<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SHOPPERS FOOD WAREHOUSE CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5411 53-0231809
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
SFW HOLDING CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6719 52-2014682
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
4600 FORBES BLVD.
LANHAM, MARYLAND 20706
(301) 306-8600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
MARK A. FLINT
PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
SHOPPERS FOOD WAREHOUSE CORP.
4600 FORBES BLVD.
LANHAM, MARYLAND 20706
(301) 306-8600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF AGENT FOR SERVICE)
----------------
COPY TO:
KENNETH J. AYRES, ESQ.
JONES, DAY, REAVIS & POGUE
METROPOLITAN SQUARE
1450 G STREET, N.W.
WASHINGTON, D.C. 20005-2088
(212) 879-3791
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities act of
1933, check the following box. [X]
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 3/4% Senior Notes due
2004................... $200,000,000 100% $200,000,000 $60,606.06
- -------------------------------------------------------------------------------
Guarantee of 9 3/4%
Senior Notes
due 2004............... None(2)
</TABLE>
================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act.
(2)Pursuant to Rule 457(n), no registration fee is required with respect to
the Guarantee.
----------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
SFW HOLDING CORP.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING
THE LOCATION OF INFORMATION REQUIRED BY
PART I OF FORM S-4
<TABLE>
<CAPTION>
NO. CAPTION LOCATION OR CAPTION IN PROSPECTUS
--- ------- ---------------------------------
<C> <S> <C>
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus...... Outside Front Cover
2. Inside Front and Outside Back
Cover Pages of Prospectus..... Inside Front Cover; Outside Back Cover;
Available Information
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information................... Prospectus Summary; Risk Factors; The
Exchange Offer; Unaudited Pro Forma
Consolidated Financial Statements;
Selected Historical Financial Data
4. Terms of the Transaction....... Outside Front Cover; Prospectus Summary;
The Exchange Offer; Description of the
Senior Notes; Risk Factors; Certain
Income Tax Considerations
5. Pro Forma Financial
Information................... Prospectus Summary; Unaudited Pro Forma
Consolidated Financial Statements;
Selected Historical Financial Data
6. Material Contracts with the
Company Being Acquired........ Not Applicable
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters.................. Not Applicable
8. Interests of Named Experts and
Counsel....................... Not Applicable
9. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... Not Applicable
10. Information With Respect to S-3
Registrants................... Not Applicable
11. Incorporation of Certain
Information by Reference...... Not Applicable
12. Information with Respect to S-2
or S-3 Registrants............ Not Applicable
13. Incorporation of Certain
Information by Reference...... Not Applicable
14. Information With Respect to
Registrants other than S-2 or
S-3 Registrants............... Outside Front Cover; Inside Front Cover;
Prospectus Summary; Risk Factors;
Business; Management; Use of Proceeds;
Pro Forma Consolidated Capitalization;
Unaudited Pro Forma Pro Forma
Consolidated Financial Statements;
Selected Historical Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Certain Income Tax
Considerations; Consolidated Financial
Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NO. CAPTION LOCATION OR CAPTION IN PROSPECTUS
--- ------- ---------------------------------
<C> <S> <C>
15. Information With Respect to S-3
Companies.......................... Not Applicable
16. Information With Respect to S-2 or
S-3 Companies...................... Not Applicable
17. Information With Respect to
Companies Other than S-2 or S-3
Companies.......................... Not Applicable
18. Information if Proxies, Consents or
Authorizations Are to Be
Solicited.......................... Not Applicable
19. Information if Proxies, Consents or
Authorizations Are Not to Be
Solicited or in an Exchange Offer.. Management; Certain Transactions;
Business
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THIS PROSPECTUS AND THE INFORMATION CONTAINED HEREIN IS SUBJECT TO CHANGE, +
+COMPLETION OR AMENDMENT WITHOUT NOTICE. THESE SECURITIES MAY NOT BE SOLD NOR +
+MAY AN OFFER TO BUY BE ACCEPTED PRIOR TO THE TIME THE PROSPECTUS IS DELIVERED +
+IN FINAL FORM. UNDER NO CIRCUMSTANCES SHALL THIS PROSPECTUS CONSTITUTE AN +
+OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY +
+SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, +
+SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION +
+UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 5, 1997
PROSPECTUS
[LOGO OF SHOPPERS FOOD WAREHOUSE CORP. APPEARS HERE]
SHOPPERS FOOD WAREHOUSE CORP.
OFFER TO EXCHANGE ITS 9 3/4% SENIOR NOTES DUE 2004,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT (AS DEFINED),
FOR ALL OF ITS OUTSTANDING 9 3/4% SENIOR NOTES DUE 2004
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997,
UNLESS EXTENDED (THE "EXPIRATION DATE").
----------
Shoppers Food Warehouse Corp., a Delaware corporation ("Shoppers" or the
"Company"), hereby offers to exchange (the "Exchange Offer") up to $200,000,000
aggregate principal amount of its new 9 3/4% Senior Notes due 2004 (the
"Exchange Notes") for an equal principal amount of its outstanding 9 3/4%
Senior Notes due 2004 (the "Outstanding Notes") sold by the Company on June 26,
1997, upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (the "Letter of Transmittal").
The Exchange Notes and the Outstanding Notes are collectively referred to
herein as the "Senior Notes." The terms of the Exchange Notes are identical in
all material respects to those of the Outstanding Notes, except for certain
transfer restrictions and registration rights relating to the Outstanding
Notes. The Exchange Notes will be issued pursuant to, and entitled to the
benefits of, the Indenture (as defined) governing the Outstanding Notes.
The Company will pay $50 million (the "Restricted Proceeds") of the net
proceeds from the sale of the Outstanding Notes to the Company's ultimate
parent, Dart Group Corporation ("Dart"), if and when Dart consummates a
Settlement (as defined) with certain of its stockholders. If the Restricted
Proceeds are not used for a Settlement on or prior to June 30, 1998, then the
Company must use the Restricted Proceeds (including accrued interest) to redeem
$50 million aggregate principal amount of the Senior Notes on a pro rata basis
at 101% of the principal amount thereof and to pay accrued and unpaid interest
thereon (the "Special Mandatory Redemption"). See "Description of the Senior
Notes--Redemption--Special Mandatory Redemption."
Interest on the Senior Notes will be payable semi-annually in arrears on June
15 and December 15 of each year, commencing on December 15, 1997, at the rate
of 9 3/4% per annum. The Senior Notes will be redeemable, in whole or in part,
at the option of the Company on or after June 15, 2001, at the redemption
prices set forth herein, plus accrued and unpaid interest, if any, to the date
of redemption. In addition, at any time on or prior to June 15, 2000, the
Company may, at its option, redeem up to 35% (up to 10% if the Special
Mandatory Redemption has occurred) of the aggregate principal amount of the
Senior Notes originally issued with the net cash proceeds of one or more Equity
Offerings (as defined), at a redemption price equal to 109.75% of the aggregate
principal amount of the Senior Notes to be redeemed plus accrued and unpaid
interest to the date of redemption; provided, however, that at least 65% of the
original aggregate principal amount of the Senior Notes remains outstanding
immediately after such redemption. Any such optional redemption shall reduce,
on a dollar-for-dollar basis, the principal amount of the Senior Notes required
to be redeemed under the Special Mandatory Redemption. In the event of a Change
in Control (as defined), each holder of the Senior Notes (each a "Holder") will
have the right to require the Company to repurchase any or all of its
outstanding Senior Notes at a price equal to 101% of the principal amount
thereof, plus any accrued and unpaid interest to the date of repurchase.
However, there can be no assurance that sufficient funds would be available at
the time of any Change of Control to make any required repurchases of Senior
Notes tendered. See "Description of the Senior Notes."
The Restricted Proceeds will be held by the Trustee (as defined) pursuant to
the Pledge Agreement (as defined) and invested in Cash Equivalents (as
defined). The obligation of the Company to make the Special Mandatory
Redemption is secured by such Restricted Proceeds. The Senior Notes will
otherwise be general unsecured obligations of the Company and will rank pari
passu in right of payment with all existing and future senior indebtedness of
the Company and senior in right of payment to all existing and future
subordinated indebtedness of the Company. The Senior Notes will be effectively
subordinated in right of payment to all secured indebtedness of the Company to
the extent of the value of the assets securing such indebtedness. The Senior
Notes will be fully and unconditionally guaranteed (the "Guarantee") by SFW
Holding Corp., a Delaware corporation (the "Guarantor"), the immediate parent
of Shoppers. The Guarantee will be secured by a first priority security
interest in the capital stock of Shoppers owned by the Guarantor. As of May 3,
1997, on a pro forma basis after giving effect to the sale of the Outstanding
Notes and the application of the proceeds therefrom, the Company would have had
$11.5 million of senior debt outstanding that ranked pari passu with the Senior
Notes and no secured indebtedness outstanding (other than the security under
the Pledge Agreement).
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Outstanding Notes where they were acquired by such broker-dealer as a
result of market-making or other trading activities. Each broker-dealer that
received Outstanding Notes from the Company and not as a result of market-
making or other trading activities, in the absence of an exemption, must comply
with the registration requirements of the Securities Act. The Company and the
Guarantor will, for a period of 90 days after consummation of the Exchange
Offer, make copies of this Prospectus available to any broker-dealer for use in
connection with any such resale.
The Outstanding Notes are designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") System of the
National Association of Securities Dealers, Inc. The Exchange Notes constitute
securities for which there is no established trading market. Any Outstanding
Notes not tendered and accepted in the Exchange Offer will remain outstanding.
The Company does not intend to list the Exchange Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system, and no active public market for the Exchange Notes is currently
anticipated. If a market for the Exchange Notes should develop, such Exchange
Notes could trade at a discount from their principal amount. To the extent that
any Outstanding Notes are tendered and accepted in the Exchange Offer, a
Holder's ability to sell untendered Outstanding Notes could be adversely
affected. No assurance can be given as to the liquidity of the trading market
for either the Outstanding Notes or the Exchange Notes.
The Exchange Notes are being offered hereby in order to satisfy certain
obligations of the Company and the Guarantor contained in the Registration
Rights Agreement dated as of June 26, 1997 (the "Registration Rights
Agreement") by and among the Company, the Guarantor and an institutional
investor (the "Initial Purchaser"), entered into at the time of original
issuance of the Outstanding Notes. Neither the Company nor the Guarantor will
receive any proceeds from the Exchange Offer. The Company will pay all expenses
incident to the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum principal amount of
Outstanding Notes being tendered for exchange pursuant to the Exchange Offer.
The date of acceptance and exchange (the "Exchange Date") of the Outstanding
Notes will be the third business day following the Expiration Date. Outstanding
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. In the event the Company terminates the Exchange
Offer and does not accept for exchange any Outstanding Notes with respect to
the Exchange Offer, the Company will promptly return such Outstanding Notes to
the holders thereof.
----------
SEE "RISK FACTORS," WHICH BEGINS ON PAGE 12, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER OUTSTANDING NOTES IN
THE EXCHANGE OFFER.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
The date of this Prospectus is , 1997.
<PAGE>
AVAILABLE INFORMATION
The Company and the Guarantor have filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-4 (together
with all amendments, exhibits, schedules and supplements thereto, the
"Registration Statement") under the Securities Act with respect to the
Exchange Notes being offered hereby. This Prospectus, which forms a part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement. For further information with respect to the
Company, the Guarantor and the Exchange Notes, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete and,
where such contract or other document is an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions
in such exhibit, to which reference is hereby made. Copies of the Registration
Statement may be examined without charge at the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
the Commission's Regional Offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of all or any portion of the
Registration Statement can be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment
of certain fees prescribed by the Commission. In addition, registration
statements and certain other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are
publicly available through the Commission's site on the Internet's World Wide
Web, located at http://www.sec.gov.
Neither the Company nor the Guarantor is currently subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Upon completion of the Exchange Offer, the Company and
the Guarantor will be subject to the informational requirements of the
Exchange Act and, accordingly, will file periodic reports and other
information with the Commission. Notwithstanding the foregoing, the Guarantor
intends to request that the Commission, pursuant to Section 12(h) of the
Exchange Act, grant an order exempting it from complying with the
informational requirements of the Exchange Act.
In addition, the Company is required by the terms of the Indenture to
furnish the Trustee and the Holders of the Senior Notes with annual reports
containing consolidated financial statements audited by its independent
accountants and with quarterly reports containing unaudited condensed
consolidated financial statements for each of the first three quarters of each
fiscal year.
----------------
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PROSPECTUS SUMMARY
Unless otherwise noted, reference to (i) "Shoppers" or the "Company" means
collectively Shoppers Food Warehouse Corp. and its subsidiaries, (ii) the
"Guarantor" means SFW Holding Corp., the immediate parent company of Shoppers
and (iii) "Dart" means Dart Group Corporation, the immediate parent company of
the Guarantor and the ultimate parent company of Shoppers. The following
summary is qualified in its entirety by the more detailed information and
financial statements and notes thereto appearing elsewhere in this Prospectus.
Until Shoppers became a wholly-owned indirect subsidiary of Dart on February
6, 1997, Shoppers' fiscal year ended on the Saturday closest to June 30,
resulting in a 52- or 53-week year. The 1994, 1995 and 1996 fiscal years each
contained 52 weeks. The Company has since conformed to Dart's fiscal year by
changing its fiscal year to the Saturday closest to January 31. Thus, reference
to "fiscal 1994" means the 52 weeks ended July 2, 1994, "fiscal 1995" means the
52 weeks ended July 1, 1995, "fiscal 1996" means the 52 weeks ended June 29,
1996, "fiscal 1997" means the 31 weeks ended February 1, 1997 and "fiscal 1998"
means the 52 weeks ended January 31, 1998. All references to market share and
demographic data in this Prospectus are based upon industry publications.
THE COMPANY
Shoppers is a leading supermarket operator in Greater Washington, D.C. (as
defined below), operating 35 stores that target the price-conscious segment of
the market in densely populated suburban areas under the "Shoppers Food
Warehouse" and "Shoppers Club" names. Shoppers operates warehouse-style, price-
impact supermarkets that are positioned to offer the lowest overall prices in
its market area by passing on to the consumer savings achieved through labor
efficiencies and lower overhead associated with the warehouse format, while
providing the product selection and quality associated with a conventional
format. The Company's stores offer products at prices that generally range from
15% to 20% below those of its primary supermarket competitors. In-store
operations are designed to allow customers to perform certain labor-intensive
services usually offered in conventional supermarkets. For example, the
Company's stores generally do not provide service staff to support the bakery
and floral departments or the meat and seafood refrigerated cases. The stores
do, however, offer a complete line of produce, fresh baked goods, floral
assortments and freshly packaged meat and seafood products and provide service
in these departments at the request of customers. Certain merchandise is
presented on warehouse-style racks in full cartons, reducing labor-intensive
unpacking, and customers bag their own groceries. Shoppers stores also have
full-service delicatessens with some stores offering hot and cold prepared food
and self-service soup and salad bars.
The Company's stores generally are constructed with high ceilings to
accommodate warehouse racking with overhead pallet storage. Wide aisles
accommodate forklifts and, compared to conventional supermarkets, a higher
percentage of total store square footage is devoted to retail selling because
the top of the warehouse-style grocery racks on the sales floor are used to
store inventory, which reduces the need for large backroom storage and
restocking trips.
Notwithstanding the "warehouse" name, physical features and low-price
reputation, Shoppers stores have more in common with conventional supermarket
chains than with so-called "warehouse clubs." No membership fee is charged at
the Shoppers stores, which offer a selection of popular-sized national brands
and private label products as well as high quality produce, meat and seafood.
The product offerings are similar to those of conventional supermarkets with
slightly more emphasis on larger package sizes and with less emphasis on
extensive brand and size selection. All 35 of the Company's supermarkets have a
delicatessen, a bakery and a floral department while 19 stores have a beer and
wine department.
<PAGE>
While similar in most respects to conventional supermarket operators,
Shoppers distinguishes itself by providing low-price leadership while still
emphasizing quality. Shoppers does this by offering an unusual combination of
higher-end specialty departments with self-service and discount price features.
In addition, unlike traditional supermarkets, Shoppers stores offer a greater
selection of "club size" products, along with popular-sized brands. Through
this approach, Shoppers has established a unique niche among supermarket
operators in Greater Washington, D.C.
The Company's strategy is to open large new stores and upgrade existing
stores. Shoppers opened one new store in July 1997 and has signed leases to
open four additional new stores (each between 65,000 and 75,000 square feet)
over the next two years. Also during this period, Shoppers is considering
expanding or remodeling at least two stores. Since 1992, Shoppers has opened 13
new stores (while closing four stores) and remodeled seven stores. Of its
existing 35 stores, 25 are larger than 40,000 square feet, and all but one of
these 25 stores were opened, remodeled or expanded during the last ten years.
The Company believes that its supermarkets generally have well-established
locations with favorable lease terms (including multiple options), are in good
condition and require only routine maintenance.
Shoppers is the largest supermarket chain targeting the price-conscious
segment in Greater Washington, D.C. The two primary competitors of Shoppers are
Giant Food, Inc. ("Giant") and Safeway Inc. ("Safeway"), both of which operate
in the higher-service, higher-price segment. Overall, Shoppers has the third
largest market share in Greater Washington, D.C. On a combined basis, Shoppers,
Giant and Safeway have 84% of the market share in this area. "Greater
Washington, D.C." includes Washington, D.C.; Calvert, Charles, Frederick,
Montgomery and Prince George's counties in Maryland; Arlington, Fairfax,
Loudoun, Prince William and Stafford counties in Virginia; and the independent
cities of Alexandria, Fairfax and Falls Church in Virginia. Shoppers does not,
however, operate any stores in the city of Washington, D.C. Shoppers' share of
the Greater Washington, D.C. market has increased from 11.9% in 1992 to 13.6%
in 1997 and, according to Food World (June 1997), exceeds its next highest
competitor by almost four times. During the same period, Giant's market share
decreased from 45.9% to 42.9% while Safeway's market share increased from 27.1%
to 27.5%.
Shoppers was incorporated in Delaware in 1956 and its principal executive
offices are at 4600 Forbes Blvd., Lanham, Maryland 20706. The telephone number
of Shoppers is (301) 306-8600.
ACQUISITION OF THE COMPANY BY DART
In June 1988, Dart acquired 50% of Shoppers for $17.4 million. On February 6,
1997, Dart's ownership increased to 100% with the buy-out of the other 50%
interest in Shoppers for $210 million (the "Acquisition"). The Acquisition was
financed through the application of $137.2 million in net proceeds raised from
an offering of Increasing Rate Senior Notes due 2000 (the "Increasing Rate
Notes") of SFW Acquisition Corp., a newly created indirect subsidiary of Dart,
and $72.8 million of bridge financing (the "Bridge Loan") provided by a bank.
Immediately after the Acquisition, SFW Acquisition Corp. merged into Shoppers
(with Shoppers becoming obligor on the Increasing Rate Notes) and Shoppers
repaid the Bridge Loan from its existing cash and the liquidation of certain
short-term investments.
2
<PAGE>
THE EXCHANGE OFFER
THE EXCHANGE OFFER...... The Company is offering to exchange up to
$200,000,000 aggregate principal amount of its new 9
3/4% Senior Notes due 2004 (the "Exchange Notes") for
an equal principal amount of its outstanding 9 3/4%
Senior Notes due 2004 (the "Outstanding Notes"). The
terms of the Exchange Notes are identical in all ma-
terial respects to those of the Outstanding Notes,
except for certain transfer restrictions and regis-
tration rights relating to the Outstanding Notes. The
Exchange Notes and Outstanding Notes are collectively
referred to herein as the "Senior Notes."
PURPOSE OF THE EXCHANGE
OFFER.................. The Exchange Notes are being offered to satisfy cer-
tain obligations of the Company under the Registra-
tion Rights Agreement.
EXPIRATION DATE;
WITHDRAWAL OF TENDER... The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1997, or such later date and
time to which it is extended by the Company (the "Ex-
piration Date"). The Expiration Date will not be ex-
tended beyond the 225th day after the date of the
original issuance of the Senior Notes. The tender of
Outstanding Notes pursuant to the Exchange Offer may
be withdrawn at any time prior to the Expiration
Date. Any Outstanding Notes not accepted for exchange
for any reason will be returned without expense to
the tendering Holder thereof as promptly as practica-
ble after the expiration or termination of the Ex-
change Offer.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND
OUTSTANDING NOTES...... Interest on the Exchange Notes will accrue from (A)
the later of (i) the last interest payment date on
which interest was paid on the Outstanding Notes sur-
rendered in exchange therefor or (ii) if the Out-
standing Notes are surrendered for exchange on a date
in a period which includes the record date for an in-
terest payment date to occur on or after the date of
such exchange and as to which interest will be paid,
the date of such interest payment date, or (B) if no
interest has been paid on the Outstanding Notes, from
June 26, 1997. Holders whose Outstanding Notes are
accepted for exchange will be deemed to have waived
the right to receive any interest accrued on the Out-
standing Notes.
PROCEDURES FOR
TENDERING OUTSTANDING
NOTES.................. Each holder of Outstanding Notes wishing to accept
the Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in ac-
cordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the
Outstanding Notes and any other required documenta-
tion to the exchange agent (the "Exchange Agent") at
the address set forth herein. Outstanding Notes may
be physically delivered, but physical delivery is not
required if a confirmation of a book-entry transfer
of such Outstanding Notes to the Exchange Agent's ac-
count at The Depository Trust Company ("DTC" or the
"Depository") is delivered in a timely fashion. By
executing the Letter of Transmittal, each Holder will
represent to the Company that, among other things,
the Exchange Notes acquired
3
<PAGE>
pursuant to the Exchange Offer are being obtained in
the ordinary course of business of the person receiv-
ing such Exchange Notes, whether or not such person
is the Holder, that neither the Holder nor any such
other person is engaged in, or intends to engage in,
or has an arrangement or understanding with any per-
son to participate in, the distribution of such Ex-
change Notes and that neither the Holder nor any such
other person is an "affiliate", as defined under Rule
405 of the Securities Act, of the Company. See "The
Exchange Offer--Procedures for Tendering Outstanding
Notes."
CONDITIONS TO THE
EXCHANGE OFFER......... The Exchange Offer is not conditioned upon any mini-
mum aggregate principal amount of Outstanding Notes
being tendered for exchange. The Exchange Offer is
subject to certain customary conditions, which may be
waived by the Company. The Company currently expects
that each of the conditions will be satisfied and
that no waivers will be necessary. See "The Exchange
Offer--Conditions to the Exchange Offer."
EXCHANGE AGENT.......... Norwest Bank Minnesota, National Association.
CERTAIN INCOME TAX
CONSIDERATIONS......... An exchange of Outstanding Notes for Exchange Notes
pursuant to the Exchange Offer should not be treated
as a sale, exchange or other taxable event for fed-
eral income tax purposes because the Exchange Notes
should not be considered to differ materially in kind
or extent from the Outstanding Notes. As a result, no
material federal income tax consequences should re-
sult from an exchange of Exchange Notes for Outstand-
ing Notes pursuant to the Exchange Offer. For federal
income tax purposes, Exchange Notes received by a
beneficial owner of Outstanding Notes should be
treated as a continuation of the Outstanding Notes in
the hands of such owner. See "Certain Income Tax Con-
siderations."
CONSEQUENCES OF
EXCHANGING OUTSTANDING
NOTES PURSUANT TO THE
EXCHANGE OFFER......... Based on certain interpretive letters issued by the
staff of the Commission to third parties in unrelated
transactions, Holders of Outstanding Notes (other
than any Holder who is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities
Act) who exchange their Outstanding Notes for Ex-
change Notes pursuant to the Exchange Offer generally
may offer such Exchange Notes for resale, resell such
Exchange Notes and otherwise transfer such Exchange
Notes without compliance with the registration and
prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the
ordinary course of the Holders' business and such
Holders are not participating in, and have no ar-
rangement or understanding with any person to partic-
ipate in, a distribution of such Exchange Notes. Each
broker-dealer that receives Exchange Notes for its
own account in exchange for Outstanding Notes, where
such Outstanding Notes were acquired by such broker-
dealer as a result of market-making activities or
other trading activities, must acknowledge that it
will deliver a prospectus in connection with any re-
sale of such Notes. See "Plan of Distribution." In
addition, to comply with
4
<PAGE>
the securities laws of certain jurisdictions, if ap-
plicable, the Exchange Notes may not be offered or
sold unless they have been registered or qualified
for sale in such jurisdiction or an exemption from
registration or qualification is available and is
complied with. The Company has agreed, pursuant to
the Registration Rights Agreement and subject to cer-
tain specified limitations therein, to register or
qualify the Exchange Notes for offer or sale under
the securities or blue sky laws of such jurisdictions
as any Holders of the Senior Notes request in writ-
ing. If a Holder of Outstanding Notes does not ex-
change such Outstanding Notes for Exchange Notes pur-
suant to the Exchange Offer, such Outstanding Notes
will continue to be subject to the restrictions on
transfer contained in the legend thereon. In general,
the Outstanding Notes may not be offered or sold un-
less registered under the Securities Act, except pur-
suant to an exemption from, or in a transaction not
subject to, the registration requirements of the Se-
curities Act and applicable state securities laws.
5
<PAGE>
EXCHANGE NOTES
The terms of the Exchange Notes are identical in all material respects to
those of the Outstanding Notes, except for certain transfer restrictions and
registration rights relating to the Outstanding Notes.
Securities Offered...... $200,000,000 aggregate principal amount of 9 3/4% Se-
nior Notes due 2004.
Issuer.................. Shoppers Food Warehouse Corp.
Maturity Date........... June 15, 2004
Interest Payment
Dates................... Interest on the Exchange Notes will accrue from the
date of original issuance of the Outstanding Notes
(the "Issue Date") and will be payable semi-annually
in arrears on each June 15 and December 15, commenc-
ing December 15, 1997.
Ranking................. The obligation of the Company to make the Special
Mandatory Redemption is secured by the Restricted
Proceeds. The Senior Notes will otherwise be general
unsecured obligations of the Company and will rank
pari passu in right of payment with all existing or
future senior indebtedness of the Company and senior
in right of payment to all existing and future subor-
dinated indebtedness of the Company. The Senior Notes
will be effectively subordinated in right of payment
to all secured indebtedness of the Company to the ex-
tent of the value of the assets securing such indebt-
edness. As of May 3, 1997, on a pro forma basis after
giving effect to the sale of the Outstanding Notes
and the application of the proceeds therefrom, the
Company had $11.5 million of senior debt outstanding
that ranked pari passu with the Senior Notes and no
secured indebtedness outstanding (other than the se-
curity under the Pledge Agreement).
Guarantee and
Collateral.............. The Senior Notes will be fully and unconditionally
guaranteed by the Guarantor. The Guarantee will be
secured by a first priority security interest in the
capital stock of Shoppers owned by the Guarantor. De-
pending on the outcome of pending litigation, the
Guarantor's direct ownership of Shoppers could be re-
duced to as low as 80%. See "Risk Factors--Security
for the Guarantee."
Special Mandatory
Redemption.............. If, on or prior to June 30, 1998, the closing of a
Settlement has not occurred or the Company has not
paid the Restricted Proceeds to Dart to fund a Set-
tlement, then the Company must use the Restricted
Proceeds (including accrued interest) to redeem $50
million aggregate principal amount of the Senior
Notes on a pro rata basis at 101% of the principal
amount thereof and to pay any accrued and unpaid in-
terest thereon. Pursuant to the Pledge Agreement, the
Company will deposit the Restricted Proceeds with the
Trustee to be held in the Restricted Account (as
defined).
Optional Redemption..... At any time on or prior to June 15, 2000, the Company
may, at its option, redeem up to 35% (up to 10% if
the Special Mandatory Redemption has occurred) of the
aggregate principal amount of the Senior Notes origi-
nally issued with the net cash proceeds of one or
more Equity Offerings, at a
6
<PAGE>
redemption price equal to 109.75% of the aggregate
principal amount of the Senior Notes to be redeemed
plus any accrued and unpaid interest to the date of
redemption; provided, however, that at least 65% of
the original aggregate principal amount of the Senior
Notes remains outstanding immediately after such re-
demption. Any such optional redemption prior to the
Special Mandatory Redemption shall reduce, on a dol-
lar-for-dollar basis, the principal amount of the Se-
nior Notes required to be redeemed pursuant to the
Special Mandatory Redemption. In addition, the Senior
Notes will be redeemable, in whole or in part, at the
option of the Company on or after June 15, 2001, at
the redemption prices set forth herein, plus any ac-
crued and unpaid interest to the date of redemption.
Change in Control....... In the event of a Change in Control, each Holder of
the Senior Notes will have the right, subject to cer-
tain conditions, to require the Company to repurchase
any or all of its outstanding Senior Notes at a price
equal to 101% of the principal amount thereof, plus
any accrued and unpaid interest to the date of repur-
chase. However, there can be no assurance that suffi-
cient funds would be available at the time of any
Change of Control to make any required repurchases of
Senior Notes tendered.
Certain Covenants....... The Indenture contains certain covenants for the ben-
efit of Holders of Senior Notes, including, among
others, covenants with respect to the following mat-
ters: (i) limitation on restricted payments; (ii)
limitation on indebtedness; (iii) limitation on in-
vestments, loans and advances; (iv) limitation on
dividends and other payment restrictions affecting
subsidiaries; (v) limitation on liens; (vi) limita-
tion on transactions with affiliates; (vii) restric-
tion on mergers, consolidations and transfers of as-
sets; (viii) limitation on lines of business; (ix)
limitation on asset sales; and (x) limitation on is-
suance and sale of capital stock of subsidiaries.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of Exchange
Notes offered hereby, the terms of which are identical in all material respects
to those of the Outstanding Notes, except for certain transfer restrictions and
registration rights relating to the Outstanding Notes. The Outstanding Notes
surrendered in exchange for the Exchange Notes will be cancelled and cannot be
reissued. The issuance of the Exchange Notes will not result in any change in
the aggregate indebtedness of the Company.
RISK FACTORS
Holders of Outstanding Notes should carefully consider all of the information
set forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors" in connection with the Exchange Offer.
7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical financial data of Shoppers
as of and for the 52 weeks ended July 2, 1994 and the 52 weeks ended July 1,
1995 and summary historical and pro forma financial data for the 52 weeks ended
June 29, 1996 and the 31 weeks ended February 1, 1997, which have been derived
in part from the financial statements audited by Arthur Andersen LLP, Shoppers'
independent public accountants. The summary historical financial data as of and
for the 52 weeks ended February 1, 1997, the 13 weeks ended May 4, 1996 and the
13 weeks ended May 3, 1997 have been derived from unaudited interim
consolidated financial statements, which, in the opinion of management, reflect
all material adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such data. The pro forma financial data
give effect to (i) the payment of a $10 million dividend to Dart declared on
February 6, 1997 and paid on May 30, 1997, (ii) the sale of the Outstanding
Notes and the application of the net proceeds therefrom to repay the Increasing
Rate Notes and to make a payment of $50 million to Dart to fund a Settlement
with certain of Dart's stockholders (see "Use of Proceeds--Possible
Settlements") and (iii) the use of $25 million of existing cash, cash
equivalents and short-term investments to pay an additional dividend to Dart,
as though such transactions occurred on July 2, 1995 with respect to the pro
forma operating data and as of May 3, 1997 with respect to the pro forma
balance sheet data.
The pro forma financial data presented herein do not purport to represent
what Shoppers' results of operations or balance sheet data would have been had
such transactions occurred at such date or to project Shoppers' results of
operation for any future period or balance sheet data at any future date. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements of Shoppers, together with the related
notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
52 WEEKS ENDED (UNAUDITED)
---------------------------- ------------------------------
31 WEEKS 52 WEEKS 13 WEEKS 13 WEEKS
ENDED ENDED ENDED ENDED
JULY 2, JULY 1, JUNE 29, FEBRUARY 1, FEBRUARY 1, MAY 4, MAY 3,
1994 1995 1996 1997 1997 1996 1997
-------- -------- -------- ----------- ----------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales................... $750,340 $790,842 $835,971 $511,025 $850,875 $209,036 $209,981
Gross profit(a)......... 157,277 174,321 183,985 112,896 190,946 47,931 50,446
Selling and
administrative
expenses(b)............ 127,643 136,798 149,570 94,304 154,594 36,415 37,545
Depreciation and
amortization........... 10,785 8,529 8,913 4,573 8,720 2,323 2,495
Interest income......... 2,189 4,682 5,789 3,526 5,985 1,490 499
Interest expense(c)..... 1,426 1,451 1,771 710 1,645 378 5,250
Net income(d)........... 12,929 19,526 18,703 10,455 20,563 6,492 3,177
Ratio of earnings to
fixed charges(e)....... 4.3x 6.4x 5.1x 4.9x 5.3x 7.1x 1.9x
OTHER DATA:
Stores open at end of
period................. 35 33 34 34 34 34 34
Capital expenditures.... $ 5,112 $ 4,693 $ 7,355 $ 5,280 $ 9,430 $ 2,410 $ 1,522
EBITDA(f)............... 29,998 38,400 35,614 19,972 38,107 11,742 13,127
Cash flow information:
Operating activities.. 18,261 31,907 26,992 17,412 29,378 12,858 13,800
Investing activities.. (7,059) (60,474) (52,082) 2,801 (18,083) (17,182) 52,512
Financing activities.. -- -- (10,000) (10,034) (10,034) -- (79,736)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
52 WEEKS ENDED (UNAUDITED)
-------------------------- -----------------------------
31 WEEKS 52 WEEKS 13 WEEKS 13 WEEKS
ENDED ENDED ENDED ENDED
JULY 2, JULY 1, JUNE 29, FEBRUARY 1, FEBRUARY 1, MAY 4, MAY 3,
1994 1995 1996 1997 1997 1996 1997
-------- -------- -------- ----------- ----------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA DATA
(UNAUDITED):
EBITDA(f)............... $ 35,614 $ 19,972 $ 38,107 $ 13,127
Depreciation and
amortization(g)........ 13,379 7,179 13,186 2,495
Interest income(h)...... 3,413 1,991 3,413 853
Interest expense(i)..... 22,200 12,627 22,074 5,536
Income taxes(j)......... 2,051 1,059 3,041 2,509
Net income (loss)....... (157) (282) 1,464 3,214
Ratio of earnings to
fixed charges(e)....... 1.1x 1.1x 1.2x 1.8x
Ratio of EBITDA to
interest expense....... 1.6x 1.6x 1.7x 2.4x
<CAPTION>
(UNAUDITED)
-----------------------------
PRO
FORMA
JULY 2, JULY 1, JUNE 29, FEBRUARY 1, MAY 3, MAY 3,
1994 1995 1996 1997 MAY 4, 1996 1997 1997
-------- -------- -------- ----------- ----------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and short-term
investments(k)......... $ 69,789 $ 97,003 $106,640 $108,738 $109,272 $ 41,280 $ 6,280
Working capital
deficit(l)............. 9,993 15,551 14,364 15,958 21,968 38,310 22,732
Total assets(m)......... 140,614 162,003 171,022 179,008 177,043 277,970 282,354
Total debt(n)........... 9,742 9,950 10,069 10,035 10,027 151,497 211,497
Stockholders'
equity(o).............. 75,804 95,330 104,033 104,488 100,415 45,421 1,883
</TABLE>
- --------
(a) Gross profit is net of LIFO expense of $364,000, $877,000 and $905,000 in
the 52 weeks ended July 2, 1994, July 1, 1995 and June 29, 1996,
respectively, $530,000 in the 31 weeks ended February 1, 1997, $905,000 in
the 52 weeks ended February 1, 1997 and $226,000 in the 13 weeks ended May
4, 1996 and May 3, 1997, respectively.
(b) Selling and administrative expenses include a reversal of a prior period
expense related to closed stores and remodels of $500,000 for the 52 weeks
ended July 1, 1995 and reserves related to closed stores and remodels of
$294,000 and $850,000 for the 52 weeks ended June 29, 1996 and the 52 weeks
ended February 1, 1997, respectively and $850,000 for the 31 weeks ended
February 1, 1997. Selling and administrative expenses also include a
$500,000 charge for reserves against a related party receivable for the 52
weeks ended July 1, 1995.
(c) Interest expense for the 13 weeks ended May 3, 1997 includes $510,000 of
amortization of deferred financing costs.
(d) Net income for the 52 weeks ended July 2, 1994, July 1, 1995 and June 29,
1996 includes $858,000, $1,239,000 and ($224,000), net of taxes,
respectively, associated with an insurance settlement relating to one store
that incurred significant fire damage in June 1994.
(e) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income before income taxes plus fixed charges. "Fixed
charges" consist of interest expense on all indebtedness (including
amortization of deferred financing costs) and the portion of operating
lease rental payments that is representative of the interest factor.
9
<PAGE>
(f) "EBITDA" represents net income before insurance settlement, income taxes,
interest expense, interest income, restructuring charges, depreciation and
amortization, reserve for related party receivable, non-cash charges or
credits associated with store closings and remodelings and LIFO expense.
Depreciation and amortization expense and these other items excluded from
EBITDA are significant components in understanding and assessing the
Company's financial performance. The Company believes that, in addition to
cash flow from operations and net earnings, EBITDA is a useful financial
performance measurement for assessing operating performance as it provides
investors with an additional basis to evaluate the ability of the Company
to incur and service debt and to fund capital expenditures. In evaluating
EBITDA, the Company believes that investors should consider the amount by
which EBITDA exceeds interest costs for the period, how EBITDA compares to
principal repayments on debt for the period and how EBITDA compares to
capital expenditures for the period. To evaluate EBITDA, the components of
EBITDA, such as revenues and operating expenses and the variability of such
components over time, should also be considered. Investors should be
cautioned, however, that EBITDA should not be construed as an alternative
to operating income (as determined in accordance with GAAP) as an indicator
of the Company's operating performance, or to cash flows from operating,
investing and financing activities (as determined in accordance with GAAP)
as a measure of liquidity or the Company's ability to meet all its cash
needs. The Company's method of calculating EBITDA may differ from the
methods used by other companies and, as a result, the EBITDA measures
disclosed herein may not be comparable to other similarly titled measures
disclosed by other companies.
(g) Reflects an increase in depreciation and amortization of $4,466,000 for the
52 weeks ended June 29, 1996 and the 52 weeks ended February 1, 1997 and
$2,606,000 for the 31 weeks ended February 1, 1997 attributable to the
amortization of excess purchase price over the net book value of assets
acquired arising from the Acquisition, on a straight-line basis over a 40
year period and the amortization of lease rights, on a straight-line basis
over the life of the leases.
(h) Reflects a decrease in interest income of $2,376,000, and $2,572,000 for
the 52 weeks ended June 29, 1996 and February 1, 1997, respectively,
$1,535,000 for the 31 weeks ended February 1, 1997 and an increase of
$354,000 for the 13 weeks ended May 3, 1997. The changes in interest income
are attributable to a reduction in cash, cash equivalents and short-term
investments resulting from dividend payments to Dart offset by interest
income related to a loan from Shoppers to Dart. The Company expects such
loan to bear the same interest rate and have the same maturity date as the
Senior Notes. All principal and interest on this loan to Dart would be
payable on the maturity date but could be repaid at any time without
penalty. See "Risk Factors--Substantial Leverage and Debt Service."
(i) Reflects an increase in interest expense of $20,429,000 for the 52 weeks
ended June 29, 1996 and the 52 weeks ended February 1, 1997, $11,917,000
for the 31 weeks ended February 1, 1997 and an increase of $286,000 for the
13 weeks ended May 3, 1997 attributable to interest incurred in connection
with the Senior Notes, which include amortization of deferred financing
costs of $929,000 for the 52 weeks ended June 29, 1996 and February 1,
1997, $542,000 for the 31 weeks ended February 1, 1997 and $232,000 for the
13 weeks ended May 3, 1997. The interest increase is based on an interest
rate of 9.75% on the Senior Notes.
(j) Reflects a decrease in income taxes of $8,411,000 and $8,368,000 for the 52
weeks ended June 29, 1996 and February 1, 1997, respectively, $5,321,000
for the 31 weeks ended February 1, 1997 and an increase of $31,000 for the
13 weeks ended May 3, 1997.
(k) The pro forma data reflects the effect of the Acquisition, the offerings
related to the Increasing Rate Notes and the Senior Notes, the payment of
dividends paid to Dart and the payment of Restricted Proceeds to Dart to
fund a Settlement. Also, reference should be made to footnote (a) to the
Pro Forma Consolidated Capitalization.
(l) Excludes cash, cash equivalents and short-term investments.
(m) The pro forma data reflects the decrease in cash, cash equivalents and
short-term investments, the capitalization of financing costs and excess
purchase price arising from the Acquisition.
10
<PAGE>
(n) The pro forma data reflects the additional indebtedness associated with the
sale of the Outstanding Notes.
(o) The pro forma data reflects a cash dividend of $10,000,000 declared on
February 6, 1997 but paid on May 30, 1997.
11
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors in
addition to the other information set forth in this Prospectus before making
an investment in the Senior Notes.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company has incurred significant indebtedness and has significant
interest expense. Without giving effect to the sale of the Outstanding Notes,
the Company's consolidated indebtedness was $151.5 million and its
consolidated interest expense for the thirteen weeks ended May 3, 1997 was
$5.3 million. After giving effect to the sale of the Outstanding Notes and the
application of the proceeds therefrom to repay the Increasing Rate Notes and
to make a $50 million payment to Dart to fund a Settlement with certain of
Dart's stockholders, the Company's consolidated indebtedness would have been
$211.5 million at May 3, 1997 and its consolidated interest expense for the
thirteen weeks ended May 3, 1997 would have been $5.5 million. See "Use of
Proceeds--Possible Settlements." In addition, subject to the restrictions in
the Indenture, the Company may incur additional indebtedness from time to
time. For the Company's ratio of earnings to fixed charges, see "Selected
Historical Financial Data."
The level of the Company's indebtedness could have important consequences to
Holders of the Senior Notes, including: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to service debt and will
not be available for other purposes; (ii) the Company's ability to obtain
additional debt financing in the future for working capital and capital
expenditures may be limited; and (iii) the Company's level of indebtedness
could limit its flexibility in reacting to changes in the supermarket industry
and economic conditions in general. Certain of the Company's competitors
currently operate on a less leveraged basis and have significantly greater
operating and financing flexibility than the Company.
Shoppers believes that cash flow from operations, borrowings available under
a credit facility in the aggregate principal amount at any time outstanding
not to exceed $35 million (the "New Credit Facility") that the Company expects
to enter into with a bank or other third party and lease financings will be
sufficient to enable the Company to satisfy its anticipated requirements for
operating expenses, capital expenditures and debt service obligations. If the
Company is unable to satisfy such requirements from these sources, the Company
would be required to adopt one or more alternatives, such as reducing or
delaying capital expenditures, selling material assets or seeking additional
capital investment. No assurance can be given that the Company will enter into
the New Credit Facility or that any such alternative could be effected on
satisfactory terms.
In connection with a possible Settlement, Shoppers may lend $35 million to
Dart. See "Use of Proceeds--Possible Settlements." The Company expects such
loan to bear the same interest rate and have the same maturity date as the
Senior Notes. All principal and interest on this loan to Dart would be payable
on the maturity date but could be repaid at any time without penalty. There
can be no assurance, however, that Dart will be able to repay such principal
and interest when due.
Furthermore, repayment of the Senior Notes is dependent upon the Company
refinancing its indebtedness, obtaining new equity capital or consummating a
sale of all or part of the Company. There can be no assurance that the Company
will be able to successfully accomplish any of these options.
RESTRICTIVE DEBT COVENANTS
The Indenture under which the Outstanding Notes were, and the Exchange Notes
will be, issued (the "Indenture") contains numerous covenants. See
"Description of the Senior Notes." If the Company fails to comply with these
covenants, it would be in default under the Indenture. In the event of such
default, the principal and accrued interest on the Senior Notes would become
due and payable. In addition, the Company expects that the New Credit Facility
would contain other and more restrictive covenants and would prohibit the
Company from prepaying the Senior Notes, except in certain circumstances. The
New Credit Facility also could
12
<PAGE>
require the Company to maintain specified financial ratios and satisfy certain
financial tests. The Company's ability to meet such financial ratios and tests
could be affected by events beyond its control. There can be no assurance that
the Company would meet such tests. A breach of any of these covenants could
result in an event of default under the New Credit Facility. If such an event
of default occurs, the lenders could elect to declare all amounts borrowed
under the New Credit Facility, together with accrued interest, to be
immediately due and payable and to terminate all commitments under the New
Credit Facility. If the Company were unable to repay all amounts declared due
and payable, the lenders could proceed against the collateral granted to them
to satisfy the indebtedness and other obligations due and payable. If
indebtedness under the New Credit Facility were to be accelerated, there can
be no assurance that the assets of the Company would be sufficient to repay in
full such indebtedness and the other indebtedness of the Company, including
the Senior Notes. See "Description of the Senior Notes--Certain Covenants."
EFFECTIVE SUBORDINATION
The obligation of the Company to make the Special Mandatory Redemption is
secured by the Restricted Proceeds. The Senior Notes will otherwise be general
unsecured obligations of the Company and will be effectively subordinated in
right of payment to all secured indebtedness of the Company, including the
Company's obligations under the New Credit Facility. The New Credit Facility
would likely be secured by a significant amount of the assets of the Company
and, therefore, claims of Holders of the Senior Notes will be effectively
subordinated to the extent of the value of the assets securing the New Credit
Facility.
GEOGRAPHIC CONCENTRATION
All of the Company's stores are located in the suburbs of Washington, D.C.
and thus the performance of the Company will be particularly influenced by
developments in this area. Although the Washington, D.C. metropolitan area has
experienced relatively stable economic conditions over the past several years,
a significant economic downturn in the region could have a material adverse
effect on the business, financial condition and results of operations of the
Company.
COMPETITION
The supermarket industry is highly competitive and characterized by narrow
profit margins. Shoppers' competitors include national and regional
supermarket chains, independent and specialty grocers, drug and convenience
stores, and the newer "alternative format" food stores, including warehouse
club stores and deep- discount drug stores. Certain of its competitors have
greater financial resources than Shoppers. Supermarket chains generally
compete on the basis of location, quality of products, service, price, product
variety and store condition. Shoppers believes that it will face increased
competition in the future from other supermarket chains. In order to remain
competitive, Shoppers monitors its competitors' prices on a weekly basis and
adjusts its prices and marketing strategy as appropriate in light of existing
conditions. To the extent the Company reduces prices to maintain or grow its
market share in the face of competition, net income and cash generated from
operations could be adversely affected. The Company's ability to remain
competitive in its markets depends in part on its ability to remodel and
update its stores and open new stores in response to remodelings and new store
openings by its competitors, which in turn will require the continued
availability of financing. See "Business--Competition."
RELIANCE ON THIRD-PARTY SUPPLIER
Shoppers purchases approximately one-half of its grocery inventory from an
independent wholesale supplier that provides Shoppers with the benefits of
volume purchasing, private label merchandise, warehousing and distribution.
The Company's supply contract with its primary supplier expires in December
1997. Although Shoppers believes that the contract will be renewed on
comparable or more favorable terms or that it will enter into a comparable or
more favorable contract with another wholesaler, there can be no such
assurance that this will occur. In addition, the sudden loss of the Company's
primary supplier could create a disruption in the
13
<PAGE>
Company's sales until arrangements with alternate suppliers could be made. See
"Business--Purchasing, Warehousing and Distribution."
LABOR RELATIONS
As of May 3, 1997, 3,982 of Shoppers' employees were covered by collective
bargaining agreements. The Company's agreement with Local 27 of the United
Food and Commercial Workers Union covering 264 employees expires on September
30, 1997. The Company expects to enter into a new union contract with Local
400 of the United Food and Commercial Workers Union covering 3,669 employees
that would expire in July 2000. Shoppers also has 49 employees at its produce
warehouse who are covered by collective bargaining agreements with locals of
the Warehouse Employees Union and the Teamsters Union. While Shoppers believes
that its relations with its employees are satisfactory, a prolonged labor
dispute could have a material adverse effect on the business, financial
condition and results of operations of the Company.
FRAUDULENT CONVEYANCE RISKS
Shoppers used $143.3 million of the net proceeds from the sale of the
Outstanding Notes to repay the Increasing Rate Notes and intends to pay $50
million of such net proceeds to Dart if and when it consummates a Settlement
with certain of its stockholders. See "Use of Proceeds." The net proceeds from
the sale of the Increasing Rate Notes and $72.8 million of cash and short-term
investments of Shoppers were used to finance the Acquisition. In addition,
Shoppers paid a $10 million dividend to Dart in May 1997 and may make
additional dividends to Dart of up to $25 million from existing short-term
investments.
In the event of a subsequent bankruptcy proceeding or a lawsuit by or on
behalf of creditors of the Company, the incurrence by the Company of the
indebtedness evidenced by the Senior Notes would be subject to review under
relevant U.S. federal and state fraudulent conveyance statutes ("Fraudulent
Conveyance Statutes"). Under these statutes, if at the time the Senior Notes
were issued and the proceeds applied, (i) the Company issued the Senior Notes
and applied the proceeds with the intent of hindering, delaying or defrauding
creditors or (ii) the Company received less than a reasonably equivalent value
or fair consideration for issuing the Senior Notes and, after so applying the
proceeds, the Company (a) was insolvent or rendered insolvent by reason of
such transactions, (b) was engaged in a business or transaction for which its
assets constituted unreasonably small capital or (c) intended to incur, or
believed that it would incur, debts beyond its ability to pay as they matured
(as the foregoing terms are defined in or interpreted under Fraudulent
Conveyance Statutes), such court could subordinate all or a part of the Senior
Notes to existing and future indebtedness of the Company, recover any payments
made on the Senior Notes or take other action detrimental to the Holders,
including, under certain circumstances, invalidating the Senior Notes.
Shoppers believes that the indebtedness and obligations evidenced by the
Senior Notes was incurred, and proceeds of the Senior Notes will be used, for
proper purposes and in good faith. Shoppers believes that at the time of, and
after giving effect to, the incurrence of the indebtedness and obligations
evidenced by the Senior Notes, it was solvent and will have sufficient capital
to carry on its business and that it will pay its debts as they mature. No
assurance can be given, however, that a court would concur with such beliefs
and positions.
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction being applied. Generally, a company will be considered
insolvent for these purposes if the company is unable to pay its debts as they
become due in the usual course of its business or the sum of the company's
debts is greater than all the company's property at a fair valuation or if the
present fair saleable value of the company's assets is less than the amount
that will be required to pay its probable liability on its existing debts as
they become absolute and mature. In rendering its opinion on the validity of
the Senior Notes, counsel for the Company will express no opinion as to the
effect of Fraudulent Conveyance Statutes or the enforcement of creditors'
rights generally.
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RISKS OF IMPLEMENTING STORE EXPANSION PROGRAM
The ability of the Company to implement a store expansion program depends,
in part, upon the identification of suitable sites and obtaining access to
such sites on reasonable commercial terms. The Company's expansion program is
also conditioned on identifying and retaining key personnel to implement this
strategy. Although Shoppers has signed leases to open four new stores within
the next two years, there can be no assurance that additional suitable
locations will be available on reasonable commercial terms in the future.
Furthermore, there can be no assurance that the level of sales and profit
margins achieved by Shoppers with respect to its existing stores can be
duplicated in any newly created or expanded stores.
CONTROLLING STOCKHOLDER
The Company is an indirect subsidiary of Dart. As a result, Dart controls
the Company through its control of the Guarantor, which has the power to elect
all of the directors of the Company and, subject to the Indenture, approve any
action requiring stockholder approval, including approving a merger of the
Company or a sale of substantially all of the assets of the Company.
Over the past three years, there has been significant litigation involving
the control of Dart. On September 7, 1994, the Board of Directors of Dart
established an Executive Committee comprised of Dart's outside directors to
conduct the affairs of Dart with respect to matters that were the subject of
dispute between the Chairman of the Board and Chief Executive Officer of Dart,
Herbert H. Haft, and the then President and Chief Operating Officer of Dart,
Ronald S. Haft. Because these disputes were so extensive, beginning in the
fall of 1994, the Executive Committee assumed day-to-day involvement in Dart's
management. In April 1996, the Board of Directors of Dart authorized the
Executive Committee to conduct the affairs of Dart with respect to matters
that are the subject of dispute between Dart and its present Chairman, or in
connection with which Dart and its present Chairman have adverse interests,
and to continue to oversee the day-to-day management of Dart. Dart has filed
three lawsuits against Herbert H. Haft alleging various improper actions by
him.
On October 6, 1995, Dart and Ronald S. Haft entered into a settlement of
litigation initiated by Ronald S. Haft to obtain control of Dart through the
exercise of certain disputed stock options, and other related transactions
(the "RSH Settlement"). These settlement transactions are subject to legal
challenge and, through such litigation, Gloria G. Haft, Robert M. Haft and
Linda G. Haft (collectively, "RGL") and, separately, Herbert H. Haft seek
control of Dart. If members of the Haft family succeed in litigation to obtain
control of Dart (in excess of 35% of the voting stock of Dart), it would
constitute a Change in Control under the Indenture permitting the Holders,
subject to certain conditions, to require the Company to repurchase any or all
of the Senior Notes at a price equal to 101% of the principal amount thereof,
plus any accrued and unpaid interest to the date of repurchase. There can be
no assurance that the Company will have sufficient funds available to purchase
all of the outstanding Senior Notes were they to be tendered in response to a
Change in Control. A Change in Control resulting from the Haft litigation may
make it more difficult for the Company to obtain funds through a refinancing
for such purpose. See "Description of the Senior Notes--Change in Control."
See also "Use of Proceeds--Possible Settlements."
In connection with the legal challenges to the RSH Settlement, on December
6, 1995, the Delaware Court of Chancery entered a Standstill Order (the
"Standstill Order"), which restricts certain actions by Dart. Without further
order of the court, Dart may not, among other things, (i) change the current
composition of the Board of Directors of Dart or any of its subsidiaries or
(ii) issue any additional securities of Dart or any of its subsidiaries. In
addition, without first giving certain litigants not less than seven days'
written notice, Dart may not take any extraordinary actions, including but not
limited to actions that would result in (a) the liquidation of Dart or any of
its subsidiaries or (b) the sale of any major subsidiary of Dart. For purposes
of the Standstill Order, the Company is a "subsidiary" of Dart and the phrase
"extraordinary actions" means any transaction, contract or agreement, the
value of which exceeds $3 million. Investors wishing additional information
regarding these matters are directed to the public filings made by Dart with
the Commission.
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Dart obtained (with the consent of the Haft family members) an order from
the Delaware Court of Chancery that permitted the sale of the Outstanding
Notes and the repayment of the Increasing Rate Notes. Under the Standstill
Order, the New Credit Facility or any settlement with members of the Haft
family will require either a seven-day notice or an order of the Delaware
Court of Chancery (or both) in order to proceed.
Dart is engaged in discussions with Herbert H. Haft and with RGL to explore
opportunities to settle their claims to control of Dart and other litigation
pending between them and Dart. See "Use of Proceeds--Possible Settlements."
There can be no assurance that any definitive settlement will be reached or as
to the terms or timing of any settlement, if one occurs.
SECURITY FOR THE GUARANTEE
The Guarantee is secured by a first priority security interest in the shares
of capital stock of Shoppers owned by the Guarantor. The Guarantor was
organized in January 1997 and has no assets or operations other than holding
100% of the issued and outstanding shares of capital stock of Shoppers. There
is no existing market for the capital stock of Shoppers. Further, there can be
no assurance that any proceeds could be realized from a sale of such capital
stock in the event of foreclosure by the Trustee.
Depending on the outcome of litigation regarding certain claimed options and
co-investment rights, and the legal challenges to the RSH Settlement, Dart's
indirect ownership, and the Guarantor's direct ownership, of the Company could
be reduced to as low as 80%.
In 1988, Dart purchased 50% of the outstanding shares of capital stock of
Shoppers from members of the Herman family. Dart was the record owner of this
interest in Shoppers until February 6, 1996. Also in 1988, Dart/SFW Corp. was
formed with the apparent intent that Dart would hold 80 of Dart/SFW Corp.'s
100 authorized shares of capital stock. However, Dart/SFW Corp.'s
organizational documents are incomplete. Dart/SFW Corp. purportedly granted
options to purchase the other 20 shares of its capital stock to members of the
Haft family. Though some of Dart's periodic reports filed with the Commission
have stated that Dart transferred its 50% interest in Shoppers to Dart/SFW
Corp., there is no record that such a transfer occurred. On February 6, 1997,
Dart and Dart/SFW Corp. each transferred their interests in Dart's ownership
of Shoppers to the Guarantor in exchange for the Guarantor's stock.
Robert M. Haft and Linda G. Haft (and trusts for Robert M. Haft's children)
claim ownership of the purported options to purchase up to 15 shares of
Dart/SFW Corp.'s authorized capital stock (as well as co-investment rights
pursuant to a September 10, 1987 Dart board resolution). They have sought to
exercise these options, the validity of which Dart disputes. This dispute is
currently in litigation. In 1995, Ronald S. Haft relinquished his claimed
ownership of the purported options to purchase up to 5 shares of Dart/SFW
Corp.'s capital stock as part of the RSH Settlement, but that relinquishment
is subject to potential rescission if certain pending legal challenges to the
validity of that settlement are successful.
Whether or not it is determined that Dart/SFW Corp. received Dart's 50%
interest in Shoppers or that members of the Haft family did not receive valid
options to purchase shares of Dart/SFW Corp., members of the Haft family
potentially could claim interests in up to 20% of the Guarantor or of the
Guarantor's equity interest in Shoppers.
No assurance can be given as to the outcome of these legal disputes and
uncertainties. Dart is engaged in discussions with Haft family members to
explore opportunities to settle these legal disputes and other litigation
pending between them and Dart. See "Use of Proceeds--Possible Settlements."
There can be no assurance that any definitive settlement will be reached or as
to the terms or timing of any settlement, if one occurs.
POSSIBLE CHANGE IN CONTROL
Depending on the outcome or settlement of the litigation referred to above,
one or a group of Haft family members may have power to vote in excess of 35%
of the voting stock of Dart. In such event, a Change in
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Control will have occurred under the Indenture. See "Description of Senior
Notes--Change in Control." There can be no assurance that the Company will
have sufficient funds available to purchase the outstanding Senior Notes were
they to be tendered in response to a Change in Control. It is also possible
that the outcome of such litigation or settlements thereof could result in
significant ownership of the voting stock of Dart by one or more of the Haft
family members, although less than the 35% threshold required for Change in
Control.
GOVERNMENT REGULATION
Shoppers is subject to regulation by a variety of governmental agencies,
including, but not limited to, the U.S. Food and Drug Administration, the U.S.
Department of Agriculture and state and local health departments and other
agencies, including those regulating the sale of beer and wine.
ENVIRONMENTAL MATTERS
Shoppers is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as
handling and disposal practices for solid and hazardous wastes, and (ii)
impose liability for the costs of cleaning up, and certain damages resulting
from, sites of past spills, disposals or other releases of hazardous
materials.
LACK OF A PUBLIC MARKET FOR THE EXCHANGE NOTES
There is no existing market for the Exchange Notes. There can be no
assurance of the liquidity of any markets that may develop for the Exchange
Notes, the ability of Holders of the Exchange Notes to sell their Exchange
Notes, or the price at which Holders would be able to sell their Exchange
Notes. Future trading prices of the Exchange Notes will depend on many
factors, including prevailing interest rates, the Company's operating results
and the market for similar securities. No assurance can be given as to the
liquidity of the trading market for the Exchange Notes or that an active
public market for the Exchange Notes will develop or, if developed, will
continue. If an active public market does not develop or is not maintained,
the market price and liquidity of the Exchange Notes may be adversely
affected. The Company does not intend to apply for a listing of the Exchange
Notes offered hereby on any securities exchange or on a securities quotation
services.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer is being made by the Company to satisfy certain of its
obligations under the Registration Rights Agreement. The Registration Rights
Agreement requires the Company to use its best efforts to (i) file with the
Commission a registration statement (the "Exchange Offer Registration
Statement") under the Securities Act with respect to the Exchange Notes within
90 days after the issuance of the Outstanding Notes (the "Issue Date"), (ii)
use its best efforts to cause the Exchange Offer Registration Statement to
become effective within 180 days after the Issue Date, and (iii) keep the
Exchange Offer open for acceptance for not less than 45 days (or longer if
required by applicable law) after the date that notice of the Exchange Offer
is mailed to Holders of the Outstanding Notes.
In the event that the Company fails to satisfy these or certain other of its
obligations under the Registration Rights Agreement, the interest rate on the
Outstanding Notes will be increased 0.5% per annum and shall thereafter
increase by an additional 0.5% per annum at the beginning of each subsequent
90-day period until the Exchange Offer is consummated; provided however, that
the additional interest rate on the Outstanding Notes may not exceed at any
one time in the aggregate 1.50% per annum; and provided further, upon the
effectiveness of the Exchange Offer Registration Statement, additional
interest on the Outstanding Notes as described in this sentence shall cease to
accrue.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal (which together constitute the Exchange Offer), Exchange Notes for
an equal principal amount of Outstanding Notes. The terms of the Exchange
Notes are identical in all material respects to those of the Outstanding
Notes, except for certain transfer restrictions and registration rights
relating to the Outstanding Notes. The Exchange Notes will be entitled to the
benefits of the Indenture. See "Description of the Senior Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Outstanding Notes being tendered or accepted for exchange. As of the
date of this Prospectus, $200 million aggregate principal amount of Senior
Notes is outstanding. Outstanding Notes tendered in the Exchange Offer must be
in denominations of principal amount of $1,000 or any integral multiple
thereof.
Based on Exxon Capital Holdings Corporation (available May 13, 1988), Morgan
Stanley & Co. Incorporated (available June 15, 1991), Shearman & Sterling
(available July 2, 1995), and certain other interpretive letters issued by the
staff of the Commission to third parties in unrelated transactions, Holders of
Outstanding Notes (other than any Holder who is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) who exchange their
Outstanding Notes for Exchange Notes pursuant to the Exchange Offer generally
may offer such Exchange Notes for resale, resell such Exchange Notes and
otherwise transfer such Exchange Notes without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such Outstanding Notes are acquired in the ordinary course of
the Holders' business and such Holders are not participating in, and have no
arrangement or understanding with any person to participate in, a distribution
of such Exchange Notes. Each broker-dealer that receives Exchange Notes for
its own account in exchange for Outstanding Notes, where such Outstanding
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. See "Plan
of Distribution." In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the Exchange Notes may not be offered or sold
unless they have been registered or qualified for sale in such jurisdiction or
an exemption from registration or qualification is available and complied
with. The Company has agreed, pursuant to the Registration Rights Agreement
and subject to certain specified limitations therein, to register or qualify
the Exchange Notes for offer or sale under the securities or blue sky laws of
such jurisdictions as any Holders of the Exchange Notes request in writing. If
a Holder of Outstanding Notes does not exchange such Outstanding Notes for
Exchange Notes
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pursuant to the Exchange Offer, such Outstanding Notes will continue to be
subject to the restrictions on transfer contained in the legend thereon. In
general, the Outstanding Notes may not be offered or sold unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , 1997 unless the Company in
its sole discretion extends the period during which the Exchange Offer is
open, in which event the term "Expiration Date" means the latest time and date
on which the Exchange Offer, as so extended by the Company, expires. The
Expiration Date will not be extended beyond the 225th day after the date of
the original issuance of the Senior Notes. The Company expressly reserves the
right to extend the Exchange Offer at any time and from time to time prior to
the Expiration Date by giving written notice to Norwest Bank Minnesota,
National Association (the "Exchange Agent") and by public announcement
communicated by no later than 9:00 a.m. on the next business day following the
previously scheduled Expiration Date, unless otherwise required by applicable
law or regulation, by making a release to the Dow Jones News Service. During
any extension of the Exchange Offer, all Outstanding Notes previously tendered
pursuant to the Exchange Offer will remain subject to the Exchange Offer and
may be accepted for exchange by the Company. Any Outstanding Notes not
accepted for exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after expiration or
termination of the Exchange Offer.
The initial "Exchange Date" will be the third business day following the
Expiration Date. The Company expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Outstanding Notes if any of the
events set forth below under "--Conditions to the Exchange Offer" shall have
occurred and shall not have been waived by the Company and (ii) amend the
terms of the Exchange Offer in any manner, whether before or after any tender
of the Outstanding Notes. If any such termination or amendment occurs, the
Company will notify the Exchange Agent in writing and will either issue a
press release or give written notice to the Holders of the Outstanding Notes
as promptly as practicable. Unless the Company terminates the Exchange Offer
prior to 5:00 p.m., New York City time, on the Expiration Date, the Company
will exchange the Exchange Notes for the Outstanding Notes on the Exchange
Date.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record Holders of Outstanding Notes
and will be furnished to brokers, banks and similar persons whose names, or
the names of whose nominees, appear on the lists of Holders for subsequent
transmittal to beneficial owners of Outstanding Notes.
ACCRUED INTEREST ON THE SENIOR NOTES
Interest on the Exchange Notes will accrue from (A) the later of (i) the
last interest payment date on which interest was paid on the Outstanding Notes
surrendered in exchange therefor or (ii) if the Outstanding Notes are
surrendered for exchange on a date in a period which includes the record date
for an interest payment date to occur on or after the date of such exchange
and as to which interest will be paid, the date of such interest payment date,
or (B) if no interest has been paid on the Outstanding Notes, from June 26,
1997. Holders whose Outstanding Notes are accepted for exchange will be deemed
to have waived the right to receive any interest accrued on the Outstanding
Notes.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
The tender to the Company of Outstanding Notes by a Holder thereof pursuant
to any one of the procedures set forth below will constitute a binding
agreement between such Holder and the Company in accordance with the terms and
subject to the conditions set forth herein and in the Letter of Transmittal.
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General Procedures. Except as set forth below, a Holder who wishes to tender
Outstanding Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal or facsimile
thereof (all references in this Prospectus to the Letter of Transmittal shall
be deemed to include a facsimile thereof), including all other documents
required by such Letter of Transmittal, to the Exchange Agent at the address
set forth below under "--Exchange Agent" on or prior to the Expiration Date.
In addition, either (i) certificates for such Outstanding Notes must be
received by the Exchange Agent along with the Letter of Transmittal, or (ii) a
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Outstanding Notes, if such procedure is available, into the Exchange
Agent's Account at DTC (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the Holder must comply
with the guaranteed delivery procedures described below.
If tendered Outstanding Notes are registered in the name of the signer of
the Letter of Transmittal and the Exchange Notes to be issued in exchange
therefor are to be issued (and any untendered Outstanding Notes are to be
reissued) in the name of the registered Holder, the signature of such signer
need not be guaranteed. In any other case, the tendered Exchange Notes must be
endorsed or accompanied by written instruments of transfer in form
satisfactory to the Company and duly executed by the registered Holder and the
signature on the endorsement or instrument of transfer must be guaranteed by a
commercial bank or trust company located or having an office or correspondent
in the United States or by a member firm of a national securities exchange or
of the National Association of Securities Dealers, Inc. or by a participant in
a recognized medallion program (any of the foregoing hereinafter referred to
as an "Eligible Institution"). If the Exchange Notes and/or Outstanding Notes
not exchanged are to be delivered to an address other than that of the
registered Holder appearing on the note register for the Outstanding Notes,
the signature on the Letter of Transmittal must be guaranteed by an Eligible
Institution.
A tender will be deemed to have been received as of the date when (i) the
tendering Holder's properly completed and duly signed Letter of Transmittal
accompanied by the Outstanding Notes is received by the Exchange Agent or (ii)
a Notice of Guaranteed Delivery or letter or facsimile transmission to similar
effect (as provided above) from an Eligible Institution is received by the
Exchange Agent or (iii) the tendering Holder's properly completed and duly
signed Letter of Transmittal accompanied by Book-Entry Confirmation is
received by the Exchange Agent. Issuances of Exchange Notes in exchange for
Outstanding Notes tendered pursuant to a Notice of Guaranteed Delivery or
letter or facsimile transmission to similar effect (as provided above) by an
Eligible Institution will be made only against deposit of (i) the Letter of
Transmittal, (ii) the tendered Outstanding Notes or Book-Entry Confirmation,
as the case may be, and (iii) any other required documents.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Outstanding Notes will
be determined by the Company, whose determination will be final and binding.
The Company reserves the absolute right to reject any or all tenders not in
proper form or the acceptances for exchange of which may, in the opinion of
counsel to the Company, be unlawful. The Company also reserves the absolute
right to waive any of the conditions of the Exchange Offer or any defect or
irregularities in tenders of any particular Holder whether or not similar
defects or irregularities are waived in the case of other Holders. None of the
Company, the Exchange Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or will incur any
liability for failure to give any such notification. The Company's
interpretation of the terms and conditions of the Exchange Offer (including
the Letter of Transmittal and the instructions thereto) will be final and
binding.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND ALL OTHER DOCUMENTS IS AT
THE ELECTION AND RISK OF THE TENDERING HOLDERS, AND DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED AND CONFIRMED BY THE EXCHANGE AGENT. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED, AND THAT THE MAILING BE MADE
SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE
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EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER OVERNIGHT
OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE DELIVERY TO THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME,
ON THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO
THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Book-Entry Transfer. The Exchange Agent will make a request to establish an
account with respect to the Outstanding Notes at the Book-Entry Transfer
Facility for purposes of the Exchange Offer within two business days after the
date of the Prospectus, and any financial institution that is a participant in
the Book-Entry Transfer Facility's systems may make book-entry delivery of
Outstanding Notes by causing the Book-Entry Transfer Facility to transfer such
Outstanding Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility in accordance with such Book-Entry Transfer Facility's procedures for
transfer. However, although delivery of Outstanding Notes may be effected
through Book-Entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal or facsimile thereof, with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and
received by the Exchange Agent at the address set forth below under "Exchange
Agent" on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with.
Guaranteed Delivery Procedures. If a Holder desires to tender Outstanding
Notes pursuant to the Exchange Offer, but time will not permit a Letter of
Transmittal, the Outstanding Notes or other required documents to reach the
Exchange Agent on or before the Expiration Date, or the procedure for book-
entry transfer cannot be completed on a timely basis, a tender may be effected
if the Exchange Agent has received at its office a letter or facsimile
transmission from a Eligible Institution setting forth the name and address of
the tendering Holder, the names in which the Outstanding Notes are registered,
the principal amount of the Outstanding Notes being tendered and, if possible,
the certificate numbers of the Outstanding Notes to be tendered, and stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange trading days after the Expiration Date, the Outstanding
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, together with a properly completed and duly executed Letter of
Transmittal and any other required documents, will be delivered by such
Eligible Institution to the Exchange Agent in accordance with the procedures
outlined above. Unless Outstanding Notes being tendered by the above-described
method are deposited with the Exchange Agent (including through a Book-Entry
Confirmation) within the time period set forth above (accompanied or preceded
by a properly completed Letter of Transmittal and any other required
documents), the Company may, at its option, reject the tender. Copies of a
Notice of Guaranteed Delivery which may be used by Eligible Institutions for
the purposes described in this paragraph are available from the Exchange
Agent.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Outstanding Notes for exchange (the "Transferor")
thereby exchanges, assigns and transfers the Outstanding Notes to the Company
and irrevocably constitutes and appoints the Exchange Agent as the
Transferor's agent and attorney-in-fact to cause the Outstanding Notes to be
assigned, transferred and exchanged. The Transferor represents and warrants
that it has full power and authority to tender, exchange, assign and transfer
the Outstanding Notes and to acquire Exchange Notes issuable upon the exchange
of such tendered Outstanding Notes and that, when the same are accepted for
exchange, the Company will acquire good and unencumbered title to the tendered
Outstanding Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also
warrants that it will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary
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or desirable to complete the exchange, assignment and transfer of tendered
Outstanding Notes. The Transferor further agrees that acceptance of any
tendered Outstanding Notes by the Company and the issuance of Exchange Notes
in exchange therefor will constitute performance in full by the Company of its
obligations under the Registration Rights Agreement and that the Company will
have no further obligations or liabilities thereunder (except in certain
limited circumstances). All authority conferred by the Transferor will survive
the death, bankruptcy or incapacity of the Transferor and every obligation of
the Transferor will be binding upon the heirs, legal representatives,
successors, assigns, executors, administrators and trustees in bankruptcy of
such Transferor.
By tendering Outstanding Notes and executing the Letter of Transmittal, the
Transferor certifies that (i) it is not an affiliate of the Company or the
Guarantor or, if the Transferor is an affiliate of the Company or the
Guarantor, it will comply with the registration and prospectus requirements of
the Securities Act to the extent applicable, (ii) the Exchange Notes are being
acquired in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the Holder, (iii) the Transferor
has not entered into an arrangement or understanding with any other person to
participate in the distribution of the Exchange Notes, (iv) the Transferor is
not a broker-dealer who purchased the Outstanding Notes for resale pursuant to
an exemption under the Securities Act, and (v) the Transferor will be able to
trade the Exchange Notes acquired in the Exchange Offer without restriction
under the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Outstanding Notes where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
WITHDRAWAL RIGHTS
Outstanding Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date.
For a withdrawal to be effective, a written letter or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth in the Letter of Transmittal not later than the close of business on the
Expiration Date. Any such notice of withdrawal must specify the person named
in the Letter of Transmittal as having tendered Outstanding Notes to be
withdrawn, the certificate numbers and principal amount of Outstanding Notes
to be withdrawn, that such Holder is withdrawing its election to have such
Outstanding Notes exchanged and the name of the registered Holder of such
Outstanding Notes, and must be signed by the Holder in the same manner as the
original signature on the Letter of Transmittal (including any required
signature guarantees) or be accompanied by evidence satisfactory to the
Company that the person withdrawing the tender has succeeded to the beneficial
ownership of the Outstanding Notes being withdrawn. The Exchange Agent will
return the properly withdrawn Outstanding Notes promptly following receipt of
notice of withdrawal. If Outstanding Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Outstanding Notes and otherwise
comply with the procedures of such facility. All questions as to the validity
of notices of withdrawals, including time of receipt, will be determined by
the Company, and such determination will be final and binding on all parties.
Any Outstanding Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the Holder thereof without cost
to such Holder (or, in the case of Outstanding Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described above, such
Outstanding Notes will be credited to an account maintained with such Book-
Entry Transfer Facility for the Outstanding Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Outstanding Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering Outstanding Notes"
above at any time on or prior to the Expiration Date.
22
<PAGE>
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Outstanding Notes validly tendered and not
withdrawn and the issuance of the Exchange Notes will be made on the Exchange
Date. For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Outstanding Notes when, as and if the
Company has given written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering Holders of
Outstanding Notes for the purposes of receiving Exchange Notes from the
Company and causing the Outstanding Notes to be assigned, transferred and
exchanged. Upon the terms and subject to the conditions of the Exchange Offer,
delivery of Exchange Notes to be issued in exchange for accepted Outstanding
Notes will be made by the Exchange Agent promptly after acceptance of the
tendered Outstanding Notes. Any Outstanding Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
Holder thereof without cost to such Holder (or, in the case of Outstanding
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry procedures described
above, such Outstanding Notes will be credited to an account maintained by
such Holder with such Book-Entry Transfer Facility for the Outstanding Notes)
as soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue Exchange
Notes in exchange for any properly tendered Outstanding Notes not previously
accepted and may terminate the Exchange Offer (by oral or written notice to
the Exchange Agent and by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a release to the
Dow Jones News Service) or, at its option, modify or otherwise amend the
Exchange Offer, if (i) there shall be threatened, instituted or pending any
action or proceeding before, or any injunction, order or decree shall have
been issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission (a) seeking to restrain or
prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, (b) assessing or seeking any
damages as a result thereof or (c) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of the
Outstanding Notes pursuant to the Exchange Offer; or (ii) the Exchange Offer
shall violate any applicable law or any applicable interpretation of the staff
of the Commission.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition or may be waived by the Company in
whole or in part at any time or from time to time in its sole discretion. The
failure by the Company at any time to exercise any of the foregoing rights
will not be deemed a waiver of any such right, and each right will be deemed
an ongoing right which may be asserted at any time or from time to time. In
addition, the Company has reserved the right, notwithstanding the satisfaction
of each of the foregoing conditions, to terminate or amend the Exchange Offer.
Any determination by the Company concerning the fulfillment or non-
fulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Outstanding Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Outstanding Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or qualification of the Indenture under the Trust Indenture
Act of 1939, as amended.
23
<PAGE>
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as the
Exchange Agent for the Exchange Offer. Questions relating to the procedure for
tendering, as well as requests for additional copies of this Prospectus or the
Letter of Transmittal and requests for Notices of Guaranteed Delivery, should
be directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: Facsimile Transmission Number: By Overnight Delivery:
(612) 667-4927 Norwest Bank Minnesota, N.A.
Norwest Bank Minnesota, N.A. (For Eligible Institutions Only) 6th Street & Marquette Avenue
P.O. Box 1517 Confirm by Telephone: Minneapolis, MN 55479-0113
Minneapolis, MN 55479-1517 (612) 667-0252 Attn: Corporate Trust Operation
Attn: Corporate Trust Operation
For Information Call:
(800) 344-5128
</TABLE>
Delivery of the Letter of Transmittal to an address other than as set forth
above, or transmission of instructions via facsimile other than as set forth
above, will not constitute a valid delivery.
Norwest Bank Minnesota, National Association also acts as Trustee under the
Indenture.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The
Company will, however, pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for reasonable out-of-pocket expenses
in connection therewith. The expenses to be incurred in connection with the
Exchange Offer, including the fees and expenses of the Exchange Agent and
printing, accounting and legal fees, will be paid by the Company and are
estimated at approximately $300,000.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the respective dates as
of which information is given herein. The Exchange Offer is not being made to
(nor will tenders be accepted from or on behalf of) Holders of Outstanding
Notes in any jurisdiction in which the making of the Exchange Offer or the
acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, the Company may, at its discretion, take such action as
it may deem necessary to make the Exchange Offer in any such jurisdiction and
extend the Exchange Offer to Holders of Outstanding Notes in such
jurisdiction. In any jurisdiction the securities laws or blue sky laws of
which require the Exchange Offer to be made by a licensed broker or dealer,
the Exchange Offer is being made on behalf of the Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
APPRAISAL RIGHTS
Holders of Outstanding Notes will not have dissenters' rights or appraisal
rights in connection with the Exchange Offer.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the carrying value of the Outstanding
Notes as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company upon the exchange of Outstanding Notes for Exchange
Notes. Expenses
24
<PAGE>
incurred in connection with the issuance of the Exchange Notes will be
amortized over the term of the Exchange Notes.
TRANSFER TAXES
Holders who tender their Outstanding Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith except that
Holders who instruct the Company to register Exchange Notes in the name of, or
request Outstanding Notes not tendered or not accepted in the Exchange Offer
be returned to, a person other than the registered tendering Holder will be
responsible for the payment of any applicable transfer tax thereon.
FEDERAL INCOME TAX CONSEQUENCES
Holders of the Outstanding Notes contemplating acceptance of the Exchange
Offer should consult their own tax advisers with respect to their particular
circumstances and with respect to the effects of state, local or foreign tax
laws to which they may be subject. The following discussion is based upon the
provisions of the Internal Revenue Code of 1986, as amended, U.S. Treasury
regulations, rulings and judicial decisions, in each case as in effect on the
date of this Prospectus, all of which are subject to change.
An exchange of Outstanding Notes for Exchange Notes pursuant to the Exchange
Offer should not be treated as a sale, exchange or other taxable event for
federal income tax purposes because the exchange Senior Notes should not be
considered to differ materially in kind or extent from the Outstanding Notes.
As a result, no material federal income tax consequences should result from an
exchange of Outstanding Notes for Exchange Notes pursuant to the Exchange
Offer. For federal income tax purposes, an Exchange Note received by a
beneficial owner of an Outstanding Note should be treated as a continuation of
the Outstanding Note in the hands of such owner. See "Certain Income Tax
Considerations."
CONSEQUENCES FOR FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange Outstanding Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Outstanding Notes as set forth in the
legend thereon as a consequence of the offer or sale of the Outstanding Notes
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Outstanding Notes may not be offered or sold
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register the Outstanding Notes under the Securities Act.
Upon consummation of the Exchange Offer, due to the restrictions on transfer
of the Outstanding Notes and the absence of such restrictions applicable to
the Exchange Notes, it is likely that the market, if any, for Outstanding
Notes will be relatively less liquid than the market for Exchange Notes.
Consequently, Holders of Outstanding Notes who do not participate in the
Exchange Offer could experience significant diminution in the value of their
Outstanding Notes, compared to the value of the Exchange Notes.
25
<PAGE>
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of Exchange
Notes offered hereby, the terms of which are identical in all material
respects to those of the Outstanding Notes, except for certain transfer
restrictions and registration rights relating to the Outstanding Notes. The
Outstanding Notes surrendered in exchange for the Exchange Notes will be
cancelled and cannot be reissued. The issuance of the Exchange Notes will not
result in any change in the aggregate indebtedness of the Company.
The net proceeds from the sale of the Outstanding Notes was approximately
$193.5 million. The Company used $143.3 million of the net proceeds to repay
the Increasing Rate Notes due 2000, including approximately $3.3 million of
accrued and unpaid interest through the date of redemption (July 25, 1997).
The net proceeds from the sale of the Increasing Rate Notes were used to
partially finance the Acquisition. The interest rate on the Increasing Rate
Notes was initially 10% per annum. The Company intends to use $50.0 million of
the net proceeds to pay to Dart if and when Dart consummates a Settlement with
certain of its stockholders.
LIMITATION ON USE OF THE RESTRICTED PROCEEDS
The Restricted Proceeds may be used by the Company to make payments to Dart
for funding payments and commitments under one or two settlements (each a
"Settlement") involving total payments and commitments by Dart and its
Subsidiaries (as defined) of at least $50 million (which may include related
expenses and payments to mortgage lenders), in which (i) Herbert H. Haft
and/or (ii) Robert M. Haft, Gloria G. Haft and Linda G. Haft, as the case may
be, relinquish his or their claims to control of Dart, dispose (or agree to
dispose) of all or substantially all of his or their Capital Stock (as
defined) in Dart, disclaim any equity interest in Shoppers and the Guarantor
and resign any positions of employment and board representation with Dart,
Shoppers and the Guarantor. All such Haft family members are referred to in
this Prospectus as the "Hafts." Pending the closing of a Settlement, the
Restricted Proceeds will be held by the Trustee in the Restricted Account.
Prior to the release to the Company of the Restricted Proceeds from the
Restricted Account for the purpose of funding payments and commitments under a
Settlement, non-Haft officers of the Company must deliver to the Trustee an
officers' certificate to the effect that the closing of a Settlement is
occurring simultaneously with the release of the Restricted Proceeds. If, on
or prior to June 30, 1998, the closing of a Settlement has not yet occurred or
the Company has not paid the Restricted Proceeds to Dart to fund payments and
commitments under a Settlement, then the Company must use the Restricted
Proceeds (including accrued interest) to redeem $50 million aggregate
principal amount of the Senior Notes on a pro rata basis at 101% of the
principal amount thereof and to pay accrued and unpaid interest thereon. See
"Description of the Senior Notes--Redemption--Special Mandatory Redemption."
Pending release to the Company of the Restricted Proceeds from the
Restricted Account either to fund a Settlement or to fund the Special
Mandatory Redemption, the Restricted Proceeds will be invested in Cash
Equivalents as directed by the Company. If a Special Mandatory Redemption
occurs, then any interest or other profit earned from such Cash Equivalents
will be released to the Company from the Restricted Account and used to fund
the Special Mandatory Redemption (including any accrued and unpaid interest on
the Senior Notes that are redeemed). If the Restricted Proceeds are released
to the Company from the Restricted Account and used to fund payments and
commitments under a Settlement, then any interest or other profit earned from
such Cash Equivalents will be used by the Company for general corporate
purposes (including payment of interest on the Senior Notes).
POSSIBLE SETTLEMENTS
Dart has been engaged for several months in settlement discussions with
Herbert H. Haft. If the possible settlement under discussion is implemented,
Herbert H. Haft would retire from his positions as Chairman of Dart, Shoppers
and two other subsidiaries of Dart, Trak Auto Corporation ("Trak Auto") and
Crown Books Corporation ("Crown Books"). Herbert H. Haft also would relinquish
his claim to voting control of Dart.
26
<PAGE>
Under the possible settlement being discussed, Herbert H. Haft would sell to
Dart, Trak Auto and Crown Books all of his shares of stock and stock options
in these companies. The possible settlement also would terminate Herbert H.
Haft's employment agreement with Dart and resolve all outstanding litigation
and disputes between Dart and Herbert H. Haft. Herbert H. Haft would also
assign certain real estate interests to Dart.
Herbert H. Haft would receive approximately $30 million from Dart if the
possible settlement under discussion is implemented. Herbert H. Haft would
also receive an additional $11.6 million from escrowed funds previously paid
by Dart to Ronald S. Haft as part of the RSH Settlement. The possible
settlement under discussion also contemplates that Dart would make a $10
million loan to a partnership owned directly or indirectly by Ronald S. Haft
and a trust established by Herbert H. Haft, which loan would be secured by
such partnership's interests in three shopping centers located in suburban
Washington, D.C. and would be personally guaranteed by Ronald S. Haft.
On April 21, 1997, Dart and Herbert H. Haft reached a conditional agreement
in principle to enter into a settlement on these terms. The conditional
agreement in principle was subject to the negotiation of a definitive
settlement agreement satisfactory to Dart and Dart's receipt of satisfactory
advice from its financial advisor. The conditional agreement in principle, as
amended three times to extend its termination date, terminated on July 11,
1997. However, negotiations with respect to a possible definitive settlement
agreement between Dart and Herbert H. Haft along the lines contemplated by the
conditional agreement in principle have continued after July 11, 1997.
The possible settlement under discussion between Dart and Herbert H. Haft
would be conditioned on Dart's entering into a supplemental settlement with
Ronald S. Haft and a comprehensive settlement with RGL. Negotiations with
respect to these related settlements are currently underway. Current
settlement discussions between Dart and RGL contemplate total payments to RGL
of approximately $50 million in exchange for all of RGL's actual and claimed
equity interests in these companies and certain real estate interests. There
can be no assurance that such settlements will be reached or as to the terms
or timing of any settlement, if one occurs.
Closing of the transactions contemplated by the possible settlement under
discussion between Dart and Herbert H. Haft also would be subject to (i) final
and non-appealable action by the Delaware Court of Chancery or the Delaware
Supreme Court approving all of the terms of the settlement, terminating
certain putative derivative actions pending with respect to Dart and Crown
Books in the Delaware Court of Chancery, and approving the RSH Settlement and
the supplemental settlement between Dart and Ronald S. Haft, and (ii) final
and non-appealable action by the U.S. Bankruptcy Court approving the
effectiveness of Chapter 11 plans of reorganization for certain real estate
entities owned by Haft family members. Dart and Herbert H. Haft have had great
difficulty resolving outstanding issues in the negotiations and Dart's
financial, corporate and legal evaluation is ongoing. There can be no
assurance that Dart and Herbert H. Haft will enter into a definitive
settlement agreement.
It is likely that any proposed settlement with RGL would not be contingent
upon the closing of a settlement with Herbert H. Haft. Any settlement with
RGL, however, would require prior notice under the Standstill Order of the
Delaware Court of Chancery and could be opposed by Herbert H. Haft if Dart
does not settle with him.
The aggregate payments and commitments by Dart and its subsidiaries in
connection with the possible settlements under discussion with RGL and with
Herbert H. Haft, if both settlements occurred, would be approximately $90
million (including a loan of $10 million), part of which could be deferred. It
is anticipated that Dart would pay substantially all of this amount, though it
is expected that a portion (yet to be determined) of this amount and of the
cost of the RSH Settlement would be allocated to Trak Auto and Crown Books.
Allocation of any actual settlement costs among the companies would be in
proportion to the relative benefits each company receives, as determined by
their boards of directors (each board comprised of a majority of non-Haft
directors) after consultation with outside advisors.
27
<PAGE>
PRO FORMA CONSOLIDATED CAPITALIZATION
The following table sets forth the unaudited consolidated pro forma cash,
cash equivalents and short-term investments and capitalization of the Company
as of May 3, 1997 and as adjusted to give effect to (i) the payment of a $10
million dividend declared on February 6, 1997 and paid on May 30, 1997, (ii)
the sale of the Outstanding Notes and the application of the net proceeds
therefrom to repay the Increasing Rate Notes and to make a payment of $50
million to Dart to fund a Settlement with certain of Dart's stockholders and
(iii) the use of $25 million of existing cash, cash equivalents and short-term
investments to pay an additional dividend to Dart. See "Use of Proceeds."
<TABLE>
<CAPTION>
MAY 3, 1997
---------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
LIQUID ASSETS:
Cash and cash equivalents................ $ 13,413 (6,933) $ 6,480
Short-term investments................... 27,867 (27,867) --
-------- -------- --------
Total liquid assets..................... $ 41,280 (34,800)(a) $ 6,480(d)
======== ======== ========
LONG-TERM DEBT:
9 3/4% Senior Notes due 2004............. $ -- 200,000 $200,000
Increasing Rate Notes due 2000........... 140,000 (140,000) --
Capital lease obligation................. 11,497 -- 11,497
-------- -------- --------
Total long-term debt.................... 151,497 60,000 211,497
-------- -------- --------
STOCKHOLDERS' EQUITY:
Class A Common Stock..................... 117 -- 117
Class B Common Stock..................... 50 -- 50
Retained earnings........................ 45,254 (40,000)(b) 1,716(d)
(3,538)(c)
-------- -------- --------
Total stockholders' equity.............. 45,421 (43,538) 1,883
-------- -------- --------
Total capitalization.................... $196,918 16,462 $213,380
======== ======== ========
</TABLE>
- --------
(a) Reflects the following pro forma adjustments (dollars, in thousands):
<TABLE>
<S> <C>
Proceeds from the sale of the Outstanding Notes, net of Initial
Purchaser's commissions, fees and expenses..................... $ 193,500
Repayment of Increasing Rate Notes (excluding accrued
interest)...................................................... (140,000)
Repayment of accrued and unpaid interest on Increasing Rate
Notes through the estimated date of redemption................. (3,300)
Payment on May 30, 1997 of dividend declared on February 6,
1997........................................................... (10,000)
Dividend that may be paid subsequent to the sale of the
Outstanding Notes.............................................. (10,000)
Dividend that may be paid subsequent to the sale of the
Outstanding Notes upon execution of the New Credit Facility.... (15,000)
Dividend to Dart from proceeds of the sale of the Outstanding
Notes to fund a Settlement..................................... (15,000)
Loan to Dart from proceeds of the sale of the Outstanding Notes
to fund a Settlement........................................... (35,000)
---------
Decrease in cash, cash equivalents and short-term
investments.................................................. $ (34,800)
=========
</TABLE>
(b) Reflects dividends that may be paid to Dart as follows: (i) $10 million
subsequent to the sale of the Outstanding Notes; (ii) $15 million
subsequent to the sale of the Outstanding Notes upon execution of the New
Credit Facility; and (iii) $15 million from Restricted Proceeds to fund a
Settlement. The dividend to Dart from the Restricted Proceeds is
contingent upon the consummation of a Settlement. See "Use of Proceeds--
Possible Settlement."
28
<PAGE>
(c) Reflects charge to retained earnings for extraordinary loss, net of taxes,
for write-off of deferred financing costs associated with the Increasing
Rate Notes.
(d) Assumes that the $50 million of Restricted Proceeds and $25 million of
short-term investments will be used to pay a dividend of $40 million to
Dart and to extend loans of $35 million to Dart. If, on or prior to
June 30, 1998, the closing of a Settlement has not occurred or the Company
has not paid to Dart the Restricted Proceeds to fund a Settlement, the
Restricted Proceeds will be used to redeem $50 million aggregate principal
amount of the Senior Notes at 101% of the principal amount thereof and to
pay accrued and unpaid interest thereon. See "Use of Proceeds." If a
Settlement does not occur and the Special Mandatory Redemption is
effected, then the pro forma balances as of May 3, 1997 for 9 3/4% Senior
Notes due 2004 and retained earnings would be approximately $150.0 million
and $16.7 million, respectively. Under the Indenture, Shoppers will be
able to pay a dividend of $10 million at any time and, after Shoppers
enters into the New Credit Facility, pay additional dividends of $15
million. See "Description of the Senior Notes."
29
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements of the
Company for the 31 weeks ended February 1, 1997 and for the 13 weeks ended May
3, 1997, give effect to (i) the payment of a $10 million dividend declared on
February 6, 1997 and paid on May 30, 1997, (ii) the sale of the Outstanding
Notes and the application of the net proceeds therefrom to repay the
Increasing Rate Notes and to make a payment of $50 million to Dart to fund a
Settlement with certain of Dart's stockholders and (iii) the use of $25
million of existing cash, cash equivalents and short-term investments to pay
an additional dividend to Dart, as though such transactions occurred on July
2, 1995 with respect to the pro forma operating data for the 52 weeks ended
June 29, 1996 and February 1, 1997, the 31 weeks ended February 1, 1997 and
the 13 weeks ended May 3, 1997, and as of May 3, 1997 with respect to pro
forma balance sheet data.
These unaudited pro forma consolidated financial statements are based upon
management's estimate of the effects of the transactions noted above. The
unaudited pro forma financial statements are not necessarily indicative of
either future results of operations or of results that might have been
achieved if the transactions had been consummated as of the indicated dates.
The unaudited pro forma financial statements should be read in conjunction
with the historical consolidated financial statements of Shoppers and the
notes thereto that appear elsewhere in this Prospectus.
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
52 WEEKS ENDED JUNE 29, 1996 52 WEEKS ENDED FEBRUARY 1, 1997
--------------------------------------------------------------------------
ACTUAL ADJ. PRO FORMA ACTUAL ADJ. PRO FORMA
--------- -------- ---------------------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales................... $ 835,971 -- $ 835,971 $ 850,875 -- $ 850,875
Cost of sales........... 651,986 -- 651,986 659,929 -- 659,929
--------- -------- --------- ---------- --------- ----------
Gross profit............ 183,985 -- 183,985 190,946 -- 190,946
Selling and
administrative
expenses............... 149,570 -- 149,570 154,594 -- 154,594
Depreciation and
amortization........... 8,913 -- 8,913 8,720 -- 8,720
Amortization of
goodwill............... -- 3,850 (a) 3,850 -- 3,850 (a) 3,850
Amortization of lease
rights................. -- 616 (a) 616 -- 616 (a) 616
--------- -------- --------- ---------- --------- ----------
Operating income........ 25,502 (4,466) 21,036 27,632 (4,466) 23,166
Interest income......... 5,789 (2,376)(b) 3,413 5,985 (2,572)(b) 3,413
Interest expense........ 1,771 20,429 (c) 22,200 1,645 20,429 (c) 22,074
Insurance settlement
(loss)................. (355) -- (355) -- -- --
--------- -------- --------- ---------- --------- ----------
Income (loss) before
income taxes........... 29,165 (27,271) 1,894 31,972 (27,467) 4,505
Income taxes (benefit).. 10,462 (8,411)(d) 2,051 11,409 (8,368)(d) 3,041
--------- -------- --------- ---------- --------- ----------
Net income (loss)....... $ 18,703 (18,860) $ (157) $ 20,563 (19,099) $ 1,464
========= ======== ========= ========== ========= ==========
</TABLE>
(see footnotes on the following page)
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS
(a) Reflects the amortization of excess purchase price over the net book value
of assets acquired arising from the Acquisition, on a straight-line basis,
over a 40 year period and the amortization of lease rights, arising from
the Acquisition on a straight-line basis over the life of the leases.
(b) The changes in interest income are attributable to a reduction in cash,
cash equivalents and short-term investments resulting from dividend
payments to Dart offset by interest income related to a loan from Shoppers
to Dart. The Company expects such loan to bear the same interest rate and
have the same maturity date as the Senior Notes. All principal and
interest on this loan to Dart would be payable on the maturity date but
could be repaid at any time without penalty. See "Risk Factors--
Substantial Leverage and Debt Service."
(c) For purposes of the pro forma analysis, the Senior Notes have a fixed
interest rate of 9.75%. Deferred financing costs ($6.5 million) are
amortized over seven years on a straight-line basis.
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JUNE 29, FEBRUARY 1,
1996 1997
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Historical interest expense...................... $ 1,771 $ 1,645
Add: Interest on Senior Notes.................... 19,500 19,500
Amortization of new financing costs............ 929 929
------- -------
Pro forma interest expense....................... $22,200 $22,074
======= =======
</TABLE>
The pro forma income statements for the periods presented do not reflect
deferred financing costs of approximately $6 million related to the
Increasing Rate Notes which was written off as an extraordinary item upon
consummation of the sale of the Outstanding Notes.
(d)Reflects income taxes at a combined statutory rate net of the tax effect of
non-deductible goodwill.
31
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
31 WEEKS ENDED FEBRUARY 1, 1997 13 WEEKS ENDED MAY 3, 1997
---------------------------------------------------------------------
ACTUAL ADJ PRO FORMA ACTUAL ADJ PRO FORMA
---------- --------- ----------------------- ----- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales................... $ 511,025 -- $ 511,025 $ 209,981 -- $ 209,981
Cost of sales........... 398,129 -- 398,129 159,535 -- 159,535
---------- --------- ---------- ---------- ----- ----------
Gross profit............ 112,896 -- 112,896 50,446 -- 50,446
Selling and
administrative
expenses............... 94,304 -- 94,304 37,545 -- 37,545
Depreciation and
amortization........... 4,573 -- 4,573 1,378 -- 1,378
Amortization of
goodwill............... -- 2,246 (a) 2,246 963 -- 963
Amortization of lease
rights................. -- 360 (a) 360 154 -- 154
---------- --------- ---------- ---------- ----- ----------
Operating income........ 14,019 (2,606) 11,413 10,406 -- 10,406
Interest income......... 3,526 (1,535)(b) 1,991 499 354(b) 853
Interest expense........ 710 11,917 (c) 12,627 5,250 286(c) 5,536
---------- --------- ---------- ---------- ----- ----------
Income (loss) before
income taxes........... 16,835 (16,058) 777 5,655 68 5,723
Income taxes (benefit).. 6,380 (5,321)(d) 1,059 2,478 31(d) 2,509
---------- --------- ---------- ---------- ----- ----------
Net income (loss)....... $ 10,455 (10,737) $ (282) $ 3,177 37 $ 3,214
========== ========= ========== ========== ===== ==========
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS
(a) Reflects the amortization of excess purchase price over the net book value
of assets acquired arising from the Acquisition, on a straight-line basis,
over a 40 year period and the amortization of lease rights, arising from
the Acquisition on a straight-line basis over the life of the leases.
(b) The changes in interest income are attributable to a reduction in cash,
cash equivalents and short-term investments resulting from dividend
payments to Dart offset by interest income related to a loan from Shoppers
to Dart. The Company expects such loan to bear the same interest rate and
have the same maturity date as the Senior Notes. All principal and
interest on this loan to Dart would be payable on the maturity date but
could be repaid at any time without penalty. See "Risk Factors--
Substantial Leverage and Debt Service."
(c) For purposes of the pro forma analysis, the Senior Notes have a fixed
interest rate of 9.75%. Deferred financing costs ($6.5 million) are
amortized over seven years on a straight-line basis.
<TABLE>
<CAPTION>
31 WEEKS ENDED 13 WEEKS ENDED
FEBRUARY 1, 1997 MAY 3, 1997
---------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Historical interest expense................ $ 710 $4,740
Historical amortization of deferred
financing................................. -- 510
Add: Interest on Senior Notes.............. 11,375 4,875
Amortization of new financing costs........ 542 232
Deduct:
Interest on Increasing Rate Notes.......... -- (4,311)
Historical amortization of deferred
financing................................. -- (510)
------- ------
Pro forma interest expense................. $12,627 $5,536
======= ======
</TABLE>
The pro forma income statements for the periods presented do not reflect
deferred financing costs of approximately $6 million related to the
Increasing Rate Notes which was written off as an extraordinary item upon
consummation of the sale of the Outstanding Notes.
(d) Reflects income taxes at a combined statutory rate net of the tax effect
of non-deductible goodwill.
32
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MAY 3, 1997
----------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 13,413 (6,933)(a) $ 6,480
Short-term investments..................... 27,867 (27,867)(a) --
Accounts receivable........................ 6,201 -- 6,201
Merchandise inventories.................... 28,656 -- 28,656
Prepaid expenses........................... 1,569 3,300 (a) 4,869
Due from affiliate......................... 522 -- 522
-------- -------- --------
Total current assets..................... 78,228 (31,500) 46,728
Property and equipment at cost:
Land and buildings......................... 7,503 -- 7,503
Store and warehouse equipment.............. 56,695 -- 56,695
Office and automotive equipment............ 2,018 -- 2,018
Leasehold improvements..................... 3,842 -- 3,842
-------- -------- --------
70,058 -- 70,058
Accumulated depreciation and amortization.... (36,861) -- (36,861)
-------- -------- --------
Net property and equipment................. 33,197 -- 33,197
Deferred financing costs..................... 5,616 (5,616)(c) 6,500
6,500 (a)
Excess purchase price over net assets
acquired.................................... 147,895 -- 147,895
Lease rights................................. 12,150 -- 12,150
Note receivable.............................. -- 35,000 (a) 35,000
Other assets................................. 884 -- 884
-------- -------- --------
Total assets............................. $277,970 4,384 $282,354
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 42,100 -- $ 42,100
Accrued expenses:
Salary and benefits........................ 4,991 -- 4,991
Taxes other than income.................... 2,350 -- 2,350
Other...................................... 13,555 -- 13,555
Dividend payable........................... 10,000 (10,000)(a) --
Income taxes payable....................... 2,262 (2,078)(b) 184
-------- -------- --------
Total current liabilities................ 75,258 (12,078) 63,180
Senior Notes................................. -- 200,000 200,000
Increasing Rate Notes........................ 140,000 (140,000) --
Capital lease obligations.................... 11,497 -- 11,497
Deferred income taxes........................ 3,501 -- 3,501
Deferred income.............................. 2,058 -- 2,058
Deferred rent liability...................... 235 -- 235
-------- -------- --------
Total liabilities........................ 232,549 47,922 280,471
Stockholders' equity:
Class A common stock....................... 117 -- 117
Class B common stock....................... 50 -- 50
Retained earnings.......................... 45,254 (40,000)(b) 1,716
(3,538)(c)
-------- -------- --------
Total stockholders' equity............... 45,421 (43,538) 1,883
-------- -------- --------
Total liabilities and stockholders'
equity................................ $277,970 4,384 $282,354
======== ======== ========
</TABLE>
33
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) Reflects the following pro forma adjustments (dollars in thousands):
<TABLE>
<S> <C>
Proceeds from the sale of the Outstanding Notes net of Initial
Purchaser's commissions, fees and expenses...................... $ 193,500
Repayment of Increasing Rate Notes (excluding accrued interest).. (140,000)
Repayment of accrued and unpaid interest on Increasing Rate Notes
through the estimated date of redemption........................ (3,300)
Payment on May 30, 1997 of dividend declared on February 6,
1997............................................................ (10,000)
Dividend that may be paid subsequent to the sale of the
Outstanding Notes............................................... (10,000)
Dividend that may be paid subsequent to the sale of the
Outstanding Notes upon execution of the New Credit Facility..... (15,000)
Dividend to Dart from proceeds of the sale of the Outstanding
Notes to fund a Settlement...................................... (15,000)
Loan to Dart from proceeds of the sale of the Outstanding Notes
to fund a Settlement............................................ (35,000)
---------
Decrease in cash, cash equivalents and short-term investments.. $ (34,800)
=========
</TABLE>
(b) Reflects dividends that may be paid to Dart as follows: (i) $10 million
subsequent to the sale of the Outstanding Notes; (ii) $15 million
subsequent to the sale of the Outstanding Notes upon execution of the New
Credit Facility; and (iii) $15 million from Restricted Proceeds to fund a
Settlement. The dividend to Dart from the Restricted Proceeds is
contingent upon the consummation of a Settlement. See "Use of Proceeds--
Possible Settlements."
