1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended January 31, 1998
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period
from __________ to __________
Commission file number 333-32825
SHOPPERS FOOD WAREHOUSE CORP.
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(Exact name of registrant as specified in its charter)
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Delaware 52-1281465
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4600 Forbes Blvd., Lanham, Maryland 20706
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (301) 306-9600
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
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(Title of Class)
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 preceding 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
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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 the 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. ( )
At May 1, 1998, the registrant had 33,333 shares of Class A Common Stock,
nonvoting, $5.00 par value per share, outstanding and 10,000 shares of Class B
Common Stock, voting, $5.00 par value per share, outstanding. The common stock
of Shoppers Food Warehouse Corp. Is not publicly traded.
The exhibit index begins at page 64 of this Form 10-K.
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Table of Contents
PART I
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Page
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Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of
Security Holders 16
PART II
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Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 21
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 55
PART III
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Item 10. Directors and Executive Officers of the
Registrant 56
Item 11. Executive Compensation 59
Item 12. Security Ownership of Certain Beneficial
Owners and Management 61
Item 13. Certain Relationships and Related Transactions 62
PART IV
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Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 64
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PART I
Forward Looking Statements
Statements in this report that are not historical in nature, including
references to beliefs, anticipations or expectations, are forward-looking.
Such statements are subject to a wide variety of risks and uncertainties that
could cause actual results to differ materially from those projected, including
without limitation the consummation of the Merger (as defined below), the
ability of the Company (as defined below) to open new stores, the availability
of capital to fund operations, the effect of regional economic conditions, the
effect of increased competition in the markets in which the Company operates
and other risks described from time to time in the Company's filings with the
Securities and Exchange Commission. The Company undertakes no obligation and
does not intend to update, revise or otherwise publicly release the results of
any revisions to these forward-looking statements, which revisions may be made
to reflect any future events or circumstances, other than through its regular
quarterly and annual financial statements, and through the accompanying
discussion and analysis.
Item 1. Business
Shoppers Food Warehouse Corp. ("Shoppers" or the "Company") was incorporated in
Delaware in 1956 and its principal executives offices are at 4600 Forbes Blvd.,
Lanham, Maryland 20706. The telephone number of Shoppers is 301-306-8600.
Acquisition of the Company by Dart Group Corporation
In June 1988, Dart Group Corporation ("Dart") acquired an initial 50% interest
of Shoppers. On February 6, 1997, Dart acquired the other 50% interest in
Shoppers for $210 million (the "Acquisition"). Dart financed the Acquisition
through the application of $137.2 million in net proceeds raised from an
offering of Increasing Rate Senior Notes due 2000 (the "Increasing Rate Notes")
of SFW Acquisition Corp., a newly created wholly-owned indirect subsidiary of
Dart, and $72.8 million of bridge financing (the "Bridge Loan") provided by a
bank. Immediately after the Acquisition, SFW Acquisition Corp. merged into
Shoppers (with Shoppers becoming obligor on the Increasing Rate Notes) and
Shoppers repaid the Bridge Loan from its existing cash and the liquidation of
certain short-term investments.
Planned Merger of Dart
On April 9, 1998, Dart entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Richfood Holdings, Inc. ("Richfood Holdings") and a
subsidiary of Richfood Holdings ("Acquisition Subsidiary") pursuant to which
Dart has agreed to become a wholly owned subsidiary of Richfood Holdings.
Pursuant to the terms of the Merger Agreement, Richfood Holdings will (1) make
a cash tender offer the ("Offer") for all of the issued and outstanding shares
of common stock of Dart at a price of $160.00 per share and (2) take all steps
necessary to cause Acquisition Subsidiary to merge with and into Dart (the
"Merger") in a transaction in which Dart will become a wholly owned subsidiary
of Richfood Holdings. As a result of the Merger, Richfood Holdings will
indirectly own 100% of the outstanding Common Stock of the Company.
The Merger is subject to the tender in the offer of a majority of the shares of
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Item 1. Business (Continued)
common stock of Dart on a fully diluted basis and to other customary
conditions, including the receipt of regulatory approvals and the absence of
material adverse effects on the business or financial conditions of Dart and
its subsidiaries, taken as a whole, with certain limited exceptions. There can
be no assurance that either the Offer or the Merger will be consummated.
Operations
Shoppers is a leading supermarket operator in Greater Washington, D.C. (as
defined below), operating 37 stores that target the price-conscious segment of
the market in densely populated suburban areas under the "Shoppers Food
Warehouse" and "Shoppers Club" names. Shoppers operates warehouse-style, price
impact supermarkets that are positioned to offer the lowest overall prices in
its market area by passing on to the consumer savings achieved through labor
efficiencies and lower overhead associated with the warehouse format, while
providing the product selection and quality associated with a conventional
format. Shoppers' store equipment and facilities are generally in good
condition. Shoppers stores are generally open 18 hours per day seven days a
week (allowing for shelf restocking while the stores are closed) and offer a
full range of fresh produce, fresh baked goods, fresh meats and seafood, frozen
foods, traditional grocery items and certain non-food items such as health and
beauty aids, cookware, greeting cards, magazines and seasonal items.
Shoppers' stores also have service delicatessens with some stores offering hot
and cold prepared food and self-service soup and salad bars.
The Company's stores offer products at prices that generally range from 15% to
20% below those of its primary supermarket competitors. Merchandise is
presented on warehouse-style racks in full cartons, reducing labor-intensive
unpacking and customers bag their own groceries. In-store operations are also
designed to allow customers to perform certain labor-intensive services usually
offered in conventional supermarkets. For example, the Company's stores
generally do not provide service staff to support the bakery and floral
departments or the meat and seafood refrigerated cases, although the stores
provide service in these department at the request of customers.
The Company's stores generally are constructed with high ceilings to
accommodate warehouse racking with overhead pallet storage. Wide aisles
accommodate forklifts and, compared to conventional supermarkets, a higher
percentage of total store square footage is devoted to retail selling because
the top of the warehouse-style grocery racks on the sales floor are used to
store inventory, which reduces the need for large backroom storage and
restocking trips.
Notwithstanding the "warehouse" name, physical features and low-price
reputation, Shoppers' stores have more in common with conventional supermarket
chains than with so-called "warehouse clubs." No membership fee is charged at
Shoppers stores, which offer a selection of popular-sized national brands and
private label products as well as high quality produce, meat and seafood. The
product offerings are similar to those of conventional supermarkets with
slightly more emphasis on larger package sizes and with less emphasis on
extensive brand and size selection. All 37 of the Company's supermarkets have
a delicatessen, a bakery and a floral department while 21 stores have a beer
and wine department.
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Item 1. Business (Continued)
While similar in most respects to conventional supermarket operators, Shoppers
distinguishes itself by providing low-price leadership while still emphasizing
quality. Shoppers does this by offering an unusual combination of higher-end
specialty departments with self-service and discount price features. In
addition, unlike traditional supermarkets, Shoppers stores offer a greater
selection of "club size" products, along with popular-sized brands. Through this
approach, Shoppers has established a unique niche among supermarket operators in
Greater Washington, D.C.
The Company's stores range in size from approximately 20,000 to 77,000 total
square feet and average approximately 47,000 square feet. The Shoppers stores
can be categorized by size as follows: (i) 10 stores smaller than 40,000
square feet; (ii) 12 stores ranging from 40,000 to 50,000 square feet; and
(iii) 15 stores larger than 50,000 square feet. The stores in the first
category generally represent older stores located in densely populated areas in
which little or no supermarket expansion could be expected due to the limited
availability of real estate locations. Despite their age and size, as a group,
these stores generally continue to perform well in terms of sales per square
foot and profitability. The next size category represents stores which more
closely resemble the store sizes operated by conventional supermarket
competitors in the local area. Finally, the category representing the largest
size stores includes the eight "Shoppers Club" supermarkets (averaging
approximately 67,800 total square feet per store). These larger size
supermarkets generally have more space devoted to specialty departments and
offer more "club pack" size products.
Shoppers is the largest supermarket chain targeting the price-conscious segment
in Greater Washington, D.C. The two primary competitors of Shoppers are Giant
Food, Inc. ("Giant") and Safeway Inc. ("Safeway"), both of which operate in the
higher-service, higher-price segment. Overall, Shoppers has the third largest
market share in Greater Washington, D.C. On a combined basis, Shoppers, Giant
and Safeway have 84% of the market share in this area. Shoppers' share of the
Greater Washington, D.C. market has increased from 11.9% in 1992 to 13.6% in
1997; the Company believes that it exceeds the fourth largest competitor by
almost four times. During the same period, Giant's market share decreased from
45.9% to 42.9% while Safeway's market share increased from 27.1% to 27.5%.
"Greater Washington, D.C." includes Washington, D.C.; Calvert, Charles,
Frederick, Montgomery and Prince George's counties in Maryland; Arlington,
Fairfax, Loudoun, Prince William and Stafford counties in Virginia; and the
independent cities of Alexandria, Fairfax and Falls Church in Virginia.
Shoppers does not, however, operate any stores in the city of Washington, D.C.
Store Expansion and Remodeling
Shoppers strategy is to open large new stores and upgrade existing stores.
Shoppers opened three new stores since July 1997 and has signed a lease to open
a new store (between 65,000 and 75,000 square feet) during the next fiscal
year. Also during this period, Shoppers is considering expanding or remodeling
at least two stores. Since 1992, Shoppers has opened 15 new stores (while
closing four stores) and remodeled seven stores. Of its existing 37 stores, 27
are larger than 40,000 square feet, and all but one of these 27 stores were
opened, remodeled or expanded during the last ten years. The Company believes
that its
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Item 1. Business (Continued)
existing supermarkets generally have well-established locations with
favorable lease terms (including multiple options), are in good condition and
require only routine maintenance.
The following chart sets forth certain information concerning Shoppers stores
during the past five fiscal years:
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Fiscal Year
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1994 1995 1996 1997 1998
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Number of Stores at Beginning of Period 35 35 33 34 34
New Stores Opened 1 0 1 0 3
Stores Closed 1 2 0 0 0
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Stores at End of Period 35 33 34 34 37
Remodeled/Expanded 2 1 0 2 0
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In fiscal 1998, Shoppers opened a 74,864 square foot store in Fredericksburg,
Virginia, a 68,974 square foot store in Falls Church, Virginia and a 76,774
square foot store in Alexandria, Virginia. In the following two fiscal years,
Shoppers expects to open stores in College Park, Maryland and Landover,
Maryland.
Product Selection
The Company believes that in recent years consumers have shown an increasing
preference for food stores that offer not only the wide variety of food and
non- food items carried by conventional supermarkets, but also an expanded
assortment of high-quality specialty food items and fresh produce. To respond
to this trend, Shoppers offers a complete line of produce, fresh baked goods,
freshly packaged meat and seafood products and floral assortments and provides
service in these departments at the customer's request. This strategy provides
consumers with a wider selection of better quality products and convenience
foods, while shifting its sales mix toward higher gross margin products.
Shoppers' largest supermarkets now carry over 25,000 SKUs. Its merchandising
program is designed to offer customers a wide selection of products at prices
that generally range from 15% to 20% below those of its primary supermarket
competitors. Shoppers accomplishes this by carrying slightly fewer items than
its local supermarket competitors, primarily through pursuing less duplication
of products in smaller sizes. This program also includes a critical assessment
of existing store layouts, shelving, and product mix. The Company monitors
SKUs to identify slow-moving products that may be replaced with new products.
Shoppers stores carry a variety of grocery and general merchandise under
private label names, including "Richfood" and "Shoppers Food Warehouse," which
currently account for approximately 7% of its sales. Private label products are
of a quality generally comparable to that of national brands, at significantly
lower prices, while Shoppers' gross margins on private label products are
generally higher than on national brands.
Purchasing, Warehousing and Distribution
Shoppers purchases approximately one-half of its grocery inventory from
Richfood of PA, Inc., formerly Super Rite Foods, Inc. ("Richfood"), a
wholly-owned
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Item 1. Business (Continued)
subsidiary of Richfood Holdings. For a description of the pending
merger between Dart and a wholly owned subsidiary of Richfood Holdings, see the
heading entitled "Planned Merger" in this Item 1. Because its stores receive
most of their deliveries from Richfood almost daily, Shoppers maintains only
minimal dry grocery warehouse storage space. Richfood's large volume
purchasing results in significant cost savings to Shoppers. While Shoppers is
under no obligation to purchase any particular quantity of products or minimum
dollar amounts of inventory from Richfood, the Company has agreed to use
Richfood as its "substantially exclusive supplier" for non-perishable
dry-grocery, frozen and dairy products (other than milk) and for health and
beauty aids.
Shoppers also purchases products and items sold in its supermarkets from a wide
variety of sources other than Richfood. In particular, Shoppers purchases most
of its perishable products from sources other than Richfood.
Shoppers currently leases and operates a produce warehouse and a grocery
warehouse that are collectively approximately 60,000 square feet. Each store
submits orders to the warehouses through a centralized processing system.
Merchandise ordered from the warehouses is normally delivered to the stores the
next day. Shoppers distributes produce and grocery products from its warehouses
through a fleet of Company-owned tractor and trailers. The Company estimates
that all Shoppers stores are located within a 90-minute drive of the
warehouses.
Advertising and Promotion
Shoppers uses a broad-based advertising program to emphasize its "Low Price"
image. Over two million, 12 page four color circulars are printed and
distributed in the Washington Post to subscribers and to nonsubscribers via the
"Post-Plus" program which insures that the circulars are placed in every home
in the market. The "Low price" image is reinforced with television and radio
campaign supported by vendors and Shoppers funds.
The media broadcasts support the Bonus Saving Program in which manufactures'
allowances are passed to customers, giving them lower priced products.
Broadcasts also support Shoppers Discounted Program, whereby pre-priced items
are discounted 10% to 40% for the customer. Extensive in-store point of
purchase signs are located throughout the stores to communicate Shoppers low
price image.
Shoppers is committed to offer customers low prices and quality products in a
complete food shopping experience. During the fiscal year end January 31,
1998, Shoppers focused its energies and resources on re-emphasizing its long
term image as a "Low Price" leader. This program was kicked off by reducing
10,000 prices throughout the stores.
Competition
The supermarket industry is highly competitive and characterized by narrow
profit margins. Shoppers' competitors include national, regional and local
supermarket chains, independent grocery stores, specialty food stores,
warehouse club stores, drug stores and convenience stores. Supermarket chains
generally compete on the basis of location, quality of products, service,
price, product variety and store condition. Shoppers competes by providing its
customers with
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Item 1. Business (Continued)
exceptional value by offering quality produce and fresh foods,
self-service specialty departments, and a selection of national brand groceries
and private label goods, all at competitive prices. Shoppers monitors the
prices offered by its competitors on a weekly basis and uses a computerized
price management system to verify pricing positions. The Company's ability to
remain competitive in its markets depends in part on its ability to remodel and
update its stores in response to remodelings and new store openings by its
competitors, which in turn will require the continued availability of
financing.
The number and type of competitors vary by location. Shoppers' two principal
competitors are conventional supermarket chains, Giant and Safeway, which have
market shares in Greater Washington, D.C. of 42.9% and 27.5%, respectively.
The Company believes that Shoppers' market share of 13.6% exceeds the next
highest competitor by almost four times. However, Shoppers believes that it
will face increased competition in the future from other supermarket chains and
intends to compete aggressively against existing and new competition.
Employees
As of January 31, 1998, Shoppers employed approximately 4,400 people of whom
approximately 1,400 were full-time. Approximately 4,000 employees were covered
by collective bargaining agreements with various locals of three unions.
Shoppers has renewed its agreement with United Food and Commercial Workers,
Local 400 which will expire July 1, 2000 and covers approximately 3,700 retail
clerks and meat cutters. A substantially similar contract with Local 27 of
United Food and Commercial Workers which covers approximately 270 employees
subject to the current collective bargaining agreement which expired in
September, 1997 has been ratified and is expected to be signed. The new
agreement expires on September 30, 2001. In addition, Shoppers has
approximately 50 employees at its produce warehouse who are covered by
collective bargaining agreements with locals of the Warehouse Employees Union
and the Teamsters Union. This contract expires on July 6, 1998.
Trade Names, Service Marks and Trademarks
Shoppers uses a variety of trade names, service marks and trademarks. Except
for "Shoppers," "SFW," "Shoppers Food Warehouse" and "Shoppers Club," Shoppers
does not believe any of such trade names, service marks or trademarks are
material to its business. Shoppers presently has federal registration of the
"Shoppers Food Warehouse" and "Colossal Donuts" trademarks. It has federal
registration of "Shoppers Club" as a service mark and is seeking federal
registration of it as a trademark. Shoppers also has federally registered
"Shoppers," "Shoppers Food Warehouse" and "SFW" as service marks and has also
registered the "Shoppers Food Warehouse" and "SFW" designs.
Government Regulation
Shoppers is subject to regulation by a variety of governmental agencies,
including, but not limited to, the U.S. Food and Drug Administration, the U.S.
Department of Agriculture and state and local health departments and other
agencies, including those regulating the sale of beer and wine.
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Item 1. Business (Continued)
Environmental Matters
Shoppers is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes, and (ii) impose
liability for the costs of cleaning up, and certain damages resulting from,
sites of past spills, disposals or other releases of hazardous materials.
Shoppers believes it conducts its operations in compliance with applicable
environmental laws. Shoppers has not incurred material capital
expenditures for environmental controls during the previous three years.
Changes in Management of Dart
On September 7, 1994, the Board of Directors of Dart established an Executive
Committee comprised of Dart's outside directors to conduct the affairs of Dart
with respect to matters that were the subject of disputes between the then
Chairman of the Board and Chief Executive Officer of Dart, Herbert H. Haft, and
the then President and Chief Operating Officer of Dart, Ronald S. Haft. For a
description of such disputes and their resolutions, see Item 3 - Legal
Proceedings. On October 11, 1994, the Board of Directors of Trak Auto, Crown
Books and Total Beverage each established an Executive Committee of their
respective Boards of Directors comprised of the same outside directors, with
authority parallel to that of Dart's Executive Committee. The disputes between
Herbert H. Haft and Ronald S. Haft concerning issues involving Dart were
extensive. Accordingly, the Executive Committee assumed day-to-day involvement
in these disputed issues and other matters affecting Dart, in particular
matters relating to litigation to which Dart was then a party. The Executive
Committee remains active in the day-to-day affairs of the Company. Its
continuing role is dependent on future developments.
In October 1995, Dart and Ronald S. Haft entered into a settlement of certain
litigation and other related transactions (collectively, the "RSH Settlement").
Among other things, the RSH Settlement transferred majority control of Dart's
voting stock to one or more voting trustees under a Voting Trust Agreement (the
"Voting Trust Agreement"), by and among Ronald S. Haft, Dart and Larry G.
Schafran and Sidney B. Silverman, as initial Voting Trustees. On December 28,
1995, the initial Voting Trustees resigned and appointed Richard B. Stone as
successor Voting Trustee.
On September 24, 1997, Richard B. Stone, in his capacity as Voting Trustee and
Herbert H. Haft, in his capacity as the holder of the purported Proxy from
Ronald S. Haft to vote 172,730 shares of Dart's Class B common stock, removed
Larry G. Schafran from Dart's Board of Directors and appointed Richard B. Stone
to Dart's Board of Directors. For a description of the Proxy, see Item 3 -
Legal Proceedings - Herbert H. Haft Proxy Litigation. In addition, Richard B.
Stone was named Chairman of the Executive Committee of Dart's Board of
Directors, and Acting Chief Executive Officer of Dart and he replaced Larry G.
Schafran as a director of Trak Auto, Crown Books, Shoppers and Total Beverage.
Richard B. Stone also assumed the positions of Acting Chief Executive Officer
of Trak Auto and Chairman of the Executive Committee of both Trak Auto and
Crown Books.
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Item 1. Business (Continued)
On October 21, 1997, Howard M. Metzenbaum and Harry M. Linowes were elected to
fill new positions on the Board of Directors of Dart, which was increased from
five to seven members. On December 19, 1997, Richard B. Stone, in his capacity
as Voting Trustee, and Herbert H. Haft, in his capacity as holder of the
purported Proxy, executed a unanimous written consent in lieu of an annual
meeting of stockholders pursuant to which (i) Dart's bylaws were amended to
provide for a board of directors composed of four directors and (ii) Richard B.
Stone, Howard M. Metzenbaum, Harry M. Linowes and Herbert H. Haft were elected
directors of Dart. Accordingly, Ronald S. Haft is no longer a director of
Dart. At the same time, Douglas M. Bregman and Bonita A. Wilson jointly stepped
down as directors and Executive Committee members of Dart and its subsidiaries.
In February 1998, pursuant to the Settlements (as defined in Item 3 - Legal
Proceedings), Herbert H. Haft among other things (i) resigned from all of his
positions with Dart and its subsidiary corporations, (ii) relinquished his
claim to voting control of Dart, and (iii) terminated his employment contract
with Dart. In addition, all outstanding litigation and disputes between Dart
and Herbert H. Haft were dismissed or resolved. For a description of the
Settlements, see Item 3 - Legal Proceedings - Resolution of Haft Family and
Related Litigation.
In February 1998, Richard B. Stone was appointed Chief Executive Officer of
Dart and its subsidiaries instead of Acting Chief Executive Officer.
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Item 2. Properties
Shoppers has supermarkets in Virginia and Maryland, all of which are leased.
The following chart sets forth certain information regarding its stores by
size:
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Size
Location (gross sq. ft.)
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Alexandria, VA (Potomac Yards)(1) 76,774
Manassas, VA (Sulley Manor Drive)(1) 75,864
Fredericksburg, VA(1) 74,864
Germantown, MD(1) 70,057
Falls Church, VA(1) 68,974
Dale City, VA(1) 63,971
Takoma Park, MD(1) 60,348
Clinton, MD 54,200
Alexandria, VA (Richmond Hwy) 53,692
Alexandria, VA (N. Kings Hwy) 53,380
Laurel, MD(1) 51,880
Forestville, MD 51,828
Olney, MD 51,000
Fairfax, VA 50,750
Leesburg, VA 50,101
Landover, MD (Largo) 49,840
Burke, VA 49,284
Herndon, VA 48,424
Manassas, VA (Shoppers Square) 47,040
Centreville, VA 47,002
Lanham, MD 46,470
Stafford, VA 43,895
Franconia, VA 42,862
Frederick, MD 42,500
Sterling, VA 42,491
Hyattsville, MD (Chillum) 40,559
Chantilly, VA 40,373
Waldorf, MD 39,920
Landover, MD (M.L. King) 36,500
New Carrolton, MD 35,760
Coral Hills, MD 35,000
Annapolis, MD 28,710
Rockville, MD 26,770
Colmar Manor, MD 25,336
Annandale, VA 23,680
Alexandria, VA (Little River Turnpike) 23,322
Hyattsville, MD (Adelphi) 20,329
</TABLE>
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(1) Shoppers Club supermarket.
Most of the Company's stores are operated under long-term leases that have
favorable terms. The lease for one of the Company's smallest stores is on a
month-to-month basis scheduled to expire in October 1998 and there can be no
assurance that this lease will be renewed.
Shoppers leases an 86,000 square foot office building in Lanham, MD that serves
as its corporate offices. The Company subleases approximately 30,000 square
feet of this office building. In addition, Shoppers leases and operates a
produce
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Item 2. Properties
warehouse and grocery warehouse that collectively are approximately
60,000 square feet, both of these warehouses are located in Landover, MD.
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Item 3. Legal Proceedings
As a result of the Acquisition, see Item 1. - Business, Shoppers is now a
wholly-owned subsidiary of Dart Group Corporation ("Dart"). Dart has been
involved in significant litigation which could effect Dart and its
subsidiaries.
Resolution of Haft Family and Related Litigation
The litigation discussed below involving Dart, its affiliates and members of
the Haft family settled prior to January 31, 1998. On February 5, 1998, Dart
closed the settlement agreement with Herbert H. Haft (the "HHH Settlement") and
a Second Supplemental Settlement Agreement with Ronald S. Haft ("Second
Supplemental Agreement"). The RSH Settlement, the First Supplemental
Settlement Agreement to the RSH Settlement, the Second Supplemental Agreement,
the RGL Settlement and the HHH Settlement are herein referred to as the
"Settlements". The RSH Settlement, the First Supplemental Settlement Agreement,
the Second Supplemental Agreement and the RGL Settlement are described below.
As part of the closing of the HHH Settlement, Herbert H. Haft (i) sold to Dart
all of his shares of, and options to purchase, Dart Class A Common Stock, and
his capital stock of Dart's subsidiaries Trak Auto Corporation ("Trak Auto")
and Crown Books Corporation ("Crown Books"),(ii) resigned from all of his
positions with Dart and its subsidiary corporations, (iii) relinquished his
claim to voting control of Dart, and (iv) terminated his employment agreement
with Dart. In addition, all outstanding litigation and disputes between Dart
and Herbert H. Haft were resolved. As consideration for the HHH Settlement,
Dart paid Herbert H. Haft approximately $28 million at the closing. In
connection with the closing of the Settlements, Dart also made a $10 million
loan to a partnership owned by Ronald S. Haft, the proceeds of which were used
to repay a $10 million note to Herbert H. Haft. Consummation of the
Settlements also means that all litigation (described below) between Dart and
members of the Haft family has been settled and dismissed, and the Company is
no longer subject to a Standstill Order (described below) previously imposed by
the Delaware Court of Chancery.
In October, 1995, Dart entered into a settlement agreement with Ronald S. Haft,
to settle certain litigation to which Dart was a party ("RSH Settlement").
Pursuant to the RSH Settlement, Ronald S. Haft transferred 172,730 shares of
Dart's Class B Common Stock, par value $1.00 (Dart's sole voting stock prior to
February, 1998 when Dart discontinued its dual class common stock structure,
"Class B Common Stock"), in exchange for 288,312 shares of Dart's Class A
Common Stock, par value $1.00 (Dart's non-voting, publicly traded class of
stock prior to February, 1998, "Class A Common Stock"). Ronald S. Haft also
exercised an option to purchase 197,048 shares of Class B Common Stock, and
paid the exercise price by paying cash and issuing a promissory notes to Dart
for approximately $27.4 million. Dart also loaned Ronald S. Haft
approximately, $37.9 million and he issued Dart a $37.7 million promissory note
to Dart. Then, Ronald S. Haft placed the 288,312 shares of Class A Common
Stock and the Class B Common Stock which he owned or in which he had an
interest, into a voting trust. Dart also (i) transferred approximately $11.6
million to Ronald S. Haft in exchange for an additional promissory note (which
was repaid in May 1996), and (ii) entered into a variety of agreements with
Ronald S. Haft regarding the sale of certain properties owned by Dart or
affiliates of Dart at that time. As a part of the RSH Settlement, Ronald S.
Haft resigned all positions he had with Dart and its subsidiaries and consented
to the termination of all of his outstanding options with Dart and its
affiliates.
11
14
Item 3. Legal Proceedings (Continued)
On November 19, 1997, the real estate related transactions contemplated in the
First Supplemental Agreement to the RSH Settlement were closed and include:
completion of bankruptcy plans of reorganization for partnerships owing Dart
and Trak Auto's headquarters in Landover, Maryland and a distribution center
leased to Trak Auto in Bridgeview, Illinois; payment by Dart of $7.0 million to
reduce outstanding mortgage loans on these properties, which thereafter are
wholly-owned by Dart and/or its affiliates; and Ronald S. Haft paid $2.2
million to Dart from escrowed funds previously earmarked for him.
Trak Auto advanced approximately $3.3 million to a wholly-owned subsidiary of
Dart for the Bridgeview distribution center. The $3.3 million advance is in
the form of a promissory note and is expected to be repaid in May 1998.
The Second Supplemental Agreement to the RSH Settlement closed in February 1998
and Dart required that the shares held in the Voting Trust for the benefit of
Ronald S. Haft to be transferred to Dart. Dart's Class A Common Stock and
Class B Common Stock from the Voting Trust was then placed in treasury and on
February 17, 1998, the distinctions between Dart's Class A Common Stock and
Class B Common Stock were eliminated.
On September 26, 1997, Dart closed an agreement to settle certain litigation
and enter other related transactions (the "RGL Settlement") with Robert M.
Haft, Gloria G. Haft and Linda G. Haft (collectively "RGL").
The RGL Settlement resulted in mutual dismissal of claims against or by RGL
(including control of Dart). Dart also acquired all of Robert M. Haft and
Linda G. Haft's interest in partnership owning Dart and Trak Auto's
headquarters building in Landover, Maryland and a distribution center leased by
Trak Auto in Bridgeview, Illinois for $4.4 million.
Derivative Litigation
In September 1993, Alan R. Kahn and the Tudor Trust (the "Kahn Derivative
Plaintiffs"), shareholders of Dart, filed a lawsuit in the Delaware Court of
Chancery for New Castle County naming as defendants Herbert H. Haft, Ronald S.
Haft (a director and a former president of Dart), Douglas M. Bregman, Bonita A.
Wilson, Combined Properties, Inc. ("CPI") and other CPI affiliates. The suit
was brought derivatively and named as nominal defendants Dart, Trak Auto, Crown
Books, Shoppers and certain other subsidiaries of Dart. The complaint, as
amended on January 12, 1995, alleged waste, breach of fiduciary duty, violation
of securities laws and entrenchment in connection with various lease agreements
between the CPI defendants and Dart and its subsidiaries, the termination of
Robert M. Haft (a former president of Dart and Crown Books), the compensation
paid to Ronald S. Haft and Herbert H. Haft, the employment agreement entered
into by Ronald S. Haft and Dart on August 1, 1993 (the "RSH Employment
Agreement"), the sale of 172,730 shares of Dart Class B Common Stock (Dart's
only voting stock) by Herbert H. Haft to Ronald S. Haft, and the compensation
paid to the Executive Committee of Dart's Board of Directors. Plaintiffs seek
an accounting of unspecified damages incurred by Dart, voiding of the options
sold to Ronald S. Haft, appointment of a temporary custodian to manage the
affairs of Dart or to oversee its recapitalization or sale and costs and
attorneys' fees.
12
15
Item 3. Legal Proceedings (Continued)
In January 1994, a Special Litigation Committee consisting of two outside,
independent directors of Dart, Crown Books and Trak Auto was appointed by the
Board of Directors to assess, on behalf of Dart, whether to pursue, settle or
abandon the claims asserted in the derivative lawsuit. (After the death of
one member in December 1994, the Special Litigation Committee has consisted of
one director.) In September 1994, the Special Litigation Committee moved for
dismissal of certain claims in the derivative lawsuit and for realignment of
the parties to permit Dart to prosecute other claims in the derivative lawsuit.
Thereafter, the Special Litigation Committee amended its motion and advised the
court that it had instituted certain lawsuits concerning related party real
estate transactions, (see the Pennsy Warehouse Litigation, described below),
and was considering asserting additional claims, certain of which were
subsequently asserted. See the Lawsuit Against Herbert H. Haft Concerning
Haft-Owned Real Estate, described below. The Court did not act upon the
amended motion.
As a result of the Settlements, this litigation has been dismissed with
prejudice.
Pennsy Warehouse Litigation
In fiscal 1995, the Executive Committee of Dart's Board of Directors undertook
a legal review of certain Dart warehouse leases with Haft owned entities (the
"Pennsy Warehouse"). By their terms, the Pennsy Warehouse leases, which expire
in 2016, required annual rental payments of $855,000 subject to escalation
based on increases in the Consumer Price Index. The lease terms also required
the lessee to pay real estate taxes, insurance, utilities, and maintenance
expenses. At January 31, 1997, Dart reserved approximately $18.5 million for
the obligations represented by the Pennsy Warehouse leases.
As a result of this review, on February 10, 1995, Dart filed a complaint (the
"Pennsy Warehouse Litigation") in the Circuit Court for Prince George's County,
Maryland, alleging breaches of fiduciary duty, waste and other irregularities
by certain members of the Haft family and others in connection with the Pennsy
Warehouse leases and, in particular, with the resumption of rental payments for
these warehouses in 1991 following the bankruptcy of the prior tenant. The
complaint sought rescission of the Pennsy Warehouse leases, restitution of rent
and other expenses paid since 1991 and other monetary damages.
As a result of the Settlements, this litigation has been dismissed with
prejudice.
Herbert H. Haft Proxy Litigation
In connection with Herbert H. Haft's sale of 172,730 shares of Dart Class B
Common Stock to Ronald S. Haft on July 28, 1993 (the "Stock Sale Agreement"),
Ronald S. Haft purportedly granted Herbert H. Haft an irrevocable proxy (the
"Proxy") to vote these shares of stock "to the same extent and with the same
effect as Ronald S. Haft might or could do under any applicable laws or
regulations governing the rights and powers of shareholders of Dart," until
Herbert H. Haft's death or incapacitation. On June 30, 1995, Ronald S. Haft
sent a letter to Herbert H. Haft purportedly revoking this proxy.
On July 18, 1995, Ronald S. Haft filed a lawsuit against Herbert H. Haft and,
13
16
Item 3. Legal Proceedings (Continued)
nominally, Dart in the Delaware Court of Chancery for New Castle County for
Herbert H. Haft's alleged breach of contract and breach of fiduciary duties to
Ronald S. Haft and to Dart in connection with the Proxy (Ronald S. Haft v.
Herbert H. Haft, et al., Civ. A. No. 14425). In this action, Ronald S. Haft
sought a declaration that the Proxy was revocable or would be revocable under
certain conditions, as well as costs and attorneys' fees. Ronald S. Haft also
requested that the court require Dart to refuse to recognize the validity of
the Proxy. On August 9, 1995, Herbert H. Haft filed an Answer and Counterclaim
denying liability and requesting rescission of the Stock Sale Agreement because
of Ronald S. Haft's alleged breach of contract and other grounds. On September
25, 1995, Dart filed its answer in this action. Both Ronald S. Haft and
Herbert H. Haft moved for summary judgment in this lawsuit. On November 14,
1995, the court denied Ronald S. Haft's motion for summary judgment; Herbert
H. Haft's motion for summary judgment was not acted upon.
In October 1995, Dart and Ronald S. Haft entered into the RSH Settlement. As
part of the RSH Settlement, Dart purchased from Ronald S. Haft the 172,730
shares of Class B Common Stock that were subject to the Proxy and placed the
shares in treasury.
As a result of the Settlements, this litigation has been dismissed with
prejudice.
Challenge to RSH Settlement by Herbert H. Haft
On November 6, 1995, Herbert H. Haft filed a lawsuit captioned Herbert H. Haft
v. Dart Group Corporation, et al., Del. Ch., Civ. A. No. 14685, in the
Delaware Court of Chancery for New Castle County naming as defendants Dart, all
of its directors (except Herbert H. Haft), Robert, Gloria, and Linda Haft, John
L. Mason, Ellen V. Sigal and Michael Ryan. Herbert H. Haft sought a judgment
(i) declaring the RSH Settlement unlawful, hence null and void; (ii) declaring
either that 172,730 shares of Class B Common Stock belong to him were
wrongfully sold by Ronald S. Haft to Dart, and that Herbert H. Haft is entitled
to restitution of such shares or, alternatively, that his purportedly
irrevocable proxy on the 172,730 shares continues to be valid; (iii) declaring
that Herbert H. Haft retains voting control of Dart or, at a minimum, 34.55%
of Dart's voting power; (iv) declaring that the Trust Shares may not be
lawfully voted; and (v) declaring that defendants John L. Mason, Ellen V. Sigal
and Michael Ryan are not duly elected directors of Dart.
On December 5, 1996, Herbert H. Haft filed a motion for partial summary
judgment in which he asserted two arguments based upon Section 160(c) of the
Delaware General Corporation Law. Section 160(c) provides that the shares of
capital stock "belonging to" a corporation are not entitled to vote. Herbert
H. Haft maintained that (i) notwithstanding Section 160(c), the 172,730 Class B
shares that Dart purchased in the RSH Settlement on October 6, 1995 do not
"belong to" Dart and are still subject to the Proxy, and (ii) Section 160(c)
does not permit the Trust Shares to be voted because those shares "belong to"
Dart, not Ronald S. Haft. Dart opposed this motion for partial summary
judgment and, on March 14, 1997, the Delaware Court of Chancery denied Herbert
H. Haft's motion in its entirety.
As a result of the Settlements, all claims in this litigation against or on
14
17
Item 3. Legal Proceedings (Continued)
behalf of Dart have been dismissed with prejudice.
Standstill Order
In connection with the legal challenges to the RSH Settlement raised by Robert,
Gloria, and Linda Haft and by Herbert H. Haft, on December 6, 1995,
the Delaware Court of Chancery entered the Standstill Order, which restricted
certain actions by Dart. Without further order of the court, Dart could not
(i) change its Certificate of Incorporation or Bylaws; (ii) change the current
composition of Dart's Board of Directors or any of its subsidiaries; (iii)
change the Haft family officers of Dart or any of its subsidiaries; or (iv)
issue any additional securities of Dart or any of its subsidiaries (except
employee stock options issued in the ordinary course of business). In
addition, without first giving Herbert H. Haft and the other parties to the
Section 225 Action not less than seven days written notice, Dart could not take
any extraordinary actions, including but not limited to actions that would
result in (a) the liquidation of Dart or any of its subsidiaries, (b) the sale
of any major subsidiary of Dart or (c) the disadvantage of any Class B
stockholder of Dart through any debt transaction. For purposes of the
Standstill Order, the phrase "extraordinary actions" means any transaction,
contract or agreement, the value of which exceeds $3.0 million.
As a result of the Delaware Court of Chancery approval of the Settlements in
November 1997, Dart is no longer subject to the Standstill Order.
Lawsuit Against Herbert H. Haft Concerning Haft-Owned Real Estate
On December 17, 1996, Dart, Crown Books and Trak Auto filed a lawsuit captioned
Dart Group Corporation, et al. v. Herbert H. Haft, Civ. A. No. 96-26474, in the
Circuit Court for Prince George's County, Maryland, seeking damages from
Herbert H. Haft for breach of fiduciary duty, fraud and waste arising from a
series of lease transactions (other than the Pennsy Warehouse leases) between
Dart and certain partnerships owned beneficially by members of the Haft family.
The complaint alleged that Herbert H. Haft exploited the dominance and control
he enjoyed as an officer, director and controlling stockholder of Dart to
enrich himself and other members of the Haft family unlawfully and unfairly at
the expense of the public stockholders of Dart, Crown Books and Trak Auto. In
particular, the complaint charged that Herbert H. Haft (i) caused Trak Auto to
surrender favorable retail store leases and subleases in Haft-owned shopping
centers in exchange for new leases less favorable to Trak Auto; (ii) required
Crown Books to relinquish its favorable lease in a particular shopping center
in suburban Washington, D.C. and to enter into a new lease with a Haft family
partnership for a new location in the same shopping center at a rent rate equal
to 450 percent of the prior lease; (iii) caused Dart, Crown Brooks and Trak
Auto to enter into exorbitant long-term leases for warehouse and distribution
facilities that were purchased and developed by Haft family partnerships for
the purpose of leasing those facilities to these companies as captive tenants;
(iv) induced Dart and Trak Auto to lease retroactively from a Haft family
partnership a 2.66 acre wooded lot for which the companies had no use; and (v)
caused Trak Auto to purchase certain used warehouse equipment from a Haft
family partnership for more than 700 percent of the price contemplated by the
original equipment lease.
15
18
Item 3. Legal Proceedings (Continued)
As a result of the Settlements, this litigation has been dismissed with
prejudice.
Lawsuit Against Herbert H. Haft in Washington, D.C.
On December 17, 1996, Dart, Crown Books and Trak Auto also filed a lawsuit
captioned Dart Group Corporation, et al. v. Herbert H. Haft, Civ. A. No.
96-CV- 2788, in the U.S. District Court for the District of Columbia naming
Herbert H. Haft as defendant. In this action, Dart, Crown Books and Trak Auto
advanced claims for breach of fiduciary duty, civil conspiracy and tortious
interference with contracts. The companies alleged that Herbert H. Haft
wrongfully imposed Robert M. Haft's excessively generous employment contracts
upon Dart and Crown Books, later breached those contracts for personal reasons
and then, due in large part to a personal conflict of interest, mishandled the
defense to Robert M. Haft's wrongful termination lawsuit. Dart, Crown Books
and Trak Auto sought to recover the approximately $38 million paid to Robert M.
Haft in satisfaction of the judgment in his wrongful termination suit,
approximately $5 million in attorneys' fees incurred by the companies in
defense of that litigation, and punitive damages.
As a result of the Settlements, this litigation has been dismissed with
prejudice.
Other
In the ordinary course of its business, Shoppers is party to various legal
actions that the Company believes are routine in nature and incidental to the
operation of its business. The Company believes that the outcome of the
proceedings to which Shoppers currently is party will not have a material
adverse effect, if established, upon its business, financial conditions and
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Common Stock is not publicly traded.
16
19
Item 6. Selected Financial Data
The following table sets forth audited summary historical financial data of
Shoppers. Financial data for the 52 weeks ended January 31, 1998, is for the
Successor company and such data is not comparable to the periods prior to the
Acquisition date. See Notes 1 and 2 to the Consolidated Financial Statements
for further discussion. The summary historical financial data as of and for
the 52 weeks ended June 27, 1992, the 53 weeks ended July 3, 1993, the 52 weeks
ended July 2, 1994, the 52 weeks ended July 1, 1995 and the 52 weeks ended June
29, 1996, which have been derived from the audited financial statements.
