Agreement, in any one or more instances, shall be deemed to be or construed as a
waiver of the same or any other term or condition of this Agreement on any
future occasion.
12. GOVERNING LAW; JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS EXECUTED AND PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PRINCIPLES THEREOF. THE PARTIES HERETO EACH HEREBY IRREVOCABLY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK SITTING IN NEW YORK CITY SOLELY IN RESPECT OF ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURT. THE PARTIES HERETO EACH
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT SUCH PARTY MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT SUCH PARTY MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
13. Business Day. For all purposes of this Agreement, the term
"business day" shall mean a day other than Saturday, Sunday or any day on which
banks located in North Carolina are authorized or obligated to close.
14. Appointment of Representative. Each of the CPW Stockholders
hereby constitutes and appoints Arthur C. Soares (the "Representative") to act
as his representative for all purposes under this Agreement, and the
Representative agrees by executing this Agreement to accept such appointment.
The Representative shall have the authority to act on behalf of, and to bind,
each CPW Stockholder for all purposes of this Agreement. Without limiting the
generality of the foregoing, each CPW Stockholder hereby irrevocably constitutes
and appoints the Representative his true and lawful attorney-in-fact, with full
power of substitution, and with full power and authority in his name, place and
stead, to execute, certify, acknowledge, deliver, file and record all
agreements, certificates, instruments and other documents and any amendment
thereto, which the Representative deems necessary or appropriate in connection
with the performance of this Agreement by such CPW Stockholder. Each CPW
Stockholder's appointment of the Representative as his attorney-in-fact shall be
deemed to be a power coupled
9
<PAGE> 10
with an interest and still survive the incompetency, bankruptcy or dissolution
of the such CPW Stockholder giving such power. No new representative may be
appointed or substituted without the prior written consent of Heafner; provided,
that if Arthur C. Soares becomes incapacitated or dies during the term of this
Agreement, he shall be replaced by Ray C. Barney or such person as Mr. Barney
may designate.
15. Miscellaneous. This Agreement is binding upon and will inure to
the benefit of the parties to this Agreement and their respective successors and
permitted assigns. The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions of this
Agreement. This Agreement may be executed in any number of counterparts, each of
which will be deemed an original, but all of which together will constitute one
and the same instrument. Heafner hereby represents and warrants to the Escrow
Agent as follows: (a) Heafner is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and has
all requisite corporate power and authority to carry on its business as now
conducted; (b) Heafner has the requisite corporate power and authority to enter
into this Agreement, (c) the execution and delivery by Heafner of this Agreement
has been duly authorized by all necessary action on the part of Heafner; and (d)
this Agreement has been duly executed and delivered by Heafner, and constitutes
the valid and binding obligation of Heafner, enforceable against Heafner in
accordance with its terms.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be executed as of the date first above written.
CPW STOCKHOLDERS: /s/ ARTHUR C. SOARES
---------------------------------------------
Arthur C. Soares
/s/ RAY C. BARNEY
---------------------------------------------
Ray C. Barney
REPRESENTATIVE: /s/ ARTHUR C. SOARES
---------------------------------------------
Arthur C. Soares
HEAFNER: THE J.H. HEAFNER COMPANY, INC.
By: /s/ J. MICHAEL GAITHER
-----------------------------------------
J. Michael Gaither
Senior Vice President and General Counsel
ESCROW AGENT: FIRST UNION NATIONAL BANK
By:
-----------------------------------------
Name:
Title:
10
<PAGE> 12
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be executed as of the date first above written.
CPW STOCKHOLDERS:
---------------------------------------------
Arthur C. Soares
---------------------------------------------
Ray C. Barney
REPRESENTATIVE:
---------------------------------------------
Arthur C. Soares
HEAFNER: THE J.H. HEAFNER COMPANY, INC.
By:
---------------------------------------------
J. Michael Gaither
Senior Vice President and General Counsel
ESCROW AGENT: FIRST UNION NATIONAL BANK
By: /s/ SHANNON SCHWARTZ
---------------------------------------------
Name: Shannon Schwartz
Title: Assistant Vice President
9
<PAGE> 1
EXHIBIT 10.15
[BankBoston letterhead]
IRREVOCABLE STANDBY LETTER OF CREDIT
DATE: MAY 20, 1998
CREDIT NUMBER:
BENEFICIARY 50062961
FIRST UNION NATIONAL BANK EXPIRY DATE:
ESCROW AGENT MAY 20, 1999
CORPORATE TRUST DEPARTMENT, 9TH FLOOR
230 SOUTH TRYON STREET
CHARLOTTE, NORTH CAROLIA 28288-1179
APPLICANT:
J.H. HEAFNER COMPANY, INC.
A NORTH CAROLINA CORPORATION
814 EAST MAIN STREET
LINCOLNTON, NORTH CAROLINA 28093
Gentlemen:
We hereby open in your favor our Irrevocable Letter of Credit No. 50062961 for
the account of The J.H. Heafner Company, Inc., a North Carolina corporation
("Heafner") with its principal address at 814 East Main Street, Lincolnton,
North Carolina 28093 for a sum or sums not exceeding a total of US $7,400,000
(Seven Million Four Hundred Thousand and no/100s United States Dollars) (such
amount as reduced from time to time pursuant to the terms hereof, the "Credit
Amount") available effective the date hereof and expiring at Boston,
Massachusetts on the Termination Date (as hereinafter defined).
This Letter of Credit is issued to you in your capacity as Escrow Agent under
the Escrow Agreement dated May 20, 1998 (the "Escrow Agreement") among Heafner,
Arthur C. Soares, individually and in his capacity as Representative (the
"Representative"), Ray C. Barney and you.
The initial term of this Letter of Credit shall end on May 20, 1999, provided
that unless we shall have notified you not later than 30 days prior to such date
(or any succeeding anniversary of such date to which the term of this Letter of
Credit shall theretofore have been extended) of our intention not to extend the
term hereof, the term of this Letter of Credit shall automatically be extended
to the first anniversary of such date (or of any succeeding such date) (May 20,
1999 and each anniversary thereof to which the term of this Letter of Credit has
been so extended, being the "Expiration Date").
Subject to the terms and conditions hereof, we hereby irrevocably authorize you
to draw on us, an aggregate amount not to exceed the Credit Amount. Drawings
shall be made by presentation of the following documents:
<PAGE> 2
[BankBoston Letterhead]
PAGE 2 OF 3, LETTER OF CREDIT NO. 50062961
(1) your sight draft in the amount of such drawing accompanied by your
certificate in the form of Annex A hereto (a "Payment Draft"); and
(2) your sight draft in the entire remaining Credit Amount accompanied
by your certificate in the form of Annex B hereto (the "Termination Draft" and
together with the Payment Drafts, the "Drafts").
Any sight draft drawn under this Letter of Credit must bear on its face the
clause "DRAWN UNDER BANKBOSTON IRREVOCABLE LETTER OF CREDIT NO. 50062961 DATED
MAY 20, 1998."
Following the receipt by us of any Draft as above provided for, we shall pay you
in accordance with the UCP (as hereinafter defined), by wire transfer or other
deposit of immediately available funds to such bank and account number as shall
be designated by you in your sight draft, PROVIDED that such demand for payment
and the documents presented in connection therewith conform to the terms and
conditions hereof.
If we determine that any demand for payment made by you hereunder is not, in any
instance, in strict conformity with the terms and conditions of this Letter of
Credit, we shall give you immediate notice that the purported negotiation was
not effected in accordance with the terms and conditions of this Letter of
Credit and return to you any documents presented to us. Upon being so notified,
you may attempt to correct any such non-conforming demand if and to the extent
that you are able to do so prior to the Termination Date.
Upon our honoring of any Draft presented by you hereunder, the Credit Amount
shall be reduced by an amount equal to the amount of such Draft. The amount of
this Letter of Credit shall be irrevocably reduced, from time to time, by us
upon receipt from you of your certificate in the form of Annex C attached hereto
and made a part hereof. Upon any such irrevocable reduction of the amount of
this Letter of Credit, we may require you to surrender this Letter of Credit to
us in exchange for a substitute irrevocable letter of credit, having a Credit
Amount equal to the Credit Amount as so reduced, but otherwise in a form and
having terms identical to this Letter of Credit.
This Letter of Credit shall automatically terminate and be delivered to us for
cancellation at 5:00 p.m. (Boston, Massachusetts time) on the date (the
"Termination Date") that is the first to occur of (1) the Expiration Date, (2)
the date that we make payment in full of all amounts available to be drawn
hereunder, (3) the date that we receive your certificate in the form of Annex B
hereto that reduces the Credit Amount to zero, and (4) the 30th day (or if such
date is not a banking day, then on the next succeeding banking day) after we
have given you notice in the manner specified below that an Event of Default has
occurred and is continuing under the Amended and Restated Loan and Security
Agreement dated as of May 20, 1998 (as amended and in effect), to which Heafner
and we are parties.
All documents, notices and other communications to us with respect to this
Letter of Credit shall be in writing and shall be personally delivered
(including by courier against a receipt therefor) at our office at 150 Federal
Street, 4th floor, Boston, Massachusetts 02110, Attn: Trade Services (the
"Issuer's Office"), in each case referring to the number of this Letter of
Credit. All notices and other communications to you as
<PAGE> 3
[BankBoston Letterhead]
PAGE 3 OF 3, LETTER OF CREDIT NO. 50062961
the beneficiary of this Letter of Credit shall be in writing to the address set
forth below and shall be personally delivered (including by courier against a
receipt therefor) to such address:
Address: FIRST UNION NATIONAL BANK
ESCROW AGENT
CORPORATE TRUST DEPARTMENT, 9TH FLOOR
230 SOUTH TRYON STREET
CHARLOTTE, NORTH CAROLIA 28288-1179
This Letter of Credit is subject to and governed by the 1993 Revision of the
Uniform Customs and Practice for Documentary Credits of the International
Chamber of Commerce, Publication 500.
This Letter of Credit is transferable in full but not in part to any successor
Escrow Agent under the Escrow Agreements and may be successively transferred.
Transfer of the amount available to be drawn under this Letter of Credit to such
transferee shall be effected by the presentation to us of this Letter of Credit
accompanied by a certificate in substantially the form of Annex D hereto and the
other documents (if any) referred to therein. Upon such presentation we shall
forthwith transfer the same to your transferee or, if so requested by your
transferee, issue an irrevocable letter of credit to your transferee having a
Credit Amount equal to the Credit Amount on the date of transfer in a form and
having terms identical to this Letter of Credit.
We hereby agree with the drawer of any drafts drawn under and in compliance with
the terms and conditions of this Letter of Credit that the same shall be duly
honored upon due presentation to us and shall be paid from our own funds.
Very truly yours,
/s/ LISA A. GE[illegible]
- --------------------------------
Authorized Signature
<PAGE> 4
[BankBoston Letterhead]
ANNEX A
CERTIFICATE FOR DRAWING IN CONNECTION
WITH PAYMENTS DUE UNDER THE ESCROW AGREEMENT
Irrevocable Letter of Credit No. ______________
The undersigned, the beneficiary of Irrevocable Letter of Credit No.
__________ (the "Letter of Credit", terms defined therein and not otherwise
defined herein being used herein as therein defined) issued by BankBoston, N.A.
(the "Bank") in favor of the undersigned, hereby certifies to the Bank, in
connection with the Letter of Credit, as follows:
1. The undersigned is the Escrow Agent under the Escrow Agreement.
2. The undersigned is making a drawing under the Letter of Credit with
respect to the payment of amounts due under and in accordance with the terms of
the Escrow Agreement, to the Representative.
3. The amount of the draft accompanying this Certificate is equal to
$____________ representing all amounts due and owing to said Representative in
accordance with the terms of the Escrow Agreement.
4. The amount of the draft accompanying this Certificate was computed
in accordance with the terms of the Escrow Agreement and does not exceed the
Credit Amount.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate as of the ___ day of _________ 199_/200_.
FIRST UNION NATIONAL BANK,
Escrow Agent
_________________________
Authorized Signer
<PAGE> 5
[BankBoston Letterhead]
ANNEX B
CERTIFICATE FOR DRAWING IN CONNECTION
WITH TERMINATION DATE
Irrevocable Letter of Credit No. ______________
The undersigned, the beneficiary of Irrevocable Letter of Credit No.
__________ (the "Letter of Credit", terms defined therein and not otherwise
defined herein being used herein as therein defined) issued by BankBoston, N.A.
(the "Bank") in favor of the undersigned, hereby certifies to the Bank, in
connection with the Letter of Credit, as follows:
1. The undersigned is the Escrow Agent under the Escrow Agreement.
2. The undersigned is making a drawing under the Letter of Credit with
respect to the creation of a cash escrow deposit under and in accordance with
the terms of the Escrow Agreement.
3. The amount of the draft accompanying this Certificate is equal to
$____________ representing the entire Credit Amount/
4. The amount of the draft accompanying this Certificate was computed
in accordance with the terms of the Escrow Agreement and is equal to, but does
not exceed the Credit Amount.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
the ___ day of _________ 199_/200_.
FIRST UNION NATIONAL BANK,
Escrow Agent
___________________________
Authorized Signer
<PAGE> 6
[BankBoston Letterhead]
ANNEX C
CERTIFICATE OF REDUCTION
Irrevocable Letter of Credit No. ______________
The undersigned, the beneficiary of Irrevocable Letter of Credit No.
__________ (the "Letter of Credit", terms defined therein and not otherwise
defined herein being used herein as therein defined) issued by BankBoston, N.A.
(the "Bank") in favor of the undersigned, hereby certifies to the Bank, in
connection with the Letter of Credit, as follows:
1. The undersigned is the Escrow Agent under the Escrow Agreement.
2. The undersigned is delivering this Certificate under and in
accordance with the terms of the Escrow Agreement.
3. Upon your receipt of this Certificate, the Credit Amount of the
Letter of Credit shall be reduced by $______________ representing the amount of
a payment made by Heafner to the Representative and acknowledged by the
Representative.
4. After giving effect to such reduction, the Credit Amount shall be
$_____________.
5. The amount of the reduction specified in paragraph 3 above was
computed in accordance with the terms of the Escrow Agreement and does not
reduce the Credit Amount to zero.
[Alternate 5]
5. The amount of the reduction specified in paragraph 3 above was
computed in accordance with the terms of the Escrow Agreement and reduces the
Credit Amount to zero.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
the ___ day of _________ 199_/200_.
FIRST UNION NATIONAL BANK,
Escrow Agent
__________________________
Authorized Signer
<PAGE> 7
[BankBoston Letterhead]
ANNEX D
INSTRUCTION TO TRANSFER
FIRST UNION NATIONAL BANK
ESCROW AGENT
CORPORATE TRUST DEPARTMENT, 9TH FLOOR
230 SOUTH TRYON STREET
CHARLOTTE, NORTH CAROLIA 28288-1179
Attention:
Irrevocable Letter of Credit No.
---------------------
Gentlemen:
For value received, the undersigned beneficiary hereby irrevocably
transfers to:
------------------------------------
(name of transferee)
-----------------------------------
-----------------------------------
(address)
all rights of the undersigned beneficiary to draw under the captioned Letter of
Credit (the "Letter of Credit"). Capitalized terms used herein and not defined
herein, have the meanings ascribed to them in the Letter of Credit.
The transferee is the successor Escrow Agent under the Escrow
Agreement.
By this transfer, all rights of the undersigned beneficiary in the
Letter of Credit are transferred to the transferee and the transferee shall
hereafter have the sole right as beneficiary thereof; provided, however, that no
rights shall be deemed to have been transferred to the transferee until such
transfer complies with the requirement of the Letter of Credit pertaining to
transfers.
The Letter of Credit is returned and delivered herewith and in
accordance therewith, we request that this transfer be effected and, if
requested by the transferee, that you issue a new irrevocable letter of credit
in favor of the transferee in accordance with the Letter of Credit.
Very truly yours,
[TRANSFEROR]
-------------------------
Authorized Signer
<PAGE> 1
Exhibit 10.16
STOCK PURCHASE AGREEMENT
BETWEEN
THE J.H. HEAFNER
COMPANY, INC.
AND
THE SHAREHOLDERS OF
OLIVER & WINSTON, INC.
DATED: APRIL 9, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION......................................................................................................1
ARTICLE I
PURCHASE AND SALE OF THE SHARES...................................................................................1
SECTION 1.1. The Shares...........................................................................................1
SECTION 1.2. Purchase Price.......................................................................................1
SECTION 1.3. Closing..............................................................................................2
SECTION 1.4. Purchase Price Adjustment............................................................................2
ARTICLE II
REPRESENTATIONS AND WARRANTIES....................................................................................4
SECTION 2.1. Representations and Warranties of the Sellers as a Group.............................................4
(a) Organization, Standing and Power.....................................................................4
(b) Capitalization; Equity Interests.....................................................................4
(c) Conflicts; Consents..................................................................................5
(d) Financial Information................................................................................5
(e) Absence of Changes...................................................................................6
(f) Assets, Property and Related Matters; Real Property..................................................7
(g) Patents, Trademarks and Similar Rights...............................................................9
(h) Insurance...........................................................................................10
(i) Agreements..........................................................................................10
(j) Litigation..........................................................................................11
(k) Compliance; Governmental Authorizations.............................................................11
(l) Labor Relations; Employees..........................................................................12
(m) Related Party Transactions..........................................................................14
(n) Taxes...............................................................................................15
(o) Disclosure..........................................................................................16
(p) Bank Accounts; Powers-of-Attorney...................................................................16
(q) Inventory...........................................................................................16
(r) Brokers.............................................................................................16
SECTION 2.2. Representations and Warranties of the Sellers Individually.........................................16
(a) Authority; Binding Agreements; Title to Shares......................................................16
(b) Conflicts; Consents.................................................................................17
(c) Brokers.............................................................................................17
(d) Pending Challenges..................................................................................17
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 2.3. Representations and Warranties by the Purchaser....................................................17
(a) Organization and Standing...........................................................................17
(b) Authority; Binding Agreements.......................................................................17
(c) Conflicts; Consents.................................................................................18
(d) Investment Representation...........................................................................18
(e) Pending Challenges..................................................................................18
(f) Broker..............................................................................................18
ARTICLE III
ADDITIONAL AGREEMENTS............................................................................................18
SECTION 3.1. Expenses............................................................................................18
SECTION 3.2. Conduct of Business.................................................................................19
SECTION 3.3. Reasonable Efforts; Further Assurances..............................................................20
SECTION 3.4. Winston Rights......................................................................................21
SECTION 3.5. No Shopping.........................................................................................21
SECTION 3.6. Access and Information..............................................................................21
SECTION 3.7. Confidentiality; Non-Competition....................................................................22
SECTION 3.8. Releases; Prior Compensation........................................................................23
SECTION 3.9. Public Announcements................................................................................24
SECTION 3.10. Tax Matters........................................................................................24
SECTION 3.11. Sellers' Representative............................................................................26
ARTICLE IV
CONDITIONS PRECEDENT.............................................................................................27
SECTION 4.1. Conditions to Obligations of the Purchaser..........................................................27
(a) Authorization.......................................................................................27
(b) Representations and Warranties......................................................................27
(c) Certificates........................................................................................27
(d) Escrow Agreement....................................................................................27
(e) Opinion of Counsel..................................................................................27
(f) Financial Statements................................................................................27
(g) Due Diligence.......................................................................................27
(h) Financing...........................................................................................27
(i) Indebtedness Payoff.................................................................................28
(j) Employment Agreements...............................................................................28
(k) Corporate Directors and Officers....................................................................28
(l) Share Certificates and Corporation Records..........................................................28
(m) HSR Act.............................................................................................28
(n) Other Documents.....................................................................................28
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 4.2. Conditions of Obligations of the Sellers............................................................28
(a) Authorization.......................................................................................28
(b) Representations and Warranties......................................................................28
(c) Certificate.........................................................................................28
(d) Escrow Agreement....................................................................................28
(e) HSR Act.............................................................................................29
(f) Other Documents.....................................................................................29
ARTICLE V
INDEMNITY........................................................................................................29
SECTION 5.1. Indemnification.....................................................................................29
SECTION 5.2. Limitations.........................................................................................31
SECTION 5.3. No Election.........................................................................................33
ARTICLE VI
MISCELLANEOUS....................................................................................................33
SECTION 6.1. Entire Agreement....................................................................................33
SECTION 6.2. Termination.........................................................................................33
SECTION 6.3. Descriptive Headings; Certain Interpretations.......................................................34
SECTION 6.4. Notices.............................................................................................34
SECTION 6.5. Counterparts........................................................................................35
SECTION 6.6. Survival............................................................................................36
SECTION 6.7. Benefits of Agreement...............................................................................36
SECTION 6.8. Amendments and Waivers..............................................................................36
SECTION 6.9. Assignment..........................................................................................36
SECTION 6.10. Enforceability.....................................................................................36
SECTION 6.11. Trustee and Fiduciary Capacity.....................................................................36
SECTION 6.12. Governing Law......................................................................................37
SECTION 6.13. Dispute Resolution; Consent To Jurisdiction........................................................37
</TABLE>
ANNEXES
A Shareholders; Ownership of Shares
B Dispute Resolution Procedure
EXHIBITS
A-1 Form of Officers' Certificate
A-2 Form of Seller's Certificate`
B Form of Escrow Agreement
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT, dated as of April 9, 1997 (the
"Agreement"), between The J.H. Heafner Company, Inc., a North
Carolina corporation (the "Purchaser"), each of the
Shareholders (each, a "Seller" and, collectively, the
"Sellers") of Oliver & Winston, Inc., a California corporation
(the "Company"), and William S. Johnstone, Jr., Trustee, as
the representative (the "Sellers' Representative") of the
Sellers.
INTRODUCTION
The Company owns and operates a retail tire business located
in California, Nevada and Arizona. The Sellers desire to sell all of the
outstanding shares (the "Shares") of Capital Stock, $.10 par value (the "Common
Stock"), of the Company to the Purchaser, and the Purchaser desires to purchase
the Shares on the terms and conditions set forth in this Agreement.
The parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
SECTION 1.1. The Shares. Upon the terms and subject to the conditions
set forth in this Agreement, at the Closing (as defined below in Section 1.3),
each Seller shall sell, convey, assign, transfer and deliver to the Purchaser,
and the Purchaser shall purchase, acquire and accept from each Seller, all of
the Shares owned by such Seller (which Shares are listed on Annex A), free and
clear of all security interests, liens, pledges, charges, escrows, options,
rights of first refusal, mortgages, indentures, security agreements or other
claims, encumbrances, agreements, arrangements or commitments of any kind or
character, whether written or oral and whether or not relating in any way to
credit or the borrowing of money (collectively, the "Claims"). Prior to the
Closing, William S. Johnstone, Jr., as Trustee of The Sam M. Winston Separate
Property Trust, dated July 26, 1989, will transfer (the "Bonburg Transfer")
36,100.97 shares of Common Stock to Thomas J. Bonburg (who is deemed to be a
"Seller" for all purposes under this Agreement).
SECTION 1.2. Purchase Price. (a) The purchase price (the "Purchase
Price") for the Shares and the non-compete agreement set forth in Section 3.6
shall be cash in the amount of $37,263,744 (the "Purchase Price), of which
$37,063,744 is payable as consideration for the Shares and $200,000 is payable
as consideration for such non-compete agreement. The Purchase Price shall be
paid to the Sellers at the Closing in proportion to their ownership of Shares as
set forth on Annex A (except for the Escrow Amount, as hereinafter defined) and,
except as set forth in Section 1.2(b), shall be made by certified or bank check
or checks, or, at the option of the Sellers, by wire transfer to an account or
accounts of Sellers designated to the Purchaser by the Sellers' Representative.
<PAGE> 6
(b) At the Closing, the Purchaser shall deliver $5,680,000 of the
Purchase Price (the "Escrow Amount") to the escrow agent (the "Escrow Agent")
named in the Escrow Agreement (as defined below in Section 4.1(d)). The Escrow
Amount consists of a portion of the Purchase Price that, subject to the terms of
Article V and the Escrow Agreement, would otherwise be payable to the Sellers
(other than Thomas J. Bonburg) in accordance with Section 1.2(a). Prior to the
Closing, the Purchaser shall select a bank or trust company to act as the Escrow
Agent, which selection shall be reasonably acceptable to the Sellers (other than
Thomas J.
Bonburg).
SECTION 1.3. Closing. If this Agreement has not been terminated
pursuant to Section 6.2(a), the closing (the "Closing") for the consummation of
the transactions contemplated by this Agreement shall take place at the offices
of Howard, Darby & Levin, 1330 Avenue of the Americas, New York, New York 10019,
or such other place or places as the Sellers' Representative and the Purchaser
shall agree, at 10:00 a.m. (Eastern standard time) on the later of April 30,
1997 and two business days following the date on which all conditions set forth
in Article IV shall have been satisfied or waived, or such other date and time
agreed to by the Sellers' Representative and the Purchaser (such date, the
"Closing Date").
SECTION 1.4. Purchase Price Adjustment.
(a) Within 90 days after the Closing Date, the Purchaser and the
Sellers' Representative shall cause Arthur Andersen LLP to audit, at the
Purchaser's expense, the balance sheet of the Company as of the Closing Date
(the "Closing Date Balance Sheet"), in accordance with generally accepted
accounting principles consistently applied with such principles used in
connection with the Company's financial statements for the fiscal year ended
September 30, 1996.
(b) The Sellers' Representative and the Purchaser shall cooperate with
one another and with such independent accountants in the delivery of the Closing
Date Balance Sheet. Each of the Sellers' Representative, the Purchaser and their
respective representatives shall have the right to review the others' work
papers or records of the Company used or prepared in connection with the
preparation of such balance sheet, and shall, if requested, make available such
work papers or records and direct the auditors or other representatives to allow
the Sellers' Representative, the Purchaser, or their respective representatives
to review any and all work papers or records of such auditors or other
representatives, which are not proprietary work papers or records of such
auditors or other representatives, as the case may be, used in connection with
the preparation of such balance sheet.
(c) (i) If the Closing occurs during the period beginning on April 30,
1997 and ending on May 15, 1997 and (1) the Company's net worth (the difference
between the Company's assets and liabilities) as of the Closing Date as shown on
the Closing Date Balance Sheet is less than $500,000, (2) the Company's working
capital (the difference between the Company's current assets and current
liabilities exclusive of the current portion of long-term debt and the current
portion of deferred service and warranty revenue) as of the Closing Date as
shown on the Closing Date Balance Sheet is less than $1.00, or (3) the sum of
the Company's
2
<PAGE> 7
outstanding revolving credit and line of credit balances, and the amount of
"pooled funds" (as that term is used on the Company's financial statements), as
of the Closing Date as shown on the Closing Date Balance Sheet is greater than
$8,300,000, the Sellers shall pay to the Purchaser an amount equal to the lesser
of (x) the largest of the differences in dollar amounts under clauses (1), (2)
and (3) above and (y) $1,000,000. Solely for purposes of determining the amount,
if any, of an adjustment to the Purchase Price pursuant to this subsection
(c)(i), if the Closing occurs during the period beginning on May 1, 1997 and
ending on May 5, 1997, the Closing shall be deemed to have occurred on April 30,
1997 and the Closing Date Balance Sheet shall be as of April 30, 1997.
(ii) If the Closing occurs during the period beginning on May 16, 1997
and ending on May 31, 1997 and (1) the Company's net worth (the difference
between the Company's assets and liabilities) as of the Closing Date as shown on
the Closing Date Balance Sheet is less than $500,000, (2) the Company's working
capital (the difference between the Company's current assets and current
liabilities exclusive of the current portion of long-term debt and the current
portion of deferred service and warranty revenue) as of the Closing Date as
shown on the Closing Date Balance Sheet is less than $1.00, or (3) the sum of
the Company's outstanding revolving credit and line of credit balances, and the
amount of "pooled funds" (as that term is used on the Company's financial
statements), as of the Closing Date as shown on the Closing Date Balance Sheet
is greater than $8,500,000, the Sellers shall pay to the Purchaser an amount
equal to the lesser of (x) the largest of the differences in dollar amounts
under clauses (1), (2) and (3) above and (y) $500,000. Solely for purposes of
determining the amount, if any, of an adjustment to the Purchase Price pursuant
to this subsection (c)(ii), if the Closing occurs during the period beginning on
May 20, 1997 and ending on May 28, 1997, any amount paid by the Company to
Cooper Tire on or around May 20, 1997 in respect of outstanding invoices which
are not past due shall be deducted from the amount determined pursuant to clause
(3) above.
(iii) The calculations described in paragraphs (i) and (ii) of this
subsection (c) shall not reflect the impact, if any, of (1) the purchase by the
Company of the Intellectual Property (as defined below in Section 2.1(g))
previously licensed to the Company pursuant to the agreements, each dated as of
August 13, 1985, between the Company and Sam M. Winston (collectively, the
"Winston Rights"), (2) the Bonburg Transfer, and (3) the amount of any cash
distribution to the Sellers (other than The Sam M. Winston Separate Property
Trust) made by the Company after the date of this Agreement and prior to the
Closing not in excess of $400,000 in the aggregate.
(d) Any payment under this Section shall be made within 10 days after
the later of (i) the date of delivery of the Closing Date Balance Sheet and (ii)
the date on which any dispute referred to in clause (e) is resolved.
(e) Each of the Sellers' Representative and the Purchaser shall have
the right to dispute any amounts shown on the Closing Date Balance Sheet by
giving written notice to the other within 30 days after receipt of such balance
sheet, which notice shall specify in reasonable detail the nature and extent of
such disagreement. If the Sellers' Representative and the Purchaser have not
resolved the dispute within 15 days of such notice, the dispute shall promptly
3
<PAGE> 8
be submitted to another "big six" accounting firm (the "Independent Accountant")
reasonably acceptable to Sellers' Representative and the Purchaser. The decision
of the Independent Accountant shall be binding on the parties hereto. The cost
of the Independent Accountant shall be shared equally by the Sellers and the
Purchaser.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. Representations and Warranties of the Sellers as a Group.
The Sellers jointly and severally represent and warrant to the Purchaser as
follows:
(a) Organization, Standing and Power. The Company (i) is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and (ii) has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. The Company is duly qualified to do business and is in good standing
in each jurisdiction in which such qualification is necessary because of the
property owned, leased or operated by it or because of the nature of its
business as now being conducted, and each such jurisdiction is listed in Section
2.1(a) of the disclosure schedule being delivered to the Purchaser
simultaneously with the execution of this Agreement (the "Disclosure Schedule").
The Company has delivered to the Purchaser complete and correct copies of its
articles of incorporation and by-laws and all amendments to the date of this
Agreement and has made available to the Purchaser its minute books and stock
records. Section 2.1(a) of the Disclosure Schedule contains a true and correct
list of the directors and officers of the Company as of the date of this
Agreement and at all times since the last action of the board of directors and
the shareholders of the Company.
(b) Capitalization; Equity Interests. The authorized capital stock of
the Company consists of 1,000,000 shares of Common Stock and no shares of
preferred stock. At the time of execution of this Agreement, 181,942 shares of
Common Stock were issued and outstanding. The Sellers own of record and
beneficially all of the outstanding capital stock of the Company. Except as set
forth above, at the time of execution of this Agreement, no shares of capital
stock or other voting securities of the Company are issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of the Company
are duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. There are no bonds, debentures, notes or other
indebtedness or securities of the Company having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which shareholders of the Company may vote. There are no
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Company is a party or by
which the Company is bound obligating the Company to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other voting securities of the Company or obligating the Company to issue,
grant, extend or enter into any such security, option, warrant, call right,
commitment, agreement, arrangement or undertaking. There are no outstanding
rights, commitments, agreements, arrangements or undertakings of any kind
obligating the Company to repurchase, redeem or otherwise acquire any shares of
capital stock or
4
<PAGE> 9
other voting securities of the Company or any securities of the type described
in the two immediately preceding sentences. Except as set forth in Section
2.1(b) of the Disclosure Schedule, the Company does not have any subsidiaries or
own or hold any equity or other security interests in any other entity. The
Company is not subject to any liability for any claim that the Company violated
any applicable Federal or state securities laws in connection with the issuance
of capital stock. For purposes of this Agreement, a "subsidiary" of any person
means another person, an amount of the voting securities, other voting ownership
or voting partnership interests of which is sufficient to elect at least a
majority of its Board of Directors or other governing body (or, if there are no
such voting interests, 50% or more of the equity interests of which) is owned
directly or indirectly by such first person; and a "person" means an individual,
corporation, partnership, joint venture, association, trust, unincorporated
organization or other entity (governmental or private).
(c) Conflicts; Consents. The execution and delivery by the Sellers of
this Agreement and the Escrow Agreement, the consummation of the transactions
contemplated hereby and thereby and compliance by the Sellers with any of the
provisions hereof and thereof does not and will not (i) conflict with or result
in a breach of the articles of incorporation, by-laws or other constitutive
documents of the Company, (ii) conflict with or result in a default (or give
rise to any right of termination, cancellation or acceleration) under any of the
provisions of any note, bond, lease, mortgage, indenture, or any license,
franchise, permit, agreement or other instrument or obligation to which the
Company may be a party, or by which the Company or any of the Company's
properties or assets may be bound or affected, except for such conflicts,
breaches or defaults as are set forth in Section 2.1(c) of the Disclosure
Schedule, (iii) violate any law, statute, rule or regulation or order, writ,
injunction or decree applicable to the Company or any of the Company's
properties or assets or (iv) result in the creation or imposition of any Claim
upon any property or assets used or held by the Company.
(d) Financial Information. (i) The following financial statements
are contained in Section 2.1(d) of the Disclosure Schedule:
(A) the balance sheets of the Company at September 30, 1994, 1995
and 1996 and the related statements of operations and retained earnings
and cash flows for the years then ended together with the opinion of
Deloitte & Touche thereon;
(B) the unaudited, internally prepared balance sheet of the
Company at December 31, 1996 and the related statement of operations
and cash flows for the three month period then ended; and
(C) the unaudited, internally prepared balance sheets of the
Company at January 31, 1997 and February 28, 1997 and the related
statements of operations and cash flows for the one month periods then
ended.
Except as set forth in Section 2.1(d) of the Disclosure Schedule, all such
financial statements have been prepared in conformity with generally accepted
accounting principles applied on a basis consistent with prior periods and
fairly present in all material respects the financial position, results of
operations and cash flows of the Company (subject, in the case of unaudited
5
<PAGE> 10
statements, to normal year-end audit adjustments). The balance sheets of the
Company as at the dates set forth present fairly in all material respects the
financial position of the Company as at the dates thereof, and the related
statements of operations and cash flows of the Company for each of the
respective specified periods then ended present fairly in all material respects
the results of operations of the Company for each of the respective periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). For the purposes of this Agreement, all financial statements
referred to in this paragraph shall include any notes to such financial
statements.
(ii) There were no material liabilities or obligations
(whether absolute, accrued, contingent or otherwise, and whether due or to
become due) in respect of the Company which were required to be, in accordance
with generally accepted accounting principles and, in the case of unaudited
statements, the Company's consistently applied accounting principles, and were
not shown or provided for on the balance sheets of the Company to which such
liabilities or obligations relate. All reserves established by the Company are
reflected on the balance sheets of the Company or in the footnotes to the
financial statements of the Company and are adequate and there are no loss
contingencies that are required to be accrued by Statement of Financial
Accounting Standard No. 5 of the Financial Accounting Standards Board which are
not provided for on such balance sheets.
(e) Absence of Changes. Except as set forth in Section 2.1(e) of the
Disclosure Schedule, since September 30, 1996, the Company has been operated in
the ordinary course consistent with past practice and there has not been:
(i) any material adverse change in the condition (financial or
other), assets, liabilities, operations, business or prospects of the
Company;
(ii) any obligation or liability (whether absolute, accrued,
contingent or other, and whether due or to become due) incurred by the
Company, other than obligations under customer contracts, current
obligations and liabilities incurred in the ordinary course of business
and consistent with past practice;
(iii) any payment, discharge or satisfaction of any claim or
obligation of the Company, except in the ordinary course of business
and consistent with past practice;
(iv) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of
the Company or any direct or indirect redemption, purchase or other
acquisition of any such shares;
(v) any issuance or sale, or any contract entered into for the
issuance or sale, of any shares of capital stock or securities
convertible into or exercisable for shares of capital stock of the
Company;
(vi) any sale, assignment, pledge, encumbrance, transfer or
other disposition of any tangible asset of the Company (other than
sales of inventory to customers or sales of equipment no longer used or
necessary in connection with the
6
<PAGE> 11
conduct of the Company's business, in each case in the ordinary course of
business consistent with past practice), or any sale, assignment, transfer or
other disposition of any patents, trademarks, service marks, trade names,
copyrights, licenses, franchises, know-how or any other intangible assets;
(vii) any creation of any claim or other encumbrance on any
property of the Company, except in the ordinary course of business
consistent with past practice and which claims or encumbrances together
with all other such claims and encumbrances would not have a material
adverse effect on the business of the Company;
(viii) any write-down of the value of any asset of the Company
or any write-off as uncollectible of any accounts or notes receivable
or any portion thereof, other than write-downs or write-offs which in
the aggregate do not exceed $10,000;
(ix) any cancellation of any debts or claims or any amendment,
termination or waiver of any rights of value to the Company, other than
refunds to customers in the ordinary course of business and consistent
with past practice that in the aggregate are immaterial in amount;
(x) through the date of this Agreement, any capital
expenditure or addition to property, plant or equipment of the Company,
individually or in the aggregate, in excess of $25,000;
(xi) any general increase in the compensation of employees of
the Company (including any increase pursuant to any written bonus,
pension, profit-sharing or other benefit or compensation plan, policy
or arrangement or commitment), or any increase in any such compensation
or bonus payable to any officer, shareholder, director or consultant of
the Company having an annual salary or remuneration in excess of
$50,000;
(xii) any damage, destruction or loss (whether or not covered
by insurance) affecting any asset or property of the Company resulting
in liability or loss in excess of $25,000 per incident or $100,000 in
the aggregate;
(xiii) any change in the independent public accountants of the
Company or in the accounting methods or accounting practices followed
by the Company or any change in depreciation or amortization policies
or rates;
(xiv) any agreement or action not otherwise referred to in
items (i) through (xiii) above entered into or taken that is material
to the Company; or
(xv) any agreement, whether in writing or otherwise, to take
any of the actions specified in the foregoing items (i) through (xiv).
(f) Assets, Property and Related Matters; Real Property. (i)
Except as set forth in Section 2.1(f)(ii) of the Disclosure Schedule, the
Company has good title to, or a valid
7
<PAGE> 12
leasehold interest in, as applicable, all of the assets reflected on the
financial statements contained in Section 2.1(d) of the Disclosure Schedule,
free and clear of all Claims. Such assets (A) are in good operating condition
and repair, subject to ordinary wear and tear and (B) constitute all of the
properties, interests, assets and rights held for use or used in connection with
the business and operations of the Company and constitute all those necessary to
continue to operate the business of the Company consistent with current and
historical practice. All items of personal property owned by the Company with an
original cost or book value in excess of $5,000 are listed in Section 2.1(f)(i)
of the Disclosure Schedule.
(ii) Section 2.1(f)(ii) of the Disclosure Schedule sets
forth a list of all real property owned or leased by the Company (each a
"Company Property"). The Company is the sole owner or holder of, and has, good
and marketable fee title to, or a good, valid and existing leasehold estate in
each Company Property, free and clear of all liens, encumbrances, restrictions
and other matters affecting title to or the use and occupancy of such Company
Property, except as disclosed in Section 2.1(f)(ii) of the Disclosure Schedule
("Permitted Encumbrances"). No Company Property violates the terms or conditions
of any Permitted Encumbrance.
(iii) With respect to each Company Property leased by
the Company, (A) the Company is the owner and holder of all the leasehold
interests and estates purported to be granted by such leases, (B) all leases to
which the Company is a party are in writing and in full force and effect and
constitute valid and binding obligations of the Company and, to the knowledge of
the Sellers, of the other parties thereto, enforceable in accordance with their
terms, and (C) the Company has delivered to the Purchaser true and complete
copies of all such leases. Except as set forth in Section 2.1(f)(ii) of the
Disclosure Schedule, there exists no default, or any event which upon notice or
the passage of time, or both, would give rise to any default, in the performance
by the Company or by any lessor under any lease. Except as set forth in Section
2.1(f)(ii) of the Disclosure Schedule, the Company has not, and to the knowledge
of the Sellers, no other person has, granted any oral or written right to anyone
other than the Company to lease, sublease or otherwise occupy any of the
properties described in Section 2.1(f)(ii) of the Disclosure Schedule through
the end of the applicable lease periods.
(iv) Each Company Property and all appurtenances and
improvements, as used, constructed or maintained by the Company at any time,
conform to applicable Federal, state, local and foreign laws and regulations
("Legal Requirements"), and, except as otherwise disclosed on Section 2.1(f)(iv)
of the Disclosure Schedule, no notices of violation of any Legal Requirements
have been issued by any governmental authority with respect to any Company
Property, including all building, fire, health, zoning, setback, subdivision and
environmental laws, regulations or ordinances. Without limiting the foregoing,
each Company Property is in good operating condition and repair and no condition
exists which would interfere with the Company's customary use and operation
thereof. The use of the buildings and structures located on each Company
Property or any appurtenances or equipment does not violate any restrictive
covenants or encroach on any property owned by others. No condemnation
proceeding is pending or, to the knowledge of the Sellers, threatened which
would preclude or impair the use of any Company Property by the Company for the
uses for which they are intended.
8
<PAGE> 13
(v) Section 2.1(f)(v) of the Disclosure Schedule lists
each permit necessary or useful for the Company to own, lease or use any Company
Property as presently used by the Company. Each such permit was duly issued and
obtained, currently is in full force and effect, and, unless the Company
violates the terms of such permit after the Closing, shall remain in full force
and effect for the term therefor. No default or violation, or event which with
the passage of time or giving of notice or both would become a default or
violation, has occurred in the due observance of any permit.
(vi) Except as set forth in Section 2.1(f)(vi) of the
Disclosure Schedule, no part of any Company Property is subject to any building
or use restrictions that would restrict or prevent in any material respect the
present use and operation of such Company Property, and each Company Property is
properly and duly zoned for its current use, and such current use is in all
respects a conforming use. No governmental authority having jurisdiction over
any Company Property has issued or, to the knowledge of the Sellers, has
threatened to issue any notice or order that adversely affects the use or
operation of any Company Property, or requires, as of the date hereof or a
specified date in the future, any repairs, alterations, additions or
improvements thereto, or the payment or dedication of any money, fee, exaction
or property. The Sellers have no knowledge of any actual or pending imposition
of any assessments for public improvements with respect to any Company Property
and, to the knowledge of the Sellers, no such improvements have been constructed
or planned that would be paid for by means of assessments upon any Company
Property.
(vii) Each Company Property is located on public roads
and streets, and all utility systems required in connection with the use,
occupancy and operation of each Company Property are sufficient for their
present purposes, are fully operational and in working order. Each Company
Property consists of sufficient land, parking areas, sidewalks, driveways and
other improvements to permit the continued use of such Company Property in the
manner and for the purposes to which it is presently devoted.
(viii) None of the Shareholders is a "foreign person"
as defined in Section 1445 of the Internal Revenue Code of 1986.
(ix) Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated by this
Agreement will create a breach of, or constitute a default under, any lease of
the Company. No consent from the lessor or any other person under any lease is
required in connection with the execution or delivery of this Agreement or the
consummation of the transactions contemplated by this Agreement, except for
those listed in Section 2.1(c) of the Disclosure Schedule.
(g) Patents, Trademarks and Similar Rights. The Company owns
or possesses an exclusive license for all patents, trademarks, service marks,
trade names and copyrights, in each case registered or unregistered, inventions,
software (including documentation and object and source code listings),
know-how, trade secrets and other intellectual property rights (collectively,
the "Intellectual Property") used in its business as presently conducted.
Section 2.1(g) of the Disclosure Schedule contains a list of all Intellectual
Property owned and used by
9
<PAGE> 14
the Company (including the Winston Rights) and any Intellectual Property which
is licensed for use by others. No Intellectual Property or product or service
sold or provided by the Company infringes any rights owned or held by any other
person. There is no pending or, to the knowledge of the Sellers, threatened
claim or litigation against the Company contesting its right to use any
Intellectual Property. To the knowledge of the Sellers, no person is infringing
the rights of the Company in any Intellectual Property. In the case of
commercially available "shrink-wrap" software programs (such as Lotus 1-2-3),
neither the Company nor, in connection with the Company's business, any of its
employees has made or is using any unauthorized copies of any such software
programs.
(h) Insurance. Section 2.1(h) of the Disclosure Schedule
contains a true and complete list of all policies of casualty, liability, theft,
fidelity, life and other forms of insurance currently held by the Company. True
and complete copies of such policies have been delivered to the Purchaser. All
insurance policies are in the name of the Company, outstanding and in full force
and effect, all premiums with respect to such policies are currently paid and
such policies will not be affected by, or terminated or lapse by reason of, the
transactions contemplated by this Agreement. The Company has not received notice
of cancellation or termination of any such policy, nor has it been denied or had
revoked or rescinded any policy of insurance, nor borrowed against any such
policies. Except as set forth in Section 2.1(h) of the Disclosure Schedule, no
claim under any such policy is pending.
(i) Agreements. (i) Section 2.1(i)(i) of the Disclosure
Schedule contains a true and complete list of all written or oral contracts,
agreements and other instruments to which the Company is a party (A) relating to
indebtedness for money borrowed or capital leases, (B) of duration of six months
or more from the date hereof and not cancelable without penalty on 30 days or
less notice, (C) relating to commitments in excess of $10,000, (D) relating to
the employment or compensation of any director, officer, employee, consultant or
other agent of the Company, (E) relating to the sale or other disposition of any
assets, properties or rights, (F) relating to the lease or similar arrangement
of any machinery, equipment, motor vehicles, furniture, fixture or similar
property, (G) between the Company and any Seller or affiliate of any Seller, (H)
that restricts the operation of the Company anywhere in the world or (I) that is
otherwise material to the Company or entered into other than in the ordinary
course of business. Except as set forth in Section 2.1(i)(i) of the Disclosure
Schedule, the Company is not in default under any such agreement or instrument
where such default could, singly or in the aggregate with defaults under other
agreements or instruments, have a material adverse effect on the Company's
condition (financial or otherwise), assets, liabilities, operations, business or
prospects and, to the knowledge of the Sellers, all such agreements or
instruments are in full force and effect.
(ii) Except as set forth in Section 2.1(i)(ii) of the
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated by this Agreement will create
a breach of, or constitute a default under, any Agreement required to be listed
in Section 2.1(i)(i) of the Disclosure Schedule. The Company has delivered to
the Purchaser true and complete copies of all documents described in Section
2.1(i)(i) of the Disclosure Schedule.
10
<PAGE> 15
(j) Litigation. Except as set forth in Section 2.1(j) of the
Disclosure Schedule, there have not been for the past 12 months or, in the case
of any such matters for which any potential liability of the Company was not
fully covered by insurance, the past three years, nor are there, any suits,
actions, claims, investigations or legal or administrative or arbitration
proceedings in respect of the Company, pending or, to the knowledge of the
Sellers, threatened, whether at law or in equity, or before or by any Federal,
foreign, state or municipal or other governmental department, commission, board,
bureau, agency or instrumentality. Except as set forth in Schedule 2.1(j) of the
Disclosure Schedule, there have not been for the past three years, nor are there
any judgments, decrees, injunctions or orders of any court, governmental
department, commission, agency, instrumentality or arbitrator against the
Company or any Seller or any of their respective assets or properties.
(k) Compliance; Governmental Authorizations. (i) Except as set
forth in Section 2.1(k) of the Disclosure Schedule, the Company has complied and
is in compliance with all Federal, state, local and foreign laws, ordinances,
regulations, interpretations and orders (including those relating to disposal of
materials, environmental protection and occupational safety and health)
applicable to the Company or its business. Except as set forth in Section 2.1(k)
of the Disclosure Schedule, there are no present or past conditions relating to
the Company, or relating to any Company Property or any appurtenances thereto or
improvements thereon, that could lead to any material liability against, or have
a material adverse effect on, the Company, for violation of any applicable
health or safety laws. Except as set forth in Section 2.1(k) of the Disclosure
Schedule, the Company has not violated (other than such violations that have
been fully cured or remedied and pursuant to which the Company has no liability
(contingent or otherwise)), nor is the Company in violation of, any requirements
of any Federal, state, county or local laws, ordinances, regulations,
interpretations and orders relating to disposal of materials or the discharge of
chemicals, gases or other substances or Hazardous Materials (as defined below)
into the environment or to the safety or protection of the environment (the
"Environmental Laws") in connection with the conduct of its business or in
connection with the use, maintenance or operation of any Company Property.
Except as set forth in Section 2.1(k) of the Disclosure Schedule, there are no
present or past conditions relating to the Company or relating to any Company
Property, nor are there any present or past conditions relating to any real
property previously owned, leased or operated by the Company or any of its
present or past affiliates, that in any such case could lead to any liability of
the Company under any Environmental Law. Except as set forth in Section 2.1(k)
of the Disclosure Schedule, the Company has neither engaged in nor permitted the
sale or dispensation (to customers, employees or other persons), handling,
transportation, discharge, emission, treatment, storage or disposal of gasoline
or other motor vehicle fuels at or under any Company Property or any property or
facility previously owned, leased or operated by the Company or one of its past
or present affiliates. Except as set forth in Section 2.1(k) of the Disclosure
Schedule, the Company has operated each Company Property and has received,
handled, used, stored, treated, shipped and disposed of all hazardous or toxic
materials, substances and wastes (whether or not on its properties or properties
owned or operated by others) in compliance with all applicable Environmental
Laws (other than such instances of non-compliance that have been fully cured or
remedied and pursuant to which the Company has no liability (contingent or
otherwise)). "Hazardous Materials" means (A) any "hazardous substance" as
defined by the Comprehensive
11
<PAGE> 16
Environmental Response, Compensation and Liability Act of 1980, as amended; (B)
any "hazardous waste" or "petroleum," as defined by the Resource Conservation
and Recovery Act, as amended; (C) any petroleum product; (D) any pollutant or
contaminant or hazardous, dangerous or toxic chemical, material or substance
within the meaning of any other Environmental Law, as amended or hereafter
amended; or (E) any radioactive material, including any source, special nuclear
or by-product material as defined at 42 U.S.C. Section 2011 et seq., as amended
or hereafter amended.
(ii) The Company has all Federal, state, local and
foreign governmental licenses and permits necessary to conduct its business as
presently being conducted, which licenses and permits (and any exceptions
thereto) are listed in Section 2.1(k) of the Disclosure Schedule. Such licenses
and permits are in full force and effect, no violations are or have been
recorded in respect of any thereof (other than such violations that have been
fully cured or remedied), no proceeding is pending or, to the knowledge of the
Sellers, threatened, to revoke or limit any thereof, and the Sellers do not know
of any basis for any such proceeding and the consummation of the transactions
contemplated in this Agreement will not result in the non-renewal, revocation or
termination of any such license or permit. The Company validly holds all permits
required under all applicable Environmental Laws.
(l) Labor Relations; Employees. (i) Except as set forth in
Section 2.1(l)(i) of the Disclosure Schedule, (A) there is no labor strike,
dispute, slowdown, stoppage or lockout pending, affecting, or, to the knowledge
of any Seller, threatened against the Company, and during the last five years
there has not been any such action and there are no existing or prior facts,
circumstances or conditions that may lead to such an action; (B) there are no
union claims to represent the employees of the Company nor have there been any
such claims within the last five years; (C) there is no written or oral
contract, commitment, agreement, understanding or other arrangement with any
labor organization, nor work rules or practices agreed to with any labor
organization or employee association, applicable to employees of the Company,
nor is the Company a party to or bound by any collective bargaining or similar
agreement; (D) there is, and within the last five years has been, no
representation of the employees of the Company by any labor organization and, to
the knowledge of the Sellers, there are no union organizing activities among the
employees of the Company, nor does any question concerning representation exist
concerning such employees; (E) Schedule 2.1(l) sets forth all personnel
policies, rules or procedures (whether written or oral) applicable to employees
of the Company, and the Sellers have delivered to the Purchaser complete and
accurate copies of all such written policies, rules or procedures plus summaries
of all oral policies, rules or procedures; (F) the Company has not engaged in
any unfair labor practices as defined in the National Labor Relations Act or
other applicable law, ordinance, regulation, interpretation or order and the
Company is, and has for the past five years been, in compliance with all
applicable laws, ordinances, regulations, interpretations or orders respecting
employment and employment practices, terms and conditions of employment, wages,
hours of work and occupational safety and health; (G) there is no unfair labor
practice charge or complaint against the Company (or against any Seller with
respect to the Company) pending or, to the knowledge of any Seller, threatened
before the National Labor Relations Board or any similar state or foreign agency
and there are no existing or prior facts, circumstances or conditions that could
form the basis therefor; (H) there is no grievance pending
12
<PAGE> 17
or, to the knowledge of any Seller, threatened against the Company arising out
of any collective bargaining agreement or other grievance procedure and there
are no existing or prior facts, circumstances or conditions that could form the
basis therefor; (I) there are no charges with respect to or relating to the
Company pending or, to the knowledge of any Seller, threatened before the Equal
Employment Opportunity Commission or any other governmental entity responsible
for the prevention of unlawful employment practices and there are no existing or
prior facts, circumstances or conditions that could form the basis therefor; (J)
neither the Company nor any Seller has received notice of the intent of any
governmental entity responsible for the enforcement of labor or employment laws
to conduct an investigation with respect to or relating to the Company and no
such investigation is in progress; and (K) no complaints, lawsuits or other
proceedings are pending or, to the knowledge of any Seller, threatened in any
forum by or on behalf of any present or former employee of the Company, any
applicant for employment or classes of the foregoing alleging breach of any
express or implied contract, commitment, agreement, understanding or other
arrangement for employment, any law governing employment or the termination
thereof or other discriminatory, wrongful or tortious conduct in connection with
any employment relationship.
(ii) Section 2.1(l)(ii) of the Disclosure Schedule
contains a list of each pension, retirement, savings, deferred compensation, and
profit-sharing plan and each stock option, stock appreciation, stock purchase,
performance share, bonus or other incentive plan, severance plan, health, group
insurance or other welfare plan, or other similar plan and any "employee benefit
plan" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA"), under which the Company has any current or
future obligation or liability or under which any employee or former employee
(or beneficiary of any employee or former employee) of the Company has or may
have any current or future right to benefits (the term "plan" shall include any
contract, agreement, policy or understanding, each such plan being hereinafter
referred to individually as a "Plan"). The Company has delivered to the
Purchaser true and complete copies of (A) each Plan, (B) the summary plan
description for each Plan and (C) the latest annual report, if any, which has
been filed with the IRS for each Plan. Each Plan intended to be tax qualified
under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986 (the
"Code") has been determined by the IRS to be tax qualified under Sections 401(a)
and 501(a) of the Code and, since such determination, no amendment to or failure
to amend any such Plan adversely affects its tax qualified status. There has
been no prohibited transaction within the meaning of Section 4975 of the Code
and Section 406 of Title I of ERISA with respect to any Plan.
(iii) No Plan is subject to the provisions of Section
412 of the Code or Part 3 of Subtitle B of Title I of ERISA. No Plan is subject
to Title IV of ERISA. During the past five years, neither the Company nor any
business or entity then controlling, controlled by, or under common control with
the Company contributed to or was obliged to contribute to an employee pension
plan that was subject to Title IV of ERISA.
(iv) There are no actions, claims, lawsuits or
arbitrations (other than routine claims for benefits) pending, or, to the
knowledge of the Sellers, threatened, with respect to any Plan or the assets of
any Plan, and no Seller has knowledge of any facts which could give
13
<PAGE> 18
rise to any such actions, claims, lawsuits or arbitrations (other than routine
claims for benefits). Except as provided in Section 2.1(l)(iv), the Company has
satisfied all funding, compliance and reporting requirements for all Plans. With
respect to each Plan, the Company has paid all contributions (including employee
salary reduction contributions) and all insurance premiums that have become due
and any such expense accrued but not yet due has been properly reflected in the
financial information in Section 2.1(d) of the Disclosure Schedule.
(v) No Plan provides or is required to provide, now or
in the future, health, medical, dental, accident, disability, death or survivor
benefits to or in respect of any person beyond termination of employment, except
to the extent required under any state insurance law or under Part 6 of Subtitle
B of Title I of ERISA and under Section 4980(B) of the Code. No Plan covers any
individual other than employees of the Company, other than dependents of
employees under health and child care policies listed in Section 2.1(l)(ii) of
the Disclosure Schedule, true and complete copies of which have been delivered
to the Purchaser.
(vi) Except as set forth in Section 2.1(l)(vi) of the
Disclosure Schedule, the consummation of the transactions contemplated by this
Agreement will not (A) entitle any employee of the Company to severance pay or
termination benefits, (B) accelerate the time of payment or vesting, or increase
the amount of compensation due to any such employee or former employee or (C)
obligate the Purchaser or the Company, or any of their respective affiliates, to
pay or otherwise be liable for any compensation, vacation days, pension
contribution or other benefits to any employee, consultant or agent of the
Company for periods before the Closing Date or for personnel whom the Purchaser
does not employ.
(vii) The Company has not made any representations or
warranties (whether written or oral, express or implied) contractually or
otherwise to any client or customer of the Company that the Company employees
rendering services to such client or customer are not "leased employees" (within
the meaning of Section 414(n) of the Code) or that such employees would not be
required to participate under any pension benefit plan (within the meaning of
Section 3(2) of ERISA) (a "Pension Benefit Plan") of such client or customer
relating either to (A) providing benefits to employees of the Company under a
Pension Benefit Plan of the Company or (B) making contributions to or
reimbursing such client or customer for any contributions made to a Pension
Benefit Plan of such client or customer on behalf of employees of the Company.
(m) Related Party Transactions. Except as set forth in Section
2.1(m) of the Disclosure Schedule, no current or former partner, director,
officer, employee or shareholder of the Company or any associate or affiliate
(as defined in the rules promulgated under the Securities Exchange Act of 1934)
thereof, or any relative with a relationship of not more remote than first
cousin of any of the foregoing, is presently, or during the 12-month period
ending on the date hereof has been, (i) a party to any transaction with the
Company (including any contract, agreement or other arrangement providing for
the furnishing of services by, or rental of real or personal property from, or
otherwise requiring payments to, any such director, officer, employee or
shareholder or such associate) or (ii) to the knowledge of the Sellers, the
direct or indirect owner of an interest in any corporation, firm, association or
business organization which is a
14
<PAGE> 19
present (or potential) competitor, supplier or customer of the Company, nor does
any such person receive income from any source other than the Company which
relates to the Company's businesses or should properly accrue to the Company.
