SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934 (Fee Required).
For the fiscal year ended: July 26, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934 (Fee Required) for
the transition period from to .
COMMISSION FILE NUMBER: 0-2633
VILLAGE SUPER MARKET, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1576170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
733 MOUNTAIN AVENUE, SPRINGFIELD, NEW JERSEY 07081
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(973)467-2200
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, NO PAR VALUE
(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 ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of the Class A common stock of Village Super
Market, Inc. held by non-affiliates was approximately $9,242,109 and the
aggregate market value of the Class B common stock held by non-affiliates
was approximately $1,394,163 (based upon the closing price of the Class A
shares on the Over the Counter Market on October 5, 1997). There are no
other classes of voting stock outstanding.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class October 22, 1997
<S> <C>
Class A common stock, no par value 1,315,800 Shares
Class B common stock, no par value 1,594,076 Shares
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the 1997 Annual Report to Shareholders and the
1997 definitive Proxy Statement to be filed with the Commission and
delivered to security holders in connection with the Annual Meeting
scheduled to be held on December 5, 1997 are incorporated by reference
into this Form 10-K at Part II, Items 5, 6, 7 and 8 and Part III.
PART I
ITEM I. BUSINESS
GENERAL
The Company operates a chain of 21 ShopRite supermarkets, 15 of which are
located in northern New Jersey, 1 of which is in northeastern Pennsylvania
and 5 of which are in the southern shore area of New Jersey. In addition,
the Company operates one former ShopRite store under a "Village Market"
format as described below. The Company is a member of Wakefern Food
Corporation ("Wakefern"), the nation's largest retailer owned food
cooperative and owner of the ShopRite name. This relationship provides
the Company many of the economies of scale in purchasing, distribution and
advertising associated with chains of greater size and geographic reach.
The Company believes that the regional nature of its business and the
continuity of its management under the leadership of its founding family have
permitted the Company to operate with greater flexibility and responsiveness
to the demographic characteristics of the communities served by its stores.
The Company seeks to generate high sales volume by offering a wide variety
of high quality products at consistently low prices. The Company attempts
to efficiently utilize its selling space, gives continuing attention to the
decor and format of its stores and tailors each store's product mix to the
preferences of the local community. The Company concentrates on development
of superstores, which, in addition to their large size (an average of 50,000
total square feet, including office and storage space, compared with an
average of 30,000 total square feet for conventional supermarkets), feature
such higher margin specialty service departments as an on-site bakery, an
expanded delicatessen including prepared foods, a fresh seafood section and,
in most cases, a prescription pharmacy. Superstores also offer an expanded
selection of higher margin non-food items such as cut flowers, health and
beauty aids, greeting cards, videocassette rentals and small appliances.
Two superstores also include a warehouse section featuring products in giant
sizes. The following table shows the percentage of the Company's sales
allocable to various product categories during each of the periods indicated
as well as the number of the Company's superstores and percentage of selling
square feet allocable to these stores during each of these periods:
<TABLE>
<CAPTION>
Product Categories Fiscal Year Ended In July
1995 1996 1997
<S> <C> <C> <C>
Groceries 44.1% 43.8% 42.9%
Dairy and Frozen 15.6 15.6 15.8
Meats 10.6 10.3 10.1
Non-Foods 9.5 9.8 10.1
Produce 9.6 9.8 9.8
Delicatessen 4.1 4.3 4.4
Seafood 1.9 1.9 2.0
Pharmacy 2.9 2.9 3.2
Bakery 1.6 1.5 1.6
Other .1 .1 .1
100.0% 100.0% 100.0%
Number of superstores 19 19 19
Selling square feet
represented by
superstores 88% 88% 90%
</TABLE>
Because of increased size and broader product mix, a superstore can satisfy
a greater percentage of a customer's weekly shopping needs and, as a result,
the typical superstore generally has a higher volume of sales per square
foot and sales per customer than a conventional supermarket. In addition,
because of their greater total sales volume and increased percentage of
their sales allocable to higher margin items, superstores generally operate
more profitably than conventional supermarkets.
A variety of factors affect the profitability of each of the Company's
stores including local competitors, size, access and parking, lease terms,
management supervision, and the strength of the ShopRite trademark in the
local community. The Company continually evaluates individual stores to
decide whether they should be closed. Accordingly, the Orange, Maplewood,
Kingston, Morristown, Easton and Florham Park stores have been closed since
December 1991. In addition, one store was converted to a"Village Market"
format designed to reduce costs and increase margins in lower volume
locations.
The Company operates a separate liquor store adjacent to one Company
supermarket.
DEVELOPMENT AND EXPANSION
The Company is engaged in a continuing program to upgrade and expand its
supermarket chain. This program has included major store remodelings as
well as the opening or acquisition of additional stores. When remodeling,
the Company has sought, whenever possible, to increase the amount of
selling space in its stores and, where feasible within existing site
limitations, to convert conventional supermarkets to superstores. The
Company completed one major and one smaller expansion and remodel in fiscal
1997. The Company has budgeted $14,000,000 for capital expenditures in
fiscal 1998. The major planned expenditures are the expansion and remodel
of the Livingston store and the acquisition of property for a future store.
In the last five years, the Company has completed five remodels. The
Company's goal has been to open an average of one new superstore and
conduct a major remodel of one store each year. However, because of
delays associated with increased governmental regulations and the general
difficulty in developing retail properties in the Company's primary trading
area the Company has been unable to open the desired number of new stores.
Additional store remodelings and sites for new stores are in various stages
of development. The Company will also consider additional acquisitions
should appropriate opportunities arise.
WAKEFERN
The Company is the second largest member of Wakefern (owning 16.0% of
Wakefern's outstanding stock) and one of the Company's principal
shareholders was a founder of Wakefern. Wakefern, which was organized in
1946, is the nation's largest retailer-owned food cooperative. There are
presently 39 individual member companies and 192 supermarkets which
comprise the Wakefern cooperative. Only Wakefern and member companies are
entitled to use the ShopRite name and trademark, purchase their product
requirements and participate in ShopRite advertising and promotional
programs and its computerized purchasing, warehousing and distribution
services.
The principal benefits to the Company from its relationship with Wakefern
are the use of the ShopRite name and trademark, volume purchasing, ShopRite
private label products, distribution and warehousing on a cooperative basis,
and ShopRite advertising and promotional programs. The Company believes
that the ShopRite name is widely recognized by its customers and is a factor
in those customers' decisions about where to shop. In addition, Wakefern can
purchase large quantities and varieties of products at favorable prices which
it can then pass onto its members. These benefits are important to the
Company's success.
Wakefern distributes as a "patronage dividend" to each of its stockholders a
share of earnings of Wakefern in proportion to the dollar volume of business
done by the stockholder with Wakefern during each fiscal year.
While Wakefern has a substantial professional staff, it operates as a member
cooperative. Executives of most members make contributions of time to the
business of Wakefern. Senior executives of the Company spend a significant
amount of their time working on various Wakefern committees which oversee
and direct Wakefern purchases and other programs.
Most of the Company's advertising is developed and placed by Wakefern's
professional advertising staff. Wakefern is responsible for all television,
radio and major newspaper advertisements. Wakefern bills its members by
various formulas which distribute advertising costs in accordance with the
estimated proportional benefits to each member from such advertising. The
Company also places Wakefern developed materials with local newspapers.
Wakefern operates warehouses and distribution facilities in Elizabeth, New
Jersey; Dayton, New Jersey; Wallkill, New York; and South Brunswick, New
Jersey. Each member is obligated to purchase from Wakefern a minimum of 85%
of its requirements for products offered by Wakefern until ten years from
the date that stockholders representing 75% of Wakefern sales notify
Wakefern that those stockholders request the Wakefern Stockholder Agreement
be terminated. If this purchase obligation is not met, the member is
required to pay Wakefern's profit contribution shortfall attributable to
this failure. This agreement also makes unapproved changes in control of
the Company and sale of the Company or of individual Company stores, except
to a qualified successor, financially prohibitive by requiring the Company
in such cases to pay Wakefern the profit contribution shortfall attributable
to the sale of store or change in control. Such payments were waived by
Wakefern in connection with the sale of the Orange, Maplewood, Kingston and
Morristown stores. A "qualified successor" must be or agree to become a
member of Wakefern and may not own or operate any supermarkets other than
ShopRite supermarkets, in the states of New York, New Jersey, Pennsylvania,
Delaware, Maryland, Virginia, Connecticut, Massachusetts, Rhode Island,
Vermont, New Hampshire, Maine or the District of Columbia or own or operate
more than 25 non-ShopRite supermarkets in any other locations in the United
States.
Wakefern, under circumstances specified in its bylaws, may refuse to sell
merchandise to, and may repurchase the Wakefern stock of, any member. Such
circumstances include certain unapproved transfers by a member of its
supermarket business or its capital stock in Wakefern, unapproved acquisition
by a member of certain supermarket or grocery wholesale supply businesses,
the material breach by a member of any provision of the bylaws of Wakefern or
any agreement with Wakefern or a determination by Wakefern that the continued
supplying of merchandise or services to such member would adversely affect
Wakefern.
Any material change in Wakefern's method of operation or a termination or
material modification of the Company's relationship with Wakefern following
expiration of the above agreements or otherwise (none of which are
contemplated or considered likely) might have an adverse impact on the
conduct of the Company's business and could involve additional expense for
the Company. The failure of any Wakefern member to fulfill its obligations
under these agreements or a member's insolvency or withdrawal from Wakefern
could result in increased costs to remaining members.
Wakefern owns and operates 19 supermarkets. The Company believes that
Wakefern may consider purchasing additional stores in the future from non-
members and from existing members who may desire to sell their stores for
financial, estate planning or other reasons. The Company also understands
that Wakefern may consider opening and operating new ShopRite supermarkets
as well.
Wakefern does not prescribe geographical franchise areas to its members.
The specific locations at which the Company, other members of Wakefern or
Wakefern itself may open new units under the ShopRite names are, however,
subject to the approval of Wakefern's Site Development Committee. This
committee is composed of persons who are not employees or members of
Wakefern and from whose decision to deny a site application may be
appealed to the Wakefern Board of Directors. Wakefern assists its members
in their site selection by providing appropriate demographic data, volume
projections and projections of the impact of the proposed market on
existing member supermarkets in the area.
Each member's Wakefern stock (including the Company's) is pledged to
Wakefern to secure all of that member's obligations to Wakefern. Moreover,
every owner of 5% or more of the voting stock of a member (including five
members of the Sumas family) must personally guarantee prompt payment of
all amounts due Wakefern from that member. Wakefern does not own any
securities of the Company or its subsidiaries.
Each of Wakefern's members is required to make capital contributions to
Wakefern based on the number of stores operated by that member (and to a
limited extent the sales volume generated by those stores). As additional
stores are opened or acquired by a member (including the Company),
additional capital must be contributed by it to Wakefern. On occasion, as
its business needs have required, Wakefern has increased the per-store
capital contributions required of its members. Wakefern has in the past
permitted these increases in required capital to be paid in installments
over a period of time. The Company is required to invest approximately
$119,000 over approximately the next year.
TECHNOLOGY
The Company considers automation and computerization important to its
operations and competitive position. All stores have scanning check out
systems that improve pricing accuracy, enhance productivity and reduce
checkout time for customers. Over the last several years, the Company
installed IBM RS/6000 computers and satellite communications in each store.
Using the RS/6000 system, the Company offers customers debit and credit card
payment options in all stores. In addition, the Company is utilizing a
computer generated ordering system, which is designed to reduce inventory
levels and out of stock conditions, enhance shelf space utilization, and
reduce labor costs.
The Company's commitment to advanced scanning systems has enabled it to
participate in Price Plus, ShopRite's preferred customer program.
Customers receive electronic discounts by presenting a scannable Price
Plus card. In addition, the Company began using Clip Less coupons in 1994.
Customers need only present their Price Plus card to receive the value of
our in-ad coupons.
The Company utilizes a direct store delivery system, consisting of personal
computers and hand held scanners, for most items not purchased through
Wakefern in order to provide equivalent cost and retail price control over
these products. In addition, certain in-store department records are
computerized, including the records of all pharmacy departments. In
certain stores, meat, seafood and delicatessen prices are maintained on
computer for automatic weighing and pricing. Furthermore, all stores have
computerized time and attendance systems and most also have computerized
energy management systems. The Company seeks to design its stores to use
energy efficiently, including recycling waste heat generated by
refrigeration equipment for heating and other purposes.
COMPETITION
The supermarket business is highly competitive. Industry profit margins
are narrow, consequently earnings are dependent on high sales volume and
operating efficiency. The Company is in direct competition with national,
regional and local chains as well as independent supermarkets, warehouse
clubs, supercenters, drug stores, discount department stores and
convenience stores. The principal methods of competition utilized by the
Company are low pricing, courteous, quick service to the customer, quality
products and consistent availability of a wide variety of merchandise
including the ShopRite private label. The Company believes its regional
focus and the continuity of its management by the Sumas family permit it to
operate with greater flexibility in tailoring the products offered in each
store to the demographics of the communities they serve as compared to
national and larger regional chains. The Company's principal competitors
are Pathmark, A&P, Foodtown, Edwards, King's, Grand Union and Acme. Many
of the Company's competitors have financial resources substantially greater
than those of the Company.
LABOR
As of October 7, 1997, the Company employed approximately 3,580 persons of
whom approximately 2,260 worked part-time. Approximately 85% of the
Company's employees are covered by collective bargaining agreements. The
Company was affected by a labor dispute with its largest union in fiscal
1993. Contracts with three unions representing approximately 1,000
employees expire in 1998. Most of the Company's competitors in New Jersey
are similarly unionized.
REGULATORY ENVIRONMENT
While the Company must secure a variety of health and food distribution
permits for the conduct of its business, it does not believe that such
regulation is material to its operations. The Company's pharmacy
departments are subject to state regulation and licensed pharmacists must
be on duty at all times. The Company's liquor operation is also subject to
regulation by state and municipal administrative authorities. The Company
does not presently anticipate expanding its liquor operations. Compliance
with statutes regulating the discharge of materials into the environment
is not expected to have a material effect on capital expenditures, earnings
and competitive position in fiscal 1998 and 1999.
ITEM 2. PROPERTIES
The Company owns the sites of five of its supermarkets (containing 330,000
square feet of total space), all of which are free-standing stores, except
the Egg Harbor store, which is part of a shopping center. The Company also
owns the site of the former Easton store which is expected to be leased in the
near future. The remaining seventeen supermarkets (containing 776,000 square
feet of total space) are leased, with initial lease terms generally ranging
from 20 to 30 years, usually with renewal options. Ten of these leased stores
are located in strip shopping centers and the remaining seven are free-standing
stores. Except with respect to one lease between the Company and certain
related parties, none of the Company's leases expire before 2001. The
annual rent, including capitalized leases, for all of the Company's leased
facilities for the year ended July 26, 1997 was approximately $6,063,000.
The Company is a limited partner in two partnerships, one of which owns a
shopping center in which one of the Company's leased supermarkets is
located. The Company also is a general partner in a general partnership
that is a lessor of one of the Company's free-standing supermarkets.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters submitted to shareholders in the fourth quarter.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
In addition to the information regarding directors incorporated by
reference to the Company's definitive Proxy Statement in Part III,
Item 10, the following is provided with respect to executive officers who
are not directors:
NAME AGE POSITION WITH THE COMPANY
Carol Lawton 54 Vice President and Assistant
Secretary since 1983;
responsible for administration
of headquarters staff.
Frank Sauro 39 General Counsel since April 1988.
Mr. Sauro is a member of the New
Jersey Bar.
Kevin Begley 39 Chief Financial Officer since
December 1988. Mr. Begley is a
Certified Public Accountant.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The information required by this Item is incorporated by reference from
Information appearing on Page 16 in the Company's Annual Report to
Shareholders for the fiscal year ended July 26, 1997.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference from
Information appearing on Page 3 in the Company's Annual Report to
Shareholders for the fiscal year ended July 26, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference from
Information appearing on Page 4 and 5 in the Company's Annual Report to
Shareholders for the fiscal year ended July 26, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference from
Information appearing on Page 3 and Page 6 to 16 in the Company's Annual
Report to Shareholders for the fiscal year ended July 26, 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated by reference from
the Company's definitive Proxy Statement to be filed on or before
November 5, 1997, in connection with its Annual Meeting scheduled to be
held on December 5, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by
reference from the Company's definitive Proxy Statement to be filed on
or before November 5, 1997, in connection with its Annual Meeting scheduled
to be held on December 5, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this Item 12 is incorporated by reference from
the Company's definitive Proxy Statement to be filed on or before
November 5, 1997, in connection with its annual meeting scheduled to be
held on December 5, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference from
the Company's definitive Proxy Statement to be filed on or before
November 5, 1997, in connection with its annual meeting scheduled to be
held on December 5, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. Financial Statements:
Consolidated Balance Sheets - July 26, 1997 and July 27, 1996;
Consolidated Statements of Operations - years ended
July 26, 1997; July 27, 1996 and July 29, 1995;
Consolidated Statements of Shareholders' Equity - years ended
July 26, 1997; July 27, 1996 and July 29, 1995;
Consolidated Statements of Cash Flows - years ended
July 26, 1997; July 27, 1996 and July 29, 1995;
Notes to consolidated financial statements.
The financial statements above and Independent Auditors' Report
have been incorporated by reference from the Company's Annual
Report to Shareholders for the fiscal year ended July 26,
1997.
2. Financial Statement Schedules:
All schedules are omitted because they are not applicable, or
not required, or because the required information is included
in the consolidated financial statements or notes thereto.
3. Exhibits
EXHIBIT INDEX
Exhibit No. 3 - Certificate of Incorporation and By-Laws*
Exhibit No. 4 - Instruments defining the rights of security holders;
4.1 Note Purchase Agreement dated August 20, 1987*
4.2 Loan Agreement dated March 29, 1994*
4.3 Amendment No. 1 to Loan Agreement*
4.4 Loan Agreement dated May 30, 1997
Exhibit No. 10 - Material Contracts:
10.1 Wakefern By-Laws*
10.2 Stockholders Agreement dated February 20, 1992
between the Company and Wakefern Food Corp.*
10.3 Voting Agreement dated March 4, 1987*
10.4 1987 Incentive and Non-Statutory Stock Option Plan*
Exhibit No. 13 - Annual Report to Security Holders
Exhibit No. 21 - Subsidiaries of Registrant
Exhibit No. 23 - Consent of KPMG Peat Marwick LLP
Exhibit No. 99 - Press Release dated October 2, 1997
* The following exhibits are incorporated by reference from the following
previous filings:
Form 10-K for 1994; 4.3
Form 10-K for 1993: 3, 4.1, 10.1, 10.2, 10.3 and 10.4
Form 10-Q for April 23, 1994; 4.2
(b) No reports on Form 8-K were filed during the fourth quarter
of fiscal 1997.
Independent Auditors' Consent
The Board of Directors
Village Super Market, Inc.:
We consent to incorporation by reference in the Registration Statement
(No. 2-86320) on Form S-8 of Village Super Market, Inc. of our report dated
September 30, 1997, relating to the consolidated balance sheets of Village
Super Market, Inc. and subsidiary as of July 26, 1997 and July 27, 1996, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three year period ended July 26,
1997, which report is incorporated by reference in the July 26, 1997 annual
report on Form 10-K of Village Super Market, Inc.
KPMG Peat Marwick LLP
Short Hills, New Jersey
October 23, 1997
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.
Village Super Market, Inc.
By: /s/ Kevin Begley By: /s/ Perry Sumas
Kevin Begley Perry Sumas
Chief Financial & Chief Executive Officer
Principal Accounting Officer
Date: October 23, 1997
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 dates indicated:
Village Super Market, Inc.
/s/ Perry Sumas /s/ James Sumas
Perry Sumas, Director James Sumas, Director
October 23, 1997 October 23, 1997
/s/ Robert Sumas /s/ William Sumas
Robert Sumas, Director William Sumas, Director
October 23, 1997 October 23, 1997
/s/ John P. Sumas /s/ John J. McDermott
John P. Sumas, Director John J. McDermott, Director
October 23, 1997 October 23, 1997
/s/ George Andresakes /s/ Norman Crystal
George Andresakes, Director Norman Crystal, Director
October 23, 1997 October 23, 1997
The Company
Village Super Market, Inc. operates a chain of 22 ShopRite supermarkets, 16 of
which are located in northern New Jersey, 1 in northeastern Pennsylvania and 5
in the southern shore area of New Jersey.
Village is a member of Wakefern Food Corporation, the largest retailer-owned
food cooperative in the United States.
Village's business was founded in 1937 by Nicholas and Perry Sumas and has
continued to be principally owned and operated under the active management of
the Sumas family.
Contents
Letter to Shareholder............................................2
Selected Financial Data..........................................3
Quarterly Financial Data.........................................3
Management's Discussion and Analysis of
Financial Condition and Results of Operations....................4
Consolidated Balance Sheets......................................6
Consolidated Statements of Operations............................7
Consolidated Statements of Shareholders' Equity..................8
Consolidated Statements of Cash Flows............................9
Notes to Consolidated Financial Statements......................10
Independent Auditors' Report....................................16
Stock Price and Dividend Information............................16
Corporate Directory..............................Inside back cover
On the Front and Back Cover:
Some samplings from remodeled departments in our recently enlarged Chester
store. "Bistro Street" is the new brand for our home meal replacement offerings
- - - freshly prepared under the supervision of our in-store chef.
Dear Fellow Shareholders
Our company continued to improve its financial performance in fiscal
1997. Net income was $2,074,000, or $.71 per share - a 46% increase from the
prior year - exclusive of a gain on the sale of an asset in the prior year.
The substantial increase in net income in 1997 was primarily due to a 1%
increase in same store sales, improved gross margins, lower depreciation and
stable operating expenses. These results were achieved despite additional store
openings by competitors and a highly promotional pricing environment.
During fiscal 1997, we spent $8.6 million to improve our stores. Our most
important effort was the expansion and remodel of the Chester store. Chester is
now our flagship store with greatly expanded, carpeted perishable departments,
some of which are featured on the cover of this annual report. This is our most
recent response to the changing needs of our customers. The Chester store
features our largest selection of items in the fast growing home meal
replacement category - prepared under the supervision of our in-store chef.
Other new offerings in Chester include a gourmet coffee bar, a sushi bar, brick
oven pizza and store-made bagels.
In 1998, we plan to bring the exciting enhancements we made in Chester to
our Livingston customers as we expand that store. A new loan agreement signed
in May 1997 provides the financing for this project and other capital
requirements over the next three years.
Technology continues to play a key role in operating our supermarkets.
Beginning this year, we will implement computer-based training in our stores.
This should ensure consistent, high quality cashier training and thereby
improve customer service. During the last year, we leveraged our investment in
front-end technology and the ShopRite Price Plus card to increase our use of
target marketing to specific customer segments.
Substantial improvements to our business were achieved in 1997. We thank
our employees for their contributions and efforts toward these improvements. We
also thank our fellow shareholders for their continued support.
James Sumas, Perry Sumas,
Chairman of the Board President
<TABLE>
<CAPTION>
Selected Financial Data
(Dollars in thousands except per share and per sq. ft. data)
July 26, July 27, July 29, July 30, July 31,
1997 1996 1995 1994 1993
For year
<S> <C> <C> <C> <C> <C>
Sales $688,861 $688,632 $677,322 $695,070 $713,856
Net income (loss) 2,074 2,006 578 (807) 1,437
Net income (loss)
per share .71 .69 .20 (.28) .49
Cash dividends per share
Class A - - - - -
Class B - - - - -
At year end
Total assets 132,764 131,062 135,575 134,793 141,387
Long-term obligations
including capital
leases 24,027 26,815 34,853 36,933 39,470
Working capital
(deficit) (12,607) (10,885) (3,755) (4,100) (2,303)
Shareholders' equity 57,081 55,007 53,001 52,423 53,230
Book value per share 19.62 18.90 18.21 18.01 18.29
Other data
Selling square feet 866,000 860,000 842,000 845,000 874,000
Number of stores 22 23 23 24 25
Sales per average
number of stores 31,178 29,941 29,449 28,370 27,456
Sales per average
square foot of
selling space 803 809 803 809 791
Capital expenditures 8,593 9,754 6,588 5,974 1,977
</TABLE>
<TABLE>
<CAPTION>
Unaudited Quarterly Financial Data
(Dollars in thousands except per share amounts)
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
1997
Sales $169,200 $177,598 $165,494 $176,569 $688,861
Gross margin 41,859 43,920 41,108 43,968 170,855
Net income 284 660 163 967 2,074
Net income per share $.10 $.23 $.06 $.32 $.71
1996
Sales $166,522 $178,002 $169,279 $174,829 $688,632
Gross margin 41,035 43,691 42,047 43,608 170,381
Net income 139 1,194 56 617 2,006
Net income per share $.05 $.41 $.02 $.21 $.69
</TABLE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
The following table sets forth the major components of the Consolidated
Statements of Operations of the Company as a percentage of sales:
<TABLE>
<CAPTION>
July 26, July 27, July 29,
1997 1996 1995
<S> <C> <C> <C>
Sales 100.00% 100.00% 100.00%
Cost of sales 75.20 75.26 75.51
Gross margin 24.80 24.74 24.49
Operating and administrative
expense 22.70 22.63 22.44
Depreciation and amortization 1.12 1.24 1.28
Operating income .98 .87 .77
Interest expense (net) .48 .53 .60
Gain (loss) on disposal of assets - .14 (.04)
Income before income taxes .50% .48% .13%
</TABLE>
Sales were $688,861,000 in fiscal 1997, about the same as the prior year.
