<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1999
REGISTRATION NOS. 333- , 333- , 333- , 333- , 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Number) No.)
</TABLE>
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AND ITS GUARANTORS
<TABLE>
<S> <C> <C> <C>
OLIVER & WINSTON, INC. CALIFORNIA 5598 95-2407343
THE SPEED MERCHANT CALIFORNIA 5014 94-2414221
PHOENIX RACING, INC. CALIFORNIA 5598 77-0474076
CALIFORNIA TIRE COMPANY CALIFORNIA 5014 94-3245253
(Exact Name of Registrant (State or Other Jurisdiction (Primary Standard (IRS Employer
as Specified in Its of Incorporation or Organization) Industrial Identification Number)
Charter) Classification Code
Number)
</TABLE>
2105 WATER RIDGE PARKWAY, SUITE 500
CHARLOTTE, NORTH CAROLINA 28217
(704) 423-8989
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrants' 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)
------------------------------------
Copy to:
SCOTT F. SMITH, ESQ.
HOWARD, SMITH & LEVIN LLP
1330 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 841-1000
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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(d)
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>
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PRICE PER NOTE (1) OFFERING PRICE FEE(2)
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<S> <C> <C> <C> <C>
10% Senior Notes Due 2008................... $150,000,000 $1,000 $150,000,000 $41,700
Guarantees of 10% Senior Notes due 2008..... -- -- -- (3)
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</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 Guarantees.
------------------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. HEAFNER
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SEEKING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS SUBJECT TO COMPLETION, DATED MARCH 31, 1999
THE J.H. HEAFNER COMPANY, INC.
EXCHANGE OFFER OF
$150,000,000 SERIES D 10% SENIOR NOTES DUE 2008
FOR ANY AND ALL OUTSTANDING SERIES B AND SERIES C 10% SENIOR NOTES DUE 2008
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED
THE SERIES D NOTES
- The terms of the Series D notes are virtually identical to the terms of
the Series B and Series C notes. Like the Series B notes, the Series D
notes will be freely transferable and will not have any covenants
regarding exchange and registration rights.
MATERIAL TERMS OF THE EXCHANGE OFFER
- The exchange offer expires at 5 p.m., New York City time, on ,
1999, unless extended.
- The exchange offer is subject to certain customary conditions, including
the condition that the exchange offer not violate any applicable law or
any applicable interpretation of the staff of the Securities and
Exchange Commission.
- Tenders of Series B and Series C notes may be withdrawn any time prior
to the expiration of the exchange offer.
- Heafner will not receive any proceeds from the exchange offer.
- Heafner believes that the exchange of Series B or Series C notes for
Series D notes will not be a taxable exchange for U.S. federal income
tax purposes.
- All Series B and Series C notes that are validly tendered and not
withdrawn will be exchanged for Series D notes.
- All broker-dealers must comply with the registration and prospectus
delivery requirements of the Securities Act.
- Heafner does not intend to apply for listing of the Series D notes on
any securities exchange or to arrange for them to be quoted on any
quotation system.
INVESTING IN THE SERIES D NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 10.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 10
Where You Can Find More Information......................... 16
Forward-Looking Information................................. 17
The Transactions............................................ 18
Use of Proceeds............................................. 20
Capitalization.............................................. 22
The Exchange Offer.......................................... 23
Unaudited Pro Forma Condensed Combined Financial Data....... 32
Selected Historical Financial Data.......................... 35
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 41
Business.................................................... 50
Management.................................................. 60
Principal Stockholders...................................... 69
Certain Relationships and Related Transactions.............. 71
Description of Credit Facility.............................. 73
Description of the Series D Notes........................... 75
Certain U.S. Federal Income Tax Considerations.............. 108
Plan of Distribution........................................ 108
Legal Matters............................................... 109
Experts..................................................... 109
Index to Consolidated Financial Statements.................. F-1
</TABLE>
You should rely only on the information contained in this prospectus.
Heafner has not authorized anyone to provide you with information different from
that contained in this prospectus or incorporated by reference in this
prospectus. Heafner is not making offers or soliciting offers to exchange Series
B notes or Series C notes for Series D notes in any jurisdiction in which such
an offer or solicitation is not authorized or in which the person making such
offer or solicitation is not qualified to do so or to anyone to whom it is
unlawful to make such offer or solicitation.
The prospectus incorporates business and financial information about
Heafner that is not included in or delivered with the document. YOU MAY REQUEST
AND OBTAIN THIS INFORMATION FREE OF CHARGE BY WRITING OR TELEPHONING HEAFNER AT
THE FOLLOWING ADDRESS: THE J.H. HEAFNER COMPANY, INC., 2105 WATER RIDGE PARKWAY,
SUITE 500, CHARLOTTE, NORTH CAROLINA 28217, ATTENTION: SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER; TELEPHONE: (704) 423-8989.
The information in this prospectus is accurate as of the date on the front
cover. You should not assume that the information contained in this prospectus
is accurate as of any other date.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the related notes, appearing elsewhere in this prospectus. For
purposes of the financial and other information in this prospectus, references
to a fiscal year relate to a December 31 fiscal year end for Heafner, to a
September 30 fiscal year end for ITCO Logistics Corporation, and to an October
31 fiscal year end for The Speed Merchant, Inc., d/b/a Competition Parts
Warehouse ("CPW"). References to years relate to calendar years.
THE J.H. HEAFNER COMPANY, INC.
The J.H. Heafner Company, Inc. is an independent supplier of tires to the
replacement tire market in the United States. With 65 distribution centers
servicing 26 states, Heafner believes that it is the largest independent
distributor of new replacement tires in the Southeast and in California. Through
its distribution network, Heafner's wholesale divisions supplied 12.6 million
tires in 1998 and currently serve an average of 25,000 customers each month.
Through its retail division, Heafner operates over 200 retail tire and
automotive service outlets in California and Arizona which sold over 1.2 million
tires in 1998. Heafner supplies premium, economy and private-label brands of
tires manufactured by the major tire manufacturers. In addition to its tire
sales, Heafner is an independent distributor and retailer of aftermarket wheels,
automotive replacement parts and accessories and automotive service equipment.
THE TRANSACTIONS
ITCO merger. On May 20, 1998, a wholly-owned subsidiary of Heafner was
merged with ITCO Logistics Corporation, with ITCO surviving as a new,
wholly-owned subsidiary of Heafner. The total consideration paid to the
stockholders of ITCO in connection with the ITCO merger consisted of $18.0
million in cash, 1,400,667 newly issued shares of Heafner's Class B common
stock, $.01 par value, and $1.4 million payable to holders of ITCO stock
appreciation rights upon their exercise of those rights. In connection with the
ITCO merger, Heafner's authorized common stock was reclassified into shares of
Class A common stock, $.01 par value, and shares of Class B common stock. After
the closing of the ITCO merger, ITCO's then-existing subsidiaries, all of which
had been acquired by Heafner through the ITCO merger, were consolidated into
ITCO, which in turn was merged into Heafner.
CPW acquisition. Also on May 20, 1998, Heafner acquired all of the issued
and outstanding shares of CPW from CPW's stockholders. Heafner paid $35.0
million on May 20, 1998 in exchange for the stock of CPW. An additional $10.0
million is payable as follows: $7.4 million is payable in installments for five
years after May 20, 1998, in exchange for non-compete covenants, and $2.6
million is payable in the form of other contingent payouts to the selling CPW
stockholders.
Repayment of debt. On the closing date of the ITCO merger and the CPW
acquisition, Heafner repaid $16.0 million of subordinated debt it had
outstanding and $10.3 million in borrowings outstanding under a term loan.
Credit facility. The financing necessary to complete the ITCO merger, the
CPW acquisition and the repayment of Heafner's outstanding subordinated debt was
obtained from the proceeds of the offering of Heafner's Series A 10% Senior
Notes Due 2008, which is described below, as well as borrowings under an amended
and restated senior revolving credit facility entered into on May 20, 1998. This
credit facility, which is referred to as the "credit facility," replaced
Heafner's then-existing senior credit facility, referred to as the "old credit
facility," under which $33.5 million was outstanding on May 20, 1998. An ITCO
facility with Fleet Capital Corporation, under which $26.3 million was
outstanding on May 20, 1998, 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 May 20, 1998 and borrowed on that date under the credit
facility. The aggregate amount of commitments under the credit facility is
currently $100.0 million, of which $21.9 million in borrowings was outstanding
and an additional $64.7 million could have been borrowed on December 31, 1998.
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Series A notes offering and Series B exchange offer. Simultaneously with
the closing of the ITCO merger and the CPW acquisition, Heafner completed the
offer of $100.0 million aggregate principal amount of its Series A 10% Senior
Notes Due 2008. Heafner sold the Series A notes to the initial purchasers,
Credit Suisse First Boston and BancBoston Robertson Stephens Inc. (formerly
BancBoston Securities Inc.) in a private offering not subject to the
registration requirements of the Securities Act of 1933, as amended. The initial
purchasers then resold the Series A notes in reliance upon Rule 144A under the
Securities Act. In accordance with a registration rights agreement among
Heafner, certain of Heafner's subsidiaries and the initial purchasers, Heafner
filed a registration statement with the SEC on August 18, 1998 with respect to a
registered exchange offer of all of its outstanding Series A notes for an equal
aggregate principal amount of its Series B 10% Senior Notes Due 2008. That
registration statement, as amended, was declared effective by the SEC on October
16, 1998. The Series B exchange offer was commenced on October 16, 1998 and
closed on November 16, 1998. All of the outstanding Series A notes were tendered
in the Series B exchange offer. No additional Series A notes are outstanding or
permitted to be issued. There were no proceeds to Heafner from the Series B
exchange offer. The Series A notes and Series B notes were issued under an
indenture (the "Series B indenture"), dated as of May 15, 1998, among Heafner,
certain of Heafner's subsidiaries, and First Union National Bank, as trustee.
The Series B notes are identical in all material respects to the Series A notes,
except that the Series B notes are freely transferable.
Series C notes offering. On December 1, 1998, Heafner sold to the same
initial purchasers $50.0 million aggregate principal amount of its Series C 10%
Senior Notes Due 2008 in a private offering not subject to the registration
requirements of the Securities Act. The initial purchasers then resold the
Series C notes in reliance upon Rule 144A under the Securities Act. All of the
Series C notes remain outstanding. The terms of the Series C notes are identical
in all material respects to the Series B notes, except that there are
restrictions on the transfer of the Series C notes. The Series C notes were, and
the Series D notes will be, issued under an indenture (the "Series D Indenture")
dated as of December 1, 1998, among Heafner, certain of its subsidiaries and
First Union National Bank, as trustee.
The ITCO merger, the reclassification of Heafner's stock, the CPW
acquisition, obtaining financing under the credit facility, the offering of the
Series A notes, the application of the proceeds of the Series A notes and the
credit facility and the related transactions are collectively referred to in
this prospectus as the "Transactions."
California Tire acquisition. In January 1999, Heafner acquired the
outstanding membership interests of California Tire Company, LLC by merging it
with and into a wholly-owned subsidiary of Heafner. The subsidiary was renamed
California Tire Company. Heafner does not consider this acquisition to be
significant. See Note 15 to Heafner's audited financial statements at the back
of this prospectus.
THE EXCHANGE OFFER
Heafner is conducting this exchange offer not only for the Series C notes,
but also for the Series B notes, to allow all of its 10% Senior Notes Due 2008,
which are referred to collectively as the "senior notes," to trade as a single
issue. Up to $150 million of Series D notes can be issued in exchange for Series
B notes and Series C notes. Heafner believes that a single series of senior
notes existing after the exchange offer, which will be in a larger aggregate
principal amount outstanding than either the Series B notes or Series C notes
alone, will provide greater liquidity than the Series B notes and Series C notes
trading separately.
Under the Registration Rights Agreement, which Heafner and the initial
purchasers entered into in connection with the Series C notes offering, Heafner
is required to file, on or prior to March 31, 1999, the registration statement
of which this prospectus is a part, providing for an exchange offer of Series D
notes identical in all material respects to the Series C notes and Series B
notes, except that, in contrast to the Series C notes (but like the Series B
notes), the Series D notes will be freely transferable. Heafner believes that
you may resell your Series D notes without compliance with the registration and
prospectus delivery provisions of the Securities Act, subject to certain
conditions. You should read the discussion
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<PAGE> 6
under the headings "Summary of the Exchange Offer" and "The Exchange Offer" for
further information regarding the exchange offer and resale of Series D notes.
SUMMARY DESCRIPTION OF THE SERIES D NOTES
NOTES OFFERED.............. $150.0 million aggregate principal amount of Series
D 10% Senior Notes Due 2008 issued by Heafner. The
form and terms of the Series D notes are the same
as the form and terms of the Series C notes and the
Series B notes, except that, in contrast to the
Series C notes (but like the Series B notes), the
Series D notes will be registered under the
Securities Act and, therefore, will not bear
legends restricting their transfer and will not be
entitled to registration under the Securities Act.
The Series D notes will evidence the same debt as
the Series C notes and the Series B notes that are
exchanged for Series D notes. Both the Series C
notes and the Series D notes are governed by the
Series D indenture. The terms of the Series D
indenture are substantially the same as the terms
of the Series B indenture.
MATURITY................... May 15, 2008.
INTEREST PAYMENT DATES..... May 15 and November 15 of each year, commencing
November 15, 1999.
INTEREST ON THE SERIES D
NOTES...................... The Series D notes will accrue interest at 10% per
year, from either the last date Heafner paid
interest on the Series B notes or Series C notes
that you exchanged, or, if no interest has been
paid on the Series B notes or Series C notes, from
the date Heafner originally issued the notes you
exchanged.
SINKING FUND............... None.
OPTIONAL REDEMPTION........ Heafner has the right to redeem the Series D notes,
in whole or in part at any time and from time to
time, on or after May 15, 2003, at the redemption
prices described in this prospectus under the
heading "Description of the Series D Notes --
Optional Redemption," plus accrued and unpaid
interest, if any, to the date of redemption.
Heafner also has the right to redeem up to 35% of
the aggregate original principal amount of its
Series B and Series C notes originally issued, at
any time prior to May 15, 2001, at the redemption
prices set forth in this prospectus under the
heading "Description of the Series D Notes --
Optional Redemption," plus accrued and unpaid
interest, if any, to the redemption date, with the
net proceeds of one or more Public Equity
Offerings, except that at least $97.5 million of
the total aggregate original principal amount of
the senior notes must remain outstanding following
each such redemption.
CHANGE OF CONTROL.......... Upon the occurrence of a Change of Control, Heafner
will be required to offer to purchase all or any
part of each holder's senior notes at a price equal
to 101% of the principal amount of the senior
notes, plus accrued and unpaid interest, if any, to
the date of repurchase. The events that will result
in a Change of Control are described under the
heading "Description of the Series D Notes --
Change of Control." Heafner may not have the
financial resources necessary, or may not be
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<PAGE> 7
permitted by the credit facility or its other
contractual commitments, to purchase the senior
notes upon a Change of Control.
SUBSIDIARY GUARANTIES...... The Series D notes will be fully, unconditionally
and jointly and severally guaranteed on an
unsecured, senior basis by all of Heafner's
subsidiaries, all of which are directly or
indirectly wholly-owned by Heafner. Each subsidiary
guaranty will be irrevocable and unconditional, but
limited in amount to the extent required by laws
relating to fraudulent transfer or similar laws.
RANKING.................... The Series D notes:
- will be unsecured, senior obligations of Heafner,
- will be fully, unconditionally and jointly and
severally guaranteed on an unsecured, senior
basis by the subsidiary guarantors,
- will rank equally in right of payment with all of
Heafner's other existing and future unsecured
senior indebtedness, including the Series B
notes,
- will rank senior in right of payment to any of
Heafner's existing and future subordinated
indebtedness,
- will be effectively subordinated to all existing
and future secured indebtedness of Heafner and
the subsidiary guarantors to the extent of the
value of the assets securing that secured
indebtedness, and
- will be structurally subordinated to all existing
and future indebtedness of any subsidiary of
Heafner that is not a subsidiary guarantor.
RESTRICTIVE COVENANTS...... The Series D indenture contains covenants for your
benefit which, among other things and subject to
certain exceptions, restrict Heafner's ability to:
- incur additional indebtedness,
- restrict distributions from subsidiaries,
- pay dividends or make other restricted payments,
- create liens and engage in sale/leaseback
transactions,
- enter into certain transactions with affiliates,
and
- consolidate, merge, or sell substantially all of
its assets.
The Series B indenture contains identical
covenants.
ABSENCE OF A PUBLIC MARKET
FOR THE NOTES.............. The Series D notes are new securities and there is
currently no established market for them.
SUMMARY OF THE EXCHANGE OFFER
REGISTRATION RIGHTS
AGREEMENT.................. Heafner issued the Series C notes on December 8,
1998 to the initial purchasers, BancBoston
Robertson Stephens Inc. and Credit Suisse First
Boston. The initial purchasers placed the Series C
notes with institutional investors in transactions
exempt from the registration requirements of the
Securities Act pursuant to Rule 144A under the
Securities Act and applicable state securities
laws. In connection with
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this private placement, Heafner, Heafner's
subsidiaries and the initial purchasers entered
into the Registration Rights Agreement, which
requires Heafner to make the exchange offer for
both the Series B notes and Series C notes.
THE EXCHANGE OFFER......... Heafner is offering Series D notes in exchange for
an equal principal amount of Series B notes and
Series C notes. The Series B notes and Series C
notes are referred to together as the "old notes."
As of the date of this prospectus, there is $150.0
million aggregate principal amount of old notes
outstanding. Old notes may be tendered only in
integral multiples of $1,000.
RESALE OF SERIES D NOTES... Heafner believes that the Series D notes issued in
the exchange offer in exchange for the Series B
notes and Series C notes may be offered for resale,
resold or otherwise transferred by you without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that:
- you are acquiring the Series D notes in the
ordinary course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate, in
the distribution of the Series D notes; and
- you are not an "affiliate" of Heafner or any of
its subsidiaries.
If any of the foregoing are not true and you
transfer any Series D notes received in exchange
for Series B notes or Series C notes without
registering the Series D notes and delivering a
prospectus meeting the requirements of the
Securities Act, or without an exemption from those
requirements, you may incur liability under the
Securities Act. Heafner does not assume or
indemnify you against that liability.
Each broker-dealer that is issued Series D notes
for its own account in exchange for Series C notes
that were acquired by that broker-dealer as a
result of market making or other trading activities
must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of the Series D notes.
Each broker-dealer that is issued Series D notes in
exchange for Series B notes, where the
broker-dealer was issued Series B notes for its own
account in exchange for Series A notes that were
acquired by it as a result of market making or
other trading activities, must acknowledge that it
will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale
of the Series D notes. A broker-dealer may use this
prospectus for an offer to resell, resale or other
retransfer of the Series D notes. Subject to
certain limitations, Heafner will take steps to
ensure that the issuance of the Series D notes will
comply with state securities or "blue sky" laws.
CONSEQUENCES OF FAILURE TO
EXCHANGE SERIES C
NOTES.................... If you do not exchange your Series C notes for
Series D notes, you will no longer be able to
compel Heafner to register the Series C notes under
the Securities Act. In addition, you will not be
able to offer or sell the Series C notes unless
they are registered under the Securities Act, or
unless you offer and sell them in a transaction
that is not
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<PAGE> 9
required to be registered under the Securities Act.
Heafner will have no obligation to register your
Series C notes under the Securities Act after the
completion of the exchange offer, except in some
limited circumstances.
EXPIRATION OF THE EXCHANGE
OFFER.................... The expiration date of the exchange offer will be
5:00 p.m., New York City time, on , 1999,
unless Heafner decides to extend the expiration
date.
CONDITIONS TO THE EXCHANGE
OFFER.................... The exchange offer is not subject to any
conditions, other than that:
- the exchange offer does not violate applicable
law or any applicable interpretation of the staff
of the SEC; and
- there is no injunction, order or decree issued by
any court or any governmental agency that would
prohibit, prevent or otherwise materially impair
Heafner's ability to proceed with the exchange
offer.
PROCEDURES FOR TENDERING
OLD NOTES.................. If you wish to accept the exchange offer, you must
complete, sign and date the letter of transmittal,
or a facsimile of the letter of transmittal, and
transmit it together with the old notes to be
exchanged and all other documents required by the
letter of transmittal to First Union National Bank,
as exchange agent, at the address given on the
cover page of the letter of transmittal. In the
alternative, you can tender your old notes by
following the procedures for book-entry transfer,
as described in this prospectus under "The Exchange
Offer -- Book-Entry Transfer."
GUARANTEED DELIVERY
PROCEDURES................. If you wish to tender your old notes and you cannot
deliver your required documents to the exchange
agent by the expiration date, you may tender your
old notes according to the guaranteed delivery
procedure described in this prospectus under the
heading "The Exchange Offer -- Guaranteed Delivery
Procedure."
SPECIAL PROCEDURE FOR
BENEFICIAL HOLDERS......... If you are a beneficial holder whose old notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
you wish to tender your old notes in the exchange
offer, you should contact the registered holder
promptly and instruct the registered holder to
tender your old notes on your behalf. If you are a
beneficial holder and you wish to tender your old
notes on your own behalf, you must, prior to
delivering the letter of transmittal and your old
notes to the exchange agent, either make
appropriate arrangements to register ownership of
your old notes in your own name or obtain a
properly completed bond power from the registered
holder.
WITHDRAWAL RIGHTS.......... You may withdraw the tender of your old notes at
any time prior to 5:00 p.m., New York City time, on
the expiration date. To withdraw, you must send a
written or facsimile transmission of your notice of
withdrawal to the exchange agent at its address
given under the heading "The Exchange Offer --
Exchange Agent" by 5:00 p.m., New York City time,
on the expiration date.
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ACCEPTANCE OF OLD NOTES AND
DELIVERY OF SERIES D
NOTES.................... Subject to certain conditions, Heafner will accept
any and all old notes that are properly tendered in
the exchange offer and not withdrawn prior to 5:00
p.m., New York City time, on the expiration date.
Heafner will deliver the Series D notes promptly
after the expiration date.
TAX CONSIDERATIONS......... Heafner believes that the exchange of old notes for
Series D notes will not be a taxable exchange for
federal income tax purposes, but you should consult
your tax adviser about the tax consequences of this
exchange.
EXCHANGE AGENT............. First Union National Bank is serving as exchange
agent in connection with the exchange offer.
FEES AND EXPENSES.......... Heafner will bear all expenses related to
consummating the exchange offer and complying with
the Registration Rights Agreement.
USE OF PROCEEDS............ Heafner will not receive any cash proceeds from the
issuance of the Series D notes. Heafner used the
net proceeds from the issuance of the Series A
notes to complete the Transactions. It used the net
proceeds of the issuance of the Series C notes to
repay certain amounts then outstanding under the
credit facility.
------------------------------------
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth Heafner's unaudited consolidated ratios of
earnings to fixed charges on a historical basis. 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,
earnings were insufficient to cover fixed charges by $254,000, and for the year
ended December 31, 1998, earnings were insufficient to cover fixed charges by
$2.2 million on an actual basis and $3.6 million on a pro forma basis, giving
effect to the Transactions as if they had occurred on January 1, 1998.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
----------------------------------------------
1998
------------------
1994 1995 1996 1997 ACTUAL PRO FORMA
---- ---- ---- ---- ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.............. 1.9x 1.4x 1.5x -- -- --
</TABLE>
------------------------------------
PRINCIPAL EXECUTIVE OFFICES
Heafner's principal executive offices are located at 2105 Water Ridge
Parkway, Suite 500, Charlotte, North Carolina 28217, and its telephone number is
(704) 423-8989.
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<PAGE> 11
RISK FACTORS
You should carefully consider the following factors together with the other
matters described in this prospectus before deciding whether to exchange your
Series B notes or Series C notes for Series D notes in the exchange offer.
HEAFNER'S SUBSTANTIAL LEVERAGE AND DEBT SERVICE REQUIREMENTS, AND THE
RESTRICTIONS IMPOSED BY THE TERMS OF ITS INDEBTEDNESS, COULD ADVERSELY AFFECT
ITS OPERATING FLEXIBILITY AND PLACE IT AT A COMPETITIVE DISADVANTAGE
Heafner is highly leveraged and has significant debt service requirements.
As of December 31, 1998, Heafner had approximately $185.3 million of long-term
debt outstanding, approximately $27.6 million of which was secured, and
Heafner's ratio of indebtedness to total capital was 0.86 to 1. Heafner's
substantial level of debt has important consequences, including the following:
1. Heafner's ability to obtain additional financing, whether for working
capital, acquisitions, capital expenditures, or other purposes, may be
impaired. For example, the Series D indenture, the Series B indenture
and the credit facility contain covenants imposing a number of
significant operating and financial restrictions on Heafner's business
which, subject to certain exceptions:
(a) limit Heafner's ability to:
- incur additional indebtedness,
- restrict distributions from subsidiaries,
- pay dividends or make other restricted payments,
- create liens and engage in sale/leaseback transactions,
- enter into certain transactions with affiliates, and
- consolidate, merge, or sell substantially all of its assets.
(b) require Heafner to comply with certain financial ratios (minimum net
worth) and tests (minimum loan availability).
2. A substantial portion of Heafner's pro forma EBITDA will be required for
debt service, reducing funds available to Heafner for its operations. For
example, approximately 50% of pro forma EBITDA for the year ended
December 31, 1998 would have been required for debt service. On a pro
forma basis, Heafner had a net loss of $3.7 million in fiscal 1998.
3. Certain of Heafner's indebtedness, including the credit facility and the
senior notes, contains financial and other restrictive covenants, which,
if breached, would result in an event of default under that indebtedness.
A breach could result in the holders of the indebtedness declaring that
indebtedness to be immediately due and payable.
4. Certain of Heafner's indebtedness, including borrowings under the credit
facility, bears interest at variable or floating interest rates. Of the
up to $100.0 million principal amount of loans that may be outstanding
from time to time under the credit facility, Heafner has effectively
fixed the applicable interest rates for a total of $20.0 million of such
loans through interest rate swap agreements that expire at various times
through October 2002. Accordingly, Heafner is vulnerable to increases in
interest rates and increases in its interest costs, for the unfixed
portion of the interest due.
While these restrictions are intended to protect the holders of senior
notes and other indebtedness, they may also negatively affect Heafner's ability
to plan for or react to market conditions or meet extraordinary capital needs.
These restrictions also could restrict Heafner's corporate activities, including
adversely affecting its ability to finance its future operations or capital
needs or to engage in other business activities that would be in the interest of
Heafner.
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<PAGE> 12
Heafner's breach of any of these restrictions or its inability to comply
with the required financial ratios and tests could result in an event of default
under the credit facility, the Series D indenture or the Series B indenture.
Upon the occurrence of an event of default, the lenders under the credit
facility could elect to declare all amounts borrowed under the credit facility,
together with accrued interest, to be due and payable. If Heafner were unable to
repay those borrowings, the lenders could foreclose upon their collateral.
Heafner's assets may not be sufficient to repay in full its obligations under
the credit facility, its other indebtedness and the senior notes.
For these reasons, Heafner's substantial degree of leverage may limit its
flexibility in planning for or reacting to changing market conditions, reduce
its ability to withstand competitive pressures and make it more vulnerable to a
downturn in general economic conditions in its business.
Heafner'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 Heafner's control. Based on the current level of operations, Heafner
believes that its operating cash flow, together with available borrowings under
the 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. However,
Heafner's business may not generate cash flow at levels sufficient to meet these
requirements. If it is unable to do so, Heafner may be required to refinance all
or a portion of its indebtedness, including the senior notes, to sell assets or
to obtain additional financing. Heafner may not be able to complete any such
refinancing or asset sale or obtain additional financing on terms acceptable to
it, or at the time or in the amounts necessary.
THE SENIOR NOTES AND THE SUBSIDIARY GUARANTIES ARE EFFECTIVELY SUBORDINATED TO
SECURED INDEBTEDNESS OF HEAFNER, WHICH COULD LIMIT COLLECTIBILITY OF THE SENIOR
NOTES IN THE EVENT OF A BANKRUPTCY
The Series D notes and the subsidiary guaranties of the Series D notes,
like the old notes and the subsidiary guaranties of the old notes, will be
effectively subordinated to all existing and future secured indebtedness of
Heafner and the subsidiary guarantors, including indebtedness under the credit
facility, to the extent of the value of the assets securing that indebtedness.
Indebtedness under the credit facility is secured by a lien on all inventory and
accounts receivable of Heafner and its material subsidiaries, all of which are
subsidiary guarantors. Holders of existing or future secured indebtedness of
Heafner and the subsidiary guarantors that is permitted under the Series D
indenture, including holders of indebtedness under the credit facility, will
have claims with respect to assets constituting collateral that are prior to the
claims of the holders of the Series D notes and the old notes. The Series D
notes will be, and the old notes are, structurally subordinated to all existing
and future indebtedness of any subsidiary of Heafner, other than the subsidiary
guarantors. As of December 31, 1998, Heafner had outstanding, either directly or
through guaranties, approximately $185.3 million of indebtedness, all of which
was senior indebtedness and approximately $27.6 million of which was secured. As
of December 31, 1998, Heafner could have borrowed an additional $64.7 million
under the credit facility, all of which would have been secured. Subject to
certain limitations, the Series D indenture and the Series B indenture permit
Heafner to incur additional indebtedness, including senior indebtedness, some of
which may be secured.
DIFFICULTY IN IMPLEMENTING ITS ACQUISITION STRATEGY MAY REDUCE POTENTIAL COST
SAVINGS OR DIVERT RESOURCES FROM OTHER ASPECTS OF HEAFNER'S BUSINESS
Heafner may not be able to successfully integrate the business, operations
or assets of either or both of ITCO and CPW, which represent the largest
acquisitions by Heafner to date and the most significant expansion of its
business. The integration of ITCO and CPW may result in unforeseen difficulties
that require a disproportionate amount of management's attention and Heafner's
resources, diverting them from the day-to-day operations of Heafner. Heafner may
not be able to achieve the cost savings, efficiencies and economies of scale it
anticipates from the ITCO merger and CPW acquisition. Although Heafner 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, those amounts may not be
11
<PAGE> 13
adequate to cover those costs, and the ITCO merger and CPW acquisition may have
an adverse effect upon Heafner's operating results, while the operations of ITCO
and CPW are being integrated into Heafner's operations.
As part of its business strategy, Heafner may expand its network of
distribution centers and retail stores through selective acquisitions. Heafner
may not be able to identify or complete any such acquisitions and, if completed,
Heafner may not be able to successfully integrate the businesses, operations or
assets of acquired companies into its existing operations. In addition, the
credit facility prohibits Heafner from committing funds to new acquisitions
beyond $25.0 million in any fiscal year and $40.0 million during the term of the
credit facility. Heafner may not be able to obtain a waiver of these limits in
the future and therefore may not be able to complete acquisitions it believes to
be in its interest.
HEAFNER IS DEPENDENT ON A SMALL NUMBER OF TIRE MANUFACTURERS FOR ITS SUPPLIES
There are a limited number of tire manufacturers worldwide. Accordingly,
Heafner relies on a limited number of tire manufacturers for its products. In
particular, Heafner relied on Michelin and Kelly-Springfield, a division of
Goodyear, its top two suppliers for a majority of the tires it sold in 1998.
Although in most cases Heafner has long-term relationships with these
manufacturers, Heafner's contracts with all but one of its suppliers are
short-term in nature, and Heafner makes no assurances that these suppliers will
continue to supply products to Heafner on favorable terms, or at all.
In addition, in the event that any of Heafner's vendors were to experience
financial, operational, production, supply or quality assurance difficulties
that could result in a reduction or interruption in supply to Heafner, or
otherwise failed to meet Heafner's requirements and specifications, Heafner
could be materially adversely affected. For example, in 1997, two of Heafner's
principal suppliers experienced labor strikes. Although Heafner was not
materially adversely affected by these labor actions, the strikes did affect
Heafner's suppliers' ability to meet Heafner's supply orders. To the extent that
Heafner 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 Heafner.
COMPLIANCE WITH ENVIRONMENTAL LAWS IMPOSES COSTS AND POTENTIAL LIABILITIES ON
HEAFNER
Heafner'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 Heafner could be held
strictly, jointly and severally liable for costs associated with the
investigation and clean-up of contaminated properties. The nature of Heafner'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, in its automotive service operations Heafner handles waste
motor oil and hydraulic brake fluid, the storage and disposal of which is
strictly regulated by federal and state authorities. Heafner contracts with
outside services to handle disposal of these materials. Although Heafner
believes that it complies with all relevant environmental regulations and does
not incur significant costs maintaining compliance with those laws, it could
incur material costs in connection with environmental liabilities or claims. In
addition, future events such as changes in existing laws and regulations or
their interpretation could give rise to additional compliance costs or
liabilities that could have a material adverse effect on Heafner.
FAILURE TO COMPLY WITH CONSUMER PROTECTION LAWS COULD RESULT IN BUSINESS
DISRUPTIONS OR FINES
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 and fined a number of automobile repair
and service centers, including Winston, for unfair consumer practices. That
investigation resulted in fines against Winston in 1993 totaling $1.4 million
and directly led to a change in Winston's consumer practices. Although Heafner
believes that it materially
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<PAGE> 14
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 Heafner's operations, changes in practices or fines against
Heafner.
YEAR 2000 TECHNOLOGY PROBLEMS COULD CAUSE BUSINESS INTERRUPTIONS INCLUDING IN
HEAFNER'S SUPPLY, INVENTORY CONTROL OR DISTRIBUTION NETWORK
Portions of some of the accounting and operational systems and software
used by Heafner and its customers and suppliers identify years with two digits
instead of four. If not corrected, these information technology systems may
recognize the year 2000 as the year 1900, which might cause system failures or
inaccurate reporting of data that disrupts operations. If Year 2000 issues in
Heafner's information technology and non-information technology systems are not
remedied in a timely manner, or if Year 2000 problems on the part of Heafner's
customers and suppliers exist and are not remedied in a timely manner,
significant business interruptions or increased costs having a material adverse
effect on the business, financial condition or results of operations of Heafner
could occur in connection with the change in century. Risks of Year 2000
non-compliance on the part of Heafner or any of its significant suppliers could
include interruptions in supply from tire manufacturers, disruption of Heafner's
internal and external distribution network, reduced customer service
capabilities, breakdown of inventory control and fulfillment systems and
impairment of essential information technology systems used by management.
However, Heafner believes that its systems that are not yet Year 2000 compliant
can be brought into compliance by late 1999 and that the costs of compliance
will not be material. Heafner has not established nor does it plan to establish
a contingency plan for Year 2000 compliance issues.
FAILURE TO RETAIN CERTAIN MEMBERS OF MANAGEMENT COULD RESULT IN ADVERSE BUSINESS
CONSEQUENCES
Heafner is dependent upon the services of its executive officers for
management of Heafner. The loss or interruption of the continued full-time
services of certain of these executives could have a material adverse effect on
Heafner, and there can be no assurance that Heafner would be able to find
replacements with equivalent skills or experience. The success of Heafner's
integration of ITCO and CPW, or the identification of other acquisition
opportunities, and the acquisition and integration of those opportunities may
depend on the retention of certain members of the current management of Heafner,
ITCO and CPW. Although Heafner intends to retain these executives, substantially
all of whom have employment contracts with Heafner, there can be no assurance
that they will remain with Heafner. Heafner has no key man life insurance
policies with respect to any of its senior executives.
FLUCTUATIONS IN DEMAND DUE TO SEASONALITY OR CHANGES IN CONSUMERS' CIRCUMSTANCES
COULD AFFECT HEAFNER'S SALES
Demand for tires tends to fluctuate from quarter to quarter, with the
highest demand generally from March through October of each year and the lowest
demand typically from November through February of each 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.
HEAFNER MAY BE UNABLE TO REPURCHASE SENIOR NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the holders of senior notes
(the Series D notes and the old notes), have the right to require Heafner to
offer to purchase all of their outstanding senior notes at 101% of the principal
amount of their senior notes, plus accrued and unpaid interest, if any, to the
date of repurchase. Heafner may not have sufficient funds available or may not
be permitted by its other debt agreements to purchase their senior notes upon
the occurrence of a Change of Control. In addition, the occurrence of a Change
of Control may require Heafner to offer to purchase other outstanding
indebtedness and may cause a default under the credit facility. The inability of
Heafner to purchase all of
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<PAGE> 15
the senior notes tendered would constitute an Event of Default under both the
Series B indenture and the Series D indenture.
FRAUDULENT TRANSFER LAWS MAY LIMIT COLLECTIBILITY OF SENIOR NOTES IN THE EVENT
OF BANKRUPTCY
Under fraudulent transfer laws, a court could take certain actions
detrimental to holders of senior notes if it found that:
1. at the time Heafner issued the senior notes, or a subsidiary guarantor
issued its subsidiary guaranty, Heafner or the subsidiary guarantor did
not receive fair consideration or reasonably equivalent value for
incurring the indebtedness or obligation represented by the senior notes
or the guaranty, and
2. at the same time, Heafner or the subsidiary guarantor:
- was insolvent,
- was rendered insolvent by reason of its incurring that indebtedness or
obligation,
- was engaged in a business or transaction for which the assets
remaining in Heafner or the subsidiary guarantor, as the case may be,
constituted unreasonably small capital, or
- intended to incur or believed it would incur debts beyond its ability
to pay such debts as they matured.
If a court made these findings, it could:
- invalidate, in whole or in part, the notes or the subsidiary guaranty of
the subsidiary guarantor as fraudulent conveyances, or
- subordinate the senior notes or the note guaranty to existing or future
creditors of Heafner or the subsidiary guarantor, as the case may be, or
- do both.
In addition, if a court were to find that Heafner or any subsidiary
guarantor, as the case may be, satisfied the measures of insolvency or capital
inadequacy described under Point (2) above, that court could order that any
previous distribution by Heafner or the subsidiary guarantor in respect of the
senior notes be returned to Heafner or the subsidiary guarantor, or to a fund
for the benefit of Heafner's or the subsidiary guarantor's creditors. The effect
of the court's actions could be that the holders of the senior notes may not be
repaid in full, and that other creditors would be entitled to be paid in full
before any payment could be made on the senior notes. In that circumstance,
there would be no assurance that any repayment on the senior notes would ever be
recovered by the noteholders.
CONTROL BY PRINCIPAL STOCKHOLDERS COULD EXPOSE NOTEHOLDERS TO RISKS INCLUDING
CONFLICTING INTERESTS
Heafner's Chairperson, Ann H. Gaither, and its President and Chief
Executive Officer, William H. Gaither, own or control, on a fully diluted basis,
67.8% of the combined voting power of Heafner's outstanding capital stock,
including shares of stock held by other members of the Gaither family voted
under a voting trust agreement. The voting trust agreement among Ann H. Gaither
and William H. Gaither and other members of their immediate family who own
shares of common stock gives Ann H. Gaither and William H. Gaither the right to
vote the common stock of the other members of their family. Consequently, Ann H.
Gaither and William H. Gaither have the ability to control the business and
affairs of Heafner because they are able to elect a majority of Heafner's board
of directors and because of their voting power with respect to actions requiring
stockholder approval. If Heafner encounters financial difficulties, or is 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 senior notes. In
addition, the principal stockholders may have an interest in pursuing
acquisitions, divestitures, sales of their stock or other transactions that, in
their judgment, could enhance their equity investment, even though such
transactions might involve risks to the holders of the senior notes.
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<PAGE> 16
FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL LIMIT OPPORTUNITIES TO SELL
SERIES C NOTES AND SERIES B NOTES IN THE FUTURE
If you do not exchange your Series C notes for Series D notes in the
exchange offer, you will continue to be subject to the restrictions on transfer
of your Series C notes, as specified in the legend on your Series C notes. The
restrictions on transfer of your Series C notes arise because Heafner issued the
Series C notes in a transaction not requiring registration under the Securities
Act and applicable state securities laws. In general, the Series C notes may not
be offered or sold, unless registered under the Securities Act and applicable
state securities laws, or under an exemption from those requirements. Heafner
does not intend to register the Series C notes under the Securities Act.
After completion of the exchange offer, holders of Series C notes who do
not tender their Series C notes in the exchange offer will no longer be entitled
to any exchange or registration rights under the Registration Rights Agreement,
except under limited circumstances. If Series C notes or Series B notes are
tendered and accepted in the exchange offer, there will be fewer Series C notes
and Series B notes outstanding and the liquidity of the trading markets for
untendered Series C notes and Series B notes could be adversely affected.
ABSENCE OF PUBLIC MARKET FOR THE SERIES D NOTES COULD LIMIT OPPORTUNITIES TO
SELL YOUR SERIES D NOTES
The Series D notes are new securities for which there currently is no
trading market. Heafner does not intend to apply for listing of the Series D
notes on any securities exchange or for quotation through an automated quotation
system. It is not certain that any trading market for the Series D notes will
develop or that any such market would be liquid. The trading market for "high
yield" securities, such as the Series D notes and the old notes, is volatile and
unpredictable. This volatility and unpredictability may have an adverse effect
on the liquidity of, and prices for, such securities. The Series D notes could
trade at prices that may be lower than their initial offering price as a result
of many factors, including prevailing interest rates and Heafner's operating
results. General declines in the market for similar securities may adversely
affect the liquidity of, and the trading market for, the Series D notes. Such a
decline may adversely affect liquidity and trading markets independently of
Heafner's financial performance and prospects.
ACTUAL EVENTS OR RESULTS COULD BE DIFFERENT FROM CURRENT EXPECTATIONS
Certain information included in this prospectus is forward-looking,
including statements contained in the "Prospectus 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 Heafner and its directors and officers. This 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, Heafner. These risks and uncertainties
include, but are not limited to:
1. the ability of Heafner to maintain existing relationships with
long-standing vendors or customers, successfully implement its business
strategy, integrate ITCO and CPW, market and sell new products and
continue to comply with environmental laws, rules and regulations; and
2. uncertainties relating to economic conditions, acquisitions and
divestitures, government and regulatory policies, technological
developments and changes in the competitive environment in which Heafner
operates.
Persons reading this prospectus are cautioned that forward-looking
statements are only predictions and that actual events or results may differ
materially. In evaluating any forward-looking statements, readers should
specifically consider the various factors which could cause actual events or
results to differ materially from those indicated by the forward-looking
statements, including those discussed in "Risk Factors."
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<PAGE> 17
WHERE YOU CAN FIND MORE INFORMATION
Heafner has filed with the Securities and Exchange Commission a
registration statement on Form S-4 under the Securities Act covering the Series
D notes. This prospectus does not contain all of the information included in the
registration statement. Any statement made in this prospectus concerning the
contents of any contract, agreement or other document is not necessarily
complete. If Heafner has filed any contract, agreement or other document as an
exhibit to the registration statement, you should read the exhibit for a more
complete understanding of the document or matter involved. The SEC allows
Heafner to "incorporate by reference" exhibits it has filed with them. This
means that, rather than filing a document Heafner has previously filed with the
SEC as an exhibit to this registration statement, Heafner can refer you to that
document by telling you, in the exhibit list at the back of this registration
statement, the filing to which the document was attached as an exhibit. Each
statement in this prospectus regarding a contract, agreement or other document
is qualified in its entirety by reference to the actual document.
Heafner is required to file periodic reports and other information with the
SEC under the Securities Exchange Act. In addition, under the Series B indenture
and the Series D indenture, Heafner has agreed to file with the SEC financial
and other information for public availability and to deliver to the trustee,
First Union National Bank, for forwarding to you, copies of all reports that
Heafner files with the SEC without any cost to you. Heafner will also furnish
such other reports as it may determine or as the law requires. If Heafner ceases
to be subject to the reporting requirements of the Securities Exchange Act at
any time that notes remain outstanding, Heafner is required under the Series B
indenture and the Series D indenture to continue to file with the SEC and to
furnish holders of the notes with:
- all quarterly and annual financial information that would be required to
be contained in a filing with the SEC on Forms 10-Q and 10-K, and, with
respect to the annual information only, a report on the financial
statements by Heafner's certified independent accountants, and
- all periodic reports that would be required to be filed with the SEC on
Form 8-K.
In addition, for so long as any of the Series C notes remain outstanding,
Heafner has agreed to provide without charge, upon written request, a copy of
such information as is required by Rule 144A(d)(4) under the Securities Act to
enable resales of the notes to be made under Rule 144A under the Securities Act.
You may read and copy the registration statement, including the attached
exhibits, and any reports, statements or other information that Heafner files,
at the SEC's public reference room at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549-1004, and at the SEC's Midwest Regional Office located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and its Northeast Regional Office located at 7 World Trade Center,
Suite 1300, New York, New York 10048. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC at its principal office
at 450 Fifth Street, N.W., Washington, D.C. 20549-1004. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Heafner's SEC filings are also available to the public on the SEC's
Internet site at http://www.sec.gov.
These filings are also available to holders of senior notes, without
charge, directly from Heafner. You may request a copy of these filings or other
information that Heafner has agreed to provide by writing or telephoning Heafner
at the following address: The J.H. Heafner Company, Inc., 2105 Water Ridge
Parkway, Suite 500, Charlotte, North Carolina 28217, Attention: Senior Vice
President and Chief Financial Officer; telephone: (704) 423-8989.
IN ORDER TO ENSURE TIMELY DELIVERY OF ANY COPIES OF FILINGS REQUESTED FROM
HEAFNER, PLEASE WRITE OR TELEPHONE HEAFNER NO LATER THAN , 1999 (FIVE
BUSINESS DAYS PRIOR TO THE EXPIRATION DATE OF THE EXCHANGE OFFER).
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FORWARD-LOOKING INFORMATION
This prospectus contains "forward looking statements," which are statements
other than statements of historical facts. These forward-looking statements are
principally contained under the headings "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business" and "Unaudited Pro
Forma Condensed Combined Financial Data," and in statements using phrases such
as "expects" or "anticipates" located throughout this prospectus. The
forward-looking statements include, among other things, Heafner's expectations
and estimates about its business operations, strategy, future costs savings and
integration of ITCO and CPW, and its expectations and estimates about its future
financial performance, including its financial position, cash flows from
operations, capital expenditures and ability to refinance indebtedness.
The forward-looking statements are subject to risks, uncertainties and
assumptions about Heafner and about the future, and could prove not to be
correct. Cautionary statements describing factors that could cause actual
results to differ materially from Heafner's expectations are discussed in this
prospectus, including in conjunction with the forward-looking statements
included in this prospectus and under "Risk Factors." All subsequent written or
oral forward-looking statements attributable to Heafner or to persons acting on
behalf of Heafner are expressly qualified in their entirety by those cautionary
statements.
Heafner undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus may not occur.
The market share information, descriptions of markets and industry
statistics contained in the "Business" section and elsewhere in this prospectus
are based on the good faith estimates of Heafner's management. The estimates are
based on various factors, including:
- industry publications including Modern Tire Dealer and Tire Business and
industry statistics published by organizations such as the Rubber
Manufacturers Association (RMA),
- management's knowledge of the market based on its historical business
and industry experience,
- management's discussions with customers and competitors in the markets
in which Heafner competes, and
- Heafner's product sales compared to management's good faith estimates of
the total product sales in the relevant market.
Although Heafner believes this information to be reliable, it has not
independently verified any of this information.
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THE TRANSACTIONS
THE ITCO MERGER AND THE RECLASSIFICATION
On the day the Transactions were closed, a wholly owned subsidiary of
Heafner merged with ITCO Logistics in accordance with an Agreement and Plan of
Merger with ITCO Logistics and ITCO Logistics' stockholders. The total
consideration paid on the Transactions closing date to the ITCO stockholders
upon completion of the ITCO merger consisted of $18.0 million in cash and
1,400,667 newly issued shares of Heafner's Class B common stock. In addition,
approximately $5.1 million of ITCO's total indebtedness remained outstanding,
with the balance of approximately $26.3 million repaid as part of the
Transactions.
The ITCO Merger Agreement contains certain representations, warranties and
covenants made by Heafner on the one hand and the ITCO stockholders on the other
hand. With certain limited exceptions, those representations and warranties
expire two years after the closing date of the Transactions. In general, the
ITCO Merger Agreement provides for indemnification of Heafner by the ITCO
stockholders, and for the indemnification of the ITCO stockholders by Heafner,
each for losses relating to misrepresentations or breaches by the other of its
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 Heafner, up to 1,400,667 newly issued shares of
Class B common stock.
In connection with the ITCO merger, Heafner's authorized common stock was
reclassified into shares of Class A common stock, $.01 par value, and shares of
Class B common stock, $.01 par value. As a result of the reclassification, all
outstanding shares of Heafner's common stock became shares of Class A common
stock, and all options, warrants and other rights exercisable into or
exchangeable for Heafner's common stock, became instead exercisable into or
exchangeable for shares of Class A common stock. 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 on all
matters submitted to a vote of Heafner's stockholders.
In conjunction with the ITCO merger, Heafner entered into a number of
ancillary agreements with the ITCO stockholders which, among other things:
- grant certain registration rights to the ITCO stockholders with respect
to their shares of Class B common stock,
- grant to the ITCO stockholders the right to designate a person to
Heafner's Board of Directors,
- restrict the transfer of the ITCO stockholders' shares of Class B common
stock,
- restrict Heafner's ability to sell or issue shares of its common stock,
or securities convertible into or exchangeable for shares of its common
stock, at a price per share that is less than the fair market value of
the common stock,
- place limits on transactions between Heafner and any affiliate of
Heafner, and
- grant to the ITCO stockholders the right to require Heafner to redeem
all of the outstanding shares of Class B common stock that were issued
to the ITCO stockholders according to an agreed upon formula upon the
earlier of the occurrence of certain events or January 4, 2005.
THE CPW ACQUISITION
On the closing date of the Transactions, Heafner acquired all of the
outstanding shares of Speed Merchant under a Stock Purchase Agreement, referred
to in this prospectus as the "CPW acquisition agreement," between Heafner and
the stockholders of Speed Merchant, referred to as the "CPW stockholders." The
total consideration payable to the CPW stockholders in connection with the CPW
acquisition was $45.0 million in cash, of which $35.0 million was paid on the
Transactions closing date
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<PAGE> 20
upon completion of the CPW acquisition in exchange for the stock of Speed
Merchant. The additional $10.0 million is payable as follows: $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 the remaining $2.6
million is payable in the form of other contingent payouts to the CPW
stockholders. At the request of Heafner, the agent under the credit facility
issued a letter of credit under the credit facility to be held in escrow to
secure Heafner's obligations to make the non-compete payments. In addition, at
the Transactions 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 Heafner on the one hand and the CPW stockholders on the
other hand. With certain limited exceptions, the representations and warranties
expire two years after the Transactions closing date. In general, the CPW
acquisition agreement provides for indemnification of Heafner by the CPW
stockholders, and for the indemnification of the CPW stockholders by Heafner,
each for losses relating to misrepresentations or breaches by the other of its
representations, warranties and covenants.
An additional adjustment amount is payable by Heafner to the CPW
stockholders if the net earnings attributable to certain Arizona retail stores
acquired by Phoenix Racing, Inc., a wholly owned subsidiary of Speed Merchant,
exceed specified targets for the year following the Transactions closing date;
alternatively, if the net earnings of the retail stores fall short of the
targets, then an adjustment amount will be payable by the CPW stockholders to
Heafner.
On the Transactions closing date, Arthur C. Soares, the president of
Heafner's CPW division and a CPW stockholder, entered into a two-year employment
agreement with Heafner and Ray C. Barney, the Chief Operating Officer of
Heafner's CPW division and a CPW stockholder, entered into a three-year
employment agreement with Speed Merchant. Both employment agreements provide for
an annual base salary, stay-put bonuses payable at the end of each year of the
agreement's 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 Heafner's
board of directors. Both employment agreements also contain non-compete,
non-solicitation and confidentiality provisions.
FINANCING TRANSACTIONS
Financing necessary to complete the acquisitions of ITCO and CPW and the
repayment of Heafner's outstanding subordinated debt was obtained from the
proceeds of the Series A notes offering and amounts outstanding under the credit
facility. The credit facility replaced the old credit facility, under which
$33.5 million was outstanding on the Transactions closing date, prior to giving
effect to the Transactions. The ITCO facility, under which $26.3 million was
outstanding on the Transactions 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 if, on the Transactions closing date, they were
repaid and then borrowed under the credit facility. The aggregate amount of
commitments under the credit facility is currently $100.0 million, of which
$21.9 million was outstanding at December 31, 1998.
Also on the Transactions closing date, Heafner applied a portion of the
proceeds of the Series A notes offering to repay $16.0 million of subordinated
debt and $10.3 million under an outstanding Heafner term loan.
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<PAGE> 21
SOURCES AND USES OF FUNDS
The following table indicates the approximate sources and uses of funds on
the Transactions closing date (amounts in thousands):
<TABLE>
<S> <C>
SOURCES OF FUNDS
Credit facility............................................. $ 48,054
Series A notes.............................................. 100,000
Assumption of indebtedness(1)............................... 11,106
Deferred payments(2)........................................ 11,390
Class B common stock........................................ 14,959
--------
Total Sources............................................. $185,509
========
USES OF FUNDS
ITCO merger(3).............................................. $ 34,349
CPW acquisition(4).......................................... 45,000
Repayment/refinancing of existing indebtedness(5)........... 87,054
Assumption of indebtedness(1)............................... 11,106
Estimated transaction fees and expenses(6).................. 8,000
--------
Total Uses................................................ $185,509
========
</TABLE>
- ---------------
(1) Represents assumption of ITCO building mortgages of $2.5 million and vendor
loans and other amounts at ITCO and CPW.
(2) Includes: (a) $7.4 million payable in installments over five years after the
Transactions closing date in exchange for certain non-compete covenants of
the CPW stockholders, (b) $2.6 million in other contingent payouts to the
CPW stockholders and (c) $1.4 million for the exercise of stock appreciation
rights by certain employees of ITCO.
(3) 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.
(4) Includes the amounts described in clauses (a) and (b) of footnote (2).
(5) Represents repayment or refinancing of: (a) $59.8 million of long-term
indebtedness of Heafner, including $16.0 million of subordinated debt, (b)
$26.3 million of long-term indebtedness of ITCO and (c) $1.0 million of
long-term indebtedness of CPW.
(6) Fees and expenses include the initial purchasers' discount and other fees
and expenses of the Series A notes offering and other fees and direct
expenses incurred in connection with the Transactions. Fees and expenses
include lenders' fees such as prepayment fees, legal fees, accounting fees
and other out-of-pocket expenses.
-----------------------------------------
USE OF PROCEEDS
Approximately $49.0 million of the proceeds of the Series C offering were
applied by Heafner to repay amounts outstanding under the credit facility. The
remainder of the proceeds were used to pay fees and expenses incurred in
connection with the Series C offering, which included the discount to the
initial purchasers, legal and accounting fees and other out-of-pocket expenses,
and for general corporate purposes.
The amounts outstanding under the credit facility that were repaid with the
net proceeds of the Series C offering had originally been borrowed in order to
finance the Transactions and to refinance or repay existing long-term
indebtedness of Heafner and ITCO as described above in "The Transactions." The
aggregate amount of commitments under the credit facility remained at $100.0
million after the Series C offering was completed. As of December 31, 1998,
$64.7 million was available for additional borrowings under the credit facility.
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<PAGE> 22
Indebtedness under the credit facility bears interest, at Heafner's option:
- at the "base rate," which is a floating rate per year equal to the
greater of the federal funds rate plus 0.5% or the rate announced by the
credit facility agent from time to time as its base or prime lending
rate plus the applicable margin, as described below under "Description
of Credit Facility", or
- at the "Eurodollar rate," which is a fixed rate per year based on LIBOR,
for one, two, three, six or (subject to the lenders' agreement) twelve
months plus the applicable margin.
The credit facility will mature on May 20, 2003. See "Description of Credit
Facility."
21
<PAGE> 23
CAPITALIZATION
The following table sets forth, as of December 31, 1998, Heafner's
consolidated capitalization. This table should be read in conjunction with the
consolidated financial statements of Heafner, ITCO and CPW and the related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash........................................................ $ 6,648
========
Long-term debt, including current maturities:
Credit facility........................................... $ 21,925
Series B notes............................................ 100,000
Series C notes............................................ 50,000
Vendor loans.............................................. 8,132
Other debt................................................ 5,279
--------
Total debt............................................. 185,336
--------
Redeemable preferred stock Series A -- 4% cumulative, $.01
par value, 7,000 shares authorized, issued and
outstanding............................................... 7,000
Redeemable preferred stock Series B -- variable rate
cumulative, $.01 par value, 4,500 shares authorized,
issued and outstanding.................................... 4,353
Warrants.................................................... 1,137
Stockholders' equity:
Class A common stock, $.01 par value, 10,000,000 shares
authorized; 3,697,000 shares issued at December 31,
1998(a)................................................ 37
Class B common stock, $.01 par value, 20,000,000 shares
authorized; 1,400,667 shares issued and outstanding at
December 31, 1998...................................... 14
Additional paid-in capital................................ 22,360
Notes receivable from stock sales......................... (177)
Accumulated deficit....................................... (4,110)
--------
Total stockholders' equity............................. 18,124
--------
Total capitalization................................. $215,950
========
</TABLE>
- ---------------
(a) Excludes 1,034,000 shares issuable upon exercise of warrants and 493,650
shares issuable upon exercise of options.