(n) Taxes. (i) The Company is a "small business corporation"
and has maintained a valid election to be an "S" corporation under Subchapter S
of the Code, and the equivalent provisions of all applicable state income tax
statutes since October 1, 1987. Except as set forth in Section 2.1(n) of the
Disclosure Schedule, all Federal, state, local and foreign tax returns and tax
reports that are due for periods ending on or prior to the Closing Date by the
Company have been filed or a valid request for extension has been filed with
respect thereto, on a timely basis (including any extensions) with the
appropriate governmental agencies in all jurisdictions in which such returns and
reports are required to be filed. All such returns and reports are and will be
true, correct and complete. Except as set forth in Section 2.1(n) of the
Disclosure Schedule, all Federal, state, local and foreign income, profits,
franchise, sales, use, occupation, property, excise, employment and other taxes
(including interest, penalties and withholdings of tax) due from and payable by
the Company on or prior to the Closing Date have been fully paid on a timely
basis. Except as set forth in Section 2.1(n) of the Disclosure Schedule, the
Company is not currently the beneficiary of any extension of time within which
to file any tax return.
(ii) To the Sellers' knowledge, no written claim has
ever been made by an authority in a jurisdiction where the Company does not file
tax returns that it is or may be subject to taxation by that jurisdiction, and
the Company has not received any notice, or request for information from any
such authority.
(iii) Except as set forth in Section 2.1(n) of the
Disclosure Schedule, no issues have been raised in writing with the Company by
the Internal Revenue Service (the "IRS") or any other taxing authority in
connection with any tax return or report filed by the Company and there are no
issues which, either individually or in the aggregate, could result in any
liability for tax obligations of the Company relating to periods ending on or
before September 30, 1996 in excess of the accrued liability for taxes shown on
the combined financial statements contained in Section 2.1(d) of the Disclosure
Schedule. No waivers of statutes of limitations have been given or requested in
writing with respect to the Company.
(iv) The Company neither is nor has been a United
States real property holding company (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(ii) of the
Code.
(v) The Company has complied (and until the Closing
will comply) with all applicable laws relating to the payment and withholding of
taxes (including withholding and reporting requirements under Section 1441
through 1464, 3401 through 3406, 6041 and 6049 of the Code and similar
provisions under any other laws) and, within the time and in the manner
prescribed by law, has withheld from wages, fees and other payments and paid
over to the proper governmental or regulatory authorities all amounts required.
15
<PAGE> 20
(o) Disclosure. To the knowledge of the Sellers, there have
been no events, transactions or information relating to the Company which,
singly or in the aggregate, could reasonably be expected to have a material
adverse effect on the condition (financial or other), assets, liabilities,
operations, business or prospects of the Company. No representation or warranty
of the Sellers contained in this Agreement, and no statement contained in any
certificate, schedule, annex, list or other writing furnished to the Purchaser,
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statement contained herein or therein, in light of
the circumstances under which they were made, not misleading.
(p) Bank Accounts; Powers-of-Attorney. Section 2.1(p) of the
Disclosure Schedule contains a true and complete list of (A) all bank accounts
and safe deposit boxes of the Company and all persons who are signatories
thereunder or who have access thereto and (B) the names of all persons holding
general or special powers-of-attorney from the Company and a summary of the
terms thereof.
(q) Inventory. The inventory included in the financial
statements contained in Section 2.1(d) of the Disclosure Schedule is the only
inventory used or held for use in the Company's business, is valued for
financial statement purposes at the lower of cost or market in aggregate using
the last in, first out method value. Such inventory, net of applicable reserves,
is useable and salable in the ordinary course of business.
(r) Brokers. Except as set forth in Section 2.1(r) of the
Disclosure Schedule, no agent, broker, investment banker, person or firm acting
on behalf of the Company or under the authority of the Company is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
directly or indirectly from any of the parties hereto in connection with any of
the transactions contemplated hereby.
SECTION 2.2. Representations and Warranties of the Sellers
Individually. Each Seller severally represents and warrants to the Purchaser as
follows:
(a) Authority; Binding Agreements; Title to Shares. (i) Such
Seller has the legal power and capacity to enter into this Agreement and the
Escrow Agreement, and to consummate the transactions contemplated hereby and
thereby. This Agreement has been duly executed and delivered by such Seller, and
constitutes the valid and binding obligation of such Seller, enforceable against
such Seller in accordance with its terms. The Escrow Agreement when executed and
delivered by such Seller will constitute the valid and binding obligation of
such Seller, enforceable against such Seller in accordance with its terms.
(ii) The record and beneficial ownership of the Shares
being sold by such Seller under this Agreement and the number of such Shares are
as set forth opposite such Sellers' name on Annex A, and such Seller has, and
will transfer or cause to be transferred to the Purchaser at the Closing, good
and marketable title to such number of Shares, free and clear of all Claims, and
with no restriction on the voting rights or other incidents of record and
beneficial ownership.
16
<PAGE> 21
(b) Conflicts; Consents. The execution and delivery by such
Seller of this Agreement and the Escrow Agreement, the consummation of the
transactions contemplated hereby and thereby and compliance by such Seller with
any of the provisions hereof and thereof does not and will not (i) conflict with
or result in a breach of the constitutive documents, if any, of such Seller,
(ii) conflict with or result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the provisions of any
note, bond, lease, mortgage, indenture, or any license, franchise, permit,
agreement or other instrument or obligation to which such Seller is a party, or
by which such Seller or any of such Seller's properties or assets may be bound
or affected, except for such conflicts, breaches or defaults as to which
requisite waivers or consents have been, or before the Closing will be, obtained
(which waivers or consents are set forth in Section 2.2(b) of the Disclosure
Schedule), (iii) violate any law, statute, rule or regulation or order, writ,
injunction or decree applicable to such Seller or any of such Seller's
properties or assets or (iv) result in the creation or imposition of any Claim
upon any of such Seller's Shares. No consent or approval by, or notification of
or filing with, any person is required in connection with the execution,
delivery and performance by such Seller of this Agreement and the Escrow
Agreement and the consummation of the transactions contemplated hereby and
thereby, except for the filing of a premerger notification and report form by
the Sellers under the Hart-Scott- Rodino Improvements Act of 1976, as amended,
and the rules and regulations thereunder (the "HSR Act").
(c) Brokers. Except as set forth in Section 2.2(c) of the
Disclosure Schedule, no agent, broker, investment banker, person or firm acting
on behalf of such Seller or under the authority of such Seller is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
directly or indirectly from any of the parties hereto in connection with any of
the transactions contemplated hereby.
(d) Pending Challenges. There is no legal or regulatory
proceeding pending or, to the knowledge of such Seller, threatened that could
have a material adverse effect on such Seller's ability to consummate the
transactions contemplated by this Agreement and the Escrow Agreement.
SECTION 2.3. Representations and Warranties by the Purchaser.
The Purchaser represents and warrants to the Sellers as follows:
(a) Organization and Standing. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of North Carolina.
(b) Authority; Binding Agreements. The Purchaser has all
requisite corporate power and authority to enter into this Agreement and the
Escrow Agreement and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Escrow Agreement
and the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary corporate action on the part
of the Purchaser. This Agreement has been duly executed and delivered by the
Purchaser, and constitutes the valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms. The Escrow
Agreement when executed and delivered by the
17
<PAGE> 22
Purchaser will constitute the valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms.
(c) Conflicts; Consents. The execution and delivery by the
Purchaser of this Agreement and the Escrow Agreement, the consummation of the
transactions contemplated hereby and thereby and compliance by the Purchaser
with any of the provisions hereof and thereof does not and will not (i) conflict
with or result in a breach of the articles of incorporation, by-laws or other
constitutive documents of the Purchaser, (ii) conflict with or result in a
default (or give rise to any right of termination, cancellation or acceleration)
under any of the provisions of any note, bond, lease, mortgage, indenture, or
any license, franchise, permit, agreement or other instrument or obligation to
which the Purchaser is a party, or by which the Purchaser or any of the
Purchaser's properties or assets may be bound or affected, except for such
conflicts, breaches or defaults as to which requisite waivers or consents have
been, or before the Closing will be, obtained, (iii) violate any law, statute,
rule or regulation or order, writ, injunction or decree applicable to the
Purchaser or any of the Purchaser's properties or assets or (iv) result in the
creation or imposition of any Claim upon any of the Purchaser's properties or
assets. No consent or approval by, or notification of or filing with, any person
is required in connection with the execution, delivery and performance by the
Purchaser of this Agreement and the Escrow Agreement and the consummation of the
transactions contemplated hereby and thereby, except for the filing of a
premerger notification and report form by the Purchaser under the HSR Act.
(d) Investment Representation. The Purchaser is acquiring the
Shares for its own account and not with a view to distribution within the
meaning of the applicable Federal securities laws.
(e) Pending Challenges. There is no legal or regulatory
proceeding pending or, to the knowledge of the Purchaser, threatened that could
have a material adverse effect on the Purchaser's ability to consummate the
transactions contemplated by this Agreement and the Escrow Agreement.
(f) Broker. Other than T&Co. (the fees and expenses of which
shall be paid by the Purchaser), no agent, broker, investment banker, person or
firm acting on behalf of the Purchaser or under the authority of the Purchaser
is or will be entitled to any broker's or finder's fee or any other commission
or similar fee directly or indirectly from any of the parties hereto in
connection with any of the transactions contemplated hereby.
ARTICLE III
ADDITIONAL AGREEMENTS
SECTION 3.1. Expenses. (a) The Purchaser, on the one hand, and
the Sellers and the Company, on the other hand, shall each bear their respective
costs incurred in the pursuit of the transactions contemplated by this
Agreement, including the fees and expenses of their respective lawyers,
financial advisors and accountants ("Transaction Costs"). The Company shall bear
any Transaction Costs incurred by the Sellers and, except as expressly set forth
in this Agreement, neither the Purchaser nor the Company shall have any recourse
against the Sellers
18
<PAGE> 23
with respect to such costs either before or after the Closing. After the
Closing, the Purchaser agrees to pay, or cause the Company to pay, the
Transaction Costs of the Sellers and the Company that have not been paid by the
Company prior to the Closing. The Sellers acknowledge and agree that Section
3.1(a) of the Disclosure Schedule sets forth the Sellers' good faith estimate of
the Transaction Costs that have been or will be incurred by the Sellers and the
Company.
(b) Notwithstanding anything to the contrary set forth in
Section 3.1(a), the Purchaser shall reimburse the Sellers and the Company for
their respective Transaction Costs up to an aggregate maximum of $300,000 if (i)
the Closing does not occur on or prior to the close of business on May 31, 1997
for any reason in the control of the Purchaser (including the failure to satisfy
the condition set forth in Section 4.1(h)) and this Agreement is terminated
pursuant to Section 6.2 and (ii) (A) neither the Sellers nor the Company have
materially misrepresented the Company's financial condition, business or
operations as of the date of this Agreement through the written financial and
other information presented to the Purchaser on or before the date of this
Agreement, (B) the Company has operated its business in the ordinary course
between the date of this Agreement and the date of termination of this Agreement
and (C) no event or condition has occurred after the date of this Agreement
which has a material adverse effect on the Company's financial condition,
business or operations.
(c) Notwithstanding anything to the contrary set forth in
Section 3.1(a), in the event that (i) the Closing does not occur on or prior to
the close of business on May 31, 1997 for any reason in the control of the
Company or the Sellers not precipitated by the Purchaser and (ii) prior to
September 30, 1997, either the Company or the Sellers enter into a letter of
intent or other agreement relating to the acquisition of more than 50% of the
equity of, or all or substantially all of the assets of, the Company,
immediately upon the closing of such transaction, the Sellers shall cause the
Company to reimburse the Purchaser for (A) the Purchaser's Transaction Costs up
to a maximum of $300,000 and (B) any amounts paid by the Purchaser to the
Company or the Sellers pursuant to Section 3.1(b).
SECTION 3.2. Conduct of Business. (a) From the date of this
Agreement until the Closing Date, except as otherwise consented to by the
Purchaser in writing or as described in Section 3.2(a) of the Disclosure
Schedule, the Sellers shall cause the Company to operate its business only in
the ordinary course of business consistent with past practice.
(b) Without limiting the generality of the foregoing, the
Sellers shall use their best efforts to prohibit the Company, without the prior
written consent of the Purchaser, directly or indirectly, to cause or permit any
state of affairs, action or omission described in clauses (i) through (xv) of
Section 2.1(e).
(c) From the date of this Agreement until the Closing Date,
the Sellers shall cause the Company to refrain from incurring any additional
indebtedness (other than in the ordinary course of business consistent with past
practice).
19
<PAGE> 24
(d) From the date of this Agreement until the Closing Date,
the Sellers shall cause the Company to refrain from making any commitment for
capital expenditures or additions to property, plant or equipment of the Company
individually in excess of $25,000.
(e) If, after the date of this Agreement and prior to the
Closing Date, any of the information or disclosures set forth on the Disclosure
Schedule shall have become outdated or incorrect, or facts, circumstances or
occurrences requiring disclosure shall have arisen, the Sellers shall make, or
cause to be made, in writing such additions, updates or corrections to the
Disclosure Schedule as may be necessary to augment, update or correct the
Disclosure Schedule. The Purchaser may elect not to close the transactions
contemplated by this Agreement based upon the underlying facts, circumstances or
occurrences described in such additions, updates or corrections. If the
Purchaser so elects not to close, the parties shall have no further rights or
obligations under this Agreement, except the parties' rights and obligations
under Sections 3.1, 3.7(a) and 3.9; provided that, notwithstanding the
foregoing, if such underlying facts, circumstances or occurrences were within
the control of the Sellers or the Company and, in instances not involving a
violation of Section 3.5, result in a material adverse change to the Company,
the Sellers shall be liable to the Purchaser only for its Transaction Costs,
except in the instance of a violation of Section 3.5, in which event the Sellers
shall be liable to the Purchaser for its actual damages. If, notwithstanding
such additions, updates or corrections, the Purchaser elects to close the
transactions contemplated by this Agreement, the representations and warranties
of the Sellers set forth in this Agreement shall be deemed made for all purposes
of this Agreement with reference to such augmented, updated or corrected
Disclosure Schedules. The phrase "facts, circumstances or occurrences . . .
within the control of . . . the Company," as opposed to the phrase "within the
control of the Sellers," for the purposes of this Agreement, means facts,
circumstances or occurrences resulting from a corporate officer of the Company
knowingly violating the provisions of Sections 3.2(a), 3.2(b), 3.2(c), 3.2(d),
3.3, 3.4, 3.5, 3.6, 3.7(a)(i) and 3.9. Promptly after the date of this
Agreement, the Sellers shall cause the corporate officers of the Company to be
informed of such provisions. Notwithstanding the foregoing, if the adverse
facts, circumstances or occurrences, if any, set forth in such additions,
updates or corrections are remedied by the Sellers prior to the Closing, the
Purchaser shall not have the right to elect not to close pursuant to this
paragraph (d), provided that, if such adverse facts, circumstances or
occurrences do not result in a material adverse change to the Company but were
within the control of the Sellers or the Company, as herein defined, the Sellers
shall prior to the Closing remedy such adverse facts, circumstances or
occurrences to the extent that they do not exceed, individually or collectively,
the sum of $50,000, or if they can not be remedied by the payment of money, the
Sellers shall use their best efforts to remedy the same.
(f) The Purchaser agrees that the reserves established by the
Company and reflected on the Company's audited balance sheet at September 30,
1996 contained in Section 2.1(d) of the Disclosure Schedule are adequate, and
that the methodology used in determining such reserves is consistent with
generally accepted accounting principles.
SECTION 3.3. Reasonable Efforts; Further Assurances. The
Purchaser and the Sellers each agree to use all commercially reasonable efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and
20
<PAGE> 25
regulations, to consummate and make effective the transactions contemplated by
this Agreement as expeditiously as practicable and to ensure that the conditions
set forth in Article IV are satisfied, insofar as such matters are within the
control of any of them. Without limiting the generality of the foregoing, the
Purchaser and the Sellers each agree to use their reasonable best efforts to
make or cause to be made, within three business days of the date of this
Agreement, the filings required of such party under the HSR Act with respect to
the transactions contemplated by this Agreement. If requested by the Sellers,
the Purchaser shall deliver to the appropriate authorities on behalf of the
Sellers the Sellers' filings required under the HSR Act at the same time the
Purchaser delivers its filings under the HSR Act to such authorities. If
requested by the Purchaser, the Sellers shall cause the Company to use its
reasonable best efforts to obtain, before the Closing, requisite waivers or
consents to the conflicts, breaches or defaults listed in Section 2.1(c) of the
Disclosure Schedule. In case at any time after the Closing Date, any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the parties to this Agreement shall take or cause to be taken all such
necessary action, including the execution and delivery of such further
instruments and documents, as may be reasonably requested by any party for such
purposes or otherwise to complete or perfect the transactions contemplated by
this Agreement.
SECTION 3.4. Winston Rights. At or prior to the Closing, the
Sellers shall cause the Company to acquire from Demetra M. Winston and William
S. Johnstone, Jr., Trustee of the Sam M. Winston and Demetra M. Winston
Community Property Trust dated January 8, 1990 good and marketable title to the
Winston Rights, free and clear of all Claims, for a purchase price of $379,000
(the "Winston Purchase Price"). At the Closing, on behalf of the Company in
connection with the Company's acquisition of the Winston Rights, the Purchaser
shall pay the Winston Purchase Price to Demetra M. Winston and William S.
Johnstone, Jr., Trustee of the Sam M. Winston and Demetra M. Winston Community
Property Trust dated January 8, 1990.
SECTION 3.5. No Shopping. From the date of this Agreement
until the earlier of (i) the Closing Date and (ii) the date this Agreement is
terminated in accordance with Section 6.2, no Seller shall, and no Seller shall
permit the Company or any partner, director, officer or agent of the Company or
such Seller to, directly or indirectly, solicit or initiate, enter into or
conduct, discussions concerning, or exchange information (including by way of
furnishing information concerning the Company or its business) or enter into any
negotiations concerning, or solicit, entertain or agree to any proposals for,
the acquisition of the assets of, or any substantial part thereof, or a merger
involving, the Company or the transfer of all or a substantial part of the
capital stock of the Company to any person other than the Purchaser or one of
its affiliates. In addition, during such time period, no Seller shall authorize,
direct or knowingly permit any employee or agent of the Company or such Seller
to do any of the foregoing and the Sellers shall notify the Purchaser of the
identity of any person who approaches any Seller or the Company with respect to
any of the foregoing.
SECTION 3.6. Access and Information. From the date of this
Agreement until the first to occur (i) of the Closing Date and (ii) the
termination of this Agreement in accordance with Section 6.2, the Sellers shall
cause the Company to permit the Purchaser, its financing parties and their
respective representatives to make such investigation of the business,
operations and properties of the Company as the Purchaser deems necessary or
desirable in connection with the
21
<PAGE> 26
transactions contemplated by this Agreement. Such investigation shall include
reasonable access to the respective directors, officers, employees, agents and
representatives (including legal counsel and independent accountants) of the
Company and the properties, books, records and commitments of the Company.
Sellers shall furnish the Purchaser and its representatives with such financial,
operating and other data and information, and copies of documents with respect
to the Company or any of the transactions contemplated by this Agreement, as the
Purchaser shall from time to time request. Such access and investigation shall
be made after prior consultation with William S. Johnstone, Jr. or Thomas J.
Bonburg and upon reasonable notice and at reasonable places and times. The
Purchaser shall obtain the Company's written consent prior to contacting any of
the Company's significant business relationships. The Sellers shall ensure that
such consent shall not be unreasonably withheld. Such access and information
shall not in any way affect or diminish any of the representations or warranties
hereunder. Without limiting the foregoing, during such period, Sellers shall
keep the Purchaser informed as to the business and operations of the Company and
shall consult with the Purchaser as appropriate.
SECTION 3.7. Confidentiality; Non-Competition. (a) (i) Until
Closing, the Purchaser and the Sellers each agree that all financial or other
information about the Purchaser, the Company or any Seller, or other information
of a confidential or proprietary nature, disclosed to the other at any time in
connection with the proposed transaction shall be kept confidential by the party
receiving such information and shall not be disclosed to any person or used by
the receiving party (other than to its agents or employees, or in the case of
the Purchaser, its financing parties, in connection with the transactions
contemplated by this Agreement) except: (1) with the prior written consent of
the disclosing party; (2) as may be required by applicable law or court process;
(3) such information which may have been acquired or obtained by such party
(other than through disclosure by or on behalf of the other party in connection
with the transaction contemplated by this Agreement); or (4) such information
which is or becomes generally available to the public other than as a result of
a violation of this provision. Each Seller shall be bound by the terms of this
subparagraph (a)(i) for a period of five years after Closing.
(ii) Effective upon the Closing and for a period of
five years after the Closing, each Seller agrees that all financial or other
confidential or proprietary information concerning the Company known by such
Seller shall be kept confidential by such Seller and shall not be disclosed to
any person except: (1) as otherwise expressly permitted pursuant to the terms of
this Agreement, (2) with the prior written consent of the Purchaser; (3) as may
be required by applicable law or court process; or (4) such information which is
or becomes generally available to the public other than as a result of a
violation of this provision. Notwithstanding the foregoing, William S.
Johnstone, Jr., in his fiduciary capacity as Trustee of The Sam M. Winston
Separate Property Trust, The Sam M. Winston Life Insurance Trust No. 2 dated May
22, 1987 and The Sam M. Winston Life Insurance Trust No. 3 dated November 12,
1992, may disclose such confidential information as is reasonably necessary to
any court having jurisdiction over the affairs of such trusts in order to obtain
instructions from such court regarding the administration of such trusts, and
shall request that, if possible, such court seal the files so that such
information remains confidential.
(b) Each Seller by this Agreement acknowledges and recognizes
such Seller's possession of confidential or proprietary information and the
highly competitive nature of the
22
<PAGE> 27
business of the Company and accordingly agrees that, in consideration of the
Purchaser entering into this Agreement and the transactions contemplated by this
Agreement and the premises contained herein, such Seller will not, from and
after the date of the Closing for a period of five years after the date of the
Closing, for any reason whatsoever, either individually or as an officer,
director, stockholder, partner, agent or principal of another business firm, (i)
directly or indirectly engage in the United States in any competitive business,
(ii) assist others in engaging in any competitive business in the manner
described in the foregoing clause (i), or (iii) induce any employee of the
Company, the Purchaser, or any affiliate of the Purchaser, to terminate
employment with the Company, the Purchaser or such affiliate, as the case may
be, or hire any employee of the Company, the Purchaser or any other affiliate of
the Purchaser to work with any Seller or any company or business affiliated with
any Seller. The Sellers' ownership of not more than 1% of the outstanding
capital stock of any public corporation shall not in itself be deemed to be
engaging in any competitive business for purposes of this paragraph (b).
(c) In the event of a breach or threatened breach by any party
of the provisions of Section 3.7, the non-breaching party shall be entitled to
an injunction restraining such party from such breach. Nothing contained in this
paragraph (c) or elsewhere in this Agreement shall be construed as prohibiting
the non-breaching party from pursuing any other remedies available at law or
equity for such breach or threatened breach of this Agreement nor limiting the
amount of damages recoverable in the event of a breach or threatened breach by
any party of the provisions of this Section. Without limiting the generality of
the foregoing, the Sellers acknowledge that, in the event of a breach or
threatened breach by any Seller of any of the provisions of paragraph (b) of
Section 3.7, the Purchaser's damages may exceed the amount paid to the Sellers
(singly or in the aggregate) in consideration of their covenants set forth in
such paragraph (b). Notwithstanding anything to the contrary set forth in this
Agreement, nothing contained in this Section 3.7 shall entitle the Purchaser to
seek an injunction or otherwise pursue remedies available at law or in equity
from any Seller in connection with a breach or threatened breach of the
provisions of paragraph (b) of Section 3.7 other than such Seller or Sellers
alleged to have breached or threatened to breach such provisions.
SECTION 3.8. Releases; Prior Compensation. (a) Each Seller
agrees and acknowledges that he has been paid in full for all services rendered
to the Company and has no outstanding claims against the Company or the
Purchaser for any amounts arising because of such employment or otherwise. Each
Seller hereby releases the Company and all of the Company's affiliates from all
rights such Seller may have to acquire any securities of the Company and all
actions, suits, debts, promises, agreements, damages, demands or claims of any
kind whatsoever arising from any event or action prior to the Closing Date that
any Seller had, has or may in the future have against the Company, except for
the matters arising under this Agreement or related to the transactions
contemplated hereby.
(b) After the Closing, the Purchaser will cause the Company to
indemnify and hold harmless the officers and directors of the Company in respect
of acts or omissions of such persons acting in such capacities occurring on or
prior to the Closing to the extent provided under the Company's articles of
incorporation and bylaws in effect on the date hereof; provided that
23
<PAGE> 28
such indemnification shall be subject to any limitations imposed from time to
time under applicable law.
SECTION 3.9. Public Announcements. The Purchaser, on the one
hand, and the Sellers, on the other hand, will consult with each other before
issuing, and provide each other the opportunity to review and comment upon, any
press release or other public statements with respect to the transactions
contemplated by this Agreement, and shall not issue any such press release or
make any such public statement prior to such consultation. Prior to Closing,
neither the Purchaser, on the one hand, nor the Sellers, on the other hand,
shall issue any such press release or make any such public statement without the
other's prior consent, which consent shall not be unreasonably withheld.
SECTION 3.10. Tax Matters. (a) (i) The Purchaser and each
Seller shall join in making timely and irrevocable elections under Section
338(h)(10) of the Code and, if permissible, similar elections under any
applicable state income tax laws, with respect to the Company. In such event,
the Purchaser and each Seller shall report the transaction consistent with such
elections under Section 338(h)(10) of the Code and any applicable state tax
provision (the "Elections") and shall take no position contrary thereto unless
and to the extent required to do so pursuant to a determination (as defined in
Section 1313(a) of the Code or any similar state or local tax provision).
(ii) The Purchaser shall prepare, and the Purchaser
and each Seller shall execute at the Closing any and all forms necessary to
effectuate the Elections (including IRS Form 8023-A and any similar forms under
applicable state income tax laws (the "Section 338 Forms")). The Purchaser and
each Seller shall cause the Section 338 Forms to be duly executed by an
authorized person, and the Purchaser shall duly and timely file the Section 338
Forms in accordance with applicable tax laws and the terms of this Agreement.
(iii) The Purchaser and each Seller agree to allocate
the Aggregate Deemed Sale Price (as defined under applicable Treasury
Regulations) of the assets of the Company as set forth in a schedule that will
be generated with the assistance of Arthur Andersen, Purchaser's accountants, by
the Closing Date, in accordance with the guidelines of the Internal Revenue
Service, which shall reflect an allocation agreed to by the parties. The parties
hereby agree that at least $9.0 million of the Aggregate Deemed Sale Price shall
be allocated to assets with useful lives of no more than three, five or seven
years. The Purchaser and each Seller will reflect such allocation in all
applicable tax returns filed by any of them, including but not limited to the
Section 338 Forms. The Purchaser and each Seller will not take a position before
any taxing authority or otherwise (including in any tax return) inconsistent
with such allocation unless and to the extent required to do so pursuant to a
determination (as defined in Section 1313(a) of the Code or any similar state or
local law).
(b) The Sellers shall be responsible for all transfer, excise,
stamp, sales, use, recording or similar taxes or fees arising out of the sale,
transfer, conveyance or assignment of the Shares by the Sellers and the
transactions contemplated hereby other than any California state transfer, sales
and use or "S" corporation tax resulting from the Elections, which shall be
borne
24
<PAGE> 29
by or for the account of the Purchaser. The Seller shall make any required
filing under applicable law.
(c) (i) Other than as set forth in Section 3.10(b) or 3.10(g),
the Sellers shall be liable for and shall indemnify the Purchaser and the
Company for taxes of the Company for any taxable years or periods that end on or
before the Closing Date and, with respect to any taxable years or periods
beginning before and ending after the Closing, the portion of such taxable years
ending on and including the Closing Date (except to the extent that any such
taxes (x) have been paid by the Company prior to the Closing Date or (y) are
reflected on the Closing Date Balance Sheet).
(ii) Following the Closing, the Purchaser and the
Company shall be liable for and shall indemnify the Sellers for taxes of the
Company for any taxable years or periods that begins after the Closing Date and,
with respect to any taxable years or periods beginning before and ending after
the Closing, the portion of the taxable years beginning on the day after the
Closing Date.
(iii) For purposes of subparagraphs (c)(i) and (c)(ii)
above, whenever it is necessary to determine the liability for taxes of the
Company for a portion of a taxable year or period that begins before and ends
after the Closing Date, the determination of such taxes for the portion of the
year or period ending on, and the portion of the year or period beginning after,
the Closing Date, shall be determined using the closing of books method
described in Section 1362(e)(1) of the Code.
(d) Any payment by the Purchaser or any Seller under this
Section 3.10 will be treated for tax purposes as an adjustment to the Purchase
Price.
(e) The Sellers shall cause the Company to file when due all
tax returns that are required to be filed by the Company for taxable years or
periods ending on or before the Closing Date, and the Purchaser shall file or
cause to be filed when due all other tax returns that are required to be filed
by or with respect to the Company.
(f) After the Closing Date, the Purchaser and each Seller
shall:
(i) assist in all reasonable respects (and cause
their respective affiliates to assist) the other party in preparing any tax
returns or reports which such other party is responsible for preparing and
filing in accordance with this Section 3.10;
(ii) cooperate in all reasonable respects in
preparing for any audits of, or disputes with taxing authorities regarding, and
tax returns of the Company;
(iii) make available to the other and to any taxing
authority as reasonably requested all information, records and documents
relating to taxes of the Company, except to the extent determined by counsel for
the party involved to be privileged or work product;
25
<PAGE> 30
(iv) provide timely notice to the other in writing of
any pending or threatened tax audit or assessments of the Company for taxable
periods for which the other may have a liability under this Section 3.10; and
(v) furnish the other with copies of all
correspondence received from any taxing authority in connection with any tax
audit or information request with respect to any such taxable period.
(g) Purchaser shall indemnify and hold harmless each Seller
from and against any and all losses arising from or related to any Federal,
state and local tax liabilities (the "Tax Losses") imposed on such Seller that
result from the Elections, and for any interest and penalties accruing on the
Tax Losses and all costs of defending against the imposition of the Tax Losses,
but only to the extent that the Tax Losses (i) exceed the amount by which (A)
losses relating to Federal, state and local taxes incurred by such Seller with
respect to the gain allocated to such Seller on the deemed asset sale by the
Company resulting from the Elections are greater than (B) losses relating to the
Federal, state and local taxes which would have been incurred by such Seller
with respect to the gain recognized upon the sale of the Company by such Seller
if the Elections had not been made and (ii) are not offset by up to $5.75
million of ordinary income deduction at the Company level resulting from the
Bonburg Transfer, which deduction is not disallowed by applicable taxing
authorities. For purposes of calculating the amount of any Tax Losses, it is
assumed that each Seller is subject to the highest Federal, state or local
income tax rate applicable to such Seller or, if the income of such Seller is
taxable to another person, to such other person and that no Seller or such other
person, as the case may be, has any items of income, gain, loss, deduction or
credit other than that resulting from (i) the operations of the Company or (ii)
the transactions contemplated by this Agreement. Any payment made by Purchaser
pursuant to this Section 3.10(g) shall be "grossed-up" to an amount which, after
deduction of any Tax Losses thereon (based on the assumptions set forth in the
preceding sentence), is equal to Tax Losses in respect of which the payment is
made.
(h) (i) The Purchaser shall notify the Sellers in writing upon
receipt by the Purchaser or the Company of notice of any pending or threatened
Federal, state, local or foreign tax audits or assessments which may materially
affect the tax liabilities of the Company for which the Sellers would be
required to indemnify the Purchaser and the Company. The Sellers' Representative
shall have the right to participate in the resolution of any such tax audit or
assessment.
(ii) The Sellers shall notify the Purchaser in
writing upon receipt by any of the Sellers of notice of any pending or
threatened federal, state, local or foreign tax audits or assessments which may
materially affect the tax liabilities of the Company for which the Purchaser and
the Company would be required to indemnify the Sellers. The Purchaser shall have
the right to participate in the resolution of any such tax audit or assessment.
SECTION 3.11. Sellers' Representative. Each Seller appoints
William S. Johnstone, Jr. as Sellers' Representative under this Agreement and
authorizes the Purchaser to rely on the authority of the Sellers' Representative
for all purposes under this Agreement.
26
<PAGE> 31
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1. Conditions to Obligations of the Purchaser. The
obligations of the Purchaser to perform this Agreement are subject to the
satisfaction or waiver of the following conditions unless waived by the
Purchaser:
(a) Authorization. All actions necessary to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated by this Agreement shall have been duly and validly
taken by each of the Sellers and each of the Sellers shall have full power and
authority to enter into and deliver this agreement and to consummate the
transactions contemplated by this Agreement.
(b) Representations and Warranties. The representations and
warranties of the Sellers shall be true and correct as of the date of this
Agreement and as of the Closing Date as if made on and as of the Closing Date,
and the Sellers shall have performed and complied with all covenants and
agreements required to be performed or complied with on or prior to the Closing
Date. As of the Closing Date, there shall have been no material adverse change
in the condition (financial or otherwise), assets, liabilities, operations,
business or prospects of the Company.
(c) Certificates. The Purchaser shall have received a
certificate of the chief executive officer and the chief financial officer of
the Company, in substantially the form of Exhibit A-1, and a certificate of each
Seller, in substantially the form of Exhibit A-2.
(d) Escrow Agreement. Each Seller shall have executed and
delivered to the Purchaser an Escrow Agreement, in substantially the form of
Exhibit B (the "Escrow Agreement").
(e) Opinion of Counsel. The Purchaser shall have received the
opinions dated the Closing Date of Hahn & Hahn, counsel to the Sellers and the
Company, and O'Melveny & Myers, special New York counsel to the Sellers and the
Company, each in form and substance satisfactory to the Purchaser.
(f) Financial Statements. The Purchaser shall have received a
balance sheet of the Company and a related statement of operations and cash
flows for the most recent quarter and month end prior to the Closing Date (the
"Closing Date Financial Statement"), certified by the chief executive officer
and chief financial officer of the Company.
(g) Due Diligence. The Purchaser and its representatives shall
have completed a due diligence review of the condition (financial or otherwise),
assets, liabilities, operations and business of, and any other matters relating
to, the Company and the Sellers, and the results of such due diligence shall be
satisfactory to the Purchaser.
(h) Financing. The Purchaser shall have received adequate
financing to consummate the transactions contemplated by this Agreement, all
on terms satisfactory to the Purchaser.
27
<PAGE> 32
(i) Indebtedness Payoff. The Purchaser shall have received
evidence of the full repayment or satisfaction of outstanding loans from the
Company to related parties (which loans are described in Section 4.1(i) of the
Disclosure Schedule).
(j) Employment Agreements. Each of Thomas J. Bonburg, Dwight
Hansen, Joe Marino, Lauren Smith, Alan Wilson and Randy Hogan shall have duly
executed and delivered to the Purchaser an Employment Agreement, each in form
and substance satisfactory to the Purchaser.
(k) Corporate Directors and Officers. All officers and
directors of the Company shall have tendered their resignations (effective upon
Closing) to the Purchaser.
(l) Share Certificates and Corporation Records. The Purchaser
shall have received certificates representing all of the Shares, together with
stock powers duly endorsed in blank and the Purchaser shall have received the
complete stock ledgers, minute books and similar corporate records of the
Company.
(m) HSR Act. Any applicable waiting period under the HSR Act
relating to the transactions contemplated by this Agreement shall have expired.
(n) Other Documents. The Purchaser shall have received such
other documents, certificates or instruments that are customary for a
transaction of the type described herein as it may reasonably request.
SECTION 4.2. Conditions of Obligations of the Sellers. The
obligations of the Sellers to perform this Agreement are subject to the
satisfaction or waiver of the following conditions:
(a) Authorization. All actions necessary to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated by this Agreement shall have been duly and validly
taken by the Purchaser and the Purchaser shall have full power and authority to
enter into and deliver such agreements and to consummate transactions
contemplated by this Agreement.
(b) Representations and Warranties. The representations and
warranties of the Purchaser contained herein shall be true and correct as of the
date of this Agreement and as of the Closing Date as if made on and as of the
Closing Date, and the Purchaser shall have performed and complied with all
covenants and agreements required to be performed or complied with on or prior
to the Closing Date.
(c) Certificate. The Sellers shall have received a certificate
of the President or a Vice President of the Purchaser confirming the matters set
forth in Section 4.2(b) in form and substance reasonably satisfactory to the
Sellers.
(d) Escrow Agreement. The Purchaser shall have executed and
delivered to the Sellers the Escrow Agreement.
28
<PAGE> 33
(e) HSR Act. Any applicable waiting period under the HSR Act
relating to the transactions contemplated by this Agreement shall have expired.
(f) Other Documents. The Sellers shall have received such
other documents, certificates or instruments that are customary for a
transaction of the type described herein as they may reasonably request.
ARTICLE V
INDEMNITY
SECTION 5.1. Indemnification. (a) The Sellers jointly and
severally indemnify and hold harmless the Purchaser and its affiliates,
directors, officers, employees and other agents and representatives from and
against any and all liabilities, judgments, claims, settlements, losses,
damages, fees, liens, taxes, penalties, obligations and expenses (collectively,
"Losses") incurred or suffered by any such person arising from, by reason of or
in connection with:
(i) any misrepresentation or breach of any
representation, warranty or agreement of the Sellers as a group
contained in this Agreement or any certificate or other document
delivered by the Company or the Sellers as a group under this Agreement
(in the case of the representations and warranties set forth in Section
2.1(d), determined without giving effect to any "in all material
respects" qualification or any other materiality or similar
qualification contained in such representations and warranties);
(ii) the conduct of the business or other operations
of the Company before or on the Closing Date (other than as the same
may have been conducted in the ordinary course or as expressly
permitted by this Agreement) or any condition existing relating to
product or environmental liability prior to the Closing Date; and
(iii) any and all actions, suits, proceedings,
demands, judgments, costs and legal and other expenses incident to any
of the matters referred to in clauses (i) through (iii) of this Section
5.1(a).
(b) Each Seller severally, but not jointly, indemnifies and
holds harmless the Purchaser, and its affiliates, directors, officers, employees
and other agents and representatives from and against any and all Losses
incurred or suffered by any such person arising from, by reason of or in
connection with:
(i) any misrepresentation or breach of any
representation, warranty, covenant or agreement of such Seller
contained in this Agreement or in any certificate or other document
delivered by such Seller hereunder;
(ii) the non-fulfillment by such Seller of any
agreement made by such Seller in this Agreement; and
29
<PAGE> 34
(iii) any and all actions, suits, proceedings,
demands, judgments, costs and legal and other expenses incident to any
of the matters referred to in clauses (i) and (ii) of this Section
5.1(b).
(c) The Purchaser indemnifies and holds harmless the Sellers,
and their respective agents and representatives, from and against any and all
Losses incurred or suffered by any such person arising from, by reason of or in
connection with:
(i) any misrepresentation or breach of any
representation, warranty or agreement of the Purchaser contained in
this Agreement or any certificate or other document delivered by the
Purchaser under this Agreement;
(ii) the non-fulfillment by the Purchaser of any
agreement made by it in this Agreement;
(iii) the conduct of the business or other operations
of the Company after the Closing Date and any product or environmental
liability created after the Closing Date; and
(iv) any and all actions, suits, proceedings,
demands, judgments, costs and legal and other expenses incident to any
of the matters referred to in clauses (i) through (iii) of this Section
5.1(c).
(d) In case any claim or litigation which might give rise to
any obligation of a party under the indemnity and reimbursement provisions of
this Agreement (each an "Indemnifying Party") shall come to the attention of the
party seeking indemnification hereunder (the "Indemnified Party"), the
Indemnified Party shall notify in writing promptly the Indemnifying Party of the
existence, nature and amount of potential loss. Failure to give such notice
shall not prejudice the rights of the Indemnified Party, except to the extent
that the Indemnifying Party shall have been materially prejudiced by such
failure. The Indemnifying Party shall be entitled to participate in and, if (i)
in the judgment of the Indemnified Party such claim can properly be resolved by
money damages alone and the Indemnifying Party has the financial resources to
pay such damages and (ii) the Indemnifying Party admits that this indemnity
fully covers the claim or litigation, the Indemnifying Party shall be entitled
to direct the defense of any claim at its expense, but such defense shall be
conducted by legal counsel reasonably satisfactory to the Indemnified Party. The
Indemnified Party shall cooperate in all reasonable respects with the
Indemnifying Party in the preparation and conduct of any such defense, including
making available (upon reasonable notice and during normal business hours) to
the Indemnifying Party and legal counsel books and records of the Indemnified
Party relevant to such defense. No Indemnifying Party in the defense of any
claim or litigation shall, except with the consent of each Indemnified Party
(which consent shall not be unreasonably withheld), consent to entry of any
judgment or enter into any settlement which (i) contains any equitable order,
judgment or term that affects, restrains or interferes with the business of an
Indemnified Party and (ii) does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect of such claim or litigation. Claims for indemnification
and reimbursement pursuant to the
30
<PAGE> 35
provisions of this Agreement shall be made by a party based upon such party's
good faith judgment.
(e) Any payment made pursuant to this Section 5.1 shall be treated as
an adjustment to the Purchase Price for income tax purposes.
SECTION 5.2. Limitations. (a) The indemnification and
reimbursement obligations hereunder shall expire on the second anniversary of
the Closing Date (the "Expiration Date"), except (i) as to any claims for, or
any claims that may result in, any liability, judgment, claim, settlement, loss,
damage, fee, lien, tax, penalty, obligation or expense for which indemnity may
be sought hereunder of which the Indemnifying Party has received written notice
from the Indemnified Party on or before the Expiration Date or (ii) as to any
representations, warranty or agreement expressly surviving such two year period
as set forth in Section 6.6. On or promptly after the fifth anniversary of the
Closing Date, the Purchaser shall execute and deliver to the Sellers'
Representative an instrument releasing each Seller from any and all liability
that such Seller may have to the Purchaser under this Agreement (other than with
respect to claims surviving such five year period pursuant to the immediately
preceding sentence or Section 6.6). The form of such instrument shall be
reasonably acceptable to the Purchaser and the Sellers and shall be agreed upon
prior to the Closing.
(b) The total indemnification obligations of the Sellers
(other than for claims relating to or arising out of any Company Income Tax (as
defined below), Section 1.4, Section 2.1(b), Section 2.2 or Section 3.7(b)
(collectively, the "Purchaser Excluded Claims")) to the Purchaser pursuant to
this Article V shall not exceed (i) for all Sellers (other than Thomas J.
Bonburg) in the aggregate $5,680,000 and (ii) for each Seller (other than Thomas
J. Bonburg) an amount equal to the product of (x) $5,680,000 and (y) the
quotient obtained by dividing (1) the number of Shares owned by such Seller as
specified on Annex A (assuming that the Bonburg Transfer has occurred) by (2)
146,183.8. Notwithstanding anything to the contrary set forth in this Agreement,
Thomas J. Bonburg in his capacity as a Seller shall have no indemnification
obligations to the Purchaser pursuant to this Article V (other than with respect
to Purchaser Excluded Claims relating to or arising out of Section 2.2 or
Section 3.7(b), which shall not count towards, or be subject to, the limitations
set forth in the immediately preceding sentence or the percentage limitations or
$100,000 deductible set forth in Section 5.2(c), and there shall be no
limitation on such indemnification obligations). Notwithstanding anything to the
contrary set forth in this Agreement, the indemnification obligations of the
Sellers (other than Thomas J. Bonburg) to the Purchaser with respect to
Purchaser Excluded Claims shall not count towards, or be subject to, the
limitations set forth in the first sentence of this paragraph (b) or the
percentage limitations or $100,000 deductible set forth in Section 5.2(c), and
there shall be no limitation on such indemnification obligations. The total
indemnification obligations of the Purchaser (other than for claims relating to
or arising out of Section 2.3 or 3.10(g)) to the Sellers pursuant to this
Article V shall not exceed in the aggregate $8,000,000. For purposes of
calculating the total indemnification obligations of the parties pursuant to
this Article V, (i) legal fees and expenses incurred by an Indemnifying Party in
the defense of an Indemnified Party against a third party claim shall be
included and (ii) costs and expenses incurred or reimbursed by an Indemnifying
Party in connection with the pursuit of insurance or third party indemnification
or contribution claims pursuant to
31
<PAGE> 36
Section 5.2(e) shall be excluded. "Company Income Tax" means any federal or
state income tax liability of the Company, including any interest, penalty or
addition thereto, whether disputed or not, for all periods ending on or prior to
the Closing Date.
(c) The Purchaser shall not be entitled to indemnification
pursuant to this Article V with respect to any claim for indemnification (other
than in connection with Purchaser Excluded Claims), unless the aggregate Loss to
the Purchaser, with respect to all claims for indemnification pursuant to
Section 5.1(a) and (b), exceeds $100,000, in which case the Sellers shall be
obligated, subject to the limitations set forth in paragraph (b) of this Section
5.2, to pay an amount equal to 50% of such Losses in excess of such first
$100,000 of Losses to the extent that the total amount of Losses does not exceed
$2,000,000 and 78% of such Losses to the extent they exceed $2,000,000; provided
that the foregoing limitations shall not apply to any adjustment of the Purchase
Price contemplated by Section 1.4. The Sellers shall not be entitled to
indemnification pursuant to this Article V with respect to any claim for
indemnification (other than claims relating to or arising out of Section
3.10(g)), unless the aggregate Loss to the Sellers, with respect to all claims
for indemnification pursuant to Section 5.1(c), exceeds $100,000, in which case
the Purchaser shall be obligated, subject to the limitations set forth in
paragraph (b) of this Section 5.2, to pay in full the aggregate amount of such
excess.
(d) The amount of any and all Losses for which
indemnification is provided pursuant to this Article V shall be (i) increased to
take account of any net tax cost incurred by the Indemnified Party arising from
the receipt of indemnity payments hereunder ("grossed-up" for taxes on such
increase) and (ii) reduced to take account of any net tax benefit realized by
the Indemnified Party arising from the incurrence or payment of any such Losses.
In computing the amount of any such tax cost or tax benefit, the Indemnified
Party shall be deemed to recognize all other items of income, gain, loss,
deduction or credit before recognizing any item arising from the receipt of any
indemnity payment hereunder or the incurrence or payment of any and all Losses.
(e) The amount of any and all Losses for which indemnification
is provided pursuant to this Article V shall be net of any amounts actually
received by the Indemnified Party under insurance policies with respect to such
Losses. In the event that any claim for indemnification asserted under this
Article V is, or may be, the subject of the Company's or any party's hereto
insurance coverages or other right to indemnification or contribution from any
third party (a "Third Party Contributor"), the Indemnified Party agrees to
promptly notify the applicable insurance carrier of such claim and tender
defense thereof to such carrier, and shall also promptly notify any potential
Third Party Contributor. Each Indemnified Party agrees to pursue, at the sole
cost and expense of the Indemnifying Party, such claims diligently and to
reasonably cooperate, at the sole cost and expense of the Indemnifying Party,
with each such insurance carrier and Third Party Contributor, and to make no
claim for indemnification under this Article V for a period of 180 days after
making a claim for such insurance or contribution. If insurance coverage or
contribution is denied (in whole or in part), or if no resolution of an
insurance or contribution claim shall have occurred within such 180 days, the
Indemnified Party may proceed for indemnification under this Article V, and such
Indemnifying Party shall be subrogated to the rights of the Indemnified Party
against such insurance carrier or Third Party Contributor.
32
<PAGE> 37
(f) The Purchaser shall not be entitled to indemnification
pursuant to this Article V with respect to a claim for indemnification arising
from a condition or an event that is alleged to be a violation of an
Environmental Law if, and only to the extent that, the alleged violation was
initially discovered by, or initially revealed to, the Purchaser as a direct
result of a pro-active, affirmative investigation initiated by, or on behalf of,
the Purchaser for the sole purpose of seeking to discover potential
indemnification claims pursuant to this Article V for violations of
Environmental Laws occurring prior to the Closing. Notwithstanding anything to
the contrary set forth in the immediately preceding sentence, the Purchaser
shall be entitled to such indemnification pursuant to this Article V if the
circumstances giving rise to such indemnification claim arose from or in
connection with any one of the following: (i) a third party claim or a notice,
directive or other communication from a governmental body (federal, state, local
or foreign), (ii) an investigation resulting from a demonstrable event or
occurrence giving rise to a reasonable belief that a potential violation of an
Environmental Law has or had occurred, (iii) an investigation initiated by, or
on behalf of, a party providing financing to the Purchaser or the Company, or
(iv) the conduct of the Purchaser's and the Company's business in the ordinary
course, including the receipt by the Purchaser or the Company of any notices,
communications or information in connection therewith (other than any notices,
communications or information received by the Purchaser or the Company from
consultants hired by the Purchaser or the Company for the sole purpose of
conducting an investigation of the specific type described in the first sentence
of this paragraph (f)).
SECTION 5.3. No Election. Nothing contained in this Article V
shall be deemed an election of remedies under this Agreement or limit in any way
the liability of any party under any other agreement to which such party is a
party relating to this Agreement or the transactions contemplated by this
Agreement.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Entire Agreement. This Agreement and the
schedules and exhibits hereto contain the entire agreement among the parties
with respect to the transactions contemplated by this Agreement and supersede
all prior agreements or understandings among the parties. The Letter of Intent,
dated November 4, 1996, and the Confidentiality Agreement, dated June 15, 1995,
are expressly superseded, void and no longer of any force or effect.
SECTION 6.2. Termination. (a) This Agreement shall terminate
on the earlier to occur of any of the following events:
(i) the mutual written agreement of the Purchaser and
the Sellers' Representative;
(ii) by written notice of the Purchaser or the Sellers'
Representative to the other, if the Closing shall not have
occurred prior to the close of business on May 31, 1997;
33
<PAGE> 38
(iii) if any Seller shall have materially breached any
of its representations, warranties or agreements contained in this Agreement and
such Seller shall have failed to cure such breach within 10 days following
written notification thereof by the Purchaser; or
(iv) if the Purchaser shall have materially breached
any of its representations, warranties or agreements contained in this
Agreement and the Purchaser shall have failed to cure such breach
within 10 days following notification thereof by the Sellers'
Representative.
(b) Nothing in this Section shall relieve any party of any
liability for a breach of this Agreement prior to its termination. Except as
aforesaid, upon the termination of this Agreement, all rights and obligations of
the parties under this Agreement shall terminate, except their obligations under
Sections 3.1, 3.7(a) and 3.9.
SECTION 6.3. Descriptive Headings; Certain Interpretations.
(a) Descriptive headings are for convenience only and shall not control or
affect the meaning or construction of any provision of this Agreement.
(b) Whenever any party makes any representation, warranty or
other statement to such party's knowledge, such party will be deemed to have
made reasonable inquiry into the subject matter of such representation, warranty
or other statement.
(c) Except as otherwise expressly provided in this Agreement,
the following rules of interpretation apply to this Agreement: (i) the singular
includes the plural and the plural includes the singular; (ii) "or" and "any"
are not exclusive and "include" and "including" are not limiting; (iii) a
reference to any agreement or other contract includes permitted supplements and
amendments; (iv) a reference to a law includes any amendment or modification to
such law and any rules or regulations issued thereunder; (v) a reference to a
person includes its permitted successors and assigns; (vi) a reference to
generally accepted accounting principles refers to United States generally
accepted accounting principles; and (vii) a reference in this Agreement to an
Article, Section, Annex, Exhibit or Schedule is to the Article, Section, Annex,
Exhibit or Schedule of this Agreement.
SECTION 6.4. Notices. All notices, requests and other
communications to any party hereunder shall be in writing and sufficient if
delivered personally or sent by telecopy (with confirmation of receipt) or by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
34
<PAGE> 39
If to the Purchaser, to:
The J.H. Heafner Company, Inc.
814 East Main Street
P.O. Box 837
Lincolnton, NC 28093-0837
Telecopy: (704) 732-6480
Attention: President
with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, New York 10019
Telecopy: (212) 841-1010
Attention: Scott F. Smith
If to the Sellers or the Sellers' Representative, to:
Mr. William S. Johnstone, Jr.
c/o Hahn & Hahn
301 E. Colorado Boulevard
Ninth Floor
Pasadena, California 91101
Telecopy: (818) 449-7357
with a copy to:
Hahn & Hahn
301 E. Colorado Boulevard
Ninth Floor
Pasadena, California 91101
Telecopy: (818) 449-7357
Attention: George R. Baffa
or to such other address or telecopy number as the party to whom notice is to be
given may have furnished to the other party in writing in accordance herewith.
Each such notice, request or communication shall be effective when received or,
if given by mail, when delivered at the address specified in this Section or on
the fifth business day following the date on which such communication is posted,
whichever occurs first.
SECTION 6.5. Counterparts. This Agreement may be executed in
any number of counterparts, and each such counterpart hereof shall be deemed to
be an original instrument, but all such counterparts together shall constitute
but one agreement.
35
<PAGE> 40
SECTION 6.6. Survival. Except as set forth in Section 5.2, all
representations and warranties, agreements and covenants contained in this
Agreement or in any document delivered pursuant to this Agreement or in
connection with this Agreement (unless otherwise expressly provided) shall
survive the Closing and shall remain in full force and effect until the
Expiration Date; provided that (i) the representations and warranties in
Sections 2.1(b) and (n), Section 2.2(a) and Section 2.3(b) and the agreements in
Sections 3.7, 3.8, 3.10 and 3.11 shall not expire on the Expiration Date and
shall survive, as set forth in such Sections, or, if not set forth, shall
survive forever or, if applicable, until the expiration of the applicable
statute of limitations and (ii) the representations and warranties in Section
2.1(k) shall not expire on the Expiration Date and shall survive until the first
to occur of (a) the fifth anniversary of the Closing Date and (b) the expiration
of the applicable statute of limitations.
SECTION 6.7. Benefits of Agreement. All of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. This Agreement
is for the sole benefit of the parties hereto and their respective successors
and assigns and not for the benefit of any third party.
SECTION 6.8. Amendments and Waivers. No modification,
amendment or waiver of any provision of, or consent required by, this Agreement,
nor any consent to any departure herefrom, shall be effective unless it is in
writing and signed by the parties hereto. Such modification, amendment, waiver
or consent shall be effective only in the specific instance and for the purpose
for which given.
SECTION 6.9. Assignment. This Agreement and the rights and
obligations hereunder shall not be assignable or transferable by any party
hereto without the prior written consent of the other parties; except that the
Purchaser (i) may assign its rights under this Agreement as collateral security
for any person providing financing to the Purchaser or the Company in connection
with the consummation of the transactions contemplated hereby and (ii) may
assign this Agreement and all of its rights and obligations to an affiliate of
the Purchaser; provided that no such assignment by the Purchaser shall release
it from any of its liabilities or obligations hereunder. Any instrument
purporting to make an assignment in violation of this Section shall be void.
SECTION 6.10. Enforceability. It is the desire and intent of
the parties hereto that the provisions of this Agreement shall be enforced to
the fullest extent permissible under the laws and public policies applied in
each jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
SECTION 6.11. Trustee and Fiduciary Capacity. The parties
acknowledge that William S. Johnstone, Jr., in his capacity as Trustee of The
Sam M. Winston Separate Property Trust dated July 26, 1989, Trust dated December
20, 1976 f/b/o/ Melissa Winston Alfieri, Trust dated December 20, 1976 f/b/o Sam
M. Winston, II, Trust dated December 21, 1982 f/b/o
36
<PAGE> 41
Melissa Winston Alfieri and Trust dated December 21, 1982 f/b/o Sam M. Winston,
II, is entering into this Agreement in his fiduciary capacity only, and that
William S. Johnstone, Jr., is also entering into this Agreement individually as
a Trustee of The William S. Johnstone, Jr. Separate Property Trust dated October
5, 1993.
SECTION 6.12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 6.13. DISPUTE RESOLUTION; CONSENT TO JURISDICTION.
EACH OF THE PARTIES TO THIS AGREEMENT AGREES TO BE BOUND BY THE PROVISIONS SET
FORTH IN ANNEX B TO THIS AGREEMENT. EACH OF THE SELLERS HEREBY IRREVOCABLY AND
UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK SITTING IN NEW YORK CITY
FOR PURPOSES OF ALL LEGAL PROCEEDINGS WHICH ARE NOT GOVERNED BY ANNEX B AND
WHICH ARISE OUT OF OR RELATE TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY, AND EACH OF THE SELLERS AGREES NOT TO COMMENCE ANY LEGAL PROCEEDING
RELATED THERETO EXCEPT IN SUCH COURT. EACH OF THE SELLERS IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY SUCH PROCEEDING BROUGHT IN ANY SUCH COURT AND
ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.
37
<PAGE> 42
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
THE J.H. HEAFNER COMPANY, INC.
By: /s/ J. MICHAEL GAITHER
------------------------------------------
Name: J. Michael Gaither
Title: Sr. Vice President General Council
Secretary
SELLERS:
THE SAM M. WINSTON SEPARATE
PROPERTY TRUST, dated July 26, 1989
By: /s/ WILLIAM S. JOHNSTONE, JR.
------------------------------------------
William S. Johnstone, Jr., Trustee
Trust dated December 20, 1976 f/b/o Melissa
Winston Alfieri
By: /s/ WILLIAM S. JOHNSTONE, JR.
------------------------------------------
William S. Johnstone, Jr., Trustee
Trust dated December 20, 1976 f/b/o Sam M.
Winston, II
By: /s/ WILLIAM S. JOHNSTONE, JR.
------------------------------------------
William S. Johnstone, Jr., Trustee
Trust dated December 21, 1982 f/b/o Melissa
Winston Alfieri
By: /s/ WILLIAM S. JOHNSTONE, JR.
------------------------------------------
William S. Johnstone, Jr., Trustee
38
<PAGE> 43
Trust dated December 21, 1982 f/b/o Sam M.
Winston, II
By: /s/ WILLIAM S. JOHNSTONE, JR.
------------------------------------
William S. Johnstone, Jr., Trustee
THE WILLIAM S. JOHNSTONE, JR.