(c) Reflects the extraordinary loss, net of $2.1 million tax benefit, for the
write-off of deferred financing costs associated with the Increasing Rate
Notes.
34
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth summary historical financial data of Shoppers
as of and for the 52 weeks ended June 27, 1992, the 53 weeks ended July 3,
1993, the 52 weeks ended July 2, 1994, the 52 weeks ended July 1, 1995 and the
52 weeks ended June 29, 1996, which have been derived from the financial
statements audited by Arthur Andersen LLP, Shoppers' independent public
accountants. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements of Shoppers, together with
the related notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
JUNE 27, JULY 3, JULY 2, JULY 1, JUNE 29,
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales........................... $639,920 $718,967 $750,340 $790,842 $835,971
Cost of sales................... 506,194 562,461 593,063 616,521 651,986
-------- -------- -------- -------- --------
Gross profit(a)................. 133,726 156,506 157,277 174,321 183,985
Selling and administrative
expenses(b).................... 107,983 124,509 127,643 136,798 149,570
Depreciation and amortization... 10,861 12,045 10,785 8,529 8,913
Restructuring charges(c)........ -- 1,012 -- -- --
-------- -------- -------- -------- --------
Operating income................ 14,882 18,940 18,849 28,994 25,502
Interest income................. 1,638 1,474 2,189 4,682 5,789
Interest expense................ 1,519 1,576 1,426 1,451 1,771
Insurance settlement gain
(loss)(d)...................... -- -- 1,360 2,065 (355)
Provision for income taxes...... 5,757 7,205 8,043 14,764 10,462
-------- -------- -------- -------- --------
Net income...................... $ 9,244 $ 11,633 $ 12,929 $ 19,526 $ 18,703
-------- -------- -------- -------- --------
Ratio of earnings to fixed
charges(e)..................... 4.1x 4.2x 4.3x 6.4x 5.1x
OTHER DATA:
Stores open at end of period.... 32 35 35 33 34
Capital expenditures............ $ 14,553 $ 6,909 $ 5,112 $ 4,693 $ 7,355
BALANCE SHEET DATA (END OF
PERIOD):
Cash, cash equivalents and
short-term investments......... $ 44,913 $ 56,625 $ 69,789 $ 97,003 $106,640
Working capital deficit(f)...... 19,053 15,715 9,993 15,551 14,364
Total assets.................... 115,315 125,612 140,614 162,003 171,022
Total debt...................... 9,209 9,502 9,742 9,950 10,069
Stockholders' equity............ 51,242 62,875 75,804 95,330 104,033
</TABLE>
- --------
(a) Gross profit is net of LIFO expense of $329,000, $436,000, $364,000,
$877,000 and $905,000 in the 52 weeks ended June 27, 1992, July 3, 1993
(53 weeks), July 2, 1994, July 1, 1995 and June 29, 1996, respectively.
(b) Selling and administrative expenses include a reversal of a prior period
expense related to closed stores and remodels of $500,000 for the 52 weeks
ended July 1, 1995 and reserves related to closed stores and remodels of
$294,000 for the 52 weeks ended June 29, 1996. Selling and administrative
expenses also include a $500,000 charge for reserves against a related
party receivable for the 52 weeks ended July 3, 1993 and July 1, 1995.
(c) Represents charges associated with the sale of Total Beverage Corp.
(d) Represents an insurance settlement relating to one store that incurred
significant fire damage in June 1994.
(e) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income before income taxes, plus fixed charges.
"Fixed charges" consist of interest expense on all indebtedness including
35
<PAGE>
amortization of deferred financing costs and the portion of operating lease
rental payments that is representative of the interest factor.
(f) Excluding cash, cash equivalents and short-term investments.
The selected historical financial data as of and for the 31 weeks ended
February 3, 1996, the 31 weeks ended February 1, 1997, the 13 weeks ended May
4, 1996 and the 13 weeks ended May 3, 1997 have been derived from unaudited
interim consolidated financial statements, which, in the opinion of
management, reflect all material adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such data. Results
of operations for the 13 weeks ended May 3, 1997 are not necessarily
indicative of the results that may be expected for the full year ended January
31, 1998. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements of Shoppers, together with
the related notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
31 WEEKS ENDED 13 WEEKS ENDED
----------------------- -----------------
FEBRUARY 3, FEBRUARY 1, MAY 4, MAY 3,
1996 1997 1996 1997
----------- ----------- -------- --------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Sales............................... $496,121 $511,025 $209,036 $209,981
Cost of sales....................... 390,186 398,129 161,105 159,535
-------- -------- -------- --------
Gross profit(a)................... 105,935 112,896 47,931 50,446
Selling and administrative
expenses(b)........................ 89,280 94,304 36,415 37,545
Depreciation and amortization....... 4,766 4,573 2,323 2,495
-------- -------- -------- --------
Operating income.................. 11,889 14,019 9,193 10,406
Interest income..................... 3,330 3,526 1,490 499
Interest expense.................... 836 710 378 5,250
Insurance settlement (loss)(c)...... (355) -- -- --
Provision for income taxes.......... 5,433 6,380 3,813 2,478
-------- -------- -------- --------
Net income.......................... $ 8,595 $ 10,455 $ 6,492 $ 3,177
-------- -------- -------- --------
Ratio of earnings to fixed
charges(d)......................... 4.6x 4.9x 7.1x 1.9x
OTHER DATA:
Stores open at end of period........ 34 34 34 34
Capital expenditures................ $ 3,205 $ 5,280 $ 2,410 $ 1,522
BALANCE SHEET DATA (END OF PERIOD):
Cash, cash equivalents and short-
term investments................... $ 98,823 $108,738 $109,272 $ 41,280
Working capital deficit(e).......... 14,906 15,958 21,968 38,310
Total assets........................ 164,348 179,008 177,043 277,970
Total debt.......................... 9,965 10,035 10,027 151,497
Stockholders' equity................ 93,925 104,488 100,415 45,421
</TABLE>
- --------
(a) Gross profit is net of LIFO expense of $530,000 in the 31 weeks ended
February 3, 1996 and February 1, 1997 and $226,000 in the 13 weeks ended
May 4, 1996 and May 3, 1997.
(b) Selling and administrative expenses include a charge for closed store and
remodels of $294,000 and $850,000 in the 31 weeks ended February 3, 1996
and February 1, 1997, respectively.
(c) Represents an insurance settlement relating to one store that incurred
significant damage in June 1994.
(d) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income before income taxes, plus fixed charges.
"Fixed charges" consist of interest expense on all indebtedness (including
amortization of deferred financing costs) and the portion of operating
lease rental payments that is representative of the interest factor.
(e) Excludes cash, cash equivalents and short-term investments.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the
Consolidated Financial Statements of the Company, together with the related
notes thereto, and other information included elsewhere in this Prospectus.
For purposes of this discussion and analysis, comparable store sales growth is
computed for those stores that operated for both the full periods being
compared (including stores that were remodeled or expanded during either
period).
OUTLOOK
Except for historical information, statements in this Management's
Discussion and Analysis of Financial Condition and Results of Operations are
forward-looking. Actual results may differ materially due to a variety of
factors, including the Company's ability to open new stores, the effect of
regional economic conditions and the Company's ability to compete in the
highly competitive supermarket industry in Greater Washington, D.C. Shoppers
believes that it will face increased competition in the future from other
supermarket chains and intends to compete aggressively against existing and
new competition.
Litigation involving the control of Dart could adversely affect the
Company's business, financial condition and results of operations. See "Risk
Factors--Controlling Stockholder" and "Use of Proceeds--Possible Settlements."
On December 6, 1995, the Delaware Court of Chancery entered the Standstill
Order, which restricts certain actions by Dart. Without further order of the
court, Dart may not (i) change its certificate of incorporation or bylaws;
(ii) change the current composition of Dart's board of directors or any of its
subsidiaries; (iii) change the current Haft family officers of Dart or any of
its subsidiaries; or (iv) issue any additional securities of Dart or any of
its subsidiaries (except employee stock options issued in the ordinary course
of business). In addition, without first giving Herbert H. Haft and certain
other litigants not less than seven days' written notice, Dart may not take
any extraordinary actions, including but not limited to actions that would
result in (a) the liquidation of Dart or any of its subsidiaries, (b) the sale
of any major subsidiary of Dart or (c) a disadvantage to any Class B
stockholder of Dart through any debt transaction. For purposes of the
Standstill Order, the phrase "extraordinary actions" means any transaction,
contract or agreement, the value of which exceeds $3 million.
RESULTS OF OPERATIONS
The following table sets forth the major components of Shoppers' statement
of operations expressed as a percentage of sales:
<TABLE>
<CAPTION>
52 WEEKS ENDED 31 WEEKS ENDED 13 WEEKS ENDED
--------------------------------------- ------------------------- -----------------------
JULY 2, 1994 JULY 1, 1995 JUNE 29, 1996 FEB. 3, 1996 FEB. 1, 1997 MAY 4, 1996 MAY 3, 1997
------------ ------------ ------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 79.0 78.0 78.0 78.6 77.9 77.1 76.0
----- ----- ----- ----- ----- ----- -----
Gross profit............ 21.0 22.0 22.0 21.4 22.1 22.9 24.0
Selling and
administration
expenses............... 17.0 17.3 17.9 18.0 18.5 17.4 17.9
Depreciation and
amortization........... 1.4 1.1 1.1 1.0 0.9 1.1 1.2
----- ----- ----- ----- ----- ----- -----
Operating income........ 2.5 3.7 3.1 2.4 2.7 4.4 5.0
Interest income......... 0.3 0.6 0.7 0.7 0.7 0.7 0.2
Interest expense........ 0.2 0.2 0.2 0.2 0.1 0.2 2.5
Insurance settlement
gain (loss)............ 0.2 0.3 (0.0) (0.1) -- -- --
----- ----- ----- ----- ----- ----- -----
Income before income
taxes.................. 2.8 4.3 3.5 2.8 3.3 4.9 2.7
Provision for income
taxes.................. 1.1 1.9 1.3 1.1 1.2 1.8 1.2
----- ----- ----- ----- ----- ----- -----
Net Income.............. 1.7% 2.5% 2.2% 1.7% 2.0% 3.1% 1.5%
===== ===== ===== ===== ===== ===== =====
</TABLE>
37
<PAGE>
13 WEEKS ENDED MAY 3, 1997 COMPARED WITH THE 13 WEEKS ENDED MAY 4, 1996
Sales. Sales increased by $1.0 million (0.5%), from $209.0 million during
the 13 weeks ended May 4, 1996 to $210.0 million during the 13 weeks ended May
3, 1997. Comparable store sales growth of 0.5% was primarily due to increased
sales at two stores that were remodeled and expanded in January 1997.
Gross Profit. Gross profit increased by $2.5 million (5.2%), from $47.9
million during the 13 weeks ended May 4, 1996 to $50.4 million during the 13
weeks ended May 3, 1997. The increase was primarily due to an increase in
gross profit, as a percentage of sales, from 22.9% during the 13 weeks ended
May 4, 1996 to 24.0% during the 13 weeks ended May 3, 1997, as a result of a
more proactive pricing strategy on selected items and a reduction in the
number of items which are offered at special discounts on a weekly basis in
stores.
Selling and Administrative Expenses. Selling and administrative expenses
("S&A") increased by $1.1 million (3.1%), from $36.4 million during the 13
weeks ended May 4, 1996 to $37.5 million during the 13 weeks ended May 3,
1997. S&A, as a percentage of sales, increased from 17.4% to 17.9% during the
same periods. The increases in S&A were primarily attributable to increased
payroll costs associated with negotiated union rates and store remodelings and
to the fees charged for the continuing increase in credit card and debit card
sales as a percentage of total sales.
Depreciation and Amortization. Depreciation and amortization ("D&A")
increased $0.2 million from $2.3 million during the 13 weeks ended May 4, 1996
to $2.5 million during the 13 weeks ended May 3, 1997. The increase was
primarily the result of additional depreciation and amortization resulting
from the allocation of the purchase price to the assets as well as the
amortization of goodwill and lease rights, offset by the Company adopting the
straight line method of depreciation as of the acquisition date, to be
consistent with Dart's accounting policies. Historically, the Company has used
modified accelerated depreciation methods.
Operating Income. Operating income increased $1.2 million for the 13 weeks
ended May 3, 1997 compared to the 13 weeks ended May 4, 1996, primarily as a
result of the increase in gross profit.
Interest Income and Expense. Interest income decreased $1.0 million during
the 13 weeks ended May 3, 1997 compared to the 13 weeks ended May 4, 1996 due
to a decrease in funds available for short-term investment primarily as a
result of the repayment of the bridge financing associated with the
Acquisition. Interest expense increased primarily due to $4.3 million of
interest accrued on the Increasing Rate Notes during the 13 weeks ended May 3,
1997.
Net Income. Net income decreased by $3.3 million (51.1%), from $6.5 million
during the 13 weeks ended May 4, 1996 to $3.2 million during the 13 weeks
ended May 3, 1997. This decrease was primarily attributable to the $4.3
million of interest accrued on the Increasing Rate Notes during the 13 weeks
ended May 3, 1997 and the amortization of acquisition related goodwill and was
partially offset by a higher gross profit.
31 WEEKS ENDED FEBRUARY 1, 1997 COMPARED WITH THE 31 WEEKS ENDED FEBRUARY 3,
1996
Sales. Sales increased $14.9 million (3.0%), from $496.1 million during the
31 weeks ended February 3, 1996 to $511.0 million during the 31 weeks ended
February 1, 1997. The increase resulted primarily from sales at a new store
that was open for the entire 31 weeks ended February 1, 1997 and opened for 19
of the 31 weeks in the prior year. Comparable store sales growth of 0.8% was
due primarily to sales increases at two remodeled stores that were partially
offset by a sales reduction in a store affected by the new Shoppers Club and
the stores affected by the remodels.
Gross Profit. Gross profit increased $7.0 million (6.6%), from $105.9
million during the 31 weeks ended February 3, 1996 to $112.9 million during
the 31 weeks ended February 1, 1997. The increase was due to the increase in
sales and an increase in gross profit as a percentage of sales from 21.4% for
the 31 weeks ended February 3, 1996 to 22.1% for the 31 weeks ended February
1, 1997. The percentage increase in the gross profit is attributed primarily
to the slightly higher gross profits achieved in the grocery, meat and produce
departments.
38
<PAGE>
Selling and Administrative Expenses. S&A increased $5.0 million (5.6%), from
$89.3 million during the 31 weeks ended February 3, 1996 to $94.3 million
during the 31 weeks ended February 1, 1997. S&A increased as a percentage of
sales from 18.0% of sales during the 31 weeks ended February 3, 1996 to 18.5%
of sales during the 31 weeks ended February 1, 1997. The increase was
primarily attributable to increases in payroll costs associated with
negotiated union rates and store remodelings, closed store reserves, insurance
reserves, advertising costs and credit and debit card fees due to a larger
portion of such sales.
Depreciation and Amortization. D&A decreased from $4.8 million during the 31
weeks ended February 3, 1996 to $4.6 million during the 31 weeks ended
February 1, 1997. D&A decreased from 1.0% of sales during the 31 weeks ended
February 3, 1996 to 0.9% of sales during the 31 weeks ended February 1, 1997.
Operating Income. Operating income for the 31 weeks ended February 1, 1997
increased $2.1 million (17.9%), from the 31 weeks ended February 3, 1996 as a
result of the factors discussed above.
Interest Income and Expense. Interest income increased from $3.3 million
during the 31 weeks ended February 3, 1996 to $3.5 million during the 31 weeks
ended February 1, 1997. Interest income increased as a result of increased
funds available for short-term investments. Interest expense decreased from
$0.8 million during the 31 weeks ended February 3, 1996 to $0.7 million during
the 31 weeks ended February 1, 1997.
Net Income. Net income increased to $10.5 million during the 31 weeks ended
February 1, 1997 from net income of $8.6 million during the 31 weeks ended
February 3, 1996. Income taxes were recorded at an effective rate of 37.9%
during the 31 weeks ended February 1, 1997 compared to 38.7% during the 31
weeks ended February 3, 1996.
52 WEEKS ENDED JUNE 29, 1996 COMPARED WITH THE 52 WEEKS ENDED JULY 1, 1995
Sales. Sales increased $45.2 million (5.7%), from $790.8 million in fiscal
1995 to $836.0 million in fiscal 1996. The increase resulted primarily from a
1.7% increase in comparable store sales, the opening of one new store in
fiscal 1996 and the restoration of one store which was temporarily closed due
to fire damage. The increase in comparable store sales growth was primarily
attributable to sales increases during the severe winter conditions in Greater
Washington, D.C.
Gross Profit. Gross profit increased $9.7 million (5.6%), from $174.3
million in fiscal 1995 to $184.0 million in fiscal 1996. Gross profit as a
percentage of sales remained unchanged at 22.0%.
Selling and Administrative Expenses. S&A increased $12.8 million (9.4%),
from $136.8 million in fiscal 1995 to $149.6 million in fiscal 1996. S&A
increased from 17.3% of sales in fiscal 1995 to 17.9% of sales in fiscal 1996.
S&A increased as a percentage of sales in fiscal 1996 primarily due to
increased payroll and payroll benefit costs.
Depreciation and Amortization. D&A increased $0.4 million (4.5%), from $8.5
million in fiscal 1995 to $8.9 million in fiscal 1996. D&A as a percentage of
sales remained unchanged at 1.1%.
Operating Income. Operating income for fiscal 1996 decreased $3.5 million
(12.1%), from $29.0 million in fiscal 1995 to $25.5 million in fiscal 1996 as
a result of the factors discussed above.
Interest Income and Expense. Interest income increased from $4.7 million in
fiscal 1995 to $5.8 million in fiscal 1996 primarily due to increased funds
available for short-term investments. Interest expense increased from $1.5
million in fiscal 1995 to $1.8 million in fiscal 1996. The increase in
interest expense was due primarily to interest payments as a result of a
federal income tax audit.
Net Income. Net income decreased to $18.7 million in fiscal 1996 from $19.5
million in fiscal 1995. The decrease in net income resulted from factors
discussed above. In addition, the effective tax rate decreased from
39
<PAGE>
43.1% in fiscal 1995 to 35.9% in fiscal 1996 as a result of a decrease in the
effective rate paid for state income taxes and a decrease in estimated federal
income tax contingencies.
52 WEEKS ENDED JULY 1, 1995 COMPARED WITH THE 52 WEEKS ENDED JULY 2, 1994.
Sales. Sales increased $40.5 million (5.4%), from $750.3 million in fiscal
1994 to $790.8 million in fiscal 1995. The increase resulted primarily from a
7.3% increase in comparable store sales, partially offset by the closing of
two stores in fiscal 1995. The comparable store sales growth increase was
primarily attributable to the continuing maturation of several stores, an
aggressive advertising campaign and the introduction of debit and credit card
payment methods.
Gross Profit. Gross profit increased $17.0 million (10.8%), from $157.3
million in fiscal 1994 to $174.3 million in fiscal 1995. Gross profit as a
percentage of sales increased from 21.0% in fiscal 1994 to 22.0% in fiscal
1995 due primarily to higher support of merchandising programs by vendors.
Selling and Administrative Expenses. S&A increased $9.2 million (7.2%), from
$127.6 million in fiscal 1994 to $136.8 million in fiscal 1995. S&A increased
from 17.0% of sales in fiscal 1994 to 17.3% of sales in fiscal 1995. The
increase in S&A was primarily the result of increased payroll costs and, to a
lesser extent, credit card fees as a result of Shoppers' new policy of
accepting credit cards.
Depreciation and Amortization. D&A decreased $2.3 million (21.3%), from
$10.8 million in fiscal 1994 to $8.5 million in fiscal 1995. D&A decreased
from 1.4% of sales in fiscal 1994 to 1.1% of sales in fiscal 1995. The
decrease in D&A was primarily the result of a decrease in store openings and
remodelings, compared to the past three years in conjunction with the use, by
Shoppers, of accelerated methods of depreciation.
Operating Income. Operating income increased $10.2 million (53.8%), from
$18.8 million in fiscal 1994 to $29.0 million in fiscal 1995 as a result of
the factors described above.
Interest Income and Expense. Interest income increased from $2.2 million in
fiscal 1994 to $4.7 million in fiscal 1995 as a result of increased funds
available for short-term investments. Interest expense was $1.4 million in
fiscal 1994 and $1.5 million in fiscal 1995.
Net Income. Net income increased to $19.5 million in fiscal 1995 from $12.9
million in fiscal 1994. The increase in net income resulted from the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are expected to be cash flow
from operations and borrowings under the New Credit Facility that the Company
is seeking to enter into with a bank or other third party to borrow (under a
line of credit and letters of credit) up to an aggregate of $35 million. It is
anticipated that the Company's principal uses of liquidity will be to provide
working capital, finance capital expenditures and meet debt service
requirements.
Letters of credit have been issued by NationsBank N.A. in connection with
the Company's workers' compensation insurance in the amount of approximately
$6.7 million as of February 1, 1997. These letters of credit will mature at
various dates through December 1998.
Shoppers generated approximately $27.0 million of cash from operating
activities during the 52-week period ended June 29, 1996 (compared to $31.9
million during the 52-week period ended July 1, 1995). For the 31 weeks ended
February 1, 1997, operating activities generated $17.4 million of cash. For
the 13 weeks ended May 3, 1997, operating activities generated $13.8 million
of cash. One of the principal uses of cash in the Company's operating
activities is inventory purchases. However, Shoppers' relatively high
inventory turnover enables the Company to finance a substantial portion of its
inventory through trade payables, thereby allowing the Company to use cash
from operations for non-current purposes such as financing capital
expenditures and
40
<PAGE>
other investing activities. During the last 67 months, Shoppers' operating
activities have generated over $130.0 million of cash, which it has used to
invest in marketable securities, to pay for capital expenditures and to
provide distributions to stockholders. At May 3, 1997, Shoppers had a working
capital deficit (excluding cash, cash equivalents and short-term investments)
of $38.3 million.
Shoppers' cash used in investing activities was $52.1 million for the 52
weeks ended June 29, 1996. Investing activities consisted of capital
expenditures of $7.4 million and related primarily to new stores ($2.4
million), store remodelings ($4.2 million) and general store maintenance ($0.6
million) and purchase of short-term investments of $44.7 million. For the 31
weeks ended February 1, 1997, investing activities provided $2.8 million to
Shoppers from the sale of $8.1 million of short-term investments, partially
offset by $5.3 million of capital expenditures. For the 13 weeks ended May 3,
1997, investing activities provided $65.6 million to Shoppers from the sale of
$67.1 million of short-term investments, which amount was partially offset by
$1.5 million of capital expenditures.
Shoppers estimates that it will make capital expenditures of approximately
$11.5 million in the 52 weeks ended January 31, 1998. Such expenditures relate
to three new store openings as well as routine expenditures for equipment and
maintenance. Management expects that these capital expenditures will be
financed primarily through cash flow from operations and the New Credit
Facility. Capital expenditures related to two stores scheduled to open in the
following fiscal year are estimated to be approximately $7.0 million.
In February 1997, $137.2 million of the net proceeds from the sale of the
Increasing Rate Notes and $72.8 million of Shoppers' cash, cash equivalents
and short-term investments were used to fund the Acquisition. See "Business--
Acquisition of the Company by Dart." In addition, Shoppers paid approximately
$7.2 million in fees and expenses incurred by Dart in connection with the
Acquisition. On February 6, 1997, the Company also declared a dividend of
$10.0 million that was paid on May 30, 1997.
Shoppers' current interest expense consists primarily of interest on the
Increasing Rate Notes and capital lease obligations. Interest expense
decreased to $0.7 million from $0.8 million during the 31 weeks ended February
1, 1997 compared to the 31 weeks ended February 3, 1996. Interest expense
increased $4.9 million from $0.4 million during the 13 weeks ended May 4, 1996
to $5.3 million during the 13 weeks ended May 3, 1997 due to the interest paid
on the Increasing Rate Notes, which were issued on February 6, 1997. On a pro
forma basis after giving effect to the sale of the Outstanding Notes and the
application of proceeds therefrom to repay the Increasing Rate Notes, interest
expense would have been $5.5 million during the 13 weeks ended May 3, 1997.
See "Use of Proceeds."
The capital expenditure plans discussed above do not include potential
acquisitions which the Company could make to expand within its existing market
or to enter contiguous markets. Shoppers is not currently considering any
material acquisition. However, it is possible that acquisition opportunities
could arise in the future. Any such future acquisition could require the
Company to seek additional debt or equity financing.
The Company believes that cash flows from Shoppers' operations and
borrowings under the New Credit Facility will be adequate to meet its
anticipated requirements for working capital, debt service and capital
expenditures over the next few years. However, there can be no assurances that
Shoppers will generate sufficient cash flow from operations or that it will be
able to borrow under the New Credit Facility.
EFFECTS OF INFLATION
During the past several years, the rate of general inflation has been
relatively low and has not had a significant impact on Shoppers' business.
41
<PAGE>
BUSINESS
THE COMPANY
Shoppers is a leading supermarket operator in Greater Washington, D.C. (as
defined below), operating 35 stores that target the price-conscious segment of
the market in densely populated suburban areas under the "Shoppers Food
Warehouse" and "Shoppers Club" names. Shoppers operates warehouse-style,
price-impact supermarkets that are positioned to offer the lowest overall
prices in its market area by passing on to the consumer savings achieved
through labor efficiencies and lower overhead associated with the warehouse
format, while providing the product selection and quality associated with a
conventional format. The Company's stores offer products at prices that
generally range from 15% to 20% below those of its primary supermarket
competitors. In-store operations are designed to allow customers to perform
certain labor-intensive services usually offered in conventional supermarkets.
For example, the Company's stores generally do not provide service staff to
support the bakery and floral departments or the meat and seafood refrigerated
cases. The stores do, however, offer a complete line of produce, fresh baked
goods, floral assortments and freshly packaged meat and seafood products and
provide service in these departments at the request of customers. Certain
merchandise is presented on warehouse-style racks in full cartons, reducing
labor-intensive unpacking, and customers bag their own groceries. Shoppers
stores also have full-service delicatessens with some stores offering hot and
cold prepared food and self-service soup and salad bars.
The Company's stores generally are constructed with high ceilings to
accommodate warehouse racking with overhead pallet storage. Wide aisles
accommodate forklifts and, compared to conventional supermarkets, a higher
percentage of total store square footage is devoted to retail selling because
the top of the warehouse-style grocery racks on the sales floor are used to
store inventory, which reduces the need for large backroom storage and
restocking trips.
Notwithstanding the "warehouse" name, physical features and low-price
reputation, Shoppers stores have more in common with conventional supermarket
chains than with so-called "warehouse clubs." No membership fee is charged at
the Shoppers stores, which offer a selection of popular-sized national brands
and private label products as well as high quality produce, meat and seafood.
The product offerings are similar to those of conventional supermarkets with
slightly more emphasis on larger package sizes and with less emphasis on
extensive brand and size selection. All 35 of the Company's supermarkets have
a delicatessen, a bakery and a floral department while 19 stores have a beer
and wine department.
While similar in most respects to conventional supermarket operators,
Shoppers distinguishes itself by providing low-price leadership while still
emphasizing quality. Shoppers does this by offering an unusual combination of
higher-end specialty departments with self-service and discount price
features. In addition, unlike traditional supermarkets, Shoppers stores offer
a greater selection of "club size" products, along with popular-sized brands.
Through this approach, Shoppers has established a unique niche among
supermarket operators in Greater Washington, D.C.
The Company's stores range in size from approximately 20,000 to 75,000 total
square feet and average approximately 45,000 square feet. The Shoppers stores
(including three new stores to be opened in fiscal 1998) can be categorized by
size as follows: (i) 10 stores smaller than 40,000 square feet; (ii) 12 stores
ranging from 40,000 to 50,000 square feet; and (iii) 15 stores larger than
50,000 square feet. The stores in the first category generally represent older
stores located in densely populated areas in which little or no supermarket
expansion could be expected due to the limited availability of real estate
locations. Despite their age and size, as a group, these stores generally
continue to perform well in terms of sales per square foot and profitability.
The next size category represents stores which more closely resemble the store
sizes operated by conventional supermarket competitors in the local area.
Finally, the category representing the largest size stores includes the five
"Shoppers Club" supermarkets (averaging approximately 64,400 total square feet
per store). These larger size supermarkets generally have more space devoted
to specialty departments and offer more "club pack" size products.
42
<PAGE>
Shoppers is the largest supermarket chain targeting the price-conscious
segment in Greater Washington, D.C. The two primary competitors of Shoppers
are Giant Food, Inc. ("Giant") and Safeway Inc. ("Safeway"), both of which
operate in the higher-service, higher-price segment. Overall, Shoppers has the
third largest market share in Greater Washington, D.C. On a combined basis,
Shoppers, Giant and Safeway have 84% of the market share in this area.
"Greater Washington, D.C." includes Washington, D.C.; Calvert, Charles,
Frederick, Montgomery and Prince George's counties in Maryland; Arlington,
Fairfax, Loudoun, Prince William and Stafford counties in Virginia; and the
independent cities of Alexandria, Fairfax and Falls Church in Virginia.
Shoppers does not, however, operate any stores in the city of Washington, D.C.
Shoppers' share of the Greater Washington, D.C. market has increased from
11.9% in 1992 to 13.6% in 1997 and, according to Food World (June 1997),
exceeds its next highest competitor by almost four times. During the same
period, Giant's market share decreased from 45.9% to 42.9% while Safeway's
market share increased from 27.1% to 27.5%.
ACQUISITION OF THE COMPANY BY DART
In June 1988, Dart acquired 50% of Shoppers for $17.4 million. On February
6, 1997, Dart's ownership increased to 100% with the buy-out of the other 50%
interest in Shoppers for $210.0 million. The Acquisition was financed through
the application of $137.2 million in net proceeds raised from an offering of
the Increasing Rate Notes of SFW Acquisition Corp., a newly created indirect
subsidiary of Dart, and $72.8 million of bridge financing provided by a bank.
Immediately after the Acquisition, SFW Acquisition Corp. merged into Shoppers
(with Shoppers becoming obligor on the Increasing Rate Notes) and Shoppers
repaid the Bridge Loan from its existing cash and the liquidation of certain
short-term investments.
STORE OPERATIONS
Shoppers' store equipment and facilities are generally in good condition.
Shoppers stores are generally open 14-16 hours per day seven days a week
(allowing for shelf restocking while the stores are closed) and offer a full
range of fresh produce, fresh baked goods, fresh meats and seafood, frozen
foods, traditional grocery items and certain non-food items such as health and
beauty aids, cookware, greeting cards, magazines and seasonal items.
STORE EXPANSION AND REMODELING
The Company's strategy is to open large new stores and upgrade existing
stores. Shoppers opened one new store in July 1997 and has signed leases to
open four new stores (each between 65,000 and 75,000 square feet) over the
next two years. Also during this period, Shoppers is considering expanding or
remodeling at least two stores. Since 1992, Shoppers has opened 13 new stores
(while closing four stores) and remodeled seven stores. Of its existing 35
stores, 25 are larger than 40,000 square feet, and all but one of these 25
stores were opened, remodeled or expanded during the last ten years. The
Company believes that its supermarkets generally have well-established
locations with favorable lease terms (including multiple options), are in good
condition and require only routine maintenance.
The following chart sets forth certain information concerning Shoppers
stores during the past six fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Number of Stores at Beginning of Period.......... 26 32 35 35 33 34
New Stores Opened................................ 7 3 1 0 1 0
Stores Closed.................................... 1 0 1 2 0 0
--- --- --- --- --- ---
Stores at End of Period.......................... 32 35 35 33 34 34
Remodeled/Expanded............................... 0 2 2 1 0 2
</TABLE>
43
<PAGE>
In fiscal 1998, Shoppers has opened a 74,864 square foot store in
Fredericksburg, VA and intends to open a store in Falls Church, VA having
approximately 65,000 square feet and a store in Alexandria, VA having
approximately 75,000 square feet. In the following fiscal year, Shoppers
expects to open stores in College Park, MD and Landover, MD.
PRODUCT SELECTION
In recent years, consumers have shown an increasing preference for food
stores that offer not only the wide variety of food and non-food items carried
by conventional supermarkets, but also an expanded assortment of high-quality
specialty food items and fresh produce. To respond to this trend, Shoppers
offers a complete line of produce, fresh baked goods, freshly packaged meat
and seafood products and floral assortments and provides service in these
departments at the customer's request. This strategy provides consumers with a
wider selection of better quality products and convenience foods, while
shifting its sales mix toward higher gross margin products.
Shoppers' largest supermarkets now carry over 25,000 stock keeping units
("SKUs"). Its merchandising program is designed to offer customers a wide
selection of products at prices that generally range from 15% to 20% below
those of its primary supermarket competitors. Shoppers accomplishes this
through carrying slightly fewer items than its local supermarket competitors,
primarily through pursuing less duplication of products in smaller sizes. This
program also includes a critical assessment of existing store layouts,
shelving and product mix. In addition, the Company monitors SKUs to identify
slow-moving products that may be replaced with new products.
Shoppers stores carry a variety of grocery and general merchandise under
private label names, including "Richfood" and "Shoppers Food Warehouse," which
currently account for approximately 7% of its sales. Private label products
are of a quality generally comparable to that of national brands, at
significantly lower prices, while Shoppers' gross margins on private label
products are generally higher than on national brands.
PURCHASING, WAREHOUSING AND DISTRIBUTION
Shoppers purchases approximately one-half of its grocery inventory from
Richfood of PA, Inc. ("Richfood"), a wholly-owned subsidiary of Richfood
Holdings, Inc. Because its stores receive most of their deliveries from
Richfood almost daily, Shoppers maintains only minimal dry grocery warehouse
storage space. Richfood's large volume purchasing results in significant cost
savings to Shoppers. While Shoppers is under no obligation to purchase any
particular quantity of products or minimum dollar amounts of inventory from
Richfood, the Company has agreed to use Richfood as its "substantially
exclusive supplier" for non-perishable dry-grocery, frozen and dairy products
(other than milk) and for health and beauty aids. Shoppers does not anticipate
that there will be any supply difficulties in the foreseeable future. There
can be no assurance, however, that there will be no such disruptions. The
Company's supply contract with Richfood expires in December 1997. Although
Shoppers believes that the contract will be renewed in comparable or more
favorable terms or that it will enter into a comparable or more favorable
contract with another wholesaler, there can be no assurance that this will
occur.
Shoppers also purchases products and items sold in its supermarkets from a
wide variety of sources other than Richfood. In particular, Shoppers purchases
most of its perishable products from sources other than Richfood.
Shoppers currently leases and operates a produce warehouse and a grocery
warehouse that collectively occupy approximately 60,000 square feet. Each
store submits orders to the warehouses through a centralized processing
system. Merchandise ordered from the warehouses is normally delivered to the
stores the next day. Shoppers distributes produce and grocery products from
its warehouses through a fleet of Company-owned tractors and trailers. The
Company estimates that all Shoppers stores are located within a 90-minute
drive of the warehouses.
44
<PAGE>
PROPERTIES
Shoppers has supermarkets in Virginia and Maryland, all of which are leased.
The following chart sets forth certain information regarding its stores by
size:
<TABLE>
<CAPTION>
LOCATION SIZE (GROSS SQ. FT.)
-------- --------------------
<S> <C>
Manassas, VA (Sulley Manor Drive)(1).................... 75,864
Fredericksburg, VA(1)................................... 74,864
Germantown, MD(1)....................................... 70,057
Dale City, VA(1)........................................ 63,971
Takoma Park, MD(1)...................................... 60,348
Clinton, MD............................................. 54,200
Alexandria, VA (Richmond Hwy)........................... 53,692
Alexandria, VA (N. Kings Hwy)........................... 53,380
Laurel, MD(1)........................................... 51,880
Forestville, MD......................................... 51,828
Olney, MD............................................... 51,000
Fairfax, VA............................................. 50,750
Leesburg, VA............................................ 50,101
Landover, MD (Largo).................................... 49,840
Burke, VA............................................... 49,284
Herndon, VA............................................. 48,424
Manassas, VA (Shoppers Square).......................... 47,040
Centreville, VA......................................... 47,002
Lanham, MD.............................................. 46,470
Stafford, VA............................................ 43,895
Franconia, VA........................................... 42,862
Frederick, MD........................................... 42,500
Sterling, VA............................................ 42,491
Hyattsville, MD (Chillum)............................... 40,559
Chantilly, VA........................................... 40,373
Waldorf, MD............................................. 39,920
Landover, MD (M.L. King)................................ 36,500
New Carrolton, MD....................................... 35,760
Coral Hills, MD......................................... 35,000
Annapolis, MD........................................... 28,710
Rockville, MD........................................... 26,770
Colmar Manor, MD........................................ 25,336
Annandale, VA........................................... 23,680
Alexandria, VA (Little River Turnpike).................. 23,322
Hyattsville, MD (Adelphi)............................... 20,329
</TABLE>
- --------
(1) Shoppers Club supermarket.
Most of the Company's stores are operated under long-term leases that have
favorable terms. The remaining duration (including renewal options) of most of
Shoppers' supermarket leases exceed the maturity date of the Senior Notes. The
lease for one of the Company's smallest stores is scheduled to expire in
August 1997 and there can be no assurance that such lease will be renewed.
Shoppers leases an 86,000 square foot office building in Lanham, MD that
serves as its corporate offices. The Company subleases approximately 30,000
square feet of the office building. In addition, Shoppers leases and operates
a produce warehouse and a grocery warehouse that collectively occupy
approximately 60,000 square feet. Both of these warehouses are located in
Landover, MD. See "--Purchasing, Warehousing and Distribution" and "Certain
Transactions."
45
<PAGE>
ADVERTISING AND PROMOTION
Shoppers advertises primarily through newspaper, radio and television media
year-round. Shoppers' advertising and promotion strategy for its supermarkets
emphasizes "every day" low-price leadership, in addition to promoting special
prices on individual items, frequently offering price comparisons to local
supermarket competitors. Shoppers' recently introduced program, "Save Green,"
features green-colored register receipts which inform customers of their
savings on purchases at its stores versus the local supermarket competitors.
"Bonus buys" and "promotional items" in the stores are also marked with green-
colored signs to highlight in-store promotions.
Shoppers negotiates promotional arrangements with selected vendors whereby
it receives product discounts and advertising allowances. In addition,
Shoppers enters into contracts in which additional promotional allowances are
provided for co-op broadcast advertising programs. Under such arrangements,
vendors fund substantially all of the Company's advertising.
COMPETITION
The supermarket industry is highly competitive and characterized by narrow
profit margins. Shoppers' competitors include national, regional and local
supermarket chains, independent grocery stores, specialty food stores,
warehouse club stores, drug stores and convenience stores. Supermarket chains
generally compete on the basis of location, quality of products, service,
price, product variety and store condition. Shoppers competes by providing its
customers with exceptional value by offering quality produce and fresh foods,
self-service specialty departments, and a selection of national brand
groceries and private label goods, all at competitive prices. Shoppers
monitors the prices offered by its competitors on a weekly basis and uses a
computerized price management system to verify pricing positions. The
Company's ability to remain competitive in its markets depends in part on its
ability to remodel and update its stores and open new stores in response to
remodelings and new store openings by its competitors, which in turn will
require the continued availability of financing.
The number and type of competitors vary by location. Shoppers' two principal
competitors are conventional supermarket chains, Giant and Safeway, which have
market shares in Greater Washington, D.C. of 42.9% and 27.5%, respectively.
According to Food World (June 1997), Shoppers' market share of 13.6% exceeds
the next highest competitor by almost four times. However, Shoppers believes
that it will face increased competition in the future from other supermarket
chains and intends to compete aggressively against existing and new
competition.
MANAGEMENT INFORMATION SYSTEMS
Shoppers' management information systems and optical scanning technology
reduce the labor costs attributable to product pricing and customer check-out.
Shoppers has optical scanning checkout technology operating in all of its
stores. All stores use electronic systems for employee time and attendance
records and inventory ordering. In addition, Shoppers is evaluating
computerized labor scheduling systems.
EMPLOYEES
As of May 3, 1997, Shoppers employed 4,289 people, including 1,456 full-time
employees. Approximately 4,000 employees were covered by collective bargaining
agreements with various locals of three unions. Shoppers expects to renew its
agreement with United Food and Commercial Workers, Local 400 which would
expire July 1, 2000 and cover 3,669 retail clerks and meat cutters. The
Company will seek a substantially similar contract with Local 27 of the United
Food and Commercial Workers which would cover the 264 employees subject to the
current collective bargaining agreement which expires September 30, 1997. In
addition, Shoppers has 49 employees at its produce warehouse who are covered
by collective bargaining agreements with locals of the Warehouse Employees
Union and the Teamsters Union.
46
<PAGE>
TRADE NAMES, SERVICE MARKS AND TRADEMARKS
Shoppers uses a variety of trade names, service marks and trademarks. Except
for "Shoppers," "SFW," "Shoppers Food Warehouse" and "Shoppers Club," Shoppers
does not believe any of such trade names, service marks or trademarks are
material to its business. Shoppers presently has federal registration of the
"Shoppers Food Warehouse" and "Colossal Donuts" trademarks. It has federal
registration of "Shoppers Club" as a service mark and is seeking federal
registration of it as a trademark. Shoppers also has federally registered
"Shoppers," "Shoppers Food Warehouse" and "SFW" as service marks and has also
registered the "Shoppers Food Warehouse" and "SFW" designs.
GOVERNMENT REGULATION
Shoppers is subject to regulation by a variety of governmental agencies,
including, but not limited to, the U.S. Food and Drug Administration, the U.S.
Department of Agriculture and state and local health departments and other
agencies, including those regulating the sale of beer and wine.
ENVIRONMENTAL MATTERS
Shoppers is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as
handling and disposal practices for solid and hazardous wastes, and (ii)
impose liability for the costs of cleaning up, and certain damages resulting
from, sites of past spills, disposals or other releases of hazardous
materials. Shoppers conducts its operations in substantial compliance with
applicable environmental laws. Shoppers has not incurred material capital
expenditures for environmental controls during the previous three years.
LEGAL PROCEEDINGS
In the ordinary course of its business, Shoppers is party to various legal
actions that the Company believes are routine in nature and incidental to the
operation of its business. The Company believes that the outcome of the
proceedings to which Shoppers currently is party will not have a material
adverse effect upon its business, financial condition and results of
operations. Dart, however, is a party to certain legal proceedings that could
have an adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Controlling Stockholder" and public
filings made by Dart with the Commission.
47
<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to the
Company's executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Mark A. Flint............... 51 President, Chief Executive Officer and Director
Jack W. Binder.............. 68 Senior Vice President--Finance
Isaac Gendelman............. 71 Senior Vice President--Produce
Roy N. Marks................ 66 Senior Vice President--Grocery
Louis E. Davis.............. 42 Senior Vice President--Store Operations
Larry G. Schafran........... 59 Co-Chairman of the Board of Directors
Herbert H. Haft............. 76 Co-Chairman of the Board of Directors
Keith E. Alessi............. 42 Director
Douglas M. Bregman.......... 47 Director
Bonita A. Wilson............ 54 Director
</TABLE>
Mark A. Flint has been the President, Chief Executive Officer and a Director
of Shoppers since February 6, 1997. He also has been the Senior Vice President
and Chief Financial Officer of Dart since September 1996. Prior to joining
Dart, Mr. Flint spent 14 years serving in various capacities as Senior Vice
President and Chief Financial Officer, Chairman of the Executive Committee,
and a member of the Board of Directors of Peter J. Schmitt Holdings, Inc., a
multi-state $1.3 billion food retailer and distributor, where he was
responsible for corporate development, mergers and acquisitions and finance.
Jack W. Binder has been Senior Vice President--Finance of Shoppers since
1987. Prior to that, he served as Vice President and Controller since he
joined Shoppers in 1966.
Isaac Gendelman worked at Shoppers' first store as a produce clerk beginning
in 1953. Mr. Gendelman was promoted through the ranks to Store Produce
Manager, Produce Buyer, Warehouse Manager, Vice President and, in 1987, was
promoted to Senior Vice President--Produce.
Roy N. Marks joined Shoppers in 1982 as Director of Grocery Buying. Mr.
Marks was later promoted to Vice President and, in 1991, became Senior Vice
President--Grocery.
Louis E. Davis joined Shoppers in 1971 as a cashier. Over the next several
years, he advanced within the organization, serving as a store grocery
manager, assistant store manager, store manager, grocery merchandiser,
Director of Merchandising and Director of Store Operations. He became Vice
President of Operations in 1991 and Senior Vice President--Store Operations in
1997.
Larry G. Schafran was elected Co-Chairman of Shoppers on February 6, 1997.
Mr. Schafran is managing general partner of L.G. Schafran and Associates, a
New York-based investment advisory firm, and is the Chairman of the Executive
Committee of the Board of Directors of Dart, the Chairman of Delta-Omega
Technologies, Inc., and is a director of Publicker Industries, Inc., Capsure
Holdings, Corp., Crown Books and Trak Auto. Mr. Schafran is also an
independent trustee of National Income Realty Trust. Mr. Schafran has
previously held the positions of Vice President of Victor Palmieri & Company
Incorporated and Vice President and director of Webb & Knapp, Inc. and its
successor General Property Corp.
Herbert H. Haft has been a Director of Shoppers since 1988 and was elected
Co-Chairman of Shoppers on February 6, 1997. Mr. Haft founded Dart and has
been its Chief Executive Officer and Chairman of the Board since 1960. He has
been Co-Chairman or Chairman of the Board of Directors of Crown Books since
its organization in 1981. Mr. Haft has been Chairman of the Board of Directors
and Chief Executive Officer of Trak Auto since its organization in March 1983.
Herbert H. Haft is or claims to be a general partner in approximately 15
partnerships that are debtors-in-possession under Title 11, Chapter 11 of the
U.S. Bankruptcy
48
<PAGE>
Code. Mr. Haft is involved in litigation against Dart relating to the control
of Dart. See "Risk Factors--Controlling Stockholder" and "Risk Factors--
Possible Change in Control."
Keith E. Alessi was elected a Director of Shoppers on February 6, 1997. Mr.
Alessi is Chairman, President, Chief Executive Officer and Director of Jackson
Hewitt, Inc., the nation's second largest electronic tax preparation service.
He joined Jackson Hewitt, Inc. in June 1996. From 1988 through June 1996, Mr.
Alessi was affiliated with Farm Fresh, Inc., a regional supermarket chain
based in Norfolk, Virginia. He served in various capacities including Chief
Financial Officer, Chief Operating Officer and President. He is Vice Chairman
and a director of Farm Fresh, Inc., is a director of Cort Business Services,
the nation's largest furniture rental company and is a director of Town Sports
International.
Douglas M. Bregman was elected a Director of Shoppers on February 6, 1997.
Mr. Bregman is a partner in the law firm of Bregman, Berbert & Schwartz,
specializing in commercial real estate law. Mr. Bregman is also an Adjunct
Professor of Law at the Georgetown University Law Center. Mr. Bregman was
elected to serve as a director of each of Dart, Trak Auto and Crown Books in
June 1993.
Bonita A. Wilson was elected a Director of Shoppers on February 6, 1997. Ms.
Wilson was a retailing executive with Dalton Brody in 1993 and now serves as a
consultant. Ms. Wilson was a Sales Manager with Saks Jandel from January 1994
until June 1994 and prior to that she was a retailing executive with the May
Company. From 1990 to 1995, Ms. Wilson served on the board of directors of
Wedgewood Financial Management, Inc. Ms. Wilson was elected to serve as a
director of each of Dart, Trak Auto and Crown Books in June 1993.
Other officers of the Company are as follows:
James K. Barnhart joined Shoppers in 1982 as Director of Data Processing and
was promoted to Assistant Vice President--Data Processing in 1987.
James Bartkowiak joined Shoppers in 1986 and was promoted to Assistant Vice
President--Grocery in 1995.
Edward A. Klig joined Shoppers as Controller in 1985 and was promoted to
Assistant Vice President and Controller in 1994.
Sandra J. Perkins has been broadcast spokesperson for Shoppers since 1986,
and has directed the co-op advertising, promotion and marketing programs for
Shoppers since 1988. Ms. Perkins was promoted to Vice President--Marketing and
Public Relations in 1997.
Frank Saunders joined Shoppers in 1967 as a helper in the meat department
and is now Assistant Vice President--Meat Operations.
EMPLOYMENT AGREEMENTS
In February 1997, Shoppers entered into letters of employment with each of
its executive officers (excluding Mark A. Flint, the President and Chief
Executive Officer) and several other key employees. The initial annual
salaries of the executive officers under the letters of employment are as
follows: Jack W. Binder ($183,000), Louis E. Davis ($150,000), Isaac Gendelman
($162,000) and Roy N. Marks ($148,500). Prior to August 1997, Shoppers will
conduct an analysis of executive salaries in the supermarket industry and may
increase the salaries of the Company's executive officers. Each executive
officer may receive a bonus in accordance with a bonus program being developed
by the Company. Each executive officer will receive life insurance and health,
dental and disability insurance. In addition, the Company pays between $350
and $650 per month to the executive officers as an automobile allowance. If
Shoppers terminates an executive officer (excluding Mr. Flint) before February
6, 1998, the Company will pay such officer an amount equal to one-half of his
annual salary. If Dart
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<PAGE>
sells Shoppers before February 6, 1998, Shoppers will pay each executive
officer (excluding Mr. Flint) an amount equal to his annual salary. None of
the letters of employment has a termination date.
On September 16, 1996, Dart entered into a two-year employment agreement
with Mark A. Flint, Senior Vice President and Chief Financial Officer of Dart,
and since February 6, 1997, President and Chief Executive Officer of Shoppers.
The agreement provides for an annual salary of $285,000, subject to annual
increases as determined by the Compensation Committee of Dart's Board of
Directors. Dart charges Shoppers for a portion of Mr. Flint's salary in
accordance with a management services agreement between Dart and Shoppers. For
the 13 weeks ended May 3, 1997, Dart charged Shoppers $50,000 (approximately
75% of Mr. Flint's salary during that period) for the portion of Mr. Flint's
time spent working on matters for the Company. See "Certain Transactions--
Agreements with Dart."
SUMMARY COMPENSATION TABLE
The following table sets forth in summary form all compensation for all
services rendered to Shoppers during its last three fiscal years for its
former President and the other four most highly compensated executive officers
employed by Shoppers as of the end of its most recent fiscal year.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------
FISCAL OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(D) SALARY BONUS COMPENSATION(E) COMPENSATION(F)
- --------------------------- ------- -------- ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Kenneth Herman(a)....... 1997 $262,500 -- -- --
Former President 1996 450,000 350,000 -- $7,200
1995 450,000 350,000 -- 8,000
Robert Herman(a)........ 1997 175,000 -- -- --
Former Executive Vice
President 1996 300,000 80,000 -- 7,200
1995 300,000 80,000 -- 8,000
Mitchell Herman(b)...... 1997 113,750 -- -- --
Former Senior V.P. Cor-
porate Affairs 1996 195,000 50,000 -- 7,200
1995 190,000 50,000 -- 8,000
George Guthridge(c)..... 1997 101,000 -- -- --
Former Senior V.P. Oper-
ations 1996 171,500 55,000 -- 7,200
1995 161,500 55,000 -- 8,000
Jack Binder............. 1997 98,100 -- -- --
Senior V.P. Finance 1996 167,000 50,000 -- 7,200
1995 159,000 50,000 -- 8,000
</TABLE>
- --------
(a) Kenneth and Robert Herman each resigned as officers and directors of the
Company on February 6, 1997.
(b) Mitchell Herman left the Company on May 21, 1997.
(c) George Guthridge resigned as an officer of the Company on February 3,
1997.
(d) There were 31 weeks in fiscal 1997 compared to 52 weeks in each of fiscal
1996 and 1995.
(e) Excludes perquisites and other personal benefits, unless the aggregate
amount of such compensation is at least $50,000 or 10% of the total annual
salary and bonus reported.
(f) Includes allocations to 401(k) accounts and profit sharing accounts.
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CERTAIN TRANSACTIONS
RELATED-PARTY LEASES
In July 1990, the Company entered into an agreement to lease an 86,000
square foot office building in Lanham, Maryland, from a private partnership
(the "Partnership") that is half-owned by certain stockholders of Dart. The
lease is for 20 years and commenced on December 10, 1990. The lease provides
for annual increases in rental payments based upon the Consumer Price Index
for the Washington, D.C. metropolitan statistical area. The annual increases
may not be more than six percent or less than three percent. Rental payments
for the thirty-one weeks ended February 1, 1997 and for fiscal years ended
June 29, 1996, July 1, 1995, and July 2, 1994 were approximately $744,000,
$1,246,000, $1,210,000, and $1,175,000 respectively, and all payments over the
life of the lease total approximately $34,400,000. The Company is accounting
for the lease as a capital lease. Due to fixed rental increases during the
term of the lease, lease payments exceeded interest expense by approximately
$34,000 for the thirty-one weeks ended February 1, 1997. Interest expense
exceeded lease payments by $254,000, $292,000, and $321,000 for the fiscal
years ended June 29, 1996, July 1, 1995, and July 2, 1994, respectively.
Assuming future annual rental increases of six percent, the capital lease
obligation will continue to increase through November 2000, at which time
accumulated interest expense recognized for financial reporting purposes will
exceed lease payments by approximately $1,800,000. The lease requires the
Company to pay for maintenance, utilities, insurance and taxes. The
Partnership purchased the office building for approximately $8,663,000 in July
1990.
During the period ended February 1, 1997, and the fiscal years ended June
29, 1996, July 1, 1995, and July 2, 1994, the Company made rental payments of
approximately $3,573,000, $5,384,000, $5,985,000, and $5,327,000,
respectively, on store leases to partnerships related to stockholders of Dart.
As of February 1, 1997, the Company had ten store operating leases with
partnerships related to stockholders of Dart. The remaining future minimum
payments under these leases exclusive of option periods are approximately
$70,820,000 and expire through 2014.
The Company made payments of approximately $198,000, $278,000, $246,000, and
$246,000 during the 31 weeks ended February 1, 1997, and each of the fiscal
years ended June 29, 1996, July 1, 1995, and July 2, 1994 for warehouse
operating leases to a partnership owned by stockholders of Dart and to a
corporation related to former stockholders of the Company. As of February 1,
1997, the remaining future minimum annual payments under these leases are
approximately $1,386,000 and expire in 2002.
SUBLEASING AGREEMENTS
The Company subleases space within one store to an entity owned by three
individuals associated with Shoppers (the President of Shoppers, an employee
of Shoppers and an employee of Dart). This entity uses the leased space for
the sale of beer and wine. The Company received rental income of approximately
$57,865, $155,000, $155,000, and $123,000 in the thirty-one weeks ended
February 1, 1997, and in the fiscal years ended June 29, 1996, July 1, 1995,
and July 2, 1994 respectively, from this entity. None of the owners of this
entity receives any financial benefit from this arrangement.
During the fiscal year ended June 29, 1996 the Company began leasing space
to Trak Auto. The Company received rental income from Trak Auto of
approximately $91,000 and $140,000 during the period ended February 1, 1997
and during the fiscal year ended June 29, 1996, respectively.
AGREEMENTS WITH DART
Concurrently with the Acquisition, the Company entered into a management
services agreement (the "Management Services Agreement") with Dart. The
Management Services Agreement allocates costs and expenses incurred by Dart on
behalf of the Company, including tax, accounting, internal audit, human
resources and legal services. In addition, the Company entered into a tax
sharing agreement (the "Tax Sharing Agreement") with Dart. Under the Tax
Sharing Agreement, the Company will pay Dart from time to time
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<PAGE>
amounts equal to the federal and state tax liability of the Company and each
of its direct and indirect affiliated group subsidiaries (collectively, the
"Shoppers Group") computed as if the Shoppers Group was a separate and
independent affiliated group (as defined in section 1504 of the Internal
Revenue Code of 1986, as amended).
OTHER TRANSACTIONS
In February 1997, Shoppers paid and/or reimbursed Dart approximately $9.2
million in fees and expenses incurred in connection with the Acquisition.
In connection with a possible Settlement, Shoppers may lend $35 million to
Dart. See "Use of Proceeds--Possible Settlements." The Company expects such
loan to bear the same interest rate and have the same maturity date as the
Senior Notes. All principal and interest on this loan to Dart would be payable
on the maturity date but could be repaid at any time without penalty.
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<PAGE>
DESCRIPTION OF THE SENIOR NOTES
GENERAL
The Outstanding Notes were, and the Exchange Notes will be, issued under the
indenture (the "Indenture") dated as of June 26, 1997, by and among the
Company, the Guarantor and Norwest Bank Minnesota, National Association, as
trustee (the "Trustee"). The following summarizes all material terms of the
Indenture, a copy of which may be obtained upon request to the Company or the
Trustee and has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The following summary of certain provisions
of the Indenture and the Senior Notes does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Indenture
and the Trust Indenture Act of 1939, as amended (the "TIA"). As used in this
"Description of the Senior Notes," the term "Company" refers to Shoppers Food
Warehouse Corp. only and excludes its subsidiaries. The definitions of certain
capitalized terms used in the following summary are set forth under "--Certain
Definitions" below.
The obligation of the Company to make the Special Mandatory Redemption is
secured by the Restricted Proceeds (including accrued interest or other profit
earned thereon). The Senior Notes are otherwise senior unsecured obligations
of the Company, rank senior in right of payment to all existing or future
indebtedness of the Company which is by its terms not expressly subordinated
in right of payment to the Senior Notes and rank pari passu with all other
existing or future indebtedness of the Company.
The Exchange Notes will be issued only in fully registered form, without
interest coupons, in denominations of $1,000 and integral multiples thereof.
Initially, the Trustee will act as Paying Agent and Registrar for the Senior
Notes. The Company may change any Paying Agent and Registrar without notice to
the Holders. Principal, if any, and interest on the Senior Notes will be
payable, and the transfer of the Senior Notes will be registrable, at an
office or agency of the Company in The City of New York (which initially will
be the corporate trust office of the Trustee). In addition, payment of
interest may, at the option of the Company, be made by wire transfer or check
mailed to the person entitled thereto as shown on the register for the Senior
Notes.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes are limited to $200,000,000 aggregate principal amount and
will mature on June 15, 2004. The Senior Notes bear interest at the rate of 9
3/4% per annum. Interest shall be payable in cash semi-annually in arrears on
June 15 and December 15 of each year, commencing December 15, 1997, to the
Holders on the fifteenth day prior to such interest payment date. In the event
that an interest payment date falls on a day other than a business day,
interest will be paid on the next succeeding business day and no interest on
such payment shall accrue for the period from and after such interest payment
date to such next succeeding business day. The amount of interest payable on
an interest payment date will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
GUARANTEE
The Company's obligations under the Senior Notes and the Indenture are fully
and unconditionally guaranteed by the Guarantor. The guarantee is secured by a
first priority security interest in the Capital Stock of the Company. The
Guarantor has no assets other than the shares of Capital Stock it owns in the
Company. See "Risk Factors--Security for the Guarantee."
REDEMPTION
Optional Redemption. The Senior Notes will be redeemable, in whole or in
part, at the option of the Company at any time on or after June 15, 2001, at
the redemption prices (expressed as a percentage of the principal amount
redeemed) set forth below (the "Optional Redemption Price"), plus any accrued
and unpaid interest to the date of redemption, if redeemed during the period
indicated:
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<PAGE>
<TABLE>
<CAPTION>
OPTIONAL
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
June 15, 2001 through June 14, 2002...................... 104.875%
June 15, 2002 through June 14, 2003...................... 102.4375%
June 15, 2003 and thereafter............................. 100%
</TABLE>
Optional Redemption upon Equity Offerings. At any time until June 15, 2000,
the Company may, at its option, use the net cash proceeds of one or more
Equity Offerings to redeem up to 35% (up to 10% if the Special Mandatory
Redemption has occurred) of the original aggregate principal amount of the
Senior Notes at a redemption price equal to 109.75% of the principal amount
thereof, plus any accrued and unpaid interest to the date of redemption;
provided, however, that at least 65% of the original aggregate principal
amount of the Senior Notes remains outstanding immediately after such
redemption. Any such optional redemption shall reduce, on a dollar for dollar
basis, the principal amount of the Senior Notes required to be redeemed
pursuant to the Special Mandatory Redemption.
Special Mandatory Redemption. If, on or prior to June 30, 1998, the closing
of a Settlement has not occurred or the Company has not paid to Dart the
Restricted Proceeds to fund a Settlement, then the Company shall use the
Restricted Proceeds (including accrued interest or other profit thereon) to
redeem the Senior Notes on a pro rata basis (the "Special Mandatory
Redemption") on or before August 14, 1998, in an aggregate principal amount of
$50,000,000 (subject to reduction as described under the provision "Optional
Redemption upon Equity Offerings" above) at a redemption price equal to 101%
of the principal amount thereof, plus any accrued and unpaid interest thereon
to the date of redemption.
The Company has deposited $50,000,000 of the proceeds received from the sale
of Outstanding Notes with the Trustee in the Restricted Account. All amounts
so deposited will be held by the Trustee pursuant to the Pledge Agreement as
collateral to secure the obligations of the Company under the Senior Notes,
subject to release from the Restricted Account as set forth in the Pledge
Agreement. The Pledge Agreement provides that on or prior to June 30, 1998,
the Restricted Proceeds may be released to the Company only to make a payment
to Dart for purposes of funding a Settlement. The Pledge Agreement also
provides that prior to the release to the Company of the Restricted Proceeds
from the Restricted Account for the purpose of funding a Settlement, non-Haft
officers of the Company will be required to deliver to the Trustee an
officers' certificate to the effect that the closing of a Settlement is
occurring simultaneously with the release of the Restricted Proceeds. Upon
receipt of such officers' certificate, the Trustee will release the Restricted
Proceeds held pursuant to the Pledge Agreement to the Company and the Pledge
Agreement will terminate. Following such release of the Restricted Proceeds,
including any interest or profit earned thereon, and termination of the Pledge
Agreement, all of the Senior Notes will be unsecured obligations of the
Company.
Pending release of the Restricted Proceeds from the Restricted Account
pursuant to the Pledge Agreement either to make a payment to Dart to fund a
Settlement or to fund the Special Mandatory Redemption, the Restricted
Proceeds will be invested in Cash Equivalents as directed by the Company. If a
Special Mandatory Redemption occurs, then any interest or other profit earned
on the Restricted Proceeds will be used to fund the Special Mandatory
Redemption (including any accrued and unpaid interest on the Senior Notes that
are redeemed), except that any amount in the Restricted Account not needed to
fund the Special Mandatory Redemption may be used by the Company for general
corporate purposes (including payment of interest on the Senior Notes). If the
Restricted Proceeds are released to the Company from the Restricted Account
and used to make a payment to Dart to fund a Settlement, then any interest or
other profit earned on the Restricted Proceeds may be used by the Company for
general corporate purposes (including payment of interest on the Senior
Notes).
SELECTION AND NOTICE
In the event that less than all of the Senior Notes are to be redeemed at
any time, selection of Senior Notes for redemption will be made by the Trustee
on a pro rata basis, by lot or by such method as the Trustee shall deem fair
and appropriate; provided, however, that (i) in the case of the Special
Mandatory Redemption, the
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<PAGE>
Senior Notes will be redeemed on a pro rata basis and (ii) the Senior Notes
shall be redeemed only in integral multiples of $1,000. Notice of redemption
shall be mailed by first class mail at least 30 but not more than 60 days
before the redemption date to each Holder to be redeemed at its registered
address. If any Senior Note is to be redeemed in part only, the notice of
redemption that relates to such Senior Note shall state the portion of the
principal amount thereof to be redeemed. A new Senior Note in a principal
amount equal to the unredeemed portion thereof will be issued in the name of
the Holder thereof upon cancellation of the original Senior Note. On and after
the redemption date, any interest will cease to accrue on Senior Notes or
portions thereof called for redemption as long as the Company has deposited
with the Paying Agent funds in satisfaction of the redemption price pursuant
to the Indenture.
CHANGE IN CONTROL
The Indenture provides that, if a Change in Control (as defined below)
occurs, each Holder shall have the right, at such Holder's option, to require
the Company to repurchase all of such Holder's Senior Notes, or any portion
thereof that is an integral multiple of $1,000, on the date (the "Repurchase
Date") that is no later than 60 days after the date of the Company Notice (as
defined below) for cash at a price equal to 101% of the principal amount of
such Senior Notes to be repurchased (the "Change in Control Repurchase
Price"), plus any accrued and unpaid interest to the Repurchase Date.
Within 30 days after the occurrence of a Change in Control, the Company is
obligated to mail to all Holders a notice (the "Company Notice") of the
occurrence of such Change in Control and of the repurchase right arising as a
result thereof. The Company must deliver a copy of the Company Notice to the
Trustee. To exercise the repurchase right, a Holder must deliver on or before
the 30th day after the date of the Company Notice irrevocable written notice
to the Trustee of the Holder's exercise of such right, together with the
Senior Notes with respect to which the right is being exercised, duly endorsed
for transfer to the Company.
A "Change in Control" will be deemed to have occurred at such time as:
(i) any Person (including any syndicate or group deemed to be a "person"
under Section 13(d)(3) of the Exchange Act, other than Dart, the Guarantor,
the Company or any employee benefit plan of the Company or the Guarantor),
is or becomes the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act), directly or indirectly, through a purchase, merger or
other acquisition transaction or series of transactions or otherwise, of
shares of Capital Stock of the Company, the Guarantor or Dart, entitling
such Person to exercise 35% or more of the total voting power of all shares
of Capital Stock of the Company, the Guarantor or Dart, entitled to vote
generally in the election of the directors;
(ii) there occurs any consolidation of the Company with, or merger of the
Company into, any other Person, any merger of another Person into the
Company, or any sales or transfers of all or substantially all of the
assets of the Company to another Person (other than a merger (x) which does
not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Capital Stock or (y) which is effected solely to
change the jurisdiction of incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding shares of Capital
Stock into solely shares of Capital Stock); provided, however, that no
Change in Control will be deemed to occur pursuant to this clause (ii) upon
the merger of any Wholly Owned Restricted Subsidiary of the Company into
the Company; or
(iii) the replacement of a majority of the Board of Directors of the
Company from the directors who constituted the Board of Directors of the
Company on the Issue Date, and such replacement shall not have been
approved by either (a) a vote of a majority of the Board of Directors then
still in office who either were (x) members of the Board of Directors of
the Company on the Issue Date or (y) whose election as a member of the
Board of Directors was approved in the manner provided in this clause
(iii), or (b) the Voting Trustee (as defined below).
If members of the Haft family succeed in litigation to obtain control of
Dart (in excess of 35% of the voting stock of Dart) it would constitute a
Change in Control under the Indenture, permitting the Holders, subject to
certain conditions, to require the Company to repurchase any or all of its
outstanding Senior Notes at a price
55
<PAGE>
equal to 101% of the principal amount thereof, plus any accrued and unpaid
interest to the date of repurchase. See "Risk Factors--Controlling
Stockholder" and "Risk Factors--Possible Change in Control."
Notwithstanding the foregoing, the beneficial ownership of shares of Capital
Stock of Dart under that certain Voting Trust Agreement dated October 6, 1995
by and among Ronald S. Haft, Dart and Larry G. Schafran and Sidney B.
Silverman, as initial voting trustees, entitling such trust, acting through
one or more voting trustees (the "Voting Trustee") to exercise 35% or more of
the total voting power of all shares of Capital Stock of Dart shall not be
deemed to constitute a Change in Control. The Honorable Richard B. Stone
became the sole Voting Trustee, replacing the initial voting trustees, in
December 1995.
If a Company Notice is delivered, there can be no assurance that the Company
will have available funds sufficient to pay the Change in Control Repurchase
Price for all the Senior Notes that might be delivered by Holders seeking to
have their Senior Notes repurchased. In the event the Company is required to
purchase outstanding Senior Notes pursuant to the occurrence of a Change in
Control event, the Company expects that it would seek third-party financing to
the extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain
such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to repurchase upon the occurrence of a
Change in Control.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Senior Notes pursuant to the occurrence of a Change in Control.
To the extent that the provisions of any securities laws or regulations
conflict with the "Change in Control" provisions of the Indenture, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under the "Change in Control"
provisions of the Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly
or indirectly: (i) declare or pay any dividend on or make any distribution on
account of the Company's Capital Stock (other than dividends or distributions
payable in Capital Stock (other than Disqualified Stock) of the Company); (ii)
purchase, redeem or otherwise acquire or retire for value any Capital Stock of
the Company, any Subsidiary of the Company or other Affiliate of the Company
(other than any such Capital Stock owned by the Company or any Restricted
Subsidiary of the Company); (iii) purchase, redeem or otherwise acquire or
retire for value any Indebtedness that is pari passu with or subordinated to
the Senior Notes except for payments of Permitted Indebtedness in accordance
with the provisions contained therein, as such provisions may be amended from
time to time, but subject to the provisions of the Indenture; provided,
however, that no such amendments shall cause such Permitted Indebtedness
(other than the New Credit Facility) to be scheduled to mature at a date
earlier than the Stated Maturity of the Indebtedness being amended; (iv)
permit any Restricted Subsidiary to declare or pay any dividend on, or make
any distribution to the Holders (as such) of, any shares of its Capital Stock
except to the Company or a Wholly Owned Restricted Subsidiary (other than
dividends or distributions payable in Capital Stock (other than Disqualified
Stock) of it or the Company); or (v) make any Investment in any Affiliate
(other than the Company or a Wholly Owned Restricted Subsidiary of the
Company) (all such payments and other actions set forth in clauses (i) through
(v) above being collectively referred to as "Restricted Payments"), unless, at
the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof; and
(b) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the Issue Date (including Restricted Payments permitted by
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<PAGE>
clauses (iv), (v) and (vi) of the next succeeding paragraph), is less than
the aggregate of (A) 50% of the aggregate Adjusted Consolidated Net Income
of the Company (excluding, for purposes of this clause (A), accrued but
unpaid interest income, if any, from intercompany loans) for the first day
of the fiscal quarter including the Issue Date to the end of the Company's
most recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or if such Adjusted
Consolidated Net Income for such period is a deficit, 100% of such deficit)
plus (B) an amount equal to the Net Cash Proceeds (plus the noncash
proceeds, as determined in good faith by the Board of Directors) received
upon the sale of Capital Stock (other than Disqualified Stock) subsequent
to the Issue Date plus (C) an amount equal to the Net Cash Proceeds
received upon the sale or other disposition or repayment of any Investment
made after the Issue Date which had been treated as a Restricted Payment.
The foregoing provisions will not prohibit (i) if no Default or Event of
Default shall have occurred and be continuing or shall occur as a consequence
thereof, the payment to Dart by the Company from its available liquid assets
of an amount not to exceed $10,000,000; (ii) if no Default or Event of Default
shall have occurred and be continuing or shall occur as a consequence thereof,
upon the execution of the New Credit Facility, an additional payment to Dart
by the Company from its available liquid assets of an amount in the aggregate
not to exceed $15,000,000; (iii) if no Default or Event of Default shall have
occurred and be continuing or shall occur as a consequence thereof, the
payment to Dart by the Company of the Restricted Proceeds for purposes of
funding a Settlement; (iv) if no Default or Event of Default shall have
occurred and be continuing or shall occur as a consequence thereof,
Investments in Unrestricted Subsidiaries in an aggregate amount not to exceed
$10,000,000; (v) the payment of any dividend within 60 days after the date of
declaration thereof, if at the record date for such dividend such payment
would have complied with the provisions of the Indenture; and (vi) if no
Default or Event of Default shall have occurred and be continuing or shall
occur as a consequence thereof, the redemption, repurchase, retirement or
other acquisition of the Senior Notes or any Capital Stock of the Company in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Restricted Subsidiary of the Company) of other Capital Stock
of the Company (other than any Disqualified Stock); provided, however, that
payments made in accordance with clauses (i), (ii) and (iii) of this paragraph
shall not be deemed to be Restricted Payments.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Limitation on Restricted Payments" were computed,
which calculations may be based upon the Company's latest available financial
statements.
Limitation on Indebtedness. The Indenture provides that the Company shall
not, and shall not cause or permit any of its Restricted Subsidiaries to,
directly or indirectly create, incur, assume, issue, guarantee or in any
manner become liable, contingently or otherwise, for or with respect to the
payment of, any Indebtedness (including any Acquired Indebtedness) except for
the following (each of which shall be given independent effect):
(a) Indebtedness of the Company under its Increasing Rate Notes (to the
extent that the Company has satisfied the conditions in the section
entitled "Termination of the Company's Obligations" of the Increasing Rate
Note Indenture with respect to the discharge of its obligations, other than
those which expressly survive pursuant to such section), the Senior Notes
and the indentures governing such debt securities;
(b) Permitted Secured Indebtedness;
(c) any replacements, renewals, refinancings and extensions of
Indebtedness incurred under clause (b) above, provided that (i) any such
replacement, renewal, refinancing and extension (x) shall not provide for
any mandatory redemption, amortization or sinking fund requirement in an
amount greater than or at a time prior to the amounts and times specified
in the Indebtedness being replaced, renewed, refinanced or extended and (y)
shall be contractually subordinated to the Senior Notes at least to the
extent, if at all, that the Indebtedness being replaced, renewed,
refinanced or extended is subordinate to the Senior Notes, (ii) any
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such Indebtedness of any Person must be replaced, refinanced or extended
with Indebtedness incurred by such Person or by the Company; and (iii) the
principal amount of Indebtedness incurred pursuant to this clause (c) (or,
if such Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the
maturity thereof, the original issue price of such Indebtedness) shall not
exceed the sum of the principal amount (or with respect to Indebtedness
which provides for an amount less than the principal amount thereof to be
due and payable upon a declaration of acceleration of the maturity thereof,
the accredited value thereof) of Indebtedness so replaced, renewed,
refinanced or extended, plus accrued interest, the amount of any premium
required to be paid in connection with such replacement, renewal,
refinancing or extension pursuant to the terms of such Indebtedness or the
amount of any premium reasonably determined by the Company as necessary to
accomplish such replacement, renewal, refinancing or extension by means of
a tender offer or privately negotiated purchase, and the amount of fees and
expenses incurred in connection therewith;
(d) Indebtedness of the Company or of any of the Restricted Subsidiaries
of the Company not to exceed an amount in the aggregate at any one time
outstanding equal to the lesser of (i) $10,000,000 or (ii) an amount which
when added to the amount of Indebtedness outstanding at any one time under
the New Credit Facility equals $35,000,000, provided that such Indebtedness
permitted under this clause (d) shall be either contractually subordinated
to or rank pari passu with the Senior Notes;
(e) Indebtedness of the Company or any of the Restricted Subsidiaries of
the Company, provided (i) the Consolidated Interest Coverage Ratio of the
Company for the applicable Four Quarter Period would have been at least 1.8
to 1.0 if such incurrence or issuance of Indebtedness had occurred prior to
the second anniversary of the Issue Date and 2.0 to 1.0 thereafter, in each
case after giving pro forma effect to such incurrence or issuance and the
application of the proceeds therefrom, and (ii) such Indebtedness shall be
either contractually subordinated to or rank pari passu with the Senior
Notes;
(f) Indebtedness of the Company under the New Credit Facility;
(g) Indebtedness under Capitalized Lease Obligations of the Company and
its Restricted Subsidiaries incurred in the ordinary course of business,
not to exceed 3% of Net Sales of the Company and its Restricted
Subsidiaries on a consolidated basis during the Four Quarter Period
immediately preceding such incurrence; and
(h) any Investments permitted under the "Limitation on Investments, Loans
and Advances" covenant below (the foregoing items in clauses (a) through
(h) are referred to as "Permitted Indebtedness").
Limitation on Investments, Loans and Advances. The Indenture provides that
the Company shall not make, and shall not permit any of its Restricted
Subsidiaries to make, any Investment, except: (i) Investments by the Company
or a Restricted Subsidiary of the Company in any Wholly Owned Restricted
Subsidiary of the Company (including any such Investment pursuant to which a
Person becomes a Wholly Owned Restricted Subsidiary of the Company) or in the
Company by any Restricted Subsidiary of the Company; (ii) Investments
represented by receivables created or acquired in the ordinary course of
business or the settlement of such receivables in the ordinary course of
business; (iii) Investments permitted to be made pursuant to the "Limitation
on Restricted Payments" covenant above; (iv) Investments represented by
advances to employees, officers and directors of the Company or its Restricted
Subsidiaries made in the ordinary course of business and consistent with
reasonable and customary business practices; (v) Permitted Investments; (vi)
Investments permitted to be made with the Net Cash Proceeds of Asset Sales
pursuant to the "Limitation on Asset Sales" covenant below and (vii) payments
made to Dart that are permitted by the provisions of the Indenture described
above under the covenant "Limitation on Restricted Payments."
Dividends and Other Payment Restrictions Affecting Subsidiaries. The
Indenture provides that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to (a)(i) pay
dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries (A) on its Capital Stock or (B) with respect to any
other interest or participation in, or
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measured by, its profits or (ii) pay any Indebtedness owed to the Company or
any of its Restricted Subsidiaries, (b) make loans or advances to the Company
or any of its Restricted Subsidiaries or (c) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for (i)
such encumbrances or restrictions existing under or by reason of the Indenture
or applicable law, (ii) reasonable and customary provisions restricting
subletting or assignment of any lease entered into in the ordinary course of
business, consistent with industry practices, (iii) restrictions under any
Acquired Indebtedness or any agreement relating to any property, asset or
business acquired by the Company or any of its Restricted Subsidiaries, which
restrictions existed at the time of the acquisition, were not put in place in
connection with or in anticipation of such acquisition and are not applicable
to any Person, other than the Person acquired or to any property, asset or
business other than the property, asset and business so acquired, (iv)
reasonable and customary restrictions on transfers of all collateral imposed
in connection with Permitted Liens, and (v) replacements of restrictions
imposed pursuant to clause (iii) and this clause (v) that are not more
restrictive than those being replaced and do not apply to any additional
property or assets.
Limitation on Liens. The Indenture provides that the Company shall not, and
the Company shall not permit, cause or suffer any of its Restricted
Subsidiaries to, create, incur, assume or suffer to exist any Lien of any kind
upon any of its property or assets now owned or hereafter acquired by it,
except for (a) Liens of the Company and its Restricted Subsidiaries existing
as of the Issue Date; (b) Permitted Liens; (c) Liens, arising after the Issue
Date, securing Permitted Secured Indebtedness; (d) Liens on the assets or
properties of the Company and its Restricted Subsidiaries, arising after the
Issue Date, securing Capitalized Lease Obligations permitted to be incurred
under clause (g) of the covenant "Limitation on Indebtedness," provided that
(1) the aggregate principal amount of Indebtedness secured by such Liens shall
not exceed the lesser of the cost or Fair Market Value of the assets or
property so acquired and (2) such Liens shall not encumber any assets or
property of the Company or its Restricted Subsidiaries other than the assets
or property so acquired and shall attach to such assets or property within 60
days of the acquisition of such assets or property; (e) leases and subleases
of real property which do not interfere with the ordinary conduct of the
business of the Company or any of its Restricted Subsidiaries, and which are
made on customary and usual terms applicable to similar properties; (f) Liens
securing Indebtedness which is incurred to refinance Indebtedness which has
been secured by a Lien permitted under the Indenture and is permitted to be
refinanced under the Indenture, provided that such Liens do not extend to or
cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so refinanced; (g) Liens securing
Acquired Indebtedness, provided that such Liens (1) are not incurred in
connection with, or in contemplation of the acquisition of the property or
assets acquired and (2) do not extend to or cover any property or assets of
the Company or any of its Restricted Subsidiaries (other than the property or
assets of the Restricted Subsidiary so acquired that are subject to such
Lien); (h) Liens in favor of the Trustee under the Indenture; (i) Liens
securing Indebtedness under the New Credit Facility; and (j) any replacement,
extension or renewal, in whole or in part, of any Lien described in this or
the foregoing clauses, including in connection with any refinancing of the
Indebtedness, in whole or in part, secured by any such Lien, provided that to
the extent any such clause limits the amount secured or the assets subject to
such Liens, no extension or renewal shall increase the amount or the assets
subject to such Liens, except for Liens associated with such additional assets
that are otherwise permitted hereunder. The Indenture will further provide
that the Guarantor will not create, incur, assume or suffer to exist any Lien
(other than the Lien created under the Indenture) of any kind upon any of its
property or assets (including without limitation Capital Stock of its
Restricted Subsidiaries) now owned or hereafter acquired by it.
Notwithstanding the foregoing, Liens shall be permitted by the previous
clauses (a) through (h) only to the extent that any Indebtedness secured by
such Liens is incurred pursuant to and in accordance with the provisions of
the Indenture.
Limitation on Transactions with Affiliates. The Indenture provides that
neither the Company nor any of its Restricted Subsidiaries nor the Guarantor
will, from and after the Issue Date, sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into any contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of the
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foregoing, an "Affiliate Transaction"), unless (a) such Affiliate Transaction
is on terms that are no less favorable to the Company or the relevant
Restricted Subsidiary than those that could have been obtained in a comparable
transaction by the Company or such Restricted Subsidiary with an unrelated
Person and (b) the Company delivers to the Trustee (i) with respect to any
Affiliate Transaction involving aggregate payments in excess of $250,000, a
resolution of the Board of Directors set forth in an officers' certificate
certifying that such Affiliate Transaction complies with clause (a) above and
such Affiliate Transaction is approved by a majority of the disinterested
members of the Board of Directors and (ii) with respect to any Affiliate
Transaction (other than the purchase in the ordinary course of business of
property or assets for resale) involving aggregate payments in excess of
$1,000,000, an opinion as to the fairness to the Company or, in the case of a
transaction with an Affiliate and a Restricted Subsidiary, to such Restricted
Subsidiary, in each case from a financial point of view issued by an
investment banking firm of national standing; provided, however, that (i) any
employment agreement, consulting agreement and indemnification obligation
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary, (ii) transactions in accordance with
the terms of the Tax Sharing Agreement or the Management Services Agreement
(provided that the Company shall not be permitted to make any payment to Dart
under the Tax Sharing Agreement in respect of taxes on accrued but unpaid
interest income of the Company on intercompany loans), (iii) the payment of
reasonable and customary fees to directors of the Company who are not
employees of the Company, and (iv) transactions permitted by the provisions of
the Indenture described above under the covenants "Limitation on Restricted
Payments" and "Limitation on Investments, Loans and Advances," in each case,
shall not be deemed Affiliate Transactions.
Restriction on Mergers, Consolidations and Transfers of Assets. The
Indenture provides that the Company shall not consolidate with or merge with
or into or sell, assign, convey, lease, transfer or otherwise dispose of all
or substantially all of its properties and assets to any Person or Persons in
a single transaction or through a series of related transactions unless: (a)
the Company shall be the continuing Person or the Person formed by or
surviving such consolidation or merger or the Person to which such sale,
assignment, conveyance, lease, transfer or other disposition is made (the
"surviving entity") shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the District of
Columbia; (b) the surviving entity shall expressly assume, by a supplemental
indenture executed and delivered to the Trustee, in form and substance
reasonably satisfactory to the Trustee, all of the obligations of the Company
under the Senior Notes and the Indenture; (c) immediately before and
immediately after giving effect to such transaction or series of transactions
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect to such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing; (d) the Company or the surviving entity (in the case of a merger
or consolidation involving the Company or any sale, assignment, conveyance,
lease, transfer or other disposition of all or substantially all of the
Company's properties and assets) shall immediately after giving effect to such
transaction or series of transactions (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions) have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction or series of transactions; (e)
immediately after giving effect to such transaction or series of transactions,
the Company or the surviving entity (in the case of a merger or consolidation
involving the Company or any sale, assignment, conveyance, lease, transfer or
other disposition of all or substantially all of the Company's properties and
assets) could incur $1.00 of Indebtedness pursuant to clause (e) of the
"Limitation on Indebtedness" covenant described above; and (f) the Company or
the surviving entity shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, in each case stating that such
consolidation, merger, sale, assignment, conveyance, lease, transfer or other
disposition and, if a supplemental indenture is required in connection with
such transaction or series of transactions, such supplemental indenture
complies with this covenant and that all conditions precedent in the Indenture
relating to the transaction or series of transactions have been satisfied. The
foregoing limitations in clauses (b) and (f) of this covenant shall not apply
to a merger of any Wholly Owned Restricted Subsidiary of the Company into the
Company. The foregoing provisions of this covenant relating to restrictions on
mergers, consolidations and transfers of assets shall also apply to Guarantor,
provided that with respect to clause (b) above, the Company shall be deemed to
mean Guarantor.
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Limitation on Lines of Business. The Indenture provides that neither the
Company nor any of its Restricted Subsidiaries will engage in any business
other than those businesses in which the Company is engaged on the Issue Date
and any other businesses related thereto.
Limitation on Asset Sales. The Indenture provides that the Company shall
not, and shall not cause or permit any of its Restricted Subsidiaries to, make
any Asset Sale, unless (a) the Company or the applicable Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value of the assets sold, (b) at least 85% of the consideration
for such Asset Sale (other than assumption of trade Indebtedness) consists of
cash and Cash Equivalents, and (c) upon consummation of an Asset Sale, the
Company will within 365 days of the receipt of the proceeds therefrom, either:
(i) apply or cause the applicable Restricted Subsidiary to apply the Net Cash
Proceeds of any Asset Sale to (1) an investment in properties and assets that
replace the properties and assets that are the subject of such Asset Sale or
(2) an investment in properties and assets that will be used in the business
of the Company and its Restricted Subsidiaries as existing on the Issue Date;
(ii) in the case of a sale of a store or stores, deem such Net Cash Proceeds
to have been applied to the extent of any capital expenditures made to acquire
or construct a replacement store in the general vicinity of the store sold
within 365 days preceding the date of the Asset Sale; or (iii) repay senior
Indebtedness. If 365 days after the receipt by the Company of Net Cash
Proceeds from an Asset Sale, the accumulated Net Cash Proceeds therefrom equal
or exceed $5,000,000 (such accumulated Net Cash Proceeds are defined herein as
the "Net Cash Proceeds Offer Amount"), then the Company shall apply or cause
the applicable Restricted Subsidiary to apply such Net Cash Proceeds to the
purchase of Senior Notes tendered to the Company for purchase at a price equal
to 100% of the principal amount thereof plus accrued interest thereon to the
date of purchase pursuant to an offer to purchase made by the Company as set
forth below (a "Net Cash Proceeds Offer"). Notwithstanding the foregoing, the
Company may exclude from the foregoing provisions Asset Sales subsequent to
the Issue Date, the proceeds of which are derived from the sale and
substantially concurrent lease-back of a supermarket and/or related assets or
equipment which is acquired or constructed by the Company or a Restricted
Subsidiary subsequent to the Issue Date; provided, however, that any such sale
and substantially concurrent lease-back occurs within 270 days following such
acquisition or the completion of such construction, as the case may be.
Pending the utilization of any Net Cash Proceeds in the manner (and within the
time period) described above, the Company may use any such Net Cash Proceeds
to repay revolving loans under the New Credit Facility without a permanent
reduction of the commitment thereunder.
Each Net Cash Proceeds Offer will be mailed to Holders as shown on the
register of Holders not less than 365 nor more than 390 days after the
relevant Asset Sale, with a copy to the Trustee, shall specify the purchase
date (which shall be no earlier than 30 days nor later than 40 days from the
date such notice is mailed) and shall otherwise comply with the procedures set
forth in the Indenture. Upon receiving notice of the Net Cash Proceeds Offer,
Holders may elect to tender their Senior Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly
tender Senior Notes in an amount exceeding the Net Cash Proceeds Offer, Senior
Notes of tendering Holders will be repurchased on a pro rata basis (based on
amounts tendered). A Net Cash Proceeds Offer shall remain open for a period of
20 business days or such longer period as may be required by law.
To the extent that the aggregate purchase price of Senior Notes tendered
pursuant to any Net Cash Proceeds Offer is less than the Net Cash Proceeds
Offer Amount (such shortfall constituting a "Deficiency"), the Company may use
such Deficiency for general corporate purposes. Upon completion of any Net
Cash Proceeds Offer, the Net Cash Proceeds Offer Amount shall be reset to
zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
purchase of the Senior Notes pursuant to a Net Cash Proceeds Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the "Asset Sale" provisions of the Indenture, the Company shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Asset Sale" provisions of the Indenture by
virtue thereof.
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Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries. The Indenture provides that the Company will not permit any
Restricted Subsidiary to issue any Capital Stock (other than to the Company or
to a Restricted Subsidiary) or permit any Person (other than the Company or a
Restricted Subsidiary) to own any Capital Stock of any Restricted Subsidiary;
provided, however, that the Company and any Restricted Subsidiary may, in any
single transaction, sell all, but not less than all, of the issued and
outstanding Capital Stock of any Restricted Subsidiary to any Person as
provided under the "Limitation on Asset Sales" covenant above.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
(i) default in the payment of any interest on the Senior Notes when it
becomes due and payable and continuance of such default for a period of 30
days; or
(ii) default in the payment of the principal of, or premium, if any, on
the Senior Notes when due (including a default in the obligation to
effectuate the Special Mandatory Redemption as provided under the section
entitled "Rights of Redemption" of the Indenture or certain provisions
relating to the Special Mandatory Redemption contained in the Pledge
Agreement or in payment upon the exercise by a Holder of its right to
require repurchase of its Senior Notes pursuant to the covenant "Repurchase
at Holder's Option Upon Change in Control" set forth in the Indenture); or
(iii) default by the Company or the Guarantor in the performance, or
breach, of any covenant in the Indenture (other than defaults specified in
clause (i) or (ii) above), or the Pledge Agreement (other than a default
specified in clause (ii) above), and continuance of such default or breach
for a period of 30 days after written notice to the Company or the
Guarantor, as the case may be, by the Trustee or to the Company or the
Guarantor, as the case may be, and the Trustee by the Holders of at least
25% in aggregate principal amount of the outstanding Senior Notes; or
(iv) failure by the Company, the Guarantor or any Restricted Subsidiary
(a) to make any payment when due with respect to any other Indebtedness
under one or more classes or issues of Indebtedness, which one or more
classes or issues of Indebtedness are in an aggregate principal amount of
$5,000,000 or more and such failure extends beyond the stated period of
grace applicable thereto or (b) to perform any term, covenant, condition or
provision of one or more classes or issues of Indebtedness, which one or
more classes or issues of Indebtedness are in an aggregate principal amount
of $5,000,000 or more, which failure, in the case of this clause (b),
results in an acceleration of the maturity thereof (whether or not such
right has yet been exercised); or
(v) one or more judgments, orders or decrees for the payment of money in
excess of $2,500,000, either individually or in an aggregate amount, shall
be entered against the Company, the Guarantor or any of their Restricted
Subsidiaries or any of their respective properties and shall not be
discharged and there shall have been a period of 60 days during which a
stay of enforcement of such judgment or order, by reason of pending appeal
or otherwise, shall not be in effect; or
(vi) a decree, judgment or order by a court of competent jurisdiction
shall have been entered adjudging the Company, the Guarantor or any of
their respective Restricted Subsidiaries that individually or as a group
constitute a Significant Subsidiary, as bankrupt or insolvent, or approving
as properly filed a petition seeking reorganization of the Company, the
Guarantor or such Significant Subsidiary under any bankruptcy or similar
law, and such decree or order shall have continued undischarged and
unstayed for a period of 60 days; or a decree or order of a court of
competent jurisdiction over the appointment of a receiver, liquidator,
trustee or assignee in bankruptcy or insolvency of the Company, the
Guarantor or such Significant Subsidiary, or of the property of any such
Person, or for the winding up or liquidation of the affairs of any such
Person, shall have been entered, and such decree, judgment or order shall
have remained in force undischarged and unstayed for a period of 60 days;
or
(vii) the Indenture or, prior to the termination in accordance with its
terms, the Pledge Agreement, ceases to be in full force and effect or
ceases to give the Trustee, in any material respect, the Liens, rights,
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powers and privileges purported to be created thereby, in each case, as
determined by a court of competent jurisdiction.
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) occurs and is continuing, then the
Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Senior Notes may, by written notice, and the Trustee upon the
request of the Holders of not less than 25% in aggregate principal amount of
the outstanding Senior Notes shall, declare the principal amount plus accrued
interest (if any) on all Senior Notes on the date of such declaration to be
due and payable immediately (the "Default Amount"). Upon such declaration, the
Default Amount shall become due and payable immediately. If an Event of
Default specified in clause (vi) above with respect to the Company occurs and
is continuing, then the Default Amount shall ipso facto become and be
immediately due and payable without any declaration or other act on the part
of the Trustee or any Holder.
After a declaration of acceleration, the Holders of a majority in aggregate
principal amount of outstanding Senior Notes may, by notice to the Trustee,
rescind such declaration of acceleration if all existing Events of Default
have been cured or waived, other than nonpayment of the Default Amount that
has become due solely as a result of such acceleration and if the rescission
of acceleration would not conflict with any judgment or decree by a court of
competent jurisdiction. The Holders of a majority in aggregate principal
amount of the outstanding Senior Notes also have the right to waive past
defaults under the Indenture except a default in the payment of the principal
of, premium, if any, or interest on any Senior Note, or in respect of a
covenant or a provision which cannot be modified or amended without the
consent of all Holders.
No Holder has any right to institute any proceeding with respect to the
Indenture or pursue any remedy thereunder, unless the Holder or Holders of at
least 25% in aggregate principal amount of the outstanding Senior Notes have
made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding or pursue such remedy, the Trustee has failed to
institute such proceeding or pursue such remedy within 15 days after receipt
of such notice and the Trustee has not within such 15-day period received
directions inconsistent with such written request by Holders of a majority in
aggregate principal amount of the outstanding Senior Notes. Such limitations
do not apply, however, to a suit instituted by a Holder for the enforcement of
the payment of the principal of, premium, if any, or accrued interest on, such
Senior Note on or after the respective due dates expressed in such Senior
Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and to use
the same degree of care and skill in its exercise thereof as a prudent Person
would exercise under the circumstances in the conduct of such Person's own
affairs. Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing, the
Trustee is not under any obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the Holders unless
such Holders shall have offered to such Trustee reasonable indemnity. Subject
to certain provisions concerning the rights of the Trustee, the Holders of a
majority in aggregate principal amount of outstanding Senior Notes have the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee.
DEFEASANCE
The Company may at any time terminate all of its obligations with respect to
the Senior Notes ("legal defeasance"), except for certain obligations,
including those regarding any trust established for a legal defeasance and
obligations to register the transfer or exchange of the Senior Notes, to
replace mutilated, destroyed, lost or stolen Senior Notes and to maintain
agencies in respect of the Senior Notes. The Company may at any time terminate
its obligations under certain covenants set forth in the Indenture, some of
which are described under "Certain Covenants" above, and any omission to
comply with such obligations shall not constitute a Default or an Event of
Default with respect to the Senior Notes issued under the Indenture ("covenant
defeasance"). In order to exercise either legal defeasance or covenant
defeasance, (i) the Company
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must irrevocably deposit in trust with the Trustee, for the benefit of the
Holders, money or U.S. Government obligations, or a combination thereof, in
such amounts as will be sufficient to pay the principal of, and premium, if
any, and accrued interest on the Senior Notes to redemption or maturity, as
the case may be, and comply with certain other conditions, including the
delivery of opinions as to certain tax and bankruptcy matters; provided,
however, that the Trustee shall have been irrevocably instructed to apply such
money or the proceeds of such U.S. Government obligations to said payments
with respect to the Senior Notes on the maturity date or such redemption date,
as the case may be; (ii) in the case of legal defeasance, the Company shall
have delivered to the Trustee an opinion of counsel confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the Issue Date, there has been a change
in the applicable Federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel shall confirm that, the Holders will
not recognize income, gain or loss for Federal income tax purposes as a result
of such legal defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such legal defeasance had not occurred; (iii) in the case of covenant
defeasance, the Company shall have delivered to the Trustee an opinion of
counsel confirming that the Holders will not recognize income, gain or loss
for Federal income tax purposes as a result of such covenant defeasance and
will be subject to Federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such covenant defeasance
had not occurred; (iv) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such legal defeasance or
covenant defeasance shall not result in a breach or violation of, or
constitute a default under, the Indenture or any other material agreement or
instrument to which the Company, the Guarantor or any Restricted Subsidiary is
a party or by which the Company, the Guarantor or any Restricted Subsidiary is
bound; (vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that (A) the trust funds will not be subject to any
rights of holders of Indebtedness senior in right of payment to the Senior
Notes, after the 91st day following the deposit and (B) after the 91st day
following the deposit the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (vii) the Company shall have delivered to the
Trustee an officers' certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over other creditors of the
Company or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company shall have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that all conditions precedent relating to the legal defeasance or
covenant defeasance have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of
Senior Notes) as to all outstanding Senior Notes when either (a) all such
Senior Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Senior Notes which have been replaced or paid and Senior Notes for
the payment of which money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation and the Company has paid all sums payable by it under the
Indenture; or (b) (i) all such Senior Notes not theretofore delivered to the
Trustee for cancellation have become due and payable and have been called for
redemption and the Company has irrevocably deposited or caused to be deposited
with the Trustee as trust funds in trust for the purpose an amount of money
sufficient to pay and discharge the entire indebtedness on the Senior Notes
not theretofore delivered to the Trustee for cancellation, for principal,
premium, if any, and accrued interest to the date of such deposit or
redemption, as the case may be; (ii) the Company has paid all sums payable by
it under the Indenture; and (iii) the Company has delivered irrevocable
instructions to the Trustee to apply the deposited money toward the payment of
the Senior Notes at maturity or the redemption date, as the case may be. In
addition, the Company must deliver an officers' certificate and an opinion of
counsel stating that all conditions precedent to satisfaction and discharge
have been complied with.
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MODIFICATION OF THE INDENTURE
From time to time the Company, when authorized by resolution of its Board of
Directors, and the Trustee may, without the consent of the Holders, amend,
waive or supplement the Indenture or the Senior Notes for certain specified
purposes, including, among other things, (i) curing ambiguities, defects or
inconsistencies, (ii) maintaining the qualification of the Indenture under the
TIA, (iii) making any change that does not adversely affect the rights of any
Holder, (iv) mortgaging, pledging, hypothecating or granting a security
interest in favor of the Trustee as additional security for the payment and
performance of the obligations under the Indenture, in any property or assets,
including any which is required to be mortgaged, pledged or hypothecated, or
in which a security interest is required to be granted, to the Trustee, (v)
adding to the covenants of the Company for the benefit of the Holders, or
surrendering any right or power herein conferred upon the Company, or
providing any additional rights or benefits to the Holders, (vi) evidencing
the succession of another Person to the Company, and the assumption by any
such successor of the obligations of the Company in the Indenture and in the
Senior Notes, and (vii) setting out the form of the Exchange Notes and setting
forth such other matters as are necessary in connection with the Exchange
Offer that do not adversely affect the rights of any Holder. Other amendments
and modifications of the Indenture or the Senior Notes may be made by the
Company and the Trustee with the consent of the Holders of not less than a
majority of the aggregate principal amount of the outstanding Senior Notes;
provided, however, that no such modification or amendment may, without the
consent of the Holder of each outstanding Senior Note affected thereby, (i)
reduce the principal amount outstanding of, extend the fixed maturity of, or
alter the redemption provisions of, the Senior Notes, (ii) change the currency
in which any Senior Notes or any principal, premium or the accrued interest
thereon is payable, (iii) reduce the percentage in principal amount
outstanding of Senior Notes, Holders of which must consent to an amendment,
supplement or waiver or consent to take any action under the Indenture or the
Senior Notes, (iv) impair the right to institute suit for the enforcement of
any payment on or with respect to the Senior Notes, (v) waive a default in
payment with respect to the Senior Notes, (vi) reduce the rate or extend the
time for payment of interest on the Senior Notes, (vii) affect the ranking or
security of the Senior Notes or (viii) following the mailing of a Company
Notice, modify the provisions of the Indenture with respect to such Company
Notice in a manner adverse to any Holder.
In addition, the Indenture and the Senior Notes may be amended by the
Company and the Trustee (i) to cure any defect, ambiguity or inconsistency or
to make any other provisions with respect to matters of questions arising
under the Indenture that shall not be inconsistent with the provisions
therein; provided, however that such amendment or supplement does not
adversely affect the rights of any holder thereof, or (ii) to make any other
change that does not adversely affect the rights of any holder thereunder in
any material respect.