Same store sales increased 1% in 1997 as improved sales in remodeled stores
were offset by sales declines in three stores affected by competitive openings.
Also, the closing of the Florham Park store in October 1996 resulted in a
$5,910,000 sales decrease. Sales increased $11,310,000 in fiscal 1996. As 23
stores were open in both years, this resulted in a same store sales increase of
1.7%. Same store sales improved in the two stores remodeled in fiscal 1995 and
in most stores not affected by a competitive opening. These improvements were
offset by reduced sales in stores that were impacted by the six competitors
that opened in our trading area over the last two years.
Gross margin as a percentage of sales increased slightly in fiscal 1997
due to an improvement in the mix of sales toward higher margin departments.
This was partially offset by a decline in meat department gross margins due to
lower retail prices. Gross margin as a percentage of sales increased in fiscal
1996 due to aggressive buying practices and an improved mix of sales in higher
margin departments.
Operating and administrative expenses increased slightly as a percentage
of sales in fiscal 1997. This was due to increased credit card processing
costs, increased advertising and coupon costs, accruals for estimated liability
insurance premium calls and lower coupon and cardboard income. Offsetting these
items are lower labor, supply and snow removal costs. Operating and
administrative expenses in fiscal 1996 increased by .2 as a percentage of
sales. This increase was due to higher rent, snow removal and credit card
processing costs. These increases were partially offset by a decline in payroll
costs.
Interest expense decreased in 1997 due to lower average debt levels
outstanding. Interest expense decreased in 1996 due to lower variable interest
rates and lower average debt levels outstanding.
Depreciation expense declined in fiscal 1997 due to substantial assets
purchased 10 years ago becoming fully depreciated.
In October 1996 the Company closed an underfacilitated store in Florham
Park, New Jersey. A loss of approximately $350,000 was incurred from operations
and closing costs associated with this store. During fiscal 1996, the company
sold the property of a store previously closed in Maplewood, New Jersey for
$1,238,000, net of certain costs. A gain before taxes in the amount of $952,000
was realized on this sale.
LIQUIDITY AND CAPITAL RESOURCES
Current liabilities exceeded current assets by $12,607,000, $10,885,000
and $3,755,000 at the end of fiscal 1997, 1996 and 1995, respectively. Working
capital ratios at the same dates were .74, .76 and .91 to one, respectively.
The slight decline in working capital at July 26, 1997 is primarily due to the
Company's recent use of self-insurance for workers' compensation, which results
in accrued liabilities which previously were funded by borrowings under the
Company's credit line, which was classified as long-term. The decline in
working capital at July 27, 1996 was primarily the result of the Company
discontinuing its previous policy of borrowing funds at the end of each quarter
to maintain the current ratio required in a debt agreement. That agreement was
amended to delete the current ratio maintenance requirement. The Company's
working capital needs are reduced by its high rate of inventory turnover
(twenty-one times in fiscal 1997) and because the warehousing and distribution
arrangements accorded to the Company as a member of Wakefern permit it to
minimize inventory levels and sell most merchandise before payment is required.
Capital expenditures in fiscal 1997 were $8,593,000. The majority of
capital expenditures related to the expansion and remodel of the Chester,
Stroudsburg and Absecon stores. The Company has budgeted approximately
$14,000,000 for capital expenditures in fiscal 1998. Planned expenditures
include a major expansion and remodel of the Livingston store, the purchase of
land for a future store and several smaller remodels.
The Company has historically financed capital expenditures through cash
provided by operations supplemented by borrowings. Aggregate capital
expenditures for the three years ended July 26, 1997 were $24,935,000. During
the same period of time, net long-term borrowings decreased by $14,299,000. The
ability to finance expansion through operational cash flow is reflected in the
ratio of long-term debt to total capitalization, which is currently 29.6%
compared with 41.3% three years ago.
The Company's primary sources of liquidity during fiscal 1998 are
expected to be operating cash flow, borrowings under the Company's credit
facility and a mortgage from the seller of a property for a future store. On
May 30, 1997, the Company entered into a new loan agreement to replace its
expired agreement. The new loan agreement consists of three facilities: (1) a
term loan with an outstanding balance of $8,000,000 at July 26, 1997; (2) a
three-year, $13,000,000 revolving credit line ($3,000,000 outstanding at July
26, 1997) which can be used for any purpose except new store construction; and
(3) a three-year, $11,000,000 convertible revolving loan to fund equipment
purchases and store remodels. The Company was in full compliance with all terms
and restrictive covenants of all debt agreements at July 26, 1997 and expects
to be in compliance for the remaining term of these agreements.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per
Share." SFAS 128 requires companies with complex capital structures to present
both basic and diluted earnings per share ("EPS") on the face of the income
statement. The presentation of basic EPS replaces the presentation of primary
EPS currently required. Basic EPS is calculated as income available to common
stockholders divided by the weighted average number of common shares
outstanding during the period. Diluted EPS (previously referred to as fully
diluted EPS) is calculated using the treasury stock method for options and
warrants as previously prescribed. This statement is effective for financial
statements issued for interim and annual reports ended after December 15, 1997.
If SFAS 128 had been applied in fiscal 1997, there would have been no impact on
the Company's reported EPS.
IMPACT OF INFLATION AND CHANGING PRICES
Although the Company cannot accurately determine the precise effect of
inflation on its operations, it does not believe inflation has had a material
effect on sales or results of operations.
<TABLE>
<CAPTION>
Consolidated Balance Sheets
July 26, July 27,
1997 1996
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,269,819 $ 3,244,139
Merchandise inventories 24,835,950 25,118,238
Patronage dividend receivable 2,048,696 2,483,382
Miscellaneous receivables 3,268,673 2,946,577
Deferred income taxes 211,220 -
Prepaid expenses 638,825 615,943
Total current assets 35,273,183 34,408,279
PROPERTY, EQUIPMENT AND FIXTURES, at cost
less accumulated depreciation and amortization 72,294,201 71,355,893
OTHER ASSETS
Investment in related party, at cost 10,350,617 10,174,339
Goodwill, net 10,338,891 10,605,171
Other intangibles, net 2,283,751 2,537,501
Receivables and other assets 2,223,602 1,981,307
Total other assets 25,196,861 25,298,318
$132,764,245 $131,062,490
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt:
Mortgages and notes payable $ 2,903,474 $ 4,670,067
Capitalized lease obligations 356,851 367,563
Accounts payable to related party 27,140,707 24,616,188
Accounts payable and accrued expenses 17,017,474 14,603,081
Deferred income taxes - 442,529
Income taxes payable 461,821 593,836
Total current liabilities 47,880,327 45,293,264
LONG-TERM DEBT, less current portion:
Mortgages and notes payable 14,949,612 16,938,894
Capitalized lease obligations 9,077,703 9,875,994
Total long-term debt 24,027,315 26,814,888
DEFERRED INCOME TAXES 3,775,890 3,947,559
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, no par value:
Authorized 10,000,000 shares, none issued - -
Class A common stock, no par value:
Authorized 10,000,000 shares,
issued 1,762,800 shares 18,129,472 18,129,472
Class B common stock, no par value:
Authorized 10,000,000 shares,
issued and outstanding
1,594,076 shares 1,034,679 1,034,679
Retained earnings 44,101,565 42,027,631
Less treasury stock, Class A,
at cost (447,000 shares) (6,185,003) (6,185,003)
Total shareholders' equity 57,080,713 55,006,779
$132,764,245 $131,062,490
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
July 26, July 27, July 29,
1997 1996 1995
<S> <C> <C> <C>
SALES $688,860,873 $688,632,405 $677,321,821
COST OF SALES 518,006,209 518,251,470 511,451,057
GROSS MARGIN 170,854,664 170,380,935 165,870,764
Operating and administrative
expense 156,391,747 155,846,171 152,008,710
Depreciation and amortization
expense 7,695,087 8,554,703 8,618,374
Operating Income 6,767,830 5,980,061 5,243,680
Interest expense, net of
interest income of
$7,321, $88,574 and $58,488 3,322,510 3,615,667 4,030,535
Gain (loss) on disposal of assets - 942,125 (300,438)
INCOME BEFORE INCOME TAXES 3,445,320 3,306,519 912,707
PROVISION FOR INCOME TAXES 1,371,386 1,300,814 335,000
NET INCOME $ 2,073,934 $ 2,005,705 $ 577,707
NET INCOME PER SHARE $.71 $.69 $.20
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
Years Ended July 26, 1997,
July 27, 1996 and July 29, 1995
Class A Class B
Common Stock Common Stock
Retained Treasury
Shares Amount Shares Amount Earnings Stock
<S> <C> <C> <C> <C> <C> <C>
Balance,
July 30,
1994 1,762,800 $18,129,472 1,594,076 $1,034,679 $39,444,219 $(6,185,003)
Net Income - - - - 577,707 -
Balance,
July 29,
1995 1,762,800 $18,129,472 1,594,076 $1,034,679 $40,021,926 $(6,185,003)
Net Income - - - - 2,005,705 -
Balance,
July 27,
1996 1,762,800 $18,129,472 1,594,076 $1,034,679 $42,027,631 $(6,185,003)
Net Income - - - - 2,073,934 -
Balance,
July 26,
1997 1,762,800 $18,129,472 1,594,076 $1,034,679 $44,101,565 $(6,185,003)
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years Ended
July 26, 1997 July 27, 1996 July 29, 1995
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $2,073,934 $2,005,705 $ 577,707
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 7,695,087 8,554,703 8,618,374
Deferred taxes (976,417) (135,744) (71,000)
Provision to value
inventories at LIFO 292,563 473,537 344,878
(Gain) loss on disposal
of assets - (942,125) 300,438
Changes in assets and liabilities:
(Increase) decrease
in merchandise inventories (10,275) (1,412,741) 749,238
Decrease in patronage dividend
receivable 434,686 199,498 99,590
(Increase) in miscellaneous
receivables (322,096) (269,058) (775,149)
(Increase) decrease in
prepaid expenses (22,882) 13,696 (49,515)
Decrease in income taxes
receivable - 459,873 411,440
(Increase) in receivables
and other assets (258,045) (105,577) (269,478)
Increase (decrease) in
accounts payable to
related party 2,524,519 (967,633) 1,636,438
Increase in accounts payable
and accrued expenses 2,414,393 2,000,177 272,723
Increase in income taxes
payable 18,983 665,837 -
Net cash provided by
operating activities 13,864,450 10,540,148 11,845,684
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (8,592,875) (9,754,268) (6,588,356)
Investment in related party (176,278) (354,521) (403,944)
Proceeds (expenditures) from
disposal of assets - 1,237,905 (295,687)
Net cash used in investing
activities (8,769,153) (8,870,884) (7,287,987)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of
long-term debt 13,555,555 - 3,000,000
Principal payments of
long-term debt (17,625,172) (8,080,409) (5,148,577)
Net cash used in
financing activities (4,069,617) (8,080,409) (2,148,577)
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1,025,680 (6,411,145) 2,409,120
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 3,244,139 9,655,284 7,246,164
CASH AND CASH EQUIVALENTS,
END OF YEAR $4,269,819 $3,244,139 $9,655,284
See notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Village Super Market, Inc. (the "Company") operates a chain of 22
ShopRite supermarkets in New Jersey and eastern Pennsylvania. The Company is a
member of Wakefern Food Corporation ("Wakefern"), the largest retailer-owned
food cooperative in the United States.
Principles of consolidation
The consolidated financial statements include the accounts of Village
Super Market, Inc. and its subsidiary, which is wholly owned. Intercompany
balances and transactions have been eliminated.
Fiscal year
The Company and its subsidiary utilize a 52-53 week fiscal year ending on
the last Saturday in the month of July. Fiscal 1997, 1996 and 1995 contain 52
weeks.
Industry segment
The Company consists of one operating segment, the retail sale of food
and non-food products.
Reclassifications
Certain amounts have been reclassified in the 1996 and 1995 consolidated
financial statements to conform to the 1997 presentation.
Cash and cash equivalents
Cash and cash equivalents includes interest-bearing, overnight deposits
with Wakefern in the amount of $900,000 at July 26, 1997.
Merchandise inventories
Merchandise inventories are carried at cost, which is not in excess of
market. Cost is determined as follows:
Grocery and non-foods - last-in, first-out (LIFO) (retail less
departmental gross profit mark-up).
Meat and all other perishables - first-in, first-out (FIFO).
Dairy and frozen foods - FIFO (retail less departmental gross profit
mark-up).
Property, equipment and fixtures
Property, equipment and fixtures are recorded at cost. Interest cost
incurred to finance construction is capitalized as part of such cost. Renewals
and betterments are capitalized. Maintenance and repairs are expensed as
incurred.
Depreciation is provided on a straight-line basis over estimated useful
lives of thirty years for buildings, ten years for store fixtures and
equipment, and three years for vehicles. Leasehold improvements are amortized
over the shorter of the related lease terms or the economic lives of the
related assets.
When assets are sold or retired, their cost and accumulated depreciation
are removed from the accounts, and any gain or loss is reflected in the
financial statements.
Store opening and closing costs
All store opening costs are expensed as incurred. Provisions are made for
losses resulting from store closings at the time of closing. This includes
items such as future lease payments, net of expected sublease recovery, and
charges to reduce assets to net realizable value.
Leases
Leases which meet certain criteria are classified as capital leases, and
assets and liabilities are recorded at amounts equal to the lesser of the
present value of the minimum lease payments or the fair value of the leased
properties at the inception of the respective leases. Such assets are amortized
on a straight-line basis over the shorter of the related lease terms or the
economic lives of the related assets. Amounts representing interest expense
relating to the lease obligations are recorded to affect constant rates of
interest over the terms of the leases. Leases which do not qualify as capital
leases are classified as operating leases, and related rentals are charged to
expense as incurred.
Goodwill
Goodwill arising after October 31, 1970 is being amortized over forty
years. The Company does not amortize goodwill amounting to approximately
$2,900,000 acquired prior to October 31, 1970 since, in management's opinion,
the value of such intangibles has not diminished. Accumulated amortization of
goodwill amounted to $3,073,090 and $2,806,810 at July 26, 1997 and July 27,
1996, respectively. The Company regularly assesses the recoverability of
unamortized amounts of goodwill utilizing relevant cash flow and profitability
information. The assessment of the recoverability of unamortized amounts will
be impacted if estimated future operating cash flows are not achieved.
Other intangibles
Other intangibles include the fair value of a favorable lease and
trademarks acquired in a business acquisition. Other intangibles are being
amortized over 20 years. Accumulated amortization of other intangibles amounted
to $2,791,249 and $2,537,499 at July 26, 1997 and July 27, 1996, respectively.
Income taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Net income per share
Net income per share is computed by dividing net income by the weighted
average number of all common shares outstanding during the periods presented,
which was 2,909,876 in 1997, 1996 and 1995. Stock options are not included in
the calculation as their inclusion would be anti-dilutive or would not result
in a material dilution of net income per share.
Use of estimates
In conformity with generally accepted accounting principles, management
of the Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from those
estimates.
Fair value of financial instruments
Cash and cash equivalents, miscellaneous receivables, accounts payable
and accrued expenses are reflected in the consolidated financial statements at
carrying value which approximates fair value because of the short-term maturity
of these instruments. The carrying value of the Company's short- and long-term
mortgages and notes payable approximates the fair value based on the current
rates available to the Company for similar instruments. As the Company's
investments in Wakefern can only be sold to Wakefern at amounts that
approximate the Company's cost, it is not practicable to estimate the fair
value of such stock.
Accounting changes
In 1997, the Company adopted SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement requires that certain assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The effect of the adoption was not material.
In 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement encourages the use of a fair-value based method
of accounting for stock options under which the fair value is determined on the
date of grant and expensed over the vesting period. Companies are permitted to
continue using the current method of accounting for stock compensation but are
required to disclose pro forma net income and earnings per share as if the fair
value method prescribed by SFAS No. 123 had been used to measure compensation
costs. The Company has elected to continue to account for such plans under the
intrinsic value method as in prior years. Under SFAS 123, stock options granted
prior to fiscal year 1997 are not required to be included as compensation in
determining pro forma net earnings. Accordingly, as the Company had no stock
option grants in fiscal 1997, no pro forma disclosures are required under SFAS
123.
NOTE 2 - INVENTORIES
<TABLE>
<CAPTION>
Merchandise inventories are comprised as follows:
July 26, July 27,
1997 1996
<S> <C> <C>
Last-in, first-out (LIFO) $16,350,616 $16,688,387
First-in, first-out (FIFO) 8,485,334 8,429,851
$24,835,950 $25,118,238
</TABLE>
If the FIFO method of inventory accounting had been used rather than
LIFO, inventories would have been $7,578,630 and $7,286,067 higher than
reported in 1997 and 1996, respectively.
NOTE 3 - PROPERTY, EQUIPMENT AND FIXTURES
<TABLE>
<CAPTION>
Property, equipment and fixtures are comprised as follows:
July 26, July 27,
1997 1996
<S> <C> <C>
Land and buildings $48,818,539 $48,254,838
Store fixtures and equipment 57,444,535 58,909,615
Leasehold improvements 19,528,793 16,018,075
Leased property under capital leases 12,374,544 13,024,838
Vehicles 945,250 845,942
Construction in progress 1,938,602 1,795,141
141,050,263 138,848,449
Less accumulated depreciation
and amortization 68,756,062 67,492,556
Property, equipment and
fixtures - net $72,294,201 $71,355,893
</TABLE>
Notes to Consolidated Financial Statements
(Continued)
NOTE 4 - RELATED PARTY INFORMATION
The Company's investment in its principal supplier, Wakefern, which is
operated on a cooperative basis for its stockholder members, is less than 20%
of the outstanding shares of Wakefern. The investment is pledged as collateral
for any obligations to Wakefern. In addition, this obligation is personally
guaranteed by the principal shareholders of the Company. The Company is
obligated to purchase 85% of its primary merchandise requirements from Wakefern
until ten years from the date that stockholders representing 75% of Wakefern
sales notify Wakefern that those stockholders request that the Wakefern
Stockholder Agreement be terminated.
The Company's merchandise payments to Wakefern approximated $502,510,000,
$498,982,000 and $484,491,000 during fiscal years 1997, 1996 and 1995,
respectively. Wakefern distributes as a "patronage dividend" to each member a
share of earnings of Wakefern in proportion to the dollar volume of business
done by the member with Wakefern during the year. Patronage dividends, which
are recorded as a reduction of cost of sales, amounted to $7,791,000,
$7,500,000 and $8,223,000 in 1997, 1996 and 1995, respectively.
Wakefern has increased from time to time the required investment in its
common stock for each supermarket owned by a member, with the exact amount per
store computed in accordance with a formula based on the volume of each store's
purchases from Wakefern. As a result, the Company is required to invest
approximately $119,000 over the next year. The Company will receive additional
shares of common stock to the extent paid for at the end of each fiscal year
(September 30) of Wakefern calculated at the then book value of such shares.
The payments, together with any stock issued thereunder, at the option of
Wakefern, may be null and void and all payments on this subscription shall
become the property of Wakefern in the event the Company does not complete the
payment of this subscription in a timely manner.
NOTE 5 - MORTGAGES AND NOTES PAYABLE
<TABLE>
<CAPTION>
July 26, July 27,
1997 1996
<S> <C> <C>
Term loan, principal payable in monthly
installments of $55,556 with a final
principal payment of $5,555,555
due April 1, 2001 (a) $8,000,000 $8,666,667
Revolving credit note (a) 3,000,000 4,000,000
Senior unsecured notes, interest at
9.91% payable quarterly, due in
annual installments through August 15, 1997 600,000 3,100,000
Mortgage note, interest at 10.19% payable
semi-annually, due in three equal annual
installments beginning December 1, 1997,
collateralized by certain land and building 4,000,000 4,000,000
Note payable, interest at 7.16%, payable
in monthly installments through December 2003,
collateralized by certain equipment 2,253,086 1,842,294
17,853,086 21,608,961
Less current portion 2,903,474 4,670,067
Noncurrent maturities $14,949,612 $16,938,894
</TABLE>
<TABLE>
<CAPTION>
Aggregate principal maturities of mortgages and notes as of July 26, 1997 are
as follows:
Year ending July:
<S> <C>
1998 $ 2,903,474
1999 2,325,870
2000 5,349,935
2001 6,375,791
2002 403,582
</TABLE>
(a) On May 30, 1997, the Company entered into a new loan agreement to
replace its expired agreement. The new loan agreement consists of three
facilities:
(1) A term loan (outstanding balance of $8,000,000 at July 26,
1997) to replace the term loan outstanding under the expired facility.
(2) A three-year $13,000,000 revolving loan (outstanding balance of
$3,000,000 at July 26, 1997) which can be used for any purpose except new store
construction.
(3) A three-year $11,000,000 convertible revolving loan (no balance
outstanding) to fund equipment purchases and store remodels. Amounts
outstanding at the end of each of the three years convert to seven-year term
loans with equal monthly principal payments.
These loans are secured by substantially all of the Company's assets.
Indebtedness under this agreement bears interest at the prime rate or the
Eurodollar rate, at the Company's option, plus applicable margins based on the
Company's fixed charge coverage ratio. At July 26, 1997 the revolving loan
interest rate is 7.19%.
The Company is required to maintain certain levels of interest rate
protection. Accordingly, an interest rate swap agreement has been executed with
respect to the term loan, in which the Company agrees to exchange monthly the
difference between fixed and variable interest amounts based on the loan amount
outstanding. The interest differential paid or received monthly under this
agreement is recognized as interest expense in the consolidated financial
statements. This agreement has the effect of fixing the rate on the term loan
at 8.35%.
At July 26, 1997, the Company was in compliance with all terms and
covenants of all debt agreements. These agreements contain restrictive
covenants which, among other matters, specify total debt levels, maintenance of
net worth, fixed charge coverage ratios, limitation on payment of dividends and
limitation of capital expenditures.
The revolving loan provides a maximum commitment for letters of credit of
$3,000,000 ($1,700,000 outstanding at July 26, 1997) to secure obligations for
the Company's self-insured workers' compensation claims.
Interest paid amounted to $3,398,828, $3,750,151 and $4,073,646 in 1997,
1996 and 1995, respectively.
NOTE 6 - INCOME TAXES
<TABLE>
<CAPTION>
The components of the provision for income taxes are:
1997 1996 1995
<S> <C> <C> <C>
Federal:
Current $1,778,800 $ 883,713 $175,000
Deferred (728,630) 119,653 69,000
State:
Current 569,003 552,845 231,000
Deferred (247,787) (255,397) (140,000)
$1,371,386 $1,300,814 $335,000
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
July 26, July 27,
1997 1996
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $5,094,475 $5,502,748
Patronage dividend receivable 818,249 991,863
Other 564,588 553,842
Total deferred tax liabilities 6,477,312 7,048,453
Deferred tax assets:
Amortization of capital leases 1,707,437 1,747,238
Tax credits and loss carryforwards - 202,035
Other 1,205,205 709,092
Total deferred tax assets 2,912,642 2,658,365
Net deferred tax liability $3,564,670 $4,390,088
</TABLE>
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. In management's
opinion, in view of the Company's previous, current and projected taxable
income, such tax assets will more likely than not be fully realized.
Accordingly, no valuation allowance was deemed to be required at July 26, 1997
and July 27, 1996.
The effective income tax rate differs from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Statutory federal income
tax rate 34.0% 34.0% 34.0%
Targeted jobs tax credit - (3.3) (14.5)
Amortization of intangibles 2.9 2.7 10.6
State income taxes, net of
federal tax benefit 6.2 5.9 6.6
Other (3.3) - -
Effective income tax rate 39.8% 39.3% 36.7%
</TABLE>
Income taxes paid amounted to approximately $2,328,820 and $769,580 in
1997 and 1996, respectively. No income taxes were paid in 1995.
NOTE 7 - LONG-TERM LEASES
Description of leasing arrangements
The Company conducts a major part of its operations from leased
facilities, with the majority of initial lease terms ranging from 20 to 30
years. All of the Company's leases expire through fiscal 2059.
Most of the Company's leases contain renewal options of five years each.
These options enable the Company to retain the use of facilities in desirable
operating areas. Management expects that in the normal course of business,
leases will be renewed or replaced by other leases. The Company is obligated
under all leases to pay for utilities and liability insurance, and under
certain leases to pay additional amounts based on real estate taxes,
maintenance, insurance and a percentage of sales in excess of stipulated
amounts.