SEPARATE PROPERTY TRUST, dated
October 5, 1993
By: /s/ WILLIAM S. JOHNSTONE, JR.
------------------------------------
William S. Johnstone, Jr., Trustee
/s/ THOMAS J. BONBURG
------------------------------------
Thomas J. Bonburg
SELLERS' REPRESENTATIVE
/s/ WILLIAM S. JOHNSTONE, JR.
------------------------------------
William S. Johnstone, Jr.
39
<PAGE> 1
Exhibit 10.19
THE J.H. HEAFNER COMPANY
1997 STOCK OPTION PLAN
1. Purpose.
The purpose of the 1997 Stock Option Plan (the "Plan") of The J.H.
Heafner Company, Inc., a North Carolina corporation (the "Company"), is to
attract and retain employees (including officers), directors and independent
contractors of the Company, or any Subsidiary or Affiliate which now exists or
hereafter is organized or acquired, and to furnish additional incentives to such
persons to enhance the value of the Company over the long term by encouraging
them to acquire a proprietary interest in the Company.
2. Definitions.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Affiliate" means any entity if, at the time of granting
of an Option, (i) the Company, directly, owns at least 20% of the combined
voting power of all classes of stock of such entity or at least 20% of the
ownership interests in such entity or (ii) such entity, directly or indirectly,
owns at least 20% of the combined voting power of all classes of stock of the
Company.
(b) "Beneficiary" means the person, persons, trust or trusts
which have been designated by an Optionee in his or her most recent written
beneficiary designation filed with the Company to receive the Optionee's rights
under the Plan upon the Optionee's death, or, if there is no such designation or
no such designated person survives the Optionee, then the person, persons, trust
or trusts entitled by will or applicable law to receive such rights or, if no
such person has such right then the Optionee's executor or administrator.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" means any of the following: (i) the
acquisition by any person or entity not controlled by the Company's stockholders
of more than 50% of the shares of the common stock of the Company, (ii) the sale
of all or substantially all of the Company's assets, (iii) the majority of the
Board of Directors of the Company consisting of persons other than any member of
the Board of Directors of the Company on the Effective Date (a "Continuing
Director") and any other member of the Board of Directors who is recommended or
elected to succeed or become a Continuing Director by a majority of Continuing
Directors who are then members of the Board of Directors of the Company, (iv) a
transaction resulting in Ann Heafner Gaither, William H. Gaither, Susan Gaither
Jones and Thomas R. Jones owning, collectively, less than 50% of the combined
voting power of the then outstanding shares of common stock of the Company, or
(v) the issuance of common stock of the Company in a public offering.
(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(f) "Committee" means the committee, consisting of at least
two members of the Board, established by the Board to administer the Plan.
<PAGE> 2
(g) "Company" means The J. H. Heafner Company, Inc., a
corporation organized under the laws of the State of North Carolina, or any
successor corporation.
(h) "Fair Market Value" means, with respect to Stock or other
property, the fair market value of such Stock or other property determined by
such methods or procedures as shall be established from time to time by the
Board acting in its sole discretion and in good faith.
(i) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(j) "NQSO" means any Option not designated as an ISO.
(k) "Option" means a right, granted to an Optionee under
Section 6(b) of the Plan, to purchase shares of Stock, subject to the terms and
conditions of this Plan. An Option may be either an ISO or an NQSO, provided
that ISOs may be granted only to employees of the Company or a Subsidiary.
(l) "Optionee" means a person who, as an employee, director or
independent contractor of the Company, a Subsidiary or an Affiliate, has been
granted an Option.
(m) "Plan" means this J.H. Heafner Company, Inc. 1997 Stock
Option Plan, as amended from time to time.
(n) "Stock" means the common stock, par value $.01 per share,
of the Company.
(o) "Stock Option Agreement" means any written agreement,
contract, or other instrument or document evidencing an Option.
(p) "Subsidiary" means any corporation in which the Company,
directly or indirectly, owns stock possessing 50% or more of the total combined
voting power of all classes of stock of such corporation.
(q) "Ten Percent Shareholder" means a person or persons who
own, directly or indirectly, more than 10% of the total combined voting power of
all classes of stock of the Company or any of its Subsidiaries.
3. Administration.
The Plan shall be administered by the Committee which shall consist of
a committee of not less than two persons appointed by the Board. The Committee
shall have full power to construe and interpret the Plan, to establish rules for
its administration and to grant Options. The Committee may establish rules
setting forth terms and conditions for a specified group of Options. The
Committee may act by a majority of a quorum (a quorum being a majority of the
members of such Committee) present at a called meeting or by unanimous written
consent of all of its members. All actions taken and decisions made by the Board
or the Committee pursuant to the Plan shall be binding and conclusive on all
persons interested in the Plan.
4. Eligibility.
2
<PAGE> 3
Options may be granted in the discretion of the Committee to employees
(including officers), directors and independent contractors of the Company and
its present or future Subsidiaries and Affiliates. In determining the persons to
whom Options shall be granted and the type of Options granted (including the
number of shares to be covered by such Options), the Committee shall take into
account such factors as the Committee shall deem relevant in connection with
accomplishing the purposes of the Plan.
5. Stock Subject to the Plan.
The maximum number of shares of Stock reserved for the grant of Options
under the Plan shall be 265,000 shares of Stock, subject to adjustment as
provided herein. Such shares may, in whole or in part, be authorized but
unissued shares or shares that shall have been or may be reacquired by the
Company in private transactions or otherwise. The number of shares of Stock
available for issuance under the Plan shall be reduced by the number of shares
of Stock subject to outstanding Options. If any shares subject to an Option are
forfeited, canceled, exchanged or surrendered or if an Option otherwise
terminates or expires without a distribution of shares to the Optionee, the
shares of Stock with respect to such Option shall, to the extent of any such
forfeiture, cancellation, exchange, surrender, termination or expiration, again
be available for Options under the Plan. In no event shall any Optionee acquire,
pursuant to any awards of Options under this Plan, more than 5% of the aggregate
number of shares of Stock reserved for awards under the Plan.
In the event that the Committee shall determine, in its sole
discretion, that any dividend or other distribution (whether in the form of
cash, Stock, or other property), recapitalization, stock split, reverse split,
any reorganization, merger, consolidation, spin-off, combination, repurchase,
share exchange, license arrangement, strategic alliance or other similar
corporate transaction or event, affects the Stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of any
Optionees under the Plan, then the Committee shall make such equitable changes
or adjustments as it deems necessary or appropriate to any or all of (i) the
number and kind of shares of Stock which may thereafter be issued in connection
with Options, (ii) the number and kind of shares of Stock issued or issuable in
respect of outstanding Options, and (iii) the exercise price, grant price, or
purchase price relating to any Option; provided that, with respect to ISOs, such
adjustment shall be made in accordance with Section 424(h) of the Code.
6. Specific Terms of Options.
(a) General. Options may be granted at the discretion of the
Committee. The term of each Option shall be for such period as may be determined
by the Committee. The Committee may make rules relating to Options, and may
impose on any Option or the exercise thereof, at the date of grant or
thereafter, such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine.
(b) Options. The Committee is authorized to grant Options to
Optionees on the following terms and conditions:
i) Type of Option. The Stock Option Agreement
evidencing the grant of an Option under the Plan shall
designate the Option as an ISO (in the event its terms, and
the individual to whom it is granted, satisfy the requirements
for ISOs under the Code), or an NQSO.
ii) Exercise Price. The exercise price per share of
Stock purchasable under an Option shall be determined by the
Committee; provided that, in the case of
3
<PAGE> 4
an ISO, (i) such exercise price shall be not less than the
Fair Market Value of a share of Stock on the date of grant of
such Option or such other exercise price as may be required by
the Code, (ii) if the Optionee is a Ten Percent Shareholder,
such exercise price shall not be less than 110% of the Fair
Market Value of a share of Stock on the date of grant of such
Option and in no event shall the exercise price for the
purchase of shares of Stock be less than par value. Options
shall be exercised by (i) giving written notice thereof to the
Company, and (ii) paying the exercise price. In addition to
any other method of payment which may be acceptable to the
Committee, payment may be effected, either in whole or in
part, by the surrender to the Company of outstanding Stock.
Any Stock so surrendered shall be valued at the Fair Market
Value on the date on which such shares are surrendered.
iii) Term and Exercisability of Options. The date on
which the Committee adopts a resolution expressly granting an
Option shall be considered the day on which such Option is
granted. Options shall be exercisable over the exercise period
(which shall not exceed ten years from the date of grant), at
such times and upon such conditions as the Committee may
determine, as reflected in the Stock Option Agreement. As a
condition to exercising any Option, the Optionee shall
exercise and deliver to the Company an agreement in
substantially the form of Exhibit A hereto or in such other
form as the Company may reasonably require.
iv) Payment of Cash or Stock Upon Exercise. Upon
exercise of an Option, the Company may, in the sole discretion
of the Committee, either (A) issue to the Optionee the shares
of Stock subject to the Option, or (B) in lieu of issuing
Stock, pay to the Optionee in cash an amount equal to the
excess, if any, of the aggregate Fair Market Value of the
shares of Stock subject to such Option as of the close of the
fiscal year in which exercise occurs over the aggregate
exercise price of the shares of Stock purchasable under such
Option. Notwithstanding the foregoing, if at the time of
exercise of the Option, the Company has issued Stock in a
public offering it will no longer have the right to pay cash
to an Optionee in lieu of issuing Stock.
v) Termination of Employment, etc. An Option may not
be exercised unless the Optionee is then in the employ or a
director of, or then maintains an independent contractor
relationship with, the Company or any Subsidiary or Affiliate
(or a company or a parent or subsidiary company of such
company issuing or assuming the Option in a transaction to
which Section 424(a) of the Code applies), and unless the
Optionee has continuously maintained any of such relationships
since the date of grant of the Option; provided that, the
Stock Option Agreement may contain provisions extending the
exercisability of Options, in the event of specified
terminations, to a date not later than the expiration date of
such Option. The Committee may establish a period during which
the Beneficiaries of an Optionee who died while an employee,
director or independent contractor of the Company or any
Subsidiary or Affiliate or during any extended period referred
to in the immediately preceding proviso may exercise those
Options which were exercisable on the date of the Optionee's
death; provided that no Option shall be exercisable after its
expiration date.
vi) Nontransferability. Options shall not be
transferable by an Optionee except by will or the laws of
descent and distribution and shall be exercisable during the
lifetime of an Optionee only by such Optionee.
4
<PAGE> 5
vii) Other Provisions. Options may be subject to such
other conditions as the Committee may prescribe in its
discretion.
7. Change in Control Provisions.
Upon a Change in Control, any and all Options then outstanding shall
terminate, provided that all Options granted under the Plan shall, immediately
prior to the Change in Control, become fully vested and immediately exercisable
by the Optionee. Nothing contained herein shall prevent the substitution of a
new option by the Company after a Change in Control.
8. General Provisions.
(a) Fair Market Value of Common Stock. In determining the Fair
Market Value of the Stock for purposes of the Plan, the Board may rely on a
valuation report by an investment banking or valuation firm selected by the
Board. In the event the Stock becomes listed on any national stock exchange or
quoted on the national market quotations system, the Fair Market Value of the
Stock shall, as of any day, be the closing price for the immediately preceding
trading day.
(b) Compliance with Legal and Exchange Requirements. The Plan,
the granting and exercising of Options thereunder, and the other obligations of
the Company under the Plan and any Stock Option Agreement, shall be subject to
all applicable federal and state laws, rules and regulations, and to such
approvals by any regulatory or governmental agency as may be required. The
Company, in its discretion, may postpone the issuance or delivery of Stock under
any Option until completion of such stock exchange listing or registration or
qualification of such Stock or other required action under any state, federal or
foreign law, rule or regulation as the Company may consider appropriate, and may
require any Optionee to make such representations and furnish such information
as it may consider appropriate in connection with the issuance or delivery of
Stock in compliance with applicable laws, rules and regulations.
(c) No Right to Continued Employment, etc. Nothing in the Plan
or in any Option granted or Stock Option Agreement entered into pursuant to the
Plan shall confer upon any Optionee the right to continue in the employ of, or
to continue as a director of or an independent contractor to, the Company, any
Subsidiary or any Affiliate, as the case may be, or to be entitled to any
remuneration or benefits not set forth in the Plan or such Stock Option
Agreement or to interfere with or limit in any way the right of the Company or
any such Subsidiary or Affiliate to terminate such Optionee's employment,
directorship or independent contractor relationship.
(d) Taxes. The Company or any Subsidiary or Affiliate is
authorized to withhold from any Option granted, any payment relating to an
Option under the Plan (including from a distribution of Stock), or any other
payment to an Optionee, amounts of withholding and other taxes due in connection
with any transaction involving an Option, and to take such other action as the
Committee may deem advisable to enable the Company and an Optionee to satisfy
obligations for the payment of withholding taxes and other tax obligations
relating to any Option. This authority shall include authority to withhold or
receive Stock or other property and to make cash payments in respect thereof in
satisfaction of an Optionee's tax obligations.
(e) Amendment and Termination of the Plan. The Board may at
any time and from time to time alter, amend, suspend, or terminate the Plan in
whole or in part. Notwithstanding the foregoing, no amendment shall affect
adversely any of the rights of any Optionee, without such Optionee's consent,
under any Option theretofore granted under the Plan.
5
<PAGE> 6
(f) No Rights to Options; No Stockholder Rights. No person
shall have any claim to be granted any Option under the Plan, and there is no
obligation for uniformity of treatment of Optionees. Except as provided
specifically herein, an Optionee or a transferee of an Option shall have no
rights as a stockholder with respect to any shares covered by the Option until
the date of the issuance of a stock certificate to such Optionee for such
shares.
(g) Unfunded Status of Options. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. Nothing
contained in the Plan or any Option shall give any such Optionee any rights that
are greater than those of a general creditor of the Company.
(h) Governing Law. The Plan and all determinations made and
actions taken pursuant hereto shall be governed by the laws of the State of
North Carolina without giving effect to the conflict of laws principles thereof.
(i) Effective Date; Plan Termination. (i) The Plan shall take
effect upon its adoption by the Board (the "Effective Date"), but the Plan (and
any grants of Options made prior to the stockholder approval mentioned herein),
shall be subject to the approval of the holder(s) of a majority of the issued
and outstanding shares of voting securities of the Company entitled to vote,
which approval must occur within twelve months of the date the Plan is adopted
by the Board. In the absence of such approval, such Options shall be null and
void.
(ii) The Board may terminate the Plan at any time with respect
to any shares of Stock that are not subject to Options. Unless terminated
earlier by the Board, the Plan shall terminate ten years after the Effective
Date and no Options shall be granted under the Plan after such date. Termination
of the Plan under this Section 8(h) will not affect the rights and obligations
of any Optionee with respect to Options granted prior to termination.
6
<PAGE> 1
Exhibit 10.20
THE J.H. HEAFNER COMPANY
STOCK OPTION AGREEMENT
Number of shares subject to option: _________
This Agreement (the "Agreement") made this ______ day of _____, 1997,
between The J. H. Heafner Company, a North Carolina corporation (the "Company"),
and _____________ (the "Optionee").
W I T N E S S E T H:
1. Grant of Option.
Pursuant to the provisions of the J.H. Heafner 1997 Stock Option Plan
(the "Plan"), the Company hereby grants to the Optionee, subject to the terms
and conditions of the Plan and subject further to the terms and conditions
herein set forth, the right and option (the "Option") to purchase from the
Company all or any part of an aggregate of _______ shares of the common stock,
par value $0.01 per share, of the Company (the "Common Stock" or the "Shares")
at a purchase price of $1.10 per Share (the "Exercise Price"), such Option to be
exercised as hereinafter provided.
2. Terms and Conditions.
It is understood and agreed that the Option evidenced hereby is subject
to the following terms and conditions:
(a) Expiration Date. The Option shall expire on the tenth anniversary
of the date hereof (the "Expiration Date").
(b) Type of Option. This option is eligible to be an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) Exercise of Option. (i) Subject to the other terms of this
Agreement regarding the exercisability of this Option, this Option may be
exercised in accordance with the following vesting schedule:
<TABLE>
<CAPTION>
Options Exercisable with respect to
On or After Cumulative Number of Shares
----------- ---------------------------
<S> <C>
May 28, 1998 _____ x 10%
May 28, 1999 _____ x 30%
May 28, 2000 _____ x 60%
May 28, 2001 _____ x 100%
</TABLE>
Options exercised in any one year shall be deducted from the number of Options
exercisable in any future year. Once vested, this Option shall be exercisable at
the following times prior to the expiration date: (A) if the Optionee is
employed by the Company at the time of exercise, at any time by giving the
Company 45 days' advance written notice or (B) if the Optionee is not employed
by the Company at the time of exercise but has the right to exercise after
termination in accordance with paragraph 2(d) of this Agreement, by giving the
Company written notice at any time during the period specified in paragraph 2(d)
of this Agreement, in which case the Option shall be deemed exercised as of the
end of the calendar month in which the Company received notice of exercise of
<PAGE> 2
the Option. In either case, the notice of exercise shall specify the number of
Shares as to which the Option is being exercised.
(ii) Upon receipt of written notice of exercise by the
Company, the Company shall, upon full payment in cash to the Company of the
Exercise Price of the Shares as to which the Option shall be exercised, issue to
the Optionee the Shares subject to the Option. Any issuance of Shares to an
Optionee pursuant to the preceding sentence shall be made by the Company within
90 days after the date of exercise. For purposes of this Agreement, the fair
market value of Shares shall be determined by such methods or procedures as
shall be established from time to time by the Board of Directors of the Company
(the "Board") acting in its sole discretion and in good faith. In making such
determinations, the Board may rely on a valuation report by an investment
banking or valuation firm selected by the Board. The Committee established by
the Board to administer the Plan (the "Committee") may, in its sole discretion,
permit the Optionee to pay the Exercise Price in previously acquired Shares
rather than in cash.
(d) Exercise Upon Death or Termination of Employment.
(i) If the Optionee dies while an employee of the Company, the
Optionee's Designee may exercise the Option, to the extent it was vested on the
date of termination or otherwise would have vested in the 12 months thereafter
in accordance with the vesting schedule in Section 2(c) hereof, by giving the
Company written notice of such exercise within 180 days after the date of
Optionee's death, but in no event later than the Expiration Date. An Optionee's
"Designee" means the person designated by the Optionee in his or her most
recently filed beneficiary designation filed with the Company to receive the
Optionee's rights under the Plan upon the Optionee's death, or if there is no
such designation or no such designated person survives the Optionee, by the
person or persons to whom the Optionee's rights pass by will or applicable law,
or if no such person has such right, by his executors or administrators.
(ii) If the Optionee's employment with the Company shall
terminate because of permanent disability, the Optionee may exercise the Option
to the extent it was vested on the date of termination or otherwise would have
vested in the 12 months thereafter, in either event according to the vesting
schedule in Section 2(c), by giving the Company written notice of such exercise
within 180 days after the date of termination of employment, but in no event
later than the Expiration Date.
(iii) If the Optionee's employment shall terminate for any
reason other than death or permanent disability as aforesaid or for Cause (as
hereinafter defined), the Optionee may exercise the Option to the extent it was
vested on the date of termination or otherwise would have vested in the 12
months thereafter, in either event according to the vesting schedule in Section
2(c), by giving the Company written notice of such exercise within 180 days
after the date of termination of employment, but in no event later than the
Expiration Date.
(iv) If the Optionee's employment shall terminate for Cause,
all right to exercise the Option shall terminate at the date of such termination
of employment except that the Optionee may exercise the Option to the extent
vested as of the date of such termination by giving the Company written notice
thereof within 30 days after such termination. For purposes of this Agreement,
"Cause" shall mean (i) the Employee's conviction of, or plea of guilty or nolo
contendere to, a felony, (ii) the Employee's gross negligence in the performance
of his duties and obligations to the Company, which is not corrected within 15
business days after written notice, (iii) the Employee's knowingly dishonest
act, or knowing bad faith or willful misconduct in the performance of his duties
and obligations to the Company to the material detriment of the Company, which
is not corrected within 15 business days after written notice, or (iv) the
Employee's other material breach of his obligations under this Agreement, which
is not corrected
2
<PAGE> 3
within a reasonable period of time (determined in light of the cure appropriate
to such material breach, but in no event less than 15 business days) after
written notice.
(e) Nontransferability. This Option shall not be transferable other
than by will or by the laws of descent and distribution. During the lifetime of
the Optionee, this Option shall be exercisable only by such Optionee.
(f) Forfeiture of Option Gain. If at any time within 12 months after
the later of (i) termination of employment or (ii) the date on which the
Optionee exercises any portion of this Option, the Optionee violates the terms
of the covenants regarding confidential information, soliciting customer
accounts, non-competition or hiring of employees, currently set forth in
Sections 5 and 6 of the Employment Agreement between the Company and the
Optionee dated the date hereof (the "Employment Agreement"), (A) then any income
realized by the Optionee upon the exercise of this Option or upon the sale of
Shares acquired by exercise of this Option at any time, whether before or after
the date of termination of employment, shall promptly be paid by the Optionee to
the Company and (B) any unexercised Options shall be canceled. The Company shall
have the right to set off against any amount payable by the Company to the
Optionee, including, without limitation, salary, benefits or other amounts, any
amounts owed by the Optionee to the Company under this subparagraph (f). The
Committee may waive the requirements of this subparagraph (f) if it determines
in its sole discretion that such action is in the best interests of the Company.
(g) Adjustments. In the event that the Committee shall determine, in
its sole discretion, that any dividend or other distribution (whether in the
form of cash, Common Stock, or other property), recapitalization, stock split,
reverse split, any reorganization, merger, consolidation, spin-off, combination,
repurchase, share exchange, license arrangement, strategic alliance or other
corporate transaction or event, affects the Shares such that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of the
Optionee under the Plan, then the Committee shall make such equitable changes or
adjustments as it deems necessary or appropriate to any or all of (i) the number
and kind of Shares which may thereafter be issued in connection with Options,
(ii) the number and kind of Shares issued or issuable in respect of outstanding
Options, and (iii) the Exercise Price relating to any Option; provided that,
with respect to incentive stock options, such adjustment shall be made in
accordance with Section 424(h) of the Code.
(h) No Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to any Shares subject to the Option prior to the date
of issuance to the Optionee of a certificate or certificates for such Shares.
(i) Optionee Acknowledgement. The Optionee acknowledges that:
(i) the future value of the Company is highly speculative;
(ii) the Optionee is not relying on the value of this Option
as current compensation;
(iii) the Company has no obligation to the Optionee to sell
the Company or to sell Shares publicly (which may have the effect of reducing
the value of the Company);
(iv) upon exercise of this Option, unless the Shares issuable
upon exercise of the Options have been registered under applicable securities
laws, there will be substantial restrictions on the transferability of the
Shares; and
3
<PAGE> 4
(v) the past performance or experience of the Company, the
Company's officers, directors, agents, or employees, will not in any way
indicate or predict the results of the ownership of Shares or of the Company's
activities.
(j) No Right to Continued Employment. The Option shall not confer upon
the Optionee any right with respect to continuance of employment by the Company,
nor shall it interfere in any way with the right of the Optionee's employer to
terminate the Optionee's employment at any time.
(k) Compliance With Law and Regulations. The Option herein granted and
the obligation of the Company to sell and deliver shares hereunder, shall be
subject to all applicable Federal and State laws, rules and regulations and to
such approvals by any government or regulatory agency as may be required. The
Company shall not be required to issue or deliver any certificates for Shares
prior to (i) the listing of such Shares on any stock exchange or national market
quotations system on which the Shares may then be listed and (ii) the completion
of any registration or qualification of such Shares under any Federal or State
law, or any rule or regulation of any government body which the Company shall,
in its sole discretion, determine to be necessary or advisable. Moreover, the
Option herein granted may not be exercised if its exercise, or the receipt of
Shares pursuant hereto, would be contrary to applicable law.
(l) Condition Precedent. In consideration for and as a condition
precedent to being eligible to participate in the Plan, the Optionee shall have
executed and delivered to the Company the Employment Agreement.
3. Optionee Bound by Plan.
The Optionee hereby acknowledges receipt of a copy of the Plan and
agrees to be bound by all the terms and provisions thereof.
4. Notices.
All notices or any other communications hereunder shall be in writing
and delivered personally or by registered or certified mail or overnight
courier, addressed, if to the Company, to The J.H. Heafner Company, 814 East
Main Street, P.O. Box 837, Lincolnton, NC 28093-0837; Attention: Chairman, and
if to the Optionee, at the address set forth below, subject to the right of
either party to designate at any time hereafter in writing some other address.
5. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of North Carolina without regard to conflicts of laws
principles.
6. No Assignment.
Neither this Agreement nor any of the rights or obligations of the
Optionee hereunder may be transferred or assigned by the Optionee.
4
<PAGE> 5
7. Benefits.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto. This Agreement is for the sole benefit of the parties hereto and
not for the benefit of any other party.
8. Severability.
If any provision of this Agreement shall be determined to be illegal
and unenforceable by any court of law, the remaining provisions shall be
severable and enforceable in accordance with their terms.
9. Amendments.
No modification, amendment or waiver of any provision of this
Agreement, other than as required under Section 2(g), shall be effective unless
it is in writing and signed by the parties hereto.
10. Counterparts.
This Agreement has been executed in two counterparts each of which
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its Chairman, Chief Executive Officer, Chief Operating Officer,
President or a Vice President and Optionee has executed this Agreement, both as
of the day and year first above written.
THE J. H. HEAFNER COMPANY
By:______________________________
Name:
Title:
________________________________
Address:________________________
________________________________
________________________________
5
<PAGE> 1
EXHIBIT 10.21
Form of Stockholders' Agreement to be entered into upon
exercise of Options under Option Agreement
STOCKHOLDERS' AGREEMENT, dated as of ________________, _____, between
THE J.H. HEAFNER COMPANY, INC., a North Carolina corporation (the "Company"),
and _______________________ (the "Purchaser").
Introduction
The Purchaser is, upon the date hereof, exercising his option to
purchase _________ shares (the "Shares") of the Company's common stock, par
value $.01 per share (the "Common Stock"), at a price of $__________ per Share
(the "Purchase Price"), pursuant to the Company's 1997 Stock Option Plan (the "
Option Plan").
On or about May 7, 1997, (i) the Company entered into the Loan and
Security Agreement with BankBoston, N.A., pursuant to which up to $65.0 million
in indebtedness (the "Senior Financing") was made available to the Company and
Oliver & Winston, Inc. ("Winston"), (ii) the Company issued senior subordinated
notes in the principal amount of $16.0 million pursuant to a Senior Subordinated
Note and Warrant Purchase Agreement with The 1818 Mezzanine Fund, L.P. (the
"Senior Subordinated Financing"), (iii) the Company issued warrants (the
"Warrants") in connection with the Senior Subordinated Financing and, (iv) the
Company issued shares of Series A Cumulative Redeemable Preferred Stock and
shares of Series B Cumulative Redeemable Preferred Stock (collectively, the
"Preferred Stock") to The Kelly-Springfield Tire Company. Subsequent to such
date, certain members of management of the Company and Winston (the "Management
Stockholders") entered into a Securities Purchase and Stockholders' Agreement
dated as of May 28, 1997 (the "Stockholders' Agreement"), pursuant to which the
Management Stockholders agreed to purchase shares of Common Stock and agreed to
certain restrictions on the transferability of their shares of Common Stock. All
of such transactions are referred to herein as the "Overall Transaction."
As a condition to the Purchaser's exercise of his option to acquire the
Shares, the Purchaser is entering into this agreement.
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
-1-
<PAGE> 2
ARTICLE I
Transferability of Shares
SECTION 1.1. Stock Transfer Restrictions. The Purchaser shall not sell,
assign, pledge, give away or otherwise transfer (a "Transfer") any Shares except
in accordance with the procedures set forth in this Agreement. Any attempted
Transfer of Shares not permitted by this Agreement shall be null and void, and
the Company shall not in any way give effect to any such Transfer. Any proposed
Transfer of Shares shall be null and void, and the Company shall not in any way
give effect to any such Transfer, unless the transferee of such Shares who is
not, immediately prior to such Transfer, a Management Stockholder shall agree in
writing to be bound by and comply with the provisions of this Agreement
SECTION 1.2. Termination of Employment. (a) Transfers upon Termination
for Cause. If the Company shall terminate the Purchaser's employment for "Cause"
or the Purchaser shall terminate his employment with the Company other than for
"Good Reason" (as such terms are defined below), the Company shall have the
right, commencing on the date of such termination and continuing until the first
anniversary thereof, to purchase all or part of such Purchaser's Shares at the
Repurchase Price applicable thereto, provided that if and to the extent that,
prior to such first anniversary, the Company is prohibited under the terms of
any loan agreement or note for borrowed money from making such repurchase to the
full extent it would otherwise do so, the Company shall have the right to
purchase such Shares until the expiration of 45 days after such first
anniversary. For purposes of this Section 1.2, "Company" shall include Winston
with respect to a Purchaser employed directly by Winston.
For purposes of this Agreement,
"Cause", with respect to the Purchaser, has the meaning set forth in
the employment agreement, if any, then in effect between the Company and the
Purchaser or, in the absence of such an agreement, shall mean (i) the
Purchaser's conviction of, or plea of guilty or nolo contendere to a felony,
(ii) the Purchaser's gross negligence in the performance of his employment
services to the Company, which is not corrected within 15 business days after
written notice, (iii) the Purchaser's knowingly dishonest act, or knowing bad
faith or willful misconduct in the performance of such services to the material
detriment of the Company, which is not corrected within 15 business days after
written notice, or (iv) the Purchaser's other material breach of his obligations
as an employee or officer of the Company which is not corrected within a
reasonable period of time (determined in light of the cure appropriate to such
material breach, but in no event less than 15 business days) after written
notice.
"Good Reason", with respect to the Purchaser, has the meaning set forth
in the employment agreement, if any, then in effect between the Company and the
Purchaser or, in the absence of such an agreement, shall mean (i) the failure of
the Company to pay any undisputed amount due to the Purchaser in connection with
his employment by the Company or a substantial diminution in benefits provided
pursuant to such employment, (ii) a substantial diminution in the
2
<PAGE> 3
status, position and responsibilities of the Purchaser that is not instituted to
all senior management of the Company or (iii) the Company requiring the Employee
to be based at any office or location that requires a relocation or commute
greater than 50 miles from the office or location to which the Purchaser is
currently assigned.
"Repurchase Price" means, with respect to each Share, the greater of
(i) the Purchase Price applicable thereto and (ii) the quotient obtained by
dividing the Net Equity Value by the total number of shares of Common Stock
outstanding on the date of termination of the Purchaser's employment (on a fully
diluted basis, after assuming the issuance of shares of Common Stock pursuant to
the exercise of in-the-money options granted under the Option Plan and
in-the-money Warrants). "Net Equity Value" means the sum of (x) 6 times the
Company's EBITDA (as calculated in accordance with the Loan and Security
Agreement dated May 7, 1997 among the Company, Winston, the financial
institutions identified therein and BankBoston, N.A., as agent) for the 12 full
calendar months immediately preceding the date on which such termination shall
have occurred, plus (y) the aggregate exercise price of all options granted
under the Option Plan and all Warrants, which exercise price at the date such
termination shall have occurred does not exceed (on a per share basis) the per
share market value of the Common Stock, less (z) the aggregate amount of
principal of and interest on (in the case of debt) and liquidation value of (in
the case of capital stock) the Senior Financing, Senior Subordinated Financing
and Preferred Stock outstanding as of the date of such termination.
(b) Termination other than for Cause. If the Company shall terminate
the Purchaser's employment other than for Cause or the Purchaser shall terminate
his employment with the Company for Good Reason, the Purchaser shall have the
right, commencing on the date of such termination and continuing until the first
anniversary thereof, to require the Company to purchase all or part of the
Purchaser's Shares at the Repurchase Price applicable thereto; provided that if
and to the extent that, prior to such first anniversary, the Company is
prohibited under the terms of any loan agreement or note for borrowed money from
purchasing such Shares to the extent so required by the Purchaser borrowed money
from purchasing such Shares to the extent so required by the Purchaser, the
Company shall not be obligated to make such purchase until it is no longer
prohibited from doing so, in which case payment shall be made promptly after the
removal of such prohibition. In the event the option is not exercised, the
Company shall have the right, commencing on the first anniversary and continuing
until the second anniversary thereof, to purchase all of the Purchaser's Shares
at the Repurchase Price applicable thereto.
(c) Termination or Repurchase upon Death. If the Purchaser's employment
with the Company shall terminate due to the Purchaser's death, or, following any
other termination of employment by the Company, the Purchaser shall die, the
Company shall have the right to purchase, and the Purchaser's descendants shall
have the right to require the Company to purchase, all or part of the
Purchaser's Shares at the Repurchase Price applicable thereto, commencing on the
date of death of the Purchaser and continuing until the first anniversary
thereof; provided that if and to the extent that, prior to such anniversary, the
Company is prohibited under the terms of any loan agreement or note for borrowed
money from purchasing such Shares to the extent so required by the Purchaser's
descendants, the Company shall not be
3
<PAGE> 4
obligated to make such purchase until it is no longer prohibited from doing so,
in which case payment shall be made promptly after the removal of such
prohibition.
(d) Delivery of Payment. The Company or the Purchaser, as the case may
be, shall notify the other of such party's exercise of its rights under this
Section 1.2 by giving written notice of such exercise at least 10 and not more
than 30 days before the date established by such electing party for such
purchase or sell, as the case may be. On the date so designated, the Company
shall deliver the appropriate Repurchase Price to the Purchaser by certified
check or money order and the Purchaser shall deliver the certificates evidencing
the Shares being purchased, duly endorsed for transfer as the Company may
direct, and free and clear of any claim, encumbrance, pledge, lien, security
interest or other restriction ("Claim"). If any Shares evidenced by a
certificate so surrendered are not being purchased pursuant to the terms hereof,
the Company shall promptly issue to the Purchaser a replacement certificate
evidencing the Shares not so purchased.
SECTION 1.3. Transfers Among Management or to Descendants. (a) The
Purchaser may, so long as any right has not been exercised with respect to such
Shares pursuant to Section 1.2, Transfer any Shares to a Management Stockholder
or other management employee of the Company or Winston who has or does acquire
shares of Common Stock pursuant to a purchase agreement substantially in the
form of the agreement entered into with the Management Stockholders or pursuant
to an exercise of any option under the Option Plan (a "Management Employee").
The Purchaser may Transfer by will or the laws of descent and distribution any
Shares to the Purchaser's descendants. Such transfer shall be effective only if
the transferee agrees to be bound by the terms of this Agreement.
SECTION 1.4. Right of First Refusal. With respect to any Shares that
the Company had the right to purchase pursuant to Section 1.2(a) or Section
1.2(c) but failed to so purchase prior to the expiration of the one-year period
referred to therein (as the same may be extended due to the Company's inability
to purchase such Shares as described therein), the following provisions shall
apply.
(a) If the Purchaser desires to Transfer any such Shares (other than
pursuant to Section 1.3), the Purchaser shall deliver to the Company and the
Management Stockholders and Management Employees a written notice, which shall
be irrevocable for a period of 45 days after delivery, offering all of such
Shares to the Company and the Management Stockholders and Management Employees
at the purchase price and on the terms specified in the written notice. The
Company shall have the first right and option, for a period of 30 days after
delivery of such written notice, to purchase all (but not part) of such Shares
at the purchase price and on the terms specified in the notice. Such acceptance
shall be made by delivering a written notice to the Purchaser within such 30-day
period.
(b) If the Company fails to accept such offer, then upon the earlier of
the expiration of such 30-day period or upon the receipt of a written rejection
of such offer from the Company, the Management Stockholders and Management
Employees (as a group) shall have the second right and option, until 15 days
after the expiration of the 30-day period, to purchase
4
<PAGE> 5
on a pro rata basis with all Management Stockholders and Management Employees so
electing all (but not part) of such Shares offered at the purchase price and on
the terms specified in the notice. Such acceptance shall be made by delivering a
written notice to the Purchaser within the 15-day period.
(c) If the Company and the Management Stockholders and Management
Employees do not elect to purchase the Shares so offered, then the Purchaser may
Transfer all (but not part) of such Shares at a price not less than the price,
and on terms not more favorable to the transferee of such Shares than the terms,
stated in the original written notice of intention to sell, at any time within
15 days after the expiration of the period in which the Management Stockholders
and Management Employees could elect to purchase such Shares. If such Shares are
not sold by the Purchaser during such 15-day period, the right of the Purchaser
to sell such Shares shall expire and the rights and obligations set forth in
this Section 1.4 shall be reinstated with respect to such Shares.
SECTION 1.5. Lock-up Agreements. If the Company proposes to register
under the Securities Act any of its Common Stock for sale to the public, the
Purchaser shall enter into such agreement (a "Lock-up Agreement") as may be
requested by the underwriters of such registered offering, pursuant to which
Lock-up Agreement the Purchaser shall refrain from selling any Shares during the
period of distribution of Common Stock by such underwriters and for a period of
up to 180 days following the effective date of such registration.
ARTICLE II
Representations and Warranties of the Purchasers
The Purchaser represents and warrants to the Company as follows:
SECTION 2.1. Capacity; Binding Agreements. The Purchaser has all
requisite capacity to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser, and constitutes the valid and binding obligation of
the Purchaser, enforceable against the Purchaser in accordance with its terms.
SECTION 2.2. Conflicts; Consents. The execution and delivery by the
Purchaser of this Agreement, the consummation of the transactions contemplated
hereby and compliance by the Purchaser with any of the provisions hereof do not
and will not (i) conflict with or result in a default (or give rise to any right
of termination, cancellation or acceleration) under any of the provisions of any
note, bond, lease, mortgage, indenture, or any license, franchise, permit,
agreement or other instrument or obligation to which the Purchaser is a party,
or by which the Purchaser or any of the Purchaser's properties or assets may be
bound or affected, except for such conflicts, breaches or defaults as to which
requisite waivers or consents have been obtained, (ii) violate any law, statute,
rule or regulation or order, writ, injunction or decree applicable to the
Purchaser or any of the Purchaser's properties or assets or (iii) result in the
creation or imposition of any Claim upon any of the Purchaser's properties or
assets.
5
<PAGE> 6
SECTION 2.3. Restrictive Legend. The Purchaser agrees to the
imprinting, so long as required by law, of a legend on certificates representing
all of the Shares to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED, QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT
OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR
SUCH LAWS AND NEITHER THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY AUTHORITY HAS
PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES. THE TRANSFER OF
ANY SECURITIES REPRESENTED BY THIS CERTIFICATE IS FURTHER LIMITED BY
THE PROVISIONS OF THE STOCKHOLDER'S AGREEMENT BETWEEN THE J.H. HEAFNER
COMPANY, INC. AND THE MANAGEMENT STOCKHOLDER IDENTIFIED THEREIN, A COPY
OF WHICH IS ON FILE AT THE EXECUTIVE OFFICE OF THE COMPANY."
SECTION 2.4. Nature of Purchaser. The Purchaser has such knowledge and
experience in financial and business matters so that he is capable of evaluating
the relative merits and risks of purchasing the Shares. The Purchaser has
adequate means of providing for his current economic needs and possible personal
contingencies, has no need for liquidity in his investment in the Company and is
able financially to bear the risks of such investment.
ARTICLE III
Miscellaneous
SECTION 3.1. Option Shares; Dividends; Reclassifications. If,
subsequent to the date hereof, any additional shares of Common Stock are issued
to the Purchaser pursuant to the exercise of any option (including options
granted under the Option Plan), warrant or other security convertible into or
exercisable for shares of Common Stock, or any shares or other securities are
issued with respect to, or in exchange for, any of the Shares by reason of any
reincorporation, stock dividend, stock split, consolidation of shares,
reclassification or consolidation involving the Company, such shares of Common
Stock and such other shares or securities shall be deemed to be Shares for all
purposes of this Agreement.
SECTION 3.2. Survival of Provisions; Termination. (a) All of the
representations, warranties and covenants made herein and each of the provisions
of this Agreement shall, except as otherwise expressly set forth herein, survive
the execution and delivery of this Agreement, any investigation by or on behalf
of the Purchaser, the acceptance of the Shares and payment therefor or the
termination of this Agreement.
6
<PAGE> 7
(b) This Agreement shall terminate upon the earliest to occur of the
(i) issuance by the Company or sale by the shareholders of the Company to the
public on a Form S-1 under the Securities Act of shares of Common Stock
representing at least 40% of the Common Stock outstanding after such issuance or
sale, (ii) tenth anniversary of the date of this Agreement and (iii) written
consent of the Purchaser, all Management Stockholders, all Management Employees
and the Company. Upon such a termination, all rights and obligations shall
terminate, except the Purchaser's obligations under Section 1.5 with respect to
a Lock-up Agreement entered into in connection with a public offering referred
to in the foregoing clause (i), if applicable.
SECTION 3.3. Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier services or personal delivery to the following addresses, or to such
other addresses as shall be designated from time to time by a party in
accordance with this Section 3.3:
(a) if to the Company:
The J.H. Heafner Company, Inc.
814 East Main Street
P.O. Box 837
Lincolnton, North Carolina 28093-0837
Attention: J. Michael Gaither
Telecopier No.: (704) 732-6480
with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, New York 10019
Attention: Scott F. Smith, Esq.
Telecopier No.: (212) 841-1010
(b) if to the Purchaser, at the address set forth opposite the
Purchaser's name on the signature pages hereof.
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; one business day after delivery
to a courier, if delivered by commercial overnight courier service; five
business days after being deposited in the mail, postage prepaid, if mailed; and
when receipt is acknowledged, if telecopied.
SECTION 3.4. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
parties hereto. The provisions of Article I also shall inure to the benefit of
and be enforceable by any Management Stockholder or Management Employee. The
Purchaser may assign its rights hereunder only in conjunction with, and to a
transferee of, a Transfer permitted pursuant to the terms of Article I, and any
such assignee shall be deemed to be a "Purchaser" for purposes of this
Agreement. The
7
<PAGE> 8
Company may not assign any of its rights or obligations hereunder without the
consent of the Purchaser; provided that any successor by merger or consolidation
of the Company or similar transaction shall be bound by and benefit from the
terms hereof as if named as the Company hereunder.
SECTION 3.5. Amendment and Waiver. No failure or delay on the part of
the Company or the Purchaser in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. No waiver of or consent to
any departure by the Company or the Purchaser from any provision of this
Agreement shall be effective unless signed in writing by the party entitled to
the benefit thereof; provided that notice of any such waiver shall be given to
each party hereto as set forth herein. Except as otherwise provided herein, no
amendment, modification or termination of any provision of this Agreement shall
be effective unless signed in writing by or on behalf of the Company and the
Purchaser.
Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure by the Company or the Purchaser from the terms of any provision
of this Agreement, shall be effective only in the specific instance and for the
specific purpose for which made or given. Except where notice is specifically
required by this Agreement, no notice to or demand on the Company or the
Purchaser in any case shall entitle the Company or the Purchaser to any other or
further notice or demand in similar or other circumstances.
SECTION 3.7. Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
SECTION 3.8. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
SECTION 3.9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
SECTION 3.10. Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
SECTION 3.11. Entire Agreement. This Agreement, together with the terms
of the Common Stock, is intended by the parties as a final expression of their
agreement and
8
<PAGE> 9
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Agreement, together with the Common Stock, supersede all prior agreements and
understandings among the parties with respect to such subject matter.
SECTION 3.12. Expenses. Each party to this Agreement shall each bear
its or his own costs incurred in connection with the negotiation, execution and
delivery and enforcement of this Agreement, including the fees and expenses of
lawyers, financial advisors and accountants.
SECTION 3.13. Certain Definitions and Rules of Interpretation. Except
as otherwise expressly provided in this Agreement, the following rules of
interpretation apply to this Agreement: (i) the singular includes the plural and
the plural includes the singular; (ii) "or" and "any" are not exclusive and
"include" and "including" are not limiting; (iii) a reference to any agreement
or other contract includes permitted supplements and amendments; (iv) a
reference to a law includes any amendment or modification to such law and any
rules or regulations issued thereunder; (v) a reference to a person includes its
permitted successors and assigns; (vi) a reference to GAAP or generally accepted
accounting principles refers to United States generally accepted accounting
principles; and (vii) a reference in this Agreement to an Article or Section is
to the Article or Section of this Agreement.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Stockholders'
Agreement to be executed and delivered as of the date first above written.
THE J. H. HEAFNER COMPANY, INC.
By:_____________________________
Name:
Title:
_____________________________
Address for Notices: Name:
10
<PAGE> 1
EX 10.22
STOCKHOLDERS' AGREEMENT, dated as of October 15, 1996, by and among
Ann Heafner Gaither, William H. Gaither, Albert C. Gaither, Susan
Gaither Jones, Lawson H. Gaither, Albert Comer Gaither and Thomas R.
Jones (each a "Stockholder" and collectively, the "Stockholders")
relating to The J.H. Heafner Company, Inc., a North Carolina
corporation (the "Corporation").
The Stockholders desire to enter into this Agreement to facilitate
the ongoing operation, management and success of the Corporation. The
Stockholders acknowledge that the long term interest of the Corporation may
include certain corporate restructurings and acquisitions, including, without
limitation, the acquisition (and the financing of such acquisition) by the
Corporation of certain assets including all of the capital stock and related
assets (including tradenames and trademarks) of Oliver & Winston, Inc.
In consideration of the foregoing and the agreements and mutual
covenants contained herein, the Stockholders agree as follows:
ARTICLE I
Right of First Refusal
Section 1. Transfer of Shares.
(A) No Stockholder shall sell, assign, pledge or otherwise transfer
(a "Transfer") any of the issued and outstanding shares of the common stock, par
value $100.00 per share, of the Corporation (the "Shares") other than to a
Permissible Transferee (defined below), without first complying with the terms,
conditions and provisions of this Article; provided, however, that, any
Permissible Transferee shall take any such Shares subject to all of the terms,
conditions and provisions of this Agreement and, as a condition to such
Transfer, such Permissible Transferee shall execute a counterpart to this
Agreement and become a Stockholder for all purposes hereunder. "Permissible
Transferees" shall include: (i) Ann Heafner Gaither; (ii) descendants of Ann
Heafner Gaither, (iii) corporations, partnerships, limited liability companies
and charitable organizations controlled (as defined below) by the persons
described in clauses (i) and (ii) hereof; (iv) any trust which meets both the
"Control Test" and the "Beneficial Ownership Test"; and (v) the estate of any
person to the extent the Shares held by such person are distributable pursuant
to the terms of such person's will or through intestate distribution, as the
case may be, to a person described in clauses (i) through (iv) hereof. The
"Control Test" shall be considered met by any trust if a majority of the
trustees of such trust are described in clauses (i), (ii) and (iii) hereof. The
"Beneficial Ownership Test" shall be considered met by any trust if such trust
(A) is for the exclusive benefit of Ann Heafner Gaither, one or more charitable
organizations controlled by the persons described in clauses (i) and (ii) hereof
or one or more descendants of Ann Heafner
<PAGE> 2
Gaither or (B) is a trust that meets the requirements of Section
2056(b) (7) of the Internal Revenue Code of 1986 as amended which is for the
lifetime benefit of Ann Heafner Gaither's spouse or one or more of the persons
described in clauses (i) through (iv) hereof. For purposes of clause (iii)
hereof, an organization shall be deemed to be controlled if (but only if)
persons described in clauses (i) through (iii) hereof (A) constitute a majority
of the members of the board of directors, if such organization is a charitable
foundation, (B) constitute a majority of the members of the board of directors
and own more than 50% by value of the outstanding shares, if such organization
is a corporation (other than a charitable foundation), (C) represent a majority
of the general partnership interests and own more than 50% by value of the
general and limited partnership interests, if such organization is a
partnership, or (D) constitute a majority of the trustees, if such organization
is a charitable trust.
(B) In the event a Stockholder (a "Selling Stockholder") proposes to
accept any bona fide offer for the purchase of any or all of his Shares (the
"Subject Shares") from any person other than a Permissible Transferee (the
"Offer"), the Selling Stockholder shall give written notice of the Offer to the
Corporation and the other Stockholders. The written notice shall disclose the
name and address of the proposed purchaser, the price per Share, the number of
shares and all other terms, conditions and provisions of the Offer.
(C) The Corporation shall have an option to purchase all or part of
the Subject Shares at the same price and on the same terms and conditions as the
Offer, pursuant to the following provisions:
(i) Corporation Option Period. The Corporation shall have twenty
days after the receipt of written notice from the Selling Stockholder (the
"Corporation Option Period") to exercise its option to purchase any or all
of the Subject Shares.
(ii) Exercise of Option. The Corporation shall exercise its option
by giving written notice to the Selling Stockholder and the other
Stockholders of the number of Subject Shares that it agrees to purchase.
If the Corporation declines to exercise its option, it shall give written
notice to the Stockholders of such decision.
(D) In the event the Corporation does not purchase all of the
Subject Shares, each Stockholder, other than the Selling Stockholder, shall have
an option to purchase that number of Subject Shares not purchased by the
Corporation equal to the product of (i) the quotient obtained by dividing the
number of Shares owned by such Stockholder by the total number of Shares (other
than the Subject Shares) and (ii) the Subject Shares at the same price and on
the same terms and conditions as the Offer, pursuant to the following
provisions:
(i) First Option Period. Each Stockholder, other than the Selling
Stockholder, shall have twenty days after receipt of notice from the
Corporation
-2-
<PAGE> 3
that it is not electing to purchase all of the Subject Shares (the "First
Option Period") to exercise such Stockholder's option to purchase any or
all of the Subject Shares offered during the Option Period (each an
"Accepting Stockholder").
(ii) Exercise of Option. Each Accepting Stockholder shall exercise
such Stockholder's option by giving written notice to the Selling
Stockholder and the Corporation of the number of Subject Shares that such
Stockholder agrees to purchase. The failure of any Stockholder to give
written notice to the Selling Stockholder within the First Option Period
shall constitute a rejection of such Stockholder's option to purchase such
Stockholder's pro rata portion of the Subject Shares.
(iii) Shares Upon Which the Option Is Not Initially Exercised. Any
Subject Shares, upon which the option described in this Section has not
been exercised, shall be offered to Accepting Stockholders, if any, such
that each Accepting Stockholder shall be offered that number of Subject
Shares equal to the product of (i) the quotient obtained by dividing the
number of Subject Shares upon which such Accepting Stockholder has
exercised his option by the total number of Subject Shares and (ii) that
number of Subject Shares upon which the Option Period has expired. Each
Accepting Stockholder shall have the ten days (the "Second Option Period")
after the date the written notice referred to in the preceding sentence is
deemed effective to exercise such Stockholder's option to purchase the
Subject Shares offered to such Stockholders pursuant to the terms of the
preceding sentence.
(E) For a period of thirty days after expiration of the First Option
Period, or if applicable, for a period of thirty days after expiration of the
Second Option Period, the Selling Stockholder shall have the right to Transfer
to the proposed purchaser, at the price and on the terms and conditions of the
Offer, the Subject Shares with respect to which the Corporation and any
Stockholder shall have failed to exercise an option pursuant to this Section. In
the event of a sale of any or all of the Subject Shares to the proposed
purchaser, the Subject Shares in the hands of such purchaser shall continue to
be subject to all of the terms, conditions and provisions of this Agreement and
as a condition to such sale, such purchaser shall execute a counterpart to this
Agreement and shall become a Stockholder for all purposes hereunder.
Section 2. Involuntary Transfer and Foreclosure.
Prior to any involuntary transfer or foreclosure upon any Shares
owned by any Stockholder, such Stockholder, his or her representatives and any
person seeking to foreclose upon or otherwise acquire such Shares through
involuntary procedures shall be required to give written notice to all the other
Stockholders disclosing in full the nature and details of the involuntary
transfer or foreclosure, including the price per share, if any, to be paid for
the Shares. Upon the effective date of such written notice, the Stockholder
-3-
<PAGE> 4
owning such Shares shall be deemed to have proposed to sell such Shares for
purposes of Section 1 of this Article to a person other than a Permissible
Transferee pursuant to an offer for the price per share set out in such written
notice, and the Corporation and each of the other Stockholders shall have an
option to purchase such Shares pursuant to the terms, conditions and provisions
of Section 1 of this Article, free and clear of any claim of the person seeking
to foreclose upon or otherwise acquire such Shares, except as to any interest
which such person may have in the amount to be paid for such Shares.
ARTICLE II
Voting of the Shares
The Stockholders agree to enter into a Voting Trust Agreement of
even date pursuant to which Ann Heafner Gaither and William H. Gaither have sole
voting power over the Shares.
ARTICLE III
Endorsement of Share Certificates
Each Share certificate shall be endorsed with the following legend:
The Shares represented by this certificate are subject to the transfer and
voting provisions and restrictions set forth in the Stockholders'
Agreement dated as of October 15, 1996 among Ann Heafner Gaither, William
H. Gaither, Albert C. Gaither, Susan Gaither Jones, Lawson H. Gaither,
Albert Comer Gaither and Thomas R. Jones. Such Stockholders' Agreement
provides, among other things, for a right of first refusal relating to the
securities represented by this certificate and that the securities
represented by this certificate must be voted by Ann Heafner Gaither and
William H. Gaither pursuant to the Voting Trust Agreement, dated as of
October 15, 1996, among all of the Stockholders of the Corporation. By
acceptance of this certificate, each holder hereof agrees to be bound by
the provisions of the Stockholders' Agreement, a copy of which has been
filed with the Secretary of the Corporation and may be obtained, without
charge, upon written request at the Corporation's principal office during
regular business hours.
Each Stockholder agrees that he will deliver all certificates for Shares owned
by him to the Secretary of the Corporation for the purpose of affixing such
legend thereto.
ARTICLE IV
After-Acquired or Substitute Interests
-4-
<PAGE> 5
(A) In the event of the issuance by the Corporation of additional
shares of capital stock, or of any stock dividends on or any subdivisions,
combinations or reclassification of the Shares presently owned or hereafter
acquired by the Stockholders, the restrictions, options and obligations
contained in this Agreement shall be applicable to all shares and options on
shares of the Corporation issued in respect of the Shares.
(B) If any Stockholder shall at any time exchange all or any number
of his Shares for any interest in any entity, all of the provisions of this
Agreement shall apply to such interest in such entity as would have applied to
such Shares if such Shares had not been exchanged for such interest.
ARTICLE V
Miscellaneous
Section 1. Filing of Agreement. An executed copy of this Agreement
shall be filed with the Secretary of the Corporation. The Stockholders shall
cause the Corporation to furnish free of charge to any stockholder thereof a
copy of this Agreement upon written request.
Section 2. Notices. Any and all notices, designations, consents,
offers, acceptances or any other communication provided for herein shall be made
by hand delivery, first-class mail (registered or certified, return receipt
requested), or overnight air courier guaranteeing next day delivery to the
address set forth on Schedule I to this Agreement. Any Stockholder may change
the address listed in the foregoing sentence by giving written notice to the
Corporation and the other Stockholders. Except as otherwise provided in this
Agreement, each such notice shall be deemed effective at the time delivered by
hand, if personally delivered; five business days after being deposited in the
mail, postage prepaid, if mailed; and the next business day after timely
delivery to the courier, if sent by overnight air courier guaranteeing next day
delivery.
Section 3. Amendment and Termination.
(A) The provisions of this Agreement may be amended only by the
written consent of Stockholders holding more than 75% of the Shares then
outstanding (after taking into account Article IV hereof).
(B) The provisions of this Agreement shall terminate upon the first
to occur of the following events:
(i) the consummation of a public offering of the Corporation's
common stock in which the public float is not less than $20 million; and
(ii) the written consent of Stockholders holding more than 75% of
the Shares then outstanding (after taking into account Article IV hereof).
-5-
<PAGE> 6
In addition, in the event the Corporation is dissolved or liquidated, this
Agreement shall automatically terminate. Notwithstanding anything to the
contrary in this clause (B), the provisions of Article IV shall terminate on the
tenth anniversary hereof unless each of the Stockholders agree in writing to
extend the duration of the Article for a period not to exceed ten years beyond
the date that the first Stockholder executes the instrument providing for the
extension.
Section 4. Waiver. No failure or delay on the part of the
Stockholders or any of them in exercising any right, power or privilege
hereunder, and no course of dealing among the Stockholders shall operate as a
waiver thereof nor shall any single or partial exercise of any right, power or
privilege hereunder preclude the simultaneous or later exercise of any other
right, power or privilege. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights and remedies which the Stockholders
or any of them would otherwise have.
Section 5. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
Section 6. Governing Law. This Agreement shall be governed and
construed in accordance with the law of the State of North Carolina.
-6-
<PAGE> 7
Section 7. Benefit and Binding Effect
This Agreement shall be binding upon and shall inure to the benefit
of each of the Stockholders and their respective executors, administrators and
personal representatives and heirs and assigns.
This Agreement has been duly executed by each of the undersigned.
/s/ ANN HEAFNER GAITHER
ANN HEAFNER GAITHER
/s/ WILLIAM H. GAITHER
WILLIAM H. GAITHER
/s/ ALBERT C. GAITHER
ALBERT C. GAITHER
/s/ SUSAN GAITHER JONES
SUSAN GAITHER JONES
/s/ LAWSON H. GAITHER
LAWSON H. GAITHER
/s/ ALBERT COMER GAITHER
ALBERT COMER GAITHER
/s/ THOMAS R. JONES
THOMAS R. JONES
-7-
<PAGE> 8
Schedule 1
Addresses
The J.H. Heafner Company, Inc.
814 East Main Street
P.O. Box 837
Lincolnton, NC 28093-0837
Ann Heafner Gaither
Albert C. Gaither
821 Woodson Road
Newton, NC 28658
William H. Gaither
814 E. Main Street
Lincolnton, NC 28092
Susan Gaither and Thomas R. Jones
126 W. 6th Street
Newton, NC 28658
Lawson H. Gaither
814 E. Main Street
Lincolnton, NC 28092
Albert Comer Gaither
301 Watts Street
Durham, NC 27701
<PAGE> 1
EXHIBIT 10.23
THE J.H. HEAFNER COMPANY, INC.
1997 RESTRICTED STOCK PLAN
1. Purpose.
The purpose of the 1997 Restricted Stock Plan (the "Plan") of The J.H.
Heafner Company, Inc., a North Carolina corporation (the "Company"), is to
attract and retain officers (including non-employee officers), employees,
directors and independent contractors of the Company, or any Subsidiary or
Affiliate which now exists or hereafter is organized or acquired, and to furnish
additional incentives to such persons by encouraging them to acquire a
proprietary interest in the Company.