22
<PAGE> 24
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Heafner sold $100.0 million in aggregate principal amount of its Series A
notes in a private offering on May 20, 1998 to the initial purchasers, who then
resold the Series A notes to qualified institutional buyers in reliance upon and
subject to the restrictions imposed under Rule 144A under the Securities Act. In
a subsequent exchange offer, the Series A noteholders exchanged all of their
Series A notes for Series B notes. The Series B notes have similar terms to the
Series A notes, but were registered under the Securities Act and, therefore,
freely transferable. No Series A notes remain outstanding. On December 8, 1998,
Heafner sold $50.0 million in aggregate principal amount of its Series C notes
in a private offering to the same initial purchasers, who resold the Series C
notes to qualified institutional buyers under Rule 144A under the Securities
Act.
Heafner is conducting this exchange offer not only for the Series C notes,
but also for the Series B notes, to allow all of its 10% Senior Notes Due 2008
to trade as a single issue. Heafner believes that this will increase the
liquidity of the notes. Under the Registration Rights Agreement, which Heafner,
its subsidiaries and the initial purchasers entered into in connection with the
private offering of the Series C notes, Heafner is required to:
- file, on or prior to March 31, 1999, the registration statement of which
this prospectus is a part, providing for an exchange offer of Series D
notes identical in all material respects to Series B notes and the
Series C notes, except that, unlike the Series C notes, the Series D
notes will be freely transferable, and will not have any covenants
regarding exchange and registration rights;
- offer up to $150.0 million of Series D notes in exchange for both the
Series C notes and the Series B notes;
- use its best efforts to cause the registration statement to be declared
effective within 180 days after the date Heafner originally issued the
Series C notes; and
- keep the exchange offer open for not less than 20 business days, or
longer if required by applicable law, after the date that notice of the
exchange offer is mailed to holders of the old notes.
The Registration Rights Agreement also provides that, under certain
circumstances, Heafner will file with the SEC a shelf registration statement
relating to the offer and sale of Series C notes by holders of Series C notes
who satisfy certain conditions regarding the provision to Heafner of information
in connection with the shelf registration statement.
The exchange offer being made by this prospectus is intended to satisfy
Heafner's obligations under the Registration Rights Agreement. If Heafner fails
to fulfill the registration and exchange obligations under the Registration
Rights Agreement, each holder of Series C notes will be entitled to receive
additional interest at the rate of 0.50% per year per $1,000 principal amount of
their Series C notes constituting "transfer restricted securities" until Heafner
has fulfilled these obligations. The additional interest will be paid in cash on
the same interest payment dates as regular interest payments on the notes.
Transfer restricted securities means each Series C note or Series D note until:
- the date on which the Series C note has been exchanged by a person other
than a broker-dealer for a Series D note in the exchange offer;
- if the Series D note is received by a broker-dealer in exchange for a
Series C note in the exchange offer, or in exchange for a Series B note
that had been received by the broker-dealer for a Series A note in the
Series B exchange offer, then the date on which that Series D note is
sold to a purchaser who receives from the broker-dealer a copy of this
prospectus;
- the date on which the Series C note has been effectively registered
under the Securities Act and disposed of in accordance with the shelf
registration statement; or
- the date on which the Series C note could be resold under Rule 144(k)
under the Securities Act.
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<PAGE> 25
Once the SEC declares the registration statement effective, Heafner will
offer the Series D notes in exchange for surrender of the old notes. Each of
your Series D notes will accrue interest from the last interest payment date on
which interest was paid on the old note you exchanged for that Series D note. If
Heafner has not paid any interest on the old note, your Series D note will
accrue interest from the date Heafner originally issued that old note. The old
notes Heafner accepts for exchange will cease to accrue interest upon issuance
of the Series D notes.
The number of Series B notes and Series C notes tendered and accepted in
the exchange offer will reduce the number of Series B notes and Series C notes
outstanding, resulting in a decrease in the liquidity in the market for both the
Series B notes and the Series C notes. In addition, Series C notes that are not
tendered and accepted in the exchange offer will continue to be subject to
transfer restrictions imposed by the securities laws. In either case, your
Series C notes will be more difficult to trade. Although Series B notes are not
subject to the transfer restrictions, you may find that Series B notes will also
be more difficult to trade after the exchange offer because of the decrease in
the liquidity of the market for the Series B notes.
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
Based on interpretations by the staff of the SEC as stated in no-action
letters issued to third parties, Heafner believes that you may offer for resale,
resell and otherwise transfer the Series D notes issued to you in the exchange
offer for your Series B notes or Series C notes without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that you can represent that:
- you are acquiring the Series D notes in the ordinary course of your
business;
- you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of the Series D notes;
- you are not an "affiliate" as defined in Rule 405 of the Securities Act
of Heafner; and
- you are not an initial purchaser who acquired the Series C notes you are
tendering for exchange directly from us in the Series C offering.
If you are not able to make these representations, you are a "Restricted
Holder." As a Restricted Holder, you will not be able to exchange your Series B
notes or Series C notes for Series D notes in the exchange offer. A Restricted
Holder of Series C notes may only sell its Series C 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 under an
exemption from the registration requirement of the Securities Act.
Each broker-dealer that receives Series D notes for its own account in
exchange for (a) Series C notes, where those Series C notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities or (b) Series B notes, where those Series B notes were acquired in
the Series B exchange offer in exchange for Series A notes that the
broker-dealer had acquired as a result of market-making activities or other
trading activities, is a "Participating Broker-Dealer." Each Participating
Broker-Dealer must acknowledge in the letter of transmittal that it will deliver
a prospectus in connection with any resale of Series D 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. Based upon interpretations by the staff of the
SEC, Heafner believes that Series D notes issued in 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 Series D notes received by it in the exchange offer.
Heafner has agreed that, for a period of 90 days after the date the SEC declares
the registration statement effective, Heafner will make this prospectus
available to any broker-dealer, and for a period of 100 days to a Participating
Broker-Dealer, for use in connection with any such resale. By acceptance of this
exchange offer, each broker-dealer that receives Series D notes in the
24
<PAGE> 26
exchange offer agrees to notify Heafner before it uses this prospectus in
connection with the sale or transfer of Series D notes.
For a more complete understanding of your exchange and registration rights,
you should refer to the Registration Rights Agreement, which is included as an
exhibit to the registration statement of which this prospectus is a part. A copy
of the Registration Rights Agreement is available as described under the heading
"Where You Can Find More Information."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions described in this prospectus
and in the letter of transmittal, Heafner 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 $150.0
million principal amount of the old notes is outstanding. Heafner will issue
$1,000 principal amount of Series D notes in exchange for each $1,000 principal
amount of outstanding old notes accepted in the exchange offer. You may tender
some or all of your old notes in the exchange offer.
However, old notes may be tendered only in integral multiples of $1,000.
The form and terms of the Series D notes will be identical in all material
respects to the form and terms of the old notes, but will be different from the
Series C notes in that:
- the offering of the Series D notes has been registered under the
Securities Act;
- the Series D notes will not be subject to transfer restrictions;
- the Series D notes will be issued free of any obligations regarding
exchange and registration rights; and
- the Series D notes will not provide for the payment of additional
interest.
The Series D notes will evidence the same debt as the old notes and will be
entitled to the benefits of the Series D indenture under which the Series C
notes were, and the Series D notes will be, issued.
This prospectus, together with the accompanying letter of transmittal, is
initially being sent to all registered holders of old notes on or about
, 1999. The exchange offer is not conditioned upon any minimum
aggregate principal amount of old notes being tendered. However, the exchange
offer is subject to certain customary conditions, which Heafner may waive, and
to the terms and provisions of the Registration Rights Agreement.
You do not have any appraisal or dissenters' rights under law, or under
either the Series B indenture or the Series D indenture, in connection with the
exchange offer. Heafner intends to conduct the exchange offer in accordance with
the applicable requirements of the Securities Exchange Act and the rules and
regulations of the SEC under the Securities Exchange Act.
If Heafner does not accept for exchange any tendered old notes 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 you, as promptly as practicable after the expiration date.
If you tender old notes in the exchange offer you 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 in the
exchange offer. Heafner 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
, 1999, unless Heafner, in its sole discretion, extends the exchange
offer. If we extend the exchange offer, the term "expiration date" shall mean
the latest date and time to which the exchange offer is extended.
25
<PAGE> 27
Heafner has the right to delay accepting any old notes, to extend the
exchange offer or, if any of the conditions described below under "Certain
Conditions to the Exchange Offer" 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. Heafner also has the right to amend the terms
of the exchange offer in any manner. If Heafner delays acceptance of any old
notes, terminates or amends the exchange offer, Heafner will make a public
announcement of that event as promptly as practicable. If Heafner believes that
it has made a material amendment of the terms of the exchange offer, Heafner
will promptly disclose that amendment in a manner reasonably calculated to
inform the holders of notes about the amendment and Heafner 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 registered
holders, if the exchange offer would otherwise expire during such period.
Heafner will notify the exchange agent of any extension of the exchange
offer in writing or orally (if orally, Heafner will promptly confirm in
writing). Unless otherwise required by applicable law or regulation, Heafner
will make a public announcement of any extension of the expiration date before
9:00 a.m., New York City time, on the first business day after the
previously-scheduled expiration date.
Without limiting the manner in which Heafner may choose to make public
announcements of any delay, extension, termination or amendment of the exchange
offer, Heafner shall have no obligation to publish, advise or otherwise
communicate any such public announcement, other than by making a timely press
release of any of those events.
PROCEDURES FOR TENDERING
Unless the tender is being effected by means of a book-entry transfer, each
holder of old notes wishing to accept the exchange offer must, prior to 5:00
p.m., New York City time, on the expiration date:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal,
- have the signatures guaranteed if required by the letter of transmittal,
and
- mail or otherwise deliver the letter of transmittal or facsimile,
together with the old notes and any other required documents, to the
exchange agent.
Any financial institution that is a participant in the book-entry transfer
facility system of The Depository Trust Company (the "Depository" or "DTC") may
make book-entry delivery of the old notes by causing DTC to transfer the old
notes into the exchange agent's account and to deliver an agent's message on or
prior to the expiration date in accordance with DTC's procedures for transfer
and delivery. The term "agent's message" means a message, transmitted by DTC to
and received by the exchange agent and forming a part of a confirmation of the
book-entry tender of old notes into the exchange agent's account at DTC, which
states that DTC has received an express acknowledgment from the tendering
participant. The acknowledgment states that the participant has received and
agrees to be bound by, and makes the representations and warranties contained
in, the letter of transmittal and that Heafner may enforce the letter of
transmittal against that participant.
If delivery of old notes is effected through book-entry transfer into the
exchange agent's account at DTC and an agent's message is not delivered, the
letter of transmittal, or facsimile of the letter of transmittal, with any
required signature guarantees and any other required documents must be
transmitted to and received or confirmed by the exchange agent at its addresses
set forth under the subheading "-- Exchange Agent" prior to 5:00 p.m., New York
City time, on the expiration date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE
WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder of old notes will constitute an agreement between
that holder and Heafner in accordance with the terms and subject to the
conditions in this prospectus and in the letter of transmittal.
Delivery of all documents and old notes must be made to the exchange agent
at its address. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to deliver the documents and old
notes for them.
26
<PAGE> 28
The method of delivery of old notes, the letter of transmittal and all
other required documents to the exchange agent is at the election and risk of
the holders. Instead of delivery by mail, Heafner recommends that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO HEAFNER.
Only a holder of old notes may tender old notes in the exchange offer. The
term "holder" means any person in whose name old notes are registered on the
register maintained by the trustee or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
old notes are held of record by DTC who desires to deliver their old notes by
book-entry transfer at DTC.
Any beneficial holder 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 the
registered holder to tender on the beneficial holder's behalf. If the beneficial
holder wishes to tender on the beneficial holder's own behalf, the beneficial
holder must, prior to completing and executing the letter of transmittal and
delivering old notes, either make appropriate arrangements to register ownership
of the old notes in the beneficial holder's own name or obtain a properly
completed bond power from the registered holder. The transfer of record
ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed 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 Securities Exchange Act;
unless the old notes tendered with the letter of transmittal are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
- for the account of an eligible guarantor institution.
If the letter of transmittal is signed by a person other than the
registered holder of any old notes listed in the letter of transmittal, those
old notes must be endorsed or accompanied by appropriate bond powers which
authorize that person to tender the old notes on behalf of the registered
holder, and, in either case, signed as the name of the registered holder or
holders appears on the old notes.
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, those
persons should so indicate when signing, and, unless waived by Heafner, submit
with the letter of transmittal evidence satisfactory to Heafner of their
authority to so act.
All questions as to the validity, form, eligibility including time of
receipt, acceptance and withdrawal of the tendered old notes will be determined
by Heafner in its sole discretion, which determination will be final and
binding. Heafner reserves the absolute right to reject any and all old notes not
properly tendered or any old notes its acceptance of which would, in the opinion
of its counsel, be unlawful. Heafner also reserves the absolute right to waive
any irregularities or conditions of tender as to particular old notes. Heafner's
interpretation of the terms and conditions of the exchange offer (including the
instructions in the letter of transmittal) will be final and binding. Unless
waived, any defects or irregularities in connection with tenders of old notes
must be cured within such time as Heafner shall determine. Neither Heafner, the
exchange agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of old notes nor shall
Heafner, the exchange agent or any other person incur any liability for failure
to give such notification. Tenders of old notes will not be deemed to have been
made until such 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
27
<PAGE> 29
waived, will be returned without cost by the exchange agent to the tendering
holder of such old notes unless otherwise provided in the letter of transmittal
as soon as practicable following the expiration date.
In addition, Heafner 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 under " -- Certain
Conditions to the Exchange Offer," 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 may differ from the terms of the
exchange offer.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF SERIES D NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
Heafner will accept, promptly after the expiration date, all old notes properly
tendered and will issue the Series D notes promptly after acceptance of the old
notes. For purposes of the exchange offer, Heafner shall be deemed to have
accepted properly tendered old notes for exchange when, as and if Heafner has
given oral or written notice thereof to the exchange agent, with written
confirmation of any oral notice to be given promptly thereafter.
Issuance of Series D notes for old notes that are accepted for exchange in
the exchange offer will be made only after timely receipt by the exchange agent
of certificates for the old notes and a properly completed and duly executed
letter of transmittal and all other required documents or a timely book-entry
confirmation of such old notes into the exchange agent's account at DTC. If any
tendered old notes are not accepted for any reason set forth in the terms and
conditions of the exchange offer or if old notes are submitted for a greater
principal amount than the holder desired to exchange, such unaccepted or non-
exchanged old notes will be returned without expense to the tendering holder
(or, in the case of old notes tendered by book-entry transfer into the exchange
agent's account at DTC pursuant to the book-entry procedures described below,
such non-exchanged old notes will be credited to an account maintained with the
book-entry transfer facility) as promptly as practicable after the expiration
date.
BOOK-ENTRY TRANSFER
The exchange agent will ask DTC to open an account to handle exchanges of
old notes promptly after the date of this prospectus, and any financial
institution that is a participant in DTC's systems may make book-entry delivery
of old notes by causing DTC to transfer old notes into the exchange agent's
account at DTC in accordance with DTC's procedures for transfer. However,
although delivery of old notes may be effected through book-entry transfer at
DTC, the letter of transmittal (or a facsimile thereof or an Agent's Message in
lieu thereof), with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the exchange
agent at one of the addresses set forth below under "-- Exchange Agent" on or
prior to the expiration date or the guaranteed delivery procedures described
below must be complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their old notes and who cannot deliver their old
notes, the letter of transmittal or any other required documents to the exchange
agent prior to the expiration date, or holders who cannot complete the procedure
for book-entry transfer on a timely basis, may effect a tender if:
- The tender is made through an eligible guarantor institution;
- Prior to the expiration date, the exchange agent receives from such
eligible guarantor 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 the old
notes, the certificate number or numbers of such old notes and the
principal amount of old notes tendered,
28
<PAGE> 30
stating that the tender is being made thereby, and guaranteeing that,
within three business days after the expiration date, the letter of
transmittal (or facsimile thereof), together with the certificate(s)
representing the old notes to be tendered in proper form for transfer and
any other documents required by the letter of transmittal, will be
deposited by the eligible guarantor institution with the exchange agent;
and
- Such properly completed and executed letter of transmittal (or facsimile
thereof), together with the certificate(s) representing all tendered old
notes in proper form for transfer (or confirmation of a book-entry
transfer into the exchange agent's account at DTC of old notes delivered
electronically) and all other documents required by the letter of
transmittal are received by the exchange agent within three business
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 described 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 facsimile
transmission or letter 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
- specify the name of the person having deposited the old notes to be
withdrawn (the "Depositor");
- include a statement that the Depositor is withdrawing its election to
have old notes exchanged and identify the old notes to be withdrawn,
including the certificate number or numbers and principal amount of such
old notes;
- be signed by the Depositor 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 permit the trustee with respect to
the old notes to register the transfer of such old notes into the name
of the Depositor withdrawing the tender; and
- specify the name in which any such old notes are to be registered, if
different from that of the Depositor.
If old notes have been tendered pursuant to the procedures for book-entry
transfer set forth in "-- Procedures for Tendering" and "-- Book-Entry
Transfer," the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of old notes, in which case a
notice of withdrawal will be effective if delivered to the exchange agent by
written, telegraphic, telex or facsimile transmission.
All questions as to the validity, form and eligibility, including time of
receipt, for such withdrawal notices will be determined by Heafner, and its
determination shall be final and binding. Any old notes that are withdrawn will
be deemed not to have been validly tendered for purposes of the exchange offer
and no Series D notes will be issued in exchange for any withdrawn old notes
unless the old notes so withdrawn are validly re-tendered. Properly withdrawn
old notes may be re-tendered by following one of the procedures described above
under "-- Procedures for Tendering" at any time prior to the expiration date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
The exchange offer is not subject to any conditions, other than that:
- the exchange offer does not violate applicable law or any applicable
interpretation of the staff of the SEC; and
29
<PAGE> 31
- there is no injunction, order or decree issued by any court or any
governmental agency that would prohibit, prevent or otherwise materially
impair Heafner's ability to proceed with the exchange offer.
There can be no assurance that any such condition will not occur. Holders
of old notes will have certain rights against Heafner under the Registration
Rights Agreement should Heafner fail to consummate the exchange offer. If
Heafner determines that it may terminate the exchange offer because of one of
the conditions described above, it may:
- refuse to accept any old notes and return any old notes that have been
tendered to the holders thereof;
- extend the exchange offer and retain all old notes tendered prior to the
expiration date, subject to the rights of such holders of tendered old
notes to withdraw their tendered old notes; or
- waive the termination event and accept all properly tendered old notes
that have not been withdrawn.
If waiving the termination event constitutes a material change in the
exchange offer, Heafner will disclose the change by means of a supplement to
this prospectus that will be distributed to each registered holder of old notes,
and Heafner will extend the exchange offer for a period of five to ten business
days, depending upon the significance of the change and the manner of disclosure
to the registered holders of the old notes, if the exchange offer would
otherwise expire during such period.
EXCHANGE AGENT
First Union National Bank, the trustee under the Series D indenture, has
been appointed as exchange agent for the exchange offer. Questions and requests
for assistance and inquiries for additional copies of this prospectus or of the
letter of transmittal should be directed to the exchange agent addressed as
follows:
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission Hand or Overnight Delivery:
(REGISTERED OR CERTIFIED MAIL Number: First Union National Bank
RECOMMENDED) 704-590-7628 Corporate Trust Reorganization
First Union National Bank (FOR ELIGIBLE 1525 West W.T. Harris Boulevard, 3C3
Corporate Trust Reorganization INSTITUTIONS ONLY) Charlotte, North Carolina 28262
1525 West W.T. Harris Boulevard, 3C3 Attention: Mike Klotz
Charlotte, North Carolina 28288 Confirm by Telephone:
Attention: Mike Klotz 704-590-7408
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
FEES AND EXPENSES
Heafner will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer.
Heafner will pay the cash expenses to be incurred in connection with
soliciting tenders in the exchange offer. Such expenses include fees and
expenses of the exchange agent and the trustee, accounting and legal fees and
printing costs, among others.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection with the tender or exchange, except that
holders who instruct Heafner to register Series D
30
<PAGE> 32
notes in the name of, or request that old notes not tendered or not accepted in
the exchange offer be returned to, a person other than the registered tendering
holder will be responsible for the payment of any applicable transfer tax.
ACCOUNTING TREATMENT
The Series D notes will be recorded at the same carrying value as the old
notes on the date of the exchange. Accordingly, Heafner will not recognize any
gain or loss for accounting purposes as a result of the exchange offer. 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 Series D notes.
31
<PAGE> 33
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1998 has been derived by the
application of pro forma adjustments to the audited statement of operations of
Heafner for the year ended December 31, 1998, and the unaudited condensed
statements of operations for the five months ended May 20, 1998 for ITCO and May
31, 1998 for CPW. The unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1998, give effect to the Transactions
as if they had all occurred on January 1, 1998.
The pro forma adjustments are described in the accompanying notes and are
based upon available information and certain assumptions that Heafner 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 ITCO and CPW based on estimates of their
respective fair values. The actual purchase price allocation may differ from
that reflected in the unaudited Pro Forma Condensed Combined Statement of
Operations. For purposes of the accompanying unaudited Pro Forma Condensed
Combined Statement of Operations, goodwill resulting from the Transactions will
be amortized over a 15 year period and will not be deductible for income tax
reporting purposes.
On May 20, 1998, Heafner merged with ITCO for a total price of $35.3
million (including $1.0 million of direct acquisition costs) and acquired CPW
for a total purchase price of $46.6 million (including $1.0 million related to
the repayments of debt and $0.6 million of direct acquisition costs). These
transactions were accounted for as purchases with the excess of the purchase
price over the fair value of the net assets acquired to goodwill, which is being
amortized over 15 years. For the year ended December 31, 1998, Heafner's results
included the results of ITCO and CPW for the period from the Transactions
closing date through December 31, 1998. See Note 2 in Heafner's audited
financial statements at the back of this prospectus for the ITCO and CPW
preliminary purchase price allocations. Financing adjustments represent
adjustments for the issuance of the Series A notes and Series C notes and
borrowings under the credit facility. The pro forma adjustments have been
applied to the audited statement of operations for the year ended December 31,
1998, for Heafner and the unaudited statements of operations for the five months
ended May 20, 1998 and May 31, 1998, for ITCO and CPW, respectively, to reflect
the Transactions as if they had all occurred on January 1, 1998.
The unaudited Pro Forma Condensed Combined Statement of Operations does not
aim to represent what Heafner's results would have been if the Transactions had
occurred on January 1, 1998, or to project what Heafner's results of operations
for any future period or date will be. The unaudited Pro Forma Condensed
Combined Statement of Operations should be read in conjunction with "Selected
Historical Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements of Heafner,
ITCO and CPW, and the respective notes, included in this prospectus.
32
<PAGE> 34
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------- PRO FORMA
ITCO CPW ---------------------------------------
HEAFNER (5/20/98) (5/31/98) ACQUISITION FINANCING PRO FORMA
12/31/98 (5 MONTHS) (5 MONTHS) ADJUSTMENTS ADJUSTMENTS COMBINED
-------- ---------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................... $713,672 $149,123 $60,964 $923,759
Cost of goods sold.......... 548,035 126,920 44,411 $ 2,340(a) 721,706
-------- -------- ------- ------- --------
Gross profit................ 165,637 22,203 16,553 (2,340) 202,053
General, selling and
administrative expenses... 146,234 17,531 13,484 177,249
Amortization expense........ 6,919 375 -- 3,397(b) 10,691
Special charges............. 1,409 -- -- (1,409)(c) --
-------- -------- ------- ------- --------
Income from operations...... 11,075 4,297 3,069 (4,328) 14,113
OTHER EXPENSE:
Interest expense, net....... 13,460 1,526 212 247(d) $ 2,377(e) 17,822
Other expense (income),
net....................... (166) -- 50 (116)
-------- -------- ------- ------- ------- --------
Total non-operating
expense................... 13,294 1,526 262 247 2,377 17,706
-------- -------- ------- ------- ------- --------
Income (loss) before income
taxes..................... (2,219) 2,771 2,807 (4,575) (2,377) (3,593)
Provision (benefit) for
income taxes.............. 289 1,179 1,125 (1,569)(f) (951)(f) 73
-------- -------- ------- ------- ------- --------
Net income (loss) before
extraordinary item........ $ (2,508) $ 1,592 $ 1,682 $(3,006) $(1,426) $ (3,666)
======== ======== ======= ======= ======= ========
OTHER DATA:
Depreciation and
amortization.............. 12,316 1,065 246 3,397 17,024
EBITDA(g)................... 22,824 5,362 3,265 (931) 30,520
Capital expenditures........ 8,697 292 338 9,327
Ratio of earnings to fixed
charges(h)................ -- 2.2x 5.2x --
</TABLE>
33
<PAGE> 35
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
(a) To reflect CPW vendor rebate programs.
(b) To reflect amortization of ITCO and CPW goodwill, amortization of CPW
non-compete covenants and other deferred payments and elimination of
amortization of ITCO historical goodwill.
(c) To eliminate non-recurring restructuring charge directly attributable to the
Transactions.
(d) To reflect interest expense on notes payable to CPW stockholders for
non-compete agreements.
(e) To reflect interest expense on the Series A notes and Series C notes,
amortization expense on deferred financing costs and elimination of
historical interest expense and amortization expense related to long-term
debt repaid.
(f) The income tax benefit has been adjusted to reflect the income tax effects
of pro forma adjustments based upon an assumed 40% tax rate.
(g) EBITDA -- Represents net income (loss) before extraordinary item 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. EBITDA as calculated and presented here may
not be comparable to EBITDA as calculated and presented by other companies.
(h) 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 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 periods shown for
Heafner historical and combined pro forma, earnings were insufficient to
cover fixed charges by $2.2 million and $3.6 million, respectively.
34
<PAGE> 36
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, 1994 through 1998 are derived
from the historical consolidated financial statements of Heafner as of and for
those years, 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, 1998 are
included at the back of this prospectus. 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 in this prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1994 1995 1996 1997(A) 1998(B)
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................................ $161,786 $169,031 $190,535 $311,839 $713,672
Costs of goods sold...................................... 134,625 140,811 158,880 233,941 548,035
-------- -------- -------- -------- --------
Gross profit............................................. 27,161 28,220 31,655 77,898 165,637
Selling, general and administrative expenses............. 25,420 26,584 29,660 74,441 153,153
Special charges.......................................... -- -- -- -- 1,409
-------- -------- -------- -------- --------
Income from operations................................... 1,741 1,636 1,995 3,457 11,075
Interest and other expense, net.......................... 520 946 944 3,710 13,294
-------- -------- -------- -------- --------
Income (loss) from operations before provision (benefit)
for income taxes and extraordinary charge.............. 1,221 690 1,051 (254) (2,219)
Provision (benefit) for income taxes..................... -- -- -- (240) 289
-------- -------- -------- -------- --------
Net income (loss) from operations before extraordinary
charge................................................. 1,221 690 1,051 (14) (2,508)
Extraordinary charge..................................... -- -- -- -- (2,216)
-------- -------- -------- -------- --------
Net income (loss)........................................ 1,221 690 1,051 (14) (4,724)
Pro forma provision for income taxes..................... 520 325 439 -- --
-------- -------- -------- -------- --------
Pro forma net income (loss).............................. $ 701 $ 365 $ 612 $ (14) $ (4,724)
======== ======== ======== ======== ========
CASH FLOWS DATA:
Net cash provided by (used in) operating activities...... $ 4,525 $ (363) $ 4,008 $ 6,703 $ (9,684)
Net cash used in investing activities.................... (1,350) (2,200) (7,626) (46,459) (58,070)
Net cash provided by (used in) financing activities...... (2,702) 2,630 3,711 41,252 71,900
Depreciation and amortization............................ 1,232 1,062 1,331 5,399 12,316
Capital expenditures..................................... 1,687 2,205 7,865 4,908 8,697
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital.......................................... $ 16,957 $ 19,148 $ 16,913 $ 20,582 $ 56,562
Total assets............................................. 44,844 55,458 59,551 146,508 430,821
Total debt............................................... 12,515 15,632 21,003 64,658 185,336
Stockholders' equity..................................... 11,640 11,719 11,574 7,659 18,124
OTHER DATA:
EBITDA(c)................................................ $ 3,352 $ 3,060 $ 3,847 $ 9,987 $ 19,130
Ratio of earnings to fixed charges(d).................... 1.9x 1.4x 1.5x -- --
</TABLE>
- ---------------
(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 before extraordinary item plus income taxes,
depreciation and amortization and interest expense. EBITDA for the year
ended December 31, 1998 includes $733,000
35
<PAGE> 37
related to amortization of deferred financing charges that is included as
amortization expense for cash flow purposes and interest expense in the
consolidated statements of operations. 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. EBITDA as calculated and presented here may not be
comparable to EBITDA as calculated and presented by other companies.
(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 December 31, 1997 and 1998,
earnings were insufficient to cover fixed charges by $254,000 and $2.2
million, respectively.
36
<PAGE> 38
ITCO
The following table sets forth selected historical consolidated financial
data of ITCO for the periods indicated. The selected historical data are derived
from audited historical consolidated financial statements of ITCO as of and for
the years ended October 2, 1993, October 1, 1994 and September 30, 1995. The
consolidated financial statements of ITCO for the year ended September 30, 1995
have been audited by Deloitte and Touche LLP, independent auditors, and are
included elsewhere in this prospectus. The remaining selected historical data is
derived from the historical consolidated financial statements of ITCO for the
period from its inception on 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 at the
back of 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 at the back of this prospectus,
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 in this prospectus.
<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
======== ======== ======== ======== ======== ======== ========
CASH FLOWS DATA:
Net cash provided by (used
in) operating
activities................ (1,642) (6,065) 108 6,470 8,603 12,465 6,486
Net cash used in investing
activities................ (3,302) (3,270) (668) (16,150) (742) (587) (240)
Net cash provided by (used
in) financing
activities................ 4,850 9,668 867 11,434 (7,760) (11,765) (6,897)
Depreciation and
amortization.............. 1,298 1,394 1,313 2,179 2,493 1,683 1,616
Capital expenditures........ 3,563 3,520 869 1,133 1,188 1,033 711
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>
37
<PAGE> 39
<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>
OTHER DATA:
EBITDA(c)................... $ 4,547 $ 4,816 $ 5,107 $ 2,411 $ 4,312 $ 2,252 $ 5,626
Ratio of earnings to fixed
charges(d)................ 1.8x 1.4x 1.2x -- -- -- 1.4x
</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.
(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. EBITDA as calculated and presented here may not be comparable to
EBITDA as calculated and presented by other companies.
(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.
38
<PAGE> 40
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 October 31, 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 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 at the back of 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 at the back of this prospectus 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
in this prospectus.
<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
======= ======= ======= ======= ======= ======= =======
CASH FLOWS DATA:
Net cash provided by (used in)
operating activities............. $ 1,380 $ 1,808 $(2,223) $ 4,645 $ 4,578 $ 1,795 (1,473)
Net cash used in investing
activities....................... (110) (1,790) (846) (995) (2,782) (2,033) (1,847)
Net cash provided by (used in)
financing activities............. (759) 1,648 967 (3,768) (971) 288 3,358
Depreciation and amortization...... 116 216 338 404 484 203 328
Capital expenditures............... 108 1,639 788 655 3,489 2,586 745
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
OTHER DATA:
EBITDA(b).......................... $ 1,241 $ 1,044 $ 1,905 $ 3,202 $ 4,450 $ 1,888 $ 4,833
Ratio of earnings to fixed
charges(c)....................... 4.2x 2.6x 1.9x 3.3x 3.9x 3.3x 5.6x
</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 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.
39
<PAGE> 41
EBITDA as calculated and presented here may not be comparable to EBITDA as
calculated presented by other companies.
(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.
40
<PAGE> 42
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 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 included in this
prospectus.
OVERVIEW
Most of Heafner's sales consist of passenger and light truck tires, which
in 1998 would have represented approximately 78.4% of its pro forma net sales.
The remainder of such sales would have been derived from automotive service and
parts (9.1%), custom wheels (6.7%), automotive service equipment (5.6%) and
other products (0.2%). Heafner sells its products to a variety of markets, both
in terms of end-use and geography. Heafner's distribution channels consist of
(a) Eastern wholesale, (b) Western retail tires and automotive service and (c)
Western wholesale. In 1998, on a pro forma basis, net sales through such
channels accounted for approximately 67.9%, 16.2% and 15.9%, respectively.
Heafner believes that the diversity of its markets helps stabilize Heafner's
sales and earnings.
In connection with the Transactions completed on May 20, 1998, Heafner 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.
Heafner 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 18 months following the consummation of the Transactions from these
items are estimated to be approximately $5.0 million.
Heafner has identified a number of areas in which it expects to realize
annual cost savings as a result of the Transactions. For example, Heafner
anticipates cost reductions based on elimination of duplicate corporate
expenses, warehouse consolidations and maximizing efficiency of its truck fleet,
inventory management systems and customer service functions. In addition,
Heafner expects to realize improvements as a result of lower purchase prices on
tires and other products as supplier programs are coordinated and Heafner'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. The amount of any such potential
cost reductions or savings is not yet reasonably determinable.
RESULTS OF OPERATIONS -- HEAFNER
Heafner 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 include solely the results of Heafner without ITCO, CPW
or Winston.
41
<PAGE> 43
The following table sets forth each category of statements of operations
data as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DEC. 31,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 83.4 75.0 76.8
Gross profit................................................ 16.6 25.0 23.2
Selling, general and administrative expenses................ 15.6 23.9 21.7
Income from operations...................................... 1.0 1.1 1.6
Interest and other expense.................................. 0.4 1.2 1.9
Income (loss) from operations before benefit for income
taxes..................................................... 0.6 (0.1) (0.3)
Income taxes................................................ 0.0 (0.1) (0.0)
Net income (loss) before extraordinary charge............... 0.6 0.0 (0.4)
Extraordinary charge........................................ -- -- (0.3)
Net income (loss)........................................... 0.6 0.0 (0.7)
Pro forma provision for income taxes........................ 0.3 0.0 --
Pro forma net income (loss)................................. 0.3 0.0 --
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net sales were $713.7 million for 1998, an increase of $401.8 million, or
128.9%, from $311.8 million in 1997. The inclusion of sales for Winston (12
months versus 8), ITCO (7 months), and CPW (7 months) accounted for $364.3
million, or 90.7%, of the increase in sales in 1998. Distribution sales were
strong throughout 1998, increasing by almost 13% due to continued market share
gains in Heafner's primary service areas, aided somewhat by strong market
conditions.
Gross profit was $165.6 million in 1998, an increase of $87.7 million, or
112.6%, from $77.9 million in 1997. As a percentage of net sales, gross profit
was 23.2% and 25.0%, respectively, for 1998 and 1997. The increase in gross
profit dollars was also due to the inclusion of the acquired operations, which
accounted for $78.4 million, or 89.3%, of the gross dollar increase. The
decrease in overall gross margins in 1998 was due to a higher proportion of
distribution sales, which generally result in lower margins than retail sales.
The percentage of distribution sales was 79.0% and 67.6%, respectively, for 1998
and 1997.
Selling, general and administrative expenses were $154.6 million in 1998,
an increase of $80.1 million, or 107.6%, from $74.4 million in 1997. As a
percentage of net sales, these expenses were 21.7% and 23.9%, respectively, for
1998 and 1997. The inclusion of the acquired operations accounted for $72.2
million, or 90.2%, of the increase in selling, general and administrative
expenses in 1998. The decrease in selling, general and administrative costs as a
percent of sales was due to a higher proportion of distribution sales, which
generally have lower expense percentages than retail operations. Offsetting this
business mix change somewhat was slightly higher selling and administrative
costs in Heafner's distribution operations as a percent of sales.
Interest and other expense increased from $3.7 million in 1997 to $13.3
million in 1998. Interest expense increased by $8.6 million as a result of
increased borrowings incurred in connection with the acquisitions of Winston,
ITCO and CPW.
The results from operations for 1998 include a special charge of $1.4
million in June 1998, which was taken into account in determining income from
operations, in connection with the costs of closing certain duplicative Heafner
distribution centers. These costs relate to lease commitments, asset writedowns,
severance and employee related costs, and other costs to shut down these
facilities. A non-recurring extraordinary charge of $3.7 million ($2.2 million
net of taxes) was also recorded for the write-off of unamortized financing
expenses and discounts, and the payment of prepayment penalties.
42
<PAGE> 44
Income taxes on pre-tax income before extraordinary charge were $0.3
million in 1998 compared to $(0.2) million in 1997. The effective income tax
rate for 1998 was (13.0)% and was increased from the statutory rate due to
non-deductible goodwill amortization.
The net loss for 1998 was $(4.7) million, or (0.7)%, of net sales compared
to a net loss of $(14,000), or 0.0%, of net sales in 1997, as a result of the
factors discussed above.
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 personnel,
programs and customer service 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.
A net loss of $(14,000), or 0.0% of net sales, in 1997 represented a
decrease of $1.1 million from net income in 1996 of $1.1 million, or 0.6% of net
sales, in 1996 as a result of the factors discussed above.
The effective income tax rate for 1997, on a pro forma basis, was 0.0%,
compared to an effective tax rate for 1996, on a pro forma basis, of 41.8%, due
to taxable income being $0.0 million for the four-month period in which Heafner
was an S corporation.
Pro forma net loss of $(14,000), or 0.0% of net sales, in 1997 represented
a decrease of $0.6 million from net income in 1996 of $0.6 million, or 0.3% of
net sales, in 1996 as a result of the factors discussed above.
RESULTS OF OPERATIONS -- ITCO
The ITCO merger took place on May 20, 1998. Results subsequent to that date
are included with those of Heafner, above. ITCO acquired the assets of ITCO
Holdings in a transaction accounted for as a 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.
43
<PAGE> 45
The following table sets forth each category of statements of operations
data as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, EIGHT 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
</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 increased sales of $8.9 million 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.
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 achieving
higher margins on all product lines and emphasizing sales of certain higher
margin tire product lines.
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. The entire reduction in selling, general and
administrative expenses for the 1998 period as a percentage of sales was due to
certain headcount reductions instituted during the latter half of the prior
fiscal year, offset only 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.
Net income was $0.8 million, or 0.4% of net sales, for the period ended May
20, 1998, an increase of $1.9 million from a net loss of $(1.1) million, or
(0.5)% of net sales, for the first eight months of fiscal 1997 due to the
factors discussed above.
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 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
44
<PAGE> 46
$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
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. This improvement in gross margin as
a percentage of sales in fiscal 1997 was primarily due to changes in customer
automatic pricing programs at the warehouse level which generated higher
individual customer margins and therefore allowed for the achievement of higher
overall margins on product sales.
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.
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.
A net loss of $(1.4) million, or (0.4)% of net sales, in fiscal 1997
represented an improvement of $0.5 million, or 26.4%, from a net loss of $(2.0)
million, or (0.7)% of net sales, for fiscal 1996 due to the factors discussed
above.
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 to the partial-year inclusion of sales from companies
acquired during fiscal 1996.
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 primarily to expenses of
companies acquired during fiscal 1996, and, to a lesser extent, 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.
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.
A net loss of $(2.0) million, or (0.7)% of net sales, was experienced in
fiscal 1996 as compared to net income of $0.6 million, or 0.2% of net sales, in
fiscal 1995 due to the factors discussed above.
45
<PAGE> 47
RESULTS OF OPERATIONS -- CPW
CPW was acquired by Heafner on May 20, 1998. Results subsequent to that
date are included with those of Heafner, 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
</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 of $6.4 million from 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 receipts from vendor rebate programs. 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. Approximately three-quarters of the increase in selling, general
and administrative expenses resulted from two retail store acquisitions in
February 1998.
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.
Net income was $2.6 million, or 3.8% of net sales, for the six months ended
April 30, 1998, an increase of $1.6 million, or 166.7%, from net income of $1.0
million, or 1.7% of net sales, for the six months ended April 30, 1997 due to
the factors discussed above.
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 primarily 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.
46
<PAGE> 48
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.
Net income was $2.3 million, or 1.9% of net sales in fiscal 1997, an
increase of $0.6 million, or 35.7%, from net income of $1.7 million, or 1.4% of
net sales, in fiscal 1996 due to the factors discussed above.
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.
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.
Net income was $1.7 million, or 1.4% of net sales, for fiscal 1996, an
increase of $1.0 million, or 131.4%, from net income of $0.7 million, or 0.7% of
net sales, in fiscal 1995 due to the factors discussed above.
YEAR 2000 COMPLIANCE
Portions of some of the accounting and operational systems and software
used by Heafner in its business identify years with two digits instead of four.
If not corrected, these information technology systems may recognize the year
2000 as the year 1900, which might cause system failures or inaccurate reporting
of data that disrupts operations. Heafner has completed an internal assessment
of all of the business applications and related software used in its information
technology systems, including those of ITCO and CPW, in order to identify where
"Year 2000" problems exist. As a result of this review, Heafner believes that
all of its information technology systems and software either are Year 2000
compliant or can be brought into compliance by October of 1999, although there
can be no assurance that any required remediation will be completed in a timely
manner.
In addition, Heafner is contacting non-information technology vendors to
ensure that any of their products currently used in Heafner's business
adequately address Year 2000 issues. Areas being reviewed include warehouse
equipment, telephone and voice mail systems, security systems and other office
and site
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support systems. Although there can be no assurance, Heafner believes based on
its review that Year 2000 problems in its non-information technology systems
will not cause a material disruption in Heafner's business.
Heafner also may be vulnerable to business interruptions caused by
unremedied Year 2000 problems of its significant suppliers of products or
services. Heafner has initiated formal communications with significant
suppliers, including the country's major tire manufacturers, to determine the
extent to which Heafner's operations may be affected by such third parties' Year
2000 non-compliance. Each of the major tire manufacturers has informed Heafner
that it anticipates no disruption of tire supply or provision of significant
business information as a result of Year 2000 problems. Heafner's wholesale and
retail customer base is highly fragmented, with no single customer accounting
for a significant portion of Heafner's business. Accordingly, although it has
not attempted to survey its customers, Heafner believes that no significant risk
exists in connection with Year 2000 problems on the part of any of its
customers.
Heafner does not expect the historical and estimated costs associated with
bringing its information technology and non-information technology systems into
Year 2000 compliance, including software modification, equipment replacement and
payments to outside solution providers, to be material. However, if Year 2000
issues in Heafner's information technology and non-information technology
systems are not remedied in a timely manner, or if Year 2000 problems on the
part of Heafner's customers and suppliers exist and are not remedied in a timely
manner, there can be no assurance that significant business interruptions or
increased costs having a material adverse effect on the business, financial
condition or results of operations of Heafner will not occur in connection with
the change in century. Risks of Year 2000 non-compliance on the part of Heafner
or any of its significant suppliers could include interruptions in supply from
tire manufacturers, disruption of Heafner's internal and external distribution
network, reduced customer service capabilities, breakdown of inventory control
and fulfillment systems and impairment of essential information technology
systems used by management. Heafner has not established nor does it plan to
establish a contingency plan for Year 2000 compliance issues.
LIQUIDITY AND CAPITAL RESOURCES
Heafner required approximately $148.1 million of financing in connection
with the Transactions for:
- the consummation of the ITCO merger,
- the completion of the CPW acquisition,
- 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 credit facility on the closing date of the
Transactions) and subordinated debt, and
- the payment of related fees and expenses.
Heafner obtained the necessary funds from, among other sources, the issuance and
sale of the Series A notes and outstanding borrowings under the credit facility.
See "The Transactions".
The Transactions and related financings had a significant impact on
Heafner's capitalization. At December 31, 1998 the combined net indebtedness
(net of cash) of Heafner was $178.7 million compared to $62.2 million (net of
cash) for Heafner on a stand-alone basis at December 31, 1997. Financing
currently committed by the lenders under the credit facility is $100.0 million
under a revolving line of credit. As of December 31, 1998, $21.9 million was
outstanding and $64.7 million was available for additional borrowings under the
credit facility.
Heafner's principal sources of cash during 1998, 1997, and 1996 came from
operations, borrowings under revolving credit facilities, issuance of long-term
subordinated debt and preferred stock in connection with the acquisition of
Winston, and issuance of long-term debt in connection with the Transactions.
Cash generated from (used in) operating activities totaled $(9.7) million, $6.7
million and $4.0 million, respectively, during each of those periods. Cash used
in operating activities in 1998 was primarily due to increases in trade accounts
receivable and inventories totaling $13.9 million and $12.2 million,
respectively.
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These increases were caused by an increase in total sales during the year. Cash
generated in 1997 was primarily due to improved vendor payment programs which
resulted in an increase in accounts payable and accrued expenses of $9.6
million. Cash generated in 1996 was primarily due to reductions in inventory
levels of $5.0 million due to increased concentration on inventory management.
Capital expenditures during the years ended 1998, 1997 and 1996 amounted to
$8.7 million, $4.9 million, and $7.9 million, respectively. Capital expenditures
during 1998 included $5.7 million at Winston for store equipment, upgrades to
existing stores, new store locations and information technology. Other capital
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.
Heafner estimates that future annual capital expenditures (excluding those of
acquisitions of retail and distribution operations) will be $6.0 million to $8.0
million annually, and will principally be used for the renovation of retail
facilities and general corporate purposes. Heafner anticipates making further
acquisitions of retail and wholesale operations that may become available and
that meet Heafner's overall strategic guidelines. Such acquisition spending may
be incremental to the capital expenditures forecast above.
The credit facility is scheduled to mature on May 20, 2003. Loans under the
credit facility bear interest at a floating rate based upon federal funds or
Eurodollar rates plus an applicable margin. Loans under the credit facility are
guaranteed by all material subsidiaries of Heafner and secured by inventory and
accounts receivable of Heafner and its subsidiaries. See "Risk Factors --
Heafner's Substantial Leverage and Debt Service Requirements, and the
Restrictions Imposed by the Terms of its Indebtedness Could Adversely Affect Its
Operating Flexibility and Place It at a Competitive Disadvantage," and
"Description of Credit Facility."
Heafner has entered into interest rate swap agreements from time to time to
manage exposure to fluctuations in interest rates. As of December 31, 1998,
interest rate swap agreements were in place covering notional amounts of
approximately $20.0 million of indebtedness expiring at various dates through
October 2002, at an average interest rate of 7.82%. Heafner does not anticipate
entering into additional swap agreements or hedging arrangements at this time.
Heafner 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, Heafner expects to pay $5.0 million relating to
consolidation of warehouse and office facilities, severance obligations and
other exit costs over the next 18 months. Based upon current and anticipated
levels of operations, Heafner believes that its cash flow from operations,
together with amounts available under the credit facility, will be adequate to
meet its anticipated requirements. There can be no assurance, however, that
Heafner's business will continue to generate sufficient cash flow from
operations in the future to be applied to meet these requirements or to service
its debt, and Heafner 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 Heafner.
Certain minority stockholders of Heafner have been granted redemption
rights commencing in 2004, subject to certain conditions, which if exercised
would obligate Heafner to redeem the shares of capital stock held by such
stockholders at agreed valuations (based upon a multiple of EBITDA formula). See
"The 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 Heafner is required to do so or whether the terms of its
outstanding indebtedness at such time, including the Series B and Series D
indentures, will permit such redemption.
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BUSINESS
This prospectus contains trademarks, tradenames or registered marks of
Heafner and other entities, including Regul(R) tires, Winston(R) tires, Pacer(R)
custom wheels, ICW(R) custom wheels and Magnum(R) automotive lifts.
HISTORY AND DEVELOPMENT OF HEAFNER
Heafner believes that it has become one of the leading tire distributors
and retailers in the United States in terms of sales and number of tires
distributed. Heafner's development has been marked by the addition of five
warehouses in the Southeast, increased emphasis on its private-label brand
strategy, development of electronic data interlinks with its customers and
suppliers and by the construction of a new mixing warehouse close to its North
Carolina headquarters. With Heafner's acquisition of Winston in 1997, it entered
the retail tire distribution market in California, becoming one of the nation's
largest tire retailers in terms of number of outlets. With the acquisitions of
CPW and ITCO in 1998, Heafner expanded its West Coast distribution network and
solidified its position in the Southeastern wholesale tire distribution market.
Heafner's wholesale and retail operations are divided among three principal
corporate entities:
- Heafner organized in 1935 and into which ITCO was merged in 1998, and
Heafner's subsidiaries:
- Winston, founded in 1962 and acquired by Heafner in 1997, and
- CPW, founded in 1971 and acquired by Heafner in 1998.
With the acquisitions of ITCO and CPW, Heafner believes that it is one of
the largest independent suppliers of tires to the replacement tire market in the
United States in terms of sales and number of tires distributed. Heafner's
wholesale distribution operations accounted for approximately 83.8% of Heafner's
total net sales, on a pro forma basis, in 1998. With 65 distribution centers
servicing 26 states, Heafner believes that it is the largest independent
distributor of new replacement tires in terms of number of tires shipped in the
Southeast and in California. Through this distribution network, Heafner's
wholesale divisions supplied 12.6 million tires in 1998 and currently serve an
average of 25,000 customers each month. Through its retail division, Heafner
also operates over 200 retail tire and automotive service outlets in California
and Arizona which sold over 1.2 million tires in 1998. Heafner's Winston
subsidiary, which operates 190 of Heafner's retail tire and automotive service
outlets, was the fifth largest independent tire dealer in the United States in
1998 based on number of company-owned retail stores. Heafner generally stocks
approximately 12,000 stock keeping units, or "SKUs," of tires in its
distribution centers. Heafner 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, which is
a division of Goodyear, and Dunlop, Bridgestone/Firestone and Pirelli. Heafner's
private-label tires are sold under the Winston and Regul trademarks. In addition
to its tire sales, Heafner believes that it is a significant independent
distributor and retailer of aftermarket wheels, automotive replacement parts and
accessories and automotive service equipment.
Heafner 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 its
presence in the Southeast and the West. Heafner believes that the ITCO merger
will enable its Eastern wholesale division to provide more cost-effective
service and will increase its distribution capacity, positioning it for
expansion into new geographic areas. Heafner believes that the acquisition of
CPW, including CPW's distribution facilities, will establish a broader supply
network with more frequent delivery capabilities for Heafner's Winston retail
stores, improving Heafner's ability to restock inventory and obtain
customer-requested products on a more timely basis. In addition, Heafner expects
to realize significant cost savings and operating efficiencies and improvements
that will contribute to its goal of increasing future profitability.
In fiscal 1998, on a consolidated basis, Heafner generated pro forma net
sales of $923.8 million, EBITDA of $30.5 million and a net loss of $3.7 million.
In 1998, on a pro forma basis, sales of tires
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accounted for approximately 78.4% of Heafner's consolidated net sales, while
sales of automotive service and parts accounted for 9.1% of Heafner's
consolidated net sales, sales of custom wheels accounted for 6.7%, sales of
automotive service equipment accounted for 5.6%, and sales of other products
accounted for 0.2%.
NARRATIVE DESCRIPTION OF BUSINESS
HEAFNER-ITCO DIVISION
Heafner acquired ITCO on May 20, 1998. Following that acquisition, ITCO's
subsidiaries were merged into ITCO, and ITCO was merged into Heafner. Heafner's
historical wholesale operations and ITCO's business became the Heafner-ITCO
division. Founded in 1962, ITCO was, at the time it was acquired by Heafner, one
of the largest wholesale distributors of tires, custom wheels, equipment and
tire dealer supplies in the Southeast in terms of sales and number of tires
distributed. On a pro forma basis, the Heafner-ITCO division had net sales for
1998 of approximately $627.3 million and shipped more than 8.4 million passenger
and light truck tires and 285,000 medium truck tires. The Heafner-ITCO
division's products include flag brands manufactured by Michelin, including the
B.F. Goodrich and Uniroyal brands, Bridgestone/Firestone and Dunlop. House
brands include Monarch, manufactured by Kelly-Springfield, as well as other
house brands manufactured by Michelin, Bridgestone/Firestone, Kelly-Springfield
and Dunlop. Private label products include Regul Tires, Winston tires, Pacer
custom wheels and custom wheels manufactured by Ultra and private-branded under
the ICW name. Tire sales represented approximately 83.7% of the Heafner-ITCO
division's pro forma net sales in 1998.
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 fifth
largest independent tire dealer in the country in 1998, based on the number of
company-owned retail stores. Winston sold more than 1.2 million tires as well as
other automotive products in 1998 through its chain of 190 retail stores in
California and Arizona for net sales in 1998 in excess of $149.8 million. Each
Winston store offers customers multiple choices of flag brands manufactured by
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 61.7% of Winston's 1998 net sales.
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 20 retail stores in California and Arizona. Of CPW's
retail stores, 15 sell flag brand high performance as well as regular grade
tires, wheels and related automotive products, while the remaining five retail
stores sell only automotive parts. On a pro forma basis, CPW's net sales for
1998 were approximately $146.7 million and CPW shipped more than 1.9 million
passenger and light truck tires. 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 one of the largest distributors of high
performance tires in California. CPW also sells parts, wheels, and equipment
built by nationally recognized manufacturers. Tire sales represented
approximately 72.8% of CPW's total pro forma sales for 1998. Sales of high
performance tires represented approximately 31% of CPW's total pro forma net
sales for the same period.
INDUSTRY OVERVIEW
Purchasers in the United States spent approximately $18.6 billion on new
replacement tires in 1998. Of that amount, passenger tires accounted for
approximately 58% of sales, light truck tires accounted for approximately 16%,
truck tires accounted for approximately 21% and farm, specialty and other types
of
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tires accounted for approximately 5%. 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 214.5 million tires in 1998. Heafner 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.
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 Heafner, are the
largest point of sale suppliers of new replacement passenger tires to the United
States market. Independent tire dealers accounted for approximately 59.5% of
retail sales of domestic replacement passenger tires in 1998.
Independent tire dealers obtain their inventory of new replacement tires
through three principal sources: tire manufacturers, independent wholesale
distributors like Heafner, 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 1998. Heafner 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 Heafner, 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 1998, flag brands constituted
approximately 52% of the United States passenger and light truck replacement
tire markets, private-label brands constituted approximately 29% of those
markets and house brands made up approximately 19% of those markets.
OPERATIONS
Wholesale Divisions. The Heafner-ITCO and CPW wholesale divisions of
Heafner accounted for approximately 83.8% of Heafner's net sales, on a pro forma
basis, in 1998. With 65 distribution centers servicing 26 states, Heafner
believes that it is the largest independent distributor of replacement tires in
the Southeast and in California. Through this distribution network, Heafner
supplied 12.6 million tires in 1998.
Heafner'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. Heafner 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 Heafner's customers to
reduce investment in inventories while still enabling them to provide a full
range of products to consumers. Heafner believes that software and on-line
programs, such as Heafner's "HeafNet" electronic interlink service, will play an
increasingly important role for its distribution customers. See "-- Information
Systems and Technology." Heafner's fleet of approximately 650 trucks also
facilitates frequent deliveries to its distribution customers.
In order to improve efficiency in its Southeastern operations, Heafner
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
Heafner to make volume purchases from suppliers when advantageous and ship the
resulting inventory to distribution centers within its network. Heafner believes
that this mixing and accessibility of
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inventory enables Heafner's customers to expand sales opportunities without the
burden and expense of large investments in inventory.
As an additional service to its customers, Heafner may pass through to its
distribution customers all or a portion of credits from tire manufacturers for
advertising or special promotions on tires or other products. These credits
assist Heafner's customers in budgeting for their advertising and similar
operating expenses. Heafner also participates in and sponsors dealer conferences
among its customers in order to keep them informed of industry trends and new
product offerings. In addition, as Heafner's retail expertise grows, Heafner
intends to continue to make this expertise available to its independent tire
retailer customers in order to enhance customer relations.
Retail Division. Heafner's retail division operates over 200 retail tire
and service outlets in California and Arizona, including 190 tire and automotive
service outlets operated by Winston. Winston was the fifth largest independent
tire dealer in the United States in 1998 based on number of company-owned retail
stores. Heafner believes that the strength of the Winston retail franchise in
California may make it suitable for expansion in the West. Heafner's CPW
subsidiary, which began as a performance automotive shop in 1971, currently
operates 20 of Heafner's retail stores in California and Arizona. Of these
retail stores, 15 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 Heafner's retail
locations:
<TABLE>
<CAPTION>
REGION WINSTON CPW TOTAL
- ------ ------- --- -----
<S> <C> <C> <C>
Southern California......................................... 130 0 130
Sacramento/California Central Valley........................ 33 1 34
Northern California......................................... 24 8 32
Arizona..................................................... 3 11 14
--- -- ---
Totals.................................................... 190 20 210
</TABLE>
Through Winston's retail locations, the average size of which is
approximately 4,400 square feet, Heafner also provides automotive repair and
service, such as wheel alignment, oil changes and brake repair. These services
accounted for approximately 43.9% of Winston's total net sales in 1998.
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
Heafner sells a broad selection of tires, custom wheels, automotive service
equipment and related products manufactured by the leading manufacturers of
those products. Heafner'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. Heafner
generally stocks approximately 12,000 SKUs of tires in its distribution centers.
