As Filed with the Securities and Exchange Commission on April 8, 1999
Registration No. 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
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HDA PARTS SYSTEM, INC.
(exact name of registrant as specified in its charter)
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See Table of Additional Registrants
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Alabama 5013 63-068-1070
(State or other jurisdiction
of (Primary standard industrial (IRS Employer
incorporation or organization) classification code number) Identification Number)
520 Lake Cook Road
Deerfield, Illinois 60015
(847) 444-1095
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive office)
With Copies To:
JOHN P. MILLER ELIZABETH A. BLENDELL, ESQ.
Chief Financial Officer RANDALL C. BASSETT, ESQ.
HDA Parts System, Inc. Latham & Watkins
520 Lake Cook Road 633 West Fifth Street, Suite 4000
Deerfield, Illinois 60015 Los Angeles, California 90071
(847) 444-1095 (213) 485-1234
(Name, address, including zip code, and telephone number, including area code,
of Agent for service)
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 number of the earlier effective
registration number 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
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Proposed Proposed Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Note(1) Offering Price(1) Fee
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12% Senior Subordinated Notes due 2005.. $100,000,000 100% $100,000,000 $27,800
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Guarantees of Senior Subordinated Notes(2).. -- -- -- (3)
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) Each of the entities listed on the Table of Additional Registrants has
guaranteed the notes being registered pursuant hereto.
(3) Pursuant to Rule 457(n), no separate fee is payable with respect to the
guarantees of the notes being registered.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this registration statement shall become effective
on such date as the SEC, acting pursuant to said Section 8(a), may determine.
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TABLE OF ADDITIONAL REGISTRANTS
State
Exact Name of Registrant as Specified in its or Other Jurisdiction of
Charter Incorporation or Organization
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City Truck Holdings, Inc. Delaware
City Truck and Trailer Parts of Alabama, Inc. Alabama
City Truck and Trailer Parts of Alabama, L.L.C. Alabama
City Truck and Trailer Parts of Tennessee, Inc. Tennessee
City Friction, Inc. Alabama
Truck & Trailer Parts, Inc. Georgia
Truckparts, Inc. Connecticut
Associated Brake Supply, Inc. California
Associated Truck Center, Inc. California
Onyx Distribution, Inc. California
Associated Truck Parts of Nevada, Inc. Nevada
Freeway Truck Parts of Washington, Inc. Washington
Tisco, Inc. California
Tisco of Redding, Inc. California
SUBJECT TO COMPLETION, DATED APRIL 8, 1999
PROSPECTUS
, 1999
HDA PARTS SYSTEM, INC.
OFFER TO EXCHANGE
12% Senior Subordinated Notes due 2005
which have been registered under the Securities Act
for any and all outstanding
12% Senior Subordinated Notes due 2005
Material Terms of the Exchange Offer
. The exchange offer expires at 5:00 p.m., New York City time, on ,
1999, unless extended.
. We will exchange all outstanding notes that are validly tendered and not
validly withdrawn for an equal principal amount of a new series of notes
which are registered under the Securities Act.
. The exchange offer is not subject to any conditions other than that it not
violate applicable law or any applicable interpretation of the staff of the
SEC.
.You may withdraw tenders of outstanding notes at any time before the exchange
offer expires.
. The exchange of notes
will not be a taxable
event for U.S. federal
income tax purposes.
. We will not receive any
proceeds from the
exchange offer.
. The terms of the new
series of notes are
substantially identical
to the outstanding
notes, except for
transfer restrictions
and registration rights
relating to the
outstanding notes.
. You may tender
outstanding notes only
in denominations of
$1,000 and multiples of
$1,000.
. Our affiliates may not
participate in the
exchange offer.
Please refer to "Risk Factors" beginning on page 9 of this document for
a description of the risks you should consider when evaluating this investment.
We are not making this exchange offer in any state where it is not permitted.
Neither the Securities and Exchange Commission nor any state securities
commission has approved of the notes or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
Information in this prospectus is not complete and may be changed. We may not
sell these securities until the time the registration statement filed with the
Securities and Exchange Commission becomes effective. This prospectus is not
an offer to sell the securities and we are not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted or
would be unlawful prior to registration or qualification under the securities
laws of any such state.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the "Summary," "Unaudited Pro Forma Condensed
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" sections, contains "forward-looking
statements" which are identifiable by the use of forward-looking terms, such as
"may," "intend," "will," "expect," "anticipate," "estimate," "continue" or
similar phrases. In particular, any statement concerning future opportunities,
future operating results or the ability to generate revenues, income or cash
flow are forward-looking statements. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, our expectations
may not prove to be correct.
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We based the market data included in this prospectus, including information
relating to our relative position in the industry, on independent industry
publications, other publicly available information or the good faith belief of
our management. Although we believe that these sources are reliable, we cannot
guarantee the accuracy and completeness of the information, and we have not
independently verified the information.
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Throughout this prospectus we use the words "company," "we," "our," "ours,"
and "us" to refer to HDA Parts System, Inc. and its subsidiaries. References to
"Holdings" refer to City Truck Holdings, Inc., our parent company. Unless the
context otherwise requires, all references to the following entities are before
or after giving effect to the acquisitions, as appropriate: (1) "City Truck"
means City Truck and Trailer Parts, Inc., (2) "Stone" means the assets and
business of Stone Heavy Duty, Inc., (3) "Truck & Trailer Parts" means Truck &
Trailer Parts, Inc., including DHP Leasing, Inc., (4) "Truckparts" means
Truckparts, Inc., (5) "Tampa Brake" means the assets and business of Tampa
Brake & Supply Co., Inc., (6) "Connecticut Driveshaft" means the assets and
business of Connecticut Driveshaft, Inc., (7) "Associated" means Associated
Brake Supply, Inc. and its subsidiaries and (8) "Tisco" means Tisco, Inc.,
including Tisco of Redding, Inc. References to "HDA Parts System" mean City
Truck, Stone, Truck & Trailer Parts, Truckparts, Tampa Brake, Connecticut
Driveshaft, Associated and Tisco after the acquisitions, and also refers to the
historical performance or operations of those entities, taken as a whole. The
data referenced in this prospectus includes information with respect to the two
companies with whom we have signed non-binding letters of intent to acquire.
These two companies are Vantage Parts, a division of CNF Transportation, Inc.,
and Active Gear, L.L.C. and are referred to as "Vantage Parts" and "Active
Gear," respectively. References to "Brentwood" means Brentwood Associates
Buyout Fund II, L.P., together with its affiliates, including BABF City Corp.,
a company formed and wholly owned by Brentwood.
SUMMARY
The following summary contains basic information about this offering. It does
not contain all the information that may be important to you. For a more
complete understanding of this offering, we encourage you to read this entire
prospectus and the documents we have referred you to.
The Company
We are one of the largest and fastest growing independent distributors in the
highly fragmented $17 billion heavy duty vehicle parts and repair industry. We
distribute parts to over 25,000 customers through 92 branch locations across 21
states. Based on both sales and number of branch locations, we are one of the
two largest independent distributors in the nation and the leading distributor
in each of the southeastern, western and New England regions of the United
States. Heavy duty vehicles include Class VI through Class VIII commercial
vehicles such as tractor-trailers, waste disposal trucks and large off-road
vehicles used in the mining, construction and agricultural industries. We have
a broad base of customers including national and regional fleets operated by
companies such as Waste Management, Inc., Browning-Ferris Industries, Inc.,
Dole Food, Inc. and Tyson Foods, Inc., and common carrier and rental fleets,
including United Parcel Service of America, Inc., Consolidated Freightways
Corporation, Con-Way Transportation Services, Ryder System, Inc., Roadway
Package System, Inc. and Penske Leasing, Inc. A substantial part of our
business consists of sales of heavy duty vehicle parts to local fleets,
independent repair shops, heavy duty vehicle dealerships and government
entities.
We are currently pursuing a strategy to become the largest independent
distributor of heavy duty vehicle parts, with a focus on building a nationwide
system of branch locations, primarily through acquisitions. In June 1998, we
combined City Truck and Stone, two leading heavy duty vehicle parts
distributors in the southeast with 35 locations. Since then, we have purchased
six distributors and signed letters of intent to acquire two other distributors
in order to strengthen our leading position in the southeast and expand into
other regions. The completed and pending acquisitions are described below:
Number
of Branch
Company Acquisition Date Region Locations
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Truck & Trailer Parts September 1998 Southeast 7
Tampa Brake October 1998 Southeast 5
Connecticut Driveshaft November 1998 New England 6
Truckparts December 1998 New England 4
Associated January 1999 West 22
Tisco January 1999 West 4
Active Gear Pending West 2
Vantage Parts Pending National 7
As a result of these acquisitions, we have leading market positions and
highly experienced operating management and have achieved significant economies
of scale and scope. We believe we are well positioned for growth both through
acquisitions and new store openings.
Our principal executive offices are located at 520 Lake Cook Road, Deerfield,
Illinois 60015, and our telephone number is (847) 444-1095.
1
Industry Overview
Industry sources estimate that the heavy duty vehicle parts and repair
industry generated $17.0 billion in revenues in 1997. An industry source
expects the market for replacement parts, which accounted for the majority of
revenues in the overall heavy duty vehicle parts and repair industry, to grow
17.7% from 1997 to 2002. We believe growth in the heavy duty vehicle parts and
repair industry and growth in market share for full-service independent
distributors like us has been and will continue to be driven by the following
primary factors:
.Expanding fleet of heavy duty vehicles;
.Increased life expectancy of fleet vehicles;
.Increased total truck miles driven annually; and
.Increased outsourcing of parts inventory management by fleet operators.
Competitive Strengths
We benefit from the following competitive strengths:
.Ability to successfully execute our acquisition strategy;
.Proven ability to grow revenue and profits;
.Purchasing leverage;
.Established customer relationships;
.Superior inventory availability;
.Outstanding customer service; and
.Experienced management team.
Business Strategy
Our strategic objective is to further grow our sales and profits by
capitalizing on the continued growth opportunities in the heavy duty vehicle
parts and repair industry. Our business strategy is to:
.Become the largest national distributor of heavy duty vehicle parts;
.Further reduce cost of products sold;
.Develop distribution and operating efficiencies;
.Achieve benefits from combining complementary operations; and
.Expand relationships with national and regional fleet operators.
2
The Exchange Offer
The Exchange Offer..........
We are offering to exchange our exchange notes
for our outstanding private notes properly
tendered and accepted. You may tender outstanding
notes only in denominations of $1,000 and
multiples of $1,000. We will issue the exchange
notes on or promptly after the exchange offer
expires. As of the date of this prospectus,
$100,000,000 principal amount of private notes is
outstanding.
Expiration Date............. The exchange offer will expire at 5:00 p.m., New
York City time, on , 1999, unless
extended, in which case the expiration date will
mean the latest date and time to which we extend
the exchange offer.
Conditions to the Exchange
Offer....................... The exchange offer is not subject to any
conditions other than that it not violate
applicable law or any applicable interpretation
of the staff of the SEC. The exchange offer is
not conditioned upon any minimum principal amount
of private notes being tendered for exchange.
Procedures for Tendering
Private Notes.............. If you wish to tender your private notes for
exchange notes pursuant to the exchange offer you
must transmit to the U.S. Trust Company of
California, N.A., as exchange agent, on or before
the expiration date, either:
. a computer generated message transmitted
through The Depository Trust Company's
Automated Tender Offer Program system and
received by the exchange agent and forming
a part of a confirmation of book-entry
transfer in which you acknowledge and agree
to be bound by the terms of the letter of
transmittal; or
. a properly completed and duly executed
letter of transmittal, which accompanies
this prospectus, or a facsimile of the
letter of transmittal, together with your
private notes and any other required
documentation, to the exchange agent at its
address listed in this prospectus and on
the front cover of the letter of
transmittal.
If you cannot satisfy either of these procedures
on a timely basis, then you should comply with
the guaranteed delivery procedures described
below. By executing the letter of transmittal,
you will make the representations to us
described under "The Exchange Offer--Procedures
for Tendering."
3
Special Procedures for
Beneficial Owners..........
If you are a beneficial owner whose private notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender your private notes in the
exchange offer, you should contact the registered
holder promptly and instruct the registered
holder to tender on your behalf. If you wish to
tender on your own behalf, you must either (1)
make appropriate arrangements to register
ownership of the private notes in your name or
(2) obtain a properly completed bond power from
the registered holder, before completing and
executing the letter of transmittal and
delivering your private notes.
Guaranteed Delivery If you wish to tender your private notes and time
Procedures.................. will not permit the documents required by the
letter of transmittal to reach the exchange agent
before the expiration date, or the procedure for
book-entry transfer cannot be completed on a
timely basis, you must tender your private notes
according to the guaranteed delivery procedures
described in this prospectus under the heading
"The Exchange Offer--Guaranteed Delivery
Procedures."
Acceptance of Private Notes
and Delivery of Exchange Subject to the satisfaction or waiver of the
Notes...................... conditions to the exchange offer, we will accept
for exchange any and all private notes which are
validly tendered in the exchange offer and not
withdrawn before 5:00 p.m., New York City time,
on the expiration date.
Withdrawal Rights...........
You may withdraw the tender of your private notes
at any time before 5:00 p.m., New York City time,
on the expiration date, by complying with the
procedures for withdrawal described in this
prospectus under the heading "The Exchange
Offer--Withdrawal of Tenders."
Material United States
Federal Income Tax The exchange of notes will not be a taxable event
Consequences............... for United States federal income tax purposes.
For a discussion of the material federal income
tax consequences relating to the exchange of
notes, see "Material United States Federal Income
Tax Consequences for United States Holders."
Exchange Agent.............. U.S. Trust Company of California, N.A., the
trustee under the indenture governing the private
notes, is serving as the exchange agent.
4
Consequences of Failure to
Exchange Notes.............
If you do not exchange your private notes for
exchange notes, you will continue to be subject
to the restrictions on transfer provided in the
private notes and in the indenture governing the
private notes. In general, the private notes may
not be offered or sold, unless registered under
the Securities Act, except pursuant to an
exemption from, or in a transaction not subject
to, the Securities Act and applicable state
securities laws. We do not currently plan to
register the private notes under the Securities
Act.
Registration Rights You are entitled to exchange your private notes
Agreement................... for exchange notes with substantially identical
terms. The exchange offer satisfies this right.
After the exchange offer is completed, you will
no longer be entitled to any exchange or
registration rights with respect to your private
notes. Under the circumstances described in the
registration rights agreement, you may require us
to file a shelf registration statement under the
Securities Act.
We explain the exchange offer in greater detail beginning on page 16.
5
The Exchange Notes
The form and terms of the exchange notes are the same as the form and terms
of the private notes, except that the exchange notes will be registered under
the Securities Act and, therefore, the exchange notes will not be subject to
the transfer restrictions, registration rights and provisions providing for an
increase in the interest rate applicable to the private notes. The exchange
notes will evidence the same debt as the private notes and both the private
notes and the exchange notes, collectively, the "notes", are governed by the
same indenture.
Securities Offered.......... $100.0 million principal amount of 12% Senior
Subordinated Notes due 2005.
Issuer...................... HDA Parts System, Inc.
Maturity Date...............
August 1, 2005.
Interest.................... The exchange notes will bear interest at the rate
of 12% per year, payable every six months on
February 1 and August 1, beginning August 1,
1999.
Optional Redemption......... We may redeem the exchange notes, in whole or in
part, on or after August 1, 2002 at the
redemption prices set forth in this prospectus,
plus accrued and unpaid interest and liquidated
damages.
In addition, at any time before August 1, 2001,
we may redeem up to $35.0 million of notes
originally issued at 112% of their principal
amount, plus accrued and unpaid interest, with
the net cash proceeds of one or more public
offerings of equity of our company; provided
however, that at least $65.0 million of notes
remain outstanding after the redemption.
Guarantees.................. If we cannot make payments on the notes when due,
our guarantors must make them instead. The
guarantors will consist of our parent company and
all of our current and future domestic
subsidiaries.
Ranking..................... The exchange notes will rank behind all of our
existing and future senior debt, including
borrowings under the revolving credit facility.
The guarantees will rank behind all of the
guarantors' existing and future senior debt,
including guarantees under the revolving credit
facility. The indenture permits us to incur
additional debt, including senior debt.
As of December 31, 1998 on a pro forma basis, we
had approximately $71.5 million of senior debt
outstanding, excluding unused commitments of
$13.5 million under the revolving credit
facility. The guarantors had approximately
6
$71.5 million of guarantor senior debt
outstanding, consisting solely of guarantees
under the revolving credit facility but excluding
guarantees of unused commitments under the
revolving credit facility.
Change of Control........... Upon a change of control of our company, we must
offer to repurchase your exchange notes at 101%
of their principal amount, plus accrued and
unpaid interest. If a change of control occurs,
we may not have sufficient funds to repurchase
all exchange notes tendered.
Certain Covenants........... The indenture contains covenants that, among
other things, limit our ability and the ability
of the guarantors to:
.incur more debt;
.prepay other debt or amend debt instruments;
.create liens on assets;
.make investments, loan or advances;
.pay dividends or redeem stock;
.engage in mergers or consolidations;
.change the business we conduct; and
.engage in transactions with affiliates.
In addition, we may be required to offer to
purchase exchange notes at 100% of their
principal amount, plus accrued and unpaid
interest, with the proceeds of asset sales.
Form of Exchange Notes......
The exchange notes will be represented by one or
more permanent global certificates, in fully
registered form, deposited with a custodian for,
and registered in the name of a nominee of, The
Depository Trust Company, as depositary. You will
not receive exchange notes in certificated form
unless one of the events described under the
heading "Book-Entry; Delivery; Form and
Transfer--Transfers of Interests in Global Notes
for Certificated Notes" occurs. Instead,
beneficial interests in the exchange notes will
be shown on, and transfers of these notes will be
effected only through, records maintained in
book-entry form by The Depository Trust Company
and its participants.
Use of Proceeds............. We will not receive any cash proceeds in the
exchange offer.
We explain the exchange notes in greater detail beginning on page 60.
7
Summary Pro Forma Financial Data
The following summary pro forma financial data were derived in part from, and
should be read in conjunction with, the more detailed consolidated financial
statements of Holdings, and its subsidiaries and the Unaudited Pro Forma
Condensed Financial Data, including in each case, the related notes, included
elsewhere in this prospectus. The summary pro forma financial data give effect
to the acquisitions, including the equity contributions and the offering of the
private notes, as if each transaction had occurred as of January 1, 1998 with
respect to income statement, other and credit data and as of December 31, 1998
with respect to balance sheet data. The summary pro forma financial data may
not be indicative of our operating results or financial position that would
have been achieved had the events described above been consummated and should
not be construed as representative of future operating results or financial
position.
Pro Forma
for the Year Ended
December 31, 1998
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(In thousands,
except ratio data)
Income Statement Data:
Sales.................................................. $321,649
Gross profit........................................... 102,852
Selling, general and administrative expenses........... 79,782
Operating income....................................... 23,070
Net income............................................. 3,362
Other Data:
EBITDA(1).............................................. $ 31,142
Depreciation and amortization.......................... 7,981
Capital expenditures................................... 3,546
Credit Data:
EBITDA to interest ratio(2)............................ 1.77x
Ratio of net debt to EBITDA(3)......................... 5.05
Pro Forma at
December 31, 1998
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Balance Sheet Data:
Cash and cash equivalents............................... $ 14,382
Net working capital(4).................................. 63,845
Total assets............................................ 288,263
Total debt (including current maturities)............... 171,661
Stockholders' equity.................................... 75,724
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(1) EBITDA represents net income, plus depreciation and amortization, interest
expense and income taxes. EBITDA should not be construed as an alternative
to (1) net income, as defined by generally accepted accounting principles,
as an indicator of our operating performance or (2) cash flow from
operations, as defined by generally accepted accounting principles, as a
measure of our liquidity. EBITDA is included in the prospectus as it is a
basis upon which we assess our financial performance, and certain covenants
in our borrowing arrangements will be tied to similar measures. EBITDA, as
presented, represents a useful measure of assessing our ongoing operating
activities without the impact of financing activity. While EBITDA is
frequently used as a measure of operations and the ability to meet debt
service requirements, it is not necessarily comparable to other similarly
titled captions of other companies due to potential inconsistencies in
method of calculation.
(2) EBITDA to interest ratio represents EBITDA divided by total interest
expense for the year.
(3) Ratio of net debt to EBITDA is calculated by dividing net debt by EBITDA.
Net debt is total debt (including current maturities) less cash and cash
equivalents.
(4) Net working capital equals current assets, excluding cash, less current
liabilities, excluding the current portion of long-term debt.
8
RISK FACTORS
Before you invest in these exchange notes, you should consider carefully the
following risk factors, as well as other information contained in this
prospectus.
Our substantial debt restricts our operating activities and limits our
flexibility.
We have a substantial amount of debt outstanding. As of December 31, 1998,
our pro forma indebtedness, consisting principally of obligations under the
revolving credit facility and the private notes, was $171.7 million, and our
pro forma capitalization was $247.4 million. The following chart shows other
important pro forma credit statistics:
Pro Forma
At December 31, 1998
--------------------
Total indebtedness.................................. $171.7
Stockholders' equity................................ 75.7
Pro Forma
For the Year Ended
December 31, 1998
--------------------
Ratio of earnings to fixed charges.................. 1.39x
Our substantial amount of debt could:
. limit our ability to obtain financing for acquisitions, working capital,
capital expenditures and general corporate purposes, or limit our ability
to obtain financing on terms favorable to us;
. require us to dedicate a substantial portion of our cash flow from
operations to pay our interest expense, and under certain conditions, to
repay debt, thereby reducing the availability of our cash flow to fund
operations and future business opportunities; and
. limit our flexibility in reacting to changes in our operating environment
or economic conditions, increasing our vulnerability to a downturn in our
business or the economy generally.
We may be unable to service our debt.
Our ability to repay or refinance our debt will depend on our ability to
generate cash in the future, which will be affected by general economic
conditions and financial, business and other factors, some of which are beyond
our control. Our future cash flow and borrowings under the revolving credit
facility may not be sufficient to meet our obligations. We may need to
refinance some or all of our debt, including these notes, on or before
maturity, sell material assets or operations or raise additional debt or equity
capital. These alternatives may not be available to us on favorable terms or at
all.
Your claims are subordinated.
If we or our guarantors' file bankruptcy, liquidate or reorganize or undergo
a similar proceeding, we must use our assets to pay our senior debt in full
before paying you. Because of this obligation to pay the senior debt first, we
may not have sufficient assets to pay any of the amounts due on the notes.
9
The terms of our debt restrict our operations.
The covenants in the indenture limit our ability to:
.incur more debt;
.prepay other debt or amend debt instruments;
.create liens on assets;
.make investments, loan or advances;
.pay dividends or redeem stock;
.engage in mergers or consolidations;
.change the business we conduct; and
.engage in transactions with affiliates.
Our revolving credit facility also contains restrictive covenants. In
addition to covenants similar to those contained in the indenture, this
facility restricts acquisitions, sale/leaseback transactions and capital
expenditures. This facility also requires us to maintain specified financial
ratios and satisfy specified financial tests. Our ability to meet these
financial ratios and financial tests will depend upon our financial performance
and may be affected by events beyond our control, including prevailing
economic, financial and industry conditions. Our breach of any of these
covenants could result in a default under the indenture or the revolving credit
facility, which would permit the senior lenders or you to declare all amounts
borrowed under the revolving credit facility to be due and payable, and the
senior lenders could terminate their commitments to make further loans under
the revolving credit facility. If we were unable to repay our debt to our
senior lenders, the senior lenders could proceed against the collateral
securing that debt.
We face risks related to our acquisition strategy.
Our growth depends principally on our ability to acquire and successfully
integrate heavy duty vehicle parts businesses. We may not be able to identify
additional businesses for acquisition in the future, or these businesses may
not be available at reasonable prices. If we fail to integrate the acquired
businesses successfully or to acquire additional heavy duty vehicle parts
businesses or if we pay increased prices for these businesses, our growth
prospects, financial condition and results of operations could be materially
adversely impacted.
In addition, our acquisition strategy subjects us to the following risks:
. we may require additional personnel, assets and capital, and we may not
be able to expand successfully and operate the acquired companies
profitably;
. we may not anticipate or respond effectively to all of the changing
demands that our expanding operations will have on our management
information and operating systems, and we may experience delays,
disruptions and unanticipated expenses in connection with our acquisition
strategy. If we fail to meet the challenges of our expansion, it could
have a material adverse effect on our results of operations and financial
condition;
. if we do not have sufficient cash resources to finance the implementation
of our acquisition strategy, our growth could be limited unless we are
able to obtain additional capital through debt or equity financings. We
may not be able to obtain the additional financing we may need for our
acquisition program on favorable terms, or at all; and
10
. our growth strategy also includes expanding relationships with national
and regional fleet operators, further reducing cost of products sold,
developing distribution and operating efficiencies and achieving benefits
from combining complementary operations. We may not be able to achieve
any of these results.
If we fail to attain any or all of these strategies, it could have a material
adverse effect on our results of operations and financial condition.
We may not be able to manage effectively the growth of our operations.
We will encounter various risks pursuing an acquisition growth strategy,
including:
. our future growth will require our management team to manage our
expanding operations while evaluating, completing and integrating new
businesses; and
. our acquisition strategy will continue to place significant demands on
our management to improve our operational, financial and management
information systems, to develop further the management skills of our
managers and supervisors, and to continue to retain, train, motivate and
effectively manage our employees.
We may not be able to manage effectively the expansion of our operations. If
we fail to manage our prior or future growth effectively, it could have a
material adverse effect on our results of operations and financial condition.
We face significant competition.
We operate in a highly competitive environment. We compete against local,
regional and national companies in the heavy duty parts and repair industry,
including other independent distributors, original equipment manufacturers
("OEMs"), OEM-authorized dealerships and independent repair shops. Our
competition risks include the following:
. current and potential competitors may have financial, personnel and other
resources substantially greater than ours to finance acquisition and
development opportunities;
. our competitors may have lower overhead cost structures and may be able
to provide their parts and services at lower rates than us;
. OEMs are in a position to offer incentives to heavy duty vehicle owners
to return to OEM-authorized dealerships for heavy duty vehicle parts and
repair services, which could adversely affect our ability to compete; and
. some owners of leased fleets may have sufficient leverage to purchase
replacement parts directly from component manufacturers or to negotiate
higher volume discounts from us.
We depend on our executive officers, key employees and a well trained sales
force.
Our performance depends upon the efforts of our key employees, especially our
executive officers and operating management. The loss of any of our executive
officers, operating management or other key employees could have a material
adverse effect on our business, financial condition or results of operations.
In addition, the successful implementation and management of our growth and
expansion strategies will depend on our ability to continue to attract and
retain qualified personnel. We may not be able to continue to attract that
personnel or to retain key personnel in companies we acquire.
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Heavy duty vehicle parts are specialized, and we depend on a knowledgeable
and experienced sales force to select and sell the proper parts to our
customers. Our ability to grow our business will partially depend upon hiring,
training, motivating and retaining a skilled work force.
Economic and industry fluctuations outside of our control may affect our sales.
We sell many of our products to customers in industries that experience
fluctuations in demand based on economic conditions, energy prices, consumer
demand and other factors. The trucking industry has historically been highly
cyclical as a result of various economic factors such as:
. excess capacity in the industry;
. competition from other forms of transportation;
. the availability of qualified drivers;
. changes in fuel prices and the supply of fuel;
. increases in fuel or energy taxes;
. interest rate fluctuations;
. insurance costs;
. fluctuations in the resale value of equipment;
. economic recession; and
. downturns in customers' business cycles and shipping requirements.
We have little or no control over these economic or industry specific factors.
We may not be able to increase or maintain our level of sales in periods of
economic stagnation or downturn.
The improvement in parts quality may reduce demand for our products.
Improvement in the quality of parts manufactured for heavy duty vehicles and
equipment may extend the useful lives and warranties of those parts and may
reduce demand for our products and services by decreasing the frequency of
replacement or refurbishment of those parts. A reduction in demand for our
products and services could have a material adverse effect on our business,
financial condition and results of operations.
We may not be able to obtain an adequate supply of heavy duty vehicle parts.
We purchase heavy duty vehicle parts from a number of component
manufacturers. We have not entered into any franchise agreements or supply
contracts that would assure us a continued supply of parts to sell in the
future. A key component of our business strategy is to maintain a wide
selection of parts. Therefore, our inability to obtain access to parts in
sufficient volumes for our branch locations could impair our strategy. Even
though there are many component manufacturers in the marketplace, we may not be
able to obtain an adequate supply of heavy duty vehicle replacement parts. If
we fail to obtain an adequate supply of heavy duty vehicle replacement parts,
it could have a material adverse effect on our business, financial condition
and results of operations. We also remanufacture used parts for resale to our
customers. The used parts we need for remanufacturing may not be available to
us in sufficient quantities in the future. If we cannot obtain an adequate
supply of used parts, the resulting loss of sales could have a material adverse
effect on our profitability. See "Business--Suppliers."
12
We are subject to environmental regulation.
Our operations are subject to various federal, state and local environmental
laws, regulations and ordinances. If we fail to comply, or our predecessors
failed to comply, with these environmental laws, we may be subject to civil or
criminal liability. In particular, stringent environmental laws govern the
handling and disposal of chemicals and substances, such as solvents and
lubricants, we commonly use in some of our service and remanufacturing
operations. In addition, some of our facilities operate, or have operated,
above-ground and underground storage tanks for fuels and other substances which
are subject to a variety of environmental laws. If the substances described
above are released into the environment at our facilities or at facilities
where we have arranged for disposal of these substances, we may be subject to
liability for cleaning up contamination which results from those releases.
We may not remain in compliance with applicable environmental laws, and it is
possible that:
. we may incur clean-up costs in the future;
. environmental laws may be revised or amended to our detriment; or
. changes to current environmental laws or enactment of new environmental
laws affecting our business and operations may require further capital
investments or make certain of our operations unprofitable.
We conduct environmental diligence in connection with acquisitions and obtain
indemnities from prior owners, which in some cases are limited by time and
dollar amounts. As a result, we may inherit environmental liabilities not fully
covered by indemnification.
We could be adversely affected by the Year 2000 issue.
We are currently addressing potential Year 2000 issues associated with our
systems and our suppliers' systems. The ability of third parties with whom we
transact business to address adequately their Year 2000 issues is outside of
our control. Failure by us or our suppliers to address adequately our
respective Year 2000 issues may have a material adverse effect on our business,
financial condition, cash flows and results of operations. For a more detailed
discussion of our Year 2000 issues, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Year 2000 Issue."
Through exercise of its voting control, Brentwood could control our operations.
Brentwood beneficially owns 68.7% of Holdings' equity. As a result, Brentwood
is able to exercise significant voting control over us through its ability to
determine the outcome of stockholders' votes regarding, among other things, the
election of all of our directors and the approval of significant transactions.
Brentwood is party to a stockholders' agreement which, among other things,
allows it to elect a majority of the board of directors. See "Certain
Relationships and Transactions--Stockholders' Agreement."
The notes are subject to review for fraudulent transfer considerations.
Our obligations under the notes may be subject to review under state or
federal fraudulent transfer laws if we go bankrupt or face other financial
difficulty. Under those laws, a court could void the notes or subordinate the
notes to the obligations due other creditors if the court were to find that
when we issued the notes, we:
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. received less than fair consideration or reasonably equivalent value
therefor and were or were rendered insolvent; or
. were engaged in a business or transaction for which our remaining
unencumbered assets constituted unreasonably small capital; or
. intended to incur or believed or reasonably should have believed that we
would incur debts beyond our ability to pay as those debts matured.
In addition, the court could direct the return of any amounts paid under the
notes to us or to a fund for the benefit of our creditors. Moreover, regardless
of the factors identified above, the court could avoid the notes and direct
repayment or subordination if it found that we issued the notes with actual
intent to hinder, delay or defraud our creditors.
A court will likely find that we did not receive fair consideration or
reasonably equivalent value for issuing the notes to the extent that we used
the proceeds to repay obligations incurred when Brentwood acquired its interest
in City Truck, including debt under the revolving credit facility and the
Bridge Securities described on page 38, or otherwise did not directly benefit
from the notes' proceeds. We incurred approximately $42.0 million in
obligations under the revolving credit facility and the Bridge Securities when
we acquired City Truck.
In addition, a guarantor's obligations under its guarantee of the notes may
be subject to review under the same laws if a guarantor files bankruptcy or
faces other financial difficulty. In that event, the analysis above would
generally apply. The court could avoid the guarantee and direct the repayment
of amounts paid under the guarantee or subordinate the guarantee to the
obligations due other creditors of the guarantor.
A court will likely find that a guarantor did not receive fair consideration
or reasonably equivalent value to the extent that it did not directly benefit
from the notes' proceeds.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if:
. the sum of its debts, including contingent or unliquidated debts, is
greater than all of its property at a fair valuation, or
. if the present fair salable value of its assets is less than the amount
that will be required to pay its probable liability on its existing debts
as they become absolute and matured.
However, a court may disagree with our conclusions in this regard.
We may not be able to repurchase the notes upon a change of control.
If a change of control occurs, the indenture requires us to offer to
repurchase all exchange notes. The events involving a change of control may
also constitute a default under the revolving credit facility. If we default
under the revolving credit facility, the lenders could require us to repay the
debt under the revolving credit facility in full before we repurchase the
exchange notes. We may not have sufficient funds to repurchase the exchange
notes if the lenders accelerate the debt under the revolving credit facility if
a change of control occurs. Our inability to repurchase all of the tendered
exchange notes would constitute an event of default under the indenture.
Moreover, the terms of future debt may contain cross-default provisions based
upon change of control or other defaults under the debt instruments.
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No public market exists for the notes.
Before this exchange offer, there was no public market for the exchange
notes. We do not intend to apply for listing of the exchange notes on any
securities exchange, although we expect the exchange notes to be eligible for
trading in PORTAL. Donaldson, Lufkin & Jenrette Securities Corporation and
BancAmerica Securities, the initial purchasers of the private notes, have
advised us that they intend to make a market in the exchange notes. However,
they are not obligated to do so and may discontinue any market-making activity
at any time without notice. Liquid markets may not develop for the exchange
notes and you may not be able to resell your notes at all or at prices you
consider reasonable. Future trading prices of the exchange notes also will
depend on many factors, including prevailing interest rates, our operating
results and the market for similar securities.
15
THE EXCHANGE OFFER
Purpose of the Exchange Offer
We issued the private notes on July 31, 1998 to Donaldson, Lufkin & Jenrette
Securities Corporation and BancAmerica Securities, the initial purchasers,
pursuant to a purchase agreement. The initial purchasers subsequently sold the
private notes to "qualified institutional buyers," as defined in Rule 144A
under the Securities Act, in reliance on Rule 144A, and outside the United
States under Regulation S of the Securities Act. As a condition to the sale of
the private notes, we entered into a registration rights agreement with the
initial purchasers on July 31, 1998. Pursuant to the registration rights
agreement, we agreed that we would (1) file a registration statement with the
SEC with respect to the exchange notes on or before December 28, 1998, (2) use
our best efforts to cause the registration statement to be declared effective
by the SEC on or before March 13, 1999, (3) use our best efforts to keep the
registration statement effective until the closing of the exchange offer, (4)
use our best efforts to keep the exchange offer open for a period of not less
than 20 business days, and (5) use our best efforts to cause the exchange offer
to be completed no later than the 30th business day after it is declared
effective by the SEC.
Upon the effectiveness of the registration statement, we will offer the
exchange notes in exchange for the private notes. We filed a copy of the
registration rights agreement as an exhibit to the registration statement. The
registration statement satisfies some of our obligations under the registration
rights agreement; however, we did not comply with our obligations to file and
have the registration statement declared effective as described in items (1)
and (2) above and are currently paying you liquidated damages pursuant to the
registration rights agreement. See "--Liquidated Damages."
Resale of the Exchange Notes
Based upon an interpretation by the staff of the SEC contained in no-action
letters issued to third parties, we believe that you may exchange private notes
for exchange notes in the ordinary course of business. You will be allowed to
resell exchange notes to the public without further registration under the
Securities Act and without delivering to purchasers of the exchange notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act
so long as you do not participate, do not intend to participate, and have no
arrangement with any person to participate, in a distribution of the exchange
notes. However, the foregoing does not apply to you if you are: (1) a broker-
dealer who purchases the exchange notes directly from us to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (2) you
are an "affiliate" of ours within the meaning of Rule 405 under the Securities
Act. In addition, if (1) you are a broker-dealer or (2) you acquire exchange
notes in the exchange offer for the purpose of distributing or participating in
the distribution of the exchange notes, you cannot rely on the position of the
staff of the SEC contained in the no-action letters mentioned above and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available.
Each broker-dealer that receives exchange notes for its own account in
exchange for private notes, which the broker-dealer acquired 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 the exchange 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. A broker-dealer may use
this prospectus, as it may be amended or
16
supplemented from time to time, in connection with resales of exchange notes
received in exchange for private notes which the broker-dealer acquired as a
result of market-making or other trading activities. See "Plan of
Distribution."
Terms of the Exchange Offer
Upon the terms and subject to the conditions described in this prospectus and
in the letter of transmittal, we will accept any and all private notes validly
tendered and not withdrawn before the expiration date. We will issue $1,000
principal amount of exchange notes in exchange for each $1,000 principal amount
of outstanding private notes surrendered pursuant to the exchange offer. You
may tender private notes only in integral multiples of $1,000.
The form and terms of the exchange notes are the same as the form and terms
of the private notes except that (1) we will register the exchange notes under
the Securities Act and, therefore, the exchange notes will not bear legends
restricting their transfer and (2) holders of the exchange notes will not be
entitled to any of the rights of holders of private notes under the
registration rights agreement, which rights will terminate upon the completion
of the exchange offer. The exchange notes will evidence the same debt as the
private notes and will be issued under the same indenture, so the exchange
notes and the private notes will be treated as a single class of debt
securities under the indenture.
As of the date of this prospectus, $100,000,000 in aggregate principal amount
of the private notes are outstanding and registered in the name of Cede & Co.,
as nominee for The Depository Trust Company. Only registered holders of the
private notes, or their legal representative or attorney-in-fact, as reflected
on the records of the trustee under the indenture may participate in the
exchange offer. We will not set a fixed record date for determining registered
holders of the private notes entitled to participate in the exchange offer.
You do not have any appraisal or dissenters' rights under the indenture in
connection with the exchange offer. We intend to conduct the exchange offer in
accordance with the provisions of the registration rights agreement and the
applicable requirements of the Securities Act, the Exchange Act and the rules
and regulations of the SEC.
We will be deemed to have accepted validly tendered private notes when, as
and if we had given oral or written notice of acceptance to the exchange agent.
The exchange agent will act as your agent for the purposes of receiving the
exchange notes from us.
If you tender private 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 private notes
pursuant to the exchange offer. We will pay all charges and expenses, other
than the applicable taxes described below, in connection with the exchange
offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term expiration date will mean 5:00 p.m., New York City time on ,
1999, unless we, in our sole discretion, extend the exchange offer, in which
case the term expiration date will mean the latest date and time to which we
extend the exchange offer.
To extend the exchange offer, we will (1) notify the exchange agent of any
extension orally or in writing and (2) mail to each registered holder an
announcement that will include disclosure of the
17
approximate number of private notes deposited to date, each before 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration date.
We reserve the right, in our reasonable discretion, (1) to delay accepting
any private notes, (2) to extend the exchange offer or (3) if any conditions
listed below under "--Conditions" are not satisfied, to terminate the exchange
offer by giving oral or written notice of the delay, extension or termination
to the exchange agent. We will follow any delay in acceptance, extension or
termination as promptly as practicable by oral or written notice to the
registered holders. If we amend the exchange offer in a manner we determine
constitutes a material change, we will promptly disclose the amendment in a
prospectus supplement that we will distribute to the registered holders. We
will also 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,
if the exchange offer would otherwise expire during the five to ten business
day period.
Interest on the Exchange Notes
The exchange notes will bear interest at the same rate and on the same terms
as the private notes. Consequently, the exchange notes will bear interest at a
rate equal to 12% per annum. Interest will be payable semi-annually in arrears
on February 1 and August 1, commencing August 1, 1999. You will receive
interest on August 1, 1999 from February 1, 1999. We will deem the right to
receive any interest accrued on the private notes waived by you if we accept
your private notes for exchange.
Procedures for Tendering
You may tender private notes in the exchange offer only if you are a
registered holder of private notes. To tender in the exchange offer, you must
(1) complete, sign and date the letter of transmittal or a facsimile of the
letter of transmittal, (2) have the signatures guaranteed if required by the
letter of transmittal, and (3) mail or otherwise deliver the letter of
transmittal or the facsimile to the exchange agent at the address listed below
under "--Exchange Agent" for receipt before the expiration date. In addition,
either (1) the exchange agent must receive certificates for the private notes
along with the letter of transmittal into its account at the depositary
pursuant to the procedure for book-entry transfer described below before the
expiration date, (2) the exchange agent must receive a timely confirmation of a
book-entry transfer of the private notes, if the procedure is available, into
its account at the depositary pursuant to the procedure for book-entry transfer
described below before the expiration date, or (3) you must comply with the
guaranteed delivery procedures described below.
Your tender, if not withdrawn before the expiration date, will constitute an
agreement between you and us in accordance with the terms and subject to the
conditions described in this prospectus and in the letter of transmittal.
The method of delivery of private notes and the letter of transmittal and all
other required documents to the exchange agent is at your election and risk. We
recommend that instead of delivery by mail, you use an overnight or hand
delivery service, properly insured. In all cases, you should allow sufficient
time to assure delivery to the exchange agent before the expiration date. You
should not send letters of transmittal or private notes to us. You may request
your respective brokers, dealers, commercial banks, trust companies or nominees
to effect the transactions described above for you.
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If you are a beneficial owner of private notes whose private notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and you wish to tender your notes, you should contact the
registered holder promptly and instruct the registered holder to tender on your
behalf. If you wish to tender on your own behalf, before completing and
executing the letter of transmittal and delivering the private notes you must
either (1) make appropriate arrangements to register ownership of the private
notes in your name or (2) obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
Unless the private notes are tendered (1) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions" on the letter of transmittal or (2) for the
account of:
. a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.,
. a commercial bank or trust company having an office or correspondent in
the United States or
. an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act that is a member of one of the recognized
signature guarantee programs identified in the letter of transmittal
(each of which is an "Eligible Institution"), an Eligible Institution must
guarantee the signatures on a letter of transmittal or a notice of withdrawal
described below under "--Withdrawal of Tenders."
If the letter of transmittal is signed by a person other than the registered
holder, the private notes must be endorsed or accompanied by a properly
completed bond power, signed by the registered holder as the registered
holder's name appears on the private notes.
If the letter of transmittal or any private 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,
they should so indicate when signing, and unless waived by us, they must submit
evidence satisfactory to us of their authority to so act with the letter of
transmittal.
The exchange agent and the depositary have confirmed that any financial
institution that is a participant in the depositary's system may utilize the
depositary's Automated Tender Offer Program to tender notes.
We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, acceptance and withdrawal of
tendered private notes, which determination will be final and binding. We
reserve the absolute right to reject any and all private notes not properly
tendered or any private notes our acceptance of which would, in the opinion of
our counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular private notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, you must cure any defects or irregularities in
connection with tenders of private notes within the time we determine. Although
we intend to notify you of defects or irregularities with respect to tenders of
private notes, neither we, the exchange agent nor any other person will incur
any liability for failure to give you that notification. Unless waived, we will
not deem tenders of private notes to have been made until you cure the defects
or irregularities.
While we have no present plan to acquire any private notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any private notes that are not
19
tendered in the exchange offer, we reserve the right in our sole discretion to
purchase or make offers for any private notes that remain outstanding after the
expiration date. We also reserve the right to terminate the exchange offer, as
described below under "--Conditions," and, to the extent permitted by
applicable law, purchase private notes in the open market, in privately
negotiated transactions or otherwise. The terms of any of those purchases or
offers could differ from the terms of the exchange offer.
If you wish to tender private notes in exchange for exchange notes in the
exchange offer, we will require you to represent that (1) you are not an
affiliate of ours, (2) you will acquire any exchange notes in the ordinary
course of your business and (3) at the time of completion of the exchange
offer, you have no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the exchange notes.
In addition, in connection with the resale of exchange notes, any participating
broker-dealer who acquired the private notes for its own account as a result of
market-making or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The SEC has taken the position that
participating broker-dealers may fulfill their prospectus delivery requirements
with respect to the exchange notes, other than a resale of an unsold allotment
from the original sale of the notes, with the prospectus contained in the
registration statement.
Return of Notes
If we do not accept any tendered private notes for any reason described in
the terms and conditions of the exchange offer or if you withdraw or submit
private notes for a greater principal amount than you desire to exchange, we
will return the unaccepted, withdrawn or non-exchanged notes without expense to
you as promptly as practicable. In the case of private notes tendered by book-
entry transfer into the exchange agent's account at the depositary pursuant to
the book-entry transfer procedures described below, we will credit the private
notes to an account maintained with the depositary as promptly as practicable.
Book-Entry Transfer
The exchange agent will make a request to establish an account with respect
to the private notes at the depositary for purposes of the exchange offer
within two business days after the date of this prospectus, and any financial
institution that is a participant in the depositary's systems may make book-
entry delivery of private notes by causing the depositary to transfer the
private notes into the exchange agent's account at the depositary in accordance
with the depositary's procedures for transfer. However, although delivery of
private notes may be effected through book-entry transfer at the depositary,
you must transmit and the exchange agent must receive, the letter of
transmittal or a facsimile of the letter of transmittal, with any required
signature guarantees and any other required documents, at the address below
under "--Exchange Agent" on or before the expiration date or pursuant to the
guaranteed delivery procedures described below.
Guaranteed Delivery Procedures
If you wish to tender your private notes and (1) the notes are not
immediately available or (2) you cannot deliver the private notes, the letter
of transmittal or any other required documents to the exchange agent before the
expiration date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
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(b) before the expiration date, the exchange agent receives from the
Eligible Institution a properly completed and duly executed notice of
guaranteed delivery, substantially in the form provided by us, that:
. states your name and address, the certificate number(s) of the
private notes and the principal amount of private notes tendered,
. states that the tender is being made by that notice of guaranteed
delivery, and
. guarantees that, within three New York Stock Exchange trading days
after the expiration date, the Eligible Institution will deposit with
the exchange agent the letter of transmittal, together with the
certificate(s) representing the private notes in proper form for
transfer or a confirmation of a book-entry transfer, as the case may
be, and any other documents required by the letter of transmittal;
and
(c) within five New York Stock Exchange trading days after the expiration
date, the exchange agent receives a properly executed letter of
transmittal, as well as the certificate(s) representing all tendered
private notes in proper form for transfer and all other documents required
by the letter of transmittal.
Upon request, the exchange agent will send to you a notice of guaranteed
delivery if you wish to tender your notes according to the guaranteed delivery
procedures described above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may withdraw tenders of
private notes at any time before 5:00 p.m. on the expiration date.
To withdraw a tender of private notes in the exchange offer, the exchange
agent must receive a written or facsimile transmission notice of withdrawal at
its address listed in this prospectus before the expiration date. Any notice of
withdrawal must (1) specify the name of the person who deposited the private
notes to be withdrawn, (2) identify the private notes to be withdrawn,
including the certificate number(s) and principal amount of the private notes,
and (3) be signed in the same manner as the original signature on the letter of
transmittal by which the private notes were tendered, including any required
signature guarantees. We will determine in our sole discretion all questions as
to the validity, form and eligibility of the notices, and our determination
will be final and binding on all parties. We will not deem any properly
withdrawn private notes to have been validly tendered for purposes of the
exchange offer, and we will not issue exchange notes with respect to those
private notes, unless you validly retender the withdrawn private notes. You may
retender properly withdrawn private notes by following one of the procedures
described above under "The Exchange Offer -- Procedures for Tendering" at any
time before the expiration date.
Conditions
Notwithstanding any other term of the exchange offer, we will not be required
to accept for exchange, or exchange the exchange notes for, any private notes,
and may terminate the exchange offer as provided in this prospectus before the
acceptance of the private notes, if, in our reasonable judgment, the exchange
offer violates applicable law, rules or regulations or an applicable
interpretation of the staff of the SEC.
If we determine in our reasonable discretion that any of these conditions are
not satisfied, we may (1) refuse to accept any private notes and return all
tendered private notes to you, (2) extend the
21
exchange offer and retain all private notes tendered before the exchange offer
expires, subject, however, to your rights to withdraw the private notes (see
"--Withdrawal of Tenders") or (3) waive the unsatisfied conditions with respect
to the exchange offer and accept all properly tendered private notes that have
not been withdrawn. If the waiver constitutes a material change to the exchange
offer, we will promptly disclose the waiver by means of a prospectus supplement
that we will distribute to the registered holders of the private notes, and we
will extend the exchange offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered holders, if the exchange offer would otherwise expire during the
five to ten business day period.
Termination of Certain Rights
All of your rights under the registration rights agreement will terminate
upon consummation of the exchange offer except with respect to our continuing
obligations (1) to indemnify you and certain parties related to you against
[certain] liabilities, including liabilities under the Securities Act, and
(2) to provide, upon your request, the information required by Rule 144A(d)(4)
under the Securities Act to permit resales of the notes pursuant to Rule 144A.
Shelf Registration
If (1) applicable law or SEC policy does not permit the exchange offer or (2)
you notify us before the 20th business day following the completion of the
exchange offer that:
. you are prohibited by law or SEC policy from participating in the
exchange offer;
. you may not resell the exchange notes acquired by you in the exchange
offer to the public without delivering a prospectus, and the prospectus
contained in the registration statement is not appropriate or available
for resales by you; or
. you are a broker-dealer and hold notes acquired directly from us,
we will file with the SEC a shelf registration statement to register for public
resale the transfer restricted securities held by you if you provide us with
[certain] information for inclusion in the shelf registration statement.
For the purposes of the registration rights agreement, "transfer restricted
securities" means each private note until the earliest date on which (1) the
private note is exchanged in the exchange offer and entitled to be resold to
the public without complying with the prospectus delivery requirements of the
Securities Act, (2) the private note is disposed of in accordance with the
shelf registration statement, (3) the private note is disposed of by a broker-
dealer pursuant to the "Plan of Distribution" contemplated by the registration
statement or (4) the private note is distributed to the public pursuant to Rule
144 under the Securities Act.
Liquidated Damages
If (1) we do not file the registration statement with the SEC on or before
December 28, 1998, (2) the SEC does not declare the registration statement
effective on or before March 13, 1999, (3) we do not complete the exchange
offer on or before the 30th business day after the SEC declares the
registration statement effective, (4) if we are obligated to file the shelf
registration statement, we fail to file the shelf registration statement with
the SEC on or before the 30th business day after the filing obligation arises,
(5) if we are obligated to file a shelf registration statement, the SEC does
not declare
22
the shelf registration statement effective on or before the 90th day after the
obligation to file a shelf registration statement arises, or (6) if the
registration statement or the shelf registration statement, as the case may be,
is declared effective but thereafter ceases to be effective or useable in
connection with resales of the transfer restricted securities, for the time of
non-effectiveness or non-usability (each, a "registration default"), we agree
to pay you liquidated damages in an amount equal to $0.05 per week per $1,000
in principal amount of transfer restricted securities held by you for each week
or portion of a week that the registration default continues for the first 90-
day period immediately following the occurrence of the registration default.