2. Definitions.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Affiliate" means any entity if, at the time of granting
of Restricted Stock, (i) the Company, directly, owns at least 20% of the
combined voting power of all classes of stock of such entity or at least 20% of
the ownership interests in such entity or (ii) such entity, directly or
indirectly, owns at least 20% of the combined voting power of all classes of
stock of the Company.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means (A) a Participant's conviction of any crime
or offense constituting a felony under applicable law or any other crime or
offense constituting fraud, embezzlement, theft, larceny or misappropriation,
(B) a Participant's breach or violation of the agreement between the Company and
such Participant setting forth the terms and conditions of an award of
Restricted Stock under the Plan, (C) a Participant's frequent and unjustifiable
absenteeism, other than solely by reason of illness or physical or mental
disability and (D) a Participant's willful misconduct or gross negligence in the
performance of such Participant's services to the Company or a Subsidiary, as
determined by the Board acting in its sole discretion and good faith.
(d) "Change in Control" means any of the following: (i) the
acquisition by any person or entity not controlled by the Company's Stockholders
of more than 80% of the Company's then outstanding Stock, (ii) the sale of all
or substantially all of the Company's assets, or (iii) the merger of the Company
with or into a corporation that is not an Affiliate.
(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
<PAGE> 2
(f) "Committee" means the committee, consisting of at least
two member of the Board established by the Board to administer the Plan.
(g) "Company" means The J.H. Heafner Company, Inc., a
corporation organized under the laws of the State of North Carolina, or any
successor corporation.
(h) "Fair Market Value" means, with respect to Stock or other
property, the fair market value of such Stock or other property determined by
such methods or procedures as shall be established from time to time by the
Board acting in its sole discretion and good faith.
(i) "Participant" means any officer, employee, director or
independent contractor of the Company, a Subsidiary or an Affiliate designated
by the Committee to receive Restricted Stock under the Plan.
(j) "Plan" means this J.H. Heafner Company, Inc. 1997
Restricted Stock Plan, as amended from time to time.
(k) "Restricted Period" means the period during which shares
of Restricted Stock are subjected to forfeiture and restrictions on
transferability pursuant to Section 6 of the Plan.
(l) "Restricted Stock" means Stock granted to a Participant
pursuant to the Plan which is subject to forfeiture and restrictions on
transferability in accordance with Section 6 of the Plan.
(m) "Stock" means the common stock, par value $100 per share,
of the Company.
(n) "Subsidiary" means any corporation in which the Company,
directly or indirectly, owns stock possessing 50% or more of the total combined
voting power of all classes of stock of such corporation.
3. Administration.
The Plan shall be administered by the Committee. The Committee shall
have the authority in its discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant awards of Restricted Stock; to determine the
persons to whom and the time or times at which awards of Restricted Stock should
be granted; to determine the number of shares of Restricted Stock to be granted
and the terms, conditions and restricted relating to any awards of Restricted
Stock; to determine whether, to what extent and under what circumstances awards
of Restricted Stock may be canceled, forfeited, exchanged or surrendered; to
make adjustments in the terms and conditions of, and the criteria included in,
awards of
-2-
<PAGE> 3
Restricted Stock in recognition of unusual or non-recurring events affecting the
Company or any Subsidiary, or in response to changes in applicable laws,
regulations or accounting principles; to construe and interpret the Plan and any
awards of Restricted Stock; to prescribe, amend and rescind rules and
regulations relating to the Plan; to determine the terms and provisions of the
Restricted Stock Agreements (which need not be identical for each Participant);
and to make all other determinations deemed necessary or advisable for the
administration of the Plan.
The Committee may appoint a chairperson and a secretary and may make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Committee shall be made by a majority of its members either present in person or
participating by conference telephone at a meeting or by written consent. The
Committee may delegate to one or more of its members or to one or more agents
such administrative duties as it may deem advisable, and the Committee or any
person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee or
such person may have under the Plan. All decisions, determinations and
interpretations of the Committee shall be final and binding on all persons,
including the Company and any Subsidiary or Participant (or any person claiming
any rights under the Plan from or through any Participant) and any stockholder.
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any award
of Restricted Stock granted hereunder.
4. Granting and Establishing Terms of Awards.
The Committee shall have authority, subject to the terms of the Plan,
to determine the officers, employees, directors and independent contractors of
the Company or any Subsidiary or Affiliate eligible for awards of Restricted
Stock and those to whom Restricted Stock shall be granted, the number of shares
of Stock to be covered by each award of Restricted Stock, the time or times at
which Restricted Stock shall be granted, the terms and provisions of the
instruments by which Restricted Stock shall be evidenced; and to determine the
period of time during which restrictions on Restricted Stock shall remain in
effect. The grant of Restricted Stock to any Participant shall neither entitle
such Participant to, nor disqualify him from, participation in any other award
of Restricted Stock.
5. Stock Subject to the Plan.
The maximum number of shares of Stock reserved for the award of
Restricted Stock under the Plan shall be 250,000 shares of Stock, subject to
adjustment as provided herein. Such shares may, in whole or in part, be
authorized but unissued shares or shares that shall have been or may be
reacquired by the Company in private transactions or otherwise. If any shares of
Restricted Stock are forfeited, canceled, exchanged or surrendered, the shares
of Restricted Stock shall, to the extent of any such forfeiture, cancellation,
exchange, surrender, termination or expiration, again be available under the
Plan. In no event shall any Participant acquire, pursuant
-3-
<PAGE> 4
to any awards of Restricted Stock under this Plan, more than 20% of the
aggregate number of shares of Stock reserved for awards under the Plan.
In the event that the Committee shall determine, in its sole
discretion, that any dividend or other distribution (whether in the form of
cash, Stock, or other property), recapitalization, stock split, reverse split,
any reorganization, merger, consolidation, spin-off, combination, repurchase,
share exchange, license arrangement, strategic alliance or other similar
corporate transaction or event, affects the Stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of any
Participants in the Plan, then the Committee shall make such equitable changes
or adjustments as it deems necessary or appropriate to (i) the number and kind
of shares of Stock which may thereafter be issued in accordance with the Plan,
or, (ii) the number and kind of shares of Stock issued or issuable in respect of
the Plan.
6. Specific Terms of Grants of Restricted Stock.
(a) Grant of Restricted Stock. Any award made hereunder of
Restricted Stock shall be subject to the terms and conditions of the Plan and to
any other terms and conditions not inconsistent with the Plan (including, but
not limited to, requiring the Participant to pay the Company an amount equal to
at least the par value per share for each share of Restricted Stock awarded) as
shall be prescribed by the Committee in its sole discretion. The Committee may
require that, as a condition to any award of Restricted Stock under the Plan,
the Participant shall have entered into an agreement with the Company setting
forth the terms and conditions of such award and such other matters as the
Committee, in its sole discretion, shall have determined. As determined by the
Committee, the Company shall either (i) transfer or issue to each Participant to
whom an award of Restricted Stock has been made the number of shares of
Restricted Stock specified by the Committee or (ii) hold such shares of
Restricted Stock for the benefit of the Participant for the Restricted Period.
(b) Restrictions on Transferability. Shares of Restricted
Stock may not be sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered by the Participant during the Restricted Period, except as
hereinafter provided.
(c) Rights as a Shareholder. Except for the restrictions set
forth herein and unless otherwise determined by the Committee, the Participant
shall have all the rights of a shareholder with respect to Restricted Stock,
including, without limitation, the right to vote and the right to receive
dividends.
(d) Lapse of Restricted Period. Unless the Committee shall
otherwise determine at the date an award of Restricted Stock is made to the
Participant, the Restricted Period shall commence upon the date of grant and
shall lapse with respect to the shares of Restricted Stock on the earlier of:
(a) the tenth anniversary of the date of grant or (b) the date of a Change of
Control, unless sooner terminated as otherwise provided herein.
-4-
<PAGE> 5
(e) Legend. Each certificate issued to a Participant in
respect of shares of Restricted Stock awarded under the Plan shall be registered
in the name of the Participant and shall bear the following (or similar) legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND CANNOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO REGISTRATION UNDER
SAID ACT OR IN COMPLIANCE WITH AN EXEMPTION THEREFROM.
ADDITIONALLY, THE SALE, TRANSFER, ASSIGNMENT, PLEDGE, OR
ENCUMBRANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE J.H. HEAFNER
COMPANY, INC. 1997 RESTRICTED STOCK PLAN AND AN AGREEMENT
BETWEEN J.H. HEAFNER COMPANY, INC. AND THE HOLDER OF RECORD OF
THIS CERTIFICATE PURSUANT TO SUCH PLAN, AND NO TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IN CONTRAVENTION OF
SUCH PLAN OR SUCH AGREEMENT SHALL BE VALID OR EFFECTIVE.
COPIES OF SUCH PLAN AND SUCH AGREEMENT MAY BE OBTAINED BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THE
CERTIFICATE TO THE SECRETARY OF J.H. HEAFNER COMPANY, INC."
(f) Death or Termination of Employment, Etc. Unless the
Committee shall otherwise determine at the date of grant, if a Participant
ceases to be an officer of, in the employ of, a director of, or maintain an
independent contractor relationship with, the Company or any Subsidiary or
Affiliate by reason of death, the Restricted Period covering all shares of
Restricted Stock issued to such Participant under the Plan shall immediately
lapse. Except as set forth in the immediately preceding sentence, unless the
Committee shall otherwise determine at the date of grant, if a Participant
ceases to be an officer of, in the employ of, a director of, or maintain an
independent contractor relationship with, the Company or any Subsidiary or
Affiliate for any reason other than for Cause, all shares of Restricted Stock
issued to such Participant shall remain subject to the restrictions on
transferability pursuant to Section 6(b) until the lapse of the Restricted
Period pursuant to Section 6(d).
(g) Termination for Cause. Unless the Committee shall
otherwise determine at the date of grant, if a Participant's service as an
officer, employee, director or independent contractor with the Company or any
Subsidiary is terminated for Cause at any time prior to the date when the
Restricted Period lapses, all shares of Restricted Stock owned by such
Participant shall revert back to the Company upon the such termination.
(h) Issuance of New Certificates. Upon the lapse of the
Restricted Period with respect to any shares of Restricted Stock, such shares
shall no longer be subject to the restrictions
-5-
<PAGE> 6
imposed under Section 6 and the Company shall issue or have issued new share
certificates without the legend described in Section 6 in exchange for those
previously issued.
7. General Provisions.
(a) Compliance with Legal and Exchange Requirements. The Plan,
the granting and exercising of Restricted Stock thereunder, and the other
obligations of the Company under the Plan and any Restricted Stock Agreement,
shall be subject to all applicable federal and state laws, rules and
regulations, and to such approvals by any regulatory or governmental agency as
may be required. The Company, in its discretion, may postpone the issuance or
delivery of Stock until completion of stock exchange listing or registration or
qualification of such Stock or other required action under any state, federal or
foreign law, rule or regulation as the Company may consider appropriate, and may
require any Participant to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of Stock in compliance with applicable laws, rules and regulations.
(b) No Right to Continued Employment, etc. Nothing in the Plan
or in any Stock granted or Restricted Stock Agreement entered into pursuant to
the Plan shall confer upon any Participant the right to continue as an officer
of, in the employ of, as a director of, or an independent contractor to, the
Company, any Subsidiary or any Affiliate, as the case may be, or to be entitled
to any remuneration or benefits not set forth in the Plan or such Restricted
Stock Agreement or to interfere with or limit in any way the right of the
Company or any Subsidiary to terminate such Participant's service with the
Company, any Subsidiary or any Affiliate.
(c) Taxes. The Company, or any Subsidiary is authorized to
withhold from any payment relating to Restricted Stock under the Plan or any
other payment to a Participant, amounts of withholding and other taxes due in
connection with any transaction involving Restricted Stock, and to take such
other action as the Committee may deem advisable to enable the Company and a
Participant to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to Restricted Stock. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations.
(d) Amendment and Termination of the Plan. The Board or
Committee may terminate the Plan, in whole or in part, may suspend the Plan, in
whole or in part from time to time, and may amend the Plan from time to time,
including the adoption of amendments deemed necessary or desirable to qualify
the grants of Restricted Stock under the laws of various states (including tax
laws), or to correct any defect or supply an omission or reconcile any
inconsistency in the Plan or in any grant of Restricted Stock thereunder,
without the approval of the shareholders of the Company; provided, however, that
no action shall be taken without the approval of the shareholders of the Company
to increase the number of shares of Stock that may be awarded hereunder,
increase the benefits accruing to Participants under the Plan, change the
requirements as to eligibility to participate in the Plan, withdraw
administration from the Committee, or permit any person while a member of the
Committee to be eligible to receive or
-6-
<PAGE> 7
hold a grant of Restricted Stock under the Plan. No amendment or termination or
modification of the Plan shall in any manner affect grants of Restricted Stock
without the consent of the Participants, unless the Committee has made a
determination that an amendment or modification is in the best interest of all
persons to whom grants have been made. The Plan shall terminate when all shares
of Stock subject to awards of Restricted Stock under the Plan have been issued
and are no longer subject to forfeiture under the terms hereof unless earlier
terminated by the Board or the Committee.
(e) No Rights to Stock. No Participant shall have any claim to
be granted any Restricted Stock under the Plan, and there is no obligation for
uniformity of treatment of Participants.
(f) Governing Law. The Plan and all determinations made and
actions taken pursuant hereto shall be governed by the laws of the State of New
York without giving effect to the conflict of laws principles thereof.
(g) Effective Date. The Plan shall take effect upon its
adoption by the Board (the "Effective Date"), but the Plan (and any grants of
Restricted Stock made prior to the stockholder approval mentioned herein), shall
be subject to the approval of the holder(s) of a majority of the issued and
outstanding shares of voting securities of the Company entitled to vote, which
approval must occur within twelve months of the Effective Date. In the absence
of such approval, such grant of Restricted Stock shall be null and void.
-7-
<PAGE> 1
EXHIBIT 10.24
SECURITIES PURCHASE AND STOCKHOLDERS' AGREEMENT, dated as of
May 28, 1997, among THE J.H. HEAFNER COMPANY, INC., a North Carolina corporation
(the "Company"), and each management stockholder named on the signature pages
hereto (a "Purchaser" and, collectively, the "Purchasers").
Introduction
The Company desires to issue and sell to each Purchaser, and
each Purchaser desires to purchase from the Company, that number of shares (the
"Shares") of the Company's common stock, par value $.01 per share (the "Common
Stock"), set forth in a letter dated May 20, 1997 (the "Letter") from the
Company to such Purchaser.
On May 7, 1997, (i) the Company and its wholly owned
subsidiary, Oliver & Winston, Inc. ("Winston"), entered into a Loan and Security
Agreement with BankBoston, N.A., pursuant to which up to $65.0 million in
indebtedness may be extended to the Company and Winston (the "Senior
Financing"), (ii) the Company issued senior subordinated notes in the principal
amount of $16.0 million pursuant to a Senior Subordinated Note and Warrant
Purchase Agreement with The 1818 Mezzanine Fund, L.P. (the "Senior Subordinated
Financing"), (iii) the Company issued warrants (the "Warrants") in connection
with the Senior Subordinated Financing exercisable for approximately 20% of the
shares of Common Stock outstanding. and (iv) the Company issued shares of Series
A Cumulative Redeemable Preferred Stock and shares of Series B Cumulative
Redeemable Preferred Stock (collectively, the "Preferred Stock") to The
Kelly-Springfield Tire Company.
In addition to the terms of the issuance, sale and purchase
of the Shares, the Company and the Purchasers desire to set forth herein certain
matters regarding the continued ownership of the Shares by the Purchasers.
For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
Purchase and Sale
SECTION 1.1. Purchase and Sale of Common Stock. The Company
hereby issues and sells to each Purchaser, and each Purchaser hereby acquires
from the Company, on the date hereof, that number of Shares set forth in the
Letter to such Purchaser for a purchase price of $1.10 per Share (the "Purchase
Price"), in cash, payable by wire transfer of immediately available funds to an
account heretofore designated to the Purchaser by the Company, by certified bank
check or money order payable to the Company, or pursuant to the terms of a
promissory note in the form attached to this Agreement as Exhibit A. The Shares
shall have the respective rights and preferences of other shares of Common Stock
as set forth in the Company's
<PAGE> 2
Amended and Restated Articles of Incorporation, a copy of which is attached to
this Agreement as Exhibit B.
SECTION 1.2. Delivery of Certificates. The Company is hereby
issuing and selling to each Purchaser such Purchaser's Shares by delivering to
such Purchaser a duly executed certificate or certificates representing the
Shares registered in the name of such Purchaser, with appropriate issue stamps,
if any, affixed at the expense of the Company, free and clear of all security
interests, liens, pledges, charges, options, rights of first refusal, mortgages,
indentures, security agreements or other claims, encumbrances, agreements,
arrangements or commitments of any kind or character, whether written or oral
and whether or not relating in any way to credit or the borrowing of money
("Claims"), and the Purchaser is hereby purchasing the Shares for the Purchase
Price applicable thereto.
ARTICLE II
Representations and Warranties of the Company
The Company represents and warrants to the Purchasers as
follows:
SECTION 2.1. Organization Standing and Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of North Carolina.
SECTION 2.2. Authority; Binding Agreements. The Company has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of the Company. This Agreement has been
duly executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
SECTION 2.3. Conflicts; Consents. The execution and delivery
by the Company of this Agreement and the consummation of the transactions
contemplated hereby and compliance by the Company with any of the provisions
hereof do not and will not (i) conflict with or result in a breach of the
articles of incorporation, by-laws or other constitutive documents of the
Company, (ii) conflict with or result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the provisions of any
note, bond, lease, mortgage, indenture, or any license, franchise, permit,
agreement or other instrument or obligation to which the Company is a party, or
by which the Company or any of the Company's properties or assets may be bound
or affected, except for such conflicts, breaches or defaults as to which
requisite waivers or consents have been obtained, (iii) violate any law,
statute, rule or regulation or order, writ, injunction or decree applicable to
the Company or any of the Company's properties or assets or (iv) result in the
creation or imposition of any Claim upon any of the Company's properties or
assets. No consent or approval by, or notification of or filing with, any person
is required in connection with the execution, delivery and performance by the
Company of this Agreement and the consummation of the transactions contemplated
hereby.
2
<PAGE> 3
SECTION 2.4. Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of 10,000,000 shares of Common
Stock, 7,000 shares of Series A Cumulative Redeemable Preferred Stock, par value
$.01 per share, and 4,500 shares of Series B Cumulative Redeemable Preferred
Stock, par value $.01 per share, and as of the date hereof, all of such
securities are issued and outstanding except for 6,304,000 shares of Common
Stock authorized but not issued. All such shares of capital stock of the Company
have been duly authorized and are fully paid and non-assessable. Except for (i)
977,590 shares of Common Stock reserved for issuance upon exercise of the
Warrants and (ii) 265,000 shares of Common Stock reserved for issuance under the
Company's 1997 Stock Option Plan (the "Option Plan"), there are no shares of
capital stock of the Company reserved for issuance. Except for options granted
under the Option Plan and for the Warrants, there are no options, warrants or
other rights to purchase shares of capital stock or other securities of the
Company or Winston, nor is the Company or Winston obligated in any manner to
issue shares of its capital stock or other securities.
ARTICLE III
Representations and Warranties of the Purchasers
Each of the Purchasers severally represents and warrants to
the Company as follows:
SECTION 3.1. Capacity; Binding Agreements. Such Purchaser has
all requisite capacity to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by such Purchaser, and constitutes the valid and binding obligation of
such Purchaser, enforceable against such Purchaser in accordance with its terms.
SECTION 3.2. Conflicts; Consents. The execution and delivery
by such Purchaser of this Agreement, the consummation of the transactions
contemplated hereby and compliance by such Purchaser with any of the provisions
hereof do not and will not (i) conflict with or result in a default (or give
rise to any right of termination, cancellation or acceleration) under any of the
provisions of any note, bond, lease, mortgage, indenture, or any license,
franchise, permit, agreement or other instrument or obligation to which such
Purchaser is a party, or by which such Purchaser or any of such Purchaser's
properties or assets may be bound or affected, except for such conflicts,
breaches or defaults as to which requisite waivers or consents have been
obtained, (ii) violate any law, statute, rule or regulation or order, writ,
injunction or decree applicable to such Purchaser or any of such Purchaser's
properties or assets or (iii) result in the creation or imposition of any Claim
upon any of such Purchaser's properties or assets.
SECTION 3.3. Purchase for Own Account. (a) The Shares to be
acquired by such Purchaser pursuant to this Agreement are being acquired for his
own account and the Purchaser has no intention of distributing or reselling such
securities or any part thereof in any transaction that would be in violation of
the securities laws of the United States of America, or any state thereof. If
such Purchaser should in the future decide to dispose of any of the Shares, such
Purchaser understands and agrees that he may do so only in compliance with this
3
<PAGE> 4
Agreement and with the Securities Act of 1933 (the "Securities Act") and
applicable state securities laws, as then in effect, and that stop-transfer
instructions to that effect, where applicable, will be in effect with respect to
such securities. If such Purchaser should decide to dispose of any Shares, such
Purchaser, if requested by the Company, will have the obligation in connection
with such disposition, at such Purchaser's expense, of delivering an opinion of
counsel of recognized standing in securities law in connection with such
disposition to the effect that the proposed disposition of the Shares will not
be in violation of the Securities Act or any applicable state securities laws
and, assuming such opinion is required and is otherwise appropriate in form and
substance under the circumstances, the Company will accept, and will recommend
to any applicable transfer agent or trustee for such securities that it accept,
such opinion.
(b) Such Purchaser agrees to the imprinting, so long as
required by law, of a legend on certificates representing all of the Shares to
the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED, QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS AND NEITHER THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY AUTHORITY HAS
PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES. THE TRANSFER OF ANY
SECURITIES REPRESENTED BY THIS CERTIFICATE IS FURTHER LIMITED BY THE PROVISIONS
OF THE SECURITIES PURCHASE AND STOCKHOLDERS' AGREEMENT AMONG THE J.H. HEAFNER
COMPANY, INC. AND THE MANAGEMENT STOCKHOLDERS IDENTIFIED THEREIN, A COPY OF
WHICH IS ON FILE AT THE EXECUTIVE OFFICE OF THE COMPANY."
SECTION 3.4. Nature of Purchaser. Such Purchaser acknowledges
that the offer and sale of the Shares is intended to be exempt from registration
under the Securities Act. Such Purchaser is (i) a director, president, vice
president in charge of a principal business unit, division or function or other
officer of the Company who performs a policy making function for the Company,
(ii) an individual with a net worth, or joint net worth with such Purchaser's
spouse, at the date hereof in excess of $1,000,000, (iii) an individual with an
income in excess of $200,000 in each of the two most recent years or joint
income with such Purchaser's spouse in excess of $300,000 in each of those years
and has a reasonable expectation of reaching the same income level in the
current year or (iv) an individual who has appointed a "purchaser
representative" as described in Section to act as such Purchaser's
representative to assist such Purchaser in evaluating the purchase of the
Shares. Such Purchaser has such knowledge and experience in financial and
business matters so that he is capable of evaluating the relative merits and
risks of purchasing the Shares. Such Purchaser has adequate means of providing
for his current
4
<PAGE> 5
economic needs and possible personal contingencies, has no need for liquidity in
his investment in the Company and is able financially to bear the risks of such
investment.
SECTION 3.5. Information. All documents, records and books
pertaining to the investment in the Shares and requested by such Purchaser or
his purchaser representative, if any, have been made available or delivered to
such Purchaser. Such Purchaser has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's management and to
ask questions of and receive answers from the Company concerning such matters.
All such questions, if any, have been answered to the full satisfaction of such
Purchaser and his purchaser representative, if any, and such Purchaser has
received all information about the Company which such Purchaser or his purchaser
representative, if any, desires, including information which such Purchaser or
representative deems necessary to verify the accuracy of information the Company
has furnished to such Purchaser.
ARTICLE IV
Transferability of Shares
SECTION 4.1. Stock Transfer Restrictions. None of the
Purchasers shall sell, assign, pledge, give away or otherwise transfer (a
"Transfer") any Shares except in accordance with the procedures set forth in
this Agreement. Any attempted Transfer of Shares not permitted by this Agreement
shall be null and void, and the Company shall not in any way give effect to any
such Transfer. Any proposed Transfer of Shares shall be null and void, and the
Company shall not in any way give effect to any such Transfer, unless the
transferee of such Shares who is not, immediately prior to such Transfer, a
Purchaser shall agree in writing to be bound by and comply with the provisions
of this Agreement.
SECTION 4.2. Termination of Employment. (a) Transfers upon
Termination for Cause. If the Company shall terminate a Purchaser's employment
for "Cause" or a Purchaser shall terminate his employment with the Company other
than for "Good Reason" (as such terms are defined below), the Company shall have
the right, commencing on the date of such termination and continuing until the
first anniversary thereof, to purchase all of such Purchaser's Shares at the
Repurchase Price applicable thereto; provided that if and to the extent that,
prior to such first anniversary, the Company is prohibited under the terms of
any loan agreement or note for borrowed money from making such repurchase to the
full extent it would otherwise do so, the Company shall have the right to
purchase such Shares until the expiration of 45 days after such first
anniversary. For purposes of this Section 4.2, "Company" shall include Winston
with respect to a Purchaser employed directly by Winston.
For purposes of this Agreement,
"Cause", with respect to any Purchaser, has the meaning set
forth in the employment agreement, if any, then in effect between the Company
and such Purchaser or, in the absence of such an agreement, shall mean (i) such
Purchaser's conviction of, or plea of guilty or nolo contendere to a felony,
(ii) such Purchaser's gross negligence in the performance of his employment
services to the Company, which is not corrected within 15 business days after
5
<PAGE> 6
written notice, (iii) such Purchaser's knowingly dishonest act, or knowing bad
faith or willful misconduct in the performance of such services to the material
detriment of the Company, which is not corrected within 15 business days after
written notice, or (iv) such Purchaser's other material breach of his
obligations as an employee or officer of the Company which is not corrected
within a reasonable period of time (determined in light of the cure appropriate
to such material breach, but in no event less than 15 business days) after
written notice.
"Good Reason", with respect to any Purchaser, has the meaning
set forth in the employment agreement, if any, then in effect between the
Company and such Purchaser or, in the absence of such an agreement, shall mean
(i) the failure of the Company to pay any undisputed amount due to such
Purchaser in connection with his employment by the Company or a substantial
diminution in benefits provided pursuant to such employment, (ii) a substantial
diminution in the status, position and responsibilities of such Purchaser that
is not instituted to all senior management of the Company or (iii) the Company
requiring the Employee to be based at any office or location that requires a
relocation or commute greater than 50 miles from the office or location to which
such Purchaser is currently assigned.
"Repurchase Price" means, with respect to each Share owned by
any Purchaser, the greater of (i) the Purchase Price applicable thereto and (ii)
the quotient obtained by dividing the Net Equity Value by the total number of
shares of Common Stock outstanding on the date of termination of such
Purchaser's employment (on a fully diluted basis, after assuming the issuance of
shares of Common Stock pursuant to the exercise of in-the-money options granted
under the Option Plan and in-the-money Warrants). "Net Equity Value" means the
sum of (x) 6 times the Company's EBITDA (as calculated in accordance with the
Loan and Security Agreement dated May 7, 1997 among the Company, Winston, the
financial institutions identified therein and BankBoston, N.A., as agent) for
the 12 full calendar months immediately preceding the date on which such
termination shall have occurred, plus (y) the aggregate exercise price of all
options granted under the Option Plan and all Warrants, which exercise price at
the date such termination shall have occurred does not exceed (on a per share
basis) the per share market value of the Common Stock, less (z) the aggregate
amount of principal of and interest on (in the case of debt) and liquidation
value of (in the case of capital stock) the Senior Financing, Senior
Subordinated Financing and Preferred Stock outstanding as of the date of such
termination.
(b) Termination other than for Cause. If the Company shall
terminate a Purchaser's employment other than for Cause or a Purchaser shall
terminate his employment with the Company for Good Reason, such Purchaser shall
have the right, commencing on the date of such termination and continuing until
the first anniversary thereof, to require the Company to purchase all of such
Purchaser's Shares at the Repurchase Price applicable thereto; provided that if
and to the extent that, prior to such first anniversary, the Company is
prohibited under the terms of any loan agreement or note for borrowed money from
purchasing such Shares to the extent so required by a Purchaser, the Company
shall not be obligated to make such purchase until it is no longer prohibited
from doing so, in which case payment shall be made promptly after the removal of
such prohibition. In the event the option is not exercised, the Company shall
have the right, commencing on the first anniversary and continuing until the
6
<PAGE> 7
second anniversary thereof, to purchase all of such Purchaser's Shares at the
Repurchase Price applicable thereto.
(c) Termination or Repurchase upon Death. If a Purchaser's
employment with the Company shall terminate due to such Purchaser's death, or,
following any other termination of employment by the Company, a Purchaser shall
die, the Company shall have the right to purchase, and such Purchaser's
descendants shall have the right to require the Company to purchase, all of such
Purchaser's Shares at the Repurchase Price applicable thereto, commencing on the
date of death of such Purchaser and continuing until the first anniversary
thereof; provided that if and to the extent that, prior to such first
anniversary, the Company is prohibited under the terms of any loan agreement or
note for borrowed money from purchasing such Shares to the extent so required by
a Purchaser's descendants, the Company shall not be obligated to make such
purchase until it is no longer prohibited from doing so, in which case payment
shall be made promptly after the removal of such prohibition.
(d) Delivery of Payment. The Company or the Purchaser, as the
case may be, shall notify the other of such party's exercise of its rights under
this Section 4.2 by giving written notice of such exercise at least 10 and not
more than 30 days before the date established by such electing party for such
purchase or sell, as the case may be. On the date so designated, the Company
shall deliver the appropriate Repurchase Price to such Purchaser by certified
check or money order and such Purchaser shall deliver the certificates
evidencing the Shares being purchased, duly endorsed for transfer as the Company
may direct, and free and clear of any Claim. If any Shares evidenced by a
certificate so surrendered are not being purchased pursuant to the terms hereof,
the Company shall promptly issue to such Purchaser a replacement certificate
evidencing the Shares not so purchased.
SECTION 4.3. Transfers Among Management or to Descendants. (a)
Any Purchaser may, so long as any right has not been exercised with respect to
such Shares pursuant to Section 4.2, Transfer any Shares to another Purchaser or
other management employee of the Company or Winston who acquires shares of
Common Stock after the date hereof pursuant to an exercise of any option under
the Option Plan or pursuant to a purchase agreement substantially in the form of
this Agreement (a "Management Employee"). Any Purchaser may Transfer by will or
the laws of descent and distribution any Shares to such Purchaser's descendants.
Such transfers shall be effective only if the transferee agrees to be bound by
the terms of this Agreement.
SECTION 4.4. Right of First Refusal. With respect to any
Shares that the Company had the right to purchase pursuant to Section 4.2(a) or
Section 4.2(c) but failed to so purchase prior to the expiration of the one-year
period referred to therein (as the same may be extended due to the Company's
inability to purchase such Shares as described therein), the following
provisions shall apply.
(a) If a Purchaser desires to Transfer any such Shares (other
than pursuant to Section 4.3), such Purchaser shall deliver to the Company and
the other Purchasers and Management Employees a written notice, which shall be
irrevocable for a period of 45 days after
7
<PAGE> 8
delivery, offering all of such Shares to the Company and the other Purchasers
and Management Employees at the purchase price and on the terms specified in the
written notice. The Company shall have the first right and option, for a period
of 30 days after delivery of such written notice, to purchase all (but not part)
of such Shares at the purchase price and on the terms specified in the notice.
Such acceptance shall be made by delivering a written notice to such
transferring Purchaser within such 30-day period.
(b) If the Company fails to accept such offer, then upon the
earlier of the expiration of such 30-day period or upon the receipt of a written
rejection of such offer from the Company, the other Purchasers and Management
Employees (as a group) shall have the second right and option, until 15 days
after the expiration of the 30-day period, to purchase on a pro rata basis with
all other Purchasers and Management Employees so electing all (but not part) of
such Shares offered at the purchase price and on the terms specified in the
notice. Such acceptance shall be made by delivering a written notice to the
transferring Purchaser within the 15-day period.
(c) If the Company and the other Purchasers and Management
Employees do not elect to purchase the Shares so offered, then the transferring
Purchaser may Transfer all (but not part) of such Shares at a price not less
than the price, and on terms not more favorable to the transferee of such Shares
than the terms, stated in the original written notice of intention to sell, at
any time within 15 days after the expiration of the period in which the other
Purchasers and Management Employees could elect to purchase such Shares. If such
Shares are not sold by the transferring Purchaser during such 15-day period, the
right of the transferring Purchaser to sell such Shares shall expire and the
rights and obligations set forth in this Section 4.4 shall be reinstated with
respect to such Shares.
SECTION 4.5. Lock-up Agreements. If the Company proposes to
register under the Securities Act any of its Common Stock for sale to the
public, each Purchaser shall enter into such agreement (a "Lock-up Agreement")
as may be requested by the underwriters of such registered offering, pursuant to
which Lock-up Agreement such Purchaser shall refrain from selling any Shares
during the period of distribution of Common Stock by such underwriters and for a
period of up to 180 days following the effective date of such registration.
ARTICLE V
Miscellaneous
SECTION 5.1. Option Shares; Dividends; Reclassifications. If,
subsequent to the date hereof, any shares of Common Stock are issued to a
Purchaser pursuant to the exercise of any option (including options granted
under the Option Plan), warrant or other security convertible into or
exercisable for shares of Common Stock, or any shares or other securities are
issued with respect to, or in exchange for, any of the Shares by reason of any
reincorporation, stock dividend, stock split, consolidation of shares,
reclassification or consolidation involving the Company, such shares of Common
Stock and such other shares or securities shall be deemed to be Shares for all
purposes of this Agreement.
8
<PAGE> 9
SECTION 5.2. Survival of Provisions; Termination. (a) All of
the representations, warranties and covenants made herein and each of the
provisions of this Agreement shall, except as otherwise expressly set forth
herein, survive the execution and delivery of this Agreement, any investigation
by or on behalf of the Purchasers, the acceptance of the Shares and payment
therefor or the termination of this Agreement.
(b) This Agreement shall terminate upon the earliest to occur
of the (i) issuance by the Company or sale by the shareholders of the Company to
the public on a Form S-1 under the Securities Act of shares of Common Stock
representing at least 40% of the Common Stock outstanding after such issuance or
sale, (ii) tenth anniversary of the date of this Agreement and (iii) written
consent of all of the Purchasers, the Management Employees and the Company. Upon
such a termination, all rights and obligations shall terminate, except the
Purchasers' obligations under Section 4.5 with respect to a Lock-up Agreement
entered into in connection with a public offering referred to in the foregoing
clause (i), if applicable.
SECTION 5.3. Notices. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be by registered or certified first-class mail, return receipt requested,
telecopier, courier services or personal delivery to the following addresses, or
to such other addresses as shall be designated from time to time by a party in
accordance with this Section 5.3:
(a) if to the Company:
The J.H. Heafner Company, Inc.
814 East Main Street
P.O. Box 837
Lincolnton, North Carolina 28093-0837
Attention: J. Michael Gaither
Telecopier No.: (704) 732-6480
with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, New York 10019
Attention: Scott F. Smith, Esq.
Telecopier No.: (212) 841-1010
(b) if to a Purchaser, at the address set forth opposite such
Purchaser's name on the signature pages hereof.
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; one business day after delivery
to a courier, if delivered by commercial overnight courier service; five
business days after being deposited in the mail, postage prepaid, if mailed; and
when receipt is acknowledged, if telecopied.
9
<PAGE> 10
SECTION 5.4. Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors and permitted assigns
of the parties hereto. The provisions of Article IV also shall inure to the
benefit of and be enforceable by the Management Employees. A Purchaser may
assign its rights hereunder only in conjunction with, and to a transferee of, a
Transfer permitted pursuant to the terms of Article IV, and any such assignee
shall be deemed to be a "Purchaser" for purposes of this Agreement. The Company
may not assign any of its rights or obligations hereunder without the consent of
Purchasers holding a majority of the Shares outstanding; provided that any
successor by merger or consolidation of the Company or similar transaction shall
be bound by and benefit from the terms hereof as if named as the Company
hereunder.
SECTION 5.5. Amendment and Waiver. No failure or delay on the
part of the Company or the Purchasers in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. No waiver
of or consent to any departure by the Company or the Purchasers from any
provision of this Agreement shall be effective unless signed in writing by the
party entitled to the benefit thereof; provided that notice of any such waiver
shall be given to each party hereto as set forth herein. Except as otherwise
provided herein, no amendment, modification or termination of any provision of
this Agreement shall be effective unless signed in writing by or on behalf of
the Company and Purchasers holding at least a majority of the Shares issued and
outstanding; provided that the provisions of Section 5.2(b) and of this sentence
shall not be amended or waived without the written consent of all of the
Purchasers and the Company.
Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by the Company or the Purchasers from the terms of
any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given. Except where
notice is specifically required by this Agreement, no notice to or demand on the
Company or the Purchasers in any case shall entitle the Company or the
Purchasers to any other or further notice or demand in similar or other
circumstances.
SECTION 5.6. Purchaser Representative. If the Purchaser has
been represented by a purchaser representative in connection with his investment
in the Shares, in evaluating the Purchaser's investment in the Shares the
Purchaser has been advised by such purchaser representative as to the merits and
risks of the investment in general and the suitability of the investment for the
Purchaser in particular, and the purchaser representative has disclosed in
writing any material relationship, actual or contemplated, between the purchaser
representative and any entity connected to the transactions contemplated hereby,
or affiliate of any such entity, and any compensation received or to be received
as a result of such relationship.
SECTION 5.7. Counterparts. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
10
<PAGE> 11
SECTION 5.8. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
SECTION 5.9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
SECTION 5.10. Severability. If any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.
SECTION 5.11. Entire Agreement. This Agreement, together with
the exhibits hereto and the terms of the Common Stock, is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits
hereto and the Common Stock, supersede all prior agreements and understandings
among the parties with respect to such subject matter.
SECTION 5.12. Expenses. Each party to this Agreement shall
each bear its or his own costs incurred in connection with the negotiation,
execution and delivery and enforcement of this Agreement, including the fees and
expenses of lawyers, financial advisors and accountants.
SECTION 5.13. Certain Definitions and Rules of Interpretation.
Except as otherwise expressly provided in this Agreement, the following rules of
interpretation apply to this Agreement: (i) the singular includes the plural and
the plural includes the singular; (ii) "or" and "any" are not exclusive and
"include" and "including" are not limiting; (iii) a reference to any agreement
or other contract includes permitted supplements and amendments; (iv) a
reference to a law includes any amendment or modification to such law and any
rules or regulations issued thereunder; (v) a reference to a person includes its
permitted successors and assigns; (vi) a reference to GAAP or generally accepted
accounting principles refers to United States generally accepted accounting
principles; and (vii) a reference in this Agreement to an Article, Section or
Exhibit is to the Article, Section or Exhibit of this Agreement.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase and Stockholders' Agreement to be executed and delivered as
of the date first above written.
THE J. H. HEAFNER COMPANY, INC.
By: /s/ WILLIAM H. GAITHER
----------------------------
Name: William H. Gaither
Title: President & CEO
/s/ WILLIAM H. GAITHER
----------------------------
Address for Notices: Name: William H. Gaither
PO Box 837
Lincolnton, NC 28092
/s/ THOMAS J. BONBURG
----------------------------
Address for Notices: Name: Thomas J. Bonburg
/s/ DANIEL K. BROWN
----------------------------
Address for Notices: Name: Daniel K. Brown
17915 Jetton Rd.
Cornelius, NC 28031
/s/ J. MICHAEL GAITHER
----------------------------
Address for Notices: Name: J. Michael Gaither
315 West 7th Street
Newton, NC 28658
/s/ DONALD C. ROOF
----------------------------
Address for Notices: Name: Donald C. Roof
6618 Seton House Lane
Charlotte, NC 28277
/s/ DWIGHT P. HANSEN
---------------------------
Address for Notices: Name: Dwight P. Hansen
12
<PAGE> 13
/s/ HERBERT P. STEVENS
---------------------------
Address for Notices: Name: Herbert P. Stevens
7844 4th St.
Downey, CA 90241
/s/ LARRY B. STODDARD
---------------------------
Address for Notices: Name: Larry B. Stoddard
/s/ ALAN WILSON
---------------------------
Address for Notices: Name: Alan Wilson
82 Mollison Dr.
Simi Valley, Ca 93065
--------------------------
Address for Notices: Name: William G. Morrison
/s/ J. LEWIS McKNIGHT
--------------------------
Address for Notices: Name: J. Lewis McKnight
8755 Harris Rd.
Concord, NC 28027
13
<PAGE> 1
EXHIBIT 10.26
EMPLOYMENT AGREEMENT, dated as of May 20, 1998 (the
"Agreement"), between The J. H. Heafner Company, Inc., a North
Carolina corporation (the "Employer"), and Richard P. Johnson
(the "Employee").
The Employer desires to retain the Employee to supply services
to the Employer, and the Employee desires to provide such services to the
Employer, on the terms and subject to the conditions set forth in this
Agreement.
In consideration of (i) the Employee's agreement to supply
services under this Agreement and (ii) the mutual agreements set forth below,
the sufficiency of which is hereby acknowledged, the Employer and the Employee
agree as follows:
SECTION 1. Employment Relationship.
(a) The Employer hereby employs the Employee, and the Employee
hereby agrees to be employed by the Employer, as President of the Southeastern
Wholesale Division of the Employer, and the Employee will devote all of his
business time, attention, knowledge and skills and use his best efforts during
the Employment Period to perform services for the Employer in accordance with
directions given to the Employee from time to time by the Board of Directors of
the Employer.
(b) The period commencing on the date of this Agreement and
ending on the date on which this Agreement is terminated is referred to herein
as the "Employment Period." During the Employment Period, the Employee will be
an at-will employee of the Employer. The Employment Period shall be freely
terminable for any reason by either party at any time.
SECTION 2. Compensation and Benefits. During the
Employment Period:
(a) Base Compensation. The Employer shall pay to the Employee
a base salary of $250,000 per annum (the "Base Salary"), payable in accordance
with the Employer's payroll practices and prorated for the period commencing on
the date of this Agreement and ending on December 31, 1998. The Base Salary
shall be increased (but not decreased) for cost of living adjustments, and
subject to additional discretionary increases (but not decreases) as determined
by an annual review by the Board of Directors on or prior to each anniversary of
the Effective Date.
(b) Additional Compensation. As additional compensation for
the Services, the Employer shall pay to the Employee (i) annual fixed bonus
payments (the "Fixed Bonus") in an amount equal to 15% of the Employee's Base
Salary for such year, payable on or around February 1 of the following year and
prorated for the period commencing on the date of this Agreement and ending on
December 31, 1998 and (ii)
<PAGE> 2
incentive compensation determined as set forth in the Company's Management
Incentive Plan. Each Fixed Bonus payment is contingent upon Employee's being
employed by the Company on the date that such Fixed Bonus payment is otherwise
due. The Employee will be entitled to such additional incentive compensation as
the Board of Directors of the Employer determines in its discretion to pay the
Employee. The Employee acknowledges that the Employer may terminate or modify
its management bonus and incentive plans at any time although no termination or
amendment affecting the Employee will be made effective unless it is
consistently applied to other employees participating in such plans.
(c) Restricted Stock and Stock Options. During the Employment
Period, the Employee shall be eligible to participate in the J.H. Heafner
Company 1997 Stock Option Plan (the "Stock Plan") and to receive grants of
options to purchase Class A Common Stock of the Employer and on terms no less
favorable than those granted to members of the Employer's Executive Committee or
other division Presidents of the Employer. Such grants may be awarded from time
to time pursuant to the Stock Plan in the sole discretion of the Employer's
Board of Directors.
(d) Benefit Plans. During the Employment Period, the Employee
shall be entitled to receive benefits from the Employer consistent with those
currently in effect for the Employer's senior executives (including deferred
compensation plans and company automobile perquisites), as those benefits are
revised from time to time by the Board of Directors of the Employer. Nothing
contained herein is intended to require the Employer to maintain any existing
benefits or create any new benefits. The Employee will be entitled to
participate in the Employer's deferred compensation program as a Level I
Employee.
(e) Other Benefits. The Employer will provide a vehicle of the
Employee's choice for the Employee's use at a cost (including expenses and
insurance) of up to $40,000. The Employee will be responsible for any costs in
excess of $40,000.
(f) Relocation Costs. The Employer will reimburse the Employee
for reasonable costs and expenses incurred by the Employee for relocation to
Charlotte, North Carolina, including without limitation the cost of any
realtor's commission payable on sale of the Employee's principal residence and
other relocation costs customarily covered under the Employer's relocation plan.
(g) Vacation and Holidays. The Employee shall be entitled to a
minimum of four weeks' vacation each year and paid holidays in accordance with
the Employer's policy.
SECTION 3. Termination.
(a) Death or Disability. If the Employee dies during the
Employment Period, the Employment Period shall terminate as of the date of the
Employee's death. If the Employee becomes unable to perform his duties for 90
consecutive days due to a physical or mental disability, (i) the Employer may
elect to terminate the Employment Period at any time thereafter, and (ii) the
Employment
-2-
<PAGE> 3
Period shall terminate as of the date of such election. All disabilities shall
be certified by a physician acceptable to both the Employer and the Employee,
or, if the Employer and the Employee cannot agree upon a physician within 15
days, by a physician selected by physicians designated by each of the Employer
and the Employee. The Employee's failure to submit to any physical examination
by such physician after such physician has given reasonable notice of the time
and place of such examination shall be conclusive evidence of the Employee's
inability to perform his duties hereunder.
(b) Cause. The Employer, at its option, may terminate the
Employment Period and all of the obligations of the Employer under this
Agreement for Cause. The Employer shall have "Cause" to terminate the Employee's
employment hereunder in the event of (i) the Employee's conviction of or plea of
guilty or nolo contendere to a felony, (ii) the Employee's gross negligence in
the performance of the Services, which is not corrected within 15 business days
after written notice, (iii) the Employee's knowingly dishonest act, or knowing
bad faith or willful misconduct in the performance of the Services, which is not
corrected within 15 business days after written notice, or (iv) the Employee's
other material breach of his obligations under this Agreement, which is not
corrected within a reasonable period of time (determined in light of the cure
appropriate to such material breach, but in no event less than 15 business days)
after written notice. If the Employee is charged with a felony, then during the
period while such charge or related indictment remains outstanding and until
finally determined, the Employer shall have the right to suspend the Employee
without compensation.
(c) Without Cause. The Employer, at its option, may terminate
the Employment Period without Cause at any time.
(d) Termination by Employee for Good Reason. The Employee may
terminate this Agreement upon 60 days' prior written notice to the Employer for
Good Reason (as defined below) if the basis for such Good Reason is not cured
within a reasonable period of time (determined in light of the cure appropriate
to the basis of such Good Reason, but in no event less than 15 business days)
after the Employer receives written notice specifying the basis of such Good
Reason. "Good Reason" shall mean (i) the failure of the Employer to pay any
undisputed amount due under this Agreement, (ii) a substantial diminution in the
status, position and responsibilities of the Employee or (iii) the Employer
requiring the Employee to be based at any office or location that requires a
relocation or commute greater than 50 miles from the office or location to which
the Employee is currently assigned.
(e) Payments in the Event of Termination. Upon the termination
of the Employment Period pursuant to this Section 3, the Employer shall pay to
the Employee, or his estate, the Base Salary and Fixed Bonus earned to the date
of death or termination for disability or Cause, as the case may be. Upon the
termination of the Employment Period by the Employer without Cause or by the
Employee for Good Reason, the
-3-
<PAGE> 4
Employer shall pay to the Employee or his estate an additional amount equal to
(i) if such termination occurs prior to the first anniversary of the date of
this Agreement, the Base Salary that would have been payable to the Employee for
the twenty-four month period beginning on the date of such termination plus the
target bonus (as defined in the Employer's Executive Bonus Plan) (the "Target
Bonus") that would have been payable to the Employee for the twelve-month period
beginning on the date of termination, (ii) if such termination occurs on or
after the first anniversary of the date of this Agreement but prior to the
second anniversary of the date of this Agreement, the Base Salary that would
have been payable to the Employee for the eighteen-month period beginning on the
date of such termination plus the Target Bonus that would have been payable to
the Employee for the twelve-month period beginning on the date of termination,
or (iii) if such termination occurs on or after the second anniversary of the
date of this Agreement, the Base Salary and Target Bonus, in each case, that
would have been payable to the Employee for the twelve-month period beginning on
the date of such termination. The Employer, at its option, may make any payments
due under this Section 3(e) either in a lump sum or as they would have been paid
had the Employee not been terminated.
(f) Termination of Obligations. In the event of termination of
the Employment Period in accordance with this Section 3, all obligations of the
Employer and the Employee under this Agreement shall terminate, except for any
amounts payable by the Employer as specifically set forth in Section 3(e);
provided, however, that notwithstanding anything to the contrary contained in
this Agreement, the provisions of Section 4 and Section 5 shall survive such
termination in accordance with their respective terms and the relevant
provisions of Section 6 shall survive such termination indefinitely. In the
event of termination of the Employment Period in accordance with this Section 3,
the Employee agrees to cooperate with the Employer in order to ensure an orderly
transfer of the Employee's duties and responsibilities.
SECTION 4. Confidentiality; Non-Disclosure.
(a) (i) Except as provided in this Section 4(a), the Employee
shall not disclose any confidential or proprietary information of the Employer
or of its affiliates or subsidiaries to any person, firm, corporation,
association or other entity (other than the Employer, its subsidiaries, officers
or employees, attorneys, accountants, bank lenders, agents, advisors or
representatives thereof) for any reason or purpose whatsoever (other than in the
normal course of business on a need-to-know basis after the Employer has
received assurances that the confidential or proprietary information shall be
kept confidential), nor shall the Employee make use of any such confidential or
proprietary information for his own purposes or for the benefit of any person,
firm, corporation or other entity, except the Employer. As used in this Section,
the term "confidential or proprietary information" means all information which
is or becomes known to the Employee and relates to matters such as trade
secrets, research and development activities, new or prospective lines of
business (including analysis and market research relating to potential expansion
of the Business), books and records, financial data, customer lists, marketing
techniques, financing, credit policies, vendor lists, suppliers,
-4-
<PAGE> 5
purchases, potential business combinations, distribution channels, services,
procedures, pricing information and private processes as they may exist from
time to time; provided that the term "confidential or proprietary information"
shall not include information that is or becomes generally available to the
public (other than as a result of a disclosure in violation of this Agreement by
the Employee or by a person who received such information from the Employee in
violation of this Agreement).
(ii) If the Employee is requested or (in the opinion of his
counsel) required by law or judicial order to disclose any confidential or
proprietary information, the Employee shall provide the Employer with prompt
notice of any such request or requirement so that the Employer may seek an
appropriate protective order or waiver of the Employee's compliance with the
provisions of this Section 4(a). The Employee will not oppose any reasonable
action by, and will cooperate with, the Employer to obtain an appropriate
protective order or other reliable assurance that confidential treatment will be
accorded the confidential or proprietary information. If, failing the entry of a
protective order or the receipt of a waiver hereunder, he is, in the opinion of
his counsel, compelled by law to disclose a portion of the confidential or
proprietary information, the Employee may disclose to the relevant tribunal
without liability hereunder only that portion of the confidential or proprietary
information which counsel advises the Employee he is legally required to
disclose, and each of the parties hereto agrees to exercise such party's best
efforts to obtain assurance that confidential treatment will be accorded such
confidential or proprietary information. During the Employment Period, and for
matters arising from events or circumstances occurring during the Employment
Period, the Employer will provide for the defense of matters arising under this
provision.
(b) The Employee agrees that he will promptly and fully
disclose to the Employer all inventions, ideas, software, trade secrets or
know-how (whether patentable or copyrightable or not) made or conceived by the
Employee (either solely or jointly with others) during the Employment Period and
for a period of six months thereafter, all tangible work product derived
therefrom (collectively, the "Ideas"). The Employee agrees that all such Ideas
shall be and remain the sole and exclusive property of the Employer. On the
request of the Employer, the Employee shall, during and after the term of this
Agreement, without charge to the Employer but at the expense of the Employer,
assist the Employer in any reasonable way to vest in the Employer, title to all
such Ideas, and to obtain any patents, trademarks or copyrights thereon in all
countries throughout the world. In this regard, the parties shall execute and
deliver any and all documents that the Employer may reasonably request.
SECTION 5. Non-Competition; Non-Solicitation. The Employee
acknowledges and recognizes his possession of confidential or proprietary
information and acknowledges the highly competitive nature of the Business and
accordingly agrees that, in consideration of the premises contained herein and
in consideration for payment by the Employer of the purchase price of the
Shares, he will not, during and for the period commencing on the Effective Date
and ending on the date that is the later of one year after the termination of
the Employment Period or the date of expiration of the Non-
-5-
<PAGE> 6
Compete Period (as defined in Section 3.6 of the Merger Agreement), for any
reason whatsoever, either individually or as an officer, director, stockholder,
partner, agent or principal of another business firm, (i) directly or indirectly
engage in the United States, or any country in which the Employer or any of its
affiliates or subsidiaries actively engages in business during the Employment
Period, in any competitive business; (ii) assist others in engaging in any
competitive business in the manner described in clause (i); or (iii) induce any
employee of the Employer or any of its affiliates or subsidiaries to terminate
such person's employment with the Employer or such affiliate or subsidiary or
hire any employee of the Employer or any of its affiliates or subsidiaries to
work with any businesses affiliated with the Employee. The Employee's ownership
of not more than 1% of the outstanding capital stock of any public corporation
shall not in itself be deemed to be engaging in any competitive business for
purposes of this Section 5.
SECTION 6. Change in Control Payment.
(a) If the Employment Period is terminated (i) upon or prior to a
Change in Control and the Employee reasonably demonstrates that such termination
occurred at the request of a third party participating in, or otherwise in
anticipation of, such Change in Control or (ii) for the reasons set forth below
occurring within one year after a Change in Control (as defined), by the
company, then the Employee shall be entitled to a payment (the "Change in
Control Payment") in an amount equal to the Base Salary that would have been
payable to the Employee for the twenty-four month period beginning on the date
of such termination plus the target bonus (as defined in the Employer's
Executive Bonus Plan) (the "Target Bonus") that would have been payable to the
Employee for the twelve-month period beginning on the date of termination. A
substantial diminution in the status, position, compensation and
responsibilities of the Employee or the requirement that the Employee relocate
more than 50 miles, all within one year after a Change in Control shall be
deemed termination by the company of the Employment Period for purposes of
determining whether a Change in Control Payment is due under this Section 6(a).
The Employer may elect to make any payments due under this Section 6(a) either
in a lump sum or as they would have been paid had the Employment Period not been
terminated. Notwithstanding the foregoing, any change in Control Payment due
under this Section 6(a) shall be limited to the extent the Board (in its sole
judgment) deems necessary to preserve the deductibility by the Company of such
Change in Control Payment pursuant to Section 280G of the Internal Revenue Code
of 1986, as amended, or any successor statute.
(b) "Change in Control" means any of the following: (i) the sale of all
or substantially all of the Company's assets to any person or entity not
directly or indirectly controlled by the holders of at least 50% of the Combined
Voting Power of the then outstanding shares of capital stock of the Company,
(ii) at any time prior to the consummation of an initial public offering of
Class A Common Stock of the Company or other common stock of the Company having
the voting power to elect directors, a transaction (except pursuant to such
initial public offering) resulting in Ann H. Gaither, William H. Gaither, Susan
G. Jones and Thomas R. Jones owning, collectively, less than
-6-
<PAGE> 7
50% of the Combined Voting Power of the then outstanding shares of capital stock
of the Company or (iii) at any time after the consummation of an initial public
offering of Class A Common Stock of the Company or other common stock of the
Company having the voting power to elect directors, the acquisition (except
pursuant to such initial public offering) by any person or entity not directly
or indirectly controlled by the Company's stockholders of more than 35% of the
Combined Voting Power of the then outstanding shares of capital stock of the
Company. "Combined Voting Power" with respect to capital stock of the Company
means the number of votes such stock is normally entitled (without regard to the
occurrence of any contingency) to vote in an election of directors of the
Company.
SECTION 7. General Provisions.
(a) Enforceability. It is the desire and intent of the parties hereto
that the provisions of this Agreement shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, although the Employee and the Employer
consider the restrictions contained in this Agreement to be reasonable for the
purpose of preserving the Employer's goodwill and proprietary rights, if any
particular provision of this Agreement shall be adjudicated to be invalid or
unenforceable, such provision shall be deemed amended to delete therefrom the
portion thus adjudicated to be invalid or unenforceable, such deletion to apply
only with respect to the operation of such provision in the particular
jurisdiction in which such adjudication is made. It is expressly understood and
agreed that although the Employer and the Employee consider the restrictions
contained in Section 5 to be reasonable, if a final determination is made by a
court of competent jurisdiction that the time or territory or any other
restriction contained in this Agreement is unenforceable against the Employee,
the provisions of this Agreement shall be deemed amended to apply as to such
maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable. If the restrictions on the
Employee's activities contained in Sections 4 and 5 of this Agreement conflict
with those contained in Section 3.6 of the Agreement and Plan of Merger, dated
as of March 10, 1998, between the Employer, ITCO Merger Corporation, ITCO
Logistics Corporation and the stockholders of ITCO Logistics Corporation
(including the Employee) (other than with respect to duration), such Section 3.6
shall control to the extent of such conflict.
(b) Remedies. The parties acknowledge that the Employer's damages at
law would be an inadequate remedy for the breach by the Employee of any
provision of Section 4 or Section 5, and agree in the event of such breach that
the Employer may obtain temporary and permanent injunctive relief restraining
the Employee from such breach, and, to the extent permissible under the
applicable statutes and rules of procedure, a temporary injunction may be
granted immediately upon the commencement of any such suit. Nothing contained
herein shall be construed as prohibiting the Employer from pursuing any other
remedies available at law or equity for such breach or threatened breach of
Section 4 or Section 5 of this Agreement.
-7-
<PAGE> 8
(c) Withholding. The Employer shall withhold such amounts from any
compensation or other benefits referred to herein as payable to the Employee on
account of payroll and other taxes as may be required by applicable law or
regulation of any governmental authority.