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------------
June 27, July 3, July 2, July 1, June 29,
1992 1993 1994 1995 1996
-------- -------- -------- ------ --------
(52 weeks) (53 weeks) (52 weeks) (52 weeks) (52 weeks)
<S> <C> <C> <C> <C> <C>
Operating Data: (Dollars in thousands, except per share data)
Sales $ 639,920 $ 718,967 $ 750,340 $ 790,842 $ 835,971
Cost of sales 506,194 562,461 593,063 616,521 651,986
----------- ----------- ----------- ----------- -----------
Gross profit(a) 133,726 156,506 157,277 174,321 183,985
Selling and administra-
tive expenses(b) 107,983 124,509 127,643 136,798 149,570
Depreciation and
amortization (c) 10,861 12,045 10,785 8,529 8,913
Restructuring
charges(d) -- 1,012 -- -- --
------------ ----------- ------------ ------------ ------------
Operating income 14,882 18,940 18,849 28,994 25,502
Interest income 1,638 1,474 2,189 4,682 5,789
Interest expense 1,519 1,576 1,426 1,451 1,771
Insurance settlement
gain (loss)(e) -- -- 1,360 2,065 (355)
Provision for income
taxes 5,757 7,205 8,043 14,764 10,462
----------- ----------- ----------- ----------- -----------
Net income $ 9,244 $ 11,633 $ 12,929 $ 19,526 $ 18,703
----------- ----------- ----------- ----------- -----------
Balance Sheet Data
(end of period):
Working capital $ 25,860 $ 40,910 $ 59,796 $ 81,452 $ 92,276
Total assets 115,315 125,612 140,614 162,003 171,022
Total debt 9,209 9,502 9,742 9,950 10,069
Stockholders' equity 51,242 62,875 75,804 95,330 104,033
</TABLE>
----------
(a) Gross profit is net of LIFO expense of $329,000, $436,000, $364,000,
$877,000 and $905,000 in the 52 weeks ended June 27, 1992, July 3, 1993 (53
weeks), July 2, 1994, July 1, 1995 and June 29, 1996, respectively.
(b) Selling and administrative expenses include a reversal of a prior period
expense related to closed stores and remodels of $500,000 for the 52 weeks
ended July 1, 1995 and charges for reserves related to closed stores and
remodels of $294,000 for the 52 weeks ended June 29, 1996. Selling and
administrative expenses also include a $500,000 charge for reserves against
a related party receivable for the 52 weeks ended July 3, 1993 and July 1,
1995.
(c) In connection with the Acquisition the Company commenced using Dart's method
of depreciating property and equipment on a straight-line basis. The
following pro forma analysis gives effect to the change in depreciation
method, assuming the new depreciation method was applied retroactively.
17
20
Item 6. Selected Financial Data
(c) Continued
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------------
June 27, July 3, July 2, July 1, June 29,
1992 1993 1994 1995 1996
------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
Pro forma amounts: (52 weeks) (53 weeks) (52 weeks) (52 weeks) (52 weeks)
Net Income $ 10,606 $ 13,491 $ 13,961 $ 19,170 $ 18,413
Earning per common
share 318.18 404.73 418.83 575.10 522.39
Historical amounts:
Net Income 9,244 11,633 12,929 19,526 18,703
Earning per common
share 277.32 348.99 387.87 585.78 561.09
</TABLE>
(d) Represents charges associated with the sale of Total Beverage Corp.
(e) Represents the pre-tax gain or loss associated with an insurance settlement
relating to one store that incurred significant fire damage in June 1994.
The selected historical financial data as of and for the 31 weeks ended
February 3, 1996 and the 52 weeks ended February 1, 1997 have been derived from
unaudited interim consolidated financial statements, which, in the opinion of
management, reflect all material adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such data. The
selected historical financial data as of and for the 31 weeks ended February 1,
1997 and the 52 weeks ended January 31, 1998 are audited.
18
21
Item 6. Selected Financial Data, Continued
<TABLE>
<CAPTION>
Predecessor Successor
-------------------------------
31 Weeks Ended 52 Weeks Ended
------------------------------- -------------------------------
February 3, February 1, February 1, | January 31,
1996 1997 1997 | 1998
---------- ---------- ---------- ---------
(Unaudited) (Audited) (Unaudited) | (Audited)
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Operating Data:
Sales $ 496,121 $ 511,025 $ 850,875 | $ 855,769
Cost of sales 390,186 398,129 659,929 | 656,572
----------- ----------- ------------- --------
Gross profit(a) 105,935 112,896 190,946 | 199,197
Selling and administra- |
tive expenses(b) 89,280 94,304 154,594 | 160,713
Depreciation and |
amortization (c) 4,766 4,573 8,720 | 11,090
----------- ----------- ------------- --------
Operating income 11,889 14,019 27,632 27,394
Interest income 3,330 3,526 5,985 | 3,587
Interest expense 836 710 1,645 | 21,079
Insurance settlement (loss) (d) (355) -- - | -
Provision for income taxes 5,433 6,380 11,409 | 4,801
----------- ----------- ------------- --------
Income before extraordinary |
item and cumulative effect |
of accounting change 8,595 10,455 20,563 | 5,101
Extraordinary loss, net -- -- -- | (3,126)
|
Cumulative effect of accounting |
change, net -- -- -- | 1,729
----------- ----------- ------------- --------
Net income (e) $ 8,595 $ 10,455 $ 20,563 | $ 3,704
----------- ----------- ------------- --------
|
Balance Sheet Data |
(end of period):
Working capital $ 83,917 $ 92,780 $ 9 2,780 | $ (5,031)
Total assets 164,348 179,008 179,008 | 289,932
Total debt 9,965 10,035 10,035 | 211,315
Stockholders' equity 93,925 104,488 104,488 | 5,952
</TABLE>
-------------
(a) Gross profit is net of LIFO expense of $530,000 in the 31 weeks ended
February 3, 1996 and February 1, 1997, $905,000 in the 52 weeks ended
February 1, 1997 and $368,000 in the 52 weeks ended January 31, 1998.
(b) Selling and administrative expenses include a charge for closed store and
remodels of $294,000 and $850,000 in the 31 weeks ended February 3, 1996 and
February 1, 1997, respectively and $850,000 in the 52 weeks ended February
1, 1997.
(c) In connection with the Acquisition the Company commenced using Dart's method
of depreciating property and equipment on a straight-line basis. The
following pro forma analysis gives effect to the change in depreciation
method, assuming the new depreciation method was applied retroactively.
19
22
Item 6. Selected Financial Data, Continued
<TABLE>
<CAPTION>
52 Weeks
31 Weeks Ended Ended
--------------------------------- -----------
February 3, February 1, February 1,
1996 1997 1997
---------- ---------- ----------
<S> <C> <C> <C>
Pro forma amounts:
Income before extra-
ordinary item and
cumulative effect of
accounting change $ 8,422 $ 10,186 $ 20,177
Earnings per common
share 252.66 305.58 605.32
Net Income 8,422 10,186 20,177
Earning per common
share 252.66 305.58 605.32
Historical amounts:
Income before extra-
ordinary item and
cumulative effect of
accounting change 8,595 10,455 20,563
Earnings per common
share 257.85 313.65 616.90
Net Income 8,595 10,455 20,563
Earnings per common
share 257.85 313.65 616.90
</TABLE>
(d) Represents an insurance settlement relating to one store that incurred
significant damage in June 1994.
(e) Net income for the 52 weeks ended January 31, 1998 includes an extraordinary
loss of $3,126,000, net of income taxes of $2,150,000, for the write-off of
deferred financing costs associated with the Increasing Rate Notes.
(f) See Notes 1 and 2 to the Consolidated Financial Statements for a discussion
of the accounting for the Acquisition and the impact on the Successor
company financial statement.
20
23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Outlook
Except for historical information, statements in this Management's Discussion
and Analysis of Financial Condition and Results of Operations are forward-
looking. Actual results may differ materially due to a variety of factors,
including the Company's ability to open new stores and the effect of regional
economic conditions. Shoppers undertakes no obligation and does not intend to
update, revise or otherwise publicly release the result of any revisions to
these forward-looking statements that may be made to reflect future events or
circumstances.
Results of Operations
Reference to "fiscal 1998" means the 52 weeks ended January 31, 1998, "fiscal
1997" means the 52 weeks ended February 1, 1997, "fiscal 1996" means the 52
weeks ended June 29, 1996, "fiscal 1995" means the 52 weeks ended July 1, 1995
and "fiscal 1994" means the 52 weeks ended July 2, 1994.
52 Weeks Ended January 31, 1998 Compared with the 52 Weeks
Ended February 1, 1997 (unaudited)
The Company opened three new stores in fiscal 1998 for a store count of 37 at
January 31, 1998.
Sales increased by $4.9 million, from $850.9 million during the 52 weeks ended
February 1, 1997 to $855.8 million during the 52 weeks ended January 31, 1998.
The sales increases were due to the three new stores opened since July 1997.
Comparable store sales decreased 4.5% during the 52 weeks ended January 31,
1998. The decrease in comparable store sales was primarily due to the new
stores drawing customers from existing stores and competitive market
conditions.
Gross profit increased by $8.3 million (4.3%), from $190.9 million during the
52 weeks ended February 1, 1997 to $199.2 million during the 52 weeks ended
January 31, 1998. Gross profit, as a percentage of sales, increased to 23.3%
during the 52 weeks ended January 31, 1998 from 22.4% during the 52 weeks ended
February 1, 1997. The increases were primarily due to a more proactive pricing
strategy on selected items, a reduction in the number of items which are
offered at special discounts on a weekly basis in stores, a higher allowance
income achieved through increased vendor participation and a reduction in the
charge to operations for LIFO, from $0.9 million during the 52 weeks ended
February 1, 1997 to $0.4 million during the 52 weeks ended January 31, 1998.
Selling and administrative expenses increased by $6.1 million (3.9%), from
$154.6 million during the 52 weeks ended February 1, 1997 to $160.7 million
during the 52 weeks ended January 31, 1998. Selling and administrative
expenses, as a percentage of sales, increased from 18.2% during the 52 weeks
February 1, 1997 to 18.8% during the 52 weeks ended January 31, 1998. The
increases were primarily attributable to increased payroll costs associated
with negotiated union rates and to expenses associated with the new stores
opened since July 1997.
Depreciation and amortization increased by $2.4 million from $8.7 million
during the 52 weeks ended February 1, 1997 to $11.1 million during
21
24
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
the 52 weeks ended January 31, 1998. The increases were primarily due to
additional depreciation and amortization associated with goodwill and lease
rights, as well as with fixed assets purchased for the new stores opened since
July 1997 offset by a reduction of assets becoming fully depreciated in 1997. In
connection with the Acquisition, the Company commenced using Dart's method of
depreciating property and equipment on a straight-line basis. Prior to the
Acquisition, the Company used accelerated methods. The cumulative effect of this
change in accounting principle has been recorded in the financial statements for
the 52 weeks ended January 31, 1998. Depreciation expense for the 52 weeks ended
February 1, 1997 would have been $0.6 million more using the straight-line
basis.
Operating income was $27.4 million for the 52 weeks ended January 31, 1998
compared to $27.6 million during the same period in the prior year. The
decrease was primarily due to higher selling and administrative expenses and
increased depreciation and amortization and was partially offset by the
increase in gross profit.
Interest income decreased $2.4 million during the 52 weeks ended January 31,
1998 compared to the 52 weeks ended February 1, 1997 due to a reduction of
funds available for short-term investing as a result of the repayment of the
bridge financing associated with Acquisition.
Interest expense increased approximately $19.4 million from $1.6 million during
the 52 weeks ended February 1, 1997 to $21.1 million during the 52 weeks ended
January 31, 1998 as a result of interest paid on the Increasing Rate Notes,
interest accrued on the Senior Notes and the amortization of financing costs.
The effective income tax rate for the 52 weeks ended January 31, 1998 was 48.5%
compared to 35.7% for the 52 weeks ended February 1, 1997. The increase was
primarily attributable to nondeductible amortization of acquisition related
goodwill.
On June 26, 1997 the Company sold $200 million aggregate principal amount of
its 9.75% senior notes due 2004. On July 25, 1997, the proceeds were used to
repay $143.3 million (including approximately $3.3 million of accrued and
unpaid interest) of the existing Increasing Rate Notes and to pay $50.0 million
into an escrow account which was used by Dart when it consummated a settlement
with certain of its shareholders. As a result of this transaction, $5.3
million, representing an unamortized portion of the financing costs incurred to
secure initial senior indebtedness, were expensed as an extraordinary item, net
of taxes of approximately $2.2 million.
Net income decreased by $16.9 million, from $20.6 million during the 52 weeks
ended February 1, 1997 to $3.7 million during the 52 weeks ended January 31,
1998. These decrease was primarily attributable to increased interest expense
associated with the Company's indebtedness and the extraordinary item discussed
above offset by the cumulative effect of the change in accounting principle.
22
25
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
31 Weeks Ended February 1, 1997 Compared with the 31 Weeks
Ended February 3, 1996 (unaudited)
Sales increased $14.9 million, or 3.0%, from $496.1 million during the 31 weeks
ended February 3, 1996 to $511.0 million during the 31 weeks ended February 1,
1997. The increase in sales was primarily attributable to sales at a new
store that was open for the entire 31 weeks ended February 1, 1997 and opened
for 19 of the 31 weeks in the prior year. Same store sales increased by $4.8
million, or 1.0%, from $496.1 million to $500.9 million. This modest increase
was due primarily to a sales increase in remodeled stores offset by a sales
reduction in a store effected by the new Shoppers Club and the stores effected
by the remodels.
Gross profit increased $7.0 million, or 6.6%, from $105.9 million during the 31
weeks ended February 3, 1996 to $112.9 million during the 31 weeks ended
February 1, 1997. The increase was due to the increase in sales and an
increase in gross profit as a percentage of sales from 21.4% for the 31 weeks
ended February 3, 1996 to 22.1% for the 31 weeks ended February 1, 1997. The
percentage increase in the gross profit is attributed primarily to the slightly
higher gross profits achieved in the grocery, meat and produce departments.
Selling and administrative expense increased $5.0 million, or 5.6%, from $89.3
million during the 31 weeks ended February 3, 1996 to $94.3 million during the
31 weeks ended February 1, 1997. Selling and administrative expenses increased
as a percentage of sales from 18.0% of sales during the 31 weeks ended February
3, 1996 to 18.5% of sales during the 31 weeks ended February 1, 1997. The
increase was primarily attributable to an increase in the closed store reserve
of $0.7 million, an increase in insurance reserves of $0.4 million, increased
payroll costs associated with negotiated union rates and store remodelings,
increased credit and debit card fees due to a larger portion of such sales and
increased advertising costs.
Depreciation and amortization decreased from $4.8 million during the 31 weeks
ended February 3, 1996 to $4.6 million during the 31 weeks ended February 1,
1997. Depreciation and amortization decreased from 1.0% of sales during the 31
weeks ended February 3, 1996 to 0.9% of sales during the 31 weeks ended
February 1, 1997.
Operating income for the 31 weeks ended February 1, 1997 increased $2.1
million, or 17.9%, from the 31 weeks ended February 3, 1996 as a result of the
factors discussed above.
Interest income increased from $3.3 million during the 31 weeks ended February
3, 1996 to $3.5 million during the 31 weeks ended February 1, 1997. Interest
income increased as a result of increased funds available for short-term
investment. Interest expense decreased from $0.8 million during the 31 weeks
ended February 3, 1996 to $0.7 million during the 31 weeks ended February 1,
1997.
Net income increased to $10.5 million during the 31 weeks ended February 1,
1997 from net income of $8.6 million during the 31 weeks ended February 3,
1996. Income taxes were recorded at an effective rate of 37.9% during the 31
weeks
23
26
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
ended February 1, 1997 compared to 38.7% during the 31 weeks ended February 3,
1996.
52 Weeks Ended June 29, 1996 Compared with the 52 Weeks Ended July 1, 1995
Sales increased $45.2 million, or 5.7%, from $790.8 million in fiscal 1995 to
$836.0 million in fiscal 1996. The increase resulted primarily from a 2.3%
increase in comparable store sales, the opening of one new store in fiscal 1996
and the restoration of one store which was temporary closed due to fire damage.
The increase in comparable store sales growth was primarily attributable to
sales increases during the severe winter conditions in Greater Washington, D.C.
Gross profit increased $9.7 million, or 5.6%, from $174.3 million in fiscal
1995 to $184.0 million in fiscal 1996. Gross profit as a percentage of sales
remained unchanged at 22.0%.
Selling and administrative expenses increased $12.8 million, or 9.4%, from
$136.8 million in fiscal 1995 to $149.6 million in fiscal 1996. Selling and
administrative expenses increased from 17.3% of sales in fiscal 1995 to 17.9%
of sales in fiscal 1996. Selling and administrative expenses increased as a
percentage of sales in fiscal 1996 primarily due to increased payroll and
payroll benefit costs.
Depreciation and amortization increased $0.4 million, or 4.7%, from $8.5
million in fiscal 1995 to $8.9 million in fiscal 1996. Depreciation and
amortization as a percentage of sales remained unchanged at 1.1%.
Operating income for fiscal 1996 decreased $3.5 million, or 12.1%, from $29.0
million in fiscal 1995 to $25.5 million in fiscal 1996 as a result of the
factors discussed above.
Interest income increased from $4.7 million in fiscal 1995 to $5.8 million in
fiscal 1996 primarily due to increased funds available for short-term
investments. Interest expense increased from $1.5 million in fiscal 1995 to
$1.8 million in fiscal 1996. The increase in interest expense was due primarily
to interest payments as a result of a federal income tax audit.
Net income decreased to $18.7 million in fiscal 1996 from $19.5 million in
fiscal 1995. The decrease in net income resulted from factors discussed above.
In addition, the effective tax rate decreased from 43.1% in fiscal 1995 to
35.9% in fiscal 1996 as a result of a decrease in the effective rate paid for
state income taxes and a decrease in estimated federal income tax
contingencies.
52 Weeks Ended July 1, 1995 Compared with the 52 Weeks Ended July 2, 1994
Sales increased $40.5 million, or 5.4%, from $750.3 million in fiscal 1994 to
$790.8 million in fiscal 1995. The increase resulted primarily from a 7.3%
increase in comparable store sales, partially offset by the closing of 2 stores
in fiscal 1995. The comparable store sales growth increase was primarily
attributable to the continuing maturation of several stores, an aggressive
advertising campaign and the introduction of debit and credit card payment
methods.
24
27
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Gross profit increased $17.0 million, or 10.8%, from $157.3 million in fiscal
1994 to $174.3 million in fiscal 1995. Gross profit as a percentage of sales
increased from 21.0% in fiscal 1994 to 22.0% in fiscal 1995 due primarily to
higher support of merchandising programs by vendors.
Selling and administrative expenses increased $9.2 million, or 7.2%, from
$127.6 million in fiscal 1994 to $136.8 million in fiscal 1995. Selling and
administrative expenses increased from 17.0% of sales in fiscal 1994 to 17.3%
of sales in fiscal 1995. The increase was primarily the result of increased
payroll costs and credit card fees as a result of Shoppers' new policy of
accepting credit cards.
Depreciation and amortization decreased $2.3 million, or 21.3%, from $10.8
million in fiscal 1994 to $8.5 million in fiscal 1995. Depreciation and
amortization decreased from 1.4% of sales in fiscal 1994 to 1.1% of sales in
fiscal 1995. The decrease was primarily the result of a decrease in store
openings and remodelings, compared to the past three years, in conjunction with
the use, by Shoppers, of accelerated methods of depreciation.
Operating income increased $10.2 million or 53.8% from $18.8 million in fiscal
1994 to $29.0 million in fiscal 1995 as a result of the factors described
above.
Interest income increased from $2.2 million in fiscal 1994 to $4.7 million in
fiscal 1995 as a result of increased funds available for short-term investment.
Interest expense was $1.4 million in fiscal 1994 and $1.5 million in fiscal
1995.
Net income increased to $19.5 million in fiscal 1995 from $12.9 million in
fiscal 1994. The increase in net income resulted from the factors discussed
above.
Year 2000 Compliance (unaudited)
The Company is currently in the process of conducting a review of the impact of
Year 2000 on its information systems, as well as reviewing its impact on
relationships with key customers and vendors. Based on this review, the
Company is upgrading its store POS systems, General Ledger, Accounts Payable
and Payroll systems. All other systems are currently Year 2000 compliant. The
upgrades are scheduled to be completed by January 1999. There can be no
certainty that the upgrades will be completed by the year 2000. Currently, the
aggregate cost associated with this program have not been estimated.
Effects of Inflation
During the last several years, the rate of general inflation has been
relatively low and has not had a significant impact of Shoppers' business.
Liquidity and Capital Resources
The Company's principal sources of liquidity are expected to be cash flow from
operations and, if necessary, borrowings under its Credit Facility. It is
anticipated that the Shoppers' principal uses of liquidity will be to provide
25
28
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
working capital, finance capital expenditures, meet debt service requirements.
Letters of credit have been issued in connection with Shoppers' workers'
compensation insurance in the amount of approximately $6.6 million as of
January 31, 1998. These letters of credit will mature at various dates through
June 4, 1998.
During the 52 weeks ended January 31, 1998, operating activities generated
$16.6 million of cash. One of the principal uses of cash in the Company's
operating activities is inventory purchases. However, Shoppers' relatively
high inventory turnover enables the Company to finance a substantial portion of
its inventory through trade payables, thereby allowing the Company to use cash
from operations for non-current purposes such as financing capital expenditures
and other investing activities.
For the 52 weeks ended January 31, 1998, investing activities provided $85.6
million to Shoppers from the net disposition of $95.1 million of marketable
debt securities, which amount was partially offset by $9.5 million of capital
expenditures.
Shoppers estimates that it will make capital expenditures of approximately $9.4
million during the 52 weeks ended January 30, 1999. Such expenditures relate
to new store openings as well as routine expenditures for equipment and
maintenance. Management expects that these capital expenditures will be
financed primarily through cash flow from operations and, if necessary, the
Credit Facility.
In February 1997, $137.2 million of the net proceeds from the sale of the
Increasing Rate Notes and $72.8 million of Shoppers' cash, cash equivalents and
short-term investments were used to fund the Acquisition. In addition,
Shoppers paid approximately $6.9 million in fees and expenses incurred by Dart
in connection with the Acquisition. On February 6, 1997, the Company also
declared a dividend of $10.0 million that was paid on May 30, 1997.
In June 1997, Shoppers sold $200.0 million aggregate principal amount of its
Senior Notes due 2004 (the "Senior Notes"). The net proceeds of the offering
was approximately $193.5 million. Shoppers used approximately $143.5 million
of the net proceeds to repay its Increasing Rate Notes due 2000 (including
accrued and unpaid interest through the date of redemption). The remaining net
proceeds were paid to Dart for a settlement with Robert M., Gloria G. and Linda
G. Haft on September 26, 1997 in the form of a $40 million dividend and a $10
million loan. In January 1998, Shoppers loaned Dart an additional $25 million
for the settlement with Herbert H. Haft.
Shoppers' current interest expense consists primarily of interest on the Senior
Notes and capital lease obligations. Interest expense increased approximately
$19.4 million from $1.6 million during the 52 weeks ended February 1, 1997 to
$21.1 million during the 52 weeks ended January 31, 1998 due to interest paid
on the Increasing Rate Notes, interest accrued on the Senior Notes and
amortization of deferred financing costs.
The Company believes that cash flows from Shoppers' operations and, if
necessary, borrowings under the Credit Facility will be adequate to meet its
26
29
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
anticipated requirements for working capital, debt service and capital
expenditures over the next few years. However, there can be no assurances that
Shoppers will generate sufficient cash flow from operations or that it will be
able to borrow under the Credit Facility.
27
30
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Financial Statements Page
-------------------- ----
<S> <C>
Report of Independent Public Accountant 29
Consolidated Balance Sheets 30-31
Consolidated Statements of Operations 32-33
Consolidated Statements of Changes in
Stockholders' Equity 34
Consolidated Statements of Cash Flows 35-36
Notes to Consolidated Financial Statements 37-54
</TABLE>
28
31
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 5,914 $ 5,782
Short-term instruments 11,973 5,941
Marketable debt securities 666 2,479
Accounts receivable 8,653 6,841
Note Receivable from Dart Group 3,215 -
Merchandise inventories 67,027 106,193
Prepaid income taxes 3,670 -
Deferred income taxes 9,844 6,494
Other current assets 3,194 3,083
--------- ---------
Total Current Assets 114,156 136,813
--------- ---------
Property and Equipment, at cost:
Furniture, fixtures and equipment 54,767 63,675
Leasehold improvements 9,970 12,103
Property under capital leases 22,032 22,032
--------- ---------
86,769 97,810
Accumulated Depreciation and Amortization 50,513 49,876
--------- ---------
36,256 47,934
--------- ---------
Other Assets 93 1,502
--------- ---------
Note Receivable from Dart Group 15,000 -
--------- ---------
Deferred Income Taxes 8,001 5,971
--------- ---------
Total Assets $ 173,506 $ 192,220
========= =========
</TABLE>
See notes to consolidated financial statements.
31
32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF SHOPPERS FOOD WAREHOUSE CORP.:
We have audited the accompanying consolidated balance sheets of Shoppers Food
Warehouse Corp. (a Delaware corporation and wholly owned subsidiary of Dart
Group Corporation) and subsidiaries (the "Company" or "Successor"), as of
January 31, 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the fifty-two weeks ended January 31,
1998 and the accompanying balance sheet of Shoppers Food Warehouse Corp. and
subsidiaries (the "Predecessor") as of February 1, 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the thirty-one weeks ended February 1, 1997 and for each of the fifty-two weeks
in the period ended June 29, 1996. These financial statements are the
responsibility of the Company's and the Predecessor'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 an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Shoppers Food Warehouse Corp.
(Successor) and subsidiaries as of January 31, 1998, and the results of their
operations and their cash flows for the fifty-two weeks ended January 31, 1998,
and the financial position of Shoppers Food Warehouse Corp. (Predecessor) and
subsidiaries as of February 1, 1997 and the results of their operations and
their cash flows for the thirty-one weeks ended February 1, 1997 and for each
of the two years in the period ended June 29, 1996, in conformity with
generally accepted accounting principles.
Effective February 6, 1997, the Company changed its method of depreciating
property and equipment (see Note 1).
ARTHUR ANDERSEN LLP
Washington, D.C.
April 28, 1998
29
33
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
Successor | Predecessor
January 31, | February 1,
ASSETS 1998 | 1997
------------ ------------
<S> <C> <C>
Current Assets: |
Cash and equivalents $ 4,027 | $ 13,739
Marketable debt securities 522 | 94,999
Accounts receivable 7,950 | 9,244
Merchandise inventories 30,795 | 29,699
Prepaid income taxes 1,217 | -
Deferred income taxes 4,254 | -
Prepaid expenses 2,173 | 2,056
Due from affiliate 522 | 522
-------- --------
51,460 | 150,259
-------- --------
|
Property and Equipment, at cost: |
Land and buildings 7,503 | 9,120
Store and warehouse equipment 62,496 | 78,737
Office and automotive equipment 2,019 | 3,767
Leasehold improvements 3,842 | 4,412
-------- --------
75,860 | 96,036
Accumulated depreciation and amortization 36,973 | 73,944
-------- --------
Net property and equipment 38,887 | 22,092
-------- --------
|
Deferred Income Taxes - | 5,853
Deferred Financing Costs 6,543 | -
Goodwill 145,118 | -
Lease Rights 11,689 | -
Note Receivable from Dart Group 35,374 | -
Other Assets 861 | 804
-------- --------
|
Total assets $289,932 | $179,008
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
30
34
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
Successor | Predecessor
January 31, | February 1,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 | 1997
------------ ------------
<S> <C> <C>
Current Liabilities: |
Accounts payable $ 40,006 | $ 41,830
Accrued expenses |
Salaries and benefits 4,490 | 4,886
Taxes other than income 2,687 | 2,903
Interest 2,654 | -
Other 6,654 | 6,469
Income taxes payable - | 1,391
-------- --------
56,491 | 57,479
-------- --------
|
Senior Notes due 2004 200,000 | -
Capital Lease Obligations 11,315 | 10,035
Deferred Income Taxes 9,625 | -
Other Liabilities 6,549 | 7,006
-------- --------
Total liabilities 283,980 | 74,520
-------- --------
|
Commitments and Contingencies |
Stockholders' Equity: |
Class A common stock, nonvoting, par value |
$5.00 per share, 25,000 shares authorized; |
23,333 1/3 shares issued 117 | 117
Class B common stock, voting, par value |
$5.00 per share, 25,000 shares authorized; |
10,000 shares issued 50 | 50
Unrealized gain on short-term investments 4 | -
Retained earnings 5,781 | 104,321
-------- --------
Total stockholders' equity 5,952 | 104,488
-------- --------
Total liabilities and stockholders' |
equity $289,932 | $179,008
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
31
35
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars and shares in thousands, except per share data)
<TABLE>
<CAPTION>
Successor | Predecessor
----------------------------------------
January 31, | February 1, June 29, July 1,
1998 | 1997 1996 1995
---------- ---------- ---------- ----------
(52 weeks) | (31 weeks) (52 weeks) (52 weeks)
|
<S> <C> <C> <C>
Sales $855,769 | $ 511,025 $ 835,971 $ 790,842
Cost of sales 656,572 | 398,129 651,986 616,521
-------- ---------- ---------- --------
Gross profit 199,197 | 112,896 183,985 174,321
-------- ---------- ---------- --------
|
Selling and administrative |
expenses 160,713 | 94,304 149,570 136,798
Depreciation and |
amortization 11,090 | 4,573 8,913 8,529
-------- ---------- ---------- --------
Operating income 27,394 | 14,019 25,502 28,994
|
Interest income 3,587 | 3,526 5,789 4,682
Interest expense 21,079 | 710 1,771 1,451
Insurance settlement, gain |
(loss) -- | -- (355) 2,065
-------- ---------- ---------- --------
Income before income, taxes, |
extraordinary item and |
cumulative effect of |
accounting change 9,902 | 16,835 29,165 34,290
Income taxes 4,801 | 6,380 10,462 14,764
-------- ---------- ---------- --------
Income before extraordinary |
item and cumulative effect |
of accounting change 5,101 | 10,455 18,703 19,526
Extraordinary item: |
Loss on early |
extinguishment of debt, |
net of income taxes of |
$2,150 (3,126) | -- -- --
Cumulative effect of |
accounting change, net |
of income taxes of |
$1,344 1,729 | -- -- --
-------- ---------- ---------- --------
Net income $ 3,704 | $ 10,455 $ 18,703 $ 19,526
======== ========== ========== ========
|
Earnings per common |
share data (Basic and Dilutive) |
Income before extra- |
ordinary item and |
cumulative effect |
of accounting change $153.03 | $ 313.65 $ 561.09 $ 585.78
Extraordinary item: |
Loss on early |
extinguishment of |
debt, net (93.78) | -- -- --
Cumulative effect of |
accounting change, net 51.87 | -- -- --
-------- ---------- ---------- --------
Net income $ 111.12 | $ 313.65 $ 561.09 $ 585.78
======== ========== ========== ========
</TABLE>
(Continued on next page)
32
36
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(dollars and shares in thousands, except per share data)
<TABLE>
<CAPTION>
Successor | Predecessor
-----------------------------------
January 31, | February 1, June 29, July 1,
1998 | 1997 1996 1995
---------- ---------- ---------- ----------
(52 weeks) | (31 weeks) (52 weeks) (52 weeks)
<S> <C> <C> <C> <C>
Weighted average common |
shares outstanding 33 | 33 33 33
======== ======== ======== ========
|
Pro forma amounts assuming |
change in accounting |
principle is applied |
retroactively: |
Income before |
extraordinary item | $ 10,186 $ 18,413 $ 19,170
Earnings per common share | 305.58 522.39 575.10
Net income | 10,186 18,413 19,170
Earnings per common |
share | 305.58 522.39 575.10
</TABLE>
The accompanying notes are an integral part of these statements.
33
37
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars and shares in thousands)
<TABLE>
<CAPTION>
Successor | Predecessor
----------------------------------
January 31,| February 1, June 29, July 1,
1998 | 1997 1996 1995
---------- ---------- ---------- ----------
(52 weeks) | (31 weeks) (52 weeks) (52 Weeks)
<S> <C> <C> <C> <C>
Common Stock-Class A: |
Balance, beginning |
and end of period $ 117 | $ 117 $ 117 $ 117
======== ======== ======== ========
|
Common Stock-Class B: |
Balance, beginning |
and end of period $ 50 | $ 50 $ 50 $ 50
======== ======== ======== ========
|
Unrealized Investment |
Gains (Losses) $ 4 | $ -- $ -- $ --
======== ======== ======== ========
|
Retained Earnings: |
Balance, beginning |
of period $104,321 | $103,866 $ 95,163 $ 75,637
Net income 3,704 | 10,455 18,703 19,526
Merger of SFW Acquisition |
Corp. (52,244) | - - -
Shareholder distributions (50,000) | ( 10,000) (10,000) --
-------- -------- -------- --------
Balance, end of period $ 5,781 | $104,321 $103,866 $ 95,163
======== ======== ======== ========
|
Common Stock Outstanding: |
Balance, beginning and |
end of period 33 | 33 33 33
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
38
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Successor | Predecessor
----------------------------------
January 31,| February 1, June 29, July 1,
1998 | 1997 1996 1995
---------- ---------- ---------- ----------
(52 weeks) | (31 weeks) (52 weeks) (52 weeks)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,704 | $ 10,455 $ 18,703 $ 19,526
Adjustments to reconcile net |
income to net cash provided |
by operating activities |
Depreciation and amortiza- |
tion 11,090 | 4,573 8,913 8,529
Cumulative effect of account- |
ing change (1,729) | - - -
Amortization of deferred |
financing costs 1,214 | - - -
Deferred income taxes (866) | (1,564) 288 (1,058)
Loss on disposition of |
asset -- | -- -- 34
Interest expense in excess |
of capital payments -- | -- 119 208
Write-off of increasing Rate |
Notes financing cost 5,276 | - - -
Increase in deferred rent |
liability 991 | 281 687 553
Changes in operating assets |
and liabilities: |
Accounts receivable 575 | (1,536) (75) 1,028
Merchandise inventories (1,096) | (1,357) (1,089) 1,810
Prepaid income taxes (1,217) | - - -
Prepaid expenses (117) | (1,034) (66) (63)
Due from affiliates -- | -- -- 490
Other assets (57) | 37 275 (252)
Accounts payable (1,824) | 1,965 1,590 2,009
Accrued expenses 2,688 | 1,892 878 (1,023)
Income taxes payable - | 1,664 (2,425) 1,307
Closed store reserve (353) | - - -
Deferred income (1,650) | 2,036 (806) (1,191)
-------- -------- -------- --------
Net cash provided by |
operating activities $ 16,629 | $ 17,412 $ 26,992 $ 31,907
-------- -------- -------- --------
|
Cash flows from investing activities: |
Capital expenditures $ (9,497) | $ (5,280) $ (7,355) $ (4,693)
Purchase of short-term |
investments (36,093) | (95,421) (218,039) (138,613)
Sales/maturities of short- |
term investments 131,190 | 103,502 173,312 107,777
-------- -------- -------- --------
Net cash provided by |
(used in) activities $ 85,600 | $ 2,801 $(52,082) $(35,529)
-------- -------- -------- --------
</TABLE>
(continued on next page)
35
39
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
Successor | Predecessor
----------------------------------
January 31,| February 1, June 29, July 1,
---------- ---------- ---------- ----------
1998 | 1997 1996 1995
(52 weeks) | (31 weeks) (52 weeks) (52 weeks)
<S> <C> <C> <C>
Cash flows from financing activities:
Dividends to shareholders $ (50,000) | $(10,000) $ (10,000) $ --
Payments for acquisition and |
deferred financing costs (13,843) | - - -
Proceeds from Senior Notes 200,000 | - - -
Repayment of Increasing Rate |
Notes (140,000) | - - -
Restricted proceeds (50,218) | - - -
Release of Restricted Proceeds 50,000 | - - -
Notes receivable from Dart Group (35,000) | - - -
Payment of acquisition debt (72,800) | - - -
Payments on Capital Lease (80) | (34) -- --
--------- -------- - -------- ---------
Net cash used in |
financing activities $(111,941) | $(10,034) $ (10,000) $ --
--------- -------- - ------- ---------
|
Net increase (decrease) in |
cash and equivalents $ (9,712) | $ 10,179 $ (35,090) $ (3,622)
Cash and equivalents, |
beginning of period 13,739 | 3,560 38,650 42,272
--------- -------- - ------- --------
Cash and equivalents, end |
of period $ 4,027 | $ 13,739 $ 3,560 $ 38,650
========= ======== = ======= ========
Supplemental disclosure of cash flow information:
Cash paid during the fiscal |
year for |
Income taxes $ 4,812 | $ 6,300 $ 12,487 $ 12,091
Interest 16,868 | 710 1,771 1,451
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
36
40
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29,1996 and July 1, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
Shoppers Food Warehouse Corp. (a Delaware corporation) and its subsidiaries,
collectively "Shoppers" or the "Company." All significant intercompany
accounts and transactions have been eliminated. On February 6, 1997, Dart
Group Corporation ("Dart") acquired the 50% interest in Shoppers that it did
not already own for $210 million (the "Acquisition") and the Company (the
"Successor") became a wholly owned subsidiary of Dart (see Note 2). Prior to
the acquisition the Company is referred to as the Predecessor. The Company is
engaged in the business of discount grocery stores in Maryland and Virginia.
Fiscal Year
In connection with the Acquisition, the Company changed its fiscal year end to
the Saturday closest to January 31. Previously the Company's fiscal year ended
on the Saturday closest to June 30. A fiscal year end coinciding with the
Saturday closest to a month end results in a 52 or 53 week year. The fiscal
years ended January 31, 1998, June 29, 1996 and July 1, 1995 contained 52
weeks. The period ended February 1, 1997 contained 31 weeks.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Equivalents
The Company considers all highly liquid temporary cash investments with
maturities of three months or less to be cash equivalents. The majority of
these are invested in U.S. Treasury Notes.
Marketable Debt Securities
Marketable debt securities included United States Treasury Notes and United
States Agency Securities.
Effective February 1, 1997, the Company classifies its marketable debt
securities as available-for-sale. At January 31, 1998, market value was
approximately $4,000 greater than cost, net of income taxes, and the Company
had no investments that qualified as trading or held-to-maturity.
The amortized cost of debt securities classified as available-for-sale is
adjusted for amortization premiums and accretion of discounts to maturity.
37
41
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and July 1, 1995
Such amortization and interest are included in interest income. Realized gains
and losses are included in interest income. The cost of securities sold is based
on the specific identification method. The following table presents the
estimated fair value of marketable debt securities available for sale by
contractual maturity at January 31, 1998:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
Due in one year or less $ 522
Due after one year -
--------
$ 522
========
</TABLE>
Expected maturities may differ from contractual maturities because the issuers
of securities may have the right to prepay obligations without prepayment
penalties.
Merchandise Inventories
The Company's inventories are priced at the lower of cost or market. Cost is
determined using the last-in, first-out ("LIFO") method. If replacement cost
(which approximates the first-in, first-out method) had been used, inventories
would have been greater by approximately $4,743,000,$4,375,000, $3,845,000 and
$2,940,000 as of January 31, 1998, February 1, 1997, June 29, 1996 and July 1,
1995, respectively. Net income would have been higher by approximately
$368,000, $530,000, $905,000 and $877,000 for the periods ended January 31,
1998, February 1, 1997, June 29, 1996 and July 1, 1995, respectively.
Accounts Receivable
Accounts receivable include amounts due from vendors for coupons remitted,
cooperative advertising, merchandise rebates, as well as interest receivable on
treasury notes.
Property and Equipment
Property and equipment are stated at cost. The Company depreciated property
and equipment using accelerated methods over the estimated useful lives of the
assets, generally five to seven years. In connection with the Acquisition, the
Company adopted Dart's method of depreciating property and equipment on a
straight line basis. The following pro forma analysis for the Predecessor
gives effect to the change in depreciation method assuming the depreciation
method was applied retroactively.
38
42
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and July 1, 1995
<TABLE>
<CAPTION>
February 1, June 29, July 1,
1997 1996 1995
--------- ---------- ---------
(31 weeks) (52 weeks) (52 weeks)
<S> <C> <C> <C>
Pro forma amounts:
Net income $10,186 $18,413 $19,170
Earnings per common
share $305.58 $522.39 $575.10
Historical amounts:
Net income $10,455 $18,703 $19,526
Earnings per common
share $313.65 $561.09 $585.78
</TABLE>
Accrued Insurance Claims
The Company maintains self funded coverage with respect to general, workers
compensation, and health insurance liabilities. Claims for general and workers'
compensation are administered through insurance companies, which estimate the
obligation of reported claims. An estimate of the obligation for health
insurance claims is accrued at year-end and is based on historical data.
Expenses arising from claims are accrued as claims become subject to
estimation. Self-insurance liabilities are based on claims filed plus an
additional amount for incurred but not reported claims. These liabilities are
not discounted.
Income Taxes
The Company provides a deferred tax expense or benefit equal to the change in
the net deferred tax asset during the year. Deferred income taxes represent
the future net tax effects resulting from temporary differences between the
financial statements and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Store Opening and Closing Costs
All costs of a noncapital nature incurred in opening a new store are charged to
expense as incurred. The Company opened three new stores and one new store
during the 52 weeks ended January 31, 1998 and June 29, 1996, respectively. No
stores were opened during the 52 weeks ended July 1, 1995 and the 31 weeks
ended February 1, 1997.
The costs associated with store closings are charged to selling and
administrative expense when management makes the decision to close a store.
Such costs consist primarily of lease payments and other carrying costs of
holding the facility, net of estimated sublease income.
Deferred Income
The Company has entered into various agreements with vendors and suppliers which
provide for the payment of cash or the receipt of merchandise at the beginning
39
43
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and July 1, 1995
or during the contract period. These amounts are deferred and amortized over the
expected lives of the contracts.
Long Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value should be assessed. Impairment
is measured by comparing the carrying value to the estimated undiscounted
future cash flows expected to result from the use of the assets and their
eventual disposition. The Company has determined that as of January 31, 1998,
there has been no impairment in the carrying value of long-lived assets.
Concentration of Credit Risk
The Company's assets that are exposed to credit risk consist primarily of cash
and equivalents, short-term investments, and accounts receivable. The Company
maintains cash and equivalents with major banks in its marketplace. The
Company performs periodic evaluations of the relative credit standing of the
financial institutions with which it does business. The Company's short-term
investments are invested in United States Treasury Bills. The Company's
accounts receivable balance results primarily from the amounts due from its
vendors for various promotional programs. The Company periodically reviews its
accounts receivable balance and allows for uncollectible accounts.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards ("SFAS") No. 107, Disclosures About
Fair Value of Financial Instruments, requires the disclosure of the fair value
of a financial instrument for which it is practicable to estimate the value and
the methods and significant assumptions used to estimate the value. At January
31, 1998, February 1, 1997, June 29, 1996, and July 1, 1995 the carrying amount
of current assets and current liabilities approximates fair value due to the
short maturity of those instruments.