ADDITIONAL INFORMATION
The Indenture provides that the Company must deliver to the Trustee within
15 days after the filing of the same with the Commission, copies of the
quarterly and annual reports and of the information, documents and other
reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted by law or regulation,
and provide the Trustee and Holders with such quarterly and annual reports and
such information, documents and other reports specified in Section 13 and
15(d) of the Exchange Act within 15 days of the date such reports would have
been due had the Company been required to file such information, documents and
reports with the Commission. The Company will also comply with the other
provisions of TIA Section 314(a).
At any time when the Company is not required by applicable law or regulation
to file the aforementioned reports, upon the request of a Holder, the Company
will promptly furnish or cause to be furnished such information as is
specified pursuant to Rule 144A(d)(4) under the Securities Act (or any
successor provision thereto) to such Holder or to a prospective purchaser of
the Senior Notes designated by such Holder, as the case may be, in order to
permit compliance by such Holder with Rule 144A.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all such terms as well as any other
capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means (i) with respect to any Person that becomes a
Restricted Subsidiary of the Company (or is merged with or into the Company or
any of its Restricted Subsidiaries) after the Issue Date, Indebtedness of such
Person or any of its subsidiaries existing at the time such Person becomes a
Restricted Subsidiary of the Company (or is merged with or into the Company or
any of its Restricted Subsidiaries) and which was not incurred in connection
with, or in contemplation of, such Person becoming a Restricted Subsidiary of
the Company (or being merged with or into the Company or any of its Restricted
Subsidiaries) and (ii) with respect to the Company or any of its Restricted
Subsidiaries, any Indebtedness assumed by the Company or any of its Restricted
Subsidiaries in connection with the acquisition of any assets from another
Person (other than the Company or any of its Restricted Subsidiaries), and
which was not incurred by such other Person in connection with, or in
contemplation of, such acquisition.
"Adjusted Consolidated Net Income" means, with respect to any Person, for
any period, the Consolidated Net Income of such Person for such period plus
any non-cash charges relating to the amortization of goodwill or any other
purchase accounting adjustment resulting from any acquisition.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any Person, is defined to
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) any capital contribution (by means of transfer
of cash or other property to others or payment for property or services for
the account or use of others, or otherwise) to, or purchase or acquisition of
Capital Stock in, any other Person by the Company or any of its Restricted
Subsidiaries, pursuant to which such Person shall become a Restricted
Subsidiary of the Company or any of its Restricted Subsidiaries or shall be
merged with or into the Company or any of its Restricted Subsidiaries or (ii)
any acquisition by the Company or any of its Restricted Subsidiaries of the
assets of any Person which constitute substantially all of an operating unit
or business of such Person.
"Asset Sale" means, with respect to any Person, any direct or indirect sale,
issuance, conveyance, lease, assignment, transfer or other disposition or
series of sales, transfers or other dispositions (including without
limitation, by merger or consolidation or by exchange of assets and whether by
operation of law or otherwise) made by such Person or any of its Restricted
Subsidiaries to any Person other than such Person or one of its Wholly Owned
Restricted Subsidiaries (or, in the case of a sale, transfer or other
disposition by a Restricted Subsidiary, to any Person other than the Company
or a directly or indirectly Wholly Owned Restricted Subsidiary) of any assets
of such Person or any of its Restricted Subsidiaries including, without
limitation, assets consisting of any Capital Stock or other securities held by
such Person or any of its Restricted Subsidiaries, and any Capital Stock
issued by any Restricted Subsidiary of such Person, in each case, outside of
the ordinary course of business, excluding, however, any sale, transfer or
other disposition, or series of related sales, transfers or other dispositions
(i) resulting in Net Cash Proceeds to the Company and the Restricted
Subsidiaries of $250,000 or less; (ii) of Cash Equivalents or inventory in the
ordinary course of business or obsolete equipment in the ordinary course of
business consistent with past practices of the Company; (iii) the lease or
sublease of any real or personal property in the ordinary course of business;
or (iv) the proceeds of which are not applied in accordance with the covenant
"Limitation on Asset Sales," and which, together with all other proceeds of
Asset Sales that are not applied in accordance with such covenant, do not
exceed $5,000,000.
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"Board of Directors" means the board of directors of the Company or any
committee of such board of directors duly authorized to act under the
Indenture.
"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have
been duly adopted by the Board of Directors of such Person and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
"Capital Stock" means, with respect to any Person, any and all shares,
partnership, membership or other interests, participations or other
equivalents (however designated, whether voting or non-voting) of such
Person's capital stock, whether now outstanding or issued after the Issue
Date, and any and all rights, warrants or options exchangeable into such
capital stock.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP, and, for the
purpose of the Indenture, the amount of such obligation at any date shall be
the capitalized amount thereof at such date, determined in accordance with
GAAP.
"Cash Equivalents" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or
obligations issued by an agency or instrumentality thereof and backed by the
full faith and credit of the United States of America having maturities of not
more than one year from the date of acquisition; (ii) commercial paper rated
the highest grade by Moody's or S&P and maturing not more than one year from
the date of creation thereof; (iii) time deposits with, and certificates of
deposit and banker's acceptances issued by, any bank having capital surplus
and undivided profits aggregating at least $500,000,000 and maturing not more
than one year from the date of creation thereof; (iv) repurchase agreements
that are secured by a perfected security interest in an obligation described
in clause (i) and are with any bank described in clause (iii); (v) shares of
any money market mutual fund that (a) has at least 95% of its assets invested
continuously in the types of investments referred to in clauses (i) and (ii)
above, (b) has net assets of not less than $500,000,000 and (c) has the
highest rating obtainable from either S&P or Moody's; and (vi) readily
marketable direct obligations issued by any state of the United States of
America or any political subdivision thereof having one of the two highest
rating categories obtainable from either Moody's or S&P.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank (as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of
such Person) prior to shares of Capital Stock of any other class of such
Person.
"Consolidated Cash Flow" means, with respect to any Person, for any period
(all as determined on a consolidated basis in accordance with GAAP),
Consolidated Net Income of such Person in such period plus (a) to the extent
reflected in the income statement of such Person, (i) income taxes, (ii)
Interest Expense, (iii) depreciation and amortization, (iv) LIFO charges, (v)
the amount of any restructuring reserve or charge and (vi) other non-cash
charges reducing Consolidated Net Income minus (b) to the extent reflected in
such income statement, non-cash items (excluding the reversal of any non-cash
charge to the extent such non-cash charge reduced Consolidated Net Income in a
prior period) which had the effect of increasing Consolidated Net Income for
such period.
"Consolidated Interest Coverage Ratio" means, for any Person, on a
consolidated basis, the ratio of (i) Consolidated Cash Flow for such Person
and its Restricted Subsidiaries during the Four Quarter Period immediately
preceding the date of the incurrence of the proposed Indebtedness giving rise
to the need to calculate the Consolidated Interest Coverage Ratio (the
"Transaction Date") to (ii) Interest Expense of such Person for such Four
Quarter Period. For purposes of this definition, "Consolidated Cash Flow" and
"Interest Expense" shall be calculated after giving effect on a pro forma
basis for such Four Quarter Period to (i) the incurrence or repayment of any
Indebtedness of such Person or any of its Restricted Subsidiaries at any time
during or subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such
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incurrence or repayment and the application of the proceeds thereof, as the
case may be, occurred on the first day of the Four Quarter Period, (ii) any
Asset Sales or other asset dispositions of such Person and its Restricted
Subsidiaries occurring at any time during or subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such Asset
Sale or other asset disposition and the applications of the proceeds therefrom
occurred on the first day of the Four Quarter Period and (iii) any Asset
Acquisition or other acquisition of assets or Capital Stock of an entity
(occurring by merger or otherwise) occurring at any time during or subsequent
to the last day of the Four Quarter Period and on or prior to the Transaction
Date, as if such acquisition occurred on the first day of the Four Quarter
Period. If such Person or any of its Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Restricted Subsidiary of such Person had directly incurred or
otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Interest Expense": (a) interest on any Indebtedness under a revolving credit
facility shall be computed based upon the pro forma average daily balance of
such Indebtedness during the Four Quarter Period; and (b) if interest on any
Indebtedness actually incurred on the Transaction Date may be determined
optionally at an interest rate based upon a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during
the Four Quarter Period.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any Person (the "other Person")
in which the Person in question or one of its Restricted Subsidiaries has a
joint interest with a third party (which interest does not cause the Net
Income of such other Person to be consolidated into the Net Income of the
Person in question in accordance with GAAP) shall be included only to the
extent of the amount of dividends or distributions paid to the Person in
question or one of its Restricted Subsidiaries, (b) the Net Income of any
Restricted Subsidiary of the Person in question that is subject to any
restriction or limitation on the payment of dividends or the making of other
distributions shall be excluded to the extent of such restriction or
limitation, (c) (i) the Net Income (or loss) of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition and (ii) any net gain or loss resulting from an Asset Acquisition
or Asset Sale by the Person in question or any of its Restricted Subsidiaries
shall be excluded, and (d) extraordinary gains and losses and any one-time
increase or decrease to Net Income recorded because of the adoption of new
accounting policies, practices or standards required or permitted by GAAP
shall be excluded.
"Consolidated Net Worth" means with respect to any Person at any date of
determination, the consolidated equity represented by the shares of such
Person's Capital Stock (other than Disqualified Stock) at such date, as
determined on a consolidated basis in accordance with GAAP and adjusted to
exclude all upward revaluations and other write-ups in the book value of any
asset of such Person or a Restricted Subsidiary of such Person subsequent to
the Issue Date.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default under the Indenture.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable, in each case, at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is exchangeable for Indebtedness, or
redeemable at the option of the holder thereof, in whole or in part, on or
prior to the Stated Maturity of the Senior Notes.
"Equity Offering" means a private placement or public offering of Capital
Stock (other than Disqualified Stock) of the Company.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length free market transaction, for
cash, between a willing seller and a willing buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. With respect to any
Person, Fair Market
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Value shall be determined by the Board of Directors of such Person acting in
good faith and shall be evidenced by a Board Resolution delivered to the
Trustee.
"Four Quarter Period" means the four most recent full fiscal quarters for
which financial information is available.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date and as such principles may be
amended from time to time, including, without limitation, those set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and Statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and
any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole
or in part). The term "guarantee" used as a verb has a corresponding meaning.
"Holder" means a Person in whose name a Senior Note is registered.
"Increasing Rate Note Indenture" means the indenture dated as of February 6,
1997, by and among SFW Acquisition Corp. (predecessor to the Company), the
Guarantor and the Trustee, as amended by the First Supplemental Indenture,
dated as of February 6, 1997.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing
such property in service or taking delivery and title thereto or the
completion of such services, except trade payables incurred in the ordinary
course that have not remained unpaid for greater than 90 days past their
original due date, or accrued liabilities arising in the ordinary course of
business which are not overdue or which are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and for
which adequate reserves have been made, (v) all obligations of such Person as
lessee relating to a Capitalized Lease Obligation, (vi) all indebtedness of
other Persons secured by a Lien on any asset of such Person, whether or not
such indebtedness is assumed by such Person, (vii) all indebtedness of other
Persons guaranteed by such Person (but only to the extent of the amount
actually guaranteed), (viii) to the extent not otherwise included in this
definition, obligations under currency agreements, interest rate agreements
and commodity agreements and (ix) any and all deferrals, renewals, extensions
and refunding of, or amendments, modifications or supplements to, any of the
foregoing. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"Interest Expense" means, for any Person for any period, (i) total interest
obligations (paid or accrued) of such Person in respect of its Indebtedness,
determined on a consolidated basis and in accordance with GAAP (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with
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Capitalized Lease Obligations, commissions, discounts and other fees and
charges incurred in respect of letters of credit or bankers' acceptance
financing); minus (ii) amortization of deferred financing costs.
"Investment" means (i) any direct or indirect advance, loan or other
extension of credit or capital contribution to another Person (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others including the purchase of property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such property to such other Person), (ii) any commitment
to make any such advance, loan, extension or capital contribution (but
excluding accounts receivable in the ordinary course), (iii) any purchase or
acquisition (whether for cash, property, services, securities or otherwise) of
Capital Stock, bonds, notes, debentures, options, warranty or similar
instruments issued by any Person or (iv) the designation by the Company's
Board of Directors of a Restricted Subsidiary to be an Unrestricted
Subsidiary. The Company shall be deemed to make an "Investment" in an amount
equal to the Fair Market Value of the net assets of any Subsidiary determined
by the Board of Directors of the Company in good faith at the time that such
Subsidiary is designated an Unrestricted Subsidiary. Any property transferred
to an Unrestricted Subsidiary from the Company shall be deemed an Investment
valued at its Fair Market Value, as determined by the Board of Directors of
the Company in good faith at the time of such transfer.
"Issue Date" means the date of original issuance of the Senior Notes under
the Indenture.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof, or any
agreement to give any security interest).
"Management Services Agreement" means the Management Services Agreement
dated February 6, 1997, between Dart and SFW Acquisition Corp. (predecessor of
the Company).
"Moody's" means Moody's Investors Service, Inc. or if Moody's Investors
Service, Inc. shall cease rating debt securities having a maturity at original
issuance of at least one year and such ratings business shall have been
transferred to a successor Person, such successor Person; provided, however,
that if Moody's Investors Service, Inc. ceases rating debt securities having a
maturity at original issuance of at least one year and its ratings business
with respect thereto shall not have been transferred to any successor Person,
then "Moody's" shall mean any other nationally recognized rating agency (other
than S&P) that rates debt securities having a maturity at original issuance of
at least one year and that shall have been designated by the Company by a
written notice given to the Trustee.
"Net Cash Proceeds" means (a) in the case of any Asset Sale or any issuance
and sale by any Person of Capital Stock, the aggregate net cash proceeds and
Cash Equivalents received by such Person after payment of expenses, taxes,
commissions and the like incurred in connection therewith (and, in the case of
any Asset Sale, net of the amount of cash applied to repay Indebtedness
secured by the asset involved in such Asset Sale) and (b) in the case of any
conversion or exchange of any outstanding Indebtedness or Disqualified Stock
of any Person for or into shares of Capital Stock of the Company, the sum of
(i) the proceeds received by the Company in connection with the issuance of
such Indebtedness or Disqualified Stock on the date of such issuance and
(ii) any additional amount paid by the holder to the Company upon such
conversion or exchange.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Sales" means, with respect to any Person for any period, the net sales
of such Person determined in accordance with GAAP.
"New Credit Facility" means a credit facility with a bank or other third
party in the aggregate principal amount at any time outstanding not to exceed
$35,000,000 that may be secured by inventory, accounts receivable and certain
other assets of the Company and its Subsidiaries, and any replacement,
renewal, refinancing or extension thereof in accordance with clause (c) of the
covenant "Limitation on Indebtedness."
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"Non Recourse Debt" means Indebtedness (i) as to which under the terms
thereof (including any related instruments, documents or filings) neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness) and (b) is directly or indirectly liable (as a
guarantor or otherwise); (ii) no default with respect to which (including any
rights that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Permitted Indebtedness" shall have the meaning ascribed to such term under
the caption titled "Limitation on Indebtedness."
"Permitted Investments" means (i) certificates of deposit with final
maturities of 3 years or less issued by United States commercial banks having
capital and surplus in excess of $100,000,000; (ii) commercial paper, bankers
acceptances, notes, bonds, debentures, repurchase agreements, call loans,
guaranteed investment certificates and other similar instruments, in each case
having a rating of investment grade by S&P or Moody's and, in each case,
having a maturity of 3 years or less; (iii) marketable direct obligations of
the United States Government or a United States agency with a maturity of 3
years or less; (iv) shares of money market mutual or similar funds having
assets in excess of $100,000,000; (v) marketable direct obligations issued by
any state of the United States of America having the highest rating obtainable
from either Moody's or S&P and having a maturity of 3 years or less; (vi)
asset-backed securities rated "AA" or higher by Moody's or S&P with a maturity
of 3 years or less; and (vii) mortgage-backed securities rated "AA" or higher
by Moody's or S&P with a maturity of 3 years or less; provided that the
Company and its Restricted Subsidiaries may not make a Permitted Investment
if, as a result of giving effect thereto, (A) more than 20% of the aggregate
Investments made pursuant to clauses (i) through (vii) of this definition are
rated "BBB" or below or (B) more than 10% of the aggregate Investments made
pursuant to clauses (i) through (vii) of this definition are made pursuant to
clause (vii) of this definition.
"Permitted Liens" means, with respect to any Person, any Lien arising by
reason of (a) any judgment, decree or order of any court, so long as such Lien
is being contested in good faith and is adequately bonded, and any appropriate
legal proceedings which may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the period
within which such proceedings may be initiated shall not have expired; (b)
taxes, assessments, governmental charges or claims not yet delinquent or which
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted or if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor; (c) security for payment of workers' compensation or other
insurance or social security legislation; (d) security for the performance of
tenders, contracts (other than contracts for the payment of money) or leases
(excluding any Capitalized Lease Obligations incurred in the ordinary course
of business); (e) deposits to secure public or statutory obligations, or in
lieu of surety, performance or appeal bonds, entered into in the ordinary
course of business; (f) judgment and attachment Liens with respect to
judgments and attachments not giving rise to an Event of Default; (g) Liens
arising by operation of law in favor of carriers, warehousemen, landlords,
mechanics, materialmen, laborers, employees or suppliers, incurred in the
ordinary course of business and as to which a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor, which are not yet delinquent or are being contested in
good faith by negotiations or by appropriate proceedings which suspend the
collection thereof; (h) easements, rights-of-way, zoning and similar covenants
and restrictions and other similar encumbrances or title defects which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of such Person
or any of its Restricted Subsidiaries; provided, such Liens are not incurred
in connection with any borrowing of money or any commitment to loan any money
or extend any credit; (i) Liens arising in the ordinary course of business in
favor of custom and revenue authorities arising as a matter of law to secure
payment of custom duties; (j) leases or
71
<PAGE>
subleases granted to others not interfering in any material respect with the
ordinary conduct of the business of such Person or of any of its Restricted
Subsidiaries or which do not in any case materially detract from the value of
the property subject thereto (as such property is used by such Person or one
or more of its Restricted Subsidiaries); and (k) Liens arising from filing
precautionary UCC financing statements relating solely to leases not
prohibited by the Indenture.
"Permitted Secured Indebtedness" means any Indebtedness secured by purchase
money Liens upon or in any assets or property either acquired by the Company
and its Restricted Subsidiaries in the ordinary course of business with the
proceeds thereof or assumed by the Company and its Restricted Subsidiaries
pursuant to an Investment not prohibited by the Indenture; provided, however,
that (i) any such purchase money Lien shall not extend to or cover any assets
or property other than the assets or property being acquired and shall attach
to such assets or property within 60 days of the acquisition of such assets or
property and (ii) the aggregate principal amount of Indebtedness secured by
such Liens shall not exceed the lesser of the cost or Fair Market Value of the
assets or property being acquired.
"Person" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"Pledge Agreement" means the Pledge Agreement dated the date of the
Indenture between the Company and the Trustee.
"Restricted Account" means a dedicated account to be established by the
Trustee for investment of the Restricted Proceeds in accordance with the
Pledge Agreement.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Settlement" means one or two settlements involving total payments and
commitments by Dart and its Subsidiaries of at least $50,000,000 (which may
include related expenses and payments to mortgage lenders) in which (i)
Herbert H. Haft and/or (ii) Robert M. Haft, Gloria G. Haft and Linda G. Haft,
as the case may be, relinquish his or their claims to control of Dart, dispose
(or agree to dispose) of all or substantially all of his or their Capital
Stock in Dart, disclaim any equity interest in the Company and the Guarantor
and resign any positions of employment and board representation with Dart, the
Company and the Guarantor.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such regulation is in effect on the Issue
Date.
"S&P" means Standard & Poor's Corporation or, if Standard & Poor's
Corporation shall cease rating debt securities having a maturity at original
issuance of at least one year and such ratings business shall have been
transferred to a successor Person, such successor Person; provided, however,
that if Standard & Poor's Corporation ceases rating debt securities having a
maturity at original issuance of at least one year and its ratings business
with respect thereto shall not have been transferred to any successor Person,
then "S&P" shall mean any other nationally recognized rating agency (other
than Moody's) that rates debt securities having a maturity at original
issuance of at least one year and that shall have been designated by the
Company by a written notice given to the Trustee.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii)
with respect to any scheduled installment of principal or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the
72
<PAGE>
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of such
Person or a combination thereof.
"Tax Sharing Agreement" means the Tax Sharing Agreement dated February 6,
1997, between Dart and SFW Acquisition Corp. (predecessor of the Company).
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company (other
than the Subsidiaries of the Company existing as of the Issue Date or any
successor to any of them) that at the time of determination shall have been
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to
a Board Resolution and (ii) any Subsidiary of an Unrestricted Subsidiary; but,
in each case, only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted
Subsidiary than those that might be obtained at the time from Persons who are
not Affiliates of the Company; (c) is a Person with respect to which neither
the Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Capital Stock or (y) to maintain or
preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries; and (e) has at least one
director on its board of directors that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries and has at least one
executive officer that is not a director or executive officer of the Company
or any of its Restricted Subsidiaries. Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and
an officers' certificate indicating that such designation complies with the
foregoing conditions and was permitted by the covenant described above under
the caption "Certain Covenants--Limitation on Restricted Payments." If, at any
time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date. The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any Indebtedness of such Unrestricted
Subsidiary which is outstanding at the time of such designation and such
designation shall only be permitted if (A) no Default or Event of Default
would be in existence immediately following such designation and (B) the
Company shall have delivered to the Trustee an officers' certificate
indicating that such designation complies with the foregoing conditions.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which shall at the time be owned by such Person or by
one or more Wholly Owned Restricted Subsidiaries of such Person or by such
Person and one or more Wholly Owned Restricted Subsidiaries of such Person.
73
<PAGE>
CERTAIN INCOME TAX CONSIDERATIONS
Holders of the Outstanding Notes contemplating acceptance of the Exchange
Offer should consult their own tax advisers with respect to their particular
circumstances and with respect to the effects of state, local or foreign tax
laws to which they may be subject.
The following summary describes the material U.S. Federal income tax
consequences to initial Holders of the Senior Notes who are subject to U.S.
net income tax with respect to the Senior Notes ("U.S. persons") and who hold
the Senior Notes as capital assets. There can be no assurance that the U.S.
Internal Revenue Service (the "IRS") will take a similar view of the purchase,
ownership or disposition of the Senior Notes. This discussion is based upon
the provisions of the Internal Revenue Code of 1986, as amended, U.S. Treasury
regulations, rulings and judicial decisions, in each case, as in effect on the
date of this Prospectus, all of which are subject to change. It does not
include any description of the tax laws of any state, local or foreign
governments or any estate, gift tax or transfer or other non-income tax laws
that may be applicable to the Senior Notes or Holders thereof. It does not
discuss all aspects of U.S. Federal income taxation that may be relevant to a
particular investor in light of his particular investment circumstances or to
certain types of investors subject to special treatment under the U.S. Federal
income tax laws (for example, dealers in securities or currencies,
S corporations, life insurance companies, tax-exempt organizations, taxpayers
subject to the alternative minimum tax and non-U.S.persons) and also does not
discuss Senior Notes held as a hedge against currency risks or as part of a
straddle with other investments or part of a "synthetic security" or other
integrated investment (including a "conversion transaction") comprising a
Senior Note and one or more other investments, or situations in which the
functional currency of the Holder is not the U.S. dollar.
The exchange of an Outstanding Note by a Holder for an Exchange Note should
not constitute a taxable exchange. The exchange will not result in taxable
income, gain or loss to Holders who participate in the Exchange Offer, or to
the Company. Such Holders shall have the same adjusted basis and holding
period in Exchange Notes immediately after the exchange as the Holders had in
the Outstanding Notes immediately prior to the exchange.
BOOK-ENTRY; DELIVERY AND FORM
GENERAL
The Outstanding Notes were issued in the form of a single, permanent global
Senior Note (the "Outstanding Global Note"). The Exchange Notes will be issued
in the form of a single, permanent global Senior Note in definitive, fully
registered form without interest coupons (the "Exchange Global Note"). The
Outstanding Global Note was deposited on the date of closing of the sale of
the Outstanding Notes, and the Exchange Global Note will be deposited on the
date of closing of the Exchange Offer, with the Trustee as custodian for The
Depository Trust Company ("DTC") and registered in the name of Cede & Co. as
nominee of DTC. The term "Global Note" means the Outstanding Global Note or
the Exchange Global Note, as the context may require.
THE GLOBAL NOTE
The Company expects that pursuant to procedures established by DTC (i) upon
the issuance of the Global Note, DTC or its custodian will credit, on its
internal system, the respective principal amount of Senior Notes of the
individual beneficial interests represented by the Global Note to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in the
Global Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants). Qualified institutional buyers
(as defined in Rule 144A under the Securities Act) may hold their interests in
the Global Note directly through DTC if they are participants in such system,
or indirectly through organizations which are participants in such system.
74
<PAGE>
So long as DTC, or its nominee, is the registered owner or holder of the
Senior Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Senior Notes represented by such Global Note for
all purposes under the Indenture and the Senior Notes. No beneficial owner of
an interest in the Global Note will be able to transfer that interest except
in accordance with DTC's applicable procedures, in addition to those provided
for under the Indenture.
Payments of principal of, premium (if any) and interest on, the Global Note
will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any paying agent will have
any responsibility or liability for any aspect of the records relating to any
payments made on account of beneficial ownership interests in the Global Note
or for any records relating to such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium (if any) or interest on the Global Notes will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in the Global Note
held through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts
of customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same day funds. If a
Holder requires physical delivery of a certificated Senior Note for any
reason, including to sell Senior Notes to persons in states which require
physical delivery of such Senior Notes, or to pledge such Senior Notes, such
Holder must transfer its interest in the Global Note in accordance with the
normal procedures of DTC and the procedures set forth in the Indenture.
The Company understands that DTC will take any action permitted to be taken
by a Holder of Senior Notes (including the presentation of Senior Notes for
exchange) only at the direction of one or more participants to whose account
the DTC interests in the Global Note are credited and only in respect of such
portion of the aggregate principal amount of Senior Notes as to which such
participant or participants has or have given such direction. However, if
there is an Event of Default under the Senior Notes, DTC will exchange the
Global Note for certificated Senior Notes which it will distribute to its
participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, DTC is
under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, certificated securities will be
issued in exchange for the Global Notes.
75
<PAGE>
PLAN OF DISTRIBUTION
Except as provided herein, this Prospectus may not be used for an offer to
resell, resale or other transfer of Exchange Notes.
There is no existing market for the Senior Notes. No assurance can be given
as to the liquidity of, or trading markets for, the Exchange Notes.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and
subject to the immediately following sentence, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by the Holders thereof without
further compliance with the registration and prospectus delivery provisions of
the Securities Act. However, any Holder of Outstanding Notes who is an
"affiliate" of the Company or the Guarantor or who intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes (i) will
not be able to rely on the interpretation by the staff of the Commission set
forth in the above-mentioned no-action letters, (ii) will not be able to
tender its Outstanding Notes in the Exchange Offer and (iii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Outstanding Notes unless such sale
or transfer is made pursuant to an exemption from such requirements.
Each Holder of the Outstanding Notes (other than certain specified Holders)
who wishes to exchange Outstanding Notes for Exchange Notes in the Exchange
Offer will be required to represent that (i) it is not an affiliate of the
Company or the Guarantor or, if such tendering party is an affiliate of the
Company or the Guarantor, it will comply with the registration and prospectus
requirements of the Securities Act to the extent applicable, (ii) any Exchange
Notes to be received by it were acquired in the ordinary course of its
business, whether or not such person is a Holder thereof, (iii) such tendering
party has not entered into any arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
Exchange Notes, (iv) such tendering party is not a broker-dealer who purchased
the Outstanding Notes for resale pursuant to an exemption under the Securities
Act and (v) such tendering party will be able to trade the Exchange Notes
acquired in the Exchange Offer without restriction under the Securities Act.
The Letter of Transmittal also states that by acknowledging that it will
deliver a prospectus, and by delivering such a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
In addition, in connection with any resales of Exchange Notes, any broker-
dealer (a "Participating Broker- Dealer") who acquired the Outstanding Notes
for its own account as a result of market-making activities or other trading
activities must deliver a prospectus meeting the requirements of the
Securities Act. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of an unsold allotment from the
original sale of the Outstanding Notes) with this Prospectus. For a period of
90 days after the Expiration Date, the Company will make this Prospectus, as
it may be amended or supplemented, available to any Participating Broker-
Dealer for use in connection with any such resale of Exchange Notes, provided
that such Participating Broker-Dealer indicates in the Letter of Transmittal
that it is a broker-dealer. In addition, until , 1997, (90 days after the
date of this Prospectus), all dealers effecting transactions in the Exchange
Notes may be required to deliver a prospectus.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver this Prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
who holds Outstanding Notes acquired for its own account as a result of
market-making activities or other trading activities in connection with
resales of Exchange Notes received in Exchange for Outstanding Notes. The
Company acknowledges and each Holder, other than a broker-dealer, must
acknowledge that it is not engaged in, does not intend to engage in, and has
no arrangement or understanding with any person to participate in, any
distribution of Exchange Notes.
76
<PAGE>
The Company will not receive any proceeds from the exchange of Outstanding
Notes for Exchange Notes, including those exchanged by Participating Broker-
Dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, or at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through broker-dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any person that participates in the
distribution of such Exchange Notes may be deemed an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such broker-dealers
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any Participating Broker-Dealer that requests such documents in
the Letter of Transmittal. The Company has agreed to pay all expenses
incidental to the Exchange Offer other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Outstanding Notes
(including Participating Broker-Dealers) participating in the Exchange Offer
against certain liabilities, including liabilities under the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for Outstanding Notes pursuant to the Exchange Offer agrees
that, upon receipt of notice from the Company of the happening of any event
which makes any statement in this Prospectus untrue in any material respect or
which requires the making of any changes in this Prospectus in order to make
the statement herein not misleading (which notice the Company agrees to
deliver promptly to such broker-dealer), such broker-dealer will suspend the
use of this Prospectus until the Company has amended or supplemented this
Prospectus to correct such misstatement or omission and has furnished copies
of the amended or supplemented Prospectus to such broker-dealer. If the
Company gives any such notice to suspend the use of the Prospectus, it will
extend the 90-day period referred to above by the number of days during the
period from and including the date of the giving of such notice up to and
including when broker-dealers shall have received copies of the supplemented
or amended Prospectus necessary to permit resales of Exchange Notes.
VALIDITY OF THE SENIOR NOTES
The validity of the Senior Notes will be passed upon for the Company by
Jones, Day, Reavis & Pogue, Washington, D.C.
INDEPENDENT AUDITORS
The consolidated financial statements included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
77
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS........................................ F- 2
Report of Independent Public Accountants................................. F- 3
Consolidated Balance Sheets as of July 1, 1995, June 29, 1996 and
February 1, 1997........................................................ F- 4
Consolidated Statements of Income for the Three Years Ended June 29, 1996
and the Thirty-one Weeks Ended February 1, 1997......................... F- 5
Consolidated Statements of Changes in Stockholders' Equity for the Three
Years Ended June 29, 1996 and the Thirty-one Weeks Ended February 1,
1997.................................................................... F- 6
Consolidated Statements of Cash Flows for the Three Years Ended June 29,
1996 and the Thirty-one Weeks Ended February 1, 1997.................... F- 7
Notes to Consolidated Financial Statements as of July 1, 1995, June 29,
1996 and February 1, 1997............................................... F- 8
INTERIM CONSOLIDATED FINANCIAL STATEMENTS................................ F-16
Interim Consolidated Balance Sheets as of May 4, 1996 and May 3, 1997
(unaudited)............................................................. F-17
Interim Consolidated Statements of Income for the Thirteen Weeks Ended
May 4, 1996 and
May 3, 1997 (unaudited)................................................. F-18
Interim Consolidated Statements of Changes in Stockholders' Equity for
the Thirteen Weeks Ended May 3, 1997 (unaudited)........................ F-19
Interim Consolidated Statements of Cash Flows for the Thirteen Weeks
Ended May 4, 1996 and May 3, 1997 (unaudited)........................... F-20
Notes to Interim Consolidated Financial Statements (unaudited)........... F-21
</TABLE>
F-1
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 1, 1995, JUNE 29, 1996 AND FEBRUARY 1, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Shoppers Food Warehouse Corp.:
We have audited the accompanying consolidated balance sheets of Shoppers
Food Warehouse Corp. (a Delaware corporation) and subsidiaries as of February
1, 1997, June 29, 1996, and July 1, 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for the thirty-one
weeks ended February 1, 1997 and for each of the three fiscal years in the
period ended June 29, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Shoppers Food Warehouse
Corp. and subsidiaries as of February 1, 1997, June 29, 1996, and July 1,
1995, and the results of their operations and their cash flows for the thirty-
one weeks ended February 1, 1997, and for each of the three fiscal years in
the period ended June 29, 1996, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Washington, D.C.,
April 5, 1997
F-3
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED BALANCE SHEETS
AS OF JULY 1, 1995, JUNE 29, 1996 AND FEBRUARY 1, 1997
<TABLE>
<CAPTION>
JULY 1, JUNE 29, FEBRUARY 1,
1995 1996 1997
-------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 38,650 $ 3,560 $ 13,739
Short-term investments....................... 58,353 103,080 94,999
Accounts receivable.......................... 7,633 7,708 9,244
Merchandise inventories...................... 27,253 28,342 29,699
Prepaid expenses............................. 956 1,022 2,056
Income tax receivable........................ -- 273 --
Due from affiliate........................... 522 522 522
-------- -------- --------
Total current assets....................... 133,367 144,507 150,259
-------- -------- --------
Property and equipment, at cost:
Land and buildings........................... 9,120 9,120 9,120
Store and warehouse equipment................ 71,195 75,827 78,737
Office and automotive equipment.............. 3,655 3,727 3,767
Leasehold improvements....................... 2,477 2,655 4,412
-------- -------- --------
86,447 91,329 96,036
Accumulated depreciation and amortization.... (63,504) (69,944) (73,944)
-------- -------- --------
Net property and equipment................. 22,943 21,385 22,092
Deferred income taxes.......................... 4,577 4,289 5,853
Other assets................................... 1,116 841 804
-------- -------- --------
Total assets............................... $162,003 $171,022 $179,008
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 38,275 $ 39,865 $ 41,830
Accrued expenses--
Salaries and benefits...................... 4,931 5,220 4,886
Taxes, other than income................... 1,934 1,996 2,903
Other...................................... 4,623 5,150 6,469
Income taxes payable......................... 2,152 -- 1,391
-------- -------- --------
Total current liabilities.................. 51,915 52,231 57,479
Capital lease obligation....................... 9,950 10,069 10,035
Deferred income................................ 1,218 412 2,448
Deferred rent liability........................ 3,590 4,277 4,558
-------- -------- --------
Total liabilities.......................... 66,673 66,989 74,520
-------- -------- --------
Commitments and contingencies (Notes 2 and 6)
Stockholders' equity:
Class A common stock, nonvoting, par value $5
per share, 25,000 shares authorized, 23,333
1/3 shares issued and outstanding........... 117 117 117
Class B common stock, voting, par value $5
per share, 25,000 shares authorized, 10,000
shares issued and outstanding............... 50 50 50
Retained earnings............................ 95,163 103,866 104,321
-------- -------- --------
Total stockholders' equity................. 95,330 104,033 104,488
-------- -------- --------
Total liabilities and stockholders'
equity.................................... $162,003 $171,022 $179,008
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE FISCAL YEARS ENDED JULY 2, 1994, JULY 1, 1995,
JUNE 29, 1996, AND THE THIRTY-ONE WEEKS ENDED FEBRUARY 3, 1996 AND FEBRUARY 1,
1997
<TABLE>
<CAPTION>
(UNAUDITED)
JULY 2, JULY 1, JUNE 29, FEBRUARY 3, FEBRUARY 1,
1994 1995 1996 1996 1997
(52 WEEKS) (52 WEEKS) (52 WEEKS) (31 WEEKS) (31 WEEKS)
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales................... $750,340 $790,842 $835,971 $496,121 $511,025
Cost of sales........... 593,063 616,521 651,986 390,186 398,129
----------- ----------- ----------- ----------- -----------
Gross profit.......... 157,277 174,321 183,985 105,935 112,896
Selling and administra-
tive expenses.......... 127,643 136,798 149,570 89,280 94,304
Depreciation and amorti-
zation................. 10,785 8,529 8,913 4,766 4,573
----------- ----------- ----------- ----------- -----------
Operating income...... 18,849 28,994 25,502 11,889 14,019
Interest income......... 2,189 4,682 5,789 3,330 3,526
Interest expense........ 1,426 1,451 1,771 836 710
Insurance settlement,
gain (loss)............ 1,360 2,065 (355) (355) --
----------- ----------- ----------- ----------- -----------
Income before income
taxes................ 20,972 34,290 29,165 14,028 16,835
Provision for income
taxes.................. 8,043 14,764 10,462 5,433 6,380
----------- ----------- ----------- ----------- -----------
Net income............ $ 12,929 $ 19,526 $ 18,703 $ 8,595 $ 10,455
=========== =========== =========== =========== ===========
Earnings per common
share data:
Earnings per common
share................ $ 387.87 $ 585.78 $ 561.09 $ 257.85 $ 313.65
=========== =========== =========== =========== ===========
Weighted average number
of common shares
outstanding............ 33,333 1/3 33,333 1/3 33,333 1/3 33,333 1/3 33,333 1/3
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JULY 2, 1994, JULY 1, 1995,
JUNE 29, 1996 AND THE THIRTY-ONE WEEKS ENDED FEBRUARY 1, 1997
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
CLASS A CLASS B RETAINED
NONVOTING VOTING EARNINGS TOTAL
--------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, July 3, 1993..................... $117 $ 50 $ 62,708 $ 62,875
Net income.............................. -- -- 12,929 12,929
---- ---- -------- --------
Balance, July 2, 1994..................... 117 50 75,637 75,804
Net income.............................. -- -- 19,526 19,526
---- ---- -------- --------
Balance, July 1, 1995..................... 117 50 95,163 95,330
Net income.............................. -- -- 18,703 18,703
Shareholder distribution................ -- -- (10,000) (10,000)
---- ---- -------- --------
Balance, June 29, 1996.................... 117 50 103,866 104,033
---- ---- -------- --------
Net income.............................. -- -- 10,455 10,455
Shareholder distribution................ -- -- (10,000) (10,000)
---- ---- -------- --------
Balance, February 1, 1997................. $117 $ 50 $104,321 $104,488
==== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JULY 2, 1994, JULY 1, 1995
AND JUNE 29, 1996 AND THE THIRTY-ONE WEEKS ENDED FEBRUARY 1, 1997
<TABLE>
<CAPTION>
JULY 2, JULY 1, JUNE 29, FEBRUARY 1,
1994 1995 1996 1997
(52 WEEKS) (52 WEEKS) (52 WEEKS) (31 WEEKS)
---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activi-
ties:
Net income....................... $12,929 $ 19,526 $ 18,703 $ 10,455
Adjustments to reconcile net in-
come to net cash provided by op-
erating activities--
Depreciation and amortization... 10,785 8,529 8,913 4,573
Increase in deferred income tax-
es............................. (594) (1,058) 288 (1,564)
Loss (gain) on disposition of
assets......................... (15) 34 -- --
Effect of insurance receivable
on income...................... (104) -- -- --
Interest expense in excess of
capital lease payments......... 240 208 119 --
Increase in deferred rent lia-
bility......................... 1,082 553 687 281
Changes in operating assets and
liabilities:
Accounts receivable............ (3,952) 1,028 (75) (1,536)
Merchandise inventories........ (2,455) 1,810 (1,089) (1,357)
Prepaid expenses............... (53) (63) (66) (1,034)
Due from affiliate............. -- 490 -- --
Other assets................... (354) (252) 275 37
Accounts payable............... 1,544 2,009 1,590 1,965
Accrued expenses............... 241 (1,023) 878 1,892
Income taxes payable........... 144 1,307 (2,425) 1,664
Deferred income................ (1,177) (1,191) (806) 2,036
------- -------- -------- --------
Net cash provided by operating
activities................... 18,261 31,907 26,992 17,412
------- -------- -------- --------
Cash flows from investing activi-
ties:
Capital expenditures............. (5,112) (4,693) (7,355) (5,280)
Proceeds from sale of fixed as-
sets............................ 15 -- -- --
(Purchase)/sale of short-term in-
vestments, net.................. (1,962) (55,781) (44,727) 8,081
------- -------- -------- --------
Net cash provided by (used in)
investing activities......... (7,059) (60,474) (52,082) 2,801
------- -------- -------- --------
Cash flows from financing activi-
ties:
Shareholder distribution......... -- -- (10,000) (10,000)
Payments on capital lease........ -- -- -- (34)
------- -------- -------- --------
Net cash used in financing ac-
tivities..................... -- -- (10,000) (10,034)
------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents............. 11,202 (28,567) (35,090) 10,179
Cash and cash equivalents, begin-
ning of period................... 56,015 67,217 38,650 3,560
------- -------- -------- --------
Cash and cash equivalents, end of
period........................... $67,217 $ 38,650 $ 3,560 $ 13,739
======= ======== ======== ========
Supplementary disclosures of cash
flow information:
Cash paid during the fiscal year
for--
Income taxes.................... $ 8,525 $ 12,091 $ 12,487 $ 6,300
Interest........................ $ 1,456 $ 1,451 $ 1,771 $ 710
======= ======== ======== ========
Supplemental disclosure of noncash
financing activity:
In fiscal year 1994, the Company
recorded an insurance
receivable and wrote-off
certain assets with a net book
value of $708,000 due to fire
damage
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31 WEEKS ENDED FEBRUARY 1, 1997 AND THE 52 WEEKS ENDED
JUNE 29, 1996, JULY 1, 1995 AND JULY 2, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements include Shoppers Food Warehouse Corp.
(a Delaware corporation) and its subsidiaries, collectively the "Company." All
significant intercompany accounts and transactions have been eliminated. As of
February 1, 1997, June 29, 1996, and July 1, 1995, the Company operated 34, 34
and 33 warehouse-style grocery stores, respectively, in Maryland and Virginia.
FISCAL YEAR
In connection with the acquisition (see Note 6), the Company changed its
fiscal year end to the Saturday closest to January 31. Previously the
Company's fiscal year ended on the Saturday closest to June 30. A fiscal year
end coinciding with the Saturday closest to a month end results in a 52 or 53
week year. The fiscal years ended June 29, 1996, July 1, 1995, and July 2,
1994 contained 52 weeks. The period ended February 1, 1997 contained 31 weeks.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid temporary cash investments with
maturities of three months or less to be cash equivalents. The majority of
these are invested in U.S. Treasury Notes.
SHORT TERM INVESTMENTS
Effective July 1994, the company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The Company carries debt securities at amortized cost as
it has both the positive intent and ability to hold these investments to
maturity. The effect of adopting SFAS No. 115 did not materially impact the
Company's financial position or results of its operations. At February 1,
1997, June 29, 1996, and July 1, 1995 short-term investments consisted of U.S.
Government Treasury Notes with original maturities of more than three months
which management intended to hold to maturity. Short term investments carried
as of February 1, 1997 mature at various dates from February 15, 1997 to
November 15, 1997. Subsequent to year-end, management liquidated a substantial
amount of its short-term investments in order to reduce the debt associated
with the acquisition by Dart Group Corporation ("Dart") of 50 percent equity
in the Company that it did not own (see Note 6).
MERCHANDISE INVENTORIES
The Company's inventories are priced at the lower of cost or market. Cost is
determined using the last-in, first-out method. If replacement cost (which
approximates the first-in, first-out method) had been used, inventories would
have been greater by approximately $4,375,000, $3,845,000 and $2,940,000 as of
February 1, 1997, June 29, 1996 and July 1, 1995 respectively. Net income
would have been higher by approximately $530,000 for the period ended February
1, 1997, and $905,000, $877,000, and $364,000, for the fiscal years ended June
29, 1996, July 1, 1995, and July 2, 1994, respectively.
F-8
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ACCOUNTS RECEIVABLE
Accounts receivable include amounts due from vendors for coupons remitted,
cooperative advertising, merchandise rebates, as well as interest receivable
on treasury notes.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company depreciates property
and equipment using accelerated methods over the estimated useful lives of the
assets, generally five to seven years.
ACCRUED INSURANCE CLAIMS
The Company maintains self funded coverage with respect to general, workers
compensation, and health insurance liabilities. Claims for general and
workers' compensation are administered through insurance companies, which
estimate the obligation of reported claims. An estimate of the obligation for
health insurance claims is accrued at year-end and is based on historical
data. Expenses arising from claims are accrued as claims become subject to
estimation. Self-insurance liabilities are based on claims filed plus an
additional amount for incurred but not reported claims. These liabilities are
not discounted.
INCOME TAXES
The Company provides a deferred tax expense or benefit equal to the change
in the net deferred tax asset during the year in accordance with SFAS No. 109
"Accounting for Income Taxes." Deferred income taxes represent the future net
tax effects resulting from temporary differences between the financial
statements and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
STORE OPENING AND CLOSING COSTS
All costs of a noncapital nature incurred in opening a new store are charged
to expense as incurred. The Company opened one new store during each of the
fiscal years ended June 29, 1996 and July 2, 1994. No stores were opened
during the year ended July 1, 1995 and the period ended February 1, 1997.
The costs associated with store closings are charged to selling and
administrative expense when management makes the decision to close a store.
Such costs consist primarily of lease payments and other carrying costs of
holding the facility, net of estimated sublease income.
DEFERRED INCOME
The Company has entered into various agreements with vendors and suppliers
which provide for the payment of cash or the receipt of merchandise at the
beginning or during the contract period. These amounts are deferred and
amortized over the expected lives of the contracts.
LONG LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value should be assessed. Impairment
is measured by comparing the carrying value to the estimated undiscounted
future cash flows expected to result from the use of the assets and their
eventual disposition. The Company has determined that as of February 1, 1997,
there has been no impairment in the carrying value of long-lived assets.
F-9
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company's assets that are exposed to credit risk consist primarily of
cash and cash equivalents, short-term investments, and accounts receivable.
The Company maintains cash and cash equivalents with major banks in its
marketplace. The Company performs periodic evaluations of the relative credit
standing of the financial institutions with which it does business. The
Company's short-term investments are invested in U.S. Government Treasury
Notes. The Company's accounts receivable balance results primarily from the
amounts due from its vendors for various promotional programs. The Company
periodically reviews its accounts receivable balance and allows for
uncollectible accounts.
CURRENT ASSETS AND CURRENT LIABILITIES
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires the disclosure of the fair value of a financial instrument for which
it is practicable to estimate the value and the methods and significant
assumptions used to estimate the value. At February 1, 1997, June 29, 1996,
and July 1, 1995 the carrying amount of current assets and current liabilities
approximates fair value due to the short maturity of those instruments.
2. DISPOSITION OF TOTAL BEVERAGE CORP.
In October 1992, the Company opened Total Beverage Corp. ("Total Beverage"),
a discount beverage retail store. On February 27, 1993, the company entered
into an Asset Purchase Agreement (the "Agreement") to sell Total Beverage to
Dart.
As proceeds from the sale, the Company received approximately $1,493,000 in
a note receivable (the "Note"). Under the terms of the Agreement, the Company
is required to reimburse the buyer for 25 percent of future operating losses
of Total Beverage, as defined in the Agreement, over a three year period. To
the extent of such losses, the Company will remit funds first by reducing
amounts due under the Note and then by remitting payment to the buyer. The
Note and accrued interest were due in February 1995. The Company has reflected
the Note, net of a $1,000,000 reserve, in the accompanying balance sheets as
of February 1, 1997, June 29, 1996, and July 1, 1995 respectively. Management
believes the reserve is adequate to provide for any reductions in the Note.
3. OTHER ACCRUED EXPENSES:
Other accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 1, JUNE 29, JULY 1,
1997 1996 1995
----------- -------- -------
<S> <C> <C> <C>
Accrued insurance.................................. $3,441 $2,719 $2,262
Reserve for store closing.......................... 1,513 853 853
Gift certificates outstanding...................... 1,090 928 815
Other.............................................. 425 650 693
------ ------ ------
Total............................................ $6,469 $5,150 $4,623
====== ====== ======
</TABLE>
F-10
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INCOME TAXES:
The provision for income taxes is comprised of the following (in thousands).
<TABLE>
<CAPTION>
THIRTY-ONE FISCAL YEAR
WEEKS ENDED ENDED
FEBRUARY 1, JUNE 29, JULY 1, JULY 2,
1997 1996 1995 1994
----------- -------- ------- -----------
<S> <C> <C> <C> <C>
Current income tax provision:
Federal........................... $ 7,412 $ 9,493 $14,248 $ 8,084
State............................. 532 681 1,574 1,088
Deferred income tax (benefit) provi-
sion............................... (1,564) 288 (1,058) (1,129)
------- ------- ------- -------
$ 6,380 $10,462 $14,764 $ 8,043
======= ======= ======= =======
</TABLE>
This effective income tax rate is reconciled to the Federal statutory rate as
follows:
<TABLE>
<CAPTION>
THIRTY-ONE FISCAL YEAR ENDED
WEEKS ENDED ------------------------
FEBRUARY 1, JUNE 29, JULY 1, JULY 2,
1997 1996 1995 1994
----------- -------- ------- -------
<S> <C> <C> <C> <C>
Federal statutory rate................... 35% 35% 35% 35%
Increase in taxes resulting from:
State income taxes, net of Federal income
tax benefit............................. 2.0 2.0 3.1 3.0
Revision of estimate for tax accruals.... -- -- 3.7 --
Other.................................... 0.9 (1.1) 1.3 0.4
---- ---- ---- ----
Effective tax rate....................... 37.9% 35.9% 43.1% 38.4%
==== ==== ==== ====
</TABLE>
Temporary differences which give rise to the deferred tax assets and
liabilities on a consolidated basis are as follows (in thousands).
<TABLE>
<CAPTION>
THIRTY-ONE FISCAL YEAR ENDED
WEEKS ENDED -------------------
FEBRUARY 1, JUNE 29, JULY 1,
1997 1996 1995
----------- --------- --------
<S> <C> <C> <C>
Deferred tax assets:
Loss on disposition of Total Beverage....... $ 374 $ 374 $ 381
Reserves for store closings and other....... 566 319 325
Deferred Rent............................... 1,705 1,600 1,433
Capital Lease............................... 505 517 946
Employee Benefits........................... 2,241 1,843 1,472
Deferred Income............................. 435 154 557
Other....................................... 326 89 --
------ -------- --------
$6,152 $ 4,896 $ 5,114
====== ======== ========
Deferred tax liabilities:
Depreciation................................ (299) (607) (526)
Other....................................... -- -- (11)
------ -------- --------
(299) (607) (537)
------ -------- --------
Net deferred tax asset........................ $5,853 $ 4,289 $ 4,577
====== ======== ========
</TABLE>
F-11
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company
believes that no valuation allowance is necessary as of February 1, 1997, June
29, 1996, and July 1, 1995 due to its history of profitable operations.
5. COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' AGREEMENT
The Company's stockholders are party to a stockholders' agreement dated June
28, 1988 (the "Stockholder Agreement"), that specifies how a stockholder can
transfer ownership of their interest in the Company's stock. In June 1996 and
September 1996, the Company declared cash dividends payable to its
stockholders. Subsequent to February 1, 1997, Dart purchased the remaining 50%
interest in the Company that it did not already own (see Note 6).
401(K) PLAN
Prior to fiscal year 1995 the Company maintained a noncontributory profit
sharing plan (the "Plan") for all employees with one year of full time
continuous service. Discretionary contributions were made by the Company in
trust for the exclusive benefit of employees who qualified under the Plan. The
Board of Directors authorized a contribution of $300,000 to the Plan for the
fiscal year ended July 2, 1994. During fiscal 1995, the Company replaced the
Plan with a defined contribution 401(k) plan (the "New Plan"). The New Plan is
available to substantially all employees over the age of 21 who have completed
one year of continuous service. Discretionary contributions are made by the
Company in trust for the exclusive benefit of employees who participate in the
New Plan. The Board of Directors authorized a contribution of $400,000 to the
New Plan for both fiscal years ending June 29, 1996 and July 1, 1995. For the
thirty-one weeks ended February 1, 1997, the Company has accrued $233,000
related to its projected fiscal year 1997 contribution. All amounts
contributed to the New Plan are included in accrued salaries and benefits in
the accompanying financial statements.
MULTIEMPLOYER PLANS
The Company makes contributions to multiemployer plans for its union
employees. Such contributions, net of employee contributions, totaled
approximately $440,000, $6,205,000, $282,000, for pension, health and welfare,
and legal benefit plans, respectively, for the thirty-one weeks ended February
1, 1997. Contributions to the pension, health and welfare, and legal benefit
plans totaled approximately $838,000, $10,373,000, and $466,000, respectively,
for the year ended June 29, 1996, $787,000, $8,701,000 and $408,000,
respectively, for the year ended July 1, 1995 and $745,000, $7,437,000 and
$382,000, respectively, for year ended July 2, 1994.
LEASE COMMITMENTS
The Company leases warehouse and retail store facilities under noncancelable
lease agreements ranging from 1 to 20 years. Renewal options are available on
the majority of the leases for one or more periods of five years each. Most
leases require the payment of taxes and maintenance costs, and some leases
provide for additional rentals based on sales in excess of specified minimums.
All store leases have stated periodic rental increases. The increases are
amortized over the lives of the leases. Rent expense includes approximately
$281,000, $687,000, $802,000 and $832,000 of amortized rental increases for
the period ended February 1, 1997, and for the year ended June 29, 1996, July
1, 1995, and July 2, 1994 respectively.
F-12
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Following is a schedule of annual future minimum payments under the capital
lease for office space, assuming future annual increases of 6 percent, and
noncancelable operating leases, which have initial or remaining terms in
excess of one year at February 1, 1997 (in thousands).
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASE LEASE
----------- ------- ---------
<S> <C> <C>
1998....................................................... $ 1,316 $ 13,038
1999....................................................... 1,395 13,115
2000....................................................... 1,478 12,957
2001....................................................... 1,567 12,665
2002....................................................... 1,661 12,291
Thereafter................................................. 19,742 107,833
------- --------
Total.................................................... $27,159 $171,899
========
Less--Imputed Interest..................................... 17,124
-------
Present Value of net minimum lease payments................ $10,035
Less--Current maturities................................... --
-------
Long-term capital lease obligations........................ $10,035
=======
</TABLE>
Rent expense for operating leases charged to operations is as follows (in
thousands):
<TABLE>
<CAPTION>
THIRTY-ONE FISCAL YEAR ENDED
WEEKS ENDED ------------------------
FEBRUARY 1, JUNE 29, JULY 1, JULY 2,
1997 1996 1995 1994
----------- -------- ------- -------
<S> <C> <C> <C> <C>
Minimum rentals......................... $ 7,288 $12,021 $10,925 $11,034
Contingent rentals...................... 3,770 4,006 4,054 4,052
------- ------- ------- -------
Total................................. $11,058 $16,027 $14,979 $15,086
======= ======= ======= =======
</TABLE>
RELATED-PARTY LEASES
In July 1990, the Company entered into an agreement to lease an 86,000
square foot office building in Lanham, Maryland, from a private partnership
(the "Partnership") which is owned by stockholders of the Company. The lease
is for 20 years and it commenced December 10, 1990. The lease provides for
yearly increasing rental payments, based upon the Consumer Price Index for the
Washington D.C., metropolitan statistical area; however, the annual increases
will not be more than 6 percent or less than 3 percent. Rental payments for
the thirty-one weeks ended February 1, 1997 and for fiscal years ended June
29, 1996, July 1, 1995, and July 2, 1994 were approximately $744,000,
$1,246,000, $1,210,000, and $1,175,000 respectively, and all payments over the
life of the lease total approximately $34,400,000. The Company is accounting
for the lease as a capital lease. Due to fixed rental increases during the
term of the lease, lease payments exceeded interest expense by approximately
$34,000 for the thirty-one weeks ended February 1, 1997. Interest expense
exceeded lease payments by $254,000, $292,000, and $321,000 for the fiscal
years ended June 29, 1996, July 1, 1995, and July 2, 1994, respectively.
Assuming future annual rental increases of 6 percent, the capital lease
obligation will continue to increase through November 2000, at which time
accumulated interest expense recognized for financial reporting purposes will
exceed lease payments by approximately $1,800,000. The lease requires the
Company to pay for maintenance, utilities, insurance, and taxes. The
Partnership purchased the office building for approximately $8,663,000 in July
of 1990.
F-13
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the period ended February 1, 1997, and the fiscal years ended June
29, 1996, July 1, 1995, and July 2, 1994, the Company made rental payments of
approximately $3,573,000, $5,384,000, $5,985,000, and $5,327,000 respectively
on store leases to partnerships related to stockholders of the Company. As of
February 1, 1997, the Company had ten store operating leases with partnerships
related to stockholders of the Company. The remaining future minimum payments
under these leases exclusive of option periods are approximately $70,820,000
and expire through 2014.
The Company made payments of approximately $198,000, $278,000, $246,000, and
$246,000 during the thirty-one weeks ended February 1, 1997, and each of the
fiscal years ended June 29, 1996, July 1, 1995, and July 2, 1994 for warehouse
operating leases to a partnership owned by stockholders of the Company and to
a corporation related to stockholders of the Company. As of February 1, 1997,
the remaining future minimum annual payments under these leases are
approximately $1,386,000 and expire in 2002.
SUBLEASING AGREEMENTS
The Company subleases space within one store for the sale of beer and wine
to an entity affiliated with its officers. The Company received rental income
of approximately $57,865, $155,000, $155,000, and $123,000 in the thirty-one
weeks ended February 1, 1997, and in the fiscal years ended June 29, 1996,
July 1, 1995, and July 2, 1994 respectively, from this entity, which is
included in selling and administrative expenses.
As of February 1, 1997, there were three unaffiliated subtenants in the
Lanham, Maryland office building leased by the Compamy from the Partnership.
The subtenants are leasing approximately 30,000 square feet. The subleases
expire between January 1998 and September 2000. The Company received rental
income of approximately $321,000, $551,000, $530,000 and $615,000 in the
period ending February 1, 1997 and in the fiscal years ended June 29, 1996,
July 1, 1995, and July 2, 1994 respectively from its subtenants.
During the period ended June 29, 1996 the Company began leasing space to a
corporation related to the stockholders of the Company. The Company received
rental income of approximately $91,000 and $140,000 during the period ended
February 1, 1997 and during the fiscal year ended June 29, 1996.
LINE-OF CREDIT AGREEMENT/LETTERS OF CREDIT
The Company has a $35,000,000 line-of-credit with a local bank, with
interest payable at the prime rate. The Company has authorized the local bank
to issue letters of credit in connection with the Company's workers'
compensation insurance. There were no borrowings on this line in the seven
months ended February 1, 1997. As of February 1, 1997, June 29, 1996, and July
1, 1995, the Company's line of credit was reduced by outstanding letters of
credit of approximately $6,724,000, $6,424,000 and $6,135,000, respectively.
The line of credit expired on March 31, 1997, however, the letters of credit
will mature at various dates throughout 1998.
LEGAL PROCEEDINGS
The Company is involved in routine litigation incidental to operations. In
the opinion of management, it is unlikely that any exposure from these actions
will have a material impact on the Company's financial position.
INSURANCE SETTLEMENT
In June of 1994, the Company had one store that incurred significant fire
damage. The Company recorded the insurance settlement on the store's
inventory, fixed assets, reimbursable payroll costs, and other business
interruption costs. The gross insurance proceeds were $2,065,000 and
$1,360,000, during the fiscal years ended July 1, 1995, and July 2, 1994,
respectively. The amount recorded in fiscal year 1994 was net of associated
costs
F-14
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to write-off assets with a net book value of $708,000. During the fiscal year
ended June 29, 1996, the insurance claim was settled in full and the Company
recorded a loss of $355,000 to reflect the remaining amount received for
insurance proceeds, net of associated costs. Insurance settlements have been
reclassified from prior year presentations in the accompanying financial
statements.
6. SUBSEQUENT EVENTS
On December 16, 1996, Dart submitted offers, pursuant to the Stockholders'
Agreement governing Dart's investment in the Company, to either (i) sell all
of Dart's 50 percent equity interest in the Company or (ii) buy the 50 percent
equity interest in the Company that it did not own, in either case for a cash
price of $210 million. On December 18, 1996, the other stockholders accepted
Dart's offer to purchase their shares (the "Shares") of capital stock of the
Company. Under the terms of the Stockholders' Agreement, Dart's acquisition
(the "Acquisition") of the shares was to take place within 60 days of such
acceptance.
On February 6, 1997, Dart acquired the remaining 50% interest in the
Company. To effect the Acquisition, Dart's wholly owned subsidiary, SFW
Acquisition Corp., issued $140,000,000 in Increasing Rate Senior Notes due in
2000 ("Increasing Rate Notes") and funded the remaining portion of the
purchase price with bridge financing. Immediately following the Acquisition,
Dart liquidated a substantial amount of the Company's short-term investments
to repay the bridge financing and fee associated with the transaction. In
addition, the Company was merged with SFW Acquisition Corp. and the Company
became the obligor of the Increasing Rate Notes. Also, on February 6, 1997,
the Company authorized a $10,000,000 dividend to stockholders of record on
February 7, 1997.
7. RESULTS OF OPERATION AND PRO FORMA DATA FOR THE 52 WEEKS ENDED FEBRUARY 1,
1997 (UNAUDITED)
The pro forma results reflect the push-down of all acquisition entries as if
the acquisition discussed in Note 6 had occurred as of February 4, 1996. These
entries do not reflect the refinancing transaction contemplated in this
document.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
FEBRUARY 1, FEBRUARY 1,
1997 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Sales................................................ $850,875 $850,875
Cost of Sales........................................ 659,929 659,929
-------- --------
Gross Profit....................................... 190,946 190,946
Selling and Administrative Expenses.................. 154,594 154,594
Depreciation and Amortization........................ 8,720 13,180
-------- --------
Operating Income................................... 27,632 23,172
Interest Income...................................... 5,985 874
Interest Expense..................................... 1,645 20,892
-------- --------
Income before Taxes................................ 31,972 3,154
Provision for Income Taxes........................... 11,409 2,494
-------- --------
Net Income (Loss).................................. $ 20,563 $ 660
======== ========
</TABLE>
F-15
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
INTERIM FINANCIAL STATEMENTS
AS OF MAY 4, 1996 AND MAY 3, 1997
F-16
<PAGE>
SHOPPERS FOOD WAREHOUSE
CONSOLIDATED BALANCE SHEETS
AS OF MAY 4, 1996 AND MAY 3, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 4, MAY 3,
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 8,154 $ 13,413
Short-term instruments............................. 101,118 27,867
Accounts receivable................................ 9,158 6,201
Merchandise inventories............................ 29,050 28,656
Prepaid expenses................................... 1,227 1,569
Due from affiliate................................. 522 522
----------- -----------
149,229 78,228
----------- -----------
Property and equipment, at cost:
Land and buildings................................. 9,120 7,503
Store and warehouse equipment...................... 76,733 56,695
Office and automotive equipment.................... 3,711 2,018
Leasehold improvements............................. 2,592 3,842
----------- -----------
92,156 70,058
Accumulated depreciation and amortization.......... (70,687) (36,861)
----------- -----------
Net property and equipment....................... 21,469 33,197
----------- -----------
Deferred income taxes.............................. 4,971 --
Deferred financing costs........................... -- 5,616
Excess purchase price over net assets acquired..... -- 147,895
Lease rights....................................... -- 12,150
Other assets....................................... 1,374 884
----------- -----------
Total assets..................................... $ 177,043 $ 277,970
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 41,627 $ 42,100
Accrued expenses--
Salaries and benefits............................ 4,765 4,991
Taxes other than income.......................... 1,857 2,350
Other............................................ 8,751 13,555
Dividend payable.................................. -- 10,000
Income taxes payable.............................. 4,925 2,262
----------- -----------
61,925 75,258
Increasing rate notes due 2000....................... -- 140,000
Capital lease obligation............................. 10,027 11,497
Deferred income taxes................................ -- 3,501
Deferred income...................................... 483 2,058
Deferred rent liability.............................. 4,193 235
----------- -----------
Total liabilities................................ 76,628 232,549
----------- -----------
Commitments and Contingencies
Stockholders' equity:
Class A common stock, nonvoting, par value $5.00
per share, 25,000 shares authorized, 23,333 1/3
shares issued..................................... 117 117
Class B common stock, voting, par value $5.00 per
share, 25,000 shares authorized, 10,000 shares
issued............................................ 50 50
Retained earnings.................................. 100,248 45,254
----------- -----------
Total stockholders' equity....................... 100,415 45,421
----------- -----------
Total liabilities and stockholders' equity....... $ 177,043 $ 277,970
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-17
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED MAY 4, 1996 AND MAY 3, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 4, MAY 3,
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Sales.................................................. $ 209,036 $ 209,981
Cost of sales.......................................... 161,105 159,535
----------- -----------
Gross profit....................................... 47,931 50,446
Selling and administrative expenses.................... 36,415 37,545
Depreciation and amortization.......................... 2,323 2,495
----------- -----------
Operating income................................... 9,193 10,406
Interest income........................................ 1,490 499
Interest expense....................................... 378 5,250
----------- -----------
Income before income taxes......................... 10,305 5,655
Provision for income taxes............................. 3,813 2,478
----------- -----------
Net income............................................. $ 6,492 $ 3,177
=========== ===========
Earnings per common share data:
Earnings per common share.......................... $ 194.76 $ 95.31
=========== ===========
Weighted average number of shares outstanding.......... 33,333 1/3 33,333 1/3
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-18
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THIRTEEN WEEKS ENDED MAY 3, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
CLASS A CLASS B RETAINED
NONVOTING VOTING EARNINGS TOTAL
--------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance February 1, 1997.................. $117 $50 $104,321 $104,488
Merger of SFW Acquisition Corp.......... -- -- (52,244) (52,244)
Dividend declared....................... -- -- (10,000) (10,000)
Net income.............................. -- -- 3,177 3,177
---- --- -------- --------
Balance May 3, 1997....................... $117 $50 $ 45,254 $ 45,421
==== === ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-19
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED MAY 4, 1996 AND MAY 3, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 4, MAY 3,
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 6,492 $ 3,177
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization..................... 2,323 2,495
Amortization of deferred financing costs.......... -- 510
Interest in excess of capital lease payments...... 62 102
Increase in deferred rent liability............... 151 235
Changes in assets and liabilities:
Accounts receivable............................... 25 3,043
Merchandise inventories........................... (410) 1,043
Prepaid expenses.................................. 48 487
Other assets...................................... (171) (80)
Accounts payable.................................. 882 270
Accrued expenses.................................. 860 2,037
Income taxes payable.............................. 2,664 871
Deferred income................................... (68) (390)
----------- -----------
Net cash provided by operating activities........ 12,858 13,800
----------- -----------
Cash flows from investing activities:
Capital expenditures............................... (2,410) (1,522)
(Purchase) sale of short-term investments.......... (14,772) 67,132
----------- -----------
Net cash (used in) provided by investing activi-
ties............................................ (17,182) 65,610
----------- -----------
Cash flows from financing activities:
Payments for acquisition and deferred financing
costs............................................. -- (6,936)
Payment of acquisition debt........................ -- (72,800)
----------- -----------
Net cash used in investing activities............ -- (79,736)
----------- -----------
Net decrease in cash and equivalents................. (4,324) (326)
Cash and equivalents, beginning of period............ 12,478 13,739
----------- -----------
Cash and equivalents, end of period.................. $ 8,154 $ 13,413
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for--
Interest.......................................... $ 378 $ 3,730
Income taxes...................................... 1,150 750
</TABLE>
Supplemental disclosure of noncash activities:
In conjunction with the acquisition of a 50% interest in the Company, $210
million of debt was pushed down into the Company's financial statements, (see
Note 5).
The accompanying notes are an integral part of these consolidated statements.
F-20
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED MAY 4, 1996 AND MAY 3, 1997
The accompanying condensed interim consolidated financial statements as of
May 3, 1997 and for the 13 weeks ended May 3, 1997 and May 4, 1996 of the
Company have been prepared by Shoppers Food Warehouse Corp. (the "Company")
without an audit. Certain information and footnote disclosures normally
included in the financial statements in accordance with generally accepted
accounting principles have been omitted from the accompanying interim
financial statements. The condensed interim financial statements and the notes
thereto should be read in conjunction with the audited consolidated financial
statements and the notes thereto commencing on page F-3 of this Prospectus.
NOTE 1--GENERAL
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Accordingly, actual results could differ
from those estimates.
In the opinion of the Company, the accompanying unaudited interim
consolidated financial statements reflect all adjustments (which include
normal recurring adjustments) necessary to present fairly the financial
position of the Company as of May 3, 1997, and the results of its operations
for the 13 weeks ended May 3, 1997, and May 4, 1996. The results of operations
for the quarters ended May 3, 1997 and May 4, 1996 are not necessarily
indicative of the results to be achieved for the full fiscal year.
NOTE 2--EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of shares
of common stock outstanding during the periods.
In March 1997 the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. The
Company does not expect the implementation of SFAS No. 128 to have a material
effect on the primary earnings per share reflected in the accompanying
financial statements.
NOTE 3--INTERIM INVENTORY ESTIMATES
The Company's inventories are priced at the lower of last-in, first-out
("LIFO") cost or market. At May 3, 1997 and May 4, 1996 inventories determined
on a first-in, first-out basis would have been greater by approximately
$4,601,000 and $3,696,000, respectively.
The Company takes a physical inventory on a store by store basis of its
grocery, frozen food, dairy and health and beauty care departments semi-
annually and the Company uses a gross profit method to determine inventories
for those departments for quarters when complete physical counts are not
taken. The Company did not take a physical inventory for these departments for
the quarter ended May 3, 1997. All perishable departments are inventoried
monthly.
NOTE 4--LEGAL PROCEEDINGS
In the ordinary course of its business, Shoppers is party to various legal
actions that the Company believes are routine in nature and incidental to the
operation of its business. The Company believes that the outcome of the
proceedings to which Shoppers currently is party will not have a material
adverse effect upon its business, financial condition and results of
operations. Dart, however, is a party to certain legal proceedings that could
F-21
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
have an adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Controlling Stockholder" and public
filings made by Dart with the Securities and Exchange Commission.
On December 6, 1995, the Delaware Court of Chancery entered a Standstill
Order that restricts certain actions by Dart. Without further order of the
court, Dart may not (i) change its certificate of incorporation or bylaws;
(ii) change the current composition of Dart's board of directors or any of its
subsidiaries; (iii) change the current Haft family officers of Dart or any of
its subsidiaries; or (iv) issue any additional securities of Dart or any of
its subsidiaries (except employee stock options issued in the ordinary course
of business). In addition, without first giving Herbert H. Haft and certain
other litigants not less than seven days' written notice, Dart may not take
any extraordinary actions, including but not limited to actions that would
result in (a) the liquidation of Dart or any of its subsidiaries, (b) the sale
of any major subsidiary of Dart or (c) a disadvantage to any Class B
stockholder of Dart through any debt transaction. For purposes of the
Standstill Order, the phrase "extraordinary actions" means any transaction,
contract or agreement, the value of which exceeds $3 million.
NOTE 5--ACQUISITION
On February 6, 1997, Dart acquired the 50% interest in Shoppers that it did
not already own for $210 million (the "Acquisition") and Shoppers became a
wholly owned subsidiary of Dart. Dart financed the Acquisition through the
application of $137.2 million in net proceeds raised from an offering of
Increasing Rate Senior Notes due 2000 (the "Increasing Rate Notes") of SFW
Acquisition Corp., a newly created wholly-owned indirect subsidiary of Dart,
and $72.8 million of bridge financing (the "Bridge Loan") provided by a bank.
Immediately after the Acquisition, SFW Acquisition Corp. merged into Shoppers
(with Shoppers becoming obligor on the Increasing Rate Notes) and Shoppers
repaid the Bridge Loan from its existing cash and the liquidation of certain
short-term investments. The Increasing Rate Notes bore interest at 10%,
increasing by 50 basis points every six months and containing certain
restrictive covenants, including limitations on additional indebtedness.
The Acquisition was recorded using the purchase method of accounting and
Dart's interest in Shoppers has been pushed down into the accompanying
financial statements. The purchase price has been allocated to the assets and
liabilities of Shoppers and the remaining excess purchase price over the net
assets acquired of $148,858 million represents goodwill which will be
amortized over 40 years. In connection with the Acquisition, the Company
adopted Dart's method of depreciating property and equipment on a straight
line basis. Prior to the Acquisition, the Company used accelerated
depreciation methods.
Pro forma results for the thirteen weeks ended May 4, 1996 as if the
Acquisition had occurred on February 4, 1996 are as follows. These pro forma
results do not reflect the refinancing transaction described in Note 6.
PRO FORMA
(THIRTEEN WEEKS)
MAY 4, 1996
<TABLE>
<S> <C>
Sales............................................................ $209,036
Income before income taxes....................................... 3,963
Net income....................................................... 2,228
</TABLE>
NOTE 6--SALE OF SENIOR NOTES DUE 2004
In June 1997, the Company sold $200,000,000 aggregate principal amount of
its Senior Notes due 2004 (the "Senior Notes") in a private placement. Net
proceeds from the sale of the Senior Notes were used to repay
F-22
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$140 million (plus accrued interest) of the Increasing Rate Notes and will be
used to pay dividends and loans of $50 million to the Company's ultimate
parent, Dart Group Corporation ("Dart"), if and when Dart settles litigation
with certain of its stockholders. These payments to Dart are restricted and
are contingent upon the settlement of certain litigation. If the Restricted
Proceeds are not used for this purpose, on or prior to June 30, 1998, then the
Company must use the Restricted Proceeds (including accrued interest) to
redeem $50 million aggregate principal amount of the Senior Notes at 101% of
the principal amount thereof and to pay accrued unpaid interest thereon. See
"Description of the Senior Notes--Redemption--Special Mandatory Redemption."
The Senior Notes are general unsecured obligations of the Company and rank
pari passu in right of payment with all existing and future senior
indebtedness of the Company and senior in right of payment to all existing and
future subordinated indebtedness of the Company. The Senior Notes are
effectively subordinated in right of payment to all secured indebtedness of
the Company. The Senior Notes are unconditionally guaranteed (the "Guarantee")
by SFW Holding Corp. (the "Guarantor"), the immediate parent of the Company.
The Guarantee is secured by a first priority security interest in the capital
stock of the Company owned by the Guarantor.
F-23
<PAGE>
================================================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CON-
TAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE GUARANTOR. THIS PROSPECTUS DOES NOT CON-
STITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY
OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL,
OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIV-
ERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF NOR THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 12
The Exchange Offer....................................................... 18
Use of Proceeds.......................................................... 26
Pro Forma Consolidated Capitalization.................................... 28
Unaudited Pro Forma Consolidated Financial Statements.................... 30
Selected Historical Financial Data....................................... 35
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 37
Business................................................................. 42
Management............................................................... 48
Certain Transactions..................................................... 51
Description of the Senior Notes.......................................... 53
Certain Income Tax Considerations........................................ 74
Book-Entry; Delivery and Form............................................ 74
Plan of Distribution..................................................... 76
Validity of the Senior Notes............................................. 77
Independent Auditors..................................................... 77
Index to Consolidated Financial Statements............................... F-1
</TABLE>
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS.
================================================================================
================================================================================
-------------------------------
PROSPECTUS
-------------------------------
SHOPPERS FOOD WAREHOUSE
CORP.
[LOGO OF SHOPPERS FOOD WAREHOUS CORP.APPEARS HERE]
OFFER TO EXCHANGE $200,000,000
OF ITS 9 3/4% SENIOR NOTES DUE
2004, WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT, FOR
$200,000,000, OF ITS OUTSTANDING 9 3/4%
SENIOR NOTES DUE 2004
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
SHOPPERS FOOD WAREHOUSE CORP.
The Restated Certificate of Incorporation of the Company (the "Company
Certificate of Incorporation"), a copy of which is filed as Exhibit 3.1 of
this Registration Statement, provides that the directors and officers of the
Company and anyone serving at the request of the Board of Directors of the
Company is indemnified by the Company to the fullest extent permitted by the
General Corporation Law of the State of Delaware (the "DGCL") or any other
applicable laws. The existing rights or protections of a director or officer
under the Company Certificate of Incorporation will not be affected by any
repeal or modification of such provisions. The Company may enter into
agreements with directors or officers that provide for indemnification greater
or different than that provided in the Company Certificate of Incorporation.
The Bylaws of the Company, a copy of which is filed as Exhibit 3.3 of this
Registration Statement, contain no provision for indemnification.
SFW HOLDING CORP.
The Certificate of Incorporation of the Guarantor (the "Guarantor
Certificate of Incorporation"), a copy of which is filed as Exhibit 3.2 of
this Registration Statement, provides that the directors and officers of the
Guarantor and anyone serving at the request of the Board of Directors of the
Guarantor is indemnified by the Guarantor to the fullest extent permitted by
the DGCL or any other applicable laws. The existing rights or protections of a
director or officer under the Guarantor Certificate of Incorporation will not
be affected by any repeal or modification of such provisions. The Guarantor
may enter into agreements with directors or officers that provide for
indemnification greater or different than that provided in the Guarantor
Certificate of Incorporation.
The Bylaws of the Guarantor, a copy of which is filed as Exhibit 3.4 to this
Registration Statement, contain no provision for indemnification.
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Under the DGCL, directors, officers, employees, and other individuals may be
indemnified against expenses (including attorneys' fees), judgements, fines,
and amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation--a "derivative action")
if they acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. A similar standard of care is applicable in the case of
a derivative action, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with defense or settlement
of such an action and Delaware law requires court approval before there can be
any indemnification of expenses where the person seeking indemnification has
been found liable to the corporation.
Delaware corporations may limit the personal liability of their directors
for monetary damages for a breach of fiduciary duty; provided, however, that
the directors can still be held personally liable (i) for a breach of the duty
of loyalty to the corporation and its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL (described below), and
(iv) for any transaction from which the director derived an improper personal
benefit. Section 174 of the DGCL makes directors personally liable for
unlawful dividends or unlawful stock repurchases or redemptions in certain
circumstances and expressly sets forth a negligence standard with respect to
such liability.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S>
3.1 Restated Certificate of Incorporation of the Company
3.2 Certificate of Incorporation of the Guarantor
3.3 Bylaws of the Company
3.4 Bylaws of the Guarantor
4.1 Indenture, dated as of June 26, 1997, by and among the Company, the
Guarantor and Norwest Bank Minnesota, National Association, as trustee
(the "Trustee")
4.2 Global Security, dated as of June 26, 1997, made by the Company and
guaranteed by the Guarantor
4.3 Form of Exchange Notes, including guarantee
4.4 Registration Rights Agreement, dated as of June 26, 1997, by and among
the Company, the Guarantor and Wasserstein Perella Securities, Inc.
4.5 Pledge Agreement, dated as of June 26, 1997, made by the Company to
the Trustee
5.1 Opinion of Jones, Day, Reavis & Pogue
10.1 Form of Letter of Employment. On February 4, 1997, the Company entered
into a Letter of Employment in substantially this form with certain
officers of the Company, including the following executive officers:
Jack W. Binder, Isaac Gendelman, Roy N. Marks and Louis Davis.
Schedule A to Exhibit 10.1 sets forth details contained in the Letter
of Employment with each of the executive officers listed above.
10.2 Supply Agreement, dated June 3, 1991, by and among the Company,
Shoppers Food Warehouse VA Corp., Shoppers Food Warehouse MD Corp. and
Super Rite Foods, Inc.
10.3 Agreement, dated July 6, 1993, by and among Jumbo Produce, Inc. and
Warehouse Employees Local Union No. 730 and Drivers, Chauffeurs and
Helpers Local Union No. 639
10.4 Agreement, dated July 6, 1993, by and between the Company and United
Food Warehouse Corp. and United Food and Commercial Workers Union
Local No. 27
10.5 Tax Sharing Agreement, dated February 6, 1997, by and between Dart
Group Corporation and SFW Acquisition Corp.
10.6 Management Services Agreement, dated February 6, 1997, by and between
Dart Group Corporation and the Company
10.7 Standstill Order entered on December 6, 1995 by the Delaware Chancery
Court in Gloria G. Haft, et al. v. Larry G. Schafran, et al. (Del. Ch.
Civ. A. No. 14620) and Herbert H. Haft v. Dart Group Corporation, et
al. (Del. Ch. Civ. A. No. 14685) (incorporated by reference to Exhibit
99.1 to the Quarterly Report of Dart Group Corporation on Form 10-Q
for the period ended October 31, 1995)
12.1 Computation of Ratio of Earnings to Fixed Charges
21.1 List of Subsidiaries of the Guarantor and the Company
23.1 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney of the Company (included herein)
24.2 Power of Attorney of the Guarantor (included herein)
25.1 Statement of eligibility of the Trustee on Form T-1
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to DTC Participants
99.4 Form of Letter to Clients and Form of Instruction to Book-Entry
Transfer Participants
</TABLE>
(b) Financial Statement Schedules
No schedules for which provision is made in the applicable regulations of the
Commission are required under the related instructions and have therefore been
omitted.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
The Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission (the "Commission") pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of this Registration Statement through the date of
responding to the request.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this Registration Statement
when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrants of expenses incurred or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities registered, the Registrants will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Shoppers Food Warehouse
Corp. has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Lanham, in the
State of Maryland, on August 4, 1997.
Shoppers Food Warehouse Corp.
Mark A. Flint
By: _________________________________
MARK A. FLINT President, Chief
Executive Officer and Director
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under the heading "Signature" constitutes and appoints Mark A. Flint,
his or her true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities to sign any or all amendments to this
Registration Statement (including post-effective amendments), and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-
fact and agent, acting alone, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Mark A. Flint President, Chief August 4, 1997
- ------------------------------------- Executive Officer
Mark A. Flint and Director
Jack W. Binder Senior Vice August 4, 1997
- ------------------------------------- President--Finance
Jack W. Binder
Larry G. Schafran Co-Chairman of the August 4, 1997
- ------------------------------------- Board of Directors
Larry G. Schafran
Herbert H. Haft Co-Chairman of the August 4, 1997
- ------------------------------------- Board of Directors
Herbert H. Haft
</TABLE>
II-4
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
Director
- -------------------------------------
Keith E. Alessi
Douglas M. Bregman Director August 4, 1997
- -------------------------------------
Douglas M. Bregman
Bonita A. Wilson Director August 4, 1997
- -------------------------------------
Bonita A. Wilson
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, SFW Holding Corp. has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lanham, in the State of
Maryland, on August 4, 1997.
SFW Holding Corp.
By: Mark A. Flint
---------------------------------
MARK A. FLINT President, Chief
Financial Officer and Treasurer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under the heading "Signature" constitutes and appoints Mark A. Flint,
his or her true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities to sign any or all amendments to this
Registration Statement (including post-effective amendments), and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-
fact and agent, acting alone, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
Herbert H. Haft Chairman of the August 4, 1997
- ------------------------------------- Board
Herbert H. Haft
Mark A. Flint President, Chief August 4, 1997
- ------------------------------------- Financial Officer
Mark A. Flint and Treasurer
Larry G. Schafran Director August 4, 1997
- -------------------------------------
Larry G. Schafran
Douglas M. Bregman Director August 4, 1997
- -------------------------------------
Douglas M. Bregman
Bonita A. Wilson Director August 4, 1997
- -------------------------------------
Bonita A. Wilson
II-6
<PAGE>
As filed with the Securities and Exchange Commission on August 4, 1997
Registration Statement No. 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Exhibits
to
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SHOPPERS FOOD WAREHOUSE CORP.
SFW HOLDING CORP.
- --------------------------------------------------------------------------------
<PAGE>
Exhibit Index
Exhibit
Number Description Page
- ------ ----------- ----
3.1 Restated Certificate of Incorporation of the Company
3.2 Certificate of Incorporation of the Guarantor
3.3 Bylaws of the Company
3.4 Bylaws of the Guarantor
4.1 Indenture, dated as of June 26, 1997, by and among the Company
and guaranteed by the Guarantor and Norwest Bank Minnesota,
National Association, as trustee (the "Trustee")
4.2 Global Security, dated as of June 26, 1997, made by the Company
and guaranteed by the Guarantor
4.3 Form of Exchange Notes, including guarantee
4.4 Registration Rights Agreement, dated as of June 26, 1997, by and
among the Company, the Guarantor and Wasserstein Perella
Securities, Inc.
4.5 Pledge Agreement, dated as of June 26, 1997, made by the Company
to the Trustee
5.1 Opinion of Jones, Day, Reavis & Pogue
10.1 Form of Letter of Employment. On February 4, 1997, the Company
entered into a Letter of Employment in substantially this form
with certain officers of the Company, including the following
executive officers: Jack W. Binder, Isaac Gendelman, Roy N.
Marks and Louis Davis. Schedule A to Exhibit 10.1 sets forth
details contained in the Letter of Employment with each of the
executive officers listed above.
10.2 Supply Agreement, dated June 3, 1991, by and among the Company,
Shoppers Food Warehouse VA Corp., Shoppers Food Warehouse MD
Corp. and Super Rite Foods, Inc., as amended
10.3 Agreement, dated July 6, 1993, by and among Jumbo Produce, Inc.
and Warehouse Employees Local Union No. 730 and Drivers,
Chauffeurs and Helpers Local Union No. 639
10.4 Agreement dated July 6, 1993, by and between the Company and
United Food and Commercial Workers Union Local No. 27
10.5 Tax Sharing Agreement, dated February 6, 1997, by and between
Dart Group Corporation and SFW Acquisition Corp.
10.6 Management Services Agreement, dated February 6, 1997, by and
between Dart Group Corporation and the Company
10.7 Standstill Order entered on December 6, 1995 by the Delaware
Chancery Court in Gloria G. Haft, et al. v. Larry G. Schafran,
et al. (Del. Ch. Civ. A. No. 14620) and Herbert H. Haft v. Dart
Group Corporation, et al. (Del. Ch. Civ. A. No. 14685)
(incorporated by reference to Exhibit 99.1 to the Quarterly
Report of Dart Group Corporation on Form 10-Q for the period
ended October 31, 1995)
12.1 Computation of Ratio of Earnings to Fixed Charges
21.1 List of Subsidiaries of the Guarantor and the Company
23.1 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
<PAGE>
Exhibit Index
Exhibit
Number Description Page
- ------ ----------- ----
24.1 Power of Attorney of the Company (included herein)
24.2 Power of Attorney of the Guarantor (included herein)
25.1 Statement of eligibility of the Trustee on Form T-1 (bound
separately)
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to DTC Participants
99.4 Form of Letter to Clients and Form of Instruction to Book-Entry
Transfer Participants
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
SHOPPERS FOOD WAREHOUSE CORP.
(a stock corporation)
SHOPPERS FOOD WAREHOUSE CORP. (the "Corporation") hereby certifies that it
is a corporation organized and existing under the laws of the State of Delaware,
that it was originally incorporated under the name "Jumbo Food Stores, Inc." and
that its Certificate of Incorporation was originally filed with the Secretary of
State of the State of Delaware on June 29, 1956. In accordance with Sections
242 and 245 of the General Corporation Law of the State of Delaware, this
Restated Certificate of Incorporation has been duly approved and adopted by the
Board of Directors and the stockholders of the Corporation, and restates and
integrates and further amends the provisions of the Certificate of
Incorporation, as heretofore amended, of the Corporation. The text of the
Certificate of Incorporation, as heretofore amended, is hereby restated,
integrated and further amended to read in its entirety as follows:
FIRST: The name of the corporation is Shoppers Food Warehouse Corp.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
Delaware 19801. The name of the Corporation's registered agent at such address
is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 50,000 shares of which 25,000
shares are Class A Common Stock, par value $5.00 per share, and 25,000 shares
are Class B Common Stock, par value $5.00 per share. The Class A Common Stock
and the Class B Common Stock shall be equal in all respects as if they
constituted a single class, except that the holders of the Class A Common Stock
shall have no voting power, nor shall they be entitled to notice of meetings of
stockholders, except as may be expressly required by law, all rights to vote and
all voting power being vested exclusively in the holders of the Class B Common
Stock.
FIFTH: Elections of directors need not be by written ballot except and to
the extent provided in the by-laws of the Corporation. Meetings of stockholders
may be held within or without the State of Delaware, as the by-laws may provide.
SIXTH: To the full extent permitted by the General Corporation Law of the
State of Delaware or any other applicable laws presently or hereafter in effect,
no director of the Corporation shall be personally liable to the Corporation or
its stockholders for or with respect to any acts or omissions in the performance
of his or her
<PAGE>
duties as a director of the Corporation. Any repeal or modification
of this Article Sixth shall not adversely affect any right or protection of a
director of the Corporation existing immediately prior to such repeal or
modification.
SEVENTH: Each person who is or was or had agreed to become a director or
officer of the Corporation, or each such person who is or was serving or who had
agreed to serve at the request of the Board of Directors or an officer of the
Corporation as an employee or agent of the Corporation or as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (including the heirs, executors, administrators or
estate of such person), shall be indemnified by the Corporation to the full
extent permitted by the General Corporation Law of the State of Delaware or any
other applicable laws as presently or hereafter in effect. Without limiting the
generality or the effect of the foregoing, the Corporation may enter into one or
more agreements with any person which provide for indemnification greater or
different than that provided in this Article. Any repeal or modification of
this Article Seventh shall not adversely affect any right or protection existing
hereunder immediately prior to such repeal or modification.
EIGHTH: In furtherance and not in limitation of the rights, powers,
privileges, and discretionary authority granted or conferred by the General
Corporation Law of the State of Delaware or other statutes or laws of the State
of Delaware, the Board of Directors is expressly authorized to make, alter,
amend or repeal the by-laws of the Corporation, without any action on the part
of the stockholders, but the stockholders may make additional by-laws and may
alter, amend or repeal any by-law whether adopted by them or otherwise. The
Corporation may in its by-laws confer powers upon its Board of Directors in
addition to the foregoing and in addition to the powers and authorities
expressly conferred upon the Board of Directors by applicable law.
NINTH: The Corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed herein or by applicable law; and all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted subject to
this reservation.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed for and on behalf of the Corporation this 30th day of July, 1997.
SHOPPERS FOOD WAREHOUSE CORP.
By: /s/ MARK A. FLINT
-----------------------
Mark A. Flint
President and Chief Executive Officer
-2-
<PAGE>
Exhibit 3.2
CERTIFICATE OF INCORPORATION
OF
SFW HOLDING CORP.
A STOCK CORPORATION
I, the undersigned, for the purpose of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
hereby certify as follows:
FIRST: The name of the corporation (the "Corporation") is SFW Holding
Corp.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
Delaware 19801. The name of the Corporation's registered agent at such address
is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of capital stock which the Corporation
shall have authority to issue is 1,000, par value of $0.01 per share.
FIFTH: Elections of directors need not be by written ballot except and to
the extent provided in the by-laws of the Corporation. Meetings of stockholders
may be held within or without the State of Delaware, as the by-laws may provide.
SIXTH: To the full extent permitted by the General Corporation Law of the
State of Delaware or any other applicable laws presently or hereafter in effect,
no director of the Corporation shall be personally liable to the Corporation or
its stockholders for or with respect to any acts or omissions in the performance
of his or her duties as a director of the Corporation. Any repeal or
modification of this Article Sixth shall not adversely affect any right or
protection of a director of the Corporation existing immediately prior to such
repeal or modification.
SEVENTH: Each person who is or was or had agreed to become a director or
officer of the Corporation, or each such person who is or was serving or who had
agreed to serve at the request of the Board of Directors or an officer of the
Corporation as an employee or agent of the Corporation or as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (including the heirs, executors, administrators or
estate of such person), shall be indemnified by the Corporation to the full
extent permitted by the General Corporation Law of the State of Delaware or any
other applicable laws as presently or hereafter in effect. Without limiting the
generality or the effect of the foregoing, the Corporation may enter into one or
more agreements with any person which provide for indemnification greater or
different than that provided in this Article. Any repeal or modification of
this Article
<PAGE>
Seventh shall not adversely affect any right or protection existing hereunder
immediately prior to such repeal or modification.
EIGHTH: In furtherance and not in limitation of the rights, powers,
privileges, and discretionary authority granted or conferred by the General
Corporation Law of the State of Delaware or other statutes or laws of the State
of Delaware, the Board of Directors is expressly authorized to make, alter,
amend or repeal the by-laws of the Corporation, without any action on the part
of the stockholders, but the stockholders may make additional by-laws and may
alter, amend or repeal any by-law whether adopted by them or otherwise. The
Corporation may in its by-laws confer powers upon its Board of Directors in
addition to the foregoing and in addition to the powers and authorities
expressly conferred upon the Board of Directors by applicable law.
NINTH: The Corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed herein or by applicable law; and all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted subject to
this reservation.
TENTH: The name and mailing address of the incorporator is Ronald T. Rice,
3300 75th Avenue, Landover, MD 20785.
ELEVENTH: The names and mailing addresses of the persons who are to serve
as directors of the Corporation until the first annual meeting of stockholders
or until their successors are elected and qualified are as follows:
NAME MAILING ADDRESS
---- ---------------
Larry G. Schafran 3300 75th Avenue
Landover, MD 20785
Herbert H. Haft 3300 75th Avenue
Landover, MD 20785
Douglas M. Bregman 3300 75th Avenue
Landover, MD 20785
Bonita A. Wilson 3300 75th Avenue
Landover, MD 20785
-2-
<PAGE>
IN WITNESS WHEREOF, I, the undersigned, being the incorporator hereinabove
named, do hereby execute this Certificate of Incorporation this 15th day of
January, 1997.
/s/ RONALD T. RICE
-----------------------------------
Ronald T. Rice
-3-
<PAGE>
Exhibit 3.3
BY-LAWS OF
SHOPPERS FOOD WAREHOUSE CORP.
* These by-laws were adopted on July 30, 1997.
<PAGE>
SFW HOLDING CORP.
BY-LAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place of Meetings. All meetings of the stockholders
--------------------------
for the election of directors or for any other purpose shall be held at such
time and place, within or without the State of Delaware, as may be designated by
the Board of Directors, or by the Chairman of the Board, the President or the
Secretary in the absence of a designation by the Board of Directors, and stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. An annual meeting of the stockholders,
--------------
commencing with the year 1997, shall be held at such date and time as shall be
designated from time to time by the Board of Directors, at which meeting the
stockholders shall elect by a plurality vote the directors to succeed those
whose terms expire and shall transact such other business as may properly be
brought before the meeting.
Section 3. Special Meetings. Special meetings of the stockholders, for
----------------
any purpose or purposes, unless otherwise prescribed by law or by Certificate of
Incorporation, may be called by the Board of Directors and shall be called by
the President or the Secretary at the request in writing of stockholders owning
a majority in interest of the entire capital
<PAGE>
stock of the Corporation issued and outstanding and entitled to vote. Such
request shall be sent to the President and the Secretary and shall state the
purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings. Written notice of every meeting of the
------------------
stockholders, stating the place, date and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting, except as
otherwise provided herein or by law.
Section 5. Quorum. The holders of a majority of the stock issued and
------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by law or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented.
Section 6. Voting. Except as otherwise provided by law or by the
------
Certificate of Incorporation, each stockholder shall be entitled at every
meeting of the stockholders to one vote for each share of stock having voting
power standing in the name of such stockholder on the books of the Corporation
on the record
-2-
<PAGE>
date for the meeting and such votes may be cast either in person or by written
proxy. Every proxy must be duly executed and filed with the Secretary of the
Corporation. A stockholder may revoke any proxy which is not irrevocable by
attending the meeting and voting in person or by filing an instrument in writing
revoking the proxy or another duly executed proxy bearing a later date with the
Secretary of the Corporation. The vote upon any question brought before a
meeting of the stockholders may be by voice vote, unless the holders of a
majority of the outstanding shares of all classes of stock entitled to vote
thereon present in person or by proxy at such meeting shall so determine. Every
vote taken by written ballot shall be counted by one or more inspectors of
election appointed by the Board of Directors. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock which has voting
power present in person or represented by proxy shall decide any question
properly brought before such meeting, unless the question is one upon which by
express provision of law, the Certificate of Incorporation or these by-laws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
ARTICLE II
DIRECTORS
Section 1. Powers. The business and affairs of the Corporation shall be
------
managed by or under the direction of its Board of Directors, which may exercise
all such powers of the
-3-
<PAGE>
Corporation and do all such lawful acts and things as are not by law or by the
Certificate of Incorporation directed or required to be exercised or done by the
stockholders.
Section 2. Number and Term of Office. The Board of Directors shall
-------------------------
consist of one or more members. The number of directors shall be fixed by
resolution of the Board of Directors or by the stockholders at the annual
meeting or a special meeting. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 3 of this Article,
and each director elected shall hold office until his successor is elected and
qualified, except as required by law. Any decrease in the authorized number of
directors shall not be effective until the expiration of the term of the
directors then in office, unless, at the time of such decrease, there shall be
vacancies on the Board which are being eliminated by such decrease.
Section 3. Vacancies and New Directorships. Vacancies and newly created
-------------------------------
directorships resulting from any increase in the authorized number of directors
which occur between annual meetings of the stockholders may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so elected shall hold office until
the next annual meeting of the stockholders and until their successors are
elected and qualified, except as required by law.
-4-
<PAGE>
Section 4. Regular Meetings. Regular meetings of the Board of Directors
----------------
may be held without notice at such time and place as shall from time to time be
determined by the Board of Directors.
Section 5. Special Meetings. Special meetings of the Board of Directors
----------------
may be called by the Chairman of the Board or the President on one day's written
notice to each director by whom such notice is not waived, given either
personally or by mail or telefax, and shall be called by the President or the
Secretary in like manner and on like notice on the written request of any two
directors.
Section 6. Quorum. At all meetings of the Board of Directors, a majority
------
of the total number of directors then in office shall constitute a quorum for
the transaction of business, and the act of a majority of the directors present
at any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time to another place, time or date, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 7. Written Action. Any action required or permitted to be taken
--------------
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes or proceedings of the Board or Committee.
-5-
<PAGE>
Section 8. Participation in Meetings by Conference Telephone. Members of
-------------------------------------------------
the Board of Directors, or any committee designated by the Board of Directors,
may participate in a meeting of the Board of Directors, or any such committee,
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
Section 9. Committees. The Board of Directors may, by resolution passed
----------
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation and each
to have such lawfully delegable powers and duties as the Board may confer. Each
such committee shall serve at the pleasure of the Board of Directors. The Board
may designate one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
Except as otherwise provided by law, any such committee, to the extent provided
in the resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it. Any committee or committees so
designated by the Board shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. Unless otherwise
prescribed by the Board of Directors, a majority of the members of the
-6-
<PAGE>
committee shall constitute a quorum for the transaction of business, and the act
of a majority of the members present at a meeting at which there is a quorum
shall be the act of such committee. Each committee shall prescribe its own
rules for calling and holding meetings and its method of procedure, subject to
any rules prescribed by the Board of Directors, and shall keep a written record
of all actions taken by it.
Section 10. Compensation. The Board of Directors may establish such
------------
compensation for, and reimbursement of the expenses of, directors for attendance
at meetings of the Board of Directors or committees, or for other services by
directors to the Corporation, as the Board of Directors may determine.
Section 11. Rules. The Board of Directors may adopt such special rules
-----
and regulations for the conduct of their meetings and the management of the
affairs of the Corporation as they may deem proper, not inconsistent with law or
these by-laws.
ARTICLE III
NOTICES
Section 1. Generally. Whenever by law or under the provisions of the
---------
Certificate of Incorporation or these by-laws, notice is required to be given to
any director or stockholder, it shall not be construed to mean personal notice,
but such notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the Corporation,
with postage thereon prepaid, and such notice shall be deemed to be given two
days after the time when the same shall
-7-
<PAGE>
be deposited in the United States mail. Notice to directors may also be given
by telefax or telephone and shall be deemed to be given when communicated.
Section 2. Waivers. Whenever any notice is required to be given by law or
-------
under the provisions of the Certificate of Incorporation or these by-laws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time of the event for which notice is to be
given, shall be deemed equivalent to such notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
ARTICLE IV
OFFICERS
Section 1. Generally. The officers of the Corporation shall be elected by
---------
the Board of Directors and shall consist of a President, a Secretary and a
Treasurer. The Board of Directors may also choose any or all of the following: a
Chairman of the Board of Directors, one or more Vice Presidents, a Controller, a
General Counsel, and one or more Assistant Secretaries and Assistant Treasurers.
Any number of offices may be held by the same person.
Section 2. Compensation. The compensation of all officers and agents of
------------
the Corporation who are also directors of the
-8-
<PAGE>
Corporation shall be fixed by the Board of Directors. The Board of Directors
may delegate the power to fix the compensation of other officers and agents of
the Corporation to an officer of the Corporation.
Section 3. Succession. The officers of the Corporation shall hold office
----------
until their successors are elected and qualified. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the directors. Any vacancy occurring in any
office of the Corporation may be filled by the Board of Directors.
Section 4. Authority and Duties. Each of the officers of the Corporation
--------------------
shall have such authority and shall perform such duties as are stated in these
by-laws or as may be specified by the Board of Directors in a resolution which
is not inconsistent with these by-laws.
Section 5. Chairman. The Chairman shall preside at all meetings of the
--------
stockholders and of the Board of Directors and he shall have such other duties
and responsibilities as may be assigned to him by the Board of Directors. The
Chairman may delegate to any qualified person authority to chair any meeting of
the stockholders, either on a temporary or a permanent basis.
Section 6. President. The President shall be responsible for the active
---------
management and direction of the business and affairs of the Corporation. In
case of the inability or failure of the Chairman to perform the duties of that
office, the President shall perform the duties of the Chairman, unless otherwise
determined by the Board of Directors.