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. Heafner 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, Heafner supplies over 250,000 SKUs of automotive parts and
accessories. Through Winston's retail tire and automotive service
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outlets, Heafner offers other automotive products such as Quaker State oil
products and Monroe and Raybestos ride control products. Heafner believes that
products sold by ITCO and CPW will complement Heafner's existing product line
and, in the case of CPW, increase Heafner's sales of high-performance tires and
automotive parts and accessories. Heafner intends to continue to provide its
customers with a broad choice of flag and private-label products. In 1998, on a
pro forma basis sales of tires accounted for approximately 78.4% of Heafner's
total net sales, sales of automotive service and parts accounted for 9.1% sales
of custom wheels accounted for 6.7%, sales of automotive service equipment
accounted for 5.6%, and sales of other products accounted for 0.2%.
SUPPLIERS
Heafner purchases its products in finished form from all major tire
manufacturers and other suppliers. In 1998, Heafner purchased in excess of 12.2
million tires, representing approximately 5.7% of the total U.S. replacement
tire market. Approximately 86% of Heafner's total tire purchases, in units, in
1998 were supplied by Michelin, Kelly-Springfield, Dunlop and
Bridgestone/Firestone.
Of the total 1998 U.S. new replacement passenger tire market, Michelin
(including the B.F. Goodrich and Uniroyal brands) accounted for 14.0%,
Bridgestone/Firestone accounted for 16.0% and the leader, Goodyear, accounted
for 23.0%. Of the total 1998 U.S. replacement light truck tire market, Michelin,
including the B.F. Goodrich and Uniroyal brands, accounted for 16.5%,
Bridgestone/Firestone accounted for 15.0% and Goodyear accounted for 22.0%. Of
Heafner'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 Heafner are
private-label custom brands, such as Pacer and ICW, and are produced by a
variety of manufacturers. Heafner 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 with Kelly-Springfield (the
"Kelly-Springfield Supply Agreement"), Heafner's supply arrangements with its
major suppliers generally are 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, Heafner has
conducted business with its major tire suppliers for many years and believes
that it has strong relationships with all of its major suppliers. See "Risk
Factors -- Heafner Is Dependent on a Small Number of Tire Manufacturers for Its
Supplies."
Heafner purchases certain private-label and house brand tires, including
the Winston and Monarch products, from Kelly-Springfield. Purchases under the
Kelly-Springfield Supply Agreement are made at prices specified from time to
time in the manufacturer's pricing schedule. Under the Kelly-Springfield Supply
Agreement, Heafner must purchase all of its requirements of Winston brand tires
from Kelly-Springfield during the term of the agreement, except that it may
purchase Winston brand 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
after then. The Kelly-Springfield Supply Agreement may be terminated by either
party upon twelve months' advance notice. Kelly-Springfield is the sole holder
of Heafner's Series A preferred stock and Series B preferred stock, as discussed
below under "Certain Relationships and Related Transactions -- Preferred Stock."
CUSTOMERS
Wholesale. Through its Heafner-ITCO and CPW wholesale divisions, Heafner
distributes tires and related automotive products principally to independent
tire dealers. Heafner's other customers include national retail chains, service
stations, general automotive repair facilities, auto parts stores, automobile
dealers and specialty automotive repair facilities. Heafner generally requires
payment from its customers
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within 30 days, although it may tailor programs for its larger customers. In
1998, Heafner's wholesale divisions served an average of more than 25,000
customers in each month. Heafner's largest customer accounted for less than 0.6%
of Heafner's pro forma net sales for 1998 and Heafner's top 25 customers
accounted for less than 5% of Heafner's pro forma net sales for 1998.
Retail. Heafner's retail operations attract a variety of individual
consumers in the areas they serve. Through the Winston retail chain, Heafner
also offers accounts to its corporate retail customers. Winston's corporate
accounts represent approximately 17.0% of its tire business.
COMPETITION
The industry in which Heafner does business is highly competitive, and many
of Heafner's competitors have resources significantly greater than Heafner'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 Heafner does business. In its retail business,
Heafner 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.
Heafner believes that the principal competitive factors in its business are
reputation, breadth of product offering, delivery frequency, price and service.
Heafner 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.
TRADEMARKS
The major brand names under which Heafner markets its products are
trademarks of Heafner. Those brand names are considered to be of material
importance to Heafner's business because they both develop brand identification
and foster customer loyalty. All of Heafner's trademarks are of perpetual
duration so long as periodically renewed, and Heafner currently intends to
maintain all of them in force. The major brand names under which Heafner markets
its products are:
- Regul tires,
- Winston tires,
- Pacer custom wheels,
- ICW custom wheels, and
- Magnum automotive lifts.
SEASONALITY AND INVENTORY
Heafner'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. Heafner's inventories generally
fluctuate with anticipated seasonal sales volumes. Heafner 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 Heafner in 1998
was $87.4 million.
Backlog of orders is not currently significant and has not been for the
1997 and 1998 fiscal years. Orders are filled shortly after receipt from
inventories.
WORKING CAPITAL PRACTICES
Heafner must maintain substantial inventories in connection with its
wholesale distribution and retail service operations throughout the year, which
fluctuate with anticipated seasonal sales volume. These
55
<PAGE> 57
inventories are generally financed through borrowings under the credit facility,
which provides for a revolving credit facility of up to $100 million. The amount
of borrowings under the credit facility fluctuates throughout the year. On
December 31, 1998, $21.9 million of borrowing was outstanding and an additional
$64.7 million could have been borrowed under the credit facility.
Both the maintenance of substantial inventories and the practice of
seasonal borrowing are common to the wholesale tire distribution and retail tire
and automotive service industry.
INFORMATION SYSTEMS AND TECHNOLOGY
Heafner believes that software and on-line programs will play an
increasingly important role in linking Heafner to its distribution and retail
customers and improving Heafner's management of inventories of tires, wheels and
related products.
Heafner is able to offer reliable, timely and frequent deliveries to its
customers by utilizing 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 gives customers electronic access to 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. Heafner 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.
Heafner also intends to make available to Heafner's retail stores in the
West and independent tire dealer customer base in the Southeast interactive
software programs focused on the retail customer that are currently offered by
CPW to independent tire dealers in the West. 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. Heafner 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.
ENVIRONMENTAL MATTERS
Heafner'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 Heafner could be held
strictly, jointly and severally liable for costs associated with the
investigation and clean-up of contaminated properties. The nature of Heafner'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, in its automotive service operations Heafner handles waste
motor oil and hydraulic brake fluid, the storage and disposal of which is
strictly regulated by federal and state authorities. Heafner contracts with
outside services to handle disposal of these materials.
Heafner believes that it currently complies with all relevant environmental
regulations and it does not incur significant costs maintaining compliance with
those laws. However, Heafner could incur material costs in connection with
environmental liabilities or claims. In addition, future events such as changes
in existing laws and regulations or in their interpretation, could give rise to
additional compliance costs or liabilities that could have a material effect on
Heafner's business or earnings. Expenditures related to environmental matters
have not had, and are not expected to have, a material effect on Heafner's
business or earnings.
EMPLOYEES
Heafner employed approximately 3,241 people as of December 31, 1998, of
whom approximately 1,631 were employed in its wholesale divisions and
approximately 1,610 were employed in its retail
56
<PAGE> 58
division. None of Heafner's employees are represented by a union. Heafner
believes its employee relations are satisfactory.
LEGAL PROCEEDINGS
Heafner's Winston subsidiary was named as a defendant in a class action
lawsuit filed on June 10, 1998 in Los Angeles County Superior Court by
plaintiffs Mike Riggs and Edmundo Feria on behalf of themselves and all other
Winston store managers similarly situated. The lawsuit alleges that Winston
violated certain California wage regulations and unfair business practices
statutes by requiring Messrs. Riggs and Feria and the putative class of Winston
store managers to work in excess of 40 hours per work week without receiving
properly calculated overtime compensation. The plaintiffs seek overtime
compensation due and owing, prejudgment interest, certain penalties and
attorneys' fees and costs. Heafner 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. Heafner is
vigorously defending the matter.
Heafner is also involved in various other proceedings incidental to the
ordinary course of its business. Heafner believes that none of these other
proceedings will have a material adverse effect on its business or financial
condition.
PROPERTIES
Heafner's principal properties are geographically situated to meet sales
and operating requirements. All of Heafner's properties are considered to be
both suitable and adequate to meet current operating requirements. Heafner is
reviewing its properties to determine whether certain facilities could be
consolidated into other locations. At present, Heafner plans to close 8 to 10
distribution warehouses in the Southeast and is considering closing a
distribution warehouse in California in order to eliminate redundancies within
its Heafner-ITCO and CPW wholesale divisions. Although there can be no assurance
that it will be successful in doing so, Heafner believes that, particularly with
respect to its distribution centers, it may obtain cost savings and efficiencies
by closing or consolidating certain facilities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Distribution Centers. The following table sets forth certain information
regarding Heafner's warehouse and distribution facilities as of December 31,
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
</TABLE>
57
<PAGE> 59
<TABLE>
<CAPTION>
OWNED/
LOCATION COMPANY LEASED
- -------- ------- ------
<S> <C> <C>
California:
Fresno.................................................... CPW Owned
Moorpark.................................................. CPW Leased
Rancho Cucamonga.......................................... CPW 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................................................... ITCO Leased
Pensacola................................................. Heafner Owned
Tallahassee............................................... Heafner Owned
Tampa..................................................... ITCO Leased
West Palm Beach........................................... ITCO Leased
Georgia:
Augusta................................................... Heafner Leased
Rome...................................................... ITCO Owned
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
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.................................................... ITCO Leased
Winston-Salem............................................. Heafner Leased
</TABLE>
58
<PAGE> 60
<TABLE>
<CAPTION>
OWNED/
LOCATION COMPANY LEASED
- -------- ------- ------
<S> <C> <C>
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................................................... 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>
Retail Stores. As of December 31, 1998, Heafner operated over 200 retail
tire and service outlets in California and Arizona, including 190 tire and
automotive service outlets operated by Winston. All of these retail outlets are
leased. Heafner intends to consolidate the management of all retail tire stores
under its retail division.
Corporate and Executive Offices. In addition to its principal executive
offices, Heafner currently has corporate offices in four other 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. All
of Heafner's corporate and executive offices are leased.
<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
</TABLE>
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The business of Heafner is principally conducted in three industry
segments: Eastern wholesale, Western wholesale and Western retail. The financial
statements for the years ended December 31, 1998, 1997 and 1996, which are
included at the back of this prospectus, reflect the information relating to
these segments for each of Heafner's last three fiscal years.
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<PAGE> 61
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table contains information regarding the directors and
executive officers of Heafner. 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............................ 67 Chairperson
William H. Gaither........................ 43 President, Chief Executive Officer and
Director
Donald C. Roof............................ 47 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
Richard P. Johnson........................ 51 President, Heafner-ITCO Division
P. Douglas Roberts........................ 51 President, Winston Tires
Arthur C. Soares.......................... 49 President and Chief Operating Officer, CPW
Joseph P. Donlan.......................... 52 Director
V. Edward Easterling, Jr.................. 39 Director
Victoria B. Jackson....................... 44 Director
William M. Wilcox, Jr..................... 72 Director
</TABLE>
Ann H. Gaither -- Chairperson. Ms. Gaither joined Heafner in 1972 and
succeeded her father as Chief Executive Officer in 1984. She served as President
of Heafner 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 with 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 Heafner.
William H. Gaither -- President, Chief Executive Officer and Director. Mr.
Gaither joined Heafner 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 Heafner since 1989. Mr. Gaither also has served as the Chief
Executive Officer of Heafner since 1996 and has been a Director of Heafner since
1986. He holds a B.A. from Davidson College. Mr. Gaither is the son of Ann H.
Gaither, the Chairperson of Heafner.
Donald C. Roof -- Senior Vice President, Chief Financial Officer and
Treasurer. Mr. Roof has served as Heafner'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 Heafner 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 Heafner in 1975 and held various field sales assignments before becoming
Marketing Manager in 1979. He advanced to
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<PAGE> 62
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 Heafner. Mr. Brown holds a B.A. from Western Carolina University.
Richard P. Johnson -- President, Heafner-ITCO Division. Mr. Johnson joined
ITCO as President and Chief Operating Officer in February 1997. He served as
Senior Vice President of Albert Fisher Distribution from 1991 to 1994, and as
its 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.
P. Douglas Roberts -- President, Winston Tires. Mr. Roberts joined Winston
as President -- Winston Tires in November 1998. He served with Frazee Industries
as Vice President -- Sales, Development, Marketing & Store Operations from 1992
until the time he joined Winston. Prior to that time, Mr. Roberts headed a
variety of management positions with Libbey-Owens-Ford, Tenneco Automotive, and
Taco Bell. Mr. Roberts holds a B.A. from Western Carolina University.
Arthur C. Soares -- President, CPW Division. Mr. Soares was the founder
and principal owner of CPW, and currently serves as the President and Chief
Operating Officer of Heafner's CPW division. 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.
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, One Call Medical, Inc. and
System One Services, Inc.
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 served as its President and Chief Executive Officer from 1997 until February
1999. 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, Jr. -- 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.
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<PAGE> 63
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table contains information concerning the compensation for
services in all capacities to Heafner for the years ended December 31, 1998,
1997 and 1996 of the following "Named Executive Officers," who are those persons
who (a) served during the fiscal year ended December 31, 1998 as the Chief
Executive Officer of Heafner, (b) were, at December 31, 1998, the other four
most highly compensated executive officers of Heafner who earned more than
$100,000 in salary and bonus in 1998 and (c) one person for whom disclosure
would have been provided as among the most highly compensated executive officers
but for the fact that he was not serving as an executive officer at December 31,
1998.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
--------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION ENDED ($) ($) ($)(A) (#)(B) ($)
- --------------------------- -------- ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William H. Gaither......... 12/31/98 342,684 109,912 26,000 -- 71,436(c)
President, Chief
Executive 12/31/97 318,000 49,000 25,000 62,500 41,741(c)
Officer 12/31/96 303,387 -- -- -- 25,604(d,e)
Donald C. Roof............. 12/31/98 231,840 122,688 25,500 15,000 --
Senior Vice President, 12/31/97 161,253(f) 60,000 25,000 25,000 --
Chief Financial Officer
and Treasurer 12/31/96 -- -- -- -- --
J. Michael Gaither......... 12/31/98 213,924 113,174 15,500 15,000 --
Senior Vice President, 12/31/97 191,883 60,000 15,000 25,000 --
General Counsel and
Secretary 12/31/96 155,652 26,000 15,000 -- 23,761(e)
Daniel K. Brown............ 12/31/98 182,490 96,571 15,500 15,000 --
Senior Vice President/ 12/31/97 164,499 51,000 15,000 25,000 24,935(e)
Sales and Marketing 12/31/96 112,335 39,599 15,000 -- 28,073(e)
Thomas J. Bonburg(g)....... 12/31/98 400,751(g) 64,710 -- -- 33,333(h)
President, Winston Tires 12/31/97 96,952(g) 75,000 -- 37,500 --
12/31/96 -- -- -- -- --
Arthur C. Soares........... 12/31/98 129,810(i) 199,399 -- -- --
President and Chief 12/31/97 -- -- -- -- --
Operating Officer, CPW 12/31/96 -- -- -- -- --
</TABLE>
- ---------------
(a) This column includes nothing for perquisites and other personal benefits
because in no case did the aggregate amount of 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 in 1997 and 1998 under Heafner's
stock option plan, which is discussed below under "-- Stock Option Plan."
Thirty percent of the options granted in 1997 have, or will, vest and become
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
1998.
(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 Heafner in April 1997. Salary represents payments to Mr.
Roof during the period of his employment in 1997. On an annualized basis,
Mr. Roof's salary for 1997 would have been $215,000.
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<PAGE> 64
(g) Mr. Bonburg was the Chief Executive Officer of Winston Tires, which was
acquired by Heafner on May 7, 1997. He resigned as President of Winston
Tires on November 15, 1998. 1998 salary represents payments to Mr. Bonburg
during the period of his employment in 1998. 1997 salary represents payments
to Mr. Bonburg during the period following Heafner's acquisition of Winston
Tires in 1997.
(h) Consists of monthly severance payment to Mr. Bonburg in December 1998. Such
monthly payments will continue through November 2000.
(i) Mr. Soares joined Heafner in May 1998. Salary represents payments to Mr.
Soares during the period of his employment in 1998. On an annualized basis,
Mr. Soares' salary for 1998 would have been $259,600.
OPTION/SAR GRANTS IN 1998
No stock appreciation rights were granted during 1998. The following table
contains information concerning the grant of stock options to each of the Named
Executive Officers during 1998:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------
PERCENT OF
TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
NUMBER OF GRANTED ANNUAL RATES OF STOCK
SECURITIES TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE OPTION TERM(B)
OPTIONS IN FISCAL PRICE EXPIRATION ----------------------
NAME GRANTED(A) YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- ---------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
William H. Gaither.............. -- -- -- -- -- --
Donald C. Roof.................. 15,000 5.3% $7.48 9/21/08 $70,563 $178,813
J. Michael Gaither.............. 15,000 5.3 7.48 9/21/08 70,563 178,813
Daniel K. Brown................. 15,000 5.3 7.48 9/21/08 70,563 178,813
Thomas J. Bonburg............... -- -- -- -- -- --
Arthur C. Soares................ -- -- -- -- -- --
</TABLE>
- ---------------
(a) The securities underlying the options, which were granted under the stock
option plan, are shares of Class A common stock. Under the stock option
plan, none of the options granted to each of the Named Executive Officers
will vest or are exercisable within 60 days. The options will vest as
described 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 $7.48 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 $7.48 was assumed based on a stock appraisal as of May
1998. Actual gains on the exercise of the options are dependent on the
future performance of the Class A common stock. The potential values
reflected in this table may not be the actual values ultimately 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, 1998.
STOCK OPTION PLAN
In 1997, Heafner adopted The J.H. Heafner Company 1997 Stock Option Plan.
The stock option plan is designed to motivate designated employees, officers,
directors and independent contractors of Heafner and its subsidiaries by
encouraging them to acquire a proprietary interest in Heafner. Heafner's board
of
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<PAGE> 65
directors, acting through a "plan committee" of at least two members of the
board, administers the stock option plan, selects eligible participants,
determines the number of shares subject to each option granted under the stock
option plan and sets other terms and conditions applicable to participants in
the stock option plan. After giving effect to the reclassification of Heafner's
Class A common stock, and a 1998 amendment increasing the number of shares
available for option grants under the plan, an aggregate of 527,500 shares of
Class A common stock are reserved for issuance under the stock option plan.
The stock option plan provides for the grant to designated employees,
officers, directors and independent contractors of Heafner and its subsidiaries
of options to purchase shares of Class A common stock. 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 that will be issuable
upon exercise of the options granted. The purchase price for shares of Class A
common stock issuable upon exercise of the options granted is fixed by the plan
committee, but cannot be less than the fair market value of the Class A common
stock, as determined in good faith by Heafner's board of directors, if the
corresponding option is intended to qualify as an incentive stock option under
the Internal Revenue Code. As of December 31, 1998, options to purchase an
aggregate of 493,650 shares of Class A common stock, some of which are shares of
common stock that were reclassified as Class A common stock, at prices ranging
from $1.10 to $7.48 per share, were outstanding under the stock option plan.
All options granted under the stock option plan are subject to the terms
and conditions of a stock option agreement entered into by each option
recipient. The stock option agreement generally requires each recipient to be
bound by the terms of a stockholder agreement between certain management
stockholders and Heafner in the event the recipient elects to exercise options.
Options granted under the stock option plan generally vest on the first four
anniversaries of the date of grant, in installments of either (a) 10%, 20%, 30%
and 40% or (b) 20%, 20%, 20%, and 40%, of the total number of underlying shares.
Options granted under the stock option plan are not transferable by the
recipient other than by a will or by the laws of descent and distribution and,
during the recipient's lifetime, may only be exercised by the recipient. Under
the terms of the stock 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 Heafner.
If an option recipient dies or if his or her employment is terminated
because of a permanent disability or for any other reason, other than for cause
as defined in the stock option agreement, the recipient or his or her personal
representative may exercise the option within 180 days after the termination
date, but only to the extent the option has vested on the termination date or
would have vested in the 12 months following the termination date. Any option
that would still be unvested after that time will lapse. If an option
recipient's employment is terminated for cause, the recipient may exercise the
option within 30 days after the date of termination, but only to the extent the
option has vested on the date of termination. Any option that is unvested on the
date of termination will lapse.
Under the stock option plan, each of the following events would constitute
a "change of control":
- any person or entity not controlled by Heafner's stockholders acquires
more than 50% of the shares of Heafner's common stock,
- all or substantially all of the assets of Heafner are sold,
- the majority of Heafner's board of directors no longer comprises persons
currently serving on the board or persons designated by the current
board majority,
- 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 Heafner, or
- Heafner issues common stock in a public offering.
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All options outstanding under the stock option plan will become fully
vested and immediately exercisable immediately prior to any change of control.
If any option is not then exercised, it will expire upon the happening of the
change in control.
RESTRICTED STOCK PLAN
In 1997, Heafner adopted The J.H. Heafner Company 1997 Restricted Stock
Plan, which is designed to motivate designated employees, officers, directors
and independent contractors of Heafner and its subsidiaries by encouraging them
to acquire a proprietary interest in Heafner. Heafner's board of directors,
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, 1998, an aggregate of 215,000
shares of Class A common stock, some of which are shares of common stock that
were reclassified as Class A common stock, had been issued to participants in
the restricted stock plan for a purchase price of $1.10 per share. The shares
issued under 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 Heafner depending upon the attainment of certain earnings targets.
The restricted stock plan enables designated employees, officers, directors
and independent contractors of Heafner to purchase shares of Class A common
stock. The plan committee has sole authority to select the 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 under 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
(the "restricted stock agreement") entered into by each option recipient.
The restricted stock agreement prohibits the transfer of stock issued under
the restricted stock plan except for transfers:
- to Heafner upon the termination of employment of a participating
stockholder,
- to other management employees who have executed and delivered agreements
substantially similar to the restricted stock agreement,
- by will or by the laws of descent or distribution, or
- if and to the extent repurchase rights in favor of Heafner on
termination of employment have not been exercised, to third parties,
subject to rights of first refusal in favor of Heafner and the other
holders of restricted stock.
Heafner has the right to repurchase all of a participating stockholder's
shares upon the termination of that stockholder's employment due to cause (as
defined in the restricted stock agreement) or the death of the participating
stockholder. A participating stockholder may require Heafner to repurchase all
of such stockholder's shares if that stockholder terminates his or her
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 their original purchase price and a price
derived from Heafner's "Net Equity Value," as defined in the restricted stock
agreement, at the time of repurchase.
COMPENSATION OF DIRECTORS
During the year ended December 31, 1998, 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.
Heafner intends to continue this compensation policy for directors.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, William H. Gaither, Donald C. Roof, and J. Michael Gaither
served on an executive committee of Heafner 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 full board of directors of
Heafner.
BOARD REPORT ON EXECUTIVE COMPENSATION
The executive committee, at the direction of the board of directors of
Heafner, recommends the compensation of the Named Executive Officers and other
executives of Heafner. In addition, the executive committee administers
Heafner's compensation and stock option plans.
The key components of the compensation packages of Heafner's executive
officers are annual salary, bonuses dependent upon Heafner's performance, and
long term, stock-based incentives. In addition, Heafner's executive officers
receive health, accident, and life insurance, retirement, and other personal
benefits typically offered to executives by other corporations equivalent in
size.
Historically, Heafner has entered into employment agreements with its
senior executive officers which fix their minimum annual salaries and bonuses.
The compensation philosophy of Heafner's board of directors is that the
compensation of Heafner's executives and key managers should be designed to
promote achievement of Heafner's business and financial objectives; to provide
pay that is externally competitive and internally equitable, which will allow
Heafner to attract, retain, and motivate the executives and key managers
necessary to accomplish its business objectives; and to reward exceptional
performance. The executive committee reviews the salaries provided for in the
employment agreements with its senior executive officers, as well as the
salaries of Heafner's other officers, once a year, and recommends changes to the
board of directors.
Mr. William H. Gaither's compensation for the last completed fiscal year
was in recognition of the many major initiatives undertaken and accomplished by
him since the beginning of 1998. The most notable of these initiatives were his
restructuring efforts, including the ITCO merger and the CPW acquisition.
Bonuses are payable based upon performance measures recommended by the
executive committee for each participant. The executive committee recommends a
threshold, target, and maximum performance objective for each performance
measure. Each of the executive committee's recommendations must be approved by
the board of directors. No payment with respect to a performance measure is made
if performance is below the threshold performance objective established for that
performance measure. If the target performance objective is reached, the
participant is entitled to receive 100% of the bonus attributable to that
performance measure. If the maximum performance objective is reached, the
participant receives 200% of the bonus attributable to that performance measure.
As a result, if the maximum performance objectives for all performance measures
are reached, a participant will receive a bonus equal to 200% of his or her
targeted bonus.
No participant may receive more than 200% of his or her targeted bonus.
Bonuses are subject to reduction or cancellation on the basis of a participant's
individual performance or in the event of conduct by a participant detrimental
to Heafner. Bonuses are payable in cash.
THE BOARD OF DIRECTORS
Ann H. Gaither
William H. Gaither
Joseph P. Donlan
V. Edward Easterling, Jr.
Victoria B. Jackson
William M. Wilcox, Jr.
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INDEMNIFICATION OF OFFICERS AND DIRECTORS
Heafner's articles of incorporation provide for the release of any person
serving as a director of Heafner from liability to Heafner or its stockholders
for damages for breach of fiduciary duty and for the indemnification by Heafner
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, Heafner has purchased a directors' and
officers' insurance policy covering officers and directors of Heafner and its
subsidiaries 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 officers and
directors.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Heafner has entered into employment agreements with each of Messrs. William
H. and J. Michael Gaither, Roof, Brown and Roberts, providing for annual base
salaries of approximately $354,444, $224,000, $243,000, $191,000 and $230,000,
respectively, for the current year.
The employment agreements with Messrs. William H. and J. Michael Gaither,
Roof, Brown and Roberts provide for payment of annual bonuses and for additional
bonuses pursuant to Heafner's executive bonus plan. Fixed bonus payments made to
William H. Gaither are reduced by the amount received by him under Heafner's
board-designated discretionary compensation plan.
The employment agreements may be terminated at any time by Heafner. If the
employee's employment with Heafner is terminated on account of death or
disability, for cause, or without good reason (as defined in each employment
agreement), the employee is entitled to receive his base salary and target bonus
payable through the date of termination. If Heafner terminates the employee's
employment without cause, or if the employee terminates his employment with good
reason, then the employee is entitled to receive an additional payment equal to
his base salary and target bonus for one year. In the event of a termination by
Heafner as a result of or in anticipation of a change in control (as defined in
the employment agreements) or a constructive termination due to a change in
control, the employment agreements of each of Messrs. William H. Gaither and
Roberts provide 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. The employment agreements of Messrs. J. Michael
Gaither, Roof and Brown provide that, if the employee is terminated as a result
of or in anticipation of a change of control, or if his employment is terminated
by Heafner for any reason or by the employee for good reason within one year
after the change of control, or if he terminates his employment for any reason
within 30 days after the first anniversary of the change of control, then he is
entitled to receive an amount equal to his base salary and target bonus for the
period from his termination until the third anniversary of the change of
control. All of the employment agreements contain non-compete, non-solicitation
and confidentiality provisions.
In conjunction with the CPW acquisition, Heafner entered into employment
agreements with each of Arthur C. Soares, the current President of CPW, and Ray
C. Barney, the current Executive Vice President and Chief Operating Officer of
CPW.
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, payable in installments
of $1,250,000 at the end of the first year and $750,000 at the end of the second
year after the closing of the Transactions. It also provides for 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 Heafner's board of directors. 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, payable in installments of $200,000 at
the end of each of the first three years after the closing of the Transactions.
Mr. Barney's employment agreement (with Speed Merchant) also provides for 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 Heafner's board of directors. Both
employment agreements contain non-compete, non-solicitation and confidentiality
provisions.
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The employment agreements with Messrs. Soares and Barney are terminable at
any time by Heafner. Upon termination of employment for any reason, including
death or permanent disability, the employee or his heirs 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. If
Heafner terminates the employee's employment without cause, or the employee
terminates his employment with good reason (each as defined in the employment
agreements), the employee is entitled to receive an additional payment equal to
his base salary through the end of his employment term as well as the incentive
bonus payable for the first year. Payment of the stay-put bonus is contingent
upon the employee's continued employment with Heafner except in the case of the
employee's death or permanent disability, termination by the employer without
cause or termination by the employee for good reason.
In conjunction with the consummation of the Transactions, Heafner entered
into an employment agreement with Richard P. Johnson, who serves as President,
Heafner-ITCO Division. 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
Heafner's board of directors. Upon termination of Mr. Johnson's employment by
Heafner without cause, or by Mr. Johnson for good reason, or upon a change of
control (each as defined in the employment agreement), Mr. Johnson is entitled
to a severance payment, depending on the date of termination, ranging from 12 to
24 months' salary and bonus from and after the date of termination. The
employment agreement contains non-compete, non-solicitation and confidentiality
provisions.
EXECUTIVE BONUS PLAN
Heafner awards annual cash bonuses to up to 20 of its top executives.
Bonuses are payable only if Heafner attains specified annual performance
targets. Bonuses 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 Heafner's board of directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Heafner's common stock as of December 31, 1998, giving effect to
the reclassification of Heafner's stock and to the other Transactions, of:
- each person known by Heafner to own beneficially more than 5% of the
Class A common stock,
- each person known by Heafner to own beneficially more than 5% of the
Class B common stock,
- each director,
- the Named Executive Officers, and
- all directors and executive officers of Heafner as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF PERCENT OF
BENEFICIALLY CLASS A COMMON CLASS B COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER(A) OWNED STOCK(B) STOCK(B)
- --------------------------------------- ---------------- -------------- --------------
<S> <C> <C> <C>
Ann H. Gaither........................... 1,992,293(c) 53.9%
William H. Gaither....................... 1,079,038(c,d) 28.7
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........................... 32,500(g) 1.8
J. Michael Gaither....................... 32,500(h) 1.8
Daniel K. Brown.......................... 32,500(i) 1.8
Joseph P. Donlan......................... 1,034,000(e) 21.9
V. Edward Easterling, Jr................. 1,301,264(k) 92.9
Victoria B. Jackson...................... 5,000(l) *
Richard P. Johnson....................... 32,110(f,j) * 1.9
Arthur C. Soares......................... --
P. Douglas Roberts....................... 5,000(l) *
William M. Wilcox, Jr.................... 5,000(l) *
All directors and executive officers of
Heafner as a group (11 persons)........ 4,258,941(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 that person or group of persons
has the right to acquire within 60 days of March 31, 1999 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. As of December 31, 1998, 3,697,000 shares of
Class A common stock and 1,400,667 shares of Class B common stock were
issued and outstanding.
(c) Excludes 475,919 shares of Class A common stock that Ann H. Gaither and
William H. Gaither have the power to vote under a voting trust agreement
among certain members of the Gaither family.
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(d) Includes 18,750 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 discussed
below. 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."
(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 7,500 shares of Class A common stock issuable upon the exercise of
options which are exercisable within 60 days.
(h) Includes 7,500 shares of Class A common stock issuable upon the exercise of
options which are exercisable within 60 days.
(i) Includes 7,500 shares of Class A common stock issuable upon the exercise of
options which are exercisable within 60 days.
(j) Includes 5,000 shares of Class A common stock issuable upon the exercise of
options which are exercisable within 60 days.
(k) Represents 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 (1) 27,110 shares of Class B common stock and (2) 4,231,831 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.
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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, Heafner issued to The 1818
Mezzanine Fund, L. P. warrants (the "Warrants") to purchase shares of Heafner's
common stock. Joseph P. Donlan, a member of Heafner's board of directors, is a
Senior Manager of Brown Brothers Harriman & Co., the 1818 Fund's general
partner. Mr. Donlan and Robert R. Gould, a Partner of Brown Brothers Harriman &
Co., are co-managers of the 1818 Fund, and in that capacity they exercise voting
and investment power over the 1818 Fund's shares. The Warrants are exercisable
for 1,034,000 shares of Class A common stock. The Warrants may be exercised, in
whole or in part, at any time prior to the earliest of:
- May 7, 2007,
- the date of an initial public offering of Class A common stock yielding
gross proceeds of at least $25.0 million or representing at least 20% of
the Class A common stock on a fully-diluted basis, or
- Heafner's merger or consolidation with or into another entity or the
sale of all or substantially all of Heafner's assets.
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 Heafner issues Class A common stock at a
price per share that is less than its current fair market value. Fair market
value is 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 Heafner's board of directors 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 upon a change of
control as defined in the Warrants or at any time after May 7, 2004, to require
Heafner to redeem the Warrants. However, that redemption right may not be
exercised after the consummation of an initial public offering of the Class A
common stock yielding gross proceeds of at least $25.0 million or representing
at least 20% of the Class A common stock on a fully-diluted basis. If the
requested redemption right is exercised, Heafner must redeem all of the
outstanding Warrants at an agreed redemption price calculated based on an EBITDA
multiple of Heafner at the time of redemption, unless otherwise prevented by
law. Heafner has no right to call for the redemption of the Warrants.
Heafner and the 1818 Fund are also parties to a note and warrant purchase
agreement and a 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 Heafner, 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 Heafner 7,000 newly issued shares of Heafner's
Series A Cumulative Redeemable Preferred Stock, par value $.01, and 4,500 newly
issued shares of Heafner's Series B Cumulative Redeemable Preferred Stock, par
value $.01, for an aggregate purchase price of $11.5 million. Kelly-Springfield
is the sole holder of each series of preferred stock. Each series of 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 by Heafner of certain types of
tires 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 year,
which may be increased if Heafner's annual tire purchases from
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Kelly-Springfield fall below certain levels. Heafner is not required to pay
dividends on the Series B preferred stock unless its annual tire purchases from
Kelly-Springfield fall below certain levels.
Subject to the limitations summarized below, beginning in December 2002 and
ending in June 2007 Heafner is required to redeem 700 shares of Series A
preferred stock each 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, Heafner 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, Heafner is also required to
redeem all the preferred stock if the Kelly-Springfield Supply Agreement is
terminated or, at the request of Kelly-Springfield, if a change of control of
Heafner occurs and Kelly-Springfield requests a termination of the Supply
Agreement. Each series of preferred stock also is redeemable at any time at
Heafner's option.
So long as any amounts are outstanding under Heafner's existing credit
facility or subordinated notes, or any amending or replacing agreement for that
debt, or any commitments to lend exist under such debt, Heafner is prohibited
from:
- making any payment in respect of any mandatory or optional redemption of
either series of preferred stock, or
- declaring, making or paying any dividend or distribution in respect of
either series of preferred stock, if any default or event of 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 from that event and has not been cured or
waived in accordance with such debt.
SHARE REPURCHASES
In February 1997, Heafner offered to repurchase shares of common stock from
members of the Gaither family not actively involved in the operation of Heafner
at a price equal to $.8058 per share, or $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, Heafner repurchased, and subsequently canceled and retired, 3,359,744
shares, 1,024 shares without giving effect to the stock split, of common stock
from the Gaither family members for an aggregate purchase price of $2.7 million.
In 1986, Heafner repurchased from Carolyn H. Williams, and subsequently canceled
and retired, all of her shares of Heafner's common stock 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 Heafner. The note
is payable through January 2006 in annual installments of $124,600, including
interest at a rate per year of 7.5%. The outstanding principal amount of the
note at December 31, 1998 was approximately $730,000.
RELATED PARTY LEASES; LOANS AND LOAN GUARANTEE
Heafner leases corporate office space in Lincolnton, North Carolina from
Ann H. Gaither, the Chairperson of Heafner, and her sister, Carolyn H. Williams,
for an annual rent equal to approximately $87,000. Heafner leases its
Winston-Salem, North Carolina distribution center from Ann H. Gaither for an
annual rent equal to approximately $55,200. In connection with this property in
Winston-Salem, Ann H. Gaither has a note owing to Heafner with a principal
balance of $158,591.93 payable in monthly installments of principal and interest
of $3,500.00, accruing interest at 9% per year with the final due date of
October 1, 2003. Heafner 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, 2003 and December 30, 2002, respectively. Heafner believes that
these leases are on terms no less favorable to it than could have been obtained
from an independent third party.
Pursuant to a guaranty dated March 31, 1997, Heafner has agreed to
guarantee all obligations of William H. Gaither, President and Chief Executive
Officer of Heafner, under a mortgage loan in an aggregate principal amount not
to exceed $890,000.
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DESCRIPTION OF CREDIT FACILITY
The following is a summary description of the principal terms of the credit
facility. The description below does not purport to be complete and is qualified
in its entirety by reference to the agreements containing the principal terms
and conditions of the credit facility. Copies of those agreements (other than
schedules and exhibits) are available from Heafner. In addition, the credit
facility was filed as Exhibit 10.1 to Heafner's registration statement related
to the Series B exchange offer filed with the SEC on August 18, 1998. The credit
facility is available from Heafner and from the SEC as described in "Where You
Can Find More Information."
Heafner and its subsidiaries (the "borrowers") entered into the credit
facility on the closing date of the Transactions. As of December 31, 1998,
approximately $21.9 million was outstanding and an additional $64.7 million was
available for additional borrowings under the credit facility. The credit
facility has been syndicated among the several lenders parties to the credit
facility, with BankBoston, N.A., as agent, and Fleet Capital Corporation and
First Union National Bank as co-agents (together, the "agents"). The credit
facility provides for a senior secured revolving credit facility, which may be
borrowed in the aggregate principal amount of up to $100.0 million, of which up
to $10.0 million may be utilized in the form of commercial and standby letters
of credit.
Guaranties and Security. All obligations of the borrowers under the credit
facility are guaranteed by certain of Heafner's subsidiaries which are not
direct obligors under the credit facility. The borrowers' obligations under the
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
Heafner may be required to become credit facility guarantors or borrowers under
the credit facility.
Availability and Maturity. Provided that no event of default exists, loans
made under the 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 borrowing. The credit facility will be permanently reduced by an
amount equal to any Net Available Cash, as defined in the Series B indenture and
the Series D indenture, and Heafner will be required to prepay the credit
facility to the extent necessary at the time of any such permanent reduction.
The credit facility will mature and become due and payable in May 2003, except
that the borrowers and the lenders may agree to extend the credit facility for
up to an additional five years.
Interest. Indebtedness under the credit facility bears interest, at
Heafner's option:
- at the "base rate," which is a floating rate per year equal to the
greater of the federal funds rate plus 0.5% or the rate announced by the
credit facility agent from time to time as its base or prime lending
rate, plus the "applicable margin" or
- at the "Eurodollar rate," which is a fixed rate per year 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 is 0.25% and the applicable
margin for Eurodollar rate loans is 1.75%, subject in each case to performance
based step-downs based on Heafner's ratio of Funded Debt to EBITDA, as defined
in the credit facility. Overdue sums under the credit facility will bear
interest at a default rate equal to the applicable interest rate plus 2% per
year.
Certain Fees. Heafner is required to pay the lenders a commitment fee
equal to 0.375% per year on the committed undrawn amount of the credit facility,
subject to performance based step-downs based upon Heafner's ratio of Funded
Debt to EBITDA. Heafner is also required to pay the lenders letter of credit
fees equal to the applicable margin applicable to Eurodollar rate loans on a per
year basis and a fronting fee of 0.125% per year to be paid to the issuer of
letters of credit. Heafner has agreed to pay certain other fees and expenses of
the lenders and the credit facility agent.
Covenants. The credit facility requires Heafner to meet certain financial
tests, including minimum net worth and minimum loan availability. The credit
facility also contains covenants which, among other things, restrict Heafner's
ability to incur additional indebtedness; enter into guaranties; make loans and
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investments, except that Heafner will be permitted to make investments in
respect of new acquisitions up to $25 million in any fiscal year and $40 million
in total during the term of the credit facility; make capital expenditures in
excess of $12 million in any fiscal 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 Heafner 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 Heafner and its subsidiaries; and
maintain insurance.
Events of Default. The 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 Heafner directly or indirectly to
own 100% of any borrower or credit facility guarantor (except to the extent the
borrower is merged into Heafner or one of Heafner's wholly owned subsidiaries)
or the occurrence of a change of control as defined in the credit facility.
Heafner applied the net proceeds of the Series C offering to repay
outstanding amounts under the credit facility. See "Use of Proceeds." The
aggregate amount of commitments under the credit facility remained at $100.0
million after the Series C offering was consummated. Heafner anticipates that
borrowings under the credit facility will be repaid with internally generated
funds, including those of ITCO and CPW, 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. That decision will be made based on Heafner'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 it may deem appropriate.
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DESCRIPTION OF THE SERIES D NOTES
The Series C notes were, and the Series D notes will be, issued under the
Series D indenture dated as of December 1, 1998, among Heafner, the subsidiary
guarantors and First Union National Bank, as trustee. The Series B notes were
issued under the Series B indenture, dated as of May 15, 1998, among Heafner,
the subsidiary guarantors and First Union National Bank, as trustee. The term
"notes" as used in this Description of the Notes refers to the Series B notes,
the Series C notes and the Series D notes to be issued in exchange for the
Series B notes and Series C notes, and the term "indenture" generally refers to
the Series D indenture.
The following is a summary of the material provisions of the Series D
notes. As a summary, it is not complete and is subject to the provisions of the
Series D indenture, including the definitions contained in the Series D
indenture and the terms made part of the Series D indenture by the Trust
Indenture Act. Capitalized terms used and not otherwise defined have the
meanings set forth under "-- Certain Definitions." For a more complete
understanding of the terms of the Series D notes, holders of the notes should
refer to the Series D indenture. In describing the terms of the Series D notes,
Heafner has included a summary of the terms of the Series B notes where there is
any material difference between the Series B notes and the Series D notes. For a
more complete understanding of the terms of the Series B notes, holders of the
notes should refer to the Series B indenture, which was filed as an exhibit to
Heafner's registration statement filed with the SEC on August 18, 1998, in
connection with the registered exchange offer for the Series B notes. In
addition, each of the Series B indenture and the Series D indenture are
available as described in "Where You Can Find More Information."
PRINCIPAL, INTEREST AND ISSUANCE OF THE SERIES D NOTES
The Series D notes will be unsecured senior obligations of Heafner, of up
to $150.0 million aggregate principal amount, and will mature on May 15, 2008.
The Series D notes will bear interest at a rate of 10% per year from December 8,
1998, or from the most recent date on which interest was paid on the old notes
exchange for Series D notes. Interest on the Series D notes is payable on May 15
and November 15 of each year to holders of record at the close of business on
the May 1 or November 1 immediately preceding the interest payment date. The
first interest payment will be made on May 15, 1999 to holders of record at the
close of business on May 1, 1999. Heafner will pay interest on any overdue
principal at a rate of 11% per year, and it will pay interest at a rate of 11%
on overdue installments of interest to the extent it is lawful.
The Series D notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and integral multiples of $1,000. There is
no service charge for any registration of transfer or exchange of any notes, but
Heafner may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection with a transfer or
exchange.
OPTIONAL REDEMPTION
Beginning on May 15, 2003, the notes will be redeemable at Heafner's
option, in whole or in part, at any time or from time to time, at the following
prices, which are expressed as percentages of principal amount, plus accrued
interest to the redemption 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>
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Heafner must provide not less than 30 days', nor more than 60 days', prior
notice of the redemption by first-class mail to the registered address of each
holder of notes.
In addition, prior to the closing of the exchange offer, Heafner may redeem
up to 35% of the original principal amount of the Series C notes with the
proceeds of one or more Public Equity Offerings following which there is a
Public Market. After each such redemption, at least 65% of the aggregate
original principal amount of the Series C notes must remain outstanding and be
held, directly or indirectly, by persons or entities other than Heafner and its
Affiliates. After the closing of the exchange offer and prior to May 15, 2001,
Heafner may redeem up to $52.5 million in total principal amount of Series C and
Series D notes then outstanding with the proceeds of one or more Public Equity
Offerings following which there is a Public Market. If Series B notes are still
outstanding at the time of the redemption, however, the $52.5 million will be
reduced by the maximum aggregate principal amount of Series B notes that Heafner
is permitted to redeem under the Series B indenture at the time of the
redemption. After each such redemption, at least $97.5 million in aggregate
principal amount of Heafner's senior notes must remain outstanding and be held,
directly or indirectly, by persons or entities other than Heafner and its
Affiliates. The redemption price shall be 110.0% of the principal amount of the
notes being redeemed plus accrued and unpaid interest to the redemption date.
In the case of any partial redemption, selection of the notes that will be
redeemed will be made by the trustee in proportion to the percentage of the
total amount of notes outstanding held by each holder, or by lot or by such
other method as the trustee in its sole discretion shall deem to be fair and
appropriate. No note of $1,000 or less in original principal amount shall be
redeemed in part. If any note is to be redeemed in part only, the notice of
redemption relating to that note shall state the portion of the principal amount
of that note that will be redeemed. A new note in principal amount equal to the
unredeemed portion will be issued in the name of the holder of the original note
upon cancellation of the original note.
SUBSIDIARY GUARANTIES
The obligations of Heafner under the notes, including the obligation to
offer to repurchase the senior notes upon a change of control, will be fully and
unconditionally guaranteed, jointly and severally, on a senior unsecured basis,
by each of the subsidiary guarantors. All of the subsidiary guarantors are
directly or indirectly wholly-owned by Heafner. Each subsidiary guaranty will be
limited to an amount that does not exceed the maximum amount that can be
guaranteed by the subsidiary guarantor without rendering its subsidiary guaranty
voidable under applicable laws 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 guaranties and other contingent
liabilities, of the subsidiary guarantor, and, depending on the amount of its
indebtedness, a subsidiary guarantor's liability on its subsidiary guaranty
could be reduced to zero. See "Risk Factors -- Fraudulent Transfer Laws May
Limit Collectibility of Notes in the Event of Bankruptcy."
Upon the sale or other disposition of a subsidiary guarantor, or the sale
or disposition of all or substantially all of the assets of a subsidiary
guarantor, other than to Heafner or an Affiliate of Heafner and which is
permitted by the indenture, the subsidiary guarantor will be released and
relieved from all of its obligations under its subsidiary guaranty.
RANKING
The indebtedness evidenced by the Series D notes will constitute a senior
unsecured obligation of Heafner, ranking equally in right of priority of payment
with all existing and future senior indebtedness of Heafner, including the
Series B notes. In addition, the Series D notes will be senior in right of
payment to all future subordinated indebtedness of Heafner. The subsidiary
guaranties will rank equally in right of priority of payment with all existing
and future senior indebtedness of the subsidiary guarantors, including the
subsidiary guaranties of the Series B notes, and will be senior in right of
payment to all future subordinated indebtedness of the subsidiary guarantors.
The Series D notes and the subsidiary guaranties will be effectively
subordinated to all existing and future secured indebtedness of Heafner and the
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subsidiary guarantors, including indebtedness under the Credit Facility, to the
extent of the value of the assets securing that indebtedness. As of December 31,
1998, Heafner and the subsidiary guarantors had outstanding, either directly or
through guarantees, approximately $185.3 million of indebtedness, all of which
was senior indebtedness, and approximately $27.6 million of which was secured.
In addition, at December 31, 1998, Heafner could have borrowed an additional
$64.7 million under the Credit Facility, all of which would have been secured.
A portion of Heafner's operations are conducted through its subsidiaries.
Claims of creditors of those subsidiaries, including trade creditors, secured
creditors and creditors holding indebtedness and guarantees issued by those
subsidiaries, and claims of any preferred stockholders of those subsidiaries,
generally will have priority over the claims of creditors of Heafner, including
holders of the notes, with respect to the assets and earnings of those
subsidiaries. The notes, therefore, are effectively subordinated to creditors
(including trade creditors) and preferred stockholders (if any) of subsidiaries
of Heafner (other than the subsidiary guarantors). Excluding the subsidiary
guaranties, at December 31, 1998, the total liabilities of Heafner's
subsidiaries, all of whom are subsidiary guarantors, were approximately $67.3
million, including trade payables. Although the indenture limits the incurrence
of Indebtedness and issuance of preferred stock of certain of Heafner's
subsidiaries, the limitation is subject to a number of significant
qualifications. Moreover, the indenture does not impose any limitation on the
incurrence by the subsidiaries of liabilities that are not considered to be
Indebtedness or Preferred Stock under the indenture. See "-- Certain Covenants
- -- Limitation on Indebtedness."
BOOK-ENTRY, DELIVERY AND FORM
The Series D notes will be issued in the form of a global note. The 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 global note may be transferred, in whole
and not in part, only to the Depository or another nominee of the Depository.
Noteholders may hold their beneficial interests in the global note directly
through the Depository if they have an account with the Depository or indirectly
through organizations which have accounts with the Depository.
Series D 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 global note has previously been exchanged for
notes in definitive form, be exchanged for an interest in the global note in an
amount equal to the principal amount of notes being transferred.
The Depository has advised Heafner as follows: The Depository is a
limited-purpose trust company organized under the laws of the State of New York,
is a member of the Federal Reserve System, and is a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and "a clearing
agency" registered under the provisions of Section 17A of the Securities
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, eliminating the need for physical movement of securities
certificates. The Depository's participants include securities brokers and
dealers, which may include the initial purchasers, as well as 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 global note, the Depository will credit, on its
book-entry registration and transfer system, the principal amount of the notes
represented by such global note to the accounts of participants. The accounts to
be credited shall be designated by the trustee. Ownership of beneficial
interests in the global note will be limited to participants or persons that may
hold interests through participants. Ownership of beneficial interests in the
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 by participants, with respect to the owners of
beneficial interests in the global
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note other than participants. The laws of some jurisdictions may require that
certain purchasers of securities take physical delivery of securities in
definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the global note.
So long as the Depository, or its nominee, is the registered holder and
owner of the 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 the notes and the indenture. Except as set forth below, owners of
beneficial interests in the global note will not be entitled to have the notes
represented by the 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
global note. Heafner understands that under existing industry practice, in the
event an owner of a beneficial interest in the global note desires to take any
action that the Depository, as the holder of the global note, is entitled to
take, the Depository would authorize the participants to take that action, and
that the participants would authorize beneficial owners owning through such
participants to take that action or the participants would otherwise act upon
the instructions of beneficial owners owning through them.
Payment of principal of and interest on notes represented by the 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 global note.
Heafner expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the 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. Heafner also expects that
payments by each participant to owners of beneficial interests in the global
note held through that participant will be governed by standing instructions and
customary practices and will be the responsibility of the participant. Heafner
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 global note for any note or for maintaining, supervising or reviewing any
records relating to those beneficial ownership interests or for any other aspect
of the relationship between the Depository and its participants, or the
relationship between the participants and the owners of beneficial interests in
the global note owning through the participants.
Unless and until it is exchanged in whole or in part for certificated notes
in definitive form, the global note may not be transferred except as a whole by
the Depository to a nominee of the Depository or by a nominee of the Depository
to the Depository or another nominee of the Depository.
Although the Depository has agreed to the above procedures in order to
facilitate transfers of interests in the global note among participants of the
Depository, it is under no obligation to perform or continue to perform those
procedures, and it may discontinue them at any time. Neither the trustee nor
Heafner 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 global note will be exchangeable for
certificated notes in definitive form of like tenor as such notes in
denominations of $1,000 and integral multiples of $1,000 if:
- the Depository notifies Heafner that it is unwilling or unable to
continue as Depository for the global note or if at any time the
Depository ceases to be a clearing agency registered under the
Securities Exchange Act and a successor Depository is not appointed by
Heafner within 90 days,
- Heafner in its discretion at any time determines not to have all of the
notes represented by the global note, or
- an Event of Default has occurred and is continuing.
Any note that is exchangeable because of the occurrence of any of the above
events is exchangeable for certificated notes issuable in authorized
denominations and registered in such names as the Depository
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shall direct, subject to certain ownership certification requirements imposed by
Regulation S under the Securities Act. Subject to the foregoing, the global note
is not exchangeable, except for a global note of the same aggregate denomination
to be registered in the name of the Depository or its nominee.
SAME-DAY PAYMENT
Payments in respect of notes, including principal, premium and interest,
will be made by wire transfer of immediately available funds to the accounts
specified by the holders of the notes or, if no account is specified by a
holder, by mailing a check to that holder's registered address.
EXCHANGE OFFER; REGISTRATION RIGHTS
On December 1, 1998, Heafner and the Initial Purchasers entered into the
Registration Rights Agreement. Holders of Series D notes are not entitled to any
registration rights with respect to their Series D notes. Heafner has agreed for
a period of 180 days after the date the registration statement is declared
effective by the SEC 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 Series D notes. The registration statement of which this prospectus is a
part constitutes the registration statement for the exchange offer which is the
subject of the Registration Rights Agreement. Upon the closing of the exchange
offer, subject to certain limited exceptions, holders of untendered Series B or
Series C notes will not retain any rights under the Registration Rights
Agreement.
Following the closing of the exchange offer, the Series C notes and the
Series D notes will vote and consent together on all matters as one class. None
of the Series C notes or the Series D notes will have the right to vote or
consent as a class separate from one another on any matter.
For a discussion of the terms of the Exchange Offer under the Registration
Rights Agreement, See "The Exchange Offer."
CHANGE OF CONTROL
Upon the occurrence of any of the following events, each of which
constitutes a "change of control," each holder shall have the right to require
that Heafner repurchase its notes in accordance with the procedures outlined
below at a price in cash equal to 101% of the principal amount of the holder's
notes. Heafner shall also pay accrued and unpaid interest, if any, to the date
of purchase, except that a holder of record on the relevant record date, if
different from the holder on the date of the repurchase, will have the right to
receive interest due on the relevant interest payment date. It will be a change
of control if any of the following events occurs:
1. Any "person," as that term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act, other than a Permitted Holder, is or becomes
the "beneficial owner," directly or indirectly, of more than 50% of the
total voting power of the Voting Stock of Heafner. A "beneficial owner"
is used here as defined in Rules 13d-3 and 13d-5 under the Securities
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all shares that that person has the right to acquire,
whether their right is exercisable immediately or only in the future. In
addition, a person shall be deemed to beneficially own any Voting Stock
of a corporation held by a parent corporation, if that person is the
beneficial owner, directly or indirectly, of more than 50% of the voting
power of the Voting Stock of the parent corporation.
2. During any period of two consecutive years, the following cease for any
reason to constitute a majority of the board of directors then in
office:
(a) individuals who at the beginning of that period constituted Heafner's
board of directors, together with
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(b) any new directors whose election by Heafner's board of directors, or
whose nomination for election by Heafner's shareholders, was approved
by:
- a vote of 66 2/3% of the directors of Heafner then still in office
who were either directors at the beginning of such period or whose
election or nomination for election was previously approved in
accordance with these procedures, or
- Permitted Holders holding a majority of the aggregate voting power
of the Voting Stock of Heafner held by all Permitted Holders.
3. The adoption of a plan relating to the liquidation or dissolution of
Heafner.
4. The merger or consolidation of Heafner with or into another entity or
the merger of another entity with or into Heafner to another person or
entity who is not controlled by the Permitted Holders, and the
securities of Heafner that are outstanding immediately prior to such
transaction and which represent 100% of the aggregate voting power of
the Voting Stock of Heafner are changed into or exchanged for cash,
securities or property, unless such securities of Heafner are changed
into or exchanged for, in addition to any other consideration,
securities of the surviving corporation that represent at least a
majority of the aggregate voting power of the Voting Stock of the
surviving corporation immediately after such transaction.
5. The sale of all or substantially all the assets of Heafner to another
person or entity who is not controlled by the Permitted Holders.
Within 30 days following any change of control, Heafner shall make a change
of control offer by mailing a notice to each holder, with a copy to the trustee,
stating:
- that a change of control has occurred and that the holder has the right
to require Heafner to purchase the holder's notes at a purchase price in
cash equal to 101% of the principal amount of the holder's notes, 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;
- 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 the change of control;
- the repurchase date, which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed; and
- the instructions determined by Heafner, consistent with this covenant,
that a holder must follow in order to have its notes purchased.
Heafner 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
applicable to a change of control offer made by Heafner and the third party
purchases all notes validly tendered and not withdrawn under its change of
control offer.
Heafner shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Securities Exchange Act and any other securities laws or
regulations in connection with its repurchase of notes as described in this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this covenant, Heafner shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this covenant or the indenture.
The change of control repurchase feature is the result of negotiations
between Heafner and the initial purchasers. Subject to the limitations discussed
below, Heafner 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 or otherwise affect Heafner's capital structure or
credit ratings. Restrictions on the ability of Heafner to incur
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additional Indebtedness are contained in the covenants described under "--
Certain Covenants -- Limitation on Indebtedness," "-- Limitation on Liens" and
"-- Limitation on Sale/Leaseback Transactions." Those 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 those covenants,
however, the indenture does not contain any covenants or provisions that may
afford holders of the notes protection in the event of a highly leveraged
transaction.
The Credit Facility contains, and future indebtedness of Heafner may
contain, prohibitions on the occurrence of certain of the 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 Heafner 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 on Heafner of making the repurchase. If a change of control
occurs, Heafner may not be able to obtain the consents from its lenders that
would be needed to consummate the change of control offer without causing a
default under the Credit Facility or other indebtedness. Finally, Heafner's
ability to pay cash to the holders of notes following the occurrence of a change
of control may be limited by Heafner's then existing financial resources. There
may not be sufficient funds available when necessary to make any required
repurchases.
The potential inability of Heafner to obtain sufficient funds to consummate
a repurchase of notes or other indebtedness in connection with a change of
control could have the effect of deterring certain mergers, tender offers or
other takeover attempts involving Heafner and could adversely affect the market
price of Heafner's securities or its ability to obtain additional financing. The
provisions under the indenture relative to Heafner'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 the following:
LIMITATION ON INDEBTEDNESS
Heafner shall not, and shall not permit any Restricted Subsidiary to,
incur, directly or indirectly, any Indebtedness, except that Heafner may incur
Indebtedness if, on the date of, and after giving effect to, the incurrence, 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 on or after May 15, 2000.
Heafner and the Restricted Subsidiaries may also incur any or all of the
following Indebtedness, regardless of whether the above test is met:
1. Indebtedness incurred under the Credit Facility, except that, after
giving effect to that incurrence, the aggregate principal amount of
Indebtedness then outstanding under the Credit Facility does not
exceed the greater of:
- $100 million less the sum of all principal payments with respect to
that Indebtedness described in Point (2)(A) of the covenant described
under "-- Limitation on Sales of Assets and Subsidiary Stock," and
- the sum of 65% of the book value of the inventory of Heafner and its
Restricted Subsidiaries and 85% of the book value of the accounts
receivables of Heafner and its Restricted Subsidiaries;
2. Indebtedness owed to and held by Heafner or a Restricted Subsidiary;
provided, however, that:
- any subsequent issuance or transfer of any Capital Stock which
results in any Restricted Subsidiary ceasing to be a Restricted
Subsidiary, or any subsequent transfer of such
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Indebtedness other than to Heafner or a Restricted Subsidiary, shall
be deemed, in each case, to constitute the incurrence of such
Indebtedness by the obligor thereon, and
- if Heafner is the obligor on such Indebtedness, then such
Indebtedness is expressly subordinated to the prior payment in full
in cash of all obligations with respect to the notes;
3. the Series B notes, the Series C notes and the Series D notes;
4. Vendor Financing, and Refinancing Indebtedness in respect of Vender
Financing, in an aggregate amount which does not exceed $20 million,
when taken together with all other outstanding Indebtedness incurred
in accordance with the covenant described in this Point (4), including
Vendor Financing outstanding on May 20, 1998;
5. Attributable Debt in respect of Sale/Leaseback Transactions, and
Refinancing Indebtedness in respect of Sale/Leaseback Transactions, in
an amount which does not exceed $15 million when taken together with
all other outstanding Indebtedness incurred in accordance with the
covenant described in this Point (5), but only if the Sale/Leaseback
Transactions comply with the covenant described under "-- Limitation
on Sale/Leaseback Transactions";
6. Indebtedness outstanding, or incurred under commitments that were
outstanding, on May 20, 1998, other than Indebtedness described in
Points (1), (2), (3), (4) or (5) above;
7. Indebtedness of a Restricted Subsidiary incurred and outstanding on or
prior to the date on which that Subsidiary was acquired by Heafner,
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 transactions by which that Subsidiary
became a Subsidiary or was acquired by Heafner if, on the date of the
acquisition and after giving effect to the acquisition, Heafner would
have been able to incur at least $1.00 of additional Indebtedness
under the Consolidated Coverage Ratio test described in the first
paragraph of this "-- Limitation on Indebtedness" covenant summary;
8. Refinancing Indebtedness in respect of Indebtedness incurred in
accordance with the Consolidated Coverage Ratio test described in the
first paragraph of this "--Limitation on Indebtedness" covenant
summary or in accordance with Points (3), (6), (7) or this Point (8),
except that Refinancing Indebtedness that directly or indirectly
refinances Indebtedness of a Subsidiary incurred in accordance with
Point (7) shall be incurred only by the Subsidiary;
9. Hedging Obligations consisting of Interest Rate Agreements directly
related to Indebtedness permitted to be incurred by Heafner under the
indenture;
10. the subsidiary guaranties of the Series B notes, Series C notes and
Series D notes; and
11. Indebtedness of Heafner in an aggregate principal amount which,
together with all other Indebtedness of Heafner outstanding on the date
of such incurrence other than Indebtedness permitted as described in
Points (1) through (10) above or the first paragraph of this "--
Limitation on Indebtedness" covenant summary, does not exceed $15
million.
However, Heafner shall not incur any Indebtedness under Points (1) through
(11) if the proceeds of the Indebtedness are used, directly or indirectly, to
refinance any Subordinated Obligations unless that Indebtedness shall be
subordinated to the notes to at least the same degree as the Subordinated
Obligations that are refinanced. For purposes of determining compliance with
this covenant:
- if an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described in Points (1) through (11), Heafner, in
its sole discretion, will classify that item of Indebtedness and only be
required to include the amount and type of that Indebtedness in one of
the above types, and
- an item of Indebtedness may be divided and classified in more than one
of the types of Indebtedness described in Points (1) through (11).
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LIMITATION ON RESTRICTED PAYMENTS
Heafner shall not, and shall not permit any Restricted Subsidiary, directly
or indirectly, to make a Restricted Payment if at the time Heafner or such
Restricted Subsidiary makes that Restricted Payment:
1. a Default shall have occurred and be continuing or would result from the
making of the Restricted Payment;
2. Heafner is not able to incur an additional $1.00 of Indebtedness under
the test in the first paragraph of the covenant described under "--
Limitation on Indebtedness"; or
3. the aggregate amount of the Restricted Payment and all other Restricted
Payments since May 20, 1998, would exceed the sum of:
A. 50% of the Consolidated Net Income accrued during the period from
July 1, 1998 to the end of the most recent fiscal quarter ending at
least 45 days prior to the date of such Restricted Payment, or, if
the Consolidated Net Income is a deficit, subtract an amount equal to
100% of that deficit;
B. the aggregate Net Cash Proceeds received by Heafner from the issuance
or sale of its Capital Stock, other than Disqualified Stock,
subsequent to May 20, 1998, other than an issuance or sale to a
Subsidiary of Heafner and other than an issuance or sale to an
employee stock ownership plan or to a trust established by Heafner or
a Subsidiary of Heafner for the benefit of its employees;
C. the aggregate Net Cash Proceeds received by Heafner after May 20,
1998, 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 Heafner, except that if the
employee stock ownership plan incurs any Indebtedness, the aggregate
amount shall be limited to an amount equal to any increase in the
Consolidated Net Worth of Heafner resulting from principal repayments
made by the employee stock ownership plan with respect to
Indebtedness incurred by it to finance the purchase of the Capital
Stock;
D. the amount by which Indebtedness of Heafner is reduced on Heafner's
balance sheet after May 20, 1998, upon the conversion or exchange,
other than by a Subsidiary of Heafner, of any Indebtedness of Heafner
convertible or exchangeable for Capital Stock of Heafner, other than
Disqualified Stock, less the amount of any cash, or the fair value of
any other property, distributed by Heafner upon that conversion or
exchange;
E. an amount equal to the sum of:
- the net reduction in Investments in a person or entity resulting
from dividends, repayments of loans or advances or other transfers
of assets to Heafner or any Restricted Subsidiary from such person
or entity, and
- the portion, proportionate to Heafner'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;
except that that sum shall not exceed, for any particular person or
entity, the amount of Investments previously made by Heafner or any
Restricted Subsidiary in such person or entity from May 20, 1998 to
the date of the Restricted Payment, and which are included in the
calculation of Restricted Payments; and
F. $5.0 million.
The following will not be prohibited, regardless of the provisions of the
above paragraph:
1. any acquisition of any Capital Stock of Heafner made out of the
proceeds of the substantially concurrent sale of, or made by exchange
for, Capital Stock of Heafner, other than Disqualified
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Stock and other than Capital Stock issued or sold to a Subsidiary of
Heafner or an employee stock ownership plan or to a trust established by
Heafner or any of its Subsidiaries for the benefit of their employees;
provided that:
- the acquisition of Capital Stock shall be excluded in the calculation
of the amount of Restricted Payments, and
- the Net Cash Proceeds from such sale shall be excluded from the
calculation of amounts under Point (3)(B) above;
2. 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 Heafner which is permitted to be incurred under the
covenant described under "-- Limitation on Indebtedness"; provided
that that purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value shall be excluded in the
calculation of the amount of Restricted Payments;
3. dividends paid within 60 days after the date they are declared if at
the date of declaration the dividend would have complied with this
covenant, except that the payment may not be made if, at the time of
payment of the dividend, another Default shall have occurred and be
continuing or would result from the payment and provided that the
dividend shall be included in the calculation of the amount of
Restricted Payments;
4. the repurchase or other acquisition of shares of, or options to
purchase shares of, common stock of Heafner or any of its Subsidiaries
from employees, former employees, directors or former directors of
Heafner or any of its Subsidiaries or from permitted transferees of
such employees, former employees, directors or former directors:
- upon death, retirement, severance or termination of employment or
service, or
- under the terms of the agreements, including employment agreements,
or plans approved by the board of directors under which such
individuals purchase or sell or are granted the option to purchase or
sell, shares of common stock of Heafner or its Subsidiaries;
except that the aggregate amount of such repurchases and other
acquisitions may not exceed $1.0 million in any calendar year and
such repurchases and other acquisitions must be excluded in the
calculation of the amount of Restricted Payments;
5. 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,
but only in the amounts required to be paid by Heafner under the
terms, as stated on May 20, 1998, of that stock, provided that that
payment shall be excluded in the calculation of the amount of
Restricted Payments; or
6. payments not to exceed $1.5 million in the aggregate to employees of
ITCO in respect of certain stock appreciation rights granted by ITCO
and required to be made upon consummation of the Transactions,
provided that such payments shall be excluded from the calculation of
the amount of Restricted Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES
Heafner 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
Heafner or a Restricted Subsidiary or pay any Indebtedness owed to
Heafner,
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(b) make any loans or advances to Heafner, or
(c) transfer any of its property or assets to Heafner.
However, Heafner may, and may permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective:
1. any encumbrance or restriction under an agreement in effect at or
entered into on May 20, 1998 or the Credit Facility as in effect on
May 20, 1998;
2. any encumbrance or restriction with respect to a Restricted Subsidiary
under an agreement relating to any Indebtedness incurred by that
Restricted Subsidiary on or prior to the date on which that Restricted
Subsidiary was acquired by Heafner and outstanding on the date that
Restricted Subsidiary was acquired by Heafner, 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 by which that Restricted Subsidiary
became a Restricted Subsidiary or was acquired by Heafner;
3. any encumbrance or restriction under an agreement effecting a
Refinancing of Indebtedness incurred under an agreement referred to in
Points (1) or (2) above or in this Point (3), or contained in any
amendment to an agreement referred to in Point (1) or (2) above or in
this Point (3), except that the encumbrances and restrictions with
respect to the 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 the Restricted Subsidiary contained in the predecessor
agreements;
4. any encumbrance or restriction consisting of customary provisions
restricting assignments, subletting or other transfers contained in
leases, licenses and similar agreements to the extent those provisions
restrict the transfer of the property subject thereto, or customary
provisions restricting the assignment or other transfer of any lease
or other contract;
5. in the case of Point (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
6. any restriction with respect to a Restricted Subsidiary imposed under
an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of that Restricted
Subsidiary pending the closing of the sale or disposition.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK
Heafner shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless:
1. Heafner or the Restricted Subsidiary receives consideration at the
time of the 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 Heafner, of the shares and
assets subject to the Asset Disposition and at least 75% of the
consideration received by Heafner or the Restricted Subsidiary is in
the form of cash or cash equivalents, and
2. an amount equal to 100% of the Net Available Cash from the Asset
Disposition is applied by Heafner or the Restricted Subsidiary, as the
case may be, as follows:
A. first, to prepay, repay, redeem or purchase Senior Indebtedness or
Indebtedness of a Wholly Owned Subsidiary, other than any
Disqualified Stock and other than Indebtedness owed to Heafner or an
Affiliate of Heafner, within one year from the later of the date of
the Asset Disposition or the receipt of the Net Available Cash, to
the extent that Heafner elects, or is required by the terms of any
Indebtedness;
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B. second, the balance of the Net Available Cash remaining after
application in accordance with Point (A), to the extent Heafner
elects, to acquire Additional Assets within one year from the later
of the date of the Asset Disposition or the receipt of the Net
Available Cash;
C. third, to the extent of the balance of the Net Available Cash
remaining after application in accordance with Points (A) and (B), to
make an offer to the holders of the notes and to holders of other
Senior Indebtedness designated by Heafner to purchase notes and such
other Senior Indebtedness in accordance with the conditions contained
in the indenture; and
D. fourth, to the extent of the balance of the Net Available Cash
remaining after application in accordance with Points (A), (B) and
(C), in any manner that does not violate the indenture.
In connection with any prepayment, repayment or purchase of Indebtedness
under Points (A) or (C) above, Heafner or the Restricted Subsidiary must
permanently retire that Indebtedness and must cause any related loan commitment
to be permanently reduced in an amount equal to the principal amount prepaid,
repaid or purchased.
Heafner and the Restricted Subsidiaries shall not, however, be required to
apply any Net Available Cash in accordance with Point (2) above, except to the
extent that the aggregate Net Available Cash from all Asset Dispositions which
are not applied in accordance with Point (2) exceeds $5 million. Pending
application of any Net Available Cash under this covenant, that 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:
- the assumption of Indebtedness of Heafner or any Restricted Subsidiary
and the release of Heafner or the Restricted Subsidiary from all
liability on that Indebtedness in connection with the Asset Disposition,
and
- securities received by Heafner or any Restricted Subsidiary from the
transferee that are promptly converted by Heafner or the Restricted
Subsidiary into cash.
In the event of an Asset Disposition that requires the purchase of the
notes (and other Senior Indebtedness) under Point (2)(C) above, Heafner will be
required to purchase notes tendered in an offer by Heafner for the notes (and
other Senior Indebtedness) at a purchase price of 100% of their principal amount
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 set forth in the
indenture, including prorating in the event of oversubscription. If the
aggregate purchase price of notes (and any other Senior Indebtedness) tendered
in the offer is less than the Net Available Cash allotted to the purchase of
notes (and other Senior Indebtedness), Heafner shall apply the remaining Net
Available Cash in accordance with Point (2)(D) above. Heafner shall not be
required to make an offer to purchase notes (and other Senior Indebtedness)
under this covenant if the Net Available Cash available for the offer is less
than $5.0 million. However, that lesser amount shall be added to the Net
Available Cash from any subsequent Asset Disposition for purposes of determining
whether an offer is required to be made with respect to the Net Available Cash
from that subsequent Asset Disposition.
Heafner shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Securities Exchange Act of 1934, as amended, and any other
securities laws or regulations in connection with the repurchase of notes under
the covenant described in this section. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this covenant,
Heafner shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations as described under this
clause by virtue of such compliance.
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LIMITATION ON AFFILIATE TRANSACTIONS
Heafner shall not, and shall not permit any Restricted Subsidiary to, enter
into any transaction with an Affiliate of Heafner (an "Affiliate Transaction"),
including the purchase, sale, lease or exchange of any property, employee
compensation arrangements or the rendering of any service, unless:
1. the terms of the Affiliate Transaction are no less favorable to
Heafner or the Restricted Subsidiary than those that could be obtained
at the time of the Affiliate Transaction in arm's-length dealings with
a person or entity who is not an Affiliate of Heafner,
2. if the Affiliate Transaction involves an amount in excess of $1
million, the terms of the Affiliate Transaction are set forth in
writing and have been approved by a majority of the members of the
board of directors of Heafner having no personal stake in the
Affiliate Transaction, and
3. if the Affiliate Transaction involves an amount in excess of $7.5
million, the terms of the Affiliate Transaction have been determined
by a nationally recognized investment banking firm to be fair, from a
financial standpoint, to Heafner and its Restricted Subsidiaries.
However, this covenant shall not prohibit:
- any transaction permitted under the covenant described under "--
Limitation on Restricted Payments," or explicitly excluded from the
definition of "Restricted Payment,"
- any issuance of securities or other payments, awards or grants in cash,
securities or otherwise, under, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the
board of directors of Heafner,
- the grant of stock options or similar rights to employees and directors
of Heafner under plans approved by the board of directors,
- loans or advances to employees in the ordinary course of business in
accordance with the past practices of Heafner or its Restricted
Subsidiaries, but in any event not to exceed $1 million in the aggregate
outstanding at any one time,
- the payment of reasonable fees to directors of Heafner and its
Restricted Subsidiaries who are not employees of Heafner or its
Restricted Subsidiaries,
- any Affiliate Transaction between Heafner and a Restricted Subsidiary or
between Restricted Subsidiaries; provided, however, that no Affiliate of
Heafner (other than another Restricted Subsidiary) owns the Capital
Stock of any such Restricted Subsidiary,
- the issuance or sale of any Capital Stock (other than Disqualified
Stock) of Heafner, or
- the amendment or extension or renewal of any transaction in effect on
May 20, 1998 on terms no less favorable to Heafner and its Restricted
Subsidiaries than the terms in effect on May 20, 1998.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
Heafner 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:
- to Heafner or a Wholly Owned Subsidiary,
- directors' qualifying shares,
- if, immediately after giving effect to the issuance, sale or other
disposition of the Capital Stock, neither Heafner nor any of its
Subsidiaries own any Capital Stock of that Restricted Subsidiary, or
- if, immediately after giving effect to the issuance, sale or other
disposition of the Capital Stock, that Restricted Subsidiary would no
longer constitute a Restricted Subsidiary and any Investment in the
former Restricted Subsidiary remaining after giving effect to the
issuance, sale or other
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disposition of its Capital Stock would have been permitted to be made
under the covenant described under "-- Limitation on Restricted Payments"
on the date of the issuance, sale or other disposition.
LIMITATION ON LIENS
Heafner 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 May 20, 1998 or later acquired, other than
Permitted Liens, without effectively providing that the notes shall be secured
equally and ratably with or prior to the obligations secured for so long as
those obligations are secured.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS
Heafner shall not, and shall not permit any Restricted Subsidiary to, enter
into any Sale/Leaseback Transaction with respect to any property unless:
1. Heafner or such Subsidiary would be entitled to:
- incur Indebtedness in an amount equal to the Attributable Debt with
respect to the Sale/ Leaseback Transaction under the covenant
described under "-- Limitation on Indebtedness," and
- create a Lien on the property securing the Attributable Debt without
equally and ratably securing the notes in accordance with the covenant
described under "-- Limitation on Liens,"
2. the net proceeds received by Heafner or any Restricted Subsidiary in
connection with the Sale/ Leaseback Transaction are at least equal to
the fair value of such property as determined by the board of directors
of Heafner, and
3. Heafner applies the proceeds of the transaction in compliance with the
covenant described under "-- Limitation on Sale of Assets and Subsidiary
Stock."
However, the sale by ITCO Holding Company, Inc., a former subsidiary of
ITCO, or its successor of its facility in Orlando, Florida owned as of May 20,
1998, and the subsequent lease by ITCO Holding Company, Inc. or its successor of
such facility as contemplated as of May 20, 1998, shall not be a Sale/ Leaseback
Transaction for purposes of this covenant.
MERGER AND CONSOLIDATION
Heafner 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:
1. the resulting, surviving or transferee person or entity (the "Successor
Issuer") shall be a person or entity organized and existing under the
laws of the United States, any State of the United States or the
District of Columbia and the Successor Issuer, if not Heafner, shall
expressly assume all the obligations of Heafner under the notes and the
Series D indenture, by a supplemental indenture executed and delivered
to the trustee in a form satisfactory to the trustee;
2. immediately after giving effect to the transaction, and treating any
Indebtedness which becomes an obligation of the Successor Issuer or any
Subsidiary as a result of the transaction as having been incurred by the
Successor Issuer or the Subsidiary at the time of the transaction, no
Default shall have occurred and be continuing;
3. immediately after giving effect to the transaction, the Successor Issuer
would be able to incur an additional $1.00 of Indebtedness under the
Consolidated Coverage Ratio test in the covenant described under "--
Limitation on Indebtedness," except that the requirements described in
this Point (3) shall not apply to a merger between Heafner and any
Wholly Owned Subsidiary;
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4. immediately after giving effect to the transaction, the Successor Issuer
shall have Consolidated Net Worth in an amount that is not less than the
Consolidated Net Worth of Heafner immediately prior to the transaction,
except that the requirements described in this Point (4) shall not apply
to a merger between Heafner and any Wholly Owned Subsidiary;
5. Heafner shall have delivered to the trustee an officers' certificate and
an opinion of counsel addressed to the trustee with respect to the
foregoing matters; and
6. Heafner 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 the 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 the transaction had
not occurred.
Heafner 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 or entity
unless:
- the transaction or transactions results in a release of the subsidiary
guarantor as described under "-- Subsidiary Guaranties" above, provided
that Heafner certifies to the trustee that Heafner will comply with the
covenant described under "-- Limitation on Sales of Assets and
Subsidiary Stock";
- the resulting, surviving or transferee person or entity, if not the
subsidiary guarantor, shall be organized and existing under the laws of
the United States, or any State of the United States or the District of
Columbia, and shall expressly assume, by a Guaranty Agreement, in a form
satisfactory to the trustee, all the obligations of the subsidiary
guarantor, if any, under its subsidiary guaranty;
- immediately after giving effect to the transaction or transactions on a
pro forma basis, and treating any Indebtedness which becomes an
obligation of the resulting, surviving or transferee person or entity as
a result of the transaction as having been issued by that person or
entity at the time of the transaction, no Default shall have occurred
and be continuing; and
- Heafner delivers to the trustee an officers' certificate and an opinion
of counsel addressed to the trustee with respect to the above matters.
The Successor Issuer shall be the successor to Heafner and shall succeed
to, and be substituted for, and may exercise every right and power of, Heafner
under the Series D 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 the subsidiary guarantor and shall succeed to, and be substituted
for, and may exercise every right and power of, the subsidiary guarantor under
the Series D indenture, but the 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
Heafner shall cause each domestic Restricted Subsidiary, other than an
Immaterial Subsidiary that is neither a borrower nor a guarantor under the
Credit Facility, to execute and deliver to the trustee a Guaranty Agreement
under which the Restricted Subsidiary will guarantee payment of the notes on the
same terms and conditions as those set forth in the indenture.
SEC REPORTS
Whether or not it is subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act, Heafner shall file with the SEC, to the
extent its filings are accepted by the SEC, and shall provide the trustee and
noteholders with any information, documents and reports as are specified in
Sections 13 and 15(d) of the Securities Exchange Act and applicable to a U.S.
corporation subject to
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those Sections. Heafner shall file such information, documents and reports and
shall provide them to the trustee and noteholders, at the times specified for
the filing of such information, documents and reports under the Securities
Exchange Act.
DEFAULTS
An Event of Default is defined in the indenture as:
1. a default in the payment of interest on the notes when due, continued
for 30 days,
2. a default in the payment of principal of any note when due at its Stated
Maturity, whether upon optional redemption, upon required repurchase,
upon declaration or otherwise,
3. the failure by Heafner to comply with its obligations under "-- Certain
Covenants -- Merger and Consolidation" above,
4. the failure by Heafner to comply for 30 days after notice with any of
its obligations described above (a) under "Change of Control," other
than a failure to purchase notes, or (b) in the covenants described
under "-- Certain Covenants -- 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,"
5. the failure by Heafner to comply for 60 days after notice with its other
agreements contained in the indenture,
6. Indebtedness of Heafner, any subsidiary guarantor or any Significant
Subsidiary is not paid within any applicable grace period after final
maturity or is accelerated by the holders of the Indebtedness because of
a default and the total amount of the Indebtedness unpaid or accelerated
exceeds $10 million (the "cross acceleration provision"),
7. certain events of bankruptcy, insolvency or reorganization of Heafner or
a Significant Subsidiary (the "bankruptcy provisions"),
8. any final, non-appealable judgment or decree for the payment of money in
excess of $10 million is entered against Heafner or a Significant
Subsidiary, remains outstanding for a period of 60 days following the
judgment and is not discharged, waived or stayed within 10 days after
notice (the "judgment default provision"), or
9. 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 Points (4), (5) and (8) will not constitute an
Event of Default until the trustee or the holders of 25% in principal amount of
the outstanding notes notify Heafner of the default and Heafner does not cure
the default within the time specified after receipt of the 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, the principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of Heafner occurs and is continuing,
the principal of and interest on all the notes will 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.
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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
the 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:
- the holder has previously given the trustee notice that an Event of
Default is continuing,
- holders of at least 25% in principal amount of the outstanding notes
have requested the trustee to pursue the remedy,
- such holders have offered the trustee reasonable security or indemnity
against any loss, liability or expense,
- the trustee has not complied with the request within 60 days after the
receipt of the request and the offer of security or indemnity, and
- the holders of a majority in principal amount of the outstanding notes
have not given the trustee a direction inconsistent with the request
within that 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, Heafner is required to deliver to the trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
of the certificate know of any Default that occurred during the previous year.
Heafner also is required to deliver to the trustee, within 30 days after its
occurrence, written notice of any event which would constitute certain Defaults,
their status and what action Heafner 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, which may include consents obtained in connection with a tender
offer or exchange for the notes. 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 by the amendment, no amendment may,
among other things:
- reduce the amount of notes whose holders must consent to an amendment,
- reduce the rate of or extend the time for payment of interest on any
note,
- reduce the principal of or extend the Stated Maturity of any note,
- 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,"
- make any note payable in money other than that stated in the note,
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- 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 for such payments or to institute suit for the enforcement of any
payment on or with respect to such holder's notes,
- make any change in the amendment provisions which require each holder's
consent or in the waiver provisions, or
- make any change in any subsidiary guaranty that would adversely affect
the noteholders.
Without the consent of any holder of the notes, Heafner, 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 Heafner or the subsidiary guarantors under the
Series D indenture, to provide for uncertificated notes in addition to or in
place of certificated notes so long as the uncertificated notes are issued in
registered form for purposes of Section 163(f) of the Internal Revenue Code, or
in a manner such that the uncertificated notes are described in Section
163(f)(2)(B) of the Internal Revenue Code, to add guarantees with respect to the
notes, to secure the notes, to add to the covenants of Heafner or the subsidiary
guarantors for the benefit of the holders of the notes or to surrender any right
or power conferred upon Heafner, 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 Series D indenture under
the Trust indenture Act.
The consent of the holders of the notes is not necessary under the Series D
indenture to approve the particular form of any proposed amendment. It is
sufficient if their consent, if their consent is necessary, approves the
substance of the proposed amendment.
After an amendment under the Series D indenture becomes effective, Heafner
is required to mail to holders of the notes a notice briefly describing the
amendment. However, the failure to give that notice to all holders of the notes,
or any defect in the notice, will not impair or affect the validity of the
amendment.
The Series D indenture provides that the Series C notes and the Series D
notes will vote and consent together on all matters as one class and that none
of the Series C notes or the Series D notes will have the right to vote or
consent as a class separate from one another on any matter. However, any Series
B notes that remain outstanding after the exchange offer will continue to be
governed by the Series B indenture and will vote and consent separately from the
Series C notes and Series D notes on all matters.
TRANSFER
The Series D notes will be issued in registered form and will be
transferable only upon the surrender of the Series D notes being transferred for
registration of transfer. Heafner 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 this
exchange offer.
DEFEASANCE
Heafner at any time may terminate all its obligations under the notes and
the Series D 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. Heafner at any time may terminate its obligations under the "Change of
Control" provision and under the covenants described under "-- Certain
Covenants" except for 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 Points (3) and (4) under "-- Certain Covenants -- Merger and
Consolidation" above ("covenant defeasance").
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Heafner may exercise its legal defeasance option regardless of any previous
exercise of its covenant defeasance option. If Heafner exercises its legal
defeasance option, payment of the notes may not be accelerated because of an
Event of Default with respect to the notes. If Heafner exercises its covenant
defeasance option, payment of the notes may not be accelerated because of an
Event of Default specified in Points (4), (6), (7) (with respect only to
Significant Subsidiaries) or (8) under "-- Defaults" above or because of the
failure of Heafner to comply with Points (3) or (4) under "-- Certain Covenants
- --Merger and Consolidation" above. If Heafner 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, Heafner 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. In the case of legal defeasance only, the opinion of counsel must
be based on a ruling of the Internal Revenue Service or a change in applicable
Federal income tax law.
CONCERNING THE TRUSTEE
First Union National Bank is the trustee under the Series D indenture and
the Series B indenture and has been appointed by Heafner as registrar and paying
agent with regard to the Series B notes, the Series C notes and the Series D
notes.
The indenture contains certain limitations on the rights of the trustee,
should the trustee become a creditor of Heafner, 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, except that if it acquires any conflicting interest it must either
eliminate the conflict within 90 days, apply to the SEC for permission to
continue or resign as trustee.
The Holders of a majority in principal amount of the Series C and Series D
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee under the Series D
indenture, subject to certain exceptions. The Series D indenture provides that
if an Event of Default occurs and is not cured, the trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to those provisions, the trustee will be
under no obligation to exercise any of its rights or powers under the Series D
indenture at the request of any holder of notes, unless that holder shall have
offered to the trustee security and indemnity satisfactory to the trustee
against any loss, liability or expense and then only to the extent required by
the terms of the Series D indenture.
GOVERNING LAW
The Series D 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 by those
principles.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the Series D
indenture without charge by contacting Heafner at 2105 Water Ridge Parkway,
Suite 500, Charlotte, North Carolina 28217 or by telephone at (704) 423-8989.
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CERTAIN DEFINITIONS
"Additional Assets" means:
1. any property or assets, other than Indebtedness and Capital Stock, in a
Related Business;
2. the Capital Stock of a person or entity that becomes a Restricted
Subsidiary as a result of the acquisition of that Capital Stock by
Heafner or another Restricted Subsidiary, or
3. Capital Stock constituting a minority interest in any person or entity
that at the time is a Restricted Subsidiary,
but, as to Points (2) and (3) above, only if the Restricted Subsidiary described
in those Points is primarily engaged in a Related Business.
"Affiliate" of any specified person or entity means any other person or
entity directly or indirectly, controlling or controlled by or under direct or
indirect common control with such specified person or entity. For the purposes
of this definition, "control," when used with respect to any person or entity
means the power to direct the management and policies of such person or entity,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
correlative meanings. For purposes of the provisions described under "-- Certain
Covenants -- Limitation on Restricted Payments," "-- Limitation on Affiliate
Transactions" and "-- Limitation on Sales of Assets and Subsidiary Stock" only,
"Affiliate" shall also mean any beneficial owner of Capital Stock representing
5% or more, on a fully diluted basis, of the total voting power of the Voting
Stock of Heafner or of rights or warrants to purchase such Capital Stock,
whether or not currently exercisable, and any person or entity who would be an
Affiliate of any such beneficial owner under the first sentence of this
definition.
"Asset Disposition" means any sale, lease, transfer or other disposition,
or series of related sales, leases, transfers or dispositions, by Heafner 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:
- 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 or entity other than Heafner or a Restricted
Subsidiary,
- all or substantially all the assets of any division or line of business
of Heafner or any Restricted Subsidiary, or
- any other assets of Heafner or any Restricted Subsidiary outside of the
ordinary course of business of Heafner or such Restricted Subsidiary.
However, the following shall not constitute an Asset Disposition:
- a disposition by a Restricted Subsidiary to Heafner or by Heafner or a
Restricted Subsidiary to a Restricted Subsidiary,
- 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,"
- 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
- 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 notes, compounded annually,
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of the total obligations of the lessee for rental payments during the remaining
term of the lease included in the Sale/ Leaseback Transaction, including any
period for which the 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 (a) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of that Indebtedness or
redemption or similar payment with respect to that Preferred Stock multiplied by
the amount of such payment, by (b) the sum of all such payments.
"Banks" means the Lenders as defined in the Credit Facility.
"Bank Indebtedness" means all obligations under the Credit Facility.
"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 that
obligation shall be the capitalized amount of that obligation determined in
accordance with GAAP; and the Stated Maturity of that obligation shall be the
date of the last payment of rent or any other amount due under the lease prior
to the first date upon which the lease may be terminated by the lessee without
payment of a penalty.
"Capital Stock" of any person or entity means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests, however designated, in equity of that person or
entity, including any Preferred Stock but excluding any debt securities
convertible into any such equity.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (a) 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
determination to (b) Consolidated Interest Expense for such four fiscal
quarters. With respect to Indebtedness incurred under a revolving credit
facility, however, 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 Heafner. In
addition:
1. if Heafner or any Restricted Subsidiary has incurred any Indebtedness
since the beginning of such period and that Indebtedness 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 case Indebtedness incurred under a revolving
credit facility), then EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to
that Indebtedness as if it had been incurred on the first day of such
period, and to the application of the proceeds of that 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 that Indebtedness, as if the
application had occurred on the first day of such period;
2. if Heafner 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, then EBITDA and Consolidated Interest Expense for such
period shall be calculated on a pro forma basis as if that discharge had
occurred on the first day of such period and as if Heafner or the
Restricted Subsidiary had not earned the interest income actually earned
during such period in respect of cash or Temporary Cash Investments used
to repay, repurchase, defease or otherwise discharge that Indebtedness;
3. if since the beginning of such period Heafner or any Restricted
Subsidiary shall have made any Asset Disposition or disposition of a
Permitted Investment (a "Disposition"), then EBITDA for
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such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of
the Disposition for such period, or increased by an amount equal to the
EBITDA (if negative), directly attributable to the Disposition 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 Heafner or any Restricted Subsidiary
repaid, repurchased, defeased or otherwise discharged with respect to
Heafner and its continuing Restricted Subsidiaries in connection with
the 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 the
Restricted Subsidiary to the extent Heafner and its continuing
Restricted Subsidiaries are no longer liable for the Indebtedness after
the sale;
4. if since the beginning of such period Heafner or any Restricted
Subsidiary, by merger or otherwise, shall have made an Investment in any
Restricted Subsidiary or any person or entity 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, then EBITDA and Consolidated Interest Expense
for such period shall be calculated after giving pro forma effect to the
Investment or acquisition (including the incurrence of any Indebtedness
other than under a revolving credit facility) as if the Investment or
acquisition occurred on the first day of such period; and
5. if since the beginning of such period any person or entity that
subsequently became a Restricted Subsidiary or was merged with or into
Heafner 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 under Points (3) or (4) above if
made by Heafner or a Restricted Subsidiary during such period, then
EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect to the Disposition, Investment
or acquisition as if the 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 to the
acquisition and the amount of Consolidated Interest Expense associated with any
Indebtedness incurred in connection with the acquisition, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting officer of Heafner. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest on that 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 Heafner and its consolidated Restricted Subsidiaries, plus, to the
extent not included in such total interest expense, and to the extent incurred
by Heafner or its Restricted Subsidiaries, without duplication:
- 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,
- amortization of debt discount and debt issuance cost,
- capitalized interest,
- non-cash interest expenses,
- commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing,
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- net costs associated with Hedging Obligations, including amortization of
fees,
- Preferred Stock dividends in respect of all Preferred Stock held by
Persons other than Heafner or a Wholly Owned Subsidiary, other than
non-cash dividends in respect of Preferred Stock that is not
Disqualified Stock of Heafner,
- interest incurred in connection with Investments in discontinued
operations,
- interest accruing on any Indebtedness of any other person or entity to
the extent that Indebtedness is Guaranteed by, or secured by the assets
of, Heafner or any Restricted Subsidiary, and
- the cash contributions to any employee stock ownership plan or similar
trust to the extent those contributions are used by that plan or trust
to pay interest or fees to any person or entity, other than Heafner, in
connection with Indebtedness incurred by that plan or trust.
"Consolidated Net Income" means, for any period, the net income of Heafner
and its consolidated Subsidiaries, except that there shall not be included in
Consolidated Net Income:
1. any net income of any person or entity, other than Heafner, if that
person or entity is not a Restricted Subsidiary, except that:
- subject to the exclusion contained in Point (4) below, Heafner's
equity in the net income of that person or entity for such period
shall be included in Consolidated Net Income up to the aggregate
amount of cash actually distributed by that person or entity during
such period to Heafner 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 Point (3) below, and
- Heafner's equity in a net loss of that person or entity for such
period shall be included in determining such Consolidated Net Income;
2. any net income or loss of any person or entity acquired by Heafner or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
3. any net income of any Restricted Subsidiary to the extent the 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 Heafner, except that Heafner's
equity in a net loss of any such Restricted Subsidiary for such period
shall be included in determining Consolidated Net Income;
4. any gain or loss realized upon the sale or other disposition of any
assets of Heafner, its consolidated Subsidiaries or any other person or
entity, including under 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 or entity;
5. extraordinary gains or losses; and
6. the cumulative effect of a change in accounting principles.
However, 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 Heafner or a
Restricted Subsidiary to the extent those dividends, repayments or transfers
increase the amount of Restricted Payments permitted under Point (3)(D) of that
covenant.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of Heafner and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of Heafner ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as:
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1. the par or stated value of all outstanding Capital Stock of Heafner,
plus
2. paid-in capital or capital surplus relating to that Capital Stock, plus
3. any retained earnings or earned surplus, less:
- any accumulated deficit, and
- any amounts attributable to Disqualified Stock.
"Credit Facility" means the Amended and Restated Loan and Security
Agreement, dated as of May 20, 1998, by and among Heafner, 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 to the Credit Facility including the notes,
guarantees and security documents under the Credit Facility, 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.
"Currency Agreement" means, in respect of any person or entity, any foreign
exchange contract, currency swap agreement or other similar agreement designed
to protect that person or entity 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 or entity, 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, on or prior to the first anniversary of the
Stated Maturity of the notes:
- matures or is mandatorily redeemable under a sinking fund obligation or
otherwise,
- is convertible or exchangeable at the holder's option for Indebtedness
or Disqualified Stock, or
- is redeemable or must be purchased, upon the occurrence of certain
events or otherwise, by that person or entity at the option of the
holder, in whole or in part.
However, any Capital Stock that would not constitute Disqualified Stock but
for provisions giving holders of the Capital Stock the right to require the
person or entity to purchase or redeem the Capital Stock upon the occurrence of
an "asset sale" or "change of control" occurring prior to the first anniversary
of the Stated Maturity of the notes shall not constitute Disqualified Stock if:
- the "asset sale" or "change of control" provisions applicable to that
Capital Stock are not more favorable to the holders of that Capital
Stock than the terms applicable to the notes and described under "--
Change of Control" and "-- Certain Covenants -- Limitation on Sales of
Assets and Subsidiary Stock," and
- any requirement to repurchase or redeem only becomes operative after
compliance with such terms applicable to the notes, including the
purchase of any notes tendered pursuant to such requirement.
However, any class of Capital Stock of that person or entity that, by its
terms, authorizes that person or entity to satisfy in full its obligations with
respect to the payment of dividends or upon maturity, redemption or repurchase
of the Capital Stock 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:
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- all income tax expense of Heafner and its consolidated Restricted
Subsidiaries,
- depreciation expense of Heafner and its consolidated Restricted
Subsidiaries,
- amortization expense of Heafner and its consolidated Restricted
Subsidiaries, and
- all other non-cash charges of Heafner 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.
However, 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 that Restricted Subsidiary
was included in calculating Consolidated Net Income.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of May 20, 1998, including those set forth in:
- the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants,
- statements and pronouncements of the Financial Accounting Standards
Board,
- such other statements by such other entity as approved by a significant
segment of the accounting profession, and
- 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 under Section 13 of the Securities
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 or
entity directly or indirectly guaranteeing any Indebtedness of any other person
or entity and any obligation, direct or indirect, contingent or otherwise, of
that other person or entity:
- to purchase, pay or advance or supply funds for the purchase or payment
of the Indebtedness or other obligation of that other person or entity,
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
- entered into for the purpose of assuring in any other manner the obligee
of the Indebtedness of the payment of the Indebtedness or to protect the
obligee against loss in respect thereof, whether in whole or in part.
The term "Guarantee," however, 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 or entity Guaranteeing any obligation.
"Guaranty Agreement" means a supplemental indenture, in a form satisfactory
to the trustee, under which a subsidiary guarantor guarantees Heafner's
obligations with respect to the notes on the terms provided for in the Series D
indenture.
"Hedging Obligations" of any person or entity means the obligations of that
person or entity under any Interest Rate Agreement or Currency Agreement.
"Holder" or "noteholder" means the person or entity 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. Any Indebtedness or Capital Stock of a person or entity existing at the
time that person or entity becomes a Subsidiary,
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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 or entity on any date of
determination, without duplication:
1. the principal in respect of (a) indebtedness of that person or entity
for money borrowed and (b) indebtedness evidenced by notes, debentures,
bonds or other similar instruments for the payment of which that person
or entity is responsible or liable, including, in each case, any premium
on the indebtedness to the extent the premium has become due and
payable;
2. all Capital Lease Obligations of that person or entity and all
Attributable Debt in respect of Sale/ Leaseback Transactions entered
into by that person or entity;
3. all obligations of that person or entity issued or assumed as the
deferred purchase price of property, all conditional sale obligations of
that person or entity and all obligations of that person or entity under
any title retention agreement, but excluding trade accounts payable
arising in the ordinary course of business;
4. all obligations of that person or entity 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 Points (1), (2)
and (3) above, entered into in the ordinary course of business of that
person or entity 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;
5. the amount of all obligations of that person or entity with respect to
the redemption, repayment or other repurchase of any Disqualified Stock
or, with respect to any Subsidiary of that person or entity, the
liquidation preference with respect to any Preferred Stock, but
excluding, in each case, any accrued dividends;
6. all obligations of the type referred to in Points (1) through (5) above
or other persons or entities and all dividends of other persons or
entities for the payment of which, in either case, the person or entity
is responsible or liable, directly or indirectly, as obligor, guarantor
or otherwise, including by means of any Guarantee;
7. all obligations of the type referred to in Points (1) through (6) above
of other persons or entities secured by any Lien on any property or
asset of the person or entity, whether or not such obligation is assumed
by the person or entity, the amount of such obligation being deemed to
be the lesser of the value of the property or assets or the amount of
the obligation so secured; and
8. to the extent not otherwise included in this definition, Hedging
Obligations of the person or entity.
The amount of Indebtedness of any person or entity at any date shall be the
outstanding balance at that 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 that date.
"Interest Rate Agreement" means, in respect of a person or entity, any
interest rate swap agreement, interest rate cap agreement or other financial
agreement or arrangement designed to protect such person or entity against
fluctuations in interest rates.
"Investment" in any person or entity 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
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- other extension 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 that person or entity.
For purposes of the definition of "Unrestricted Subsidiary," the definition
of "Restricted Payment" and the covenant described under "-- Certain Covenants
- -- Limitation on Restricted Payments":
1. "Investment" shall include the portion, proportionate to Heafner's
equity interest in the Subsidiary, of the fair market value of the net
assets of any Subsidiary of Heafner at the time that the Subsidiary is
designated an Unrestricted Subsidiary. However, upon a redesignation of
that Subsidiary as a Restricted Subsidiary, Heafner shall be deemed to
continue to have a permanent "Investment" in an Unrestricted Subsidiary
equal to an amount, if positive, equal to:
- Heafner's "Investment" in the Subsidiary at the time of the
redesignation, less
- the portion, proportionate to Heafner's equity interest in the
Subsidiary, of the fair market value of the net assets of the
Subsidiary at the time of the redesignation;
and
2. any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of the transfer, in each
case as determined in good faith by the board of directors of Heafner.
"Legal Holiday" means 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.
"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
from the Asset Disposition, including any cash payments received by way of
deferred payment of principal under 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
or entity of Indebtedness or other obligations relating to such properties or
assets or received in any other non-cash form, in each case net of:
- 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 the Asset Disposition,
- all payments made on any Indebtedness which is secured by any assets
subject to the Asset Disposition, in accordance with the terms of any
Lien upon or other security agreement of any kind with respect to those
assets, or which must by its terms, or in order to obtain a necessary
consent to the Asset Disposition, or by applicable law, be repaid out of
the proceeds from the Asset Disposition,
- all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries as a result of the Asset
Disposition, and
- 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 the Asset Disposition and
retained by Heafner or any Restricted Subsidiary after the Asset
Disposition.
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"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of that 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 that issuance or sale and net of taxes paid or payable as a
result of that issuance or sale.
"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.
"Permitted Investment" means an Investment by Heafner or any Restricted
Subsidiary in:
- Heafner, a Restricted Subsidiary or a person or entity that will, upon
the making of the Investment, become a Restricted Subsidiary, provided
that the primary business of the new Restricted Subsidiary is a Related
Business;
- another person or entity if as a result of the Investment the other
person or entity is merged or consolidated with or into, or transfers or
conveys all or substantially all its assets to, Heafner or a Restricted
Subsidiary, provided that the person or entity's primary business is a
Related Business;
- Temporary Cash Investments;
- receivables owing to Heafner or any Restricted Subsidiary if created or
acquired in the ordinary course of business and payable or dischargeable
in accordance with customary trade terms, except that those trade terms
may include such concessionary trade terms as Heafner or any Restricted
Subsidiary deems reasonable under the circumstances;
- payroll, travel and similar advances to cover matters that are expected
at the time of the advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of
business;
- loans or advances to employees made in the ordinary course of business
consistent with the past practices of Heafner or the Restricted
Subsidiary;
- stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to Heafner or any
Restricted Subsidiary or in satisfaction of judgments;
- promissory notes issued by members of management of Heafner and its
Subsidiaries as payments for restricted shares of Capital Stock of
Heafner not to exceed $500,000 per year; and
- any person or entity to the extent the Investment represents the
non-cash portion of the consideration received for an Asset Disposition
as permitted under the covenant described under "-- Certain Covenants --
Limitation on Sales of Assets and Subsidiary Stock."
"Permitted Liens" means, with respect to any person or entity,
(a) the following, in each case incurred in the ordinary course of
business:
- pledges or deposits by that person or entity under worker's
compensation laws, unemployment insurance laws or similar
legislation,
- good faith deposits in connection with bids, tenders, contracts
(other than contracts for the payment of Indebtedness),
- leases to which that person or entity is a party,
- deposits to secure public or statutory obligations of that person or
entity,
- deposits of cash or United States government bonds to secure surety
or appeal bonds to which that person or entity is a party, or
- deposits as security for contested taxes or import duties or for the
payment of rent;
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(b) Liens imposed by law, such as carriers', warehousemen's and mechanics'
Liens, in each case for sums not yet due or that are being contested
in good faith by appropriate proceedings, or other Liens arising out
of judgments or awards against that person or entity with respect to
which that person or entity 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
at the request of and for the account of that person or entity in the
ordinary course of its business, but only if those 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 that person or entity 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 its properties or materially impair the use of
those properties in the operation of the business of that person or
entity;
(f) Liens securing Indebtedness, including Indebtedness incurred as
described in Point (4) under "-- Certain Covenants -- Limitation on
Indebtedness," that are incurred to finance the construction, purchase
or lease of, or repairs, improvements or additions to, property of
that person or entity, but only if those Liens do not extend to cover
any additional property (other than improvements on the property
originally securing the Indebtedness) owned by that person or entity
or any of its Subsidiaries at the time the Lien is incurred, and the
Indebtedness, other than any interest on the Indebtedness, 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 the provisions described
in Points (1) and (5) under "-- Certain Covenants -- Limitation on
Indebtedness";
(h) Liens existing, or incurred in connection with Indebtedness committed
on, on May 20, 1998;
(i) Liens on property or shares of Capital Stock of another person or
entity at the time the other person or entity becomes a Subsidiary of
that person or entity, but only if those Liens are not created,
incurred or assumed in connection with, or in contemplation of, the
other person or entity becoming a Subsidiary and only if those Liens
do not extend to any other property (other than improvements on the
property originally subject to the Lien) owned by that person or
entity or any of its Subsidiaries;
(j) Liens on property at the time that person or entity or any of its
Subsidiaries acquires the property, including any acquisition by
means of a merger or consolidation with or into that person or entity
or a Subsidiary of that person or entity, but only if those Liens are
not created, incurred or assumed in connection with, or in
contemplation of, such acquisition and only if the Liens do not
extend to any other property (other than improvements on the property
originally subject to the Lien) owned by that person or entity or any
of its Subsidiaries;
(k) Liens securing Indebtedness or other obligations of a Subsidiary of
that person or entity owing to that person or entity or a Restricted
Subsidiary of that person or entity;
(l) Liens securing Hedging Obligations so long as the Hedging Obligations
relate to Indebtedness that is, and is permitted to be under the
Series D indenture, secured by a Lien on the same property that
secures the Hedging Obligations;
(m) any interest or title of a lessor in property subject to any Capital
Lease Obligation or operating lease;
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(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 Heafner 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
Points (f), (h), (i) and (j), but only if:
1. the new Lien is limited to all or part of the same property that
secured the original Lien plus any improvements to or on the
property that secured the original Lien, and
2. the Indebtedness secured by the Lien at that time is not increased
to an amount greater than the sum of:
- the outstanding principal amount or, if greater, the committed
amount of the Indebtedness described under Points (f), (h), (i) or
(j) at the time the original Lien became a Permitted Lien, and
- an amount necessary to pay any fees and expenses, including
premiums, related to that refinancing, refunding, extension,
renewal or replacement.
However, "Permitted Liens" will not include any Lien described in clauses
(f), (i) or (j) above to the extent that the Lien applies to any Additional
Assets acquired directly or indirectly from Net Available Cash in accordance
with the covenant described under "-- Certain Covenants -- Limitation on Sale of
Assets and Subsidiary Stock." For purposes of this definition, the term
"Indebtedness" includes interest on such Indebtedness.
"Preferred Stock," as applied to the Capital Stock of any person or entity,
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 or entity, over shares of Capital Stock of any other
class of that person or entity.
"Public Equity Offering" means an underwritten primary public offering of
common stock of Heafner pursuant to an effective registration statement under
the Securities Act.
"Public Market" means any time after a Public Equity Offering has been
completed and at least 15% of the total issued and outstanding common stock of
Heafner has been distributed by means of an effective registration statement
under the Securities Act or sales under Rule 144 under the Securities Act.
"Refinancing Indebtedness" means Indebtedness existing on May 20, 1998 or
incurred in compliance with the Series D indenture that refinances any
Indebtedness of Heafner or any Restricted Subsidiary, including Indebtedness
that refinances Refinancing Indebtedness, but only if:
1. the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being refinanced,
2. the Refinancing Indebtedness has an Average Life at the time it is
incurred that is equal to or greater than the Average Life of the
Indebtedness being refinanced, and
3. the Refinancing Indebtedness has an aggregate principal amount, or an
aggregate issue price if it was incurred with original issue discount,
that is equal to or less than the aggregate principal amount, or the
aggregate accreted value if it was incurred with original issue
discount, then outstanding or committed plus any fees and expenses,
including premium and defeasance costs, under the Indebtedness being
refinanced.
However, Refinancing Indebtedness shall not include either Indebtedness of
a Subsidiary that refinances Indebtedness of Heafner or Indebtedness of Heafner
or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary.
"Related Business" means any business related, ancillary or complementary
to the businesses of Heafner and the Restricted Subsidiaries on May 20, 1998.
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"Restricted Payment" with respect to any person or entity means:
- 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 that person or
entity, or any 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 Heafner or a Restricted
Subsidiary, except that pro ratadividends or other distributions made by
a Subsidiary that is not a Wholly Owned Subsidiary to minority
stockholders, or to the owners of an equivalent interest in the
Subsidiary in the case of a Subsidiary that is an entity other than a
corporation, shall not be a Restricted Payment;
- the purchase, redemption or other acquisition or retirement for value on
or after May 20, 1998 of any Capital Stock of Heafner held by any person
or entity, or of any Capital Stock of a Restricted Subsidiary held by
any Affiliate of Heafner other than Heafner or a Restricted Subsidiary,
including the exercise of any option to exchange any Capital Stock other
than into Capital Stock of Heafner that is not Disqualified Stock;
- 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, but
excluding 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
- the making of any Investment other than a Permitted Investment in any
person or entity.
"Restricted Subsidiary" means any Subsidiary of Heafner that is a
Subsidiary on May 20, 1998 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 Heafner or a Restricted Subsidiary transfers
the property to another person or entity and Heafner or a Restricted Subsidiary
leases it from that person or entity.
"Senior Indebtedness" of a person or entity means, unless the instrument
creating or evidencing the Indebtedness or under which the Indebtedness is
outstanding provides that the obligations under that instrument or Indebtedness
are subordinate in right of payment to the notes:
1. Indebtedness of that person or entity, whether outstanding on May 20,
1998 or later incurred, and
2. 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:
- indebtedness of that person or entity for money borrowed, and
- indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which that person or entity is
responsible or liable.
However, Senior Indebtedness shall not include:
- any obligation of Heafner to any Subsidiary, or of any subsidiary
guarantor to Heafner or any other Subsidiary,
- any liability for Federal, state, local or other taxes owed or owing by
that person or entity,
- any accounts payable or other liability to trade creditors arising in
the ordinary course of business, including guarantees of, or instruments
evidencing, those liabilities,
- any Indebtedness of that person or entity, and any accrued and unpaid
interest in respect of that Indebtedness, which is subordinate or junior
in any respect to any other Indebtedness or other obligation of that
person or entity, or
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- that portion of any Indebtedness which, at the time of its incurrence,
is incurred in violation of the Series D indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of Heafner 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 the security as the fixed date on which the final payment of principal of the
security is due and payable, including under any mandatory redemption provision,
but excluding any provision providing for the repurchase of the security at the
option of the holder of the security upon the happening of any contingency
unless that contingency has occurred.
"Subordinated Obligation" means any Indebtedness of Heafner, whether
outstanding on May 20, 1998 or later incurred, which is subordinate or junior in
right of payment to the notes under a written agreement to that effect.
"Subsidiary" means, in respect of any person or entity, 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 its directors, managers or trustees is
at the time owned or controlled, directly or indirectly, by (a) such person or
entity, (b) such person or entity and one or more Subsidiaries of such person or
entity, or (c) one or more Subsidiaries of such person or entity.
"Temporary Cash Investments" means any of the following:
1. any investment in direct obligations of the U.S. or any agency of the
U.S. or in obligations guaranteed by the U.S. or any agency of the U.S.,
2. investments in a money-market fund sponsored by a registered
broker-dealer or mutual fund distributor, or in time deposit accounts,
certificates of deposit and money market deposits maturing within 360
days of the date of their acquisition and which are issued by a bank or
trust company which is organized under the laws of the U.S., any state
of the U.S. or any foreign country recognized by the U.S., so long as
the bank or trust company has capital, surplus and undivided profits
aggregating in excess of $50,000,000 or the foreign currency equivalent
of that amount and has outstanding debt which is rated "A" (or the
equivalent of "A") or higher by at least one nationally recognized
statistical rating organization as defined in Rule 436 under the
Securities Act,
3. repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in Point (1) above entered
into with a bank meeting the qualifications described in Point (2)
above,
4. investments maturing not more than 360 days after the date of their
acquisition in commercial paper issued by a corporation, other than an
Affiliate of Heafner, that is organized and in existence under the laws
of the U.S. or any foreign country recognized by the U.S. and that has a
rating 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 at the
time any investment in its commercial paper is made,
5. investments in split dollar life insurance policies on various officers,
directors and shareholders of Heafner and its Subsidiaries in the
ordinary course of business consistent with past practices, and
6. investments in securities with maturities of 12 months or less from the
date of their acquisition issued or fully guaranteed by any state,
commonwealth or territory of the U.S., or by any political subdivision
or taxing authority of the U.S., and rated at least "A" by Standard &
Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
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"Unrestricted Subsidiary" means:
- any Subsidiary of Heafner that at the time of determination shall be
designated an Unrestricted Subsidiary by Heafner's board of directors in
the manner described below, and
- any Subsidiary of an Unrestricted Subsidiary.
The board of directors may designate any Subsidiary of Heafner, other than
a subsidiary guarantor but including any newly-acquired or newly-formed
Subsidiary, to be an Unrestricted Subsidiary unless that Subsidiary or any of
its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on
any property of, Heafner or any Subsidiary of Heafner that is not a Subsidiary
of the Subsidiary to be so designated. However, the board of directors may not
designate a Subsidiary to be an Unrestricted Subsidiary unless:
- the Subsidiary to be so designated has total assets of $1,000 or less,
or
- if the Subsidiary has assets greater than $1,000, then the 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 if, immediately after giving effect to that designation,
Heafner could incur $1.00 of additional Indebtedness under the Consolidated
Coverage Ratio test in the covenant described under "-- Certain Covenants --
Limitation on Indebtedness" and no Default shall have occurred and be
continuing.
Any designation by the board of directors as described above shall be
evidenced to the trustee by Heafner's promptly filing with the trustee a copy of
the resolution of the board of directors giving effect to the designation and an
officers' certificate certifying that the designation complied with the above
provisions.
"U.S. Government Obligations" means direct obligations, or certificates
representing an ownership interest in those obligations, of the U.S. or any
agency or instrumentality of the U.S. for the payment of which the full faith
and credit of the U.S. is pledged and which are not callable at Heafner's
option.
"Vendor Financing" means Indebtedness incurred to finance the cost to
acquire inventory to the extent that Indebtedness is issued to and held by the
supplier of the inventory.
"Voting Stock" of a person or entity means all classes of Capital Stock or
other interests, including partnership interests, of that person or entity then
outstanding and normally entitled, without regard to the occurrence of any
contingency, to vote in the election of its directors, managers or trustees. 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 Heafner or
one or more Wholly Owned Subsidiaries.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the principal United States
federal income tax consequences to holders of Series B notes and Series C notes
who exchange their notes for Series D notes in the exchange offer. This
discussion is based on currently existing provisions of the Internal Revenue
Code, existing, temporary and proposed Treasury regulations promulgated under
the Internal Revenue Code, and administrative and judicial interpretations of
the Internal Revenue Code, all as in effect or proposed on the date of this
prospectus and all of which are subject to change, possibly with retroactive
effect, or to different interpretations. This discussion is limited to holders
of Series B notes and Series C notes who hold their notes as capital assets
within the meaning of section 1221 of the Internal Revenue Code. Moreover, this
discussion is for general information only and does not address all of the tax
consequences that may be relevant to holders of Series B notes, Series C notes
or Series D notes in light of their personal circumstances, or to certain types
of holders of Series B notes, Series C notes or Series D notes, such as certain
financial institutions, insurance companies, tax-exempt entities, dealers in
securities or persons who have hedged the risk of owning a Note. In addition,
this discussion does not address any tax consequences arising under the laws of
any state, locality or foreign jurisdiction, or any estate or gift tax
considerations.
EXCHANGE OFFER
The exchange of Series B notes or Series C notes for Series D notes in the
Exchange Offer should not be treated as an exchange or other taxable event for
U.S. Federal income tax purposes. Accordingly, there should be no U.S. Federal
income tax consequences to holders who exchange Series B notes or Series C notes
for Series D notes in the exchange offer and any holder of Series B notes or
Series C notes should have the same adjusted tax basis and holding period in the
Series D notes as it had in the Series B notes or Series C notes immediately
before the exchange.
PLAN OF DISTRIBUTION
Each holder of Series B notes or Series C notes desiring to participate in
the exchange offer will be required to represent, among other things, that:
- it is not an "affiliate" as defined in Rule 405 of the Securities Act of
Heafner or any subsidiary guarantor,
- it is not engaged in, does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Series D notes, and
- it is acquiring the Series D notes in the ordinary course of its
business.
A Restricted Holder, which is any holder who cannot make these
representations, will not be able to participate in the exchange offer. A
Restricted Holder of Series C notes may only sell its Series C 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 under 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
Series D notes that it receives in the exchange offer. Based upon
interpretations by the staff of the SEC, Heafner believes that Series D notes
issued in 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 all
broker-dealers subject to the prospectus delivery requirements of the Securities
Act, including Participating Broker-Dealers, in connection with resales of
Series D notes received in exchange for Series C notes where the Series C notes
were acquired as a result of market-making activities or other trading
activities.
108
<PAGE> 110
Heafner has agreed that, for a period of 90 days after the registration
statement has been declared effective by the SEC, it will make this prospectus,
as amended or supplemented, available to any broker-dealer, and for a period of
100 days to any Participating Broker-Dealer, for use in connection with any
resale of Series D notes. If Heafner is not notified by any Participating
Broker-Dealers that they may be subject to the prospectus delivery requirements,
or if Heafner is later notified by all Participating Broker-Dealers that they
are no longer subject to those requirements, Heafner will not be required to
maintain the effectiveness of the registration statement or to amend or
supplement this prospectus following the consummation of the exchange offer or
following the date of notification, as the case may be. Heafner 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 SEC, Heafner believes that
Series D notes issued in the exchange offer may be offered for resale, resold,
and otherwise transferred by a Holder of Series D notes who is not a Restricted
Holder or a Participating Broker-Dealer, without compliance with the
registration and prospectus delivery requirements of the Securities Act.
Heafner will not receive any proceeds from any sale of Series D notes by
broker-dealers, including Participating Broker-Dealers. Series D notes received
by Participating Broker-Dealers for their own accounts in 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 Series
D notes or by a combination of those methods of resale, whether at market prices
prevailing at the time of resale, at prices related to the prevailing market
prices or at 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 selling Participating
Broker-Dealer and/or the purchasers of any of their Series D notes. Any
Participating Broker-Dealer that resells Series D notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
resale by it of Series D 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.
Heafner has agreed to pay all expenses incidental to the exchange offer
other than commissions and concessions of any brokers or dealers. Heafner will
indemnify holders of the notes, including any broker-dealers, against certain
liabilities, including liabilities under the Securities Act, as specified in the
Registration Rights Agreement.
By acceptance of the exchange offer, each Participating Broker-Dealer that
receives Series D notes in the exchange offer agrees to notify Heafner prior to
using the prospectus in connection with the sale or transfer by it of Series D
notes. By its acceptance, each Participating Broker-Dealer also acknowledges and
agrees that, upon receipt of notice from Heafner 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, it will suspend use of the prospectus until
Heafner has amended or supplemented the prospectus to correct the misstatement
or omission and has furnished copies of the amended or supplemented prospectus
to the Participating Broker-Dealer.
LEGAL MATTERS
The validity of the Series D notes will be passed upon on behalf of Heafner
by Howard, Smith & Levin LLP, New York, New York.
EXPERTS
The consolidated financial statements of Heafner as of December 31, 1997
and 1998 and for each of the three years in the period ended December 31, 1998
included in this prospectus and elsewhere in the
109
<PAGE> 111
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included in this prospectus in reliance upon the authority of said firm 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. and subsidiaries for the year ended
September 30, 1995 included in this prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein,
and have been so 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 LLP, independent certified public
accountants, as stated in their report appearing herein.
110
<PAGE> 112
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-2
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996.......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES -- CONSOLIDATED
FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-24
Consolidated Balance Sheets as of September 30, 1997 and
1996...................................................... F-25
Consolidated Statements of Operations for the year ended
September 30, 1997 and for the ten month period ended
September 30, 1996........................................ F-26
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-27
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-28
Notes to Consolidated Financial Statements.................. F-29
ITCO HOLDING COMPANY AND SUBSIDIARIES -- CONSOLIDATED
FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-38
Consolidated Statement of Earnings for the year ended
September 30, 1995........................................ F-39
Consolidated Statement of Stockholders' Equity for the year
ended September 30, 1995.................................. F-40
Consolidated Statement of Cash Flows for the year ended
September 30, 1995........................................ F-41
Notes to Consolidated Financial Statements.................. F-42
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES -- UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheet as of May 20, 1998..... F-45
Unaudited Consolidated Statement of Operations for the
eight-month periods ended May 20, 1998 and May 31,
1997...................................................... F-46
Unaudited Consolidated Statements of Shareholders' Deficit
for the eight-month periods ended May 20, 1998 and May 31,
1997...................................................... F-47
Unaudited Consolidated Statement of Cash Flows for the
eight-month periods ended May 20, 1998 and May 31,
1997...................................................... F-48
Notes to Unaudited Interim Consolidated Financial
Statements................................................ F-49
THE SPEED MERCHANT, INC. (FORMERLY THE SPEED MERCHANT, INC.
AND SUBSIDIARY) -- FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-50
Balance Sheets as of October 31, 1996 and 1997 and April 30,
1998 (Unaudited).......................................... F-51
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-52
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-53
Notes to Financial Statements............................... F-54
</TABLE>
F-1
<PAGE> 113
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
The J. H. Heafner Company, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of The J. H.
Heafner Company, Inc. (a North Carolina Corporation) and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The J. H.
Heafner Company, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Charlotte, North Carolina,
March 22, 1999.
F-2
<PAGE> 114
THE J. H. HEAFNER COMPANY, INC.
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,648,000 $ 2,502,000
Accounts receivable, net of allowances of $2,220,000 and
$400,000 in 1998 and 1997, respectively................ 109,471,000 31,809,000
Inventories, net.......................................... 133,221,000 41,530,000
Other current assets...................................... 13,319,000 3,187,000
------------ ------------
Total current assets................................. 262,659,000 79,028,000
------------ ------------
Property and equipment:
Land...................................................... 3,945,000 1,639,000
Buildings and leasehold improvements...................... 22,583,000 14,501,000
Machinery and equipment................................... 18,581,000 10,925,000
Furniture and fixtures.................................... 7,368,000 6,336,000
Vehicles and other........................................ 2,013,000 1,720,000
Construction in progress.................................. 1,162,000 0
------------ ------------
55,652,000 35,121,000
Less -- Accumulated depreciation.......................... (12,850,000) (9,130,000)
------------ ------------
42,802,000 25,991,000
------------ ------------
Goodwill, net............................................... 104,405,000 34,979,000
Other intangible assets, net................................ 8,376,000 0
Other assets................................................ 12,579,000 6,510,000
------------ ------------
$430,821,000 $146,508,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $169,847,000 $ 43,457,000
Accrued expenses.......................................... 33,239,000 12,410,000
Current maturities of long-term debt...................... 3,011,000 2,579,000
------------ ------------
Total current liabilities............................ 206,097,000 58,446,000
------------ ------------
Revolving credit facility................................... 21,925,000 31,949,000
Long-term debt.............................................. 160,400,000 15,161,000
Other liabilities........................................... 11,785,000 5,687,000
Subordinated debt........................................... 0 14,969,000
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................. 4,353,000 4,500,000
Warrants.................................................... 1,137,000 1,137,000
Commitments and contingencies
Stockholders' equity:
Class A Common stock, par value $.01 per share; authorized
10,000,000 shares in 1998 and 1997; 3,697,000 and
3,691,000 shares issued and outstanding in 1998 and
1997, respectively..................................... 37,000 37,000
Class B Common stock, par value $.01 per share; authorized
20,000,0000 and 0 shares in 1998 and 1997,
respectively; 1,400,667 and 0 shares issued and
outstanding in 1998 and 1997, respectively............. 14,000 0
Additional paid-in capital................................ 22,360,000 7,255,000
Notes receivable from stock sales......................... (177,000) (247,000)
Retained earnings (deficit)............................... (4,110,000) 614,000
------------ ------------
18,124,000 7,659,000
------------ ------------
$430,821,000 $146,508,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE> 115
THE J. H. HEAFNER COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES......................................... $713,672,000 $311,839,000 $190,535,000
COST OF GOODS SOLD................................ 548,035,000 233,941,000 158,880,000
------------ ------------ ------------
Gross profit.................................... 165,637,000 77,898,000 31,655,000
GENERAL, SELLING AND ADMINISTRATIVE EXPENSES...... 153,153,000 74,441,000 29,660,000
SPECIAL CHARGES................................... 1,409,000 0 0
------------ ------------ ------------
Income from operations.......................... 11,075,000 3,457,000 1,995,000
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense................................ (13,460,000) (4,842,000) (1,465,000)
Interest income................................. 635,000 606,000 491,000
Other........................................... (469,000) 525,000 30,000
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES...................... (2,219,000) (254,000) 1,051,000
Provision (benefit) for income taxes............ 289,000 (240,000) 0
------------ ------------ ------------
NET INCOME (LOSS) FROM OPERATIONS BEFORE
EXTRAORDINARY CHARGE............................ (2,508,000) (14,000) 1,051,000
EXTRAORDINARY CHARGE FROM EARLY EXTINGUISHMENT OF
DEBT, NET OF INCOME TAX BENEFITS OF
$1,478,000...................................... (2,216,000) 0 0
------------ ------------ ------------
NET INCOME (LOSS)................................. (4,724,000) (14,000) 1,051,000
PRO FORMA PROVISION FOR INCOME TAXES.............. 0 0 439,000
------------ ------------ ------------
PRO FORMA NET INCOME (LOSS)....................... $ (4,724,000) $ (14,000) $ 612,000
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE> 116
THE J. H. HEAFNER COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------------ NOTES
CLASS A CLASS B ADDITIONAL RECEIVABLE
-------------------- ------------------- PAID IN FROM STOCK RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL SALES EARNINGS TOTAL
--------- -------- --------- ------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................ 2,080 $208,000 0 $ 0 $ 0 $ 0 $11,511,000 $11,719,000
Net income.......... 0 0 0 0 0 0 1,051,000 1,051,000
Dividends........... 0 0 0 0 0 0 (1,196,000) (1,196,000)
--------- -------- --------- ------- ----------- --------- ----------- -----------
Balance, December 31,
1996................ 2,080 208,000 0 0 0 0 11,366,000 11,574,000
Net loss............ 0 0 0 0 0 0 (14,000) (14,000)
Dividends........... 0 0 0 0 0 0 (1,193,000) (1,193,000)
Repurchase of common
shares............ (1,024) (102,000) 0 0 0 0 (2,606,000) (2,708,000)
Stock split......... 3,464,944 (71,000) 0 0 71,000 0 0 0
Shares issued for
notes
receivable........ 225,000 2,000 0 0 245,000 (247,000) 0 0
Reclassification of
S Corporation
retained earnings
to additional
paid-in capital... 0 0 0 0 6,939,000 0 (6,939,000) 0
--------- -------- --------- ------- ----------- --------- ----------- -----------
Balance, December 31,
1997................ 3,691,000 37,000 0 0 7,255,000 (247,000) 614,000 7,659,000
Net loss............ 0 0 0 0 0 0 (4,724,000) (4,724,000)
Issuance of Class B
Common stock...... 0 0 1,400,667 14,000 14,945,000 0 0 14,959,000
Issuance of Class A
Common stock...... 16,000 0 0 0 171,000 0 0 171,000
Forgiveness of note
receivable........ 0 0 0 0 0 62,000 0 62,000
Repurchase of Class
A Common stock.... (10,000) 0 0 0 (11,000) 8,000 0 (3,000)
--------- -------- --------- ------- ----------- --------- ----------- -----------
Balance, December 31,
1998................ 3,697,000 $ 37,000 1,400,667 $14,000 $22,360,000 $(177,000) $(4,110,000) $18,124,000
========= ======== ========= ======= =========== ========= =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE> 117
THE J. H. HEAFNER COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (4,724,000) $ (14,000) $ 1,051,000
Adjustments to reconcile net income (loss) to net cash
used in operating activities, net of the ITCO merger,
CPW acquisition and the Winston acquisition --
Depreciation and amortization......................... 12,316,000 5,399,000 1,331,000
Extraordinary charge.................................. 3,694,000 0 0
Special charges....................................... 1,409,000 0 0
Deferred taxes........................................ (4,162,000) (528,000) 0
Loss (gain) on sale of property and equipment......... 264,000 (114,000) (390,000)
Reduction in stated value of Series A preferred
stock............................................... (147,000) 0 0
Change in assets and liabilities:
Accounts receivable, net................................ (13,923,000) (5,758,000) (1,672,000)
Inventories, net........................................ (12,242,000) (2,377,000) 4,956,000
Prepaid expenses and other current assets............... 1,967,000 200,000 (136,000)
Accounts payable and accrued expenses................... 7,090,000 9,581,000 (1,145,000)
Other................................................... (1,226,000) 314,000 13,000
------------ ------------ ------------
Net cash used in operating activities............... (9,684,000) (6,703,000) (4,008,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of CPW, net of cash acquired.................. (36,074,000) 0 0
Merger of ITCO, net of cash acquired...................... (17,125,000) 0 0
Acquisition of Winston, net of cash acquired.............. 0 (42,195,000) 0
Purchase of property and equipment........................ (8,697,000) (4,908,000) (7,865,000)
Proceeds from sale of property and equipment.............. 3,826,000 363,000 1,090,000
Purchases of real estate held for sale.................... 0 0 (542,000)
Other..................................................... 0 281,000 (309,000)
------------ ------------ ------------
Net cash used in investing activities................. (58,070,000) (46,459,000) (7,626,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................. 150,000,000 28,000,000 6,447,000
Net proceeds from revolving credit facility and other
notes................................................... (38,071,000) 18,405,000 1,429,000
Proceeds from issuance of preferred stock................. 0 11,500,000 0
Principal payments on long-term debt...................... (32,714,000) (10,558,000) (2,506,000)
Cash paid for stock repurchase............................ (11,000) (2,708,000) 0
Cash paid for financing costs............................. (8,030,000) (2,378,000) 0
Cash dividends paid....................................... 0 (1,193,000) (1,196,000)
Collection (issuance) of notes receivable, net............ 726,000 184,000 (463,000)
------------ ------------ ------------
Net cash provided by financing activities............. 71,900,000 41,252,000 3,711,000
------------ ------------ ------------
NET INCREASE IN CASH........................................ 4,146,000 1,496,000 93,000
CASH, BEGINNING OF YEAR..................................... 2,502,000 1,006,000 913,000
------------ ------------ ------------
CASH, END OF YEAR........................................... $ 6,648,000 $ 2,502,000 $ 1,006,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION --
Cash payments for interest................................ $ 10,495,000 $ 3,585,000 $ 1,428,000
============ ============ ============
Cash payments for taxes................................... $ 1,963,000 $ 0 $ 0
============ ============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
In 1998, in connection with the ITCO Merger (Note 2), the Company issued
1,400,667 shares of Class B Common Stock at a fair value of approximately $15.0
million.
During 1997, the Company received $2.6 million in accounts payable credits
from a vendor in exchange for a note payable.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE> 118
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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 and retail distribution of tires and
tire accessories. In May 1997, the Company acquired all outstanding shares of
common stock of Oliver and Winston, Inc. (Winston), a California-based operation
of 190 retail tire and automotive service centers in California and Arizona
(Note 2). In May 1998, the Company merged with ITCO Logistics Corporation and
Subsidiaries (ITCO), a wholesaler of tires and related accessories in the
eastern part of the United States. Following the merger, ITCO's subsidiaries
were merged into ITCO and ITCO was merged into the Company. 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.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. 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. This change has been applied by retroactively restating the
accompanying financial statements for prior years, including retained earnings
for the years ended December 31, 1996 and 1995. Net income for 1996 was reduced
by $868,000 to reflect the effect of this change.
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. 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 expenses are reflected in the financial statements at fair value because
of the short-term maturity of those instruments. The fair values of the
Company's debt and interest rate swaps are disclosed in Note 5.
F-7
<PAGE> 119
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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>
Buildings and leasehold improvements........................ 10-39 years
Machinery and equipment..................................... 5-10 years
Furniture and fixtures...................................... 5-7 years
Vehicles and other.......................................... 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 4, 5 and 6),
are capitalized and amortized using the effective interest method and charged to
interest expense over the life of the associated debt in the accompanying
consolidated statements of operations. The unamortized balance of these deferred
costs included in the accompanying consolidated balance sheets were $7.4 million
and $2.4 million at December 31, 1998 and 1997, respectively.
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 nondiscounted 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.
GOODWILL
Goodwill, which represents the excess of the purchase price over the fair
value of the net assets of Winston, CPW and ITCO is being amortized on a
straight-line basis over a period of 15 years. Amortization of goodwill
applicable to continuing operations was $5.3 million and $1.5 million in 1998
and 1997, respectively. The carrying amount 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 fully recoverable, the Company's
carrying value of the goodwill will be reduced. At December 31, 1998, the
Company believes goodwill of $104.4 million is fully recoverable.
F-8
<PAGE> 120
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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 $6.9 million 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 year ended December 31, 1996, reflects 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.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The Statement is effective for fiscal years beginning
after June 15, 1999. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, design and assess the effectiveness of transactions that
receive hedge accounting.
The Company has not yet quantified the impacts of adopting Statement 133 on
the financial statements and has not determined the timing or the method of our
adoption of Statement 133. However, the Statement could increase the volatility
in earnings and other comprehensive income.
INFORMATION CONCERNING BUSINESS SEGMENTS
On January 1, 1998, the Company adopted SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information" (SFAS No. 131). SFAS No. 131
established revised standards for reporting information about operating segments
in annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services, and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance.
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.
F-9
<PAGE> 121
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
RECLASSIFICATIONS
Certain 1997 and 1996 amounts have been reclassified to conform with the
1998 presentation.
2. ACQUISITIONS:
WINSTON ACQUISITION
On May 7, 1997, the Company acquired all outstanding shares of common stock
of Winston, a California-based operation of retail tire and automotive service
centers, for approximately $43.1 million, consisting of $42.4 million in cash
and $686,000 in direct acquisition costs. The acquisition was funded primarily
through proceeds from a revolving credit facility with a bank ($3.6 million),
proceeds from a term loan with a bank ($12.0 million), issuance of 12% Senior
Subordinated Notes ($16.0 million) and issuance of Series A and Series B
preferred stock ($11.5 million).
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
related purchase price allocation follows (000's):
<TABLE>
<S> <C>
Purchase price --
Cash...................................................... $42,447
Direct acquisition costs.................................. 686
-------
Total purchase price................................... $43,133
=======
Purchase price allocation --
Current assets............................................ $26,426
Current liabilities....................................... (26,533)
-------
(107)
Property, plant and equipment............................. 11,896
Goodwill.................................................. 36,736
Other assets.............................................. 2,033
Other noncurrent liabilities.............................. (7,425)
-------
Cash paid for common stock................................ $43,133
=======
</TABLE>
In connection with the acquisition, the Company recorded a $2.9 million
liability for estimated costs related to employee severance and other exit costs
in accordance with EITF 95-3, "Recognition of Liabilities in Connection with a
Purchase Business Combination." As of December 31, 1998, the Company had charged
approximately $1.7 million to this reserve.
F-10
<PAGE> 122
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
ITCO MERGER
On May 20, 1998, the Company acquired all of the common stock of ITCO for
$18.0 million in cash and 1,400,667 newly issued shares of the Company's Class B
Common Stock with an appraised value of approximately $15.0 million. The excess
of the purchase price over the net tangible assets acquired was allocated to
goodwill ($44.6 million) and is being amortized over 15 years. A summary of the
purchase price and related preliminary purchase allocation follows (000's):
<TABLE>
<S> <C>
Purchase price --
Cash paid to holders of ITCO common and preferred stock... $ 18,000
Appraised fair value of Class B Common Stock issued in
connection with the ITCO Merger (1,400,667 shares at
$10.68 per share)...................................... 14,959
Amount payable upon settlement of ITCO stock appreciation
rights................................................. 1,390
Direct acquisition costs.................................. 951
---------
Total purchase price................................... $ 35,300
=========
Preliminary purchase price allocation --
Current assets............................................ $ 106,342
Current liabilities....................................... (100,120)
---------
6,222
Property, plant and equipment............................. 10,622
Goodwill.................................................. 44,590
Other assets.............................................. 1,592
Long term liabilities..................................... (27,726)
---------
Cash paid for common stock.................................. $ 35,300
=========
</TABLE>
In connection with the ITCO merger, the Company recorded a $3.5 million
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." As of
December 31, 1998, the Company had charged approximately $358,000 to this
reserve.
F-11
<PAGE> 123
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
CPW ACQUISITION
On May 20, 1998, the Company acquired all of the outstanding common stock
of CPW for $45.0 million in cash, of which $35.0 million was paid on May 20,
1998, with $7.4 million payable in installments over five years in consideration
for noncompete agreements and $2.6 million payable in the form of contingent
payments to CPW stockholders. The excess purchase price over the net tangible
assets acquired was allocated to goodwill ($29.9 million) which is being
amortized over a 15 year period, and $10.0 million 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 follows (000's):
<TABLE>
<S> <C>
Purchase price --
Cash paid to CPW Stockholders............................. $35,000
Amount payable for non-compete agreement and other
deferred payments...................................... 10,000
Cash paid for repayment of debt........................... 976
Direct acquisition costs.................................. 623
-------
Total purchase price................................... $46,599
=======
Preliminary purchase price allocation
Current assets............................................ $46,769
Current liabilities....................................... (43,127)
-------
3,642
Property, plant and equipment............................. 6,472
Goodwill.................................................. 29,924
Noncompete agreement and other deferred payments.......... 10,000
Other assets.............................................. 613
Long term liabilities..................................... (4,052)
-------
Cash paid for common stock............................. $46,599
=======
</TABLE>
In connection with the CPW acquisition, the Company recorded a $1.7 million
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." As of
December 31, 1998, the Company had charged approximately $166,000 against this
reserve.
Prior to the acquisition, Winston and ITCO had a fiscal year-end of
September 30 and CPW had a fiscal year end of October 31. Winston, ITCO and CPW
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,
1998 and 1997, as if the Winston acquisition, the ITCO merger and the CPW
acquisition occurred as of January 1, 1997 (in 000's):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales................................................... $924,000 $831,000
Loss from continuing operations before extraordinary
charge.................................................... (5,075) (5,111)
Net loss.................................................... (7,291) (5,111)
======== ========
</TABLE>
F-12
<PAGE> 124
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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, 1997, nor is it
indicative of future results of the combined companies.
3. 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, 1998 and 1997, and a pro forma income tax
provision for the year ended December 31, 1996, as if the Company had been
subject to federal and state income taxes for that year.
The following historical and pro forma income tax information summarizes
the components of the Company's income tax provision (benefit) on income (loss)
from operations for the years ended December 31, 1998 and 1997, and the
Company's pro forma income tax provision (benefit) for the year ended December
31, 1996, as if the Company had been subject to federal and state income taxes
for that year (000's):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
PRO FORMA
1998 1997 1996
------- ----- ---------
<S> <C> <C> <C>
Federal --
Current provision......................................... $ 1,765 $ 252 $304
Deferred provision (benefit).............................. (1,519) (473) 69
------- ----- ----
246 (221) 373
State --
Current provision......................................... 311 65 54
Deferred provision (benefit).............................. (268) (84) 12
------- ----- ----
43 (19) 66
------- ----- ----
Total provision (benefit)................................. $ 289 $(240) $439
======= ===== ====
</TABLE>
As discussed in Note 8, the Company incurred an extraordinary charge in May
1998 related to the early extinguishment of debt resulting in an income tax
benefit of $1.5 million.
F-13
<PAGE> 125
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
Actual and pro forma income tax expense differs from the amounts computed
by applying the statutory federal income tax rate of 34% as a result of the
following (000's):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
PRO FORMA
1998 1997 1996
------- ----- ---------
<S> <C> <C> <C>
Income tax provision (benefit) computed at the federal
statutory rate............................................ $ (754) $ (85) $357
Amortization of nondeductible goodwill...................... 1,091 109 0
Adoption of SFAS No. 109 upon termination of S Corporation
status.................................................... 0 (383) 0
State income taxes, net of federal income tax benefit....... 277 65 54
Other....................................................... (325) 54 28
------- ----- ----
Income tax provision (benefit).............................. $ 289 $(240) $439
======= ===== ====
</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, 1998 and 1997, are as follows (000's):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets --
Accrued expenses and liabilities.......................... $ 7,639 $ 2,400
Employee benefits, including post retirement benefits..... 2,848 1,215
Uniform capitalization.................................... 1,223 0
Other..................................................... 760 451
------- -------
Gross deferred tax assets.............................. 12,470 4,066
------- -------
Deferred tax liabilities --
Section 481 adjustments................................... (378) (288)
Other..................................................... (361) (21)
------- -------
Gross deferred tax liabilities......................... (739) (309)
------- -------
Net deferred tax asset................................. $11,731 $ 3,757
======= =======
</TABLE>
The above amounts have been classified in the consolidated balance sheet as
follows (000's):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets --
Current, included in other current assets................. $10,470 $ 2,102
Noncurrent, included in other assets...................... 1,261 1,655
------- -------
$11,731 $ 3,757
======= =======
</TABLE>
4. 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). The Revolver provides for borrowings
in the aggregate principal amount of up to the lesser of $100.0 million or the
Borrowing
F-14
<PAGE> 126
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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 (of
which up to $10.0 million may be utilized in the form of letters of credit). At
December 31, 1998, the maximum loan amount available was $86.7 million of which
$21.9 million was outstanding. In addition, the Company had trade letters of
credit outstanding at December 31, 1998, of $8.9 million, which reduces the
availability under the Revolver at December 31, 1998.
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 Revolver requires the Company to meet certain financial requirements,
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 guarantees; 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 inventory and accounts receivable.
5. LONG-TERM DEBT:
Long-term debt consists of the following (000's):
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Series B Senior Notes, interest due semiannually at 10%,
commencing on November 15, 1998, due May 2008............. $100,000 $ 0
Series C Senior Notes, interest due semiannually at 10%,
commencing on May 15, 1999, due May 2008.................. 50,000 0
Term loan with a bank, payable in monthly principal
installments beginning on June 1, 1997, with the final
installment for the remaining balance due on May 7,
2002...................................................... 0 11,000
Other....................................................... 13,411 6,740
-------- -------
163,411 17,740
Less -- Current maturities.................................. (3,011) (2,579)
-------- -------
$160,400 $15,161
======== =======
</TABLE>
Aggregate maturities required on long-term debt at December 31, 1998, are
as follows (000's):
<TABLE>
<S> <C>
1999........................................................ $ 3,011
2000........................................................ 3,795
2001........................................................ 3,036
2002........................................................ 379
2003........................................................ 269
Thereafter.................................................. 152,921
--------
$163,411
========
</TABLE>
F-15
<PAGE> 127
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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, 1998,
approximates fair value.
SERIES A SENIOR NOTES
On May 20, 1998, the Company sold $100.0 million of Series A Senior Notes
due May 15, 2008, resulting in net proceeds of approximately $97.0 million. The
Series A 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 Series A Senior Notes at 110% of par with one
or more public equity offerings. Interest on the Series A Senior Notes is
payable semiannually on May 15 and November 15 of each year commencing November
15, 1998.
EXCHANGE OF SERIES A SENIOR NOTES
On November 16, 1998, the $100.0 million Series A Senior Notes were
exchanged for Series B Senior Notes. The form and terms of the Series B Senior
Notes are identical in all material respects to the form and terms of the Series
A Senior Notes, except for certain transfer restrictions and registration and
other rights relating to the exchange of the Series A Senior Notes for Series B
Senior Notes. The Series B Senior Notes evidence the same debt as the Series A
Senior Notes and were issued under the indenture governing the Series A Senior
Notes. See Note 10 for subsidiary guarantor information.
SERIES C SENIOR NOTES
On December 8, 1998, the Company sold $50.0 million of Series C Senior
Notes due May 15, 2008, resulting in net proceeds of approximately $49.0
million. The Series C 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, commencing May 15,
1999. See Note 10 for subsidiary guarantor information.
TERM LOAN
At December 31, 1997, there was $11.0 million outstanding under the $12.0
million Term Loan which was paid in full with proceeds from the Series A Senior
Notes in 1998.
SENIOR NOTES DEBT COVENANTS
The Series B and Series C Senior Notes contain certain covenants that,
among other things, limits 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.
INTEREST RATE SWAP AGREEMENTS
The Company periodically enters into interest rate swap agreements (Swaps)
to manage exposure to fluctuations in interest rates. The Swaps represent
contracts to exchange floating rate for fixed interest payments periodically
over the life of the agreements without exchange of the underlying notional
F-16
<PAGE> 128
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
amounts. The notional amounts of Swaps 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 the Swaps is recognized as an adjustment to
interest expense. At December 31, 1998, Swaps were in place covering notional
amounts of approximately $20.0 million of indebtedness expiring from October
2000 through October 2002, at an average interest rate of 7.82%. 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, 1998 is
approximately $507,000 which does not necessarily reflect the potential expense
that would be realized on an actual settlement of the liability.
6. SUBORDINATED DEBT:
In May 1997, the Company issued $16.0 million of 12% Senior Subordinated
Debt (Subordinated Debt) due on May 7, 2004, with interest payable quarterly. 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, which
resulted in a discount on the Subordinated Debt in the same amount, which was
being amortized over the term of the Subordinated Debt. The Subordinated Debt
was paid in full with the proceeds from the Series A Senior Notes Offering. The
unamortized discount at the time of repayment was written off and is included as
an extraordinary charge in the accompanying statement of operations (see Note
8).
7. SPECIAL CHARGES:
In the second quarter of 1998, the Company recorded special charges of $1.4
million related to the restructuring of its eastern wholesale business, which
includes the closing of 8-10 distribution centers commencing in the third
quarter. The charges include lease commitments for certain distribution centers,
asset writedowns, severance and employee related costs and costs to shut down
certain facilities. As of December 31, 1998, the Company had charged
approximately $222,000 against these reserves.
8. 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 discount of subordinated debt of $1.7 million,
net of applicable income tax benefits of $1.1 million. 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.
9. SEGMENT INFORMATION:
The Company classifies its business interests into three fundamental areas:
eastern wholesale distribution of tires and products, western wholesale
distribution of tires and products and western retail sales of tires, products
and services. The Company evaluates performance based on several factors, of
which the primary financial measure is profit (loss) before interest expense,
income taxes, noncash amortization of intangible assets and depreciation
(EBITDA). The accounting policies of the segments are the same as those
described in the summary of significant accounting policies (Note 1).
F-17
<PAGE> 129
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
The operating results of the Company reflect the acquisitions of Winston
effective as of May 7, 1997, and CPW and ITCO effective as of May 20, 1998
(000's):
<TABLE>
<CAPTION>
EASTERN WESTERN WESTERN
WHOLESALE RETAIL WHOLESALE ELIMINATIONS TOTALS
--------- -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
1998 --
Revenues from external
customers................... $478,120 $152,848 $ 82,704 $ -- $713,672
EBITDA(1)...................... 8,587 4,877 5,666 -- 19,130
Segment assets................. 502,081 80,088 120,351 (271,699) 430,821
Expenditures for segment
assets...................... (1,810) (5,654) (1,233) -- (8,697)
1997 --
Revenues from external
customers................... $210,781 $101,058 $ -- $ -- $311,839
EBITDA(1)...................... 5,016 4,971 -- -- 9,987
Segment assets................. 125,098 71,151 -- (49,741) 146,508
Expenditures for segment
assets...................... 2,941 1,967 -- -- 4,908
1996 --
Revenues from external
customers................... $190,535 $ -- $ -- $ -- $190,535
EBITDA(1)...................... 3,847 -- -- -- 3,847
Segment assets................. 59,551 -- -- -- 59,551
Expenditures for segment
assets...................... 7,865 -- -- -- 7,865
</TABLE>
- ---------------
(1) EBITDA represents income (loss) before interest expense, income taxes,
noncash amortization of intangible assets and depreciation. Depreciation and
amortization, as noted in the consolidated statement of cash flows, includes
$733,000 of amortization expense related to deferred transaction fees that
is included in interest expense in the consolidated statement of operations.
10. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION:
The Series B and Series C Senior Notes are guaranteed on a full,
unconditional and joint and several basis by all of the Company's direct
subsidiaries, each of which is wholly owned. The combined summarized information
of these subsidiaries is as follows (000's):
<TABLE>
<CAPTION>
AS OF AND FOR
THE YEAR
ENDED
DECEMBER 31,
1998
--------------
<S> <C>
Current assets.............................................. $82,660
Noncurrent assets........................................... 94,127
Current liabilities......................................... 59,262
Noncurrent liabilities...................................... 7,999
Net sales................................................... 235,552
Gross margin................................................ 87,474
Net loss.................................................... (2,784)
</TABLE>
F-18
<PAGE> 130
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
The above information excludes $24.6 million of net intercompany payable
and $30.3 million of intercompany sales of the Company's subsidiary guarantors.
In preparation of the Company's consolidated financial statements, all
intercompany accounts were eliminated.
11. EMPLOYEE BENEFITS:
PROFIT SHARING PLAN
The Company has a separate qualified profit-sharing and 401(k) plan for
each reportable segment 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 Heafner and ITCO plan
matches 50% of the participant's contributions, up to 6% of their compensation.
The Winston plan matches 100% of the first 1% of participant contributions and
5% of the next 5% of participant contributions. The CPW plan does not match the
participant contributions. The Heafner and Winston plans also provide 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, 1998, 1997 and 1996, was $538,000, $413,000 and
$346,000, respectively.
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 authorized 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 were vested and accordingly no options
were exercised at December 31, 1997.
In the third quarter of 1998, the Plan was amended to authorize the
issuance of an additional 262,500 shares, for a total of 527,500 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. In 1998, an additional
283,400 options were granted to various members of management at a fair value of
$7.48 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 September 1999. At December 31,
1998, 24,000 options were vested; however, no options were exercised.
F-19
<PAGE> 131
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
The following presents the status of the Plan as of December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at December 31, 1996............................ 0 $0
Granted................................................... 256,000 1.10
Exercised................................................. 0 0
Forfeited................................................. 0 0
------- -----
Outstanding at December 31, 1997............................ 256,000 1.10
Granted................................................... 283,400 7.48
Exercised................................................. 0 0
Forfeited................................................. (45,750) 1.10
------- -----
Outstanding at December 31, 1998 (24,000 exercisable)....... 493,650 $4.76
======= =====
</TABLE>
The Company accounts 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. 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 (000's):
<TABLE>
<CAPTION>
1998 1997
------- ----
<S> <C> <C>
Net loss............................................. $(4,724) $(14)
Pro forma............................................ (4,873) (42)
</TABLE>
The weighted average fair value of options granted during 1998 and 1997
estimated on the date of grant using the Black-Scholes option pricing model was
$4.68 and $.58, respectively. The fair value of options granted in 1998 and 1997
were determined using the following assumptions: a risk-free interest rate of
4.69% and 6.42%, respectively, no dividend yield, expected life of 10 years
which equals the lives of the grants, and no expected volatility.
F-20
<PAGE> 132
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
The following is summary information about the Company's stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
OUTSTANDING AT AVERAGE AVERAGE EXERCISABLE AT AVERAGE
EXERCISE DECEMBER 31, REMAINING EXERCISE DECEMBER 31, EXERCISE
PRICE 1998 TERM (YEARS) PRICE 1998 PRICE
---------- -------------- ------------ -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$ 1.10 210,250 8.42 $1.10 24,000 $1.10
7.48 283,400 9.75 7.48 0 0
---------- ------- ---- ----- ------ -----
$1.10-7.48 493,650 9.18 $4.76 24,000 $1.10
========== ======= ==== ===== ====== =====
</TABLE>
12. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases land, buildings, equipment and vehicles under various
operating leases which expire between 1999 and 2012, including two properties
which are leased from individual stockholders. The Company also has obligations
totaling $651,000 related to properties which have been subleased.
Future minimum lease commitments at December 31, 1998 (excluding subleased
properties) are as follows (000's):
<TABLE>
<S> <C>
1999........................................................ $20,913
2000........................................................ 18,338
2001........................................................ 15,031
2002........................................................ 12,323
2003........................................................ 10,002
Thereafter.................................................. 18,579
-------
$95,186
=======
</TABLE>
Rent expense under these operating leases was $19.6 million in 1998, $9.0
million in 1997 and $2.4 million in 1996. Related-party rent expense was
$179,000 for 1998, $222,000 for 1997 and $369,000 in 1996. 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 13) 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
Winston was named as a defendant in a class action lawsuit filed on June
10, 1998 in Los Angeles County Superior Court on behalf of Winston store
managers. The lawsuit alleges that Winston violated certain California wage
regulations and unfair business practices. The Company believes that Winston's
operations, including its wage practices, fully comply with applicable
California and federal legal requirements and that the plaintiffs' clams are
without merit. The Company is vigorously defending the matter. Additionally, 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
F-21
<PAGE> 133
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
not expect that any of these matters will have a material adverse effect on the
financial position or results of operations of the Company.
13. 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 12), 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 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 12 ). 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. As of December 31, 1998, based on
the Company's purchases, the stated value of the Series B Preferred Stock was
reduced by $147,000.
14. COMMON STOCK:
CLASS A AND CLASS B COMMON STOCK
On May 12, 1998, the Company's Board of Directors amended their Articles of
Incorporation to create two classes of common stock. At December 31, 1998, the
Company has authorized for issuance 10,000,000 shares that have been designated
Class A Common Stock (Class A) and 20,000,000 shares that have been designated
Class B Common Stock (Class B).
Class A and Class B have equal rights related to dividends and
distributions and liquidation, dissolution or winding up. However, Class A is
entitled to 20 votes per share and Class B is entitled to one vote per share.
F-22
<PAGE> 134
THE J. H. HEAFNER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
Class B shall automatically convert into one share of Class A 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
in connection with the registration of the Class A 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.
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. 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.
15. SUBSEQUENT EVENT:
ACQUISITION
On January 12, 1999, the Company entered into a Stock Purchase Agreement
with the stockholders of California Tire, a wholesaler and retailer of tires,
parts and accessories located in California. The total consideration to be paid
to the stockholders is $3.9 million in cash. The acquisition is not expected to
be significant to the Company's financial position or results of operations.
F-23
<PAGE> 135
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-24
<PAGE> 136
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-25
<PAGE> 137
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-26
<PAGE> 138
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
A........................................ -- -- (695,504) (695,504)
---- -------- ----------- -----------
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
A........................................ -- -- (913,087) (913,087)
---- -------- ----------- -----------
Balance at September 30, 1997................. $900 $899,100 $(5,003,256) $(4,103,256)
==== ======== =========== ===========
</TABLE>
See accompanying notes.
F-27
<PAGE> 139
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM INCEPTION
SEPTEMBER 30 (NOVEMBER 13, 1995)
1997 TO SEPTEMBER 30 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 equipment... 1,621,564 1,511,167
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-28
<PAGE> 140
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
F-29
<PAGE> 141
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
condition, but generally does not require collateral to support such
receivables. The Company also establishes an allowance 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-30
<PAGE> 142
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
wholesale distribution of car and truck tires located in Florida (Acme),
Alabama, Tennessee (McGriff),
F-31
<PAGE> 143
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
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 pro forma 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-32
<PAGE> 144
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>
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%.
F-33
<PAGE> 145
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997
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-34
<PAGE> 146
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-35
<PAGE> 147
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-36
<PAGE> 148
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-37
<PAGE> 149
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-38
<PAGE> 150
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-39
<PAGE> 151
ITCO HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS 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-40
<PAGE> 152
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-41
<PAGE> 153
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-42
<PAGE> 154
ITCO HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED SEPTEMBER 30, 1995
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-43
<PAGE> 155
ITCO HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED SEPTEMBER 30, 1995
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-44
<PAGE> 156
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-45
<PAGE> 157
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-46
<PAGE> 158
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-47
<PAGE> 159
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-48
<PAGE> 160
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-49
<PAGE> 161
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 LLP
Mountain View, California
December 23, 1997, except as to Note 10,
which is as of January 21, 1998
F-50
<PAGE> 162
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-51
<PAGE> 163
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-52
<PAGE> 164
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-53
<PAGE> 165
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-54
<PAGE> 166
THE SPEED MERCHANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.)
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-55
<PAGE> 167
THE SPEED MERCHANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.)
(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.
F-56
<PAGE> 168
THE SPEED MERCHANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.)
(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>
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.
F-57
<PAGE> 169
THE SPEED MERCHANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.)
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.
(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>
F-58
<PAGE> 170
THE SPEED MERCHANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.)
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.
(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-59
<PAGE> 171
- ------------------------------------------------------
- ------------------------------------------------------
HEAFNER HAS NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER INDIVIDUAL 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 HEAFNER 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 HEAFNER OR THE SUBSIDIARY GUARANTORS SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 10
Where You Can Find More Information.... 16
Forward-Looking Information............ 17
The Transactions....................... 18
Use of Proceeds........................ 21
Capitalization......................... 22
The Exchange Offer..................... 23
Unaudited Pro Forma Condensed Combined
Financial Data....................... 32
Selected Historical Financial Data..... 35
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 41
Business............................... 50
Management............................. 60
Principal Stockholders................. 69
Certain Relationships and Related
Transactions......................... 71
Description of Credit Facility......... 73
Description of the Series D Notes...... 75
Certain U.S. Federal Income Tax
Considerations....................... 108
Plan of Distribution................... 108
Legal Matters.......................... 109
Experts................................ 109
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
------------------------
UNTIL , 1999, ALL DEALERS EFFECTING TRANSACTIONS IN THE SERIES D
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 ACTING AS UNDERWRITERS, INCLUDING
SELLING SERIES D NOTES RECEIVED IN EXCHANGE FOR SERIES B NOTES AND C NOTES HELD
FOR THEIR OWN ACCOUNT (SEE "PLAN OF DISTRIBUTION") AND WITH RESPECT TO ANY
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
$150,000,000
THE J.H. HEAFNER
COMPANY, INC.
------------------------------
PROSPECTUS
------------------------------
OFFER TO EXCHANGE ITS
10% SENIOR NOTES
DUE 2008
------------------------------------------------------
------------------------------------------------------
<PAGE> 172
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The J.H. Heafner Company, Inc.
Heafner is a North Carolina corporation. 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. Heafner,
in its Articles of Incorporation, 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., Phoenix Racing, Inc. and
California Tire Company
Winston, Speed Merchant, Phoenix Racing, Inc. ("Phoenix") and California
Tire Company ("California Tire") 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.
Both Winston and California Tire's Articles of Incorporation allow them to
provide indemnification to their 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> 173
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.
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.
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 Articles of Incorporation of The Speed Merchant, Inc.*
3.6 By-laws of The Speed Merchant, Inc.*
3.7 Articles of Incorporation of Phoenix Racing, Inc.*
3.8 By-laws of Phoenix Racing, Inc.*
3.9 Articles of Incorporation of California Tire Company++
3.10 By-laws of California Tire Company++
4.1 Indenture, dated as of December 1, 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. (the "Series D Indenture")+
4.2 Form of Series C and Series D Note (attached as Exhibit A to
the Series D Indenture)+
4.3 Supplemental Indenture to the Series D Indenture, dated as
of February 22, 1999, among the Company, the Trustee, Oliver
& Winston, Inc., The Speed Merchant, Inc., Phoenix Racing,
Inc. and California Tire Company++
4.4 Indenture, dated as of May 15, 1998, among the Company, 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. (the "Series B Indenture")*
4.5 Form of Series B Global Note (attached as Exhibit A to the
Series B Indenture)*
4.6 Supplemental Indenture to the Series B Indenture, dated as
of February 22, 1999, among the Company, the Trustee, Oliver
& Winston, Inc., The Speed Merchant, Inc., Phoenix Racing,
Inc. and California Tire Company++
4.7 Registration Rights Agreement, dated as of December 1, 1998,
among the Company, its subsidiaries and BancBoston Robertson
Stephens Inc. and Credit Suisse First Boston Corporation++
5.1 Opinion of Howard, Smith & Levin LLP as to the Legality of
the New Notes++
</TABLE>
II-2
<PAGE> 174
<TABLE>
<C> <S>
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.*
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 Agreement")*
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 Letter Agreements, dated as of November 24 and 25, 1998,
respectively, by and between Michelin North America and the
Company++
10.20 The J.H. Heafner Company 1997 Stock Option Plan (the "1997
Stock Option Plan")*
10.21 The J.H. Heafner Company 1998 Stock Option Plan Amendment
(amending 1997 Stock Option Plan)++
10.22 Form of Stock Option Agreement (incentive stock options)*
10.23 Form of Stockholder Agreement (pursuant to the 1997 Stock
Option Plan)*
</TABLE>
II-3
<PAGE> 175
<TABLE>
<C> <S>
10.24 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.*
10.25 The J.H. Heafner Company 1997 Restricted Stock Plan*
10.26 Securities Purchase and Stockholders Agreement, dated as of
May 28, 1997, among the Company and various management
stockholders*
10.27 Employment and Severance Agreements between the Company and
William H. Gaither and Thomas J. Bonburg**
10.28 Employment Agreement, dated as of May 20, 1998, between the
Company and Richard P. Johnson*
10.29 Employment Agreement, dated as of May 20, 1998, between the
Company and Arthur C. Soares*
10.30 Employment Agreement, dated as of May 20, 1998, between The
Speed Merchant, Inc. and Ray C. Barney*
10.31 Lease Agreement, dated October 1, 1992, by and between
Carolyn Heafner, Ann H. Gaither, Albert C. Gaither and the
Company, as amended*
10.32 Amended and Restated Employment Agreements, dated as of
January 1, 1999, between the Company and Daniel K. Brown, J.
Michael Gaither and Donald C. Roof++
10.33 Lease, dated August 1, 1988, by and between Ann Heafner
Gaither and the Company, as amended**
10.34 Lease Agreement, dated January 1, 1993, by and between
Evangeline H. Heafner 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 Ernst & Young LLP++
23.3 Consent of KPMG LLP++
23.4 Consent of Arthur Andersen LLP++
23.5 Consent of Howard, Smith & Levin LLP (filed as part of
Exhibit 5.1)
24.1 Power of Attorney of Directors and Officers (set forth on
the signature pages hereto)
25.1 Statement of Eligibility of Trustee on Form T-1 related to
the Notes++
27.1 Financial Data Schedules++
99.1 Form of Letter of Transmittal++
99.2 Form of Notice of Guaranteed Delivery++
Form of Exchange Agent Agreement#
</TABLE>
- ---------------
* Incorporated by reference to Heafner's Registration Statement on Form S-4
filed with the SEC on August 18, 1998.
** Incorporated by reference to Amendment No. 1 to Heafner's Registration
Statement on Form S-4 filed with the SEC on October 2, 1998.
*** Incorporated by reference to Amendment No. 2 to Heafner's Registration
Statement on Form S-4 filed with the SEC on October 14, 1998. herewith. All
other exhibits were filed with the Registration Statement dated August 18,
1998 or Amendment No. 1 to the Registration Statement dated October 2, 1998.
+ Incorporated by reference to Heafner's Form 8-K filed on December 15, 1998.
++ Filed herewith.
# To be filed by amendment.
II-4
<PAGE> 176
(b) Financial Data Schedules (filed as exhibit 27.1)
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-5
<PAGE> 177
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 March 31, 1999.
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 March 31, 1999
- --------------------------------------------- Executive Officer
William H. Gaither
/s/ DONALD C. ROOF Senior Vice President, Chief Financial March 31, 1999
- --------------------------------------------- Officer and Treasurer
Donald C. Roof
/s/ J. LEWIS MCKNIGHT, JR. Chief Accounting Officer March 31, 1999
- ---------------------------------------------
J. Lewis McKnight, Jr.
/s/ ANN H. GAITHER Chairperson of the Board March 31, 1999
- ---------------------------------------------
Ann H. Gaither
/s/ VICTORIA B. JACKSON Director March 31, 1999
- ---------------------------------------------
Victoria B. Jackson
</TABLE>
II-6
<PAGE> 178
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOSEPH P. DONLAN Director March 31, 1999
- ---------------------------------------------
Joseph P. Donlan
/s/ WILLIAM M. WILCOX, JR. Director March 31, 1999
- ---------------------------------------------
William M. Wilcox, Jr.
/s/ V. EDWARD EASTERLING, JR. Director March 31, 1999
- ---------------------------------------------
V. Edward Easterling, Jr.
</TABLE>
II-7
<PAGE> 179
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 March 31, 1999.
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 Officer March 31, 1999
- ---------------------------------------------
William H. Gaither
/s/ P. DOUGLAS ROBERTS Director, President and Chief March 31, 1999
- --------------------------------------------- Operating Officer
P. Douglas Roberts
/s/ DONALD C. ROOF Director, Vice President and Treasurer March 31, 1999
- ---------------------------------------------
Donald C. Roof
/s/ J. MICHAEL GAITHER Director, Vice President, General March 31, 1999
- --------------------------------------------- Counsel and Secretary
J. Michael Gaither
</TABLE>
II-8
<PAGE> 180
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. LEWIS MCKNIGHT, JR Chief Accounting Officer March 31, 1999
- ---------------------------------------------
J. Lewis McKnight, Jr.
/s/ ANN H. GAITHER Chairperson of the Board March 31, 1999
- ---------------------------------------------
Ann H. Gaither
</TABLE>
II-9
<PAGE> 181
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 March 31, 1999.
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 Officer March 31, 1999
- ---------------------------------------------
William H. Gaither
/s/ ARTHUR C. SOARES Director, President and Chief March 31, 1999
- --------------------------------------------- Operating Officer
Arthur C. Soares
/s/ DONALD C. ROOF Director, Vice President, Chief March 31, 1999
- --------------------------------------------- Financial Officer and Treasurer
Donald C. Roof
/s/ J. MICHAEL GAITHER Director, Vice President, General March 31, 1999
- --------------------------------------------- Counsel and Secretary
J. Michael Gaither
/s/ J. LEWIS MCKNIGHT, JR. Chief Accounting Officer March 31, 1999
- ---------------------------------------------
J. Lewis McKnight, Jr.
/s/ ANN H. GAITHER Chairperson of the Board March 31, 1999
- ---------------------------------------------
Ann H. Gaither
</TABLE>
II-10
<PAGE> 182
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 March 31, 1999.
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 Officer March 31, 1999
- ---------------------------------------------
William H. Gaither
/s/ P. DOUGLAS ROBERTS Director, President and Chief March 31, 1999
- --------------------------------------------- Operating Officer
P. Douglas Roberts
/s/ DONALD C. ROOF Director, Vice President, Chief March 31, 1999
- --------------------------------------------- Financial Officer and Treasurer
Donald C. Roof
/s/ J. MICHAEL GAITHER Director, Vice President, General March 31, 1999
- --------------------------------------------- Counsel and Secretary
J. Michael Gaither
/s/ J. LEWIS MCKNIGHT, JR. Chief Accounting Officer March 31, 1999
- ---------------------------------------------
J. Lewis McKnight, Jr.
/s/ ANN H. GAITHER Chairperson of the Board March 31, 1999
- ---------------------------------------------
Ann H. Gaither
</TABLE>
II-11
<PAGE> 183
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 March 31, 1999.
CALIFORNIA 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 Officer March 31, 1999
- ---------------------------------------------
William H. Gaither
/s/ MICHAEL LARGENT President March 31, 1999
- ---------------------------------------------
Michael Largent
/s/ DONALD C. ROOF Director, Vice President, Chief March 31, 1999
- --------------------------------------------- Financial Officer and Treasurer
Donald C. Roof
/s/ J. MICHAEL GAITHER Director, Vice President, General March 31, 1999
- --------------------------------------------- Counsel and Secretary
J. Michael Gaither
/s/ ANN H. GAITHER Chairperson of the Board March 31, 1999
- ---------------------------------------------
Ann H. Gaither
</TABLE>
II-12
<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> 18
STATE OF NORTH CAROLINA
ARTICLES OF MERGER
OF
ITCO LOGISTICS CORPORATION
A DELAWARE CORPORATION
INTO
THE J. H. HEAFNER COMPANY, INC.
A NORTH CAROLINA CORPORATION
Pursuant to sections 55-11-07(a)(4), 55-11-04, and 55-11-05 of the North
Carolina Business Corporation Act (the "NCBCA"), The J. H. Heafner Company,
Inc., a corporation organized under the laws of North Carolina (the "Surviving
Corporation"), hereby submits these Articles of Merger for the purpose of
merging ITCO Logistics Corporation, a corporation organized under the laws of
Delaware (the "Merging Corporation"), with and into the Surviving Corporation
(such transaction being the "Merger").
1. With respect to each corporation which is a party to the Merger, the
Plan of Merger attached hereto as Exhibit A and made a part hereof was duly
authorized and approved by unanimous consent and in the manner prescribed by law
by the Board of Directors as required by the NCBCA and the General Corporation
Law of Delaware (the "DGCL").
2. The Surviving Corporation owns all of the outstanding shares of each
class of stock of the Merging Corporation. Pursuant to Section 55-11-04 of the
NCBCA and Section 253 of the DGCL, the Merger does not require the vote of the
shareholders of either the Surviving Corporation or the Merging Corporation.
3. The Merger is permitted by the law of the state of incorporation of each
foreign entity which is a party to the Merger.
4. Each foreign entity which is a party to the merger has complied or shall
comply with the applicable laws of its state of incorporation regarding such
Merger.
5. These Articles of Merger shall be effective as of 9:00 p.m., North
Carolina time, on December 31, 1998.
<PAGE> 19
This 31 day of December, 1998.
The J. H. Heafner Company, Inc.,
a North Carolina corporation
/s/ William H. Gaither
By: ________________________________
William H. Gaither
President and Chief Executive Officer
<PAGE> 20
PLAN OF MERGER
THIS PLAN OF MERGER ("Plan") made as of November 23, 1998, by and
between The J. H. Heafner Company, Inc., a corporation organized under the laws
of North Carolina ("Heafner") and ITCO Logistics Corporation, a corporation
organized under the laws of Delaware (the "Merging Corporation") (collectively,
Heafner and the Merging Corporation are herein referred to as "Constituent
Corporations").
W I T N E S S E T H:
WHEREAS, Merging Corporation is a wholly-owned, direct subsidiary of
Heafner;
WHEREAS, the Board of Directors of each of Heafner and the Merging
Corporation have determined that it is advisable and in the best interests of
such corporations for the Merging Corporation to be merged with and into Heafner
(the "Merger") upon the terms and conditions set forth herein and in accordance
with the Delaware General Corporation Law and the North Carolina Business
Corporation Act; and
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions contained herein,
at the Effective Time (as defined below), the Merging Corporation shall be
merged with and into Heafner, with Heafner being the surviving corporation (the
"Surviving Corporation"). Upon the effectiveness of the Merger, the Surviving
Corporation shall possess all of the rights, privileges, powers and franchises
of the Constituent Corporations, and all property (real, personal and mixed) and
other assets (tangible and intangible) belonging to the Constituent Corporations
shall be vested in the Surviving Corporation, and all such property, assets,
rights, privileges, powers and franchises shall thereafter belong to the
Surviving Corporation, and the title to any real estate vested by deed or
otherwise in the Constituent Corporations shall not revert or be in any way
impaired by reason of the Merger, but all rights of creditors and all liens upon
any property of the Constituent Corporations shall be preserved unimpaired, and
all debts, liabilities and duties of the Constituent Corporations shall,
following the Merger, attach to the Surviving Corporation and may be enforced
against it to the same extent as if said debts, liabilities and duties had been
incurred or contracted by the Surviving Corporation.
1.2 Consummation of the Merger. Promptly following and subject to the
satisfaction of the conditions set forth in Article V herein, the parties hereto
shall cause Articles of Merger to be filed with the Secretary of State of North
Carolina in such form as required by, and executed in accordance with, the
relevant provisions of the North Carolina Business Corporation Act. Furthermore,
promptly following and subject to the satisfaction of the conditions set forth
in Article V herein, the Surviving Corporation shall cause a Certificate of
Ownership and Merger to
<PAGE> 21
be filed with the Secretary of State of Delaware in such form as required by,
and executed in accordance with, the relevant provisions of the Delaware General
Corporation Law. The Merger shall be effective upon the completed filing of the
Articles of Merger and Certificate of Ownership and Merger (the "Effective
Time").
1.3 Further Assurances. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any further deeds,
assignments, assurances or any other acts are necessary, desirable or proper to
vest, perfect or confirm, of record or otherwise, in the Surviving Corporation,
the title to any property or right of the Constituent Corporations acquired or
to be acquired by reason, or as a result, of the Merger, the Merging Corporation
agrees that the Surviving Corporation and its officers shall execute and deliver
all such deeds, assignments and assurances and do all acts necessary, desirable
or proper to vest, perfect or confirm title to such property or right in the
Surviving Corporation, and the officers of the Surviving Corporation are fully
authorized in the name of the Merging Corporation or otherwise to take any and
all such action.
ARTICLE II
THE SURVIVING CORPORATION
2.1 Articles of Incorporation. Following the Effective Time, the
Articles of Incorporation of Heafner on the date hereof shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended or repealed
in accordance with the terms thereof and applicable law.
2.2 By-Laws. Following the Effective Time, the By-Laws of Heafner shall
continue to be the By-Laws of the Surviving Corporation until amended or
repealed in accordance with the provisions thereof, the Articles of
Incorporation of the Surviving Corporation and applicable law.
2.3 Directors. Following the Effective Time, the directors of Heafner
shall continue to be the directors of the Surviving Corporation until their
respective successors are duly elected and qualified in the manner provided in
the By-Laws and the Articles of Incorporation of the Surviving Corporation and
applicable law, or until their earlier resignation or removal.
2.4 Officers. Following the Effective Time, the officers of Heafner
shall continue to be the officers of the Surviving Corporation until their
successors are duly elected and qualified in the manner provided in the By-Laws
and the Articles of Incorporation of the Surviving Corporation and applicable
law, or until their earlier resignation or removal.
2
<PAGE> 22
ARTICLE III
CONVERSION AND CANCELLATION OF SHARES
3.1 Conversion and Cancellation of Shares. As of the Effective Time, by
virtue of the Merger and without any further action on the part either of the
constituent corporations or any holder of any of the capital stock thereof:
(a) Each issued and outstanding share of the Merging
Corporation Stock shall cease to exist and shall be cancelled, retired, and
eliminated, and no shares of Heafner shall be issued in respect thereof.
(b) Each issued and outstanding share of Heafner Common Stock
shall remain outstanding after the Merger and shall not be affected thereby.
ARTICLE IV
CONDITIONS TO CLOSING
The obligations of the Constituent Corporations to consummate the
transactions contemplated by this Plan are subject only to the approval of the
Merger at or before the Effective Time, by the affirmative vote or by the
written consent, of the board of directors of Heafner pursuant to Section
55-11-04 of the North Carolina Business Corporation Act and Section 253 of the
Delaware General Corporation Law.
[SIGNATURES ON FOLLOWING PAGE]
3
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Plan as of
the date first written above.
THE J. H. HEAFNER COMPANY, INC.,
a North Carolina corporation
/s/ William H. Gaither
By: _________________________________________
William H. Gaither
President and Chief Executive Officer
ITCO LOGISTICS CORPORATION, a Delaware
corporation
/s/ William H. Gaither
By: _________________________________________
William H. Gaither
President and Chief Executive Officer
4
<PAGE> 24
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
ITCO LOGISTICS CORPORATION
INTO
THE J.H. HEAFNER COMPANY, INC.
THE J.H. HEAFNER COMPANY, INC., a North Carolina corporation, does
hereby certify pursuant to Section 253 and Section 103 of the Delaware General
Corporation Law as follows:
1. THE J.H. HEAFNER COMPANY, INC. owns all of the outstanding shares of
each class of stock of ITCO LOGISTICS CORPORATION, a Delaware corporation.
2. THE J.H. HEAFNER COMPANY, INC. hereby merges ITCO LOGISTICS
CORPORATION into THE J.H. HEAFNER COMPANY, INC. and assumes all obligations of
ITCO LOGISTICS CORPORATION pursuant to the resolutions of the Board of Directors
of THE J.H. HEAFNER COMPANY, INC., a copy of which is attached as Exhibit A
hereto, which were duly adopted by the Directors of THE J.H. HEAFNER COMPANY,
INC at the November 23, 1998 Regular Meeting of the Directors.
3. This Certificate of Ownership and Merger shall be effective as of
9:00 p.m., Delaware Time, on December 31, 1998.
IN WITNESS WHEREOF, THE J.H. HEAFNER COMPANY, INC. has caused this
Certificate of Ownership and Merger to be signed by William H. Gaither, its
President and Chief Executive Officer, this 31 day of December, 1998.
THE J.H. HEAFNER COMPANY, INC.,
a North Carolina corporation
/s/ William H. Gaither
By:_________________________________
William H. Gaither
President and Chief Executive Officer
<PAGE> 1
ARTICLES OF INCORPORATION
OF
CALTIRE ACQUISITION CO.
The undersigned, being a natural person of full age and acting as the
incorporator for the purpose of forming the business corporation hereinafter
named pursuant to the provisions of the Corporations Code of the State of
California, does hereby adopt the following articles of incorporation.
FIRST: The name of the corporation (hereinafter referred to as the
"corporation") is CalTire Acquisition Co.
SECOND: The existence of the corporation is perpetual.
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 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.
FOURTH: The name of the corporation's initial agent for service of
process within the State of California in accordance with the provisions of
subdivision (b) of Section 1502 of the Corporations Code of the State of
California is Corporation Service Company which will do business in California
as CSC-Lawyers Incorporating Service.
FIFTH: The total number of shares which the corporation is authorized
to issue is One Thousand (1,000), all of which are of one class and of a par
value of $.01 each, and all of which are Common shares.
The Board of Directors of the corporation may issue any or all of the
aforesaid authorized shares of the corporation from time to time for such
consideration as it shall determine and may determine from time to time the
amount of such consideration, if any, to be credited to paid-in surplus.
SIXTH: In the interim between meetings of shareholders held for the
election of directors or for the removal of one or more directors and the
election of the replacement or replacements thereat, any vacancy which results
by reason of the removal of a director or directors by the shareholders entitled
to vote in an election of directors, and which has not been filled by said
shareholders, may be filled by a majority of the directors then in office,
whether or not less than a quorum, or by the sole remaining director, as the
case may be.
<PAGE> 2
SEVENTH: The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
EIGHTH: 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 shareholders 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.
Signed on January 6, 1999.
/s/ John W. Nurkin, Esq.
------------------------------------
John W. Nurkin, Esq., Incorporator
[seal]
<PAGE> 3
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER ("Agreement") is made as of February 5, 1999,
by and among CalTire Acquisition Co., a California corporation ("CalTire"),
CalTire Acquisition Co. #2, a California corporation ("CalTire2"), and
California Tire Company, LLC, a California limited liability company ("CLLC").
W I T N E S S E T H:
WHEREAS, the Board of Directors of CalTire, the Board of Directors of
CalTire2 and all of the members of CLLC have determined that it is advisable and
in the best interests of such entities for CalTire2 and CLLC to be merged with
and into CalTire (the "Merger") upon the terms and conditions set forth herein
and in accordance with the California General Corporation Law and the California
Limited Liability Company Act (CalTire, CalTire2 and CLLC are sometimes referred
to herein, collectively, as the "Constituent Entities"); and
WHEREAS, CalTire2 is a wholly-owned direct subsidiary of CalTire; and
WHEREAS, the interest of CLLC is 99% owned by CalTire and 1% owned by
CalTire2.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions contained herein,
at the Effective Time (as defined below), CalTire2 and CLLC (each a
"Disappearing Entity" and, collectively, the "Disappearing Entities") will be
merged with and into CalTire, with CalTire being the surviving corporation in
the Merger (the "Surviving Corporation"). Upon the effectiveness of the Merger,
the Surviving Corporation shall possess all of the rights, privileges, powers
and franchises of each Disappearing Entity, and all property (real, personal and
mixed) and other assets (tangible and intangible) belonging to each Disappearing
Entity shall be vested in the Surviving Corporation, and all such property,
assets, rights, privileges, powers and franchises shall thereafter belong to the
Surviving Corporation, and the title to any real estate vested by deed or
otherwise in any Disappearing Entity shall not revert or be in any way impaired
by reason of the Merger, but all rights of creditors and all liens upon any
property of any Disappearing Entity shall be preserved unimpaired, and all
debts, liabilities and duties of each Disappearing Entity shall, following the
Merger, attach to the Surviving Corporation and may be enforced against it to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by the Surviving Corporation.
1.2 Consummation of the Merger. Promptly following and subject to the
satisfaction of the conditions set forth in Article IV herein, the parties
hereto shall cause a copy of this Agreement of Merger along with all necessary
attachments to be filed with the Secretary of State of California in such form
as required by, and executed in accordance with, the relevant provisions of the
California General Corporation Law and the California Limited Liability Act. The
Merger shall be effective upon the completion of such filing (the "Effective
Time").
<PAGE> 4
1.3 Further Assurances. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any further deeds,
assignments, assurances or any other acts are necessary, desirable or proper to
vest, perfect or confirm, of record or otherwise, in the Surviving Corporation,
the title to any property or right of either Disappearing Entity acquired or to
be acquired by reason, or as a result, of the Merger, each Disappearing Entity
agrees that the Surviving Corporation and its officers shall execute and deliver
all such deeds, assignments and assurances and do all acts necessary, desirable
or proper to vest, perfect or confirm title to such property or right in the
Surviving Corporation, and the officers of the Surviving Corporation are fully
authorized in the name of such Disappearing Entity or otherwise to take any and
all such action.
ARTICLE II
THE SURVIVING CORPORATION
2.1 Articles of Incorporation. At and following the Effective Time, the
Articles of Incorporation of CalTire shall continue to be the Articles of
Incorporation of the Surviving Corporation until amended or repealed in
accordance with the terms thereof and applicable law, subject to and amended by
the following:
Article FIRST is amended to read, in its entirety, as follows:
"The name of the corporation (hereinafter referred to
as the "corporation") is California Tire Company."
2.2 By-Laws. At and following the Effective Time, the By-Laws of
CalTire shall continue to be the By-Laws of the Surviving Corporation until
amended or repealed in accordance with the provisions thereof, the Articles of
Incorporation of the Surviving Corporation and applicable law.
2.3 Directors. At and following the Effective Time, the directors of
CalTire shall continue to be the directors of the Surviving Corporation until
their respective successors are duly elected and qualified in the manner
provided in the By-Laws and the Articles of Incorporation of the Surviving
Corporation and applicable law, or until their earlier resignation or removal.
2.4 Officers. At and following the Effective Time, the officers of
CalTire shall continue to be the officers of the Surviving Corporation until
their successors are duly elected and qualified in the manner provided in the
By-Laws and the Articles of Incorporation of the Surviving Corporation and
applicable law, or until their earlier resignation or removal.
<PAGE> 5
ARTICLE III
CONVERSION AND CANCELLATION OF SHARES
3.1 Conversion and Cancellation of Shares. At the Effective Time, by
virtue of the Merger and without any further action on the part either of the
Constituent Entities or any holder of any of the capital stock or any interest
thereof:
(a) Each issued and outstanding share of CalTire2 Common Stock
shall be canceled and all rights and privileges related thereto shall
terminate, and no shares of the Surviving Corporation shall be issued
in respect thereof.
(b) Each interest of CLLC shall be canceled and all rights and
privileges related thereto shall terminate, and no shares of the
Surviving Corporation shall be issued in respect thereof.
(c) Each issued and outstanding share of CalTire Common Stock
shall remain outstanding after the Merger and shall not be affected
thereby.
ARTICLE IV
CONDITIONS TO CLOSING
The obligations of each of CalTire2, CLLC, and CalTire to consummate
the transactions contemplated by this Agreement are subject to the approval of
the Merger at or before the Effective Time, by the affirmative vote or by the
written consent, as required by law, of the holders of a majority of the
outstanding shares of CalTire Common Stock, of the holders of a majority of the
outstanding shares of CalTire2 Common Stock and of the holders of a majority in
interest of the members of CLLC.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CalTire Acquisition Co.,
a California corporation
By: /s/ Donald C. Roof
------------------------------
Donald C. Roof
Vice President
By: /s/ J. Michael Gaither
--------------------------------
J. Michael Gaither
Secretary
CalTire Acquisition Co. #2,
a California corporation
By: /s/ Donald C. Roof
--------------------------------
Donald C. Roof
Vice President
By: /s/ J. Michael Gaither
--------------------------------
J. Michael Gaither
Secretary
California Tire Company, LLC,
a California limited liability company
By: /s/ J. Michael Gaither
--------------------------------
J. Michael Gaither
Manager
<PAGE> 7
CERTIFICATE OF APPROVAL OF AGREEMENT OF MERGER
Donald C. Roof and J. Michael Gaither state and certify that:
1. They are the Vice President and Secretary, respectively, of CalTire
Acquisition Co., a California corporation.
2. The agreement of merger in the form attached was duly approved by the Board
of Directors and shareholders of the corporation.
3. There is only one class of shares and the total number of outstanding shares
is 1,000.
4. The shareholder percentage vote required for the aforesaid approval was any
vote greater than 50 percent.
5. The principal terms of the merger agreement in the form attached were
approved by the corporation by a vote of the number of shares which equaled or
exceeded the vote required.
On the date set forth below, in the City of Charlotte in the State of North
Carolina, each of the undersigned does hereby declare under the penalty of
perjury under the laws of the State of California that he signed the foregoing
certificate in the official capacity set forth beneath his signature, and that
the statements set forth in said certificate are true of his own knowledge.
Signed on February 5, 1999.
/s/ Donald C. Roof
------------------------------
Donald C. Roof, Vice President
/s/ J. Michael Gaither
------------------------------
J. Michael Gaither, Secretary
<PAGE> 8
CERTIFICATE OF APPROVAL OF AGREEMENT OF MERGER
Donald C. Roof and J. Michael Gaither state and certify that:
1. They are the Vice President and Secretary, respectively, of CalTire
Acquisition Co. #2, a California corporation.
2. The agreement of merger in the form attached was duly approved by the Board
of Directors and shareholders of the corporation.
3. There is only one class of shares and the total number of outstanding shares
is 1,000.
4. The shareholder percentage vote required for the aforesaid approval was any
vote greater than 50 percent.
6. The principal terms of the merger agreement in the form attached were
approved by the corporation by a vote of the number of shares which equaled or
exceeded the vote required.
On the date set forth below, in the City of Charlotte in the State of North
Carolina, each of the undersigned does hereby declare under the penalty of
perjury under the laws of the State of California that he signed the foregoing
certificate in the official capacity set forth beneath his signature, and that
the statements set forth in said certificate are true of his own knowledge.
Signed on February 5, 1999.
/s/ Donald C. Roof
------------------------------
Donald C. Roof, Vice President
/s/ J. Michael Gaither
------------------------------
J. Michael Gaither, Secretary
<PAGE> 9
|
[LOGO] STATE OF CALIFORNIA |
SECRETARY OF STATE |
BILL JONES |
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LIMITED LIABILITY COMPANY -- CERTIFICATE OF MERGER |
WHEN COMPLETING FORM, PLEASE TYPE OR PRINT IN BLACK INK. |
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IMPORTANT -- READ THE INSTRUCTIONS ON THE BACK OF THIS FORM BEFORE COMPLETING | THIS SPACE FOR FILING ONLY
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| | |
1. Name of surviving entity: | 2. Type of entity | 3. File number: | 4. Jurisdiction of organization:
CalTire Acquisition Co. | Corporation | 2129772 | California
| | |
- ---------------------------------------------------------------------------------------------------------------
| | |
5. Name of disappearing entity: | 6. Type of entity | 7. File number: | 8. Jurisdiction of organization:
California Tire Company, LLC | LLC | | California
| | |
- ---------------------------------------------------------------------------------------------------------------
9. If a vote was required pursuant to Section 17551 or Section 1200 et seq., enter each class entitled to
vote and the percentage of vote required:
|
Surviving Entity | Disappearing Entity
---------------- | -------------------
Each class entitled Percentage of vote | Each class entitled Percentage of vote
to vote required | to vote required
------------------- ------------------ | ------------------- --------------------
Common greater than 50% | Membership interest majority in interest
|
- ---------------------------------------------------------------------------------------------------------------
10. The principal terms of the agreement of merger were approved by a vote of the number of interests or shares
of each clas that equaled or exceeded the vote required:
/ X / Yes / / No
- ---------------------------------------------------------------------------------------------------------------
11. Requisite changes to the information set forth in the articles of organization of the surviving limited
liability company resulting from the merger. Attach additional pages if necessary:
Not applicable
- ---------------------------------------------------------------------------------------------------------------
12. Principal business address of the surviving foreign limited liability company or other business entity:
Address: Not applicable
City: State: Zip Code:
- ---------------------------------------------------------------------------------------------------------------
13. Other information required to be stated in the certificate of merger pursuant to the laws under which
each constituent other business entity was organized. Attach additional pages if necessary.
Not applicable
- ---------------------------------------------------------------------------------------------------------------
14. Future effective date, if any: | 15. Number of pages attached, if any:
|
Not applicable | 1
|
- ---------------------------------------------------------------------------------------------------------------
15. I certify that the statements contained in this document are true and correct of my own knowledge. I
declare that I am the person who is executing this instrument, which execution is my act and deed. Attach
additional signature pages, if necessary.
Donald C. Roof [signature] Donald C. Roof, Vice President
-------------------------------------- --------------------------------------
Signature of authorized person for the Type or print name and title of person
surviving entity signing
J. Michael Gaither [signature] J. Michael Gaither, Secretary
-------------------------------------- --------------------------------------
Signature of authorized person for the Type or print name and title of person
surviving entity signing
J. Michael Gaither [signature] J. Michael Gaither, Manager
-------------------------------------- --------------------------------------
Signature of authorized person for the Type or print name and title of person
surviving entity signing
-------------------------------------- --------------------------------------
Signature of authorized person for the Type or print name and title of person
surviving entity signing
</TABLE>
<PAGE> 10
ATTACHMENT TO CERTIFICATE OF MERGER
5a. Name of disappearing entity: CalTire Acquisition Co. #2
6a. Type of entity: Corporation
7a. File number:
8a. Jurisdiction of organization: California
9a. Disappearing Entity
Each class entitled to vote: Percentage of vote required
---------------------------- ---------------------------
common greater than 50%
16a. I certify that the statements contained in this document are true and
correct of my own knowledge. I declare that I am the person who is executing
this instrument, which execution is my act and deed.
/s/ Donald C. Roof /s/ Donald C. Roof, Vice President
- ------------------------------ -----------------------------------
Signature of authorized person Type or print name and title
for the disappearing entity of person signing
/s/ J. Michael Gaither /s/ J. Michael Gaither, Secretary
- ------------------------------ -----------------------------------
Signature of authorized person Type or print name and title
for the disappearing entity of person signing
<PAGE> 1
EXHIBIT 3.10
- ---------------------------------------------------------------------
BY-LAWS
OF
CalTire Acquisition Co.
- ---------------------------------------------------------------------
Effective as of January 7, 1999
<PAGE> 2
INDEX OF BYLAWS
OF
CALTIRE ACQUISITION CO.
(STATE OF CALIFORNIA)
ARTICLE I
OFFICES
Section 1. Principal Office
Section 2. Registered Office
Section 3. Other Offices
ARTICLE II
ANNUAL MEETING OF SHAREHOLDERS
Section 1. Location
Section 2. Annual Meeting
Section 3. Notice
ARTICLE III
SPECIAL MEETINGS OF SHAREHOLDERS
Section 1. Special Meetings
Section 2. Notice of Special Meetings
Section 3. Business at Special Meetings
ARTICLE IV
QUORUM AND VOTING STOCK
Section 1. Quorum and Adjournments
Section 2. Vote
Section 3. Action Without Meeting
<PAGE> 3
ARTICLE V
DIRECTORS
Section 1. Number
Section 2. Vacancies
Section 3. Powers
Section 4. Books
Section 5. Compensation
ARTICLE VI
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. Location
Section 2. First Meeting
Section 3. Regular Meetings
Section 4. Special Meetings
Section 5. Waiver of Notice
Section 6. Quorum
Section 7. Action Without Meeting
ARTICLE VII
EXECUTIVE COMMITTEE
Section 1. Executive Committee
Section 2. Minutes
Section 3. Authority
ARTICLE VIII
NOTICES
Section 1. Writing
Section 2. Waiver
<PAGE> 4
ARTICLE IX
OFFICERS
Section 1. Officers
Section 2. Election
Section 3. Other Officers
Section 4. Compensation
Section 5. Term
THE PRESIDENT
Section 6. Duties and Powers
THE VICE PRESIDENTS
Section 7. Duties and Powers
THE SECRETARY AND ASSISTANT SECRETARIES
Section 8. Duties and Powers
Section 9. Assistant Secretaries
THE CHIEF FINANCIAL OFFICER
Section 10. Duties and Powers
Section 11. Disbursement
Section 12. Bond
Section 13. Assistant Treasurers
ARTICLE X
CERTIFICATES FOR SHARES
Section 1. Certificates
Section 2. Facsimile Signatures
Section 3. Lost Certificates
Section 4. Transfers of Shares
Section 5. Closing of Transfer Books
Section 6. Registered Shareholders
<PAGE> 5
ARTICLE XI
GENERAL PROVISIONS
Section 1. Dividends
Section 2. Checks
Section 3. Fiscal Year
Section 4. Seal
ARTICLE XII
AMENDMENTS
Section 1. Amendments
ARTICLE XIII
DIRECTORS' ANNUAL REPORT
Section 1. Directors Annual Report
<PAGE> 6
CALTIRE ACQUISITION CO.
******
BYLAWS
******
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal executive office shall be
located in Hayward, California.
SECTION 2. REGISTERED OFFICE. The registered office of the corporation
required by law to be maintained in the State of California 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 also have offices at such
other places both within and without the State of California as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
ANNUAL MEETING OF SHAREHOLDERS
SECTION 1. LOCATION. All meetings of shareholders for the election of
directors shall be held at such place as may be fixed from time to time by the
Board of Directors, or at such other place either within or without the State of
California as shall be designated from time to time by the Board of Directors
and stated in the notice of the meeting. Meeting of shareholders for any other
purpose may be held at such time and place, within or without the State of
California, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof. If no other place is stated or fixed,
shareholders' meetings shall be held at the principal executive office of the
corporation.
SECTION 2. ANNUAL MEETING. Annual meetings of shareholders, commencing
with year 1999, shall be held on the last day in the month of June in each year,
if not a legal holiday, and if a legal holiday, then on the next secular day
following at nine o'clock a.m., or at such other date and time as shall be
designated from time to time by the Board of Directors and stated
Page 1 of 12
<PAGE> 7
in the notice of the meeting, at which they shall elect by a plurality vote a
Board of Directors and transact such other business as may properly be brought
before the meeting.
SECTION 3. NOTICE. Written or printed notice of the annual meeting
stating the place, day and hour of the meeting shall be given to each
shareholder entitled to vote thereat not less than 10 (or, if sent by
third-class mail, 30) nor more than 60 days before the date of the meeting.
Notice may be sent by third-class mail only if the outstanding shares of the
corporation are held of record by 500 or more persons (determined as provided in
Section 605 of the California General Corporation Law) on the record date for
the shareholders' meeting.
ARTICLE III
SPECIAL MEETINGS OF SHAREHOLDERS
SECTION 1. SPECIAL MEETINGS. Special meetings of shareholders for any
purpose other than the election of directors may be held at such time and place
within or without the State of California as shall be stated in the notice of
the meeting or in a duly executed waiver of notice thereof. Special meetings of
the shareholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the articles of incorporation, may be called by the president, the
Board of Directors, or the holders of not less than 10 percent of all the shares
entitled to vote at the meeting and if the corporation has a chairman of the
Board of Directors, special meetings of the shareholders may be called by the
chairman.
SECTION 2. NOTICE OF SPECIAL MEETINGS. Written or printed notice of a
special meeting of shareholders, stating the time, place and purpose or purposes
thereof, shall be given to each shareholder entitled to vote thereat not less
than 10 (or, if sent by third-class mail, 30) nor more than 60 days before the
date fixed for the meeting. Notice may be sent by third-class mail only if the
outstanding shares of the corporation are held of record by 500 or more persons
(determined as provided in Section 605 of the California General Corporation
Law) on the record date for the shareholders' meeting.
SECTION 3. BUSINESS AT SPECIAL MEETINGS. The business transacted at any
special meeting of shareholders shall be limited to the purposes stated in the
notice.
ARTICLE IV
QUORUM AND VOTING STOCK
SECTION 1. QUORUM AND ADJOURNMENTS The holders of a majority of the
shares of stock issued and outstanding and entitled to vote, represented in
person or by proxy, shall constitute a quorum at all meetings of the
shareholders for the transaction of business except as otherwise provided by
statute or by the articles of incorporation. If, however, such quorum shall not
be present or represented at any meeting of the shareholders, the shareholders
present in person or represented by proxy shall have power to adjourn the
meeting from time to time,
Page 2 of 12
<PAGE> 8
without notice other than announcement at the meeting, until a quorum shall be
present or represented. 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 original meeting. If a quorum is present, the affirmative vote
of a majority of the shares of stock represented and voting at the meeting
(which shares voting affirmatively also constitute at least a majority of the
required quorum), shall be the act of the shareholders unless the vote of a
greater number or voting by classes is required by law or the articles of
incorporation.
SECTION 2. VOTE. Each outstanding share of stock, having voting power,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders. A shareholder may vote either in person or by proxy executed in
writing by the shareholder or by his duly authorized attorney-in-fact. In all
elections for directors, every shareholder entitled to vote shall have the right
to vote, in person or by proxy, the number of shares of stock owned by him for
as many persons as there are directors to be elected, or, upon satisfaction of
the requirements set forth in Section 708(b) of the California General
Corporation Law, to cumulate the vote of said shares, 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 the shareholder's shares are normally entitled, or to
distribute the votes on the same principle among as many candidates as he may
see fit. Section 708(b) of the California General Corporation Law provides that
no shareholder shall be entitled to cumulate votes for any candidate for the
office of director unless such candidates' names have been placed in nomination
prior to the voting and at least one shareholder has given notice at the meeting
prior to the voting of his intention to cumulate his votes.
SECTION 3. ACTION WITHOUT MEETING. Unless otherwise provided in the
articles, any action, except election of directors, 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, shall be signed by the holders 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 shares entitled to vote thereon were present
and voted. Except to fill a vacancy in the Board of Directors not filled by the
directors, directors may not be elected by written consent except by unanimous
written consent of all shares entitled to vote for the election of directors.
Any election of a director to fill a vacancy (other than a vacancy created by
removal) not filled by the directors requires the written consent of a majority
of the shares entitled to vote.
ARTICLE V
DIRECTORS
SECTION 1. NUMBER. The number of directors shall be not less than one
(1) nor more than seven (7) as shall be determined from time to time by the
directors. The number constituting the initial Board of Directors shall be four
(4). Directors need not be residents of the State of California nor shareholders
of the corporation. The directors, other than the first Board of Directors,
shall be elected at the annual meeting of the shareholders, and each director
elected shall serve until the next succeeding annual meeting and until his
successor shall have been
Page 3 of 12
<PAGE> 9
elected and qualified. The first Board of Directors shall hold office until the
first annual meeting of shareholders.
SECTION 2. VACANCIES. Unless otherwise provided in the articles of
incorporation, vacancies, except for a vacancy created by the removal of a
director, and newly created directorships resulting from any increase in the
number of directors may be filled by a majority of the directors then in office,
though less than quorum, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and shall
qualify. Unless otherwise provided in the articles of incorporation any vacancy
created by the removal of a director shall be filled by the shareholders by the
vote of a majority of the shares entitled to vote at a meeting at which a quorum
is present. Any vacancies, which may be filled by directors and are not filled
by the directors, may be filled by the shareholders by a majority of the shares
entitled to vote at a meeting at which a quorum is present.
SECTION 3. POWERS. The business affairs of the corporation shall be
managed by its Board of Directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the articles of incorporation or by these bylaws directed or required to be
exercised or done by the shareholders.
SECTION 4. BOOKS. The directors may keep the books of the corporation,
except such as are required by law to be kept within the state, outside the
State of California, at such place or places as they may from time to time
determine.
SECTION 5. COMPENSATION. The Board of Directors, by the affirmative
vote of a majority of the directors then in office, and irrespective of any
personal interest of any of its members, shall have authority to establish
reasonable compensation of all directors for services to the corporation as
directors, officers or otherwise.
ARTICLE VI
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 1. LOCATION. Meetings of the Board of Directors, regular or
special, may be held either within or without the State of California.
SECTION 2. FIRST MEETING. The first meeting of each newly elected Board
of Directors shall be held at such time and place as shall be fixed by the vote
of the shareholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present, or it may convene at such place and
time as shall be fixed by the consent in writing of all the directors.
SECTION 3. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be called by the chairman of the board, the president, any vice president,
the secretary or any two directors, and may be held upon such notice, or without
notice, and at such time and at such place as shall from time to time be
determined by the board.
Page 4 of 12
<PAGE> 10
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the president on four (4) days' notice if by mail, or 48 hours
if delivered personally or by telephone or facsimile telecommunications to each
director; special meetings shall be called by the president or secretary in like
manner and on like notice on the written request of two directors unless the
board consists of only one director; in which case, special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of the sole director.
SECTION 5. WAIVER OF NOTICE. Attendance of a director at any meeting
shall constitute a waiver of notice of such meeting, except where a director
attends for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. 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 6. QUORUM. Unless the Articles of Incorporation or these bylaws
provide otherwise, a majority of the number of directors fixed by or pursuant to
these bylaws constitute a quorum for the transaction of business unless a
greater number is required by law or by the articles of incorporation. The act
of a majority of the directors present at any meeting at which a quorum is
present shall be the act of the Board of Directors, unless the act of a greater
number is required by statute or by the articles of incorporation. If a quorum
shall not be present at any meeting of directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 7. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the directors may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors entitled to vote with respect to the subject matter thereof.
ARTICLE VII
EXECUTIVE COMMITTEE
SECTION 1. EXECUTIVE COMMITTEE. The Board of Directors, by resolution
adopted by a majority of the number of directors fixed by the bylaws or
otherwise, may designate two or more directors to constitute an executive
committee, which committee, to the extent provided in such resolution, shall
have and exercise all of the authority of the Board of Directors in the
management of the corporation, except as otherwise required by law. Vacancies in
the membership of the committee shall be filled by the Board of Directors at a
regular or special meeting of the Board of Directors. The Board of Directors may
designate one or more directors as alternate members of the executive committee.
SECTION 2. MINUTES. The executive committee shall keep regular minutes
of its proceedings and report the same to the board when required.
Page 5 of 12
<PAGE> 11
SECTION 3. AUTHORITY. The executive committee shall not have authority:
(1) To approve any action which will also require the shareholders' approval;
(2) To fill vacancies on the board or in any committee; (3) To fix the
compensation of directors for serving on the board or on any committee; (4) To
amend or repeal the bylaws or adopt new bylaws; (5) To amend or repeal any
resolution of the board which by its express terms is not so amendable or
repealable; (6) To make a distribution to the shareholders except at a rate or
in periodic amount or within a price range determined by the board; or (7) To
appoint other committees of the board or the members thereof.
ARTICLE VIII
NOTICES
SECTION 1. WRITING. Whenever, under the provisions of the statutes or
of the articles of incorporation or of these bylaws, notice is required to be
given to any director or shareholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or shareholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by facsimile telecommunication. Notice to
any shareholder shall be given at the address furnished by such shareholder for
the purpose of receiving notice. If such address is not given and if no address
appears on the records of the corporation for such shareholder, notice may be
given to such shareholder at the place where the principal executive office of
the corporation is located or by publication at least once in a newspaper of
general circulation in the county in which said principal executive office is
located. If a notice of a shareholders' meeting is sent by mail it shall be sent
by first-class mail, or, in the case the corporation has outstanding shares held
of record by 500 or more persons (determined as provided in Section 605 of the
California General Corporation Law) on the record date for the shareholders'
meeting, notice may be by third-class mail.
SECTION 2. WAIVER. Whenever any notice whatever is required to be given
under the provisions of the statutes or under the provisions of the articles of
incorporation or these bylaws, 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 deemed equivalent to the giving of such notice.
ARTICLE IX
OFFICERS
SECTION 1. OFFICERS. The officers of the corporation, except those
elected in accordance with Section 210 of the California General Corporation
Law, shall be chosen by the Board of Directors and shall be a president, a
vice-president, a secretary and a chief financial officer. The Board of
Directors may also choose additional vice-presidents, and one or more assistant
secretaries and assistant treasurers.
Page 6 of 12
<PAGE> 12
SECTION 2. ELECTION. The Board of Directors, at its first meeting after
each annual meeting of shareholders, shall choose a president, one or more
vice-presidents, a secretary and a chief financial officer, none of whom need be
a member of the board.
SECTION 3. OTHER OFFICERS. The Board of Directors may appoint such
other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
SECTION 4. COMPENSATION. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
SECTION 5. TERM. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or appointed
by the Board of Directors may be removed at any time by affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE PRESIDENT
SECTION 6. DUTIES AND POWERS. The president shall be the chief
executive officer of the corporation, shall preside at all meetings of the
shareholders and the Board of Directors, shall have general and active
management of the business of the corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. He shall execute
bonds, mortgage and other contracts requiring a seal, under the seal 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
expressly delegated by the Board of Directors to some officers or agent of the
corporation.
THE VICE PRESIDENTS
SECTION 7. DUTIES AND POWERS. The vice president, or if there shall be
more than one, the vice presidents in the order determined by the Board of
Directors, shall, in the absence or disability of the president, perform the
duties and exercise the powers of the president and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
SECTION 8. DUTIES AND POWERS. The secretary shall attend all meetings
of the Board of Directors and all meetings of the shareholders and record all
the proceedings of the meetings of the corporation and of the Board of Directors
in a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the shareholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or president,
Page 7 of 12
<PAGE> 13
under whose supervision he shall be. He shall have custody of the corporate seal
of the corporation and he, or an assistant secretary, shall have authority to
affix the same to any instrument requiring it, and when so affixed, it may be
attested by his signature or by the signature of such assistant secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by his signature.
SECTION 9. ASSISTANT SECRETARIES. The assistant secretary, or if there
be more than one, the assistant secretaries in the order determined by the Board
of Directors, shall, in the absence or disability of the secretary, perform the
duties and exercise the powers of the secretary and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
THE CHIEF FINANCIAL OFFICER
SECTION 10. DUTIES AND POWERS. The chief financial officer shall have
the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the Board of Directors. The chief financial officer is, for the purpose of
executing any documents requiring the signature of the "Treasurer," deemed to be
the treasurer of the corporation.
SECTION 11. DISBURSEMENT. He shall disburse the funds of the
corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the president and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as chief financial officer and of the
financial condition of the corporation.
SECTION 12. BOND. If required by the Board of Directors, he shall give
the corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
SECTION 14. ASSISTANT TREASURERS. The assistant treasurers, or, if
there shall be more than one, the assistant treasurers in the order determined
by the Board of Directors, shall, in the absence or disability of the chief
financial officer, perform the duties and exercise the powers of the chief
financial officer and shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe.
Page 8 of 12
<PAGE> 14
ARTICLE X
CERTIFICATES FOR SHARES
SECTION 1. CERTIFICATES. Every holder of shares 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, or the
president or a vice-president and the chief financial officer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation,
certifying the number of shares and the class or series of shares owned by him
in the corporation. If the shares of the corporation are classified or if any
class of shares has two or more series, there shall appear on the certificate
either (1) a statement of the rights, preferences, privileges and restrictions
granted to or imposed upon each class or series of shares to be issued and upon
the holders thereof; or (2) a summary of such rights, preferences, privileges
and restrictions with reference to the provisions of the articles and any
certificates of determination establishing the same; or (3) a statement setting
forth the office or agency of the corporation from which shareholders may
obtain, upon request and without charge, a copy of the statement referred to in
item (1) heretofore. Every certificate shall have noted thereon any information
required to be set forth by the California General Corporation Law and such
information shall be set forth in the manner provided by such law.
SECTION 2. FACSIMILE SIGNATURES. 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 upon a certificate
shall have ceased to be such officer, transfer agent or register before such
certificate is issued, it may be issued by the corporation with the same effect
as if such person were an officer, transfer agent or registrar at the date of
issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
corporation alleged to have been lost or destroyed. When authorizing such issue
of a new certificate, the Board of Directors, in its discretion and as a
condition precedent to the issuance thereof, may prescribe such terms and
conditions as it deems expedient, and may require such indemnities as it deems
adequate, to protect the corporation from any claim that may be made against it
with respect to any such certificate alleged to have been lost or destroyed.
SECTION 4. TRANSFERS OF SHARES. Upon surrender to the corporation or
the transfer agent of the corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, a new certificate shall be issued to the person entitled
thereto, and the old certificate canceled and the transaction recorded upon the
books of the corporation.
SECTION 5. CLOSING OF TRANSFER BOOKS. In order that the corporation may
determine the shareholders entitled to notice of any meeting or to vote or
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, the board may fix, in advance, a record date, which shall not
Page 9 of 12
<PAGE> 15
be more than 60 nor less than 10 days prior to the date of such meeting nor more
than 60 days prior to any other action.
A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
unless the board fixes a new record date for the adjourned meeting, but the
board shall fix a new record date if the meeting is adjourned for more than 45
days from the date set for the original meeting.
SECTION 6. REGISTERED SHAREHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessment a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or
note it shall have express or other notice thereof, except as otherwise provided
by the laws of California.
ARTICLE XI
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the provision of the articles of
incorporation relating thereto, if any, dividends may be declared by the Board
of Directors at any regular or special meeting, pursuant to law. Dividends may
be paid in cash, in property or in shares of the capital stock, subject to any
provisions of the articles of incorporation and the California General
Corporation Law. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conductive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
SECTION 2. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. SEAL. The corporate seal shall have inscribed thereon the
name of the corporation, the date of its incorporation and the words "Corporate
Seal, California." The seal may be used by causing it or a facsimile thereof to
be impressed or affixed or in any manner reproduced.
Page 10 of 12
<PAGE> 16
ARTICLE XI
AMENDMENTS
SECTION 1. AMENDMENTS. The bylaws may be altered, amended or repealed
or new bylaws may be adopted (a) at any regular or special meeting of
shareholders at which a quorum is present or represented, by the affirmative
vote of a majority of the stock entitled to vote, provided notice of the
proposed alteration, amendment or repeal be contained in the notice of such
meeting, or (b) by the affirmative vote of a majority of the Board of Directors
at any regular or special meeting of the board. The Board of Directors shall not
make or alter any bylaw specifying a fixed number of directors or the maximum or
minimum number of directors and the directors shall not change a fixed board to
a variable board or vice versa in the bylaws. The Board of Directors shall not
change a bylaw, if any, which requires a larger proportion of the vote of
directors for approval than is required by the California General Corporation
Law.
ARTICLE XII
DIRECTORS' ANNUAL REPORT
SECTION 1. DIRECTORS' ANNUAL REPORT. The directors shall cause to be
sent to the shareholders not later than 120 days after the close of the fiscal
year, an annual report which shall include a balance sheet as of the closing
date of the last fiscal year, and an income statement of changes in financial
position for said fiscal year. Said annual report shall be accompanied by any
report thereon of independent accountants or, if there is no such report, the
certificate of an authorized officer of the corporation that such statements
were prepared without audit from the books and records of the corporation. This
annual report is hereby waived whenever the corporation shall have less than 100
shareholders as defined in Section 605 of the California General Corporation
Law. Except when said waiver applies, the annual report shall be sent to the
shareholder at least 15 (or if sent by third-class mail, 35) days prior to the
date of the annual meeting. The annual report may be sent by third-class mail
only if the corporation has outstanding shares held by 500 or more persons (as
determined by the provisions of Section 605 of the California General
Corporation Law) on the record date for the shareholders' meeting. In addition
to the financial statements included in the annual report, the annual report of
the corporation, if it has more than 100 shareholders as defined in Section 605
of the California General Corporation Law and if it is not subject to the
reporting requirements of Section 13 of the Securities and Exchange Act of 1934,
or exempt from such registration by Section 12(g)(2) of said act, shall also
describe briefly: (1) Any transaction (excluding compensation of officers and
directors) during the previous fiscal year involving an amount in excess of
forty-thousand ($40,000) (other than contracts let at competitive bids or
services rendered at prices regulated by law) to which the corporation or its
parent or subsidiary was a party and in which any director or officer of the
corporation or of a subsidiary of (if known to the corporation or its parent or
subsidiary) any holder of more than 10 percent of the outstanding voting shares
of the corporation had a direct or indirect material interest, naming such
person and stating such person's relationship to the corporation, the nature of
such person's interest in the transaction and, where practicable, the amount of
such interest; provided, that in the case of a transaction
Page 11 of 12
<PAGE> 17
with a partnership of which such person is a partner, only the interest of the
partnership need be stated; and provided further than no such report need be
made in the case of transactions approved by the shareholders under subdivision
(a) of Section 310 or the California General Corporation Law. (2) The amount and
circumstances of any indemnification or advances aggregating more than ten
thousand dollars ($10,000) paid during the fiscal year to any officer or
director of the corporation pursuant to Section 317 of the California General
Corporation Law, provided, that no such report need be made in the case of
indemnification approved by the shareholders under paragraph (2) of subdivision
(e) of Section 317 of the California General Corporation Law.
Page 12 of 12
<PAGE> 1
EXHIBIT 4.3
SUPPLEMENTAL INDENTURE, dated as of February 22, 1999 (the
"Supplemental Indenture"), among CALIFORNIA TIRE COMPANY, a
California corporation (the "New Guarantor"), THE J.H. HEAFNER
COMPANY, INC., a North Carolina corporation (the "Company"), each
other existing Subsidiary Guarantor under the Indenture referred
to below, and FIRST UNION NATIONAL BANK, as Trustee (the
"Trustee") under the Indenture referred to below.
-----------------------------------------------------------------
W I T N E S S E T H:
WHEREAS, the Company, the then existing Subsidiary Guarantors
and the Trustee have heretofore executed and delivered an Indenture, dated as
of May 15, 1998 (as amended, supplemented, waived or otherwise modified, the
"Indenture"), providing for the issuance of an aggregate principal amount of
$100 million of 10% Senior Notes due 2008 of the Company (the "Securities");
WHEREAS, Section 4.12 of the Indenture provides that the
Company is required to cause each domestic Restricted Subsidiary (other than an
Immaterial Subsidiary that is neither a borrower nor a guarantor under the
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 of
the Indenture;
WHEREAS, the Company is causing the New Guarantor to execute
this Supplemental Indenture in order to comply with the terms of Section 4.12
of the Indenture and the New Guarantor intends thereby to become bound as a
Subsidiary Guarantor; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the
Trustee and the Company are authorized to execute and deliver this Supplemental
Indenture amending the Indenture, without the consent of any Holder (as defined
in the Indenture);
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the New Guarantor, the Company, the existing Subsidiary
Guarantors and the Trustee mutually covenant and agree for the equal and
ratable benefit of the holders of the Securities as follows:
ARTICLE I
Definitions
SECTION 1.1 Defined Terms. As used in this Supplemental
Indenture, terms defined in the Indenture or in the preamble or recital hereto
are used herein as
<PAGE> 2
therein defined, except that the term "Holders" in this Supplemental Indenture
shall refer to the term "Holders" as defined in the Indenture and the Trustee
acting on behalf or for the benefit of such Holders. The words "herein,"
"hereof" and "hereby" and other words of similar import used in this
Supplemental Indenture refer to this Supplemental Indenture as a whole and not
to any particular section hereof.
ARTICLE II
Agreement to be Bound; Guarantee
SECTION 2.1 Agreement to be Bound. The New Guarantor hereby
becomes a party to the Indenture as a Subsidiary Guarantor and as such will
have all of the rights and be subject to all of the obligations and agreements
of a Subsidiary Guarantor under the Indenture. The New Guarantor agrees to be
bound by all of the provisions of the Indenture applicable to a Subsidiary
Guarantor and to perform all of the obligations and agreements of a Subsidiary
Guarantor under the Indenture.
SECTION 2.2 Guarantee. The New Guarantor hereby fully,
unconditionally and irrevocably guarantees, jointly and severally with each
other Subsidiary Guarantor, to each Holder of the Securities and the Trustee
and its successors and assigns, the full and punctual payment when due, whether
at maturity, by acceleration, by redemption or otherwise and within applicable
grace periods, of the Obligations pursuant to Article 10 of the Indenture and
subject to the terms and conditions of the Indenture.
ARTICLE III
Miscellaneous
SECTION 3.1 Notices. All notices and other communications to the
New Guarantor shall be given as provided in Section 11.02 of the Indenture.
SECTION 3.2 Parties. Nothing expressed or mentioned herein is
intended or shall be construed to give any Person, firm or corporation, other
than the Holders and the Trustee, any legal or equitable right, remedy or claim
under or in respect of this Supplemental Indenture or the Indenture or any
provision herein or therein contained.
Section 3.3 Governing Law. This Supplemental Indenture shall be
governed by 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 3.4 Severability Clause. In case any provision in this
Supplemental Indenture shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or
2
<PAGE> 3
impaired thereby and such provision shall be ineffective only to the extent of
such invalidity, illegality or unenforceability.
Section 3.5 Ratification of Indenture; Supplemental Indenture
Part of Indenture. Except as expressly supplemented hereby, the Indenture is in
all respects ratified and confirmed and all the terms, conditions and
provisions thereof shall remain in full force and effect. This Supplemental
Indenture shall form a part of the Indenture for all purposes, and every Holder
of Securities heretofore or hereafter authenticated and delivered shall be
bound hereby. The Trustee makes no representation or warranty as to the
validity or sufficiency of this Supplemental Indenture.
Section 3.6 Counterparts. The parties hereto may sign one or
more copies of this Supplemental Indenture in counterparts, all of which
together shall constitute one and the same agreement.
Section 3.7 Headings. The headings of the Articles and the
sections in this Supplemental Indenture are for convenience of reference only
and shall not be deemed to alter or affect the meaning or interpretation of any
provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
THE J.H. HEAFNER COMPANY, INC.
By: /s/ William H. Gaither
---------------------------------------
Name: William H. Gaither
Title: President and Chief Executive Officer
CALIFORNIA TIRE COMPANY,
as a Guarantor
By: /s/ William H. Gaither
---------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer
By: /s/ J. Michael Gaither
---------------------------------------
Name: J. Michael Gaither
Title: Vice President, General Counsel & Secretary
OLIVER & WINSTON, INC.
By: /s/ William H. Gaither
---------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer
By: /s/ J. Michael Gaither
---------------------------------------
Name: J. Michael Gaither
Title: Vice President, General Counsel & Secretary
3
<PAGE> 4
THE SPEED MERCHANT, INC.
By: /s/ William H. Gaither
---------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer
By: /s/ J. Michael Gaither
---------------------------------------
Name: J. Michael Gaither
Title: Vice President, General Counsel & Secretary
PHOENIX RACING, INC.
By: /s/ William H. Gaither
---------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer
By: /s/ J. Michael Gaither
---------------------------------------
Name: J. Michael Gaither
Title: Vice President, General Counsel & Secretary
FIRST UNION NATIONAL BANK,
as Trustee
By: /s/ Shannon Schwartz
---------------------------------------
Name: Shannon Schwartz
Title: Assistant Vice President
4
<PAGE> 1
EXHIBIT 4.6
SUPPLEMENTAL INDENTURE, dated as of February 22, 1999 (the
"Supplemental Indenture"), among CALIFORNIA TIRE COMPANY, a California
corporation (the "New Guarantor"), THE J.H. HEAFNER COMPANY, INC., a
North Carolina corporation (the "Company"), each other existing
Subsidiary Guarantor under the Indenture referred to below, and FIRST
UNION NATIONAL BANK, as Trustee (the "Trustee") under the Indenture
referred to below.
----------------------------------------------------------------------
W I T N E S S E T H:
WHEREAS, the Company, the then existing Subsidiary Guarantors and the
Trustee have heretofore executed and delivered an Indenture, dated as of May 15,
1998 (as amended, supplemented, waived or otherwise modified, the "Indenture"),
providing for the issuance of an aggregate principal amount of $100 million of
10% Senior Notes due 2008 of the Company (the "Securities");
WHEREAS, Section 4.12 of the Indenture provides that the Company is
required to cause each domestic Restricted Subsidiary (other than an Immaterial
Subsidiary that is neither a borrower nor a guarantor under the 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 of the Indenture;
WHEREAS, the Company is causing the New Guarantor to execute this
Supplemental Indenture in order to comply with the terms of Section 4.12 of the
Indenture and the New Guarantor intends thereby to become bound as a Subsidiary
Guarantor; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee and the
Company are authorized to execute and deliver this Supplemental Indenture
amending the Indenture, without the consent of any Holder (as defined in the
Indenture);
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor, the Company, the existing Subsidiary Guarantors and the Trustee
mutually covenant and agree for the equal and ratable benefit of the holders of
the Securities as follows:
ARTICLE I
Definitions
SECTION 1.1 Defined Terms. As used in this Supplemental Indenture,
terms defined in the Indenture or in the preamble or recital hereto are used
herein as
<PAGE> 2
therein defined, except that the term "Holders" in this Supplemental Indenture
shall refer to the term "Holders" as defined in the Indenture and the Trustee
acting on behalf or for the benefit of such Holders. The words "herein,"
"hereof" and "hereby" and other words of similar import used in this
Supplemental Indenture refer to this Supplemental Indenture as a whole and not
to any particular section hereof.
ARTICLE II
Agreement to be Bound; Guarantee
SECTION 2.1 Agreement to be Bound. The New Guarantor hereby becomes a
party to the Indenture as a Subsidiary Guarantor and as such will have all of
the rights and be subject to all of the obligations and agreements of a
Subsidiary Guarantor under the Indenture. The New Guarantor agrees to be bound
by all of the provisions of the Indenture applicable to a Subsidiary Guarantor
and to perform all of the obligations and agreements of a Subsidiary Guarantor
under the Indenture.
SECTION 2.2 Guarantee. The New Guarantor hereby fully, unconditionally
and irrevocably guarantees, jointly and severally with each other Subsidiary
Guarantor, to each Holder of the Securities and the Trustee and its successors
and assigns, the full and punctual payment when due, whether at maturity, by
acceleration, by redemption or otherwise and within applicable grace periods, of
the Obligations pursuant to Article 10 of the Indenture and subject to the terms
and conditions of the Indenture.
ARTICLE III
Miscellaneous
SECTION 3.1 Notices. All notices and other communications to the New
Guarantor shall be given as provided in Section 11.02 of the Indenture.
SECTION 3.2 Parties. Nothing expressed or mentioned herein is intended
or shall be construed to give any Person, firm or corporation, other than the
Holders and the Trustee, any legal or equitable right, remedy or claim under or
in respect of this Supplemental Indenture or the Indenture or any provision
herein or therein contained.
Section 3.3 Governing Law. This Supplemental Indenture shall be
governed by 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 3.4 Severability Clause. In case any provision in this
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or
2
<PAGE> 3
impaired thereby and such provision shall be ineffective only to the extent of
such invalidity, illegality or unenforceability.
Section 3.5 Ratification of Indenture; Supplemental Indenture Part of
Indenture. Except as expressly supplemented hereby, the Indenture is in all
respects ratified and confirmed and all the terms, conditions and provisions
thereof shall remain in full force and effect. This Supplemental Indenture shall
form a part of the Indenture for all purposes, and every Holder of Securities
heretofore or hereafter authenticated and delivered shall be bound hereby. The
Trustee makes no representation or warranty as to the validity or sufficiency of
this Supplemental Indenture.
Section 3.6 Counterparts. The parties hereto may sign one or more
copies of this Supplemental Indenture in counterparts, all of which together
shall constitute one and the same agreement.
Section 3.7 Headings. The headings of the Articles and the sections in
this Supplemental Indenture are for convenience of reference only and shall not
be deemed to alter or affect the meaning or interpretation of any provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
THE J.H. HEAFNER COMPANY, INC.
By: /s/ William H. Gaither
---------------------------
Name: William H. Gaither
Title: President and Chief Executive Officer
CALIFORNIA TIRE COMPANY,
as a Guarantor
By: /s/ William H. Gaither
---------------------------
Name: William H. Gaither
Title: Chief Executive Officer
By: /s/ J. Michael Gaither
---------------------------
Name: J. Michael Gaither
Title: Vice President, General Counsel & Secretary
OLIVER & WINSTON, INC.
By: /s/ William H. Gaither
---------------------------
Name: William H. Gaither
Title: Chief Executive Officer
By: /s/ J. Michael Gaither
---------------------------
Name: J. Michael Gaither
Title: Vice President, General Counsel & Secretary
3
<PAGE> 4
THE SPEED MERCHANT, INC.
By: /s/ William H. Gaither
---------------------------
Name: William H. Gaither
Title: Chief Executive Officer
By: /s/ J. Michael Gaither
---------------------------
Name: J. Michael Gaither
Title: Vice President, General Counsel & Secretary
PHOENIX RACING, INC.
By: /s/ William H. Gaither
---------------------------
Name: William H. Gaither
Title: Chief Executive Officer
By: /s/ J. Michael Gaither
---------------------------
Name: J. Michael Gaither
Title: Vice President, General Counsel & Secretary
FIRST UNION NATIONAL BANK,
as Trustee
By: /s/ Shannon Schwartz
---------------------------
Name: Shannon Schwartz
Title: Assistant Vice President
4
<PAGE> 1
EXHIBIT 4.7
THE J.H. HEAFNER COMPANY, INC.
$100,000,000 10% SENIOR NOTES DUE 2008
$50,000,000 10% SENIOR NOTES DUE 2008
REGISTRATION RIGHTS AGREEMENT
December 1, 1998
BancBoston Robertson Stephens Inc.
Credit Suisse First Boston Corporation
c/o BancBoston Robertson Stephens Inc.
100 Federal Street
M/S 01-12-07
Boston, MA 02110
Dear Sirs:
The J. H. Heafner Company, Inc., a North Carolina corporation (the
"Issuer"), proposes to issue and sell to BancBoston Robertson Stephens Inc.
("BancBoston") and Credit Suisse First Boston Corporation ("CSFBC" and, together
with BancBoston, the "Initial Purchasers"), upon the terms set forth in a
purchase agreement of even date herewith (the "Purchase Agreement"), $50,000,000
aggregate principal amount of its 10% Senior Notes Due 2008 (the "Initial
Securities") to be unconditionally guaranteed (each, a "Subsidiary Guaranty") on
an unsecured senior basis by certain of the Issuer's subsidiaries (the
"Subsidiary Guarantors", and together with the Issuer, the "Company"). The
obligations of the Company in this Agreement are joint and several obligations
of the Issuer and the Subsidiary Guarantors. The Initial Securities will be
issued pursuant to an Indenture, dated as of December 1, 1998, (the "Indenture")
among the Issuer, the Subsidiary Guarantors and First Union National Bank, as
trustee (the "Trustee"). Pursuant to an Indenture dated May 15, 1998 among the
Issuer, certain of the Issuer's current subsidiaries and First Union National
Bank, as trustee, the Issuer issued $100,000,000 aggregate principal amount of
its 10% Senior Notes Due 2008 (the "Existing Securities"). As an inducement to
the Initial Purchasers, the Company agrees with the Initial Purchasers, for the
benefit of the holders of the Initial Securities (including, without limitation,
the Initial Purchasers), the Exchange Securities (as defined below) and the
Private Exchange Securities (as defined below) (collectively the "Holders"), as
follows:
<PAGE> 2
1. Registered Exchange Offer. The Company shall, at its own cost,
prepare and, not later than March 31, 1999, file with the Securities and
Exchange Commission (the "Commission") a registration statement (the "Exchange
Offer Registration Statement") on an appropriate form under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to a proposed offer
(the "Registered Exchange Offer") to the Holders of Transfer Restricted
Securities (as defined in Section 6 hereof) who are not prohibited by any law or
policy of the Commission from participating in the Registered Exchange Offer,
and to the holders of the Existing Securities, to issue and deliver to such
Holders or holders of Existing Securities, as the case may be, in exchange for:
(a) the Initial Securities, a like aggregate principal amount (up to $50,000,000
aggregate principal amount) of debt securities (the "Initial Exchange
Securities") of the Issuer and (b) the Existing Securities, a like principal
amount (up to $100,000,000 aggregate principal amount) of debt securities
(together with the Initial Exchange Securities, the "Exchange Securities") of
the Issuer, each of the Exchange Securities issued under the Indenture and
identical in all material respects to the Initial Securities (except for the
transfer restrictions relating to the Initial Securities and the provisions
relating to the matters described in Section 6 hereof) that would be registered
under the Securities Act. The Company shall use its best efforts to cause such
Exchange Offer Registration Statement to become effective under the Securities
Act within 180 days (or if the 180th day is not a business day, the first
business day thereafter) after the date of original issue of the Initial
Securities (the "Issue Date") and shall keep the Exchange Offer Registration
Statement effective for not less than 20 Business Days (as defined in the
Indenture) (or longer, if required by applicable law) after the date notice of
the Registered Exchange Offer is mailed to the Holders (such period being called
the "Exchange Offer Registration Period").
If the Company effects the Registered Exchange Offer, the Company will
be entitled to close the Registered Exchange Offer 20 Business Days after the
commencement thereof provided that the Company has accepted all the Initial
Securities and the Existing Securities theretofore validly tendered in
accordance with the terms of the Registered Exchange Offer.
Following the declaration of the effectiveness of the Exchange Offer
Registration Statement, the Company shall promptly commence the Registered
Exchange Offer, it being the objective of such Registered Exchange Offer to
enable each Holder of Transfer Restricted Securities or holder of Existing
Securities, as the case may be, electing to exchange the Initial Securities or
the Existing Securities, as applicable, for Exchange Securities (assuming that
such Holder is not an affiliate of the Company within the meaning of the
Securities Act, acquires the Exchange Securities in the ordinary course of such
Holder's business and has no arrangements with any person to participate in the
distribution of the Exchange Securities and is not prohibited by any law or
policy of the Commission from participating in the Registered Exchange Offer) to
trade such Exchange Securities from and after their receipt without any
limitations or restrictions under the Securities Act and without material
restrictions under the securities laws of the several states of the United
States.
<PAGE> 3
The Company acknowledges that, pursuant to current interpretations by
the Commission's staff of Section 5 of the Securities Act, in the absence of an
applicable exemption therefrom, (i) each Holder of Transfer Restricted
Securities which is a broker-dealer electing to exchange Securities, acquired
for its own account as a result of market making activities or other trading
activities, for Exchange Securities (an "Exchanging Dealer"), is required to
deliver a prospectus containing the information set forth in (a) Annex A hereto
on the cover, (b) Annex B hereto in the "Exchange Offer Procedures" section and
the "Purpose of the Exchange Offer" section, and (c) Annex C hereto in the "Plan
of Distribution" section of such prospectus in connection with a sale of any
such Exchange Securities received by such Exchanging Dealer pursuant to the
Registered Exchange Offer and (ii) an Initial Purchaser that elects to sell
Exchange Securities acquired in exchange for Securities (as defined below)
constituting any portion of an unsold allotment is required to deliver a
prospectus containing the information required by Items 507 or 508 of Regulation
S-K under the Securities Act, as applicable, in connection with such sale.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the prospectus
contained therein, in order to permit such prospectus to be lawfully delivered
by all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Securities; provided, however, that (i) in the
case where such prospectus and any amendment or supplement thereto must be
delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be
the lesser of 180 days and the date on which all Exchanging Dealers and the
Initial Purchasers have sold all Exchange Securities held by them received in
exchange for Initial Securities (unless such period is extended pursuant to
Section 3(j) below) and (ii) the Company shall make such prospectus and any
amendment or supplement thereto, available to any broker-dealer for use in
connection with any resale of any Exchange Securities received in exchange for
Initial Securities for a period of not less than 90 days after the consummation
of the Registered Exchange Offer.
If, upon consummation of the Registered Exchange Offer, any Initial
Purchaser holds Initial Securities acquired by it as part of its initial
distribution, the Company, simultaneously with the delivery of the Exchange
Securities pursuant to the Registered Exchange Offer, shall issue and deliver to
such Initial Purchaser upon the written request of such Initial Purchaser, in
exchange (the "Private Exchange") for the Initial Securities held by such
Initial Purchaser, a like principal amount of debt securities of the Company
issued under the Indenture and identical in all material respects (including the
existence of restrictions on transfer under the Securities Act and the
securities laws of the several states of the United States, but excluding
provisions relating to the matters described in Section 6 hereof) to the Initial
Securities (the "Private Exchange Securities"). The Initial Securities, the
Exchange Securities and the Private Exchange Securities are herein collectively
called the "Securities."
<PAGE> 4
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder and each holder of Existing Securities
a copy of the prospectus forming part of the Exchange Offer
Registration Statement, together with an appropriate letter of
transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than
20 Business Days (or longer, if required by applicable law) after the
date notice thereof is mailed to the Holders;
(c) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of
New York, which may be the Trustee or an affiliate of the Trustee;
(d) permit Holders and holders of Existing Securities to
withdraw tendered Securities and tendered Existing Securities at any
time prior to the close of business, New York time, on the last
business day on which the Registered Exchange Offer shall remain open;
and
(e) otherwise comply with all applicable laws.
As soon as practicable after the close of the Registered Exchange Offer
or the Private Exchange, as the case may be, the Company shall:
(x) accept for exchange all the Initial Securities or Existing
Securities, as the case may be, validly tendered and not withdrawn
pursuant to the Registered Exchange Offer or the Private Exchange, as
the case may be;
(y) deliver to the Trustee for cancelation all the Initial
Securities or Existing Securities, as the case may be, so accepted for
exchange; and
(z) cause the Trustee to authenticate and deliver promptly to
each Holder of the Initial Securities and to each holder of Existing
Securities, Exchange Securities or Private Exchange Securities, as the
case may be, equal in principal amount to the Initial Securities or
Existing Securities, as the case may be, of such Holder or holder of
Existing Securities so accepted for exchange.
The Indenture will provide that the Exchange Securities will not be
subject to the transfer restrictions set forth in the Indenture and that all the
Securities will vote and consent together on all matters as one class and that
none of the Securities will have the right to vote or consent as a class
separate from one another on any matter.
Interest on each Exchange Security and Private Exchange Security issued
pursuant to the Registered Exchange Offer and in the Private Exchange will
accrue from the last interest payment date on which interest was paid on the
Initial Securities or the Existing
<PAGE> 5
Securities, as the case may be, surrendered in exchange therefor or, if no
interest has been paid on the Initial Securities, from the date of original
issue of the Initial Securities.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Securities received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will have
no arrangements or understanding with any person to participate in the
distribution of the Securities or the Exchange Securities within the meaning of
the Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule
405 of the Securities Act, of the Company or if it is an affiliate, such Holder
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (iv) if such Holder is not a
broker-dealer, that it is not engaged in, and does not intend to engage in, the
distribution of the Exchange Securities and (v) if such Holder is a
broker-dealer, that it will receive Exchange Securities for its own account in
exchange for Initial Securities that were acquired as a result of market-making
activities or other trading activities and that it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Securities.
Notwithstanding any other provisions hereof, the Company will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations
thereunder, (ii) any Exchange Offer Registration Statement and any amendment
thereto does not, when it becomes effective, contain 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 and (iii) any prospectus
forming part of any Exchange Offer Registration Statement, and any supplement to
such prospectus, does not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
2. Shelf Registration. If, (i) because of any change in law or in
applicable interpretations thereof by the staff of the Commission, the Company
is not permitted to effect a Registered Exchange Offer, as contemplated by
Section 1 hereof, (ii) the Registered Exchange Offer is not consummated within
225 days of the Issue Date (or, if such 225th day is not a business day, the
first business day thereafter), (iii) any Initial Purchaser so requests with
respect to the Initial Securities (or the Private Exchange Securities) not
eligible to be exchanged for Exchange Securities in the Registered Exchange
Offer and held by it following consummation of the Registered Exchange Offer or
(iv) any Holder (other than an Exchanging Dealer) is not eligible to participate
in the Registered Exchange Offer or, in the case of any Holder (other than an
Exchanging Dealer) that participates in the Registered Exchange Offer, such
Holder does not receive
<PAGE> 6
freely tradeable Exchange Securities on the date of the exchange, the Company
shall take the following actions:
(a) The Company shall, at its cost, as promptly as practicable
(but in no event more than 45 days after so required or requested
pursuant to this Section 2) file with the Commission and thereafter
shall use its best efforts to cause to be declared effective a
registration statement (the "Shelf Registration Statement" and,
together with the Exchange Offer Registration Statement, a
"Registration Statement") on an appropriate form under the Securities
Act relating to the offer and sale of the Transfer Restricted
Securities by the Holders thereof from time to time in accordance with
the methods of distribution set forth in the Shelf Registration
Statement and Rule 415 under the Securities Act (hereinafter, the
"Shelf Registration"); provided, however, that no Holder (other than an
Initial Purchaser) shall be entitled to have the Securities held by it
covered by such Shelf Registration Statement unless such Holder agrees
in writing to be bound by all the provisions of this Agreement
applicable to such Holder.
(b) The Company shall use its reasonable efforts to keep the
Shelf Registration Statement continuously effective in order to permit
the prospectus included therein to be lawfully delivered by the Holders
of the relevant Securities for a period of two years (or for such
longer period if extended pursuant to Section 3(j) below) from the date
of its effectiveness or such shorter period that will terminate when
all the Securities covered by the Shelf Registration Statement (i) have
been sold pursuant thereto or (ii) are no longer restricted securities
(as defined in Rule 144 under the Securities Act, or any successor rule
thereof). The Company shall be deemed not to have used its reasonable
efforts to keep the Shelf Registration Statement effective during the
requisite period if it voluntarily takes any action that would result
in Holders of Securities covered thereby not being able to offer and
sell such Securities during that period, unless such action is required
by applicable law.
(c) Notwithstanding any other provisions of this Agreement to
the contrary, the Company shall cause the Shelf Registration Statement
and the related prospectus and any amendment or supplement thereto, as
of the effective date of the Shelf Registration Statement, amendment or
supplement, (i) to comply in all material respects with the applicable
requirements of the Securities Act and the rules and regulations of the
Commission and (ii) not to contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3. Registration Procedures. In connection with any Shelf Registration
contemplated by Section 2 hereof and, to the extent applicable, any Registered
Exchange Offer contemplated by Section 1 hereof, the following provisions shall
apply:
(a) The Company shall (i) furnish to each Initial Purchaser,
prior to the
<PAGE> 7
filing thereof with the Commission, a copy of the Registration
Statement and each amendment thereof and each supplement, if any, to
the prospectus included therein and, in the event that an Initial
Purchaser (with respect to any portion of an unsold allotment from the
original offering) is participating in the Registered Exchange Offer or
the Shelf Registration Statement, the Company shall use its reasonable
efforts to reflect in each such document, when so filed with the
Commission, such comments as such Initial Purchaser reasonably may
propose; (ii) include the information set forth in Annex A hereto on
the cover, in Annex B hereto in the "Exchange Offer Procedures" section
and the "Purpose of the Exchange Offer" section and in Annex C hereto
in the "Plan of Distribution" section of the prospectus forming a part
of the Exchange Offer Registration Statement and include the
information set forth in Annex D hereto in the Letter of Transmittal
delivered pursuant to the Registered Exchange Offer; (iii) if requested
by an Initial Purchaser, include the information required by Items 507
or 508 of Regulation S-K under the Securities Act, as applicable, in
the prospectus forming a part of the Exchange Offer Registration
Statement; (iv) include within the prospectus contained in the Exchange
Offer Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchasers, which shall contain a
summary statement of the positions taken or policies made by the staff
of the Commission with respect to the potential "underwriter" status of
any broker-dealer that is the beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of Exchange Securities received by such broker-dealer
in the Registered Exchange Offer (a "Participating Broker-Dealer"),
whether such positions or policies have been publicly disseminated by
the staff of the Commission or such positions or policies, in the
reasonable judgment of the Initial Purchasers based upon advice of
counsel (which may be in-house counsel), represent the prevailing views
of the staff of the Commission; and (v) in the case of a Shelf
Registration Statement, include the names of the Holders, who propose
to sell Securities pursuant to the Shelf Registration Statement, as
selling securityholders.
(b) The Company shall give written notice to the Initial
Purchasers, the Holders of the Securities and any Participating
Broker-Dealer from whom the Company has received prior written notice
that it will be a Participating Broker-Dealer in the Registered
Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall
be accompanied by an instruction to suspend the use of the prospectus
until the requisite changes have been made):
(i) when the Registration Statement or any amendment
thereto has been filed with the Commission and when the
Registration Statement or any post-effective amendment thereto
has become effective;
(ii) of any request by the Commission for
amendments or
<PAGE> 8
supplements to the Registration Statement or the prospectus
included therein or for additional information;
(iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that
purpose;
(iv) of the receipt by the Company or its legal
counsel of any notification with respect to the suspension of
the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
(v) of the happening of any event that requires the
Company to make changes in the Registration Statement or the
prospectus in order that the Registration Statement or the
prospectus do not contain an untrue statement of a material
fact nor omit to state a material fact required to be stated
therein or necessary to make the statements therein (in the
case of the prospectus, in light of the circumstances under
which they were made) not misleading.
(c) The Company shall make every reasonable effort to obtain
the withdrawal at the earliest possible time, of any order suspending
the effectiveness of the Registration Statement.
(d) The Company shall furnish to each Holder of Securities
included within the coverage of the Shelf Registration, without charge,
at least one copy of the Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules, and, if the Holder so requests in writing, all exhibits
thereto (including those, if any, incorporated by reference).
(e) The Company shall deliver to each Exchanging Dealer and
each Initial Purchaser, and to any other Holder or holder of Existing
Securities who so requests, without charge, at least one copy of the
Exchange Offer Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if any
Initial Purchaser or any such Holder requests, all exhibits thereto
(including those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period,
deliver to each Holder of Securities included within the coverage of
the Shelf Registration, without charge, as many copies of the
prospectus (including each preliminary prospectus) included in the
Shelf Registration Statement and any amendment or supplement thereto as
such person may reasonably request. The Company consents, subject to
the provisions of this Agreement, to the use of the prospectus or any
amendment or supplement thereto by each of the selling Holders of the
Securities in connection with the offering and sale of the Securities
covered by the prospectus, or any amendment or supplement thereto,
included in the Shelf
<PAGE> 9
Registration Statement.
(g) The Company shall deliver to each Initial Purchaser, any
Exchanging Dealer, any Participating Broker-Dealer and such other
persons required to deliver a prospectus following the Registered
Exchange Offer, without charge, as many copies of the final prospectus
included in the Exchange Offer Registration Statement and any amendment
or supplement thereto as such persons may reasonably request. The
Company consents, subject to the provisions of this Agreement, to the
use of the prospectus or any amendment or supplement thereto by any
Initial Purchaser, if necessary, any Participating Broker-Dealer and
such other persons required to deliver a prospectus following the
Registered Exchange Offer in connection with the offering and sale of
the Exchange Securities covered by the prospectus, or any amendment or
supplement thereto, included in such Exchange Offer Registration
Statement.
(h) Prior to any public offering of the Securities, pursuant
to any Registration Statement, the Company shall register or qualify or
cooperate with the Holders of the Securities included therein and their
respective counsel in connection with the registration or qualification
of the Securities for offer and sale under the securities or "blue sky"
laws of such states of the United States as any Holder of the
Securities reasonably requests in writing and do any and all other acts
or things necessary or advisable to enable the offer and sale in such
jurisdictions of the Securities covered by such Registration Statement;
provided, however, that the Company shall not be required to (i)
qualify generally to do business in any jurisdiction where it is not
then so qualified or (ii) take any action which would subject it to
general service of process or to taxation in any jurisdiction where it
is not then so subject.
(i) The Company shall cooperate with the Holders of the
Securities or to facilitate the timely preparation and delivery of
certificates representing the Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as the Holders may request a
reasonable period of time prior to sales of the Securities pursuant to
such Registration Statement.
(j) Upon the occurrence of any event contemplated by
paragraphs (ii) through (v) of Section 3(b) above during the period for
which the Company is required to maintain an effective Registration
Statement, the Company shall promptly prepare and file a post-effective
amendment to the Registration Statement or a supplement to the related
prospectus and any other required document so that, as thereafter
delivered to Holders of the Securities or holders of the Existing
Securities, as the case may be, the prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
required to be
<PAGE> 10
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. If the
Company notifies the Initial Purchasers, the Holders of the Securities,
the holders of the Existing Securities and any known Participating
Broker-Dealer in accordance with paragraphs (ii) through (v) of Section
3(b) above to suspend the use of the prospectus until the requisite
changes to the prospectus have been made, then the Initial Purchasers,
the Holders of the Securities, the holders of the Existing Securities
and any such Participating Broker-Dealers shall suspend use of such
prospectus, and the period of effectiveness of the Shelf Registration
Statement provided for in Section 2(b) above and the Exchange Offer
Registration Statement provided for in Section 1 above shall each be
extended by the number of days from and including the date of the
giving of such notice to and including the date when the Initial
Purchasers, the Holders of the Securities, the holders of the Existing
Securities and any known Participating Broker-Dealer shall have
received such amended or supplemented prospectus pursuant to this
Section 3(j).
(k) Not later than the effective date of the applicable
Registration Statement, the Company will provide a CUSIP number for the
Initial Securities, the Exchange Securities or the Private Exchange
Securities, as the case may be, and provide the applicable trustee with
printed certificates for the Initial Securities, the Exchange
Securities or the Private Exchange Securities, as the case may be, in a
form eligible for deposit with The Depository Trust Company.
(l) The Company will comply with all rules and regulations of
the Commission to the extent and so long as they are applicable to the
Registered Exchange Offer or the Shelf Registration and will make
generally available to its security holders (or otherwise provide in
accordance with Section 11(a) of the Securities Act) an earnings
statement satisfying the provisions of Section 11(a) of the Securities
Act, no later than 45 days after the end of a 12-month period (or 90
days, if such period is a fiscal year) beginning with the first month
of the Company's first fiscal quarter commencing after the effective
date of the Registration Statement, which statement shall cover such
12-month period.
(m) The Company shall cause the Indenture to be qualified
under the Trust Indenture Act of 1939, as amended, in a timely manner
and containing such changes, if any, as shall be necessary for such
qualification. In the event that such qualification would require the
appointment of a new trustee under the Indenture, the Company shall
appoint a new trustee thereunder pursuant to the applicable provisions
of the Indenture.
(n) The Company may require each Holder of Securities to be
sold pursuant to the Shelf Registration Statement to furnish to the
Company such information regarding the Holder and the distribution of
the Securities as the Company may from time to time reasonably require
for inclusion in the Shelf Registration Statement, and the Company may
exclude from such registration the
<PAGE> 11
Securities of any Holder that unreasonably fails to furnish such
information within a reasonable time after receiving such request.
(o) The Company shall enter into such customary agreements
(including, if requested, an underwriting agreement in customary form)
and take all such other action, if any, as any Holder of the Securities
shall reasonably request in order to facilitate the disposition of the
Securities pursuant to any Shelf Registration.
(p) In the case of any Shelf Registration, the Company shall
(i) make reasonably available for inspection by the Holders of the
Securities any underwriter participating in any disposition pursuant to
the Shelf Registration Statement and any attorney, accountant or other
agent retained by the Holders of the Securities or any such underwriter
all relevant financial and other records, pertinent corporate documents
and properties of the Company and (ii) cause the Company's officers,
directors and employees to supply, and use all reasonable efforts to
obtain from its accountants and auditors, all relevant information
reasonably requested by the Holders of the Securities or any such
underwriter, attorney, accountant or agent in connection with the Shelf
Registration Statement, in each case, as shall be reasonably necessary
to enable such persons, to conduct a reasonable investigation within
the meaning of Section 11 of the Securities Act; provided, however,
that the foregoing inspection and information gathering shall be
coordinated on behalf of the Initial Purchasers by you and on behalf of
the other parties, by one counsel designated by and on behalf of such
other parties as described in Section 4 hereof. Each Holder shall be
under an obligation to, and each Holder will, keep all non-public or
proprietary information so supplied confidential unless and until such
information is generally available to the public.
(q) In the case of any Shelf Registration, the Company, if
requested by any Holder of Securities covered thereby, shall direct (i)
its counsel to deliver an opinion and updates thereof relating to the
Securities in customary form addressed to such Holders and the managing
underwriters, if any, thereof and dated, in the case of the initial
opinion, the effective date of such Shelf Registration Statement (it
being agreed that the matters to be covered by such opinion shall
include, without limitation, the due incorporation and good standing of
the Company and its subsidiaries; the qualification of the Company and
its subsidiaries to transact business as foreign corporations; the due
authorization, execution and delivery of the relevant agreement of the
type referred to in Section 3(o) hereof; the due authorization,
execution, authentication and issuance, and the validity and
enforceability, of the applicable Securities; the absence of material
legal or governmental proceedings involving the Company and its
subsidiaries; the absence of governmental approvals required to be
obtained in connection with the Shelf Registration Statement, the
offering and sale of the applicable Securities, or any agreement of the
type referred to in Section 3(o) hereof; the compliance as to form of
such Shelf Registration Statement and any documents incorporated by
reference therein and of the Indenture with the requirements of the
Securities Act and the
<PAGE> 12
Trust Indenture Act, respectively; and, as of the date of the opinion
and as of the effective date of the Shelf Registration Statement or
most recent post-effective amendment thereto, as the case may be, the
absence from such Shelf Registration Statement and the prospectus
included therein, as then amended or supplemented, and from any
documents incorporated by reference therein of an untrue statement of a
material fact or the omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading (in the case of any such documents, in the light of the
circumstances existing at the time that such documents were filed with
the Commission under the Exchange Act); (ii) its officers to execute
and deliver all customary documents and certificates and updates
thereof requested by any underwriters of the applicable Securities and
(iii) its independent public accountants and the independent public
accountants with respect to any other entity for which financial
information is provided in the Shelf Registration Statement to provide
to the selling Holders of the applicable Securities and any underwriter
therefor a comfort letter in customary form and covering matters of the
type customarily covered in comfort letters in connection with primary
underwritten offerings, subject to receipt of appropriate documentation
as contemplated, and only if permitted, by Statement of Auditing
Standards No. 72.
(r) In the case of the Registered Exchange Offer, if requested
by any Initial Purchaser or any known Participating Broker-Dealer, the
Company shall direct (i) its counsel to deliver to such Initial
Purchaser or such Participating Broker-Dealer a signed opinion or
opinions in substantially the form or forms set forth in the opinion
delivered pursuant to Section 6(c) of the Purchase Agreement with such
changes as are customary in connection with the preparation of a
Registration Statement and (ii) its independent public accountants and
the independent public accountants with respect to any other entity for
which financial information is provided in the Registration Statement
to deliver to such Initial Purchaser or such Participating
Broker-Dealer a comfort letter, in customary form, meeting the
requirements as to the substance thereof as set forth in Sections 6(a)
of the Purchase Agreement, with appropriate date changes.
(s) If a Registered Exchange Offer or a Private Exchange is to
be consummated, upon delivery of the Initial Securities or the Existing
Securities, as the case may be, by Holders or holders of Existing
Securities to the Company (or to such other Person as directed by the
Company) in exchange for the Exchange Securities or the Private
Exchange Securities, as the case may be, the Company shall mark, or
caused to be marked, on the Initial Securities or the Existing
Securities, as the case may be, so exchanged that such Initial
Securities or the Existing Securities, as the case may be, are being
canceled in exchange for the Exchange Securities or the Private
Exchange Securities, as the case may be; in no event shall the Initial
Securities or the Existing Securities, as the case may be, be
<PAGE> 13
marked as paid or otherwise satisfied.
(t) The Company will use its reasonable efforts to (a) if the
Initial Securities or the Existing Securities, as the case may be, have
been rated prior to the initial sale of the Initial Securities confirm
such ratings will apply to the Securities covered by a Registration
Statement, or (b) if the Initial Securities or the Existing Securities,
as the case may be, were not previously rated, cause the Securities
covered by a Registration Statement to be rated with the appropriate
rating agencies, if so requested by Holders of a majority in aggregate
principal amount of Securities covered by such Registration Statement,
or by the managing underwriters, if any.
(u) In the event that any broker-dealer registered under the
Exchange Act shall underwrite any Securities or participate as a member
of an underwriting syndicate or selling group or "assist in the
distribution" (within the meaning of the Conduct Rules (the "Rules") of
the National Association of Securities Dealers, Inc. ("NASD")) thereof,
whether as a Holder of such Securities or as an underwriter, a
placement or sales agent or a broker or dealer in respect thereof, or
otherwise, the Company will assist such broker-dealer in complying with
the requirements of such Rules, including, without limitation, by (i)
if such Rules, including Rule 2720, shall so require, engaging a
"qualified independent underwriter" (as defined in Rule 2720) to
participate in the preparation of the Registration Statement relating
to such Securities, to exercise usual standards of due diligence in
respect thereto and, if any portion of the offering contemplated by
such Registration Statement is an underwritten offering or is made
through a placement or sales agent, to recommend the yield of such
Securities, (ii) indemnifying any such qualified independent
underwriter to the extent of the indemnification of underwriters
provided in Section 5 hereof and (iii) providing such information to
such broker-dealer as may be required in order for such broker-dealer
to comply with the requirements of the Rules.
(v) The Company shall use its best efforts to take all other
steps necessary to effect the registration of the Securities or the
Existing Securities, as the case may be, covered by a Registration
Statement contemplated hereby.
4. Registration Expenses. The Company shall bear all fees and expenses
incurred in connection with the performance of its obligations under Sections 1
through 3 hereof (excluding fees and expenses, if any, of counsel for the
Initial Purchasers), whether or not the Registered Exchange Offer or a Shelf
Registration is filed or becomes effective, and, in the event of a Shelf
Registration, shall bear or reimburse the Holders of the Securities covered
thereby for the reasonable fees and disbursements of one firm of counsel
designated by the Holders of a majority in principal amount of the Initial
Securities covered thereby to act as counsel for the Holders of the Initial
Securities in connection therewith.
<PAGE> 14
5. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Holder of the Securities any Participating Broker-Dealer and each
person, if any, who controls such Holder or such Participating Broker-Dealer
within the meaning of the Securities Act or the Exchange Act (each Holder, any
Participating Broker-Dealer and such controlling persons are referred to
collectively as the "Indemnified Parties") from and against any losses, claims,
damages or liabilities, joint or several, or any actions in respect thereof
(including, but not limited to, any losses, claims, damages, liabilities or
actions relating to purchases and sales of the Securities) to which each
Indemnified Party may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages, liabilities or actions
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement or prospectus or in any
amendment or supplement thereto or in any preliminary prospectus relating to a
Shelf Registration, or arise out of, or are based upon, the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and shall reimburse, as
incurred, the Indemnified Parties for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action in respect thereof; provided, however, that
(i) the Company shall not be liable in any such case to the extent that such
loss, claim, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in a
Registration Statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to a Shelf Registration in reliance
upon and in conformity with written information pertaining to such Holder and
furnished to the Company by or on behalf of such Holder specifically for
inclusion therein and (ii) with respect to any untrue statement or omission or
alleged untrue statement or omission made in any preliminary prospectus relating
to a Shelf Registration Statement, the indemnity agreement contained in this
subsection (a) shall not inure to the benefit of any Holder or Participating
Broker-Dealer (or controlling person thereof) from whom the person asserting any
such losses, claims, damages or liabilities purchased the Securities concerned,
to the extent that a prospectus relating to such Securities was required to be
delivered by such Holder or Participating Broker-Dealer (or controlling person
thereof) under the Securities Act in connection with such purchase and any such
loss, claim, damage or liability of such Holder or Participating Broker-Dealer
results from the fact that there was not sent or given to such person, at or
prior to the written confirmation of the sale of such Securities to such person,
a copy of the final prospectus if the Company had previously furnished copies
thereof to such Holder or Participating Broker-Dealer; provided further,
however, that this indemnity agreement will be in addition to any liability
which the Company may otherwise have to such Indemnified Party. The Company
shall also indemnify underwriters, their officers and directors and each person
who controls such underwriters within the meaning of the Securities Act or the
Exchange Act to the same extent as provided above with respect to the
indemnification of the Holders of the Securities if requested by such Holders.
(b) Each Holder of the Securities, severally and not jointly, will
indemnify and hold harmless the Company and each person, if any, who controls
the Company within the
<PAGE> 15
meaning of the Securities Act or the Exchange Act from and against any losses,
claims, damages or liabilities or any actions in respect thereof, to which the
Company or any such controlling person may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in a Registration
Statement or prospectus or in any amendment or supplement thereto or in any
preliminary prospectus relating to a Shelf Registration, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
necessary to make the statements therein not misleading, but in each case only
to the extent that the untrue statement or omission or alleged untrue statement
or omission was made in reliance upon and in conformity with written information
pertaining to such Holder and furnished to the Company by or on behalf of such
Holder specifically for inclusion therein; and, subject to the limitation set
forth immediately preceding this clause, shall reimburse, as incurred, the
Company for any legal or other expenses reasonably incurred by the Company or
any such controlling person in connection with investigating or defending any
loss, claim, damage, liability or action in respect thereof. This indemnity
agreement will be in addition to any liability which such Holder may otherwise
have to the Company or any of its controlling persons.
(c) Promptly after receipt by an indemnified party under this Section 5
of notice of the commencement of any action or proceeding (including a
governmental investigation), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 5,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above. In case any
such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party, and which counsel, together with one local counsel in each
jurisdiction, shall act on behalf of all the indemnified parties with respect to
such action), and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof the indemnifying party
will not be liable to such indemnified party under this Section 5 for any legal
or other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened action in respect of
which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party unless such settlement
includes an unconditional release of such indemnified party from all liability
on any claims that are the subject matter of such action.
<PAGE> 16
(d) If the indemnification provided for in this Section 5 is
unavailable or insufficient to hold harmless an indemnified party under
subsections (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to in
subsection (a) or (b) above (i) in such proportion as is appropriate to reflect
the relative benefits received by the indemnifying party or parties on the one
hand and the indemnified party on the other from the exchange of the Securities
pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by
the foregoing clause (i) is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party on the other in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
such Holder or such other indemnified party, as the case may be, on the other,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid by
an indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim which is
the subject of this subsection (d). Notwithstanding any other provision of this
Section 5(d), the Holders of the Securities shall not be required to contribute
any amount in excess of the amount by which the net proceeds received by such
Holders from the sale of the Securities pursuant to a Registration Statement
exceeds the amount of damages which such Holders have otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this paragraph (d), each person, if any, who controls such indemnified party
within the meaning of the Securities Act or the Exchange Act shall have the same
rights to contribution as such indemnified party and each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act shall have the same rights to contribution as the Company.
(e) The agreements contained in this Section 5 shall survive the sale
of the Securities pursuant to a Registration Statement and shall remain in full
force and effect, regardless of any termination or cancelation of this Agreement
or any investigation made by or on behalf of any indemnified party.
6. Additional Interest Under Certain Circumstances. (a) Additional
interest (the "Additional Interest") with respect to the Initial Securities
shall be assessed as follows if any of the following events occur (each such
event in clauses (i) through (iii) below a
<PAGE> 17
"Registration Default"):
(i) If by March 31, 1999, neither the Exchange Offer
Registration Statement nor a Shelf Registration Statement has been
filed with the Commission;
(ii) If by July 21, 1999, neither the Registered Exchange
Offer is consummated nor, if required in lieu thereof, the Shelf
Registration Statement is declared effective by the Commission; or
(iii) If after either the Exchange Offer Registration
Statement or the Shelf Registration Statement is declared effective (A)
such Registration Statement thereafter ceases to be effective; or (B)
such Registration Statement or the related prospectus ceases to be
usable (except as permitted in paragraph (b)) in connection with
resales of Transfer Restricted Securities during the periods specified
herein because either (1) any event occurs as a result of which the
related prospectus forming part of such Registration Statement would
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein in the light of
the circumstances under which they were made not misleading, or (2) it
shall be necessary to amend such Registration Statement or supplement
the related prospectus, to comply with the Securities Act or the
Exchange Act or the respective rules thereunder.
Additional Interest shall accrue on the Initial Securities over and above the
interest set forth in the title of the Securities from and including the date on
which any such Registration Default shall occur to but excluding the earlier of
the date on which (i) all such Registration Defaults have been cured and (ii)
the Initial Securities no longer constitute Transfer Restricted Securities, at a
rate of 0.50% per annum.
(b) A Registration Default referred to in Section 6(a)(iii)(B) hereof
shall be deemed not to have occurred and be continuing in relation to a Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to such Shelf Registration Statement to incorporate annual audited
financial information with respect to the Company where such post-effective
amendment is not yet effective and needs to be declared effective to permit
Holders to use the related prospectus or (y) other material events, with respect
to the Company that would need to be described in such Shelf Registration
Statement or the related prospectus and (ii) in the case of clause (y), the
Company is proceeding promptly and in good faith to amend or supplement such
Shelf Registration Statement and related prospectus to describe such events;
provided, however, that in any case if such Registration Default occurs for a
continuous period in excess of 30 days, Additional Interest shall be payable in
accordance with the above paragraph from the day such Registration Default
occurs until such Registration Default is cured.
(c) Any amounts of Additional Interest due pursuant to clause (i), (ii)
or (iii) of Section 6(a) above will be payable in cash on the regular interest
payment dates with
<PAGE> 18
respect to the Initial Securities. The amount of Additional Interest will be
determined by multiplying the applicable Additional Interest rate by the
principal amount of the Initial Securities, multiplied by a fraction, the
numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months), and the denominator of which is 360.
(d) "Transfer Restricted Securities" means each Security until (i) the
date on which such Transfer Restricted Security has been exchanged by a person
other than a broker-dealer for a freely transferable Exchange Security in the
Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the
Registered Exchange Offer of a Initial Security for an Exchange Note, the date
on which such Exchange Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Initial Security has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement or (iv) the
date on which such Initial Securities is distributed to the public pursuant to
Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under
the Securities Act.
7. Rules 144 and 144A. The Company shall use its reasonable efforts to
file the reports required to be filed by it under the Securities Act and the
Exchange Act in a timely manner and, if at any time the Company is not required
to file such reports, it will, upon the request of any Holder of Initial
Securities, make publicly available other information so long as necessary to
permit sales of Transfer Restricted Securities pursuant to Rules 144 and 144A.
The Company covenants that it will take such further action as any Holder of
Transfer Restricted Securities may reasonably request, all to the extent
required from time to time to enable such Holder to sell Transfer Restricted
Securities without registration under the Securities Act within the limitation
of the exemptions provided by Rules 144 and 144A (including the requirements of
Rule 144A(d)(4)). The Company will provide a copy of this Agreement to
prospective purchasers of Transfer Restricted Securities identified to the
Company by the Transfer Restricted Securities upon request. Upon the request of
any Holder of Transfer Restricted Securities, the Company shall deliver to such
Holder a written statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to
require the Company to register any of its securities pursuant to the Exchange
Act.
8. Underwritten Registrations. If any of the Transfer Restricted
Securities covered by any Shelf Registration are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will administer the offering ("Managing Underwriters") will be selected by
the Holders of a majority in aggregate principal amount of such Transfer
Restricted Securities to be included in such offering; provided that the
Managing Underwriters must be reasonably satisfactory to the Company.
No person may participate in any underwritten registration hereunder
unless such
<PAGE> 19
person (i) agrees to sell such person's Transfer Restricted Securities on the
basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
9. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, except by the Company and the written
consent of the Holders of a majority in principal amount of the Securities
affected by such amendment, modification, supplement, waiver or consents.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, first-class mail,
facsimile transmission, or air courier which guarantees overnight delivery:
(1) if to a Holder of the Securities, at the most current
address given by such Holder to the Company.
(2) if to the Initial Purchasers;
BancBoston Robertson Stephens Inc.
100 Federal Street
M/S 01-12-07
Boston, MA 02110
Attention: High Yields Capital Markets
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019-7475
Fax No.: (212) 474-3700
Attention: William J. Whelan, III
(3) if to the Company, at its address as follows:
The J. H. Heafner Company, Inc.
2105 Water Ridge Parkway, Suite 500
Charlotte, NC 28217
Attention: Chief Financial Officer
<PAGE> 20
with a copy to:
Howard, Smith & Levin LLP
1330 Avenue of the Americas
New York, NY 10019
Attention: Scott F. Smith
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged by recipient's facsimile machine operator, if sent by facsimile
transmission; and on the day delivered, if sent by overnight air courier
guaranteeing next day delivery.
(c) No Inconsistent Agreements. The Company has not, as of the date
hereof, entered into, nor shall it, on or after the date hereof, enter into, any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions hereof.
(d) Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns.
(e) 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.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
(h) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(i) Securities Held by the Company. Whenever the consent or approval of
Holders of a specified percentage of principal amount of Securities is required
hereunder, Securities held by the Company or its affiliates (other than
subsequent Holders of Securities if such subsequent Holders are deemed to be
affiliates solely by reason of their holdings of such Securities) shall not be
counted in determining whether such consent or approval was given by the Holders
of such required percentage.
<PAGE> 21
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the several Initial Purchasers, the Issuer and each Subsidiary Guarantor
in accordance with its terms.
Very truly yours,
THE J. H. HEAFNER COMPANY, INC.
by /s/ Donald C. Roof
----------------------------------
Name: Donald C. Roof
Title: SVP & CFO
OLIVER & WINSTON, INC.
by /s/ Donald C. Roof
----------------------------------
Name: Donald C. Roof
Title: SVP & CFO
by /s/ J. Michael Gaither
----------------------------------
Name: J. Michael Gaither
Title: SVP & General Counsel
THE SPEED MERCHANT, INC.,
by /s/ Donald C. Roof
----------------------------------
Name: Donald C. Roof
Title: SVP & CFO
by /s/ J. Michael Gaither
----------------------------------
Name: J. Michael Gaither
Title: SVP & General Counsel
PHOENIX RACING, INC.,
by /s/ Donald C. Roof
----------------------------------
Name: Donald C. Roof
Title: SVP & CFO
<PAGE> 22
by /s/ J. Michael Gaither
----------------------------------
Name: J. Michael Gaither
Title: SVP & General Counsel
ITCO LOGISTICS CORPORATION,
by /s/ J. Michael Gaither
----------------------------------
Name: J. Michael Gaither
Title: SVP & General Counsel
<PAGE> 23
The foregoing Registration Rights
Agreement is hereby confirmed and
accepted as of the date first above
written.
BANCBOSTON ROBERTSON STEPHENS INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
by: BANCBOSTON ROBERTSON STEPHENS INC.
by /s/ Ian B. Blumenstein
-------------------------------
Name: Ian B. Blumenstein
Title: Managing Director
<PAGE> 24
ANNEX A
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. 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 Exchange Securities received in exchange for Initial Securities
where such Initial Securities 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 (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
<PAGE> 25
ANNEX B
Each broker-dealer that receives Exchange Securities for its own account
in exchange for Securities, where such Initial Securities were acquired by such
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 Exchange Securities.
See "Plan of Distribution."
<PAGE> 26
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. 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 Exchange Securities received in
exchange for Initial Securities where such Initial Securities 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 broker-dealer for
use in connection with any such resale. In addition, until , 199 , all dealers
effecting transactions in the Exchange Securities may be required to deliver a
prospectus.1
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account 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 Exchange Securities 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 broker-dealer or the purchasers of any such Exchange
Securities. Any broker-dealer that resells Exchange Securities that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Securities may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Securities and any commission 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.
- --------
1 In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus.
<PAGE> 27
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Securities) other than commissions or concessions of any brokers
or dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
<PAGE> 28
ANNEX D
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO
RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF
ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Initial Securities that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, 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.
<PAGE> 1
EXHIBIT 5.1
LETTERHEAD OF HOWARD, SMITH & LEVIN LLP
March 31, 1999
The J.H. Heafner Company, Inc.
2105 Water Ridge Parkway, Suite 500
Charlotte, North Carolina 28217
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933,
as amended (the "Act"), pursuant to the Registration Statement on Form S-4 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission, of the offer and sale of (a) $150,000,000 aggregate principal amount
of 10% Senior Notes Due 2008, Series D (the "Series D Notes") of The J.H.
Heafner Company, Inc., a North Carolina corporation (the "Company"), and (b)
Subsidiary Guaranties of the Series D Notes (the "Subsidiary Guaranties" and,
together with the Series D Notes, the "Securities") by Oliver & Winston, Inc., a
California corporation, The Speed Merchant, Inc., a California corporation,
Phoenix Racing, Inc., a California corporation, and California Tire Company, a
California corporation (collectively, the "Subsidiary Guarantors"), in each case
to be issued pursuant to the Indenture dated as of December 1, 1998, as amended
by the First Supplemental Indenture dated as of February 22, 1999 (the
"Indenture") among the Company, its subsidiaries and First Union National Bank,
as trustee (the "Trustee"), we have reviewed such corporate records,
certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for the purposes of this opinion.
We have assumed that each of the Company, the Subsidiary Guarantors and
the Trustee is duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, that it has or had all requisite
power and authority to execute, deliver and perform the Indenture and, as
applicable, to issue and authenticate the Securities, and that it has duly
authorized, executed and delivered the Indenture, and has duly authorized the
transactions contemplated thereby.
Upon the basis of such review and subject to the foregoing assumptions,
we advise you that, in our opinion, when the Registration Statement has become
effective under the Act, and the Series D Notes have been duly executed and
authenticated in accordance with the Indenture and issued in exchange for
$150,000,000 aggregate principal amount of 10% Senior Notes Due 2008, consisting
of $100,000,000 aggregate principal amount of 10% Senior Notes Due 2008, Series
B,
<PAGE> 2
The J.H. Heafner Company, Inc. -2-
and $50,000,000 aggregate principal amount of 10% Senior Notes Due 2008, Series
C, which were previously issued by the Company, all in accordance with the
exchange offer contemplated by the Registration Statement, and assuming
compliance with the Act, the Series D Notes will constitute the valid and
binding obligations of the Company, and each Subsidiary Guaranty of a Subsidiary
Guarantor will constitute the valid and binding obligation of such Subsidiary
Guarantor, in each case enforceable against such party in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other laws of general applicability relating to or affecting
creditors' rights, to general equity principles, and to the qualification that
we express no opinion with respect to the waivers contained in Section 6.12 of
the Indenture.
We are members of the bar of the State of New York. We do not purport
to be experts in, and we do not express any opinion on, any laws other than the
law of the State of New York, the Delaware General Corporation Law and the
Federal law of the United States of America.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Prospectus. In giving such consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7 of
the Act.
Very truly yours,
/s/ HOWARD, SMITH & LEVIN LLP
<PAGE> 1
EXHIBIT 10.19
[LOGO] MICHELIN
NORTH AMERICA
MICHELIN NORTH AMERICA, Inc.
One Parkway South
Post Office Box 19001
Greenville, SC 29602-9001
November 24, 1998
THE J H HEAFNER CO INC-MAIN
814 EAST MAIN STREET
LINCOLNTON, NC 28092
Dear Sir:
We are pleased to propose to you that your 1998 Michelin North America, Inc.
("MNA") Authorized Dealer Agreement, including any security provisions related
thereto, be extended through December 31, 1999. All terms and conditions will
remain the same as in the 1998 MNA Dealer Agreement, and will carry forward
through 1999, with the following exceptions:
As stated in Section II of the 1998 MNA Dealer Agreement, the Authorized Dealer
is not permitted to sell directly or indirectly, Michelin brand products to
dealers owned by MNA's Competition. Failure to follow this restriction may
result in cancellation of this dealership agreement. In addition, without
limiting MNA's rights to terminate the Dealer Agreement, tires that are found to
have been sold to the competition will be credited back at the purchase price,
and rebilled at the Earthmover Price List Base pricing, without any discounts or
other incentives.
Please acknowledge your understanding and agreement to the above extension as
modified herein by signing below and returning this letter to me by December 31,
1998.
Thank you for your continued support of MNA brand products. We look forward to
working together toward our pursuit of a successful 1999.
Authorized Categories: Industrial X Small Earthmover X
--- ---
Very truly yours,
Jake Jordal
Director of Sales
MICHELIN EARTHMOVER TIRES NORTH AMERICA
* Must also be authorized on a ship to basis in accordance with the annual sales
program.
AGREED:
By:(signature): /s/ Daniel K. Brown
--------------------------
Name (print): Daniel K. Brown
--------------------------
Title: Sr. V.P. MKT & Sales
--------------------------
Date: Dec 3, 1998
--------------------------
<PAGE> 2
Home office/Bill-To #: 1000234
<PAGE> 3
November 25, 1998
Heafner/ITCO Tires and Products
814 East Main Street
P. O. Box 837
Lincolnton, NC 28092
Dear Dealer:
We are pleased to propose to you that your 1998 Michelin North America, Inc.
("MNA') Authorized Dealer Agreement, including any security provisions related
thereto, be extended through December 31, 1999. All terms and conditions will
remain the same as in the 1998 MNA Dealer Agreement, and will carry forward
through 1999.
Please acknowledge your understanding and agreement to the above extension by
signing below and returning this letter to me by December 30, 1998.
Thank you for your continued support of MNA brand products. We look forward to
working together toward our pursuit of a successful 1999.
Very truly yours,
AGREED:
/s/Daniel K. Brown
- ---------------------------
Name (please print name)
Sr. V.P. Sales & Marketing
- ---------------------------
Title
Nov. 27, 1998
- ---------------------------
Date
Bill-To #: 1002722
---------------
<PAGE> 1
EXHIBIT 10.21
THE J.H. HEAFNER COMPANY
1998 STOCK OPTION PLAN AMENDMENT
WHEREAS, the Board of Directors at their September 16, 1998 meeting
voted to authorize up to 527,500 shares to be reserved for grant of options
under The J.H. Heafner Company, Inc. 1997 Option Plan.
NOW, THEREFORE, The J.H. Heafner Company, Inc. Stock Option Plan is
hereby amended such that the total number of shares reserved for grant of option
in paragraph 5 of the said Plan is hereby amended to read 527,500 shares of
Stock.
There are no other changes to the said Plan.
<PAGE> 1
EXHIBIT 10.32(a)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of January 1, 1999
(the "Agreement"), between The J. H. Heafner Company, Inc., a North
Carolina corporation (the "Employer"), and Daniel K. Brown (the
"Employee").
The Employer and the Employee are parties to an Employment Agreement,
dated as of May 20, 1998, and desire to amend and restate such Employment
Agreement in its entirety. The Employer desires to continue to retain the
Employee to supply services to the Employer, and the Employee desires to
continue 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) Employment by Employer. The Employer hereby employs the Employee,
and the Employee hereby agrees to be employed by the Employer, as Senior Vice
President-Sales and Marketing 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 and duties consistent
with his title and position (the "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) Employment Period. 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 $191,000 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 February 1.
(b) Additional Compensation. As additional compensation for the
Services, the Employer shall pay to the Employee (i) an amount equal to the
greater of (x) annual fixed bonus payments (the "Fixed Bonus") equal to 15% of
the Employee's Base
<PAGE> 2
Salary for such year, payable on or around February 1 of the following year, or
(y) annual target bonus payments (as defined in the Employer's Executive Bonus
Plan) (the "Target Bonus"), payable on or around February 1 of the following
year, and (ii) other incentive compensation as the Board of Directors of the
Employer determines in its sole discretion to pay the Employee. The Employee
acknowledges that the Employer may terminate or modify its Executive Bonus Plan
and other incentive plans (excluding the Fixed Bonus payable hereunder) 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. The Employee purchased shares
of Class A Common Stock of the Employer pursuant to a Securities Purchase and
Stockholders Agreement, dated as of May 28, 1997, between the Employer and the
Employee, and was granted options (pursuant to the Employer's 1997 Stock Option
Plan) to acquire shares of Class A Common Stock of the Employer, pursuant to
Stock Option Agreements between the Employer and the Employee dated as of May
28, 1997 and _________, 1998. Such Securities Purchase and Stockholders
Agreement and Stock Option Agreements are referred to in this Agreement as the
"Other Agreements." The Employee shall be entitled to participate in current or
future equity incentive plans adopted by the Employer on terms no less favorable
than those offered to members of the Employer's Executive Committee or other
division Presidents of the Employer. Such grants may be awarded from time to
time in the sole discretion of the Employer's Executive Committee. In the event
of a Change in Control, the Employee shall become fully vested in all awards
heretofore or hereafter granted to him under all incentive compensation,
deferred compensation, stock option, stock appreciation rights, restricted
stock, phantom stock or similar plans maintained by the Employer, any contrary
provisions of such plans notwithstanding. Any such plans shall be deemed amended
to the extent necessary to carry out the intent expressed in the preceding
sentence.
(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. If the Employment Period is
terminated by the Employer or the Employee in connection with a Change in
Control (as defined), the Employee and relevant family members shall be entitled
to continue to participate in the Employer's welfare benefit plans at the
Employer's expense during three year period following the effective date of such
Change in Control (the "Change in Control Period").
(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.
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(f) 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 the Services 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
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
material breach of any of his obligations under Sections 4 and 5, which is not
corrected within a reasonable period of time (determined in light of the cure,
if any, 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 or a substantial diminution in benefits provided under
this Agreement, (ii) a substantial diminution in the status, position and
responsibilities of the Employee or (iii) the
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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. (i) Basic Termination
Payment. Upon the termination of the Employment Period at any time for any
reason, the Employer shall pay to the Employee or his estate the Base Salary and
Target Bonus earned to the date of death or termination for disability or Cause,
as the case may be. Any Target Bonus payments payable under this Section 3(e)(i)
shall be prorated if payable for periods of less than one year and shall be
payable regardless of whether the Employee is still in the employ of the
Employer on the date declared or payable.
(ii) Involuntary Termination Payment. Upon the termination of the
Employment Period at any time by the Employer without Cause or by the Employee
for Good Reason, the Employer shall pay to the Employee or his estate an amount
(in addition to amounts payable under Section 3(e)(i)) equal to one year's Base
Salary and Target Bonus, in each case, at the rate in effect on the date of
termination. Notwithstanding the foregoing, the Employee shall be entitled to no
payment under this Section 3(e)(ii) if he is entitled to receive a payment under
Section 3(e)(iii).
(iii) Change in Control Payment. Upon the termination of the Employment
Period (x) by the Employer upon or prior to a Change in Control, provided that
the Employee reasonably demonstrates that such termination occurred at the
request of a third party participating in, or otherwise in anticipation of or in
connection with, such Change in Control, (y) by the Employee with Good Reason or
by the Employer for any reason within one year after a Change in Control, or (z)
by the Employee for any reason on or after the first anniversary of a Change in
Control but no later than the 30th day after such first anniversary, then the
Employer shall pay to the Employee within five business days of such termination
an amount (in addition to amounts payable under Section 3(e)(i)) equal to the
sum of (A) the higher of (1) the annual Base Salary at the date of such
termination or (2) the annual Base Salary at the time of the Change in Control,
in each case multiplied by the number of years remaining in the Change in
Control Period, and (B) the Target Bonus at the annual rate in effect at the
date of such termination multiplied by the number of years remaining in the
Change in Control Period.
(iv) Change in Control Defined. "Change in Control" means the first to
occur of any of the following: (A) the sale (including by merger, consolidation
or sale of stock of subsidiaries or any other method) of all or substantially
all of the assets of the Employer and its consolidated subsidiaries (taken as a
whole) 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 Employer, (B) at any time prior to the
consummation of an initial public offering of Class A Common Stock of the
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Employer or other common stock of the Employer having the voting power to elect
directors, a transaction (except pursuant to such initial public offering)
resulting in the Principal Shareholders owning, collectively, less than 50% of
the Combined Voting Power of the then outstanding shares of capital stock of the
Employer, (C) at any time after the consummation of an initial public offering
of Class A Common Stock of the Employer or other common stock of the Employer
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 Employer's stockholders of more than 35% of the Combined
Voting Power of the then outstanding shares of capital stock of the Employer,
(D) individuals serving as directors of the Employer on the date hereof and who
were nominated to serve as directors by one or more Principal Shareholders
(together with any new directors whose election was approved by (x) a vote of
such individuals or directors whose election was previously so approved or (y)
Principal Shareholders holding a majority of the aggregate voting power of the
capital stock of the Employer held by all Principal Shareholders) cease for any
reason to constitute a majority of the Board of Directors of the Employer, (E)
the adoption of a plan relating to the liquidation or dissolution of the
Employer in connection with an equity investment or sale or a business
combination transaction or (F) any other event or transaction that the Board of
Directors of the Employer deems to be a Change in Control. "Combined Voting
Power" with respect to capital stock of the Employer 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 Employer. "Principal
Shareholders" means Ann H. Gaither, William H. Gaither, Susan G. Jones and
Thomas R. Jones 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, limited liability
company or other entity all of the capital stock or other ownership interests of
which are owned by any of the foregoing.
(v) Other Provisions Applicable to Payments. Any payment due under
Section 3(e)(iii) shall be limited to the extent the Board of Directors of the
Employer, in its good faith determination, deems necessary to preserve the
deductibility by the Employer of such payment pursuant to Section 280G of the
Internal Revenue Code of 1986, as amended, or any successor provision of any
successor statute. The Employer may elect to make any payments due under Section
3(e)(ii) in a lump sum or as they would have been paid had the Employment Period
not been terminated. Unless otherwise specifically stated to be payable over a
period of time, all amounts due under this Section 3 shall be payable on demand
by the Employee and shall bear interest (compounded annually) for the period
from and including the date payable to but excluding the date paid at a rate per
annum equal to the sum of (x) four percent and (y) the rate publicly announced
by BankBoston, N.A. as its "prime rate."
(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.
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SECTION 4. Confidentiality; Non-Disclosure.
(a) (i) Non-Disclosure Obligation. Except as provided in this Section
4(a), the Employee shall not disclose any Confidential Information of the
Employer or any 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 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,
purchasers, 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 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) Compulsory Disclosures. If the Employee is requested or (in the
opinion of his counsel) required by law or judicial order to disclose any
Confidential 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 Information. If, failing the entry of a protective
order or the receipt of a waiver hereunder, the Employee is, in the opinion of
his counsel, compelled by law to disclose a portion of the Confidential
Information, the Employee may disclose to the relevant tribunal without
liability hereunder only that portion of the Confidential 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 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) Assignment of Inventions. 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,
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<PAGE> 7
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 related patents, trademarks or copyrights 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 Information and acknowledges the
highly competitive nature of the business of the Employer and its affiliates and
subsidiaries and accordingly agrees that, in consideration of the premises
contained herein, he will not, during the Employment Period and for one year
after the date of termination of the Employment Period, for any reason
whatsoever, either individually or as an officer, director, stockholder, member,
partner, agent or principal of another business firm, (x) 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, (y) assist others in engaging in any
competitive business in the manner described in clause (x), or (z) 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. 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.
(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
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<PAGE> 8
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 or for any breach or threatened breach of any other provision of this
Agreement.
(c) Withholding. The Employer shall withhold such amounts from any
compensation or other benefits payable to the Employee under this Agreement 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 assign or transfer this Agreement or any rights or
obligations hereunder without the prior written consent of the other; provided,
that the Employer may assign this Agreement and its rights and obligations
hereunder to any transferee of all or substantially all of the Business (whether
by merger, consolidation, sale of stock or assets or otherwise) without the
Employee's consent. This Agreement is for the sole benefit of the parties hereto
and their respective successors and permitted assigns and not for the benefit
of, or enforceable by, any third party.
(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 Employer, 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 Employer and (iii) be subject to any limitations
imposed from time to time under applicable law.
(f) Dispute Resolution; Attorney's Fees. In making any determination as
to the existence of Cause for termination or the occurrence of a Change in
Control, the Board of Directors shall, subject to its members' fiduciary duties,
abide by the recommendation of a committee comprising only members who were
nominated by one or more Principal Shareholders. 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 an arbitrator to be
determined by mutually agreeable means. In such
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<PAGE> 9
event, each of the Employer and the Employee shall have the right to full
discovery. The Employer shall bear all costs of the arbitrator in any such
proceeding, and the Employee shall have the right, in addition to any other
relief granted by such arbitrator, to recover reasonable attorneys' fees;
provided, however, that the Employer shall have the right, in any dispute other
than a dispute relating to the occurrence of a Change in Control or the payment
of an amount under Section 3(e)(iii), in addition to any other relief granted by
such arbitrator, to recover reasonable attorneys' 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 judgment by such arbitrator may be
entered into any court with jurisdiction over the dispute.
(g) Acknowledgment. The Employee acknowledges that he has been advised
by the Employer to seek the advice of independent counsel prior to reaching
agreement with the Employer on any of the terms of this Agreement. The parties
agree that no rule of construction shall apply to this Agreement which construes
ambiguous language in favor of or against any party by reason of that party's
role in drafting the Agreement.
(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: President
Facsimile: (704) 423-8987
with a copy to:
Howard, Smith & Levin LLP
1330 Avenue of the Americas
New York, New York 10019
Attention: Scott F. Smith
Facsimile: (212) 841-1010
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If to the Employee:
Daniel K. Brown
17715 Jetton Road
Cornelius, North Carolina 28031
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.
(j) 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. Except as otherwise expressly
provided in this Agreement: (i) any reference in this Agreement to any
agreement, document or instrument includes all permitted supplements and
amendments; (ii) a reference to a law includes any amendment or modification to
such law and any rules or regulations issued thereunder; (iii) the words
"include," "included" and "including" are not limiting; and (iv) a reference to
a person or entity includes its permitted successors and assigns.
(k) 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 and the Other Agreements contain the entire
agreement among the parties with respect to the transactions contemplated by
this Agreement and the Other Agreements and supersede all other or prior written
or oral agreements or understandings among the parties with respect to the
Employee's employment by the Employer. The Employment Agreement, dated as of May
20, 1998, between the Employer and the Employer is expressly superseded and
hereby amended and restated in its entirety by this Agreement.
(L) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NORTH CAROLINA.
(M) 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 WESTERN DISTRICT OF NORTH CAROLINA
SITTING IN MECKLENBURG COUNTY 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
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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.
EACH OF THE PARTIES HERETO HEREBY CONSENTS TO SERVICE OF PROCESS BY NOTICE IN
THE MANNER SPECIFIED IN SECTION 6(I) AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO SERVICE
OF PROCESS IN SUCH MANNER.
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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: William H. Gaither
Title:
/s/ Daniel K. Brown
-------------------------------
Daniel K. Brown
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EXHIBIT 10.32(b)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of January 1, 1999
(the "Agreement"), between The J. H. Heafner Company, Inc., a North
Carolina corporation (the "Employer"), and J. Michael Gaither (the
"Employee").
The Employer and the Employee are parties to an Employment Agreement,
dated as of May 20, 1998, and desire to amend and restate such Employment
Agreement in its entirety. The Employer desires to continue to retain the
Employee to supply services to the Employer, and the Employee desires to
continue 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) Employment by Employer. The Employer hereby employs the Employee,
and the Employee hereby agrees to be employed by the Employer, as Senior Vice
President, General Counsel and Secretary 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 and duties
consistent with his title and position (the "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) Employment Period. 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 $224,000 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 February 1.
(b) Additional Compensation. As additional compensation for the
Services, the Employer shall pay to the Employee (i) an amount equal to the
greater of (x) annual fixed bonus payments (the "Fixed Bonus") equal to 15% of
the Employee's Base
<PAGE> 14
Salary for such year, payable on or around February 1 of the following year, or
(y) annual target bonus payments (as defined in the Employer's Executive Bonus
Plan) (the "Target Bonus"), payable on or around February 1 of the following
year, and (ii) other incentive compensation as the Board of Directors of the
Employer determines in its sole discretion to pay the Employee. The Employee
acknowledges that the Employer may terminate or modify its Executive Bonus Plan
and other incentive plans (excluding the Fixed Bonus payable hereunder) 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. The Employee purchased shares
of Class A Common Stock of the Employer pursuant to a Securities Purchase and
Stockholders Agreement, dated as of May 28, 1997, between the Employer and the
Employee, and was granted options (pursuant to the Employer's 1997 Stock Option
Plan) to acquire shares of Class A Common Stock of the Employer, pursuant to
Stock Option Agreements between the Employer and the Employee dated as of May
28, 1997 and _________, 1998. Such Securities Purchase and Stockholders
Agreement and Stock Option Agreements are referred to in this Agreement as the
"Other Agreements." The Employee shall be entitled to participate in current or
future equity incentive plans adopted by the Employer on terms no less favorable
than those offered to members of the Employer's Executive Committee or other
division Presidents of the Employer. Such grants may be awarded from time to
time in the sole discretion of the Employer's Executive Committee. In the event
of a Change in Control, the Employee shall become fully vested in all awards
heretofore or hereafter granted to him under all incentive compensation,
deferred compensation, stock option, stock appreciation rights, restricted
stock, phantom stock or similar plans maintained by the Employer, any contrary
provisions of such plans notwithstanding. Any such plans shall be deemed amended
to the extent necessary to carry out the intent expressed in the preceding
sentence.
(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. If the Employment Period is
terminated by the Employer or the Employee in connection with a Change in
Control (as defined), the Employee and relevant family members shall be entitled
to continue to participate in the Employer's welfare benefit plans at the
Employer's expense during three year period following the effective date of such
Change in Control (the "Change in Control Period").
(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.
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<PAGE> 15
(f) 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 the Services 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
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
material breach of any of his obligations under Sections 4 and 5, which is not
corrected within a reasonable period of time (determined in light of the cure,
if any, 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 or a substantial diminution in benefits provided under
this Agreement, (ii) a substantial diminution in the status, position and
responsibilities of the Employee or (iii) the
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<PAGE> 16
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. (i) Basic Termination
Payment. Upon the termination of the Employment Period at any time for any
reason, the Employer shall pay to the Employee or his estate the Base Salary and
Target Bonus earned to the date of death or termination for disability or Cause,
as the case may be. Any Target Bonus payments payable under this Section 3(e)(i)
shall be prorated if payable for periods of less than one year and shall be
payable regardless of whether the Employee is still in the employ of the
Employer on the date declared or payable.
(ii) Involuntary Termination Payment. Upon the termination of the
Employment Period at any time by the Employer without Cause or by the Employee
for Good Reason, the Employer shall pay to the Employee or his estate an amount
(in addition to amounts payable under Section 3(e)(i)) equal to one year's Base
Salary and Target Bonus, in each case, at the rate in effect on the date of
termination. Notwithstanding the foregoing, the Employee shall be entitled to no
payment under this Section 3(e)(ii) if he is entitled to receive a payment under
Section 3(e)(iii).
(iii) Change in Control Payment. Upon the termination of the Employment
Period (x) by the Employer upon or prior to a Change in Control, provided that
the Employee reasonably demonstrates that such termination occurred at the
request of a third party participating in, or otherwise in anticipation of or in
connection with, such Change in Control, (y) by the Employee with Good Reason or
by the Employer for any reason within one year after a Change in Control, or (z)
by the Employee for any reason on or after the first anniversary of a Change in
Control but no later than the 30th day after such first anniversary, then the
Employer shall pay to the Employee within five business days of such termination
an amount (in addition to amounts payable under Section 3(e)(i)) equal to the
sum of (A) the higher of (1) the annual Base Salary at the date of such
termination or (2) the annual Base Salary at the time of the Change in Control,
in each case multiplied by the number of years remaining in the Change in
Control Period, and (B) the Target Bonus at the annual rate in effect at the
date of such termination multiplied by the number of years remaining in the
Change in Control Period.
(iv) Change in Control Defined. "Change in Control" means the first to
occur of any of the following: (A) the sale (including by merger, consolidation
or sale of stock of subsidiaries or any other method) of all or substantially
all of the assets of the Employer and its consolidated subsidiaries (taken as a
whole) 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 Employer, (B) at any time prior to the
consummation of an initial public offering of Class A Common Stock of the
Employer or other common stock of the Employer having the voting power to elect
directors, a transaction (except pursuant to such initial public offering)
resulting in the Principal Shareholders owning, collectively, less than 50% of
the Combined Voting Power of the then outstanding shares of capital stock of the
Employer, (C) at any time after the consummation of an initial public offering
of Class A Common Stock of the
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<PAGE> 17
Employer or other common stock of the Employer 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 Employer's
stockholders of more than 35% of the Combined Voting Power of the then
outstanding shares of capital stock of the Employer, (D) individuals serving as
directors of the Employer on the date hereof and who were nominated to serve as
directors by one or more Principal Shareholders (together with any new directors
whose election was approved by (x) a vote of such individuals or directors whose
election was previously so approved or (y) Principal Shareholders holding a
majority of the aggregate voting power of the capital stock of the Employer held
by all Principal Shareholders) cease for any reason to constitute a majority of
the Board of Directors of the Employer, (E) the adoption of a plan relating to
the liquidation or dissolution of the Employer in connection with an equity
investment or sale or a business combination transaction or (F) any other event
or transaction that the Board of Directors of the Employer deems to be a Change
in Control. "Combined Voting Power" with respect to capital stock of the
Employer 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 Employer. "Principal Shareholders" means Ann H. Gaither, William H.
Gaither, Susan G. Jones and Thomas R. Jones 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, limited liability company or other entity all of the capital stock
or other ownership interests of which are owned by any of the foregoing.
(v) Other Provisions Applicable to Payments. Any payment due under
Section 3(e)(iii) shall be limited to the extent the Board of Directors of the
Employer, in its good faith determination, deems necessary to preserve the
deductibility by the Employer of such payment pursuant to Section 280G of the
Internal Revenue Code of 1986, as amended, or any successor provision of any
successor statute. The Employer may elect to make any payments due under Section
3(e)(ii) in a lump sum or as they would have been paid had the Employment Period
not been terminated. Unless otherwise specifically stated to be payable over a
period of time, all amounts due under this Section 3 shall be payable on demand
by the Employee and shall bear interest (compounded annually) for the period
from and including the date payable to but excluding the date paid at a rate per
annum equal to the sum of (x) four percent and (y) the rate publicly announced
by BankBoston, N.A. as its "prime rate."
(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.
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<PAGE> 18
SECTION 4. Confidentiality; Non-Disclosure.
(a) (i) Non-Disclosure Obligation. Except as provided in this Section
4(a), the Employee shall not disclose any Confidential Information of the
Employer or any 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 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,
purchasers, 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 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) Compulsory Disclosures. If the Employee is requested or (in the
opinion of his counsel) required by law or judicial order to disclose any
Confidential 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 Information. If, failing the entry of a protective
order or the receipt of a waiver hereunder, the Employee is, in the opinion of
his counsel, compelled by law to disclose a portion of the Confidential
Information, the Employee may disclose to the relevant tribunal without
liability hereunder only that portion of the Confidential 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 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) Assignment of Inventions. 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,
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<PAGE> 19
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 related patents, trademarks or copyrights 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 Information and acknowledges the
highly competitive nature of the business of the Employer and its affiliates and
subsidiaries and accordingly agrees that, in consideration of the premises
contained herein, he will not, during the Employment Period and for one year
after the date of termination of the Employment Period, for any reason
whatsoever, either individually or as an officer, director, stockholder, member,
partner, agent or principal of another business firm, (x) 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, (y) assist others in engaging in any
competitive business in the manner described in clause (x), or (z) 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. 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.
(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
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<PAGE> 20
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 or for any breach or threatened breach of any other provision of this
Agreement.
(c) Withholding. The Employer shall withhold such amounts from any
compensation or other benefits payable to the Employee under this Agreement 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 assign or transfer this Agreement or any rights or
obligations hereunder without the prior written consent of the other; provided,
that the Employer may assign this Agreement and its rights and obligations
hereunder to any transferee of all or substantially all of the Business (whether
by merger, consolidation, sale of stock or assets or otherwise) without the
Employee's consent. This Agreement is for the sole benefit of the parties hereto
and their respective successors and permitted assigns and not for the benefit
of, or enforceable by, any third party.
(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 Employer, 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 Employer and (iii) be subject to any limitations
imposed from time to time under applicable law.
(f) Dispute Resolution; Attorney's Fees. In making any determination as
to the existence of Cause for termination or the occurrence of a Change in
Control, the Board of Directors shall, subject to its members' fiduciary duties,
abide by the recommendation of a committee comprising only members who were
nominated by one or more Principal Shareholders. 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 an arbitrator to be
determined by mutually agreeable means. In such
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<PAGE> 21
event, each of the Employer and the Employee shall have the right to full
discovery. The Employer shall bear all costs of the arbitrator in any such
proceeding, and the Employee shall have the right, in addition to any other
relief granted by such arbitrator, to recover reasonable attorneys' fees;
provided, however, that the Employer shall have the right, in any dispute other
than a dispute relating to the occurrence of a Change in Control or the payment
of an amount under Section 3(e)(iii), in addition to any other relief granted by
such arbitrator, to recover reasonable attorneys' 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 judgment by such arbitrator may be
entered into any court with jurisdiction over the dispute.
(g) Acknowledgment. The Employee acknowledges that he has been advised
by the Employer to seek the advice of independent counsel prior to reaching
agreement with the Employer on any of the terms of this Agreement. The parties
agree that no rule of construction shall apply to this Agreement which construes
ambiguous language in favor of or against any party by reason of that party's
role in drafting the Agreement.
(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: President
Facsimile: (704) 423-8987
with a copy to:
Howard, Smith & Levin LLP
1330 Avenue of the Americas
New York, New York 10019
Attention: Scott F. Smith
Facsimile: (212) 841-1010
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<PAGE> 22
If to the Employee:
J. Michael Gaither
315 West 7th Street
Newton, North Carolina 28658
Facsimile: (828) 466-2885
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.
(j) 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. Except as otherwise expressly
provided in this Agreement: (i) any reference in this Agreement to any
agreement, document or instrument includes all permitted supplements and
amendments; (ii) a reference to a law includes any amendment or modification to
such law and any rules or regulations issued thereunder; (iii) the words
"include," "included" and "including" are not limiting; and (iv) a reference to
a person or entity includes its permitted successors and assigns.
(k) 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 and the Other Agreements contain the entire
agreement among the parties with respect to the transactions contemplated by
this Agreement and the Other Agreements and supersede all other or prior written
or oral agreements or understandings among the parties with respect to the
Employee's employment by the Employer. The Employment Agreement, dated as of May
20, 1998, between the Employer and the Employer is expressly superseded and
hereby amended and restated in its entirety by this Agreement.
(L) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NORTH CAROLINA.
(M) 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 WESTERN DISTRICT OF NORTH CAROLINA
SITTING IN MECKLENBURG COUNTY 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
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<PAGE> 23
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.
EACH OF THE PARTIES HERETO HEREBY CONSENTS TO SERVICE OF PROCESS BY NOTICE IN
THE MANNER SPECIFIED IN SECTION 6(I) AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO SERVICE
OF PROCESS IN SUCH MANNER.
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<PAGE> 24
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: William H. Gaither
Title:
/s/ J. Michael Gaither
----------------------------
J. Michael Gaither
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<PAGE> 25
EXHIBIT 10.32(C)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of January
1, 1999 (the "Agreement"), between The J. H. Heafner Company,
Inc., a North Carolina corporation (the "Employer"), and
Donald C. Roof (the "Employee").
The Employer and the Employee are parties to an Employment
Agreement, dated as of July 1, 1998, and desire to amend and restate such
Employment Agreement in its entirety. The Employer desires to continue to retain
the Employee to supply services to the Employer, and the Employee desires to
continue 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) Employment by Employer. The Employer hereby employs
the Employee, and the Employee hereby agrees to be employed by the Employer, as
Senior Vice President and Chief Financial Officer 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 and
duties consistent with his title and position (the "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) Employment Period. 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 $243,000 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 February 1.
(b) Additional Compensation. As additional compensation
for the Services, the Employer shall pay to the Employee (i) an amount equal to
the greater of (x) annual fixed bonus payments (the "Fixed Bonus") equal to 28%
of the Employee's Base
<PAGE> 26
Salary for such year, payable on or around February 1 of the following year, or
(y) annual target bonus payments (as defined in the Employer's Executive Bonus
Plan) (the "Target Bonus"), payable on or around February 1 of the following
year, and (ii) other incentive compensation as the Board of Directors of the
Employer determines in its sole discretion to pay the Employee. The Employee
acknowledges that the Employer may terminate or modify its Executive Bonus Plan
and other incentive plans (excluding the Fixed Bonus payable hereunder) 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. The Employee
purchased shares of Class A Common Stock of the Employer pursuant to a
Securities Purchase and Stockholders Agreement, dated as of May 28, 1997,
between the Employer and the Employee, and was granted options (pursuant to the
Employer's 1997 Stock Option Plan) to acquire shares of Class A Common Stock of
the Employer, pursuant to Stock Option Agreements between the Employer and the
Employee dated as of May 28, 1997 and __________, 1998. Such Securities Purchase
and Stockholders Agreement and Stock Option Agreements are referred to in this
Agreement as the "Other Agreements." The Employee shall be entitled to
participate in current or future equity incentive plans adopted by the Employer
on terms no less favorable than those offered to members of the Employer's
Executive Committee or other division Presidents of the Employer. Such grants
may be awarded from time to time in the sole discretion of the Employer's Board
of Directors. In the event of a Change in Control, the Employee shall become
fully vested in all awards heretofore or hereafter granted to him under all
incentive compensation, deferred compensation, stock option, stock appreciation
rights, restricted stock, phantom stock or similar plans maintained by the
Employer, any contrary provisions of such plans notwithstanding. Any such plans
shall be deemed amended to the extent necessary to carry out the intent
expressed in the preceding sentence.
(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. If the Employment Period is terminated by the Employer or the
Employee in connection with a Change in Control (as defined), the Employee and
relevant family members shall be entitled to continue to participate in the
Employer's welfare benefit plans at the Employer's expense during three year
period following the effective date of such Change in Control (the "Change in
Control Period").
(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.
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<PAGE> 27
(f) 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 the Services 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 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
material breach of any of his obligations under Sections 4 and 5, which is not
corrected within a reasonable period of time (determined in light of the cure,
if any, 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 or a substantial diminution
in benefits provided under this Agreement, (ii) a substantial diminution in the
status, position and responsibilities of the Employee or (iii) the
-3-
<PAGE> 28
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. (i) Basic
Termination Payment. Upon the termination of the Employment Period at any time
for any reason, the Employer shall pay to the Employee or his estate the Base
Salary and Target Bonus earned to the date of death or termination for
disability or Cause, as the case may be. Any Target Bonus payments payable under
this Section 3(e)(i) shall be prorated if payable for periods of less than one
year and shall be payable regardless of whether the Employee is still in the
employ of the Employer on the date declared or payable.
(ii) Involuntary Termination Payment. Upon the termination
of the Employment Period at any time by the Employer without Cause or by the
Employee for Good Reason, the Employer shall pay to the Employee or his estate
an amount (in addition to amounts payable under Section 3(e)(i)) equal to one
year's Base Salary and Target Bonus, in each case, at the rate in effect on the
date of termination. Notwithstanding the foregoing, the Employee shall be
entitled to no payment under this Section 3(e)(ii) if he is entitled to receive
a payment under Section 3(e)(iii).
(iii) Change in Control Payment. Upon the termination of
the Employment Period (x) by the Employer upon or prior to a Change in Control,
provided that the Employee reasonably demonstrates that such termination
occurred at the request of a third party participating in, or otherwise in
anticipation of or in connection with, such Change in Control, (y) by the
Employee with Good Reason or by the Employer for any reason within one year
after a Change in Control, or (z) by the Employee for any reason on or after the
first anniversary of a Change in Control but no later than the 30th day after
such first anniversary, then the Employer shall pay to the Employee within five
business days of such termination an amount (in addition to amounts payable
under Section 3(e)(i)) equal to the sum of (A) the higher of (1) the annual Base
Salary at the date of such termination or (2) the annual Base Salary at the time
of the Change in Control, in each case multiplied by the number of years
remaining in the Change in Control Period, and (B) the Target Bonus at the
annual rate in effect at the date of such termination multiplied by the number
of years remaining in the Change in Control Period.
(iv) Change in Control Defined. "Change in Control" means
the first to occur of any of the following: (A) the sale (including by merger,
consolidation or sale of stock of subsidiaries or any other method) of all or
substantially all of the assets of the Employer and its consolidated
subsidiaries (taken as a whole) 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 Employer, (B) at
any time prior to the consummation of an initial public offering of Class A
Common Stock of the Employer or other common stock of the Employer having the
voting power to elect directors, a transaction (except pursuant to such initial
public offering) resulting in the Principal Shareholders owning, collectively,
less than 50% of the Combined Voting Power of the then outstanding shares of
capital stock of the Employer, (C) at any time after the consummation of an
initial public offering of Class A Common Stock of the
-4-
<PAGE> 29
Employer or other common stock of the Employer 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 Employer's
stockholders of more than 35% of the Combined Voting Power of the then
outstanding shares of capital stock of the Employer, (D) individuals serving as
directors of the Employer on the date hereof and who were nominated to serve as
directors by one or more Principal Shareholders (together with any new directors
whose election was approved by (x) a vote of such individuals or directors whose
election was previously so approved or (y) Principal Shareholders holding a
majority of the aggregate voting power of the capital stock of the Employer held
by all Principal Shareholders) cease for any reason to constitute a majority of
the Board of Directors of the Employer, (E) the adoption of a plan relating to
the liquidation or dissolution of the Employer in connection with an equity
investment or sale or a business combination transaction or (F) any other event
or transaction that the Board of Directors of the Employer deems to be a Change
in Control. "Combined Voting Power" with respect to capital stock of the
Employer 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 Employer. "Principal Shareholders" means Ann H. Gaither, William H.
Gaither, Susan G. Jones and Thomas R. Jones 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, limited liability company or other entity all of the capital stock
or other ownership interests of which are owned by any of the foregoing.
(v) Other Provisions Applicable to Payments. Any payment
due under Section 3(e)(iii) shall be limited to the extent the Board of
Directors of the Employer, in its good faith determination, deems necessary to
preserve the deductibility by the Employer of such payment pursuant to Section
280G of the Internal Revenue Code of 1986, as amended, or any successor
provision of any successor statute. The Employer may elect to make any payments
due under Section 3(e)(ii) in a lump sum or as they would have been paid had the
Employment Period not been terminated. Unless otherwise specifically stated to
be payable over a period of time, all amounts due under this Section 3 shall be
payable on demand by the Employee and shall bear interest (compounded annually)
for the period from and including the date payable to but excluding the date
paid at a rate per annum equal to the sum of (x) four percent and (y) the rate
publicly announced by BankBoston, N.A. as its "prime rate."
(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.
-5-
<PAGE> 30
SECTION 4. Confidentiality; Non-Disclosure.
(a) (i) Non-Disclosure Obligation. Except as provided in
this Section 4(a), the Employee shall not disclose any Confidential Information
of the Employer or any 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 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,
purchasers, 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 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) Compulsory Disclosures. If the Employee is requested
or (in the opinion of his counsel) required by law or judicial order to disclose
any Confidential 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 Information. If, failing the entry of a protective
order or the receipt of a waiver hereunder, the Employee is, in the opinion of
his counsel, compelled by law to disclose a portion of the Confidential
Information, the Employee may disclose to the relevant tribunal without
liability hereunder only that portion of the Confidential 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 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) Assignment of Inventions. 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,
-6-
<PAGE> 31
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 related patents, trademarks or copyrights 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 Information and
acknowledges the highly competitive nature of the business of the Employer and
its affiliates and subsidiaries and accordingly agrees that, in consideration of
the premises contained herein, he will not, during the Employment Period and for
one year after the date of termination of the Employment Period, for any reason
whatsoever, either individually or as an officer, director, stockholder, member,
partner, agent or principal of another business firm, (x) 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, (y) assist others in engaging in any
competitive business in the manner described in clause (x), or (z) 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. 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.
(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
-7-
<PAGE> 32
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 or for any breach or threatened breach of any other provision of this
Agreement.
(c) Withholding. The Employer shall withhold such amounts
from any compensation or other benefits payable to the Employee under this
Agreement 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 assign or transfer this Agreement or any
rights or obligations hereunder without the prior written consent of the other;
provided, that the Employer may assign this Agreement and its rights and
obligations hereunder to any transferee of all or substantially all of the
Business (whether by merger, consolidation, sale of stock or assets or
otherwise) without the Employee's consent. This Agreement is for the sole
benefit of the parties hereto and their respective successors and permitted
assigns and not for the benefit of, or enforceable by, any third party.
(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 Employer, 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 Employer and (iii) be subject to any limitations
imposed from time to time under applicable law.
(f) Dispute Resolution; Attorney's Fees. In making any
determination as to the existence of Cause for termination or the occurrence of
a Change in Control, the Board of Directors shall, subject to its members'
fiduciary duties, abide by the recommendation of a committee comprising only
members who were nominated by one or more Principal Shareholders. 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 an
arbitrator to be determined by mutually agreeable means. In such
-8-
<PAGE> 33
event, each of the Employer and the Employee shall have the right to full
discovery. The Employer shall bear all costs of the arbitrator in any such
proceeding, and the Employee shall have the right, in addition to any other
relief granted by such arbitrator, to recover reasonable attorneys' fees;
provided, however, that the Employer shall have the right, in any dispute other
than a dispute relating to the occurrence of a Change in Control or the payment
of an amount under Section 3(e)(iii), in addition to any other relief granted by
such arbitrator, to recover reasonable attorneys' 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 judgment by such arbitrator may be
entered into any court with jurisdiction over the dispute.
(g) Acknowledgment. The Employee acknowledges that he has
been advised by the Employer to seek the advice of independent counsel prior to
reaching agreement with the Employer on any of the terms of this Agreement. The
parties agree that no rule of construction shall apply to this Agreement which
construes ambiguous language in favor of or against any party by reason of that
party's role in drafting the Agreement.
(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: President
Facsimile: (704) 423-8987
with a copy to:
Howard, Smith & Levin LLP
1330 Avenue of the Americas
New York, New York 10019
Attention: Scott F. Smith
Facsimile: (212) 841-1010
-9-
<PAGE> 34
If to the Employee:
Donald C. Roof
6705 Seton House Lane
Charlotte, North Carolina 28277
Facsimile: (704) 846-2665
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.
(j) 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. Except as
otherwise expressly provided in this Agreement: (i) any reference in this
Agreement to any agreement, document or instrument includes all permitted
supplements and amendments; (ii) a reference to a law includes any amendment or
modification to such law and any rules or regulations issued thereunder; (iii)
the words "include," "included" and "including" are not limiting; and (iv) a
reference to a person or entity includes its permitted successors and assigns.
(k) 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 and the Other Agreements contain the
entire agreement among the parties with respect to the transactions contemplated
by this Agreement and the Other Agreements and supersede all other or prior
written or oral agreements or understandings among the parties with respect to
the Employee's employment by the Employer. The Employment Agreement, dated as of
July 1, 1998, between the Employer and the Employer is expressly superseded and
hereby amended and restated in its entirety by this Agreement.
(L) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NORTH
CAROLINA.
(M) 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 WESTERN DISTRICT OF
NORTH CAROLINA SITTING IN MECKLENBURG COUNTY 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
-10-
<PAGE> 35
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.
EACH OF THE PARTIES HERETO HEREBY CONSENTS TO SERVICE OF PROCESS BY NOTICE IN
THE MANNER SPECIFIED IN SECTION 6(I) AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO SERVICE
OF PROCESS IN SUCH MANNER.
-11-
<PAGE> 36
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/ Donald C. Roof
--------------------------------------
Donald C. Roof
-12-
<PAGE> 1
EXHIBIT 11.1
The J.H. Heafner Company, Inc.
Computation of Earnings Per Share
(Unaudited)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Average shares outstanding during the period 6,062,322 4,736,501 6,826,976
Incremental shares under stock options and warrants computed
under the treasury stock method using the average market
price of issuer's stock during the period 1,187,929 663,144 -
----------------- ----------------- ---------------
Total shares for diluted EPS 7,250,251 5,399,645 6,826,976
================= ================= ===============
Income applicable to common shareholders:
Loss from operations before extraordinary charge $ (2,508,000) - -
=================
Net income (loss)
-
$ (4,724,000) $ (14,000) $ 612,000
================= ================= ===============
(Loss) income per basic common share:
Loss from operations before extraordinary charge (0.41) - -
Net income (loss) $ (0.78) $ (0.00) $ 0.09
================= ================= ===============
Income (loss) per diluted share:
Loss from operations before extraordinary charge (0.35) - -
Net income (loss) $ (0.65) $ (0.00) $ 0.09
================= ================= ===============
</TABLE>
<PAGE> 1
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
(Amounts in thousands, except ratio amounts)
<TABLE>
<CAPTION>
Twelve months Twelve months Twelve months Twelve months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1998 1997 1996 1995
(unaudited) (unaudited) (unaudited) (unaudited)
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Consolidated pretax income (loss) from
continuing operations (2,219) (253) 1,051 690
Interest 13,460 4,842 1,465 1,308
Interest portion of rent expense 6,474 2,985 795 661
Amortization of Deferred Debt Issuance
Costs and Deferred Financing Costs 733 291 -- --
Preferred stock dividend requirements of
majority-owned subsidiaries -- -- -- --
------- ------ ----- -----
EARNINGS 18,448 7,865 3,311 2,659
======= ====== ===== =====
Interest 13,460 4,842 1,465 1,308
Interest portion of rent expense 6,474 2,985 795 661
Amortization of Deferred Debt Issuance
Costs and Deferred Financing Costs 733 291 -- --
Preferred stock dividend requirements of
majority-owned subsidiaries -- -- -- --
------- ------ ----- -----
FIXED CHARGES 20,667 8,118 2,260 1,969
======= ====== ===== =====
RATIO OF EARNINGS TO FIXED CHARGES -- -- 1.47 1.35
======= ====== ===== =====
</TABLE>
<PAGE> 1
EXHIBIT 21.1
THE J.H. HEAFNER COMPANY, INC.
Corporate Structure Chart
<TABLE>
<CAPTION>
<S> <C> <C> <C>
J. H. Heafner Company, Inc.*
--------------------------------------------------------------------
Oliver & Winston+ The Speed Merchant, Inc.+ California Tire Company, Inc.+
d/b/a Winston Tires d/b/a/ Competition Parts Warehouse
----------------------------------
Phoenix Racing, Inc.+
</TABLE>
* Incorporated in the state of North Carolina
+ Incorporated in the state of California
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement, relating to the Exchange
Offer of $150,000,000 Series D 10% Senior Notes Due 2008 for any and all
outstanding Series B and Series C 10% Senior Notes Due 2008 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
March 30, 1999
<PAGE> 1
EXHIBIT 23.2
Consent of Ersnt & 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 on Form S-4 and related Prospectus of J.H. Heafner Company, Inc. for
the registration of the $150,000,000 10% Series D Senior Notes Due 2008.
/s/ Ernst & Young LLP
Raleigh, North Carolina
March 29, 1999
<PAGE> 1
EXHIBIT 23.3
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 references to
our firm under the headings "Selected Historical Financial Data" and "Experts"
in the prospectus.
/s/ KPMG LLP
Mountain View, California
March 30, 1999
<PAGE> 1
EXHIBIT 23.4
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,
March 30, 1999.
<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)
State of North Carolina
(State or other jurisdiction of incorporation or organization)
56-0754594
(I.R.S. employer identification no.)
William H. Gaither
President and Chief Executive Officer
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)
------------------------------------------------
1. General information. Furnish the following information as to the trustee:
<PAGE> 2
(a) Name and address of each examining or supervising authority to which it is
subject
-----------------------------------------------------------------
Name Address
------------------------------------------------------------------
Federal Reserve Bank of Richmond, 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. A copy of the certificate of authority of the trustee to commence business,
if not contained in the Articles of Association.
<PAGE> 3
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 __th day of
March, 1999.
FIRST UNION NATIONAL BANK
(trustee)
By:
----------------------------
Its:
--------------------------
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, Inc.
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:
------------------------------
Name:
--------------------------
Title:
-----------------------
Dated: March ___, 1999
4
<PAGE> 5
<TABLE>
<S> <C>
Legal Title of Bank: First Union National Bank Call Date: 6/30/98 ST-BK: 37-0351 FFIEC 031
Address: Two First Union Center Page RC-1
City, State, Zip: Charlotte, NC 28288-0201
FDIC Certificate #: 33869
-----
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 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>
ASSETS ///////////////
1. Cash and balances due from depository institutions (from
Schedule RC-A): ///////////////
a. Noninterest-bearing balances and currency and coin (1) 0081 12,220,276 1.a.
b. Interest-bearing balances (2) 0071 2,533,262 1.b.
2. Securities: ///////////////
a. Held-to-maturity securities (from Schedule RC-B, column A) 1754 1,891,097 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) 1773 36,783,824 2.b.
3. Federal funds sold and securities purchased under agreements to
resell 1350 8,034,320 3.
4. Loans and lease financing receivables ///////////////
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 133,283,216 /////////////// 4.a.
b. LESS: Allowance for loan and lease losses RCFD 3123 1,810,465 /////////////// 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) 2125 131,472,751 4.d.
5. Trading assets (from Schedule RC-D 3545 7,042,399 5.
6. Premises and fixed assets (including capitalized leases) 2145 3,165,970 6.
7. Other real estate owned (from Schedule RC-M) 2150 128,223 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M) 2130 323,890 8.
9. Customers' liability to this bank on acceptances outstanding 2155 1,268,425 9.
10. Intangible assets (from Schedule RC-M) 2143 5,200,418 10.
11. Other assets (from Schedule RC-F) 2160 12,418,468 11.
12. Total assets (sum of items 1 through 11) 2170 222,483,323 12.
</TABLE>
- ----------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 6
<TABLE>
<S> <C>
Legal Title of Bank: First Union National Bank Call Date: 6/30/98 ST-BK: 37-0351 FFIEC 031
Address: Two First Union Center Page RC-1
City, State, Zip: Charlotte, NC 28288-0201
FDIC Certificate #: 33869
-----
</TABLE>
Schedule RC--Continued
<TABLE>
<CAPTION>
Dollar Amountin ThousandsBil Mil Thou
--------------------------------------
<S> <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 137,007,272 13.a.
(1) Noninterest-bearing (1) RCON 6631 25,154,252 ////////////////// 13.a.(1)
(2) Interest-bearing RCON 6636 110,853,020 ////////////////// 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries,
and IBFs (from Schedule RC-E, //////////////////
part II) RCFN 2200 10,021,556 13.b.
(1) Noninterest-bearing RCFN 6631 477,500 ////////////////// 13.b.(1)
(2) Interest-bearing RCFN 6636 9,544,056 ////////////////// 13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase. RCFD 2800 19,607,885 14.
15. a .Demand notes issued to the U.S. Treasury RCON 2840 389,283 15.a.
b .Trading liabilities (from Schedule RC-D) RCFD 3548 5,075,053 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 14,089,286 16.a.
b. With a remaining maturity of more than one year through three years RCFD A547 2,371,510 16.b.
c. With a remaining maturity of more than three years RCFD A548 767,010 16.c.
17. Not applicable //////////////////
18. Bank's liability on acceptances executed and outstanding RCFD 2920 1,290,934 18.
19. Subordinated notes and debentures (2) RCFD 3200 4,045,123 19.
20. Other liabilities (from Schedule RC-G) RCFD 2930 9,151,594 20.
21. Total liabilities (sum of items 13 through 20) RCFD 2948 203,806,506 21.
22. Not applicable //////////////////
EQUITY CAPITAL //////////////////
23. Perpetual preferred stock and related surplus RCFD 3838 160,540 23.
24. Common stock RCFD 3230 454,543 24.
25. Surplus (exclude all surplus related to preferred stock) RCFD 3839 13,206,325 25.
26. a. Undivided profits and capital reserves RCFD 3632 4,441,457 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities RCFD 8434 417,625 26.b.
27. Cumulative foreign currency translation adjustments RCFD 3284 (3,673) 27.
28. Total equity capital (sum of items 23 through 27) RCFD 3210 18,676,017 28.
29. Total liabilities and equity capital (sum of items 21 and 28) RCFD 3300 222,483,323 29.
Memorandum
To be reported only with the March Report of Condition.
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 1997 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
NARRATIVE DESCRIPTION OF BUSINESS
Heafner-ITCO division. Heafner acquired ITCO on May 20, 1998. Following the
merger, ITCO's subsidiaries were merged into ITCO, and ITCO was merged into
Heafner and became the Heafner-ITCO division. Founded in 1962, ITCO is one of
the largest wholesale distributors of tires, custom wheels, equipment and tire
dealer supplies in the Southeast in terms of sales and number of tires
distributed. On a pro forma basis, the Heafner-ITCO division had net sales for
fiscal 1998 of approximately $627.2 million and shipped more than 8.4 million
passenger and light truck tires and 285,000 medium truck tires. Heafner-ITCO's
products include flag brands manufactured by Michelin, including B.F. Goodrich
and Uniroyal brands, Bridgestone/Firestone and Dunlop. House brands include
Monarch manufactured for Heafner by Kelly-Springfield, a division of Goodyear as
well as other house brands manufactured by Michelin, Bridgestone/Firestone,
Kelly-Springfield and Dunlop. Private label products include Regal Tires,
Winston tires, Pacer custom wheels and custom wheels manufactured by Ultra and
private-branded under the ICW name. Tire sales represented approximately 83.7%
of the Heafner-ITCO division's pro forma net sales in fiscal 1998.
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 fifth
largest independent tire dealer in the country in 1998, based on the number of
company-owned retail stores. Winston sold more than 1.2 million tires as well as
other automotive products in 1998 through its chain if 189 retail stores in
California and Arizona for net sales in 1998 in excess of 149.8 million. Each
Winston store offers customers multiple choices of flag brands manufactured by
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 61.7% of Winston's fiscal 1998 net sales.
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 20 retail stores in California and Arizona. Of CPW's
retail stores, 15 sell flag brand high performance as well as regular grade
tires, wheels and related automotive products, while the remaining five retail
stores sell only automotive parts. On a pro forma basis, CPW's net sales for
fiscal 1998 were approximately $146.7 million. CPW shipped more than 1.9 million
passenger and light truck tires in fiscal 1998. 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 one of the largest distributors of high
performance tires in California. CPW also sells parts, wheels, and equipment
built by nationally recognized manufacturers. Tire sales represented
approximately 72.8% of CPW's total pro forma sales for fiscal 1998. Sales of
high performance tires represented approximately 31% of CPW's total net sales
for the same period.
<PAGE> 8
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
By-Laws, 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 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
<PAGE> 9
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 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
2
<PAGE> 10
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 Non-Cumulative 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
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
3
<PAGE> 11
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
Non-Cumulative 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 Non-Cumulative 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,
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
4
<PAGE> 12
redemption shall not affect the validity of the proceedings for the
redemption of any other shares of Non-Cumulative 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 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
5
<PAGE> 13
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 Non-Cumulative Preferred Stock, the remaining assets of
the Association shall be distributed among the holders of junior
stock, according to their 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
6
<PAGE> 14
outstanding shares of Non-cumulative 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 Non-Cumulative 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.
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.
7
<PAGE> 15
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 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)
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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 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.
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(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.
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.
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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.
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BY-LAWS OF
FIRST UNION NATIONAL BANK
CHARTER NO. 22693
AS RESTATED EFFECTIVE FEBRUARY 26, 1998
<PAGE> 20
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 shareholders, such
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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.
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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 number
may adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice.
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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
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.
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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.
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
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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 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.
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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 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
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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.
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
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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.
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
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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 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
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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> 31
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 resolutions shall be
13
<PAGE> 32
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
14
<PAGE> 33
be relocated 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE J.H.
HEAFNER COMPANY, INC. CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001068152
<NAME> J.H. HEAFNER COMPANY, INC.
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 6,648 2,502 0
<SECURITIES> 0 0 0
<RECEIVABLES> 111,691 32,209 0
<ALLOWANCES> 2,220 400 0
<INVENTORY> 133,221 41,530 0
<CURRENT-ASSETS> 262,659 79,028 0
<PP&E> 55,652 35,121 0
<DEPRECIATION> 12,850 9,130 0
<TOTAL-ASSETS> 430,821 146,508 0
<CURRENT-LIABILITIES> 206,097 58,446 0
<BONDS> 160,400 30,130 0
11,353 11,500 0
0 0 0
<COMMON> 51 37 0
<OTHER-SE> 18,073 7,622 0
<TOTAL-LIABILITY-AND-EQUITY> 430,821 146,508 0
<SALES> 713,672 311,839 190,535
<TOTAL-REVENUES> 713,672 311,839 190,535
<CGS> 533,243 221,060 158,880
<TOTAL-COSTS> 702,597 308,382 188,540
<OTHER-EXPENSES> (166) (1,131) (521)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 13,460 4,842 1,465
<INCOME-PRETAX> (2,219) (254) 1,051
<INCOME-TAX> 289 (240) 439
<INCOME-CONTINUING> (2,508) (14) 612
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> (2,216) 0 0
<CHANGES> 0 0 0
<NET-INCOME> (4,724) (14) 612
<EPS-PRIMARY> (0.78) 0.00 0.09
<EPS-DILUTED> (0.65) 0.00 0.09
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
THE J.H. HEAFNER COMPANY, INC.
OFFER TO EXCHANGE ALL OF ITS OUTSTANDING
10% SENIOR NOTES DUE 2008, SERIES B AND SERIES C
FOR UP TO $150,000,000 AGGREGATE PRINCIPAL AMOUNT OF
ITS 10% SENIOR NOTES DUE 2008, SERIES D
PURSUANT TO THE PROSPECTUS DATED __________, 1999
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON ________, 1999 UNLESS EXTENDED (THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
The Exchange Agent for the Exchange Offer is:
FIRST UNION NATIONAL BANK
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission Hand or Overnight Delivery:
(REGISTERED OR CERTIFIED MAIL RECOMMENDED) Number: First Union National Bank
First Union National Bank 704-590-7628 Corporate Trust Reorganization
Corporate Trust Reorganization (FOR ELIGIBLE 1525 West W.T. Harris Boulevard, 3C3
1525 West W.T. Harris Boulevard, 3C3 INSTITUTIONS ONLY) Charlotte, North Carolina 28262
Charlotte, North Carolina 28288 Attention: Mike Klotz
Attention: Mike Klotz Confirm by Telephone:
704-590-7408
</TABLE>
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.'S
10% SENIOR NOTES DUE 2008, SERIES B OR SERIES C (THE "OLD 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
("Holders") of Old Notes if: (i) certificates representing Old Notes are to be
physically delivered to the Exchange Agent by such Holders; (ii) tender of Old
Notes is to be made by book-entry transfer to the Exchange Agent's account at
The Depository Trust Company ("DTC") pursuant to the procedures set forth in the
Prospectus, dated ______, 1999 (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 Old Notes or (iii) delivery of Old
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
DTC.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE> 2
Ladies and Gentlemen:
By execution hereof, the undersigned acknowledges receipt of the
Prospectus, dated ______, 1999 (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 the Company's offer to exchange (the "Exchange
Offer") $1,000 principal amount of its 10% Senior Notes due 2008, Series D (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, Series B and Series C (the "Old Notes").
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of Old Notes
indicated below. Subject to, and effective upon, the acceptance for exchange of
the Old 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 Old 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 Old 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 Old Notes and all evidences of
transfer and authenticity to, or transfer ownership of, such Old Notes on the
account books maintained by DTC to, or upon the order of, the Company, (ii)
present such Old 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 Old 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 Old Notes tendered hereby
and to acquire Exchange Notes issuable upon the exchange of such tendered Old
Notes, and that, when the same are accepted for exchange, the Company will
acquire good and unencumbered title to the tendered Old 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 Old Notes tendered hereby or transfer ownership of such Old
Notes on the account books maintained by DTC.
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 Old Notes tendered hereby and, in such event, the Old
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
OLD 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 UNDERSIGNED UNDERSTANDS AND
AGREES THAT THE COMPANY RESERVES THE RIGHT NOT TO ACCEPT TENDERED OLD 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 owner, represents
(or, if the undersigned is a broker, dealer, commercial bank, trust company or
other nominee, represents that it has received representations from each
beneficial owner of the Old Notes tendered hereby stating) that, (i) the
Exchange Notes to be acquired by it in connection with the Exchange Offer are
being acquired in the ordinary course of its business, (ii) it is not engaged
in, does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the Exchange Notes, (iii) if it
is participating in the Exchange Offer for the purpose of distributing the
Exchange Notes it cannot rely on the interpretations of the staff of the
Commission discussed in the Prospectus under the caption "The Exchange
Offer--Registration and
-2-
<PAGE> 3
Prospectus Delivery Requirements" and may only sell the Exchange Notes acquired
by it pursuant to a registration statement containing the selling security
holder information required by Item 507 of Regulation S-K under the Securities
Act, (iv) it is not an "affiliate," as defined under Rule 405 of the Securities
Act, of the Company or of Parent and (v) it is not a broker-dealer who purchased
Series C Notes directly from the Company for resale pursuant to Rule 144A under
the Securities Act. If it is a broker-dealer, it further represents that (a) if
it is tendering Series C Notes in the Exchange Offer: (i) it acquired such
Series C Notes as a result of market-making activities or other trading
activities and (ii) will deliver a prospectus in connection with any resale of
Exchange Notes acquired in the Exchange Offer for such Series C Notes, and (b)
if it is tendering Series B Notes which it received in exchange for the
Company's 10% Senior Notes Due 2008, Series A: (i) it acquired such Series A
Notes as a result of market-making activities or other trading activities and
(ii) will deliver a prospectus in connection with any resale of Exchange Notes
acquired in the Exchange Offer for such Series B Notes. In either case, by so
acknowledging and by delivering a prospectus, it will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
Each broker-dealer making the representations contained in the above
paragraph (a "Participating Broker-Dealer"), by tendering the Series B or Series
C 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 well as any notices from the
Company to suspend and resume use of the Prospectus. By tendering its Old 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 Old 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 Old 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.
See "The Exchange Offer--Withdrawal of Tenders" in the Prospectus.
The undersigned understands that by tendering Old 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 Old 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 Old
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.
-3-
<PAGE> 4
The undersigned understands that the delivery and surrender of the Old
Notes is not effective, and the risk of loss of the Old 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 Old
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 Old 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 Old Notes delivered by book-entry transfer,
by credit to the account at DTC). Similarly, unless otherwise indicated herein
in the box entitled "Special Delivery Instructions," the undersigned hereby
requests that any Old Notes representing principal amounts not tendered or not
accepted for exchange and Exchange Notes be delivered to the 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 Old 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 Old Notes so tendered.
In order to properly complete this Letter of Transmittal, a Holder must
(i) complete the box entitled "Description of Old Notes," (ii) complete the box
entitled "Method of Delivery" by checking one of the three boxes therein and
supplying the appropriate information, (iii) if such Holder is a Participating
Broker-Dealer and wishes to receive additional copies of the Prospectus for
delivery in connection with resales of Exchange Notes, complete the box entitled
"For Participating Broker-Dealers Only," (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 Old Notes that are tendering by book-entry transfer to the
Exchange Agent's account at DTC can execute the tender through DTC's Automated
Tender Program ("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 Old Notes pursuant to the Exchange Offer
and (i) certificates representing such Old Notes are not lost but are not
immediately available, (ii) time will not permit this Letter of Transmittal,
certificates representing such Holder's Old 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 Old 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 Old Notes registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact such broker,
dealer, commercial bank, trust company or other nominee if they desire to accept
the Exchange Offer with respect to the Old Notes so registered.
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS OF OLD 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.
-4-
<PAGE> 5
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.
List below the Old 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 OLD NOTES
- ---------------------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Holder(s) Certificate Aggregate Principal Aggregate Principal
(please fill in, if blank) Number(s) Amount Represented Amount Tendered
- -------------------------------------- -------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
-------------------- --------------------------- ----------------------------
-------------------- --------------------------- ----------------------------
-------------------- --------------------------- ----------------------------
-------------------- --------------------------- ----------------------------
-------------------- --------------------------- ----------------------------
- --------------------------------------- -------------------- --------------------------- ----------------------------
TOTAL
- --------------------------------------- -------------------- --------------------------- ----------------------------
</TABLE>
- --------------------------------------------------------------------------------
METHOD OF DELIVERY
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF CERTIFICATES FOR TENDERED OLD NOTES ARE BEING DELIVERED
HEREWITH.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: ___________________________________________
Account Number: ____________ Transaction Code Number: _______________
[ ] CHECK HERE IF TENDERED OLD 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: _______________
- --------------------------------------------------------------------------------
-5-
<PAGE> 6
- --------------------------------------------------------------------------------
FOR PARTICIPATING BROKER-DEALERS ONLY
- --------------------------------------------------------------------------------
[ ] CHECK HERE AND PROVIDE THE INFORMATION REQUESTED BELOW IF YOU ARE A
PARTICIPATING BROKER-DEALER AND WISH TO RECEIVE ADDITIONAL COPIES OF
THE PROSPECTUS AND 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 OLD 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.)
Name: _______________________________________________________________________
Address: ____________________________________________________________________
Telephone No.: ______________________________________________________________
Facsimile No.: ______________________________________________________________
- --------------------------------------------------------------------------------
-6-
<PAGE> 7
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL HOLDERS OF OLD NOTES REGARDLESS OF
WHETHER OLD NOTES ARE BEING PHYSICALLY DELIVERED HEREWITH)
This Letter of Transmittal must be signed by the Holder(s) of Old Notes
exactly as their name(s) appear(s) on certificate(s) for Old Notes or, if
delivered by a participant in DTC, exactly as such participant's name appears
on a security position listing as the owner of Old 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 Old
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: ___________________________________________________________________
___________________________________________________________________
(Include Zip Code)
Area Code and Telephone No.: ________________________________________________
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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: ______________________________________________________________________
- --------------------------------------------------------------------------------
-7-
<PAGE> 8
<TABLE>
- --------------------------------------------------------- ------------------------------------------------------
<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4, 5 and 7) (SEE INSTRUCTIONS 4 AND 9)
To be completed ONLY if Old Notes in a principal To be completed ONLY if Old Notes in a
amount not tendered or not accepted for exchange principal amount not tendered or not accepted
are to be issued in the name of, or Exchange for exchange or Exchange Notes are to be sent
Notes are to be issued in the name of, someone to someone other than the persons whose
other than the person or persons whose signature(s) signature(s) appear(s) within this letter of
appear(s) within this Letter of Transmittal. transmittal or to an address different from
that shown in the box entitled "Description
Issue [ ] Old Notes of Old Notes" within this Letter of Transmittal.
[ ] Exchange Notes
(check as applicable)
Issue [ ] Old Notes
[ ] Exchange Notes
Name ___________________________________________ (check as applicable)
(Please Print)
Name ___________________________________________
Address_________________________________________ (Please Print)
________________________________________________ Address_________________________________________
(Include Zip Code)
________________________________________________
________________________________________________ (Include Zip Code)
(Tax Identification or Social Security Number)
(SEE SUBSTITUTE FORM W-9 HEREIN)
Credit Old Notes not tendered or not exchanged
by book-entry transfer to the DTC account set below:
________________________________________________
(DTC Account Number)
Credit Exchange Notes to the DTC account set below:
________________________________________________
(DTC Account Number)
- --------------------------------------------------------- ------------------------------------------------------
</TABLE>
-8-
<PAGE> 9
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 OLD NOTES
OR BOOK-ENTRY CONFIRMATION; WITHDRAWAL OF TENDERS.
To tender Old Notes in the Exchange Offer, physical delivery of
certificates for Old Notes or confirmation of a book-entry transfer into the
Exchange Agent's account with DTC of Old 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 City time on the Expiration Date. Tenders of Old 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 OLD 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 OLD 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 OLD 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 OLD NOTES AND ANY OTHER
REQUIRED DOCUMENTS SHOULD BE SENT ONLY TO THE EXCHANGE AGENT, NOT TO THE
COMPANY, THE TRUSTEE OR DTC.
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to 5:00 p.m. New York City time on the Expiration Date. In order
to be valid, notice of withdrawal of tendered Old 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 Old Notes pursuant to the Exchange Offer
and (i) certificates representing such Old Notes are not lost but are not
immediately available, (ii) time will not permit this Letter of Transmittal,
certificates representing such Holder's Old 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 Old 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 forth the name(s) and address(es) of the
registered Holder(s) and the principal amount of Old 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 Old
Notes (or confirmation of book-entry transfer of such Old Notes into
the Exchange Agent's account at DTC), 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
-9-
<PAGE> 10
(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 Old Notes in proper
form for transfer (or a Book-Entry Confirmation with respect to all
tendered Old 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 Old 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
Old Notes" herein. The entire principal amount represented by the certificates
for all Old Notes delivered to the Exchange Agent will be deemed to have been
tendered, unless otherwise indicated. The entire principal amount of all Old
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 DTC 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 Old
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
DTC whose name is shown as the owner of the Old Notes tendered hereby, the
signature must correspond with the name shown on the security position listing
as the owner of the Old Notes.
If any of the Old 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 Old 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 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 so to act must be submitted with this Letter of Transmittal.
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 Old Notes tendered herewith (or by a
participant in DTC whose name appears on a security position listing as the
owner of Old Notes) and certificates for Exchange Notes or for any Old 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 DTC, any Old
Notes for principal amounts not tendered or not accepted for exchange are to be
credited to such participant's account at DTC and neither the "Special Issuance
Instructions" box nor the "Special Delivery Instructions" box of this Letter of
Transmittal has been completed or (ii) such Old Notes are tendered for the
account of an Eligible Institution. IN ALL OTHER CASES ALL SIGNATURES ON LETTERS
OF TRANSMITTAL ACCOMPANYING OLD 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 Old 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 Old Notes,
and, with respect to a participant in DTC whose name appears on a security
position listing as the owner of Old Notes, exactly as the name(s) of the
participant(s) appear(s) on such security position listing), with the signature
on the endorsement
-10-
<PAGE> 11
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 Old 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 Old 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 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 Old Notes pursuant to the Exchange Offer, except if (i) deliveries
of certificates for Old 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 Old 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 Old 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 Old
Notes will be determined by the Company in its sole discretion, which
determination shall be final and binding. ALTERNATIVE, CONDITIONAL OR CONTINGENT
TENDERS OF OLD NOTES WILL NOT BE CONSIDERED VALID. The Company reserves the
absolute right to reject any and all tenders of Old 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 Old 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 Old Notes must be cured within such
time as the Company determines, unless waived by the Company. Tenders of Old
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 Old 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 Old Notes, or incur any liability to Holders for failure to
give any such notice.
-11-
<PAGE> 12
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
OLD NOTES.
Any Holder whose certificates for Old 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 Old Notes and
requests for assistance or additional copies of the Prospectus, this Letter of
Transmittal, the Notice of Guaranteed Delivery or other 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 Old 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 Old 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 Old 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 Old 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.
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<PAGE> 13
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: THE J.H. HEAFNER COMPANY, INC.
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
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 [ ] Corporation [ ] Partnership [ ] Other
FORM W-9
DEPARTMENT OF THE TREASURY ___________________________________________________________________________________
INTERNAL REVENUE SERVICE Address
___________________________________________________________________________________
City, State and Zip Code
-----------------------------------------------------------------------------------
PART I TAXPAYER IDENTIFICATION NUMBER ("TIN"): Enter Social security number:
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 of the Guidelines for Certification
of Taxpayer Identification Number on Substitute Form
W-9 (the "Guidelines") for further clarification. If Employer
you do not have a TIN, see instructions on how to identification number:
obtain a TIN in Item C 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. APPLIED FOR TIN [ ]
------------------------------------------------------------ ------------------------
PART II PAYEES EXEMPT FROM BACKUP WITHHOLDING:
Check box. (See Item B 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 item 2 below if you have been
IDENTIFICATION NUMBER AND notified by the Internal Revenue Service (the "IRS") that you are currently
CERTIFICATION subject to backup withholding because of underreporting interest or dividends on
your tax return.
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:___________________________
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
- --------------------------------------------------------------------------------
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: _____________________________
- --------------------------------------------------------------------------------
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<PAGE> 14
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
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION 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 The minor(2)
to Minors Act)
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 Agriculture The public entity
- --------------------------------------------------------------------------------------------------------------------
</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); (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.
-14-
<PAGE> 15
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.
-15-
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
OF
10% SENIOR NOTES DUE 2008, SERIES D
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, Series B or Series C (the "Old Notes") of
The J.H. Heafner Company, Inc., a North Carolina corporation (the "Company"),
who wishes to tender Old Notes for the Company's 10% Senior Notes Due 2008,
Series D pursuant to the exchange offer (the "Exchange Offer"), as described in
the Prospectus dated __________, 1999 (the "Prospectus") and the related Letter
of Transmittal, and (i) whose Old Notes are not immediately available or (ii)
who cannot deliver such Old Notes or any other documents required by the Letter
of Transmittal on or before the Expiration Date 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 First Union National Bank
(the "Exchange Agent"). See "The Exchange Offer--Guaranteed Delivery Procedures"
in the Prospectus.
Delivery to: FIRST UNION NATIONAL BANK, AS EXCHANGE AGENT
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission Hand or Overnight Delivery:
(REGISTERED OR CERTIFIED MAIL RECOMMENDED) Number: First Union National Bank
First Union National Bank 704-590-7628 Corporate Trust Reorganization
Corporate Trust Reorganization (FOR ELIGIBLE 1525 West W.T. Harris Boulevard, 3C3
1525 West W.T. Harris Boulevard, 3C3 INSTITUTIONS ONLY) Charlotte, North Carolina 28262
Charlotte, North Carolina 28288 Attention: Mike Klotz
Attention: Mike Klotz Confirm by Telephone:
704-590-7408
</TABLE>
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.
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
Old 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 Old
Notes set forth in the Letter of Transmittal. The undersigned hereby tenders the
Old 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 Old Notes will be tendered by book-entry transfer, please provide
the following information:
<TABLE>
<CAPTION>
Name of Tendering Institution: Depository Trust Company Account Number:
<S> <C>
_________________________________________________________ ____________________________________________________
</TABLE>
<PAGE> 2
PLEASE SIGN HERE
X ________________________________________________ Date:____________________
Signature(s) of Owner(s) or Authorized Signatory
Area Code and Telephone Number: ________________________________________________
Must be signed by the holder(s) of Old Notes as their name(s) appear(s)
on certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. 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.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): ________________________________________________________________
________________________________________________________________
Capacity: ________________________________________________________________
Address(es): ________________________________________________________________
________________________________________________________________
________________________________________________________________
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a financial institution (including most banks, savings
and loan associations and brokerage houses) that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program, guarantees
that the certificates representing the principal amount of Old Notes tendered
hereby in proper form for transfer, or timely confirmation of the book-entry
transfer of such Old Notes into the Exchange Agent's account at The Depository
Trust Company pursuant to the procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus, together with
one or more properly completed and duly executed Letters of Transmittal (or
facsimile thereof or Agent's Message in lieu thereof), and any required
signature guarantee and any other documents required by the Letter of
Transmittal, will be received by the Exchange Agent at the address set forth
above, no later than three New York Stock Exchange trading days after the
Expiration Date.
______________________________________ _________________________________
Name of Firm Authorized Signature
______________________________________ _________________________________
Street Address Name (please print)
______________________________________ _________________________________
City, State and Zip Code Title
______________________________________ _________________________________
Area Code and Telephone Number Date
DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. ACTUAL
SURRENDER OR CERTIFICATES FOR OLD NOTES MUST BE MADE PURSUANT TO,
AND BE ACCOMPANIED BY, THE EXECUTED LETTER OF TRANSMITTAL.
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