EXHIBIT 2.3
FIRST AMENDMENT
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TO AGREEMENT AND PLAN OF MERGER
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This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "Amendment"),
dated as of November 2, 1998, is by and among SEARS, XXXXXXX AND CO., a New York
corporation ("Parent"), WESTERN AUTO HOLDING CO., a Delaware corporation and
wholly owned subsidiary of Parent ("Seller"), WESTERN AUTO SUPPLY COMPANY, a
Delaware corporation and wholly owned subsidiary of Seller (the "Company"),
ADVANCE HOLDING CORPORATION, a Virginia corporation ("Advance"), ADVANCE STORES
COMPANY, INCORPORATED, a Virginia corporation and a wholly owned subsidiary of
Advance ("ASCI"), ADVANCE ACQUISITION CORPORATION, a Delaware corporation and
wholly owned subsidiary of ASCI ("Purchaser"), and those stockholders of Advance
(the "Investors") listed on the signature pages of the Merger Agreement (as
defined below) or this Amendment, who are parties only for purposes of Sections
2.07, 2.09(a), 2.09(f), 12.04 and Article VI of the Merger Agreement.
RECITALS
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WHEREAS, Parent, Seller, Company, Advance, ASCI, Purchaser and Investors
have entered into that certain Agreement and Plan of Merger dated as of August
16, 1998 (the "Merger Agreement"); and
WHEREAS, the parties desire to amend the Merger Agreement in certain
respects.
NOW, THEREFORE, the parties agree as follows:
1. Addition of Parties. The parties listed below, who are parties only
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for purposes of Sections 2.07, 2.09(a), 2.09(f), 12.04 and Article VI of the
Merger Agreement, are hereby added to the signature pages of the Merger
Agreement and are added to the definition of "Investors" under the Merger
Agreement. By their execution of this Amendment, such parties agree to be bound,
together with FS Equity Partners IV, L.P., by Sections 2.07, 2.09(a), 2.09(f),
12.04 and Article VI of the Merger Agreement as amended hereby; provided,
however, FS Equity Partners IV, L.P. shall be responsible (without waiving any
rights it has to enforce those certain equity commitment letters delivered to
Advance as of August 16, 1998 by Ripplewood Partners, L.P., Xxxxxxxx X. Xxxxxxx
and The Xxxxxx Xxxxxxx Trust), subject to Section 2.07 of the Merger Agreement,
for ensuring that the Investors invest the entire $70,000,000 consideration
specified in Section 2.07 of the Merger Agreement.
(a) Ripplewood Partners, L.P. and Ripplewood Advance Auto Parts
Employee Fund I L.L.C.
(b) Xxxxxxxx X. Xxxxxxx.
(c) The Xxxxxx Xxxxxxx Trust dated July 13, 1964.
2. Amendment to Schedules 2.07. 4.08(c) and 4.17. Schedules 2.07,
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4.08(c), and Schedule 4.17 of the Merger Agreement are hereby deleted in their
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entirety and replaced with Schedules 2.07, 4.08(c), and 4.17, respectively, to
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this Amendment.
3. Section 2.10.
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(a) The first sentence of Section 2.10 is hereby deleted and the
following inserted in its place:
"As soon as practicable after the Closing Date, Advance shall
deliver to Parent a statement of the Chief Financial Officer of
Advance, prepared in consultation with the current Chief Financial
Officer of the Company, setting forth the amount of the Retained
Working Capital as of October 31, 1998 (the "Closing Retained Working
Capital Statement"), after taking into account the transactions
described in Section 7.01(a)(i)(A), (B), (C), (D), (E) and (F) and
applying the same accounting principles and practices used in
determining Retained Working Capital as of July 4, 1998 as described
on Schedule 2.06 of the Seller Disclosure Memorandum."
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(b) The fourth sentence of Section 2.10 is hereby deleted and the
following inserted in its place:
"If the amount of Retained Working Capital (other than cash) reflected
in the Closing Retained Working Capital Statement (such amount, the
"Adjusted Closing Retained Working Capital") is less than
$157,286,000, unless disputed as provided in the next sentence, Parent
shall within such thirty (30) day review period pay to ASCI by wire
transfer in immediately available funds the amount, if any, by which
the amount of the Adjusted Closing Retained Working Capital is less
than $157,286,000."
(c) The phrase "Retained Working Capital" in the sixth sentence of
Section 2.10 is hereby deleted and replaced with "Adjusted Closing Retained
Working Capital."