-9-
<PAGE>
Section 7. Execution of Documents and Action with Respect to Securities of
---------------------------------------------------------------
Other Corporations. The President shall have and is hereby given, full power
- ------------------
and authority, except as otherwise required by law or directed by the Board of
Directors, (a) to execute, on behalf of the Corporation, all duly authorized
contracts, agreements, deeds, conveyances or other obligations of the
Corporation, applications, consents, proxies and other powers of attorney, and
other documents and instruments, and (b) to vote and otherwise act on behalf of
the Corporation, in person or by proxy, at any meeting of stockholders (or with
respect to any action of such stockholders) of any other corporation in which
the Corporation may hold securities and otherwise to exercise any and all rights
and powers which the Corporation may possess by reason of its ownership of
securities of such other corporation. In addition, the President may delegate
to other officers, employees and agents of the Corporation the power and
authority to take any action which the President is authorized to take under
this Section 7, with such limitations as the President may specify; such
authority so delegated by the President shall not be re-delegated by the person
to whom such execution authority has been delegated.
Section 8. Vice President. Each Vice President, however titled, shall
--------------
perform such duties and services and shall have such authority and
responsibilities as shall be assigned to or required from time to time by the
Board of Directors or the President.
-10-
<PAGE>
Section 9. Secretary and Assistant Secretaries. (a) The Secretary shall
-----------------------------------
attend all meetings of the stockholders and all meetings of the Board of
Directors and record all proceedings of the meetings of the stockholders and of
the Board of Directors and shall perform like duties for the standing committees
when requested by the Board of Directors or the President. The Secretary shall
give, or cause to be given, notice of all meetings of the stockholders and
meetings of the Board of Directors. The Secretary shall perform such duties as
may be prescribed by the Board of Directors or the President. The Secretary
shall have charge of the seal of the Corporation and authority to affix the seal
to any instrument. The Secretary or any Assistant Secretary may attest to the
corporate seal by handwritten or facsimile signature. The Secretary shall keep
and account for all books, documents, papers and records of the Corporation
except those for which some other officer or agent has been designated or is
otherwise properly accountable. The Secretary shall have authority to sign
stock certificates.
(b) Assistant Secretaries, in the order of their seniority, shall assist
the Secretary and, if the Secretary is unavailable or fails to act, perform the
duties and exercise the authorities of the Secretary.
Section 10. Treasurer and Assistant Treasurers. (a) The Treasurer shall
----------------------------------
have the custody of the funds and securities belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
-11-
<PAGE>
Treasurer with the prior approval of the Board of Directors or the President.
The Treasurer shall disburse the funds and pledge the credit of the Corporation
as may be directed by the Board of Directors and shall render to the Board of
Directors and the President, as and when required by them, or any of them, an
account of all transactions by the Treasurer.
(b) Assistant Treasurers, in the order of their seniority, shall assist the
Treasurer and, if the Treasurer is unable or fails to act, perform the duties
and exercise the powers of the Treasurer.
Section 11. Controller. The Controller shall be the chief accounting
----------
officer of the Corporation. The Controller shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation in
accordance with generally accepted accounting methods and procedures. The
Controller shall initiate periodic audits of the accounting records, methods and
systems of the Corporation. The Controller shall render to the Board of
Directors and the President, as and when required by them, or any of them, a
statement of the financial condition of the Corporation.
Section 12. General Counsel. The General Counsel shall be the chief legal
---------------
officer of the Corporation. The General Counsel shall provide legal counsel and
advice to the Board of Directors and to the officers with respect to compliance
with applicable laws and regulations. The General Counsel shall also provide or
obtain legal representation of the Corporation in proceedings by or against the
Corporation. The General Counsel shall render to
-12-
<PAGE>
the Board of Directors and the President, as and when required by them, or any
of them, a report on the status of claims against, and pending litigation of,
the Corporation.
ARTICLE V
STOCK
Section 1. Certificates. Certificates representing shares of stock of the
------------
Corporation shall be in such form as shall be determined by the Board of
Directors, subject to applicable legal requirements. Such certificates shall be
numbered and their issuance recorded in the books of the Corporation, and such
certificate shall exhibit the holder's name and the number of shares and shall
be signed by, or in the name of the Corporation by (i) the Chairman, the
President or any Vice President and (ii) the Secretary or an Assistant Secretary
or the Treasurer or an Assistant Treasurer of the Corporation. Any or all of the
signatures and the seal of the Corporation, if any, upon such certificates may
be facsimiles, engraved or printed.
Section 2. Transfer. Upon surrender to the Corporation or the transfer
--------
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue, or to cause its
transfer agent to issue, a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
Section 3. Lost, Stolen or Destroyed Certificates. The Secretary may
--------------------------------------
direct a new certificate or certificates to be
-13-
<PAGE>
issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed upon the making of an
affidavit of that fact, satisfactory to the Secretary, by the person claiming
the certificate of stock to be lost, stolen or destroyed. As a condition
precedent to the issuance of a new certificate or certificates the Secretary may
require the owner of such lost, stolen or destroyed certificate or certificates
to give the Corporation a bond in such sum and with such surety or sureties as
the Secretary may direct as indemnity against any claims that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed or the issuance of the new certificate.
Section 4. Record Date. (a) In order that the Corporation may determine
-----------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of such meeting.
If no record is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of stockholders
of record entitled to
-14-
<PAGE>
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required, shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the Corporation
by delivery to its registered office in Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
a Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board
of Directors and prior action by the Board of Directors is required by law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the
-15-
<PAGE>
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
ARTICLE VI
GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be fixed
-----------
from time to time by the Board of Directors.
Section 2. Corporate Seal. The Board of Directors may adopt a corporate
--------------
seal and use the same by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 3. Reliance upon Books, Reports and Records. Each director, each
----------------------------------------
member of a committee designated by the Board of Directors, and each officer of
the Corporation shall, in the
-16-
<PAGE>
performance of his or her duties, be fully protected in relying in good faith
upon the records of the Corporation and upon such information, opinions, reports
or statements presented to the Corporation by any of the Corporation's officers
or employees, or committees of the Board of Directors, or by any other person as
to matters the director, committee member or officer believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 4. Time Periods. In applying any provision of these by-laws which
------------
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded and the day of the event shall be included.
Section 5. Dividends. The Board of Directors may from time to time
---------
declare and the Corporation may pay dividends upon its outstanding shares of
capital stock, in the manner and upon the terms and conditions provided by law
and the Certificate of Incorporation.
ARTICLE VII
AMENDMENTS
Section 1. Amendments. These by-laws may be altered, amended or repealed,
----------
or new by-laws may be adopted, by the stockholders or by the Board of Directors.
-17-
<PAGE>
Exhibit 3.4
SFW HOLDING CORP.
BY-LAWS
<PAGE>
SFW HOLDING CORP.
BY-LAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place of Meetings. All meetings of the
--------------------------
stockholders for the election of directors or for any other purpose shall be
held at such time and place, within or without the State of Delaware, as may be
designated by the Board of Directors, or by the Chairman of the Board, the
President or the Secretary in the absence of a designation by the Board of
Directors, and stated in the notice of the meeting or in a duly executed waiver
of notice thereof.
Section 2. Annual Meeting. An annual meeting of the stockholders,
--------------
commencing with the year 1997, shall be held at such date and time as shall be
designated from time to time by the Board of Directors, at which meeting the
stockholders shall elect by a plurality vote the directors to succeed those
whose terms expire and shall transact such other business as may properly be
brought before the meeting.
Section 3. Special Meetings. Special meetings of the stockholders,
----------------
for any purpose or purposes, unless otherwise prescribed by law or by
Certificate of Incorporation, may be called by the Board of Directors and shall
be called by the President or the Secretary at the request in writing of
stockholders owning a majority in interest of the entire capital
<PAGE>
stock of the Corporation issued and outstanding and entitled to vote. Such
request shall be sent to the President and the Secretary and shall state the
purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings. Written notice of every meeting of
------------------
the stockholders, stating the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting, except
as otherwise provided herein or by law.
Section 5. Quorum. The holders of a majority of the stock issued and
------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by law or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented.
Section 6. Voting. Except as otherwise provided by law or by the
------
Certificate of Incorporation, each stockholder shall be entitled at every
meeting of the stockholders to one vote for each share of stock having voting
power standing in the name of such stockholder on the books of the Corporation
on the record
-2-
<PAGE>
date for the meeting and such votes may be cast either in person or by written
proxy. Every proxy must be duly executed and filed with the Secretary of the
Corporation. A stockholder may revoke any proxy which is not irrevocable by
attending the meeting and voting in person or by filing an instrument in writing
revoking the proxy or another duly executed proxy bearing a later date with the
Secretary of the Corporation. The vote upon any question brought before a
meeting of the stockholders may be by voice vote, unless the holders of a
majority of the outstanding shares of all classes of stock entitled to vote
thereon present in person or by proxy at such meeting shall so determine. Every
vote taken by written ballot shall be counted by one or more inspectors of
election appointed by the Board of Directors. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock which has voting
power present in person or represented by proxy shall decide any question
properly brought before such meeting, unless the question is one upon which by
express provision of law, the Certificate of Incorporation or these by-laws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
ARTICLE II
DIRECTORS
Section 1. Powers. The business and affairs of the Corporation shall
------
be managed by or under the direction of its Board of Directors, which may
exercise all such powers of the
-3-
<PAGE>
Corporation and do all such lawful acts and things as are not by law or by the
Certificate of Incorporation directed or required to be exercised or done by the
stockholders.
Section 2. Number and Term of Office. The Board of Directors shall
-------------------------
consist of one or more members. The number of directors shall be fixed by
resolution of the Board of Directors or by the stockholders at the annual
meeting or a special meeting. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 3 of this Article,
and each director elected shall hold office until his successor is elected and
qualified, except as required by law. Any decrease in the authorized number of
directors shall not be effective until the expiration of the term of the
directors then in office, unless, at the time of such decrease, there shall be
vacancies on the Board which are being eliminated by such decrease.
Section 3. Vacancies and New Directorships. Vacancies and newly
-------------------------------
created directorships resulting from any increase in the authorized number of
directors which occur between annual meetings of the stockholders may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so elected shall hold office until
the next annual meeting of the stockholders and until their successors are
elected and qualified, except as required by law.
-4-
<PAGE>
Section 4. Regular Meetings. Regular meetings of the Board of
----------------
Directors may be held without notice at such time and place as shall from time
to time be determined by the Board of Directors.
Section 5. Special Meetings. Special meetings of the Board of
----------------
Directors may be called by the Chairman of the Board or the President on one
day's written notice to each director by whom such notice is not waived, given
either personally or by mail or telefax, and shall be called by the President or
the Secretary in like manner and on like notice on the written request of any
two directors.
Section 6. Quorum. At all meetings of the Board of Directors, a
------
majority of the total number of directors then in office shall constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time to another place, time or date, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 7. Written Action. Any action required or permitted to be
--------------
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes or proceedings of the Board or Committee.
-5-
<PAGE>
Section 8. Participation in Meetings by Conference Telephone.
-------------------------------------------------
Members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any such
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
Section 9. Committees. The Board of Directors may, by resolution
----------
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation and each
to have such lawfully delegable powers and duties as the Board may confer. Each
such committee shall serve at the pleasure of the Board of Directors. The Board
may designate one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
Except as otherwise provided by law, any such committee, to the extent provided
in the resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it. Any committee or committees so
designated by the Board shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. Unless otherwise
prescribed by the Board of Directors, a majority of the members of the
-6-
<PAGE>
committee shall constitute a quorum for the transaction of business, and the act
of a majority of the members present at a meeting at which there is a quorum
shall be the act of such committee. Each committee shall prescribe its own
rules for calling and holding meetings and its method of procedure, subject to
any rules prescribed by the Board of Directors, and shall keep a written record
of all actions taken by it.
Section 10. Compensation. The Board of Directors may establish such
------------
compensation for, and reimbursement of the expenses of, directors for attendance
at meetings of the Board of Directors or committees, or for other services by
directors to the Corporation, as the Board of Directors may determine.
Section 11. Rules. The Board of Directors may adopt such special
-----
rules and regulations for the conduct of their meetings and the management of
the affairs of the Corporation as they may deem proper, not inconsistent with
law or these by-laws.
ARTICLE III
NOTICES
Section 1. Generally. Whenever by law or under the provisions of the
---------
Certificate of Incorporation or these by-laws, notice is required to be given to
any director or stockholder, it shall not be construed to mean personal notice,
but such notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the Corporation,
with postage thereon prepaid, and such notice shall be deemed to be given two
days after the time when the same shall
-7-
<PAGE>
be deposited in the United States mail. Notice to directors may also be given
by telefax or telephone and shall be deemed to be given when communicated.
Section 2. Waivers. Whenever any notice is required to be given by
-------
law or under the provisions of the Certificate of Incorporation or these by-
laws, a waiver thereof in writing, signed by the person or persons entitled to
such notice, whether before or after the time of the event for which notice is
to be given, shall be deemed equivalent to such notice. Attendance of a person
at a meeting shall constitute a waiver of notice of such meeting, except when
the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
ARTICLE IV
OFFICERS
Section 1. Generally. The officers of the Corporation shall be
---------
elected by the Board of Directors and shall consist of a President, a Secretary
and a Treasurer. The Board of Directors may also choose any or all of the
following: a Chairman of the Board of Directors, one or more Vice Presidents, a
Controller, a General Counsel, and one or more Assistant Secretaries and
Assistant Treasurers. Any number of offices may be held by the same person.
Section 2. Compensation. The compensation of all officers and agents
------------
of the Corporation who are also directors of the
-8-
<PAGE>
Corporation shall be fixed by the Board of Directors. The Board of Directors
may delegate the power to fix the compensation of other officers and agents of
the Corporation to an officer of the Corporation.
Section 3. Succession. The officers of the Corporation shall hold
----------
office until their successors are elected and qualified. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the directors. Any vacancy occurring in any
office of the Corporation may be filled by the Board of Directors.
Section 4. Authority and Duties. Each of the officers of the
--------------------
Corporation shall have such authority and shall perform such duties as are
stated in these by-laws or as may be specified by the Board of Directors in a
resolution which is not inconsistent with these by-laws.
Section 5. Chairman. The Chairman shall preside at all meetings of
--------
the stockholders and of the Board of Directors and he shall have such other
duties and responsibilities as may be assigned to him by the Board of Directors.
The Chairman may delegate to any qualified person authority to chair any meeting
of the stockholders, either on a temporary or a permanent basis.
Section 6. President. The President shall be responsible for the
---------
active management and direction of the business and affairs of the Corporation.
In case of the inability or failure of the Chairman to perform the duties of
that office, the President shall perform the duties of the Chairman, unless
otherwise determined by the Board of Directors.
-9-
<PAGE>
Section 7. Execution of Documents and Action with Respect to
-------------------------------------------------
Securities of Other Corporations. The President shall have and is hereby given,
- --------------------------------
full power and authority, except as otherwise required by law or directed by the
Board of Directors, (a) to execute, on behalf of the Corporation, all duly
authorized contracts, agreements, deeds, conveyances or other obligations of the
Corporation, applications, consents, proxies and other powers of attorney, and
other documents and instruments, and (b) to vote and otherwise act on behalf of
the Corporation, in person or by proxy, at any meeting of stockholders (or with
respect to any action of such stockholders) of any other corporation in which
the Corporation may hold securities and otherwise to exercise any and all rights
and powers which the Corporation may possess by reason of its ownership of
securities of such other corporation. In addition, the President may delegate
to other officers, employees and agents of the Corporation the power and
authority to take any action which the President is authorized to take under
this Section 7, with such limitations as the President may specify; such
authority so delegated by the President shall not be re-delegated by the person
to whom such execution authority has been delegated.
Section 8. Vice President. Each Vice President, however titled,
--------------
shall perform such duties and services and shall have such authority and
responsibilities as shall be assigned to or required from time to time by the
Board of Directors or the President.
-10-
<PAGE>
Section 9. Secretary and Assistant Secretaries. (a) The Secretary
-----------------------------------
shall attend all meetings of the stockholders and all meetings of the Board of
Directors and record all proceedings of the meetings of the stockholders and of
the Board of Directors and shall perform like duties for the standing committees
when requested by the Board of Directors or the President. The Secretary shall
give, or cause to be given, notice of all meetings of the stockholders and
meetings of the Board of Directors. The Secretary shall perform such duties as
may be prescribed by the Board of Directors or the President. The Secretary
shall have charge of the seal of the Corporation and authority to affix the seal
to any instrument. The Secretary or any Assistant Secretary may attest to the
corporate seal by handwritten or facsimile signature. The Secretary shall keep
and account for all books, documents, papers and records of the Corporation
except those for which some other officer or agent has been designated or is
otherwise properly accountable. The Secretary shall have authority to sign
stock certificates.
(b) Assistant Secretaries, in the order of their seniority, shall
assist the Secretary and, if the Secretary is unavailable or fails to act,
perform the duties and exercise the authorities of the Secretary.
Section 10. Treasurer and Assistant Treasurers. (a) The Treasurer
----------------------------------
shall have the custody of the funds and securities belonging to the Corporation
and shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
-11-
<PAGE>
Treasurer with the prior approval of the Board of Directors or the President.
The Treasurer shall disburse the funds and pledge the credit of the Corporation
as may be directed by the Board of Directors and shall render to the Board of
Directors and the President, as and when required by them, or any of them, an
account of all transactions by the Treasurer.
(b) Assistant Treasurers, in the order of their seniority, shall
assist the Treasurer and, if the Treasurer is unable or fails to act, perform
the duties and exercise the powers of the Treasurer.
Section 11. Controller. The Controller shall be the chief accounting
----------
officer of the Corporation. The Controller shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation in
accordance with generally accepted accounting methods and procedures. The
Controller shall initiate periodic audits of the accounting records, methods and
systems of the Corporation. The Controller shall render to the Board of
Directors and the President, as and when required by them, or any of them, a
statement of the financial condition of the Corporation.
Section 12. General Counsel. The General Counsel shall be the chief
---------------
legal officer of the Corporation. The General Counsel shall provide legal
counsel and advice to the Board of Directors and to the officers with respect to
compliance with applicable laws and regulations. The General Counsel shall also
provide or obtain legal representation of the Corporation in proceedings by or
against the Corporation. The General Counsel shall render to
-12-
<PAGE>
the Board of Directors and the President, as and when required by them, or any
of them, a report on the status of claims against, and pending litigation of,
the Corporation.
ARTICLE V
STOCK
Section 1. Certificates. Certificates representing shares of stock
------------
of the Corporation shall be in such form as shall be determined by the Board of
Directors, subject to applicable legal requirements. Such certificates shall be
numbered and their issuance recorded in the books of the Corporation, and such
certificate shall exhibit the holder's name and the number of shares and shall
be signed by, or in the name of the Corporation by (i) the Chairman, the
President or any Vice President and (ii) the Secretary or an Assistant Secretary
or the Treasurer or an Assistant Treasurer of the Corporation. Any or all of the
signatures and the seal of the Corporation, if any, upon such certificates may
be facsimiles, engraved or printed.
Section 2. Transfer. Upon surrender to the Corporation or the
--------
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue, or to cause its
transfer agent to issue, a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
Section 3. Lost, Stolen or Destroyed Certificates. The Secretary may
--------------------------------------
direct a new certificate or certificates to be
-13-
<PAGE>
issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed upon the making of an
affidavit of that fact, satisfactory to the Secretary, by the person claiming
the certificate of stock to be lost, stolen or destroyed. As a condition
precedent to the issuance of a new certificate or certificates the Secretary may
require the owner of such lost, stolen or destroyed certificate or certificates
to give the Corporation a bond in such sum and with such surety or sureties as
the Secretary may direct as indemnity against any claims that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed or the issuance of the new certificate.
Section 4. Record Date. (a) In order that the Corporation may
-----------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to
-14-
<PAGE>
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required, shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the Corporation
by delivery to its registered office in Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
a Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board
of Directors and prior action by the Board of Directors is required by law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the
-15-
<PAGE>
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
ARTICLE VI
GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be
-----------
fixed from time to time by the Board of Directors.
Section 2. Corporate Seal. The Board of Directors may adopt a
--------------
corporate seal and use the same by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 3. Reliance upon Books, Reports and Records. Each director,
----------------------------------------
each member of a committee designated by the Board of Directors, and each
officer of the Corporation shall, in the
-16-
<PAGE>
performance of his or her duties, be fully protected in relying in good faith
upon the records of the Corporation and upon such information, opinions, reports
or statements presented to the Corporation by any of the Corporation's officers
or employees, or committees of the Board of Directors, or by any other person as
to matters the director, committee member or officer believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 4. Time Periods. In applying any provision of these by-laws
------------
which requires that an act be done or not be done a specified number of days
prior to an event or that an act be done during a period of a specified number
of days prior to an event, calendar days shall be used, the day of the doing of
the act shall be excluded and the day of the event shall be included.
Section 5. Dividends. The Board of Directors may from time to time
---------
declare and the Corporation may pay dividends upon its outstanding shares of
capital stock, in the manner and upon the terms and conditions provided by law
and the Certificate of Incorporation.
ARTICLE VII
AMENDMENTS
Section 1. Amendments. These by-laws may be altered, amended or
----------
repealed, or new by-laws may be adopted, by the stockholders or by the Board of
Directors.
-17-
<PAGE>
Exhibit 4.1
SHOPPERS FOOD WAREHOUSE CORP.
9 3/4% Senior Notes due 2004
----------------------
INDENTURE
Dated as of June 26, 1997
----------------------
SFW HOLDING CORP.
Guarantor
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Trustee
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE...............................................1
Section 1.1. Definitions..............................................................1
Section 1.2. Other Definitions.......................................................14
Section 1.3. Incorporation by Reference of Trust Indenture Act.......................15
Section 1.4. Rules of Construction...................................................15
ARTICLE 2. THE SECURITIES..........................................................................16
Section 2.1. Form and Dating.........................................................16
Section 2.2. Execution and Authentication............................................17
Section 2.3. Registrar and Paying Agent..............................................17
Section 2.4. Paying Agent to Hold Money in Trust.....................................18
Section 2.5. Holder Lists............................................................18
Section 2.6. Transfer and Exchange...................................................19
Section 2.7. Replacement Securities..................................................19
Section 2.8. Outstanding Securities..................................................20
Section 2.9. Treasury Securities.....................................................20
Section 2.10. Temporary Securities....................................................21
Section 2.11. Cancellation............................................................21
Section 2.12. Defaulted Interest......................................................21
Section 2.13. Deposit of Moneys.......................................................22
Section 2.14. CUSIP Number............................................................22
Section 2.15. Restrictive Legends.....................................................22
Section 2.16. Book-Entry Provisions for Global Security...............................24
Section 2.17. Special Transfer Provisions.............................................26
ARTICLE 3. REDEMPTION..............................................................................27
Section 3.1. Rights of Redemption....................................................27
Section 3.2. Notices to Trustee......................................................29
Section 3.3. Selection of Securities to be Redeemed..................................29
Section 3.4. Notice of Redemption....................................................29
Section 3.5. Effect of Notice of Redemption..........................................30
Section 3.6. Deposit of Redemption Price.............................................30
Section 3.7. Securities Redeemed in Part.............................................30
ARTICLE 4. COVENANTS...............................................................................30
Section 4.1. Payment of Securities...................................................30
Section 4.2. SEC Reports.............................................................31
Section 4.3. Compliance Certificate..................................................31
Section 4.4. Stay, Extension and Usury Laws..........................................32
Section 4.5. Limitation on Restricted Payments.......................................33
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 4.6. Continued Existence.....................................................34
Section 4.7. Limitation on Indebtedness..............................................35
Section 4.8. Taxes...................................................................36
Section 4.9. Repurchase at Holder's Option upon Change in Control....................36
Section 4.10. Limitation on Transactions with Affiliates..............................39
Section 4.11. Limitation on Lines of Business.........................................40
Section 4.12. Dividends and Other Payment Restrictions Affecting Subsidiaries.........40
Section 4.13. Further Assurance to the Trustee........................................40
Section 4.14. Limitation on Investments, Loans and Advances...........................40
Section 4.15. Limitation on Liens.....................................................41
Section 4.16. Maintenance of Office or Agency.........................................42
Section 4.17. Tax Sharing Agreement...................................................42
Section 4.18. Management Services Agreement...........................................42
Section 4.19. Limitation on Asset Sales...............................................42
Section 4.20. Limitation on Issuance and Sale of Capital Stock
of Restricted Subsidiaries..............................................45
Section 4.21. Merger of Significant Subsidiaries......................................45
ARTICLE 5. SUCCESSORS..............................................................................45
Section 5.1. When Company May Merge, etc.............................................45
Section 5.2. Successor Corporation Substituted.......................................46
ARTICLE 6. DEFAULTS AND REMEDIES...................................................................47
Section 6.1. Events of Default.......................................................47
Section 6.2. Acceleration............................................................48
Section 6.3. Other Remedies..........................................................49
Section 6.4. Waiver of Existing and Past Defaults....................................49
Section 6.5. Control by Majority.....................................................49
Section 6.6. Limitation on Suits.....................................................49
Section 6.7. Rights of Holders to Receive Payment....................................50
Section 6.8. Collection Suit by Trustee..............................................50
Section 6.9. Trustee May File Proofs of Claim........................................50
Section 6.10. Priorities..............................................................51
Section 6.11. Undertaking for Costs...................................................51
Section 6.12. Rights and Remedies Cumulative..........................................51
Section 6.13. Delay or Omission Not Waiver............................................52
ARTICLE 7. TRUSTEE.................................................................................52
Section 7.1. Duties of Trustee.......................................................52
Section 7.2. Rights of Trustee.......................................................53
Section 7.3. Individual Rights of Trustee............................................54
Section 7.4. Trustee's Disclaimer....................................................54
Section 7.5. Notice of Defaults......................................................54
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
Section 7.6. Reports by Trustee to Holders...........................................55
Section 7.7. Compensation and Indemnity..............................................55
Section 7.8. Replacement of Trustee..................................................56
Section 7.9. Successor Trustee by Merger, etc........................................57
Section 7.10. Eligibility; Disqualification...........................................57
Section 7.11. Preferential Collection of Claims Against Company.......................57
ARTICLE 8. DISCHARGE OF INDENTURE..................................................................57
Section 8.1. Termination of Company's Obligations....................................57
Section 8.2. Legal Defeasance and Covenant Defeasance................................58
Section 8.3. Application of Trust Money..............................................62
Section 8.4. Repayment to Company....................................................62
Section 8.5. Reinstatement...........................................................62
ARTICLE 9. AMENDMENTS..............................................................................63
Section 9.1. Without Consent of Holders..............................................63
Section 9.2. With Consent of Holders.................................................64
Section 9.3. Compliance with Trust Indenture Act.....................................65
Section 9.4. Revocation and Effect of Consents.......................................65
Section 9.5. Notation on or Exchange of Securities...................................65
Section 9.6. Trustee Protected.......................................................66
ARTICLE 10. GUARANTEE..............................................................................66
Section 10.1. Guarantee...............................................................66
Section 10.2. Limitation on Liability.................................................68
Section 10.3. Successors and Assigns..................................................68
Section 10.4. No Waiver...............................................................68
Section 10.5. Modification............................................................68
Section 10.6. Execution and Delivery of Guarantee.....................................69
Section 10.7. Certain Bankruptcy Events...............................................69
ARTICLE 11. SECURITY AND PLEDGE OF COLLATERAL......................................................69
Section 11.1. Grant of Security Interest..............................................69
Section 11.2. Delivery of Collateral..................................................70
Section 11.3. Representations and Warranties..........................................70
Section 11.4. Further Assurances......................................................72
Section 11.5. Dividends; Voting Rights................................................72
Section 11.6. Trustee Appointed Attorney-in-Fact......................................74
Section 11.7. Trustee May Perform.....................................................74
Section 11.8. Trustee's Duties........................................................75
Section 11.9. Remedies upon Event of Default..........................................75
Section 11.10. Application of Proceeds.................................................76
Section 11.11. Continuing Lien.........................................................77
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
Section 11.12. Certificates and Opinions...............................................77
Section 11.13. Release; Other Liens....................................................77
ARTICLE 12. MISCELLANEOUS..........................................................................77
Section 12.1. Trust Indenture Act Controls............................................77
Section 12.2. Notices.................................................................78
Section 12.3. Communication by Holders with Other Holders.............................79
Section 12.4. Certificate and Opinion as to Conditions Precedent......................79
Section 12.5. Statements Required in Certificate or Opinion of Counsel................79
Section 12.6. Rules by Trustee and Agents.............................................80
Section 12.7. Legal Holidays..........................................................80
Section 12.8. No Recourse Against Others..............................................80
Section 12.9. Counterparts............................................................80
Section 12.10. Governing Law...........................................................81
Section 12.11. No Adverse Interpretation of Other Agreements...........................81
Section 12.12. Successors..............................................................81
Section 12.13. Severability............................................................81
Section 12.14. Table of Contents, Headings, Etc........................................82
</TABLE>
iv
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- ---------
<S> <C>
310(a)(1)............................................. 7.10
(a)(2)............................................. 7.10
(a)(3)............................................. N.A.
(a)(4)............................................. N.A.
(a)(5)............................................. 7.10; 7.11
(b)................................................ 7.8; 7.10; 12.2
(c)................................................ N.A.
311(a)................................................ 7.11
(b)................................................ 7.11
(c)................................................ N.A.
312(a)................................................ 2.5
(b)................................................ 12.3
(c)................................................ 12.3
313(a)................................................ 7.6
(b)(1)............................................. 7.6
(b)(2)............................................. 7.6
(c)................................................ 7.6; 12.2
(d)................................................ 7.6
314(a)................................................ 4.2; 4.3; 12.2
(b)................................................ N.A.
(c)(1)............................................. 7.2; 12.4
(c)(2)............................................. 7.2; 12.4
(c)(3)............................................. N.A.
(d)................................................ N.A.
(e)................................................ 12.5
(f)................................................ N.A.
315(a)................................................ 7.1(b)
(b)................................................ 7.5; 12.2
(c)................................................ 7.1(a)
(d)................................................ 6.5; 7.1(c)
(e)................................................ 6.11
316(a) (last sentence)................................ 2.9
(a)(1)(A).......................................... 6.5
(a)(1)(B).......................................... 6.4
(a)(2)............................................. N.A.
(b)................................................ 6.7
(c)................................................ 9.4
317(a)(1)............................................. 6.8
(a)(2)............................................. 6.9
(b)................................................ 2.4
318(a)................................................ 12.1
(c)................................................ 12.1
</TABLE>
- -----------------
N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
v
<PAGE>
<TABLE>
<CAPTION>
Exhibits and Schedules
<S> <C>
Exhibit A Form of Security
Exhibit B Form of Certificate to be delivered in connection with
transfers to Non-QIB Accredited Investors
Exhibit C Form of Certificate to be delivered in connection with
transfers pursuant to Regulation S
Schedule I Pledged Shares
</TABLE>
vi
<PAGE>
INDENTURE, dated as of June 26, 1997, by and among Shoppers Food
Warehouse Corp., a Delaware corporation (the "Company"), SFW Holding Corp., a
Delaware corporation (the "Guarantor") and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other parties
hereto and for the equal and ratable benefit of the Holders of the Company's
9 3/4% Senior Notes due 2004:
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section a. Definitions.
- --------- -----------
"Acquired Indebtedness" means (i) with respect to any Person that
---------------------
becomes a Restricted Subsidiary of the Company (or is merged with or into the
Company or any of its Restricted Subsidiaries) after the Issue Date,
Indebtedness of such Person or any of its subsidiaries existing at the time such
Person becomes a Restricted Subsidiary of the Company (or is merged with or into
the Company or any of its Restricted Subsidiaries) and which was not incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary of the Company (or being merged with or into the Company or any of
its Restricted Subsidiaries) and (ii) with respect to the Company or any of its
Restricted Subsidiaries, any Indebtedness assumed by the Company or any of its
Restricted Subsidiaries in connection with the acquisition of any assets from
another Person (other than the Company or any of its Restricted Subsidiaries),
and which was not incurred by such other Person in connection with, or in
contemplation of, such acquisition.
"Adjusted Consolidated Net Income" means, with respect to any Person,
--------------------------------
for any period, the Consolidated Net Income of such Person for such period plus
any non-cash charges relating to the amortization of goodwill or any other
purchase accounting adjustment resulting from any acquisition.
"Affiliate" means, as applied to any Person, any other Person directly
---------
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, is defined to mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means any Registrar, Paying Agent or co-registrar or any
-----
successor thereto.
"Asset Acquisition" means (i) any capital contribution (by means of
-----------------
transfer of cash or other property to others or payment for property or services
for the account or use of others, or otherwise) to, or purchase or acquisition
of Capital Stock in, any other Person by the Company or any of its Restricted
Subsidiaries, pursuant to which such Person shall become a Restricted
<PAGE>
Subsidiary of the Company or any of its Restricted Subsidiaries or shall be
merged with or into the Company or any of its Restricted Subsidiaries or
(ii) any acquisition by the Company or any of its Restricted Subsidiaries of the
assets of any Person which constitute substantially all of an operating unit or
business of such Person.
"Asset Sale" means, with respect to any Person, any direct or indirect
----------
sale, issuance, conveyance, lease, assignment, transfer or other disposition or
series of sales, transfers or other dispositions (including without limitation,
by merger or consolidation or by exchange of assets and whether by operation of
law or otherwise) made by such Person or any of its Restricted Subsidiaries to
any Person other than such Person or one of its Wholly Owned Restricted
Subsidiaries (or, in the case of a sale, transfer or other disposition by a
Restricted Subsidiary, to any Person other than the Company or a directly or
indirectly Wholly Owned Restricted Subsidiary) of any assets of such Person or
any of its Restricted Subsidiaries including, without limitation, assets
consisting of any Capital Stock or other securities held by such Person or any
of its Restricted Subsidiaries, and any Capital Stock issued by any Restricted
Subsidiary of such Person, in each case, outside of the ordinary course of
business, excluding, however, any sale, transfer or other disposition, or series
of related sales, transfers or other dispositions (i) resulting in Net Cash
Proceeds to the Company and the Restricted Subsidiaries of $250,000 or less;
(ii) of Cash Equivalents or inventory in the ordinary course of business or
obsolete equipment in the ordinary course of business consistent with past
practices of the Company; (iii) the lease or sublease of any real or personal
property in the ordinary course of business; or (iv) the proceeds of which are
not applied in accordance with Section 4.19, and which, together with all other
proceeds of Asset Sales that are not applied in accordance with Section 4.19, do
not exceed $5,000,000.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
--------------
state or foreign law for the relief of debtors.
"Board of Directors" means the board of directors of the Company or any
------------------
committee of such board of directors duly authorized to act under this
Indenture.
"Board Resolution" means, with respect to any Person, a copy of a
----------------
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than a Legal Holiday.
------------
"Capital Stock" means, with respect to any Person, any and all shares,
-------------
partnership, membership or other interests, participations or other equivalents
(however designated, whether voting or non-voting) of such Person's capital
stock, whether now outstanding or issued after the Issue Date, and any and all
rights, warrants or options exchangeable into such capital stock.
2
<PAGE>
"Capitalized Lease Obligation" means any obligation to pay rent or
----------------------------
other amounts under a lease of (or other agreement conveying the right to use)
any property (whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP, and, for the purpose
of this Indenture, the amount of such obligation at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) obligations issued or unconditionally
----------------
guaranteed by the United States of America or any agency thereof, or obligations
issued by an agency or instrumentality thereof and backed by the full faith and
credit of the United States of America having maturities of not more than one
year from the date of acquisition; (ii) commercial paper rated the highest grade
by Moody's or S&P and maturing not more than one year from the date of creation
thereof; (iii) time deposits with, and certificates of deposit and banker's
acceptances issued by, any bank having capital surplus and undivided profits
aggregating at least $500,000,000 and maturing not more than one year from the
date of creation thereof; (iv) repurchase agreements that are secured by a
perfected security interest in an obligation described in clause (i) and are
with any bank described in clause (iii); (v) shares of any money market mutual
fund that (a) has at least 95% of its assets invested continuously in the types
of investments referred to in clauses (i) and (ii) above, (b) has net assets of
not less than $500,000,000 and (c) has the highest rating obtainable from either
S&P or Moody's; and (vi) readily marketable direct obligations issued by any
state of the United States of America or any political subdivision thereof
having one of the two highest rating categories obtainable from either Moody's
or S&P.
"Common Stock" of any Person means Capital Stock of such Person that
------------
does not rank (as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person) prior to shares of Capital Stock of any other class of such
Person.
"Company" means the party named as such above until a successor
-------
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means its successor.
"Consolidated Cash Flow" means, with respect to any Person, for any
----------------------
period (all as determined on a consolidated basis in accordance with GAAP),
Consolidated Net Income of such Person in such period plus (a) to the extent
reflected in the income statement of such Person, (i) income taxes,
(ii) Interest Expense, (iii) depreciation and amortization, (iv) LIFO charges,
(v) the amount of any restructuring reserve or charge and (vi) other non-cash
charges reducing Consolidated Net Income minus (b) to the extent reflected in
such income statement, non-cash items (excluding the reversal of any non-cash
charge to the extent such non-cash charge reduced Consolidated Net Income in a
prior period) which had the effect of increasing Consolidated Net Income for
such period.
"Consolidated Interest Coverage Ratio" means, for any Person, on a
------------------------------------
consolidated basis, the ratio of (i) Consolidated Cash Flow for such Person and
its Restricted Subsidiaries during the Four Quarter Period immediately preceding
the date of the incurrence of the proposed
3
<PAGE>
Indebtedness giving rise to the need to calculate the Consolidated Interest
Coverage Ratio (the "Transaction Date") to (ii) Interest Expense of such Person
for such Four Quarter Period. For purposes of this definition, "Consolidated
Cash Flow" and "Interest Expense" shall be calculated after giving effect on a
pro forma basis for such Four Quarter Period to (i) the incurrence or repayment
of any Indebtedness of such Person or any of its Restricted Subsidiaries at any
time during or subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such incurrence or repayment and the
application of the proceeds thereof, as the case may be, occurred on the first
day of the Four Quarter Period, (ii) any Asset Sales or other asset dispositions
of such Person and its Restricted Subsidiaries occurring at any time during or
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or other asset disposition and the
applications of the proceeds therefrom occurred on the first day of the Four
Quarter Period and (iii) any Asset Acquisition or other acquisition of assets or
Capital Stock of an entity (occurring by merger or otherwise) occurring at any
time during or subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such acquisition occurred on the first day
of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if such Person or any Restricted Subsidiary of such Person had directly incurred
or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Interest Expense": (a) interest on any Indebtedness under a revolving credit
facility shall be computed based upon the pro forma average daily balance of
such Indebtedness during the Four Quarter Period; and (b) if interest on any
Indebtedness actually incurred on the Transaction Date may be determined
optionally at an interest rate based upon a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period.
"Consolidated Net Income" means, with respect to any Person for any
-----------------------
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided, however, that (a) the Net Income of any Person (the "other
-------- -------
Person") in which the Person in question or one of its Restricted Subsidiaries
has a joint interest with a third party (which interest does not cause the Net
Income of such other Person to be consolidated into the Net Income of the Person
in question in accordance with GAAP) shall be included only to the extent of the
amount of dividends or distributions paid to the Person in question or one of
its Restricted Subsidiaries, (b) the Net Income of any Restricted Subsidiary of
the Person in question that is subject to any restriction or limitation on the
payment of dividends or the making of other distributions shall be excluded to
the extent of such restriction or limitation, (c) (i) the Net Income (or loss)
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition and (ii) any net gain or loss resulting
from an Asset Acquisition or Asset Sale by the Person in question or any of its
Restricted Subsidiaries shall be excluded, and (d) extraordinary gains and
losses and any one-time increase or decrease to Net Income recorded because of
the adoption of new accounting policies, practices or standards required or
permitted by GAAP shall be excluded.
4
<PAGE>
"Consolidated Net Worth" means with respect to any Person at any date
----------------------
of determination, the consolidated equity represented by the shares of such
Person's Capital Stock (other than Disqualified Stock) at such date, as
determined on a consolidated basis in accordance with GAAP and adjusted to
exclude all upward revaluations and other write-ups in the book value of any
asset of such Person or a Restricted Subsidiary of such Person subsequent to the
Issue Date.
"Custodian" means any receiver, trustee, assignee, liquidator or
---------
similar official under any Bankruptcy Law.
"Dart" means Dart Group Corporation, a Delaware corporation.
----
"Default" means any event that is or with the passage of time or the
-------
giving of notice or both would be an Event of Default under this Indenture.
"Definitive Securities" means Securities that are substantially in the
---------------------
form attached hereto as Exhibit A.
"Depository" means, with respect to the Securities issuable or issued
----------
in whole or in part in global form, the Person specified in Section 2.3 as the
Depository with respect to the Securities, until a successor shall have been
appointed and become such pursuant to the applicable provisions of this
Indenture, and, thereafter "Depository" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock which, by its terms (or by
------------------
the terms of any security into which it is convertible or for which it is
exchangeable, in each case, at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is exchangeable for Indebtedness, or
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the Stated Maturity of the Securities.
"Equity Offering" means a private placement or public offering of
---------------
Capital Stock (other than Disqualified Stock) of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder.
"Exchange Notes" means Indebtedness of the Company identical in all
--------------
material respects to the Securities issued on the Issue Date (except that the
Exchange Notes will not contain terms with respect to transfer restrictions)
that is issued by the Company in exchange for such Securities.
"Exchange Offer" means the offer by the Company and the Guarantor, made
--------------
pursuant to the Registration Rights Agreement, to exchange the Exchange Notes
and guarantee thereof for the Securities issued on the Issue Date and guarantee
thereof.
5
<PAGE>
"Fair Market Value" means, with respect to any asset or property, the
-----------------
price which could be negotiated in an arm's-length free market transaction, for
cash, between a willing seller and a willing buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. With respect to any
Person, Fair Market Value shall be determined by the Board of Directors of such
Person acting in good faith and shall be evidenced by a Board Resolution
delivered to the Trustee.
"Four Quarter Period" means the four most recent full fiscal quarters
-------------------
for which financial information is available.
"GAAP" means generally accepted accounting principles in the United
----
States of America as in effect as of the Issue Date and as such principles may
be amended from time to time, including, without limitation, those set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"Global Security" means one or more permanent global securities in
---------------
registered form, substantially in the form attached hereto as Exhibit A.
"guarantee" means any obligation, contingent or otherwise, of any
---------
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part). The
term "guarantee" used as a verb has a corresponding meaning.
"Guarantor" means SFW Holding Corp., a Delaware corporation.
---------
"Holder" or "Securityholder" means a Person in whose name a Security
------ --------------
is registered.
"Increasing Rate Note Indenture" means the Indenture dated as of
------------------------------
February 6, 1997, by and among SFW Acquisition Corp. (predecessor to the
Company), the Guarantor and the Trustee, as amended by the First Supplemental
Indenture, dated as of February 6, 1997.
"Indebtedness" means, with respect to any Person at any date of
------------
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and
6
<PAGE>
unpaid purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except trade
payables incurred in the ordinary course that have not remained unpaid for
greater than 90 days past their original due date, or accrued liabilities
arising in the ordinary course of business which are not overdue or which are
being contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and for which adequate reserves have been made, (v) all
obligations of such Person as lessee relating to a Capitalized Lease Obligation,
(vi) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of other Persons guaranteed by such Person (but only to the extent
of the amount actually guaranteed), (viii) to the extent not otherwise included
in this definition, obligations under currency agreements, interest rate
agreements and commodity agreements and (ix) any and all deferrals, renewals,
extensions and refunding of, or amendments, modifications or supplements to, any
of the foregoing. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date.
"Indenture" means this Indenture as amended or supplemented from time
---------
to time in accordance with the terms hereof.
"Institutional Accredited Investor" means an institutional "accredited
---------------------------------
investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under
the Securities Act).
"Interest Expense" means, for any Person for any period, (i) total
----------------
interest obligations (paid or accrued) of such Person in respect of its
Indebtedness, determined on a consolidated basis and in accordance with GAAP
(including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capitalized
Lease Obligations, commissions, discounts and other fees and charges incurred in
respect of letters of credit or bankers' acceptance financing); minus (ii) the
amortization of deferred financing costs.
"Interest Payment Date" shall have the meaning assigned to such term in
---------------------
paragraph 1 of the Securities.
"Investment" means (i) any direct or indirect advance, loan or other
----------
extension of credit or capital contribution to another Person (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others including the purchase of property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such property to such other Person), (ii) any commitment to
make any such advance, loan, extension or capital contribution (but excluding
accounts receivable in the ordinary course), (iii) any purchase or acquisition
(whether for cash, property, services, securities or otherwise) of Capital
Stock, bonds, notes, debentures, options, warranty or similar instruments
7
<PAGE>
issued by any Person or (iv) the designation by the Board of Directors or board
of directors of a Restricted Subsidiary to be an Unrestricted Subsidiary. The
Company shall be deemed to make an "Investment" in an amount equal to the Fair
Market Value of the net assets of any Subsidiary determined by the Board of
Directors of the Company in good faith at the time that such Subsidiary is
designated an Unrestricted Subsidiary. Any property transferred to an
Unrestricted Subsidiary from the Company shall be deemed an Investment valued at
its Fair Market Value, as determined by the Board of Directors of the Company in
good faith at the time of such transfer.
"Issue Date" means the date of original issuance of the Securities
----------
under this Indenture.
"Legal Holiday" means a Saturday, Sunday or a day on which banking
-------------
institutions in the States of New York or Maryland, or the state in which the
principal corporate trust office of the Trustee is located, are required or
authorized by law or other governmental action to be closed.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
----
or charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof, or any agreement
to give any security interest).
"Liquidated Damages" means all liquidated damages then owing pursuant
------------------
to Section 5 of the Registration Rights Agreement.
"Management Services Agreement" means the Management Services Agreement
-----------------------------
dated February 6, 1997, between Dart and SFW Acquisition Corp. (predecessor of
the Company).
"Maturity Date" means June 15, 2004.
-------------
"Moody's" means Moody's Investors Service, Inc. or if Moody's Investors
-------
Service, Inc. shall cease rating debt securities having a maturity at original
issuance of at least one year and such ratings business shall have been
transferred to a successor Person, such successor Person; provided, however,
that if Moody's Investors Service, Inc. ceases rating debt securities having a
maturity at original issuance of at least one year and its ratings business with
respect thereto shall not have been transferred to any successor Person, then
"Moody's" shall mean any other nationally recognized rating agency (other than
S&P) that rates debt securities having a maturity at original issuance of at
least one year and that shall have been designated by the Company by a written
notice given to the Trustee.
"Net Cash Proceeds" means (a) in the case of any Asset Sale or any
-----------------
issuance and sale by any Person of Capital Stock, the aggregate net cash
proceeds and Cash Equivalents received by such Person after payment of expenses,
taxes, commissions and the like incurred in connection therewith (and, in the
case of any Asset Sale, net of the amount of cash applied to repay Indebtedness
secured by the asset involved in such Asset Sale) and (b) in the case of any
conversion or exchange of any outstanding Indebtedness or Disqualified Stock of
any Person for or into shares of Capital Stock of the Company, the sum of
(i) the proceeds received by the
8
<PAGE>
Company in connection with the issuance of such Indebtedness or Disqualified
Stock on the date of such issuance and (ii) any additional amount paid by the
holder to the Company upon such conversion or exchange.
"Net Income" means, with respect to any Person for any period, the net
----------
income (loss) of such Person determined in accordance with GAAP.
"Net Sales" means, with respect to any Person for any period, the net
---------
sales of such Person determined in accordance with GAAP.
"New Credit Facility" means a credit facility with a bank or other
-------------------
third party in the aggregate principal amount at any time outstanding not to
exceed $35,000,000 that may be secured by inventory, accounts receivable and
certain other assets of the Company and its Subsidiaries, and any replacement,
renewal, refinancing or extension thereof in accordance with Section 4.7(c).
"Non-Recourse Debt" means Indebtedness (i) as to which under the terms
-----------------
thereof (including any related instruments, documents or filings) neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness) and (b) is directly or indirectly liable (as a
guarantor or otherwise); (ii) no default with respect to which (including any
rights that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
"Offering" means the offering by the Company of $200,000,000 aggregate
--------
principal amount of its 9 3/4% Senior Notes due 2004.
"Officer" means, with respect to any Person, the Chairman of the Board,
-------
the Chairman of the Executive Committee of the Board, the Chief Executive
Officer, the President, the Chief Operating Officer, the Chief Financial
Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary,
any Assistant Secretary or any Vice President of such Person.
"Officers' Certificate" means a certificate signed by two Officers, one
---------------------
of whom must be the Chairman of the Board, the Chairman of the Executive
Committee of the Board, the President, the Treasurer or a Vice President of the
Company, that meets the requirements of Sections 12.4 and 12.5 hereof.
"Opinion of Counsel" means a written opinion reasonably satisfactory in
------------------
form and substance to the Trustee from legal counsel who is reasonably
acceptable to the Trustee, that
9
<PAGE>
meets the requirements of Sections 12.4 and 12.5 hereof. The counsel may be an
employee of or counsel to the Company or the Trustee.
"Permitted Investments" means (i) certificates of deposit with final
---------------------
maturities of 3 years or less issued by United States commercial banks having
capital and surplus in excess of $100,000,000; (ii) commercial paper, bankers
acceptances, notes, bonds, debentures, repurchase agreements, call loans,
guaranteed investment certificates and other similar instruments, in each case
having a rating of investment grade by S&P or Moody's and, in each case, having
a maturity of 3 years or less; (iii) marketable direct obligations of the United
States Government or a United States agency with a maturity of 3 years or less;
(iv) shares of money market mutual or similar funds having assets in excess of
$100,000,000; (v) marketable direct obligations issued by any state of the
United States of America having the highest rating obtainable from either
Moody's or S&P and having a maturity of 3 years or less; (vi) asset-backed
securities rated "AA" or higher by Moody's or S&P with a maturity of 3 years or
less; and (vii) mortgage-backed securities rated "AA" or higher by Moody's or
S&P with a maturity of 3 years or less; provided that the Company and its
Restricted Subsidiaries may not make a Permitted Investment if, as a result of
giving effect thereto, (A) more than 20% of the aggregate Investments made
pursuant to clauses (i) through (vii) of this definition are rated "BBB" or
below or (B) more than 10% of the aggregate Investments made pursuant to clauses
(i) through (vii) of this definition are made pursuant to clause (vii) of this
definition.
"Permitted Liens" means, with respect to any Person, any Lien arising
---------------
by reason of (a) any judgment, decree or order of any court, so long as such
Lien is being contested in good faith and is adequately bonded, and any
appropriate legal proceedings which may have been duly initiated for the review
of such judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have expired;
(b) taxes, assessments, governmental charges or claims not yet delinquent or
which are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted or if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor; (c) security for payment of workers' compensation or other
insurance or social security legislation; (d) security for the performance of
tenders, contracts (other than contracts for the payment of money) or leases
(excluding any Capitalized Lease Obligations) incurred in the ordinary course of
business; (e) deposits to secure public or statutory obligations, or in lieu of
surety, performance or appeal bonds, entered into in the ordinary course of
business; (f) judgment and attachment Liens with respect to judgments and
attachments not giving rise to an Event of Default; (g) Liens arising by
operation of law in favor of carriers, warehousemen, landlords, mechanics,
materialmen, laborers, employees or suppliers, incurred in the ordinary course
of business and as to which a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made therefor, which
are not yet delinquent or are being contested in good faith by negotiations or
by appropriate proceedings which suspend the collection thereof; (h) easements,
rights-of-way, zoning and similar covenants and restrictions and other similar
encumbrances or title defects which, in the aggregate, are not substantial in
amount, and which do not in any case materially detract from the value of the
property subject thereto or
10
<PAGE>
materially interfere with the ordinary conduct of the business of such Person or
any of its Restricted Subsidiaries; provided, such Liens are not incurred in
connection with any borrowing of money or any commitment to loan any money or
extend any credit; (i) Liens arising in the ordinary course of business in favor
of custom and revenue authorities arising as a matter of law to secure payment
of custom duties; (j) leases or subleases granted to others not interfering in
any material respect with the ordinary conduct of the business of such Person or
of any of its Restricted Subsidiaries or which do not in any case materially
detract from the value of the property subject thereto (as such property is used
by such Person or one or more of its Restricted Subsidiaries); and (k) Liens
arising from filing precautionary UCC financing statements relating solely to
leases not prohibited by this Indenture.
"Permitted Secured Indebtedness" means any Indebtedness secured by
------------------------------
purchase money Liens upon or in any assets or property either acquired by the
Company and its Restricted Subsidiaries in the ordinary course of business with
the proceeds thereof or assumed by the Company and its Restricted Subsidiaries
pursuant to an Investment not prohibited by this Indenture; provided, however,
-------- -------
that (i) any such purchase money Lien shall not extend to or cover any assets or
property other than the assets or property being acquired and shall attach to
such assets or property within 60 days of the acquisition of such assets or
property and (ii) the aggregate principal amount of Indebtedness secured by such
Liens shall not exceed the lesser of the cost or Fair Market Value of the assets
or property being acquired.
"Person" means any individual, corporation, partnership, association,
------
trust or any other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
"Pledge Agreement" means the Pledge Agreement dated the date of this
----------------
Indenture between the Company and the Trustee.
"QIB" has the meaning assigned to the term "qualified institutional
---
buyer" in Rule 144A.
"Registration Rights Agreement" means the Registration Rights Agreement
-----------------------------
dated as of even date herewith, by and among the Company and the other parties
named on the signature pages thereof, as such agreement may be amended, modified
or supplemented from time to time.
"Restricted Account" means a dedicated account to be established by the
------------------
Trustee for investment of the Restricted Proceeds in accordance with the Pledge
Agreement.
"Restricted Proceeds" means $50,000,000 of the net proceeds received by
-------------------
the Company from the Offering that the Company will deposit with the Trustee in
the Restricted Account pursuant to the Pledge Agreement.
"Restricted Security" has the meaning assigned to such term in
-------------------
Rule 144(a)(3) under the Securities Act.
11
<PAGE>
"Restricted Subsidiary" of a Person means any Subsidiary of the
---------------------
referent Person that is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
---------
"SEC" means the Securities and Exchange Commission.
---
"Securities" means the securities described above and issued under this
----------
Indenture in the form of Exhibit A hereto. After the consummation of the
Exchange Offer, references to the Securities shall mean the Exchange Notes and
(if any) the Securities issued on the Issue Date pursuant to this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Securities Custodian" means, with respect to the Securities in global
--------------------
form, initially, the Trustee and any successor entity thereto or such other
Person as appointed by the Company from time to time in accordance with the
provisions of this Indenture.
"Settlement" means one or two settlements involving total payments and
----------
commitments by Dart and its Subsidiaries of at least $50,000,000 (which may
include related expenses and payments to mortgage lenders) in which (i) Herbert
H. Haft and/or (ii) Robert M. Haft, Gloria G. Haft and Linda G. Haft, as the
case may be, relinquish his or their claims to control of Dart, dispose (or
agree to dispose) of all or substantially all of his or their Capital Stock in
Dart, disclaim any equity interest in the Company and the Guarantor and resign
any positions of employment and board representation with Dart, the Company and
the Guarantor.
"Significant Subsidiary" means any Restricted Subsidiary that would be
----------------------
a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such regulation is in effect on
the Issue Date.
"S&P" means Standard & Poor's Corporation or, if Standard & Poor's
---
Corporation shall cease rating debt securities having a maturity at original
issuance of at least one year and such ratings business shall have been
transferred to a successor Person, such successor Person; provided, however,
-------- -------
that if Standard & Poor's Corporation ceases rating debt securities having a
maturity at original issuance of at least one year and its ratings business with
respect thereto shall not have been transferred to any successor Person, then
"S&P" shall mean any other nationally recognized rating agency (other than
Moody's) that rates debt securities having a maturity at original issuance of at
least one year and that shall have been designated by the Company by a written
notice given to the Trustee.
"Stated Maturity" means, (i) with respect to any debt security, the
---------------
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is
12
<PAGE>
due and payable and (ii) with respect to any scheduled installment of principal
or interest on any debt security, the date specified in such debt security as
the fixed date on which such installment is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
----------
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person or a combination
thereof.
"Tax Sharing Agreement" means the Tax Sharing Agreement dated
---------------------
February 6, 1997, between Dart and SFW Acquisition Corp. (predecessor of the
Company).
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)
---
77aaa-77bbbb) as in effect on the date of execution of this Indenture, except as
otherwise provided in Section 9.3.
"Trust Officer" means any officer or corporate trust assistant officer
-------------
of the Trustee assigned by the Trustee to administer its corporate trust
matters.
"Trustee" means the party named as such above until a successor
-------
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
-----------------------
(other than the Subsidiaries of the Company existing as of the Issue Date or any
successor to any of them) that at the time of determination shall have been
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution and (ii) any Subsidiary of an Unrestricted Subsidiary; but, in
each case, only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Capital Stock or (y) to maintain or
preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries; and (e) has at least one director
on its board of directors that is not a director or executive officer of the
Company or any of its Restricted Subsidiaries and has at least one executive
officer that is not a director or executive officer of the Company or any of its
Restricted Subsidiaries. Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
indicating that such designation complies with the foregoing conditions and was
permitted under Section 4.5 hereof. If, at any time, any
13
<PAGE>
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date. The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any Indebtedness of such Unrestricted Subsidiary
which is outstanding at the time of such designation and such designation shall
only be permitted if (A) no Default or Event of Default would be in existence
immediately following such designation and (B) the Company shall have delivered
to the Trustee an Officers' Certificate indicating that such designation
complies with the foregoing conditions.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
----------------------------------
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which shall at the time be owned by such person or by one
or more Wholly Owned Restricted Subsidiaries of such Person or by such Person
and one or more Wholly Owned Restricted Subsidiaries of such Person.
Section b. Other Definitions.
- --------- -----------------
<TABLE>
<CAPTION>
Term Defined in Section
---- ------------------
<S> <C>
"Affiliate Transaction".....................................................4.10
---------------------
"Agent Members".............................................................2.16
-------------
"Change in Control" .........................................................4.9
-----------------
"Change in Control Payment Date".............................................4.9
------------------------------
"Change in Control Repurchase Price".........................................4.9
----------------------------------
"Collateral"................................................................11.1
----------
"Company Notice..............................................................4.9
--------------
"Default Amount".............................................................6.2
--------------
"Deficiency"................................................................4.19
----------
"DTC"........................................................................2.1
---
"Event of Default"...........................................................6.1
----------------
"Net Cash Proceeds Offer"...................................................4.19
-----------------------
"Net Cash Proceeds Offer Amount"............................................4.19
------------------------------
"Obligations"...............................................................10.1
-----------
"Paying Agent"...............................................................2.3
------------
"Permitted Indebtedness".....................................................4.7
----------------------
"Pledged Shares"............................................................11.1
--------------
"Private Placement Legend"..................................................2.15
------------------------
"Proceeds Purchase Date"....................................................4.19
----------------------
"Registrar"..................................................................2.3
---------
"Repurchase Date"............................................................4.9
---------------
"Restricted Payments"........................................................4.5
-------------------
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
"Secured Obligations".......................................................11.1
-------------------
"Special Mandatory Redemption"...............................................3.1
----------------------------
"U.S. Government Obligations"................................................8.2
---------------------------
"Voting Trustee".............................................................4.9
--------------
</TABLE>
Section c. Incorporation by Reference of Trust Indenture Act.
- --------- -------------------------------------------------
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Securities;
--------------------
"indenture security holder" means a Holder or a
-------------------------
Securityholder;
"indenture to be qualified" means this Indenture;
-------------------------
"indenture trustee" or "institutional Trustee" means the
----------------- ---------------------
Trustee;
"obligor" on the Securities means the Company and any
-------
successor obligor upon the Securities.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section d. Rules of Construction.
- --------- ---------------------
Unless the context otherwise requires:
i. a term has the meaning assigned to it;
ii. an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
iii. "or" is not exclusive;
iv. words in the singular include the plural, and in the plural,
include the singular;
v. provisions apply to successive events and transactions; and
vi. references to sections of or rules under the Securities Act
shall be deemed to
15
<PAGE>
include substitute, replacement or successor sections or rules adopted by the
SEC from time to time.
ARTICLE 2.
THE SECURITIES
Section a. Form and Dating.
- --------- ---------------
The Definitive Securities, the Global Security and the Trustee's
certificate of authentication with respect thereto shall be substantially in the
form of Exhibit A to this Indenture. The Securities may have notations, legends
or endorsements required by law, stock exchange rules or usage. Each Security
shall be dated the date of its authentication. The Securities shall be in
denominations of $1,000 and integral multiples thereof. The Securities shall not
be issuable in bearer form.
The terms and provisions contained in the Securities shall constitute,
and are hereby expressly made, a part of this Indenture and to the extent
applicable, the Company and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
Securities offered and sold to Institutional Accredited Investors will
be issued in the form of permanent certificated Securities, in definitive, fully
registered form without interest coupons (substantially in the form of Exhibit A
attached hereto).
Securities offered and sold in an offshore transaction in reliance on
Regulation S under the Securities Act shall be issued in the form of permanent
certificated Securities in registered form without interest coupons
(substantially in the form of Exhibit A attached hereto).
Securities offered and sold in reliance on Rule 144A will be
represented initially by a single permanent global note, in definitive, fully
registered form without interest coupons (substantially in the form of Exhibit A
attached hereto) and will be deposited with the Trustee as custodian for The
Depository Trust Company or its successors ("DTC"), Depository of the Global
Security, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The Global Security shall represent such of the
outstanding Securities as shall be specified therein and shall provide that it
shall represent the aggregate amount of outstanding Securities from time to time
endorsed thereon and that the aggregate amount of outstanding Securities
represented thereby may from time to time be reduced or increased, as
appropriate, by adjustments made on the records of the Trustee, as custodian for
the Depository, to reflect exchanges and redemptions. Any endorsement of a
Global Security to reflect the amount of any increase or decrease in the amount
of outstanding Securities represented thereby shall be made by the Trustee or
the Securities Custodian, at the direction of the Trustee, in accordance with
instructions given by the Holder thereof as required in Section 2.6.
16
<PAGE>
Section b. Execution and Authentication.
- --------- ----------------------------
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities
and may be in facsimile form.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Security
is authenticated, the Security shall nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of an authorized signatory of the Trustee. The signature shall be
conclusive evidence that the Security has been authenticated under this
Indenture. The Guarantor shall endorse all Securities issued by the Company
under this Indenture.
The Trustee shall authenticate Securities for original issue up to two
hundred million dollars ($200,000,000) and shall authenticate Exchange Notes
from time to time for issue only in exchange for a like principal amount of
Securities, in each case upon a written order of the Company in the form of an
Officers' Certificate to a Trust Officer directing the Trustee to authenticate
the Securities or the Exchange Notes, as the case may be, and certifying that
all conditions precedent to the issuance of the Securities contained herein have
been complied with; provided that Exchange Notes shall be issuable only upon the
valid surrender for cancellation of Securities issued on the Issue Date of a
like aggregate principal amount in accordance with the Registration Rights
Agreement. Upon the written order of the Company in the form of an Officers'
Certificate, the Trustee shall authenticate Securities in substitution of
Securities issued on the Issue Date to reflect any name change of the Company.
The aggregate principal amount of Securities outstanding at any time may not
exceed two hundred million dollars ($200,000,000), except as provided in Section
2.7 hereof.
The Trustee may appoint an authenticating agent acceptable to and at
the expense of the Company to authenticate Securities. An authenticating agent
may authenticate Securities whenever the Trustee may do so. Each reference in
this Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as an Agent to deal with the
Company or an Affiliate of the Company.
Section c. Registrar and Paying Agent.
- --------- --------------------------
The Company shall maintain an office or agency where (a) Securities may
be presented or surrendered for registration of transfer or for exchange
("Registrar"), (b) Securities may be presented or surrendered for payment
("Paying Agent") and (c) notices and demands to or upon the Company and the
Guarantor in respect of the Securities and this Indenture may be served. The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Registrar" includes any co-registrar and the
term "Paying Agent" includes any additional
17
<PAGE>
paying agent. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company shall notify the Trustee in writing of the
name and address of any Agent not a party to this Indenture. The Company or any
of its Subsidiaries may act as Paying Agent or Registrar, except that for the
purposes of Articles 3 and 8 and Sections 2.4, 4.9 and 4.19, neither the Company
nor any Affiliate of the Company shall act as Paying Agent. The Company
initially appoints the Trustee as Registrar and Paying Agent until such time as
the Trustee has resigned or a successor has been appointed.
The Company initially appoints DTC to act as Depository with respect to
the Global Security.
The Company initially appoints the Trustee to act as Securities
Custodian with respect to the Global Security.
Section d. Paying Agent to Hold Money in Trust.
- --------- -----------------------------------
The Company shall require each Paying Agent (other than the Trustee) to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of or interest on the Securities, and will notify the Trustee of any
default by the Company or the Guarantor in making any such payment. While any
such default continues, the Trustee may require a Paying Agent to pay all money
held by it to the Trustee and account for any money disbursed by it. The Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee and account for any money disbursed by it. Upon payment over to the
Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have
no further liability for the money. If the Company or a Subsidiary acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy
or reorganization proceedings relating to the Company, the Trustee shall serve
as Paying Agent for the Securities.
Section e. Holder Lists.
- --------- ------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA (S)(S) 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least three
Business Days before each Interest Payment Date and, at such other times as the
Trustee may request in writing, within five Business Days of such request a list
in such form and as of such date as the Trustee may reasonably require, and
which the Trustee may conclusively rely upon, of the names and addresses of
Holders, and the Company shall otherwise comply with TIA (S)(S) 312(a).
18
<PAGE>
Section f. Transfer and Exchange.
- --------- ---------------------
When Securities are presented to the Registrar with a request to
register the transfer of such Securities or to exchange such Securities for an
equal principal amount of Securities of other authorized denominations, the
Registrar shall register the transfer or make the exchange as requested if its
requirements for such transaction are met; provided, however, that the
-------- -------
Securities surrendered for transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar, duly executed by the Holder thereof or its attorney
duly authorized in writing. To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Securities at the
Registrar's request. No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar governmental charge
payable upon exchanges or transfers pursuant to Sections 2.2, 2.7, 2.10, 3.7,
4.9, 4.19 or 9.5). The Registrar shall not be required to register the transfer
of or exchange of any Security (i) during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of Securities and
ending at the close of business on the day of such mailing and (ii) selected for
redemption in whole or in part pursuant to Article 3, except the unredeemed
portion of any Security being redeemed in part.
Any Holder of the Global Security shall, by acceptance of such Global
Security, agree that transfers of beneficial interests in such Global Security
may be effected only through a book-entry system maintained by the Holder of
such Global Security (or its agent), and that ownership of a beneficial interest
in the Global Security shall be required to be reflected in a book entry.
Section g. Replacement Securities.
- --------- ----------------------
If any mutilated Security is surrendered to the Trustee, the Registrar
or Securities Custodian, or the Company and the Trustee receive evidence to
their satisfaction of the destruction, loss or theft of any Security, the
Company shall issue, the Guarantor shall endorse and the Trustee, upon the
written order of the Company signed by an Officer, shall authenticate a
replacement Security if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss which
any of them may suffer if a Security is replaced. The Company may charge such
Holder for its reasonable expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company
and shall be entitled to all benefits of this Indenture equally and
proportionately with all other Securities duly issued hereunder.
The provisions of this Section 2.7 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost
19
<PAGE>
or stolen Securities.
Section h. Outstanding Securities.
- --------- ----------------------
The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Security
effected by the Trustee hereunder, and those described in this Section as not
outstanding.
If a Security is replaced pursuant to Section 2.7 hereof (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section 2.7
hereof.
If the principal amount of any Security is considered paid under
Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay all of the principal and interest due on the Securities
payable on that date, and is not prohibited from paying such money to the
Holders thereof pursuant to the terms of this Indenture, then on and after that
date such Securities shall be deemed to be no longer outstanding and shall cease
to accrue interest.
Except as set forth in Section 2.9 hereof, a Security does not cease to
be outstanding because the Company or an Affiliate holds the Security.
Section i. Treasury Securities.
- --------- -------------------
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company, the Guarantor or any Person directly or indirectly controlling
or controlled by or under direct or indirect common control with the Company or
the Guarantor shall be considered as though not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Securities that a Trust Officer of the
Trustee knows are so owned shall be so disregarded.
Section j. Temporary Securities.
- --------- --------------------
Until Definitive Securities are ready for delivery, the Company may
prepare, the Guarantor shall endorse and the Trustee shall authenticate
temporary Securities upon a written order of the Company in the form of an
Officers' Certificate delivered or caused to be delivered to a Trust Officer.
Temporary Securities shall be substantially in the form of Definitive
Securities
20
<PAGE>
but may have variations that the Company considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare, the Guarantor
shall endorse and the Trustee shall authenticate, upon receipt of a written
order of the Company in the form of an Officers' Certificate which shall specify
the amount of the temporary Securities to be authenticated and the date on which
the temporary Securities are to be authenticated, Definitive Securities in
exchange for temporary Securities.
Holders of temporary Securities shall be entitled to all benefits of
this Indenture.
Section k. Cancellation.
- --------- ------------
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee, or at the direction of the Trustee, the Registrar or the
Paying Agent (other than the Company or a Subsidiary), and no one else shall
cancel all Securities surrendered for registration of transfer, exchange,
payment, replacement or cancellation and certification of their destruction
(subject to the record retention requirements of the Exchange Act) shall be
delivered to the Company unless, by a written order, signed by an Officer, the
Company shall direct that cancelled Securities be returned to it. The Company
may not issue new Securities to replace Securities that it has paid or that have
been delivered to the Trustee for cancellation. If the Company or the Guarantor
shall acquire any of the Securities, such acquisition shall not operate as a
redemption or satisfaction of the Indebtedness represented by such Securities
unless and until the same are surrendered to the Trustee for cancellation
pursuant to this Section 2.11.
Section l. Defaulted Interest.
- --------- ------------------
If the Company defaults in a payment of interest on the Securities, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Securities and in Section 4.1 hereof. The Company shall, with the consent
of the Trustee, fix each such special record date and payment date. At least 15
days before the subsequent special record date, the Company (or upon the written
request of the Company, the Trustee, in the name of and at the expense of the
Company) shall mail to each Holder a notice that states the subsequent special
record date, the related payment date and the amount of such interest to be
paid. The Company may also pay defaulted interest in any other lawful manner.
Section m. Deposit of Moneys.
- --------- -----------------
Prior to 11:00 a.m. New York City time on each Interest Payment Date
and the Maturity Date, the Company shall have deposited with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any, due
on such Interest Payment Date or Maturity Date, as the case may be, in a timely
manner which permits the Paying Agent to remit payment to
21
<PAGE>
the Holders on such Interest Payment Date or Maturity Date, as the case may be.
Section n. CUSIP Number.
- --------- ------------
The Company in issuing the Securities may use one or more "CUSIP"
numbers, and if so, the Trustee shall use the CUSIP numbers in notices of
redemption or exchange as a convenience to Holders; provided that any such
notice may state that no representation is made as to the correctness or
accuracy of the CUSIP number printed in the notice or on the Securities, and
that reliance may be placed only on the other identification numbers printed on
the Securities.
Section o. Restrictive Legends.
- --------- -------------------
Each Global Security and Definitive Security that constitutes a
Restricted Security shall bear the following legend (the "Private Placement
Legend") on the face thereof until after the second anniversary of the later of
the Issue Date and the last date on which the Company or any Affiliate of the
Company was the owner of such Security (or any predecessor security) (or such
shorter period of time as permitted by Rule 144(k) under the Securities Act or
any successor provision thereunder) (or such longer period of time as may be
required under the Securities Act or applicable state securities laws in the
opinion of counsel for the Company, unless otherwise agreed by the Company and
the Holder thereof):
"THIS SENIOR NOTE HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT), (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2),
(3) or (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN
"INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A
U.S. PERSON AND IS ACQUIRING THIS SENIOR NOTE IN AN
OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT; (2) AGREES THAT IT
WILL NOT, WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF
THIS SENIOR NOTE, RESELL OR OTHERWISE TRANSFER THIS SENIOR
NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF,
(B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT,
22
<PAGE>
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SENIOR NOTE (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 OR ANY OTHER APPLICABLE
EXEMPTION UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS SENIOR NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION
WITH ANY TRANSFER OF THIS SENIOR NOTE WITHIN TWO YEARS
AFTER THE ORIGINAL ISSUANCE OF THIS SENIOR NOTE, IF THE
PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH
TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION
REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER
OF THIS SENIOR NOTE IN VIOLATION OF THE FOREGOING
RESTRICTIONS."
Each Global Security shall also bear the following legend on the face
thereof:
"UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE
23
<PAGE>
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH
NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF
SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR
DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS
THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN."
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO.
OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED
TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTION 2.17 OF THE INDENTURE."
Section p. Book-Entry Provisions for Global Security.
- --------- -----------------------------------------
(1) The Global Security initially shall (i) be registered in the
name of Cede & Co., as nominee of the Depository, (ii) be delivered to the
Trustee as custodian for such Depository and (iii) bear legends as set forth in
Section 2.15.
Members of, or participants in, the Depository ("Agent Members")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depository, or the Trustee as its custodian, or
under the Global Security, and the Depository may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of the
Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices governing
the exercise of the rights of any Holder.
24
<PAGE>
(2) Transfers of the Global Security shall be limited to transfers
to the Depository, its successors or their respective nominees. Interests of
beneficial owners in the Global Security may be transferred or exchanged for
Definitive Securities in accordance with the rules and procedures of the
Depository and the provisions of Section 2.17. In addition, Definitive
Securities shall be transferred to all beneficial owners in exchange for their
beneficial interests in the Global Security if (i) the Depository notifies the
Company that it is unwilling or unable to continue as Depository for the Global
Security and a successor depositary is not appointed by the Company within 90
days of such notice or (ii) an Event of Default has occurred and is continuing
and the Registrar has received a request from the Depository to issue Definitive
Securities.
(3) In connection with any transfer or exchange of a portion of
the beneficial interest in the Global Security to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Definitive Securities are to
be issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Security in an amount equal to the principal
amount of the beneficial interest in the Global Security to be transferred, and
the Company shall execute, and the Trustee shall authenticate and deliver, one
or more Definitive Securities of like tenor and amount.
(4) In connection with the transfer of the entire Global Security
to beneficial owners pursuant to paragraph (b), the Global Security shall be
deemed to be surrendered to the Trustee for cancellation, and the Company shall
execute, and the Trustee shall authenticate and deliver, to each beneficial
owner identified by the Depository in exchange for its beneficial interest in
the Global Security, an equal aggregate principal amount of Definitive
Securities of authorized denominations.
(5) Any Definitive Security constituting a Restricted Security
delivered in exchange for an interest in the Global Security pursuant to
paragraph (b) or (c) shall, except as otherwise provided by paragraphs (a)(i)(x)
and (c) of Section 2.17, bear the legend regarding transfer restrictions
applicable to the Definitive Securities set forth in Section 2.15.
(6) The Holder of the Global Security may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
25
<PAGE>
Section q. Special Transfer Provisions.
- --------- ---------------------------
(1) Transfers to Non-QIB Institutional Accredited Investors and
-----------------------------------------------------------
Non-U.S. Persons. The following provisions shall apply with respect to the
- ----------------
registration of any proposed transfer of a Security constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
non-U.S. Person:
(a) the Registrar shall register the transfer of any Security
constituting a Restricted Security, whether or not such Security bears
the Private Placement Legend, if (x) the requested transfer is after
the second anniversary of the Issue Date (provided, however, that
-------- -------
neither the Company nor any Affiliate of the Company has held any
beneficial interest in such Security, or portion thereof, at any time
on or prior to the second anniversary of the Issue Date), or (y) (l) in
the case of a transfer to an Institutional Accredited Investor which is
not a QIB (excluding non-U.S. Persons), the proposed transferee has
delivered to the Registrar a certificate substantially in the form of
Exhibit B hereto or (2) in the case of a transfer to a non-U.S. Person,
the proposed transferor has delivered to the Registrar a certificate
substantially in the form of Exhibit C hereto; and
(b) if the proposed transferor is an Agent Member holding a
beneficial interest in the Global Security, upon receipt by the
Registrar of (x) the certificate, if any, required by paragraph (i)
above and (y) instructions given in accordance with the Depository's
and the Registrar's procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Definitive
Securities) a decrease in the principal amount of the Global Security in an
amount equal to the principal amount of the beneficial interest in the Global
Security to be transferred, and (b) the Company shall execute and the Trustee
shall authenticate and deliver one or more Definitive Securities of like tenor
and amount.
(2) Transfers to QIBs. The following provisions shall apply with
-----------------
respect to the registration of any proposed transfer of a Security constituting
a Restricted Security to a QIB (excluding transfers to non-U.S. Persons):
(a) the Registrar shall register the transfer if such transfer
is being made by a proposed transferor who has checked the box provided
for on the form of Security stating, or has otherwise advised the
Company and the Registrar in writing, that the sale has been made in
compliance with the provisions of Rule 144A to a transferee who has
signed the certification provided for on the form of Security stating,
or has otherwise advised the Company and the Registrar in writing, that
it is purchasing the Security for its own account, or an account with
respect to which it exercises sole investment discretion and that it
and any such account is a QIB within the meaning of Rule 144A, and is
aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Company as it has requested pursuant to Rule 144A or has
26
<PAGE>
determined not to request such information and that it is aware that
the transferor is relying upon its foregoing representations in order
to claim the exemption from registration provided by Rule 144A; and
(b) if the proposed transferee is an Agent Member, and the
Securities to be transferred consist of Definitive Securities which
after transfer are to be evidenced by an interest in the Global
Security, upon receipt by the Registrar of instructions given in
accordance with the Depository's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and an
increase in the principal amount of the Global Security in an amount
equal to the principal amount of the Definitive Securities to be
transferred, and the Trustee shall cancel the Definitive Securities so
transferred.
(3) Private Placement Legend. Upon the transfer, exchange or
------------------------
replacement of Securities not bearing the Private Placement Legend, the
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Registrar shall deliver only Securities that bear
the Private Placement Legend unless (i) the circumstance contemplated by
paragraph (a)(i)(x) of this Section 2.17 exist or (ii) there is delivered to the
Registrar an opinion of counsel reasonably satisfactory to the Company and the
Trustee to the effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the provisions of the
Securities Act.
(4) General. By its acceptance of any Security bearing the Private
-------
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.16 or this Section 2.17.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
ARTICLE 3.
REDEMPTION
Section a. Rights of Redemption.
- --------- --------------------
(1) Optional Redemption. The Securities may be redeemed, in whole
-------------------
or in part, at the option of the Company at any time on or after June 15, 2001,
subject to the conditions, and at the redemption prices, specified in the
Securities, plus any accrued and unpaid interest to the date of redemption.
27
<PAGE>
(2) Optional Redemption upon Equity Offerings. At any time until
-----------------------------------------
June 15, 2000, the Company may, at its option, redeem up to 35% (up to 10% if
the Special Mandatory Redemption has occurred) of the original aggregate
principal amount of Securities with the net cash proceeds of one or more Equity
Offerings subject to the conditions, and at the redemption price, specified in
the Securities, plus any accrued and unpaid interest to the date of redemption;
provided, however, that at least 65% of the original aggregate principal amount
- -------- -------
of the Securities remains outstanding immediately after the occurrence of such
redemption. Any such redemption shall reduce, on a dollar for dollar basis, the
principal amount of the Securities required to be redeemed pursuant to the
Special Mandatory Redemption described in clause (c) below.
(3) Special Mandatory Redemption.
----------------------------
(a) If, on or prior to June 30, 1998, the closing of a
Settlement has not occurred or the Company has not paid to Dart the
Restricted Proceeds to fund a Settlement, Securities in an aggregate
principal amount of $50,000,000 (subject to reduction pursuant to
clause (b) above) shall be redeemed pursuant to a special mandatory
redemption (the "Special Mandatory Redemption") at any time on or prior
to August 14, 1998, at 101% of the principal amount thereof, plus any
accrued and unpaid interest thereon to the date of redemption.
(b) The Company shall deposit $50,000,000 of the proceeds from
the Offering with the Trustee in the Restricted Account simultaneously
with receipt of payment therefor on the Issue Date. All amounts so
deposited shall be held by the Trustee pursuant to the Pledge Agreement
as collateral to secure the obligations of the Company under the
Securities, subject to release from the Restricted Account as set forth
in the Pledge Agreement. Following release of the Restricted Proceeds,
including any interest or profit earned thereon, from the Restricted
Account and termination of the Pledge Agreement, all of the Securities
will be unsecured obligations of the Company.
(c) Pending release of the Restricted Proceeds from the
Restricted Account pursuant to the Pledge Agreement either to make a
payment to Dart to fund a Settlement or to fund the Special Mandatory
Redemption, the Restricted Proceeds shall be invested in Cash
Equivalents as directed by the Company. If a Special Mandatory
Redemption occurs, then any interest or other profit earned on the
Restricted Proceeds shall be used to fund the Special Mandatory
Redemption (including any accrued and unpaid interest on the Securities
that are redeemed), except that any amount in the Restricted Account
not needed to fund the Special Mandatory Redemption may be used by the
Company for general corporate purposes (including payment of interest
on the Securities). If the Restricted Proceeds are released to the
Company from the Restricted Account and used to make a payment to Dart
to fund a Settlement, then any interest or other profit earned on the
Restricted Proceeds may be used by the Company for general corporate
purposes (including payment of interest on the Securities).
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Section b. Notices to Trustee.
- --------- ------------------
In case of any redemption at the election of the Company, the Company
shall notify the Trustee of the redemption date, the principal amount of
Securities to be redeemed and the redemption price. The Company shall give each
notice provided for in this Section 3.2 at least 30 days but not more than 60
days before the redemption date (unless a shorter notice period shall be
satisfactory to the Trustee).
Section c. Selection of Securities to be Redeemed.
- --------- --------------------------------------
If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed pro rata, by lot or by any other
method that the Trustee considers fair and appropriate; provided, however, that
any Securities to be redeemed pursuant to the Special Mandatory Redemption shall
be selected on a pro rata basis by the Trustee. The Trustee shall make the
selection not more than 60 days and not less than 30 days before the redemption
date from Securities outstanding not previously called for redemption.
Securities and portions thereof shall be redeemed only in integral multiples of
$1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be called for redemption.
Section d. Notice of Redemption.
- --------- --------------------
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail a notice of redemption by first class mail, postage
prepaid, to each Holder whose Securities are to be redeemed at such Holder's
registered address.
The notice shall identify the Securities to be redeemed and shall
state:
i. the redemption date;
ii. the redemption price;
iii. if any Security is being redeemed in part, the portion
of the principal amount of such Security to be redeemed and that, after
the redemption date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion will be
issued in the Holder's name;
iv. the name and address of the Paying Agent;
v. that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
29
<PAGE>
vi. that interest on Securities or portions thereof called
for redemption ceases to accrue on and after the redemption date; and
vii. the paragraph of the Securities pursuant to which the
Securities are being redeemed.
At the Company's request, the Trustee shall give notice of redemption
in the Company's name and at its expense.
Section e. Effect of Notice of Redemption.
- --------- ------------------------------
Notice of redemption shall be deemed to be given when mailed to each
Holder at its last registered address, whether or not the Holder receives such
notice. Once notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date at the price set forth in the
Security. A notice of redemption may not be conditional. Upon surrender to the
Trustee or Paying Agent, such Securities called for redemption shall be paid at
the redemption price (which shall include accrued and unpaid interest thereon to
the redemption date) but installments of interest, the maturity of which is on
or prior to the redemption date, shall be payable to Holders of record at the
close of business on the applicable payment dates.
Section f. Deposit of Redemption Price.
- --------- ---------------------------
On or before 11:00 a.m. New York City time on any redemption date, the
Company shall deposit with the Trustee or with the Paying Agent available funds
sufficient to pay the redemption price of and accrued interest (if payable under
the Securities) on all Securities to be redeemed on that date (taking into
account, in the case of a Special Mandatory Redemption, the amount on deposit in
the Restricted Account).
Section g. Securities Redeemed in Part.
- --------- ---------------------------
Upon surrender of a Security that is redeemed in part, the Company
shall issue, the Guarantor shall endorse and the Trustee shall authenticate for
the Holder at the expense of the Company a new Security equal in principal
amount to the unredeemed portion of the Security surrendered.
ARTICLE 4.
COVENANTS
Section a. Payment of Securities.
- --------- ---------------------
The Company shall pay the principal of and interest on the Securities
on the dates and in the manner provided in the Securities and this Indenture.
Principal and interest shall be considered
30
<PAGE>
paid on the date due if the Paying Agent (other than the Company or a Subsidiary
of the Company) holds on that date money designated for and sufficient to pay in
cash all principal and interest then due. The Company shall pay all Liquidated
Damages, if any, in the same manner on the dates and in the amounts set forth in
the Registration Rights Agreement.
To the extent lawful, the Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on (i)
overdue principal, at the rate borne by the Securities, compounded semiannually;
and (ii) overdue installments of interest (without regard to any applicable
grace period) at the same rate, compounded semiannually.
Section b. SEC Reports.
- --------- -----------
(1) The Company shall deliver to the Trustee within 15 days after the
filing of the same with the SEC, copies of the quarterly and annual reports and
of the information, documents and other reports (or copies of such portions of
any of the foregoing as the SEC may by rules and regulations prescribe), if any,
which the Company is required to file with the SEC pursuant to Section 13 or
15(d) of the Exchange Act. Notwithstanding that the Company may not be subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall file with the SEC, to the extent permitted by law or regulation,
and provide the Trustee and Holders with such quarterly and annual reports and
such information, documents and other reports specified in Sections 13 and 15(d)
of the Exchange Act within 15 days of the date such reports would have been due
had the Company been required to file such information, documents and reports
with the SEC. The Company also shall comply with the other provisions of TIA ss.
314(a). The Company shall timely comply with its reporting and filing
obligations under the applicable federal securities laws.
(b) At any time when the Company is not required by applicable law or
regulation to file the aforementioned reports, upon the request of a Holder, the
Company will promptly furnish or cause to be furnished such information as is
specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor
provision thereto) to such Holder or to a prospective purchaser of such
Securities designated by such Holder, as the case may be, in order to permit
compliance by such Holder with Rule 144A.
Section c. Compliance Certificate.
- --------- ----------------------
The Company shall deliver to the Trustee, within 45 days after the end
of each of the first three quarters of the Company's fiscal year and within 90
days after the end of such fiscal year of the Company, an Officers' Certificate
stating that a review of the activities of the Company and its Subsidiaries
during the preceding fiscal quarter or year, as the case may be, has been made
under the supervision of the signing Officers with a view to determining whether
the Company has kept, observed, performed and fulfilled its obligations under
this Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge the Company has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture
31
<PAGE>
and is not in default in the performance or observance of any of the terms,
provisions and conditions hereof (or, if a Default or Event of Default shall
have occurred, describing all such Defaults or Events of Default of which he or
she may have knowledge and what action the Company is taking or proposes to take
with respect thereto), and that, to the best of his or her knowledge, no event
has occurred and remains in existence by reason of which payments on account of
the principal of or interest, if any, on the Securities are prohibited. For
purposes of the foregoing sentence, the Company's compliance with conditions and
covenants under this Indenture shall be determined without regard to any period
of grace or requirement of notice provided hereunder.
The Company shall, so long as any of the Securities are outstanding,
deliver to the Trustee, within five Business Days after becoming aware of (i)
any Default, Event of Default or default in the performance of any covenant,
agreement or condition in this Indenture or (ii) any event of default under any
other instrument of Indebtedness to which Section 6.1(v) applies, an Officers'
Certificate specifying such Default, Event of Default or default, describing its
status and what action the Company is taking or proposes to take with respect
thereto.
So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to this Section 4.3 shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof, or if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
Section d. Stay, Extension and Usury Laws.
- --------- ------------------------------
Each of the Company and the Guarantor covenants (to the extent that it
may lawfully do so) that it will not at any time insist upon, plead or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and each of the
Company and the Guarantor (to the extent it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law, and covenants that it will not,
by resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law has been enacted.
32
<PAGE>
Section e. Limitation on Restricted Payments.
- --------- ---------------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly:
i. declare or pay any dividend on or make any distribution on
account of the Company's Capital Stock (other than dividends or
distributions payable in Capital Stock (other than Disqualified Stock)
of the Company);
ii. purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company, any Subsidiary of the Company or other
Affiliate of the Company (other than any such Capital Stock owned by
the Company or any Restricted Subsidiary of the Company);
iii. purchase, redeem or otherwise acquire or retire for value
any Indebtedness that is pari passu with or subordinated to the
Securities except for payments of Permitted Indebtedness in accordance
with the provisions contained therein, as such provisions may be
amended from time to time, but subject to the provisions of this
Indenture; provided, however, that no such amendments shall cause such
-------- -------
Permitted Indebtedness (other than the New Credit Facility) to be
scheduled to mature at a date earlier than the Stated Maturity of the
Indebtedness being amended;
iv. permit any Restricted Subsidiary to declare or pay any
dividend on, or make any distribution to the Holders (as such) of, any
shares of its Capital Stock except to the Company or a Wholly Owned
Restricted Subsidiary (other than dividends or distributions payable in
Capital Stock (other than Disqualified Stock) of it or the Company); or
v. make any Investment in any Affiliate (other than the Company
or a Wholly Owned Restricted Subsidiary of the Company),
(all such payments and other actions set forth in clauses (1) through (5) above
being collectively referred to as "Restricted Payments,") unless, at the time of
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof; and
(b) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its
Restricted Subsidiaries after the Issue Date (including
Restricted Payments permitted by clauses (iv), (v) and (vi)
of the next succeeding paragraph), is less than the aggregate
of (A) 50% of the aggregate Adjusted Consolidated Net Income
of the Company (excluding, for purposes of this clause (A),
accrued but
33
<PAGE>
unpaid interest income, if any, from intercompany loans) for
the first day of the fiscal quarter including the Issue Date
to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available
at the time of such Restricted Payment (or if such Adjusted
Consolidated Net Income for such period is a deficit, 100% of
such deficit), plus (B) an amount equal to the Net Cash
Proceeds (plus the noncash proceeds, as determined in good
faith by the Board of Directors) received upon the sale of
Capital Stock (other than Disqualified Stock) subsequent to
the Issue Date plus (C) an amount equal to the Net Cash
Proceeds received upon the sale or other disposition or
repayment of any Investment made after the Issue Date which
had been treated as a Restricted Payment.
The foregoing provisions of this Section 4.5 will not prohibit (i) if
no Default or Event of Default shall have occurred and be continuing or shall
occur as a consequence thereof, the payment to Dart by the Company from its
available liquid assets of an amount not to exceed $10,000,000; (ii) if no
Default or Event of Default shall have occurred and be continuing or shall occur
as a consequence thereof, upon the execution of the New Credit Facility, an
additional payment to Dart by the Company from its available liquid assets of an
amount in the aggregate not to exceed $15,000,000; (iii) if no Default or Event
of Default shall have occurred and be continuing or shall occur as a consequence
thereof, the payment to Dart by the Company of the Restricted Proceeds for
purposes of funding a Settlement; (iv) if no Default or Event of Default shall
have occurred and be continuing or shall occur as a consequence thereof,
Investments in Unrestricted Subsidiaries in an aggregate amount not to exceed
$10,000,000; (v) the payment of any dividend within 60 days after the date of
declaration thereof, if at the record date for such dividend such payment would
have complied with the provisions of this Indenture; and (vi) if no Default or
Event of Default shall have occurred and be continuing or shall occur as a
consequence thereof, the redemption, repurchase, retirement or other acquisition
of the Securities or any Capital Stock of the Company in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a Restricted
Subsidiary of the Company) of other Capital Stock of the Company (other than any
Disqualified Stock); provided, however, that payments made in accordance with
-------- -------
clauses (i), (ii) and (iii) of this paragraph shall not be deemed to be
Restricted Payments.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.5 were computed, which calculations may
be based upon the Company's latest available financial statements.
Section f. Continued Existence.
- --------- -------------------
Subject to Article 5 hereof, the Guarantor and the Company will, and
will cause the Company's Restricted Subsidiaries to, do or cause to be done all
things necessary to preserve and
34
<PAGE>
keep in full force and effect its existence as a corporation and will refrain
from taking any action that would cause its existence as a corporation to cease,
including without limitation any action that would result in its liquidation,
winding up or dissolution; provided, however, that the foregoing restriction
-------- -------
shall not prohibit the Company from merging with or into a Restricted Subsidiary
or a Restricted Subsidiary from merging with or into the Company or another
Restricted Subsidiary.
Section g. Limitation on Indebtedness.
- --------- --------------------------
The Company shall not, and shall not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly create, incur, assume, issue,
guarantee or in any manner become liable, contingently or otherwise, for or with
respect to the payment of, any Indebtedness (including any Acquired
Indebtedness) except for the following (each of which shall be given independent
effect):
(a) Indebtedness of the Company under its Increasing Rate Senior
Notes due 2004 (to the extent that the Company has satisfied the
conditions in Section 8.1 of the Increasing Rate Note Indenture with
respect to the discharge of its obligations, other than those
obligations which expressly survive pursuant to such Section 8.1), the
Securities and the indentures governing such debt securities;
(b) Permitted Secured Indebtedness;
(c) any replacements, renewals, refinancings and extensions of
Indebtedness incurred under clause (b) above, provided that (i) any
such replacement, renewal, refinancing and extension (x) shall not
provide for any mandatory redemption, amortization or sinking fund
requirement in an amount greater than or at a time prior to the amounts
and times specified in the Indebtedness being replaced, renewed,
refinanced or extended and (y) shall be contractually subordinated to
the Securities at least to the extent, if at all, that the Indebtedness
being replaced, renewed, refinanced or extended is subordinate to the
Securities, (ii) any such Indebtedness of any Person must be replaced,
refinanced or extended with Indebtedness incurred by such Person or by
the Company; and (iii) the principal amount of Indebtedness incurred
pursuant to this clause (c) (or, if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable
upon a declaration of acceleration of the maturity thereof, the
original issue price of such Indebtedness) shall not exceed the sum of
the principal amount (or with respect to Indebtedness which provides
for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the maturity thereof, the
accredited value thereof) of Indebtedness so replaced, renewed,
refinanced or extended, plus accrued interest, the amount of any
premium required to be paid in connection with such replacement,
renewal, refinancing or extension pursuant to the terms of such
Indebtedness or the amount of any premium reasonably determined by the
Company as necessary to accomplish such replacement, renewal,
refinancing or extension
35
<PAGE>
by means of a tender offer or privately negotiated purchase, and the
amount of fees and expenses incurred in connection therewith;
(d) Indebtedness of the Company or of any of the Restricted
Subsidiaries of the Company not to exceed an amount in the aggregate at
any one time outstanding equal to the lesser of (i) $10,000,000 or (ii)
an amount which when added to the amount of Indebtedness outstanding at
any one time under the New Credit Facility equals $35,000,000, provided
that such Indebtedness permitted under this clause (d) shall be either
contractually subordinated to or rank pari passu with the Securities;
(e) Indebtedness of the Company or any of the Restricted
Subsidiaries of the Company, provided (i) the Consolidated Interest
Coverage Ratio of the Company for the applicable Four Quarter Period
would have been at least 1.8 to 1.0 if such incurrence or issuance of
Indebtedness had occurred prior to the second anniversary of the Issue
Date and 2.0 to 1.0 thereafter, in each case after giving pro forma
effect to such incurrence or issuance and the application of the
proceeds therefrom, and (ii) such Indebtedness shall be either
contractually subordinated to or rank pari passu with the Securities;
(f) Indebtedness of the Company under the New Credit Facility;
(g) Indebtedness under Capitalized Lease Obligations of the
Company and its Restricted Subsidiaries incurred in the ordinary course
of business, not to exceed 3% of the Net Sales of the Company and its
Restricted Subsidiaries on a consolidated basis during the Four Quarter
Period immediately preceding such incurrence; and
(h) any Investments permitted under Section 4.14 (the foregoing
items in clauses (a) through (h) are referred to as "Permitted
Indebtedness").
Section h. Taxes.
- --------- -----
The Company shall, and shall cause each of its Subsidiaries to, pay
prior to delinquency all taxes, assessments and governmental levies, except as
contested in good faith and by appropriate proceedings and for which adequate
reserves, if any, required by GAAP shall have been set aside.
Section i. Repurchase at Holder's Option upon Change in Control.
- --------- ----------------------------------------------------
(1) Upon the occurrence of a Change in Control (as hereinafter
defined), each Holder shall have the right, at such Holder's option, to require
the Company to repurchase all of such Holder's Securities, or any portion
thereof that is an integral multiple of $1,000, on the date (the "Repurchase
Date") that is no later than 60 days after the date of the Company Notice (as
hereinafter defined) for cash at a price equal to 101% of the principal amount
of such Securities to be repurchased (the "Change in Control Repurchase Price"),
plus any accrued and unpaid interest to the Repurchase Date. Within 30 days
after the occurrence of a Change in Control, the
36
<PAGE>
Company shall mail to all Holders a notice (the "Company Notice") of the
occurrence of such Change in Control and of the repurchase right arising as a
result thereof. The Company shall also deliver a copy of the Company Notice to
the Trustee. To exercise the repurchase right, a Holder shall deliver on or
before the 30th day after the date of the Company Notice irrevocable written
notice to the Trustee of the Holder's exercise of such right, together with the
Securities with respect to which the right is being exercised, duly endorsed for
transfer to the Company. The Company Notice shall state:
i. that the Company Notice is being delivered pursuant
to this Section 4.9 and that all Securities tendered will be accepted
for payment;
ii. the purchase price and the purchase date, which shall
be no later than 60 days from the date such notice is mailed (the
"Change in Control Payment Date");
iii. that any Securities not tendered will continue to
accrue interest;
iv. that, unless the Company defaults in the payment of
the Change in Control Repurchase Price, all Securities accepted for
payment upon a Change in Control shall cease to accrue interest after
the Change in Control Payment Date;
v. that in order to exercise the repurchase right, each
Holder electing to have any Securities purchased will be required to
(i) deliver irrevocable written notice to the Trustee of such Holder's
exercise of such right, and (ii) surrender the Securities (duly
endorsed for transfer to the Company), with the form entitled "Option
of Holder to Elect Purchase" on the reverse of the Securities
completed, and any form of letter of transmittal proposed by the
Company and acceptable to the Trustee and the Paying Agent, to the
Paying Agent at the address specified in the notice, in each case, on
or before 4:00 p.m. New York City time on the 30th day after the date
of the Company Notice; and
vi. that Holders whose Securities are being purchased
only in part will be issued new Securities equal in principal amount to
the unpurchased portion of the Securities surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an
integral multiple thereof.
(b) On the Change in Control Payment Date, the Company
shall, to the extent lawful, (1) accept for payment Securities or portions
thereof tendered pursuant to the Change in Control Notice, (2) deposit with the
Paying Agent in immediately available funds an amount equal to the Change in
Control Repurchase Price in respect of all Securities or portions thereof so
tendered, and (3) deliver or cause to be delivered to the Trustee the Securities
so accepted together with an Officers' Certificate stating the Securities or
portions thereof tendered to the Company. The Paying Agent shall promptly mail
to each Holder of Securities so accepted payment in an amount equal to the
purchase price for the Securities, and the Trustee shall promptly authenticate
and arrange for the Guarantor to endorse, and mail to each Holder, a new
37
<PAGE>
Security equal in principal amount to the unpurchased portion of the Securities
surrendered by such Holder, if any; provided, that each such new Security shall
be in principal amount of $1,000 or an integral multiple thereof. The Company
shall cause to be mailed to each Holder the results of any repurchases by
Securityholders pursuant to this Section 4.9 on or as soon as practicable after
the Change in Control Payment Date.
A "Change in Control" will be deemed to have occurred at such
time as:
(a) any Person (including any syndicate or group deemed to
be a "person" under Section 13(d)(3) of the Exchange Act,
other than Dart, the Guarantor, the Company or any employee
benefit plan of the Company or the Guarantor), is or becomes
the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act), directly or indirectly, through a purchase,
merger or other acquisition transaction or series of
transactions or otherwise, of shares of Capital Stock of the
Company, the Guarantor or Dart, entitling such Person to
exercise 35% or more of the total voting power of all shares
of Capital Stock of the Company, the Guarantor or Dart,
entitled to vote generally in the election of the directors;
(b) there occurs any consolidation of the Company with, or
merger of the Company into, any other Person, any merger of
another Person into the Company, or any sales or transfers of
all or substantially all of the assets of the Company to
another Person (other than a merger (x) which does not result
in any reclassification, conversion, exchange or cancellation
of outstanding shares of Capital Stock or (y) which is
effected solely to change the jurisdiction of incorporation of
the Company and results in a reclassification, conversion or
exchange of outstanding shares of Capital Stock into solely
shares of Capital Stock); provided, however, that no Change in
Control will be deemed to occur pursuant to this clause (ii)
upon the merger of any Wholly Owned Restricted Subsidiary of
the Company into the Company; or
(iii) the replacement of a majority of the Board of Directors
of the Company from the directors who constituted the Board of
Directors of the Company on the Issue Date, and such
replacement shall not have been approved by either (a) a vote
of a majority of the Board of Directors then still in office
who either were (x) members of the Board of Directors of the
Company on the Issue Date or (y) whose election as a member of
the Board of Directors was approved in the manner provided in
this clause (iii) or (b) the Voting Trustee (as defined
below).
Notwithstanding the foregoing, the beneficial ownership of
shares of Capital Stock of Dart under that certain Voting Trust Agreement dated
October 6, 1995 by and among Ronald S. Haft, Dart and Larry G. Schafran and
Sidney B. Silverman, as initial voting trustees, entitling such trust, acting
through its duly appointed voting trustee, or if more than one, trustees (the
38
<PAGE>
"Voting Trustee"), to exercise 35% or more of the total voting power of all
shares of Capital Stock of Dart shall not be deemed to constitute a Change in
Control.
The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Securities pursuant to the occurrence of a Change in Control. To
the extent that the provisions of any securities laws or regulations conflict
with the "Change in Control" provisions herein, the Company shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change in Control" provisions of this
Indenture by virtue thereof.
Section j. Limitation on Transactions with Affiliates.