The amount of the liquidated damages will increase by an additional $0.05 per
week per $1,000 in principal amount of transfer restricted securities at the
beginning of and for each subsequent 90-day period until all registration
defaults have been cured, up to a maximum amount of liquidated damages of $0.50
per week per $1,000 in principal amount of transfer restricted securities. We
will not be required to pay liquidated damages for more than one registration
default at any given time. Following the cure of all registration defaults, the
accrual of liquidated damages will cease.
We did not comply with our obligation to file and have the registration
statement declared effective as described in items (1) and (2) above and are
currently paying you liquidated damages pursuant to the registration rights
agreement. We will pay all accrued liquidated damages in the same manner and on
the same dates as the interest payments on the notes.
Exchange Agent
We have appointed U.S. Trust Company of California, N.A. as exchange agent
for the exchange offer. You should direct questions and requests for
assistance, requests for additional copies of this prospectus or the letter of
transmittal and requests for a notice of guaranteed delivery to the exchange
agent addressed as follows:
By Registered or Certified Mail or Hand or Overnight Delivery:
U.S. Trust Company of California, N.A.
515 South Flower Street
Suite 2700
Los Angeles, California 90071
Attention:
By Facsimile:
(213) 488-1370
Confirm by Telephone:
(213) 861-5066
Delivery to an address other than the one stated above or transmission via a
facsimile number other than the one stated above will not constitute a valid
delivery.
Fees and Expenses
We will bear the expenses of soliciting tenders. We are making the principal
solicitation by mail; however, our and our affiliates' officers and regular
employees may make additional solicitations by telegraph, telephone or in
person.
23
We have not retained any dealer manager in connection with the exchange offer
and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses.
We will pay the cash expenses incurred in connection with the exchange offer
which we estimate to be approximately $ . These expenses include
registration fees, fees and expenses of the exchange agent and the trustee,
accounting and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of notes
pursuant to the exchange offer. If, however, a transfer tax is imposed for any
reason other than the exchange of the private notes pursuant to the exchange
offer, then you must pay the amount of the transfer taxes. If you do not submit
satisfactory evidence of payment of the taxes or exemption from payment with
the letter of transmittal, we will bill the amount of the transfer taxes
directly to you.
Consequence of Failures to Exchange
Participation in the exchange offer is voluntary. We urge you to consult your
financial and tax advisors in making your decisions on what action to take.
Private notes that are not exchanged for exchange notes pursuant to the
exchange offer will remain restricted securities. Accordingly, those private
notes may be resold only (1) to a person whom the seller reasonably believes is
a qualified institutional buyer in a transaction meeting the requirements of
Rule 144A, (2) in a transaction meeting the requirements of Rule 144 under the
Securities Act, (3) outside the United States to a foreign person in a
transaction meeting the requirements of Rule 903 or 904 of Regulation S under
the Securities Act, (4) in accordance with another exemption from the
registration requirements of the Securities Act and based upon an opinion of
counsel if we so request, (5) to us or (6) pursuant to an effective
registration statement and, in each case, in accordance with any applicable
securities laws of any state of the United States or any other applicable
jurisdiction.
24
USE OF PROCEEDS
The exchange offer satisfies an obligation under the registration rights
agreement. We will not receive any cash proceeds from the exchange offer.
CAPITALIZATION
The following table sets forth as of December 31, 1998 (1) our actual
capitalization and (2) our pro forma capitalization after giving effect to the
Associated, Tisco, Vantage Parts and Active Gear acquisitions and the related
$10.5 million equity infusion completed in January 1999 and the $42.0 million
additional equity infusion completed in April 1999 in connection with the
Vantage Parts and Active Gear acquisitions. You should read this table in
conjunction with the "Unaudited Pro Forma Condensed Financial Data" and related
notes and the "Selected Historical Financial and Operating Data" and related
notes included elsewhere in this prospectus. See also "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
As of December 31, 1998
-------------------------
Actual Pro Forma
----------- -------------
(In thousands)
Cash and cash equivalents.............................. $ 8,328 $ 14,382
=========== ===========
Debt:
Note payable......................................... $ 161 $ 161
Revolving credit facility(1) ........................ 18,200 71,500
12% senior subordinated notes ....................... 100,000 100,000
----------- -----------
Total debt ........................................ 118,361 171,661
Stockholders' equity................................... 16,474 75,724
----------- -----------
Total capitalization............................... $ 134,835 $ 247,385
=========== ===========
- ---------------------
(1) The revolving credit facility provides for up to $85.0 million of borrowing
availability, if we comply with the covenants in the revolving credit
facility. See "Description of Revolving Credit Facility."
25
UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
Holdings' historical financial statements are identical to our financial
statements except with respect to the accounts which comprise the stockholders'
equity section of the balance sheets and thus our separate pro forma financial
statements are not presented. Holdings is our parent company and has no
separate operations, assets except its investment in us or liabilities except
for its guarantee of our debt.
We derived the following unaudited pro forma condensed financial data by
applying pro forma consolidated adjustments to Holdings' historical financial
statements, after giving effect to:
(1) the recapitalization of City Truck;
(2) the acquisitions of Stone, Truck & Trailer Parts, Tampa Brake,
Connecticut Driveshaft; Truckparts, Tisco, Associated, Active Gear and
Vantage Parts;
(3) the effect of refinancing the revolving credit facility and the issuance
of the notes; and
(4) the June 1998 private equity offering and the January 1999 private equity
offering which was fully funded in April 1999.
These pro forma consolidated adjustments give effect to the above transactions
as if these transactions had occurred on January 1, 1998 for the condensed pro
forma income statement data, and as if these transactions had occurred on
December 31, 1998 for the condensed pro forma balance sheet data, except that
the acquisitions we completed prior to December 31, 1998 are included in the
December 31, 1998 balance sheet. We describe the pro forma adjustments in the
accompanying notes.
The pro forma financial data are subject to numerous assumptions and
estimates which are subject to change and, in many cases, are beyond our
control. The pro forma financial data may not be indicative of the operating
results or financial position we would have achieved had we consummated the
events described above. You should not construe this data as representative of
our future operating results or financial position. You should read the pro
forma financial data in conjunction with the historical financial statements of
Holdings, Stone, Truck & Trailer Parts, Connecticut Driveshaft, Truckparts,
Tisco, Associated and Vantage Parts and the related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
26
CITY TRUCK HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(in thousands)
Post 12/31/98
Post 12/31/98 Probable
Acquisitions Acquisitions
-------------------- --------------------
(1) (2) (3) (4) (5)
Actual Actual Pro Forma Actual Pro Forma Pro Forma
12/31/98 12/31/98 Adjustments 12/31/98 Adjustments 12/31/98
-------- -------- ----------- -------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents...... $ 8,328 $ 179 $ 2,190 (a) $ 435 $ 3,250 (m) $ 14,382
Accounts receivable, net....... 18,105 6,893 -- 5,901 -- 30,899
Inventories, net............... 41,453 12,946 -- 12,617 -- 67,016
Prepaid expenses and other
current assets................ 55 3,468 (2,200)(b) 788 -- 2,111
Deferred tax asset............. 2,588 -- -- -- -- 2,588
Current portion of notes and
patronage dividend receivable.. 2,108 1 -- -- -- 2,109
-------- ------- ------- ------- -------- --------
Total current assets.......... 72,637 23,487 (10) 19,741 3,250 119,105
Property, plant and equipment,
net............................ 13,613 2,590 -- 1,649 -- 17,852
Deferred tax asset.............. 12,516 -- -- -- -- 12,516
Other assets.................... 4,238 1,874 (1,727)(c) 1,406 -- 5,791
Deferred financing fees......... 5,424 -- -- -- -- 5,424
Goodwill and other intangibles.. 55,496 -- 50,119 (d) -- 21,960 (n) 127,575
-------- ------- ------- ------- -------- --------
Total assets.................. $163,924 $27,951 $48,382 $22,796 $25,210 $288,263
======== ======= ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Bank overdraft................. $ -- $ 3,060 $(3,060)(e) -- -- --
Notes payable.................. 161 4,498 (4,498)(f) $ 1,989 $ (1,989)(o) $ 161
Current portion of long-term
debt.......................... -- 1,716 (1,716)(g) -- -- --
Accounts payable............... 14,105 3,728 -- 3,553 -- 21,386
Accrued liabilities............ 14,984 1,627 1,428 (h) 669 784 (p) 19,492
-------- ------- ------- ------- -------- --------
Total current liabilities..... 29,250 14,629 (7,846) 6,211 (1,205) 41,039
Revolving credit facility....... 18,200 4,453 48,847 (i) -- -- 71,500
12% senior subordinated notes... 100,000 2,084 (2,084)(j) -- -- 100,000
-------- ------- ------- ------- -------- --------
Total liabilities............. 147,450 21,166 38,917 6,211 (1,205) 212,539
Stockholders' equity:
Series A preferred stock....... 43,575 -- 13,291 (k) -- 30,934 (q) 87,800
Common stock................... 1 78 (48)(k) -- 71 (q) 102
Additional paid-in capital..... 14,325 10 2,919 (k) 20 11,975 (q) 29,249
Retained earnings.............. (41,427) 6,697 (6,697)(l) 16,565 (16,565)(r) (41,427)
-------- ------- ------- ------- -------- --------
Total stockholders' equity.... 16,474 6,785 9,465 16,585 26,415 75,724
-------- ------- ------- ------- -------- --------
Total liabilities and
stockholders' equity........... $163,924 $27,951 $48,382 $22,796 $ 25,210 $288,263
======== ======= ======= ======= ======== ========
27
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(in thousands)
(1) "Actual 12/31/98" represents actual historical December 31, 1998 balances
for Holdings, including acquisitions completed in 1998.
(2) "Post 12/31/98 Acquisitions--Actual 12/31/98" represents the actual
historical December 31, 1998 balances for companies acquired after December
31, 1998 (Associated and Tisco).
(3) "Post 12/31/98 Acquisitions--Pro Forma Adjustments" represents the pro
forma adjustments to the historical financial statements of the companies
acquired after December 31, 1998 as if the acquisitions and associated
refinancings of debt and equity had been completed on December 31, 1998.
The items below indicate the changes made to the historical financial
statements.
(a) Reflects borrowings on the revolving credit facility of $53,300 and
additional cash equity contributions of $10,500 less the total cash
consideration paid in the acquisitions of Associated and Tisco of
$61,610.
(b) Reflects the elimination of receivables from related parties of
Associated ($2,200) not acquired as part of the acquisitions.
(c) Reflects the elimination of notes receivable from related parties of
Associated ($1,727) not acquired as part of the acquisitions.
(d) Reflects the recognition of goodwill and other intangibles for
Associated ($45,970) and Tisco ($4,149).
(e) Reflects the elimination of a bank overdraft at Associated of $3,060
not assumed as part of the acquisition.
(f) Reflects the elimination of notes payable of Associated ($4,000) and
Tisco ($498) not assumed as part of the acquisitions.
(g) Reflects the elimination of the current portion of long-term debt of
Associated ($1,716) not assumed as part of the acquisition.
(h) Reflects certain liabilities recorded in connection with vendor
consolidations, the closure of duplicate facilities and other activities
that will be phased out in 1999 at Associated ($1,105) and Tisco ($323).
(i) Includes an increase of $53,300 in borrowings from the revolving credit
facility for debt related to acquisitions completed after December 31,
1998 offset by the elimination of $4,453 of debt not acquired as part of
the acquisitions.
(j) Reflects the elimination of deferred credits of Associated of $2,084
not acquired as part of the acquisition.
(k) Reflects the issuance of stock in the amount of $16,250 ($10,500 for
cash and $5,750 issued as acquisition consideration) and the elimination
of $88 of paid-in equity of acquired companies.
(l) Reflects the elimination of retained earnings prior to the acquisitions
for Associated ($3,802) and Tisco ($2,895).
(4) "Post 12/31/98 Probable Acquisitions--Actual 12/31/98" represents the
actual historical December 31, 1998 balances for companies which we have
signed non-binding letters of intent to acquire and consummation of the
acquisition is probable (Vantage Parts and Active Gear).
(5) "Post 12/31/98 Probable Acquisitions--Pro Forma Adjustments" represents pro
forma adjustments to the historical financial statements of the probable
acquisitions as if the acquisitions and associated refinancings of debt and
equity had been completed on December 31, 1998. The items below indicate
the changes made to the historical financial statements:
(m) Reflects the proceeds expected from additional equity contributions of
$42,000 less the cash consideration of $38,750 to be paid in the
acquisitions of Vantage Parts and Active Gear.
28
(n) Reflects the recognition of goodwill and other intangibles for Vantage
Parts ($17,220) and Active Gear ($4,740).
(o) Reflects the elimination of notes payable for Active Gear of $1,989 for
debt not assumed as part of the acquisition.
(p) Reflects certain liabilities recorded in connection with vendor
consolidations, the closure of duplicate facilities and other activities
that will be phased out in 1999 at Vantage Parts ($589) and Active Gear
($195).
(q) Reflects additional equity commitments of $43,000 (consisting of
$42,000 in cash and $1,000 as acquisition consideration) which will be
used to fund the acquisitions of Vantage Parts and Active Gear and the
elimination of $20 of paid-in equity of acquired companies.
(r) Reflects the elimination of retained earnings prior to the acquisitions
for Vantage Parts ($15,369) and Active Gear ($1,196).
29
CITY TRUCK HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT
(in thousands)
(4)
(2) (3) Post
(1) Pro Post 12/31/98 Pro
Actual Forma Subtotal 12/31/98 Probable Forma
1998 Effect 1998 Acquisitions Acquisitions 1998
-------- ------- -------- ------------ ------------ --------
Net sales............... $103,295 $89,555 $192,850 $65,916 $62,883 $321,649
Cost of sales........... 65,855 61,367 127,222 42,619 48,956 218,797
-------- ------- -------- ------- ------- --------
Gross profit............ 37,440 28,188 65,628 23,297 13,927 102,852
Selling, general and
administrative
expenses............... 31,030 19,593 50,623 18,840 10,319 79,782
-------- ------- -------- ------- ------- --------
Operating income........ 6,410 8,595 15,005 4,457 3,608 23,070
Interest expense........ 6,519 6,901 13,420 4,157 -- 17,577
Interest (income)....... (624) 624 -- -- -- --
Other (income) expense.. (86) (5) (91) 11 (11) (91)
-------- ------- -------- ------- ------- --------
Income before tax....... 601 1,075 1,676 289 3,619 5,584
Taxes................... (687) 1,354 667 115 1,440 2,222
-------- ------- -------- ------- ------- --------
Net income.............. $ 1,288 $ (279) $ 1,009 $ 174 $ 2,179 $ 3,362
======== ======= ======== ======= ======= ========
30
NOTES TO UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT
(in thousands)
(1) "Actual 1998" represents our actual historical 1998 results, including the
results of acquisitions completed in 1998 from the date of acquisition.
(2) "Pro Forma Effect" represents the actual historical 1998 results prior to
the date of acquisition for companies acquired in 1998 and the application
of certain pro forma adjustments to the historical financial statements of
the companies owned as of December 31, 1998 as if the acquisitions and
associated refinancings of debt and equity had been completed on January 1,
1998. The table below summarizes the historical results prior to
acquisition and the effects of the pro forma adjustments.
Results Pro
Prior to Pro Forma Forma
Acquisition Adjustments Effect
----------- ----------- -------
Sales................................. $89,555 -- $89,555
Cost of sales......................... 61,254 $ 113 (b) 61,367
------- ------- -------
Gross profit.......................... 28,301 (113) 28,188
Selling, general and administrative
expenses............................. 22,720 (3,127)(c) 19,593
------- ------- -------
Operating income...................... 5,581 3,014 8,595
Interest expense...................... 323 6,578 (d) 6,901
Interest income....................... (21) 645 (e) 624
Other (income) expense................ (5) -- (5)
------- ------- -------
Income before taxes................... 5,284 (4,209) 1,075
Taxes................................. 408 946 (f) 1,354
------- ------- -------
Net income............................ $ 4,876 (a) $(5,155) $ (279)
======= ======= =======
- ---------------------
(a) The components of net income <loss> of acquired
companies prior to acquisition are Stone ($1,929),
Truck & Trailer Parts ($1,636), Connecticut Driveshaft
($<159>), Tampa Brake ($1,100) and Truckparts ($370)... $4,876
(b) To eliminate vendor rebates earned in prior periods. .. (113)
(c) The pro forma adjustments to selling, general and
administrative expenses include:
--Expense related to the revision of certain lease
agreements, shortening the lease period and increasing
amortization expense related to leasehold improvements
...................................................... $(50)
--Elimination of excess compensation, fringe benefits
and related expenses of existing employees based upon
salaried amounts in employment contracts entered into
at the times of the acquisitions and recapitalization
of City Truck......................................... 2,008
--Elimination of rent and related expenses for certain
leased property owned by stockholders which is no
longer being leased to Holdings, net of a contractual
increase in lease expense ............................ 300
--To reflect the change in depreciation due to
conversion to a straight-line accounting policy....... 112
--Elimination of the net costs included in the combined
financial statements of City Truck from the operation
of equipment which was not acquired as part of the
acquisitions, net of related outsourcing costs........ 219
--Elimination of salaries and related benefits due to
the reduction of staff and related cost of benefits as
a result of the acquisitions.......................... 1,537
31
NOTES TO UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT
(in thousands)
--Elimination of accounting, legal and other fees no
longer required as a result of the acquisitions..... 111
--Annualization of amortization related to goodwill
and intangibles...................................... (702)
--Annualization of amortization related to deferred
financing fees....................................... (408)
-------
Total selling, general and administrative
adjustments................................... 3,127
Reflects the pro forma adjustments to interest
(d) expense
--Interest on $100,000 notes at 12% ................. (12,000)
--Interest expense related to borrowing under the
revolving credit facility at 7.8%................... (1,420)
--Elimination of previously recognized interest
expense and amortization............................. 6,519
--Elimination of historical interest expense
recognized prior to acquisition...................... 323
-------
Total interest expense adjustments............ (6,578)
Represents the elimination of previously recognized
(e) interest income...................................... (645)
(f) Represents the net effect of adjusting income taxes
to an assumed effective tax rate of 39.8%............ (946)
------
Total pro forma net income effect............. $ (279)
------
(3) "Post 12/31/98 Acquisitions" represent the actual historical 1998 results
for companies acquired after December 31, 1998 and the application of
certain pro forma adjustments as if the acquisitions had been completed as
of January 1, 1998. The table below summarizes the actual results and the
effects of the pro forma adjustments.
Actual Pro Forma As
1998 Adjustments Adjusted
------- ----------- --------
Sales................................... $65,916 -- $65,916
Cost of sales........................... 42,619 -- 42,619
------- ------- -------
Gross profit............................ 23,297 -- 23,297
Selling, general and administrative
expenses............................... 18,441 $ 399 (b) 18,840
------- ------- -------
Operating income........................ 4,856 (399) 4,457
Interest expense........................ 817 3,340 (c) 4,157
Interest income......................... (41) 41 (d) --
Other (income) expense.................. 11 -- 11
------- ------- -------
Income before taxes..................... 4,069 (3,780) 289
Taxes................................... 2 113 (e) 115
------- ------- -------
Net income.............................. $ 4,067 (a) $(3,893) $ 174
======= ======= =======
- ---------------------
(a) The components of net income of acquired entities are
Associated Brake ($3,317) and Tisco ($750)................. $4,067
(b) The pro forma adjustments to selling, general and
administrative expenses include:
--Elimination of excess compensation, fringe benefits and
related expenses of existing employees based upon salaried
amounts in employment contracts entered into at the time of
the acquisitions........................................... $607
32
NOTES TO UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT
(in thousands)
--Elimination of salaries and related benefits due to
the reduction of staff and related cost of benefits
as a result of the acquisitions ..................... 184
--Elimination of accounting, legal and other fees no
longer required as a result of the acquisitions...... 178
--Reflects annual amortization related to goodwill.... (1,368)
------
Total selling, general and administrative
adjustments.................................... (399)
(c) Reflects the pro forma adjustments to interest expense
--Interest expense related to borrowing under the
revolving credit facility at 7.8% to fund the
acquisitions of Associated and Tisco................. (4,157)
--Elimination of historical interest expense.......... 817
------
Total interest expense adjustments............. (3,340)
(d) Represents the elimination of previously recognized
interest income....................................... (41)
(e) Represents the net effect of adjusting income taxes to
an assumed effective tax rate of 39.8%................ (113)
------
Total pro forma net income effect.............. $ 174
------
(4) "Post 12/31/98 Probable Acquisitions" represent the actual historical 1998
results for companies for which we have signed non-binding letters of
intent to acquire and consummation of the acquisition is probable and the
application of certain pro forma adjustments as if the acquisitions had
been completed as of January 1, 1998. The table below summarizes the actual
results and the effects of the pro forma adjustments.
Actual Pro Forma As
1998 Adjustments Adjusted
------- ----------- --------
Sales.................................... $62,883 -- $62,883
Cost of sales............................ 48,956 -- 48,956
------- ----- -------
Gross profit............................. 13,927 -- 13,927
Selling, general and administrative
expenses................................ 10,452 $(133)(b) 10,319
------- ----- -------
Operating income......................... 3,475 133 3,608
Interest expense......................... 776 (776)(c) --
Interest income.......................... -- -- --
Other (income) expense................... (11) -- (11)
------- ----- -------
Income before taxes...................... 2,710 909 3,619
Taxes.................................... 825 615 (d) 1,440
------- ----- -------
Net income............................... $ 1,885 (a) $(294) $ 2,179
======= ===== =======
- ---------------------
(a) The components of net income of acquired companies are
Vantage Parts ($1,262) and Active Gear ($623)........... $1,885
(b) The pro forma adjustments to selling, general and
administrative expenses include:
--Elimination of excess compensation, fringe benefits
and related expenses of existing employees based upon
salaried amounts in employment contracts which will be
entered into at the time of the Active Gear
acquisition............................................ 63
--Elimination of management fees previously charged to
Vantage Parts by its prior parent company which will
not be incurred after the acquisition.................. 801
--Expense related to the revision of certain lease
agreements............................................. (89)
--Elimination of accounting, legal and other fees no
longer required as a result of the acquisitions........ 12
--Reflects annual amortization related to goodwill...... (654)
----
Total general, selling and administrative
adjustments...................................... 133
(c) Reflects the pro forma adjustment to eliminate
historical interest expense............................. 776
(d) Represents the net effect of adjusting income taxes to
an assumed effective tax rate of 39.8%.................. (615)
------
Total pro forma net income effect................ $2,179
------
33
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The selected audited financial data of Holdings and its subsidiaries for the
years ended December 31, 1996, 1997 and 1998 set forth below are derived in
part from the more detailed financial statements and related notes of Holdings
and its subsidiaries included elsewhere in this prospectus. The unaudited
financial data of Holdings and subsidiaries for the years ended December 31,
1994 and 1995 are derived from unaudited financial statements of Holdings and
its subsidiaries, which are prepared on the same basis as the audited financial
statements and, in the opinion of management, reflect all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of data. In addition, Holdings and its subsidiaries operated
throughout the periods presented as independent, privately owned entities,
which influenced the historical level of owners' compensation and other
expenses. Accordingly, the historical results of operations include (1)
historical compensation expenses in excess of the current compensation levels
to the former owners of Holdings and its subsidiaries, (2) certain other
private company expenses and (3) no accrual for federal income taxes before May
29, 1998. Therefore, the historical results discussed below do not represent
our results had Holdings and its subsidiaries been combined and operated under
common ownership during that period. The comparative financial data for 1994,
1995, 1996 and 1997 include only the combined operations of City Truck and its
subsidiaries and affiliated companies. The 1998 financial data also includes
the operations of Stone, Truck & Trailer Parts, Connecticut Driveshaft,
Truckparts and Tampa Brake from their dates of acquisition. The financial data
set forth below should be read in conjunction with the financial statements and
related notes, and "Managements's Discussion and Analysis of Financial
Condition and Results of Operations," all appearing elsewhere in this
prospectus.
Year Ended December 31,
-------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- --------
(in thousands, except location data)
Income Statement Data:
Sales........................... $44,751 $50,063 $52,609 $57,837 $103,295
Cost of sales................... 28,706 31,981 33,283 36,611 65,855
------- ------- ------- ------- --------
Gross profit.................... 16,045 18,082 19,326 21,226 37,440
Selling, general and
administrative expenses........ 12,009 13,592 14,390 16,143 31,030
------- ------- ------- ------- --------
Income from operations.......... 4,036 4,490 4,936 5,083 6,410
Interest expense, net........... 31 31 628 776 5,895
Other (income) expense.......... (24) 4 (40) (58) (86)
Income tax expense
(benefit)(1)................... 29 37 53 93 (687)
------- ------- ------- ------- --------
Net income...................... $ 4,000 $ 4,418 $ 4,295 $ 4,272 $ 1,288
======= ======= ======= ======= ========
Supplemental pro forma income
data:
Pro forma income taxes.......... $ 1,604 $ 1,773 $ 1,731 $ 1,737 $ 239
Pro forma net income............ 2,425 2,682 2,617 2,628 362
Other Data:
Capital expenditures(2)......... $ 829 $ 1,234 $ 4,301 $ 1,627 $ 1,668
Number of locations (end of
period)........................ 12 15 16 17 57
Balance Sheet Data:
Cash and cash equivalents....... $ 2,985 $ 227 $ 152 $ 191 $ 8,328
Net working capital(3).......... 12,185 13,023 12,986 14,770 35,220
Total assets.................... 22,433 26,145 28,915 33,203 163,924
Total debt (including current
maturities).................... 3,095 11,898 13,184 13,056 118,361
Stockholders' equity............ 15,169 7,580 9,593 12,018 16,474
- --------
(1) Holdings and its subsidiaries were comprised solely of sub-chapter "S'
corporations prior to the recapitalization in 1998.
(2) Capital expenditures for 1996 includes $3.7 million related to the
construction of City Truck's new corporate offices and distribution center
in Birmingham, Alabama.
(3) Net working capital equals current assets, excluding cash, less current
liabilities, excluding the current portion of long-term debt.
34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
"Selected Historical Financial and Operating Data" and our financial statements
and related notes included elsewhere in this prospectus. Certain statements
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations constitute forward-looking statements. See "Disclosure
Regarding Forward-Looking Statements."
See "Risk Factors" for information concerning the factors that affect our
markets, our products, our profitability, our liquidity, restrictions on us
imposed by our debt agreements and other factors that may affect us in the
future.
General
Holdings is our parent company and has no separate operations, assets except
its investment in us or liabilities, except for its guarantee of our debt.
Holdings' historical financial statements are identical to ours except with
respect to the accounts which comprise the stockholders' equity section of the
balance sheet.
Our historical financial data prior to 1998 reflect only City Truck's
financial results. During 1998, our financial data includes City Truck's
results for the full year and the following from the dates of acquisition:
Date of
Company Acquisition
------- -----------
Stone.................................................. June 19, 1998
Truck & Trailer Parts.................................. September 30, 1998
Tampa Brake............................................ October 31, 1998
Connecticut Driveshaft................................. November 4, 1998
Truckparts............................................. December 17, 1998
Accordingly, our historical financial results are not comparable for any
period that includes periods after June 30, 1998. Our historical financial
statements do not include the results of Associated and Tisco which we acquired
after December 31, 1998, nor the results of Vantage Parts and Active Gear for
which we have signed letters of intent to acquire.
City Truck, prior to June 1, 1998, and the other acquired businesses, prior
to their acquisitions, operated as family owned entities, which influenced the
historical level of owners' compensation and other expenses. Accordingly, the
historical results of operations include historical compensation expenses in
excess of the current compensation levels to the former owners and certain
other private company expenses. In addition, we believe the combined companies
will benefit from (1) increased access to capital, (2) the support of
experienced and professional management, (3) centrally coordinated purchasing,
(4) the elimination of certain duplicative distribution and operating costs,
(5) cross-selling opportunities and (6) the enhanced capacity to service large
national and regional accounts. The historical results discussed below do not
represent our results had all of the acquired entities been combined and
operated under common ownership during that period. See "Business--The Company"
for a general description of our business
Our sales consist primarily of parts sales (including remanufactured parts)
and installation and repair income. Parts sales include the sales of parts,
supplies, accessories and equipment for heavy
35
duty vehicles and equipment, including braking, steering and suspension
systems, transmissions, drivelines, axles, wheels and rims, hydraulic systems
and engines. Remanufacturing revenues are derived from the sales of brake
shoes, drivelines, hydraulic systems, transmissions and rear axles which have
been remanufactured. Service revenues are derived from providing repair service
to vehicles and equipment and installing parts, supplies and equipment. Same
location sales are calculated to include a new location after a full calendar
year of operations.
Our cost of sales consist of the cost (including incoming freight) of parts,
supplies and equipment sold and direct labor costs incurred to provide
remanufacturing and service, partially offset by volume-related rebates
received from component manufacturers and buying cooperatives.
Our selling, general and administrative expenses include the cost of
personnel conducting sales, warehousing, delivery and administrative activities
(including commissions and other forms of incentive compensation), advertising
and marketing expenses, depreciation and amortization expenses, rent, delivery
expenses, repairs, utilities, maintenance costs, professional fees, property
taxes and other costs not included in cost of sales that are attributable to
operations.
Results of Operations
The following table summarizes our historical results of operations for the
fiscal years ended December 31, 1996, 1997 and 1998 ($ in millions):
Fiscal Year
---------------------------------------
1996 1997 1998
----------- ----------- -------------
$ % $ % $ %
----- ----- ----- ----- ------ -----
Sales............................... $52.6 100.0% $57.8 100.0% $103.3 100.0%
Gross profit........................ 19.3 36.7 21.2 36.7 37.4 36.2
SG&A expenses....................... 14.4 27.4 16.1 27.9 31.0 30.0
Income from operations.............. 4.9 9.3 5.1 8.8 6.4 6.2
Interest expense, net............... 0.6 1.1 0.8 1.4 5.9 5.7
Other income (expense).............. 0.1 0.2 0.1 0.2 (0.1) 0.1
Income tax expense (benefit)........ 0.1 0.2 0.1 0.2 (0.7) 0.7
Net income.......................... 4.3 8.2 4.3 7.4 1.3 1.3
Comparison of Results of Operations
Fiscal Year 1998 Compared to Fiscal Year 1997
Sales. Sales increased to $103.3 million in 1998 from $57.8 million in 1997,
an increase of 78.7%. The overall sales growth is attributable to the
acquisitions of Stone, Truck & Trailer, Tampa Brake, Connecticut Driveshaft and
Truckparts, which combined contributed $39.7 million to 1998 sales. Excluding
acquisitions, the sales increase was 10.0% which is attributable to the full
year impact of the location opened in Jackson, Mississippi in May 1997 and an
increase in sales at the Mobile, Alabama and Monroeville, Alabama locations due
to targeted sales initiatives. Same location sales growth, only at City Truck
was 7.8% in 1998.
Gross profit. Gross profit increased to $37.4 million in 1998 from $21.2
million in 1997, an increase of 76.4%. Excluding acquisitions, gross profit
increased by 12.7% to $23.9. As a percentage of sales, the Company's gross
profit decreased to 36.2% in 1998 from 36.7% in 1997 reflecting the impact of
revenue from acquired businesses with lower margins. Excluding acquisitions,
margins increased to 37.6% due to higher vendor rebates.
36
SG&A expenses. SG&A expenses increased to $31.0 million in 1998 from $16.1
million in 1997, an increase of 92.5%. As a percentage of sales, SG&A expenses
increased to 30.0% in 1998 from 27.9% in 1997. The increase in SG&A expenses as
a percentage of sales is primarily the result of acquisition related
amortization expense, primarily goodwill and incremental overhead resulting
from establishing a corporate staff and corporate office. We expect to incur
increased SG&A expenses in 1999 resulting from having a corporate staff and
corporate office for the full year. Excluding acquired amortization and
corporate expenses, SG&A as a percent of sales decreased to 27.2% due to an
increase in sales without a similar increase in SG&A which includes overhead
and other fixed expenses.
Income from operations. Income from operations increased to $6.4 million in
1998 from $5.1 million in 1997, an increase of 25.5%. As a percentage of sales,
income from operations decreased to 6.2% from 8.8%. The decrease in income from
operations as a percentage of sales is due primarily to the factors discussed
above. Excluding amortization and corporate expenses, income from operations as
a percentage of sales increased to 9.0%.
Interest expense. Interest expense increased to $5.9 million in 1998 from
$0.8 million in 1997, due to the $100.0 million of senior subordinated notes we
issued and increased borrowing under our revolving credit facility, primarily
to finance acquisitions completed in 1998.
Income tax expense (benefit). We recorded an income tax benefit of $0.7
million in 1998 compared to an expense of $0.1 million in 1997. Prior to June
1, 1998, we were taxed as an S corporation and as a result of the change to C
corporation status, a net deferred tax asset of $15.1 million was created, of
which $887 has been credited to the income statement, creating the income tax
benefit. The remainder, $14.2 million, has been credited to paid-in capital.
Net Income. Net income decreased to $1.3 million in 1998 from $4.3 million in
1997, a decrease of 69.8%. The decrease is due primarily to the factors
discussed above.
Fiscal Year 1997 Compared to Fiscal Year 1996
Sales. Sales increased to $57.8 million in 1997 from $52.6 million in 1996,
an increase of 9.9%. The sales growth is primarily attributable to the opening
of a new location in Jackson, Mississippi in May 1997, the full year impact of
the location opened in Monroeville, Alabama in September 1996 and an increase
in sales at the Mobile, Alabama location due to targeted sales initiatives.
Same location sales growth was 7.2% in 1997.
Gross profit. Gross profit increased to $21.2 million in 1997 from $19.3
million in 1996, an increase of 9.8%. As a percentage of sales, the Company's
gross profit remained constant between the corresponding periods at 36.7%.
SG&A expenses. SG&A expenses increased to $16.1 million in 1997 from $14.4
million in 1996, an increase of 11.8%. As a percentage of sales, SG&A expenses
increased to 27.9% in 1997 from 27.4% in 1996. The increase in SG&A expenses as
a percentage of sales is primarily the result of the incremental overhead
resulting from the relocation of City Truck's corporate offices and
distribution center to a larger facility in Birmingham, Alabama in October
1996.
Income from operations. Income from operations increased to $5.1 million in
1997 from $4.9 million in 1996, an increase of 4.1%. As a percentage of sales,
income from operations decreased to 8.8% from 9.3%. The decrease in income from
operations as a percentage of sales is due primarily to the factors discussed
above.
37
Interest expense. Interest expense increased to $0.8 million in 1997 from
$0.6 million in 1996 due to marginally higher average borrowings in 1997.
Income tax expense. Income tax expense was $0.1 million for 1997 and 1996.
During 1997 and 1996, we were taxed as an S corporation and paid taxes to only
those states that do not permit businesses to be taxed as S corporations.
Net Income. Net income remained relatively unchanged from 1997 to 1996.
Liquidity and Capital Resources
City Truck historically used internal cash flow from operations to fund its
working capital requirements and capital expenditures and new branch locations.
We historically have had relatively low capital expenditure requirements since
we lease all but six of our 92 facilities. In 1998, we spent on a pro forma
combined basis $3.5 million on capital expenditures. We also historically have
paid dividends and distributions to stockholders. However, we do not anticipate
that we will pay dividends for the foreseeable future. In 1998, we funded our
substantial acquisition program with the proceeds from equity offerings and
long-term borrowings.
We financed the recapitalization of City Truck, the acquisition of Stone and
the refinancing of the existing indebtedness of City Truck and Stone with (1)
$52.0 million of borrowings under the revolving credit facility, (2) $6.0
million of interim financing provided through the purchase of securities by
Brentwood (the "Bridge Securities"), and (3) the purchase by Brentwood and
other investors of $10.2 million of our series B preferred stock and common
stock. In addition, Brentwood purchased outstanding common stock of City Truck
for $20 million in connection with the recapitalization.
On July 31, 1998, we issued our $100.0 million senior subordinated notes. We
used the net proceeds from the sale of these notes, which totaled approximately
$96.0 million, as follows: (1) approximately $52.0 million to repay outstanding
indebtedness under the revolving credit facility and (2) approximately $6.0
million to redeem the Bridge Securities, leaving approximately $38.0 million
for general corporate purposes. After July 31, 1998, we spent $50 million for
the acquisitions of Truck & Trailer Parts, Tampa Brake, Connecticut Driveshaft
and Truckparts. We borrowed an additional $18.2 million under the revolving
credit facility to complete these acquisitions.
In January 1999, we secured $52.5 million of commitments for a private equity
offering consisting of series A preferred stock and common stock of Holdings.
Brentwood committed $15.0 million and other investors committed $37.5 million.
In January 1999, we received $10.5 million of the equity to partially finance
the acquisitions of Associated and Tisco and borrowed $49.3 million under the
revolving credit facility to finance the balance and an additional $4.0 million
for working capital. We anticipate that we will use the remaining equity
commitments of $42.0 million to finance the Vantage Parts and Active Gear
acquisitions and for general corporate purposes. In April 1999, we received the
additional equity.
Our $85.0 million revolving credit facility had undrawn availability of $66.8
million at December 31, 1998 and $13.5 million of undrawn availability at
January 31, 1999. After giving effect to the Vantage Parts and Active Gear
acquisitions and the application of the additional $42.0 million in equity, the
undrawn availability would have been $13.5 million at January 31, 1999 and we
would have had a $3.3 million increase in cash. See "Description of Revolving
Credit Facility."
38
We intend to continue to pursue a strategy to become the largest independent
distributor of heavy duty vehicle parts, with a focus on building a national
system of branch locations primarily through acquisitions. We expect to fund
our working capital needs, capital expenditures and future acquisitions through
availability under our revolving credit facility, future issuances of debt or
equity securities and cash flow generated from operations. However, our ability
to execute our growth strategy and to make scheduled payments of interest or
principal or to refinance our indebtedness will depend upon our future
operating performance, which will be affected by general economic, financial,
competitive, legislative, regulatory, business and other factors beyond our
control. See "Risk Factors--The terms of our debt restrict our operations" and
"Description of Revolving Credit Facility."
Effect of Inflation; Seasonality
Inflation has not had a significant effect on our results of operations in
recent years. Our selling, general and administrative expenses, such as
salaries, employee benefits, and facilities costs are subject to normal
inflationary pressures.
Many of our customers have a reduced number of working days in the fourth
quarter resulting from public holidays. As a result, we have lower sales in
that quarter than in the other quarters. With the exception of the fourth
quarter, our operations are generally not affected by seasonal fluctuations.
Year 2000 Issue
The Year 2000 issue relates to the inability of certain computer programs and
business equipment to properly process dates after December 31, 1999 and
certain other date combinations which have or once had special meaning in data
file processing. As a result, businesses may be at risk for miscalculations and
system failures.
In response to the Year 2000 issue, we initiated a series of projects to
identify, evaluate and implement necessary changes to our computerized business
systems, including our branch operating systems, and business equipment. We
have completed a review of all of our systems and equipment including vehicles,
manufacturing equipment and security, telephone and other systems. We examined
the importance of each category, the remediation necessary to make the category
complaint (either modification or replacement), the resources necessary to
complete the remediation and a time frame for completion.
We are addressing our software, hardware, and equipment issues primarily by
installing a Year 2000 compliant product at all of our operating locations. In
a limited number of cases, we will replace business equipment with Year 2000
compliant hardware. We have completed 75% of our hardware and equipment
remediation or replacement, and 60% of our software remediation or replacement.
The remediation and replacement process is proceeding as planned and we expect
to be fully compliant by September 30, 1999. We do not believe that any of our
systems or business equipment have critical dates prior to that time.
We estimate the cost of the project to be less than $400,000, and we have not
made any material expenditures due solely to Year 2000 issues. Year 2000
compliance is an element of our strategic systems plan. We have planned all
systems implementations to enhance our business and address Year 2000 issues as
a matter of course.
39
Notwithstanding the above projects, our greatest risk and most reasonably
likely worst case scenario is with our branch operating application systems. If
the branch systems experience problems, it could disrupt our basic distribution
operations until we resolve the issue. To address this risk, we will be closed
for business Saturday, January 1, 2000 and Sunday, January 2, 2000. We will
test all material systems in production operation during this time with on site
support from, and in cooperation with, the software vendor. On December 31,
1999, without disrupting our normal business, we will print out all customer
orders scheduled to be shipped through January 13, 2000. We will also print a
price list which will enable us to manually conduct our business through
January 13, 2000. In addition, we are able to distribute software updates to
all of our processing centers and branch locations within a few hours.
If modifications and conversions by us and by those with whom we conduct
business are not completed in a timely manner, the Year 2000 issue may have a
material adverse effect on our business, financial condition and results of
operations. While we have endeavored to obtain assurances from our product
suppliers that they are adequately addressing the Year 2000 issue, we may
experience minimal interruptions in replenishment from some suppliers.
Our contingency plans include (1) retaining alternate software suppliers in
the event that our primary system fails the Year 2000 testing we currently have
in progress, despite written assurances from the vendor that the system is Year
2000 compliant, (2) identifying alternate sources of supply for selected
merchandise and (3) selectively increasing inventory for highly sensitive
items.
40
BUSINESS
The Company
We are one of the largest and fastest growing independent distributors in the
highly fragmented $17 billion heavy duty vehicle parts and repair industry. We
distribute parts to over 25,000 customers through 92 branch locations across 21
states. Based on both sales and number of branch locations, we are one of the
two largest independent distributors in the nation and the leading distributor
in each of the southeastern, western and New England regions of the United
States.
We purchase replacement parts for heavy duty vehicles from component
manufacturers, inventory a broad selection of these parts and deliver them
directly to customer locations from our branches or sell them "over-the-
counter" to customers who visit our branches. Our 92 branch locations consist
primarily of warehouse and service space, with a small retail selling space. A
typical location averages 10,000 square feet. Our breadth of product inventory
generally enables us to provide delivery customers with parts within 24 hours
and to provide over-the-counter customers with parts immediately. We maintain a
fleet of delivery vehicles that makes daily scheduled deliveries to customers,
picks up used parts for remanufacture or repair and makes other delivery stops
for special orders. By offering reliable and timely availability of a wide
range of heavy duty vehicle parts, we allow our customers to reduce their
investment in inventories and minimize lost productivity and other costs
associated with vehicle and equipment downtime.
We carry a comprehensive selection of heavy duty vehicle parts including
braking, steering and suspension systems, transmissions, drivelines, axles,
wheels and rims, hydraulic systems and engine components. Our customers use
these parts for regular preventative maintenance, such as replacement of worn
brake shoes and air and oil filters, and for repairs of damaged parts. To
complement our parts distribution business, we provide our customers with
value-added services, such as extensive remanufacturing capabilities and
machine shop services. Our remanufacturing facilities allow us to offer our
customers a timely and reliable source of high quality parts. We operate ten
facilities which reline brake shoes and 15 facilities which rebuild
transmissions, rear axles and other components.
Industry Overview
Industry sources estimate that the heavy duty vehicle parts and repair
industry generated $17.0 billion in revenues in 1997. An industry source
expects the market for replacement parts, which accounted for the majority of
revenues in the overall heavy duty vehicle parts and repair industry, to grow
17.7% from 1997 to 2002. We believe growth in the heavy duty vehicle parts and
repair industry and growth in market share for full-service independent
distributors like us has been and will continue to be driven by the following
primary factors:
. Expanding fleet of heavy duty vehicles. The population of heavy duty
vehicles increased from approximately 6.6 million in 1992 to
approximately 7.7 million in 1997, a 15.9% increase, and is projected to
reach 8.6 million by 2002.
. Increased life expectancy of fleet vehicles. The life expectancy of the
average fleet vehicle has grown 62% from 451,000 miles in 1978 to
approximately 730,000 miles in recent years. In addition, the expanding
population of trucks in prime repair age, 5 to 13 years old, is expected
to increase from 32.6 million in 1996 to 39.2 million by 2001, an
increase of over 20%, leading to an expected increase in demand for
replacement parts and service.
41
. Increased total truck miles driven annually. Annual truck miles driven
steadily increased from 2.0 billion in 1988 to 2.5 billion in 1997, a
24.9% increase. Over this period, the number of annual truck miles driven
never declined year over year.
. Increased outsourcing of parts inventory management by fleet
operators. We believe that heavy duty vehicle fleet operators are
increasingly outsourcing parts inventory management and service work and
concentrating supplier relationships in favor of a limited number of
integrated single-source suppliers. We believe that full service
independent distributors with a broad network of branch locations are
well positioned to capitalize on this outsourcing trend.
The independent heavy duty vehicle parts and repair industry is highly
fragmented, and we believe it is in the early stages of consolidation. Most of
the approximately 2,000 independent distributors and thousands of repair shops
in the industry are small, owner-operated businesses with limited access to the
capital required to develop and maintain a large volume and wide selection of
inventory, provide a full line of product offerings, implement advanced
management information systems and service national and regional accounts. We
believe that the five largest heavy duty vehicle parts distributors currently
account for less than 10% of all revenues generated in the heavy duty vehicle
parts and repair industry.
Competitive Strengths
We benefit from the following competitive strengths:
Ability to successfully execute our acquisition strategy. Since the
combination of City Truck and Stone in June 1998, we have successfully
identified, acquired and integrated six companies with 48 locations, forming
the largest distributor of heavy duty vehicle parts in each of the
southeastern, western and New England regions based on both sales in the region
and number of branch locations. The completed acquisitions have permitted us to
eliminate duplicative costs and reduce overhead, expand product offerings and
integrate regional sales activities.
Proven ability to grow revenue and profits. On a combined basis, we and our
predecessors have experienced strong same location sales growth averaging
approximately 5% annually over the past four years and approximately 7%
annually over the past two years. We have a strong record of successfully
opening or acquiring 37 branch locations since 1993. These locations generated
$87.7 million of 1998 sales.
Purchasing leverage. We are a leading customer of virtually all major heavy
duty vehicle replacement parts manufacturers. As a result of our purchasing
volume, we believe that we purchase parts at a discount to industry averages.
We are achieving cost savings by standardizing purchase prices at the lowest
cost among the acquired companies.
Established customer relationships. By emphasizing superior customer service,
we have developed long-standing relationships with many of our customers. We
are the leading distributor of heavy duty vehicle parts to local, regional and
national fleet operators such as United Parcel Service of America, Inc.,
Consolidated Freightways Corporation, Con-Way Transportation Services and
Penske Leasing, Inc. Our fleet customers depend on us for the timely
availability of high quality heavy duty parts. As evidence of the strength of
our customer relationships, we have served our top 10 customers for an average
of 14 years.
Superior inventory availability. Because of the significant costs associated
with vehicle downtime, we believe that the availability of parts on a timely
basis is the key component of quality
42
service. We maintain a broad selection of inventory with over 20,000 SKUs. In
order to achieve high fill rates, we actively manage and track our inventory on
a real-time basis through advanced information systems. We believe that we are
more likely than our competitors to have parts in stock when requested by our
customers.
Outstanding customer service. We believe that we have a leading reputation
for providing high quality service based on more than 40 years of operations.
We are committed to attracting new customers and retaining existing customers
by:
. offering numerous branch locations conveniently located near our major
customers;
. providing a knowledgeable and responsive sales staff;
. ensuring timely delivery of products to our customers; and
. providing a hassle-free warranty policy for all of the products we sell.
Experienced management team. Our operating management has an average of 23
years of experience in the heavy duty vehicle parts and repair industry. Our
management and sales staff have extensive knowledge of our markets and long-
standing relationships with a broad range of customers and suppliers. We
developed our management team by retaining key operating managers from our
acquired companies and by recruiting our senior executives from outside the
heavy duty vehicle parts industry. Management owns approximately 23% of
Holdings' outstanding equity.
Business Strategy
Our strategic objective is to further grow our sales and profits by
capitalizing on the continued growth and consolidation opportunities in the
heavy duty vehicle parts and repair industry. Our business strategy is to:
Become the largest national distributor of heavy duty vehicle parts. We
intend to build a nationwide system of branch locations through acquisitions as
well as the opening of new stores. As our customer base continues to
consolidate, we believe that it is increasingly important to establish a
national presence to serve our customers effectively. Smaller independent
distributors may be unable to adequately supply larger fleets because they lack
a broad network of branch locations to satisfy customer expectations for rapid
delivery times, availability of a broad selection of parts, consistent pricing
and a uniform warranty policy.
Further reduce cost of products sold. We expect to further reduce our cost of
products sold by:
. passing on our favorable vendor terms to acquired companies;
. negotiating more favorable pricing and terms from our suppliers as our
total volume of purchases increases through acquisitions and internal
growth; and
. sourcing remanufactured components from our facilities and thereby
reducing purchases from outside remanufacturers.
Develop distribution and operating efficiencies. We believe that we will be
able to achieve distribution and operating efficiencies as we continue to add
locations, including:
. improved operating efficiency through regional management of individual
branch locations and the closing of overlapping branch locations;
. improved inventory management and enhanced customer service through the
integration of newly acquired businesses into our information and
logistics systems; and
. reduced overhead costs by consolidating administrative functions such as
marketing, insurance, employee benefits, accounting and risk management.
43
Achieve benefits from combining complementary operations. We believe that we
can obtain significant synergies from combining the operations of recently
acquired businesses and future acquisitions, including:
. sharing customer bases and broadening product offerings including cross-
selling of parts not previously offered at many of our locations;
. enhancing the efficiency of our remanufacturing operations by increasing
capacity utilization and consolidating overlapping facilities; and
. sharing "best practices" and operational expertise throughout our
company.
We expect our completed and pending acquisitions to generate a number of these
benefits. For example, the acquisitions of Truck & Trailer Parts and the
pending Vantage Parts acquisition allows us to offer a broad selection of
trailer parts throughout our system. In addition, the pending acquisition of
Active Gear provides additional remanufacturing expertise and the opportunity
to take advantage of facility consolidation opportunities in the Pacific
Northwest.
Expand relationships with national and regional fleet operators. We believe
there are significant opportunities to expand our sales to national and
regional fleet operators who are increasingly seeking to outsource their parts
inventory management and service work to integrated single-source providers.
With our broad network of branch locations we believe we are one of the only
distributors capable of effectively serving large national and regional fleets
operating in the southeastern, western and New England regions of the United
States.
Operations and Services
Our 92 branch locations, which consist primarily of warehouse and service
space with a small retail selling space, offer well-known national brand name
and private label heavy duty vehicle replacement parts. If we do not have a
specific part in stock at a particular location, our sales employee can utilize
our information system at many of our locations to attempt to locate the
requested product from another location. Our information system allows the
sales employee to record the sale, reserve the part and request delivery. As a
result of our inventory management programs, we believe we provide broad
product availability on a timely basis which enhances customer satisfaction and
loyalty.
