-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UB5Yd8SHQFJaTA/kV1LSRwR/cz+t/gznKs3V32WOkTW40k8094q+7kR3C5RfYkzR CnLh+Hdns6TU77wm6BPjDA== 0000950144-97-009730.txt : 19970912 0000950144-97-009730.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950144-97-009730 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19970603 FILED AS OF DATE: 19970902 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DISCOUNT AUTO PARTS INC CENTRAL INDEX KEY: 0000889409 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO & HOME SUPPLY STORES [5531] IRS NUMBER: 591447420 STATE OF INCORPORATION: FL FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11276 FILM NUMBER: 97674312 BUSINESS ADDRESS: STREET 1: 4900 FRONTAGE RD S CITY: LAKELAND STATE: FL ZIP: 33802 BUSINESS PHONE: 9412842010 MAIL ADDRESS: STREET 1: 4900 FRONTAGE RD S CITY: LAKELAND STATE: FL ZIP: 33802 10-K 1 DISCOUNT AUTO PARTS, INC. FORM 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 3, 1997 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-11276 DISCOUNT AUTO PARTS, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) FLORIDA 59-1447420 ----------- ------------ (State or other jurisdiction of incorporation) (IRS Employer Identification No.) 4900 Frontage Road South, Lakeland, Florida 33815 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (941) 687-9226 ------------------------------ (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- --------------------- Common Stock, Par Value $.01 Per Share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non- affiliates of the registrant. Approximately $161,238,000 as of August 22, 1997 (based upon the closing sales price reported by the New York Stock Exchange and published in the Wall Street Journal on August 22, 1997) Indicate the number of shares outstanding of each of the registrant's classes of common equity, as of the latest practicable date: Common Stock, par value $.01 per share -- 16,594,003 shares as of August 22, 1997 1 2 Documents incorporated by reference: Part II Annual Report to Stockholders for the Fiscal Year Ended June 3, 1997. Part III Definitive Proxy Statement for the Company's Annual Meeting of Stockholders presently scheduled for October 7, 1997. 2 3 DISCOUNT AUTO PARTS, INC. ANNUAL REPORT ON FORM 10-K for the YEAR ENDED JUNE 3, 1997 TABLE OF CONTENTS
PART I........................................................................................................... 1 ITEM 1. BUSINESS......................................................................................... 1 ITEM 2. PROPERTIES....................................................................................... 16 ITEM 3. LEGAL PROCEEDINGS................................................................................ 17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.............................................. 18 PART II.......................................................................................................... 18 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................ 18 ITEM 6. SELECTED FINANCIAL DATA.......................................................................... 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............ 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................................... 19 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........................................................... 19 PART III......................................................................................................... 19 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................... 19 ITEM 11. EXECUTIVE COMPENSATION........................................................................... 19 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................................................. 20 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................... 20 PART IV.......................................................................................................... 20 ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.............................................................. 20
3 4 PART I ITEM 1. BUSINESS GENERAL Discount Auto Parts, Inc. ("Discount Auto Parts" or the "Company") is one of the Southeast's leading specialty retailers of automotive replacement parts, maintenance items and accessories for the "Do-It-Yourself" ("DIY") consumer. As of June 3, 1997, the Company operated a chain of 400 Discount Auto Parts stores, with 327 stores located throughout Florida, 49 stores in Georgia, 16 stores in Alabama, four stores in South Carolina and four stores in Mississippi. Each Discount Auto Parts store carries an extensive line of brand name replacement "hard" parts, such as starters, alternators, brake pads, brake shoes and water pumps, for domestic and imported cars, vans and light trucks, as well as brand name maintenance items and accessories. The Company is not in the business of selling tires or performing automotive repairs or installations. Discount Auto Parts has achieved significant growth in each of its five latest fiscal years. Net sales have increased to $405.2 million in fiscal 1997 from $176.8 million in fiscal 1993 and income from operations has increased to $47.2 million in fiscal 1997 from $21.8 million in fiscal 1993. The number of stores has increased to 400 as of the end of fiscal 1997 from 158 at the beginning of fiscal 1993. Comparable store sales have increased an average of 5.7% during the past five fiscal years, but declined .6% in fiscal 1997, when excluding bulk commercial sales of R-12 freon. The Company's success has resulted primarily from implementing clear and effective operating and growth strategies. The Company's operating strategies include building a highly knowledgeable and motivated work force, developing customers for a lifetime, attaining leading market share in every one of its existing markets and utilizing advanced information systems. As for growth strategies, the Company believes in continuing with new store openings, standardized new store formats and constantly seeking to improve merchandising concepts. Effectively executing these strategies has helped the Company provide customers with superior service, value and parts selection at conveniently located, well-designed stores. Discount Auto Parts was founded with a single 800 square foot store in Winter Haven, Florida by Herman Fontaine, his son, Denis L. Fontaine, and other members of the Fontaine family. Since the Company's inception, members of the Fontaine family, including Herman Fontaine, Denis L. Fontaine and Peter J. Fontaine, managed the Company and played key roles in formulating and carrying out its business strategies. Herman Fontaine served as President from 1972 until 1978 and as the Chairman of the Board from 1972 until 1986, at which time he became Chairman Emeritus. Although he no longer serves as an executive officer or director, the Company continues to have the benefit of Herman Fontaine's advice and counsel. Denis L. Fontaine assumed the roles of Chief Executive Officer and President in 1978 and held such positions until his death in June 1994. Peter J. Fontaine, who has been with the Company for over 22 years and previously served as Chief Operating Officer, was elected as President and Chief Executive Officer in 1994. Effective February 1, 1997, William (Bill) C. Perkins assumed the position of President from Peter J. Fontaine while Peter J. Fontaine remained Chief Executive Officer. Bill has served and continues to also serve as Chief Operating Officer. Bill also served as Chief Financial Officer from 1992 to 1996. Bill has been with the Company for over 14 years. The Company completed an initial public offering in August 1992 raising approximately $64.1 million in net proceeds and a secondary offering in October 1995, which generated net proceeds to the Company of $75.4 million. The Fontaine family continues to control approximately 49% of the Company's outstanding Common Stock. In July 1997, the Company entered into a settlement agreement to resolve certain litigation related to commercial sales of R-12 freon, and recorded a related charge to earnings of approximately $20.5 million in the fourth quarter of fiscal 1997. Please see Item 3 Legal Proceedings for further disclosure. 4 5 INDUSTRY OVERVIEW The automotive aftermarket refers to products and services purchased for motor vehicles after the original sale of the vehicles such as accessories, maintenance and repairs, replacement parts, fuel, etc. According to the Automotive Parts and Accessories Association (APAA), an industry group that compiles statistics on aftermarket activity, in 1995 the market for domestic automotive aftermarket products and services represented approximately $188 billion in annual sales. Lang Marketing, which publishes Lang Report, a monthly analysis of the vehicle products industry, estimates the overall automotive aftermarket earnings growth rate to be 3.8%, and retail auto parts chain growth rate to be approximately 8%. The Company believes there are several main drivers affecting the automotive aftermarket industry. These include, (i) increases in the average number of miles driven per vehicle each year, (ii) aging vehicle fleet; and (iii) an increase in the average price tag of repair tickets. The automotive aftermarket distribution channels are highly fragmented. The Company believes, however, that the industry is consolidating as national and regional specialty retail chains gain market share at the expense of smaller independent operators and less specialized mass merchandisers. Automotive specialty retailing chains with multiple locations in given market areas, such as the Company, are believed to enjoy competitive advantages in purchasing, distribution, advertising and marketing compared to most small independent retailers. In addition, the increase in the number of automotive replacement parts caused by the significant increase in recent years in the variety of domestic and imported vehicle makes and models has made it difficult for smaller independent retailers and less specialized mass merchandise chains to maintain inventory selection broad enough to meet customer demands. The Company believes this has created a competitive advantage for those automotive specialty retailing chains, such as Discount Auto Parts, that have the financial resources and distribution capability to stock and deliver an inventory selection broad enough to meet customer needs. OPERATING STRATEGY BUILDING THE TEAM Guided by the principle "First build the team, then the team will build the business", Discount Auto Parts has made a commitment to building and retaining employees who are highly motivated and knowledgeable team players. The Company considers itself to be a highly selective employer, screening prospective team members to identify individuals of high integrity who are motivated to succeed. The Company considers its ability to recruit, train and retrain its employees a key aspect of its success. The Company provides extensive team-building training programs which focus on providing superior customer service, automotive parts knowledge, selling skills, store operational procedures and personal development. A typical training program encompasses a two year time period. Initially, new team members participate in an intensive one week training program administered by a district training specialist at specially designated training stores. Following such orientation, new members are assigned to a specific store. At the store new team members receive a substantial amount of on-the-job training from store management on advanced aspects of daily store operations, parts knowledge and the use of the Company's computerized parts catalog. Thereafter, team members are required to complete the "Parts Pro" certification which provides advanced training on technical customer service skills, such as turning drums and rotors, testing and charging batteries and testing starters and alternators. In order to qualify for promotion, team members are required to complete the "Tech 2000" training program which consists of courses and hands on instruction relating to product knowledge, trouble-shooting, problem solving and related selling techniques. The Company's vendors also provide formal training that emphasizes specific automotive systems and related parts. Individuals identified as potential store managers attend `DAP University", a five-day training program at the Company's headquarters and distribution center covering all major aspects of the Company's training courses. In addition to these formal training programs, senior team members continually provide informal training during frequent store visits. 5 6 Financial incentives and stock ownership are also an important element of the Company's team building focus. All team members, particularly store managers, assistant managers and team leaders, are eligible for financial incentives based on meeting monthly, quarterly and annual sales and other performance related goals that are in large part to be under the control of the respective team members. The Company's Team Members Stock Purchase Plan gives all full time team members who have been employed for more than one year the ability to purchase shares of the Company's Common Stock for 85% of the then current market price during specified offering periods each year. In addition, the Company has a Team Members Profit Sharing Plan whereby the employees who have been with the Company for more than one year can make contributions and with respect to which the Company provides certain matching benefits. Options to purchase shares of the Company's Common Stock under the Company's stock option plans are also awarded to certain store managers and other key team members. The Company believes in providing opportunities for the promotion of qualified team members. The Company's "promote from within" policy helps attract, motivate and retain quality team members. The 43 team members comprising the senior management team (including 21 Division Managers) average approximately 34 years of age with more than 12 years of experience with the Company. All 21 Division Managers and the majority of the remaining members of the senior management team started with the Company in Discount Auto Parts stores as part time or full time team members and average more than 12 years with Discount Auto Parts. The Company's 403 store managers average more than four years experience with the Company. The Company encourages its employees to propose any new ideas which will help the Company run more efficiently and/or improve customer satisfaction. Team members who present new ideas that are successfully implemented are rewarded with incentive compensation. The Company believes that a high level of involvement from team members increases motivation, company loyalty and overall performance. The Company's employee-focused strategy has resulted in the Company maintaining what is believed to be one of the highest sales per team member in the industry. In addition, management believes that the Company has one of the lowest employee turnover rates in the industry. The low turnover rate tends to lead to superior customer service and product knowledge, which are key factors in attracting customers in the DIY automotive industry. DEVELOPING CUSTOMERS FOR A LIFETIME The Company believes that the attributes most valued by DIY consumers are superior customer service, convenient and accessible neighborhood locations, broad product selection and competitive everyday low prices. In an effort to develop DIY customers for a lifetime the Company is committed to developing, maintaining and improving these key value drivers. Superior Customer Service. In the DIY consumer market, customer service plays a major role in a customer's store loyalty. Therefore, the Company places a strong emphasis on customer service. The Company promotes a corporate culture which is designed to "always puts the customers first" and emphasizes knowledgeable and courteous service. Through its extensive training programs, the Company's team members develop the technical expertise necessary to provide customers with superior service. Customer service is further enhanced by a variety of programs that the Company offers such as in-store computerized catalogs which assist in the selection of parts; free testing of starters, alternators, electronic components, coils, voltage regulators and batteries; free battery charging; installation assistance for batteries, windshield wipers and selected other products; free use of specialty tools for do-it-yourself installation; free oil and battery recovery programs under which Discount Auto Parts accepts used oil and batteries for proper disposal; liberal return policies; and lifetime warranties on certain parts. The Company's special order program (the "S.O. Program") assures the broadest availability of its merchandise at each of the Company's stores. The S.O. Program provides the Company on-line access to numerous third party warehouse distributors with which the Company has a relationship. If merchandise is unavailable at a particular store or one of the Company's express stores, Company team members can order a items on-line and generally have it available for the customer within 24 hours. 6 7 The Company's stores are open seven days per week, 364 days per year, typically from 8 a.m. to 9 p.m. Some higher volume stores have extended hours in order to better serve the DIY customer. Convenient and Accessible Neighborhood Locations. Locating stores at sites that are convenient and accessible to its customers is an essential part of its customer service philosophy. The Company believes that over 50% of its customers view convenience and accessibility as the number one driver in choosing an automotive parts store. Given this customer priority, one of the Company's strategies to cluster stores in neighborhood locations in order to offer its customers increased convenience and accessibility. The Company's strategy is to draw customers from a 3 mile radius. Management believes that the Company's relatively low cost structure gives it the ability to profitably operate stores in close proximity, thereby offering customers more convenience than most of its competitors. In addition, the Company attempts to build new stores in locations that are easily accessible from a number of major roadways and arteries. Broad Product Selection. The Company offers a wide selection of automotive replacement parts, maintenance items and accessories designed to cover a broad range of specific vehicle applications. Depending on the store format, a typical Discount Auto Parts store carries between 12,800 and 20,000 SKUs . The Company's operating strategy emphasizes DIY automotive replacement hard parts. To support this strategy, over the last several years, and particularly during fiscal 1995, the Company substantially increased the number of replacement hard parts carried in its stores. Replacement hard parts sold at the Company's stores include brake shoes, brake pads, belts, hoses, starters, alternators, batteries, shock absorbers, struts, CV half shafts, carburetors, transmission parts, clutches, electronic components, and suspension, chassis and engine parts. The Company also offers complete engines which are stocked at its distribution center. Other products include maintenance items, such as oil, antifreeze, brake and power steering fluids, engine additives, car paints, protectants and waxes; and accessories, such as floor mats, seat covers and car stereos and speakers. Although an emphasis is placed on brand names, the Company also carries a number of its own private label products under the "Discount Auto Parts" and "Power Pak" names. Other private label product names include "Power Force", "Hydro Force", "Stopping Force", and "Driving Force". Some of the private label products include hard parts, such as batteries, starters, alternators, brakes, water pumps, clutches, hoses; maintenance items, such as motor oil, antifreeze/coolant and windshield washer fluid. These private label products, which are intended to be of equal or better quality than comparable brand name products, are packaged attractively and are priced below comparable brand name products in the store in order to promote customer interest. For fiscal year 1997, private label products accounted for approximately 12% of the Company's sales. The Company expects this percentage to remain fairly static in the future. Price Leadership. The Company utilizes an everyday low price strategy with prices that are generally at or below those of its competitors in the market area served by each store. The Company's depot stores generally offer even lower pricing than other Discount Auto Parts stores. Along with everyday low prices, the Company often runs special promotional pricing on selected products. In an effort to offer the lowest price to its customers, the Company continually seeks to reduce purchasing and distribution costs of its merchandise. The Company achieves such cost reductions by working with its vendors to secure product cost savings and other benefits, making volume purchases and achieving efficiencies in its distribution system and higher productivity at the store level. Over the last two years, the Company has created cost efficiencies through the roll-out of its point-of-sale system and the implementation of its Wizard software system in the distribution center. The Company believes that its ability to control costs and thereby maintain price leadership is a key advantage over its competitors. 7 8 The Company's name "Discount Auto Parts" reinforces the Company's pricing strategy. The Company promotes both its name and its pricing strategy through newspaper, direct mail, radio and television advertisements, and through in-store promotional signage and displays. Most of the Company's stores have a free-standing highly visible pole or marquee sign promoting special prices and customer service programs. LEADING THE DIY MARKET The Company's goal is to be the leading DIY specialty retailer of automotive parts and accessories in every one of its existing markets and new markets. The Company believes that its ability to achieve market leadership is dependent upon successful implementation of its operating strategies and careful selection of new markets and store sites. The Company believes that market leadership provides higher consumer name recognition and economies of scale in purchasing, distribution, advertising, marketing and management. The Company is the largest DIY specialty retailer of automotive parts and accessories in Florida. As of June 3, 1997, 327 (82%) of the Company's 400 stores were located in Florida. The Company believes that it has the leading market share in the state of Florida. The demographics within Florida are favorable for continued growth. In particular, Florida ranks third in the nation in the total number of registered cars and light trucks, is the fourth most populous state and continues to be one of the fastest growing states in the nation due to its favorable climate. The Company's believes that the strength of its market position in Florida has provided a competitive advantage and a solid foundation for further expansion into nearby southeastern states including Georgia, Alabama, South Carolina and Mississippi. These states provide many of the same favorable conditions and opportunities that are in Florida, which will help the Company further expand into these states and adjust quicker to these new markets. UTILIZING ADVANCED INFORMATION SYSTEMS In order to maintain its competitive position, the Company emphasizes and continually invests in advanced distribution and information systems. As a result of continually updating these systems with state of the art equipment, management believes that the Company has some of the most advanced integrated distribution and point-of-sale capabilities in its industry. These systems provide many benefits, including lower distribution and operating costs, improve in-stock positions at its stores and enhance customer service. In addition, during fiscal 1997 the Company began implementation of a frame relay technology at its stores. Frame relay is essentially technology that provides for enhanced transmission of data between single or multiple locations. When complete, in early fiscal 1998, communications between the Company's stores and communications between the stores, the distribution center and corporate headquarters should be improved significantly. The implementation of frame relay technology is critical to the Company's implementation of a new perpetual inventory system at the store level which is currently underway and is expected to be completed in fiscal 1998. In addition, the Company plans to continue to upgrade its systems through the integration of additional related specialized software over the next several years. All of these changes are designed to serve all functional areas of the Company and enhance the inventory management and selections process. Distribution. The Company's distribution system, which the Company believes utilizes one of the most advanced inventory management information systems in the industry, uses computer-aided, laser scanning and wireless technology and interfaces with the Company's management information systems and point-of-sale system. The system features computer aided ordering and inventory management, having the capability to monitor inventory levels and determine store by store product needs. At the present time physical inventories are generally taken each quarter to more efficiently manage inventory and provides a basis for incentive programs. Upon full implementation of the perpetual inventory at the store level, the Company expects to be able to reduce the frequency of physical inventories to only once or twice a year. 8 9 The Company has a warehouse management system referred to as the Wizard system ("Wizard"). Wizard has continued to improve the Company's efficiency regarding shipment of merchandise. The system utilizes wireless hand held bar code scanning terminals which operate in a real time environment and which are integrated with a racking and flow system featuring conveyers and computerized sorting devices. These integrated systems enable the Company's team members to efficiently pick, assemble and palletize merchandise for shipment to individual stores. All product movement, including receiving, put-away, restock, cycle counting, picking and shipping, is monitored and tracked by Wizard. Stores typically place orders each week which are delivered electronically to the Company's distribution center. These orders are generally delivered within 48 hours of receipt on the Company's fleet of tractor trailers. Over 85% of the Company's stores are currently within six hours of the Company's distribution center. The Company's distribution center stands at approximately 305,000 square feet and is equipped to serve over 400 stores. In accordance with its growth strategy, the Company is currently expanding its distribution center which is scheduled to be completed early fiscal 1999. When completed, the new distribution center will total approximately 600,000 square feet and is expected to be capable of serving approximately 600 stores on both a case-pack (typically high volume, prepackaged maintenance items and accessories) and repack basis, and an additional 400 to 600 stores on a repack basis only. Store Operations. The Company has point-of-sale computer terminals at all of its stores which communicate interactively with the Company's distribution and management systems. These terminals decrease transaction times, reduce register lines and eliminate labor time previously spent in price labeling merchandise. In addition, point-of-sale terminals perform valuable functions for management. Since these terminals capture sales information at the time of the transaction, management can generate real time sales reports which assist in store and Company-wide planning. The point-of-sale system also has an automated suggested reordering function which has been instrumental in increasing the store level in-stock positions. The automation of the re-order process has decreased the time and labor required for store inventory management. GROWTH STRATEGIES CONTINUING NEW STORE OPENINGS The Company currently plans to continue with a growth plan to open new stores both within the state of Florida and in other southeastern states. In the last five fiscal years, the Company has opened an average of 48 stores per year including 86 stores in fiscal 1997. The Company currently plans to open approximately 70 to 90 new stores in fiscal 1998 and to continue to grow its store base at a rate of approximately 20% annually at least for the foreseeable future. Over the near term a significant portion of the Company's growth will continue to be concentrated in Florida and contiguous states. The Company estimates that the Florida market can support over 400 Discount Auto Parts stores due to Florida's high population densities, strong economic and population growth and favorable climate. As of August 12, 1997, the Company had opened 7 new stores in fiscal 1998. In addition, as of August 12, 1997, 11 new stores were under construction and 58 sites for new stores had been purchased, leased or were under construction for acquisition. The Company also is engaged in negotiations for the acquisition of additional sites. In certain Florida markets, the Company has and continues to open stores in close geographic proximity to other Discount Auto Parts stores. This operating strategy is meant to establish a competitive position in each of the DAP's markets as well as to support its strategy of providing the customer with shopping convenience. Although the new stores tend to attract sales that would otherwise have been made in other Discount Auto Parts stores, management believes that the negative impact on comparable store sales is substantially offset by the Company's ability to leverage costs such as advertising and store management expenses. Furthermore, the Company believes that in the long term the increased growth in the Florida population will support stores that are in close proximity. 9 10 The following table sets forth information concerning increases in the number of Discount Auto Parts stores during the past five fiscal years and the anticipated increase for fiscal 1998:
PLANNED 1993 1994 1995 1996 1997 1998 ---- ---- ---- ----- ---- ------- Beginning Stores 158 175 208 248 314 400 New Stores(1) 17 33 40 66 86 70-90 Stores Closed - - - - - - --- --- --- --- --- ------- Ending Stores 175 208 248 314 400 470-490 === === === === === =======
- ------------------------- (1) Does not include stores that opened as relocations of previously existing stores within the same general market area (approximately one mile) or substantial renovations of stores. When opening a new store, the Company generally seeks high visibility sites in high traffic locations (often on corners). Prior to entering new markets, the Company performs extensive research with key factors including population, demographics, vehicle profile and number and strength of competitive stores. The Company generally seeks to open new stores within or contiguous to existing market areas and attempts to cluster development in new urban and suburban markets in a relatively short period of time in order to achieve economies of scale in management, advertising and distribution costs. The Company also evaluates the potential first year sales return on investment when determining specific store site locations. STORE FORMATS Beginning in fiscal 1992 and 1993, the Company developed two types of store formats: the "mini-depot" and the depot store format. As a result of the success of these formats in the market, the Company has developed standardized formats for the development of new stores as either a mini-depot or depot store. These standardized formats have tended to lower new store operating costs through increased efficiency and consistency in the selection, acquisition, design and opening of new stores. As a result, the Company is modeling new stores according to the standardized formats and using appropriate elements of these new store formats to remodel existing stores. Since the initiation of the standardized formats, the Company has converted all of the existing stores to either the mini depot or depot formats in terms of product selection. Under the standardized store formats, a mini-depot store has approximately 4,400 selling square feet and carries an average of approximately 15,400 SKUs. The average depot store has approximately 8,800 selling square feet, offers greater product selection and carries an average of approximately 20,000 SKUs. Under an updated version of these standardized store formats, all new mini-depot stores will have approximately 4,800 selling square feet and all new depot stores will have approximately 10,000 selling square feet. In the new standardized store formats, the amount of land will be approximately 0.7 and 1.2 acres for a mini-depot and a depot format store, respectively. 10 11 The following table indicates certain information about the 400 Discount Auto Parts stores in operation as of June 3, 1997:
TOTAL NUMBER SELLING AVERAGE STOCK OF SQUARE STORE FORMAT KEEPING UNITS STORES FOOTAGE(1) ------------ -------------- ------ ----------- Mini-depot 15,400 377 1,642,946 Depot 20,000 23 193,520 --------- Total selling square footage 1,836,466 =========
(1) Total selling square footage includes normal selling space, but excludes office, stockroom, shelving space behind the parts counter, receiving and any excess space not utilized in a store's operations space. In September 1996, the Company opened a new "express" mini-warehouse in Orlando, Florida and another in July, 1997 in Tampa, Florida. The express format carries approximately 25,000 SKUs and has on average approximately 8,600 square feet of space. The objective of the express format is to provide inventory (primarily replacement hard parts) support to mini depot and depot stores within the same geographic market. The Company plans to open two to three new express locations over the next twelve months in the Jacksonville and South Florida markets. The express format is achieved through the utilization of excess space in an identified depot format store. The express stores do not currently sell directly to consumers. Depot stores are targeted for major metropolitan markets where such stores can serve densely populated market areas. Depot stores are also utilized as support locations for nearby mini-depot stores in a hub-and-spoke fashion and, along with the new express store format, offers van delivery for inventory transfers from the depot stores to other Discount Auto Parts stores. The Company's merchandising staff also utilizes depot stores to test new products in an effort to help maximize the success of new SKU additions at mini-depot stores. The Company plans to open one to three additional depot format stores and 69 to 87 additional mini-depot format stores in fiscal 1998. It is anticipated that depot format stores will continue to be opened in existing and new major urban markets, with only one or two in each such market. CONTINUING TO IMPROVE MERCHANDISING One of the Company's growth strategies is to improve its merchandising concepts, primarily by broadening product selection and emphasizing the sale of replacement hard parts which generally provide higher gross profit margins. In fiscal 1995, the Company updated its store plan-o-grams for both of its store formats to improve merchandise presentation and in-stock positions and to accommodate a substantial number of additional SKUs. Another resource which the Company is using to improve merchandising is its point-of-sale system. This system helps the Company maintain proper inventory levels and provide real time sales information. The interface of new plan-o-grams with the Company's point-of-sale system provide a more sophisticated means of inventory control and management. In turn, these systems are designed to enhance overall sales and gross margins in each individual store. 11 12 The Company is also in the process of implementing a new perpetual inventory system at its stores. The new system is expected to be completed in fiscal 1998. When complete, the Company expects to have even more enhanced information to determine proper individual store merchandise and inventory levels. These enhancements coupled with the implementation of the express store format in selected metropolitan markets, should enable the Company to improve its overall inventory turnover. Although each Discount Auto Parts store carries the same basic product lines, each Division Manager with input from individual store managers, has the ability to adapt product mix based on the specific needs of the market area served by the stores. COMMERCIAL MARKET BUSINESS In addition to the market for the sale and distribution of auto parts through retail outlets to Do-It-Yourself customers, a market also exists for the sale and distribution of auto parts to commercial accounts such as automobile dealership service departments and other automobile repair and installation shops. The Company currently does not have an active business in the commercial delivery market, but has been testing distribution into this market place on a limited basis. The Company believes that its location strategy for its retail store locations positively positions the Company for expansion into this commercial delivery market for auto parts. The Company believes that its chain of stores and the placement of such stores will enable it to be an efficient distributor to the commercial installer and that an efficient distribution capability is one of the key factors to succeed in the commercial delivery market for auto parts. The Company is pleased with the limited testing of sales and distribution to the commercial delivery market and intends to expand operations into this marketplace. The Company anticipates that it will be in a position to roll-out a commercial delivery service to a limited number of stores in mid-fiscal 1998. Although there can be no assurances and there are several risks associated with this planned roll-out, the Company believes that a successful entry into this marketplace can result in commercial delivery sales representing approximately 15% to 20% of the Company's total sales within a two to three year time horizon. The Company has engaged the services of a nationally recognized consulting firm to assist the Company in preparing itself for expansion into the commercial delivery market. The commercial delivery market is believed to represent a market which approximates $42 billion. The commercial delivery market tends to be even more fragmented that the do-it-yourself market and therefore the Company believes that this commercial delivery market offers a good opportunity for leading auto parts retailers such as the Company. Several of the Company's retail competitors have already begun servicing this market. The Company expects that its entry into the commercial delivery market will require capital investments of approximately $3 million to $5 million over the next 12 to 24 months, much of which is expected to be financed through the Company's borrowings. In addition, the Company is aware that the commercial delivery market will require the Company to extend credit to its commercial customers. The extension of credit brings with it new and additional procedural requirements that will need to be followed, a need for short term financing of accounts receivable and the risk and impact on financial results of uncollectible accounts. Q LUBE JOINT VENTURE At the end of March 1997, the Company entered into a joint venture business agreement with Q Lube, Inc., a subsidiary of Quaker State Corporation, to jointly develop locations that provide fast lube and automotive maintenance services (the "DAP/Q Lube Centers"). Under the terms of the joint venture agreement, the Company owns and controls, through a wholly owned subsidiary, fifty-one percent of the joint venture partnership. 12 13 The service centers will primarily be located on selected properties owned and/or leased by the Company that are adjacent to the Company's retail stores. The Company believes that the service centers will add significant value to its existing customer base and result in increased traffic and sales in the Company's stores, as well as providing cross-selling opportunities between Q Lube and the Company. The Company's investment in the venture will primarily be limited to the contribution or lease of land, primarily non-revenue producing land that the Company currently owns. Q Lube, Inc. will be responsible for constructing the building, providing equipment and actually operating the facilities. To date, 3 DAP/Q Lube Centers had been opened. During fiscal 1998, the Company plans to open 7 to 10 additional centers. STORE OPERATIONS STORE DESIGN AND VISUAL MERCHANDISING The Company seeks to design and build stores with a high visual impact. The Company's stores are generally free-standing buildings situated in highly visible locations and are designed to provide easy access and ample parking. The Company utilizes colorful exterior signage which display the "Discount Auto Parts" name and advertise current product specials. In-store signage and special displays are used to aid customers in locating merchandise and promoting products. The inside of the stores are organized by department in an attractive and brightly lit store environment which makes it easy to locate merchandise. The Company employs a plan-o-grammed store layout system designed to maximize sales in a generally consistent merchandise presentation in all of its stores. Stores are designed to maximize selling space, keeping most of the merchandise within view of the customer. The majority of the selling space contains gondolas for automotive replacement parts, maintenance items and accessories, with selected merchandise featured at the ends of the aisles, at the cash register areas and in other high traffic and visibility areas. All stores have a hard parts counter that is staffed by knowledgeable, customer-service oriented team members. All of the stores have computerized parts catalogs located at the hard parts counter that provide parts information based on the make, model and year of an automobile. The Company believes that continually improving and upgrading the appearance of its stores increases sales per store. As market conditions warrant, Discount Auto Parts relocates or substantially renovates existing stores. Stores are relocated primarily to secure improved site locations and to expand store size. In addition, some stores are increased in size in connection with renovations. Since fiscal 1993, the Company has relocated or substantially renovated 39 stores. During fiscal 1998, the Company plans to relocate or substantially renovate 10 - 15 additional stores. The Company considers a store to have been substantially renovated when it has spent more than $70,000 on store improvements other than for ordinary course of business maintenance and upkeep expenses. STORE TEAM MEMBERS Mini-depot format stores employ 4 to 16 team members and depot format stores employ 8 to 34 team members. Each store contains a manager, one or two assistant managers, a team leader and additional full and part-time team members. Each store manager's incentive compensation is based upon the performance of his or her store vis-a-vis the average Company store. Store managers are reviewed monthly and quarterly on sales levels, gross margins and operating margin. This review and compensation attempts to align the goals of the Company's store managers with those of management, primarily increased same store sales, stable gross margins and selling, general and administration expense control. 13 14 The Company supervises store operations primarily through two Vice Presidents of Operations and 21 Division Managers, each of whom supervises between 14 and 28 stores. The Vice President's in turn report to William C. Perkins, the Company's President and Chief Operating Officer. Purchasing, merchandising, advertising, accounting, cash management and other store support functions are handled by the Company's corporate headquarters. The Company believes that relieving store managers of primary responsibility for these functions allows them more time to focus on customer service and the execution of the Company's in-store merchandising and marketing strategies. DIMENSIONS OF EXCELLENCE REVIEWS The Company prides itself on continuous store improvement and an overall high level of customer service. To assure these standards, the Company conducts "dimensions of excellence" reviews of each of its stores twice each year in order to evaluate the stores operations. Each dimensions of excellence review encompasses a comprehensive itinerary of store characteristics and performance criteria. The dimensions of excellence teams are made up store managers from other districts selected based on their success as managers and their depth of experience, as well as senior team members from the Company's headquarters. A written evaluation is prepared for each store that is reviewed and the evaluation team meets with the store manager to discuss the review and to provide direction in seeking improvements in store performance. The Company also has a program whereby each week members of the senior management team visit several of the Company's stores to monitor operations. In addition, every store is visited weekly by a member of the district management team or the home office management support team. All of these review programs help insure that the Company's stores are being maintained in accordance with the Company's standards of excellence. PURCHASING AND DISTRIBUTION Merchandise is selected and purchased for all stores at the Company's distribution center located in Lakeland, Florida. Approximately 90% of the Company's merchandise is shipped by vendors to the Company's distribution center. Deliveries are usually made to individual stores on a weekly basis by the Company's fleet of trucks and trailers. In fiscal 1997, the Company purchased products from over 400 suppliers. During fiscal 1997, the Company's ten largest suppliers accounted for approximately 28% of the Company's purchases but no single supplier accounted for more than 7.4% of total purchases. During fiscal 1995, 1996 and 1997, the Company's ten largest suppliers accounted for approximately 40%, 38% and 28%, respectively, of the Company's total inventory purchases. The Company believes that its relationships with its suppliers are excellent. The Company also believes that alternative sources of supply exist (and in some cases such relationships are maintained on a smaller scale), at similar cost and on similar terms, for substantially all types of products sold. Automotive replacement parts manufacturers generally accept obsolete inventory for return credit on an annual or more frequent basis. The Company has historically not incurred any significant losses as a result of slow moving or obsolete inventory. 14 15 ADVERTISING AND PROMOTION The Company uses various methods to promote its products, including newspaper, direct mail, radio and television, in-store banners, displays and promotions. The Company also uses sales incentives and price based promotions to advertise its products. In addition, the Company believes that DIY customers are also strongly influenced by "word of mouth" recommendations from satisfied customers. The Company also works closely with its suppliers in order to promote its products. The Company views its suppliers as an important element of the advertising and operating process. The suppliers, in turn, provide certain benefits for the Company, such as volume discounts, rebates, credits, return allowances, cooperative advertising and signage assistance programs. The suppliers also provide product knowledge and training and education which assist the Company's team members in providing excellent customer service. COMPETITION The retail automotive parts aftermarket is highly competitive. Automotive products similar or identical to those sold at the Company's stores are generally available from a variety of different competitors in the communities served by Discount Auto Parts stores. The number of competitors and the level of competition faced by Discount Auto Parts stores varies by market area. The principal competitive factors which affect the Company's business are store location, customer service, product selection, product quality and price. In the state of Florida the Company operates the largest specialty retail chain offering automotive replacement parts, maintenance items and accessories to the DIY consumer. The Company competes with a number of local, regional and national automotive retail chains including Auto Zone, Pep Boys, Western Auto, One Stop, Advance Auto, and Automotive One. To a lesser extent, the Company's stores also compete with automotive wholesalers or jobbers such as NAPA, Big A and Steego and, in certain product categories, such as batteries, oil, filters and accessories, mass merchandisers such as Wal-Mart, Target and Kmart. Although the Company believes that it competes effectively in its various markets, certain of its competitors, or their parent organizations, are larger in terms of sales volume, have access to greater capital and management resources or have been operating longer in particular market areas TEAM MEMBERS As of June 3, 1997, the Company employed 3,677 team members, 2,869 of whom were full-time team members. Approximately 85% of the Company's team members are employed in stores or in direct field supervision, while 15% work in the distribution center and/or in corporate and support functions. The Company has no collective bargaining agreements covering any of its team members, has never experienced any material labor disruption and is unaware of any present efforts or plans to organize its team members. The Company believes that its relations with its team members are excellent. TRADEMARKS The Company believes that its name, distinctive lettering and eye-catching store exteriors are important to its operating strategy but that the Company's business is not otherwise dependent on any patent, trademark, service mark or copyright. Except as described herein under the caption "Legal Proceedings," the Company is not aware of any infringing uses or, except as described herein under the caption "Legal Proceedings," any assertion of infringing uses in any of its current market areas that, in the opinion of the Company, could materially affect the Company's use of its name and trade dress described above. 15 16 ITEM 2. PROPERTIES. DISTRIBUTION CENTER AND HEADQUARTERS The Company's distribution center, which also houses its headquarters and administrative offices, is located in one consolidated building in Lakeland, Florida on property owned by the Company. The facilities (including parking areas), which currently occupy 12.2 acres of a 31.5 acre tract, are located in an industrial park area, fronting Interstate 4, the east-west expressway that cuts across central Florida. Over 85% of the Company's stores are within a six hour drive of the distribution center. The property provides ample room for future expansion and has the potential to be modified to provide direct rail access. The Company's distribution center stands at approximately 305,000 square feet and is equipped to serve up to 400 stores. In accordance with its growth strategy, the Company is currently expanding its distribution center which is scheduled to be completed near the end of fiscal 1998 or the beginning of fiscal 1999. When completed, the new distribution center will total approximately 600,000 square feet and is expected to be capable of serving approximately 600 stores on both a case-pack (typically high volume, prepackaged maintenance items and accessories) and repack basis, and an additional 400 to 600 stores on a repack basis only. The Company's distribution center currently occupies 12.2 acres of a 31.5 acre tract owned by the Company, The existing distribution center was designed with a 30-foot clear span allowing for a total of eight million cubic feet of storage space; the expansion space will also utilize a 30 feet clear span, increasing a total storage space to approximately 16 million cubic feet. The Company is also currently leasing an additional 42,000 square feet of warehouse space approximately 1 mile from the existing distribution center, until the expansion is completed. DISCOUNT AUTO PARTS STORES Discount Auto Parts stores are located throughout Florida, Georgia, Alabama, South Carolina and Mississippi. The Company adheres to a strategy of owning the vast majority of its store locations and currently owns approximately 91% of its locations. Management believes that this strategy maximizes the Company's real estate flexibility, as well as controls operating costs. The following table sets forth certain information about the Company's current ownership and leasehold interests in its stores as of June 3, 1997: NATURE OF COMPANY'S INTEREST NUMBER OF STORES ---------------------------- ---------------- Own Land and Buildings 365 Lease Land and/or Buildings 35 --- TOTAL 400 --- Certain of the stores in which the Company has an ownership interest are affected by credit facilities or mortgages on which the total unpaid principal balance as of June 3, 1997, was approximately $12.0 million. These borrowings, which are to be repaid in aggregate annual installments of $2.4 million, accrue interest at rates ranging between 9.8% and 10.11% per annum. Most of the Company's leases provide for the payment of a fixed rent, plus increases in ad valorem taxes and insurance and maintenance costs. The leases are generally for a term of five years, with the Company having the right to renew for one or more additional five-year terms. The leases in existence at the close of fiscal 1997 will expire between 1998 and 2001 (not including renewals). The Company will continue to evaluate additional lease alternatives as market conditions dictate. 16 17 ITEM 3. LEGAL PROCEEDINGS A.E.W., Inc. d/b/a DAPS Discount Auto Parts Stores vs. Discount Auto Parts, Inc., United States District Court for the Northern District of Florida, Civil Division, Civil Action 94-30073-CIV-LAC. On or about January 31, 1994, a complaint was originally filed against the Company by A.E.W., Inc. d/b/a DAPS Discount Auto Parts Stores in the Circuit Court in and for Escambia County, Florida (Case 94-0166-CA-01). A.E.W., which operates several retail auto parts stores in Escambia County, Florida, Fort Walton Beach, Florida, Mobile, Alabama and Pascagoula and Gulfport, Mississippi, sought to enjoin, under several different counts, the Company's use of the trade names "Discount Auto Parts" and "DAP" without an accompanying identifier to the extent such use was likely to create confusion with A.E.W.'s business, and to recover, under several different counts, compensatory and punitive damages and attorneys' fees. No specific dollar amount of damages was alleged in the complaint. A motion for preliminary injunction was also filed by A.E.W. The Company sought to remove the case to federal court and also moved to dismiss several counts or portions thereof and to strike certain references in the complaint. In February 1994, the Company was able to remove the case to federal court. A.E.W.'s motion for preliminary injunction was denied as was its motion for reconsideration of the ruling. The Company's motions to dismiss and to strike were granted as to certain counts and denied as to all other counts. Discovery requests have been exchanged by the parties and such discovery has been completed. On August 18, 1997, the Company and the plaintiff agreed to terms in principle to settle this matter. The final settlement is being prepared and should be signed by both parties in the near future. The terms of the settlement are immaterial to the Company's results of operations. Airgas, Inc., Airgas Management, Inc., and Airgas Speciality Gases, Inc., vs. Discount Auto Parts, Inc., Brad Davis, JLM Enterprises, Inc. d/b/a Autoplex Parts, Jerral L. Mayes, Sr., William D. Morris, and John Does 1-100. United States District Court for the Southern District of Georgia, Civil Division, Civil Action CV 497-32. In February 1997, a complaint was filed by Airgas, Inc. and certain Airgas affiliates against several defendants, including the Company and one of its employees. The complaint alleged, among other things, that the Company took part in a conspiracy with other companies and individuals unrelated to Discount Auto Parts to defraud Airgas in connection with commercial sales of refrigerant R-12 (freon) and sought compensatory damages in excess of $20 million, treble damages and other relief totaling in excess of $80 million. The trial was scheduled to begin on August 4, 1997. Effective July 26, 1997, the Company entered into a Compromise and Settlement Agreement (the "Settlement Agreement") with Airgas and its affiliates, the other defendants, and certain other parties. Under the terms of the Settlement Agreement, the Company will purchase from Airgas Specialty Gases, on an "as is, where is" basis, approximately 6,500 cylinders believed to contain an alternative to R-12 refrigerant for an aggregate price of $4.0 million, which represents a price that is believed by the Company to be approximately $3.6 million in excess of the current market value of such product. In addition, the Company will pay an additional $13.0 million to Airgas Specialty Gases. As a separate but related part of the Settlement Agreement, the Company will pay $500,000 to the bankruptcy estate of Refrigeration Station, Inc. (RSI) to settle any claims, including claims of preference, that the RSI bankruptcy estate might have asserted against the Company and will purchase from the bankruptcy estate approximately 7,200 cylinders of merchantable Freeze 12 refrigerant (an R-12 alternative), for an additional $1.0 million (believed to have a bulk sale value of approximately $600,000). If Airgas does not recover at least $1.5 million from the Refrigeration Station bankruptcy by January 2, 1998, the Company will also pay to Airgas any shortfall but will be entitled to be reimbursed for such payments if Airgas subsequently recovers such amounts from the bankruptcy estate. Because of the involvement of the bankruptcy estate, the entire settlement is contingent upon bankruptcy court approval, 17 18 which is expected to be addressed by the bankruptcy court at proceedings to be held in September of this year. Pursuant to the terms of the Settlement Agreement, Discount Auto Parts, Airgas, the RSI bankruptcy estate, the other defendants and certain other parties will exchange mutual releases of all claims and issues between them. In the Settlement Agreement, there is no finding or admission of wrongdoing on the part of Discount Auto Parts. The Company is presently involved in litigation with its insurance carrier pursuant to which the Company is seeking recovery under its insurance policy of certain amounts incurred in connection with the Airgas litigation and the settlement thereof. The ultimate outcome of such litigation or an estimate of the amount of potential insurance recoveries, if any, cannot be determined at this time. No benefit for any recovery which may result has been reflected in the accompanying financial statements. In addition to the Airgas litigation certain federal investigations into the subject matter of this litigation are ongoing. In particular, federal grand jury proceedings in Savannah, Georgia in which the Company had been called upon to respond to subpoenas are believed to be continuing and the Company is aware that the SEC has commenced its own informal investigation. In connection with these proceedings, the Company intends to continue its cooperation. Dexter Carson, et. al. vs. Discount Auto Parts, Inc., et. al. United States District Court for the Southern District of Florida, Civil Division, Civil Action 96-08833-CIV-HURLEY On January 23, 1997, a complaint was filed against the Company and certain of it's current and former team members in the United States District Court for the Southern District of Florida, Civil Division. The action alleges, among other things, racial discrimination, failure to promote, discriminatory firing, violations of the Family Medical Leave Act, negligence, negligent misrepresentation and related causes of action on behalf of ten current and former team members and one related individual. No specific dollar amount is alleged in the complaint, but the complaint seeks to recover, under several different counts, compensatory and punitive damages, lost wages, reinstatement, costs and attorney's fees. The Company has filed a series of motions which include a motion to dismiss for failure to state a claim for relief, a motion to strike certain references within the complaint, a motion for relief from improper joinder and a motion for more definitive statement. All motions remain pending. Discovery has begun. The Company believes that the claims in the complaint are without merit and intends to defend the action vigorously. Discount Auto Parts is not a party to any other legal proceedings, other than various claims and lawsuits arising in the normal course of the Company's business. The Company does not believe that such claims and lawsuits, singly or in the aggregate, will have a material adverse effect on its financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is listed on the New York Stock Exchange. Information included 18 19 under the caption "Common Stock Price Range" and "Number of Stockholders" on page 28 of the Company's 1997 Annual Report to Stockholders and are incorporated herein by reference. Since the initial public offering, the Company has not paid any cash dividends. The Company does not intend to pay any cash dividends for the foreseeable future and intends to retain earnings, if any, for the future operation and expansion of the Company's business. Any determination to pay dividends in the future will be at the discretion of the Company's Board of Directors and will be dependent upon the Company's results of operations, financial condition, contractual restrictions and other factors deemed relevant by the Board of Directors. The Company's existing credit facilities contain restrictions on the payment of cash dividends on the Common Stock. At June 3, 1997, approximately $22.7 million of the Company's retained earnings were available for dividend distribution. ITEM 6. SELECTED FINANCIAL DATA. Information under the caption "Five Year History" on page 7 of the Company's 1997 Annual Report to Stockholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 8 through 13 of the Company's 1997 Annual Report to Stockholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Financial Statements of Discount Auto Parts, Inc. together with the report thereon of Ernst & Young LLP, appearing on pages 14 through 25 and page 27 of the Company's 1997 Annual Report to Stockholders is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information contained under the captions "Election of Directors" and "Executive Officers" on page 2 and page 14 of the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Information contained under the caption "Executive Compensation" on pages 15 through 16 of the 19 20 Company's Proxy Statement for its 1997 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained under the caption "Security Ownership" on pages 18 through 20 of the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained under the captions "Compensation Committee Interlocks and Insider Participation" and "Certain Relationships and Related Transactions" on pages 17 through 18 of the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders is incorporated herein by reference. PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) The following financial statements of Discount Auto Parts, Inc. and the report thereon of Ernst & Young LLP dated August 8, 1997, which are included in the Company's 1997 Annual Report to Stockholders for the year ended June 3, 1997, pages 14 through 25, and page 27, are incorporated herein by reference. Consolidated Statements of Income for the years ended June 3, 1997, May 28, 1996, and May 30, 1995. Consolidated Balance Sheets as of June 3, 1997 and May 28, 1996. Consolidated Statements of Stockholders' Equity for the years ended June 3, 1997, May 28, 1996 and May 30, 1995. Consolidated Statement of Cash Flows for the years ended June 3, 1997, May 28, 1996 and May 30, 1995. Notes to Consolidated Financial Statements. Reports of Independent Certified Public Accountants. (2) The following Financial Statements Schedules are included herein: None. No schedules are submitted because none are applicable or required or because the required information is included in the financial statements or the notes thereto. (3) The following exhibits are filed as part of this report (exhibits marked with an asterisk have been previously filed with the Commission as indicated and are incorporated herein by this reference):
20 21 2.1* Agreement and Plan of Recapitalization dated August 20, 1992 (Filed as Exhibit 10.21 to the Company's Form 10-Q for the quarter ended September 1, 1992, as filed with the SEC on October 15, 1992). 3.1* Amended and Restated Articles of Incorporation (Filed as Exhibit 3.2 to the Company's Form 10-Q for the quarter ended September 1, 1992, as filed with the SEC on October 15, 1992). 3.2* Amended and Restated Bylaws (Filed as Exhibit 3.4 to the Company's Form 10-Q for the quarter ended September 1, 1992, as filed with the SEC on October 15, 1992). 4.1* Amended and Restated Articles of Incorporation (Filed as Exhibit 3.2 to the Company's Form 10-Q for the quarter ended September 1, 1992, as filed with the SEC on October 15, 1992). 4.2* Amended and Restated Bylaws (Filed as Exhibit 3.4 to the Company's Form 10-Q for the quarter ended September 1, 1992, as filed with the SEC on October 15, 1992). 4.3* Note Agreement dated as of December 15, 1987 between Discount Auto Parts, Inc. and Massachusetts Mutual Life Insurance Company together with amendment dated as of October 30, 1989 (Filed as Exhibit 10.1 to the Company's Registration Statement on Form S-1 (No. 33-49400) as filed with the SEC on July 8, 1992). 4.4* Second Amendment Agreement to Note Agreement effective as of August 26, 1992 between Discount Auto Parts, Inc. and Massachusetts Mutual Life Insurance Company. (Filed as Exhibit 4.4 to the Company's Form 10-K for the year ended May 30, 1995, as filed with the SEC on August 16, 1996). 4.5* Note Agreement dated as of October 30, 1989 between Discount Auto Parts, Inc. and Massachusetts Mutual Life Insurance Company (Filed as Exhibit 10.2 to the Company's Registration Statement on Form S-1 (No. 33-49400) as filed with the SEC on July 8, 1992). 4.6* Amendment Agreement to Note Agreement effective as of August 26, 1992 between Discount Auto Parts, Inc. and Massachusetts Mutual Life Insurance Company. (Filed as Exhibit 4.4 to the Company's Form 10-K for the year ended May 30, 1995, as filed with the SEC on August 16, 1996). 4.7 Note Purchase Agreement dated as of July 15, 1997 between Discount Auto Parts, Inc. and the Identified Purchasers. 10.1* Revolving Loan Agreement dated as of February 28, 1995 between Discount Auto Parts, Inc. and Sun Bank, National Association (Filed as Exhibit 10.21 to the Company's Form 10-Q for the quarter ended February 28, 1995, as filed with the SEC on April 13, 1995). 10.2* Unsecured Revolving Loan Agreement dated February 2, 1995 between Discount Auto Parts, Inc. and Barnett Bank of Polk County (Filed as Exhibit 10.19 to the Company's Form 10-Q for the quarter ended February 28, 1995, as filed with the SEC on April 13, 1995).
21 22 10.3* Loan Agreement dated as of December 14, 1994 between Discount Auto Parts, Inc. and NationsBank of Florida, N.A. (Filed as Exhibit 10.20 to the Company's Form 10-Q for the quarter ended February 28, 1995, as filed with the SEC on April 13, 1995). 10.4 Revolving Credit Agreement dated as of July 16, 1997 by and among Discount Auto Parts, Inc. and SunTrust Bank, Central Florida, National Association, individually and as Agent, AmSouth Bank, Barnett Bank, N.A., First Union National Bank and The Fuji Bank and Trust Company. 10.5* Amendment and Restatement of the Discount Auto Parts Team Members' Profit Sharing Plan and Trust dated May 31, 1994 (Filed as Exhibit 10.12 to the Company's Form 10-K for the fiscal year ended May 31, 1994, as filed with the SEC on August 29, 1994). 10.6* Discount Auto Parts, Inc. Supplemental Executive Profit Sharing Plan (Filed as Exhibit 10.5 to the Company's Form 10-K for the year ended May 30, 1995, as filed with the SEC on August 26, 1995). 10.7* Incentive compensation plan's for Peter J. Fontaine, William C. Perkins, and Warren Shatzer. 10.8* Discount Auto Parts, Inc. 1992 Stock Option Plan (Filed as Exhibit 10.16 to the Company's Form 10-Q for the quarter ended September 1, 1992, as filed with the SEC on October 15, 1992). 10.9 Discount Auto Parts, Inc. Amended and Restated 1992 Team Member Stock Purchase 10.10* Discount Auto Parts, Inc. Non-Employee Directors' Stock Option Plan (Filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No. 33-84058) as filed with the SEC on September 16, 1994). 10.12 Discount Auto Parts, Inc. Amended and Restated 1995 Stock Option Plan. 10.13* Indemnification Agreements for Peter J. Fontaine, Warren Shatzer, William C. Perkins, E.E. Wardlow and A Gordon Tunstall (Filed as Exhibit 10.18 to the Company's Form 10-Q for the quarter ended September 1, 1992, as filed with the SEC on October 15, 1992). 10.14 Indemnification Agreements for C. Michael Moore. 10.15 Indemnification Agreements for David P. Walling.
22 23 10.16 S Corporation Tax Allocation and Indemnification Agreement dated August 20, 1992 Agreement (Filed as Exhibit 10.19 to the Company's Form 10-Q for the quarter ended September 1, 1992, as filed with the SEC on October 15, 1992). 10.17 Master Joint Business Agreement of Q Lube, Inc. and Discount Auto Parts, Inc. dated as of January 1, 1997 (Filed as Exhibit 10.16 to the Company's Form 10-Q for the quarter ended March 4, 1997, as filed with the SEC on April 17, 1997). 10.18 General Partnership Agreement of DAP/LUBECO Partnership 13 Annual Report to Stockholders for the year ended June 3, 1997. 21 Subsidiaries of the Registrant 23 Consent of Ernst & Young LLP 27 Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K. No reports on Form 8-K were filed during the fourth quarter of fiscal 1997.