Future minimum lease payments by year and in the aggregate for all non-
cancelable leases with initial terms of one year or more consisted of the
following at July 26, 1997:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
<S> <C> <C>
1998 $ 1,802,986 $ 3,759,390
1999 1,810,980 3,675,678
2000 1,822,395 3,677,784
2001 1,737,544 3,547,581
2002 1,688,376 2,959,639
Thereafter 14,426,528 26,172,098
Minimum lease payments 23,288,809 $43,792,170
Less amount representing
interest 13,854,255
Present value of minimum lease
payments $ 9,434,554
</TABLE>
The following schedule shows the composition of total rental expense
under operating leases for the following periods:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Minimum rentals $3,648,642 $3,429,223 $3,138,751
Contingent rentals 587,141 537,593 533,774
$4,235,783 $3,966,816 $3,672,525
</TABLE>
Related party leases
The Company currently leases three supermarkets and its office facility
from realty firms partly or wholly-owned by officers of the Company. The
Company paid aggregate rentals under these leases, including minimum rent and
contingent rent, of approximately $1,163,000, $1,136,000 and $1,128,000 for
fiscal years 1997, 1996 and 1995, respectively. In addition, two supermarkets
are leased from partnerships in which the Company is a partner.
NOTE 8 - COMMON STOCK
Class A common stock has one vote per share and is entitled to cash
dividends as declared 54% greater than those paid on the Class B common stock.
Class B common stock has ten votes per share. Class B common stock is not
transferrable except to another holder of Class B common stock or by will or
under the laws of intestacy or pursuant to a resolution of the Board of
Directors of the Company approving the transfer. Shares of Class B common stock
are convertible on a share-for-share basis for Class A common stock.
The Company has an Incentive and Nonstatutory Stock Option Plan under
which both incentive and nonstatutory options to purchase up to 150,000 shares
of the Company's Class A common stock may be granted to officers and employees
of the Company as designated by the Board of Directors. The plan requires
incentive stock options to be granted at an exercise price equalling the fair
market value of the Company's stock at the date of grant (110% if the optionee
holds more than 10% of the voting stock of the Company), while nonstatutory
options may be granted at an exercise price less than market value. All options
granted to date are at an exercise price equal to the fair value at the date of
grant. All options outstanding at July 26, 1997 expire on December 6, 1997.
There were no transactions in fiscal 1997, 1996 and 1995. There are 130,000
options outstanding and exercisable at an average price of $8.00 at July 26,
1997.
Notes to Consolidated Financial Statements
(Continued)
NOTE 9 - PENSION PLANS
The Company sponsors three defined benefit pension plans covering
administrative personnel and members of two unions. Employees covered under the
administrative pension benefit plan earn benefits based upon percentages of
annual compensation. Employees covered under the union pension benefit plans
earn benefits based on a fixed amount for each year of service. The Company's
funding policy is to pay at least the minimum contribution required by the
Employee Retirement Income Security Act of 1974.
Net periodic pension cost for the three plans included the following
components:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost $488,167 $484,461 $486,332
Interest cost on projected
benefit obligation 499,282 466,819 402,909
Return on plan assets (1,676,672) (637,724) (444,026)
Net amortization and deferral 1,131,839 157,823 7,836
Net periodic pension cost $442,616 $471,379 $453,051
</TABLE>
The funded status of the three pension plans is reconciled to accrued
pension cost as follows:
<TABLE>
<CAPTION>
July 26, July 27,
1997 1996
<S> <C> <C>
Plan assets at fair value $7,610,382 $6,275,380
Actuarial present value of benefit obligations:
Vested benefits 5,919,122 5,570,363
Non-vested benefits 68,742 92,875
Accumulated benefit obligations 5,987,864 5,663,238
Effect of future increases in compensation levels 1,148,282 1,035,459
Projected benefit obligation 7,136,146 6,698,697
Projected benefit obligation less than
(in excess of) plan assets 474,236 (423,317)
Unrecognized prior service cost 305,055 348,021
Unrecognized net (gain) loss (646,745) 523,478
Remaining unrecognized net asset at
July 25, 1987
(amortized over 15 to 18 years) (310,979) (373,424)
Additional liability (144,491) (292,038)
Accrued pension cost $ (322,924) $ (217,280)
</TABLE>
Plan assets are invested principally in government securities, common
stocks and mutual funds.
Assumptions used in determining the net fiscal 1997, 1996 and 1995
periodic pension cost were:
<TABLE>
<CAPTION>
<S> <C>
Assumed discount rate 8.0 to 8.5%
Assumed rate of increase in compensation levels 4%
Expected rate of return on plan assets 8.0 to 8.5%
</TABLE>
The Company also participates in several multiemployer pension plans for
which the 1997, 1996 and 1995 contributions were $1,731,000, $1,748,000 and
$1,785,000, respectively.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company is under contract to purchase a tract of land on which it
plans to construct a superstore. Costs incurred related to this project are
included in construction in progress as the Company believes such costs will be
recoverable from the development of the property.
The Company's general liability insurer, InsureRite, Ltd., a Wakefern
affiliated company, can make premium calls for premiums paid for the years
ended December 1, 1993 and December 1, 1994. Based on advice from the insurer,
the Company has recorded liabilities for the estimated premium calls.
The Company is involved in litigation incidental to the normal course of
business. Company management is of the opinion that insurance coverage is
adequate and final disposition should not materially affect the consolidated
financial position of the Company.
Independent Auditors' Report
The Board of Directors and Shareholders
Village Super Market, Inc.:
We have audited the accompanying consolidated balance sheets of Village
Super Market, Inc. and subsidiary as of July 26, 1997 and July 27, 1996, and
the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended July 26, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Village
Super Market, Inc. and subsidiary at July 26, 1997 and July 27, 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended July 26, 1997 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
September 30, 1997
Stock Price and Dividend Information
The Class A common stock of Village Super Market, Inc. is traded on the
NASDAQ National Market tier of the NASDAQ Stock Market under the symbol
"VLGEA." The table below sets forth the high and low last reported sales price
for the fiscal year indicated.
<TABLE>
<CAPTION>
Class A Stock
High Low
<S> <C> <C>
1997
4th Quarter 9-1/4 8-1/2
3rd Quarter 10-1/4 8-1/2
2nd Quarter 10-1/2 9
1st Quarter 10-1/4 8-1/2
1996
4th Quarter 10 7-1/2
3rd Quarter 8-1/2 7
2nd Quarter 7-3/4 6-3/4
1st Quarter 8 6-7/8
</TABLE>
As of September 27, 1997, there were 463 holders of record of the
Company's Class A common stock.
No dividends were paid during fiscal 1997 and 1996.
Village Super Market Inc.
CORPORATE DIRECTORY
OFFICERS AND DIRECTORS
PERRY SUMAS
Chief Executive Officer and President; Director
JAMES SUMAS
Chairman of the Board; Chief Operating Officer
and Treasurer; Director
ROBERT SUMAS
Executive Vice President and Secretary; Director
WILLIAM SUMAS
Executive Vice President; Director
JOHN SUMAS
Executive Vice President; Director
CAROL LAWTON
Vice President and Assistant Secretary
FRANK SAURO
General Counsel
KEVIN BEGLEY
Chief Financial Officer
GEORGE J. ANDRESAKES
Director
JOHN J. McDERMOTT
Director
NORMAN CRYSTAL
Director
EXECUTIVE OFFICES
733 Mountain Avenue
Springfield, New Jersey 07081
REGISTRAR AND TRANSFER AGENT
First City Transfer Company
P.O. Box 170
Iselin, New Jersey 08330
AUDITORS
KPMG Peat Marwick LLP
150 John F. Kennedy Parkway
Short Hills, New Jersey 07078
FORM 10-K
Copies of the Company's Form 10-K as filed with the Securities
and Exchange Commission are available without charge upon written
request to:
Mr. Robert Sumas, Secretary
Village Super Market, Inc.
733 Mountain Avenue
Springfield, New Jersey 07081
CORESTATES BANK, N.A.
LOAN AGREEMENT
This Loan Agreement is made as of this 30th day of May,
1997,
AMONG CORESTATES BANK, N.A. ("CoreStates"), a national
banking association having an office at 51 John F.
Kennedy Parkway, Short Hills, New Jersey 07078;
SUMMIT BANK, a New Jersey banking association having an
office at 750 Walnut Avenue, Cranford, New Jersey,
07016 ("Summit"), individually a "Bank" and
collectively the "Banks");
CORESTATES BANK, N.A., as agent for the Banks (in such
capacity, together with its successors in such
capacity, the "Agent")
AND VILLAGE SUPER MARKET, INC. (the "Borrower"), a New
Jersey corporation having its principal place of
business at 733 Mountain Avenue, Springfield, New
Jersey 07081.
Purpose: This Loan Agreement is intended to set the
terms of certain loans involving the Banks and the Borrower.
In exchange of the mutual covenants in the Loan
Documents and other good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged, the parties to this
Loan Agreement hereby agree to the following terms, conditions
and provisions:
SECTION I - DEFINITIONS
1.1 Capitalized Terms. The capitalized terms in this
Loan Agreement shall be defined as follows:
"Affiliate" of a Person means another Person who
directly or indirectly controls, is controlled by, or is under
common control with such Person.
"Applicable Margin" means a number of Basis Points
determined as follows:
<TABLE>
<CAPTION>
Then the
Applicable
If the Fixed Charge Margin for a And the Applicable
Coverage Ratio computed Eurodollar Loan Margin for a Base
at the end of the immed- for the current Rate Loan for the
iately prior Fiscal Fiscal Quarter current Fiscal
Quarter was: shall be: Quarter shall be:
<S> <C> <C>
Equal to or > 1.25 but < 225 Basis Points 25 Basis Points
1.35
Equal to or >1.35 but < 200 Basis Points 0 Basis Points
1.40 175 Basis Points 0 Basis Points
Equal to or > 1.40 <1.50
Equal to or > 1.50 or 150 Basis Points 0 Basis Points
equal to 1.75
Greater than 1.75 135 Basis Points 0 Basis Points
</TABLE>
Any increase or decrease in the Applicable Margin hereunder shall
be effective two (2) Banking Days after the Borrower has
delivered to the Agent all of the financial information for the
prior Fiscal Quarter required hereunder.
"Banking Day" means any day excluding Saturday, Sunday
and any day that in the State of New Jersey is a legal holiday or
a day on which banking institutions are authorized by law to
close.
"Base Rate" means the Agent's Prime Rate.
"Base Rate Loan" means any Loan or any portion of any
Loan bearing interest at a rate that is based on the Base Rate.
"Base Rate Period" means, as to each Base Rate Loan,
the period commencing on the Banking Day specified by the
Borrower in an applicable Notice of Borrowing or, as to any
subsequent borrowing, on the applicable Interest Payment Date and
ending on the Banking Day upon which Borrower chooses to repay
that Base Rate Loan, provided that no Base Rate Period shall
extend beyond the Maturity Date of the applicable credit
facility.
"Basis Point" means one one-hundredth (.01) of a
percentage point.
"Borrower" means the "Borrower" named in the caption of
this Loan Agreement and its successors and assigns.
"Capital Expenditure" means gross expenditures which
have been or should be capitalized in accordance with GAAP (as
properly indicated by the capital expenditures reported on the
Companies' Statement of Cash Flows as prepared in accordance with
FASB 95).
"Capital Lease" means any lease which has been or
should be capitalized on the books of the lessee in accordance
with GAAP.
"Chemical" means Chase Manhattan Bank, N.A., the
successor to Chemical Bank New Jersey, National Association.
"COF" means cost of funds of a Bank as determined by
such Bank.
"Collateral" means any Property in which the Banks have
been, or may be, granted an interest to provide security for any
Obligation, including but not limited to all assets of the
Borrower including accounts receivable, inventory, equipment and
general intangibles of the Borrower (but not the stock held by
Borrower in Wakefern or InsuRite), all of the Borrower's present
and future deposit accounts of all kinds, all of Borrower's real
property located in Palmer Township, Pennsylvania and Somers
Point, Middle Township, Absecon, Elizabeth, Egg Harbor, New
Jersey and certain real property owned by Sumas Realty Corp. in
Springfield, New Jersey, all as further described in the Security
Agreement and the Mortgages.
"Commitment" means in the aggregate initially
$22,038,194 with respect to CoreStates (68.75% of the aggregate
Commitments) and $10,017,361 with respect to Summit (31.25% of
the aggregate Commitments), as such amounts may be reduced from
time to time pursuant to Sections 2.3 or otherwise hereunder,
with the respective commitments as to the individual credit
facilities hereunder being in like proportions as follows: (a)
Revolving Loan: CoreStates - $8,937,500, Summit - $4,062,500;
(b) Term Loan: CoreStates - $5,538,194 Summit - $2,517,361.00;
and (c) Convertible Revolver: CoreStates - $7,562,500, Summit -
$3,437,500.
"Company" means any of Borrower and the Subsidiaries.
"Companies" means Borrower and all of the Subsidiaries.
"Conversion Dates" means the First Conversion Date, the
Second Conversion Date and the Third Conversion Date.
"Convertible Revolver" or "Convertible Revolver Loans"
means the revolving credit facility converting to a term loan
provided for in Article IV hereof.
"Convertible Revolver Notes" means collectively the
Convertible Revolver Notes of this date from Borrower to the
order of the Banks evidencing the Convertible Revolver, the
Convertible Revolver Notes to be dated as of each Conversion Date
from the Borrower to the order of the Banks and any amendments or
modifications thereof or substitutions therefor. A copy of each
of the initial Convertible Revolver Notes is annexed to this Loan
Agreement as "Exhibits D-1 and D-2". A copy of a form of
Convertible Revolver Note to be issued by the Borrower on each
Conversion Date for the term portions of such loans is annexed to
this Loan Agreement as "Exhibits D-3, D-4 and D-5."
"Date of Closing" means the date of the execution and
delivery of this Loan Agreement.
"Debt to Tangible Net Worth Ratio" means the Companies'
total Liabilities (as defined herein) divided by the Companies'
Tangible Net Worth (as defined herein).
"Default" means any condition or event that, with
notice or lapse of time, would give rise to an Event of Default.
"EBITDALGLE" means Net Income of the Companies before
interest expense, taxes, depreciation, amortization, LIFO
provision, gains or losses on the disposal of any assets or store
closings and any items of extraordinary income or expense, all as
computed in accordance with GAAP.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations
promulgated thereunder.
"Event of Default" means any event of default listed in
Section IX.
"Eurodollar Banking Day" means any Banking Day on
which dealings in dollar deposits are conducted by and among
banks in the London Eurodollar market and which is not a day on
which banking institutions in New York that serve as domestic
correspondents for the London Eurodollar market are authorized to
close.
"Eurodollar Loan" means any portion of the Revolving
Loan, the Term Loan or the Convertible Revolver that is based on
the Eurodollar Rate.
"Eurodollar Period" means, as to each Eurodollar Loan,
the period commencing on the date specified by Borrower and
ending on a day that is one month, two months, three months or
six months thereafter, as specified by Borrower in the applicable
Notice of Borrowing provided that:
(a) The first day of any Eurodollar Period shall be a
Eurodollar Banking Day;
(b) Any Eurodollar Period that would otherwise end on a
day that is not a Eurodollar Banking Day shall be
extended to the next succeeding Eurodollar Banking Day
unless such Eurodollar Banking Day falls in another
calendar month, in which case such Eurodollar Period
shall end on the next preceding Eurodollar Banking Day;
and
(c) No Eurodollar Period shall extend beyond the
Maturity Date for the particular credit facility to
which it is being applied.
"Eurodollar Rate" means the rate per annum determined
pursuant to the following formula:
ED = [LIBOR]*
[ 1.00 - EDRP]
ED = Eurodollar Rate
LIBOR = London Interbank Offering Rate
EDRP = Eurodollar Reserve Percentage
(*ED being rounded upwards, if necessary, to the next higher 1/16
of 1%).
The Eurodollar Rate shall be adjusted automatically on and as of
the effective date of any change in the Eurodollar Reserve
Percentage as it applies to Eurocurrency liabilities, unless such
change does not effect the cost to the Banks of maintaining the
Eurodollar Loan during the Eurodollar Period.
"Eurodollar Reserve Percentage" means, with respect to
any Eurodollar Loan, the percentage applicable to new time
deposits representing the maximum aggregate incremental reserve,
asset or special deposit requirements of the Banks (disregarding
any offsetting amounts that may be available to the Banks to
decrease such requirements to the extent that such offsetting
amounts arose out of transactions other than those contemplated
by this Agreement) under Regulation D and any other applicable
loan laws with respect to new non-personal time deposits in an
aggregate amount equal to the amount of the Eurodollar Loan and
for a time period comparable to the number of days in the
applicable Eurodollar Period. The determination by the Banks of
any applicable Eurodollar Reserve Percentage shall be conclusive
in the absence of manifest error.
"Existing Credit Facility" means the credit facility
provided pursuant to a Loan Agreement dated March 29, 1994 among
CoreStates, Chemical, and the Borrower.
"First Conversion Date" means the date in 1998 that is
one year from the Date of Closing.
"First Principal Balance" and "Second Principal
Balance" have the meanings set forth in Section 4.3.
"Fiscal Year" means the fiscal year for each Company
which is the 52 or 53 week period ending on the last Saturday of
the month of July of each calendar year.
"Fiscal Quarter" means the four fiscal quarters in each
Fiscal Year of the Borrower as adopted by the Borrower for
reporting purposes with the Securities and Exchange Commission
("SEC") or (if the Borrower is no longer a reporting company with
the SEC) as otherwise reasonably adopted by the Borrower in good
faith.
"Fixed Charge Coverage Ratio" means EBITDALGLE plus
rent expense for the four (4) prior Fiscal Quarters (inclusive of
the most recently completed Fiscal Quarter) divided by the sum of
interest expensed and capitalized, rent expense, taxes (excluding
taxes or tax credits arising from gains and/or losses on the
disposal of any assets or closing of stores), Current Maturities
of Long Term Debt (including current portion of Capital Leases)
and dividends for such period, on a consolidated basis, all as
computed in accordance with GAAP, except that Interest Expense
and the Current Maturity Of Long Term Debt for Permitted Garwood
Financing are specifically excluded from this calculation.
"GAAP" means generally accepted accounting principles,
consistently applied.
"Garwood Facility" means the proposed supermarket to be
constructed in Garwood, New Jersey (bordering Westfield).
"Guarantor" means, collectively, Village Liquor Shop
("Liquor"), a wholly owned subsidiary of the Borrower, and Sumas
Realty Company ("Realty"), an Affiliate of the Borrower which is
also the owner of the Borrower's principal place of business.
"Guaranty" shall mean each guaranty of Borrower's
Obligations to the Banks executed by Guarantor (and non-recourse
as to Realty except for the assets mortgaged to the Banks)
pursuant to a Continuing Guaranty Agreement dated this date in
favor of the Banks in the form of "Exhibit F" to this Loan
Agreement, as it may be amended or supplemented from time to
time.
"Hazardous Substance(s)" means any pollutants and
dangerous substances including radon, and any "hazardous wastes"
or "hazardous substances" as defined in the Industrial Site
Recovery Act (N.J.S.A. 13:1K-6 et seq.), the Spill Compensation
and Control Act (N.J.S.A. 58:10-23.11 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. 6901 et seq.), the
Comprehensive Environmental Responsibility Compensation and
Liability Act (42 U.S.C. 9601 et seq.) or any other state or
federal environmental law or regulation.
"Interest Payment Date" means:
(a) as to any Base Rate Loan, the first day
of each month and the applicable Maturity Date; or
(b) as to any Eurodollar Loan, the last day
of each Eurodollar Period; provided, however, that when
the applicable Eurodollar Period is more than one
month, interest shall also be payable on the same day
in each calendar month that the Eurodollar Period
commenced (or the last day of the month if there is no
corresponding date in such month).
"Interest Period" means any Base Rate Period or
Eurodollar Period.
"InsuRite" means Insure-Rite Ltd., a captive insurance
company owned by Wakefern, the Borrower and various other
entities.
"Lease Assignments" means (a) the first priority
assignments of leases, rents and profits granted by Borrower this
date in favor of the Agent and the Banks on the Borrower's real
property in Palmer Township, Pennsylvania and Somers Point,
Middle Township, Absecon, Elizabeth, New Jersey, (b) the first
priority assignments of leases, rents and profits granted by
Sumas Realty Corp. this date in favor of the Agent and the Banks
on the real property owned by Sumas Realty Corp. in Springfield,
New Jersey and (c) the second priority assignments of leases,
rents and profits granted by Borrower this date in favor of the
Agent and the Banks on the Borrower's real property in and Egg
Harbor, New Jersey.
"Lending Office" means, for each Bank, the lending
office of such Bank designated on the signature pages hereof or
such other office of such Bank as such Bank may from time to time
specify to the Agent and the Borrower as the office by which its
Loans are to be maintained.
"Letter of Credit" is defined in Section 2.10(a).
"Liabilities" means, at any date, (i) the amount of all
liabilities and obligations that, in accordance with GAAP, should
be classified as liabilities as shown on the liability side of a
consolidated balance sheet of the Borrower or Guarantor, as the
case may be at such date inclusive of all amounts for deferred
taxes and (ii) all guarantees and endorsements (including all
indebtedness and liabilities guaranteed, directly or indirectly
in any manner by Borrower or Guarantor, as the case may be,
including letters of credit and standby letters of credit (except
for the workman's compensation letter of credit to the extent
accrued as a liability on the Borrower's balance sheet)).
"LIBOR" means with respect to any Eurodollar Loan the
rate at which the Agent is offered deposits in U.S. dollars at
11:00 a.m., London time, on the second Eurodollar Banking Day
preceding the date of such Borrowing in the London Interbank
Eurodollar Market for the relevant Eurodollar Period of the
Eurodollar Loan and in an amount approximately equal to the
amount of such Borrowing and in like funds. The Agent's
determination of LIBOR shall be conclusive in the absence of
manifest error.
"Lien" means any mortgage, pledge, security interest,
encumbrance, collateral assignment, lien or charge of any kind
(including any agreement to give any of the foregoing), any
conditional sale or other title retention agreement or any lease
in the nature thereof.
"LIFO" means the LIFO provision for any period,
computed in accordance with GAAP.
"Loan" means any loan maintained by a Bank pursuant to
Sections II, III or IV hereof.
"Loan Agreement" means this Loan Agreement.
"Loan Document(s)" means this Loan Agreement, the
Guaranties, the Mortgages, the Security Agreement, the Mortgage
Subordination Agreement and all documents, notes, assignments,
certificates and agreements of any kind listed, described or
referenced on the Closing Memorandum annexed to this Loan
Agreement as "Exhibit A" or otherwise executed in connection with
this Loan Agreement.
"Make Whole Fee" is defined in Section 5.5.
"Make Whole Rate" is defined in Section 5.5
"Maturity Date" means (a) as to any Revolving Loan, May
30, 2000 (the "Revolving Loan Maturity Date"), (b) as to the Term
Loan, April 1, 2001 (the "Term Loan Maturity Date"), and (c) as
to each of the three term loans issued after the three Conversion
Dates under the Convertible Revolver ("Convertible Term Loans"),
May 30, 2005, 2006 and 2007 (the "Convertible Revolver Maturity
Dates").
"Mortgage Subordination Agreement" means the Mortgage
Subordination and Intercreditor Agreement of this date between
the Bank and Travelers, as may be amended or supplemented from
time to time.
"Mortgages" means (a) the first priority mortgages
granted by Borrower this date in favor of the Agent and the Banks
on the Borrower's real property in Palmer Township, Pennsylvania
and Somers Point, Middle Township, Absecon, Elizabeth, New
Jersey, (b) the first priority mortgage granted by Sumas Realty
Corp. this date in favor of the Agent and the Banks on the real
property owned by Sumas Realty Corp. in Springfield, New Jersey
and (c) the second priority mortgages granted by Borrower this
date in favor of the Agent and the Banks on the Borrower's real
property in Egg Harbor, New Jersey.
"Net Income" means net income for the Companies
calculated on a consolidated basis in accordance with GAAP.
"Note Purchase Agreement" means collectively (a) the
note purchase agreement dated on or about August 18, 1987
involving Borrower and Travelers, and (b) the note purchase
agreement dated on or about December 1, 1988 involving Borrower
and Travelers, each as amended from time to time.
"Notes" means collectively the Revolving Loan Note, the
Term Note, and the Convertible Revolver Note.
"Notice of Borrowing" means the notice of borrowing as
described in Sections 2.6(A) and 4.6(A).
"Obligation(s)" means all debts, liabilities, duties
and obligations owing by any Company to any Bank, whether direct
or indirect, now existing or in the future created or acquired,
contingent or non-contingent, due or to become due, liquidated or
unliquidated, including those arising under the Term Loan,
Revolving Loan, Convertible Revolver, commitments of any kind by
either Bank to, or on behalf of any Company, all expenses of
either Bank to protect its interests under any Loan Documents,
and all other debts and obligations relating to, or arising
under, this Loan Agreement or any other Loan Document.
"Obligor" means the Borrower or the Guarantor.
"Opinion Letter" means the opinion letter from the
Companies' counsel to the Banks and their counsel in the form
annexed as "Exhibit E" to this Loan Agreement.
"Permitted Dispositions" means (a) the sale or
disposition of the Companies' store facilities in Palmer
Township, Pennsylvania, or South Orange, New Jersey, or its
Bernardsville annex provided that any such disposition is made in
an arms length transaction or (b) the sale or disposition of
undeveloped land of the Companies in Chester, Garwood or
Westfield, New Jersey, provided that any such disposition is made
in an arm's-length transaction, and provided further that the
Revolving Loan has not expired or otherwise matured or become
due.