(d) Assignment; Benefit. This Agreement is personal in its nature and
neither party shall, without the prior written consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder. The provisions
hereof shall inure to the benefit of, and be binding upon, each successor of the
Employer, whether by merger, consolidation, transfer of all or substantially all
of its shares or assets, or otherwise.
(e) Indemnity. The Employer hereby agrees to indemnify and hold the
Employee harmless consistent with the Employer's policy against any and all
liabilities, expenses (including attorneys' fees and costs), claims, judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any proceeding arising out of the Employee's employment with the
Employer (whether civil, criminal, administrative or investigative, other than
proceedings by or in the right of the Employer), if with respect to the actions
at issue in the proceeding the Employee acted in good faith and in a manner
Employee reasonably believed to be in, or not opposed to, the best interests of
the Company, and (with respect to any criminal action) Employee had no reason to
believe Employee's conduct was unlawful. Said indemnification arrangement shall
(i) survive the termination of this Agreement, (ii) apply to any and all
qualifying acts of the Employee which have taken place during any period in
which he was employed by the Employer, irrespective of the date of this
Agreement or the term hereof, including, but not limited to, any and all
qualifying acts as an officer and/or director of any affiliate while the
Employee is employed by the Company and (iii) be subject to any limitations
imposed from time to time under applicable law.
(f) Dispute Resolution; Attorney's Fees. The Employer and the Employee
agree that any dispute arising as to the parties' rights and obligations
hereunder shall be resolved by binding arbitration before a private judge to be
determined by mutually agreeable means. In such event, each of the Employer and
the Employee shall have the right to full discovery. The Employee shall have the
right, in addition to any other relief granted by such arbitrator, to attorney's
fees; provided however, that the Employer shall have the right, in addition to
any other relief granted by such arbitrator, to reasonable attorney's fees in
the event that a claim brought by the Employee is definitively decided in the
Employer's favor (with the amount of such fees being limited to those expended
defending the claim or claims decided in favor of the Employer). Any judgement
by such arbitrator may be entered into any court with jurisdiction over the
dispute.
(g) Acknowledgment. Employee acknowledges that he has been advised by
Employer to seek the advice of independent counsel prior to reaching agreement
with Employer on any of the terms of this agreement.
-8-
<PAGE> 9
(h) Amendments and Waivers. No modification, amendment or waiver of any
provision of , or consent required by, this Agreement, nor any consent to any
departure herefrom, shall be effective unless it is in writing and signed by the
parties hereto. Such modification, amendment, waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
(i) Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by registered or certified mail, postage prepaid, return receipt
requested, sent by overnight courier, or sent by facsimile (with confirmation of
receipt), addressed as follows:
If to the Employer:
The J. H. Heafner Company, Inc.
2105 Water Ridge Parkway
Suite 500
Charlotte, North Carolina 28217
Attention: J. Michael Gaither
Facsimile: (704) 423-8987
with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, NY 10022
Attention: Scott F. Smith
Facsimile: (212) 841-1010
If to the Employee:
Richard P. Johnson
4229 Lomo Alto Court
Dallas, TX 75219
Facsimile:__________________
or at such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If such notice
or communication is mailed, such communication shall be deemed to have been
given on the fifth business day following the date on which such communication
is posted.
(g) Amendments and Waivers. No modification, amendment or waiver, of
any provision of, or consent required by, this Agreement, nor any consent to any
departure herefrom, shall be effective unless it is in writing and signed by the
parties hereto. Such modification, amendment, waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
-9-
<PAGE> 10
(h) Descriptive Headings; Certain Interpretations. Descriptive headings
are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
(i) Counterparts; Entire Agreement. This Agreement may be executed in
any number of counterparts, and each such counterpart hereof shall be deemed to
be an original instrument, but all such counterparts together shall constitute
one agreement. This Agreement contains the entire agreement among the parties
with respect to the transactions contemplated by this Agreement and supersedes
all other agreements or understandings among the parties with respect to the
Employee's employment by the Employer except as expressly provided in this
Section 6(i). The Employment Agreement, dated as of February 1, 1997, between
the Employee and ITCO Holding Company, Inc., is expressly superseded by this
Agreement and shall have no further force and effect, provided, that all
outstanding obligations of ITCO Holding Company, Inc. to make payments due for
services rendered by the Employee prior to the date of this Agreement shall
survive. The Stock Appreciation Rights Agreement (as amended, the "SAR
Agreement"), by and among ITCO Holding Company, Inc., Wingate Partners II, L.P.
and Richard P. Johnson, dated February 1, 1997, shall remain in full force and
effect until terminated in accordance with its terms. The Amendment to the
Management Agreements (the "Amendment"), between the Employee and ITCO Holding
Company, Inc., dated February 27, 1998, is expressly superseded by this
Agreement and shall have no further force and effect, provided, that insofar as
any provision in the Amendment directly relates to or amends the SAR Agreement,
such provision shall survive.
(j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NORTH CAROLINA.
(k) CONSENT TO JURISDICTION. EACH OF THE EMPLOYER AND THE EMPLOYEE
HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF
THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NORTH CAROLINA FOR PURPOSES
OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY, AND THE EMPLOYEE AGREES NOT TO COMMENCE ANY
LEGAL PROCEEDING RELATING THERETO EXCEPT IN SUCH COURT. EACH OF THE EMPLOYER AND
THE EMPLOYEE IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH HE MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
-10-
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
THE J. H. HEAFNER COMPANY, INC.
By: /s/ WILLIAM H. GAITHER
-------------------------------------
Name:
Title:
/s/ RICHARD P. JOHNSON
---------------------------------------
Richard P. Johnson
-11-
<PAGE> 1
Exhibit 10.27
EMPLOYMENT AGREEMENT dated as of May 20, 1998 (the
"Agreement") by and between The J.H. Heafner Company, Inc., a
North Carolina corporation (the "Company"), and Arthur C. Soares
(the "Executive").
----------------------------------------------------------------
INTRODUCTION
Executive was instrumental in the growth and development of Speed
Merchant and its subsidiary and is expected to make significant future
contributions to the profitability, growth and financial strength of the
Company.
Simultaneously with the execution of this Agreement, the Company, is
purchasing 100% of the outstanding shares of capital stock of The Speed
Merchant, Inc., a California corporation d/b/a the Speed Merchant and
Competition Parts Warehouse ("Speed Merchant") pursuant to a Stock Purchase
Agreement dated as of March 11, 1998 (the "Stock Purchase Agreement") among the
Company and the stockholders of Speed Merchant (including the Executive).
Executive and the Company have agreed that it is in their respective
best interests to enter into an agreement providing for the Company's employment
of Executive following the consummation of the transactions contemplated in the
Stock Purchase Agreement, on the terms and subject to the conditions set forth
herein.
In consideration of (i) the purchase and sale of the shares of the
Speed Merchant's outstanding capital stock from the Executive (ii) the
Executive's agreement to provide the services set forth in this Agreement, and
(iii) the mutual commitments contained in this Agreement, the Company and
Executive agree as follows:
1. Effective Date. This Agreement shall be effective on the date
hereof (the "Effective Date").
2. Duties. The Company hereby agrees to employ Executive, and
Executive hereby assumes such employment, as President, Western Wholesale
Division of the Company for the "Term of Employment" (defined below). In this
capacity, Executive shall perform such duties consistent with the duties of a
senior executive of the Company as the Board of Directors of the Company (the
"Board") shall from time to time determine, which duties shall, during the
period beginning on the Effective Date and ending on the first-year anniversary
of the Effective Date, be consistent with the intentions expressed in the Stock
Purchase Agreement. The duties to be performed by Executive shall be performed
primarily in California, subject to reasonable travel
<PAGE> 2
requirements on behalf of the Company. Executive shall devote substantially all
of his working time and attention to such duties. Executive in each of these
capacities agrees to use his best efforts during the Term of Employment to
protect, encourage and promote the interests of the Company and its affiliates
and to aid in the integration of the Company's business and operations with
those of the Company and its affiliates. Executive shall report to the Chief
Executive Officer of the Company or such other person as the Board may designate
from time to time. As used herein, the phrase "Term of Employment" shall mean
the period commencing on the Effective Date and ending on the second anniversary
of the Effective Date.
3. Compensation.
(a) Base Salary. During the Term of Employment, the Company
agrees to pay to Executive a salary at the rate of $259,615 per annum, payable
in bi-weekly installments or otherwise in accordance with the normal payroll
procedures of the Company. Such annual salary shall be subject to annual review
and may be adjusted upward from time to time in the sole discretion of the
Board. The Executive's annual salary, including any periodic adjustments made
from time to time, shall be referred to in this Agreement as "Base Salary."
(b) Bonuses. (i) Executive shall be entitled to receive from
the Company a bonus (the "Stay Put Bonus") in the amount of $2,000,000, payable
in two installments as follows: $1,250,000 on the one-year anniversary of the
Effective Date and $750,000 on the two-year anniversary of the Effective Date.
The Company shall pay Executive interest on the unpaid balance of the Stay Put
Bonus at a rate of 8% per annum for the period from and including the Effective
Date to but excluding the date payment is made under this Section 3(b)(i). Such
interest payments shall be made annually at the same time as the payment of the
annual installment of the Stay Put Bonus and, for purposes of this Agreement,
shall constitute a part of the Stay Put Bonus.
(ii) Executive shall be entitled to participate in Heafner's
annual executive bonus plan or any similar or successor annual bonus plan of
Heafner and to receive an annual performance bonus (the "Performance Bonus")
from Heafner in accordance with the terms thereof and as approved by the Board
of Directors of Heafner.
(iii) Executive shall be entitled to a bonus (the "Incentive
Bonus") during the Term of Employment as follows:
(A) The Incentive Bonus for the 12-month period ending on the first
anniversary of the Effective Date shall be in an amount to be calculated
by the Company based on the formula set forth in Exhibit A, provided, that
in no event shall such Incentive Bonus be less than $278,506. In the event
that the formula set forth in Exhibit A yields an amount in excess of
$278,506, then any Synergy Bonus payable to the Executive shall be reduced
by the amount of such excess. Such bonus shall be paid in quarterly
installments commencing on the date three months after the Effective Date
and ending on the first-year anniversary of the Effective Date. It is
understood and agreed that, if the quarterly figures necessary
-2-
<PAGE> 3
to calculate the Executive's Incentive Bonus for the period in which the
Effective Date falls or any prior period are not yet available as of the
Effective Date, the Executive's Incentive Bonus for such period shall be
calculated on the basis of estimated quarterly figures and subsequent
Incentive Bonus payments shall be adjusted to the extent necessary based
on actual quarterly figures for the period in question.
(B) The Incentive Bonus for the 12-month period ending on the second
anniversary of the Effective Date shall be in an amount determined
pursuant to a formula agreed to in advance by the Board and Executive.
Such bonus shall be paid in accordance with normal bonus practices adopted
by the Company from time to time.
(iv) On the one-year anniversary of the Effective Date,
Executive may be entitled to an incentive bonus (the "Synergy Bonus") as more
fully described in Exhibit B to this Agreement. Such bonus shall be paid in
accordance with normal bonus payment practices adopted by the Company from time
to time, but shall no in event be paid later than 30 days from and after the
date of calculation. Any Synergy Bonus payable to the Executive shall be payable
in cash or, at the election of the Executive, (x) in shares of common stock of
Heafner having a fair market value equal to the amount of the Synergy Bonus or
(y) options or warrants to acquire the number of shares of common stock of
Heafner referred to in clause (x).
(c) Equity Incentives. During the Term of Employment,
Executive shall be eligible to participate in the J.H. Heafner Company 1997
Stock Option (the "Stock Plan") and to receive grants of options to purchase
Class A Common Stock, par value $0.01 per share, of the Company. Such grants may
be awarded from time to time pursuant to the Stock Plan in the sole discretion
of the Compensation Committee of the Board of Directors of Heafner.
4. Benefits. Unless Executive's employment is terminated earlier
pursuant to Section 5, during the Term of Employment:
(a) Executive shall be eligible to participate in group health
and welfare insurance programs available to senior executives of the Company
with similar responsibilities from time to time.
(b) Executive shall be eligible to participate in life and
long-term disability insurance programs, pension and retirement programs,
incentive compensation programs, and other fringe benefit programs, if any,
available to senior executives of the Company with similar responsibilities from
time to time.
(c) Executive shall be entitled to four weeks vacation with
pay, subject to such increases (but not decreases) as are adopted by the Company
from time to time for senior executives of the Company with similar
responsibilities.
-3-
<PAGE> 4
(d) The Company will reimburse Executive for reasonable
business expenses incurred in performing Executive's duties and promoting the
business of the Company and its affiliates, including, but not limited to,
reasonable entertainment expenses, and travel and lodging expenses, following
presentation of documentation in accordance with the Company's business expense
policies.
5. Termination of Employment.
(a) Termination Without Cause. Notwithstanding anything to the
contrary in this Agreement, whether express or implied, the Company may at any
time terminate Executive's employment for any reason other than Cause (defined
below) by giving Executive at least 60 days' prior written notice of the
effective date of termination. In the event of such termination, Executive shall
be entitled to receive (i) his Base Salary through the last day of the Term of
Employment, payable in accordance with Section 3(a) above, (ii) his Stay Put
Bonus through the last day of the Term of Employment, payable in accordance with
Section 3(b)(i) above, (iii) his Incentive Bonus through the 12-month period
ending on the first-year anniversary of the Effective Date, payable in
accordance with Section 3(b)(iii) above, (iv) his Synergy Bonus through the
12-month period ending on the first-year anniversary of the Effective Date,
payable in accordance with Section 3(b)(iv) above, and (v) any accrued but
unpaid Performance Bonus or Incentive Bonus in respect of a fiscal year ended
prior to the effective date of termination. The Executive shall continue to be
bound by provisions of Section 6 at all times during the Covenant Period (as
defined in Section 6).
(b) Termination for Cause. The Company shall have the right to
terminate Executive's employment at any time for Cause by giving Executive
written notice of the effective date of termination (which effective date may be
the date of such notice). For purposes of this Agreement, "Cause" shall mean (i)
a proven or admitted act of fraud, misappropriation or embezzlement by the
Executive that is detrimental to the Company or (ii) the Executive's conviction
of or plea of guilty or nolo contendere to a felony. The Company shall have no
further obligation hereunder from and after the effective date of termination
for Cause (other than (i) to make payment of the Executive's Synergy Bonus
through the 12-month period ending on the first-year anniversary of the
Effective Date, payable in accordance with Section 3(b)(iv) above, and (ii) to
make payment of any accrued but unpaid Base Salary to the effective date of
termination and accrued but unpaid Performance Bonus or Incentive Bonus in
respect of fiscal years ending prior to the effective date of termination). The
Executive shall continue to be bound by provisions of Section 6 at all times
during the Covenant Period (as defined in Section 6).
(c) Termination on Account of Death. In the event of
Executive's death while in the employ of the Company, Executive's employment by
the Company shall be deemed to have been terminated as of the date of death, and
the Company shall pay to the Executive's designated beneficiaries (i) his Base
Salary through the date of Executive's death, payable in accordance with Section
3(a) above, (ii) his Stay Put Bonus through the last day of the Term of
Employment, (iii) his Synergy
-4-
<PAGE> 5
Bonus through the 12-month period ending on the first-year anniversary of the
Effective Date, payable in accordance with Section 3(b)(iv) above, and (iv) any
accrued but unpaid Performance Bonus or Incentive Bonus in respect of a fiscal
year ended prior to the effective date of termination.
(d) Voluntary Termination by Executive. Executive shall have
the right to terminate Executive's employment at any time for any reason upon 60
days' written notice to the Company. In the event that Executive's employment
with the Company is voluntarily terminated by Executive, the Company shall have
no further obligation hereunder from and after the effective date of termination
of Executive's voluntary termination (other than (i) to make payment of the
Executive's Synergy Bonus through the 12-month period ending on the first-year
anniversary of the Effective Date, payable in accordance with Section 3(b)(iv)
above, and (ii) to make payment of any accrued but unpaid Base Salary to the
effective date of termination and accrued but unpaid Performance Bonus or
Incentive Bonus in respect of fiscal years ending prior to the effective date of
termination). The Executive shall continue to be bound by provisions of Section
6 at all times during the Covenant Period (as defined in Section 6).
(e) Termination on Account of Disability. (i) During any
period that Executive fails to perform his full-time duties with the Company as
a result of incapacity due to physical or mental illness, he shall receive (1)
all compensation payable to him under the Company's disability plan or program
or other similar plan during such period until this Agreement is terminated as
hereinafter provided in this Section 5(e), (2) that portion of his Base Salary
equal to the positive difference between (A) his Base Salary at the rate in
effect at the commencement of any such period and (B) the compensation payable
to him under Section 5(e)(1) above, (3) his Stay Put Bonus, if any, payable
during such period, (4) his Synergy Bonus, if any, payable during such period,
and (5) payment of all accrued but unpaid Performance Bonus or Incentive Bonus
in respect of fiscal years or periods ended prior to the commencement of any
such period.
(ii) If, as a result of Executive's incapacity due to physical
or mental illness (as determined in good faith by a physician acceptable to the
Company and the Executive), Executive shall have been unable to perform the
essential functions of his position with the Company for 90 days during any
twelve (12) month period or if a physician acceptable to the Company advises the
Company that it is likely that Executive will be unable to perform the essential
functions of his position for 90 days during the succeeding twelve (12) month
period, his employment may be terminated for "Disability" on 20 days' prior
written notice by the Company to the Executive. In the event that Executive's
employment shall be so terminated, the Company shall pay to Executive or to the
Executive's designated beneficiaries (1) his Stay Put Bonus through the last day
of the Term of Employment, payable in accordance with Section 3(b)(i) above, (2)
his Synergy Bonus through the 12-month period ending on the first-year
anniversary of the Effective Date, payable in accordance with Section 3(b)(iv)
above, and (3) any accrued but unpaid Performance Bonus or Incentive Bonus in
respect of a fiscal year ended prior to the effective date of termination. In
addition, Executive shall be entitled to receive benefits under the Company's
retirement, insurance, and other compensation and benefit plans and programs
then in effect, in accordance with the terms of such programs. The
-5-
<PAGE> 6
Executive shall continue to be bound by provisions of Section 6 at all times
during the Covenant Period (as defined in Section 6).
(f) Termination by Executive for Good Reason. Executive shall
have the right to terminate Executive's employment at any time for Good Reason
by giving the Company 60 days advance written notice of the effective date of
termination (which effective date may be the date of such notice). For purposes
of this Agreement, "Good Reason" shall mean:
(i) the material breach by the Company of a material term of
this Agreement and, if such breach is capable of being cured, the failure
to cure such breach within 30 days of receipt of notice of such breach;
(ii) the Company's requiring Executive's ongoing and regular
services to be performed at a location other than in Northern California,
except for travel reasonably required in the performance of Executive's
responsibilities;
(iii) the reduction by the Company of the Executive's Base
Salary during the Term of Employment;
(iv) the modification of the position and responsibilities of
the Executive in such a manner as would be inconsistent with those of a
president or chief executive officer of a corporate division; or
(v) the inability of the Executive and the Company to agree in
good faith (no more than 30 days before the first-year anniversary of the
Effective Date) on an Incentive Bonus arrangement for the twelve-month
period commencing on the first-year anniversary of the Effective Date that
is satisfactory to the Executive.
In the event of such termination, Executive shall be entitled to receive (i) his
Base Salary through the last day of the Term of Employment, payable in
accordance with Section 3(a) above, (ii) his Stay Put Bonus through the last day
of the Term of Employment, payable in accordance with Section 3(b)(i) above,
(iii) his Incentive Bonus through the 12-month period ending on the first-year
anniversary of the Effective Date, payable in accordance with Section 3(b)(iii)
above, (iv) his Synergy Bonus through the 12-month period ending on the
first-year anniversary of the Effective Date, payable in accordance with Section
3(b)(iv) above, and (v) any accrued but unpaid Performance Bonus or Incentive
Bonus in respect of a fiscal year ended prior to the effective date of
termination. The Executive shall continue to be bound by provisions of Section 6
at all times during the Covenant Period (as defined in Section 6).
6. Confidential Information; Non-Competition.
(a) Confidential Information. (i) Executive recognizes and
hereby acknowledges that, as a senior executive of the Company, he will learn
of, and be
-6-
<PAGE> 7
exposed to, confidential business information concerning the Company Group's
information, ideas, know how, trade secrets, processes, computer software,
methods, practices, techniques, technical plans, customer lists, pricing
techniques and information, marketing plans, financial information, and all
other compilations of information that relate to the Company Group's business
and its current and prospective customers ("Confidential Information").
Executive recognizes and hereby acknowledges that such Confidential Information
is a valuable asset of the Company Group. Executive agrees to safeguard such
Confidential Information for the exclusive benefit of the Company Group and
agrees that he will not disclose, distribute or publish such Confidential
Information to any person, company, business or corporation, provided that
Confidential Information shall not include information that is or becomes
generally available to the public (other than as a result of a disclosure in
violation of this Agreement by Executive or by a person who received such
information from Executive in violation of this Agreement). "Company Group"
means the Company, and its subsidiaries and affiliates.
(ii) Executive agrees that he will promptly and fully
disclose to the Company all inventions, ideas, software, trade secrets or
know-how (whether patentable or copyrightable or not) made or conceived by
Executive (either solely or jointly with others) and all tangible work product
derived therefrom (collectively, the "Ideas") during the period in which
Executive is employed under this Agreement. Executive agrees that all such Ideas
shall be and remain the sole and exclusive property of the Company. On the
request of the Company, Executive shall, during and after the Term of
Employment, without charge to the Company but at the expense of the Company,
assist the Company in any reasonable way to vest in the Company title to all
such Ideas, and to obtain any patents, trademarks or copyrights thereon in all
countries throughout the world. In this regard, the parties shall executive and
deliver any and all documents that the Company may reasonably request.
(b) Use of Confidential Information for Another Employer.
Executive acknowledges and recognizes his possession of Confidential Information
and acknowledges the highly competitive nature of business of the Company Group.
Accordingly, in order further to protect the Confidential Information of the
Company Group from disclosure or use, Executive agrees that, during the period
commencing on the Effective Date and ending on the later of (i) the second
anniversary of the Effective Date and (ii) the one-year anniversary of the
effective date of termination of Executive's employment with the Company (the
"Covenant Period"), he will not, for any reason whatsoever, either individually
or as an officer, director, stockholder, partner, agent or principal or another
business or firm, (i) directly or indirectly engage in the States of Arizona,
California, New Mexico, Nevada, Oregon, Utah and Washington in any Competing
Business, or (ii) assist others in engaging in any Competing Business in the
manner described in clause (i). "Competing Business" means any business that is
competitive with the business of the members of the Company Group (including,
without limitation, the wholesale or retail tires or automotive parts
businesses).
(c) Solicitation of Customers. Executive agrees that during
the course of his employment with the Company, he will learn of and be exposed
to confidential business information and trade secrets of the Company Group
concerning the
-7-
<PAGE> 8
Company Group's customers. Executive further agrees that, should he seek to
divert, take away, or solicit any of the customers of the Company Group with
respect to which he has learned and/or been exposed to such confidential
information, he will of necessity make use of or disclose such confidential
information, to the irreparable detriment of the Company Group. Accordingly,
Executive promises that, during the Covenant Period, he will not, directly or
indirectly, either for himself or for any other person, firm, company or
corporation, divert, take away or solicit, or attempt to divert, take away or
solicit any businesses or individuals that were customers of the Company Group
during the period in which Executive was employed by the Company.
(d) Solicitation of Employees. Executive agrees and
acknowledges that the Company Group has expended large sums in the recruitment,
training and development of its employees and that the continued employment of
such persons by the Company Group constitutes a substantial benefit to the
Company Group. Executive further agrees and acknowledges that the business of
the Company Group could be severely disrupted and injured in the event that
another person, firm, company or corporation were to attempt to induce any or
all of the Company Group's employees to terminate their employment with the
Company Group. Accordingly, Executive promises and covenants that, during the
Covenant Period, he will not, directly or indirectly, either for himself or for
any other person, firm, company or corporation, contact or communicate with any
employee of any member of the Company Group for the purpose of inducing or
otherwise encouraging such employee to terminate his or her employment with the
Company, provided, however, that this Section 6(d) shall not preclude the
Executive from giving an employment reference at the request of a prospective
employer of such employee.
(e) Acknowledgment. Executive acknowledges that he is entering
into the covenants contained in this Section 6, inter alia, due to his status as
a signatory to the Stock Purchase Agreement and his position, prior to the
Effective Date, as a stockholder of Speed Merchant.
7. Miscellaneous. This Agreement shall also be subject to the
following provisions:
(a) It is the desire and intent of the parties hereto that the
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, although Executive and the Company consider
the restrictions contained in this Agreement to be reasonable for the purposes
of preserving the Company Group's goodwill and proprietary rights, if any
particular provision of this Agreement shall be adjudicated to be invalid or
unenforceable, such provision shall be deemed amended to delete therefrom the
portion thus adjudicated to be invalid or unenforceable, such deletion to apply
only with respect to the operation of such provision in the particular
jurisdiction in which such adjudication is made. It is expressly understood and
agreed that although the Company and Executive consider the restrictions
contained in Section 6 to be reasonable, if a final determination is made by a
court of competent jurisdiction that the time or territory or any other
restriction contained in this Agreement is unenforceable
-8-
<PAGE> 9
against Executive or Company, the provisions of this Agreement shall be deemed
amended to apply as to such maximum time and territory and to such maximum
extent as such court may judicially determine or indicate to be enforceable.
(b) The parties acknowledge that the Company's damages at law
would be an inadequate remedy for the breach by Executive of any provision of
Section 6, and agree in the event of such breach that the Company may obtain
temporary and permanent injunctive relief restraining Executive from such
breach, and, to the extent permissible under the applicable statutes and rules
of procedure, a temporary injunction may be granted immediately upon the
commencement of any such suit. Nothing contained in this Agreement shall be
construed as prohibiting the Company from pursuing other remedies available at
law or equity for such breach or threatened breach of Section 6 of this
Agreement.
(c) Executive represents and warrants to the Company that he
has the authorization, power and right to deliver, execute, and fully perform
his obligations under this Agreement in accordance with its terms. The Company
has the authorization, power and right to deliver, execute and fully perform its
obligations under this Agreement in accordance with its terms.
(d) This Agreement contains a complete statement of all the
arrangements between the parties with respect to Executive's employment by the
Company; this Agreement supersedes all prior and existing negotiations and
agreements concerning Executive's employment; and this Agreement can only be
changed or modified pursuant to a written instrument duly executed by each of
the parties hereto.
(e) All compensation payable hereunder shall be subject to
such withholding taxes and deductions as may be required by law.
(f) This Agreement shall be binding upon and inure to the
benefit of the successors and permitted assigns of the Company, provided that
the Company shall not assign this Agreement to any person or entity other than
an affiliate of the Company without the prior written consent of Executive.
Except as expressly provided herein, Executive may not sell, transfer, assign,
or pledge any of his rights or interests pursuant to this Agreement. This
Agreement is for the sole benefit of the parties hereto and not for the benefit
of any third party, provided that the parties agree that Heafner shall be an
intended third party beneficiary of all of the provisions of this Agreement,
including, without limitation, the covenants contained in Section 6 and Section
7(h).
(g) All notices, requests and other communications to the
Company or the executive shall be in writing (including facsimile or similar
writing) and shall be given,
if to the Executive, to:
Arthur C. Soares
16641 Harwood Road
-9-
<PAGE> 10
Los Gatos, CA 95032
Facsimile: ____________
with a copy to:
Jackson Tufts Cole & Black, LLP
60 South Market Street, Suite 1000
San Jose, CA 95110
Attention: Richard Scudellari
Facsimile: (408) 998-4889
if to the Company, to:
The Speed Merchant, Inc.
1140 Campbell Avenue
San Jose, California 95126
Facsimile: (408) 243-9900
Attention: _____________
with a copy to:
The J.H. Heafner Company, Inc.
814 East Main Street
P.O. Box 837
Lincolnton, North Carolina 28093-0837
Facsimile: (704) 732-6480
Attention: General Counsel
or such other address or telecopy as such party may specify for the purpose by
notice to the other parties. Each such notice, request or other communication
shall be effective (i) if given by facsimile, when such facsimile is transmitted
to the telecopy number specified in this Section 7(g) and the appropriate
facsimile confirmation is received or (ii) if given by any other means, when
delivered at the address specified in this Section 7(g).
(h) Executive acknowledges and agrees that the Company shall
be entitled, to the extent that the Company's rights of set-off contained in the
Stock Purchase Agreement would be ineffective to grant to the Company the
practical realization of the benefits intended to be granted thereby, to set off
or to apply all or a portion of the unpaid Synergy Bonus (to the extent any
remains unpaid) and then the unpaid Stay-Put Bonus against any obligations of
Executive to the Company or its affiliates now or hereafter existing under
Article V of the Stock Purchase Agreement as set forth therein. In the event the
Company intends to set-off any amount payable to the Executive in respect of the
Synergy Bonus against any such obligations, the Company shall notify the
Executive no later than the date on which such amount is payable.
-10-
<PAGE> 11
(i) (i) No provision of this Agreement may be waived unless
such waiver is in writing and signed by the party against whom the waiver is to
be effective.
(ii) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
(j) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
(k) EACH OF THE PARTIES TO THIS AGREEMENT AGREES TO BE BOUND
BY THE PROVISIONS SET FORTH IN EXHIBIT C TO THIS AGREEMENT. EACH OF EXECUTIVE
AND THE COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT IN SAN JOSE OR THE SUPERIOR
COURT OF THE STATE OF CALIFORNIA, COUNTY OF SANTA CLARA FOR THE PURPOSES OF ALL
LEGAL PROCEEDINGS WHICH ARE NOT GOVERNED BY EXHIBIT B AND WHICH ARISE OUT OF OR
RELATE TO THIS AGREEMENT, AND EACH OF EXECUTIVE AND THE COMPANY AGREES NOT TO
COMMENCE ANY LEGAL PROCEEDING RELATED THERETO EXCEPT IN SUCH COURT. EACH OF
EXECUTIVE AND THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN
ANY SUCH COURT OR ANY CLAIM THAT A LEGAL PROCEEDING COMMENCED IN SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
(Signature page follows.)
-11-
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on its date.
EXECUTIVE: THE J. H. HEAFNER COMPANY, INC.
By: /s/ J. MICHAEL GAITHER
----------------------------------
/s/ ARTHUR C. SOARES Name:
- -------------------------------- Title:
Arthur C. Soares
-12-
<PAGE> 13
Exhibit A to Employment Agreement
<TABLE>
<CAPTION>
Executive Incentive Bonus Formula(1) Fiscal 1997 Total Compensation
- --------- ------------------------ ------------------------------
<S> <C> <C>
Arthur C. Soares 8.5% of Net Income $528,506
Ray C. Barney 1.5% of Net Income $243,678
Elizabeth Roberts 5% of Net Income (pre-tax) $344,180
</TABLE>
(1) Bonuses are paid within 45 days after the end of each fiscal quarter.
-13-
<PAGE> 14
Exhibit B to Employment Agreement
SYNERGY BONUS PLAN
Executive shall be entitled to be paid a Synergy Bonus pursuant to the terms set
forth in this Exhibit B. For purposes of calculating Executive's Synergy Bonus,
if any, targeted EBITDA of the Company shall be $6,400,000 for the 12-month
period ending on the one-year anniversary of the Effective Date (the "Target
Period"). The actual EBITDA calculations shall be made on a pro forma basis
without giving effect to any acquisitions or dispositions of assets, stock or
businesses by the Company occurring during the Target Period or to the
acquisition by Phoenix of the Arizona Business (as defined in the Stock Purchase
Agreement), and shall be adjusted to the extent necessary in accordance with
Section 3.11(a) of the Stock Purchase Agreement. These pro forma actual EBITDA
calculations shall be subject to the approval of the Board acting in good faith.
The Company shall pay to Executive the amount, if any, due to Executive as
Synergy Bonus promptly upon the Company's receipt of the Company's accountant's
opinion with respect to the Company's financial statements for the Target Period
(but in no event later than 120 days after the end of such Target Period).
The amount of the Synergy Bonus, if any, shall be equal to (i) the sum of (A) 85
percent of 50 percent of the excess of actual EBITDA during the Target Period
over targeted EBITDA plus (B) 85 percent of 50 percent of the amount of any net
cost savings achieved with respect to members of the Company Group (other than
the Company) during the Target Period (1) that are the identifiable result of
any potential cost savings described on Schedule I attached to this Exhibit B
and (2) that otherwise result from the transactions contemplated by the Stock
Purchase Agreement (as determined in good faith by the Board of Directors of
Heafner, which determination shall be open to good faith dispute by the
Executive in accordance with the arbitration provisions contained in Exhibit C)
minus (ii) the amount of any reductions made in accordance with Section
3(b)(iii)(A).
For purposes of calculating the Synergy Bonus, (x) the Company shall be
accounted for on a stand-alone basis using the accounting principles applied in
preparing the Closing Date Balance Sheet (as defined in the Stock Purchase
Agreement) and (y) no corporate-level overhead costs incurred by Heafner shall
be allocated to the Company.
"EBITDA" shall mean earnings before interest, taxes, depreciation and
amortization.
<PAGE> 15
Schedule I to Synergy Bonus Plan
List of Quantifiable Synergies:
Distribution Synergy
1/wk vs daily delivery for Winston
Reduction of Winston Inventory - Cost of Money
Elimination of Winston Distribution Centers
Elimination of Winston Wholesale Division
Purchasing Synergy
Tires, Wheels, Auto Parts, Equipment
Other Synergy
Performance Software Opportunities (Wheel Wizard)
<PAGE> 16
EXHIBIT C
TO EMPLOYMENT AGREEMENT
DISPUTE RESOLUTION PROCEDURE
1. Scope of Arbitration. The parties to the Employment Agreement
will submit to final and binding arbitration as the sole and exclusive remedy
for all claims for damages arising out of, involving, or relating to (a) the
Employment Agreement or any amendment thereto or (b) the events giving rise to
the Employment Agreement, including any and all non-contractual claims for
damages related to the Employment Agreement or the events giving rise to it
(including claims for fraudulent inducement of contract). Notwithstanding the
foregoing, the dispute resolution procedure set forth in this Exhibit B does not
apply to claims for injunctive or other equitable relief pursuant to the express
terms of the Employment Agreement or any other agreement entered into in
connection with the Employment Agreement.
2. Notice of Dispute. Any party shall give the other parties written
notice of the existence and nature of any dispute proposed to be arbitrated
pursuant to this Exhibit B (the "Written Notice"). Such Written Notice must be
served on the other parties as described below. The party serving Written Notice
shall be referred to as the "Claiming Party." The party to whom the claims are
directed shall be referred to as the "Responding Party."
3. Appointment of Arbitrators. Each party shall appoint one person
to serve as an arbitrator within seven days of receipt of the Written Notice.
The two arbitrators thus appointed shall within seven days of their appointment
together select a third arbitrator with such knowledge and expertise as
necessary to serve as chairman of the panel of arbitrators, and this person
shall serve as chairman. The three arbitrators shall determine all matters,
including the panel's final decision with respect to the claims presented in the
arbitration, by majority vote. If the two arbitrators selected by the parties
are unable to agree upon the appointment of the third arbitrator within seven
days of their appointment, both shall give written notice of such failure to
agree to the parties, and if the parties fail to agree upon the selection of
such third arbitrator within five days thereafter, such third arbitrator shall
be appointed from, and pursuant to the rules for commercial arbitration of, the
American Arbitration Association. Prior to appointment, each arbitrator shall
agree to conduct such arbitration in strict accordance with the terms of this
Exhibit B.
4. Initial Meeting of the Arbitrators. Within seven days of the
selection of the third arbitrator, the arbitrators shall conduct an initial
meeting with the parties (the "Initial Meeting"). All meetings between the
arbitrators, or between the arbitrators and the parties, including the Initial
Meeting, may be conducted by telephone, with the exception of the arbitration
hearing at which evidence is presented. At the Initial Meeting, the parties and
the arbitrators shall agree upon a schedule for the arbitration proceedings,
with dates no later than the deadlines provided in Section 7 below. The
<PAGE> 17
statement of claim, the response to the statement of claim and counterclaims (if
any), and the response to the counterclaims (if any) (collectively, the
"Pleadings") shall be submitted to each arbitrator on the date they are served,
unless service occurs prior to appointment of all three arbitrators. If service
of any of the Pleadings occurs prior to the appointment of any of the
arbitrators, copies of any such Pleadings shall be submitted to such arbitrator
promptly after such arbitrator's appointment.
5. Conduct of the Arbitration. No more than eleven months shall pass
between the selection of the third arbitrator and the release of a decision by
the arbitration panel. Any arbitration held pursuant to this Exhibit B shall
take place in New York City, New York. The law of the State of New York shall
supply the substantive law of the arbitration proceedings, and any claims or
counterclaims alleged pursuant to federal law shall be adjudicated as if pled in
a federal court in New York. All proceedings, including discovery, depositions,
and the arbitration hearings shall be governed by the Federal Rules of Civil
Procedure and the Civil Rules of the United States District Court for the
Southern District of New York, unless such rules conflict with the provisions of
this Exhibit B, in which case the provisions of this Exhibit B control.
6. Motions. The parties may make applications to the panel of
arbitrators regarding issues of discovery, procedure and privilege. Any such
motions shall be made to and resolved by the arbitrators as soon as practicable.
No party shall be permitted to file any motions for dismissal of claims
(including dismissal based upon failure to join an indispensable party), or for
summary judgment, concerning the claims or counterclaims asserted in any
arbitration under this Exhibit B.
7. Schedule of Arbitration Proceedings. At the Initial Meeting, the
parties and the arbitrators shall agree to a schedule that conforms with the
following deadlines:
<TABLE>
<CAPTION>
Event Deadline Not Later Than
----- -----------------------
<S> <C>
Service of a statement of Seven days after service of the Written
claim by the Claiming Party Notice
Service of response to the 14 days after receipt of the statement of
statement of claim and claim
counterclaims (if any) by
the Responding Party
Service of response to Seven days after receipt of counterclaims
counterclaims (if any) by (if any)
the Claiming Party
</TABLE>
<PAGE> 18
<TABLE>
<S> <C>
Commencement of document One day after service of response to the
discovery statement of claim
Commencement of deposition 75 days after service of the statement of
discovery claim
Completion of all discovery 200 days after service of the statement of
claim
Commencement of the 28 days after completion of discovery
arbitration hearing
Issuance of a decision by 14 days after receipt of the last hearing
the arbitrators transcript by the arbitrators. All sessions
of the arbitration hearings shall be
promptly transcribed and transcripts shall
be promptly provided to the parties and the
arbitrators.
</TABLE>
8. Decision Binding on the Parties. Unless the parties agree
otherwise in writing, the arbitrators' decision shall become binding on the
parties at such time as the decision is confirmed by order of the Supreme Court
of the State of New York, County of New York. The parties hereby irrevocably and
unconditionally submit to the jurisdiction of such court for any and all
proceedings relating to such confirmation. Any award ordered shall be paid
within 10 days of confirmation of the arbitrators' decision.
9. Cost of Arbitration Proceeding. Except as provided herein, the
costs incurred by the parties in conjunction with an arbitration proceeding
pursuant to this Exhibit B, including attorney's fees, fees paid to experts, and
fees for obtaining transcripts shall be paid or reimbursed in accordance with
the provisions of Article V of the Employment Agreement. In the event that the
arbitrators determine that no party is entitled to indemnification by any other
party, then (a) each party shall pay its own expenses, including attorney's
fees, fees paid to experts, fees for obtaining transcripts, expenses of
witnesses called solely by that party, and all fees charged by the arbitrator
appointed by such party and (b) the parties shall each pay fifty percent of all
remaining expenses of the arbitration proceeding.
10. Extensions of Time. The parties may jointly agree, in writing,
to extend any of the deadlines set forth in Section 7 above.
11. Service of Documents. Any process, notice, memorandum, motion,
demand, or other paper or communication, or application to the panel of
arbitrators shall be deemed to have been sufficiently served or submitted if (a)
personally delivered, or (b) sent by a nationally recognized overnight courier
service.
<PAGE> 1
Exhibit 10.28
EMPLOYMENT AGREEMENT dated as of May 20, 1998 (the
"Agreement") by and between The Speed Merchant, Inc., a
California corporation d/b/a the Speed Merchant and Competition
Parts Warehouse (the "Company"), and Ray C. Barney (the
"Executive").
INTRODUCTION
Executive was instrumental in the growth and development of the
Company and is expected to make significant future contributions to the
profitability, growth and financial strength of the Company.
Simultaneously with the execution of this Agreement, The J.H.
Heafner Company, Inc., a North Carolina corporation ("Heafner"), is purchasing
100% of the outstanding shares of capital stock of the Company pursuant to a
Stock Purchase Agreement dated as of March 11, 1998 (the "Stock Purchase
Agreement") among Heafner and the Company's stockholders.
Executive and the Company have agreed that it is in their respective
best interests to enter into an agreement providing for the Company's employment
of Executive following the consummation of the transactions contemplated in the
Stock Purchase Agreement, on the terms and subject to the conditions set forth
herein.
In consideration of (i) the purchase and sale of the shares of the
Company's outstanding capital stock, (ii) the Executive's agreement to provide
the services set forth in this Agreement, and (iii) the mutual commitments
contained in this Agreement, the Company and Executive agree as follows:
1. Effective Date. This Agreement shall be effective on the date
hereof (the "Effective Date").
2. Duties. The Company hereby agrees to employ Executive, and
Executive hereby assumes such employment, as chief operating officer of the
Company (with duties equivalent to a Heafner division chief operating officer)
for the "Term of Employment" (defined below). In this capacity, Executive shall
perform such duties consistent with the duties of a senior executive of the
Company as the Board of Directors of the Company (the "Board") shall from time
to time determine, which duties shall, during the period beginning on the
Effective Date and ending on the first-year anniversary of the Effective Date,
be consistent with the intentions expressed in the Stock
<PAGE> 2
Purchase Agreement. The duties to be performed by Executive shall be performed
primarily in California, subject to reasonable travel requirements on behalf of
the Company. Executive shall devote substantially all of his working time and
attention to such duties. Executive in each of these capacities agrees to use
his best efforts during the Term of Employment to protect, encourage and promote
the interests of the Company and its affiliates and to aid in the integration of
the Company's business and operations with those of Heafner and its affiliates.
Executive shall report to the Chief Executive Officer of Heafner or such other
person as the Board may designate from time to time. As used herein, the phrase
"Term of Employment" shall mean the period commencing on the Effective Date and
ending on the third anniversary of the Effective Date.
3. Compensation.
(a) Base Salary. During the Term of Employment, the Company
agrees to pay to Executive a salary at the rate of $145,385 per annum, payable
in bi-weekly installments or otherwise in accordance with the normal payroll
procedures of the Company. Such annual salary shall be subject to annual review
and may be adjusted upward from time to time in the sole discretion of the
Board. The Executive's annual salary, including any periodic adjustments made
from time to time, shall be referred to in this Agreement as "Base Salary."
(b) Bonuses. (i) Executive shall be entitled to receive from
the Company a bonus (the "Stay Put Bonus") in the amount of $600,000, payable in
two installments as follows: $300,000 on the one-year anniversary of the
Effective Date, $200,000 on the two-year anniversary of the Effective Date and
$100,000 on the three-year anniversary of the Effective Date. The Company shall
pay Executive interest on the unpaid balance of the Stay Put Bonus at a rate of
8% per annum for the period from and including the Effective Date to but
excluding the date payment is made under this Section 3(b)(i). Such interest
payments shall be made annually at the same time as the payment of the annual
installment of the Stay Put Bonus and, for purposes of this Agreement, shall
constitute a part of the Stay Put Bonus.
(ii) Executive shall be entitled to participate in Heafner's
annual executive bonus plan or any similar or successor annual bonus plan of
Heafner and to receive an annual performance bonus (the "Performance Bonus")
from Heafner in accordance with the terms thereof and as approved by the Board
of Directors of Heafner.
(iii) Executive shall be entitled to a bonus (the "Incentive
Bonus") during the Term of Employment as follows:
(A) The Incentive Bonus for the 12-month period ending on the first
anniversary of the Effective Date shall be in an amount to be calculated
by the Company based on the formula set forth in Exhibit A, provided, that
in no event shall such Incentive Bonus be less than $103,678. In the event
that the formula set forth in Exhibit A yields an amount in excess of
$103,678, then any Synergy
-2-
<PAGE> 3
Bonus payable to the Executive shall be reduced by the amount of such
excess. Such bonus shall be paid in quarterly installments commencing on
the date three months after the Effective Date and ending on the
first-year anniversary of the Effective Date. It is understood and agreed
that, if the quarterly figures necessary to calculate the Executive's
Incentive Bonus for the period in which the Effective Date falls or any
prior period are not yet available as of the Effective Date, the
Executive's Incentive Bonus for such period shall be calculated on the
basis of estimated quarterly figures and subsequent Incentive Bonus
payments shall be adjusted to the extent necessary based on actual
quarterly figures for the period in question.
(B) The Incentive Bonus for the 12-month period ending on the second
anniversary of the Effective Date shall be in an amount determined
pursuant to a formula agreed to in advance by the Board and Executive.
Such bonus shall be paid in accordance with normal bonus practices adopted
by the Company from time to time.
(iv) On the one-year anniversary of the Effective Date,
Executive may be entitled to an incentive bonus (the "Synergy Bonus") as more
fully described in Exhibit B to this Agreement. Such bonus shall be paid in
accordance with normal bonus payment practices adopted by the Company from time
to time, but shall no in event be paid later than 30 days from and after the
date of calculation. Any Synergy Bonus payable to the Executive shall be payable
in cash or, at the election of the Executive, (x) in shares of common stock of
Heafner having a fair market value equal to the amount of the Synergy Bonus or
(y) options or warrants to acquire the number of shares of common stock of
Heafner referred to in clause (x).
(c) Equity Incentives. During the Term of Employment,
Executive shall be eligible to participate in the J.H. Heafner Company 1997
Stock Option (the "Stock Plan") and to receive grants of options to purchase
common stock, par value $0.01 per share, of Heafner. Such grants may be awarded
from time to time pursuant to the Stock Plan in the sole discretion of the
Compensation Committee of the Board of Directors of Heafner.
4. Benefits. Unless Executive's employment is terminated earlier
pursuant to Section 5, during the Term of Employment:
(a) Executive shall be eligible to participate in group health
and welfare insurance programs available to senior executives of Heafner with
similar responsibilities from time to time.
(b) Executive shall be eligible to participate in life and
long-term disability insurance programs, pension and retirement programs,
incentive
-3-
<PAGE> 4
compensation programs, and other fringe benefit programs, if any, available to
senior executives of Heafner with similar responsibilities from time to time.
(c) Executive shall be entitled to four weeks vacation with
pay, subject to such increases (but not decreases) as are adopted by the Company
from time to time for senior executives of Heafner with similar
responsibilities.
(d) The Company will reimburse Executive for reasonable
business expenses incurred in performing Executive's duties and promoting the
business of the Company and its affiliates, including, but not limited to,
reasonable entertainment expenses, and travel and lodging expenses, following
presentation of documentation in accordance with Heafner's business expense
policies.
5. Termination of Employment.
(a) Termination Without Cause. Notwithstanding anything to the
contrary in this Agreement, whether express or implied, the Company may at any
time terminate Executive's employment for any reason other than Cause (defined
below) by giving Executive at least 60 days' prior written notice of the
effective date of termination. In the event of such termination, Executive shall
be entitled to receive (i) his Base Salary through the last day of the Term of
Employment, payable in accordance with Section 3(a) above, (ii) his Stay Put
Bonus through the last day of the Term of Employment, payable in accordance with
Section 3(b)(i) above, (iii) his Incentive Bonus through the 12-month period
ending on the first-year anniversary of the Effective Date, payable in
accordance with Section 3(b)(iii) above, (iv) his Synergy Bonus through the
12-month period ending on the first-year anniversary of the Effective Date,
payable in accordance with Section 3(b)(iv) above, and (v) any accrued but
unpaid Performance Bonus or Incentive Bonus in respect of a fiscal year ended
prior to the effective date of termination. The Executive shall continue to be
bound by provisions of Section 6 at all times during the Covenant Period (as
defined in Section 6).
(b) Termination for Cause. The Company shall have the right to
terminate Executive's employment at any time for Cause by giving Executive
written notice of the effective date of termination (which effective date may be
the date of such notice). For purposes of this Agreement, "Cause" shall mean (i)
a proven or admitted act of fraud, misappropriation or embezzlement by the
Executive that is detrimental to the Company or (ii) the Executive's conviction
of or plea of guilty or nolo contendere to a felony. The Company shall have no
further obligation hereunder from and after the effective date of termination
for Cause (other than (i) to make payment of the Executive's Synergy Bonus
through the 12-month period ending on the first-year anniversary of the
Effective Date, payable in accordance with Section 3(b)(iv) above, and (ii) to
make payment of any accrued but unpaid Base Salary to the effective date of
termination and accrued but unpaid Performance Bonus or Incentive Bonus in
respect of fiscal years ending prior to the effective date of termination). The
Executive shall continue to be
-4-
<PAGE> 5
bound by provisions of Section 6 at all times during the Covenant Period (as
defined in Section 6).
(c) Termination on Account of Death. In the event of
Executive's death while in the employ of the Company, Executive's employment by
the Company shall be deemed to have been terminated as of the date of death, and
the Company shall pay to the Executive's designated beneficiaries (i) his Base
Salary through the date of Executive's death, payable in accordance with Section
3(a) above, (ii) his Stay Put Bonus through the last day of the Term of
Employment, (iii) his Synergy Bonus through the 12-month period ending on the
first-year anniversary of the Effective Date, payable in accordance with Section
3(b)(iv) above, and (iv) any accrued but unpaid Performance Bonus or Incentive
Bonus in respect of a fiscal year ended prior to the effective date of
termination.
(d) Voluntary Termination by Executive. Executive shall have
the right to terminate Executive's employment at any time for any reason upon 60
days' written notice to the Company. In the event that Executive's employment
with the Company is voluntarily terminated by Executive, the Company shall have
no further obligation hereunder from and after the effective date of termination
of Executive's voluntary termination (other than (i) to make payment of the
Executive's Synergy Bonus through the 12-month period ending on the first-year
anniversary of the Effective Date, payable in accordance with Section 3(b)(iv)
above, and (ii) to make payment of any accrued but unpaid Base Salary to the
effective date of termination and accrued but unpaid Performance Bonus or
Incentive Bonus in respect of fiscal years ending prior to the effective date of
termination). The Executive shall continue to be bound by provisions of Section
6 at all times during the Covenant Period (as defined in Section 6).
(e) Termination on Account of Disability. (i) During any
period that Executive fails to perform his full-time duties with the Company as
a result of incapacity due to physical or mental illness, he shall receive (1)
all compensation payable to him under the Company's disability plan or program
or other similar plan during such period until this Agreement is terminated as
hereinafter provided in this Section 5(e), (2) that portion of his Base Salary
equal to the positive difference between (A) his Base Salary at the rate in
effect at the commencement of any such period and (B) the compensation payable
to him under Section 5(e)(1) above, (3) his Stay Put Bonus, if any, payable
during such period, (4) his Synergy Bonus, if any, payable during such period,
and (5) payment of all accrued but unpaid Performance Bonus or Incentive Bonus
in respect of fiscal years or periods ended prior to the commencement of any
such period.
(ii) If, as a result of Executive's incapacity due to physical
or mental illness (as determined in good faith by a physician acceptable to the
Company and the Executive), Executive shall have been unable to perform the
essential functions of his position with the Company for 90 days during any
twelve (12) month period or if a physician acceptable to the Company advises the
Company that it is likely that Executive will be unable to perform the essential
functions of his position for 90 days during the
-5-
<PAGE> 6
succeeding twelve (12) month period, his employment may be terminated for
"Disability" on 20 days' prior written notice by the Company to the Executive.
In the event that Executive's employment shall be so terminated, the Company
shall pay to Executive or to the Executive's designated beneficiaries (1) his
Stay Put Bonus through the last day of the Term of Employment, payable in
accordance with Section 3(b)(i) above, (2) his Synergy Bonus through the
12-month period ending on the first-year anniversary of the Effective Date,
payable in accordance with Section 3(b)(iv) above, and (3) any accrued but
unpaid Performance Bonus or Incentive Bonus in respect of a fiscal year ended
prior to the effective date of termination. In addition, Executive shall be
entitled to receive benefits under the Company's retirement, insurance, and
other compensation and benefit plans and programs then in effect, in accordance
with the terms of such programs. The Executive shall continue to be bound by
provisions of Section 6 at all times during the Covenant Period (as defined in
Section 6).
(f) Termination by Executive for Good Reason. Executive shall
have the right to terminate Executive's employment at any time for Good Reason
by giving the Company 60 days advance written notice of the effective date of
termination (which effective date may be the date of such notice). For purposes
of this Agreement, "Good Reason" shall mean:
(i) the material breach by the Company of a material term of
this Agreement and, if such breach is capable of being cured, the failure
to cure such breach within 30 days of receipt of notice of such breach;
(ii) the Company's requiring Executive's ongoing and regular
services to be performed at a location other than in Northern California,
except for travel reasonably required in the performance of Executive's
responsibilities;
(iii) the reduction by the Company of the Executive's Base
Salary during the Term of Employment;
(iv) the modification of the position and responsibilities of
the Executive in such a manner as would be inconsistent with those of a
president or chief executive officer of a corporate division; or
(v) the inability of the Executive and the Company to agree in
good faith (no more than 30 days before the first-year anniversary of the
Effective Date) on an Incentive Bonus arrangement for the twelve-month
period commencing on the first-year anniversary of the Effective Date that
is satisfactory to the Executive.
In the event of such termination, Executive shall be entitled to receive (i) his
Base Salary through the last day of the Term of Employment, payable in
accordance with Section 3(a) above, (ii) his Stay Put Bonus through the last day
of the Term of Employment, payable
-6-
<PAGE> 7
in accordance with Section 3(b)(i) above, (iii) his Incentive Bonus through the
12-month period ending on the first-year anniversary of the Effective Date,
payable in accordance with Section 3(b)(iii) above, (iv) his Synergy Bonus
through the 12-month period ending on the first-year anniversary of the
Effective Date, payable in accordance with Section 3(b)(iv) above, and (v) any
accrued but unpaid Performance Bonus or Incentive Bonus in respect of a fiscal
year ended prior to the effective date of termination. The Executive shall
continue to be bound by provisions of Section 6 at all times during the Covenant
Period (as defined in Section 6).
6. Confidential Information; Non-Competition.
(a) Confidential Information. (i) Executive recognizes and
hereby acknowledges that, as a senior executive of the Company, he will learn
of, and be exposed to, confidential business information concerning the Company
Group's information, ideas, know how, trade secrets, processes, computer
software, methods, practices, techniques, technical plans, customer lists,
pricing techniques and information, marketing plans, financial information, and
all other compilations of information that relate to the Company Group's
business and its current and prospective customers ("Confidential Information").
Executive recognizes and hereby acknowledges that such Confidential Information
is a valuable asset of the Company Group. Executive agrees to safeguard such
Confidential Information for the exclusive benefit of the Company Group and
agrees that he will not disclose, distribute or publish such Confidential
Information to any person, company, business or corporation, provided that
Confidential Information shall not include information that is or becomes
generally available to the public (other than as a result of a disclosure in
violation of this Agreement by Executive or by a person who received such
information from Executive in violation of this Agreement). "Company Group"
means the Company, Heafner and their respective subsidiaries and affiliates.
(ii) Executive agrees that he will promptly and fully
disclose to the Company all inventions, ideas, software, trade secrets or
know-how (whether patentable or copyrightable or not) made or conceived by
Executive (either solely or jointly with others) and all tangible work product
derived therefrom (collectively, the "Ideas") during the period in which
Executive is employed under this Agreement. Executive agrees that all such Ideas
shall be and remain the sole and exclusive property of the Company. On the
request of the Company, Executive shall, during and after the Term of
Employment, without charge to the Company but at the expense of the Company,
assist the Company in any reasonable way to vest in the Company title to all
such Ideas, and to obtain any patents, trademarks or copyrights thereon in all
countries throughout the world. In this regard, the parties shall executive and
deliver any and all documents that the Company may reasonably request.
(b) Use of Confidential Information for Another Employer.
Executive acknowledges and recognizes his possession of Confidential Information
and acknowledges the highly competitive nature of business of the Company Group.
-7-
<PAGE> 8
Accordingly, in order further to protect the Confidential Information of the
Company Group from disclosure or use, Executive agrees that, during the period
commencing on the Effective Date and ending on the later of (i) the third
anniversary of the Effective Date and (ii) the one-year anniversary of the
effective date of termination of Executive's employment with the Company (the
"Covenant Period"), he will not, for any reason whatsoever, either individually
or as an officer, director, stockholder, partner, agent or principal or another
business or firm, (i) directly or indirectly engage in the States of Arizona,
California, New Mexico, Nevada, Oregon, Utah and Washington in any Competing
Business, or (ii) assist others in engaging in any Competing Business in the
manner described in clause (i). "Competing Business" means any business that is
competitive with the business of the members of the Company Group (including,
without limitation, the wholesale or retail tires or automotive parts
businesses).
(c) Solicitation of Customers. Executive agrees that during
the course of his employment with the Company, he will learn of and be exposed
to confidential business information and trade secrets of the Company Group
concerning the Company Group's customers. Executive further agrees that, should
he seek to divert, take away, or solicit any of the customers of the Company
Group with respect to which he has learned and/or been exposed to such
confidential information, he will of necessity make use of or disclose such
confidential information, to the irreparable detriment of the Company Group.
Accordingly, Executive promises that, during the Covenant Period, he will not,
directly or indirectly, either for himself or for any other person, firm,
company or corporation, divert, take away or solicit, or attempt to divert, take
away or solicit any businesses or individuals that were customers of the Company
Group during the period in which Executive was employed by the Company.
(d) Solicitation of Employees. Executive agrees and
acknowledges that the Company Group has expended large sums in the recruitment,
training and development of its employees and that the continued employment of
such persons by the Company Group constitutes a substantial benefit to the
Company Group. Executive further agrees and acknowledges that the business of
the Company Group could be severely disrupted and injured in the event that
another person, firm, company or corporation were to attempt to induce any or
all of the Company Group's employees to terminate their employment with the
Company Group. Accordingly, Executive promises and covenants that, during the
Covenant Period, he will not, directly or indirectly, either for himself or for
any other person, firm, company or corporation, contact or communicate with any
employee of any member of the Company Group for the purpose of inducing or
otherwise encouraging such employee to terminate his or her employment with the
Company, provided, however, that this Section 6(d) shall not preclude the
Executive from giving an employment reference at the request of a prospective
employer of such employee.
