EX-99.2 3 p72506exv99w2.txt EX-99.2 Exhibit 99.2 June 16, 2006 Term Facility Commitment Letter CSK Auto, Inc. 645 East Missouri Avenue, Suite 400 Phoenix, Arizona 85012 Attention: James Riley Chief Financial Officer Ladies and Gentlemen: You have advised J.P. Morgan Securities Inc. ("JPMorgan"), JPMorgan Chase Bank, N.A. ("JPMorgan Chase Bank"), Lehman Brothers Inc., ("Lehman"), Lehman Commercial Paper Inc., ("Lehman CP"), Wachovia Bank, National Association, ("Wachovia Bank" and, together with JPMorgan Chase Bank and Lehman CP, the "Initial Banks") and Wachovia Capital Markets, LLC ("Wachovia Securities") (together with JPMorgan, the Initial Banks and Lehman, the "Commitment Parties") that, as a result of the postponement in your completion and filing of audited financial statements for your 2005 fiscal year, events of default may occur or may be alleged to occur under one or more of the Indentures in respect of your $225,000,000 of 7% Senior Subordinated Notes due 2014, $125,000,000 of 3 3/8% Senior Exchangeable Notes due 2025 and $100,000,000 of 4 5/8% Senior Exchangeable Notes due 2025 (collectively, the "Existing Notes") and that it may be necessary for you to repay some or all of the Existing Notes upon any acceleration thereof following such events of default or it may be desirable for you to repurchase some or all of the Existing Notes prior to any such acceleration or notice of threatened acceleration. You have also advised us that it will be necessary to obtain waivers or amendments (collectively, the "ABL Amendment") of or to the terms of your $325,000,000 Second Amended and Restated Credit Agreement dated as of July 25, 2005 (the "Existing ABL Credit Agreement"; the facility thereunder, the "Existing ABL Facility") in order to enable you to refinance some or all of the Existing Notes and avoid the occurrence of events of default thereunder relating to the postponement of completion and filing of such audited financial statements or successive quarterly financial statements to the occurrence of any event of default under any of the Existing Notes. You have discussed with us a senior secured term facility of $450,000,000 (the "Term Facility"), secured by a second lien on the collateral securing the ABL Facility (as hereinafter defined) on the Closing Date (as hereinafter defined) and a first lien on certain other assets, the proceeds of which would be used to refinance Existing Notes to the extent necessary following any acceleration thereof or to repurchase the Existing Notes to the extent prudent to avoid any such acceleration. In the event that the ABL Amendment is not obtained, you have advised us that you will require a replacement asset-based credit facility of at least $250,000,000 (the "Replacement ABL Facility"; the Existing ABL Facility as amended by the ABL Amendment or the Replacement ABL Facility, as the case may be, the "ABL Facility"). It is a condition to the commitments hereunder that an ABL Facility acceptable to us be in place on the Closing Date of the Term Facility. Commitment Letter 2 JPMorgan and Lehman are pleased to advise you that they are willing to act as the joint lead arrangers and each of JPMorgan, Lehman and Wachovia Securities are pleased to advise you that they are willing to act as joint bookrunners for the Term Facility and each Initial Bank is severally (but not jointly) pleased to advise you of its respective commitment to provide the amount of the Term Facility set forth below its name on the signature pages hereto. The aggregate amount of such commitments will be $450,000,000. This Commitment Letter and the Summary of Terms and Conditions attached as Exhibit A hereto (the "Term Sheet") set forth the principal terms and conditions on and subject to which the Initial Banks are willing to make available the Term Facility. It is a condition to the commitment of each Initial Bank hereunder that each other Initial Bank provide its commitment hereunder. It is agreed that JPMorgan and Lehman will act as the joint lead arrangers (in such capacities, the "Joint Lead Arrangers") and JPMorgan, Lehman and Wachovia Securities will act as joint bookrunners in respect of the Term Facility (with only JPMorgan's name appearing on the top of the left-hand side of any marketing materials), and that JPMorgan Chase Bank will act as the sole administrative agent in respect of the Term Facility. You agree that, as a condition to the commitments and agreements hereunder, no other agents, co-agents or arrangers will be appointed, no other titles will be awarded and no compensation (other than that expressly contemplated by the Term Sheet and Fee Letters referred to below) will be paid in connection with the Term Facility unless you and we shall so agree. We intend, together with the other Commitment Parties, to syndicate the Term Facility to a group of lenders (together with the Initial Banks, the "Lenders") identified by us, provided that you shall have the right to approve (such approval not to be unreasonably withheld) the initial list of institutions to whom we would propose to syndicate the Term Facilities. We intend to commence promptly such efforts to syndicate the Term Facility and you agree actively to assist the Commitment Parties in completing syndications satisfactory to the Commitment Parties. Such assistance shall include (a) your using commercially reasonable efforts to ensure that such efforts benefit materially from the existing banking relationships of the Borrower (as defined in the Term Sheet), (b) direct contact between senior management and advisors of the Borrower and certain members of the Board of CSK Auto Corporation and the proposed Lenders, (c) as set forth in the next paragraph, assistance from the Borrower in the preparation of materials to be used in connection with the syndication (collectively, with the Term Sheet, the "Information Materials") and (d) the hosting, with us and senior management of the Borrower and certain members of the Board of CSK Auto Corporation, of one or more meetings of the prospective Lenders. You will assist in preparing Information Materials, including Confidential Information Memoranda, for distribution to existing and prospective Lenders, with such materials to include all financial information and projections (the "Projections"), as the Commitment Parties may reasonably request. If requested, you will assist in preparing a version of the Information Materials (the "Public-Side Version") to be used by prospective Lenders' public-side employees and representatives ("Public-Siders") who do not wish to receive material non-public information (within the meaning of United States federal securities laws) with respect to the Borrower, its respective affiliates and any of its or their respective securities ("MNPI") and who may be engaged in investment and other market related activities with respect to any such entity's securities or loans. Before distribution of any Information Materials, you agree to execute and deliver to us (i) a letter in which you authorize distribution of the Information