4. New Section 2.11. The following is inserted as a new Section 2.11:
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"2. 11 Effective Closing Date. The parties intend that, for economic
and accounting purposes only, the Closing be
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deemed to have occurred as of 11:59 p.m. on October 31, 1998. At the
Effective Time, all benefits of ownership of the Company after October
31, 1998 shall inure to the benefit of the Purchaser and any
liabilities, losses, costs and expenses incurred by the Company after
October 31, 1998 shall be the sole responsibility of the Purchaser.
Parent and Advance hereby agree that proceeds from cash and credit
cards store sales by the Company after October 31, 1998 shall be
deposited in bank accounts designated by Purchaser ("Interim
Deposits"); provided, however, that prior to the Effective Time,
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Parent may in its sole discretion terminate all accounts containing
Interim Deposits, and thereupon Purchaser shall immediately repay all
Interim Deposits upon Parent's written notice to Purchaser. Nothing in
this Section 2.11 shall be deemed to limit Parent's and Seller's
obligations under Section 7.01(a) through the Effective Time."
5. New Section 2.12. The following is inserted as a new Section 2.12:
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"2.12 Cash Settlement. (a) Advance shall deliver to Parent a
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preliminary statement of the Chief Financial Officer of Advance,
prepared in consultation with the current Chief Financial Officer of
the Company, setting forth the amount of cash ("Preliminary Closing
Cash") in the Company as of 11:59 p.m. October 31, 1998 determined in
accordance with GAAP and the accounting principles and practices used
in preparing Schedule 2.06 of the Seller Disclosure Memorandum (the
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"Preliminary Closing Cash Statement") within ten Business Days of the
Closing Date. To the extent cash relating to any sales which occurred
on or prior to October 31, 1998 is deposited in Parent controlled
accounts on November 1, 1998 or thereafter, such amounts shall be the
property of Parent and shall not be considered cash for purposes of
determining Preliminary Closing Cash. Parent shall have ten Business
Days after receipt of the Preliminary Closing Cash Statement to review
the Preliminary Closing Cash Statement and propose any adjustments
thereto. Advance shall allow Parent to review all financial
information, bank statements, working papers, schedules and
calculations related to the Preliminary Closing Cash Statement. If the
amount of Preliminary Closing Cash reflected in the Preliminary
Closing Cash Statement is less than $6,000,000, unless disputed as
provided below, Parent shall within the ten Business Days review
period pay to Advance by wire transfer in immediately available funds
the amount of such deficiency. If the amount of
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Preliminary Closing Cash reflected on the Preliminary Closing Cash
Statement is greater than $6,000,000, unless disputed as provided
below, Advance shall within the ten Business Days review period pay to
Parent the amount of such excess. If Parent disagrees with the
Preliminary Closing Cash set forth on the Preliminary Closing Cash
Statement, Parent shall notify Advance in writing within the ten
Business Day review period and Parent and Advance shall immediately
confer to resolve such disagreement. If Parent and Advance cannot
resolve such disagreement by conferring, that disagreement shall be
resolved as provided below after delivery of the Final Closing Cash
Statement (as defined below); provided, however, that any undisputed
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amounts shall be paid immediately.
(b) Advance shall deliver to Parent a final statement of the
Chief Financial Officer of Advance, prepared in consultation with the
current Chief Financial Officer of the Company, setting forth the
amount of cash ("Closing Cash") in the Company as of October 31, 1998
determined in accordance with GAAP and the accounting principles and
practices used in preparing Schedule 2.06 of the Seller Disclosure
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Memorandum (the "Final Closing Cash Statement") within ten Business
Days after completion of an audited balance sheet of the Company on
October 31, 1998. If Parent disagrees with the Final Closing Cash
Statement within ten Business Days after receiving it and so notifies
Advance in writing, and the parties are unable to resolve this
disagreement by conferring with ten Business Days after such written
notification, the matter shall be submitted to the Arbitrator for
resolution. Parent and Advance shall cooperate to complete the
arbitration within fifteen days of submission of the matter to the
Arbitrator, and the Arbitrator shall be instructed to render a
decision within ten days after completion of the arbitration. Parent
and Advance shall each pay one-half of the fees and expenses of the
Arbitrator. The decision of the Arbitrator will be final and binding
on the parties. If, after final determination of the Closing Cash by
agreement of the parties or the Arbitrator (the "Final
Determination"), the Closing Cash (after appropriate adjustment to
reflect any payment of undisputed amounts after submission of the
Preliminary Closing Cash Statement) is less than $6,000,000, Parent
shall, within three Business Days, pay Advance by wire transfer in
immediately available funds the amount of such deficiency. If, after
the Final Determination, the Closing Cash (after appropriate
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adjustment to reflect any payment of undisputed amounts after
submission of the Preliminary Closing Cash Statement) exceeds
$6,000,000, Advance shall, within three Business Days, pay Parent by
wire transfer in immediately available funds the amount of such
excess. Upon Advance's request, Parent shall use reasonable efforts
to assist Advance in order to complete the audited balance sheet.