23 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DISCOUNT AUTO PARTS, INC. By: /s/ PETER J. FONTAINE September 2, 1997 ---------------------------------------------- -------------------- PETER J. FONTAINE, Chief Executive Officer, Date Director, (principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Peter J. Fontaine September 2, 1997 --------------------------------------------------------- ------------------------ PETER J. FONTAINE, Chief Executive Officer, Date Director, (principal executive officer) /s/ C. Michael Moore September 2, 1997 --------------------------------------------------------- ------------------------ C. MICHAEL MOORE, Chief Financial Officer, Date Secretary (principal financial and accounting officer) /s/ William C. Perkins September 2, 1997 --------------------------------------------------------- ------------------------ WILLIAM C. PERKINS, President, Chief Operating Date Officer, Director /s/ Warren Shatzer September 2, 1997 --------------------------------------------------------- ------------------------ WARREN SHATZER, Executive Vice President - Date Merchandising, Director /s/ E. E. Wardlow September 2, 1997 --------------------------------------------------------- ------------------------ E. E. WARDLOW, Director Date /s/ A. Gordon Tumstall September 2, 1997 --------------------------------------------------------- ------------------------ A GORDON TUNSTALL, Director Date /s/ David P. Walling September 2, 1997 --------------------------------------------------------- ------------------------ DAVID P. WALLING, Director Date
24 EX-4.7 2 NOTE PURCHASE AGREEMENT 1 EXHIBIT 4.7 ================================================================================ DISCOUNT AUTO PARTS, INC. --------------------- NOTE PURCHASE AGREEMENT --------------------- DATED AS OF JULY 15, 1997 $50,000,000 7.46% SENIOR NOTES DUE JULY 15, 2007 ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- 1. AUTHORIZATION OF NOTES................................................................................. 1 2. SALE AND PURCHASE OF NOTES............................................................................. 1 3. CLOSING................................................................................................ 2 4. CONDITIONS TO CLOSING.................................................................................. 2 4.1 Representations and Warranties................................................................ 2 4.2 Performance; No Default....................................................................... 2 4.3 Compliance Certificates....................................................................... 2 4.4 Opinions of Counsel........................................................................... 3 4.5 Purchase Permitted By Applicable Law, etc..................................................... 3 4.6 Sale of Other Notes........................................................................... 3 4.7 Payment of Special Counsel Fees............................................................... 3 4.8 Private Placement Number...................................................................... 4 4.9 Changes in Corporate Structure................................................................ 4 4.10 Bank Credit Agreement......................................................................... 4 4.11 Proceedings and Documents..................................................................... 4 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................................... 4 5.1 Organization; Power and Authority............................................................. 4 5.2 Authorization, etc............................................................................ 4 5.3 Disclosure.................................................................................... 5 5.4 Organization and Ownership of Shares of Subsidiaries; Affiliates.............................. 5 5.5 Financial Statements.......................................................................... 6 5.6 Compliance with Laws, Other Instruments, etc.................................................. 6 5.7 Governmental Authorizations, etc.............................................................. 7 5.8 Litigation; Observance of Agreements, Statutes and Orders..................................... 7 5.9 Taxes......................................................................................... 7 5.10 Title to Property; Leases..................................................................... 7 5.11 Licenses, Permits, etc........................................................................ 8 5.12 Compliance with ERISA......................................................................... 8 5.13 Private Offering by the Company............................................................... 9 5.14 Use of Proceeds; Margin Regulations........................................................... 9 5.15 Existing Debt; Future Liens................................................................... 10 5.16 Foreign Assets Control Regulations, etc....................................................... 10 5.17 Status under Certain Statutes................................................................. 10 5.18 Environmental Matters......................................................................... 10 6. REPRESENTATIONS OF THE PURCHASER....................................................................... 11 6.1 Purchase for Investment....................................................................... 11 6.2 Source of Funds............................................................................... 11 7. INFORMATION AS TO COMPANY.............................................................................. 13
DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT ii 3 TABLE OF CONTENTS (CONT.)
PAGE ---- 7.1 Financial and Business Information............................................................ 13 7.2 Officer's Certificate......................................................................... 15 7.3 Inspection.................................................................................... 16 8. PAYMENT OF THE NOTES................................................................................... 16 8.1 Required Prepayments; Payment at Maturity..................................................... 16 8.2 Optional Prepayments with Make-Whole Amount................................................... 17 8.3 Allocation of Partial Prepayments............................................................. 17 8.4 Maturity; Surrender, etc...................................................................... 17 8.5 No Other Optional Prepayments or Purchase of Notes............................................ 17 8.6 Make-Whole Amount............................................................................. 18 9. AFFIRMATIVE COVENANTS.................................................................................. 19 9.1 Compliance with Law........................................................................... 19 9.2 Insurance..................................................................................... 19 9.3 Maintenance of Properties..................................................................... 19 9.4 Payment of Taxes and Claims................................................................... 20 9.5 Corporate Existence, etc...................................................................... 20 10. FINANCIAL AND NEGATIVE COVENANTS....................................................................... 20 10.1 Debt.......................................................................................... 20 10.2 Minimum Net Worth............................................................................. 20 10.3 Fixed Charge Coverage......................................................................... 21 10.4 Liens......................................................................................... 21 10.5 Priority Debt................................................................................. 22 10.6 Merger or Consolidation....................................................................... 22 10.7 Sale of Assets................................................................................ 23 10.8 Transactions with Related Party............................................................... 24 10.9 Nature of Business............................................................................ 24 10.10 Subordination of Intercompany Loans........................................................... 24 11. EVENTS OF DEFAULT...................................................................................... 25 12. REMEDIES ON DEFAULT, ETC............................................................................... 27 12.1 Acceleration.................................................................................. 27 12.2 Other Remedies................................................................................ 27 12.3 Rescission.................................................................................... 28 12.4 No Waivers or Election of Remedies, Expenses, etc............................................. 28 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.......................................................... 28 13.1 Registration of Notes......................................................................... 28 13.2 Transfer and Exchange of Notes................................................................ 29 13.3 Replacement of Notes.......................................................................... 29 14. PAYMENTS ON NOTES...................................................................................... 29
DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT iii 4 TABLE OF CONTENTS (CONT.)
PAGE ---- 14.1 Place of Payment.............................................................................. 29 14.2 Home Office Payment........................................................................... 30 15. EXPENSES, ETC.......................................................................................... 30 15.1 Transaction Expenses.......................................................................... 30 15.2 Survival...................................................................................... 30 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT........................................... 31 17. AMENDMENT AND WAIVER................................................................................... 31 17.1 Requirements.................................................................................. 31 17.2 Solicitation of Holders of Notes.............................................................. 31 17.3 Binding Effect, etc........................................................................... 32 17.4 Notes held by Company, etc.................................................................... 32 18. NOTICES................................................................................................ 32 19. REPRODUCTION OF DOCUMENTS.............................................................................. 33 20. CONFIDENTIAL INFORMATION............................................................................... 33 21. SUBSTITUTION OF PURCHASER.............................................................................. 35 22. MISCELLANEOUS.......................................................................................... 35 22.1 Successors and Assigns........................................................................ 35 22.2 Payments Due on Non-Business Days; When Payments Deemed Received ............................................................................................. 36 22.3 Severability.................................................................................. 36 22.4 Construction.................................................................................. 36 22.5 Counterparts.................................................................................. 36 22.6 Governing Law................................................................................. 36 22.7 Section Headings and Table of Contents........................................................ 37 SCHEDULE A -- Information Relating to Purchasers SCHEDULE B -- Defined Terms SCHEDULE 4.9 -- Changes in Corporate Structure SCHEDULE 5.3 -- Disclosure Materials SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary Stock SCHEDULE 5.5 -- Financial Statements
DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT iv 5 TABLE OF CONTENTS (CONT.)
PAGE SCHEDULE 5.8 -- Certain Litigation SCHEDULE 5.11 -- Patents, etc. SCHEDULE 5.12 -- ERISA Affiliates SCHEDULE 5.14 -- Use of Proceeds SCHEDULE 5.15 -- Existing Debt; Future Liens SCHEDULE 10.4 -- Existing Liens EXHIBIT 1 -- Form of Note EXHIBIT 4.4(a) -- Form of Opinion of Counsel for the Company EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers
DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT v 6 DISCOUNT AUTO PARTS, INC. 4900 FRONTAGE ROAD, SOUTH LAKELAND, FLORIDA 33815 7.46% SENIOR NOTES DUE JULY 15, 2007 Dated as of July 15, 1997 To the Purchaser Named on the Signature Page Hereto Ladies and Gentlemen: DISCOUNT AUTO PARTS, INC., a Florida corporation (together with its successors and assigns, the "COMPANY"), agrees with you as follows: 1. AUTHORIZATION OF NOTES. The Company will authorize the issue and sale of $50,000,000 aggregate principal amount of its 7.46% Senior Notes due July 15, 2007 (the "NOTES", such term to include any such notes issued in substitution therefor pursuant to Section 13 of this Agreement or the Other Agreements (as hereinafter defined)). The Notes shall be substantially in the form set out in Exhibit 1, with such changes therefrom, if any, as may be approved by you and the Company. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. 2. SALE AND PURCHASE OF NOTES. Subject to the terms and conditions of this Agreement, the Company will issue and sell to you and you will purchase from the Company, at the Closing provided for in Section 3, Notes in the principal amount specified below your name in Schedule A at the purchase price of 100% of the principal amount thereof. Contemporaneously with entering into this Agreement, the Company is entering into separate Note Purchase Agreements (the "OTHER AGREEMENTS") identical with this Agreement with each of the other purchasers named in Schedule A (the "OTHER PURCHASERS"), providing for the sale at such Closing to each of the Other Purchasers of Notes in the principal amount specified below its name in Schedule A. Your obligation hereunder and the obligations of the Other Purchasers under the Other Agreements are several and not joint obligations and you shall have no obligation under any Other Agreement and no liability to any Person for the performance or non-performance by any Other Purchaser thereunder. DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 1 7 3. CLOSING. The sale and purchase of the Notes to be purchased by you and the Other Purchasers shall occur at the offices of each of Hebb & Gitlin, your special counsel, and SunTrust Capital Markets, Inc., 303 Peachtree Street, 24th Floor, Atlanta, Georgia 30308, at 10:00 a.m., local time, at a closing (the "CLOSING") on August 8, 1997 or on such other Business Day thereafter on or prior to August 11, 1997 as may be agreed upon by the Company and you and the Other Purchasers. At the Closing the Company will deliver to you the Notes to be purchased by you in the form of a single Note (or such greater number of Notes in denominations of at least $500,000 as you may request), dated the date of the Closing and registered in your name (or in the name of your nominee), against delivery by you to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to: Account Number: 0215252068070 Account Name: Discount Auto Parts, Inc. - Concentration Account Bank Name: SunTrust/Central Florida, N.A. ABA Number: 063102152
If at the Closing the Company shall fail to tender such Notes to you as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment. 4. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the Notes to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions: 4.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company in this Agreement shall be correct when made and at the time of the Closing. 4.4 PERFORMANCE; NO DEFAULT. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Schedule 5.14) no Default or Event of Default shall have occurred and be continuing. Neither the Company nor any Subsidiary shall have entered into any transaction since the date of the Memorandum that would have been prohibited by any of Sections 10.1, through 10.9 hereof had such Sections applied since such date. DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 2 8 4.6 COMPLIANCE CERTIFICATES. (b) OFFICER'S CERTIFICATE.. The Company shall have delivered to you an Officer's Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled. (d) SECRETARY'S CERTIFICATE.. The Company shall have delivered to you a certificate of its Secretary or one of its Assistant Secretaries, dated the date of the Closing, certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Notes, this Agreement and the Other Agreements. 4.8 OPINIONS OF COUNSEL. You shall have received opinions in form and substance satisfactory to you, dated the date of the Closing, (a) from Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis, P.A., counsel for the Company, covering the matters set out in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as you or your counsel may reasonably request (and the Company hereby instructs such counsel to deliver such opinion to you), and (b) from Hebb & Gitlin, your special counsel in connection with such transactions, substantially in the form set out in Exhibit 4.4(b) and covering such other matters incident to such transactions as you may reasonably request. 4.9 PURCHASE PERMITTED BY APPLICABLE LAW, ETC. On the date of the Closing your purchase of Notes shall (a) be permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions (such as section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (b) not violate any applicable law or regulation (including, without limitation, Regulation G, T or X of the Board of Governors of the Federal Reserve System) and (c) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date of your execution and delivery of this Agreement. If requested by you, you shall have received an Officer's Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. 4.11 SALE OF OTHER NOTES. Contemporaneously with the Closing the Company shall sell to the Other Purchasers and the Other Purchasers shall purchase the Notes to be purchased by them at the Closing as specified in Schedule A. DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 3 9 4.13 PAYMENT OF SPECIAL COUNSEL FEES. Without limiting the provisions of Section 15.1, the Company shall have paid on or before the Closing the accrued and estimated reasonable fees, charges and disbursements of your special counsel referred to in Section 4.4 to the extent reflected in a statement of such counsel rendered to the Company at least two Business Days prior to the date of the Closing. 4.15 PRIVATE PLACEMENT NUMBER. A Private Placement Number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Notes. 4.17 CHANGES IN CORPORATE STRUCTURE. Except as specified in Schedule 4.9, the Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5. 4.18 BANK CREDIT AGREEMENT. The Company shall have entered into the Bank Credit Agreement with each of the other parties thereto. The Bank Credit Agreement shall be in full force and effect, and the Company shall have delivered to you a fully executed copy thereof, certified as true, complete and correct by a Responsible Officer. 4.20 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be reasonably satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to you, as of the date of the Closing, that: 5.2 ORGANIZATION; POWER AND AUTHORITY. The Company is a corporation duly organized, validly existing and in active status under the laws of the State of Florida, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has paid all fees and penalties due the Department of State of the State of Florida through December 31, 1997 and filed with said Department its most recent annual report. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 4 10 deliver this Agreement and the Other Agreements and the Notes and to perform the provisions hereof and thereof. 5.3 AUTHORIZATION, ETC. This Agreement and the Other Agreements and the Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.5 DISCLOSURE. The Company, through its agent, SunTrust Capital Markets, Inc., has delivered to you and each Other Purchaser a copy of a Private Placement Offering Memorandum, dated June 2, 1997 (the "MEMORANDUM"), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Company and its Subsidiaries. Except for disclosures described in Schedule 5.3, this Agreement, the Memorandum, the documents, certificates or other writings delivered to you by or on behalf of the Company in connection with the transactions contemplated hereby and the financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Memorandum or for disclosures described in Schedule 5.3, or as disclosed in one of the documents, certificates or other writings identified therein, or in the financial statements listed in Schedule 5.5, or otherwise provided to you in writing, since March 4, 1997, there has been no change in the financial condition, operations, business, properties or prospects of the Company or any Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Memorandum or in the other documents, certificates and other writings delivered to you by or on behalf of the Company or otherwise provided to you, specifically for use in connection with the transactions contemplated hereby. As for any projections that may be contained in the Memorandum or in any other information delivered to you by the Company, no representation is made as to such projections other than such projections (a) are based upon information that the Company believes to be accurate and were developed in a manner the Company believes to be reasonable and (b) were derived from financial statements and information prepared on the basis of accounting consistent with GAAP and with the accounting principles currently used by the Company and the Subsidiaries. 5.7 ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES. DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 5 11 (a) Schedule 5.4 contains (except as noted therein) complete and correct lists of (i) the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary, (ii) the Company's Affiliates, other than Subsidiaries, and (iii) the Company's directors and senior officers. (b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4). (c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. (d) No Subsidiary is a party to, or otherwise subject to any legal restriction or any agreement (other than this Agreement, the agreements listed in Schedule 5.4 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. 5.9 FINANCIAL STATEMENTS. The Company has delivered to you and each Other Purchaser copies of the financial statements of the Company and its Subsidiaries listed in Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). 5.10 COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The execution, delivery and performance by the Company of this Agreement and the Notes will not DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 6 12 (a) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, including without limitation, the Bank Credit Agreement and the Secured Note Agreements, (b) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary, or (c) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary, including, without limitation, the Transportation Acts (49 U.S.C.), as amended. 5.11 GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement or the Notes. 5.13 LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS. (a) Except as disclosed in Schedule 5.8, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) Except as disclosed in Schedule 5.8, neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including, without limitation, Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.15 TAXES. The Company and its Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (a) the amount of which is not individually or in the aggregate Material or (b) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 7 13 Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate. The Federal income tax liabilities of the Company and its Subsidiaries have been audited by the Internal Revenue Service and paid for all fiscal years up to and including the fiscal year ended in June of 1986. 5.17 TITLE TO PROPERTY; LEASES. The Company and its Subsidiaries have good and sufficient title to their respective properties, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement except for those defects in title and Liens that, individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. All leases are valid and subsisting and are in full force and effect in all material respects except to the extent that, individually or in the aggregate, the failure to be so valid and subsisting and/or in full force and effect could not reasonably be expected to have a Material Adverse Effect. 5.18 LICENSES, PERMITS, ETC. Except as disclosed in Schedule 5.11, (a) the Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, without known conflict with the rights of others, except for those conflicts that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; (b) to the best knowledge of the Company, no product or practice of the Company or any Subsidiary infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (c) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any of its Subsidiaries. 5.20 COMPLIANCE WITH ERISA. (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in section 3 of ERISA), and no event, DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 8 14 transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material. (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities. The term "BENEFIT LIABILITIES" has the meaning specified in section 4001 of ERISA and the terms "CURRENT VALUE" and "PRESENT VALUE" have the meaning specified in section 3 of ERISA. (c) Neither the Company nor any ERISA Affiliate has in the past been required to have, or is currently required to make, any contributions to any Multiemployer Plan. (d) The expected postretirement benefit obligation (determined as of the last day of the Company's most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its Subsidiaries is not Material. (e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of your representation in Section 6.2 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by you. (f) Schedule 5.12 sets forth all ERISA Affiliates and all "employee benefit plans" maintained by the Company (or any "affiliate" thereof) or in respect of which the Notes could constitute an "employer security" ("EMPLOYEE BENEFIT PLAN" has the meaning specified in section 3 of ERISA, "AFFILIATE" has the meaning specified in section 407(d) of ERISA and section V of the Department of Labor Prohibited Transaction Exemption 95-60 (60 FR 35925, July 12, 1995) and "EMPLOYER SECURITY" has the meaning specified in section 407(d) of ERISA). 5.22 PRIVATE OFFERING BY THE COMPANY. Neither the Company nor anyone acting on its behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than you, the Other Purchasers and not more than 40 other Institutional Investors, each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 9 15 any action that would subject the issuance or sale of the Notes to the registration requirements of section 5 of the Securities Act. 5.24 USE OF PROCEEDS; MARGIN REGULATIONS. The Company will apply the proceeds of the sale of the Notes as set forth in Schedule 5.14. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation G of the Board of Governors of the Federal Reserve System (12 CFR 207), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 1% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 1% of the value of such assets. As used in this Section, the terms "MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall have the meanings assigned to them in said Regulation G. 5.26 EXISTING DEBT; FUTURE LIENS. (a) Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Debt of the Company and its Subsidiaries as of the Closing Date (and specifying, as to each item of Debt, the collateral, if any, securing such Debt), since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Debt of the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Debt of the Company or such Subsidiary and no event or condition exists with respect to any Debt of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Debt to become due and payable before its stated maturity or before its regularly scheduled dates of payment. Except as set forth on Schedule 5.15, neither the Company nor any Subsidiary is liable in any respect with respect to any Swaps or letters of credit (or instruments serving a similar function) securing the Debt of any Person other than the Company or a Subsidiary. (b) Except as disclosed in Schedule 5.15, neither the Company nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.4. 5.27 FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 10 16 5.29 STATUS UNDER CERTAIN STATUTES. Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, or the Federal Power Act, as amended. 5.31 ENVIRONMENTAL MATTERS. Neither the Company nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed to you in writing, (a) neither the Company nor any Subsidiary has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect; (b) neither the Company nor any of its Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them in violation of any Environmental Laws and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and (c) all buildings on all real properties now owned, leased or operated by the Company or any of its Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect. 6. REPRESENTATIONS OF THE PURCHASER. 6.2 PURCHASE FOR INVESTMENT. You represent that you are purchasing the Notes for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of your or their property shall at all times be within your or their control. You understand that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes. You acknowledge that you have the requisite knowledge and experience in financial and business matters to have enabled you to evaluate the merits and risks of investing in the Notes. You acknowledge that you have had an opportunity to meet with representatives of the Company and to ask questions and receive answers regarding the business DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 11 17 of the Company and its financial condition in order to assist you in evaluating the merits and risks of acquiring the Notes. 6.4 SOURCE OF FUNDS. You represent that at least one of the following statements is an accurate representation as to each source of funds (a "SOURCE") to be used by you to pay the purchase price of the Notes to be purchased by you hereunder: (a) the Source is an "insurance company general account" as defined in Department of Labor Prohibited Transaction Exemption 95-60 (60 FR 35925, July 12, 1995) and in respect thereof you represent that there is no "employee benefit plan" (as defined in section 3(3) of ERISA and section 4975(e)(1) of the IRC, treating as a single plan all plans maintained by the same employer or employee organization or affiliate thereof) with respect to which the amount of the general account reserves and liabilities of all contracts held by or on behalf of such plan exceed ten percent (10%) of the total reserves and liabilities of such general account (exclusive of separate account liabilities) plus surplus, as set forth in the NAIC Annual Statement filed with your state of domicile and that such acquisition is eligible for and satisfies the other requirements of such exemption; or (b) if you are an insurance company, the Source does not include assets allocated to any separate account maintained by you in which any employee benefit plan (or its related trust) has any interest, other than a separate account that is maintained solely in connection with your fixed contractual obligations under which the amounts payable, or credited, to such plan and to any participant or beneficiary of such plan (including any annuitant) are not affected in any manner by the investment performance of the separate account; or (c) the Source is either (i) an insurance company pooled separate account, within the meaning of Prohibited Transaction Exemption ("PTE") 90-1 (issued January 29, 1990), or (ii) a bank collective investment fund, within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the Company in writing pursuant to this paragraph (c), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (d) the Source constitutes assets of an "investment fund" (within the meaning of Part V of the QPAM Exemption) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 12 18 (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (d); or (e) the Source is a governmental plan; or (f) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (f); or (g) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA. As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL PLAN", "PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 7. INFORMATION AS TO COMPANY. 7.2 FINANCIAL AND BUSINESS INFORMATION. The Company shall deliver to each holder of Notes that is an Institutional Investor: (b) QUARTERLY STATEMENTS -- as soon as available and in any event within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of, (i) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and (ii) consolidated statements of income and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the consolidated financial position of the companies being reported on and their consolidated results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(a); DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 13 19 (d) ANNUAL STATEMENTS -- as soon as available and in any event within 120 days after the end of each fiscal year of the Company, duplicate copies of, (i) a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and (ii) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by (A) an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the consolidated financial position of the companies being reported upon and their consolidated results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and (B) a certificate of such accountants stating that they have reviewed this Agreement and stating further whether, in making their audit, they have become aware of any condition or event that then constitutes a Default or an Event of Default, and, if they are aware that any such condition or event then exists, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any Default or Event of Default unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards or did not make such an audit), provided that the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission, together with the accountant's certificate described in clause (B) above, shall be deemed to satisfy the requirements of this Section 7.1(b); (f) SEC AND OTHER REPORTS -- promptly upon their becoming available, one copy of (i) each financial statement, report (including, without limitation, the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act), notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, (ii) each regular or periodic report and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission and of all press releases and other similar statements made available generally by the Company or any Subsidiary to the public concerning developments that are Material, and (iii) on a best DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 14 20 efforts basis, each registration statement (without exhibits except as expressly requested by such holder) and prospectus (other than a registration statement or a prospectus, in each case, related solely to an employee benefit plan), and any amendments thereto, filed by the Company or any Subsidiary with the Securities and Exchange Commission; (h) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- promptly, and in any event within five days after a Responsible Officer becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 11(f), a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (j) ERISA MATTERS -- promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: (i) with respect to any Plan, any reportable event, as defined in section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date of the Closing; or (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or (iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect; (l) NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect; and (n) ACTIONS, PROCEEDINGS -- promptly after a Responsible Officer becomes aware of the commencement thereof, notice of any action or proceeding relating to the Company or any Subsidiary in any court or before any Governmental Authority or arbitration board or tribunal as to which there is a reasonable possibility of an adverse determination and DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 15 21 that, if adversely determined, could reasonably be expected to have a Material Adverse Effect; and (p) REQUESTED INFORMATION -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes, or such information regarding the Company required to satisfy the requirements of 17 C.F.R. ss.230.144A, as amended from time to time, in connection with any contemplated transfer of the Notes. 7.4 OFFICER'S CERTIFICATE. Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth: (b) COVENANT COMPLIANCE -- the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Section 10.1 through Section 10.9 hereof, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and (d) EVENT OF DEFAULT -- a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review has not disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. 7.6 INSPECTION. The Company shall permit the representatives of each holder of Notes that is an Institutional Investor: (b) NO DEFAULT -- if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 16 22 Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and (d) DEFAULT -- if a Default or Event of Default then exists, at the expense of the Company, to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested. 8. PAYMENT OF THE NOTES. 8.2 REQUIRED PREPAYMENTS; PAYMENT AT MATURITY. On July 15, 2004 and on each January 15 and July 15 thereafter to and including January 15, 2007, the Company will prepay $7,142,857 and on July 15, 2007 the Company will make a final payment of $7,142,858 principal amount (or such lesser principal amount as shall then be outstanding) of the Notes at par and without payment of the Make-Whole Amount or any premium, and the Company will pay all of the principal amount of the Notes remaining outstanding, if any, on July 15, 2007. Each partial prepayment of the Notes pursuant to Section 8.2 will reduce the principal amount of each mandatory prepayment applicable to the Notes, as set forth in this Section 8.1, and the payment at maturity of the Notes, in the same proportion as the aggregate unpaid principal amount of the Notes is reduced as a result of such prepayment. 8.4 OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT. The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes, (but if in part, in an amount not less than $1,000,000 or such lesser amount as shall then be outstanding), at 100% of the principal amount so prepaid, plus the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such prepayment date, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date. DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 17 23 8.6 ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each partial prepayment of the Notes, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. 8.7 MATURITY; SURRENDER, ETC. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and MakeWhole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. 8.9 NO OTHER OPTIONAL PREPAYMENTS OR PURCHASE OF NOTES. The Company will not prepay (whether directly or indirectly by purchase, redemption or other acquisition) any of the outstanding Notes except upon the payment or prepayment of the Notes in accordance with the terms of this Section 8. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Section 8 and no Notes may be issued in substitution or exchange for any such Notes. 8.11 MAKE-WHOLE AMOUNT. The term "MAKE-WHOLE AMOUNT" means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, provided that the MakeWhole Amount may in no event be less than zero. For the purposes of determining the MakeWhole Amount, the following terms have the following meanings: "CALLED PRINCIPAL" means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. "DISCOUNTED VALUE" means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal. "REINVESTMENT YIELD" means, with respect to the Called Principal of any Note, 0.50% over the yield to maturity implied by (a) the yields reported, as of 10:00 A.M. (New York City DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 18 24 time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page 678" on the Telerate Access Service (or such other display as may replace Page 678 on the Telerate Access Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (b) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (i) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (ii) interpolating linearly between (1) the actively traded U.S. Treasury security with the duration closest to and greater than the Remaining Average Life and (2) the actively traded U.S. Treasury security with the duration closest to and less than the Remaining Average Life. "REMAINING AVERAGE LIFE" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (a) such Called Principal into (b) the sum of the products obtained by multiplying (i) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (ii) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "REMAINING SCHEDULED PAYMENTS" means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1. "SETTLEMENT DATE" means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. 9. AFFIRMATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 19 25 9.2 COMPLIANCE WITH LAW. The Company will and will cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.4 INSURANCE. The Company will and will cause each of its Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. 9.6 MAINTENANCE OF PROPERTIES. The Company will and will cause each of its Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.8 PAYMENT OF TAXES AND CLAIMS. The Company will and will cause each of its Subsidiaries to file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes, assessments, charges or levies have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary, provided that it shall not be a breach of this Section 9.4 if the Company should fail to file any tax return where the failure to file could not reasonably be expected to have a Material Adverse Effect, and provided further, that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (a) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 20 26 Subsidiary or (b) the nonpayment of all such taxes, assessments, charges and levies in the aggregate could not reasonably be expected to have a Material Adverse Effect. 9.9 CORPORATE EXISTENCE, ETC. The Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Sections 10.6 and 10.7, the Company will at all times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries (unless merged into the Company or a Subsidiary) and all rights and franchises of the Company and its Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect. 10. FINANCIAL AND NEGATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: 10.1 DEBT. (a) SENIOR DEBT. The Company shall maintain, at the end of each fiscal quarter, a ratio of Consolidated Senior Debt to Consolidated Total Capitalization of not greater than 55%. (b) TOTAL DEBT. The Company shall maintain, at the end of each fiscal quarter, a ratio of Consolidated Debt to Consolidated Total Capitalization of not greater than 60%. 10.2 MINIMUM NET WORTH. The Company shall maintain Consolidated Net Worth in an amount not less than the sum of (a) $200,000,000, plus (b) 50% of any Consolidated Net Income (if positive) for the period from May 28, 1996 to the date of determination, plus (c) 100% of the net proceeds to the Company from the issuance of any of its common stock subsequent to the date of the Closing. 10.3 FIXED CHARGE COVERAGE. The Company shall maintain a minimum ratio of Income Available for Fixed Charges to Fixed Charges of 2.0:1.0, calculated at the expiration of each fiscal quarter based upon the most recent four fiscal quarters. 10.4 LIENS. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom, or assign or otherwise convey any right to receive income or profits, except: DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 21 27 (a) Liens existing on the date of the Closing and specified on Schedule 10.4; (b) Liens for taxes (including ad valorem and property taxes), assessments or other governmental charges the payment of which is not at the time required by Section 9.4; (c) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other similar Liens, in each case, incurred in the ordinary course of business and not in connection with the borrowing of money, for sums not yet due or the payment of which is not at the time required by Section 9.4; (d) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business (i) in connection with workers' compensation, unemployment insurance and other types of social security or retirement benefits, or (ii) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds (not in excess of $5,000,000), bids, leases (other than Capital Leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; (e) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances, in each case not materially interfering with, the ordinary conduct of the business of the Company or any of its Subsidiaries, provided that such Liens do not, in the aggregate, materially detract from the value of the properties of the Company and its Subsidiaries, taken as a whole; (f) Liens provided for in equipment leases that are not Capital Leases (including financing statements and undertakings to file financing statements), provided that they are limited to the equipment subject to such leases and the proceeds thereof; (g) leases, subleases, licenses and sublicenses granted to third parties, not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Subsidiaries, provided that such Liens do not, in the aggregate, materially detract from the value of the properties of the Company and its Subsidiaries, taken as a whole; (h) any Lien renewing, extending or refunding any Lien permitted by clauses (a) through (g) of this Section 10.4, provided that (i) the principal amount of Debt secured by such Lien immediately prior to such extension, renewal or refunding is not increased or the maturity thereof reduced, (ii) such Lien is not extended to any other property, and (iii) immediately after such extension, renewal or refunding no Default or Event of Default would exist; (i) Liens on property or assets of the Company or any of its Subsidiaries securing Debt owing to the Company or to any of its Wholly-Owned Subsidiaries; DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 22 28 (j) any Lien existing on property of a Person immediately prior to its being consolidated with or merged into the Company or a Subsidiary or its becoming a Subsidiary, or any Lien existing on any property acquired by the Company or any Subsidiary at the time such property is so acquired (whether or not the Debt secured thereby shall have been assumed), provided that (i) no such Lien shall have been created or assumed in contemplation of such consolidation or merger or such Person's becoming a Subsidiary or such acquisition of property, and (ii) each such Lien shall extend solely to the item or items of property so acquired and, if required by the terms of the instrument originally creating such Lien, other property which is an improvement to or is acquired for specific use in connection with such acquired property; (k) Liens securing Priority Debt permitted to be outstanding under Section 10.5; and (l) any right of set-off or banker's lien (whether by common law, statute, contract or otherwise) in favor of any bank (other than Liens securing Debt), provided, in each case, that the obligation secured is not overdue or, if overdue, is being diligently contested in good faith by appropriate actions or proceedings; 10.5 PRIORITY DEBT. The Company shall not at any time permit Priority Debt to exceed 20% of Consolidated Net Worth, in each case measured at such time. 10.6 MERGER OR CONSOLIDATION. The Company shall not, and shall not permit any Subsidiary to, merge, consolidate or exchange shares with any other Person, except that: (i) any Subsidiary may merge into or consolidate with (A) the Company, (B) a Subsidiary, provided the ownership interest of the Company therein is not reduced or diluted in connection with or as a result of such merger or consolidation, or (C) any other Person so long as the resulting company is a Wholly-Owned Subsidiary; and (ii) the Company may merge or consolidate with any other corporation (including a Subsidiary, provided the ownership interest of the Company therein is not reduced or diluted in connection with or as a result of such merger or consolidation) so long as (A) the surviving corporation shall be the Company or another corporation that is solvent and organized under the laws of the United States of America, any State thereof or the District of Columbia, DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 23 29 (B) the surviving corporation (if not the Company) shall have executed and delivered to each holder of Notes its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes (pursuant to such agreements and instruments as shall be reasonably satisfactory to the Required Holders), and the Company shall have caused to be delivered to each holder of Notes an opinion of nationally recognized independent counsel, or other independent counsel reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof, and (C) immediately after giving effect to such merger or consolidation no Default or Event of Default shall have occurred or exist. 10.7 SALE OF ASSETS. The Company shall not, and shall not permit any Subsidiary to, Dispose of any property or assets (other than marketable securities), except, so long as no Default or Event of Default shall exist and be continuing: (i) (A) any Subsidiary may Dispose of its assets to the Company or any WhollyOwned Subsidiary, (B) the Company may dispose of its assets to any Wholly-Owned Subsidiary, and (C) the Company or any Subsidiary may transfer otherwise surplus property, for its Fair Market Value, to the capital of Q-Lube, so long as Q-Lube is a Subsidiary of the Company; (ii) the Company or any Subsidiary may Dispose of any equipment that it in its good faith opinion determines to be obsolete, worn-out or no longer useful in its business, as determined in good faith by the Company; (iii) the Company or any Subsidiary may Dispose of inventory in the ordinary course of business; and (iv) the Company or any Subsidiary may Dispose of any other of its assets so long as, immediately after giving effect to such proposed Disposition: (A) the consideration for such assets is reasonably believed by the Company to represent the Fair Market Value of such assets at the time of such Disposition; and (B) the cumulative net book value of all assets Disposed of by the Company and its Subsidiaries during any 12 consecutive months does not exceed 15% of Consolidated Assets determined as of the most recently completed fiscal year. For purposes of this Section 10.7: DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 24 30 (1) "DISPOSITION" means the sale, lease, transfer or other disposition of property (including, without limitation, real property and stores) but shall not include any public taking or condemnation, and "DISPOSED OF" and "DISPOSE" each has a corresponding meaning to Disposition. The term "DISPOSITION" shall not include an exchange of assets, provided that the assets involved in such exchange are similar in function in that after giving effect to such exchange there has not been (A) a Material Adverse Effect, (B) any material deterioration of cash flow generation from or in connection with such assets, or (C) any material deterioration in the overall quality of plant, property and equipment of the Company and its Subsidiaries taken as a whole. An "EXCHANGE" of assets shall be deemed to have occurred if each of the transactions involved shall have been consummated within a six month period. (2) CALCULATION OF NET BOOK VALUE. The net book value of any assets shall be determined as of the respective date of Disposition of those assets. 10.8 TRANSACTIONS WITH RELATED PARTY. The Company shall not, and shall not permit any Subsidiary to, effect or permit to exist any transaction with any Affiliate (other than with another member of the Company's consolidated group), by which any asset or services of the Company or a Subsidiary is transferred to such Affiliate, or enter into any other transaction with an Affiliate (other than another member of the Company's consolidated group) on terms more favorable than would be reasonably expected in a similar transaction with an unrelated Person. 10.9 NATURE OF BUSINESS. Neither the Company nor any Subsidiary shall engage in any business, if as a result, when taken as a whole, the general nature of the business then engaged in by the Company and its Subsidiaries would be substantially changed from the nature of the business of the Company and its Subsidiaries as described in the Memorandum. 10.10 SUBORDINATION OF INTERCOMPANY LOANS. The Company shall not, and shall not permit any Subsidiary to, be or become liable on any Debt owed to any one or more of the Company, the Subsidiaries or any Affiliate of any thereof, unless such Debt shall at all times be subordinate and junior in right of payment and security to the Debt evidenced by the Notes, upon terms substantially identical to, and coextensive in scope and duration with, the terms benefiting the Debt evidenced by the Revolving Credit Notes (as defined in the Bank Credit Agreement), as contemplated by Section 7.11 of the Bank Credit Agreement, as amended from time to time (or benefiting any other Debt under the comparable provision in any other agreement entered into by the Company to replace, refinance or supplement the Bank Credit Agreement). 11. EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall exist if any of the following conditions or events shall occur and be continuing: DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 25 31 (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or (c) the Company defaults in the performance of or compliance with any term contained in any of Sections 10.1 through 10.7 or 10.9; or (d) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note; or (e) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; or (f) (i) the Company or any Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Debt that is outstanding in an aggregate principal amount of at least $5,000,000 beyond any period of grace provided with respect thereto, or (ii) the Company or any Subsidiary is in default in the performance of or compliance with any term of any evidence of Debt in an aggregate outstanding principal amount of at least $5,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Debt has become, or has been declared (or one or more Persons are entitled to declare such Debt to be), due and payable before its stated maturity or before its regularly scheduled dates of payment, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of any Debt to convert such Debt into equity interests), (A) the Company or any Subsidiary has become obligated to purchase or repay Debt before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $5,000,000 or (B) one or more Persons have the right to require the Company or any Subsidiary so to purchase or repay such Debt; or (g) the Company or any Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 26 32 (h) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any Subsidiary, a custodian, receiver, trustee or other officer with similar powers with respect to the Company or any Subsidiary or with respect to any substantial part of the property of the Company or any Subsidiary, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any Subsidiary, or any such petition shall be filed against the Company or any Subsidiary and such petition shall not be dismissed within 60 days; or (i) a final judgment or judgments for the payment of money aggregating in excess of $5,000,000 are rendered against one or more of the Company and its Subsidiaries and which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged or adequately provided for within 60 days after the expiration of such stay; or (j) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $5,000,000, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 27 33 As used in Section 11(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms in section 3 of ERISA. 12. REMEDIES ON DEFAULT, ETC. 12.2 ACCELERATION. (a) If an Event of Default with respect to the Company described in paragraph (g) or paragraph (h) of Section 11 (other than an Event of Default described in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable. (b) If any other Event of Default has occurred and is continuing, any holder or holders of more than 39% in principal amount of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable. (c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable. Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest thereon and (y) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. 12.4 OTHER REMEDIES. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder or holders, as the case may be, by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 28 34 12.6 RESCISSION. At any time after any Notes have been declared due and payable pursuant to clause (b) or clause (c) of Section 12.1, the holders of not less than 662/3% in principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, due and payable on any Notes other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. 12.7 NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all reasonable costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys' fees, expenses and disbursements. 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. 13.2 REGISTRATION OF NOTES. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. 13.4 TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 29 35 expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit 1. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $500,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $500,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.1 and 6.2. 13.6 REPLACEMENT OF NOTES. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser or another holder of a Note with a minimum net worth of at least $150,000,000, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. 14. PAYMENTS ON NOTES. 14.2 PLACE OF PAYMENT. Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in Lakeland, Florida at the principal office of the Company in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in the United States or the principal office of a bank or trust company in the United States. 14.4 HOME OFFICE PAYMENT. So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule A, or by such other DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 30 36 method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by you under this Agreement and that has made the same agreement relating to such Note as you have made in this Section 14.2. 15. EXPENSES, ETC. 15.2 TRANSACTION EXPENSES. Whether or not the transactions contemplated hereby are consummated, the Company will pay all reasonable costs and expenses (including reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by you and each Other Purchaser or holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective). The Company will also pay: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note; and (b) the costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, reasonable costs or expenses if any, of brokers and finders (other than those retained by you). 15.4 SURVIVAL. The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement. 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 31 37 warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 17. AMENDMENT AND WAIVER. 17.2 REQUIREMENTS. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of any of Sections 1, 2, 3, 4, 5, 6 and 21, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby, (i) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 and 20. 17.4 SOLICITATION OF HOLDERS OF NOTES. (b) SOLICITATION. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. (d) PAYMENT. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes of any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. (f) CONSENT IN CONTEMPLATION OF TRANSFER. Any consent made pursuant to this Section 17 by a holder of Notes that has transferred or has agreed to transfer its Notes to the Company, any Subsidiary or any Affiliate of the Company and has provided or has agreed to provide such written consent as a condition to such transfer shall be void and of no force or effect except solely as to such holder, and any amendments effected or waivers granted or to be effected or granted that would not have been or would not be so DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 32 38 effected or granted but for such consent (and the consents of all other holders of Notes that were acquired under the same or similar conditions) shall be void and of no force or effect except solely as to such holder. 17.5 BINDING EFFECT, ETC. Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term "THIS AGREEMENT" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 17.6 NOTES HELD BY COMPANY, ETC. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. 18. NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (i) if to you or your nominee, to you or it at the address specified for such communications in Schedule A, or at such other address as you or it shall have specified to the Company in writing, (ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or (iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of Chief Financial Officer, telecopier: 941-284-2063, or at such other address as the Company shall have specified to the holder of each Note in writing. Notices under this Section 18 will be deemed given only when actually received. DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 33 39 19. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by you at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. 20. CONFIDENTIAL INFORMATION. For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means information delivered to you by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by you as being confidential information of the Company or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to you prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by you or any person acting on your behalf, (c) otherwise becomes known to you other than through disclosure by the Company or any Subsidiary, or (d) constitutes financial statements delivered to you under Section 7.1 that are otherwise publicly available. You will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by you in good faith to protect confidential information of third parties delivered to you, provided that you may deliver or disclose Confidential Information to: (i) your directors, officers, trustees, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes); DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 34 40 (ii) your financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20; (iii) any other holder of any Note; (iv) any Institutional Investor to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20); (v) any Person from which you offer to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20); (vi) any federal or state regulatory authority having jurisdiction over you; (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about your investment portfolio; or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (A) to effect compliance with any law, rule, regulation or order applicable to you, (B) in response to any subpoena or other legal process, (C) in connection with any litigation to which you are a party, or (D) if an Event of Default has occurred and is continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes and this Agreement. You understand that the Company has publicly registered and traded securities and that the information shared by the Company with you includes and contains and/or may include and contain information that is material and non-public with respect to the Company. You agree and acknowledge that all such material non-public information will be the property of the Company. You acknowledge that the United States securities laws, including but not limited to the Insider Trading and Securities Enforcement Act of 1988, among other things, (1) prohibit any person who has material non-public information about a company from purchasing or selling securities of such company, or from communicating such information to any other person under circumstances in which it is reasonable foreseeable that such person is likely to purchase or sell such securities or will communicate such information to a person who will and (2) impose certain responsibilities upon companies whose employees may come into possession of such material non-public information. You covenant that you will comply with your obligations under applicable federal and state securities laws concerning material non-public information and will not use or communicate DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 35 41 any such material non-public information in contravention of such applicable federal or state securities laws or regulations and will use reasonable efforts to obtain similar commitments from persons to whom you may disclose such information. The Company understands and agrees that for securities law purposes you may be establishing an information blocking device or "Chinese Wall" between, on the one hand, your employee who is the signatory to this Agreement and other employees within the same group who shall receive the Confidential Information, and, on the other hand, other of your employees, some of whom may engage in or be engaged in the selling or trading (without contravening United States law) of Securities of the Company or its Subsidiaries. The Company agrees to take reasonable care not to breach any such Chinese Wall. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20. 21. SUBSTITUTION OF PURCHASER. You shall have the right to substitute any one of your Affiliates as the purchaser of the Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such Affiliate, shall contain such Affiliate's agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall be deemed to refer to such Affiliate in lieu of you. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall no longer be deemed to refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Notes under this Agreement. 22. MISCELLANEOUS. 22.2 SUCCESSORS AND ASSIGNS. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not. 22.4 PAYMENTS DUE ON NON-BUSINESS DAYS; WHEN PAYMENTS DEEMED RECEIVED. (b) PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-Whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 36 42 (d) PAYMENTS, WHEN RECEIVED. Any payment to be made to the holders of Notes hereunder or under the Notes shall be deemed to have been made on the Business Day such payment actually becomes available to such holder at such holder's bank prior to 12:00 noon (local time of such bank). 22.6 SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. 22.8 CONSTRUCTION. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. 22.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 22.12 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF FLORIDA EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. 