Materials to a prospective Lender's employees willing to receive MNPI ("Private-Siders") and (ii) a separate letter in which you authorize distribution of the Public-Side Version to Public-Siders and represent that no MNPI is contained therein. The Borrower agrees that the following documents may be distributed to both Private-Siders and Public-Siders, unless the Borrower advises the Joint Lead Arrangers in writing (including by email) within a reasonable time prior to their intended distribution that such materials should only be Commitment Letter 3 distributed to Private-Siders: (a) administrative materials prepared by the Commitment Parties for existing and prospective Lenders (such as a lender meeting invitation, lender allocation, if any, and funding and closing memoranda), (b) notification of changes in the terms of the Term Facility, and (c) other materials intended for existing and prospective Lenders after the initial distribution of Information Materials. If you advise us that any of the foregoing should be distributed only to Private-Siders, then Public-Siders will not receive such materials without further discussions with you. The Borrower hereby authorizes the Commitment Parties to distribute drafts of definitive documentation with respect to the Term Facility to Private-Siders and Public-Siders. JPMorgan, in its capacity as Joint Lead Arranger, will manage together with the other Commitment Parties, in consultation with you, all aspects of the syndications of the Term Facility, including decisions in such syndications as to the selection of institutions to be approached and when they will be approached, when their commitments will be accepted, which institutions will participate, the allocation of the commitments among the Lenders and the amount and distribution of fees among the Lenders. In its capacity as Joint Lead Arranger, JPMorgan will have no responsibility other than to endeavor to arrange together with the other Commitment Parties the syndications as set forth herein and in no event shall be subject to any fiduciary or other implied duties. Additionally, the Borrower acknowledges and agrees that, as Joint Lead Arranger, JPMorgan is not advising the Borrower as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction. The Borrower shall consult with its own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated hereby, and the Joint Lead Arranger shall have no responsibility or liability to the Borrower with respect thereto. You hereby represent and covenant that (a) all information other than the Projections (the "Information") that has been or will be made available to any Commitment Parties by you or any of your representatives is or will be, when furnished, complete and correct in all material respects and does not or will not, when furnished, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein taken as a whole not materially misleading in light of the circumstances under which such statements are made and (b) the Projections that have been or will be made available to us by you or any of your representatives have been or will be prepared in good faith based upon assumptions reasonably believed to be reasonable. You understand that in arranging and syndicating the Term Facility we together with the other Commitment Parties may use and rely on the Information and Projections without independent verification thereof. We acknowledge that certain of the Information and Projections that have been made available to us to date do not reflect the possible adjustments to inventory accounting, vendor allowances and store surplus fixtures and supplies (the "Specified Adjustments") that are discussed in CSK Auto Corporation's press release dated March 27, 2006 (the "March 27 Press Release") and its press release of May 22, 2006 (the "May 22 Press Release" and, together with the March 27 Press Release, the "Press Releases"), and the foregoing representations are qualified by such acknowledgment. As consideration for the commitments and agreements of the Commitment Parties hereunder, you agree to cause to be paid the nonrefundable fees described in the Initial Bank Fee Letter dated the date hereof and delivered herewith (the "Initial Bank Fee Letter") and the agency and other fees described in the fee letter dated the date hereof among the Borrower, JPMorgan and JPMorgan Chase Bank (the "Agency Fee Letter" and, together with the Initial Bank Fee Letter, the "Fee Letters"). Each Commitment Party's commitments and agreements hereunder are subject to: (a) there not occurring or becoming known to such Commitment Party any event, development or circumstance that has had or could reasonably be expected to have a material adverse effect on the business, operations, property, or financial condition of the Borrower and its Commitment Letter 4 subsidiaries, taken as a whole (it being understood that the Specified Adjustments shall not constitute any such event, development or circumstance, so long as they are not materially greater than, and are consistent in scope with, the adjustments contemplated in the Press Releases); (b) such Commitment Party not becoming aware after the date hereof of any information or other matter (including any matter relating to financial models and underlying assumptions relating to the Projections and including any new information relating to the Specified Adjustments (but only to the extent that such information suggests that such adjustments shall be materially greater than or inconsistent in scope with those contemplated in the Press Releases)) affecting the Borrower or its senior management that in such Commitment Party's judgment is inconsistent in a material and adverse manner with any such information or other matter disclosed to such Commitment Party prior to the date hereof; (c) there not having occurred a material disruption of or material adverse change in conditions in the financial, banking or capital markets that, in such Commitment Party's judgment, could reasonably be expected to materially impair the syndication of the Term Facility; (d) such Commitment Party's satisfaction that prior to and during the syndication of the Term Facility there shall be no competing offering, placement or arrangement of any debt securities or bank financing by or on behalf of the Borrower or any of its affiliates (other than a Replacement ABL Facility for which JPMorgan Chase Bank is the administrative agent); (e) the closing of the Term Facility and the ABL Amendment or the Replacement ABL Facility, as the case may be, on or before July 14, 2006; and (f) the other conditions set forth or referred to in the Term Sheet. The terms and conditions of the commitments hereunder and of the Term Facility are not limited to those set forth herein and in the Term Sheet. Those matters that are not covered by the provisions hereof and of the Term Sheet are subject to the approval and agreement of the Commitment Parties and the Borrower. You agree, to the extent set forth in Annex A hereto, to indemnify and hold harmless each Commitment Party and