(c) Parent shall deposit cash in the Western Auto payroll
account in an amount no less than what is required to cover all
payroll checks issued prior to the close of business on October 31,
1998 and bank service fees. Upon determination that there is an excess
or shortfall in the payroll account, the difference will be reconciled
and paid promptly. Parent shall be responsible for all payroll
withholding taxes, FICA obligations and 401(k) contributions incurred
with respect to the Company's payroll obligations through and
including October 31, 1998, unless such taxes, obligations or
contributions are accrued as liabilities on the balance sheet of
Company as of the close of business on October 31, 1998 prepared in
accordance with GAAP and the accounting principles and practices used
in preparing Schedule 2.06 of the Seller Disclosure Memorandum.
(d) To the extent the Company or Purchaser deposit funds related
to sales on or after November 1, 1998 in Parent controlled bank
accounts, the Parent shall promptly remit such funds."
6. Representations and Warranties of Investors. Each Investor, severally
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and not jointly, certifies that the representations and warranties of such
Investor contained in Sections 6.01 and 6.02 of the Merger Agreement are true
and correct as of the date hereof and as of and at the Closing Date.
7. Bankruptcy Reaffirmation Orders. A new Section 7.21 shall be added, to
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read as follows:
"7.21. Bankruptcy Reaffirmation Orders. From and after the
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Closing, Parent shall, or shall cause its Subsidiaries to, inform
Advance, ASCI, Purchaser and their Subsidiaries of any steps relating
to actions or omissions which Parent should reasonably be aware of
needed to be taken by Advance, ASCI, Purchaser and their Subsidiaries
to comply with all orders and requirements relating to the orders and
litigation described on
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Schedule 4.08(c) (the "Bankruptcy Reaffirmation Orders").
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Without limiting the foregoing obligation, Parent shall provide all
assistance that Advance, ASCI, Purchaser and their Subsidiaries may
reasonably require in order to comply with the Bankruptcy
Reaffirmation Orders, including providing advice and assistance from
Parent's compliance personnel and in-house and outside counsel, all at
no cost to Advance or its Subsidiaries. At the sole expensed Parent,
Advance shall, and shall cause ASCI, Purchaser and their Subsidiaries
to, comply with the Bankruptcy Reaffirmation Orders."
8. Section 9.01(b). The reference to "October 31, 1998" in Section
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9.01(b) is hereby deleted and replaced with "November 3, 1998."
9. Additional Indemnification by Parent and Seller. Section 10.01 is
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hereby amended by adding the following subsections (k) and (1):
"(k) the compliance or non-compliance of Parent, Seller, the
Company and all of the subsidiaries of the Company with the Bankruptcy
Reaffirmation Orders set forth on Schedule 4.08(c) (with respect to
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the Company and its Subsidiaries, prior to the Closing Date), and any
of the matters described on Schedule 4.08(c), including all costs,
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fees and attorney's fees associated with compliance by Advance, ASCI,
Purchaser, their Subsidiaries, and the Investors with the Bankruptcy
Reaffirmation Orders, or any subpoena or other discovery request
issued in connection with them or any matter described on Schedule
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4.08(c), their enforcement, or substantially similar matters; and
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(1) any Damages arising out of or resulting from the Company's
guarantee of the payment of accrued retirement allowances relating to
Midland International Corporation under a Stock Purchase Agreement
dated October 11, 1993, whether or not reserved for on the balance
sheet of the Company."
10. Exception to Limitations on Indemnity Payments. In Section 10.04, the
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first parenthetical clause, that currently reads "(other than Sections 10.01(b)
through 10.01(i))," is hereby amended by adding inside the parenthetical the
additional words "and Sections 10.01(k) and (l)."
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11. New Section 10.09. The following shall be inserted as a new Section
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10.09:
"10.09 Retention and Severance Program Reimbursements and
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Indemnity.