- ---------- -------------------------------------------
Neither the Company nor any of its Restricted Subsidiaries nor the
Guarantor shall, from and after the Issue Date, sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each of
the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate
Transaction is on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that could have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (b) the Company delivers to the Trustee (i) with respect to
any Affiliate Transaction involving aggregate payments in excess of $250,000, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (a) above and
such Affiliate Transaction is approved by a majority of the disinterested
members of the Board of Directors, and (ii) with respect to any Affiliate
Transaction (other than the purchase in the ordinary course of business of
property or assets for resale) involving aggregate payments in excess of
$1,000,000, an opinion as to the fairness to the Company or, in the case of a
transaction with an Affiliate and a Restricted Subsidiary, to such Restricted
Subsidiary, in each case from a financial point of view issued by an investment
banking firm of national standing; provided, however, that (i) any employment
-------- -------
agreement, consulting agreement and indemnification obligation entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course of
business and consistent with the past practice of the Company or such Restricted
Subsidiary, (ii) transactions in accordance with the terms of the Tax Sharing
Agreement or the Management Services Agreement (provided that the Company shall
not be permitted to make any payment to Dart under the Tax Sharing Agreement in
respect of taxes on accrued but unpaid interest income of the Company on
intercompany loans), (iii) the payment of reasonable and customary fees to
directors of the Company who are not employees of the Company and (iv)
transactions permitted under Sections 4.5 and 4.14 hereof, in each case, shall
not be deemed Affiliate Transactions.
39
<PAGE>
Section k. Limitation on Lines of Business.
- ---------- --------------------------------
Neither the Company nor any Restricted Subsidiary of the Company shall
engage in any business other than those businesses in which the Company is
engaged on the Issue Date and any other businesses related thereto.
Section l. Dividends and Other Payment Restrictions Affecting
- ---------- --------------------------------------------------
Subsidiaries.
-------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a)(i) pay dividends or
make any other distributions to the Company or any of its Restricted
Subsidiaries (A) on its Capital Stock or (B) with respect to any other interest
or participation in, or measured by, its profits or (ii) pay any Indebtedness
owed to the Company or any of its Restricted Subsidiaries, (b) make loans or
advances to the Company or any of its Restricted Subsidiaries or (c) transfer
any of its properties or assets to the Company or any of its Restricted
Subsidiaries, except for (i) such encumbrances or restrictions existing under or
by reason of this Indenture or applicable law (ii) reasonable and customary
provisions restricting subletting or assignment of any lease entered into in the
ordinary course of business, consistent with industry practices, (iii)
restrictions under any Acquired Indebtedness or any agreement relating to any
property, asset or business acquired by the Company or any of its Restricted
Subsidiaries, which restrictions existed at the time of acquisition, were not
put in place in connection with or in anticipation of such acquisition and are
not applicable to any Person, other than the Person acquired or to any property,
asset or business other than the property, asset and business so acquired, (iv)
reasonable and customary restrictions on transfers of all collateral imposed in
connection with Permitted Liens, and (v) replacements of restrictions imposed
pursuant to clause (iii) and this clause (v) that are not more restrictive than
those being replaced and do not apply to any additional property or assets.
Section m. Further Assurance to the Trustee.
- ---------- ---------------------------------
The Company, upon request of the Trustee, shall execute and deliver
such further instruments and do such further acts as may be reasonably necessary
or proper to carry out more effectively the provisions of this Indenture.
Section n. Limitation on Investments, Loans and Advances.
- ---------- ----------------------------------------------
The Company shall not make, and shall not permit any of its Restricted
Subsidiaries to make, any Investment, except: (i) Investments by the Company or
a Restricted Subsidiary of the Company in any Wholly Owned Restricted Subsidiary
of the Company (including any such Investment pursuant to which a Person becomes
a Wholly Owned Restricted Subsidiary of the Company) or in the Company by any
Restricted Subsidiary of the Company; (ii) Investments represented by
receivables created or acquired in the ordinary course of business or the
settlement
40
<PAGE>
of such receivables in the ordinary course of business; (iii) Investments
permitted to be made pursuant to Section 4.5; (iv) Investments represented by
advances to employees, officers and directors of the Company or its Restricted
Subsidiaries made in the ordinary course of business and consistent with
reasonable and customary business practices; (v) Permitted Investments; (vi)
Investments permitted to be made with the Net Cash Proceeds of Asset Sales
pursuant to Section 4.19; and (vii) payments made to Dart that are permitted by
Section 4.5.
Section o. Limitation on Liens.
- ---------- --------------------
The Company shall not, and the Company shall not permit, cause or
suffer any of its Restricted Subsidiaries to, create, incur, assume or suffer to
exist any Lien of any kind upon any of its property or assets now owned or
hereafter acquired by it, except for (a) Liens of the Company and its Restricted
Subsidiaries existing as of the Issue Date; (b) Permitted Liens; (c) Liens,
arising after the Issue Date, securing Permitted Secured Indebtedness; (d) Liens
on the assets or properties of the Company and its Restricted Subsidiaries,
arising after the Issue Date, securing Capitalized Lease Obligations permitted
to be incurred under Section 4.7(g), provided that (1) the aggregate principal
amount of Indebtedness secured by such Liens shall not exceed the lesser of the
cost or Fair Market Value of the assets or property so acquired and (2) such
Liens shall not encumber any assets or property of the Company or its Restricted
Subsidiaries other than the assets or property so acquired and shall attach to
such assets or property within 60 days of the acquisition of such assets or
property; (e) leases and subleases of real property which do not interfere with
the ordinary conduct of the business of the Company or any of its Restricted
Subsidiaries, and which are made on customary and usual terms applicable to
similar properties; (f) Liens securing Indebtedness which is incurred to
refinance Indebtedness which has been secured by a Lien permitted under this
Indenture and is permitted to be refinanced under this Indenture, provided that
such Liens do not extend to or cover any property or assets of the Company or
any of its Subsidiaries not securing the Indebtedness so refinanced; (g) Liens
securing Acquired Indebtedness, provided that such Liens (1) are not incurred in
connection with, or in contemplation of the acquisition of the property or
assets acquired and (2) do not extend to or cover any property or assets of the
Company or any of its Restricted Subsidiaries (other than the property or assets
of the Restricted Subsidiary so acquired that are subject to such Lien); (h)
Liens in favor of the Trustee under this Indenture; (i) Liens securing
Indebtedness under the New Credit Facility; and (j) any replacement, extension
or renewal, in whole or in part, of any Lien described in this or the foregoing
clauses including in connection with any refinancing of the Indebtedness, in
whole or in part, secured by any such Lien, provided that to the extent any such
clause limits the amount secured or the assets subject to such Liens, no
extension or renewal shall increase the amount or the assets subject to such
Liens, except for Liens associated with such additional assets that are
otherwise permitted hereunder. The Guarantor shall not create, incur, assume or
suffer to exist any Lien (other than the Lien created under Article 11) of any
kind upon any of its property or assets (including without limitation Capital
Stock of its Restricted Subsidiaries) now owned or hereafter acquired by it.
Notwithstanding the foregoing, Liens shall be permitted by the
previous clauses (a)
41
<PAGE>
though (h) only to the extent that any Indebtedness secured by such Liens is
incurred pursuant to and in accordance with the provisions of this Indenture.
Section p. Maintenance of Office or Agency.
- ---------- --------------------------------
The Company and the Guarantor shall maintain in the Borough of
Manhattan, The City of New York, the office or agency required under Section 2.3
hereof. The Company and the Guarantor shall give prompt, written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company and the Guarantor shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the address of the Trustee set forth in Section 12.2.
Section q. Tax Sharing Agreement.
- ---------- ----------------------
The Company shall, and shall cause its Restricted Subsidiaries to,
comply in all material respects with the Tax Sharing Agreement and shall not
amend the Tax Sharing Agreement in any material respect, except as necessary to
comply with Section 4.10 to amend the Tax Sharing Agreement to prohibit the
Company from making any payment to Dart under the Tax Sharing Agreement in
respect of taxes on accrued but unpaid interest income of the Company on
intercompany loans.
Section r. Management Services Agreement.
- ---------- ------------------------------
The Company shall, and shall cause its Restricted Subsidiaries to,
comply in all material respects with the Management Services Agreement and shall
not amend the Management Services Agreement in any material respect.
Section s. Limitation on Asset Sales.
- ---------- --------------------------
The Company shall not, and shall not cause or permit any of its
Restricted Subsidiaries to, make any Asset Sale, unless (a) the Company or the
applicable Restricted Subsidiary receives consideration at the time of such
Asset Sale at least equal to the Fair Market Value of the assets sold, (b) at
least 85% of the consideration for such Asset Sale (other than assumption of
trade Indebtedness) consists of cash and Cash Equivalents, and (c) upon
consummation of an Asset Sale, the Company will within 365 days of the receipt
of the proceeds therefrom, either: (i) apply or cause the applicable Restricted
Subsidiary to apply the Net Cash Proceeds of any Asset Sale to (1) an investment
in properties and assets that replace the properties and assets that are the
subject of such Asset Sale or (2) an investment in properties and assets that
will be used in the business of the Company and its Restricted Subsidiaries as
existing on the Issue Date; (ii) in the case of a sale of a store or stores,
deem such Net Cash Proceeds to have been applied to the extent of any capital
expenditures made to acquire or construct a replacement store in the general
vicinity of the store sold within 365 days preceding the date of the Asset Sale;
or (iii) repay senior
42
<PAGE>
Indebtedness. If 365 days after the receipt by the Company of Net Cash Proceeds
from an Asset Sale, the accumulated Net Cash Proceeds therefrom equal or exceed
$5,000,000 (such accumulated Net Cash Proceeds are defined herein as the "Net
Cash Proceeds Offer Amount"), then the Company shall apply or cause the
applicable Restricted Subsidiary to apply such Net Cash Proceeds to the purchase
of Securities tendered to the Company for purchase at a price equal to 100% of
the principal amount thereof plus accrued interest thereon to the date of
purchase pursuant to an offer to purchase made by the Company as set forth below
(a "Net Cash Proceeds Offer"). Notwithstanding the foregoing, the Company may
exclude from the foregoing provisions Asset Sales subsequent to the Issue Date,
the proceeds of which are derived from the sale and substantially concurrent
lease-back of a supermarket and/or related assets or equipment which is acquired
or constructed by the Company or a Restricted Subsidiary subsequent to the Issue
Date; provided, however, that any such sale and substantially concurrent lease-
-------- -------
back occurs within 270 days following such acquisition or the completion of such
construction, as the case may be. Pending the utilization of any Net Cash
Proceeds in the manner (and within the time period) described above, the Company
may use any such Net Cash Proceeds to repay revolving loans under the New Credit
Facility without a permanent reduction of the commitment thereunder.
Notice of a Net Cash Proceeds Offer pursuant to this Section 4.19 will
be mailed to Holders as shown on the register of Holders not less than 365 days
nor more than 390 days after the relevant Asset Sale, with a copy to the
Trustee. The notice shall contain all instructions and materials necessary to
enable such Holders to tender Securities pursuant to the Net Cash Proceeds Offer
and shall state the following terms:
i. that Holders may elect to tender their Securities in
whole or in part in integral multiples of $1,000 in exchange for cash;
ii. that the Net Cash Proceeds Offer is being made pursuant
to Section 4.19 and that all Securities tendered will be accepted for payment;
provided, however, that if the aggregate principal amount of Securities tendered
- -------- -------
in the Net Cash Proceeds Offer plus accrued interest at the expiration of such
offer exceeds the aggregate amount of the Net Cash Proceeds Offer, the Company
shall select the Securities to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only Securities
in denominations of $1,000 or multiples thereof shall be purchased);
iii. the purchase price (including the amount of accrued
interest) and the purchase date (which shall be no earlier than 30 days nor
later than 40 days from the date such notice is mailed, other than as may be
required by law) (the "Proceeds Purchase Date");
iv. that any Security not tendered will continue to accrue
interest if interest is then accruing;
v. that, unless the Company defaults in making payment
therefor, any Security
43
<PAGE>
accepted for payment pursuant to the Net Cash Proceeds Offer shall cease to
accrue interest after the Proceeds Purchase Date;
vi. that Holders electing to have a Security purchased
pursuant to a Net Cash Proceeds Offer will be required to surrender the
Security, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Security completed, to the Paying Agent at the address specified
in the notice prior to the close of business on the Business Day prior to the
Proceeds Purchase Date;
vii. that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than two Business Days prior to the
Proceeds Purchase Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Securities the
Holder delivered for purchase and a statement that such Holder is withdrawing
its election to have such Security purchased;
viii. that Holders whose Securities were purchased only in
part will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; provided that each Security purchased and
each new Security issued shall be in an original principal amount of $1,000 or
integral multiples thereof; and
ix. that each Net Cash Proceeds Offer is required to remain
open for at least 20 Business Days or such longer period as may be required by
law.
On or before the Proceeds Purchase Date, the Company shall (i) deposit
with the Paying Agent coin or currency of the United States of America as at the
time of payment shall be the legal tender for the payment of public and private
debts sufficient to pay the purchase price of all Securities to be purchased and
(ii) deliver to the Trustee Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to the Holders of Securities so
accepted payment in an amount equal to the purchase price (and the Trustee shall
promptly authenticate and mail or deliver to such Holders a new Security equal
in principal amount to any unpurchased portion of the Security surrendered). The
Company will cause to be mailed to each Holder the results of the Net Cash
Proceeds Offer on or as soon as practicable after the Proceeds Purchase Date.
For purposes of this Section 4.19, the Trustee shall act as the Paying Agent.
Any amounts remaining after the purchase of Securities pursuant to a
Net Cash Proceeds Offer shall be returned by the Trustee to the Company.
To the extent that the aggregate purchase price of the Securities
tendered pursuant to any Net Cash Proceeds Offer is less than the Net Cash
Proceeds Offer Amount (such shortfall constituting a "Deficiency"), the Company
may use such Deficiency for general corporate purposes. Upon completion of any
Net Cash Proceeds Offer, the Net Cash Proceeds Offer Amount shall be reset to
zero.
44
<PAGE>
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of the Securities pursuant to a Net Cash Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with provisions under
this Section 4.19, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under
this Section 4.19 by virtue thereof.
Section t. Limitation on Issuance and Sale of Capital Stock of Restricted
- ---------- --------------------------------------------------------------
Subsidiaries.
-------------
The Company shall not permit any Restricted Subsidiary to issue any
Capital Stock (other than to the Company or to a Restricted Subsidiary) or
permit any Person (other than the Company or a Restricted Subsidiary) to own any
Capital Stock of any Restricted Subsidiary; provided, however, that the Company
and any Restricted Subsidiary may, in any single transaction, sell all but not
less than all, of the issued and outstanding Capital Stock of any Restricted
Subsidiary to any Person in a transaction made in accordance with Section 4.19.
Section u. Merger of Significant Subsidiaries.
- ---------- -----------------------------------
The Company shall cause each of Shoppers Food Warehouse MD Corp., a
Maryland corporation ("SFW MD") and Shoppers Food Warehouse VA Corp., a Virginia
corporation ("SFW VA"), its Subsidiaries, to be merged with and into the Company
within sixty (60) days of the date hereof, with the Company being the surviving
corporation in each such merger.
ARTICLE 5.
SUCCESSORS
Section a. When Company May Merge, etc.
- ---------- ----------------------------
The Company shall not consolidate with or merge with or into or sell,
assign, convey, lease, transfer or otherwise dispose of all or substantially all
of its properties and assets to any Person or Persons in a single transaction or
through a series of related transactions unless: (a) the Company shall be the
continuing Person or the Person formed by or surviving such consolidation or
merger or the Person to which such sale, assignment, conveyance, lease, transfer
or other disposition is made (the "surviving entity") shall be a corporation
organized and validly existing under the laws of the United States or any State
thereof or the District of Columbia; (b) the surviving entity shall expressly
assume, by a supplemental indenture executed and delivered to the Trustee, in
form and substance reasonably satisfactory to the Trustee, all of the
obligations of the Company under the Securities and this Indenture; (c)
immediately before and immediately after giving effect to such transaction or
series of transactions (including, without limitation, any Indebtedness incurred
or anticipated to be incurred in connection with or in respect to such
45
<PAGE>
transaction or series of transactions), no Default or Event of Default shall
have occurred and be continuing; (d) the Company or the surviving entity (in the
case of a merger or consolidation involving the Company or any sale, assignment,
conveyance, lease, transfer or other disposition of all or substantially all of
the Company's properties and assets) shall immediately after giving effect to
such transaction or series of transactions (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions) have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction or series of transactions; (e) immediately
after giving effect to such transaction or series of transactions, the Company
or the surviving entity (in the case of a merger or consolidation involving the
Company or any sale, assignment, conveyance, lease, transfer or other
disposition of all or substantially all of the Company's properties and assets)
could incur $1.00 of Indebtedness pursuant to Section 4.7(e); and (f) the
Company or the surviving entity shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that such
consolidation, merger, sale, assignment, conveyance, lease, transfer or other
disposition and, if a supplemental indenture is required in connection with such
transaction or series of transactions, such supplemental indenture complies with
this Section 5.1 and that all conditions precedent herein provided relating to
the transaction or series of transactions have been satisfied. The foregoing
limitations in clauses (b) and (f) of this Section shall not apply to a merger
of any Wholly Owned Restricted Subsidiary of the Company into the Company. The
foregoing provisions of this Section 5.1 relating to restrictions on mergers,
consolidations and transfers of assets shall also apply to the Guarantor,
provided that with respect to clause (b) the Company shall be deemed to mean the
Guarantor.
Section b. Successor Corporation Substituted.
- ---------- ----------------------------------
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company in
accordance with Section 5.1, the successor corporation or partnership formed by
such consolidation or into or with which the Company is merged or to which such
sale, lease, conveyance or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person has been named
as the Company herein; provided, however, that the predecessor Company in the
case of a sale, lease, conveyance or other disposition shall not be released
from the obligation to pay the principal of and interest on the Securities.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section a. Events of Default.
- ---------- ------------------
"Event of Default," whenever used herein, means any one of the
following events:
46
<PAGE>
(i) default in the payment of any interest on the
Securities when it becomes due and payable and continuance of such
default for a period of 30 days; or
(ii) default in the payment of the principal of, or
premium, if any, on the Securities when due (including a default in the
obligation to effectuate the Special Mandatory Redemption as provided
under Section 3.1(c) of this Indenture or under Section 3.3 of the
Pledge Agreement or in payment upon the exercise by a Holder of its
right to require repurchase of its Securities pursuant to Section 4.9
of this Indenture); or
(iii) default by the Company or the Guarantor in the
performance, or breach, of any covenant or agreement in this Indenture
(other than defaults specified in clause (i) or (ii) above), or the
Pledge Agreement (other than a default specified in clause (ii) above),
and continuance of such default or breach for a period of 30 days after
written notice to the Company or the Guarantor, as the case may be, by
the Trustee or to the Company or the Guarantor, as the case may be, and
the Trustee by the Holders of at least 25% in aggregate principal
amount of the outstanding Securities; or
(iv) failure by the Company, the Guarantor or any
Restricted Subsidiary (a) to make any payment when due with respect to
any other Indebtedness under one or more classes or issues of
Indebtedness, which one or more classes or issues of Indebtedness are
in an aggregate principal amount of $5,000,000 or more, and such
failure extends beyond the stated period of grace applicable thereto or
(b) to perform any term, covenant, condition or provision of one or
more classes or issues of Indebtedness, which one or more classes or
issues of Indebtedness are in an aggregate principal amount of
$5,000,000 or more, which failure, in the case of this clause (b),
results in an acceleration of the maturity thereof (whether or not such
right has yet been exercised); or
(v) one or more judgments, orders or decrees for the
payment of money in excess of $2,500,000, either individually or in an
aggregate amount, shall be entered against the Company, the Guarantor
or any of their respective Restricted Subsidiaries or any of their
respective properties and shall not be discharged and there shall have
been a period of 60 days during which a stay of enforcement of such
judgment or order, by reason of pending appeal or otherwise, shall not
be in effect; or
(vi) a decree, judgment or order by a court of competent
jurisdiction shall have been entered adjudging the Company, the
Guarantor or any of their respective Restricted Subsidiaries that
individually or as a group constitute a Significant Subsidiary, as
bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization of the Company, the Guarantor or such
Significant Subsidiary under any bankruptcy or similar law, and such
decree or order shall have continued undischarged and unstayed for a
period of 60 days; or a decree or order of a court of competent
jurisdiction over the appointment of a receiver, liquidator, trustee or
assignee in bankruptcy or insolvency of the Company, the Guarantor or
such Significant Subsidiary, or of the property of any such Person, or
for
47
<PAGE>
the winding up or liquidation of the affairs of any such Person, shall
have been entered, and such decree, judgment or order shall have
remained in force undischarged and unstayed for a period of 60 days; or
(vii) this Indenture or, prior to the termination in
accordance with its terms, the Pledge Agreement, ceases to be in full
force and effect or ceases to give the Trustee, in any material
respect, the Liens, rights, powers and privileges purported to be
created hereby and thereby, in each case, as determined by a court of
competent jurisdiction.
Section b. Acceleration.
- ---------- -------------
If an Event of Default (other than an Event of Default specified in
clause (vi) above with respect to the Company) occurs and is continuing, then
the Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Securities may, by written notice, and the Trustee upon the request
of the Holders of not less than 25% in aggregate principal amount of the
outstanding Securities shall, declare the principal amount plus accrued interest
(if any) on all Securities on the date of such declaration to be due and payable
immediately (the "Default Amount"). Upon such declaration, the Default Amount
shall become due and payable immediately. If an Event of Default specified in
clause (vi) above with respect to the Company occurs and is continuing, then the
Default Amount shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
After a declaration of acceleration, the Holders of a majority in
aggregate principal amount of outstanding Securities may, by notice to the
Trustee, rescind such declaration of acceleration if all existing Events of
Default have been cured or waived, other than nonpayment of the Default Amount
that has become due solely as a result of such acceleration and if the
rescission of acceleration would not conflict with any judgment or decree by a
court of competent jurisdiction. The Holders of a majority in aggregate
principal amount of the outstanding Securities also have the right to waive past
defaults hereunder except a default in the payment of the principal of, premium,
if any, or interest on any Security, or in respect of a covenant or a provision
which cannot be modified or amended without the consent of all Holders.
Section c. Other Remedies.
- ---------- ---------------
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal or interest on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
48
<PAGE>
Section d. Waiver of Existing and Past Defaults.
- ---------- -------------------------------------
Subject to Section 2.9, the Holders of a majority in aggregate
principal amount of the then outstanding Securities by written notice to the
Trustee may waive on behalf of all Holders an existing Default or Event of
Default and its consequences, except a continuing Default or Event of Default in
the payment of the principal of, or the interest on, any Security. Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereto.
Section e. Control by Majority.
- ---------- --------------------
Subject to Section 2.9, the Holders of a majority in aggregate
principal amount of the then outstanding Securities may direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on it hereunder. However, the Trustee
may refuse to follow any direction that conflicts with applicable law or this
Indenture, is unduly prejudicial to the rights of other Securityholders, or
would involve the Trustee in personal liability; provided, however, that the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
In the event the Trustee takes any action or follows any direction
pursuant to this Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against any loss or expense caused by
taking such action or following such direction.
Section f. Limitation on Suits.
- ---------- --------------------
A Securityholder may institute a proceeding with respect to this
Indenture or the Securities or pursue any remedy hereunder or thereunder only
if:
i. the Holder gives to the Trustee notice of a
continuing Event of Default;
ii. the Holder or Holders of at least 25% in aggregate
principal amount of the then outstanding Securities make a written
request to the Trustee to institute such proceeding or pursue such
remedy;
iii. such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
iv. the Trustee does not comply with the request within
15 days after receipt of the request and the offer of indemnity; and
v. during such 15-day period the Holders of a majority
in aggregate principal amount of the then outstanding Securities do not
give the Trustee a direction inconsistent
49
<PAGE>
with the request.
A Securityholder may not use this Indenture to prejudice the rights of another
Securityholder or to obtain a preference or priority over another
Securityholder.
Section g. Rights of Holders to Receive Payment.
- ---------- -------------------------------------
Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of, premium, if any, on and interest on
the Security, on or after the respective due dates expressed in the Security, or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
Holder.
Section h. Collection Suit by Trustee.
- ---------- ---------------------------
If an Event of Default specified in Section 6.1(i) or (ii) occurs and
is continuing, the Trustee may recover judgment in its own name and as trustee
of an express trust against the Company for the whole amount of principal,
interest and Liquidated Damages, if any, remaining unpaid on the Securities and
interest on overdue principal, interest and Liquidated Damages, if any, and such
further amount as shall be sufficient to cover the costs and, to the extent
lawful, expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
Section i. Trustee May File Proofs of Claim.
- ---------- ---------------------------------
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee and
the Securityholders allowed in any judicial proceedings relative to the Company,
its creditors or its property. Nothing contained herein shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf of
any Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Securityholder in
any such proceeding.
Section j. Priorities.
- ---------- -----------
If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.7;
Second: to Securityholders for amounts due and unpaid on the
Securities for principal and interest (and Liquidated
Damages), ratably, without preference or priority of any
kind, according to the amounts due and payable on the
Securities for
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principal and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Securityholders.
Section k. Undertaking for Costs.
- ---------- ----------------------
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.7, or a suit by Holders of more than 10% in aggregate
principal amount of the then outstanding Securities.
Section l. Rights and Remedies Cumulative.
- ---------- -------------------------------
No right or remedy herein conferred upon or reserved to the Trustee or
to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section m. Delay or Omission Not Waiver.
- ---------- -----------------------------
No delay or omission by the Trustee or by any Holder to exercise any
right or remedy arising upon any Event of Default shall impair the exercise of
any such right or remedy or constitute a waiver of any such Event of Default.
Every right and remedy given by this Article 6 or by law to the Trustee or to
the Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
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ARTICLE 7.
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this
Indenture and covenants and agrees to perform the same, as herein expressed.
Section a. Duties of Trustee.
- --------- -----------------
(1) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise thereof as a prudent
person would exercise or use under the circumstances in the conduct of his or
her own affairs.
(2) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture, but the Trustee need not verify the contents thereof.
(3) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own wilful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to the first sentence of Section 6.5.
(4) Every provision of this Indenture that in any way relates to the
Trustee is subject to Sections 7.1 and Section 7.2.
(5) The Trustee may refuse to perform any duty or exercise any right or
power unless
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it receives indemnity satisfactory to it against any loss, liability or expense.
(6) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds held in trust
except to the extent required by law.
(7) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
Section b. Rights of Trustee.
- --------- -----------------
(1) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts or
matters to the extent reasonably deemed necessary by it, and if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled upon reasonable notice, to examine the books and records and premises
of the Company, personally or by agent, authorized representative or attorney.
(2) Before the Trustee acts or refrains from acting pursuant to the
terms of this Indenture or otherwise, subject to Section 5.1, it may require an
Officers' Certificate or an Opinion of Counsel, or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel.
(3) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any Agent appointed with due care.
(4) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers.
(5) The Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon.
(6) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, notice, request, direction, consent, order, bond, debenture, or other
paper or document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit.
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(7) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
Section c. Individual Rights of Trustee.
- --------- ----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or an
Affiliate with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to and must
comply with Sections 7.10 and 7.11.
Section d. Trustee's Disclaimer.
- --------- --------------------
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in this Indenture or any statement in the Securities
other than its authentication.
Section e. Notice of Defaults.
- --------- ------------------
If a Default or an Event of Default occurs and is continuing and if it
is actually known to the Trustee, the Trustee shall mail to each Holder a notice
of the Default or Event of Default within 90 days after it occurs, unless such
Default or an Event of Default shall have been cured or waived. Except in the
case of a Default or an Event of Default in payment on any Security (including
any failure to make any mandatory redemption payment required hereunder), the
Trustee may withhold the notice if and so long as a committee of its Trust
Officers in good faith determines that withholding the notice is in the best
interests of the Holders. The second sentence of this Section 7.5 shall be in
lieu of the proviso to (S) 315(b) of the TIA, which proviso is hereby expressly
excluded from this Indenture, as permitted by the TIA.
The Trustee shall also comply with all notice requirements set forth in
Section 4.3 of this Indenture.
Section f. Reports by Trustee to Holders.
- --------- -----------------------------
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, the Trustee shall mail to the Holders, at the Company's
expense, a brief report dated as of such reporting date that complies with TIA
(S) 313(a) (but if no event described in TIA (S) 313(a) has occurred within the
twelve months preceding the reporting date, no report need be transmitted). The
Trustee also shall comply with TIA (S) 313(b)(1) and TIA (S) 313(b)(2) to the
extent applicable. The Trustee shall also transmit by mail all reports as
required by TIA (S) 313(c).
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A copy of each report at the time of its mailing to Holders shall be
filed with the SEC to the extent permitted by law or regulation and each stock
exchange or market on which the Securities are listed or quoted. The Company
shall notify the Trustee when the Securities are listed on any stock exchange or
quoted on any market.
Section g. Compensation and Indemnity.
- --------- --------------------------
The Company shall pay to the Trustee (in its capacities as Trustee,
Paying Agent and Registrar) from time to time such compensation as may be agreed
in writing between the Company and the Trustee for its services hereunder and
under the Pledge Agreement. The Trustee's compensation shall not be limited by
any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred by it. Such expenses may include the reasonable compensation,
disbursements and out-of-pocket expenses of the Trustee's Agents and counsel.
The Company shall indemnify and hold harmless the Trustee (in its
capacities as Trustee, Paying Agent and Registrar) against any claim, demand,
expense (including reasonable attorney's fees and expenses), loss or liability
incurred by it except as set forth in the next paragraph. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity. The
Company shall defend the claim and the Trustee shall cooperate in the defense.
The Trustee may have separate counsel and the Company shall pay the reasonable
fees and expenses of such counsel. The Company need not pay for any settlement
made without its consent, which consent shall not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(vii) occurs, the expenses and the compensation
for the services are intended to constitute expenses of administration under any
Bankruptcy Law.
Section h. Replacement of Trustee.
- --------- ----------------------
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign by so notifying the Company in writing at least
30 days prior to the date of the proposed resignation; provided, however, that
-------- -------
no such resignation shall be
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effective until a successor Trustee has accepted its appointment pursuant to
this Section 7.8. The Holders of a majority in principal amount of the then
outstanding Securities may remove the Trustee by so notifying the Trustee and
the Company. The Company may remove the Trustee if:
i. the Trustee fails to comply with Section 7.10;
ii. the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
iii. a Custodian or public officer takes charge of the Trustee or
its property; or
iv. the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Securities may appoint
a successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee is not appointed or does not take office within
60 days after the retiring Trustee resigns or is removed, the retiring Trustee,
the Company or the Holders of at least 10% in principal amount of the then
outstanding Securities may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to the Holders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.7. Notwithstanding the replacement of the Trustee
pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof
shall continue for the benefit of the retiring trustee with respect to expenses
and liabilities incurred by it prior to such replacement.
Section i. Successor Trustee by Merger, etc.
- --------- --------------------------------
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
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Section j. Eligibility; Disqualification.
- --------- -----------------------------
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S)(S) 310(a)(1) and 310(a)(5). The Trustee shall always
have a combined capital and surplus of at least $100,000,000 as set forth in its
most recent published annual report of condition. The Trustee is subject to TIA
(S) 310(b). The provisions of TIA (S) 310 shall apply to the Company, as obligor
of the Securities.
Section k. Preferential Collection of Claims Against Company.
- --------- -------------------------------------------------
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein. The
provisions of TIA (S) 311 shall apply to the Company, as obligor of the
Securities.
ARTICLE 8.
DISCHARGE OF INDENTURE
Section a. Termination of Company's Obligations.
- --------- ------------------------------------
This Indenture shall cease to be of further effect (except that the
Company's obligations under Sections 7.7 and 8.4 shall survive) as to all
outstanding Securities when all such Securities theretofore authenticated and
delivered (except lost, stolen or destroyed Securities which have been replaced
or paid and Securities for the payment of which money has theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust) have been delivered to the
Trustee for cancellation and the Company has paid all sums payable hereunder. In
addition, the Company may terminate all of its obligations under this Indenture
(except the Company's obligations under Sections 7.7 and 8.4) if:
i. either (i) pursuant to Article 3, the Company shall have
given notice to the Trustee and mailed a notice of redemption to each
Holder of the redemption of all of the Securities or (ii) all Securities
have otherwise become due and payable hereunder;
ii. the Company shall have irrevocably deposited or caused to
be deposited with the Trustee or a trustee satisfactory to the Trustee,
under the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds in trust solely for the
benefit of the Holders for that purpose, money in such amount as is
sufficient without consideration of reinvestment of such interest, to
pay principal of, premium, if any, and interest on the outstanding
Securities to maturity or redemption; provided that the Trustee shall
have been irrevocably instructed to apply such money to the payment of
said principal, premium, if any, and interest with respect to the
Securities;
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iii. no Default or Event of Default with respect to this Indenture
or the Securities shall have occurred and be continuing on the date of
such deposit or shall occur as a result of such deposit and such deposit
will not result in a breach or violation of, or constitute a default
under, any other instrument to which the Company is a party or by which
it is bound;
iv. the Company shall have paid all other sums payable by it
hereunder; and
v. the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent providing for the termination of the Company's and the
Guarantor's obligations under the Securities and this Indenture have
been complied with.
However, the Company's obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 4.1,
7.7, 8.1, 8.4 and 8.5, shall survive until the Securities are no longer
outstanding. Thereafter, only the Company's obligations in Sections 7.7 and 8.4
shall survive.
After a deposit made pursuant to this Section 8.1, the Trustee upon
request shall acknowledge in writing the discharge of the Company's obligations
under this Indenture except for those surviving obligations specified above.
Section b. Legal Defeasance and Covenant Defeasance.
- --------- ----------------------------------------
(1) The Company may, at its option by Board Resolution of the
Board of Directors of the Company, at any time, with respect to the Securities,
elect to have either paragraph (b) or paragraph (c) below be applied to the
outstanding Securities upon compliance with the conditions set forth in
paragraph (d).
(2) Upon the Company's exercise under paragraph (a) of the
option applicable to this paragraph (b), the Company shall be deemed to have
been released and discharged from its obligations with respect to the
outstanding Securities on the date the conditions set forth below are satisfied
(hereinafter, "legal defeasance"). For this purpose, such legal defeasance means
that the Company shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Securities, which shall thereafter
be deemed to be "outstanding" only for the purpose of paragraph (e) below and
the other Sections of and matters under this Indenture referred to in (i) and
(ii) below, and to have satisfied all its other obligations under such
Securities and this Indenture insofar as such Securities are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (i) the rights of Holders of
outstanding Securities to receive solely from the trust fund described in
paragraph (d) below and as more fully set forth in such paragraph, payments in
respect of the principal of, premium, if any, and interest on such Securities
when such payments are due, (ii) the Company's obligations with respect to such
Securities under Sections 2.6, 2.7 and 4.16, and, with respect to the Trustee,
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<PAGE>
under Section 7.7, (iii) the rights, powers, trusts, duties and immunities of
the Trustee hereunder and the Company's obligations in connection herewith, and
(iv) this Section 8.2 and Section 8.5. Subject to compliance with this Section
8.2, the Company may exercise its option under this paragraph (b)
notwithstanding the prior exercise of its option under paragraph (c) below with
respect to the Securities.
(3) Upon the Company's exercise under paragraph (a) of the
option applicable to this paragraph (c), the Company shall be released and
discharged from its obligations under any covenant contained in Article 5 and in
Sections 4.5, 4.7 through 4.12, 4.14, 4.15, 4.17 and 4.18 with respect to the
outstanding Securities on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"), and the Securities shall
thereafter be deemed to be not "outstanding" for the purpose of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder. For this purpose, such covenant
defeasance means that, with respect to the outstanding Securities, the Company
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 6.1(iv), but, except as specified above,
the remainder of this Indenture and such Securities shall be unaffected thereby.
(4) The following shall be the conditions to application of
either paragraph (b) or paragraph (c) above to the outstanding Securities:
(a) the Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 7.10 who shall agree to comply with the
provisions of this Section 8.2 applicable to it) as trust funds in trust
for the purpose of making the following payments, specifically pledged
as security for, and dedicated solely to, the benefit of the Holders of
such Securities, (x) cash in U.S. dollars or (y) direct non-callable
obligations of, or non-callable obligations guaranteed by, the United
States of America for the payment of which guarantee or obligation the
full faith and credit of the United States is pledged ("U.S. Government
Obligations") maturing as to principal, premium, if any, and interest in
such amounts of money and at such times as are sufficient without
consideration of any reinvestment of such interest, to pay principal of
and interest on the outstanding Securities not later than one day before
the due date of any payment, or (z) a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge and
which shall be applied by the Trustee (or other qualifying trustee) to
pay and discharge principal of, premium, if any, and interest on the
outstanding Securities on the Maturity Date or otherwise in accordance
with the terms of this Indenture and of such Securities; provided,
--------
however, that the Trustee (or other qualifying trustee) shall have
-------
received an irrevocable
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written order from the Company instructing the Trustee (or other
qualifying trustee) to apply such money or the proceeds of such U.S.
Government Obligations to said payments with respect to the Securities;
(b) no Default or Event of Default or event which with notice or
lapse of time or both would become a Default or an Event of Default with
respect to the Securities shall have occurred and be continuing on the
date of such deposit or, insofar as Section 6.1(vii) is concerned, at
any time during the period ending on the 91st day after the date of such
deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period);
(c) such legal defeasance or covenant defeasance shall not cause
the Trustee to have a conflicting interest with respect to any
Securities of the Company;
(d) such legal defeasance or covenant defeasance shall not result
in a breach or violation of, or constitute a Default or Event of Default
under, this Indenture or any other material agreement or instrument to
which the Company, the Guarantor or any Restricted Subsidiary is a party
or by which the Company, the Guarantor or any Restricted Subsidiary is
bound;
(e) in the case of an election under paragraph (b) above, the
Company shall have delivered to the Trustee an Opinion of Counsel,
stating that (x) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (y) since the
Issue Date, there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such opinion
shall confirm that, the Holders of the outstanding Securities will not
recognize income, gain or loss for Federal income tax purposes as a
result of such legal defeasance and will be subject to Federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such legal defeasance had not occurred;
(f) in the case of an election under paragraph (c) above, the
Company shall have delivered to the Trustee an Opinion of Counsel, to
the effect that the Holders of the outstanding Securities will not
recognize income, gain or loss for Federal income tax purposes as a
result of such covenant defeasance and will be subject to Federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such covenant defeasance had not occurred;
(g) in the case of an election under either paragraph (b) or (c)
above, an Opinion of Counsel to the effect that, (x) the trust funds
will not be subject to any rights of any other holders of senior
indebtedness including, without limitation, those arising under this
Indenture, after the 91st day following the deposit, and (y) after the
91st day following the deposit, the trust funds will not be subject to
the effect of any applicable Bankruptcy Law;
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(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent relating to either the legal defeasance under paragraph (b)
above or the covenant defeasance under paragraph (c) above, as the case
may be, have been complied with; and
(i) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over other creditors of the Company
or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others.
(5) All money and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee (or other qualifying trustee,
collectively for purposes of this paragraph (e), the "Trustee") pursuant to
paragraph (d) above in respect of the outstanding Securities shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (other than the Company or any Affiliate of the Company) as the
Trustee may determine, to the Holders of such Securities of all sums due and to
become due thereon in respect of principal, premium and interest, but such money
need not be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to paragraph (d) above or the principal, premium,
if any, and interest received in respect thereof other than any such tax, fee or
other charge which by law is for the account of the Holders of the outstanding
Securities.
Anything in this Section 8.2 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon the
request, in writing, by the Company any money or U.S. Government Obligations
held by it as provided in paragraph (d) above which, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, are in excess of the
amount thereof which would then be required to be deposited to effect an
equivalent legal defeasance or covenant defeasance.
Section c. Application of Trust Money.
- --------- --------------------------
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.1. It shall apply the deposited money
and the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal and interest on the
Securities.
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Section d. Repayment to Company.
- --------- --------------------
Subject to Section 7.7, the Trustee and the Paying Agent shall promptly
pay to the Company upon request any excess money or securities held by them at
any time.
The Trustee and the Paying Agent shall pay to the Company upon written
request by the Company any money held by them for the payment of principal or
interest that remains unclaimed for one year after the date upon which such
payment shall have become due; provided, however, that the Company shall have
first caused notice of such payment to the Company to be mailed to each Holder
entitled thereto no less than 30 days prior to such payment. After payment to
the Company, the Holders entitled to the money must look to the Company for
payment as general creditors unless an applicable abandoned property law
designates another Person.
Section e. Reinstatement.
- --------- -------------
If (i) the Trustee or Paying Agent is unable to apply any money in
accordance with Section 8.3 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application and (ii) the Holders of at least a majority in principal amount of
the then outstanding Securities so request by written notice to the Trustee, the
Company's obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.1 until
such time as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 8.3; provided, however, that if the Company makes any
-------- -------
payment of interest on or principal of any Security following the reinstatement
of its obligations, the Company shall be subrogated to the rights of the Holders
of such Securities to receive such payment from the money held by the Trustee or
Paying Agent.
ARTICLE 9.
AMENDMENTS
Section a. Without Consent of Holders.
- --------- --------------------------
The Company, when authorized by resolution of its Board of Directors,
and the Trustee may amend, waive or supplement this Indenture or the Securities
without the consent of any Holder:
i. to cure any ambiguity, defect or inconsistency or to make
any other provisions with respect to matters or questions arising under
this Indenture that shall not be inconsistent with the provisions of
this Indenture; provided that such amendment does not in the opinion of
the Trustee adversely affect the rights of any Holder;
ii. to mortgage, pledge, hypothecate or grant a security
interest in favor of the
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Trustee as additional security for the payment and performance of the
obligations hereunder, in any property or assets, including any which is
required to be mortgaged, pledged or hypothecated, or in which a
security interest is required to be granted, to the Trustee;
iii. to make any change that does not adversely affect the rights
hereunder of any Holder;
iv. to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company, or to provide any additional rights or benefits to the Holders;
v. to evidence the succession of another person to the Company,
and the assumption by any such successor of the obligations of the
Company herein and in the Securities in accordance with Article 5;
vi. to set out the form of the Exchange Notes and to set forth
such other matters as are necessary in connection with the Exchange
Offer that do not adversely affect the rights of any Holder; or
vii. to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
provided that, in each case, the Company has delivered to the Trustee an Opinion
of Counsel and an Officers' Certificate, each stating that such amendment,
waiver or supplement complies with the provisions of this Section 9.1.
Section b. With Consent of Holders.
- --------- -----------------------
Subject to the provisions of Section 6.4 and 6.7, the Company and the
Trustee may amend or modify this Indenture or the Securities with the written
consent of the Holders of at least a majority in principal amount of the then
outstanding Securities; provided, however, that, without the consent of each
-------- -------
Holder affected, an amendment, modification or waiver under this Section 9.2 may
not (with respect to any securities held by a non-consenting Holder):
i. reduce the principal amount outstanding of, extend the fixed
maturity of, or alter the redemption provisions of, the Securities;
ii. reduce the rate of or change the time for payment of interest
on any Security;
iii. make any Security payable in money or currency other than
that stated in the Security;
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iv. impair the right to initiate suit for the enforcement of any
payment on or with respect to any Security;
v. make any change that affects the ranking or security of the
Securities;
vi. waive a Default or Event of Default in the payment of the
principal of, Liquidated Damages, if any, or interest on, any Security;
vii. reduce the percentage in principal amount outstanding of
Securities, holders of which must consent to an amendment, supplement or
waiver or consent to take any action hereunder or under the Securities;
or
viii. following the mailing of a Company Notice, modify the
provisions of this Indenture with respect to such Company Notice in a
manner adverse to any Holder.
In addition, neither the Company nor the Trustee may waive the covenant
relating to a Holder's right to repurchase upon the occurrence of a Change in
Control.
To secure a consent of the Holders under this Section, it shall not be
necessary for the Holders to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment or waiver under this Section becomes effective, the
Company shall mail to Holders a notice briefly describing the amendment or
waiver. Any failure of the Company to mail such notices, or any defect therein,
shall not, however, in any way, impair or affect the validity of any such
amendment or waiver.
Section c. Compliance with Trust Indenture Act.
- --------- -----------------------------------
Every amendment to this Indenture or the Securities shall be set forth
in a supplemental indenture that complies with the TIA as then in effect.
Section d. Revocation and Effect of Consents.
- --------- ---------------------------------
Until an amendment or waiver becomes effective, a consent to it by a
Holder of a Security is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, prior to becoming effective, any such Holder or
subsequent Holder may revoke the consent as to his Security or portion of a
Security if the Trustee receives the notice of revocation before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount of Securities have consented to the amendment
or waiver.
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The Company may set a record date for the purpose of determining the
Holders entitled to consent to any amendment or waiver. If the Company sets such
a record date, such record date shall be the later of (i) 30 days prior to the
first solicitation of such consent or (ii) the date of the most recent list of
Holders furnished to the Trustee pursuant to Section 2.5 prior to such
solicitation. If a record date is set, then notwithstanding the provisions of
the immediately preceding paragraph, those Persons who were Holders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to consent to such amendment or waiver or to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No consent shall be valid or effective for more than 90 days after
such record date unless consents from Holders of the principal amount of
Securities required hereunder for such amendment or waiver to be effective shall
have also been given and not revoked within such 90-day period.
After an amendment or waiver becomes effective it shall bind every
Holder, unless it is of the type described in any of clauses (1) through (7) of
Section 9.2. In such case, the amendment or waiver shall bind each Holder of a
Security who has consented to it and every subsequent Holder of a Security that
evidences the same debt as the consenting Holder's Security; provided, however,
-------- -------
that any such waiver shall not impair or affect the right of any Holder to
receive payment of principal and premium of and interest on a Security, on or
after the respective dates set for such amounts to become due and payable
expressed in such Security, or to bring suit for the enforcement of any such
payment on or after such respective dates.
Section e. Notation on or Exchange of Securities.
- --------- -------------------------------------
The Trustee (in accordance with the written direction of the Company)
may (at the Company's expense) place an appropriate notation about an amendment,
supplement or waiver on any Security thereafter authenticated. The Company in
exchange for all Securities may issue and the Trustee shall authenticate new
Securities that reflect the amendment or waiver. Failure to make the appropriate
notation or issue a new Security shall not affect the validity and effect of
such amendment, supplement or waiver.
Section f. Trustee Protected.
- --------- -----------------
The Trustee shall execute any amendment, supplement, or waiver
authorized pursuant to this Article 9; provided, however, that the Trustee may,
-------- -------
but shall not be obligated to, execute any such amendment, supplement or waiver
that affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article 9 is
authorized or permitted by this Indenture.
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ARTICLE 10.
GUARANTEE
Section a. Guarantee.
- --------- ---------
(1) In consideration of good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and subject to
the provisions of this Article 10, the Guarantor hereby irrevocably,
fully and unconditionally guarantees to each Holder and to the Trustee
and its successors and assigns (i) the full and punctual payment of
principal of and interest on the Securities when due, whether at
maturity, by acceleration, by redemption or otherwise, and all other
monetary obligations of the Company under this Indenture (including
obligations to the Trustee) and the Securities and (ii) the full and
punctual performance within applicable grace periods of all other
obligations of the Company under this Indenture and the Securities (all
the foregoing being hereinafter collectively called the "Obligations").
The Guarantor further agrees that the Obligations may be extended or
renewed, in whole or in part, without notice or further assent from the
Guarantor, and that the Guarantor shall remain bound under this Article
10 notwithstanding any extension or renewal of any Obligation.
(2) The Guarantor waives presentation to, demand of, payment
from and protest to the Company of any of the Obligations and also
waives notice of protest for nonpayment. The Guarantor waives notice of
any default under the Securities or the Obligations. The Obligations of
the Guarantor hereunder shall not be affected by (i) the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any
right or remedy against the Company or any other Person under this
Indenture, the Securities or any other agreement or otherwise; (ii) any
extension or renewal of any thereof; (iii) any rescission, waiver,
amendment or modification of any of the terms or provisions of this
Indenture, the Securities or any other agreement; (iv) the release of
any security held by any Holder or the Trustee for the Obligations or
any of them; (v) the failure of any Holder or Trustee to exercise any
right or remedy against any other guarantor of the Obligations; or (vi)
any change in ownership of the Guarantor.
(3) The Guarantor further agrees that its guarantee herein
constitutes a guarantee of payment, performance and compliance when due
(and not a guarantee of collection) and waives any right to require that
any resort be had by any Holder or the Trustee to any security held for
payment of the Obligations. The Obligations of the Guarantor hereunder
shall not be subject to any reduction, limitation, impairment or
termination for any reason, including any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to any
defense of set off, counterclaim, recoupment or termination whatsoever
or by reason of the invalidity, illegality or unenforceability of the
Obligations or otherwise. Without limiting the generality of the
foregoing, the obligations of the Guarantor herein shall not be
discharged or impaired or otherwise
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affected by the failure of any Holder or the Trustee to assert any
claim or demand or to enforce any remedy under this Indenture, the
Securities or any other agreement, by any waiver or modification of any
thereof, by any default, failure or delay, willful or otherwise, in the
performance of the Obligations, or by any other act or thing or
omission or delay to do any other act or thing which may or might in
any manner or to any extent vary the risk of the Guarantor or would
otherwise operate as a discharge of the Guarantor as a matter of law or
equity. The Guarantor further agrees that its guarantee herein shall
continue to be effective or be reinstated, as the case may be, if at
any time payment, or any part thereof, of principal of or interest on
any Obligation is rescinded or must otherwise be restored by any Holder
or the Trustee upon the bankruptcy or reorganization of the Company or
otherwise.
(4) In furtherance of the foregoing and not in limitation of
any other right which any Holder or the Trustee has at law or in equity
against the Guarantor by virtue hereof, upon the failure of the Company
to pay the principal of or interest on any Obligation when and as the
same shall become due, whether at maturity, by acceleration, by
redemption or otherwise, or to perform or comply with any other
Obligation, the Guarantor hereby promises to and shall, upon receipt of
written demand by the Trustee, forthwith pay, or cause to be paid, in
cash, to the Holders or the Trustee an amount equal to the sum of (i)
the unpaid principal amount of such Obligations, (ii) accrued and unpaid
interest on such Obligations (but only to the extent not prohibited by
law) and (iii) all other monetary Obligations of the Company to the
Holders and the Trustee.
(5) The Guarantor agrees that it shall not be entitled to
any right of subrogation in relation to the Holders in respect of any
Obligations guaranteed hereby until payment in full of all Obligations.
The Guarantor further agrees that, as between it, on the one hand, and
the Holders and the Trustee, on the other hand (i) the maturity of the
Obligations guaranteed hereby may be accelerated as provided in Article
6 for the purposes of the Guarantor's guarantee herein, notwithstanding
any stay, injunction or other prohibition preventing such acceleration
in respect of the Obligations guaranteed hereby, and (ii) in the event
of any declaration of acceleration of such obligations as provided in
Article 6, such Obligations (whether or not due and payable) shall
forthwith become due and payable by the Guarantor for the purposes of
this Section.
The Guarantor also agrees to pay any and all costs and expenses
(including reasonable attorneys' fees) incurred by the Trustee or any Holder in
enforcing any rights under this Section.
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Section b. Limitation on Liability.
- --------- -----------------------
Any term or provision of this Indenture to the contrary notwithstanding,
the maximum, aggregate amount of the obligations guaranteed hereunder by the
Guarantor shall not exceed the maximum amount that can be hereby guaranteed
without rendering this Indenture, as it relates to the Guarantor, voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer.
Section c. Successors and Assigns.
- --------- ----------------------
This Article 10 shall be binding upon the Guarantor and its successors
and assigns and shall inure to the benefit of the successors and assigns of the
Trustee and the Holders and, in the event of any transfer or assignment of
rights by any Holder or the Trustee, the rights and privileges conferred upon
that party in this Indenture and in the Securities shall automatically extend to
and be vested in such transferee or assignee, all subject to the terms and
conditions of this Indenture.
Section d. No Waiver.
- --------- ---------
Neither a failure nor a delay on the part of either the Trustee or the
Holders in exercising any right, power or privilege under this Article 10 shall
operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or further exercise of any right, power or privilege. The
rights, remedies and benefits of the Trustee and the Holders herein expressly
specified are cumulative and not exclusive of any other rights, remedies or
benefits which either may have under this Article 10 at law, in equity, by
statute or otherwise.
Section e. Modification.
- --------- ------------
No modification, amendment or waiver of any provision of this Article
10 nor the consent to any departure by the Guarantor therefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Trustee, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or demand on the
Guarantor in any case shall entitle the Guarantor to any other or further notice
or demand in the same, similar or other circumstances.
Section f. Execution and Delivery of Guarantee.
- --------- -----------------------------------
To evidence its guarantee set forth in this Article 10, the Guarantor
agrees that a notation of such guarantee substantially in the form annexed
hereto as contained in Exhibit A shall be endorsed on each Security
authenticated and delivered by the Trustee and that this Indenture shall be
executed on behalf of the Guarantor by an Officer by manual or facsimile
signature.
The Guarantor agrees that its guarantee set forth in this Article 10
shall remain in
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full force and effect and shall apply to all the Securities notwithstanding any
failure to endorse on each Security a notation of such guarantee.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security on which a guarantee is endorsed, the guarantee shall
be valid nevertheless.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the guarantee set forth in
this Indenture on behalf of the Guarantor.
Section g. Certain Bankruptcy Events.
- --------- -------------------------
The Guarantor hereby covenants and agrees that in the event of the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Company, it shall not file (or join in any filing of), or otherwise seek to
participate in the filing of, any motion or request seeking to stay or to
prohibit (even temporarily) execution on the guarantee and hereby waives and
agrees not to take the benefit of any such stay of execution, whether under
Section 362 or 105 of the United States Bankruptcy Code or otherwise.
ARTICLE 11.
SECURITY AND PLEDGE OF COLLATERAL
Section a. Grant of Security Interest.
- --------- --------------------------
To secure the full and punctual payment by the Guarantor of any payment
due by the Guarantor pursuant to Article 10 and any other amounts owing under
this Indenture pursuant to Section 7.7 when and as the same shall be due and
payable, whether on an Interest Payment Date or the Maturity Date, by
acceleration, repurchase, redemption or otherwise (including, without
limitation, the payment of interest and other amounts which would accrue and
become due but for the filing of a petition in bankruptcy (whether or not a
claim is allowed against the Guarantor for such interest or other amounts in any
such bankruptcy proceeding) or the operation of the automatic stay under Section
362(a) of the Bankruptcy Law), and interest on the overdue principal of and
interest (to the extent permitted by law), if any, on the Securities and the
performance of all other obligations of the Guarantor to the Holders or the
Trustee under this Indenture and the Securities, according to the terms hereof
or thereof (collectively, the "Secured Obligations"), the Guarantor hereby
grants to the Trustee, for the benefit of the Trustee and the Holders, a
continuing first priority security interest in all its right, title and interest
in and to the following (collectively, the "Collateral"):
(a) all of the shares of Capital Stock of the Company owned
by the Guarantor
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(as set forth on Schedule I, the "Pledged Shares"), and all certificates
representing such shares and any interest of the Guarantor in the
entries on the books of any financial intermediary pertaining to such
shares;
(b) all additional shares of Capital Stock of the Company
that may from time to time be acquired by or issued to the Guarantor in
any manner, and all certificates representing such additional shares and
any interest of the Guarantor in the entries on the books of any
financial intermediary pertaining to such additional shares; and
(c) subject to the provisions of Section 11.5, all
dividends, cash, instruments and other property and "proceeds" (as such
term is defined in the Uniform Commercial Code as in effect in any and
all relevant jurisdictions) from time to time received, receivable or
otherwise distributed in respect of or in exchange for any of the
foregoing, and any account in which any Collateral is deposited or
invested, including any earnings thereon.
Section b. Delivery of Collateral.
- --------- ----------------------
(1) Any and all cash, certificates or instruments
representing or evidencing the Collateral shall be delivered to and held
by or on behalf of the Trustee pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Trustee.
(2) The Trustee shall have the right, at any time after the
occurrence and during the continuance of an Event of Default, in its
discretion and without notice to the Guarantor, to transfer to or to
register in the name of the Trustee or any of its nominees any or all of
the Collateral. In addition, the Trustee shall have the right at any
time to exchange certificates or instruments representing or evidencing
Collateral for certificates or instruments of different denominations.
Section c. Representations and Warranties.
- --------- ------------------------------
The Guarantor hereby represents and warrants as follows:
(1) It is the legal, record and beneficial owner of the
Pledged Shares and has good and valid title thereto free and clear of
any Lien, except for the Lien created by this Indenture. No Collateral
on the date hereof is evidenced by promissory notes, certificates or
other instruments which have not been delivered to the Trustee.
(2) It has all requisite corporate power and authority to
execute and deliver this Indenture, perform its obligations hereunder
and carry out the provisions and conditions hereof (including, without
limitation, the creation and perfection of the security
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interest in the Collateral); and this Indenture has been duly authorized
and validly executed and delivered by it, and constitutes the legal,
valid and binding obligation of the Guarantor enforceable against it in
accordance with its terms, except as such enforcement may be subject to
or limited by (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors'
rights and remedies generally and (ii) general principles of equity
(regardless of whether such enforcement may be sought in a proceeding in
equity or at law).
(3) The pledge, assignment and delivery of the Collateral
pursuant to this Indenture creates a valid and continuing Lien on and
perfected first priority security interest in the Collateral in favor of
the Trustee for the benefit of the Holders and the Trustee, superior and
prior to the rights of all other Persons therein and subject to no other
Liens other than a financing statement filed with respect to the Pledged
Shares under the Increasing Rate Note Indenture.
(4) The Pledged Shares constitute all of the Capital Stock
of the Company owned by the Guarantor; and there are no outstanding
rights (including, without limitation, preemptive rights), warrants or
options to acquire, or instruments convertible into or exchangeable for,
any shares of Capital Stock or other equity interest of or in the
Company or any contract, commitment, agreement, understanding or
arrangement of any kind relating to the issuance of any such Capital
Stock, any such convertible or exchangeable securities or any such
rights, warrants or options.
(5) The Pledged Shares represent on the date hereof all of
the issued and outstanding shares of Capital Stock of the Company, and
such shares of Capital Stock have been duly authorized and validly
issued for good and valuable consideration and are fully paid and non-
assessable.
(6) None of the Pledged Shares is "margin stock" as such
term is defined in Section 221.1 of Regulation U of the Board of
Governors of the Federal Reserve System.
(7) The Guarantor has no direct Subsidiaries other than the
Company.
Section d. Further Assurances.
- --------- ------------------
(1) The Guarantor agrees that at any time and from time to
time, at the expense of the Guarantor, the Guarantor will promptly
execute and deliver all further instruments and documents and take all
further action that may be necessary or that the Trustee may reasonably
request in order to perfect and protect any Lien granted or purported to
be granted hereby or to enable the Trustee to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without
limiting the foregoing, the Guarantor shall, at the time of any
acquisition of additional shares of Capital Stock of the Company
constituting Pledged Shares pursuant to Section 11.1, provide to the
Trustee a
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revised Schedule I to reflect any changes made necessary by such
acquisition.
(2) The Guarantor shall have the right from time to time to
execute and deliver in favor of the Trustee for the benefit of the
Holders one or more instruments or other documents evidencing or
providing for additional security for the Securities, which may be in
the form of a pledge of collateral, a negative pledge or otherwise. Any
such instrument or document shall be effective without requiring
execution or delivery by the Trustee and may be terminated pursuant to
the terms thereof by written notice to the Trustee.
Section e. Dividends; Voting Rights.
- --------- ------------------------
(1) As long as no Event of Default shall have occurred and
be continuing:
(a) The Guarantor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Pledged Shares or
any part thereof for any purpose not inconsistent with the terms of this
Indenture; provided, however, that no vote shall be cast or consent,
-------- -------
waiver or ratification given or action taken that would (x) directly or
indirectly impair the value of any of the Pledged Shares, (y) be
inconsistent with or violate any provision of this Indenture or (z)
approve any merger or consolidation with or any sale of all or
substantially all of the assets of the Company except as otherwise
provided by the terms of this Indenture;
(b) The Guarantor shall be entitled to receive and retain,
and to utilize free and clear of the Lien of this Indenture, any and all
dividends or distributions paid with respect to any of the Pledged
Shares; provided, however, that any and all
-------- -------
i. dividends and other distributions paid or
payable other than in cash with respect to, and instruments and
other property received, receivable or otherwise distributed
with respect to, or in exchange for, any such Pledged Shares;
ii. dividends, cash, instruments and other property
and proceeds received, receivable or otherwise distributed on
any Pledged Shares constituting any liquidating dividend or
other liquidating distribution, whether or not in connection
with a reduction of capital, capital surplus or paid-in surplus,
or other similar extraordinary dividend or distribution; and
iii. cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Shares
shall be, and shall be forthwith delivered to the Trustee to hold as,
Collateral and be subject to the Lien of this Indenture and shall, if
received by the Guarantor, be received in trust for the benefit of the
Trustee, be segregated from the other property or funds of the
Guarantor, and be forthwith delivered to the Trustee as Collateral (with
any necessary
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endorsement and accompanied by any documentation necessary to ensure and
evidence that a first priority security interest is being created
therein); and
(c) in order to permit the Guarantor to exercise the voting
and other rights which it is entitled to exercise pursuant to Section
11.5(a)(i) above and to receive the dividends and other payments which
it is authorized to receive and retain pursuant to Section 11.5(a)(ii)
above, the Trustee shall, if necessary, upon request of the Guarantor,
execute and deliver (or cause to be executed and delivered) to the
Guarantor all such proxies, payment orders and other instruments as the
Guarantor may reasonably request for such purposes as shall be specified
in such request.
Until actually paid, all rights to any such dividends, distributions
and other payments shall remain subject to the Lien of this Indenture.
(2) Upon the occurrence and during the continuance of an
Event of Default:
(a) all rights of the Guarantor to exercise the voting and
other consensual rights which it would otherwise be entitled to exercise
pursuant to Section 11.5(a)(i) above shall cease, and all such rights
shall thereupon become vested in the Trustee, which shall thereupon have
the sole right to exercise such voting and other consensual rights
during the continuance of such Event of Default;
(b) all rights of the Guarantor to receive the dividends,
distributions and other payments which it would otherwise be authorized
to receive and retain pursuant to Section 11.5(a)(ii) above shall cease
and all such rights shall thereupon become vested in the Trustee, which
shall thereupon have the sole right to receive and hold as Collateral
such dividends, distributions and other payments during the continuance
of such Event of Default, and all such dividends, distributions, and
other payments shall be forthwith delivered to the Trustee to hold as
Collateral and be subject to the Lien of this Indenture and shall be
segregated from all other Collateral; and
(c) in order to permit the Trustee to exercise the voting
and other consensual rights which it may be entitled to exercise
pursuant to Section 11.5(b)(i) above, and to receive all dividends,
distributions and other payments which it may be entitled to receive
under Section 11.5(b)(ii) above, the Guarantor shall, if necessary, upon
written notice from the Trustee, from time to time execute and deliver
to the Trustee all such proxies, payment orders and other instruments as
the Trustee may reasonably request.
(3) Upon the cure or waiver of any such Event of Default, so
long as no other Event of Default has occurred and is continuing, all
rights of the Guarantor to exercise the voting and other consensual
rights which it may be entitled to exercise pursuant to Section
11.5(b)(i) above, and to receive dividends, distributions and other
payments pursuant to Section 11.5(a)(ii) above shall revert to the
Guarantor.
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(4) All dividends, distributions and other payments which
are received by the Guarantor contrary to the provisions of Section
11.5(b)(ii) above shall be received in trust for the benefit of the
Trustee, shall be segregated from other funds of the Guarantor and shall
be forthwith paid over to the Trustee as Collateral in the same form as
received by the Guarantor (duly endorsed by the Guarantor to the
Trustee, if required) to be held as Collateral.
(5) The Trustee may join in any plan of voluntary or
involuntary reorganization or readjustment or rearrangement in respect
of any Pledged Shares or the Company and may accept or authorize the
acceptance of new securities issued in exchange therefor under any such
plan. Any new securities so issued shall be deposited and pledged with
the Trustee under this Indenture.
Section f. Trustee Appointed Attorney-in-Fact.
- --------- ----------------------------------
The Guarantor hereby appoints the Trustee as the Guarantor's
attorney-in-fact, with full authority in the place and stead of the Guarantor
and in the name of the Guarantor or otherwise, from time to time in the Trustee
s discretion, to take any action and to execute any instrument which the Trustee
may deem necessary or advisable in order to accomplish the purposes of this
Article 11, including to receive, endorse and collect all instruments made
payable to the Guarantor representing any dividend, interest payment or other
distribution in respect of the Collateral or any part thereof and to give full
discharge for the same. This power, being coupled with an interest, is
irrevocable.
Section g. Trustee May Perform.
- --------- -------------------
If the Guarantor fails to perform any agreement contained in this
Article 11, the Trustee may, but shall not be obligated to, itself perform, or
cause performance of, such agreement, and the reasonable expenses of the Trustee
incurred in connection therewith shall be payable by the Guarantor under Section
7.7.
Section h. Trustee's Duties.
- --------- ----------------
The powers conferred on the Trustee under this Article 11 are solely to
protect its interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received and/or disbursed by
it hereunder, the Trustee shall have no duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against prior parties or any
other rights pertaining to any Collateral.
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Section i. Remedies upon Event of Default.
- --------- ------------------------------
If any Event of Default shall have occurred and be continuing, the
Trustee may sell the Collateral as an entirety or in any such portions as the
Holders of a majority in aggregate principal amount of the Securities then
outstanding shall request in writing, or in the absence of such request, in such
manner as the Trustee deems appropriate. In addition to the other rights and
remedies provided for herein or otherwise available to it, the Trustee may
exercise, as provided in the preceding sentence, all the rights and remedies
provided a secured party upon the default of a debtor under the Uniform
Commercial Code (as in effect in the relevant jurisdiction) at that time.
Any sale of Collateral pursuant to this Section 11.9 may be without
notice, except as specified below, may consist of any part of or all of the
Collateral and may be in one or more parcels at public or private sale, at any
exchange, broker's board or any of the Trustee's offices or elsewhere, for cash,
on credit or for future delivery, upon such terms as the Trustee may determine
to be commercially reasonable, and the Trustee or any Securityholder may be the
purchaser of any or all of the Collateral so sold and shall thereafter hold the
same, absolutely, free from any right or claim of whatsoever kind. The Guarantor
agrees that, to the extent notice of sale shall be required by law, at least 5
days' notice to the Guarantor of the time and place of any public sale or the
time after which any private sale is to be made shall constitute reasonable
notification. The Trustee shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Trustee may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. The Guarantor hereby waives any claims
against the Trustee arising by reason of the fact that the price at which any
Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale, even if the Trustee accepts the
first offer received and does not offer such Collateral to more than one
offeree.
The Guarantor hereby waives, to the extent permitted by applicable law,
notice (other than the notice described in the preceding paragraph) or judicial
hearing in connection with the Trustee's disposition of any Collateral,
including, without limitation, any and all prior notice and hearing for any
prejudgment remedy or remedies and any such right which the Guarantor would
otherwise have under law, and the Guarantor hereby further waives, to the extent
permitted by law: (a) all other requirements as to the time, place and terms of
sale or other requirements with respect to the enforcement of the Trustee's
rights hereunder and (b) all rights of redemption, appraisal, valuation, stay,
extension or moratorium now or hereafter in force under any applicable law. Any
sale of, or the grant of options to purchase, or any other realization upon, any
Collateral shall operate to divest all right, title, interest, claim and demand,
either at law or in equity, of the Guarantor therein and thereto, and shall be a
perpetual bar both at law and in equity against the Guarantor and against any
and all Persons claiming or attempting to claim the Collateral so sold, optioned
or realized upon, or any part thereof, from, through and under the Guarantor.
The Guarantor recognizes that, by reason of certain prohibitions
contained in the
75
<PAGE>
Securities Act and applicable state securities laws, the Trustee may be
compelled, with respect to any sale of all or any part of the Collateral, to
limit purchasers to those who will agree, among other things, to acquire such
securities for their own account, for investment, and not with a view to the
distribution or resale thereof. The Guarantor acknowledges and agrees that any
such sale may result in prices and other terms less favorable to the seller than
if such sale were a public sale without such restrictions and, notwithstanding
such circumstances, agrees that any such sale shall be deemed to have been made
in a commercially reasonable manner. The Trustee shall be under no obligation to
delay the sale of any of the Collateral for the period of time necessary to
permit the Company to register any securities constituting such Collateral for
public sale under the Securities Act, or under applicable state securities laws,
even if the Company would agree to do so; provided, however, in the event that
-------- -------
the Trustee determines that it is advisable to register under or otherwise
comply in any way with the Securities Act or any similar federal or state law,
or if such registration or compliance is required with respect to all or any
part of the Collateral prior to the sale thereof by the Trustee, the Guarantor
will use its best efforts to cause such registration to be effectively made and
will reimburse the Trustee and the Holders for any and all reasonable expenses
incurred by any of them, including, without limitation, reasonable attorneys'
and accountants' fees and expenses, printing fees and filing fees in connection
therewith.
The Guarantor further agrees to do or cause to be done all such other
acts and things as may be reasonably necessary to make such sale or sales of any
portion or all of the Collateral valid and binding and in compliance with any
and all applicable laws, regulations, orders, writs, injunctions, decrees or
awards of any and all courts, arbitrators or governmental bodies having
jurisdiction over any such sale or sales, all at the Guarantor's expense.
Section j. Application of Proceeds.
- --------- -----------------------
Upon the occurrence and during the continuance of an Event of Default
(so long as such acceleration has not been rescinded), any cash held by the
Trustee as Collateral and all cash proceeds received by the Trustee in respect
of any sale of, collection from or other realization upon all or any part of the
Collateral shall be applied by the Trustee in the manner specified in Section
6.10.
Section k. Continuing Lien.
- --------- ---------------
Except as provided in Section 11.13, this Indenture shall create a
continuing Lien on the Collateral that shall (i) remain in full force and effect
until payment in full of the Securities and any other amounts owing under this
Indenture pursuant to Section 7.7, (ii) be binding upon the Guarantor and its
successors and assigns and (iii) inure to the benefit of the Trustee and its
successors, transferees and assigns.
Section l. Certificates and Opinions.
- --------- -------------------------
The Guarantor shall comply with (a) TIA (S) 314(b), relating to
Opinions of Counsel
76
<PAGE>
regarding the Lien of this Indenture and (b) TIA (S) 314(d), relating to, among
other matters, the release of Collateral from the Lien of this Indenture and
Officers' Certificates or other documents regarding fair value of the
Collateral, to the extent such provisions are applicable. Any certificate or
opinion required by TIA (S) 314(d) may be executed and delivered by an Officer
of the Guarantor to the extent permitted by TIA (S) 314(d).
Section m. Release; Other Liens.
- --------- --------------------
(a) Upon satisfaction by the Company of the conditions set forth in
Article 8 to its legal defeasance option, its covenant defeasance option or to
the discharge of this Indenture, the Lien of this Indenture on all the
Collateral shall terminate and all the Collateral shall be released without any
further action on the part of the Trustee or any other Person. Upon the release
of any Collateral, the Trustee shall execute and deliver to the Guarantor an
instrument or instruments acknowledging the release of such Collateral from this
Indenture and the discharge of the Lien on such Collateral created by this
Article 11, and will duly assign, transfer and deliver to or upon the order of
the Guarantor (without recourse and with out any representation or warranty)
such Collateral.
(b) The Guarantor shall not create or suffer to exist any Lien upon
or with respect to any of the Pledged Shares, except for the security interests
created by this Indenture.
ARTICLE 12.
MISCELLANEOUS
Section a. Trust Indenture Act Controls.
- --------- ----------------------------
If any provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
Section b. Notices.
- --------- -------
Any notice or communication by the Company, the Guarantor or the
Trustee shall be duly given if in writing and delivered in person or mailed by
first-class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery addressed as
follows:
77
<PAGE>
if to the Company:
Shoppers Food Warehouse Corp.
4600 Forbes Blvd.
Lanham, MD 20706
Attention: President
with a copy to:
Dart Group Corporation
3300 75th Avenue
Landover, MD 20785
Attention: Corporate Secretary
if to the Guarantor:
SFW Holding Corp.
3300 75th Avenue
Landover, MD 20785
Attention: President
if to the Trustee:
Norwest Bank Minnesota, National Association
6th Street & Marquette Avenue
Minneapolis, MN 55479-0069
Attention: Corporate Trust Department
The Company, the Guarantor or the Trustee by notice to each other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA (S) 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Securityholder or any defect in it shall
not affect its sufficiency with respect to other Securityholders.
78
<PAGE>
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
received it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
All other notices or communications shall be in writing.
Section c. Communication by Holders with Other Holders.
- --------- -------------------------------------------
Holders may communicate pursuant to TIA (S) 312(b) with other Holders
with respect to their rights under this Indenture or the Securities. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA (S) 312(c).
Section d. Certificate and Opinion as to Conditions Precedent.
- --------- --------------------------------------------------
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent have been complied with.
Section e. Statements Required in Certificate or Opinion of Counsel.
- --------- --------------------------------------------------------
Each Officers' Certificate or Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:
i. a statement that the Person making such Officers'
Certificate or Opinion of Counsel has read such covenant or condition;
ii. a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such Officers' Certificate or Opinion of Counsel are based;
iii. a statement that, in the opinion of such Person, he or
she has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
iv. a statement as to whether or not, in the opinion of such
Person, such
79
<PAGE>
condition or covenant has been complied with; provided, however, that,
-------- -------
with respect to certain matters of fact not involving any legal
conclusion, an Opinion of Counsel may, upon the consent of the parties
relying on such opinion, rely on an Officers' Certificate or
certificates of public officials.
Section f. Rules by Trustee and Agents.
- --------- ---------------------------
The Trustee may make reasonable rules for action by or a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section g. Legal Holidays.
- --------- --------------
If a payment date is a Legal Holiday at a place of payment, payment may
be made at that place on the next succeeding day that is not a Legal Holiday,
and no interest shall accrue for the intervening period.
Section h. No Recourse Against Others.
- --------- --------------------------
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation including with respect to any
certificates delivered thereunder or hereunder. Each Holder by accepting a
Security waives and releases all such liability. The waiver and release are part
of the consideration for the issue of the Securities.
Section i. Counterparts.
- --------- ------------
This Indenture may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
Section j. Governing Law.
- --------- -------------
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. THE COMPANY AND THE GUARANTOR HEREBY IRREVOCABLY SUBMIT TO THE
JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN
THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN
THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS
80
<PAGE>
INDENTURE AND THE SECURITIES, AND IRREVOCABLY ACCEPT FOR THEMSELVES AND IN
RESPECT OF THEIR PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE
AFORESAID COURTS. THE COMPANY AND THE GUARANTOR IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT THEY MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY
AND ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OR THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
THE TRUSTEE OR ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY
OTHER JURISDICTION.
Section k. No Adverse Interpretation of Other Agreements.
- --------- ---------------------------------------------
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary of the Company. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
Section l. Successors.
- --------- ----------
All agreements of the Company in this Indenture and the Securities
shall bind its successors. All agreements of the Trustee in this Indenture shall
bind its successors.
Section m. Severability.
- --------- ------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section n. Table of Contents, Headings, Etc.
- --------- --------------------------------
The Table of Contents, Cross-Reference Table, and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
81
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, as of the date first written above.
SHOPPERS FOOD WAREHOUSE CORP.
By: /s/ MARK A. FLINT
---------------------------------
Name: Mark A. Flint
Title: President and Chief
Executive Officer
Attest:
/s/ ELLIOT R. ARDITTI
- ----------------------------------
Name:
SFW HOLDING CORP.
By: /s/ MARK A. FLINT
---------------------------------
Name: Mark A. Flint
Title: President
Attest:
/s/ ELLIOT R. ARDITTI
- ----------------------------------
Name:
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: /s/ RAYMOND S. HAVERSTOCK
---------------------------------
Name: Raymond S. Haverstock
Title: Vice President
82
<PAGE>
Exhibit 4.2
THIS SENIOR NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT), (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) or (7) OF REGULATION D UNDER THE SECURITIES
ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND
IS ACQUIRING THIS SENIOR NOTE IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE
904 OF REGULATION S UNDER THE SECURITIES ACT; (2) AGREES THAT IT WILL NOT,
WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SENIOR NOTE, RESELL OR
OTHERWISE TRANSFER THIS SENIOR NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES
TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES
TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SENIOR NOTE (THE FORM OF WHICH
LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904
OF REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 OR ANY OTHER APPLICABLE EXEMPTION UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS SENIOR NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SENIOR NOTE
WITHIN TWO YEARS AFTER THE ORIGINAL
<PAGE>
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES
ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS SENIOR NOTE IN VIOLATION OF THE FOREGOING
RESTRICTIONS.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN
2
<PAGE>
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.17 OF THE INDENTURE.
3
<PAGE>
CUSIP NO.: 825095 AC 6
SHOPPERS FOOD WAREHOUSE CORP.
9 3/4% SENIOR NOTE DUE 2004
No. 1 $200,000,000
SHOPPERS FOOD WAREHOUSE CORP., a Delaware corporation (the "Company,"
which term includes any successor corporation), for value received promises to
pay to Cede & Co. or registered assigns the principal sum of Two Hundred Million
Dollars ($200,000,000), on June 15, 2004.
Interest Payment Dates: June 15 and December 15.
Record Dates: May 31 and November 30.
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated: June 26, 1997
Attest: SHOPPERS FOOD WAREHOUSE CORP.
/s/ Elliott R. Arditti By: /s/ Mark A. Flint
- --------------------------- ----------------------------
Name: Elliot R. Arditti Name: Mark A. Flint
Title: Secretary Title: President and Chief
Executive Officer
Certificate of Authentication
This is one of the 9 3/4% Senior Notes due 2004 referred to in the
within-mentioned Indenture.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Trustee
Dated: June 26, 1997 By: /s/ Raymond S. Haverstock
-----------------------------------
Authorized Signatory
4
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
9 3/4% SENIOR NOTE DUE 2004
Capitalized terms used and not otherwise defined herein shall have the
meanings ascribed to them in the Indenture, dated as of June 26, 1997 (the
"Indenture"), and as amended from time to time, by and among Shoppers Food
Warehouse Corp., a Delaware corporation (the "Company"), SFW Holding Corp., a
Delaware corporation (the "Guarantor") and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee").
1. INTEREST.
--------
(a) The Company promises to pay interest on the principal amount
of this Security at a rate of 9.75% per annum. The Company shall
further pay the Liquidated Damages payable pursuant to Section 5
of the Registration Rights Agreement. The Company will pay
interest and Liquidated Damages, if any, semi-annually in arrears
on June 15 and December 15 of each year, or if any such day is
not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"). Interest on the Securities will accrue
from the most recent date on which interest has been paid or, if
no interest has been paid, from June 26, 1997; provided, however,
that if there is no existing Default in the payment of interest,
and if this Security is authenticated between a record date
referred to on the face hereof and the next succeeding Interest
Payment Date, interest shall accrue from such next succeeding
Interest Payment Date; provided further, however, that the first
Interest Payment Date shall be December 15, 1997.
(b) To the extent lawful, the Company shall pay interest
(including post-petition interest in any proceeding under any
Bankruptcy Law) on (i) overdue principal, premium, if any, and
Liquidated Damages, if any, at the rate borne by the Securities,
compounded semiannually; and (ii) overdue installments of
interest, and Liquidated Damages, if any (without regard to any
applicable grace period) at the same rate, compounded
semiannually.
(c) Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Securities
-----------------
to the Persons who are registered Holders at the close of business on the May
31 and
5
<PAGE>
November 30 next preceding the applicable Interest Payment Date, even
if such Securities are cancelled after such record date and on or before such
Interest Payment Date. The Securities will be payable as to principal,
interest and Liquidated Damages, if any, at the office or agency of the
Company maintained for such purpose within the City and State of New York,
or, at the option of the Company, payment of interest or Liquidated Damages,
if any, may be made by check mailed to the Holders at their addresses set
forth in the register of Holders, and provided that payment by wire transfer
of immediately available funds or Federal funds check will be required with
respect to principal of and interest and Liquidated Damages, if any, on the
Global Security. Such payment shall be in currency of the United States of
America that at the time of payment is legal tender for payment of public and
private debts.
3. PAYING AGENT AND REGISTRAR. Initially, the Trustee under the Indenture
--------------------------
will act as Paying Agent and Registrar. The Company may change any Paying
Agent or Registrar without notice to any Holder. The Company or any of its
Subsidiaries may, subject to certain exceptions, act in any such capacity.
4. INDENTURE. The Company issued the Securities under the Indenture. Each
---------
Holder, by accepting the Securities, agrees to be bound by all the terms and
provisions of the Indenture, as the same may be amended from time to time in
accordance with its terms. The terms of the Securities include those stated
in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 7aaa-77bbbb)
("TIA"). The Securities are subject to all such terms, and Holders are
referred to the Indenture and the TIA for a statement of such terms. Except
as provided in Paragraph 6 hereof, the Securities are general unsecured
obligations of the Company limited to $200 million in aggregate principal
amount, plus amounts, if any, sufficient to pay interest, premium and
Liquidated Damages, if any, on outstanding Securities as set forth in
Paragraph 2 hereof. Payment on each Security and performance by the Company
within applicable grace periods of the other Obligations is guaranteed by the
Guarantor pursuant to Article 10 of the Indenture. In order to secure the
Obligations, the Guarantor has granted a security interest in the Collateral
to the Trustee for the benefit of the Holders pursuant to the Indenture.
5. REDEMPTION AT THE COMPANY'S OPTION. The Securities are redeemable, in
----------------------------------
whole or in part, at the option of the Company at any time on or after June
15, 2001, at the redemption prices (expressed as a percentage of the
principal amount redeemed) set forth below (the "Optional Redemption Price"),
plus any accrued and unpaid interest to the date of redemption, if redeemed
during the period indicated:
<TABLE>
<CAPTION>
Year Optional Redemption Price
---- -------------------------
<S> <C>
June 15, 2001 through June 14, 2002............... 104.875%
June 15, 2002 through June 14, 2003............... 102.4375%
June 15, 2003 and thereafter...................... 100%
</TABLE>
In addition, until June 15, 2000, the Company may, at its option, use the
net
6
<PAGE>
cash proceeds of one or more Equity Offerings to redeem up to an aggregate of
35% (up to 10% if the Special Mandatory Redemption described in Paragraph 6
hereof has occurred) of the principal amount of the Securities originally
issued, at a redemption price equal to 109.75% of the principal amount
thereof, plus any accrued and unpaid interest thereon to the date of
redemption; provided, however, that at least 65% of the principal amount of
the Securities originally issued remains outstanding immediately after the
occurrence of such redemption and; provided, further, that any such
redemption shall reduce, on a dollar for dollar basis, the principal amount
of the Securities required to be redeemed pursuant to the Special Mandatory
Redemption.
6. SPECIAL MANDATORY REDEMPTION. If, on or prior to June 30, 1998, the
----------------------------
closing of a Settlement has not occurred or the Company has not paid to Dart
the Restricted Proceeds to fund a Settlement, Securities in an aggregate
principal amount of $50,000,000 (subject to reduction pursuant to Paragraph 5
above) shall be redeemed pursuant to a Special Mandatory Redemption at any
time on or prior to August 14, 1998, at 101% of the principal amount thereof,
plus any accrued and unpaid interest thereon to the date of redemption. Any
Special Mandatory Redemption shall be paid using the Restricted Proceeds
(including any interest or other profit earned thereon).
The Company shall deposit $50,000,000 of the proceeds from the Offering
with the Trustee in the Restricted Account simultaneously with receipt of
payment therefor on the Issue Date. All amounts so deposited will be held by
the Trustee pursuant to the Pledge Agreement as collateral to secure the
obligations of the Company under the Securities, subject to release from the
Restricted Account as set forth in the Pledge Agreement. The Pledge Agreement
provides that on or prior to June 30, 1998, the Restricted Proceeds may be
released to the Company only to make a payment to Dart for purposes of
funding a Settlement. The Pledge Agreement further provides that, prior to
the release to the Company of the Restricted Proceeds from the Restricted
Account for the purpose of funding a Settlement, an Officers' Certificate
must be delivered to the Trustee stating that the closing of a Settlement is
occurring simultaneously with the release of the Restricted Proceeds. Upon
receipt of such Officers' Certificate, the Trustee will release the
Restricted Proceeds held pursuant to the Pledge Agreement to the Company and
the Pledge Agreement will terminate. Following such release of the Restricted
Proceeds, including any interest or profit earned thereon, from the
Restricted Account and termination of the Pledge Agreement, all of the
Securities will be unsecured obligations of the Company.
Pending release of the Restricted Proceeds from the Restricted Account
pursuant to the Pledge Agreement either to make a payment to Dart to fund a
Settlement or to fund the Special Mandatory Redemption, the Restricted
Proceeds shall be invested in Cash Equivalents as directed by the Company. If
a Special Mandatory Redemption occurs, then any interest or other profit
earned on the Restricted Proceeds shall be used to fund the Special Mandatory
Redemption (including any accrued and unpaid interest on the Securities that
are redeemed), except that any amount in the Restricted Account not needed to
fund the Special Mandatory
7
<PAGE>
Redemption may be used by the Company for general corporate purposes
(including payment of interest on the Securities). If the Restricted Proceeds
are released to the Company from the Restricted Account and used to make a
payment to Dart to fund a Settlement, then any interest or other profit
earned on the Restricted Proceeds may be used by the Company for general
corporate purposes (including payment of interest on the Securities).
7. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30
--------------------
days but not more than 60 days before the redemption date to each Holder
whose Securities are to be redeemed at its registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Securities held by a Holder are to be
redeemed. On and after the redemption date, interest ceases to accrue on
Securities or portions thereof called for redemption as long as the Company
has deposited with the Paying Agent funds in satisfaction of the redemption
price pursuant to the Indenture. If Securities are redeemed subsequent to a
record date with respect to any Interest Payment Date specified above and on
or prior to such Interest Payment Date, then any accrued interest on such
Securities will be paid to the Holders in whose names such Securities are
registered at the close of business on such record date.
8. CHANGE IN CONTROL OFFER. If a Change in Control occurs, each Holder
-----------------------
shall have the right to require the Company to repurchase all of such
Holder's Securities, or any portion thereof that is an integral multiple of
$1,000, for cash at a price equal to 101% of the principal amount of such
Securities to be repurchased, plus any accrued and unpaid interest, if any,
to the Repurchase Date. Within 30 days after the occurrence of a Change in
Control, the Company shall mail a notice to each Holder setting forth the
procedures governing the Change in Control repurchase right as required by
the Indenture. A Holder may tender or refrain from tendering all or any
portion of his or her Securities at his or her discretion by completing the
form entitled "OPTION OF HOLDER TO ELECT PURCHASE" appearing on this Security
and delivering such form, together with the Securities with respect to which
the repurchase right is being exercised, duly endorsed for transfer to the
Company, to the Trustee within 30 days after receipt of the Company Notice.
Any portion of Securities tendered must be in integral multiples of $1,000.
9. DENOMINATIONS; TRANSFER; EXCHANGE. The Securities are in registered
---------------------------------
form, without coupons, in denominations of $1,000 and integral multiples of
$1,000. The transfer of Securities may be registered and Securities may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Security or portion of a Security
selected for redemption, except for the unredeemed portion of any Security
being redeemed in part. Also, it need not exchange or register the transfer
of any Securities for a period of 15 days before a selection of Securities to
be redeemed or during
8
<PAGE>
the period between a record date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Security may be
---------------------
treated as its owner for all purposes.
11. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture
----------------------
or the Securities may be amended with the consent of the Holders of at least
a majority in aggregate principal amount of the Securities then outstanding.
Without the consent of any Holder, the Company and the Trustee may amend,
waive or supplement the Indenture or the Securities to (i) cure any
ambiguity, defect or inconsistency, (ii) mortgage, pledge, hypothecate or
grant a security interest in favor of the Trustee as additional security for
the payment and performance of the obligations under the Indenture, in any
property or assets, including any which is required to be mortgaged, pledged
or hypothecated, or in which a security interest is required to be granted,
to the Trustee, (iii) make any change that does not adversely affect the
rights of any Holder, (iv) to add to the covenants of the Company for the
benefit of the Holders, or to surrender any right or power conferred upon the
Company under the Indenture, or to provide any additional rights or benefits
to the Holders, (v) to evidence the succession of another Person to the
Company, and the assumption by any such successor of the obligations of the
Company hereunder and under the Indenture, (vi) to set out the form of the
Exchange Notes and to set forth such other matters as are necessary in
connection with the Exchange Offer that do not adversely affect the rights of
any Holder, or (vii) to maintain the qualification of the Indenture under the
TIA.
12. DEFAULTS AND REMEDIES. An Event of Default is: default for 30 days in
---------------------
payment of interest on the Securities; default in payment of principal or
premium, if any, on the Securities when due (including a default in the
obligation to effectuate the Special Mandatory Redemption as described in
Paragraph 6 hereof or in payment upon the exercise by a Holder of its right
to require repurchase of its Securities pursuant to Paragraph 8 hereof);
failure by the Company or the Guarantor for 30 days after notice to it to
comply with any of its other agreements or covenants in the Indenture or the
Pledge Agreement; certain defaults under and accelerations prior to maturity
of other indebtedness; certain final judgments which remain undischarged;
certain events of bankruptcy or insolvency; and the cessation of the
Indenture (or, prior to the termination in accordance with its terms, the
Pledge Agreement) to be in full force and effect or to provide the Trustee,
in any material respect, the Liens, rights, powers and privileges purported
to be created thereby. If an Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Securities may declare all the Securities to be due and payable
immediately, except that in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Securities become
due and payable without further action or notice. Securityholders may not
enforce the Indenture or the Securities except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it
9
<PAGE>
enforces the Indenture or the Securities. Subject to certain limitations,
Holders of a majority in aggregate principal amount of the then outstanding
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing default
(except a default in payment of principal or interest) if it determines that
withholding notice is in their best interests. The Company must furnish an
annual compliance certificate to the Trustee.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
-----------------------------
other capacity, may make loans to, accept deposits from and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
--------------------------
incorporator or stockholder of the Company, as such, shall not have any
liability for any obligations of the Company under the Securities or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation, including with respect to any certificates
delivered hereunder or thereunder from any such Person. Each Holder by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
15. AUTHENTICATION. This Security shall not be valid until authenticated
--------------
by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
-------------
Holder or an assignee, such as: TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with right of
survivorship and not as tenants in common), CUST (=Custodian), and U/G/M/A
(=Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
--------------------------------------------------------------
addition to the rights provided to Holders of Securities under the Indenture,
Holders of Restricted Securities shall have all the rights set forth in the
Registration Rights Agreement referred to above.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Shoppers Food Warehouse Corp.
4600 Forbes Blvd.
Lanham, MD 20706
Attention: President
18. GOVERNING LAW. The Laws of the State of New York shall govern this
-------------
10
<PAGE>
Security and the Indenture, without regard to principles of conflicts of law.
19. ADJUSTMENTS. This Global Security shall represent such of the
-----------
outstanding Securities as shall be specified herein and shall represent the
aggregate amount of outstanding Securities from time to time endorsed hereon
and the aggregate amount of outstanding Securities represented hereby may
from time to time be reduced or increased, as appropriate, by adjustments
made on the records of the Trustee, as custodian for the Depository, to
reflect exchanges and redemptions. Any endorsement of this Global Security to
reflect the amount of any increase or decrease in the amount of outstanding
Securities represented hereby shall be made by the Trustee or the Securities
Custodian, at the direction of the Trustee, in accordance with instructions
given by the Holder hereof as required in Section 2.6 of the Indenture.
11
<PAGE>
GUARANTEE
SFW Holding Corp., a Delaware corporation, hereby unconditionally guarantees to
the Holder of the Security upon which this guarantee is endorsed the due and
punctual payment, as set forth in the Indenture pursuant to which such Security
and this guarantee were issued, of the principal of, premium (if any) and
interest on such Security when and as the same shall become due and payable for
any reason according to the terms of such Security and Article 10 of the
Indenture. The guarantee of the Security upon which this guarantee is endorsed
will not become effective until the Trustee signs the certificate of
authentication on such Security.
SFW HOLDING CORP.
By /s/ Mark A. Flint
--------------------------
Name: Mark A. Flint
Title: President
12
<PAGE>
[FORM OF ASSIGNMENT]
I or we assign this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and ZIP Code of assignee)
Please insert Social Security or other
identifying number of assignee
- ----------------------------------------
and irrevocably appoint _____________________ agent to transfer this Security on
the books of the Company. The agent may substitute another to act for him.
Dated: Signed:
------------------------------ ----------------------------------
- --------------------------------------------------------------------------------
(Sign exactly as your name appears on the front of this Security)
Signature Guarantee:
-----------------------------------------------------------
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date of the declaration by the SEC of
the effectiveness of a registration statement under the Securities Act of 1933,
as amended (the "Securities Act") covering resales of this Security (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the second anniversary of the Issue Date (provided, however,
-------- -------
that neither the Company nor any affiliate of the Company has held any
beneficial interest in such Security, or portion thereof, at any time on or
prior to the second anniversary of the Issue Date), the undersigned confirms
that it has not utilized any general solicitation or general advertising in
connection with the transfer and that this Security is being transferred:
13
<PAGE>
(Check One)
---------
(1) to the Company or a Subsidiary thereof; or
-----
(2) pursuant to and in compliance with Rule 144A under the Securities
----- Act; or
(3) to an institutional "accredited investor" (as defined in Rule
----- 501(a)(1), (2), (3) or (7) under the Securities Act) that has
furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can be
obtained from the Trustee); or
(4) outside the United States to a "foreign person" in compliance with
----- Rule 904 of Regulation S under the Securities Act; or
(5) pursuant to the exemption from registration provided by Rule 144
----- under the Securities act; or
(6) pursuant to an effective registration statement under the Securities
----- Act; or
(7) pursuant to another available exemption from the registration
----- requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided that if box (3), (4), (5) or (7) is
--------
checked, the Company or the Trustee may require, prior to registering any such
transfer of the Securities, in its sole discretion, such legal opinions,
certifications (including an investment letter in the case of box (3) or (4))
and other information as the Trustee or the Company has reasonably requested to
confirm that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Security in the name of any person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.17 of the Indenture shall have
been satisfied.
Dated: Signed:
---------------------------- -----------------------------
(Sign exactly as name appears
on the other side of this
Security)
Signature Guarantee:
-----------------------------------------------------------
14
<PAGE>
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which if exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:
----------------------------- -------------------------------------
NOTICE: To be executed by an
executive officer
15
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.9 or Section 4.19 of the Indenture, check the appropriate
box below:
[_] Section 4.9 (Change in Control)
[_] Section 4.19 (Asset Sale)
If you want to elect to have only part of the Security purchased by the
Company pursuant to Section 4.9 or Section 4.19, state the amount you elect to
have purchased: $_________
Date: Your Signature:
---------- ------------------------------
(Sign exactly as your name appears on the face
of this Security)
Tax Identification No.:
--------------
Signature Guarantee:
----------------------------
16
<PAGE>
Exhibit 4.3
FORM OF EXCHANGE NOTES
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to Issuer or its agent
for registration of transfer, exchange, or payment, and any certificate issued
is registered in the name of Cede & Co. or in such other name as is requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
therein.
CUSIP NO.: [ ]
----------------
SHOPPERS FOOD WAREHOUSE CORP.
9 3/4% SENIOR NOTE DUE 2004
No. 1 $200,000,000
SHOPPERS FOOD WAREHOUSE CORP., a Delaware corporation (the "Company,"
which term includes any successor corporation), for value received promises to
pay to Cede & Co. or registered assigns the principal sum of Two Hundred Million
Dollars ($200,000,000), on June 15, 2004.
Interest Payment Dates: June 15 and December 15.
Record Dates: May 31 and November 30.
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated: [ ]
------------------
Attest: SHOPPERS FOOD WAREHOUSE CORP.
By:
- ---------------------- ---------------------------
Name: Name:
Title: Title:
<PAGE>
Certificate of Authentication
This is one of the 9 3/4% Senior Notes due 2004 referred to in the
within-mentioned Indenture.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Trustee
Dated: [ ]
--------------- By:
---------------------------------
Authorized Signatory
2
<PAGE>
SHOPPERS FOOD WAREHOUSE CORP.
9 3/4% SENIOR NOTE DUE 2004
Capitalized terms used and not otherwise defined herein shall have the
meanings ascribed to them in the Indenture, dated as of June 26, 1997 (the
"Indenture"), and as amended from time to time, by and among Shoppers Food
Warehouse Corp., a Delaware corporation (the "Company"), SFW Holding Corp., a
Delaware corporation (the "Guarantor") and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee").
1. INTEREST.
--------
(a) The Company promises to pay interest on the principal
amount of this Security at a rate of 9.75% per annum. The
Company shall further pay the Liquidated Damages payable
pursuant to Section 5 of the Registration Rights Agreement. The
Company will pay interest and Liquidated Damages, if any, semi-
annually in arrears on June 15 and December 15 of each year, or
if any such day is not a Business Day, on the next succeeding
Business Day (each an "Interest Payment Date"). Interest on the
Securities will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from
June 26, 1997; provided, however, that if there is no existing
Default in the payment of interest, and if this Security is
authenticated between a record date referred to on the face
hereof and the next succeeding Interest Payment Date, interest
shall accrue from such next succeeding Interest Payment Date;
provided further, however, that the first Interest Payment Date
shall be December 15, 1997.
(b) To the extent lawful, the Company shall pay interest
(including post-petition interest in any proceeding under any
Bankruptcy Law) on (i) overdue principal, premium, if any, and
Liquidated Damages, if any, at the rate borne by the Securities,
compounded semiannually; and (ii) overdue installments of
interest, and Liquidated Damages, if any (without regard to any
applicable grace period) at the same rate, compounded
semiannually.
(c) Interest will be computed on the basis of a 360-day year
of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Securities
-----------------
3
<PAGE>
to the Persons who are registered Holders at the close of business on the May
31 and November 30 next preceding the applicable Interest Payment Date, even
if such Securities are cancelled after such record date and on or before such
Interest Payment Date. The Securities will be payable as to principal,
interest and Liquidated Damages, if any, at the office or agency of the
Company maintained for such purpose within the City and State of New York,
or, at the option of the Company, payment of interest or Liquidated Damages,
if any, may be made by check mailed to the Holders at their addresses set
forth in the register of Holders, and provided that payment by wire transfer
of immediately available funds or Federal funds check will be required with
respect to principal of and interest and Liquidated Damages, if any, on the
Global Security. Such payment shall be in currency of the United States of
America that at the time of payment is legal tender for payment of public and
private debts.
3. PAYING AGENT AND REGISTRAR. Initially, the Trustee under the
--------------------------
Indenture will act as Paying Agent and Registrar. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company or any of
its Subsidiaries may, subject to certain exceptions, act in any such
capacity.
4. INDENTURE. The Company issued the Securities under the Indenture.
---------
Each Holder, by accepting the Securities, agrees to be bound by all the terms
and provisions of the Indenture, as the same may be amended from time to time
in accordance with its terms. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 7aaa-77bbbb)
("TIA"). The Securities are subject to all such terms, and Holders are
referred to the Indenture and the TIA for a statement of such terms. Except
as provided in Paragraph 6 hereof, the Securities are general unsecured
obligations of the Company limited to $200 million in aggregate principal
amount, plus amounts, if any, sufficient to pay interest, premium and
Liquidated Damages, if any, on outstanding Securities as set forth in
Paragraph 2 hereof. Payment on each Security and performance by the Company
within applicable grace periods of the other Obligations is guaranteed by the
Guarantor pursuant to Article 10 of the Indenture. In order to secure the
Obligations, the Guarantor has granted a security interest in the Collateral
to the Trustee for the benefit of the Holders pursuant to the Indenture.
5. REDEMPTION AT THE COMPANY'S OPTION. The Securities are redeemable, in
----------------------------------
whole or in part, at the option of the Company at any time on or after June
15, 2001, at the redemption prices (expressed as a percentage of the
principal amount redeemed) set forth below (the "Optional Redemption Price"),
plus any accrued and unpaid interest to the date of redemption, if redeemed
during the period indicated:
4
<PAGE>
<TABLE>
Year Optional Redemption Price
---- -------------------------
<S> <C>
June 15, 2001 through June 14, 2002 ........... 104.875%
June 15, 2002 through June 14, 2003 .......... 102.4375%
June 15, 2003 and thereafter ............... 100%
</TABLE>
In addition, until June 15, 2000, the Company may, at its option, use
the net cash proceeds of one or more Equity Offerings to redeem up to an
aggregate of 35% (up to 10% if the Special Mandatory Redemption described in
Paragraph 6 hereof has occurred) of the principal amount of the Securities
originally issued, at a redemption price equal to 109.75% of the principal
amount thereof, plus any accrued and unpaid interest thereon to the date of
redemption; provided, however, that at least 65% of the principal amount of
the Securities originally issued remains outstanding immediately after the
occurrence of such redemption and; provided, further, that any such
redemption shall reduce, on a dollar for dollar basis, the principal amount
of the Securities required to be redeemed pursuant to the Special Mandatory
Redemption.
6. SPECIAL MANDATORY REDEMPTION. If, on or prior to June 30, 1998, the
----------------------------
closing of a Settlement has not occurred or the Company has not paid to Dart
the Restricted Proceeds to fund a Settlement, Securities in an aggregate
principal amount of $50,000,000 (subject to reduction pursuant to Paragraph 5
above) shall be redeemed pursuant to a Special Mandatory Redemption at any
time on or prior to August 14, 1998, at 101% of the principal amount thereof,
plus any accrued and unpaid interest thereon to the date of redemption. Any
Special Mandatory Redemption shall be paid using the Restricted Proceeds
(including any interest or other profit earned thereon).
The Company shall deposit $50,000,000 of the proceeds from the
Offering with the Trustee in the Restricted Account simultaneously with
receipt of payment therefor on the Issue Date. All amounts so deposited will
be held by the Trustee pursuant to the Pledge Agreement as collateral to
secure the obligations of the Company under the Securities, subject to
release from the Restricted Account as set forth in the Pledge Agreement. The
Pledge Agreement provides that on or prior to June 30, 1998, the Restricted
Proceeds may be released to the Company only to make a payment to Dart for
purposes of funding a Settlement. The Pledge Agreement further provides that,
prior to the release to the Company of the Restricted Proceeds from the
Restricted Account for the purpose of funding a Settlement, an Officers'
Certificate must be delivered to the Trustee stating that the closing of a
Settlement is occurring simultaneously with the release of the Restricted
Proceeds. Upon receipt of such Officers' Certificate, the Trustee will
release the Restricted Proceeds held pursuant to the Pledge Agreement to the
Company and the Pledge Agreement will terminate. Following such release of
the Restricted Proceeds, including any interest or profit earned thereon,
from the Restricted Account and termination of the Pledge Agreement, all of
the Securities will be unsecured obligations of the Company.