the other Indemnified Persons referred to in said Annex, which Annex is incorporated herein by reference and constitutes a part hereof. You acknowledge that each Commitment Party and its affiliates (the term "Commitment Party" as used below in this paragraph being understood to include such affiliates) may be providing debt financing, equity capital or other services (including financial advisory services) to other companies in respect of which you may have conflicting interests regarding the transactions described herein and otherwise. No Commitment Party will use confidential information obtained from you by virtue of the transactions contemplated hereby or its other relationships with you in connection with the performance by such Commitment Party of services for other companies, and no Commitment Party will furnish any such information to other companies. You also acknowledge that no Commitment Party has any obligation to use in connection with the transactions contemplated hereby, or to furnish to you, confidential information obtained from other companies. You further acknowledge that JPMorgan is a full service securities firm and JPMorgan may from time to time effect transactions, for its own or its affiliates' account or the account of customers, and hold positions in loans, securities or options on loans or securities of the Borrower and its affiliates and of other companies that may be the subject of the transactions contemplated by this Commitment Letter. Commitment Letter 5 Each Commitment Party may employ the services of its affiliates in providing certain services hereunder and, in connection with the provision of such services, may exchange with such affiliates information concerning you and the other companies that may be the subject of the transactions contemplated by this Commitment Letter, and, to the extent so employed, such affiliates shall be entitled to the benefits afforded such Commitment Party hereunder. This Commitment Letter shall not be assignable by you without the prior written consent of each Commitment Party (and any purported assignment without such consent shall be null and void), is intended to be solely for the benefit of the parties hereto and is not intended to confer any benefits upon, or create any rights in favor of, any person other than the parties hereto and the indemnified persons. This Commitment Letter may not be amended or waived except by an instrument in writing signed by you and each Commitment Party. This Commitment Letter may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Commitment Letter by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. This Commitment Letter and the Fee Letters are the only agreements that have been entered into among us with respect to the Term Facility and set forth the entire understanding of the parties with respect thereto. This Commitment Letter shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. Each party hereto consents to the nonexclusive jurisdiction and venue of the state or federal courts located in the City of New York. Each party hereto irrevocably waives, to the fullest extent permitted by applicable law, (a) any objection that it may now or hereafter have to the laying of venue of any such legal proceeding in the state or federal courts located in the City of New York and (b) any right it may have to a trial by jury in any suit, action, proceeding, claim or counterclaim brought by or on behalf of any party related to or arising out of this Commitment Letter, the Term Sheet, the transactions contemplated hereby or the performance of services hereunder. This Commitment Letter is delivered to you on the understanding that neither this Commitment Letter, the Term Sheet or the Fee Letters nor any of their terms or substance shall be disclosed, directly or indirectly, to any other person (including, without limitation, other potential providers or arrangers of financing) except (a) to your officers, agents and advisors who are directly involved in the consideration of this matter or (b) as may be compelled in a judicial or administrative proceeding or as otherwise required by law (in which case you agree to inform us promptly thereof), provided, that the foregoing restrictions shall cease to apply (except in respect of the Fee Letters and their terms and substance) after this Commitment Letter has been accepted by you. Each of the Commitment Parties hereby notifies you that, pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56 (signed into law on October 26, 2001) (the "Patriot Act"), it is required to obtain, verify and record information that identifies the Borrower and each Guarantor (as defined in the Term Sheets), which information includes names and addresses and other information that will allow such Lender to identify the Borrower and each Guarantor in accordance with the Patriot Act. The compensation, reimbursement, indemnification and confidentiality provisions contained herein and in the Fee Letters and any other provision herein or therein which by its terms expressly survives the termination of this Commitment Letter shall remain in full force and effect regardless of whether definitive financing documentation shall be executed and delivered and notwithstanding the termination of this Commitment Letter or the commitments hereunder. If the foregoing correctly sets forth our agreement, please indicate your acceptance of the terms hereof and of the Term Sheet and the Fee Letters by returning to us executed counterparts hereof and of the Fee Letters not later than 5:00 p.m., New York City time, on June 16, 2006. This offer will Commitment Letter 6 automatically expire at such time if we have not received such executed counterparts in accordance with the preceding sentence. Commitment Letter We are pleased to have been given the opportunity to assist you in connection with this important financing. Very truly yours, J.P. MORGAN SECURITIES INC. By: /s/ Thomas Miele ------------------------------------ Name: Thomas Miele ---------------------------------- Title: Vice President --------------------------------- JPMORGAN CHASE BANK, N.A. By: /s/ Teri Streusand ------------------------------------ Name: Teri Streusand ---------------------------------- Title: Vice President --------------------------------- Commitment: $168,750,000 LEHMAN BROTHERS INC. By: /s/ Laurie Perper ------------------------------------ Name: Laurie Perper ---------------------------------- Title: Senior Vice President --------------------------------- LEHMAN COMMERCIAL PAPER INC. By: /s/ Laurie Perper ------------------------------------ Name: Laurie Perper ---------------------------------- Title: Senior Vice President --------------------------------- Commitment: $168,750,000 WACHOVIA CAPITAL MARKETS, LLC By: /s/ L. Richard DiDonato ------------------------------------ Name: L. Richard DiDonato ---------------------------------- Title: Managing Director --------------------------------- WACHOVIA BANK, NATIONAL ASSOCIATION By: /s/ L. Richard DiDonato ------------------------------------ Name: L. Richard DiDonato ---------------------------------- Title: Managing Director --------------------------------- Commitment: $112,500,000 Commitment Letter 2 Accepted and agreed to as of the date first above written: CSK AUTO, INC. By: /s/ James B. Riley --------------------------------- Name: James B. Riley ------------------------------- Title: Senior Vice President -- CFO ------------------------------ Commitment Letter Annex A The Indemnifying Party shall, jointly and severally, indemnify and hold harmless each Commitment Party, its affiliates and their respective officers, directors, employees, agents and controlling persons (each an "Indemnified Person") from and against any and all losses, claims, damages, liabilities and reasonable expenses, joint or several, to which any such Indemnified Person may become subject arising out of or in connection with the transactions contemplated by the Commitment Letter to which this Annex A is attached, or any claim, litigation, investigation or proceedings relating to the foregoing ("Proceedings") regardless of whether any of such Indemnified Persons is a party thereto, and to reimburse such Indemnified Persons for any reasonable legal or other reasonable out-of-pocket expenses as they are incurred in connection with investigating, responding to or defending any of the foregoing, provided that the foregoing indemnification will not, as to any Indemnified Person, apply to losses, claims, damages, liabilities or expenses to the extent that they are finally judicially determined to have resulted from the gross negligence or willful misconduct of an Indemnified Person. The Indemnifying Party also agree that no Indemnified Person shall have any liability based on their exclusive or contributory negligence or otherwise to the Indemnifying Party, any person asserting claims on behalf of or in right of any of the Indemnifying Party, or any other person in connection with or as a result of the transactions contemplated by the Commitment Letter, except to the extent that any losses, claims, damages, liability or expenses incurred by the Company are finally judicially determined to have resulted from the gross negligence or willful misconduct of such Indemnified Person; provided, however, that in no event shall an Indemnified Person or such other parties have any liability for any indirect, consequential or punitive damages in connection with or as a result of any of their activities related to the Commitment Letter. The indemnity and reimbursement obligations of the Indemnifying Party under this Annex A shall be in addition to any liability that the Indemnifying Party may otherwise have to an Indemnified Person and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Indemnifying Party and any Indemnified Person. Promptly after receipt by an Indemnified Person of notice of the commencement of any Proceedings, such Indemnified Person will, if a claim is to be made hereunder against the Indemnifying Party in respect thereof, notify the Indemnifying Party in writing of the commencement thereof; provided that (i) the omission so to notify the Indemnifying Party will not relieve it from any liability that it may have hereunder except to the extent it has been materially prejudiced by such failure and (ii) the omission so to notify the Indemnifying Party will not relieve it from any liability that it may have to an Indemnified Person otherwise than on account of the Commitment Letter, including this Annex A. In case any such Proceedings are brought against any Indemnified Person, the Indemnifying Party will be entitled to participate therein, and, to the extent that it may elect by written notice delivered to such Indemnified Person, to assume the defense thereof, with counsel reasonably satisfactory to such Indemnified Person, provided that if the defendants in any such Proceedings include both such Indemnified Person and the Indemnifying Party and such Indemnified Person shall have concluded that there may be legal defenses available to it that are different from or additional to those available to the Indemnifying Party, such Indemnified Person shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such Proceedings on behalf of such Indemnified Person. Upon receipt of notice from the Indemnifying Party to such Indemnified Person of its election so to assume the defense of such Proceedings and approval by such Indemnified Person of counsel, the Indemnifying Party shall not be liable to such Indemnified Person for expenses incurred by such Indemnified Person in connection with the defense thereof (other than reasonable costs of investigation) unless (i) such Indemnified Person shall have employed separate counsel in connection with the assertion of legal defenses in accordance with the proviso to the next preceding sentence (it being understood, however, that the Indemnifying Party shall not be liable for the expenses of more than one separate counsel, approved by the relevant Commitment Party, representing the Indemnified Persons who are parties to such Proceedings), (ii) the Indemnifying Party shall not have employed counsel reasonably satisfactory to Commitment Letter 2 such Indemnified Person to represent such Indemnified Person within a reasonable time after notice of commencement of the Proceedings or (iii) the Indemnifying Party shall have authorized in writing the employment of counsel for such Indemnified Person. The Indemnifying Party shall not be liable for any settlement of any Proceedings effected without its written consent (which consent shall not be unreasonably withheld). If any settlement of any Proceeding is consummated with the written consent of the Indemnifying Party or if there is a final judgment for the plaintiff in any such Proceedings, the Indemnifying Party agrees to indemnify and hold harmless each Indemnified Person from and against any and all losses, claims, damages, liabilities and expenses by reason of such settlement or judgment in accordance with the provisions of this Annex A. The Indemnifying Party shall not, without the prior written consent of an Indemnified Person (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened Proceedings in respect of which indemnity could have been sought hereunder by such Indemnified Person unless (a) such settlement includes an unconditional release of such Indemnified Person in form and substance satisfactory to such Indemnified Person from all liability on claims that are the subject matter of such Proceedings and (b) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person. Capitalized terms used but not defined in this Annex A have the meanings assigned to such terms in the Commitment Letter to which this Annex A is attached. Commitment Letter Exhibit A CSK AUTO, INC. SENIOR TERM LOAN Summary of Terms and Conditions ---------- Set forth below is a summary of the terms for a senior term facility to be provided to CSK Auto, Inc. Capitalized terms defined in the Commitment Letter to which this Exhibit A is attached and used herein are so used as so defined.