(e) Acknowledgment. Executive acknowledges that he is entering
into the covenants contained in this Section 6, inter alia, due to his status as
a
-8-
<PAGE> 9
signatory to the Stock Purchase Agreement and his position, prior to the
Effective Date, as a stockholder of the Company.
7. Miscellaneous. This Agreement shall also be subject to the
following provisions:
(a) It is the desire and intent of the parties hereto that the
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, although Executive and the Company consider
the restrictions contained in this Agreement to be reasonable for the purposes
of preserving the Company Group's goodwill and proprietary rights, if any
particular provision of this Agreement shall be adjudicated to be invalid or
unenforceable, such provision shall be deemed amended to delete therefrom the
portion thus adjudicated to be invalid or unenforceable, such deletion to apply
only with respect to the operation of such provision in the particular
jurisdiction in which such adjudication is made. It is expressly understood and
agreed that although the Company and Executive consider the restrictions
contained in Section 6 to be reasonable, if a final determination is made by a
court of competent jurisdiction that the time or territory or any other
restriction contained in this Agreement is unenforceable against Executive or
Company, the provisions of this Agreement shall be deemed amended to apply as to
such maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable.
(b) The parties acknowledge that the Company's damages at law
would be an inadequate remedy for the breach by Executive of any provision of
Section 6, and agree in the event of such breach that the Company may obtain
temporary and permanent injunctive relief restraining Executive from such
breach, and, to the extent permissible under the applicable statutes and rules
of procedure, a temporary injunction may be granted immediately upon the
commencement of any such suit. Nothing contained in this Agreement shall be
construed as prohibiting the Company from pursuing other remedies available at
law or equity for such breach or threatened breach of Section 6 of this
Agreement.
(c) Executive represents and warrants to the Company that he
has the authorization, power and right to deliver, execute, and fully perform
his obligations under this Agreement in accordance with its terms. The Company
has the authorization, power and right to deliver, execute and fully perform its
obligations under this Agreement in accordance with its terms.
(d) This Agreement contains a complete statement of all the
arrangements between the parties with respect to Executive's employment by the
Company; this Agreement supersedes all prior and existing negotiations and
agreements concerning Executive's employment; and this Agreement can only be
changed or modified pursuant to a written instrument duly executed by each of
the parties hereto.
-9-
<PAGE> 10
(e) All compensation payable hereunder shall be subject to
such withholding taxes and deductions as may be required by law.
(f) This Agreement shall be binding upon and inure to the
benefit of the successors and permitted assigns of the Company, provided that
the Company shall not assign this Agreement to any person or entity other than
an affiliate of the Company without the prior written consent of Executive.
Except as expressly provided herein, Executive may not sell, transfer, assign,
or pledge any of his rights or interests pursuant to this Agreement. This
Agreement is for the sole benefit of the parties hereto and not for the benefit
of any third party, provided that the parties agree that Heafner shall be an
intended third party beneficiary of all of the provisions of this Agreement,
including, without limitation, the covenants contained in Section 6 and Section
7(h).
(g) All notices, requests and other communications to the
Company or the executive shall be in writing (including facsimile or similar
writing) and shall be given,
if to the Executive, to:
Ray C. Barney
216 Fieldcrest Court
Danville, CA 94506
Facsimile: ____________
with a copy to:
Jackson Tufts Cole & Black, LLP
60 South Market Street, Suite 1000
San Jose, CA 95110
Attention: Richard Scudellari
Facsimile: (408) 998-4889
if to the Company, to:
The Speed Merchant, Inc.
1140 Campbell Avenue
San Jose, California 95126
Facsimile: _____________
Attention: _____________
with a copy to:
The J.H. Heafner Company, Inc.
814 East Main Street
-10-
<PAGE> 11
P.O. Box 837
Lincolnton, North Carolina 28093-0837
Facsimile: (704) 732-6480
Attention: General Counsel
or such other address or telecopy as such party may specify for the purpose by
notice to the other parties. Each such notice, request or other communication
shall be effective (i) if given by facsimile, when such facsimile is transmitted
to the telecopy number specified in this Section 7(g) and the appropriate
facsimile confirmation is received or (ii) if given by any other means, when
delivered at the address specified in this Section 7(g).
(h) Executive acknowledges and agrees that the Company shall
be entitled, at Heafner's request and to the extent that Heafner's rights of
set-off contained in the Stock Purchase Agreement would be ineffective to grant
to Heafner the practical realization of the benefits intended to be granted
thereby, to set off or to apply all or a portion of the unpaid Synergy Bonus (to
the extent any remains unpaid) and then the unpaid Stay-Put Bonus against any
obligations of Executive to Heafner or its affiliates now or hereafter existing
under Article V of the Stock Purchase Agreement as set forth therein. In the
event the Company intends to set-off any amount payable to the Executive in
respect of the Synergy Bonus against any such obligations, the Company shall
notify the Executive no later than the date on which such amount is payable.
(i) (i) No provision of this Agreement may be waived unless
such waiver is in writing and signed by the party against whom the waiver is to
be effective.
(ii) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
(j) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
(k) EACH OF THE PARTIES TO THIS AGREEMENT AGREES TO BE BOUND
BY THE PROVISIONS SET FORTH IN EXHIBIT C TO THIS AGREEMENT. EACH OF EXECUTIVE
AND THE COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT IN SAN JOSE OR THE SUPERIOR
COURT OF THE STATE OF CALIFORNIA, COUNTY OF SANTA CLARA FOR THE PURPOSES OF ALL
LEGAL PROCEEDINGS WHICH ARE NOT GOVERNED BY EXHIBIT B AND WHICH ARISE OUT OF OR
RELATE TO THIS AGREEMENT, AND EACH OF EXECUTIVE AND THE COMPANY AGREES NOT TO
COMMENCE ANY
-11-
<PAGE> 12
LEGAL PROCEEDING RELATED THERETO EXCEPT IN SUCH COURT. EACH OF EXECUTIVE AND THE
COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY SUCH
COURT OR ANY CLAIM THAT A LEGAL PROCEEDING COMMENCED IN SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
(Signature page follows.)
-12-
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on its date.
EXECUTIVE: THE SPEED MERCHANT, INC.
By: /s/ J. MICHAEL GAITHER
------------------------------
/s/ RAY C. BARNEY Name:
- ----------------------------- Title:
Ray C. Barney
-13-
<PAGE> 14
Exhibit A to Employment Agreement
<TABLE>
<CAPTION>
Executive Incentive BonusFormula(1) Fiscal 1997 Total Compensation
- --------- ----------------------- ------------------------------
<S> <C> <C>
Arthur C. Soares 8.5% of Net Income $528,506
Ray C. Barney 1.5% of Net Income $243,678
Elizabeth Roberts 5% of Net Income (pre-tax) $344,180
</TABLE>
(1) Bonuses are paid within 45 days after the end of each fiscal quarter.
-14-
<PAGE> 15
Exhibit B to Employment Agreement
SYNERGY BONUS PLAN
Executive shall be entitled to be paid a Synergy Bonus pursuant to the terms set
forth in this Exhibit B. For purposes of calculating Executive's Synergy Bonus,
if any, targeted EBITDA of the Company shall be $6,400,000 for the 12-month
period ending on the one-year anniversary of the Effective Date (the "Target
Period"). The actual EBITDA calculations shall be made on a pro forma basis
without giving effect to any acquisitions or dispositions of assets, stock or
businesses by the Company occurring during the Target Period or to the
acquisition by Phoenix of the Arizona Business (as defined in the Stock Purchase
Agreement), and shall be adjusted to the extent necessary in accordance with
Section 3.11(a) of the Stock Purchase Agreement. These pro forma actual EBITDA
calculations shall be subject to the approval of the Board acting in good faith.
The Company shall pay to Executive the amount, if any, due to Executive as
Synergy Bonus promptly upon the Company's receipt of the Company's accountant's
opinion with respect to the Company's financial statements for the Target Period
(but in no event later than 120 days after the end of such Target Period).
The amount of the Synergy Bonus, if any, shall be equal to (i) the sum of (A) 85
percent of 50 percent of the excess of actual EBITDA during the Target Period
over targeted EBITDA plus (B) 85 percent of 50 percent of the amount of any net
cost savings achieved with respect to members of the Company Group (other than
the Company) during the Target Period (1) that are the identifiable result of
any potential cost savings described on Schedule I attached to this Exhibit B
and (2) that otherwise result from the transactions contemplated by the Stock
Purchase Agreement (as determined in good faith by the Board of Directors of
Heafner, which determination shall be open to good faith dispute by the
Executive in accordance with the arbitration provisions contained in Exhibit C)
minus (ii) the amount of any reductions made in accordance with Section
3(b)(iii)(A).
For purposes of calculating the Synergy Bonus, (x) the Company shall be
accounted for on a stand-alone basis using the accounting principles applied in
preparing the Closing Date Balance Sheet (as defined in the Stock Purchase
Agreement) and (y) no corporate-level overhead costs incurred by Heafner shall
be allocated to the Company.
"EBITDA" shall mean earnings before interest, taxes, depreciation and
amortization.
<PAGE> 16
Schedule I to Synergy Bonus Plan
List of Quantifiable Synergies:
Distribution Synergy
1/wk vs daily delivery for Winston
Reduction of Winston Inventory - Cost of Money
Elimination of Winston Distribution Centers
Elimination of Winston Wholesale Division
Purchasing Synergy
Tires, Wheels, Auto Parts, Equipment
Other Synergy
Performance Software Opportunities (Wheel Wizard)
<PAGE> 17
EXHIBIT C
TO EMPLOYMENT AGREEMENT
DISPUTE RESOLUTION PROCEDURE
1. Scope of Arbitration. The parties to the Employment Agreement
will submit to final and binding arbitration as the sole and exclusive remedy
for all claims for damages arising out of, involving, or relating to (a) the
Employment Agreement or any amendment thereto or (b) the events giving rise to
the Employment Agreement, including any and all non-contractual claims for
damages related to the Employment Agreement or the events giving rise to it
(including claims for fraudulent inducement of contract). Notwithstanding the
foregoing, the dispute resolution procedure set forth in this Exhibit B does not
apply to claims for injunctive or other equitable relief pursuant to the express
terms of the Employment Agreement or any other agreement entered into in
connection with the Employment Agreement.
2. Notice of Dispute. Any party shall give the other parties written
notice of the existence and nature of any dispute proposed to be arbitrated
pursuant to this Exhibit B (the "Written Notice"). Such Written Notice must be
served on the other parties as described below. The party serving Written Notice
shall be referred to as the "Claiming Party." The party to whom the claims are
directed shall be referred to as the "Responding Party."
3. Appointment of Arbitrators. Each party shall appoint one person
to serve as an arbitrator within seven days of receipt of the Written Notice.
The two arbitrators thus appointed shall within seven days of their appointment
together select a third arbitrator with such knowledge and expertise as
necessary to serve as chairman of the panel of arbitrators, and this person
shall serve as chairman. The three arbitrators shall determine all matters,
including the panel's final decision with respect to the claims presented in the
arbitration, by majority vote. If the two arbitrators selected by the parties
are unable to agree upon the appointment of the third arbitrator within seven
days of their appointment, both shall give written notice of such failure to
agree to the parties, and if the parties fail to agree upon the selection of
such third arbitrator within five days thereafter, such third arbitrator shall
be appointed from, and pursuant to the rules for commercial arbitration of, the
American Arbitration Association. Prior to appointment, each arbitrator shall
agree to conduct such arbitration in strict accordance with the terms of this
Exhibit B.
4. Initial Meeting of the Arbitrators. Within seven days of the
selection of the third arbitrator, the arbitrators shall conduct an initial
meeting with the parties (the "Initial Meeting"). All meetings between the
arbitrators, or between the arbitrators and the parties, including the Initial
Meeting, may be conducted by telephone, with the exception of the arbitration
hearing at which evidence is presented. At the Initial Meeting, the parties and
the arbitrators shall agree upon a schedule for the arbitration proceedings,
with dates no later than the deadlines provided in Section 7 below. The
<PAGE> 18
statement of claim, the response to the statement of claim and counterclaims (if
any), and the response to the counterclaims (if any) (collectively, the
"Pleadings") shall be submitted to each arbitrator on the date they are served,
unless service occurs prior to appointment of all three arbitrators. If service
of any of the Pleadings occurs prior to the appointment of any of the
arbitrators, copies of any such Pleadings shall be submitted to such arbitrator
promptly after such arbitrator's appointment.
5. Conduct of the Arbitration. No more than eleven months shall pass
between the selection of the third arbitrator and the release of a decision by
the arbitration panel. Any arbitration held pursuant to this Exhibit B shall
take place in New York City, New York. The law of the State of New York shall
supply the substantive law of the arbitration proceedings, and any claims or
counterclaims alleged pursuant to federal law shall be adjudicated as if pled in
a federal court in New York. All proceedings, including discovery, depositions,
and the arbitration hearings shall be governed by the Federal Rules of Civil
Procedure and the Civil Rules of the United States District Court for the
Southern District of New York, unless such rules conflict with the provisions of
this Exhibit B, in which case the provisions of this Exhibit B control.
6. Motions. The parties may make applications to the panel of
arbitrators regarding issues of discovery, procedure and privilege. Any such
motions shall be made to and resolved by the arbitrators as soon as practicable.
No party shall be permitted to file any motions for dismissal of claims
(including dismissal based upon failure to join an indispensable party), or for
summary judgment, concerning the claims or counterclaims asserted in any
arbitration under this Exhibit B.
7. Schedule of Arbitration Proceedings. At the Initial Meeting, the
parties and the arbitrators shall agree to a schedule that conforms with the
following deadlines:
<TABLE>
<CAPTION>
Event Deadline Not Later Than
----- -----------------------
<S> <C>
Service of a statement of Seven days after service of the Written Notice
claim by the Claiming Party
Service of response to the 14 days after receipt of the statement of
statement of claim and claim
counterclaims (if any) by
the Responding Party
Service of response to Seven days after receipt of counterclaims (if
counterclaims (if any) by any)
the Claiming Party
</TABLE>
<PAGE> 19
<TABLE>
<S> <C>
Commencement of document One day after service of response to the
discovery statement of claim
Commencement of deposition 75 days after service of the statement of
discovery claim
Completion of all discovery 200 days after service of the statement of
claim
Commencement of the 28 days after completion of discovery
arbitration hearing
Issuance of a decision by 14 days after receipt of the last hearing
the arbitrators transcript by the arbitrators. All sessions of
the arbitration hearings shall be promptly
transcribed and transcripts shall be promptly
provided to the parties and the arbitrators.
</TABLE>
8. Decision Binding on the Parties. Unless the parties agree
otherwise in writing, the arbitrators' decision shall become binding on the
parties at such time as the decision is confirmed by order of the Supreme Court
of the State of New York, County of New York. The parties hereby irrevocably and
unconditionally submit to the jurisdiction of such court for any and all
proceedings relating to such confirmation. Any award ordered shall be paid
within 10 days of confirmation of the arbitrators' decision.
9. Cost of Arbitration Proceeding. Except as provided herein, the
costs incurred by the parties in conjunction with an arbitration proceeding
pursuant to this Exhibit B, including attorney's fees, fees paid to experts, and
fees for obtaining transcripts shall be paid or reimbursed in accordance with
the provisions of Article V of the Employment Agreement. In the event that the
arbitrators determine that no party is entitled to indemnification by any other
party, then (a) each party shall pay its own expenses, including attorney's
fees, fees paid to experts, fees for obtaining transcripts, expenses of
witnesses called solely by that party, and all fees charged by the arbitrator
appointed by such party and (b) the parties shall each pay fifty percent of all
remaining expenses of the arbitration proceeding.
10. Extensions of Time. The parties may jointly agree, in writing,
to extend any of the deadlines set forth in Section 7 above.
11. Service of Documents. Any process, notice, memorandum, motion,
demand, or other paper or communication, or application to the panel of
arbitrators shall be deemed to have been sufficiently served or submitted if (a)
personally delivered, or (b) sent by a nationally recognized overnight courier
service.
<PAGE> 1
EXHIBIT 10.29
[J.H. HEAFNER LETTERHEAD]
August 1, 1997
Albert C. Gaither
Ann H. Gaither
841 Woodson Road
Newton, NC 28658
RE: Lease dated October 1, 1992 by and between Carolyn Heafner, Ann H.
Gaither and Albert C. Gaither and The J.H. Heafner Company, Inc.
Dear Mr. & Mrs. Gaither:
As you know the above-referenced Lease for the main offices of the
company expires on September 30th. Pursuant to paragraph 2 of the lease, the
company would like to extend the term for another five years. The expiration
date of the lease is now September 30, 2002.
Sincerely,
/s/ J. Michael Gaither
----------------------
J. Michael Gaither
Sr. Vice President & General Counsel
JMG/abw
<PAGE> 2
[J.H.HEAFNER LETTERHEAD]
August 1, 1997
Carolyn Heafner Williams
380 Broad Ave., Unit 2-G
Englewood, NJ 07631
RE: Lease dated October 1, 1992 by and between Carolyn Heafner, Ann H.
Gaither and Albert C. Gaither and The J.H. Heafner Company, Inc.
Dear Mrs. Williams:
As you know the above-referenced Lease for the main offices of the
company expires on September 30th. Pursuant to paragraph 2 of the lease, the
company would like to extend the term for another five years. The expiration
date of the lease is now September 30, 2002.
Sincerely,
/s/ J. Michael Gaither
----------------------
J. Michael Gaither
Sr. Vice President & General Counsel
JMG/abw
<PAGE> 3
STATE OF NORTH CAROLINA)
) LEASE AGREEMENT
CITY OF LINCOLN )
THIS LEASE, made and entered into this the 1st day of October, 1992, by
and between CAROLYN HEAFNER, ANN H. GAITHER, and Husband, ALBERT C. GAITHER,
hereinafter referred to as "Lessors", and THE J. H. HEAFNER COMPANY, INC., a
North Carolina corporation, having its principal place of business in Lincoln
County, North Carolina, hereinafter referred to as "Lessee":
W I T N E S S E T H:
Subject to the terms and conditions hereinafter set forth, said Lessor
does hereby let and lease unto said Lessee and said Lessee does hereby accept
from said Lessor a certain parcel of land together with buildings and other
improvements thereon situated and lying and being in the City of Lincolnton,
State of North Carolina, and more particularly described on attached Schedule A,
attached hereto.
The terms and conditions referred to are as follows:
1. This lease shall begin as of the 1st day of October, 1992 and unless
sooner terminated as herein provided, shall exist and continue until the 30th
day of September, 1997.
2. Provided all installments of rental theretofore due have been paid
and all other conditions of this lease have been properly complied with by the
Lessee, the Lessee may, at is option, extend this lease for an additional three
(3) terms of five (5) years each by giving the Lessor written notice of its
intention to do so not later than sixty (60) days prior to the end of the
initial term and prior to the end of each extension thereafter. In the event of
such extension, all of the terms and conditions as herein set out shall continue
in full force and effect during said extension.
3. The Lessee shall pay the sum of Eighty-seven Thousand and No/100
Dollars ($87,000.00) per year as rental for the demised premises which rental
shall be hereinafter referred to as "minimum rent" and shall be payable in
twelve (12) equal and consecutive monthly installments of Seven Thousand Two
Hundred Fifty and No/100 Dollars ($7,250.00) due and payable on the first day of
each calendar month, commencing with the first day of October, 1992. From and
after the first year of the lease, the rental shall be adjusted as follows:
The rental shall be the minimum rent plus a cost of living
increase thereon determined by multiplying the minimum rent by
a fraction, the denominator of which is the Consumer Price
1
<PAGE> 4
Index for Urban Wage Earners and Clerical Workers in U.S.
Cities Average, all items as published by the Bureau of Labor
Statistics, U.S. Department of Labor, for September, 1987, and
the numerator of which is the said Consumer Price Index for
the month of September of the next succeeding annual lease
period. The Lessor shall notify the Lessee of the amount of
the cost of living adjustment and the total rent due for each
annual lease period. Under no circumstances shall the total
rent be less than the minimum rent as set forth above.
All rents shall be absolutely net to the Lessor, so that this Lease,
shall, except as hereinafter provided to the contrary, yield net to the Lessor
the rent to be paid in each year during the term of the Lease. Accordingly, all
costs, expenses, and obligations of every kind or nature whatsoever relating to
the demised premises, or any improvements thereon, which may arise or become due
during the term of this Lease, shall be paid by the Lessee, and the Lessor shall
be indemnified and saved harmless by the Lessee from and against same.
4. The Lessee shall pay, before any fine, penalty, interest, or costs
may be added, or become due or be imposed for non-payment thereof, all taxes,
assessments, water and sewer rents, rates and charges, transit taxes, charges
for public utilities, excises, levies, licenses, and permit fees and other
governmental charges, general and special, ordinary and extraordinary,
unforeseen and foreseen, or any kind and nature, whatsoever, which at any time
during the term of this Lease may be assessed, levied, confirmed, imposed upon,
or grow and become due and payable out of or in respect of, or become a lien on
the demised premises, or any improvements thereon, or any part thereof or any
appurtenances thereto, or otherwise arising out of the rent and income received
by the Lessees from sub-tenants, any use or occupation of the demised premises
and franchises as may be appurtenant to the use of the demised premises, or any
document (to which the Lessee is a party) creating or transferring an interest
or estate in the demised premises.
5. The Lessee shall pay the taxes and other charges as enumerated
in this article and should deliver official receipts evidencing such payment to
the Lessors, which payment of taxes shall be made and the receipts delivered at
least thirty (30) days before the tax itself would become delinquent, in
accordance with the law then in force governing the payment of such tax or
taxes. If however, the Lessee desires to contest the validity of any tax or tax
claim, the Lessee may do so without being in default hereunder, provided the
Lessee gives the Lessor notice of the Lessee's intention to do so and furnishes
the Lessor with a surety made by a surety company qualified to do business in
the State of
2
<PAGE> 5
North Carolina. If the Lessee shall fail, refuse, or neglect to make any of the
payments required in this article, then the Lessor may pay the same, and the
amount or amounts of money so paid, including reasonable attorney fees and
expenses which might have been reasonably incurred because of or in connection
with those payments, together with interest on all such amounts at the rate of
ten percent (10%) per annum, shall be repaid by the Lessee to the Lessor, upon
the demand of the Lessor and the payment thereof may be collected or enforced by
the Lessor in the same manner as though such amount was an installment of rent
specifically required by the term of this Lease to be paid by the Lessee to the
Lessor, upon the day when the Lessor demands repayment thereof or reimbursement
therefore of and from the Lessee; but the election of the Lessor to pay such
taxes shall not waive the default thus committed by the Lessee.
6. During the entire term of this Lease, the Lessee will indemnify and
save harmless the Lessor against any and all claims, debts, demands, or
obligations which may be made against the Lessor or against the Lessor's title
and the premises, arising out of or in connection with any alleged act or
admission of the Lessee or any person claiming under, by or through the Lessee;
and if it becomes necessary for the Lessor to defend any actions seeking to
impose such liability, the Lessee will pay the Lessor all costs of court and
attorneys fees incurred by the Lessor in effecting such defense in addition to
any other sums which the Lessor may be called upon to pay by reason of the entry
of a Judgment against the Lessor in the litigation which such claim is asserted.
7. From and after the time when the Lease commences, the Lessee will
keep insured all buildings and improvements upon said premises against all loss
or damage by fire and windstorm, together with extended coverage which said
insurance will be maintained in an amount which will be sufficient to prevent
any party in interest from being or becoming a co-insurer on any part of the
risk which amounts shall not be less than eighty percent (80%) of the full
insurable value and all of such policies of insurance shall include the name of
the Lessor as one of the parties insured and shall fully protect both the Lessor
and the Lessee as their respective interests may appear. The Lessee shall
provide such coverage for the Lessor's interest that shall not fail, in any
case, below the sum of FOUR HUNDRED THOUSAND DOLLARS ($400,000.00). The
originals of all such policies shall be delivered to the Lessor by the Lessee
along with receipted bills evidencing the fact that the premiums therefore are
paid. The Lessor assumes no obligation whatsoever to repair or replace any
building on the demised premises which is damaged or destroyed by fire or other
casualty, but the Lessee may at its own option and expense, cause said building
to be insured and in case of damage or destruction use all sums collected from
such insurance in repairing or replacing said buildings. This coverage shall be
in addition to said coverage for the Lessor as set forth above.
3
<PAGE> 6
8. It is understood and agreed that the Lessee accepts said premises
in the physical condition in which the same now are and further that during the
continuance of this Lease the Lessee will keep in good state of repair and in
first class condition any and all buildings, furnishing, fixtures, and equipment
which are brought or constructed or placed upon the demised premises by the
Lessee nor will the Lessee sell or permit any strip, waste or neglect of any
building or other property to be committed, and the Lessee will repair or
replace any renovate such property as often as it may be necessary to keep the
buildings and other property which is the subject matter of this Lease in first
class repair and condition. Further, it is understood and agreed that the Lessor
shall be under no obligation whatsoever to make any repair or replacement to
said premises during the terms of this Lease. In the event any governing body
should require alternations to the demised premises to comply with local, state,
or federal law or regulations, the Lessee shall see that such alterations are
made at its own expense, holding Lessor harmless from such expense. If, at any
time, activities by the Lessee shall place the demised premises in violation of
any local, state, or federal laws, ordinances, statutes, or regulations, then
the Lessee shall take such steps to bring the use of the premises into full
conformity within thirty (30) days of notification or be in default under this
Lease.
9. If at any time a default should be made by the Lessee in the
payment of any rent upon any day such rent becomes due and payable, or if the
Lessee shall fail to perform any of the other covenants of this Lease by it to
be kept and performed, then in any such event, it shall be lawful for the
Lessor, upon election, to declare the lease term ended and to re-enter upon the
premises and the building or buildings and improvements situated thereon, or any
part thereof or thereon, either with or without process of law, the Lessee
waiving any demand for possession of such premises any and all buildings and
improvements then situated thereon, or the Lessor may have such other remedy as
the law and this instrument may afford. Upon the termination of the lease term,
at such election of the Lessor or in any other way, the Lessee shall surrender
and deliver up the demised premises and property (real and pursuable) peaceably
to the Lessor, or the agent or attorney of the Lessor, immediately upon the
termination of the lease terms; and if the Lessee, its agent, attorney, tenants,
shall hold such premises, or any part thereof, one day after the same shall be
surrendered according to the term of this lease, he shall be deemed guilty of
forcible detainer of the premises under the statutes and shall be subject to
eviction or removal, forcibly or otherwise, with or without process of law.
The relationship between the parties that of Landlord and Tenant, and
that the Lessee specifically acknowledges that all statutory proceedings to the
relationship of Landlord and Tenant respecting rent and the possession of the
premises accrued to the Landlord.
4
<PAGE> 7
Nothing herein shall be construed as authorizing the Lessor to declare
this Lease in default, however, where the default consists in the non-payment of
rent, security, insurance, premiums, or taxes until such non-payment, in
violation with the terms of this Lease, shall continue for thirty (30) days
after the respective due dates for payment of such taxes, security, insurance
premiums, and rent, and where the alleged default consists of some violation
other than non-payment of rent, security, insurance premiums, or taxes, the
Lessor may not declare this Lease in default until such violation shall have
continued for thirty (30) days after the Lessor shall have given the Lessee
written notice of such violation, provided however, that nothing contained
herein shall be construed as precluding the Lessor from having such remedy as be
and become necessary in order to preserve the Lessor's right and interest of the
Lessor in the premises and this Lease, even before the expiration of the grace
or notice periods provided for in this section; if, under particular
circumstances then existing, the allowance of such grace, and the giving of such
notice will prejudice or endanger the rights of the estates of the Lessor in
this Lease and in the demised premises. All default and grace periods shall be
deemed to run concurrently and not consecutively. Subject to the rights of the
holder of any first mortgage to which this Lease has been subordinated, the
Lessee pledged with and assigns to the Lessor, all of the rents, issues, and
profits which might otherwise accrue to the Lessee for the use, enjoyment, and
operation of the demised premises and in connection with such pledging of the
rents, the Lessee covenants and agrees with the Lessor that if the Lessor, upon
default of the Lessee, elects to file suit in chancery to enforce the Lease and
protect the Lessor's rights, then the Lessor may, an ancillary to such suit,
apply to any court having jurisdiction thereof for the appointment of a receiver
of all and singular the demised premises, the improvements, buildings located
thereon and thereupon, it is expressly covenanted and agreed that the court
shall forthwith appoint a receiver with the usual powers and duties of the
receivers in like cases, such appointments shall be made by such court as a
matter of strict right to the Lessor and without reference to the adequacy or
inadequacy of the value of the property which is the subject to the Landlord's
lien, or to the solvency of the Lessee and without reference to the commission
of waste. Nothing in this section shall be construed as empowering the Lessor to
collect rents accruing from the premises unless or until the Lessee is in
default. It is expressly agreed that if any time during the term of this Lease,
the Lessee shall be adjudged bankrupt or insolvent by any federal or state
court, or competent jurisdiction, the Lessor may at its option declare the Lease
terminated and canceled and take possession of said premises.
10. The Lessee shall not assign this Lease or sub-let any part of the
demised premises without the written consent of the Lessor, which consent shall
not be unreasonably withheld.
5
<PAGE> 8
11. At the termination of this Lease, the Lessee will peaceably and
quietly deliver possession of the premises and all improvements, including any
furnishings, fixtures, and equipment which the Lessee may have brought, placed
or constructed upon the premises pursuant to the provisions of this Lease to the
Lessor.
12. If, at any time, the Lessor is required to enforce this Lease or to
defend any action arising out of the facts connecting with or caused by reason
of ownership by the Lessee of this Lease or the occupancy of the premises
pursuant hereto, the Lessee will owe and will pay to the Lessor all costs of
court and reasonable attorneys fees incurred or expended by them in conducting
such defense or enforcing the terms of this Lease. The amount of such costs and
fees may, at the option of the Lessor, be collected just as though such amount
were an amount of rent maturing and coming due.
13. The Lessor covenants and agrees with the Lessee that so long as the
Lessee keeps and performs all of the covenants and conditions of this Lease, the
Lessee shall have quiet, undisturbed and continued possession of the premises,
free from any claim against the Lessor and all persons claiming under, by and
through the Lessor.
14. The Lessor and their agent shall have the right to enter upon the
premises at all reasonable times to examine the condition and use thereof,
provided only that such rights shall be exercised in such manner as not to
interfere with the Lessee in the conduct of the Lessee's business on such
premises, and if the premises are damaged by fire, windstorm, or by other
casualty which cause the premises to be exposed to the elements, then the Lessor
may enter upon the premises to make emergency repairs, such act or acts shall
not be deemed to excuse the Lessee from his obligations to keep the premises in
repair and the Lessee shall, upon demand of the Lessor, immediately reimburse
the Lessor for the costs and expenses of such emergency repairs.
IN TESTIMONY WHEREOF, said Lessor has hereunto fixed his hand and seal
and said Lessee has caused these presents to be signed in its corporate name by
its President and attested by its Secretary and its corporate seal to be
hereunto affixed and the said Secretary has hereunto set his hand and seal, this
Lease being executed in duplicate originals, one of which is retained by each
party.
6
<PAGE> 9
Schedule A
BEGINNING at an iron pin in the center of Seaboard Railroad, said
BEGINNING point being located South 19 deg. 30 min. East 362.63 feet
from a nail in the Southern edge of the right-of-way for East Main
Street; running thence from said BEGINNING point a line with S. M.
Roper property North 19 deg. 30 min. West 212.63 feet to point in S. M.
Roper's Eastern line; running thence North 70 deg. 30 min. East 300
feet; running thence South 19 deg. 30 min. East 239.4 feet to point in
the center of Seaboard Railroad; running thence with the center of
Seaboard Railroad three lines as follows: South 77 deg. 18 min. 40 sec.
West 101.4 feet to an iron pin; South 75 deg. 40 min. 50 sec. West 100
feet to an iron pin and South 73 deg. 46 min. 30 sec. West 100 feet to
an iron pin, the point of BEGINNING, in accordance with the plat
prepared by Ronnie Dedmon, Registered Surveyor, dated October 21, 1972.
ALSO two twenty-five (25) foot wide easements running from the Southern
edge of East Main Street South into the above property; the first
easement being described as follows: BEGINNING at a nail located North
70 deg. 30 min. East 144 feet from a nail at the Northeast corner of
S. M. Roper's property: running thence from said BEGINNING point three
lines with property of J. H. Heafner as follows: South 19 deg. 30 min.
East 150 feet, North 70 deg. 30 min. East 25 feet, North 19 deg. 30
min. West 150 feet, South 30 deg. West 25 feet,
second easement being described as follows: BEGINNING at a nail located
North 70 deg. 30 min. East 272 feet from a nail in the Southern edge of
the right-of-way for East Main Street, the Northeast corner of S. M.
Roper's property; running thence from said BEGINNING nail South 19 deg.
30 min. East 150 feet, North 70 deg. 30 min. East 25 feet, North 19
deg. 30 min. West 150 feet, and South 70 deg. 30 min. West 25 feet.
TITLE REFERENCE: Being the same land conveyed by deed of J. H. Heafner
and wife, Evangeline H. Heafner to Carolyn Heafner and Ann H. Gaither,
dated August 1, 1972, recorded in Book 497, Page 69, Lincoln County
Public Registry.
<PAGE> 10
LESSORS:
/s/ Carolyn Heafner (Williams) (SEAL)
- -----------------------------
Carolyn Heafner (Williams)
/s/ Ann H. Gaither (SEAL)
- -----------------------------
Ann H. Gaither
/s/ Albert C. Gaither (SEAL)
- -----------------------------
Albert C. Gaither
THE J. H. HEAFNER COMPANY, INC.
(LESSEE)
By: /s/ William H. Gaither
----------------------------
William H. Gaither
President
ATTESTED:
/s/ J. Michael Gaither
- ------------------------------
J. Michael Gaither, Secretary
(Corporate Seal)
7
<PAGE> 11
STATE OF NORTH CAROLINA
COUNTY OF_____________________________
I,___________________________________, a Notary Public in and for said
County and State, do hereby certify that ANN H. GAITHER, personally appeared
before me this day and acknowledged the due execution of the foregoing Lease.
WITNESS my hand and notarial seal, this the______day of October, 1992.
______________________________
Notary Public
My Commission Expires:
______________________
STATE OF NORTH CAROLINA
COUNTY OF_____________________________
I,___________________________________, a Notary Public in and for said
County and State, do hereby certify that ALBERT C. GAITHER personally appeared
before me this day and acknowledged the due execution of the foregoing Lease.
WITNESS my hand and notarial seal, this the______day of October, 1992.
_______________________________
Notary Public
My Commission Expires:
______________________
8
<PAGE> 12
STATE OF NORTH CAROLINA
COUNTY OF CATAWBA
I, Paige E. Pope, a Notary Public of the County and State aforesaid,
certify that J. MICHAEL GAITHER, personally came before me this day and
acknowledged that he is the Secretary of THE J. H. HEAFNER COMPANY, INC., a
North Carolina corporation, and that by authority duly given and as the act of
the corporation, the foregoing instrument was signed by its President, sealed
with its corporate seal and attested by him as its Secretary.
WITNESS my hand and notarial seal, this the 1st day of October, 1992.
/s/ Paige E. Pope
---------------------
Notary Public
My Commission Expires: [NOTARY SEAL]
11/30/94
- ----------------------
9
<PAGE> 13
STATE OF NEW JERSEY
COUNTY OF BERGEN
I, Jean Poe, a Notary Public in and for said State and County, do
hereby certify that CAROLYN HEAFNER WILLIAMS personally appeared before me this
day and acknowledged the due execution of the foregoing Lease.
WITNESS my hand and notarial seal, this the 7th day of December 1992.
/s/ Jean Poe
-------------------------------
Notary Public for New Jersey
My Commission Expires:
NOTARY PUBLIC OF NEW JERSEY
MY COMMISSION EXPIRES 6/1/1995
<PAGE> 1
EXHIBIT 10.30
[J.H.HEAFNER LETTERHEAD]
July 1, 1993
Ann H. Gaither
841 Woodson Road
Newton, NC 28658
RE: Lease dated August 1, 1988 by and between Ann H. Gaither and The J.H.
Heafner Company, Inc.
Dear Ms. Gaither:
As you know the above-referenced Lease for the Winston-Salem
Distribution Center expires on August 1. Pursuant to paragraph 2 of the lease,
the company would like to extend the term for five years. The expiration date of
the lease is now August 1, 1998.
Sincerely,
/s/ J. Michael Gaither
--------------------------------
J. Michael Gaither
Sr. Vice President & General Counsel
<PAGE> 2
STATE OF NORTH CAROLINA )
) LEASE
COUNTY OF FORSYTH )
THIS LEASE, made and entered into this the First day of August, 1988, by
and between ANN HEAFNER GAITHER, of Catawba County, North Carolina, hereinafter
called "Lessor" and THE J. H. HEAFNER COMPANY, INC., a North Carolina
Corporation, having its principal place of business in Lincoln County, North
Carolina, hereinafter called "Lessee";
WITNESSETH:
Subject to the terms and conditions hereinafter set forth said Lessor
does hereby let and lease unto said Lessee and said Lessee does hereby accept
from said Lessor a certain parcel of land together with buildings and other
improvements thereon situated, and lying and being in Forsyth County, North
Carolina and more particularly described on attached Schedule A.
The terms and conditions referred to are as follows:
1. This lease shall begin as of the First day of September, 1988, and
unless sooner terminated as herein provided, shall exist and continue until the
First day of August, 1993.
2. Provided all installments of rental theretofore due have been paid
and all other conditions of this lease have been properly complied with by the
Lessee may. The Lessee at its option, extend this lease for an additional three
(3) terms of five (5) years each by giving the Lessor written notice of its
intention to do so not later than sixty (60) days prior to the end of the
initial term and prior to the end of each extension thereafter. In the event of
such extension, all of the terms and conditions as herein set out shall continue
in full force and effect during said extension.
3. The Lessee shall pay the sum of Fifty-Five Thousand Two Hundred and
no/100 Dollars ($55,200.00) per year as rental for the demised premises which
rental shall be hereinafter referred to as "minimum rent" and shall be payable
in twelve equal and consecutive monthly installments of Four Thousand Six
Hundred and no/100 Dollars ($4,600.00) due and payable on the first day of each
calendar month, commencing with the First day of September, 1988. From and after
the first year of the lease, the rental shall be adjusted as follows:
The rental shall be the minimum rent plus a cost of living increase
thereon determined by multiplying the minimum rent by a fraction, the
denominator of which is the consumer price index for urban wage earners
and clerical workers in U.S. cities average, all items as published by
the Bureau of Labor Statistics, U.S. Department of Labor, for May 1987
and
<PAGE> 3
the numerator of which is the said consumer price index for the month
of May of the next succeeding annual lease period. The Lessor shall
notify the Lessee of the amount of the cost of living adjustment and
the total rent due for each annual lease period. Under no circumstances
shall the total rent be less than the minimum rent as set forth above.
All rents shall be absolutely net to the Lessor, so that this lease,
shall, except as hereinafter provided to the contrary, yield net to the Lessor
the rent to be paid in each year during the term of the lease. Accordingly, all
costs, expenses, and obligations of every kind or nature whatsoever, relating to
the demised premises, or any improvements thereon, which may arise or become due
during the term of this lease, shall be paid by the Lessee, and the Lessor shall
be indemnified and saved harmless by the Lessee from and against the same.
4. The Lessee shall pay, before any fine, penalty, interest, or costs
may be added, or become due or be imposed for nonpayment thereof, all taxes,
assessments, water and sewer rents, rates and charges, transit taxes, charges
for public utilities, excises, levies, licenses, and permit fees and other
governmental charges, general and special, ordinary and extraordinary,
unforeseen and foreseen, of any kind and nature, whatsoever, which at any time
during the term of this lease may be assessed, levied, confirmed, imposed upon,
or grow and become due and payable out of or in respect of, or become a lien on
the demised premises, or any improvements thereon, or any part thereof or any
appurtenances thereto, or otherwise arising out of the rent and income received
by the Lessees from subtenants, any use or occupation of the demised premises
and franchises as may be appurtenant to the use of the demised premises, or any
document (to which the Lessee is a party) creating or transferring an interest
or estate in the demised premises.
The Lessee shall pay the taxes and other charges as enumerated in this
article and should deliver official receipts evidencing such payment to the
Lessors, which payment of taxes shall be made and the receipts delivered at
least thirty (30) days before the tax, itself would become delinquent in
accordance with the law then in force governing the payment of such tax or
taxes. If however, the Lessee desires to contest the validity of any tax or tax
claim, the Lessee may do so without being in default hereunder, provided the
Lessee gives the Lessor notice of the Lessee's intention to do so and furnishes
the Lessor with a surety made by a surety company qualified to do business in
the State of Alabama. If the Lessee shall fail, refuse, or neglect to make any
of the payments required in this article, then the Lessor may pay the same, and
the amount or amounts of money so paid, including reasonable attorney fees and
expenses which might have been reasonably incurred because of or in connection
with those payments, together with interest on all such amounts, at the rate of
ten per cent (10%) per annum, shall be repaid by the Lessee to the Lessor, upon
the demand of the Lessor and the
<PAGE> 4
payment thereof may be collected or enforced by the Lessor in the same manner as
though such amount was an installment of rent specifically required by the term
of this lease to be paid by the Lessee to the Lessor, upon the day when the
Lessor demand repayment thereof or reimbursement therefore of and from the
Lessee; but the election of the Lessor to pay such taxes shall not waive the
default thus committed by the Lessees.
5. During the entire term of this lease, the Lessee will indemnify and
save harmless the Lessor against any and all claims, debts, demands, or
obligations which may be made against the Lessor or against the Lessor's title
and the premises, arising out of, or in connection with any alleged act or
admission of the Lessee or any person claiming under, by, or through the Lessee;
and if it becomes necessary for the Lessor to defend any actions seeking to
impose such liability, the Lessee will pay the Lessor all costs of court and
attorneys fees incurred by the Lessor in effecting such defense in addition to
any other sums which the Lessor may be called upon to pay by reason of the entry
of a Judgment against the Lessor in the litigation which such claim is asserted.
6. From and after the time when the lease commences, the Lessee will
keep insured all buildings and improvements upon said premises against all loss
or damage by fire and windstorm, together with extended coverage "which said
insurance will be maintained in an amount which will be sufficient to prevent
any party in interest from being or becoming a co-insurer on any part of the
risk which amounts shall not be less than eighty per cent (80%) of the full
insurable value, and all of such policies of insurance shall include the name of
the Lessor as one of the parties insured and shall fully protect both the Lessor
and the Lessee as their respective interests may appear. The Lessee shall
provide such coverage for the Lessor's interest that shall not fail, in any
case, below the sum of ($). The originals of all such policies
shall be delivered to the Lessor by the Lessee along with receipted bills
evidencing the fact that the premiums therefore are paid. The Lessor assumes no
obligation whatsoever to repair or replace any building on the demised premises
which is damaged or destroyed by fire or other casualty; but the Lessee may at
its own option and expense, cause said building to be insured and in case of
damage or destruction use all sums collected from such insurance in repairing or
replacing said buildings. This coverage shall be in addition to said coverage
for the Lessor as set forth above.
7. It is understood and agreed that the Lessee accepts said premises in
the physical condition in which the same now are and further that during the
continuance of this lease the Lessee will keep in good state of repair and in
first class condition any and all buildings, furnishings, fixtures and equipment
which are brought or constructed or placed upon the demised premises by the
Lessee nor will the Lessee sell or permit any strip, waste or
<PAGE> 5
neglect of any building or other property to be committed, and the Lessee will
repair or replace and renovate such property as often as it may be necessary to
keep the buildings and other property which is the subject matter of this lease
in first class repair and condition. Further, it is understood and agreed that
the Lessor shall be under no obligation whatsoever to make any repair or
replacement to said premises during the terms of this lease. In the event any
governing body should require alterations to the demised premises to comply with
Local, State, or Federal law or regulations, the Lessee shall see that such
alterations are made at its own expense holding Lessor harmless from such
expense. If, at anytime, activities by the Lessee shall place the demised
premises in violation of any Local, State, or Federal ordinance, statute, or
regulation then the Lessee shall take such steps to bring the use of the
premises into conformity within thirty (30) days of notification or be in
default under this lease.
8. If at any time a default should be made by the Lessee in the payment
of any rent upon any day such rent becomes due and payable, or if the Lessee
shall fail to perform any of the other covenants of this lease by it to be kept
and performed, then, in any such event, it shall be lawful for the Lessor, upon
election, to declare the lease term ended and to re-enter upon the premises and
the building or buildings and improvements situated thereon, or any part thereof
or thereon, either with or without process of law, the Lessee waiving any demand
for possession of such premises any and all buildings and improvements then
situated thereon, or the Lessor may have such other remedy as the law and this
instrument may afford. Upon the termination of the lease term, at such election
of the Lessor or in any other way, the Lessee shall surrender and deliver up the
demised premises and property (real and pursuable) peaceably to the Lessor, or
the agent or attorney of the Lessor, immediately upon the termination of the
lease term; and if the Lessee, its agent, attorney, tenants shall hold such
premises, or any part thereof, one day after the same shall be surrendered
according to the term of this lease, he shall be deemed guilty of forcible
detainer of the premises under the statutes and shall be subject to eviction or
removal, forcibly or otherwise, with or without process of law.
The relationship between the parties that of landlord and tenant, and
that the Lessee specifically acknowledges that all statutory proceedings to the
relationship of landlord and tenant respecting rent and the possession of the
premises accrued to the landlord.
Nothing herein shall be construed as authorizing the Lessor to declare
this lease in default, however, where the default consists in the non-payment of
rent, security, insurance premiums, or taxes until such non-payment, in
violation with the terms of this lease, shall continue for thirty (30) days
after the respective due dates for payment of such taxes, security, insurance
premiums, and rent, and where the alleged default
<PAGE> 6
consists of some violation other than non-payment of rent, security, insurance
premiums, or taxes, the Lessor may not declare this lease in default until such
violation shall have continued for thirty (30) days after the Lessor shall have
given the Lessee written notice of such violation, provided however, that
nothing contained herein shall be construed as precluding the Lessor from having
such remedy as be and become necessary in order to preserve the Lessor's right
and interest of the Lessor in the premises and this lease, even before the
expiration of the grace or notice periods provided for in this section; if,
under particular circumstances then existing the allowance of such grace, and
the giving of such notice will prejudice or endanger the rights of the estates
of the Lessor in this lease and in the demised premises. All default and grace
periods shall be deemed to run concurrently and not consecutively. Subject to
the rights of the holder of any first mortgage to which this lease has been
subordinated, the Lessee pledged with and assign to the Lessor, all of the
rents, issues, and profits which might otherwise accrue to the Lessee for the
use, enjoyment, and operation of the demised premises and in connection with
such pledging of the rents, the Lessee covenants and agrees with the Lessor that
if the Lessor upon default of the Lessee elects to file suit in chancery to
enforce the lease and protect the Lessor's rights, then the Lessor may, as
ancillary to such suit, apply to any court having jurisdiction thereof for the
appointment of a receiver of all and singular the demised premises, the
improvements, buildings located thereon; and, thereupon, it is expressly
covenanted and agreed that the court shall forthwith, appoint a receiver with
the usual powers and duties of the receivers in like cases, such appointments
shall be made by such court as a matter of strict right to the Lessor and
without reference to the adequacy or inadequacy of the value of the property
which is subject to the landlord's lien, or to the solvency of the Lessee and
without reference to the commission of waste. Nothing in this section shall be
construed as empowering the Lessor to collect rents accruing from the premises
unless or until the Lessee are in default. It is expressly agreed that if
anytime during the term of this lease the Lessee shall be adjudged bankrupt or
insolvent by any Federal or State Court or competent jurisdiction, the Lessor
may at its option declare the lease terminated and cancelled and take possession
of said premises.
9. The Lessee shall not assign this lease or sublet any part of the
demised premises without the written consent of the Lessor, which consent shall
not be unreasonably withheld.
10. At the termination of this lease the Lessee will peaceably and
quietly deliver possession of the premises and all improvements, including any
furnishings, fixtures, and equipment which the Lessee may have brought, placed
or constructed upon the premises pursuant to the provisions of this lease to the
Lessor.
<PAGE> 7
11. If, at any time, the Lessor is required to enforce this lease or to
defend any action arising out of the facts connecting with or caused by reason
of the ownership by the Lessee of this lease or the occupancy of the premises
pursuant hereto, the Lessee will owe and will pay to the Lessor all costs of
court and reasonable attorneys fees incurred or expended by them in conducting
such defense or enforcing the terms of this lease. The amount of such costs and
fees may, at the option of the Lessor, be collected just as though such amount
were an amount of rent maturing and coming due.
12. The Lessor covenants and agrees with the Lessee that so long as the
Lessee keeps and performs all of the covenants and conditions of this lease, the
Lessee shall have quiet, undisturbed and continued possession of the premises,
free from any claim against the Lessor and all persons claiming under by and
through the Lessor.
13. The Lessor and their agent shall have the right to enter upon the
premises at all reasonable times to examine the condition and use thereof,
provided only that such rights shall be exercised in such manner as not to
interfere with the Lessee in the conduct of the Lessee's business on such
premises; and if the premises are damaged by fire, windstorm, or by other
casualty which cause the premises to be exposed to the elements, then the Lessor
may enter upon the premises to make emergency repairs, such act or acts shall
not be deemed to excuse the Lessee from his obligations to keep the premises in
repair and the Lessee shall upon demand of the Lessor, immediately reimburse the
Lessor for the costs and expenses of such emergency repairs.
IN TESTIMONY WHEREOF, said Lessor has hereunto fixed his hand and seal
and said Lessee has caused these presents to be signed in its corporate name by
its President and attested by its Secretary and its corporate seal to be
hereunto affixed and the said Secretary has hereunto set his hand and seal; this
contract being executed in duplicate originals, one of which is retained by each
party.
/s/ Ann H. Gaither (SEAL)
- -----------------------
LESSOR
LESSEE:
By /s/ Ann H. Gaither
- -----------------------
PRESIDENT
ATTESTED:
/s/ J. Michael Gaither
- ------------------------
SECRETARY
<PAGE> 8
STATE OF NORTH CAROLINA
COUNTY OF LINCOLN
I, Judy S. Caldwell, a Notary Public, in and for said County and State, do
hereby certify that Ann Heafner Gaither personally appeared before me this day
and acknowledged the due execution of the foregoing Lease.
WITNESS my hand and notarial seal, this the 6th day of October, 1988.
/s/ Judy S. Caldwell
----------------------
NOTARY PUBLIC
My Commission Expires: 5/24/93
[SEAL]
STATE OF NORTH CAROLINA
COUNTY OF LINCOLN
I, Judy S. Caldwell, a Notary Public of the County and State aforesaid,
certify that J. Michael Gaither personally came before me this day and
acknowledged that he is Secretary of The J.H.Heafner Company, Inc., a North
Carolina corporation, and that by authority duly given and as the act of the
corporation, and that by authority duly given and as the act of the corporation
the foregoing instrument was signed by its President, sealed with its corporate
seal and attested by her/him as its Secretary.
WITNESS my hand and notarial seal, this the 6th day of October, 1988.
/s/ Judy S. Caldwell
----------------------
NOTARY PUBLIC
My Commission Expires: 5/24/93
[SEAL]
<PAGE> 1
EXHIBIT 12.1
The J. H. Heafner Company, Inc.
Statement regarding: Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividends:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PRO FORMA PRO FORMA JUNE 30,
SIX MONTHS ENDED YEAR ENDED ------------------
JUNE 30,1998 DECEMBER 31,1997 1998 1997
----------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Consolidated pretax income (loss) from
continuing operations (126) (3,668) (2,113) (115)
Interest 8,292 14,767 4,286 1,672
Increase in value of warrants -- -- 9,906 --
Interest portion of rent expense -- -- 2,240 926
Preferred stock dividend
requirements of majority-owned
subsidiaries -- -- -- --
------- ------- ------- -----
EARNINGS 8,166 11,099 14,318 2,483
======= ======= ======= =====
Interest 8,292 14,767 4,286 1,672
Increase in value of warrants -- -- 9,906 --
Interest capitalized -- -- -- --
Interest portion of rent expense -- -- 2,240 926
Preferred stock dividend
requirements of majority-owned
subsidiaries -- -- -- --
------- ------- ------- -----
FIXED CHARGES 8,292 14,767 16,431 2,598
======= ======= ======= =====
RATIO OF EARNINGS TO FIXED CHARGES -- -- -- --
======= ======= ======= =====
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Consolidated pretax income (loss) from
continuing operations (253) 1051 690 1221 1155
Interest 4842 1465 1308 899 781
Increase in value of warrants 0 0 0 0 0
Interest portion of rent expense 2985 795 661 520 450
Preferred stock dividend
requirements of majority-owned
subsidiaries 0 0 0 0 0
----- ----- ----- ----- -----
EARNINGS 7,574 3,311 2,659 2,640 2,386
===== ===== ===== ===== =====
Interest 4842 1465 1308 899 781
Increase in value of warrants 0 0 0 0 0
Interest capitalized
Interest portion of rent expense 2985 795 661 520 450
Preferred stock dividend
requirements of majority-owned
subsidiaries 0 0 0 0 0
----- ----- ----- ----- -----
FIXED CHARGES 7827 2260 1969 1419 1231
===== ===== ===== ===== =====
RATIO OF EARNINGS TO FIXED CHARGES -- 1.5 1.4 1.9 1.9
===== ===== ===== ===== =====
</TABLE>
<PAGE> 1
EXHIBIT 21.1
<TABLE>
<S> <C> <C>
----------------------------------------
| The J. H. Heafner Company, Inc.+ |
| NC |
----------------------------------------
|
------------------------------------------------------------------------------------------
| | |
- ---------------------------------------- ---------------------------------------- ----------------------------------------
| The Speed Merchant, Inc. | | ITCO Logistics Corporation | | Oliver & Winston, Inc. |
| CA | | DE | | CA |
- ---------------------------------------- ---------------------------------------- ----------------------------------------
| |
| |
| |
- ---------------------------------------- ----------------------------------------
| Phoenix Racing Inc. | | ITCO Holding Company, Inc. |
| CA | | NC |
- ---------------------------------------- ----------------------------------------
|
-----------------------------------------------------------------------------------------
| | |
- ---------------------------------------- ---------------------------------------- ----------------------------------------
| ITCO Tire Company | | ITCO Tire Company of Georgia | | L&N Leasing Corporation* |
| NC | | VA | | NC |
- ---------------------------------------- ---------------------------------------- ----------------------------------------
|
|
------------------------------
| Doug Duggan, Inc.* |
| GA |
------------------------------
</TABLE>
*=inactive entities
+ All subsidiaries are wholly-owned, directly or indirectly, by The J.H.
Heafner Company, Inc.
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of The J.H. Heafner
Company, Inc. on Form S-4 of our report dated January 15, 1997, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Historical Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
August 18, 1998
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of The J.H. Heafner
Company, Inc. on Form S-4 of our report dated December 7, 1995, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Historical Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Raleigh, North Carolina
August 18, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 31, 1997 (except for Note 13, as to which
the date is January 14, 1998) with respect to the consolidated financial
statements of ITCO Logistics Corporation and subsidiaries included in the
Registration Statement (Form S-4) and related Prospectus of J.H. Heafner
Company, Inc. for the registration of the $100,000,000 10% Senior Notes Due
2008.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
August 17, 1998
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
The Speed Merchant, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Mountain View, California
August 18, 1998
<PAGE> 1
ARTHUR ANDERSEN LLP
EXHIBIT 23.5
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
August 18, 1998
<PAGE> 1
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
----------
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
----------
FIRST UNION NATIONAL BANK
(Exact name of trustee as specified in its charter)
United States National Bank 22-1147033
(State of incorporation if (I.R.S. employer
not a national bank) identification no.)
First Union National Bank
230 South Tryon Street, 9th Floor
Charlotte, North Carolina 28288-1179
(Address of principal (Zip Code)
executive offices)
Same as above
(Name, address and telephone number, including
area code, of trustee's agent for service)
The J.H. Heafner Company, Inc.
(Exact name of obliger as specified in its charter)
North Carolina
(State or other jurisdiction of incorporation or organization)
56-0754594
(I.R.S. employer identification no.)
William H. Gaither
Director, Chief Executive Officer and President
2105 Water Ridge Parkway, Suite 500
Charlotte, NC 28217
(704) 423-8989
(Address, including zip code, of principal executive offices)
--------------------
Senior Notes
(Title of the indenture securities)
------------------------------------------------
<PAGE> 2
1. General information. Furnish the following information as to
the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Federal Reserve Bank of Richmond, VA Richmond, VA
Comptroller of the Currency Washington, D.C.
Securities and Exchange Commission
Division of Market Regulation Washington, D.C.
Federal Deposit Insurance Corporation Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with obligor and underwriters. If the obligor or any
underwriter for the obligor is an affiliate of the trustee, describe
each such affiliation.
None.
(See Note 1 on Page 4.)
Because the obligor is not in default on any securities issued under indentures
under which the applicant is trustee, Items 3 through 15 are not required
herein.
16. List of Exhibits.
All exhibits identified below are filed as a part of this statement of
eligibility.
1. A copy of the Articles of Association of First Union National
Bank as now in effect, which contain the authority to commence
business and a grant of powers to exercise corporate trust
powers.
2
<PAGE> 3
2. A copy of the certificate of authority of the trustee to
commence business, if not contained in the Articles of
Association.
3. A copy of the authorization of the trustee to exercise
corporate trust powers, if such authorization is not contained
in the documents specified in exhibits (1) or (2) above.
4. A copy of the existing By-laws of First Union National Bank,
or instruments corresponding thereto.
5. Inapplicable.
6. The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939 is included at Page 4 of this Form
T-1 Statement.
7. A copy of the latest report of condition of the trustee
published pursuant to law or to the requirements of its
supervising or examining authority is attached hereto.
8. Inapplicable.
9. Inapplicable.
3
<PAGE> 4
NOTE
Note 1: Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information. Item 2 may, however, be
considered correct unless amended by an amendment to this Form T-1.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, First Union National Bank, a national association
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Charlotte, and State of North Carolina, on the 17th day of August, 1998.