5
<PAGE>
Pending release of the Restricted Proceeds from the Restricted Account
pursuant to the Pledge Agreement either to make a payment to Dart to fund a
Settlement or to fund the Special Mandatory Redemption, the Restricted
Proceeds shall be invested in Cash Equivalents as directed by the Company. If
a Special Mandatory Redemption occurs, then any interest or other profit
earned on the Restricted Proceeds shall be used to fund the Special Mandatory
Redemption (including any accrued and unpaid interest on the Securities that
are redeemed), except that any amount in the Restricted Account not needed to
fund the Special Mandatory Redemption may be used by the Company for general
corporate purposes (including payment of interest on the Securities). If the
Restricted Proceeds are released to the Company from the Restricted Account
and used to make a payment to Dart to fund a Settlement, then any interest or
other profit earned on the Restricted Proceeds may be used by the Company for
general corporate purposes (including payment of interest on the Securities).
7. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30
--------------------
days but not more than 60 days before the redemption date to each Holder
whose Securities are to be redeemed at its registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Securities held by a Holder are to be
redeemed. On and after the redemption date, interest ceases to accrue on
Securities or portions thereof called for redemption as long as the Company
has deposited with the Paying Agent funds in satisfaction of the redemption
price pursuant to the Indenture. If Securities are redeemed subsequent to a
record date with respect to any Interest Payment Date specified above and on
or prior to such Interest Payment Date, then any accrued interest on such
Securities will be paid to the Holders in whose names such Securities are
registered at the close of business on such record date.
8. CHANGE IN CONTROL OFFER. If a Change in Control occurs, each Holder
-----------------------
shall have the right to require the Company to repurchase all of such
Holder's Securities, or any portion thereof that is an integral multiple of
$1,000, for cash at a price equal to 101% of the principal amount of such
Securities to be repurchased, plus any accrued and unpaid interest, if any,
to the Repurchase Date. Within 30 days after the occurrence of a Change in
Control, the Company shall mail a notice to each Holder setting forth the
procedures governing the Change in Control repurchase right as required by
the Indenture. A Holder may tender or refrain from tendering all or any
portion of his or her Securities at his or her discretion by completing the
form entitled "OPTION OF HOLDER TO ELECT PURCHASE" appearing on this Security
and delivering such form, together with the Securities with respect to which
the repurchase right is being exercised, duly endorsed for transfer to the
Company, to the Trustee within 30 days after receipt of the Company Notice.
Any portion of Securities tendered must be in integral multiples of $1,000.
9. DENOMINATIONS; TRANSFER; EXCHANGE. The Securities are in registered
---------------------------------
form, without coupons, in denominations of $1,000 and integral multiples of
6
<PAGE>
$1,000. The transfer of Securities may be registered and Securities may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Security or portion of a Security
selected for redemption, except for the unredeemed portion of any Security
being redeemed in part. Also, it need not exchange or register the transfer
of any Securities for a period of 15 days before a selection of Securities to
be redeemed or during the period between a record date and the corresponding
Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Security may be
---------------------
treated as its owner for all purposes.
11. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
----------------------
Indenture or the Securities may be amended with the consent of the Holders of
at least a majority in aggregate principal amount of the Securities then
outstanding. Without the consent of any Holder, the Company and the Trustee
may amend, waive or supplement the Indenture or the Securities to (i) cure
any ambiguity, defect or inconsistency, (ii) mortgage, pledge, hypothecate or
grant a security interest in favor of the Trustee as additional security for
the payment and performance of the obligations under the Indenture, in any
property or assets, including any which is required to be mortgaged, pledged
or hypothecated, or in which a security interest is required to be granted,
to the Trustee, (iii) make any change that does not adversely affect the
rights of any Holder, (iv) to add to the covenants of the Company for the
benefit of the Holders, or to surrender any right or power conferred upon the
Company under the Indenture, or to provide any additional rights or benefits
to the Holders, (v) to evidence the succession of another Person to the
Company, and the assumption by any such successor of the obligations of the
Company hereunder and under the Indenture, (vi) to set out the form of the
Exchange Notes and to set forth such other matters as are necessary in
connection with the Exchange Offer that do not adversely affect the rights of
any Holder, or (vii) to maintain the qualification of the Indenture under the
TIA.
12. DEFAULTS AND REMEDIES. An Event of Default is: default for 30 days in
---------------------
payment of interest on the Securities; default in payment of principal or
premium, if any, on the Securities when due (including a default in the
obligation to effectuate the Special Mandatory Redemption as described in
Paragraph 6 hereof or in payment upon the exercise by a Holder of its right
to require repurchase of its Securities pursuant to Paragraph 8 hereof);
failure by the Company or the Guarantor for 30 days after notice to it to
comply with any of its other agreements or covenants in the Indenture or the
Pledge Agreement; certain defaults under and accelerations prior to maturity
of other indebtedness; certain final judgments which remain undischarged;
certain events of bankruptcy or insolvency; and the cessation of the
Indenture (or, prior to the termination in accordance with its terms, the
Pledge Agreement) to be in full force and
7
<PAGE>
effect or to provide the Trustee, in any material respect, the Liens, rights,
powers and privileges purported to be created thereby. If an Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25%
in aggregate principal amount of the outstanding Securities may declare all
the Securities to be due and payable immediately, except that in the case of
an Event of Default arising from certain events of bankruptcy or insolvency,
all outstanding Securities become due and payable without further action or
notice. Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Securities.
Subject to certain limitations, Holders of a majority in aggregate principal
amount of the then outstanding Securities may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Securityholders
notice of any continuing default (except a default in payment of principal or
interest) if it determines that withholding notice is in their best
interests. The Company must furnish an annual compliance certificate to the
Trustee.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
-----------------------------
other capacity, may make loans to, accept deposits from and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
--------------------------
incorporator or stockholder of the Company, as such, shall not have any
liability for any obligations of the Company under the Securities or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation, including with respect to any certificates
delivered hereunder or thereunder from any such Person. Each Holder by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
15. AUTHENTICATION. This Security shall not be valid until authenticated
--------------
by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
-------------
Holder or an assignee, such as: TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with right of
survivorship and not as tenants in common), CUST (=Custodian), and U/G/M/A
(=Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
--------------------------------------------------------------
addition to the rights provided to Holders of Securities under the Indenture,
Holders of Restricted Securities shall have all the rights set forth in the
Registration Rights Agreement referred to above.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may
8
<PAGE>
be made to:
Shoppers Food Warehouse Corp.
4600 Forbes Blvd.
Lanham, MD 20706
Attention: President
18. GOVERNING LAW. The Laws of the State of New York shall govern this
-------------
Security and the Indenture, without regard to principles of conflicts of law.
19. ADJUSTMENTS. This Global Security shall represent such of the
-----------
outstanding Securities as shall be specified herein and shall represent the
aggregate amount of outstanding Securities from time to time endorsed hereon and
the aggregate amount of outstanding Securities represented hereby may from time
to time be reduced or increased, as appropriate, by adjustments made on the
records of the Trustee, as custodian for the Depository, to reflect exchanges
and redemptions. Any endorsement of this Global Security to reflect the amount
of any increase or decrease in the amount of outstanding Securities represented
hereby shall be made by the Trustee or the Securities Custodian, at the
direction of the Trustee, in accordance with instructions given by the Holder
hereof as required in Section 2.6 of the Indenture.
9
<PAGE>
GUARANTEE
SFW Holding Corp., a Delaware corporation, hereby unconditionally guarantees to
the Holder of the Security upon which this guarantee is endorsed the due and
punctual payment, as set forth in the Indenture pursuant to which such Security
and this guarantee were issued, of the principal of, premium (if any) and
interest on such Security when and as the same shall become due and payable for
any reason according to the terms of such Security and Article 10 of the
Indenture. The guarantee of the Security upon which this guarantee is endorsed
will not become effective until the Trustee signs the certificate of
authentication on such Security.
SFW HOLDING CORP.
By:
------------------------------------
Name:
Title:
10
<PAGE>
FORM OF ASSIGNMENT
I or we assign this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and ZIP Code of assignee)
Please insert Social Security or other
identifying number of assignee
- -----------------------------
and irrevocably appoint _____________________ agent to transfer this Security on
the books of the Company. The agent may substitute another to act for him.
Dated: Signed:
---------------------------------- -----------------------------
- --------------------------------------------------------------------------------
(Sign exactly as your name appears on the front of this Security)
Signature Guarantee:
------------------------------------------------------
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date of the declaration by the SEC of
the effectiveness of a registration statement under the Securities Act of 1933,
as amended (the "Securities Act") covering resales of this Security (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the second anniversary of the Issue Date (provided, however,
-------- -------
that neither the Company nor any affiliate of the Company has held any
beneficial interest in such Security, or portion thereof, at any time on or
prior to the second anniversary of the Issue Date), the undersigned confirms
that it has not utilized any general solicitation or general advertising in
connection with the transfer and that this Security is being transferred:
11
<PAGE>
(Check One)
---------
(1) _____ to the Company or a Subsidiary thereof; or
(2) _____ pursuant to and in compliance with Rule 144A under the Securities
Act; or
(3) _____ to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) that has
furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can be
obtained from the Trustee); or
(4) _____ outside the United States to a "foreign person" in compliance with
Rule 904 of Regulation S under the Securities Act; or
(5) _____ pursuant to the exemption from registration provided by Rule 144
under the Securities act; or
(6) _____ pursuant to an effective registration statement under the Securities
Act; or
(7) _____ pursuant to another available exemption from the registration
requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided that if box (3), (4), (5) or (7) is
--------
checked, the Company or the Trustee may require, prior to registering any such
transfer of the Securities, in its sole discretion, such legal opinions,
certifications (including an investment letter in the case of box (3) or (4))
and other information as the Trustee or the Company has reasonably requested to
confirm that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Security in the name of any person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.17 of the Indenture shall have
been satisfied.
Dated: Signed:
------------------------- (Sign exactly as name appears
on the other side of this
Security)
Signature Guarantee:
------------------------------------------------------
12
<PAGE>
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which if exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:
------------------------------ -----------------------------------
NOTICE: To be executed by an
executive officer
13
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.9 or Section 4.19 of the Indenture, check the appropriate
box below:
[_] Section 4.9 (Change in Control)
[_] Section 4.19 (Asset Sale)
If you want to elect to have only part of the Security purchased by
the Company pursuant to Section 4.9 or Section 4.19, state the amount you elect
to have purchased: $
Date: Your Signature:
-------------------------
(Sign exactly as your name appears on the
face of this Security)
Tax Identification No.:
-----------
Signature Guarantee:
--------------------------
14
<PAGE>
Exhibit 4.4
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of June 26, 1997
by and among
SHOPPERS FOOD WAREHOUSE CORP.,
SFW HOLDING CORP.
and
WASSERSTEIN PERELLA SECURITIES, INC.
===============================================================================
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
---------
entered into as of June 26, 1997 by and among Shoppers Food Warehouse Corp., a
Delaware corporation ("Company"), SFW Holding Corp., a Delaware corporation and
-------
the owner of 100% of the capital stock of the Company ("Holding"), and
-------
Wasserstein Perella Securities, Inc. (the "Initial Purchaser") who has agreed to
-----------------
purchase 9 3/4% Senior Notes due 2004 of the Company (the "Notes") in an
-----
aggregate principal amount of $200,000,000 pursuant to the Purchase Agreement
(as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated as of
June 23, 1997 (the "Purchase Agreement"), by and among the Company, Holding and
------------------
the Initial Purchaser. In order to induce the Initial Purchaser to purchase the
Notes, the Company has agreed to provide the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Initial Purchaser set forth in the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
---
Additional Interest: As defined in Section 5 hereof.
-------------------
Advice: As defined in Section 6(d) hereof.
------
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
-------------
Broker-Dealer Transfer Restricted Securities: Exchange Notes that are
--------------------------------------------
acquired by a Broker-Dealer in the Exchange Offer in exchange for Notes that
such Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Notes acquired directly from
the Company or any of its affiliates).
Business Day: Any day except a Saturday, Sunday or other day in the
------------
States of New York or Maryland or the state in which the principal corporate
trust office of the Trustee, on which banks are authorized to not open for
business.
Closing Date: The date of this Agreement.
------------
Commission: The Securities and Exchange Commission.
----------
Consummate: An Exchange Offer shall be deemed "Consummated" for
----------
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer, (b)
<PAGE>
the maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of Exchange Notes in the same aggregate
principal amount as the aggregate principal amount of Notes tendered by Holders
thereof pursuant to the Exchange Offer.
Effectiveness Target Date: As defined in Section 5 hereof.
-------------------------
Exchange Act: The Securities Exchange Act of 1934, as amended.
------------
Exchange Notes: The Company's Senior Exchange Notes due 2004 to be
--------------
issued by the Company and guaranteed by Holding pursuant to the Indenture (a) in
the Exchange Offer or (b) upon the request of any Holder of Notes covered by a
Shelf Registration Statement, in exchange for such Notes.
Exchange Offer: The registration by the Company under the Act of the
--------------
Exchange Notes pursuant to the Exchange Offer Registration Statement whereby the
Company shall offer the Holders of all outstanding Transfer Restricted
Securities the opportunity to exchange all such outstanding Transfer Restricted
Securities held by such Holders for Exchange Notes in an aggregate principal
amount equal to the aggregate principal amount of the Transfer Restricted
Securities tendered in such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
-------------------------------------
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchaser
--------------
proposes to sell the Notes in reliance on Rule 144A under the Act to certain
"qualified institutional buyers," as such term is defined in Rule 144A under the
Act, to certain institutional "accredited investors," as such term is defined in
Rule 501(a)(1), (2), (3) and (7) of Regulation D under the Act and to non-U.S.
persons outside the United States in reliance upon Regulation S under the Act.
Holder: As defined in Section 2(b) hereof.
------
Indemnified Holder: As defined in Section 8(a) hereof.
------------------
Indemnified Party: As defined in Section 8(c) hereof.
-----------------
Indemnifying Party: As defined in Section 8(c) hereof.
------------------
Indenture: The Indenture, dated the Closing Date, by and among the
---------
Company, Holding and Norwest Bank Minnesota, National Association, as trustee
(the "Trustee"), pursuant to which the Notes are to be issued, as such Indenture
-------
is amended or supplemented from time to time in accordance with the terms
thereof.
-2-
<PAGE>
Interest Payment Date: As defined in the Indenture and the Notes.
---------------------
NASD: National Association of Securities Dealers, Inc.
----
Offering Memorandum: The Offering Memorandum, dated June 23, 1997,
-------------------
and all amendments and supplements thereto, relating to the Company and the
Notes and prepared by the Company and Holding pursuant to the Purchase
Agreement.
Person: An individual, partnership, corporation, trust,
------
unincorporated organization, or other entity, or a government or agency or
political subdivision thereof.
Preliminary Offering Memorandum: The preliminary offering memorandum,
-------------------------------
dated June 5, 1997, relating to the Company and the Notes.
Prospectus: The prospectus included in a Registration Statement at
----------
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Registration Default: As defined in Section 5 hereof.
--------------------
Registration Statement: Any registration statement of the Company
----------------------
relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case, (i) which is filed pursuant to
the provisions of this Agreement and (ii) including the Prospectus included
therein, all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.
Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer
------------------------
Transfer Restricted Securities.
Senior Notes: The Notes and the Exchange Notes.
------------
Shelf Notice: As defined in Section 4(a) hereof.
------------
Shelf Registration Statement: As defined in Section 4(a) hereof.
----------------------------
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
---
as in effect on the date of the Indenture .
Transfer Restricted Securities: Each Note, until the earliest to
------------------------------
occur of (a) the date on which such Note is exchanged by a Person other than a
broker-dealer for an Exchange Note in the Exchange Offer, (b) following the
exchange by a broker-dealer in the Exchange Offer of a Note for
-3-
<PAGE>
an Exchange Note, the date on which such Exchange Note is sold to a purchaser
who receives from such broker-dealer on or prior to the date of such sale a copy
of the prospectus contained in the Exchange Offer Registration Statement, (c)
the date on which such Note is effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement, (d) the
date on which such Note may be resold without restriction to the public pursuant
to Rule 144 under the Act, (e) the date on which such Note shall have been
transferred and a new certificate for it not bearing a legend restricting
further transfer shall have been delivered by the Trustee, or (f) the date on
which such Note ceases to be outstanding for purposes of the Indenture.
Underwriters: As defined in Section 11 hereof.
------------
Underwritten Registration or Underwritten Offering: A registration in
------------------------- ---------------------
which securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the
------------------------------
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to
-----------------------------------------
be a holder of Transfer Restricted Securities (each, a "Holder") whenever such
------
Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company shall (i) cause to be filed with the Commission as
soon as practicable after the Closing Date, but in no event later than 90 days
after the Closing Date, the Exchange Offer Registration Statement, (ii) use its
best efforts to cause such Exchange Offer Registration Statement to become
effective at the earliest possible time, but in no event later than 180 days
after the Closing Date, (iii) in connection with the foregoing, (A) file all
pre-effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause such Exchange Offer Registration Statement to become
effective, including the filing of information pursuant to Rule 430A under the
Act (if necessary) and (B) cause all filings, if any, in connection with the
registration and qualification of the Exchange Notes to be made under the Blue
Sky laws of such jurisdictions as are necessary to permit Consummation of the
Exchange Offer and (iv) upon the effectiveness of such Exchange Offer
Registration Statement, commence and Consummate the Exchange Offer. The Exchange
Offer shall be on the appropriate form permitting registration of the Exchange
Notes to be offered in exchange for the Notes that are Transfer Restricted
Securities and to permit sales of Broker-Dealer Transfer Restricted Securities
by Restricted Broker-Dealers as contemplated by Section 3(c) below.
-4-
<PAGE>
(b) The Company shall use its best efforts to cause the Exchange
Offer Registration Statement to be effective continuously, and to keep the
Exchange Offer open, for a period of not less than the minimum period required
under applicable federal and state securities laws to Consummate the Exchange
Offer; provided, however, that in no event shall such period be less than 45
days after the date notice of the Exchange Offer is mailed to the Holders. The
Company shall cause the Exchange Offer to comply with all applicable federal and
state securities laws and all applicable laws, regulations and/or ordinances,
including all applicable tender offer rules and regulations under the Exchange
Act. No securities other than the Notes shall be included in the Exchange Offer
Registration Statement. The Company shall use its best efforts to cause the
Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 45 days thereafter.
(c) A "Plan of Distribution" section shall be included in the
Prospectus contained in the Exchange Offer Registration Statement and such
section shall indicate therein that any Restricted Broker-Dealer who holds Notes
that are Transfer Restricted Securities and that were acquired for the account
of such Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Notes (other than Transfer Restricted Securities
acquired directly from the Company) pursuant to the Exchange Offer; however,
such Broker-Dealer may be deemed to be an "underwriter" within the meaning of
the Act and must, therefore, deliver a prospectus meeting the requirements of
the Act in connection with its initial sale of each Exchange Note received by
such Broker-Dealer in the Exchange Offer, which prospectus delivery requirements
may be satisfied by the delivery by such Broker-Dealer of the Prospectus
contained in the Exchange Offer Registration Statement. Such "Plan of
Distribution" section shall also contain all other information with respect to
such sales of Broker-Dealer Transfer Restricted Securities by Restricted Broker-
Dealers that the Commission may require in order to permit such sales pursuant
thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer
or disclose the amount of Senior Notes held by any such Broker-Dealer except to
the extent required by the Commission as a result of a change in policy after
the date of this Agreement.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers in a manner consistent with clause (b)
above.
The Company shall promptly provide sufficient copies of the latest
version of such Prospectus to such Restricted Broker-Dealers upon request at any
time during such period in order to facilitate such sales.
In connection with the Exchange Offer, the Company shall:
(1) mail, or cause to be mailed, to each Holder a copy of the
Prospectus forming part of the Exchange Offer Registration Statement,
together with an appropriate letter of transmittal and related documents;
-5-
<PAGE>
(2) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York, which may be
the Trustee or an affiliate thereof;
(3) permit Holders to withdraw tendered Transfer Restricted
Securities at any time prior to the close of business, New York time, on
the last Business Day on which the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer, the
Company shall:
(1) accept for exchange all Transfer Restricted Securities validly
tendered and not validly withdrawn pursuant to the Exchange Offer;
(2) deliver to the Trustee for cancellation all Transfer Restricted
Securities so accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder tendering such Transfer Restricted Securities, Exchange Notes equal
in principal amount to the Transfer Restricted Securities of such Holder so
accepted for exchange.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not permitted by
------------------
applicable law or Commission policy to consummate the Exchange Offer (after the
procedures set forth in Section 6(a)(i) below have been complied with) or (ii)
any Holder of a minimum of $750,000 aggregate principal amount or more of
Transfer Restricted Securities notifies the Company within 30 days following the
Consummation of the Exchange Offer that (A) such Holder is prohibited by law or
Commission policy from participating in the Exchange Offer, (B) such Holder may
not resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the Prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales by
such Holder or (C) such Holder is a Broker-Dealer and holds Notes acquired
directly from the Company or an affiliate of the Company or (iii) for any other
reason the Exchange Offer is not Consummated within 225 days of the Closing
Date, then the Company shall promptly deliver to the Holders and the Trustee
written notice thereof (the "Shelf Notice") and shall file a Shelf Registration
Statement pursuant to the provisions of this Section 4. If a Shelf Notice is
delivered, the Company shall:
-6-
<PAGE>
(x) cause to be filed on or prior to (1) in the case of a Registration
Statement filed pursuant to clause (i) above, 60 days after the date on which
the Company determines that it is not permitted to file the Exchange Offer
Registration Statement and (2) in the case of a Registration Statement filed
pursuant to clause (ii) above, 60 days after the date on which the Company
receives the notice specified in clause (ii) above, and (3) in any case, the
225th day after the Closing Date, a shelf registration statement pursuant to
Rule 415 under the Act (which may be an amendment to the Exchange Offer
Registration Statement (in either event, the "Shelf Registration Statement")),
----------------------------
relating to all Transfer Restricted Securities the Holders of which shall have
provided the information required pursuant to Section 4(b) hereof, and
(y) use its best efforts to cause such Shelf Registration Statement to
become effective on or prior to the date 120 days after the date on which the
Company becomes obligated to file such Shelf Registration Statement. If, after
the Company has filed an Exchange Offer Registration Statement which satisfies
the requirements of Section 3(a) above, the Company is required to file and make
effective a Shelf Registration Statement solely because the Exchange Offer is
not permitted under applicable federal law, then the filing of the Exchange
Offer Registration Statement shall be deemed to satisfy the requirements of
clause (x) above. Such an event shall have no effect on the requirements of this
clause (y) or on the Effectiveness Target Date as defined in Section 5 below.
The Company shall use its best efforts to keep the Shelf Registration
Statement discussed in this Section 4(a) continuously effective, supplemented
and amended as required by the provisions of Sections 6(b) and (c) hereof to the
extent necessary to ensure that it is available for sales of Transfer Restricted
Securities by the Holders thereof entitled to the benefit of this Section 4(a),
and to ensure that it conforms with the requirements of this Agreement, the Act
and the policies, rules and regulations of the Commission as announced from time
to time, for a period expiring on the earlier of (i) the date that all Holders
of Transfer Restricted Securities have resold such securities in the manner set
forth and as contemplated in the Shelf Registration Statement and (ii) two years
following the Closing Date.
(b) Provision by Holders of Certain Information in Connection with
--------------------------------------------------------------
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
- --------------------------------
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 Business Days after receipt of a request
therefor, such information specified in item 507 of Regulation S-K under the
Act, or otherwise required by the Act or the Commission for use in connection
with any Shelf Registration Statement or Prospectus or preliminary Prospectus
included therein. No Holder of Transfer Restricted Securities shall be entitled
to liquidated damages pursuant to Section 5 hereof unless and until such Holder
shall have provided all such information required to be provided by such Holder
for inclusion therein. Each Holder as to which any Shelf Registration Statement
is being effected agrees to furnish promptly to the Company in writing, for so
long as the Registration Statement is effective, all information required to be
disclosed in order to make the information previously furnished to the Company
by such Holder not materially misleading.
-7-
<PAGE>
SECTION 5. LIQUIDATED DAMAGES
The Company, Holding and the Initial Purchaser agree that the Holders
will suffer damages if the Company fails to fulfill its obligations under
Section 3 or Section 4 hereof and that it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, if (i) the Company fails to
file any of the Registration Statements required by this Agreement on or before
the date specified for such filing in this Agreement, (ii) any of such
Registration Statements is not declared effective by the Commission on or prior
to the date specified in this Agreement for such effectiveness (the
"Effectiveness Target Date"), (iii) the Company fails to Consummate the Exchange
- --------------------------
Offer on or prior to the 225th calendar day after the Closing Date or (iv) the
Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified in
this Agreement without being succeeded immediately by a post-effective amendment
to such Registration Statement that cures such failure and that is itself
declared effective within a five Business Day period (each such event referred
to in clauses (i) through (iv) above, a "Registration Default"), then commencing
--------------------
on the day following the date on which such Registration Default occurs, the
Company agrees to pay, or cause to be paid, to each Holder of Transfer
Restricted Securities, for the first 90-day period immediately following the
occurrence of such Registration Default, liquidated damages, in the form of
additional cash interest on the Senior Notes ("Additional Interest"), initially
-------------------
at the rate of 50 basis points (0.50%) per annum with respect to all Senior
Notes constituting Transfer Restricted Securities held by such Holder for the
period that the Registration Default continues. The rate of Additional Interest
payable to each Holder shall increase by an additional 50 basis points (0.50%)
per annum with respect to all principal amount of Senior Notes constituting
Transfer Restricted Securities held by such Holder for each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum rate of
Additional Interest of 150 basis points (1.50%) per annum. Following the cure
of all Registration Defaults, the accrual of Additional Interest will cease. If
the Registration Defaults described in either of clauses (i) or (ii) above arose
solely because the applicable Holder or Holders failed to provide the Company
with certain information within the 20 Business Day period referred to in
Section 4(b) hereof (including any information that subsequently becomes
necessary), Additional Interest in respect thereof (but only with respect to
such Holder or Holders) will not begin to accrue until ten Business Days after
such information has been provided to the Company.
The Company shall notify the Trustee within three Business Days after
each and every Registration Default. Any amounts of Additional Interest due
pursuant this Section 5 will be payable in cash semi-annually on June 15 and
December 15 of each year, to the Holders of record of Senior Notes on the
fifteenth day prior to such interest payment date. The amount of Additional
Interest will be determined by multiplying the applicable Additional Interest
rate by the principal amount of the Transfer Restricted Securities, multiplied
by a fraction, the numerator of which is the number of days such Additional
Interest was applicable during such period (determined on the basis of a 360-day
year comprised of twelve 30-day months and, in the case of a partial month, the
actual number of days elapsed), and the denominator of which is 360.
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<PAGE>
All accrued Additional Interest shall be paid to the holder of the
Global Security (as defined in the Indenture) by wire transfer of immediately
available funds or by federal funds check and to Holders of Definitive
Securities (as defined in the Indenture) by mailing checks to their registered
addresses by the Company on each Interest Payment Date. All obligations of the
Company set forth in the preceding paragraph that are outstanding with respect
to any Transfer Restricted Security at the time such security ceases to be a
Transfer Restricted Security shall survive until such time as all such
obligations with respect to such security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
-------------------------------------
Exchange Offer, the Company shall comply with all applicable provisions of
Section 6(c) below, shall use its best efforts to effect such exchange and to
permit the sale of the Broker-Dealer Transfer Restricted Securities being sold
in accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If, following the date hereof there has been published a change
in Commission policy with respect to exchange offers such as the Exchange
Offer, such that in the reasonable opinion of counsel to the Company there
is a question as to whether the Exchange Offer is permitted by applicable
federal law, the Company hereby agrees to seek a no-action letter or other
favorable decision from the Commission allowing the Company to Consummate
an Exchange Offer for such Notes. The Company hereby agrees to pursue the
issuance of such a decision to the Commission staff level. In connection
with the foregoing, the Company hereby agrees to take all such other
actions as are requested by the Commission or otherwise required in
connection with the issuance of such decision, including without limitation
(A) participating in telephonic conferences with the Commission, (B)
delivering to the Commission staff an analysis prepared by counsel to the
Company setting forth the legal bases, if any, upon which such counsel has
concluded that such an Exchange Offer should be permitted and (C)
diligently pursuing a resolution (which need not be favorable) by the
Commission staff of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Securities shall furnish, upon the request of the Company, prior to the
Consummation of the Exchange Offer, a written representation to the Company
(which may be contained in the letter of transmittal contemplated by the
Exchange Offer Registration Statement) to the effect that (A) it is not an
affiliate of the Company, (B) it is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Exchange Notes to be issued in the
Exchange Offer and (C) it is acquiring the Exchange Notes in its ordinary
course of business. Each Holder hereby acknowledges and agrees that any
Broker-Dealer and any such Holder using the Exchange Offer to participate
in a distribution of the securities to be acquired in the Exchange Offer
(1) could not under Commission policy as in effect on the date of this
Agreement rely on the position of the
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<PAGE>
Commission enunciated in Morgan Stanley and Co., Inc. (available June 5,
----------------------------
1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as
----------------------------------
interpreted in the Commission's letter to Shearman & Sterling dated July 2,
1993, and similar no-action letters (including, if applicable, any no-
action letter obtained pursuant to clause (i) above), and (2) must comply
with the registration and prospectus delivery requirements of the Act in
connection with a secondary resale transaction and that such a secondary
resale transaction must be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
508, as applicable, of Regulation S-K if the resales are of Exchange Notes
obtained by such Holder in exchange for Notes acquired by such Holder
directly from the Company or an affiliate thereof.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange Offer
in reliance on the position of the Commission enunciated in Exxon Capital
-------------
Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
-------------------- ----------------------------
(available June 5, 1991) and, if applicable, any no-action letter obtained
pursuant to clause (i) above, (B) including a representation that the
Company has not entered into any arrangement or understanding with any
Person to distribute the Exchange Notes to be received in the Exchange
Offer and that, to the best of the Company's information and belief, each
Holder participating in the Exchange Offer is acquiring the Exchange Notes
in its ordinary course of business and has no arrangement or understanding
with any Person to participate in the distribution of the Exchange Notes
received in the Exchange Offer and (C) any other undertaking or
representation required by the Commission as set forth in any no-action
letter obtained pursuant to clause (i) above.
(b) Shelf Registration Statement. In connection with the Shelf
-----------------------------
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) below and shall use its best efforts to effect such registration to
permit the sale of the Transfer Restricted Securities being sold in accordance
with the intended method or methods of distribution thereof (as indicated in the
information furnished to the Company pursuant to Section 4(b) hereof),
consistent with this Agreement and, pursuant thereto, the Company will as
expeditiously as possible prepare and file with the Commission a Registration
Statement relating to the registration on any appropriate form under the Act,
which form shall be available for the sale of the Transfer Restricted Securities
in accordance with the intended method or methods of distribution thereof within
the specified time periods and otherwise in accordance with the provisions
hereof.
(c) General Provisions. In connection with any Registration Statement
-------------------
and any related Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Exchange Offer Registration Statement and the related Prospectus, to the extent
that the same are required to be available to permit sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers), the Company shall:
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<PAGE>
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for the
period specified in Section 3 or 4 hereof, as applicable. Upon the occurrence of
any event that would cause any such Registration Statement or the Prospectus
contained therein (A) to contain a material misstatement or omission or (B) not
to be effective and usable for resale of Transfer Restricted Securities during
the period required by this Agreement, the Company shall file promptly an
appropriate amendment to such Registration Statement, (1) in the case of clause
(A), correcting any such misstatement or omission, and (2) in the case of either
clause (A) or (B), use its best efforts to cause such amendment to be declared
effective and such Registration Statement and the related Prospectus to become
usable for their intended purposes(s) as soon as practicable thereafter;
(ii) prepare and file with the Commission such amendments and post-
effective amendments to the Registration Statement as may be necessary to keep
the Registration Statement effective for the applicable period set forth in
Section 3 or 4 hereof, as applicable, or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Registration Statement
have been sold; cause the Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act, and to comply fully with Rules 424 and 430A, as applicable, under
the Act in a timely manner; and comply with the provisions of the Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders promptly
and, if requested by such Persons, confirm such advice in writing (A) when the
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to any Registration Statement or any post-effective
amendment thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating thereto,
(C) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the suspension
by any state securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, or (D) of the
existence of any fact or the happening of any event that makes any statement of
a material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
the Registration Statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes in the
Prospectus in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. If at any time
the Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or
-11-
<PAGE>
exemption from qualification of the Transfer Restricted Securities under state
securities or Blue Sky laws, the Company shall use its best efforts to obtain
the withdrawal or lifting of such order at the earliest possible time;
(iv) furnish to each selling Holder named in any Registration
Statement or Prospectus and each of the underwriter(s) in connection with such
sale, if any, before filing with the Commission, copies of any Registration
Statement or any Prospectus included therein or any amendments or supplements to
any such Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such Registration
Statement), which documents will be subject to the review and comment of such
Holders and underwriter(s) in connection with such sale, if any, for a period of
at least five Business Days, and the Company will not file any such Registration
Statement or Prospectus or any amendment or supplement to any such Registration
Statement or Prospectus (including all such documents incorporated by reference)
to which the selling Holders of the Transfer Restricted Securities covered by
such Registration Statement or the underwriter(s) in connection with such sale,
if any, shall reasonably object within five Business Days after the receipt
thereof. A selling Holder or underwriter, if any, shall be deemed to have
reasonably objected to such filing if such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed, contains a
material misstatement or omission or fails to comply with the applicable
requirements of the Act;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus, provide
copies of such document to the selling Holders and to the underwriter(s) in
connection with such sale, if any, and make the Company's representatives
available during reasonable business hours for discussion of such document and
other customary due diligence matters, and include such information in such
document prior to the filing thereof as such selling Holders or underwriter(s),
if any, reasonably may request;
(vi) make available at reasonable business hours for inspection by
the selling Holders, any underwriter participating in any disposition pursuant
to such Registration Statement and any attorney or accountant retained by such
selling Holders or any of such underwriter(s), all financial and other records,
pertinent documents and properties of the Company and cause the Company's
officers, managers and employees to supply all information reasonably requested
by any such Holder, underwriter, attorney or accountant in connection with such
Registration Statement or any post-effective amendment thereto subsequent to the
filing thereof and prior to its effectiveness;
(vii) if requested by any selling Holders or the underwriter(s) in
connection with such sale, if any, promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective amendment,
if necessary, such information as such selling Holders and underwriter(s), if
any, may reasonably request to have included therein, including, without
limitation, information relating to the "Plan of Distribution" of the Transfer
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<PAGE>
Restricted Securities, information with respect to the principal amount of
Transfer Restricted Securities being sold to such underwriter(s), the purchase
price being paid therefor and any other terms of the offering of the Transfer
Restricted Securities to be sold in such offering; and make all required filings
of such Prospectus supplement or post-effective amendment as soon as practicable
after the Company is notified of the matters to be included in such Prospectus
supplement or post-effective amendment;
(viii) furnish to each selling Holder and each of the underwriter(s)
in connection with such sale, if any, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference therein and
all exhibits (including exhibits incorporated therein by reference);
(ix) deliver to each selling Holder and each of the underwriter(s),
if any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such Persons
reasonably may request; the Company hereby consents to the use of the Prospectus
and any amendment or supplement thereto by each of the selling Holders and each
of the underwriter(s), if any, in connection with the offering and the sale of
the Transfer Restricted Securities covered by the Prospectus or any amendment or
supplement thereto;
(x) enter into such agreements (including, unless not required
pursuant to Section 10 hereof, an underwriting agreement) and make such
representations and warranties and take all such other actions in connection
therewith in order to expedite or facilitate the disposition of the Transfer
Restricted Securities pursuant to any Registration Statement contemplated by
this Agreement as may be reasonably requested by any Holder of Transfer
Restricted Securities or underwriter in connection with any sale or resale
pursuant to any Registration Statement contemplated by this Agreement, and in
such connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an Underwritten Registration, the Company
shall: (1) whether or not an underwriting agreement is entered into and whether
or not the registration is an Underwritten Registration, make such
representations and warranties to the Holders and the underwriter(s), in form,
substance and scope as they may request and as are customarily made by issuers
to underwriters in primary underwritten offerings and covering matters
including, but not limited to, those set forth in the Purchase Agreement; (2)
whether or not an underwriting agreement is entered into and whether or not the
registration is an Underwritten Registration, obtain opinions of counsel to the
Company and updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the underwriter(s) and the
Holders of the Transfer Restricted Securities being sold) addressed to each
selling Holder and underwriter requesting the same and covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such Holders and underwriters;
(3) in connection with an Underwritten Registration only, obtain "cold comfort"
letters and updates thereof from the Company's independent certified public
-13-
<PAGE>
accountants addressed to the selling Holders of Transfer Restricted Securities
and underwriters requesting the same, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters by
underwriters in connection with primary underwritten offerings; (4) in
connection with an Underwritten Offering only, set forth in full or incorporate
by reference in the underwriting agreement the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be indemnified
pursuant to said Section; and (5) whether or not an underwriting agreement is
entered into and whether or not the registration is an Underwritten
Registration, deliver such documents and certificates as may be reasonably
requested by the Holders of the Transfer Restricted Securities being sold or the
underwriter(s) of such Underwritten Offering to evidence compliance with clause
(1) above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company pursuant to this clause
(x). Nothing contained in this clause (x) shall require the Company, its counsel
or its accountants to make any representations or warranties, to render any
legal opinion or to deliver any comfort letters that are not true. The above
shall be done at each closing under such underwriting or similar agreement, as
and to the extent thereunder, and if at any time the representations and
warranties of the Company contemplated in clause (1) above cease to be true and
correct, the Company shall so advise the Initial Purchaser and the
underwriter(s), if any, and selling Holders promptly and if requested by such
Persons, shall confirm such advice in writing;
(xi) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders, the underwriter(s), if any, and their
respective counsel in connection with the registration and qualification of the
Transfer Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders or underwriter(s), if any, may request and
do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted Securities covered
by the applicable Registration Statement; provided, however, that the Company
shall not be required to register or qualify to do business in any jurisdiction
in which it is not now so qualified or to take any action that would subject it
to the service of process in suits or to taxation, other than as to matters and
transactions relating to the Registration Statement, in any jurisdiction where
it is not now so subject;
(xii) issue, upon the request of any Holder of Notes covered by any
Registration Statement contemplated by this Agreement, Exchange Notes having an
aggregate principal amount equal to the aggregate principal amount of Notes
surrendered to the Company by such Holder in exchange therefor or being sold by
such Holder; such Exchange Notes to be registered in the name of such Holder or
in the name of the purchaser(s) of such Senior Notes, as the case may be; in
return, the Notes held by such Holder shall be surrendered to the Company for
cancellation;
(xiii) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the selling
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<PAGE>
Holders and the underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities to be sold
and not bearing any restrictive legends; and to register such Transfer
Restricted Securities in such denominations and such names as the Holders or the
underwriter(s), if any, may request at least two Business Days prior to such
sale of Transfer Restricted Securities consistent with the terms of the
Indenture;
(xiv) use its best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be reasonably
requested or otherwise necessary to enable the seller or sellers thereof or the
underwriter(s), if any, to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xi) above;
(xv) if any fact or event contemplated by Section 6(c)(iii)(D)
above shall exist or have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of Transfer Restricted Securities, the
Prospectus will not contain an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
(xvi) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of a Registration Statement covering such
Transfer Restricted Securities and provide the Trustee under the Indenture with
printed certificates for the Transfer Restricted Securities which are in a form
eligible for deposit with The Depository Trust Company;
(xvii) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is required
to be retained in accordance with the rules and regulations of the NASD, and use
its best efforts to cause such Registration Statement to become effective and
approved by such governmental agencies or authorities as may be necessary to
enable the Holders selling Transfer Restricted Securities to consummate the
disposition of such Transfer Restricted Securities;
(xviii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to its
security holders with regard to any applicable Registration Statement, as soon
as practicable, a consolidated earnings statement meeting the requirements of
Rule 158 (which need not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as such term is defined
in paragraph (c) of Rule 158 under the Act);
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<PAGE>
(xix) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement, and, in connection therewith, cooperate with the Trustee
and the Holders of Senior Notes to effect such changes to the Indenture as
may be required for such Indenture to be so qualified in accordance with
the terms of the TIA; and execute and use its best efforts to cause the
Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner;
(xx) cause all Transfer Restricted Securities covered by the
Registration Statement to be listed on each securities exchange on which
similar securities issued by the Company are then listed if requested by
the Holders of a majority in aggregate principal amount of Notes or the
managing underwriter(s), if any; and
(xxi) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder as to which any
------------------------
Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading. Each Holder agrees by acquisition of a Transfer Restricted Security,
that, upon receipt of any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof,
or until it is advised in writing (the "Advice") by the Company that the use of
------
the Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus. If so
directed by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of such notice. In the event
the Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to Section
6(c)(iii)(D) hereof to and including the date when each selling Holder covered
by such Registration Statement shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof or
shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses
(including filings
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<PAGE>
made by the Initial Purchaser or any Holder with the NASD and fees and
disbursements of counsel in connection therewith (including, if applicable, the
fees and expenses of any "qualified independent underwriter" and its counsel, as
may be required by the rules and regulations of the NASD)); (ii) all fees and
expenses of compliance with federal securities and state Blue Sky or securities
laws; (iii) all expenses of printing (including printing certificates for the
Exchange Notes to be issued in the Exchange Offer and printing of Prospectuses),
messenger and delivery services and telephone; (iv) all fees and disbursements
of counsel for the Company and, in accordance with Section 7(b) below, the
Holders of Transfer Restricted Securities; (v) all application and filing fees
in connection with listing the Senior Notes on a national exchange or automated
quotation system if required hereunder; and (vi) all fees and disbursements of
independent certified public accountants of the Company (including the expenses
of any special audit and comfort letters required by or incident to such
performance).
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with any Registration Statement required by this
Agreement, the Company will reimburse the Initial Purchaser and the Holders of
Transfer Restricted Securities being tendered in the Exchange Offer and/or
resold pursuant to the "Plan of Distribution" contained in the Exchange Offer
Registration Statement or registered pursuant to the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel chosen by the Holders of a majority in principal amount of the
Transfer Restricted Securities for whose benefit such Registration Statement is
being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each
Holder and (ii) each person, if any, who controls (within the meaning of Section
15 of the Act or Section 20 of the Exchange Act) any Holder (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "controlling
person") and (iii) the respective officers, directors, partners, employees,
representatives and agents of any Holder or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an
"Indemnified Holder"), to the fullest extent lawful, from and against any and
------------------
all losses, claims, damages, liabilities, judgments, actions and expenses
(including without limitation and as incurred, reimbursement of all reasonable
costs of investigating, preparing, pursuing or defending any claim or action, or
any investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of one counsel to the
Indemnified Holders) directly or indirectly caused by, related to, based upon,
arising out of or in connection with any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus (or any amendment or supplement thereto), or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except in respect of
any Holder
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<PAGE>
insofar as such losses, claims, damages, liabilities or expenses are caused by
an untrue statement or omission or alleged untrue statement or omission that is
made in reliance upon and in conformity with information relating to such Holder
furnished in writing to the Company by such Holder expressly for use therein;
provided, however, that the Company shall not be liable to Holder under this
- -------- -------
Section 8(a) to the extent that any such losses, claims, damages, liabilities or
expenses were caused by the fact that such Holder sold Transfer Restricted
Securities to a Person as to whom it was established that there was not sent or
given, at or prior to the written confirmation of such sale, a copy of the
Prospectus as then amended or supplemented if (i) the Company had furnished
copies of such amended or supplemented Prospectus to such Holder a reasonable
time prior to the time of written confirmation of sale and (ii) such losses,
claims, damages, liabilities or expenses were caused by an untrue statement or
omission or alleged untrue statement or omission contained in the Prospectus so
delivered which was corrected in such amended or supplemented Prospectus. This
indemnity will be in addition to any liability which the Company may otherwise
have. The Company will also indemnify underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, their officers and directors and each Person who controls such
Persons (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) to the same extent as provided above with respect to the
indemnification of the Indemnified Holders of Transfer Restricted Securities.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and its directors,
officers, and any person controlling (within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act) the Company, and the respective officers,
directors, partners, employees, representatives and agents of each such person,
to the same extent as the foregoing indemnity from the Company to each of the
Indemnified Holders, but only with respect to claims and actions based on
information relating to such Holder furnished in writing by such Holder
expressly for use in any Registration Statement. In case any action or
proceeding shall be brought against the Company or any such controlling person
in respect of which indemnity may be sought against a Holder of Transfer
Restricted Securities, such Holder shall have the rights and duties given the
Company or its directors or officers or such controlling person shall have the
rights and duties given to each Holder by the preceding paragraph. In no event
shall the liability of any selling Holder hereunder be greater in amount than
the dollar amount of the proceeds received by such Holder upon the sale of the
Transfer Restricted Securities giving rise to such indemnification obligation.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any Person in respect of which indemnity may be
sought pursuant to either Section 8(a) or Section 8(b) hereof, such Person (the
"indemnified party") shall promptly notify the Person against whom such
-----------------
indemnity may be sought (the "indemnifying party") in writing and the
------------------
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceedings
and shall pay the fees and disbursements of such counsel relating to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such indemnified party
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<PAGE>
unless (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel, or (ii) the indemnifying party fails
promptly to assume the defense of such proceeding or fails to employ counsel
reasonably satisfactory to such indemnified party or parties, or (iii) (A) the
named parties to any such proceeding (including any impleaded parties) include
both such indemnified party or parties and any indemnifying party or an
affiliate of such indemnified party or parties or of any indemnifying party, (B)
there may be one or more defenses available to such indemnified party or parties
or such affiliate of such indemnified party or parties that are different from
or additional to those available to any indemnifying party or such affiliate of
any indemnifying party and (C) such indemnified party or parties shall have been
advised by such counsel that there may exist a conflict of interest between or
among such indemnified party or parties or such affiliate of such indemnified
party or parties and any indemnifying party or such affiliate of any
indemnifying party, in which case, if such indemnified party or parties notifies
the indemnifying party or parties in writing that it elects to employ separate
counsel of its choice at the expense of the indemnifying parties, the
indemnifying parties shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the indemnifying parties, it being
understood, however, that unless there exists a conflict among indemnified
parties, the indemnifying parties shall not, in connection with any one such
proceeding or separate but substantially similar or related proceedings in the
same jurisdiction, arising out of the same general allegations or circumstances,
be liable for the fees and expenses of more than one separate firm of attorneys
(together with appropriate local counsel) at any time for such indemnified party
or parties. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but, if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party or parties from and against any
loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party (which
consent shall not be unreasonably withheld or delayed), effect any settlement of
any pending or threatened proceeding in respect of which such indemnified party
is a party, and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under Section 8(a) or Section 8(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect benefits received by the Company on the
one hand and the Holders on the other hand from their sale of Transfer
Restricted Securities or if such allocation is not permitted by applicable law,
the relative fault of the Company on the one hand and of the Indemnified Holder
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of the Indemnified Holder on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
related to information supplied by the Company or by the Indemnified Holder
-19-
<PAGE>
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include, subject to the limitation
set forth in the second paragraph of Section 8(a), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Company and each Holder of Transfer Restricted Securities agree
that it would not be just and equitable if contribution pursuant to this Section
8(c) were determined by pro rata allocation (even if the Holders were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8, none of the
Holders (and its related Indemnified Holders) shall be required to contribute,
in the aggregate, any amount in excess of the amount by which the proceeds
received by such Holder from the sale of Transfer Restricted Securities exceeds
the amounts of any damages which such Holder has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 8(c) are several in
proportion to the respective principal amount of Notes held by each of the
Holders hereunder and not joint.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available, upon
request of any Holder of Transfer Restricted Securities, to any Holder or
beneficial owner of Transfer Restricted Securities in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Securities
designated by such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144A.
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements entered into
in connection therewith and (b) completes and executes all reasonable
questionnaires, powers of attorney, indemnities, underwriting agreements, lock-
up letters and other documents required under the terms of such underwriting
arrangements.
-20-
<PAGE>
SECTION 11. SELECTION OF UNDERWRITERS
In any Underwritten Offering, the investment banker or investment
bankers and managers that will administer the offering will be selected by the
Holders of a majority in aggregate principal amount of the Transfer Restricted
Securities included in such offering; provided, however, that such investment
bankers and managers must be reasonably satisfactory to the Company. Such
investment bankers and managers are referred to herein as the "underwriters."
------------
SECTION 12. MISCELLANEOUS
(a) Remedies. Each Holder, in addition to being entitled to exercise
--------
all rights provided herein, in the Indenture, the Company's or Holding's
respective charter or bylaws, the Purchase Agreement or related agreements or
granted by law, including recovery of Additional Interest or other damages, will
be entitled to specific performance of its rights under this Agreement. The
Company and Holding agree that monetary damages (including the Additional
Interest contemplated hereby) would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor Holding
--------------------------
will, on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither the Company nor Holding has previously entered into any agreement
granting any registration rights with respect to its securities to any Person.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the Holders of the Company's or
Holding's securities under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Senior Notes. Neither the Company nor
--------------------------------------
Holding will take any action, or permit any change to occur, with respect to the
Senior Notes that would materially adversely affect the ability of the Holders
to Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless the Company and Holding have
obtained the written consent of Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities. Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of Holders whose securities are being tendered
pursuant to the Exchange Offer and that does not affect directly or indirectly
the rights of other Holders whose securities are not being tendered pursuant to
such Exchange Offer may be given by the Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities that are subject to such
Exchange Offer.
-21-
<PAGE>
(e) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:
(i) if to a Holder, all the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the Indenture;
and
(ii) if to the Company:
Shoppers Food Warehouse Corp.
4600 Forbes Blvd.
Lanham, MD 20706
Attention: President
Telecopier No.: (301) 306-9600
With a copy to:
Dart Group Corporation
3300 75th Avenue
Landover, MD 20785
Attention: Corporate Secretary
Telecopier No.: (301) 773-2707
(iii) if to Holding:
SFW Holding Corp.
3300 75th Avenue
Landover, MD 20785
Attention: President
Telecopier No.: (301) 772-3910
-22-
<PAGE>
All such notices and communications shall be deemed to have been duly
given at the time delivered by hand, if personally delivered; five Business Days
after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, however, that
this Agreement shall not inure to the benefit of or be binding upon a successor
or assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities directly from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement together with the other
----------------
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company and
Holding with respect to the Transfer Restricted Securities. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
-23-
<PAGE>
(l) Third Party Beneficiaries. Holders of Transfer Restricted
-------------------------
Securities are intended third party beneficiaries of this Agreement and this
Agreement may be enforced by such Persons.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
SHOPPERS FOOD WAREHOUSE CORP.
By: /s/ Mark A. Flint
---------------------------------
Name: Mark A. Flint
Title: President and Chief Executive Officer
SFW HOLDING CORP.
By: /s/ Mark A. Flint
----------------------------------
Name: Mark A. Flint
Title: President
WASSERSTEIN PERELLA SECURITIES, INC.
By: /s/ James C. Kingsbery
--------------------------
Name: James C. Kingsbery
Title: Vice President
-24-
<PAGE>
Exhibit 4.5
PLEDGE AGREEMENT
PLEDGE AGREEMENT (this "Agreement"), dated as of June 26, 1997 made by
SHOPPERS FOOD WAREHOUSE CORP. (the "Issuer") to NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as trustee under the Indenture (as defined below) (the "Trustee").
RECITALS
A. The Securities. Pursuant to that certain Indenture dated as of the
--------------
date hereof (the "Indenture") by and among the Issuer, SFW Holding Corp. and the
Trustee, the Issuer will issue $200,000,000 in aggregate principal amount of 9
3/4% Senior Notes due 2004 (the "Securities"). Simultaneously with receipt of
payment for the Securities (the "Deposit Time"), the Issuer will deposit
$50,000,000 of the proceeds from the sale of the Securities (the "Restricted
Proceeds") into a segregated collateral trust account with the Trustee at its
office at 6th Street and Marquette Avenue, Minneapolis, Minnesota, in the name
of Norwest Bank Minnesota, National Association, as Trustee, Collateral Account
for the Issuer (the "Restricted Account"), which Restricted Account shall be
under the sole control and dominion of the Trustee subject to the terms and
conditions of this Agreement.
B. Purpose. The parties hereto desire to set forth their agreement with
-------
regard to the administration of the Restricted Account, the creation of a
security interest in the Collateral (as hereinafter defined), and the conditions
upon which funds will be released from the Restricted Account.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Security Interest.
-----------------
1.1. Pledge and Assignment. The Issuer hereby irrevocably pledges,
---------------------
assigns and sets over to the Trustee, and grants to the Trustee, for the benefit
of the holders of the Securities on the terms and conditions set forth in this
Agreement, a first priority continuing security interest in all of the
following, whether now owned or hereafter acquired or created (collectively, the
"Collateral"):
(a) the Restricted Account;
(b) all funds from time to time held in the Restricted Account,
including, without limitation, the Restricted Proceeds and all certificates
and instruments, if any, from time to time, representing or evidencing the
Restricted Account;
<PAGE>
(c) all Permitted Restricted Proceeds Investments (as defined in
Section 2.1) held by or registered, in the name of the Trustee or any of
its nominees pursuant to Article 2 or Article 3 hereof and all certificates
and instruments, if any, from time to time representing or evidencing the
Permitted Restricted Proceeds Investments;
(d) all notes, certificates of deposit, deposit accounts, checks and
other instruments from time to time hereafter delivered to or otherwise
possessed by the Trustee for or on behalf of the Issuer in substitution for
or in addition to any or all of the then existing Collateral;
(e) all interest, dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all of the then existing Collateral; and
(f) all proceeds of the foregoing including, without limitation,
cash.
1.2. Secured Obligations. This Agreement secures the due and punctual
-------------------
payment and performance of all obligations and Indebtedness (as defined in the
Indenture) of the Issuer, whether now or hereafter existing, under the
Securities and the Indenture including, without limitation, interest accrued
thereon after the commencement of a bankruptcy, reorganization or similar
proceeding involving the Issuer to the extent permitted by applicable law
(collectively, the "Obligations").
1.3. Delivery of Collateral. All certificates or instruments, if any,
----------------------
representing or evidencing the Collateral shall be held by or on behalf of the
Restricted Account pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment, in blank, all in form and substance reasonably satisfactory to the
Trustee. All securities, whether certificated, uncertificated or book entry, if
any, representing or evidencing the Collateral shall be registered in the name
of the Trustee or any of its nominees by book entry or as otherwise appropriate
so as to properly identify the interest of the Trustee therein. In addition, the
Trustee shall have the right, at any time following the occurrence of an Event
of Default (as defined in the Indenture), in its discretion to transfer to or to
register in the name of the Trustee or any of its nominees any or all of the
Collateral. Except as otherwise provided herein, all Collateral shall be
registered in the name of the Restricted Account. The Trustee shall have the
right at any time to exchange certificates or instruments representing all or
any portion of the Collateral for certificates or instruments of similar or
larger distributions in the same aggregate amount.
1.4. Further Assurances. Prior to, contemporaneously herewith, and at any
------------------
time and from time to time thereafter, the Issuer will, at the Issuer's expense,
execute and deliver to the Trustee such other instruments and documents,
including Forms UCC-1 for filing, and take all further action as it deems
necessary or advisable or as the Trustee may reasonably request to
2
<PAGE>
confirm or perfect the security interest of the Trustee granted or purported to
be granted hereby or to enable the Trustee to exercise and enforce its rights
and remedies hereunder with respect to any Collateral and the Issuer will take
all necessary action to preserve and protect the security interest created
hereby as a first priority, perfected lien and encumbrance upon the Collateral.
1.5. Transfers and Other Liens. The Issuer agrees that it will not
-------------------------
(i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Collateral, or (ii) create or
permit to exist any lien, security interest, option or other charge or
encumbrance upon or with respect to any of the Collateral, except for the
security interest under this Agreement.
1.6. Trustee Appointed Attorney-in-Fact. The Issuer hereby
----------------------------------
irrevocably appoints the Trustee the attorney-in-fact of the Issuer, coupled
with an interest, with full authority in the place and stead of the Issuer and
in the name of the Issuer or otherwise, from time to time in the Trustee's
discretion to take any action and to execute any instrument which the Trustee
may deem necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation, to receive, endorse and collect all instruments
made payable to the Issuer representing any interest payment, dividend or other
distribution in respect of the Collateral or any part thereof and to give full
discharge for the same, and the expenses of the Trustee incurred in connection
therewith shall be payable by the Issuer.
1.7. Trustee May Perform. Without limiting the authorization granted
-------------------
under Section 1.6 and except with respect to the failure of the Issuer to
deliver investment instructions, which shall be governed by the second paragraph
of Section 2.1 hereof, if the Issuer fails to perform any agreement contained
herein, the Trustee may itself perform, or cause performance of, such agreement,
and the expenses of the Trustee incurred in connection therewith shall be
payable by the Issuer.
2. Investment of Funds in Restricted Account. Funds deposited in
-----------------------------------------
the Restricted Account shall be invested and reinvested by the Trustee on the
following terms and conditions:
2.1. Permitted Restricted Proceeds Investments. Subject to the
-----------------------------------------
provisions of this Article 2 and Article 3 hereof, funds held by the Trustee
will be invested and reinvested in Permitted Restricted Proceeds Investments as
directed by the Issuer. As used in this Agreement, "Permitted Restricted
Proceeds Investments" consist of the following:
(a) obligations issued or unconditionally guaranteed by the
United States of America or any agency thereof, or obligations issued
by an agency or instrumentality thereof and backed by the full faith
and credit of the United States of America having maturities of not
more than one year from the date of acquisition;
3
<PAGE>
(b) commercial paper rated the highest grade by Moody's (as
defined in the Indenture) or S&P (as defined in the Indenture) and
maturing not more than one year from the date of creation thereof;
(c) time deposits with, and certificates of deposit and banker's
acceptances issued by, any bank having capital surplus and undivided
profits aggregating at least $500,000,000 and maturing not more than
one year from the date of creation thereof;
(d) repurchase agreements that are secured by a perfected
security interest in an obligation described in clause (a) and are
with any bank described in clause (c);
(e) shares of any money market mutual fund that (i) has at least
95% of its assets invested continuously in the types of investments
referred to in clauses (a) and (b) above, (ii) has net assets of not
less than $500,000,000, and (c) has the highest rating obtainable from
either S&P or Moody's; and
(f) readily marketable direct obligations issued by any state of
the United States of America or any political subdivision thereof
having one of the two highest rating categories obtainable from either
Moody's or S&P.
If the Issuer fails to give investment instructions to the Trustee by
12:00 noon (New York time) on any business day on which there is uninvested cash
and/or maturing Permitted Restricted Proceeds Investments in the Restricted
Account, the Trustee is hereby authorized and directed to invest any such cash
or the proceeds of any maturing Permitted Restricted Proceeds Investments in
permitted money market investments maturing on the next business day. The
Issuer's failure to give such investment instructions shall not constitute a
default or an event of default hereunder.
Any Permitted Restricted Proceeds Investments made hereunder shall
mature on or prior to August 1, 1998.
2.2. Interest. All interest or other profit earned on funds invested
--------
in Permitted Restricted Proceeds Investments shall be held in the Restricted
Account and reinvested in accordance with the terms hereof and will be subject
to the security interest granted hereunder to the Trustee.
2.3. Limitation of Trustee's Liability. In no event shall the
----------------------------------
Trustee have any liability to the Issuer or any other person for investing the
funds from time to time in the Restricted Account in accordance with the
provisions of this Article 2, regardless if whether greater income or a higher
yield could have been obtained had the Trustee invested such funds in different
Permitted Restricted Proceeds Investments.
4
<PAGE>
3. Disposition of Collateral Upon Certain Events.
---------------------------------------------
3.1. Release of Funds From the Restricted Account. At any time on or
--------------------------------------------
prior to June 30, 1998, the Issuer may deliver to the Trustee a certificate
substantially in the form of Exhibit A hereto (a "Release Certificate") executed
by two officers of the Issuer, other than Herbert H. Haft, Robert M. Haft,
Gloria G. Haft, Linda G. Haft or a member of their family (collectively, "Haft
Family Members"), instructing the Trustee to release the Collateral in
accordance with this Section 3.1 simultaneously with the Trustee's receipt of
the Release Certificate (the "Release Time"). At least five (5) business days
prior to delivery of the Release Certificate, the Issuer shall notify the
Trustee in writing of its intention to furnish such Release Certificate,
whereupon the Trustee shall promptly liquidate the Permitted Restricted Proceeds
Investments in the Restricted Account by not later than 12:00 noon (New York
time) five (5) business days after the Trustee's receipt of such written notice.
Unless the Trustee has actual knowledge that any statement in the Release
Certificate is untrue, the Trustee shall release at the Release Time all funds
held in the Restricted Account and transfer the same in immediately available
funds in accordance with the written instructions of the Issuer. In the absence
of an injunction or other order of a court of competent jurisdiction prohibiting
compliance with the instructions contained in the Release Certificate, the
Trustee shall ignore any instructions provided to it which are contrary to the
instructions contained in a Release Certificate delivered in accordance with
this Section 3.1. The Issuer shall consummate a Settlement (as defined in the
Indenture) on the date the Collateral is released.
3.2. Termination of Security Interest. If the Trustee receives a
--------------------------------
Release Certificate in accordance with Section 3.1, the Trustee shall deliver to
the Issuer as of the Release Time a termination of security interest in the form
of Exhibit B hereto, duly executed by the Trustee, and the Trustee shall take
all further actions, if any, which are reasonably deemed necessary or advisable
by the Issuer, to terminate the Trustee's security interest in the Collateral as
of the Release Time, including the termination of applicable Forms UCC-1, and at
the Release Time, all funds transferred by the Trustee in accordance with the
provisions of Section 3.1 shall automatically be deemed to be free and clear of
the Trustee's security interest provided herein.
3.3. Special Redemption. If, on or prior to June 30, 1998, the
------------------
closing of a Settlement has not occurred or the Issuer has not paid to Dart
Group Corporation ("Dart") the Restricted Proceeds to fund a Settlement, the
Issuer shall, on or promptly after June 30, 1998, provide a certificate
substantially in the form of Exhibit C hereto (the "Special Redemption
Certificate") to the Trustee, executed by two officers of the Issuer who are not
Haft Family Members, whereupon the Trustee shall promptly liquidate the
Permitted Restricted Proceeds Investments in the Restricted Account by not later
than 12:00 noon (New York time) five (5) business days after the Trustee's
receipt of the Special Redemption Certificate. Upon receipt of a Special
Redemption Certificate, the Trustee shall mail a notice of the special
redemption to the holders of the Securities in accordance with the terms of the
Securities and the Indenture. On the Special Redemption Date (as hereinafter
defined), the Trustee shall (i) debit the Restricted
5
<PAGE>
Account in an amount equal to the lesser of (A) the amount in the Restricted
Account or (B) an amount sufficient to redeem $50,000,000 aggregate principal
amount of the Securities at 101% of par, plus any accrued and unpaid interest
thereon to the Special Redemption Date (subject to a reduction, if required,
pursuant to Section 3.1(b) of the Indenture); the principal amount of the
Securities required to be redeemed pursuant to the Special Mandatory Redemption,
as so reduced pursuant to Section 3.1(b) of the Indenture, is hereinafter
referred to as the "Reduced Special Redemption Amount"), all as set forth in the
Special Redemption Certificate, and (ii) transfer such amount to the Paying
Agent (as defined in the Indenture) and release to the Issuer all other funds,
if any, remaining in the Restricted Account. In the event the amount so
transferred is insufficient to redeem the lesser of $50,000,000 aggregate
principal amount of the Securities or the Reduced Special Redemption Amount, at
101% of par and pay accrued and unpaid interest thereon to, but not including,
the Special Redemption Date (the "Special Redemption Price"), the Issuer shall
deliver to the Paying Agent by 11:00 A.M. (New York time) on the Special
Redemption Date cash in same day funds in an amount equal to the deficiency. As
used in this Agreement, "Special Redemption Date" means a business day not
sooner than July 31, 1998 and not later than August 15, 1998 specified by the
Issuer in the Special Redemption Certificate or as determined by the Trustee
pursuant to Section 3.4 or 4. The Issuer shall mail a Special Redemption
Certificate in accordance with Section 3.4 of the Indenture.
3.4. Trustee's Failure to Receive Certificate. If the Trustee has
----------------------------------------
not received either a Special Redemption Certificate or a Release Certificate by
4:00 p.m. (New York time) on July 3, 1998, the Trustee shall be deemed to have
received a Special Redemption Certificate setting the Special Redemption Date at
August 14, 1998. In such event, the Trustee shall mail notice of the special
redemption to the holders of the Securities in accordance with the terms of the
Securities and shall liquidate the Permitted Restricted Proceeds Investments as
of 12:00 (noon) (New York time) on August 11, 1998.
3.5. Special Redemption Date. On the Special Redemption Date, the
-----------------------
Trustee shall debit the Restricted Account in an amount equal to the lesser of
(i) the amount in the Restricted Account and (ii) the Special Redemption Price
and transfer such amount to the Paying Agent in accordance with the provisions
of the Indenture and release to the Issuer all other funds, if any, remaining in
the Restricted Account. In the event the amount so transferred is less than the
Special Redemption Price, the Issuer shall deliver to the Paying Agent by 11:00
A.M. (New York time) on August 13, 1998 cash in same day funds equal to the
deficiency. In the event the amount so transferred is less than the amount in
the Restricted Account, the Trustee shall release to the Issuer all other funds
remaining in the Restricted Account.
4. Remedies upon Default. If an Event of Default (as defined in
---------------------
the Indenture) shall have occurred and be continuing:
(i) The Trustee may, without notice to the Issuer except as
required by law and at any time or from time to time, charge, set-off
and otherwise apply all or any part of the balance in the Restricted
Account in order to satisfy the Default
6
<PAGE>
Amount (as defined in the Indenture).
(ii) The Trustee may also exercise in respect of the
Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a
secured party on default under (A) the Uniform Commercial Code in
effect at that time in the State of Minnesota (the "Code") (whether or
not the applicable Code applies to the affected Collateral) and (B)
the Indenture.
(iii) Any cash held by the Trustee as Collateral and all net
cash proceeds received by the Trustee in respect of any sale or
liquidation of, collection from, or other realization upon all or any
part of the Collateral may, in the discretion of the Trustee, be held
by the Trustee as collateral for, and/or then or at any time
thereafter be applied (after payment of any costs and expenses
incurred in connection with any sale, liquidation or disposition of or
realization upon the Collateral and the payment of any amounts payable
to the Trustee) in whole or in part by the Trustee for the ratable
benefit of the holders of the Securities against, all or any part of
the Obligations in such order as the Trustee shall elect. Any surplus
of such cash or cash proceeds held by the Trustee and remaining after
payment in full of all the Obligations and the costs and expenses
incurred by and amounts payable to the Trustee hereunder or under the
Indenture shall be paid over to the Issuer or to whomsoever shall be
lawfully entitled to receive such surplus.
5. Indemnity. The Issuer shall indemnify and hold harmless the
---------
Trustee and its officers, agents and employees, from and against any and all
claims, notices, obligations, liabilities and expenses, including, without
limitation, defense costs, investigation fees and costs, legal fees and claims
for damages, arising from or in connection with the Trustee's acceptance of, or
performance under this Agreement, except to the extent that such liability,
expense or claim is directly attributable to the negligence or bad faith of the
Trustee. The provisions of Article Seven of the Indenture shall apply to the
Trustee under this Agreement to the same extent as they apply to the Trustee
under the Indenture.
6. Termination. This Agreement shall terminate automatically upon
-----------
the first to occur of (a) the release of the Collateral pursuant to Section 3.1
hereof or (b) payment in full of the Special Redemption Price upon the
redemption of Securities as provided herein and in the Indenture.
7. Miscellaneous.
-------------
7.1. Waiver. Either party hereto may specifically waive any breach
------
of this Agreement by the other party, but no such waiver shall be deemed to have
been given unless such waiver is in writing, signed by the waiving party, and
specifically designates the breach waived,
7
<PAGE>
nor shall any such waiver constitute a continuing waiver of similar or other
breaches.
7.2. Invalidity. If, for any reason whatsoever, any one or more of
----------
the provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid in a particular case or in all cases, such
circumstances shall not have the effect of rendering any of the other provisions
of this Agreement inoperative, unenforceable or invalid, and the inoperative,
unenforceable or invalid provision shall be construed as if it were written so
as to effectuate, to the maximum extent possible, the parties' intent.
7.3. Assignment. This Agreement shall inure to and be binding upon
----------
the parties and their respective successors and permitted assigns; provided
--------
however, that the Issuer may not assign its rights or obligations hereunder
- -------
without the express prior written consent of the Trustee.
7.4. Choice of Law. The existence, validity, construction, operation
-------------
and effect of any and all terms and provisions of this Agreement shall be
determined in accordance with and governed by the internal laws of the State of
New York, without giving effect to the conflicts of law principles of such
State.
7.5. Entire Agreement; Amendments. This Agreement, the Indenture and
----------------------------
the Securities contain the entire agreement among the parties with respect to
the subject matter hereof and supersede any and all prior agreements,
understandings and commitments with respect thereto, whether oral or written;
provided, however, that this Agreement is executed and accepted by the Trustee
- -------- -------
subject to all terms and conditions of its acceptance of the trust under the
Indenture, as fully as if said terms and conditions were set forth at length
herein. This Agreement may be amended only by a writing signed by duly
authorized representatives of all parties. The Trustee may amend this Agreement
in any way not materially adverse to the interests of the holders of the
Securities. The holders of Securities shall have third party beneficiary rights
under this Agreement.
7.6. Notices. Any notice or communication by the Issuer or the
-------
Trustee shall be duly given if in writing and delivered in person or mailed by
first-class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery addressed as
follows:
To the Issuer:
Shoppers Food Warehouse Corp.
4600 Forbes Blvd.
Lanham, MD 20706
Attention: President
8
<PAGE>
with a copy to:
Dart Group Corporation
3300 75th Avenue
Landover, MD 20785
Attention: Corporate Secretary
To the Trustee:
Norwest Bank Minnesota, National Association
6th Street and Marquette Avenue
Minneapolis, MN 55479-0069
Attention: Corporate Trust Department
The Issuer or the Trustee by notice to each other may designate additional or
different addresses for subsequent notices or communications.
All notices and communications shall be deemed to have been duly given: at
the time delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and the next business day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery.
7.7. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day first written above.
SHOPPERS FOOD WAREHOUSE CORP.
By: /s/ Mark A. Flint
---------------------------------------------
Name: Mark A. Flint
Title: President and Chief Executive Officer
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Trustee
By: /s/ Raymond S. Haverstock
---------------------------------------------
Name: Raymond S. Haverstock
Title: Vice President
10
<PAGE>
EXHIBIT A
[Form of Release Certificate]
SHOPPERS FOOD WAREHOUSE CORP.
The undersigned officers of SHOPPERS FOOD WAREHOUSE CORP., a Delaware
corporation (the "Issuer"), hereby certify, pursuant to Section 3.1 of the
Pledge Agreement dated as of June 26, 1997 (the "Pledge Agreement"), made by the
Issuer to Norwest Bank Minnesota, National Association, as trustee (the
"Trustee") under an Indenture dated as of June , 1997 (the "Indenture") among
the Trustee, the Issuer and SFW Holding Corp., as follows:
1. The undersigned have read and are familiar with the conditions
precedent to the release of the funds held in the Restricted Account provided
for in the Indenture and in the Pledge Agreement.
2. In the opinion of the undersigned, each of the undersigned has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such conditions have been complied
with. In preparing this certificate, the undersigned, with the assistance of
other officers and employees of the Issuer, have undertaken a diligent
examination of all appropriate records and documents of the Issuer with respect
to the foregoing.
3. All conditions precedent to the release of the funds held in the
Restricted Account provided for in the Indenture and in the Pledge Agreement
have been complied with.
4. The closing of a Settlement (as defined in the Indenture) is
occurring simultaneously with the release of the funds held in the Restricted
Account.
5. No Default (as defined in the Indenture) or Event of Default (as
defined in the Indenture) has occurred that is continuing or will occur as a
consequence of the use of the Restricted Proceeds as contemplated by this
Certificate.
Capitalized terms used herein without definition shall have the
meanings specified in the Pledge Agreement.
The Issuer hereby directs the Trustee to release all funds held by it
in the Restricted Account at the Release Time and to terminate and release its
pledge and assignment of, and security interest in, all of the Collateral under
the Pledge Agreement in accordance with Section 3.2 therein. At the Release
Time, such funds should be deposited or wired in immediately available funds in
the following account or accounts at ____________ in the amounts indicated:
_______________________________________________.
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed their names this ___
day of ________, 199__.
SHOPPERS FOOD WAREHOUSE CORP.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
2
<PAGE>
EXHIBIT B
[Form of Termination of Security Interest]
[To be typed on Trustee's letterhead]
Date:
----------------
VIA FACSIMILE AND FEDERAL EXPRESS
- ---------------------------------
Shoppers Food Warehouse Corp.
4600 Forbes Blvd.
Lanham, MD 20706
Attention: Chief Financial Officer
Re: Termination of Security Interest
--------------------------------
Ladies and Gentlemen:
Reference is hereby made to the Pledge Agreement, dated as of June 26,
1997, made by Shoppers Food Warehouse Corp. to Norwest Bank Minnesota, National
Association, as Trustee (as amended or modified from time to time in accordance
with the terms thereof, the "Agreement").
By its signature below, the Trustee, hereby terminates and releases
its pledge and assignments of, and security interest in, all of the Collateral
(as defined in the Agreement) under the Agreement.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Trustee
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE>
EXHIBIT C
[Form of Special Redemption Certificate]
SHOPPERS FOOD WAREHOUSE CORP.
The undersigned officers of SHOPPERS FOOD WAREHOUSE CORP., a Delaware
corporation (the "Issuer"), hereby certify, pursuant to Section 3.3 of the
Pledge Agreement dated as of June 26, 1997 (the "Pledge Agreement"), made by the
Issuer to Norwest Bank Minnesota, National Association, as trustee (the
"Trustee") under an Indenture dated as of June , 1997 among the Trustee, the
Issuer and SFW Holding Corp., that the closing of a Settlement has not been
consummated or the Issuer has not paid to Dart the Restricted Proceeds to fund a
Settlement.
The Issuer hereby directs the Trustee to liquidate all Permitted
Restricted Proceeds Investments by no later than _________ o'clock on
___________, 199__ which date shall be not less than 5 business days after
receipt by the Trustee of this certificate and to pay an amount equal to the
lesser of (i) the amount in the Restricted Account or (ii) the Special
Redemption Price in immediately available funds to the Paying Agent for the
special redemption of the Securities in the aggregate principal amount of
$_____________ including accrued and unpaid interest on the Securities to be so
redeemed on ________, 199__, the Special Redemption Date. The Issuer further
directs the Trustee to release to the Issuer all funds if any, remaining in the
Restricted Account after payment of the Special Redemption Price by depositing
such funds in account number __________ at _______________.
Capitalized terms used herein without definition shall have the
meanings set forth in the Pledge Agreement.
IN WITNESS WHEREOF, the undersigned have signed their names this ___
day of ________, 199__.
SHOPPERS FOOD WAREHOUSE CORP.
By:
---------------------------------------
Name: Mark A. Flint
Title: President and Chief Executive Officer
By:
----------------------------------------
Name: Raymond S. Haverstock
Title: Vice President
<PAGE>
Exhibit 5.1
[letterhead of Jones, Day, Reavis & Pogue]
August 4, 1997
Shoppers Food Warehouse Corp.
SFW Holding Corp.
4600 Forbes Boulevard
Lanham, Maryland 20706
Re: Shoppers Food Warehouse Corp.
9 3/4% Senior Notes due 2004
-----------------------------
Ladies and Gentlemen:
We have acted as counsel to Shoppers Food Warehouse Corp. (the
"Company") and SFW Holding Corp. (the "Guarantor"), each a Delaware corporation,
in connection with the filing with the Securities and Exchange Commission of a
registration statement on Form S-4 (the "Registration Statement") filed by the
----------------------
Company and the Guarantor under the Securities Act of 1933, as amended (the
"Act"), for the purpose of registering the Company's offer to exchange (the
---
"Exchange Offer") $200,000,000 aggregate principal amount of the Company's new 9
- ---------------
3/4% Senior Notes due 2004 (the "Exchange Notes") for an equal principal amount
--------------
of the Company's outstanding 9 3/4% Senior Notes due 2004 (the "Outstanding
-----------
Notes"). The Outstanding Notes have been, and the Exchange Notes will be,
- -----
issued pursuant to the Indenture dated as of June 26, 1997 (the "Indenture"), by
---------
and among the Company, the Guarantor and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee"). The Exchange Notes will be guaranteed
-------
(the "Guarantee") by the Guarantor. Terms used herein shall have the meanings
---------
assigned to them in the Indenture, unless otherwise defined herein.
We have examined the Indenture, the Registration Statement and such
other documents, records, certificates of public officials and other instruments
and matters of law as we have deemed necessary or advisable for purposes of this
opinion, and based thereupon we are of the opinion that:
1. The Indenture has been duly authorized, executed and delivered by
the Company and the Guarantor.
2. The Guarantee has been duly authorized, executed and delivered by
the Guarantor.
<PAGE>
Shoppers Food Warehouse Corp.
SFW Holding Corp.
August 4, 1997
Page 2
3. When the Exchange Notes (substantially in the form filed as an
exhibit to the Registration Statement) have been duly authorized
by the Company and have been duly executed and authenticated in
accordance with the Indenture and duly delivered in exchange for
the Outstanding Notes in accordance with the Exchange Offer in the
manner described in the Registration Statement, the Exchange Notes
will constitute valid, binding and enforceable obligations of the
Company.
4. When the Exchange Notes (substantially in the form filed as an
exhibit to the Registration Statement) have been duly authorized
by the Company and have been duly executed and authenticated in
accordance with the Indenture and duly delivered in exchange for
the Outstanding Notes in accordance with the Exchange Offer in the
manner described in the Registration Statement, the Guarantee of
the Exchange Notes will constitute a valid, binding and
enforceable obligation of the Guarantor.
The opinions expressed in paragraphs 3 and 4 above are subject to the
following qualifications and limitations:
(a) The enforceability of the Indenture and the Guarantee and each
Exchange Note is subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other similar
laws relating to or affecting creditor's rights generally from
time to time in effect and to general principles of equity,
regardless of whether considered in a proceeding in equity or at
law;
(b) For purposes of such opinions, insofar as they relate to the
Guarantor, we have assumed that the obligations of the Guarantor
under the Guarantee are, and would be deemed by a court of
competent jurisdiction to be, in furtherance of its corporate
purposes and necessary or convenient to the conduct, promotion or
attainment of its business;
(c) Insofar as any provisions contained in the Indenture, the
Guarantee or an Exchange Note provide for indemnification or
contribution, the enforceability thereof may be limited by public
policy considerations; and
<PAGE>
Shoppers Food Warehouse Corp.
SFW Holding Corp.
August 4, 1997
Page 3
(d) The availability of specific performance or injunctive relief is
subject to the discretion of the court requested to grant any such
remedy.
No opinion is expressed as to the effect of the laws of any
jurisdiction other than the States of New York and Delaware and the Federal laws
of the United States of America.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to us under the caption "Validity of
the Senior Notes" in the Prospectus constituting a part of the Registration
Statement.
Very truly yours,
Jones, Day, Reavis & Pogue
<PAGE>
Exhibit 10.1
FORM OF LETTER OF EMPLOYMENT
SFW ACQUISITION CORP.
February 4, 1997
[ Employee ]
Shoppers Food Warehouse Corp.
4600 Forbes Blvd
Lanham, Maryland 20706
Dear [ Employee ]:
As we stated to you a couple of weeks ago, it is our hope that the Shoppers Food
Warehouse team (Shoppers) will continue together after the closing. We
anticipate that the purchase by SFW Acquisition Corp. of the stock of Shoppers
Food Warehouse Corp. (the "Closing") will take place on or around February 6,
1997. We hope this offer will enable you to choose to continue with the rest of
the team. We are confident that you fully understand that there must be
limitations to the specifics of what we can offer as we have been severely
restricted, and continue to be restricted, from doing due diligence on matters
pertaining to the specifics of your compensation and benefits package. This
offer, therefore, unfortunately contains certain caveats that we intend to
immediately begin to clarify or firm up after Closing. As we stated to you, we
have been, and continue to be "up-front and open". The tone of any continued
relationship with you, as it is with our current Executives at all Dart Group
Companies is, in our belief, tied to such an approach.
The following offer is made to you by SFW Acquisition Corp., its successors or
assignee corporation. We will cause such successors or assignee corporation to
execute and be bound by this Agreement. This offer replaces all previous offers
made orally, or in writing by Dart Group, representatives of Dart Group, or SFW
Acquisition Corp. The following comprises our entire offer at this time.
Position: We are pleased to offer your continuation of employment at
Shoppers as [ Position ].
Salary: Your salary will be [ Bi-weekly Salary ] biweekly (if annualized
[ Current Salary ]). We have based this offer on information from
Shoppers that your current salary is [ Previous Salary ].
<PAGE>
[ Employee ]
February 4, 1997
Page 2
Bonus: We will guarantee to pay you this year ended June 30,1997 the
same bonus you received last year. We are told by Shoppers this
amount was [ Bonus ]. The bonus will be paid within sixty (60)
days of July 1,1997. In order to receive this bonus, you must be
actively employed with Shoppers at the time of bonus payouts, or
have signed your approval and acceptance of a Severance Agreement
as outlined below. Your bonus for last year amounted to [ Bonus ]
of your salary. Within the Dart Group of Companies, we have a
strong belief that our senior management should receive
additional compensation directly tied to the performance of the
company. [ Target Bonus ]. The details of this bonus program will
be delivered to you within the first six (6) months of the
Closing. The program will contain opportunities to earn
substantially more or less, dependent upon the performance of the
company. Obviously, this program will also contain contingencies
such as your continued active employment at Shoppers at the time
of payout.
Benefits: Your base benefits will continue as they were on December 16,
1996. By reference these include life insurance (we are informed
[ Life Insurance Coverage Amount ]), health, dental and
disability insurance. Benefits will also include a 401(k) plan to
which the employee may make voluntary contributions and the
company may make discretionary contributions. Should the current
health plan with Blue Cross/Blue Shield be changed, we will (in
the new plan) waive all "pre-existing" conditions you may have at
that time. [ Additional Coverage ].
Vacation: We are informed by Shoppers that the time you accrue for rest and
relaxation amounts to four (4) weeks annually. Again, if this is
accurate based on time with the company or your original offer
letter then we will honor this agreement, otherwise it will be
whatever you are eligible for, based on Shoppers company policy
as of December 16, 1996. Vacation time may be accrued to a
maximum of twice the annual accrual, after which further accruals
will cease until your accrual bank is reduced below the twice
annual accrual. Accrued vacation not taken since July 1, 1995
will be honored within the policy as outlined.
Auto: Currently we are informed by Shoppers that you receive a car
allowance of [ Previous Car Allowance ] a month. We are unaware
of any details surrounding this benefit, however, we will raise
this allowance to [ Current Car Allowance ] a month. This amount
includes business mileage, repair and maintenance, gas, insurance
and
<PAGE>
[ Employee ]
February 4, 1997
Page 3
license fees (i.e., there is no reimbursement for business
mileage separate from this allowance.)
Business
Expenses: We will reimburse you for business expenses reasonably incurred
by you on behalf of Shoppers. Such expenses will be expected to
follow the guidelines of the Policy on Executive Expenses. If no
such policy exists, we will establish one.
Future
Salary: We will conduct a salary analysis regarding the compensation of
the ten (10) most senior executives (including you) during the
first six (6) months following the Closing. If in fact the
analysis shows market disparity with like businesses and size of
business we will recommend to the Compensation Committee of the
Board of Directors of Shoppers Food Warehouse that market
adjustments be made at that time. In any event, the salary stated
in this letter will not be reduced as a result of this analysis.
The next salary review period for senior management will take
place in May of 1998.
Severance: We recognize the expressed concern relative to your financial
security in the event of a sale of Shoppers by Dart to another
entity. Should we end your employment within the first twelve
(12) months following the Closing, we will offer you a Severance
Agreement which will contain the equivalent of six (6) months
salary. Should we sell Shoppers to another entity within twelve
(12) months of the Closing, we will offer you a Severance
Agreement which will include the equivalent of one (1) year
salary. If termination of employment is due to such events as
illegal activity, breach of fiduciary duty, refusal to follow the
lawful and reasonable direction of the Board of Directors, etc.
or any violations of the Business Ethics Policy (attached) no
Severance Agreement will be offered. Additionally, you should
not expect a severance offer should you choose to end your
employment voluntarily. An offered Severance Agreement as
described above will not contain a non-compete provision.
Indemni-
fication: Within the first thirty (30) days of the Closing you will be
covered under a Director and Officer liability insurance policy
similar to that maintained by the Dart Group.
<PAGE>
[ Employee ]
February 4, 1997
Page 4
Once we have an opportunity to investigate other elements relative to employment
at Shoppers we will obviously ensure that they follow consistently within the
group. Such benefits might include any discounts or professional memberships,
continuing professional development. etc.
We believe you and your fellow members of the current Shoppers team would like
to know as soon as possible if you are all going to be working together, or who
has decided to leave. We also would like to know who we will be working with.
To this end, please sign your acceptance or decline of this offer without
modification and return it to Terry Sharp at the Dart Group corporate office by
5:00 p.m., February 5, 1997.
Again, we sincerely hope that you choose to continue with the team that has done
so much to develop the successful company that Shoppers is. We respect the
pride that each of you has in the success of the company as well as your
individual and team contributions to that success. We look forward to working
with you.
Sincerely,
Mark A. Flint
Director, President and
Chief Executive Officer
ACCEPTANCE TO OFFER:
2/5/97
- -------------- -------------------
Signature Date
DECLINE OF OFFER:
- ----------------------- --------------------
Signature Date
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
LETTER OF EMPLOYMENT TERMS
===============================================================================================
Employee Jack W. Binder Roy Marks Louis Davis Isaac Gendelman
===============================================================================================
Position Senior Vice Senior Vice Senior Vice Senior Vice
President, President, President, Store President,
Finance Grocery Operations Produce
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bi-weekly Salary $7,038.46 $5,711.54 $5,769.23 $6,230.77
- -----------------------------------------------------------------------------------------------
Current Salary $183,000 $148,500 $150,000 $162,000
- -----------------------------------------------------------------------------------------------
Previous Salary $175,000 $141,500 $124,000 $155,000
- -----------------------------------------------------------------------------------------------
Bonus $50,000 $40,000 $25,000 $50,000
- -----------------------------------------------------------------------------------------------
Target Bonus 30% of 30% of 25% of N/A
Salary Salary Salary
- -----------------------------------------------------------------------------------------------
Life Insurance $100,000 $100,000 $75,000 $50,000
Coverage Amount
- -----------------------------------------------------------------------------------------------
Additional $2,000 per None None None
Coverage incident
Exec-U-Care
Coverage
- -----------------------------------------------------------------------------------------------
Previous Car $300 $400 $400 $300
Allowance
- -----------------------------------------------------------------------------------------------
Current Car $350 $650 $650 $650
Allowance
- -----------------------------------------------------------------------------------------------
===============================================================================================
</TABLE>
<PAGE>
Exhibit 10.2
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (the "Agreement") is made as of the 3rd day June,
1991 by and among:
SHOPPERS FOOD WAREHOUSE CORP.,
a Delaware corporation,
SHOPPER FOOD WAREHOUSE VA CORP., a Virginia
corporation and SHOPPERS FOOD WAREHOUSE MD CORP., a
Maryland corporation
(hereinafter, collectively referred to as "SFW")
and
SUPER RITE FOODS, INC.,
a Delaware corporation
(hereinafter referred to as "Super Rite")
1. Term of Agreement and Applicability.
-----------------------------------
1.1 Except as otherwise set forth herein, this Agreement shall become
effective upon the date on which the transactions contemplated by that Asset
Purchase Agreement of even date herewith, by and among SFW, on the one hand,
Super Rite Foods Holdings Corporation, Super Rite, Food-A-Rama, Incorporated,
Midway Markets of Delaware, Inc., and Food-A-Rama-G.U., Inc., on the other (the
"Purchase Agreement"), are consummated: Unless earlier terminated or extended
in accordance with the provisions hereof, this Agreement shall terminate at
midnight, Washington, D.C. time on the 90th day (the "Termination Date")
following the fourth anniversary of the date (the "Initiation Date") on which
SFW shall have first notified Super Rite in writing, that Super Rite has become
the "substantially exclusive supplier" of those Products described in paragraph
2.3 hereof to at least 10 of the grocery stores currently operated by SFW, plus
those Supermarkets purchased pursuant to the Purchase Agreement.
Notwithstanding this paragraph 1.1., those provisions set forth in paragraphs 19
through 22 hereof shall be effective as of the date hereof and shall survive any
termination hereof. All references to the "term of this Agreement" shall
include the original term and all extensions thereof.
1.2 The parties shall assume their Product purchase obligations
pursuant to this agreement:
(a) With respect to the Supermarkets (as defined in the Purchase
Agreement) that SFW purchases pursuant to the Purchase Agreement,
beginning as of the day after the Closing Date (as defined in the
Purchase Agreement); and
<PAGE>
(b) With respect to all other stores owned by SFW, SFW may begin
to purchase certain Products, selected by SFW, in its sole discretion,
from Super Rite beginning as of the day after the Closing Date, and
shall cooperate with Super Rite to effect an orderly transition of the
supply requirements of SFW's other grocery stores from SFW's current
primary supplier to Super Rite, provided that SFW's obligations under
--------
paragraph 2.3 hereof to use Super Rite as its substantially exclusive
supplier for all grocery stores that SFW operates shall not commence
until the date six months after the Closing Date.
2. Provision of Groceries and Other Products and Price Formulas.
------------------------------------------------------------
2.1 Super Rite hereby agrees to sell to SFW and SFW hereby agrees to
purchase from Super Rite, certain products for resale ("Product") as may from
time to time be ordered by SFW, all in accordance with and subject to the terms
and provisions of this Agreement. The applicable price and fee formulas for the
categories of products and merchandise indicated shall apply as follows:
<TABLE>
<CAPTION>
Category Price to SFW
------------------ -------------------------------
<S> <C>
Dry Grocery - Cost Plus 2.5% (except as set
forth in paragraph 2.3.4 below)
Frozen - Cost Plus 4.0%
Dairy Products - Cost Plus 3.0%
(other than ice
cream)
Packaged Meats - Cost Plus 3.5%
Bake-Off Items - Cost Plus 4.0%
Ice Cream - Cost Plus 6.5%
Cigarettes - State minimum wholesale price,
or, if none, Cost
Health and Beauty - Rite-Aid's Cost
Aids (including Plus 3.0%
non-food items)
("HBA")
</TABLE>
2.1.1 The fees and prices set forth above are maximum fees
and prices and shall apply during the term of this
2
<PAGE>
Agreement and during any extensions thereof pursuant to paragraph 17 hereof.
2.1.2 All references to "Cost" in this Agreement refer to
the actual price paid or payable by Super Rite (or Rite Aid) to its source of
supply for such Products (together with any freight cost actually incurred by
Super Rite for shipment to its Harrisburg, Pennsylvania warehouse), net of all
credits and other deductions (including those described in paragraph 6.3.1
hereof, but without giving effect to customary discounts or concessions provided
in consideration of prompt payment as described in paragraph 6.3.2 hereof).
2.1.3 Super Rite shall sell all Products that SFW requires
for all grocery stores operated, directly or indirectly, by SFW, including the
full line of HBA (including housewares and non-food items) that is currently
available to Rite Aid retail stores from Rite Aid's warehouse. Super Rite
represents and warrants to SFW that it has entered into an agreement with Rite
Aid Corporation pursuant to which it will be able to provide HBA (including non-
food items) to SFW during the term of this Agreement at the price set forth in
paragraph 2.1 hereof, provided that any SFW order for any HBA item is for not
--------
less than six units of such item.
2.2 Notwithstanding the foregoing fee schedule, Super Rite
acknowledges that two of SFW's existing stores are in need of special
consideration due to extraordinary competitive pressures in the local
marketplace. In order to assist SFW in its efforts to meet such competition,
Super Rite agrees that the following reduced fee schedule for dry grocery,
frozen and dairy products shall be applicable to those two stores:
<TABLE>
<S> <C>
Dry Grocery - Cost Plus 2.1%
Frozen - Cost Plus 3.5%
Dairy Products - Cost Plus 2.5%
(other than ice
cream)
</TABLE>
Said reduced schedule shall remain in effect until such time as Super Rite and
SFW shall reasonably agree that such extraordinary competitive conditions no
longer exist. Super Rite agrees to give favorable consideration to future
requests from SFW for comparable concessions to the extent that SFW encounters
similar extraordinary competitive conditions elsewhere in its system.
2.3 It is the intention of the parties hereto that, except as set
forth in this Agreement, SFW shall rely upon and utilize Super Rite as its
substantially exclusive supplier for non-perishable dry-grocery, frozen, and
dairy products (other than ice cream), and for HBA for all supermarkets owned or
3
<PAGE>
operated by SFW within Super Rite's marketing area (which area shall not include
those areas south of Richmond, Virginia).
2.3.1 For purposes of this Agreement, the term "substantially
exclusive supplier" means that SFW will rely upon Super Rite for the
Products described in paragraph 2.3 in the same manner and to the same
extent that it has traditionally relied upon its current primary supplier,
consistent with SFW's past practices. Nothing herein shall require SFW to
purchase produce, meat, or any other Products from Super Rite, except to
the extent that it has been SFW's past practice to purchase such Products
from its current primary supplier.
2.3.2 Notwithstanding the foregoing or Title II of the
Commercial Law section of the Annotated Code of Maryland, and the case law
interpreting these provisions, SFW shall not be obligated under any
circumstances to purchase any Product from Super Rite in any quantity
solely by virtue of a pattern of purchases by SFW of such Product from
Super Rite or other course of dealing between the parties hereto. In
addition, SFW shall not be under any obligation to purchase the same amount
of Product, or a similar amount of Product, during any period as a
consequence of SFW's purchases of such Products from Super Rite during any
previous period.
2.3.3 Notwithstanding any other provision of this Agreement,
Super Rite acknowledges that certain current practices of SFW include the
purchase of Products from other suppliers through direct buys, direct
purchases of diverted products, purchase of show merchandise, direct
purchases from manufacturers and similar activities, that SFW operates its
own limited grocery warehouse, and that SFW shall be permitted to continue
such practices during the term of this Agreement.
2.3.4 SFW has regularly purchased Products through certain
brokers located in the Washington, D.C. metropolitan area and elsewhere
(the "Current Brokers"). To encourage SFW to use certain other brokers
with whom Super Rite has established relationships or who are so otherwise
selected by Super Rite (the "Other Brokers"), Super Rite agrees to reduce
SFW's price for all dry grocery Products purchased from Super Rite from the
maximum price otherwise applicable under paragraph 2.1 hereof to a price
equal to Super Rite's Cost Plus 2.25% (subject to such other adjustments as
may be applicable hereunder) for so long as SFW permits Super Rite to use
the Other Brokers (and not Current Brokers) in connection with the Product
purchased and supplied by Super Rite. SFW agrees that Super Rite may use
the Other Brokers for purchase of such Products until its has otherwise
notified Super Rite pursuant hereto. SFW
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may discontinue its ordering of Products from Other Brokers upon notice to
Super Rite. After the effective date of such discontinuance, SFW's price
for dry grocery Products shall be determined in accordance with paragraph
2.1 or 2.2 of this Agreement, as appropriate, until such time as SFW
notifies Super Rite that it will permit Super Rite to use the Other
Brokers. Nothing herein shall limit SFW's ability to elect to use the
Current Brokers (and not the Other Brokers) or the Other Brokers (and not
the Current Brokers), as the case may be, from time to time or the number
of times that SFW may change from one to another.
2.4 In addition to any other price adjustment to which SFW may be
entitled, Super Rite's fee used in calculating the price to SFW for all Products
ordered by a full pallet-loads (or any multiples thereof) shall be reduced by
.43 percentage points from the fee otherwise applicable pursuant to paragraphs
2.1 through 2.3 hereof (e.g., if the fee otherwise applicable were 2.25%, the
----
pallet-load fee would be 1.82%). The reduction provided by this paragraph shall
be reflected on the applicable Super Rite invoice for the pallet-load
merchandise. Super Rite Shall provide SFW with a monthly written report of such
pallet allowances on a store-by-store basis.
2.5 Except as expressly provided by this Agreement, the price payable
by SFW for Products hereunder shall not be subject to any increase or upward
adjustment, including (without limitation) pallet charges, label charges and
fuel or overhead surcharges.
3. Ordering Obligations of SFW.
---------------------------
3.1 SFW shall place orders with Super Rite for such Products as it
may require as contemplated by this Agreement, at such times as are consistent
with the conduct of its business, and Super Rite shall deliver the Product
ordered to the locations specified by SFW with such orders with respect to SFW's
supermarkets located within Super Rite's marketing area, which area shall not
include those areas south of Richmond, Virginia. SFW shall, to the extent
practical, endeavor to place orders for dry grocery Products in full-trailer
quantities.
3.2 After SFW places any order for special order merchandise with
Super Rite and prior to Super Rite's receipt of such merchandise, SFW shall
provide Super Rite with delivery instructions therefor. Such delivery
instruction shall provide for the delivery of all such merchandise to SFW within
not more than thirty (30) days (or, in the case of HBA, 16 weeks) after receipt
thereof by Super Rite. Special order merchandise shall consist of (without
limitation) in-and-out merchandise not regularly stocked by SFW. The parties
recognize that a 100% adherence to the provisions of this paragraph 3.2 would be
difficult and it is the intent of the parties to work
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cooperatively with each other in the event of less than 100% compliance at any
given time.
3.3 Upon receipt of any order from SFW for Product required for
planned sales or promotions, Super Rite shall use its reasonable best efforts to
obtain the Product so ordered to ensure that such Product is delivered to SFW at
the time requested by SFW so as to enable SFW to proceed with the planned sale
or promotion.
4. Cooperation on Delivery.
-----------------------
4.1 Super Rite shall deliver all orders promptly and in accordance
with the schedule attached as Exhibit A hereto, as such schedule may be modified
as reasonably requested by SFW.
4.2 Super Rite shall cause its delivery driver to assist SFW's
personnel in unloading all Product deliveries. The delivery driver shall not be
required to assist in breaking down pallets or stocking Product in the stores.
The delivery driver shall verify each delivery against the delivery documents on
a pallet-by-pallet basis and shall execute a copy of the delivery documents upon
the conclusion of the delivery indicating any shortages or overages of pallets
delivered from the number of pallets of Product as indicated on the delivery
invoice. SFW shall have until the later to occur of (i) 11:00 A.M. of the
morning following delivery, or (ii) 24 hours after the time at which the
delivery has been completed to notify Super Rite by facsimile transmission (or
such other methods as the parties may adopt) of any shortages or overages, mis-
selects and damaged Product as determined by its unloading and inspection of the
Product contained in the pallets so delivered.
5. Receiving Obligations of SFW.
----------------------------
5.1 SFW shall endeavor to provide sufficient personnel to assist the
Super Rite delivery driver in unloading all driver deliveries so that such
delivery and unloading may be completed in a reasonably expeditious fashion,
recognizing that it is SFW's practice to unload perishable merchandise on a
first-priority basis, and all other merchandise in the order in which it arrives
at SFW's loading docks. SFW shall instruct its personnel to verify each
delivery against the pallet count set forth in the delivery documents and to
acknowledge delivery of all pallets by executing a copy of the delivery
documents.
6. Purchase Process for Groceries, Frozen and Dairy Products.
---------------------------------------------------------
6.1 [Deleted]
6.2 [Deleted]
6
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6.3 For the purposes of this agreement "Product Cost" or "Super
Rite's Cost", as described in paragraphs 2.1 and 2.2, shall be subject to the
following additional adjustments:
6.3.1 (a) Super Rite's Cost used in calculating the fees and
prices chargeable to SFW for Products shall be reduced by all
manufacturer's discounts, allowances, rebates and bill-backs
(including, without limitation, full-trailer discounts (super-load
discounts) and back-haul allowances (net of the actual cost of back-
haul)) allowed to Super Rite prior to calculating the fee chargeable
to SFW. Super Rite hereby agrees to select chase allowances in
connection with its products purchases in lieu of coupon or other
manufacturer, or supplier allowances where such option is available,
unless otherwise instructed by SFW. Super Rite's decision to backhaul
shall not result in a larger freight charge to SFW than would have
applied if the supplier/manufacturer had selected the carrier and the
quantities were those that Super Rite would have ordered if it had not
used its own backhaul equipment.
(b) Super Rite shall purchase at allowance prices on
behalf of SFW all Products designated in writing from time to time, by
SFW, in a manner consistent with SFW's past practices with its current
primary supplier. SFW may, from time to time, modify such designation
of Products by giving written notice to Super Rite. The Products so
designated from time to time for purchase by Super Rite, are referred
to as "Allowance Items." SFW shall order, and Super Rite shall
purchase and maintain in stock sufficient quantities of the Allowance
Items to enable SFW to purchase its requirements of the Allowance
Items from the beginning of an allowance period until the commencement
of the next allowance period (i.e., bridging deals). Subject to
----
paragraph 2.3.3., during any allowance period and the bridging period
thereafter, SFW shall purchase its requirements for Allowance Items
from Super Rite. For purposes of calculating the price to SFW for
such Allowance Items, Super Rite's Cost therefor shall be deemed to be
the allowance price available at the commencement of the applicable
allowance period (subject to all other adjustments thereto
contemplated by this Agreement), without regard to the actual price
payable by Super Rite for the Allowance Items so purchased if such
price exceeds the allowance price available. If Super Rite is unable
to purchase any Allowance Items from allowance period to allowance
period due to changes in promotional frequency, Super Rite shall so
notify SFW promptly, so that SFW and Super Rite may agree upon a
mutually acceptable accommodation.