Parties. -------- Borrower: CSK Auto, Inc., (the "Borrower"). Joint Lead Arrangers: J.P. Morgan Securities Inc. ("JPMorgan"), Lehman Brothers, Inc., ("Lehman" and together with JPMorgan, in such capacities, the "Joint Lead Arrangers"). Joint Bookrunners JPMorgan, Lehman and Wachovia Securities. Administrative Agent: JPMorgan Chase Bank, N.A. ("JPMorgan Chase Bank", and in such capacity, the "Administrative Agent"). Co-Syndication Agents: Lehman Commercial Paper Inc. and Wachovia Bank, National Association. Initial Banks: JPMorgan Chase Bank, Lehman Commercial Paper Inc. and Wachovia Bank, National Association. Lenders: A syndicate of banks, financial institutions and other entities including the Initial Banks (collectively, the "Lenders"). The Term Facility. Type and Amount: A term facility (the "Term Facility") in the amount of up to $450,000,000 (the loans thereunder, the "Term Loans") and subject to reduction as described below. The Term Loans will [amortize in nominal quarterly installments [ and will be subject to nominal puts] following the Closing Date (as defined below) in an amount equal to 0.25% per quarter, commencing on December 31, 2006, with the remainder] [be] payable in a single installment on the date which is the [twentieth][sixth] anniversary of the Closing Date
2 [see put language below].(1) Funding and Availability: The Lenders will make the initial Term Loans on up to three occasions during the six month period following the date of execution of the Commitment Letter (the "Availability Period"). The date on which Term Loans are first made is herein called the "Closing Date." The availability of the Term Facility will be reduced to the extent that the Borrower (a) repurchases or refinances any of the Existing Notes (as defined below) with the proceeds of any asset sale, equity issuance or other debt issuance, (b) obtains waivers or amendments of or to the terms of any of the issues of the Existing Notes which prevents the occurrence of or cures any event of default thereunder (prior to any repurchase or acceleration) that may arise from the failure of the Borrower to timely file or deliver its audited financial statements for its 2005 fiscal year and financial statements thereafter for a period that extends beyond the Availability Period, or (c) files or delivers such financial statements prior to any repurchase or acceleration of any of the Existing Notes and receives confirmation from the relevant indenture trustee that the alleged defaults caused by the late filing or delivery of such financial statements have been cured. In the event one of the events above occurs with respect to all the Existing Notes, the Term Facility shall be reduced to zero and the commitments hereunder cancelled. During the Availability Period the undrawn portion of the Term Facility shall incur an undrawn fee as set forth on Annex I. Purpose: The proceeds of the Term Loans made will be used solely (i) to refinance or repurchase some or all of the Borrower's $225,000,000 7% Senior Subordinated Notes due 2014 ("Senior Subordinated Notes"), the $125,000,000 3 3/8% Exchangeable Senior Notes due 2025 (the "3 3/8% Senior Notes") and the $100,000,000 4 5/8% Exchangeable Senior Notes due 2025 (the "4 5/8% Senior Notes" and collectively, the "Existing
---------- (1) Maturity, amortization and put provisions will depend on which issues of Existing Notes remain outstanding. If the 3 3/8% Senior Notes or the 4 5/8% Senior Notes are refinanced with the Term Loans and the Senior Subordinated Notes remain outstanding, the maturity shall be on the twentieth anniversary of the Closing Date and the Term Loans will have puts at a rate of 1% per-annum and the put language described below shall be included. 3 Notes"), and (ii) provided that some or all of the Existing Notes have been refinanced or repurchased with the proceeds of Term Loans, (A) to pay consent fees to holders of Existing Notes not so refinanced, and (B) to pay related transaction fees and expenses. Certain Payment Provisions Interest Rates: As set forth on Annex I. Optional Prepayments: Term Loans may be prepaid at the option of the Borrower in minimum amounts to be agreed upon and upon such notice as shall be agreed upon. Optional prepayments of the Term Loans may not be reborrowed. Any such optional prepayment with the proceeds of any loans under any credit facility and any repricing of the Term Loans, effected prior to the first anniversary of the Closing Date shall be subject to a prepayment premium of 1%. Under the terms of the ABL Facility optional prepayments will not be permitted to be made with the proceeds of advances under the ABL Facility. Mandatory Prepayments: The following amounts shall be applied, to the extent permitted under the Indentures for any Existing Notes that remain outstanding, to prepay the Term Loans, provided that mandatory prepayments shall only be required to be made to the extent that a minimum availability level under the ABL Facility will be in effect following any such prepayment: (a) 100% of the net cash proceeds of any incurrence of indebtedness after the Closing Date by the Borrower or any of its subsidiaries, subject to exceptions to be agreed. (b) 75% of the net proceeds of the issuance of any equity by the Borrower or CSK Auto Corporation. (c) 100% of the net cash proceeds of any sale or other disposition (including as a result of casualty or condemnation) by the Borrower or any of its subsidiaries of any assets, except for (i) the sale of inventory, (ii) any asset sale the net proceeds in respect of which does not exceed $10,000, and (iii) any asset sales with net proceeds of between
4 $10,000 and $100,000 which in the aggregate do not exceed $2,000,000 prior to maturity, and subject to certain other exceptions to be agreed upon including capacity for reinvestment within 365 days of such sale or disposition. Mandatory prepayments of the Term Loans may not be reborrowed. [Lender right to put Term Loans:] [On each of the sixth, tenth and fifteenth anniversary of the Closing Date, each Lender and the Administrative Agent shall have the right, upon [30] days notice to the Borrower, to require the Borrower to repay in full the Term Loans of that Lender (in the case of notice by a Lender), or all Lenders (in the case of notice by the Administrative Agent), together with any accrued but unpaid interest thereon.](2) General Provisions Collateral and Guarantees: The obligations of the Borrower under the Term Facility will be secured by a perfected first priority security interest in substantially all tangible and intangible assets (other than the ABL Collateral, as defined below) of the Borrower and the Guarantors (as defined below), including, without limitation (a) the capital stock of the Borrower and its domestic subsidiaries and 100% of the non-voting capital stock and 65% of the voting capital stock of all first-tier foreign subsidiaries of the Borrower and the Guarantors, (b) all intellectual property of the Borrower and the Guarantors; (c) all owned real property and fixed assets of the Borrower and the Guarantors, and (d) intercompany debt owed to the Borrower or any Subsidiary Guarantor (the collateral in clauses (a), (b) (c) and (d), collectively, the "Term Collateral"). The obligations of the Borrower under the Term Facility will be secured by a perfected second priority security interest in all inventory and receivables of the Borrower and the Guarantors which secure the ABL Facility on a first priority basis (such inventory and receivables, the "ABL Collateral" and together with the Term Collateral, and the proceeds of the foregoing, the