"Permitted Encumbrance(s)" means any of the following:
(a) taxes, assessments and other governmental charges not yet due
and payable or that can be paid without penalty, or that are
currently being contested in good faith by appropriate
proceedings; provided, the Companies shall have set aside on
their books adequate reserves for any tax, assessment or other
governmental charge so being contested; (b) workmen's,
repairmen's, warehousemen's and carriers' liens and other similar
Liens arising in the ordinary course of business for charges not
delinquent or that are currently being contested in good faith by
appropriate proceedings provided, the Borrower shall have set
aside on its books adequate reserves for such Liens being
contested; (c) easements, rights of way, exceptions,
encroachments, reservations, restrictions, conditions or
limitations that do not in the aggregate materially interfere
with or impair the intended use of any property or render title
to any property unmarketable; (d) rights reserved to, or vested
in, any municipality or governmental or other public authority
that do not in the aggregate materially interfere with or impair
the intended operation or use of any property or render title to
any property unmarketable; (e) a purchase money mortgage in favor
of Norman Sevell on certain land in Westfield, New Jersey in the
original principal amount of $4,150,000, (f) liens on or in
shares of capital stock of Wakefern owned by Borrower to secure
Borrower's obligations to Wakefern to make capital contributions
to Wakefern and indebtedness owing to Wakefern with respect to
the purchase of inventory, (g) liens listed on Exhibit 6 to the
Principal's Certificate and consented to by the Banks, (h) a
mortgage in favor of Traveler's on certain land in Egg Harbor,
New Jersey in the original principal amount of $4,000,000, and
with a current balance outstanding of $4,000,000 or less, (i)
liens other than liens listed or described above securing in the
aggregate Liabilities of less than Five Hundred Thousand Dollars
($500,000), (j) mortgages and liens in favor of Travelers being
granted this date which secure no more than $4,600,000 (inclusive
of the amounts described in clause (i)) and which are equal in
priority to the mortgages and liens being granted to the Banks
this date and are subject to the Mortgage Subordination
Agreement, (k) purchase money Liens for equipment purchased under
any Wakefern-sponsored financing program so long as the Lien only
affects and attaches to the equipment so purchased, (l) Liens
securing the Permitted Garwood Financing so long as such Liens
only affect or attach to Borrower's Garwood or Westfield
Properties and the improvements constructed by Borrower thereon
provided that the debt does not violate any terms of this Loan
Agreement or otherwise result in an Event of Default, (m) Liens
in favor of Wakefern on deposits made with Wakefern and (n) Liens
in favor of the Banks.
"Permitted Garwood Financing" means debt incurred in
the construction or outfitting of Borrower's Garwood and/or
Westfield properties; provided that such debt (a) does not exceed
$7,200,000 in the aggregate, (b) otherwise is on terms and
conditions acceptable to the Banks in their sole reasonable
discretion, which consent shall be obtained by the Borrower from
the Banks in writing prior to incurring any such debt.
"Person(s)" means an individual, corporation,
partnership, limited partnership, limited liability company,
joint venture, trust, joint stock company, unincorporated
organization, association, governmental agency or political
subdivision.
"Plan(s)" means each employee benefit plan maintained
for employees of any Company, as defined in Section 3(2) of the
Employee Retirement Income Act of 1974, as amended.
"Prime" or "Prime Rate" means the rate of interest that
CoreStates adopts from time to time as its official Prime Rate.
The Prime Rate is not tied to any external rate of interest or
index and does not necessarily reflect the lowest rate of
interest actually charged at any given time by CoreStates to any
particular class or category of customers of such Bank. Any
change in the Prime Rate shall be effective immediately when
adopted by CoreStates, without notice to the Borrower.
"Principal's Certificate" means the principal's
certificate of this date given to the Banks by the president of
Borrower.
"Property" means all property, rights and interests
presently owned or in the future created or acquired by any
Company, whether tangible or intangible, including realty,
fixtures, goods, inventory, equipment, real property leases,
stock, instruments, chattel paper, bank accounts and equipment
leases, including the stock of the Subsidiaries, and the proceeds
and products of the foregoing.
"Required Retained Earnings" means the sum of the
Companies' Net Income for each Fiscal Year concluded after July
1996 less the amount of dividends and stock repurchases paid
after July 1996, but only to the extent that such dividends or
stock repurchases were permitted pursuant to Section 8.5 hereof.
"Revolving Loan" means the loans described in Section
II.
"Revolving Note" means collectively the Revolving Notes
of this date from Borrower to the order of the Banks and any
amendments or modifications thereof. A copy of each Revolving
Note is annexed to this Loan Agreement as "Exhibits B-1 and B-2".
"Second Conversion Date" means the date in 1999 which
is two year after the Date of Closing.
"Section" means a section of this Loan Agreement.
"Security Agreement" means the Security Agreement dated
this date in which the Borrower grants the Agent and the Banks a
first priority lien on all of its inventory, equipment, accounts,
general intangibles, deposit accounts and all of its other assets
(subject to Permitted Encumbrances).
"Subsidiaries" means Village Liquor Shop, Inc. or any
other corporation or similar entity, a majority of the stock of
which is owned directly or indirectly by the Borrower or the
Guarantor.
"Sumas Family" means the Estate of Nicholas Sumas,
Perry Sumas, Robert Sumas, James Sumas, William Sumas and John
Sumas.
"Tangible Net Worth" means (x) total "assets" less (y)
total "liabilities". For purposes of this definition "assets"
and "liabilities" shall be determined in accordance with GAAP,
except that there shall be (a) excluded from the definition of
"assets" all intangible assets including organizational expenses,
patents, trademarks, service marks, copyrights, goodwill,
covenants not to compete, research and development costs,
treasury stock, and monies due from principals and Affiliates and
all unamortized debt discounts and deferred charges, and (b)
deducted from "assets" reserves for LIFO, depreciation,
depletion, obsolescence and amortization and all other proper
reserves that are required to be maintained pursuant to the Loan
Agreement or that, in accordance with GAAP, should be established
in connection with the business conducted by the Companies.
"Term" means the duration of this Loan Agreement as set
forth in Section 5.6.
"Term Loan" means the loan described in Section III.
"Term Note" means collectively the CoreStates Term Note
and the Summit Term Note, each of this date from the Borrower to
the order of CoreStates and Summit, respectively, evidencing in
the aggregate the Term Loan and any amendments or modifications
thereof. The "CoreStates Term Note" shall be in the original
principal amount of $5,538,194.00. The "Summit Term Note" shall
be in the original principal amount of $2,517,361.00. A copy of
each Term Note is annexed to this Loan Agreement as "Exhibits C-1
and C-2".
"Termination Event" means a "reportable event" as
defined in section 4043(b) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), the filing of a
notice to terminate under section 4041 of ERISA or any other
event or condition that might constitute grounds under section
4042 of ERISA for the termination of, or for the appointment of a
trustee to administer, any Plan.
"Third Conversion Date" means the date in 2000 which is
three years after the Date of Closing.
"Travelers" means The Travelers Insurance Company and
The Travelers Indemnity Company.
"Wakefern" means Wakefern Food Corp., a New Jersey
corporation.
1.2 Interpretation. Unless otherwise specified, the
following rules of construction shall apply to this Loan
Agreement:
(A) The term "any" shall be construed as if
followed by the phrase "one or more"; the term "including" shall
be construed as if followed by the phrase "without limitation";
and the term "days" shall be construed as if preceded by the word
"calendar", unless it is capitalized and is preceded by the word
"Banking".
(B) Singular words include the plural and plural
words include the singular.
(C) Title headings and subheadings are for
organizational purposes only and neither add to, nor limit, the
meaning of any provision.
(D) All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all
financial data required to be delivered hereunder shall be
prepared in accordance with GAAP.
(E) Any actions, determinations or decisions to
be taken by the Banks hereunder shall require the unanimous
consent of the Banks.
SECTION II - REVOLVING LOAN
Subject to the terms and conditions set forth in this
Loan Agreement and the full satisfaction of all requirements of
the Banks and their counsel, including delivery of all documents
listed on Exhibit A, and the absence of any Default or Event of
Default, the Banks severally will, from time to time, make loans
to the Borrower in proportion to their Commitments, in such
amounts and under such terms as set forth below:
2.1 Amount of Loans. The aggregate amount of all
loans and extensions of credit at any time outstanding under the
Revolving Loan shall not exceed THIRTEEN MILLION and 00/100
DOLLARS ($13,000,000). The Borrower may request that Revolving
Loans be made in the form of a Base Rate Loan or Eurodollar Loan
in accordance with the procedures, and subject to the
limitations, set forth in this Loan Agreement. Until the
Revolving Loan Maturity Date, in the absence of any Default or
Event of Default; the Borrower may borrow, reborrow and repay the
Revolving Loan so long as the aggregate outstanding balance is
never in excess of $13,000,000.
2.2 Loans In Excess of Maximum. If, for any reason,
the aggregate outstanding balance of the Revolving Loan should at
any time exceed THIRTEEN MILLION AND 00/100 DOLLARS
($13,000,000), all sums advanced shall nonetheless constitute
indebtedness under this Loan Agreement and shall be due and
payable upon demand.
2.3 Reduction in Commitments. At any time, the
Borrower, on ten (10) days advance written notice to the Agent
and the Banks, may reduce the aggregate Commitments under the
Revolving Loan set forth in Section 2.1 provided that (a) the
reduction is in increments of One Million Dollars ($1,000,000)
and (b) the reduction does not reduce the aggregate Commitments
with respect to the Revolving Loan to an amount less than the
current principal balance then outstanding hereunder. Any such
notice of reduction shall be irrevocable and permanent, and the
Borrower shall have no right to increase the aggregate Commitment
under the Revolving Loan once reduced by the Borrower hereunder.
2.4 Principal Payment. The Borrower shall not be
required to make principal payments prior to the Revolving Loan
Maturity Date except as required under Section 2.2 or if there
shall be an Event of Default. On the Revolving Loan Maturity
Date, the Borrower shall repay the entire principal balance of
the Revolving Loan outstanding as of the Revolving Loan Maturity
Date together with all accrued interest and other sums then
outstanding under the Revolving Loan, which shall all then be due
and payable in full.
2.5 Interest Payment. Accrued interest on the daily
principal balance is due and payable on each Interest Payment
Date. Any interest not paid when due, in the Banks' discretion,
and without limitation of any other right or remedy in any Loan
Document (including the right to charge a late fee or to raise
the interest rate after an Event of Default) may be added to the
principal amount outstanding under the Revolving Loan and accrue
interest at the Base Rate and be payable upon demand.
2.6 Method of Borrowing.
(A) Notice of Borrowing. To borrow or to select
a type of loan under the Revolving Loan, Borrower shall deliver
to the Agent (or transmit by telecopier with the original to be
mailed or delivered to the Agent on the same day) by 11:00 a.m.
of any Banking Day an irrevocable Notice of Borrowing signed by
an authorized signer of the Borrower as designated in the
borrowing resolutions substantially in the form of the annexed
Exhibit G specifying each of the following:
(i) the proposed borrowing date for a
Revolving Loan which, (a) in the case of a Base Rate
Loan may be the same Banking Day or, (b) in the case of
a Eurodollar Loan shall be a Eurodollar Day at least
two Banking Days thereafter;
(ii) the type of loan requested;
(iii) the amount of the proposed borrowing
which, in the case of a Base Rate Loan shall be at
least $500,000 and in multiples of $50,000 and in the
case of a Eurodollar Loan shall be in multiples of
$1,000,000;
(iv) in the case of a Eurodollar Loan, the
duration of the Interest Period for each borrowing
(which Interest Period (a) shall be either one month,
two months, three months or six months and (b) shall
not extend beyond the Maturity Date) and;
(v) instructions to the Agent as to the
deposit or transmittal of the borrowed funds.
Amounts drawn on the Revolving Loan on the effective date of the
Loan Agreement shall be deemed to be Base Rate Loans.
(B) Determination of Rate. For any Eurodollar
Loan, two Eurodollar Banking Days before the first day of the
applicable Eurodollar Period, the Agent shall determine the
applicable Eurodollar Rate and advise Borrower of that rate by
telephone or telecopier. If by 11:30 a.m. of the day in which
the Agent quotes any rate Borrower shall not have advised the
Agent (by telephone with immediate telecopier confirmation)
whether Borrower wishes to receive the quoted rate, then the
Agent may, in its discretion, conclude that the Borrower has
rejected the quoted rate and chosen instead to receive a Base
Rate Loan in an amount equal to the Loan requested in the
applicable Notice of Borrowing. The Agent's determination of any
rate shall be conclusive, absent manifest error.
(C) Deduction for Amounts Due. If any Revolving
Loan is to be made on a day on which Borrower is to repay any
outstanding Loan, the Agent is authorized to apply proceeds from
the new Loan to make that payment and advance to Borrower only
the net amount of the new Loan after deducting the amount of the
existing Loan payment including principal and accrued interest
that had been due.
2.7 Loan Selection.
(A) Revolving Loan. During the term of the
Revolving Loan prior to 12:00 noon of the Banking Day prior to
the Revolving Loan Maturity Date, by delivering a Notice of
Borrowing pursuant to Section 2.6, the Borrower may (1) convert
any Base Rate Loan to a Eurodollar Loan by giving the Agent the
Notice of Borrowing two (2) Eurodollar Banking Days before the
first day of the applicable Eurodollar Period and (2) at the end
of any Interest Period convert any Eurodollar Loan to a Base
Rate Loan. The Borrower must select either a Eurodollar Rate or
a Base Rate for the entire amount of any advance, but may
simultaneously have outstanding various types of Revolving Loans.
The Borrower shall have no right to select an Interest Period for
a Eurodollar Loan that would go beyond the Revolving Loan
Maturity Date.
(B) Agent's Election of Rate. If the Agent does
not receive a timely Notice of Borrowing prior to the expiration
of any Interest Period for a Eurodollar Loan, the Borrower shall
be deemed to have elected to pay in full that Eurodollar Loan at
the end of the Interest Period out of the proceeds of a new Base
Rate Loan. That new Base Rate Loan will be in a principal amount
equal to the principal amount and, if Banks determine in their
absolute discretion, accrued interest of the Eurodollar Loan that
is being repaid and shall be deemed made automatically and
contemporaneously with the payment of that Eurodollar Loan.
2.8 Use of Proceeds. The proceeds of any advances
under the Revolving Loan will be used by the Borrower to fund
general working capital and corporate purposes of the Companies
or for any other purpose (but not new store construction). In
addition, on the Date of Closing, the Borrower shall draw a Base
Rate Loan against this Revolving Loan facility to the extent
necessary to satisfy in full the balance of all indebtedness due
to CoreStates and Chemical under the Existing Credit Facility
(other than the "Term Note" outstanding thereunder) and shall use
such proceeds to satisfy all indebtedness to CoreStates and
Chemical (after application of the proceeds described in Section
3.5 below). The Existing Credit Facility among CoreStates,
Chemical and the Borrower is hereby deemed canceled and the
Borrower shall have absolutely no right to borrow thereunder.
2.9 Notes. The Revolving Loan shall be evidenced by
the Revolving Note, a copy of which is annexed as Exhibits B-1
and B-2. The Agent will endeavor to record all advances,
interest and payments on the Agent's records relating to the
Revolving Note. The failure of the Agent to make any such
record, however, shall not alter or impair the rights and
remedies of the Banks if an advance has actually been made or the
rights of Borrower if a payment has actually been delivered.
2.10 Standby Letters of Credit. The Banks, in their
discretion, may issue or process an application for, a letter of
credit or any other credit accommodation on behalf of the
Borrower. The sole purpose of any such letter of credit shall be
for securing obligations to the Borrower's insurers under its
Worker's Compensation Program. Any letters of credit hereunder
may be issued by any Bank. While there is no commitment to issue
any letters of credit hereunder, the Banks agree between
themselves that they will not permit the aggregate principal
amount of letters of credit which may be outstanding hereunder to
exceed Three Million Dollars ($3,000,000). The Banks will also
agree from time to time between themselves as to which Bank will
issue any letter of credit. If any letters of credit are issued,
the following terms shall also apply.
(a) Any letters of credit issued by the Banks
will be in each Bank's customary form (individually a "Letter of
Credit" and, collectively, the "Letters of Credit") for the
account of the Borrower. Letters of Credit may be issued at any
time and from time to time on or after the date hereof through
the date which is sixty (60) days before the Revolving Loan
Maturity Date, provided that the existing letter of credit no.
516165 issued by New Jersey National Bank (predecessor to
CoreStates) on the account of Borrower in the amount of
$1,705,000 shall be deemed to be a Letter of Credit under this
Loan Agreement. The aggregate amount outstanding at any time of
all Letters of Credit shall not exceed $3,000,000.00. The term
of any Letter of Credit shall not exceed one year, and each such
Letter of Credit shall have an expiry date which is not later
than the Revolving Loan Maturity Date; provided, however, that if
no Bank objects, any outstanding Letter of Credit with provision
for automatic renewal will continue to be renewed up to the
Banking Day prior to the Revolving Loan Maturity Date as set
forth under the terms of such Letter of Credit and payment of
fees, repayment terms and other provisions of such Letter of
Credit will continue to be governed by this Section 2.10 except
the last sentence of clause (g) below. No outstanding Letter of
Credit, and no Letter of Credit issued hereunder, shall be
automatically renewed for any period beyond five (5) years from
the date of initial issuance.
(b) The Borrower shall notify the Agent and the
Banks with at least ten (10) Business Days advance written notice
of its request that one of the Banks issue a Letter of Credit.
Each such notice shall be irrevocable and confirmed immediately
by delivery to the Agent and the Banks of a Request for Letter of
Credit in the issuing Bank's customary form, but without any
accompanying terms and conditions which are inconsistent with
this Agreement or the other Loan Documents. Upon issuance of a
Letter of Credit, the issuing Bank shall promptly notify the
other Banks of the issuance and the terms thereof.
(c) Each request for a Letter of Credit shall
constitute a representation and warranty by the Borrower that,
except as contemplated by the Loan Documents: (A) the
representations and warranties set forth in Section VI hereof
remain accurate as of the date of such request and (B) no Default
or Event of Default exists under this Loan Agreement or any other
Loan Document.
(d) Each Letter of Credit outstanding shall
reduce the amount available under each Bank's Revolving Loan
Commitment in an amount equal to such Bank's pro rata share of
such Letter of Credit, and for the purposes of Section 2.1 each
such Letter of Credit shall be deemed to be a use of each Bank's
Revolving Loan Commitment to the extent of such Bank's pro rata
share thereof. In connection with any Letter of Credit, the
Agent may establish such other reserves against the Revolving
Loan or any other Obligations as it deems appropriate.
(e) Each payment by the issuing Bank under a
Letter of Credit shall be treated as a loan (a "Letter of Credit
Loan") and shall be payable one (1) Business Day after notice of
such payment is given to Borrower, or, if earlier, on the
Revolving Loan Maturity Date. Upon making any payment under a
Letter of Credit, the issuing Bank shall promptly give notice of
the payment (a "Drawing Notice") to the other Banks, and each
Bank shall reimburse the issuing Bank for its pro rata share of
such Letter of Credit Loan not later than 2:00 p.m. on the next
Business Day after the date of such Drawing Notice. The
obligation of each Bank so to reimburse the issuing Bank shall be
absolute and unconditional. Each Letter of Credit Loan
outstanding also shall reduce the amount available under each
Bank's Revolving Loan Commitment as under paragraph (d) above.
(f) Each Letter of Credit Loan shall bear
interest on the outstanding principal amount thereof, for each
day from the date such Letter of Credit Loan is made until the
date payment is made in full, at a rate per annum equal to the
Base Rate in effect from time to time plus the Applicable Margin.
(g) The obligation to repay each Letter of Credit
Loan in full, together with accrued interest thereon in
accordance with this Agreement, shall be absolute, unconditional
and irrevocable, under all circumstances whatsoever, and (without
limiting the generality of the foregoing) shall not be affected
by:
(i) the use which may be made of the Letter
of Credit Loan or any acts or omissions of the drawer
in connection therewith;
(ii) the validity or genuineness of documents
presented in connection with a drawing, or of any
endorsement thereon, even if such documents should in
fact prove to be in any or all respects invalid,
fraudulent or forged, provided that such documents
appear on their face to comply with the terms of the
Letter of Credit;
(iii) any irregularity in the transaction
with respect to which the Letter of Credit is issued;
or
(iv) the existence of any claim, set-off,
defense or other right which the Borrower might have
against the issuing Bank, the Agent or the Banks, or
any of them, or any other Person, whether in connection
with the Letter of Credit, the transaction contemplated
by the Letter of Credit, or any unrelated transaction.
If all conditions to borrowing Revolving Loans are satisfied, the
Borrower shall have the right to repay any Letter of Credit Loan
with the proceeds of Revolving Loans made on or prior to the
maturity of the Letter of Credit Loan.
(h) The Borrower shall pay to the issuing Bank a
fee (the "Letter of Credit Fee") on the undrawn portion of all
Letters of Credit at a rate per annum equal to one and one-
quarter percent (1-1/4%) which shall be payable quarterly in
advance on the first Business Day of each January, April, July
and October to occur after the date hereof. The foregoing shall
modify the fees payable in connection with all outstanding
Letters of Credit.
(i) The Borrower shall pay to the issuing Bank
with respect to each Letter of Credit issued, the usual and
customary administrative fees and other charges of the issuing
Bank in connection with any Letter of Credit, including without
limitation, all charges for the issuance of Letters of Credit,
the negotiation of any draft paid pursuant to any Letter of
Credit and any amendments or supplements thereto.
(j) The issuing Bank shall remit to the other
Banks Letter of Credit Fees at the rate of one and one-eighth
percent (1-1/8%) per annum on such other Banks' pro rata share of
the Letter of Credit, as and when paid by the Borrower. The
balance of the Letter of Credit fees and the administrative fees
and other charges described in paragraph (i) above will be for
the account of the issuing Bank.
(k) At Closing, the Borrower shall supply to the
Banks a list of all outstanding Letters of Credit issued by
CoreStates or Chemical as of the date of this Loan Agreement.
Summit shall share in the fees and all obligations with respect
to such CoreStates Letters of Credit in proportion to the
Commitments, commencing as of the date of this Loan Agreement.
2.11 Termination. The provisions of this Loan
Agreement that provide for the making of advances under the
Revolving Loan shall expire automatically on 12:00 noon on the
Banking Day before the Revolving Loan Maturity Date and may be
terminated by the Banks at any time after the occurrence of any
Default or Event of Default (unless subsequently cured to the
satisfaction of the Banks prior to termination) and shall be
terminated automatically upon the occurrence of any Event of
Default described in Section 9.13.
2.12 Interest Rates For Revolving Loan.
The Borrower agrees to pay interest on the unpaid
portion of Revolving Loans as follows:
(A) for Base Rate Loans at a fluctuating rate
equal to the Base Rate in effect from time to time plus the
Applicable Margin for Base Rate Loans; and
(B) for each Eurodollar Loan at a fixed rate
equal to the sum of the Eurodollar Rate for that Loan plus the
Applicable Margin for Eurodollar Loans.
2.13 Calculation of Interest. Interest shall be
calculated on a 360-day year based on the number of days elapsed.
After the last day of each Interest Period for any Loan the Agent
shall endeavor to mail to the Borrower a statement of that Loan
as of the last day of the Interest Period. That statement will
be deemed to be correct unless the Borrower has delivered to the
Agent specific written objections within thirty (30) days of the
Borrower's receipt.
2.14 Increased Cost. If at any time or from time to
time any change occurring after the date hereof in any
requirement of law, regulation, order, decree, treaty or
directive or in the interpretation or application thereof by
governmental authority or compliance by the Banks with any
request or directive (whether or not having the force of law)
occurring after the date hereof from any central bank or monetary
authority or other governmental authority:
(A) does or shall subject the Banks to any tax of
any kind whatsoever with respect to this Loan Agreement or any
Eurodollar Loan, or change the basis of taxation of payments to
the Banks of principal, interest or other amount payable
hereunder (except for changes in the rate or method of tax on the
overall net income of the Banks in any jurisdiction); or
(B) does or shall impose, modify or hold
applicable any reserve, special deposit, compulsory loan or
similar requirement against assets held by, or deposits or other
liabilities in or for the account of, advances or loans by, or
other credit extended by, or any other acquisition of funds by,
any office of the Banks which are not otherwise included in the
determination of the Eurodollar Rate hereunder; or
(C) does or shall impose on the Banks any other
condition regarding this Loan Agreement or the Loans; and the
result of any of the foregoing is to increase the cost to the
Banks of making, renewing, converting or maintaining advances or
extensions of credit as Eurodollar Loans, or to reduce any amount
receivable in respect of such Eurodollar Loans, then, in any such
case, the Banks will promptly notify the Borrower of the change
and of the estimated amount of such cost increase or reduction in
amount and Borrower shall promptly pay to the Banks upon their
demand, such additional amount which will compensate the Banks
for such additional cost or reduced amount receivable as the
Banks deem to be material as determined by the Banks. If the
Borrower becomes so obligated, at Borrower's option and upon two
Eurodollar Business Days, prior notice by telephone or telegraph
(to be confirmed promptly in writing) given by the Borrower to
the Banks, the Borrower may (in lieu of paying such additional
amounts as aforesaid): (i) terminate the obligation of the Banks
to make or maintain Eurodollar Loans and/or (ii) convert all
Eurodollar Loans then outstanding to any other type of Revolving
Loan, as the case may be, by prepayment and reborrowing in the
manner specified in this Loan Agreement. If any such conversion
of a Eurodollar Loan is made on a day which is not the last day
of an applicable Eurodollar Period, the Borrower shall pay to the
Banks upon request such amount or amounts as may be necessary to
compensate the Banks for any loss or expense sustained or
incurred by the Banks in respect of the prepayment of such
Eurodollar Loan as a result of such conversion. If the Bank
becomes entitled to claim any additional amounts pursuant to this
Section, it shall promptly notify Borrower thereof. A
certificate as to any additional amounts payable pursuant to the
foregoing submitted by an officer of the Banks to the Borrower
shall be conclusive in the absence of manifest error.