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(a) From and after the Effective Time, Purchaser shall cause Xxx
Xxxxxxx to negotiate with each Western Auto employee designated by
Advance as eligible to shift to a different tier of the Western Auto
Supply Company Retention Bonus Plan that became effective August 17,
1998 (the "Retention Bonus Plan") (a copy of which plan is attached to
this Amendment as Schedule 10.09(a)) for the individual's continued
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employment with Advance, Purchaser, the Surviving Corporation, or one
of their Affiliates, in return for such improved Retention Bonus Plan
tier, and on such terms of employment as designated by Advance. Parent
shall pay to Advance an additional $200,000 to cover the costs, or a
portion thereof as the case may be, of shifting such employees to
different tiers of the Retention Bonus Plan. Such payment will be made
under the terms of Section 7.07 of the Merger Agreement.
(b) With respect to each employee of the Company who (i) has
executed a General Release and Waiver Agreement in connection with the
Western Auto Supply Company Severance Program that became effective on
August 17, 1998 (the "Severance Program") (a copy of such program and
of such release is attached to this Amendment as Schedule 10.09(b));
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(ii) is terminated from the Company or the Surviving Corporation; and
(iii) receives severance benefits under the Severance Program upon his
or her termination of employment, Parent agrees to indemnify the
Advance Indemnified Parties for 50% of the Damages, if any, payable
with respect to all claims and Proceedings described in the General
Release and Waiver Agreement filed by such an employee and arising
from or attributable to events, conduct, or conditions occurring or
existing during the period from and after August 16, 1998 through the
date of the employee's termination of employment other than claims for
severance or retention benefits relating to the Severance and
Retention Materials and Conduct (defined below) (referred to as the
"Severance Indemnity"). The parties agree that Parent shall have no
obligation to indemnify the Advance Indemnified Parties for any
Damages payable with respect to employees who have been offered
comparable positions
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or who accept a position with Advance or one of its Affiliates,
including Purchaser or the Surviving Corporation, or Parent or its
Affiliates, or who are for any other reason ineligible for benefits
under the Severance Program at the time of their termination of
employment.
(c) In consideration for Sections 10.09(a) and 10.09(b) above and
without limiting their rights thereunder, Advance, the Company and
their Affiliates hereby waive, and forever discharge the Seller
Indemnified Parties from liability with respect to the Retention Bonus
Plan, each and all of the Retention Bonus Plan Agreements distributed
to or executed by the Company's employees pursuant to the Retention
Bonus Plan (a form of which is attached hereto as Schedule
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10.09(c)(i)), the Severance Program, each and all of the Severance
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Agreements distributed to or executed by the Company's employees
pursuant to the Severance Program (a form of which is attached hereto
as Schedule 10.09(c)(ii)), and each and all of the General Release and
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Waiver Agreement executed pursuant to the Severance Program, the
content of those materials (and any difference in content from that
approved by Advance), and all conduct of Parent, the Company and
Advance, and their Affiliates, relating thereto (all of the foregoing,
the "Severance and Retention Materials and Conduct"), including any
claims for breach of the Merger Agreement on account of the Severance
and Retention Materials and Conduct, any claims under any
circumstances for severance or retention benefits by any employee of
Advance, Purchaser, the Company, the Surviving Corporation or one of
their Affiliates relating to the Severance and Retention Materials and
Conduct, any costs, expenses or damages associated with the voluntary
departure of an employee of the Surviving Corporation or its
Affiliates after the Closing, any claims relating to language in the
various tiers of the Retention Bonus Plan providing that Associates
who accept a position with Advance Auto Parts will receive one hundred
percent (100%) of their accrued Retention Bonus payable within thirty
(30) days of the date of their transfer to Advance Auto Parts, and
without limitation from any and all Damages, whether known or unknown
at this time, arising out of, or connected with the Severance and
Retention Materials and Conduct, including all matters in law, in
equity, in contract, or in tort, or pursuant to statute. The foregoing
release shall not be in derogation of Parent's obligations under
Section 7.07(a)."