The fair value for the Company's fixed rate Senior Notes is based on quoted
market prices. The fair value of the Company's Senior Notes on January 31,
1998 was approximately $201.5 million.
Earnings Per Share
Earnings per common share is based on the weighted average number of common
shares and common share equivalents outstanding during the year. The Company
adopted SFAS No. 128, Earnings Per Share, in the fourth quarter of fiscal 1998
and has restated all previously presented earnings per share data. The Company
has no dilutive securities therefore, earnings per common share represents both
basic and diluted earnings per share.
40
44
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and July 1, 1995
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
Reporting Comprehensive Income. SFAS No. 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. The Company will adopt SFAS No.
130 in the first quarter of fiscal 1999 and will provide the necessary
disclosures.
NOTE 2 - ACQUISITION
On February 6, 1997, Dart acquired the 50% interest in Shoppers that it did not
already own for $210 million (the "Acquisition") and Shoppers became a wholly
owned subsidiary of Dart. Dart financed the Acquisition through the
application of $137.2 million in net proceeds raised from an offering of
Increasing Rate Senior Notes due 2000 (the "Increasing Rate Notes") of SFW
Acquisition Corp., a newly created wholly-owned indirect subsidiary of Dart,
and $72.8 million of bridge financing (the "Bridge Loan") provided by a bank.
Immediately after the Acquisition, SFW Acquisition Corp. merged into Shoppers
(with Shoppers becoming the obligor on the Increasing Rate Notes) and Shoppers
repaid the Bridge Loan from its existing cash and the liquidation of certain
short-term investments.
The Acquisition was recorded using the purchase method of accounting and Dart's
interest in Shoppers has been pushed down into the accompanying financial
statements. The purchase price has been allocated to the assets and
liabilities of Shoppers and the remaining excess purchase price over the net
assets acquired of $148.8 million represents goodwill which will be amortized
over 40 years. In conjunction with the Acquisition, the Company adopted Dart's
method of depreciating property and equipment on a straight-line basis. Prior
to the Acquisition, the Company used accelerated depreciation methods.
Pro forma operating results for the 52 weeks ended February 1, 1997 reflect the
Acquisition as if it had occurred on February 4, 1996. The following unaudited
pro forma results of the Predecessor reflect the push down of all acquisition
entries, including additional amortization of intangibles, interest on the
acquisition related debt, amortization of deferred financing costs as well as
depreciation adjustments for the new basis of assets as of the Acquisition.
<TABLE>
<CAPTION>
Pro Forma
52 Weeks Ended
February 1, 1997
----------------
<S> <C>
Sales $ 850,875
Income before taxes 7,793
Income before extraordinary item
and cumulative effect of
accounting change 3,660
</TABLE>
41
45
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and July 1, 1995
NOTE 3 - LONG-TERM DEBT
Senior Notes
In June 1997, Shoppers refinanced the Increasing Rate Notes with $200.0 million
aggregate principal amount of 9 3/4% Senior Notes due 2004 (the "Senior
Notes"). The net proceeds from the Senior Notes was $193.5 million (after fees
and expenses of approximately $6.5 million) of which $143.5 million was used to
repay the Increasing Rate Notes (including interest) and $50.0 million (the
"Restricted Proceeds") was paid to Dart in the form of a $40 million dividend
and a $10 million loan (see Note 10) for settlements with certain Dart
shareholders (Haft family members). The early extinguishment of the Increasing
Rate Notes resulted in the write-off of unamortized deferred financing costs of
$5,276,000. Interest on the Senior Notes accrued from the date of issuance and
is payable semi-annually in arrears on each June 15 and December 15, commencing
December 15, 1997. The Senior Notes are effectively subordinated in right of
payment to all secured indebtedness of the Company and certain restrictive
covenants including, limitation on restricted payments, limitation on
indebtedness, limitation on investments, loans and advances, limitation on
liens, limitation on transactions with affiliates, restriction on mergers,
consolidations and transfers of assets, limitation on lines of business,
limitations on asset sales and limitation on issuance and sale of capital stock
of subsidiaries. In addition, the Company is restricted, as to the amount, of
declaring or paying any dividends or making distributions of the Company's
capital stock accounts.
The Senior Notes are fully and unconditionally guaranteed by SFW Holding Corp.
("Holdings"), the immediate parent of the Company. Holdings holds 100% of the
common stock of Shoppers and is wholly-owned subsidiary of Dart. The guarantee
is secured by a first priority security interest in the capital stock of the
Company owned by Holdings.
Prior to the Acquisition, Holdings had no material assets, liabilities or
operations independent of the Company. As of the Acquisition date, Dart
contributed its initial 50% interest in the Company to Holdings for 100% of the
stock of Holdings. This interest was recorded at Dart's carryover basis.
Subsequent to the merger of SFW Acquisition Corp. into the Company, Holdings
became the immediate parent of the Company. Holdings' sole purpose is to own
the Company's stock.
Since Holdings' sole asset is the common stock of Shoppers and the accounting
for the Acquisition was pushed down into the Company's financial statements, the
post acquisition consolidated financial statements of Holdings are substantially
the same as the Company's consolidated financial statements. Accordingly, no
separate financial statements of Holdings are presented because this information
would not be material to investors.
Revolving Credit Facility
On December 22, 1997, the Company entered into a revolving loan and security
agreement (the "Credit Facility") to borrow up to $25 million. The Company
42
46
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and July 1, 1995
intends to use proceeds from drawdowns from the Credit Facility for working
capital and other corporate purposes. The Credit Facility has an original term
of five years and may be renewed for up to two additional one year periods.
Borrowings under the Credit Facility shall bear interest at rates ranging from
prime rate minus 0.25% to prime rate plus 0.25%, for prime rate loans, or LIBOR
plus 1.5% to LIBOR plus 2.0%, for LIBOR loans. The Company may elect prime
rate loans or LIBOR loans. Interest rates are based upon the Company's net
income determined in accordance with Generally Accepted Accounting Principles;
plus, income taxes, interest expense (net of interest income), amortization and
depreciation expenses, LIFO expense, other non-cash charges (excluding accruals
for cash expenses made in the ordinary course of business) and losses from
sales or other dispositions of assets; less, gains from sales or other
dispositions and extraordinary or non-recurring gains, but not net of
extraordinary or non-recurring cash losses ("EBITDA"). Borrowings are limited
to eligible accounts, as defined less any letters of credit outstanding, and
are secured by the Company's inventory and certain accounts receivable.
Interest on prime rate loans is payable monthly and interest on LIBOR loans is
payable between one and three months. The Credit Facility includes a fee on
the unused principal balance of 0.375% per annum until January 31, 1999 and a
variable rate from .25% to .50% based on EBITDA. Letters of credit issued under
the Credit Facility cannot exceed $10.0 million and Shoppers must pay a fee of
1.75 percent to 1.25 percent, based on the level of EBITDA, of the daily
outstanding balance of the letters of credit. The Credit Facility has certain
restrictive covenants, including the maintenance of specified EBITDA levels.
As of January 31, 1998, the Company had not borrowed under the Credit Facility.
As of January 31, 1998, February 1, 1997, June 29, 1996, and July 1, 1995, the
Company's had outstanding letters of credit of approximately $6,597,000,
$6,724,000, $6,424,000, and $6,135,000, respectively. One of the letters of
credit expired on March 1, 1998, three others are expected to expire on May 1,
1998 and the remaining letter credit expires on June 4, 1998. One has been
replaced with a surety bond and the others will be secured by replacement
letters of credit.
NOTE 4 - INCOME TAXES
The provision for income taxes before extraordinary items and cumulative effect
of accounting change is comprised of the following (in thousands):
43
47
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and July 1, 1995
<TABLE>
<CAPTION>
Successor | Predecessor
-------------------------------
January 31, | February 1, June 29, July 1,
1998 | 1997 1996 1995
---------- --------- -------- -------
(52 Weeks) | (31 Weeks) (52 Weeks) (52 Weeks)
<S> <C> <C> <C> <C>
Current income tax provision: |
Federal $ 4,068 | $ 7,412 $ 9,493 $ 14,248
State 207 | 532 681 1,574
Deferred income tax |
provision (benefit) 526 | (1,564) 288 (1,058)
-------- -------- -------- --------
$ 4,801 | $ 6,380 $ 10,462 $ 14,764
======== ========= ======== ========
</TABLE>
This effective income tax rate is reconciled to the Federal statutory rate as
follows:
<TABLE>
<CAPTION>
Successor | Predecessor
---------------------------------
January 31, | February 1, June 29, July 1,
1998 | 1997 1996 1995
---------- ---------- ---------- -----------
(52 Weeks) | (31 Weeks) (52 Weeks) (52 Weeks)
<S> <C> <C> <C> <C>
Federal statutory rate 35.0% | 35.0% 35.0% 35.0%
Increase in taxes resulting |
from: |
State income taxes, net of |
Federal income tax benefit 0.9 | 2.0 2.0 3.1
Revision of estimate for |
tax accruals - | - -- 3.7
Amortization of Goodwill 12.8 | - - -
Other (0.2) | 0.9 (1.1) 1.3
-------- -------- -------- --------
Effective tax rate 48.5 % | 37.9 % 35.9 % 43.1 %
======== ======== ======== ========
</TABLE>
As a result of the Acquisition certain differences have arisen between book and
tax basis of various assets and liabilities of the Company (see Note 2) and are
reflected in the table that follows. Temporary differences which give rise to
the deferred tax assets and liabilities on a consolidated basis are as follows
(in thousands):
44
48
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and July 1, 1995
<TABLE>
<CAPTION>
Successor | Predecessor
-------------------------------
January 31,| February 1, June 29, July 1,
1998 | 1997 1996 1995
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Deferred tax assets: |
Loss on disposition of |
Total Beverage $ - | $ 374 $ 374 $ 381
Reserves for store |
closings |
and other 210 | 566 319 325
Deferred Rent 379 | 1,705 1,600 1,433
Capital Lease 583 | 505 517 946
Employee Benefits 3,547 | 2,241 1,843 1,472
Deferred Income 306 | 435 154 557
Other 561 | 326 89 --
-------- -------- -------- ---------
$ 5,586 | $ 6,152 $ 4,896 $ 5,114
======== ======== ======== ========
|
Deferred tax liabilities: |
Depreciation $ 1,436 | $ 299 $ 607 $ 526
Lease Rights 4,329 | - - -
Asset basis adjustment |
as a result of the |
Acquisition 5,192 | - - -
Other -- | -- -- 11
--------- --------- --------- --------
$ 10,957 | $ 299 $ 607 $ 537
======== ======== ======== ========
|
Net deferred tax asset (liability) $ (5,371) | $ 5,853 $ 4,289 $ 4,577
======== ======== ======== ========
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company
believes that no valuation allowance is necessary due to its history of
profitable operations.
Tax Sharing Agreement with Dart
In February 1997, Dart and the Company entered into a tax sharing agreement
whereby the federal and certain state and local income tax returns of the
Company will be consolidated in the federal income tax returns to be filed by
Dart. This tax sharing arrangement will allow Dart to utilize its net
operating loss carryforwards and the Company's tax liabilities will be paid to
Dart as if the Company filed a separate tax return.
45
49
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and July 1, 1995
NOTE 5 - OTHER ACCRUED EXPENSES
Other accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
Successor | Predecessor
January 31, | February 1,
1998 | 1997
---------- ----------
<S> <C> <C>
Accrued insurance $ 4,530 | $ 3,441
Reserve for store closing 400 | 1,513
Gift certificates outstanding 1,218 | 1,090
Other 506 | 425
-------- --------
Total $ 6,654 | $ 6,469
======== ========
</TABLE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
401(k) Plan
Prior to fiscal year 1995 the Company maintained a noncontributory profit
sharing plan (the "Plan") for all employees with one year of full time
continuous service. During fiscal 1995, the Company replaced the Plan with a
defined contribution 401(k) plan (the "New Plan"). The New Plan is available
to substantially all employees over the age of 21 who have completed one year
of continuous service. Discretionary contributions are made by the Company in
trust for the exclusive benefit of employees who participate in the New Plan.
The Board of Directors authorized a contribution of $400,000 to the New Plan
for the 52 weeks ended June 29, 1996 and July 1, 1995 and $233,000 for the 31
weeks ended February 1, 1997. For the 52 weeks ended January 31, 1998 the
Company has accrued $400,000 for its contributions to the New Plan. All
amounts contributed or accrued to the New Plan are included in accrued salaries
and benefits in the accompanying financial statements.
Multiemployer Plans
The Company makes contributions to multiemployer plans for its union employees.
Such contributions, net of employee contributions, totaled approximately
$842,000, $10,725,000 and $487,000 for pension, health and welfare and legal
benefit plans, respectively, for the 52 weeks ended January 31, 1998 and
$440,000, $6,205,000, and $282,000, for pension, health and welfare, and legal
benefit plans, respectively, for the 31 weeks ended February 1, 1997.
Contributions to the pension, health and welfare, and legal benefit plans
totaled approximately $838,000, $10,373,000, and $466,000, respectively, for
the 52 weeks ended June 29, 1996, and $787,000, $8,701,000 and $408,000,
respectively, for the 52 weeks ended July 1,1995.
Lease Commitments
The Company leases warehouse and retail store facilities under noncancelable
lease agreements ranging from 1 to 20 years. Renewal options are available on
the majority of the leases for one or more periods of five years each. Most
46
50
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and July 1, 1995
leases require the payment of taxes and maintenance costs, and some leases
provide for additional rentals based on sales in excess of specified minimums.
All store leases have stated periodic rental increases. The increases are
amortized over the lives of the leases. Rent expense includes approximately
$991,000, $281,000, $687,000 and $802,000 of amortized rental increases for the
52 weeks ended January 31, 1998, the 31 weeks ended February 1, 1997, and the
52 weeks ended June 29, 1996 and July 1, 1995, respectively.
Following is a schedule of annual future minimum payments under the capital
lease for office space, assuming future annual increases of 3 percent, and
noncancelable operating leases, which have initial or remaining terms in excess
of one year at January 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Fiscal Year Lease Lease
----------- --------- ---------
<S> <C> <C>
1999 $ 1,356 $ 15,954
2000 1,397 15,819
2001 1,439 15,524
2002 1,482 15,144
2003 1,527 14,650
2004-2017 13,818 140,962
-------- --------
Total 21,019 $218,053
========
Less-Imputed Interest 9,704
--------
Present Value of net minimum
lease payments $ 11,315
=========
</TABLE>
Rent expense for operating leases charged to operations is as follows (in
thousands):
<TABLE>
<CAPTION>
Successor Predecessor
--------------------------------
January 31,| February 1, June 29, July 1,
1998 | 1997 1996 1995
---------- ---------- ---------- ----------
(52 Weeks) | (31 Weeks) (52 Weeks) (52 Weeks)
<S> <C> <C> <C> <C>
Minimum rentals $ 14,088 | $ 7,288 $ 12,021 $ 10,925
Contingent rentals 5,110 | 3,770 4,006 4,054
-------- -------- -------- --------
Total $ 19,198 | $ 11,058 $ 16,027 $ 14,979
======== ======== ======== ========
</TABLE>
Related-Party Leases
In July 1990, the Company entered into an agreement to lease an 86,000 square
foot office building in Lanham, Maryland, from a private partnership (the
"Partnership") which is owned by former stockholders of the Company (members of
the Herman family) and former stockholders of Dart members of the Haft family.
As part of a settlement with Herbert H. Haft and Ronald S. Haft (see Note 8),
the Haft's interest in the office building is pledged as security to Dart. The
lease is for 20 years and it commenced December 10, 1990. The lease provides for
yearly increasing rental payments, based upon the Consumer Price Index for the
Washington D.C., metropolitan statistical area; however, the annual increases
will not be more than 6 percent or less than 3 percent. Rental payments for the
47
51
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and July 1, 1995
52 weeks ended January 31, 1998, the 31 weeks ended February 1, 1997, and the 52
weeks ended June 29, 1996 and July 1, 1995 were approximately $1,317,000,
$744,000, $1,246,000 and $1,210,000 respectively, and all payments over the life
of the lease aggregate approximately $21,019,000. The Company accounts for the
lease as a capital lease. Due to fixed rental increases during the term of the
lease, lease payments exceeded interest expense by approximately $34,000 for the
31 weeks ended February 1, 1997. Interest expense exceeded lease payments by
$254,000 and $292,000 for the 52 weeks ended June 29, 1996 and July 1, 1995,
respectively. The lease requires the Company to pay for maintenance, utilities,
insurance, and taxes. The Partnership purchased the office building for
approximately $8,663,000 in July 1990.
During the 52 weeks ended January 31, 1998, the 31 weeks ended February 1,
1997, and the 52 weeks ended June 29, 1996 and July 1, 1995, the Company made
rental payments of approximately $5,911,000, $3,573,000, $5,384,000, and
$5,985,000, respectively, on store leases to partnerships related to former
stockholders of Dart. As of January 31, 1998, the Company had ten store
operating leases with partnerships related to the former stockholders of Dart.
The remaining future minimum payments under these leases exclusive of option
periods are approximately $66,360,000 and expire through 2014.
The Company made payments of approximately $290,000, $198,000, $278,000 and
$246,000 during the 52 weeks ended January 31, 1998, the 31 weeks ended
February 1, 1997, and the 52 weeks ended June 29, 1996 and July 1, 1995 for
warehouse operating leases to a partnership owned by former stockholders of the
Company and to Dart. As of January 31, 1998, the remaining future minimum
annual payments under these leases are approximately $1,033,000 and expire in
2002.
Subleasing Agreements
The Company subleases space within one store for the sale of beer and wine to
an entity affiliated with its officers. The Company received rental income of
approximately $209,000, $58,000, $155,000 and $155,000, in the 52 weeks ended
January 31, 1998, 31 weeks ended February 1, 1997, and in the 52 weeks ended
June 29, 1996 and July 1, 1995, respectively, from this entity, which is
included in selling and administrative expenses.
As of January 31, 1998, there were three unaffiliated subtenants in the Lanham
office building. The subtenants are leasing approximately 34,000 square feet.
The subleases expire between December 1998 and September 2000. The Company
received rental income of approximately $600,000, $321,000, $551,000 and
$530,000 in the 52 weeks ending January 31, 1998, the 31 weeks ending February
1, 1997 and the 52 weeks ending June 29, 1996 and July 1, 1995 respectively from
its subtenants.
During the period ended June 29, 1996 the Company began leasing space to Trak
Auto Corporation ("Trak Auto") a majority-owned subsidiary of Dart. The Company
received rental income of approximately $177,000, $91,000 and $140,000 during
the periods ended January 31, 1998, February 1,1997 and during the fiscal year
48
52
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and July 1, 1995
ended June 29, 1996.
Employment Agreements
In February 1997, Shoppers entered into letters of employment with each of its
executive officers (excluding William J. White) and several other key employees.
The initial annual salaries of the executive officers under the letters of
employment are as follows: Jack W. Binder ($183,000), Louis E. Davis ($150,000),
Isaac Gendelman ($162,000) and Roy N. Marks ($148,000). Each executive officer
may receive a bonus in accordance with a bonus program developed by the Company.
Each executive officer will receive life insurance and health, dental and
disability insurance. In addition, the Company pays between $350 and $850 per
month to the executive officers as an automobile allowance. None of the letters
of employment has a termination date.
On August 25, 1997, Shoppers entered into a one-year employment agreement with
William J. White as President of the Company. The agreement provides for an
annual base salary of $300,000 and a bonus on performance.
Other
In June of 1994, the Company had one store which incurred significant fire
damage. The Company recorded the insurance settlement on the store's inventory,
fixed assets, reimbursable payroll costs, and other business interruption costs.
This resulted in the recognition of a pretax gain in the accompanying financial
statements of $2,065,000 during the 52 weeks ended July 1, 1995. During the 52
weeks ended June 29, 1996, the insurance claim was settled in full and the
Company recorded a pretax loss of $355,000 to reflect the remaining amount
received for insurance proceeds, net of associated costs.
NOTE 7 - LITIGATION
Resolution of Haft Family and Related Litigation
The litigation discussed below involving Dart, its affiliates and members of the
Haft family settled prior to January 31, 1998. On February 5, 1998, Dart closed
the settlement agreement with Herbert H. Haft (the "HHH Settlement") and a
Second Supplemental Settlement Agreement with Ronald S. Haft ("Second
Supplemental Agreement"). The settlements with various Haft family members
described in Note 8 are referred to as the "Settlements". As part of the HHH
Settlement, Herbert H. Haft (i) sold to Dart all of his shares of, and options
to purchase, Dart Class A Common Stock, and his capital stock of Dart's
subsidiaries Trak Auto and Crown Books Corporation ("Crown Books"),(ii) resigned
from all of his positions with Dart and its subsidiary corporations, (iii)
relinquished his claim to voting control of Dart, and (iv) terminated his
employment agreement with Dart. In addition, all outstanding litigation and
disputes between Dart and Herbert H. Haft were resolved. As consideration for
the HHH Settlement, Dart paid Herbert H. Haft approximately $28 million at the
closing. An accrual for the HHH Settlement of approximately $28.0 million has
49
53
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and July 1, 1995
been reflected in Dart's January 31, 1998 Consolidated Financial Statements.
Subsequent to January 31, 1998 and in connection with the closing of the
Settlements, Dart also made a $10 million loan to a partnership owned by Ronald
S. Haft, the proceeds of which were used to repay a $10 million note to Herbert
H. Haft. Consummation of the Settlements also means that all litigation
(described below) between Dart and members of the Haft family has been settled
and dismissed, and the Company is no longer subject to a Standstill Order
(described below) imposed by the Delaware Court of Chancery.
Haft Litigation involving Dart Group Corporation and its Subsidiaries
Over the past three years, there has been significant litigation involving the
control of Dart. On September 7, 1994, the Board of Directors of Dart
established an Executive Committee comprised of Dart's outside directors to
conduct the affairs of Dart with respect to matters that were the subject of
dispute between the then Chairman of the Board and Chief Executive Officer of
Dart, Herbert H. Haft, and the then President and Chief Operating Officer of
Dart, Ronald S. Haft. In April 1996, the Board of Directors of Dart authorized
the Executive Committee to conduct the affairs of Dart with respect to matters
that are the subject of dispute between Dart and its Co-Chairman, or in
connection with which Dart and its Co-Chairman have adverse interests. Dart
filed three lawsuits against Herbert H. Haft alleging various improper actions
by him.
As a result of the Settlements, the litigation has been dismissed with
prejudice.
On October 6, 1995, Dart and Ronald S. Haft entered into a settlement of
litigation initiated by Ronald S. Haft to obtain control of Dart through the
exercise of certain disputed stock options, and other related transactions (the
"RSH Settlement"). The RSH Settlement transactions were subject to legal
challenge and, through such litigation, Herbert H. Haft sought control of Dart.
As a result of the Settlements, the litigation has been dismissed with
prejudice. If he had succeeded in litigation to obtain control of Dart (in
excess of 35% of the voting stock of Dart), it would have constituted a Change
in Control under the Indenture permitting the holders of the Senior Notes,
subject to certain conditions, to require the Company to repurchase any or all
of the Senior Notes at a price equal to 101% of the principal amount thereof,
plus any accrued and unpaid interest to the date of repurchase.
In connection with the legal challenges to the RSH Settlement, on December 6,
1995, the Delaware Court of Chancery entered a Standstill Order (the "Standstill
Order"), which restricted certain actions by Dart. Without further order of the
court, Dart could not, among other things, (i) change the current composition of
the Board of Directors of Dart or any of its subsidiaries or (ii) issue any
additional securities of Dart or any of its subsidiaries. In addition, without
first giving certain litigants not less than seven days' written notice, Dart
could not take any extraordinary actions, including but not limited to actions
that would result in (a) the liquidation of Dart or any of its subsidiaries or
50
54
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and July 1, 1995
(b) the sale of any major subsidiary of Dart. For purposes of the Standstill
Order, the Company is a "subsidiary" of Dart and the phrase "extraordinary
actions" means any transaction, contract or agreement, the value of which
exceeds $3 million.
As a result of the Delaware Court of Chancery approval of the Settlements, Dart
is no longer subject to the Standstill Order.
Other
In the ordinary course of business, Shoppers is party to various legal actions
that the Company believes are routine in nature and incidental to the operation
of its business. The Company believes that the outcome of the proceedings to
which Shoppers currently is party will not have a material adverse effect, if
established, upon the business, financial condition and results of operations.
NOTE 8 - SETTLEMENT OF LITIGATION
Settlement with Robert, Gloria and Linda Haft
On September 26, 1997, Dart and its subsidiaries closed the transactions
contemplated in an agreement, dated August 16, 1997, to settle certain
litigation and enter other related transactions (the "RGL Settlement") with
Robert M. Haft, Gloria G. Haft, Linda G. Haft and certain related parties
(collectively "RGL").
The transactions completed by the closing of the RGL Settlement between Dart and
RGL include: the purchase by Dart from RGL of 104,976 shares of Dart Class B
Common Stock and 77,244 shares of Dart Class A Common Stock; the termination of
options held or claimed by RGL to purchase shares of Dart Class A Common Stock;
the termination of putative options to purchase 15 shares of Dart/SFW Corp., and
the termination of a small number of options to purchase shares of common stock
of Trak Auto Corporation ("Trak Auto") and Crown Books Corporation ("Crown
Books"), affiliates of Dart. Dart paid RGL a total of approximately $41.0
million in connection with these transactions. Dart paid for the RGL Settlement
with the Restricted Proceeds and Shoppers paid the Restricted Proceeds to Dart
in the form of a $40 million dividend and a $10 million loan.
In addition, Dart acquired all of Robert M. Haft and Linda G. Haft's respective
interests in partnerships owning Dart's headquarters building in Landover,
Maryland and a warehouse leased by Trak Auto in Bridgeview, Illinois for $4.4
million.
The closing of the RGL Settlement resulted in the termination of the pending
claim by RGL to control of Dart and the settlement of all litigation between
them and Dart and its subsidiaries.
51
55
SHOPPERS FOOD WAREHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and July 1, 1995
Settlements with Herbert H. Haft and Ronald S. Haft
On October 16, 1997, Dart announced the Settlements with Herbert H. Haft and
Ronald S. Haft. The Settlements were subsequently approved by the Delaware
Court of Chancery on November 24, 1997.
The HHH Settlement closed on February 5, 1998 and included the following
transactions: the purchase by Dart from Herbert H. Haft of all his shares of,
and options to purchase, Dart Class A Common Stock; that Herbert H. Haft
resigned from all of his positions with Dart and its subsidiary corporations;
that Herbert H. Haft relinquished his claim to voting control of Dart and that
Herbert H. Haft terminated his employment contract with Dart. In addition, all
outstanding litigation and disputes between Dart and Herbert H. Haft were
dismissed or resolved. As consideration for the Settlements, Dart paid Herbert
H. Haft approximately $28 million upon closing. Dart also made a $10 million
loan to a partnership owned by Herbert H. Haft and Ronald S. Haft, which loan
is personally guaranteed by Ronald S. Haft and is secured by the partnership's
interest in three shopping centers located in suburban Washington, D.C. and by
a one-half indirect interest in the Company's headquarters building in Lanham,
Maryland leased from a partnership in which the Haft's own one-half of the
partnership interest. The Company loaned Dart an additional $25 million for
the Settlements as permitted by covenants under the Senior Notes. In addition,
certain derivative litigation was dismissed with prejudice and Dart paid
approximately $3.5 million in attorney's fees to derivative plaintiff's
counsel.
On November 19, 1997, the transactions contemplated in the First Supplemental
Agreement, were closed. The transactions in the First Supplemental Agreement
include: completion of bankruptcy plans of reorganization for partnerships
owning Dart's headquarters in Landover, Maryland and a distribution center
leased to Trak Auto in Bridgeview, Illinois; payment by Dart of $7 million to
reduce outstanding mortgage loans on these properties, which thereafter are
wholly-owned by Dart and/or its affiliates; and Ronald S. Haft paid $2.2 million
to Dart from escrowed funds previously earmarked for Ronald S. Haft.
The Second Supplemental Agreement, closed in February 1998 and Dart required
that the shares held in a Voting Trust for the benefit of Ronald S. Haft, be
transferred to Dart. In addition, the Dart Class A and Class B Common Stock from
the Voting Trust was placed in treasury and Dart's Class A Common Stock and
Class B Common Stock were reclassified as Common Stock.
NOTE 9 - DISPOSITION OF TOTAL BEVERAGE CORP.
In October 1992, the Company opened Total Beverage Corp. ("Total Beverage"), a
discount beverage retail store. On February 27,1993, the Company entered into an
Asset Purchase Agreement (the "Agreement") to sell Total Beverage to Dart.
As proceeds from the sale, the Company received approximately $1,493,000 in a
note receivable (the "Note"). Under the terms of the Agreement, the Company is
required to reimburse Dart for 25 percent of future operating losses of Total
52
56
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and July 1, 1995
Beverage, as defined in the Agreement, over a three year period. To the extent
of such losses, the Company will remit funds first by reducing amounts due
under the Note and then by remitting payment to Dart. The Note and accrued
interest were due in February 1995. The Company has reflected the Note, net of
a $1,000,000 reserve, in the accompanying balance sheets as of January 31,
1998, February 1, 1997, June 29, 1996, and July 1, 1995 respectively.
Management believes the reserve is adequate to provide for any reductions in
the Note.
NOTE 10 - TRANSACTIONS WITH AFFILIATES
Dart provides the Company with certain general and administrative services,
including, but not limited to, legal, human resources, data processing income
taxes and financial reporting in accordance with an agreement dated February 6,
1997 (the "Management Services Agreement"). In management's opinion, the
intercompany charges for these services were equal to the costs incurred by
Dart to provide these functions. In fiscal 1998, Dart charged the Company
approximately $125,000 for such services. It is not practicable for the
Company to estimate the cost it would have incurred for these services if it
had operated as an unaffiliated entity.
In addition to the intercompany charges for general and administrative
services, Dart charged the Company, on a monthly basis, for actual expenses
which related directly to the Company's operations (primarily legal expenses).
Substantially all such charges were supported by invoices from unrelated
parties designating the Company as recipient of the related goods or services.
Such charges were approximately $1.6 million in fiscal 1998.
In the Company's opinion, the methods used for allocating costs described above
constitute a reasonable basis on which to allocate such costs.
Promissory Notes
On September 26, 1997, Shoppers loaned Dart $10.0 million from the Restricted
Proceeds that Dart used for the RGL Settlement. The loan is in the form of a
promissory note that bears interest at 9 3/4% per annum compounded annually.
Interest and principal are payable on June 15, 2004, however Dart could make
interest payments prior to that time.
On January 28, 1998, Shoppers loaned Dart $25.0 million that Dart used for the
HHH Settlement. The loan is in the form of a promissory note that bears interest
at 9 3/4% per annum compounded annually. Interest and principal are payable on
June 15, 2004, however Dart could make interest payments prior to that time.
NOTE 11 - SUBSEQUENT EVENT
Planned Merger of Dart
On April 9, 1998, Dart entered into an Agreement and Plan of Merger (the "Merger
53
57
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
52 Weeks Ended January 31, 1998, 31 Weeks Ended February 1, 1997
and the 52 Weeks Ended June 29, 1996 and, July 1, 1995
Agreement") with Richfood Holdings, Inc. ("Richfood Holdings") and a subsidiary
of Richfood Holdings ("Acquisition Subsidiary") pursuant to which Dart has
agreed to become a wholly owned subsidiary of Richfood Holdings. Pursuant to the
terms of the Merger Agreement, Richfood Holdings will (1) make a cash tender
offer (the "Offer") for all of the issued and outstanding shares of common stock
of Dart at a price of $160.00 per share (2) take all steps necessary to cause
Acquisition Subsidiary to merge with and into Dart (the "Merger") in a
transaction in which Dart will become a wholly owned subsidiary of Richfood
Holdings. As a result of the Merger, Richfood Holdings will indirectly own 100%
of the outstanding Common Stock of the Company.
The Merger is subject to the tender in the offer of a majority of the shares of
common stock of Dart on a fully diluted basis and to other customary conditions,
including the receipt of regulatory approvals and the absence of material
adverse effects on the business or financial conditions of Dart and its
subsidiaries, taken as a whole with certain limited exceptions. There can be no
assurance that either the Offer or the Merger will occur.
NOTE 12 - INTERIM FINANCIAL DATA - (UNAUDITED)
Selected interim financial data for the years ended January 31, 1998 and
February 1, 1997 are as follows:
<TABLE>
<CAPTION>
(dollars in thousands, except for per share amounts)
Successor
-------------------------------------------------
QUARTER ENDED: JANUARY 31, NOVEMBER 1, AUGUST 2, MAY 3,
1998 1997 1997 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $222,169 $214,076 $209,543 $209,981
Gross Profit 51,668 48,369 48,714 50,446
Net Income (Loss)(1) 989 (846) (1,345) 4,906
Net Income (Loss) Per
Share (1) (2) $ 29.67 $ (25.38) $ (40.35) $ 147.18
</TABLE>
<TABLE>
<CAPTION>
(dollars in thousands, except for per share amounts)
Predecessor
------------------------------------------------
QUARTER ENDED: FEBRUARY 1, NOVEMBER 2, AUGUST 3, MAY 4,
1997 1996 1996 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $225,752 $205,470 $210,617 $209,036
Gross Profit 49,815 44,952 48,248 47,931
Net Income (Loss)(1) 4,837 3,298 5,936 6,492
Net Income (Loss) Per
Share (1)(2) $ 145.11 $ 98.94 $ 178.08 $ 194.76
</TABLE>
(1) Includes income of $1,729, net of income taxes, during the 13 weeks ended
May 3, 1997, for the cumulative effect of an accounting change and a loss of
$3,126, net of income taxes, during the 13 weeks ended July 2, 1997, for an
extraordinary loss on early extinguishment of debt.
(2) The sum of these amounts may not equal the annual amount because of changes
in the average number of shares outstanding during the year.
54
58
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Inapplicable.
55
59
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of Shoppers are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard B. Stone 69 Chairman of the Board of Directors and
Chief Executive Officer
Howard M. Metzenbaum 80 Director
Harry M. Linowes 69 Director
Mark A. Flint 50 Director
William J. White 55 President
Jack W. Binder 68 Senior Vice President - Finance
Isaac Gendelman 72 Senior Vice President - Produce
Leroy N. Marks 67 Senior Vice President - Grocery
Louis E. Davis 44 Senior Vice President - Store Operations
Lucky F. Hicks 49 Senior Vice President - Perishable Merchandising
</TABLE>
Richard B. Stone was elected Chairman of Shoppers in October 1997 and Chief
Executive Officer. Senator Stone serves as Chairman and Chief Executive Officer
of Dart Group Corporation ("Dart") and Chairman of SFW Holding Corp. ("Holding")
a wholly-owned Dart subsidiary and Shoppers immediate parent. He is also
Chairman and Chief Executive Officer of each of Dart's other majority owned
subsidiaries Trak Auto Corporation ("Trak Auto") and Crown Books Corporation
("Crown Books") and Darts wholly-owned subsidiary Total Beverage Corporation
("Total Beverage"). Since December 1995, Senator Stone has been Voting Trustee
of a trust that held all of the voting stock of Dart until February 1998 when
Dart's Class A Common Stock was given voting power. From 1992 to 1994, Senator
Stone was a Director of International Service System. He served as United States
Ambassador to Denmark from 1992 to 1993, and he is currently a member of the
Council of America Ambassadors. He was Chief Operating Officer of Capital Bank,
N.A. from 1989 to 1991, and was Vice Chairman of the Board of Directors of
Capital Bank, N.A. from 1985 to 1991. Senator Stone served as President Reagan's
Special Envoy for Central American Affairs and Ambassador-at-Large from 1983 to
1984. He was a United States Senator from 1975 to 1981, representing the State
of Florida.
Howard M. Metzenbaum has been a Director of Shoppers, Holding and Dart since
October 21, 1997. He is also a director of Dart's subsidiaries Trak Auto, Crown
Books and Total Beverage. He currently serves on the Board of the Public Citizen
and National Peace Garden and he serves as Chairman of the Board of the Consumer
Federation of America. He served also as Senator from the State of Ohio between
1977 and 1995, and from January 1974 to December 1974. Senator Metzenbaum was
practicing attorney prior to joining the United States Senate. He headed the
firm Metzenbaum, Gaines, Schwartz, Arupansky, Finley and Stern. Senator
Metzenbaum was Chairman of the Board of COMCORP from 1969 to 1974. Prior to
1974, he served as Chairman of the Board of ITT Consumer Services Corp. ("ITT")
and as a director of Capital National Bank of Cleveland and Society National
Bank of Cleveland for several years. From 1958 to 1966, he served as Chairman of
the Board of the Airport Parking Company of America, which later merged with
ITT.
Harry M. Linowes has been a Director of Shoppers, Holding and Dart since
October
56
60
Item 10. Directors and Executive Officers of the Registrant (Continued)
21, 1997. He is also a director of Dart's subsidiaries Trak Auto, Crown Books
and Total Beverage. Mr. Linowes is a Certified Public Accountant and a
consultant. Prior to his retirement, Mr. Linowes served as a Senior Partner of
BDO Siedman, L.L.P. Accountants and Consultants ("BDO Siedman") from 1992 to
1996, and as Managing Partner from 1986 to 1992. In 1986, Mr. Linowes, then the
Managing Partner of Leopold & Linowes, oversaw the merger of that firm with BDO
Siedman. Mr. Linowes served as President of the Board of Trustees of the D.C.
Institute of Certified Public Accountants, as President of the Washington, D.C.
Estate Planning Counsel, and as Chairman of the Executive Committee of CPA
Associates (an international association of CPA firms). He has been active in
leadership roles with many civic organizations.
William J. White has been President of Shoppers since September 1997. Before
joining Shoppers, Mr. White held a number of senior management positions in the
retail-food business. He has served as Vice President of Operations for Giant
Food of Carlisle, where he was responsible for over $600 million dollars in
sales volume attributable to 55 stores. He later served as Senior Vice
President of Retail Operations of Piggly Wiggly. Mr. White was subsequently
promoted to President of Piggly Wiggly, and held that position from 1987
through 1994. Most recently, Mr. White served as President of Mega Foods in
Phoenix, Arizona, from 1995 through 1997. While President of Mega Foods, Mr.
White spearheaded a successful turn-around of the company.
Mark A. Flint has been a Director of Shoppers since February 6, 1997. He was
the President of Shoppers from February 6, 1997 until August 25, 1997 and he
was Chief Executive Officer from February 1997 until August 1997. He has also
been the Senior Vice President and Chief Financial Officer of Dart since
September 1996. Prior to joining Dart, Mr. Flint spent 14 years serving in
various capacities as Senior Vice President and Chief Financial Officer,
Chairman of the Executive Committee, and a member of the Board of Directors of
Peter J. Schmitt Holdings, Inc., a multi-state $1.3 billion food retailer and
distributor, where he was responsible for corporate development, mergers and
acquisitions, finance and information technology.
Jack W. Binder became Senior Vice President of Finance of Shoppers in 1987.
Prior to that, he served as Vice President and Controller since he joined
Shoppers in 1966.
Isaac Gendelman worked at Shoppers' first store as a produce clerk beginning in
1953. Mr. Gendelman was promoted through the ranks to Store Produce Manager,
Produce Buyer, Warehouse Manager, Vice President and in 1987 was promoted to
Senior Vice President of Produce Operations.
Leroy N. Marks joined Shoppers in 1982 as Director of Grocery Buying. Mr. Marks
was later promoted to Vice President and subsequently became Senior Vice
President--Grocery in 1991.
Louis E. Davis joined Shoppers in 1971 as a cashier. Over the next several
years, he advanced within the organization, serving as a store grocery manager,
assistant store manager, store manager, grocery merchandiser, Director of
Merchandising and Director of Store Operations. He remained in that position
until he was promoted to Assistant Vice President of Operations. He became Vice
President of Operations in 1991 and Senior Vice President of Store Operations
57
61
Item 10. Directors and Executive Officers of the Registrant (Continued)
in 1997.
Lucky Hicks joined Shoppers in February 1998 as Senior Vice President -
Perishable Merchandise. Prior to joining the Company he was with Associated
Wholesale Grocers in various positions since 1992. Prior to that he was with
Kroger Company.
Other officers of the Company are as follows:
James K. Barnhart joined Shoppers in 1982 as Director of Data Processing. In
1987, Mr. Barnhart was promoted to Assistant Vice President--Data Processing
and in January 1998 he was promoted to Vice President Data Processing.
Edward A. Klig joined Shoppers as Controller in 1985. In 1994, he was promoted
to the position of Assistant Vice President and Controller and Vice President
of Finance in January 1998.
Richard A. Pasewark joined Shoppers in November 1997 as Director of
Advertising. He was promoted Vice President of Advertising in January 1998.
Mr. Pasewark was Director of Advertising at Giant Food Stores, Inc. (Carlisle)
from 1978 until November 1997.
R. Kevin Small was promoted to Vice President of Store Development in January
1998. He joined Shoppers in 1995 as Executive Director of Corporate
Facilities. Prior to joining Shoppers he was Executive Director of Construction
and Maintenance at Fresh Fields Market, Inc. from June 1994 to June 1995 and he
was Director of Property Development with The Great Atlantic & Pacific Tea Co.
from 1989 to June 1994.
Elliot R. Arditti has been Senior Vice President, Corporate Counsel of Dart
since June 1995 and Secretary since June 1993. He joined Dart in January 1984
as Associate Counsel. He was appointed Assistant Vice President, Corporate
Counsel in September 1986 and Vice President, Corporate Counsel in December
1987. In February 1997, he was appointed Secretary of Shoppers.
Kenneth M. Sobien joined Dart in August 1988. He was appointed Assistant
Treasurer of Dart in July 1994 and Assistant Treasurer of Shoppers in February
1997.