2.15 Indemnity Against Funding Losses or Expenses. The
Borrower shall indemnify the Banks against any loss or expense
that the Banks may, as a consequence of the Borrower's failure to
make a payment on the due date thereof, sustain or incur in
liquidating or employing deposits from third parties acquired to
effect, fund or maintain any Eurodollar Loan or any part thereof;
provided, however, that the Banks shall have a duty to mitigate
any such loss or expense. If the Banks become entitled to claim
any additional amounts pursuant to this Section, they shall
promptly notify the Borrower.
2.16 Basis for Determining InterBank Rate Inadequate or
Unfair. If with respect to any Eurodollar Period:
(A) the Agent determines that deposits in dollars
in the applicable amounts are not being offered to the Agent in
the InterBank market for such Eurodollar Period, or
(B) the Banks determine that the applicable LIBOR
will not adequately and fairly reflect the cost to the Banks of
maintaining or funding a Eurodollar Loan for such Eurodollar
Period, then, the Agent shall promptly notify Borrower and, until
the Banks determine that the circumstances giving rise to such
suspension no longer exist, the Banks' obligation to make future
Eurodollar Loans shall be suspended.
SECTION III - TERM LOAN
Subject to the full satisfaction of all requirements of
the Banks and their counsel including the delivery of an Opinion
Letter that is reasonably acceptable to the Banks and all other
documents listed on Exhibit A, and the absence of any Default or
Event of Default, the Banks severally agree to lend to the
Borrower the aggregate principal sum of EIGHT MILLION FIFTY-FIVE
THOUSAND FIVE HUNDRED FIFTY FIVE and 00/100 DOLLARS
($8,055,555.00) in proportion to their Commitments on the
following terms and conditions:
3.1 Term Note. The Term Loan will be evidenced by the
Term Note, a copy of which is annexed as "Exhibits C-1 and C-2"
and will be delivered to the Agent on the Date of Closing.
3.2 Principal Repayment. The principal balance of the
Term Loan shall be repaid as follows: (a) forty-five (45) equal
consecutive monthly installments of FIFTY THOUSAND FIVE HUNDRED
FIFTY-FIVE and 56/100 DOLLARS ($55,555.56) each, commencing on
the first day of the month of July, 1997, and on the first day of
each month consecutively thereafter until the first day of the
month of April, 2001, when a forty-sixth and final principal
installment of FIVE MILLION FIVE HUNDRED FIFTY-FIVE THOUSAND FIVE
HUNDRED FIFTY-FIVE and 20/100 DOLLARS ($5,555,555.20) together
with all accrued interest and other sums owing under the Term
Loan, shall be due and payable.
3.3 Payment of Interest. Accrued interest on the
daily principal balance of the Term Loan is due and payable on
each Interest Payment Date. Any interest not paid when due, in
the Banks' discretion and without limitation of any other right
or remedy in any Loan Document (including the right to charge a
late fee or to raise the interest rate after an Event of
Default), may be added to the principal amount outstanding under
the Term Loan or the Revolving Loan, at the Agent's option, and
accrue interest at the Base Rate and be payable upon demand.
3.4 Method of Selecting Interest Rate.
(A) Notice of Interest Selection. The Term Loan
shall bear interest at the Base Rate plus the Applicable Margin
for a Base Rate Loan plus fifteen (15) Basis Points; provided,
however that the Borrower may select that all or a portion of the
Term Loan bear interest at the Eurodollar Rate plus the
Applicable Margin for a Eurodollar Loan plus fifteen (15) Basis
Points. To make such selection, the Borrower shall deliver to
the Agent (or transmit by telecopier with the original to be
mailed or delivered to the Agent on the same day) by 11:00 a.m.
of any Banking Day an irrevocable Notice of Interest Selection
signed by an executive officer of the Borrower substantially in
the form of the annexed Exhibit H specifying each of the
following:
(i) a request that all or a portion of the
Term Loan be treated as a Eurodollar Loan;
(ii) the amount of the Term Loan proposed to
be a Eurodollar Loan in multiples of $1,000,000 (or the
entire Term Loan);
(iii) the duration of the Interest Period
(which Interest Period (a) shall be either one month,
two month, three month or six months and (b) shall not
extend beyond the Term Loan Maturity Date).
(B) Determination of Rate. For any Eurodollar
Loan, two Eurodollar Banking Days before the first day of the
applicable Eurodollar Period, the Agent shall determine the
applicable Eurodollar Rate and advise the Borrower of that rate
by telephone or telecopier. If by 11:30 a.m. New York City time
of the day in which the Agent quotes any rate the Borrower shall
not have advised the Agent (by telephone with immediate
telecopier confirmation) whether Borrower wishes to receive the
quoted rate, then the Agent may, in its discretion, conclude that
the Borrower has rejected the quoted rate and chosen instead to
continue as a Base Rate Loan with respect to the amount requested
in the applicable Notice of Interest Selection. The Banks'
determination of any rate shall be conclusive, absent manifest
error. Amounts outstanding on the Term Loan on the effective
date of the Loan Agreement shall be Base Rate Loans.
(C) Agent's Election of Rate. If the Agent does
not receive a timely Notice of Interest Selection prior to the
expiration of any Interest Period for a Eurodollar Loan which is
part of the Term Loan, the Borrower shall be deemed to have
elected to pay interest at the Base Rate plus the Applicable
Margin for Base Rate Loans on the principal amount outstanding at
the end of the Interest Period.
3.5 Use of Proceeds. All proceeds of the Term Loan
shall be used by the Borrower on the Date of Closing to repay in
full its indebtedness due to CoreStates and Chemical on the "term
loan" portion of its Existing Credit Facility.
3.6 Interest Rates For Term Loan.
The Borrower agrees to pay interest on the unpaid
portion of Term Loan as follows:
(A) for Base Rate Loans at a fluctuating rate
equal to the Base Rate in effect from time to time plus the
Applicable Margin for Base Rate Loans plus fifteen (15) Basis
Points; and
(B) for each Eurodollar Loan at a fixed rate
equal to the sum of the Eurodollar Rate for that Loan plus the
Applicable Margin for Eurodollar Loans plus fifteen (15) Basis
Points.
3.7 Calculation of Interest. Interest shall be
calculated on a 360-day year based on the number of days elapsed.
After the last day of each Interest Period for any Loan the Agent
shall endeavor to mail to the Borrower a statement of that Loan
as of the last day of the Interest Period. That statement will
be deemed to be correct unless the Borrower has delivered to the
Agent specific written objections within thirty (30) days of the
Borrower's receipt.
3.8 Increased Cost. If at any time or from time to
time any change occurring after the date hereof in any
requirement of law, regulation, order, decree, treaty or
directive or in the interpretation or application thereof by
governmental authority or compliance by the Banks with any
request or directive (whether or not having the force of law)
occurring after the date hereof from any central bank or monetary
authority or other governmental authority:
(A) does or shall subject the Banks to any tax of
any kind whatsoever with respect to this Loan Agreement or any
Eurodollar Loan, or change the basis of taxation of payments to
the Banks of principal, interest or other amount payable
hereunder (except for changes in the rate or method of tax on the
overall net income of the Banks in any jurisdiction); or
(B) does or shall impose, modify or hold
applicable any reserve, special deposit, compulsory loan or
similar requirement against assets held by, or deposits or other
liabilities in or for the account of, advances or loans by, or
other credit extended by, or any other acquisition of funds by,
any office of the Banks which are not otherwise included in the
determination of the Eurodollar Rate hereunder; or
(C) does or shall impose on the Banks any other
condition regarding this Loan Agreement or the Loans; and the
result of any of the foregoing is to increase the cost to the
Banks of making, renewing, converting or maintaining advances or
extensions of credit as Eurodollar Loans, or to reduce any amount
receivable in respect of such Eurodollar Loans, then, in any such
case, the Banks will promptly notify the Borrower of the change
and of the estimated amount of such cost increase or reduction in
amount and Borrower shall promptly pay to the Banks upon their
demand, such additional amount which will compensate the Banks
for such additional cost or reduced amount receivable as the
Banks deem to be material as determined by the Banks. If the
Borrower becomes so obligated, at Borrower's option and upon two
Eurodollar Business Days, prior notice by telephone or telegraph
(to be confirmed promptly in writing) given by the Borrower to
the Banks, the Borrower may (in lieu of paying such additional
amounts as aforesaid): (i) terminate the obligation of the Banks
to make or maintain Eurodollar Loans and/or (ii) convert all
Eurodollar Loans then outstanding to any other type of Revolving
Loan, as the case may be, by prepayment and reborrowing in the
manner specified in this Loan Agreement. If any such conversion
of a Eurodollar Loan is made on a day which is not the last day
of an applicable Eurodollar Period, the Borrower shall pay to the
Banks upon request such amount or amounts as may be necessary to
compensate the Banks for any loss or expense sustained or
incurred by the Banks in respect of the prepayment of such
Eurodollar Loan as a result of such conversion. If the Bank
becomes entitled to claim any additional amounts pursuant to this
Section, it shall promptly notify Borrower thereof. A
certificate as to any additional amounts payable pursuant to the
foregoing submitted by an officer of the Banks to the Borrower
shall be conclusive in the absence of manifest error.
3.9 Indemnity Against Funding Losses or Expenses. The
Borrower shall indemnify the Banks against any loss or expense
that the Banks may, as a consequence of the Borrower's failure to
make a payment on the due date thereof, sustain or incur in
liquidating or employing deposits from third parties acquired to
effect, fund or maintain any Eurodollar Loan or any part thereof;
provided, however, that the Banks shall have a duty to mitigate
any such loss or expense. If the Banks become entitled to claim
any additional amounts pursuant to this Section, they shall
promptly notify the Borrower.
3.10 Basis for Determining InterBank Rate Inadequate or
Unfair. If with respect to any Eurodollar Period:
(A) the Agent determines that deposits in dollars
in the applicable amounts are not being offered to the Agent in
the InterBank market for such Eurodollar Period, or
(B) the Banks determine that the applicable LIBOR
will not adequately and fairly reflect the cost to the Banks of
maintaining or funding a Eurodollar Loan for such Eurodollar
Period, then, the Agent shall promptly notify Borrower and, until
the Banks determine that the circumstances giving rise to such
suspension no longer exist, the Banks' obligation to make future
Eurodollar Loans shall be suspended.
SECTION IV - CONVERTIBLE REVOLVING LOAN
Subject to the full satisfaction of all requirements of
the Banks and their counsel including the delivery of an Opinion
Letter that is acceptable to the Banks and all other documents
listed on Exhibit A and the absence of any Default or Event of
Default, the Banks will, from time to time severally, in
proportion to their Commitments, make loans to the Borrower in
such amounts and under such terms as set forth below:
4.1 Amount of Loans. The aggregate amount of all
loans and extensions of credit outstanding at any time under the
Convertible Revolver will not exceed ELEVEN MILLION and 00/100
DOLLARS ($11,000,000). The Borrower may request that Convertible
Revolver Loans be made in the form of a Base Rate Loan or a
Eurodollar Loan in accordance with the procedures, and subject to
the limitations set forth in this Loan Agreement. Until the
Banking Day before the First Conversion Date, in the absence of
any Default or Event of Default, the Borrower may borrow,
reborrow and repay the Convertible Revolver Loan so long as the
aggregate outstanding balance is never in excess of $11,000,000.
Until the Banking Day before the Second Conversion Date, in the
absence of any Default or Event of Default, the Borrower may
borrow, reborrow and repay the Convertible Revolver Loan so long
as the aggregate outstanding balance of the net amounts borrowed
on and after the First Conversion Date is never in excess of
$11,000,000 less the First Principal Balance. Until the Banking
Day before the Third Conversion Date, in the absence of any
Default or Event of Default, the Borrower may borrow, reborrow
and repay the Convertible Revolver Loan so long as the aggregate
outstanding balance of the net amounts borrowed on and after the
Second Conversion Date is never in excess of $11,000,000 less the
sum of (i) the First Principal Balance and (ii) the Second
Principal Balance.
4.2 Loans In Excess of Maximum. If, for any reason,
the outstanding balance of the Convertible Revolver Loan at any
time exceeds ELEVEN MILLION and 00/100 DOLLARS ($11,000,000), all
sums advanced shall nonetheless constitute indebtedness under
this Loan Agreement and shall be due and payable upon demand.
4.3 Conversion of Loans. (a) At 12:00 noon on the
last Banking Day before the First Conversion Date, the Banks'
several responsibility and Commitments to make any loans under
the Convertible Revolver shall be reduced pro rata by an amount
equal to the principal balance of the Convertible Revolver then
outstanding (the "First Principal Balance"). Beginning on and
after the First Conversion Date, the First Principal Balance
shall be repayable by the Borrower in installments as set forth
in Section 4.4(a). On the First Conversion Date, the Borrower
shall execute separate notes in the form of Exhibit D-3 annexed
hereto in the aggregate principal amount of the First Principal
Balance.
(b) At 12:00 noon on the last Banking Day before
the Second Conversion Date, the Banks' several responsibility and
Commitments to make any loans under the Convertible Revolver
shall be reduced further pro rata by an amount equal to the
principal balance of the Convertible Revolver then outstanding
exclusive of the First Principal Balance (the "Second Principal
Balance"). Beginning on and after the Second Conversion Date,
the Second Principal Balance shall be repayable by the Borrower
in installments as set forth in Section 4.4(b). On the Second
Conversion Date, the Borrower shall execute separate notes in the
form of Exhibit D-4 annexed hereto in the aggregate principal
amount of the Second Principal Balance.
(c) At 12:00 noon on the last Banking Day before
the Third Conversion Date, the Banks' responsibility and
Commitments to make any loans under the Convertible Revolver
shall automatically cease. Beginning on and after the Third
Conversion Date, all principal outstanding under the Convertible
Revolver on the Third Conversion Date exclusive of the First
Principal Balance and the Second Principal Balance being repaid
pursuant to Sections 4.4(a) and 4.4(b) below) (the "Third
Principal Balance") shall be repayable in installments as set
forth in Section 4.4(c). On the Second Conversion Date, the
Borrower shall execute a separate note in the form of Exhibit D-5
annexed hereto in the principal amount of the Third Principal
Balance.
(d) Notwithstanding the foregoing, the Banks
responsibility and Commitments to make any loans under the
Convertible Revolver shall immediately cease upon occurrence of a
Default or Event of Default (unless subsequently cured to the
satisfaction of the Banks).
4.4 Principal Payments. (a) The Borrower shall not be
required to make principal payments prior to the First Conversion
Date except as required under Section 4.2 or if there shall be an
Event of Default. After the First Conversion Date, the Borrower
shall repay the First Principal Balance in Eighty Four (84) equal
monthly principal installments based on a seven (7) year term
beginning on the first (1st) day of the first month after the
First Conversion Date and on the first (1st) day of each month
consecutively thereafter until the first day of the Eighty-Fourth
(84th) month after the First Conversion Date when all principal,
interest and other sums then outstanding under the note issued in
the amount of the First Principal Balance under the Convertible
Revolver shall be due and payable in full.
(b) After the Second Conversion Date, the
Borrower shall repay the Second Principal Balance in Eighty Four
(84) equal monthly principal installments based on a seven (7)
year term beginning on the first (1st) day of the first month
after the Second Conversion Date and on the first (1st) day of
each month consecutively thereafter until the first day of the
Eighty-Fourth (84th) month after the Second Conversion Date when
all principal, interest and other sums then outstanding under the
note issued in the amount of the Second Principal Balance under
the Convertible Revolver shall be due and payable in full.
(c) After the Third Conversion Date, the Borrower
shall repay the Third Principal Balance in Eighty Four (84) equal
monthly principal installments based on a seven (7) year term
beginning on the first (1st) day of the first month after the
Third Conversion Date and on the first (1st) day of each month
consecutively thereafter until the first day of the Eighty-Fourth
(84th) month after the Third Conversion Date when all principal,
interest and other sums then outstanding under the Convertible
Revolver shall be due and payable in full.
4.5 Payment of Interest. Accrued interest on the
daily principal balance of the Convertible Revolver is due and
payable on each Interest Payment Date. Any interest not paid
when due, in the Banks' discretion and without limitation of any
other right or remedy in any Loan Document (including the right
to charge a late fee or to raise the interest rate after an Event
of Default), may be added to the principal amount outstanding
under the Convertible Revolver and accrue interest at the Base
Rate plus the Applicable Margin for Base Rate Loans and be
payable upon demand.
4.6 Method of Borrowing.
(A) Notice of Borrowing. To borrow or to select
a type of loan under the Convertible Revolver, the Borrower shall
deliver to the Agent (or transmit by telecopier with the original
to be mailed or delivered to the Agent on the same day) by 11:00
a.m. of any Banking Day an irrevocable Notice of Borrowing signed
by an executive officer of the Borrower substantially in the form
of the annexed Exhibit G specifying each of the following:
(i) the proposed borrowing date for a
Convertible Revolver Loan which, (a) in the case of a
Base Rate Loan may be the same Banking Day or, (b) in
the case of a Eurodollar Loan shall be a Eurodollar Day
at least two (2) Banking Days thereafter;
(ii) the type of loan requested;
(iii) the amount of the proposed
borrowing which, in the case of a Base Rate Loan shall
be at least $500,000 and in multiples of $50,000 and in
the case of a Eurodollar Loan shall be in multiples of
$1,000,000;
(iv) in the case of a Eurodollar Loan, the
duration of the Interest Period for each borrowing
(which Interest Period (a) shall be either 30, 60 90 or
180 days and (b) shall not extend beyond any Conversion
Date); and
(v) instructions to the Agent as to the
deposit or transmittal of the borrowed funds.
(B) Determination of Rate. For any Eurodollar
Loan, two Eurodollar Banking Days before the first day of the
applicable Eurodollar Period, the Agent shall determine the
applicable Eurodollar Rate and advise the Borrower of that rate
by telephone or telecopier. If by 11:30 a.m. New York City time
of the day in which the Agent quotes any rate the Borrower shall
not have advised the Agent (by telephone with immediate
telecopier confirmation) whether Borrower wishes to receive the
quoted rate, then the Agent may, in its discretion, conclude that
the Borrower has rejected the quoted rate and chosen instead to
receive a Base Rate Loan in an amount equal to the Loan requested
in the applicable Notice of Borrowing. The Agent's determination
of any rate shall be conclusive, absent manifest error.
(C) Deduction for Amounts Due. If any
Convertible Revolver Loan is to be made on a day on which
Borrower is to repay any outstanding Loan, the Agent is
authorized to apply proceeds from the new Loan to make that
payment and advance to Borrower only the net amount of the new
Loan after deducting the amount of the existing Loan payment
including principal and accrued interest that had been due.
4.7 Loan Selection.
(A) Revolving Loan. During the term of the
Convertible Revolver Loan prior to the First Conversion Date (or,
(x) with respect to new borrowings in excess of the First
Principal Balance, prior to the Second Conversion Date or (y)
with respect to now borrowings in excess of the sum of the First
Principal Balance and the Second Principal Balance, prior to the
Third Conversion Date), by delivering a Notice of Borrowing
pursuant to Section 4.6, the Borrower may (1) convert any Base
Rate Borrowing to a Eurodollar Loan by giving the Agent the
Notice of Borrowing two Eurodollar Banking Days before the first
day of the applicable Eurodollar Period and (2) at the end of any
Interest Period convert any Eurodollar Loan to any other type of
Convertible Revolver Loan then available to the Borrower
hereunder by giving the notice required under Section 4.6 for
that type of Loan. The Borrower must select either the Base Rate
or Eurodollar Rate for the entire amount of any advance, but may
simultaneously have outstanding various types of Convertible
Revolver Loans.
(B) Term Loan. The Borrower shall have the same
rights to select interest rates under the Convertible Revolver
Loans after the Conversion Dates with respect to interest payable
on the First Principal Balance and/or the Second Principal
Balance and/or the Third Principal Balance pursuant to a Notice
of Interest Selection as it has under the Term Loan, except that
the Borrower shall have no right to select an Interest Period
that would go beyond the applicable Convertible Revolver Maturity
Date and the interest rate on the First Principal Balance, Second
Principal Balance and Third Principal Balance for each
Convertible Term Loan shall be either the Base Rate plus the
Applicable Margin plus fifteen (15) Basis Points or the
Eurodollar Rate plus the Applicable Margin plus fifteen (15)
Basis Points.
(C) Agent's Election of Rate. If the Agent does
not receive a timely Notice of Borrowing or Notice of Interest
Selection prior to the expiration of any Interest Period for a
Eurodollar Loan which is part of the Convertible Revolver, the
Borrower shall be deemed to have elected to pay in full that
Eurodollar Loan at the end of the Interest Period out of the
proceeds of a new Base Rate Loan bearing interest at the Base
Rate plus the Applicable Margin for Base Rate Loans (plus fifteen
(15) Basis Points with respect to interest on any Convertible
Term Loan) which rate shall be fixed by the Agent without any
further opportunity for the Borrower to accept or reject such
rate. That new Base Rate Loan will be in a principal amount
equal to the principal amount of the expiring Eurodollar Loan and
if the Banks determine in their absolute discretion, accrued
interest of the Eurodollar Loan that is being repaid and shall be
deemed made automatically and contemporaneously with the payment
of that Eurodollar Loan.
4.8 Use of Proceeds. The proceeds of any advances
prior to the Third Conversion Date under the Convertible Revolver
Loan will be used by the Borrower only to fund future equipment
purchases or store remodeling, in either case for the Borrower's
existing stores (but not construction of the Garwood Facility)
and to provide letters of credit in lieu of performance bonds
related to capital projects (other than construction of the
Garwood Facility). Notwithstanding the foregoing, if the
Borrower has borrowed such funds pursuant to the Convertible
Revolver, used such funds for proper purposes set forth in this
Section and then repaid any such principal amount, then, if there
is no Default or Event of Default, the principal amount so repaid
thereafter may be reborrowed by the Borrower for any purposes.
For any project involving projected drawdowns of $1,000,000 or
more, a budget acceptable to the Banks must be delivered to the
Banks and approved before more than $250,000 is spent on such
project. The Banks will monitor such budget against actual costs
of the project, and draws will be conditioned on the Borrower's
compliance with the budget and other terms for monitoring costs
acceptable to the Banks.
4.9 Notes. The Convertible Revolver Loan shall be
evidenced by the Convertible Revolver Note, a copy of which is
annexed as Exhibits D-1 and D-2 (as to the initial Convertible
Revolver Loans). Each Convertible Term Loan shall be evidenced
by a Convertible Revolver Note in the form annexed here to us
Exhibits D-3, D-4 and D-5. The Agent will endeavor to record all
advances, interest and payments on the Agent's records relating
to the initial Convertible Revolver Note. The failure of the
Agent to make any such record, however, shall not alter or impair
the rights and remedies of the Banks if an advance has actually
been made or the rights of the Borrower if a payment has actually
been delivered.
4.10 Termination. The provisions of this Loan
Agreement that provide for the making of advances under the
Convertible Revolver Loan shall expire automatically on 12:00
noon on the day before the Third Conversion Date, may be
terminated by the Banks at any time after the occurrence of any
Default or Event of Default (not subsequently cured to the
satisfaction of the Banks before such termination) and shall be
terminated automatically upon the occurrence of any Event of
Default described in Section 9.13.
4.11 Interest Rates For Convertible Revolver Loan.
The Borrower agrees to pay interest on the unpaid
portion of Convertible Revolver Loans as follows:
(A) for Base Rate Loans prior to conversion to a
term loan, at a fluctuating rate equal to the Base Rate in effect
from time to time plus the Applicable Margin for Base Rate Loans;
(B) for Base Rate Loans after conversion to a
Convertible Term Loan (i.e., interest on the First Principal
Balance, Second Principal Balance or Third Principal Balance), at
a fluctuating rate equal to the Base Rate in effect from time to
time plus the Applicable Margin for Base Rate Loans plus fifteen
(15) Basis Points
(C) for each Eurodollar Loan prior to conversion
to a term loan at a fixed rate equal to the Eurodollar Rate for
that Loan plus the Applicable Margin for Eurodollar Loans.
(D) for each Eurodollar Loan after conversion to
a Convertible Term Loan, at a fluctuating rate equal to the
Eurodollar Rate for that loan plus the Applicable Margin for
Eurodollar Loans plus fifteen (15) Basis Points.
4.12 Calculation of Interest. Interest shall be
calculated on a 360-day year based on the number of days elapsed.