22.13 SECTION HEADINGS AND TABLE OF CONTENTS. The titles of the Sections and the Table of Contents appear as a matter of convenience only, do not constitute a part hereof and shall not affect the construction hereof. The words "herein," "hereof," "hereunder" and "hereto" refer to this Agreement as a whole and not to any particular Section or other subdivision. References to Sections are, unless otherwise specified, references to Sections of this Agreement. References to Schedules and Exhibits are, unless otherwise specified, references to Schedules and Exhibits attached to this Agreement. [Remainder of page intentionally blank. Next page is signature page.] DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 37 43 If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, DISCOUNT AUTO PARTS, INC. By /s/ C. Michael Moore ----------------------------------------- Name: C. Michael Moore Title: Chief Financial Officer The foregoing is hereby agreed to as of the date thereof. [Separately executed by each Of the following Purchasers] HARTFORD LIFE INSURANCE COMPANY By: The Hartford Investment Management Company and by Hartford Investment Services, Inc. Its Agents and Attorneys-in-Fact By: /s/ Betsy Roberts - -------------------------------------------------------- Name: Betsy Roberts Title: Senior Vice President HARTFORD LIFE AND ACCIDENT INSURANCE COMPANY By: The Hartford Investment Management Company and by Hartford Investment Services, Inc. Its Agents and Attorneys-in-Fact By: /s/ Betsy Roberts - -------------------------------------------------------- Name: Betsy Roberts Title: Senior Vice President DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 38 44 HARTFORD FIRE INSURANCE COMPANY By: The Hartford Investment Management Company and by Hartford Investment Services, Inc. Its Agents and Attorneys-in-Fact By: /s/ Betsy Roberts - -------------------------------------------------------- Name: Betsy Roberts Title: Senior Vice President ALLSTATE LIFE INSURANCE COMPANY By: /s/ Patricia W. Wilson - -------------------------------------------------------- Name: Patricia W. Wilson By: /s/ Jerry D. Zinkula - -------------------------------------------------------- Name: Jerry D. Zinkula Authorized Signatories ALLSTATE INSURANCE COMPANY By: /s/ Patricia W. Wilson - -------------------------------------------------------- Name: Patricia W. Wilson By: /s/ Jerry D. Zinkula - -------------------------------------------------------- Name: Jerry D. Zinkula Authorized Signatories DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 39 45 SCHEDULE B DEFINED TERMS As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term: "ACQUIRED SUBSIDIARY DEBT" means Debt of a Person existing immediately prior to its being consolidated with or merged into the Company or a Subsidiary (whether or not such Debt shall have been expressly assumed) or its becoming a Subsidiary, provided that (i) no such Debt shall have been created or assumed in contemplation of such consolidation or merger or such Person's becoming a Subsidiary, (ii) the principal amount of such Debt shall not have been increased, replaced, refunded or refinanced, nor the rate of interest applicable thereto increased, either (a) in contemplation of such consolidation or merger or of such Person becoming a Subsidiary, or (b) for any reason at any time subsequent to the date of such consolidation or merger or of such Person becoming a Subsidiary, (iii) the maturity of such Debt shall not have been extended, nor the weighted average life to maturity thereof reduced, either (a) in contemplation of such consolidation or merger or of such Person becoming a Subsidiary, or (b) for any reason at any time subsequent to the date of such consolidation or merger or of such Person becoming a Subsidiary, and (iv) the terms of such Debt do not subject the Company to any prohibition on paying the principal of, interest on or any Make-Whole Amount with respect to the Notes, as and when such payments are due. "AFFILIATE" means at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of the Company or any Subsidiary or any corporation of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company. "AGREEMENT, THIS" is defined in Section 17.3. DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 46 "BANK CREDIT AGREEMENT" means the Company's Revolving Credit Agreement with SunTrust Bank, Central Florida, National Association, individually and as Agent, Amsouth Bank, individually and as Co-Agent, Barnett Bank, N.A., individually and as Co-Agent, First Union National Bank and The Fuji Bank and Trust Company, dated as of July 16, 1997, providing for a $175,000,000 syndicated revolving credit facility, which facility may be increased to $200,000,000 pursuant to the terms thereof, as such agreement is in effect on the Closing Date. "BUSINESS DAY" means (a) for the purposes of Section 8.6 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed, and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in Orlando, Florida or Atlanta, Georgia are required or authorized to be closed. "CAPITAL LEASE" means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "CAPITAL STOCK" means any class of capital stock, share capital or similar equity interest of a Person. "CLOSING" is defined in Section 3. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "COMPANY" is defined in the introductory sentence of this Agreement. "CONFIDENTIAL INFORMATION" is defined in Section 20. "CONSOLIDATED ASSETS" shall mean, at any time, the total assets of the Company and its Subsidiaries determined on a Consolidated basis at such time. "CONSOLIDATED BASIS" shall mean the consolidated financial information of the Company and its Subsidiaries under GAAP. "CONSOLIDATED DEBT" shall mean, at any time, without duplication, the amount of Debt of the Company and its Subsidiaries determined on a Consolidated basis at such time; provided, however, that Consolidated Debt shall not include Debt of such Persons consisting solely of secured trade payables in an aggregate amount not to exceed $3,000,000 at such time. "CONSOLIDATED NET INCOME" shall mean, for any period, the consolidated net income (or loss) of the Company and its Subsidiaries for such period (taken as a single accounting period) determined in conformity with GAAP, but excluding therefrom (to the extent otherwise included therein) (i) any nonrecurring gains or losses specifically identified on the Company's income statement, together with any related provision for taxes and (ii) any undistributed net income of a Subsidiary to the extent that such distribution is prohibited by agreement, judgment or regulation. "CONSOLIDATED NET WORTH" shall mean, at any time, stockholders equity of the Company and its Subsidiaries, determined on a Consolidated basis at such time. DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 47 "CONSOLIDATED SENIOR DEBT" shall mean, at any time, (i) all Debt of the Company and its Subsidiaries (other than intercompany Debt among the Company and its Subsidiaries) outstanding at such time, in each case which is not expressly subordinate in right of payment to the Notes, plus (ii) the Debt evidenced by the Notes. "CONSOLIDATED TOTAL CAPITALIZATION" shall mean, at any time, the sum of Consolidated Net Worth and Consolidated Debt, in each case measured at such time. "DEBT" shall mean, without duplication, with respect to any Person: (i) all indebtedness for borrowed money which such Person has directly or indirectly created, incurred or assumed (including, without limitation, all obligations of such Person in respect of Capital Leases) or for which such Person is liable; (ii) all indebtedness whether or not for borrowed money, secured by any Lien on any property or asset owned or held by such Person subject thereto, whether or not the indebtedness secured thereby shall have been assumed by the such Person; (iii) any indebtedness, whether or not for borrowed money, with respect to which such Person has become directly or indirectly liable and which represents or has been incurred to finance the purchase price (or a portion thereof) of any property or services or business acquired by such Person whether by purchase, consolidation, merger or otherwise other than any payables and accrued expenses incurred in the ordinary course of business that are current liabilities under GAAP; and (iv) any indebtedness of any other Person of the character referred to in clauses (i), (ii) or (iii) of this definition with respect to which such Person is liable by way of a Guarantee; all as determined in accordance with GAAP (whether or not such Guarantee is required to be reflected in the balance sheet of such Person prepared in accordance with GAAP), provided, however, Debt shall not include endorsements of negotiable instruments for collection in the ordinary course of business. Without limitation of the foregoing, Debt of any Person shall include all obligations of such Person of the character described in clauses (i) through clause (iv) above to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "DEFAULT" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "DEFAULT RATE" means that rate of interest that is the greater of (i) 2% per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes or (ii) 2% over the rate of interest publicly announced from time to time by Sun Trust Bank in Orlando, Florida as its "base" or "prime rate". "ENVIRONMENTAL LAWS" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 48 not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code. "EVENT OF DEFAULT" is defined in Section 11. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time. "EXECUTIVE OFFICER OF THE COMPANY" or "OR EXECUTIVE OFFICER OF THE COMPANY" means the chief executive officer, the president, an executive vice president or the chief financial officer of the Company. "FAIR MARKET VALUE" shall mean at any time, the sale value of property that would be realized in an arm's length sale at such time between an informed and willing buyer, and an informed and willing seller, under no compulsion to buy or sell, respectively. "FIXED CHARGES" for any period shall mean (i) all interest and amortization of debt discount and expense on all Debt of the Company and its Subsidiaries, on a Consolidated basis, paid or payable during such period (including the imputed interest factor in Rentals under all Capitalized Leases) and (ii) rent expense incurred under operating leases of the Company and its Subsidiaries, determined on a Consolidated basis for such period. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "GOVERNMENTAL AUTHORITY" means (a) the government of (i) the United States of America or any state or other political subdivision thereof, or (ii) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or that asserts jurisdiction over any properties of the Company or any Subsidiary, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. "GUARANTEE" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including, without limitation, obligations incurred through an agreement, contingent or otherwise, by such Person: DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 49 (a) to purchase such indebtedness or obligation or any property constituting security therefor; (b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof. In any computation of the indebtedness or other liabilities of the obligor under any Guarantee, the indebtedness or other obligations that are the subject of such Guarantee shall be assumed to be direct obligations of such obligor. "HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls). "HOLDER" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1. INCOME AVAILABLE FOR FIXED CHARGES" for any period shall mean the sum of (a) Consolidated Net Income, plus (b) (to the extent deducted in determining such Consolidated Net Income) (i) all provisions for any Federal, state or other income taxes made by the Company and its Subsidiaries, (ii) Fixed Charges, and (iii) depreciation and amortization expense, all as calculated for such period. "INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note, (b) any holder of a Note holding more than 5% of the aggregate principal amount of the Notes then outstanding, and (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. "KNOWLEDGE" or "KNOWLEDGE" with respect to the Company means the actual knowledge of one or more of the Executive Officers of the Company. "LIEN" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 50 "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement and the Notes, or (c) the validity or enforceability of this Agreement or the Notes. "MAKE-WHOLE AMOUNT" is defined in Section 8.6. "MATERIAL" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Subsidiaries taken as a whole. "MEMORANDUM" is defined in Section 5.3. "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "NOTES" is defined in Section 1. "OFFICER'S CERTIFICATE" means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate. "OTHER AGREEMENTS" is defined in Section 2. "OTHER PURCHASERS" is defined in Section 2. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "PERSON" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "PLAN" means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "PREFERRED STOCK" means any class of Capital Stock of a Person that is preferred over any other class of Capital Stock of such Person as to the payment of dividends or other equity distributions or the payment of any amount upon liquidation or dissolution of such Person. "PRIORITY DEBT" shall mean (i) all Debt (other than Acquired Subsidiary Debt) or Preferred Stock of a Subsidiary and (ii) all Debt of the Company which is secured by Liens not otherwise allowed under any of clauses (a) through (d) of Section 10.4. DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 51 "PROPERTY OR PROPERTIES" means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate. "Q-LUBE" means the DAP/LUBECO Partnership, a Nevada general partnership, consisting of DAP/LUBECO Corp., a Nevada corporation, and LUBECO Management, Inc. as general partners and created pursuant to that certain General Partnership Agreement, dated March 1, 1997. "QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor. "QUALIFIED INSTITUTIONAL BUYER" means any Person who is a "qualified institutional buyer" within the meaning of such term as set forth in Rule 144A(a)(1) under the Securities Act. "REQUIRED HOLDERS" means, at any time, the holder or holders of at least 662/3% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates). "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other executive officer of the Company with responsibility for the administration of the relevant portion of this Agreement. "SECURED NOTE AGREEMENTS" means and includes: (a) the Note Agreement, dated as of December 15, 1987, between the Company and Massachusetts Mutual Life Insurance Company, as the same is in effect on the Closing Date, pursuant to which the Company issued its 10.11% Senior Secured Notes due December 15, 2000 in the original principal amount of $12,000,000; and (b) the separate Note Agreements, each dated as of October 30, 1989, between the Company and each of Massachusetts Mutual Life Insurance Company and MassMutual Participation Investors, as the same are in effect on the Closing Date, pursuant to which the Company issued its 9.80% Senior Secured Notes due May 31, 2003 in the original principal amount of $12,000,000; "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time. "SENIOR FINANCIAL OFFICER" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. "SOURCE" is defined in Section 6.2. "SUBSIDIARY" means, with respect to any Person, any corporation or other legal entity that is required to be consolidated with such Person under GAAP. Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "SUBSIDIARY DEBT" shall mean all Debt of which the direct obligor is a Subsidiary of the Company. "SWAPS" means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 52 assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. "WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary 100% of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company's other Wholly-Owned Subsidiaries at such time. DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 53 EXHIBIT 1 FORM OF NOTE DISCOUNT AUTO PARTS, INC. 7.46% SENIOR NOTE DUE JULY 15, 2007 No. R-___ [Date] $_______ PPN: 25463* AC 1 FOR VALUE RECEIVED, the undersigned, DISCOUNT AUTO PARTS, INC. (herein called the "COMPANY"), a corporation organized and existing under the laws of the State of Florida, hereby promises to pay to , or registered assigns, the principal sum of DOLLARS ($_________) on July 15, 2007, with interest (computed on the basis of a 360- day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of seven and forty- six one-hundredths percent (7.46%) per annum from the date hereof, payable semiannually on the 15th day of January and July in each year, commencing on the later of January 15, 1998 or the payment date next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreements referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the Default Rate (as defined in the Note Purchase Agreements referred to below). Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the address shown in the register maintained by the Company for such purpose or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreements referred to below. This Note is one of a series of Senior Notes (herein called the "NOTES") issued pursuant to separate Note Purchase Agreements, dated as of July 15, 1997 (as from time to time amended, the "NOTE PURCHASE AGREEMENTS"), between the Company and the respective purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreements and (ii) to have made the representations set forth in Section 6.2 of the Note Purchase Agreements. This Note is a registered Note and, as provided in the Note Purchase Agreements, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT 54 The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreements. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreements, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreements, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreements. THIS NOTE AND THE NOTE PURCHASE AGREEMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF FLORIDA, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. DISCOUNT AUTO PARTS, INC. By ----------------------------- Name: Title: ACKNOWLEDGEMENT STATE OF GEORGIA ) COUNTY OF FULTON ) On this the ________ day of ________________, 1997, personally appeared ___________________, the ________________ of Discount Auto Parts, Inc., a Florida corporation, (the "Company"), and before me, executed this 7.46% Senior Note on behalf of the Company. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. -------------------------------------------- Signature of Notary Public, State of Georgia -------------------------------------------- (Print, Type or Stamp Commissioned Name of Notary Public) Personally known _______; OR Produced identification_______. Type of identification produced:___________ -------------------------------------------- DISCOUNT AUTO PARTS, INC. NOTE PURCHASE AGREEMENT EX-10.4 3 REVOLVONG CREDIT AGREEMENT 1 EXHIBIT 10.4 ============================================================================== REVOLVING CREDIT AGREEMENT Dated as of July 16, 1997 By And Among DISCOUNT AUTO PARTS, INC. and SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, individually and as Agent, AMSOUTH BANK, BARNETT BANK, N.A., FIRST UNION NATIONAL BANK AND THE FUJI BANK AND TRUST COMPANY ============================================================================== 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS; CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2 Accounting Terms and Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 1.3 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 1.4 Exhibits and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE II REVOLVING LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 2.1 Commitment; Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 2.2 Notes; Repayment of Principal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 2.3 Voluntary Reduction of Revolving Loan Commitments . . . . . . . . . . . . . . . . . . . . . 15 Section 2.4 Increase of Revolving Loan Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 2.5 Swingline Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 2.6 Additional Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE III [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE IV GENERAL LOAN TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 4.1 Funding Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 4.2 Disbursement of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 4.3 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 4.4 Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 4.5 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 4.6 Voluntary Prepayments of Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 4.7 Payments, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 4.8 Interest Rate Not Ascertainable, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 4.9 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 4.10 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 4.11 Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 4.12 Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 4.13 Assumptions Concerning Funding of LIBOR Advances . . . . . . . . . . . . . . . . . . . . . 27 Section 4.14 Apportionment of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 4.15 Sharing of Payments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 4.16 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 4.17 Return of Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE V CONDITIONS TO BORROWINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 5.1 Conditions Precedent to Initial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 5.2 Conditions to All Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
i 3 ARTICLE VI REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 6.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 6.2 Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 6.3 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 6.4 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 6.5 Actions Pending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 6.6 Representations; No Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 6.7 Title to Properties; Capitalized Leases . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 6.8 Enforceability of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 6.9 Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 6.10 Use of Proceeds; Federal Reserve Regulations . . . . . . . . . . . . . . . . . . . . . . . 35 Section 6.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 6.12 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 6.13 Outstanding Consolidated Funded Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 6.14 Conflicting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 6.15 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 6.16 Possession of Franchises, Licenses, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 6.17 Patents, Trademarks, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 6.18 Governmental Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 6.19 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 6.20 [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 6.21 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 6.22 Intercompany Loans; Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 6.23 Securities Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 6.24 Investment Company Act; Holding Company . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 6.25 Regulation G, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 6.26 Changes in Financial Condition; Adverse Developments. . . . . . . . . . . . . . . . . . . . 40 ARTICLE VII AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 7.1 Corporate Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 7.2 Compliance with Laws, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 7.3 Payment of Taxes and Claims, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 7.4 Keeping of Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 7.5 Visitation, Inspection, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 7.6 Insurance; Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 7.7 Reporting Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 7.8 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 7.9 Notices Under Certain Other Consolidated Funded Debt . . . . . . . . . . . . . . . . . . . 46 Section 7.10 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 7.11 Subordination of Intercompany Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 ARTICLE VIII NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 8.1 [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 8.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 8.3 Mergers, Acquisitions, Sales, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 8.4 Investments, Loans, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 8.5 Sale and Leaseback Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ii 4 Section 8.6 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 8.7 [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 8.8 Changes in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 8.9 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 8.10 [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 8.11 Limitation on Payment Restrictions Affecting Consolidated Companies . . . . . . . . . . . . 51 Section 8.12 [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 8.13 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 8.14 Subsidiary Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 ARTICLE IX EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 9.1 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 9.2 Covenants Without Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 9.3 Other Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 9.4 Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 9.5 Non-Payments of Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 9.6 Defaults Under Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 9.7 Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 9.8 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 9.9 Money Judgment; Airgas Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 9.10 Change in Control of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 9.11 Default Under Other Credit Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 9.12 Attachments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 ARTICLE X THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 10.1 Appointment of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 10.2 Nature of Duties of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 10.3 Lack of Reliance on the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 10.4 Certain Rights of the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 10.5 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 10.6 Indemnification of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 10.7 The Agent in its Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 10.8 Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 10.9 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 11.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 11.2 Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 11.3 No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 11.4 Payment of Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 11.5 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 11.6 Benefit of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 11.7 Governing Law; Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 11.8 Independent Nature of Lenders' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 11.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 11.10 Effectiveness; Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 11.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 11.12 Independence of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
iii 5 Section 11.13 Change in Accounting Principles, Fiscal Year or Tax Laws . . . . . . . . . . . . . . . . . 67 Section 11.14 Headings Descriptive; Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 11.15 Time is of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 11.16 Usury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 11.17 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
iv 6 SCHEDULES Schedule 6.4 Tax Filings and Payments Schedule 6.5 Certain Pending and Threatened Litigation Schedule 6.7 Capitalized Lease Obligations Schedule 6.11 Employee Benefit Matters Schedule 6.12 List of Subsidiaries Schedule 6.13 Outstanding Debt, Defaults Schedule 6.14 Conflicting Agreements Schedule 6.15(a) Environmental Compliance Schedule 6.15(b) Environmental Notices Schedule 6.15(c) Environmental Permits Schedule 6.15(d) Equal Employment and Employee Safety Schedule 6.17 Patent, Trademark, License, and Other Intellectual Property Matters Schedule 6.21 Labor and Employment Matters Schedule 6.22 Intercompany Loans Schedule 8.2 Existing Liens EXHIBITS -------- Exhibit A Form of Assignment and Acceptance Exhibit B Form of Revolving Credit Note Exhibit C Form of Additional Lender's Certificate Exhibit D Form of Closing Certificate Exhibit E Form of Opinion of Borrower's Counsel
v 7 REVOLVING CREDIT AGREEMENT THIS REVOLVING CREDIT AGREEMENT, dated as of July 16, 1997 (the "Agreement") by and among DISCOUNT AUTO PARTS, INC. ("Borrower"), a Florida corporation, SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, ("SunTrust") a national banking association, AMSOUTH BANK, individually and as Co-Agent, BARNETT BANK, N.A., individually and as Co-Agent, FIRST UNION NATIONAL BANK and THE FUJI BANK AND TRUST COMPANY (collectively, the "Lenders" and, individually, a "Lender"), and SunTrust as Agent for the Lenders. W I T N E S S E T H: THAT, for and in consideration of the mutual covenants made herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS; CONSTRUCTION SECTION 1.1 DEFINITIONS. As used in this Agreement, and in any instrument, certificate, document or report delivered pursuant thereto, the following terms shall have the following meanings (to be equally applicable to both the singular and plural forms of the term defined): "ADVANCE" shall mean any principal amount advanced and remaining outstanding at any time under the Revolving Loans, which Advance shall be made or outstanding as a Base Rate Advance, a LIBOR Advance or a Swingline Advance. "AFFILIATE" of any Person means any other Person directly or indirectly controlling, controlled by, or under common control with, such Person, whether through the ownership of voting securities, by contract or otherwise. For purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by", and "under common control with") as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person. "AGENT" shall mean SunTrust Bank, Central Florida, National Association, as agent for the Lenders hereunder and under the other Credit Documents, and each successor Agent. 8 "AGREEMENT" shall mean this Revolving Credit Agreement, either as originally executed or as it may be from time to time supplemented, amended, restated, renewed or extended and in effect. "AIRGAS LITIGATION" shall mean the pending litigation known as Airgas, Inc. et.al. vs. Discount Auto Parts, Inc. et. al., pending in the United States District Court of Georgia, Savannah Division under Case No. LV497-32. "APPLICABLE MARGIN" shall mean, with respect to Revolving Loans which are LIBOR Advances: The Applicable Margin shall be the number of basis points designated below based on the Borrower's Funded Debt to Total Capitalization Ratio ("FD/TC), measured quarterly: FD/TC <20% <45% but >20% >45% - - L + 30.00 bp L + 37.50 bp L + 55.00 bp provided, however, that adjustments, if any, to the Applicable Margin based on changes in the Borrower's Funded Debt to Total Capitalization Ratio as set forth above shall be calculated by the Agent quarterly, based upon the Borrower's quarterly financial statements, beginning with the Borrower's statements for the period ended March 4, 1997, and shall become effective on the first Day of the next succeeding fiscal quarter following the date of such calculation. "ASSET VALUE" shall mean, with respect to any property or asset of the Borrower as of any particular date, an amount equal to the greater of (i) the then book value of such property or asset as established in accordance with GAAP, or (ii) the then fair market value of such property or asset as determined in good faith by the board of directors of the Borrower. "ASSIGNMENT AND ACCEPTANCE" shall mean an assignment and acceptance entered into by a Lender and an Eligible Assignee in accordance with the terms of this Agreement and substantially in the form of Exhibit A. "BANKRUPTCY CODE" shall mean The Bankruptcy Code of 1978, as amended and in effect from time to time (11 U.S.C. Section 5101 et seq.). "BASE RATE" shall mean (with any change in the Base Rate to be effective as of the date of change of either of the following rates): 2 9 with respect to Revolving Loans the higher of (a) the rate which SunTrust Banks of Florida, Inc., ("SunTrust Banks") announces from time to time as its prime lending rate, as in effect from time to time (the "Prime Rate") or (b) the Federal Funds Rate, as in effect from time to time, plus one-half of one percent (0.50%) per annum. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate charged borrowing customers of any subsidiary bank of SunTrust Banks; any subsidiary of SunTrust Banks, including the Agent, may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "BASE RATE ADVANCE" or "BASE RATE LOAN" shall mean an Advance made or outstanding as a Revolving Loan and bearing interest based on the Base Rate. "BORROWING" shall mean the incurrence by Borrower of Advances of one Type concurrently having the same Interest Period or the continuation or conversion of an existing Borrowing or Borrowings in whole or in part. "BUSINESS DAY" shall mean any day other than Saturday, Sunday and a day on which commercial banks are required to be closed for business in Orlando, Florida. "CAPITALIZED LEASE OBLIGATIONS" shall mean all lease obligations which have been or are required to be, in accordance with generally accepted accounting principles, capitalized on the books of the lessee. "CERCLA" has the meaning set forth in Section 6.15 of this Agreement. "CLOSING DATE" shall mean the date on or before July __, 1997, on which the initial Loans are made and the conditions set forth in Section 5.1 are satisfied or waived in accordance with Section 11.2. "CO-AGENT" or "CO-AGENTS" shall mean, individually or collectively, as the context may require, AmSouth Bank and Barnett Bank, N.A., as Co-Agent for the Lenders hereunder and under the other Credit Documents, and each successor Co-Agent. "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. "COMMITMENT" shall mean, for any Lender at any time, its Revolving Loan Commitment. 3 10 "COMMITMENT FEE" shall mean the one-time fee payable to the Lenders on the Closing Date, as set forth in Section 4.5(b) hereof. "CONSOLIDATED COMPANIES" shall mean, collectively, Borrower and all of its Subsidiaries. "CONSOLIDATED EBIT" shall mean, for any fiscal period of the Borrower, an amount equal to the sum of its Consolidated Net Income (Loss), plus, (i) Consolidated Interest Expense and (ii) Consolidated Income Tax Expense. "CONSOLIDATED EBITR" shall mean, for any fiscal period of the Borrower, an amount equal to the sum of its Consolidated EBIT, plus Consolidated Rental Expense, for such period; provided, however, that in making any calculation of Consolidated EBITR, the first $5,000,000.00 of liability paid by Borrower in connection with the Airgas Litigation shall be excluded. "CONSOLIDATED FIXED CHARGES" shall mean, for any fiscal period of the Borrower, an amount equal to the sum of (i) Consolidated Interest Expense and (ii) Consolidated Rental Expense, determined in accordance with GAAP. "CONSOLIDATED FUNDED DEBT" shall mean, without duplication, all Indebtedness for money borrowed, purchase money mortgages, capitalized leases, amounts outstanding in respect of asset securitization vehicles, conditional sales contracts and similar title retention debt instruments, including any current maturities of such indebtedness, plus the present value of future operating lease payments calculated using standard S&P methodology, plus the redemption amount with respect to any redeemable preferred stock of the Borrower or any Subsidiaries required to be redeemed within the next twelve (12) months. Consolidated Funded Debt shall also include any Consolidated Funded Debt which has been guaranteed by the Borrower or any Subsidiary or which is supported by a letter of credit issued for the account of the Borrower or any Subsidiary. "CONSOLIDATED FUNDED DEBT TO TOTAL CAPITALIZATION RATIO" shall mean the ratio of Consolidated Funded Debt to Total Capitalization. "CONSOLIDATED INTEREST EXPENSE" shall mean, for any fiscal period of Borrower, total interest expense (including without limitation, interest expense attributable to capitalized leases) of Borrower and its Subsidiaries on a consolidated basis. "CONSOLIDATED INCOME TAX EXPENSE" shall mean, for any fiscal period of the Borrower, the aggregate of (i) all taxes based upon or measured by the income of the Borrower and its Subsidiaries on a consolidated basis and (ii) franchise taxes payable by the 4 11 Borrower and its Subsidiaries on a consolidated basis, determined in accordance with GAAP. "CONSOLIDATED NET INCOME (LOSS)" shall mean, for any fiscal period of Borrower, the consolidated net income (or loss) of Borrower and its Subsidiaries for such period (taken as a single accounting period); provided that there shall be excluded therefrom (i) any items of gain or loss, together with any related provision for Taxes which were included in determining such consolidated net income, resulting from the sale of assets other than in the ordinary course of business; and (ii) the income (or loss) of any party accrued prior to the date such party becomes a Subsidiary of Borrower or is merged into or consolidated with Borrower or any of its Subsidiaries, or such party's assets are acquired by the Borrower or any of its Subsidiaries. "CONSOLIDATED NET WORTH" shall mean, for any period of determination, the net worth of the Borrower and its Subsidiaries on a consolidated basis, determined in accordance with GAAP. "CONSOLIDATED RENTAL EXPENSE" shall mean for any fiscal period of Borrower, total rental expense and operating lease expense of Borrower and its Subsidiaries on a consolidated basis, determined in accordance with GAAP. "CONTRACTUAL OBLIGATION" of any Person shall mean any provision of any agreement, instrument or undertaking under which such Person is obligated or by which it or any of the property owned by it is bound. "CREDIT DOCUMENTS" shall mean, collectively, this Agreement, as amended from time to time and the Notes. "CREDIT PARTIES" shall mean, collectively, each of the Borrower and every other Person who from time to time executes a Credit Document who is liable for all or any portion of the Obligations. "DEFAULT" shall mean any condition or event which, with notice or lapse of time or both, would constitute an Event of Default. "DEFAULT RATE" shall mean the higher of (i) Base Rate plus two percent (2%), or (ii) the interest rate otherwise applicable to said amount outstanding plus two percent (2%), but in no event shall such interest rate exceed the highest lawful rate. "DOLLAR" and the sign "$" shall mean lawful money of the United States of America. "ELIGIBLE ASSIGNEE" shall mean (i) a commercial bank organized under the laws of the United States, or any state thereof, having total assets in excess of $1,000,000,000.00 or any commercial finance or asset based lending Affiliate of any 5 12 such commercial bank and (ii) any Lender or any Affiliate of any Lender. "ENVIRONMENTAL LAWS" shall mean all federal, state, local and foreign statutes and codes or regulations, rules or ordinances issued, promulgated, or approved thereunder, and having the force of laws, now or hereafter in effect (including, without limitation, those with respect to asbestos or asbestos containing material or exposure to asbestos or asbestos containing material), relating to pollution or protection of the environment and relating to public health and safety, including, without limitation, those imposing liability or standards of conduct concerning (i) emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or industrial toxic or hazardous materials, substances or wastes, including without limitation, any Hazardous Substance, petroleum including crude oil or any fraction thereof, any petroleum product or other waste, chemicals or substances regulated by any Environmental Law into the environment (including without limitation, ambient air, surface water, ground water, land surface or subsurface strata), or (ii) the manufacture, processing, distribution, use, generation, treatment, storage, disposal, transport or handling of any Hazardous Substance, petroleum including crude oil or any fraction thereof, any petroleum product or other waste, chemicals or substances regulated by any Environmental Law, and (iii) underground storage tanks and related piping, and emissions, discharges and releases or threatened releases therefrom, such Environmental Laws to include, without limitation (i) the Clean Air Act (42 U.S.C. Section 7401 et seq.), (ii) the Clean Water Act (33 U.S.C. Section 1251 et seq.), (iii) the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), (iv) the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.) and (v) the Comprehensive Environmental Response Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act (42 U.S.C. Section 9601 et seq.). "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended and in effect from time to time. "ERISA AFFILIATE" shall mean, with respect to any Person, each trade or business (whether or not incorporated) which is a member of a group of which that Person is a member and which is under common control within the meaning of the regulations promulgated under Section 414 of the Code. "EVENT OF DEFAULT" shall have the meaning set forth in Article IX. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended from time to time, and any successor statute thereto. 6 13 "EXTENSION OF CREDIT" shall mean the making of a Loan or the conversion of a Loan of one Type into a Loan of another Type. "FEDERAL FUNDS RATE" shall mean for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of Atlanta, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by the Agent. "FEE LETTER" shall mean that certain engagement letter, dated April 23, 1997, entered into by and among the Agent, the Borrower and SunTrust Capital Markets, Inc. "FINAL MATURITY DATE" shall mean the date on which all commitments have been terminated and all amounts outstanding under this Agreement have been declared or have automatically become due and payable pursuant to the provisions of Article IX. "GAAP" shall mean 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 may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "GUARANTEED INDEBTEDNESS" shall mean, as to any Person, any obligation of such Person guaranteeing any indebtedness, lease, dividend, or other obligation ("primary obligation") of any other Person (the "primary obligor") in any manner including, without limitation, any obligation or arrangement of such Person (a) to purchase or repurchase any such primary obligation, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) to indemnify the owner of such primary obligation against loss in respect thereof. "HAZARDOUS SUBSTANCES" has the meaning assigned to that term in CERCLA. 7 14 "INCIDENTAL CONTRACTS" shall mean those contracts to which a Consolidated Company is a party or by which its assets are bound, and as to which (i) the assets or services provided to the Consolidated Company under said contract are not material, (ii) the assets or services so provided under said contract are generic in nature and can readily be replaced on substantially comparable terms, or (iii) the loss of said assets or services would not have a Materially Adverse Effect. "INDEBTEDNESS" of any Person shall mean, without duplication (i) all obligations of such Person which in accordance with GAAP would be shown on the balance sheet of such Person as a liability (including, without limitation, obligations for borrowed money and for the deferred purchase price of property or services, and obligations evidenced by bonds, debentures, notes or other similar instruments); (ii) all rental obligations under leases required to be capitalized under GAAP; (iii) all Guaranteed Indebtedness of such Person (including contingent reimbursement obligations under undrawn letters of credit); (iv) Indebtedness of others secured by any Lien upon property owned by such Person, whether or not assumed; and (v) obligations or other liabilities under currency contracts, interest rate hedging contracts, or similar agreements or combinations thereof. "INTERCOMPANY LOANS" shall mean, collectively, (i) the loans more particularly described on Schedule 6.22 and (ii) those loans or other extensions of credit made by any Consolidated Company to another Consolidated Company satisfying the terms and conditions set forth in Section 8.1 or as may otherwise be approved in writing by the Agent and the Required Lenders. "INTEREST PERIOD" shall mean (i) 1, 2, 3 or 6 months as selected by the Borrower with respect to LIBOR Advances; (ii) thirty (30) days with respect to Base Rate Advances; and (iii) any period of not more than 7 days as agreed to in writing by the Borrower and the Agent with respect to Swingline Advances; provided, that (a) the first day of an Interest Period must be a Business Day, (b) any Interest Period that would otherwise end on a day that is not a Business Day for LIBOR Loans shall be extended to the next succeeding Business Day for LIBOR Loans, unless such Business Day falls in the next calendar month, in which case the Interest Period shall end on the next preceding Business Day for LIBOR Loans, and (c) Borrower may not elect an Interest Period which would extend beyond the Termination Date. "INVESTMENT" shall mean, when used with respect to any Person, any direct or indirect advance, loan or other extension of credit (other than the creation of receivables in the ordinary course of business) or capital contribution by such Person (by means of transfers of property to others or payments for property or services for the account or use of others, or otherwise) to any Person, or any direct or indirect purchase or other acquisition by such Person of, or of a beneficial interest in, 8 15 capital stock, partnership interests, bonds, notes, debentures or other securities issued by any other Person. "LENDER" or "LENDERS" shall mean SunTrust, the other banks and lending institutions listed on the signature pages hereof and any lending institution added as a Lender after the Closing Date, and each assignee thereof, if any, pursuant to Section 11.6. "LENDING OFFICE" shall mean for each Lender the office such Lender may designate in writing from time to time to Borrower and the Agent with respect to each Type of Loan. "LIBOR" shall mean, for any Interest Period, the offered rates for deposits in U.S. dollars for a period comparable to the Interest Period appearing on the Reuters Screen LIBOR Page as of 11:00 a.m., London time, on the day that is two London banking days prior to the first day of the Interest Period. If at least two such rates appear on the Reuters Screen LIBOR Page, the rate for that Interest Period will be the arithmetic mean of such rates, rounded, if necessary, to the next higher 1/16 of 1.0%; and in either case as such rates may be adjusted for any applicable reserve requirements. If the foregoing rate is unavailable from the Reuters Screen for any reason, then such rate shall be determined by the Agent from Telerate or, if such rate is also unavailable on such service, then on any other interest rate reporting service of recognized standing designated in writing by the Agent to Borrower and the Lenders; in any such case rounded, if necessary, to the next higher 1/16 of 1.0%, if the rate is not such a multiple. "LIBOR ADVANCE" or "LIBOR LOAN" shall mean an Advance made or outstanding as a Revolving Loan and bearing interest based on LIBOR plus the Applicable Margin. "LIEN" shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind or description and shall include, without limitation, any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any capitalized lease in the nature thereof including any lease or similar arrangement with a public authority executed in connection with the issuance of industrial development revenue bonds or pollution control revenue bonds, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction. "LOANS" shall mean, collectively, the Base Rate Loans, the LIBOR Loans and the Swingline Loans. "MATERIALLY ADVERSE EFFECT" shall mean a material adverse effect upon, or a material adverse change in, the (i) business, results of operations, properties, or financial condition of the Consolidated Companies taken as a whole, (ii) legality, validity, binding effect or enforceability of any Credit Document, or (iii) 9 16 ability of the Credit Parties (taken as a whole) to perform their obligations under the Credit Documents. "MAXIMUM SWINGLINE AMOUNT" shall mean the maximum aggregate principal amount of Swingline Loans which may be outstanding at any one time, which shall be $15,000,000.00. "MOODY'S" shall mean Moody's Investors Service, Inc. and its successors and assigns. "MULTIEMPLOYER PLAN" shall have the meaning set forth in Section 4001(a)(3) of ERISA. "NON-USAGE FEE" shall mean the quarterly fee payable by the Borrower in accordance with Section 4.5(c) hereof. "NOTE" OR "NOTES" shall mean, individually, or collectively, as the context may require, any of the Revolving Credit Notes, either as originally executed or as the same may be from time to time supplemented, modified, amended, renewed, extended or replaced. "NOTICE OF BORROWING" shall have the meaning provided in Section 4.1. "NOTICE OF CONVERSION/CONTINUATION" shall have the meaning provided in Section 4.1. "OBLIGATIONS" shall mean all amounts owing to the Agent or any Lender pursuant to the terms of this Agreement or any other Credit Document, including without limitation, all Loans (including all principal and interest payments due thereunder), fees, expenses, indemnification and reimbursement payments, indebtedness, liabilities, and obligations of the Credit Parties, direct or indirect, absolute or contingent, liquidated or unliquidated, now existing or hereafter arising, together with all renewals, extensions, modifications or refinancings thereof. "PAYMENT OFFICE" shall mean the office of the Agent located at 200 South Orange Avenue, Orlando, Florida; or such other location as may be designated by the Agent from time to time in writing. "PBGC" shall mean the Pension Benefit Guaranty Corporation, and any successor thereto. "PERSON" shall mean and shall include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated association, a government or any department or agency thereof and any other entity whatsoever. "PLAN" shall mean any employee benefit plan, program, arrangement, practice or contract, maintained by or on behalf of 10 17 the Borrower or an ERISA Affiliate, which provides benefits or compensation to or on behalf of employees or former employees, whether formal or informal, whether or not written, including but not limited to the following types of plans: (i) Executive Arrangements - any bonus, incentive compensation, stock option, deferred compensation, commission, severance, "golden parachute", "rabbi trust", or other executive compensation plan, program, contract, arrangement or practice; (ii) ERISA Plans - any "employee benefit plan" as defined in Section 3(3) of ERISA), including, but not limited to, any defined benefit pension plan, profit sharing plan, money purchase pension plan, savings or thrift plan, stock bonus plan, employee stock ownership plan, Multiemployer Plan, or any plan, fund, program, arrangement or practice providing for medical (including post-retirement medical), hospitalization, accident, sickness, disability, or life insurance benefits; and (iii) Other Employee Fringe Benefits - any stock purchase, vacation, scholarship, day care, prepaid legal services, severance pay or other fringe benefit plan, program, arrangement, contract or practice. "PRO RATA SHARE" shall mean, with respect to the Commitment of each Lender, each Loan to be made by and each payment (including, without limitation, any payment of principal, interest or fees) to be made to each Lender, the approximate percentage designated as such Lender's Pro Rata Share of such Commitment, such Loans or such payments, as applicable, set forth under the name of such Lender on the respective signature page for such Lender, in each case as such Pro Rata Share may change from time to time as a result of assignments or amendments made pursuant to this Agreement, rounded to the nearest one tenth of one percent. "Q-LUBE" shall mean the DAP/LUBECO Partnership, a Nevada general partnership, consisting of DAP/LUBECO Corp., a Nevada corporation and LUBECO Management, Inc. as general partners and created pursuant to that certain General Partnership Agreement, dated March 1, 1997. "REQUIRED LENDERS" shall mean, at any time, any three (3) or more Lenders holding at least sixty-six and two-thirds percent (66-2/3%) of the then aggregate amount of the Revolving Loan Commitments. "REQUIREMENT OF LAW" for any Person shall mean the articles or certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or determination of an arbitrator or a court or other governmental authority, in each case applicable to or binding upon such Person or any of its 11 18 property or to which such Person or any of its property is subject. "REUTERS SCREEN" shall mean, when used in connection with any designated page and LIBOR, the display page so designated on the Reuter Monitor Money Rates Service (or such other page as may replace that page on that service for the purpose of displaying rates comparable to LIBOR). "REVOLVING CREDIT NOTES" shall mean, collectively, the promissory notes evidencing the Revolving Loans in substantially the form attached hereto as Exhibit B, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or replaced. "REVOLVING LOANS" shall mean, collectively, the revolving credit loans made to Borrower by the Lenders pursuant to Article II. "REVOLVING LOAN COMMITMENT" shall mean, at any time for any Lender, the amount of such commitment set forth opposite such Lender's name on the signature pages hereof, as the same may be increased or decreased from time to time as a result of any reduction thereof pursuant to Section 2.3, any increase thereof pursuant to Section 2.4, any assignment thereof pursuant to Section 11.6, or any amendment thereof pursuant to Section 11.2, which amount shall include such Lender's Revolving Loans. "S & P" shall mean the Standard & Poor's Corporation and its successors and assigns. "SENIOR MANAGEMENT" shall mean with respect to any Person the Chief Executive Officer, the President, the Executive Vice Presidents and the Chief Financial Officer and any Person holding comparable offices or duties. "STOCKHOLDERS' EQUITY" shall mean, with respect to any Person as at any date of determination, the stockholders' equity of such Person, determined on a consolidated basis in conformity with GAAP. "SUBORDINATED DEBT" shall mean Indebtedness of Borrower and its Subsidiaries subordinated to all obligations of Borrower and its Subsidiaries or any other Credit Party arising under this Agreement and the Notes on terms and conditions satisfactory in all respects to the Agent and the Required Lenders, including without limitation, with respect to interest rates, payment terms, maturities, amortization schedules, covenants, defaults, remedies, and subordination provisions, as evidenced by the written approval of the Agent and Required Lenders. "SUBSIDIARY" shall mean, with respect to any Person, any corporation or other entity (including, without limitation, 12 19 partnerships, joint ventures, and associations) regardless of its jurisdiction of organization or formation, at least a majority of the total combined voting power of all classes of voting stock or other ownership interests of which shall, at the time as of which any determination is being made, be owned by such Person, either directly or indirectly through one or more other Subsidiaries. "SWINGLINE ADVANCE" or "SWINGLINE LOAN" shall mean an Advance made or outstanding as a Revolving Loan and made to Borrower by SunTrust pursuant to Section 2.5. "SYNDICATE REVOLVING LOAN" shall mean, collectively, the Revolving Loans made to Borrower hereunder. "TAXES" shall mean any present or future taxes, levies, imposts, duties, fees, assessments, deductions, withholdings or other charges of whatever nature, including without limitation, income, receipts, excise, property, sales, transfer, license, payroll, withholding, social security and franchise taxes now or hereafter imposed or levied by the United States, or any state, local or foreign government or by any department, agency or other political subdivision or taxing authority thereof or therein and all interest, penalties, additions to tax and similar liabilities with respect thereto. "TELERATE" shall mean, when used in connection with any designated page and "LIBOR," the display page so designated on the Dow Jones Telerate Service (or such other page as may replace that page on that service for the purpose of displaying rates comparable to "LIBOR"). "TERMINATION DATE" shall mean the earlier of (a) July 1, 2000 or (b) the occurrence of an Event of Default; or such later date as the Agent and the Lenders, in their sole discretion, may agree to in writing. "TOTAL CAPITALIZATION" shall mean the sum of Consolidated Funded Debt and Stockholders' Equity. "TOTAL COMMITMENT" shall mean the sum of the Lenders' Commitments as such Total Commitment may be increased or reduced by voluntary reduction, prepayment or nonrenewal of a Lender's Commitment as provided herein. "TYPE" of Borrowing shall mean a Borrowing consisting of Base Rate Advances or LIBOR Advances. SECTION 1.2 ACCOUNTING TERMS AND DETERMINATION. Unless otherwise defined or specified herein, all accounting terms shall be construed herein, all accounting determinations hereunder shall be made, all financial statements required to be delivered hereunder shall be prepared, and all financial records shall be maintained in accordance with GAAP. 13 20 SECTION 1.3 OTHER DEFINITIONAL PROVISIONS. (a) Except as otherwise specified herein, references herein to any agreement or contract defined or referred to herein shall be deemed a reference to any such agreement or contract (and in the case of any instrument, any other instrument issued in substitution therefor) as the terms thereof may have been or may be amended, supplemented, waived or otherwise modified from time to time. (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article, Section, Schedule, Exhibit and like references are to this Agreement unless otherwise specified. (c) The singular pronoun, when used in this Agreement, shall include the plural and neuter shall include the masculine and the feminine. (d) All terms defined in this Agreement shall have the defined meanings when used in any Note or, except as otherwise expressly stated herein, any certificate, opinion, or other document delivered pursuant hereto. SECTION 1.4 EXHIBITS AND SCHEDULES. All Exhibits and Schedules attached hereto are by reference made a part hereof. ARTICLE II REVOLVING LOANS SECTION 2.1 COMMITMENT; USE OF PROCEEDS. (a) Subject to and upon the terms and conditions herein set forth, each Lender severally agrees from time to time on and after the Closing Date, but prior to the Termination Date, to make the Revolving Loans as provided in this Section 2.1. Borrower shall be entitled to repay and reborrow Revolving Loans in accordance with the provisions hereof. (b) The sum of the aggregate unpaid principal amount of any Lender's Revolving Loans outstanding shall not exceed at any time such Lender's Revolving Loan Commitment. (c) The sum of the aggregate unpaid principal amount of all Revolving Loans shall not exceed at any time the total Revolving Loan Commitment for all Lenders. (d) Except as set forth below in Section 2.5, with respect to Swingline Loans, each Revolving Loan shall, at the option of Borrower, be made or continued as, or converted into, 14 21 part of one or more Borrowings that shall consist entirely of Syndicate Revolving Loans (as Base Rate Advances or LIBOR Advances). The aggregate principal amount of each Borrowing of Syndicate Revolving Loans comprised of Base Rate Advances shall be not less than $1,000,000.00 or a greater integral multiple of $100,000.00 and LIBOR Advances shall be not less than $5,000,000.00 or a greater integral multiple of $1,000,000.00. At no time shall the number of Borrowings of Syndicate Revolving Loans comprised of LIBOR Advances outstanding under this Article II exceed eight (8); provided that, for the purpose of determining the minimum amount for Borrowings resulting from conversions or continuations, all Borrowings of Base Rate Advances under this Facility shall be considered as one Borrowing. In the case of SunTrust, its obligation to make Syndicate Revolving Loans consisting of Base Rate Advances and LIBOR Advances shall be reduced by the aggregate outstanding principal amount of Swingline Advances from time to time. (e) Except as set forth below in Section 2.5 with respect to Swingline Loans, the proceeds of Revolving Loans shall be used for working capital and for other general corporate purposes of the Borrower, including acquisitions, capital expenditures and to buy back stock of the Borrower. SECTION 2.2 NOTES; REPAYMENT OF PRINCIPAL. (a) Borrower's obligations to pay the principal of, and interest on, the Syndicate Revolving Loans to each Lender shall be evidenced by the records of the Agent and such Lender and by the Revolving Credit Note payable to such Lender (or the assignor of such Lender) completed in conformity with this Agreement. (b) All outstanding principal amounts under the Revolving Loans shall be due and payable in full on the Termination Date. SECTION 2.3 VOLUNTARY REDUCTION OF REVOLVING LOAN COMMITMENTS. Upon at least three (3) Business Days' prior telephonic notice (promptly confirmed in writing) to the Agent, Borrower shall have the right, without premium or penalty, to terminate the Revolving Loan Commitments, in part or in whole, provided that (i) any such termination shall apply to proportionately and permanently reduce the Revolving Loan Commitments of each of the Lenders, (ii) any partial termination pursuant to this Section 2.3 shall be in an amount of at least $10,000,000.00 and integral multiples of $1,000,000.00, and (iii) no such reduction shall be permitted without payment of all costs required to be paid hereunder with respect to a prepayment. If the aggregate outstanding amount of the Revolving Loans exceeds the amount of the Revolving Loan Commitments as so reduced, Borrower shall immediately repay the Revolving Loans for the ratable account of the Lenders by an amount equal to such excess, 15 22 together with all accrued but unpaid interest on such excess amount and any amounts due under Section 4.12 hereof. SECTION 2.4 INCREASE OF REVOLVING LOAN COMMITMENTS. Borrower shall have the right, at any time during the term of this Agreement, to request the increase of the Revolving Loan Commitments by an aggregate amount of $25,000,000.00, to $200,000,000.00. Any such request shall be in writing and delivered to the Agent. Upon approval of the request by all Lenders, the Revolving Loan Commitments of each Lender shall be proportionately and permanently increased, unless a new Lender or Lenders are added to address such increase or unless agreed otherwise between the Borrower and the Lenders. Such increase shall be on the same terms and conditions as set forth in this Agreement and Borrower shall execute and deliver to Agent and the Lenders such documents as may reasonably be requested by Agent and the Lenders to evidence such increase. The Agent shall give the Borrower notice of whether or not the request has been approved by all Lenders. SECTION 2.5 SWINGLINE LOANS. (a) Subject to and upon the terms and conditions herein set forth, SunTrust agrees from time to time on and after the Closing Date, but prior to the Termination Date, to make Swingline Loans to Borrower in an aggregate principal amount outstanding at any time not to exceed the Maximum Swingline Amount. (b) Each such Swingline Loan shall be made in the amounts and at the times as may be mutually agreed upon from time to time by and between the Borrower and SunTrust and shall bear interest at such rate or rates as may be mutually agreed upon by and between the Borrower and SunTrust from time to time for each Swingline Loan. (c) The proceeds of Swingline Loans shall be used for working capital and for other general corporate purposes of the Borrower. SECTION 2.6 ADDITIONAL LENDERS. In the event that financial institutions other than those serving as Lenders on the Closing Date are added as Lenders subsequent to the Closing Date, the Borrower and each such additional Lender shall execute and deliver to the Agent an additional lender certificate substantially in the form of Exhibit C. No such financial institution shall be added as a Lender without Borrower's prior written consent. 16 23 ARTICLE III [RESERVED] ARTICLE IV GENERAL LOAN TERMS SECTION 4.1 FUNDING NOTICES. (a) Whenever Borrower desires to make a Borrowing with respect to the Revolving Loan Commitments (other than one resulting from a Swingline Advance pursuant to Section 2.5 or a conversion or continuation pursuant to Section 4.1(b)), it shall give the Agent prior notice (if by telephone, promptly confirmed in writing) of such Borrowing (a "Notice of Borrowing"), such Notice of Borrowing to be given prior to 11:00 A.M. (local time for the Agent) at its Payment Office (i) one Business Day prior to the requested date of such Borrowing in the case of Revolving Loans comprised of Base Rate Advances, and (ii) three Business Days prior to the requested date of such Borrowing in the case of LIBOR Advances. Notices received after 11:00 A.M. shall be deemed received on the next Business Day. Each Notice of Borrowing shall be irrevocable and shall specify the aggregate principal amount of the Borrowing, the date of Borrowing (which shall be a Business Day), whether the Borrowing is to consist of Base Rate Advances or LIBOR Advances and (in the case of LIBOR Advances) the Interest Period to be applicable thereto. Swingline Advances shall be made by SunTrust from time to time upon such terms and conditions as may be mutually agreed upon by and between the Borrower and SunTrust from time to time for each such Swingline Loan. (b) Whenever Borrower desires to convert all or a portion of an outstanding Borrowing under the Syndicate Revolving Loans, which Borrowing consists of Base Rate Advances or LIBOR Advances, into one or more Borrowings consisting of Advances of another Type, or to continue outstanding a Borrowing consisting of LIBOR Advances for a new Interest Period, it shall give the Agent at least three Business Days' prior notice (if by telephone, promptly confirmed in writing) of each such Borrowing to be converted into or continued as LIBOR Advances. Such notice (a "Notice of Conversion/Continuation") shall be given prior to 11:00 A.M. (local time for the Agent) on the date specified at the Payment Office of the Agent. Each such Notice of Conversion/Continuation shall be irrevocable and shall specify the aggregate principal amount of the Advances to be converted or continued, the date of such conversion or continuation, whether the Advances are being converted into or continued as Base Rate Advances or LIBOR Advances and (in the case of LIBOR Advances) the Interest Period applicable thereto. If, upon the expiration of any Interest Period in respect of any Borrowing, Borrower 17 24 shall have failed to give a Notice of Conversion/Continuation, Borrower shall be deemed to have elected to convert or continue such Borrowing to a Borrowing consisting of Base Rate Advances. So long as any Default or Event of Default shall have occurred and be continuing, no Borrowing may be converted into or continued (upon expiration of the current Interest Period) as LIBOR Advances. No conversion or continuation of any Borrowing of LIBOR Advances shall be permitted except on the last day of the Interest Period in respect thereof. (c) The Agent and the Lenders may act without liability upon the basis of any such notice given pursuant to this Section 4.1 reasonably believed by the Agent or the Lender in good faith to be from Borrower in making Loans hereunder or in continuing or converting Loans or Advances outstanding hereunder. (d) The Agent shall promptly give each Lender notice by telephone (confirmed in writing) or by telex, telecopy or facsimile transmission of the matters covered by the notices given to the Agent pursuant to this Section 4.1 with respect to the Revolving Credit Commitments. (e) Notwithstanding anything to the contrary contained elsewhere in this Agreement, any notice given under this Section 4.1 shall be given by the Borrower in accordance with reasonable written policies of the Agent in effect from time to time and provided to the Borrower by the Agent, which policies shall be binding on the Borrower. SECTION 4.2 DISBURSEMENT OF FUNDS. (a) No later than 1:00 p.m. (local time for the Agent) on the date of each Borrowing pursuant to the Revolving Loan Commitments (other than one resulting from a Swingline Advance pursuant to Section 2.5 or a conversion or continuation pursuant to Section 4.1(b)), each Lender will make available its Pro Rata Share of the amount of such Borrowing in immediately available funds at the Payment Office of the Agent. The Agent will make available to Borrower the aggregate of the amounts (if any) so made available by the Lenders to the Agent in a timely manner by crediting such amounts to Borrower's demand deposit account maintained with the Agent or at Borrower's option, to effect a wire transfer of such amounts to Borrower's account specified by the Borrower, by the close of business on such Business Day. In the event that the Lenders do not make such amounts available to the Agent by the time prescribed above, but such amount is received later that day, such amount may be credited to Borrower in the manner described in the preceding sentence on the next Business Day (with interest on such amount to begin accruing hereunder on such next Business Day). (b) Unless the Agent shall have been notified by any Lender prior to the date of a Borrowing that such Lender does not 18 25 intend to make available to the Agent such Lender's portion of the Borrowing to be made on such date, the Agent may assume that such Lender has made such amount available to the Agent on such date and the Agent may make available to Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Agent by such Lender on the date of such Borrowing, the Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest at the Federal Funds Rate. If such Lender does not pay such corresponding amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify Borrower, and Borrower shall immediately pay such corresponding amount to the Agent together with interest at the rate specified for the Borrowing. Nothing in this subsection shall be deemed to relieve any Lender from its obligation to fund its Commitments hereunder or to prejudice any rights which Borrower may have against any Lender as a result of any default by such Lender hereunder. (c) All Borrowings under the Syndicate Revolving Loan shall be loaned by the Lenders on the basis of their Pro Rata Share of the Revolving Loan Commitments. No Lender shall be responsible for any default by any other Lender in its obligations hereunder, and each Lender shall be obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any other Lender to fund its Commitments hereunder. SECTION 4.3 INTEREST. (a) Borrower agrees to pay interest in respect of all unpaid principal amounts of the Revolving Loans from the respective dates such principal amounts were advanced to maturity (whether by acceleration, notice of prepayment or otherwise) at rates per annum (on the basis of a 360 day year) equal to the applicable rates indicated below: (i) For Base Rate Advances--The Base Rate in effect from time to time; (ii) For LIBOR Advances--The applicable LIBOR plus the Applicable Margin. (iii) For Swingline Advances--The rate or rates which shall be mutually agreed upon from time to time by the Borrower and SunTrust for each such Swingline Loan or Advance. (b) Overdue principal (whether by non-payment at scheduled due date, acceleration, notice of prepayment or otherwise) and, to the extent not prohibited by applicable law, overdue interest, in respect of the Revolving Loans and all other overdue amounts owing hereunder, shall bear interest from each date that such amounts are overdue at the Default Rate. 19 26 (c) Interest on each Loan shall accrue from and including the date of such Loan to but excluding the date of any repayment thereof; provided that, if a Loan is repaid on the same day made, one day's interest shall be paid on such Loan. Interest on all outstanding Base Rate Advances shall be payable quarterly in arrears on the last calendar day of each quarter. Interest on all outstanding LIBOR Advances shall be payable on the last day of each Interest Period applicable thereto and, with respect to advances made for an Interest Period longer that three (3) months, also on the last day of each three (3) month period prior to the end of the Interest Period. Interest on all outstanding Swingline Advances shall be payable on the last day of each Interest Period applicable thereto. Interest on all Loans shall be payable on any conversion of any Advances comprising such Loans into Advances of another Type, prepayment (on the amount prepaid), at maturity (whether by acceleration, notice of prepayment or otherwise) and, after maturity, on demand. SECTION 4.4 INTEREST PERIODS. In connection with the making or continuation of, or conversion into, each Syndicate Revolving Loan comprised of LIBOR Advances, Borrower shall select an interest period (each an "Interest Period") to be applicable to such LIBOR Advances, which Interest Period shall be either a 1, 2, 3 or 6 month period; provided that: (a) The initial Interest Period for any Borrowing of LIBOR Advances shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing consisting of Advances of another Type) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires; (b) If any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided that if any Interest Period in respect of LIBOR Advances would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (c) Any Interest Period in respect of LIBOR Advances which begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall, subject to Section 4.4(d), below, expire on the last Business Day of such calendar month; (d) No Interest Period shall extend beyond any date upon which any principal payment is due with respect to the Revolving Loans. 