58
62
Item 11. Executive Compensation
Summary Compensation Table
The following Summary Compensation Table sets forth in summary form all
compensation for all services rendered to Shoppers during the last three fiscal
years (i) the Chief Executive Officer and (ii) the five for most highly
compensated executive officers employed by Shoppers as of the end of its most
recent fiscal year.
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
-------------------------------- -----------------
Other All
Annual Stock Other
Name of (a) Compen- Options Compen-
Principal Fiscal sation Granted sation
Position Year Salary($) Bonus($) ($) (b) (#)(c) ($) (d)
--------------- ---- --------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard B. Stone 1998 - 50,000 - - -
Chief Executive
Officer (e)
William J. White 1998 131,000 5,000 - 5,000 12,200
President (f)
Jack Binder 1998 182,800 50,000 - 1,000 5,800
Senior V.P. 1997 98,100 29,200 - - -
Finance 1996 163,000 50,000 - - 7,200
Issac Gendelman 1998 161,700 50,000 - 600 5,800
Senior V.P.- 1997 86,900 29,200 - - -
Produce 1996 144,500 50,000 - - 7,200
Louis E. Davis 1998 148,900 25,000 - 1,000 5,800
Senior V.P.- 1997 69,100 14,600 - - -
Store 1996 114,300 25,000 - - 6,600
Operations
Leroy N. Marks 1998 175,400 40,000 - 600 5,800
Senior Vice 1997 79,000 23,300 - - -
President - 1996 131,000 40,000 - - 7,200
Store
Operations
</TABLE>
(a) There were 31 weeks in fiscal 1997 compared to 52 weeks in each of fiscal
1998 and 1996.
(b) Excludes perquisites and other personal benefits, unless the aggregate
amount of such compensation is at least $50,000 or 10% of the total annual
salary and bonus reported.
(c) Includes Dart Group Corporation stock options.
(d) Includes allocations pursuant to the named executive officers 401(k) account
and/or profit sharing account.
(e) Richard B. Stone was appointed Chief Executive Officer in December 1997. He
is not compensated by Shoppers.
(f) William J. White joined Shoppers in August 1997. His annual base salary is
$300,000 with a bonus based on performance. Mr. White received a
59
63
Item 11. Executive Compensation (Continued)
$5,000 sign-on bonus and approximately $12,200 in relocation fees and taxes
thereon.
Employment Agreements
In February 1997, Shoppers entered into letters of employment with each of its
executive officers (excluding William J. White) and several other key employees.
The initial annual salaries of the executive officers under the letters of
employment are as follows: Jack W. Binder ($183,000), Louis E. Davis ($150,000),
Isaac Gendelman ($162,000) and Roy A. Marks ($148,500). Each executive officer
will receive life insurance and health, dental and disability insurance. In
addition, the Company pays between $350 and $650 per month to the executive
officers as an automobile allowance. None of the letters of employment has a
termination date.
On August 25, 1997, Shoppers entered into a one-year employment agreement with
William J. White as President of the Company. The agreement provides from an
annual base salary of $300,000 and a bonus based on performance.
60
64
Item 12. Security Ownership of Certain Beneficial Owners and Management
In June 1988, Dart acquired its initial 50% interest in Shoppers. On February
6, 1997, Dart acquired the other 50% interest in Shoppers. Dart, indirectly
(through its wholly-owned subsidiary SFW Holdings Corp.) owns 100% of all
classes of Shoppers' outstanding common stock.
61
65
Item 13. Certain Relationships and Related Transactions
In July 1990, Shoppers entered into an agreement to lease an 86,000 square foot
office building in Lanham, Maryland, from Combined Properties/4600 Forbes
Limited Partnership ("CP/Forbes Partnership") which is half-owned by certain
former stockholders of Dart (members of the Haft family) and half-owned by
certain former stockholders of Shoppers (members of the Herman family.) As a
result of the Settlements the Haft's interest is pledged as security to Dart.
The lease is for 20 years and commenced December 10, 1990. The lease provides
for yearly increasing rental payments, based upon the Consumer Price Index for
the Washington, D.C. metropolitan statistical area; however, the annual
increases will not be more than 6 percent or less than 3 percent. Rental
payments for the 52 weeks ended January 31, 1998, for the 31 weeks ended
February 1, 1997 and for the 52 weeks ended June 29, 1996 and July 1, 1995,
were approximately $1,317,000, $744,000, $1,246,000, and $1,210,000,
respectively, and total payments over the life of the lease aggregate
approximately $21,019,000. The Company accounts for the lease as a capital
lease. Due to fixed rental increases during the term of the lease, lease
payments exceeded interest payments by $34,000 for the 31 weeks ended February
1, 1997, approximately $254,000 for the 52 weeks ended June 29,1996 and
approximately $292,000 for the 52 weeks ended July 1, 1995. The lease requires
The Company to pay for maintenance, utilities, insurance, and taxes. CP/Forbes
Partnership purchased the office building for approximately $8,663,000 in July
1990.
During the 52 weeks ended January 31, 1998, the 31 weeks ended February 1,
1997, and the 52 weeks ended June 29, 1996 and July 1, 1995 Shoppers made
rental payments of approximately $5,911,000, $3,573,000, $5,384,000, and
$5,985,000, respectively, on store leases to partnerships related to former
stockholders of Dart (Haft family members). As of January 31, 1998, the Company
had ten store operating leases with partnerships related to Haft family
members. The remaining future minimum payments under these leases exclusive of
option periods are approximately $66,360,000 and expire through 2014.
During the fiscal year ended June 29, 1996, Shoppers began leasing space to
Trak Auto Corporation, a majority-owned subsidiary of Dart. Shoppers received
rental income of approximately $177,000 during the 52 weeks ended January 31,
1998, $91,000 during the 31 weeks ended February 1, 1997 and $140,000 during
the 52 weeks ended June 29, 1996.
The Company made payments of approximately $290,000, $198,000, $278,000 and
$246,000 during the 52 weeks ended January 31, 1998, 31 weeks ended February 1,
1997 and the 52 weeks ended June 29, 1996 and July 1, 1995 for two warehouse
operating leases. The first lease is with a partnership, owned by various
members of the Herman family. As of January 31, 1998, the remaining future
minimum payments under the lease are approximately $957,000. The second lease
which was terminated in fiscal 1998, was with a subsidiary of Dart. It provided
for a month-to-month term and payments of approximately $5,000 per month.
Shoppers subleases space within one store for the sale of beer and wine to an
entity affiliated with its officers. Shoppers received rental income of
approximately $209,000, $58,000, $155,000 and $155,000 during the 52 weeks
ended January 31, 1998, the 31 weeks ended February 1, 1997 and the 52 weeks
62
66
Item 13. Certain Relationships and Related Transactions (Continued)
ended June 29, 1996 and July 1, 1995 respectively, from this entity.
Concurrent with the Acquisition, the Company entered into a management services
agreement (the "Management Services Agreement") with Dart. The Management
Services Agreement allocates costs and expenses incurred by Dart on behalf of
the Company, including tax, accounting, internal audit, human resources and
legal services. During the 52 weeks ended January 31, 1998, Dart charged the
Company $125,000 for such costs. In addition, the Company entered into a tax
sharing agreement (the "Tax Sharing Agreement") with Dart. The Tax Sharing
Agreement provides, inter alia, that the Company shall pay to Dart from time to
time amounts equal to the federal and state tax liability of the Company and
each of its direct and indirect affiliated group subsidiaries (collectively,
the "Shoppers Group") computed as if the Shoppers Group was a separate and
independent affiliated group. For this purpose, the term "affiliated group" has
the meaning set forth in section 1504 of the Internal Revenue Code of 1986, as
amended.
In connection with the sale in October 1992 by Shoppers of Total Beverage Corp.
to a subsidiary of Dart, Shoppers received a note in the amount of
approximately $1,493,000 (the "Note"). The Note and accrued interest was due in
February 1995. Subsequent to the issuance of the Note, Dart and Shoppers have
raised various claims against each other, some of which are related to the
purchase and sale of Total Beverage Corp. As a result, neither Dart nor its
subsidiary have made payment on the Note. Shoppers has recorded a $1,000,000
reserve against this Note, resulting in a remaining balance of approximately
$500,000. See "Note 2 of Notes to Consolidated Financial Statements." Dart
intends to offset against the Note an amount reflecting certain claims that
Dart and its subsidiaries have against Shoppers. As a result, it is not
expected that Shoppers will receive funds from Dart in settlement of these
disputes.
In February 1997, Shoppers paid approximately $10 million in fees and expenses
incurred by Dart in connection with the Acquisition.
On September 26, 1997, Shoppers loaned Dart $10.0 million from the Restricted
Proceeds that Dart used for the RGL Settlement. The loan is in the form of a
promissory note that bears interest at 9 3/4% per annum compounded annually.
Interest and principal are payable on June 15, 2004, however Dart could make
interest payments prior to that time.
On January 28, 1998, Shoppers loaned Dart $25.0 million that Dart used for the
HHH Settlement. The loan is the form of a promissory note that bears interest
at 9 3/4% per annum compounded annually. Interest and principal are payable on
June 15, 2004, however Dart could make interest payments prior to that time.
63
67
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
-------- -----------------------------------------------------------------
<S> <C>
(a)(1) Financial Statements
See Item 8.
(a)(2) Schedules (Consolidated) -
All schedules are omitted because the required information is inapplicable or it is presented in the
consolidated financial statements or related notes.
(a)(3) Exhibits
4.1 Indenture dated June 26, 1997 by and among Shoppers Food Warehouse Corp., SFW Holding Corp. and Norwest Bank
Minnesota, National Association (incorporated by reference to Exhibit 4.1 to Shoppers Food Warehouse Corp.
Form S-4, Registration No. 333-32825, filed August 5, 1997).
4.2 Shoppers Food Warehouse Corp. Global Security dated June 26, 1997 (incorporated by reference to Exhibit 4.1
to Shoppers Food Warehouse Corp. Form S-4, Registration No. 333-32825, filed August 5, 1997).
10.1 Employment Agreement dated August 18, 1997 between William White and Shoppers Food Warehouse Corp., herein
incorporated by reference to Exhibit 10.2 filed with Dart Group Corporation (No. 0-1946) Form 10-Q filed
September 15, 1997.
10.2 Revolving Loan and Security Agreement dated December 22, 1997 between Shoppers Food Warehouse Corp. and
Lendors and Heller Financial, Inc. as Agent and as Lender.
10.3 Promissory Notes dated September 26, 1997 and January 28, 1998 from Dart Group Corporation to Shoppers Food
Warehouse Corp.
11 Statement on Computation of Per Share Net Income.
21 Subsidiaries of Shoppers Food Warehouse Corp.
23 Consent of Independent Public Accountants
27 Financial Statement Schedules
(b) Reports on Form 8-K
Shoppers Food did not file any Current Reports on Form 8-K during the
fourth quarter of the fiscal year ended January 31, 1998.
</TABLE>
64
68
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.
SHOPPERS FOOD WAREHOUSE CORP.
<TABLE>
<S> <C>
Date: May 1, 1998 By: William J. White
----------------------- ---------------------------------
William J. White
President
</TABLE>
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.
<TABLE>
<S> <C>
Date: May 1, 1998 William J. White
----------------------- --------------------------------
William J. White
President
Date: May 1, 1998 Richard B. Stone
----------------------- --------------------------------
Richard B. Stone
Chairman of the Board of Directors
and Chief Executive Officer
Date: May 1, 1998 Harry M. Linowes
----------------------- --------------------------------
Harry M. Linowes
Director
Date: May 1, 1998 Howard M. Metzenbaum
----------------------- --------------------------------
Howard M. Metzenbaum
Director
Date: May 1, 1998 Jack Binder
----------------------- ---------------------------------
Jack Binder
Senior Vice President and Chief
Financial Officer
</TABLE>
65
69
SHOPPERS FOOD WAREHOUSE CORPORATION
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
10.2 Revolving Loan and Security Agreement dated December 22, 1997 between Shoppers Food Warehouse Corp. and Lendors and Heller
Financial, Inc. as Agent and as Lender.
10.3 Promissory Notes dated September 26, 1997 and January 28,1998 from Dart Group Corporation to Shoppers Food Warehouse Corp.
11 Statement on Computation of Per Share Net Income
21 Subsidiaries of Shoppers Food Warehouse Corporation
23 Consent of Independent Public Accountants
27 Financial Data Schedules
</TABLE>
66
1
Exhibit 10.2
REVOLVING LOAN AND SECURITY AGREEMENT
DATED AS OF DECEMBER 22, 1997
AMONG
SHOPPERS FOOD WAREHOUSE CORP.,
AS BORROWER,
THE FINANCIAL INSTITUTIONS LISTED HEREIN,
AS LENDERS,
AND
HELLER FINANCIAL, INC.,
AS AGENT AND AS LENDER
2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------
1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---------------------
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
----------------
1.3 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-----------------------------
SECTION 2. REVOLVING LOAN AND COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-----------------------------
2.1 Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
--------------
(A) Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
--------------
(B) Eligible Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-------------------
(C) Borrowing Mechanics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-------------------
(D) Revolving Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
---------------
(E) Evidence of Revolving Loan Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
--------------------------------------
(F) Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-----------------
(1) Maximum Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
--------------
(2) Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-------------
(3) Conditions of Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
----------------------
(4) Request for Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-----------------------------
(G) Other Letter of Credit Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
---------------------------------
(1) Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------------------
(2) Nature of Lender's Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-------------------------
(3) Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
---------
2.2 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
--------
(A) Rate of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
----------------
(B) Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
----------------
(C) Computation and Payment of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-----------------------------------
(D) Interest Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-------------
(E) Conversion or Continuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
--------------------------
2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
----
(A) Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
---------------
(B) Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
---------------------
(C) Inspection Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
---------------
(D) Other Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-----------------------
2.4 Payments and Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
------------------------
(A) Manner and Time of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
--------------------------
(B) Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
---------------------
(1) Overadvance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-----------
(2) Proceeds of Asset Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
------------------------------
(C) Voluntary Prepayments and Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
------------------------------------
</TABLE>
3
<TABLE>
<S> <C>
(D) Payments on Business Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
-------------------------
2.5 Term of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
----------------------
2.6 Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
----------
2.7 Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
--------------------------
2.8 Capital Adequacy and Other Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
--------------------------------------
2.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
-----
(A) No Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
-------------
(B) Changes in Tax Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
-------------------
(C) Foreign Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
---------------
2.10 Required Termination and Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
-----------------------------------
2.11 Optional Prepayment/Replacement of Agent or Lenders in Respect
--------------------------------------------------------------
of Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
------------------
2.12 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
------------
2.13 Booking of LIBOR Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
----------------------
2.14 Assumptions Concerning Funding of LIBOR Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
---------------------------------------------
SECTION 3. CONDITIONS TO LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------------------
3.1 Conditions to Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------------------
(A) Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
------------------
(B) Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
------------------
(C) Closing Date Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------------------------
(D) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
------------------------------
(E) Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
----
(F) No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
----------
(G) Performance of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-------------------------
(H) No Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
--------------
(I) No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-------------
SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-----------------------------------------
4.1 Organization, Powers, Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
------------------------------------
(A) Organization and Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-----------------------
(B) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
--------------
4.2 Authorization of Borrowing, No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
---------------------------------------
4.3 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-------------------
4.4 Indebtedness and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
----------------------------
4.5 Account Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
------------------
4.6 Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
-----
4.7 Locations; FEIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
---------------
4.8 Title to Properties; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
--------------------------
4.9 Litigation; Adverse Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
-------------------------
4.10 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
----------------
4.11 Performance of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
-------------------------
4.12 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
----------------------
4.13 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
---------------------
</TABLE>
ii
4
<TABLE>
<S> <C>
4.14 Broker's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-------------
4.15 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
------------------------
4.16 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
--------
4.17 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
----------
4.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
---------
4.19 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
--------------------
4.20 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
-------------
4.21 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
------------
4.22 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
----------------
4.23 Governmental Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
-----------------------
4.24 Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
-----------------------
SECTION 5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
---------------------
5.1 Financial Statements and Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
--------------------------------------
(A) Monthly Financials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
------------------
(B) Quarterly Financials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
--------------------
(C) Year-End Financials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
-------------------
(D) Accountants' Certification and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
--------------------------------------
(E) Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
----------------------
(F) Borrowing Base Certificates; Inventory Reports and Listings
-----------------------------------------------------------
and Agings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
----------
(G) Management Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
-----------------
(H) Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
----------
(I) Government Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
------------------
(J) Events of Default, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
-----------------------
(K) Trade Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
-----------
(L) Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
---------
(M) Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
-------------
(N) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
----------
(O) Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
-----------
(P) Senior Notes and Other Indebtedness Notices . . . . . . . . . . . . . . . . . . . . . . . . . 41
-------------------------------------------
(Q) Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
-----------------
5.2 Access to Accountants and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
------------------------------------
5.3 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
----------
5.4 Collateral Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
------------------
5.5 Account Covenants; Verification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
-------------------------------
5.6 Collection of Accounts and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
-----------------------------------
5.7 Endorsement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
-----------
5.8 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
-------------------
5.9 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
----------------
5.10 Maintenance of Properties; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
------------------------------------
5.11 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
--------------------
5.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
------------------
5.13 Collateral Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
--------------------
</TABLE>
iii
5
<TABLE>
<S> <C>
5.14 Bailees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-------
5.15 Use of Proceeds and Margin Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-----------------------------------
SECTION 6. FINANCIAL COVENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
------------------
SECTION 7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
------------------
7.1 Indebtedness and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
----------------------------
7.2 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
----------
7.3 Transfers, Liens and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
------------------------------------
(A) Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
---------
(B) Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
-----
(C) No Negative Pledges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
-------------------
7.4 Investments and Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
---------------------
7.5 Restricted Junior Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
--------------------------
7.6 Restriction on Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
----------------------------------
7.7 Restrictions Relating to the Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
-----------------------------------------
7.8 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
----------------------------
7.9 Environmental Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
-------------------------
7.10 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
-------------------
7.11 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
---------------------
7.12 Tax Consolidations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
------------------
7.13 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
------------
7.14 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
-----------
7.15 Press Release; Public Offering Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
----------------------------------------
7.16 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
-------------
SECTION 8. DEFAULT, RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
----------------------------
8.1 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
----------------
(A) Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
-------
(B) Default in Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
---------------------------
(C) Breach of Certain Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
----------------------------
(D) Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
------------------
(E) Other Defaults Under Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
-----------------------------------
(F) Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
-----------------
(G) Involuntary Bankruptcy; Appointment of Receiver, etc. . . . . . . . . . . . . . . . . . . . . 49
-----------------------------------------------------
(H) Voluntary Bankruptcy; Appointment of Receiver, etc. . . . . . . . . . . . . . . . . . . . . . 50
---------------------------------------------------
(I) Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
-----
(J) Judgment and Attachments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
------------------------
(K) Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
-----------
(L) Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
--------
(M) Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
----------
(N) Invalidity of Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
----------------------------
(O) Failure of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
-------------------
(P) Damage, Strike, Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
------------------------
</TABLE>
iv
6
<TABLE>
<S> <C>
(Q) Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
--------------------
(R) Forfeiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
----------
8.2 Suspension of Revolving Loan Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
----------------------------------------
8.3 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
------------
8.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
--------
8.5 Appointment of Attorney-in-Fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
-------------------------------
8.6 Limitation on Duty of Agent with Respect to Collateral . . . . . . . . . . . . . . . . . . . . . . . . 53
------------------------------------------------------
8.7 Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
-----------------------
8.8 License of Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
--------------------------------
8.9 Waivers, Non-Exclusive Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
-------------------------------
SECTION 9. ASSIGNMENT AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
----------------------------
9.1 Assignments and Participations in Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
---------------------------------------
9.2 Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
-----
(A) Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
-----------
(B) Nature of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
----------------
(C) Rights, Exculpation, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
-------------------------
(D) Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
--------
(E) Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
---------------
(F) Heller Individually . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
-------------------
(G) Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
---------------
(1) Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
-----------
(2) Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
------------------------
(3) Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
---------------
(H) Collateral Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
------------------
(1) Release of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
---------------------
(2) Confirmation of Authority; Execution of Releases . . . . . . . . . . . . . . . . . . . 58
------------------------------------------------
(3) Absence of Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
---------------
(I) Agency for Perfection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
---------------------
(J) Exercise of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
--------------------
9.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
--------
9.4 Set Off and Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
-------------------------------
9.5 Disbursement of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
---------------------
9.6 Settlements, Payments and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
-------------------------------------
(A) Revolving Advances and Payments; Fee Payments . . . . . . . . . . . . . . . . . . . . . . . . 60
---------------------------------------------
(B) Availability of Lender's Pro Rata Share . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
----------------------------------------
(C) Return of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
------------------
9.7 Dissemination of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
----------------------------
9.8 Discretionary Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
----------------------
SECTION 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
-------------
10.1 Expenses and Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
----------------------------
10.2 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
---------
10.3 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
----------------------
</TABLE>
v
7
<TABLE>
<S> <C>
10.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
-------
10.5 Survival of Warranties and Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
---------------------------------------------
10.6 Indulgence Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
---------------------
10.7 Marshaling; Payments Set Aside . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
------------------------------
10.8 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
----------------
10.9 Independence of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
-------------------------
10.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
------------
10.11 Lenders' Obligations Several; Independent Nature of Lenders' Rights . . . . . . . . . . . . . . . . . 67
-------------------------------------------------------------------
10.12 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
--------
10.13 APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
--------------
10.14 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
----------------------
10.15 No Fiduciary Relationship; Limitation of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 68
----------------------------------------------------
10.16 CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
-----------------------
10.17 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
--------------------
10.18 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
------------
10.19 Counterparts; Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
---------------------------
10.20 No Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
-------
10.21 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
---------------
</TABLE>
vi
8
REVOLVING LOAN AND SECURITY AGREEMENT
This REVOLVING LOAN AND SECURITY AGREEMENT is dated as of December 22,
1997 and entered into among SHOPPERS FOOD WAREHOUSE CORP., a Delaware
corporation ("Borrower"), with its principal place of business at 4600 Forbes
Boulevard, Lanham, Maryland 20706, the financial institution(s) listed on the
signature pages hereof and their respective successors and assigns (each
individually a "Lender" and collectively "Lenders") and HELLER FINANCIAL, INC.,
a Delaware corporation (in its individual capacity, "Heller"), with offices at
500 West Monroe, Chicago, Illinois 60661, for itself as a Lender and as Agent.
All capitalized terms used herein and not otherwise defined herein are defined
in Section 1 of this Agreement.
WHEREAS, Borrower desires that Lenders extend a credit facility to
provide for letters of credit, to provide working capital financing and to
provide funds for other general corporate purposes;
WHEREAS, Agent, for the benefit of Lenders, desires to secure Borrower's
obligations under the Loan Documents by obtaining a security interest in and
lien upon certain of Borrower's property; and
WHEREAS, SFW Licensing Corp., a Delaware corporation and wholly-owned
Subsidiary of Borrower ("Guarantor"), desires to guaranty the Obligations and
to grant to Agent, for the benefit of Lenders, a security interest in certain
property of Guarantor to secure such guaranty,
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrower, Agent and Lenders agree as
follows:
SECTION 1. DEFINITIONS
1.1 Certain Defined Terms. The following terms used in this
Agreement shall have the following meanings:
"Accounts" means all "accounts" (as defined in the UCC), accounts
receivable, contract rights and general intangibles relating thereto, notes,
drafts and other forms of obligations owed to or owned by Borrower arising or
resulting from the sale of goods or the rendering of services.
"Affiliate" means any Person (other than Agent or a Lender): (a) directly
or indirectly controlling, controlled by, or under common control with, any
Loan Party; (b) directly or indirectly owning or holding five percent (5%) or
more of any equity interest in Borrower; (c) five percent (5%) or more of
whose stock or other equity interest having ordinary voting power for the
election of directors or the power to direct or cause the direction of
management, is directly or indirectly owned or held by Borrower; or (d) which
has a senior executive officer who is also a senior executive officer of
Borrower. For purposes of this definition, "control" (including with
correlative meanings, the terms "controlling", "controlled by" and "under
common control with") means the possession directly or indirectly of the power
to direct or cause the direction of the management and
9
policies of a Person, whether through the ownership of voting securities or
other equity interest, or by contract or otherwise.
"Agent" means Heller in its capacity as agent for the Lenders under the
Loan Documents and any successor in such capacity appointed pursuant to
subsection 9.2.
"Agent's Account" means ABA No. 0710-0001-3, Account No. 52-98695 at
First National Bank of Chicago, One First National Plaza, Chicago, IL 60670,
Reference: Heller Business Credit for the benefit of Shoppers Food Warehouse.
"Agreement" means this Revolving Loan and Security Agreement as it may be
amended, restated, supplemented or otherwise modified from time to time.
"Applicable Fee Certificate" has the meaning assigned to that term in
subsection 2.3(A).
"Applicable Rate Certificate" has the meaning assigned to that term in
subsection 2.2(A).
"Applicable Base Rate Margin" means, as of any date of determination, the
percentage set forth below opposite the EBITDA amount for the applicable
rolling four quarter period:
<TABLE>
<CAPTION>
EBITDA Applicable Base Rate Margin
------ ---------------------------
<S> <C> <C>
less than or equal to $27,500,000 0.250%
greater than $27,500,000 but
less than or equal to $35,000,000 0.125%
greater than $35,000,000 but
less than or equal to $42,500,000 0.000%
greater than $42,500,000 but
less than or equal to $50,000,000 (0.125%)
greater than $50,000,000 (0.250%)
</TABLE>
; provided, that, notwithstanding the foregoing, from the Closing Date through
and including the date on which the Applicable Rate Certificate for Borrower's
Fiscal Year ending in January, 1999 has been delivered to, and reviewed by,
Agent in accordance with subsection 2.2(A), the Applicable Base Rate Margin
shall be 0.000%.
"Applicable Letter of Credit Fee" means, as of any date of determination,
a percentage per annum as set forth below opposite the EBITDA amount for the
applicable rolling four quarter period:
2
10
<TABLE>
<CAPTION>
EBITDA Applicable Letter of Credit Fee
------ -------------------------------
<S> <C> <C>
less than or equal to $27,500,000 1.750%
greater than $27,500,000 but
less than or equal to $35,000,000 1.625%
greater than $35,000,000 but
less than or equal to $42,500,000 1.500%
greater than $42,500,000 but
less than or equal to $50,000,000 1.375%
greater than $50,000,000 1.250%
</TABLE>
; provided, that, notwithstanding the foregoing, from the Closing Date through
and including the date on which the Applicable Fee Certificate for Borrower's
Fiscal Year ending in January, 1999 has been delivered to, and reviewed by,
Agent in accordance with subsection 2.3(A), the Applicable Letter of Credit Fee
shall be 1.500% per annum.
"Applicable LIBOR Rate Margin" means, as of any date of determination,
the percentage set forth below opposite the EBITDA amount for the applicable
rolling four quarter period:
<TABLE>
<CAPTION>
EBITDA Applicable LIBOR Rate Margin
------ ----------------------------
<S> <C> <C>
less than or equal to $27,500,000 2.000%
greater than $27,500,000 but
less than or equal to $35,000,000 1.875%
greater than $35,000,000 but
less than or equal to $42,500,000 1.750%
greater than $42,500,000 but
less than or equal to $50,000,000 1.625%
greater than $50,000,000 1.500%
</TABLE>
; provided, that, notwithstanding the foregoing, from the Closing Date through
and including the date on which the Applicable Rate Certificate for Borrower's
Fiscal Year ending in January, 1999 has been delivered to, and reviewed by,
Agent in accordance with subsection 2.2(A), the Applicable LIBOR Rate Margin
shall be 1.750%.
3
11
"Applicable Unused Line Fee" means, as of any date of determination, a
percentage per annum as set forth below opposite the EBITDA amount for the
applicable rolling four quarter period:
<TABLE>
<CAPTION>
EBITDA Applicable Unused Line Fee
------ --------------------------
<S> <C> <C>
less than or equal to $27,500,000 0.500%
greater than $27,500,000 but
less than or equal to $50,000,000 0.375%
greater than $50,000,000 0.250%
</TABLE>
; provided, that, notwithstanding the foregoing, from the Closing Date through
and including the date on which the Applicable Fee Certificate for Borrower's
Fiscal Year ending in January, 1999 has been delivered to, and reviewed by,
Agent in accordance with subsection 2.3(A), the Applicable Unused Line Fee
shall be 0.375% per annum.
"Asset Disposition" means the disposition, whether by sale, lease,
transfer, loss, damage, destruction, condemnation or otherwise, of any or all
of the assets of Borrower or any of its Subsidiaries, other than sales of
Inventory in the ordinary course of business and other than dispositions of
Cash Equivalents for purposes permitted under this Agreement.
"Authorized Officer" means any of the chief executive officer, chief
operating officer, chief financial officer, president or controller of
Borrower.
"Bank Letter of Credit" means each letter of credit issued by a bank
acceptable to and approved by Agent (and acceptable to Borrower) for the
account of Borrower and supported by a Risk Participation Agreement.
"Base Rate" means a variable rate of interest per annum equal to the
higher of (a) the rate of interest from time to time published by the Board of
Governors of the Federal Reserve System as the "Bank Prime Loan" rate in
Federal Reserve Statistical Release H.15(519) entitled "Selected Interest
Rates" or any successor publication of the Federal Reserve System reporting the
Bank Prime Loan rate or its equivalent, or (b) the Federal Funds Effective
Rate. The statistical release generally sets forth a Bank Prime Loan rate for
each Business Day. In the event the Board of Governors of the Federal Reserve
System ceases to publish a Bank Prime Loan rate or its equivalent, the term
"Base Rate" shall mean a variable rate of interest per annum equal to the
Bankers Trust Prime Lending Rate, or, if no Bankers Trust Prime Lending Rate is
announced, the equivalent rate, announced from time to time by Bankers Trust
Company or its successors (with the understanding that any such rate may merely
be a reference rate and may not necessarily represent the lowest or best rate
actually charged to any customer by such bank).
"Base Rate Loans" means Loans bearing interest at rates determined by
reference to the Base Rate.
4
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"Blocked Accounts" has the meaning assigned to that term in subsection
5.6.
"Borrower" has the meaning assigned to that term in the preamble to this
Agreement.
"Borrowing Base" has the meaning assigned to that term in subsection
2.1(A)(2).
"Borrowing Base Certificate" means a certificate and assignment schedule
duly executed by an officer of Borrower appropriately completed and in
substantially the form of Exhibit A.
"Business Day" means any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of the States of Illinois, Pennsylvania or
Maryland, or is a day on which banking institutions located in any such state
are closed, or for the purposes of LIBOR Loans only, a day on which commercial
banks are open for dealings in Dollar deposits in the London, England market.
"Capital Lease" means any lease of any property (whether real, personal
or mixed) that, in conformity with GAAP, should be accounted for as a capital
lease.
"Cash Dominion Event" has the meaning assigned to that term in subsection
5.6.
"Cash Equivalents" means: (a) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within eighteen (18) months from the date of acquisition
thereof; (b) commercial paper maturing no more than eighteen (18) months from
the date issued and, at the time of acquisition, having a rating of at least
A-1 from Standard & Poor's Corporation or at least P-1 from Moody's Investors
Service, Inc.; and (c) certificates of deposit or bankers' acceptances maturing
within eighteen (18) months from the date of issuance thereof issued by, or
overnight reverse repurchase agreements from, any commercial bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia having combined capital and surplus of not less than
$250,000,000 and not subject to setoff rights in favor of such bank.
"Closing Date" means December 22, 1997.
"Collateral" has the meaning assigned to that term in subsection 2.7.
"Collecting Banks" has the meaning assigned to that term in subsection
5.6.
"Compliance Certificate" means a certificate duly executed by an
Authorized Officer appropriately completed and in substantially the form of
Exhibit B.
"Dart" means Dart Group Corporation, Borrower's ultimate parent.
5
13
"Default" means a condition, act or event that, after notice or lapse of
time or both, would constitute an Event of Default if that condition or event
were not cured, waived or removed within any applicable grace or cure period.
"Defaulted Amount" means, with respect to any Lender at any time, any
amount required to be paid by such Lender to Agent or any other Lender
hereunder or under any other Loan Document at or prior to such time which has
not been so paid as of such time, including, without limitation, any amount
required to be paid by such Lender to (a) the issuer of a Lender Letter of
Credit to purchase any participation in such Lender Letter of Credit, and (b)
Agent to reimburse Agent for the amount of any Loan made by Agent for the
account of such Lender.
"Defaulting Lender" means, at any time, any Lender that, at such time,
owes a Defaulted Amount.
"Default Rate" has the meaning assigned to that term in subsection
2.2(A).
"EBITDA" means, for any period, without duplication, the total of the
following for Borrower and its Subsidiaries on a consolidated basis, each
calculated for such period: net income determined in accordance with GAAP;
plus, (1) to the extent included in the calculation of net income, the sum of
(a) income and franchise taxes accrued; (b) Interest Expenses, net of interest
income, accrued; (c) interest paid in kind; (d) amortization and depreciation;
(e) LIFO expenses; (f) other non-cash charges (excluding accruals for cash
expenses made in the ordinary course of business) and (g) losses from sales or
other dispositions of assets (other than Inventory in the normal course of
business); less, (2) to the extent included in the calculation of net income,
the sum of (a) the income of any Person (other than wholly-owned Subsidiaries
of Borrower) in which Borrower or a wholly owned Subsidiary of Borrower has an
ownership interest except to the extent such income is received by Borrower or
such wholly-owned Subsidiary in a cash distribution during such period; (b)
gains from sales or other dispositions of assets (other than Inventory in the
normal course of business); and (c) extraordinary or non-recurring gains, but
not net of extraordinary or non-recurring "cash" losses.
"Eligible Accounts" has the meaning assigned to that term in subsection
2.1(B).
"Eligible Inventory" has the meaning assigned to that term in subsection
2.1(B).
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of any
Loan Party or any ERISA Affiliate or (b) has at any time within the preceding
six (6) years been maintained for the employees of any Loan Party or any
current or former ERISA Affiliate.
"Environmental Claims" means claims, liabilities, investigations,
litigation, administrative proceedings, judgments or orders relating to
Hazardous Materials.
6
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"Environmental Laws" means any present or future federal, state or local
law, rule, regulation or order relating to pollution, waste, disposal or the
protection of human health or safety, plant life or animal life, natural
resources or the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute and all rules and
regulations promulgated thereunder.
"ERISA Affiliate", as applied to any Loan Party, means any Person who is
a member of a group which is under common control with any Loan Party, who
together with any Loan Party is treated as a single employer within the meaning
of Section 414(b) and (c) of the IRC.
"Event of Default" means each of the events set forth in subsection 8.1.
"Federal Funds Effective Rate" means, for any day, the weighted average
of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
immediately following Business Day by the Federal Reserve Bank of New York or,
if such rate is not published for any Business Day, the average of the
quotations for the day of the requested Loan received by Agent from three
Federal funds brokers of recognized standing selected by Agent.
"Fee Letter" means that certain letter agreement between Borrower and
Heller, dated of even date herewith, with respect to the matters set forth
therein.
"Fiscal Year" means each twelve month period ending on the Saturday
nearest January 31 in each year.
"Funding Date" means the date of each funding of a Loan or issuance of a
Lender Letter of Credit.
"GAAP" means 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 that are applicable to the
circumstances as of the date of determination.
"Guarantor" has the meaning assigned to that term in the preamble to this
Agreement.
"Guarantor Security Agreement" means the guarantor security agreement to
be executed and delivered by Guarantor, in a form reasonably acceptable to
Agent, as such agreement may hereafter be amended, restated, supplemented or
otherwise modified from time to time.
"Guaranty" means the continuing guaranty by Guarantor, in a form
reasonably acceptable to Agent, as such guaranty may hereafter be amended,
restated, supplemented or otherwise modified from time to time.
7
15
"Hazardous Material" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
Environmental Laws or regulations as "hazardous substances", "hazardous
materials", "hazardous wastes", "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity, or
toxicity; (b) oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters and
other wastes associated with the exploration, development or production of
crude oil, natural gas or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; and (d) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
polychlorinated biphenyls.
"Heller" has the meaning assigned to that term in the preamble to this
Agreement.
"Indebtedness", as applied to any Person at any date of determination,
means without duplication: (i) all indebtedness of such Person for borrowed
money; (ii) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments, (iii) all obligations of such Person in
respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six (6) months after the date of placing
such property in service or taking delivery and title thereto or the completion
of such services, except trade payables incurred in the ordinary course that
have not remained unpaid for greater than 90 days past their original due date,
or accrued liabilities arising in the ordinary course of business which are not
overdue or which are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and for which adequate reserves
have been made, (v) all obligations of such Person as lessee under leases which
constitute Capital Leases, (vi) all Indebtedness of other Persons secured by a
Lien on any asset of such Person, whether or not such Indebtedness is assumed
by such Person, (vii) all Indebtedness of other Persons guaranteed by such
Person (but only to the extent of the amount actually guaranteed), (viii) to
the extent not otherwise included in this definition, obligations under
currency agreements, interest rate agreements and commodity agreements and (ix)
any and all deferrals, renewals, extensions and refundings of, or amendments,
modifications or supplements to, any of the foregoing. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the
obligations, of any contingent obligations at such date.
"Intellectual Property" means all present and future designs, patents,
patent rights and applications therefor, trademarks and registrations or
applications therefor, trade names, inventions, copyrights and all applications
and registrations therefor, software or computer programs, license rights,
trade secrets, methods, processes, know-how, drawings, specifications,
descriptions, and all memoranda, notes and records with respect to any research
and development, whether now owned or hereafter acquired, all goodwill
associated with any of the foregoing, and proceeds of all of the foregoing,
including, without limitation, proceeds of insurance policies thereon.
8
16
"Interest Expenses" means, without duplication, for any period, the
following, for Borrower and its Subsidiaries each calculated for such period:
interest expenses deducted in the determination of net income (excluding (i)
the amortization of fees and costs with respect to the transactions
contemplated by this Agreement which have been capitalized as transaction costs
in accordance with the provisions of subsection 1.2; and (ii) interest paid in
kind).
"Interest Period" has the meaning assigned to that term in subsection
2.2(B).
"Interest Rate" has the meaning assigned to that term in subsection
2.2(A).
"Inventory" means all "inventory" (as defined in the UCC), including,
without limitation, finished goods, raw materials, work in process and other
materials and supplies used or consumed in a Person's business, and goods which
are returned or repossessed.
"Inventory Report" means a report duly executed by an officer of Borrower
appropriately completed and in substantially the form of Exhibit C.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute and all rules and regulations promulgated
thereunder.
"Lender" or "Lenders" has the meaning assigned to that term in the
preamble to this Agreement.
"Lender Addition Agreement" means an agreement among Agent, a Lender and
such Lender's assignee regarding their respective rights and obligations with
respect to assignments of the Loans, the Revolving Loan Commitments and other
interests under this Agreement and the other Loan Documents substantially in
the form of Exhibit D.
"Lender Letter of Credit" has the meaning assigned to that term in
subsection 2.1(F).
"Letter of Credit Liability" means, all reimbursement and other
liabilities of Borrower with respect to each Lender Letter of Credit, whether
contingent or otherwise, including: (a) the amount available to be drawn or
which may become available to be drawn; (b) all amounts which have been paid or
made available by any Lender issuing a Lender Letter of Credit or any bank
issuing a Bank Letter of Credit to the extent not reimbursed; and (c) all
unpaid interest, fees and expenses related thereto.
"Letter of Credit Reserve" means, at any time, an amount equal to (a) the
aggregate amount of Letter of Credit Liability with respect to all Lender
Letters of Credit outstanding at such time plus, without duplication, (b) the
aggregate amount theretofore paid by Agent or any Lender under Lender Letters
of Credit and not debited to Borrower's account pursuant to subsection
2.1(F)(2) or otherwise reimbursed by Borrower.
9
17
"Liabilities" shall have the meaning given that term in accordance with
GAAP and shall include Indebtedness.
"LIBOR" means, for each Interest Period, a rate of interest equal to:
(a) the rate of interest determined by Agent at which deposits in Dollars
for the relevant Interest Period are offered based on information presented on
the Reuters Screen LIBOR Page as of 11:00 A.M. (London time) on the day which
is two (2) Business Days prior to the first day of such Interest Period;
provided that if at least two such offered rates appear on the Reuters Screen
LIBOR Page in respect of such Interest Period, the arithmetic mean of all such
rates (as determined by Agent) will be the rate used; provided further that if
Reuters ceases to provide LIBOR quotations, such rate shall be the average rate
of interest at which deposits in Dollars are offered for the relevant Interest
Period by Bankers Trust Company, The Chase Manhattan Bank, or their respective
successors to prime banks in the London interbank market as of 11:00 A.M.
(London time) on the applicable interest rate determination date, divided by
(b) a number equal to 1.0 minus the aggregate (but without duplication)
of the rates (expressed as a decimal fraction) of reserve requirements in
effect on the day which is two (2) Business Days prior to the beginning of such
Interest Period (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board of Governors of the
Federal Reserve System or other governmental authority having jurisdiction with
respect thereto, as now and from time to time in effect) for Eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
such Board) which are required to be maintained by a member bank of the Federal
Reserve System:
(such rate to be adjusted to the nearest one sixteenth of one percent (1/16 of
1%) or, if there is not a nearest one sixteenth of one percent (1/16 of 1%), to
the next higher one sixteenth of one percent (1/16 of 1%)).
"LIBOR Loans" means at any time that portion of the Loans bearing
interest at rates determined by reference to LIBOR.
"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary, (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan" or "Loans" means an advance or advances under the Revolving Loan
Commitment.
"Loan Documents" means this Agreement, the Revolving Notes, the Guaranty,
the Guarantor Security Agreement, the Fee Letter and all other instruments,
documents and agreements executed by or on behalf of Borrower or Guarantor and
delivered concurrently herewith or at any time hereafter to or for Agent or any
Lender in connection with the Loans, any Lender Letter of Credit, and other
transactions contemplated by this Agreement, all as amended, restated,
supplemented or modified from time to time.
10
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"Loan Party" means each of Borrower and Borrower's Subsidiaries,
including Guarantor.
"Loan Year" means each period of twelve (12) consecutive months
commencing on the Closing Date and on each anniversary thereof.
"Management Services Agreement" means the Management Services Agreement,
dated February 6, 1997, between Borrower and Dart.