After the last day of each Interest Period for any Loan the Agent
shall endeavor to mail to Borrower a statement of that Loan as of
the last day of the Interest Period. That statement will be
deemed to be correct unless the Borrower has delivered to the
Agent specific written objections within thirty (30) days of the
Borrower's receipt.
4.13 Increased Cost. If at any time or from time to
time any change occurring after the date hereof in any
requirement of law, regulation, order, decree, treaty or
directive or in the interpretation or application thereof by
governmental authority or compliance by the Banks with any
request or directive (whether or not having the force of law)
occurring after the date hereof from any central bank or monetary
authority or other governmental authority:
(A) does or shall subject the Banks to any tax of
any kind whatsoever with respect to this Loan Agreement or any
Eurodollar Loan, or change the basis of taxation of payments to
the Banks of principal, interest or other amount payable
hereunder (except for changes in the rate or method of tax on the
overall net income of the Banks in any jurisdiction); or
(B) does or shall impose, modify or hold
applicable any reserve, special deposit, compulsory loan or
similar requirement against assets held by, or deposits or other
liabilities in or for the account of, advances or loans by, or
other credit extended by, or any other acquisition of funds by,
any office of the Banks which are not otherwise included in the
determination of the Eurodollar Rate hereunder; or
(C) does or shall impose on the Banks any other
condition regarding this Loan Agreement or the Loans; and the
result of any of the foregoing is to increase the cost to the
Banks of making, renewing, converting or maintaining advances or
extensions of credit as Eurodollar Loans, or to reduce any amount
receivable in respect of such Eurodollar Loans, then, in any such
case, the Banks will promptly notify the Borrower of the change
and of the estimated amount of such cost increase or reduction in
amount and Borrower shall promptly pay to the Banks upon their
demand, such additional amount which will compensate the Banks
for such additional cost or reduced amount receivable as the
Banks deem to be material as determined by the Banks. If the
Borrower becomes so obligated, at Borrower's option and upon two
Eurodollar Business Days, prior notice by telephone or telegraph
(to be confirmed promptly in writing) given by the Borrower to
the Banks, the Borrower may (in lieu of paying such additional
amounts as aforesaid): (i) terminate the obligation of the Banks
to make or maintain Eurodollar Loans and/or (ii) convert all
Eurodollar Loans then outstanding to any other type of
Convertible Revolver Loan, as the case may be, by prepayment and
reborrowing in the manner specified in this Loan Agreement. If
any such conversion of a Eurodollar Loan is made on a day which
is not the last day of an applicable Eurodollar Period, the
Borrower shall pay to the Banks upon request such amount or
amounts as may be necessary to compensate the Banks for any loss
or expense sustained or incurred by the Banks in respect of the
prepayment of such Eurodollar Loan as a result of such
conversion. If a Bank becomes entitled to claim any additional
amounts pursuant to this Section, it shall promptly notify
Borrower thereof. A certificate as to any additional amounts
payable pursuant to the foregoing submitted by an officer of the
Banks to the Borrower shall be conclusive in the absence of
manifest error.
4.14 Indemnity Against Funding Losses or Expenses. The
Borrower shall indemnify the Banks against any loss or expense
that the Banks may, as a consequence of the Borrower's failure to
make a payment on the due date thereof, sustain or incur in
liquidating or employing deposits from third parties acquired to
effect, fund or maintain any Eurodollar Loan or any part thereof;
provided, however, that the Banks shall have a duty to mitigate
any such loss or expense. If the Banks become entitled to claim
any additional amounts pursuant to this Section, they shall
promptly notify the Borrower.
4.15 Basis for Determining InterBank Rate Inadequate or
Unfair. If with respect to any Eurodollar Period:
(A) the Agent determines that deposits in dollars
in the applicable amounts are not being offered to the Agent in
the InterBank market for such Eurodollar Period, or
(B) the Banks determine that the applicable LIBOR
will not adequately and fairly reflect the cost to the Banks of
maintaining or funding a Eurodollar Loan for such Eurodollar
Period, then, the Banks shall promptly notify Borrower and, until
the Banks determine that the circumstances giving rise to such
suspension no longer exist, the Banks' obligation to make future
Eurodollar Loans shall be suspended.
SECTION V - PAYMENTS, PROCEEDS AND TERM
5.1 Manner of Payment. All payments shall be
delivered to the Agent in immediately available funds when due.
Any delay by the Agent in submitting a statement of any amount
due shall not relieve the Borrower from any duty to inquire as to
the amount due and to make timely payment.
5.2 Payment on Non-Banking Days. Any payment that is
due on a day other than a Banking Day may be made on the next
succeeding Banking Day together with interest for each such
additional day after the original due date.
5.3 Late Payments. If any payment is not received
within fifteen (15) days from the date that payment is due, the
Banks may charge a "late charge" equal to Five Cents ($.05) of
each dollar of principal, interest, charges and expenses overdue
for the purpose of defraying the expense incident to handling
that delinquent payment. This late charge can be imposed on each
late payment. This late charge shall be in addition to, and not
in lieu of, any other right or remedy the Banks may have as a
result of a late payment.
5.4 Prepayments. At any time upon five (5) calendar
days written notice to the Agent, any loan being made pursuant to
this Loan Agreement may be prepaid, in whole, or in part without
penalty in multiples of ONE HUNDRED THOUSAND and 00/100 DOLLARS
($100,000), provided, however, that no Eurodollar Loan may be
prepaid except at the end of the applicable Eurodollar Period and
accrued interest on the amount being prepaid plus the Make Whole
Fee set forth in Section 5.5 below shall simultaneously be paid.
Prepayments shall be applied first to any expenses outstanding
under any Loan Document, then to Make Whole Fee, then to interest
and then to principal and, when applied to principal, shall be
applied to installments in inverse order of their maturity.
5.5 Make Whole Fees. In the event that the Borrower
makes a prepayment against any principal amount outstanding under
any Eurodollar Loans prior to the end of the Interest Period for
such Loan notwithstanding the prohibitions of Section 5.4,
whether that payment is made voluntarily or by reason of an
acceleration of the payment date of said amount following the
occurrence of an Event of Default, the Borrower shall pay to the
Agent (for the ratable benefit of the Lenders) a Make Whole Fee.
A certificate as to the amount of the Make Whole Fee submitted by
the Agent to the Borrower setting fourth in reasonable detail the
basis of computation of such amounts shall be conclusive and
binding, in the absence of manifest error as to the amount due.
The "Make Whole Fee" means, for any prepayment of any Eurodollar
Loan prior to the end of the Interest Period for such Loan, an
amount (not less than zero) equal to a fraction, the numerator of
which is the product of (i) the amount of said Eurodollar Loan so
prepaid, multiplied by (ii) the Make Whole Rate, multiplied by
(iii) the Remaining Term, and the denominator of which is 360,
the entire amount of which is discounted to present value using
an interest rate set within the reasonable discretion of the
Lender. The "Make Whole Rate" means for any such prepayment (or
portion thereof) the per annum rate of interest equal to the
difference between (i) interest rate which would have been
charged on the amounts outstanding under such Eurodollar Rate
Loan, and (ii) the yield on obligations of the United States
Treasury as determined by the Lender as of the date of the
prepayment for such obligations having a maturity approximately
equal to the Remaining Term. "Remaining Term" means the number
of days until the end of the Interest Period for any Eurodollar
Loan.
5.6 Interest Rate Protection. At the request of the
Agent, the Borrower shall enter into an agreement, or purchase an
instrument, that will yield to the Borrower amounts such that the
effective net rate of interest that the Borrower will incur with
respect to the aggregate outstanding principal amount of any and
all Term Loans hereunder plus 75% of the amount of any
Convertible Term Loan when combined with such instrument will not
exceed Ten Percent (10%) per annum for the period from the date
hereof through the maturity date of each such Term Loan. All
such investments or instruments shall be in form and substance,
and with counterparties, acceptable to the Banks, in its
reasonable discretion.
5.7 Term. The Term of this Loan Agreement shall
commence as of the Date of Closing and, subject to the provisions
hereof, shall expire at midnight on the date that all Obligations
have been fully paid and all Commitments have expired or been
terminated.
5.8 Interest Limits. If the fulfillment of any
provision in any Loan Document relating to the rate of interest
is prohibited by, or in violation of, any applicable law in
effect at the time payment is due, the interest rate shall be
automatically reduced to the maximum rate then permitted by law.
If for any reason the Banks should receive as interest an amount
that would exceed the highest applicable lawful rate of interest,
that amount in excess of the lawful rate will be deemed to have
been credited against principal and not against interest. This
provision shall control every other provision in any Loan
Document that is applicable to the calculation of interest.
5.9 Borrowings. The Borrower shall give the Agent
notice of each borrowing of Loans to be made hereunder after the
Date of Closing by (i) 11:00 a.m. of the date of such borrowing,
if a Base Rate Loan, or (ii) by 11:00 a.m. two Eurodollar Banking
Days before the date of such borrowing, if a Eurodollar Loan, all
as further provided in Sections 2.6 and 4.6. The Agent shall
then give Summit notice of Borrower's request by 12:00 noon of
the date it receives such notice from Borrower. Not later than
3:00 p.m. New York City time on the date of such borrowing,
Summit shall, through its Lending Offices and subject to the
conditions of this Loan Agreement, make the amount of the Loan to
be made by it on such day available to the Agent, at the Lending
Office of the Agent and in immediately available funds for the
account of the Borrower. The amount so received by the Agent
shall, subject to the conditions of this Loan Agreement, be made
available to the Borrower, in immediately available funds, by
3:00 p.m. New York City time on the date of such borrowing, by
the Agent crediting an account of the Borrower designated by the
Borrower and maintained with the Agent at its Lending Office.
5.10 Certain Notices. Notices by the Borrower to the
Agent of each borrowing and each prepayment shall be irrevocable
and shall be effective only if received by the Agent not later
than 11:00 a.m. New York City time.
5.11 Commitment Fees. A commitment fee shall accrue on
the daily average unused amount of the Commitments of each Bank
for the Revolving Loan and the Convertible Revolver for the
period from and including the Closing Date to the earliest of the
date the Commitments are terminated by the Banks or the Revolving
Loan Maturity Date (for the Revolving Loan) or the Third
Conversion Date (for the Convertible Revolver Loan) at a rate per
annum equal to twenty-five (25) Basis Points calculated on the
basis of a 360 day year for the actual number of days elapsed.
The accrued commitment fee shall be due and payable in arrears on
the first day of each calendar quarter, commencing on the first
day of the first calendar quarter after the Closing Date and on
the Revolving Loan Maturity Date (for the Revolving Loan) and the
Third Conversion Date (for the Convertible Revolver.)
5.12 Payment Generally. All payments under this
Agreement or the Notes or fees shall be made by the Borrower in
United States Dollars in immediately available funds not later
than 2:00 p.m. New York City time on the date on which such
payment shall become due (each such payment made after such time
on such due date to be deemed to have been made on the next
succeeding Banking Day) at the Lending Office of the Agent for
the account of the Lending Offices of each Bank provided, that,
when a new Loan is to be made by each Bank on a date the Borrower
is to repay any principal of an outstanding Loan, such Bank shall
apply the proceeds thereof to the payment of the principal to be
repaid and only an amount equal to the difference between the
principal to be borrowed and the principal to be repaid shall be
made available by such Bank to the Borrower as provided in
Sections 2.6(C) or 4.6(C). The Agent, or any Bank for whose
account any such payment is to be made, may (but shall not be
obligated to) debit the amount of any such payment which is not
made by such time to any ordinary deposit account of the Borrower
with the Agent or such Bank, as the case may be, and any Bank so
doing shall promptly notify the Agent and the Borrower thereof.
The Borrower shall, at the time of making each payment under this
Loan Agreement or any Note, specify to the Agent the principal or
other amount payable by the Borrower under this Agreement or the
Note to which such payment is to be applied, and in the event
that it fails to so specify, or if a Default or Event of Default
has occurred and is continuing, the Agent may apply such payment
as it may elect in its sole discretion. If the due date of any
payment under this Agreement or any Note would otherwise fall on
a day which is not a Banking Day, such date shall be extended to
the next succeeding Banking Day and interest shall by payable for
any principal so extended for the period of such extension. Each
payment received by the Agent hereunder or under any Note for the
account of a Bank shall be paid promptly to such Bank, in
immediately available funds, for the account of such Bank's
Lending Office.
5.13 Payments by Banks. Each Bank shall provide to the
Agent its proportionate share of all advances or Loans to be made
to the Borrower hereunder by wire transfer in immediately
available funds no later than 3:00 p.m. New York City time on the
date on which any borrowing is to be made hereunder. The Agent
shall not be obligated to make any advances or Loans to the
Borrower until such time as its receives each Bank's
proportionate share in immediately available funds. Any failure
of a Bank to advance its proportionate share of any Loan or to
assume or indemnify the Agent for its proportionate share of any
liability hereunder shall be a breach of its obligations to the
Agent and the other Banks as well as to the Borrower. The Banks
and the Agent agree that all advances and Loans, as well as all
payments received by the Agent from the Borrower or the Guarantor
or any other party, shall be reconciled daily. In the event the
Agent does not receive any payment from the Borrower prior to
2:00 p.m. on any given Banking Date, the Agent shall not remit
such funds to the Banks until the next Banking Day. The Agent
shall have no obligation to pay to any Bank any amounts except
out of those immediately available funds actually received by the
Agent for application to the Obligations.
5.14 Security Documents. At Closing, the Borrower
shall grant the Banks a first priority security interest in all
Collateral, subject only to Permitted Encumbrances, and Sumas
Realty Corp. shall grant the Banks a first priority mortgage on
its real estate in Springfield, New Jersey, all pursuant to the
terms of the Mortgages, Lease Assignments and the Security
Agreement which shall be executed simultaneously with this Loan
Agreement and are a condition precedent hereto. In addition, at
Closing the Banks shall have entered into an Intercreditor
Agreement with Travelers on terms acceptable to the Banks in
their sole unfettered discretion and after having been given the
opportunity to review all agreements between the Borrower and
Travelers.
5.15 Fees. At the Closing, the Borrower shall pay (a)
to the Banks a facility fee of $65,000 to be shared pro rata by
the Banks in the same proportions as their Commitments and (b) to
the Agent a non-refundable Agent's fee of $5,000. On each
anniversary of the Closing, the Borrower shall pay to the Agent a
non-refundable agent's fee of $5,000. At Closing and from time
to time thereafter, the Borrower shall also pay or reimburse the
Banks for all of its counsel fees and other reasonable out-of-
pocket expenses related to this transaction and any subsequent
waivers, modifications or amendments.
SECTION VI - REPRESENTATIONS AND WARRANTIES
As of the Date of Closing and as of the time of each
advance under the Convertible Revolver or Revolving Loan, the
Borrower represents, and warrants to each Bank and the Agent and
agrees as follows:
6.1 Organization and Authority. Each Company is a
duly organized and validly existing corporation that is in good
standing under the laws of the State of New Jersey and is duly
qualified and in good standing in each state in which its
property or business subjects it to qualification requirements as
a foreign corporation. Each Company (A) is duly qualified and
registered to transact business in each jurisdiction in which its
properties or business make qualification or registration
necessary, and (B) has full power, authority, franchises,
licenses and right to enter into and perform each of the Loan
Documents to which it is a party and to carry on its business as
now being conducted.
6.2 Binding Effect. Each Loan Document constitutes a
legal, valid and binding obligation of the Companies which are
parties thereto, enforceable in accordance with their terms.
6.3 No Conflicting Agreements or Laws. Neither the
execution nor the delivery of any Loan Document, nor the
consummation of the transactions contemplated thereby, nor the
fulfillment of, compliance with or performance of the terms and
conditions therein, is prevented or limited by, conflicts with or
will result in the breach or violation of, or a default under the
terms or conditions of (A) any certificate of incorporation,
charter or other agreement to which any Obligor is bound, or (B)
any law, order of any court or administrative agency or any rule
or regulation applicable to any Obligor. No Obligor is, or by
Borrower's or Guarantor's execution, delivery or performance of
any Loan Document will be, in default under, or in violation of,
any of its obligations under any agreement or undertaking to
which that Obligor is a party or by which that Obligor is bound.
6.4 No Conflicting Litigation. There is no action or
proceeding pending or threatened against any Obligor or involving
any assets of, or ownership in, any Obligor before any court,
administrative agency or governmental authority that might (A)
adversely affect any Obligor's ability to authorize or perform
any Obligations, (B) involve the possibility of any judgment or
liability that would result in any material adverse change in any
Obligor's business, properties or assets or in the value of the
Banks' interest in any Collateral, (C) adversely affect the
enforceability of any Loan Document, or (D) involve possible or
threatened claims totaling in excess of $500,000, except for any
litigation that has been accurately and completely described on
Exhibit 2 annexed to the Principal's Certificate.
6.5 Ownership of Subsidiaries. The Borrower is the
legal and beneficial owner of, and holder of good record title
to, all issued and outstanding shares of all classes of stock of
the Village Liquor Stores, Inc. free and clear of all liens,
pledges, restrictions, potential margin calls and encumbrances,
and does not directly or indirectly own or control any
Subsidiaries other than Liquor.
6.6 Liens Against Property. The Borrower has good and
marketable title to all of the Property. All Property is now
free and clear of Liens, except for any Permitted Encumbrances,
and there are no judgments of record in any other state where any
Property may be located against any name used within the past 20
years by any Company or by any Company's predecessor in interest.
6.7 Location of Property and Offices. The chief
executive offices and primary business records of the Borrower
and the Guarantor are at all times maintained, and for the past
four months have at all times been maintained, at the principal
place of business of the Borrower set forth in the caption of
this Loan Agreement. All Property and other business records of
the Companies are, and will be, at the locations set forth on
Exhibit 1 annexed to the Principal's Certificate, except for new
stores and offices that may be opened only after notice to the
Banks of each such location.
6.8 Financial Information and Condition. The
consolidated financial statement of the Obligors dated July 27,
1996 and delivered to the Banks truly sets forth their financial
condition and the results of operations as of that date and there
has been no material adverse change since then. All other
statements, representations and warranties made by any Obligor to
the Banks have been, and as of the Date of Closing are, accurate
and complete and no information has been omitted that would make
any of them misleading or incomplete. Immediately prior to, and
after the making of each loan described in this Loan Agreement,
each Obligor was not, and will not be, (A) "insolvent" as that
term is defined in N.J.S.A. 25:2-23 (or any successor statute
governing fraudulent transfers) or in 11 U.S.C.A. 101(31) or (B)
left with "unreasonably small capital" or "debts beyond the
debtor's ability to pay as such debts become due", as those
phrases are construed under 11 U.S.C.A. 548 (a)(2)(B) or any
other applicable statute governing "fraudulent transfers".
6.9 Environmental Matters. Except as set forth in
Exhibit 3 to the Principal's Certificate, no Company has
generated, stored, treated, discharged, handled, refined,
spilled, released or disposed of any Hazardous Substances in
violation of any applicable law or regulation. No Company has
received any notice, or is on notice of, any claim,
investigation, litigation or administrative proceeding, actual or
threatened, or any order, writ or judgment that relates to any
discharge, spill, handling, refining, release, emission, leaching
or disposal of pollutants of any kind including any Hazardous
Substances by, or on property owned or leased by, any Company.
The Standard Industrial Classification code numbers relating to
any activities any Company, are also set forth on that Exhibit 3.
In connection with any acquisition, sale, closing, transfer,
change in control or merger of Borrower or any Company since
December 31, 1983 or any Property now or previously owned or
leased by them that was subject to New Jersey law, the New Jersey
Industrial Site Recovery Act (N.J.S.A. 13:1K-6 et seq.) ("ISRA"),
including any predecessor statute (such as the Environmental
Clean-Up Responsibility Act) was complied with by submitting a
"Negative Declaration" as that term is defined in N.J.A.C. 7:1-
3.3 or by completing a "Clean-up Plan" as that term is defined in
N.J.A.C. 7:1-3.3, which Negative Declaration or Clean-up Plan has
been approved, without condition or reservation, by the New
Jersey Department of Environmental Protection and Energy.
6.10 Taxes. Each Company has filed all tax returns and
reports required to be filed and has paid all taxes that are due
and owing (including penalties, deficiency assessments and
interest) other than those that are being diligently and in good
faith disputed and the asserted liability for which is shown as a
reserve on the financial statements delivered to the Banks in
accordance with GAAP. All such returns and reports are accurate
and complete in all respects.
6.11 Name and History. During the past twenty (20)
years, no Company has (A) had, used or operated under any other
name or trade name, (B) acquired any other organization or entity
or a substantial portion of the assets of any other organization
or entity, (C) merged, or been merged into, any other
organization or entity or (D) controlled, directly or indirectly,
any non-individual Person, except as set forth on Exhibit 4
annexed to the Principal's Certificate.
6.12 Controlling Interests. The names and respective
interests and offices of all Persons who directly or indirectly
own or control Ten Percent (10%) or more of any class of stock of
the Borrower are set forth on Exhibit 5 annexed to the
Principal's Certificate. The Sumas family holds a sufficient
number of shares of all classes of stock of Borrower to cast at
least 51% of the votes that may be cast in any election.
6.13 ERISA. There has not occurred, and there are no
circumstances that, with the lapse of time or giving of notice,
may lead to the occurrence of, a Termination Event under any
Plan. No Company, nor any Plan maintained by any Company (nor
any related trust) has incurred any accumulated funding
deficiency. Except as disclosed on Exhibit 2 to the Principal's
Certificate, no event or set of circumstances has occurred under
which any Company could be subject to any liability (including
but not limited to liability under Sections 4201 and 4242 of
ERISA) with respect to a "multi-employer plan" (as defined in
Section 3(37) of ERISA) to which it contributes other than for
contributions made in the ordinary course of business, none of
which are overdue. No representation or warranty is made by
Borrower with respect to payments or contributions due after the
date hereof by participants in any "Multi-employer plan" other
than Borrower and its affiliates.
6.14 Margin Stock. No Company is involved, as one of
its important activities, in the business of extending credit for
the acquisition of any "margin stock" (within the meaning of
Regulation U issued by the Board of Governors of the Federal
Reserve System of the United States) and no proceeds of any Loans
under this Loan Agreement will be used to purchase, or to extend
credit to others so that they may purchase, any such margin
stock.
6.15 Compliance with Loan Documents. Each Company is
in full compliance with all terms and conditions of all Loan
Documents.
6.16 No Claims or Offsets. The aggregate principal
amount of indebtedness due to the Banks as of the date hereof is
as stated in the Notes and the Prior CoreStates Loan. The
Borrower acknowledges and agrees that such indebtedness is
unconditionally due to the Banks, and that as of the date hereof
neither it nor any other Obligor has any claims against the Banks
nor any counterclaims, defenses or offsets to Obligors'
obligations under the Notes or the other Loan Documents of any
nature whatsoever.
6.17 Compliance with Laws. To the best of its
knowledge, each Company, in the conduct of its business, is in
compliance with all laws, regulations and orders, the failure to
comply with which would have a material adverse effect on the
business of such Company.
6.18 Wakefern. The Borrower is a member in good
standing of the Wakefern cooperative. The Borrower has duly
performed all of its duties and obligations as a member of the
Wakefern cooperative and has the right to use the "Shop-Rite"
name and trademark. No claim is pending or, to the best of the
Borrower's knowledge, threatened asserting any breach of any such
duties or obligations or seeking to limit or curtail the
Borrower's right to use such name or trademark.
6.19 Accuracy of Statements. All statements,
representations and warranties made by the Obligors in this Loan
Agreement and in the Loan Documents are correct and complete and
no information has been omitted therefrom which would make any of
them misleading or incomplete.
6.20 Survival. All representations and warranties in
any Loan Document shall survive both the closing of any Loans and
any independent investigation by the Banks.
SECTION VII - AFFIRMATIVE COVENANTS
The Borrower agrees to observe and perform its duties
and covenants under each Loan Document and Obligation and, in
addition, to do all of the following, and to cause the
Subsidiaries to remain in compliance with the following:
7.1 Protection of Property. Protect the value of, and
any Company's interest in, the Property including (A) maintaining
the Property in good condition and repair and preserving it
against loss, damage, contamination, pollution and depreciation
in value, other than by normal wear and tear; and (B) defending
against all claims and demands of any Person claiming title to or
a Lien against or security interest or any interest adverse to
the Banks in, any Property, except for Liens that are Permitted
Encumbrances.