We also provide commercial vehicle parts installation and repair services in
several locations. We employ mechanics and other technicians who repair
vehicles using parts maintained in inventory. In addition, at 57 of our
facilities we offer machine shop services to rebuild and repair damaged or used
heavy duty vehicle parts for our customers, including some or all of: axles,
transmissions, power steering and hydraulic and driveline components. We also
operate ten brake shoe remanufacturing facilities where approximately 125,000
brake shoes are remanufactured monthly. In addition, we remanufacture
drivelines, hydraulic systems, transmissions and rear axles. We resell these
parts, remanufactured to meet original specifications or specifications
acceptable to the customer, at a lower price than new parts.
Products
We distribute replacement parts for substantially all heavy duty vehicle
makes and models in service in the United States, including imported vehicles.
Our extensive product line includes a wide
44
selection of parts for braking, steering and suspension systems, transmissions,
drivelines, axles, wheels and rims, hydraulic systems and engine components.
The useful lives of parts range from those of high-mortality items such as
brake shoes and drums, clutches, bearings, belts and hoses, which are generally
replaced frequently, to those of transmissions, engines and drivelines, which
generally have significantly longer useful lives. In addition to replacement
parts, we distribute ancillary supply items such as oil, antifreeze,
transmission, brake and power steering fluids, engine additives, protectants
and waxes. We believe approximately 35% of our parts sales are attributable to
the regular preventative maintenance of heavy duty vehicles as opposed to "as
needed" repairs. We inventory over 150 component brands. We also offer
remanufactured components, including remanufactured brake shoes under our own
brand, which provide customers with a timely and reliable source of high
quality parts. We offer customers a hassle-free, uniform warranty policy across
our extensive network of locations. In addition, we offer "pass through"
warranties from the OEM.
Customers
We believe that our commitment to high quality customer service, consistent
availability of parts and hassle-free warranty policy are the key elements to
maintaining and continuing to build our diverse base of over 25,000 customers.
Generally, our customers are located within 25 miles of a branch location. We
service a large variety of local and regional government entities and
businesses. Our customers include (1) the local operations of companies with
national and regional fleets, such as Waste Management, Inc., Browning-Ferris
Industries, Inc., Dole Food, Inc., and Tyson Foods, Inc., (2) companies with
common carrier and rental fleets, including United Parcel Service of America,
Inc. and Consolidated Freightways Corporation and (3) government entities and
utilities, including the North Carolina Department of Transportation and
Alabama Power. Most of the vehicles in an average customer's fleet operate on
local stop-and-go routes which subject parts to significant wear, resulting in
more frequent replacement. We also distribute parts to independent repair
shops, OEM-authorized heavy duty vehicle dealerships and other heavy duty
vehicle owners and operators. No single customer accounted for more than 5% of
our pro forma sales in 1998, and our top ten customers accounted for
approximately 15% of our 1998 pro forma sales.
Suppliers
We purchase heavy duty vehicle parts from over 150 component manufacturers.
Our five largest principal parts suppliers, Meritor/Euclid, Federal Mogul, Dana
Corporation, Webb Wheel Products, Inc. and Bendix Friction Materials Division
of AlliedSignal Inc., represented less than 25% of our purchases in 1998. We
frequently purchase comparable parts from multiple manufacturers to enable us
to offer a broader selection of products to our customers. To maximize
efficient distribution of our products, we strive to have suppliers deliver
shipments directly to each of our branch locations. When that arrangement is
not possible, we receive parts at our central warehouses and utilize our fleet
of delivery vehicles to distribute the parts to each of the branch locations.
We are not dependent on any one supplier and do not have a purchasing contract
with any suppliers.
We receive rebates on all parts we purchase directly from vendors and through
Heavy Duty America, our primary purchasing cooperative. Heavy Duty America, the
largest industry purchasing cooperative in the United States, obtains the
largest volume discounts relative to the other industry purchasing groups. We
believe that we will be able to obtain additional volume discounts from
component manufacturers on both parts purchased through Heavy Duty America and
those purchased directly from the component manufacturers. We believe this
purchasing advantage will improve as we add volume through internal growth and
acquisitions.
45
Sales and Marketing
We believe that our superior customer service and our consistent availability
and quality of parts are critical elements in the sales process. Based on these
factors, among others, we have been able to establish and maintain long-term
relationships with existing customers as well as expand our market share
through our sales and marketing efforts. Management constantly monitors sales
activity according to customer type, product line, product group and location
to identify trends and ensure that our market share is maintained or increased.
Management also frequently reviews sales by territory and continually revises
marketing strategies to maximize productivity and sales. We receive advertising
and marketing allowances from component manufacturers which are based on our
volume of purchases. In addition, we actively cooperate with our suppliers to
design and implement effective marketing programs to promote our products.
We employ 522 persons in sales and marketing functions. Our sales force is
two-tiered: "inside" salespeople are responsible for maintaining customer
relationships, receiving and soliciting individual over-the-counter orders at
branch locations and responding to service and other inquiries by customers,
while "outside" salespeople are primarily responsible for identifying new
customers and soliciting new business. Our sales personnel are highly
specialized with expertise in manufacturers' specifications and customers'
needs. We believe that our experienced sales force has enabled us to maintain
one of the largest customer bases in the heavy duty vehicle replacement parts
industry in the United States.
46
Facilities and Vehicles
We own six facilities located in Milford and South Windsor, Connecticut,
Fresno, California, Phoenix, Arizona, Las Vegas, Nevada and Atlanta, Georgia,
and lease 86 facilities throughout the United States. Leases for 18, 8, 11, 2
and 2 facilities expire in 1999, 2000, 2001, 2002 and 2003, respectively, and
13 of these leases have renewal options. The remaining 45 leases expire on
various dates through 2013 and 24 of them have renewal options. The average
total warehouse and service space is approximately 10,000 square feet per
location, which consists primarily of warehouse and service space, with a small
retail selling space. Our facilities are used for sales, services, warehousing
and administration. Our facilities are listed below:
Total Sq. Machine Shop
City State Footage Services Provided *
- ---- ----- --------- -------------------
Albertville AL 8,400 FW
Birmingham AL 103,000 D, T, BS
Cullman AL 10,500 --
Decatur AL 12,000 D, FW
Dothan AL 19,125 D, FW
Huntsville AL 10,000 FW
Mobile AL 10,080 D, FW
Monroeville AL 5,600 --
Montgomery AL 16,400 D, FW
Tuscaloosa AL 8,000 FW
Tuscumbia AL 12,500 --
Phoenix AZ 18,000 FW
Anaheim CA 11,000 FW, D
Arcata CA 6,300 --
Bakersfield CA 7,500 FW, D
Burbank CA 6,000 FW
Escondido CA 5,800 FW, D
Fontana CA 20,000 D, T, FW, S
Fontana-FRS CA 15,000+ --
Fortuna CA 1,691 --
Fresno CA 11,500 FW, T
Gardena CA 60,000+ BS, D, T, FW, S
Hayward CA 9,800 T, FW, D
Huntington Park CA 4,500 FW
Modesto CA 7,000 --
Ontario CA 34,402 BS
Redding CA 10,250 --
San Diego CA 8,500 FW, D, T
Ukiah CA 9,600 --
Victorville CA 5,000 --
W. Sacramento CA 11,000 FW
Whittier CA 15,000 D, FW, T, S
Wilmington CA 4,000 --
Denver CO 18,029 --
Danbury CT 5,807 D
Hartford CT 11,762 --
Milford CT 40,600 BS, D, FW
NorthHaven CT 33,900 --
Norwich CT 6,400 --
South Windsor CT 17,500 D
Stamford CT 8,000 --
Waterbury CT 5,006 D
Clearwater FL 9,500 D, FW
Jacksonville FL 10,968 --
Lakeland FL 14,147 D, FW
Orlando FL 15,251 D, FW
Total Sq. Machine Shop
City State Footage Services Provided *
- ---- ----- --------- -------------------
Sarasota FL 17,500 D, FW
Tampa FL 24,740+ D, BS, T, FW, H
Atlanta GA 25,000 BS
Conley GA 46,400 --
Dalton GA 10,200 D, FW
Dalton GA 8,500 --
Savannah GA 6,250 --
Chicago IL 31,222 --
Bowling Green KY 13,600 D, FW
Newton MA 6,700 --
W. Springfield MA 5,950 D
Kansas City MO 24,279 BS
Jackson MS 10,000 --
Asheville NC 10,000 D, T, FW
Charlotte NC 10,080 --
Charlotte NC 14,000 D, SG, FW
Durham NC 3,000 --
Garner NC 75,000 BS, T, SG
Goldsboro NC 10,000 D
Greensboro NC 35,500+ D, T
Hickory NC 10,000 D, FW
Kenansville NC 9,000 --
Raleigh NC 38,000+ D, FW, S
Wilmington NC 8,000 D, H
Las Vegas NV 6,000 --
Reno NV 17,724 --
Portland OR 32,840 BS
Charleston SC 10,000 --
Columbia SC 10,000 D, H
Greenville SC 8,500 --
Greenville SC 7,500 D, T, FW
Chattanooga TN 18,000 D, FW
Johnson City TN 10,000 D
Memphis TN 18,000 D, FW
Nashville TN 18,000 D, FW
Dallas TX 19,289 --
Norfolk VA 11,500 D, FW
Richmond VA 10,000 D, FW
Roanoke VA 5,000 --
Auburn WA 20,000 FW, D, BS
Kirkland WA 5,400 --
Seattle WA 22,860 T, SG
Seattle WA 5,000 --
Seattle WA 9,615 --
Tacoma WA 11,420 T, SG
Charleston WV 28,704+ D, H, FW, T
- ---------------------
+Includes drive-in service facilities.
* BS =brake shoes, D =drive train, FW =fly wheel, H =hydraulic, S =spring
repair, SG =steering gear, T =transmission
Our corporate office is located in 7,000 square feet of office space in
Deerfield, Illinois. In addition, we lease 3,500 square feet of office space in
Portland, Oregon and we own the land on which the Gardena, California facility
is located and property in Huntington Park, California which we lease to an
unrelated third party.
47
We operate over 450 vehicles, including five leased tractor-trailers and 441
delivery trucks and vans. Approximately 95% of our fleet is dedicated to
delivery services. Our six drive-in service facilities are comprised of
approximately 23 service bays and, as of December 31, 1998 on a pro forma
basis, we employed 36 full-time mechanics at these service facilities.
Competition
We operate in a highly fragmented and competitive industry. Competition is
based primarily on service, availability and quality of parts, geographic
proximity and price. We compete with other heavy duty vehicle parts
distributors, OEM-authorized dealerships, independent repair shops and
component manufacturers on a regional and local level. The heavy duty vehicle
parts and repair industry has experienced consolidation, and we compete with
other companies which may pursue a consolidation strategy. In addition, the
members of the National Auto Parts Association comprise an affiliated network
of locations that compete with us primarily for over-the-counter parts sales.
We also compete with dealerships authorized by OEMs, such as Freightliner
Corporation, Mack Trucks, Inc., Navistar International Corporation and Paccar
Inc. These OEM-authorized dealerships sell replacement parts to customers who
purchased vehicles from their dealerships as well as to other heavy duty
vehicle owners and operators who purchase replacement parts in the aftermarket.
We believe that our market leadership, significant purchasing leverage,
superior customer service, parts availability and delivery capabilities provide
us with a competitive advantage over other companies in the heavy duty vehicle
parts and repair industry.
Government Regulations and Environmental Matters
We are subject to a number of environmental laws. We are also subject to
federal, state and local laws and regulations relating to workplace health and
safety. In particular, our operations are subject to environmental laws
governing waste disposal, air and water emissions, the handling of hazardous
substances, workplace exposure and other matters. Stringent environmental laws
govern the handling and disposal of chemicals and substances, such as solvents
and lubricants, commonly used in some of our service and remanufacturing
operations. In addition, some of our facilities operate, or have operated,
above-ground and underground storage tanks for fuels and other substances which
are subject to a variety of environmental laws. We conduct environmental
diligence in connection with our acquisition program and obtained indemnities
from sellers of the businesses we have acquired, which in some cases are
limited by time and dollar amounts. If we fail, or our predecessors failed, to
comply with environmental laws, we may be liable for administrative, civil or
criminal penalties assessed or asserted by government agencies or other
parties. We may not be fully indemnified with respect to the actions of our
predecessors. If we release the substances described above into the
environment, whether at facilities we operate or at facilities where we have
arranged for disposal of the substances, we may also be liable for cleaning up
contamination which results from the releases. Currently, we are not party to
any legal proceedings pursuant to applicable environmental laws and believe we
are in material compliance with all applicable environmental laws. We endeavor
to evaluate properties owned or leased by potential acquisition candidates to
assess environmental conditions at the properties before any acquisition.
Management Information Systems; Year 2000 Issue
Each of the acquired companies operates advanced management information
systems. We use these systems to purchase, monitor and allocate inventory on a
real-time basis throughout our branch system and central warehouses. The
systems enable us to effectively manage inventory costs and turnover rates. The
systems include computerized order entry, sales analysis, inventory status,
invoicing and payment. We employ systems to determine optimum branch location
inventory levels based on usage rates, production statistics, technological
advances and other factors. We intend to
48
install a common management information system among all acquired businesses
supported by Karmak, Inc., the leading designer of information systems
specifically for the heavy duty vehicle replacement parts industry. We believe
that our management information systems will be Year 2000 compliant by
September 30, 1999. For a more detailed discussion of our Year 2000 issue, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Issue."
Employees
As of December 31, 1998, on a pro forma basis, we employed 1,541 persons. Of
these employees, approximately 311 serve in management and administration
functions, 522 serve in sales and marketing functions, 489 serve in warehousing
functions and 219 serve in repair and service functions. To market heavy duty
vehicle parts effectively, salespeople must have significant expertise
regarding the various manufacturers and specifications of vehicle parts. We
believe we maintain a competitive advantage over other parts distributors due
to the high level of expertise of our sales force. None of our employees are
party to collective bargaining agreements, and we benefit from good employee
relations.
To maximize performance from certain of our employees, including branch
managers and the sales force, we have implemented incentive-based compensation
programs based on both sales growth and profitability. We believe that we will
be able to attract and retain employees based on our incentive-based
compensation programs, opportunities for career advancement within the company
and a strong benefits program.
Recruiting, Training and Safety
We believe that recruiting and training high quality personnel is a major
component of a successful operation. We have implemented a number of training
programs and incentives to encourage the development of technical expertise by
our sales and service personnel, which enables them to advise customers when
vehicles need regular scheduled maintenance, recommend the appropriate products
and instruct customers on parts use and installation.
We seek to hire employees from universities, community colleges, vocational
schools, other educational institutions, competitors and other companies in the
trucking industry. In addition, we provide on-the-job training, attractive
benefits packages, steady employment and opportunities for advancement. We
currently have a variety of safety programs in place, including training with
respect to operation of certain equipment, such as fork-lifts, and a bonus
system based on an employee's or an employee team's safety record. We are in
the process of establishing "best practices" throughout our operations to
ensure that all employees comply with the safety standards established by us,
our insurance carriers and federal, state and local laws and regulations.
Risk Management and Insurance
The primary risks in our business are bodily injury, property damage and
injured workers' compensation. We maintain liability insurance for bodily
injury and third-party property damage and workers' compensation coverage that
is standard for the industry and that we consider sufficient to insure against
these risks. We self-insure certain risks and obtain stop loss and catastrophic
coverage from insurance companies.
Legal Proceedings
In the ordinary course of business we are involved in legal proceedings
relating to claims arising out of our operations. We do not believe that there
are any pending or threatened legal proceedings that are reasonably likely to
have a material adverse effect on us.
49
MANAGEMENT
Executive Officers and Directors
The following sets forth information regarding our executive officers and
directors:
Name Age Position
---- --- --------
John J. Greisch......... 43 President, Chief Executive Officer and Director
Vice President, Chief Financial Officer and
John P. Miller.......... 41 Secretary
Anthony W. Cavalle...... 43 Vice President Operations
Gene L. Curtin.......... 51 Vice President and Chief Information Officer
Frederick J. Warren..... 59 Chairman of the Board of Directors
W. Louis Bissette III... 30 Director
W. Larry Clayton........ 51 Regional General Manager and Director
Christopher A.
Laurence............... 31 Director
Martin R. Reid.......... 56 Director
David S. Seewack........ 39 Regional General Manager and Director
James T. Stone.......... 49 Regional General Manager and Director
John J. Greisch, President, Chief Executive Officer and Director. Mr. Greisch
has served as our President, Chief Executive Officer and as a director since
joining us in June 1998. From May 1986 to December 1997, Mr. Greisch served in
various positions at The Interlake Corporation, a global industrial equipment
manufacturer with approximately $800 million in 1997 sales. Most recently, Mr.
Greisch served as President of the Material Handling Group, Interlake's largest
operating unit with approximately $475 million in 1997 sales, and before that
he served as Vice President of Finance, Chief Financial Officer. Mr. Greisch is
a Certified Public Accountant.
John P. Miller, Vice President, Chief Financial Officer and Secretary. Mr.
Miller has served as our Vice President, Chief Financial Officer and Secretary
since joining us in June 1998. From 1997 to June 1998, Mr. Miller served as
Chief Financial Officer of Peapod, Inc., an internet-based grocery shopping
service. From 1985 to 1997, Mr. Miller served in various positions at
Interlake. Mr. Miller last served as Controller for Interlake, and before that
he served as Vice President Finance for Interlake's Material Handling Group.
Mr. Miller is a Certified Public Accountant.
Anthony W. Cavalle, Vice President Operations. Mr. Cavalle has served as Vice
President Operations since joining us in October 1998. From 1997 to October
1998, Mr. Cavalle served as Executive Vice President Operations of Carstar, a
franchiser and consolidator of collision service centers with approximately
$250 million in 1998 sales. From 1981 to 1997, Mr. Cavalle served in various
positions at Chief Auto Parts, an auto parts retailer and distributor with
approximately $500 million in 1997 sales. Mr. Cavalle's most recent position at
Chief Auto Parts was as Vice President Commercial and International Business
and before that he served as Vice President Marketing.
Gene L. Curtin, Vice President and Chief Information Officer. Mr. Curtin has
served as Vice President and Chief Information Officer since joining us in
February 1999. From 1992 to January 1999, Mr. Curtin served as Vice President
and Chief Information Officer of Wickes, Inc., a distributor of building
supplies for professional contractors with approximately $910 million in 1998
sales.
50
Frederick J. Warren, Chairman of the Board of Directors. Mr. Warren has
served as a director since June 1998. Mr. Warren has been with Brentwood since
co-founding it in 1972 and is presently a general partner of Brentwood Buyout
Management Partners, L.P. and Brentwood Buyout Partners, L.P., a managing
member of Brentwood Private Equity, L.L.C. and Brentwood Private Equity
Management, L.L.C. Mr. Warren is also a director of PulsePoint Communications.
W. Louis Bissette III, Director. Mr. Bissette has served as a director since
June 1998. Mr. Bissette joined Brentwood in 1993 and is presently a principal
of Brentwood Private Equity, L.L.C. and Brentwood Private Equity Management,
L.L.C. Before joining Brentwood, Mr. Bissette was in the Corporate Finance
Department of Morgan Stanley & Co. Incorporated.
W. Larry Clayton, Regional General Manager and Director. Mr. Clayton has
served as a Regional General Manager and as a director since our inception in
June 1998. Mr. Clayton is the founder of City Truck, and served as President of
City Truck from its inception in 1975. Mr. Clayton is currently a member of the
HDA Marketing Committee.
Christopher A. Laurence, Director. Mr. Laurence has served as a director
since June 1998. Mr. Laurence joined Brentwood in 1991 and is presently a
managing member of Brentwood Private Equity, L.L.C. and Brentwood Private
Equity Management, L.L.C. Mr. Laurence is also a director of Rental Service
Corporation, Aspen Marketing Group, Inc., Silver Cinemas International, Inc.
and World Point Logistics.
Martin R. Reid, Director. Mr. Reid has served as a director since June 1998.
Mr. Reid is the Chief Executive Officer and Chairman of the Board of Directors
of Rental Service Corporation. Mr. Reid served as Chief Executive Officer of
Tuboscope Vetco International Corporation from May 1991 to October 1993. From
September 1986 to June 1990, Mr. Reid was Chief Executive Officer of Eastman
Christensen Co. Mr. Reid is a director of Aspen Marketing, Inc.
David S. Seewack, Regional General Manager and Director. Mr. Seewack became a
Regional General Manager and a director upon our acquisition of Associated in
January 1999. From 1985 to January 1999, Mr. Seewack was the President of
Associated.
James T. Stone, Regional General Manager and Director. Mr. Stone became a
Regional General Manager and a director upon our acquisition of Stone in June
1998. From 1970 to June 1998, Mr. Stone served in various positions at Stone,
most recently as the President of Stone. Mr. Stone has served as Chairman of
the Automotive Service Industry Association Heavy Duty Division and on the
board of HDA and NC Trucking Association. He has served on numerous distributor
advisory councils of suppliers to Stone. Mr. Stone is currently a member of the
HDA Marketing Committee.
51
Executive Compensation
The following table sets forth information with respect to the compensation
we paid for services rendered during the year ended December 31, 1998 to our
Chief Executive Officer and to each of our three other most highly compensated
executive officers.
Summary Compensation Table
Long Term
Annual Compensation
Compensation Awards
------------------ ----------------
Salary Restricted Stock
Name and Principal Position ($) Bonus ($) Award(s) ($)
- --------------------------- -------- --------- ----------------
John J. Greisch (a)....................... $166,147 $82,106 --
President and Chief Executive Officer
John P. Miller (b)........................ $ 86,841 $69,255 $99,761
Vice President, Chief Financial Officer
and Secretary
Anthony W. Cavalle (c).................... $ 50,377 $16,285 --
Vice President Operations
Gene L. Curtin (d)........................ -- -- --
Vice President and Chief Information
Officer
- --------
(a) Mr. Greisch became our President and Chief Executive Officer on June 1,
1998. His annualized salary from January 1, 1998 would have been $275,000.
(b) Mr. Miller became our Vice President, Chief Financial Officer and Secretary
on June 29, 1998. His annualized salary from January 1, 1998 would have
been $165,000. Mr. Miller's restricted stock awards represent the
difference between the purchase price and the fair market value of shares
of Holdings' preferred stock Mr. Miller acquired in July 1998. See "Certain
Relationships and Transactions."
(c) Mr. Cavalle became our Vice President Operations on October 6, 1998. His
annualized salary from January 1, 1998 would have been $175,000.
(d) Mr. Curtin became our Vice President and Chief Information Officer on
February 1, 1999 at an annual salary of $170,000.
Stock Options
On February 1, 1999, Holdings granted Mr. Curtin options to purchase 750
shares of Holdings common stock with an exercise price of $170 per share,
expiring on January 31, 2009, and vesting over eight years from the date of
grant. Vesting may accelerate in certain events.
Compensation of Directors
The members of our board of directors do not receive any compensation for
their services as directors. They do receive reimbursement for travel and other
expenses incurred in their capacity as directors.
52
PRINCIPAL STOCKHOLDERS
We are a wholly-owned subsidiary of our parent company, Holdings, which has
guaranteed the notes. Holdings has two classes of voting securities, common
stock and preferred stock designated as voting series A preferred stock. The
common stock and series A preferred stock vote together as a single class. The
following table sets forth, as of December 31, 1998 on a pro forma basis, as
adjusted for the $52.5 million equity commitments, the ownership of Holdings'
common stock and the ownership of its series A preferred stock by each
stockholder who is known by us to own beneficially more than five percent of
the outstanding common stock or series A preferred stock, respectively, by each
director, by each executive officer listed in the table below, and by all
directors and officers as a group.
Series A
Common Stock Preferred Stock
Amount and Amount and
Nature of Nature of Percent of
Beneficial Percent of Beneficial Percent of all Voting
Name and Address Ownership Class Ownership Class Securities
---------------- ------------ ---------- --------------- ---------- ----------
Brentwood(1)............ 139,754 66.0% 609,134 69.3% 68.7%
Frederick J.
Warren(1)(2)........... -- -- -- -- --
Christopher A.
Laurence(1)(2)......... -- -- -- -- --
W. Louis Bissette
III(1)................. -- -- -- -- --
John J. Greisch(3)...... 6,602 3.1 6,983 * 1.2
John P. Miller(3)....... 1,729 * 998 * *
Anthony W. Cavalle(3)... 1,229 * 998 * *
W. Larry Clayton(4)..... 8,600 4.1 37,486 4.3 4.2
James T. Stone(5)....... 4,259 2.0 18,563 2.1 2.1
Martin R. Reid(1)....... 858 * 1,995 * *
David S. Seewack(6)..... 5,723 2.7 24,943 2.8 2.8
All directors and
officers as a group
(ten persons).......... 29,000 13.7% 91,966 10.5% 11.1%
- ---------------------
* Less than one percent.
(1) The address for Brentwood and Messrs. Warren, Laurence, Bissette and Reid
is c/o Brentwood Associates, 11150 Santa Monica Boulevard, Suite 1200,
Los Angeles, California 90025. BABF City Corp., wholly owned by Brentwood
Associates Buyout Fund II, L.P., is the owner of record of 57,227 shares of
common stock and 249,428 shares of preferred stock and HDA Partners I,
L.P., of which Brentwood is the general partner, is the owner of record of
82,527 shares of common stock and 359,706 shares of preferred stock,
indicated as owned by Brentwood.
(2) Messrs. Warren and Laurence are managing members of the general partner of
Brentwood Associates Buyout Fund II, L.P., and in that capacity share
voting and dispositive power with respect to the shares owned by Brentwood
Associates Buyout Fund II, L.P. and may be deemed to be beneficial owners
of those shares but disclaim beneficial ownership of those shares.
(3) The address for Messrs. Greisch, Miller and Cavalle is c/o HDA Parts
System, Inc., 520 Lake Cook Road, Deerfield, Illinois 60015.
(4) The address for Mr. Clayton is c/o City Truck and Trailer Parts, 2912 3rd
Avenue North, Birmingham, Alabama 35202.
(5) The address for Mr. Stone is c/o Stone Heavy Duty, P.O. Box 25518, Raleigh,
North Carolina 27611.
(6) The address for Mr. Seewack is c/o Associated Brake Supply, Inc. 17010 S.
Main Street, Gardena, California 90248.
53
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Relationship with Brentwood
Pursuant to a Corporate Development and Administrative Services Agreement,
dated as of May 29, 1998, between Brentwood Private Equity, L.L.C., an
affiliate of Brentwood, and us (the "Administrative Services Agreement"),
Brentwood Private Equity has agreed to assist in our corporate development
activities by providing services to us, including (1) assistance in analyzing,
structuring and negotiating the terms of investments and acquisitions, (2)
researching, identifying, contacting, meeting and negotiating with prospective
sources of debt and equity financing, (3) preparing, coordinating and
conducting presentations to prospective sources of debt and equity financing,
(4) assistance in structuring and establishing the terms of debt and equity
financing and (5) assistance and advice in connection with the preparation of
our financial and operating plans. Pursuant to the Administrative Services
Agreement, Brentwood Private Equity is entitled to receive: (1) financial
advisory fees equal to 1.5% of the acquisition cost of our completed
acquisitions; (2) upon the occurrence of specified events, monitoring fees
equal to 1.0% of the aggregate amount of investment by Brentwood in us; and (3)
reimbursement of its reasonable fees and expenses incurred from time to time
(a) in performing the services rendered under the Administrative Services
Agreement and (b) in connection with any investment in, financing of, or sale,
distribution or transfer of any interest in us by Brentwood Private Equity or
any person or entity associated with Brentwood Private Equity. In connection
with the acquisitions, we have paid Brentwood Private Equity $2.2 million
pursuant to the Administrative Services Agreement.
Stockholders' Agreement
On September 30, 1998, Holdings and each of Holdings' stockholders at that
time entered into a stockholders' agreement which restricts the transfer of
shares of common stock and preferred stock held by those stockholders. The
stockholders' agreement also entitles those stockholders to certain rights
regarding the transfer of their shares and the election of directors.
The stockholders' agreement provides a "right of first refusal" to Holdings
and each of its original stockholders. The stockholders' agreement also
provides stockholders with "tag-along rights." If Brentwood or any of its
affiliates proposes to transfer any shares, each of the other stockholders may
require the proposed purchaser to purchase a pro rata portion of its shares,
and Brentwood would have to make a corresponding reduction in the number of its
shares to be purchased. In addition, the stockholders' agreement provides
stockholders with "drag-along rights." If Brentwood desires to sell all of its
shares to an unaffiliated third-party who has offered to acquire all of
Holdings' outstanding shares, then Brentwood may require each of the other
stockholders to sell all of their shares in the same transaction and upon the
same terms and conditions.
The right of first refusal, tag-along rights and drag-along rights terminate
on the earlier to occur of (1) an underwritten public offering of Holdings'
common stock; or (2) any transfer of Holdings' equity securities in connection
with a merger, consolidation, sale of assets or sale or exchange of Holdings'
stock representing 100% of the voting power of Holdings' stock.
The stockholders' agreement provides the parties with rights to have their
shares registered for sale under the Securities Act.
The stockholders' agreement provides that Brentwood has the right to nominate
a majority of our directors so long as it owns as many of the shares of common
stock as it owned upon the
54
execution of the stockholders' agreement. The stockholders' agreement also
provides that Larry Clayton, or in the event of his death or incapacity to
perform his duties as director, Delton Clayton (together, the "Clayton
Director"), and James T. Stone shall each be entitled to be a director as long
as (1) in the case of the Clayton Director, Larry Clayton and his affiliates
own at least 5,150 shares of common stock, and (2) in the case of Stone, Stone
and his affiliates own 3,090 shares of common stock.
Stock Purchase Agreements
Several of our executive officers, senior managers and a director acquired
equity interests in Holdings consisting of common stock and series A preferred
stock pursuant to the stock purchase agreements summarized below.
John J. Greisch, President and Chief Executive Officer. Mr. Greisch purchased
6,602 shares of our common stock for $1.00 per share and 6,983.976 shares of
our series B preferred stock for $100 per share pursuant to his stock purchase
agreement, dated as of July 1, 1998. In connection with a stock contribution
agreement, dated as of August 27, 1998 between Holdings and the stockholders
listed therein, Mr. Greisch exchanged his shares of our common stock and series
B preferred stock for an equal number of shares of common stock and series A
preferred stock of Holdings.
Of the common stock purchased by Mr. Greisch, 5,000 of the shares vest over
eight years so long as he is employed by us, with one-half of the shares
eligible for accelerated vesting if we meet specified EBITDA targets. We were
deemed to meet the EBITDA targets for 1998 regardless of our actual results.
If Mr. Greisch's employment is terminated for any reason, a portion of the
unvested common shares will become immediately vested, and additional shares
may also vest if we meet specified EBITDA targets. Holdings may purchase any or
all of the remaining unvested shares for $1.00 per share.
Mr. Greisch also purchased 2,000 shares of Holdings' common stock for $170
per share pursuant to his stock purchase agreement dated as of March 5, 1999.
These shares vest over four years so long as he is employed by us. Of the
$340,000 purchase price for the shares, Mr. Greisch paid $3,400 in cash and
signed a promissory note for the remaining $336,000. The promissory note
matures on March 4, 2004, bears interest at 5.3% per year and requires payments
from time to time. The note is collateralized by these shares.
If Mr. Greisch's employment is terminated for any reason, a portion of the
unvested shares will become immediately vested. Holdings may purchase any or
all of the remaining unvested shares for $170 per share. If Mr. Greisch's
employment is terminated prior to an initial public offering of common stock,
Holdings may purchase any and all of the vested common shares at fair market
value.
If we are acquired by a third party through an asset purchase, merger or sale
of more than 50% of our outstanding equity, all of the common shares will vest
immediately before the acquisition.
John P. Miller, Vice President, Chief Financial Officer and Secretary. Mr.
Miller purchased 1,729 shares of our common stock for $1.00 per share and
997.710 shares of our series B preferred stock for $.01 per share pursuant to
his stock purchase agreement, dated as of July 10, 1998. In connection with the
stock contribution agreement, Mr. Miller exchanged his shares of our common
stock and series B preferred stock for an equal number of shares of common
stock and series A preferred stock of Holdings.
55
Of the common stock purchased by Mr. Miller, 1,500 of the shares are subject
to the same vesting conditions as Mr. Greisch's. The remaining 229 shares of
common stock and the preferred stock (the "Additional Equity") purchased by Mr.
Miller vest over three years.
If Mr. Miller's employment is terminated for any reason, his shares are
subject to the same vesting conditions as Mr. Greisch's, except that if Mr.
Miller's employment is terminated before an initial public offering of common
stock, Holdings may purchase any and all of the vested common shares at fair
market value.
If Mr. Miller is involuntarily terminated, all of the shares of Additional
Equity become immediately vested. If Mr. Miller voluntarily terminates his
employment before full vesting of the Additional Equity, Holdings may purchase,
and Mr. Miller may require Holdings to purchase, any or all of his unvested
Additional Equity at the purchase price for the shares.
Mr. Miller also purchased 250 shares of Holdings' common stock for $170 per
share pursuant to his stock purchase agreement dated as of March 5, 1999. Of
the $42,500 purchase price for the shares, Mr. Miller paid $425 in cash and
signed a promissory note for the remaining $42,075. The promissory note matures
on March 4, 2004, bears interest at 5.3% per annum and requires payments from
time to time. The note is collateralized by these shares. These shares are
otherwise subject to the same terms and conditions as Mr. Greisch's pledged
shares.
If we are acquired by a third party through an asset purchase, merger or sale
of more than 50% of our outstanding equity, Mr. Miller's common shares are
subject to the same conditions as Mr. Greisch's.
Anthony W. Cavalle, Vice President Operations. Mr. Cavalle purchased 1,229
shares of Holdings' common stock for $1.00 per share and 997.711 shares of
Holdings' series A preferred stock for $100 per share pursuant to his stock
purchase agreement, dated as of October 19, 1998.
Of the common stock purchased by Mr. Cavalle, 1,000 of the shares vest over
eight years, with one-half of the shares eligible for accelerated vesting if we
meet specified EBITDA targets. If we do not meet our EBITDA target in a given
year but exceed our target in the immediately following year, a portion of the
shares scheduled to vest in the prior year may qualify for accelerated vesting
in the subsequent year. All unvested shares will immediately vest upon Mr.
Cavalle's death or total physical disability.
If Mr. Cavalle's employment is involuntarily terminated before December 31,
2002, Holdings may purchase 1,000 of his common shares, whether vested or
unvested, for $1.00 per share and he will be released from his covenant not to
compete. If Mr. Cavalle's employment is terminated for any other reason, he has
the option to (1) allow Holdings to purchase 1,000 of his common shares,
whether vested or unvested, for $1.00 per share and be released from his
covenant not to compete or (2) keep his vested shares and not be subject to the
covenant not to compete, but Holdings may purchase the unvested shares for
$1.00 per share.
Mr. Cavalle also purchased 250 shares of Holdings' common stock for $170 per
share pursuant to his stock purchase agreement dated as of March 5, 1999. Of
the $42,500 purchase price for the shares, Mr. Cavalle paid $425 in cash and
signed a promissory note for the remaining $42,075. The promissory note matures
on March 4, 2004, bears interest at 5.3% per annum and requires payments from
time to time. The note is collateralized by these shares. These shares are
otherwise subject to the same terms and conditions as Mr. Greisch's pledged
shares.
56
If we are acquired by a third party through an asset purchase, merger or sale
of more than 50% of our outstanding equity, Mr. Cavalle's common shares will be
subject to substantially the same conditions as Messrs. Greisch and Miller,
except that Holdings may purchase for $1.00 per share all shares eligible for
accelerated vesting which did not vest in the year before the year the
acquisition closed.
Gene L. Curtin, Vice President and Chief Information Officer. Mr. Curtin
purchased 174 shares of Holdings' common stock for $170 per share and 758.261
shares of Holdings Series A preferred stock for $100 per share pursuant to his
stock purchase agreement dated as of February 1, 1999. None of these shares are
subject to vesting conditions.
Other Non-executive Officer Managers. During 1998 certain of our other
managers acquired Holdings' common pursuant to a stock purchase, vesting and
repurchase agreement summarized below.
The managers purchased the common stock for $1.00 per share and all of the
shares vest over eight years, with one-half of the shares eligible for
accelerated vesting if we meet specified EBITDA targets. If we do not meet our
EBITDA target in a given year but exceed our target in the immediately
following year, a portion of the shares scheduled to vest in the prior year may
qualify for accelerated vesting in the subsequent year. All unvested shares
will immediately vest upon the manager's death or total physical disability.
If the manager's employment is involuntarily terminated before December 31,
2002, the manager's common shares are subject to the same conditions as Mr.
Cavalle's.
If we are acquired by a third party through an asset purchase, merger or sale
of more than 50% of our outstanding equity, the manager's common shares are
subject to the same conditions as Mr. Cavalle's.
Martin R. Reid, Director. Mr. Reid purchased 858 shares of Holdings' common
stock for $1.00 per share and 1995.422 shares of Holdings' series A preferred
stock for $100 per share pursuant to his stock purchase agreement, dated as of
September 30, 1998.
Of the common stock purchased by Mr. Reid, 400 of the shares vest over five
years so long as Mr. Reid serves continuously as a director of Holdings. If Mr.
Reid's directorship is terminated for any reason, a portion of the vested
common shares will become immediately vested. Holdings may purchase any or all
of the remaining unvested common shares for $1.00 per share.
57
DESCRIPTION OF REVOLVING CREDIT FACILITY
On June 1, 1998, we entered into a revolving credit facility with Bank of
America National Trust and Savings Association, as administrative agent and
syndication agent, and The Industrial Bank of Japan, Limited, New York Branch,
as documentation agent. BancAmerica Robertson Stephens serves as arranger under
the revolving credit facility for a syndicate of financial institutions. On
December 30, 1998 we amended the revolving credit facility. The The following
is a summary description of the principal terms of the revolving credit
facility and the related loan documents. For a complete description, please
refer to the revolving credit facility which we have filed as an exhibit to the
registration statement. Our obligations under the revolving credit facility
will constitute senior debt and designated senior debt with respect to the
notes.
Structure; Maturity. The lenders have committed, subject to compliance with
conditions customary for facilities of this nature, to provide us with an $85.0
million six-year reducing revolving credit facility.
We repaid all of the then outstanding borrowings under the revolving credit
facility with the proceeds from the issuance of the private notes. Thereafter,
we have been utilizing the revolving credit facility to fund acquisitions and
for general corporate purposes.
Loans and letters of credit under the revolving credit facility will be
available at any time during its six-year term subject to the fulfillment of
customary conditions precedent, including the absence of a default under the
revolving credit facility. The revolving credit facility will remain at
$85.0 million until September 30, 2001. Beginning on that date, the commitment
will be reduced by $3.0 million each quarter, with the balance of $52.0 million
due at maturity. Mandatory commitment reductions will result from 100% of the
net proceeds of certain asset sales not reinvested in the business, 50% of net
proceeds of public equity issued after July 1, 2001, and, beginning in year
four, 50% of excess cash flow (as defined in the revolving credit facility).
Security; Guaranty. The revolving credit facility is secured by a perfected
first priority security interest in substantially all of our and our
subsidiaries' assets including: (1) all real property owned by us; (2) all
accounts receivable, inventory, intangibles and other personal property; and
(3) 100% of our and any domestic subsidiaries' capital stock and 65% of any
foreign subsidiaries' capital stock. Any future domestic subsidiary will be
required to enter into a guaranty of the revolving credit facility.
Interest. Borrowings under the revolving credit facility will bear interest
at a rate per annum equal, at our option, to: (1) the greater of (x) the rate
of interest publicly announced by Bank of America as its reference rate and (y)
the Federal Funds Effective Rate (as defined in the revolving credit facility)
in effect from time to time plus 0.50%, plus an initial applicable margin equal
to 1.50%, or (2) the Eurodollar Rate (as defined in the revolving credit
facility), plus an initial applicable margin equal to 2.50%. Thereafter, the
applicable margins will be subject to reductions pursuant to a grid based on
our Consolidated Leverage Ratio (as defined in the revolving credit facility).
Fees. We are required to pay, on a quarterly basis, a commitment fee on the
undrawn portion of the revolving credit facility at a rate equal to 0.50%. We
are also obligated to pay (1) a per annum letter of credit fee on the aggregate
amount of outstanding letters of credit; (2) a fronting bank fee for the letter
of credit issuing bank; and (3) customary agent, arrangement and other similar
fees.
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Covenants. The revolving credit facility contains covenants that, among other
things, restrict our and our subsidiaries' ability to dispose of assets, incur
additional debt, prepay other debt or amend debt instruments (including the
indenture), pay dividends or redeem stock, create liens on assets, enter into
sale and leaseback transactions, make investments, loans or advances, make
acquisitions, engage in mergers or consolidations, make capital expenditures,
change the business conducted by us or our subsidiaries or engage in
transactions with affiliates and otherwise restrict some of our corporate
activities. In addition, under the revolving credit facility, we are required
to maintain specified financial ratios and satisfy specified financial tests,
including a maximum leverage ratio and minimum interest coverage ratio and
minimum EBITDA.
Events of Default. The revolving credit facility contains events of default
customary for facilities of this nature, including (1) nonpayment of principal,
interest or fees; (2) breach of covenants, representations or warranties; (3)
cross-default to certain other debt; (4) bankruptcy or insolvency; (5) material
judgments against us and our subsidiaries; (6) invalidity of any guarantee or
security interest; (7) certain events under the Employee Retirement Income
Security Act of 1974; and (8) a change of control of the company in certain
circumstances as described in the revolving credit facility.
59
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, the word "Company"
refers only to HDA Parts System, Inc. and not to any of its subsidiaries.
The Company will issue the notes under an indenture among itself, the
Guarantors and U.S. Trust Company of California, N.A., as trustee. The terms of
the notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of these notes. We have filed copies of the indenture and the
registration rights agreement as exhibits to the registration statement which
includes this prospectus.
Brief Description of the Notes and the Guarantees
The Notes
These notes:
.are general, unsecured obligations of the Company;
. are subordinated in right of payment to all existing and future Senior
Debt of the Company;
. are senior or pari passu in right of payment to any future subordinated
Indebtedness of the Company; and
.are unconditionally guaranteed by the Guarantors.
The Guarantees
These notes are guaranteed by the following subsidiaries of the Company:
City Truck and Trailer Parts of Alabama, Inc.
City Truck and Trailer Parts of Alabama, L.L.C.
City Truck and Trailer Parts of Alabama of Tennessee, Inc.
City Friction, Inc.
Truck & Trailer Parts, Inc.
Truckparts, Inc.
Associated Brake Supply, Inc.
Associated Truck Center, Inc.
Onyx Distribution, Inc.
Associated Truck Parts of Nevada, Inc.
Freeway Truck Parts of Washington, Inc.
Tisco, Inc.
Tisco of Redding, Inc.
These notes are also guaranteed by the Company's parent, City Truck Holdings,
Inc.
The Guarantees of these notes:
. are general, unsecured obligations of each Guarantor;
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. are subordinated in right of payment to all existing and future Senior
Debt of each Guarantor; and
. are senior or pari passu in right of payment to any future subordinated
Indebtedness of each Guarantor.
As of December 31,1998, the Company and the Guarantors had total Senior Debt
of approximately $18.2 million. As indicated above and as discussed in detail
below under the subheading "Subordination," payments on the notes and under the
Guarantees will be subordinated to the payment of Senior Debt. The indenture
will permit us and the Guarantors to incur additional Senior Debt.
As of the date of the prospectus, all of our subsidiaries are "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "Certain Covenants--Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate certain of our subsidiaries as
"Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants in the indenture. Unrestricted Subsidiaries
will not guarantee these notes.
Principal, Maturity and Interest
The Company will issue notes with a maximum aggregate principal amount of
$100.0 million. The Company will issue notes in denominations of $1,000 and
integral multiples of $1,000. The notes will mature on August 1, 2005.
Interest on these notes will accrue at the rate of 12% per annum and will be
payable semi-annually in arrears on February 1 and August 1 of each year,
commencing on August 1, 1999. The Company will make each interest payment to
the holders of record of these notes on the immediately preceding January 15
and July 15.
Interest on these notes will accrue from February 1, 1999. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Methods of Receiving Payments on the Notes
Principal of, premium, if any, and interest on the notes will be payable at
the office or agency of the Company maintained for that purpose within the City
and State of New York, unless the Company elects to make interest payments by
check mailed to the holders of notes at their address set forth in the register
of holders.
Paying Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar. The Company may
change the paying agent or registrar without prior notice to the holders of the
notes, and the Company or any of its Subsidiaries may act as paying agent or
registrar.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the indenture. The
registrar and the trustee may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
The Company is not required to transfer or exchange any note selected
61
for redemption. Also, the Company is not required to transfer or exchange any
note for a period of 15 days before a selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
Subsidiary and Parent Guarantees
The Guarantors will jointly and severally guarantee the Company's obligations
under these notes. Each Subsidiary Guarantee will be subordinated to the prior
payment in full of all Senior Debt of that Guarantor. The obligations of each
Guarantor under its Subsidiary Guarantee will be limited as necessary to
prevent that Subsidiary Guarantee from constituting a fraudulent conveyance
under applicable law. See "Risk Factors--The notes are subject to review for
fraudulent transfer considerations."
A Guarantor may not sell or otherwise dispose of all or substantially all of
its assets, or consolidate with or merge with or into another Person, whether
or not that Guarantor is the surviving Person, unless:
(1) immediately after giving effect to that transaction, no Default or Event
of Default exists;
(2) either:
(a) the Person acquiring the property in that sale or disposition or the
Person formed by or surviving that consolidation or merger assumes all the
obligations of that Guarantor pursuant to a supplemental indenture
satisfactory to the trustee; or
(b) the Net Proceeds of that sale or other disposition are applied in
accordance with the applicable provisions of the indenture; and
(2) immediately after giving effect to that transaction on a pro forma basis,
the consolidated resulting, surviving or transferee entity would immediately
thereafter be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio set forth in the first paragraph of the
covenant in the indenture under the caption "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock."
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or substantially
all of the assets of that Guarantor, including by way of merger or
consolidation, if the Company applies the Net Proceeds of that sale or other
disposition, in accordance with the applicable provisions of the indenture; or
(2) in connection with any sale of all of the capital stock of a Guarantor,
if the Company applies the Net Proceeds of that sale in accordance with the
applicable provisions of the indenture; or
(3) if the Company designates any Restricted Subsidiary that is a Guarantor
as an Unrestricted Subsidiary.
See "Repurchase at the Option of Holders--Asset Sales."
Subordination
The payment of principal, premium and interest, if any, on these notes will
be subordinated to the prior payment in full of all Senior Debt of the Company.
62
The holders of Senior Debt will be entitled to receive payment in full of all
Obligations due in respect of Senior Debt, including interest after the
commencement of any bankruptcy or insolvency proceeding at the rate specified
in the applicable Senior Debt, before the holders of notes will be entitled to
receive any payment with respect to the notes (except that holders of notes may
receive and retain Junior Securities and payments made from the trust described
under "--Legal Defeasance and Covenant Defeasance"), in the event of any
distribution to creditors of the Company:
(1) in a liquidation or dissolution of the Company;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of the Company's assets and liabilities.
The Company also may not make any payment in respect of the notes, except in
Junior Securities or from the trust described under "--Legal Defeasance and
Covenant Defeasance", if:
(1) a payment default on Designated Senior Debt occurs and is continuing
beyond any applicable grace period; or
(2) any other default occurs and is continuing on Designated Senior Debt that
permits holders of the Designated Senior Debt to accelerate its maturity and
the trustee receives a notice of that default (a "Payment Blockage Notice")
from the Company or the holders of any Designated Senior Debt.
Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which that default is
cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which that
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless that default shall have been
cured or waived for a period of not less than 90 days.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of the Company, holders of these
notes may recover less ratably than creditors of the Company who are holders of
Senior Debt. See "Risk Factors--Your claims are subordinated."
Optional Redemption
Until August 1, 2001, the Company may redeem up to 35% of the aggregate
principal amount of the notes issued pursuant to the indenture with cash from
the Net Cash Proceeds of a Public Equity Offering of common stock of the
Company (or of the Parent provided that Net Cash Proceeds sufficient to make
the redemption are contributed to the Company by the Parent as a Capital
63
Contribution), at a redemption price equal to 112% of principal (subject to the
right of holders of record on a Record Date to receive interest due on an
Interest Payment Date that is on or prior to such Redemption Date) together
with accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, provided that
(1) immediately following that redemption not less than 65% of the
aggregate principal amount of the notes issued pursuant to the indenture
(without giving effect to the cancellation of Initial Securities in
connection with the issuance of Exchange Securities) remain outstanding,
and
(2) the redemption must occur within 90 days of that Public Equity
Offering.
Except pursuant to the preceding paragraph, the notes will not be redeemable
at the Company's option prior to August 1, 2002.
On or after August 1, 2002, the Company may redeem all or a part of these
notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest, if any, on these notes to the applicable
redemption date, if redeemed during the twelve-month period beginning on August
1 of the years indicated below:
Year Percentage
---- ----------
2002.......................................................... 106.000%
2003.......................................................... 103.000%
2004 and thereafter........................................... 100.000%
In the case of a partial redemption, the trustee shall select the notes or
portions of the notes for redemption on a pro rata basis or by lot. The notes
may be redeemed in part in multiples of $1,000 only.
The notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption to the holder
of each note to be redeemed to that holder's last address as then shown upon
the registry books of the registrar. Any notice which relates to a note to be
redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion of that note and must state that on and after the date
of redemption, upon surrender of that note, a new note or notes in a principal
amount equal to the unredeemed portion of that note will be issued. On and
after the date of redemption, interest will cease to accrue on the notes or
portions of the notes called for redemption, unless the Company defaults in the
payment of the notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of notes will have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple of $1,000) of that holder's notes pursuant to the Change of
Control Offer. In the Change of Control Offer, the Company will offer a Change
of Control Purchase Price in cash equal to 101% of the aggregate principal
amount of notes repurchased plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the date of
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purchase. Within 20 Business Days following any Change of Control, the Company
will mail a notice to each holder of notes describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
notes on the Change of Control Purchase Date specified in the notice, pursuant
to the procedures required by the indenture and described in the notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent those
laws and regulations are applicable in connection with the repurchase of the
notes as a result of a Change of Control.
On the Change of Control Purchase Date, the Company will, to the extent
lawful:
(1) accept for payment all notes or portions of notes properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Purchase Price in respect of all notes or portions of notes properly tendered;
and
(3) deliver or cause to be delivered to the trustee the notes so accepted
together with an Officers' Certificate stating the aggregate principal amount
of notes or portions of the notes being purchased by the Company.
The paying agent will promptly mail to each holder of notes properly tendered
the Change of Control Purchase Price for those notes, together with accrued and
unpaid interest thereon, and the trustee will promptly authenticate and mail
(or cause to be transferred by book entry) to each holder a new note equal in
principal amount to any unpurchased portion of the notes surrendered.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 20 Business Days following a Change of
Control, the Company will either repay in full and terminate all commitments
under all Indebtedness under the Credit Agreement, offer to repay in full and
terminate all commitments under all Indebtedness under the Credit Agreement and
repay the Indebtedness owed to each lender which has accepted the offer in
full, or obtain the requisite consents under the Credit Agreement to permit the
repurchase of notes required by this covenant. The Company will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Purchase Date.