---------- (2) To be included if maturity is 20 years. 5 "Collateral"). The obligations of the Borrower under the Term Facility shall be guaranteed by each guarantor of the ABL Facility (collectively, the "Guarantors"). The Administrative Agent on behalf of the Lenders and the administrative agent under the ABL Facility on behalf of the lenders thereunder shall enter into an intercreditor agreement (the "Intercreditor Agreement") containing substantially the terms described in Schedule 2 to the Second Waiver to the Existing ABL Credit Agreement and documenting the "silent" second lien status of the security interest securing the ABL Facility in the Term Collateral and of the security interest securing the Term Facility in the ABL Collateral. The Intercreditor Agreement shall provide, among other things (i) that the holders of the perfected first priority security interest in the ABL Collateral or the Term Collateral, as the case may be (the "Senior Lienholders") shall impose a standstill period on the ability of the holders of the perfected second priority security interest therein (the "Junior Lienholders") to exercise lien-related rights and remedies, (ii) that the Junior Lienholders with respect to the ABL Collateral or the Term Collateral will not object to the amount, enforceability or priority of the Senior Lienholders' claims or liens in respect therein, and (iii) for certain agreements with respect to "debtor-in-possession" financing or use of cash collateral and adequate protection. The holders of the ABL Collateral shall be entitled to reasonable use of, and access to, certain of the Term Facility Collateral for a period to be agreed to facilitate any liquidation of the ABL Collateral. Conditions: The availability of the Term Facility will be conditioned upon satisfaction of the conditions precedent set forth in Annex II (the date such initial conditions are satisfied and the initial Term Loan made shall be the "Closing Date"). Certain Documentation Matters The definitive financing documentation, including security and guaranty documentation (the "Term Facility Credit Documentation") shall contain the following representations, warranties, covenants and events of default and other customary terms deemed appropriate by the Lenders and agreed to
6 by the Borrower including, without limitation, those set forth below. Such representations, warranties, covenants and events of default shall, where appropriate, be qualified by reference to the Specified Adjustments, the matters set forth in the Press Releases and the defaults under and potential acceleration of, the Existing Notes.(3) Representations and Warranties: Financial statements; absence of material undisclosed liabilities; no material adverse change; corporate existence; compliance with law in all material respects; corporate power and authority; enforceability of Term Facility Credit Documentation; no conflict with law or material contractual obligations; no material litigation; no default; ownership of property; liens; intellectual property; taxes; Federal Reserve regulations; labor matters, ERISA; Investment Company Act and other regulations; subsidiaries; use of proceeds; environmental matters; accuracy of disclosure; and creation and perfection of security interests; copyrights. Affirmative Covenants: Delivery of financial statements, including (i) certain internal monthly management reports until the filing of audited financial statements for the 2005 fiscal year and the other normal quarterly and annual financial statements thereafter that are delayed until the filing of such statement for the 2005 fiscal year (the "2005 Filing"), (ii) unaudited monthly financial statements or information as available (including calculations of monthly and trailing twelve-month EBITDA and EBITDAR) and unaudited quarterly financial statements or information as available (including calculations of quarterly and trailing twelve-month EBITDA and EBITDAR) and after the 2005 Filings have been made, customary unaudited quarterly and audited annual financial statements, SEC reports, accountants' reports delivered with financial statements, copies of certain reporting under the ABL Facility, annual projections (prepared on a quarterly basis), officers' certificates and other information reasonably requested by the Lenders; payment of taxes and other obligations; continuation in principal line of business now
---------- (3) The exceptions, baskets and materiality qualifications in the Existing ABL Facility are under review, however the anticipation is that the representations, warranties and covenants in the Term Facility shall be, to the extent possible and applicable, substantially similar to those set forth in the Existing ABL Facility. 7 conducted by the Borrower and its subsidiaries; maintenance of existence and material rights and privileges; compliance with laws and material contractual obligations; maintenance of property and insurance; maintenance of books and records; right of the Lenders to inspect property and books and records; notices of defaults, litigation and other material events; compliance with environmental laws; and customary further assurances (including, without limitation, with respect to security interests in after-acquired property). Financial Covenants: Maximum Leverage Ratio (Total Debt to EBITDA) and a Minimum Fixed Charge Coverage Ratio (EBITDAR to the sum of Total Interest plus Rent), each to be tested quarterly.(4) The covenant levels for each fiscal year end set forth below shall be as set forth opposite such fiscal year end. Quarterly covenant levels and covenant levels for subsequent fiscal years to be mutually agreed. Maximum Leverage Ratio ---------------------- 2006 - 4.00:1.00 2007 - 3.75:1.00 2008 - 3.50:1.00 2009 - 3.25:1.00 2010+ - 3:00:1.00 Minimum Fixed Charge Coverage Ratio ----------------------------------- 2006 - 1.35:1.00 2007 - 1.40:1.00 2008 - 1.40:1.00 2009 - 1.45:1.00 2010+ - 1.45:1.00 Negative Covenants: Limitations on: (i) liens (including as to liens on leasehold interests); (ii) debt; (iii) mergers, consolidations, liquidations and dissolutions; (iv) sales, transfers and other dispositions of assets (other than, the sale for fair market value of certain specific assets to be mutually agreed (including non-core assets) subject to limits to be agreed, and the sale of obsolete or worn-out assets), (v) loans, acquisitions, joint ventures and other investments;
---------- (4) The definitions of EBITDA and EBITDAR will exclude consent fees, write-off of old origination fees and other write-offs related to the matters disclosed in the Press Releases. 8 (vi) dividends and other payments in respect of capital stock, with exceptions to be agreed; (vii) creating new subsidiaries; (viii) payments and modifications of subordinated and other material debt instruments; subject to exceptions to be agreed; (ix) capital expenditures; (x) amendments or modifications to organizational documents in a manner materially adverse to the interests of the Lenders; (xi) changes in fiscal year, accounting policies or reporting practices; (xii) transactions with affiliates; (xiii) hedging arrangements; (xiv) negative pledge clauses and clauses restricting subsidiary distributions; and (xv) the activities of CSK Auto Corporation. The negative covenants shall be subject to exceptions, baskets and materiality qualifications to be mutually agreed. Events of Default: Nonpayment of principal, interest or other amounts when due under the Term Facility; violation of covenants (subject, in the case of certain covenants, to applicable grace periods) under the Term Facility; material inaccuracy of representations and warranties when made or deemed made under the Term Facility; certain ERISA events; cross default to material indebtedness (including, in any event, a cross default to the ABL Facility); bankruptcy events; material judgments; actual or asserted invalidity of any guarantee or any security document executed pursuant to the Term Facility or the Intercreditor Agreement; and a change of control. Voting: Amendments and waivers with respect to the Term Facility Credit Documentation shall require the approval of Lenders holding not less than a majority of the aggregate amount of the Term Loans, except that (a) the consent of each Lender directly affected thereby shall be required with respect to (i) reductions in the amount or extensions of the scheduled date of amortization or final maturity of any Term Loan, (ii) reductions in the rate of interest or any fee or extensions of any due date thereof and (iii) increases in the amount or extensions of the expiry date of any Lender's commitment and (b) the consent of 100% of the Lenders under the Term Facility Documentation shall be required with respect to (i) modifications to any of the voting percentages, (ii) subject to the Intercreditor Agreement, releases of all or substantially all the collateral, and (iii) subject to
9 the Intercreditor Agreement, releases of any significant Guarantor (other than in connection with a sale of assets otherwise permitted under the Term Facility Credit Documentation). Assignments and Participations: Subject to the prior approval of the Administrative Agent (such approval not to be unreasonably withheld), the Lenders will have the right to assign Term Loans and commitments without the consent of the Borrower. Assignments will be by novation that will release the obligation of the assigning Lender. The Lenders will have the right to participate their Term Loans to other financial institutions without restriction, other than customary voting limitations. Participants will have the same benefits as the selling Lenders would have (and will be limited to the amount of such benefits) with regard to yield protection and increased costs, subject to customary limitations and restrictions. Yield Protection: Usual for facilities and transactions of this type, including standard protective provisions for such matters as increased costs, funding losses, capital adequacy, requirements of law and withholding taxes. Expenses and Indemnification: The Borrower shall pay (a) all reasonable and documented out-of-pocket expenses of the Administrative Agent, the Joint Lead Arrangers, the Initial Banks and their affiliates, if any, associated with the syndication of the Term Facility and the preparation, execution, delivery and administration of the Term Facility Credit Documentation and the reasonable fees, disbursements and other charges of Simpson Thacher & Bartlett LLP (and such other local counsel as shall be reasonably required) as counsel to the Joint Lead Arrangers and Initial Banks, (b) all reasonable and documented out-of-pocket expenses of the Administrative Agent and the Lenders associated with any amendment or waiver with respect thereto (including the reasonable fees, disbursements and other charges of Simpson Thacher & Bartlett LLP ) (and such other local and foreign local counsel as shall be reasonably required)) and (c) all out-of-pocket expenses of the Administrative Agent, JPMorgan Chase Bank, N.A., the Initial Banks and the Lenders (including the fees, disbursements and other charges of
10 counsel) in connection with the enforcement of the Term Facility Credit Documentation. The Administrative Agent, the Joint Lead Arranger and the Lenders (and their respective affiliates, controlling persons, officers, directors, employees, advisors and agents) will have no liability for, and will be indemnified and held harmless against, any loss, liability, cost or expense incurred in respect of the proposed transactions, including, but not limited to, the financing contemplated hereby or the use or the proposed use of proceeds thereof, except to the extent they are found by a final, non-appealable judgment of a court to arise from the gross negligence or willful misconduct of the relevant indemnified person. Governing Law and Forum: State of New York. Counsel to the Joint Lead Simpson Thacher & Bartlett LLP. Arrangers and Initial Banks:
Exhibit A ANNEX I to Exhibit A INTEREST AND CERTAIN FEES Interest Rates: The Term Loans will bear interest, at the Borrower's election, at a rate per annum equal to: (a) the higher of (i) the rate of interest publicly announced by JPMorgan Chase Bank, N.A. as its prime rate in effect at its office in New York City and (ii) the federal funds rate from time to time plus 0.5% (such higher rate, the "ABR"; this rate is not intended to be the lowest rate charged by JPMorgan Chase Bank, N.A. to its borrowers) plus the Applicable Margin; or (b) the average of the rates (grossed-up for reserve requirements) at which eurodollar deposits for one or two weeks or one, two, three or six months, and if available to all Lenders, nine or twelve months (as selected by the Borrower) appearing on Page 3750 of the Telerate screen (the "Eurodollar Rate") plus the Applicable Margin. "Applicable Margin" from time to time shall be determined by reference to the pricing grid below. APPLICABLE LIBOR RATINGS LOANS ABR LOANS -------------- ----- --------- > or = Ba3/BB- 2.75% 1.75% Ba3/B+ 3.00% 2.00% B1/B+ 3.25% 2.25% B2/B 3.50% 2.50% B3/B- 4.00% 3.00% < B3/B- 5.00% 4.00% Each of the Applicable Ratings referred to above shall be the rating for the Term Facility, provided that until such time as the Term Facility has been rated, the corporate rating for the Borrower and its subsidiaries shall apply . Such ratings shall be from Moody's and S&P. Other than in the case of a Ba3/B+ rating, if ratings are split, the lower one shall apply. Delayed Draw Fee: Undrawn commitments under the Term Facility during the Availability Period shall accrue a delayed draw fee at a rate of (i) for the first four months following the date of the Commitment Letter, 1.50% per annum, and (ii) thereafter, 3.00% per annum. Interest Payment Dates: Interest on ABR loans will be payable quarterly in
2 arrears. Interest on Eurodollar Rate loans will be payable at the end of interest periods (but not less often than quarterly). Default Rate: At any time when the Borrower is in default under the Term Facility, the Term Loans shall bear interest at 2% above the rate otherwise applicable thereto. Overdue interest, fees and other amounts shall bear interest at 2% above the rate applicable to ABR loans. Rate Basis: Interest shall be calculated on the basis of the actual number of days elapsed over a 365/366-day year for ABR loans based on the prime rate, and over a 360-day year for all other borrowings.
Annex II to Exhibit A The availability of the Term Facility shall be subject to the satisfaction of customary conditions precedent including, without limitation; (a) The Borrower shall have executed and delivered the Term Facility Credit Documentation in a form that is mutually, reasonably satisfactory to the Borrower, the Joint Lead Arrangers and the Lenders. (b) The Lenders, the Administrative Agent and the Joint Lead Arrangers shall have received all fees required to be paid, and all expenses for which invoices have been presented, on or before the Closing Date. (c) All government and third party approvals necessary in connection with the Term Facility and the ABL Facility and the continuing operations of the Borrower shall have been obtained on reasonably satisfactory terms (including an amendment to or waiver of the ABL Facility permitting the Term Facility and the contemplated use of the proceeds thereof or, in lieu thereof, the closing of a satisfactory replacement ABL facility providing for commitments thereunder of at least $250,000,000). There shall not exist any action, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental authority that could reasonably be expected to have a material adverse effect on the Borrower, the Term Facility or any of the other transactions contemplated hereby. (d) The Administrative Agent shall have received monthly management reports with respect to the financial performance of the Borrower, concurrently with the general distribution thereof to senior management of the Borrower. The Lenders shall have received projections from the Borrower through 2013. (e) The Administrative Agent shall have received such closing documents as are customary for transactions of the type contemplated by the Commitment Letter or as it may reasonably request, including, to the extent applicable, but not limited to resolutions, good standing certificates, incumbency certificates, insurance certificates, loss payable and additional insured endorsements, opinions of counsel (including foreign counsel), organizational documents, title insurance policies, collateral releases from prior lenders, consents, landlord/mortgagee/bailee waivers, financing statements and consignment or similar filings, all in form and substance reasonably acceptable to the Administrative Agent, the Joint Lead Arrangers and their counsel. (f) There shall be no default or event of default continuing under the ABL Facility. Term Sheet - Conditions 2 (g) The Chief Financial Officer of the Borrower shall be reasonably acceptable to the Initial Banks.(5) (h) All actions necessary (including obtaining lien searches) to establish that the Administrative Agent will have a perfected security interest in the Collateral under the Term Facility shall have been taken, and, in connection with real estate collateral, the Administrative Agent shall have received, to the extent it reasonably requests, satisfactory title insurance policies, surveys and other customary documentation to the extent reasonably requested by it. Liens creating security interests (with the associated priorities) in the Collateral for Term Facility shall have been perfected (including, without limitation, through UCC filings and intellectual property filings with the U.S. Patent and Trademark Office). (i) The Intercreditor Agreement (as described in the term sheet) shall have been executed and delivered by each of the parties thereto and shall contain terms and conditions reasonably satisfactory in all respects to the Administrative Agent and the Lenders. (j) The Borrower shall have used commercially reasonable efforts to obtain for the Term Loans under the Term Facility ratings from S&P and Moody's, and the Borrower shall have in effect either a corporate rating, or a rating as to the Term Loans from each of them. (k) The accuracy of all representations and warranties in the Term Facility Credit Documentation (including the material adverse change and litigation representations) and the absence of any default or event of default (as such terms are defined in the Term Facility Credit Documentation). (l) The Administrative Agent shall have received such legal opinions (including opinions (i) from counsel to the Borrower and (ii) from such special and local counsel as may be required by the Administrative Agent), certificates, documents and other instruments as are customary for transactions of this type or as they may reasonably request. ---------- (5) This condition shall apply until the earlier to occur of the close of syndication or 90 days after the date of the Commitment Letter. Thereafter the Company will notify the Lenders of any changes to senior management.