7.2 Insurance. Maintain insurance as follows:
(A) property insurance written in the broadest
"all risk" form available on a replacement cost basis and
covering all tangible Property. That insurance shall be in
amounts at all times at least equal to the full insurable value
of such Property, but in no event shall the insurance be less
than the sum of the Obligations and all indebtedness outstanding
under the Note Purchase Agreement nor shall it be less than $15
million per location and $200,000,000 in the aggregate; and
(B) public liability insurance in the name of
Borrower and the Guarantor, with comprehensive general liability
coverage of not less than $175,000,000, and including a
contractual liability endorsement, in the amounts of $2,000,000
for the death or bodily injury to one person, $5,000,000 for the
death or bodily injury in any one accident or occurrence and
$500,000 for loss or damage to the property of any person or
persons; and
(C) if the Borrower shall be operating or using a
boiler, boiler explosion and casualty insurance reasonably
satisfactory to the Banks; and
(D) business interruption insurance in amounts no
less than the amounts maintained as of the Date of Closing; and
(E) worker's compensation insurance, as may be
required by law; and
(F) all such insurance coverage may be effected
under overall blanket or excess coverage policies provided,
however, that all insurance shall be in amounts sufficient to
prevent the insured from being a co-insurer within the terms of
any insurance policy; and
(G) all policies or endorsements shall (i) have
no named loss payees other than (a) the Company, as its interest
may appear, (b) the Agent, as agent for the Banks, and (c) any
lessor of any Company or mortgagee of a lessor of any Company
with respect to a casualty on lessor's premises, (ii) contain a
provision stating that such policy or policies "shall not be
canceled or modified except after thirty (30) days prior written
notice delivered to the Agent (attn: Commercial Loan Department)"
at the Agent's addresses first listed above or as subsequently
directed in writing by the Agent (it being understood that, if
Wakefern is providing insurance for the Borrower or any
Subsidiary, it may change carriers without prior notice to the
Banks so long as the dollar amount of coverage is not reduced and
the other terms hereof are not breached); and
(H) all policies of insurance shall be in a form
reasonably acceptable to the Banks and shall be issued by
insurers duly licensed and authorized to conduct that type of
insurance business in New Jersey or Pennsylvania as the case may
be. The Banks shall have the right, at any time, to reject
insurance provided by an insurance company other than InsuRite
that does not at all times have a policy-holders rating of "A",
or better, and financial rating of "AAA", or better, in the then
current edition of Best's Insurance Guide; and
(I) all policies of insurance or satisfactory
endorsements thereof, together with a paid receipt, shall be
deposited with the Agent prior to the Date of Closing and, at
least thirty (30) days prior to the expiration of any such
policies, the Borrower shall furnish paid receipts and other
evidence, satisfactory to the Agent, that all such policies have
been renewed or replaced; and
(J) comply with all provisions of any other Loan
Document relating to insurance.
7.3 Financial Information. Deliver financial
information and documents directly to each Bank as follows:
(A) within forty-five (45) days after the end of
each of the first three (3) Fiscal Quarters of each Fiscal Year,
(i) the 10-Q reports for such Fiscal Quarter submitted to the
Securities and Exchange Commission by any Company (or equivalent
financial statements if the Company is no longer a reporting
Company with the SEC) together with and (ii) quarterly profit and
loss reports prepared on a store by store basis; and
(B) within ninety (90) days after the close of
each Fiscal Year, (i) the 10-K report most recently submitted to
the Securities and Exchange Commission by any Company and (ii) to
the extent not included in the 10-K an audited consolidated
balance sheet of the Companies as of the close of each such
Fiscal Year together with the related consolidated statements of
operations, retained earnings and statements of cash flows for
such Fiscal Year, certified without qualification by independent
certified public accountants that are reasonably satisfactory to
the Banks including their certificate and accompanying comment
and a certificate stating that they have no knowledge of the
existence of any condition or event that constitutes a Default or
Event of Default under any Loan Document or any other Obligation;
and
(C) simultaneously with the submission of each
financial report as stated above, a certificate of the president
and chief financial officer of each Company that the signers (i)
believe that the financial report is true and complete, (ii) have
no knowledge of the existence of any condition or event that
constitutes a Default or Event of Default under any Loan Document
or other Obligation, (iii) if any Default or Event of Default
existed or exists, specifying the nature and period of existence
and what, if any, remedial action is being taken and (iv)
calculating and demonstrating compliance with all financial
covenants herein; and
(D) within five (5) days of filing or public
release, true copies of all (i) filings that are made with the
Securities and Exchange Commission or other regulatory
authorities, and (ii) reports, statements, communications and
announcements that are sent by the Borrower to its shareholders;
(E) within one hundred twenty (120) days after
the close of each Fiscal Year, five year financial projections in
GAAP format with the first year on a quarter-by-quarter basis;
and
(F) such other information including tax filings
and reports respecting the business and properties or the
condition or operations, financial or otherwise, of any Company
as the Banks may, from time to time, reasonably request.
7.4 Notices to Banks. Notify each Bank immediately in
writing (A) of any default, or asserted default by any Company,
under any real property lease, or under any agreement involving
actual or threatened claims or liability in excess of Five
Hundred Thousand Dollars ($500,000); (B) if any Company becomes
involved in any litigation involving actual or threatened claims
or liability in excess of Five Hundred Thousand Dollars
($500,000) that is not fully covered by insurance; (C) the
occurrence of any theft, fire or other casualty, or any
governmental taking, involving any Property having a value in
excess of Five Hundred Thousand Dollars ($500,000); and (D) on
receipt of any information, notice, claim or investigation as to
any alleged use, storage, treatment or handling, except as
expressly permitted in this Loan Agreement or any discharge,
spill, emission or disposal, of any Hazardous Substance by, or on
any property owned or leased by, any Company that may involve
more than Five Hundred Thousand Dollars ($500,000) in testing and
cleanup costs.
7.5 Further Assurances. Furnish further assurances of
title and security as to any Property and estoppel certificates
when requested by the Banks and otherwise to do anything that the
Banks in their discretion determine to be reasonably necessary or
desirable to establish, perfect, assure and maintain the Banks'
interest in any Collateral and to confirm and assure the
Companies' interest in any Property and that all Property remains
free of Liens other than Permitted Encumbrances, the reasonable
cost of so doing to be paid by the Borrower. The Borrower hereby
authorizes and appoints the Agent as its attorney- in-fact to
execute and file on behalf of any Company any instrument or
agreement that the Banks may determine to be reasonably necessary
to establish, perfect or maintain its interests pursuant to any
Loan Document, provided, however, that the Agent shall give to
the Borrower at least 7 days notice prior to taking any such
action and the Agent shall not take any such action if the
Borrower is negotiating with the Agent in good faith with respect
to the matters involved. The Borrower shall also, within five
(5) days of request, deliver to the Banks a notarized statement
of the indebtedness owing under each Obligation.
7.6 Complete Records. Maintain accurate, current and
complete records of each Company's financial affairs and
transactions and of all Property reasonably satisfactory to the
Banks.
7.7 Location of Offices. Maintain the chief executive
offices and company-wide business records of the Companies at the
address for the Borrower set forth in the caption of this Loan
Agreement and maintain the other records and Property at the
locations set forth on Exhibit 1 annexed to the Principal's
Certificate provided, however, that any such address may be
changed after prior written notice to the Banks.
7.8 Inspection of Property and Records. Arrange,
within one (1) Banking Day of request, for either Bank's agents,
employees or representatives to inspect any Property and any
books and records and commercial premises of any Company.
7.9 Bank Accounts. Except for local short-term cash
deposit and payroll accounts for any stores of any Company, all
Companies shall keep and maintain all existing and future demand
deposit, operating, tax reserve and other deposit accounts in
Borrower's name with the Banks or, with Agent and its
Affiliates), except as expressly permitted in advance, in
writing, by the Banks, in their discretion. Permission to open
any such accounts with any other bank or financial institution
shall be requested of the Banks, in writing, at least fifteen
(15) days in advance of the date when any such proposed account
is to be opened. All funds deposited in any accounts of
institutions other than the Banks as permitted above shall be
regularly transferred into, and maintained at all times in, the
Borrower's operating accounts at the Banks.
7.10 Debt to Tangible Net Worth. As to the Companies
on a consolidated basis, maintain a Debt to Tangible Net Worth
Ratio measured as of the end of each Fiscal quarter (commencing
with the Fiscal Quarter ending October, 1996) of not more than
the following ratios in the following periods:
Fiscal Quarters Ended Ratio
(A) On or before Two and Twenty Five Hundredths
to One
April 1998 (2:25:1); and
(B) July 1998 and Two and Ten Hundredths to One
each Fiscal (2:10:1).
Quarter thereafter
Such Ratio shall be measured and tested at the end of each Fiscal
Quarter during each Fiscal Year. The Permitted Garwood Financing
shall be excluded from this calculation.
7.11 Minimum Tangible Net Worth. Not cause or permit
Tangible Net Worth of the Companies on a consolidated basis to
decrease to less than the sum of (x) $41,500,000 plus (y) the
Required Retained Earnings as at the end of any Fiscal Year.
7.12 Minimum Fixed Charge Coverage Ratio. As to the
Companies on a consolidated basis, maintain a Fixed Charge
Coverage Ratio measured as of the end of each Fiscal Quarter
(commencing with the Fiscal Quarter ended July 1996) of at least
the following ratio for each of the Fiscal Quarters listed below:
Fiscal Quarters Ended Ratio
(A) On or before One and Twenty Five Hundredths
to One
July 1997 (1:25:1); and
(B) On or before One and Thirty Hundredths to
One
July 1998 (1:30:1); and
(C) October 1998 and One and Thirty Two Hundredths
to One
each Fiscal Quarter (1:32:1).
thereafter
The Permitted Garwood Financing shall be excluded from this
calculation.
7.13 Capital Expenditures. Not cause or permit the
aggregate sum of the consolidated Capital Expenditures of the
Companies made in any Fiscal Year listed below to exceed the
following amounts (the "Base Capex Limit"):
<TABLE>
<CAPTION>
Maximum Amount of Aggregate
Capital
Fiscal Year Ending Expenditures for Fiscal Year
<S> <C>
July 1997 $16,900,000
July 1998 8,500,000
July 1999 9,000,000
July 2000 8,500,000
</TABLE>
provided, however, that for Fiscal Year 2000 and thereafter, the
Borrower may submit a Capital Expenditure budget for more than
$8,500,000 to the Banks, which may become the Capital Expenditure
Budget for such Fiscal Year after approval by the Banks in their
reasonable discretion. Furthermore, to the extent that the
Companies' Capital Expenditures in any Fiscal Year are less than
the amounts set forth above as the Base CAPEX Limit, the "unused
amounts" (the excess of the Base CAPEX Limit amount for such
Fiscal Year above the Companies' actual Capital Expenditures for
such Fiscal Year) may be rolled over into the next Fiscal Year
only, thereby increasing the Capital Expenditures permitted for
that Fiscal Years (but not for any other subsequent Fiscal Year).
In no event shall any "unused amounts" from a prior period be
carried over into a second subsequent Fiscal Year. The Permitted
Garwood Financing shall be excluded from this calculation.
7.14 Taxes and Laws. Pay all taxes, assessments,
government charges and levies when due and comply with all
federal, state and local laws and regulations that are applicable
to any Company or the business of any Company and provide proof
of such payment and compliance as Bank may request, provided
however that any Company may diligently and in good faith dispute
an asserted tax liability by an appeal in a forum of appropriate
jurisdiction so long as the asserted liability is shown as a
reserve on all financial statements and reports delivered to the
Banks in accordance with GAAP.
7.15 Banks' Expenses. Pay all reasonable fees, costs
and expenses incurred by the Banks or the Agent and their counsel
in connection with the preparation or later modification of any
Loan Document (whether or not any loan is actually consummated or
modification is made) and the making, closing and administering
of the loans contemplated thereby, including lien and title
searches, copying costs, delivery and postage charges and all
filing and recording costs.
7.16 Indemnification. Assume all liability for, and
agree to indemnify, protect and save harmless the Agent and each
Bank, their agents and employees from and against all liability
(including liability in tort, whether absolute or otherwise),
obligations, losses, penalties, claims, suits, costs and
disbursements, including reasonable legal fees and disbursements,
in any way relating to, or arising out of, any relationship with
any Company, or any Obligation or Collateral except liabilities
arising from the willful misconduct of the Agent or the
respective Bank. This provision shall survive the termination or
expiration of this Loan Agreement.
7.17 Cooperative Obligations. Perform all its duties
and obligations, and maintain its existence, as a member of the
Wakefern cooperative and maintain its right to use the "Shop-
Rite" name and trademark.
7.18 Simultaneous Liens. If any Lien arises in
violation of Section 8.1, Borrower shall immediately cause all
Obligations to be secured equally and ratably with the
indebtedness secured by any such Lien, and, in any case, the
Obligations shall have the benefit of an equitable Lien equally
and ratably securing the Obligations, provided, however, that
this provision shall not in any way limit Borrower's duty to
remain in compliance with all other provisions of this Loan
Agreement and the Banks' acceptance of any Lien in its favor
shall not constitute a waiver of any Default including any
violation of Section 8.1.
7.19 Corporate Existence. Maintain each Company as a
corporation in good standing in its state of incorporation.
7.20 Payment of Obligations. Pay all of its
obligations and liabilities as they come due.
7.21 Closing Requirements. Upon demand comply with all
closing requirements of the Banks and their counsel, whether or
not requested at the closing including the delivery of the
Opinion Letter, in form and substance reasonably satisfactory to
the Banks and their counsel.
SECTION VIII - NEGATIVE COVENANTS
The Borrower agrees not to do, or permit any other
Company to do, any of the following without the express prior
written consent of the Banks, which consent may be granted or
withheld by each Bank in its reasonable discretion:
8.1 No Liens. Suffer any Lien against any Property
(including any real property leases and subleases), except for
any Permitted Encumbrances.
8.2 Hazardous Substances. Generate, store, treat,
discharge, refine, handle, release or dispose of any Hazardous
Substances except (A) for consumer products sold in the ordinary
course of business in accordance with all applicable laws and
regulations and (B) standard maintenance uses of common cleaning
and maintenance products.
8.3 Other Liabilities. Incur, or permit any
Subsidiary to incur, Liabilities or any guarantee, endorsement or
other contingent obligation except (A) indebtedness to the Banks;
(B) trade payables in the ordinary course of business; (C)
pursuant to real property leases and equipment leases; (D)
purchase money financing from Wakefern for purchases of specified
equipment and inventory (other than purchases described in
subsection (B) of this Section 8.3) so long as those purchases
are consistent with, and do not violate, any provision in this
Loan Agreement; (E) indebtedness secured by Permitted
Encumbrances; and (F) on or after the Revolving Loan Maturity
Date only, if one or both of the Banks have not renewed or
extended the Revolving Loan, a replacement revolving credit
facility to be used for general corporate purposes in a principal
amount of up to $13,000,000 on terms no more onerous to the
Borrower than the terms of the Revolving Loan provided for herein
provided that, (i) the Banks are given advance written notice of
all material terms of such revolving credit facility and such
terms are consented to by the Banks in their reasonable
discretion, (ii) if requested by the Banks, the lender providing
the replacement revolving credit facility to the Borrower enters
into an intercreditor agreement with the Banks on terms
reasonably acceptable to the Banks, and (iii) before and
immediately after entry into such a new revolving credit
facility, no Event of Default or Default exists or will exist.
8.4 Ownership And Organizational Changes. Permit or
effect any of the following:
(A) Any shares of stock of any Subsidiaries to be
sold, transferred, conveyed, assigned, pledged, hypothecated, or
otherwise encumbered, except for transfers to another Subsidiary;
or
(B) Any change in the ownership of any stock of
Borrower that is owned by any member of the Sumas Family or that
is held in trust for the benefit of members of the Sumas Family
if as a result of that transfer the Sumas Family will no longer
hold a sufficient number of shares of all classes of stock of
Borrower to cast at least 51% of the votes that may be cast in
any election.
(C) Any change in the capitalization or capital
structure of any Company (including the issuance of any new,
additional or different type or class of stock, the modification,
reduction or retirement of any existing class or type of stock or
the changing or modifying of the voting power of any stock) if,
as a result of that change, there would be a violation of any
provision of this Loan Agreement, including subsections (A) or
(B) of this Section 8.4.
(D) The Borrower or any Company to enter into any
merger or consolidation or participate in a joint venture with
any other company, except that any such transaction may take
place between Subsidiaries or as permitted pursuant to Section
8.8(H).
(E) Any Company to acquire all, or a substantial
portion of, the assets of any commercial Person, or acquire any
assets or interest therein of any firm for an aggregate purchase
price of $500,000 or more except (i) those acquisitions made by
the Borrower in the ordinary course of business (such as
acquisitions of inventory; acquisitions of stores or selling
space are not acquisitions in the ordinary course) or as
permitted pursuant to Section 8.8(H) or (ii) until such time as
the Revolving Loan is repaid in full, acquisitions of up to an
additional 100,000 square feet of selling space.
(F) Any subsidiary to be created or acquired,
except that a new Subsidiary may be formed if it is wholly-owned
by the Borrower and guarantees payment of the Obligations in form
acceptable to the Banks.
8.5 Dividend Limitations and Stock Repurchases. As to
the Borrower, pay or incur any liability to pay any cash
dividends or distribution of any kind to any of Borrower's
shareholders or repurchase any of the outstanding shares of the
capital stock of the Borrower if in the aggregate amount of any
such dividends distributions or repurchases would (A) in any
Fiscal Year exceed, in the aggregate, twenty percent (20%) of the
excess of Borrower's net income for the prior Fiscal Year in
excess of One Million Dollars ($1,000,000) or (B) would result in
a violation of any provision of this Loan Agreement including
Sections 7.10, 7.11, 7.12 and 7.13. Notwithstanding the
foregoing, if no dividends or other distributions have been made,
the Borrower may repurchase shares of its capital stock each
Fiscal Year in an amount not more than the greater of (a)
$100,000 or (b) the amount permitted under the preceding
sentence. Prior to payment of any dividend or any intended stock
repurchase the Borrower shall provide the Banks with proof
satisfactory to the Banks that, on a pro forma basis, the
Borrower will be in full compliance with all covenants set forth
in the Loan Agreement, including but not limited to the financial
covenants set forth in Sections 7.10 to 7.13, after such dividend
or stock repurchased is completed.
8.6 Other Names. Use or adopt any name other than its
formal corporate name set forth in this Loan Agreement, or the
name "Shop-Rite" or "Village Market" (for Florham Park and South
Orange only) unless, at least fifteen (15) days in advance of
using any other name, the Banks have been provided with
appropriate trade name certificates and current judgment, tax,
UCC-11 and other search reports for that new name, to the
reasonable satisfaction of the Banks.
8.7 Change in Fiscal Year Change the Fiscal Year of
any Company without the consent of the Banks.
8.8 Restricted Investments. Directly or indirectly
purchase or acquire any obligations, securities, stock or other
assets to be held for investment (as distinguished from assets
held for direct and immediate use or consumption by any Company),
or to make any loans, advances or extensions of credit, except
for any of the following:
(A) readily marketable direct obligations of the
United States of America;
(B) commercial paper maturing within 180 days
from the date of issuance that has been issued by a corporation
conducting the majority of its business in the United States and
has a rating of "A-1" or better from Moody's Investor Services or
"P-1" or better from Standard & Poors;
(C) readily marketable direct obligations of any
state, county or municipality in the United States that has a
rating of at least "A-1" from Moody's Investor Service or "P-1"
from Standard & Poors;
(D) notes, checks and chattel paper from
customers that are accepted by any Company as payment for the
sale of inventory in the ordinary course of business;
(E) certificates of deposit and "repo"
obligations of (i) the Banks and their Affiliates or (ii) any
other United States domiciled bank or trust company that has
unrestricted capital funds of at least $500,000,000 and whose
long term certificates of deposit have a rating of at least "A-1"
from Moody's Investor Service or "P-1" from Standard & Poors;
(F) obligations of Wakefern having 30 day
maturity in an aggregate outstanding amount not to exceed [the
amount of a single week's purchases from Wakefern];
(G) investments in Wakefern stock and/or InsuRite
stock in aggregate amounts of not more than $1.1 million in any
Fiscal Year;
(H) equity contributions or investments of less
than $750,000 in the aggregate during the Term hereof; or
(J) repurchases of common stock of the Borrower
to the extent permitted by Section 8.5 above;
provided, however, that no more than Fifty Percent (50%) of the
aggregate principal amount of the above-mentioned debt
instruments (including bonds, obligations, commercial paper,
bills or notes) shall have maturity dates in excess of one year
from the date of original issuance.
8.9 Different Business. Engage in any business other
than the operation of supermarkets and related retail activities
as conducted in the normal course of business.
8.10 Prohibited Dispositions. Sell or otherwise
dispose of (A) all, or a substantial portion of, the Property of
any Company, or (B) any Property, other than in arm's length
transactions that are made in the ordinary course of business,
provided, however, that the Companies may engage in any Permitted
Dispositions so long as no Default has occurred and is
continuing. Notwithstanding the prior sentence, this provision
shall not be deemed to have authorized any sale or disposition
that will result in a violation of any other provision of this
Loan Agreement or any other Loan Document.
8.11 Management Changes. Permit or suffer a change in
management that would result in less than three of the following
individuals being in active, full time and direct control of the
business of each of the Companies: Perry Sumas, James Sumas,
Robert Sumas, William Sumas, John Sumas and Kevin Begley.
8.12 Assignment of Leases. Sell, assign, convey any
interest in, or permit any Lien against, any leases, subleases,
licenses or rights of use or occupancy of any kind with respect
to any real property whatsoever, except for (a) the assignment of
any lease for an existing store where a new store in the same
locale is being opened and (b) assignments of leases for the
existing Florham Park, South Orange and Bernardsville Annex
locations.
8.13 Prepayments. Prepay any indebtedness for borrowed
money or Capital Lease obligations, other than the prepayment of
indebtedness owing to any non-affiliate of up to $1,500,000 in
the aggregate prior to the first anniversary of the Date of
Closing so long as that prepayment may be made without premium or
penalty.
SECTION IX - EVENTS OF DEFAULT
Any of the following events or conditions shall, at the
option of the Banks, constitute an "Event of Default" under this
Loan Agreement and any other Loan Documents or obligations
(except that the event or conditions described in Section 9.13
automatically shall be an Event of Default, shall terminate all
Commitments hereunder and shall cause all amounts hereunder to be
immediately due and payable, without any action by the Agent or
the Banks):
9.1 Payments. Any failure to pay all principal under
the Term Loan, Revolving Loan or Convertible Revolver within two
(2) days after each due date, or any failure to pay all interest
or other monies within five (5) days after each due date under
the Term Loan, Revolving Loan, the Convertible Revolver or any
other Obligation; or
9.2 Other Obligations. Any failure to perform or
observe any term or condition under this Loan Agreement, the
Guaranty, any other Loan Document or any Obligation in a timely
fashion, other than any payments referred to in Section 9.1;
provided, however, that the Borrower may effect a complete cure
of any default of any non-monetary covenant in this Loan
Agreement, except for any Event of Default under any other
subsection of this Section IX, within fifteen (15) days of the
occurrence of the Event of Default so long as (A) in the
reasonable judgment of the Banks the default is curable in its
entirety during that fifteen (15) day cure period and (B) this
right to cure is not exercised more than one (1) time in any
consecutive six (6) month period; or
9.3 Representations. Any representation, statement,
information or warranty that is at any time made or delivered to
the Banks by or on behalf of any Company shall be materially
incorrect, incomplete or misleading when made; or
9.4 Consents. Any Company shall do, or permit to be
done, any act for which the Banks' written consent is required
under any Loan Document, without first obtaining such written
consent.
9.5 Financial Information and Inspections. Any
Company shall fail, promptly after demand, to furnish financial
information or to permit inspection of any books, records or
Property as required under any Loan Document; or
9.6 Insurance. Any failure to maintain, or provide
evidence of, any insurance coverage required under any Loan
Document; or
9.7 Organizational Status. Any Company shall dissolve
or fail to remain in good standing in its state of incorporation
or duly qualified in each state where its properties or business
make qualification necessary (except with respect to any
Subsidiary that is merged into another Company); or
9.8 Warrants and Tax Liens. Any warrant of attachment
or for distraint, or notice of tax lien with respect to an amount
of Five Hundred Thousand Dollars ($500,000) or more shall be
issued relating to, or encumbering, any Property, or any that is
not, within fifteen (15) days of entry, discharged, or stayed and
bonded, to the satisfaction of the Banks;
9.9 Judgments. Any judgment shall be entered against
any Company in excess of Five Hundred Thousand Dollars
($500,000), that is not, within fifteen (15) days of entry,
discharged, or stayed and bonded, to the satisfaction of the
Banks or fully covered by insurance and the insurance company
has, in writing, unconditionally accepted liability for that
judgment; or
9.10 Lien on Property. Any Lien shall encumber any
Property other than (i) a Permitted Encumbrance or (ii) an
involuntary Lien that is specially covered under Sections 9.8 or
9.9.