The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the holders of the notes to require that the
Company repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
The Company's outstanding Senior Debt currently prohibits the Company from
purchasing any notes, and also provides that certain change of control events
with respect to the Company would constitute a default under the agreements
governing the Senior Debt. Any future credit agreements or other agreements
relating to Senior Debt to which the Company becomes a party may contain
similar restrictions and provisions. If a Change of Control occurs at a time
when the Company is prohibited from purchasing notes, the Company could seek
the consent of its senior lenders to the purchase of notes or could attempt to
refinance the borrowings that contain that prohibition. If the Company does not
obtain that consent or repay those borrowings, the Company will remain
prohibited from purchasing notes. In that case, the Company's failure to
purchase tendered notes would constitute an
65
Event of Default under the indenture which would, in turn, constitute a default
under that Senior Debt. In those circumstances, the subordination provisions in
the indenture would likely restrict payments to the holders of notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the indenture applicable to a Change of Control Offer made by the
Company and purchases all notes validly tendered and not withdrawn under the
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company or Parent, as the case may be. Although there is a
limited body of case law interpreting the phrase "substantially all," there is
no precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of notes to require the Company to
repurchase those notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company or Parent, as
the case may be, to another Person or group may be uncertain.
Asset Sales
The Company and the Guarantors will not, and will not permit any of their
respective Subsidiaries to, consummate an Asset Sale unless:
(1) the Board of Directors of the Company determines in good faith that the
Company (or such Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value for such Asset
Sale;
(2) no Default or Event of Default shall have occurred and be continuing at
the time of, or would occur after giving effect, on a pro forma basis, to, such
Asset Sale; and
(3) at least 75% of the consideration therefor received by the Company or
such Subsidiary is in the form of cash. For purposes of this provision, each of
the following shall be deemed to be cash:
(a) Purchase Money Indebtedness secured solely by the assets sold and
assumed by a transferee; and
(b) property that within 30 days of such Asset Sale is converted into
cash or Cash Equivalents; provided, that, such cash and Cash Equivalents
shall be treated as Net Cash Proceeds attributable to the original Asset
Sale for which such property was received.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the
Company may apply such Net Proceeds at its option to the repurchase of the
notes and such other Indebtedness on a parity with the notes and with similar
provisions requiring the Company to make an offer to purchase such Indebtedness
with the proceeds from asset sales pursuant to a cash offer (subject only to
conditions required by applicable law, if any) (pro rata in proportion to the
respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the notes and such other
Indebtedness then outstanding) (the "Asset Sale Offer") at a purchase price of
100% of principal amount (or accreted value in the case of Indebtedness issued
with an original issue discount) (the "Asset Sale Offer Price") together with
accrued and unpaid interest and Liquidated Damages, if any, to the date of
payment, made within 330 days of such Asset Sale.
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Within 330 days after the receipt of any Net Proceeds from an Asset Sale, the
Company may apply such Net Proceeds at its option:
(1) to redeem the notes in accordance with the terms of the indenture and
other Indebtedness of the Company ranking on a parity with the notes and with
similar provisions requiring the Company to redeem such Indebtedness with the
proceeds for asset sales, pro rata in proportion to the respective principal
amounts (or accreted values in the case of Indebtedness issued with an original
issue discount) of the notes and such other Indebtedness then outstanding;
(2) to invest in assets and property or other Permitted Investments pursuant
to clause (d) of the definition of Permitted Investments below, which in the
good faith reasonable judgment of the Board will immediately constitute or be a
part of a Related Business of the Company or such Subsidiary (if it continues
to be a Subsidiary) immediately following such transaction; or
(3) to retire Purchase Money Indebtedness or Senior Debt and to permanently
reduce (in the case of Senior Debt that is not Purchase Money Indebtedness) the
amount of such Indebtedness outstanding on the Issue Date or permitted pursuant
to paragraph (b) or (c) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock" (including that in the case of a
revolver or similar arrangement that makes credit available, such commitment is
so permanently reduced by such amount).
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will make
an Asset Sale Offer to all holders of notes, and all holders of other
Indebtedness that is pari passu with the notes containing provisions similar to
those set forth in the indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets, to purchase the maximum principal amount
of notes and such other pari passu Indebtedness that may be purchased out of
the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to
100% of principal amount (or accreted value in the case of Indebtedness issued
with an original issue discount) plus accrued and unpaid interest to the date
of purchase, and will be payable in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use such Excess Proceeds
for any purpose not otherwise prohibited by the indenture. If the aggregate
principal amount of notes and such other pari passu Indebtedness tendered in
such Asset Sale Offer exceeds the amount of Excess Proceeds, the notes and such
other pari passu Indebtedness will be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
Notwithstanding, and without complying with, the provisions of this Asset
Sales covenant,
(1) the Company and its Subsidiaries may, in the ordinary course of business,
(a) convey, sell, transfer, assign or otherwise dispose of inventory and
other assets acquired and held for resale in the ordinary course of
business and
67
(b) liquidate Cash Equivalents;
(2) the Company and its Subsidiaries may convey, sell, transfer, assign or
otherwise dispose of assets pursuant to and in accordance with the covenant
"Limitation on Merger, Sale or Consolidation";
(3) the Company and its Subsidiaries may sell or dispose of damaged, worn out
or other obsolete property in the ordinary course of business so long as such
property is no longer necessary for the proper conduct of the business of the
Company or such Subsidiary, as applicable;
(4) the Company and the Guarantors may convey, sell, transfer, assign or
otherwise dispose of assets to the Company or any of the Guarantors;
(5) the Company and its Subsidiaries, in the ordinary course of business, may
convey, sell transfer, assign, or otherwise dispose of assets (or related
assets in related transactions) with a fair market value of less than $250,000;
(6) the Company and each of its Subsidiaries may surrender or waive contract
rights or settle, release or surrender of contract, tort or other claims of any
kind or grant Liens not prohibited by the indenture; and
(7) the Company may sell accounts receivable and related assets of the type
specified in the definition of Qualified Receivables Transaction to a
Receivables Subsidiary for the fair market value thereof, but in any case
including cash in an amount at least equal to 75% of the book value thereof as
determined in accordance with GAAP, and a Receivables Subsidiary may transfer
accounts receivable and related assets of the type specified in the definition
of Qualified Receivables Transaction (or a fractional undivided interest
therein) in a Qualified Receivables Transaction.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption on a pro rata basis or by lot.
Notes in denominations of $1,000 shall only be redeemed in whole. The notes
may be redeemed in part in multiples of $1,000 only. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days
before the redemption date to each holder of notes to be redeemed at its
registered address.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the unredeemed portion of the principal
amount. A new note in principal amount equal to the unredeemed portion of the
original note will be issued in the name of the holder of that note upon
surrender of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption, unless the Company
defaults in the payment of the notes.
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Certain Covenants
Restricted Payments
The Company and the Guarantors will not, and will not permit any of their
respective Subsidiaries to, directly or indirectly (all such payments and other
actions set forth in clauses (1) through (4) below collectively referred to as
"Restricted Payments"):
(1) declare or pay any dividend or make any other payment or distribution on
account of the Company's or any of the Guarantors', or any of their respective
Restricted Subsidiaries', Equity Interests (other than dividends or
distributions payable in Qualified Capital Stock of the Company, the
Guarantors, or their respective Subsidiaries);
(2) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company or any of the Guarantors, or any of their respective
Subsidiaries, or any Subsidiary or parent of the Company or any of the
Guarantors, or any of their respective Subsidiaries (other than any such Equity
Interests owned by the Company, the Guarantors, or their respective
Subsidiaries);
(3) other than with the proceeds from the substantially concurrent sale of,
or in exchange for, Refinancing Indebtedness, make any payment on or in respect
of any amendment of the terms of or any defeasance of, or purchase, redeem,
defease or otherwise acquire or retire for value any Subordinated Indebtedness,
directly or indirectly, by the Company or any of the Guarantors, or any of
their respective Subsidiaries, or a parent or Subsidiary of the Company or any
of the Guarantors, or any of their respective Subsidiaries, prior to the
scheduled maturity, any scheduled repayment of principal, or scheduled sinking
fund payment, as the case may be, of such Indebtedness; or
(4) make any Restricted Investment,
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing; and
(2) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence
Ratio test set forth in the first paragraph of the covenant described below
under the caption "--Incurrence of Additional Indebtedness and Disqualified
Capital Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the date of the indenture (excluding Restricted Payments permitted by clauses
(2) and (3) of the next succeeding paragraph), is less than the sum, without
duplication, of
(a) 50% of the aggregate Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the indenture to and including
the last day of the Company's most recently ended fiscal quarter ended
immediately prior to the date of each such calculation (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus
(b) 100% of the aggregate net cash proceeds received by the Company from
the sale of its Qualified Capital Stock (other than to a Subsidiary and to
the extent applied in connection with a Qualified Exchange), plus
69
(c) to the extent not included in Consolidated Net Income, 100% of any
dividends or other distributions received by the Company or a Subsidiary of
the Company after the date of the indenture from an Unrestricted Subsidiary
of the Company, plus
(d) to the extent that any Restricted Investment that was made after the
date of the indenture is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (i) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (ii) the
initial amount of such Restricted Investment, plus
(e) 100% of the aggregate net Cash Equivalent proceeds received by the
Company (other than from its Subsidiaries) from Capital Contributions after
the date of the indenture.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) to the extent such payments would constitute a Restricted Payment, the
payments of amounts to Brentwood in accordance with the Administrative Services
Agreement;
(2) repurchases of Capital Stock from employees of the Company, a Parent or
their Subsidiaries upon the death, disability or termination of employment in
an aggregate amount to all employees not to exceed $1.0 million per year or
$3.0 million in the aggregate on and after the date of the indenture;
(3) any dividend, distribution or other payments by any Subsidiary of the
Company on its Equity Interests that is paid pro rata to all holders of such
Equity Interests;
(4) a Qualified Exchange;
(5) the payment of any dividend on Qualified Capital Stock within 60 days
after the date of its declaration if such payment would have complied with the
provisions of the indenture; or
(6) Permitted Payments to Parent.
The amount of any Restricted Payment (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or any of the
Guarantors, or their respective Subsidiaries, as the case may be, pursuant to
the Restricted Payment. The fair market value of any assets or securities that
are required to be valued by this covenant shall be determined in the good
faith reasonable judgment of the Board of Directors of the Company.
Additionally, within 5 days of each Restricted Payment in excess of
$1.0 million, the Company shall deliver an Officers' Certificate to the trustee
describing in reasonable detail the nature of such Restricted Payment, stating
the amount of such Restricted Payment, stating in reasonable detail the
provisions of the indenture pursuant to which such Restricted Payment was made
and certifying that such Restricted Payment was made in compliance with the
terms of the indenture.
Incurrence of Additional Indebtedness and Disqualified Capital Stock
The Company and the Guarantors will not, and will not permit any of their
respective Subsidiaries to, directly or indirectly, issue, assume, guaranty,
incur, become directly or indirectly liable with respect to (including as a
result of an Acquisition), or otherwise become responsible for, contingently or
otherwise (collectively, "incur") any Indebtedness or any Disqualified Capital
Stock
70
(including Acquired Indebtedness), other than Permitted Indebtedness.
Notwithstanding the foregoing, if
(1) no Default or Event of Default shall have occurred and be continuing at
the time of, or would occur after giving effect on a pro forma basis to, such
incurrence of Indebtedness or Disqualified Capital Stock and
(2) on the date of such incurrence (the "Incurrence Date"), the Consolidated
Coverage Ratio of the Company for the Reference Period immediately preceding
the Incurrence Date, after giving effect on a pro forma basis to such
incurrence of such Indebtedness or Disqualified Capital Stock and, to the
extent set forth in the definition of Consolidated Coverage Ratio, the use of
proceeds thereof, would be at least 2 to l (the "Debt Incurrence Ratio"),
then the Company and the Guarantors may incur such Indebtedness or Disqualified
Capital Stock.
In addition, the foregoing limitations will not apply to:
(1) the incurrence by the Company or any of its Subsidiaries of Purchase
Money Indebtedness, provided that:
(a) the aggregate amount of such Indebtedness incurred and outstanding at
any time pursuant to this paragraph (1) (plus any Indebtedness issued to
retire, defease, refinance, replace or refund such Indebtedness) shall not
exceed $10.0 million, and
(b) in each case, such Indebtedness shall not constitute more than 100%
of the cost (determined in accordance with GAAP) to the Company or such
Subsidiary, as applicable, of the property so purchased or leased.
(2) if no Event of Default shall be continuing after application of the
proceeds from such incurrence, the incurrence by the Company or any Guarantor
of Indebtedness in an aggregate amount incurred and outstanding at any time
pursuant to this paragraph (b) (plus any Indebtedness incurred to retire,
defease, refinance, replace or refund such Indebtedness) of up to $10.0
million; and
(3) the incurrence by the Company or any Guarantor of Indebtedness pursuant
to the Credit Agreement in an aggregate amount incurred and outstanding at any
time pursuant to this paragraph (c) (plus any Indebtedness incurred to retire,
defease, refinance, replace or refund such Indebtedness) of up to $75.0
million, minus the amount of any such Indebtedness (i) retired with the Net
Cash Proceeds from any Asset Sale applied to permanently reduce the outstanding
amounts or the commitments with respect to such Indebtedness pursuant to clause
(3) of the third paragraph under the "Asset Sales" covenant described above or
(ii) assumed by a transferee in an Asset Sale; provided, however, that neither
the Company nor any Guarantor may incur Indebtedness pursuant to this clause
(3) the proceeds of which are used to finance one or more Acquisitions
(including the repayment of any Acquired Indebtedness substantially
concurrently with such Acquisition) unless the Consolidated Coverage Ratio for
the Reference Period immediately preceding the Incurrence Date, after giving
effect on a pro forma basis to such incurrence of Indebtedness, would be
greater than the ratio set forth below opposite such period:
Consolidated
Coverage
Reference Period ending Ratio
----------------------- ------------
Prior to June 30, 1999.......................................... 1.50 to 1.00
June 30, 1999-June 29, 2000..................................... 1.75 to 1.00
June 30, 2000-June 29, 2001..................................... 1.90 to 1.00
June 30, 2001-June 29, 2002..................................... 2.00 to 1.00
June 30, 2002-and thereafter.................................... 2.25 to 1.00
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For purposes of this clause (3) only, Consolidated EBITDA as used to determine
the Consolidated Coverage Ratio shall be calculated after giving pro forma
effect to (A) any Acquisition (including the Stone Acquisition and the City
Recapitalization) occurring during the Reference Period as if such Acquisition
occurred at the beginning of the Reference Period and (B) any Approved Cost
Savings anticipated to be realized over the next four fiscal quarters in
connection with an Acquisition (including the Stone Acquisition and the City
Recapitalization) occurring during the Reference Period. For each full fiscal
quarter completed after consummation of an Acquisition occurring during the
Reference Period, 25% of the Approved Cost Savings associated with such
Acquisition shall be excluded from the calculation of Consolidated EBITDA (and
comparable pro rata exclusions shall be made for post-Acquisition periods of
less than a full fiscal quarter). Such aggregate Approved Cost Savings shall
not exceed 25% of Consolidated EBITDA for any Reference Period.
Indebtedness or Disqualified Capital Stock of any Person which is outstanding
at the time such Person becomes a Subsidiary of the Company (including upon
designation of any subsidiary or other person as a Subsidiary) or is merged
with or into or consolidated with the Company or a Subsidiary of the Company
shall be deemed to have been incurred at the time such Person becomes such a
Subsidiary of the Company or is merged with or into or consolidated with the
Company or a Subsidiary of the Company, as applicable.
Upon each incurrence, the Company may designate pursuant to which provision
of this covenant such Indebtedness or Disqualified Capital Stock is being
incurred and such Indebtedness or Disqualified Capital Stock shall not be
deemed to have been incurred or outstanding under any other provision of this
covenant, except as stated otherwise in any such provision or applicable
definition.
No Senior Subordinated Debt
The Company will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any other Indebtedness of the Company and senior in any respect in
right of payment to the notes. No Guarantor will incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate
or junior in right of payment to any other Indebtedness of such Guarantor and
senior in any respect in right of payment to such Guarantor's Subsidiary
Guarantee.
Liens
The Company and the Guarantors will not, and will not permit any of their
respective Subsidiaries to, create, incur, assume or suffer to exist any Lien
(other than Permitted Liens) on any asset now owned or acquired on or after the
date of the indenture or on any income or profits therefrom securing any
Indebtedness of the Company or any Guarantor unless all payments due under the
notes (and the Guarantees, as applicable) are secured on an equal and ratable
basis with the Obligations so secured, provided, that, if such Indebtedness is
Subordinated Indebtedness, the Lien securing such Subordinated Indebtedness
shall be subordinate and junior to the Lien securing the notes with the same
relative priority as such Subordinated Indebtedness shall have with respect to
the notes.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company and the Guarantors will not, and will not permit any of their
respective Subsidiaries to, directly or indirectly, create or permit to exist
or become effective any consensual restriction on the ability of any Subsidiary
of the Company to:
(1) pay dividends or make any other distributions to or on behalf of the
Company or any Subsidiary of the Company;
72
(2) pay any obligation to or on behalf of the Company or any Subsidiary of
the Company;
(3) make or pay loans or advances to or on behalf of the Company or any
Subsidiary of the Company; or
(4) transfer any assets or property to or on behalf of the Company or any
Subsidiary of the Company.
However, the preceding restrictions will not apply to restrictions existing
under or by reason of:
(1) the indenture and the notes or by other indebtedness of the Company
(which may also be guaranteed by the Guarantors) ranking senior or pari passu
with the notes or the guarantees, as applicable, provided, such restrictions
taken as a whole are no more restrictive than those imposed by the indenture
and the notes;
(2) applicable law;
(3) Indebtedness outstanding on the date of the indenture, including pursuant
to the Credit Agreement;
(4) any Acquired Indebtedness not incurred in violation of the indenture or
any agreement relating to any property, asset, or business acquired by the
Company or any of its Subsidiaries, which restrictions in each case existed at
the time of acquisition, were not put in place in connection with or in
anticipation of such acquisition and are not applicable to any person, other
than the person acquired, or to any property, asset or business, other than the
property, assets and business so acquired;
(5) Indebtedness incurred under the Credit Agreement pursuant to clause (3)
of the covenant described herein "Incurrence of Additional Indebtedness and
Disqualified Capital Stock," provided, in each case, such restriction or
requirement is no more restrictive taken as a whole than that imposed by the
Credit Agreement as of the date of the indenture;
(6) any binding agreement which has been entered into for the sale or
disposition of all or substantially all of the Equity Interests or assets of a
Subsidiary of the Company, provided, such restrictions apply solely to the
Equity Interests or assets of such Subsidiary which are being sold;
(7) Purchase Money Indebtedness incurred pursuant to clause (1) of the second
paragraph of the "Incurrence of Additional Indebtedness and Disqualified
Capital Stock" covenant described above, provided, such restrictions relate
only to the transfer of the property acquired with the proceeds of such
Purchase Money Indebtedness;
(8) Indebtedness or other contractual requirements of a Receivables
Subsidiary in connection with a Qualified Receivables Transaction, provided,
that, such restrictions apply only to such Receivables Subsidiary;
(9) permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such permitted Refinancings are no more
restrictive, taken as a whole, than those contained in the agreements governing
the Indebtedness being refinanced; and
(10) customary provisions restricting subletting or assignment of any lease
entered into in the ordinary course of business, consistent with industry
practice.
Notwithstanding the foregoing, any asset subject to a Lien which is not
prohibited to exist with respect to that asset pursuant to the terms of the
indenture may be subject to restrictions on the transfer or disposition thereof
in accordance with any such Liens.
73
Merger, Consolidation, or Sale of Assets
The Company may not, directly or indirectly: (1) consolidate or merge with or
into another Person; or (2) sell, convey or transfer all or substantially all
of its assets, in one or more related transactions, to another Person or group
of affiliated Persons, unless:
(1) either: (a) the Company is the surviving corporation; or (b) the
resulting, surviving or transferee entity is a corporation organized under the
laws of the United States, any state thereof or the District of Columbia and
expressly assumes by supplemental indenture all of the obligations of the
Company in connection with the notes and the indenture;
(2) immediately after such transaction no Default or Event of Default exists;
and
(3) the Company or the Person formed by or surviving any such consolidation
or merger (if other than the Company) will, on the date of such transaction
after giving pro forma effect thereto and any related financing transactions as
if the same had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio test set forth in the first paragraph of
the covenant described above under the caption "--Incurrence of Additional
Indebtedness and Disqualified Capital Stock."
Transactions with Affiliates
The Company and its Subsidiaries will not enter into or suffer to exist any
contract, agreement, arrangement or transaction with any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are fair and reasonable to
the Company and no less favorable to the Company than could have been obtained
in an arm's length transaction with a non-Affiliate; and
(2) the Company delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with this
covenant and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5.0
million, a written favorable opinion as to the fairness to the Company of
such Affiliate Transaction from a financial point of view issued by an
independent accounting, appraisal or investment banking firm of national
standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) customary employee compensation arrangements approved by a majority of
independent (as to such transactions) members of the Board of Directors of the
Company;
(2) Restricted Payments that are permitted by the provisions of the indenture
described above under the caption "--Restricted Payments."
(3) transactions between or among the Company and any of its Wholly-Owned
Consolidated Subsidiaries or solely among Wholly-Owned Consolidated
Subsidiaries of the Company;
74
(4) the Administrative Services Agreement;
(5) leases entered into concurrently with the closing of the acquisition by
BABF City Corp. of 80% of the outstanding common stock of City Truck and
Trailer Parts, Inc. on June 1, 1998;
(6) leases entered into concurrently with the closing of the acquisition of
substantially all of the assets of Stone Heavy Duty, Inc. on June 19, 1998;
(7) Permitted Investments; and
(8) Capital Contributions from Parent to the Company or any Guarantor;
Additional Subsidiary Guarantees
If the Company acquires or creates other Subsidiaries after the date of the
indenture, then each such newly acquired or created Subsidiary (other than
Receivables Subsidiaries and Foreign Subsidiaries) must become a Guarantor and
execute a supplemental indenture satisfactory to the trustee and deliver an
Opinion of Counsel to the trustee within 5 Business Days of the date on which
it was acquired or created. If the Company acquires or creates any Foreign
Subsidiaries after the date of the indenture, then each such newly acquired or
created Foreign Subsidiary (a) which guarantees or otherwise becomes liable for
Indebtedness of the Company or any Guarantor or (b) more than 65% of the
capital stock of which becomes pledged to secure any Indebtedness of the
Company or any Guarantor, must become a Guarantor and execute a supplemental
indenture satisfactory to the trustee and deliver an Opinion of Counsel to the
trustee within 5 Business Days of the date on which it was acquired or created.
Release of Guarantors
The Guarantors will not consolidate or merge with or into (whether or not
such Guarantor or the Parent is the surviving person) another person unless:
(1) (a) the person formed by or surviving any such consolidation or merger
(if other than such Guarantor) assumes all the obligations of such Guarantor
pursuant to a supplemental indenture reasonably satisfactory to the trustee and
unconditionally guarantees, on a senior subordinated basis, all of such
Guarantor's obligations under such Guarantor's guarantee on the terms set forth
in the indenture and (b) immediately before and immediately after giving effect
to such transaction on a pro forma basis, no Default or Event of Default
exists; or
(2) the other person is another Guarantor or the Company.
On the sale or disposition (whether by merger, stock purchase, asset sale or
otherwise) of a Guarantor or all of its assets to an entity which is not a
Guarantor, or the designation of a Subsidiary to become an Unrestricted
Subsidiary, which transaction is otherwise in compliance with the indenture
(including, without limitation, the provisions of the covenant "Limitations on
Sale of Assets and Subsidiary Stock"), such Guarantor will be released from its
obligations under its Guarantee of the notes; provided, however, that any such
termination shall occur only to the extent that all obligations of such
Guarantor under all of its guarantees of, and under all of its pledges of
assets or other security interests which secure, any Indebtedness of the
Company or any other Subsidiary of the Company will also terminate upon such
release, sale or transfer.
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Business Activities
The Company and its Subsidiaries (other than Receivables Subsidiaries) will
not directly or indirectly engage to any substantial extent in any business
other than that which, in the reasonable good faith judgment of the Board of
Directors of the Company, is a Related Business.
Status as Investment Company
The Company and its Subsidiaries will not become required to register as an
"investment company" (as that term is defined in the Investment Company Act of
1940, as amended), or otherwise become subject to regulation under the
Investment Company Act.
Reports
Whether or not required by the Commission, so long as any notes are
outstanding, the Company and the Parent will furnish to the trustee and to
holders of notes, within 15 days after the time periods specified in the
Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with
respect to the annual information only, a report on the annual financial
statements by the Company's and the Parent's certified independent accountants;
and
(2) all other reports that would be required to be filed with the Commission,
including on Form 8-K, if the Company were required to file such reports.
The Company and the Parent are not required to furnish separate financial
results of their Subsidiaries unless otherwise required to do so by the
Commission. Whether or not required by the Commission, the Company will file a
copy of all of the information and reports referred to in clauses (1) and (2)
above with the Commission for public availability within 15 days after the time
periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing).
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the notes,
whether or not prohibited by the subordination provisions of the indenture;
(2) default in payment when due of the principal of or premium, if any, on
the notes, including, without limitation, payment of the Change of Control
Purchase Price or the Asset Sale Offer Price on notes validly tendered pursuant
to a Change of Control Offer or Asset Sale Offer, as applicable, or otherwise,
whether or not prohibited by the subordination provisions of the indenture;
(3) failure by the Company or any Subsidiary of the Company to observe or
perform any other covenant or agreement contained in the notes or the indenture
and the continuance of such failure for a period of 30 days after written
notice is given to the Company by the trustee or to the Company and the trustee
by the holders of at least 25% in aggregate principal amount of the notes
outstanding, subject to certain exceptions;
76
(4) certain events of bankruptcy, insolvency or reorganization in respect of
the Company or any of its Significant Subsidiaries;
(5) default on Indebtedness of the Company or any of its Subsidiaries with an
aggregate principal amount in excess of $5.0 million if that default:
(a) is caused by a failure to pay principal at maturity, or
(b) results in the acceleration of such Indebtedness prior to its stated
maturity;
(6) any of the Guarantees ceases to be in full force and effect or any of the
Guarantees is declared to be null and void and unenforceable or any of the
Guarantees is found to be invalid or any of the Guarantors or Parent denies its
liability under its Guarantee (other than by reason of release of a Guarantor
in accordance with the terms of the indenture); and
(7) failure by the Company or any of its Subsidiaries to pay final
unsatisfied judgments not covered by insurance aggregating in excess of $5.0
million, which judgments are not stayed, bonded or discharged within 60 days.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to the Company, all principal and accrued interest
on outstanding notes will become due and payable immediately without further
action or notice. The holders of a majority in aggregate principal amount of
notes generally are authorized to rescind such acceleration if all existing
Events of Default, other than the non-payment of the principal of, premium, if
any, and interest on the notes which have become due solely by such
acceleration and except on default with respect to any provision requiring a
supermajority approval to amend, which default may only be waived by such a
supermajority, and have been cured or waived.
If any other Event of Default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding notes may
declare all principal, determined as set forth below, and accrued interest on
the notes to be due and payable immediately; provided, however, that if any
Senior Debt is outstanding pursuant to the Credit Agreement, upon a declaration
of such acceleration, such principal and interest shall be due and payable upon
the earlier of:
(a) the fifth Business Day after the sending to the Company and the
Representative under the Credit Agreement of such written notice, unless
such Event of Default is cured or waived prior to such date; and
(b) the date of acceleration of any Indebtedness under the Credit
Agreement.
In the event a declaration of acceleration resulting from an Event of Default
described in clause (5) above has occurred and is continuing, such declaration
of acceleration shall be automatically annulled if within 15 days of the
declaration:
(1) such default is cured or waived or the holders of the Indebtedness which
is the subject of such default have rescinded their declaration of acceleration
in respect of such Indebtedness;
(2) the trustee has received written notice or such cure, waiver or
rescission;
(3) the annulment of the acceleration of the notes would not conflict with
any judgment or decree of a court of competent jurisdiction; and
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(4) all existing Events of Default (except nonpayment of principal or
interest on the notes that became due solely because of the acceleration of the
notes) have been cured or waived and no other Event of Default described in
clause (5) above has occurred that has not been cured or waived within 15 days
of the declaration of such acceleration in respect of such Indebtedness.
Prior to the declaration of acceleration of the maturity of the notes, the
holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a default with respect to any provision requiring a
supermajority approval to amend, which default may only be waived by such a
supermajority, and except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the notes not yet cured or a
default with respect to any covenant or provision which cannot be modified or
amended without the consent of the holder of each outstanding note affected.
Subject to the provisions of the indenture relating to the duties of the
trustee, the trustee will be under no obligation to exercise any of its rights
or powers under the indenture at the request, order or direction of any of the
holders, unless such holders have offered to the trustee reasonable security or
indemnity. Subject to all provisions of the indenture and applicable law, the
holders of a majority in aggregate principal amount of the notes at the time
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee, or
exercising any trust or power conferred on the trustee.
No Personal Liability of Directors, Officers, Employees and Stockholders
No direct or indirect stockholder, employee, officer or director, as such,
past, present or future of the Parent, the Company, the Guarantors or any
successor entity shall have any personal liability for any obligations of the
Company or the Guarantors under the indenture or the notes solely by reason of
his or its status as such stockholder, employee, officer or director, except
that this provision shall in no way limit the obligation of the Parent or any
Guarantor pursuant to any guarantee of the notes. Each holder of notes by
accepting a note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the notes. The waiver may not be
effective to waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have its obligations
and the obligations of the Guarantors and the Parent discharged with respect to
the outstanding notes ("Legal Defeasance") except for:
(1) the rights of holders to receive payments in respect of the principal of,
premium, if any, and interest, and Liquidated Damages, if any, on those notes
when such payments are due from the trust funds;
(2) the Company's obligations with respect to those notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or stolen
notes, and the maintenance of an office or agency for payment and money for
security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and the
Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
78
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company, the Parent and the Guarantors released with
respect to certain covenants that are described in the indenture ("Covenant
Defeasance") and thereafter any omission to comply with those covenants shall
not constitute a Default or Event of Default with respect to the notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
guarantees, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the notes, U.S. legal tender, U.S. Government
Obligations or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the notes on the
stated date for payment of the notes or on the redemption date of such
principal or installment of principal of, premium, if any, or interest on such
notes, and the holders of notes must have a valid, perfected, exclusive
security interest in such trust;
(2) in the case of Legal Defeasance, the Company shall have delivered to the
trustee an opinion of counsel in the United States reasonably acceptable to the
trustee confirming that (a) the Company has received from, or there has been
published by the Internal Revenue Service, a ruling or (b) since the date of
the indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders of those notes will not recognize
income, gain or loss for federal income tax purposes as a result of the Legal
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if the Legal
Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered to
the trustee an opinion of counsel in the United States reasonably acceptable to
the trustee confirming that the holders of the notes will not recognize income,
gain or loss for federal income tax purposes as a result of the Covenant
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if the
Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit;
(5) Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under the indenture or any other material
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound;
(6) the Company shall have delivered to the trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of the notes over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; and
(7) the Company shall have delivered to the trustee an Officers' Certificate
and an opinion of counsel, each stating that the conditions precedent provided
for in, in the case of the Officers'
79
Certificate, (1) through (6) and, in the case of the opinion of counsel,
clauses (1), (with respect to the validity and perfection of the security
interest) (2), (3) and (5) of this paragraph have been complied with and the
Company shall have delivered to the trustee an Officers' Certificate (subject
to such qualifications and exceptions as the trustee deems appropriate) to the
effect that, assuming no holder of the notes is an insider of the Company, the
trust funds will not be subject to the effect of any applicable Federal
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally.
If the funds deposited with the trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of, premium, if any,
and interest on the notes when due, then the obligations of the Company, the
Parent and the Guarantors under the indenture will be revived and no such
defeasance will be deemed to have occurred.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, with the consent of
the holders of not less than a majority in aggregate principal amount of the
notes at the time outstanding, the Company, the Parent, the Guarantors and the
trustee are permitted to amend or supplement the indenture or any supplemental
indenture or modify the rights of the holders.
Without the consent of each holder affected, an amendment or waiver may not,
with respect to any notes held by a non-consenting holder:
(1) change the Stated Maturity on any note, or reduce the principal amount of
any note or the rate (or extend the time for payment) of interest thereon or
any premium payable upon the redemption at the option of the Company of the
notes, or change the place of payment where, or the coin or currency in which,
any note or any premium or the interest on the notes is payable, or impair the
right to institute suit for the enforcement of any such payment on or after the
Stated Maturity of the notes (or, in the case of redemption at the option of
the Company, on or after the Redemption Date), or reduce the Change of Control
Purchase Price or the Asset Sale Offer Price (after the occurrence of an event
giving rise to a Change of Control Offer or an Asset Sale Offer, respectively)
or alter the provisions (including the defined terms used therein) regarding
the right of the Company to redeem the notes as a right, or at the option of
the Company in a manner adverse to the holders;
(2) reduce the percentage in principal amount of the outstanding notes, the
consent of whose holders is required for any such amendment, supplemental
indenture or waiver provided for in the indenture; or
(3) modify any of the waiver provisions, except to increase any required
percentage or to provide that certain other provisions of the indenture cannot
be modified or waived without the consent of the holder of each outstanding
note affected thereby.
Notwithstanding the preceding, without the consent of holders of at least 66
2/3% in aggregate principal amount of notes at the time outstanding, an
amendment or supplement or waiver may not modify the provisions (including the
defined terms used therein) of the covenant "Repurchase of Notes at the Option
of Holders--Change of Control" in a manner adverse to the holders.
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Notwithstanding the preceding, without the consent of any holder of notes,
the Company and the trustee may amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of the Company's obligations to holders of
notes in the case of a merger or consolidation or sale of all or substantially
all of the Company's assets;
(4) to make any change that would provide any additional rights or benefits
to the holders of notes or that does not adversely affect the legal rights
under the indenture of any such holder;
(5) to comply with the procedures of the Depositary or the trustee with
respect to the provisions of the indenture and the notes relating to transfers
of notes; or
(6) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act.
Discharge of Indenture
The Company may terminate certain of its obligations and the obligations of
the Parent and the Guarantors with respect to the outstanding notes and the
indenture. Certain provisions of the indenture will survive such termination,
including, without limitation:
(1) rights of holders to receive payments in respect of the principal of,
premium, if any, and interest on the notes when such payments are due;
(2) the Company's obligations with respect to such notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or stolen
notes, and the maintenance of an office or agency for payment and money for
security payments held in trust;
(3) the compensation, indemnification and replacement of the trustee, and the
Company's obligations in connection therewith; and
(4) the repayment to the Company of any funds from the trust, in certain
circumstances.
In order to effect such termination:
(1) the Company shall have given irrevocable and unconditional notice to the
trustee and mailed a notice of such redemption to each holder and the trustee
for the redemption of all notes;
(2) the Company must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the notes, U.S. legal tender, U.S. Government
Obligations or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on such notes on the
stated date for payment of the notes or on the redemption date of such
principal or installment of principal of, premium, if any, or interest on such
notes, as the case may be;
(3) the Company shall have paid all other sums payable by it under the
indenture and the notes; and
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(4) the Company shall have delivered to the trustee an Officers' Certificate
and an opinion of counsel in the United States reasonably acceptable to the
trustee, each stating that the conditions precedent with respect to termination
of the Company's obligations as described herein provided for under the
indenture and the notes have been complied with.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference is
made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness or Disqualified Capital Stock of
any person existing at the time such person becomes a Subsidiary of the
Company, including by designation, or is merged or consolidated into or with
the Company or one of its Subsidiaries.
"Acquisition" means the purchase or other acquisition of any person or all or
substantially all the assets of any person by any other person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"Administrative Services Agreement" means that certain Corporate Development
and Administrative Services Agreement between the Company and Brentwood dated
as of May 29, 1998.
"Affiliate" means any person directly or indirectly controlling or controlled
by or under direct or indirect common control with the Company. For purposes of
this definition, the term "control" means the power to direct the management
and policies of a person, directly or through one or more intermediaries,
whether through the ownership of voting securities, by contract, or otherwise,
provided, that, with respect to ownership interest in the Company and its
Subsidiaries, a Beneficial Owner of 10% or more of the total voting power
normally entitled to vote in the election of directors, managers or trustees,
as applicable, shall for such purposes be deemed to constitute control.
"Approved Cost Savings" means with respect to cost savings associated with
any Acquisition (other than the Stone Acquisition and the City
Recapitalization), those cost savings that result from elimination of any of
the following items:
(1) accounting policy-related charges;
(2) private company expenses;
(3) excess officer or owner compensation;
(4) expenses not required to operate the acquired business on an ongoing
basis; and
(5) business-related charges.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing
(1) the sum of the products of (a) the number of years from the date of
determination to the date or dates of each successive scheduled principal (or
redemption) payment of such security or instrument and (b) the amount of each
such respective principal (or redemption) payment by
(2) the sum of all such principal (or redemption) payments.
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"Beneficial Owner" or "beneficial owner" for purposes of the definitions of
Change of Control and Affiliate has the meaning attributed to it in Rules 13d-3
and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether or
not applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
"Board of Directors" means, with respect to any person, the board of
directors of such person or any committee of the Board of Directors of such
person authorized, with respect to any particular matter, to exercise the power
of the board of directors of such person.
"Brentwood" means Brentwood Private Equity, L.L.C. and Brentwood Associates
Buyout Fund II, L.P. together with any person directly or indirectly
controlling or controlled by or under direct or indirect common control with
Brentwood Private Equity, L.L.C. and Brentwood Associates Buyout Fund II, L.P.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Change of Control" means
(1) prior to consummation of an Initial Public Equity Offering the Excluded
Persons shall cease to own beneficially and of record at least 51% of the
ordinary Voting Power represented by the Equity Interests of the Company unless
a Parent is formed after the date hereof and the Excluded Persons own
beneficially and of record at least 51% of the ordinary Voting Power of the
Parent and the Parent beneficially and of record owns 100% of the ordinary
Voting Power of the Company or
(2) following the consummation of an Initial Public Equity Offering,
(a) any merger or consolidation of the Company or Parent, as the case may
be, with or into any person or any sale, transfer or other conveyance,
whether direct or indirect, of all or substantially all of the assets of
the Company or Parent, as the case may be, on a consolidated basis, in one
transaction or a series of related transactions, if, immediately after
giving effect to such transaction(s),
(b) any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable)
(other than the Excluded Persons) is or becomes the "beneficial owner,"
directly or indirectly, of more than 35% of the total voting power in the
aggregate normally entitled to vote in the election of directors, managers,
or trustees, as applicable, of the transferee(s) or surviving entity or
entities, any "person" or "group" (as terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable)
(other than the Excluded Persons) is or becomes the "beneficial owner,"
directly or indirectly, of more than 35% of the total voting power in the
aggregate of all classes of Capital Stock of the Company or Parent, as the
case may be, then outstanding normally entitled to vote in elections of
directors,
(c) during any period of 12 consecutive months after the Issue Date,
individuals who at the beginning of any such 12-month period constituted
the Board of Directors of the Company or Parent, as the case may be,
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the shareholders of the Company or
Parent, as the case may be, was approved by a vote of a majority of the
directors then still in office who were
83
either directors at the beginning of such period or whose election or
nomination for election was previously so approved including new directors
designated in or provided for in an agreement regarding the merger,
consolidation or sale, transfer or other conveyance, of all or
substantially all of the assets of the Company or Parent, as the case may
be, if such agreement was approved by a vote of such majority of directors)
cease for any reason to constitute a majority of the Board of Directors of
the Company or Parent, as the case may be, then in office or
(d) the Company or Parent, as the case may be, adopts a plan of
liquidation.
"Capital Contribution" means any contribution to the equity of the Company
from a direct or indirect parent of the Company for which no consideration
other than the issuance of common stock with no redemption rights and no
special preferences, privileges or voting rights is given.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of, or interests (however designated) in,
stock issued by that corporation.
"Capitalized Lease Obligation" means, as to any person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalent" means
(1) securities issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided,
that the full faith and credit of the United States of America is pledged in
support thereof); or
(2) time deposits and certificates of deposit and commercial paper issued by
the parent corporation of any domestic commercial bank of recognized standing
having capital and surplus in excess of $500.0 million; or
(3) commercial paper issued by others rated at least A-2 or the equivalent
thereof by Standard & Poor's Corporation or at least P-2 or the equivalent
thereof by Moody's Investors Service, Inc.,
and in the case of each of (1), (2), and (3) maturing within one year after the
date of acquisition.
"City Recapitalization" means the purchase by BABF City Corp., a company
formed by Brentwood, of 80% of the outstanding common stock of City Truck and
Trailer Parts, Inc. on June 1, 1998.
"Consolidation" means, with respect to the Company, the consolidation of the
accounts of the Subsidiaries with those of the Company, all in accordance with
GAAP; provided, that "consolidation" will not include consolidation of the
accounts of any Unrestricted Subsidiary with the accounts of the Company. The
term "consolidated" has a correlative meaning to the foregoing.
"Consolidated Coverage Ratio" of any person on any date of determination (the
"Transaction Date") means the ratio, on a pro forma basis, of
(1) the aggregate amount of Consolidated EBITDA of such person attributable
to continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period to
84
(2) the aggregate Consolidated Fixed Charges of such person (exclusive of
amounts attributable to operations and businesses permanently discontinued or
disposed of, but only to the extent that the obligations giving rise to such
Consolidated Fixed Charges would no longer be obligations contributing to such
person's Consolidated Fixed Charges subsequent to the Transaction Date) during
the Reference Period;
provided, that for purposes of such calculation,
(1) Acquisitions which occurred during the Reference Period or subsequent to
the Reference Period and on or prior to the Transaction Date shall be assumed
to have occurred on the first day of the Reference Period;
(2) transactions giving rise to the need to calculate the Consolidated
Coverage Ratio shall be assumed to have occurred on the first day of the
Reference Period;
(3) the incurrence of any Indebtedness or issuance of any Disqualified
Capital Stock during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall
be assumed to have occurred on the first day of the Reference Period; and
(4) the Consolidated Fixed Charges of such person attributable to interest on
any Indebtedness or dividends on any Disqualified Capital Stock bearing a
floating interest (or dividend) rate shall be computed on a pro forma basis as
if the average rate in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire period, unless
such Person or any of its Subsidiaries is a party to an Interest Swap or
Hedging Obligation (which shall remain in effect for the 12-month period
immediately following the Transaction Date) that has the effect of fixing the
interest rate on the date of computation, in which case such rate (whether
higher or lower) shall be used.
"Consolidated EBITDA" means, with respect to any person, for any period, the
Consolidated Net Income of such person for such period adjusted to add thereto
(to the extent deducted from net revenues in determining Consolidated Net
Income), without duplication, the sum of
(1) Consolidated income tax expense;
(2) Consolidated depreciation and amortization expense;
(3) Consolidated Fixed Charges; and
(4) other non-recurring, non-cash charges of such person and its consolidated
subsidiaries,
less the amount of all cash payments made by such person or any of its
Subsidiaries during such period to the extent such payments relate to non-
recurring, non-cash charges that were added back in determining Consolidated
EBITDA for such period or any prior period, less any non-cash items increasing
Consolidated Net Income for such period.
"Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of
(1) interest expensed or capitalized, paid, accrued, or scheduled to be paid
or accrued (including, in accordance with the following sentence, interest
attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, including
85
(a) original issue discount and non-cash interest payments or accruals on
any Indebtedness,
(b) the interest portion of all deferred payment obligations,
(c) all commissions, discounts and other fees and charges owed with
respect to bankers' acceptances and letters of credit financings and
currency and Interest Swap and Hedging Obligations, in each case to the
extent attributable to such period, and
(d) the product of (x) the amount of all dividend payments on any series
of Preferred Stock of such Person or of any Restricted Subsidiary of such
Person (other than dividends paid in Qualified Capital Stock) paid, accrued
or scheduled to be paid or accrued during such period times (y) a fraction,
the numerator of which is one and the denominator of which is one minus the
then current effective consolidated federal, state and local tax rate of
such Person, expressed as a decimal, and
(2) the amount of dividends accrued or payable (or guaranteed) by such person
or any of its Consolidated Subsidiaries in respect of Preferred Stock (other
than by Subsidiaries of such person to such person or such person's Wholly-
Owned Subsidiaries).
For purposes of this definition, (x) interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
in good faith by the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP and (y) interest expense
attributable to any Indebtedness represented by the guaranty by such person or
a Subsidiary of such person of an obligation of another person shall be deemed
to be the interest expense of such other person attributable to the
Indebtedness guaranteed.
"Consolidated Net Income" means, with respect to any person for any period,
the net income (or loss) of such person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication):
(1) all gains (but not losses) which are either extraordinary (as determined
in accordance with GAAP) or are either unusual or nonrecurring (including any
gain from the sale or other disposition of assets outside the ordinary course
of business or from the issuance or sale of any capital stock),
(2) the net income, if positive, of any person, other than a Consolidated
Subsidiary, in which such person or any of its Consolidated Subsidiaries has an
interest, except to the extent of the amount of any dividends or distributions
actually paid in cash to such person or a Consolidated Subsidiary of such
person during such period, but in any case not in excess of such person's pro
rata share of such person's net income for such period,
(3) the net income or loss of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition, and
(4) the net income, if positive, of any of such person's Consolidated
Subsidiaries to the extent that the declaration or payment of dividends or
similar distributions is not at the time permitted by operation of the terms of
its charter or bylaws or any other agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such Consolidated
Subsidiary.
"Consolidated Subsidiary" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with GAAP.
86
"Credit Agreement" means the Revolving Credit Facility, including any related
notes, guarantees, collateral documents, instruments and agreements executed by
the Company or any of its Subsidiaries or other Affiliates in connection
therewith, as such credit agreement and/or related documents may be amended,
restated, supplemented, renewed, replaced or otherwise modified from time to
time whether or not with the same agent, trustee, representative lenders or
holders, and, subject to the proviso to the next succeeding sentence,
irrespective of any changes in the terms and conditions thereof. Without
limiting the generality of the foregoing, the term "Credit Agreement" shall
include agreements in respect of Interest Swap and Hedging Obligations with
lenders party to the Credit Agreement and shall also include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to any Credit Agreement and all refundings, refinancings and
replacements of any Credit Agreement, including any agreement:
(1) extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby,
(2) adding or deleting borrowers or guarantors thereunder, so long as
borrowers and issuers include one or more of the Company and its Subsidiaries
and their respective successors and assigns,
(3) increasing the amount of Indebtedness incurred thereunder or available to
be borrowed thereunder, provided, that on the date such Indebtedness is
incurred it would not be prohibited by the covenant "Limitation on Incurrence
of Additional Indebtedness and Disqualified Capital Stock" or
(4) otherwise altering the terms and conditions thereof in a manner not
prohibited by the terms of the indenture.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Designated Senior Debt" means
(1) Senior Debt originating under the Credit Agreement and
(2) any other Senior Debt in an aggregate outstanding principal amount in
excess of $25 million which is designated as Designated Senior Debt by the
Board of Directors.
"Disqualified Capital Stock" means
(1) except as set forth in (2), with respect to any person, Equity Interests
of such person that, by its terms or by the terms of any security into which it
is convertible, exercisable or exchangeable, is, or upon the happening of an
event or the passage of time or both would be, required to be redeemed or
repurchased (including at the option of the holder thereof) by such person or
any of its Subsidiaries, in whole or in part, on or prior to the Stated
Maturity of the notes and
(2) with respect to any Subsidiary of such person (including with respect to
any Subsidiary of the Company), any Equity Interests other than any common
equity with no preference, privileges, or redemption or repayment provisions.
"Equity Interest" of any Person means any shares, interests, participations
or other equivalents (however designated) in such Person's equity, and shall in
any event include any Capital Stock issued by, or partnership or membership
interests in, such Person.
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"Event of Loss" means, with respect to any property or asset, any
(1) loss, destruction or damage of such property or asset or
(2) any condemnation, seizure or taking, by exercise of the power of eminent
domain or otherwise, of such property or asset, or confiscation or requisition
of the use of such property or asset.
"Excluded Persons" means Brentwood, Larry Clayton and James Stone and
(1) any controlling stockholder, general partner, majority owned Subsidiary,
or spouse or immediate family member (in the case of an individual) of such
Person or
(2) (a) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding
80% or more of the Voting Stock of which consist of such Person and/or such
other Persons referred to in the immediately preceding clause (1) or (b) any
partnership the sole general partner of which is such Person or one of the
Persons referred to in clause (1).
"Foreign Subsidiary" means any Restricted Subsidiary of the Company that is
incorporated in a jurisdiction other than the United States of America and all
or substantially all of the sales, earnings or assets of which are located in,
generated from or derived from operations located in jurisdictions outside the
United States of America.
"GAAP" means United States generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States as in effect on the Issue Date.
"Guarantor" means all existing and future Subsidiaries of the Company other
than Receivables Subsidiaries and Foreign Subsidiaries; provided that any
Foreign Subsidiary that, pursuant to the terms of the indenture, guarantees the
obligations of the Company under the Securities and the indenture shall be
deemed to be a Guarantor.
"Incurrence Date" means the date on which a person directly or indirectly,
issues, assumes, guarantees, incurs, becomes directly or indirectly liable with
respect to (including as a result of an Acquisition), or otherwise become
responsible for, contingently or otherwise (collectively, "incur") any
Indebtedness or any Disqualified Capital Stock (including Acquired
Indebtedness).
"Indebtedness" of any person means, without duplication,
(1) all liabilities and obligations, contingent or otherwise, of such person,
to the extent such liabilities and obligations would appear as a liability upon
the consolidated balance sheet of such person in accordance with GAAP,
(a) in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such person or only to a portion
thereof),
(b) evidenced by bonds, notes, debentures or similar instruments,
88
(c) representing the balance deferred and unpaid of the purchase price of
any property or services, except (other than accounts payable or other
obligations to trade creditors which have remained unpaid for greater than
60 days past their original due date) those incurred in the ordinary course
of its business that would constitute ordinarily a trade payable to trade
creditors;
(2) all liabilities and obligations, contingent or otherwise, of such person
(a) evidenced by bankers' acceptances or similar instruments issued or
accepted by banks,
(b) relating to any Capitalized Lease Obligation, or
(c) evidenced by a letter of credit or a reimbursement obligation of such
person with respect to any letter of credit;
(3) all net obligations of such person under Interest Swap and Hedging
Obligations;
(4) all liabilities and obligations of others of the kind described in the
preceding clause (1), (2) or (3) that such person has guaranteed or that is
otherwise its legal liability or which are secured by any assets or property of
such person;
(5) any and all deferrals, renewals, extensions, refinancing and refundings
(whether direct or indirect) of, or amendments, modifications or supplements
to, any liability of the kind described in any of the preceding clauses (1),
(2), (3) or (4), or this clause (5), whether or not between or among the same
parties; and
(6) all Disqualified Capital Stock of such Person and its Subsidiaries
(measured at the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued and unpaid dividends).