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12. New Section 12.02(c). The following is added as a new Section
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12.02(c):
"(c) Advance, Purchaser, the Company and their Affiliates hereby
release and forever discharge the Seller Indemnified Parties from all
actions, causes of action, suit, debts, claims and demands that arise
out of or are connected with the following acts, events, conditions or
omissions:
i) any alleged breach under the Merger Agreement relating to the
failure to disclose that the Company did not pay to Parent
interchange fees which were charged to Western Auto dealers with
respect to Sears credit card sales;
ii) any breach under the Merger Agreement relating to the failure to
disclose on Schedule 4.17 of the Seller Disclosure Memorandum
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any items not currently reflected thereon; provided,
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notwithstanding this release, that the Advanced Indemnified
Parties shall be indemnified for any and all such items as set
forth in Section 11.09;
iii) any breach under the Merger Agreement relating to the failure to
disclose as of August 16, 1998 that the Company and its
Affiliates are subject to the orders and requirements relating
to the orders described in Schedule 4.08(c); provided,
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notwithstanding this release, that the Advance Indemnified
Parties shall be indemnified with respect to all such orders as
set forth in Section 10.01(k); and
iv) any failure to disclose the loss of income relating to the Tire
Store properties or leases described in Schedule 7.01(a)(i) of
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the Seller Disclosure Memorandum, including the loss of any
rental income or proceeds from the sale thereof."
13. Section 11.12. The second sentence of Section 11.12 of the Agreement
is amended to provide that Parent shall deliver Internal Revenue Service Form
8023 to Advance with Sections 3a through 8h and 11a through 11g completed and
signed by Parent within 30 days after Seller and Purchaser have agreed to the
Allocation Schedule to be prepared in accordance with Section 11.06 of the
Agreement.
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14. Mutual Release Not Applicable. Section 7.21 is hereby added to the
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list of Sections and Articles covered by the "Except as provided in" language in
the first sentence of Section 12.02(a).
15. Section 10.01(c). Section 10.01(c) is amended to add, at the end of
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the clause, "or which results from deferred compensation liability to Xxxxxx X.
Xxxxxxxx, Xxxx X. Xxxxxxxxx III, Xxxx Xxxx or Xxxxx X. Xxxxxx."
16. Company Second Fiscal Quarter. All references in the Merger Agreement
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and the Schedules and Exhibits thereto intended to refer to the last day of the
Company's second fiscal quarter in 1998 shall be deemed to read July 4, 1998
instead of June 30, 1998.
17. Amendment. Except as affected by this Amendment, the Merger Agreement
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is unchanged and continues in full force and effect. All references to the
Merger Agreement shall refer to the Merger Agreement as amended by this
Amendment. This Amendment shall be binding upon and inure to the benefit of each
of the undersigned and their respective successors and permitted assigns.
18. Counterparts. This Amendment may be executed in two or more
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counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same Amendment.
19. Governing Law. This Amendment shall be governed by and construed in
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accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
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Each of the parties to this Agreement has caused this Agreement to be
executed as of the date first above written.
SEARS, XXXXXXX AND CO.
By: /s/ Xxx Xxxxx
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Name: Xxx Xxxxx
Title:
WESTERN AUTO HOLDING CO.
By: /s/ Xxx Xxxxx
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Name: Xxx Xxxxx
Title:
WESTERN AUTO SUPPLY COMPANY
By: /s/ Xxx Xxxxx
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Name: Xxx Xxxxx
Title:
ADVANCE ACQUISITION CORPORATION
By: /s/ J. O'Xxxx Xxxxxxxx
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Name: J. O'Xxxx Xxxxxxxx
Title: Senior Vice President and
Chief Financial Officer
ADVANCE HOLDING CORPORATION
By: /s/ J. O'Xxxx Xxxxxxxx
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Name: J. O'Xxxx Xxxxxxxx
Title: Senior Vice President and Chief
Financial Officer
ADVANCE STORES COMPANY, INCORPORATED
By: /s/ J. O'Xxxx Xxxxxxx
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Name: J. O'Xxxx Xxxxxxxx
Title: Senior Vice President and
Chief Financial Officer
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For purposes of Sections 2.07, 2.09(a), 2.09(f), 12.04
and Article VI hereof only:
INVESTORS
FS EQUITY PARTNERS IV, L.P.
By: FS Capital Partners, LLC
Its: General Partner
By: /s/ Xxxx Xxxxx
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Name: Xxxx Xxxxx
Title:
RIPPLEWOOD PARTNERS, L.P.
By: /s/ Xxxx X. Xxxxxx
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Its:________________________________________________
RIPPLEWOOD ADVANCE AUTO PARTS EMPLOYEE FUND I L.L.C.
By: /s/ Xxxx X. Xxxxxx
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Its:_________________________________________________
THE XXXXXX XXXXXXX TRUST
DATED JULY 13, 1964
By: /s/ Xxxxxxx X. Xxxxxxx
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Its: Trustee
XXXXXXXX X. XXXXXXX
/s/ Xxxxxxxx X. Xxxxxxx
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