20 27 SECTION 4.5 FEES. (a) Borrower shall pay to SunTrust Capital Markets, Inc. on the Closing Date, any fees or expenses as required by the Fee Letter. (b) Commitment Fee. On the Closing Date, Borrower shall pay to the Agent, for the account of and distribution to each Lender, a Commitment Fee as follows: (i) the amount required by the Fee Letter for the Agent; (ii) the amount of twelve and one-half basis points for each Co-Agent; and (iii) the amount of ten basis points for each other Lender. (c) Non-Usage Fee. Borrower shall pay to the Agent, for the account of and ratable distribution to each Lender, a non-usage fee for the period commencing on the Closing Date to and including the Termination Date, on the average daily unused portions of the Revolving Loan Commitment of each Lender, such fee being payable quarterly in arrears on the last calendar day of each fiscal quarter of Borrower and on the Termination Date, computed at a rate equal to the number of basis points designated below based on the Borrower's Funded Debt to Total Capitalization Ratio ("FD/TC"), measured quarterly: FD/TC <20% >45% but >20% >45% - - 10.00 bp 12.50 bp 17.50 bp provided, however, that adjustments, if any, to such commitment fee based on changes in the Borrower's Funded Debt to Total Capitalization Ratio as set forth above shall be calculated by the Agent quarterly, based upon the Borrower's quarterly financial statements, beginning with the Borrower's statements for the period ended March 4, 1997, and shall become effective on the first Day of the next succeeding fiscal quarter following the date of such calculation. (d) Annual Administrative Fee. Borrower shall pay to the Agent an annual administrative fee, in advance, as set forth in the Fee Letter. 21 28 SECTION 4.6 VOLUNTARY PREPAYMENTS OF BORROWINGS. (a) Borrower may, at its option, prepay Borrowings consisting of Base Rate Advances at any time in whole, or from time to time in part, in amounts aggregating $1,000,000.00 or any greater integral multiple of $100,000.00, by paying the principal amount to be prepaid together with interest accrued and unpaid thereon to the date of prepayment. Those Borrowings consisting of LIBOR Advances may be prepaid, at Borrower's option, in whole, or from time to time in part, in the respective minimum amounts set forth in this Section 4.6(a) by paying the principal amount to be prepaid, together with interest accrued and unpaid thereon to the date of prepayment, and all compensation payments pursuant to Section 4.12 if such prepayment is made on a date other than the last day of an Interest Period applicable thereto. Each such optional prepayment shall be applied in accordance with Section 4.6(c) below. (b) Borrower shall give written notice (or telephonic notice confirmed in writing) to the Agent of any intended prepayment of the Revolving Loans not less than two Business Days prior to any prepayment. Such notice, once given, shall be irrevocable. Upon receipt of such notice of prepayment pursuant to the first sentence of this paragraph (b), the Agent shall promptly notify each Lender of the contents of such notice and of such Lender's share of such prepayment. (c) Borrower, when providing notice of prepayment pursuant to Section 4.6(b) may designate the Types of Advances and the specific Borrowing or Borrowings which are to be prepaid, provided that (i) if any prepayment of LIBOR Advances made pursuant to a single Borrowing of the Revolving Loans shall reduce the outstanding Advances made pursuant to such Borrowing to an amount less than $1,000,000.00, such Borrowing shall immediately be converted into Base Rate Advances; and (ii) each prepayment made pursuant to a single Borrowing shall be applied pro rata among the Loans comprising such Borrowing. SECTION 4.7 PAYMENTS, ETC. (a) Except as otherwise specifically provided herein, all payments under this Agreement and the other Credit Documents shall be made without defense, set-off or counterclaim to the Agent, not later than 1:00 p.m. (local time for the Agent) on the date when due and shall be made in Dollars in immediately available funds at the respective Payment Office. (b) (i) All such payments shall be made free and clear of and without deduction or withholding for any Taxes in respect of this Agreement, the Notes or other Credit Documents, or any payments of principal, interest, fees or other amounts payable hereunder or thereunder (but excluding any Taxes imposed on the overall net income of the Lenders). If any Taxes are so 22 29 levied or imposed, Borrower agrees (A) to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every net payment of all amounts due hereunder and under the Notes and other Credit Documents, after withholding or deduction for or on account of any such Taxes (including additional sums payable under this Section 4.7), will not be less than the full amount provided for herein had no such deduction or withholding been required, (B) to make such withholding or deduction and (C) to pay the full amount deducted to the relevant authority in accordance with applicable law. Borrower will furnish to the Agent and each Lender, within 30 days after the date the payment of any Taxes is due pursuant to applicable law, certified copies of tax receipts evidencing such payment by Borrower. Borrower will indemnify and hold harmless the Agent and each Lender and reimburse the Agent and each Lender upon written request for the amount of any Taxes so levied or imposed and paid by the Agent or Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or illegally asserted. A certificate as to the amount of such payment by such Lender or the Agent, absent manifest error, shall be final, conclusive and binding for all purposes. (ii) Each Lender that is organized under the laws of any jurisdiction other than the United States of America or any State thereof (including the District of Columbia) agrees to furnish to Borrower and the Agent, prior to the time it becomes a Lender hereunder, two copies of either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 or any successor forms thereto (wherein such Lender claims entitlement to complete exemption from or reduced rate of U.S. Federal withholding tax on interest paid by Borrower hereunder) and to provide to Borrower and the Agent a new Form 4224 or Form 1001 or any successor forms thereto if any previously delivered form is found to be incomplete or incorrect in any material respect or upon the obsolescence of any previously delivered form; provided, however, that no Lender shall be required to furnish a form under this paragraph (ii) if it is not entitled to claim an exemption from or a reduced rate of withholding under applicable law. A Lender that is not entitled to claim an exemption from or a reduced rate of withholding under applicable law, promptly upon written request of Borrower, shall so inform Borrower in writing. (c) Whenever any payment to be made hereunder or under any Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the applicable rate during such extension. (d) All computations of interest and fees shall be made on the basis of a year of 360 days for the actual number of 23 30 days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable (to the extent computed on the basis of days elapsed). Interest on Base Rate Advances shall be calculated based on the Base Rate from and including the date of such Loan to but excluding the date of the repayment or conversion thereof. Interest on LIBOR Advances shall be calculated as to each Interest Period from and including the first day thereof to but excluding the last day thereof. (e) Payment by Borrower to the Agent in accordance with the terms of this Agreement shall, as to Borrower, constitute payment to the Lenders under this Agreement. (f) Application of Payments. Except as hereinafter set forth with respect to Swingline Loans, all payments made on the Notes shall be applied (i) first to any accrued but unpaid fees as set forth in Section 4.5, (ii) next, to interest accrued to the date of payment, (iii) next, to any compensation payments pursuant to Section 4.12, if applicable, and (iv) then to the unpaid principal balance; provided, however, in the event an Event of Default occurs and is continuing, payments shall be applied first to any costs or expenses, including reasonable attorneys' fees that the Agent or any of the Lenders may incur in exercising their rights under this Agreement or the other Credit Documents. All payments made on Swingline Loans shall be applied as determined by SunTrust in its sole and absolute discretion. SECTION 4.8 INTEREST RATE NOT ASCERTAINABLE, ETC. In the event that the Agent shall have determined (which determination shall be made in good faith and, absent manifest error, shall be final, conclusive and binding upon all parties) that on any date for determining LIBOR for any Interest Period, by reason of any changes arising after the date of this Agreement, adequate and fair means do not exist for ascertaining LIBOR then, and in any such event, the Agent shall forthwith give notice (by telephone confirmed in writing) to Borrower and to the Lenders of such determination and a summary of the basis for such determination. Until the Agent notifies Borrower that the circumstances giving rise to the suspension described herein no longer exist, the obligations of the Lenders to make or permit portions of the Revolving Loans to remain outstanding past the last day of the then current Interest Periods as LIBOR Advances shall be suspended, and such affected Advances shall bear the same interest as Base Rate Advances. SECTION 4.9 ILLEGALITY. (a) In the event that any Lender shall have determined (which determination shall be made in good faith and, absent manifest error, shall be final, conclusive and binding upon all parties) at any time that the making or continuance of any LIBOR Advance has become unlawful or impractical by compliance by such 24 31 Lender in good faith with any applicable law, governmental rule, regulation, guideline or order (whether or not having the force of law and whether or not failure to comply therewith would be unlawful), then, in any such event, the Lender shall give prompt notice (by telephone confirmed in writing) to Borrower and to the Agent of such determination and a summary of the basis for such determination (which notice the Agent shall promptly transmit to the other Lenders). (b) Upon the giving of the notice to Borrower referred to in subsection (a) above, (i) Borrower's right to request and such Lender's obligation to make LIBOR Advances shall be immediately suspended, and such Lender shall make an Advance as part of the requested Borrowing of LIBOR Advances as a Base Rate Advance, which Base Rate Advance shall, for all other purposes, be considered part of such Borrowing, and (ii) if the affected LIBOR Advance or Advances are then outstanding, Borrower shall immediately, or if permitted by applicable law, no later than the date permitted thereby, upon at least one Business Day's written notice to the Agent and the affected Lender, convert each such Advance into an Advance or Advances of a different Type with an Interest Period ending on the date on which the Interest Period applicable to the affected LIBOR Advances expires, provided that if more than one Lender is affected at any time, then all affected Lenders must be treated the same pursuant to this Section 4.9(b). SECTION 4.10 INCREASED COSTS. (a) If, by reason of (i) after the date hereof, the introduction of or any change (including, without limitation, any change by way of imposition or increase of reserve requirements) in or in the interpretation of any law or regulation, or (ii) the compliance with any guideline or request from any central bank or other governmental authority or quasi-governmental authority exercising control over banks or financial institutions generally (whether or not having the force of law): (1) any Lender (or its applicable Lending Office) shall be subject to any tax, duty or other charge with respect to its LIBOR Advances or its obligation to make LIBOR Advances, or the basis of taxation of payments to any Lender of the principal of or interest on its LIBOR Advances or its obligation to make LIBOR Advances shall have changed (except for changes in the tax on the overall net income of such Lender or its applicable Lending Office); or (2) any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender's applicable Lending 25 32 Office shall be imposed or deemed applicable or any other condition affecting its LIBOR Advances or its obligation to make LIBOR Advances shall be imposed on any Lender or its applicable Lending Office or the London interbank market or the United States secondary certificate of deposit market; and as a result thereof there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining LIBOR Advances, or there shall be a reduction in the amount received or receivable by such Lender or its applicable Lending Office, then Borrower shall from time to time (subject, in the case of certain Taxes, to the applicable provisions of Section 4.7(b)), upon written notice from and demand by such Lender on Borrower (with a copy of such notice and demand to the Agent), pay to the Agent for the account of such Lender within five Business Days after the date of such notice and demand, additional amounts sufficient to indemnify such Lender against such increased cost. A certificate as to the amount of such increased cost, submitted to Borrower and the Agent by such Lender in good faith and accompanied by a statement prepared by such Lender describing in reasonable detail the basis for and calculation of such increased cost, shall, except for manifest error, be final, conclusive and binding for all purposes. (b) If any Lender shall advise the Agent that at any time, because of the circumstances described in clauses (i) or (ii) in paragraph 4.10(a) above or any other circumstances beyond such Lender's control arising after the date of this Agreement affecting such Lender or the London interbank market or such Lender's position in such market, LIBOR as determined by the Agent will not adequately and fairly reflect the cost to such Lender of funding its LIBOR Advances, then, and in any such event: (i) the Agent shall forthwith give notice (by telephone confirmed in writing) to Borrower and to the other Lenders of such advice; (ii) Borrower's right to request and such Lender's obligation to make or permit portions of the Loans to remain outstanding past the last day of the then current Interest Periods as LIBOR Advances shall be immediately suspended; and (iii) such Lender shall make a Loan as part of the requested Borrowing of LIBOR Advances as a Base Rate Advance, which such Base Rate Advance shall, for all other purposes, be considered part of such Borrowing. SECTION 4.11 LENDING OFFICES. (a) Each Lender agrees that, if requested by Borrower, it will use reasonable efforts (subject to overall policy 26 33 considerations of such Lender) to designate an alternate Lending Office with respect to any of its LIBOR Advances affected by the matters or circumstances described in Sections 4.7(b), 4.8, 4.9 or 4.10 to reduce the liability of Borrower or avoid the results provided thereunder, so long as such designation is not disadvantageous to such Lender as determined by such Lender, which determination if made in good faith, shall be conclusive and binding on all parties hereto. Nothing in this Section 4.11 shall affect or postpone any of the obligations of Borrower or any right of any Lender provided hereunder. (b) If any Lender that is organized under the laws of any jurisdiction other than the United States of America or any State thereof (including the District of Columbia) issues a public announcement with respect to the closing of its lending offices in the United States such that any withholdings or deductions and additional payments with respect to Taxes may be required to be made by Borrower thereafter pursuant to Section 4.7(b), such Lender shall use reasonable efforts to furnish Borrower notice thereof as soon as practicable thereafter; provided, however, that no delay or failure to furnish such notice shall in any event release or discharge Borrower from its obligations to such Lender pursuant to Section 4.7(b) or otherwise result in any liability of such Lender. SECTION 4.12 FUNDING LOSSES. Borrower shall compensate each Lender, upon its written request to Borrower (which request shall set forth the basis for requesting such amounts in reasonable detail and which request shall be made in good faith), for all losses, expenses and liabilities (including, without limitation, any interest paid by such Lender to lenders of funds borrowed by it to make or carry its LIBOR Advances, in either case to the extent not recovered by such Lender in connection with the reemployment of such funds and including loss of anticipated profits), which the Lender may sustain: (i) if for any reason (other than a default by such Lender) a borrowing of, or conversion to or continuation of, LIBOR Advances to Borrower does not occur on the date specified therefor in a Notice of Borrowing or Notice of Conversion/Continuation (whether or not withdrawn), (ii) if any repayment (including mandatory prepayments and any conversions pursuant to Section 4.9(b)) of any LIBOR Advances to Borrower occurs on a date which is not the last day of an Interest Period applicable thereto, or (iii) if, for any reason, Borrower defaults in its obligation to repay its LIBOR Advances when required by the terms of this Agreement. SECTION 4.13 ASSUMPTIONS CONCERNING FUNDING OF LIBOR ADVANCES. Calculation of all amounts payable to a Lender under this Article IV shall be made as though that Lender had actually funded its relevant LIBOR Advances through the purchase of deposits in the relevant market bearing interest at the rate applicable to such LIBOR Advances in an amount equal to the 27 34 amount of the LIBOR Advances and having a maturity comparable to the relevant Interest Period and through the transfer of such LIBOR Advances from an offshore office of that Lender to a domestic office of that Lender in the United States of America; provided, however, that each Lender may fund each of its LIBOR Advances in any manner it sees fit and the foregoing assumption shall be used only for calculation of amounts payable under this Article IV. SECTION 4.14 APPORTIONMENT OF PAYMENTS. Aggregate principal and interest payments in respect of Loans and payments in respect of facility fees and commitment fees shall be apportioned among all outstanding Commitments and Loans to which such payments relate, proportionately to the Lenders' respective pro rata portions of such Commitments and outstanding Loans. The Agent shall promptly distribute to each Lender at its payment office set forth beside its name on the appropriate signature page hereof or such other address as any Lender may request its share of all such payments received by the Agent. SECTION 4.15 SHARING OF PAYMENTS, ETC. If any Lender shall obtain any payment or reduction (including, without limitation, any amounts received as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code) of the Obligations (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its pro rata portion of payments or reductions on account of such obligations obtained by all the Lenders, such Lender shall forthwith (i) notify each of the other Lenders and Agent of such receipt, and (ii) purchase from the other Lenders such participations in the affected obligations as shall be necessary to cause such purchasing Lender to share the excess payment or reduction, net of costs incurred in connection therewith, ratably with each of them, provided that if all or any portion of such excess payment or reduction is thereafter recovered from such purchasing Lender or additional costs are incurred, the purchase shall be rescinded and the purchase price restored to the extent of such recovery or such additional costs, but without interest unless the Lender obligated to return such funds is required to pay interest on such funds. Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 4.15 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of Borrower in the amount of such participation. SECTION 4.16 CAPITAL ADEQUACY. Without limiting any other provision of this Agreement, in the event that any Lender shall have determined that any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy not currently in effect or fully applicable as of the Closing Date, or any change therein or in the 28 35 interpretation or application thereof after the Closing Date, or compliance by such Lender with any request or directive regarding capital adequacy not currently in effect or fully applicable as of the Closing Date (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) from a central bank or governmental authority or body having jurisdiction, does or shall have the effect of reducing the rate of return on such Lender's capital as a consequence of its obligations hereunder to a level below that which such Lender could have achieved but for such law, treaty, rule, regulation, guideline or order, or such change or compliance (taking into consideration such Lender's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then within ten (10) Business Days after written notice and demand by such Lender (with copies thereof to the Agent), Borrower shall from time to time pay to such Lender additional amounts sufficient to compensate such Lender for such reduction to the extent imposed generally on other borrowers from Lender who have similar extensions of credit (but, in the case of outstanding Base Rate Advances, without duplication of any amounts already recovered by such Lender by reason of an adjustment in the applicable Base Rate). SECTION 4.17 RETURN OF PAYMENTS. If the Agent shall be required by any court, trustee or debtor-in-possession or other person to return any amount previously received by it in respect of the obligations under this Agreement, upon receipt of notice from it, each Lender shall immediately pay over to it, such Lender's Pro Rata Share of the amount to be returned. ARTICLE V CONDITIONS TO BORROWINGS The obligations of each Lender to make Advances to Borrower hereunder is subject to the satisfaction of the following conditions: SECTION 5.1 CONDITIONS PRECEDENT TO INITIAL LOANS. At the time of the making of the initial Loans hereunder on the Closing Date, all obligations of Borrower hereunder incurred prior to the initial Loans (including, without limitation, Borrower's obligations to reimburse the reasonable fees and expenses of counsel to the Agent and any fees and expenses payable to the Agent and the Lenders as previously agreed with Borrower), shall have been paid in full, and the Agent shall have received the following, in form and substance reasonably satisfactory in all respects to the Agent: (a) the duly executed counterparts of this Agreement; 29 36 (b) the duly completed Revolving Notes evidencing the Revolving Loan Commitments; (c) certificate of Borrower in substantially the form of Exhibit D attached hereto and appropriately completed; (d) certificate of the Secretary or Assistant Secretary of the Borrower, attaching and certifying copies of the resolutions of the boards of directors of the Borrower, authorizing as applicable the execution, delivery and performance of the Credit Documents; (e) certificate of the Secretary or an Assistant Secretary of the Borrower certifying (i) the name, title and true signature of each officer of the Borrower executing the Credit Documents, and (ii) the articles of incorporation and the bylaws or comparable governing documents of the Borrower; (f) copies of all documents and instruments, including all consents, authorizations and filings, required or advisable under any Requirement of Law or by any material Contractual Obligation of the Borrower, in connection with the execution, delivery, performance, validity and enforceability of the Credit Documents and the other documents to be executed and delivered hereunder, and such consents, authorizations, filings and orders shall be in full force and effect and all applicable waiting periods shall have expired; (g) certified copies of indentures, credit agreements, leases, capital leases, instruments, and other documents evidencing or securing Consolidated Funded Debt of the Borrower described on Schedule 6.13, in any single case in an amount not less than $1,000,000.00; (h) certificates, reports and other information as the Agent may reasonably request from the Borrower in order to satisfy the Lenders as to the absence of any material liabilities or obligations not disclosed in writing to the Agent arising from matters relating to employees of the Borrower, including employee relations, collective bargaining agreements, Plans, and other compensation and employee benefit plans; (i) certificates, reports, environmental audits and investigations, and other information as the Agent may reasonably request from the Borrower in order to satisfy the Lenders as to the absence of any material liabilities or obligations under Environmental Laws which could reasonably be expected to have a Materially Adverse Effect; (j) certificates, reports and other information as the Agent may reasonably request from the Borrower in order to satisfy the Lenders as to the absence of any material liabilities or obligations arising from litigation (including without 30 37 limitation, products liability, patent infringement and malpractice claims) pending or threatened against the Borrower other than as disclosed in writing to the Agent; (k) a summary, set forth in format and detail reasonably acceptable to the Agent, of the types and amounts of insurance (property and liability) maintained by the Borrower; (l) the favorable opinion of Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis, P.A., counsel to the Borrower, substantially in the form of Exhibit E addressed to the Agent and each of the Lenders; (m) financial statements of Borrower and its Subsidiaries, on a consolidated basis, for the fiscal year ended May 28, 1996; and (n) financial statements (or Form 10-Q's with exhibits) of Borrower and its Subsidiaries for each of the first three fiscal quarters in the fiscal year beginning May 29, 1996. In addition to the foregoing, the following conditions shall have been satisfied or shall exist, all to the satisfaction of the Agent, as of the time the initial Loans are made hereunder: (o) payment in full and termination of all outstanding senior indebtedness of the Borrower and the release of any liens securing the same, including, without limitation, the Borrower's existing credit facilities with SunTrust, NationsBank of Florida, N.A. and Barnett Bank of Central Florida, N.A.; provided, however, the following indebtedness may remain outstanding: (i) the Capitalized Lease Obligations described on Schedule 6.7; and (ii) the installment notes described on Schedule 6.13; (p) the Loans to be made on the Closing Date and the use of proceeds thereof shall not contravene, violate or conflict with, or involve the Agent or any Lender in a violation of, any law, rule, injunction, or regulation, or determination of any court of law or other governmental authority; (q) all corporate proceedings and all other legal matters in connection with the authorization, legality, validity and enforceability of the Credit Documents shall be reasonably satisfactory in form and substance to the Lenders; (r) the status of all pending and threatened litigation (including, without limitation, products liability and patent claims) described on Schedule 6.5, including a description of any damages sought and the claims constituting the basis therefor, shall have been reported in writing to the Agent, the Agent shall have reported such matters to the Lenders, and the Lenders shall be satisfied with such status; and 31 38 (s) the Agent shall have received the Commitment Fee as required pursuant to Section 4.5(b) hereof and the other initial fees as required by the Fee Letter shall have been paid. SECTION 5.2 CONDITIONS TO ALL LOANS. At the time of the making of all Loans (before as well as after giving effect to such Loans and to the proposed use of the proceeds thereof), the following conditions shall have been satisfied or shall exist: (a) there shall exist no Default or Event of Default; (b) all representations and warranties by Borrower contained herein shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of such Loans (except to the extent that such representations and warranties expressly relate to an earlier date or are affected by transactions permitted under this Agreement); (c) since the date of the most recent financial statements of the Consolidated Companies described in Section 6.3, there shall have been no change which has had or could reasonably be expected to have a Materially Adverse Effect other than those disclosed in the Schedules to this Agreement; (d) there shall be no action or proceeding instituted or pending before any court or other governmental authority or, to the knowledge of Borrower, threatened (i) which is reasonably likely to have a Materially Adverse Effect, or (ii) seeking to prohibit or restrict one or more Credit Party's ownership or operation of any portion of its business or assets, or to compel one or more Credit Party to dispose of or hold separate all or any portion of its businesses or assets, where such portion or portions of such business(es) or assets, as the case may be, constitute a material portion of the total businesses or assets of the Consolidated Companies (notwithstanding anything to the contrary contained in this subsection, the Lenders are aware of the Airgas Litigation and the related investigations referenced on Schedule 6.5 and so long as the Borrower's liability, or potential liability, thereunder shall not reasonably be considered to exceed $70,000,000.00, the existence of the Airgas Litigation and such related investigations shall not constitute a Default or Event of Default under this Agreement); (e) the Loans to be made and the use of proceeds thereof shall not contravene, violate or conflict with, or involve the Agent or any Lender in a violation of, any law, rule, injunction, or regulation, or determination of any court of law or other governmental authority applicable to Borrower; (f) the Agent shall have received such other documents, certificates, notices, opinions or other information, including, but not limited to a Notice of Borrowing, or legal 32 39 opinions as the Agent or any Lender may reasonably request, all in form and substance reasonably satisfactory to the Agent; and (g) the Agent shall have received the Non-Usage Fee as and when due. Each request for a Borrowing and the acceptance by Borrower of the proceeds thereof shall constitute a representation and warranty by Borrower, as of the date of the Loans comprising such Borrowing, that the applicable conditions specified in Sections 5.1 and 5.2 have been satisfied. ARTICLE VI REPRESENTATIONS AND WARRANTIES Borrower represents, warrants and covenants to Lenders that: SECTION 6.1 ORGANIZATION AND QUALIFICATION. Borrower is a corporation duly organized and existing in active status under the laws of the State of Florida. Each Subsidiary of Borrower is a corporation duly organized and existing under the laws of the jurisdiction of its incorporation. Borrower and each of its Subsidiaries are duly qualified to do business as a foreign corporation and in good standing or active status in each jurisdiction in which the character of its properties or the nature of its business makes such qualification necessary, except for such jurisdictions in which a failure to qualify to do business would not have a Materially Adverse Effect. Borrower and each of its Subsidiaries have the corporate power to own its properties and to carry on its business as now being conducted. Schedule 6.12 hereto sets forth the jurisdiction of incorporation or organization, and the ownership of each Subsidiary of the Borrower. SECTION 6.2 CORPORATE AUTHORITY. The execution and delivery by Borrower of and the performance by Borrower of its obligations under the Credit Documents have been duly authorized by all requisite corporate action and all requisite shareholder action, if any, on the part of Borrower and do not and will not (i) violate any provision of any law, rule or regulation, any judgment, order or ruling of any court or governmental agency, the organizational papers or bylaws of Borrower, or, except for any Incidental Contracts, any indenture, agreement or other instrument to which Borrower is a party or by which Borrower or any of its properties is bound, or (ii) except for any Incidental Contracts, be in conflict with, result in a breach of, or constitute with notice or lapse of time or both a default under any such indenture, agreement or other instrument. SECTION 6.3 FINANCIAL STATEMENTS. Borrower has furnished Lenders with the following financial statements, identified by 33 40 the Chief Financial Officer of Borrower: audited balance sheet of the Borrower as at May 28, 1996, and audited statement of income and consolidated statement of stockholders' equity of Borrower for the fiscal year ended on such date certified by Ernst & Young, LLP, Certified Public Accountants and internally prepared financial statements for the fiscal quarters ended August 27, 1996, November 26, 1996 and March 4, 1997. Such financial statements (including any related schedules and notes) are true and correct in all material respects, have been prepared in accordance with generally accepted accounting principles consistently applied throughout the period or periods in question (subject as to interim statements, to omissions or condensations as stated in the notes thereto, and to changes resulting from audits and year end adjustments) and show, in the case of audited statements, all liabilities, direct or contingent, of Borrower required to be shown in accordance with generally accepted accounting principles consistently applied throughout the period or periods in question and fairly present in all material respects the consolidated financial position and the consolidated results of operations of Borrower for the periods indicated therein. There has been no change in the business, condition or operations, financial or otherwise, of Borrower since March 4, 1997 which is reasonably likely to have a Materially Adverse Effect. SECTION 6.4 TAX RETURNS. Except as set forth on Schedule 6.4, the Borrower has filed all federal, state and other tax returns and reports which, to the best knowledge of the Senior Management of Borrower, are required to be filed, and has paid all taxes as shown on said returns and all other taxes, assessments, fees and other governmental charges upon Borrower or upon any of the properties, assets, incomes or franchises of Borrower, to the extent that such taxes, assessments, fees and other governmental charges have become due or except such as are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP and/or except where the unfiled returns and unpaid Taxes relate to aggregate unpaid state or local Taxes no greater than $500,000.00 in the aggregate. SECTION 6.5 ACTIONS PENDING. Except as disclosed on Schedule 6.5 hereto, there is no action, suit, investigation or proceeding pending or, to the knowledge of Borrower, threatened against or affecting Borrower or any of its properties or rights, by or before any court, arbitrator or administrative or governmental body, which could reasonably be expected to result in any Materially Adverse Effect. SECTION 6.6 REPRESENTATIONS; NO DEFAULTS. At the time of each Extension of Credit there shall exist no Default or Event of Default. 34 41 SECTION 6.7 TITLE TO PROPERTIES; CAPITALIZED LEASES. Except for Liens described in Section 8.2(h) and that portion of Borrower's assets to which it does not have marketable title (calculated at cost or market value, whichever is higher), all of which may have an aggregate value up to $3,000,000.00, the Borrower has (i) good and marketable fee simple title to its respective real properties (other than real properties which it leases from others), including such real properties reflected in the balance sheet of Borrower described in Section 6.3 above (other than real properties disposed of in the ordinary course of business), subject to no Lien of any kind except Liens set forth on Schedule 8.2 or permitted by Section 8.2 and (ii) good title to all of its other respective properties and assets (other than properties and assets which it leases from others), including the other properties and assets reflected in the balance sheet of Borrower described in Section 6.3 above (other than properties and assets disposed of in the ordinary course of business), subject to no Lien of any kind except Liens set forth on Schedule 8.2 or permitted by Section 8.2. The Borrower enjoys peaceful and undisturbed possession under all leases necessary in any material respect for the operation of its respective properties and assets, none of which contains any unusual or burdensome provisions which might materially affect or impair the operation of such properties and assets, and all such leases are valid and subsisting and in full force and effect. There are no Capitalized Lease Obligations except as disclosed on Schedule 6.7 hereto. SECTION 6.8 ENFORCEABILITY OF AGREEMENT. This Agreement is the legal, valid and binding agreement of Borrower enforceable against Borrower in accordance with its terms, and the Notes, and all other Credit Documents, when executed and delivered, will be similarly legal, valid, binding and enforceable, except as the enforceability of the Notes and other Credit Documents may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditor's rights and remedies in general and by general principles of equity, whether considered in a proceeding at law or in equity. SECTION 6.9 CONSENT. Except for consents of parties to any Incidental Contracts, no consent, permission, authorization, order or license of or filing with any governmental authority or Person which has not been obtained or made is necessary in connection with the execution, delivery, performance or enforcement of the Credit Documents by the Credit Parties, or in order to constitute the indebtedness to be incurred hereunder and under the Notes and the other Credit Documents as "Senior Debt" or any similar term defined within any documents executed in connection with any Subordinated Debt. SECTION 6.10 USE OF PROCEEDS; FEDERAL RESERVE REGULATIONS. The proceeds of the Notes will be used solely for the purposes specified in Sections 2.1(e) and 2.5(c) and none of such proceeds 35 42 will be used, directly or indirectly, for the purpose of purchasing or carrying any "margin security" or "margin stock" or for the purpose of reducing or retiring any indebtedness that originally was incurred to purchase or carry a "margin security" or "margin stock" or for any other purpose that might constitute this transaction a "purpose credit" within the meaning of the regulations of the Board of Governors of the Federal Reserve System. SECTION 6.11 ERISA. (a) Identification of Certain Plans. Schedule 6.11 hereto sets forth all Plans of Borrower and its Subsidiaries in effect on the Closing Date; (b) Compliance. Each Plan is being maintained, by its terms and in operation, in accordance with all applicable laws, except such noncompliance (when taken as a whole) that will not have a Materially Adverse Effect; (c) Liabilities. Neither the Borrower nor any Subsidiary is currently or will become subject to any liability (including withdrawal liability), tax or penalty whatsoever to any person whomsoever with respect to any Plan including, but not limited to, any tax, penalty or liability arising under Title I or Title IV or ERISA or Chapter 43 of the Code, except such liabilities (when taken as a whole) as will not have a Materially Adverse Effect; and (d) Funding. The Borrower and each ERISA Affiliate has made full and timely payment of all amounts (i) required to be contributed under the terms of each Plan and applicable law and (ii) required to be paid as expenses of each Plan, except where such non-payment would not have a Materially Adverse Effect. As of the Closing Date, no Plan has an "amount of unfunded benefit liabilities" (as defined in Section 4001(a)(18) of ERISA) except as disclosed on Schedule 6.11. No Plan is subject to a waiver or extension of the minimum funding requirements under ERISA or the Code, and no request for such waiver or extension is pending. SECTION 6.12 SUBSIDIARIES. Schedule 6.12 hereto sets forth each Subsidiary of the Borrower as of the Closing Date. All of the outstanding shares of capital stock of each such Subsidiary have been validly issued and are fully paid and nonassessable and all such outstanding shares, except as noted in Schedule 6.12 hereto are owned by the Borrower or a wholly-owned Subsidiary of Borrower free of any Lien or claim. All representations and warranties made in this Article VI shall also be true and correct as to any and all wholly owned Subsidiaries of the Borrower hereafter formed or acquired throughout the term of this Agreement. 36 43 SECTION 6.13 OUTSTANDING CONSOLIDATED FUNDED DEBT. Except as set forth on Schedule 6.13 as of the date of closing and after giving effect to the transactions contemplated by this Agreement, the Borrower has no outstanding Consolidated Funded Debt and there exists no default, and, after giving effect to the transactions contemplated in this Agreement, there will exist no default under the provisions of any instrument evidencing such Consolidated Funded Debt or of any agreement relating thereto except as noted on Schedule 6.13. SECTION 6.14 CONFLICTING AGREEMENTS. Borrower is not a party to any contract or agreement or subject to any charter, bylaw or other corporate restriction which could reasonably be expected to have a Materially Adverse Effect. Assuming the consummation of the transactions contemplated by this Agreement, neither the execution or delivery of this Agreement or the Credit Documents, nor fulfillment of or compliance with the terms and provisions hereof and thereof, will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of Borrower pursuant to, the charter or By-Laws of Borrower, any award of any arbitrator or any agreement (including any agreement with stockholders), instrument, order, judgment, decree, statute, law, rule or regulation to which Borrower is subject, and Borrower is not a party to, or otherwise subject to any provision contained in, any instrument evidencing Consolidated Funded Debt of Borrower, any agreement relating thereto or any other contract or agreement (including its charter but excluding Incidental Contracts) which limits the amount of, or otherwise imposes restrictions on the incurring of, Consolidated Funded Debt of the type to be evidenced by the Notes or contains dividend or redemption limitations on Common Stock of Borrower, except for this Agreement, Borrower's Certificate of Incorporation and those matters listed on Schedule 6.14 attached hereto. SECTION 6.15 ENVIRONMENTAL MATTERS. (a) Except as set forth on Schedule 6.15(a), Borrower has to its knowledge complied in all material respects (except for instances of noncompliance that have been resolved prior to the Closing Date) with all applicable Environmental Laws, including without limitation, compliance with permits, licenses, standards, schedules and timetables issued pursuant to Environmental Laws, and is not in violation of, and does not presently have outstanding any liability under, has not been notified that it is or may be liable under and does not have knowledge of any liability or potential liability under any applicable Environmental Law, including without limitation, the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"), the Federal Water 37 44 Pollution Control Act, as amended ("FWPCA"), the Federal Clean Air Act, as amended ("FCAA"), and the Toxic Substance Control Act ("TSCA"), which violation, liability or potential liability could reasonably be expected to have a Materially Adverse Effect. (b) Except as set forth on Schedule 6.15(b), as of the Closing Date Borrower has not received a written request for information under CERCLA or any analogous state law, or written notice that any such entity has been identified as a potential responsible party under CERCLA, or any analogous state law, nor has any such entity received any written notification that any Hazardous Substance that it or any of its respective predecessors in interest has generated, stored, treated, handled, transported, or disposed of, has been released or is threatened to be released at any site at which any Person intends to conduct or is conducting a remedial investigation or other action pursuant to any applicable Environmental Law, or any other Environmental Laws. (c) Except as set forth on Schedule 6.15(c), Borrower has obtained all permits, licenses or other authorizations which are material for the conduct of its operations under all applicable Environmental Laws and with respect to which each such authorization is in full force and effect except where the failure to do so would not have a Materially Adverse Effect. (d) Except as set forth in Schedule 6.15(d), Borrower complies in all material respects with all laws and regulations relating to equal employment opportunity and employee safety in all jurisdictions in which it is presently doing business. SECTION 6.16 POSSESSION OF FRANCHISES, LICENSES, ETC. Borrower possesses all franchises, certificates, licenses, permits and other authorizations from governmental political subdivisions or regulatory authorities, free from burdensome restrictions, that are necessary in any material respect for the ownership, maintenance and operation of its properties and assets, the failure of which to possess would have a Materially Adverse Effect and Borrower is not in violation of any thereof in any material respect. SECTION 6.17 PATENTS, TRADEMARKS, ETC. Except as set forth on Schedule 6.17, Borrower owns or has the right to use all patents, trademarks, service marks, trade names, copyrights, licenses, franchises and other rights, which are necessary in any material respect for the operation of its business as presently conducted or proposed to be conducted without any known conflict with the rights of others, and, in each case, subject to no mortgage, pledge, lien, lease, encumbrance, charge, security interest, title retention agreement or option. To the knowledge of any Senior Management and except as set forth in Schedule 6.17 (i) no product, process, method, substance, part, piece of equipment or other material presently contemplated to be sold by 38 45 or employed by Borrower in connection with its business may infringe any patent, trademark, service mark, trade name, copyright, license or other right owned by any other Person, (ii) there are no pending or threatened claim or litigation against or affecting Borrower contesting its right to sell or use any such product, process, method, substance, part, piece of equipment or other material or (iii) there is no, or there is no pending or proposed, patent, invention, device, application or principle or any statute, law, rule, regulation, standard or code which would prevent, materially inhibit or render obsolete the production or sale of any products of, or substantially reduce the projected revenues of, or otherwise have a Materially Adversely Effect. SECTION 6.18 GOVERNMENTAL CONSENT. Neither the nature of Borrower nor its business or properties, nor any relationship between Borrower and any other Person, nor any circumstance in connection with the execution and delivery of the Credit Documents and the consummation of the transactions contemplated thereby is such as to require on behalf of Borrower any consent, approval or other action by or any notice to or filing with any court or administrative or governmental body in connection with the execution and delivery of this Agreement and the Credit Documents except for such filings with the Securities and Exchange Commission as may be required by applicable law (which filings the Borrower agrees to make promptly and diligently pursue to completion). SECTION 6.19 DISCLOSURE. Neither this Agreement nor the Credit Documents nor any other document, certificate or written statement furnished to Lenders by or on behalf of Borrower in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. There is no fact peculiar to Borrower which materially adversely affects or in the future may (so far as Borrower can now foresee) materially adversely affect the business, property or assets, or the financial condition of Borrower which has not been set forth in this Agreement or in the Credit Documents, certificates and written statements furnished to Lenders or otherwise furnished to the Lenders by or on behalf of Borrower prior to the date hereof in connection with the transactions contemplated hereby. SECTION 6.20 [RESERVED]. SECTION 6.21 LABOR MATTERS. Except as set forth on Schedule 6.21, the Borrower has experienced no strikes, labor disputes, slow downs or work stoppages due to labor disagreements which have had, or would reasonably be expected to have, a Materially Adverse Effect, and, to the best knowledge of Borrower's Senior Management, there are no such strikes, disputes, slow downs or work stoppages threatened against any Borrower. The hours worked and payment made to employees of the 39 46 Borrower have not been in violation in any material respect of the Fair Labor Standards Act or any other applicable law dealing with such matters. All payments due from the Borrower, or for which any claim may be made against the Consolidated Companies, on account of wages and employee health and welfare insurance and other benefits have been paid or accrued as liabilities on the books of the Borrower where the failure to pay or accrue such liabilities would reasonably be expected to have a Materially Adverse Effect. SECTION 6.22 INTERCOMPANY LOANS; DIVIDENDS. There are no Intercompany Loans as of the Closing Date except those set forth on Schedule 6.22. Except as set forth in the Credit Documents and as specifically disclosed in Schedule 6.22 with respect to agreements evidencing other Consolidated Funded Debt, there are no restrictions on the power of any Consolidated Company to repay any Intercompany Loan or to pay dividends on capital stock. SECTION 6.23 SECURITIES ACTS. Neither Borrower nor any agent acting on its behalf has, directly or indirectly, taken or will take any action which would subject the issuance of the Notes to the provisions of Section 5 of the Securities Act of 1933, as amended, or, to the best knowledge of the Borrower, to the provisions of any securities or Blue Sky Law of any applicable jurisdiction. SECTION 6.24 INVESTMENT COMPANY ACT; HOLDING COMPANY. Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940 and is not a "holding company," or a subsidiary or affiliate of a "holding company," or a "public utility," within the meaning of the Public Utility Holding Company Act of 1935, as amended or a "public utility" within the meaning of the Federal Power Act, as amended. SECTION 6.25 REGULATION G, ETC. Neither Borrower nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or the Notes to violate Regulation G, T, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Securities Exchange Act of 1934, and each case in effect now or as the same may hereafter be in effect. SECTION 6.26 CHANGES IN FINANCIAL CONDITION; ADVERSE DEVELOPMENTS. From the date of the annual and most recent quarterly financial statements described in Section 6.3 hereinabove, to the date of this Agreement, there has been, and to the date of each Advance there will be, no change in the properties, assets, liabilities, financial condition, business operations, affairs or properties of the Borrower and its Subsidiaries on an consolidated basis from that set forth or reflected in the year-end and quarterly financial statements described in Section 6.3, other than changes in the ordinary 40 47 course of business, including acquisitions, none of which either in any case or in the aggregate will have a Materially Adverse Effect. ARTICLE VII AFFIRMATIVE COVENANTS Borrower covenants and agrees that so long as it may borrow under this Agreement or so long as any indebtedness remains outstanding under the Notes that it will: SECTION 7.1 CORPORATE EXISTENCE, ETC. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence, its material rights, franchises, and licenses, and its material patents and copyrights (for the scheduled duration thereof), trademarks, trade names, and service marks, necessary or desirable in the normal conduct of its business, and its qualification to do business as a foreign corporation in all jurisdictions where it conducts business or other activities making such qualification necessary, where the failure to do so would reasonably be expected to have a Materially Adverse Effect. SECTION 7.2 COMPLIANCE WITH LAWS, ETC. Comply, and cause each of its Subsidiaries to comply with all Requirements of Law (including, without limitation, the Environmental Laws, subject to the exception set forth in Section 7.7(f) where the penalties, claims, fines, and other liabilities resulting from noncompliance with such Environmental Laws do not involve amounts in excess of $3,000,000.00 in the aggregate), except where failure to comply would not have a Materially Adverse Effect. SECTION 7.3 PAYMENT OF TAXES AND CLAIMS, ETC. Pay, and cause each of its Subsidiaries to pay, (i) all taxes, assessments and governmental charges imposed upon it or upon its property, and (ii) all claims (including, without limitation, claims for labor, materials, supplies or services) which might, if unpaid, become a Lien upon its property, unless, in each case, the validity or amount thereof is being contested in good faith by appropriate proceedings and adequate reserves are maintained with respect thereto; provided, however, that the Borrower may have outstanding and unpaid at any time not more than $500,000.00 in the aggregate in state and local taxes. SECTION 7.4 KEEPING OF BOOKS. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, containing in all material respects complete and accurate entries of all their respective financial and business transactions. SECTION 7.5 VISITATION, INSPECTION, ETC. Permit, and cause each of its Subsidiaries to permit, any representative of 41 48 the Agent to visit and inspect any of its property, to examine its books and records and to make copies and take extracts therefrom, and to discuss its affairs, finances and accounts with its officers, all at such reasonable times and as often as the Agent may reasonably request after reasonable prior notice to Borrower; provided, however, that at any time following the occurrence and during the continuance of a Default or an Event of Default, no prior notice to Borrower shall be required and further, provided, that in the event any documents and records are subject to any contractual confidentiality requirements with any Person, the right to make copies or extracts therefrom shall be subject to the prior written consent of the Borrower, which consent will not be unreasonably withheld. SECTION 7.6 INSURANCE; MAINTENANCE OF PROPERTIES. (a) Maintain or cause to be maintained with financially sound and reputable insurers, insurance with respect to its properties and business, and the properties and business of its Subsidiaries, against loss or damage of the kinds customarily insured against by reputable companies in the same or similar businesses, such insurance to be of such types and in such amounts, as is customary for such companies under similar circumstances; provided, however, that in any event Borrower shall use its reasonable best efforts to maintain, or cause to be maintained, insurance in amounts and with coverages not materially less favorable to any Consolidated Company as in effect on the date of this Agreement, except where the costs of maintaining such insurance would, in the judgment of both Borrower and the Agent, be excessive. (b) Cause, and cause each of the Consolidated Companies to cause, all properties used or useful in the conduct of its business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, settlements and improvements thereof, all as in the judgment of Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent Borrower from discontinuing the operation or maintenance of any such properties if such discontinuance is, in the judgment of Borrower, desirable in the conduct of its business or the business of any Consolidated Company. SECTION 7.7 REPORTING COVENANTS. Furnish to each Lender: (a) Annual Financial Statements. As soon as available and in any event within 120 days after the end of each fiscal year of Borrower, audited financial statements, consisting of balance sheets of the Consolidated Companies as at the end of such year, presented on a consolidated basis, and the related 42 49 statements of income, stockholders' equity, and cash flows of the Consolidated Companies for such fiscal year, presented on a consolidated basis, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and accompanied by a report thereon of Ernst & Young, LLP, or other independent public accountants of comparable recognized national or regional standing, which such report shall be unqualified as to going concern and scope of audit and shall state that such financial statements present fairly in all material respects the financial condition as at the end of such fiscal year on a consolidated basis, and the results of operations and statements of cash flows of the Consolidated Companies for such fiscal year in accordance with GAAP and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with GAAP; (b) Quarterly Financial Statements. As soon as available and in any event within 60 days after the end of each fiscal quarter of Borrower (other than the fourth fiscal quarter), balance sheets of the Consolidated Companies as at the end of such quarter presented on a consolidated basis and the related statements of income, and cash flows of the Consolidated Companies for such fiscal quarter and for the portion of Borrower's fiscal year ended at the end of such quarter, presented on a consolidated basis setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of Borrower's previous fiscal year, all in reasonable detail and certified by the Treasurer or Chief Financial Officer or other authorized financial officer of Borrower acceptable to the Agent and the Required Lenders that such financial statements fairly present in all material respects the financial condition of the Consolidated Companies as at the end of such fiscal quarter on a consolidated basis, and the results of operations and statements of cash flows of the Consolidated Companies for such fiscal quarter and such portion of Borrower's fiscal year, in accordance with GAAP consistently applied (subject to normal year end audit adjustments and the absence of certain footnotes); (c) No Default/Compliance Certificate. Together with the financial statements required pursuant to subsections (a) and (b) above, a certificate of the Treasurer, Chief Financial Officer or other authorized financial officer of Borrower acceptable to the Agent and the Required Lenders (i) to the effect that, based upon a review of the activities of the Consolidated Companies and such financial statements during the period covered thereby, there exists no Event of Default and no Default under this Agreement, or if there exists an Event of Default or a Default hereunder, specifying the nature thereof and the proposed response thereto, and (ii) demonstrating in reasonable detail compliance as at the end of such fiscal year or 43 50 such fiscal quarter with the covenants contained in Section 7.8 and Sections 8.1 through 8.4; (d) Notice of Default. Promptly after any member of Senior Management of Borrower has notice or knowledge of the occurrence of an Event of Default or a Default, a certificate of the chief financial officer or principal accounting officer of Borrower specifying the nature thereof and the proposed response thereto; (e) Litigation. Promptly after (i) the occurrence thereof, notice of the institution of or any adverse development in any action, suit or proceeding or any governmental investigation or any arbitration, before any court or arbitrator or any governmental or administrative body, agency or official, against any Consolidated Company, or any material property thereof which could reasonably be expected to have a Materially Adverse Effect, or (ii) actual knowledge thereof, notice of the threat of any such action, suit, proceeding, investigation or arbitration, together with any information and documentation relating thereto, as may be reasonably requested; (f) Environmental Notices. Promptly after receipt thereof, notice of any actual or alleged violation, or notice of any action, claim or request for information, either judicial or administrative, from any governmental authority relating to any actual or alleged claim, notice of potential responsibility under or violation of any Environmental Law, or any actual or alleged spill, leak, disposal or other release of any waste, petroleum product, or hazardous waste or Hazardous Substance by any Consolidated Company which violation, action, claim, request, spill, leak, disposal, or release could reasonably be expected to result in penalties, fines, claims or other liabilities to any Consolidated Company in amounts in excess of $500,000.00 individually or $3,000,000.00 when aggregated with other then pending such matters; (g) ERISA. (i) Promptly after the occurrence thereof with respect to any Plan of any Consolidated Company or any ERISA Affiliate thereof, or any trust established thereunder, notice of (1) a "reportable event" described in Section 4043 of ERISA and the regulations issued from time to time thereunder (other than a "reportable event" not subject to the provisions for 30 day notice to the PBGC under such regulations), or (2) any other event which could subject any Consolidated Company to any tax, penalty or liability under Title I or Title IV of ERISA or Chapter 43 of the Code, or any tax or penalty resulting from a loss of deduction under Sections 162, 404 or 419 of the Code, where any such taxes, penalties or liabilities exceed or could exceed $500,000.00 in the aggregate; 44 51 (ii) Promptly after such notice must be provided to the PBGC, or to a Plan participant, beneficiary or alternative payee, any notice required under Section 101(d), 302(f)(4), 303, 307, 4041(b)(1)(A) or 4041(c)(1)(A) of ERISA or under Section 401(a)(29) or 412 of the Code with respect to any Plan of any Consolidated Company or any ERISA Affiliate thereof; (iii) Promptly after receipt, any notice received by any Consolidated Company or any ERISA Affiliate thereof concerning the intent of the PBGC or any other governmental authority to terminate a Plan of such Company or ERISA Affiliate thereof which is subject to Title IV of ERISA, to impose any liability on such Company or ERISA Affiliate under Title IV of ERISA or Chapter 43 of the Code; (iv) Upon the request of the Agent, promptly upon the filing thereof with the Internal Revenue Service ("IRS") or the Department of Labor ("DOL"), a copy of IRS Form 5500 or annual report for each Plan of any Consolidated Company or ERISA Affiliate thereof which is subject to Title IV of ERISA; (v) Upon the request of the Agent, (A) true and complete copies of any and all documents, government reports and IRS determination or opinion letters or rulings for any Plan of any Consolidated Company from the IRS, PBGC or DOL, (B) any reports filed with the IRS, PBGC or DOL with respect to a Plan of the Consolidated Companies or any ERISA Affiliate thereof, or (C) a current statement of withdrawal liability for each Multiemployer Plan of any Consolidated Company or any ERISA Affiliate thereof; (h) Liens. Promptly upon any Consolidated Company becoming aware thereof, notice of the filing of any federal statutory Lien, tax or other state or local government Lien or any other Lien affecting their respective properties, other than those Liens expressly permitted by Section 8.2; (i) Public Filings, Etc. Promptly upon the filing thereof or otherwise becoming available, copies of all financial statements, annual, quarterly and special reports, proxy statements and notices sent or made available generally by Borrower to its public security holders, of all regular and periodic reports filed by any of them with any securities exchange, and of all press releases and other statements made available generally to the public containing material developments in the business or financial condition of Borrower and the other Consolidated Companies; (j) Accountants' Reports. Promptly upon receipt thereof, copies of all financial statements of, and all reports submitted by, independent public accountants to Borrower in connection with each annual, interim, or special audit of Borrower's consolidated financial statements; 45 52 (k) Trademarks; Labor Disputes, Etc. Promptly upon the existence or occurrence thereof, notice of the existence or occurrence of (i) failure of any Consolidated Company to hold in full force and effect those material trademarks, service marks, patents, trade names, copyrights, licenses, franchises and similar rights necessary in the normal conduct of its business, and (ii) any strike, labor dispute, slow down or work stoppage as described in Section 6.21; (l) New Subsidiaries. Within 30 days after the formation or acquisition of any Subsidiary, or any other event resulting in the creation of a new Subsidiary, notice of the formation or acquisition of such Subsidiary or such occurrence, including a description of the assets of such entity, the activities in which it will be engaged, and such other information as the Agent may request. (m) Intercompany Asset Transfers. Promptly upon the occurrence thereof, notice of the transfer of any assets from Borrower to any other Consolidated Company that is not Borrower or a wholly owned Subsidiary of Borrower (in any transaction or series of related transactions), excluding sales or other transfers of assets in the ordinary course of business, where the aggregate Asset Value of such assets is less than $3,000,000.00 during any fiscal year; (n) Other Information. With reasonable promptness, such other information about the Consolidated Companies as the Agent (on its behalf or on behalf of any Lender)may reasonably request from time to time. SECTION 7.8 FINANCIAL COVENANTS. (a) Fixed Charge Coverage Ratio. Maintain as at the last day of each fiscal quarter, a ratio of Consolidated EBITR to Consolidated Fixed Charges of at least 3.0:1.0, computed on a rolling four-quarter basis, based on information contained in the Borrower's current financial statement and its financial statements for the preceding three quarters. (b) Consolidated Funded Debt to Total Capitalization Ratio. Maintain a maximum ratio of Consolidated Funded Debt to Total Capitalization, of less than 0.55:1.0, tested quarterly at the end of each fiscal quarter. (c) Consolidated Net Worth. Maintain at all times, Consolidated Net Worth of at least $200,000,000.00 plus (i) fifty percent (50%) of Consolidated Net Income earned after May 28, 1996, and (ii) one hundred percent (100%) of the net proceeds to the Borrower of any equity offering after the Closing Date. 46 53 SECTION 7.9 NOTICES UNDER CERTAIN OTHER CONSOLIDATED FUNDED DEBT. Immediately upon its receipt thereof, Borrower shall furnish the Agent a copy of any notice received by it or any other Consolidated Company from the holder(s) of Consolidated Funded Debt (or from any trustee, agent, attorney, or other party acting on behalf of such holder(s)) in an amount which, in the aggregate, exceeds $500,000.00, where such notice states or claims (i) the existence or occurrence of any default or event of default with respect to such Consolidated Funded Debt under the terms of any indenture, loan or credit agreement, debenture, note, or other document evidencing or governing such Consolidated Funded Debt, or (ii) the existence or occurrence of any event or condition which requires or permits holder(s) of any Consolidated Funded Debt to exercise rights under any Change in Control Provision. Borrower agrees to request the holder(s) of any Consolidated Funded Debt (or any trustee or agent acting on their behalf) incurred pursuant to documents executed or amended and restated after the Closing Date, to furnish copies of all such notices directly to the Agent simultaneously with the furnishing thereof to Borrower, and that such requirement may not be altered or rescinded without the prior written consent of the Agent. SECTION 7.10 FISCAL YEAR. Borrower shall not change its fiscal year now employed for accounting and reporting purposes without the prior written consent of the Agent and the Required Lenders, which consent shall not be unreasonably withheld. SECTION 7.11 SUBORDINATION OF INTERCOMPANY LOANS. Except as set forth in Schedule 7.11 with regard to Q-Lube, all loans owed to any Consolidated Company, or any Affiliate of any thereof, shall, at all times, be subordinate to the Loans and the Borrower shall cause its Subsidiaries and/or Affiliates from time to time to execute and deliver to the Agent and the Required Lenders subordination agreements in form and content reasonably satisfactory to the Agent and the Required Lenders. ARTICLE VIII NEGATIVE COVENANTS So long as any Commitment remains in effect hereunder or any Note shall remain unpaid, Borrower will not and will not permit any Subsidiary to: SECTION 8.1 [RESERVED] SECTION 8.2 LIENS. Create, incur, assume or suffer to exist any Lien on any of its property now owned or hereafter acquired to secure any Indebtedness other than: (a) Liens existing on the date hereof disclosed on Schedule 8.2; 47 54 (b) any Lien on any property securing Indebtedness incurred or assumed for the purpose of financing all or any part of the acquisition cost of such property and any refinancing thereof, provided that such Lien does not extend to any other property, and provided further that the aggregate principal amount of Indebtedness secured by all such Liens at any time does not exceed five percent (5%) of the Borrower's net worth; (c) Liens for taxes not yet due, and Liens for taxes or Liens imposed by ERISA which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained; (d) Statutory Liens of landlords, existing contractual Liens of landlords, future contractual Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law created in the ordinary course of business or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained; (e) Liens incurred or deposits made in the ordinary course of business in connection with workers compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (f) Liens resulting from zoning, easements, and restrictions on the use of such real estate, or rights reserved or vested in governmental authority, which do not materially impair the use of such real estate; and (g) Liens arising under ERISA; and (h) Other Liens included in the $3,000,000.00 exception provided for in Section 6.7. SECTION 8.3 MERGERS, ACQUISITIONS, SALES, ETC. Merge or consolidate with any other Person, other than Borrower or another Subsidiary, or sell, lease, or otherwise dispose of its accounts, property or other assets (including capital stock of Subsidiaries); provided, however, that the foregoing restrictions on asset sales shall not be applicable to (i) sales of equipment or other personal property being replaced by other equipment or other personal property purchased as a capital expenditure item having comparable values, (ii) sale, lease or transfer of assets of the Borrower or any Subsidiary to the Borrower or to any other Subsidiary, (iii) sales of inventory or real property in the ordinary course of business, (iv) dispositions of obsolete, damaged or unusable assets and (v) other asset sales (including the stock of Subsidiaries) where, on the date of execution of a 48 55 binding obligation to make such asset sale (provided that if the asset sale is not consummated within six (6) months of such execution, then on the date of consummation of such asset sale rather than on the date of execution of such binding obligation), the Asset Value of such other asset sales occurring after the Closing Date, taking into account the Asset Value of the proposed asset sale, would not exceed five percent (5%) of Borrower's assets; and, provided further, that the foregoing restrictions on mergers shall not apply to mergers involving Borrower and another entity, provided Borrower is the surviving entity, and mergers between a Subsidiary of Borrower and Borrower or between Subsidiaries of Borrower and mergers of a Subsidiary of Borrower and another entity so long as the resulting entity is a wholly owned Subsidiary of Borrower; provided, however, that no transaction pursuant to clauses (i), (ii), (iv) or the second proviso above shall be permitted if any Default or Event of Default otherwise exists at the time of such transaction or would otherwise exist as a result of such transaction. SECTION 8.4 INVESTMENTS, LOANS, ETC. Make or permit to remain outstanding any loan or advance to, or guarantee, endorse, or otherwise be or become contingently liable, directly or indirectly in connection with obligations, stock or dividends of any other Person, or hold any Investments in any Person, or otherwise acquire or hold any Subsidiaries, other than: (a) investments received in settlement of debts created in the ordinary course of business; (b) the endorsement of negotiable instruments in the ordinary course of business; (c) investments in stock or assets, or any combination thereof, of Subsidiaries existing on the date hereof or of any new Subsidiaries; (d) investments in minority interests in any other Person provided such minority interests do not exceed $500,000.00 in the aggregate; (e) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, in each case supported by the full faith and credit of the United States and maturing within one year from the date of creation thereof; (f) commercial paper, bankers acceptances or corporate obligations maturing within one year from the date of creation thereof having a rating at the time as of which any determination is made of P-1 (or higher) according to Moody's or as A-1 (or higher) according to Standard & Poor's corporation or the equivalent thereof if by another nationally recognized credit rating agency; 49 56 (g) time deposits or repurchase agreements maturing within one year from the date of creation thereof, including certificates of deposit or repurchase agreements issued by any Lender and any office located in the United States of any bank or trust company which is organized under the laws of the United States or any state thereof and has total assets aggregating at least $500,000,000.00, including without limitation, any such deposits in Eurodollars issued by a foreign branch of any such bank or trust company; (h) Investments made by Plans; (i) Intercompany Loans; and (j) advances to employees not to exceed $500,000.00 in the aggregate at any one time. SECTION 8.5 SALE AND LEASEBACK TRANSACTIONS. Except for transactions involving up to $2,500,000.00 in the aggregate during any fiscal year, sell or transfer any property, real or personal, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which any Consolidated Company intends to use for substantially the same purpose or purposes as the property being sold or transferred. SECTION 8.6 TRANSACTIONS WITH AFFILIATES. (a) Enter into any material transaction or series of related transactions which in the aggregate would be material, whether or not in the ordinary course of business, with any Affiliate of any Consolidated Company (but excluding any Affiliate which is also a Consolidated Company), other than on terms and conditions substantially as favorable to such Consolidated Company as would be obtained by such Consolidated Company at the time in a comparable arm's length transaction with a Person other than an Affiliate. (b) Convey or transfer to any other Consolidated Company any assets (excluding conveyances or transfers in the ordinary course of business) if at the time of such conveyance or transfer any Default or Event of Default exists or would exist as a result of such conveyance or transfer. SECTION 8.7 [RESERVED]. SECTION 8.8 CHANGES IN BUSINESS. Enter into any business which is substantially different from that presently conducted or presently contemplated by the Consolidated Companies taken as a whole. SECTION 8.9 ERISA. Take or fail to take any action with respect to any Plan of any Consolidated Company or, with respect to its ERISA Affiliates, any Plans which are subject to Title IV 50 57 of ERISA or to continuation health care requirements for group health plans under the Code, including without limitation (i) establishing any such Plan, (ii) amending any such Plan (except where required to comply with applicable law), (iii) terminating or withdrawing from any such Plan, or (iv) incurring an amount of unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA, or any withdrawal liability under Title IV of ERISA with respect to any such Plan, without first obtaining the written approval of the Agent and the Required Lenders, where such actions or failures could result in a Materially Adverse Effect. SECTION 8.10 [RESERVED]. SECTION 8.11 LIMITATION ON PAYMENT RESTRICTIONS AFFECTING CONSOLIDATED COMPANIES. Except as set forth on Schedule 7.11 with regard to Q-Lube, create or otherwise cause or suffer to exist or become effective, any consensual encumbrance or restriction on the ability of any Consolidated Company to (i) pay dividends or make any other distributions on such Consolidated Company's stock, or (ii) pay any indebtedness owed to Borrower or any other Consolidated Company, or (iii) transfer any of its property or assets to Borrower or any other Consolidated Company, except any consensual encumbrance or restriction existing under the Credit Documents. SECTION 8.12 [RESERVED]. SECTION 8.13 USE OF PROCEEDS. Use of the proceeds of the Loans in any material respect for any purpose except those set forth herein. SECTION 8.14 SUBSIDIARY INDEBTEDNESS. Without the prior written consent of the Agent and the Required Lenders, the Subsidiaries of the Borrower shall not create, incur, assume or suffer to exist any Indebtedness in excess of $3,000,000.00 in the aggregate; provided, however, the foregoing restriction shall not apply to Subsidiaries that have guaranteed the Loans by executing and delivering to the Agent, in favor of the Lenders, Guaranty Agreements reasonably acceptable to the Lenders in form and content. ARTICLE IX EVENTS OF DEFAULT Upon the occurrence and during the continuance of any of the following specified events (each an "Event of Default"): SECTION 9.1 PAYMENTS. Borrower shall fail to make promptly when due (including, without limitation, by mandatory prepayment) any principal payment with respect to the Loans, or, 51 58 within five (5) days after receipt of notice that such amount is due, any payment of interest, fee or other amount payable hereunder; SECTION 9.2 COVENANTS WITHOUT NOTICE. Borrower shall fail to observe or perform any covenant or agreement contained in Section 7.8; SECTION 9.3 OTHER COVENANTS. (a) Borrower shall fail to observe or perform any covenant or agreement contained in Section 7.7 or Article VIII of this Agreement, and such failure shall remain unremedied for 30 days after the earlier of (i) a member of Borrower's Senior Management obtains actual knowledge of such failure or (ii) written notice thereof shall have been given to Borrower by Agent or any Lender; or (b) Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement, other than those referred to in Sections 9.1, 9.2 and 9.3(a), and, if capable of being remedied, such failure shall remain unremedied for 30 days after the earlier of (i) Borrower's Senior Management obtaining actual knowledge thereof, or (ii) written notice thereof shall have been given to Borrower by Agent or any Lender, provided, however, that in the case of the violation of any such covenant or agreement (other than those referred to in Sections 9.1, 9.2 or 9.3(a)), if such violation could not reasonably be expected to be cured within 30 days, the Borrower shall have a period of 90 days to cure such violation, so long as Borrower is diligently pursuing such cure; SECTION 9.4 REPRESENTATIONS. Any representation or warranty made or deemed to be made by Borrower or any other Credit Party or by any of its officers under this Agreement or any other Credit Document (including the Schedules attached thereto), or any certificate or other document submitted to the Agent or the Lenders by any such Person pursuant to the terms of this Agreement or any other Credit Document, shall be incorrect in any material respect when made or deemed to be made or submitted; SECTION 9.5 NON-PAYMENTS OF OTHER INDEBTEDNESS. Any Consolidated Company shall fail to make when due (whether at stated maturity, by acceleration, on demand or otherwise, and after giving effect to any applicable grace period) any payment of principal of or interest on any Indebtedness (other than the Obligations) which individually or in the aggregate exceeds $5,000,000.00; SECTION 9.6 DEFAULTS UNDER OTHER AGREEMENTS. Any Consolidated Company shall fail to observe or perform any covenants or agreements (other than those referenced in Section 9.5) contained in any agreements or instruments relating to any of its Indebtedness or any other event shall occur if the effect of such failure or other event is to accelerate, or to permit the holder of such Indebtedness or any other Person to accelerate, 52 59 the maturity of such Indebtedness; or any such Indebtedness shall be required to be prepaid (other than by a regularly scheduled required prepayment) in whole or in part prior to its stated maturity; SECTION 9.7 BANKRUPTCY. Borrower or any other Consolidated Company shall commence a voluntary case concerning itself under the Bankruptcy Code or an involuntary case for bankruptcy is commenced against any Consolidated Company and the petition is not controverted within 30 days after issuance by the Bankruptcy Court of the summons directed to and properly served upon the Borrower or any Consolidated Company, or is not dismissed within 90 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or any substantial part of the property of any Consolidated Company; or any Consolidated Company commences proceedings of its own bankruptcy or to be granted a suspension of payments or any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction, whether now or hereafter in effect, relating to any Consolidated Company or there is commenced against any Consolidated Company any such proceeding which remains undismissed for a period of 90 days; or any Consolidated Company is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or any Consolidated Company suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 90 days; or any Consolidated Company makes a general assignment for the benefit of creditors; or any Consolidated Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or any Consolidated Company shall call a meeting of its creditors with a view to arranging a composition or adjustment of its debts; or any Consolidated Company shall by any act or failure to act indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate action is taken by any Consolidated Company for the purpose of effecting any of the foregoing; SECTION 9.8 ERISA. A Plan of a Consolidated Company or a Plan subject to Title IV of ERISA of any of its ERISA Affiliates: (a) shall fail to be funded in accordance with the minimum funding standard required by applicable law, the terms of such Plan, Section 412 of the Code or Section 302 of ERISA for any plan year or a waiver of such standard is sought or granted with respect to such Plan under applicable law, the terms of such Plan or Section 412 of the Code or Section 303 of ERISA; or 53 60 (b) is being, or has been, terminated or the subject of termination proceedings under applicable law or the terms of such Plan; or (c) shall require a Consolidated Company to provide security under applicable law, the terms of such Plan, Section 401 or 412 of the Code or Section 306 or 307 of ERISA; or (d) results in a liability to a Consolidated Company under applicable law, the terms of such Plan, or Title IV of ERISA; and there shall result from any such failure, waiver, termination or other event a liability to the PBGC or a Plan that would have a Materially Adverse Effect; SECTION 9.9 MONEY JUDGMENT; AIRGAS LITIGATION. A judgment, tax lien or order for the payment of money in excess of $5,000,000.00, or otherwise reasonably anticipated to have a Materially Adverse Effect, shall be rendered against Borrower or any other Consolidated Company and such judgment or order shall continue unsatisfied (in the case of a money judgment) and in effect for a period of 60 days during which execution shall not be effectively stayed or deferred (whether by action of a court, by agreement or otherwise); or the Airgas Litigation shall result in liability, of the Borrower in excess of $70,000,000.00; SECTION 9.10 CHANGE IN CONTROL OF BORROWER. (a) Any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), except any current stockholder of Borrower who owns, as of the date of this Agreement, at least twenty percent (20%) of the issued and outstanding capital stock of the Borrower, shall become the "beneficial owner(s)" (as defined in said Rule 13d-3) of more than thirty percent (30%) of the shares of the outstanding common stock of Borrower entitled to vote for members of Borrower's board of directors; or (b) any event or condition shall occur or exist which, pursuant to the terms of any change in control provision, requires or permits the holder(s) of Indebtedness of any Consolidated Company to require that such Indebtedness be redeemed, repurchased, defeased, prepaid or repaid, in whole or in part, or the maturity of such Indebtedness to be accelerated in any respect; SECTION 9.11 DEFAULT UNDER OTHER CREDIT DOCUMENTS. There shall exist or occur any "Event of Default" as provided under the terms of any other Credit Document, or any Credit Document ceases to be in full force and effect or the validity or enforceability thereof is disaffirmed by or on behalf of Borrower or any other Credit Party, or any Credit Party seeks to cancel or terminate 54 61 any Credit Documents or to limit its liability thereunder, or at any time it is or becomes unlawful for Borrower or any other Credit Party to perform or comply with its obligations under any Credit Document, or the obligations of Borrower or any other Credit Party under any Credit Document are not or cease to be legal, valid and binding on Borrower or any such Credit Party; SECTION 9.12 ATTACHMENTS. An attachment or similar action shall be made on or taken against any of the assets of any Consolidated Company and is not removed, suspended or enjoined within 60 days of the same being made or any suspension or injunction being lifted; then, and in any such event, and at any time thereafter if any Event of Default shall then be continuing, the Agent may, and upon the written or telex request of the Required Lenders, shall, by written notice to Borrower, take any or all of the following actions, without prejudice to the rights of the Agent, any Lender or the holder of any Note to enforce its claims against Borrower or any other Credit Party: (i) declare all Commitments terminated, whereupon the pro rata Commitments of each Lender shall terminate immediately and any unpaid commitment fee shall forthwith become due and payable without any other notice of any kind; and (ii) declare the principal of and any accrued interest on the Loans, and all other obligations owing hereunder, to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Borrower; provided, that, if an Event of Default specified in Section 9.7 shall occur, the result which would occur upon the giving of written notice by the Agent to any Credit Party, as specified in clauses (i) and (ii) above, shall occur automatically without the giving of any such notice. ARTICLE X THE AGENT SECTION 10.1 APPOINTMENT OF AGENT. Each Lender hereby designates SunTrust Bank, Central Florida, National Association as Agent ("Agent") to administer all matters concerning the Loans and to act as herein specified. Each Lender hereby irrevocably authorizes, and each holder of any Note by the acceptance of a Note shall be deemed irrevocably to authorize, the Agent to take such actions on its behalf under the provisions of this Agreement, the other Credit Documents, and all other instruments and agreements referred to herein or therein, and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through their agents or employees. The provisions of this Section 10.1 are solely for the benefit of 55 62 the Agent, and Borrower and the other Consolidated Companies shall not have any rights as third party beneficiaries of any of the provisions hereof. In performing its functions and duties under this Agreement, the Agent shall act solely as agent of the Lenders and does not assume and shall not be deemed to have assumed any obligations towards or relationship of agency or trust with or for the Borrower and the other Consolidated Companies. SECTION 10.2 NATURE OF DUTIES OF AGENT. The Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and the other Credit Documents. Neither the Agent nor any of its respective officers, directors, employees or agents shall be liable for any action taken or omitted by it as such hereunder or in connection herewith, unless caused by its gross negligence or willful misconduct. The duties of the Agent shall be ministerial and administrative in nature; the Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender; and nothing in this Agreement, express or implied, is intended to or shall be so construed as to impose upon the Agent any obligations, in respect of this Agreement or the other Credit Documents except as expressly set forth herein. SECTION 10.3 LACK OF RELIANCE ON THE AGENT. (a) Independently and without reliance upon the Agent, each Lender, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Credit Parties in connection with the taking or not taking of any action in connection herewith, and (ii) its own appraisal of the creditworthiness of the Credit Parties, and, except as expressly provided in this Agreement, the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. (b) The Agent shall not be responsible to any Lender for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, collectability, priority or sufficiency of this Agreement, the Notes, or any other documents contemplated hereby or thereby, or the financial condition of the Credit Parties, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement, the Notes, or the other documents contemplated hereby or thereby, or the financial condition of the Credit Parties, or the existence or possible existence of any Default or Event of Default; provided, however, to the extent that the Agent has been 56 63 advised that a Lender has not received any information formally delivered to the Agent pursuant to Section 7.7, the Agent shall deliver or cause to be delivered such information to such Lender. SECTION 10.4 CERTAIN RIGHTS OF THE AGENT. If the Agent shall request instructions from the Required Lenders with respect to any action or actions (including the failure to act) in connection with this Agreement, the Agent shall be entitled to refrain from such act or taking such act, unless and until the Agent shall have received instructions from the Required Lenders; and the Agent shall not incur liability in any Person by reason of so refraining. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders. SECTION 10.5 RELIANCE BY AGENT. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cable gram, radiogram, order or other documentary, teletransmission or telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper Person. The Agent may consult with legal counsel (including counsel for any Credit Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 10.6 INDEMNIFICATION OF AGENT. To the extent the Agent is not reimbursed and indemnified by the Credit Parties, each Lender will reimburse and indemnify the Agent, ratably according to the respective amounts of the Loans outstanding under all Facilities (or if no amounts are outstanding, ratably in accordance with the Total Commitments), in either case, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder, in any way relating to or arising out of this Agreement or the other Credit Documents; provided that no Lender shall be liable to the Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct and provided further that if the Agent receives payment from a Credit Party in respect of any amount previously paid to Agent by a Lender pursuant to this Section 10.6, the Agent shall pay to any such Lender its ratable portion of such payment. SECTION 10.7 THE AGENT IN ITS INDIVIDUAL CAPACITY. With respect to its obligation to lend under this Agreement, the Loans 57 64 made by it and the Notes issued to it, the Agent shall have the same rights and powers hereunder as any other Lender or holder of a Note and may exercise the same as though it were not performing the duties specified herein; and the terms "Lenders", "Required Lenders", "holders of Notes", or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity. The Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust, financial advisory or other business with the Consolidated Companies or any affiliate of the Consolidated Companies as if it were not performing the duties specified herein, and may accept fees and other consideration from the Consolidated Companies for services in connection with this Agreement and otherwise without having to account for the same to the Lenders. SECTION 10.8 HOLDERS OF NOTES. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor. SECTION 10.9 SUCCESSOR AGENT. (a) The Agent may resign at any time by giving written notice thereof to the Lenders and Borrower and may be removed at any time with or without cause by the Required Lenders; provided, however, the Agent may not resign or be removed until a successor Agent has been appointed and shall have accepted such appointment. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent subject to Borrower's prior written approval, which approval will not be unreasonably withheld. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent subject to Borrower's prior written approval, which approval will not be unreasonably withheld, which successor Agent shall be a bank which maintains an office in the United States, or a commercial bank organized under the laws of the United States of America or any State thereof, or any Affiliate of such bank, having a combined capital and surplus of at least $100,000,000.00. If at any time SunTrust Bank, Central Florida, National Association is removed as a Lender, SunTrust Bank, Central Florida, National Association, shall simultaneously resign as Agent. (b) Upon the acceptance of any appointment as the Agent hereunder by a successor Agent, such successor Agent shall 58 65 thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was an Agent under this Agreement. ARTICLE XI MISCELLANEOUS SECTION 11.1 NOTICES. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telecopy or similar teletransmission or writing) and shall be given to such party at its address or applicable teletransmission number set forth on the signature pages hereof, or such other address or applicable teletransmission number as such party may hereafter specify by notice to the Agent and Borrower. Each such notice, request or other communication shall be effective (i) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, (ii) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section and the appropriate confirmation is received, or (iii) if given by any other means (including, without limitation, by air courier), when delivered or received at the address specified in this Section; provided that notices to the Agent shall not be effective until received. SECTION 11.2 AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement or the other Credit Documents, nor consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (i) waive any of the conditions specified in Section 5.1 or Section 5.2, (ii) increase the Commitments or other contractual obligations to Borrower under this Agreement, (iii) reduce the principal of, or interest on, the Notes or any fees hereunder, (iv) postpone any date fixed for the payment in respect of principal of, or interest on, the Notes or any fees hereunder, (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number or identity of Lenders which shall be required for the Lenders or any of them to take any action hereunder, (vi) release any guarantor from its obligations under any guaranty agreements, (vii) modify the definition of "Required Lenders," or (viii) modify this Section 11.2. Notwithstanding 59 66 the foregoing, no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required hereinabove to take such action, affect the rights or duties of the Agent under this Agreement or under any other Credit Document. SECTION 11.3 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of the Agent, any Lender or any holder of a Note in exercising any right or remedy hereunder or under any other Credit Document, and no course of dealing between any Credit Party and the Agent, any Lender or the holder of any Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right or remedy hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Agent, any Lender or the holder of any Note would otherwise have. No notice to or demand on any Credit Party not required hereunder or under any other Credit Document in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Agent, the Lenders or the holder of any Note to any other or further action in any circumstances without notice or demand. SECTION 11.4 PAYMENT OF EXPENSES, ETC. Borrower shall: (a) whether or not the transactions hereby contemplated are consummated, pay all reasonable, out-of-pocket costs and expenses of the Agent as required by the Fee Letter in the administration (both before and after the execution hereof and including reasonable expenses actually incurred relating to advice of counsel as to the rights and duties of the Agent and the Lenders with respect thereto) of, and in connection with the preparation, execution and delivery of, preservation of rights under, enforcement of, and, after a Default or Event of Default, refinancing, renegotiation or restructuring of, this Agreement and the other Credit Documents and the documents and instruments referred to therein, and any amendment, waiver or consent relating thereto (including, without limitation, the reasonable fees actually incurred and disbursements of counsel for the Agent as required by the Fee Letter), and in the case of enforcement of this Agreement or any Credit Document after the occurrence and during the continuance of an Event of Default, all such reasonable, out-of-pocket costs and expenses (including, without limitation, the reasonable fees actually incurred and disbursements of counsel, for any of the Lenders; (b) subject, in the case of certain Taxes, to the applicable provisions of Section 4.7(b), pay and hold each of the Lenders harmless from and against any and all present and future stamp, documentary, and other similar Taxes with respect to this 60 67 Agreement, the Notes and any other Credit Documents, any collateral described therein, or any payments due thereunder, and save each Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such Taxes; and (c) indemnify the Agent and each Lender, and their respective officers, directors, employees, representatives and agents from, and hold each of them harmless against, any and all costs, losses, liabilities, claims, damages or expenses incurred by any of them (whether or not any of them is designated a party thereto) (an "Indemnitee") arising out of or by reason of any investigation, litigation or other proceeding related to any actual or proposed use of the proceeds of any of the Loans or any Credit Party's entering into and performing of the Agreement, the Notes, or the other Credit Documents, including, without limitation, the reasonable fees actually incurred and disbursements of counsel (including foreign counsel) incurred in connection with any such investigation, litigation or other proceeding; provided, however, Borrower shall not be obligated to indemnify any Indemnitee for any of the foregoing arising out of such Indemnitee's gross negligence or willful misconduct or the material breach by the Indemnitee of its obligations under this Agreement; (d) without limiting the indemnities set forth in subsection (c) above, indemnify each Indemnitee for any and all expenses and costs (including without limitation, remedial, removal, response, abatement, cleanup, investigative, closure and monitoring costs), losses, claims (including claims for contribution or indemnity and including the cost of investigating or defending any claim and whether or not such claim is ultimately defeated, and whether such claim arose before, during or after any Credit Party's ownership, operation, possession or control of its business, property or facilities or before, on or after the date hereof, and including also any amounts paid incidental to any compromise or settlement by the Indemnitee or Indemnitees to the holders of any such claim), lawsuits, liabilities, obligations, actions, judgments, suits, disbursements, encumbrances, liens, damages (including without limitation damages for contamination or destruction of natural resources), penalties and fines of any kind or nature whatsoever (including without limitation in all cases the reasonable fees actually incurred, other charges and disbursements of counsel in connection therewith) incurred, suffered or sustained by that Indemnitee based upon, arising under or relating to Environmental Laws based on, arising out of or relating to in whole or in part, the existence or exercise of any rights or remedies by any Indemnitee under this Agreement, any other Credit Document or any related documents (but excluding those incurred, suffered or sustained by any Indemnitee as a result of any action taken by or on behalf of the Lenders with respect to any Subsidiary of Borrower (or the assets thereof) owned or controlled by the 61 68 Lenders); provided, however, Borrower shall not be obligated to indemnify any Indemnitee for any of the foregoing arising out of such Indemnitee's gross negligence or wilful misconduct. If any claim for which an Indemnitee is entitled to indemnification is asserted against such Indemnitee by a third party, such Indemnitee shall promptly give Borrower notice thereof and give Borrower an opportunity to defend the same with counsel of Borrower's choice, subject to the Agent's approval, which will not be unreasonably withheld, at Borrower's expense. All Indemnitees shall provide reasonable cooperation in connection with such defense. In the event that Borrower desires to compromise or settle any such claim, all Indemnitees shall have the rights to consent to such settlement or compromise; provided, however, that if such compromise or settlement is for money damages only (paid by Borrower in full) and will include a full release and discharge of such Indemnitee, and such Indemnitee withholds its consent to such compromise or settlement, such Indemnitee and Borrower agree that (1) Borrower's liability shall be limited to the amount of the proposed settlement and Borrower shall thereupon be relieved of any further liability with respect to such claim, and (2) from and after such date, such Indemnitee will undertake all legal costs and expenses incurred in connection with any such claim. If and to the extent that the obligations of Borrower under this Section 11.4 are unenforceable for any reason, Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. SECTION 11.5 RIGHT OF SETOFF. In addition to and not in limitation of all rights of offset that any Lender or other holder of a Note may have under applicable law, each Lender or other holder of a Note shall, upon the occurrence of any Event of Default and whether or not such Lender or such holder has made any demand or any Credit Party's obligations are matured, have the right to appropriate and apply to the payment of any Credit Party's obligations hereunder and under the other Credit Documents, all deposits of any Credit Party (general or special, time or demand, provisional or final) then or thereafter held by and other indebtedness or property then or thereafter owing by such Lender or other holder to any Credit Party, whether or not related to this Agreement or any transaction hereunder. Each Lender shall promptly notify Borrower of any offset hereunder. SECTION 11.6 BENEFIT OF AGREEMENT. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that Borrower may not assign or transfer any of its interest hereunder without the prior written consent of all the Lenders. 62 69 (b) Any Lender may make, carry or transfer Loans at, to or for the account of, any of its branch offices or the office of an Affiliate of such Lender. (c) Each Lender may assign all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of any of its Commitments and the Loans at the time owing to it and the Notes held by it) to any Eligible Assignee; provided, however, that (i) the Agent and Borrower must give their prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed), provided, however that (A) consent of the Agent and the Borrower shall not be required if such assignment is to a domestic Affiliate of the assigning Lender and (B) consent of the Borrower shall not be required after the occurrence and during the continuance of an Event of Default, (ii) the amount of the Commitments, in the case of the Revolving Loan Commitments, or Loans, in the case of assignment of Loans, of the assigning Lender subject to each assignment (determined as of the date the assignment and acceptance with respect to such assignment is delivered to the Agent) shall be in the minimum amount of $5,000,000.00 and integral multiples of $5,000,000.00, (iii) the parties to each such assignment shall execute and deliver to the Agent an Assignment and Acceptance, together with a Note or Notes subject to such assignment and, if the assignee is not a domestic Affiliate of the assigning Lender, a processing and recordation fee of $3,000.00. Borrower shall not be responsible for such processing and recordation fee or any costs or expenses incurred by any Lender or the Agent in connection with such assignment. From and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof, the assignee thereunder shall be a party hereto and to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement. Notwithstanding the foregoing, the assigning Lender must retain after the consummation of such Assignment and Acceptance, a minimum aggregate amount of Commitments or Loans, as the case may be, of $10,000,000.00; provided, however, no such minimum amount shall be required with respect to any such assignment made at any time there exists an Event of Default hereunder. Within five (5) Business Days after receipt of the notice and the Assignment and Acceptance, Borrower, at its own expense, shall execute and deliver to the Agent, in exchange for the surrendered Note or Notes, a new Note or Notes to the order of such assignee in a principal amount equal to the applicable Commitments or Loans assumed by it pursuant to such Assignment and Acceptance and new Note or Notes to the assigning Lender in the amount of its retained Commitment or Commitments or amount of its retained Loans. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the date of the 63 70 surrendered Note or Notes which they replace, and shall otherwise be in substantially the form attached hereto. (d) Each Lender may, without the consent of Borrower and the Agent, sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments in the Loans owing to it and the Notes held by it), provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating bank or other entity shall not be entitled to the benefit (except through its selling Lender) of the cost protection provisions contained in Article IV of this Agreement, and (iv) Borrower and the Agent and other Lenders shall continue to deal solely and directly with each Lender in connection with such Lender's rights and obligations under this Agreement and the other Credit Documents, and such Lender shall retain the sole right to enforce the obligations of Borrower relating to the Loans and to approve any amendment, modification or waiver of any provisions of this Agreement. Any Lender selling a participation hereunder shall provide prompt written notice to Borrower and Agent of the name of such participant. (e) Any Lender or participant may, in connection with the assignment or participation or proposed assignment or participation, pursuant to this Section, disclose to the assignee or participant or proposed assignee or participant any information relating to Borrower or the other Consolidated Companies furnished to such Lender by or on behalf of Borrower or any other Consolidated Company. With respect to any disclosure of confidential, non-public, proprietary information, such proposed assignee or participant shall agree to use the information only for the purpose of making any necessary credit judgments with respect to this credit facility and not to use the information in any manner prohibited by any law, including without limitation, the securities laws of the United States. The proposed participant or assignee shall agree in writing, a copy of which shall be furnished to Borrower, not to disclose any of such information except (i) to directors, employees, auditors or counsel to whom it is necessary to show such information, each of whom shall be informed of the confidential nature of the information, (ii) in any statement or testimony pursuant to a subpoena or order by any court, governmental body or other agency asserting jurisdiction over such entity, or as otherwise required by law (provided prior notice is given to Borrower and the Agent unless otherwise prohibited by the subpoena, order or law), and (iii) upon the request or demand of any regulatory agency or authority with proper jurisdiction. The proposed participant or assignee shall further agree to return all documents or other written material and copies thereof received from any Lender, the 64 71 Agent or Borrower relating to such confidential information unless otherwise properly disposed of by such entity. (f) Any Lender may at any time assign all or any portion of its rights in this Agreement and the Notes issued to it to a Federal Reserve Bank; provided that no such assignment shall release the Lender from any of its obligations hereunder. (g) If (i) any Taxes referred to in Section 4.7(b) have been levied or imposed so as to require withholdings or deductions by Borrower and payment by Borrower of additional amounts to any Lender as a result thereof, (ii) any Lender shall make demand for payment of any material additional amounts as compensation for increased costs pursuant to Section 4.10 or for its reduced rate of return pursuant to Section 4.16, or (iii) any Lender shall decline to consent to a modification or waiver of the terms of this Agreement or the other Credit Documents requested by Borrower, then and in such event, upon request from Borrower delivered to such Lender and the Agent, such Lender shall assign, in accordance with the provisions of Section 11.6(c), all of its rights and obligations under this Agreement and the other Credit Documents to another Lender or an Eligible Assignee selected by Borrower, in consideration for the payment by such assignee to the Lender of the principal of, and interest on, the outstanding Loans accrued to the date of such assignment, and the assumption of such Lender's Total Commitment hereunder, together with any and all other amounts owing to such Lender under any provisions of this Agreement or the other Credit Documents accrued to the date of such assignment. SECTION 11.7 GOVERNING LAW; SUBMISSION TO JURISDICTION. (a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND UNDER THE NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF) OF THE STATE OF FLORIDA. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY OTHER CREDIT DOCUMENT OR WITH RESPECT TO ANY OTHER CLAIM OR CAUSE OF ACTION ARISING OUT OF OR IN ANY WAY RELATED TO THE FUNDING, ADMINISTRATION OR COLLECTION OF THE LOANS MAY BE BROUGHT IN THE CIRCUIT COURT OF ORANGE COUNTY, FLORIDA, OR ANY OTHER COURT OF THE STATE OF FLORIDA OR OF THE UNITED STATES OF AMERICA FOR THE MIDDLE DISTRICT OF FLORIDA, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE TRIAL BY JURY IN RESPECT OF ANY DISPUTE ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR ANY OTHER CREDIT DOCUMENT OR ANY DOCUMENT RELATED THERETO OR WITH RESPECT TO ANY OTHER CLAIM OR CAUSE OF ACTION 65 72 ARISING OUT OF OR IN ANY WAY RELATED TO THE FUNDING, ADMINISTRATION OR COLLECTION OF THE LOANS. (c) BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION EITHER OF THEM MAY HAVE TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS IN RESPECT OF THIS AGREEMENT, ANY OTHER CREDIT DOCUMENT OR ANY DOCUMENT RELATED THERETO. (d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT, ANY LENDER, ANY HOLDER OF A NOTE OR ANY CREDIT PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER IN ANY OTHER JURISDICTION. SECTION 11.8 INDEPENDENT NATURE OF LENDERS' RIGHTS. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights pursuant to this Agreement and its Notes, and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. SECTION 11.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. SECTION 11.10 EFFECTIVENESS; SURVIVAL. (a) This Agreement shall not become effective until the date (the "Effective Date") on which all of the parties hereto shall have signed a counterpart hereof (whether the same or different counterparts) and the signature of the Borrower shall not be effective until after execution hereof by all the Lenders and acceptance of delivery of this Agreement by the Agent (or an agent of the Agent) pursuant to Section 5.1. (b) The obligations of Borrower under Sections 4.7(b), 4.10, 4.12, 4.16, and 11.4 hereof shall survive for one hundred twenty (120) days after the payment in full of the Notes after the Final Maturity Date. All representations and warranties made herein, in the certificates, reports, notices, and other documents delivered pursuant to this Agreement shall survive the execution and delivery of this Agreement, the other Credit 66 73 Documents, and such other agreements and documents, the making of the Loans hereunder, and the execution and delivery of the Notes. SECTION 11.11 SEVERABILITY. In case any provision in or obligation under this Agreement or the other Credit Documents shall be invalid, illegal or unenforceable, in whole or in part, in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 11.12 INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitation of, another covenant, shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. SECTION 11.13 CHANGE IN ACCOUNTING PRINCIPLES, FISCAL YEAR OR TAX LAWS. If (i) any preparation of the financial statements referred to in Section 7.7 hereafter occasioned by the promulgation of rules, regulations, pronouncements and opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public Accounts (or successors thereto or agencies with similar functions) (other than changes mandated by FASB 106) result in a material change in the method of calculation of financial covenants, standards or terms found in this Agreement, (ii) there is any change in Borrower's fiscal quarter or fiscal year as provided herein, or (iii) there is a material change in federal tax laws which materially affects any of the Consolidated Companies' ability to comply with the financial covenants, standards or terms found in this Agreement, Borrower and the Required Lenders agree to enter into negotiations in order to amend such provisions so as to equitably reflect such changes with the desired result that the criteria for evaluating any of the Consolidated Companies, financial condition shall be the same after such changes as if such changes had not been made. Unless and until such provisions have been so amended, the provisions of this Agreement shall govern. SECTION 11.14 HEADINGS DESCRIPTIVE; ENTIRE AGREEMENT. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. This Agreement, the other Credit Documents, and the agreements and documents required to be delivered pursuant to the terms of this Agreement constitute the entire agreement among the parties hereto and thereto regarding the subject matters hereof and thereof and supersede all prior agreements, representations and understandings related to such subject matters. 67 74 SECTION 11.15 TIME IS OF THE ESSENCE. Time is of the essence in interpreting and performing this Agreement and all other Credit Documents. SECTION 11.16 USURY. It is the intent of the parties hereto not to violate any federal or state law, rule or regulation pertaining either to usury or to the contracting for or charging or collecting of interest, and Borrower and Lenders agree that, should any provision of this Agreement or of the Notes, or any act performed hereunder or thereunder, violate any such law, rule or regulation, then the excess of interest contracted for or charged or collected over the maximum lawful rate of interest shall be applied to the outstanding principal indebtedness due to Lenders by Borrower under this Agreement. SECTION 11.17 CONSTRUCTION. Should any provision of this Agreement require judicial interpretation, the parties hereto agree that the court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against one party by reason of the rule of construction that a document is to be more strictly construed against the party who itself or through its agents prepared the same, it being agreed that Borrower, Agent, Lenders and their respective agents have participated in the preparation hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in Orlando, Florida, by their duly authorized officers as of the day and year first above written. [BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK] 68 75 [SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT BETWEEN SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, AS AGENT AND DISCOUNT AUTO PARTS, INC.] BORROWER: Signed, sealed and delivered DISCOUNT AUTO PARTS, INC. in the presence of: /s/ Gary I. Teblum By: /s/ C. Michael Moore - ------------------------------- ------------------------------- Print Name: Gary I. Teblum C. Michael Moore, Chief Financial Officer/ Secretary /s/ Robert Kennedy - ------------------------------- Print Name: Robert Kennedy Address for Notices: Post Office Box 8080 Lakeland, Florida 33802 Telecopy No. (941) 284-2063 Telephone No. (941) 284-2140 69 76 [SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT BETWEEN SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, AS AGENT, AND DISCOUNT AUTO PARTS, INC.] Signed, sealed and delivered SUNTRUST BANK, CENTRAL in the presence of: FLORIDA, NATIONAL ASSOCIATION, individually and as Agent /s/ Robert Kennedy By: /s/ Vipul Patel - ---------------------------------- ----------------------------- Print Name: Robert Kennedy Vipul Patel, Vice President /s/ Gary I. Teblum - ---------------------------------- Print Name: Gary I. Teblum Address for Notices: 200 S. Orange Avenue 6th Floor - SOAB Orlando, Florida 32801 Telecopy No. (407) 237-4076 Telephone No. (407) 237-5352 Payment Office: 200 S. Orange Avenue 6th Floor - SOAB __________________________________________________________________ Revolving Loan Commitment: $80,000,00.00 Pro Rata Share of Revolving Loan Commitment: 45.7% (rounded to the nearest .1%) 70 77 [SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT BETWEEN SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, AS AGENT, AND DISCOUNT AUTO PARTS, INC.] Signed, sealed and delivered AMSOUTH BANK, individually in the presence of: and as Co-Agent /s/ Tina C. Lites By: /s/ Anthony Stiffler - ---------------------------------- -------------------------------- Print Name: Tina C. Lites Anthony Stiffler, Vice President /s/ K. Longanecker - ---------------------------------- Print Name: Kristen Longanecker Address for Notices: 65 North Orange Avenue Post Office Box 588001 Orlando, Florida 32858 Attn: Mr. Tony Stiffler Vice President - Commercial Banking Telecopy No. (407)649-8441 Telephone No. (407)680-5720 Payment Office: 65 North Orange Avenue Orlando, Florida 32801 ___________________________________________________________________ Revolving Loan Commitment: $35,000,000.00 Pro Rata Share of Revolving Loan Commitment: 20.0% 71 78 [SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT BETWEEN SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, AS AGENT, AND DISCOUNT AUTO PARTS, INC.] Signed, sealed and delivered BARNETT BANK, N.A., in the presence of: individually and as Co-Agent /s/ Deborah Harvey By: /s/ Thomas R. Hermann - -------------------------------- ------------------------------ Print Name: Deborah Harvey Thomas R. Hermann, Exec. Vice President /s/ Myna Lee Ince - -------------------------------- Print Name: Myna Lee Ince Address for Notices: 331 South Florida Avenue Third Floor Lakeland, Florida 33815 Attention: Mr. Thomas R. Hermann Corporate Banking Executive Telecopy No. (941)680-5732 Telephone No. (941)680-5720 Payment Office: 331 South Florida Avenue Lakeland, Florida 33815 ___________________________________________________________________ Revolving Loan Commitment: $35,000,000.00 Pro Rata Share of Revolving Loan Commitment: 20.0% 72 79 [SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT BETWEEN SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, AS AGENT, AND DISCOUNT AUTO PARTS, INC.] Signed, sealed and delivered FIRST UNION NATIONAL BANK in the presence of: /s/ Barbara Melton By: /s/ Michael J. Carlin - --------------------------------- ------------------------------ Print Name: Barbara Melton Michael J. Carlin, Senior Vice President /s/ Mariann Cooper - --------------------------------- Print Name: Mariann Cooper Address for Notices: 800 North Magnolia Avenue Mail Code FL 2117 Orlando, Florida 32803 Attention: Mr. Michael J. Carlin Senior Vice President Telecopy No. (904)361-2037 Telephone No. (904)361-3455 Payment Office: 800 North Magnolia Avenue Mail Code FL 2117 Orlando, Florida 32803 ___________________________________________________________________ Revolving Loan Commitment: $15,000,000.00 Pro Rata Share of Revolving Loan Commitment: 8.6% (rounded to the nearest .1%) 73 80 [SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT BETWEEN SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, AS AGENT, AND DISCOUNT AUTO PARTS, INC.] Signed, sealed and delivered THE FUJI BANK AND TRUST in the presence of: COMPANY /s/ Walter T. Duffy III By: /s/ Toshiaki Yakura - ---------------------------------- --------------------------------- Print Name: Walter T. Duffy III Toshiaki Yakura, Executive Vice President /s/ Chigusa Tada - ----------------------------------- Print Name: Chigusa Tada Address for Notices: with a copy to: Fuji Bank Limited The Fuji Bank & Trust Company First Union Financial Center Two World Trade Center Suite 3440 79th Floor 200 South Biscayne Blvd. New York, New York 10048 Miami, Florida 33131 Attn: Mr. Raymond Ventura Vice President Attn: Mr. Stephen Hanas and Manager Vice President Telecopy No. (305)381-8338 Telecopy No. (212)912-0516 Telephone No. (305)374-2226 Telephone No. (212)898-2062 Payment Office: Two World Trade Center 79th Floor New York, New York 10048 ___________________________________________________________________ Revolving Loan Commitment: $10,000,000.00 Pro Rata Share of Revolving Loan Commitment: 5.7% (rounded to the nearest .1%) 74 EX-10.9 4 1992 TEAM MEMBER STOCK PURCHASE 1 EXHIBIT 10.9 DISCOUNT AUTO PARTS, INC. AMENDED AND RESTATED 1992 TEAM MEMBER STOCK PURCHASE PLAN ARTICLE 1 Purpose The purpose of the Discount Auto Parts, Inc. Team Member Stock Purchase Plan (the "Plan") is to provide employees of Discount Auto Parts, Inc. (the "Company") and its subsidiaries with an opportunity to acquire a proprietary interest in the Company through the purchase of authorized but unissued shares of common stock (par value $.01 per share) of the Company (the "Common Stock"). It is the intention of the Company to have the Plan qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, or any statute or regulation of similar import. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. ARTICLE 2 Definitions The following words and terms as used herein shall have that meaning set forth therefor in this Article 2 unless a different meaning is clearly required by the context. Whenever appropriate, words used in the singular shall be deemed to include the plural and vice versa, and the masculine gender shall be deemed to include the feminine gender. 2.1 "Board" or "Board of Directors" shall mean the Board of Directors of the Company. 2.2 "Code" shall mean the Internal Revenue Code of 1986, as amended. 2.3 "Committee" shall mean the Compensation and Benefits Committee of the Board or such other committee as may be appointed by the Board as the Committee in accordance with Section 3.1. 2.4 "Common Stock" shall mean the common stock, $.01 par value, of the Company. 2.5 "Company" shall mean Discount Auto Parts, Inc., a Florida corporation, and any successor. 2.6 "Compensation" shall mean an Eligible Employee's regular salary and wages, overtime pay, bonuses and commissions (in all cases, before any reduction for elective contributions to any Code Section 401(k) or Code Section 125 Plan), but does not include credits or benefits under the Plan, or any amount contributed by the Company to any pension, profit sharing or employee stock ownership plan, or any employee welfare, life insurance or health insurance plan or arrangement, or any deferred compensation plan or arrangement. 1. 2 2.7 "Eligible Employee" shall mean any individual employed by the Company or any Subsidiary who meets the eligibility requirements of Article 4. The Committee shall have the sole power to determine who is and who is not an Eligible Employee. 2.8 "Fair market value" of the shares of Common Stock shall mean the closing price, on the date in question (or, if no shares are traded on such day, on the next preceding day on which shares were traded), of the Common Stock as reported on the Composite Tape, or if not reported thereon, then such price as reported in the trading reports of the principal securities exchange in the United States on which such stock is listed, or if such stock is not listed on a securities exchange in the United States, the mean between the dealer closing "bid" and "ask" prices on the over-the-counter market as reported by the National Association of Security Dealers Automated Quotation System (NASDAQ), or NASDAQ's successor, or if not reported on NASDAQ, the fair market value of such stock as determined by the Committee in good faith and based on all relevant factors. 2.9 "Purchase Documents" is defined in Section 6.1. 2.10 "Plan" shall mean the Discount Auto Parts, Inc. 1992 Team Member Stock Purchase Plan, as set forth herein and as amended from time to time. 2.11 "Shares" shall mean shares of the Common Stock. 2.12 "Subsidiary" shall mean any corporation that at the time qualifies as a subsidiary of the Company under the definition of "subsidiary corporation" contained in Section 424(f) of the Code. ARTICLE 3 Administration 3.1 Committee. This Plan shall be administered by a committee appointed by the Board of Directors (the "Committee"). The Committee shall consist of not less than two (2) nor more than five (5) persons, each of whom shall be a member of the Board and none of whom shall be eligible to participate under the Plan. The Board of Directors may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board of Directors. 3.2 Organization. The Committee shall select one of its members as chairman, and shall hold meetings at such time and places as it may determine. The acts of a majority of the Committee at which a quorum is present, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be valid acts of the Committee. 3.3 Power and Authority. Subject to the provisions of the Plan, the Committee shall have full authority, in its discretion: (a) to determine the employees of the Company and its Subsidiaries who are eligible to participate in the Plan; (b) to determine the purchase price of the shares of Common Stock being offered; and (c) to interpret the Plan, and to prescribe, amend and rescind rules and regulations with respect thereto. The interpretation and construction by the Committee of any provision of the Plan over which it 2. 3 has discretionary authority shall be final and conclusive. All actions and policies of the Committee shall be consistent with the qualification of the Plan at all times as an employee stock purchase plan under Section 423 of the Code. (a) No Liability. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan. ARTICLE 4 Employees Eligible To Participate 4.1 General Rule. Any person, including any officer but not a person who is solely a director, who is in the employment of the Company or any Subsidiary on the first day of an offering period is eligible to participate in the Plan with respect to that offering, except (a) a person who has been employed less than one year; (b) a person whose customary employment is 20 hours or less per week; and (c) a person whose customary employment is for not more than five months in any calendar year. 4.2 Special Rules. Notwithstanding any provision of the Plan to the contrary, no employee shall be eligible to subscribe for any shares under the Plan if: (a) immediately after the subscription, the employee would own stock and/or hold outstanding options to purchase stock, possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary (as determined in accordance with the provisions of Section 423(b)(3) of the Code); (b) the subscription would permit his rights to purchase shares under all stock purchase plans of the Company and its parent and subsidiary corporations to accrue at a rate that exceeds $25,000 of fair market value of such shares (determined at the time such right to subscribe accrues) for each calendar year in which such right to subscribe is outstanding at any time; (c) the subscription is otherwise prohibited by law; or (d) his employment is terminated for any reason prior to the time revocation or cancellation of participation in an offering is prohibited under Section 6.2. ARTICLE 5 Offers 5.1 Offering Periods. There shall be twenty three (23) offering periods under the Plan: the first offering period shall commence on the effective date of the Plan and shall conclude on September 30, 1992; thereafter, a separate offering period shall commence on the first day and conclude on the last day of the months of March and September in each of the years 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2000, 2001, 2002 and 2003. Except for the maximum number of shares to be offered under the Plan, 3. 4 except for a lack of available shares, and except for the limitation on the number of shares for which each Eligible Employee may subscribe, there shall be no limit on the aggregate number of shares for which subscriptions may be made with respect to any particular offering. The right of an Eligible Employee to subscribe to shares in an offering shall not be deemed to accrue until the first day of that offering period. 5.2 Price. The purchase price per share for an offering period shall be 85% of the fair market value of the Common Stock on the last day immediately preceding the first day of the offering period; provided, however, that with respect to the first offering period (the offering period ending September 30, 1992), the purchase price per share shall be 85% of the lesser of (a) the fair market value of the Common Stock on the last day immediately preceding the first day of the offering period or (b) the fair market value of the Common Stock on the last day immediately preceding the last day of the offering period. 5.3 Number of Shares To Be Offered. (a) The maximum number of shares of Common Stock that may be offered under the Plan is 550,000. (b) In each offering, an Eligible Employee shall be entitled to subscribe for a total number of shares of Common Stock equal to one share for each Two Hundred Forty Dollars ($240.00) of Compensation paid to him for the calendar year immediately preceding the year in which the offering occurs. However, no Eligible Employee shall be entitled to subscribe in any offering to more than two hundred (200) shares or (for those Eligible Employees who are entitled to purchase at least ten (10) shares) fewer than ten (10) shares. (c) Subscriptions shall be allowed for full shares only. Any rights to subscribe for fractional shares shall be void; and any computation relating to fractional shares shall be rounded down to the next lowest whole number of shares. (d) If with respect to any offering the available shares are oversubscribed, the aggregate of the subscriptions allowable under Section 5.3(b) shall be reduced to such lower figure as may be necessary to eliminate the oversubscription. Such reduction shall be effected on a proportionate basis as equitably as possible; but in no event shall such reduction result in a subscription of less than the minimum subscription or a subscription for fractional shares. In the event of an oversubscription and cutback as provided in this paragraph (d), the Company will refund to the participating employees any excess payment for subscribed shares as soon as practicable after completion of the offering. ARTICLE 6 Participation and Payment 6.1 Election To Participate. An Eligible Employee may become a participant in an offering (a) by completing a subscription agreement, indicating the number of shares of Common Stock to be purchased, and such other documents as the Company may require (the "Purchase Documents"); and (b) by tendering the Purchase Documents and cash or a check (payable in U.S. funds) for the full subscription price to the Secretary of the Company (or such other person as may be designated by the Committee) at 4. 5 any time during the offering; provided however that with respect to the first offering period (the offering period ending September 30, 1992), all participants in such offering shall be deemed to have become participants in the offering on September 30, 1992 notwithstanding when during the offering period the Purchase Documents and the cash or check are tendered. Purchase Documents and cash or check received by the Secretary of the Company (or other designated person) before or after the offering shall be void and shall be given no effect with respect to the offering; and the Secretary shall return such documents and cash or check to the involved employee as soon as practicable after receipt. 6.2 No Revocation of Election. No election to participate in an offering may be revoked or cancelled by an Eligible Employee once the Purchase Documents and full payment have been tendered to the Company. 6.3 No Interest. No interest shall be payable on the purchase price of the shares of Common Stock subscribed for or on the funds returned to employees as a result of an oversubscription, or pursuant to Section 6.1 for early or late delivery. 6.4 Delivery of Certificates Representing Shares. (a) As soon as practicable after the completion of each offering, the Company shall deliver or cause to be delivered to each participating employee a certificate or certificates representing the shares of Common Stock purchased in the offering. (b) Certificates representing shares of Common Stock to be delivered to a participating employee under the Plan will be registered in the name of the participating employee, or if the participating employee so directs, by written notice to the Company prior to the termination date of the pertinent offering, and to the extent permitted by applicable law, in the names of the participating employee and one such other person as may be designated by the participating employee, as joint tenants with rights of survivorship. 6.5 Rights as Stockholder. No participating employee shall have any right as a stockholder until after the completion of the offering in which the employee participated and the date on which he becomes a record owner of the shares purchased under the Plan (the "record ownership date"). No adjustment shall be made for dividends or other rights for which the record date is prior to the record ownership date. 6.6 Termination of Employment. An employee whose employment is terminated for any reason shall have no right to participate in the Plan after termination. However, the termination shall not affect any election to participate in the Plan that is made prior to termination in accordance with the provisions of Section 6.1. 6.7 Rights Not Transferable. The right of an Eligible Employee to participate in the Plan shall not be transferable by the employee, and no right of an Eligible Employee under this Plan may be exercised after his death, by his Personal Representative or anyone else, or during his lifetime by any person other than the Eligible Employee. 5. 6 ARTICLE 7 Miscellaneous 7.1 Stock Adjustments. (a) In the event of any increase or decrease in the number of issued shares of Common Stock resulting from a stock split or other division or consolidation of shares or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such shares effected without any receipt of consideration by the Company, then, in any such event, the number of shares of Common Stock that remain available under the Plan, and the number of shares of Common Stock and the purchase price per share of Common Stock then subject to subscription by Eligible Employees, shall be proportionately and appropriately adjusted for any such increase or decrease. (b) Subject to any required action by the stockholders, if any change occurs in the shares of Common Stock by reason of any recapitalization, reorganization, merger, consolidation, split-up, combination or exchange of shares, or of any similar change affecting the shares of Common Stock, then, in any such event, the number and type of shares then subject to subscription by Eligible Employees, and the purchase price thereof, shall be proportionately and appropriately adjusted for any such change. (c) In the event of a change in the Common Stock as presently constituted that is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any change shall be deemed to be shares of Common Stock within the meaning of the Plan. (d) To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by, and in the discretion of, the Committee, whose determination in that respect shall be final, binding and conclusive. (e) Except as hereinabove expressly provided in this Section 7.1, an Eligible Employee shall have no rights by reason of any division or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease the number of shares of stock of any class or by reason of any dissolution, liquidation, merger or consolidation, or spin-off of assets or stock of another corporation; and any issuance by the Company of shares of stock of any class, securities convertible into shares of stock of any class, or warrants or options for shares of stock of any class shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to any subscription. (f) The existence of the Plan, and any subscription for shares of Common Stock hereunder, shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate, or to dissolve, to liquidate, to sell, or to transfer all or any part of its business or assets. 7.2 Necessity for Delay. If at any time the Committee shall determine, in its discretion, that the listing, registration or qualification of the shares of Common Stock covered by the Plan upon any securities exchange or under any state or federal law or the consent or approval of any governmental 6. 7 regulatory body, is necessary or desirable as a condition of, or in connection with, the Plan or the offering, issue or purchase of shares thereunder, the Plan shall not be effective as to later offerings unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. Notwithstanding anything in the Plan to the contrary, if the provisions of this Section 7.2 become operative and if, as a result thereof, an offering is missed in whole or in part, then and in that event, the missed portion of the offering shall be passed and the term of the Plan shall not be affected. Notwithstanding the foregoing or any other provision in the Plan, the Company shall have no obligation under the Plan to cause any shares of Common Stock to be registered or qualified under any federal or state law or listed on any stock exchange or admitted to any national marketing system. 7.3 Term of Plan. The Plan, unless sooner terminated as provided in Section 7.4, shall commence upon the satisfaction of the conditions of Section 7.9 and shall terminate on the conclusion of the offering to be made in September 2003. 7.4 Amendment of the Plan; Termination. The Board shall have the right to revise, amend or terminate the Plan at any time without notice, provided that no Eligible Employee's existing rights are adversely affected thereby without the consent of the Eligible Employee, and provided further that, without approval of the stockholders of the Company, no such revision or amendment shall (a) increase the total number of shares of Common Stock to be offered; (b) change the formula by which the price at which the shares shall be sold is determined; (c) increase the maximum number of shares of Common Stock that an employee can purchase; (d) materially modify the requirements as to eligibility for participation in the Plan; (e) otherwise materially increase the benefits under the Plan to Eligible Employees; or (f) remove the administration of the Plan from the Committee. The foregoing prohibitions shall not be affected by adjustments in shares and purchase price made in accordance with the provisions of Section 7.1. 7.5 Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to the Plan will be used for general corporate purposes. 7.6 No Obligation to Participate. The offering of any Common Stock under the Plan shall impose no obligation upon any Eligible Employee to subscribe to purchase any such shares. 7.7 No Implied Rights to Employees. The existence of the Plan, and the offering of shares of Common Stock under the Plan, shall in no way give any employee the right to continued employment, give any employee the right to receive any Common Stock or any additional Common Stock under the Plan, or otherwise provide any employee any rights not specifically set forth in the Plan. 7.8 Withholding. Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, the Company shall have the right to require a participating employee to remit to the Company an amount sufficient to satisfy any federal, state or local withholding tax liability prior to the delivery of any certificate or certificates for such shares. Whenever under the Plan payments are to be made in cash, such payments shall be made net of an amount sufficient to satisfy any federal, state or local withholding tax liability. 7.9 Conditions Precedent to Effectiveness. The Plan shall become effective upon the date that the Plan is adopted by the Board of Directors, subject to the approval of the Plan by the stockholders of the Company within 12 months after its adoption by the Board. 7. EX-10.12 5 1995 STOCK OPTION PLAN 1 EXHIBIT 10.12 DISCOUNT AUTO PARTS, INC. AMENDED AND RESTATED 1995 STOCK OPTION PLAN ARTICLE 1 General 1.1 Purpose. This incentive stock option and nonqualified stock option plan (the "Plan") is established to promote the interests of Discount Auto Parts, Inc. (the "Company") and its stockholders by enabling the Company, through the granting of stock options, to attract and retain executive and other key team members of the Company and its subsidiaries, and to provide additional incentive to such team members to increase their stock ownership in the Company. It is intended that those Options issued pursuant to the provisions of the Plan relating to incentive stock options shall constitute incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, or any statute or regulation of similar import. 1.2 Definitions. The following words and terms as used herein shall have that meaning set forth therefor in this Section 1.2 unless a different meaning is clearly required by the context. Whenever appropriate, words used in the singular shall be deemed to include the plural and vice versa, and the masculine gender shall be deemed to include the feminine gender. (a) "Board" or "Board of Directors" shall mean the Board of Directors of the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) "Committee" shall mean the Compensation and Benefits Committee of the Board or such other committee as may be appointed by the Board as the Committee in accordance with Section 1.3(a). (d) "Common Stock" shall mean the common stock, $.01 par value, of the Company. (e) "Company" shall mean Discount Auto Parts, Inc., a Florida corporation, and any successor. (f) "Eligible Employee" shall mean any individual employed by the Company or any Subsidiary who meets the eligibility requirements of Section 1.4. The Committee shall have the sole power to determine who is and who is not an Eligible Employee. (g) "Fair market value" of the shares of Common Stock shall mean the closing price, on the date in question (or, if no shares are traded on such day, on the next preceding day on which shares were traded), of the Common Stock as reported on the Composite Tape, or if not reported thereon, then such price as reported in the trading reports of the principal securities exchange in the United States on which such stock is listed, or if such stock is not listed on a securities exchange in the United States, the mean between the dealer closing "bid" and "ask" prices on the over-the-counter market as reported by the National Association of Security Dealers Automated Quotation System (NASDAQ), or NASDAQ's 2 successor, or if not reported on NASDAQ, the fair market value of such stock as determined by the Committee in good faith and based on all relevant factors. (h) "ISO" shall mean an incentive stock option granted in accordance with the provisions of Article 2 of this Plan. (i) "NSO" shall mean a nonqualified stock option granted in accordance with the provisions of Article 3 of this Plan. (j) "Option" shall mean an ISO or a NSO. (k) "Optionee" shall mean an Eligible Employee to whom an Option is granted under the Plan. (l) "Plan" shall mean the Discount Auto Parts, Inc. 1995 Stock Option Plan, as set forth herein and as amended from time to time. (m) "Subsidiary" shall mean any corporation that at the time qualifies as a subsidiary of the Company under the definition of "subsidiary corporation" contained in Section 424(f) of the Code. (n) "10% Stockholder" is defined in Section 2.2. 1.3 Administration. (a) The incentive stock option and nonqualified stock option provisions of the Plan shall be administered by a committee appointed by the Board of Directors (the "Committee"). The Committee shall consist of not less than two (2) nor more than five (5) persons, each of whom shall be a member of the Company's Board of Directors and none of whom shall be eligible to participate under the Plan. The Board of Directors may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board of Directors. (b) The Committee shall select one of its members as chairman, and shall hold meetings at such time and places as it may determine. The acts of a majority of the Committee at which a quorum is present, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be valid acts of the Committee. (c) Subject to the provisions of the Plan, the Committee shall have full authority, in its discretion: (1) to determine the employees of the Company and its Subsidiaries to whom Options shall be granted; (2) to determine the time or times at which Options shall be granted; (3) to determine whether an Eligible Employee shall be granted an incentive stock option, a nonqualified stock option or any combination thereof; (4) to determine the option price of the shares subject to each Option; (5) to determine the time or times when each Option becomes exercisable and the duration of any Option period; and (6) to interpret the Plan and the Options granted hereunder, and to prescribe, amend and rescind rules and regulations with respect thereto. The interpretation and construction by the Committee of any provision of the Plan over which it has discretionary authority or of any Option granted hereunder shall be final and conclusive. 2. 3 (d) No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted hereunder. 1.4 Eligible Employees. An Option may be granted to any executive or other key employee of the Company or of any Subsidiary (who may or may not be an officer or member of the Board), with the exceptions only of (a) with respect to the incentive stock options granted under the Plan, employees who cannot qualify for the benefits of incentive stock options under Section 422 of the Code, and (b) with respect to all provisions of the Plan, members of the Committee and any other members of the Board who are not otherwise employees of the Company. 1.5 Stock Subject to the Plan. (a) The stock subject to the Options under the Plan shall be authorized and unissued shares of Common Stock. The aggregate number of shares that may be issued upon the exercise of Options granted under the Plan shall not exceed 900,000 shares of Common Stock, which limitation shall be subject to adjustment as provided in Section 4.1. (b) If an Option is surrendered or for any other reason ceases to be exercisable in whole or in part, the shares of Common Stock that are subject to such Option, but as to which the Option has not been exercised, shall again become available for offering under the Plan. (c) The maximum number of shares of Common Stock for which options may be granted under the Plan to any one person shall be [250,000]. ARTICLE 2 Terms and Conditions of Incentive Stock Options Any incentive stock option ("ISO") granted pursuant to the Plan shall be authorized by the Committee and shall be evidenced by certificates or agreements in such form as the Committee from time to time shall approve, which certificates or agreements shall comply with and be subject to the terms and conditions hereinafter specified. 2.1 Number of Shares. Each ISO shall state the number of shares to which it pertains. 2.2 Option Price. Each ISO shall state the option price, which price shall be determined by the Committee in its discretion. In no event, however, shall such price be less than 100% of the fair market value of the shares of Common Stock on the date of the granting of the ISO; or, in the case of an individual who owns (at the time the Option is granted) more than 10% of the total combined voting power of all classes of stock of the Company or of a parent or subsidiary corporation (a "10% Stockholder"), shall such price be less than 110% of such fair market value. 2.3 Method of Payment. Each ISO shall state the method of payment of the ISO price upon the exercise of the ISO. The method of payment stated in the ISO shall include payment (a) in United States dollars in cash or by check, bank draft or money order payable to the order of the Company, or (b) 3. 4 in the discretion of and in the manner determined by the Committee, by the delivery of shares of Common Stock already owned by the Optionee, or (c) by any other legally permissible means acceptable to the Committee at the time of grant of the ISO, or (d) in the discretion of the Committee, through a combination of (a), (b) and (c) of this Section 2.3. If the option price is paid in whole or in part through the delivery of shares of Common Stock, the decision of the Committee with respect to the fair market value of such shares shall be final and conclusive. [To the extent permitted by applicable law and regulations, the Board and/or the Committee may, in their respective discretions, approve an arrangement with a brokerage firm under which such brokerage firm, on behalf of the person electing to exercise the options, pays to the Company the full purchase price of the shares being purchased together with an amount equal to any taxes which the Company is required to withhold in connection with the exercise of the option and the Company, pursuant to an irrevocable notice from such person, delivers the shares being purchased to such brokerage firm.] 2.4 Term and Exercise of Options. No ISO shall be exercisable either in whole or in part prior to twelve (12) months from the date it is granted. The Committee, in its discretion exercised at the time that it grants an ISO, shall establish such further restrictions on when an ISO shall become partially or fully exercisable; provided, however, that such vesting provisions established by the Committee at the time of grant shall not permit the ISO to be exercised more rapidly than would be permitted by the following chart:
Exercisable Percentage Number of Years From the of Number of Shares Date the ISO is Granted Originally Covered by Option - ----------------------- ---------------------------- 10% Stockholder Other Optionee --------------- -------------- Less than three years 0% 0% 3 years but less than 4 years 50% 25% 4 years but less than 5 years 100% 50% 5 years but less than 6 years 100% 75% 6 years or more 100% 100%
To the extent not exercised, exercisable installments of Options shall be exercisable, in whole or in part, in any subsequent period, but not later than the expiration date of the Option. No ISO shall be exercisable after the expiration of ten (10) years from the date it is granted; or, in the case of a 10% Stockholder, no ISO shall be exercisable after the expiration of five (5) years from the date it is granted. Not less than one hundred (100) shares may be exercised at any one time unless the number exercised is the total number at the time exercisable under the ISO. Within the limits described above, the Committee may impose additional requirements on the exercise of ISOs, including, but without limitation, the expiration date of the Option. When it deems special circumstances to exist, the Committee in its discretion also may accelerate the time at which an ISO may be exercised if, under previously established exercise terms, such ISO was not immediately exercisable in full, even if the acceleration would permit the ISO to be exercised more rapidly than the minimum vesting period set forth above in the chart would permit. 2.5 Additional Limitations on Exercise of Options. An Optionee may hold and exercise more than one ISO, but only on the terms and subject to the restrictions hereafter set forth. The aggregate fair 4. 5 market value (determined as of the time an ISO is granted) of the Common Stock with respect to which ISOs are exercisable for the first time by any Eligible Employee in any calendar year under this Plan and under all other incentive stock option plans of the Company and any parent and subsidiary corporations of the Company (as those terms are defined in Section 424 of the Code) shall not exceed $100,000. 2.6 Notice of Grant of Option. Upon the granting of any ISO to an employee, the Committee shall promptly cause such employee to be notified of the fact that such ISO has been granted. The date on which the Committee approves the grant of an ISO shall be considered to be the date on which such ISO is granted. 2.7 Death or Other Termination of Employment. (a) In the event that an Optionee (1) shall cease to be employed by the Company or a Subsidiary because of his or her discharge for dishonesty, or because he or she violated any material provision of any employment or other agreement between him or her and the Company or a Subsidiary, or (2) shall voluntarily resign or terminate his or her employment with the Company or a Subsidiary under or followed by such circumstances as would constitute a breach of any material provision of any employment or other agreement between him or her and the Company or the Subsidiary, or (3) shall have committed an act of dishonesty not discovered by the Company or a Subsidiary prior to the cessation of his or her employment but that would have resulted in his or her discharge if discovered prior to such date, or (4) shall, either before or after cessation of his or her employment with the Company or a Subsidiary, without the written consent of his or her employer or former employer, use (except for the benefit of his or her employer or former employer) or disclose to any other person any confidential information relating to the continuation or proposed continuation of his or her employer's or former employer's business or any trade secrets of the Company or a Subsidiary obtained as a result of or in connection with such employment, or (5) shall, either before or after the cessation of his or her employment with the Company or a Subsidiary, without the written consent of his or her employer or former employer, directly or indirectly, give advice to, or serve as an employee, director, officer, partner or trustee of, or in any similar capacity with, or otherwise directly or indirectly participate in the management, operation, or control of, or have any direct or indirect financial interest in, any corporation, partnership or other organization that directly or indirectly competes in any respect with the Company or any Subsidiary, then forthwith from the happening of any such event, any ISO then held by him or her shall terminate and become void to the extent that it then remains unexercised. In the event that an Optionee shall cease to be employed by the Company or a Subsidiary for any reason other than his or her death or one or more of the reasons set forth in the immediately preceding sentence, subject to the conditions that no Option shall be exercisable after the expiration of ten (10) years from the date it is granted, or, in the case of a 10% Stockholder, five (5) years from the date it is granted, such Optionee shall have the right to exercise the ISO at any time within three (3) months after such termination of employment to the extent his or her right to exercise such ISO had accrued pursuant to this Article 2 at the date of such termination and had not previously been exercised; such three-month limit shall be increased to one (1) year for any Optionee who ceases to be employed by the Company or a Subsidiary because he or she is disabled (within the meaning of Section 22(e)(3) of the Code) or who dies during the three-month period and the ISO may be exercised within such extended time limit by the Optionee or, in the case of death, the personal representative of the Optionee or by any person or persons who shall have acquired the ISO directly from the Optionee by bequest or inheritance. Whether an authorized leave of absence or absence for military or governmental service shall 5. 6 constitute termination of employment for purposes of the Plan shall be determined by the Committee, whose determination shall be final and conclusive. (b) In the event that an Optionee shall die while in the employ of the Company or a Subsidiary and shall not have fully exercised any ISO, the ISO may be exercised, subject to the conditions that no ISO shall be exercisable after the expiration of ten (10) years from the date it is granted, or, in the case of a 10% Stockholder, five (5) years from the date it is granted, to the extent that the Optionee's right to exercise such ISO had accrued pursuant to this Article 2 at the time of his or her death and had not previously been exercised, at any time within one (1) year after the Optionee's death, by the personal representative of the Optionee or by any person or persons who shall have acquired the ISO directly from the Optionee by bequest or inheritance. (c) No ISO shall be transferable by the Optionee otherwise than by will or the laws of descent and distribution. (d) During the lifetime of the Optionee, the ISO shall be exercisable only by him or her and shall not be assignable or transferable and no other person shall acquire any rights therein. (e) Transfers of employment between the Company and any of its [Subsidiaries] [Affiliates] shall not be considered to be a termination of employment for the purposes of this Plan. 2.8 Rights as a Stockholder. An Optionee shall have no rights as a stockholder with respect to any shares covered by his or her ISO until the date on which he or she becomes a record owner of the shares purchased upon the exercise of the ISO (the "record ownership date"). No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to record ownership date, except as provided in Article 4. 2.9 Modification, Extension and Renewal of Options. Subject to the terms and conditions and within the limitations of the Plan, the Committee may modify, extend or renew outstanding ISOs granted under the Plan, or accept the surrender of outstanding ISOs (to the extent not theretofore exercised) and authorize the granting of new Options in substitution therefor (to the extent not theretofore exercised). The Committee shall not, however, modify any outstanding ISO so as to specify a lower option price or accept the surrender of outstanding ISOs and authorize the granting of new Options in substitution therefor specifying a lower option price. Notwithstanding the foregoing, however, no modification of an ISO shall, without the consent of the Optionee, adversely alter or otherwise impair any of the right or obligations under any ISO theretofore granted under the Plan. 2.10 Listing and Registration of Shares. Each ISO shall be subject to the requirement that if at any time the Committee shall determine, in its discretion, that the listing, registration or qualification of the shares covered thereby upon any securities exchange or under any state or federal laws, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such ISO or the issuance or purchase of shares thereunder, such ISO may not be exercised unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. Notwithstanding anything in the Plan to the contrary, if the provisions of this Section 2.10 become operative, and if, as a 6. 7 result thereof, the exercise of an ISO is delayed, then and in that event, the term of the ISO shall not be affected. 2.11 Other Provisions. The ISO certificates or agreements authorized under the Plan shall contain such other provisions, including, without limitation, restrictions upon the exercise of the ISO, as the Committee shall deem advisable. Any such certificate or agreement shall contain such limitations and restrictions upon the exercise of the ISO as shall be necessary in order that such ISO will be an incentive stock option as defined in Section 422 of the Code, or to conform to any change in the law. ARTICLE 3 Terms and Conditions of Nonqualified Stock Options Any nonqualified stock option ("NSO") granted pursuant to the Plan shall be authorized by the Committee and shall be evidenced by certificates or agreements in such form as the Committee from time to time shall approve, which certificates or agreements shall comply with and be subject to the terms and conditions hereinafter specified. 3.1 Number of Shares. Each NSO shall state the number of shares to which it pertains. 3.2 Option Price. Each NSO shall state the option price, which price shall be determined by the Committee in its discretion. In no event, however, shall such price be less than 100% of the fair market value of the shares of Common Stock on the date of the granting of the NSO. 3.3 Method of Payment. Each NSO shall state the method of payment of the NSO price upon the exercise of the NSO. The method of payment stated in the NSO shall include payment (a) in United States dollars in cash or by check, bank draft or money order payable to the order of the Company, or (b) in the discretion of and in the manner determined by the Committee, by the delivery of shares of Common Stock already owned by the Optionee, or (c) by any other legally permissible means acceptable to the Committee at the time of the grant of the NSO, or (d) in the discretion of the Committee, through a combination of (a), (b) and (c) of this Section 3.3. If the option price is paid in whole or in part through the delivery of shares of Common Stock, the decision of the Committee with respect to the fair market value of such shares shall be final and conclusive. [To the extent permitted by applicable law and regulations, the Board and/or the Committee may, in their respective discretions, approve an arrangement with a brokerage firm under which such brokerage firm, on behalf of the person electing to exercise the options, pays to the Company the full purchase price of the shares being purchased together with an amount equal to any taxes which the Company is required to withhold in connection with the exercise of the option and the Company, pursuant to an irrevocable notice from such person, delivers the shares being purchased to such brokerage firm.] 3.4 Term and Exercise of Options. No NSO shall be exercisable either in whole or in part prior to twelve (12) months from the date it is granted. The Committee, in its discretion exercised at the time that it grants a NSO, shall establish such further restrictions on when a NSO shall become partially or fully exercisable; provided, however, that such vesting provisions established by the Committee at the 7. 8 time of grant shall not permit the NSO to be exercised more rapidly than would be permitted by the following chart:
Exercisable Percentage Number of Years From the of Number of Shares Date the NSO is Granted Originally Covered by Option ----------------------- ---------------------------- Less than three years 0% 3 years but less than 4 years 25% 4 years but less than 5 years 50% 5 years but less than 6 years 75% 6 years or more 100%
To the extent not exercised, exercisable installments of Options shall be exercisable, in whole or in part, in any subsequent period, but not later than the expiration date of the Option. No NSO shall be exercisable after the expiration of ten (10) years from the date it is granted. Not less than one hundred (100) shares may be exercised at any one time unless the number exercised is the total number at the time exercisable under the NSO. Within the limits described above, the Committee may impose additional requirements on the exercise of NSOs, including, but without limitation, the expiration date of the Option. When it deems special circumstances to exist, the Committee in its discretion also may accelerate the time at which a NSO may be exercised if, under previously established exercise terms, such NSO was not immediately exercisable in full, even if the acceleration would permit the NSO to be exercised more rapidly than the minimum vesting period set forth above in the chart would permit. 3.5 Notice of Grant of Option. Upon the granting of any NSO to an employee, the Committee shall promptly cause such employee to be notified of the fact that such NSO has been granted. The date on which the Committee approves the grant of a NSO shall be considered to be the date on which such NSO is granted. 3.6 Death or Other Termination of Employment. (a) In the event that an Optionee (1) shall cease to be employed by the Company or a Subsidiary because of his or her discharge for dishonesty, or because he or she violated any material provision of any employment or other agreement between him or her and the Company or a Subsidiary, or (2) shall voluntarily resign or terminate his or her employment with the Company or a Subsidiary under or followed by such circumstances as would constitute a breach of any material provision of any employment or other agreement between him or her and the Company or the Subsidiary, or (3) shall have committed an act of dishonesty not discovered by the Company or a Subsidiary prior to the cessation of his or her employment but that would have resulted in his or her discharge if discovered prior to such date, or (4) shall, either before or after cessation of his or her employment with the Company or a Subsidiary, without the written consent of his or her employer or former employer, use (except for the benefit of his or her employer or former employer) or disclose to any other person any confidential information relating to the continuation or proposed continuation of his or her employer's or former employer's business or any trade secrets of the Company or a Subsidiary obtained as a result of or in connection with such 8. 9 employment, or (5) shall, either before or after the cessation of his or her employment with the Company or a Subsidiary, without the written consent of his or her employer or former employer, directly or indirectly, give advice to, or serve as an employee, director, officer, partner or trustee of, or in any similar capacity with, or otherwise directly or indirectly participate in the management, operation or control of, or have any direct or indirect financial interest in, any corporation, partnership or other organization that directly or indirectly competes in any respect with the Company or any Subsidiary, then forthwith from the happening of any such event, any NSO then held by him or her shall terminate and become void to the extent that it them remains unexercised. In the event that an Optionee shall cease to be employed by the Company or a Subsidiary for any reason other than his or her death or one or more of the reasons set forth in the immediately preceding sentence, subject to the condition that no Option shall be exercisable after the expiration of ten (10) years from the date it is granted, such Optionee shall have the right to exercise the NSO at any time within three (3) months after such termination of employment to the extent his or her right to exercise such NSO had accrued pursuant to this Article 3 at the date of such termination and had not previously been exercised; such three-month limit shall be increased to one (1) year for any Optionee who ceases to be employed by the Company or a Subsidiary because he or she is disabled (within the meaning of Section 22(e)(3) of the Code) or who dies during the three-month period and the NSO may be exercised within such extended time limit by the Optionee or, in the case of death, the personal representative of the Optionee or by any person or persons who shall have acquired the NSO directly from the Optionee by bequest or inheritance. Whether an authorized leave of absence or absence for military or governmental service shall constitute termination of employment for purposes of the Plan shall be determined by the Committee, whose determination shall be final and conclusive. (b) In the event that an Optionee shall die while in the employ of the Company or a Subsidiary and shall not have fully exercised any NSO, the NSO may be exercised, subject to the condition that no NSO shall be exercisable after the expiration of ten (10) years from the date it is granted, to the extent that the Optionee's right to exercise such NSO had accrued pursuant to this Article 3 at the time of his or her death and had not previously been exercised, at any time within one (1) year after the Optionee's death, by the personal representative of the Optionee or by any person or persons who shall have acquired the NSO directly from the Optionee by bequest or inheritance. (c) No NSO shall be transferable by the Optionee otherwise than by will or the laws of descent and distribution. (d) During the lifetime of the Optionee, the NSO shall be exercisable only by him or her and shall not be assignable or transferable and no other person shall acquire any rights therein. (e) Transfers of employment between the Company and any of its [Subsidiaries] [Affiliates] shall not be considered to be a termination of employment for the purposes of this Plan. 3.7 Rights as a Stockholder. An Optionee shall have no rights as a stockholder with respect to any shares covered by his or her NSO until the date on which he or she becomes a record owner of the shares purchased upon the exercise of the NSO (the "record ownership date"). No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the record ownership date, except as provided in Article 4. 9. 10 3.8 Modification, Extension and Renewal of Options. Subject to the terms and conditions and within the limitations of the Plan, the Committee may modify, extend or renew outstanding NSOs granted under the Plan, or accept the surrender of outstanding NSOs, whether issued under this Plan or under any other stock option plan of the Company (to the extent not theretofore exercised) and authorize the granting of new Options in substitution therefor (to the extent not theretofore exercised), including previously granted Options having higher option prices. Notwithstanding the foregoing, however, no modification of a NSO shall, without the consent of the Optionee, adversely alter or otherwise impair any of the rights or obligations under any NSO theretofore granted under the Plan. 3.9 Listing and Registration of Shares. Each NSO shall be subject to the requirement that if at any time the Committee shall determine, in its discretion, that the listing, registration or qualification of the shares covered thereby upon any securities exchange or under any state or federal laws, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such NSO or the issuance or purchase of shares thereunder, such NSO may not be exercised unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. Notwithstanding anything in the Plan to the contrary, if the provisions of this Section 3.9 become operative, and if, as a result thereof, the exercise of a NSO is delayed, then and in that event, the term of the NSO shall not be affected. 3.10 Other Provisions. The NSO certificates or agreements authorized under the Plan shall contain such other provisions, including, without limitation, restrictions upon the exercise of the NSO, as the Committee shall deem advisable. ARTICLE 4 Miscellaneous 4.1 Stock Adjustments. (a) In the event of any increase or decrease in the number of issued shares of Common Stock resulting from a stock split or other division or consolidation of shares or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such shares effected without any receipt of consideration by the Company, then, in any such event, the number of shares of Common Stock that remain available under the Plan, the number of shares of Common Stock covered by each outstanding Option, the maximum number of shares as to which an Option or Options may be granted to any one Optionee, and the purchase price per share of Common Stock covered by each outstanding Option shall be proportionately and appropriately adjusted for any such increase or decrease. (b) Subject to any required action by the stockholders, if any change occurs in the shares of Common Stock by reason of any recapitalization, reorganization, merger, consolidation, split-up, combination or exchange of shares, or of any similar change affecting the shares of Common Stock, then, in any such event, the number and type of shares covered by each outstanding Option, and the purchase price per share of Common Stock covered by each outstanding Option, shall be proportionately and appropriately adjusted for any such change. A dissolution or liquidation of the Company shall cause each outstanding Option to terminate. 10. 11 (c) In the event of a change in the Common Stock as presently constituted that is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any change shall be deemed to be shares of Common Stock within the meaning of the Plan. (d) To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by, and in the discretion of, the Committee, whose determination in that respect shall be final, binding and conclusive; provided, however, that any ISO granted pursuant to pursuant to this Plan shall not be adjusted in a manner that causes such ISO to fail to continue to qualify as an incentive stock option within the meaning of Section 422 of the Code. (e) Except as hereinabove expressly provided in this Section 4.1, an Optionee shall have no rights by reason of any division or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease the number of shares of stock of any class or by reason of any dissolution, liquidation, merger or consolidation, or spin-off of assets or stock of another corporation; and any issuance by the Company of shares of stock of any class, securities convertible into shares of stock of any class, or warrants or options for shares of stock of any class shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to the Option. (f) The grant of any Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate, or to dissolve, to liquidate, to sell, or to transfer all or any part of its business or assets. 4.2 Term of the Plan. The ISOs and NSOs may be granted pursuant to the provisions of the Plan from time to time within a period of ten (10) years from the date the Plan is adopted by the Board, or the date the Plan is approved by the stockholders of the Company, whichever is earlier. 4.3 Amendment of the Plan; Termination. The Board may, insofar as permitted by law, from time to time, with respect to any shares at the time not subject to Options, suspend, discontinue or terminate the Plan or revise or amend it in any respect whatsoever, except that, without approval of the stockholders of the Company, no such revision or amendment shall change the number of shares subject to the Plan, change the designation of the class of employees eligible to receive Options, decrease the price at which Options may be granted, otherwise materially increase the benefits accruing to Eligible Employees under the Plan, or remove the administration of the Plan from the Committee. No termination or amendment of the Plan shall adversely affect the rights of an Optionee under any then issued and outstanding Option, except with the consent of such Optionee. The foregoing prohibitions shall not be affected by adjustments in shares and purchase price made in accordance with the provisions of Section 4.1. Furthermore, the Plan may not, without the approval of the stockholders of the Company, be amended in any manner that will cause Options issued under it to fail to meet, when appropriate, the requirements of incentive stock options as defined in Section 422 of the Code. 4.4 Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to Options will be used for general corporate purposes. 11. 12 4.5 No Obligation to Exercise. The granting of any Option under the Plan shall impose no obligation upon any Optionee to exercise such Option. 4.6 No Implied Rights to Employees. The existence of the Plan, and the granting of Options under the Plan, shall in no way give any employee the right to continued employment, give any employee the right to receive any Options or any additional Options under the Plan, or otherwise provide any employee any rights not specifically set forth in the Plan or in any Options granted under the Plan. 4.7 Withholding. Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, the Company shall have the right to require the Optionee to remit to the Company an amount sufficient to satisfy any federal, state or local withholding tax liability prior to the delivery of any certificate or certificates for such shares. Whenever under the Plan payments are to be made in cash, such payments shall be made net of an amount sufficient to satisfy any federal, state or local withholding tax liability. 4.8 Conditions Precedent to Effectiveness. The Plan shall become effective upon the date that the Plan is adopted by the Board of Directors, subject to the approval of the Plan by the stockholders of the Company within 12 months after its adoption by the Board. 12. EX-10.14 6 INDEMENIFICATION AGREEMENT FOR MICHAEL MOORE 1 EXHIBIT 10.14 INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT is made and entered into this 21st day of July, 1997, by and between C. MICHAEL MOORE (the "Indemnified Party") and DISCOUNT AUTO PARTS, INC., a Florida corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, it is essential to the Corporation to retain and attract as executive officers the most capable persons available; and WHEREAS, the substantial increase in corporate litigation subjects officers to expensive litigation risks at the same time that the availability of directors' and officers' liability insurance has been severely limited; and WHEREAS, in addition, the statutory indemnification provisions of the Florida Business Corporations Act and Article VI of the bylaws of the Corporation (the "Article") expressly provide that they are non-exclusive; and WHEREAS, the Florida Business Corporations Act and the Article provide that indemnification of executive officers of the Corporation may be authorized by agreement, and thereby contemplates that contracts of this nature may be entered into between the Corporation and the Indemnified Party with respect to indemnification of the Indemnified Party as an executive officer of the Corporation; and WHEREAS, the Indemnified Party has advised the Corporation that, with respect to all matters involving the Corporation, (a) he has acted in good faith and in a manner he believed to be in, or not opposed to, the best interests of the Corporation, (b) he had no reasonable cause to believe and did not believe his conduct was unlawful and (c) he derived no improper personal benefit from any activities engaged in on behalf of the Corporation for which he might seek indemnification; and WHEREAS, the Indemnified Party has requested that the Corporation advance the Indemnified Party's expenses incurred in defending and/or responding to matters with respect to which indemnification is sought and has indicated his willingness to repay such amounts so advanced if he is ultimately found not to be entitled to indemnification under the applicable provisions of the Florida Business Corporation Act and/or because he has engaged in Nonindemnifiable Conduct (as herein defined); and WHEREAS, the Indemnified Party considers a contractual commitment to indemnification on the terms set forth herein as necessary and desirable to his continued service as an employee and in order to have adequate protection, and the Corporation desires the Indemnified Party to continue to serve in such capacity and to have such protection. 2 NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements contained in this Agreement, it is hereby agreed as follows: 1. RECITALS. The Indemnified Party hereby confirms and represents that the statements contained in the recitals of fact set forth above (the "Recitals") are true and correct and the parties agree that by this reference the Recitals shall be considered a part of this Agreement. 2. INDEMNIFICATION GENERALLY. (a) Grant of Indemnity. Subject to and upon the terms and conditions of this Agreement, the Corporation hereby agrees to indemnify the Indemnified Party in respect of any and all claims, losses, damages and expenses which may be incurred by the Indemnified Party as a result of or arising out of prosecuting, defending, settling or investigating: (1) any threatened, pending, or completed action, suit or proceeding (including without limitation that certain action styled Airgas, Inc., et. al. vs. Discount Auto Parts, Inc., et. al., Civil Action File No. CV497-32, in the United States District Court for the Southern District of Georgia, Savannah Division), whether brought by or in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature, in which the Indemnified Party may be or may have been involved as a party or otherwise, arising out of the fact that the Indemnified Party is or was a director, officer, employee, agent or stockholder of the Corporation or any of its "affiliates" (as such term is defined in the rules and regulations promulgated by the Securities and Exchange Commission under the Securities Act of 1933), or served as a director, officer, stockholder, agent, employee, salesman, independent contractor, partner, franchisor or joint venturer in or for any person, firm, partnership, corporation or other entity at the request of the Corporation (including without limitation service in any capacity for or in connection with any employee benefit plan maintained by the Corporation or on behalf of the Corporation's employees). (2) any attempt (regardless of its success) by any person to charge the Indemnified Party with, or to cause the Indemnified Party to be charged with, wrongdoing or with financial responsibility for damages arising out of or incurred in connection with the matters indemnified against in this Agreement; or (3) any expense, assessment, fine, tax, judgment or settlement payment arising out of or incident to any of the matters indemnified against in this Agreement including reasonable fees and disbursements of counsel (before and at trial and in appellate proceedings and otherwise). -2- 3 (b) Relation to Insurance Claim. The obligation of the Corporation under this Agreement is not conditioned in any way on any attempt by the Indemnified Party to collect from an insurer any amount under a liability insurance policy. (c) Indemnification Exclusions. In no case shall any indemnification be provided under this Agreement to the Indemnified Party by the Corporation: (1) in any action or proceeding brought by or in the name or interest of the Indemnified Party against the Corporation; (2) in any action or proceeding brought by the Corporation against the Indemnified Party, which action is initiated at the direction of the Board of Directors of the Corporation; or (3) for any "Nonindemnifiable Conduct" (as such term is defined in Section 2(i)(ii)). (d) Claims for Indemnification. (i) Whenever any claims shall arise for indemnification under this Agreement, the Indemnified Party shall notify the Corporation promptly and in any event within 30 days after the Indemnified Party has actual knowledge of the facts constituting the basis for such claim. The notice shall specify all facts known to the Indemnified Party giving rise to such indemnification right and the amount or an estimate of the amount of liability (including estimated expenses) arising therefrom. A delay by the Indemnified Party in providing such notice shall not relieve the Corporation from its obligations under this Agreement unless and then only to the extent that the Corporation is materially and adversely affected by the delay. (ii) Any indemnification required under this Agreement shall be made promptly after receipt by the Corporation of the written notification specified in Section 2(d)(i) and a determination of the amount required to be indemnified. The provisions of this Section 2(d)(ii) shall not override or otherwise limit the right of the Indemnified Party to be indemnified with respect to expenses incurred with respect to a Covered Third Party Claim (as such term is defined in Section 2(e)(i)) in accordance with the provisions contained in the last two sentences of Section 2(e)(ii). (e) Rights to Defend or Settle; Covered Third Party Claims, etc. (i) If the facts giving rise to any indemnification right under this Agreement shall involve any actual or threatened claim or demand against the Indemnified Party, or any possible claim by the Indemnified Party against any third party, such claim shall be referred to as a "Covered Third Party Claim." If the Corporation provides the Indemnified Party with an agreement in writing in form and substance satisfactory to the Indemnified Party and his counsel, agreeing to indemnify, defend -3- 4 or prosecute and hold the Indemnified Party harmless from all costs, claims, losses, damages, expenses and liability arising from any Covered Third Party Claim (an "Agreement of Indemnity"), and demonstrating to the satisfaction of the Indemnified Party the financial wherewithal to accomplish such indemnification, the Corporation may at its own expense undertake full responsibility for the defense or prosecution of such Covered Third Party Claim. The Corporation may contest or settle any such Covered Third Party Claim for money damages on such terms and conditions as it deems appropriate but shall be obligated to consult in good faith with the Indemnified Party and not to contest or settle any Covered Third Party Claim involving injunctive or equitable relief against or affecting the Indemnified Party or his properties or assets without the prior written consent of the Indemnified Party, such consent not to be withheld unreasonably. The Indemnified Party may participate at his own expense and with his own counsel in defense or prosecution of a Covered Third Party Claim pursuant to this Section 2(e)(i), and such participation shall not relieve the Corporation of its obligation to indemnify the Indemnified Party under this Agreement. (ii) If the Corporation fails to deliver a satisfactory Agreement of Indemnity and evidence of financial wherewithal within 10 days after receipt of notice pursuant to Section 2(d), the Indemnified Party may contest or settle the Covered Third Party Claim on such terms as he sees fit but shall not reach a settlement with respect to the payment of money damages or with respect to other terms that materially affect the Corporation without the consent of the Corporation. The Corporation may participate at its own expense and with its own counsel in defense or prosecution of a Covered Third Party Claim pursuant to this Section 2(e)(ii), but any such participation shall not relieve the Corporation of its obligations to indemnify the Indemnified Party under this Agreement. (iii) If by reason of any Covered Third Party Claim that is the proper subject of indemnification under this Agreement, a lien, attachment, garnishment or execution is placed upon any of the property or assets of the Indemnified Party, the Corporation shall promptly furnish a satisfactory indemnity bond to obtain the prompt release of such lien, attachment, garnishment or execution. (f) Cooperation. (i) The parties to this Agreement shall execute such powers of attorney as may be necessary or appropriate to permit participation of counsel selected by any party hereto and, as may be reasonably related to any such claim or action, shall provide to the counsel, accountants and other representatives of each party access during normal business hours to all properties, personnel, books, records, contracts, commitments and all other business records of such other party and will furnish to such other party copies of all such documents as may be reasonably requested (certified, if requested). The Indemnified Party agrees to cooperate in all other reasonable respects with the Corporation in connection with any such claim or action. The cooperation from the Indemnified Party as required by this Agreement shall be a further condition to the Indemnified Party's entitlement to indemnification under this Agreement; provided however and notwithstanding the foregoing, in the event the Indemnified Party shall, in the exercise of his reasonable judgment, determine that any -4- 5 cooperation or assistance requested by the Company will expose the Indemnified Party to liability or jeopardy (other than direct monetary liability) in any civil, criminal or administrative proceeding, or otherwise impose substantial limitation on the defense of the Indemnified Party in such a proceeding, a failure to provide the requested cooperation or assistance as a result of such reasonable determination shall not however be considered a failure by the Indemnified Party to satisfy a condition to the Indemnified Party's entitlement, as provided for elsewhere herein, to have the Company continue to advance the expenses incurred by the Indemnified Party in defending a Covered Third Party Claim (but with the understanding that such advance of expenses shall continue to be subject to the terms and provisions of Section 2(i) of this Agreement). (ii) The Indemnified Party's obligation to cooperate shall include, without limitation, an obligation to cooperate in the defense of any Covered Third Party Claim that is being controlled by the Corporation; and so long as the Indemnified Party so cooperates and notwithstanding the Corporation's control of the defense, the Indemnified Party shall continue to be entitled to indemnification and reimbursement for all costs and expenses incurred by him in connection therewith to the extent and subject to the other limitations provided in this Agreement. (g) Choice of Counsel. In all matters as to which indemnification is or may be available to the Indemnified Party under this Agreement, the Indemnified Party shall be free to choose and retain counsel, provided that the Indemnified Party shall secure the prior written consent of the Corporation as to such selection, which consent shall not be unreasonably withheld. (h) Consultation. If the Indemnified Party desires to retain the services of an attorney prior to the determination by the Corporation as to whether it will undertake the defense or prosecution of the Third Party Claim as provided in Section 2(e), the Indemnified Party shall notify the Corporation of such desire in the notice delivered pursuant to Section 2(d)(i), and such notice shall identify the counsel to be retained. The Corporation shall then have 10 days within which to advise the Indemnified Party whether it will assume the defense or prosecution of the Third Party Claim in accordance with Section 2(e)(i). If the Indemnified Party does not receive an affirmative response within such 10 day period, he shall be free to retain counsel of his choice, and the indemnity provided in Section 2(a) shall apply to the reasonable expenses of such counsel incurred after the expiration of such 10 day period. Any expenses incurred prior to the expiration of such 10 day period shall not be covered by the indemnity of Section 2(a). (i) Repayment. (i) Notwithstanding the other provisions of this Agreement to the contrary, if the Corporation has incurred any cost, damage or expense under this Agreement paid to or for the benefit of the Indemnified Party and it is determined by a court of competent jurisdiction from which no appeal may be taken that the Indemnified Party's actions or omissions constitute "Nonindemnifiable Conduct" as that term is defined in Section 2(i)(ii), the Indemnified Party shall and does hereby undertake in such circumstances to reimburse the Corporation for any and all such -5- 6 amounts previously paid to or for the benefit of the Indemnified Party. Such reimbursement shall be without interest, except that interest at the prime rate published from time to time in The Wall Street Journal in its "Money Rates" column or a successor column or feature, shall begin to accrue 20 days after such a determination of Nonindemnifiable Conduct. (ii) For these purposes, "Nonindemnifiable Conduct" shall mean an action or omission of the Indemnified Party material to the cause of action to which the indemnification under this Agreement relates, which action or omission is determined to involve: (1) a violation of the criminal law, unless the Indemnified Party had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful; (2) a transaction from which the Indemnified Party derived an improper personal benefit; (3) willful misconduct or a conscious disregard for the best interests of the Corporation (when indemnification is sought in a proceeding by or in the right of the Corporation to procure a judgment in favor of the Corporation or when indemnification is sought in a proceeding by or in the right of a stockholder); (4) failure to have acted in good faith and in a manner reasonably believed to be in the best interests of the Corporation; or (5) conduct pursuant to then applicable law that prohibits such indemnification. 3. TERM. This Agreement shall be effective upon its execution by all parties and shall continue in full force and effect until seven years after the date of this Agreement, or seven years after the termination or resignation of the Indemnified Party's employment or term of office with the Corporation or any of its affiliates, whichever is later, provided that such term shall be extended by any period of time during which the Corporation is in breach of a material obligation to the Indemnified Party, plus ninety days. Such term shall also be extended with respect to each Covered Third Party Claim then pending and as to which notice under Section 2(d) has theretofore been given by the Indemnified Party to the Corporation, and this Agreement shall continue to be applicable to each such Covered Third Party Claim. -6- 7 4. REPRESENTATIONS AND AGREEMENTS OF THE CORPORATION. (a) Authority. The Corporation represents, covenants and agrees that it has the corporate power and authority to enter into this Agreement and to carry out its obligations under this Agreement. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized by the Board of Directors of the Corporation. This Agreement is a valid and binding obligation of the Corporation and is enforceable against the Corporation in accordance with its terms. (b) Noncontestability. The Corporation represents, covenants and agrees that it will not initiate, and will use its best efforts to cause each of its affiliates not to initiate, any action, suit or proceeding challenging the validity or enforceability of this Agreement. (c) Good Faith Judgment. The Corporation represents, covenants and agrees that it will exercise good faith judgment in determining the entitlement of the Indemnified Party to indemnification under this Agreement. 5. RELATIONSHIP OF THIS AGREEMENT TO OTHER INDEMNITIES. (a) Nonexclusivity. (i) This Agreement and all rights granted to the Indemnified Party under this Agreement are in addition to and are not deemed to be exclusive with or of any other rights that may be available to the Indemnified Party under any Articles of Incorporation, bylaw, statute, agreement, or otherwise. (ii) The rights, duties and obligations of the Corporation and the Indemnified Party under this Agreement do not limit, diminish or supersede the rights, duties and obligations of the Corporation and the Indemnified Party with respect to the indemnification afforded to the Indemnified Party under any liability insurance, the Florida Business Corporation Act, or under the Bylaws or the Articles of Incorporation of the Corporation. In addition, the Indemnified Party's rights under this Agreement will not be limited or diminished in any respect by any amendment to the Bylaws or the Articles of Incorporation of the Corporation. (b) Availability, Contribution, Etc. (i) The availability or nonavailability of indemnification by way of insurance policy, Articles of Incorporation, bylaw, vote of stockholders, or otherwise from the Corporation to the Indemnified Party shall not affect the right of the Indemnified Party to indemnification under this Agreement, provided that all rights under this Agreement shall be subject to applicable statutory provisions in effect from time to time. -7- 8 (ii) Any funds received by the Indemnified Party by way of indemnification or payment from any source other than from the Corporation under this Agreement shall reduce any amount otherwise payable to the Indemnified Party under this Agreement. (iii) If the Indemnified Party is entitled under any provision of this Agreement to indemnification by the Corporation for some claims, issues or matters, but not as to other claims, issues or matters, or for some or a portion of the expenses, judgments, fines or penalties actually and reasonably incurred by him or amounts actually and reasonably paid in settlement by him in the investigation, defense, appeal or settlement of any matter for which indemnification is sought under this Agreement, but not for the total amount thereof, the Corporation shall indemnify the Indemnified Party for the portion of such claims, issues or matters or expenses, judgments, fines, penalties or amounts paid in settlement to which the Indemnified Party is entitled. 6. MISCELLANEOUS. (a) Notices. All notices, requests, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by telecopy, electronic telephone line facsimile transmission or other similar electronic or digital transmission method; the day after it is sent, if sent by recognized overnight delivery service with all fees payable by the sender; and five days after it is sent, if mailed, first class mail, postage prepaid. In each case notice shall be sent to: if to the Indemnified Party: 2800 Bullard Drive Clearwater, Florida 34622 if to the Corporation: 4900 Frontage Road, South Lakeland, Florida 33815 Attention: President With a copy to: Gary I. Teblum Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis, P.A. Post Office Box 1102 Tampa, Florida 33601 or to such other address as either party may have specified in writing to the other using the procedures specified above in this Section 6(a). (b) Not an Employment Contract. The parties to this Agreement recognize and acknowledge that the relationship between the Corporation and the Indemnified Party is that of an -8- 9 at-will relationship, terminable by either party at any time and for any or no reason. It is specifically agreed and understood among the parties that this Agreement shall not and does not change the termination at-will relationship and neither party has any right by virtue of this Agreement or for any other reason to continued employment of the Indemnified Party by the Corporation. (c) Governing Law. This Agreement shall be construed pursuant to and governed by the substantive laws of the State of Florida (but any provision of Florida law shall not apply if the application of such provision would result in the application of the law of a state or jurisdiction other than Florida). (d) Severability. Any provision of this Agreement that is determined by a court of competent jurisdiction to be prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or non-authorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction. In any such case, such determination shall not affect any other provision of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect. If any provision or term of this Agreement is susceptible to two or more constructions or interpretations, one or more of which would render the provision or term void or unenforceable, the parties agree that a construction or interpretation which renders the term or provision valid shall be favored. (e) Specific Enforcement. The parties agree and acknowledge that in the event of a breach by the Corporation of its obligation promptly to indemnify the Indemnified Party as provided in this Agreement, or breach of any other material provision of this Agreement, damages at law will be an insufficient remedy to the Indemnified Party. Accordingly, the parties agree that, in addition to any other remedies or rights that may be available to the Indemnified Party, the Indemnified Party shall also be entitled, upon application to a court of competent jurisdiction, to obtain temporary or permanent injunctions to compel specific performance of the obligations of the Corporation under this Agreement. (f) Cost of Enforcement. If the Indemnified Party engages the services of an attorney or any other third party or in any way initiates legal action to enforce his rights under this Agreement, including but not limited to the collection of monies due from the Corporation to the Indemnified Party, the prevailing party shall be entitled to recover all reasonable costs and expenses (including reasonable attorneys' fees before and at trial, in appellate proceedings and otherwise). Should the Indemnified Party prevail, such costs and expenses shall be in addition to monies otherwise due him under this Agreement. (g) Application to Third Parties, Etc. Nothing in this Agreement, whether express or implied, is intended or should be construed to confer upon, or to grant to, any person, except the Corporation, the Indemnified Party and their respective heirs, assignees and successors, any claim, right or remedy under or because of this Agreement or in any provision of it. This Agreement shall -9- 10 be binding upon and inure to the benefit of the successors in interest and assigns, heirs and personal representatives, as the case may be, of the parties, including any successor corporation resulting from a merger, consolidation, recapitalization, reorganization, sale of all or substantially all of the assets of the Corporation, or any other transaction resulting in the successor corporation assuming the liabilities of the Corporation under this Agreement (by operation of law or otherwise). (h) Construction. As used in this Agreement, (1) the word "including" is always without limitation; (2) the words in the singular number include words of the plural number and vice versa; and (3) the word "person" includes a trust, corporation, association, partnership, joint venture, business trust, unincorporated organization, limited liability company, government, public body or authority, any governmental agency or department, and any other entity, as well as a natural person. (i) Further Assurances. The parties to this Agreement will execute and deliver, or cause to be executed and delivered, such additional or further documents, agreements or instruments and shall cooperate with one another in all respects for the purpose of carrying out the transactions contemplated by this Agreement. (j) Venue; Process. The parties to this Agreement agree that jurisdiction and venue in any action brought pursuant to this Agreement to enforce its terms or otherwise with respect to the relationships between the parties shall properly lie in the Circuit Court of the State of Florida in and for Hillsborough County or in and for Polk County, or in the United States District Court for the Middle District of Florida, Tampa Division. The parties agree that they will not object that any action commenced in the foregoing jurisdictions is commenced in a forum non conveniens. The parties further agree that the mailing by certified or registered mail, return receipt requested, of any process required by any such court shall constitute valid and lawful service of process against them, without the necessity for service by any other means provided by statute or rule of court. (k) Waiver and Delay. No waiver or delay in enforcing the terms of this Agreement shall be construed as a waiver of any subsequent breach. No action taken by the Indemnified Party shall constitute a waiver of his rights under this Agreement. (l) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be considered an original, but all of which together shall constitute one and the same instrument. (m) Headings. The headings of the various sections in this Agreement are inserted for the convenience of the parties and shall not affect the meaning, construction or interpretation of this Agreement. -10- 11 IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. DISCOUNT AUTO PARTS, INC. By: /s/ Peter J. Fontaine ------------------------------------------ Peter J. Fontaine, Chief Executive Officer WITNESSES: /s/ /s/ C. Michael Moore - ------------------------------- ----------------------------------------- C. Michael Moore /s/ - ------------------------------- -11- EX-10.15 7 INDEMENIFICATION AGREEMENT FOR DAVID WALLING 1 EXHIBIT 10.15 INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT is made and entered into this 1st day of May, 1997, but effective as of October 10, 1996, by and between DAVID P. WALLING (the "Indemnified Party") and DISCOUNT AUTO PARTS, INC., a Florida corporation (the "Corporation"). W I T N E S S E T H: WHEREAS, it is essential to the Corporation to retain and attract as Directors and/or Executive Officers the most capable persons available; and WHEREAS, the substantial increase in corporate litigation subjects directors and officers to expensive litigation risks at the same time that the availability of directors' and officers' liability insurance has been severely limited; and WHEREAS, in addition, the statutory indemnification provisions of the Florida Business Corporations Act and Article VI of the bylaws of the Corporation (the "Article") expressly provide that they are non-exclusive; and WHEREAS, the Indemnified Party does not regard the protection available under the Article and insurance, if any, as adequate in the present circumstances, and considers it necessary and desirable to his service as a Director and/or Executive Officer to have adequate protection, and the Corporation desires the Indemnified Party to serve in such capacity have such protection; and WHEREAS, the Florida Business Corporations Act and the Article provide that indemnification of Directors and Executive Officers of the Corporation may be authorized by agreement, and thereby contemplates that contracts of this nature may be entered into between the Corporation and the Indemnified Party with respect to indemnification of the Indemnified Party as a Director and/or Executive Officer of the Corporation. NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements contained in this Agreement, it is hereby agreed as follows: 1. INDEMNIFICATION GENERALLY. (a) Grant of Indemnity. Subject to and upon the terms and conditions of this Agreement, the Corporation hereby agrees to indemnify the Indemnified Party in respect of any and all claims, losses, damages and expenses which may be incurred by the Indemnified Party as a result of or arising out of: 2 (1) any threatened, pending, or completed action, suit or proceeding, whether brought by or in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature, in which the Indemnified Party may be or may have been involved as a party or otherwise, arising out of the fact that the Indemnified Party is or was a director, officer, employee, agent or stockholder of the Corporation or any of its "Affiliates" (as such term is defined in the rules and regulations promulgated by the Securities and Exchange Commission under the Securities Act of 1933), or served as a director, officer, stockholder, agent, employee, salesman, independent contractor, partner, franchisor or joint venturer in or for any person, firm, partnership, corporation or other entity at the request of the Corporation (including without limitation service in any capacity for or in connection with any employee benefit plan maintained by the Corporation or on behalf of the Corporation's employees). (2) any attempt (regardless of its success) by any person to charge or cause the Indemnified Party to be charged with wrongdoing or with financial responsibility for damages arising out of or incurred in connection with the matters indemnified against in this Agreement; or (3) any expense, assessment, fine, tax, judgment or settlement payment arising out of or incident to any of the matters indemnified against in this Agreement including reasonable fees and disbursements of counsel (before and at trial and in appellate proceedings). (b) Claims for Indemnification. (i) Whenever any claims shall arise for indemnification under this Agreement, the Indemnified Party shall notify the Corporation promptly and in any event within 30 days after the Indemnified Party has actual knowledge of the facts constituting the basis for such claim. The notice shall specify all facts known to the Indemnified Party giving rise to such indemnification right and the amount or an estimate of the amount of liability (including estimated expenses) arising therefrom. (ii) Any indemnification under this Agreement shall be made no later than 30 days after receipt by the Corporation of the written notification specified in Section 1(b)(i), unless a determination is made within such 30 day period by (X) the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the matter described in the notice or (Y) independent legal counsel, agreed to by the Corporation, in a written opinion (which counsel shall be appointed if such a quorum is not obtainable), that the Indemnified Party has not met the relevant standards for indemnification under this Agreement. (c) Rights to Defend or Settle; Third Party Claims, etc. (i) If the facts giving rise to any indemnification right under this Agreement shall involve any actual or threatened claim or demand against the Indemnified Party, or any possible claim by the Indemnified Party against any third party, such claim shall be referred to as a "Third Party Claim." If the Corporation provides the Indemnified -2- 3 Party with an agreement in writing in form and substance satisfactory to the Indemnified Party and his counsel, agreeing to indemnify and hold the Indemnified Party harmless from all costs and liability arising from any Third Party Claim (an "Agreement of Indemnity"), and demonstrating to the satisfaction of the Indemnified Party the financial wherewithal to accomplish such indemnification, the Corporation may at its own expense undertake full responsibility for the defense or prosecution of such Third Party Claim. The Corporation may contest or settle any such Third Party Claim for money damages on such terms and conditions as it deems appropriate but shall be obligated to consult in good faith with the Indemnified Party and not to contest or settle any Third Party Claim involving injunctive or equitable relief against or affecting the Indemnified Party or his properties or assets without the prior written consent of the Indemnified Party, such consent not to be withheld unreasonably. The Indemnified Party may participate at his own expense and with his own counsel in defense or prosecution of a Third Party Claim pursuant to this Section 1(c)(i), and such participation shall not relieve the Corporation of its obligation to indemnify the Indemnified Party under this Agreement. (ii) If the Corporation fails to deliver a satisfactory Agreement of Indemnity and evidence of financial wherewithal within 10 days after receipt of notice pursuant to Section 1(b), the Indemnified Party may contest or settle the Third Party Claim on such terms as it sees fit but shall not reach a settlement with respect to the payment of money damages without consulting in good faith with the Corporation. The Corporation may participate at its own expense and with its own counsel in defense or prosecution of a Third Party Claim pursuant to this Section 1(c)(ii), but any such participation shall not relieve the Corporation of its obligations to indemnify the Indemnified Party under this Agreement. All expenses (including attorneys' fees) incurred in defending or prosecuting any Third Party Claim shall be paid promptly by the Corporation as the suit or other matter is proceeding, upon the submission of bills therefor or other satisfactory evidence of such expenditures during the pendency of any matter as to which indemnification is available under this Agreement. The failure to make such payments within 30 days after submission shall constitute a breach of a material obligation of the Corporation under this Agreement. (iii) If by reason of any Third Party Claim a lien, attachment, garnishment or execution is placed upon any of the property or assets of the Indemnified Party, the Corporation shall promptly furnish a satisfactory indemnity bond to obtain the prompt release of such lien, attachment, garnishment or execution. (iv) The Indemnified Party shall cooperate in the defense of any Third Party Claim which is controlled by the Corporation, but the Indemnified Party shall continue to be entitled to indemnification and reimbursement for all costs and expenses incurred by him in connection therewith as provided in this Agreement. (d) Cooperation. The parties to this Agreement shall execute such powers of attorney as may be necessary or appropriate to permit participation of counsel selected by any party hereto and, as may be reasonably related to any such claim or action, shall provide to the counsel, -3- 4 accountants and other representatives of each party access during normal business hours to all properties, personnel, books, records, contracts, commitments and all other business records of such other party and will furnish to such other party copies of all such documents as may be reasonably requested (certified, if requested). (e) Choice of Counsel. In all matters as to which indemnification is available to the Indemnified Party under this Agreement, the Indemnified Party shall be free to choose and retain counsel, provided that the Indemnified Party shall consult in good faith with the Corporation regarding such choice. (f) Consultation. If the Indemnified Party desires to retain the services of an attorney prior to the determination by the Corporation as to whether it will undertake the defense or prosecution of the Third Party Claim as provided in Section 1(c), the Indemnified Party shall notify the Corporation of such desire in the notice delivered pursuant to Section 1(b)(i), and such notice shall identify the counsel to be retained. The Corporation shall then have 10 days within which to advise the Indemnified Party whether it will assume the defense or prosecution of the Third Party Claim in accordance with Section 1(c)(i). If the Indemnified Party does not receive an affirmative response within such 10 day period, he shall be free to retain counsel of his choice, and the indemnity provided in Section 1(a) shall apply to the reasonable fees and disbursements of such counsel incurred after the expiration of such 10 day period. Any fees or disbursements incurred prior to the expiration of such 10 day period shall not be covered by the indemnity of Section 1(a). (g) Repayment. (i) Notwithstanding the other provisions of this Agreement to the contrary, if the Corporation has incurred any cost, damage or expense under this Agreement paid to or for the benefit of the Indemnified Party and it is determined by a court of competent jurisdiction from which no appeal may be taken that the Indemnified Party has engaged in "Nonindemnifiable Conduct" as that terms is defined in Section 1(g)(ii), the Indemnified Party shall reimburse the Corporation for any and all such amounts previously paid to or for the benefit of the Indemnified Party. (ii) For these purposes, "Nonindemnifiable Conduct" shall mean actions or omissions of the Indemnified Party material to the cause of action to which the indemnification under this Agreement related determined to involve: (1) a violation of the criminal law, unless the Indemnified Party had reasonable cause to believe his conduct was lawful and no reasonable cause to believe his conduct was unlawful; (2) a transaction in which the Indemnified Party derived an improper personal benefit; -4- 5 (3) if the Indemnified Party is a director of the Corporation, a circumstance under which the liability provisions of Section 607.0834 (or any successor or similar statute) are applicable; (4) willful misconduct or a conscious disregard for the best interests of the Corporation in a proceeding by or in the right of the Corporation to procure a judgment in favor of the Corporation or in a proceeding by or in the right of a stockholder; or (5) conduct pursuant to then applicable law that prohibits such indemnification. 2. TERM. This Agreement shall be effective upon its execution by all parties and shall continue in full force and effect until the date five years after the date of this Agreement, or five years after the termination of the Indemnified Party's employment or term of office, whichever is later, provided that such term shall be extended by any period of time during which the Corporation is in breach of a material obligation to the Indemnified Party, plus ninety days. Such term shall also be extended with respect to each Third Party Claim then pending and as to which notice under Section 1(b) has theretofore been given by the Indemnified Party to the Corporation, and this Agreement shall continue to be applicable to each such Third Party Claim. 3. REPRESENTATIONS AND AGREEMENTS OF THE CORPORATION. (a) Authority. The Corporation represents, covenants and agrees that it has the corporate power and authority to enter into this Agreement and to carry out its obligations under this Agreement. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized by the Board of Directors of the Corporation. This Agreement is a valid and binding obligation of the Corporation and is enforceable against the Corporation in accordance with its terms. (b) The Corporation's Insurance and Indemnification. (i) The Corporation represents, covenants and agrees that during the term of this Agreement, it will use its best efforts to maintain a policy or policies of officers' and directors' liability insurance providing coverage to the Indemnified Party in respect of his service as an officer, director and/or employee of the Corporation, which policy at all times shall be in an amount and shall contain terms and conditions no less favorable than the policy in effect at such time for the Corporation's other officers and directors. (ii) During the term of this Agreement, to the fullest extent permitted by law, the Corporation will cause those sections of its bylaws regarding indemnification of directors and officers -5- 6 currently in effect to remain in full force and effect, and it and its directors will act in good faith and in accordance with the procedures and spirit of such bylaws. (c) Noncontestability. The Corporation represents, covenants and agrees that it will not initiate, and that it will use its best efforts to cause any of its Affiliates not to initiate, any action, suit or proceeding challenging the validity or enforceability of this Agreement. (d) Good Faith Judgment. The Corporation represents, covenants and agrees that it will exercise good faith judgment in determining the entitlement of the Indemnified Party to indemnification under this Agreement. 4. RELATIONSHIP OF THIS AGREEMENT TO OTHER INDEMNITIES. (a) Nonexclusivity. This Agreement and all rights granted to the Indemnified Party under this Agreement are in addition to and are not deemed to be exclusive with or of any other rights that may be available to the Indemnified Party under any Articles of Incorporation, bylaw, statute, agreement, or otherwise. (b) Availability, Contribution, Etc.. (i) The availability or nonavailability of indemnification by way of insurance policy, Articles of Incorporation, bylaw, vote of stockholders, or otherwise from the Corporation to the Indemnified Party shall not affect the right of the Indemnified Party to indemnification under this Agreement, provided that all rights under this Agreement shall be subject to applicable statutory provisions in effect from time to time. (ii) Any funds received by the Indemnified Party by way of indemnification or payment from any source other than from the Corporation under this Agreement shall reduce any amount otherwise payable to the Indemnified Party under this Agreement. (iii) If the Indemnified Party is entitled under any provision of this Agreement to indemnification by the Corporation for some claims, issues or matters, but not as to other claims, issues or matters, or for some or a portion of the expenses, judgments, fines or penalties actually and reasonably incurred by him or amounts actually and reasonably paid in settlement by him in the investigation, defense, appeal or settlement of any matter for which indemnification is sought under this Agreement, but not for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnified Party for the portion of such claims, issues or matters or expenses, judgments, fines, penalties or amounts paid in settlement to which the Indemnified Party is entitled. (iv) If for any reason a court of competent jurisdiction from which no appeal can be taken rules that the indemnity provided under this Agreement is unavailable, or if for any reason the indemnity under this Agreement is insufficient to hold the Indemnified Party harmless as provided in this Agreement, then in either event, the Corporation shall contribute to the amounts paid or -6- 7 payable by the Indemnified Party in such proportion as equitably reflects the relative benefits received by, and fault of the Indemnified Party and the Corporation and its Affiliates. (c) Allowance for Compliance with SEC Requirements. The Indemnified Party acknowledges that the Securities and Exchange Commission ("SEC") has expressed the opinion that indemnification of directors and officers from liabilities under the Securities Act of 1933 (the "1933 Act") is against public policy as expressed in the 1933 Act and, is therefore, unenforceable. The Indemnified Party hereby agrees that it will not be a breach of this Agreement for the Corporation to undertake with the Commission in connection with the registration for sale of any stock or other securities of the Corporation from time to time that, in the event a claim for indemnification against such liabilities (other than the payment by the Corporation of expenses incurred or paid by a director or officer of the Corporation in the successful defense of any action, suit or proceeding) is asserted in connection with such stock or other securities being registered, the Corporation will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of competent jurisdiction on the question of whether or not such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. The Indemnified Party further agrees that such submission to a court of competent jurisdiction shall not be a breach of this Agreement. 5. MISCELLANEOUS. (a) Notices. All notices, requests, demands and other communications which are required or which may be given under this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered or mailed, first class mail, postage prepaid to: If to the Indemni- fied Party: David P. Walling 7401 Tall Timbers W. Bloomfield, MI 48322 If to the Corporation: Discount Auto Parts, Inc. 4900 Frontage Road South Lakeland, Florida 33801 (b) Construction and Interpretation. (i) This Agreement shall be construed pursuant to and governed by the substantive laws of the State of Florida (and any provision of Florida law shall not apply if the law of a state or jurisdiction other than Florida would otherwise apply). -7- 8 (ii) The headings of the various sections in this Agreement are inserted for the convenience of the parties and shall not affect the meaning, construction or interpretation of this Agreement. (iii) Any provision of this Agreement which is determined by a court of competent jurisdiction to be prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or non-authorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction. In any such case, such determination shall not affect any other provision of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect. If any provision or term of this Agreement is susceptible to two or more constructions or interpretations, one or more of which would render the provision or term void or unenforceable, the parties agree that a construction or interpretation which renders the term or provision valid shall be favored. (c) Entire Agreement. Except as otherwise expressly provided herein, this Agreement constitutes the entire Agreement, and supersedes all prior agreements and understandings, oral and written, among the parties to this Agreement with respect to the subject matter hereof. (d) Specific Enforcement. (i) The parties agree and acknowledge that in the event of a breach by the Corporation of its obligation promptly to indemnify the Indemnified Party as provided in this Agreement, or breach of any other material provision of this Agreement, damages at law will be an insufficient remedy to the Indemnified Party. Accordingly, the parties agree that, in addition to any other remedies or rights that may be available to the Indemnified Party, the Indemnified Party shall also be entitled, upon application to a court of competent jurisdiction, to obtain temporary or permanent injunctions to compel specific performance of the obligations of the Corporation under this Agreement. (ii) There shall exist in such action a rebuttable presumption that the Indemnified Party has met the applicable standard(s) of conduct and is therefore entitled to indemnification pursuant to this Agreement, and the burden of proving that the relevant standards have not been met by the Indemnified Party shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors or independent legal counsel) prior to the commencement of such action to have made a determination that indemnification is proper in the circumstances because the Indemnified Party has met the applicable standard of conduct, nor an actual determination by the Corporation (including its Board of Directors or independent legal counsel) that the Indemnified Party has not met such applicable standard of conduct, shall (X) constitute a defense to the action, (Y) create a presumption that the Indemnified Party has not met the applicable standard of conduct, or (Z) otherwise alter the presumption in favor of the Indemnified Party referred to in the preceding sentence. -8- 9 (e) Cost of Enforcement; Interest. (i) If the Indemnified Party engages the services of an attorney or any other third party or in any way initiates legal action to enforce his rights under this Agreement, including but not limited to the collection of monies due from the Corporation to the Indemnified Party, the prevailing party shall be entitled to recover all reasonable costs and expenses (including reasonable attorneys' fees before and at trial and in appellate proceedings). Should the Indemnified Party prevail, such costs and expenses shall be in addition to monies otherwise due him under this Agreement. (ii) If any monies shall be due the Indemnified Party from the Corporation under this Agreement and shall not be paid within 30 days from the date of written request for payment, interest shall accrue on such unpaid amount at the rate of 1% per annum in excess of the prime rate announced from time to time by Sun Bank, National Association, Orlando, Florida, or such lower rate as may be required to comply with applicable law. (f) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the successors in interest and assigns, heirs and personal representatives, as the case may be, of the parties. (g) Further Assurances. The parties to this Agreement will execute and deliver, or cause to be executed and delivered, such additional or further documents, agreements or instruments and shall cooperate with one another in all respects for the purpose of carrying out the transactions contemplated by this Agreement. (h) Venue; Process. The parties to this Agreement agree that jurisdiction and venue in any action brought pursuant to this Agreement to enforce its terms or otherwise with respect to the relationships between the parties shall properly lie in the Circuit Court of the Tenth Judicial Circuit of the State of Florida in and for Polk County or in the United States District Court for the Middle District of Florida, Tampa Division. Such jurisdiction and venue are merely permissive; jurisdiction and venue shall also continue to lie in any court where jurisdiction and venue would otherwise be proper. The parties agree that they will not object that any action commenced in the foregoing jurisdictions is commenced in a forum non conveniens. The parties further agree that the mailing by certified or registered mail, return receipt requested, of any process required by any such court shall constitute valid and lawful service of process against them, without the necessity for service by any other means provided by statute or rule of court. (i) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be considered an original, but all of which together shall constitute one and the same instrument. (j) Waiver and Delay. No waiver or delay in enforcing the terms of this Agreement shall be construed as a waiver of any subsequent breach. No action taken by the Indemnified Party shall constitute a waiver of his rights under this Agreement. -9- 10 IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. DISCOUNT AUTO PARTS, INC. By: /s/ William Perkins ---------------------------------- William Perkins, President WITNESSES: /s/ /s/ David P. Walling - ------------------------------ ------------------------------------- David P. Walling -10- EX-10.18 8 GENERAL PARTNERSHIP AGREEMENT 1 EXHIBIT 10.18 GENERAL PARTNERSHIP AGREEMENT OF DAP/LUBECO PARTNERSHIP PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 2 TABLE OF CONTENTS ARTICLE 1. FORMATION OF PARTNERSHIP............................................................... 1 1.1 Execution and Filing of Agreement.................................................... 1 1.2 Full Compliance...................................................................... 1 ARTICLE 2.-- NAME OF PARTNERSHIP................................................................... 2 ARTICLE 3.-- BUSINESS OF THE PARTNERSHIP........................................................... 2 ARTICLE 4.-- NAMES AND ADDRESS OF PARTNERS......................................................... 2 ARTICLE 5.-- PARTNERSHIP UNITS AND PERCENTAGES..................................................... 2 ARTICLE 6.-- TERM.................................................................................. 3 ARTICLE 7.-- BUSINESS OFFICES...................................................................... 3 ARTICLE 8.-- CAPITAL AND CONTRIBUTIONS............................................................. 3 8.1 Initial Capital Contributions........................................................ 3 8.2 Capital Calls........................................................................ 3 8.3 Non-Contribution by Partners......................................................... 3 8.4 Interest on Capital Contributions.................................................... 3 8.5 Withdrawal and Return of Capital Contributions....................................... 4 ARTICLE 9. DISTRIBUTIONS.......................................................................... 4 9.1 Distributions as Between Partners.................................................... 4 9.2 Timing of Distributions and Discretion of Partners as to Reinvestment................ 4 9.3 Distributions of Capital............................................................. 4 ARTICLE 10. ALLOCATION OF PROFITS AND LOSSES FOR TAX PURPOSES..................................... 4 10.1 General Allocation of Profits and Losses............................................. 4 10.2 Regulator Allocations................................................................ 5 (b) Allocation in the Event of Section 754 Election............................. 5 10.3 Curative Allocations................................................................. 5 10.4 Special Tax Allocations.............................................................. 6 (a) Contributed Property........................................................ 6 (b) Adjusted Property........................................................... 6 (c) Recapture of Deductions and Credits......................................... 6 (d) Binding Nature of Elections Made............................................ 6 10.5 Allocation in the Event of Transfer.................................................. 6 ARTICLE 11. BOOKS OF ACCOUNT, RECORDS AND REPORTS................................................. 7 11.1 Responsibility for Books and Records................................................. 7 11.2 Reports to Partners.................................................................. 7 11.3 Additional Reports................................................................... 7
PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 3 GENERAL PARTNERSHIP AGREEMENT Page ii ARTICLE 12. FISCAL YEAR........................................................................... 8 ARTICLE 13. PARTNERSHIP FUNDS..................................................................... 8 ARTICLE 14. TRANSFERS OF INTERESTS................................................................ 8 ARTICLE 15. JOINT AGREEMENT....................................................................... 8 ARTICLE 16. DEFINITIONS........................................................................... 8 16.1 Act.................................................................................. 8 16.2 Agreed Value......................................................................... 8 16.3 Agreement............................................................................ 9 16.4 Bankruptcy........................................................................... 9 16.5 Capital Account...................................................................... 10 16.6 Capital Contribution................................................................. 11 16.7 Code................................................................................. 11 16.8 Incapacity........................................................................... 11 16.9 Interest............................................................................. 11 16.10 General Partner or Partner........................................................... 11 16.11 Majority of Partners................................................................. 11 16.12 Net Cash Flow........................................................................ 11 16.13 Partnership Percentages, Partnership Interests and Partnership Units................. 12 16.14 Tax Matters Partner.................................................................. 12 16.15 Taxable Income and Tax Losses........................................................ 12 ARTICLE 17. RELIANCE BY THIRD PARTIES............................................................. 12 ARTICLE 18. TITLE TO PARTNERSHIP ASSETS........................................................... 13 ARTICLE 19. DISSOLUTION OF THE PARTNERSHIP........................................................ 13 ARTICLE 20. WINDING UP, TERMINATION, AND LIQUIDATING DISTRIBUTIONS.............................................. 13 20.1 Winding Up........................................................................... 13 20.2 Distributions........................................................................ 14 20.3 Deficit Account Restoration.......................................................... 14 20.4 Final Reports........................................................................ 15 ARTICLE 21. WAIVER OF PARTITION................................................................... 15 ARTICLE 22. NOTICES............................................................................... 15 ARTICLE 23. GOVERNING LAWS........................................................................ 15 ARTICLE 24. EFFECT................................................................................ 15 ARTICLE 25. PRONOUNS AND NUMBER................................................................... 15 ARTICLE 28. COUNTERPARTS........................................................................... 16
PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 4 GENERAL PARTNERSHIP AGREEMENT OF DAP/LUBECO PARTNERSHIP This General Partnership Agreement (the "Agreement") is made and entered into as of the 1st day of March, 1997, by and between DAP/LUBECO CORP., a Nevada corporation, and LUBECO MANAGEMENT, INC., a Delaware corporation, (sometimes individually referred to herein as a "Partner" or collectively as the "Partners"). W I T N S S E T H: WHEREAS, DAP/LUBECO CORP. is a wholly-owned subsidiary of Discount Auto Parts, Inc., a Florida corporation ("DAP"); and WHEREAS, LUBECO MANAGEMENT, INC. is a wholly-owned subsidiary of QLube, Inc., a Delaware corporation ("QLUBE") ; and WHEREAS, DAP and QLUBE have entered into that certain Master Joint Business Agreement dated as of the 1st day of January, 1997 (the "Joint Agreement"), a copy of which is attached hereto as Schedule "A" and made a part hereof; and WHEREAS, paragraph 3 of the Joint Agreement contemplates the formation of an entity to own and operate the business described in the Joint Agreement; and WHEREAS, DAP and QLUBE have determined that a Nevada general partnership is an appropriate form of entity to conduct such business pursuant to the terms and conditions of the Joint Agreement and would like to own and control their interests in the partnership through the Partners. NOW, THEREFORE, in consideration of the foregoing premises and mutual covenants contained in this Agreement, the parties agree as follows: ARTICLE 1. FORMATION OF PARTNERSHIP The Partners hereby form a Partnership (the "Partnership") pursuant to the Hawaii Uniform Partnership Act (the "Act") as adopted under Nevada Revised Statutes Chapter 87. The rights and duties of the Partners shall be as provided in the Act except as modified by this Agreement. 1.1 EXECUTION AND FILING OF AGREEMENT: The parties hereto shall execute promptly all certificates and other documents which are needed to accomplish all filing, recording, publishing and other acts appropriate to comply with all requirements for the formation and operation of a general partnership under the laws of the State of Hawaii and for the formation, qualification and operation of a general partnership in all other jurisdictions where the Partnership shall propose to conduct business. PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 5 GENERAL PARTNERSHIP AGREEMENT Page 2 1.2 FULL COMPLIANCE: Prior to or concurrently with the conducting of any business in any jurisdiction, the Partnership shall comply, to the full extent permitted by the laws of such jurisdiction, with all requirements for the qualification or formation of the Partnership to conduct business as a general partnership in such jurisdiction. ARTICLE 2. -- NAME OF PARTNERSHIP The business of the Partnership shall be conducted under the name "DAP/LUBECO Partnership" or such other name as the Partners shall hereafter determine. Subject to all applicable laws, the business of the Partnership may be conducted under any other name or names as a majority in interest of the Partners deem appropriate to comply with the laws of the jurisdictions in which the Partnership does business. ARTICLE 3. -- BUSINESS OF THE PARTNERSHIP The purpose and business of the Partnership shall be to engage in any business which may lawfully be conducted by the Partnership under Hawaii Revised Statutes, including the business of operation of real property investment, management and leasing. The Partnership's business may include, without limitation, the acquisition, development, management, operation and disposition of real, personal and intangible property, the carrying on of any business or activities relating thereto or arising therefrom, the entering into of any partnership, joint venture or other similar arrangement to engage in any of the foregoing or the ownership of interests in any entity engaged in any of the foregoing, and anything incidental or necessary to the foregoing. ARTICLE 4. -- NAMES AND ADDRESS OF PARTNERS The names and addresses of the General Partners are: DAP/LUBECO CORP. 4900 Frontage Road S. Lakeland, Florida 33815 Attention: C. Michael Moore LUBECO MANAGEMENT, INC. 1385 West 2200 South Salt Lake City, Utah 84119 Attention: Kirk Umphrey ARTICLE 5. -- PARTNERSHIP UNITS AND PERCENTAGES The Initial Partnership Percentages of the Partners and Units to be owned by each such Partner shall be as detailed on the Schedule A attached hereto and incorporated herein by this reference. PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 6 GENERAL PARTNERSHIP AGREEMENT Page 3 ARTICLE 6. -- TERM The term of the Partnership began as the effective date of this Agreement and shall continue until the earliest of: (i) the termination of the Joint Agreement; (ii) Twenty (20) years; or (iii) an act or event of dissolution otherwise specified in this Agreement or the Joint Agreement or by the law as one effecting dissolution. ARTICLE 7. -- BUSINESS OFFICES The principal place of business of the Partnership shall be at 4900 Frontage Road S., Lakeland, Florida 33815 or at such other location as a majority in interest of the Partners may from time to time determine. ARTICLE 8. -- CAPITAL AND CONTRIBUTIONS 8.1 INITIAL CAPITAL CONTRIBUTIONS: The Partners initially shall make Capital Contributions in property totalling One Hundred Thousand and NO/100 Dollars ($100,000.00) and among them in accordance with Partnership Unit Percentages in the amounts detailed on the attached Schedule "B". The Partners' initial Capital Contributions shall be made as soon as practicable after execution of this Agreement. 8.2 CAPITAL CALLS: In addition to the Capital Contributions required by Paragraph 8.1, any additional capital contributions shall be made, if at all, in accordance with the provisions of subparagraph b of paragraph 4 the Joint Agreement. 8.3 NON-CONTRIBUTION BY PARTNERS: If any Partner fails to pay all or any portion of an additional assessment called pursuant to Paragraph 8.2 (an "Assessment Payment") in a timely manner, then, in that event, the contributing Partner may make an additional contribution to cover the amount needed and the non-contributing Partners shall be liable to the Partnership as provided for in subparagraph b of paragraph 4 of the Joint Agreement. 8.4 INTEREST ON CAPITAL CONTRIBUTIONS: No Partner shall be entitled to interest on any Capital Contribution, except as otherwise may be provided for in the Joint Agreement. PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 7 GENERAL PARTNERSHIP AGREEMENT Page 4 8.5 WITHDRAWAL AND RETURN OF CAPITAL CONTRIBUTIONS: No Partner shall be entitled to withdraw any part of such Partner's Capital Contribution, or to receive any distributions from the Partnership except as provided by the Joint Agreement. ARTICLE 9. DISTRIBUTIONS 9.1 DISTRIBUTIONS AS BETWEEN PARTNERS: Except as may otherwise be provided in the Joint Agreement, the Partnership may distribute all or a portion of the Net Cash Flow among the Partners in accordance with their respective Partnership Percentages. 9.2 TIMING OF DISTRIBUTIONS AND DISCRETION OF PARTNERS AS TO REINVESTMENT: Partnership distributions, if any, will be made to those persons recognized on the books of the Partnership as Partners or as assignees of Interests on the day of the distribution. To the extent permitted by law and as permitted by any loan agreements entered into by the Partnership, the Partnership's Net Cash Flow may in whole or in part be reinvested in the Partnership's business or distributed to the Partners, as determined by a majority in interest of the Partners. 9.3 DISTRIBUTIONS OF CAPITAL: Except as may otherwise be provided for in the Joint Agreement, the Partners may from time to time, by majority vote, cause the Partnership to distribute cash and/or other property to the Partners as a return of capital. Distributions made pursuant to this Paragraph 9.3 need not be made in accordance with the Partner's units or capital accounts. Rather, distributions pursuant to this Paragraph 9.3 can be made to any Partner, as long as that distribution is designated as a "return of capital;" provided, however, that distributions under this Paragraph 9.3 may only be made to a Partner to the extent of the positive balance in that Partner's capital account and provided, further, that no distribution under this Paragraph 9.3 may be made that is not pro rata to all partners without the express written consent of a majority of the Partners. ARTICLE 10. ALLOCATION OF PROFITS AND LOSSES FOR TAX PURPOSES 10.1 GENERAL ALLOCATION OF PROFITS AND LOSSES: Except as otherwise provided in this Agreement or the Joint Agreement, the profits and losses of the Partnership arising during any taxable year of the Partnership shall be allocated among the Partners in accordance with their respective Partnership Percentages; provided, however, that in accordance with Section 704(c) of the Code and the Treasury Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Partnership shall, solely for tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 8 GENERAL PARTNERSHIP AGREEMENT Page 5 such property to the Partnership for federal income tax purposes and its agreed upon fair market value at the time of contribution. 10.2 REGULATOR ALLOCATIONS: (a) MINIMUM GAIN CHARGEBACK: Notwithstanding any other provision of this Paragraph 10, if there is a net decrease in Partnership minimum gain during any Partnership fiscal year, and if a Partner would otherwise have an adjusted capital account deficit at the end of that year (after giving effect to all other adjustments to the Partners' capital account with respect to that year), that Partner shall be specially allocated items of Partnership income and gain for such year (and, if necessary, for subsequent years) in an amount and manner sufficient to eliminate the adjusted capital account deficit as quickly as possible. The items to be so allocated shall be determined in accordance with Treasury Regulation Section 1.704-1(b)(4)(iv)(e). This Paragraph 10.3 is intended to comply with the minimum gain chargeback requirement in the Treasury Regulations and shall be interpreted consistently therewith. (b) ALLOCATION IN THE EVENT OF SECTION 754 ELECTION: To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Section 743(b) is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining capital accounts, the amount of that adjustment to the capital accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset), and that gain or loss shall be specially allocated to the Partners in the manner consistent with the manner in which their capital accounts are required to be adjusted pursuant to that Treasury Regulation. 10.3 CURATIVE ALLOCATIONS: The allocations set forth in Paragraphs 10.2 and 10.3 of this Agreement (the "regulatory allocations") are intended to comply with certain requirements of Treasury Regulation Section 1.704-1(b). Notwithstanding any other provisions of this Paragraph 10 (other than the regulatory allocations), the regulatory allocations shall be taken into account in allocating other profits, losses and items of income, gain, loss and deduction among the Partners so that, to the extent possible, the net amount of the allocations of other profits, losses and other items in the regulatory allocations to each Partner shall be equal to the net amount that would have been allocated to each Partner if the regulatory allocations had not occurred. PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 9 GENERAL PARTNERSHIP AGREEMENT Page 6 10.4 SPECIAL TAX ALLOCATIONS: (a) CONTRIBUTED PROPERTY: In accordance with Code Section 704(c) and the Treasury Regulations thereunder, income, gain, loss and deduction with respect to any property contributed to the Partnership shall, solely for tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of that property to the Partnership for federal income tax purposes and its initial agreed value (computed in accordance with Paragraph 16.2(a) hereof). (b) ADJUSTED PROPERTY: In the event the agreed value of any Partnership asset is adjusted pursuant to Paragraph 16.2(b) hereof, subsequent allocations of income, gain, loss and deduction with respect to that asset shall take into account any variation between the adjusted basis of that asset for federal income tax purposes and its agreed value in the same manner as the variation between federal income tax basis and agreed value is taken into account under Paragraph 10.5(a) with respect to contributed property. (c) RECAPTURE OF DEDUCTIONS AND CREDITS: If any "recapture" of deductions or credits previously claimed by the Partnership is required under the Code upon the sale or other taxable disposition of any Partnership property, those recaptured deductions or credits shall, to the extent possible, be allocated to the Partners pro rata in the same manner that the deductions and credits giving rise to the recapture items were originally allocated using the "first-in, first-out" method of accounting; provided, however, that this Paragraph 10.4(c) shall only affect the characterization of income allocated among the Partners for tax purposes. (d) BINDING NATURE OF ELECTIONS MADE: Any elections or other decisions relating to the allocations under this Paragraph 10.5 shall be made by majority vote of the Partners in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Paragraph 10.4 are solely for purposes of federal, state and local taxes and shall not affect or in any way be taken into account in computing any Partner's capital account or share of profits, losses, other items or distributions pursuant to any provision of this agreement. 10.5 ALLOCATION IN THE EVENT OF TRANSFER: In the event additional or substituted Partners are admitted to the Partnership, the profits and losses allocated to the Partners for that fiscal year shall be allocated among them in PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 10 GENERAL PARTNERSHIP AGREEMENT Page 7 accordance with Code Section 706, using any convention permitted by law and selected by the Partners. ARTICLE 11. BOOKS OF ACCOUNT, RECORDS AND REPORTS 11.1 RESPONSIBILITY FOR BOOKS AND RECORDS: Proper and complete records and books of account shall be kept for the Partnership's business as are usually entered into records and books of account maintained by persons engaged in businesses of a like character, including a capital account for each Partner. The Partnership books and records shall be prepared in accordance with generally accepted accounting practices, consistently applied, and shall be kept on the accrual basis, except in circumstances in which the Partners determine that another basis of accounting will be in the best interests of the Partnership. The books and records shall at all times be maintained at the principal place of business of the Partnership and shall be open to the inspection and examination of the Partners or their duly authorized representatives during reasonable business hours. It is anticipated the Partnership will engage the services of Q Lube, Inc., a Delaware corporation, to administer the day to day operation and management of the Partnership's business and such other matters as may be delegated by the Partnership. 11.2 REPORTS TO PARTNERS: As soon as practicable in the particular case, the Partnership or its designee, shall deliver to each Partner: (a) Such information concerning the Partnership after the end of each fiscal year as shall be necessary for the preparation by such Partner of such Partner's income or other tax returns; (b) An unaudited statement as of the end of and for each fiscal year, a profit and loss statement and a balance sheet of the Partnership and a statement showing the amounts allocated to or against each Interest during that year; (c) If feasible, on or before March 15 of each year, a statement setting forth projected Taxable Income or Tax Losses to be generated by the Partnership for the fiscal year; and (d) Other information as may be reasonably necessary for the Partners to be advised of the results of operations of the Partnership. 11.3 ADDITIONAL REPORTS: The Partnership or its designee may prepare and deliver to the Partners from time to time during each fiscal year, in connection with distributions or otherwise, unaudited statements showing the results of operations of the Partnerships to the date of that statement. PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 11 GENERAL PARTNERSHIP AGREEMENT Page 8 ARTICLE 12. FISCAL YEAR The fiscal year of the Partnership shall end on the Tuesday closest to May 31st of each year, whether such day occurs prior to or subsequent to May 31st. ARTICLE 13. PARTNERSHIP FUNDS The funds of the Partnership shall be deposited in such bank account or accounts, or invested in such interest-bearing or non-interest-bearing investments, as the Partners may from time to time designate or as a majority in interest of the Partners may from time to time designate. All withdrawals from any such bank accounts shall be made by the duly authorized agent or agents of the Partnership. Partnership funds shall be held in the name of the Partnership and shall not be commingled with those of any other person. ARTICLE 14. TRANSFERS OF INTERESTS No Partner may transfer any interest in the Partnership, except as may otherwise provided and authorized in the Joint Agreement or by a majority in interest of the Partners. ARTICLE 15. JOINT AGREEMENT Notwithstanding any contrary provision of this Agreement, the terms and conditions of the Joint Agreement, as now existing or hereafter amended, shall govern the rights and responsibilities of the Partners to the extent of any conflicting provision herein or to the extent any aspect of the Partnership business relationship has not otherwise been addressed herein. ARTICLE 16. DEFINITIONS 16.1 ACT: "Act" means the Nevada Uniform Partnership Act, Chapter 87, Nevada Revised Statutes or any successor act enacted by the State of Nevada. 16.2 AGREED VALUE: "Agreed Value" means with respect to any Partnership asset, the asset's adjusted basis for federal income tax purposes, except as follows: (a) the initial agreed value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of that asset, as determined by the contributing partner and the Partnership; (b) the agreed value of all Partnership assets shall be adjusted to equal their respective gross fair market values, as determined by the Partners, as of the following times: PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 12 GENERAL PARTNERSHIP AGREEMENT Page 9 (c) the acquisition of an additional interest in the Partnership after the effective date by any new or existing Partner in exchange for more than a de minimis capital contribution; (d) the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership property as consideration for an interest in the partnership if the Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interest of the partners of the Partnership; and (e) the liquidation of the Partnership within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g); (f) the agreed value of any Partnership asset distributed to any partner shall be the gross fair market value of that asset on the date of distribution; and (g) if an election under Code Section 754 has been made, the agreed value of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of the assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that those adjustments are taken into account in determining capital accounts pursuant to Treasury Regulation Section 1.704- 1(b)(2)(iv)(m) and Paragraph 10.3 hereof; provided, however, that agreed value shall not be adjusted pursuant to this Paragraph 16.2(d) to the extent that the Partners determine that an adjustment pursuant to Paragraph 16.2(b) hereof is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this Paragraph 16.2(d). If the agreed value of an asset has been determined or adjusted pursuant to Paragraph 16.2(a), 16.2(b) or 16.2(c) hereof, that agreed value shall thereafter be adjusted by the depreciation, if any, taken into account with respect to that asset for purposes of computing profits and losses. 16.3 AGREEMENT: "Agreement" means this Partnership Agreement, as amended, modified, or supplemented from time to time. 16.4 BANKRUPTCY: "Bankruptcy" shall be deemed to have occurred with respect to any Partner Sixty (60) days after the happening of any of the following: (a) the filing of an application by a Partner for, or a consent to, the appointment of a trustee of the Partner's assets; (b) the filing by a Partner of a voluntary petition in bankruptcy or the filing of a pleading in any court of record admitting in writing the Partner's inability to pay the Partner's debts as they become due; PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 13 GENERAL PARTNERSHIP AGREEMENT Page 10 (c) the making by a Partner of a general assignment for the benefit of creditors; (d) the filing by a Partner of an answer admitting the material allegations of, or consenting to, or defaulting in answering a bankruptcy petition filed against the Partner in any bankruptcy proceeding; or (e) the entry of an order, judgment, or decree by any court of competent jurisdiction adjudicating a Partner a bankrupt or appointing a trustee of the Partner's assets, and that order, judgment, or decree continuing unstayed and in effect for a period of sixty (60) days. 16.5 CAPITAL ACCOUNT: "Capital Account" means with respect to each Partner, the account established on the books and records of the Partnership for each Partner under Paragraph 11.1. Each Partner's Capital Account shall initially equal the cash and the agreed value of property (net of liabilities assumed or to which the property is subject) contributed by the Partner to the Partnership, and during the term of the Partnership shall be: (a) increased by the amount of: (1) Taxable Income allocated to the Partner, other than Taxable Income attributable to the difference between the agreed value and adjusted basis of the property at contribution, and (2) any money and the agreed value of property (net of any liabilities assumed or to which the property is subject) subsequently contributed to the Partnership, and (b) decreased by the amount of: (1) Tax Losses allocated to the Partner, except: (i) Tax Losses attributable to depreciation of contributed property, which shall decrease Capital Accounts only to the extent of depreciation computed as if the property were purchased by the Partnership at its agreed value, and (ii) Tax Losses attributable to the difference between the agreed value and adjusted basis of property at contribution (which shall not decrease the contributing Partner's Capital Account), and (2) All cash and the agreed value of property (net of liabilities assumed or to which the property is subject) distributed to such Partner, and shall otherwise be kept in accordance with applicable Treasury Regulations. PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 14 GENERAL PARTNERSHIP AGREEMENT Page 11 16.6 CAPITAL CONTRIBUTION: "Capital Contribution" means the amount of money or the agreed value of other property contributed to the Partnership by a Partner, reduced by the amount of indebtedness to which the non-cash property is subject to at the time of transfer and the amount of any other indebtedness assumed by the Partnership in connection with the contribution to the Partnership. 16.7 CODE: "Code" means the Internal Revenue Code of 1986, as amended, modified, or rescinded from time to time, or any similar provision of succeeding law. 16.8 INCAPACITY: "Incapacity" or "Incapacitated" means the incompetence, insanity, interdiction, death, disability, or incapacity, as the case may be, of any Partner. 16.9 INTEREST: "Interest" means the entire ownership interest of a Partner in the Partnership. 16.10 GENERAL PARTNER OR PARTNER: "General Partner" or "Partner" in the singular means either of DAP/LUBECO Corp. or Lubeco Management, Inc.. "General Partners" or "Partners" shall mean both of the previously described entities. In the event that both either Partner is at any time no longer a Partner, or is replaced by vote of the Partners as provided herein, the term shall mean the party or parties then acting in that capacity. 16.11 MAJORITY OF PARTNERS: "Majority of Partners" (rather than meaning the majority of the number of the Partners of the Partnership) means the majority of the Partnership Units or Partnership Percentages. 16.12 NET CASH FLOW: "Net Cash Flow" with respect to any fiscal period means all cash revenues of the Partnership during that period (including interest or other earnings on the funds of the Partnership"), less the sum of the following to the extent made from those cash revenues: (a) All principal and interest on any indebtedness of the Partnership; (b) All expenses incurred incident to the operations of the Partnership's business; and PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 15 GENERAL PARTNERSHIP AGREEMENT Page 12 (c) Funds set aside as reserves for contingencies, working capital, debt service, taxes, insurance, or other costs or expenses incident to the conduct of the Partnership's business, which the General Partner deems reasonably necessary or appropriate. 16.13 PARTNERSHIP PERCENTAGES, PARTNERSHIP INTERESTS AND PARTNERSHIP UNITS: "Partnership Percentages," "Partnership Interests" and "Partnership Units" as used in this Agreement are different measuring tools to determine each Partner's interest in the Partnership. All three terms reflect the same item; the amount of the Partnership so owned by each such Partner. Partnership Units can be converted into Partnership Percentages by calculating the number of Partnership Units owned by a Partner and dividing such number of units by the total number of units owned by all Partners in the Partnership. Partnership Percentages can likewise be converted into Partnership Units by multiplying the Partnership Percentage of a Partner by the total number of Partnership Units then outstanding. Partnership Interests shall be the entire interest in the Partnership owned by any one (or, as the case may be, more) Partner, whether reflected in Units or Percentages. 16.14 TAX MATTERS PARTNER: DAP/LUBECO CORP. is designated the "Tax Matters Partner," as that term is defined in Code Section 6231 and any similar provisions of state or local law, and is authorized and required to represent the Partnership (at the Partnership's expense) in connection with all examinations of the Partnership's affairs by tax authorities, including resulting administrative and judicial proceedings and to expend Partnership funds for professional services and costs associated therewith. The Partners agree to cooperate with the "Tax Matters Partner" and to do or refrain from doing any or all things reasonably required by the "Tax Matters Partner" to conduct those proceedings. 16.15 TAXABLE INCOME AND TAX LOSSES: "Taxable Income" and "Tax Losses," respectively, shall mean the net income or net losses of the Partnership as determined for federal income tax purposes, and all items required to be separately stated by Code Section 702 and the Treasury Regulations thereunder. ARTICLE 17. RELIANCE BY THIRD PARTIES Notwithstanding any other provision in this Agreement to the contrary: 17.1 No seller, lender or purchaser, including any purchaser of property from the Partnership or any other person dealing with the Partnership, shall be required to look to the application of proceeds hereunder or verify any representation by a Partner as to the extent of the interest in the assets of the Partnership that the Partners are entitled to encumber, sell or otherwise use, any seller, lender, purchaser or other person dealing with the Partnership shall be entitled to rely exclusively on the representations of the PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 16 GENERAL PARTNERSHIP AGREEMENT Page 13 Partners as to their authority to enter into any kind of arrangement intended to bind the Partnership, including, without limitation, any financing, purchasing or selling of real property and shall be entitled to deal with a Partner as if such Partner were the sole party in interest therein, both legally and beneficially; and 17.2 Every instrument purporting to be the action of the Partnership and executed by a Partner (or any person, including employees of the Partnership, authorized from time to time by the Managing General Partner to execute such instruments) shall be conclusive evidence in favor of every person relying thereon or claiming thereunder that, at the time of delivery thereof, this Agreement was in full force and effect and that the execution and delivery of that instrument was duly authorized by the Managing General Partner and the Partners. ARTICLE 18. TITLE TO PARTNERSHIP ASSETS Title to Partnership property, whether real, personal or mixed, tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually or collectively, shall have any ownership interest in Partnership property or any portion thereof. Title to any or all of the Partnership property may be held in the name of the Partnership, any (or more than one) Partner or one or more nominees, as the Partners shall determine. The Partners hereby agree that any Partnership property for which legal title is held in the name of a Partner shall be held in trust by such Partner or Partners for the use and benefit of the Partnership in accordance with the terms and provisions of this Agreement. All Partnership property shall be recorded as property of the Partnership on its books and records, irrespective of the name in which legal title to the Partnership property is held. ARTICLE 19. DISSOLUTION OF THE PARTNERSHIP The happening of any one of the following events shall work an immediate dissolution of the Partnership: 19.1 The sale or other disposition of all or substantially all of the assets of the Partnership; 19.2 The affirmative vote for dissolution of the Partnership by Partners having at least Seventy Five (75%) percent of the aggregate Partnership Percentages; 19.3 The Bankruptcy or Incapacity of any Partner; provided that the remaining Partners shall continue the business of the Partnership within the meaning of Nevada Revised Statutes ss.425 unless the Partnership is dissolved under subparagraph 19.2 above; 19.4 The expiration of the term of the Partnership, as provided in Article 6 above; or. 19.5 The termination of the Joint Agreement. ARTICLE 20. WINDING UP, TERMINATION, AND LIQUIDATING DISTRIBUTIONS 20.1 WINDING UP: PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 17 GENERAL PARTNERSHIP AGREEMENT Page 14 If the Partnership is dissolved on account of the occurrence of an event described in Article 19 above, and its business is not continued under Paragraph 20.3, the Partners or their successors shall commence to wind up the affairs of the Partnership and to liquidate the Partnership's assets. The Partners shall continue to share profits and losses during the period of liquidation in accordance with Paragraph 10. Following the occurrence of any of the events set forth in Paragraph 19 the Partners shall determine whether the assets of the Partnership are to be sold or whether the assets are to be distributed to the Partners. If assets are distributed to the Partners, all such assets shall be valued at their then fair market value as determined by the Partners and the difference, if any, of the fair market value over (or under) the adjusted basis of such property to the Partnership shall be credited (or charged) to the Capital Accounts of the Partners in accordance with the provisions of Paragraph 10. Such fair market value shall be used for purposes of determining the amount of any distribution to a Partner pursuant to Paragraph 20.2. If the Partners are unable to agree on the fair market value of any asset of the Partnership, the fair market value shall be the average of two appraisals, one prepared by a qualified appraiser selected by Partners having fifty percent (50%) or more of the aggregate Partnership Percentages, and the other selected by the remaining Partners. 20.2 DISTRIBUTIONS: Subject to the right of the Partners to set up such cash reserves as may be deemed reasonably necessary for any contingent or unforeseen liabilities or obligations of the Partnership, the proceeds of the liquidation and any other funds of the Partnership shall be distributed: (a) To creditors, in the order of priority as provided by law except those liabilities to Partners in their capacities as Partners; (b) To the Partners for loans, if any, made by them to the Partnership, or reimbursement for Partnership expenses paid by them; (c) To the Partners in proportion to their respective Capital Accounts until they have received an amount equal to their Capital Accounts immediately prior to such distribution, but after adjustment for gain or loss with respect to the disposition of the Partnership's assets incident to the dissolution of the Partnership and the winding up of its affairs, whether or not the disposition occurs prior to the dissolution of the Partnership; and (d) To the Partners in accordance with their Partnership Percentages. 20.3 DEFICIT ACCOUNT RESTORATION: If, upon the dissolution and liquidation of the Partnership, after crediting all income upon sale of the Partnership's assets that have been sold and after making the allocations provided for in Paragraph 20.1, any Partner has a negative Capital Account, then the Partner shall be obligated to contribute to the Partnership an amount equal to the negative PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 18 GENERAL PARTNERSHIP AGREEMENT Page 15 Capital Account for distribution to the creditors, or to Partners with positive Capital Account balances, in accordance with this Paragraph. 20.4 FINAL REPORTS: Within a reasonable time following the completion of the liquidation of the Partnership's properties, the Partners shall be provided with a statement that shall set forth the assets and liabilities of the Partnership as of the date of the complete liquidation, each Partner's portion of distributions pursuant to Paragraph 20.2, and the amounts paid to the Partner pursuant to Paragraph 20.2. 20.5 TERMINATION: Upon the completion of the liquidation of the Partnership and the distribution of all Partnership funds, the Partnership shall terminate. ARTICLE 21. WAIVER OF PARTITION Each Partner hereby waives any right to partition or the right to take any other action which might otherwise be available to such Partner for the purpose of severing such Partner's relationship with the Partnership or such Partner's interest in the assets and properties held by the Partnership from the interest of the other Partners until the dissolution of the Partnership. ARTICLE 22. NOTICES All notices and demands required or permitted under this Agreement shall be in writing and may be sent by certified or registered mail or similar delivery service, postage prepaid, to the Partners at their addresses as shown from time to time on the records of the Partnership, and shall be deemed given when mailed or delivered to the service. ARTICLE 23. GOVERNING LAWS This Agreement and the rights of the parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Nevada. ARTICLE 24. EFFECT Except as herein otherwise specifically provided, this Agreement shall be binding upon and inure to the benefit of the parties and their legal representatives, heirs, personal representatives, administrators, executors, successors, and assigns. ARTICLE 25. PRONOUNS AND NUMBER Whenever it appears appropriate from the context, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in either the masculine, the feminine or the neuter gender shall include the masculine, feminine and neuter. PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 19 GENERAL PARTNERSHIP AGREEMENT Page 16 ARTICLE 26. CAPTIONS Captions or Paragraph headings contained in this Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of this Agreement or any provision hereof. ARTICLE 27. PARTIAL ENFORCEABILITY If any provision of this Agreement, or the application of the provision to any person or circumstance shall be held invalid, the remainder of this Agreement, or the application of that provision to persons or circumstances other than those with respect to which it is held invalid, shall not be affected thereby. ARTICLE 28. COUNTERPARTS This Agreement may be executed in several counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. This Agreement may contain more than one counterpart of the signature page and may be executed by the affixing of the signatures of each of the Partners to one of these counterpart signature pages. All the counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. IN WITNESS WHEREOF, the undersigned has executed this Agreement this 1st day of July, 1997. DAP/LUBECO CORP. By /s/ William C. Perkins -------------------------------------- William C. Perkins, as its President LUBECO MANAGEMENT, INC. By /s/ Kirby Ashby -------------------------------------- , as its VP -------------- --------------- PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 20 GENERAL PARTNERSHIP AGREEMENT Page 17 SCHEDULE A MASTER JOINT BUSINESS AGREEMENT PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION 21 GENERAL PARTNERSHIP AGREEMENT Page 18 SCHEDULE B PARTNERSHIP UNITS AND PERCENTAGES The Initial Partnership Percentages of the Partners and Units to be owned by each such Partner shall be the following percentages:
Name of Partners Units Percentage Initial Contribution ---------------- ----- ---------- -------------------- Lubeco Management, 49 49% $49,000.00 Inc. DAP/LUBECO 51 51% $51,000.00 Corp.
PATRICIA L. BROWN & ASSOCIATES A PROFESSIONAL LAW CORPORATION EX-13 9 ANNUAL REPORT 1 EXHIBIT 13 Discount Auto Parts, Inc. 1997 Annual Report [ART WORK] [Representation of a car side mirror reflecting exterior of store location for Discount Auto Parts] 2 YEARLY GROWTH Net Sales Income from Operations (in thousands) (in thousands) [GRAPH] [GRAPH] Number of Stores Team Members [GRAPH] [GRAPH] 3 TABLE OF CONTENTS Discount Auto Parts is one of the Southeast's leading specialty retailers of automotive replacement parts, maintenance items and accessories primarily for the "Do-It-Yourself" (DIY) consumer. As of June 3, 1997, Discount Auto Parts operated 400 stores, of which 327 were located in Florida, 49 in Georgia, 16 in Alabama, 4 in South Carolina and 4 in Mississippi. Each Discount Auto Parts store carries an extensive line of replacement hard parts for domestic and import cars, as well as accessories, chemicals, motor oils and other mainteneance items. Letters to Shareholders and Team 2 Five Year History 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Consolidated Statement of Income 14 Consolidated Balance Sheets 15 Consolidated Statements of Stockholders' Equity 16 Consolidated Statements of Cash Flows 17 Notes to Consolidated Financial Statements 18 Management's Report on Financial Statement and Internal Controls 26 Report of Independent Certified Public Accountants 27 Corporate Information 28
1 4 TO OUR SHAREHOLDERS AND TEAM: Once again the Discount Auto Parts Team has set records in sales, operating profits and increased market share. We implemented a number of revolutionary systems and have set the stage for more to come. You may be wondering what we are planning for the upcoming year. Well, we plan to make several additional changes in the way we do business. Why change? After all, given our history of success, it would be easy to settle for the status quo, to continue doing things the way we have always done them. But that is not the stuff we're made of here at Discount Auto Parts. Besides, for the Discount Auto Parts Team, the status quo has always involved seeking out new and better ways of doing business, trying our new ideas, running with the ones that work and refusing to institutionalize our mistakes. At Discount Auto Parts, we have always been willing to change our systems, change our markets, and change the way we do business -- what we are not willing to change -- what has always stayed constant in this Company, is our core values. We believe in our people. "First you build the Team, then the Team builds the business. There is no other way." We believe in training and supporting our Team and providing them with opportunities to grow with our Company. We believe that our Team is the source of new ideas and it is the Team that provides the added value our Customers have the right to expect from us. We believe in being the low cost producer and providing excellent value to our Customers. Discount Auto Parts is strong today because our Team is committed to enhancing our technology, to expanding within its existing markets and boldly moving into new ones. This commitment to new technology, expansion and growth adds up to one thing -- change. And it is around our core values that the whirlwinds of change spin. At Discount Auto Parts the purpose of change is to support our values. In the areas of Team development, customer service and new ideas we believe: "There is always a better way." [Photos of Peter J. Fontaine & William C. Perkins] 2 5 Our core values served us well in fiscal year 1997. Discount Auto Parts opened a record 86 stores during the year, representing a growth rate of 27 percent, one of the highest in the auto parts industry. With our recent entrance into the Mississippi market, we now operate in five states. During fiscal year 1997 we reached a new milestone as we opened our 400th store. We also continue to be the dominant force in the Florida marketplace. ENHANCED TECHNOLOGY. This year, Discount Auto Parts is putting the pedal to the metal with a number of new systems and enhanced technology, all designed to foster our growth and expansion throughout the Southeast. For example, within the next year, our Company expects to complete the roll-out of a new, state-of-the-art inventory management information system. This new system should enable our Team to quickly and easily access almost any part from any of our stores or suppliers and thus better serve our customers. The new system will include frame relay technology and a perpetual inventory software. It is designed to tell us what is selling, where it is selling and when it is selling. When completed, the new system should allow us to tailor our store inventories for the markets they serve. Better inventory control, reduction of over-stocked items, and identification of slower moving products are all designed to result in higher customer satisfaction and increased profits. At the same time, our team will have on-line access not only to our expanding distribution center and other Discount Auto Parts stores, but also to a number of independent parts warehouses across the country. We want to make sure customers needing hard to find speciality parts know they can depend on the Discount Auto Parts Team. Enhanced Technology Provides Additional Parts Availability [Photo of a team member looking at a computer screen] 3 6 EXPANSIONS IN CURRENT AND NEW MARKETS Throughout the upcoming year we plan to continue our strategy of expanding into new markets and, at the same time, clustering our stores in existing urban markets. We will continue supporting these stores with our distribution center and depot stores and we will begin selected additions to our Company's new express store concept. Our Team developed the express store concept during fiscal 1997 and testing began in the Orlando and Tampa markets. Express stores are designed to serve as local mini-warehouses for all of the nearby Discount Auto Parts stores. They should allow nearby stores to focus on faster moving items while having a quick and ready source of supply for a wider product selection. We are pleased with the benefits we have seen in fiscal 1997 from our first two express stores. Indeed, we believe our continued growth, combined with the advanced use of technology, sets the stage for the expansion of our express stores during the coming fiscal year. Discount Auto Parts' express stores are designed to allow the Company to offer our new and existing retail customers an even wider selection of parts at low competitive prices. At the same time they lay the foundation as we expand our customer base to include new commercial customers. Our express stores should allow us to make available to these commercial customers a wide product selection with the quickest possible delivery at competitive prices. To further support our planned expansion into serving commercial customers and to serve more stores with more parts, we recently began construction on an expansion of our distribution center. Scheduled for completion during the summer of 1998, the expanded distribution center will double our present capacity. EXPANSION OF OUR LEADERSHIP TEAM With Bill's appointment to the position of President in February of this year, the two of us are now positioned to head up the charge in the coming years. We are confident that our extensive years of experience with 4 [Photo of Store # 110 Brandon, FL With Adjacent Q-Lube Service Center] 7 the Company, not to mention our respective hands on experience with every aspect of the business, serve as living examples of the Company's core values at work and as models for our Team. Nevertheless, while the two of us remain firmly committed to our Team, to the Company and to the Company's vision for long-term growth and success, we recognize that it is the Team that will make it all happen. We rely on our Team for new ideas and support. New ideas have always been the root of our success and our Team is our primary source of new ideas. As a result, Discount Auto Parts has consistently been among the leaders in volume of sales per Team member in our industry. By emphasizing training and rewarding Team members who produce better results, we have attracted, trained and retained quality individuals who are the envy of our competitors and are the trusted technical advisors of our Customers. GROWTH AND PERFORMANCE IN FISCAL 1997 Sales growth in fiscal 1997 from our core operations remained strong at over 22 percent, and our operating income grew as well. However, the Company's decision to expand its volume of commercial sales of refrigerant products proved to be a quite costly one. In February 1997, certain of the refrigerant product sales were the subject of a lawsuit brought against us by Airgas, Inc. and certain of its affiliates. As we announced in late July, and as reflected in our fiscal 1997 financial statements, we decided to settle this lawsuit at a pre-tax cost of approximately $20.5 million (including legal and related expenses), causing a $12.6 million reduction in fourth quarter net income. In our press release concerning the settlement we described why the decision to settle, although a difficult one and one made reluctantly, was the prudent economic decision, and, in the end, in the Company's best interest. 5 [Photo of 305,000 Sq. Ft. Distribution Center With Additional 300,000 Sq. Ft. Planned] 8 There are still certain approvals that we need to secure in order to tie up loose ends on this settlement, but we are optimistic these will be obtained shortly. In the meantime, the Team is hard at work directing its energies toward the future, with its vision for that future firmly in place. THE TEAM CONTINUES TO BUILD THE BUSINESS We continue investing in our Team because they have made this Company successful. By upgrading our technology, our ultimate goal is to enable our Team members to better serve our Customers. We work hard to insure that our Team Members are the "pros you know". We want to make certain that our Customers can trust our Team to help them overcome their automotive challenges. Our founders, Denis, Herman and Marie Fontaine, laid the foundation for this Company 26 years ago with the philosophy, "First you build the Team, then the Team builds the business." That foundation today remains as rock solid and unwavering as ever. We believe in training; we believe in support; and we believe in providing our Team with the tools, career opportunities and specific knowledge to help them grow and nurture Discount Auto Parts, as a Team. Change for the sake of change isn't always productive. Change for the sake of better customer service, enabled by new information technology and carefully thought out new marketing objectives, is vital to the continued growth and success of our business. We believe we have our vision laser focused. Peter J. Fontaine Chairman and Chief Executive Officer William C. Perkins President and Chief Operating Officer [Photo of Standard Prototype Store] 6 9 5 YEAR HISTORY
FISCAL YEAR ENDED --------------------------------------------------------------------- June 3 May 28 May 30 May 31 June 1 1997(1) 1996 1995 1994 1993 --------------------------------------------------------------------- (in thousands, except per share data and selected operating data) INCOME STATEMENT DATA Net sales $ 405,186 $ 307,476 $ 253,700 $ 207,569 $ 176,786 Cost of sales, including distribution costs 256,646 186,917 158,710 131,469 111,782 ----------- --------- ---------- ---------- ---------- Gross profit 148,540 120,559 94,990 76,100 65,004 Selling, general and administrative expenses 101,336 80,090 64,081 49,985 43,227 ----------- --------- ---------- ---------- ---------- Income from operations 47,204 40,469 30,909 26,115 21,777 Litigation settlement (20,545) - - - - Other income 187 1,164 1,133 799 519 Gain on life insurance proceeds - - 4,836 - - Interest expense (6,125) (5,078) (6,295) (3,635) (3,401) ----------- --------- ---------- ---------- ---------- Income before income taxes 20,721 36,555 30,583 23,279 18,895 Income taxes 7,980 14,092 10,020 8,962 5,272 ----------- --------- ---------- ---------- ---------- Net income $ 12,741 $ 22,463 $ 20,563 $ 14,317 $ 13,623 =========== ========= ========== ========== ========== Net income per share $ .77 $ 1.44 $ 1.48 $ 1.03 =========== ========= ========== ========== Weighted average number of shares 16,581 15,647 13,907 13,954 PRO FORMA DATA Pro forma net income (2) $ 11,919 Pro forma net income per share (2) ========== $ .91 ========== Weighted average number of shares 13,127 SELECTED OPERATING DATA Number of stores at year end 400 314 248 208 175 Total square footage at year end (in thousands) (3) 1,836 1,610 1,405 1,197 934 Average net sales per store (in thousands) (4) $ 1,023 $ 1,094 $ 1,113 $ 1,084 $ 1,062 Average net sales per square foot (4,5) $ 212 $ 204 $ 195 $ 195 $ 206 Percentage increase (decrease) in comparable store net sales (5,6) (.6)% 4.9% 5.8% 4.0% 14.6% Team members 3,677 3,148 2,826 2,172 1,806 BALANCE SHEET DATA Inventories $ 151,644 $ 111,408 $ 91,187 $ 59,581 $ 49,497 Working capital 80,573 59,801 46,420 34,055 33,824 Property and equipment, net 265,589 208,094 166,169 131,893 89,318 Total assets 443,066 338,263 270,832 213,174 159,079 Long-term debt, excluding current maturities 114,117 50,400 94,550 70,118 42,021 Stockholders' equity 229,061 216,046 117,895 97,214 82,815
(1) Fiscal year 1997 consisted of 53 weeks, all other years reported consisted of 52 weeks. (2) For all periods prior to September 1992, the Company was an S Corporation for federal and state income tax purposes and, accordingly, was not subject to corporate income taxes. The pro forma information has been computed as if the Company were subject to corporate income taxes for all periods presented, based on the tax laws in effect during the respective periods. (3) Net square footage includes only selling and merchandising space. (4) Average net sales per store and average net sales per square foot are based on the average of beginning and ending number of stores and store square footage. For fiscal 1997, average net sales per store and average net sales per square foot have been adjusted to exclude the effect of the fifty-third week. (5) The amounts shown for fiscal 1997 exclude commercial sales of air conditioning products, such as freon. If these commercial sales of freon were to have been included, the average net sales per store, average net sales per square foot and the increase in comparable store sales for fiscal 1997 would have been $1,115,000, $231 and 9.7%, respectively. (6) Comparable store net sales data are calculated based on the change in net sales of all stores open at the beginning of the preceding fiscal year. The decrease for fiscal 1997 has been adjusted to exclude the effect of the fifty-third week. 7 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the income statement data and the percentage of the Company's net sales represented by each line item presented:
Fiscal Year Ended --------------------------------------------------------------- June 3 May 28 May 30 1997 % 1996 % 1995 % --------------------------------------------------------------- (dollars in thousands) Net sales $ 405,186 100.0% $ 307,476 100.0% $253,700 100.0% Cost of sales, including distribution costs 256,646 63.3 186,917 60.8 158,710 62.6 --------------------------------------------------------------- Gross profit 148,540 36.7 120,559 39.2 94,990 37.4 Selling, general and administrative expenses 101,336 25.0 80,090 26.0 64,081 25.2 --------------------------------------------------------------- Income from operations 47,204 11.7 40,469 13.2 30,909 12.2 Litigation settlement (20,545) (5.1) - - - - Other income, net 187 - 1,164 .4 1,133 .4 Gain on life insurance proceeds - - - - 4,836 2.0 Interest expense (6,125) (1.5) (5,078) (1.7) (6,295) (2.5) --------------------------------------------------------------- Income before income taxes 20,721 5.1 36,555 11.9 30,583 12.1 Income taxes 7,980 2.0 14,092 4.6 10,020 4.0 --------------------------------------------------------------- Net income $ 12,741 3.1% $ 22,463 7.3% $ 20,563 8.1% ==================== ==================== ===============
FISCAL 1997 COMPARED TO FISCAL 1996 Net sales for the fifty-three week period ended June 3, 1997 increased by $97.7 million, or 31.8%, over net sales for the fifty-two week period ended May 28, 1996. Of this increase, $30.0 million represented additional revenues associated with commercial sales of R-12 freon. Net sales for the fifty-three weeks ended June 3, 1997 from the Company's core retail store operations increased $67.7 million or 22.2% over the fifty-two week period ended May 28, 1996. Comparable store sales from the Company's core retail store operations decreased by .6% for the fifty-three week period ended June 3, 1997 on a comparable week basis, when excluding commercial sales of R-12 freon. When including such sales, comparable store sales increased 9.7% for the fifty-three week period ended June 3, 1997 on a comparable week basis as compared to the fifty-two week period ended May 28, 1996. The remaining increase in net sales from the Company's core operations was attributable to approximately $84.0 million in sales from new stores opened since the beginning of fiscal 1996. At June 3, 1997, the Company had 400 stores in operation compared to 314 at the end of fiscal 1996. Gross profit for the fifty-three week period ended June 3, 1997 was $148.5 million, or 36.7% of net sales compared with $120.6 million, or 39.2% of net sales, for fiscal 1996. The lower gross profit percentage for fiscal 1997 was primarily the result of increased revenues associated with commercial sales of R-12 freon, which tend to have lower gross margins as a result of the commodity nature of the product. Excluding the impact of the commercial R-12 freon sales in fiscal 1997, the fiscal 1997 gross profit percentage was 38.0%. The reduction in the fiscal 1997 traditional DIY gross profit percentage is primarily the result of the continuing effects of the decrease in retail pricing which occurred late in the fourth quarter of fiscal 1996 and higher promotional markdowns which resulted from increased advertising efforts during the second half of the year. Although management is currently undertaking efforts to improve gross margins, some of the facts contributing to the drop in the Company's gross profit percentage can be expected to continue to impact the Company's gross profit percentage in a similar fashion into the foreseeable future. Selling, general and administrative expenses for fiscal 1997 increased by $21.2 million over such expenses for fiscal 1996, and decreased as a percentage of net sales to 25.0% from 26.0%. This decrease was primarily the result of the impact of the increased commercial sales of R-12 freon in fiscal 1997, which have relatively low SG&A expenses. The decrease was offset in part by an increase in net advertising expense. 8 11 As further discussed in Note 9 of the Notes to Consolidated Financial Statements, the Company reached an agreement in July 1997 to settle a lawsuit brought by Airgas, Inc. and certain Airgas affiliates against several defendants, including the Company and one of its employees. As a result of the settlement, the Company recorded a charge of $20.5 million in the fourth quarter of fiscal 1997. The charge reflects the payments to be made pursuant to the terms of the actual settlement plus associated legal and professional fees. Because of the involvement of the Refrigeration Station, Inc. bankruptcy estate and the JLM Enterprises bankruptcy estate in the settlement, the entire settlement is contingent upon bankruptcy court approval, which is expected to be addressed by the bankruptcy court at proceedings to be held in September of this year. Although there can be no assurance, the Company anticipates that the courts in each of the bankruptcies will approve the terms of the settlement. Other income primarily includes gains and losses on real estate disposals and interest income. The decrease in fiscal 1997 other income is primarily attributable to the lower amount of net real estate gains of approximately $100,000 in fiscal 1997 as compared to $1.5 million of net real estate gains in fiscal 1996. Interest expense for fiscal 1997 was $6.1 million compared to $5.1 million in fiscal 1996. The increase in interest expense was primarily the result of an increase in average borrowings associated with new store growth. The Company's effective tax rate for fiscal 1997 was 38.5% as compared with 38.6% in fiscal 1996. After reflecting the charge associated with the Airgas litigation settlement, net income for fiscal 1997 was $12.7 million or $.77 per share as compared to $22.5 million or $1.44 per share reported for fiscal 1996. Excluding the impact of the litigation settlement and all related expenses, net income would have been $25.6 million or $1.54 per share for fiscal 1997. In addition to the impact of the settlement, net income and net income per share for fiscal 1997 were also impacted in significant respects by the decrease in the gross profit percentage, the increase in interest expense associated with increased borrowings, and the reduction in other income. FISCAL 1996 COMPARED TO FISCAL 1995 Net sales for fiscal 1996 increased by $53.8 million, or 21.2%, over net sales for fiscal 1995. This increase was the result of (1) an increase in net sales of $42.0 million attributable to stores opened since the beginning of fiscal 1995, and (2) a comparable store sales increase of 4.9%. At May 28, 1996, the Company had 314 stores in operation compared to 248 at the end of fiscal 1995. Gross profit for fiscal 1996 was $120.6 million, or 39.2% of net sales, compared with $95.0 million, or 37.4% of net sales, for fiscal 1995. The increase in gross profit percentage resulted primarily from overall lower merchandise cost, which was partially due to increased vendor incentives. In addition, the Company continued to experience an increase, as a percentage of net sales, in sales of replacement hard parts of a type which generally carried higher gross profit margins. This increase was offset in part by the Company's continued commitment to maintaining its everyday low price policy, and the resultant lower gross profit margins on certain product categories. Selling, general and administrative expenses for fiscal 1996 increased by $16.0 million over such expenses for fiscal 1995, and increased as a percentage of net sales to 26.0% from 25.2%. The increase was primarily due to expenses associated with team member benefits, including the 9 12 continued emphasis in training, and increased depreciation expense associated with new store additions. For both fiscal 1996 and 1995, gross advertising expense was substantially offset by vendor cooperative advertising allowances. Net advertising expense is included as a component of selling, general and administrative expenses. Interest expense for fiscal 1996 was $5.1 million compared to $6.3 million in fiscal 1995. The decrease in interest expense was the result of lower average interest rates and the overall reduction in average borrowings as a result of the net proceeds received from the Company's secondary common stock offering in October 1995. The reduction in borrowings as a result of the secondary offering, was partially offset by subsequent borrowings for new store additions. The Company's effective tax rate for fiscal 1996 was 38.6% as compared with 38.9% in fiscal 1995, after excluding the nontaxable $4.8 million gain from life insurance proceeds. As a result of the above factors, net income increased to $22.5 million in fiscal 1996 from $15.7 million in fiscal 1995 (after excluding the non-taxable life insurance proceeds of $4.8 million). LIQUIDITY AND CAPITAL RESOURCES The Company's primary capital requirements have been the funding of new store openings, store renovation and expansion, the resultant increase in inventory requirements and expansions and upgrades to its distribution facility. Capital expenditures, principally relating to new stores and store renovation, were $70.2 million in fiscal 1997, $52.2 million in fiscal 1996 and $42.3 million in fiscal 1995. From the beginning of fiscal 1995 to the end of fiscal 1997, the Company opened 192 stores and replaced or substantially renovated 31 stores. The Company opened 86, 66 and 40 new stores during fiscal years 1997, 1996 and 1995, respectively. Total merchandise inventories increased by approximately $92.1 million from the beginning of fiscal 1995 to the end of fiscal 1997. The Company has financed this growth through a combination of internally generated funds, borrowings, sales of common stock and trade credit. The Company plans to open 70 to 90 new stores during fiscal 1998, as well as replace or expand certain other stores. In addition, preliminary site work has begun on a significant expansion of the Company's existing distribution center in Lakeland, Florida. The distribution center is expected to be doubled in size from its current size of approximately 300,000 square feet to approximately 600,000 square feet, with completion expected in early fiscal 1999. The total cost of the expansion, which includes some additional office space, is estimated to be approximately $15 million to $18 million. The Company also anticipates that it will begin the roll-out of a commercial delivery service in mid-fiscal 1998. The Company's commercial delivery service is expected to consist of a program whereby commercial customers (such as auto service centers, commercial mechanics, garages and the like) can establish commercial accounts with the Company and order automotive parts from the Company and such parts will be delivered from, or can be picked up from, nearby Discount Auto Parts stores. The Company expects that its entry into the commercial delivery market will require capital investments of approximately $3 million to $5 million over the next 12 to 24 months. In addition, the commercial delivery program can be expected to require the Company to extend trade credit to certain of the commercial account customers as part of the ordinary course of this business. The extension of such trade credit will increase the capital requirements associated with the rollout of the program and will expose the Company to credit risk from uncollectible accounts. The Company is in the process of establishing systems to manage and control such credit risk. The amount of capital that will be needed to cover extension of trade credit will be dependent in large part upon the success of the commercial delivery service rollout and how quickly the commercial business develops. The Company anticipates that total capital expenditures for fiscal 1998 including the costs associated with the distribution center expansion and the working capital costs associated with the rollout of the commercial delivery service, will be in the range of $70 million to $85 million. For fiscal 1997, net cash of $8.7 million was provided by the Company's operations versus $22.8 million for fiscal 1996 and $.6 million in fiscal 1995. During fiscal 1997, cash flows from operating activities were positively impacted by earnings from operations (exclusive of the effects of 10 13 the accrued litigation settlement), depreciation, and an increase in accounts payable. These positive impacts were offset in part by an increase in inventories resulting primarily from new store growth and from a $7.5 million increase in R-12 freon inventory held in the distribution center and an increase in prepaid expenses and other current assets. The Company has historically been able to finance most of its new store growth through unsecured lines of credit and medium and longer mortgage financing provided by banks and other institutional lenders, and through cash flow from operations. As further discussed in Note 3 of the Notes to Consolidated Financial Statements, effective July 16, 1997, the Company entered into a new three year $175 million unsecured revolving credit facility with a syndication of banks. The new agreement replaces the three previous facilities which aggregated $150 million. The Company also has the ability to increase the size of the facility to $200 million with the consent of the bank syndication. Effective August 8, 1997, the Company also completed the placement of a separate $50 million senior term note facility with a ten year term and an 8.5 year average maturity. The net proceeds from the senior term notes were used to reduce the borrowings under the revolving credit facility, thus effectively increasing the Company's overall borrowing availability under the revolving credit facility. As of August 8, 1997, the Company had approximately $108.3 million of additional borrowing availability under its $175 revolving credit facility. Consistent with its historical practice, the Company expects to finance both its short and long term liquidity needs fro new store growth, as to land and buildings, primarily through its revolving credit facility and mortgage financing (and renewals and replacements thereof), and as to equipment and fixtures, primarily through cash flow from operations. The Company considers a portion of the borrowings under the $50 million term note facility to be the source of financing for the distribution center; however, because the term note borrowings were actually used to pay down borrowings under the revolving credit facility, the Company expects to actually fund for the costs of the distribution center expansion through draws against the revolving credit facility. The Company's new store development program also requires significant working capital, principally for inventories. The Company has historically used trade credit to partially finance new store inventories and has been successful in negotiating extended payment terms and incentives from many suppliers through volume purchases. The Company believes that it will be able to continue financing much of its inventory growth through the extension of favorable payment terms and incentives from its vendors, but there can be no assurance that the Company will be successful in doing so. The additional funding for inventory associated with store expansion has been provided in large part from cash flow from operations. As of June 3, 1997, 35 or 8.8% of the Company's stores were leased. The Company anticipates similar own/lease percentage relationships for new stores in fiscal 1998. As further described in Note 9 of the Notes to Consolidated Financial Statements, the Company reached an agreement to settle the lawsuit brought by Airgas and certain Airgas affiliates. Under the terms of the settlement agreement, the Company will be required to make cash payments aggregating approximately $18.5 million. The settlement agreement is subject to bankruptcy court approval, which is expected to be addressed by the bankruptcy court at proceedings to be held in September of this year. The money to fund the settlement will come from a portion of the Company's available borrowing capacity under its revolving credit facility. The payments to be made are expected to be deductible for income tax purposes in fiscal 1998, thus effectively reducing the Company's borrowings requirements on the $18.5 million of payments by approximately $7.1 million. The Company believes that the expected cash flows from operations, available bank borrowings and trade credit, will be sufficient to fund both short term and long term capital and liquidity needs of the Company. 11 14 INFLATION AND SEASONALITY The Company does not believe its operations have been materially affected by inflation. The Company has been successful, in many cases, in reducing the effects of merchandise cost increases principally by taking advantage of vendor incentive programs, economies of scale resulting from increased volumes of purchases, and selective forward buying. Although sales have historically been somewhat higher in the Company's fourth fiscal quarter (March through May), the Company does not consider its business to be seasonal. FORWARD LOOKING STATEMENTS The Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Annual Report to Shareholders contain forward looking statements that are based on the current expectations, estimates and projections about the industry in which the Company operates, management's beliefs and the assumptions made by management. These statements include the words "anticipates", "expects", "expected", "plans" and "believe", variations of such words, and similar expressions which are intended to identify such forward looking statements. These forward looking statements are subject to potential risks and uncertainties that could cause actual results to differ materially from historical results or those currently anticipated. The future operating results of the Company may be affected by a number of factors, including without limitation the following: COMPETITION The Company operates in a highly competitive marketplace (particularly in Florida), in which it competes primarily with national and regional auto parts chains, wholesalers or jobber stores (some of which are associated with national auto parts distributors or associations), automobile dealers and mass merchandisers that carry automotive replacement parts, products and accessories. Some of the Company's current and potential competitors are larger and have greater financial resources than the Company. STORE GROWTH An important part of the Company's business plan is an aggressive store growth strategy. There can be no assurance that the Company will be able to identify, lease and/or acquire favorable store sites, hire and train team members, and adapt its management and operational systems to the extent necessary to fulfill its expansion plans. The failure to open new stores in accordance with its growth plans could have an adverse impact on the Company's future performance. EARNINGS GROWTH The Company has experienced and may experience in the future fluctuations in its quarterly operating results. Moreover, there can be no assurance that Discount Auto Parts will be able to realize sales and earnings growth in any particular quarter consistent with the past or with investors' expectations. Factors such as the number of new store openings, the extent to which new stores "cannibalize" sales of existing stores, the mix of products made available to customers and the mix of products sold, pricing actions of competitors, the level of advertising and promotional expenses, market demand for auto parts, availability of inventory supply, adequacy and perception of customer service, product quality and defect experience, availability of and ability to take advantage of vendor pricing programs and incentives, sourcing availability, governmental regulation of products, performance of information systems, and effectiveness of deliveries from the distribution center could contribute to this quarterly variability. 12 15 EFFECTIVE UPGRADING OF SYSTEMS The growth in the Company's business has placed significant demand on the management and operational systems of the Company. To manage its growth effectively, the Company will be required to continue to upgrade its operational and financial systems, expand its management team and increase and manage its team members. There can be no assurance that such upgrades and expansions will be effectuated successfully, on a timely basis and/or without disruption. DISPUTES AND INVESTIGATIONS In the normal course of business, the Company is subject to regulations, proceedings, lawsuits, claims and other matters, including matters under laws and regulations related to the environment and health and safety, among others. In particular, certain federal investigations are currently ongoing with respect to the matters which were the subject of the Company's recently settled litigation with Airgas and certain Airgas affiliates. These matters and any other matters that may be pending or may arise in the future are subject to the resolution of many uncertainties, and accordingly, outcomes are not predictable with any assurance. Although the Company believes that amounts provided in its financial statements and in reserves are currently adequate in light of the probable and estimable liabilities, there can be no assurance that the amounts required to discharge alleged liabilities from lawsuits, claims and other legal proceedings will not impact future operating results. VENDOR RELATIONSHIPS The Company's business is dependent upon close relationships with its vendors and its ability to purchase products from these vendors at favorable prices and on favorable terms, including those offered through financial incentives such as cooperative advertising arrangements and other marketing incentive programs and non-financial benefits such as improved packaging and distribution accommodations. A disruption of these vendor relationships, or a material reduction in the overall advertising and other marketing incentive programs could adversely affect the Company's business. LIQUIDITY The Company's business continues to be capital intensive. It continues to be the Company's preference to own rather than lease its store locations. Additionally the expansion of the Company's headquarters and main distribution facility and the continued plans for upgrading its information systems to more efficiently run the business will continue to require capital. Accordingly, the Company will require substantial capital expenditures to fund these items during the next several years in order to achieve its operating and expansion plans. Although the Company believes that its existing credit facilities coupled with anticipated cash flow from operations will be sufficient to fund the Company's anticipated capital expenditures over the next several years, there can be no assurance that such amounts will be sufficient, or if insufficient, that the Company will be able to obtain additional financing on acceptable terms. 13 16 CONSOLIDATED STATEMENTS OF INCOME
Fiscal Year Ended June 3 May 28 May 30 1997 1996 1995 ------------------------------------------------- (in thousands, except per share amounts) Net sales $ 405,186 $ 307,476 $253,700 Cost of sales, including distribution costs 256,646 186,917 158,710 --------- --------- -------- Gross profit 148,540 120,559 94,990 Selling, general and administrative expenses 101,336 80,090 64,081 --------- --------- -------- Income from operations 47,204 40,469 30,909 Litigation settlement (20,545) -- -- Other income, net 187 1,164 1,133 Gain on life insurance proceeds -- -- 4,836 Interest expense (6,125) (5,078) (6,295) --------- --------- -------- Income before income taxes 20,721 36,555 30,583 Income taxes 7,980 14,092 10,020 --------- --------- -------- Net income $ 12,741 $ 22,463 $ 20,563 ========= ========= ======== Net income per share $ .77 $ 1.44 $ 1.48 ========= ========= ======== Weighted average number of shares 16,581 15,647 13,907 ========= ========= ========
See Accompanying Notes. 14 17 CONSOLIDATED BALANCE SHEETS
June 3 May 28 1997 1996 ---------------------------- (in thousands, except per share amounts) ASSETS Current assets: Cash and cash equivalents $ 6,409 $ 8,551 Inventories 151,644 111,408 Prepaid expenses and other current assets 12,332 9,197 Deferred income taxes 6,312 -- --------- -------- Total current assets 176,697 129,156 Property and equipment 316,315 247,021 Less allowances for depreciation and amortization (50,726) (38,927) --------- -------- 265,589 208,094 Other assets 780 1,013 --------- -------- Total assets $ 443,066 $338,263 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 63,753 $ 53,055 Note payable to bank -- 5,000 Accrued salaries, wages and benefits 6,035 4,262 Litigation settlement 20,400 -- Deferred income taxes -- 1,334 Other current liabilities 3,536 3,304 Current maturities of long-term debt 2,400 2,400 --------- -------- Total current liabilities 96,124 69,355 Deferred income taxes 3,764 2,462 Long-term debt 114,117 50,400 Stockholders' equity: Preferred stock, $.01 par value, 5,000 shares authorized, none issued or outstanding -- -- Common stock, $.01 par value, 50,000 shares authorized, 16,594 and 16,575 shares issued and outstanding at June 3, 1997 and May 28, 1996, respectively 166 166 Additional paid-in capital 140,519 140,245 Retained earnings 88,376 75,635 --------- -------- Total stockholders' equity 229,061 216,046 --------- -------- Total liabilities and stockholders' equity $ 443,066 $338,263 ========= ========
See Accompanying Notes. 15 18 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional Preferred ----------------- Paid-In Retained Stock Shares Amount Capital Earnings Total ---------------------------------------------------------------- (in thousands) Balance at May 31, 1994 $ -- 13,905 $ 139 $ 64,465 $32,609 $ 97,213 Stock issued under stock purchase plan 7 -- 119 -- 119 Net income 20,563 20,563 ------- ------ ------- -------- ------- -------- Balance at May 30, 1995 -- 13,912 139 64,584 53,172 117,895 Stock issued under stock purchase and stock option plans 13 -- 273 -- 273 Stock issued in secondary stock offering 2,650 27 75,388 75,415 Net income 22,463 22,463 ------- ------ ------- -------- ------- -------- Balance at May 28, 1996 -- 16,575 166 140,245 75,635 216,046 Stock issued under stock purchase and stock options plans 19 -- 274 -- 274 Net income 12,741 12,741 ------- ------ ------- -------- ------- -------- Balance at June 3, 1997 $ -- 16,594 $ 166 $140,519 $88,376 $229,061 ======= ====== ======= ======== ======= ========
See Accompanying Notes. 16 19 CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended June 3 May 28 May 30 1997 1996 1995 -------- -------- ------- (in thousands) OPERATING ACTIVITIES Net income $ 12,741 $ 22,463 $20,563 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,490 9,936 7,188 Gain on disposals of property and equipment (92) (1,452) (498) Deferred income tax (benefit) expense (6,344) 1,696 1,378 Changes in operating assets and liabilities: (Increase) in inventories (40,236) (20,221) (31,606) (Increase) in prepaid expenses and other current assets (3,135) (2,099) (3,111) Decrease (increase) in other assets 130 (85) 204 Increase in trade accounts payable 10,698 11,749 5,141 Increase in accrued salaries, wages and benefits 1,773 543 1,252 Increase in other current liabilities 232 232 92 Accrued litigation settlement 20,400 -- -- -------- -------- ------- Net cash provided by operating activities 8,657 22,762 603 INVESTING ACTIVITIES Proceeds from sales of property and equipment 397 1,896 1,461 Purchases of property and equipment (70,187) (52,185) (42,296) -------- -------- ------- Net cash used in investing activities (69,790) (50,289) (40,835) FINANCING ACTIVITIES Proceeds from short-term borrowings and long-term debt 89,023 34,000 55,622 Payments of short-term borrowings and long-term debt (30,306) (78,940) (26,510) Net proceeds from secondary offering of common stock -- 75,415 -- Proceeds from other issuances of common stock 274 273 119 -------- -------- ------- Net cash provided by financing activities 58,991 30,748 29,231 Net (decrease) increase in cash and cash equivalents (2,142) 3,221 (11,001) Cash and cash equivalents at beginning of year 8,551 5,330 16,331 -------- -------- ------- Cash and cash equivalents at end of year $ 6,409 $ 8,551 $ 5,330 ======== ======== =======
See Accompanying Notes. 17 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 3, 1997 (Tables in thousands, except per share) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS Discount Auto Parts, Inc. is a specialty retailer of automotive replacement parts, maintenance items and accessories for the "Do-It-Yourself" consumer. As of June 3, 1997, May 28, 1996, and May 30, 1995, the Company operated a chain of 400, 314, and 248 stores, respectively. As of June 3, 1997 327 of the stores were located in Florida, 49 were located in Georgia, 16 in Alabama , four in South Carolina and four in Mississippi. FISCAL YEAR END The Company's fiscal year consists of 52 or 53 weeks ending on the Tuesday closest to May 31. The year ended June 3, 1997 consisted of 53 weeks. The years ended May 28, 1996 and May 30,1995 consisted of 52 weeks. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Discount Auto Parts, Inc. and its subsidiaries (the "Company"). All significant inter-company account balances and transactions have been eliminated in consolidation. At the end of March 1997, the Company entered into a joint business agreement with Q Lube, Inc., a subsidiary of Quaker State Corporation, to jointly develop locations that provide fast lube and automotive maintenance services. The service centers will primarily be located on selected properties owned or leased by the Company that are adjacent to the Company's retail stores. Under the terms of the joint venture agreement, Discount Auto Parts, Inc. owns and controls, through a wholly-owned subsidiary, fifty-one percent of the general partnership that operates the service centers. As of June 3, 1997, there were two service centers in operation. The results of operations for the service centers have been consolidated with those of the Company. INVENTORIES Inventories are reported at the lower of cost or market using the first-in, first-out (FIFO) method. PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation is provided using accelerated and straight-line methods over periods that approximate the assets' estimated useful lives. Maintenance and repairs are charged against operations as incurred. PRE-OPENING COSTS Costs associated with the opening of new stores, which primarily consists of payroll and occupancy costs, are charged against operations as incurred. CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets principally include amounts due from vendors related to cooperative advertising and various incentive programs. ADVERTISING COSTS The Company expenses its share of all advertising costs as incurred. The portion of advertising expenditures which are to be recovered through vendor cooperative advertising and other similar programs are recorded as receivables. Advertising expense, net of vendor rebates, was approximately $2.1 million for fiscal 1997 and was insignificant in fiscal years 1996 and 1995. INCOME TAXES The Company accounts for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. 18 21 FAIR VALUES OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash and cash equivalents, accounts payable and long-term debt. The carrying value of cash and cash equivalents and accounts payable approximate their fair market values. The carrying amount of long-term debt approximates fair market value based on current interest rates. STOCK BASED COMPENSATION The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the quoted market value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB opinion No. 25, "Accounting for Stock Issued to Employees," and accordingly, recognizes no compensation expense for the stock option grants. EARNINGS PER SHARE Net income per share is based on the weighted average number of shares outstanding, excluding the dilutive effect of stock options as their dilutive effect is less than three percent. 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts in the 1996 financial statements have been reclassified to conform with the 1997 presentation. 2. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
June 3, 1997 May 28, 1996 Life (Years) --------------------------------------------- Land $104,103 $ 82,098 Buildings 132,540 106,862 5 - 31.5 Furniture, fixtures and equipment 61,581 48,472 5 - 7 Building and leasehold improvements 3,021 2,927 5 - 31.5 Automotive equipment 3,725 2,796 3 - 7 Construction in progress 11,345 3,866 -------- -------- $316,315 $247,021 ======== ========
Depreciation expense amounted to approximately $12,387,000, $9,815,000 and $7,057,000 for fiscal years 1997, 1996 and 1995, respectively. 3. NOTE PAYABLE AND LONG-TERM DEBT Prior to December 1996, the Company had a $5 million note payable to a bank. The agreement expired in December 1996 and the note was repaid by the Company. Long-term debt consists of the following:
June 3, 1997 May 28, 1996 ------------ ------------ Unsecured revolving loan $ 12,500 $ 5,000 Real estate acquisition and construction lines of credit 92,017 32,200 Senior secured notes 12,000 15,600 --------- -------- 116,517 52,800 Less current maturities (2,400) (2,400) --------- -------- $ 114,117 $ 50,400
========= ======== 19 22 As of June 3, 1997, the Company had an unsecured revolving loan agreement with a bank. The agreement provided for maximum borrowings of $20 million, including up to $1 million for letters of credit. Interest was payable monthly and was a function of the prime rate or the London Interbank Offered Rate (LIBOR). The Company's real estate acquisition and construction lines of credit provided for maximum aggregate borrowings of $130 million for the acquisition and construction of properties. Interest was payable monthly and was a function of the prime rate or LIBOR. The facilities were provided by two separate banks. Effective July 16, 1997, the Company replaced its aforementioned credit facilities with a new three year $175 million unsecured revolving credit agreement (the "Revolver"). The rate of interest payable under the Revolver is a function of LIBOR or the prime rate of the lead agent bank, at the option of the Company. The Company may increase the amount of the facility to $200 million with the consent of the syndicate of banks. During the term of the Revolver, the Company is obligated to pay a fee of .125% per annum for the unused portion of the Revolver. Effective August 8, 1997, the Company completed the placement of a separate $50 million senior term notes facility (the "Notes"). The Notes provide for interest at a fixed rate of 7.46%, payable semi-annually, with semi-annual principal payments of $7.1 million, beginning on July 15, 2004. The net proceeds from the Notes were used to reduce the Company's indebtedness under the Revolver. At June 3, 1997 and May 28, 1996, the Company's weighted average interest rate on borrowings under its revolving loan agreement and real estate acquisition and construction lines of credit were 6.2% and 5.8%, respectively. After giving effect to the Revolver and the net proceeds from the Notes, as of June 3, 1997, the Company had approximately $120.5 million of available borrowings. The Company has issued two senior secured notes, each with an original principal of $12 million, to an insurance company. The notes are collateralized by a first mortgage on certain retail store properties, equipment and fixtures. The agreements provide for interest at fixed rates of 10.11% and 9.8%, payable quarterly, with annual principal payments of $1.2 million each due on December 15 and May 31. The carrying value of all assets mortgaged or otherwise subject to lien totaled approximately $15.4 million at June 3, 1997. The Company's debt agreements contain various restrictions, including the maintenance of certain financial ratios and restrictions on dividends, with which the Company is in compliance. Based on the terms of the Revolver and the Notes, as of June 3, 1997, approximately $22.7 million of retained earnings was available for dividend distribution. Annual maturities, as of June 3, 1997, of all long-term debt for the next five years are as follows:
Fiscal Year Amount ----------- ------ 1998 $2,400 1999 2,400 2000 2,400 2001 2,400 2002 2,400
The amounts exclude amounts due in fiscal year 2000 under the Revolver described above because management believes based on historical performance that the agreement will be renewed or replaced prior to its expiration. Total interest paid during fiscal years 1997, 1996 and 1995 was approximately $6,287,000, $5,518,000, and $6,468,000, respectively, net of capitalized interest. Capitalized interest for fiscal years 1997, 1996 and 1995 totaled approximately $281,000, $118,000 and $190,000, respectively. 20 23 4. STOCKHOLDERS' EQUITY In October 1995, the Company consummated a secondary public offering of approximately 2,650,000 shares of its common stock. From the offering, the Company realized net proceeds of approximately $75.4 million. Proceeds from the offering were used to repay certain indebtedness of approximately $71.1 million. The balance of the net proceeds were used for general corporate purposes. The Board of Directors is authorized, without further stockholder action, to divide any or all shares of the authorized preferred stock into series and to fix and determine the designation, preferences and relative, participating, option or other special rights, and qualifications, limitations, or restrictions thereon, of any series so established, including voting powers, dividend rights, liquidation preferences, redemption rights and conversion privileges. As of June 3, 1997, the Board had not authorized any series of preferred stock and there are no plans, agreements or understandings for the authorization or issuance of any shares of preferred stock. 5. LIFE INSURANCE PROCEEDS During the first quarter of fiscal 1995, the Company recorded a $4.8 million gain related to life insurance proceeds resulting from the death of the Company's former President and C.E.O. in June 1994. The insurance proceeds were generally not subject to income taxes. 6. LEASES Certain of the Company's retail stores are leased under noncancelable operating leases. The majority of these leases include options to purchase and provisions for rental increases based on the consumer price index. Future minimum annual rental commitments under noncancelable operating leases with initial or remaining terms of one year or more are as follows:
Fiscal Year Amount - ----------------------------------- 1998 $ 1,355 1999 957 2000 641 2001 528 2002 and thereafter 24 -------- $ 3,505 ========
Rental expense for fiscal years 1997, 1996 and 1995 totaled approximately $1,815,000, $1,625,000 and $1,588,000, respectively. Rental expense in each of the fiscal years includes approximately $127,200 of rent paid to a partnership which included the Company's two majority stockholders. The Company also leases certain portions of its owned facilities to outside parties. Rental income for fiscal years 1997, 1996 and 1995 totaled approximately $328,000, $366,000 and $342,000, respectively. 7. BENEFIT PLANS The Company has a 401 (k) profit-sharing plan (the "Plan") covering substantially all of its team members (employees). Team members' rights to Company-contributed benefits vest over three to seven years of service, as specified in the Plan. The Company makes quarterly discretionary contributions to the Plan. Costs under this plan for fiscal years 1997, 1996 and 1995 were approximately $547,000, $449,000 and $381,000, respectively. 21 24 The Company also has a stock option plan (the "1992 Option Plan") which provides for the granting to key team members options to purchase shares of its common stock. As of June 3, 1997 a total of 790,000 shares of common stock are reserved for future issuance under the 1992 Option Plan. The per share exercise price of each stock option is generally not less than the fair market value of the stock on the date of grant or, in the case of a team member owning more than 10% of the outstanding stock of the Company, the price for incentive stock options is not less than 110% of such fair market value. Effective April 17, 1995, the Board of Directors adopted the 1995 Stock Option Plan (the "1995 Option Plan"). The 1995 Option Plan is similar to the 1992 Option Plan described above. A total of 300,000 shares of common stock are reserved for future issuance under this plan. Option plan activity for fiscal years 1997, 1996 and 1995 is summarized as follows:
Weighted Average Number of Per Share Shares Option Price --------------------------- Outstanding, May 31, 1994 467 $21.69 Granted 350 16.84 Canceled (30) 19.22 ----- Outstanding, May 30, 1995 787 19.55 Granted 198 28.11 Exercised (6) 18.00 Canceled (24) 21.08 ----- Outstanding, May 28, 1996 955 21.33 Granted 117 22.44 Exercised (4) 18.00 Canceled (51) 21.20 ----- Outstanding, June 3, 1997 1,017 21.48 ===== Exercisable at June 3, 1997 138 20.84
===== All options outstanding generally vest beginning after three years and then over a four year period and have a ten year duration. In May 1993, the Board of Directors adopted the Discount Auto Parts, Inc. Non-Employee Directors' Stock Option Plan. A total of 40,000 shares are reserved for future issuance under this plan. As of June 3, 1997, 9,000 options had been granted under this plan at an average price of $23.91. As of June 3, 1997, 3,000 of such options were exercisable. The Board of Directors also adopted a stock purchase plan (the "Purchase Plan"), which reserves an aggregate of 550,000 shares of common stock. Under the Purchase Plan, all team members have the right to purchase shares of common stock of the Company at a price equal to 85% of the value of the stock immediately prior to the beginning of each exercise period. All team members are eligible to participate except for those who have been employed by the Company for less than one year, team members who customarily work twenty hours or less per week, team members who customarily work five months or less in any calendar year, and team members owning at least 5% of the Company's stock. During fiscal years 1997, 1996 and 1995, 15,082, 7,165 and 7,120 shares, respectively, were purchased under the terms of the Purchase Plan. Effective May 30, 1995, the Company adopted a Supplemental Executive Profit Sharing Plan (the "SEPS Plan"). The SEPS Plan is an unfunded deferred compensation plan covering certain key executives. The amount of benefit each participant is entitled to is established annually by the Board of Directors or, in certain cases, by a committee of the Board of Directors. Each participant's account accrues interest on unpaid awards at a rate determined annually as defined in the plan agreement. As of June 3, 1997 and May 28, 1996, the Company has accrued approximately $520,000 and $285,000, respectively, for benefits due under the SEPS Plan. Pro forma information regarding the effect on the Company's results of operations had stock options been accounted for under the fair value method of Statement of Financial Accounting Standards No. 123 has not been disclosed as such pro forma effect is immaterial. As a result, the information regarding the weighted average fair value of stock options has also not been disclosed. 22 25 8. INCOME TAXES The provision for income taxes is comprised of the following:
Fiscal Year Ended ---------------------------------------- June 3, 1997 May 28, 1996 May 30, 1995 ---------------------------------------- Current: Federal $ 12,185 $10,782 $ 7,353 State 2,139 1,614 1,289 -------- ------- ------- 14,324 12,396 8,642 Deferred: Federal (5,438) 1,456 1,189 State (906) 240 189 -------- ------- ------- (6,344) 1,696 1,378 -------- ------- ------- $ 7,980 $14,092 $10,020 ======== ======= =======
A reconciliation of the provision for income taxes to the amount computed by applying the federal statutory tax rate of 35% to income before income taxes is as follows:
Fiscal Year Ended ------------------------------------------------ June 3, 1997 May 28, 1996 May 30, 1995 ------------ ------------ ----------------- Income tax expense at federal statutory rate $ 7,252 $12,794 $10,704 State income taxes, net of federal benefit 801 1,205 961 Gain on life insurance proceeds -- -- (1,693) Other items, net (73) 93 48 -------- ---------- ------- $ 7,980 $14,092 $10,020 ======== ========== =======
Significant components of the Company's deferred tax assets and liabilities are as follows:
June 3, 1997 May 28, 1996 ------------ ------------ Deferred tax assets: Litigation settlement $ 7,224 $ -- Various accrued expenses 702 614 Other, net 117 98 ------- ------ Total deferred tax assets 8,043 712 Deferred tax liabilities: Depreciation 3,910 2,433 Accrued liabilities 746 618 Inventory related items 553 1,268 Other, net 286 189 ------- ------ Total deferred tax liabilities 5,495 4,508 ------- ------ Net deferred tax (asset) liability $(2,548) $3,796 ======= ======
For fiscal years 1997, 1996 and 1995, the Company paid income taxes of approximately $15,110,000, $12,962,000 and $8,951,000, respectively. 23 26 9. LITIGATION SETTLEMENT In February 1997, a complaint was filed by Airgas, Inc. and certain Airgas affiliates against several defendants, including the Company and one of its employees. The complaint alleged, among other things, that the Company took part in a conspiracy with other companies and individuals unrelated to Discount Auto Parts to defraud Airgas in connection with commercial sales of refrigerant R-12 (freon) and sought compensatory damages in excess of $20 million, treble damages and other relief totaling in excess of $80 million. The trial was scheduled to begin on August 4, 1997. Effective July 26, 1997, the Company entered into a Compromise and Settlement Agreement (the "Settlement Agreement") with Airgas and its affiliates, the other defendants, and certain other parties. Under the terms of the Settlement Agreement, the Company will purchase from Airgas Specialty Gases, on an "as is, where is" basis, approximately 6,500 cylinders believed to contain an alternative to R-12 refrigerant for an aggregate price of $4.0 million, which represents a price that is believed by the Company to be approximately $3.6 million in excess of the current market value of such product. In addition, the Company will pay an additional $13.0 million to Airgas Specialty Gases. As a separate but related part of the Settlement Agreement, the Company will pay $500,000 to the bankruptcy estate of Refrigeration Station, Inc. (RSI) to settle any claims, including claims of preference, that the RSI bankruptcy estate might have asserted against the Company and will purchase from the bankruptcy estate approximately 7,200 cylinders of merchantable Freeze 12 refrigerant (an R-12 alternative), for an additional $1.0 million (believed to have a bulk sale value of approximately $600,000). If Airgas does not recover at least $1.5 million from the Refrigeration Station bankruptcy by January 2, 1998, the Company will also pay to Airgas any shortfall but will be entitled to be reimbursed for such payments if Airgas subsequently recovers such amounts from the bankruptcy estate. Because of the involvement of the bankruptcy estate, the entire settlement is contingent upon bankruptcy court approval, which is expected to be addressed by the bankruptcy court at proceedings to be held in September 1997. Although there can be no assurance, the Company anticipates that the courts in each of the bankruptcies will approve the terms of the settlement. Discount Auto Parts, Airgas, the RSI bankruptcy estate, the other defendants and certain other parties will exchange mutual releases of all claims and issues between them. In the Settlement Agreement, there is no finding or admission of wrongdoing on the part of Discount Auto Parts. Based on the terms of the Settlement Agreement, the Company recorded a charge to earnings in the fourth quarter of fiscal 1997 of $20,545,000. The charge includes related legal expenses. The Company is presently involved in litigation with its insurance carrier pursuant to which the Company is seeking recovery under its insurance policy of certain amounts incurred in connection with the Airgas litigation and the settlement thereof. The ultimate outcome of such litigation or an estimate of the amount of potential insurance recoveries, if any, cannot be determined at this time. No benefit for any recovery which may result has been reflected in the accompanying financial statements. 10. COMMITMENTS AND CONTINGENCIES Except as disclosed in Note 9, the Company is not a party to any other legal proceedings other than various claims and lawsuits arising in the normal course of business. Management of the Company does not believe that any such claims or lawsuits will have a material adverse effect on the Company's financial condition or results of operation. As of June 3, 1997, the Company's cost to complete construction contracts in progress was approximately $9.5 million. 24 27 11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the unaudited quarterly results of operations for the years ended June 3, 1997 and May 28, 1996:
Net Income Net Gross Net Income (Loss)Per Sales Profit (Loss) Share ----- ------ ---------- ---------- Fiscal year ended June 3, 1997: First quarter $ 90,101 $ 33,948 $ 6,413 $ .39 Second quarter 105,788 36,726 6,898 .42 Third quarter(1) 101,876 37,853 5,612 .34 Fourth quarter 107,421 40,013 (6,182)(2) (.37)(2)
Fiscal year ended May 28, 1996: First quarter $ 71,354 $ 27,727 $ 4,696 $ .34 Second quarter 73,765 29,107 5,560 .36 Third quarter 75,426 29,981 5,646 .34 Fourth quarter 86,931 33,744 6,561 .40
(1) The third quarter of fiscal 1997 includes 14 weeks of operations as compared to 13 weeks of operations for all other quarters presented. (2) Includes a $12.6 million, or a $.76 per share after tax impact of the Airgas litigation settlement. See Note 9. Excluding the impact of the litigation settlement and all related expenses, the Company would have reported net income of $6.5 million or $.39 per share. 25 28 MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS AND INTERNAL CONTROLS To Our Shareholders: The management of Discount Auto Parts, Inc. has the responsibility for preparing the accompanying consolidated financial statements and for their integrity and objectivity. The statements, which include amounts that are based on management's best estimates and judgments, based upon current available information and management's view of current conditions and circumstances, have been prepared in conformity with generally accepted accounting principles and are free of material misstatement. Management also prepared the additional information contained in the annual report and is responsible for its accuracy and consistency with the consolidated financial statements. Management of Discount Auto Parts, Inc. has developed and maintains a system of internal control over the preparation of its published annual and interim financial statements which are designed to provide reasonable assurance that the Company's assets are safeguarded and protected from improper use. This system is constantly monitored, revised and improved to meet changing business conditions, company growth, and recommendations made by the independent auditors. Management has assessed the Company's system of internal control over the preparation of its published annual and interim financial statements. Based on its assessment, it is management's opinion that its system of internal control as of June 3, 1997 is effective in providing reasonable assurance that its published annual and interim financial statements are free of material misstatement. The Audit Committee of the Board of Directors is composed of the outside directors and is responsible for approving the selection of the independent certified public accounting firm. The Audit Committee meets periodically with the independent auditors, as well as with management, to review accounting, auditing, internal controls and financial reporting matters. The independent auditors have private and confidential access to the Audit Committee. /s/ Peter J. Fontaine /s/ C. Michael Moore - --------------------- ----------------------- Peter J. Fontaine C. Michael Moore Chairman and Chief Chief Financial Officer Executive Officer 26 29 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Discount Auto Parts, Inc. We have audited the accompanying consolidated balance sheets of Discount Auto Parts, Inc. as of June 3, 1997 and May 28, 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended June 3, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Discount Auto Parts, Inc. at June 3, 1997 and May 28, 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 3, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Tampa, Florida August 8, 1997 27 30 CORPORATE INFORMATION CORPORATE HEADQUARTERS Discount Auto Parts, Inc. 4900 Frontage Road, South Lakeland, Florida 33815 Telephone: (941) 687-9226 TRANSFER AGENT AND REGISTRAR Chase Mellon Shareholder Services 85 Challenger Road Overpeck Centre Ridgefield Park, New Jersey 07660 INDEPENDENT AUDITORS Ernst & Young LLP Tampa, Florida STOCK EXCHANGE LISTING New York Stock Exchange Trading Symbol - DAP ANNUAL MEETING The Annual Meeting of the Stockholders will be held at 10:30 am Tuesday, the 7th day of October, 1997 at: The Lakeland Center 700 West Lemon Street Lakeland, Florida 33801 NUMBER OF STOCKHOLDERS As of August 15, 1997, there were approximately 670 stockholders of record. FORM 10-K A copy of the Company's Annual Report on Form 10-K for the fiscal year ended June 3, 1997, as filed with the Securities and Exchange Commission, will be sent to any stockholder upon request in writing to: Investor Relations Discount Auto Parts, Inc. 4900 Frontage Road, South Lakeland, FL 33815 MARKET INFORMATION The Company has not paid or declared cash distributions or dividends since the consummation of its initial public offering in August 1992, and does not intend to pay cash dividends on its Common Stock in the foreseeable future. COMMON STOCK PRICE RANGE
Fiscal 1997 Fiscal 1996 ----------------- ----------------- High Low High Low ----------------- ----------------- Qtr 1 26 1/4 22 3/8 32 24 1/2 Qtr 2 25 7/8 21 1/4 33 7/8 26 1/4 Qtr 3 26 3/8 12 7/8 31 1/8 21 1/4 Qtr 4 19 1/4 14 1/4 30 7/8 24 3/4
EXECUTIVE OFFICERS AND DIRECTORS PETER J. FONTAINE Chairman, Chief Executive Officer and Director WILLIAM C. PERKINS President, Chief Operating Officer and Director WARREN SHATZER Executive Vice President-Merchandising and Director C. MICHAEL MOORE Chief Financial Officer and Secretary E.E. WARDLOW Director Retired President and Chief Operating Officer, Kmart Corporation A GORDON TUNSTALL Director President, Tunstall Consulting DAVID P. WALLING Director Retired Vice President and General Controller, Kmart Corporation 28 31 Stores as of June 3, 1997
State Stores Florida 327 Georgia 49 Alabama 16 Mississippi 4 South Carolina 4
- - Distribution Center/ Corporate Headquarters [MAP] [Visual map of southeastern U.S. from Texas to North Carolina] EX-21 10 SUBSIDARIES OF REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
NAME STATE OF INCORPORATION - ---- ---------------------- DAP/LUBECO Corporation Nevada DAP/LUBECO Partnership Corporation Nevada
EX-23 11 CONSENT 1 EXHIBIT 23 Consent of Independent Certified Public Accountants We consent to the incorporation by reference in this Annual Report (Form 10-K) of Discount Auto Parts, Inc. of our report dated August 8, 1997, included in the 1997 Annual Report to stockholders of Discount Auto Parts, Inc. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-51244) pertaining to the Discount Auto Parts, Inc. 1992 Team Members Stock Purchase Plan, in the Registration Statement (Form S-8 No. 33-55512) pertaining to the Discount Auto Parts, Inc. 1992 Stock Option Plan, in the Registration Statement (Form S-8 No. 33-84058) pertaining to the Discount Auto Parts, Inc. Non Employee Director Plan, and in the Registration Statement (Form S-8 No. 33-96326) pertaining to the Discount Auto Parts, Inc. 1995 Stock Option Plan of our report dated August 8, 1997, with respect to the financial statements incorporated by reference in the Annual Report (Form 10-K) of Discount Auto Parts, Inc. Ernst & Young LLP Tampa, Florida August 25, 1997 EX-27 12 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JUN-03-1997 MAY-29-1996 JUN-03-1997 6,409 0 0 0 151,644 176,697 316,315 50,726 443,066 96,124 114,117 0 0 166 228,895 443,066 405,186 405,186 256,646 256,646 121,694 0 6,125 20,721 7,980 12,741 0 0 0 12,741 .77 .77
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