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Disqualified
Capital Stock, such Fair Market Value to be determined in good faith by the
board of directors of the issuer (or managing general partner of the issuer) of
such Disqualified Capital Stock.
"Initial Public Equity Offering" means an initial underwritten offering of
common stock of the Company or the Parent for cash pursuant to an effective
registration statement under the Securities Act following which the common
stock of the Company or the Parent is listed on a national securities exchange
or quoted on the national market system of the Nasdaq stock market.
"Interest Swap and Hedging Obligation" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without duplication)
89
(1) the acquisition (whether by purchase, merger, consolidation or otherwise)
by such person (whether for cash, property, services, securities or otherwise)
of capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
person or any agreement to make any such acquisition;
(2) the making by such person of any deposit with, or advance, loan or other
extension of credit to, such other person (including the purchase of property
from another person subject to an understanding or agreement, contingent or
otherwise, to resell such property to such other person) or any commitment to
make any such advance, loan or extension (but excluding accounts receivable,
endorsements for collection or deposits arising in the ordinary course of
business);
(3) other than guarantees of Indebtedness of the Company or any Guarantor to
the extent permitted by the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," the entering into by such person
of any guarantee of, or other credit support or contingent obligation with
respect to, Indebtedness or other liability of such other person;
(4) the making of any capital contribution by such person to such other
person; and
(5) the designation by the Board of Directors of the Company of any person to
be an Unrestricted Subsidiary.
The Company shall be deemed to make an Investment in an amount equal to the
fair market value of the net assets of any subsidiary (or, if neither the
Company nor any of its Subsidiaries has previously made an Investment in such
subsidiary, in an amount equal to the Investments being made), at the time that
such subsidiary is designated an Unrestricted Subsidiary, and any property
transferred to an Unrestricted Subsidiary from the Company or a Subsidiary of
the Company shall be deemed an Investment valued at its fair market value at
the time of such transfer.
"Issue Date" means the date of first issuance of the notes under the
indenture.
"Junior Security" means any Qualified Capital Stock and any Indebtedness of
the Company or a Guarantor, as applicable, that is subordinated in right of
payment to Senior Debt at least to the same extent as the notes or the
Guarantee, as applicable, and has no scheduled installment of principal due, by
redemption, sinking fund payment or otherwise, on or prior to the Stated
Maturity of the notes; provided, that, in the case of subordination in respect
of Senior Debt under the Credit Agreement, "Junior Security" shall mean any
Qualified Capital Stock and any Indebtedness of the Company or the Guarantor,
as applicable, that
(1) is unsecured,
(2) is not entitled to the benefits of covenants or defaults materially more
beneficial to the holders of such Junior Securities than those in effect with
respect to the notes on the date hereof (or the Senior Debt under the Credit
Agreement, including after giving effect to any plan of reorganization or
readjustment),
(3) shall not provide for amortization (including sinking fund and mandatory
prepayment or redemption provisions) commencing prior to the date that is six
months following the final scheduled maturity date of the Senior Debt under the
Credit Agreement (as modified by any plan of reorganization or readjustment),
(4) if a new corporation or other entity results from any reorganization or
readjustment, such corporation or other entity assumes such Senior Debt,
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(5) the rights of the holders of Senior Debt under the Credit Agreement are
not, without the consent of such holders, materially altered by any such
reorganization or readjustment, including without limitation, such rights
being materially impaired within the meaning of Section 1124 of Title 11 of
the United States Code or any material impairment of the right to receive
interest accruing during the pendency of a bankruptcy or insolvency
proceeding, including proceedings under Title 11 of the United States Code,
and
(6) by their terms or by law are subordinated to Senior Debt outstanding
under the Credit Agreement on the date of issuance of such Qualified Capital
Stock or Indebtedness at least to the same extent as the notes or the
Guarantee, as applicable.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable,
now owned or hereafter acquired.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by the Company in the case of a sale or Capital Contribution in
respect of Qualified Capital Stock and by the Company and its Subsidiaries in
respect of an Asset Sale plus, in the case of an issuance of Qualified Capital
Stock upon any exercise, exchange or conversion of securities (including
options, warrants, rights and convertible or exchangeable debt) of the Company
that were issued for cash on or after the Issue Date, the amount of cash
originally received by the Company upon the issuance of such securities
(including options, warrants, rights and convertible or exchangeable debt)
less, in each case, the sum of all payments, fees, commissions and (in the
case of Asset Sales, reasonable and customary) expenses (including, without
limitation, the fees and expenses of legal counsel and investment banking fees
and expenses) incurred in connection with such Asset Sale or sale or Capital
Contribution in respect of Qualified Capital Stock, and, in the case of an
Asset Sale only, less the amount (estimated reasonably and in good faith by
the Company) of income, franchise, sales and other applicable taxes required
to be paid by the Company or any of its respective Subsidiaries in connection
with such Asset Sale in the taxable year that such sale is consummated or in
the immediately succeeding taxable year, the computation of which shall take
into account the reduction in tax liability resulting from any available
operating losses and net operating loss carry-overs, tax credits and tax
credit carry-forwards, and similar tax attributes.
"Non-Recourse Indebtedness" means Indebtedness
(1) as to which neither the Company nor any of its Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable (as a guarantor or otherwise), or
(c) constitutes the lender; and
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness of the Company or any of its Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
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"Obligation" means any principal, premium or interest payment, or monetary
penalty, or damages, due by the Company, the Parent or any Guarantor under the
terms of the notes or the indenture, including any liquidated damages due
pursuant to the terms of the Registration Rights Agreement.
"Offering Memorandum" means the final Offering Memorandum of the Company
dated July 28, 1998, relating to the offering of the Initial Securities in a
transaction exempt from the requirements of Section 5 of the Securities Act.
"Parent" means any Person, other than any Excluded Person, of which the
Company is a Subsidiary.
"Permitted Indebtedness" means that:
(1) the Company and the Guarantors may incur Indebtedness evidenced by the
notes and the Guarantees and represented by the indenture up to the $100.0
million issued on the Issue Date less any amounts refinanced, redeemed or
retired pursuant to clause (2) below;
(2) the Company and the Guarantors, as applicable, may incur Refinancing
Indebtedness with respect to any Indebtedness or Disqualified Capital Stock, as
applicable, described in clause (1) of this definition or incurred under the
Debt Incurrence Ratio test of the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock," or which is
outstanding on the Issue Date (after giving effect to the repayment of
indebtedness as described under the heading "Use of Proceeds" in the Offering
Memorandum), provided, that, in each case such Refinancing Indebtedness is
secured only by the assets, if any, that secured the Indebtedness so
refinanced;
(3) the Company and its Subsidiaries may incur Indebtedness solely in respect
of bankers acceptances, letters of credit and performance bonds (to the extent
that such incurrence does not result in the incurrence of any obligation to
repay any obligation relating to borrowed money of others), all in the ordinary
course of business in accordance with customary industry practices, in amounts
and for the purposes customary in the Company's industry in order to provide
security for workers' compensation, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(4) the Company may incur Indebtedness to any Guarantor, and any Guarantor
may incur Indebtedness to any Guarantor or to the Company; provided, that, in
the case of Indebtedness of the Company, such obligations shall be unsecured
and subordinated in all respects to the Company's obligations pursuant to the
notes and any event that causes such Guarantor which loaned such Indebtedness
no longer to be a Guarantor shall be deemed to be a new incurrence subject to
the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Stock;"
(5) any Guarantor may guaranty any Indebtedness of the Company or another
Guarantor that was permitted to be incurred pursuant to the indenture,
substantially concurrently with such incurrence or at the time such person
becomes a Guarantor of the notes;
(6) Indebtedness or other contractual requirements of a Receivables
Subsidiary in connection with a Qualified Receivables Transaction, provided,
that, such restrictions apply only to such Receivables Subsidiary;
(7) a Receivables Subsidiary may incur Indebtedness in a Qualified
Receivables Transaction that is without recourse to the Company or to any
Subsidiary of the Company or their assets (other
92
than such Receivables Subsidiary and its assets), and is not guaranteed by any
such person and is not otherwise such person's legal liability;
(8) Interest Swap and Hedging Obligations of the Company covering
Indebtedness of the Company or any of its Restricted Subsidiaries and Interest
Swap and Hedging Obligations of any Restricted Subsidiary of the Company
covering Indebtedness of such Restricted Subsidiary, provided, however, that
such Interest Swap and Hedging Obligations are entered into to protect the
Company and its Restricted Subsidiaries from fluctuations in interest rates on
Indebtedness incurred in accordance with the indenture to the extent the
notional principal amount of such Interest Swap and Hedging Obligation does not
exceed the principal amount of the Indebtedness to which such Interest Swap and
Hedging Obligation relates; and
(9) Any Foreign Subsidiary may incur Indebtedness to any other Foreign
Subsidiary; provided, that any event that causes the Foreign Subsidiary which
loaned such Indebtedness no longer to be a Subsidiary shall be deemed to be a
new incurrence subject to the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Stock."
"Permitted Investment" means Investments in
(1) any of the notes and the Guarantees;
(2) Cash Equivalents;
(3) intercompany notes to the extent permitted under clauses (4) and (9) of
the definition of "Permitted Indebtedness" provided, however, that any event
that causes the obligee on such inter-company notes no longer to be a
Subsidiary shall be deemed a new Investment subject to the covenant entitled
"Limitation on Restricted Payments";
(4) Investment by the Company or any Guarantor in a Person in a Related
Business if as a result of such Investment such Person immediately becomes a
Wholly-Owned Subsidiary Guarantor or such Person is immediately merged with or
into the Company or a Wholly-Owned Subsidiary Guarantor;
(5) the acquisition by a Receivables Subsidiary in connection with a
Qualified Receivables Transaction of Equity Interests of a trust or other
person established by such Receivables Subsidiary to effect such Qualified
Receivables Transaction;
(6) any Investment by the Company or any Guarantor in a Receivables
Subsidiary or any Investment by a Receivables Subsidiary in any other person in
connection with a Qualified Receivables Transaction; provided, that the
foregoing Investment is in the form of a note that the Receivables Subsidiary
or other person is required to repay as soon as practicable from available cash
collections less amounts required to be established as reserves pursuant to
contractual arrangements with entities that are not Affiliates entered into as
part of a Qualified Receivables Transaction;
(7) loans and advances to employees and officers of the Company and its
Subsidiaries in the ordinary course of business for bona fide business purposes
not in excess of $1.5 million at any one time outstanding;
(8) Currency Agreements and Interest Swap and Hedging Obligations entered
into in the ordinary course of the Company's or its Subsidiaries' businesses
and otherwise in compliance with the indenture;
93
(9) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(10) Investments made by the Company or its Subsidiaries as a result of
consideration received in connection with an Asset Sale made in compliance with
the "Limitation on Sale of Assets and Subsidiary Stock" covenant;
(11) Investments by the Company or any Guarantor in a Foreign Subsidiary in
the aggregate not in excess of $5.0 million plus to the extent that any
Investment (other than an Investment which when made was not deducted in this
clause (11)) that was made after the Issue Date is sold for cash or Cash
Equivalents or otherwise liquidated or repaid for cash or Cash Equivalents, the
lesser of
(a) the cash or Cash Equivalents return of capital with respect to such
Investment (less the cost of disposition, if any) and
(b) the initial amount of such Investment; and
(12) any Investment in the Company or in a Wholly-Owned Subsidiary Guarantor.
"Permitted Lien" means
(1) Liens existing on the Issue Date;
(2) Liens imposed by governmental authorities for taxes, assessments or other
charges not yet subject to penalty or which are being contested in good faith
and by appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP;
(3) statutory liens of carriers, warehousemen, mechanics, material men,
landlords, repairmen or other like Liens arising by operation of law in the
ordinary course of business provided, that,
(a) the underlying obligations are not overdue for a period of more than 30
days, or
(b) such Liens are being contested in good faith and by appropriate
proceedings and adequate reserves with respect thereto are maintained on
the books of the Company in accordance with GAAP;
(4) Liens securing the performance of bids, trade contracts (other than
borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(5) easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects which, singly or in the aggregate, do not in any
case materially detract from the value of the property, subject thereto (as
such property is used by the Company or any of its Subsidiaries) or interfere
with the ordinary conduct of the business of the Company or any of its
Subsidiaries;
(6) Liens arising by operation of law in connection with judgments, only to
the extent, for an amount and for a period not resulting in an Event of Default
with respect thereto;
(7) pledges or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security legislation;
94
(8) Liens securing the notes;
(9) Liens securing Indebtedness of a Person existing at the time such Person
becomes a Subsidiary or is merged with or into the Company or a Subsidiary or
Liens securing Indebtedness incurred in connection with an Acquisition,
provided, that such Liens
(a) were in existence prior to the date of such acquisition, merger or
consolidation,
(b) were not incurred in anticipation thereof, and
(c) do not extend to any other assets;
(10) Liens arising from Purchase Money Indebtedness permitted to be incurred
pursuant to clause (a) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock" provided, such Liens relate solely
to the property which is subject to such Purchase Money Indebtedness;
(11) leases or subleases granted to other persons in the ordinary course of
business not materially interfering with the conduct of the business of the
Company or any of its Subsidiaries or materially detracting from the value of
the relative assets of the Company or any Subsidiary;
(12) Liens arising from precautionary Uniform Commercial Code financing
statement filings regarding operating leases entered into by the Company or any
of its Subsidiaries in the ordinary course of business;
(13) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in a manner no more adverse to the
holders of the notes than the terms of the Liens securing such refinanced
Indebtedness, and provided, that the Indebtedness secured is not increased and
the lien is not extended to any additional assets or property that would not
have been security for the Indebtedness refinanced;
(14) Liens securing Senior Debt incurred in accordance with the terms of the
indenture; and
(15) Liens on assets of a Receivables Subsidiary incurred in connection with
a Qualified Receivables Transaction.
"Permitted Payments to Parent" means without duplication as to amounts,
(1) payments to Parent in an amount sufficient to permit Parent to pay
reasonable and necessary accounting, legal and administrative expenses of the
Parent, not in excess of $350,000 in the aggregate during any consecutive 12-
month period and
(2) payment to Parent to enable Parent to pay foreign, federal, state or
local tax liabilities ("Tax Payment"), not to exceed the amount of any tax
liabilities that would be otherwise payable by the Company and its Subsidiaries
and Unrestricted Subsidiaries to the appropriate taxing authorities if each of
the Company, such Subsidiaries and Unrestricted Subsidiaries filed a separate
tax return, to the extent that Parent has an obligation to pay such tax
liabilities relating to the operations, assets or capital of the Company or its
Subsidiaries and Unrestricted Subsidiaries;
provided however, that
(1) notwithstanding the foregoing, in the case of determining the amount of a
Tax Payment that is permitted to be paid by Company and any of its United
States Subsidiaries in respect of their
95
Federal income tax liability, such payment shall be determined assuming that
Company is the parent company of an affiliated group (the "Company Affiliated
Group") filing a consolidated Federal income tax return and that Parent and
each such United States subsidiary is a member of the Company Affiliated Group
and
(2) any Tax Payments shall either be used by Parent to pay such tax
liabilities within 90 days of Parent's receipt of such payment or refunded to
the payee.
"Public Equity Offering" means an underwritten offering of common stock of
the Company for cash pursuant to an effective registration statement under the
Securities Act.
"Purchase Money Indebtedness" of any person means any Indebtedness of such
person to any seller or other person incurred solely to finance the acquisition
(including in the case of a Capitalized Lease Obligation, the lease) of any
after-acquired real or personal tangible property which, in the reasonable good
faith judgment of the Board of Directors of the Company, is directly related to
a Related Business of the Company and which is incurred concurrently with such
acquisition and is secured only by the assets so financed.
"Qualified Capital Stock" means any Capital Stock of the Company that is not
Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the Company
on or after the Issue Date with the Net Cash Proceeds received by the Company
from the substantially concurrent sale of Qualified Capital Stock or a Capital
Contribution or any exchange of Qualified Capital Stock for any Capital Stock
or Indebtedness of the Company or Capital Stock of the Parent on or after the
Issue Date.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company, any Guarantor or any
Receivables Subsidiary pursuant to which the Company, any Guarantor or any
Receivables Subsidiary may sell, convey or otherwise transfer to, or grant a
security interest in for the benefit of,
(1) a Receivables Subsidiary (in the case of a transfer or encumbrancing by
the Company or any Guarantor) and
(2) any other person (solely in the case of a transfer or encumbrancing by a
Receivables Subsidiary),
solely accounts receivable (whether now existing or arising in the future) of
the Company or any Guarantor which arose in the ordinary course of business of
the Company or any Guarantor, and any assets related thereto, including,
without limitation, all collateral securing such accounts receivable, all
contracts and all guarantees or other obligations in respect of such accounts
receivable, proceeds of such accounts receivable and other assets which are
customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Receivables Subsidiary" means a Wholly-Owned Subsidiary of the Company which
engages in no activities other than in connection with the financing of
accounts receivable and which is designated by the Board of Directors of the
Company (as provided below) as a Receivables Subsidiary
(1) no portion of any Indebtedness or any other obligations (contingent or
otherwise) of which, directly or indirectly, contingently or otherwise,
96
(a) is guaranteed by the Company or any other Subsidiary of the Company
(excluding guarantees of obligations (other than the principal of, and
interest on, Indebtedness) pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business
in connection with a Qualified Receivables Transaction),
(b) is recourse to or obligates the Company or any other Subsidiary of
the Company in any way other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business
in connection with a Qualified Receivables Transaction, or
(c) subjects any property or asset of the Company or any other Subsidiary
of the Company to the satisfaction thereof, other than pursuant to
representations, warranties, covenants and indemnities entered into in the
ordinary course of business in connection with a Qualified Receivables
Transaction,
(2) with which neither the Company nor any other Subsidiary of the Company
has any material contract, agreement, arrangement or understanding other than
those customarily entered into in connection with Qualified Receivables
Transactions, and
(3) with which neither the Company nor any other Subsidiaries of the Company
has any obligation, directly or indirectly, contingently or otherwise, to
maintain or preserve such Subsidiary's financial condition or cause such
Subsidiary to achieve certain levels of operating results.
Any such designation by the Board of Directors of the Company shall be
evidenced to the trustee by filing with the trustee a certified copy of the
resolution of the Board of Directors of the Company giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
"Reference Period" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in existence)
ended immediately preceding any date upon which any determination is to be made
pursuant to the terms of the notes or the indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of which
are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the
case of Disqualified Capital Stock, liquidation preference, not to exceed
(after deduction of reasonable and customary fees and expenses incurred in
connection with the Refinancing plus the amount of any premium paid in
connection with such Refinancing in accordance with the terms of the documents
governing the Indebtedness refinanced without giving effect to any modification
thereof made in connection with or in contemplation of such refinancing) the
lesser of
(1) the principal amount or, in the case of Disqualified Capital Stock,
liquidation preference, of the Indebtedness or Disqualified Capital Stock so
Refinanced and
(2) if such Indebtedness being Refinanced was issued with an original issue
discount, the accreted value thereof (as determined in accordance with GAAP) at
the time of such Refinancing;
provided, that,
(1) such Refinancing Indebtedness shall only be used to Refinance outstanding
Indebtedness or Disqualified Capital Stock of such person issuing such
Refinancing Indebtedness,
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(2) such Refinancing Indebtedness shall (x) not have an Average Life shorter
than the Indebtedness or Disqualified Capital Stock to be so refinanced at the
time of such Refinancing and (y) in all respects, be no less subordinated or
junior, if applicable, to the rights of holders of the notes than was the
Indebtedness or Disqualified Capital Stock to be refinanced,
(3) such Refinancing Indebtedness shall have a final stated maturity or
redemption date, as applicable, no earlier than the final stated maturity or
redemption date, as applicable, of the Indebtedness or Disqualified Capital
Stock to be so refinanced, and
(4) such Refinancing Indebtedness shall be secured (if secured) in a manner
no more adverse to the holders of the notes than the terms of the Liens (if
any) securing such refinanced Indebtedness, including, without limitation, the
amount of Indebtedness secured shall not be increased.
"Related Business" means the business conducted (or proposed to be conducted)
by the Company and its Subsidiaries as of the Issue Date and any and all
businesses that in the good faith judgment of the Board of Directors of the
Company are reasonably related businesses.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than other Permitted Investments.
"Restricted Payment" means, with respect to any person,
(1) the declaration or payment of any dividend or other distribution in
respect of Equity Interests of such person or any parent or Subsidiary of such
person,
(2) any payment on account of the purchase, redemption or other acquisition
or retirement for value of Equity Interests of such person or any Subsidiary or
parent of such person,
(3) other than with the proceeds from the substantially concurrent sale of,
or in exchange for, Refinancing Indebtedness any purchase, redemption, or other
acquisition or retirement for value of, any payment in respect of any amendment
of the terms of or any defeasance of, any Subordinated Indebtedness, directly
or indirectly, by such person or a parent or Subsidiary of such person prior to
the scheduled maturity, any scheduled repayment of principal, or scheduled
sinking fund payment, as the case may be, of such Indebtedness and
(4) any Restricted Investment by such person;
provided, however, that the term "Restricted Payment" does not include
(1) any dividend, distribution or other payment on or with respect to Equity
Interests of an issuer to the extent payable solely in shares of Qualified
Capital Stock of such issuer;
(2) any dividend, distribution or other payment to the Company, or to any of
its Subsidiary Guarantors, by the Company or any of its Subsidiaries; or
(3) Permitted Investments.
"Senior Debt" of the Company or any Guarantor means
(1) Indebtedness (including any interest, whether or not allowable, accruing
on Indebtedness incurred pursuant to the Credit Agreement after the filing of a
petition initiating any proceeding under any bankruptcy, insolvency or similar
law) of the Company or such Guarantor arising under
98
the Credit Agreement or that, by the terms of the instrument creating or
evidencing such Indebtedness, is not expressly designated Subordinated
Indebtedness or pari passu Indebtedness with the notes and made subordinated or
pari passu in right of payment to the notes or the applicable Guarantee and
(2) all other amounts due on or in connection with such Indebtedness,
including all interest, premiums, reimbursement obligations, charges, fees,
indemnities and expenses (including fees and expenses of counsel);
provided, that in no event shall Senior Debt include:
(1) Indebtedness to any Subsidiary of the Company or any officer, director or
employee of the Company or any Subsidiary of the Company,
(2) Indebtedness incurred in violation of the terms of the indenture,
(3) Indebtedness to trade creditors,
(4) Disqualified Capital Stock,
(5) Capitalized Lease Obligations, and
(6) any liability for taxes owed or owing by the Company or such Guarantor.
"Significant Subsidiary" shall have the meaning provided under Regulation S-X
of the Securities Act, as in effect on the Issue Date.
"Stated Maturity," when used with respect to any note, means August 1, 2005.
"Stone Acquisition" means the acquisition by City Truck and Trailer Parts,
Inc. of substantially all of the assets of Stone Heavy Duty, Inc. on June 19,
1998.
"Subordinated Indebtedness" means Indebtedness of the Company or a Guarantor
that is subordinated in right of payment by its terms or the terms of any
document or instrument relating thereto to the notes or such Guarantee, as
applicable, in any respect or has a stated maturity on (except for the notes)
or after the Stated Maturity.
"Subsidiary," with respect to any person, means
(1) a corporation a majority of whose Equity Interests with voting power,
under ordinary circumstances, to elect directors is at the time, directly or
indirectly, owned by such person, by such person and one or more Subsidiaries
of such person or by one or more Subsidiaries of such person,
(2) any other person (other than a corporation) in which such person, one or
more Subsidiaries of such person, or such person and one or more Subsidiaries
of such person, directly or indirectly, at the date of determination thereof
has at least majority ownership interest, or
(3) a partnership in which such person or a Subsidiary of such person is, at
the time, a general partner and in which such person, directly or indirectly,
at the date of determination thereof has at least a majority ownership
interest.
Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be a
Subsidiary of the Company or of any Subsidiary of the Company. Unless the
context requires otherwise, Subsidiary includes, without limitation, each
direct and indirect Subsidiary of the Company.
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"Unrestricted Subsidiary" means any subsidiary of the Company that does not
own any Capital Stock of, or own or hold any Lien on any property of, the
Company or any other Subsidiary of the Company and that, at the time of
determination, shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Company); provided, that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Indebtedness;
(2) is not party to any agreement, contract, arrangement or understanding
with the Company or any Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of its
Subsidiaries has any direct or indirect obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Company or any of its Subsidiaries.
The Board of Directors of the Company may designate any Unrestricted Subsidiary
to be a Subsidiary, provided, that,
(1) no Default or Event of Default is existing or will occur as a consequence
thereof and
(2) immediately after giving effect to such designation, on a pro forma
basis, the Company could incur at least $1.00 of Indebtedness pursuant to the
Debt Incurrence Ratio of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock."
Each such designation shall be evidenced by filing with the trustee a certified
copy of the resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
"U.S. Government Obligations" means direct non-callable obligations of, or
noncallable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
"Voting Power" with respect to any Person means the power of all classes of
Capital Stock of such Person then outstanding normally entitled to vote in
elections of directors.
"Wholly-Owned Subsidiary" means a Subsidiary at least 99% of the Equity
Interests of which are owned by the Company or one or more Wholly-Owned
Subsidiaries of the Company.
100
Book-Entry; Delivery; Form and Transfer
The notes sold to Qualified Institutional Buyers initially will be in the
form of one or more registered global notes without interest coupons
(collectively, the "U.S. Global Notes"). On issuance, the U.S. Global Notes
will be deposited with the trustee, as custodian for DTC in New York, New York,
and registered in the name of DTC or its nominee for credit to the accounts of
DTC's Direct and Indirect Participants (as defined below). The notes offered
and sold in offshore transactions in reliance on Regulation S, if any,
initially will be in the form of one or more temporary, registered, global
book-entry notes without interest coupons (the "Reg S Temporary Global Notes").
The Reg S Temporary Global Notes will be deposited with the trustee, as
custodian for DTC, in New York, New York, and registered in the name of a
nominee of DTC (a "Nominee") for credit to the accounts of Indirect
Participants participating in DTC through the Euroclear System ("Euroclear")
and Cedel Bank, societe anonyme ("CEDEL"). During the 40-day period commencing
on the day after the later of the offering date and the original issue date of
the notes (the "Distribution Compliance Period"), beneficial interests in the
Reg S Temporary Global Notes may be held only through Euroclear or CEDEL, and,
pursuant to DTC's procedures, Indirect Participants that hold a beneficial
interest in the Reg S Temporary Global Notes will not be able to transfer that
interest to a person that takes delivery in the form of an interest in the U.S.
Global Notes. Within a reasonable time after the expiration of the Distribution
Compliance Period, the Reg S Temporary Global Notes will be exchanged for one
or more permanent global notes (the "Reg S Permanent Global Notes",
collectively with the Reg S Temporary Global Notes, the "Reg S Global Notes")
upon delivery to DTC of certification of compliance with the transfer
restrictions applicable to the notes and pursuant to Regulation S as provided
in the indenture. After the Distribution Compliance Period, (1) beneficial
interests in the Reg S Permanent Global Notes may be transferred to a person
that takes delivery in the form of an interest in the U.S. Global Notes and (2)
beneficial interests in the U.S. Global Notes may be transferred to a person
that takes delivery in the form of an interest in the Reg S Permanent Global
Notes, provided, in each case, that the certification requirements described
below are complied with. See "Transfers of Interests in One Global Note for
Interests in Another Global Note." All registered global notes are referred to
in this prospectus collectively as "Global Notes."
Beneficial interests in all Global Notes and all Certificated Notes (as
defined below), if any, will be subject to certain restrictions on transfer and
will bear a restrictive legend as described in section 2.6(g) of the indenture.
In addition, transfer of beneficial interests in any Global Notes will be
subject to the applicable rules and procedures of DTC and its Direct or
Indirect Participants (including, if applicable, those of Euroclear and CEDEL),
which may change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be
exchanged for notes in certificated form in certain limited circumstances.
See "Transfer of Interests in Global Notes for Certificated Notes."
Initially, the trustee will act as paying agent and registrar. The notes may
be presented for registration of transfer and exchange at the offices of the
registrar.
Depository Procedures
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate
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the clearance and settlement of transactions in those securities between Direct
Participants through electronic book-entry changes in accounts of Participants.
The Direct Participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations, including
Euroclear and CEDEL. Access to DTC's system is also available to other entities
that clear through or maintain a direct or indirect, custodial relationship
with a Direct Participant (collectively, the "Indirect Participants").
DTC has also advised the Company that, pursuant to DTC's procedures,
(1) upon deposit of the Global Notes, DTC will credit the accounts of the
Direct Participants designated by the initial purchasers with portions of the
principal amount of the Global Notes that have been allocated to them by the
initial purchasers, and
(2) DTC will maintain records of the ownership interests of those Direct
Participants in the Global Notes and the transfer of ownership interests by and
between Direct Participants.
DTC will not maintain records of the ownership interests of, or the transfer
of ownership interests by and between, Indirect Participants or other owners of
beneficial interests in the Global Notes. Direct Participants and Indirect
Participants must maintain their own records of the ownership interests of, and
the transfer of ownership interests by and between, Indirect Participants and
other owners of beneficial interests in the Global Notes.
Investors in the U.S. Global Notes may hold their interests in those Notes
directly through DTC if they are Direct Participants in DTC or indirectly
through organizations that are Direct Participants in DTC. Investors in the Reg
S Temporary Global Notes may hold their interests in those Notes directly
through Euroclear or CEDEL or indirectly through organizations that are
participants in Euroclear or CEDEL. After the expiration of the Distribution
Compliance Period (but not earlier), investors may hold interests in the Reg S
Global Notes through organizations other than Euroclear and CEDEL that are
Direct Participants in the DTC system. Morgan Guaranty Trust Company of New
York, Brussels office, is the operator and depository of Euroclear and
Citibank, N.A. is the operator and depository of CEDEL (each a "Nominee" of
Euroclear and CEDEL, respectively). Therefore, they will each be recorded on
DTC's records as the holders of all ownership interests held by them on behalf
of Euroclear and CEDEL, respectively. Euroclear and CEDEL must maintain on
their own records the ownership interests, and transfers of ownership interests
of, by and between their own customers' securities accounts. DTC will not
maintain those records. All ownership interests in any Global Notes, including
those of customers' securities accounts held through Euroclear or CEDEL, may be
subject to the procedures and requirements of DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that
they own. This may limit or curtail the ability to transfer beneficial
interests in a Global Note to those persons. Because DTC can act only on behalf
of Direct Participants, which in turn act on behalf of Indirect Participants
and others, the ability of a person having a beneficial interest in a Global
Note to pledge that interest to persons or entities that are not Direct
Participants in DTC, or to otherwise take actions in respect of those
interests, may be affected by the lack of physical certificates evidencing
those interests. For certain other restrictions on the transferability of the
notes, see "Reg S Temporary and Reg S Permanent Global Notes" and "--Transfers
of Interests in Global Notes for Certificated Notes."
Except as described in "Transfers of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the Global Notes will
not have notes registered in their names,
102
will not receive physical delivery of notes in certificated form and will not
be considered the registered owners or holders of the notes under the indenture
for any purpose.
Under the terms of the indenture, the Company, the Guarantors and the trustee
will treat the persons in whose names the notes are registered (including notes
represented by Global Notes) as the owners of those Notes for the purpose of
receiving payments and for any and all other purposes whatsoever. Payments in
respect of the principal, premium, Liquidated Damages, if any, and interest on
Global Notes registered in the name of DTC or its nominee will be payable by
the trustee to DTC or its nominee as the registered holder under the indenture.
Consequently, neither the Company, the trustee nor any agent of the Company or
the trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any Direct Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Direct Participant's or Indirect
Participant's records relating to the beneficial ownership interests in any
Global Note or
(2) any other matter relating to the actions and practices of DTC or any of
its Direct Participants or Indirect Participants.
DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
notes is to credit the accounts of the relevant Direct Participants with that
payment on the payment date in amounts proportionate to those Direct
Participants' respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
trustee, the Company or the Guarantors. Neither the Company, the Guarantors nor
the trustee will be liable for any delay by DTC or its Direct Participants or
Indirect Participants in identifying the beneficial owners of the notes, and
the Company and the trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee as the registered owner of the
notes for all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect
Participants that hold an interest in the notes through Euroclear or CEDEL)
that hold an interest through a Direct Participant will be effected in
accordance with the procedures of that Direct Participant but generally will
settle in immediately available funds. Transfers between and among Indirect
Participants that hold interests in the notes through Euroclear and CEDEL will
be effected in the ordinary way in accordance with their respective rules and
operating procedures.
Subject to compliance with the transfer restrictions applicable to the notes,
cross-market transfers between Direct Participants in DTC, on the one hand, and
Indirect Participants that hold interests in the notes through Euroclear or
CEDEL, on the other hand, will be effected by Euroclear's or CEDEL's respective
Nominee through DTC in accordance with DTC's rules on behalf of Euroclear or
CEDEL; however, delivery of instructions relating to crossmarket transactions
must be made directly to Euroclear or CEDEL, as the case may be, by the
counterparty in accordance with the rules and procedures of Euroclear or CEDEL
and within their established deadlines (Brussels time for Euroclear and UK time
for CEDEL). Indirect Participants that hold interest in the notes
103
through Euroclear and CEDEL may not deliver instructions directly to
Euroclear's or CEDEL's Nominee. Euroclear or CEDEL will, if the transaction
meets its settlement requirements, deliver instructions to its respective
Nominee to deliver or receive interests on Euroclear's or CEDEL's behalf in the
relevant Global Note in DTC, and make or receive payment in accordance with
normal procedures for same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant that holds an interest in the notes through Euroclear or CEDEL
purchasing an interest in a Global Note from a Direct Participant in DTC will
be credited, and any such crediting will be reported to Euroclear or CEDEL
during the European business day immediately following the settlement date of
DTC in New York. Although recorded in DTC's accounting records as of DTC's
settlement date in New York, Euroclear and CEDEL customers will not have access
to the cash amount credited to their accounts as a result of a sale of an
interest in Reg S Permanent Global Note to a DTC Participant until the European
business day for Euroclear or CEDEL immediately following DTC's settlement
date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of that portion of the aggregate principal amount of the notes
as to which that Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the notes, DTC may,
without the direction of one or more of its Direct Participants, exchange
Global Notes for legended notes in certificated form, and to distribute those
certificated forms of notes to its Direct Participants. See "Transfers of
Interests in Global Notes for Certificated Notes."
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to
facilitate transfers of interests in the Reg S Global Notes and in the U.S.
Global Notes among Direct Participants, including Euroclear and CEDEL, they are
under no obligation to perform or to continue to perform those procedures, and
those procedures may be discontinued at any time. None of the Company, the
Guarantors, the initial purchasers or the trustee shall have any responsibility
for the performance by DTC, Euroclear or CEDEL or their respective Direct and
Indirect Participants of their respective obligations under the rules and
procedures governing any of their operations.
The information in this section concerning DTC, Euroclear and CEDEL and their
book-entry systems has been obtained from sources that the Company believes to
be reliable, but the Company takes no responsibility for the accuracy thereof.
Reg S Temporary and Reg S Permanent Global Notes
An Indirect Participant who holds an interest in the Reg S Temporary Global
Notes through Euroclear or CEDEL must provide Euroclear or CEDEL, as the case
may be, with a certificate in the form required by the indenture certifying
that those Indirect Participant is either not a U.S. Person (as defined below)
or has purchased such interests in a transaction that is exempt from the
registration requirements under the Securities Act, and Euroclear or CEDEL, as
the case may be, must provide to the trustee (or the paying agent, if other
than the trustee) a certificate in the form required by the indenture prior to
any exchange of those beneficial interests for beneficial interests in Reg S
Permanent Global Notes.
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"U.S. Person" means:
(1) any individual resident in the United States;
(2) any partnership or corporation organized or incorporated under the laws
of the United States;
(3) any estate of which an executor or administrator is a U.S. person (other
than an estate governed by foreign law and of which at least one executor or
administrator is a non-U.S. Person who has sole or shared investment discretion
with respect to its assets);
(4) any trust of which any trustee is a U.S. Person (other than a trust of
which at least one trustee is a non-U.S. Person who has sole or shared
investment discretion with respect to its assets and no beneficiary of the
trust (and no settler, if the trust is revocable) is a U.S. Person);
(5) any agency or branch of a foreign entity located in the United States;
(6) any non-discretionary or similar account (other than an estate or trust)
held by a dealer or other fiduciary for the benefit or account of a U.S.
person;
(7) any discretionary or similar account (other than an estate or trust) held
by a dealer or other fiduciary organized, incorporated or (if an individual)
resident in the United States (other than such an account held for the benefit
or account of a non-U.S. Person); or
(8) any partnership or corporation organized or incorporated under the laws
of a foreign jurisdiction and formed by a U.S. person principally for the
purpose of investing in securities not registered under the Securities Act
(unless it is organized or incorporated and owned by "accredited investors"
within the meaning of Rule 501(a) under the Securities Act who are not natural
persons, estates or trusts);
provided, however, that the, "U.S. Person" shall not include:
(1) a branch or agency of a U.S. Person that is located and operating outside
the United States for valid business purposes as a locally regulated branch or
agency engaged in the banking or insurance business;
(2) any employee benefit plan established and administered in accordance with
the law, customary practices and documentation of a foreign country; and
(3) the international organizations set forth in Section 902(o)(7) of
Regulation S under the Securities Act and any other similar international
organizations, and their agencies, affiliates and pension plans.
Transfers of Interests in One Global Note for Interests in Another Global Note
Prior to the expiration of the Distribution Compliance Period, an Indirect
Participant that holds an interest in the Reg S Temporary Global Note through
Euroclear or CEDEL will not be permitted to transfer its interest to a U.S.
Person who takes delivery in the form of an interest in U.S. Global Notes.
After the expiration of the Distribution Compliance Period, an Indirect
Participant that holds an interest in Reg S Global Notes will be permitted to
transfer its interest to a U.S. Person who takes delivery in the form of an
interest in U.S. Global Notes only upon receipt by the trustee of a written
certification from the transferor to the effect that the transfer is being made
in accordance with the restrictions on transfer set forth in section 2.6(g) of
the indenture and set forth in the legend printed on the Reg S Permanent Global
Notes.
105
Prior to the expiration of the Distribution Compliance Period, a Direct or
Indirect Participant that holds an interest in the U.S. Global Note will not be
permitted to transfer its interests to any person that takes delivery in the
form of an interest in the Reg S Temporary Global Notes. After the expiration
of the Distribution Compliance Period, a Direct or Indirect Participant that
holds an interest in U.S. Global Notes may transfer its interests to a person
who takes delivery in the form of an interest in Reg S Permanent Global Notes
only upon receipt by the trustee of a written certification from the transferor
to the effect that the transfer is being made in accordance with Rule 904 of
Regulation S.
Transfers involving an exchange of a beneficial interest in Reg S Global
Notes for a beneficial interest in U.S. Global Notes or vice versa will be
effected by DTC by means of an instruction originated by the trustee through
DTC/Deposit Withdraw at Custodian (DWAC) system. Accordingly, in connection
with such transfer, appropriate adjustments will be made to reflect a decrease
in the principal amount of the one Global Note and a corresponding increase in
the principal amount of the other Global Note, as applicable. Any beneficial
interest in the one Global Note that is transferred to a person who takes
delivery in the form of the other Global Note will, upon transfer, cease to be
an interest in such first Global Note and become an interest in such other
Global Note and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interests in such
other Global Note for as long as it remains such an interest.
Transfers of Interests in Global Notes for Certificated Notes
An entire Global Note may be exchanged for definitive notes in registered,
certificated form without interest coupons ("Certificated Notes") if:
(1) DTC (x) notifies the Company that it is unwilling or unable to continue
as depository for the Global Notes and the Company thereupon fails to appoint a
successor depository within 90 days or (y) has ceased to be a clearing agency
registered under the Exchange Act;
(2) the Company, at its option, notifies the trustee in writing that it
elects to cause the issuance of Certificated Notes; or
(3) upon the request of the trustee or holders of a majority of the
outstanding principal amount of notes, there shall have occurred and be
continuing a Default or an Event of Default with respect to the notes;
provided that in no event shall the Reg S Temporary Global Security be
exchanged by the Company for Certificated Notes prior to (x) the expiration of
the Distribution Compliance Period and (y) the receipt by the registrar of any
certificates identified by the Company or its counsel to be required pursuant
to Rule 903 or Rule 904 under the Securities Act. In any such case, the Company
will notify the trustee in writing that, upon surrender by the Direct and
Indirect Participants of their interest in such Global Note, Certificated Notes
will be issued to each person that such Direct and Indirect Participants and
DTC identify as being the beneficial owner of the related notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by
that Direct Participant (for itself or on behalf of an Indirect Participant),
or to the trustee in accordance with customary DTC procedures. Certificated
Notes delivered in exchange for any beneficial interest in any Global Notes
will be registered in the names, and issued in any approved denominations,
requested by DTC on behalf of such Direct or Indirect Participant, in
accordance with DTC's customary procedures.
106
In all cases described herein, such Certificated Notes will bear the
restrictive legend referred to in section 2.6(g) of the indenture unless the
Company determines otherwise in compliance with applicable law.
Neither the Company, the Guarantors nor the trustee will be liable for any
delay by the holder of the Global Notes or DTC in identifying the beneficial
owners of notes, and the Company and the trustee may conclusively rely on, and
will be protected in relying on, instructions from the holder of the Global
Note or DTC for all purposes.
Transfers of Certificated Notes for Interests in Global Notes
Certificated Notes may be transferred only if the transferor first delivers
to the trustee a written certificate (and, in certain circumstances, an opinion
of counsel) confirming that, in connection with the transfer, it has complied
with the restrictions on transfer described in section 2.6(g) of the indenture.
Same Day Settlement and Payment
The indenture requires that payments in respect of the notes represented by
the Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available same day
funds to the accounts specified by the holders of interests in those Global
Notes. With respect to Certificated Notes, the Company will make all payments
of principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available same day funds to the accounts specified by
the holders of those Notes or, if no such account is specified, by mailing a
check to each such holder's registered address. The Company expects that
secondary trading in the Certificated Notes will also be settled in immediately
available funds.
107
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
FOR UNITED STATES HOLDERS
The following discussion is the opinion of Latham & Watkins, our counsel, as
to the material federal income tax income consequences expected to result to
you if you exchange your private notes for exchange notes in the exchange
offer. This opinion is based on:
. the facts described in the registration statement of which this
prospectus is a part,
. the Internal Revenue Code of 1986, as amended,
. current, temporary and proposed treasury regulations promulgated under
the Internal Revenue Code,
. the legislative history of the Internal Revenue Code,
. current administrative interpretations and practices of the Internal
Revenue Service, and
. court decisions,
all as of the date of this prospectus. In addition, the administrative
interpretations and practices of the Internal Revenue Service include its
practices and policies as expressed in private letter rulings that are not
binding on the Internal Revenue Service, except with respect to the particular
taxpayers who requested and received those rulings. Future legislation,
treasury regulations, administrative interpretations and practices and/or court
decisions may adversely affect, perhaps retroactively, the tax considerations
contained in this discussion. Any change could apply retroactively to
transactions preceding the date of the change. The tax considerations contained
in this discussion may be challenged by the Internal Revenue Service and may
not be sustained by a court if challenged by the Internal Revenue Service, and
we have not requested, and do not plan to request, any rulings from the
Internal Revenue Service concerning the tax treatment of the exchange of
private notes for the exchange notes.
Certain holders may be subject to special rules not discussed below,
including, without limitation:
. insurance companies;
. financial institutions or broker-dealers;
. tax-exempt organizations;
. stockholders holding securities as part of a conversion transaction, or a
hedge or hedging transaction or as a position in a straddle for tax
purposes;
. foreign corporations or partnerships; and
. persons who are not citizens or residents of the United States.
You should consult your tax advisor as to the particular tax consequences of
exchanging private notes for exchange notes, including the applicability and
effect of any state, local or foreign laws.
The exchange of private notes for exchange notes will be treated as a "non-
event" for federal income tax purposes, because the exchange notes will not be
considered to differ materially in kind or extent from the private notes.
Therefore, no material federal income tax consequences will result to you from
exchanging private notes for exchange notes.
108
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. Broker-dealers may use this
prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of exchange notes received in exchange for private
notes where the broker-dealer acquired the private notes as a result of market-
making activities or other trading activities. We have agreed that for a period
of up to one year after the expiration date, we will make this prospectus, as
amended or supplemented, available to any broker-dealer that requests it in the
letter of transmittal for use in connection with any such resale.
We will not receive any proceeds from any sale of exchange notes by broker-
dealers or any other persons. Broker-dealers may sell exchange notes received
by broker-dealers for their own account pursuant to the exchange offer 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 notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to the prevailing market prices or negotiated
prices. Broker-dealers may resell exchange notes directly to purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any broker-dealer and/or the purchasers of the
exchange notes. Any broker-dealer that resells exchange notes 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 the exchange notes may
be deemed to be "underwriters" within the meaning of the Securities Act and any
profit on any resale of exchange 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.
We have agreed to pay all expenses incident to our performance of, or
compliance with, the registration rights agreement and will indemnify you
(including any broker-dealers), and certain parties related to you, against
certain liabilities, including liabilities under the Securities Act.
By its acceptance of the exchange offer, any broker-dealer that receives
exchange notes pursuant to the exchange offer agrees to notify us before using
the prospectus in connection with the sale or transfer of exchange notes. The
broker-dealer further acknowledges and agrees that, upon receipt of notice from
us of the happening of any event which makes any statement in the prospectus
untrue in any material respect or which requires the making of any changes in
the prospectus to make the statements in the prospectus not misleading or which
may impose upon us disclosure obligations that my have a material adverse
effect on us (which notice we agree to deliver promptly to the broker-dealer),
the broker-dealer will suspend use of the prospectus until we have notified the
broker-dealer that delivery of the prospectus may resume and have furnished
copies of any amendment or supplement to the prospectus to the broker-dealer.
LEGAL MATTERS
Latham & Watkins, Los Angeles, California, will pass upon certain legal
matters for us. Certain partners of Latham & Watkins, members of their
families, related persons and others have an indirect interest in, through a
limited partnership, less than 1% of Holdings' common stock and series A
preferred stock. Those persons do not have the power to vote or dispose of the
shares.
109
INDEPENDENT AUDITORS
The financial statements included in this registration statement have been
audited by various independent accountants. The companies and periods covered
by these audits are indicated in the individual accountants' reports. These
financial statements have been so included in reliance on the reports of the
various independent accountants given on the authority of those firms in
auditing and accounting.
AVAILABLE INFORMATION
We are not currently subject to the periodic reporting and other information
requirements of the Exchange Act. We will become subject to the requirements
upon the effectiveness of the registration statement. Pursuant to the
indenture, we have agreed that for so long as the notes remain outstanding, we
will furnish to you (1) annual and quarterly financial statements substantially
equivalent to financial statements that would have been included in reports
filed with the SEC if we were subject to Section 13 or 15(d) of the Exchange
Act and (2) any other information, documents and other reports that we would be
required to filed with the SEC if we were subject to Section 13 or 15(d) of the
Exchange Act. In addition, whether or not required by the rules and regulations
of the SEC, we will also agree to file a copy of all such information and
reports with the SEC for public availability (unless the SEC will not accept
the filing) and make the information available to securities analysts and
prospective investors upon request.
This prospectus constitutes part of a registration statement on Form S-4
filed under the Securities Act with respect to the exchange notes to be issued
in the exchange offer. As permitted by the SEC rules, this prospectus omits
some of the information, exhibits and undertakings included in the registration
statement. You may read and copy the information omitted from this prospectus
but contained in the registration statement, as well as the periodic reports
and other information we file with the SEC, at the public reference facilities
maintained by the SEC in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference facilities. You may also access filed documents at the SEC's
web site at http://www.sec.gov.
Statements contained in this prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance we refer you
to the copy of the contract or document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
110
INDEX TO FINANCIAL STATEMENTS
Page
----
City Truck Holdings, Inc. and Subsidiaries
Report of Independent Accountants........................................ F-3
Consolidated Balance Sheets at December 31, 1997 and 1998................ F-4
Consolidated Statements of Income for the Years Ended December 31, 1996,
1997 and 1998........................................................... F-5
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1997 and 1998........................................ F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1997, and 1998.................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
Stone Heavy Duty, Inc.
Report of Independent Accountants........................................ F-22
Combined Balance Sheets at December 31, 1996, 1997 and at June 19, 1998.. F-23
Combined Statements of Income and Retained Earnings for the Years Ended
December 31, 1996, 1997 and for the period from January 1, 1998 through
June 19, 1998........................................................... F-24
Combined Statements of Cash Flows for the Years Ended December 31, 1996,
1997, and for the period from January 1, 1998 through June 19, 1998..... F-25
Notes to Combined Financial Statements................................... F-26
Associated Brake Supply, Inc. and Affiliate
Report of Independent Accountants........................................ F-31
Consolidated Balance Sheets at December 26, 1997 and at December 31,
1998.................................................................... F-32
Consolidated Statements of Income for the Years Ended December 27, 1996,
December 26, 1997 and December 31, 1998................................. F-33
Consolidated Statements of Stockholders' Equity for the Years Ended
December 27, 1996, December 26, 1997 and December 31, 1998.............. F-34
Consolidated Statements of Cash Flows for the Years Ended December 27,
1996, December 26, 1997 and December 31, 1998........................... F-35
Notes to Consolidated Financial Statements............................... F-36
Vantage Parts
Combined Balance Sheets at December 31, 1997 and 1998 (Unaudited)........ F-43
Combined Statements of Income for the Years Ended December 31, 1996, 1997
and 1998 (Unaudited).................................................... F-44
Combined Statements of Cash Flows for the Years Ended December 31, 1996,
1997, and 1998 (Unaudited).............................................. F-45
Notes to Combined Financial Statements (Unaudited)....................... F-46
Truck and Trailer Parts, Inc. and Affiliate
Report of Independent Accountants........................................ F-51
Combined Balance Sheets at December 31, 1996, 1997, and at September 30,
1998.................................................................... F-52
Combined Statements of Income and Stockholders' Equity for the Years
Ended December 31, 1996, 1997 and for the nine month period ended
September 30, 1998...................................................... F-53
Combined Statements of Cash Flows for the Years Ended December 31, 1996,
1997 and for the nine month period ended September 30, 1998............. F-54
Notes to Combined Financial Statements................................... F-55
Connecticut Driveshaft, Inc.
Independent Auditor's Report............................................. F-60
Balance Sheet at September 30, 1998...................................... F-61
Statement of Income for the nine months ended September 30, 1998......... F-62
Statement of Retained Earnings for the nine months ended September 30,
1998.................................................................... F-62
Statement of Cash Flows for the nine months ended September 30, 1998..... F-63
Notes to the Financial Statements........................................ F-64
F-1
INDEX TO FINANCIAL STATEMENTS
Page
----
Truckparts, Inc.