"Material Adverse Effect" means a material adverse effect upon (a) the
business, operations, properties, assets or condition (financial or otherwise)
of Borrower on an individual basis or taken as a whole with its Subsidiaries or
(b) the ability of Borrower or Guarantor to perform its obligations under any
Loan Document to which it is a party or of Agent, on behalf of itself or any
Lender to enforce or collect any of the Obligations; except that the use by
Borrower of $25,000,000 of its existing cash, cash equivalents and short-term
investments to pay a dividend and/or make a loan to Dart shall not constitute a
"Material Adverse Effect".
"Maximum Revolving Loan Amount" has the meaning assigned to that term in
subsection 2.1(A)(1).
"Notice of Borrowing" has the meaning assigned to that term in subsection
2.1(C).
"Obligations" means all obligations, liabilities and indebtedness of
every nature of Borrower from time to time owed to Agent or to any Lender under
the Loan Documents, including the principal amount of all debts, claims and
indebtedness (whether incurred before or after the Termination Date), accrued
and unpaid interest and all fees, costs and expenses, whether primary,
secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from
time to time hereafter owing, due or payable, including, without limitation,
all interest, fees, cost and expenses accrued or incurred after the filing of
any petition under any bankruptcy or insolvency law to the extent permitted by
law.
"Original Term" has the meaning assigned to that term in subsection 2.5.
"PACA Reserve" means a reserve established by Agent from time to time
against the Borrowing Base availability under subsection 2.1(A) in an amount
equal to the aggregate dollar amount of all of Borrower's accounts payable to
farmers and growers arising out of Borrower's Inventory purchases from such
farmers or growers, as the case may be, as reflected on the most recent
Inventory Report delivered by Borrower to Agent in accordance with the terms of
subsection 5.1(F); provided, however, that in the event Borrower shall have
provided evidence satisfactory in all respects to Agent that the applicable
farmer or grower, as the case may be, has unconditionally waived in writing its
PACA lien rights with respect to Borrower's Inventory (a "PACA Lien Waiver"),
and such written waiver shall be enforceable under applicable law as determined
by Agent based upon documentation provided by Borrower to Agent, including,
without limitation, a legal opinion of Borrower's counsel, then the PACA
Reserve shall be reduced by the amount, as determined by Agent, to which the
applicable PACA Lien Waiver relates; provided, further, that in
11
19
the event Borrower fails to deliver any Inventory Report required to be
delivered to Agent in accordance with the terms of subsection 5.1(F), Agent
shall establish such reserves against the Borrowing Base availability as it
shall deem appropriate in the exercise of its reasonable discretion until such
Inventory Report is received.
"Permitted Encumbrances" means the following types of Liens: (a) Liens
(other than Liens relating to Environmental Claims or ERISA) for taxes,
assessments or other governmental charges not yet due and payable; (b)
statutory Liens of carriers, warehousemen, mechanics, materialmen and other
similar liens imposed by law, which are incurred in the ordinary course of
business (i) for sums not more than thirty (30) days delinquent or (ii) for
sums being disputed in good faith for which (x) appropriate reserves have been
established by Borrower under GAAP and (y) Borrower has notified Agent of the
amount in dispute so that Agent may establish appropriate reserves with respect
to Borrowing Base availability; (c) statutory liens of landlords which are
incurred in the ordinary course of business (i) for sums not more than thirty
(30) days delinquent or (ii) for sums being disputed in good faith for which
(x) appropriate reserves have been established by Borrower under GAAP and (y)
Borrower has notified Agent of (1) the amount in dispute and (2) the total
value of the Inventory located at the location subject to such statutory Lien
so that Agent may establish appropriate reserves with respect to Borrowing Base
availability; (d) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money); (e) easements, rights-of-way, restrictions, and other similar charges
or encumbrances not interfering in any material respect with the ordinary
conduct of the business of Borrower or any of its Subsidiaries; (f) Liens for
purchase money obligations, provided that (i) the Indebtedness secured by any
such Lien is permitted under subsection 7.1, and (ii) such Lien encumbers only
the asset so purchased; (g) Liens in favor of Agent, on behalf of Lenders; (h)
Liens evidenced by UCC-1 financing statements filed by consignors in respect of
Inventory consigned to Borrower; provided that such Liens do not include any
item of personal property other than Inventory and, without limiting the
generality of the foregoing, do not in any circumstance include proceeds or
products of Inventory; and (i) Liens set forth on Schedule 1.1(A).
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions
thereof.
"Pro Forma" means the unaudited consolidated balance sheet of Borrower
and its Subsidiaries as of the Closing Date after giving effect to the
transactions contemplated by this Agreement. The Pro Forma is annexed hereto
as Schedule 1.1(B).
"Pro Rata Share" means the percentage obtained by dividing (a) the
Revolving Loan Commitment of a particular Lender by (b) all Revolving Loan
Commitments of all Lenders, as such percentage may be adjusted by assignments
permitted pursuant to subsection 9.1; provided, however,
12
20
if the Revolving Loan Commitment is terminated pursuant to the terms hereof,
then "Pro Rata Share" means the percentage obtained by dividing (x) the
aggregate amount of a particular Lender's outstanding Loans by (y) the
aggregate amount of all outstanding Loans.
"Projections" means Borrower's forecasted unaudited consolidated: (a)
balance sheets; (b) profit and loss statements; (c) cash flow statements; and
(d) capitalization statements, all prepared on a consolidated basis consistent
with Borrower's historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.
"Qualifying Vendor Amount" has the meaning assigned to that term in
subsection 2.1(B).
"Renewal Term" has the meaning assigned to that term in subsection 2.5.
"Reporting Date" has the meaning assigned to that term in subsection
5.1(F).
"Requisite Lenders" means Lenders holding or being responsible for
fifty-one percent (51%) or more of the sum of (a) outstanding Loans, (b)
outstanding Letter of Credit Liability and (c) unutilized Revolving Loan
Commitments; provided, however, that in the event that there are only two (2)
Lenders, "Requisite Lenders" shall mean both Lenders.
"Restricted Junior Payment" means: (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class of
stock of Borrower or any of its Subsidiaries, now or hereafter outstanding,
except a dividend payable solely with shares of the class of stock on which
such dividend is declared; (b) any payment or prepayment of principal of,
premium, if any, or interest on, or any redemption, conversion, exchange,
retirement, defeasance, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of stock
of Borrower or any of its Subsidiaries now or hereafter outstanding, or the
issuance of a notice of an intention to do any of the foregoing; (c) any
payment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any class of stock of
Borrower or any of its Subsidiaries now or hereafter outstanding; and (d) any
payment by Borrower or any of its Subsidiaries of any management, consulting or
similar fees to any Affiliate, whether pursuant to a management agreement or
otherwise.
"Revolving Advance" means each advance made by Lender(s) pursuant to
subsection 2.1(A).
"Revolving Loan" means the outstanding balance of all Revolving Advances
and any amounts added to the principal balance of the Revolving Loan pursuant
to this Agreement.
"Revolving Loan Commitment" means (a) as to any Lender, the commitment of
such Lender to make Revolving Advances pursuant to subsection 2.1(A) and to
purchase participations in Lender Letters of Credit pursuant to subsection
2.1(F) in the aggregate amount set forth on the signature page of this
Agreement opposite such Lender's signature or in the most recent Lender
Addition Agreement, if any, executed by such Lender and (b) as to all Lenders,
the aggregate commitment of all Lenders to make Revolving Advances and to
purchase participations in Lender Letters of Credit.
13
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"Revolving Note" means each promissory note of Borrower in substantially
the form of Exhibit E, issued pursuant to subsection 2.1(D).
"Risk Participation Agreement" has the meaning assigned to that term in
subsection 2.1(F).
"Senior Notes" means Borrower's 9 3/4% Senior Notes due 2004 issued
pursuant to the Senior Notes Indenture.
"Senior Notes Indenture" means the Indenture, dated as of June 26, 1997,
among Borrower, SFW Holding Corp., as guarantor, and Norwest Bank Minnesota,
National Association, as trustee, as amended, supplemented or otherwise
modified from time to time to the extent, and only to the extent, permitted
under subsection 7.7(A).
"Settlement Date" has the meaning assigned to that term in subsection
9.6(A)(2).
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than fifty percent (50%) of
the total voting power of shares of stock (or equivalent ownership or
controlling interest) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one (1) or more of the other subsidiaries of that Person or a combination
thereof.
"Tax Sharing Agreement" means the Tax Sharing Agreement, dated February
6, 1997, between Borrower and Dart and any subsequent tax sharing agreement
between Borrower and Dart which is on substantially the same terms.
"Termination Date" means the date this Agreement is terminated as set
forth in subsection 2.5.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Illinois, as amended from time to time, and any successor
statute.
1.2 Accounting Terms. For purposes of this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to such
terms in conformity with GAAP. Financial statements and other information
furnished to Agent or any Lender pursuant to subsection 5.1 shall be prepared
in accordance with GAAP (as in effect at the time of such preparation) on a
consistent basis. In the event any "Accounting Changes" (as defined below)
shall occur and such changes affect financial covenants, standards or terms in
this Agreement, then Borrower and Agent agree to enter into negotiations in
order to amend such provisions of this Agreement so as to equitably reflect
such Accounting Changes with the desired result that the criteria for
evaluating the financial condition of Borrower shall be the same after such
Accounting Changes as if such Accounting Changes had not been made, and until
such time as such an amendment shall have been executed and delivered by
Borrower and Requisite Lenders, (A) all financial covenants, standards and
terms in this Agreement shall be calculated and/or construed as if such
Accounting Changes had
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not been made, and (B) Borrower shall prepare footnotes to each Compliance
Certificate and the financial statements required to be delivered hereunder
that show the differences between the financial statements delivered (which
reflect such Accounting Changes) and the basis for calculating financial
covenant compliance (without reflecting such Accounting Changes). "Accounting
Changes" means: (a) changes in accounting principles required by GAAP and
implemented by Borrower; and (b) changes in accounting principles recommended
by Borrower's certified public accountants and implemented by Borrower.
1.3 Other Definitional Provisions. References to "Sections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in subsection 1.1 may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference. In this Agreement, words importing any gender include the
other genders; the words "including," "includes" and "include" shall be deemed
to be followed by the words "without limitation"; references to agreements and
other contractual instruments shall be deemed to include subsequent amendments,
assignments, and other modifications thereto, but only to the extent such
amendments, assignments and other modifications are not prohibited by the terms
of this Agreement or any other Loan Document; references to Persons include
their respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of same and any successor statutes and regulations.
SECTION 2. REVOLVING LOAN AND COLLATERAL
2.1 Revolving Loan.
(A) Revolving Loan. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties of
Borrower and the other Loan Parties set forth herein and in the other Loan
Documents, each Lender, severally, agrees to lend to Borrower from time to time
its Pro Rata Share of each Revolving Advance. The aggregate amount of all
Revolving Loan Commitments shall not exceed at any time $25,000,000. Amounts
borrowed under this subsection 2.1(A) may be repaid and reborrowed at any time
prior to the earlier of (i) the termination of the Revolving Loan Commitment
pursuant to subsection 8.3 or (ii) the Termination Date. Except as otherwise
provided herein, no Lender shall have any obligation to make an advance under
this subsection 2.1(A) to the extent such advance would cause the Revolving
Loan (after giving effect to any immediate application of the proceeds thereof)
to exceed the Maximum Revolving Loan Amount.
(1) "Maximum Revolving Loan Amount" means, as of any
date of determination, the lesser of (a) the Revolving Loan Commitments of all
Lenders minus the Letter of Credit Reserve and (b) the Borrowing Base minus the
Letter of Credit Reserve.
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(2) "Borrowing Base" means, as of any date of
determination, an amount equal to the sum of (a) eighty percent (80%) of
Eligible Accounts plus (b) seventy percent (70%) of Eligible Inventory, less
such reserves as Agent in its reasonable discretion may elect to establish,
including, without limitation, PACA Reserves.
(B) Eligible Collateral.
"Eligible Accounts" means, as at any date of determination, the
aggregate of all Accounts consisting solely of Accounts which are due from
vendors to Borrower, but excluding therefrom all Accounts which are due from
any vendor from which Borrower purchases any goods (each such Account, a
"Qualifying Vendor Account"), that Agent, in its reasonable judgment, deems to
be eligible for borrowing purposes. Without limiting the generality of the
foregoing, unless otherwise agreed by Agent, the following Qualifying Vendor
Accounts are not Eligible Accounts:
(1) Qualifying Vendor Accounts which remain unpaid for
either (i) more than sixty (60) days after the due date indicated on the
original invoice or (ii) for more than ninety (90) days after original invoice
date;
(2) Qualifying Vendor Accounts which are otherwise
eligible with respect to which the account debtor is owed a credit by Borrower,
but only to the extent of such credit;
(3) Qualifying Vendor Accounts due from a vendor whose
principal place of business is located outside the United States of America;
(4) Qualifying Vendor Accounts due from a vendor which
Agent has notified Borrower in advance does not have a satisfactory credit
standing;
(5) Qualifying Vendor Accounts with respect to which
the vendor is the United States of America, any state or any municipality, or
any department, agency or instrumentality thereof;
(6) Qualifying Vendor Accounts with respect to which
the vendor is an Affiliate of Borrower or a director, officer, agent,
stockholder or employee of Borrower or any of its Affiliates;
(7) Qualifying Vendor Accounts due from a vendor if
more than twenty-five percent (25%) of the aggregate amount of Qualifying
Vendor Accounts of such vendor have at the time remained unpaid for more than
sixty (60) days after due date or ninety (90) days after the invoice date if no
due date was specified;
(8) Qualifying Vendor Accounts with respect to which
there is any unresolved dispute with the respective vendor (but only to the
extent of such dispute);
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(9) Qualifying Vendor Accounts evidenced by an
"instrument" or "chattel paper" (as defined in the UCC) not in the possession
of Agent, on behalf of Lenders;
(10) Qualifying Vendor Accounts with respect to which
Agent, on behalf of Lenders, does not have a valid, first priority and fully
perfected security interest;
(11) Qualifying Vendor Accounts subject to any Lien
except those in favor of Agent, on behalf of Lenders;
(12) Qualifying Vendor Accounts with respect to which
the vendor is the subject of any bankruptcy or other insolvency proceeding;
(13) Qualifying Vendor Accounts due from a vendor to
the extent that such Qualifying Vendor Accounts exceed in the aggregate an
amount equal to twenty percent (20%) of the aggregate of all Qualifying Vendor
Accounts at said date;
(14) Qualifying Vendor Accounts with respect to which
the vendor is located in New Jersey, Minnesota, or any other state denying
creditors access to its courts in the absence of a Notice of Business
Activities Report or other similar filing, unless Borrower has either qualified
as a foreign corporation authorized to transact business in such state or has
filed a Notice of Business Activities Report or similar filing with the
applicable state agency for the then current year.
"Eligible Inventory" means, as at any date of determination, the
value (determined at the lower of cost or market on a first-in, first-out
basis) of all Inventory owned by and in the possession of Borrower and located
in the United States of America that Agent, in its reasonable credit judgment,
deems to be eligible for borrowing purposes. Without limiting the generality
of the foregoing, unless otherwise agreed by Agent, the following is not
Eligible Inventory: (a) Inventory which Agent reasonably determines, is
unacceptable for borrowing purposes due to age, quality, type, category and/or
quantity; (b) Inventory with respect to which Agent, on behalf of Lenders, does
not have a valid, first priority and fully perfected security interest; (c)
Inventory with respect to which there exists any Lien in favor of any Person
other than Agent, on behalf of Lenders, and other than Liens expressly
permitted in clause (b)(ii) of the definition of "Permitted Encumbrances" as
long as the required notices have been given by Borrower to Agent (Borrower
acknowledges and agrees that Agent will establish reserves against Borrowing
Base availability for each amount in dispute in an amount equal to the full
amount in dispute), and other than Liens expressly permitted in clause (c)(ii)
of the definition of "Permitted Encumbrances" as long as the required notices
have been given by Borrower to Agent (Borrower acknowledges and agrees that
Agent will establish reserves against Borrowing Base availability for each
amount in dispute in an amount equal to the lessor of (i) the full amount in
dispute and (ii) the total value of the Inventory located at the location
subject to such landlord's statutory Lien); (d) Inventory produced in violation
of the Fair Labor Standards Act and subject to the so-called "hot goods"
provisions contained in Title 29 U.S.C. 215(a)(i); (e) Inventory located at any
location not owned by Borrower, unless a waiver of interest reasonably
acceptable in form and substance is delivered to Agent; provided, however, that
Agent
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may, upon notice to Borrower, establish a reserve for rent or charges payable,
in Agent's discretion, in lieu of such waiver of interest in which event
Inventory at such location shall be Eligible Inventory subject to such reserve;
(f) any perishable floral, seafood or bakery Inventory; and (g) Inventory
consisting of packaging supplies.
(C) Borrowing Mechanics. (1) LIBOR Loans made on any Funding
Date shall be in an aggregate minimum amount of $500,000 and integral multiples
of $100,000 in excess of such amount. (2) On any day when Borrower desires an
advance under this subsection 2.1, Borrower shall give Agent telephonic notice
of the proposed borrowing by 11:00 a.m. Central time on the Funding Date of a
Base Rate Loan and three (3) Business Days in advance of the Funding Date of a
LIBOR Loan, which notice (a "Notice of Borrowing") shall also specify the
proposed Funding Date (which shall be a Business Day), whether such Loans
shall consist of Base Rate Loans or LIBOR Loans, and for LIBOR Loans the
Interest Period applicable thereto. Any such telephonic notice shall be
confirmed in writing on the same day. Neither Agent nor Lender shall incur any
liability to Borrower for acting upon any telephonic notice Agent believes in
good faith to have been given by a duly authorized officer or other person
authorized to borrow on behalf of Borrower or for otherwise acting in good
faith under this subsection 2.1(C). Neither Agent nor Lender will make any
advance pursuant to any telephonic notice unless Agent has also received the
most recent Borrowing Base Certificate and all other documents required under
subsection 5.1 by 11:00 a.m. Central time on the date of the request. Each
Revolving Advance shall be deposited by wire transfer in immediately available
funds in such account as Borrower may from time to time designate to Agent in
writing. The becoming due of any amount required to be paid under this
Agreement or any of the other Loan Documents as principal, accrued interest and
fees shall be deemed irrevocably to be a request by Borrower for a Base Rate
Revolving Loan on the due date of, and in the amount required to pay, such
principal, accrued interest and fees, and the proceeds of each such Revolving
Advance if made by Agent or any Lender shall be disbursed by Agent or such
Lender by way of direct payment of the relevant obligation and such relevant
obligation shall be deemed paid on the date of such disbursement.
(D) Revolving Notes. Borrower shall execute and deliver to
each Lender with appropriate insertions a Revolving Note to evidence such
Lender's Revolving Loan Commitment. In the event of an assignment under
subsection 9.1, Borrower shall, upon surrender of the assigning Lender's
Revolving Note, issue new Revolving Note(s) to reflect the interest held by
the assigning Lender and its assignee.
(E) Evidence of Revolving Loan Obligations. Each Revolving
Advance shall be evidenced by this Agreement, the Revolving Notes, and
notations made from time to time by Agent in its books and records, including
computer records. Agent shall record in its books and records, including
computer records, the principal amount of the Revolving Loan owing to each
Lender from time to time. Agent's books and records shall constitute
presumptive evidence, absent manifest error, of the accuracy of the information
contained therein. Failure by Agent to make any such notation or record shall
not affect the obligations of Borrower to Lenders with respect to the Revolving
Loan.
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(F) Letters of Credit. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties of
Borrower herein set forth, the Revolving Loan Commitments may, in addition to
Revolving Advances be utilized, upon the request of Borrower, for (i) the
issuance of letters of credit by Agent, or with Agent's consent, any Lender; or
(ii) the issuance by Agent of risk participations (a "Risk Participation
Agreement") to banks to induce such banks to issue Bank Letters of Credit for
the account of Borrower (each of (i) and (ii) above a "Lender Letter of
Credit"). Each Lender shall be deemed to have purchased a participation in
each Lender Letter of Credit issued on behalf of Borrower in an amount equal to
its Pro Rata Share thereof. In no event shall any Lender Letter of Credit be
issued to the extent that the issuance of such Lender Letter of Credit would
cause the sum of the Letter of Credit Reserve (after giving effect to such
issuance) plus the Revolving Loan to exceed the lesser of (x) the Borrowing
Base and (y) the Revolving Loan Commitment.
(1) Maximum Amount. The aggregate amount of Letter of
Credit Liability with respect to all Lender Letters of Credit outstanding at
any time shall not exceed $10,000,000.
(2) Reimbursement. Borrower shall be irrevocably and
unconditionally obligated forthwith without presentment, demand, protest or
other formalities of any kind, to reimburse Agent or the issuer for any amounts
paid with respect to a Lender Letter of Credit including all fees, costs and
expenses paid to any bank that issues a Bank Letter of Credit. Borrower hereby
authorizes and directs Agent to debit Borrower's account (by making an Advance
in the amount of such reimbursement amount, by increasing the Revolving Loan)
in the amount of any payment made with respect to any Lender Letter of Credit.
All amounts paid with respect to any Lender Letter of Credit that are not
immediately repaid by Borrower with the proceeds of a Revolving Advance or
otherwise shall bear interest at the Default Rate applicable to Base Rate
Revolving Loans. In the event that Borrower shall fail to reimburse Agent on
the date of any payment under a Lender Letter of Credit in an amount equal to
the amount of such payment, Agent shall promptly notify each Lender of the
unreimbursed amount of such payment together with accrued interest thereon and
each Lender, on the next Business Day, shall deliver to Agent an amount equal
to its respective participation in same day funds. The obligation of each
Lender to deliver to Agent an amount equal to its respective participation
pursuant to the foregoing sentence shall be absolute and unconditional and such
remittance shall be made notwithstanding the occurrence or continuation of an
Event of Default or Default or the failure to satisfy any condition set forth
in Section 3. In the event any Lender fails to make available to Agent the
amount of such Lender's participation in such Lender Letter of Credit, Agent
shall be entitled to recover such amount on demand from such Lender together
with interest at the Base Rate.
(3) Conditions of Issuance. In addition to all other
terms and conditions set forth in this Agreement, the issuance of any Lender
Letter of Credit shall be subject to the satisfaction of all conditions
applicable to Revolving Advances, and the conditions that the letter of credit
which Borrower requests be in such form, be for such amount, contain such terms
and support such transactions as are reasonably satisfactory to Agent. The
expiration date of each Lender Letter of Credit shall be on a date which is at
least thirty (30) days prior to the Termination Date.
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(4) Request for Letters of Credit. Borrower shall
give Agent at least three (3) Business Days prior notice specifying the date a
Lender Letter of Credit is to be issued, identifying the beneficiary and
describing the nature of the transactions proposed to be supported thereby.
The notice shall be accompanied by the form of the letter of credit being
requested.
(G) Other Letter of Credit Provisions.
(1) Obligations Absolute. The obligation of Borrower
to reimburse Agent or any Lender for payments made under, and other amounts
payable in connection with, any Lender Letter of Credit shall be unconditional
and irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances including the following circumstances:
(a) any lack of validity or enforceability of
any Lender Letter of Credit, Bank Letter of Credit or any other agreement;
(b) the existence of any claim, set-off,
defense or other right which Borrower, any of its Affiliates, Agent or any
Lender, on the one hand, may at any time have against any beneficiary or
transferee of any Lender Letter of Credit or Bank Letter of Credit (or any
Persons for whom any such transferee may be acting), Agent, any Lender or any
other Person, on the other hand, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction (including any
underlying transaction between Borrower or any of its Affiliates and the
beneficiary of the letter of credit);
(c) any draft, demand, certificate or any
other document presented under any Lender Letter of Credit or Bank Letter of
Credit is alleged to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;
(d) payment under any Lender Letter of Credit
or Bank Letter of Credit against presentation of a demand, draft or certificate
or other document which does not comply with the terms of such letter of
credit; provided that, in the case of any payment by Agent or a Lender under
any Lender Letter of Credit, Agent or such Lender has not acted with gross
negligence or willful misconduct (as determined by a court of competent
jurisdiction) in determining that the demand for payment under such Lender
Letter of Credit complies on its face with any applicable requirements for a
demand for payment under such Lender Letter of Credit;
(e) any other circumstance or happening
whatsoever, which is substantially similar to any of the foregoing; or
(f) the fact that a Default or an Event of
Default shall have occurred and be continuing.
(2) Nature of Lender's Duties . As between Agent and
Lenders, on the one hand, and Borrower, on the other hand, Borrower assumes all
risks of the acts and omissions of, or misuse of, any Lender Letter of Credit
by the beneficiary thereof. In furtherance and not in
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limitation of the foregoing, neither Agent nor any Lender shall be responsible:
(a) for the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document by any party in connection with the application for and
issuance of any Lender Letter of Credit, even if it should in fact prove to be
in any or all respects invalid, insufficient, inaccurate, fraudulent or forged;
(b) for the validity or sufficiency of any instrument transferring or assigning
or purporting to transfer or assign any Lender Letter of Credit or the rights
or benefits thereunder or proceeds thereof, in whole or in part, which may
prove to be invalid or ineffective for any reason; (c) for failure of the
beneficiary of any Lender Letter of Credit to comply fully with conditions
required in order to demand payment thereunder; provided that, in the case of
any payment by Agent or any Lender under any Lender Letter of Credit, Agent or
Lender has not acted with gross negligence or willful misconduct (as determined
by a court of competent jurisdiction) in determining that the demand for
payment under such Lender Letter of Credit complies on its face with any
applicable requirements for a demand for payment thereunder; (d) for errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex or otherwise, whether or not they be in
cipher; (e) for errors in interpretation of technical terms; (f) for any loss
or delay in the transmission or otherwise of any document required in order to
make a payment under any Lender Letter of Credit; (g) for the credit of the
proceeds of any drawing under any Lender Letter of Credit; and (h) for any
consequences arising from causes beyond the control of Agent or any Lender as
the case may be. None of the above shall affect, impair, or prevent the
vesting of any of Agent's or any Lender's rights or powers hereunder.
(3) Liability. In furtherance and extension of, and
not in limitation of, the specific provisions herein above set forth, any
action taken or omitted by Agent or any Lender under or in connection with any
Lender Letter of Credit, if taken or omitted in good faith, shall not put Agent
or any Lender under any resulting liability to Borrower.
2.2 Interest.
(A) Rate of Interest. The Loans and all other Obligations
shall bear interest from the date such Loans are made or such other Obligations
become due to the date paid at a rate per annum equal to (i) in the case of
Base Rate Loans and other Obligations for which no other interest rate is
specified, the Base Rate plus the Applicable Base Rate Margin and (ii) in the
case of LIBOR Loans, LIBOR plus the Applicable LIBOR Rate Margin (the "Interest
Rate"). The applicable basis for determining the rate of interest shall be
selected by Borrower initially at the time a Notice of Borrowing is given
pursuant to subsection 2.1(C). The basis for determining the interest rate
with respect to any Loan or a portion of any Loan may be changed from time to
time pursuant to subsection 2.2(E). If on any day a Loan or a portion of any
Loan is outstanding with respect to which notice has not been delivered to
Agent in accordance with the terms of this Agreement specifying the basis for
determining the rate of interest, then for that day that Loan or portion
thereof shall bear interest determined by reference to the Base Rate.
Borrower shall deliver, together with each Compliance Certificate
delivered to Agent at the end of any fiscal quarter or Fiscal Year of Borrower
pursuant to subsection 5.1(E), a certificate (an "Applicable Rate Certificate")
duly executed by an Authorized Officer which shall set forth
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Borrower's calculations of the applicable margins for the Interest Rates based
upon EBITDA for the applicable rolling four quarter period then ended. Except
with respect to Borrower's Fiscal Year ending in January 1999, any adjustments
to the applicable margins shall be made based upon the calculations set forth
in the Applicable Rate Certificate and shall be deemed approved and become
effective on the fifth (5th) Business Day following Agent's receipt of the
Applicable Rate Certificate unless Agent reasonably objects thereto during such
five (5) Business Day period; provided, however, that if an Applicable Rate
Certificate and accompanying Compliance Certificate are not delivered within
three (3) Business Days after the date delivery of such Compliance Certificate
is required hereunder, the applicable margins shall automatically increase to
the maximum percentage amount set forth in the applicable definitions of such
terms from the date when such Applicable Rate Certificate and financial
statements were required to be delivered to Agent hereunder until received by
Agent. In the event that Agent reasonably objects to Borrower's calculations of
the applicable margins in an Applicable Rate Certificate, Borrower and Agent
shall work together to promptly resolve any disputes and, during such time
period, the applicable margins shall continue at their existing levels until
such disputes are resolved by Borrower and Agent; provided, further, that upon
such resolution, the agreed upon applicable margins shall become retroactively
effective as of the fifth (5th) Business Day following Agent's receipt of the
Applicable Rate Certificate and Borrower or Agent, as the case may be, shall
promptly make whatever payment is necessary to effectuate such retroactive
adjustment. Upon any change in the applicable margins, Agent shall notify
Lenders of the new applicable margins.
After the occurrence and during the continuance of an Event of Default
(i) the Loans and all other Obligations shall, at the option of Requisite
Lenders, bear interest at a rate per annum equal to two percent (2%) plus the
applicable Interest Rate (the "Default Rate"), (ii) each LIBOR Loan shall
automatically convert to a Base Rate Loan at the end of any applicable Interest
Period and (iii) no Loans may be converted to LIBOR Loans.
(B) Interest Periods. In connection with each LIBOR Loan,
Borrower shall elect an interest period (each an "Interest Period") to be
applicable to such Loan, which Interest Period shall be either a one, two,
three or six month period; provided that:
(1) the initial Interest Period for any LIBOR Loan
shall commence on the Funding Date of such Loan;
(2) in the case of successive Interest Periods, each
successive Interest Period shall commence on the day on which the immediately
preceding Interest Period expires;
(3) if an Interest Period expiration date is not a
Business Day, such Interest Period shall expire on the next succeeding Business
Day; provided that if any Interest Period expiration date 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 immediately preceding Business
Day;
(4) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the
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end of such Interest Period) shall, subject to part (5), below, end on the last
Business Day of a calendar month;
(5) no Interest Period shall extend beyond the
Termination Date; and
(6) there shall be no more than three (3) Interest
Periods relating to LIBOR Loans outstanding at any time.
(C) Computation and Payment of Interest. Interest on the Loans
and all other Obligations shall be computed on the daily principal balance on
the basis of a 360 day year for the actual number of days elapsed in the period
during which it accrues. In computing interest on any Loan, the date of
funding of the Loan or the first day of an Interest Period applicable to such
Loan or, with respect to a Base Rate Loan being converted from a LIBOR Loan,
the date of conversion of such LIBOR Loan to such Base Rate Loan, shall be
included; and the date of payment of such Loan or the expiration date of an
Interest Period applicable to such Loan, or with respect to a Base Rate Loan
being converted to a LIBOR Loan, the date of conversion of such Base Rate Loan
to such LIBOR Loan, shall be excluded; provided that if a Loan is repaid on the
same day on which it is made, one (1) day's interest shall be paid on that
Loan. Interest on Base Rate Loans and all other Obligations other than LIBOR
Loans shall be payable to Agent for benefit of Lenders monthly in arrears on
the first day of each month, on the date of any prepayment of Loans, and at
maturity, whether by acceleration or otherwise. Interest on LIBOR Loans shall
be payable to Agent for benefit of Lenders on the last day of the applicable
Interest Period for such Loan, on the date of any prepayment of the Loans, and
at maturity, whether by acceleration or otherwise. In addition, for each LIBOR
Loan having an Interest Period longer than three (3) months, interest accrued
on such Loan shall also be payable on the last day of each three (3) month
interval during such Interest Period.
(D) Interest Laws. Notwithstanding any provision to the
contrary contained in this Agreement or any other Loan Document, Borrower shall
not be required to pay, and neither Agent nor any Lender shall be permitted to
collect, any amount of interest in excess of the maximum amount of interest
permitted by applicable law ("Excess Interest"). If any Excess Interest is
provided for or determined by a court of competent jurisdiction to have been
provided for in this Agreement or in any other Loan Document, then in such
event: (1) the provisions of this subsection shall govern and control; (2)
neither Borrower nor any other Loan Party shall be obligated to pay any Excess
Interest; (3) any Excess Interest that Agent or any Lender may have received
hereunder shall be, at such Lender's option, (a) applied as a credit against
the outstanding principal balance of the Obligations or accrued and unpaid
interest (not to exceed the maximum amount permitted by law), (b) refunded to
the payor thereof, or (c) any combination of the foregoing; (4) the interest
rate(s) provided for herein shall be automatically reduced to the maximum
lawful rate allowed from time to time under applicable law (the "Maximum
Rate"), and this Agreement and the other Loan Documents shall be deemed to have
been and shall be, reformed and modified to reflect such reduction; and (5)
neither Borrower nor any other Loan Party shall have any action against Agent
or any Lender for any damages arising out of the payment or collection of any
Excess Interest. Notwithstanding the foregoing, if for any period of time
interest on any Obligations is calculated at
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the Maximum Rate rather than the applicable rate under this Agreement, and
thereafter such applicable rate becomes less than the Maximum Rate, the rate of
interest payable on such Obligations shall remain at the Maximum Rate until
each Lender shall have received the amount of interest which such Lender would
have received during such period on such Obligations had the rate of interest
not been limited to the Maximum Rate during such period.
(E) Conversion or Continuation. Subject to the provisions of
subsection 2.1, Borrower shall have the option to (1) convert at any time all
or any part of outstanding Loans equal to $500,000 and integral multiples of
$100,000 in excess of that amount from Base Rate Loans to LIBOR Loans or (2)
upon the expiration of any Interest Period applicable to a LIBOR Loan, to (a)
continue all or any portion of such LIBOR Loan equal to $500,000 and integral
multiplies of $100,000 in excess of that amount as a LIBOR Loan or (b) convert
all or any portion of such LIBOR Loan to a Base Rate Loan. The succeeding
Interest Period(s) of such continued or converted Loan commence on the last day
of the Interest Period of the Loan to be continued or converted; provided that
no outstanding Loan may be continued as, or be converted into, a LIBOR Loan,
when any Event of Default or Default has occurred and is continuing.
Borrower shall deliver a notice of conversion/continuation to
Agent no later than 11:00 a.m. (Central time) at least three (3) Business Days
in advance of the proposed conversion/ continuation date ("Notice of
Conversion/Continuation"). A Notice of Conversion/Continuation shall certify:
(1) the proposed conversion/continuation date (which shall be a Business Day);
(2) the amount of the Loan to be converted/continued; (3) the nature of the
proposed conversion/continuation; (4) in the case of conversion to, or a
continuation of, a LIBOR Loan, the requested Interest Period; and (5) that no
Default or Event of Default has occurred and is continuing or would result from
the proposed conversion/continuation.
In lieu of delivering the Notice of Conversion/Continuation,
Borrower may give Agent telephonic notice by the required time of any proposed
conversion/continuation under this subsection 2.2(E); provided that such notice
shall be promptly confirmed in writing by delivery of a Notice of
Conversion/Continuation to Agent on or before the proposed
conversion/continuation date.
Neither Agent nor any Lender shall incur any liability to Borrower
in acting upon any telephonic notice referred to above that Agent believes in
good faith to have been given by a duly authorized officer or other person
authorized to act on behalf of Borrower or for otherwise acting in good faith
under this subsection 2.2(E) and upon conversion/continuation by Lenders in
accordance with this Agreement pursuant to any telephonic notice, Borrower
shall have effected such conversion or continuation, as the case may be,
hereunder.
2.3 Fees.
(A) Unused Line Fee. Borrower shall pay to Agent, for the
benefit of Lenders, a fee in an amount equal to (A)(i) the Revolving Loan
Commitment less (ii) the sum of (x) the average daily balance of the Revolving
Loan plus (y) the average daily face amount of the Lender
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Letter of Credit Reserve during the preceding month multiplied by (B) the
Applicable Unused Line Fee, such fee to be calculated on the basis of a 360 day
year for the actual number of days elapsed and to be payable monthly in arrears
on the first day of the first month following the Closing Date and the first
day of each month thereafter. Borrower shall deliver, together with each
Compliance Certificate delivered to Agent at the end of any fiscal quarter or
Fiscal Year of Borrower pursuant to subsection 5.1(E), a certificate (an
"Applicable Fee Certificate") duly executed by an Authorized Officer which
shall set forth Borrower's calculation of the Applicable Unused Line Fee based
upon EBITDA for the applicable rolling four quarter period. Except with
respect to Borrower's Fiscal Year ending in January 1999, any adjustments to
the Applicable Unused Line Fee shall be made based upon the calculations set
forth in the Applicable Fee Certificate and shall be deemed approved and become
effective on the fifth (5th) Business Day following Agent's receipt of the
Applicable Fee Certificate unless Agent reasonably objects thereto during such
five (5) Business Day period; provided, however, that if such Applicable Fee
Certificate and accompanying Compliance Certificate are not delivered within
three (3) Business Days after the date delivery of such Compliance Certificate
is required hereunder, the Applicable Unused Line Fee shall automatically
increase to the maximum percentage amount set forth in the definition thereof
from the date when such Applicable Fee Certificate and financial statements
were required to be delivered to Agent hereunder until received by Agent. In
the event Agent reasonably objects to the Borrower's calculations of the
Applicable Unused Line Fee in an Applicable Fee Certificate, Borrower and Agent
shall work together to promptly resolve any disputes and, during such time
period, the Applicable Unused Line Fee shall continue at its existing level
until such disputes are resolved by Borrower and Agent; provided, further, that
upon such resolution, the agreed upon Applicable Unused Line Fee shall become
retroactively effective as of the fifth (5th) Business Day following Agent's
receipt of the Applicable Fee Certificate and Borrower or Agent, as the case
may be, shall promptly make whatever payment is necessary to effectuate such
retroactive adjustment. Upon any change in the applicable margin, Agent shall
promptly notify Lenders of the new Applicable Unused Line Fee.
(B) Letter of Credit Fees. Borrower shall pay to Agent for
the account of Lenders, a fee with respect to the Lender Letters of Credit in
the amount of the average daily amount of Letter of Credit Liability
outstanding during such month multiplied by the Applicable Letter of Credit
Fee. Such fee will be calculated on the basis of a 360 day year for the actual
number of days elapsed and will be payable monthly in arrears on the first day
of each month. Borrower shall also reimburse Agent for any and all fees and
expenses, if any, paid by Agent or any Lender to the issuer of any Bank Letter
of Credit. In addition to the calculation of the Applicable Unused Line Fee
set forth in each Applicable Fee Certificate delivered to Agent by Borrower
pursuant to subsection 2.3(A) above, each such Applicable Fee Certificate shall
also set forth Borrower's calculation of the Applicable Letter of Credit Fee
based upon EBITDA for such applicable rolling four quarter period. Any
adjustments to the Applicable Unused Line Fee shall be made based upon the
calculations set forth in the Applicable Fee Certificate and shall be deemed
approved and become effective on the fifth (5th) Business Day following Agent's
receipt of the Applicable Fee Certificate unless Agent reasonably objects
thereto during such five (5) Business Day period; provided, however, that if
the Applicable Fee Certificate and accompanying Compliance Certificate are not
delivered within three (3) Business Days after the date delivery of such
Compliance Certificate is required hereunder, the Applicable Letter of Credit
Fee shall increase to the maximum percentage amount set forth in the
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definition thereof from the date when such Applicable Fee Certificates and
financial statements were required to be delivered to Agent hereunder until
received by Agent. In the event Agent reasonably objects to the Borrower's
calculation of the Applicable Letter of Credit Fee in an Applicable Fee
Certificate, Borrower and Agent shall work together to promptly resolve any
disputes and, during such time period, the Applicable letter of Credit Fee
shall continue at its existing level until such disputes are resolved by
Borrower and Agent. Upon any change in the applicable margin, Agent shall
promptly notify Lenders of the new Applicable Letter of Credit Fee.
(C) Inspection Fees. Borrower agrees to pay to Agent for its
own account (i) for any auditor which is an employee of Agent, an inspection
fee for each inspection equal to $750 per auditor per day or any portion
thereof, together with reasonable out of pocket expenses, and (ii) for any
auditor which is not an employee of Agent, the out of pockets fees, costs and
expenses paid to such auditors by Agent; provided that so long as no Event of
Default is continuing, (x) Borrower shall not be required to pay more than
$7,500, plus reasonable out of pocket expenses, per inspection and (y) until
the first time, if any, that the Maximum Revolving Loan Amount exceeds the
Revolving Loan by less than $10,000,000, Borrower shall not be required to pay
for more than two (2) inspections during any Loan Year.
(D) Other Fees and Expenses. (1) Borrower shall make to Agent,
solely for its own account, at the times set forth therein, all payments
provided for in the Fee Letter, and (2) Borrower shall pay to Agent, for its
own account, all charges for returned items and all other bank charges incurred
by Agent, as well as Agent's standard wire transfer charges, for each wire
transfer made under this Agreement.
2.4 Payments and Prepayments.
(A) Manner and Time of Payment. In its sole discretion, Agent
may charge interest and other amounts payable hereunder to the Revolving Loan,
all as set forth on Agent's books and records. If Agent elects to bill
Borrower for any amount due hereunder, such amount shall be immediately due and
payable with interest thereon as provided herein and such amount shall be
promptly paid by Borrower. All payments made by Borrower with respect to the
Obligations shall be made without deduction, defense, setoff or counterclaim.
All payments to Agent hereunder shall, unless otherwise directed by Agent, be
made to Agent's Account or in accordance with subsection 5.6. Proceeds
remitted to Agent's Account shall be credited to the Obligations on the first
Business Day following the day such proceeds were received; provided, however,
that proceeds remitted to Agent's Account by wire transfer of immediately
available funds shall be credited to the Obligations on the Business Day
received.
(B) Mandatory Prepayments.
(1) Overadvance. At any time that the Revolving Loan
exceeds the Maximum Revolving Loan Amount, Borrower shall immediately repay the
Revolving Loan to the extent necessary to reduce the principal balance to an
amount equal to or less than the Maximum Revolving Loan Amount.