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(c) Notwithstanding clause 6.3.1(b), SFW shall have the
right to purchase Allowance Items directly from the manufacturer or
supplier thereof, provided that SFW shall advise Super Rite promptly
of all direct orders of Allowance Items.
(d) SFW shall have the right to select certain merchandise
for sale through its advertisements. Super Rite shall purchase all
Products so designated in a quantity specified by SFW for a period
beyond the ad period. With respect to such designated items, Super
Rite shall purchase a sufficient quantity to supply such Products in
the quantity so specified by SFW and shall continue to sell the
specified quantity of such Products to SFW for the ad period price for
the period requested by SFW, which period shall not be more than four
(4) weeks (or sixteen (16) weeks in the case of HBA) beyond the ad
period, during which four-week (or sixteen-week) period SFW agrees
that it shall purchase the entire quantity of such Products so
specified by SFW.
6.3.2 Super Rite shall be entitled to deduct from its invoice
costs amounts received from its suppliers (or discounts from the
invoices received from its suppliers) in the nature of "cash
discounts" in consideration of prompt payment by Super Rite thereon
without any obligation to deduct the same from Super Rite's Product
Cost (as defined in paragraph 2.1.2 hereof) for purposes of
calculating the price of Product payable by SFW pursuant to paragraph
2.1, 2.2, 2.3 or 2.4 hereof. In any instance in which the "cash
discount" allowance by any supplier to Super Rite is less than two
percent (2%), then Super Rite's Cost shall be calculated as though
such supplier had provided Super Rite with a 2% cash discount.
6.3.3 Super Rite may not increase the price charged to SFW for
any Product resulting from an increase in Super Rite's Cost for such
Product unless Super Rite shall have first given SFW not less than two
(2) weeks written notice of any such Cost increase for Product;
provided, however, that the foregoing shall not apply to any increase
-------- -------
in Super Rite's Cost for such Product if Super Rite has not received
at least two weeks' notice of any price increase for such Product from
its supplier (or the manufacturer), in which case Super Rite shall
give the same notice to SFW as it received from its supplier (or the
manufacturer) before it may increase SFW's price for such Product.
7. Terms of Billing.
----------------
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7.1 Super Rite shall provide an invoice to each SFW store at the time
of delivery. Receipt of the delivery shall be acknowledged in writing by SFW
personnel as contemplated by paragraph 4.2 and shall be signed by the Super Rite
delivery driver.
7.2 Super Rite shall submit a statement to SFW at SFW's principal
executive office each week for the Product delivered to each of SFW's stores
during the preceding "Sales Week." For purposes of this Agreement, a "Sales
Week" shall be that period beginning at 12:01 A.M. each Sunday and ending at
midnight on each succeeding Saturday. Each statement so submitted shall be
computed in accordance with the applicable provisions of paragraphs 2 and 6
hereof. Not later than each Wednesday following each Sales Week, Super Rite
shall provide SFW microfiche summaries of all invoices for Product delivered to
SFW during such Sales Week, organized on a store-by-store basis.
7.3 SFW shall receive credits against amounts due to Super Rite,
including, but not limited to, credits for product billed but not received, mis-
selects, delivery shortages and Product damaged in transit. SFW shall also
receive credits against amounts due to Super Rite for amounts owned to SFW by
any Broker or any manufacturer for allowance monies, provided SFW notifies Super
Rite of such amounts and agrees to cooperate with Super Rite in its efforts to
collect such amounts from such Broker or manufacturer.
8. Terms of Payment.
----------------
8.1 No later than 11:00 A.M. on the 10th day following the last day
of each Sales Week (or, if later, the seventh business day after the date on
which Super Rite shall have delivered the statement for any Sales Week), SFW
shall make available at Super Rite Foods, Inc. Harrisburg Area office a check
representing payment for the weekly statement relating to such Sales Week.
9. Other Services To Be Provided By Super Rite.
-------------------------------------------
9.1 Super Rite, at its own cost and expense, shall provide the
following to SFW during the term of this Agreement:
9.1.1 Super Rite shall assign an account manager, satisfactory
to SFW, to call upon the SFW headquarters on a regular basis to coordinate
service needs, product procurement needs, delivery schedules and similar
operational issues for SFW.
9.1.2 Super Rite shall provide to SFW not less than twelve (12)
free, four-color rotogravure circulars per year at the times designated by
SFW for distribution by SFW, so long as vendors continue to provide "roto-
allowances." Additional rotogravure circulars shall be provided as the
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<PAGE>
parties hereto may agree. Super Rite and SFW shall cooperate in
determining the content and production of such circulars, provided that SFW
--------
shall make the final determination thereon (including final item selection
and approval). SFW shall provide all retail prices for inclusion in such
circulars directly to the printer designated by Super Rite, which printer
shall be reasonably satisfactory to SFW. Super Rite shall take such action
as may be necessary to cause the printer thereof to protect the retail
price information from disclosure to Super Rite or any other person prior
to the date that such circular is distributed. Super Rite also shall
arrange for the printer of such circular to provide a proof thereof to SFW
to permit SFW to receive such proof and communicate its changes or
corrections to the printer in sufficient time to incorporate them in the
circular as printed. From time to time, Super Rite shall also provide SFW
with promotional items such as cookbooks, tabloids, etc. as may be mutually
agreed to by Super Rite and SFW. Super Rite shall deliver all circular and
other materials described in this paragraph 9.1.2 to such newspapers,
mailing houses and other and distributors, and in such quantities, as SFW
may reasonably designate.
9.1.3 Super Rite shall provide to SFW on-line capability to
access Super Rite's main-frame computer for the purpose of reviewing
Product cost and availability of SFW's reserves and Super Rite's stock. SFW
shall be responsible for all costs for day-to-day activity of any terminals
located at SFW's office, including but not limited to maintenance, but
excluding line charges, which shall be borne by Super Rite. At least once
each Sales Week, Super Rite shall provide to SFW by mag tape or tape-to-
tape transmission (at SFW's option) Product cost figures for use on SFW's
computer. The Product cost information so provided shall include, without
limitation, Super Rite's product code numbers, item UPC numbers (not case
numbers), pack and size data, cost allowances and information concerning
"on deal" products. Super Rite shall prepare such reports using a format
reflecting SFW's 52-week velocity and the balance on hand of Products in
SFW's reserve. The on-line hook-up shall also be arranged so as to permit
SFW to place Product orders directly on-line.
9.1.4 On a weekly basis, Super Rite shall provide to SFW a
product velocity report for the preceding Sales Week's purchases by SFW on
a store-by-store basis. Each velocity report shall include, without
limitation, data for the previous Sales Week, quarter-to-date data, and
data for each of the four quarters preceding the current quarter.
9.1.5 From time to time, as may be requested by SFW, Super Rite
shall use its reasonable best efforts to provide to SFW trailers for the
temporary storage of
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equipment and/or trucks for the delivery of equipment to store locations.
9.1.6 Super Rite shall provide "drop" trailers for delivery as
SFW may request.
9.1.7 It is Super Rite's policy when at all possible to permit
special add-on items to orders for next day delivery and Super Rite shall
provide that same service to SFW.
9.1.8 Super Rite shall stock and make available for purchase by
SFW all items of Product that may be requested by SFW. Super Rite shall not
delete from inventory or discontinue any Product that SFW offers for sale
in any of its stores without SFW's prior consent.
10. SFW Store Expansion and New Store Inventory.
-------------------------------------------
10.1 To the extent practical, SFW shall provide to Super Rite not
less than 180 days' notice of the commencement of operations of any new SFW
store to which this Agreement would apply.
10.2 Super Rite shall maintain and/or adjust its capability to
supply SFW as SFW may request, for such and at such additional locations as SFW
may operate.
10.3 Super Rite shall deliver all orders for Product to existing
stores within 24 hours of receipt of an order therefor, and within twelve (12)
hours following the receipt of such orders for any new SFW stores not previously
supplied by Super Rite (and for any substantially remodeled stores) prior to and
during the first week of operation of each new or remodeled store. "Overflow"
orders shall be delivered on the same day as "full-trailer" orders, or on the
next day, provided such next-day delivery is made no later than eight hours
--------
after delivery of the "full-trailer" order. The schedule for all multiple order
deliveries shall be approved, in advance, by SFW. The operation of this
paragraph 10.3 shall require some reasonable advance coordination between the
parties as to the period during the day during which orders will be placed.
10.4 With respect to new or substantially remodeled stores opened
(or reopened) by SFW during term of this Agreement, Super Rite agrees to provide
the initial pre-opening inventory for such store(s) of Products normally
purchased by SFW through Super Rite upon the following terms and conditions:
(i) the purchase price for such inventory shall be payable, in full, on the
first anniversary of the date SFW commences retail operations at such new or
remodeled store; (ii) during the first 90 days of the new or remodeled store's
operations, no interest shall accrue on the unpaid balance of the stock in
inventory; and (iii) after the 90th day of such new or remodeled store's
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operation, the unpaid balance of the inventory purchase price shall accrue
simple interest, at the rate of 6.75% per annum from such 90th day until the
outstanding balance is paid in full, such interest to be payable monthly in
arrears commencing on the 120th day after the date on which SFW commences (or
recommences) operations at such new or remodeled store.
11. Super Rite's Competitive Obligation.
-----------------------------------
11.1 Super Rite agrees that during the term of this Agreement it
will be and will remain competitive with similar wholesalers as to Product cost,
services and service level (including percentage accuracy in delivering Products
ordered and timeliness of delivery). The measure of competitive performance
shall not necessarily be deemed to relate to an individual product or item or an
individual category (provided that, e.g., uncompetitive pricing of an individual
-------- ----
category of Product may be sufficient to make Super Rite uncompetitive), but
generally to the overall performance of Super Rite, including its performance
with regard to Product cost, services and service level as compared with other
such wholesalers. In addition to Super Rite's obligation to remain competitive
pursuant to this paragraph 11.1, Super Rite shall provide SFW with a service
level during the term of this Agreement that equals or exceeds the service level
provided by SFW's current primary supplier during the 12 months preceding the
date primary supplier during the 12 months preceding the date hereof. For the
term of this agreement, fees shall remain unchanged from those set forth in
accordance with paragraph 2 hereof, except as provided by paragraph 11.2 hereof.
11.2 Super Rite further agrees that it shall not enter into any
supply agreements or other arrangements (or series of agreements or
arrangements) with any customer upon terms that, taken as a whole, are more
favorable to such customer than those provided to SFW pursuant to this Agreement
without providing the same terms to SFW.
12. [Deleted]
13. Additional Understandings.
-------------------------
13.1 Any Product that is available to Super Rite only in limited
quantities that are insufficient to satisfy the demands of all of Super Rite's
customers, shall be allocated among SFW and Super Rite's other customers during
such period of limited supply, based upon the ratio of each customer's volume
use of such Product to the total volume use of such Product by all Super Rite
customers for the three-month period prior to the commencement of such shortage,
as reflected on Super Rite's records, provided that if any such allocation is
--------
required to be made prior to 90 days following the date on which SFW has begun
to rely upon Super Rite as the substantially exclusive supplier for all of SFW's
stores, the allocation to SFW shall be based
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<PAGE>
upon SFW's records of its purchases of such Product from its previous supplier
to the extent necessary to provide a 90-day purchasing history for SFW.
13.2 Either party shall notify the other of any event,
occurrence, circumstances or activity which may cause an interruption in the
normal procedures or time requirements as set forth in this Agreement. Whether
or not any such notice is given by Super Rite, nothing in this Agreement shall
prevent SFW from purchasing Product from any source in the event Super Rite
shall be unable or unwilling to deliver such Product to any SFW store in
accordance with this Agreement, without prejudice to SFW's rights hereunder.
13.3 Termination. In addition to any rights that SFW may
-----------
otherwise have at law or otherwise, upon the occurrence of any "Termination
Event" (as defined below), SFW shall have the right to terminate this Agreement
by giving Super Rite written notice of its election to terminate this Agreement
(the "Termination Notice"), provided, that SFW shall have first given Super Rite
--------
written notice of the occurrence of a Termination Event not less than fifteen
(15) days prior to the giving of the Termination Notice. Any such termination
shall be in addition to, and not in lieu of, any other remedies that SFW may
have, in law or at equity, against Super Rite arising out of, or in connection
with, any action or occurrence that causes or constitutes a Termination Event,
or otherwise. The provisions of paragraphs 19 through 22 shall survive any
termination of this Agreement. This Agreement shall terminate upon the giving
of the Termination Notice.
13.3.1 The term "Termination Event" means the occurrence of any
one or more of the following:
(a) There shall be a breach by Super Rite or any
affiliate thereof of any material obligation under the Purchase
Agreement or any agreement or undertaking delivered in connection
therewith or contemplated thereby and, if such breach is capable of
being cured, such breach shall not have been cured (or Super Rite
shall have commenced diligent efforts to cure) within twenty (20) days
of SFW's giving notice of such breach in each case in a manner
reasonably satisfactory to SFW;
(b) Super Rite shall have failed to perform any material
obligation under this Agreement or shall otherwise have breached or
violated any material provision hereof;
(c) Super Rite shall have failed to be competitive with
regard to Product cost, service and service level as required by
paragraph 11.1 hereof or
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shall fail to extend to SFW the terms provided to any other customer
as required by paragraph 11.2 hereof;
(d) Super Rite shall have discontinued operations, become
insolvent, initiated (or become the subject of) any proceeding in
bankruptcy or otherwise become unable to continue to act as SFW's
substantially exclusive supplier of Product (or HBA, as the case may
be);
(e) Rite Aid shall have become insolvent, unless Super Rite
makes other arrangements, reasonably acceptable to SFW, to provide HBA
at prices no greater than, and providing services and a service level
comparable to, those provided by Rite Aid.
(f) Super Rite (or any entity in which Super Rite or any
affiliate of Super Rite has an economic interest, other than as an
unaffiliated, arms-length wholesale supplier) (a "Super Rite Entity")
shall have, obtain or acquire any economic interest in any grocery
store located within 10 miles of any grocery store owned or operated
by SFW or in which SFW has any economic interest (or that would
otherwise be subject to the terms of this Agreement), including any
Supermarket as to which SFW has entered into a lease, purchaser
agreement or other arrangement to operate such Supermarket (an "SFW
Supermarket"), other than the BASICS Supermarket located at the
intersection of Central Avenue and Enterprise Road, Prince Georges
County, Maryland (for so long as Super Rite shall own such
supermarket, but Super Rite may not operate such supermarket as a
supermarket beyond the expiration of the current term of the lease for
such supermarket, without renewals, extensions or optional periods,)
or an "Existing Store". A grocery store shall be an Existing Store if
(i) such store was in full operation and any Super Rite Entity had an
economic interest in such store (or, prior to the date on which SFW
shall have opened or entered into a lease or purchase agreement
concerning such store, a Super Rite Entity shall have given SFW prior
written notice of its intent to enter into a lease or purchase
agreement for such store, signed such lease or purchase agreement
within 30 days of such notice and diligently proceeded to commence
operation of such store as soon as commercially possible (hereafter
the "Proposed Store Procedure")): (x) as of September 1, 1991 or (y)
as of the date on which SFW first opened, or acquired, the applicable
SFW store or entered into a lease or other agreement to do so; (ii)
such store is located in the Baltimore Metropolitan Area (defined
below), notwithstanding the proximity of such store to an SFW store;
(iii) such store is located in the "Intersection
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Zone" (consisting of the area within the cross-hatched section of the
map attached hereto as Exhibit B (the "Map"), provided that Super Rite
--------
shall have first offered such store to SFW upon the same lease terms
as are available to Super Rite in accordance with the procedure
described in Section 10.21 of the Purchase Agreement, and SFW shall
have refused Super Rite's offers with respect to such store in
accordance with those provisions; (iv) such store is not located
within the Baltimore Metropolitan Area, the Intersection Zone, the
D.C. Metropolitan Area (as defined in the Purchase Agreement), or the
Eastern Shore of Maryland, is located more than five miles from any
SFW Supermarket, and Super Rite shall have followed the Proposed Store
Procedure with respect to a Proposed Store; or (v) such store is
located within the Washington, D.C. Metropolitan Area, was acquired by
Super Rite as part of a single acquisition of a number of stores, of
which a substantial majority of the stores so acquired are not in the
Washington, D.C. Metropolitan Area, provided, that Super Rite shall
--------
have first offered to sell such store to SFW in the manner described
in Section 10.21 of the Purchase Agreement, affording SFW the
opportunity to acquire any or all of such stores that are located
within the Washington, D.C. Metropolitan Area at a price equal to the
pro rata portion, applicable to the number of stores so acquired by
--- ----
SFW, of the purchase price otherwise payable by Super Rite for the
entire acquisition; or
(g) There shall be a "Change of Control" over Super Rite.
For purposes of this clause, a "Change of Control" shall have occurred
if neither Alex Grass nor Martin Grass shall be the chairman of the
board or the chief executive officer of Super Rite and of Super Rite
Foods Holdings Corporation (or their respective successors in
interest), unless such person shall cease to be the chairman of the
board or the chief executive officer thereof as a result of his death.
For purposes of this paragraph 13, the "Baltimore Metropolitan Area"
shall consist of the City of Baltimore, the Maryland counties of Baltimore,
Harford, and Carroll, and the portions of the Maryland counties of Anne Arundel
and Howard consisting of the area north of that line indicated on the Map.
14. Private Label. Super Rite will provide SFW with a full-line of
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private-label Product of a quality acceptable to SFW, under a label acceptable
to SFW, which label shall not be a "BASICS" or "Super Rite" label or any other
name that is peculiar to Super Rite or its subsidiaries. The private label line
shall include a full range of food, household and non-food grocery items
(including large club sizes and multi-paks), other than
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HBA. A full-line of private label HBA (including housewares and non-foods)
shall be provided by Super Rite under the "Rite Aid" private label to the same
extent as such HBA is made available to Rite Aid retail stores, by Rite Aid
Corporation. Notwithstanding the foregoing, SFW shall only be required to
purchase those private-label Products from Super Rite that SFW, in its sole
discretion, find acceptable. To the extent SFW determines any private-label
Products to be unacceptable to SFW, upon SFW's request, Super Rite shall obtain
an acceptable private-label Product to replace the unacceptable Private-label
Product, in each case without forfeiting the right to purchase dry grocery
Products at Super Rite's Cost Plus 2.25% pursuant to paragraph 2.3.3 of this
Agreement, if then applicable. SFW shall also have the right to require Super
Rite to provide the private-label Products that are acceptable to SFW with a
label or packaging of SFW's selection, including an SFW private label and
packaging of SFW's design and specification.
15. Cardboard Recycling. In order to facilitate arrangements that SFW has
-------------------
with certain persons for the recycling of cardboard and other packaging
materials (the "Materials"), Super Rite agrees to coordinate and arrange the
pick up of baled Materials at each of SFW's store locations. Super Rite, at its
sole expense, will transport the Materials to its warehouse and hold the
Materials for pick up by the recycler or recyclers chose by SFW. In
consideration, SFW will pay Super Rite a fee of One Dollar and Fifty Cents
($1.50) for each bailed item. Invoices for services rendered under this Section
shall be issued by Super Rite on a weekly basis and fees for the sales week
preceding the date of invoice will be paid by SFW with the weekly statement in
accordance with paragraph 7 hereof.
16. Coupons. Super Rite shall use its reasonable best efforts to assist
-------
SFW in attempting to resolve any problems with manufacturers, vendors, or coupon
clearing houses regarding coupon redemptions or coupons returned to SFW for
which redemption was denied by the manufacturer or vendor or their coupon
clearing house.
17. Optional Extensions.
-------------------
17.1 The term of this Agreement may be extended by SFW, at its
sole and exclusive option, upon the same terms and conditions as set forth
herein, by giving written notice of extension (the "Extension Notice") to Super
Rite not less than 90 days prior to any Termination Date in the manner provided
in paragraph 20 hereof. For purposes of this paragraph 17, the term
"Termination Date" shall refer to the original Termination Date and to all
extensions thereof in accordance with this paragraph 17.
17.2 At any time that SFW is permitted to extend the term of this
Agreement, SFW may extend the term of this Agreement, at SFW's election, for
either an additional one-year
16
<PAGE>
period (a "One-Year Extension") or for an additional three-year period (a
"Three-Year Extension"); provided that SFW shall not be permitted to elect a
--------
One-Year Extension or a Three-Year Extension without Super Rite's express
consent if such One-Year or Three-Year Extension would cause the Termination
Date, as extended, to be a date later than 10 years and three months after the
Initiation Date under this Agreement. Any such non-conforming election of a
Three-year Extension shall be treated for all purposes as the election of a One-
Year Extension. SFW shall specify in the Extension Notice whether it elects a
One-Year Extension or a Three-Year Extension.
17.3 Upon the giving of the Extension Notice by SFW, the
Termination Date shall be extended by the period of time specified in the
Extension Notice and Super Rite shall thereupon be obligated to pay to SFW an
amount, in cash (the "Extension Fee"), equal to (i) $4.0 million, if SFW shall
elect a Three-Year Extension or (ii) $1.4 million, if SFW shall elect a One-Year
Extension, in consideration of SFW's election to extend the term of this
Agreement.
17.3.1 Super Rite shall pay SFW the Extension Fee, by
cashiers or certified check, or by wire transfer, at SFW's election, to an
account designated by SFW in the Extension Notice, not later than the fifth
business day prior to the date on which the term covered by the Extension
Notices commences.
17.3.2 Super Rite's obligation to pay the Extension Fee
shall be absolute and unconditional upon the giving of the Extension Notice
by SFW.
18. Cost Data and Competitive Obligation Audits.
-------------------------------------------
18.1 Super Rite shall keep complete books and records of all cost
data relating to the Products sold to SFW and other customers of Super Rite,
including, without limitation, invoices, and bills of lading and any other
books, documents, papers or other records of Super Rite involving transactions
or containing information relevant to this Agreement (the "Cost Data"). Super
Rite agrees to supply SFW with a list of its normal Product selling prices as
well as the net prices, discounts, or commissions that Super Rite extends
generally to its customers and to notify SFW promptly if any changes are
subsequently made.
18.2.1 SFW shall have the right, directly or through its
representatives, from time to time, during normal business hours and upon
reasonable notice to Super Rite, to audit the Cost Data and such other
information as SFW, in its reasonable discretion, shall request to ensure
compliance by Super Rite with its obligations under paragraph 11.1 hereof,
including all internally generated reports or compilations pertaining thereto.
SFW will endeavor to perform such audits in
17
<PAGE>
a manner that minimizes disruption to the business of Super Rite and will
coordinate such audits with the appropriate members of Super Rite management.
All audits of Cost Data shall generally be performed in accordance with that
protocol attached hereto as Exhibit C.
18.2.2 SFW shall have the right, through its duly appointed
agent, including but not limited to, independent auditors, at SFW's expense, to
impact, examine and make abstracts and copies of the Cost Data, and to interview
the employees, agents and accountants responsible for the preparation and
maintenance of such Cost Data insofar as may be necessary to verify the accuracy
of the Cost Data and of the statements provided for herein and to ensure the
satisfaction of Super Rite's competitive obligation in paragraph 11.1 hereof.
Such inspection and examination shall be made during normal business hours upon
reasonable notice and not more often than twice per calendar year. In addition
to such other remedies as may be available to SFW hereunder, if as a result of
any such examination an over-charge of more than 1.5% is discovered in the
amount of any payments made by SFW, then (i) the costs of such examination shall
be borne by Super Rite, and (ii) SFW shall thereafter have the right to conduct
such examinations once per calendar quarter.
18.3 Not later than 90 days following the end of each of Super
Rite's fiscal years during the term of this Agreement, Super Rite shall deliver
a certificate from Coopers & Lybrand (or such other accounting firm of national
standing as may then be acting as Super Rite's independent auditor) (the
"Independent Auditor"), certifying Super Rite's compliance with its obligations
pursuant to Paragraph 11.2 hereof during such fiscal year, in form and substance
reasonably satisfactory to SFW. SFW shall have the right, acting through Arthur
Andersen & Co., or such other accounting firm as SFW may designate, to review
the basis for the aforementioned certificate with the Independent Auditor and
otherwise confirm the accuracy of the Independent Auditor's certificate
delivered pursuant hereto.
18.4 SFW will not use the information in an improper manner and
will take such safeguards as are reasonably satisfactory to Super Rite to ensure
the confidentiality of any proprietary information or pricing data relating to
customers of Super Rite, including the use of independent auditors who shall
undertake to keep all such information confidential.
19. Confidentiality. All information obtained by either party hereto
---------------
concerning the performance of the parties, pricing or operational practices,
business properties, business plans or finances or any other information
concerning the business of the other parties hereto, including the existence and
terms of this Agreement ("Confidential Information") shall be used only for the
purposes of this Agreement and the transactions contemplated hereunder and shall
be treated as confidential and shall not be
18
<PAGE>
disclosed or transferred, directly or indirectly, to any other person, or used
for any other person, without the prior written consent of the party from whom
such Confidential Information was obtained, except (i) to professional advisors
or financial partners of such parties, and prospective lenders to such parties
in connection with this Agreement or the Purchase Agreement, (ii) insofar as
such data or information is published or is a matter of public knowledge or
(iii) as is required to be disclosed by applicable law or legal process;
provided that if any party believes that it shall be obligated by law or legal
- --------
process to disclose Confidential Information pertaining to any other party
(including disclosure under federal or state securities laws), it shall give
such other party notice of its intent to disclose such information not less than
four (4) business days prior to making any such disclosure so that such other
party may seek an appropriate protective order or waive compliance with the
provisions of this Agreement, unless the party making such disclosure shall have
been advised by counsel that such notice or delay could expose such party to a
substantial risk of criminal liability or substantial monetary damages. In the
event that the transaction provided for herein is not consummated for any reason
whatsoever, each party shall return to the other parties from whom information
has been obtained all copies of information supplied by such party or its
representatives.
20. Notice. Any and all notices required or desired to be given pursuant
------
to this Agreement shall be in writing and may be given by personal delivery, by
certified mail (return receipt requested), air courier or facsimile
transmission. If given by facsimile transmission, notice shall be to the
attention of each individual at the facsimile number designated below. If
delivered personally or sent by mail or air courier, notice shall be given to
each person designated below in separate envelopes each individually addressed
as follows:
To SFW: Shoppers Food Warehouse Corp.
3129 Pennsy Drive
Landover, MD 20785-1508
FAX: (301) 322-5670
ATTN: Mr. Kenneth M. Herman
Mr. Robert N. Herman
Mr. Jack Binder
To Super Rite: Super Rite Foods, Inc.
P.O. Box 2261
Harrisburg, PA 17105
FAX: (717) 257-4594
ATTN: Mr. Pete Vanderveen
Mr. David Gundling
With a copy to: Mr. Martin Grass
P.O. Box 3165
Harrisburg, PA 17105
19
<PAGE>
or to such other address and persons as either party hereto may designate to the
other party in writing. Notice shall be deemed to have been given on the date
reflected in the proof or evidence of delivery, or if none, on the date actually
received.
21. Arbitration.
-----------
21.1 Any dispute between the parties hereto relating in any way
to this Agreement or the rights and obligations of the parties hereunder shall
be settled by arbitration in the English language to be held in Washington, D.C.
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "Arbitration Rules"). The arbitration shall be held before a
panel of three arbitrators, of which one shall be chosen by SFW, one by Super
Rite and the third by the first two arbitrators. In the event of a failure by
one party to appoint its arbitrator within thirty (30) days after the request
for arbitration, or the failure of the first two arbitrators to agree on the
choice of the third arbitrator within thirty (30) days after the appointment of
the first two arbitrators, the third arbitrator shall be appointed by the
American Arbitration Association in accordance with the Arbitration Rules upon
the request of any party hereto.
21.2 The arbitrators shall render their award within thirty (30)
days after the date of closing the oral hearings or, if oral hearings have been
waived, within thirty (30) days after the date the final statements and proofs
are transmitted to the arbitrators. The parties hereby agree to be bound by the
decision of the arbitrators, which shall be final and unappealable. The party
or parties against whom the arbitration decision is made shall bear all fees and
expenses of the arbitrators and of the prevailing party in such arbitration
(including fees and expenses of counsel). Judgment upon any award of the
arbitrators (including an award of equitable relief) may be entered in any court
having jurisdiction or an application may be made to such court for the judicial
acceptance of the award and an order of enforcement.
21.3 If any party fails to abide by such an award, the other
parties hereto may seek the order of a court which shall enter judgment on the
arbitration award, and the party or parties so failing to abide shall be
responsible for the payment of the expenses of the court proceeding and all
resulting enforcement expenses, including actual attorneys' fees. Should any
party hereto fail to appear or be represented at the arbitration proceedings
after due notice in accordance with the Arbitration Rules, then the arbitrators
may nevertheless render a decision in the absence of that party. Such a
decision shall have the same force and effect as if the absent party had been
present, whether or not it shall be adverse to the interests of the absent
party, and the decision may be entered for enforcement, if necessary, in any
court of competent jurisdiction, the absent party also bearing the costs of
20
<PAGE>
arbitration, the court proceeding and enforcement, in the event the decision is
adverse to the absent party.
22. Miscellaneous Provisions
------------------------
22.1 Entire Agreement. This Agreement, together with the
----------------
Purchase Agreement and the other agreements contemplated thereby, constitutes
the entire understanding of the parties hereto with respect to the subject
matter hereof, and shall not be amended, except by a writing signed by the
parties hereto.
22.2 Governing Law. This Agreement shall be interpreted and
-------------
construed in accordance with the laws of the State of Maryland including
applicable provisions of the Uniform Commercial Code as adopted by the State of
Maryland. The invalidity of unenforceability of any term or provision of this
Agreement shall not void or impair the remaining provisions hereof.
22.3 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed an original hereto and all of
which together shall constitute but one instrument.
22.4 Headings. The headings of the paragraphs hereof are
--------
inserted for convenience only and shall not constitute a part hereof.
22.5 Successors and Assigns. This Agreement and all of the
----------------------
provisions hereof shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns, provided, however,
that neither this Agreement nor any of the rights or obligations of Super Rite
may be assigned without the prior written consent of SFW. SFW reserves the
right to assign any of its rights and obligations under this Agreement to any of
its affiliates or to its successor, by operation of law or otherwise, whether or
not affiliated with SFW, in connection with the transfer of SFW's business or a
substantial portion thereof. Any permitted assignee under this Agreement must
execute this Agreement and agree to be bound hereby.
22.6 Nature of Relationship. Nothing herein shall be construed
----------------------
to place the parties in a relationship of partners, joint venturers, or
franchisor-franchisee, and neither party shall have the power to obligate or
bind the other in any manner whatsoever with respect to third parties.
22.7 Severability. If any part of this Agreement is or becomes
------------
or is held by any court of competent jurisdiction to be illegal, null or void,
or against public policy, then the remaining parts of this Agreement shall not
be affected thereby and shall remain valid and enforceable.
21
<PAGE>
22.8 Waiver. Either party may waive any breach or compliance by
------
the other party with any covenant or provision of this Agreement by delivering
to the other party written notice stating the terms and extent of such waiver.
Any waiver under this Agreement by any party shall not be construed to extend or
apply beyond its stated terms and shall not be deemed to be a waiver of any
preceding or subsequent breach under this Agreement.
22.9 Construction. For purposes of construing or interpreting this
------------
Agreement or any provision hereof, no party hereto shall be deemed to have
drafted or prepared this Agreement.
IN WITNESS WHEREOF, SFW and Super Rite have caused this Agreement to be
duly executed on date and year first above written.
SHOPPERS FOOD WAREHOUSE CORPORATION
By: /s/ Kenneth Herman
-------------------------------------
Kenneth Herman, President
SHOPPERS FOOD WAREHOUSE VA CORP.
By: /s/ Robert N. Herman
-------------------------------------
Robert N. Herman,
Executive Vice-President
SHOPPERS FOOD WAREHOUSE MD CORP.
By: /s/ Robert N. Herman
-------------------------------------
Robert N. Herman,
Executive Vice-President
SUPER RITE FOODS, INC.
By: /s/ Pete Vanderveen
-------------------------------------
Pete Vanderveen, President
22
<PAGE>
CONFORMED COPY
September 12, 1991
Shoppers Food Warehouse Corp.
Shoppers Food Warehouse VA Corp.
Shoppers Food Warehouse MD Corp.
4600 Forbes Boulevard
Lanham, MD 20706
Re: Modifications to Purchase Agreement and Supply Agreement
--------------------------------------------------------
Gentlemen:
The purpose of this letter is to set forth our mutual understandings
and agreements with respect to that certain Asset Purchase Agreement, dated as
of June 3, 1991 as amended on July 18, 1991, by and among Super Rite Corporation
(formerly known as Super Rite Foods Holdings Corporation), Super Rite Foods,
Inc. ("Super Rite"), Foodarama, Incorporated, Midway Markets of Delaware, Inc.,
and FOOD-A-RAMA-G.U., Inc. (collectively the "Sellers"), and Shoppers Food
Warehouse Corp. (the "Buyer") (as amended from time to time, the "Purchase
Agreement"), and that certain Supply Agreement dated as of June 3, 1991 by and
among the Buyer, Shoppers Food Warehouse MD Corp. and Shoppers Food Warehouse VA
Corp., on the one hand (collectively "Shoppers"), and Super Rite, on the other
hand (the "Supply Agreement") (the Purchase Agreement and Supply Agreement are
collectively referred to herein as the "Agreements"). All terms used in this
Agreement without further definition shall have the meanings set forth in the
Purchase Agreement and/or Supply Agreement.
In order to facilitate the completion of the transactions contemplated
by the Purchase Agreement and the Supply Agreement and to settle certain
disputes arising in connection therewith, the relative rights of the parties to
the Agreements will be modified as follows:
1. As consideration for the agreements herein and in settlement of
certain disputes relating to the Agreements, the Closing Purchase Price will be
reduced by $4,000,000. This purchase price reduction will be paid pursuant to
a promissory note made by the Sellers in the form of the Closing Note (the
"Reduction Note"). The Reduction Note shall bear no interest. If the Reduction
Note is not paid pursuant to its terms, the Buyer shall have the right, in
addition to all other rights of the Buyer, to offset any amounts due thereunder
against the Closing
<PAGE>
Shoppers Food Warehouse Corp.
Shoppers Food Warehouse VA Corp.
Shoppers Food Warehouse MD Corp.
September 12, 1991
Page 2
Note and the Inventory Note. In the event there are no amounts due under such
notes, the Buyer will have a right of recourse against the parent of Super Rite
for any amounts due under the Reduction Note. The Closing Note and the
Reduction Note shall be due and payable four years after the Closing Date, as
such date may be modified by the parties.
2. The Sellers will not transfer the Marlow Heights store located at
3913 St. Barnabas Road in Marlow Heights, Maryland (the "Marlow Heights Store")
and such store will be deleted from the list of Supermarkets being transferred
to the Buyer. At the Closing, the Sellers shall sell and assign, and the Buyer
shall purchase and assume, all of the Sellers' right, title and interest in and
to the other six Supermarkets set forth on Schedule 2.1(a) of the Purchase
Agreement. In accordance with Section 11.5(d) of the Purchase Agreement, the
Price Abatement in the amount of $2,143,000 relating to the nontransfer of the
Marlow Heights Store shall be applied to reduce the Cash Purchase Price.
3. The Sellers will be required to deliver the following Supermarkets
(the "Required Supermarkets") in accordance with the requirements set forth in
the Purchase Agreement:
1. BASICS No. 76 - Sterling
47100 Community Plaza, No. 140
Sterling, Virginia 22170
2. BASICS No. 80 Dale City Davis Ford and Smoke
Town Roads Routes 640 and 642
Dale City, Virginia 22193
3. BASICS No. 83 - Gunston
7760 Gunston Plaza
Lorton, Virginia 22079
4. Failure of the Sellers to deliver the Required Supermarkets to
the Buyer at or before the Closing Date (or such other date as the parties shall
mutually agree) shall constitute a default by the Sellers under the Purchase
Agreement and shall permit the Buyer to terminate the Supply Agreement as
provided in Paragraph 11 hereof. Notwithstanding Paragraph 2 hereof, if (i) the
Sellers shall have satisfied all of the conditions to the Buyer's obligations
hereunder set forth in Section 11.1 of the Purchase Agreement that are required
to permit the Sellers to transfer to the Buyer as of the Closing Date each of
the Required Supermarkets in the condition and in the manner contemplated
hereby; (ii) all other conditions to the Buyer's obligation to consummate the
transactions contemplated hereby shall have been satisfied prior to the Closing
Date; and (iii) the Sellers shall
<PAGE>
Shoppers Food Warehouse Corp.
Shoppers Food Warehouse VA Corp.
Shoppers Food Warehouse MD Corp.
September 12, 1991
Page 3
not have breached or violated or failed to perform any of their other material
obligations under the Purchase Agreement, then the Buyer shall not have the
right to terminate the Purchase Agreement pursuant to Article XIII of the
Purchase Agreement or be excused from its obligation to complete the purchase
and sale of the Supermarkets as to which all conditions to its obligations shall
have been satisfied, but shall have the right to receive an adjustment of the
Closing Purchase Price as described in the Purchase Agreement.
5. The Sellers will be responsible for expenses incurred in
remodeling the Sterling store in an amount of $800,000.
6. Sellers shall use every reasonable effort to deliver the Glendale
Store, the Glenmont Store and the Springfield Store. If the Sellers fail to
satisfy the conditions set forth in the Purchase Agreement with respect to these
Supermarkets by the Closing Date, as such date is modified by the parties
hereto, then the Sellers shall have an additional period of 120 days following
the Closing Date in order to satisfy such conditions, as to such Supermarkets
only, in accordance with the terms of Section 11.5.3 of the Purchase Agreement.
7. With respect to any Supermarkets transferred to the Buyer, the
Sellers shall have obtained all necessary consents, waivers, estoppel letters,
non-disturbance agreements and approvals, including landlord estoppels and
lender approvals. The Buyer agrees to waive any exceptions contained in these
documents provided that (a) the Sellers indemnify the Buyer against any claims
-------- ----
arising therefrom in accordance with the provisions of Section 14.1 of the
Purchase Agreement, (b) such exceptions relate to items that would not, in any
event, affect the Buyer's right to quiet enjoyment, to conduct the business of
the Supermarkets or to obtain all necessary permits and licenses relating to the
Supermarkets, and (c) the Sellers warrant to the Buyer that any such exception
can be cured by the Sellers, at the Sellers' sole cost and expense.
8. The Sellers reaffirm their obligations under the Supply Agreement
and agree to correct the deficiencies set forth in the letter from Buyer's
counsel to Franklin Brown dated as of September 5, 1991 (a copy of which is
attached hereto for reference).
9. The Buyer agrees to assume the leases of the Supermarkets pursuant
to the terms of the leases presently existing. The Sellers represent and
warrant that such lease provisions will remain unchanged or that the Sellers
will be liable for any increased costs thereunder. With respect to the rental
obligations under the lease of the Glendale Store,
<PAGE>
Shoppers Food Warehouse Corp.
Shoppers Food Warehouse VA Corp.
Shoppers Food Warehouse MD Corp.
September 12, 1991
Page 4
Shoppers Food Warehouse Corp. will guarantee the obligations of Shoppers Food
Warehouse MD Corp. With respect to the Dale City Store, Shoppers Food Warehouse
VA Corp. will provide a certificate of Arthur Andersen & Co. to the effect that
its Tangible Net Worth as of the Closing Date is not less than $1,000,000.
10. At the Closing, good title to the Purchased Assets shall be
transferred at the Sellers' sole cost end expense, to the Buyer free and clear
of any and all tenancies and liens except the Permitted Encumbrances and any
liens or tenancies for which the Sellers have indemnified the Buyer in
accordance with the provisions of Section 14.1 of the Purchase Agreement.
Notwithstanding the foregoing, the Sellers shall remove all such liens and
tenencies, at the Sellers' sole cost and expense.
11. The parties acknowledge that, for mutual convenience, they have
started performance under the Supply Agreement as of August 24, 1991 and that
such agreement shall be deemed effective as of such date, provided that in the
-------- ----
event that the Sellers shall fail to meet their obligations under the Purchase
Agreement (as modified hereunder) by the Closing Date, then Shoppers shall have
a right to terminate the Purchase Agreement and Supply Agreement in accordance
with the respective terms thereof.
12. Section 11.1.9 of the Purchase Agreement regarding the suitability
of the Wheaton Store is hereby deleted in its entirety and shall be of no
further force and effect, provided however, that notwithstanding the foregoing,
-------- -------
the parties hereby agree and acknowledge that if such store is transferred at
Closing, the Sellers shall be responsible for delivering a use and occupancy-
permit for such store without any obligation on the part of the Buyer to be
bound by or incur costs for (a) those items excepted or waived by the applicable
county authorities as a result of the remodeling permit previously filed with
the county by the Sellers for such store or (b) any items required to be
performed as a result of that permit.
13. All out-of-pocket costs and other expenses incurred by the Buyer
in connection with or arising out of the Buyer's Labor Agreement shall be borne
by the Buyer.
14. The Buyer waives any material adverse change in the business of
the Supermarkets and for failure to operate the Supermarkets in the normal
course of business through August 24, 1991 as reflected in decreases in sales
volume at the Supermarkets based upon historic sales volumes for applicable
periods as set forth in the weekly financial statements from June 10, 1991
through August 24, 1991 supplied by the Sellers to the Buyer, provided that this
-------- ----
provision shall not be deemed to waive
<PAGE>
Shoppers Food Warehouse Corp.
Shoppers Food Warehouse VA Corp.
Shoppers Food Warehouse MD Corp.
September 12, 1991
Page 5
any further adverse changes or other changes in the normal course of business.
15. Exhibit 8.20 to the Purchase Agreement will be amended to add the
equipment and personal property described in the Supplement to Exhibit 8.20
attached hereto.
16. Unless the Agreements are terminated in accordance with the terms
thereof, or the parties hereto agree to a different time, date or place, the
Closing of the Agreements shall take place at the offices of Gibson, Dunn &
Crutcher at 10:00 a.m., Washington, D.C. time, on October 12, 1991 (the "Closing
Date").
17. For the avoidance of doubt, the term "Retained Supermarkets" as
used in the Purchase Agreement (including, without limitation, its use in
Section 10.21 of the Purchase Agreement) also shall be deemed to include,
without limitation, the Marlow Heights store.
18. This Agreement shall be governed by, and construed and enforced in
accordance with, the internal laws of the State of Delaware without regard to
choice or conflicts of laws. This Agreement shall be governed by and subject to
all provisions of the Agreements not otherwise inconsistent with the provisions
hereof, which are deemed incorporated herein by this reference. In the event
there are any inconsistencies between this Agreement and the terms of the
Purchase Agreement or Supply Agreement, the terms of this Agreement shall govern
the parties' obligations.
19. This Agreement shall have no effect on the Agreements, which shall
continue to be in full force and effect, except as expressly modified by the
provisions hereof. No party to this Agreement shall be deemed thereby to have
waived any rights that it may have under the Agreements or any failure on the
part of any other party thereto to comply with its obligations thereunder,
except as expressly set forth in this Agreement.
20. Super Rite Corporation (formerly Super Rite Foods Holding
Corporation) is the parent corporation of Super Rite. In order to induce the
Buyer to enter into these modifications and to complete performance of its
obligations under the Purchase Agreement and the Supply Agreement, Super Rite
Corporation hereby joins in and agrees to be bound by, jointly and severally
with Super Rite (including any successor to or assignee of Super Rite), directly
as a principal contracting party and not merely as a surety or guarantor, all of
the obligations of Super Rite under the Supply Agreement. Super Rite
Corporation further covenants and agrees that it will cause any successor or
assign, and any transferee of all or substantially all of its business or
<PAGE>
Shoppers Food Warehouse Corp.
Shoppers Food Warehouse VA Corp.
Shoppers Food Warehouse MD Corp.
September 12, 1991
Page 6
assets, as a condition to any assignment or transfer, to specifically agree in
writing to be bound, as a principal contracting party, to the obligations of
Sellers under the Purchase Agreement and of Super Rite under the Supply
Agreement.
IN WITNESS WHEREOF, all the parties hereto have executed this Agreement
by the undersigned duly authorized officer of each party as of the day and year
first above written.
SUPER RITE CORPORATION
(formerly SUPER RITE FOODS
HOLDINGS CORPORATION)
By: /s/ Martin Grass
-----------------
Name: Martin Grass
Title: Vice Chairman
SUPER RITE FOODS, INC.
By: /s/ Martin Grass
-----------------
Name: Martin Grass
Title: Vice Chairman
FOODARAMA, INCORPORATED
By: /s/ Martin Grass
-----------------
Name: Martin Grass
Title: Vice Chairman
FOOD-A-RAMA-G.U., INC.
By: /s/ Martin Grass
-----------------
Name: Martin Grass
Title: Vice Chairman
MIDWAY MARTS OF DELAWARE
By: /s/ Martin Grass
-----------------
Name: Martin Grass
Title: Vice Chairman
<PAGE>
Shoppers Food Warehouse Corp.
Shoppers Food Warehouse VA Corp.
Shoppers Food Warehouse MD Corp.
September 12, 1991
Page 7
Accepted and Agreed:
SHOPPERS FOOD WAREHOUSE CORP.
By: /s/ Robert N. Herman
--------------------
Name: Robert N. Herman
Title: Executive Vice President
SHOPPERS FOOD WAREHOUSE VA CORP.
By: /s/ Robert N. Herman
--------------------
Name: Robert N. Herman
Title: Executive Vice President
SHOPPERS FOOD WAREHOUSE MD CORP.
By: /s/ Robert N. Herman
--------------------
Name: Robert N. Herman
Title: Executive Vice President
<PAGE>
Exhibit 8.20 - Supplement
A. Additional Equipment and Fixed Assets to be Present in Supermarkets at
Closing for No Additional Charge to Buyer:
Office equipment
All Telxon units
Encoders
Sealers
MPO unit and tapes
All diskettes and manuals
Telephones, telephone equipment, intercom and communications
systems
Computers, printers and other peripheral equipment and any
software necessary to operate same
Business licenses, authorizations and permits that are conveyed
B. Contracts for Additional Equipment and Fixed Assets to be Assumed by
Buyer:
Money order machine
WU computer
Muzac POP system
<PAGE>
November 4, 1991
Shoppers Food Warehouse Corp.
Shoppers Food Warehouse MD Corp.
Shoppers Food Warehouse VA Corp.
4600 Forbes Boulevard
Landham, Maryland 20706
Re: Amendment No. 3 to Asset Purchase Agreement and Supply Agreement
Gentlemen:
This Amendment No. 3 (the "Amendment") sets forth the parties' mutual
understandings and agreements with respect to (i) the consummation off the
transactions contemplated by that certain Asset purchase Agreement, dated as off
June 3, 1991, as amended on July 18, 1991 and September 12, 1991, by and among
Super Rite Corporation (formerly Super Rite Foods Holdings Corporation), Super
Rite Foods, Inc. ("Super Rite") Foodarama, Incorporated, Midway Markets of
Delaware, Inc. and Food-A-Rama-G.U., Inc. (collectively, the "Sellers"), and
Shoppers Food Warehouse Corp. (the "Buyer") (as amended from time to time, the
"Purchase Agreement"); and (ii) certain understandings concerning that certain
Supply Agreement, dated as of June 3, 1991, by and among the Buyer, Shoppers
Food Warehouse MD Corp. and Shoppers Food Warehouse VA Corp. on the one hand
(collectively, "Shoppers") and Super Rite, on the other hand, as amended on
September 12, 1991 (the "Supply Agreement") (the Purchase Agreement and Supply
Agreement are collectively referred to herein as the "Agreements"). All terms
used but not defined in this Amendment shall have the meanings given them in the
Purchase Agreement or supply Agreement, as the case may be.
In order to facilitate the completion of the transactions contemplated
by the Agreements and to settle certain disputes
<PAGE>
Shoppers Food Warehouse Corp.
November 4, 1991
Page 2
arising in connection therewith, the parties hereby agree as follows:
1. (a) Contemporaneously with the execution of this Amendment, the Buyer
is purchasing and the Sellers are selling under the Purchase Agreement only the
following stores (the "Transferred Stores"):
a. Sterling (Basics No. 76)
47100 Community Plaza #140
Sterling, Virginia 22170
b. Dale City (Basics No. 80)
Davis Ford & Smoketown Roads
Rts. 640 & 642
Dale City, Virginia 22193
(b) Not later than January 10, 1992 (or, if earlier, the fifth
Business Day after the Buyer shall have received written notice from the Sellers
that the all conditions to the Buyer's obligations under the Purchase Agreement,
including this Amendment, shall have been satisfied) (the "Glendale Closing
Date"), the Sellers shall sell, transfer and convey to the Buyer, and the Buyer
shall purchase from the Sellers, that Supermarket located at 10515 Greenbelt
Road, Glendale, Maryland known as Glendale (Basics No. 72) together with all
Store Assets related thereto (collectively the "Glendale Store"), upon the terms
set forth in the Purchase Agreement. Upon transfer of the Glendale Store, the
Inventory Purchase Price of the Saleable Inventory related to the Glendale Store
shall be calculated in the manner described in Article III of the Purchase
Agreement and the Inventory Note issuable pursuant to Section 3.2.3 of the
Purchase Agreement shall include the Inventory Purchase Price for the Saleable
Inventory related to the Glendale Store. The Sellers and Buyer agree to execute
any additional documents and amendments to the Purchase Agreement that may be
necessary to effectuate the transfer of the Glendale Store.
(c) If the conditions to the Buyer's obligation to purchase the
Glendale Store shall not have been satisfied by the Glendale Closing Date, the
Sellers shall pay to the Buyer, not later than the fifth Business Day following
the Glendale Closing Date (the "Payment Date"), $2,750,000 (the "Glendale
Consideration") as liquidated damages for the Sellers' failure to transfer and
deliver the Glendale Store as follows: (i) the principal amount of the Inventory
Note shall be reduced by the lesser of the Glendale Consideration or the
principal amount of the Inventory Note and (ii) the Sellers shall deliver to the
Buyer a check in an amount, if any, equal to the amount by which the Glendale
Consideration exceeds the principal amount of the Inventory Note. If the
Glendale Consideration shall not have
<PAGE>
Shoppers Food Warehouse Corp.
November 4, 1991
Page 3
been paid, in full, by the Payment Date, the Buyer may, at its option, deduct
any unpaid portion of the Glendale Consideration from any amounts otherwise
payable from time to time by the Buyer under the Supply Agreement.
(d) In addition to the other conditions to the Buyer's obligations under
the Purchase Agreement, the Buyer's obligation to purchase the Glendale Store
shall be subject to the satisfaction, on or before the Glendale Closing Date, of
the following conditions:
(i) The Buyer shall have received an estoppel certificate and a
consent to the assignment of the lease for the Glendale
Store, executed by the landlord of the Glendale Store,
substantially in the forms attached hereto as Exhibits A and
B (which certificate and consent, when delivered, shall be
deemed to have satisfied the condition set forth in Section
11.1.2 of the Purchase Agreement requiring the delivery of
consents and estoppels with respect to the Glendale Store);
(ii) The buyer shall have received a non-disturbance agreement
from the mortgagee of the Glendale Store, substantially in
the form attached hereto as Exhibit C (which agreement, when
delivered, shall be deemed to have satisfied the condition
set forth in Section 11.1.2 of the Purchase Agreement
requiring the delivery of a lender's non-disturbance
agreement with respect to the Glendale Store); and
(iii) The Buyer shall have received a certified copy of an order
of the court or courts having jurisdiction over the pending
bankruptcy proceedings of the two general partners of the
landlord of the Glendale Store, approving and consenting to
the approval and consent of the landlord to the transfer of
the Glendale Store to the Buyer, including the execution and
delivery of those documents referred to in clause (i) above.
(e) For purposes of determining whether the condition set forth in
Section 11.1.1 of the Purchase Agreement has been satisfied, the Sellers'
representations and warranties shall not be deemed to be inaccurate solely by
reason of the occurrence of a material adverse change in the condition,
operations or
<PAGE>
Shoppers Food Warehouse Corp.
November 4, 1991
Page 4
prospects of the Glendale Store between October 12, 1991 and the Glendale
Closing Date.
2. The Sellers shall not be required to sell and transfer and the Buyer
shall not be required to purchase any of the following stores: (i) Springfield
(Basics No. 78), located at 8402 Old Keene Mill Road, Springfield, Virginia
22152, (ii) Glenmont (Basics No. 81), located at 12389 Georgia Avenue, Wheaton,
Maryland 20906 and (iii) Gunston (Basics No. 83), located at 7760 Gunston Plaza,
Lorton, Virginia 22079. (The Springfield store, the Glenmont store, the Gunston
store and the Marlow Heights Store shall hereinafter collectively be referred to
as the "Refused Stores.") The Refused Stores shall be deemed to be Retained
Supermarkets for all purposes under the Purchase Agreement, provided that, the
-------- ----
Refused Stores shall not be subject to the provisions of Section 10.21 of the
Purchase Agreement (as mended to date).
3. Until the Glendale Closing Date, the Sellers shall continue to operate
the Glendale Store in the usual, regular and ordinary manner, in accordance with
Section 10.1 of the Purchase Agreement, in a manner consistent with past
practices and in a manner consistent with the Sellers' operation of the Retained
Supermarkets. The Sellers' compliance with the obligations arising under this
paragraph 3 shall be a condition to the Buyers' obligation to purchase the
Glendale Store. The closing for the purchase and sale of the Glendale Store
shall take place at the offices of Gibson, Dunn & Crutcher, Washington, D.C. on
the Glendale Closing Date.
4. As consideration for the agreements herein and in settlement of
certain disputes relating to the Agreements, the Closing Purchase Price is
hereby reduced by $2,357,000. For the avoidance of doubt, after giving effect
to all of the amendments and modifications to the Agreements to date, the
Closing Purchase Price shall be reduced to Zero Dollars ($0.00).
Notwithstanding any provision to the contrary in the Purchase Agreement, (i) the
Buyer shall have no obligation to deliver the Closing Note to the Sellers or to
pay any amount in cash to the Sellers (other than any amounts payable in
accordance with Article V of the Purchase Agreement) and (ii) the Sellers shall
have no obligation to deliver the Reduction Note to the Buyer.
5. As additional consideration for the settlement of certain disputes
between the parties, the principal amount of the Inventory Note to be delivered
by the Buyer to the Sellers shall be $250,000 less than the amount determined in
accordance with Article III of the Purchase Agreement. Section 3.2.3 of the
Purchase Agreement is hereby amended to reflect that the Buyer shall have the
right to purchase from the Sellers additional inventory having an aggregate
price equal to the difference
<PAGE>
Shoppers Food Warehouse Corp.
November 4, 1991
Page 5
between Three Million and 00/100 Dollars ($3,000,000.00) and the Inventory
Purchase Price.
6. The Sellers hereby specifically reaffirm the indemnification given by
them in Section 14.1 of the Purchase Agreement (the "Indemnification") and, for
the avoidance of doubt, agree and acknowledge that such Indemnification shall
extend to all of those situations set forth in Section 14.1 of the Purchase
Agreement and shall include, without limitation:
a. With respect to the presence of Hazardous Substances at the
Supermarkets, the presence of (i) asbestos or any spun-glass
insulation products determined to be dangerous or hazardous
substances in the Transferred Stores and (ii) petroleum products
and by-products, including gas and oil and other fuel spills and
leaks, located at the exterior of the Transferred Stores near the
loading docks;
b. With respect to the delivery of consents, estoppel certificates,
nondisturbance agreements and other documents evidencing the
consent of the landlords and lenders of the Transferred Stores to
the transfer to the Buyer, any situation arising because of the
Sellers' failure to deliver such consents in the forms originally
requested by the Buyer that affect the Buyer's quiet enjoyment of
the Transferred Stores or ability to conduct business in the
ordinary course in the Transferred Stores or ability to obtain
all licenses, permits and other necessary governmental approvals
to operate as supermarkets in the Transferred Stores or that
cause the Buyer to incur any cost, liability or damages as a
consequence thereof, including consequential damages and actual
fees and expenses of outside legal counsel;
c. Any costs, losses, damages or expenses incurred by the Buyers
relating to, or caused by, any acts or omissions of prior
tenants;
d. All liens and judgments existing against the Transferred Stores,
whether recorded against the landlords or the Sellers, including,
without limitation, the existence of a mortgage to First National
Bank of Maryland from the landlord of the Dale City store in the
approximate amount of $992,538, dated March 26, 1987 and recorded
in Deed Book 1480 at page 561 in the land Records of Prince
William County.
<PAGE>
Shoppers Food Warehouse Corp.
November 4, 1991
Page 6
7. Exhibit 8.20 to the Purchase Agreement shall be amended to add the
NCR/NCC cash registers and EDP equipment to the list of Additional Equipment and
Fixed Assets to be Present in the Supermarkets at Closing for No Additional
Charge to Buyer.
8. The parties hereby agree that, upon the completion of the transfer of
the Transferred Stores, all conditions to the effectiveness of the Supply
Agreement shall be deemed to have been satisfied and neither party shall
thereafter have any right to terminate the Supply Agreement for failure to
comply with the terms of the Purchase Agreement. For avoidance of doubt, the
Initiation Date, as that term is used in the Supply Agreement, shall be August
24, 1991.
9. The parties hereby expressly waive and release each other from any
claims each may have against the other that may arise as a result of failure to
consummate the transactions contemplated by the Purchase Agreement prior to the
date hereof.
10. This Amendment shall be governed by, and construed and enforced in
accordance with, the internal laws of the State of Delaware without regard to
choice or conflicts of laws provisions. This Amendment shall be governed by and
subject to all provisions of the Agreements not otherwise inconsistent with the
provisions hereof, which are deemed incorporated herein by this reference. In
the event there are any inconsistencies between this Amendment and the terms of
the Purchase Agreement or supply Agreement, the terms of this Amendment shall
govern.
11. This Amendment shall have no effect on the Agreements, which shall
continue to be in full force and effect, except as expressly modified by the
provisions hereof. No party to this Amendment shall be deemed hereby to have
waived any rights that it may have under the Agreements or any failure on the
part of any other party thereto to comply with its obligations thereunder,
except as expressly set forth in this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment by the
undersigned duly authorized officers of each party as of the day and year first
above written.
SUPER RITE CORPORATION (formerly Super Rite Food
Holdings Corporation) a Delaware corporation
By: /s/ Martin L. Grass
------------------------
Name: Martin L. Grass
Title: Vice-Chairman
<PAGE>
Shoppers Food Warehouse Corp.
November 4, 1991
Page 7
SUPER RITE FOODS, INC., a Delaware corporation
By: /s/ Martin L. Grass
------------------------
Name: Martin L. Grass
Title: Vice-Chairman
FOODARAMA, INCORPORATED, a Delaware corporation
By: /s/ Martin L. Grass
------------------------
Name: Martin L. Grass
Title: Vice-Chairman
FOOD-A-RAMA-G.U., INC. a Maryland corporation
By: /s/ Martin L. Grass
------------------------
Name: Martin L. Grass
Title: Vice-Chairman
MIDWAY MARKETS OF DELAWARE, INC., a Delaware
corporation
By: /s/ Martin L. Grass
------------------------
Name: Martin L. Grass
Title: Vice-Chairman
Accepted and Agreed:
SHOPPERS FOOD WAREHOUSE CORP.,
a Delaware corporation
By: /s/ Kenneth Herman
-----------------------
Name: Kenneth Herman
Title: President
<PAGE>
Shoppers Food Warehouse Corp.
November 4, 1991
Page 8
SHOPPERS FOOD WAREHOUSE MD CORP.,
a Maryland corporation
By: /s/ Kenneth Herman
-----------------------
Name: Kenneth Herman
Title: President
SHOPPERS FOOD WAREHOUSE VA CORP.,
a Virginia corporation
By: /s/ Kenneth Herman
-----------------------
Name: Kenneth Herman
Title: President
<PAGE>
Exhibit 10.3
AGREEMENT
JUMBO PRODUCE, INC.
AND
WAREHOUSE EMPLOYEES LOCAL UNION NO. 730
AND
DRIVERS, CHAUFFEURS AND HELPERS LOCAL UNION NO. 639
JULY 6, 1993
THROUGH
JULY 6, 1998
<PAGE>
<TABLE>
<S> <C>
AGREEMENT............................................................... 1
SCOPE OF AGREEMENT...................................................... 1
RECOGNITION AND UNION MEMBERSHIP........................................ 1
CHECK-OFF AND DRIVE..................................................... 1
DRIVE AUTHORIZATION AND DEDUCTION....................................... 2
WORK WEEK/SHIFTS........................................................ 2
OVERTIME AND SUNDAY WORK................................................ 3
HOLIDAYS................................................................ 3
BULLETINS............................................................... 4
RELIEF PERIOD........................................................... 4
FIDELITY BONDS.......................................................... 4
UNIFORMS................................................................ 4
WAGES................................................................... 4
DISCHARGE............................................................... 4
SENIORITY............................................................... 5
VACATION................................................................ 5
LEAVES OF ABSENCE....................................................... 6
FUNERAL LEAVE........................................................... 6
MILITARY SERVICE........................................................ 6
JURY DUTY............................................................... 6
PERSONAL LEAVE.......................................................... 6
LEAVE FOR OTHER REASONS................................................. 7
PROTECTION OF RIGHTS.................................................... 7
NO STRIKE OR LOCKOUT.................................................... 7
GRIEVANCE AND ARBITRATION............................................... 7
SHOP STEWARDS........................................................... 8
HEALTH AND WELFARE...................................................... 8
PROFIT SHARING PLAN..................................................... 8
SEPARABILITY AND SAVINGS CLAUSE......................................... 8
LOSS OR DAMAGE.......................................................... 9
INSPECTION PRIVILEGES................................................... 9
SUBCONTRACTING.......................................................... 9
DEFECTIVE EQUIPMENT AND DANGEROUS CONDITIONS OF WORK.................... 9
MANAGEMENT RIGHTS....................................................... 10
TERM OF AGREEMENT....................................................... 10
APPENDIX "A"............................................................ 11
</TABLE>
<PAGE>
AGREEMENT
---------
This agreement made and entered into this 6th day of July, 1993, by and
--- ---- --
between Jumbo Produce, Inc., hereinafter called "Company" and Warehouse
Employees Union Local No. 730 and Drivers, Chauffeurs and Helpers Local Union
No. 639, of Washington, D.C., affiliated with International Brotherhood of
Teamsters hereinafter called the "Union".
ARTICLE 1 - SCOPE OF AGREEMENT
- ------------------------------
1.1 Should the Company establish any new facilities that result in work
or services presently performed under this Agreement being transferred, the
Company agrees to consult with the Union with respect to the effects on
employees; and employees who are adversely affected shall be offered job
opportunities that may be available at the new facilities before anyone else is
hired for job classifications covered by this Agreement.
1.2 This Agreement shall be binding upon all signatories hereto, and
their successors and assigns, whether such status is created by sale, lease,
assignment or any other type of transfer or transaction. In consideration of
the union's execution of this Agreement, the Employer promises that its
operations covered by this agreement or any part thereof shall not be sold,
conveyed or otherwise transferred or assigned to any successor without first
securing the agreement of the successor to assume the Employer's obligation
under this Agreement to offer employment to all of the Employer's current
employees.
ARTICLE 2 - RECOGNITION AND UNION MEMBERSHIP
- --------------------------------------------
2.1 The Company recognizes the Union as the sole and exclusive
bargaining agent for all employees in the bargaining unit certified by the
National Labor Relations Board in Case No. 5-OS-12559.
2.2 It is agreed that all employees covered by this agreement shall
within thirty-one (31) days after the execution hereof, or thirty-one (31) days
after their employment during the term of this Agreement become a member of the
Union and remain a member thereof for the duration of this Agreement.
2.3 The starting wages in Appendix "A" shall apply to all new employees
and each new employee is to be on probation for a period of ninety (90) days.
If during the probationary period it is found that the new employee is not
suitable for the business, his/her services are to be terminated at the
Employer's discretion.
ARTICLE 3 - CHECK-OFF AND DRIVE
- -------------------------------
3.1 The Company agrees to deduct initiation fees and monthly dues from
the pay of all employees upon receipt of
<PAGE>
individually signed voluntary authorization cards as required by Section 302 of
the Labor/Management Relations Act and remit same to the Secretary/Treasurer of
the Union.
3.2 DRIVE AUTHORIZATION AND DEDUCTION - The Company agrees to deduct
---------------------------------
from the pay check of all employees covered by this Agreement voluntary
contributions to DRIVE. DRIVE shall notify the Company of the amounts
designated by each contributing employee that are to be deducted from his/her
pay check on a weekly basis for all weeks worked. The phrase "weeks worked"
excludes any week other than a week in which the employee earned a wage. The
Company shall transmit to DRIVE National Headquarters on a monthly basis, in one
check, the total amount deducted along with the name of each employee on whose
behalf a deduction is made, the employees' social security number and the amount
deducted from the employees' pay check. The Union will submit to the Company
all deduction authorizations during a thirty (30) day period each year, or, in
the case of a new hire, within thirty (30) days following the date of
employment.
ARTICLE 4 - WORK WEEK/SHIFTS
- ----------------------------
4.1 The guaranteed basic work week for all employees shall be forty (40)
hours per week, consisting of five (5) eight (8) hour days provided the employee
is available for work as scheduled. For the purpose of this agreement the basic
work week shall be from Monday through Saturday, inclusive. Sunday work shall
be isolated and shall not be part of the basic work week. Any employee may
voluntarily agree to work fewer than his scheduled hours on any work day.
4.2 Each employee who reports for work on his regularly assigned work
day shall be guaranteed eight (8) hours work at the employee's straight time
hourly rate; provided that any employee may voluntarily agree to work fewer than
his scheduled hours on any work day.
4.3 Each employee who reports for work on the first scheduled day of the
week and remains available and able for work the required week's schedule shall
be guaranteed pay at the employee's straight-time hourly rate. This guarantee
shall not apply in cases of strikes, Acts of God, power failures and other
conditions beyond the control of the Company.
4.4 The Company may establish as many shifts as necessary and the
starting time of such shifts shall be optional with the Company. It is agreed,
however, there will be no split shifts.
4.5 Employees shall bid one (1) time each year by seniority for shifts
newly created job, and permanently vacated jobs shall allow for an additional
bid.
2
<PAGE>
ARTICLE 5 - OVERTIME AND SUNDAY WORK
- ------------------------------------
5.1 Overtime shall be paid for work in excess of 8 hours in any one (1)
day or forty (40) hours in any one (l) week.
5.2 Overtime work when required by the Company shall be paid at time and
one half (1/2) times the straight time hourly rate.
5.3 Sunday work between the hours of 12:00 midnight Saturday and 11:59
P.M. Sunday shall be paid at one and one half (1/2) time the straight time
hourly rate.
5.4 There shall be no pyramiding of overtime.
ARTICLE 6 - HOLIDAYS
- --------------------
6.1 Each employee under the jurisdiction of this Agreement shall receive
the following holidays with full pay:
New Years Day Thanksgiving Day
Memorial Day Christmas Day
Independence Day Employee's Birthday
Labor Day Two Personal Day (see Section 15.5)
*Easter Monday
or the day celebrated by the Federal Government in lieu thereof.
* All employees employed as of the date of this agreement.
6.2 To be eligible to receive holiday pay, the employee shall be at work
on the scheduled working day preceding and following such holiday, except for
those on vacation or authorized leave. Holiday pay shall be given an employee
who is prevented from working on the employee's scheduled day before or the
employee's scheduled day after the holiday because of illness to the employee,
or the employee's spouse or child of such a serious character as to require the
employee to remain away from work. This seriousness must be attested to by a
physician. If a holiday falls on an employee's assigned day off, the employee
will be given the preceding or following work day off in lieu of the holiday,
unless the employee and Company mutually agree to designate another day off in
lieu of the holiday.
6.3 Whenever there is a holiday occurring during the work week,
employees will be paid overtime above the thirty-two (32) hours in that
particular week.
6.4 All hours worked between 12 midnight and 11:59 p.m. on any holiday
shall be paid at time and one half (1/2) the employee's straight time hourly
rate plus eight (8) hours pay at the employee's straight time hourly rate for
the holiday.
3
<PAGE>
ARTICLE 7 - BULLETINS
- ---------------------
The Company agrees to make available a bulletin board for the posting of
notices and literature from the Union.
ARTICLE 8 - RELIEF PERIOD
- -------------------------
8.1 A relief period of fifteen (15) minutes shall be granted to each
employee at approximately the middle of each half of the work shift. An
additional ten (10) minutes shall be allowed prior to the beginning of any
overtime work. All relief periods will be with pay.
8.2 There shall be a thirty (30) minute unpaid meal break at
approximately the middle of the shift.
ARTICLE 9 - FIDELITY BONDS
- --------------------------
When the Company requires a fidelity bond of any employee, the premium of
said bond shall be paid by the Company.
ARTICLE 10 - UNIFORMS
- ---------------------
The Company shall furnish each driver covered by this Agreement three (3)
sets of uniforms at no cost to the employee. The Company shall furnish insulated
coveralls to fork lift operators who are regularly assigned to work in the walk-
in coolers and a rubber apron and rubber gloves for employees who work the "wet
refrigerators".
ARTICLE 11 - WAGES
- ------------------
11.1 Wage scales are set forth in Appendix "A" attached hereto and made
part hereof.
A. All employees at top rate shall receive a fifty (50) cents per
hour increase for forty (40) hours per week retroactive to April 1, 1992; the
fifty (50) cents shall be added to the rate. A bonus of $250.00 will be paid to
all other employees.
B. All employees shall receive a forty (40) cents per hour
increase beginning on the date of this Agreement.
ARTICLE 12 - DISCHARGE
- ----------------------
12.1 The Employer shall have the right to discharge or discipline any
employee for good cause such as dishonesty, intoxication during working hours,
drinking, gambling or fighting on the Employer's premises, or direct refusal to
obey orders by the Employer which are not in violation of this Agreement,
provided, however that no employee shall be discharged or discriminated against
because of membership in the union or for union activities.
4
<PAGE>
12.2 In the event that an employee's work is unsatisfactory, the employee
shall be given at least one (1) written notice before disciplinary action is
taken and a copy of this notice shall be sent to the union at the same time.
Notices and warnings shall become null and void after twelve (12) months from
the date of issue.
ARTICLE 13 - SENIORITY
- ----------------------
13.1 Seniority means the total length of service in years, months and
days from the time the employee last entered the bargaining unit. The Company
recognizes the principle that length of satisfactory service should be rewarded
by proportionable security and opportunity for promotion provided that the
employee has the ability to perform the work.
13.2 When it is necessary for the Company to lay-off employees due to
lack of work, those employees last hired shall be first for such lay-off, by
seniority.
13.3 When it is necessary for the Company to rehire employees after a
lay-off, those employees laid off shall be given first opportunity before anyone
else, in reverse order of lay-off.
ARTICLE 14 - VACATION
- ---------------------
14.1 All employees with the following length of service will have earned
and will be entitled to an uninterrupted vacation with full pay:
ANNUAL VACATION PRO-RATA VACATION ON TERMINATION
- --------------- --------------------------------
<TABLE>
<CAPTION>
ANNUAL VACATION PRO-RATA VACATION ON TERMINATION
- --------------- --------------------------------
<S> <C>
1 wk after 1 year 1/12 wk for each additional month
2 wks after 3 years 2/12 wk for each additional month
3 wks after 8 years 3/12 wk for each additional month
4 wks after 20 years 4/12 wk for each additional month
</TABLE>
14.2 All weeks shall be open for selection of vacations, provided that no
more than 10% of the employees on each shift, shall be allowed to take vacation
during the seven (7) calendar days prior to Thanksgiving, Christmas and the
Fourth of July; 20% during all other weeks of the year.
14.3 The Company will accept vacation bids between January 1 and January
30 of each year at which time selection shall be awarded by seniority within
classification. Vacation requests after January of each year shall be awarded
on a first-come, first-serve basis.
5
<PAGE>
ARTICLE 15 - LEAVES OF ABSENCE
- ------------------------------
15.1 Paid Sick Leave
---------------
A. Employees shall accrue sick leave at the rate of six (6) days
per year at an accrual rate of .923 hours per week (maximum carry over of four
(4) weeks).
B. In order to receive sick leave payments, an employee must be
absent from work because of a disability caused by sickness or noncompensable
accident (not the result of the employee's misconduct, intentionally self-
inflicted injury or gross negligence) and the disability must be of such degree
that he is physically unable to work. The employee will be compensated at 75%
of their regular wages.
C. Employee must notify Company of such illness on the first day
of absence, unless illness is of such nature that employee is rendered incapable
of compliance with this requirement.
D. A doctor's certificate may be required for payment of sick
leave that extends past the third consecutive work day.
E. Maternity leave shall be treated as any other type of medical
leave.
15.2 Funeral Leave
-------------
In the case of death in the immediate family (parent, spouse, child,
brother, sister, grandparent, parent-in-law, or legal guardian), employees who
have completed the probationary period requiring the employee's absence from his
regularly scheduled assignment, the employee shall be granted a leave of absence
with pay of three (3) work days.
15.3 Military Service
----------------
Employees enlisted or entering the military or naval services of the
United States, pursuant to the provisions of the Selective Service Act, shall be
granted all rights and privileges provided by the Act.
15.4 Jury Duty
---------
Employees summoned and serving on juries will be granted time off
when needed for jury duty and will receive the difference between their
straight-time weekly pay and the amount received while on jury duty.
15.5 Personal Leave
--------------
Full time employees who complete six (6) months of continuous service with
the Employer shall be entitled to two (2) personal
6
<PAGE>
holidays each calendar year, at a mutually agreed time, with one (1) week prior
notice to the Warehouse Manager.
15.6 Leave For Other Reasons
-----------------------
A. The Company shall grant a leave of absence for up to sixty
(60) days without pay to employees who have completed one (1) year of service
upon one (1) week's notice covering the following reasons:
1. Settlement of an Estate
2. Serious illness or a death of a family member
3. Official Union business
B. The Company may grant other leaves of absence without pay for
other good reasons.
ARTICLE 16 - PROTECTION OF RIGHTS
- ---------------------------------
It shall not be a violation of this Agreement and it shall not be cause
for discharge or disciplinary action in the event an employee refuses to enter
upon any property involved in a lawful primary labor dispute, or refuses to go
through or work behind any lawful primary picket line, including the lawful
primary lines of the Union party to this Agreement and including lawful primary
picked lines at the Company's place of business, provided the picket line has
the approval of the International Brotherhood of Teamsters and the Teamsters
Joint Council No. 55 of Washington, D.C.
ARTICLE 17 - NO STRIKE OR LOCKOUT
- ---------------------------------
The Union agrees that there will be no strike, picketing or other stoppage
of work and the Company agrees that there will be no lockout during the
continuance of this Agreement.
ARTICLE 18 - GRIEVANCE AND ARBITRATION
- --------------------------------------
18.1 It is agreed that should any grievance or dispute arise between the
parties regarding the terms of this Agreement, such matter must be filed in
writing within ten (10) days of the alleged occurrence. An attempt will be made
by the parties to settle the controversy within ten (10) days after receipt of
the alleged grievance. If agreement cannot be reached within the 10 days,
either party may request arbitration by notification in writing to the Federal
Mediation and Conciliation Service with a copy to the other party. An
arbitrator shall be selected by alternately striking from a list submitted by
the Federal Mediation and Conciliation Service as soon as possible thereafter.
18.2 The decision of the Arbitrator shall be final and binding on both
parties hereto.
7
<PAGE>
18.3 The expense of the Arbitrator shall be borne equally by the Company
and the Union.
18.4 It is expressly understood and agreed that the Arbitrator is not
authorized or empowered to change, modify, add to or subtract from this
Agreement, but is strictly limited to the interpretation and application of this
Agreement in accordance with the material submitted by the parties for his/her
determination.
ARTICLE 19 - SHOP STEWARDS
- --------------------------
The Union shall have the right to appoint or elect one (1) shop steward
and one (1) alternate shop steward per shift. The shop steward and/or alternate
shall report any contract violations to the Union and shall also with the
Union's permission discuss grievances with the Company. Shop stewards and
alternates shall not be discriminated against for carrying out the duties and
the shop steward and alternate agree that their duties shall not interfere with
their regular work responsibility.
ARTICLE 20 - HEALTH AND WELFARE
- -------------------------------
The company will maintain the current level of benefits at no cost to the
employee.
ARTICLE 21 - PROFIT SHARING PLAN
- --------------------------------
The Company will maintain its profit sharing plan.
ARTICLE 22 - SEPARABILITY AND SAVINGS CLAUSE
- --------------------------------------------
If any article or Section of this Agreement or of any Supplements or
Riders thereto should be held invalid by operation of law or by any tribunal of
competent jurisdiction, or if compliance with or enforcement or any Article or
Section should be restrained by such tribunal pending a final determination as
to its validity, the remainder of this Agreement and of any Supplements or
Riders thereto, or the application of such Article or Section to persons or
circumstances other than those as to which it has been held invalid or as to
which compliance with or enforcement of has been restrained, shall not be
affected thereby.
In the event that any Article or Section is held invalid or enforcement of
or compliance with which has been restrained, as above set forth, the parties
affected thereby shall enter into immediate collective bargaining negotiations
after receipt of written notice of the desired amendments by either Company or
Union for the purpose of arriving at a mutually satisfactory replacement for
such Article or Section during the period of invalidity or replacement within
sixty (60) days after receipt of the stated written notice, either party shall
be permitted all legal or economic recourse in support of its demands
notwithstanding any provisions of this Agreement to the contrary.
8
<PAGE>
ARTICLE 23 - LOSS OR DAMAGE
- ---------------------------
Employees shall not be charged for loss or damage unless clear proof of
gross negligence is shown. This Article is not to be construed as permitting
charges for loss or damage to equipment under any circumstances.
ARTICLE 24 - INSPECTION PRIVILEGES
- ----------------------------------
The Union representative shall be permitted, after contacting management
and obtaining the Company's consent, to have the right to enter and visit the
Company's premises during working hours, provided that no conferences and
meetings between employees and Union representatives shall, in any way, stop,
hinder or obstruct the normal flow of work.
ARTICLE 25 - SUBCONTRACTING
- ---------------------------
The Company shall reduce contract haulers before any current drivers are
laid off. Current employees who are laid off shall have the right to bump
within the bargaining unit according to seniority and retain their rates of pay.
In the event that any driver employed on the date of this Agreement is
permanently laid off as a result of subcontracting, the Company shall provide
severance pay to such employee at the rate of one (l) weeks pay per year of
service up to a maximum of thirty (30) days pay.
ARTICLE 26 - DEFECTIVE EQUIPMENT AND DANGEROUS CONDITIONS OF WORK
- -----------------------------------------------------------------
The Company shall not require employees to take out on the streets or
highways any vehicle that is not in safe operating condition or equipped with
the safety appliance prescribed by law. It shall not be a violation of this
Agreement where employees refuse to operate such equipment unless such a refusal
is unjustified. All equipment which is refused because not in safe condition or
properly equipped, shall be appropriately tagged so that it cannot be used by
other drivers until the equipment is certified as sound by the Company. After
equipment is repaired, the Company shall place on such equipment as "OK" in a
conspicuous place so the drive can see the same.
Under no circumstances will an employee be required or assigned to engage
in any activity involving dangerous conditions of work or danger to person or
property or in violation of any applicable statute or court order, or in
violation of government regulation relating to safety of person or equipment.
The term "dangerous conditions of work" does not relate to the type of cargo
which is hauled or handled. Any employee involved in any accident shall
immediately report said accident. When required by his Company, the employee,
before starting his next shift, shall make out an accident report in writing on
forms furnished by the Company and shall turn in all available names and
addresses of witnesses to the accident. Failure to comply with this provision
shall subject such employee to disciplinary action by the Company.
9
<PAGE>
Employees shall immediately, or at the end of their shift, report all
defects of equipment. Such reports shall be made on a suitable form furnished
by the Company and shall be made in multiple copies, one copy to be retained by
the employee. The Company shall not ask or require any employee to take out
equipment that has been reported by any other employee as being in an unsafe
operating condition until same has been approved as being safe by the mechanical
department.
When the occasion arises where an employee gives written report on forms
in use by the Company of a vehicle being in an unsafe working or operating
condition, and receives no consideration from the Company, he shall take the
matter up with the officers of the Union who will take the matter up with the
Company.
The Company shall install heaters and defrosters on all trucks and
tractors.
ARTICLE 27 - MANAGEMENT RIGHTS
- ------------------------------
The Company retains the sole right to manage its business in all its
phases and details and to direct the work force; provided, however, such rights,
in no event, shall be so exercised to infringe on the rights of any employees
under this Agreement.
ARTICLE 28 - TERM OF AGREEMENT
- ------------------------------
This Agreement shall continue in effect from July 6, 1993, to July 6,
1998, and shall continue in effect from year to year thereafter unless either
party serves notice in writing on or before July 6, 2998, or on or before July
6th of any year thereafter of a desire for termination of or for changes in the
Agreement. In the event either party serves such notice in respect to changes
in the Agreement, the Employer and the Union shall immediately begin
negotiations on the proposed changes, and that pending the termination of
negotiations, neither party shall change conditions existing under the
Agreement, it being understood and agreed that either party may in its own
discretion, by written notice, unilaterally terminate such negotiations whenever
it so desires.
FOR THE COMPANY FOR THE UNION
/s/ Robert Herman /s/ Roy E. Essex
- --------------------------- --------------------------------
Executive V.P. /s/ Louis W. Mclaughlin
- --------------------------- --------------------------------
Jumbo Produce, Inc. 12/27/93
- --------------------------- --------------------------------
10
<PAGE>
APPENDIX "A"
PRODUCE WAREHOUSE RATES
82-83 (Porter, Traffic Coordinator, Wrapper)
<TABLE>
<CAPTION>
Warehouse 4/1/92 7/6/93 7/6/94 7/6/96 7/6/96 7/6/97
- --------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Start 8207 5.00 5.00 5.00 5.00 5.00
90 days 8217 5.50 5.50 5.50 5.50 5.50
6 months 8227 6.00 6.00 6.00 6.00 6.00
12 months 8237 6.50 6.50 6.50 6.50 6.50
18 months 8247 7.00 7.00 7.00 7.00 7.00
24 months 8257 7.50 7.50 7.50 7.50 7.50
30 months 8267 8.25 8.25 8.25 8.25 8.25
36 months 8277 9.75 10.15 10.55 10.95 11.35 11.75
84-85 (Selector)
- -----------------
Start 8407 6.50 6.50 6.50 6.50 6.50
90 days 8417 7.00 7.00 7.00 7.00 7.00
6 months 8427 7.50 7.50 7.50 7.50 7.50
12 months 8437 8.00 8.00 8.00 8.00 8.00
18 months 8447 8.50 8.50 8.50 8.50 8.50
24 months 8457 9.25 9.25 9.25 9.25 7.25
30 months 8467 10.00 10.00 10.00 10.00 10.00
36 months 8477 11.75 12.15 12.55 12.95 13.35 13.75
86-87 (Drivers)
- ----------------
All at 8647 13.75 14.75 15.25 15.75 16.25 16.75
88-89 (Forklift)
- -----------------
Start 8807 7.00 7.00 7.00 7.00 7.00
90 days 8817 7.50 7.50 7.50 7.50 7.50
6 months 8827 8.00 8.00 8.00 8.00 8.00
12 months 8837 8.50 8.50 8.50 8.50 8.50
18 months 8847 9.25 9.25 9.25 9.25 9.25
24 months 8857 10.00 10.00 10.00 10.00 10.00
30 months 8867 11.50 11.50 11.50 11.50 11.50
36 months 8877 13.00 13.40 13.80 14.20 14.60 15.00
80-81 (Shipper/Receiver)
- ------------------------
Start 8001 8.50 8.50 8.50 8.50 8.50
90 days 8012 9.00 9.00 9.00 9.00 9.00
6 months 8023 9.50 9.50 9.50 9.50 9.50
12 months 8034 10.00 10.00 10.00 10.00 10.00
18 months 8045 10.50 10.50 10.50 10.50 10.50
24 months 8056 11.25 11.25 11.25 11.25 11.25
30 months 8067 12.25 12.25 12.25 12.25 12.25
36 months 8078 14.00 14.40 14.80 15.20 15.60 16.00
</TABLE>
11
<PAGE>
Exhibit 10.4
AGREEMENT BETWEEN
SHOPPERS FOOD WAREHOUSE CORPORATION
(FORMERLY JUMBO FOOD STORES, INC.)
AND
UNITED FOOD AND COMMERCIAL WORKERS
UNION LOCAL #27
EFFECTIVE: OCTOBER 1, 1993
EXPIRES: SEPTEMBER 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Agreement................................................................ 1
Witnesseth............................................................... 1
Management Authority..................................................... 1
Recognition.............................................................. 2
Union Security........................................................... 3
Hours and Overtime....................................................... 4
Wages and Employee Classification........................................ 9
Night Shift Employees.................................................... 13
Working Conditions....................................................... 14
Vacations................................................................ 16
Holidays................................................................. 19
Leaves of Absence........................................................ 20
Jury Duty................................................................ 21
Seniority................................................................ 22
Store Card or Decal...................................................... 25
Shop Steward............................................................. 25
Health and Welfare....................................................... 26
Pension Fund............................................................. 27
Voluntary Check Off...................................................... 27
Grievances and Arbitration............................................... 28
Legal.................................................................... 29
Military Service......................................................... 30
Successorship............................................................ 30
No Strikes and Lockouts.................................................. 31
Invalidation............................................................. 31
Duration of Contract..................................................... 32
Health and Safety........................................................ 33
Schedule "A" Wages....................................................... 35
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Military Service......................................................... 30
Successorship............................................................ 30
No Strikes and Lockouts.................................................. 31
Invalidation............................................................. 31
Duration of Contract..................................................... 32
Health and Safety........................................................ 33
Schedule "A" Wages....................................................... 35
</TABLE>
iii
<PAGE>
Exhibit 10.4
AGREEMENT
---------
PARTIES TO AGREEMENT
- --------------------
THIS AGREEMENT made and entered into this __ day of July, 1993,
between SHOPPERS FOOD WAREHOUSE CORPORATION (formerly Jumbo Food Stores,
Incorporated), Washington, D. C. (hereinafter referred to as "Employer"), and
UNITED FOOD AND COMMERCIAL WORKERS UNION, LOCAL 27, of Baltimore, Maryland,
chartered by the United Food and Commercial Workers International Union, AFL-CIO
(hereinafter referred to as the "Union").
WITNESSETH
- ----------
WHEREAS, the Employer and the Union in the performance of this
Agreement agree not to discriminate against any employee or applicant for
employment because of race, color, religious creed, origin, age or sex; and
WHEREAS, the parties hereto desire to establish and maintain a mutual
understanding to create harmonious relations between the Employer and the
employees, and to abide by this Agreement to settle any and whatever dispute may
arise between them, it is, therefore, by both parties understood and agreed
that:
ARTICLE I
---------
MANAGEMENT AUTHORITY
--------------------
1.1 The authority and responsibility for the management of the
business, including but not limited to, the planning, direction and control of
the work force shall repose
1
<PAGE>
exclusively in the Employer and its appointed representatives, except as
provided in this Agreement.
1.2 In the event that the Employer contemplates the introduction of
major technological changes affecting bargaining unit work within the Grocery
Department, advance notice of such changes will be given to the Union. If
requested to do so, the Employer will meet with the Union to discuss the
implementation of such changes before putting such changes into effect.
ARTICLE II
----------
RECOGNITION
-----------
2.1 The Employer recognizes the Union as the exclusive bargaining
agency for all of its employees, except Store Managers and Receivers and
Management Trainees, Security Personnel and Lottery Operators, in its retail
food stores coming under the jurisdiction of the United Food and Commercial
Workers Union, Local 27.
2.2 The Employer further agrees that if the Employer should establish
a new food store, or stores, within the territories described in Article II,
paragraph 2.1, this Agreement shall apply to such new store or stores.
2.3 All meat, fish or poultry, fresh, chilled, frozen, cooked or
smoked, historically or customarily offered for sale by the Employer in its
retail meat departments in the area covered under Article 2.1, shall be within
the jurisdiction of the United Food & Commercial Workers, Local 27, and all
employees engaged in these services shall be members of the United Food and
Commercial Workers Union. Items referred to, processed off the premises, will
continue to be handled by said members.
2
<PAGE>
1. The Employer further agrees that all fresh meat products will be
cut, prepared and sold by the employee in the store covered by this Agreement.
2. Exceptions may be made provided the Union is notified in advance
and given written assurance that no member's job will be eliminated as a result
of such exception. The Union agrees that it will not withhold its agreement.
3. For the purpose of this paragraph, notified shall mean a letter
for each individual introduction of a class of product (e.g., boneless sub
primal cuts of meat, deveined liver, rolled veal, etc.).
Member shall mean full time employees on the payroll actively at work
on the effective date of this Agreement or who are on leave of absence or who
are sick or injured and return to work as elsewhere provided for in this
Agreement.
This Agreement shall not be construed as restricting a sales
representative from displaying merchandise such as beverages, perishable bakery
products, potato and corn chips, cookies and kitchen non food items that are
presently serving the Jumbo Food Stores Washington Division.
It is not the Union's intention to impede progress in our Industry
with respect to any new method of cutting and packaging meat, delicatessen and
seafood products, and the necessity for change to accommodate a changing
society.
ARTICLE III
-----------
UNION SECURITY
--------------
3.1 It shall be a condition of employment that all employees of the
Employer covered by this Agreement who are members of the Union in good standing
on the effective date of this Agreement shall remain members in good standing
and those who are not
3
<PAGE>
members on the effective date of this Agreement shall, on, the 31st day
following the effective date of this Agreement, become and remain members in
good standing in the Union. It shall also be a condition of employment that all
employees covered by this Agreement hired on or after its effective date, shall,
on the 31st day following the beginning of such employment, become and remain
members in good standing in the Union. For the purpose of this section, the
execution date of this Agreement shall be considered as the effective date.
3.2 The application of Paragraph 3.1 above is deferred in any
jurisdiction where the Union Shop is not permitted by law, except for the
purpose of representation, unless and until such law is declared
unconstitutional or is repealed or otherwise becomes inoperative as to the
operations of the Employer.
3.3 The Employer will notify the Union in writing, within twenty-five
(25) days from the date of employment, reinstatement or transfer into the
bargaining unit of any employee, of the name of such employee, the home address,
place of employment, social security number, and job classification, and the
date of employment, reinstatement or transfer. Upon termination of an employee
for any reason the Employer shall within thirty (30) days thereafter notify the
Union in writing of such termination.
ARTICLE IV
----------
HOURS AND OVERTIME
------------------
4.1 The guaranteed basic work week for all full time employees shall
be forty (40) hours per week, consisting of five (5) eight (8) hour days
providing the employee is available for work as scheduled. For the purpose of
this Agreement the basic work week shall be from
4
<PAGE>
Monday through Saturday inclusive. Sunday work shall be isolated and shall not
be a part of the basic work week.
4.2 All time worked by an employee in excess of eight (8) hours in
any one day or forty (40) hours in any work week, or in excess of thirty-two
(32) hours in any week in which one of the specified holidays fall, shall be
deemed overtime unless otherwise specified in Schedule "A". Such overtime work
shall be paid for at the rate of time and one-half the employee's regular rate
of pay, but the employee shall not be compensated for both daily and weekly
overtime. Hours which qualify for Sunday or Holiday premium pay shall not be
included in computing weekly overtime.
4.3 Employees who work an eight (8) hour shift shall work eight (8)
hours in a period of either eight and one-half (8 1/2) or nine (9) consecutive
hours and shall be granted an uninterrupted meal period of either one (1) or
one-half (1/2) hour beginning not before three (3) hours of work nor later than
five (5) hours of work. A half hour meal period shall be assigned only by mutual
agreement. Employees who work a shift of less than eight (8) hours but more than
five (5) hours shall be granted an uninterrupted meal period of one-half (1/2)
hour, not before three (3) hours of work nor later than four (4) hours of work.
4.4 The meal period for night crew workers shall be one-half (1/2)
hour and the eight (8) hour shift shall be worked in the period of eight and
one-half (8 1/2) consecutive hours.
4.5 The Employer may establish as many shifts as necessary, and the
staring time of such shifts shall be optional with the Employer. There will be
no split shifts.
5
<PAGE>
4.6 Any full time employee who works later than 6:00 p.m. more than
three (3) nights in any week shall be paid time and one-half (1 1/2) for the
hours after 6:00 pm. on the fourth (4th) or subsequent nights, even though they
may be a part of the regular shift.
4.7 Any employees transferred into the bargaining unit from any other
part of the Company shall retain their last employment date for the purpose of
computing benefits, but their seniority date shall be otherwise established as
of the date they commenced working in the bargaining unit.
4.8 Work assignments for Sunday and holiday work shall be offered
first to employees by classification within the store on a rotating basis from
among the work force who volunteered for such work by making the request in
writing to the Employer. In the event sufficient volunteers are not available,
the Employer may elect to draw volunteers from other stores or direct employees
to work by inverse order of seniority on a rotating basis within the store. The
Employer may take into consideration the employees ability to perform the work
involved. The weigher and wrapper, if qualified, and the deli clerk for the
purpose of this paragraph, shall be considered the same classification.
4.9 Overtime for employees assigned to the night shift shall be
computed on the basis of base pay plus premium pay.
4.10 On days where overtime is worked, if a second meal period is
taken, it shall consist of one-half (1/2) hour duration only.
4.11 Part time employees may be employed a maximum of thirty-five
(35) hours per week. In any week in which a part time employee works in excess
of the hours specified above, the employee shall be paid for all hours worked at
his appropriate full time hourly rate. When a part time employee is scheduled
and/or works forty (40) hours a week for more
6
<PAGE>
than six (6) consecutive weeks and the work is not temporary (i.e., vacation
and/or absence coverage), a full time position will be deemed to have been
created. Such a full time position within the store and department where the
work was performed will be filled in accordance with the following procedures:
A. Notice of the available position will be posted seven (7) days within
the store. Part time employees, within the department where the
available position exists, who express in writing a desire to fill the
full time position will be selected by seniority and ability to do the
work.
B. If the position cannot be filled in accordance with paragraph A above,
other part time employees within this store may be selected on the
same basis.
C. If the position cannot be filled in accordance with paragraph A or B
above, an employee will be selected in accordance with Section 12.7.
No part time employee shall be employed for less than four (4) hours in a
day, unless he is not available for four hours, in which case the minimum shall
be three (3) hours. Part time employees who report to work pursuant to
instructions and are not given work shall be paid for four (4) hours if
available, but in no event for less than three (3), except employees who
voluntarily leave or unless such work is unavailable due to an emergency or act
of God not within the control of the Employer.
Each calendar quarter, part time employees may be scheduled for less than
four (4) hours but not less than one (1) hour to attend a store employee's
meeting.
4.12 Full time employees reporting for work at their scheduled time or on
instructions from their Employer shall be guaranteed eight (8) hours at straight
time rate of pay for the employee's scheduled work days and four (4) hours with
pay for non-scheduled
7
<PAGE>
days at the overtime rate of pay. Unless such work is unavailable due to an
emergency or act of God not within the control of the Employer.
4.13 The Employer agrees to post a weekly schedule, in ink, with employee's
names listed in order of seniority, and in the time clock area by noon on
Saturday of the week preceding the week for which the schedule is effective, of
working hours specifying the stating and finishing times and regular days off.
The schedule shall contain the employee's full names and shall have the
scheduled hours of each employee totaled at the end of the column. The schedule
for night crew and those scheduled off on Saturday must be posted prior to the
end of those employees' scheduled shift on Friday of the week preceding the week
for which the schedule is effective.
The schedule for all full time employees showing the starting and finishing
time and regular days off shall not be altered after it is posted, except by
mutual agreement. Each full time employee shall regularly receive the same day
off each week except for weeks when business conditions may require a change in
their regular day off. A seven (7) day written notice must be given in order
for a full time employee's regularly scheduled day off to be changed except as
referred to above.
A part time schedule shall be complete and reflect the anticipated basic
need for the store's requirements for the week.
4.14 All employees shall be given only one fifteen 15 minute rest period
---------------------
approximately in the middle of each four (4) hour shift.
4.15 Employees who sustain an occupational injury requiring treatment by a
doctor or hospital shall suffer no loss in pay for the day the injury occurs
provided the employee returns to work unless otherwise instructed in writing by
the attending doctor. Such injury
8
<PAGE>
shall not be cause for termination of employees with more than one year's
service provided he is physically able to perform his normal duties and, if not,
in this event the Employer shall attempt to place such employees in another job
classification. This provision shall be applicable for one year from last day
worked.
ARTICLE V
---------
WAGES AND EMPLOYEE CLASSIFICATION
---------------------------------
5.1 Employees shall be paid according to the wage scales set forth in
Schedule "A" attached hereto and made a part hereof, provided, however, that
employees paid above the top rate in their classifications shall receive the
following hourly wage increases:
5.2 The minimum wages provided in Schedule "A" shall apply to all new
employees and each new employee is to be on probation for a period of Ninety
(90) days. If during the Ninety (90) day period it is found that the new
employee is not suitable for the business, his services are to be terminated at
the Employer's discretion.
5.3 An employee who has worked within the industry during the past one (1)
year shall be credited with all previous supermarket experience in the same type
of work, or in the case of general merchandising or bakery employees, all
previous experience in a similar capacity, proven by verification or ability,
which shall be recognized as seniority for the purpose of establishing the pay
scale to which the employee is entitled. The Employer, employee, and the Union
will make every effort to verify all previous experience on the employee's
application. If, however, complete information cannot be obtained within the
first three (3) months of employment, the pay scale shall be determined by the
Employer on the basis of whatever verification of experience has become
available and the employee's ability.
9
<PAGE>
The Employer agrees to notify the Union no later than forty-five (45) days after
employment if complete verification of experience has not been obtained.
All previous experience of any employee in the same type of work in a
retail meat business within the past three (3) years, proven by verification
and/or ability, shall be recognized as experience for the purpose of
establishing the pay scale to which the employee is entitled. The Employer,
employee and the Union will make every effort to verify all previous experience
claimed on the employee's application. If, however, complete information cannot
be obtained within the first three (3) months of employment, the pay scale shall
be determined by the Employer on the basis of whatever verification of
experience has become available and the employee's ability. The Employer agrees
to notify the union no later than forty-five (45) days after employment if
complete verification of experience has not been obtained.
5.4 The service record of any new employee retained after the probationary
period of ninety (90) days shall date from the time of such employee's original
employment. The salary of such employee shall be retroactive to the date of
employment.
5.5 A part time employee when assigned to full time work shall be credited
for his accumulated part time hours and placed on the salary scale to which he
would have been entitled had these hours been accomplished as a full time
employee.
When a higher classified employee is absent from his position and another
employee performs the job of the higher classified employee for the entire work
week of the replaced employee, he shall receive the appropriate rate of pay of
the higher classification.
An employee promoted to a higher classification shall suffer no reduction
in his hourly wage rate.
10
<PAGE>
5.6 Department Heads may be assigned in stores where designated by
Employer and where assigned, they will be paid the prevailing rate as listed in
Schedule "A".
5.7 Courtesy Clerks may be assigned in stores designated by the Employer.
The duties of Courtesy Clerks shall be limited to general cleaning up, bagging,
setting out cases, carrying out customers' packages, unloading trucks, attending
parking lot, cleaning in the immediate area of the checkstand, pulling cardboard
and racking bottles. It shall be a violation of this contract for courtesy
clerks to perform any duties other than those specified above. In order to
remedy violations of this section the parties agree as follows:
A. The Employer shall post in each of its stores a notice to the
employees signed by an authorized Employer representative instructing
all employees of the duties of courtesy clerks, and instructing all
employees the performance of any other duties constitutes a violation
of the contract.
B. During any shift in which a courtesy clerk performs any work other
than the above specified duties, the courtesy clerk will receive the
higher classified rate of pay for the entire shift.
C. Courtesy clerks hired after October 1, 1993 are not eligible for
Health and Welfare benefits.
5.8 A. All meat departments shall be operated by a Head Meat Cutter, who
may be relieved by a Journeyman Meat Cutter or an Apprentice.
B. The apprenticeship program in retail stores shall be two (2)
years as provided in wage Schedule A. An apprentice is a person learning all the
details and developing manual skill for performing the duties of a Journeyman
Meat Cutter. He shall be given a meat cutting test jointly observed by
representatives of the Employer and the Union
11
<PAGE>
within his twenty-third (23rd) or twenty-fourth (24th) month. If he fails to
qualify at this time he shall continue at the same rate of pay and be given
another test at the end of his twenty-seventh (27th) month; if he fails to
qualify at this time he shall be terminated.
C. A Weigher and Wrapper is one who weighs, prices and wraps meat
cut by a Journeyman or an Apprentice. He/she displays or places said meat in
self-service cases or in storage. He/she may use slicing machine for cutting
cheese and luncheon meats; also use a knife for cutting liverwurst or any other
luncheon meat that cannot be cut by the slicing machine.
He/she is not, however, to cut beef, pork, veal, lamb, poultry or fish with
a knife or any other automatic device nor assume any work other than the above,
which normally is performed by Journeymen Meat Cutters or Apprentices. He/she
however, may perform general house cleaning chores, and also clean the cases,
work tables, etc.
D. All meat departments shall have in attendance one (1) Journeyman
or Apprentice Meat Cutter at all times during store hours; Sunday excluded,
except this provision shall not apply during meal periods in meat departments
having two (2) or fewer meat cutters.
E. In stores with three (3) or more full-time meat cutters,
including Head Meat Cutter, one shall be designated First Cutter. The First
Cutter classification applies to the store and not to the individual.
F. The First Cutter will be expected to relieve the Head Meat
Manager whenever the Meat Manager is absent at the First Cutter wage rate for a
period of one (1) week; should the period of relief exceed one (1) week he shall
be paid the relief Meat
12
<PAGE>
Manager's rate of pay for the additional relief up to and including six (6)
consecutive weeks, thereafter he shall be paid the Meat Manager's rate of pay
during the period of such relief.