Independent Auditor's Report............................................. F-67
Balance Sheets at September 30, 1997 and 1998............................ F-68
Statements of Income for the Years Ended September 30, 1997 and 1998..... F-69
Statements of Retained Earnings for the Years Ended September 30, 1997
and 1998................................................................ F-69
Statements of Cash Flows for the Years Ended September 30, 1997 and
1998.................................................................... F-70
Notes to the Financial Statements........................................ F-71
Tisco, Inc. and Tisco of Redding, Inc.
Independent Auditor's Report............................................. F-76
Combined Balance Sheet at September 30, 1998............................. F-77
Combined Statement of Income for the Year Ended September 30, 1998....... F-78
Combined Statement of Stockholders' Equity for the Year Ended September
30, 1998................................................................ F-79
Combined Statement of Cash Flows for the Year Ended September 30, 1998... F-80
Notes to the Combined Financial Statements............................... F-81
F-2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
City Truck Holdings, Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of City Truck
Holdings, Inc. and Subsidiaries (the "Company") at December 31, 1997 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule listed in Item 21 of this Form S-4, presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. 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 of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
March 31, 1999
Chicago, IL
F-3
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
At December 31, 1997 and 1998
(amounts in thousands, except for share data)
1997 1998
-------- --------
ASSETS
------
Current assets:
Cash and cash equivalents................................ $ 191 $ 8,328
Trade accounts receivable, less allowance for doubtful
accounts of $13 and $1,149 in 1997 and 1998............. 5,146 18,099
Inventories, net......................................... 15,476 41,453
Prepaid expenses......................................... 254 55
Deferred tax asset....................................... -- 2,588
Current portion of patronage dividend receivable......... 1,751 2,108
Advances to shareholders and employees................... 271 6
-------- --------
Total current assets................................... 23,089 72,637
Property, plant and equipment, net....................... 9,030 13,613
Deferred financing fees.................................. -- 5,424
Goodwill and other intangibles, net...................... 99 55,496
Deferred tax asset....................................... -- 12,516
Other assets............................................. 985 4,238
-------- --------
Total assets........................................... $ 33,203 $163,924
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term borrowings.................................... $ 2,839 $ --
Line of credit........................................... 677 --
Note payable............................................. 150 161
Current portion of long-term debt........................ 261 --
Accounts payable......................................... 4,694 14,105
Accrued interest......................................... -- 5,217
Accrued liabilities relating to the acquisitions......... -- 2,279
Other accrued liabilities................................ 596 7,488
-------- --------
Total current liabilities.............................. 9,217 29,250
Long-term debt............................................. 3,213 100,000
Line of credit............................................. -- 18,200
Subordinated debt--related parties......................... 8,755 --
Commitments and contingencies
Stockholders' equity:
Series A Preferred Stock, par value $.01 per share
Outstanding: none in 1997 and 435,750 shares in 1998.... -- 43,575
Common Stock, par value $1.00 and $.01 per share,
respectively
Outstanding: 938 shares in 1997 and 108,834 in 1998..... 2 1
Additional paid-in capital............................... 518 14,325
Treasury shares.......................................... (810) --
Retained earnings (deficit).............................. 12,308 (41,427)
-------- --------
Total stockholders' equity............................. 12,018 16,474
-------- --------
Total liabilities and stockholders' equity............. $ 33,203 $163,924
======== ========
The accompanying notes are integral part of these consolidated financial
statements.
F-4
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1996, 1997 and 1998
(amounts in thousands)
1996 1997 1998
------- ------- --------
Net sales........................................... $52,609 $57,837 $103,295
Cost of sales....................................... 33,283 36,611 65,855
------- ------- --------
Gross profit........................................ 19,326 21,226 37,440
Selling, general, and administrative expenses....... 14,390 16,143 31,030
------- ------- --------
Operating income................................ 4,936 5,083 6,410
Other income (expenses):
Interest expense.................................. (722) (841) (6,519)
Interest income................................... 94 65 624
Other income...................................... 40 58 86
------- ------- --------
Income before income taxes.......................... 4,348 4,365 601
Income tax expense (benefit)........................ 53 93 (687)
------- ------- --------
Net income and comprehensive income................. $ 4,295 $ 4,272 $ 1,288
======= ======= ========
Supplemental pro forma income data:
Pro forma income taxes............................ $ 1,731 $ 1,737 $ 239
------- ------- --------
Pro forma net income.............................. $ 2,617 $ 2,628 $ 362
======= ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands, except for share data)
HDA Parts City Truck
City Truck HDA Parts System, Inc. City Truck Holdings,
and Trailer System, Inc. HDA Parts Series B Holdings, Inc. Series A
Parts, Inc. Bridge System, Inc. Preferred Inc. Common Preferred City Truck
Common Stock Securities Common Stock Stock Stock Stock and Trailer
-------------- ------------- -------------- -------------- ------------- ------------- Parts, Inc.
Par Paid In Par Paid in Par Paid In Par Paid In Par Paid In Par Paid in Treasury
Value Capital Value Capital Value Capital Value Capital Value Capital Value Capital Stock
----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----------
Balance at
January 1,
1996............ $ 2 $493 $-- $ -- $-- $ -- $-- $ -- $-- $ -- $-- $ -- $ (810)
Net Income and
Comprehensive
Income..........
Distribution to
Owners..........
---- ---- ---- ------ ---- ------- ---- ------- ---- ------- ---- ------- --------
Balance at
December 31,
1996............ 2 493 -- -- -- -- -- -- -- -- -- -- (810)
Net Income and
Comprehensive
Income..........
Capital
Contribution.... 25
Distributions to
Owners..........
---- ---- ---- ------ ---- ------- ---- ------- ---- ------- ---- ------- --------
Balance at
December 31,
1997............ 2 518 -- -- -- -- -- -- -- -- -- -- (810)
Distribution to
Owners..........
Stock Repurchase
of City Truck
and Trailer
Parts, Inc. .... (25,821)
Recapitalization.. (2) (518) 1 56 3 24,940 26,631
Recapitalization
Fees and Other..
Creation of
deferred tax
asset for
intangibles..... 14,217
Issuance of
Bridge
Securities...... -- 6,000
Repayment of
Bridge
Securities...... -- (6,000)
Issuance for of
HDA stock for
Acquisition of
Stone Heavy
Stone........... -- 7 -- 2,993
Issuance of HDA
stock........... -- 30 1 10,300
Formation and
Issuance of City
Truck Holdings,
Inc. stock...... (1) (14,310) (4) (38,233) 1 14,310 4 38,233
Issuance for
City Truck
Holdings, Inc.
stock for Truck
and Trailer,
Inc.
Acquisition..... -- 7 -- 2,993
Issuance for
City Truck
Holdings, Inc.
stock
Truckparts, Inc.
Acquisition..... -- 5 -- 1,995
Issuance of City
Truck Holdings,
Inc. stock...... -- 3 -- 350
Net Income and
Comprehensive
Income..........
---- ---- ---- ------ ---- ------- ---- ------- ---- ------- ---- ------- --------
Balance at
December 31,
1998............ $-- $-- $-- $ -- $-- $ -- $-- $ -- $ 1 $14,325 $ 4 $43,571 $ --
==== ==== ==== ====== ==== ======= ==== ======= ==== ======= ==== ======= ========
Retained Total
Earnings Shareholders'
(Deficit) Equity
--------- -------------
Balance at
January 1,
1996............ $ 7,896 $ 7,581
Net Income and
Comprehensive
Income.......... 4,295 4,295
Distribution to
Owners.......... (2,283) (2,283)
--------- -------------
Balance at
December 31,
1996............ 9,908 9,593
Net Income and
Comprehensive
Income.......... 4,272 4,272
Capital
Contribution.... -- 25
Distributions to
Owners.......... (1,872) (1,872)
--------- -------------
Balance at
December 31,
1997............ 12,308 12,018
Distribution to
Owners.......... (1,390) (1,390)
Stock Repurchase
of City Truck
and Trailer
Parts, Inc. .... (25,821)
Recapitalization.. (51,111) --
Recapitalization
Fees and Other.. (2,522) (2,522)
Creation of
deferred tax
asset for
intangibles..... 14,217
Issuance of
Bridge
Securities...... 6,000
Repayment of
Bridge
Securities...... (6,000)
Issuance for of
HDA stock for
Acquisition of
Stone Heavy
Stone........... 3,000
Issuance of HDA
stock........... 10,331
Formation and
Issuance of City
Truck Holdings,
Inc. stock...... --
Issuance for
City Truck
Holdings, Inc.
stock for Truck
and Trailer,
Inc.
Acquisition..... 3,000
Issuance for
City Truck
Holdings, Inc.
stock
Truckparts, Inc.
Acquisition..... 2,000
Issuance of City
Truck Holdings,
Inc. stock...... 353
Net Income and
Comprehensive
Income.......... 1,288 1,288
--------- -------------
Balance at
December 31,
1998............ $(41,427) $16,474
========= =============
F-6
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands)
1996 1997 1998
------- -------- --------
Operating Activities:
Net income...................................... $ 4,295 $ 4,272 $ 1,288
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................. 877 1,187 1,752
Amortization.................................. 59 54 863
Gain on sale of property and equipment........ (40) (58) (86)
Changes in operating assets and liabilities
net of effect of acquisitions:
Accounts receivable......................... 278 (910) 40
Patronage dividend receivable............... (375) (387) (868)
Inventories................................. 770 (2,285) (1,366)
Prepaid expenses............................ (139) (89) 299
Advances to shareholders and employees...... (11) (259) 265
Other assets................................ (17) 28 (721)
Accounts payable............................ (349) (499) (1,634)
Accrued liabilities......................... 54 77 7,113
------- -------- --------
Net cash provided by operating activities.. 5,402 1,131 6,945
Investing activities:
Acquisition of property and equipment........... (4,301) (1,627) (1,668)
Proceeds from sale of property and equipment.... 54 98 116
Acquisitions, net of cash acquired.............. -- -- (74,527)
------- -------- --------
Net cash used by investing activities...... (4,247) (1,529) (76,079)
Financing activities:
Short term borrowings........................... (233) 2,412 (4,716)
Proceeds of short term revolving line of
credit......................................... 1,300 10,680 --
Payments of short term revolving line of
credit......................................... (1,600) (10,503) (677)
Proceeds on long term revolving line of credit
(net of fees).................................. -- -- 68,481
Payments on long term revolving line of credit.. -- -- (51,993)
Principal payment of long term debt............. (775) (455) (10,802)
Proceeds from issuance of long term debt (net of
fees).......................................... 2,361 150 95,931
Payments for stock repurchase................... -- -- (25,821)
Payments of recapitalization fees............... -- -- (2,522)
Proceeds from issuance of Preferred Stock....... -- -- 10,651
Proceeds from issuance of Common Stock.......... -- -- 33
Distribution to owners.......................... (2,283) (1,872) (1,294)
Contribution to stockholders' equity............ -- 25 --
------- -------- --------
Net cash used by financing activities...... (1,230) 437 77,271
------- -------- --------
Increase (decrease) in cash and cash
equivalents..................................... (75) 39 8,137
Cash and cash equivalents at beginning of year... 227 152 191
------- -------- --------
Cash and cash equivalents at end of year......... $ 152 $ 191 $ 8,328
======= ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest.......................... $ 620 $ 841 $ 1,214
Cash paid for income taxes...................... 42 77 273
Details of Acquisitions
Fair value of assets and liabilities acquired... $ -- $ -- $ 83,226
Less equity payments............................ -- -- 8,000
------- -------- --------
Cash paid....................................... -- -- 75,226
Less cash acquired.............................. -- -- 699
------- -------- --------
Net cash paid for acquisitions................ $ -- $ -- $ 74,527
======= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except for share data)
Note 1--Accounting Policies
Basis of Presentation
The consolidated financial statements are presented on the basis of
accounting principles that are generally accepted in the United States. All
professional standards that are effective as of December 31, 1998 have been
taken into consideration in preparing the financial statements. On June 1,
1998, BABF City Corp. purchased 80% of the outstanding capital stock of City
Truck and Trailer Parts, Inc. At December 31, 1998, this interest had reduced
to 53% as a result of various capital transactions.
Description of the Companies
As of May 29, 1998, City Truck and Trailer Parts of Tennessee, Inc., City
Truck and Trailer Parts of Alabama, Inc., City Truck and Trailer Parts of
Alabama LLC, and City Friction, Inc. were merged into City Truck and Trailer
Parts, Inc., an Alabama Corporation. All of these companies were under common
control. The stockholders of City Truck and Trailer Parts of Tennessee, Inc.,
City Truck and Trailer Parts of Alabama, Inc. and City Friction, Inc. converted
their shares into 498 shares of City Truck and Trailer Parts, Inc., such that
these three companies became wholly owned subsidiaries of City Truck and
Trailer Parts, Inc. The members of City Truck and Trailer Parts of Alabama LLC
contributed all of their equity interest to City Truck and Trailer Parts, Inc.
in exchange for 30 shares of common stock in City Truck and Trailer Parts, Inc.
and as a result became a wholly owned subsidiary. The merger has been accounted
for in a manner similar to a pooling of interests under Accounting Principles
Board Opinion No. 16. Accordingly, all prior period consolidated and combined
financial statements presented have been restated to include the combined
results of operations, financial position and cash flows of these companies as
though they had always been a part of City Truck and Trailer Parts, Inc. These
companies previously followed consistent accounting policies and there were no
adjustments to the book value of their assets and liabilities.
City Transportation, Inc., at net book value $94, a wholly owned subsidiary
of City Truck and Trailer Parts, Inc. was retained by the prior owners. This
has been accounted for as a dividend distribution at net book value on the
statement of stockholders' equity as a distribution to owners.
On June 19, 1998, City Truck and Trailer Parts, Inc. converted its 457 shares
of existing $1 par common stock into 57,227 shares of $0.01 par value common
stock ("HDA stock") and 249,427 shares of $0.01 par 6% preferred stock ("Series
B Preferred Stock").
On July 8, 1998, City Truck and Trailer Parts, Inc. was renamed HDA Parts
System Inc.
On September 30, 1998, City Truck Holdings, Inc., a Delaware corporation, was
formed by the share for share exchange of stock in HDA Parts System, Inc. for
stock in City Truck Holdings, Inc. City Truck Holdings, Inc. is a holding
company which has no operations or debt, except for its guarantee of HDA Parts
System, Inc.
On June 1, 1998, City Truck and Trailer Parts, Inc. issued $6,000 of
redeemable, non-convertible, non-voting preferred stock (the "Bridge
Securities"). In July, 1998, the Bridge Securities were redeemed.
F-8
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
At December 31, 1998, the consolidated financial statements for City Truck
Holdings, Inc. include its wholly owned subsidiary HDA Parts System, Inc. whose
operations include Stone Heavy Duty, Inc., Truck and Trailer Parts, Inc.,
Connecticut Driveshaft, Inc., Truckparts, Inc., and Tampa Brake and Supply Co.,
Inc. since their dates of acquisition.
Nature of Operations
City Truck and Trailer Parts, Inc. is a Birmingham, Alabama based operator of
17 branch locations, including 13 which provide machine shop services, in
Alabama, Georgia, Kentucky, Mississippi, and Tennessee. City Truck also
operates a remanufacturing business for brake shoes, drivelines, transmissions
and rear axles.
Stone Heavy Duty, Inc., based in Raleigh, North Carolina operates 18 branch
locations, including three which provide drive-in service facilities and 14
which provide machine shop services in North Carolina, South Carolina,
Tennessee, Virginia and West Virginia. Stone also operates a remanufacturing
business for brake shoes, drivelines, hydraulic systems, transmissions and rear
axles.
Truck and Trailer Parts, Inc. is an Atlanta-based heavy duty vehicle parts
distributor which operates seven branch locations in Florida, Georgia, North
Carolina, South Carolina and Texas.
Connecticut Drive Shaft, Inc. is a distributor of heavy duty vehicle parts
which repairs and rebuilds driveshafts, brake shoes, and brake drums. The
Company operates six locations in Connecticut and Massachusetts.
Truckparts, Inc. is a distributor of heavy duty vehicle parts which operates
four locations in Connecticut.
Tampa Brake and Supply Co., Inc. operates five branches in Florida. Tampa
Brake and Supply Co., Inc. is a distributor of heavy duty vehicle parts and a
provider of brake related services for medium and heavy duty trucks.
Principles of Consolidation
The consolidated financial statements include the accounts of the company and
all subsidiary companies. All material intercompany transactions have been
eliminated in consolidation.
Segment Information
In June 1997, the FASB issued SFAS Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement, effective
for financial statements for fiscal years beginning after December 15, 1997,
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. Based on this criteria, the Company has determined that it operates
in one business segment, that being the distribution of heavy duty vehicle
F-9
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
parts in the United States. Thus, all information required by SFAS No. 131 is
included in the Company's financial statements. No single customer represented
more than 10% of the Company's total sales in 1998, 1997 and 1996.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
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.
Cash and Cash Equivalents
Cash and cash equivalents consists of highly liquid instruments with original
maturities of three months or less from the date of purchase.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using either the first-in, first-out (FIFO) or average-costs basis.
Property, Plant and Equipment
Property, plant and equipment is carried at cost less accumulated
depreciation and amortization. The Company provides for depreciation and
amortization of property and equipment using the straight-line method over the
following estimated useful lives:
Classification Depreciation Lives
-------------- ------------------
Buildings and building improvements........ 40 years or the life of the lease
Furniture and fixtures..................... 7 years
Vehicles................................... 6 years
Machinery and equipment.................... 3-8 years
When assets are retired or otherwise disposed of, the assets and related
allowances for depreciation and amortization are eliminated from the accounts
and any resulting gain or loss is reflected in income.
Goodwill and Other Intangibles
Goodwill represents the excess of the purchase cost over the fair value of
net assets acquired in a business and is presented net of accumulated
amortization. Amortization of goodwill is recorded on a straight line basis
over 40 years. Other intangibles are amortized over the useful lives of these
assets which range from 5 to 9 years. When facts and circumstances indicate
impairment, the Company reviews goodwill and other intangibles to assess
recoverability from estimated future results of operations and cash flows.
F-10
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of a sale or within a specified period. Returned cores are either returned
to the vendor for credit or remanufactured.
Preopening Expense
Expenses associated with the opening of new branch locations are expensed in
the period such costs are incurred.
Income Taxes
Prior to the recapitalization on May 29, 1998, with the exception of
Truckparts, Inc. all of the companies included within these financial
statements, with the consent of its shareholders and members, had elected under
the Internal Revenue Code to be taxed as an S Corporation or a limited
liability company. In lieu of corporate income taxes, the stockholders of an S
corporation and the members of a limited liability company are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes had been included in the financial
statements for 1996 and 1997.
Concurrent with the recapitalization, the Company elected to be taxed as a C
corporation and is subject to income taxes on its profits in 1998. The Company
then set up a deferred tax asset of $15,104, increasing paid in capital by
$14,217 and recognized $887 net income. The Company applies an asset and
liability approach to accounting for income taxes. Deferred tax liabilities and
assets are recognized for the expected future tax consequences of temporary
differences between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse. Supplemental pro-forma net income included
on the income statement is calculated by applying an income tax rate of 39.8%
to the historical income before taxes.
Deferred Financing Costs
In connection with establishing a revolving credit facility in June, 1998 and
the private placement of debt in July, 1998 the Company incurred various
financing costs which have been deferred on the Company's balance sheet and are
being amortized over the terms of the agreements.
Stock Based Compensation
The Company has elected to follow the disclosure requirements of SFAS No.
123, "Accounting for Stock-Based Compensation" only and continues to account
for stock based compensation under the basis of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees". During 1998, shares
of common stock and shares of preferred stock were issued to certain employees
who purchased the stock at the fair market value at the date of the issue. No
stock options have been authorized or issued during 1998.
F-11
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Reclassifications
Certain amounts for the years ended December 31, 1996 and 1997 were
reclassified to conform to the current year presentation.
Note 2--Inventories
At December 31, inventories consist of the following:
1997 1998
------- -------
Parts inventory.............................................. $14,290 $35,959
Cores........................................................ 1,186 5,494
------- -------
$15,476 $41,453
======= =======
Note 3--Property, Plant and Equipment
Property, plant and equipment consisted of the following as of December 31:
1997 1998
------- -------
Land....................................................... $ -- $ 20
Buildings and building improvements........................ 4,668 7,732
Furniture and fixtures..................................... 713 920
Vehicles................................................... 3,796 3,862
Machinery and equipment.................................... 5,694 7,907
Construction in progress................................... 18 --
Less: accumulated depreciation............................. (5,859) (6,828)
------- -------
Net property, plant and equipment.......................... $ 9,030 $13,613
======= =======
Note 4--Goodwill and Other Intangibles
At December 31, goodwill and other intangibles consists of:
1997 1998
----- -------
Goodwill..................................................... $ 24 $54,313
Other intangibles............................................ 252 1,865
Less: accumulated amortization............................... (177) (682)
----- -------
Net goodwill and other intangibles........................... $ 99 $55,496
===== =======
Goodwill represents the cost in excess of the fair value of the net assets of
companies acquired in purchase transactions. Other intangibles assets have been
recognized for covenants not to compete and a specific beneficial customer
agreement arising from purchase transactions. The Company has charged $44, $44
and $505 in 1996, 1997 and 1998, respectively, for amortization of goodwill and
other intangibles.
F-12
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Note 5--Borrowings
Revolving Line of Credit
The Company had a maximum availability of $5.0 million at December 31, 1997
on a line of credit from a bank with interest payable at the 90-day LIBOR
(London Interbank Offered Rate) plus 1.5%. The interest rate at December 31,
1997, was 7.2 %. The Company had pledged as collateral accounts receivable and
inventory. The Company's outstanding balance at December 31, 1997 was $677.
At December 30, 1998, the Company increased its maximum availability to $85.0
million on a revolving line of credit from a bank with interest based on the
LIBOR rate plus applicable margin, at 2.3% or, at the Company's option, several
other common indices. The interest rate at December 31, 1998, was 7.8%. The
Company has pledged all of the Company's assets as collateral. The Company's
outstanding balance at December 31, 1998 was $18.2 million. The revolving line
of credit expires in 2004. The weighted average interest rate on short-term
borrowings outstanding as of December 31, 1997 and 1998 are 7.2% and 7.8%,
respectively.
Senior Subordinated Notes
On July 31, 1998, the Company issued $100.0 million of 12% Senior
subordinated notes (the "Senior Subordinated Notes") due 2005 and received
approximately $96.0 million of proceeds after discounts, commissions and fees.
Interest on these notes is paid semi-annually on February 1, and August 1
commencing February 1, 1999. The Senior Subordinated Notes may be redeemed at
the option of the Company, in whole or in part, at any time on or after August
1, 2002 at the redemption prices set forth in the Indenture, plus accrued and
unpaid interest and liquidated damages, if any, to the date of redemption. In
addition, at any time prior to August 1, 2001, the Company may redeem up to 35%
of the aggregate principal amount of notes originally issued at a redemption
price equal to 112% of the aggregate principal amount thereof, plus accrued and
unpaid interest out of the proceeds of public equity offerings.
In connection with the issuance of the Senior Subordinated Notes, the Company
entered into a registration rights agreement that required it to file a
registration statement by December 28, 1998 and to use its best efforts to
cause the registration to become effective by March 13, 1999. The Company did
not comply with the obligations to file and have a registration statement
declared effective as set forth above. The Company is currently paying the
holders of the notes liquidated damages as set forth in the registration rights
agreements which are not material to the consolidated financial statements.
Notes Payable
The Company had a note payable for $1,654 at December 31, 1997 to a finance
company. The interest rate was 5% until 1999, and at prime thereafter. Interest
was payable semi-annually until its maturity in 2005. This note was
collateralized by the Company's equipment. This note was repaid on May 29,
1998, concurrent with the recapitalization.
F-13
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
At December 31, 1997, the Company had certain subordinated notes payable to
stockholders. The interest rate at the applicable federal borrowing rate was
5.5% at December 31, 1997. These notes were collateralized by accounts
receivable and inventory. The principal balances due on these notes were $8,755
on December 31, 1997. This note was repaid on May 29, 1998, concurrent with the
recapitalization.
The Company had a note payable for $1,820 at December 31, 1997 with a bank.
The interest was at LIBOR plus 1.5% (7.18% at December 31, 1997). Interest was
due monthly until its maturity in 2002. This rate was collateralized by
accounts receivable, inventory and leasehold improvements. This note was repaid
on May 29, 1998, concurrent with the recapitalization.
The above debt agreements contain certain covenants that, among other things,
limit the ability of the Company to: (i) pay dividends or make certain other
restricted payments; (ii) incur additional Debt; (iii) encumber or sell assets;
(iv) enter into certain guarantees of Debt; (v) enter into transactions with
affiliates; and (vi) merge or consolidate with any other entity or transfer or
lease all or substantially all of their assets. In addition, under certain
circumstances, the Company will be required to offer to purchase the Senior
Subordinated Notes at a price of 100% of the principal amount thereof, plus
accrued and unpaid interest to the date of purchase with the proceeds of
certain assets sales.
Note 6--Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable, and
accrued expenses approximate fair value because of the short maturity of these
items.
The carrying amounts of the debt issued pursuant to the Company's revolving
line of credit agreement approximates fair value because the interest rates
change with market interest rates.
The 12% Senior Subordinated Notes are not actively traded however, the most
recent trade of the Senior Notes prior to December 31, 1998 was at a price of
$90. Using this price of $90, the fair value of these notes at December 31,
1998 would be $90.0 million.
There are no quoted market prices for the 6% Series A Preferred Stock. Each
share of the 6% Series A Preferred Stock has a liquidation value of $100 per
share, plus accrued and unpaid dividends. The total liquidation value of the
Series A Preferred Stock would be $44.9 million at December 31, 1998.
These fair value estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore, cannot be determined with
precision. Changes in assumptions could significantly affect these estimates.
Note 7--Acquisitions
The Company has made the following acquisitions during 1998. They have all
been accounted for as a purchase, with the purchase price being allocated to
the fair value of the identified assets and liabilities of the Company with the
excess recorded as goodwill.
F-14
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
On June 19, 1998, City Truck and Trailer Parts, Inc. acquired substantially
all of the assets of Stone Heavy Duty, Inc. for approximately $24.5 million in
cash and $3.0 million in common and preferred stock. The Company has allocated
$12.1 million of the purchase price to the identified assets and liabilities.
The acquisition was accounted for as a purchase and the consolidated financial
statements for the Company include income since the date of acquisition.
On September 30, 1998, the Company acquired all of the capital stock of Truck
and Trailer Parts, Inc. for approximately $18.7 million in cash and $3.0
million in common and preferred stock. The Company has allocated $7.1 million
of the purchase price to the identified assets and liabilities. The acquisition
was accounted for as a purchase and the consolidated financial statements for
the Company include income since the date of acquisition.
On October 30, 1998, the Company acquired substantially all of the assets of
Tampa Brake and Supply Co., Inc. for approximately $9.9 million in cash. The
Company has allocated $4.1 million of the purchase price to the identified
assets and liabilities. The acquisition was accounted for as a purchase and the
consolidated financial statements for the Company include income since the date
of acquisition.
On November 4, 1998, the Company acquired substantially all of the assets of
Connecticut Drive Shaft for approximately $9.9 million in cash. The Company has
allocated $5.1 million of the purchase price to the identified assets and
liabilities. The acquisition was accounted for as a purchase and the
consolidated financial statements for the Company include income since the date
of acquisition.
On December 17, 1998, the Company acquired all of the capital stock of
Truckparts, Inc. for approximately $12.1 million in cash and $2.0 million in
common and preferred stock. The Company recorded approximately $10.8 million in
goodwill. The Company has allocated $3.3 million of the purchase price to the
identified assets and liabilities. The acquisition was accounted for as a
purchase and the consolidated financial statements for the Company include
income since the date of acquisition.
In connection with these acquisitions the Company has recorded aggregate
goodwill of $54.3 million and certain liabilities totaling $3.3 million in
connection with vendor consolidations, the closure of duplicate facilities, and
other activities that will be phased out during 1999.
The following unaudited pro forma financial information combines the results
of operations of City Truck and Trailer Parts, Inc., Stone Heavy Duty Inc.,
Truck and Trailer Parts Inc., Connecticut Drive Shaft Inc., Truckparts, Inc.
and Tampa Brake and Supply Co. Inc., as if the acquisitions had taken place on
January 1, 1997, after giving effect to certain adjustments including:
amortization of goodwill, interest expense and a normal charge for income taxes
assuming all of the companies had operated as "C" corporations for 1997 and
1998.
1997 1998
------------------ -------------------
Actual Proforma Actual Proforma
------- ---------- -------- ----------
(unaudited) (unaudited)
Net sales......................... $57,837 $176,064 $103,295 $192,850
Net income and comprehensive
income (loss).................... 4,272 (2,779) 1,288 (1,614)
F-15
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
In addition, the Company's subsidiaries, operated throughout the periods
presented as independent, privately owned entities, which influenced the
historical level of owners' compensation and other expenses. Accordingly, the
historical results of operations include (i) historical compensation expenses
in excess of the current compensation levels to the former owners of City Truck
Holdings, Inc. and its subsidiaries; and (ii) certain other private company
expenses.
Note 8--Common Stock
The following are the number of shares outstanding for each of the Company's
classes of common stock as of December 31:
City Truck and HDA Parts City Truck
Trailer, Parts, Inc. Bridge Systems, Inc. Holdings, Inc.
Common Stock Securities Common Stock Common Stock
(Par value $1) (Par value $.01) (Par value $.01) (Par value $.01)
-------------------- ---------------- ---------------- ----------------
Balance at January 1,
1996................... 938
---- ------- ------- -------
Balance at December 31,
1996................... 938
---- ------- ------- -------
Balance at December 31,
1997................... 938
Stock Repurchase........ (481)
Recapitalization........ (457) 57,227
Issuance of Bridge
Security............... 30,000
Repayment of Bridge
Security............... (30,000)
Issuance for acquisition
of Stone
Heavy Duty, Inc........ 6,867
Issuance to employees
and others............. 30,135
Formation of City Truck
Holdings, Inc.......... (94,229) 94,229
Issuance for acquisition
of Truck and
Trailer Parts, Inc..... 6,867
Issuance for acquisition
of Truckparts, Inc..... 4,578
Issuance to employees... 3,160
---- ------- ------- -------
Balance at December 31,
1998................... 0 0 0 108,834
==== ======= ======= =======
The common stock of City Truck and Trailer Parts, Inc. had a par value of $1
per share, of which 2,000 were authorized, and 1,538 were issued at December
31, 1996 and 1997.
The common stock of City Truck Holdings, Inc. has a par value of $.01 per
share, of which 250,000 are authorized, and 108,834 are issued and outstanding
at December 31, 1998.
F-16
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Note 9--Preferred Stock
The following are the number of shares issued for each of the Company's
classes of preferred stock as of December 31:
HDA Parts City Truck
System, Inc. Holding, Inc.
Series B Series A
Preferred Stock Preferred Stock
(Par value $.01) (Par value $.01)
---------------- ----------------
Balance at January 1, 1996.................. 0 0
-------- -------
Balance at December 31, 1996................ 0 0
-------- -------
Balance at December 31, 1997................ 0 0
Recapitalization............................ 249,428
Issuance for acquisition of Stone Heavy
Duty, Inc.................................. 29,931
Issuance to employees and others............ 103,013
Formation of City Truck Holdings, Inc....... (382,372) 382,372
Issuance for acquisition of Truck and
Trailer Parts, Inc......................... 29,931
Issuance for acquisition of Truckparts,
Inc........................................ 19,954
Issuance to employees and others............ 3,493
-------- -------
Balance at December 31, 1998................ 0 435,750
======== =======
The Series A Preferred Stock has a par value of $.01 per share, of which
850,000 are authorized, and 435,750 were issued at December 31, 1998. Each
share of Series A Preferred stock is entitled to one vote per share on all
matters. These shares earn dividends at a rate of 6.0% per annum, payable
quarterly on March 31, June 30, September 30 and December 31 of each year,
commencing June 30, 1998. Dividends not paid will cumulate whether or not
earned or declared with additional dividends thereon, compounded quarterly at
the rate of 6% per annum. At December 31, 1998, the Company had $1,320
cumulated dividends on these shares.
The Company has no right to redeem any shares of its Series A Preferred Stock
and the holders of the Company's Series A Preferred Stock do not have a right
to require the Company to redeem any of the shares.
Upon liquidation, holders of Series A Preferred Stock are entitled to $100
per share plus accrued and unpaid dividends.
Note 10--HDA Parts System, Inc. Summarized Financial Information.
HDA Parts System, Inc. is a wholly owned subsidiary of City Truck Holdings,
Inc. During September 1998, the shares of common stock of HDA Parts System,
Inc. were exchanged for shares
F-17
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
of common stock in City Truck Holdings, Inc. Specific summarized financial
information of HDA Parts System, Inc. and its guarantor subsidiaries is listed
below:
Consolidated
HDA Parts
Systems, Inc.
HDA Parts Subsidiaries and
System, Inc. Acquired in 1998 Eliminations Subsidiaries
------------ ---------------- ------------ --------------
At December 31, 1998:
Current assets........ 59,074 13,563 -- 72,637
Noncurrent assets..... 100,065 26,780 (35,558) 91,287
Current liabilities... 24,219 5,031 -- 29,250
Noncurrent
liabilities.......... 118,200 -- -- 118,200
Preferred stock....... 38,237 -- -- 38,237
For the year ended
December 31, 1998:
Net sales............. 95,089 8,206 -- 103,295
Gross profit.......... 35,399 2,041 -- 37,440
Income from continuing
operations........... 779 509 -- 1,288
Net income and
comprehensive
income............... 779 509 -- 1,288
These subsidiaries were purchased by HDA Parts System, Inc. using, in part,
shares of common stock of City Truck Holdings, Inc. These shares so acquired
were subsequently contributed to HDA Parts Systems, Inc. and recorded as an
increase to paid-in capital. As the only assets and operations of City Truck
Holdings, Inc. relate to its ownership of the shares of common and preferred
stock in HDA Parts System, Inc., the financial position and results of
operations of City Truck Holdings, Inc. are identical to HDA Parts System, Inc.
Note 11--Employee Benefit Plans
The Company sponsors a number of defined contribution 401(k) plans covering
substantially all of its full-time employees. Employees may contribute up to
15% of their salary to the plan while the company may make discretionary
contributions to it. Total expenses under these plans were $111, $130 and $248
for the years ended December 31 1996, 1997 and 1998, respectively.
Note 12--Operating Leases
The Company leases office and warehouse space from related parties and third
parties. Rental expense to related parties was $751, $750 and $1,136 in 1996,
1997 and 1998, respectively. The Company also leases office, warehouse space
and transportation equipment from unrelated parties. Rental expense to third
parties was $365, $381 and $494 in 1996, 1997 and 1998, respectively. Minimum
future rental payments under these leases for each of the next five years and
thereafter, and in the aggregate are as follows:
Year Amount
---- --------
1999............................................................ $ 1,589
2000............................................................ 2,733
2001............................................................ 2,531
2002............................................................ 2,035
2003............................................................ 2,276
Thereafter...................................................... 7,981
--------
$ 19,145
========
F-18
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Note 13--Related Party Transactions
In addition to the transactions described in the above footnotes, the
following related parties existed at December 31, 1998.
The Company has entered into a Corporate Development and Administrative
Services Agreement with Brentwood Private Equity L.L.C., ("BPE"), an affiliate
of the Company's majority shareholder, Brentwood. Under the terms of the
agreement, BPE has agreed to assist the Company with corporate development
services for a predetermined percentage of certain transactions. In 1998, the
Company incurred $2,208 under the terms of this agreement in connection with
acquisitions made by the Company.
Note 14--Income Taxes
The income tax expense (benefit) for the years ended December 31, consists of
the following:
1996 1997 1998
---- ---- -----
Current tax expense (benefit)
Fed...................................................... $-- $-- $ --
State.................................................... 53 93 200
Deferred tax expense (benefit)
Fed...................................................... -- -- (751)
State.................................................... -- -- (136)
---- ---- -----
$ 53 $ 93 $(687)
==== ==== =====
The provisions for income tax differs from the statutory tax expense computed
by applying the federal corporate tax rate of 34% for the years ended December
31 as follows:
1996 1997 1998
---- ---- -------
Taxes computed at statutory rate........................ $ 53 $ 93 $ 204
State tax expense, net of federal benefit............... -- -- 42
Income earned while an S corporation.................... -- -- (1,017)
Goodwill amortization and other non-deductible
expenses............................................... -- -- 84
---- ---- -------
Total income tax expense (benefit)...................... $ 53 $ 93 $ (687)
==== ==== =======
F-19
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
The approximate tax effects of the temporary differences between the tax
basis of assets and liabilities and their financial reporting amounts that give
rise to a significant portion of the deferred tax asset and deferred tax
liability are as follows, as of December 31:
1997 1998
------ -------
Tax Tax
Effect Effect
------ -------
Inventories.................................................. $ -- $ 619
Accrued liabilities.......................................... -- 167
Recapitalization............................................. -- 14,217
Net operating loss carryforwards............................. -- 301
----- -------
Total deferred tax asset..................................... -- 15,304
Goodwill and other intangibles liabilities................... -- (200)
----- -------
Total defered tax liability.................................. -- --
----- -------
Net deferred tax asset $ -- $15,104
===== =======
The acquisition of the Company's stock by BABF City Corp. resulted in a step-
up in the tax basis of the Company's net assets of $37,413. This amount will be
amortized over 15 years for tax purposes, resulting in a deferred tax asset of
$14,217. Pursuant to SFAS 109, the Company's contributed capital has been
increased by the amount of this tax benefit.
Net operating loss carryforwards for tax purposes of $2,109 at December 31,
1998, will begin expiring in 2018.
Note 15--Stock Plans
During 1998, the Company had two types of employee stock plans. Under the
terms of these plans, certain members of the Company's management purchased
10,150 shares of common stock at a value of $1.00 per share with forfeiture
restrictions expiring after eight years. As all common stock shares were
purchased by the Company's management at fair value and management paid for
these shares in cash, no compensation expense was recorded.
Note 16--Subsequent Events
On January 11, 1999, the Company acquired all of the capital stock of
Associated Truck Parts, Inc. for approximately $55 million in cash and $5
million in common and preferred stock. The acquisition will be accounted for as
a purchase.
On January 12, 1999, the Company acquired all of the capital stock of Tisco,
Inc. for approximately $6.5 million in cash and $0.8 million in common and
preferred stock. The acquisition will be accounted for as a purchase.
In connection with the acquisitions the Company intends to record certain
liabilities totaling $1.4 million in connection with vendor consolidations, the
closure of duplicate facilities, and other activities that will be phased out
during 1999 and 2000.
F-20
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
On February 5, 1999 and January 25, 1999, the Company signed non-binding
letters of intent to acquire Vantage Parts and Active Gear LLC, respectively.
Vantage Parts is based in Portland, Oregon and Active Gear LLC is based in
Seattle, Washington. These companies have a total of nine locations in
California, Georgia, Illinois, Missouri, Nevada, Oregon and Washington.
On January 11, 1999, the Company completed an additional issuance of common
and preferred stock. The Company issued 17,332 shares of common stock and
received proceeds of $2.9 million net of offering costs. The Company also
issued 75,538 shares of Series A Preferred Stock and received proceeds of $7.6
million. In addition, the Company obtained unconditional commitments for
further common and preferred shares, valued at $42.0 million, which will be
used to complete the acquisitions of Vantage Parts and Active Gear LLC.
The Company anticipates filing a registration statement with the Securities
and Exchange Commission. The Company expects to exchange the $100 million 12%
Senior Subordinated Notes due 2005 for exchange notes of the same form and
terms as the private notes, except that the exchange notes will be registered
under the Securities Act, and, therefore, the exchange notes will not be
subject to certain transfer restrictions, registration rights and certain
provisions providing for an increase in the interest rate of the private notes
under certain circumstances relating to the registration of the exchange notes.
F-21
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Shareholders of
Stone Heavy Duty, Inc.
In our opinion, the accompanying combined balance sheets and related combined
statements of income and retained earnings and cash flows present fairly, in
all material respects, the combined financial position of Stone Heavy Duty,
Inc. and Ashland Automotive Parts, Inc. (together "the Company") at December
31, 1996 and 1997 and at June 19, 1998 and the results of their operations and
their cash flows for the two years ended December 31, 1997 and for the period
from January 1, 1998 through June 19, 1998 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
March 12, 1999
Chicago, IL
F-22
STONE HEAVY DUTY, INC.
COMBINED BALANCE SHEETS
At December 31, 1996 and 1997 and June 19, 1998
(amounts in thousands, except for share data)
June
December 31, 19,
--------------- -------
1996 1997 1998
------- ------- -------
ASSETS
------
Current assets:
Cash and cash equivalents.............................. $ 2,697 $ 168 $ 239
Accounts receivable, less allowance for doubtful
accounts of $40....................................... 3,701 4,094 5,144
Inventory.............................................. 7,857 9,374 10,305
Prepaid expenses and other current assets.............. 212 112 168
Current portion of rebate receivable................... 605 756 493
------- ------- -------
Total current assets............................... 15,072 14,504 16,349
Property and equipment, net............................ 1,650 1,764 1,960
Long-term portion of receivables and other assets...... 1,081 1,337 1,828
------- ------- -------
Total assets....................................... $17,803 $17,605 $20,137
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Bank overdraft......................................... $ 1,887 $ 402 $ 1,877
Current portion of long-term debt...................... 140 43 --
Accounts payable....................................... 3,083 3,514 3,886
Accrued liabilities.................................... 2,114 1,947 1,509
------- ------- -------
Total current liabilities.......................... 7,224 5,906 7,272
Long-term debt........................................... -- 12 --
------- ------- -------
Total liabilities.................................. 7,224 5,918 7,272
------- ------- -------
Stockholders' equity:
Common stock of Stone Heavy Duty, Inc. $1 par value:
Voting, 200,000 shares authorized, 24,999 shares issued
and outstanding....................................... 25 25 25
Non-voting, 100,000 shares authorized, 15,000 shares
issued and outstanding................................ 15 15 15
Common stock of Ashland Automotive Parts, Inc., $1 par
value; 265,300 voting shares authorized, 265,300
shares issued and outstanding......................... 265 265 265
Additional paid-in capital........................... 1,633 1,633 1,633
Retained earnings.................................... 8,641 9,749 10,927
------- ------- -------
Total stockholders' equity......................... 10,579 11,687 12,865
------- ------- -------
Total liabilities and stockholders' equity......... $17,803 $17,605 $20,137
======= ======= =======
The accompanying notes are an integral part of these financial statements.
F-23
STONE HEAVY DUTY, INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Years Ended December 31, 1996 and 1997 and for the
Period From January 1, 1998 Through June 19, 1998
(amounts in thousands)
Years ended
December 31, Period ended
---------------- June 19,
1996 1997 1998
------- ------- ------------
Net sales....................................... $41,386 $44,019 $24,819
Cost of sales................................... 25,477 27,126 15,657
------- ------- -------
Gross profit................................ 15,909 16,893 9,162
Selling, general and administrative expenses.... 13,195 14,087 7,195
------- ------- -------
Operating income............................ 2,714 2,806 1,967
Other income.................................... 16 35 6
------- ------- -------
Net income and comprehensive income......... 2,730 2,841 1,973
Retained earnings, beginning of year............ 7,032 8,641 9,749
Dividends paid.................................. (1,121) (1,733) (795)
------- ------- -------
Retained earnings, end of year.................. $ 8,641 $ 9,749 $10,927
======= ======= =======
The accompanying notes are an integral part of these financial statements.
F-24
STONE HEAVY DUTY, INC.
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 and 1997 and
For the Period from January 1, 1998 through June 19, 1998
(amounts in thousands)
Years ended
December 31, Period ended
---------------- June 19,
1996 1997 1998
------- ------- ------------
Operating activities
Net income and comprehensive income........... $ 2,730 $ 2,841 $ 1,973
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation................................ 485 541 305
Gain on sale of equipment, net.............. (16) (35) (6)
Changes in operating assets and liabilities:
Accounts receivable, net.................. 42 (393) (1,050)
Inventory................................. 679 (1,517) (931)
Prepaid expenses and other current
assets................................... 35 100 (56)
Other assets.............................. 363 (407) (229)
Accounts payable.......................... (778) 431 372
Accrued liabilities....................... (379) (167) (437)
------- ------- -------
Net cash provided by (used in) operating
activities............................. 3,161 1,394 (59)
------- ------- -------
Investing activities
Acquisitions of property and equipment........ (782) (655) (501)
Proceeds from sale of property and equipment.. 16 35 6
Acquisitions, net of cash acquired............ (265) -- --
------- ------- -------
Net cash used in investing activities... (1,031) (620) (495)
Financing activities
Bank overdraft................................ 103 (1,485) 1,475
Principal payments of long-term debt.......... 3 (85) (55)
Payment of dividends.......................... (1,121) (1,733) (795)
------- ------- -------
Net cash provided (used) in financing
activities............................. (1,015) (3,303) 625
------- ------- -------
Net increase (decrease) in cash......... 1,115 (2,529) 71
Cash at beginning of year..................... 1,582 2,697 168
------- ------- -------
Cash at end of year........................... $ 2,697 168 $ 239
======= ======= =======
Supplemental disclosure of cash flow information
Cash paid during year for interest............ $ 17 $ 41 $ 38
======= ======= =======
The accompanying notes are an integral part of these financial statements.
F-25
STONE HEAVY DUTY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(amounts in thousands, except for share data)
Note 1--Basis of Presentation
Stone Heavy Duty, Inc. ("Stone") and Ashland Automotive Parts, Inc.
("Ashland") collectively (the "Company") are under common ownership and engage
in the sale of heavy duty truck parts and servicing of medium and heavy duty
vehicles. Effective January 13, 1997, the Company acquired the net assets of
A&B Truck Parts, Inc., a Virginia corporation with its principal business in
Roanoke, Virginia for $352 plus $12 in noncompete agreements. The acquisition
was accounted for under the purchase method of accounting. The combined results
of operations of the Company include the results of A&B Truck Parts, Inc. from
the date of acquisition.
The Company is headquartered in Raleigh, North Carolina and operates
seventeen branches in North Carolina, South Carolina, Virginia, West Virginia
and Tennessee.
Note 2--Summary of Significant Accounting Policies
Principles of Combination
The combined financial statements include all the accounts of the Company as
of June 19, 1998. All intercompany balances have been eliminated in
combination.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid instruments with original
maturities of three months or less from the date of purchase.
Inventory
Inventories are stated at the lower of cost or market. Cost is determined
using the average cost method.
Property, Plant and Equipment
Property, plant and equipment is carried at cost less accumulated
amortization and depreciation. Depreciation is calculated using primarily
accelerated methods and is charged to operations over the estimated useful
lives of the assets which range from five to fifteen years as follows:
Method Useful Life
------ -----------
Furniture and fixtures.................... MACRS Double Declining 5-7 years
Equipment................................. MACRS Double Declining 5-7 years
Computer Equipment........................ MACRS Double Declining 5 years
Automobiles and trucks.................... MACRS Double Declining 5 years
Leasehold improvements.................... Straight-line 15 years
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts,
F -26
STONE HEAVY DUTY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
may be exchanged for credit at the time of a sale or within a specified period.
Returned cores are either returned to the vendor for credit or remanufactured.
Income Taxes
The Company has elected "S" corporation status for federal and state income
tax reporting purposes. Accordingly, all federal and state income tax
liabilities pass through to the stockholders. Ashland has elected to be treated
as a "C" corporation which is subject to income taxes. Ashland has adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", ("SFAS 109") however, the impact does not have a material impact on the
combined financial statements.
Uses 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 revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Note 3--Inventory
The inventory balances at December 31, 1996 and 1997 and for the period
ending June 19, 1998 consist of the following:
December 31, June 19,
------------- --------
1996 1997 1998
------ ------ --------
Parts................................................. $6,101 $7,177 $ 8,057
Cores................................................. 1,756 2,197 2,248
------ ------ -------
Total inventory..................................... $7,857 $9,374 $10,305
====== ====== =======
Note 4--Other Assets
Other assets at December 31, 1996 and 1997 and June 19, 1998 consist of the
following:
December 31, June 19,
------------- --------
1996 1997 1998
------ ------ --------
Rebate receivable..................................... $ 438 $ 574 $1,268
Patronage dividend receivable......................... 1,179 1,450 984
Other................................................. 69 69 69
------ ------ ------
1,686 2,093 2,321
Less: current portion of dividend receivable.......... 605 756 493
------ ------ ------
$1,081 $1,337 $1,828
====== ====== ======
F-27
STONE HEAVY DUTY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
The Company is a member of a buying cooperative that makes annual patronage
dividends to its members. These annual patronage dividends are paid by the
buying cooperative in two equal installments, one sixty days and the other
three years after year end.
Note 5--Property, Plant and Equipment
Property, plant and equipment are recorded at cost. At December 31, 1996 and
1997 and June 19, 1998 property and equipment consisted of the following:
December 31, June 19,
------------- --------
1996 1997 1998
------ ------ --------
Furniture and fixtures................................ $ 226 $ 297 $ 372
Equipment............................................. 3,003 3,133 3,206
Computer equipment.................................... 612 704 772
Automobiles and trucks................................ 1,563 1,791 2,014
Leasehold improvements................................ 700 834 896
------ ------ ------
6,104 6,759 7,260
Less accumulated depreciation......................... 4,454 4,995 5,300
------ ------ ------
$1,650 $1,764 $1,960
====== ====== ======
Note 6--Line of Credit
At June 19, 1998 the Company had an unsecured line of credit with a
commercial bank in the amount of $1,500. Amounts borrowed under the line of
credit are payable on demand and the interest rate was at the bank's 90-day
adjusted certificate of deposit rate plus 1%. The line of credit expires May
31, 1998. At June 19, 1998, there were no amounts outstanding under this line
of credit.
Note 7--Long-term Debt
Long-term debt at December 31, 1996 and 1997 and June 19, 1998 consists of
the following:
December 31, June 19,
-------------- --------
1996 1997 1998
------ ------ --------
8.25% unsecured notes payable to former
shareholders of A&B Truck Parts, Inc., payable in
quarterly installments of $12 through January
1999.............................................. $ -- $ 55 $ --
7.71% unsecured note payable to an irrevocable
trust in annual installments of $14, including
interest, through January 1996, with a final
payment of $140 in January 1997................... 140 -- --
------ ----- ----
140 55
Less--current portion.............................. (140) (43) --
------ ----- ----
$ -- $ 12 $ --
====== ===== ====
F-28
STONE HEAVY DUTY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Note 8--Accrued Liabilities
At December 31, 1996 and 1997 and June 19, 1998 accrued expenses include the
following:
December 31, June 19,
------------- --------
1996 1997 1998
------ ------ --------
Accrued payroll...................................... $1,496 $1,199 $ 996
Accrued benefits..................................... 435 498 336
Other accruals....................................... 183 250 177
------ ------ ------
Total accrued expenses............................. $2,114 $1,947 $1,509
====== ====== ======
Note 9--Retirement Savings Plan
The Company has a defined contribution retirement savings plan which covers
substantially all full-time employees. Eligible employees may contribute up to
6% of their annual compensation. The Company may match all or a portion of
these contributions. Retirement plan expenses were $233, $272 and $62 for the
years ending December 31, 1996 and 1997 and for the period ending June 19,
1998, respectively.