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(2) Proceeds of Asset Dispositions.
(a) Upon the occurrence and during the continuance
of a Default or Event of Default and following notice from Agent to Borrower of
such Default or Event of Default (other than an Event of Default described in
subsections 8.1(G) or 8.1(H) for which no such notice shall be required),
immediately upon receipt by Borrower or any of its Subsidiaries of proceeds of
any Asset Disposition, in one or a series of related transactions, other than
an Asset Disposition described in clause (b) below, which proceeds exceed
$50,000 (it being understood that if the proceeds exceed $50,000, the entire
amount and not just the portion above $50,000 shall be subject to this
subsection 2.4(B)(2)(a)), Borrower shall prepay the Obligations in an amount
equal to such proceeds.
(b) Upon the occurrence and during the
continuance of a Default or Event of Default or a Cash Dominion Event and
following notice from Agent to Borrower of such Default or Event of Default
(other than an Event of Default described in subsections 8.1(G) or 8.1(H) for
which no such notice shall be required) or Cash Dominion Event, immediately
upon receipt by Borrower or any of its Subsidiaries of proceeds of any Asset
Disposition in connection with a store closing or store closings, in one or a
series of related transactions, which proceeds exceed $50,000 (it being
understood that if the proceeds exceed $50,000, the entire amount and not just
the portion above $50,000 shall be subject to this subsection 2.4(B)(2)(b)),
Borrower shall prepay the Obligations in an amount equal to such proceeds.
(C) Voluntary Prepayments and Repayments. Borrower may, at any
time upon not less than three Business Days' prior notice to Agent, terminate
the entire Revolving Loan Commitment and, thereupon, the Revolving Loan
Commitment shall be zero. Upon termination of the Revolving Loan Commitment,
Borrower shall cause Agent and each Lender to be released from all liability
under any Lender Letters of Credit or, at Agent's option, Borrower will deposit
cash collateral with Agent in an amount equal to 105% of the Letter of Credit
Liability that will remain outstanding after prepayment or repayment.
(D) Payments on Business Days. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day, the
payment may be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the amount of interest or fees due
hereunder.
2.5 Term of this Agreement. This Agreement shall be effective until
December 22, 2002 (the "Original Term"); provided that the term of this
Agreement may be extended for up to two (2) additional one (1) year periods
(each such additional year a "Renewal Term") if Borrower, Agent and Lenders so
consent in writing at least ninety (90) days prior to the end of the Original
Term and/or the first Renewal Term, as the case may be (the last to occur of
the end of the Original Term, the end of the first Renewal Term or the end of
the second Renewal Term, as applicable, the "Termination Date"); provided,
however, that in any event, the Termination Date shall be no later than ninety
(90) days prior to the maturity date of the Senior Notes as set forth in the
Senior Notes Indenture. The Revolving Loan Commitments shall (unless earlier
terminated) terminate upon the
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earlier of (i) the occurrence of an event specified in subsection 8.3 or (ii)
the Termination Date. Upon termination in accordance with subsection 8.3 or on
the Termination Date, all Obligations shall become immediately due and payable
without notice or demand. Notwithstanding any termination, until all
Obligations have been fully paid and satisfied, Agent, on behalf of Lenders,
shall be entitled to retain security interests in and liens upon all
Collateral, and even after payment of all Obligations hereunder, Borrower's
obligation to indemnify Agent and each Lender in accordance with the terms
hereof shall continue.
2.6 Statements. Agent shall render a monthly statement of account to
Borrower within twenty (20) days after the end of each month. Such statement
of account shall constitute an account stated unless Borrower makes written
objection thereto within thirty (30) days from the date Borrower is deemed to
have received such statement under subsection 10.4. Borrower promises to pay
all of its Obligations as such amounts become due or are declared due pursuant
to the terms of this Agreement.
2.7 Grant of Security Interest. To secure the payment and performance
of the Obligations, including all renewals, extensions, restructurings and
refinancings of any or all of the Obligations, Borrower hereby grants to Agent,
on behalf of Lenders, a continuing security interest and lien in and to all
right, title and interest of Borrower in the following property of Borrower,
whether now owned or existing or hereafter acquired or arising and regardless
of where located (all being collectively referred to as the "Collateral"): (A)
Accounts, and all guaranties and security therefor, and all goods and rights
represented thereby or arising therefrom including the rights of stoppage in
transit, replevin and reclamation; (B) Inventory; (C) Intellectual Property
evidencing or relating to any of the items described in (A) or (B) of this
subsection; (D) general intangibles evidencing or relating to any of the items
described in (A) or (B) of this subsection; (E) contract rights evidencing or
relating to any of the items described in (A) or (B) of this subsection; and
(F) proceeds of all or any of the property described above, including, without
limitation, the proceeds of any insurance policies covering any of the above
described property.
2.8 Capital Adequacy and Other Adjustments. In the event Agent or any
Lender shall have determined that the adoption after the date hereof of any
law, treaty, governmental (or quasi-governmental) rule, regulation, guideline
or order regarding capital adequacy, reserve requirements or similar
requirements or compliance by Agent or such Lender or any corporation
controlling Agent or such Lender with any request or directive regarding
capital adequacy, reserve requirements or similar requirements (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful) from any central bank or governmental agency or body having
jurisdiction does or shall have the effect of increasing the amount of capital,
reserves or other funds required to be maintained by Agent or such Lender or
any corporation controlling Agent or such Lender and thereby reducing the rate
of return on Agent's or such Lender's or such corporation's capital as a
consequence of its obligations hereunder, then Borrower shall from time to time
within fifteen (15) days after notice and demand from such Lender (with a copy
to Agent) or Agent ( in each instance together with the certificate referred to
in the next sentence) pay to Agent or such Lender additional amounts sufficient
to compensate Agent or such Lender for such reduction. A certificate as to the
amount of such cost and showing the basis of the computation of such cost
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submitted by Agent or any Lender to Borrower shall, absent manifest error, be
final, conclusive and binding for all purposes.
2.9 Taxes.
(A) No Deductions. Any and all payments or reimbursements made
hereunder or under the Revolving Notes shall be made free and clear of and
without deduction for any and all taxes, levies, imposts, deductions, charges
or withholdings, and all liabilities with respect thereto; excluding, however,
the following: taxes imposed on the net income of any Lender or Agent by the
jurisdiction under the laws of which Agent or such Lender is organized or doing
business or any political subdivision thereof and taxes imposed on its net
income by the jurisdiction of Agent's or such Lender's applicable lending
office or any political subdivision thereof (all such taxes, levies, imposts,
deductions, charges or withholdings and all liabilities with respect thereto,
excluding such taxes imposed on net income, herein "Tax Liabilities"). If
Borrower shall be required by law to deduct any such Tax Liabilities from or in
respect of any sum payable hereunder to Agent or any Lender, then the sum
payable hereunder shall be increased as may be necessary so that, after making
all required deductions, Agent or such Lender receives an amount equal to the
sum it would have received had no such deductions been made.
(B) Changes in Tax Laws. In the event that, subsequent to the
Closing Date, (i) any changes in any existing law, regulation, treaty or
directive or in the interpretation or application thereof, (ii) any new law,
regulation, treaty or directive enacted or any interpretation or application
thereof, or (iii) compliance by Lender with any request or directive (whether
or not having the force of law) from any governmental authority, agency or
instrumentality:
(1) does or shall subject Agent or any Lender to any
tax of any kind whatsoever with respect to this Agreement, the other Loan
Documents or any Loans made or Lender Letters of Credit issued hereunder, or
change the basis of taxation of payments to Agent or such Lender of principal,
fees, interest or any other amount payable hereunder (except for net income
taxes, or franchise taxes imposed in lieu of net income taxes, imposed
generally by federal, state or local taxing authorities with respect to
interest or commitment or other fees payable hereunder or changes in the rate
of tax on the overall net income of Agent or such Lender); or
(2) does or shall impose on Agent or any Lender any
other condition or increased cost in connection with the transactions
contemplated hereby or participations herein; and the result of any of the
foregoing is to increase the cost to Agent or such Lender of issuing any Lender
Letter of Credit or making or continuing any Loan hereunder, as the case may
be, or to reduce any amount receivable hereunder,
then, in any such case, Borrower shall promptly pay to Agent or such Lender,
upon its demand, any additional amounts necessary to compensate Agent or such
Lender, on an after-tax basis, for such additional cost or reduced amount
receivable, as determined by Agent or such Lender with respect to this
Agreement or the other Loan Documents. If Agent or any Lender becomes entitled
to claim any additional amounts pursuant to this subsection, it shall promptly
notify Borrower of the event
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by reason of which Agent or such Lender has become so entitled. A certificate
as to any additional amounts payable pursuant to the foregoing sentence
submitted by Agent or any Lender to Borrower shall, absent manifest error, be
final, conclusive and binding for all purposes.
(C) Foreign Lenders. Each Lender organized under the laws of a
jurisdiction outside the United States (a "Foreign Lender") as to which
payments to be made under this Agreement or under the Revolving Notes are
exempt from United States withholding tax or are subject to United States
withholding tax at a reduced rate under an applicable statute or tax treaty
shall provide to Borrower and Agent (i) a properly completed and executed
Internal Revenue Service Form 4224 or Form 1001 or other applicable form,
certificate or document prescribed by the Internal Revenue Service of the
United States certifying as to such Foreign Lender's entitlement to such
exemption or reduced rate of withholding with respect to payments to be made to
such Foreign Lender under this Agreement, or under the Revolving Notes (a
"Certificate of Exemption"), or (ii) a letter from any such Foreign Lender
stating that it is not entitled to any such exemption or reduced rate of
withholding (a "Letter of Non-Exemption"). Prior to becoming a Lender under
this Agreement and within fifteen (15) days after a reasonable written request
of Borrower or Agent from time to time thereafter, each Foreign Lender that
becomes a Lender under this Agreement shall provide a Certificate of Exemption
or a Letter of Non-Exemption to Borrower and Agent.
If a Foreign Lender is entitled to an exemption with respect to
payments to be made to such Foreign Lender under this Agreement (or to a
reduced rate of withholding) and does not provide a Certificate of Exemption to
Borrower and Agent within the time periods set forth in the preceding
paragraph, Borrower shall withhold taxes from payments to such Foreign Lender
at the applicable statutory rates and Borrower shall not be required to pay any
additional amounts as a result of such withholding; provided, however, that all
such withholding shall cease upon delivery by such Foreign Lender of a
Certificate of Exemption to Borrower and Agent.
2.10 Required Termination and Prepayment. If on any date any Lender
shall have reasonably determined (which determination shall be final and
conclusive and binding upon all parties) that the making or continuation of its
LIBOR Loans has become unlawful or impossible by compliance by Lender in good
faith with any law, governmental rule, regulation or order (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful), then, and in any such event, that Lender shall promptly give notice
(by telephone confirmed in writing) to Borrower and Agent of that determination
explaining the basis of such determination. Subject to prior withdrawal of a
Notice of Borrowing or a Notice of Conversion/Continuation or prepayment of
LIBOR Loans as contemplated by subsection 2.11, the obligation of Lender to
make or maintain its LIBOR Loans during any such period shall be terminated at
the earlier of the termination of the Interest Period then in effect or when
required by law and Borrower shall no later than the termination of the
Interest Period in effect at the time any such determination pursuant to this
subsection 2.10 is made or, earlier when required by law, repay or prepay such
Lender's LIBOR Loans together with all interest accrued thereon or convert such
LIBOR Loans to Base Rate Loans.
2.11 Optional Prepayment/Replacement of Agent or Lenders in Respect of
Increased Costs. Within fifteen (15) days after receipt by Borrower of written
notice and demand from Agent
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or any Lender (an "Affected Lender") for payment of additional costs and/or
taxes as provided in subsections 2.8 and 2.9(B), respectively, Borrower may, at
its option, notify Agent and such Affected Lender of its intention to do one of
the following:
(A) Borrower may obtain, at Borrower's expense, a replacement
Lender ("Replacement Lender") for such Affected Lender, which Replacement
Lender shall be reasonably satisfactory to Agent. In the event Borrower
obtains a Replacement Lender within ninety (90) days following notice of its
intention to do so, the Affected Lender shall sell and assign its Loans and
Revolving Loan Commitments to such Replacement Lender; provided, that Borrower
has reimbursed such Affected Lender for its increased costs for which it is
entitled to reimbursement under this Agreement through the date of such sale
and assignment.
(B) Borrower may prepay in full all outstanding Obligations
owed to such Affected Lender and terminate such Affected Lender's Revolving
Loan Commitments. Borrower shall, within ninety (90) days following notice of
its intention to do so, prepay in full all outstanding Obligations owed to such
Affected Lender (including such Affected Lender's increased costs for which it
is entitled to reimbursement under this Agreement) through the date of such
prepayment and terminate such Affected Lender's Revolving Loan Commitments.
2.12 Compensation. Borrower shall compensate each and every Lender,
upon written request by such Lender (which request shall set forth in
reasonable detail the basis for requesting such amounts and which shall, absent
manifest error, be conclusive and binding upon all parties hereto), for all
reasonable losses, expenses and liabilities including, without limitation, any
loss sustained by such Lender in connection with the re-employment of such
funds: (i) if for any reason (other than a breach by such Lender of any of its
obligations under this Agreement) a borrowing of any LIBOR Loan does not occur
on a date specified therefor in a Notice of Borrowing, a Notice of
Conversion/Continuation or a telephonic request for borrowing or
Conversion/Continuation; (ii) if any prepayment of any of its LIBOR Loans
occurs on a date that is not the last day of an Interest Period applicable to
that Loan; (iii) if any prepayment of any of its LIBOR Loans is not made on any
date specified in a notice of prepayment given by Borrower; or (iv) as a
consequence of any other default by Borrower to repay its LIBOR Loans when
required by the terms of this Agreement; provided that during the period while
any such amounts have not been paid, Agent shall reserve an equal amount from
amounts otherwise available to be borrowed under the Revolving Loan.
2.13 Booking of LIBOR Loans. Each Lender may make, carry or transfer
LIBOR Loans at, to, or for the account of, any of its branch offices or the
office of an affiliate of such Lender; provided, however, that Borrower shall
not be responsible for any costs or lost revenues of a Lender if such Lender
could have avoided such costs or lost revenues by transferring its LIBOR Loans
to an existing branch of such Lender.
2.14 Assumptions Concerning Funding of LIBOR Loans. Calculation of
all amounts payable to Lender under subsection 2.12 shall be made as though
each Lender had actually funded its relevant LIBOR Loan through the purchase of
a LIBOR deposit bearing interest at LIBOR in an amount equal to the amount of
that LIBOR Loan and having maturity comparable to the relevant
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Interest Period and through the transfer of such LIBOR deposit from an offshore
office to a domestic office in the United States of America; provided, however,
that each Lender may fund each of its LIBOR Loans in any manner it sees fit and
the foregoing assumption shall be utilized only for the calculation of amounts
payable under subsection 2.12.
SECTION 3. CONDITIONS TO LOANS
3.1 Conditions to Loans. The obligations of Agent and each Lender to
make Loans and the obligation of Agent or any Lender to issue Lender Letters of
Credit on the Closing Date and on each Funding Date are subject to satisfaction
of all of the conditions set forth below.
(A) Closing Deliveries. Agent shall have received, in form and
substance satisfactory to Agent, all agreements, documents, instruments and
information identified on Schedule 3.1(A) and all other agreements, notes,
certificates, orders, authorizations, financing statements and other documents
which Agent may at any time reasonably request.
(B) Security Interests. Agent shall have received satisfactory
evidence that all security interests and liens granted to Agent for the benefit
of Lenders pursuant to this Agreement or the other Loan Documents have been
duly perfected and constitute first priority liens on the Collateral, subject
only to Permitted Encumbrances.
(C) Closing Date Availability. On the Closing Date, after
giving effect to (i) the consummation of the transactions contemplated
hereunder on the Closing Date, (ii) the payment by Borrower of all costs, fees
and expenses relating thereto and (iii) the use, or reserve for use, of
$25,000,000 of existing cash, cash equivalents and short-term investments to
pay a dividend and/or make a loan to Dart, the amount on the Closing Date equal
to (x) the Maximum Revolving Loan Amount minus (y) the Revolving Loan plus (z)
Borrower's cash on hand which is not subject to any restrictions regarding its
use by Borrower, shall equal at least $20,000,000.
(D) Representations and Warranties. The representations and
warranties contained herein and in the Loan Documents shall be true, correct
and complete in all material respects on and as of that Funding Date to the
same extent as though made on and as of that date, except for any
representation or warranty limited by its terms to a specific date and taking
into account any amendments to the Schedules or Exhibits as a result of any
disclosures made by Borrower to Agent after the Closing Date and approved by
Agent.
(E) Fees. Borrower shall have paid to Agent, for its own
account, all amounts payable to Agent on or before the Closing Date under the
terms of the Fee Letter.
(F) No Default. No event shall have occurred and be continuing
or would result from the consummation of the requested borrowing or notice
requesting issuance of a Lender Letter of Credit that is or would constitute an
Event of Default or a Default.
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(G) Performance of Agreements. Each Loan Party shall have
performed in all material respects all agreements and satisfied all conditions
which any Loan Document provides shall be performed by it on or before that
Funding Date.
(H) No Prohibition. No order, judgment or decree of any court,
arbitrator or governmental authority shall purport to enjoin or restrain Agent
or any Lender from making any Loans or issuing any Lender Letters of Credit.
(I) No Litigation. There shall not be pending or, to the
knowledge of Borrower, threatened, any action, charge, claim, demand, suit,
proceeding, petition, governmental investigation or arbitration by, against or
affecting any Loan Party or any of its Subsidiaries that reasonably could be
expected to have a Material Adverse Effect or any property of any Loan Party or
any of its Subsidiaries that reasonably could be expected to have a Material
Adverse Effect, that in any such instance has not been disclosed to Agent by
Borrower in writing, and there shall have occurred no development in any such
action, charge, claim, demand, suit, proceeding, petition, governmental
investigation or arbitration that, in the opinion of Agent, could reasonably be
expected to have a Material Adverse Effect.
SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES
To induce Agent and each Lender to enter into this Agreement, and to make
Loans and to issue Lender Letters of Credit, Borrower represents and warrants
to Agent and each Lender that the following statements are and will be true,
correct and complete:
4.1 Organization, Powers, Capitalization.
(A) Organization and Powers. Each of the Loan Parties is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and qualified to do business in all
states where such qualification is required except where failure to be so
qualified could not be reasonably expected to have a Material Adverse Effect.
Each of the Loan Parties has all requisite corporate power and authority to own
and operate its properties, to carry on its business as now conducted and
proposed to be conducted and to enter into each Loan Document to which it is a
party.
(B) Capitalization. All issued and outstanding shares of
capital stock of the Loan Parties are duly authorized and validly issued, fully
paid, nonassessable, free and clear of all Liens and such shares were issued in
compliance with all applicable state and federal laws concerning the issuance
of securities. All of the issued and outstanding capital stock of Borrower is
owned by SFW Holding Corp. All of the issued and outstanding capital stock of
Guarantor is owned by Borrower. There are no preemptive or other outstanding
rights, options, warrants, conversion rights or similar agreements or
understandings for the purchase or acquisition from any Loan Party or any other
Person, of any shares of capital stock or other securities of any such entity.
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4.2 Authorization of Borrowing, No Conflict. Borrower has the
corporate power and authority to incur the Obligations and to grant security
interests in the Collateral. On the Closing Date, the execution, delivery and
performance of the Loan Documents by each Loan Party signatory thereto will
have been duly authorized by all necessary corporate and shareholder action.
The execution, delivery and performance by each Loan Party of each Loan
Document to which it is a party and the consummation of the transactions
contemplated by this Agreement and the other Loan Documents by each Loan Party
do not contravene and will not be in contravention of any applicable law, the
corporate charter or bylaws of any Loan Party or any agreement or order by
which any Loan Party or any Loan Party's property is bound. This Agreement is,
and the other Loan Documents, including the Revolving Notes, when executed and
delivered will be, the legally valid and binding obligations of the applicable
Loan Party, each enforceable against the Loan Parties, as applicable, in
accordance with their respective terms.
4.3 Financial Condition. All financial statements concerning Borrower
and its Subsidiaries which have been or will hereafter be furnished by Borrower
and its Subsidiaries to Agent or any Lender pursuant to this Agreement have
been or will be prepared in accordance with GAAP consistently applied
throughout the periods involved (except as disclosed therein) and do or will
present fairly the financial condition of the corporations covered thereby as
at the dates thereof and the results of their operations for the periods then
ended. The Pro Forma was prepared by Borrower based on the unaudited
consolidated balance sheet of Borrower dated November 1, 1997, and includes,
without limitation, the issuance of the Senior Notes. The Projections
delivered and to be delivered have been and will be prepared by Borrower in
light of the past operations of the business of Borrower and its Subsidiaries
and such Projections represent and will represent the good faith estimate of
Borrower and its senior management concerning the most probable course of its
business as of the date such Projections are prepared and delivered.
4.4 Indebtedness and Liabilities. As of the Closing Date, neither
Borrower nor any of its Subsidiaries has (a) any Indebtedness except as
reflected on the Pro Forma; or (b) any Liabilities that GAAP requires to be
disclosed on Borrower's financial statements other than as reflected on the Pro
Forma or as incurred in the ordinary course of business following the date of
the Pro Forma.
4.5 Account Warranties. Borrower represents, warrants and covenants
as to each Account that constitutes an Eligible Account that, at the time of
its creation, such Account is a valid, bona fide account, representing an
undisputed indebtedness incurred by the named account debtor for goods actually
sold and delivered or for services completely rendered; there are no setoffs,
offsets or counterclaims, genuine or otherwise, against such Account; such
Account does not represent a sale to an Affiliate or a consignment, sale or
return or a bill and hold transaction; no agreement exists permitting any
deduction or discount; Borrower is the lawful owner of such Account and has the
right to assign the same to Agent, for the benefit of Lenders; such Account is
free of all security interests, Liens and encumbrances other than those in
favor of Agent, on behalf of Lenders, and such Account is due and payable in
accordance with its terms.
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4.6 Names. Schedule 4.6 sets forth all names, trade names, fictitious
names and business names under which Borrower currently conducts business or
has at any time during the past five (5) years conducted business.
4.7 Locations; FEIN. Schedule 4.7 sets forth the location of
Borrower's principal place of business, the location of Borrower's books and
records, the location of all other offices of Borrower and all Collateral
locations, and such locations are Borrower's sole locations for its business
and the Collateral. Borrower's federal employer identification number is set
forth on the signature page hereof.
4.8 Title to Properties; Liens. Borrower and each of its Subsidiaries
has good, sufficient and legal title, subject to Permitted Encumbrances, to all
its respective material properties and assets. Except for Permitted
Encumbrances, all such properties and assets are free and clear of Liens. To
the best knowledge of Borrower after due inquiry, there are no actual,
threatened or alleged defaults with respect to any leases of real property
under which Borrower or any of its Subsidiaries is lessee or lessor which would
have a Material Adverse Effect.
4.9 Litigation; Adverse Facts. There are no judgments outstanding
against any Loan Party or affecting any property of any Loan Party nor is there
any action, charge, claim, demand, suit, proceeding, petition, governmental
investigation or arbitration now pending or, to the best knowledge of Borrower
after due inquiry, threatened against or affecting any Loan Party or any
property of any Loan Party which could reasonably be expected to result in any
Material Adverse Effect. Borrower has no reason to believe that any Loan Party
is exposed to any liability which could reasonably be expected to result in any
Material Adverse Effect.
4.10 Payment of Taxes. All material tax returns and reports of
Borrower and each of its Subsidiaries required to be filed by any of them have
been timely filed, and all taxes, assessments, fees and other governmental
charges upon Borrower and upon its properties, assets, income and franchises
which are shown on such returns as due and payable have been paid when due and
payable. As of the Closing Date, none of the United States income tax returns
of Borrower or any of its Subsidiaries are under audit. No tax liens have been
filed and no claims (except as otherwise permitted by Section 5.9) are being
asserted with respect to any such taxes. The charges, accruals and reserves on
the books of Borrower and each of its Subsidiaries in respect of any taxes or
other governmental charges are in accordance with GAAP.
4.11 Performance of Agreements. None of the Loan Parties and none of
their respective Subsidiaries is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
contractual obligation of any such Person which could have a Material Adverse
Effect, and no condition exists that, with the giving of notice or the lapse of
time or both, would constitute such a default.
4.12 Employee Benefit Plans. Borrower, each of its Subsidiaries and
each ERISA Affiliate is in compliance in all material respects with all
applicable provisions of ERISA, the IRC and all other applicable laws and the
regulations and interpretations thereof with respect to all Employee
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Benefit Plans. No material liability has been incurred by Borrower, any of its
Subsidiaries or any ERISA Affiliate which remains unsatisfied for any funding
obligation, taxes or penalties with respect to any Employee Benefit Plan.
4.13 Intellectual Property. Borrower and each of its Subsidiaries,
including Guarantor, owns, is licensed to use or otherwise has the right to
use, all Intellectual Property used in or necessary for the conduct of its
business as currently conducted, and all such Intellectual Property is
identified on Schedule 4.13.
4.14 Broker's Fees. No broker's or finder's fee or commission will be
payable by Borrower or any of its Affiliates with respect to any of the
transactions contemplated hereby.
4.15 Environmental Compliance. Each Loan Party has been and is
currently in compliance with all currently applicable Environmental Laws,
including obtaining and maintaining in effect all permits, licenses or other
authorizations required by applicable Environmental Laws. There are no claims,
liabilities, investigations, litigation, administrative proceedings, whether
pending or, to Borrower's knowledge, threatened, or judgments or orders
relating to any Hazardous Materials asserted or threatened against any Loan
Party or relating to any real property currently or formerly owned, leased or
operated by any Loan Party.
4.16 Solvency. After giving effect to the transactions contemplated by
the Loan Documents, and as of, from and after the date of this Agreement,
Borrower: (a) owns and will own assets the fair salable value of which are (i)
greater than the total amount of its liabilities (including contingent
liabilities) and (ii) greater than the amount that will be required to pay the
probable liabilities of Borrower as they mature; (b) has capital that is not
unreasonably small in relation to its business as presently conducted or any
contemplated or undertaken transaction; and (c) does not intend to incur and
does not believe that it will incur debts beyond its ability to pay such debts
as they become due. There is no material fact known to Borrower that has or
could have a Material Adverse Effect and that has not been fully disclosed
herein or in such other documents, certificates and statements furnished to
Agent and Lenders for use in connection with the transactions contemplated
hereby.
4.17 Disclosure. No representation or warranty of any Loan Party
contained in this Agreement, the financial statements, the other Loan
Documents, or any other document, certificate or written statement furnished to
Agent or any Lender by or on behalf of Borrower for use in connection with the
Loan Documents contains any untrue statement of a material fact or omitted,
omits or will omit to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances in which the same were made. The Projections and pro forma
financial information contained in such materials are based upon good faith
estimates and assumptions believed by Borrower to be reasonable at the time
made, it being recognized by Agent and Lenders that such projections as to
future events are not to be viewed as facts and that actual results during the
period or periods covered by any such projections may differ from the projected
results. There is no material fact known to Borrower that has had or will have
a Material Adverse Effect and that has not been disclosed herein or in such
other documents,
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certificates and statements furnished to Agent or any Lender for use in
connection with the transactions contemplated hereby.
4.18 Insurance. Borrower and each of its Subsidiaries maintains
adequate insurance policies for public liability, property damage for its
business and properties, product liability, and business interruption, no
notice of cancellation has been received with respect to such policies and
Borrower and each of its Subsidiaries are in compliance with all conditions
contained in such policies.
4.19 Compliance with Laws. Neither Borrower nor any of its
Subsidiaries is in violation of any law, ordinance, rule, regulation, order,
policy, guideline or other requirement of any domestic or foreign government or
any instrumentality or agency thereof, having jurisdiction over the conduct of
its business or the ownership of its properties, including, without limitation,
any violation relating to any use, release, storage, transport or disposal of
any Hazardous Material, which violation would subject Borrower or any of its
Subsidiaries or any of their respective Affiliates, directors, officers or
employees to criminal liability or have a Material Adverse Effect and no such
violation has been alleged.
4.20 Bank Accounts. Schedule 4.20 sets forth the account numbers and
locations of all bank accounts of Borrower and its Subsidiaries, if any.
4.21 Subsidiaries. Borrower has no Subsidiaries other than as set
forth on Schedule 4.21. Other than RBC Corp. and Guarantor, none of Borrower's
Subsidiaries (a) has any assets or liabilities or (b) conducts any business or
has any intention of conducting any business in the future.
4.22 Employee Matters. Except as set forth on Schedule 4.22, (a) no
Loan Party nor any of such Loan Party's employees is subject to any collective
bargaining agreement, (b) no petition for certification or union election is
pending with respect to the employees of any Loan Party and no union or
collective bargaining unit has sought such certification or recognition with
respect to the employees of any Loan Party and (c) there are no strikes,
slowdowns, work stoppages or controversies pending or, to the best knowledge of
Borrower after due inquiry, threatened between any Loan Party and its
employees, other than employee grievances arising in the ordinary course of
business which could reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect. Except as set forth on Schedule
4.22, neither Borrower nor any of its Subsidiaries is subject to any employment
contract or other similar agreement.
4.23 Governmental Regulation. None of the Loan Parties is, nor after
giving effect to any Loan will be, subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act or the Investment
Company Act of 1940 or to any federal or state statute or regulation limiting
its ability to incur indebtedness for borrowed money.
4.24 Material Adverse Effect. Since June 23, 1997, no event or change
has occurred that has caused or evidences, and Borrower is not aware of any
incipient change that is reasonably likely to cause or evidence, either
individually or together with all such other events or changes, a Material
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Adverse Effect with respect to Borrower or Borrower and its Subsidiaries, taken
as a whole, other than the requirement in the Senior Notes Indenture that
Borrower use $25,000,000 of its existing cash, cash equivalents and short-term
investments to pay a dividend and/or make a loan to Dart.
Borrower may, at any time and from time to time and subject to subsection
5.13, amend any one or more of the Schedules referred in this Section 4 and any
representation or warranty contained herein which refers to any such Schedule
shall from and after the date of any such amendment refer to such Schedule as
so amended, provided, however, that in no event may Borrower amend any such
Schedule if such amendment would reflect or evidence a Default or Event of
Default.
SECTION 5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as any of the Revolving Loan
Commitments hereunder shall be in effect and until payment in full of all
Obligations and termination of all Lender Letters of Credit, unless Requisite
Lenders shall otherwise give their prior written consent, Borrower shall
perform, and shall cause each of its Subsidiaries to perform, all covenants in
this Section 5 applicable to such Person.
5.1 Financial Statements and Other Reports. Borrower will maintain a
system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements for Borrower
and/or its Subsidiaries in conformity with GAAP. Borrower will deliver to Agent
the financial statements and other reports described below.
(A) Monthly Financials. As soon as available and in any event
within thirty (30) days after the end of each month, Borrower will deliver the
consolidated balance sheet of Borrower and its Subsidiaries as at the end of
such month and the related consolidated statements of income, stockholders'
equity and cash flow for such month and for the period from the beginning of
the then current Fiscal Year to the end of such month.
(B) Quarterly Financials. As soon as available and in any
event within forty-five (45) days after the end of each of the first three (3)
fiscal quarters of each Fiscal Year, Borrower will deliver the consolidated
balance sheet of Borrower and its Subsidiaries as at the end of such period and
the related consolidated statements of income, stockholders' equity and cash
flow for such quarter of a Fiscal Year and for the period from the beginning of
the then current Fiscal Year to the end of such quarter of a Fiscal Year.
(C) Year-End Financials. As soon as available and in any event
within ninety (90) days after the end of each Fiscal Year, Borrower will
deliver: (1) the consolidated balance sheet of Borrower and its Subsidiaries
as at the end of such year and the related consolidated statements of income,
stockholders' equity and cash flow for such Fiscal Year; and (2) an opinion
with respect to the financial statements from Arthur Andersen LLP, or another
firm of independent certified public accountants selected by Borrower and
acceptable to Agent, which opinion shall be unqualified as to going concern and
scope of audit and shall state that (a) such consolidated financial statements
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present fairly the consolidated financial position of Borrower and its
Subsidiaries as at the dates indicated and the results of their operations and
cash flow for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years and (b) that the examination by such accountants in
connection with such consolidated financial statements has been made in
accordance with generally accepted auditing standards.
(D) Accountants' Certification and Reports. Together with each
delivery of consolidated financial statements of Borrower and its Subsidiaries
pursuant to subsection 5.1(C), Borrower will deliver (1) a written statement by
its independent certified public accountants (a) stating that the examination
has included a review of the terms of this Agreement as same relate to
accounting matters and (b) stating whether, in connection with the examination,
any condition or event that constitutes a Default or an Event of Default has
come to their attention and, if such a condition or event has come to their
attention, specifying the nature and period of existence thereof and (2) a
letter addressed to such accountants from Borrower informing such accountants
that a primary intent of Borrower was to have the professional services such
accountants provided to Borrower in preparing their audit report and the
written statement referred to in this subsection 5.1(D) benefit or influence
Agent and Lenders, and identifying Agent and Lenders as parties intending to
rely on such professional services provided to Borrower by such accountants.
Promptly upon receipt thereof, Borrower will deliver copies of all significant
reports submitted to Borrower by independent public accountants in connection
with each annual, interim or special audit of the financial statements of
Borrower made by such accountants, including the comment letter submitted by
such accountants to management in connection with their annual audit.
(E) Compliance Certificate. Together with the delivery of each
set of financial statements referenced in subparts (A), (B) and (C) of this
subsection 5.1, Borrower will deliver a Compliance Certificate, together with
copies of the calculations and work-up employed to determine Borrower's
compliance or noncompliance with the financial covenants set forth in Section
6.
(F) Borrowing Base Certificates; Inventory Reports and Listings
and Agings. On the Closing Date and within thirty (30) days after the last day
of each month (each, a "Reporting Date"), and from time to time upon the
reasonable request of Agent, Borrower will deliver to Agent: (1) a Borrowing
Base Certificate; (2) an aged trial balance of all Accounts existing on such
Reporting Date, and (3) an Inventory Report as of the last day of such period.
As soon as available and in any event within thirty (30) days after the last
day of each month, and from time to time upon the reasonable request of Agent,
Borrower will deliver to Agent a trial balance of all accounts payable existing
as of the last day of such month. All such reports shall be in form and
substance reasonably satisfactory to Agent.
(G) Management Report. Together with each delivery of
financial statements of Borrower and its Subsidiaries pursuant to subdivisions
(B) and (C) of this subsection 5.1, Borrower will deliver a management report:
(1) describing the operations and financial condition of Borrower and its
Subsidiaries for the quarter then ended and the portion of the current Fiscal
Year then elapsed (or for the Fiscal Year then ended in the case of year-end
financials); (2) setting forth in comparative form the corresponding figures
for the corresponding periods of the previous Fiscal Year and, in all
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management reports prepared after the end of Borrower's Fiscal Year ending in
January 1998, setting forth the corresponding figures from the most recent
Projections for the current Fiscal Year delivered to Agent pursuant to
subsection 5.1(O); and (3) discussing the reasons for any significant
variations. The information above shall be presented in reasonable detail and
shall be certified by an Authorized Officer to the effect that, to such
Authorized Officer's knowledge, such information fairly presents the results of
operations and financial condition of Borrower and its Subsidiaries as at the
dates and for the periods indicated.
(H) Appraisals. Upon the occurrence and during the continuance
of an Event of Default, Borrower will, upon Agent's request, obtain and deliver
to Agent, at Borrower's expense, appraisal reports in form and substance and
from appraisers satisfactory to Agent, stating the then current fair market and
orderly liquidation values of all or any portion of the Collateral.
(I) Government Notices. Borrower will deliver to Agent
promptly after receipt copies of all material notices, requests, subpoenas,
inquiries or other writings received from any governmental agency concerning
any Employee Benefit Plan, the violation or alleged violation of any
Environmental Laws, the storage, use or disposal of any Hazardous Material, the
violation or alleged violation of the Fair Labor Standards Act or Borrower's
payment or non-payment of any taxes including any tax audit.
(J) Events of Default, etc. Promptly upon any officer of
Borrower obtaining knowledge of any of the following events or conditions,
Borrower shall deliver a certificate of an Authorized Officer specifying the
nature and period of existence of such condition or event and what action
Borrower has taken, is taking and proposes to take with respect thereto: (1)
any condition or event that constitutes an Event of Default or Default; (2) any
notice of default that any Person has given to Borrower or any of its
Subsidiaries or any other action taken with respect to a claimed default with
respect to the Senior Notes, any other Indebtedness or otherwise; or (3) any
Material Adverse Effect.
(K) Trade Names. Borrower and each of its Subsidiaries,
including Guarantor, will give Agent at least thirty (30) days advance written
notice of any change of name or of any new trade name or fictitious business
name. Borrower's or Guarantor's use of any trade name or fictitious business
name will be in compliance with all laws regarding the use of such names.
(L) Locations. Borrower will give Agent at least thirty (30)
days advance written notice of any change in Borrower's principal place of
business or any change in the location of its books and records or any
Collateral (other than a change of location of Inventory from one location
listed on Schedule 4.7 to another location listed on such Schedule 4.7) or of
any new location for its books and records or any Collateral. Any new
Collateral location with respect to which the required notice has been given to
Agent shall be deemed to be included on Schedule 4.7.
(M) Bank Accounts. Borrower will give Agent at least thirty
(30) days advance written notice of any new bank accounts Borrower or any of
its Subsidiaries intends to establish prior to its opening same.
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(N) Litigation. Promptly upon any officer of Borrower or its
Subsidiaries obtaining knowledge of (1) the institution of any action, suit,
proceeding, governmental investigation or arbitration against or affecting any
Loan Party or any property of any Loan Party not previously disclosed by
Borrower to Agent which could reasonably be expected to have a Material Adverse
Effect or (2) any material development in any action, suit, proceeding,
governmental investigation or arbitration at any time pending against or
affecting any Loan Party or any property of any Loan Party which could
reasonably be expected to have a Material Adverse Effect, Borrower will
promptly give notice thereof to Agent and provide such other information as may
be reasonably available to them to enable Agent and its counsel to evaluate
such matter.
(O) Projections. As soon as available and in any event no
later than the end of the Fiscal Year of Borrower ending in January 1998,
Borrower will deliver Projections of Borrower and its Subsidiaries, prepared on
an annual basis, for the Fiscal Year of Borrower ending in January 1999. Prior
to the end of February 1998, Borrower will deliver Projections of Borrower and
its Subsidiaries for the Fiscal Year of Borrower ending in January 1999,
prepared on a month by month basis. As soon as available and in any event no
later than the end of the Fiscal Year of Borrower, ending in January 1999, and
prior to the end of each Fiscal Year thereafter, Borrower will deliver
Projections of Borrower and its Subsidiaries for the forthcoming Fiscal Year
prepared on both annual and month by month basis.
(P) Senior Notes and Other Indebtedness Notices. Borrower
shall promptly deliver to Agent copies of all notices given or received by
Borrower and any of its Subsidiaries with respect to noncompliance with any
term or condition of or related to the Senior Notes or the Senior Notes
Indenture and other Indebtedness, and shall promptly notify Agent of any event
of default (or any event which, with the passage of time or giving of notice or
both, would constitute an event of default) with respect to the Senior Notes or
the Senior Notes Indenture or other Indebtedness.
(Q) Other Information. With reasonable promptness, Borrower
will deliver such other information and data with respect to any Loan Party,
any Subsidiary of any Loan Party or the Collateral as Agent may reasonably
request from time to time.
5.2 Access to Accountants and Management. Borrower authorizes Agent
to discuss the financial condition and financial statements of Borrower and its
Subsidiaries with Borrower's independent public accountants upon reasonable
notice to Borrower of its intention to do so and, in connection therewith,
authorizes such accountants to respond to all of Agent's inquiries. Each
Lender may with the consent of Agent, which will not be unreasonably denied,
and together with Agent, confer with Borrower's management directly regarding
Borrower's business, operations and financial condition.
5.3 Inspection. Borrower shall permit Agent and any authorized
representatives designated by Agent to visit and inspect any of the properties
of Borrower or any of its Subsidiaries, including its financial and accounting
records, and in conjunction with such inspection, to make copies and take
extracts therefrom, and to discuss its affairs, finances and business with its
officers and independent public accountants, at such reasonable times during
normal business hours and as
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often as may be reasonably requested. Borrower acknowledges that Agent intends
to make such inspections at least twice each Loan Year. Each Lender may with
the consent of Agent, which will not be unreasonably denied, accompany Agent on
any such visit or inspection. Prior to the occurrence of an Event of Default,
the frequency, scope and conduct of such inspections will be conducted in a way
to minimize interference with Borrower's business.
5.4 Collateral Records. Borrower shall keep full and accurate books
and records relating to the Collateral and shall mark such books and records to
indicate Agent's security interests in the Collateral, for the benefit of
Lenders.
5.5 Account Covenants; Verification. Borrower shall, at its own
expense, use its best efforts in the ordinary course consistent with past
practice to assure prompt payment of all amounts due or to become due under the
Accounts. Other than in the ordinary course of business, no discounts, credits
or allowances will be issued, granted or allowed by Borrower to customers and
no returns will be accepted without Agent's prior written consent; provided,
that until Agent notifies Borrower to the contrary, Borrower may presume
consent. Borrower will immediately notify Agent in the event that a customer
alleges any dispute or claim with respect to an Eligible Account or of any
other circumstances known to Borrower that may impair the validity or
collectibility of an Eligible Account if the amount of such Account is
individually in excess of $5,000 or if the amount equal to (i) the amount of
such Account individually plus (ii) the amount of all other Accounts subject to
such a dispute, claim or other circumstance is in excess of $20,000 in the
aggregate. Agent shall have the right, at any time or times hereafter, to
verify the validity, amount or any other matter relating to an Account, by
mail, telephone or in person. After the occurrence of a Default or an Event of
Default, Borrower shall not, without the prior consent of Agent, adjust, settle
or compromise the amount or payment of any Account, or release wholly or partly
any customer or obligor thereof, or allow any credit or discount thereon.