G. In the event the First Cutter is absent, a Journeyman or
Apprentice may relieve the Meat Manager and shall relieve the Relief Meat
Manager for a period of two (2) consecutive weeks. After a period of six (6)
full weeks of such relief, he shall then be paid the Meat Manager's rate.
ARTICLE VI
----------
NIGHT SHIFT EMPLOYEES
---------------------
6.1 Night shift employees who work any portion of their shift between the
hours of 11 p.m. and 4 a.m. shall receive a night shift premium of fifty cents
(50c) per hour for their entire shift, in addition to their straight time rate
of pay; provided, however, that night shift employees on the payroll as of July
1,1990, who report to work at 4 a.m. shall receive the night shift differential
for all hours worked between their starting times and 6 a.m.
6.2 Employees on the night shift will receive their basic weekly wages
plus the night premium in the computation of overtime, vacation or holiday pay.
6.3 Night crew employees shall be permitted to start their shifts at 9:00
p.m. on Sundays or holidays at the straight time rate of pay plus the night
premium.
6.4 No employee shall be required to work a day and night shift in the
same work week except by mutual agreement.
6.5 Employees who want on or off the Night Crew shall bid as follows: A
request must be in writing to the Employer and will be placed on the list
referred to in Section 12.7. As day openings occur, the most senior employee on
the combined list shall be assigned to
13
<PAGE>
the job provided the employee is available to work such hours on a regular and
continuing basis.
Employees in the Meat Department who want on or off the night crew shall
bid on or off on a seniority basis in a seniority territory. No new hires shall
be employed until said bids are honored, provided that said employees do so in
writing.
ARTICLE VII
-----------
WORKING CONDITIONS
------------------
7.1 The Employer will furnish and launder all store linen which it
requires its employees to wear, except that when the Employer supplies Dacron or
similar type uniforms for employees, that may be laundered by the employee.
7.2 The Employer shall have the right to discharge or discipline any
employee for good cause such as dishonesty, intoxication during working hours,
drinking or gambling on Employer's premises, or other serious violations of
Company rules and regulations as included in the Employee Handbook, or direct
refusal to obey orders by the Employer which are not in violation of this
Agreement, provided, however, that no employee shall be discharged or
discriminated against because of membership in the Union or for Union
activities.
7.3 Representatives of the Union may visit the Employer's stores for the
purpose of observing working conditions and to see that this Agreement is being
complied with, investigating the standing of employees and inspecting the pay
records which shall be available for a reasonable length of time. Employees
shall be furnished duplicate pay vouchers weekly.
14
<PAGE>
7.4 No employee shall suffer a reduction of hourly wage rates, increase of
hours, or reduced vacation time solely by the signing of this Agreement.
7.5 If a physical examination or health permit is required by the Employer
or local government, all expenses attached to same shall be borne by the
Employer.
7.6 If any employee is required to work in more than one (1) store in the
same day, the time required for travel between the stores shall be included as a
portion of the employee's work day and considered as time worked for all
purposes.
7.7 Employees shall be at their stores ready for work at their scheduled
starting time, otherwise, they are reporting late. They shall remain at their
work until their scheduled quitting time.
7.8 Employees shall have a minimum of ten (10) hours off between the
ending of their schedule and the starting of their next schedule. Any employee
who works during this ten (10) hour period shall be paid for such time at the
rate of time and one-half (1 1/2). Any employee may elect to have an eight (8)
hour "turnaround" solely for the employee's benefit, however, the overtime
penalty would not apply. This selection must be in writing with a copy to the
Store Manager.
7.9 The Employer shall maintain a first aid kit, fully equipped, in each
store to be available for all shifts worked.
7.10 Notice concerning Union business will be posted in designated
locations in the stores, after approval by management.
7.11 No employee shall be required to make good any bad checks cashed
unless said checks are cashed in violation of the Employer's rules and
regulations, which have previously been given to the employee in writing.
15
<PAGE>
7.12 No employee shall be given a polygraph (lie detector) test, unless the
Union agrees in writing.
7.13 Time spent at legal proceedings at the request of the Employer or
Employer Counsel shall be compensated at straight time rates. Such compensation
shall also be paid for time spent at legal proceedings to which the employee is
subpoenaed to give testimony for the benefit of the Employer provided the
employee has given the Store Manager prompt notice of the subpoena. Such hours
shall not be considered as time worked in the computation of daily or weekly
overtime unless it is part of the regularly scheduled work week.
7.14 The Employer will discuss, investigate and correct any problem of
jackets or gloves in connection with frozen food lockers and dairy.
7.15 The Company shall provide mesh gloves for Seafood Clerks and Meat
Cutters. The employees shall not be required to make a deposit for these gloves
provided that the employees must wear the gloves at all times when they are
working and, provided further, that if the employee loses the gloves, the
employee is responsible for the cost of replacement.
ARTICLE VIII
------------
VACATIONS
---------
8.1 Full time employees with one (1) or more years of continuous service
shall be granted vacations as follows:
<TABLE>
<CAPTION>
ANNUAL VACATION PRO-RATA VACATIONS ON TERMINATION
- --------------- ---------------------------------
<S> <C>
One week uninterrupted after one year 1/12 week for each additional month
Two weeks uninterrupted after three years 2/12 week for each additional month
Three weeks uninterrupted after eight 3/12 week for each additional month
years
</TABLE>
16
<PAGE>
Four weeks uninterrupted after twenty 4/12 week for each additional month
years
Part time employees who have been employed for twelve (12) months shall
receive pro-rated vacation based on the average straight time hours worked
during the preceding year subject to the same conditions as pertain to full time
employees.
Full Time employees with fifteen (15) years or more of service, and
employees who reach fifteen (15) years of service during the life of the
agreement, shall receive a bonus of one (1) week's pay. Part time employees
shall receive pro-rated bonus pay based on the average straight time hours
worked during the preceding year.
8.2 Part time employees who change to full time will receive credit for
the vacation earned on the basis of forty (40) hours being equal to one (1) week
of work. In the computation of future vacations, credit shall be given for hours
worked as a part time employee and the vacation anniversary date adjusted
accordingly.
8.3 Full time employees changing to part time will continue their original
vacation anniversary date and will receive part time vacation on the basis of
average hours worked during the vacation year. The original employment date will
be the basis for determining eligibility.
Employees discharged for proven or acknowledged dishonesty shall not be
entitled to any vacation pay.
8.4 Vacation time shall be computed from date of employment or anniversary
of vacation eligibility date, and shall be taken at a time convenient to both
the employee and the Employer, and shall be paid at the rate of pay in effect at
the time the vacation is taken. An employee who is absent from work for less
than sixteen (16) weeks during his anniversary
17
<PAGE>
year shall receive his full vacation allowance but if absent for reasons other
than illness or for illness for more than sixteen (16) weeks or in the case of
Workmen's Compensation cases for more than six (6) months, he shall receive one-
twelfth (1/12) his vacation entitlement for each full month worked during the
anniversary year.
8.5 When a holiday designated in Article IX, paragraph 9.1 occurs during
an employee's vacation, the employee shall be entitled to an extra day's
vacation, said day to be continuous with employee's vacation, or cash in lieu
thereof, based on straight time pay for an eight (8) hour work day.
8.6 Seniority of employees shall be the governing factor in selection of
vacation dates.
8.7 Vacation pay is to be paid to the employee prior to the day the
vacation begins. If the employee's vacation pay is not available when he is
scheduled to leave he will be paid from store funds.
8.8 From January 1st to March 31st each year, employees shall select their
desired date for vacation for that year. Said selection will be awarded on a
seniority basis within each department. After March 31st, employees may select
vacant weeks by seniority but may not bump less senior employees who have
exercised their vacation selection during the bid period. Vacations requested
after the bid period will be honored on a first-come, first-served basis.
Employees may take vacation in any of the fifty-two (52) calendar weeks, subject
to management approval.
The vacation schedule of any employee cannot be changed, except by mutual
agreement. The vacation schedule shall be available on request by an employee.
18
<PAGE>
ARTICLE IX
----------
HOLIDAYS
--------
9.1 The Employer agrees that the following days shall be observed as
holidays for all employees. When a holiday falls on a Sunday the following
Monday shall be observed.
New Year's Day Labor Day
Decoration Day Thanksgiving Day
Independence Day Christmas Day
Part time employees will be paid four (4) hours pay if they are normally
scheduled to work on one of the above mentioned holidays. The store manager
shall maintain a list of employees who have worked four (4) of the previous five
(5) weeks on the day the holiday falls, when determining eligibility for holiday
pay.
9.2 Work performed on Sunday shall be compensated for at time and one-half
(1-1/2) the employee's straight time rate of pay.
9.3 Full time employees who complete six (6) months continuous service
with the Employer, shall be entitled to three (3) personal holidays in each
calendar year, and part time employees shall be entitled to one (1) personal
holiday per calendar year, at a mutually agreeable time, with two (2) weeks
prior notice to the store manager.
9.4 Full time employees shall be granted holiday pay based on an eight (8)
hour day. Part time employees will be paid four (4) hours pay for the holiday.
9.5 To receive the aforementioned holiday pay, an employee shall be at
work on the scheduled working day preceding and the scheduled work day following
such holiday, except for those on vacation or authorized leave. Holiday pay
shall be given to an employee who is prevented from working on his scheduled day
before or his scheduled day after the
19
<PAGE>
holiday because of illness to the employee, or the employee's wife, husband or
child, of such a serious character as to require the employee to remain away
from work. This seriousness must be attested to by a physician. Holiday pay
shall be granted to an employee who does not work his scheduled day before or
his scheduled day following the holiday in the event the employee's absence is
caused by a verified accident. Provided, however, that in all events the
employee must work at least one (1) day during the week in which the holiday
falls in order to qualify for holiday pay.
ARTICLE X
---------
LEAVES OF ABSENCE
-----------------
Subject to the following conditions, employees shall be granted leaves of
absence which shall not interrupt their service records:
10.1 Leave of absence shall be granted up to one (1) year without pay when
an employee with six (6) or more months of continuous service is unable to work
because of sickness, accident or pregnancy, and this leave shall become
effective after their final sick benefit payment is made. The disability must be
attested to by a registered physician. However, in the event such employee is
unable to return to work at the expiration of his leave period, he shall be
entitled to an additional leave of six (6) months (twelve (12) months for
workers compensation leaves) if he submits satisfactory medical evidence that he
will be able to return to his regular duties within the said additional period.
The employee must give two (2) weeks notice in writing prior to the date he
intends to return to work.
10.2 In the case of death in the immediate family, namely the death of a
parent, spouse, child, brother, sister, grandparent, parent-in-law or legal
guardian of any full time employee requiring the employee's absence from his
regularly scheduled assignments, the
20
<PAGE>
employee shall be granted leave of absence with pay of three (3) consecutive
work days; part time employees shall become eligible for leave after twelve (12)
months of continuous service.
10.3 All employees who serve in the National Guard or military reserve
units which require annual training shall be granted the necessary leave without
pay to fulfill the annual training requirements of the unit in which they serve.
Such employee shall give the Employer two (2) weeks prior notice.
10.4 Any member of the Union employed by the Employer who is elected to a
permanent office in the Union or is assigned by the Union to a Union activity
necessitating leave of absence, shall be granted such leave of absence and
shall, at the end of the term in the first instance or at the end of his mission
in the second instance be given reemployment at his former wage rate plus any
increase or less any reduction that may have become effective during his
absence.
10.5 Approved leaves of absence for reasons other than those listed above
shall not interrupt an employee's service record.
ARTICLE XI
----------
JURY DUTY
---------
All employees summoned and serving on juries will be granted time off when
needed for actual jury duty and will receive the difference between their
straight time basic weekly pay (average hours for part time employees) and the
amount received while on jury duty, except such jury duty pay which they receive
while serving on their regularly scheduled day off. During the time employees
are serving on said juries, their schedules shall be arranged to provide a shift
ending nine (9) hours after the time the employees are required to report
21
<PAGE>
for such service. An employee who is discussed from such service sufficiently
early to enable him to work four (4) hours or more of his scheduled shift shall
report to his store to complete his shift. This obligation on the part of the
Employer shall be limited to thirty (30) days in each calendar year.
ARTICLE XII
-----------
SENIORITY
---------
Except as modified by the provisions of this Collective Bargaining
Agreement, the seniority provisions of the following article shall be applied in
the same manner as the seniority articles in the respective parties' collective
bargaining agreements prior to the execution of this collective bargaining
agreement.
12.1 Seniority for the purpose of this Agreement shall be calculated by
continuous service from the last date of employment (except as otherwise
provided). A seniority list for all full time employees and a separate list for
all part time employees shall be set up by the Employer and shall be furnished
to the Union upon request. Seniority shall prevail in the following instances in
the manner as listed hereafter; A. Store, B. Entire Bargaining Unit.
12.2 The Employer recognizes the principle of seniority as being one in
which the movement of an employee from one job to another or from one location
to another through promotion, demotion, layoff, recall after layoff, or
permanent transfer, shall be governed by the length of service of the employee
and the employees ability to perform the work.
12.3 In all layoffs the ordinary rules of seniority shall prevail with due
consideration given to the job classification, fitness for the work involved,
ability to perform the work involved, and the practicability of applying the
rules of seniority in the particular case. Employees laid off for periods of
--------------
less than one (1) year shall have preference to
- ----------------------
22
<PAGE>
reinstatement in the reverse order. The service record of such reinstated
employee shall not be interrupted. Sickness does not count as layoff. Full time
employees to be reduced to part time may exercise their right to a complete
layoff without prejudice to their right to recall.
12.4 A full time employee shall have seniority over a part time employee,
to the extent that a full time employee who is laid off in order of seniority
may claim a part time schedule calling for a reduction of hours provided due
consideration is given to job classification and to fitness to perform the work
involved. Part time employees shall have seniority over other part time
employees under the same conditions.
12.5 Full time employees reduced from full time to part time through no
fault of their own will retain full time Health and Welfare coverage for a
maximum of six (6) months. The Employer will contribute the full time health and
welfare contribution for said period of time.
12.6 Seniority and the employee's ability to perform the work shall be
given consideration in regard to promotion within the bargaining unit. If the
employee fails to qualify within a reasonable time for the upgraded position, he
or she will be afforded the opportunity to return to his or her former
classification without loss of seniority. The Employer will notify the Union of
-------------------------------------
all promotions to department head classification.
- -------------------------------------------------
12.7 A part time employee when assigned to full time work shall be credited
for their part time hours and placed on the seniority list to which they would
have been entitled had these hours been accomplished as a full time employee.
Part time employees desiring full time work and lower classified food
employees desiring to be upgraded in classification shall be given preference
for such work in accordance with the following procedure:
23
<PAGE>
Employees who desire upgrading as described above shall notify the
Employer's Personnel Department in writing with a copy to the Union, during the
periods of March 1st to March 21st and September 1st to September 21st, each
year. Such letters shall remain valid for eighteen (18) months.
First consideration for any such vacancies shall be given to employees with
a current request in order of the employee's seniority with ability to do the
work to be considered. However, full time night crew employees will be given
priority consideration for available full time day vacancies within the food
clerk classification.
When the files of request letters has been exhausted, all employees
regardless of the length of service will be considered for available openings on
a store-by-store basis before seeking outside applicants.
Only requests for permanent classification change will be valid and failure
to be available thereafter for such work for a period of twenty-six (26) weeks
after obtaining such status, except for reasons beyond the employee's control
shall be barred from future requests for a period of twelve (12) months.
Failure to accept an offer of such work in any of the Employer's stores
shall result in removal of the employee's request for the balance of that six
(6) month period, but it shall not bar the employee from future requests. Except
any employee who declines a full time night crew position will not be removed
from the list for the balance of the active bid.
Part time employees who are promoted to full time will receive credit for
time worked on the basis of forty (40) hours being equivalent to one (1) week
and the employee's full time seniority date will be adjusted accordingly. The
Employer and the Union agree to exchange a list of part time employees
requesting full time jobs during the months of April
24
<PAGE>
and October each year. This list will contain the employee's name, social
security number, store number, and the date the letter was received by their
respective office. The Union shall be notified of all full time openings.
ARTICLE XIII
------------
STORE CARD OR DECAL
-------------------
The Union agrees to furnish to the Employer one Union Store Card, and/or
Decal, for each of the Employer's stores. Such card or decal shall remain the
property of the United Food and Commercial Workers International Union and shall
display such Union Card or Decal in a conspicuous area accessible to the public
in each establishment covered by this Agreement.
ARTICLE XIV
-----------
SHOP STEWARD
------------
14.1 The Union shall have the right to appoint two (2) Shop Stewards in
each store, whose duties shall be to report any irregularities to the Union. In
no instance shall the shop stewards be discriminated against for discharging
such duties, provided such duties do not unreasonably interfere with the regular
performance of their work for the Employer. Shop Stewards shall report all
irregularities to the store manager prior to reporting same to the Union.
14.2 The Shop Stewards shall not be threatened, coerced or intimidated for
performing Union activities. Shop Stewards may not be transferred, except in the
case of promotion, unless the Union agrees in writing. The Union agrees that it
shall not arbitrarily withhold such permission.
25
<PAGE>
14.3 In the interest of promoting cooperative relations, the store manager
shall introduce each new employee in his store to the Union Shop Steward within
one (1) week after the new employee reports to work. Stewards shall give the new
employee a copy of the contract and shall explain its operation. The Shop
Steward may answer any questions the employee asks him. They may request the new
employee to join the Union and may make arrangements for the new employee to
become a member.
14.4 The Union shall furnish to the Employer a complete list of shop
stewards which shall be amended from time to time as may be necessary. Shop
stewards will be granted a one (1) day leave per year with pay to attend a shop
steward seminar. The Union must notify the Employer at least two (2) weeks in
advance thereof. The shop steward must, upon retiring from the leave, present
the store manager with written evidence from the Union that the steward has used
the leave for the purpose for which the leave was intended. For purposes of the
above only, one shop steward per store will be eligible for pay for said leave.
ARTICLE XV
----------
HEALTH AND WELFARE
------------------
15.1 The Employer will continue to participate in the FELRA and UFCW Health
and Welfare Fund by making monthly contributions to said Fund in amounts
determined by the Board of Trustees necessary to maintain current and new
benefits in Plan X for each appropriate full and part time employee on the
Employer's payroll on the first day of each month. The contribution by the
Employer will commence for full time employees with the first full payroll month
following the completion of six (6) months of continuous employment with the
Employer; for part time employees contribution by the Employer will commence
26
<PAGE>
with the first full payroll month following the completion of twelve (12) months
of continuous employment with the Employer.
15.2 After twelve (12) months of continuous employment, appropriate part
time employees may apply for dependent coverage by submitting a request for
payroll deductions to the Employer. The monthly rate to be paid by the employee
shall be sixty-five dollars ($65.00). Subsequent increases in the dependent
coverage rates shall be effective when the Company is notified in writing of
such increases by the FELRA and UFCW Health and Welfare Fund.
ARTICLE XVI
-----------
PENSION FUND
------------
The Employer shall contribute to the UFCW Unions & Participating Employers
Pension Fund (hereinafter called the "Fund"), a total of fifteen cents (15c) per
hour for all straight time hours paid, for all employees not presently covered
by a union pension plan who received compensation from the Employer during the
month. The contribution by the Employer for new employees will commence with the
first full payroll week following completion of thirty (30) days of continuous
employment with the Employer, retroactive to the date of employment.
ARTICLE XVII
------------
VOLUNTARY CHECK OFF
-------------------
17.1 The Employer shall check off initiation fees and dues from all members
who authorize in writing such deductions weekly, and shall make every effort to
remit the same to the Secretary-Treasurer of Local No. 27 as soon as possible
following the last deduction each month.
27
<PAGE>
17.2 The Employer agrees to check off authorized amounts from employees'
pay checks, and remit same to the credit union office prior to the eighth (8th)
day of each month for the preceding calendar month.
17.3 The Employer agrees to check-off authorized amounts on a weekly basis
and remit on a monthly basis, from employees who sign Active Ballot Club
deduction authorization forms, to the Local 27 Active Ballot Club.
ARTICLE XVIII
-------------
GRIEVANCES AND ARBITRATION
--------------------------
18.1 In the event a grievance or dispute arises under the terms and during
the life of this Agreement that cannot be adjusted by the Union and the Employer
within a reasonable time, either party may request that such grievance or
dispute be submitted, to arbitration, as follows:
Either party shall, in writing, notify the other of the need for the
appointment of a Board of Arbitration and shall at the same time state the name
of its representative on said Board. Within three (3) days after receipt of such
notice, the other party shall designate, in writing, the name of its
representative on said Board. The two (2) members so selected shall within five
(5) days select a third (3rd) member of the Board of Arbitration. If within the
said five (5) days the two (2) members are unable to agree on the third (3rd)
member of the Board, either party may request the American Arbitration
Association to designate the third (3rd) member of the Board. The Board of
Arbitration shall meet within five (5) days after the selection of the third
(3rd) member, who shall be its Chairman, and shall conduct a hearing and receive
testimony and shall thereafter, within five (5) days, submit its findings and
render its decision in writing. The decision of a majority of the Board shall be
binding
28
<PAGE>
and conclusive on the parties hereto as well as on the parties directly affected
thereby. The expense of the third (3rd) member of the Board shall be borne
equally between the Employer and the Union. There shall be no strike or lockout
pending the decision of the Board of Arbitration. Thereafter, within five (5)
days, submit its findings and render its decision in writing. The decision of a
majority of the Board shall be binding and conclusive on the parties hereto as
well as on the parties directly affected thereby. The expense of the third (3rd)
member of the Board shall be borne equally between the Employer and the Union.
There shall be no strike or lockout pending the decision of the Board of
Arbitration.
18.2 Under all circumstances an employee or the Union must give the
Employer notice in writing of intention to contest a discharge or disciplinary
action within thirty (30) days from the date on which the employee has received
notice of the discharge or disciplinary action. If such notice is not so given,
the aggrieved party and the Union shall be deemed to have waived its or their
rights to arbitration.
ARTICLE XIX
-----------
LEGAL
-----
Effective the signing of this Agreement, the Employer shall maintain
benefits in the United Food and Commercial Workers and FELRA Legal Benefit Trust
(hereinafter referred to as the "Fund"), by making contributions in the amount
set by the Trustees of said Fund for each employee who is on the Employer's
payroll on the first day of each month. The monthly contribution by the Employer
for employees will commence with the first payroll week of the month following
the completion of one (1) year of continuous employment with the Employer.
29
<PAGE>
ARTICLE XX
----------
MILITARY SERVICE
----------------
The Employer will comply with the applicable laws of the United States
concerning the reemployment of persons leaving the military service, he shall
receive whatever vacation pay is due him. The applications of this provisions
will comply with the Military Selective Service Act of 1967 as amended. Because
the schedule of progressive wage rates provided for by Schedule "A" hereof
depends upon actual experience on the job, a person reemployed pursuant to this
Article shall, for purposes of Schedule "A", be credited only with months of
actual payroll service. A person so reemployed shall be paid the current rate
for the appropriate job classification based on his actual job experience.
ARTICLE XXI
-----------
SUCCESSORSHIP
-------------
This Agreement shall be binding upon all signatories hereto, and their
successors and assigns, whether such status is created by sale, lease,
assignment or any other type of transfer or transaction. In consideration of
the Union's execution of this Agreement, the Employer promises that its
operations covered by this Agreement or any part thereof shall not be sold,
conveyed or otherwise transferred or assigned to any successor without first
securing the agreement of the successor to assume the Employer's obligation
under this Agreement to offer employment to all of the Employer's current
employees. Provided, however, that the economic provisions of this Agreement may
be reopened if upon mutual agreement of the successor employer and the Union the
signatory employer's operation is sold, conveyed, transferred, or assigned to a
successor employer who is engaged in a substantially different retail food
operation. The foregoing shall be applicable only in
30
<PAGE>
separate transactions where the Employer sells or transfers more than ten
percent (10%) of the facilities covered under this Agreement, but shall not
apply to any facility which is sold or transferred and remains closed for thirty
(30) days or more.
In the event that the successor employer and Union agree to reopen the
contract with respect to the economic provisions thereof, and in the further
event that the parties are unable to reach a new agreement with respect to
economic terms and conditions, the current agreement will remain in full force
and effect.
ARTICLE XXII
------------
NO STRIKES AND LOCKOUTS
-----------------------
Except for:
1. Refusal to comply with the arbitration machinery set forth herein, or
2. Refusal to comply with the decision of the Board of Arbitration, there
will be no strikes or lockouts during the existence of this Agreement. The Union
agrees that during such time it will not order, but will use every effort to
prevent a concerted cessation of work by any of the employees of the Employer
for any reason. Nothing herein contained shall compel any employee to walk
through a picket tine, provided the picket line has the sanction of its own
Union and the United Food and Commercial Workers International Union.
ARTICLE XXIII
-------------
INVALIDATION
------------
Should any Article, section or portion hereof, of this Agreement be held
unlawful and unenforceable by any court of competent jurisdiction, such decision
of the court shall apply only to the specific Article, section, or portion
thereof directly specified in the decision,
31
<PAGE>
provided, however, that upon such a decision the parties agree immediately to
negotiate a substitute for the invalidated Article, section, or portion thereof.
ARTICLE XXIV
------------
DURATION OF CONTRACT
--------------------
This Agreement shall continue in effect from October 1, 1993 and shall
remain in force until and including September 30,1997, and from year to year
thereafter, with the right of either party to reopen upon written notice, not
less than sixty (60) days prior to September 30, 1997, or the 1st day of July of
any subsequent year thereafter of a desire either to change or terminate this
Agreement. In the event either party serves notice, it is agreed that the
Employer and the Union shall immediately begin negotiations on the proposed
changes and that, pending the results of such renegotiation, neither party shall
change the conditions existing at the time under the contract.
IN WITNESS WHEREOF, the parties hereto caused these presents to be signed
by their proper corporate officers and caused their proper corporate seal to be
hereunto affixed this 1st day of October, 1993.
FOR THE EMPLOYER FOR THE UNION
JUMBO FOOD STORES/SHOPPERS UNITED FOOD AND COMMERCIAL
FOOD WAREHOUSE WORKERS UNION, LOCAL 27
/s/ Robert N. Herman /s/
------------------------------- -------------------------------
/s/
------------------------------- -------------------------------
32
<PAGE>
HEALTH AND SAFETY
-----------------
A. The Employer, recognizing the importance of a safe and healthy work
place, shall institute a program to insure and maintain the guarantee of a safe
and healthful work place free of all unsafe recognized hazards to all its
employees.
B. The Employer shall furnish and supply all of the necessary protective
equipment that is required by Federal, State or Local Law or designated by the
Employer at no cost to the employee.
C. The Employer shall train all employees in the use, handling and
maintaining of all tools and equipment in the work area they are assigned.
RECORDS ON SAFETY AND HEALTH
A. The Employer shall make available all records containing all
government inspections, O.S.H.A. regulations, citations and lost time, accidents
or illnesses within thirty (30) days of receipt of such infraction or occurrence
of such accidents.
B. The Employer further agrees to make available to the Union all test
results from toxicity materials or chemicals that the employees may come in
contact with within thirty (30) days.
C. The Company shall make available to the Union all forms and records
necessary for the reporting of accidents, illnesses or O.S.H.A. violations.
JOB SAFETY COMMITTEES
A. There shall be established in each plant or store a joint safety
committee comprised of one or more employees from the work area of a plant or
store and representatives of management to meet at least once or more each month
to discuss health and safety conditions in the plants or stores. The committee
will make recommendations in
33
<PAGE>
the area of safety and health, handle employee complaints, distribute
information concerning Safety and Health and make available results of all plant
inspections or violations of O.S.H.A. The committee shall make at least one walk
around inspection of the plant or store each month to discuss and observe safety
compliance with the employees in their work areas.
B. The union shall have the right to conduct a walk around with the
representatives on the Safety Committee from the employees to observe health and
safety conditions or problems.
C. The Safety Committee and or Shop Steward shall accompany government
inspectors for walk arounds and any other committee business in respect to
safety and health while still on Company time and without loss of pay.
D. All safety violations shall be reported to the Company in writing and
shall be complied with as soon as possible, and action taken by the Company
shall be reported to the Safety Committee in writing.
34
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE "A" WAGES
------------------
<S> <C> <C> <C> <C>
Asst. Mgrs. 10/01/93 10/01/94 10/01/95 10/01/96
$14.41 $14.81 $15.21 $15.61
.30 .40 .40 .40
Grocery, Deli, Produce
& Front End Managers:
10/01/93 10/01/94 10/01/95 10/01/96
$14.06 $14.46 $14.86 $15.26
.30 .40 .40 .40
Bakery Mgrs: 10/01/93 10/01/94 10/01/95 10/01/96
$11.55 $11.95 $12.35 $12.75
.30 .40 .40 .40
Meat Manager: 10/01/93 10/01/94 10/01/95 10/01/96
$15.61 $16.01 $16.41 $16.80
.30 .40 .40 .39
Relief Meat Mgr. 10/01/93 10/01/94 10/01/95 10/01/96
$15.32 $15.72 $16.12 $16.52
.30 .40 .40 .40
First Cutter: 10/01/93 10/01/94 10/01/95 10/01/96
$15.00 $15.35 $15.70 $16.05
.26 .35 .35 .35
Journeyman: 10/01/93 10/01/94 10/01/95 10/01/96
$14.11 $14.51 $14.91 $15.31
.30 .40 .40 .40
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Meat App: 10/01/93 10/01/94 10/01/95 10/01/96
<S> <C> <C> <C> <C>
Start $6.50 $6.50 $6.50 $6.50
6 Months 6.75 6.75 6.75 6.75
12 Months 7.00 7.00 7.00 7.00
18 Months 11.20 11.60 12.00 12.40
.30 .40 .40 .40
<CAPTION>
Meat Apprentice hired after 10/01/93
10/01/93 10/01/94 10/01/95 10/01/96
<S> <C> <C> <C> <C>
Start $6.50 $6.50 $6.50 $6.50
6 Months 6.75 6.75 6.75 6.75
12 Months 7.00 7.00 7.00 7.00
18 Months 7.50 7.50 7.50 7.50
24 Months 8.00 8.00 8.00 8.00
30 Months 8.50 8.50 8.50 8.50
36 Months 9.00 9.00 9.00 9.00
42 Months 10.00 10.00 10.00 10.00
45 Months 11.20 11.60 12.00 12.40
.40 .40 .40
<CAPTION>
Sea Food Clk: 10/01/93 10/01/94 10/01/95 10/01/96
<S> <C> <C> <C> <C>
Start $5.50 $5.50 $5.50 $5.50
60 Days 5.75 5.75 5.75 5.75
6 Months 6.00 6.00 6.00 6.00
12 Months 7.00 7.00 7.00 7.00
18 Months 11.70 12.10 12.50 12.95
.30 .40 .40 .45
</TABLE>
Seafood Clerks hired after 10/01/93 are on Clerks, Weighers & Wrappers scale.
36
<PAGE>
<TABLE>
<CAPTION>
Full Time Clerks, Weighers & Wrappers:
10/01/93 10/01/94 10/01/95 10/01/96
<S> <C> <C> <C> <C>
Start $5.50 $5.50 $5.50 $5.50
60 Days 5.75 5.75 5.75 5.75
6 Months 6.00 6.00 6.00 6.00
12 Months 6.50 6.50 6.50 6.50
18 Months 7.00 7.00 7.00 7.00
24 Months 7.50 7.50 7.50 7.50
30 Months 8.00 8.00 8.00 8.00
36 Months 10.60 11.00 11.40 11.85
.35 .40 .40 .45
<CAPTION>
Full Time Clerks, Weighers & Wrappers hired after 10/01/93:
10/01/93 10/01/94 10/01/95 10/01/96
<S> <C> <C> <C> <C>
Start $5.50 $5.50 $5.50 $5.50
6 Months 6.00 6.00 6.00 6.00
12 Months 6.50 6.50 6.50 6.50
18 Months 7.00 7.00 7.00 7.00
24 Months 7.50 7.50 7.50 7.50
30 Months 8.00 8.00 8.00 8.00
36 Months 8.50 8.50 8.50 8.50
42 Months 9.50 9.50 9.50 9.50
45 Months 10.60 11.00 11.40 11.85
.40 .40 .45
Full Time Clerks, Weighers & Wrappers above Top Scale employees:
.25 .35 .35 .35
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Part Time Clerks, Weighers & Wrappers:
10/01/93 10/01/94 10/01/95 10/01/96
<S> <C> <C> <C> <C>
Start $5.25 $5.25 $5.25 $5.25
60 Days 5.50 5.50 5.50 5.50
6 Months 5.75 5.75 5.75 5.75
12 Months 6.10 6.10 6.10 6.10
18 Months 6.60 6.60 6.60 6.60
24 Months 7.10 7.10 7.10 7.10
30 Months 7.60 7.60 7.60 7.60
36 Months 9.75 10.15 10.55 11.00
.35 .40 .40 .45
<CAPTION>
Part Time Clerks, Weighers & Wrappers hired after 10/01/93:
10/01/93 10/01/94 10/01/95 10/01/96
<S> <C> <C> <C> <C>
Start $5.25 $5.25 $5.25 $5.25
6 Months 5.75 5.75 5.75 5.75
12 Months 6.10 6.10 6.10 6.10
18 Months 6.60 6.60 6.60 6.60
24 Months 7.10 7.10 7.10 7.10
30 Months 7.60 7.60 7.60 7.60
36 Months 8.10 8.10 8.10 8.10
42 Months 8.60 8.60 8.60 8.60
45 Months 9.75 10.15 10.55 11.00
.40 .40 .45
Above Top Scale employees:
.25 .35 .35 .35
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Porters:
10/01/93 10/01/94 10/01/95 10/01/96
<S> <C> <C> <C> <C>
Start $5.00 $5.00 $5.00 $5.00
6 Months 5.30 5.30 5.30 5.30
12 Months 5.60 5.60 5.60 5.60
18 Months 6.00 6.00 6.00 6.00
24 Months 9.10 9.50 9.90 10.30
.30 .40 .40 .40
Porters hired after 10/01/93 are on Service Clerk scale.
Above Top Scale Employees:
.25 .35 .35 .35
<CAPTION>
Courtesy Clerks:
10/01/93 10/01/94 10/01/95 10/01/96
<S> <C> <C> <C> <C>
Start $4.40 $4.40 $4.40 $4.40
60 Days 4.65 4.65 4.65 4.65
6 Months 4.90 4.90 4.90 4.90
12 Months 5.15 5.15 5.15 5.15
18 Months 5.50 5.50 5.50 5.50
24 Months 7.25 7.45 7.65 7.90
.20 .20 .20 .25
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Non Food Clerks/Service Clerks:
10/01/93 10/01/94 10/01/95 10/01/96
<S> <C> <C> <C> <C>
Start $ 4.75 $ 4.75 $ 4.75 $ 4.75
6 Months 5.00 5.00 5.00 5.00
12 Months 5.25 5.25 5.25 5.25
18 Months 5.75 5.75 5.75 8.35
24 Months 7.95 8.35 8.75 9.15
.30 .40 .40 .40
<CAPTION>
Non Food Clerks/Service Clerks and Porters hired after 10/01/93:
10/01/93 10/01/94 10/01/95 10/01/96
<S> <C> <C> <C> <C>
Start $ 4.75 $ 4.75 $ 4.75 $ 4.75
6 Months 5.00 5.00 5.00 5.00
12 Months 5.25 5.25 5.25 5.25
18 Months 5.75 5.75 5.75 5.75
24 Months 6.00 6.00 6.00 6.00
30 Months 6.25 6.25 6.25 6.25
36 Months 6.50 6.50 6.50 6.50
42 Months 7.00 7.00 7.00 7.00
45 Months 7.95 8.35 8.75 9.15
.40 .40 .40
</TABLE>
40
<PAGE>
Exhibit 10.5
TAX SHARING AGREEMENT
AGREEMENT dated this 6th day of February, 1997 by and between Dart Group
Corporation, a Delaware corporation ("Dart"), and SFW Acquisition Corp., a
Delaware corporation ("SFW").
WHEREAS, all of the outstanding stock of SFW is owned directly or indirectly by
Dart; and
WHEREAS, Dart and SFW desire to establish an arrangement whereby the federal,
state, and local income tax returns of SFW and its direct and indirect
subsidiaries which will be included, along with SFW, in the consolidated federal
income tax returns to be filed by Dart (such subsidiaries and SFW collectively,
the "SFW Group") will be prepared by Dart and the income tax liabilities of the
SFW Group will be determined and paid by Dart and rebilled to SFW for
settlement.
NOW, THEREFORE, Dart and SFW agree as follows:
ARTICLE I
1.01 Preparation and Filing of Tax Returns by Dart. SFW shall prepare and give
---------------------------------------------
to Dart (from time-to-time during each taxable year upon the request of
Dart) federal, state, and other tax packages showing the gross income,
deductions, taxable income, and credits of the SFW Group as if such group
was a separate and independent affiliated group filing a consolidated
federal income tax return (with SFW as the common parent). Dart shall
prepare and timely file or shall cause the preparation and timely filing of
all appropriate federal, state, and other income tax returns of each member
of the SFW Group.
1.02 Payment of Taxes by Dart to Taxing Authorities. Dart shall pay or cause to
----------------------------------------------
be paid all income taxes, interest, and penalties due with respect to
federal, state, and other income tax returns relating to income earned or
recognized by the SFW Group.
1.03 Allocation of Taxes by Dart to SFW. Dart shall determine the income taxes,
----------------------------------
interest, and penalties of the SFW Group as if such group was a separate
and independent affiliated group filing a consolidated federal income tax
return (with SFW as the common parent), and shall allocate and bill all
such income taxes, interest, and penalties to SFW. For this purpose, the
SFW Group's taxes shall not be reduced by reason of any deduction or credit
attributable to any member of the Dart affiliated group which is not also a
member of the SFW Group. In the event that the Dart affiliated group files
its consolidated federal income tax return on the basis of the alternative
minimum tax, the tax of the SFW Group will be calculated on a regular tax
or alternative minimum tax basis, as appropriate for the SFW Group as if it
were a separate and independent affiliated group filing a consolidated
federal income tax
<PAGE>
return (with SFW as the common parent). Dart shall consult with SFW in the
determination of the SFW Group's income tax liabilities. As used in this
section and elsewhere in this agreement, the term "affiliated group" shall
have the meaning set forth in section 1504 of the Internal Revenue Code of
1986, as amended (the "Code").
1.04 Determinations by Dart in Accordance with Allocation Policy Objectives. In
----------------------------------------------------------------------
the event that it may be unclear as to the result of the application of
Section 1.03 to specific situations which may arise and which are not
specifically addressed in Section 1.03, the allocation of taxes shall be
determined using the following tax allocation policy objectives as a guide:
(1) The tax allocation policy is meant to fairly allocate federal, state,
and local tax liabilities to SFW as if the SFW Group filed a
consolidated tax return on behalf of the SFW Group and paid its tax on
a separate affiliated group basis;
(2) The tax allocation policy should be neutral towards performance
criteria established for the SFW Group;
(3) The tax allocation policy should be logical and result in fairly
presenting the financial position and results of operations of the SFW
Group in any separate statements provided to outside parties; and
(4) The tax allocation policy should be simple to administer and provide
for a means of recording the tax provisions in interim and year-end
financial statements in a timely manner.
1.05 Payment of Allocated Taxes. Subject to section 1.06, SFW shall pay to Dart
--------------------------
within 90 days after the end of their taxable years the tax liability
allocated to SFW pursuant to section 1.03. If for any taxable year the SFW
Group has a net operating loss computed on a separate affiliated group
basis (and computed without regard to any net operating loss carryover from
periods ending on or before the date of this Agreement) that reduces the
consolidated tax liability of the Dart affiliated group below the amount
that would have been payable if such member of the SFW Group had not
incurred such loss, Dart shall pay the amount of the tax reduction so
computed to SFW within 90 days after the end of such year. The tax
liability of the Dart affiliated group, less the amount of tax liability
allocated to SFW, shall be the sole responsibility of Dart and the other
members of the Dart affiliated group, excluding members of the SFW Group.
The foregoing sentence shall not affect any right to indemnification for
any taxes (including penalties and interest thereon) that Dart or other
members of its affiliated group may have from any person who is not a
member of the Dart affiliated group.
1.06 Interim Estimated Payments. From time to time prior to the end of each
--------------------------
taxable year, SFW shall reimburse Dart (within 30 days following each
request by Dart), on a basis consistent with the guidelines set forth in
section 1.04, for that portion of any
2
<PAGE>
estimated federal income tax payments attributable to the inclusion of the
SFW Group in the Dart consolidated federal income tax return. Any amounts
so paid in any year shall operate to reduce the amount payable to Dart
following the end of such year pursuant to section 1.05 above, and any
negative balance resulting from such reduction shall promptly be refunded
by Dart to SFW.
1.07 Application of Tax Allocation to State and Local Income Taxes. Sections
-------------------------------------------------------------
1.03 through 1.06 are to apply to the allocation of state and local income
taxes where the tax liability of any member of the SFW Group is affected by
its affiliated ownership status. It is anticipated that the methods of
payment and allocation may vary somewhat in these cases from those
specifically described in Sections 1.03 through 1.06, but the guiding
intent in these instances is to apply the general principles of such
sections.
1.08 Conduct of Tax Audits and Disputes; Tax Adjustments. Dart and its duly
---------------------------------------------------
appointed representatives shall have the right on behalf of each member of
the SFW Group to supervise or otherwise coordinate any examination process
and to negotiate, resolve, settle and contest any asserted tax deficiencies
or assert and prosecute any claim for refund. Dart will be reimbursed for
any costs including, but not limited to, accounting and legal costs,
associated with any conference, hearing, or court proceeding related to
taxes of the SFW Group. In the event of any adjustment to the tax returns
of Dart or any member of the SFW Group as filed (by reason of an amended
return, claim for refund, an audit by the Internal Revenue Service or other
taxing authority, or otherwise), the liability of Dart and SFW hereunder
shall be redetermined to give effect to any such adjustment as if it had
been made as part of the original computation of tax liability, and
appropriate payments between Dart and SFW shall be made in accordance with
the foregoing provisions of this Agreement within 30 days after any
payments are made or refunds are received as a result of the adjustment,
or, in the case of contested proceedings, within 30 days after a final
determination of the contest.
1.09 Effectiveness of the Foregoing Provision. The provisions of Sections 1.01
----------------------------------------
through 1.08 above shall remain in effect with respect to all periods
during which any member of the SFW Group is included in the consolidated
federal income tax return filed by Dart.
ARTICLE II
2.01 Earnings and Profits Adjustments. This Agreement is not intended to
--------------------------------
establish the method by which the earnings and profits of each member of
the SFW Group will be determined. Dart reserves the right to elect the
method for allocating tax liability for the purposes of determining
earnings and profits as set forth in sections 1.1552-1(a) and 1.1502-33(d)
of the Treasury Regulations.
3
<PAGE>
2.02 Expenses. Except as otherwise provided herein, all costs and expenses
--------
incurred in connection with this Agreement and transactions contemplated
hereby shall be paid by the party incurring such costs and expenses.
2.03 Authority to Amend Agreement Due to Change in Law or Regulation. SFW
---------------------------------------------------------------
agrees that Dart shall have the authority to amend this Agreement as
required in order to comply with changes hereafter in the Code, Treasury
Regulations, or state provisions relating to consolidated income tax
returns.
2.04 Entire Agreement. This Agreement contains the entire agreement between the
----------------
parties and supersedes all prior agreements, arrangements, and
understandings relating to the subject matter hereof. There are no written
or oral agreements, understandings, representations or warranties between
or among the parties other than those set forth or referred to in this
Agreement.
2.05 Elections. SFW, for itself and on behalf of all members of the SFW Group,
---------
hereby agrees that Dart shall have the authority to make on behalf of each
member of the SFW Group all elections which are available under the Code,
Treasury Regulations, or state provisions relating to taxes.
2.06 Subsidiaries. If at any time hereafter SFW acquires direct or indirect
------------
ownership of any subsidiary corporation that is affiliated with Dart within
the meaning of section 1504(a) of the Code, such subsidiary corporation
shall be included in the SFW Group, and all references to the SFW Group
herein shall thereafter be interpreted to include such subsidiary.
2.07 Section Headings. The section and paragraph headings contained in this
----------------
Agreement are for reference purposes only and shall not in any way affect
the meaning or interpretation of this Agreement.
2.08 Notices. All notices, consents, requests, instructions, approvals and
-------
other communications provided for herein and all legal process in regard
hereto shall be validly given, made or served if in writing, when delivered
personally (by courier service or otherwise), when delivered by telecopy
and confirmed by returned telecopy, addressed as follows or, in each case,
to such other address as may be specified by a party in writing to the
other party:
(a) if to Dart, to:
3300 75th Avenue
Landover, MD 20785
Attention: Chief Financial Officer
Telecopy Number: (301) 772-3910
(b) if to SFW, to:
4
<PAGE>
3300 75th Avenue
Landover, MD 20785
Attention: President
Telecopy Number: (301) 772-3910
2.09 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware without reference to the
choice of law principles thereof.
2.10 Illegality. In case any provision in this Agreement shall be invalid,
----------
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby,
unless such remaining provisions are inconsistent with the policy
objectives set forth in section 1.04.
2.11 Successors and Assigns; Merger with Shoppers Food Warehouse Corp. This
----------------------------------------------------------------
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. The parties intend
that SFW will be merged with and into Shoppers Food Warehouse Corp., a
Delaware corporation ("Shoppers Food"). Following such merger, all
references herein to SFW shall be interpreted to be references to Shoppers
Food.
IN WITNESS WHEREOF, this Agreement has been signed on behalf of each of the
parties of the day first above written.
DART GROUP CORPORATION SFW ACQUISITION CORP.
By: /s/ Mark A. Flint By: /s/ Elliot R. Arditti
------------------------- -------------------------
Name: Mark A. Flint Name: Elliot R. Arditti
Title: Chief Financial Officer Title: Secretary
5
<PAGE>
Exhibit 10.6
February 6, 1997
SFW Acquisition Corp.
3300 75th Avenue
Landover, Maryland 20785
Gentlemen:
Re: Management Services Agreement
-----------------------------
This letter sets forth the agreement between Dart Group Corporation
("Dart") and SFW Acquisition Corp. ("SFW") regarding certain general and
administrative services (the "Services") to be rendered by Dart to SFW. The
Services may include financial, accounting, cash management, payroll, internal
audit, legal, risk management, human resources, employee benefits, labor
relations, data processing services and general business consulting services.
SFW shall compensate Dart for the full costs (including reasonable
allocations of labor costs) and expenses for providing the Services. Any fee
with respect to the Services provided only by Dart and not by a third party
shall not be greater than the fee that SFW would pay for comparable services in
arms' length transactions. Actual charges by third party vendors for Services
provided to Dart and its subsidiaries (including SFW) shall be allocated on a
reasonable basis among Dart and its subsidiaries (including SFW). Dart shall
not charge SFW any mark-up for any Services provided by third parties.
On or before the last business day of each calendar month, Dart shall
present SFW with an invoice listing the charges for each Service rendered during
such month, together with unbilled charges for prior months, and such invoice
shall be due and payable on the last business day of that month.
The employees of Dart providing Services hereunder shall be employees
of Dart and not employees of SFW. Such employees shall be under the direct
supervision of Dart.
<PAGE>
SFW Acquisition Corp.
February 6, 1997
Page 2
In providing the Services, Dart shall not be liable to SFW for, and
SFW shall hold Dart harmless from, any and all claims arising from errors or
omissions, except to the extent that such errors and omissions result from the
gross negligence or willful and wanton misconduct of Dart employees. In no
event shall Dart be liable for any consequential damages, including lost
profits, loss of use of facilities or injury to goodwill of SFW.
This Agreement may be terminated in its entirety or the provision of
specific Services or components of Services may be discontinued by either party
upon six months' prior written notice to the other party. Upon any such
termination, all files, computer programs, tapes and other personal property
maintained by Dart relating solely to the terminated Services shall be turned
over to SFW.
Neither party may assign this Agreement or any interest herein without
the prior written consent of the other, which consent shall not be unreasonably
withheld. This Agreement shall be binding on successors and assigns.
If this letter accurately sets forth your understanding of our
agreement, please sign where indicated below and return this letter to Dart.
This Agreement shall become effective as of the date hereof. The enclosed
executed copy of this letter is for your records.
Very truly yours,
DART GROUP CORPORATION
By /s/ Mark A. Flint
------------------------------
Mark A. Flint
Senior Vice President and
Chief Financial Officer
ACCEPTED and AGREED:
SFW ACQUISITION CORP.
By /s/ Elliot R. Arditti
------------------------------
Name: Elliot R. Arditti
Title: Secretary
<PAGE>
Exhibit 12.1
Shoppers Food Warehouse Corp.
Ratio of Earnings to Fixed Charges
(dollars in thousands)
<TABLE>
<CAPTION>
Historical
----------------------------------------------------------------------
Fiscal Year Ended
----------------------------------------------------------------------
June 27, July 3, July 2, July 1, June 29,
1992 1993 1994 1995 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings -
Consolidated net income (loss) $ 9,244 $ 11,633 $ 12,929 $ 19,526 $ 18,703
Add back (deduct):
Consolidated provision (benefit) for
income taxes 5,757 7,205 8,043 14,764 10,462
Fixed Charges 4,851 5,990 6,404 6,394 7,060
----------------------------------------------------------------------
Total $ 19,852 $ 24,828 $ 27,376 $ 40,684 $ 36,225
======================================================================
Fixed Charges -
Interest on debt and capital lease $ 1,519 $ 1,576 $ 1,426 $ 1,451 $ 1,771
Amortization of deferred financing
costs -- -- -- -- --
Interest element of rentals 3,332 4,414 4,978 4,943 5,289
----------------------------------------------------------------------
Total $ 4,851 $ 5,990 $ 6,404 $ 6,394 $ 7,060
======================================================================
Ratio of Earnings to Fixed Charges 4.09 4.15 4.27 6.36 5.13
======================================================================
Support for Interest Element of
Rentals
Rent expense charged to operations $ 10,097 $ 13,375 $ 15,086 $ 14,979 $ 16,027
x 33% 0.33 0.33 0.33 0.33 0.33
----------------------------------------------------------------------
Interest element of rentals $ 3,332 $ 4,414 $ 4,978 $ 4,943 $ 5,289
======================================================================
<CAPTION>
---------------------------------------------------------------------------
31 Weeks 52 weeks 13 Weeks Ended
----------------------------- --------------- --------------------------
February 3, February 1, February 1, May 4, May 3,
1996 1997 1997 1996 1997
----------------------------- --------------- --------------------------
<S> <C> <C> <C> <C> <C>
Earnings -
Consolidated net income (loss) $ 8,595 $ 10,455 $ 20,563 $ 6,492 $ 3,177
Add back (deduct):
Consolidated provision (benefit) for
income taxes 5,433 6,380 11,409 3,813 2,478
Fixed Charges 3,891 4,359 7,528 1,682 6,598
----------------------------- --------------- --------------------------
Total $ 17,919 $ 21,194 $ 39,500 $ 11,987 $ 12,253
============================= =============== ==========================
Fixed Charges -
Interest on debt and capital lease $ 836 $ 710 $ 1,645 $ 378 $ 4,740
Amortization of deferred financing
costs -- -- -- -- 510
Interest element of rentals 3,055 3,649 5,883 1,304 1,348
----------------------------- --------------- --------------------------
Total $ 3,891 $ 4,359 $ 7,528 $ 1,682 $ 6,598
============================= =============== ==========================
Ratio of Earnings to Fixed Charges 4.60 4.86 5.25 7.13 1.86
============================= =============== ==========================
Support for Interest Element of
Rentals
Rent expense charged to operations $ 9,259 $ 11,058 $ 17,827 $ 3,951 $ 4,086
x 33% 0.33 0.33 0.33 0.33 0.33
----------------------------- --------------- --------------------------
Interest element of rentals $ 3,055 $ 3,649 $ 5,883 $ 1,304 $ 1,348
============================= =============== ==========================
<CAPTION>
Pro Forma
-----------------------------------------------------------
52 weeks ended 31 wks ended 13 wks ended
-----------------------------------------------------------
June 29, Feb. 1, Feb. 1, May 3,
1996 1997 1997 1997
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings -
Consolidated net income (loss) $ (157) $ 1,464 $ (282) $ 3,214
Add back (deduct):
Consolidated provision (benefit) for
income taxes 2,051 3,041 1,059 2,509
Fixed Charges 27,489 27,957 16,276 6,884
-----------------------------------------------------------
Total $ 29,383 $ 32,462 $ 17,053 $ 12,607
===========================================================
Fixed Charges -
Interest on debt and capital lease $ 21,271 $ 21,145 $ 12,085 $ 5,304
Amortization of deferred financing
costs 929 929 542 232
Interest element of rentals 5,289 5,883 3,649 1,348
-----------------------------------------------------------
Total $ 27,489 $ 27,957 $ 16,276 $ 6,884
===========================================================
Ratio of Earnings to Fixed Charges 1.07 1.16 1.05 1.83
===========================================================
Support for Interest Element of
Rentals
Rent expense charged to operations $ 16,027 $ 17,827 $ 11,058 $ 4,086
x 33% 0.33 0.33 0.33 0.33
-----------------------------------------------------------
Interest element of rentals $ 5,289 $ 5,883 $ 3,649 $ 1,348
===========================================================
</TABLE>
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF SFW HOLDING CORP.
<TABLE>
<CAPTION>
Subsidiary State of Incorporation
---------- ----------------------
<S> <C>
Shoppers Food Warehouse Corp. Delaware
SFW Investment Corp./(1)/ Delaware
SFW Licensing Corp./(1)/ Delaware
Shoppers Food Warehouse DC Corp./(1)/ District of Columbia
Total Beverage VA Corp./(1)/ Virginia
Jumbo Produce, Inc./(1)/ District of Columbia
RBC Corp./(1)/ Maryland
</TABLE>
- ---------------------
/(1)/ Wholly-owned subsidiary of Shoppers Food Warehouse Corp.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
registration statement.
Arthur Andersen LLP
Washington, D.C.
August 4, 1997
<PAGE>
Exhibit 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------------
_____ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. National Banking Association 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
-----------------------------
SHOPPERS FOOD WAREHOUSE CORP.
SFW HOLDING CORP.
(Exact name of obligor as specified in its charter)
Delaware 53-0231809
Delaware 52-2014682
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4600 Forbes Blvd.
Lanham, Maryland 20706
(Address of principal executive offices) (Zip code)
-----------------------------
9 3/4% Senior Notes Due 2004
(Title of the indenture securities)
================================================================================
<PAGE>
Item 1. General Information. Furnish the following information as to the
--------------------
trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
--------------------------
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.
Item 15. Foreign Trustee. Not applicable.
----------------
Item 16. List of Exhibits. List below all exhibits filed as a part of this
----------------- Statement of Eligibility. Norwest Bank
incorporates by reference into this Form T-1
the exhibits attached hereto.
Exhibit 1. a. A copy of the Articles of Association of the
trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of the
trustee to commence business issued June 28,
1872, by the Comptroller of the Currency to The
Northwestern National Bank of Minneapolis.*
b. A copy of the certificate of the Comptroller of
the Currency dated January 2, 1934, approving
the consolidation of The Northwestern National
Bank of Minneapolis and The Minnesota Loan and
Trust Company of Minneapolis, with the surviving
entity being titled Northwestern National Bank
and Trust Company of Minneapolis.*
c. A copy of the certificate of the Acting
Comptroller of the Currency dated January 12,
1943, as to change of corporate title of
Northwestern National Bank and Trust Company of
Minneapolis to Northwestern National Bank of
Minneapolis.*
<PAGE>
d. A copy of the letter dated May 12, 1983 from the
Regional Counsel, Comptroller of the Currency,
acknowledging receipt of notice of name change
effective May 1, 1983 from Northwestern National
Bank of Minneapolis to Norwest Bank Minneapolis,
National Association.*
e. A copy of the letter dated January 4, 1988 from
the Administrator of National Banks for the
Comptroller of the Currency certifying approval
of consolidation and merger effective January 1,
1988 of Norwest Bank Minneapolis, National
Association with various other banks under the
title of "Norwest Bank Minnesota, National
Association."*
Exhibit 3. A copy of the authorization of the trustee to exercise
corporate trust powers issued January 2, 1934, by the
Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b)
of the Act.
Exhibit 7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.**
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to exhibit number 25 filed with
registration statement number 33-66026.
** Incorporated by reference to exhibit number 25 filed with
registration statement number 333-7575.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 1st day of August, 1997.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
Raymond S. Haverstock
---------------------
Raymond S. Haverstock
Vice President
<PAGE>
EXHIBIT 6
August 1, 1997
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
Raymond S. Haverstock
----------------------
Raymond S. Haverstock
Vice President
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
SHOPPERS FOOD WAREHOUSE CORP.
Offer for all Outstanding
9 3/4% Senior Notes due 2004
in Exchange for
9 3/4% Senior Notes due 2004
which have been registered under the Securities Act of 1933
Pursuant to the Prospectus, dated [_______], 1997
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [______],
1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERED SECURITIES MAY BE
WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME ON THE EXPIRATION
DATE.
- --------------------------------------------------------------------------------
To: Norwest Bank Minnesota, National Association, the Exchange Agent
<TABLE>
<CAPTION>
By Registered or Certified Mail: Facsimile Transmission Number: By Overnight Delivery:
(612) 667-0252
<S> <C> <C>
P.O. Box 1517 (For Eligible Institutions Only) 6th Street and Marquette Avenue
Minneapolis, Minnesota 55480-1517 Confirm by Telephone: Minneapolis, Minnesota 55479-0113
Attn: Corporate Trust Operation Attn: Corporate Trust Operation
(612) 667-0252
For Information Call:
(800) 344-5128
</TABLE>
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
The instructions accompanying this Letter of Transmittal should be read
carefully before this Letter of Transmittal is completed.
The undersigned acknowledges that he or she has received the Prospectus,
dated [_______], 1997 (the "Prospectus"), of Shoppers Food Warehouse Corp., a
Delaware corporation (the "Company"), and this Letter of Transmittal (this
"Letter"), which together constitute the Company's offer (the "Exchange Offer")
to exchange up to $200,000,000 aggregate principal amount of 9 3/4% Senior Notes
due 2004 (the "Exchange Notes") of the Company, for an equal principal amount of
the Company's issued and outstanding 9 3/4% Senior Notes due 2004 (the
"Outstanding Notes" and collectively with the Exchange Notes, the "Senior
Notes"). The terms of the Exchange Notes are identical in all material respects
(including principal amount, interest rate and maturity) to those of the
Outstanding Notes, except that certain transfer restrictions and registration
rights apply to the Outstanding Notes and that the Exchange Notes will be
registered under the Securities Act of 1933, as amended (the "Securities Act").
Capitalized terms used but not defined herein have the meanings given to them in
the Prospectus.
<PAGE>
This Letter is to be completed by holders of Outstanding Notes pursuant
to the procedures set forth in the Prospectus under "The Exchange Offer
- -- Procedures for Tendering Outstanding Notes." Delivery of this Letter and any
other required documents should be made to the Exchange Agent.
If a Holder desires to tender Outstanding Notes pursuant to the Exchange
Offer but time will not permit this Letter, the Outstanding Notes or other
required documents to reach the Exchange Agent on or before the Expiration Date,
or the procedure for book-entry transfer cannot be completed on a timely basis,
a tender may be effected in accordance with the guaranteed delivery procedures
set forth in the Prospectus under "The Exchange Offer -- Procedures for
Tendering Outstanding Notes - Guaranteed Delivery Procedures." See
Instruction 2.
For each Outstanding Note accepted for exchange not validly withdrawn,
the holder of such Outstanding Note will receive an Exchange Note having a
principal amount equal to that of the surrendered Outstanding Note. If the
Exchange Offer is not consummated by February 6, 1997, the interest rate borne
by the Outstanding Notes will be increased 0.5% per annum and shall thereafter
increase by an additional 0.5% per annum at the beginning of each subsequent
90-day period until the Exchange Offer is consummated; provided, however, that
-------- -------
the additional interest rate on the Outstanding Notes may not exceed at any one
time in the aggregate 1.5% per annum; and provided further, upon the
-------- -------
effectiveness of the Exchange Offer Registration Statement, additional interest
on the Outstanding Notes as described in this service shall cease to accrue.
Interest on the Exchange Notes will accrue from (A) the later of (i) the
last interest payment date on which interest was paid on the Outstanding Notes
surrendered in exchange therefor or (ii) if the Outstanding Notes are
surrendered for exchange on a date in a period which includes the record date
for an interest payment date to occur on or after the date of such exchange and
as to which interest will be paid, the date of such interest payment date, or
(B) if no interest has been paid on the Outstanding Notes, from June 26, 1997.
Holders whose Outstanding Notes are accepted for exchange will be deemed to have
waived the right to receive any interest accrued on the Outstanding Notes.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance of any Outstanding Notes by giving written notice of
such extension to the Exchange Agent and notice of such extension to the holders
as described in the next sentence, in which event the term "Expiration Date"
shall mean the latest time and date to which the Exchange Offer is extended. The
Company shall notify the Holders of the Outstanding Notes of any extension by
means of a press release or other public announcement prior to 9:00 A.M. New
York City time, on the next business day after the previously scheduled
Expiration Date. Notwithstanding the foregoing, pursuant to the Registration
Rights Agreement, dated June 26, 1997, by and among the Company, the Guarantor
and the Initial Purchaser defined therein (the "Registration Rights Agreement"),
the Company has agreed to keep the Exchange Offer open for not less than 45 days
after the date notice thereof is mailed to the Holders of the Outstanding Notes
(or longer if required by applicable law).
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Outstanding Notes being tendered or accepted for exchange. However,
the Exchange Offer is subject to certain conditions. Please see the Prospectus
under the section entitled "The Exchange Offer -- Conditions to the Exchange
Offer".
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of Holders of Outstanding Notes in any jurisdiction in which the
making or acceptance of the Exchange Offer would not be in compliance with the
laws of such jurisdiction.
This Letter is to be completed by a Holder of Outstanding Notes either if
certificates are to be forwarded herewith or if a tender of certificates for
Outstanding Notes, if available, is to be made by book-entry transfer to the
account maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer -- Procedures for Tendering Outstanding Notes" section of the
Prospectus. Holders of Outstanding Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or confirmation of
the book-entry tender of their Outstanding Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and
deliver all other documents required by this Letter to the Exchange Agent on or
prior to the Expiration Date, may tender their Outstanding Notes according to
the guaranteed delivery procedures set forth in the Prospectus under the section
<PAGE>
entitled "The Exchange Offer -- Procedures for Tendering Outstanding Notes
Guaranteed Delivery Procedures." Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent.
The Undersigned has completed the appropriate boxes below and signed
this Letter to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Outstanding Notes must
complete this Letter of Transmittal in its entirety.
List below the Outstanding Notes to which this Letter relates. If the
space provided below is inadequate, the certificate numbers and principal amount
of Outstanding Notes should be listed on a separate schedule affixed hereto.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OUTSTANDING NOTES (1) (2) (3)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Name(s) and Address(es) of Registered Holder(s) Aggregate
(Please fill in, if blank) Principal Principal Amount
Amount at at Maturity of
Certificate Maturity of Outstanding Notes
Number(s)/(1)/ Outstanding Notes Tendered
(if less than all)/(2)/
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
/(1)/Certificate numbers not required if the Outstanding Notes are being tendered by book-entry transfer.
/(2)/Unless otherwise indicated in this column, a Holder will be deemed to have tendered the full aggregate principal amount
of the Outstanding Notes represented by the Outstanding Notes indicated in column 2.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
[_] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A BOOK-
ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
---------------------------------------------
Account Number:
------------------------------------------------------------
Transaction Code Number:
---------------------------------------------------
[_] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)
-------------------------------------------------
Window Ticket Number (if any)
---------------------------------------------------
Name of Eligible Institution that Guaranteed Delivery
---------------------------
Date of Execution of Notice of Guaranteed Delivery
------------------------------
If delivered by book-entry transfer, complete the following:
Account Number:
-----------------------------------------------------------------
3
<PAGE>
Transaction Code Number:
--------------------------------------------------------
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Your are entitled to as many copies as you may reasonably request and if you
need more than ten copies, please so indicate by noting the number of copies
required below.
4
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of
Outstanding Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of the Outstanding Notes tendered hereby, the
undersigned hereby exchanges, assigns and transfers to, or upon the order of,
the Company all right, title and interest in and to such Outstanding Notes.
The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of the Company) with respect to the
tendered Outstanding Notes with the full power of substitution to (i) deliver
certificates for such Outstanding Notes to the Company and deliver all
accompanying evidences of transfer and authenticity to, or upon the order of,
the Company and (ii) present such Outstanding Notes for transfer on the books of
the Company and (iii) receive for the account of the Company all benefits and
otherwise exercise all rights of beneficial ownership of such Outstanding Notes,
all in accordance with the terms of the Exchange Offer. The power of attorney
granted in this paragraph shall be deemed to be irrevocable from and after the
Expiration Date and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the
Outstanding Notes tendered hereby and that the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim when the same are accepted
by the Company. The undersigned hereby further represents that (i) any Exchange
Notes acquired in exchange for Outstanding Notes tendered hereby will have been
acquired in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the undersigned, (ii) neither the
Holder of such Outstanding Notes nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and (iii) neither the Holder of such Outstanding Notes nor any
such other person is an "affiliate", as described in Rule 405 under the
Securities Act of 1933 (the "1933 Act"), of the Company or of the Guarantor.
The undersigned agrees that acceptance of any tendered Outstanding
Notes by the Company and the issuance of Exchange Notes in exchange therefor
will constitute performance in full by the Company of its obligations under the
Registration Rights Agreement (as defined in the Prospectus) and that the
Company will have no further obligations or liabilities thereunder (except in
limited circumstances).
The undersigned also acknowledges that this Exchange Offer is being
made in reliance on certain interpretive letters by the staff of the Securities
and Exchange Commission (the "SEC") to third parties in unrelated transactions.
On the basis thereof, the Exchange Notes issued in exchange for the Outstanding
Notes pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by Holders thereof (other than any such Holder that is an
"affiliate" of the Company or of the Guarantor within the meaning of Rule 405
under the Securities Act of 1933, as amended (the "Securities Act")) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such Holders' business and such Holders are not participating in, and
have no arrangement or understanding with any person to participate in, the
distribution of such Exchange Notes. However, the undersigned acknowledges that
the Company has not sought its own no-action letter and there can be no
assurance that the staff of the SEC would make a similar determination with
respect to the Exchange Offer as in such other circumstances.
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Outstanding Notes that were acquired
as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
5
<PAGE>
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Outstanding
Notes tendered hereby.
All authority conferred or agreed to be conferred in this Letter and
every obligation of the undersigned hereunder will be binding upon the heirs,
legal representatives, successors, assigns, executors, administrators and
trustees in bankruptcy of the undersigned and shall not be affected by, and will
survive, the death, bankruptcy or incapacity of the undersigned. This tender may
be withdrawn only in accordance with the procedures set forth in the
Instructions contained in this Letter or the Prospectus under "The Exchange
Offer - Withdrawal Rights."
For purposes of this Exchange Offer, the Company shall be deemed to
have accepted validly tendered Outstanding Notes when, as and if the Company has
given oral and written notice thereof to the Exchange Agent.
The undersigned understands that tenders of the Outstanding Notes
pursuant to any one of the procedures described under "The Exchange Offer --
Procedures for Tendering Outstanding Notes" in the Prospectus and in the
Instructions hereto will constitute a binding agreement between the undersigned
and the Company in accordance with the terms and subject to the conditions set
forth herein and in the Prospectus.
The undersigned recognizes that under certain circumstances set forth
in the Prospectus under "The Exchange Offer -- Conditions to the Exchange Offer"
the Company will not be required to accept for exchange any of the Outstanding
Notes tendered. Outstanding Notes not accepted for exchange or withdrawn will be
returned (or, in the case of Outstanding Notes tendered by book-entry transfer
through the Book-Entry Transfer Facility, will promptly be credited to an
account maintained at the Book-Entry Transfer Facility), without expense, to the
undersigned at the address set forth below unless otherwise indicated under
"Special Delivery Instructions" below as promptly as practicable after the
Expiration Date.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please issue the certificates or electronic transfers
representing the Exchange Notes issued in exchange for the Outstanding Notes
accepted for exchange (and, if applicable, any substitute certificates or
electronic transfers representing Outstanding Notes not exchanged) in the
name(s) of the undersigned or, in the case of a book-entry delivery of
Outstanding Notes, please credit the account indicated above maintained at the
Book-Entry Transfer Facility. Similarly, unless otherwise indicated in the box
entitled "Special Delivery Instructions" below, please deliver certificates
representing the Exchange Notes issued in exchange for the Outstanding Notes
accepted for exchange (and, if applicable, any substitute certificates
representing Outstanding Notes for any Outstanding Notes not exchanged) to the
undersigned at the address shown above in the box entitled "Description of
Outstanding Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF
OUTSTANDING NOTES" ABOVE AND SIGNING THIS LETTER AND DELIVERING SUCH NOTES AND
THIS LETTER TO THE EXCHANGE AGENT, WILL BE DEEMED TO HAVE TENDERED THE
OUTSTANDING NOTES AS SET FORTH IN SUCH BOX ABOVE.
6
<PAGE>
- -------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete accompanying Substitute Form W-9)
I hereby TENDER the Outstanding Notes described above in the box entitled
"Description of Outstanding Notes" pursuant to the terms of the Exchange
Offer.
X Date: , 1997
-------------------------------- --------------
X Date: , 1997
-------------------------------- --------------
Signature(s) of Owner
Area Code and Telephone Number
------------------------
The above lines must be signed by the registered Holder(s) exactly as
their name(s) appear(s) on the Outstanding Notes, or on a security position
listing or by person(s) authorized to become registered Holder(s) by a properly
completed bond power from the registered Holder(s), a copy of which must be
transmitted with this Letter. If Outstanding Notes to which this Letter relate
are held of record by two or more joint Holders, then all such Holders must sign
this. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, then please set forth full title. See Instruction 4.
Name(s):
-------------------------------------------------------------------
---------------------------------------------------------------------------
(Please Type or Print)
Capacity:
------------------------------------------------------------------
Address:
-------------------------------------------------------------------
---------------------------------------------------------------------------
(Including Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 4)
Signature(s) Guaranteed
by an Eligible Institution:
------------------------------------------------
(Authorized Signature)
---------------------------------------------------------------------------
(Title)
---------------------------------------------------------------------------
(Name of Firm)
---------------------------------------------------------------------------
(Address and Telephone Number)
Dated: , 1997
-----------------
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 4 and 5)
To be completed ONLY if certificates for
Outstanding Notes not exchanged and/or Exchange Notes
are to be issued in the name of and sent to someone
other than the person or persons whose signature(s)
appear(s) on this Letter above or if Outstanding Notes
delivered by book-entry transfer which are not
accepted for exchange are to be returned by credit to
an account maintained at the Book-Entry Transfer
Facility other than the account indicated above.
Issue: Exchange Notes and/or Outstanding Notes to:
Name(s):
..................................................
(Please Type or Print)
..........................................................
(Please Type or Print)
Address:
..................................................
..........................................................
(Zip Code)
- ------------------------------------
Employer Identification Number
or Social Security Number
(Complete Substitute Form W-9)
[_] Credit unexchanged Outstanding Notes delivered by
book-entry transfer to the Book-Entry Transfer
Facility account set forth below:
- -------------------------------------
(Book-Entry Transfer Facility
Account Number, if applicable)
- ------------------------------------------------------
- ------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4 and 5)
To be completed ONLY if certificates for
Outstanding Notes not exchanged and/or Exchange
Notes are to be sent to someone other than the
person or persons whose signature(s) appear(s) on
this Letter above or to such person or persons at
an address other than shown in the box above
entitled "Description of Outstanding Notes."
Deliver: Exchange Notes and/or Outstanding Notes
to:
Name(s):
.............................................
(Please Type or Print)
.....................................................
(Please Type or Print)
Address:
..............................................
.....................................................
(Zip Code)
- ---------------------------------------------------------
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS
LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATE(S) FOR OUTSTANDING
NOTES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
8
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY
BOX ABOVE.
This Letter is to be used to forward, and must accompany, all certificates
representing Outstanding Notes tendered pursuant to the Exchange Offer.
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Delivery of this Letter and Outstanding Notes.
This letter is to be completed by Holders either if certificates are to
be forwarded herewith or if tenders are to be made pursuant to the procedure for
delivery set forth in the section of the Prospectus captioned "The Exchange
Offer - Book-Entry Transfer." Certificates for all physically-tendered
Outstanding Notes or Book-Entry Confirmation, as the case may be as well as a
properly completed and duly executed copy of this Letter (or facsimile thereof),
a Substitute Form W-9 (or facsimile thereof) and any other documents required by
this Letter must be received by the Exchange Agent at its address set forth
herein on or before the Expiration Date or the tendering Holder must comply with
the Guaranteed Delivery Procedures set forth below.
The method of delivery of this Letter, the Outstanding Notes and all
other required documents is at the election and risk of the tendering Holders,
but delivery will be deemed made only when actually received and confirmed by
the Exchange Agent. If such delivery is by mail, it is recommended that
registered mail properly insured, with return receipt requested, be used and
that the mailing be made sufficiently in advance of the Expiration Date to
permit delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on
the Expiration Date. No letters or Outstanding Notes should be sent to the
Company.
2. Guaranteed Delivery Procedures.
If a Holder desires to tender Outstanding Notes pursuant to the
Exchange Offer, but time will not permit a Letter of Transmittal, the
Outstanding Notes or other required documents to reach the Exchange Agent on or
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if the Exchange Agent has
received at its office a letter or facsimile transmission from an Eligible
Institution setting forth the name and address of the tendering Holder, the
names in which the Outstanding Notes are registered, the principal amount of the
Outstanding Notes being tendered and, if possible, the certificate numbers of
the Outstanding Notes to be tendered, and stating that the tender is being made
thereby and guaranteeing that within three New York Stock Exchange trading days
after the Expiration Date, the Outstanding Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, together with a properly
completed and duly executed Letter of Transmittal and any other required
documents, will be delivered by such Eligible Institution to the Exchange Agent.
Unless Outstanding Notes being tendered by the above-described method are
deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and any
other required documents), the Company may, at its option, reject the tender.
Copies of a Notice of Guaranteed Delivery which may be used by Eligible
Institutions for the purposes described in this paragraph are available from the
Exchange Agent.
3. Tender by Holder, Partial Tender, and Withdrawals.
Only a Holder of Outstanding Notes may tender such Outstanding Notes in
the Exchange Offer. Any beneficial owner whose Outstanding Notes are registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender should contact the registered Holder promptly and
instruct such registered Holder to tender on behalf of such beneficial owners.
If such beneficial owner wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing this Letter and delivering such owner's
Outstanding Notes, either make appropriate arrangements to register ownership of
the Outstanding Notes in such owner's name or obtain a properly completed bond
power from the registered Holder. The transfer of registered ownership may take
considerable time.
9
<PAGE>
Tenders of Outstanding Notes will be accepted only in denominations of
$1,000 or integral multiples thereof. If less than all of the Outstanding Notes
are to be tendered, the tendering Holder(s) should fill in the aggregate
principal amount of Outstanding Notes to be tendered in the box above entitled
"Description of Outstanding Notes - Principal Amount of Outstanding Notes
Tendered". A reissued certificate representing the balance of nontendered
Outstanding Notes will be sent to such tendering Holder (except in the case of
book-entry tenders), unless otherwise provided in the appropriate box on this
Letter, promptly after the Expiration Date. All of the Outstanding Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated.
Any Holder who has tendered Outstanding Notes may withdraw the tender
by delivering written notice of withdrawal (which may be sent by facsimile) to
the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the person named in the Letter of Transmittal as having tendered the
Outstanding Notes to be withdrawn, (ii) identify the certificate numbers of the
Outstanding Notes to be withdrawn (except in the case of book-entry tenders),
(iii) identify the principal amount of Outstanding Notes to be withdrawn, (iv)
state that such Holder is withdrawing its election to have such Outstanding
Notes exchanged and (v) be signed by the registered Holder of such Outstanding
Notes in the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) by which such Outstanding Notes
were tendered, or be accompanied by evidence satisfactory to the Company that
the person withdrawing the tender has succeeded to the beneficial ownership of
the Outstanding Notes being withdrawn. The Exchange Agent will return the
properly withdrawn Outstanding Notes promptly following receipt of notice of
withdrawal. All questions as to the validity of notices of withdrawals,
including time of receipt, will be determined by the Company, and such
determinations will be final and binding on all parties.
4. Signatures on this Letter; Bond Powers and Endorsements; Guarantee of
Signatures.
If this Letter is signed by the registered Holder of the Outstanding
Notes tendered herewith, the signature must correspond exactly with the name as
written on the face of the certificates (if applicable) without any alteration,
enlargement or change whatsoever.
If any tendered Outstanding Notes are owned of record by two or more
joint owners, all such owners must sign this Letter. If any tendered Outstanding
Notes are registered in different names on several certificates, it will be
necessary to complete, sign and submit as many separate copies of this Letter as
there are names in which tendered Outstanding Notes are registered.
If this Letter is signed by the registered Holder, and Exchange Notes
are to be issued and any untendered or unaccepted principal amount of
Outstanding Notes are to be reissued or returned to the registered Holder, then
the registered Holder need not and should not endorse any tendered Outstanding
Notes nor provide a separate bond power. In any other case, the registered
Holder must either properly endorse the Outstanding Notes tendered or transmit a
properly completed separate bond power with this Letter (in either case,
executed exactly as the name of the registered Holder appears on such
Outstanding Notes), with the signature on the endorsement or bond power
guaranteed by an Eligible Institution, unless such certificates or bond powers
are signed by an Eligible Institution.
If this Letter or any Outstanding Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and submit with this Letter evidence
satisfactory to the Company of their authority to so act.
The signatures on this Letter or a notice of withdrawal, as the case
may be, must be guaranteed unless the Outstanding Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Outstanding
Notes who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" in this Letter or (ii) for the account of an
Eligible Institution. In the event that the signatures in this Letter or a
notice of withdrawal, as the case may be, are required to be guaranteed, such
guarantees must be by a commercial bank or trust company located or having an
office or correspondent in the United States, or by a member firm of a national
securities exchange or the National Association of Securities Dealers, Inc., or
by a member of a signature medallion program such as "STAMP" (any of the
foregoing being referred to herein as an
10
<PAGE>
"Eligible Institution"). If Outstanding Notes are registered in the name of a
person other than the signer of this Letter, the Outstanding Notes surrendered
for exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered Holder with the
signature thereon guaranteed by an Eligible Institution.
5. Special Issuance and Delivery Instructions.
Tendering Holders of Outstanding Notes should indicate in the
applicable box the name and address or account at DTC in which Exchange Notes
issued pursuant to the Exchange Offer and/or substitute Outstanding Notes for
principal amounts not tendered or not accepted for exchange are to be issued,
sent or deposited if different from the name and address or account of the
person signing this Letter. In the case of issuance in a different name, the
employer identification or social security number of the person named must also
be indicated. Holders tendering Outstanding Notes by book-entry transfer may
request that Outstanding Notes not exchanged be credited to such account
maintained at the Book-Entry Transfer Facility as such Holder may designate
hereon. If no such instructions are given, any Exchange Notes will be issued in
the name of, and delivered to, the name or address of the person signing this
Letter, and any Outstanding Notes not accepted for exchange will be returned to
the name or address of the person signing this Letter.
6. Backup Federal Income Tax Withholding and Substitute Form W-9.
Under the federal income tax laws, payments that may be made by the
Company on account of Exchange Notes issued pursuant to the Exchange Offer may
be subject to backup withholding at the rate of 31%. In order to avoid such
backup withholding, each tendering Holder should complete and sign the
Substitute Form W-9 included in this Letter and either (a) provide the correct
taxpayer identification number ("TIN") and certify, under penalties of perjury,
that the TIN provided is correct and that (i) the Holder has not been notified
by the Internal Revenue Service (the "IRS") that the Holder is subject to backup
withholding as a result of failure to report all interest or dividends or (ii)
the IRS has notified the Holder that the Holder is no longer subject to backup
withholding; or (b) provide an adequate basis for exemption. If the tendering
Holder has not been issued a TIN and has applied for one, or intends to apply
for one in the near future, such Holder should check the box "Awaiting TIN" in
Part I of the Substitute Form W-9, sign and date the Substitute Form W-9 and
sign the Certificate of Payee Awaiting Taxpayer Identification Number. If the
"Awaiting TIN" box is checked in Part I, the Company (or the Paying Agent under
the Indenture governing the Exchange Notes) will retain 31% of payments made to
the tendering Holder during the 60-day period following the date of the
Substitute Form W-9. If the Holder furnishes the Exchange Agent or the Company
with its TIN within 60-days after the date of the Substitute Form W-9, the
Company (or the Paying Agent) will remit such amounts retained during the 60-day
period to the Holder and no further amounts shall be retained or withheld from
payments made to the Holder thereafter. If, however, the Holder has not provided
the Exchange Agent or the Company with its TIN within such 60-day period, the
Company (or the Paying Agent) will remit such previously retained amounts to the
IRS as backup withholding. In general, if a Holder is an individual, the
taxpayer identification number is the Social Security Number of such individual.
If the Exchange Agent or the Company is not provided with the correct taxpayer
identification number, the Holder may be subject to a $50 penalty imposed by the
IRS. Certain Holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such Holder must submit a statement (generally, IRS Form W-8), signed
under penalties of perjury, attesting to that individual's exempt status. Such
statements can be obtained from the Exchange Agent. For further information
concerning backup withholding and instructions for completing the Substitute
Form W-9 (including how to obtain a taxpayer identification number if you do not
have one and how to complete the Substitute Form W-9 if Outstanding Notes are
registered in more than one name), consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause
Outstanding Notes to be deemed invalidly tendered, but may require the Company
(or the Paying Agent) to withhold 31% of the amount of any payments made on
account of the Exchange Notes. Backup withholding is not an additional federal
income tax. Rather, the federal income tax liability of a person subject to
backup withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
11
<PAGE>
7. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the
transfer of Outstanding Notes to it or its order pursuant to the Exchange Offer.
If, however, Exchange Notes and/or substitute Outstanding Notes not exchanged
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered Holder of the Outstanding Notes tendered
herewith, or if tendered Outstanding Notes are registered in the name of any
person other than the person signing this Letter, or if a transfer tax is
imposed for any reason other than the transfer of Outstanding Notes to the
Company or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered Holder or any other persons)
will be payable by the tendering Holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Outstanding Notes specified in this
Letter.
8. Waiver of Conditions.
The Company reserves the absolute right to waive, in whole or in part,
any of the conditions to the Exchange Offer set forth in the Prospectus.
9. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders of
Outstanding Notes or transmittals of this Letter will be accepted. All tendering
Holders of Outstanding Notes, by execution of this Letter, shall waive any right
to receive notice of the acceptance of their Outstanding Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is
obligated to give notice of defects or irregularities in any tender, nor shall
any of them incur any liability for failure to give any such notice.
10. Inadequate Space.
If the space provided herein is inadequate, the aggregate principal
amount of Outstanding Notes being tendered and the certificate number or numbers
(if applicable) should be listed on a separate schedule attached hereto and
separately signed by all parties required to sign this Letter.
11. Mutilated, Lost, Stolen or Destroyed Outstanding Notes.
If any certificate has been lost, mutilated, destroyed or stolen, the
Holder should promptly notify Norwest Bank Minnesota, National Association at
6th Street and Marquette Avenue, Minneapolis, Minnesota 55479-0113, telephone
(800) 344-5128. The Holder will then be instructed as to the steps that must be
taken to replace the certificate. This Letter and related documents cannot be
processed until the Outstanding Notes have been replaced.
12. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Prospectus and this Letter may be directed to the
Exchange Agent at the address and telephone number indicated above.
13. Validity of Tenders.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Outstanding Notes will be determined by the
Company, in its sole discretion, which determination will be final and binding.
The Company reserves the right to reject any and all Outstanding Notes not
validly tendered or any Outstanding Notes, the Company's acceptance of which
would, in the opinion of the Company, be unlawful. The Company also reserves the
right to waive any conditions of the Exchange Offer or defects or irregularities
in tenders of Outstanding Notes as to any ineligibility of any Holder who seeks
to tender Outstanding Notes in the Exchange
12
<PAGE>
Offer. The interpretation of the terms and conditions of the Exchange Offer
(including this Letter and the Instructions hereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Outstanding Notes must be cured within such time
as the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Outstanding Notes, nor shall any of
them incur any liability for failure to give such notification. Tenders of
Outstanding Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.
14. Acceptance of Tendered Outstanding Notes and Issuance of Exchange
Notes; Return of Outstanding Notes.
Subject to the terms and conditions of the Exchange Offer, the Company
will accept for exchange all validly tendered Outstanding Notes as soon as
practicable after the Expiration Date and will issue Exchange Notes therefor as
soon as practicable thereafter. For purposes of the Exchange Offer, the Company
shall be deemed to have accepted tendered Outstanding Notes when, as and if the
Company has given written and oral notice thereof to the Exchange Agent. If any
tendered Outstanding Notes are not exchanged pursuant to the Exchange Offer for
any reason, such unexchanged Outstanding Notes will be returned, without
expense, to the name and address shown above or at a different address as may be
indicated under "Special Delivery Instructions" as soon as practicable after the
Expiration Date.
13
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 6)
PAYOR'S NAME: SHOPPERS FOOD WAREHOUSE CORP.
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE EXCHANGE NOTES.
<TABLE>
<CAPTION>
====================================================================================================================
SUBSTITUTE FORM W-9 Part I--Taxpayer Identification Number
<S> <C> <C>
Department of the Treasury Enter your taxpayer identification ----------------------------------
Internal Revenue Service number in the appropriate box. For Social Security Number
most individuals, this is your social
security number. If you do not have a OR
number, see how to obtain a "TIN" in
the enclosed Guidelines.
----------------------------------
NOTE: If the account is in more than Employer Identification Number
one name, see the chart on page 2 of
the enclosed Guidelines to determine OR
what number to give.
[_] Awaiting TIN
-------------------------------------------------------------------------------
Part II--For Payees Exempt from Backup Withholding (see enclosed Guidelines)
-------------------------------------------------------------------------------
Payor's Request for Taxpayer CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Identification Number (TIN) and (1) the number shown on this form is my correct Taxpayer Identification
Certification Number (or I am waiting for a number to be issued to me), and
(2) I am no subject to backup withholding either because I have not been
notified by the Internal Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends or the IRS has notified me that I am no longer subject to backup
withholding.
SIGNATURE DATE
---------------------------------------- ----------------------
NAME
----------------------------------------------------------------------
(please print)
</TABLE>
- --------------------------------------------------------------------------------
Certificate Guidelines--You must cross out Item (2) of the above certification
if you have been notified by the IRS that you are subject to backup withholding
because of under-reporting of interest or dividends on your tax return. However,
if after being notified by the IRS that you were subject to backup withholding,
you received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out Item (2).
================================================================================
14
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX "AWAITING
TIN" IN PART I OF SUBSTITUTE FORM W-9
================================================================================
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me and that I mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payor, 31% of all payments made
to me on account of the Exchange Notes shall be retained until I provide a
Taxpayer Identification Number to the payor and that, if I do not provide my
Taxpayer Identification Number within 60 days, such retained amounts shall be
remitted to the Internal Revenue Service as a backup withholding and 31% of all
reportable payments made to me thereafter will be withheld and remitted to the
Internal Revenue Service until I provide a Taxpayer Identification Number.
SIGNATURE DATE
------------------------------------ ----------------
================================================================================
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
15
<PAGE>
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
for
Tender of all Outstanding
9 3/4% Senior Notes
due 2004
in Exchange for
9 3/4% Senior Notes due 2004,
which have been registered under the Securities Act,
of
SHOPPERS FOOD WAREHOUSE CORP.
Registered Holders of outstanding 9 3/4% Senior Notes due 2004 of Shoppers
Food Warehouse Corp. (the "Outstanding Notes") who wish to tender their
Outstanding Notes in exchange for an equal principal amount of 9 3/4% Senior
Notes due 2004 of Shoppers Food Warehouse Corp. that have been registered under
the Securities Act of 1933, as amended (the "Exchange Notes") and who cannot
deliver their Outstanding Notes and a Letter of Transmittal (and any other
documents required by the Letter of Transmittal) to Norwest Bank Minnesota,
National Association (the "Exchange Agent"), or who cannot complete the
procedure for book-entry transfer, prior to the Expiration Date may use this
Notice of Guaranteed Delivery or one substantially equivalent hereto. This
Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile
transmission (receipt confirmed by telephone and an original delivered by
guaranteed overnight delivery) or mailed to the Exchange Agent. See "The
Exchange Offer--Procedures for Tendering Outstanding Notes" in the Prospectus.
Capitalized terms not defined herein have the meanings ascribed to them in the
Prospectus.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME, ON [______], 1997,
UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF OUTSTANDING NOTES MAY BE
WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
The Exchange Agent for the Exchange Offer is:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: Facsimile Transmission Number: By Overnight Delivery:
(612) 667-4297
P.O. Box 1517 (For Eligible Institutions Only) 6th Street and Marquette Avenue
Minneapolis, Minnesota 55480-1517 Confirm by Telephone: Minneapolis, Minnesota 55479-0113
Attn: Corporate Trust Operation (612) 667-0252 Attn: Corporate Trust Operation
For Information Call:
(800) 344-5128
</TABLE>
Delivery of this instrument to an address other than as set forth above,
or transmission of instructions via facsimile other than as set forth above,
will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution (as defined in the Prospectus and the
Letter of Transmittal), such signature guarantee must appear in the applicable
space provided on the Letter of Transmittal for Guarantee of Signatures.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Shoppers Food Warehouse Corp., upon the
terms and subject to the conditions contained in the Prospectus dated [_______],
1997 of Shoppers Food Warehouse Corp. and the related Letter of Transmittal,
receipt of which is hereby acknowledged, the principal amount at maturity of
Outstanding Notes indicated below pursuant to the guaranteed delivery procedures
set forth in the Prospectus and in Instruction 2 of the Letter of Transmittal.
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
Name and address of registered Aggregate Principal
Holder as it appears on the Certificate Number(s) of Amount Represented Principal Amount of
Outstanding Notes (Please print) Outstanding Notes Tendered/(1)/ by Outstanding Notes Outstanding Notes Tendered
<S> <C> <C> <C>
- ------------------------------- ----------------------------- ------------------------ ----------------------------
- ------------------------------- ----------------------------- ------------------------ ----------------------------
- ------------------------------- ----------------------------- ------------------------ ----------------------------
- ------------------------------- ----------------------------- ------------------------ ----------------------------
- ------------------------------- ----------------------------- ------------------------ ----------------------------
- ------------------------------- ----------------------------- ------------------------ ----------------------------
</TABLE>
/(1)/ Certificate numbers not required if Outstanding Notes are being tendered
by book-entry transfers.
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X Date: , 1997
------------------------------------ ------------
X Date: , 1997
------------------------------------ ------------
Signature(s) of Owner or
Authorized Signatory
Area Code and Telephone Number:
---------------------------
This Notice of Guaranteed Delivery must be signed by the Holder(s) of the
Outstanding Notes as their name(s) appear(s) on certificates for Outstanding
Notes, or by person(s) authorized to become registered Holder(s) by endorsement
and documents transmitted with this Notice of Guaranteed Delivery. If signature
is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of
a corporation or other person acting in a fiduciary or representative capacity,
such person must set forth his or her full title below.
2
<PAGE>
Please print name(s) and address(es)
Name(s):
-------------------------------------
-------------------------------------
-------------------------------------
Capacity:
-------------------------------------
Address(es):
-------------------------------------
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(Not to be used for signature guarantee)
The undersigned, a firm that is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or is a commercial bank or trust company having an office, branch, agency or
correspondent in the United States, hereby guarantees that delivery to the
Exchange Agent of a confirmation of the book-entry transfer of such Outstanding
Notes into the Exchange Agent's account at the Depository Trust Company,
pursuant to the procedures for book-entry transfer set forth in the Prospectus,
with delivery of a properly completed and duly executed Letter of Transmittal
(or manually signed facsimile thereof) with any required signatures and any
other documents required by the Letter of Transmittal, will be received by the
Exchange Agent by 5:00 p.m., New York City time, on the third New York Stock
Exchange trading day following the Expiration Date.
Name of Firm:
----------------------------- -------------------------------
(Authorized Signature)
Address:
----------------------------------
Title:
- ------------------------------------------ -------------------------
(Zip Code) Name:
--------------------------
(Please type or print)
Area Code and Telephone Number:
Date:
--------------------------
- ------------------------------------------
NOTE: DO NOT SEND OUTSTANDING NOTES WITH THIS NOTICE OF GUARANTEED
DELIVERY. OUTSTANDING NOTES SHOULD BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
3
<PAGE>
Exhibit 99.3
Offer to Exchange
9 3/4% Senior Notes due 2004, which
have been registered under the Securities Act,
for Outstanding
9 3/4% Senior Notes due 2004
of
Shoppers Food Warehouse Corp.
To The Depository Trust Company Participants:
We are enclosing herewith the materials listed below relating to the
offer by Shoppers Food Warehouse Corp. (the "Company") to exchange its 9 3/4%
Senior Notes due 2004 (the "Exchange Notes"), pursuant to an offering registered
under the Securities Act of 1933, as amended (the "Securities Act"), for a like
principal amount of its issued and outstanding 9 3/4% Senior Notes due 2004 (the
"Outstanding Notes") upon the terms and subject to the conditions set forth in
the Company's Prospectus dated [_______], 1997, and the related Letter of
Transmittal (which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents;
i. Prospectus dated [_______], 1997;
ii. Letter of Transmittal;
iii. Notice of Guaranteed Delivery;
iv. Instruction to Book-Entry Transfer Participant from Owner, and
v. Letter, which may be sent to your clients for whose account you
hold Outstanding Notes in your name or in the name of your
nominee, accompanying the instruction form referred to above, for
obtaining such client's instruction with regard to the Exchange
Offer.
We urge you to contact your clients promptly. Please note that the
offer will expire at 5:00 p.m., New York City time, on [______], 1997, unless
extended.
The Exchange Offer is not conditioned upon any minimum number of
Outstanding Notes being tendered.
To participate in the Exchange Offer, a beneficial Holder must cause a
DTC Participant to tender such Holder's Outstanding Notes to Norwest Bank
Minnesota, National Association's (the "Exchange Agent") account maintained at
the Depository Trust Company ("DTC") for the benefit of the Exchange Agent
through DTC's Automated Tender Offer Program ("ATOP"), including transmission of
a computer-generated message that acknowledges and agrees to be bound by the
terms of the Letter of Transmittal. By complying with DTC's ATOP procedures with
respect to the Exchange Offer, the DTC Participant confirms on behalf of itself
and the beneficial owners of tendered Outstanding Notes all provisions of the
Letter of Transmittal applicable to it and such beneficial owners as fully as if
it completed, executed and returned the Letter of Transmittal to the Exchange
Agent.
Pursuant to the Letter of Transmittal, each Holder of Outstanding Notes
will represent to the Company that (i) the Exchange Notes acquired by the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is such Holder,
(ii) neither the Holder of the Outstanding Notes nor any such other person has
an arrangement or understanding with any person to participate in the
distribution of such Exchange Notes, (iii) if the Holder is not a broker-dealer
or is a broker-dealer but will not receive Exchange Notes for its own account in
exchange for Outstanding Notes, neither the Holder nor any such person is
engaged in or intends to participate in a distribution of the Exchange Notes and
(iv) neither the Holder nor any such person is an
<PAGE>
"affiliate" of the Company or of the Guarantor within the meaning of Rule 405
under the Securities Act. If the tendering Holder is a broker-dealer that will
receive Exchange Notes for its own account pursuant to the Exchange Offer, you
represent on behalf of such broker-dealer that the Outstanding Notes to be
exchanged for the Exchange Notes were acquired by it as a result of market-
making activities or other trading activities, and acknowledge on behalf of such
broker-dealer that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes. By
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes, such broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The enclosed Instruction to the Book-Entry Transfer Participant from
Owner contains an authorization by the beneficial owners of the Outstanding
Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer
or to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Outstanding Notes pursuant to the Exchange Offer. The
Company will pay or cause to be paid any transfer taxes payable on the transfer
of Outstanding Notes to it, except as otherwise provided in Instruction 5 of the
enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtain from Norwest
Bank Minnesota, National Association, 6th Street and Marquette Avenue,
Minneapolis, MN 55479-0113, Attention: Corporate Trust Operation.
Very truly yours,
Shoppers Food Warehouse Corp.
By:
--------------------------------
Mark A. Flint
President
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF SHOPPERS FOOD WAREHOUSE CORP. OR NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR
BEHALF IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED
HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
2
<PAGE>
Exhibit 99.4
Offer to Exchange
9 3/4% Senior Notes due 2004, which
have been registered under the Securities Act,
for Outstanding
9 3/4% Senior Notes due 2004
of
Shoppers Food Warehouse Corp.
To Our Clients:
We are enclosing herewith a Prospectus, dated [_______], 1997 of
Shoppers Food Warehouse Corp. (the "Company") and a related Letter of
Transmittal (which together constitute the "Exchange Offer") relating to the
offer by the Company to exchange its 9 3/4% Senior Notes due 2004 (the "Exchange
notes"), pursuant to an offering registered under the Securities Act of 1933, as
amended (the "Securities Act"), for a like principal amount of its issued and
outstanding 9 3/4% Senior Notes due 2004 (the "Outstanding Notes") upon the
terms and subject to the conditions set forth in the Exchange Offer.
Please note that the offer will expire at 5:00 p.m., New York City
time, on [______], 1997, unless extended.
The Exchange Offer is not conditioned upon any minimum number of
Outstanding Notes being tendered.
We are the participants in the book-entry transfer facility of
Outstanding Notes held by us for your account. A tender of such Outstanding
Notes can be made only by us as the participant in the book-entry transfer
facility and pursuant to your instructions. The Letter of Transmittal is
furnished to you for your information only and cannot be used by you to tender
Outstanding Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of
the Outstanding Notes held by us for your account pursuant to the terms and
conditions of the Exchange Offer. We also request that you confirm that we may
on your behalf make the representations contained in the Letter of Transmittal
that are to be made with respect to you as beneficial owner.
Pursuant to the Letter of Transmittal, each Holder of Outstanding Notes
will represent to the Company that (i) the Exchange Notes acquired in the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, (ii) the Holder of the Outstanding Notes
has no arrangement or understanding with any person to participate in the
distribution of such Exchange notes, (iii) if the Holder is not a broker-dealer
or is a broker-dealer but will not receive Exchange Notes for its own account in
exchange for Outstanding Notes, the Holder is not engaged in and does not intend
to participate in a distribution of the Exchange Notes and (iv) the Holder is
not an "affiliate" of the Company or of the Guarantor within the meaning of Rule
405 under the Securities Act. If the tendering Holder is a broker-dealer that
will receive Exchange Notes for its own account pursuant to the Exchange Offer,
we will represent on behalf of such broker-dealer that the Outstanding Notes to
be exchanged for the Exchange Notes were acquired by it as a result of
market-making activities or other trading activities, and acknowledge on behalf
of such broker-dealer that it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such Exchange Notes. By
acknowledging that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes, such
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
Very truly yours,
<PAGE>
INSTRUCTION TO
BOOK-ENTRY TRANSFER PARTICIPANT FROM OWNER
OF
Shoppers Food Warehouse Corp.
9 3/4% Senior Notes due 2004
To Participant of the
Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
[_______], 1997 of Shoppers Food Warehouse Corp. (the "Company") and a related
Letter of Transmittal (which together constitute the "Exchange Offer").
Capitalized terms used but not defined herein have the meanings ascribed to them
in the Prospectus.
This will instruct you, the book-entry transfer facility participant,
as to the action to be taken by you relating to the Exchange Offer with respect
to the Outstanding Notes held by you for the account of the undersigned.
The aggregate face amount of the Outstanding Notes held by you for the
account of the undersigned is (fill in amount):
$___________________ of the 9 3/4% Senior Notes due 2004.
With respect to the Exchange Offer, the undersigned hereby instructs
you (check appropriate statement):
A. ________________ To TENDER the following Outstanding Notes held by
you for the account of the undersigned (insert principal amount of
Outstanding Notes to be tendered):
$_________________ of the 9 3/4% Senior Notes due 2004, and not to
tender other Outstanding Notes, if any, held by
you for the account of the undersigned;
OR
B. ________________ NOT to tender any Outstanding Notes held by you
for the account of the undersigned.
If the undersigned instructs you to tender the Outstanding Notes held
by you for the account of the undersigned, it is understood that you are
authorized to make, on behalf of the undersigned (and the undersigned, by its
signature below, hereby makes to you), the representations and warranties
contained in the Letter of Transmittal that are to be made with respect to the
undersigned as a beneficial owner, including but not limited to the
representations, that (i) the Exchange Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of business of the undersigned,
(ii) the undersigned has no arrangement nor understanding with any person to
participate in the distribution of such Exchange Notes, (iii) if the undersigned
is not a broker-dealer or is a broker-dealer but will not receive Exchange Notes
for its own account in exchange for Outstanding Notes, the undersigned is not
engaged in and does not intend to participate in a distribution of the Exchange
Notes and (iv) the undersigned is not an "affiliate" of the Company or of the
Guarantor within the meaning of Rule 405 under the Securities Act of 1933, as
amended (the "Securities Act"). If the undersigned is a broker-dealer (whether
or not it is also an "affiliate") that will receive Exchange Notes for its own
account pursuant to the Exchange Offer, it represents that such Outstanding
Notes to be exchanged were acquired by it as a result of market-making
activities or other trading activities, and it acknowledges that it will deliver
a prospectus meeting the requirements of the Securities Act in connection with
any resale of such Exchange Notes. By acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Securities Act in
connection with any resale
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<PAGE>
of such Exchange notes, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
SIGN HERE
Name of beneficial owner(s):
-------------------------
Signature(s):
----------------------------------------
Name(s) (please print):
------------------------------
Address:
---------------------------------------------
Telephone Number:
------------------------------------
Taxpayer identification or Social Security Number:
- -----------------------------------------------------
Date:
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