9.11 Loss or Destruction. Any loss or destruction of
any Property that, in the Banks' reasonable judgment, has a
market value of Five Hundred Thousand Dollars ($500,000), or
more, unless, that loss or destruction is adequately covered by
insurance and, within ninety (90) days of that loss or
destruction, either an insurance company has admitted its
liability for such loss or destruction, or such loss or
destruction is fully compensated by insurance to the satisfaction
of the Banks; or
9.12 Insolvency. Any filing of a petition by or
against any Company under any bankruptcy or insolvency law or an
assignment by any Company of any property or assets for the
benefit of creditors, or the failure of any Company to pay its
debts in the ordinary course as those debts become due, or the
calling of a meeting of creditors of any Company to obtain any
general financial accommodation; provided, however, that as to
any such action that is involuntarily commenced against and is
being contested by the subject Company, that Company shall have
until the earlier of thirty (30) days or an adjudication of
insolvency to contest and obtain a dismissal of that action; or
9.13 Seizure of Property. Any seizure by governmental
authorities of, or the imposition of legal restraints against,
any property of any Company that has an aggregate value in excess
of Five Hundred Thousand Dollars ($500,000), which is not, within
fifteen (15) days of that seizure or imposition, fully bonded to
the reasonable satisfaction of the Banks; or
9.14 Note Purchase Agreement; Cross Default. The
Borrower shall be in default under any term or condition under
the Note Purchase Agreement, any other obligation, security
agreement or other agreement in favor of Travelers or any other
indebtedness for borrowed money; or
9.15 Leases. Any Company shall be in default under any
term or condition under any Capital Lease obligation or under any
material operating leases (other than those which are being
contested in good faith and have not resulted in the loss of any
Property by any Company); or
9.16 Enforceability. Any action or proceeding is
instituted to obtain a ruling or judgment that any term or
condition of any Loan Document, or any restriction against, or
interest in, any Property that any Loan Document purports to give
to the Banks, is unenforceable in any respect; or
9.17 Termination of Plan. Any Termination Event occurs
under any Plan, a trustee shall be appointed by a court of
appropriate authority to administer any Plan, the Pension Benefit
Guaranty Corporation shall institute proceedings to terminate any
Plan or to appoint a trustee or administer any Plan or any Plan
shall be formally terminated; or
9.18 Other Liabilities. Any Company shall fail to make
any payment when due or fail to perform any obligation under its
Liabilities in excess of Five Hundred Thousand and 00/100 Dollars
($500,000) (other than as referred to in any other subsection of
this Section 9) when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) and such failure
shall continue after the applicable grace period, if any,
specified in the agreement relating to any such Liabilities.
9.19 Other Loan Documents. An Event of Default shall
occur under the Security Agreement, the Mortgages or any other
Loan Document.
SECTION X - REMEDIES
Whenever an Event of Default occurs (and any applicable
cure period has expired), the Agent may, and with the consent of
the Banks, shall, in addition to any right or remedy the Agent or
any Bank may have at law or in equity, at their option, do any
one or more of the following in any order, in any combination and
at any time:
10.1 Acceleration. Declare any Obligations, including
the Term Loan, the Revolving Loan, the Convertible Revolver, to
be immediately due and payable; or
10.2 Other Remedies. Exercise any other rights or
remedies it may have under any Loan Document or Obligation; or
10.3 Terminate Financing. Immediately terminate or
reduce the lending Commitments under the Revolving Loan or
Convertible Revolver; or
10.4 Direct Recourse. Institute suit directly against
the Borrower or the Guarantor; or
10.5 Other Creditor Remedies. Exercise any right or
remedy available to the Banks under any applicable law of any
jurisdiction; or
10.6 Collection Expenses. Collect from any Obligor (A)
all reasonable fees and disbursements of the Agent's and Banks'
attorneys incurred in obtaining advice or representation relating
to the collection or enforcement of any Obligation and (B) all
expenses of, or in anticipation of, litigation including fees and
expenses of witnesses, experts and stenographers and the cost to
obtain or produce appraisals. All such collection fees and
expenses shall be due and payable upon demand, and shall accrue
interest at the highest rate in effect from time to time under
any Obligation; or
10.7 Other Expenses. At any time and from time to
time, perform any duty or obligation of any Company under any
Loan Document or Obligation and to take any other actions deemed
by the Banks to be reasonably necessary to protect the Banks'
interest in any Property or to avoid any risk of damage or loss
to the Banks including steps to comply with applicable
environmental laws. All expenses of any nature incurred by the
Agent and Banks under this subsection shall be due and payable
upon demand, and shall accrue interest at the highest rate in
effect from time to time under any Obligation. The exercise by
the Banks of their rights under this subsection shall not
constitute a waiver of any Event of Default or of any right or
remedy under this any Loan Document; or
10.8 Increase in Interest. Increase the rate of
interest under any Obligations to a floating interest rate
determined by the Banks up to and including Three Percentage
points (3%) above the Base Rate. This increase in interest rate
shall be computed on the basis of a 360-day year and shall
survive the entry of any judgment relating to any Obligation.
10.9 Cessation of Eurodollar Borrowing Rights.
Prohibit any further borrowing at the Eurodollar Rate. If a
Default occurs and is waived by the Banks, the Borrower will have
no further right to borrow at the Eurodollar Rate notwithstanding
any waiver or forbearance by the Banks with respect to such
Default, and all borrowings and loans thereafter shall be Base
Rate Loans. No obligation to waive or forbear from exercising
any remedies upon a Default shall be inferred from this Section
10.9.
10.10 Additional Rights of Banks. The Banks may
exercise any of the rights and remedies in Sections 10.6 or 10.7
upon the occurrence of any Default, whether or not the Banks have
formally declared an Event of Default or accelerated any
Obligations, provided, however, that the Banks shall not exercise
any rights or remedies pursuant to this Section 10.10 until after
the Borrower is on notice of the circumstance or condition that
would give rise to the Default.
SECTION XI - THE AGENT; RELATIONS AMONG BANKS, ETC.
11.1 Appointment, Powers and Immunities of Agent. Each
Bank hereby irrevocably (but subject to removal by the Banks
pursuant to Section 11.9) appoints and authorizes the Agent to
act as its agent hereunder and under any other Loan Document with
such powers as are specifically delegated to the Agent by the
terms of this Agreement and any other Loan Document, together
with such other powers as are reasonably incidental thereto. The
Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and any other Loan
Document, and shall not by reason of this Agreement be a trustee
for any Bank. The Agent shall not be responsible to the Banks
for any recitals, statements, representations or warranties made
by the Borrower or any officer of the Borrower or any other
Person contained in this Agreement or any other Loan Document, or
in any certificate or other document or instrument referred to or
provided for in, or received by any of them under, this Loan
Agreement or any other Loan Document, or for the value, legality,
validity, effectiveness, genuineness, enforceability or
sufficiency of this Loan Agreement or any other Loan Document or
any other document or instrument referred to or provided for
herein or therein, or for any failure by the Borrower to perform
any of its obligations hereunder or thereunder. The Agent may
employ agents and attorneys-in-fact and shall not be responsible,
except as to money or securities received by it or its authorized
agents, for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Neither
the Agent nor any of its directors, officers, employees or agents
shall be liable or responsible for any action taken or omitted to
be taken by it or them hereunder or under any other Loan Document
or in connection herewith or therewith, except for its or their
own gross negligence or willful misconduct.
11.2 Reliance by Agent. The Agent shall be entitled to
rely upon any certification, notice or other communication
(including any thereof by telephone, telex, telecopier, telegram
or cable) believed by it to be genuine and correct and to have
been signed or sent by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent.
The Agent may deem and treat each Bank as the holder of the Loans
made by it for all purposes hereof unless and until a notice of
the assignment or transfer thereof satisfactory to the Agent
signed by such Bank and approved in advance by both Banks shall
have been furnished to the Agent. The Agent shall not be
required to deal with any Person who has acquired a participation
in any Loan from a Bank. As to any matters not expressly
provided for by this Agreement or any other Loan Document, the
Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions
signed by the Banks, and such instructions of such Banks and any
action taken or failure to act pursuant thereto shall be binding
on all of the Banks and any other holder of all or any portion of
any Loan.
11.3 Defaults. The Agent shall not be deemed to have
knowledge of the occurrence of a Default or Event of Default
(other than the non-payment of principal of or interest on the
Loans to the extent the same is required to be paid to the Agent
for the account of the Banks) unless the Agent has received
notice from a Bank or the Borrower specifying such Default or
Event of Default and stating that such notice is a "Notice of
Default." In the event that the Agent receives such a notice of
the occurrence of a Default or Event of Default, the Agent shall
give prompt notice thereof to the Banks (and shall give each Bank
prompt notice of each such non-payment). The Agent shall
(subject to Section 11.8) take such action with respect to such
Default or Event of Default which is continuing as shall be
directed by the Banks; provided that, unless and until the Agent
shall have received such directions, the Agent may take such
action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the
best interest of the Banks; and provided further that the Agent
shall not be required to take any such action which it determines
to be contrary to law.
11.4 Rights of Agent as a Bank. With respect to its
Commitment and the Loans made by it, the Agent in its capacity as
a Bank hereunder shall have the same rights and powers hereunder
as any other Bank and may exercise the same as though it were not
acting as the Agent, and the term "Bank" or "Banks" shall, unless
the context otherwise indicates, include the Agent in its
capacity as a Bank. The Agent and its Affiliates may (without
having to account therefor to any Bank) accept deposits from,
lend money to (on a secured or unsecured basis) and generally
engage in any kind of banking, trust or other business with the
Borrower (and any of its Affiliates) as if it were not acting as
the Agent, and the Agent may accept fees and other consideration
from the Borrower for services in connection with this Agreement
or otherwise without having to account for the same to the Banks.
11.5 Indemnification of Agent. The Banks agree to
indemnify the Agent (to the extent not reimbursed under Section
10.6 or under the applicable provisions of any other Loan
Document, but without limiting the obligations of the Borrower
under Section 10.6 or such provisions), ratably in accordance
with the aggregate unpaid principal amount of the Loans made by
the Banks (without giving effect to any participation, in all or
any portion of such Loans, sold by them to any other Person) (or,
if no Loans are at the time outstanding, ratably in accordance
with their respective Commitments), for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted
against the Agent as agent hereunder in any way relating to or
arising out of this Agreement, any other Loan Document or any
other documents contemplated by or referred to herein or the
transactions contemplated hereby or thereby (including, without
limitation, the costs and expenses which the Borrower is
obligated to pay under Section 9.6 or under the applicable
provisions of any other Loan Document but excluding, unless a
Default or Event of Default has occurred, normal administrative
costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof
or thereof or of any such other documents or instruments;
provided that no Bank shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful
misconduct of the party to be indemnified.
11.6 Documents; Notices. The Agent will forward to
each Bank, promptly after the Agent's receipt thereof, a copy of
each report, notice or other document required by this Agreement
or any other Loan Document to be delivered to the Agent for such
Bank. The Agent also shall provide each Bank with a copy of any
notice that it sends as Agent to the Borrower. Each Bank shall
provide the other Bank with a copy of any notice that it sends to
the Borrower.
11.7 Non-Reliance on Agent and Other Banks. Each Bank
agrees that it has, independently and without reliance on the
Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own credit
analysis of the Borrower and its Subsidiaries and its own
decision to enter into this Loan Agreement and that it will,
independently and without reliance upon the Agent or any other
Bank, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own analysis
and decisions in taking or not taking action under this Loan
Agreement or any other Loan Document. The Agent shall not be
required to keep itself informed as to the performance or
observance by the Borrower of this Loan Agreement or any other
Loan Document or any other document referred to or provided for
herein or therein or to inspect the properties or books of the
Borrower or any Subsidiary except as otherwise expressly stated
herein. Except for notices, reports and other documents and
information expressly required to be furnished to the Banks by
the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other
information concerning the affairs, financial condition or
business of the Borrower or any Subsidiary which may come into
the possession of the Agent or any of its Affiliates. The Agent
shall not be required to file this Loan Agreement, any other Loan
Document or any document or instrument referred to herein or
therein, for record or give notice of this Loan Agreement, any
other Loan Document or any document or instrument referred to
herein or therein, to anyone.
11.8 Failure of Agent to Act. Except for action
expressly required of the Agent hereunder, the Agent shall in all
cases be fully justified in failing or refusing to act hereunder
unless it shall have received further assurances (which may
include cash collateral) of the indemnification obligations of
the Banks under Section 11.5 in respect of any and all liability
and expense which may be incurred by it by reason of taking or
continuing to take any such action.
11.9 Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided
below, the Agent may resign at any time by giving written notice
thereof to the Banks and the Borrower, and the Agent may be
removed at any time with or without cause by all Banks; provided
that the Borrower shall be promptly notified thereof. Upon any
such resignation or removal, the Banks shall have the right
jointly to appoint a successor Agent. If no successor Agent
shall have been so appointed by all Banks and shall have accepted
such appointment within 30 days after the retiring Agent's giving
of notice of resignation or the Banks' removal of the retiring
Agent, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a bank which has an
office in New Jersey or New York. The Banks or the retiring
Agent, as the case may be, shall upon the appointment of a
successor Agent promptly so notify the Borrower. Upon the
acceptance of any appointment as agent hereunder 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 hereunder. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this
Article 11 shall continue in effect for its benefit in respect of
any actions taken or omitted to be taken by it while it was
acting as the Agent.
11.10 Amendments Concerning Agency Function. The
Agent shall not be bound by any waiver, amendment, supplement or
modification of this Loan Agreement or any other Loan Document
which affects its duties hereunder or thereunder unless it shall
have given its prior consent thereto.
11.11 Liability of Agent. The Agent shall not have
any liabilities or responsibilities to the Borrower on account of
the failure of any Bank to perform its obligations hereunder or
to any Bank on account of the failure of the Borrower to perform
its obligations hereunder or under any other Loan Document.
11.12 Transfer of Agency Function. Without the
consent of the Borrower or any Bank, the Agent may at any time or
from time to time transfer its functions as Agent hereunder to
any of its offices in the United States of America wherever
located, provided that the Agent shall promptly notify the
Borrower and the Banks thereof.
11.13 Non-Receipt of Funds by the Agent. Unless
the Agent shall have been notified by a Bank or the Borrower
(either one as appropriate being the "Payor") prior to the date
on which such Bank is to make payment hereunder to the Agent of
the proceeds of a Loan or the Borrower is to make payment to the
Agent, as the case may be (either such payment being a "Required
Payment"), which notice shall be effective upon receipt, that the
Payor does not intend to make the Required Payment to the Agent,
the Agent may assume that the Required Payment has been made and
may, in reliance upon such assumption (but shall not be required
to), make the amount thereof available to the intended recipient
on such date and, if the Payor has not in fact made the Required
Payment to the Agent, the recipient of such payment (and, if such
recipient is the Borrower and the Payor Bank fails to pay the
amount thereof to the Agent forthwith upon demand, the Borrower)
shall, on demand, repay to the Agent the amount made available to
it together with interest thereon for the period from the date
such amount was so made available by the Agent until the date the
Agent recovers such amount at a rate per annum equal to the
average daily Base Rate for such period.
11.14 Several Obligations of Banks. The failure of
any Bank to make any Loan to be made by it on the date specified
therefor shall not relieve any other Bank of its obligation to
make its Loan on such date, but no Bank shall be responsible for
the failure of any other Bank to make a Loan to be made by such
other Bank.
11.15 Pro Rata Treatment of Loans, Etc. Except to
the extent otherwise provided herein: (a) each borrowing under
Sections 2.6, 2.10 and 4.6 shall be made from the Banks, each
reduction or termination of the amount of the Commitments shall
be applied proportionately to the Commitments of the Banks, and
each payment of commitment fee accruing under Section 5.10 shall
be made for the account of the Banks, pro rata according to the
amounts of their respective unused Commitments; and (b) each
prepayment and payment of principal of or interest on Loans or
any letter of credit or any late fees, prepayment fees or
commitment fees or any other amounts due with respect to the
Loans (other than expense reimbursements) shall be made to the
Agent for the account of the Banks holding Loans pro rata in
accordance with the respective unpaid principal amounts of such
Loans held by such Banks.
11.16 Sharing of Payments Among Banks. If a Bank
shall obtain payment of any principal of or interest on any Loan
or any late fees, prepayment fees or commitment fees, made by it
through the exercise of any right of set-off, banker's lien,
counterclaim, or by any other means, it shall promptly purchase
from the other Banks participation in (or, if and to the extent
specified by such Bank, direct interests in) the Loans made by
the other Banks in such amounts, and make such other adjustments
from time to time as shall be equitable to the end that all the
Banks shall share the benefit of such payment (net of any
expenses which may be incurred by such Bank in obtaining or
preserving such benefit) pro rata in accordance with the unpaid
principal and interest on the Loans held by each of them. To
such end the Banks shall make appropriate adjustments among
themselves (by the resale of participation sold or otherwise) if
such payment is rescinded or must otherwise be restored. The
Borrower agrees that any Bank so purchasing a participation (or
direct interest) in the Loans made by other Banks may exercise
all rights of set-off, banker's lien, counterclaim or similar
rights with respect to such participation (or direct interest).
Nothing contained herein shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise, and
retain the benefits of exercising, any such right with respect to
any other indebtedness of the Borrower.
SECTION XII - MISCELLANEOUS PROVISIONS
12.1 Waiver. The Agent and Banks shall not be deemed
to have waived any rights or remedies under any Loan Document or
Obligation by:
(A) forbearing or failing to exercise, or
delaying in exercising, any rights and remedies; or
(B) forbearing or failing to insist upon, or any
delay in insisting upon, the strict performance of any term or
condition of any Loan Document or other Obligation; or
(C) granting any extension, modification or waiver
of any term or condition of any Loan Document or other
Obligation, except, and only to the extent, that the extension,
modification, or waiver shall expressly provide; or
(D) any other act, omission, forbearance or delay
by any Bank, its officers, agents, servants or employees; or
(E) any waiver of any rights or remedies on any
one occasion.
12.2 Written Modifications. No extension,
modification, amendment or waiver of any term or condition of any
Loan Document shall be valid or binding upon any Bank, unless it
is in writing and signed by a duly authorized officer of such
Bank.
12.3 Demands and Notices. All demands and notices
under any Loan Document shall be in writing and shall be served
either personally or by certified mail, return receipt requested,
on the party to whom that notice or demand is to be given or made
at the address first set forth in the caption to this Loan
Agreement. All notices and demands directed to CoreStates or the
Agent shall be sent to the Commercial Lending Department (Attn:
Catherine Alessi), with a copy of any such notice or demand to be
sent to CoreStates's counsel, Lowenstein, Sandler, Kohl, Fisher &
Boylan, P.A. 65 Livingston Avenue, Roseland, New Jersey 07068
(Attn: Alan Wovsaniker, Esq.). All notices to Summit shall be
sent to Summit Bank, 750 Walnut Avenue, Cranford, New Jersey
07016 (Attn: Wayne Trotman), with a copy to Summit's counsel
Wolff and Samson, 5 Becker Farm Road, Roseland New Jersey 07068
(Attn: Morris Bienenfield, Esq.). All notices to Borrower shall
be sent to Borrower (Attn: Robert Sumas). (The Agent shall
endeavor, but shall have no obligation whatsoever and no
responsibility whatsoever for any failure, to send copies of
notices of conditions of default to the attention of the in-house
counsel and controller of Borrower.) Any party desiring to
change the address to which notices or demands shall be sent
shall notify the other parties of the new address by certified
mail, return receipt requested. Any notice or demand properly
sent by Bank via certified mail, return receipt requested, shall
be deemed to have been served on the third business day after
mailing, regardless of when it is actually received.
12.4 Governing Law. All terms of each Loan Document
and the duties, rights and remedies of the parties thereunder
shall be governed by, and construed according to, the laws of the
State of New Jersey.
12.5 Jurisdiction. In any litigation relating to any
Loan Document, Borrower hereby consents to the exclusive personal
jurisdiction of the state and federal courts of the State of New
Jersey.
12.6 Partial Invalidity. If any term or provision of
any Loan Document is held to be invalid by any court of competent
jurisdiction, such invalidity shall not affect the remaining
terms and provisions, which shall continue in full force and
effect.
12.7 Successors and Assigns. Each Loan Document shall
be binding upon, and inure to the benefit of, the parties thereto
and their respective successors or heirs, and assigns, provided,
however, that the Borrower shall not be permitted to assign or
transfer any rights or duties under any Loan Document without the
express prior consent of the Banks, which consent the Banks may
grant or withhold in their sole discretion. Each Bank shall have
the absolute right to assign, or sell a participation interest in
any or all of Bank's interest in, any Loan Document or any Loans
made pursuant to any Loan Document, provided, however, that (1)
no Bank shall assign or sell a participation interest in any or
all of its interest in the Loans or any Loan Document without the
prior written consent of the other Banks and (2) all Banks shall
jointly retain all decision making authority with respect to the
declaration of Defaults and otherwise hereunder.
12.8 Additional Rights and Remedies. All rights and
remedies given to the Banks under any Loan Document shall be in
addition to, and not in limitation of, any right or remedy that
the Banks may have, whether under any other provisions of any
Loan Document or other agreement, or at law or in equity.
12.9 Further Assurances. The Borrower agrees to
execute and deliver all documents and instruments reasonably
requested by either Bank or the Agent to further the purposes of
this Loan Agreement or any other Loan Document.
12.10 Indemnification. The Borrower shall indemnify,
defend and hold harmless each of the Agent, the Banks, and any of
their officers, employees or agents (collectively the
"Indemnified Parties") against any and all losses, liabilities,
claims or causes of action (including but not limited to
reasonable attorneys fees and settlement costs) arising from or
related to (or alleged to arise from or be related to) Borrower's
use of the proceeds of the Loans or the Commitments.
SECTION XIII - NO JURY TRIAL
IN ANY LITIGATION RELATING TO ANY LOAN DOCUMENT, THE
BANKS AND BORROWER HEREBY WAIVE THEIR RIGHT TO TRIAL BY JURY.
THE BANKS AND BORROWER ACKNOWLEDGE THAT THEY HAVE CONSULTED WITH
THEIR RESPECTIVE COUNSEL SPECIFICALLY ON THE RAMIFICATIONS OF
WAIVING THE RIGHT TO REQUEST TRIAL BY JURY PRIOR TO AGREEING TO
THIS PROVISION.
The Banks, the Agent and the Borrower have caused this
Loan Agreement to be executed as of the day and year first above
written.
AGENT: BANKS:
CORESTATES BANK, N.A. CORESTATES BANK, N.A.
By:____________________________
By:________________________________
Catherine T. Alessi, Vice President Catherine T.
Alessi, Vice President
LENDING OFFICE:
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
SUMMIT BANK
By:_______________________________
Wayne Trotman, Vice President
LENDING OFFICE:
750 Walnut Avenue
Cranford, New Jersey 07016
BORROWER:
ATTEST: VILLAGE SUPER MARKET, INC.
a New Jersey Corporation
By:__________________________________ _________________________
Kevin Begley, Chief Financial Officer Robert Sumas,
Executive Vice President
GUARANTORS:
SUMAS REALTY COMPANY
___________________________ By:____________________________
Kevin Begley, Chief Financial Officer Robert Sumas,
Executive Vice President
VILLAGE LIQUOR SHOP
___________________________ By:____________________________
Kevin Begley, Chief Financial Officer Robert Sumas,
Executive Vice President
SUBSIDIARIES OF REGISTRANT
The Company currently has one wholly-owned subsidiary, Village Liquor,
Inc. This corporation is organized under the laws of the State of New
Jersey. The financial statements of this subsidiary are included in the
Company's consolidated financial statements.
VILLAGE SUPER MARKET, INC.
REPORT RESULTS FOR THE FOURTH QUARTER & YEAR ENDED
July 26, 1997
Springfield, New Jersey - October 2, 1997. Village Super Market, Inc.
reported sales and net income for the fourth quarter and year ended July 26,
1997, Perry Sumas, President announced today.
Net income was $967,000 ($.33 per share) in the fourth quarter of fiscal
1997, an increase of 57% from the prior year. Fourth quarter sales were
$176,569,000, an increase of 1% from the prior year. Same store sales improved
2% in the quarter. The significant increase in fourth quarter net income was
due to the improvement in same store sales and lower operating costs. Same
store sales improved primarily because of increased sales in remodeled stores.
Operating costs declined due to lower payroll costs, partially offset by
increased promotional activities.
Net income for the full fiscal year was $2,074,000 ($.71 per share), an
increase of 46% from the prior year, excluding a gain on the sale of an asset
in the prior year. Sales for the year were $688,861,000, about the same as the
prior year. Same store sales increased 1%. The improvement in net income for
the year was primarily attributable to the same store sales increase, improved
gross margins and lower operating costs.
Village Super Market operates a chain of 22 supermarkets under the
ShopRite name in New Jersey and eastern Pennsylvania. The following table
summarizes Village's results for the quarter and year ended July 26, 1997:
<TABLE>
<CAPTION>
July 26, 1997 July 27,1996
Quarter Ended
<S> <C> <C>
Sales $176,569,000 $174,829,000
Net Income $ 967,000 $ 617,000
Net Income Per Share $ .33 $ .21
Year Ended
Sales $688,861,000 $688,632,000
Net Income $ 2,074,000 $ 2,006,000
Net Income Per Share $ .71 $ .69
</TABLE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-26-1997
<PERIOD-END> JUL-26-1997
<CASH> 4270
<SECURITIES> 0
<RECEIVABLES> 3269
<ALLOWANCES> 0
<INVENTORY> 24836
<CURRENT-ASSETS> 35273
<PP&E> 141050
<DEPRECIATION> 68756
<TOTAL-ASSETS> 132764
<CURRENT-LIABILITIES> 47880
<BONDS> 24027
0
0
<COMMON> 19164
<OTHER-SE> 37917
<TOTAL-LIABILITY-AND-EQUITY> 132764
<SALES> 688861
<TOTAL-REVENUES> 688861
<CGS> 518006
<TOTAL-COSTS> 518006
<OTHER-EXPENSES> 164087
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3323
<INCOME-PRETAX> 3445
<INCOME-TAX> 1371
<INCOME-CONTINUING> 2074
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<EPS-PRIMARY> .71
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