5.6 Collection of Accounts and Payments. Borrower shall establish
blocked accounts (collectively, "Blocked Accounts") in Borrower's name with
such banks ("Collecting Banks") as are reasonably acceptable to Agent into
which Borrower will promptly deposit all payments made for Inventory or other
payments constituting proceeds of Collateral in the identical form in which
such payment was made, whether by cash or check. The Collecting Banks shall
acknowledge and agree, in a manner satisfactory to Agent, that all payments
made to the Blocked Accounts are the sole and exclusive property of Agent, for
the benefit of Lenders, and that the Collecting Banks have no right of setoff
against the Blocked Accounts. Borrower hereby agrees that all payments
received by Agent, whether by cash, check, wire transfer or any other
instrument, made to such Blocked Accounts or otherwise received by Agent and
whether on the Accounts or as proceeds of other Collateral or otherwise will be
the sole and exclusive property of Agent, for the benefit of Lenders. Borrower,
and any of its Affiliates, employees, agents or other Persons acting for or in
concert with Borrower, shall, acting as trustee for Agent, receive, as the sole
and exclusive property of Agent, any monies, checks, notes, drafts or any other
payment relating to and/or constituting proceeds of Accounts or other
Collateral which come into the possession or under the control of Borrower or
any of Borrower's Affiliates, employees, agents or other Persons acting for or
in concert with Borrower, and immediately upon receipt thereof, Borrower or
such Persons shall remit the same or cause the
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same to be remitted, in kind, to one of the Blocked Accounts. Borrower shall
irrevocably instruct each Collecting Bank that, upon the earlier to occur of
(i) the occurrence of a Default or an Event of Default or (ii) such time, if
any, as the Maximum Revolving Loan Amount exceeds the Revolving Loan by less
than $5,000,000, Agent may instruct such Collecting Bank to send by wire
transfer all amounts deposited in the applicable Blocked Account(s) to Agent's
Account or as Agent shall direct and that, upon receipt of any such
instructions from Agent, such Collecting Bank shall promptly comply with all
such instructions. The occurrence of (a) either (i) or (ii) in the immediately
preceding sentence, and (b) Agent so instructing any Collecting Bank as
provided in the immediately preceding sentence, is hereinafter referred to as a
"Cash Dominion Event." Prior to the occurrence of a Cash Dominion Event, the
Collecting Banks shall make all available funds in the applicable Blocked
Account(s) available to Borrower.
5.7 Endorsement. Borrower hereby constitutes and appoints Agent and
all Persons designated by Agent for that purpose as Borrower's true and lawful
attorney-in-fact, with power to endorse Borrower's name to any of the items of
payment or proceeds described in subsection 5.6 above and all proceeds of
Collateral that come into Agent's possession or under Agent's control. Both the
appointment of Agent as Borrower's attorney and Agent's rights and powers are
coupled with an interest and are irrevocable until payment in full and complete
performance of all of the Obligations.
5.8 Corporate Existence. Borrower will, and will cause each of SFW
Licensing Corp. and RBC Corp. to, at all times preserve and keep in full force
and effect its corporate existence and all rights and franchises material to
its business. Borrower will promptly notify Agent of any change in its or its
Subsidiaries' ownership or corporate structure.
5.9 Payment of Taxes. Borrower will, and will cause each of its
Subsidiaries to, pay all taxes, assessments and other governmental charges
imposed upon it or any of its properties or assets or with respect to any of
its franchises, business, income or property before any penalty accrues
thereon, provided that no such tax need be paid if Borrower or one of its
Subsidiaries is contesting same in good faith by appropriate proceedings
promptly instituted and diligently conducted and if Borrower or such Subsidiary
has established appropriate reserves as shall be required in conformity with
GAAP.
5.10 Maintenance of Properties; Insurance. Borrower will maintain or
cause to be maintained in good repair, working order and condition all material
properties used in the business of Borrower and its Subsidiaries and will make
or cause to be made all appropriate repairs, renewals and replacements thereof.
Borrower will maintain or cause to be maintained, with financially sound and
reputable insurers, public liability and property damage insurance with respect
to its business and properties and the business and properties of its
Subsidiaries against loss or damage of the kinds customarily carried or
maintained by corporations of established reputation engaged in similar
businesses and in amounts acceptable to Agent. Agent and Lenders acknowledge
and agree that Borrower's insurance coverage with its insurance carriers on the
Closing Date is satisfactory. Borrower shall cause Agent, for the benefit of
Lenders, to be named as loss payee on all insurance policies relating to any
Collateral and as additional insured under all liability policies, in each case
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pursuant to appropriate endorsements in form and substance satisfactory to
Agent and shall collaterally assign to Agent, for the benefit of Lenders, as
security for the payment of the Obligations all business interruption insurance
of Borrower. Borrower shall apply any proceeds received from any policies of
insurance relating to any Collateral to the Obligations as set forth in
subsection 2.4(B).
5.11 Compliance with Laws. Borrower will, and will cause each of its
Subsidiaries to, comply with the requirements of all applicable laws, rules,
regulations and orders of any govern mental authority as now in effect and
which may be imposed in the future in all jurisdictions in which Borrower or
any of its Subsidiaries is doing business, other than those laws the
noncompliance with which would not have a Material Adverse Effect.
5.12 Further Assurances. Borrower shall, and shall cause Guarantor to,
from time to time, execute such guaranties, financing or continuation
statements, documents, security agreements, reports and other documents or
deliver to Agent such instruments, certificates of title or other documents as
Agent at any time may reasonably request to evidence, perfect or otherwise
implement the guaranties and security for repayment of the Obligations provided
for in the Loan Documents.
5.13 Collateral Locations. Borrower will keep the Collateral at the
locations specified on Schedule 4.7. With respect to any new location (which
in any event shall be within the continental United States), Borrower will
execute such documents and take such actions as Agent deems necessary to
perfect and protect the security interests of the Agent, on behalf of Lenders,
in the Collateral prior to the transfer or removal of any Collateral to any
such new location.
5.14 Bailees. If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of Borrower's agents or processors,
Borrower shall, upon the request of Agent, notify such warehouseman, bailee,
agent or processor of the security interests in favor of Agent, for the benefit
of Lenders, created hereby and shall instruct such Person to hold all such
Collateral for Agent's account as set forth in the warehouseman's letter with
respect to the Collateral at such warehouse or, if there is no such letter in
effect, then subject to Agent's instructions.
5.15 Use of Proceeds and Margin Security. Borrower shall use the
proceeds of all Loans for proper business purposes (as described in the
recitals to this Agreement) consistent with all applicable laws, statutes,
rules and regulations. No portion of the proceeds of any Loan shall be used by
Borrower or any of its Subsidiaries for the purpose of purchasing or carrying
margin stock within the meaning of Regulation G or Regulation U, or in any
manner that might cause the borrowing or the application of such proceeds to
violate Regulation T or Regulation X or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Exchange Act.
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SECTION 6. FINANCIAL COVENANT
Borrower covenants and agrees that so long as any of the Revolving Loan
Commitments remain in effect and until payment in full of all Obligations and
termination of all Lender Letters of Credit, unless Borrower has received the
prior written consent of Requisite Lenders, Borrower shall at all times
maintain EBITDA of at least $25,000,000, measured at the end of each quarter of
a Fiscal Year for the rolling four quarter period ending on the last day of
such quarter of a Fiscal Year.
SECTION 7. NEGATIVE COVENANTS
Borrower covenants and agrees that so long as any of the Revolving Loan
Commitments remain in effect and until payment in full of all Obligations and
termination of all Lender Letters of Credit, unless Borrower has received the
prior written consent of Requisite Lenders, Borrower shall not and will not
permit any of its Subsidiaries to:
7.1 Indebtedness and Liabilities. Directly or indirectly create,
incur, assume, guaranty, or otherwise become or remain directly or indirectly
liable, on a fixed or contingent basis, with respect to any Indebtedness
except: (a) the Obligations; (b) Indebtedness (excluding Capital Leases) not
to exceed $100,000 in the aggregate at any time outstanding secured by purchase
money Liens; (d) Indebtedness under Capital Leases with respect to real
property used in the operation of Borrower's grocery business; (e) Indebtedness
under Capital Leases with respect to equipment not to exceed $7,500,000
outstanding at any time in the aggregate; (f) the Senior Notes in an aggregate
principal amount not to exceed $200,000,000 plus interest, issued pursuant and
subject to the terms and conditions of the Senior Notes Indenture; and (g)
without duplication, other Indebtedness permitted under subsection 4.7 of the
Senior Notes Indenture. Except for Indebtedness described and permitted in
this Agreement, Borrower will not, and will not permit any of its Subsidiaries
to, incur any Liabilities except for trade payables and normal accruals in the
ordinary course of business not yet due and payable or with respect to which
Borrower or any of its Subsidiaries is contesting in good faith the amount or
validity thereof by appropriate proceedings and then only to the extent that
Borrower or any of its Subsidiaries has established adequate reserves therefor,
if appropriate under GAAP.
7.2 Guaranties. Except for endorsements of instruments or items of
payment for collection in the ordinary course of business, guaranty, endorse,
or otherwise in any way become or be responsible for any obligations of any
other Person, whether directly or indirectly by agreement to purchase the
indebtedness of any other Person or through the purchase of goods, supplies or
services, or maintenance of working capital or other balance sheet covenants or
conditions, or by way of stock purchase, capital contribution, advance or loan
for the purpose of paying or discharging any indebtedness or obligation of
such other Person or otherwise.
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7.3 Transfers, Liens and Related Matters.
(A) Transfers. Sell, assign (by operation of law or otherwise)
or otherwise dispose of, or grant any option with respect to any of the
Collateral or the assets of such Person, except that Borrower and its
Subsidiaries may (i) sell Inventory in the ordinary course of business; (ii)
make Asset Dispositions in connection with store remodels if the assets sold or
otherwise disposed of in connection with such remodels are replaced with assets
of equal or greater value; (iii) make Asset Dispositions in connection with
store closings; provided that Borrower shall not close more than two (2)
stores in any year net of any store openings in such year and (iv) make other
Asset Dispositions if all of the following conditions are met: (1) the market
value of assets sold or otherwise disposed of in any single transaction or
series of related transactions does not exceed $50,000 and the aggregate market
value of assets sold or otherwise disposed of in any Fiscal Year does not
exceed $100,000; (2) the consideration received is at least equal to the fair
market value of such assets; (3) the sole consideration received is cash; (4)
the net proceeds of such Asset Disposition are applied as and if required by
subsection 2.4(B); (5) after giving effect to the sale or other disposition of
the assets included within the Asset Disposition and the repayment of the
Obligations with the proceeds thereof, Borrower is in compliance on a pro forma
basis with the covenants set forth in Section 6 recomputed for the most
recently ended month for which information is available and is in compliance
with all other terms and conditions contained in this Agreement; and (6) no
Default or Event of Default shall then exist or result from such sale or other
disposition.
(B) Liens. Except for Permitted Encumbrances, directly or
indirectly create, incur, assume or permit to exist any Lien on or with respect
to any of the Collateral or the assets of such Person or any proceeds, income
or profits therefrom.
(C) No Negative Pledges. Enter into or assume any agreement
(other than the Loan Documents) prohibiting the creation or assumption of any
Lien upon its properties or assets, whether now owned or hereafter acquired.
7.4 Investments and Loans. Except as permitted under subsection 7.5,
make or permit to exist investments in or loans to any other Person, except:
(a) Cash Equivalents; (b) loans and advances to employees for moving,
entertainment, travel and other similar expenses in the ordinary course of
business in an aggregate outstanding amount not in excess of $250,000 at any
time; (c) investments by Borrower in RBC Corp. existing on the Closing Date and
additional investments or loans by Borrower in or to RBC Corp. not to exceed
$100,000 in the aggregate in any Fiscal Year and (d) investments by Borrower in
Guarantor existing on the Closing Date (plus license payments by Borrower to
Guarantor made during the term of this Agreement in the ordinary course of
business consistent with past practices).
7.5 Restricted Junior Payments. Directly or indirectly declare,
order, pay, make or set apart any sum for any Restricted Junior Payment, except
that Borrower may (a) reimburse Dart for (i) its reasonable out of pocket
expenses incurred pursuant to the Management Services Agreement and (ii) taxes
incurred by Borrower pursuant to the Tax Sharing Agreement, (b) use $25,000,000
of its cash, cash equivalents and short-term investments existing on the
Closing Date to pay a dividend
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and/or make a loan to Dart, and (c) if (i) no Default or Event of Default shall
have occurred and be continuing or would occur as a consequence thereof and
(ii) both before and after giving effect to the payment of such dividends
and/or other restricted junior payments, the amount equal to (x) the Maximum
Revolving Loan Amount minus (y) the Revolving Loan equals at least $10,000,000,
then Borrower may pay such cash dividends and other restricted junior payments
in cash which, without duplication, are permitted under subclause (A) or (B) of
clause (ii) of subsection 4.5 of the Senior Notes Indenture as in effect on the
date hereof.
7.6 Restriction on Fundamental Changes. (a) Enter into any
transaction of merger or consolidation; (b) liquidate, wind-up or dissolve
itself (or suffer any liquidation or dissolution); (c) convey, sell, lease,
sublease, transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business or assets, or the
capital stock of any of its Subsidiaries, whether now owned or hereafter
acquired; or (d) acquire by purchase or otherwise all or any substantial part
of the business or assets of, or stock or other evidence of beneficial
ownership of, any Person.
7.7 Restrictions Relating to the Senior Notes.
(A) Amend, modify, waive or otherwise change any of the terms
of the Senior Notes or the Senior Notes Indenture, including, without
limitation, any of the financial covenants, without the prior written consent
of Agent and Requisite Lenders.
(B) Make any payment of principal, interest, fees or any other
amounts on the Senior Notes or otherwise in connection with the Senior Notes
Indenture other than regularly scheduled payments of principal, interest and
fees on the Senior Notes in accordance with the terms of the Senior Notes
Indenture. Without limiting the generality of the foregoing, Borrower shall
not prepay, redeem, offer to purchase, retire, fund any sinking fund, purchase
or otherwise acquire any of the Senior Notes at any time other than at their
regularly scheduled maturity as set forth in the Senior Notes Indenture.
7.8 Transactions with Affiliates. Directly or indirectly, enter into
or permit to exist any transaction (including the purchase, sale or exchange of
property or the rendering of any service) with any Affiliate or with any
officer, director or employee of any Loan Party, except for transactions in the
ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms which are fully disclosed to Agent
and which are no less favorable to Borrower than it would obtain in a
comparable arm's length transaction with an unaffiliated Person.
Notwithstanding the foregoing, Borrower may continue to pay Guarantor amounts
owing in the ordinary course of business consistent with past practices under
the Trademark License Agreement, dated July 30, 1997, between Borrower and
Guarantor.
7.9 Environmental Liabilities. (a) Violate any applicable
Environmental Law; (b) dispose of any Hazardous Materials (except in accordance
with applicable law) into or onto or from, any real property owned, leased or
operated by any Loan Party; or (c) permit any Lien imposed pursuant to
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any Environmental Law to be imposed or to remain on any real property owned,
leased or operated by any Loan Party.
7.10 Conduct of Business. From and after the Closing Date, engage in
any business other than businesses of the type engaged in by Borrower on the
Closing Date.
7.11 Compliance with ERISA. Establish any new Employee Benefit Plan or
amend any existing Employee Benefit Plan if the liability or increased
liability resulting from such establishment or amendment is material. Neither
Borrower nor any Subsidiary shall fail to maintain and operate each Employee
Benefit Plan in compliance in all material respects with the provisions of
ERISA, the IRC and all other applicable laws and the regulations and
interpretations thereof.
7.12 Tax Consolidations. Other than as expressly provided for in the
Tax Sharing Agreement, file or consent to the filing of any consolidated income
tax return with any Person other than Borrower or any of its Subsidiaries.
7.13 Subsidiaries. Establish, create or acquire any new Subsidiaries
or permit any Subsidiary, other than RBC Corp. or Guarantor, to conduct any
business or own any material assets.
7.14 Fiscal Year. Change its Fiscal Year.
7.15 Press Release; Public Offering Materials. Disclose the name of
Agent or any Lender in any press release or in any prospectus, proxy statement,
offering memorandum or other materials filed with any governmental entity or
otherwise used relating to a public offering, Rule 144A offering or private
placement of the capital stock or debt of any Loan Party, except as may be
required by law. In addition, this Agreement may be filed with the Securities
and Exchange Commission.
7.16 Bank Accounts. Establish any new bank accounts, or amend or
terminate any Blocked Account agreement without Agent's prior written consent.
SECTION 8. DEFAULT, RIGHTS AND REMEDIES
8.1 Event of Default. "Event of Default" shall mean the occurrence or
existence of any one or more of the following:
(A) Payment. Failure to make payment of any of the Obligations
when due and in the case of interest, such failure shall not be cured within
five (5) days of the applicable due date; or
(B) Default in Other Agreements. (1) Failure of Borrower or
any of its Subsidiaries to pay when due any principal, interest or fees on any
Indebtedness (other than the Obligations), including, without limitation, the
Senior Notes, or (2) breach or default of Borrower
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or any of its Subsidiaries with respect to any Indebtedness (other than the
Obligations), including, without limitation, the Senior Notes; if such failure
to pay, breach or default entitles the holder(s) to cause such Indebtedness
having an individual principal amount in excess of $100,000 or having an
aggregate principal amount in excess of $250,000 to become or be declared due
prior to its stated maturity; or
(C) Breach of Certain Provisions. Failure of Borrower to
perform or comply with any term or condition contained in subsections 5.1 (A),
(B) and (C), 5.3, 5.5 or 5.6 or contained in Section 6 or Section 7; or
(D) Breach of Warranty. Any representation, warranty,
certification or other statement made by any Loan Party in any Loan Document or
in any statement or certificate at any time given by such Person in writing
pursuant to or in connection with any Loan Document is false in any material
respect on the date made; or
(E) Other Defaults Under Loan Documents. Borrower or any other
Loan Party defaults in the performance of or compliance with any term contained
in this Agreement or the other Loan Documents and such default is not remedied
or waived within ten (10) days after receipt by Borrower of notice from Agent
of such default (other than occurrences described in other provisions of this
subsection 8.1 for which a different grace or cure period is specified or which
constitute immediate Events of Default); or
(F) Change in Control. (1) Dart ceases to beneficially own and
control, indirectly, one hundred percent (100%) of the issued and outstanding
shares of each class of capital stock of Borrower; provided, however, that,
notwithstanding the foregoing, Borrower may issue up to twenty percent (20%) of
its common stock in connection with the exercise of employee stock options
which may be granted after the Closing Date, (2) SFW Holding Corp. ceases to
beneficially and of record own and control, directly, one hundred percent
(100%) of the issued and outstanding shares of each class of capital stock of
Borrower; provided, however, that, notwithstanding the foregoing, Borrower may
issue up to twenty percent (20%) of its common stock in connection with the
exercise of employee stock options which may be granted after the Closing
Date, or (3) any Change of Control (as defined in the Senior Notes Indenture)
shall occur; or
(G) Involuntary Bankruptcy; Appointment of Receiver, etc. (1)
A court enters a decree or order for relief with respect to Borrower or any of
its Subsidiaries in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, which decree or
order is not stayed or other similar relief is not granted under any applicable
federal or state law; or (2) the continuance of any of the following events for
sixty (60) days unless dismissed, bonded or discharged: (a) an involuntary case
is commenced against Borrower or any of its Subsidiaries under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect; or (b)
a decree or order of a court for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar powers over
Borrower or any of its Subsidiaries or over all or a substantial part of their
respective property, is entered; or (c) an interim receiver, trustee
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or other custodian is appointed without the consent of Borrower or any of its
Subsidiaries for all or a substantial part of the property of Borrower or any
such Subsidiary; or
(H) Voluntary Bankruptcy; Appointment of Receiver, etc. (1) An
order for relief is entered with respect to Borrower or any of its Subsidiaries
or Borrower or any of its Subsidiaries commences a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an involuntary case
or to the conversion of an involuntary case to a voluntary case under any such
law or consents to the appointment of or taking possession by a receiver,
trustee or other custodian for all or a substantial part of its property; or
(2) Borrower or any of its Subsidiaries makes any assignment for the benefit of
creditors; or (3) the board of directors of Borrower or any of its Subsidiaries
adopts any resolution or otherwise authorizes action to approve any of the
actions referred to in this subsection 8.1(H); or
(I) Liens. Any lien, levy or assessment (other than Permitted
Encumbrances) involving an amount which, either individually or in the
aggregate with all such other amounts, is at any time in excess of $100,000 is
filed or recorded with respect to or otherwise imposed upon all or any part of
the Collateral or the assets of Borrower or any of its Subsidiaries by the
United States or any department or instrumentality thereof or by any state,
county, municipality or other governmental agency and such lien, levy or
assessment is not stayed, vacated, paid or discharged within ten (10) days; or
(J) Judgment and Attachments. Any money judgment, writ or
warrant of attachment, or similar process involving (1) an amount in any
individual case in excess of $100,000 or (2) an amount in the aggregate at any
time in excess of $250,000 (in either case not adequately covered by insurance
as to which the insurance company has acknowledged coverage) is entered or
filed against Borrower or any of its Subsidiaries or any of their respective
assets and remains undischarged, unvacated, unbonded or unstayed for a period
of thirty (30) days or in any event later than five (5) days prior to the date
of any proposed sale thereunder; or
(K) Dissolution. Any order, judgment or decree is entered
against Borrower or any of its Subsidiaries decreeing the dissolution or split
up of Borrower or that Subsidiary and such order remains undischarged or
unstayed for a period in excess of twenty (20) days; or
(L) Solvency. Borrower ceases to be solvent (as represented by
Borrower in subsection 4.16) or admits in writing its present or prospective
inability to pay its debts as they become due; or
(M) Injunction. Borrower or any of its Subsidiaries is
enjoined, restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any material part of
its business and such order continues for more than thirty (30) days; or
(N) Invalidity of Loan Documents. Any of the Loan Documents
for any reason, other than a partial or full release in accordance with the
terms thereof, ceases to be in full force and
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effect or is declared to be null and void, or any Loan Party denies that it has
any further liability under any Loan Documents to which it is party, or gives
notice to such effect; or
(O) Failure of Security. Agent, on behalf of Lenders, does not
have or ceases to have a valid and perfected first priority security interest
in the Collateral (subject to Permitted Encumbrances), in each case, for any
reason other than the failure of Agent or any Lender to take any action within
its control; or
(P) Damage, Strike, Casualty. Any material damage to, or loss,
theft or destruction of, any Collateral, whether or not insured, or any strike,
lockout, labor dispute, embargo, condemnation, act of God or public enemy, or
other casualty which causes, for more than fifteen (15) consecutive days, the
cessation or substantial curtailment of revenue producing activities at any
grocery store or other facility of Borrower or any of its Subsidiaries if any
such damage, loss, theft or destruction event or circumstance could reasonably
be expected to have a Material Adverse Effect; or
(Q) Licenses and Permits. The loss, suspension or revocation
of, or failure to renew, any license or permit now held or hereafter acquired
by Borrower or any of its Subsidiaries if such loss, suspension, revocation or
failure to renew could reasonably be expected to have a Material Adverse
Effect; or
(R) Forfeiture. There is filed against Borrower any civil or
criminal action, suit or proceeding under any federal or state racketeering
statute (including, without limitation, the Racketeer Influenced and Corrupt
Organization Act of 1970), which action, suit or proceeding (1) is not
dismissed within one hundred twenty (120) days; and (2) could result in the
confiscation or forfeiture of any material portion of the Collateral.
8.2 Suspension of Revolving Loan Commitments. Upon the occurrence of
any Default or Event of Default, notwithstanding any grace period or right to
cure, Agent may or upon demand by Requisite Lenders shall, without notice or
demand, immediately cease making additional Loans and the Revolving Loan
Commitments shall be suspended; provided that, in the case of a Default, if the
subject condition or event is waived or cured within any applicable grace or
cure period, the Revolving Loan Commitments shall be reinstated.
8.3 Acceleration. Upon the occurrence of any Event of Default
described in the foregoing subsections 8.1(G) or 8.1(H), all Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by Borrower, and the Revolving Loan Commitments shall thereupon
terminate. Upon the occurrence and during the continuance of any other Event
of Default, Agent may, and upon demand by Requisite Lenders shall, by written
notice to Borrower, (a) declare all or any portion of the Obligations to be,
and the same shall forthwith become, immediately due and payable and the
Revolving Loan Commitments shall thereupon terminate and (b) demand that
Borrower immediately deposit with Agent an amount equal to one hundred five
percent (105%) of
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the Letter of Credit Reserve to enable Lender to make payments under the Lender
Letters of Credit when required and such amount shall become immediately due
and payable.
8.4 Remedies. If any Event of Default shall have occurred and be
continuing, in addition to and not in limitation of any other rights or
remedies available to Agent and Lenders at law or in equity, Agent may and
shall upon the request of Requisite Lenders exercise in respect of the
Collateral, in addition to all other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected
Collateral) and may also (a) notify any or all obligors on the Accounts to make
all payments directly to Agent; (b) require Borrower to, and Borrower hereby
agrees that it will, at its expense and upon request of Agent forthwith,
assemble all or part of the Collateral as directed by Agent and make it
available to Agent at a place to be designated by Agent which is reasonably
convenient to both parties; (c) withdraw all cash in the Blocked Accounts and
apply such monies in payment of the Obligations in the manner provided in
subsection 8.7; (d) without notice or demand or legal process, enter upon any
premises of Borrower and take possession of the Collateral; and (e) without
notice except as specified below, sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any of the Agent's offices or
elsewhere, at such time or times, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as Agent may deem
commercially reasonable. Borrower agrees that, to the extent notice of sale
shall be required by law, at least ten (10) days notice to Borrower of the time
and place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. At any sale of the Collateral,
if permitted by law, Agent or any Lender may bid (which bid may be, in whole or
in part, in the form of cancellation of indebtedness) for the purchase of the
Collateral or any portion thereof for the account of Agent or such Lender.
Agent shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. Borrower shall remain liable for any
deficiency. Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. To
the extent permitted by law, Borrower hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under any law now
existing or hereafter enacted. Agent shall not be required to proceed against
any Collateral but may proceed against Borrower directly.
8.5 Appointment of Attorney-in-Fact. Borrower hereby constitutes and
appoints Agent as Borrower's attorney-in-fact with full authority in the place
and stead of Borrower and in the name of Borrower, Agent or otherwise, from
time to time in Agent's discretion while an Event of Default is continuing to
take any action and to execute any instrument that Agent may deem necessary or
advisable to accomplish the purposes of this Agreement, including: (a) to ask,
demand, collect, sue for, recover, compound, receive and give acquittance and
receipts for moneys due and to become due under or in respect of any of the
Collateral; (b) to adjust, settle or compromise the amount or payment of any
Account, or release wholly or partly any customer or obligor thereunder or
allow any credit or discount thereon; (c) to receive, endorse, and collect any
drafts or other instruments, documents and chattel paper, in connection with
clause (a) above; (d) to file any claims or take any action or institute any
proceedings that Agent may deem necessary or desirable for the collection of
any of the Collateral or otherwise to enforce the rights of Agent and Lenders
with respect to any of
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the Collateral; and (e) to sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, assignments,
verifications and notices in connection with Accounts and other documents
relating to the Collateral. The appointment of Agent as Borrower's attorney
and Agent's rights and powers are coupled with an interest and are irrevocable
until payment in full and complete performance of all of the Obligations.
8.6 Limitation on Duty of Agent with Respect to Collateral. Beyond
the safe custody thereof, Agent and each Lender shall have no duty with respect
to any Collateral in its possession or control (or in the possession or control
of any agent or bailee) or with respect to any income thereon or the
preservation of rights against prior parties or any other rights pertaining
thereto. Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if the Collateral
is accorded treatment substantially equal to that which Agent accords its own
property. Neither Agent nor any Lender shall be liable or responsible for any
loss or damage to any of the Collateral, or for any diminution in the value
thereof, by reason of the act or omission of any warehouseman, carrier,
forwarding agency, consignee or other agent or bailee selected by Agent in good
faith.
8.7 Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, (a) Borrower irrevocably waives the right
to direct the application of any and all payments at any time or times
thereafter received by Agent from or on behalf of Borrower, and Borrower hereby
irrevocably agrees that Agent shall have the continuing exclusive right to
apply and to reapply any and all payments received at any time or times after
the occurrence and during the continuance of an Event of Default against the
Obligations in such manner as Agent may deem advisable notwithstanding any
previous entry by Agent upon any books and records and (b) the proceeds of any
sale of, or other realization upon, all or any part of the Collateral shall be
applied: first, to all fees, costs and expenses incurred by Agent or any Lender
with respect to this Agreement, the other Loan Documents or the Collateral;
second, to all fees due and owing to Agent and Lenders; third, to accrued and
unpaid interest on the Obligations; fourth, to the principal amounts of the
Obligations outstanding; and fifth, to any other indebtedness or obligations of
Borrower owing to Agent or any Lender.
8.8 License of Intellectual Property. Borrower hereby assigns,
transfers and conveys to Agent, for the benefit of Lenders, effective upon the
occurrence of any Event of Default hereunder, the non-exclusive right and
license to use all Intellectual Property owned or used by Borrower together
with any goodwill associated therewith, all to the extent necessary to enable
Agent to realize on the Collateral and any successor or assign to enjoy the
benefits of the Collateral. This right and license shall inure to the benefit
of all successors, assigns and transferees of Agent and its successors, assigns
and transferees, whether by voluntary conveyance, operation of law, assignment,
transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right
and license is granted free of charge, without requirement that any monetary
payment whatsoever be made to Borrower by Agent.
8.9 Waivers, Non-Exclusive Remedies. No failure on the part of Agent
or any Lender to exercise, and no delay in exercising and no course of dealing
with respect to, any right under this
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Agreement or the other Loan Documents shall operate as a waiver thereof; nor
shall any single or partial exercise by Agent or any Lender of any right under
this Agreement or any other Loan Document preclude any other or further
exercise thereof or the exercise of any other right. The rights in this
Agreement and the other Loan Documents are cumulative and are not exclusive of
any other remedies provided by law.
SECTION 9. ASSIGNMENT AND PARTICIPATION
9.1 Assignments and Participations in Loans.
(A) Each Lender may assign its rights and delegate its
obligations under this Agreement to another Person; provided, that (a) such
Lender shall first obtain the written consent of Agent, which shall not be
unreasonably withheld, (b) the amount of Revolving Loan Commitments and Loans
of the assigning Lender being assigned shall in no event be less than the
lesser of (i) $5,000,000 or (ii) the entire amount of the Revolving Loan
Commitments and Loans of such assigning Lender, (c) each such assignment shall
be of a pro rata portion of all such assigning Lender's Loans and Revolving
Loan Commitments hereunder, and (d) the parties to such assignment shall
execute and deliver to Agent for acceptance and recording a Lender Addition
Agreement together with (i) a processing and recording fee of $2,500 payable to
Agent and (ii) the Revolving Note originally delivered to the assigning Lender.
Upon receipt of all of the foregoing, Agent shall notify Borrower of such
assignment and Borrower shall comply with its obligations under the last
sentence of subsection 2.1(D). In the case of an assignment authorized under
this subsection 9.1, the assignee shall have, to the extent of such assignment,
the same rights, benefits and obligations as it would if it were a Lender
hereunder. The assigning Lender shall be relieved of its obligations hereunder
with respect to its Revolving Loan Commitment or assigned portion thereof.
Borrower hereby acknowledges and agrees that any assignment will give rise to a
direct obligation of Borrower to the assignee and that the assignee shall be
considered to be a "Lender".
(B) Each Lender may sell participations in all or any part of
any Loans made by it to another Person; provided, that any such participation
shall be in a minimum amount of $5,000,000, and provided, further, that all
amounts payable by Borrower hereunder shall be determined as if that Lender had
not sold such participation and the holder of any such participation shall not
be entitled to require such Lender to take or omit to take any action hereunder
except action directly effecting (a) any reduction in the principal amount,
interest rate or fees payable with respect to any Loan in which such holder
participates; (b) any extension of the Termination Date or the date fixed for
any payment of principal, interest or fees payable with respect to any Loan in
which such holder participates; and (c) any release of all or substantially all
of the Collateral (other than in accordance with the terms of this Agreement or
the other Loan Documents). The participant under each participation shall for
purposes of subsection 2.8, 2.9, 2.10, 2.11, 9.4 and 10.2 be considered to be a
"Lender".
(C) Except as otherwise provided in this subsection 9.1 no
Lender shall, as between Borrower and that Lender, be relieved of any of its
obligations hereunder as a result of any
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sale, assignment, transfer or negotiation of, or granting of participation in,
all or any part of the Loans or other Obligations owed to such Lender. Each
Lender may furnish any information concerning Borrower and its Subsidiaries in
the possession of that Lender from time to time to assignees and participants
(including prospective assignees and participants) provided that each of the
Persons obtaining such information agrees to maintain the confidentiality of
such information to the extent required by subsection 10.21.
(D) Notwithstanding any other provision set forth in this
Agreement, any Lender may at any time create a security interest in all or any
portion of its rights under this Agreement (including, without limitation, the
Loans owing to it and the Revolving Note held by it in favor of any Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of the
Federal Reserve System).
(E) Borrower hereby agrees to make its senior management and
facilities available to prospective participants and assignees from time to
time during normal business hours, as reasonably requested by Agent.
(F) No assignment or participation pursuant to this subsection
9.1 shall require Borrower to file any registration statement with the
Securities and Exchange Commission or to qualify or make any filing under the
blue sky laws of any state.
9.2 Agent.
(A) Appointment. Each Lender hereby designates and appoints
Heller as its agent under this Agreement and the Loan Documents, and each
Lender hereby irrevocably authorizes Agent to take such action or to refrain
from taking such action on its behalf under the provisions of this Agreement
and the Loan Documents and to exercise such powers as are set forth herein or
therein, together with such other powers as are reasonably incidental thereto.
Agent is authorized and empowered to amend, modify, or waive any provisions of
this Agreement or the other Loan Documents on behalf of Lenders subject to the
requirement that certain of Lenders' consent be obtained in certain instances
as provided in subsection 9.3. Agent agrees to act as such on the express
conditions contained in this subsection 9.2. The provisions of this subsection
9.2 are solely for the benefit of Agent and Lenders and neither Borrower nor
any Loan Party shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this
Agreement, Agent shall act solely as an administrative representative of
Lenders and does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for Lenders or
Borrower or any Loan Party. Agent may perform any of its duties hereunder, or
under the Loan Documents, by or through its agents or employees.
(B) Nature of Duties. Agent shall have no duties, obligations
or responsibilities except those expressly set forth in this Agreement or in
the Loan Documents. The duties of Agent shall be mechanical and administrative
in nature. Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of any Lender. Each Lender shall make its own
independent investigation of the financial condition and affairs of Borrower in
connection with the extension of
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credit hereunder and shall make its own appraisal of the creditworthiness of
Borrower, and 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
Closing Date or at any time or times thereafter. If Agent seeks the consent or
approval of any Lenders to the taking or refraining from taking any action
hereunder, then Agent shall send notice thereof to each Lender. Agent shall
promptly notify each Lender any time that the applicable percentage of Lenders
have instructed Agent to act or refrain from acting pursuant hereto.
(C) Rights, Exculpation, Etc. Neither Agent nor any of its
officers, directors, employees or agents shall be liable to any Lender for any
action taken or omitted by them hereunder or under any of the Loan Documents,
or in connection herewith or therewith, except that Agent shall be obligated on
the terms set forth herein for performance of its express obligations
hereunder, and except that Agent shall be liable with respect to its own gross
negligence or willful misconduct. Agent shall not be liable for any
apportionment or distribution of payments made by it in good faith and if any
such apportionment or distribution is subsequently determined to have been made
in error the sole recourse of any Lender to whom payment was due but not made,
shall be to recover from other Lenders any payment in excess of the amount to
which they are determined to be entitled (and such other Lenders hereby agree
to return to such Lender any such erroneous payments received by them). In
performing its functions and duties hereunder, Agent shall exercise the same
care which it would in dealing with loans for its own account, but Agent shall
not be responsible to any Lender for any recitals, statements, representations
or warranties herein or for the execution, effectiveness, genuineness,
validity, enforceability, collectability, or sufficiency of this Agreement or
any of the Loan Documents or the transactions contemplated thereby, or for the
financial condition of any Loan Party. Agent shall not be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement or any of the Loan Documents or the
financial condition of any Loan Party, or the existence or possible existence
of any Default or Event of Default. Agent may at any time request instructions
from Lenders with respect to any actions or approvals which by the terms of
this Agreement or of any of the Loan Documents Agent is permitted or required
to take or to grant, and Agent shall be absolutely entitled to refrain from
taking any action or to withhold any approval and shall not be under any
liability whatsoever to any Person for refraining from any action or
withholding any approval under any of the Loan Documents until it shall have
received such instructions from the applicable percentage of the Lenders.
Without limiting the foregoing, no Lender shall have any right of action
whatsoever against Agent as a result of Agent acting or refraining from acting
under this Agreement or any of the other Loan Documents in accordance with the
instructions of the applicable percentage of the Lenders and, notwithstanding
the instructions of Lenders, Agent shall have no obligation to take any action
if it, in good faith believes that such action exposes Agent to any liability.
(D) Reliance. Agent shall be entitled to rely upon any written
notices, statements, certificates, orders or other documents or any telephone
message or other communication (including any writing, telex, telecopy or
telegram) believed by it in good faith to be genuine and correct and to have
been signed, sent or made by the proper Person, and with respect to all matters
pertaining to this Agreement or any of the Loan Documents and its duties
hereunder or thereunder, upon advice
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of counsel selected by it. Agent shall be entitled to rely upon the advice of
legal counsel, independent accountants, and other experts selected by Agent in
its sole discretion.
(E) Indemnification. Each Lender, severally, agrees to
reimburse and indemnify Agent for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, advances or disbursements of any kind or nature whatsoever which may
be imposed on, incurred by, or asserted against Agent in any way relating to or
arising out of this Agreement or any of the Loan Documents or any action taken
or omitted by Agent under this Agreement or any of the Loan Documents, in
proportion to each Lender's Pro Rata Share; provided, however, that no Lender
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, advances or
disbursements resulting from Agent's gross negligence or willful misconduct.
The obligations of Lenders under this subsection 9.2(E) shall survive the
payment in full of the Obligations and the termination of this Agreement.
(F) Heller Individually. With respect to its Revolving Loan
Commitments and the Loans made by it, and the Revolving Note issued to it,
Heller shall have and may exercise the same rights and powers hereunder and is
subject to the same obligations and liabilities as and to the extent set forth
herein for any other Lender. The terms "Lenders" or "Requisite Lenders" or any
similar terms shall, unless the context clearly otherwise indicates, include
Heller in its individual capacity as a Lender or one of the Requisite Lenders.
Heller may lend money to, and generally engage in any kind of banking, trust or
other business with any Loan Party or any Affiliate of a Loan Party as if it
were not acting as Agent pursuant hereto.
(G) Successor Agent.
(1) Resignation. Agent may resign from the
performance of all its functions and duties hereunder at any time by giving at
least thirty (30) Business Days' prior written notice to Borrower and the
Lenders. Such resignation shall take effect upon the acceptance by a successor
Agent of appointment pursuant to clause (2) below or as otherwise provided
below.
(2) Appointment of Successor. Upon any such notice of
resignation pursuant to clause (G)(1) above, Requisite Lenders shall, upon
receipt of Borrower's prior consent, which shall not be unreasonably withheld,
appoint a successor Agent. If a successor Agent shall not have been so
appointed within said thirty (30) Business Day period, the retiring Agent, upon
notice to Borrower, shall then appoint a successor Agent who shall serve as
Agent until such time, as Requisite Lenders, upon receipt of Borrower's prior
written consent, which shall not be unreasonably withheld, appoint a successor
Agent as provided above.
(3) Successor Agent. Upon the acceptance of any
appointment as Agent under the Loan Documents by a successor Agent, such
successor Agent shall 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 the Loan
Documents. After any retiring Agent's resignation as Agent under the Loan
Documents, the provisions of this
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subsection 9.2 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under the Loan Documents.
(H) Collateral Matters.
(1) Release of Collateral. Lenders hereby irrevocably
authorize Agent, at its option and in its discretion, to release any Lien
granted to or held by Agent upon any property covered by this Agreement or the
Loan Documents (i) upon termination of the Revolving Loan Commitments and
payment and satisfaction of all Obligations; (ii) constituting property being
sold or disposed of if Borrower certifies to Agent that the sale or disposition
is made in compliance with the provisions of this Agreement (and Agent may rely
in good faith conclusively on any such certificate, without further inquiry);
or (iii) constituting property leased to Borrower under a lease which has
expired or been terminated in a transaction permitted under this Agreement or
is about to expire and which has not been, and is not intended by Borrower to
be, renewed or extended. In addition during any Fiscal Year (x) Agent may
release Collateral having a book value of not more than 10% of the book value
of all Collateral, (y) Agent, with the consent of Requisite Lenders, may
release Collateral having a book value of not more than 25% of the book value
of all Collateral and (z) Agent, with the consent of Lenders having 90% of (i)
the Revolving Loan Commitments and (ii) Loans, may release all the Collateral.
(2) Confirmation of Authority; Execution of Releases.
Without in any manner limiting Agent's authority to act without any specific or
further authorization or consent by Lenders (as set forth in subsection
9.2(H)(1)), each Lender agrees to confirm in writing, upon request by Borrower,
the authority to release any property covered by this Agreement or the Loan
Documents conferred upon Agent under subsection 9.2(H)(1). So long as no Event
of Default is then continuing, upon receipt by Agent of confirmation from the
requisite percentage of Lenders, of its authority to release any particular
item or types of property covered by this Agreement or the Loan Documents, and
upon at least five (5) Business Days prior written request by Borrower, Agent
shall (and is hereby irrevocably authorized by Lenders to) execute such
documents as may be necessary to evidence the release of the Liens granted to
Agent for the benefit of Lenders herein or pursuant hereto upon such
Collateral; provided, however, that (i) Agent shall not be required to execute
any such document on terms which, in Agent's opinion, would expose Agent to
liability or create any obligation or entail any consequence other than the
release of such Liens without recourse or warranty, and (ii) such release shall
not in any manner discharge, affect or impair the Obligations or any Liens upon
(or obligations of any Loan Party, in respect of) all interests retained by any
Loan Party, including, without limitation, the proceeds of any sale, all of
which shall continue to constitute part of the property covered by this
Agreement or the Loan Documents.
(3) Absence of Duty. Agent shall have no obligation
whatsoever to any Lender or any other Person to assure that the property
covered by this Agreement or the Loan Documents exists or is owned by Borrower
or is cared for, protected or insured or has been encumbered or that the Liens
granted to Agent on behalf of Lenders herein or pursuant hereto have been
properly or sufficiently or lawfully created, perfected, protected or enforced
or are entitled to any particular priority, or to exercise at all or in any
particular manner or under any duty of care,
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disclosure or fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to Agent in this subsection 9.2(H)
or in any of the Loan Documents, it being understood and agreed that in respect
of the property covered by this Agreement or the Loan Documents or any act,
omission or event related thereto, Agent may act in any manner it may deem
appropriate, in its discretion, given Agent's own interest in property covered
by this Agreement or the Loan Documents as one of the Lenders and that Agent
shall have no duty or liability whatsoever to any of the other Lenders;
provided, that Agent shall exercise the same care which it would in dealing
with loans for its own account.
(I) Agency for Perfection. Each Lender hereby appoints each
other Lender as agent for the purpose of perfecting Lenders' security interest
in Collateral which, in accordance with Article 9 of the Uniform Commercial
Code in any applicable jurisdiction, can be perfected only by possession.
Should any Lender (other than Agent) obtain possession of any such Collateral,
such Lender shall notify Agent thereof, and, promptly upon Agent's request
therefor, shall deliver such Collateral to Agent or in accordance with Agent's
instructions.
(J) Exercise of Remedies. Each Lender agrees that it will not
have any right individually to enforce or seek to enforce this Agreement or any
Loan Document or to realize upon any collateral security for the Loans, it
being understood and agreed that such rights and remedies may be exercised only
by Agent.
9.3 Consents.
(A) In the event Agent requests the consent of a Lender and
does not receive a written denial thereof within five (5) Business Days after
such Lender's receipt of such request, then such Lender will be deemed to have
given such consent.
(B) In the event Agent requests the consent of a Lender and
such consent is denied, then Heller may, at its option, require such Lender to
assign its interest in the Loans to Heller for a price equal to the then
outstanding principal amount thereof plus accrued and unpaid interest and fees
due such Lender, which interest and fees will be paid when collected from
Borrower. In the event that Heller elects to require any Lender to assign its
interest to Heller, Heller will so notify such Lender in writing within
forty-five (45) days following such Lender's denial, and such Lender will
assign its interest to Heller no later than five (5) days following receipt of
such notice.
9.4 Set Off and Sharing of Payments. In addition to any rights now or
hereafter granted under applicable law and not by way of limitation of any such
rights, upon the occurrence and during the continuance of any Event of Default,
each Lender is hereby authorized by Borrower at any time or from time to time,
with reasonably prompt subsequent notice to Borrower or to any other Person
(any prior or contemporaneous notice being hereby expressly waived) to set off
and to appropriate and to apply any and all (A) balances held by such Lender or
such holder at any of its offices for the account of Borrower or any of its
Subsidiaries (regardless of whether such balances are then due to Borrower or
its Subsidiaries), and (B) other property at any time held or owing by such
Lender or such holder to or for the credit or for the account of Borrower or
any of its Subsidiaries against and
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on account of any of the Obligations which are not paid when due; except that
no Lender or any such holder shall exercise any such right without the prior
written consent of Agent. Any Lender which has exercised its right to set off
shall, to the extent the amount of any such set off exceeds its Pro Rata Share
of the Obligations, purchase for cash (and the other Lenders or holders shall
sell) participations in each such other Lender's or holder's Pro Rata Share of
the Obligations as would be necessary to cause such Lender to share such excess
with each other Lender or holder in accordance with their respective Pro Rata
Shares. Borrower agrees, to the fullest extent permitted by law, that (a) any
Lender or holder may exercise its right to set off with respect to amounts in
excess of its Pro Rata Share of the Obligations and may sell participations in
such excess to other Lenders and holders, and (b) any Lender or holder so
purchasing a participation in the Loans made or other Obligations held by
other Lenders or holders may exercise all rights of set-off, bankers' lien,
counterclaim or similar rights with respect to such participation as fully as
if such Lender or holder were a direct holder of Loans and other Obligations in
the amount of such participation.
9.5 Disbursement of Funds. Agent may, on behalf of Lenders, disburse
funds to Borrower for Loans requested. Each Lender shall reimburse Agent on
demand for all funds disbursed on its behalf by Agent, or if Agent so requests,
each Lender will remit to Agent its Pro Rata Share of any Loan before Agent
disburses same to Borrower. If Agent elects to require that funds be made
available prior to disbursement to Borrower, Agent shall advise each Lender by
telephone, telex or telecopy of the amount of such Lender's Pro Rata Share of
such requested Loan no later than (a) one (1) Business Day prior to the Funding
Date applicable thereto for LIBOR Loans and (b) by 1:00 p.m. Central time on
the Funding Date for Base Rate Loans, and each such Lender shall pay Agent such
Lender's Pro Rata Share of such requested Loan, in same day funds, by wire
transfer to Agent's account not later than 10:00 a.m. Central time on such
Funding Date for LIBOR Loans and 3:00 p.m. Central time for Base Rate Loans.
If any Lender fails to pay the amount of its Pro Rata Share forthwith upon
Agent's demand, Agent shall promptly notify Borrower, and Borrower shall
immediately repay such amount to Agent. Any repayment required pursuant to
this subsection 9.5 shall be without premium or penalty. Nothing in this
subsection 9.5 or elsewhere in this Agreement or the other Loan Documents,
including, without limitation, the provisions of subsection 9.6, shall be
deemed to require Agent to advance funds on behalf of any Lender or to relieve
any Lender from its obligation to fulfill its Revolving Loan Commitments
hereunder or to prejudice any rights that Agent or Borrower may have against
any Lender as a result of any default by such Lender hereunder.
9.6 Settlements, Payments and Information.
(A) Revolving Advances and Payments; Fee Payments.
(1) The Revolving Loan may fluctuate from day to day
through Agent's disbursement of funds to, and receipt of funds from, Borrower.
In order to minimize the frequency of transfers of funds between Agent and each
Lender notwithstanding terms to the contrary set forth in Section 2 and
subsection 9.5, Revolving Advances and repayments may be settled according to
the procedures described in subsection 9.6(A)(2) and 9.6(A)(3) of this
Agreement. Notwithstanding these procedures, each Lender's obligation to fund
its Pro Rata Share of any advances made by Agent
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to Borrower will commence on the date such advances are made by Agent. Such
payments will be made by such Lender without set-off, counterclaim or reduction
of any kind.
(2) Once each week, or more frequently (including
daily), if Agent so elects (each such day being a "Settlement Date"), Agent
will advise each Lender by 1 p.m. Central time by telephone, telex, or telecopy
of the amount of each such Lender's Pro Rata Share of the Revolving Loan. In
the event payments are necessary to adjust the amount of such Lender's share
of the Revolving Loan to such Lender's Pro Rata Share of the Revolving Loan,
the party from which such payment is due will pay the other, in same day funds,
by wire transfer to the other's account not later than 3:00 p.m. Central time
on the Business Day following the Settlement Date.
(3) On the first Business Day of each month ("Interest
Settlement Date"), Agent will advise each Lender by telephone, telefax or
telecopy of the amount of interest and fees charged to and collected from
Borrower for the preceding month. Provided that such Lender has made all
payments required to be made by it under this Agreement, Agent will pay to such
Lender, by wire transfer to such Lender's account (as specified by such Lender
on the signature page of this Agreement as amended by such Lender from time to
time after the date hereof pursuant to the notice provisions contained herein
or in the applicable Lender Addition Agreement) not later than 3 p.m. Central
time on the next Business Day following the Interest Settlement Date such
Lender's share of such interest and fees.
(B) Availability of Lender's Pro Rata Share.
(1) Unless Agent has been notified by a Lender prior
to a Funding Date of such Lender's intention not to fund its Pro Rata Share of
the Loan amount requested by Borrower, Agent may assume that such Lender will
make such amount available to Agent on the Funding Date or the Business Day
following the next Settlement Date, as applicable, and Agent may (but shall not
be so required), in reliance upon such assumption, make available to Borrower
on such date a corresponding amount.
(2) Nothing contained in this subsection 9.6(B) will
be deemed to relieve a Lender of its obligation to fulfill its Revolving Loan
Commitments or to prejudice any rights Agent or Borrower may have against such
Lender as a result of any default by such Lender under this Agreement, but no
Lender shall be responsible for the failure of any other Lender to make such
other Lender's Pro Rata Share of the Revolving Loan to be made by such other
Lender on any Funding Date.
(3) Without limiting the generality of the foregoing,
each Lender shall be obligated to fund its Pro Rata Share of any Revolving
Advance made with respect to any draw on a Lender Letter of Credit.
(4) If and to the extent that there is a Defaulted
Amount, and Agent has made available to Borrower such amount, the Defaulting
Lender shall, on the Business Day following (i) such Funding Date, or (ii) the
first Business Day following the next Settlement Date,
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as applicable, make such Defaulted Amount available to Agent, together with
interest at the Federal Funds Effective Rate plus one half of one percent
(0.50%) for each day the Defaulted Amount is outstanding until the date such
Lender makes such amount available to Agent. A notice from Agent submitted to
any Lender with respect to amounts owing under this subsection shall be
conclusive, absent manifest error. If such amount is not made available to
Agent, Agent shall promptly notify Borrower of such failure to fund (a
"Defaulting Lender Notice"). Any payments received by Agent thereafter shall
be applied first to reduce Agent's overfunding resulting from the default by
such Defaulting Lender, and any Revolving Advances made at the request of
Borrower thereafter shall first be applied by Agent to reduce such overfunding,
and to the extent any such payments or advances are insufficient to reduce the
entire Defaulted Amount, then Agent may, on or after the tenth day following
its delivery of the Defaulting Lender Notice, make demand upon Borrower and
Borrower shall immediately pay such amount to Agent for Agent's account,
together with interest thereon for each day elapsed since the date of such
borrowing, at a rate per annum equal to the interest rate applicable at the
time to the Loan made by the other Lenders on such Funding Date.
(5) Agent shall not transfer to a Defaulting Lender
any payment made by Borrower to Agent or any amount otherwise received by Agent
for application to the Obligations, nor shall a Defaulting Lender be entitled
to the sharing of any fees or payments hereunder.
(6) For purposes of voting or consenting to matters
with respect to the Loan Documents and determining Pro Rata Shares, the
Revolving Loan Commitment and the unused line fee payable under subsection
2.3(A), a Defaulting Lender shall be deemed not to be a "Lender" and such
Lender's Revolving Loan Commitments shall be deemed to be zero (0).
(C) Return of Payments
(1) If Agent pays an amount to a Lender under this
Agreement in the belief or expectation that a related payment has been or will
be received by Agent from Borrower and such related payment is not received by
Agent, then Agent will be entitled to recover such amount from such Lender
without set-off, counterclaim or deduction of any kind.
(2) If Agent determines at any time that any amount
received by Agent under this Agreement must be returned to Borrower or paid to
any other Person pursuant to any solvency law or otherwise, then,
notwithstanding any other term or condition of this Agreement, Agent will not
be required to distribute any portion thereof to any Lender. In addition, each
Lender will repay to Agent on demand any portion of such amount that Agent has
distributed to such Lender, together with interest at such rate, if any, as
Agent is required to pay to Borrower or such other Person, without set-off,
counterclaim or deduction of any kind.
9.7 Dissemination of Information. Agent will provide Lenders with any
information received by Agent from Borrower which is required to be provided to
a Lender hereunder; provided, however, that Agent shall not be liable to
Lenders for any failure to do so, except to the extent that such failure is
attributable to Agent's gross negligence or willful misconduct.
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9.8 Discretionary Advances. Agent may, in its sole discretion, (i)
provided that no Event of Default exists, make Revolving Advances of up to 10%
in excess of the limitations set forth in subsection 2.1(A)(1)(b) but not in
excess of the limitation set forth in subsection 2.1 (A)(1)(a) for a period of
not more than 30 consecutive days and (ii) during the continuance of an Event
of Default, make Revolving Advances in excess of the limitations set forth in
subsection 2.1(A)(1) for the purpose of preserving or protection the
Collateral.
SECTION 10. MISCELLANEOUS
10.1 Expenses and Attorneys' Fees. Whether or not the transactions
contemplated hereby shall be consummated, Borrower agrees to promptly pay all
fees, costs and expenses incurred by Agent in connection with any matters
contemplated by or arising out of this Agreement or the other Loan Documents
including the following, and all such fees, costs and expenses shall be part of
the Obligations, payable on demand and secured by the Collateral: (a)
reasonable fees, costs and expenses (including attorneys' fees, allocated costs
of internal counsel, per diem costs of Agent's internal auditors and fees of
environmental consultants, accountants and other professionals retained by
Agent) incurred in connection with the examination, review, due diligence
investigation, documentation and closing of the financing arrangements
evidenced by the Loan Documents; (b) reasonable fees, costs and expenses
(including attorneys' fees, allocated costs of internal counsel, per diem costs
of Agent's internal auditors and fees of environmental consultants, accountants
and other professionals retained by Agent) incurred in connection with the
review, negotiation, preparation, documentation, execution, syndication, and
administration of the Loan Documents, the Loans, and any amendments, waivers,
consents, forbearances and other modifications relating thereto or any
subordination or intercreditor agreements; (c) reasonable fees, costs and
expenses incurred by Agent in creating, perfecting and maintaining perfection
of Liens in favor of Agent, on behalf of Lenders; (d) reasonable fees, costs
and expenses incurred by Agent in connection with forwarding to Borrower the
proceeds of Loans including Agent's or any Lenders' standard wire transfer fee;
(e) reasonable fees, costs, expenses and bank charges, including bank charges
for returned checks, incurred by Agent or any Lender in establishing,
maintaining and handling blocked accounts or other accounts for collection of
the Collateral; (f) fees, costs, expenses (including attorneys' fees and
allocated costs of internal counsel) of Agent or any Lender and costs of
settlement incurred in collecting upon or enforcing rights against the
Collateral or incurred in any action to enforce this Agreement or the other
Loan Documents or to collect any payments due from Borrower or any other Loan
Party under this Agreement or any other Loan Document or incurred in connection
with any refinancing or restructuring of the credit arrangements provided under
this Agreement, whether in the nature of a "workout" or in connection with any
insolvency or bankruptcy proceedings or otherwise.
10.2 Indemnity. In addition to the payment of expenses pursuant to
subsection 10.1, whether or not the transactions contemplated hereby shall be
consummated, Borrower agrees to indemnify, pay and hold Agent and each Lender
and any holder of the Revolving Notes and the officers, directors, employees,
agents, consultants, auditors, persons engaged by Agent or any Lender and any
holder of the Revolving Notes to evaluate or monitor the Collateral, affiliates
and attorneys
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of Agent, Lender and such holders (collectively called the "Indemnitees")
harmless from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever (including the fees and
disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated a party thereto) that may be
imposed on, incurred by, or asserted against that Indemnitee, in any manner
relating to or arising out of this Agreement or the other Loan Documents, the
consummation of the transactions contemplated by this Agreement, the statements
contained in the commitment letters, if any, delivered by Agent or any Lender,
Agent's and each Lender's agreement to make the Loans hereunder, the use or
intended use of the proceeds of any of the Loans or the exercise of any right
or remedy hereunder or under the other Loan Documents (the "Indemnified
Liabilities"); provided that Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Liabilities arising from the gross
negligence or willful misconduct of that Indemnitee as determined by a court of
competent jurisdiction.
10.3 Amendments and Waivers.
(A) Except as otherwise provided herein, no amendment,
modification, termination or waiver of any provision of this Agreement or any
Loan Document, or consent to any departure by any Loan Party therefrom, shall
in any event be effective unless the same shall be in writing and signed by
Requisite Lenders or Agent, as applicable; provided that no amendment,
modification, termination or waiver shall, unless in writing and signed by all
Lenders, do any of the following: (i) increase the Revolving Loan Commitment of
any Lender; (ii) reduce the principal of, rate of interest on or fees payable
with respect to any Loan; (iii) extend the scheduled due date of any
installment of principal of the Loans; (iv) change the percentage of the
Revolving Loan Commitments or of the aggregate unpaid principal amount of the
Loans, or the percentage of Lenders which shall be required for Lenders or any
of them to take any action hereunder; (v) amend or waive this subsection 10.3
or the definitions of the terms used in this subsection 10.3 insofar as the
definitions affect the substance of this subsection 10.3; (vi) consent to the
assignment or other transfer by Borrower of any of its rights and obligations
under any Loan Document; and (vii) increase the percentages contained in the
definition of Borrowing Base; and provided, further, that no amendment,
modification, termination or waiver affecting the rights or duties of Agent
under any Loan Document shall in any event be effective, unless in writing and
signed by Agent, in addition to the Lenders required hereinabove to take such
action.
(B) Each amendment, modification, termination or waiver shall
be effective only in the specific instance and for the specific purpose for
which it was given. No amendment, modification, termination or waiver shall be
required for Agent to take additional Collateral pursuant to any Loan Document.
(C) No amendment, modification or waiver of any provision of
any Lender Letter of Credit shall be applicable without the written concurrence
of the issuer of such Lender Letter of Credit. No notice to or demand on
Borrower or any other Loan Party in any case shall entitle Borrower or any
other Loan Party to any other or further notice or demand in similar or other
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circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this subsection 10.3 shall be binding upon each
Lender, and, if signed by a Loan Party, on such Loan Party.
(D) In the event Agent waives (1) any Default arising under
subsection 8.1(E) as a result of the breach of any of the provisions of Section
5 of this Agreement (other than any such breach which constitutes an Event of
Default) or (2) any Default constituting a condition to the funding of any
Revolving Advance or issuance of any Lender Letter of Credit, such waiver shall
expire on the date upon which the Default which was the subject of such waiver
matures into an Event of Default pursuant to the terms of this Agreement.
10.4 Notices. Unless otherwise specifically provided herein, all
notices shall be in writing addressed to the respective party as set forth
below and may be personally served, telecopied or sent by overnight courier
service or United States mail and shall be deemed to have been given: (a) if
delivered in person, when delivered; (b) if delivered by telecopy, on the date
of transmission if transmitted on a Business Day before 4:00 p.m. Central time
or, if not, on the next succeeding Business Day; (c) if delivered by overnight
courier, two (2) Business Days after delivery to such courier properly
addressed; or (d) if by U.S. Mail, when received, with postage prepaid and
properly addressed.
If to Borrower: SHOPPERS FOOD WAREHOUSE CORP.
4600 Forbes Boulevard
Lanham, Maryland 20706
Attn: Chief Financial Officer
Telecopy No.: (301) 306-9600
With copies to: SHOPPERS FOOD WAREHOUSE CORP.
4600 Forbes Boulevard
Lanham, Maryland 20706
Attn: Corporate Secretary
Telecopy No.: (301) 306-9600
and
Jones, Day, Reavis & Pogue
Metropolitan Square
1450 G Street, N.W.
Washington, District of Columbia 20005-2088
Attn: Kenneth J. Ayres, Esq.
Telecopy No.: (202) 737-2832
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If to Agent or to Heller: HELLER FINANCIAL, INC.
500 West Monroe
Chicago, Illinois, 60661
Attn: HBC Portfolio Manager
Telecopy No.: (312) 441-6133
With a copy to: HELLER FINANCIAL, INC.
500 West Monroe
Chicago, Illinois 60661
Attn: Legal Department/HBC
Telecopy No.: (312) 441-6876
If to any Lender: Its address indicated on the signature page hereto, in
a Lender Addition Agreement or in a notice to Agent and Borrower; or to such
other address as the party addressed shall have previously designated by
written notice to the serving party, given in accordance with this subsection
10.4.
10.5 Survival of Warranties and Certain Agreements. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the making of the Loans hereunder.
Notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Borrower set forth in subsections 10.1 and 10.2 shall survive
the payment of the Loans and the termination of this Agreement.
10.6 Indulgence Not Waiver. No failure or delay on the part of Agent,
any Lender or any holder of a Revolving Note in the exercise of any power,
right or privilege hereunder or under the Revolving Notes shall impair such
power, right or privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise thereof or of any
other right, power or privilege.
10.7 Marshaling; Payments Set Aside. Neither Agent nor any Lender
shall be under any obligation to marshal any assets in favor of any Loan Party
or any other party or against or in payment of any or all of the Obligations.
To the extent that any Loan Party makes a payment or payments to Agent and/or
any Lender or Agent and/or any Lender enforces its security interests or
exercises its rights of setoff, and such payment or payments or the proceeds of
such enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law,
state or federal law, common law or equitable cause, then to the extent of such
recovery, the Obligations or part thereof originally intended to be satisfied,
and all Liens, rights and remedies therefor, shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
10.8 Entire Agreement. This Agreement, the Revolving Notes and the
other Loan Documents referred to herein embody the final, entire agreement
among the parties hereto and supersede any and all prior commitments,
agreements, representations, and understandings, whether
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written or oral, relating to the subject matter hereof and may not be
contradicted or varied by evidence of prior, contemporaneous, or subsequent
oral agreements or discussions of the parties hereto. There are no oral
agreements among the parties hereto.
10.9 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 limitations of, another covenant shall
not avoid the occurrence of a Default or an Event of Default if such action is
taken or condition exists.
10.10 Severability. The invalidity, illegality or unenforceability in
any jurisdiction of any provision in or obligation under this Agreement or the
other Loan Documents shall not affect or impair the validity, legality or
enforceability of the remaining provisions or obligations under this Agreement,
or the other Loan Documents or of such provision or obligation in any other
jurisdiction.
10.11 Lenders' Obligations Several; Independent Nature of Lenders'
Rights. The obligation of each Lender hereunder is several and not joint and
neither Agent nor any Lender shall be responsible for the obligation or
commitment of any other Lender hereunder. In the event that any Lender at any
time should fail to make a Loan as herein provided, the Lenders, or any of
them, at their sole option, may make the Loan that was to have been made by the
Lender so failing to make such Loan. Nothing contained in any Loan Document
and no action taken by Agent or any Lender pursuant hereto or thereto shall be
deemed to constitute Lenders to be a partnership, an association, a joint
venture or any other kind of entity. The amounts payable at any time hereunder
to each Lender shall be a separate and independent debt, and, provided Agent
fails or refuses to exercise any remedies against Borrower after receiving the
direction of the Requisite Lenders, each Lender shall be entitled to protect
and enforce its rights arising out of this Agreement and it shall not be
necessary for any other Lender to be joined as an additional party in any
proceeding for such purpose.
10.12 Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive
effect.
10.13 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
10.14 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that Borrower may not assign its rights or obligations
hereunder without the written consent of Lenders.
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10.15 No Fiduciary Relationship; Limitation of Liabilities.
(A) No provision in this Agreement or in any of the other Loan
Documents and no course of dealing between the parties shall be deemed to
create any fiduciary duty by Agent or any Lender to Borrower.
(B) Neither Agent nor any Lender, nor any affiliate, officer,
director, shareholder, employee, attorney, or agent of Agent or any Lender
shall have any liability with respect to, and Borrower hereby waives, releases,
and agrees not to sue any of them upon, any claim for any special, indirect,
incidental, or consequential damages suffered or incurred by Borrower in
connection with, arising out of, or in any way related to, this Agreement or
any of the other Loan Documents, or any of the transactions contemplated by
this Agreement or any of the other Loan Documents. Borrower hereby waives,
releases, and agrees not to sue Agent or any Lender or any of Agent's or any
Lender's affiliates, officers, directors, employees, attorneys, or agents for
punitive damages in respect of any claim in connection with, arising out of, or
in any way related to, this Agreement or any of the other Loan Documents, or
any of the transactions contemplated by this Agreement or any of the
transactions contemplated hereby.
10.16 CONSENT TO JURISDICTION. EACH LOAN PARTY HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK,
STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO AGENT'S ELECTION, ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
REVOLVING NOTES OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS.
EACH LOAN PARTY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES
TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT,
THE REVOLVING NOTES, THE OTHER LOAN DOCUMENTS OR THE OBLIGATIONS.
10.17 WAIVER OF JURY TRIAL. EACH LOAN PARTY, AGENT AND EACH LENDER
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE REVOLVING NOTES OR THE
OTHER LOAN DOCUMENTS. EACH LOAN PARTY, AGENT AND EACH LENDER ACKNOWLEDGE THAT
THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP,
THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT, THE
REVOLVING NOTES AND THE OTHER LOAN DOCUMENTS AND THAT EACH WILL CONTINUE TO
RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH LOAN PARTY, AGENT
AND EACH LENDER FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES
ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
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10.18 Construction. Borrower, Agent and each Lender each acknowledge
that it has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement and the other Loan Documents
with its legal counsel and that this Agreement and the other Loan Documents
shall be construed as if jointly drafted by Borrower, Agent and each Lender.
10.19 Counterparts; Effectiveness. This Agreement and any amendments,
waivers, consents, or supplements may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto. Delivery of an executed counterpart of a signature
page to this Agreement, any amendments, waivers, consents or supplements, or to
any other Loan Document by telecopier shall be as effective as delivery of a
manually executed counterpart thereof.
10.20 No Duty. All attorneys, accountants, appraisers, and other
professional Persons and consultants retained by Agent or any Lender shall have
the right to act exclusively in the interest of Agent or such Lender and shall
have no duty of disclosure, duty of loyalty, duty of care, or other duty or
obligation of any type or nature whatsoever to Borrower or any of Borrower's
stockholders or any other Person.
10.21 Confidentiality. Agent and Lenders shall hold all nonpublic
information obtained pursuant to the requirements hereof and identified as such
by Borrower in accordance with such Person's customary procedures for handling
confidential information of this nature and in accordance with safe and sound
business practices and in any event may make disclosure to such of its
respective Affiliates, officers, directors, employees, agents and
representatives as need to know such information in connection with the Loans.
If any Lender is otherwise a creditor of a Borrower, such Lender may use the
information in connection with its other credits. Agent and Lenders may also
make disclosure reasonably required by a bona fide offeree or assignee (or
participant), or as required or requested by any Governmental Authority or
representative thereof, or pursuant to legal process, or to its accountants,
lawyers and other advisors, and shall require any such offeree or assignee (or
participant) to agree (and require any of its offerees, assignees or
participants to agree) to comply with this Section 10.21. In no event shall
Agent or any Lender be obligated or required to return any materials furnished
by Borrower; provided, however, each Offeree shall be required to agree that if
it does not become a assignee (or participant) it shall return all materials
and copies furnished to it by Borrower in connection herewith.
[SIGNATURE PAGE FOLLOWS]
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Witness the due execution hereof by the respective duly
authorized officers of the undersigned as of the date first written above.
SHOPPERS FOOD WAREHOUSE CORP.
By: /s/ RICHARD B. STONE
-------------------------------------
Name: Richard B. Stone
Title: Chief Executive Officer
FEIN: 53-0231809
Revolving Loan Commitment: HELLER FINANCIAL, INC.,
$25,000,000 AS AGENT AND LENDER
By:/s/ RICHARD E. PELLER
------------------------------------
Name: RICHARD E. PELLER
---------------------------------
Title: S.V.P.
--------------------------------
1
EXHIBIT 10.3
DART GROUP CORPORATION
PROMISSORY NOTE
$25,000,000 January 28, 1998
FOR VALUE RECEIVED, the undersigned, DART GROUP CORPORATION, a
Delaware corporation ("Maker"), hereby promises to pay to the order of SHOPPERS
FOOD WAREHOUSE CORP., a Delaware corporation ("Payee") or its successors or
assigns (each, including Payee, a "Holder"), the original principal amount of
Twenty-Five Million Dollars ($25,000,000.00), together with interest from the
date of this Promissory Note (this "Note") on such principal amount from time
to time outstanding at the Note Rate (as defined below).
1. Interest Rate. From the date hereof until fully
paid, the principal balance outstanding on this Note shall bear interest,
payable as set forth below, at an interest rate of 9 3/4% per annum, compounded
annually (the "Note Rate"). Interest on this Note shall accrue from the most
recent date to which interest has been paid or, if no interest has been paid on
this Note, from the date hereof. Interest shall be computed on the basis of a
360 day year based on the actual number of days on which principal is
outstanding. If Maker does not make an interest payment on the date due, such
interest payment shall itself bear interest at the Note Rate from the date such
interest payment was due until paid in full; provided, however, that interest
is payable only at the times provided in Section 2(a) below. Notwithstanding
the foregoing, in no event shall the interest rate charged under this Note
exceed the maximum rate of interest permitted under applicable law; any
interest payment which would for any reason be deemed unlawful under applicable
law shall be applied to principal.
2. Payments
(a) Interest and Principal Payments. On the
earlier of June 15, 2004 or maturity, whether as a result of repayment in full,
acceleration or otherwise, Maker must pay the then Holder of this Note a
payment equal to the sum of the then outstanding principal balance of this Note
plus accrued and unpaid interest as of the date of such payment. No interest
is payable prior to such time.
(b) Payment Dates Not Falling on Business Days.
If any payment on this Note is due on a Saturday, Sunday or any day on which
national banks are not required to be open for business in Maryland (any other
day being a "Business Day"), such payment shall be made (without penalty) on
the next succeeding Business Day.
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(c) Manner of Payment. Maker must make all
payments of principal and/or interest on this Note in immediately available
United States funds to the then Holder of this Note at 4600 Forbes Blvd.,
Lanham, Maryland 20706, or at such other address as Payee or any subsequent
Holder hereof shall have designated to Maker in writing.
(d) Application of Payments/Prepayment. Maker
may prepay all or any portion of this Note at any time or times and in any
amount without premium or penalty. Any installment payment or prepayment shall
be credited first against the accrued and unpaid interest on this Note and
second against the outstanding principal balance of this Note.
3. Events of Default. This Note shall become due and
payable immediately, without notice, upon the occurrence of one or more of the
following events (each an "Event of Default"):
(a) Maker fails to pay any amount due under this
Note when due.
(b) If, pursuant to or within the meaning of the
United States Bankruptcy Code or any other federal or state law
relating to insolvency or relief of debtors (a "BANKRUPTCY LAW"),
Maker shall (i) commence a voluntary case or proceeding; (ii) consent
to the entry of an order for relief against it in an involuntary case;
(iii) consent to the appointment of a trustee, receiver, assignee,
liquidator, or similar official; (iv) make an assignment for the
benefit of its creditors; or (v) admit in writing its inability to pay
its debts as they become due.
(c) If a court of competent jurisdiction enters
an order or decree under any Bankruptcy Law that (i) is for relief
against Maker in an involuntary case, (ii) appoints a trustee,
receiver, assignee, liquidator, or similar official for Maker or
substantially all of Maker's properties, or (iii) orders the
liquidation of Maker, and in each case the order or decree is not
dismissed within 60 days.
4. Remedies. If this Note is not paid at maturity,
whether by acceleration or otherwise, the Holder hereof shall have all of the
rights and remedies provided by any law or applicable agreement. Any
requirement of reasonable notice shall be met if such Holder sends the notice
to Maker at least seven (7) days prior to the date of sale, disposition, or
other event giving rise to the required notice. Maker is liable to Holder for
all reasonable costs and expenses of every kind incurred in the making or
collection of this Note, including, without limitation, reasonable attorneys'
fees and court costs. These costs and expenses shall include, without
limitation, any costs or expenses incurred by any Holder in any bankruptcy,
reorganization, insolvency, or other similar proceeding.
5. Waivers; Severability. Maker hereby waives demand,
presentment, notice of dishonor or protest, and consents to any extension or
postponement of time of payment without limit as to the number or period, to
the addition of any party, and to the release or discharge of, or suspension of
any rights and remedies against, any person who may be liable for the payment
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of this Note. No delay on the part of a Holder in the exercise of any right or
remedy shall operate as a waiver. No single or partial exercise by a Holder of
any right or remedy shall preclude any other future exercise of it or any other
Holder or the exercise of any other right or remedy. No waiver or indulgence
by a Holder of any default shall be effective unless in writing and signed by
the Holder, nor shall a waiver on one occasion be construed as a bar to or
waiver of that right on any future occasion.
6. Governing Law; Interpretation. This Note shall be
governed and controlled as to interpretation, enforcement, validity,
construction, and in all other respects by the laws, statutes and decisions of
the State of Maryland except where the law of another jurisdiction is
mandatorily applied.
7. Invalidity. If any one or more of the provisions
contained herein shall be invalid, illegal or unenforceable in any respect, the
validity, legality or enforceability of all the remaining provisions shall not
in any way be affected or impaired.
8. Assignment. This Note is binding upon the legal
representatives, successors and assigns of Maker, and inures to the benefit of
Payee, any subsequent Holder hereof, and their respective representatives,
successors and assigns.
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IN WITNESS WHEREOF, Maker has caused this Note to be duly
executed as of the date first above written.
DART GROUP CORPORATION
By: RICHARD B. STONE
-----------------------------------------------
Name: Richard B. Stone
Title: Chief Executive Officer
S-1
5
DART GROUP CORPORATION
PROMISSORY NOTE
$10,000,000 September 26, 1997
FOR VALUE RECEIVED, the undersigned, DART GROUP CORPORATION, a
Delaware corporation ("Maker"), hereby promises to pay to the order of SHOPPERS
FOOD WAREHOUSE CORP., a Delaware corporation ("Payee") or its successors or
assigns (each, including Payee, a "Holder"), the original principal amount of
Ten Million Dollars ($10,000,000.00), together with interest from the date of
this Promissory Note (this "Note") on such principal amount from time to time
outstanding at the Note Rate (as defined below).
2. Interest Rate. From the date hereof until fully
paid, the principal balance outstanding on this Note shall bear interest,
payable as set forth below, at an interest rate of 9 3/4% per annum, compounded
annually (the "Note Rate"). Interest on this Note shall accrue from the most
recent date to which interest has been paid or, if no interest has been paid on
this Note, from the date hereof. Interest shall be computed on the basis of a
360 day year based on the actual number of days on which principal is
outstanding. If Maker does not make an interest payment on the date due, such
interest payment shall itself bear interest at the Note Rate from the date such
interest payment was due until paid in full. Notwithstanding the foregoing,
in no event shall the interest rate charged under this Note exceed the maximum
rate of interest permitted under applicable law; any interest payment which
would for any reason be deemed unlawful under applicable law shall be applied
to principal.
2. Payments
(a) Interest and Principal Payments. On the
earlier of June 15, 2004 or maturity, whether as a result of repayment in full,
acceleration or otherwise, Maker must pay the then Holder of this Note a
payment equal to the sum of the then outstanding principal balance of this Note
plus accrued and unpaid interest as of the date of such payment.
(b) Payment Dates Not Falling on Business Days.
If any payment on this Note is due on a Saturday, Sunday or any day on which
national banks are not required to be open for business in Maryland (any other
day being a "Business Day"), such payment shall be made (without penalty) on
the next succeeding Business Day.
(c) Manner of Payment. Maker must make all
payments of principal and/or interest on this Note in immediately available
United States funds to the then Holder of this
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Note at 4600 Forbes Blvd., Lanham, Maryland 20706, or at such other address as
Payee or any subsequent Holder hereof shall have designated to Maker in
writing.
(d) Application of Payments/Prepayment. Maker
may prepay all or any portion of this Note at any time or times and in any
amount without premium or penalty. Any installment payment or prepayment shall
be credited first against the accrued and unpaid interest on this Note and
second against the outstanding principal balance of this Note.
3. Events of Default. This Note shall become due and
payable immediately, without notice, upon the occurrence of one or more of the
following events (each an "Event of Default"):
(a) Maker fails to pay any amount due under this
Note when due.
(b) Upon Payee's written notice to Maker
following the occurence and during the continuance of any event
entitling a holder of all or part of the Senior Notes (as hereinafter
defined) to require the redemption or acceleration of all or any part
of the Senior Notes, other than in connection with the Payee's
exchange of Exchange Notes for Original Notes (each as hereinafter
defined). For purposes of this Section 3 (b), the term "Senior Notes"
shall mean the up to $200,000,000 aggregate principal amount of 9 3/4
% Senior Notes due 2004 issued by Payee on June 26, 1997 (the
"Original Notes") and the up to $200,000 aggregate principal amount
93/4 % Senior Notes issued by Payee in exchange for the Original Notes
(the "Exchange Notes").
(c) If, pursuant to or within the meaning of the
United States Bankruptcy Code or any other federal or state law
relating to insolvency or relief of debtors (a "BANKRUPTCY LAW"),
Maker shall (i) commence a voluntary case or proceeding; (ii) consent
to the entry of an order for relief against it in an involuntary case;
(iii) consent to the appointment of a trustee, receiver, assignee,
liquidator, or similar official; (iv) make an assignment for the
benefit of its creditors; or (v) admit in writing its inability to pay
its debts as they become due.
(d) If a court of competent jurisdiction enters
an order or decree under any Bankruptcy Law that (i) is for relief
against Maker in an involuntary case, (ii) appoints a trustee,
receiver, assignee, liquidator, or similar official for Maker or
substantially all of Maker's properties, or (iii) orders the
liquidation of Maker, and in each case the order or decree is not
dismissed within 60 days.
4. Remedies. If this Note is not paid at maturity,
whether by acceleration or otherwise, the Holder hereof shall have all of the
rights and remedies provided by any law or applicable agreement. Any
requirement of reasonable notice shall be met if such Holder sends the notice
to Maker at least seven (7) days prior to the date of sale, disposition, or
other event giving rise to the required notice. Maker is liable to Holder for
all reasonable costs and expenses of every kind incurred in the making or
collection of this Note, including, without limitation,
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reasonable attorneys' fees and court costs. These costs and expenses shall
include, without limitation, any costs or expenses incurred by any Holder in
any bankruptcy, reorganization, insolvency, or other similar proceeding.
5. Waivers; Severability. Maker hereby waives demand,
presentment, notice of dishonor or protest, and consents to any extension or
postponement of time of payment without limit as to the number or period, to
the addition of any party, and to the release or discharge of, or suspension of
any rights and remedies against, any person who may be liable for the payment
of this Note. No delay on the part of a Holder in the exercise of any right or
remedy shall operate as a waiver. No single or partial exercise by a Holder of
any right or remedy shall preclude any other future exercise of it or any other
Holder or the exercise of any other right or remedy. No waiver or indulgence
by a Holder of any default shall be effective unless in writing and signed by
the Holder, nor shall a waiver on one occasion be construed as a bar to or
waiver of that right on any future occasion.
6. Governing Law; Interpretation. This Note shall be
governed and controlled as to interpretation, enforcement, validity,
construction, and in all other respects by the laws, statutes and decisions of
the State of Maryland except where the law of another jurisdiction is
mandatorily applied.
7. Invalidity. If any one or more of the provisions
contained herein shall be invalid, illegal or unenforceable in any respect, the
validity, legality or enforceability of all the remaining provisions shall not
in any way be affected or impaired.
8. Assignment. This Note is binding upon the legal
representatives, successors and assigns of Maker, and inures to the benefit of
Payee, any subsequent Holder hereof, and their respective representatives,
successors and assigns.
3
8
IN WITNESS WHEREOF, Maker has caused this Note to be duly
executed as of the date first above written.
DART GROUP CORPORATION
By: MARK A. FLINT
----------------------------
Name: Mark A. Flint
Title: Sr VP & CFO
S-1
1
Exhibit 11
STATEMENT ON COMPUTATION OF EARNINGS PER SHARE
(dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
January 31, February 1, June 29, July 1,
1998 1997 1996 1995
---------- ---------- ---------- ----------
(52 weeks) (31 weeks) (52 weeks) (52 weeks)
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding during the year 33 33 33 33
Effect of dilutive stock options,
net of shares assumed
repurchased at average market
price -- -- -- --
--------- --------- ---------- ------
Weighted average common share and
common share equivalents 33 33 33 33
======== ======== ======== ========
Net Income $ 3,704 $ 10,455 $ 18,703 $ 19,526
======== ======== ======== ========
Earnings per share:
Net income $ 111.12 $ 313.65 $ 561.09 $ 585.78
======== ======== ======== ========
</TABLE>
67
1
Exhibit 21
SUBSIDIARIES OF SHOPPERS FOOD WAREHOUSE CORPORATION
<TABLE>
<CAPTION>
State of Incorporation
----------------------
<S> <C> <C>
Shoppers Food Warehouse DC Corporation (100%) Delaware
Jumbo Produce, Inc. (100%) Delaware
Total Beverage, Inc. (100%) Delaware
Shoppers Food Warehouse Licensing Corporation (100%) Delaware
Shoppers Food Warehouse Investment Corporation (100%) Delaware
Shoppers Food Warehouse Storage & Refrigeration (100%) Delaware
RBC Corporation (100%) Delaware
</TABLE>
68
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 4,027
<SECURITIES> 522
<RECEIVABLES> 7,950
<ALLOWANCES> 0
<INVENTORY> 30,795
<CURRENT-ASSETS> 51,460
<PP&E> 75,860
<DEPRECIATION> 36,973
<TOTAL-ASSETS> 289,932
<CURRENT-LIABILITIES> 60,491
<BONDS> 211,315
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 167
<OTHER-SE> 5,785
<TOTAL-LIABILITY-AND-EQUITY> 289,932
<SALES> 855,769
<TOTAL-REVENUES> 859,356
<CGS> 656,572
<TOTAL-COSTS> 656,572
<OTHER-EXPENSES> 171,803
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,079
<INCOME-PRETAX> 9,902
<INCOME-TAX> 4,801
<INCOME-CONTINUING> 5,101
<DISCONTINUED> 0
<EXTRAORDINARY> (3,126)
<CHANGES> 1,729
<NET-INCOME> 3,704
<EPS-PRIMARY> 111.12
<EPS-DILUTED> 111.12
</TABLE>