FIRST UNION NATIONAL BANK
(trustee)
By: /s/ Shannon Schwartz
Its: Asst. Vice President
CONSENT OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939, as amended,
and in connection with the proposed issuance by The J.H. Heafner Company of its
Senior Notes, First Union National Bank as the trustee herein named, hereby
consents that reports of examinations of said Trustee by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon requests therefor.
FIRST UNION NATIONAL BANK
By: /s/ Shannon Schwartz
Name: Shannon Schwartz
Title: Asst. Vice President
Dated: August 17, 1998
4
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
Legal Title of Bank: First Union National Bank Call Date: 3/31/98 ST-BK: 37-0351 FFIEC 031
Address: Two First Union Center Page RC-1
City, State, Zip: Charlotte, NC 28288-0201
FDIC Certificate #: 04885
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
C400
Dollar Amount in Thousands RCFD Bil Mil Thou
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS /////////////////////////
1. Cash and balances due from depository institutions (from Schedule RC-A): /////////////////////////
a. Noninterest-bearing balances and currency and coin (1)........................... 0081 7,346,667 1.a.
b. Interest-bearing balances (2).................................................... 0071 12,481 1.b.
2. Securities: /////////////////////////
a. Held-to-maturity securities (from Schedule RC-B, column A)....................... 1754 1,937,159 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D)..................... 1773 31,508,601 2.b.
3. Federal funds sold and securities purchased under agreements to resell............... 1350 4,501,133 3.
4. Loans and lease financing receivables /////////////////////////
a. Loans and leases, net of unearned income (from Schedule RC-C)RCFD 2122 83,315,758 ///////////////////////// 4.a.
b. LESS: Allowance for loan and lease losses................. RCFD 3123 1,005,217 ///////////////////////// 4.b.
c. LESS: Allocated transfer risk reserve..................... RCFD 3128 0 ///////////////////////// 4.c.
d. Loans and leases, net of unearned income, /////////////////////////
allowance, and reserve (item 4.a minus 4.b and 4.c).............................. 2126 96,830,110 4.d.
5. Trading assets (from Schedule RC-D).................................................. 3545 3,818,431 5.
6. Premises and fixed assets (including capitalized leases)............................. 2145 2,660,908 6.
7. Other real estate owned (from Schedule RC-M)......................................... 2150 112,869 7.
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M) ............................................................ 2180 269,234 8.
9. Customers' liability to this bank on acceptances outstanding......................... 2155 575,447 9.
10. Intangible assets (from Schedule RC-M)............................................... 2143 2,896,263 10.
11. Other assets (from Schedule RC-F).................................................... 2160 7,274,331 11.
12. Total assets (sum of items 1 through 11)............................................. 2170 159,743,634 12.
</TABLE>
- ----------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
5
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
Legal Title of Bank: First Union National Bank Call Date: 3/31/98 ST-BK: 37-0351 FFIEC 031
Address: Two First Union Center Page RC-1
City, State, Zip: Charlotte, NC 28288-0201
FDIC Certificate #: 04885
</TABLE>
Schedule RC--Continued
<TABLE>
<CAPTION>
Dollar Amount in Thousands Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES ////////////////////////////////
13. Deposits: ////////////////////////////////
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, ////////////////////////////////
part I) .................................................................... RCON 2200 101,438,219 13.a.
(1) Noninterest-bearing (1) ................. RCON 6631 19,061,893 //////////////////////////////// 13.a.(1)
(2) Interest-bearing ........................ RCON 6636 82,376,326 //////////////////////////////// 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(from Schedule RC-E, part II) ///////////////////////////////
RCFN 2200 5,487,257 13.b.
(1) Noninterest-bearing ..................... RCFN 6631 29,619 //////////////////////////////// 13.b.(1)
(2) Interest-bearing ........................ RCFN 6636 5,457,638 //////////////////////////////// 13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase...... RCFD 2800 24,525,123 14.
15. a. Demand notes issued to the U.S. Treasury.................................... RCON 2840 426,758 15.a.
b. Trading liabilities (from Schedule RC-D).................................... RCFD 3548 4,547,787 15.b.
16. Other borrowed money (includes mortgage indebtedness and obligations under ////////////////////////////////
capitalized leases):............................................................ ////////////////////////////////
a. With a remaining maturity of one year or less............................... RCFD 2332 3,391,194 16.a.
b. With a remaining maturity of more than one year through three years......... RCFD A547 635,109 16.b.
c. With a remaining maturity of more than three years.......................... RCFD A548 416,618 16.c.
17. Not applicable.................................................................. ////////////////////////////////
18. Bank's liability on acceptances executed and outstanding........................ RCFD 2920 575,222 18.
19. Subordinated notes and debentures (2)........................................... RCFD 3200 2,797,773 19.
20. Other liabilities (from Schedule RC-G).......................................... RCFD 2930 3,662,892 20.
21. Total liabilities (sum of items 13 through 20).................................. RCFD 2948 147,903,952 21.
22. Not applicable.................................................................. ///////////////////////////////
EQUITY CAPITAL ///////////////////////////////
23. Perpetual preferred stock and related surplus................................... RCFD 3838 160,540 23.
24. Common stock.................................................................... RCFD 3230 82,795 24.
25. Surplus (exclude all surplus related to preferred stock)........................ RCFD 3839 8,532,323 25.
26. a. Undivided profits and capital reserves...................................... RCFD 3632 2,823,904 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities...... RCFD 8434 204,120 26.b.
27. Cumulative foreign currency translation adjustments............................. RCFD 3284 0 27.
28. Total equity capital (sum of items 23 through 27)............................... RCFD 3210 11,839,682 28.
29. Total liabilities and equity capital (sum of items 21 and 28)................... RCFD 3300 159,743,634 29.
</TABLE>
Memorandum
To be reported only with the March Report of Condition.
<TABLE>
<S> <C>
1. Indicate in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external Number
auditors as of any date during 1996............................................ RCFD 6724 N/A M.1.
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the consolidated
holding company (but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with
generally accepted auditing standards by a certified public accounting
firm (may be required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ----------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposit.
(2) Includes limited-life preferred stock and related surplus.
6
<PAGE> 7
Charter No. 22693
FIRST UNION NATIONAL BANK
ARTICLES OF ASSOCIATION
(as restated effective February 26, 1998)
For the purpose of organizing an Association to carry on the business of banking
under the laws of the United States, the undersigned do enter into the following
Articles of Association:
FIRST. The title of this Association shall be FIRST UNION NATIONAL
BANK.
SECOND. The main office of the Association shall be in Charlotte,
County of Mecklenburg, State of North Carolina. The general business of the
Association shall be conducted at its main office and its branches.
THIRD. The Board of Directors of this Association shall consist of not
less than five nor more than twenty-five directors, the exact number of
directors within such minimum and maximum limits to be fixed and determined from
time to time by resolution of a majority of the full Board of Directors or by
resolution of the shareholders at any annual or special meeting thereof. Unless
otherwise provided by the laws of the United States, any vacancy in the Board of
Directors for any reason, including an increase in the number thereof, may be
filled by action of the Board of Directors.
FOURTH. The annual meeting of the shareholders for the election of
directors and the transaction of whatever other business may be brought before
said meeting shall be held at the main office or such other place as the Board
of Directors may designate, on the day of each year specified therefor in the
ByLaws, but if no election is held on that day, it may be held on any subsequent
day according to the provisions of law; and all elections shall be held
according to such lawful regulations as may be prescribed by the Board of
Directors.
Nominations for election to the Board of Directors may be made by the
Board of Directors or by any stockholder of any outstanding class of capital
stock of the bank entitled to vote for election of directors. Nominations, other
than those made by or on behalf of the existing management of the bank, shall be
made in writing and shall be delivered or mailed to the President of the bank
and to the Comptroller of the Currency, Washington, D.C., not less than 14
<PAGE> 8
days nor more than 50 days prior to any meeting of stockholders called for the
election of directors, provided, however, that if less than 21 days' notice of
the meeting is given to shareholders, such nomination shall be mailed or
delivered to the President of the Bank and to the Comptroller of the Currency
not later than the close of business on the seventh day following the day on
which the notice of meeting was mailed. Such notification shall contain the
following information to the extent known to the notifying shareholder: (a) the
name and address of each proposed nominee; (b) the principal occupation of each
proposed nominee; (c) the total number of shares of capital stock of the bank
that will be voted for each proposed nominee; (d) the name and residence address
of the notifying shareholder; and (e) the number of shares of capital stock of
the bank owned by the notifying shareholder. Nominations not made in accordance
herewith may, in his discretion, be disregarded by the Chairman of the meeting,
and upon his instructions, the vote tellers may disregard all votes cast for
each such nominee.
FIFTH.
(a) General. The amount of capital stock of this Association shall be
(I) 25,000,000 shares of common stock of the par value of twenty dollars
($20.00) each (the "Common Stock") and (ii) 160,540 shares of preferred stock of
the par value of one dollar ($ 1. 00) each (the "Non-Cumulative Preferred
Stock"), having the rights, privileges and preferences set forth below, but said
capital stock may be increased or decreased from time to time in accordance with
the provisions of the laws of the United States.
(b) Terms of the Non-Cumulative Preferred Stock.
1. General. Each share of Non-Cumulative Preferred Stock shall be
identical in all respects with the other shares of Non-Cumulative
Preferred Stock. The authorized number of shares of Non-Cumulative
Preferred Stock may from time to time be increased or decreased (but
not below the number then outstanding) by the Board of Directors.
Shares of Non-Cumulative Preferred Stock redeemed by the Association
shall be canceled and shall revert to authorized but unissued shares of
Non-Cumulative Preferred Stock.
2. Dividends.
(a) General. The holders of Non-Cumulative Preferred Stock
shall be entitled to receive, when, as and if declared by the
Board of Directors, but only out of funds legally available
therefor, non-cumulative cash dividends at the annual rate of
$83.75 per share, and no more, payable quarterly on the first
days of December, March, June and September, respectively, in
2
<PAGE> 9
each year with respect to the quarterly dividend period (or
portion thereof) ending on the day preceding such respective
dividend payment date, to shareholders of record on the
respective date, not exceeding fifty days preceding such
dividend payment date, fixed for that purpose by the Board of
Directors in advance of payment of each particular dividend.
Notwithstanding the foregoing, the cash dividend to be paid on
the first dividend payment date after the initial issuance of
Non-Cumulative Preferred Stock and on any dividend payment
date with respect to a partial dividend period shall be $83.75
per share multiplied by the fraction produced by dividing the
number of days since such initial issuance or in such partial
dividend period, as the case may be, by 360.
(b) Non-cumulative Dividends. Dividends on the shares of
Non-cumulative Stock shall not be cumulative and no rights
shall accrue to the holders of shares of NonCumulative
Preferred Stock by reason of the fact that the Association may
fail to declare or pay dividends on the shares of
Non-Cumulative Preferred Stock in any amount in any quarterly
dividend period, whether or not the earnings of the
Association in any quarterly dividend period were sufficient
to pay such dividends in whole or in part, and the Association
shall have no obligation at any time to pay any such dividend.
(c) Payment of Dividends. So long as any share of
Non-Cumulative Preferred Stock remains outstanding, no
dividend whatsoever shall be paid or declared and no
distribution made on any junior stock other than a dividend
payable in junior stock, and no shares of junior stock shall
be purchased, redeemed or otherwise acquired for consideration
by the Association, directly or indirectly (other than as a
result of a reclassification of junior stock, or the exchange
or conversion of one junior stock for or into another junior
stock, or other than through the use of the proceeds of a
substantially contemporaneous sale of other junior stock),
unless all dividends on all shares of non-cumulative Preferred
Stock and non-cumulative Preferred Stock ranking on a parity
as to dividends with the shares of Non-Cumulative Preferred
Stock for the most recent dividend period ended prior to the
date of such payment or declaration shall have been paid in
full and all dividends on all shares of cumulative Preferred
Stock ranking on a parity as to dividends with the shares of
Non-Cumulative Stock (notwithstanding that dividends on such
stock are cumulative) for all past dividend periods shall have
been paid in full. Subject to the foregoing, and not
otherwise, such dividends (payable in cash, stock or
otherwise) as may be determined by the Board of Directors may
be declared and paid on any junior stock from time to time out
of any funds legally available therefor, and the
Non-Cumulative Preferred
3
<PAGE> 10
Stock shall not be entitled to participate in any such
dividends, whether payable in cash, stock or otherwise. No
dividends shall be paid or declared upon any shares of any
class or series of stock of the Association ranking on a
parity (whether dividends on such stock are cumulative or
non-cumulative) with the Non-Cumulative Preferred Stock in the
payment of dividends for any period unless at or prior to the
time of such payment or declaration all dividends payable on
the Non-cumulative Preferred Stock for the most recent
dividend period ended prior to the date of such payment or
declaration shall have been paid in full. When dividends are
not paid in full, as aforesaid, upon the Non-Cumulative
Preferred Stock and any other series of Preferred Stock
ranking on a parity as to dividends (whether dividends on such
stock are cumulative or non-cumulative) with the
Non-Cumulative Preferred Stock, all dividends declared upon
the NonCumulative Preferred Stock and any other series of
Preferred Stock ranking on a parity as to dividends with the
Non-Cumulative Preferred Stock shall be declared pro rata so
that the amount of dividends declared per share on the
Non-cumulative Preferred Stock and such other Preferred Stock
shall in all cases bear to each other the same ratio that
accrued dividends per share on the Non-Cumulative Preferred
Stock (but without any accumulation in respect of any unpaid
dividends for prior dividend periods on the shares of
Non-Cumulative Stock) and such other Preferred Stock bear to
each other. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or
payments on the Non-Cumulative Preferred Stock which may be in
arrears.
3. Voting. The holders of Non-Cumulative Preferred Stock shall
not have any right to vote for the election of directors or
for any other purpose.
4. Redemption.
(a) Optional Redemption. The Association, at the option of the
Board of Directors, may redeem the whole or any part of the
shares of Non-Cumulative Preferred Stock at the time
outstanding, at any time or from time to time after the fifth
anniversary of the date of original issuance of the
Non-Cumulative Preferred Stock, upon notice given as
hereinafter specified, at the redemption price per share equal
to $1,000 plus an amount equal to the amount of accrued and
unpaid dividends from the immediately preceding dividend
payment date (but without any accumulation for unpaid
dividends for prior dividend periods on the shares of
NonCumulative Preferred Stock) to the redemption date.
(b) Procedures. Notice of every redemption of shares of
Non-Cumulative Preferred Stock shall be mailed by first class
mail, postage prepaid,
4
<PAGE> 11
addressed to the holders of record of the shares to be
redeemed at their respective last addresses as they shall
appear on the books of the Association. Such mailing shall be
at least 10 days and not more than 60 days prior to the date
fixed for redemption. Any notice which is mailed in the manner
herein provided shall be conclusively presumed to have been
duly given, whether or not the shareholder receives such
notice, and failure duly to give such notice by mail, or any
defect in such notice, to any holder of shares of
Non-Cumulative Preferred Stock designated for redemption shall
not affect the validity of the proceedings for the redemption
of any other shares of NonCumulative Preferred Stock.
In case of redemption of a part only of the shares of
Non-Cumulative Preferred Stock at the time outstanding the
redemption may be either pro rata or by lot or by such other
means as the Board of Directors of the Association in its
discretion shall determine. The Board of Directors shall have
full power and authority, subject to the provisions herein
contained, to prescribe the terms and conditions upon which
shares of the Non-Cumulative Preferred Stock shall be redeemed
from time to time.
If notice of redemption shall have been duly given, and, if on
or before the redemption date specified therein, all funds
necessary for such redemption shall have been set aside by the
Association, separate and apart from its other funds, in trust
for the pro rata benefit of the holders of the shares called
for redemption, so as to be and continue to be available
therefor, then, notwithstanding that any certificate for
shares so called for redemption shall not have been
surrendered for cancellation, all shares so called for
redemption shall no longer be deemed outstanding on and after
such redemption date, and all rights with respect to such
shares shall forthwith on such redemption date cease and
terminate, except only the right of the holders thereof to,
receive the amount payable on redemption thereof, without
interest.
If such notice of redemption shall have been duly given or if
the Association shall have given to the bank or trust company
hereinafter referred to irrevocable authorization promptly to
give such notice, and, if on or before the redemption date
specified therein, the funds necessary for such redemption
shall have been deposited by the Association with such bank or
trust company in trust for the pro rata benefit of the holders
of the shares called for redemption, then, notwithstanding
that any certificate for shares so called for redemption shall
not have been surrendered for cancellation, from and after the
time of such deposit, all shares so called for redemption
shall no longer be deemed to be outstanding and all rights
with respect to such shares shall forthwith cease and
terminate, except
5
<PAGE> 12
only the right of the holders thereof to receive from such
bank or trust company at any time after the time of such
deposit the funds so deposited, without interest. The
aforesaid bank or trust company shall be organized and in good
standing under the laws of the United States of America or any
state thereof, shall have capital, surplus and undivided
profits aggregating at least $50,000,000 according to its last
published statement of condition, and shall be identified in
the notice of redemption. Any interest accrued on such funds
shall be paid to the Association from time to time. In case
fewer than all the shares of Non-Cumulative Preferred Stock
represented by a stock certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares
without cost to the holder thereof.
Any funds so set aside or deposited, as the case may be, and
unclaimed at the end of the relevant escheat period under
applicable state law from such redemption date shall, to the
extent permitted by law, be released or repaid to the
Association, after which repayment the holders of the shares
so called for redemption shall look only to the Association
for payment thereof.
5. Liquidation.
(a) Liquidation Preference. In the event of any voluntary
liquidation, dissolution or winding up of the affairs of the
Association, the holders of Non-cumulative Preferred Stock
shall be entitled, before any distribution or payment is made
to the holders of any junior stock, to be paid in full an
amount per share equal to an amount equal to $1,000 plus an
amount equal to the amount of accrued and unpaid dividends per
share from the immediately preceding dividend payment date
(but without any accumulation for unpaid dividends for prior
dividend periods on the shares of Non-cumulative Preferred
Stock) per share to such distribution or payment date (the
"liquidation amount").
In the event of any involuntary liquidation, dissolution or
winding up of the affairs of the Association, then, before any
distribution or payment shall be made to the holders of any
junior stock, the holders of Non-Cumulative Preferred Stock
shall be entitled to be paid in full an amount per share equal
to the liquidation amount.
If such payment shall have been made in full to all holders of
shares of NonCumulative Preferred Stock, the remaining assets
of the Association shall be distributed among the holders of
junior stock, according to their
6
<PAGE> 13
respective rights and preferences and in each case according
to their respective numbers of shares.
(b) Insufficient Assets. In the event that, upon any such
voluntary or involuntary liquidation, dissolution or winding
up, the available assets of the Association are insufficient
to pay such liquidation amount on all outstanding shares of
Noncumulative Preferred Stock, then the holders of
Non-Cumulative Preferred Stock shall share ratably in any
distribution of assets in proportion to the full amounts to
which they would otherwise be respectively entitled.
(c) Interpretation. For the purposes of this paragraph 5, the
consolidation or merger of the Association with any other
corporation or association shall not be deemed to constitute a
liquidation, dissolution or winding up of the Association.
6. Preemptive Rights. The Non-Cumulative Preferred Stock is not
entitled to any preemptive, subscription, conversion or
exchange rights in respect of any securities of the
Association.
7. Definitions. As used herein with respect to the Non-Cumulative
Preferred Stock, the following terms shall have the following
meanings:
(a) The term "junior stock" shall mean the Common Stock and
any other class or series of shares of the Association
hereafter authorized over which the NonCumulative Preferred
Stock has preference or priority in the payment of dividends
or in the distribution of assets on any liquidation,
dissolution or winding up of the Association.
(b) The term "accrued dividends", with respect to any share of
any class or series, shall mean an amount computed at the
annual dividend rate for the class or series of which the
particular share is a part, from, if such share is cumulative,
the date on which dividends on such share became cumulative to
and including the date to which such dividends are to be
accrued, less the aggregate amount of all dividends
theretofore paid thereon and, if such share is noncumulative,
the relevant date designated to and including the date to
which such dividends are accrued, less the aggregate amount of
all dividends theretofore paid with respect to such period.
(c) The term "Preferred Stock" shall mean all outstanding
shares of all series of preferred stock of the Association as
defined in this Article Fifth of the Articles of Association,
as amended, of the Association.
7
<PAGE> 14
8. Restriction on Transfer. No shares of Non-Cumulative Preferred
Stock, or any interest therein, may be sold, pledged,
transferred or otherwise disposed of without the prior written
consent of the Association. The foregoing restriction shall be
stated on any certificate for any shares of Non-Cumulative
Preferred Stock.
9. Additional Rights. The shares of Non-Cumulative Preferred
Stock shall not have any relative, participating, optional or
other special rights and powers other than as set forth
herein.
SIXTH. The Board of Directors shall appoint one of its members
President of this Association, who shall be Chairman of the Board, unless the
Board appoints another director to be the Chairman. The Board of Directors shall
have the power to appoint one or more Vice Presidents; and to appoint a cashier
or such other officers and employees as may be required to transact the business
of this Association.
The Board of Directors shall have the power to define the duties of the
officers and employees of the Association, to fix the salaries to be paid to
them; to dismiss them, to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all By-Laws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
SEVENTH. The Board of Directors shall have the power to change the
location of the main office to any other place within the limits of Charlotte,
North Carolina, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency; and shall have the power to
establish or change the location of any branch or branches of the Association to
any other location, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue
until terminated in accordance with the laws of the United States.
NINTH. The Board of Directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than 10 percent of the stock of
this Association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time,
place, and purpose of every annual and special meeting of the shareholders shall
be given by first-class mail, postage prepaid, mailed at least ten days prior to
the
8
<PAGE> 15
date of such meeting to each shareholder of record at his address as shown upon
the books of this Association.
TENTH. Each director and executive officer of this Association shall be
indemnified by the association against liability in any proceeding (including
without limitation a proceeding brought by or on behalf of the Association
itself) arising out of his status as such or his activities in either of the
foregoing capacities, except for any liability incurred on account of activities
which were at the time taken known or believed by such person to be clearly in
conflict with the best interests of the Association. Liabilities incurred by a
director or executive officer of the Association in defending a proceeding shall
be paid by the Association in advance of the final disposition of such
proceeding upon receipt of an undertaking by the director or executive officer
to repay such amount if it shall be determined, as provided in the last
paragraph of this Article Tenth, that he is not entitled to be indemnified by
the Association against such liabilities.
The indemnity against liability in the preceding paragraph of this
Article Tenth, including liabilities incurred in defending a proceeding, shall
be automatic and self-operative.
Any director, officer or employee of this Association who serves at the
request of the Association as a director, officer, employee or agent of a
charitable, not-for-profit, religious, educational or hospital corporation,
partnership, joint venture, trust or other enterprise, or a trade association,
or as a trustee or administrator under an employee benefit plan, or who serves
at the request of the Association as a director, officer or employee of a
business corporation in connection with the administration of an estate or trust
by the Association, shall have the right to be indemnified by the Association,
subject to the provisions set forth in the following paragraph of this Article
Tenth, against liabilities in any manner arising out of or attributable to such
status or activities in any such capacity, except for any liability incurred on
account of activities which were at the time taken known or believed by such
person to be clearly in conflict with the best interests of the Association, or
of the corporation, partnership, joint venture, trust, enterprise, Association
or plan being served by such person.
In the case of all persons except the directors and executive officers
of the Association, the determination of whether a person is entitled to
indemnification under the preceding paragraph of this Article Tenth shall be
made by and in the sole discretion of the Chief Executive Officer of the
Association. In the case of the directors and executive officers of the
Association, the indemnity against
9
<PAGE> 16
liability in the preceding paragraph of this Article Tenth shall be automatic
and self-operative.
For purposes of this Article Tenth of these Articles of Association
only, the following terms shall have the meanings indicated:
(a) "Association" means First Union National Bank and its direct and
indirect wholly-owned subsidiaries.
(b) "Director" means an individual who is or was a director of the
Association.
(c) "Executive officer" means an officer of the Association who by
resolution of the Board of Directors of the Association has been determined to
be an executive officer of the Association for purposes of Regulation O of the
Federal Reserve Board.
(d) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable expenses, including counsel fees and expenses,
incurred with respect to a proceeding.
(e) "Party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(f) "Proceeding" means any threatened, pending, or completed claim,
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
The Association shall have no obligation to indemnify any person for an
amount paid in settlement of a proceeding unless the Association consents in
writing to such settlement.
The right to indemnification herein provided for shall apply to persons
who are directors, officers, or employees of banks or other entities that are
hereafter merged or otherwise combined with the Association only after the
effective date of such merger or other combination and only as to their status
and activities after such date.
The right to indemnification herein provided for shall inure to the
benefit of the heirs and legal representatives of any person entitled to such
right.
10
<PAGE> 17
No revocation of, change in, or adoption of any resolution or provision
in the Articles of Association or By-laws of the Association inconsistent with,
this Article Tenth shall adversely affect the rights of any director, officer,
or employee of the Association with respect to (i) any proceeding commenced or
threatened prior to such revocation, change, or adoption, or (ii) any proceeding
arising out of any act or omission occurring prior to such revocation, change,
or adoption, in either case, without the written consent of such director,
officer, or employee.
The rights hereunder shall be in addition to and not exclusive of any
other rights to which a director, officer, or employee of the Association may be
entitled under any statute, agreement, insurance policy, or otherwise.
The Association shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, or employee of the
Association, or is or was serving at the request of the Association as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, trade association, employee benefit plan, or other enterprise,
against any liability asserted against such director, officer, or employee in
any such capacity, or arising out of their status as such, whether or not the
Association would have the power to indemnify such director, officer, or
employee against such liability, excluding insurance coverage for a formal order
assessing civil money penalties against an Association director or employee.
Notwithstanding anything to the contrary provided herein, no person
shall have a right to indemnification with respect to any liability (i) incurred
in an administrative proceeding or action instituted by an appropriate bank
regulatory agency which proceeding or action results in a final order assessing
civil money penalties or requiring affirmative action by an individual or
individuals in the form of payments to the Association, (ii) to the extent such
person is entitled to receive payment therefor under any insurance policy or
from any corporation, partnership, joint venture, trust, trade association,
employee benefit plan, or other enterprise other than the Association, or (iii)
to the extent that a court of competent jurisdiction determines that such
indemnification is void or prohibited under state or federal law.
ELEVENTH. These Articles of Association may be amended at any regular
or special meeting of the shareholders by the affirmative vote of the holders of
a majority of the stock of this Association, unless the vote of holders of a
greater amount of stock is required by law, and in that case, by the vote of the
holders of such greater amount.
11
<PAGE> 18
BY-LAWS OF
FIRST UNION NATIONAL BANK
Charter No. 22693
As Restated Effective February 26, 1998
<PAGE> 19
BY-LAWS OF
FIRST UNION NATIONAL BANK
ARTICLE I
Meetings of Shareholders
Section 1.1 Annual Meeting. The annual meeting of the shareholders for
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on the third Tuesday of April in
each year, commencing with the year 1998, except that the Board of Directors
may, from time to time and upon passage of a resolution specifically setting
forth its reasons, set such other date for such meeting during the month of
April as the Board of Directors may deem necessary or appropriate; provided,
however, that if an annual meeting would otherwise fall on a legal holiday, then
such annual meeting shall be held on the second business day following such
legal holiday. The holders of a majority of the outstanding shares entitled to
vote which are represented at any meeting of the shareholders may choose persons
to act as Chairman and as Secretary of the meeting.
Section 1.2 Special Meetings. Except as otherwise specifically provided
by statute, special meetings of the shareholders may be called for any purpose
at any time by the Board of Directors or by any three or more shareholders
owning, in the aggregate, not less than ten percent of the stock of the
Association. Every such special meeting, unless otherwise provided by law, shall
be called by mailing, postage prepaid, not less than ten days prior to the date
fixed for such meeting, to each shareholder at his address appearing on the
books of the Association, a notice stating the purpose of the meeting.
Section 1.3 Nominations for Directors. Nominations for election to the
Board of Directors may be made by the Board of Directors or by any stockholder
of any outstanding class of capital stock of the bank entitled to vote for the
election of directors. Nominations, other than those made by or on behalf of the
existing management of the bank, shall be made in writing and shall be delivered
or mailed to the President of the Bank and to the Comptroller of the Currency,
Washington, D. C., not less than 14 days nor more than 50 days prior to any
meeting of stockholders called for the election of directors, provided however,
that if less than 21 days' notice of such meeting is given to
2
<PAGE> 20
shareholders, such nomination shall be mailed or delivered to the President of
the Bank and to the Comptroller of the Currency not later than the close of
business on the seventh day following the day on which the notice of meeting was
mailed. Such notification shall contain the following information to the extent
known to the notifying shareholder: (a) the name and address of each proposed
nominee; (b) the principal occupation of each proposed nominee; (c) the total
number of shares of capital stock of the bank that will be voted for each
proposed nominee; (d) the name and residence address of the notifying
shareholder; and (e) the number of shares of capital stock of the bank owned by
the notifying shareholder. Nominations not made in accordance herewith may, in
his discretion, be disregarded by the chairman of the meeting, and upon his
instructions, the vote tellers may disregard all votes cast for each such
nominee.
Section 1.4 Judges of Election. The Board may at any time appoint from
among the shareholders three or more persons to serve as Judges of Election at
any meeting of shareholders; to act as judges and tellers with respect to all
votes by ballot at such meeting and to file with the Secretary of the meeting a
Certificate under their hands, certifying the result thereof.
Section 1.5 Proxies. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing, but no officer or employee
of this Association shall act as proxy. Proxies shall be valid only for one
meeting, to be specified therein, and any adjournments of such meeting. Proxies
shall be dated and shall be filed with the records of the meeting.
Section 1.6 Quorum. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law; but less than a quorum may
adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice. A majority of the votes cast shall decide
every question or matter submitted to the shareholders at any meeting, unless
otherwise provided by law or by the Articles of Association.
ARTICLE II
Directors
Section 2.1 Board of Directors. The Board of Directors (hereinafter
referred to as the "Board"), shall have power to manage and administer the
business and affairs of the Association. Except as expressly limited by law, all
corporate powers of the Association shall be vested in and may be exercised by
said Board.
3
<PAGE> 21
Section 2.2 Number. The Board shall consist of not less than five nor
more than twenty-five directors, the exact number within such minimum and
maximum limits to be fixed and determined from time to time by resolution of a
majority of the full Board or by resolution of the shareholders at any meeting
thereof; provided, however, that a majority of the full Board of Directors may
not increase the number of directors to a number which, (1) exceeds by more than
two the number of directors last elected by shareholders where such number was
fifteen or less, and (2) to a number which exceeds by more than four the number
of directors last elected by shareholders where such number was sixteen or more,
but in no event shall the number of directors exceed twenty-five.
Section 2.3 Organization Meeting. The Secretary of the meeting upon
receiving the certificate of the judges, of the result of any election, shall
notify the directors-elect of their election and of the time at which they are
required to meet at the Main Office of the Association for the purpose of
organizing the new Board and electing and appointing officers of the Association
for the succeeding year. Such meeting shall be held as soon thereafter as
practicable. If, at the time fixed for such meeting, there shall not be a quorum
present, the directors present may adjourn the meeting from time to time, until
a quorum is obtained.
Section 2.4 Regular Meetings. Regular meetings of the Board of
Directors shall be held at such place and time as may be designated by
resolution of the Board of Directors. Upon adoption of such resolution, no
further notice of such meeting dates or the places or times thereof shall be
required. Upon the failure of the Board of Directors to adopt such a resolution,
regular meetings of the Board of Directors shall be held, without notice, on the
third Tuesday in February, April, June, August, October and December, commencing
with the year 1997, at the main office or at such other place and time as may be
designated by the Board of Directors. When any regular meeting of the Board
would otherwise fall on a holiday, the meeting shall be held on the next
business day unless the Board shall designate some other day.
Section 2.5 Special Meetings. Special meetings of the Board of
Directors may be called by the President of the Association, or at the request
of three (3) or more directors. Each member of the Board of Directors shall be
given notice stating the time and place, by telegram, letter, or in person, of
each such special meeting.
Section 2.6 Quorum. A majority of the directors shall constitute a
quorum at any meeting, except when otherwise provided by law; but a less
4
<PAGE> 22
number may adjourn any meeting, from time to time, and the meeting may be held,
as adjourned, without further notice.
Section 2.7 Vacancies. When any vacancy occurs among the directors, the
remaining members of the Board, in accordance with the laws of the United
States, may appoint a director to fill such vacancy at any regular meeting of
the Board, or at a special meeting called for that purpose.
Section 2.8 Advisory Boards. The Board of Directors may appoint
Advisory Boards for each of the states in which the Association conducts
operations. Each such Advisory Board shall consist of as many persons as the
Board of Directors may determine. The duties of each Advisory Board shall be to
consult and advise with the Board of Directors and senior officers of the
Association in such state with regard to the best interests of the Association
and to perform such other duties as the Board of Directors may lawfully
delegate. The senior officer in such state, or such officers as directed by such
senior officer, may appoint advisory boards for geographic regions within such
state and may consult with the State Advisory Boards prior to such appointments.
ARTICLE III
Committees of the Board
Section 3.1 The Board of Directors, by resolution adopted by a majority
of the number of directors fixed by these By-Laws, may designate two or more
directors to constitute an Executive Committee and other committees, each of
which, to the extent authorized by law and provided in such resolution, shall
have and may exercise all of the authority of the Board of Directors and the
management of the Association. The designation of any committee and the
delegation thereto of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility or liability imposed
upon it or any member of the Board of Directors by law. The Board of Directors
reserves to itself alone the power to act on (1) dissolution, merger or
consolidation, or disposition of substantially all corporate property, (2)
designation of committees or filling vacancies on the Board of Directors or on a
committee of the Board (except as hereinafter provided), (3) adoption, amendment
or repeal of By-laws, (4) amendment or repeal of any resolution of the Board
which by its terms is not so amendable or repealable, and (5) declaration of
dividends, issuance of stock, or recommendations to stockholders of any action
requiring stockholder approval.
The Board of Directors or the Chairman of the Board of Directors of the
Association may change the membership of any committee at any time, fill
5
<PAGE> 23
vacancies therein, discharge any committee or member thereof either with or
without cause at any time, and change at any time the authority and
responsibility of any such committee.
A majority of the members of any committee of the Board of Directors
may fix such committee's rules of procedure. All action by any committee shall
be reported to the Board of Directors at a meeting succeeding such action,
except such actions as the Board may not require to be reported to it in the
resolution creating any such committee. Any action by any committee shall be
subject to revision, alteration, and approval by the Board of Directors, except
to the extent otherwise provided in the resolution creating such committee;
provided, however, that no rights or acts of third parties shall be affected by
any such revision or alteration.
ARTICLE IV
Officers and Employees
Section 4.1 Officers. The officers of the Association may be a Chairman
of the Board, a Vice Chairman of the Board, one or more Chairmen or Vice
Chairmen (who shall not be required to be directors of the Association), a
President, one or more Vice Presidents, a Secretary, a Cashier or Treasurer, and
such other officers, including officers holding similar or equivalent titles to
the above in regions, divisions or functional units of the Association, as may
be appointed by the Board of Directors. The Chairman of the Board and the
President shall be members of the Board of Directors. Any two or more offices
may be held by one person, but no officer shall sign or execute any document in
more than one capacity.
Section 4.2 Election, Term of Office, and Qualification. Each officer
shall be chosen by the Board of Directors and shall hold office until the annual
meeting of the Board of Directors held next after his election or until his
successor shall have been duly chosen and qualified, or until his death, or
until he shall resign, or shall have been disqualified, or shall have been
removed from office.
Section 4.2(a) Officers Acting as Assistant Secretary. Notwithstanding
Section 1 of these By-laws, any Senior Vice President, Vice President, or
Assistant Vice President shall have, by virtue of his office, and by authority
of the By-laws, the authority from time to time to act as an Assistant Secretary
of the Bank, and to such extent, said officers are appointed to the office of
Assistant Secretary.
6
<PAGE> 24
Section 4.3 Chief Executive Officer. The Board of Directors shall
designate one of its members to be the President of this Association, and the
officer so designated shall be an ex officio member of all committees of the
Association except the Examining Committee, and its Chief Executive Officer
unless some other officer is so designated by the Board of Directors.
Section 4.4 Duties of Officers. The duties of all officers shall be
prescribed by the Board of Directors. Nevertheless, the Board of Directors may
delegate to the Chief Executive Officer the authority to prescribe the duties of
other officers of the corporation not inconsistent with law, the charter, and
these By-laws, and to appoint other employees, prescribe their duties, and to
dismiss them. Notwithstanding such delegation of authority, any officer or
employee also may be dismissed at any time by the Board of Directors.
Section 4.5 Other Employees. The Board of Directors may appoint from
time to time such tellers, vault custodians, bookkeepers, and other clerks,
agents, and employees as it may deem advisable for the prompt and orderly
transaction of the business of the Association, define their duties, fix the
salary to be paid them, and dismiss them. Subject to the authority of the Board
of Directors, the Chief Executive Officer or any other officer of the
Association authorized by him, may appoint and dismiss all such tellers, vault
custodians, bookkeepers and other clerks, agents, and employees, prescribe their
duties and the conditions of their employment, and from time to time fix their
compensation.
Section 4.6 Removal and Resignation. Any officer or employee of the
Association may be removed either with or without cause by the Board of
Directors. Any employee other than an officer elected by the Board of Directors
may be dismissed in accordance with the provisions of the preceding Section 4.5.
Any officer may resign at any time by giving written notice to the Board of
Directors or to the Chief Executive Officer of the Association. Any such
resignation shall become effective upon its being accepted by the Board of
Directors, or the Chief Executive Officer.
ARTICLE V
Fiduciary Powers
Section 5.1 Capital Management Group. There shall be an area of this
Association known as the Capital Management Group which shall be responsible for
the exercise of the fiduciary powers of this Association. The Capital Management
Group shall consist of four service areas: Fiduciary Services, Retail Services,
Investments and Marketing. The Fiduciary Services unit shall consist of
7
<PAGE> 25
personal trust, employee benefits, corporate trust and operations. The General
Office for the Fiduciary Services unit shall be located in Charlotte, N.C., with
City Trust Offices located in such cities within the State of North Carolina as
designated by the Board of Directors.
Section 5.2 Trust Officers. There shall be a General Trust Officer of
this Association whose duties shall be to manage, supervise and direct all the
activities of the Capital Management Group. Further, there shall be one or more
Senior Trust Officers designated to assist the General Trust Officer in the
performance of his duties. They shall do or cause to be done all things
necessary or proper in carrying out the business of the Capital Management Group
in accordance with provisions of applicable law and regulation.
Section 5.3 Capital Management/General Trust Committee. There shall be
a Capital Management/General Trust Committee composed of not less than four (4)
members of the Board of Directors or officers of this Association who shall be
appointed annually or from time to time by the Board of Directors of the
Association. The General Trust Officer shall serve as an ex-officio member of
the Committee. Each member shall serve until his successor is appointed. The
Board of Directors or the Chairman of the Board may change the membership of the
Capital Management/General Trust Committee at any time, fill vacancies therein,
or discharge any member thereof with or without cause at any time. The Committee
shall counsel and advise on all matters relating to the business or affairs of
the Capital Management Group and shall adopt overall policies for the conduct of
the business of the Capital Management Group including but not limited to:
general administration, investment policies, new business development, and
review for approval of major assignments of functional responsibilities. The
Committee shall meet at least quarterly or as called for by its Chairman or any
three (3) members of the Committee. A quorum shall consist of three (3) members.
In carrying out its responsibilities, the Capital Management/General Trust
Committee shall review the actions of all officers, employees and committees
utilized by this Association in connection with the activities of the Capital
Management Group and may assign the administration and performance of any
fiduciary powers or duties to any of such officers or employees or to the
Investment Policy Committee, Personal Trust Administration Committee, Account
Review Committee, Corporate and Institutional Accounts Committee, or any other
committees it shall designate. One of the methods to be used in the review
process will be the thorough scrutiny of the Report of Examination by the Office
of the Comptroller of the Currency and the reports of the Audit Division of
First Union Corporation, as they relate to the activities of the Capital
Management Group. These reviews shall be in addition to reviews of such reports
by the Audit Committee of the Board of Directors. The Chairman of the Capital
Management/ General Trust
8
<PAGE> 26
Committee shall be appointed by the Chairman of the Board of Directors. He shall
cause to be recorded in appropriate minutes all actions taken by the Committee.
The minutes shall be signed by its Secretary and approved by its Chairman.
Further, the Committee shall summarize all actions taken by it and shall submit
a report of its proceedings to the Board of Directors at its next regularly
scheduled meeting following a meeting of the Capital Management/General Trust
Committee. As required by Section 9.7 of Regulation 9 of the Comptroller of the
Currency, the Board of Directors retains responsibility for the proper exercise
of the fiduciary powers of this Association.
The Fiduciary Services unit of the Capital Management Group will
maintain a list of securities approved for investment in fiduciary accounts and
will from time to time provide the Capital Management/General Trust Committee
with current information relative to such list and also with respect to
transactions in other securities not on such list. It is the policy of this
Association that members of the Capital Management/General Trust Committee
should not buy, sell or trade in securities which are on such approved list or
in any other securities in which the Fiduciary Services unit has taken, or
intends to take, a position in fiduciary accounts in any circumstances in which
any such transaction could be viewed as a possible conflict of interest or could
constitute a violation of applicable law or regulation. Accordingly, if any such
securities are owned by any member of the Capital Management/General Trust
Committee at the time of appointment to such Committee, the Capital Management
Group shall be promptly so informed in writing. If any member of the Capital
Management/General Trust Committee intends to buy, sell, or trade in any such
securities while serving as a member of the Committee, he should first notify
the Capital Management Group in order to make certain that any proposed
transaction will not constitute a violation of this policy or of applicable law
or regulation.
Section 5.4 Investment Policy Committee. There shall be an Investment
Policy Committee composed of not less than seven (7) officers and/or employees
of this Association who shall be appointed annually or from time to time by the
Board of Directors. Each member shall serve until his successor is appointed.
Meetings shall be called by the Chairman or any two (2) members of the
Committee. A quorum shall consist of five (5) members. The Investment Policy
Committee shall exercise such fiduciary powers and perform such duties as may be
assigned to it by the Capital Management/General Trust Committee. All actions
taken by the Investment Policy Committee shall be recorded in appropriate
minutes, signed by the Secretary thereof, approved by its Chairman and submitted
to the Capital Management/General Trust Committee at its next ensuing regular
meeting for its review and approval.
9
<PAGE> 27
Section 5.5 Personal Trust Administration Committee. There shall be a
Personal Trust Administration Committee composed of not less than five (5)
officers, who shall be appointed annually or from time to time by the Board of
Directors. Each member shall serve until his successor is appointed. Meetings
shall be called by the Chairman or any three (3) members of the Committee. A
quorum shall consist of three (3) members. The Personal Trust Administration
Committee shall exercise such fiduciary powers and perform such duties as may be
assigned to it by the Capital Management/General Trust Committee. All action
taken by the Personal Trust Administration Committee shall be recorded in
appropriate minutes signed by the Secretary thereof, approved by its Chairman,
and submitted to the Capital Management/General Trust Committee at its next
ensuing regular meeting for its review and approval.
Section 5.6 Account Review Committee. There shall be an Account Review
Committee composed of not less than four (4) officers and/or employees of this
Association, who shall be appointed annually or from time to time by the Board
of Directors. Each member shall serve until his successor is appointed. Meetings
shall be called by the Chairman or any two (2) members of the Committee. A
quorum shall consist of three (3) members. The Account Review Committee shall
exercise such fiduciary powers and perform such duties as may be assigned to it
by the Capital Management/General Trust Committee. All actions taken by the
Account Review Committee shall be recorded in appropriate minutes, signed by the
Secretary thereof, approved by its Chairman and submitted to the Capital
Management/ General Trust Committee at its next ensuing regular meeting for its
review and approval.
Section 5.7 Corporate and Institutional Accounts Committee. There shall
be a Corporate and Institutional Accounts Committee composed of not less than
five (5) officers and/or employees of this Association, who shall be appointed
annually, or from time to time, by the Capital Management/General Trust
Committee and approved by the Board of Directors. Meetings may be called by the
Chairman or any two (2) members of the Committee. A quorum shall consist of
three (3) members. The Corporate and Institutional Accounts Committee shall
exercise such fiduciary powers and duties as may be assigned to it by the
General Trust Committee. All actions taken by the Corporate and Institutional
Accounts Committee shall be recorded in appropriate minutes, signed by the
Secretary thereof, approved by its Chairman and made available to the General
Trust Committee at its next ensuing regular meeting for its review and approval.
10
<PAGE> 28
ARTICLE VI
Stock and Stock Certificates
Section 6.1 Transfers. Shares of stock shall be transferable on the
books of the Association, and a transfer book shall be kept in which all
transfers of stock shall be recorded. Every person becoming a shareholder by
such transfer shall, in proportion to his shares, succeed to all rights and
liabilities of the prior holder of such shares.
Section 6.2 Stock Certificates. Certificates of stock shall bear the
signature of the Chairman, the Vice Chairman, the President, or a Vice President
(which may be engraved, printed, or impressed), and shall be signed manually or
by facsimile process by the Secretary, Assistant Secretary, Cashier, Assistant
Cashier, or any other officer appointed by the Board of Directors for that
purpose, to be known as an Authorized Officer, and the seal of the Association
shall be engraved thereon. Each certificate shall recite on its face that the
stock represented thereby is transferable only upon the books of the Association
properly endorsed.
ARTICLE VII
Corporate Seal
Section 7.1 The President, the Cashier, the Secretary, or any Assistant
Cashier, or Assistant Secretary, or other officer thereunto designated by the
Board of Directors shall have authority to affix the corporate seal to any
document requiring such seal, and to attest the same. Such seal shall be
substantially in the following form.
ARTICLE VIII
Miscellaneous Provisions
Section 8.1 Fiscal Year. The fiscal year of the Association shall be
the calendar year.
Section 8.2 Execution of Instruments. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, notices,
applications, schedules, accounts, affidavits, bonds, undertakings, proxies, and
other
11
<PAGE> 29
instruments or documents may be signed, executed, acknowledged, verified,
delivered or accepted in behalf of the Association by the Chairman of the Board,
the Vice Chairman of the Board, any Chairman or Vice Chairman, the President,
any Vice President or Assistant Vice President, the Secretary or any Assistant
Secretary, the Cashier or Treasurer or any Assistant Cashier or Assistant
Treasurer, or any officer holding similar or equivalent titles to the above in
any regions, divisions or functional units of the Association, or, if in
connection with the exercise of fiduciary powers of the Association, by any of
said officers or by any Trust Officer or Assistant Trust Officer (or equivalent
titles); provided, however, that where required, any such instrument shall be
attested by one of said officers other than the officer executing such
instrument. Any such instruments may also be executed, acknowledged, verified,
delivered or accepted in behalf of the Association in such other manner and by
such other officers as the Board of Directors may from time to time direct. The
provisions of this Section 8.2 are supplementary to any other provision of these
By-laws.
Section 8.3 Records. The Articles of Association, the By-laws, and the
proceedings of all meetings of the shareholders, the Board of Directors,
standing committees of the Board, shall be recorded in appropriate minute books
provided for the purpose. The minutes of each meeting shall be signed by the
Secretary, Cashier, or other officer appointed to act as Secretary of the
meeting.
ARTICLE IX
By-laws
Section 9.1 Inspection. A copy of the By-laws, with all amendments
thereto, shall at all times be kept in a convenient place at the Head Office of
the Association, and shall be open for inspection to all shareholders, during
banking hours.
Section 9.2 Amendments. The By-laws may be amended, altered or
repealed, at any regular or special meeting of the Board of Directors, by a vote
of a majority of the whole number of Directors.
12
<PAGE> 30
Exhibit A
First Union National Bank
Article X
Emergency By-laws
In the event of an emergency declared by the President of the United
States or the person performing his functions, the officers and employees of
this Association will continue to conduct the affairs of the Association under
such guidance from the directors or the Executive Committee as may be available
except as to matters which by statute require specific approval of the Board of
Directors and subject to conformance with any applicable governmental directives
during the emergency.
OFFICERS PRO TEMPORE AND DISASTER
Section 1. The surviving members of the Board of Directors or the
Executive Committee shall have the power, in the absence or disability of any
officer, or upon the refusal of any officer to act, to delegate and prescribe
such officer's powers and duties to any other officer, or to any director, for
the time being.
Section 2. In the event of a state of disaster of sufficient severity
to prevent the conduct and management of the affairs and business of this
Association by its directors and officers as contemplated by these By-laws, any
two or more available members of the then incumbent Executive Committee shall
constitute a quorum of that Committee for the full conduct and management of the
affairs and business of the Association in accordance with the provisions of
Article II of these By-laws; and in addition, such Committee shall be empowered
to exercise all of the powers reserved to the General Trust Committee under
Section 5.3 of Article V hereof. In the event of the unavailability, at such
time, of a minimum of two members of the then incumbent Executive Committee, any
three available directors shall constitute the Executive Committee for the full
conduct and management of the affairs and business of the Association in
accordance with the foregoing provisions of this section. This By-law shall be
subject to implementation by resolutions of the Board of Directors passed from
time to time for that purpose, and any provisions of these By-laws (other than
this section) and any resolutions which are contrary to the provisions of this
section or to the provisions of any such implementary
13
<PAGE> 31
resolutions shall be suspended until it shall be determined by an interim
Executive Committee acting under this section that it shall be to the advantage
of this Association to resume the conduct and management of its affairs and
business under all of the other provisions of these By-laws.
Officer Succession
BE IT RESOLVED, that if consequent upon war or warlike damage or
disaster, the Chief Executive Officer of this Association cannot be located by
the then acting Head Officer or is unable to assume or to continue normal
executive duties, then the authority and duties of the Chief Executive Officer
shall, without further action of the Board of Directors, be automatically
assumed by one of the following persons in the order designated:
Chairman
President
Division Head/Area Administrator - Within this officer class, officers
shall take seniority on the basis of length of service in such office
or, in the event of equality, length of service as an officer of the
Association.
Any one of the above persons who in accordance with this resolution
assumes the authority and duties of the Chief Executive Officer shall continue
to serve until he resigns or until five-sixths of the other officers who are
attached to the then acting Head Office decide in writing he is unable to
perform said duties or until the elected Chief Executive Officer of this
Association, or a person higher on the above list, shall become available to
perform the duties of Chief Executive Officer of the Association.
BE IT FURTHER RESOLVED, that anyone dealing with this Association may
accept a certification by any three officers that a specified individual is
acting as Chief Executive Officer in accordance with this resolution; and that
anyone accepting such certification may continue to consider it in force until
notified in writing of a change, said notice of change to carry the signatures
of three officers of the Association.
Alternate Locations
The offices of the Association at which its business shall be conducted
shall be the main office thereof in each city which is designated as a City
Office (and branches, if any), and any other legally authorized location which
may be leased or acquired by this Association to carry on its business. During
an emergency resulting in any authorized place of business of this Association
being unable to function, the business ordinarily conducted at such location
shall be relocated
14
<PAGE> 32
elsewhere in suitable quarters, in addition to or in lieu of the locations
heretofore mentioned, as may be designated by the Board of Directors or by the
Executive Committee or by such persons as are then, in accordance with
resolutions adopted from time to time by the Board of Directors dealing with the
exercise of authority in the time of such emergency, conducting the affairs of
this Association. Any temporarily relocated place of business of this
Association shall be returned to its legally authorized location as soon as
practicable and such temporary place of business shall then be discontinued.
Acting Head Offices
BE IT RESOLVED, that in case of and provided because of war or warlike
damage or disaster, the General Office of this Association, located in
Charlotte, North Carolina, is unable temporarily to continue its functions, the
Raleigh office, located in Raleigh, North Carolina, shall automatically and
without further action of this Board of Directors, become the "Acting Head
Office of this Association";
BE IT FURTHER RESOLVED, that if by reason of said war or warlike damage
or disaster, both the General Office of this Association and the said Raleigh
Office of this Association are unable to carry on their functions, then and in
such case, the Asheville Office of this Association, located in Asheville, North
Carolina, shall, without further action of this Board of Directors, become the
"Acting Head Office of this Association"; and if neither the Raleigh Office nor
the Asheville Office can carry on their functions, then the Greensboro Office of
this Association, located in Greensboro, North Carolina, shall, without further
action of this Board of Directors, become the "Acting Head Office of this
Association"; and if neither the Raleigh Office, the Asheville Office, nor the
Greensboro Office can carry on their functions, then the Lumberton Office of
this Association, located in Lumberton, North Carolina, shall, without further
action of this Board of Directors, become the "Acting Head Office of this
Association". The Head Office shall resume its functions at its legally
authorized location as soon as practicable.
15
<PAGE> 1
EX. 99.1
LETTER OF TRANSMITTAL
THE J.H. HEAFNER COMPANY, INC.
OFFER TO EXCHANGE ALL OF ITS OUTSTANDING
10% SENIOR NOTES DUE 2008
FOR UP TO $100,000,000 AGGREGATE PRINCIPAL AMOUNT OF
ITS 10% SENIOR NOTES DUE 2008
PURSUANT TO THE PROSPECTUS DATED [ ], 1998
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON [ ], 1998 UNLESS EXTENDED OR TERMINATED
(THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
The Exchange Agent for the Exchange Offer is:
THE CHASE MANHATTAN BANK
By Mail, Hand or Overnight Courier: Facsimile Transmission Number
55 Water Street (Eligible Institutions only):
Room 234, North Building (212) 638-7375 or
New York, New York 10041 (212) 344-9367
Attention: Carlos Esteves
To Confirm Facsimile
(IF BY MAIL, REGISTERED OR or for Information Call
CERTIFIED MAIL RECOMMENDED) (212) 638-0828
DELIVERY OF THIS LETTER OF TRANSMITTAL (THE "LETTER OF TRANSMITTAL") TO AN
ADDRESS, OR TRANSMISSION VIA FACSIMILE TO A NUMBER, OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE A VALID TENDER OF THE J.H. HEAFNER COMPANY, INC. 10%
SENIOR NOTES DUE 2008 (THE "INITIAL NOTES").
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED AND SIGNED.
All capitalized terms used herein and not defined herein shall have the
meaning ascribed to them in the Prospectus (as defined below).
This Letter of Transmittal is to be used by registered holders of
Initial Notes ("Holders") if: (i) certificates representing Initial Notes are to
be physically delivered to the Exchange Agent by such Holders; (ii) tender of
Initial Notes is to be made by book-entry transfer to the Exchange Agent's
account at The Depository Trust Company ("DTC" or the "Book-Entry Transfer
Facility") pursuant to the procedures set forth in the Prospectus, dated [ ],
1998 (as the same may be amended from time to time, the "Prospectus") under the
caption "The Exchange Offer -- Book-Entry Transfer" by any financial institution
that is a participant in DTC and whose name appears on a security position
listing as the owner of Initial Notes or (iii) delivery of Initial Notes is to
be made according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures," and, in each case, instructions are not being transmitted through
the DTC.
Automated Tender Program ("ATOP"). DELIVERY OF DOCUMENTS TO THE
BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER
FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
<PAGE> 2
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
By execution hereof, the undersigned acknowledges receipt of the
Prospectus, dated [ ], 1998 (as the same may be amended from time to time,
the "Prospectus"), of The J.H. Heafner Company, Inc., a North Carolina
corporation (the "Company"), and this Letter of Transmittal and the instructions
hereto, which together constitute Company's offer to exchange (the "Exchange
Offer") $1,000 principal amount of its 10% Senior Notes due 2008 (the "Exchange
Notes") of the Company, upon the terms and subject to the conditions set forth
in the Exchange Offer, for each $1,000 principal amount of its outstanding 10%
Senior Notes due 2008 (the "Initial Notes").
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of Initial Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
the Initial Notes tendered herewith, the undersigned hereby exchanges, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Initial Notes. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that the Exchange Agent
also acts as the agent of the Company) with respect to such Initial Notes with
full power of substitution (such power-of-attorney being deemed to be an
irrevocable power coupled with an interest) to (i) present such Initial Notes
and all evidences of transfer and authenticity to, or transfer ownership of,
such Initial Notes on the account books maintained by the Book-Entry Transfer
Facility to, or upon the order of, the Company, (ii) present such Initial Notes
for transfer of ownership on the books of the Company or the trustee under the
Indenture (the "Trustee") and (iii) receive all benefits and otherwise exercise
all rights of beneficial ownership of such Initial Notes, all in accordance with
the terms and conditions of the Exchange Offer as described in the Prospectus.
The undersigned represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Initial Notes tendered
hereby and to acquire Exchange Notes issuable upon the exchange of such tendered
Initial Notes, and that, when the same are accepted for exchange, the Company
will acquire good and unencumbered title to the tendered Initial Notes, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim or right. The undersigned also warrants that it will, upon
request, execute and deliver any additional documents deemed by the Exchange
Agent or the Company to be necessary or desirable to complete the exchange,
assignment and transfer of the Initial Notes tendered hereby or transfer
ownership of such Initial Notes on the account books maintained by the
book-entry transfer facility.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived by the
Company, in whole or in part, in the reasonable discretion of the Company), as
more particularly set forth in the Prospectus, the Company may not be required
to exchange any of the Initial Notes tendered hereby and, in such event, the
Initial Notes not exchanged will be returned to the undersigned at the address
shown above.
THE EXCHANGE OFFER IS NOT BEING MADE TO ANY BROKER-DEALER WHO PURCHASED
INITIAL NOTES DIRECTLY FROM THE COMPANY FOR RESALE PURSUANT TO RULE 144A UNDER
THE SECURITIES ACT OR ANY PERSON THAT IS AN "AFFILIATE" OF THE COMPANY WITHIN
THE MEANING OF RULE 405 UNDER THE SECURITIES ACT. THE
-2-
<PAGE> 3
UNDERSIGNED UNDERSTANDS AND AGREES THAT THE COMPANY RESERVES THE RIGHT NOT TO
ACCEPT TENDERED INITIAL NOTES FROM ANY TENDERING HOLDER IF THE COMPANY
DETERMINES, IN ITS REASONABLE DISCRETION, THAT SUCH ACCEPTANCE COULD RESULT IN A
VIOLATION OF APPLICABLE SECURITIES LAWS.