Note 10--Related Party Transactions
The Company leases seven branch facilities under noncancelable operating
leases with directors, officers and stockholders that extend through 2001.
Certain of these leases have renewal options. The following is a schedule of
future minimum lease payments under these leases as of June 19, 1998:
1998.................................................................. $ 300
1999.................................................................. 565
2000.................................................................. 360
2001.................................................................. 282
2002 and thereafter................................................... 19
------
Total............................................................... $1,526
======
Aggregate payments of approximately $539, $1,057 and $923 were made to these
directors, officers and stockholders under these leases during 1996 and 1997
and for the period ending June 19, 1998, respectively.
The Company owns a minority interest in the stock of HD America, Inc., a
cooperative. For the years ended December 31, 1996 and 1997 and for the period
ending June 19, 1998, the Company purchased approximately 56%, 56% and 60% of
its goods through this cooperative and accrued a patronage dividend of $1,179,
$1,450 and $985, which was allocated between cost of sales and inventory.
F-29
STONE HEAVY DUTY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Note 11--Operating Leases
The Company leases certain branch facilities under operating leases with
third-parties with terms extending through 2001. Certain of these leases have
renewal options. At June 19, 1998, the future minimum rental payments required
under these noncancelable leases are as follows:
1998.................................................................... $187
1999.................................................................... 260
2000.................................................................... 70
2001.................................................................... 25
2002 and thereafter..................................................... --
----
Total................................................................. $542
====
Rent expense for third-party operating leases was approximately $313, $359
and $180 during the years ended 1996 and 1997 and for the period ending June
19, 1998, respectively.
Note 12--Commitments and Contingencies
The Company has a Stock Purchase Agreement (the "Agreement") whereby, upon a
shareholder's death or disability, the Company can be required to purchase the
individual's outstanding shares of stock. The purchase price stipulated in the
Agreement is the fair market value of the stock, as determined by the
stockholders. The Company is also the beneficiary under certain shareholder
life insurance policies from which the proceeds may be used to purchase the
shares.
The Company is self-insured for employee medical and dental benefits, general
liability, automobile and workers' compensation claims with various levels of
stop-loss coverage. The Company has two unsecured letters of credit with a bank
related to medical and dental insurance.
The Company also has two unsecured letters of credit with banks of
approximately $448 as required by the buying cooperative. These letters expire
on December 31, 1998.
Note 13--Subsequent Event
On June 19, 1998, the Company was acquired by HDA Parts System, Inc. The
financial statements have not been effected by this transaction.
F-30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Associated Brake Supply, Inc. and Affiliate
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Associated
Brake Supply, Inc. and Affiliate (the "Company") at December 26, 1997 and
December 31, 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit include examining, on a test basis evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
March 12, 1999
Chicago, IL
F-31
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
CONSOLIDATED BALANCE SHEETS
At December 26, 1997 and December 31, 1998
(amounts in thousands)
1997 1998
------- -------
ASSETS
------
Current assets:
Trade accounts receivable, net of allowance for doubtful
accounts of $65 and $83 .................................... $ 5,403 $ 5,904
Inventories ................................................. 10,945 10,695
Prepaid expenses and other current assets ................... 782 673
Receivables from related parties ............................ 1,936 2,200
------- -------
Total current assets ...................................... 19,066 19,472
Property and equipment, net of accumulated depreciation........ 2,435 2,461
Other assets:
Notes receivables from related parties, net of current
portion..................................................... 1,409 1,727
Deposits and other........................................... 164 108
------- -------
Total assets............................................... $23,074 $23,768
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Bank overdraft............................................... $ 2,192 $ 3,060
Line of credit............................................... 4,000 4,000
Indebtedness to related parties.............................. 909 1,140
Current portion of long-term debt............................ 538 576
Accounts payable............................................. 3,471 3,270
Accrued expenses............................................. 771 1,128
Other current liabilities.................................... 362 239
------- -------
Total current liabilities.................................. 12,243 13,413
Long-term debt:
Long-term debt to related parties, net of current portion.... 3,179 3,145
Long-term debt, net of current portion....................... 1,557 1,308
Capital lease obligations, net of current portion............ 8 --
Deferred credit, net........................................... 2,151 2,084
Stockholders' equity:
Common stock................................................. 6 6
Additional paid-in capital................................... 10 10
Retained earnings............................................ 3,920 3,802
------- -------
Total stockholders' equity................................. 3,936 3,818
------- -------
Total liabilities and stockholders' equity................. $23,074 $23,768
======= =======
The accompanying notes are an integral part of these financial statements.
F-32
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 27, 1996, December 26, 1997
and December 31, 1998
(amounts in thousands)
1996 1997 1998
------- ------- -------
Sales, net........................................... $44,320 $50,508 $57,039
Cost of sales........................................ 27,212 31,539 35,960
------- ------- -------
Gross profit..................................... 17,108 18,969 21,079
------- ------- -------
Operating expenses:
Selling expenses................................... 9,636 10,670 11,668
General and administrative......................... 3,743 3,984 4,561
Depreciation and amortization...................... 477 375 738
------- ------- -------
13,856 15,029 16,967
------- ------- -------
Income from operations............................... 3,252 3,940 4,112
------- ------- -------
Other income (expense):
Interest expense, net.............................. (475) (552) (781)
Other income (expense), net........................ 13 (1) (12)
------- ------- -------
(462) (553) (793)
------- ------- -------
Income before income taxes....................... 2,790 3,387 3,319
Income tax (benefit) expense......................... (30) 199 2
------- ------- -------
Net income and comprehensive income.............. $ 2,820 $ 3,188 $ 3,317
======= ======= =======
The accompanying notes are an integral part of these financial statements.
F-33
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 27, 1996, December 26, 1997
and December 31, 1998
(amounts in thousands)
Additional
Common Paid-in Retained
Stock Capital Earnings Total
------ ---------- -------- -------
Balance, December 29, 1995.................. $ 6 $10 $ 2,343 $ 2,359
Distributions............................. (1,706) (1,706)
Net income and comprehensive income....... 2,820 2,820
--- --- ------- -------
Balance, December 27, 1996.................. 6 10 3,457 3,473
Distributions............................. (2,725) (2,725)
Net income and comprehensive income....... 3,188 3,188
--- --- ------- -------
Balance, December 26, 1997.................. 6 10 3,920 3,936
Distributions............................. (3,435) (3,435)
Net income and comprehensive income....... 3,317 3,317
--- --- ------- -------
Balance, December 31, 1998.................. $ 6 $10 $ 3,802 $ 3,818
=== === ======= =======
F-34
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 27, 1996,
December 26, 1997 and December 31, 1998
(amounts in thousands)
1996 1997 1998
------- -------- --------
Cash flows from operating activities:
Net income and comprehensive income............. $ 2,820 $ 3,188 $ 3,317
Adjustments to reconcile net income to net cash
provided (used) in operating activities:
Depreciation and amortization.................. 477 375 738
Provision for bad debts........................ 67 103 82
Loss (gain) on disposition of assets, net...... (13) 1 12
Deferred income taxes.......................... (137) 150 --
(Increase) decrease in:
Trade accounts receivable...................... 198 (874) (583)
Inventories.................................... 1,012 (1,861) 250
Prepaid expenses and other..................... (10) (61)
Notes receivable from related parties.......... 169 (552) (372)
Employee advances.............................. 27 (40) (60)
Advances to stockholders, net.................. 142 (2,030) 85
Prepaid income taxes........................... 91 -- --
Income tax refund receivable................... -- (202) 170
Deposits and other............................. (78) (36) 56
Increase (decrease) in:
Accounts payable............................... (834) 1,363 (201)
Accrued expenses............................... 631 86 356
Sales tax payable.............................. (26) 51 2
Income taxes payable........................... 10 (668) --
------- -------- --------
Net cash provided (used) in operating
activities.................................. 4,546 (1,007) 3,852
------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment............. (422) (412) (588)
Proceeds from sales of property and equipment... 35 31 30
------- -------- --------
Net cash used in investing activities........ (387) (381) (558)
------- -------- --------
Cash flows from financing activities:
Increase (decrease) in bank overdraft........... (253) 623 868
Principal payments on notes payable............. (1,200) (465) (630)
Principal payments on capital lease
obligations.................................... -- (29) (32)
Principal payments on subordinated notes
payable........................................ -- (16) (65)
Proceeds from line of credit.................... 2,150 17,050 16,919
Principal payments on line of credit............ (3,150) (13,050) (16,919)
Distributions to stockholders................... (1,706) (2,725) (3,435)
------- -------- --------
Net cash provided (used) in financing
activities.................................. (4,159) 1,388 (3,294)
------- -------- --------
Net change in cash................................ 0 0 0
Cash, beginning of year........................... 0 0 0
------- -------- --------
Cash, end of year................................. $ 0 $ 0 $ 0
======= ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest....................................... $ 789 $ 537 $ 475
Taxes.......................................... 32 818 99
The accompanying notes are an integral part of these financial statements.
F-35
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
Notes to Consolidated Financial Statements
(amounts in thousands, except for share data)
Note 1. Basis of Presentation and Description of Business
Basis of Presentation
For each of three fiscal years ending December 31, 1998, the consolidated
financial statements of Associated Brake Supply, Inc. and Affiliates (the
"Company") include the results of Associated Brake Supply, Inc., Freeway Truck
Parts of Washington, Inc., Onyx Distribution, Inc., Associated Truck Parts of
Nevada, Inc., Associated Auto Parts, Inc., Freeway Truck Parts, Inc. and ATPM,
Inc. All of these companies operate in the same business and have been under
common control and ownership for the three year period ended December 31, 1998.
Note 2. Summary of Significant Accounting Policies
Method of Consolidation
The consolidation of these companies has been accounted for in a manner
similar to a pooling of interest under Accounting Principles Board Opinion No.
16. Accordingly, all prior period financial statements have been restated to
include the combined results of operations, financial position and cash flows
of these companies, as if they had always been a part of the Company. All
material intercompany transactions have been eliminated.
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of sale or within a specified period. Returned cores are either returned
to the vendor for credit or remanufactured.
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.
Cash and Cash Equivalents
All highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents. These amounts are stated at cost
which approximates fair value.
Inventories
Inventories consist of truck parts and are valued at the lower of cost or
market. Cost is determined on the average cost method.
F-36
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided using straight-line and accelerated
methods over the estimated useful lives of the assets. Maintenance and repairs
are charged to operations.
Methods of depreciation and useful lives for property and equipment are as
follows:
Useful
Method life
---------------- ---------
Buildings and improvements Straight line 39 years
Computer equipment Double declining 5 years
Machinery, equipment, furniture & fixtures Double declining 5-7 years
Vehicles Double declining 5 years
Note 3. Inventories
Inventories consist of the following at:
December 26, December 31,
1997 1998
------------ ------------
Parts.............................................. $ 9,404 $ 9,094
Cores.............................................. 1,541 1,601
-------- --------
$ 10,945 $ 10,695
======== ========
Note 4. Property and equipment
Property and equipment consist of the following at:
December 26, December 31,
1997 1998
------------ ------------
Land............................................... $ 382 $ 382
Buildings and improvements......................... 1,205 1,482
Computer equipment................................. 337 525
Machinery, equipment, furniture & fixtures......... 2,387 2,399
Vehicles........................................... 305 260
------ ------
4,616 5,048
Less accumulated depreciation...................... 2,181 2,587
------ ------
$2,435 $2,461
====== ======
Note 5. Borrowings
Line of Credit
At December 31, 1998, the Company had a line of credit with a bank which
expires on December 31, 1999, and is collaterized by the Company's accounts
receivable, inventory and property and equipment. The maximum borrowing on the
line of credit is the sum of 80% of eligible accounts receivable and the lessor
of $5,400 or 35% of the value of eligible inventory, up to 60% of
F-37
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
the amount of outstanding principal under the line. At December 26, 1997, the
maximum borrowing on the line of credit was $6,000. The line of credit provides
for cash advances, letters of credit up to $750, and financing overdrafts up to
$500. The interest rate on the line of credit was at the bank's reference rate
or an optional interest rate. At December 31, 1998 and December 26, 1997,
optional interest rates consist of (1) the short-term fixed rate plus 0.0% and
2.0%, respectively, (2) the offshore rate and the Cayman rate plus 2.0%,
respectively, or (3) the LIBOR rate 2.0%. The Company has the option to finance
a portion or all of the amount outstanding on the line of credit at the
different interest options above. At December 31, 1998, the Company has $4,000
outstanding on the line of credit at the bank's reference rate. At December 31,
1998, the bank's reference rate is 7.75%. The line of credit is guaranteed by
the Company's subsidiaries and subordinated to the Company's indebtedness to a
trust.
Notes Payable
At December 31, 1998, the Company has a note payable with a bank in which the
principle and interest are due August 2003, and is collaterized by accounts
receivable, inventory and property and equipment. The maximum borrowing limit
on this note is $1,250. The interest rate was at the bank's reference rate or
an optional interest rate. Interest is payable in monthly principal
installments of $4. At December 31, 1998, the outstanding note payable was
$388.
At December 31, 1998, the Company has a note payable with a bank in which the
principle and interest are due December 2001, and is collaterized by accounts
receivable, inventory and property and equipment. The interest rate was at the
bank's reference rate or an optional interest rate. Interest is payable in
monthly installments of $40. At December 31, 1998, the Company had $1,405
outstanding at the bank's prime rate and $0 at the LIBOR rate.
At December 31, 1998, the Company has a note payable with a bank in which the
principal and the interest are due January 2001, and is collaterized by
accounts receivable, inventory and property and equipment. The note bears
interest at 1.5% over the bank's reference rate. Interest is payable in monthly
principal installments of $4, plus interest. At December 31, 1998, the
outstanding note payable was $91.
December 27, December 31,
1997 1998
------------ ------------
Line of credit..................................... $ 4,000 $ 4,000
Note payable, bank................................. 30 388
Note payable, bank................................. 1,927 1,405
Note payable, bank................................. 138 91
Less current portion............................... (4,538) (4,576)
------- -------
Long-term debt..................................... $ 1,557 $ 1,308
======= =======
F-38
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
The aggregate maturities of debt as of December 31, 1998, are as follows:
Year ending in December,
1999............................................................ $4,576
2000............................................................ --
2001............................................................ 968
2002............................................................ --
2003............................................................ 340
Thereafter...................................................... --
------
$5,884
======
The above debt agreements contain certain covenants that, among other things,
limit the ability of the Company and the Guarantors to: (i) make any loans to
or make any payments on loans to any of the Company's stockholders or ex-
stockholders, if any default occurs; (ii) incur additional Debt; (iii) extend
loans to subsidiaries or affiliates in excess of $750,000 outstanding at any
one time; (iv) enter into certain guarantees of Debt; (v) extend loans or
extensions of credit to any individual or entity; (vi) make investments in, or
give capital contributions to any individual or entity; (vii) encumber or sell
assets; (viii) merge or consolidate with any other entity or transfer or lease
all or substantially all of their assets.
Note 6. Operating leases and capital lease obligations and commitments
The Company leased equipment under agreements which are accounted for under
capital leases. The net balance of property and equipment at December 31, 1997
and 1998 under the capital leases is as follows:
1997 1998
---- ----
Gross amount under capital leases.............................. $89 $89
Less accumulated depreciation.................................. 39 53
--- ---
$50 $36
=== ===
The Company leases automobiles and its facilities under non-cancelable
operating leases expiring through May 2001, that have an initial or remaining
lease terms in excess of one year as of December 31, 1998. The facilities'
leases have varying renewal options and a varying escalation clause based on
minimal increases and/or the consumer price index. Total rental expense for the
operating leases is approximately $707, $812, and $917 for the years ended
December 27, 1996, December 26, 1997 and December 31, 1998.
F-39
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Future minimum lease payments for non-cancelable operating leases and capital
lease obligations are as follows:
Capital Operating
leases leases
Year ending in December 31, ------- ---------
1999..................................................... $ 9 $1,421
2000..................................................... -- 1,327
2001..................................................... -- 928
2002..................................................... -- 698
2003..................................................... -- 547
Thereafter............................................... -- 2,201
--- ------
Total minimum lease payments............................. 9 $7,122
--- ======
Less amounts representing interest ........................ 1
---
Present value of minimum lease payments.................... $ 8
===
Note 7. Commitments and Contingencies
At December 27, 1997 and December 31, 1998 the Company has open stand-by
letters of credit totaling $490 and $448, respectively.
Note 8. Deferred credit
The deferred credit consists of the excess of net assets acquired over the
cost of Freeway Truck Parts, Inc., by ATPM, Inc. in 1988. The Company merged
with ATPM, Inc. under a method similar to a pooling of interest as of October
1, 1997 and carried over assets and liabilities at historical cost. The
deferred credit is being amortized over 40 years, and for each of the three
years ended December 31, 1998, amortization income recognized was $70.
Note 9. Retirement plan
The Company has a 401(k) profit sharing plan covering all eligible employees.
Under the provisions of the agreement, employees are allowed to make deferrals
to which the Company can elect to match at a rate of 25% of employee
contributions, up to a maximum of 15% of the participants' compensation. For
each of the three years ended December 31, 1998, the Company expensed
contributions of approximately $95, $98 and $108, respectively.
Note 10. Related party transactions
The Company leases facilities under operating leases from an ex-stockholder
and employee of the Company. Rent expense on the leases totaled $31 and for
each of the three years ended December 31, 1998.
At December 26, 1997 and December 31, 1998, the Company has advanced the
stockholders $1,206 and $1,417, respectively. The advances are non-interest
bearing and are due on demand. At December 31, 1998, the Company has an amount
due to the shareholders in the amount of $295.
F-40
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
At December 26, 1997 and December 31, 1998, the Company had long-term notes
receivable from certain stockholders of $2,139 and $2,510, respectively. The
current portion of these notes was $730 and $782 on December 26, 1997 and
December 31, 1998, respectively.
For the years ended December 26, 1997 and December 31, 1998, the Company has
a note payable to a trust, subordinated to the line of credit and each of the
note payables, bank. The subordinated note payable originally in the amount of
$3,260, is collaterized by the Company's Stock. The subordinated note payable
is due in monthly principal and interest installments of $24 maturing October
2019, bearing interest at 7.0% per annum. At December 26, 1997 and December 31,
1998, $3,244 and $3,178, respectively, is outstanding on the note payable, of
which $65 and $70, respectively, is current.
At December 26, 1997 and December 31, 1998, the Company had long-term notes
payable to certain stockholders of $844 and $812, respectively. The current
portion of these notes was $844 and $775 on December 26, 1997 and December 31,
1998, respectively.
Note 11. Income taxes
The Company and its affiliate have elected to be taxed under the provision of
Subchapter S of the Internal Revenue Code. Under the provisions, the Company
and affiliate does not pay federal corporate income taxes, but are subject to a
1.5% California corporate income tax. The stockholders of the Company and
affiliate report the Company's taxable income on their individual income tax
return.
Prior to the merger, ATPM, Inc. elected to be taxed as a "C" corporation and
after the merger elected to be taxed under the provision of Subchapter S of the
Internal Revenue Code. Under the provisions, the Company does not pay Federal
corporate income taxes, but is subject to a 1.5% California corporate income
tax.
For each of three years ended December 31, 1998, income tax expenses is
composed of the following:
1996 1997 1998
-------------------- ------------------- -------------------
Federal State Total Federal State Total Federal State Total
------- ----- ----- ------- ----- ----- ------- ----- -----
Current income tax
expense (benefit)...... $ 25 $ 82 $107 $ 4 $45 $ 49 $-- $ 2 $ 2
Change in deferred tax
assets for ATPM, Inc... (99) (38) (137) 116 21 137 -- -- --
Provision for deferred
taxes.................. -- 13 13 -- -- --
---- ---- ---- ---- --- ---- --- --- ---
Total income tax expense
(benefit):............. $(74) $ 44 $(30) $120 $79 $199 $-- $ 2 $ 2
==== ==== ==== ==== === ==== === === ===
Deferred income taxes are provided for the net tax effects of temporary
differences in the reporting of income for financial statement and income tax
reporting purposes. They arise principally from timing differences related to
the reporting of patronage dividends, and the capitalization of various
expenses required for taxation under Section 263A of the Internal Revenue Code.
F-41
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
At December 27, 1996, December 26, 1997 and December 31, 1998, the Company
has recorded deferred tax assets of approximately $543, $16 and $14, reflecting
the future deductibility of certain amounts not currently deductible.
Note 12. Common stock
Common stock of the Company includes the following: 10,000 shares of no par
Common Stock for Associated Brake Supply, Inc. in which 400 shares were issued
and authorized (valued at $4) on December 27, 1997 and December 31, 1998, and
10,000 shares of no par Common Stock for Onyx Distribution, Inc. in which 200
shares were issued and authorized (valued at $2) on December 27, 1997 and
December 31, 1998.
Note 13. Subsequent events
On January 11, 1999, HDA Parts System, Inc. purchased the Company. This was
accounted for as a purchase. The financial statements have not been effected by
this transaction.
F-42
VANTAGE PARTS
COMBINED BALANCE SHEETS
(Unaudited)
At December 31, 1997 and 1998
(amount in thousands)
1997 1998
------- -------
ASSETS
------
Current assets:
Cash......................................................... $ 275 $ 407
Accounts receivable, less allowance for doubtful accounts of
$444 and $371, respectively ................................ 5,632 5,157
Inventories.................................................. 7,594 9,848
Deferred income taxes........................................ 437 463
Other current assets......................................... 56 320
------- -------
Total current assets....................................... 13,994 16,195
------- -------
Property and equipment, net.................................. 1,335 1,304
Other assets................................................. 79 93
Goodwill, net of accumulated amortization of $11 and $105,
respectively................................................ 1,406 1,312
------- -------
Total assets............................................... $16,814 $18,904
======= =======
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Accounts payable............................................. $ 4,058 $ 3,015
Accrued liabilities.......................................... 535 470
------- -------
Total current liabilities.................................. 4,593 3,485
------- -------
Deferred taxes................................................. 17 50
Commitments and contingencies
Company equity:
Investments by and advances from CNF......................... 12,204 15,369
------- -------
Total liabilities and company equity....................... $16,814 $18,904
======= =======
See Notes to Financial Statements.
F-43
VANTAGE PARTS
COMBINED STATEMENTS OF INCOME
(Unaudited)
For the three years ended December 31, 1996, 1997 and 1998
(amounts in thousands)
1996 1997 1998
------- ------- -------
Trade sales.......................................... $27,032 $30,250 $45,156
Affiliate sales...................................... 6,239 7,622 9,856
------- ------- -------
Total sales...................................... 33,271 37,872 55,012
------- ------- -------
Operating expenses:
Cost of sales...................................... 26,506 30,552 43,820
General and administrative......................... 5,400 6,017 8,260
Depreciation....................................... 193 228 271
------- ------- -------
Total operating expenses......................... 32,099 36,797 52,351
------- ------- -------
Income from operations............................... 1,172 1,075 2,661
Interest (expense)................................... (435) (374) (585)
Other income......................................... 3 -- 11
------- ------- -------
Income before income taxes........................... 740 701 2,087
------- ------- -------
Income taxes......................................... 297 282 825
------- ------- -------
Net income and comprehensive income.................. $ 443 $ 419 $ 1,262
======= ======= =======
See Notes to Financial Statements.
F-44
VANTAGE PARTS
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands)
1996 1997 1998
------ ------- -------
Cash flows from operating activities:
Net income and comprehensive income................. $ 443 $ 419 $ 1,262
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 219 251 377
Gain on disposal of property and equipment........ (3) -- (11)
Change in operating assets and liabilities net of
effect of acquisitions:
Accounts receivable, net......................... (664) (1,094) 475
Other current assets............................. 28 17 (264)
Inventory........................................ 233 (916) (2,254)
Provision for deferred taxes..................... (132) (92) 7
Other assets..................................... 5 (50) (26)
Accounts payable................................. 1,442 2,373 (1,043)
Accrued and other liabilities.................... 94 (1,963) (65)
------ ------- -------
Net cash provided by (used in) operating
activities..................................... 1,665 (1,055) (1,542)
------ ------- -------
Cash flows from investing activities:
Purchases of property and equipment................. (386) (295) (240)
Proceeds from sale of property and equipment........ 5 -- 11
Acquisition of parts distributorships............... -- (1,652) --
------ ------- -------
Net cash used in investing activities........... (381) (1,947) (229)
------ ------- -------
Cash flows from financing activities:
(Decrease) increase in investment and advances from
CNF................................................ (1,450) 3,124 1,903
------ ------- -------
Net cash (used for) provided by financing
activities..................................... (1,450) 3,124 1,903
------ ------- -------
Net change in cash.................................. (166) 122 132
------ ------- -------
Cash at beginning of year........................... 319 153 275
------ ------- -------
Cash at end of year.................................. $ 153 $ 275 407
====== ======= =======
Supplemental information to cash flows:
Detail of acquisitions:
Fair value of assets................................ $ -- $ 2,425 $ --
Fair value of liabilities........................... -- 2,190 --
------ ------- -------
Net fair value of assets and liabilities............. -- 235 --
Goodwill recorded................................... -- 1,417 --
------ ------- -------
Net cash paid for acquisitions....................... $ -- $ 1,652 $ --
====== ======= =======
See Notes to Financial Statements.
F-45
VANTAGE PARTS
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
(amounts in thousands)
1. Summary of Significant Accounting Policies:
Description of Business
Vantage Parts ("the Company") is owned by CNF Transportation Inc. ("CNF").
The Company is comprised of the assets of CNF's wholly owned Vantage Parts
division and Vantage Parts of Illinois, a wholly owned subsidiary of CNF.
The Company is engaged in the wholesale, retail, and refurbishing of truck
parts throughout the United States. The company is headquartered in Portland,
Oregon and has stores throughout the United States.
The accompanying financial statements have been prepared at the direction of
HDA Parts System, Inc. and reflect the "carve-out" financial position, results
of operations and cash flows of the Company for the periods presented. Certain
corporate general and administrative expenses of CNF have been allocated to the
Company (Note 4) on various bases which, in the opinion of management, are
reasonable. However, such expenses are not necessarily indicative of, and it is
not practicable for management to estimate, the nature and level of expenses
which might have been incurred had the Company operated as a stand-alone
Company.
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.
Cash and cash equivalents
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
Inventories
Inventories consist of truck parts, and are valued at the lower of cost or
market. Cost is determined on the average cost method.
Property and equipment
Purchase of property and equipment, including additions and improvements and
expenditures for repairs and maintenance that significantly add to productivity
or extend the economic lives of the assets, are capitalized at cost and
depreciated on a straight-line basis over their estimated useful lives as
follows:
Building and improvements........................................ 10-25 years
Equipment and furniture.......................................... 3-10 years
F-46
VANTAGE PARTS
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)--(Continued)
(amounts in thousands)
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
Goodwill
Goodwill consists of the acquisition cost in excess of the fair value of the
net assets acquired in 1996 (see Note 3). Goodwill is amortized on a straight-
line basis over fifteen years.
Income Taxes
The Company is included as part of the consolidated U.S. federal income tax
return of CNF. The provision for income taxes is computed on the taxable income
of the Company on a stand-alone basis.
The Company accounts for income taxes based on the asset and liability
approach in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". The asset and liability approach requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the financial reporting and
the tax bases of assets and liabilities.
The liability for the current portion of the tax provision is transferred to
the Investments by and advances from CNF account at the end of each year. The
net asset or liability for deferred income taxes has been included in the
accompanying balance sheets.
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of purchase or within a specified period. Returned cores are either
returned to the vendor for credit or remanufactured.
2. Property and Equipment:
Property and equipment consists of the following:
December 31,
-------------
1997 1998
------ ------
Land.......................................................... $ 145 $ 145
Building and improvements..................................... 781 803
Equipment and furniture....................................... 1,612 1,779
Construction-in-progress...................................... -- 13
------ ------
2,538 2,740
Less accumulated depreciation................................. 1,203 1,436
------ ------
Property and equipment, net................................... $1,335 $1,304
====== ======
F-47
VANTAGE PARTS
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)--(Continued)
(amounts in thousands)
3. Acquisition:
On November 17, 1997, the Company, through CNF, acquired the net assets of
Commercial Trailer Parts and Supply Company ("CTPS"), and Consolidated Spring
and Alignment Company ("CSA"), parts distributorships with a facility in
Willowbrook, Illinois, for cash of $1,652. This acquisition was accounted for
in accordance with the purchase method of accounting, and accordingly the
results of operations of CTPS and CSA were included in the accompanying
statements of income from the acquisition date. The net assets of CTPS and CSA
were included in the accompanying balance sheets at values representing the
allocation of the purchase cost to such net assets. At acquisition, the fair
value of tangible assets and liabilities totaled $2,425 and $2,190,
respectively. The excess of purchase cost over the valuation of the net
tangible assets of $1,417 was recorded as goodwill and is being amortized on a
straight-line basis over 15 years.
The following summary presents unaudited pro forma financial information as
if the CTPS and CSA were acquired at the beginning of each year, rather than
from the date of acquisition, after giving effect to certain adjustments
including amortization of goodwill, interest expense and a normal charge for
income taxes. The pro forma financial summary is for information purposes only,
based on historical information, and does not necessarily reflect the actual
results that would have occurred nor is it necessarily indicative of future
results of operations of the combined.
1996 1997
------------------- -------------------
Actual Proforma Actual Proforma
------- ----------- ------- -----------
(unaudited) (unaudited)
Net sales.......................... $33,271 $46,878 $37,872 $51,239
Net income and comprehensive
income............................ 443 931 419 951
4. Related Party Transactions:
The Company has entered into sales transactions with CNF and its affiliates.
Revenues from these sales totaled $6,239, $7,622 and $9,856 for the years ended
December 31, 1996, 1997 and 1998, respectively. The Company's sales to CNF were
primarily at market prices as periodically determined by CNF.
CNF provides the Company certain management, data processing, human
resources, purchasing, credit, accounting and tax services. An allocation of
the estimated costs of these services is charged directly to the Company each
month by CNF using varying allocation bases (primarily number of transactions
processed or number of employees covered). The allocation process is consistent
with the methodology used by CNF to allocate costs of similar services provided
to its other business units. The allocated costs of these services, which
aggregated $456, $513 and $842 for the years ended December 31, 1996, 1997 and
1998, respectively, were reflected in general and administrative expenses in
the accompanying statements of operations.
CNF also provides certain employee benefits and insurance coverage to the
Company, including workers' compensation, health and welfare, pension and auto
liability. An allocation of the estimated costs of these services is charged
directly to the Company each month by CNF based on actual costs and using
various allocation methods. The allocation process is consistent with the
methodology used
F-48
VANTAGE PARTS
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)--(Continued)
(amounts in thousands)
by CNF to allocate costs of similar services provided to its other business
units. The allocated costs of these services, which aggregated $514, $757 and
$763 for the years ended December 31, 1996, 1997 and 1998, respectively, were
reflected in cost of sales in the accompanying statements of operations.
The Company is dependent on CNF for financing. CNF maintains a centralized
cash management system and substantially all cash receipts and disbursements
are recorded at the corporate level. The Company is charged or credited for the
net of cash receipts and disbursements each month. The Company incurs a monthly
charge for interest expense from CNF based on a formula which takes into
consideration the Company's rolling twelve month average balance in its
investments by and advances from CNF account, excluding the current year and
cumulative earnings amounts, multiplied by an interest rate. The Company
incurred a charge for interest expense from CNF of $435, $374 and $585 for the
years ended December 31, 1996, 1997 and 1998, respectively.
The following table sets forth the activity in the Company Equity account for
the years ended December 31, 1996, 1997 and 1998.
1996 1997 1998
------- ------- -------
Balance, beginning of year........................ $ 9,668 $ 8,661 $12,204
Net income and comprehensive income............... 443 419 1,262
Investments by and advances from (distributions
to) CNF.......................................... (1,450) 3,124 1,903
------- ------- -------
Balance, end of year.............................. $ 8,661 $12,204 $15,369
======= ======= =======
5. Income Taxes:
The provision for income taxes for the years ended December 31, 1996, 1997
and 1998 was as follows:
1996 1997 1998
---- ---- ----
Current income taxes:
Federal.................................................... $133 $153 $672
State...................................................... 32 37 160
Deferred income taxes........................................ 132 92 (7)
---- ---- ----
$297 $282 $825
==== ==== ====
The provision for income taxes differed from the United States statutory rate
for the years ended December 31, 1996, 1997 and 1998 for the following reasons:
1996 1997 1998
---- ---- ----
Statutory tax rate........................................... $251 $238 $710
State and local taxes, net of federal benefit................ 38 36 105
Non-deductible expenses...................................... 8 8 10
---- ---- ----
$297 $282 $825
==== ==== ====
F-49
VANTAGE PARTS
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)--(Continued)
(amounts in thousands)
Deferred tax assets (liabilities) were comprised of the following at December
31, 1997 and 1998:
1997 1998
---- ----
Gross deferred tax assets:
Employee benefits.............................................. $ 57 $ 64
Inventories.................................................... 204 246
Accounts receivable............................................ 173 145
Other.......................................................... 3 8
---- ----
437 463
Gross deferred tax liabilities:
Property and equipment......................................... (17) (50)
---- ----
Net deferred tax asset........................................... $420 $413
==== ====
6. Operating Leases:
The Company leases manufacturing, warehouse and office facilities, cars and
certain equipment. Future minimum lease payments required under operating
leases having initial or remaining noncancelable lease terms in excess of one
year are set forth below:
1999.................................................................. $ 513
2000.................................................................. 385
2001.................................................................. 266
2002.................................................................. 155
2003.................................................................. 148
Thereafter............................................................ 148
------
$1,615
======
Rental expense under operating leases amounted to $433, $484 and $507 for the
years ended December 31, 1996, 1997 and 1998, respectively.
7. Commitments and Contingencies:
The Company is involved in litigation from time to time incidental to the
conduct of its business; however, the Company is not currently a party to any
lawsuit or proceeding which, in the opinion of management, is likely to have a
material adverse effect on the financial position or results of operations of
the Company.
8. Subsequent Event:
On February 5, 1999, CNF entered into a letter of intent agreement with HDA
Parts System, Inc. ("HDA") whereby HDA will acquire the Company.
F-50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Truck and Trailer Parts, Inc. and Affiliate
In our opinion, the accompanying combined balance sheets and the related
combined statements of income and stockholders' equity and cash flows present
fairly, in all material respects, the combined financial position of Truck and
Trailer Parts, Inc. and Affiliate (the "Companies") at December 31, 1996 and
1997 and September 30, 1998, and the combined results of their operations and
their cash flows for the years ended December 31, 1996 and 1997 and the nine-
month period ended September 30, 1998 in conformity with generally accepted
accounting principles. These combined financial statements are the
responsibility of the Companies' management; our responsibility is to express
an opinion on these combined financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
December 30, 1998
Atlanta, Georgia
F-51
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
At December 31, 1996 and 1997 and at September 30, 1998
(amounts in thousands)
December 31,
------------- September 30,
1996 1997 1998
------ ------ -------------
ASSETS
------
Current assets
Cash and cash equivalents......................... $ 60 $ 18 $ 127
Accounts receivables.............................. 2,021 2,493 3,151
Notes receivable from related parties............. 22 237 --
Inventories....................................... 2,890 4,676 5,281
Prepaid expenses.................................. 72 19 102
Advances to shareholders and employees............ 2 2 2
------ ------ ------
Total current assets............................ 5,067 7,445 8,663
------ ------ ------
Property and equipment
Transportation equipment.......................... 544 646 607
Machinery and equipment........................... 324 404 455
Computer equipment................................ 202 307 309
Office furniture and equipment.................... 137 185 196
Leasehold improvements............................ 16 18 18
------ ------ ------
1,223 1,560 1,585
Less accumulated depreciation..................... 710 916 1,093
------ ------ ------
513 644 492
------ ------ ------
Other assets
Intangible assets, net............................ 48 45 43
Deposits.......................................... 11 17 17
------ ------ ------
59 62 60
------ ------ ------
Total assets.................................... $5,639 $8,151 $9,215
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Line of credit.................................... $ 943 $1,095 $2,725
Current portion of long-term debt................. 89 70 47
Accounts payable.................................. 1,281 2,401 2,416
Accrued liabilities............................... 447 324 268
------ ------ ------
Total current liabilities....................... 2,760 3,890 5,456
Long-term liabilities
Long-term debt.................................... 323 315 265
Notes payable to related parties.................. 132 129 80
------ ------ ------
455 444 345
Stockholders' equity................................ 2,424 3,817 3,414
------ ------ ------
Total liabilities and stockholders' equity...... $5,639 $8,151 $9,215
====== ====== ======
The accompanying notes are an integral part of these financial statements.
F-52
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME AND STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996 and 1997 and
for the Nine Month Period Ended September 30, 1998
(amounts in thousands)
Nine Month
Year Ended Period Ended
December 31 September 30,
---------------- -------------
1996 1997 1998
------- ------- -------------
Sales.......................................... $19,963 $24,011 $22,925
Cost of sales.................................. 16,223 19,697 18,702
------- ------- -------
Gross profit............................... 3,740 4,314 4,223
Selling, general and administrative expenses... 2,537 2,838 2,485
------- ------- -------
Income from operations..................... 1,203 1,476 1,738
Other income (expense)
Interest expense............................. (126) (85) (119)
Gain (loss) on disposal of fixed assets...... 12 10 (8)
Other income (expense)....................... 12 10 (8)
------- ------- -------
Income before income taxes................. 1,101 1,411 1,603
Income tax expense............................. 411 18 --
------- ------- -------
Net income and comprehensive income........ 690 1,393 1,603
Stockholders' equity--beginning of year........ 1,734 2,424 3,817
Distributions to stockholders.................. -- -- (2,006)
------- ------- -------
Stockholders' equity--end of period............ $ 2,424 $ 3,817 $ 3,414
======= ======= =======
The accompanying notes are an integral part of these financial statements.
F-53
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 and 1997 and
For the Nine Month Period Ended September 30, 1998
(amounts in thousands)
Year Ended Nine Month
December 31, Period Ended,
---------------- September 30,
1996 1997 1998
------- ------- -------------
Cash flows from operating activities
Net income and comprehensive income.......... $ 690 $ 1,393 $ 1,603
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities
Depreciation............................... 227 265 215
Amortization of intangibles................ 2 3 2
(Gain) loss on disposal of fixed assets.... (12) (10) 8
Changes in operating assets and liabilities
Accounts receivable...................... (14) (472) (658)
Notes receivable......................... 40 (215) 237
Inventories.............................. 594 (1,786) (605)
Prepaid expenses......................... 13 53 (83)
Other assets............................. (10) (6) --
Accounts payable......................... (176) 1,120 15
Accrued liabilities...................... 135 (123) (56)
------- ------- -------
Net cash provided by operating
activities............................ 1,489 222 678
------- ------- -------
Cash flows provided by (used for) investing
activities
Acquisition of property and equipment........ (315) (431) (86)
Purchase of a business....................... (619) -- --
Proceeds from sale of property and
equipment................................... 84 45 15
------- ------- -------
Net cash used for investing
activities............................ (850) (386) (71)
------- ------- -------
Cash flows provided by (used for) financing
activities
Principal payments of long-term debt......... (229) (110) (122)
Proceeds fom short term line of credit....... 7,154 7,755 8,463
Payments of short term line of credit........ (7,533) (7,603) (6,833)
Proceeds from issuance of long-term debt..... 18 80 --
Distribution to stockholders................. -- -- (2,006)
------- ------- -------
Net cash provided by (used for)
financing activities.................. (590) 122 (498)
------- ------- -------
Increase (decrease) in cash and cash
equivalents................................... 49 (42) 109
Cash and cash equivalents at beginning of
year.......................................... 11 60 18
------- ------- -------
Cash and cash equivalents at end of period..... $ 60 $ 18 $ 127
======= ======= =======
The accompanying notes are an integral part of these financial statements.
F-54
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1997 and
For the Nine Month Period Ended September 30, 1998
(amounts in thousands)
Note 1--Basis of Presentation
The accompanying combined financial statements include Truck and Trailer
Parts, Inc. (TTPI) and DHP Leasing, Inc. (the "Companies") which are under
common ownership. TTPI engages in the sale of replacement parts for heavy duty
trucks and trailers in the southeastern United States. DHP Leasing, Inc. leases
certain office and warehouse equipment to TTPI. The combined financial
statements include the accounts of the Companies as of December 31, 1996 and
1997 and September 30, 1998, and for each of the two years ended December 31,
1996 and 1997 and for the nine-month period ended September 30, 1998. All
material intercompany balances have been eliminated.
Effective September 30, 1998 the Companies were acquired by HDA Parts System,
Inc. These financial statements represent the Companies' financial position
prior to any effect of the acquisition.
Note 2--Summary of Significant Accounting Policies
Cash and cash equivalents
Cash and cash equivalents consist of highly liquid instruments with original
maturities of three months or less from date of purchase.
Accounts receivable
Substantially all of the accounts receivable are pledged as collateral for
the bank line of credit (See Note 4). Bad debts charged to operations amounted
to $77 and $106 for 1996 and 1997 and $27 for the nine-month period ended
September 30, 1998, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the average cost basis (See Note 3).
Property and equipment
Property and equipment is carried at cost less accumulated depreciation.
Improvements, which are capitalized, extend the useful life of the underlying
assets. Expenditures for maintenance and repairs are charged to expense as
incurred. The Companies provide for depreciation of property and equipment
using accelerated methods over estimated useful lives of five to seven years.
Other assets
Included in other assets are goodwill and noncompete agreements totaling $48,
$45, and $43 at December 31, 1996 and 1997 and September 30, 1998,
respectively. These assets are being
F-55
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
amortized over their estimated useful life of 15 years. Accumulated
amortization amounted to $2, $5 and $7 at December 31, 1996 and 1997 and
September 30, 1998, respectively.
Revenue recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of purchase or within a specified period. Returned cores are returned to
the vendor for credit.
Income taxes
On January 1, 1997 and future years TTPI, with the consent of its
stockholders, elected under the Internal Revenue Code to be taxed as an S
corporation. DHP Leasing, Inc., from its inception in 1995, elected to be taxed
as an S corporation. In lieu of corporate income taxes, the stockholders of an
S corporation are taxed on their proportionate share of the Companies' taxable
income. Therefore, no provision or liability for federal income taxes has been
included in the financial statements for 1997. Prior to 1997, deferred income
tax assets and liabilities were recognized for the expected future tax
consequences of temporary differences between the income tax and financial
reporting carrying amounts of assets and liabilities (See Note 7).
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 amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 3--Inventories
At December 31, 1996 and 1997 and September 30, 1998, inventories consist of
the following:
September 30,
1996 1997 1998
------ ------ -------------
Parts Inventory.................................. $2,643 $4,488 $4,955
Core Inventory................................... 247 188 326
------ ------ ------
$2,890 $4,676 $5,281
====== ====== ======
F-56
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
Note 4--Long-Term Debt
At December 31, 1996 and 1997 and September 30, 1998 long-term debt consists
of the following:
September 30,
1996 1997 1998
---- ---- -------------
8% unsecured note payable in monthly installments
of $4, including interest to 2006................ $322 $299 $282
8% note payable, secured by property and
equipment, payable in monthly installments of $2,
including interest to 2000....................... -- 63 30
7% note payable, secured by computer equipment
with a carrying value of $55 in 1996 and $44 in
1997............................................. 61 21 --
6.5% note payable, secured by a truck, payable in
monthly installments of $1, including interest in
1998............................................. 8 2 --
Other............................................. 21 -- --
---- ---- ----
Less current portion.............................. (89) (70) (47)
---- ---- ----
$323 $315 $265
==== ==== ====
The Companies had a maximum availability of $3,000 in 1996, 1997 and 1998 on
a line of credit from a bank with interest payable at the 30 day LIBOR (London
Interbank Offered Rate) plus 2 percent. The line is secured by accounts
receivable and inventories. The Companies' outstanding balance at December 31,
1996 and 1997 and September 30, 1998, was, $943, $1,095 and $2,725
respectively. The Companies paid $126, $85, and $119 interest during 1996,
1997, and 1998, respectively.
Note 5--Combined Stockholders' Equity
At December 31, 1996 and 1997 and September 30, 1998, combined stockholders'
equity consists of the following:
December 31,
-------------- September 30,
1996 1997 1998
------ ------ -------------
Truck and Trailer Parts, Inc.
Common stock, $0 par value, 10,000 shares
authorized, 1,069 shares issued and
outstanding................................ $ -- $ -- $ --
Additional paid-in capital.................. 55 55 55
Retained earnings........................... 2,371 3,728 3,297
------ ------ ------
2,426 3,783 3,352
DHP Leasing, Inc.
Common stock, voting, $0 par value, 150,000
shares authorized, 1,000 shares issued and
outstanding................................ -- -- --
Additional paid-in capital.................. 5 5 5
Retained earnings (deficit)................. (7) 29 57
------ ------ ------
Stockholders' equity.......................... $2,424 $3,817 $3,414
====== ====== ======
F-57
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
Note 6--Employee Benefit Plans
The Companies have a contributory employee benefit plan which is qualified
under Section 401(k) of the Internal Revenue Code. Substantially all employees
are eligible for participation in the plan. An employee may have up to 15% of
his/her salary withheld. The Companies may contribute for each participant a
matching contribution equal to a percentage of the participant's contribution.
The Companies' total expenses for contributions to the plan was $106, $179, and
$88, in 1996, 1997 and 1998, respectively.
Note 7--Commitments
The Companies lease office and warehouse space from related parties. Rent
expense to related parties was $133, $179, and $163 in 1996, 1997, and 1998,
respectively. The Companies also lease office and warehouse space from
unrelated parties. Rent expense to third-parties was $145, $125, and $122 in
1996, 1997, and 1998, respectively. Minimum future rental payments under these
leases for each of the next five years, and thereafter, and in the aggregate,
are as follows:
Related
Parties Other Total
------- ----- ------
1999.................................................... $224 $ 94 $ 318
2000.................................................... 224 86 311
2001.................................................... 144 82 225
2002.................................................... -- 83 83
2003 and thereafter..................................... -- 463 463
---- ---- ------
Total................................................. $592 $808 $1,400
==== ==== ======
Note 8--Related Party Transactions
Unsecured notes payable, on demand to related parties amounted to $132, $129,
and $80 at December 31, 1996 and 1997 and September 30, 1998, respectively.
Interest on these notes amounted to $10, $8, and $6 in 1996, 1997, and 1998,
respectively. Interest is payable at 1% above the prime rate.
Notes receivable from related parties amounted to $22 and $237 at December
31, 1996 and 1997, respectively. The interest rate was prime plus 2%.
F-58
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
Note 9--Income Taxes
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
Year
ended
December Nine-Month
31, Period Ended
---------- September 30,
1996 1997 1998
---- ---- -------------
Current expense
Federal.......................................... $366 $-- $ --
State............................................ 65 -- --
---- --- ----
Total current.................................... 431 -- --
Deferred expense (benefit)
Federal.......................................... $(17) $15 $ --
State............................................ (3) 3 --
---- --- ----
Total deferred................................... $411 $18 $ --
==== === ====
Income taxes in the amount of $356 and $38 were paid in 1996 and 1997,
respectively. In conjunction with the election on January 1, 1997 to be taxed
as an S corporation, Truck & Trailer Parts, Inc. (TTPI) recognized an expense
of $18 resulting from the transfer of TTPI's deferred tax assets to its
stockholders as explained in Note 1.
At December 31, 1997, significant components of TTPI's deferred tax assets
were as follows:
Deferred tax assets
Uniform capitalization................................................ $16
Capital loss carryforwards............................................ 2
---
$18
===
As described in Note 1, TTPI filed a Subchapter S election effective January
1, 1997. Therefore, there is no current income tax provision for the periods
ended December 31, 1997 and September 30, 1998. The amount included in the 1997
income statement for income tax expense reflects the write-off of the deferred
tax asset.
Note 10--Subsequent Event
Effective September 30, 1998, the Companies were sold to HDA Parts System,
Inc. The financial statements have not been effected by this transaction. As a
result of this transaction, the Companies' operating facilities in Greenville,
SC, and Dalton, GA, have been transferred to other companies held by HDA Parts
System, Inc.
F-59
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
HDA Parts System, Inc.
Chicago, Illinois
We have audited the accompanying balance sheet of Connecticut Driveshaft,
Inc. as of September 30, 1998, and the related statements of income, retained
earnings, and cash flows for the nine months ended September 30, 1998. The
financial statements are the responsibility of Connecticut Driveshaft, Inc.'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, the financial statements referred to above present fairly, in
all material respects, the financial position of Connecticut Driveshaft, Inc.
as of September 30, 1998, and the results of its operations and its cash flows
for the nine months ended September 30, 1998, in conformity with generally
accepted accounting principles.
/s/ McGladrey & Pullen, llp
Minneapolis, Minnesota
November 4, 1998
F-60
CONNECTICUT DRIVESHAFT, INC.
BALANCE SHEET
September 30, 1998
(In thousands, except share data)
ASSETS
------
Current Assets
Cash and cash equivalents............................................. $ 3
Receivables:..........................................................
Trade, less allowance for doubtful accounts of $268................. 1,824
Vendor.............................................................. 236
Inventories........................................................... 4,863
Other assets.......................................................... 31
------
Total current assets.............................................. 6,957
------
Equipment and Leasehold Improvements, at cost (Note 2)
Machinery and equipment............................................... 1,026
Vehicles.............................................................. 952
Furniture and fixtures................................................ 686
Leasehold improvements................................................ 202
------
2,866
Less accumulated depreciation......................................... 2,552
------
314
------
Cash Value of Life Insurance............................................ 247
------
Security Deposits....................................................... 14
------
$7,532
======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Bank note payable (Note 2)............................................ $1,713
Current maturities of long-term debt (Note 2)......................... 56
Accounts payable...................................................... 1,802
Accrued expenses...................................................... 376
Income taxes payable.................................................. 138
------
Total current liabilities......................................... 4,085
------
Long-Term Debt, less current maturities (Note 2)........................ 5
------
Commitments and Contingencies (Notes 4 and 5)...........................
Stockholders' Equity
Common stock, no par value; authorized 5,000 shares; issued and
outstanding 1,000 shares............................................. 1
Retained earnings..................................................... 3,441
------
3,442
------
$7,532
======
See Notes to Financial Statements.
F-61
CONNECTICUT DRIVESHAFT, INC.
STATEMENT OF INCOME
Nine Months Ended September 30, 1998
(In thousands)
Net sales.............................................................. $14,860
Cost of goods sold..................................................... 11,038
-------
Gross profit....................................................... 3,822
Operating expenses (Note 3)............................................ 3,497
-------
Operating income................................................... 325
-------
Nonoperating income (expense):
Interest income...................................................... 7
Interest expense..................................................... (126)
-------
(119)
-------
Income before income taxes......................................... 206
Provision for state income taxes....................................... (32)
-------
Net income......................................................... $ 174
=======
STATEMENT OF RETAINED EARNINGS
Nine Months Ended September 30, 1998
(In thousands)
Balance, beginning (Note 6)............................................. $3,267
Net income............................................................ 174
------
Balance, ending......................................................... $3,441
======
See Notes to Financial Statements.
F-62
CONNECTICUT DRIVESHAFT
STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 1998
(In thousands)
Cash Flows From Operating Activities
Net income............................................................ $ 174
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation........................................................ 131
Changes in assets and liabilities:
Trade receivables................................................. (80)
Vendor receivables................................................ (50)
Inventories....................................................... (241)
Other assets...................................................... 3
Accounts payable.................................................. (99)
Accrued expenses.................................................. 68
Income taxes payable.............................................. 20
-----
Net cash used in operating activities........................... (74)
-----
Cash Flows From Investing Activities
Increase in cash value of life insurance.............................. (16)
Purchase of equipment................................................. (22)
-----
Net cash used in investing activities........................... (38)
-----
Cash Flows From Financing Activities
Net borrowings on bank note payable................................... 171
Principal payments on long-term debt.................................. (63)
-----
Net cash provided by financing activities....................... 108
-----
Decrease in cash and cash equivalents........................... (4)
Cash and Cash Equivalents
Beginning............................................................. 7
-----
Ending................................................................ $ 3
=====
Supplemental Disclosures of Cash Flow Information
Cash payments for interest............................................ $ 125
Cash payments for income taxes........................................ 2
=====
See Notes to Financial Statements.
F-63
CONNECTICUT DRIVESHAFT, INC.
NOTES TO FINANCIAL STATEMENTS
(In Thousands)
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: The Company is a distributor of motor vehicle parts and
repairs and rebuilds driveshafts, brake shoes, and brake drums. The Company
operates out of six locations in Connecticut and Massachusetts. The Company
sells its products primarily to customers in the United States on credit terms
that the Company establishes for its customers.
A summary of the Company's significant accounting policies follows:
Cash and cash equivalents: For purposes of reporting the statement of cash
flows, the Company considers all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid debt instruments to
be cash equivalents. The Company maintains its cash accounts at levels which at
times may exceed federally insured limits. The Company has not experienced any
losses on these deposits.
Vendor receivables: The vendor receivables consist primarily of rebates to be
received from vendors for meeting certain purchase levels. The receivable
represents management's estimate of rebates to be received based on purchasing
activity calculated by rates included in the rebate agreements.
Inventories: Inventories are stated at the lower of cost (first in, first out
method) or market, and are comprised solely of purchased and finished goods.
Depreciation: Depreciation is computed over the estimated useful lives of the
respective assets using accelerated methods. The estimated useful lives by
class are as follows:
Years
-----
Machinery............................................................. 3-10
Vehicles.............................................................. 3-5
Furniture and fixtures................................................ 3-7
Leasehold improvements................................................ 10-40
Income taxes: The Company, with the consent of its stockholders, has elected
to be taxed under sections of federal income tax law, which provide that, in
lieu of corporation income taxes, the stockholders separately account for their
pro rata shares of the Company's items of income, deductions, losses, and
credits. As a result of this election, no federal income taxes have been
recognized in the accompanying financial statements. For state income tax
purposes, the Company is required to pay corporate income taxes, and
accordingly, these taxes have been reflected in the accompanying financial
statements.
Revenue recognition: Revenue is recognized when products are shipped. Sales
for core parts are recorded net of exchanges and core credits. Cores may be
exchanged for credit at the time of a sale or within a specified period.
Returned cores are either returned to the vendor for credit or remanufactured.
Segment information: In June 1998, the FASB issued SFAS Statement No 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement, effective for financial
F-64
CONNECTICUT DRIVESHAFT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands)
statements for fiscal years beginning after December 15, 1997, requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments. Generally, financial information is required
to be reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. Based on this
criteria, the Company has determined that it operates in one business segment,
that being the distribution of heavy duty vehicle parts in the United States.
Thus, all information required by SFAS No. 131 is included in the Company's
financial statements.
Fair value of financial instruments: The carrying amounts of cash, accounts
receivable, long-term debt, accounts payable, and accrued expenses approximate
fair value because of the short maturity of these items.
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. Actual results could differ from those estimates.
Note 2. Line of Credit and Long-Term Debt
The Company has a $2,000 line of credit available with a financial
institution. Borrowings under the line are limited to 75 percent of eligible
accounts receivable plus the lesser of 25 percent of inventory or $600. The
borrowings bear interest at the prime rate (8.25 percent at September 30, 1998)
and are secured by substantially all of the Company's assets and the guarantee
of the Company's majority shareholder and a related Company. The agreement
expires in November 1998. Borrowings under the line of credit at September 30,
1998, were $1,713. Subsequent to September 30, 1998, pursuant to the terms of
the Asset Purchase Agreement (see Note 5), the line of credit was paid in full.
Long-term debt: Long-term debt consists of the following at September 30,
1998:
Bank note payable, bearing interest at 8.07%, due in monthly
payments of $4 plus interest, through July 1999, secured by
substantially all assets of the Company and the guarantee of the
Company's majority shareholder and a related Company. Subsequent to
September 30, 1998, pursuant to the terms of the Asset Purchase
Agreement, the note was paid in full............................... $ 42
Note payable to officer, paid in full subsequent to September 30,
1998. Interest expense on this note was $1 during the nine months
ended September 30, 1998........................................... 5
9.9% Capital leases, due in monthly payments of $1, including
interest, through April 2000, secured by vehicles.................. 14
----
61
Less current portion................................................ (56)
----
$ 5
====
Note 3. Leasing Arrangements
The Company leases land and property on a month-to-month basis from related
parties, under five operating leases, requiring various monthly payments.
Subsequent to September 30, 1998, these operating leases were terminated
pursuant to the terms of the Asset Purchase Agreement noted in Note 5.
F-65
CONNECTICUT DRIVESHAFT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands)
The Company also leases land, property, and vehicles from unrelated parties,
under operating leases, requiring various monthly payments. The leases expire
at various dates through June 2001. Certain of these leases include an
additional annual payment for property taxes.
Future minimum lease payments on operating lease commitments to unrelated
parties at September 30, 1998, are as follows:
Fiscal years ending:
1999.................................................................. $140
2000.................................................................. 58
2001.................................................................. 38
----
$236
====
Rent expense was approximately $365 during the nine months ended September
30, 1998, including approximately $241 to related parties.
Note 4. Commitments and Contingencies
Profit sharing: The Company maintains a 401(k) profit sharing plan for
eligible employees. Under the terms of the plan, employees may contribute up to
18 percent of their salary to the plan, not to exceed the maximum allowed by
the IRS. The Company can make discretionary matching contributions. The Company
made matching contributions of $19 to the plan during the nine months ended
September 30, 1998.
Litigation: The Company is a defendant in various lawsuits. In the opinion of
management, these suits are without substantial merit and should not result in
judgments, which in the aggregate, would have a material adverse effect on the
Company's financial statements.
Note 5. Asset Purchase Agreement
On November 4, 1998, the stockholders of Connecticut Driveshaft, Inc. entered
into an asset purchase agreement (the Agreement) with HDA Parts System, Inc.
(HDA) to sell substantially all of the assets of the Company in exchange for
the assumption of certain liabilities of the Company for a purchase price of
$7,300 cash. The acquisition cost includes the assignment of the purchase of
land and buildings from the owners.
In connection with the Agreement, HDA entered into employment agreements with
two shareholders of the Company. These employment agreements can be terminated
by either party at any time. In addition, HDA entered into three-year
noncompete agreements with two shareholders of the Company.
Note 6. Prior-Period Adjustment
The financial statements as presented include prior-period adjustments for
inventory, accounts receivable, vendor receivables, and accrued expenses. The
gross effect on retained earnings at October 1, 1997, was approximately $909.
The effect on retained earnings at October 1, 1997, net of tax, was
approximately $791.
F-66
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
HDA Parts System, Inc.
Chicago, Illinois
We have audited the accompanying balance sheets of Truckparts, Inc. as of
September 30, 1997 and 1998, and the related statements of income, retained
earnings, and cash flows for the years then ended. The financial statements are
the responsibility of Truckparts, Inc.'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 Truckparts, Inc. as of
September 30, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ McGladrey & Pullen, llp
Minneapolis, Minnesota
December 18, 1998
F-67
TRUCKPARTS, INC.
BALANCE SHEETS
September 30, 1997 and 1998
(In thousands)
1997 1998
------ ------
ASSETS
------
Current Assets
Cash and cash equivalents....................................... $ 134 $ 580
Receivables:
Trade, less allowance for doubtful accounts of $97 (Note 7)... 1,531 1,638
Vendor........................................................ 436 414
Inventories..................................................... 3,237 3,585
Deferred taxes (Note 4)......................................... -- 78
Other assets.................................................... 53 53
------ ------
Total current assets........................................ 5,391 6,348
------ ------
Equipment and Leasehold Improvements, at cost
Transportation equipment (Note 2)............................... 562 623
Leasehold improvements.......................................... 143 143
Furniture and fixtures.......................................... 206 281
------ ------
911 1,047
Less accumulated depreciation................................... 541 611
------ ------
370 436
------ ------
$5,761 $6,784
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Notes payable to related parties (Note 3)....................... $ 497 $ 555
Current maturities of long-term debt............................ 101 84
Accounts payable................................................ 2,167 2,451
Accrued expenses................................................ 205 380
Deferred taxes (Note 4)......................................... 100 --
Income taxes payable............................................ 588 1,015
------ ------
Total current liabilities..................................... 3,658 4,485
------ ------
Long-Term Debt, less current maturities (Note 2).................. 56 69
------ ------
Deferred Taxes (Note 4)........................................... 10 13
------ ------
Commitments and Contingencies (Notes 5 and 8)
Stockholders' Equity (Note 6)
Preferred stock................................................. 295 295
Class A common stock............................................ 1 1
Class B common stock............................................ 10 10
Retained earnings............................................... 1,731 1,911
------ ------
2,037 2,217
------ ------
$5,761 $6,784
====== ======
See Notes to Financial Statements.
F-68
TRUCKPARTS, INC.
STATEMENTS OF INCOME
Years Ended September 30, 1997 and 1998
(In thousands)
1997 1998
------- -------
Net sales (Note 7)............................................ $13,204 $13,460
Cost of goods sold............................................ 9,455 9,093
------- -------
Gross profit.............................................. 3,749 4,367
Operating expenses (Note 3)................................... 3,324 3,703
------- -------
Operating income.......................................... 425 664
------- -------
Nonoperating income (expense):
Interest income............................................. 14 17
Gain on sale of equipment................................... 5 7
Interest expense (Note 3)................................... (48) (62)
------- -------
(29) (38)
------- -------
Income before income taxes................................ 396 626
------- -------
Provision for income taxes (Note 4):
Currently payable........................................... 178 621
Deferred.................................................... (13) (175)
------- -------
165 446
------- -------
Net income................................................ $ 231 $ 180
======= =======
STATEMENTS OF RETAINED EARNINGS
Years Ended September 30, 1997 and 1998
(In thousands)
1997 1998
------ ------
Balance, beginning (Note 9)...................................... $1,500 $1,731
Net income..................................................... 231 180
------ ------
Balance, ending.................................................. $1,731 $1,911
====== ======
See Notes to Financial Statements.
F-69
TRUCKPARTS, INC.
STATEMENTS OF CASH FLOWS
Years Ended September 30, 1997 and 1998
(In thousands)
1997 1998
----- -----
Cash Flows From Operating Activities
Net income..................................................... $ 231 $ 180
Adjustments to reconcile net income to net cash provided by
(used in)
operating activities:
Gain on sale of equipment.................................... (5) (7)
Depreciation................................................. 94 121
Deferred taxes............................................... (13) (175)
Changes in assets and liabilities:
Trade receivables.......................................... (155) (107)
Vendor receivables......................................... (111) 22
Inventories................................................ (271) (348)
Other assets............................................... 13 --
Accounts payable........................................... 13 284
Accrued expenses........................................... 16 175
Income taxes payable....................................... 73 427
----- -----
Net cash provided by (used in) operating activities...... (115) 572
----- -----
Cash Flows From Investing Activities
Purchase of equipment.......................................... (154) (195)
Proceeds from disposal of equipment............................ 22 15
----- -----
Net cash used in investing activities.................... (132) (180)
----- -----
Cash Flows From Financing Activities
Principal payments on long-term debt........................... (97) (123)
Borrowings on long-term debt................................... 421 177
----- -----
Net cash provided by financing activities................ 324 54
----- -----
Increase in cash and cash equivalents.................... 77 446
Cash and Cash Equivalents
Beginning...................................................... 57 134
----- -----
Ending......................................................... $ 134 $ 580
===== =====
Supplemental Disclosures of Cash Flow Information
Cash payments for interest..................................... $ 48 $ 62
Cash payments for income taxes................................. 108 208
===== =====
See Notes to Financial Statements.
F-70
TRUCKPARTS, INC.
NOTES TO FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: The Company is a distributor of motor vehicle parts. The
Company operates out of four locations in Connecticut. The Company sells its
products primarily to customers in the United States on credit terms that the
Company establishes for its customers.
A summary of the Company's significant accounting policies follows:
Cash and cash equivalents: For purposes of reporting the statement of cash
flows, the Company considers all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid debt instruments to
be cash equivalents. The Company maintains its cash accounts at levels which at
times may exceed federally insured limits. The Company has not experienced any
losses on these deposits.
Vendor receivables: The vendor receivables consist primarily of rebates to be
received from vendors for meeting certain purchase levels. The receivable
represents management's estimate of rebates to be received based on purchasing
activity calculated by rates included in the rebate agreements. In connection
with these receivables, the Company is required to have a letter of credit in
the amount of the receivable.
Inventories: Inventories are stated at the lower of cost (first in, first out
method) or market, and are comprised solely of purchased goods.
Depreciation: Depreciation is computed over the estimated useful lives of the
respective assets using accelerated methods. The estimated useful lives by
class are as follows:
Years
-----
Transportation equipment............................................... 3-5
Furniture and fixtures................................................. 3-7
Leasehold improvements................................................. 8-10
Income taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
Revenue recognition: Revenue is recognized when products are shipped. Sales
for core parts are recorded net of exchanges and core credits. Cores may be
exchanged for credit at the time of a sale or within a specified period.
Returned cores are returned to the vendor for credit.
Segment information: In June 1998, the FASB issued SFAS Statement No 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement, effective for financial
F-71
TRUCKPARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share and Per Share Data)
statements for fiscal years beginning after December 15, 1997, requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments. Generally, financial information is required
to be reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. Based on this
criteria, the Company has determined that it operates in one business segment,
that being the distribution of heavy duty vehicle parts in the United States.
Thus, all information required by SFAS No. 131 is included in the Company's
financial statements.
Fair value of financial instruments: The carrying amounts of cash, accounts
receivable, long-term debt, accounts payable, and accrued expenses approximate
fair value because of the short maturity of these items.
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. Actual results could differ from those estimates.
Note 2. Long-Term Debt
Long-term debt: Long-term debt consists of several capitalized leases with
various monthly installments and interest rates ranging from 4.8 to 11.0
percent. The leases mature at various dates through September 2001, and are
secured by transportation equipment.
Aggregate maturities on capital lease obligations at September 30, 1998, are
as follows:
Capital Leases
-------------------------------------------
Total Minimum Less Amount Present Value of
Lease Representing Net Minimum
Payments Interest Lease Payments
------------- ------------ ----------------
Years ending September 30:
1999......................... $ 91 $ 7 $ 84
2000......................... 55 2 52
2001......................... 17 1 17
---- --- ----
$163 $10 $153
==== === ====
Subsequent to September 30, 1998, approximately $73 of these leases were paid
in full.
Note 3. Related-Party Transactions and Leasing Arrangements
The Company has two notes payable with related parties which were paid in
full subsequent to year end. Interest expense relating to these notes payable
was $29 and $48 the years ended September 30, 1997 and 1998, respectively.
One note was unsecured and accrued interest at 10 percent. The other note was
secured by computer equipment and accrued interest at 8.75 percent.
F-72
TRUCKPARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share and Per Share Data)
The Company leases vehicles, buildings, and property from related and
unrelated parties, under operating leases, requiring various monthly payments.
The leases expire at various dates through September 2008. Certain of these
leases include an additional annual payment for property taxes.
Future minimum lease payments on operating lease commitments at September 30,
1998, are as follows:
Related Unrelated
Parties Parties Total
------- --------- ------
1999................................................ $ 250 $110 $ 360
2000................................................ 250 92 342
2001................................................ 253 43 296
2002................................................ 275 -- 275
2003................................................ 277 -- 277
Thereafter.......................................... 1,090 -- 1,090
------ ---- ------
$2,395 $245 $2,640
====== ==== ======
Rent expense was approximately $273 and $297 in 1997 and 1998, respectively,
including $197 and $212, respectively, to related parties.
Note 4. Income Taxes
The components of income tax expense charged to operations for the years
ended September 30, 1997 and 1998, are as follows:
1997 1998
---- -----
Current tax expense:
Federal....................................................... $132 $ 477
State......................................................... 46 144
Deferred tax benefit............................................ (13) (175)
---- -----
$165 $ 446
==== =====
The Company's income tax expense varies from the amount of income tax
determined by applying the U.S. federal income tax rate to pretax income for
the years ended September 30, 1997 and 1998, due to the following:
1997 1998
---- ----
Computed "expected" tax expense.................................. $134 $213
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal benefit..................... 32 50
Nontaxable items............................................... 4 7
Nondeductible interest and underpayment penalties.............. (5) 176
---- ----
$165 $446
==== ====
F-73
TRUCKPARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share and Per Share Data)
Net deferred tax assets consisted of the following components as of September
30, 1997 and 1998:
1997 1998
----- -----
Deferred tax assets:
Allowance for doubtful accounts.............................. $ 19 $ 20
Accrued compensation and other............................... 21 95
Inventory reserve............................................ 42 123
----- -----
82 238
----- -----
Deferred tax liabilities:
Depreciation................................................. (10) (13)
Rebates receivable........................................... (182) (160)
----- -----
(192) (173)
----- -----
$(110) $ 65
===== =====
The Company's deferred tax amounts have been classified in the accompanying
financial statements as follows:
1997 1998
----- -----
Current assets................................................. $ 82 $ 238
Current liabilities............................................ (182) (160)
----- -----
Net current asset (liability).................................. (100) 78
Noncurrent liabilities......................................... (10) (13)
----- -----
$(110) $ 65
===== =====
Note 5. Commitments and Contingencies
Profit sharing: The Company maintains a 401(k) profit sharing plan for
eligible employees. Under the terms of the plan, employees may contribute up to
the maximum allowed by the IRS. The Company can make discretionary matching
contributions. No discretionary contributions were made to the plan during 1997
or 1998.
Pension plan: The Company maintains a defined contribution pension plan for
eligible employees. Under the terms of the plan, employees may contribute up to
10 percent of their compensation. The Company can make discretionary
contributions to the plan. Company contributions to the plan for the years
ended September 30, 1997 and 1998, were $117 and $143, respectively.
Note 6. Components of Stockholders' Equity
The Company has authorized the issuance of 2,000 shares of 6 percent
noncumulative, nonparticipating, nonvoting preferred stock, with a par value of
$500 per share. The Company has issued 590 shares of preferred stock, which is
entitled to dividends of $30 per share before any dividends are paid on the
Class A common stock of the Company. The preferred stock is callable at
F-74
TRUCKPARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share and Per Share Data)
the option of the Company at $500 per share and is preferred in liquidation
over all share of Class A common stock and Class B common stock.
The Company has authorized the issuance of 2,000 shares of Class A voting
common stock, with a par value of $1 per share. The Company has issued 1,000
shares of Class A common stock which, after the dividend preference of the
preferred stock and the Class B common stock, can participate in dividends as
described below.
In addition, the Company has authorized the issuance of 1,000 shares of Class
B voting common stock, with a par value of $100 per share. The Company has
issued 100 shares of Class B common stock, which is entitled to dividends of
$50 per share before any dividends are paid on preferred stock or Class A
common stock. After dividends are paid on the Class B common stock and
preferred stock, the Class B common stock can participate in further dividends
jointly with the Class A common stock in proportion with their respective par
values.
The Class B common stock and Class A common stock shall participate in
liquidation in accordance with their respective par values after the
liquidation preference of the preferred stock.
Note 7. Major Customers
Trade receivables and sales as of and for the years ended September 30, 1997
and 1998, included amounts to a major customer. Sales to this customer were
approximately 17 and 10 percent of total sales in 1997 and 1998, respectively.
Accounts receivable from this customer as of September 30, 1998, were
approximately $25.
Note 8. Stock Purchase Agreement
On December 17, 1998, the shareholders of Truckparts, Inc. entered into a
stock purchase agreement (the Agreement) with HDA Parts System, Inc. (HDA) to
sell all of the outstanding stock of the Company for a purchase price of
$11,700, less the outstanding balance of the related-party note payable
outstanding at the date of closing, plus certain shares of common and preferred
stock of an entity controlled by HDA. Under the terms of the Agreement, the
notes payable to related parties (see Note 3) were paid in full.
In connection with the Agreement, HDA also entered into three-year employment
agreements and five-year noncompete agreements with two shareholders of
Truckparts, Inc. In addition, HDA entered into a consulting agreement whereby
the consultant will be paid $56 per year for two years.
Note 9. Prior-Period Adjustment
The financial statements as presented include prior-period adjustments for
inventory, accounts receivable, vendor receivables, and accrued expenses. The
gross effect on retained earnings at October 1, 1996, and net income for the
year ended September 30, 1997, was approximately $1,240. The effect on retained
earnings at October 1, 1996, and net income for 1997, net of tax, was
approximately $617.
F-75
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
HDA Parts System, Inc.
Chicago, Illinois
We have audited the accompanying combined balance sheet of Tisco, Inc. and
Tisco of Redding, Inc. as of September 30, 1998, and the related combined
statements of income, stockholders' equity, and cash flows for the year then
ended. The financial statements are the responsibility of the Companies'
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 combined financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
combined financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Tisco,
Inc. and Tisco of Redding, Inc. as of September 30, 1998, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/ McGladrey & Pullen, llp
Minneapolis, Minnesota
December 12, 1998
F-76
TISCO, INC. AND TISCO OF REDDING, INC.
COMBINED BALANCE SHEET
September 30, 1998
(In thousands)
ASSETS (Note 2)
---------------
Current Assets
Cash.................................................................. $ 355
Receivables:
Trade accounts, less allowance for doubtful accounts of $31......... 976
Vendor rebates (Note 1)............................................. 324
Inventories........................................................... 2,300
Prepaid expenses...................................................... 11
------
Total current assets.............................................. 3,966
------
Other Assets............................................................ 89
------
Property and Equipment
Transportation equipment.............................................. 258
Equipment............................................................. 201
Furnitures and fixtures............................................... 88
Leasehold improvements................................................ 5
------
552
Less accumulated depreciation......................................... 423
------
129
------
$4,184
======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Current maturities of long-term debt (Note 2)......................... $ 49
Accounts payable...................................................... 879
Accrued expenses:
Compensation and employee benefits.................................. 44
Profit sharing contribution (Note 4)................................ 47
Sales tax........................................................... 55
Other............................................................... 68
------
Total current liabilities......................................... 1,142
------
Long-Term Debt, less current maturities (Note 2)........................ 262
------
Commitments and Contingencies (Notes 2, 3, and 6)
Stockholders' Equity
Common stock (Note 5)............................................... 109
Unearned compensation............................................... (37)
Retained earnings................................................... 2,708
------
2,780
------
$4,184
======
See Notes to Combined Financial Statements.
F-77
TISCO, INC. AND TISCO OF REDDING, INC.
COMBINED STATEMENT OF INCOME
Year Ended September 30, 1998
(In thousands)
Net sales............................................................... $8,641
Cost of sales........................................................... 6,146
------
Gross profit........................................................ 2,495
Operating expenses...................................................... 1,492
------
Operating income.................................................... 1,003
Nonoperating income (expense):
Interest expense (Note 2)............................................. (17)
Gain on sale of property and equipment................................ 1
------
Income before income taxes.......................................... 987
Provision for state income taxes........................................ 21
------
Net income.......................................................... $ 966
======
See Notes to Combined Financial Statements.
F-78
TISCO, INC. AND TISCO OF REDDING, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
Year Ended September 30, 1998
(In thousands)
Common Unearned Retained
Stock Compensation Earnings Total
------ ------------ -------- ------
Balance, September 30, 1997 $109 $ (50) $2,064 $2,123
Net income............................... -- -- 966 966
Amortization of unearned compensation.... -- 13 -- 13
Distributions to stockholders............ -- -- (322) (322)
---- ----- ------ ------
Balance, September 30, 1998 $109 $ (37) $2,708 $2,780
==== ===== ====== ======
See Notes to Combined Financial Statements.
F-79
TISCO, INC. AND TISCO OF REDDING, INC.
COMBINED STATEMENT OF CASH FLOWS
Year Ended September 30, 1998
(In thousands)
Cash Flows From Operating Activities
Net income............................................................ $ 966
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization....................................... 67
Deferred compensation............................................... 13
Gain on sale of property and equipment.............................. (1)
Changes in current assets and liabilities:
Receivables....................................................... (400)
Inventories....................................................... (731)
Prepaid expenses and other assets................................. 14
Accounts payable.................................................. 240
Accrued expenses.................................................. 99
-----
Net cash provided by operating activities....................... 267
-----
Cash Flows From Investing Activities
Purchases of property and equipment................................... (28)
Proceeds from sale of equipment....................................... 2
-----
Net cash used in investing activities........................... (26)
-----
Cash Flows From Financing Activities
Proceeds from long-term borrowings.................................... 250
Principal payments on long-term borrowings............................ (55)
Distributions to stockholders......................................... (323)
-----
Net cash used in financing activities........................... (128)
-----
Net increase in cash............................................ 113
Cash
Beginning............................................................. 242
-----
Ending................................................................ $ 355
-----
Supplemental Disclosure of Cash Flow Information
Cash payments for interest............................................ $ 13
Cash payments for state income taxes.................................. 4
=====
Supplemental Schedule of Noncash Investing and Financing Activities
Assets acquired under capital lease obligations....................... $ 26
=====
See Notes to Combined Financial Statements.
F-80
TISCO, INC. AND TISCO OF REDDING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: Tisco, Inc. and Tisco of Redding, Inc. (together referred
to herein as the Companies) are distributors of motor vehicle parts and operate
out of four locations in northern California. The Companies sell their products
primarily to customers in the United States on credit terms established for its
customers on an individual and industry practice basis.
A summary of the Companies' significant accounting policies follows:
Principles of combination: The accompanying combined financial statements
include the accounts of Tisco, Inc. and Tisco of Redding, Inc., which are
related through common ownership. Management has elected to reflect these
financial statements as combined for the period presented. All material,
intercompany balances and transactions have been eliminated in combination.
Cash: The Companies maintain cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Companies have not experienced any
losses in such accounts.
Vendor rebates receivables: The vendor rebate receivables consist primarily
of rebates to be received from vendors for meeting certain purchase levels. The
receivable represents management's estimate of rebates to be received based on
purchasing activity calculated by rates included in the rebate agreements.
Inventories: Inventories are stated at the lower of cost (first in, first out
method) or market, and are comprised solely of purchased parts.
Property and equipment: Property and equipment are recorded at cost.
Depreciation is computed over the estimated useful lives of the respective
assets using straight-line and accelerated methods. The estimated useful lives
by class are as follows:
Years
-----
Transportation equipment............................................... 5-7
Equipment, furniture and fixtures...................................... 5-7
Leasehold improvements................................................. 39
Income taxes: The Companies have elected to be taxed for federal and state
income tax purposes as an S Corporation. Under these provisions, the
stockholders' share in the net income of the Companies is reportable on their
individual tax returns. Therefore, these statements do not include any
provision for federal corporation income taxes and as the section of the
California tax law requires, the state income taxes are at a reduced rate. The
Companies intend to make distributions to the stockholders in amounts that will
at least allow them to pay the personal income taxes on the taxable income of
the Companies.
Revenue recognition: Revenue is recognized when products are shipped. Sales
for core parts are recorded net of exchanges and core credits. Cores may be
exchanged for credit at the time of a sale or within a specified period.
Returned cores are returned to the vendor for credit.
F-81
TISCO, INC. AND TISCO OF REDDING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share Data)
Segment information: In June 1998, the FASB issued SFAS Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement, effective for financial statements for fiscal years beginning after
December 15, 1997, requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. Generally,
financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. Based on this criteria, the Company has determined that
it operates in one business segment, that being the distribution of heavy duty
vehicle parts in the United States. Thus, all information required by SFAS No.
131 is included in the Company's financial statements.
Fair value of financial instruments: The carrying amounts of cash, accounts
receivable, long-term debt, accounts payable, and accrued expenses approximate
fair value because of the short maturity of these items.
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. Actual results could differ from those estimates.
Note 2. Line of Credit and Long-Term Debt
Line of credit: The Companies combined have a $400 working capital agreement
with a financial institution. The borrowings bear interest at the prime rate
plus 1 percent (9.5 percent at September 30, 1998) and are secured by
substantially all of the Companies' assets and the guarantee of the Companies'
majority shareholder. The agreement expires in January 1999. There were no
outstanding borrowings under the line of credit at September 30, 1998.
Long-term debt: Long-term debt consists of the following at September 30,
1998:
Tisco of
Tisco, Inc. Redding, Inc. Total
----------- ------------- -----
Note payable, bearing interest at 7%, due
in monthly payments of $3, including
interest, through March, 2008, guaranteed
by the Companies' majority stockholder and
secured by certain assets of the
stockholder............................... $246 $-- $246
Capital leases, finance company, bearing
interest of 7.9% to 10.0%, due in varying
monthly payments, including interest,
through January 2002, secured by
transportation equipment.................. 39 20 59
Other...................................... 4 2 6
---- ---- ----
289 22 311
Less current portion....................... (42) (7) (49)
---- ---- ----
$247 $ 15 $262
==== ==== ====
F-82
TISCO, INC. AND TISCO OF REDDING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share Data)
The approximate aggregate annual maturities are as follows:
Years ending September 30:
1999................................................................ $ 49
2000................................................................ 40
2001................................................................ 35
2002................................................................ 30
2003................................................................ 27
Thereafter.......................................................... 130
----
$311
====
Minimum future lease obligations under these leases at September 30, 1998,
are as follows:
Years ending September 30:
1999.................................................................. $25
2000.................................................................. 22
2001.................................................................. 14
2002.................................................................. 6
---
Total minimum lease payments............................................ 67
Less amounts represent interest......................................... (8)
---
$59
===
Note 3. Related-Party Transactions and Leasing Arrangements
Debt guarantee: The Companies have guaranteed payment of a stockholder note
payable with a financial institution. The outstanding balance of the note at
September 30, 1998, was approximately $44. All payments are current.
Property leases: The Companies lease space on a month-to-month basis pursuant
to four operating leases, requiring various monthly payments. Three leases are
with related parties. Rent expense was approximately $100 in 1998, including
$75 to related parties.
Note 4. Profit Sharing and Money Purchase Plan
The Companies maintain a profit sharing plan and a money purchase plan for
eligible employees. Under the terms of the profit sharing plan the Companies
can make discretionary contributions. The money purchase plan requires a
minimum contribution equal to 6 percent of each participant's total
compensation plus 5.7 percent of each participant's compensation for the plan
year in excess of the 100 percent of the taxable wage base in effect on the
first day of the plan year. No employee contributions are allowed under the
plans. The Companies' contributions to the plans for the year ended September
30, 1998, were $47.
F-83
TISCO, INC. AND TISCO OF REDDING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share Data)
Note 5. Stockholders' Equity
Common stock: Common stock consists of the following at September 30, 1998:
Common
Stock
------
Tisco, Inc. 100,000 shares authorized; no par value; 25,000 shares
issued and outstanding; stated at ........................... $ 9
Tisco of Redding, Inc. 500,000 shares authorized; no par value; 127
shares issued and outstanding, stated at .................... 100
----
$109
====
Stock bonus plan: One of the Companies adopted a stock bonus plan on January
1, 1995. Under this plan, a restricted stock award of common stock was made to
an employee. The fair market value of these shares was determined to be $84.
The stock award is vesting over seven years, as long as the employee
continues employment with the Company. The resulting amortization of unearned
compensation recognized for the year ended September 30, 1998, was $12.
Note 6. Stock Purchase Agreement
Subsequent to September 30, 1998, the shareholders of the Companies entered
into a stock purchase agreement (the Agreement) with HDA Parts System, Inc.
(HDA) to sell all of the outstanding stock of the Companies. Terms of the
Agreement provide, in part, the following:
. Stock purchase price of $5,750 in cash plus common and preferred stock
of City Holdings, Inc., an HDA-controlled entity.
. Three (3) year noncompete agreements with the two officer/shareholders
of the Companies.
. The guaranteed note payable (Note 3) will be paid in full and the
unearned compensation of $37 relating to the 1995 stock bonus plan (Note
5) will be fully vested.
F-84
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything to you other than the information contained
in this prospectus. You must not rely on unauthorized information or
representations.
This prospectus does not offer to sell or ask for offers to buy any of the
securities in any jurisdiction where it is unlawful, where the person making
the offer is not qualified to do so, or to any person who cannot legally be
offered the securities.
The information in this prospectus is current only as of the date on its
cover, and may change after that date. For any time after the cover date of
this prospectus, we do not represent that our affairs are the same as
described or that the information in this prospectus is correct--nor do we
imply those things by delivering this prospectus or selling securities to you.
---------------
TABLE OF CONTENTS
Page
------
Disclosure regarding forward-looking statements........................ inside
cover
Summary................................................................ 1
Risk factors........................................................... 9
The exchange offer..................................................... 16
Use of proceeds........................................................ 25
Capitalization ........................................................ 25
Unaudited pro forma condensed financial data........................... 26
Selected historical financial and operating data....................... 34
Management's discussion and analysis of financial condition and results
of operations......................................................... 35
Business............................................................... 41
Management............................................................. 50
Principal stockholders................................................. 53
Certain relationships and transactions................................. 54
Description of revolving credit facility............................... 58
Description of notes................................................... 60
Material United States federal income tax consequences for United
States holders........................................................ 108
Plan of distribution................................................... 109
Legal matters.......................................................... 109
Independent auditors................................................... 110
Available information.................................................. 110
Index to financial statements.......................................... F-1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
---------------
PROSPECTUS
---------------
HDA PARTS SYSTEM, INC.
Offer to Exchange its
12% Senior Subordinated
Notes due 2005
which have been registered
under the Securities Act of
1933, for its outstanding
12% Senior Subordinated Notes due 2005
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification Of Directors And Officers.
The Alabama Business Corporation Act gives Alabama corporations broad powers
to indemnify their present and former directors and officers against expenses
incurred in the defense of any lawsuit to which they are made parties by reason
of being or having been such directors or officers. In general, the Business
Corporation Act requires indemnification of such directors and officers who
successfully defend actions and permits indemnification in most other
situations at the option of the corporation, if certain statutory standards are
met. The Business Corporation Act also authorizes Alabama corporations to buy
directors' and officers' liability insurance.
Subject to some exceptions and deductions, we insure our and our
subsidiaries' directors and officers against liabilities which they may incur
in their capacity as directors and officers under liability insurance policies
carried by us.
In general, the Business Corporation Act will allow indemnification if the
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Our Amended and Restated Articles of Incorporation further
require a finding by the disinterested members of the board of directors, or by
special legal counsel selected by the disinterested members of the board of
directors, that the director or officer met the standards of conduct discussed
above before indemnification is allowed, unless the director or officer has
been successful in defending the proceeding. The Business Corporation Act and
our Articles of Incorporation provide that, if the officer or director is
successful in defending the proceeding, indemnification is mandatory without
reference to any standard of conduct. On the other hand, indemnification is not
permitted with respect to litigation brought by or in the right of the
corporation in which the officer or director is adjudged liable to the
corporation or in connection with any proceeding in which the officer or
director is adjudged liable on the basis that personal benefit was improperly
received by him. Under the Business Corporation Act, this restriction does not
apply, however, to the extent that the court in which the action is brought
determines that the officer or director is entitled to indemnity for particular
expenses.
Our Articles of Incorporation limit a director's liability to the corporation
or its stockholders for money damages to the full extent permitted by the
Business Corporation Act, provided that the director's liability will not be
limited with regard to: (1) any financial benefit received by a director to
which he is not entitled; (2) an intentional infliction of harm on the
corporation or the stockholders; (3) unlawful payments of dividends; (4) an
intentional violation of criminal law or (5) a breach of the director's duty of
loyalty.
In addition, our Articles of Incorporation provide that we may indemnify our
employees or agents who are not officers or directors, at the option of the
board of directors, to the extent authorized by the Business Corporation Act.
The Business Corporation Act, generally, provides that employees and agents may
be indemnified to the same extent as officers and directors.
II-1
Item 21. Exhibits And Financial Statement Schedules.
(a) Exhibits
A list of exhibits filed with this registration statement on Form S-4 is set
forth on the Exhibit Index and is incorporated in this Item 21 by reference.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts for the years ended December
31, 1996, 1997 and 1998 is filed with this registration statement.
Item 22. Undertakings.
(a) The undersigned registrants hereby undertake that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrants
pursuant to the provisions, described under Item 15 above, 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 registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrants will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into this 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.
(c) The undersigned registrants hereby undertake 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.
(d) The undersigned registrants hereby undertake:
(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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed
II-2
that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(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;
Provided, however, that paragraphs (a)(l)(i) and (a)(l)(ii) above do not
apply if the registration statement is on Form S-3 or Form S-8 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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 that 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.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Deerfield, State of
Illinois, on April 8, 1999.
HDA PARTS SYSTEM, INC.
CITY TRUCK HOLDINGS, INC.
/s/ John J. Greisch
By: _________________________________
Name: John J. Greisch
President and Chief Executive
Officer
Title:
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on April 8, 1999.
Signature Title
--------- -----
/s/ John J. Greisch President and Chief Executive Officer and
____________________________________ Director (Principal Executive Officer)
John J. Greisch
/s/ John P. Miller Vice President, Chief Financial Officer
____________________________________ and Secretary (Principal Financial and
John P. Miller Accounting Officer)
/s/ Frederick J. Warren Chairman of the Board of Directors
____________________________________
Frederick J. Warren
/s/ W. Louis Bissette III Director
____________________________________
W. Louis Bissette III
/s/ W. Larry Clayton Director
____________________________________
W. Larry Clayton
II-4
Signature Title
--------- -----
/s/ Christopher A. Laurence Director
____________________________________
Christopher A. Laurence
/s/ Martin R. Reid Director
____________________________________
Martin R. Reid
/s/ James T. Stone Director
____________________________________
James T. Stone
/s/ David S. Seewack Director
____________________________________
David S. Seewack
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Deerfield, State of
Illinois, on April 8, 1999.
PARTS OF CITY TRUCK AND TRAILER
ALABAMA, INC.
PARTS OF CITY TRUCK AND TRAILER
TENNESSEE, INC.
CITY FRICTION, INC.
TRUCK & TRAILER PARTS, INC.
/s/ John P. Miller
By: _________________________________
Name: John P. Miller
Title: Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on April 8, 1999.
Signature Title
--------- -----
/s/ W. Larry Clayton President & Secretary (Principal
____________________________________ Executive Officer) and Director
W. Larry Clayton
/s/ John P. Miller Vice President (Principal Financial and
____________________________________ Accounting Officer)
John P. Miller
/s/ Frederick J. Warren Director
____________________________________
Frederick J. Warren
/s/ Christopher A. Laurence Director
____________________________________
Christopher A. Laurence
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Deerfield, State of
Illinois, on April 8, 1999.
CITY TRUCK AND TRAILER PARTS OF
ALABAMA, L.L.C.
By: HDA Parts System, Inc., its sole
member
/s/ John J. Greisch
By: _________________________________
Name: John J. Greisch
President and Chief Executive
Officer
Title:
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on April 8, 1999.
Signature Title
--------- -----
/s/ John J. Greisch President and Chief Executive Officer and
____________________________________ Director (Principal Executive Officer)
John J. Greisch
/s/ John P. Miller Vice President, Chief Financial Officer
____________________________________ and Secretary (Principal Financial and
John P. Miller Accounting Officer)
/s/ Frederick J. Warren Chairman of the Board of Directors
____________________________________
Frederick J. Warren
/s/ W. Louis Bissette III Director
____________________________________
W. Louis Bissette III
/s/ W. Larry Clayton Director
____________________________________
W. Larry Clayton
II-7
Signature Title
--------- -----
/s/ Christopher A. Laurence Director
____________________________________
Christopher A. Laurence
/s/ Martin R. Reid Director
____________________________________
Martin R. Reid
/s/ James T. Stone Director
____________________________________
James T. Stone
/s/ David S. Seewack Director
____________________________________
David S. Seewack
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Deerfield, State of
Illinois, on April 8, 1999.
TRUCK & TRAILER PARTS, INC.
/s/ John P. Miller
By: _________________________________
Name: John P. Miller
Title: Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on April 8, 1999.
Signature Title
--------- -----
/s/ Robert L. Pope President (Principal Executive Officer)
____________________________________ and Director
Robert L. Pope
/s/ John P. Miller Secretary (Principal Financial and
____________________________________ Accounting Officer) and Director
John P. Miller
/s/ John J. Greisch Director
____________________________________
John J. Greisch
/s/ W. Louis Bissette III Director
____________________________________
W. Louis Bissette III
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Deerfield, State of
Illinois, on April 8, 1999.
TRUCKPARTS, INC.
/s/ John J. Greisch
By: _________________________________
Name: John J. Greisch
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on April 8, 1999.
Signature Title
--------- -----
/s/ John J. Greisch Chief Executive Officer (Principal
____________________________________ Executive Officer) and Director
John J. Greisch
/s/ John P. Miller Vice President of Finance (Principal
____________________________________ Financial and Accounting Officer) and
John P. Miller Director
/s/ Anthony N. Vingiano Director
____________________________________
Anthony N. Vingiano
/s/ James T. Stone Director
____________________________________
James T. Stone
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Deerfield, State of
Illinois, on April 8, 1999.
ASSOCIATED BRAKE SUPPLY, INC.
ASSOCIATED TRUCK CENTER, INC.
ONYX DISTRIBUTION, INC.
ASSOCIATED TRUCK PARTS OF NEVADA,
INC.
FREEWAY TRUCK PARTS OF WASHINGTON,
INC.
/s/ John P. Miller
By: _________________________________
Name: John P. Miller
Title:Vice President and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on April 8, 1999.
Signature Title
--------- -----
/s/ David S. Seewack President (Principal Executive Officer)
____________________________________ and Director
David S. Seewack
/s/ John P. Miller Vice President and Secretary (Principal
____________________________________ Financial and Accounting Officer)
John P. Miller
/s/ John J. Greisch Director
____________________________________
John J. Greisch
/s/ Christopher A. Laurence Director
____________________________________
Christopher A. Laurence
/s/ Frederick J. Warren Director
____________________________________
Frederick J. Warren
/s/ Scott Spiwak Director
____________________________________
Scott Spiwak
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Deerfield, State of
Illinois, on April 8, 1999.
TISCO, INC.
TISCO OF REDDING, INC.
/s/ John P. Miller
By: _________________________________
Name: John P. Miller
Title:Vice President and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on April 8, 1999.
Signature Title
--------- -----
/s/ Gregory D. Mathis President (Principal Executive Officer)
____________________________________ and Director
Gregory D. Mathis
/s/ John P. Miller Vice President and Secretary (Principal
____________________________________ Financial and Accounting Officer)
John P. Miller
/s/ John J. Greisch Director
____________________________________
John J. Greisch
/s/ Christopher A. Laurence Director
____________________________________
Christopher A. Laurence
/s/ Frederick J. Warren Director
____________________________________
Frederick J. Warren
II-12
SCHEDULE II
CITY TRUCK HOLDINGS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(amounts in thousands)
Additions
---------------------------------
Balance at Charged to Charged to Balance at
Description beginning of period costs and expenses other accounts Deductions end of period
----------- ------------------- ------------------ -------------- ---------- -------------
Allowance for doubtful
accounts:
For the year ended
December 31, 1996.... $ 13 $132 $ 132 $ 13
==== ==== ====== ===== ======
For the year ended
December 31, 1997.... $ 13 $121 $ 121 $ 13
==== ==== ====== ===== ======
For the year ended
December 31, 1998.... $ 13 $134 $1,002(1) $ -- $1,149
==== ==== ====== ===== ======
Inventory valuation
allowance:
For the year ended
December 31, 1996.... $350 $108 $ 108 $ 350
==== ==== ====== ===== ======
For the year ended
December 31, 1997.... $350 $150 $ 150 $ 350
==== ==== ====== ===== ======
For the year ended
December 31, 1998.... $350 $440 $2,682(1) $ 123 $3,349
==== ==== ====== ===== ======
- ---------------------
(1) These additions relate to businesses acquired during the year.
EXHIBIT INDEX
Exhibit
Number Exhibit Description
------- -------------------
3.1 Amended and Restated Articles of Incorporation of HDA Parts System,
Inc.
3.2 Bylaws of HDA Parts System, Inc.
4.1 Indenture, dated as of July 31, 1998, by and among HDA Parts System,
Inc., the guarantors identified therein and U.S. Trust Company of
California, N.A., as trustee.
4.1.1 First Supplemental Indenture, dated as of September 30, 1998 among
Truck & Trailer Parts, Inc., City Truck Holdings, Inc., the Company,
any other Guarantors party thereto, and Parent party thereto and U.S.
Trust Company, National Association, as trustee
4.1.2 Second Supplemental Indenture, dated as of December 21, 1998 among
Truckparts, Inc., the Company, any other Guarantors party to the
Indenture referred to therein and U.S. Trust Company, National
Association, as trustee
4.1.3 Third Supplemental Indenture, dated as of January 14, 1999 among
Associated Brake Supply, Inc., Associated Truck Center, Inc., Onyx
Distribution, Inc., Associated Truck Parts of Nevada, Inc., Freeway
Truck Parts of Washington, Inc., Tisco, Inc. and Tisco of Redding,
Inc. the Company, any other Guarantors party to the Indenture
referred to therein and U.S. Trust Company, National Association, as
trustee
4.2 A/B Exchange Registration Rights Agreement, dated as of July 31, 1998,
by and among HDA Parts System, Inc. the guarantors identified therein
and Donaldson, Lufkin & Jenrette Securities Corporation and
BancAmerica Robertson Stephens.
5 Opinion of Latham & Watkins
10.1 Revolving Credit Facility, dated as of June 1, 1998, by and among Bank
of America National Trust & Savings Association, as administrative
agent and syndication agent, and The Industrial Bank of Japan,
Limited, New York Branch, as documentation agent.
10.1.1 First Amendment and Consent, dated as of December 30, 1998, to the
Credit Agreement, dated as of June 1, 1998, among HDA Parts System,
Inc., the several banks and other financial institutions or entities
from time to time parties to the Credit Agreement, the Syndication
Agent, the Documentation Agent and Arranger named therein and Bank of
America National Trust and Savings Association,, as Administrative
Agent.
10.2 Stock Purchase Agreement, dated as of May 29, 1998, by and among BABF
City Corp., City Truck and Trailer Parts, Inc. and its Affiliates and
Merger Subsidiaries named therein and the Shareholders and Members of
City Truck and Trailer Parts, Inc. and its Affiliates and Merger
Subsidiaries
10.3 Asset Contribution Agreement, dated as of June 19, 1998, by and among
City Truck and Trailer Parts, Inc. and Stone Heavy Duty, Inc.,
Ashland Automotive Parts, Inc., Fred A. Stone, Jr., James T. Stone
and Thomas D. Stone.
10.4 Contribution and Purchase Agreement, dated as of September 30, 1998,
by and among City Truck Holdings, Inc., HDA Parts System, Inc. and
Truck & Trailer Parts, Inc., DHP Leasing, Inc., the Shareholders of
Truck & Trailer Parts, Inc. and DHP Leasing, Inc.
10.5 Asset Purchase Agreement, dated as of October 31, 1998, by and among
HDA Parts System, Inc. and Tampa Brake & Supply Co., Inc. and the
Shareholders of Tampa Brake & Supply Co., Inc.
10.6 Asset Purchase Agreement, dated as of November 4, 1998, by and among
HDA Parts System, Inc. and Connecticut Driveshaft, Inc. and the
Shareholders of Connecticut Driveshaft, Inc.
10.7 Stock Purchase Agreement, dated as of December 17, 1998, by and among
City Truck Holdings, Inc., HDA Parts System, Inc. and Truckparts,
Inc., and the Shareholders of Truckparts, Inc.
Exhibit
Number Exhibit Description
------- -------------------
10.8 Stock Purchase Agreement, dated as of January 11, 1999, by and among
City Truck Holdings, Inc., HDA Parts System, Inc. and Associated
Brake Supply, Inc. and the Shareholders of Associated Brake Supply,
Inc.
10.9 Stock Purchase Agreement, dated as of January 12, 1999, by and among
City Truck Holdings, Inc., HDA Parts System, Inc. and the
Shareholders of Tisco, Inc. and Tisco of Redding, Inc.
10.10 Trademark License Agreement, dated as of July 6, 1998, by and between
HD America, Inc. and City Truck & Trailer Parts, Inc.
10.11 Corporate Development and Administrative Services Agreement, dated as
of May 29, 1998, by and between Brentwood Private Equity, L.L.C. and
City Truck & Trailer Parts, Inc.
10.12 Stock Contribution Agreement, dated as of August 27, 1998, by and
among the parties identified on the signature page thereto and City
Truck Holdings, Inc.
10.13 Stockholders' Agreement, dated as of September 30, 1998, by and among
the parties listed on the signature pages attached thereto and City
Truck Holdings, Inc.
10.14 Stock Purchase Agreement, dated as of July 1, 1998, by and between
City Truck & Trailer Parts, Inc. and John J. Greisch.
10.15 Stock Purchase Agreement, dated as of July 10, 1998, by and between
HDA Parts System, Inc. and John P. Miller
10.16 Stock Purchase, Vesting and Repurchase Agreement, dated as of October
19, 1998, between City Truck Holdings, Inc. and A. William Cavalle
10.17 Form of Stock Purchase, Vesting and Repurchase Agreement
10.18 Stock Purchase Agreement, dated as of September 30, 1998, by and
between City Truck Holdings, Inc. and Martin R. Reid
10.19 Stock Purchase Agreement, dated as of March 5, 1999, by and between
City Truck Holdings, Inc. and John J. Greisch
10.20 Stock Purchase Agreement, dated as of March 5, 1999, by and between
City Truck Holdings, Inc. and John P. Miller
10.21 Stock Purchase Agreement, dated as of March 5, 1999, by and between
City Truck Holdings, Inc. and Anthony William Cavaile
12 Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of HDA Parts System, Inc.
23.1 Consent of Latham & Watkins (included in Exhibit 5)
23.2 Consent of PriceWaterhouseCoopers LLP
23.3 Consent of McGladrey & Pullen, LLP
24 Powers of Attorney (included on the signature pages of this
registration statement)
25* Statement of Eligibility and Qualification on Form T-1 of U.S. Trust
Company of California, N.A., as trustee
99.1* Letter of Transmittal with respect to the Exchange Offer
99.2* Notice of Guaranteed Delivery with respect of the Exchange Offer
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*To be filed by amendment.