The undersigned, if the undersigned is a beneficial holder, represents
(or, if the undersigned is a broker, dealer, commercial bank, trust company or
other nominee, represents that it has received representations from the
beneficial owners of the Initial Notes (the "Beneficial Owner") stating) that,
(i) the Exchange Notes to be acquired in connection with the Exchange Offer by
the Holder and each Beneficial Owner of the Initial Notes are being acquired by
the Holder and each such Beneficial Owner in the ordinary course of their
business, (ii) the Holder and each such Beneficial Owner are not engaged in, do
not intend to engage in, and have no arrangement or understanding with any
person to participate in, a distribution of the Exchange Notes, (iii) the Holder
and each Beneficial Owner acknowledge and agree that any person participating in
the Exchange Offer for the purpose of distributing the Exchange Notes cannot
rely on the interpretations of the staff of the Commission discussed in the
Prospectus under the caption "The Exchange Offer -- Purpose and Effect of the
Exchange Offer" and may only sell the Exchange Notes acquired by such person
pursuant to a registration statement containing the selling security holder
information required by Item 507 of Regulation S-K under the Securities Act,
(iv) if the Holder is a broker-dealer that acquired Initial Notes as a result of
market-making activities or other trading activities, it will deliver a
prospectus in connection with any resale of Exchange Notes acquired in the
Exchange Offer (but by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act) and (v) neither the Holder nor any such
Beneficial Owner is an "affiliate," as defined under Rule 405 of the Securities
Act, of the Company or of Parent or is a broker-dealer who purchased Initial
Notes directly from the Company for resale pursuant to Rule 144A under the
Securities Act.
EACH BROKER-DEALER WHO ACQUIRED INITIAL NOTES FOR ITS OWN ACCOUNT AS A
RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES (A "PARTICIPATING
BROKER-DEALER"), BY TENDERING SUCH INITIAL NOTES AND EXECUTING THIS LETTER OF
TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE
OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT
CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL
RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT
NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE
THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT
MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE
REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE
SALE OF EXCHANGE NOTES PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED
OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS
FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING
BROKER-DEALER OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE EXCHANGE
NOTES MAY BE RESUMED, AS THE CASE MAY BE.
EACH PARTICIPATING BROKER-DEALER SHOULD CHECK THE BOX HEREIN UNDER THE
CAPTION "FOR PARTICIPATING BROKER-DEALERS ONLY" IN ORDER TO RECEIVE ADDITIONAL
COPIES OF THE PROSPECTUS, AND ANY AMENDMENTS AND SUPPLEMENTS THERETO, FOR USE IN
CONNECTION WITH RESALES OF THE EXCHANGE NOTES, AS
-3-
<PAGE> 4
WELL AS ANY NOTICES FROM THE COMPANY TO SUSPEND AND RESUME USE OF THE
PROSPECTUS. BY TENDERING ITS INITIAL NOTES AND EXECUTING THIS LETTER OF
TRANSMITTAL, EACH PARTICIPATING BROKER-DEALER AGREES TO USE ITS REASONABLE BEST
EFFORTS TO NOTIFY THE COMPANY OR THE EXCHANGE AGENT WHEN IT HAS SOLD ALL OF ITS
EXCHANGE NOTES. IF NO PARTICIPATING BROKER- DEALERS CHECK SUCH BOX, OR IF ALL
PARTICIPATING BROKER-DEALERS WHO HAVE CHECKED SUCH BOX SUBSEQUENTLY NOTIFY THE
COMPANY OR THE EXCHANGE AGENT THAT ALL THEIR EXCHANGE NOTES HAVE BEEN SOLD, THE
COMPANY WILL NOT BE REQUIRED TO MAINTAIN THE EFFECTIVENESS OF THE EXCHANGE OFFER
REGISTRATION STATEMENT OR TO UPDATE THE PROSPECTUS AND WILL NOT PROVIDE ANY
HOLDERS WITH ANY NOTICES TO SUSPEND OR RESUME USE OF THE PROSPECTUS.
The undersigned understands that tenders of the Initial Notes pursuant
to any one of the procedures described under "The Exchange Offer -- Procedures
for Tendering" in the Prospectus and in the instructions hereto will constitute
a binding agreement between the undersigned and the Company in accordance with
the terms and subject to the conditions of the Exchange Offer. All authority
herein conferred or agreed to be conferred by this Letter of Transmittal and
every obligation of the undersigned hereunder shall be binding upon the heirs,
legal representatives, successors and assigns, executors, administrators and
trustees in bankruptcy of the undersigned and shall survive the death or
incapacity of the undersigned. Tendered Initial Notes may be withdrawn at any
time prior to 5:00 p.m. on the Expiration Date in accordance with the terms of
the Exchange Offer.
The undersigned understands that by tendering Initial Notes pursuant to
one of the procedures described under "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and the instructions hereto, the tendering Holder
will be deemed to have waived the right to receive any payment in respect of
interest on the Initial Notes accrued up to the date of issuance of the Exchange
Notes.
The undersigned also understands and acknowledges that the Company
reserves the right in its sole discretion to purchase or make offers for any
Initial Notes that remain outstanding subsequent to the Expiration Date in the
open market, in privately negotiated transactions, through subsequent exchange
offers or otherwise. The terms of any such purchases or offers could differ from
the terms of the Exchange Offer.
The undersigned understands that the delivery and surrender of the
Initial Notes is not effective, and the risk of loss of the Initial Notes does
not pass to the Exchange Agent, until receipt by the Exchange Agent of this
Letter of Transmittal, or a manually signed facsimile hereof, properly completed
and duly executed, with any required signature guarantees, together with all
accompanying evidences of authority and any other required documents in form
satisfactory to the Company. All questions as to form of all documents and the
validity (including time of receipt) and acceptance of tenders and withdrawals
of Initial Notes will be determined by the Company, in its sole discretion,
which determination shall be final and binding.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions," the undersigned hereby requests that any Initial Notes
representing principal amounts not tendered or not accepted for exchange be
issued in the name(s) of the undersigned and that Exchange Notes be issued in
the name(s) of the undersigned (or, in the case of Initial Notes delivered by
book-entry transfer, by credit to the account at the Book-Entry Transfer
Facility). Similarly, unless otherwise indicated herein in the box entitled
"Special Delivery Instructions," the undersigned hereby requests that any
Initial Notes representing principal amounts not tendered or not accepted for
exchange and Exchange Notes be delivered to the
-4-
<PAGE> 5
undersigned at the address(es) shown above. The undersigned recognizes that the
Company has no obligation pursuant to the "Special Issuance Instructions" box or
"Special Delivery Instructions" box to transfer any Initial Notes from the name
of the registered Holder(s) thereof if the Company does not accept for exchange
any of the principal amount of such Initial Notes so tendered.
In order to properly complete this Letter of Transmittal, a Holder must
(i) complete the box entitled "Method of Delivery" by checking one of the three
boxes therein and supplying the appropriate information, (ii) complete the box
entitled "Description of Initial Notes," (iii) if such Holder is a Participating
Broker-Dealer (as defined below) and wishes to receive additional copies of the
Prospectus for delivery in connection with resales of Exchange Notes (as defined
below), check the applicable box, (iv) sign this Letter of Transmittal by
completing the box entitled "Please Sign Here," (v) if appropriate, check and
complete the boxes relating to the "Special Issuance Instructions" and "Special
Delivery Instructions" and (vi) complete the Substitute Form W-9. Each Holder
should carefully read the detailed Instructions below prior to the completing
this Letter of Transmittal. See "The Exchange Offer -- Procedures For Tendering"
in the Prospectus.
Holders of Initial Notes that are tendering by book-entry transfer to
the Exchange Agent's account at DTC can execute the tender through ATOP, for
which the transaction will be eligible. DTC participants that are accepting the
Exchange Offer should transmit their acceptance to DTC, which will edit and
verify the acceptance and execute a book-entry delivery to the Exchange Agent's
account at DTC. DTC will then send an Agent's message to the Exchange Agent for
its acceptance. Delivery of the Agent's Message by DTC will satisfy the terms of
the Exchange Offer as to execution and delivery of a Letter of Transmittal by
the participant identified in the Agent's Message. DTC participants may also
accept the Exchange Offer by submitting a Notice of Guaranteed Delivery through
ATOP.
If Holders desire to tender Initial Notes pursuant to the Exchange
Offer and (i) certificates representing such Initial Notes are not lost but are
not immediately available, (ii) time will not permit this Letter of Transmittal,
certificates representing such Holder's Initial Notes and all other required
documents to reach the Exchange Agent prior to the Expiration Date or (iii) the
procedures for book-entry transfer cannot be completed prior to the Expiration
Date, such Holders may effect a tender of such Initial Notes in accordance with
the guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction 2 below.
A Holder having Initial Notes registered in the name of a broker,
dealer, commercial bank, trust company or other nominee must contract such
broker, dealer, commercial bank, trust company or other nominee if they desire
to accept the Exchange Offer with respect to the Initial Notes so registered.
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS OF INITIAL
NOTES BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY JURISDICTION IN WHICH THE
MAKING OR ACCEPTANCE OF THE EXCHANGE OFFER WOULD NOT BE IN COMPLIANCE WITH THE
LAWS OF SUCH JURISDICTION.
Your bank or broker can assist you in completing this form. The
instructions included with this Letter of Transmittal must be followed.
Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Exchange Agent, whose address and telephone number appear on
the front cover of this Letter of Transmittal.
See Instruction 11 below.
-5-
<PAGE> 6
- --------------------------------------------------------------------------------
METHOD OF DELIVERY
- --------------------------------------------------------------------------------
/ / CHECK HERE IF CERTIFICATES FOR TENDERED INITIAL NOTES ARE BEING
DELIVERED HEREWITH.
/ / CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:________________________________________
Account Number: ________________ Transaction Code Number: __________
/ / CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE
AGENT PURSUANT TO INSTRUCTION 2 BELOW AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s): ________________________________________
Window ticket No. (if any): __________________________________________
Date of Execution of Notice of Guaranteed Delivery: __________________
Name of Eligible Institution that Guaranteed Delivery: _______________
If Delivered by Book-Entry Transfer (yes or no): _____________________
Account Number: ________________ Transaction Code Number: __________
- --------------------------------------------------------------------------------
List below the Initial Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, list the certificate numbers
and principal amounts on a separately signed schedule and affix the schedule to
this Letter of Transmittal.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF INITIAL NOTES
- ------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF
HOLDER(S) (PLEASE FILL IN, IF CERTIFICATE AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
BLANK) NUMBER(S) AMOUNT REPRESENTED AMOUNT TENDERED
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE> 7
- -------------------------------------------------------------------------------
FOR PARTICIPATING BROKER-DEALERS ONLY
- -------------------------------------------------------------------------------
/ / CHECK HERE AND PROVIDE THE INFORMATION REQUESTED BELOW IF YOU ARE A
PARTICIPATING BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND, DURING THE NINE-MONTH PERIOD FOLLOWING THE
CONSUMMATION OF THE EXCHANGE OFFER, 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO, AS WELL AS ANY NOTICES FROM THE COMPANY TO SUSPEND
AND RESUME USE OF THE PROSPECTUS. BY TENDERING ITS INITIAL NOTES AND
EXECUTING THIS LETTER OF TRANSMITTAL, EACH PARTICIPATING BROKER-DEALER
AGREES TO USE ITS REASONABLE BEST EFFORTS TO NOTIFY THE COMPANY OR THE
EXCHANGE AGENT WHEN IT HAS SOLD ALL OF ITS EXCHANGE NOTES. (IF NO
PARTICIPATING BROKER-DEALERS CHECK THIS BOX, OR IF ALL PARTICIPATING
BROKER-DEALERS WHO HAVE CHECKED THIS BOX SUBSEQUENTLY NOTIFY THE
COMPANY OR THE EXCHANGE AGENT THAT ALL THEIR EXCHANGE NOTES HAVE BEEN
SOLD, THE COMPANY WILL NOT BE REQUIRED TO MAINTAIN THE EFFECTIVENESS OF
THE EXCHANGE OFFER REGISTRATION STATEMENT OR TO UPDATE THE PROSPECTUS
AND WILL NOT PROVIDE ANY NOTICES TO ANY HOLDERS TO SUSPEND OR RESUME
USE OF THE PROSPECTUS.)
PROVIDE THE NAME OF THE INDIVIDUAL WHO SHOULD RECEIVE, ON BEHALF OF THE HOLDER,
ADDITIONAL COPIES OF THE PROSPECTUS, AND AMENDMENTS AND SUPPLEMENTS THERETO, AND
ANY NOTICES TO SUSPEND AND RESUME USE OF THE PROSPECTUS:
NAME:__________________________________________________________________________
ADDRESS:_______________________________________________________________________
TELEPHONE NO.:_________________________________________________________________
FACSIMILE NO.:_________________________________________________________________
- --------------------------------------------------------------------------------
-7-
<PAGE> 8
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL HOLDERS OF INITIAL NOTES REGARDLESS OF
WHETHER INITIAL NOTES ARE BEING PHYSICALLY DELIVERED HEREWITH)
This Letter of Transmittal must be signed by the Holder(s) of Initial Notes
exactly as their name(s) appear(s) on certificate(s) for Initial Notes or, if
delivered by a participant in the Book-Entry Transfer Facility, exactly as
such participant's name appears on a security position listing as the owner
of Initial Notes, or by person(s) authorized to become Holder(s) by
endorsements and documents transmitted with this Letter of Transmittal. If
signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
below under "Capacity" and submit evidence satisfactory to the Company of
such person's authority to so act. See Instruction 4 below.
If the signature appearing below is not of the record holder(s) of the
Initial Notes, then the record holder(s) must sign a valid bond power.
X __________________________________________________________________________
X __________________________________________________________________________
SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATORY
DATE: ______________________________________________________________________
NAME: ______________________________________________________________________
CAPACITY: __________________________________________________________________
ADDRESS: ___________________________________________________________________
___________________________________________________________________
(INCLUDING ZIP CODE)
AREA CODE AND TELEPHONE NO.: _______________________________________________
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
- -------------------------------------------------------------------------------
/ / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE INITIAL NOTES
FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING
ACTIVITIES AND WISH TO RECEIVE ADDITIONAL COPIES OF THE PROSPECTUS AND
COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
NAME: ________________________________________________________________________
ADDRESS: _____________________________________________________________________
-8-
<PAGE> 9
MEDALLION SIGNATURE GUARANTEE (SEE INSTRUCTION 4 BELOW)
(CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION)
_______________________________________________________________________________
NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES
_______________________________________________________________________________
ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF FIRM
_______________________________________________________________________________
AUTHORIZED SIGNATURE
_______________________________________________________________________________
PRINTED NAME
_______________________________________________________________________________
TITLE
DATE:__________________________________________________________________________
-9-
<PAGE> 10
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4, 5 and 7)
To be completed ONLY if Initial Notes in a principal amount not tendered or not
accepted for exchange are to be issued in the name of, or Exchange Notes are to
be issued in the name of, someone other than the person or persons whose
signature(s) appear(s) within this Letter of Transmittal.
Issue / / Initial Notes
/ / Exchange Notes
(check as applicable)
Name __________________________________________________________________________
(Please Print)
Address________________________________________________________________________
_______________________________________________________________________________
(Include Zip Code)
_______________________________________________________________________________
(Tax Identification or Social Security Number)
(SEE SUBSTITUTE FORM W-9 HEREIN)
Credit Initial Notes not tendered or not exchanged by book-entry transfer to the
Book- Entry Transfer Facility account set below:
_______________________________________________________________________________
(Book-Entry Transfer Facility Account Number)
Credit Exchange Notes to the Book-Entry Transfer Facility account set below:
_______________________________________________________________________________
(Book-Entry Transfer Facility Account Number)
- -------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 9)
To be completed ONLY if Initial Notes in a principal amount not tendered or not
accepted for exchange or Exchange Notes are to be sent to someone other than the
persons whose signature(s) appear(s) within this letter of transmittal or to an
address different from that shown in the box entitled "Description of Initial
Notes" within this Letter of Transmittal.
Issue / / Initial Notes
/ / Exchange Notes
(check as applicable)
Name___________________________________________________________________________
(Please Print)
Address________________________________________________________________________
_______________________________________________________________________________
(Include Zip Code)
-10-
<PAGE> 11
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR INITIAL
NOTES OR BOOK-ENTRY CONFIRMATION; WITHDRAWAL OF TENDERS.
To tender Initial Notes in the Exchange Offer, physical delivery of
certificates for Initial Notes or confirmation of a book-entry transfer into the
Exchange Agent's account with a Book-Entry Transfer Facility of Initial Notes
tendered electronically, as well as a properly completed and duly executed copy
or manually signed facsimile of this Letter of Transmittal, or in the case of a
book-entry transfer, an Agent's Message, and any other Documents required by
this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m. New York time on the Expiration
Date. Tenders of Initial Notes in the Exchange Offer may be made prior to the
Expiration Date in the manner described in the preceding sentence and otherwise
in compliance with this Letter of Transmittal. THE METHOD OF DELIVERY OF THIS
LETTER OF TRANSMITTAL, CERTIFICATES FOR INITIAL NOTES AND ALL OTHER REQUIRED
DOCUMENTS TO THE EXCHANGE AGENT, INCLUDING DELIVERY THROUGH DTC AND ANY
ACCEPTANCE OF AN AGENT'S MESSAGE TRANSMITTED THROUGH ATOP, IS AT THE ELECTION
AND RISK OF THE HOLDER TENDERING INITIAL NOTES. IF SUCH DELIVERY IS MADE BY
MAIL, IT IS SUGGESTED THAT THE HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED AND THAT SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OF INITIAL
NOTES WILL BE ACCEPTED. Except as otherwise provided below, the delivery will be
made when actually received by the Exchange Agent. THIS LETTER OF TRANSMITTAL,
CERTIFICATES FOR THE INITIAL NOTES AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE
SENT ONLY TO THE EXCHANGE AGENT, NOT TO THE COMPANY, THE TRUSTEE OR DTC.
Initial Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to 5:00 p.m. New York time on the Expiration Date. In order to
be valid, notice of withdrawal of tendered Initial Notes must comply with the
requirements set forth in the Prospectus under the caption "The Exchange Offer
- -- Withdrawal of Tenders."
2. GUARANTEED DELIVERY PROCEDURES.
If Holders desire to tender Initial Notes pursuant to the Exchange
Offer and (i) certificates representing such Initial Notes are not lost but are
not immediately available, (ii) time will not permit this Letter of Transmittal,
certificates representing such Holder's Initial Notes and all other required
documents to reach the Exchange Agent prior to the Expiration Date or (iii) the
procedures for book-entry transfer cannot be completed prior to the Expiration
Date, such Holders may effect a tender of Initial Notes in accordance with the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer -- Guaranteed Delivery Procedures."
Pursuant to the guaranteed delivery procedures:
(i) such tender must be made by or through an Eligible Institution;
(ii) prior to the Expiration Date the Exchange Agent must have received
from such Eligible Institution at one of the addresses set forth on the
cover of this Letter of Transmittal a properly completed and validly
executed Notice of Guaranteed Delivery (by manually signed facsimile
transmission, mail or hand delivery) in substantially the form provided
with the Prospectus, setting
-11-
<PAGE> 12
forth the name(s) and address(es) of the registered Holder(s) and the
principal amount of Initial Notes being tendered and stating that the
tender is being made thereby and guaranteeing that, within three New
York Stock Exchange ("NYSE") trading days from the date of the Notice
of Guaranteed Delivery, the Letter of Transmittal (or a manually signed
facsimile thereof) properly completed and duly executed, or, in the
case of a book-entry transfer an Agent's Message together with
certificates representing the Initial Notes (or confirmation of
book-entry transfer of such Initial Notes into the Exchange Agent's
account at a Book-Entry Transfer Facility), and any other documents
required by this Letter of Transmittal and the instructions thereto,
will be deposited by such Eligible Institution with the Exchange Agent;
and
(iii) this Letter of Transmittal (or a manually signed facsimile
thereof), properly completed and validly executed with any required
signature guarantees, or, in the case of a book-entry transfer, an
Agent's Message, together with certificates for all Initial Notes in
proper form for transfer (or a Book- Entry Confirmation with respect to
all tendered Initial Notes), and any other required documents must be
received by the Exchange Agent within three NYSE trading days after the
date of such Notice of Guaranteed Delivery.
3. PARTIAL TENDERS.
If less than the entire principal amount of any Initial Notes evidenced
by a submitted certificate is tendered, the tendering Holder must fill in the
principal amount tendered in the last column of the box entitled "Description of
Initial Notes" herein. The entire principal amount represented by the
certificates for all Initial Notes delivered to the Exchange Agent will be
deemed to have been tendered, unless otherwise indicated. The entire principal
amount of all Initial Notes not tendered or not accepted for exchange will be
sent (or, if tendered by book-entry transfer, returned by credit to the account
at the Book-Entry Transfer Facility designated herein) to the Holder unless
otherwise provided in the "Special Issuance Instructions" or "Special Delivery
Instructions" boxes of this Letter of Transmittal.
4. SIGNATURES ON THIS LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the Holder(s) of the Initial
Notes tendered hereby the signature(s) must correspond with the name(s) as
written on the face of the certificate(s) without alteration, enlargement or any
change whatsoever. If this Letter of Transmittal is signed by a participant in
one of the Book-Entry Transfer Facilities whose name is shown as the owner of
the Initial Notes tendered hereby, the signature must correspond with the name
shown on the security position listing as the owner of the Initial Notes.
If any of the Initial Notes tendered hereby are registered in the name
of two or more Holders, all such Holders must sign this Letter of Transmittal.
If any tendered Initial Notes are registered in client names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Transmittal and any necessary accompanying documents as
there are different names in which certificates are held.
If this Letter of Transmittal or any certificates for Initial Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority so to act must be submitted with this Letter of Transmittal.
-12-
<PAGE> 13
IF THIS LETTER OF TRANSMITTAL IS EXECUTED BY A PERSON OR ENTITY WHO IS
NOT THE REGISTERED HOLDER, THEN THE REGISTERED HOLDER MUST SIGN A VALID BOND
POWER WITH THE SIGNATURE OF SUCH REGISTERED HOLDER GUARANTEED BY A PARTICIPANT
IN A RECOGNIZED MEDALLION SIGNATURE PROGRAM (A "MEDALLION SIGNATURE GUARANTOR").
No signature guarantee is required if (i) this Letter of Transmittal is
signed by the registered Holder(s) of the Initial Notes tendered herewith (or by
a participant in one of the Book-Entry Transfer Facilities whose name appears on
a security position listing as the owner of Initial Notes) and certificates for
Exchange Notes or for any Initial Notes for principal amounts not tendered or
not accepted for exchange are to be issued directly to such Holder(s) or, if
tendered by a participant in one of the Book-Entry Transfer Facilities, any
Initial Notes for principal amounts not tendered or not accepted for exchange
are to be credited to such participant's account at such Book-Entry Transfer
Facility and neither the "Special Issuance Instructions" box nor the "Special
Delivery Instructions" box of this Letter of Transmittal has been completed or
(ii) such Initial Notes are tendered for the account of an Eligible Institution.
IN ALL OTHER CASES ALL SIGNATURES ON LETTERS OF TRANSMITTAL ACCOMPANYING INITIAL
NOTES MUST BE GUARANTEED BY A MEDALLION SIGNATURE GUARANTOR. In all such other
cases (including if this Letter of Transmittal is not signed by the Holder), the
Holder must either properly endorse the certificates for Initial Notes tendered
or transmit a separate, properly completed bond power with this Letter of
Transmittal (in either case, executed exactly as the name(s) of the registered
Holder(s) appear(s) on such Initial Notes, and, with respect to a participant in
a Book-Entry Transfer Facility whose name appears on a security position listing
as the owner of Initial Notes, exactly as the name(s) of the participant(s)
appear(s) on such security position listing), with the signature on the
endorsement or bond power guaranteed by a Medallion Signature Guarantor, unless
such certificates or bond powers are executed by an Eligible Institution.
Endorsements on certificates for Initial Notes and signatures on bond
powers provided in accordance with this Instruction 4 by registered Holders not
executing this Letter of Transmittal must be guaranteed by a Medallion Signature
Guarantor
5. SPECIAL ISSUANCE AND SPECIAL DELIVERY INSTRUCTIONS.
Tendering Holders should indicate in the applicable box or boxes the
name and address to which Initial Notes for principal amounts not tendered or
not accepted for exchange or certificates for Exchange Notes, if applicable, are
to be issued or sent, if different from the name and address of the Holder
signing this Letter of Transmittal. In the case of payment to a different name,
the taxpayer identification or social security number of the person named must
also be indicated.
6. TAXPAYER IDENTIFICATION NUMBER.
Each tendering Holder is required to provide the Exchange Agent with
the Holder's social security or Federal employer identification number, on
Substitute Form W-9 which is provided under "Important Tax Information" below,
or alternatively to establish another basis for exemption from backup
withholding. A Holder must cross out Item (2) in the Certification box in Part
III of Substitute Form W-9 if such Holder is subject to backup withholding.
Failure to provide the information on the form may subject such Holder to 31%
Federal backup withholding tax on any payment made to the Holder with respect to
the Exchange Offer. The appropriate box in Part I of Substitute Form W-9 should
be checked if the tendering or consenting Holder has not been issued a Taxpayer
Identification Number ("TIN") and has either applied for a TIN or intends to
apply for a TIN in the near future. If the box in Part I of Substitute Form W-9
is checked, the Holder should also sign the attached Certification of Awaiting
Taxpayer Identification
-13-
<PAGE> 14
Number. If the Exchange Agent is not provided with a TIN within 60 days
thereafter, the Exchange Agent will withhold 31% on all such payments of the
Exchange Notes until a TIN is provided to the Exchange Agent.
7. TRANSFER TAXES.
The Company will pay all transfer taxes applicable to the exchange and
transfer of Initial Notes pursuant to the Exchange Offer, except if (i)
deliveries of certificates for Initial Notes for principal amounts not tendered
or not accepted for exchange are registered or issued in the name of any person
other than the Holder of Initial Notes tendered thereby, (ii) tendered
certificates are registered in the name of any person other than the person
signing this Letter of Transmittal or (iii) a transfer tax is imposed for any
reason other than the exchange of Initial Notes pursuant to the Exchange Offer,
in which case the amount of any transfer taxes (whether imposed on the
registered Holder or any other persons) will be payable by the tendering Holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith the amount of taxes will be billed directly to such tendering
Holder.
8. IRREGULARITIES.
All questions as to the form of all documents and the validity
(including time of receipt) and acceptance of all tenders and withdrawals of
Initial Notes will be determined by the Company, in its sole discretion which
determination shall be final and binding. ALTERNATIVE, CONDITIONAL OR CONTINGENT
TENDERS OF INITIAL NOTES WILL NOT BE CONSIDERED VALID. The Company reserves the
absolute right to reject any and all tenders of Initial Notes that are not in
proper form or the acceptance of which, in the Company's opinion, would be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Initial Notes. The
Company's interpretations of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) will be final and
binding. Any defect or irregularity in connection with tenders of Initial Notes
must be cured within such time as the Company determines, unless waived by the
Company. Tenders of Initial Notes shall not be deemed to have been made until
all defects or irregularities have been waived by the Company or cured. A
defective tender (which defect is not waived by the Company or cured by the
Holder) will not constitute a valid tender of Initial Notes and will not entitle
the Holder to Exchange Notes. None of the Company, the Trustee, the Exchange
Agent or any other person will be under any duty to give notice of any defect or
irregularity in any tender or withdrawal of any Initial Notes, or incur any
liability to Holders for failure to give any such notice.
9. WAIVER OF CONDITIONS.
The Company reserves the right, in its reasonable discretion, to amend
or waive any of the conditions to the Exchange Offer.
10. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES FOR INITIAL NOTES.
Any Holder whose certificates for Initial Notes have been mutilated,
lost, stolen or destroyed should write to or telephone the Trustee at the
address or telephone number set forth on the cover of this Letter of Transmittal
for the Exchange Agent.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering Initial Notes and
requests for assistance or additional copies of the Prospectus, this Letter of
Transmittal, the Notice of Guaranteed Delivery or other
-14-
<PAGE> 15
documents may be directed to the Exchange Agent, whose address and telephone
number appear on the cover of this Letter of Transmittal.
IMPORTANT TAX INFORMATION
Under Federal income tax laws, a Holder who tenders Initial Notes prior
to receipt of the Exchange Notes is required to provide the Exchange Agent with
such Holder's correct TIN on the Substitute Form W-9 below or otherwise
establish a basis for exemption from backup withholding. If such Holder is an
individual, the TIN is his or her social security number. If the Exchange Agent
is not provided with the correct TIN, a $50 penalty may be imposed by the
Internal Revenue Service ("IRS") and payments, including any Exchange Notes,
made to such Holder with respect to Initial Notes exchanged pursuant to the
Exchange Offer may be subject to backup withholding.
Certain Holders (including among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on the
Substitute Form W-9. A foreign person may qualify as an exempt recipient by
submitting to the Exchange Agent a properly completed IRS Form W-8 signed under
penalties of perjury, attesting to that Holder's exempt status. A Form W-8 can
be obtained from the Exchange Agent. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions. Holders are urged to consult their own tax advisors to
determine whether they are exempt.
If backup withholding applies, the Exchange Agent is required to
withhold 31% of any payments made to the Holder or other payee. Backup
withholding is not an additional Federal income tax. Rather, the Federal income
tax liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the IRS.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments, including any Exchange
Notes, made with respect to Initial Notes exchanged pursuant to the Exchange
Offer, the Holder is required to provide the Exchange Agent with (i) the
Holder's correct TIN by completing the form below, certifying that the TIN
provided on the Substitute Form W-9 is correct (or that such Holder is awaiting
a TIN) and that (A) such Holder is exempt from backup withholding, (B) the
Holder has not been notified by the IRS that the Holder is subject to backup
withholding as a result of failure to report all interest or dividends or (C)
the IRS has notified the Holder that the Holder is no longer subject to backup
withholding, and (ii) if applicable, an adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered Holder. If
the Initial Notes are held in more than one name or are held not in the name of
the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
number to report.
-15-
<PAGE> 16
PAYOR'S NAME: THE J.H. HEAFNER COMPANY, INC.
PAYEE INFORMATION (Please print or type):
Individual or business name (if joint account
list first and circle the name of person or
entity whose number you furnish in Part 1
below):
_____________________________________________
Check appropriate box:
SUBSTITUTE / / Individual/Sole Proprietor
FORM W-9 / / Corporation / / Partnership / / Other
DEPARTMENT OF THE
TREASURY _____________________________________________
INTERNAL REVENUE SERVICE Address
_____________________________________________
City, State and Zip Code
PART I TAXPAYER IDENTIFICATION NUMBER ("TIN"):
Enter your TIN in the box at right. For
individuals this is your social security
number; for other entities it is your employer
identification number. Refer to the chart in
Item A on page 1 of the Guidelines for
Certification of Taxpayer Identification
Number on Substitute Form W-9 (the
"Guidelines") for further clarification. If
you do not have a TIN, see instructions on how
to obtain a TIN in Item C on page 2 of the
Guidelines, check the appropriate box below
indicating that you have applied for a TIN
and, in addition to the Part III
Certification, sign the attached Certification
of Awaiting Taxpayer Identification Number.
Social security number:
_____________________________________________
Employer identification number:
_____________________________________________
APPLIED FOR TIN / /
PART II PAYEES EXEMPT FROM BACKUP
WITHHOLDING: Check box. (See Item B on pages
1-2 of the Guidelines for further
clarification. Even if you are exempt from
backup withholding, you should still complete
and sign the certification below):
Exempt / /
REQUEST FOR TAXPAYER PART III CERTIFICATION: You must cross out
IDENTIFICATION NUMBER AND item 2 below if you have been notified by the
CERTIFICATION Internal Revenue Service (the "IRS") that you
are currently subject to backup withholding
because of underreporting interest or
dividends on your tax return (See page 2 of
the Guidelines for further clarification).
Under penalties of perjury, I certify that:
1. The number shown on this form is my
correct taxpayer identification number
(or I am waiting for a number to be
issued to me) and
2. I am not subject to backup withholding
because: (a) I am exempt from backup
withholding, (b) I have not been notified
by the IRS that I am subject to backup
withholding as a result of a failure to
report all interest or dividends or (c)
the IRS has notified me that I am no
longer subject to backup withholding.
Signature:___________________________________
Date:________________________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
-16-
<PAGE> 17
YOU MUST COMPLETE THE FOLLOWING CERTIFICATION IF YOU CHECKED
THE BOX "APPLIED FOR TIN" IN PART I OF SUBSTITUTE FORM W-9
CERTIFICATION OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a TIN has not been issued to me, and
either (a) I have mailed or delivered an application to receive a TIN to the
appropriate IRS Service Center or Social Security Administration Office or (b) I
intend to mail or deliver an application in the near future. I understand that I
must provide a TIN to the payor within 60 days of submitting this Substitute
Form W-9 and that if I do not provide a TIN to the payor within 60 days, the
payor is required to withhold 31% of all reportable payments thereafter to me
until I furnish the payor with a TIN.
Signature:_________________________________________ Date:_____________________
-17-
<PAGE> 18
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
A. TIN -- The Taxpayer Identification Number for most individuals is their
social security number. Refer to the following chart to determine the
appropriate number:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
GIVE THE SOCIAL SECURITY OR EMPLOYER IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF:
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Individual The individual
2. Two or more individuals (joint account) The actual owner of the account
or, if combined funds, the first
individual on the account(1)
3. Custodian account of a minor (Uniform
Gift to Minors Act) The minor(2)
4. a. Revocable savings trust (grantor is The grantor-trustee(1)
also trustee)
b. So-called trust account that is not a The actual owner(1)
legal or valid trust under State law
5. Sole proprietorship The owner(3)
6. A valid trust, estate or pension trust Legal entity(4)
7. Corporate The corporation
8. Association, club, religious, charitable, The organization
educational or other tax exempt organization
9. Partnership The partnership
10. A broker or registered nominee The broker or nominee
11. Account with the Department of The public entity
Agriculture
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's name and social security
number.
(3) Show the individual's name. You may also enter your business name or "doing
business as" name. You may use either your Social Security number or your
employer identification number.
(4) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
B. EXEMPT PAYEES -- The following lists exempt payees. If you are exempt, you
must nonetheless complete the form and provide your TIN in order to establish
that you are exempt. Check the box in Part II of the form, sign and date the
form.
For this purpose, Exempt Payees include: (1) a corporation; (2) an
organization exempt from tax under section 501(a), or an individual retirement
plan (IRA) or a custodial account under section 403(b)(7);
-18-
<PAGE> 19
(3) the United States or any of its agencies or instrumentalities; (4) a state,
the District of Columbia, a possession of the United States, or any of their
political subdivisions or instrumentalities; (5) a foreign government or any of
its political subdivisions, agencies or instrumentalities; (6) an international
organization or any of its agencies or instrumentalities; (7) a foreign central
bank of issue; (8) a dealer in securities or commodities required to register in
the U.S. or a possession of the U.S.; (9) a real estate investment trust; (10)
an entity or person registered at all times during the tax year under the
Investment Company Act of 1940; (11) a common trust fund operated by a bank
under section 584(a); and (12) a financial institution.
C. OBTAINING A NUMBER -- If you do not have a taxpayer identification number or
you do not know your number, obtain Form SS-5, application for a Social Security
Number, or Form SS-4, Application for Employer Identification Number, at the
local office of the Social Security Administration or the Internal Revenue
Service and apply for a number.
D. PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend,
interest or other payments to give taxpayer identification numbers to payers who
must report the payments to the IRS. The IRS uses the numbers for identification
purposes.
Payers must be given the numbers whether or not payees are required to
file tax returns. Payers must generally withhold 31% of taxable interest,
dividend and certain other payments to a payee who does not furnish a taxpayer
identification number. Certain penalties may also apply.
E. PENALTIES --
(1) Penalty for Failure to Furnish Taxpayer Identification Number. If
you fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments. If you
fail to include any portion of an includable payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) Civil Penalty for False Information with Respect to Withholding. If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. Falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
-19-
<PAGE> 1
EX. 99.2
NOTICE OF GUARANTEED DELIVERY
OF
10% SENIOR NOTES DUE 2008
OF
THE J.H. HEAFNER COMPANY, INC.
This form, or one substantially equivalent hereto, must be used by any
Holder of 10% Senior Notes due 2008, (the "Initial Notes") of The J.H. Heafner
Company, Inc., a North Carolina corporation (the "Company"), who wishes to
tender Initial Notes pursuant to the Company's Exchange Offer, as defined in the
Prospectus dated [ ], 1998 (the "Prospectus"), and (i) whose Initial Notes are
not immediately available or (ii) who cannot deliver such Initial Notes or any
other documents required by the Letter of Transmittal on or before the
Expiration Date (as defined in the Prospectus) or (iii) who cannot comply with
the book-entry transfer procedure on a timely basis. This form may be delivered
by facsimile transmission, mail or hand delivery to the Exchange Agent. See "The
Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus.
THE J.H. HEAFNER COMPANY, INC.
NOTICE OF GUARANTEED DELIVERY
THE CHASE MANHATTAN BANK, AS EXCHANGE AGENT
By Mail, Hand or Overnight Courier: Facsimile Transmission Number
55 Water Street (Eligible Institutions only):
Room 234, North Building (212) 638-7375 or
New York, New York 10041 (212) 344-9367
Attention: Carlos Esteves
To Confirm Facsimile
(IF BY MAIL, REGISTERED OR or for Information Call
CERTIFIED MAIL RECOMMENDED) (212) 638-0828
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to the Company upon the terms and
subject to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Initial Notes specified below pursuant to the guaranteed delivery procedures set
forth under the caption "The Exchange Offer--Guaranteed Delivery Procedures" in
the Prospectus. By so tendering, the undersigned does hereby make, at and as of
the date hereof, the representations and warranties of a tendering Holder of
Initial Notes set forth in the Letter of Transmittal. The undersigned hereby
tenders the Initial Notes listed below:
<TABLE>
<CAPTION>
Certificate Number(s)
(If Available) Principal Amount Tendered
<S> <C>
- ------------------------------------------------------- ----------------------------------------------------
- ------------------------------------------------------- ----------------------------------------------------
- ------------------------------------------------------- ----------------------------------------------------
</TABLE>
All authority herein conferred or agreed to be conferred shall survive
the death, incapacity or dissolution of the undersigned and every obligation of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned.
If Initial Notes will be tendered by book-entry transfer, please
provide the following information:
<TABLE>
<CAPTION>
<S> <C>
Name of Tendering Institution:
- ------------------------------------------------------- ----------------------------------------------------
The Depository Trust Company
----------------------------------------------------
Account Number: Signature(s)
- ------------------------------------------------------- ----------------------------------------------------
----------------------------------------------------
Name(s) (please print)
----------------------------------------------------
Street Address
----------------------------------------------------
City, State and Zip Code
- ------------------------------------------------------- ----------------------------------------------------
Date Area Code and Telephone Number
</TABLE>
-2-
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in a Recognized Signature Guarantee
Medallion Program, guarantees deposit with the Exchange Agent of the Letter of
Transmittal (or a facsimile thereof), together with the Initial Notes tendered
hereby in proper form for transfer, or confirmation of the book-entry transfer
of such Initial Notes into the Exchange Agent's account at the Depository Trust
Company, pursuant to the procedure for book-entry transfer set forth in the
Prospectus, and any other required documents, all by 5:00 p.m., New York City
time, on the third New York Stock Exchange trading day following the Expiration
Date (as defined in the Prospectus).
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------- ----------------------------------------------------
Name of Firm Authorized Signature
- ------------------------------------------------------- ----------------------------------------------------
Street Address Name (please print)
- -------------------------------------------------------
City, State and Zip Code
- ------------------------------------------------------- ----------------------------------------------------
Area Code and Telephone Number Date
</TABLE>
DO NOT SEND CERTIFICATES FOR INITIAL NOTES WITH THIS FORM. ACTUAL
SURRENDER OR CERTIFICATES FOR INITIAL NOTES MUST BE MADE PURSUANT TO, AND BE
ACCOMPANIED BY, A COPY OF THE PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL.
-3-
<PAGE> 4
INSTRUCTIONS
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and duly
executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at one of its addresses set forth on the cover hereof on or prior to the
Expiration Date. The method of delivery to the Exchange Agent of this Notice of
Guaranteed Delivery and all other required documents is at the election and risk
of the Holder but, except as otherwise provided below, the delivery will be
deemed made only when actually received by the Exchange Agent. Instead of
delivery by mail, it is recommended that Holders use an overnight or hand
delivery service, properly insured. If such delivery is by mail, it is
recommended that the Holder use properly insured, registered mail with return
receipt requested. For a further description of the guaranteed delivery
procedures, see the Prospectus under the caption "The Exchange Offer--Guaranteed
Delivery Procedures." In all cases, sufficient time should be allowed to assure
timely delivery. No Notice of Guaranteed Delivery should be sent to the Company.
2. Signature on this Notice of Guaranteed Delivery; Guarantee of Signatures. If
this Notice of Guaranteed Delivery is signed by the registered Holder(s) of the
Initial Notes referred to herein, then the signature must correspond with the
name(s) as written on the face of the Initial Notes without alteration, addition
or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing and, unless waived by the Company, evidence
satisfactory to the Company of their authority so to act must be submitted with
this Notice of Guaranteed Delivery.
3. Requests for Assistance or Additional Copies. Questions relating to
the Exchange Offer or the procedure for consenting and tendering as well as
requests for assistance or for additional copies of the Prospectus, the Letter
of Transmittal and this Notice of Guaranteed Delivery, may be directed to the
Exchange Agent at the address set forth on the cover hereof or to your broker,
dealer, commercial bank or trust company.
-4-
<PAGE> 1
EXHIBIT 99.3
__________ ___, 1998
EXCHANGE AGENT AGREEMENT
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001
Attention: [Corporate Trust Department]
Ladies and Gentlemen:
The J.H. Heafner Company, Inc., a North Carolina corporation
(the "Company"), proposes to make an offer (the "Exchange Offer") to exchange
with the holders thereof (i) its 10% Senior Notes due 2008 (the "Exchange
Notes") for a like principal amount of its outstanding 10% Senior Notes due 2008
(the "Initial Notes", which are part of the same series as the Exchange Notes),
of which $100,000,000 aggregate principal amount is outstanding, which Exchange
Notes have been registered under the Securities Act of 1933, as amended.
The terms and conditions of the Exchange Offer as currently
contemplated are set forth in a Prospectus (the "Prospectus") dated __________
__, 1998, distributed to record holders of the Initial Notes on or about such
date. The Initial Notes and the Exchange Notes are collectively referred to
herein as the "Notes." Capitalized terms used herein and not otherwise defined
shall have the meanings assigned to them in the Prospectus.
The Company hereby appoints The Chase Manhattan Bank to act as
exchange agent (the "Exchange Agent") in connection with the Exchange Offer.
References hereinafter to "you" shall refer to The Chase Manhattan Bank.
The Exchange Offer is expected to be commenced by the Company
on or about September __, 1998. The Letter of Transmittal accompanying the
Prospectus is to be used by the holders of the Initial Notes to accept the
Exchange Offer and contains certain instructions with respect to (i) the
delivery of certificates for Initial Notes tendered in connection therewith,
(ii) the book entry transfer of Notes to the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility"), and (iii) other
matters relating to the Exchange Offer.
The Exchange Offer shall expire at 5:00 p.m., New York City
time, on __________ __, 1998 or on such later date or time to which the Company
may extend the Exchange Offer (the "Expiration Date"). Subject to the terms and
conditions set forth in the Prospectus, the Company expressly reserves the right
to extend the Exchange Offer from time to time by giving oral (to be confirmed
in writing) or written notice to you no later than 1:00 p.m., New York City
time, on the business day following the previously scheduled Expiration Date.
<PAGE> 2
The Company expressly reserves the right to amend or terminate
the Exchange Offer, and not to accept for exchange any Initial Notes not
theretofore accepted for exchange, upon the occurrence of any failure of the
conditions of the Exchange Offer specified in the Prospectus under the caption
"The Exchange Offer -- Certain Conditions to the Exchange Offer." The Company
will give oral (to be confirmed in writing) or written notice of any amendment,
termination or nonacceptance of Initial Notes to you as promptly as practicable.
In carrying out your duties as Exchange Agent, you are to act
in accordance with the following instructions:
1. You will perform such duties and only such duties as are
specifically set forth herein and in the Letter of Transmittal.
2. You will establish an account with respect to the Initial
Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer
within two business days after the date of this Agreement, and any financial
institution that is a participant in the Book-Entry Transfer Facility's systems
may make book-entry delivery of the Initial Notes by causing the Book-Entry
Transfer Facility to transfer such Initial Notes into your account in accordance
with the Book-Entry Transfer Facility's procedure for such transfer. You are not
required to collect Letters of Transmittal from persons tendering Notes through
the Book-Entry Transfer Facility.
3. You are to examine each of the Letters of Transmittal,
certificates for Initial Notes (or confirmations of book-entry transfers into
your account at the Book-Entry Transfer Facility) and any Agent's Message or
other documents delivered or mailed to you by or for holders of the Initial
Notes to ascertain whether (i) the Letters of Transmittal and any such other
documents are executed and properly completed in accordance with instructions
set forth therein and (ii) the Initial Notes have otherwise been properly
tendered. In each case where the Letter of Transmittal or any other document has
been improperly completed or executed or any of the certificates for Initial
Notes are not in proper form for transfer or some other irregularity in
connection with the acceptance of the Exchange Offer exists, you will endeavor
to inform the presenters of the need for fulfillment of all requirements and to
take any other action as may be necessary or advisable to cause such
irregularity to be corrected.
4. With the approval of J. Michael Gaither or any other person
designated in writing by the Company (a "Designated Officer") (such approval, if
given orally, to be confirmed in writing) or any other party designated by any
such Designated Officer in writing, you are authorized to waive any
irregularities in connection with any tender of Initial Notes pursuant to the
Exchange Offer.
5. Tenders of Initial Notes may be made only as set forth in
the Letter of Transmittal and in the section of the Prospectus captioned "The
Exchange Offer - Procedures for Tendering Initial Notes," and Initial Notes
shall be considered properly tendered to you only when tendered in accordance
with the procedures set forth therein.
2
<PAGE> 3
Notwithstanding the provisions of this paragraph 5, Initial
Notes that the Designated Officer of the Company shall approve as having been
properly tendered shall be considered to be properly tendered (such approval, if
given orally, shall be confirmed in writing).
6. You shall advise the Company with respect to any Initial
Notes delivered subsequent to the Expiration Date and accept the Company's
instructions (if given orally, to be confirmed in writing) with respect to the
disposition of such Initial Notes.
7. You shall accept tenders:
(a) in cases where the Initial Notes are registered in two or
more names only if signed by all named holders;
(b) in cases where the signing person (as indicated on the
Letter of Transmittal) is acting in a fiduciary or a representative
capacity only when proper evidence of such person's authority to so act
is submitted; and
(c) from persons other than the registered holder of Initial
Notes provided that customary transfer requirements, including payment
of any applicable transfer taxes, are fulfilled.
You shall accept partial tenders of Initial Notes where so
indicated and as permitted in the Letter of Transmittal and deliver certificates
for Initial Notes to the Transfer Agent for split-up and return any untendered
Initial Notes to the holder (or to such other person as may be designated in the
Letter of Transmittal) as promptly as practicable after expiration or
termination of the Exchange Offer.
8. Upon satisfaction or waiver of all the conditions to the
Exchange Offer, the Company will notify you (such notice, if given orally, to be
confirmed in writing) of the Company's acceptance, promptly after the Expiration
Date, of all Initial Notes properly tendered and you, on behalf of the Company,
will exchange such Initial Notes for Exchange Notes and will deliver such
Initial Notes as directed by the Company. Delivery of Exchange Notes will be
made on behalf of the Company by you at the rate of $1,000 principal amount of
Exchange Notes for each $1,000 principal amount of Initial Notes tendered
promptly after notice (such notices, if given orally, to be confirmed in
writing) of acceptance of said Initial Notes by the Company; provided, however,
that in all cases Initial Notes tendered pursuant to the Exchange Offer will be
exchanged only after timely receipt by you of certificates for such Initial
Notes (or confirmation of book-entry transfer into your account at the
Book-Entry Transfer Facility), a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) with any required signature guarantees (or an
Agent's Message in lieu thereof) and any other required documents. You shall
issue Exchange Notes only in denominations of $1,000 or in any integral multiple
in excess thereof. Initial Notes may be tendered in whole or in part in integral
multiples of $1,000 in aggregate principal amount.
3
<PAGE> 4
9. Tenders pursuant to the Exchange Offer are irrevocable,
except that, subject to the terms and upon the conditions set forth in the
Prospectus and the Letter of Transmittal, Initial Notes tendered pursuant to the
Exchange Offer may be withdrawn at any time on or prior to the Expiration Date.
10. The Company shall not be required to exchange any Initial
Notes tendered if any of the conditions set forth in the Exchange Offer are not
met. Notice of any decision by the Company not to exchange any Initial Notes
tendered shall be given (such notice, if given orally, shall be confirmed in
writing) by the Company to you.
11. If, pursuant to the Exchange Offer, the Company does not
accept for exchange all or part of the Initial Notes tendered because of an
invalid tender, the occurrence of certain other events set forth in the
Prospectus under the caption "The Exchange Offer - Certain Conditions to the
Exchange Offer" or otherwise, you shall as soon as practicable after the
expiration or termination of the Exchange Offer return those certificates for
unaccepted Initial Notes (or effect the appropriate book-entry transfer of the
unaccepted Initial Notes), together with any related required documents and the
Letter of Transmittal relating thereto that are in your possession, to the
persons who deposited them.
12. All certificates for reissued Initial Notes, unaccepted
Initial Notes or Exchange Notes shall be forwarded at the Company's expense by
(a) first-class mail, return receipt requested, under a blanket surety bond
protecting you and the Company from loss or liability arising out of the
nonreceipt or nondelivery of such certificates or (b) registered mail insured
separately for the replacement value of each of such certificates.
13. You are not authorized to pay or offer to pay any
concessions, commissions or solicitation fees to any broker, dealer, bank or
other persons or to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder, you
(a) will be regarded as making no representations and having
no responsibilities as to the validity, sufficiency, value or
genuineness of any of the certificates or the Initial Notes represented
thereby deposited with you pursuant to the Exchange Offer, and will not
be required to and will make no representation as to the validity,
sufficiency, value or genuineness of the Exchange Offer including
without limitation the Prospectus, the Letter of Transmittal or the
instructions related thereto;
(b) shall not be obligated to take any action hereunder that
might in your reasonable judgment involve any expense or liability,
unless you shall have been furnished with reasonable indemnity
satisfactory to you;
(c) may conclusively rely on and shall be fully protected in
acting in good faith in reliance upon any certificate, instrument,
opinion, notice, letter, facsimile or other
4
<PAGE> 5
document or security delivered to you and reasonably believed by you to
be genuine and to have been signed by the proper party or parties;
(d) may conclusively act upon any tender, statement, request,
agreement or other instrument whatsoever not only as to its due
execution and validity and effectiveness of its provisions, but also as
to the truth and accuracy of any information contained therein that you
shall in good faith reasonably believe to be genuine or to have been
signed or represented by a proper person or persons;
(e) may conclusively rely on and shall be fully protected in
acting upon written or oral instructions from any Designated Officer of
the Company with respect to the Exchange Offer;
(f) shall not advise any person tendering Initial Notes
pursuant to the Exchange Offer as to the wisdom of making such tender
or as to the market value or decline or appreciation in market value of
any Initial Notes; and
(g) may consult with your counsel with respect to any
questions relating to your duties and responsibilities, and the advice
or written opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by you hereunder in good faith and in accordance with such
advice or written opinion of such counsel.
15. You shall take such action as may from time to time be
requested by any Designated Officer of the Company (and such other action as you
may reasonably deem appropriate) to furnish copies of the Prospectus, the Letter
of Transmittal and the Notice of Guaranteed Delivery, or such other forms as may
be approved from time to time by the Company, to all persons requesting such
documents and to accept and comply with telephone requests for information
relating to the Exchange Offer, provided that such information shall relate only
to the procedures for accepting (or withdrawing from) the Exchange Offer. The
Company shall furnish you with copies of such documents at your request.
16. You shall advise by facsimile transmission or telephone,
and promptly thereafter confirm in writing to J. Michael Gaither, Senior Vice
President/Strategic Planning, General Counsel and Secretary, and such other
person or persons as the Company may request, daily (and more frequently during
the week immediately preceding the Expiration Date, if reasonably requested) up
to and including the Expiration Date, as to the principal amount of the Initial
Notes that have been tendered pursuant to the Exchange Offer and the items
received by you pursuant to this Agreement, separately reporting and giving
cumulative totals as to items properly received and items improperly received
and items covered by Notices of Guaranteed Delivery. In addition, you will also
inform, and cooperate in making available to, the Company or any such other
person or persons as the Company reasonably requests from time to time prior to
the Expiration Date of such other information as they or such person or persons
reasonably request. Such cooperation shall include, without limitation, the
granting by you to the Company and such person or persons as the Company may
reasonably request of access to those persons on
5
<PAGE> 6
your staff who are responsible for receiving tenders, in order to ensure that
immediately prior to the Expiration Date the Company shall have received
information in sufficient detail to enable it to decide whether to extend the
Exchange Offer.
17. Letters of Transmittal and Notices of Guaranteed Delivery
shall be stamped by you as to the date and the time of receipt thereof and shall
be preserved by you for a period of time at least equal to the period of time
you preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to the Company at the address set forth below for notices.
18. For services rendered as Exchange Agent hereunder, you
shall be entitled to compensation of Six Thousand Dollars ($6,000) and
reimbursement of reasonable out-of-pocket expenses incurred in connection with
the Exchange Offer.
19. You hereby acknowledge receipt of the Prospectus and the
Letter of Transmittal and further acknowledge that you have examined each of
them to the extent necessary to perform your duties hereunder. Any inconsistency
between this Agreement, on the one hand, and the Prospectus and the Letter of
Transmittal (as they may be amended from time to time), on the other hand, shall
be resolved in favor of the latter two documents, except with respect to the
rights, duties, liabilities and indemnification of you as Exchange Agent, which
shall be controlled by this Agreement.
20. (a) The Company agrees to indemnify and hold you harmless
in your capacity as Exchange Agent hereunder against any liability, cost, tax
(other than any income tax), claim or expense, including reasonable attorneys'
fees and disbursements, arising out of or in connection with any action taken or
omitted to be taken by the Exchange Agent in connection with its acceptance or
performance of it duties under the Agreement and the documents related thereto,
including without limitation, any act, omission, delay or refusal made by you in
reasonable reliance upon any signature, endorsement, assignment, certificate,
order, request, notice, instruction or other instrument or document reasonably
believed by you to be valid, genuine and sufficient and in accepting any tender
or effecting any transfer of Initial Notes reasonably believed by you in good
faith to be authorized, and in delaying or refusing in good faith to accept any
tenders or effect any transfer of Initial Notes; provided, however, that the
Company shall not be liable for indemnification or otherwise for any loss,
liability, cost or expense to the extent arising out of your negligence, willful
breach of this Agreement, willful misconduct or bad faith. You shall notify the
Company in writing of the assertion of any claim against you; provided however,
that your failure so to notify shall not excuse the Company from its obligations
hereunder except to the extent such failure to notify shall prejudice or cause
damage to the Company. The Company shall be entitled to participate at its own
expense in the defense of any such claim or other action, and, if the Company so
elects, shall assume the defense of any suit brought to enforce any such claim.
In the event that the Company shall assume the defense of any such suit, it
shall not be liable for the fees and expenses of any additional counsel
thereafter retained by you so long as the Company shall retain counsel
reasonably satisfactory to you to defend such suit. You shall not compromise or
settle any such action or claim without the consent of the Company, provided
that the Company shall not be entitled to assume the defense
6
<PAGE> 7
of any action if representation of the parties by the same legal counsel would,
in the reasonable opinion of counsel for the Exchange Agent, be inappropriate
due to actual or potential conflicting interests between the parties. This
indemnification shall survive the release, discharge, termination and/or
satisfaction of this Agreement.
(b) You agree that, without the prior written consent of the
Company (which consent shall not be unreasonably withheld), you will
not settle, compromise or consent to the entry of judgment in any
pending or threatened claim, action, or proceeding in respect of which
indemnification could be sought in accordance with the indemnification
provisions of this Agreement (whether or not you or the Company or any
of its controlling persons is an actual or potential party to such
claim, action or proceeding), unless such settlement, compromise or
consent includes an unconditional release of the Company and
controlling persons from all liability arising out of such claim,
action or proceeding.
21. This Agreement and your appointment as Exchange Agent
hereunder shall be construed and enforced in accordance with the laws of the
State of New York applicable to agreements made and to be performed entirely
within such state, and without regard to conflicts of law principles, and shall
inure to the benefit of, and the obligations created hereby shall be binding
upon, the successors and assigns of each of the parties hereto.
22. All communications, including notices, required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if (i) delivered personally with receipt acknowledged, (ii) sent
by registered or certified mail, return receipt requested, (iii) transmitted by
facsimile (which shall be confirmed by telephone and by a writing sent by
registered or certified mail on the business day that such facsimile is sent),
or (iv) sent by recognized overnight courier for next business day delivery,
addressed to the parties at the addresses or facsimile numbers as any party
shall hereafter specify by communication to the other parties in the manner
provided herein:
If to the Company:
The J.H. Heafner Company, Inc.
Water Ridge Parkway, Suite 500
Charlotte, North Carolina 28217
Fax No.: (704) 423-8987
Attn: J. Michael Gaither
Senior Vice President/Strategic Planning, General Counsel
and Secretary
with a copy to:
Howard, Smith & Levin LLP
1330 Avenue of the Americas
New York, NY 10019
Fax No.: (212) 841-1010
Attention: Kelly Vance, Esq.
7
<PAGE> 8
If to the Exchange Agent:
The Chase Manhattan Bank
450 W. 33rd Street, 15th Floor
New York, NY 10001-2697
Fax No.: (212) 638-7375 or (212) 344-9367
Attention: Carlos Esteves
23. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
24. In case any provision of this Agreement 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.
25. Unless terminated earlier by the parties hereto, this
Agreement shall terminate 90 days following the Expiration Date. Notwithstanding
the foregoing, paragraph 18 and 20 and any outstanding obligation of the
Exchange Agent shall survive the termination of this Agreement.
Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
THE J.H. HEAFNER COMPANY, INC.
By: ________________________________
J. Michael Gaither
Senior Vice President/Strategic
Planning, General Counsel and
Secretary
Accepted as of the date first above written:
THE CHASE MANHATTAN BANK, as Exchange Agent
By: ___________________________
Name:
Title:
