SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
( ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For fiscal year ended ____________________
(X) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from March 3, 1997 to
November 30, 1997.
Commission File No. 1-7013
GRISTEDE'S SLOAN'S, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1829183
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
823 Eleventh Avenue, New York, New York 10019-3535
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(Address of Principal Executive Offices) (Zip Code)
(212) 956-5803
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $0.02 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13, or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of May 1, 1998, 19,636,574 shares of the registrant's common stock, $0.02 par
value, were outstanding. The aggregate market value of the common stock held by
nonaffiliates of the registrant (i.e., excluding shares held by executive
officers, directors, and control persons as defined in Rule 405) on that date
was $7,561,456 computed at the closing price on that date.
Documents Incorporated by Reference: None
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This annual report on Form 10-KSB contains both historical and
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Words such as "anticipates", "believes",
"expects", "intends", "future", and similar expressions identify forward-looking
statements. Any such "forward-looking" statements in this report reflect the
Company's current views with respect to future events and financial performance,
and are subject to a variety of factors that could cause the actual results or
performance to differ materially from historical results or from the anticipated
results or performance expressed or implied by such forward-looking statements.
Because of such factors, there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the anticipated results. The risks
and uncertainties that may affect the Company's business include, but are not
limited to: economic conditions, governmental regulations, technological
advances, pricing and competition, acceptance by the marketplace of new
products, retention of key personnel, the sufficiency of financial resources to
sustain and expand the Company's operations, and other factors described in this
report and in prior filings with the Securities and Exchange Commission. Readers
should not place undue reliance on such forward-looking statements, which speak
only as of the date hereof, and should be aware that except as may be otherwise
legally required of the Company, the Company undertakes no obligation to
publicly revise any such forward-looking statements to reflect events or
circumstances that may arise after the date hereof.
ITEM 1. BUSINESS.
General
The Company is a Delaware corporation whose principal executive offices
are located at 823 Eleventh Avenue, New York, New York 10019-3535. Unless the
context otherwise requires, the terms "Company" or "Registrant" as used herein
refer to Gristede's Sloan's, Inc. (which is a holding corporation) and its
wholly-owned subsidiaries.
The Company owns and operates 42 supermarkets and one health and beauty
aids store (the "Supermarkets"). 37 Supermarkets are located in Manhattan, New
York, three Supermarkets are located in Westchester County, New York, two
Supermarkets are located in Brooklyn, New York and one Supermarket is located in
Long Island, New York. 23 of the Supermarkets are operated under the "Sloan's"
name and 20 are operated under the "Gristede's" name. The Company leases all of
its Supermarket locations.
The Company also owns City Produce Operating Corp., a corporation which
operates a warehouse and distribution center primarily for fresh produce on
leased premises in the Bronx, New York.
The Company competes on the basis of providing customer convenience,
service and a wide assortment of food products, including those that are
appealing to the clientele in the neighborhoods where its Supermarkets are
located. The Supermarkets, like most Manhattan supermarkets, are smaller than
their suburban counterparts, ranging in size from approximately 3,200 to 23,000
square feet of selling space and averaging 8,500 square feet of selling space.
The Supermarkets offer, at competitive prices, broad lines of
merchandise, including nationally and regionally advertised brands, private
label and generic brands. Merchandise sold includes food items such as fresh
meats, produce, dry groceries, dairy products, baked goods, poultry and fish,
fresh fruits and vegetables, frozen foods, delicatessen and gourmet foods, as
well as many non-food items such as cigarettes, soaps, paper products, and
health and beauty aids. Check-cashing services are available to qualified
customers holding check-cashing cards and, for a small fee, the Company will
deliver groceries to a customer's apartment door. The Supermarkets accept
payment by Mastercard, Visa, American Express and Discover credit cards. Most of
the Supermarkets are open sixteen hours per day, seven days a week and on
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holidays, including Christmas, New Year's and Thanksgiving. Most of the
Supermarkets close two hours earlier on Sundays.
The Company's predecessor was incorporated in 1956 in New York. In
1985, the Company's domicile was changed to Delaware by merging the predecessor
corporation into a newly formed Delaware corporation, incorporated for such
purpose. The Company became a public company in 1968 and listed its Common Stock
on the American Stock Exchange in 1972. Until 1992, the Company engaged in the
jewelry business, operating under the name Designcraft Industries, Inc. for most
of such time. The Company changed its name to Sloan's Supermarkets, Inc. in
September 1993 and to Gristede's Sloan's, Inc. in 1997 to reflect its current
business.
Recent Developments
On November 10, 1997 a Merger Agreement, dated as of July 14, 1997 (the
"Merger Agreement") among Red Apple Group, Inc. ("Group"), Red Apple
Supermarkets, Inc. ("RAS"), Gristede's Supermarkets, Inc. ("Gristede's"), City
Produce Distributors, Inc., Supermarket Acquisition Corp. ("SAC"), John A.
Catsimatidis, the Company, RAS Operating Corp. ("RASOC"), Gristede's Operating
Corp. ("GOC"), SAC Operating Corp. ("SACOC") and City Produce Operating Corp.
("City Produce") was consummated pursuant to which four corporations directly or
indirectly owned by Mr. Catsimatidis, the Chairman of the Board and Chief
Executive Officer of the Company, merged into four newly formed wholly owned
subsidiaries of the Company. As a result of the mergers (collectively, the
"Merger"), the Company acquired the assets and business of 29 operating
supermarkets (including accounts receivable, fixtures, leasehold improvements
and inventories of supplies and merchandise located at the supermarkets, certain
leasehold rights in real property and equipment and certain other contract
rights in connection with the operation of such supermarkets), ownership of the
tradenames "Gristede's" and "Sloan's" and the warehouse and distribution
business now operated by City Produce (collectively, the "Food Group").
Pursuant to the Merger Agreement, John Catsimatidis and Group (a
corporation wholly owned by John Catsimatidis), as the sole stockholders of the
four corporations acquired in the Merger, became entitled to receive an
aggregate of $40,000,000 in market value of the Company's Common Stock. The
aggregate market value of the shares of the Company's Common Stock issued in the
Merger was reduced by an amount equal to the amount of certain liabilities of
RAS, Gristede's and SAC to John Catsimatidis and entities controlled by him
which were assumed by the surviving corporations in the Merger ("Intercompany
Liabilities"). The aggregate amount of such Intercompany Liabilities was
$4,000,000. Based on a market value of $2.18125 per share (the average closing
sales price for the Common Stock as reported on the American Stock Exchange for
the sixty consecutive trading days ended on October 29, 1997, the day prior to
the date of a Special and Annual Meeting of Stockholders of the Company (the
"Stockholders Meeting") at which the Merger was approved) the aggregate number
of shares issued to Mr. Catsimatidis and Group was 4,173,754 and 12,330,544,
respectively. As of June 1, 1998 Mr. Catsimatidis beneficially owned 18,250,650
shares of Common Stock (approximately 90.5% of the outstanding shares).
Simultaneously with the consummation of the Merger, the Company entered
into agreements with European American Bank and certain other participating
lenders with respect
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to a $25,000,000 secured bank facility comprised of: (i) a $12,000,000 five year
term loan to refinance the Company's outstanding bank debt and to provide
working capital, (ii) an $8,000,000 five year term loan to finance the
remodelling of the Company's supermarkets and the installation of a
point-of-sale and management information system, and (iii) a $5,000,000 two year
revolving line of credit for additional working capital.
At the Stockholders Meeting held on October 30, 1997, the Company's
stockholders approved, among other things, amendments to the Certificate of
Incorporation of the Company to (a) increase the number of authorized shares of
Common Stock from 10,000,000 to 25,000,000 and (b) change the name of the
Company to Gristede's Sloan's, Inc. (see Item 4. "Submission of Matters to a
Vote of Securityholders"). On November 4, 1997 the Company filed with the
Delaware Secretary of State a Certificate of Amendment of its Certificate of
Incorporation to effectuate such amendments.
In February 1998, the Company acquired from an affiliate of John
Catsimatidis the assets of a Supermarket located at 1644 York Avenue, New York,
New York. For information concerning the terms of such acquisition see Item 13.
"Certain Relationships and Related Transactions."
Growth Strategy
The Company believes that the Merger will allow it to realize synergies
and increasing operating leverage while providing management with the necessary
resources and focus to streamline operations, automate facilities and capitalize
on strategic opportunities. The Company also believes that the Merger has
enabled it to achieve the critical mass necessary to execute its future growth
strategy.
The Company has embarked on a capital expenditure program for its
Supermarkets that includes extensive remodelings and the introduction of a
centralized point-of-sale information system. The Company has obtained an
$8,000,000 five year term loan from certain banks to provide financing for such
capital improvements (see "Recent Developments").
As of June 1, 1998, 11 stores have been remodeled and modernized. The
Company anticipates that seven more stores will be remodeled before November 29,
1998. The program will continue into 1999. The modernized smaller Supermarkets
are re-named "Gristede's 2001", and the larger Supermarkets are re-named
"Gristede's Mega Stores".
The largest of the remodeled stores is located in Roosevelt Island, in
New York City and has been expanded in size to 23,000 square feet of selling
space from the previous 8,000 square feet.
Average sales increases at the remodeled stores have exceeded 50%.
Modernization has resulted in a more enjoyable shopping atmosphere with more
rapid check-out lines due to scanners and improved lighting facilities.
The Company may also expand its operations through opening new
supermarkets, acquisitions of supermarkets and/or acquisitions of businesses
which the Company believes would complement its core supermarket business.
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Marketing
The Company advertises in local newspapers on a weekly basis. The
Company's advertising emphasizes competitive prices and variety of merchandise.
Some of the Company's vendors offer cooperative advertising allowances, which
the Company receives for advertising particular products in its newspaper
advertisements.
Competition
The Company's retail business is subject to intense competition,
characterized by low profit margins and requiring regular advertising. All of
the Supermarkets are in direct competition with Food Emporium, D'Agostino, A&P,
Pathmark and independent supermarket/grocery operators which do business under
the names "Pioneer", "Key Food" and "Associated", many of which are larger and
have substantially greater resources than the Company. The Supermarkets also
compete with other outlets which sell products sold by supermarkets in New York
City. Those outlets include gourmet food stores, health and beauty aid stores,
drug stores, produce stores, bodegas, delicatessens and other retail food
establishments. In addition, several of the Company's competitors have announced
plans to open larger stores.
Sources of Supply
During the period from March 3, 1997 to November 30, 1997 covered by
this report (the "Transition Period"), the Company obtained 45% of the
merchandise sold in its stores from one principal merchandise supplier, White
Rose Foods, and the balance from other vendors, none of which accounted for more
than 10% of merchandise purchased by the Company. The Company believes that its
supplier relationships are currently satisfactory. The Company is not dependent
on these supplier relationships since merchandise is readily available from
numerous sources under different brand names, subject to conditions affecting
food supplies generally.
Tradenames
The Company owns the "Gristede's" and "Sloan's" tradenames. Such names
have an established reputation in the areas served by the Supermarkets for
convenience, competitive prices, service and a wide variety of quality produce
and merchandise.
Gristede's is a federally registered trademark. While the Company is
not aware that its use of the tradename infringes upon the rights of any
persons, it has not obtained any federal or state trademark registration for the
tradename "Sloan's." The assertion by a third party of superior rights in the
tradename "Sloan's" or the loss of the Company's right to use either tradename
could have a material adverse effect on the Company.
Labor Contracts
All of the employees of the Company other than 96 administrative
employees and executives and 58 store managers and co-managers are represented
by unions. The table below sets forth the name of each union with which the
Company has a collective bargaining agreement and the expiration date of such
agreement.
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Name of Union Expiration Date
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Retail, Wholesale & Chain Store October 3, 1998
Food Employees Union, Local 338
Amalgamated Meat Cutters and Retail Food October 23, 1999
Store Employees Union, Local 342-50
United Food and Commercial Workers Union December 19, 1998
("UFCW"), Local 174
UFCW, Local 1500 June 21, 1998
UFCW, Local 464A May 1, 2003
International Brotherhood of Teamsters June 30, 1999
("Teamsters"), Local 803
Teamsters, Local 202 December 31, 2003
Governmental Approvals
All of the stores have obtained all necessary governmental approvals,
licenses and permits to operate the Supermarkets.
Employees
At June 1, 1998, the Company had approximately 1,123 employees, 1,022
of which are employed at the Supermarkets or the City Produce warehouse, and 101
of which are employed at the Company's executive offices. Approximately 390 of
the employees were employed on a full-time basis.
Year 2000 Issue
The Company has initiated an automation program to install state of the
art computerized point-of-sale terminals ("POS") which are year 2000 compliant,
in all its Supermarkets. Approximately one-third of the Supermarkets already
have POS systems installed. The Company anticipates that all Supermarkets will
have POS systems installed by the year 2000.
Corporate level systems are being developed and implemented using
client server technology to make efficient and timely use of the data supplied
by store automation systems for management, marketing and general corporate
purposes. Management believes that all such systems will be in place so as to
ensure corporate wide year 2000 functionality from its systems. The Company
estimates that the cost to implement corporate level systems that are year 2000
compliant will not exceed $100,000.
ITEM 2. PROPERTIES.
The Company leases all 43 Supermarket locations and the warehouse and
distribution center operated by City Produce. 11 of such leases expire prior to
2001, 23 of such leases expire on dates from 2001 through 2010 and 9 of such
leases expire on dates from 2011 through 2018. The Supermarkets range in size
from approximately 3,200 to 23,000 square feet of selling space, averaging 8,500
square feet of selling space. All of the stores are air-
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conditioned, have all necessary fixtures and equipment and are suitable for the
retail operations conducted thereat.
ITEM 3. LEGAL PROCEEDINGS.
On August 8, 1994, a lawsuit against the Company and Mr. Catsimatidis
was instituted in the United States District Court for the Southern District of
New York by RMED International, Inc. ("RMED"), a former stockholder of the
Company.
The complaint alleges, among other things, that RMED and a purported
class consisting of persons who purchased the Company's common stock on or after
March 19, 1993 were damaged by alleged nondisclosures in certain filings made by
the Company with the Securities and Exchange Commission between January 1993 and
June 1994 relating to an investigation by the FTC. The complaint alleges that
such nondisclosures constituted violations of Federal and New York State
securities laws, as well as common law fraud and seeks damages (including
punitive damages) in an unspecified amount (although in discovery proceedings
the named plaintiff has claimed that its damages were approximately $800,000),
as well as costs and disbursements of the action. On June 2, 1994, the Company
issued a press release which disclosed the FTC action.
On September 30, 1994, the defendants filed a motion to dismiss for failure to
state a cause of action and for lack of subject matter jurisdiction over the
state claims. The motion was denied. In June 1995, RMED filed a motion for class
certification, and discovery was held in abeyance pending disposition of that
motion. The motion was granted in March 1996 and discovery is now proceeding and
is scheduled to be completed in June 1998. Management believes that the lawsuit
is without merit and intends to defend the action vigorously; however, the
outcome cannot be determined.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
A Special and Annual meeting of stockholders of the Company was held on
October 30, 1997. At the meeting, John Catsimatidis was elected as the Class 3
director to serve for a one year term expiring at the annual meeting to be held
in 1998, and Leroy Hemingway II was reelected and Kishore Lall was elected as
Class 1 Directors for a two year term expiring at the annual meeting to be held
in 1999. The number of votes cast in favor of the election of Mr. Catsimatidis
was 2,587,693 and the number of votes cast against was 166,825. The number of
votes cast in favor of the election of Mr. Hemingway was 2,584,527 and the
number of votes cast against was 169,991. The number of votes cast in favor of
the election of Mr. Lall was 2,584,527 and the number of votes cast against was
169,991. The terms of Martin Bring and Frederick Selby as Directors of the
Company continued after the meeting.
In addition to the election of the directors, the stockholders approved
the Merger Agreement (see Item 1 "Business - Recent Developments"). The number
of votes cast in favor of the Merger Agreement was 1,765,609, the number of
votes cast against the Merger Agreement was 60,051 and the number of abstentions
was 1,486. The stockholders also approved a proposal to amend the Certificate of
Incorporation of the Company to increase from 10,000,000 to 25,000,000 the
authorized number of shares of Common Stock. The number of
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votes cast in favor of the amendment was 1,627,166, the number of votes cast
against was 196,766 and the number of abstentions was 3,214. The stockholders
also approved a proposal to amend the Certificate of Incorporation to change the
name of the Company to Gristede's, Sloan's, Inc. The number of votes cast in
favor of the amendment was 2,672,005, the number of votes cast against was
80,446 and the number of abstentions was 2,067. The stockholders also ratified
the grant to John Catsimatidis of non-qualified options to purchase an aggregate
of 250,000 shares of Common Stock at $2.875 per share through the earlier of
August 11, 2006 or 90 days after the termination of Mr. Catsimatidis' employment
by the Company. The number of votes cast in favor of the proposal was 1,633,157,
the number of votes cast against was 187,575 and the number of abstentions was
6,414.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock is listed and traded on the American Stock
Exchange. Since November 12, 1997 the Common Stock has been quoted under stock
symbol "GRI." Prior thereto it was quoted under the symbol "SLO." For the
Transition Period from March 3, 1997 to November 30, 1997 and the fiscal year
ended March 2, 1997, the quarterly high and low price range for such common
stock is shown in the following tabulation:
Transition Period from
March 3, 1997 to Fiscal Year Ended
November 30, 1997 March 2, 1997
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Quarter High Low High Low
- --------- ----- ----- ----- -----
First 3-1/8 2-1/4 3-3/4 2-7/8
Second 2-5/8 1-7/8 3-1/2 2-1/2
Third 2-11/16 2 3-3/8 2-1/4
Fourth Not applicable Not applicable 3-1/16 1-7/8
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The approximate number of holders of record of the Company's Common
Stock on June 1, 1998 was 230. The Company believes that there are a significant
number of shares of the Company's Common Stock held in street name and,
consequently, the Company is unable to determine the actual number of beneficial
owners.
The Company has never paid a cash dividend on its Common Stock and does
not expect to pay a cash dividend in the near future.
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<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
39 Weeks Ended Years Ended
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November 30, March 2, March 3, February 26,
1997(1) 1997 1996 1995
<S> <C> <C> <C> <C>
Sales ........................ $ 77,908,693 $ 104,168,864 $ 116,866,063 $ 116,862,727
Cost of sales ................ 48,591,721 63,932,541 72,351,240 72,893,642
Gross profit ................. 29,316,972 40,236,323 44,514,823 43,969,085
Direct operating
expenses .................. 27,462,628 33,821,475 37,566,143 36,738,453
Corporate overhead ........... 3,983,280 6,207,930 6,405,593 8,269,408
Depreciation and
amortization .............. 1,585,486 2,092,403 2,257,714 2,747,641
Bad debt expense ............. -- 113,242 222,878 277,952
Excess of expenses
over sales ................ (3,714,422) (1,998,727) (1,937,505) (4,064,369)
At End of Period
Total assets ................. 52,705,555 23,119,000 20,152,454 18,281,000
Long-term debt ............... 12,662,910 -- -- --
Total liabilities ............ 38,035,533 20,014,000 17,620,539 16,822,000
<FN>
- --------
(1) Includes the operations of the Food Group only for the 36 week period from
March 3, 1997 to November 9, 1997 and the operations of the combined Company
from November 10, 1997 to Novemer 30, 1997.
</FN>
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Company Background
The fiscal year ended March 3, 1996 consisted of 53 weeks. The fiscal
year ended March 2, 1997 consisted of 52 weeks. The transition period from March
3, 1997 to November 30, 1997 (the "Transition Period") consisted of 39 weeks.
Results of Operations (Transition Period Compared to 1997)
During the 36 week period from March 3, 1997 until November 9, 1997 the
Company consisted of 15 stores and filed Quarterly Reports on Form 10-Q for the
quarters ended June 1, 1997 and August 31, 1997.
On November 10, 1997, as a result of the Merger, the Company acquired
certain assets net of liabilities of 29 selected supermarkets and a wholesale
distribution business (the "Food Group") controlled by John Catsimatidis, the
principal stockholder of the Company. The transaction was accounted for as the
acquisition of the Company by the Food Group pursuant to Emerging Issues Task
Force 90-13 as a result of the Food Group obtaining control of the Company after
the transaction.
As a result of the reverse acquisition the following summary of the
Results of Operations for the 39 week period encompasses the operations of the
Food Group for 36 weeks, and the operations of the new combined companies for
only 3 weeks after the Merger. Therefore, the 15 stores owned by the Company
prior to the Merger have contributed to sales, gross margin and overhead for
only 3 weeks.
Sales for the 39 weeks ended November 30, 1997, on an annualized basis,
were $103,878,260 as compared to $104,168,864 for the 52 weeks ended March 2,
1997. The net sales decrease was the result of several factors. Sales for the 39
week period did not include the busy Christmas and New Year's holiday sales
periods. The favorable summer weather in the New York City area during 1997
resulting in prolonged vacations, as well as continuing deflationary pressures
in food prices also contributed to the decrease in sales. The decreases were
partially offset by increases in sales attributable to the fact that 15 stores
not included as part of the prior year's numbers were included for 3 weeks in
the November 30, 1997 period. The sales of the 15 stores amounted to $3,870,221
of the annualized 39 week's sales. In addition, the remodeling of 4 stores
during the 39 week period resulted in substantial sales increases. Sales for the
same 29 stores were $71,379,894 for the 39 weeks ended November 30, 1997 as
compared with $74,119,743 for the 39 weeks ended December 1, 1996, a decrease of
3.70%. The sales decline in the 1997 period was due to the same favorable
weather conditions during such period and continuing deflationary pressures in
food prices previously noted.
Gross profit as a percentage of sales was 37.63% for the 39 week period
ended November 30, 1997 as compared to 38.63% for the 52 week period ended March
2, 1997. The decreases in gross profit margin was mainly due to the curtailment
of our long-term forward buying program in the November period as compared to
the March period. In addition, construction activity taking place during the
store remodelings and grand opening promotions for the remodeled stores affected
overall gross profit margins during the November period.
Store operating, general and administrative expenses as a percentage of
sales were 35.25% for the 39 week period ended November 30, 1997 as compared to
32.47% of sales for the 52 week period
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ended March 2, 1997. Operating expenses as a percentage of sales increased in
the November period due to increases in occupancy cost, labor costs associated
with the store remodels and advertising costs.
Nonstore operating expenses as a percentage of sales were 5.11% for the
39 week period ended November 30, 1997 as compared to 6.07% of sales for the 52
week period ended March 2, 1997. The decrease in nonstore operating expenses
were mainly the result of reduced administrative personnel and the reduced need
for the services of outside legal counsel in connection with litigation, real
estate, and general corporate matters.
Results of Operations (1997 Compared to 1996)
Sales for the fiscal year ended March 2, 1997 were $104,168,864 as
compared to $116,866,023 for the fiscal year ended March 3, 1996. The decrease
in sales was attributable to the following: (i) 1996 was comprised of 53 weeks
as compared with 52 weeks in 1997, (ii) one store that was open for all of 1996
was only open for a portion of 1997 due to a fire, as a result of which sales of
such store were approximately $3,270,000 less in 1997 as compared to 1996, (iii)
beverage sales, which ordinarily represent approximately 17.0% of summer sales,
were negatively impacted by the abnormally cool weather in the New York area in
1997 and (iv) the selling price of cereals, which typically represent
approximately 7.50% of grocery sales, decreased in 1997. Sales from the City
Produce distribution center to outside customers were approximately $1,525,000
less in 1997 as compared with 1996 mainly as a result of the increased
utilization of the facility as a distribution center for the Food Group's stores
under the better-buying program.
Gross profit as a percentage of sales was 38.6% for 1997 as compared to
38.1% for 1996. The improvement in 1997 primarily reflects the implementation of
the better-buying program utilizing the City Produce distribution center to make
bulk purchases, on a direct basis at better prices, as well as the expansion of
the sales of value-added, higher margin products. Additionally, prices were
selectively increased.
Direct operating expenses as a percent of sales were 32.5% for 1997 as
compared with 32.1% for 1996. The primary reasons for the increase in operating
expenses as a percent of sales in 1997 as compared with 1996 were increases in
utility costs, advertising costs and occupancy costs resulting from new leases
replacing expired ones. In addition, fixed monthly expenses such as occupancy
costs benefitted from 53 weeks of sales in 1996 as compared to 52 weeks of sales
in 1997.
Corporate overhead decreased to $6,207,930 in 1997 as compared to
$6,405,593 in 1996. Bad debt expense was $113,242 or 0.1% of sales in 1997 as
compared with $222,878 or 0.2% of sales in 1996. The decrease in bad debt
expense was primarily due to a reduction in reserves required for the expanded
use of credit cards in the Food Group's stores.
As a result of the above, the excess of expenses over sales was
$1,998,727 for 1997 as compared to $1,937,505 for 1996, after charges for
depreciation and amortization expenses of $2,092,403 and $2,257,714,
respectively.
Liquidity and Capital Resources
On November 10, 1997, the Company completed its financial arrangements
with a group of banks for a credit facility in the aggregate amount of
$25,000,000. Under the credit agreement the Company obtained a term loan in the
amount of $12,000,000 to refinance prior bank debt, an improvement term loan
line of credit in the amount of $8,000,000 to finance capital improvements to
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its Supermarkets and a revolving line of credit in the amount of $5,000,000 to
provide working capital.
As of November 30, 1997, the Company had taken down the entire
$12,000,000 term loan and $1,000,000 was outstanding under the revolving line of
credit. As of May 11, 1998 the entire $5,000,000 of the revolving line of credit
was outstanding, but the Company still had available $5,350,000 under the
improvement term loan line of credit to finance the Company's continuing major
store remodeling program. Management of the Company anticipates that the Company
will generate sufficient cash flow to finance its future working capital needs
for the foreseeable future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page No.
--------
Report of independent certified public accountants F-1
Consolidated balance sheet of Gristede's Sloan's, Inc.
and its subsidiaries as of November 30, 1997 F-3
Statement of Assets to be Purchased and Liabilities to
be assumed as of March 2, 1997 F-5
Consolidated Statement of Operations of Gristede's Sloans, Inc.
and its subsidiaries for the three weeks ended November 30, 1997 F-6
Consolidated Statements of Sales and Expenses of Gristede's Sloan's, Inc.
and its subsidiaries for the 36 weeks ended November 9, 1997,
the 53 weeks ended March 2, 1997 and the 53 weeks ended March 3, 1996 F-7
Consolidated Statement of Stockholders' Equity of Gristede's Sloan's,
Inc. and its subsidiaries for the three weeks ended November 30, 1997 F-8
Consolidated Statement of Cash Flows of Gristede's Sloan's, Inc.
and its subsidiaries for the three weeks ended November 30, 1997 F-9
Notes to Financial Statements F-10
12
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors of
Gristede's Sloan's, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of Gristede's
Sloan's, Inc. and subsidiaries as of November 30, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the three weeks then ended (see Note 1). We have also audited the accompanying
statement of assets to be purchased and liabilities to be assumed by Gristede's
Sloan's, Inc. as of March 2, 1997 and the related statements of sales and
expenses for the 36 weeks ended November 9, 1997 and each of the two years in
the period ended March 2, 1997. These financial statements are the
responsibility of Gristede's Sloan's, Inc.'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 the audits 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.
The accompanying statement of assets to be purchased and liabilities to be
assumed and statements of sales and expenses were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission, and are not intended to be a complete presentation of Gristede's
Sloan's, Inc.'s financial position or results of operations as of or for the
periods noted above.
F-1
<PAGE>
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, (i) the financial position of Gristede's
Sloan's, Inc. and subsidiaries as of November 30, 1997, and the results of their
operations and their cash flows for the three weeks then ended, and (ii) the
assets to be purchased and liabilities to be assumed by Gristede's Sloan's, Inc.
at March 2, 1997 and its sales and expenses for the 36 weeks ended November 9,
1997 and each of the two years in the period ended March 2, 1997, in conformity
with generally accepted accounting principles.
/s/ BDO Seidman, LLP
- --------------------
BDO Seidman, LLP
New York, New York
May 15, 1998, except for
Note 9a and Note 13b, as to
which the date is June 9, 1998
F-2
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Balance Sheet
November 30, 1997
Assets
Current:
Cash ....................................................... $ 88,970
Accounts receivable - net of allowance for
doubtful accounts of $300,000 ............................ 5,110,026
Inventories ................................................ 16,221,465
Prepaid expenses and other current assets .................. 914,544
Notes receivable - current portion ......................... 584,912
-----------
Total current assets .................................. 22,919,917
-----------
Property and equipment:
Furniture, fixtures and equipment .......................... 13,393,803
Capitalized equipment leases ............................... 5,574,369
Leasehold interests and improvements ....................... 30,296,510
-----------
49,264,682
Less: Accumulated depreciation and amortization ........... 23,567,986
-----------
Net property and equipment ...................... 25,696,696
-----------
Due from affiliate ...................................... 351,778
-----------
Deposits and other assets ............................... 717,429
-----------
Deferred costs .......................................... 1,515,004
-----------
Notes receivable - noncurrent portion ................... 1,504,731
-----------
$52,705,555
-----------
See accompanying notes to financial statements.
F-3
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Balance Sheet
November 30, 1997
Liabilities and Stockholders' Equity
Current:
Accounts payable, trade ....................................... $15,671,962
Accrued payroll, vacation and withholdings .................... 1,276,535
Accrued expenses and other current liabilities ................ 947,395
Capitalized lease obligation - current portion ................ 389,809
Current portion of long-term debt ............................. 1,714,284
-----------
Total current liabilities ................................ 19,999,985
Long-term debt - noncurrent portion .............................. 11,285,716
Due to affiliate ................................................. 4,000,000
Deferred advertising ............................................. 378,654
Capitalized lease obligation - noncurrent portion ................ 1,377,194
Deferred rent .................................................... 993,984
-----------
Total liabilities ........................................ 38,035,533
-----------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.02 par value - shares authorized 25,000,000; 392,732
outstanding 19,636,574
Additional paid-in capital ............................... 14,136,674
Retained earnings ........................................ 140,616
-----------
Total stockholders' equity ......................... 14,670,022
-----------
$52,705,555
See accompanying notes to financial statements.
F-4
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Statement of Assets to be Purchased
and Liabilities to be Assumed
March 2, 1997
Assets:
Accounts receivable ......................................... $ 2,999,000
Inventories ................................................. 9,457,000
Notes receivable ............................................ 1,634,000
Prepaid expenses and other current assets ................... 213,000
Security deposits ........................................... 300,000
Fixed assets, net ........................................... 7,187,000
Capital leases, net ......................................... 1,329,000
-----------
Assets purchased ...................................... 23,119,000
-----------
Liabilities:
Accounts payable ............................................ 11,192,000
Due to affiliate ............................................ 4,000,000
Accrued vacation and sick pay ............................... 993,000
Due to Sloan's Supermarkets, Inc. ........................... 1,154,000
Capitalized leased obligations to affiliate ................. 2,675,000
-----------
Total liabilities ..................................... 20,014,000
-----------
Net assets purchased ........................................ $ 3,105,000
-----------
See accompanying notes to financial statements.
F-5
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Statement of Operations
Three weeks ended November 30, 1997
Sales ......................................................... $ 9,225,123
Cost of sales ................................................. 5,731,065
-----------
Gross profit .......................................... 3,494,058
Store operating, general and administrative expenses .......... 2,754,563
Depreciation and amortization .............................. 219,813
-----------
519,682
Nonstore operating expense ................................. 266,480
-----------
Operating profit ................................... 253,202
-----------
Other income (expense):
Interest expense ........................................ 82,586
-----------
Total other expenses ............................... 82,586
-----------
Income before provision for income taxes ........... 170,616
Provision for income taxes ................................. 30,000
-----------
Net income ................................................. $ 140,616
-----------
Income per share of common stock ........................... $ .01
-----------
Weighted average common shares outstanding ................. 19,636,574
-----------
See accompanying notes to financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Gristede's Sloan's, Inc.
and Subsidiaries
Statements of Sales and Expenses
36 weeks ended 52 weeks ended 53 weeks ended
November 9, March 2, March 3,
1997 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Sales ................................. $ 68,683,570 $ 104,168,864 $ 116,866,063
Cost of sales ......................... 42,860,656 63,932,541 72,351,240
------------ ------------ ------------
Gross profit .................... 25,822,914 40,236,323 44,514,823
Direct operating expenses ............. 24,708,065 33,821,475 37,566,143
------------ ------------ ------------
1,114,849 6,414,848 6,948,680
Corporate overhead .................... 3,716,800 6,207,930 6,405,593
------------ ------------ ------------
(2,601,951) 206,918 543,087
Depreciation and amortization ......... 1,365,673 2,092,403 2,257,714
Bad debt expense ...................... -- 113,242 222,878
------------ ------------ ------------
Excess of expenses over sales ......... $ (3,967,624) $ (1,998,727) $ (1,937,505)
------------ ------------ ------------
See accompanying notes to financial statements.
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Gristede's Sloan's, Inc.
and Subsidiaries
Statement of Stockholders' Equity
Three weeks ended November 30, 1997
Common stock
----------------------------- Additional Total
Number of Amount paid-in Retained stockholders'
shares capital earnings equity
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, November 10, 1997 ............... -- $ -- $ -- $ -- $ --
To reflect acquisition of ................ 19,636,574 392,732 14,136,674 -- 14,529,406
Sloan's Supermarkets, Inc. -
Recapitalization (Note 1)
Net income ............................... -- -- -- 140,616 140,616
---------- ----------- ----------- ----------- -----------
Balance, November 30, 1997 ............ 19,636,574 $ 392,732 $14,136,674 $ 140,616 $14,670,022
========== =========== =========== =========== ===========
See accompanying notes to financial statements.
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
Gristede's Sloan's, Inc.
and Subsidiaries
Statement of Cash Flows
Three weeks ended November 30, 1997
<S> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 140,616
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization .................................................... 219,813
Changes in operating assets and liabilities, net of effect from
acquisition of supermarkets:
Accounts receivable ................................................ (421,106)
Inventories ........................................................ (209,130)
Prepaid expenses and other current assets .......................... 442,666
Notes receivable ................................................... 23,433
Receivable from officer ............................................ (1,113)
Other assets ....................................................... (399,092)
Accounts payable, trade ............................................ (6,529,099)
Accrued payroll, vacation and withholdings ......................... 397,894
Accrued expenses and other current liabilities ..................... 270,334
Deferred rent ...................................................... 34,503
Other credits ...................................................... 378,654
------------
Net cash used in operating activities ....................... (5,651,627)
------------
Cash flows from investing activities:
Capital expenditures - net .................................................. (362,987)
------------
Net cash used in investing activities ....................... (362,987)
------------
Cash flows from financing activities:
Repayments of bank loan ..................................................... (7,100,000)
Capitalized lease obligations ............................................... (7,665)
Proceeds from bank loan ..................................................... 13,000,000
------------
Net cash provided by financing activities ................... 5,892,335
------------
Net decrease in cash ................................................................... (122,279)
Cash, beginning of period -- acquired from supermarkets ................................ 211,249
------------
Cash, end of period .................................................................... $ 88,970
============
Supplemental disclosures of cash flow information:
Cash paid for interest ...................................................... $ 21,792
Cash paid for taxes ......................................................... 1,500
------------
See accompanying notes to financial statements.
</TABLE>
F-9
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
1. Business and Basis
of Presentation
On November 4, 1997, Sloan's Supermarkets, Inc.
("Sloan's") changed its name to Gristede's
Sloan's, Inc. ("GRI" or the "Company"). On
November 10, 1997, GRI acquired certain assets,
net of liabilities of 29 selected supermarkets and
a wholesale distribution business ("The Food
Group") controlled by Mr. John Catsimatidis, a 37%
shareholder of GRI. The transaction was accounted
for as the acquisition of Sloan's by The Food
Group pursuant to Emerging Issues Task Force 90-13
as a result of The Food Group obtaining control of
Sloan's after the transaction. The assets and
liabilities of The Food Group (the "Acquiror") are
recorded at their historical cost. Sloan's assets
and liabilities are being recorded at their fair
value to the extent acquired. Consideration for
the transaction was based on an aggregate of
$36,000,000 in market value of the Company's
common stock and the assumption of $4,000,000 of
liabilities. 16,504,298 shares of common stock
were issued on the date of the acquisition based
on a market price of $2.18 per share.
The accompanying statement of operations as of and
for the three weeks ended November 30, 1997
represents the consolidated operations of The Food
Group and GRI. Retained earnings at November 30,
1997 represent the cumulative net operating
results for both The Food Group and GRI from
November 10, 1997 (the date the acquisition was
consummated) to November 30, 1997.
F-10
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
The Food Group's financial statements, rather than
complete financial statements, are presented as of
and for periods prior to November 9, 1997 because
the business acquired consists of only certain net
assets of the stores and there are certain assets
of The Food Group that were not acquired.
Accordingly, the statements present only the
assets acquired and the liabilities assumed and
the sales and expenses directly attributable to
The Food Group. The financial statements consist
of a historical consistent comparison of the
operating results only of those stores transferred
to the public company. The entities owning The
Food Group (the "Group"), in addition to owning
the above stores, also have other operations
included within its consolidated group. Corporate
overhead costs for the entire Group are allocated
to the Group's respective operations, including
The Food Group. Corporate overhead included in the
accompanying statements of sales and expenses
include identified overhead costs for payroll and
other directly attributable overhead costs
pertaining to the retail stores owned by the Group
which also includes costs incurred for selected
stores not being sold. No tax benefit has been
recognized due to the fact that the losses remain
with the corporate parent of The Food Group.
2. Summary of Fiscal Year
Significant
Accounting Policies On January 13, 1998, the Company's Board of
Directors elected to change the Company's fiscal
year-end from the Sunday closest to the last day
of February to the Sunday closest to the last day
of November.
F-11
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
INVENTORIES
Store inventories are valued principally at the
lower of cost or market with cost determined under
the retail method.
PROPERTY AND EQUIPMENT
Depreciation of furniture, fixtures and equipment
is computed by the straight-line method over the
estimated useful lives of the assets, with lives
ranging from seven to ten years. Leasehold
improvements are amortized over the shorter of
their estimated useful lives or the lease term by
the straight-line method.
The Company recorded approximately $4.4 million to
leasehold rights on the consummation of the
acquisition discussed in Note 1 due to favorable
leasing terms. The leasehold rights are amortized
over ten years by the straight-line method.
LEASES
The Company charges the cost of noncancelable
operating lease payments and beneficial leaseholds
to operations on a straight-line basis over the
lives of the leases.
DEFERRED ADVERTISING
Advertising rebates and space allocation
allowances are deferred and recognized in income
over the period of the agreement, generally one to
three years.
ADVERTISING EXPENSE
The Company expenses advertisement costs when the
advertisement is first shown.
DEFERRED COSTS
Deferred costs consist of noncompete agreement,
acquisition and financing costs. They are
amortized on a straight-line basis over five to
ten years.
F-12
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
INCOME TAXES
Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to
differences between the financial statement
carrying amounts of existing assets and
liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to
taxable income in the years in which those
temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized
in income in the period that includes the
enactment date. No deferred tax assets or
liabilities from The Food Group have been
recognized since only the operating assets and
liabilities of the stores have been sold. The
losses incurred by these stores being sold remain
with the Red Apple Group, Inc.
The Company will not recognize gain or loss as a
result of the completion of the transactions set
forth in the merger agreement between The Food
Group and the Company. The Company believes that
it will undergo an "Ownership Change" within the
meaning of Section 382 of the Internal Revenue
Code of 1986, as amended, as a consequence of the
transaction. As a result, the Company's ability to
offset its net operating loss carryforwards
(including a portion of any net operating loss
incurred in the Company's current taxable year)
against income earned after the transaction will
be limited. (As of November 30, 1997, the Company
had net operating loss carryforwards of
approximately $3,000,000). Thus, the transaction
could result in taxation of some Company income
that, absent the transaction, might have been
offset by net operating loss carryforwards.
USE OF ESTIMATES
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect certain reported
amounts of assets, liabilities, income and expense
and disclosures of contingencies. Future events
could alter such estimates in the near term.
F-13
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
STOCK-BASED COMPENSATION PLANS
Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based
Compensation" allows either adoption of a fair
value method of accounting for stock-based
compensation plans or continuation of accounting
under Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to
Employees," and related interpretations with
supplemental disclosures.
The Company has chosen to account for all
stock-based compensation arrangements under APB
Opinion No. 25 with related disclosures under SFAS
No. 123. Pro forma net earnings (loss) per common
share amounts as if the fair value method had been
adopted are presented in Note 11.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure About Fair Value of
Financial Instruments" requires companies to
disclose the fair value of financial instruments.
The carrying values of cash and cash equivalents,
accounts receivable and accounts payable reported
in the accompanying consolidated balance sheets
approximate fair value due to the short-term
maturities of these assets.
The fair value of long-term debt, consisting of
the term loan and revolving loan payable as of
November 30, 1997, approximates the recorded book
values because of the fluctuating interest rates.
It was not practical to determine the fair value
of the amount due to affiliate, because of the
uncertain repayment terms.
LONG-LIVED ASSETS
During 1995, SFAS No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived
Assets to Be Disposed Of", was issued. SFAS 121
requires the Company to review long-lived assets
and certain identifiable assets related to those
assets for impairment whenever circumstances and
situations change such that there is an indication
that the carrying amounts may not be recoverable.
If the undiscounted future cash flows of the
enterprise are less than their carrying amounts,
their carrying amounts are reduced to fair value
and an impairment loss is recognized. No
impairment losses have been necessary through
November 30, 1997.
F-14
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
INCOME PER SHARE
Per share data are based on the weighted average
number of shares of common stock and common stock
equivalents outstanding during each year. Income
(loss) per share is computed by the treasury stock
method; primary and fully diluted income (loss)
per share are the same.
Recent Accounting Pronouncements
SFAS No. 128, "Earnings Per Share," requires a
presentation of basic EPS and diluted EPS for
fiscal years beginning after December 15, 1997.
Basic EPS excludes dilution and is computed by
dividing earnings available to common stockholders
by the weighted-average number of common shares
outstanding for the period. Similar to fully
diluted EPS, diluted EPS assumes conversion of
convertible debt and the issuance of common stock
for all other potentially dilutive equivalent
shares outstanding, unless the effect of issuance
would have an anti-dilutive effect. The Company
believes SFAS No. 128 will have little, if any,
effect on the information already disclosed in the
Company's financial statements.
SFAS No. 129, "Disclosure of Information About
Capital Structure" requires an entity to provide
certain disclosures within its financial
statements about the pertinent rights and
privileges of the various securities outstanding
for fiscal years beginning after December 15,
1997. The Company believes SFAS No. 129 will have
little, if any, effect on the information already
disclosed in the Company's financial statements.
SFAS No. 130, "Reporting Comprehensive Income",
requires an entity to report comprehensive income
and its components for fiscal years beginning
after December 15, 1997. The Company believes SFAS
No. 130 will have little, if any, effect on the
information already disclosed in the Company's
financial statements.
SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" requires an
entity to report financial and descriptive
information about its reportable operating
segments for fiscal years beginning after December
15, 1997. The Company believes SFAS No. 131 will
have little, if any, effect on the information
already disclosed in the Company's financial
statements.
F-15
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained
for Internal Use", requires an entity to expense
all software development costs incurred in the
preliminary project stage, training costs and data
conversion costs for fiscal years beginning after
December 15, 1998. The Company believes that this
statement will not have a material effect on the
Company's accounting for computer software
acquisitions.
Statement of Position 98-5, "Accounting for
Start-up Costs", requires an entity to expense all
start-up related costs as incurred for fiscal
years beginning after December 15, 1998. The
Company believes that this statement will not have
a material effect on the Company's accounting for
start-up costs.
3. Acquisition of The As discussed in Note 1, the following table
Food Group reflects unaudited pro forma combined results of
operations of Sloan's and The Food Group on the
basis that the acquisition had taken place at the
beginning of the fiscal year for each of the
periods presented:
36 weeks 52 weeks
ended ended
November 9, March 2,
1997 1997
--------------------------------------------------
Revenues $101,157,570 $150,721,403
Operating income 1,679,004 11,085,809
--------------------------------------------------
In management's opinion, the unaudited pro forma
combined results of operations are not indicative
of the actual results that would have occurred had
the acquisition been consummated on March 4, 1996
or of future operations of the combined companies
under the ownership and management of GRI.
F-16
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
4. Related Party The Company has advanced funds to
a company owned Transactions by the Chairman of
the Board who is also the principal stockholder of
the Company. As of November 30, 1997, the Company
is owed approximately $352,000, including $148,000
of accrued interest. Such advance bears interest
at prime plus 1.25% per annum (9.75% at November
30, 1997 and 9.50% at March 2, 1997).
The Company and other affiliated supermarkets
allocate volume, advertising and other rebates.
Rebates, whether allocated or directly attributed
to the Company, are recorded as reductions to cost
of sales or advertising expense over the life of
the related agreement. Rebates recorded as
reductions to expenses approximated $0.4 million,
$1.5 million, $3.2 million and $2.2 million for
the 3 weeks ended November 30, 1997, 36 weeks
ended November 9, 1997 and the fiscal years ended
1997 and 1996, respectively.
Prior to the merger, Red Apple Management Inc., a
company wholly owned by John Catsimatidis,
provided certain payroll, related employee benefit
services and office services for The Food Group.
Such services include accounting, merchandising,
human resources, maintenance, executive salaries
and employee benefits. During the 3 weeks ended
November 30, 1997, 36 weeks ended November 9,
1997 and the fiscal years ended 1997 and 1996, the
Company incurred approximately $-0-, $2,748,000,
$3,755,000 and $3,761,000, respectively.
Newspaper advertising for the Company is
frequently pooled with advertising for other
supermarkets which are not owned by the Company.
In such cases, the Company pays a proportionate
share of such advertising expenses based upon its
number of Supermarkets covered in the
advertisements. Such amounts allocated to the
Company approximated $-0-, $388,000, $319,000 and
$317,000 during the 3 weeks ended November 30,
1997, 36 weeks ended November 9, 1997, and the
fiscal years ended 1997 and 1996, respectively.
F-17
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
Lowenthal, Landau, Fischer & Bring, P.C., a law
firm of which a director of the Company is a
member, charged the Company $-0-, $341,000,
$194,000 and $487,000 in fees for rendering legal
services to the Company during the 3 weeks ended
November 30, 1997, 36 weeks ended November 9,
1997 and the fiscal years ended March 2, 1997 and
March 3, 1996, respectively.
Capitalized Lease Obligations Due to Affiliate
Certain stores have entered into capital and
operating leases with an affiliate, Red Apple
Leasing, Inc. (a company wholly owned by John
Catsimatidis). Such leases are primarily for store
operating equipment. Obligations under capital
leases at November 30, 1997 were $1,206,932 and
require monthly payments of $35,114 through March
1, 2001. Obligations under operating leases at
March 2, 1997 require 84 payments of $14,594.
Obligations under operating leases at June 2, 1997
and September 1, 1997 require 60 monthly payments
of $10,783 and $16,297, respectively.
Notes Receivable
During 1994, the Company sold two stores. Pursuant
to the United States Federal Trade Commission
settlement agreement (see Note 11), the Company
also sold four stores during 1996 and 1997. At the
time of the sale, the Company accepted a note
receivable on each store. These notes bear
interest at rates of 8.5% to 10% and have terms of
4 to 6 years.
5. Deferred Costs At November 30, 1997, deferred costs consisted of:
<TABLE>
<CAPTION>
Amount
----------------------------------------------------------------------
<S> <C> <C>
Acquisition costs $ 834,316 5-10 years
Non-compete covenants 790,316 10 years
Debt costs 254,528 5-10 years
Other 122,263 5-11 years
Accumulated amortization (486,419)
----------------------------------------------------------------------
Net deferred costs $1,515,004
----------------------------------------------------------------------
</TABLE>
F-18
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
6. Due to Affiliate Amounts due to affiliate represent liabilities in
connection with the consummation of the merger as
discussed in Note 1. The affiliate has agreed not
to demand payment of these liabilities in the next
fiscal year. Accordingly, the liability has been
classified as noncurrent. The liability does not
bear interest.
7. Commitments and The Company operates primarily in leased
Contingencies facilities, under noncancelable operating leases
expiring at various dates through 2018. Certain
leases provide for contingent rents (based upon
store sales exceeding stipulated amounts or on the
Consumer Price Index), escalation clauses and
renewal options ranging from five to fifteen
years. The Company is obligated under all leases
to pay for taxes, insurance and common area
maintenance expenses.
Rent expense under noncancelable operating leases,
including leases with related parties for the
fiscal periods ended November 30, 1997, November
9, 1997, March 2, 1997 and March 3, 1996,
respectively, is as follows:
<TABLE>
<CAPTION>
3 weeks ended 36 weeks ended 52 weeks ended 53 weeks ended
November 30, November 9, March 2, March 3,
1997 1997 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Base rents $ 450,460 $ 4,026,056 $ 4,952,840 $ 4,699,012
Contingent rents -- (18,169) 21,461 (27,951)
--------------------------------------------------------------------------------
Rent expense $ 450,460 $ 4,007,887 $ 4,974,301 $ 4,671,061
--------------------------------------------------------------------------------
</TABLE>
Related party rent expense was $51,823, $446,760,
$267,000 and $348,000 for the 3 weeks ended
November 30, 1997, 36 weeks ended November 9,
1997 and the fiscal years ended March 2, 1997 and
March 3, 1996, respectively.
F-19
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
Future minimum lease commitments under
noncancelable leases as of November 30, 1997 are:
Fiscal year ending
----------------------------------------------
1998 $ 8,653,000
1999 8,351,000
2000 8,109,000
2001 7,173,000
2002 6,600,000
Thereafter 47,155,000
----------------------------------------------
$86,041,000
----------------------------------------------
8. Income Taxes Deferred tax expense or benefit is the change in
the computed tax asset or liability balance. As of
November 30, 1997, the Company had total deferred
tax assets of approximately $2,400,000, of which
approximately $1,000,000 is related to net
operating loss carryforwards which are available
to offset income earned in future years, and
approximately $1,400,000 relates to the different
bases of leasehold rights. The net deferred tax
assets at November 30, 1997 and March 2, 1997 were
offset by valuation allowances of an equal amount.
Accordingly, no deferred income taxes were
recognized in any of the periods.
As of November 30, 1997, the Company had available
Federal net operating loss carryforwards of
approximately $3,000,000, of which the tax
benefits of $1,000,000 when and if realized, will
be credited directly to additional paid-in
capital.
F-20
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
The income tax expense amounts in the consolidated
statements of operations consist of state income
taxes.
9. Debt (a) Credit Facility and Term Loan Agreement
On November 10, 1997, the Company entered into
an aggregate $25,000,000 five-year credit
facility with European American Bank, as
agent, and certain other participating banks.
The credit facility is comprised of a
$12,000,000 five-year term loan, a $8,000,000
five-year term loan line for remodeling and
capital improvements to the Company's stores
and a $5,000,000 two-year revolving credit
facility for general working capital purposes.
Borrowings under the facility bear interest at
a "spread" over either the bank's prime rate
or LIBOR rates, with the spread dependent on
the ratio of the Company's funded debt to
EBITDA ratio, as defined in the credit
agreement. The credit facility contains
covenants, representations and events of
default typical of credit facility agreements,
including financial covenants which require
the Company to meet, among other things, a
minimum tangible net worth, debt service
coverage ratios and fixed charge coverage
ratios, and which limit transactions with
affiliates. The facility is secured by
equipment, inventories and accounts
receivable.
On June 9, 1998, the Company's banks extended
the dates by which the Company was required to
deliver to them its Annual Report on SEC Form
10-K for the nine months ended November 30,
1997, and its quarterly report on SEC Form
10-Q for the quarter ended March 1, 1998.
F-21
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
Long-term debt at November 30, 1997 consists
of the following:
<TABLE>
<CAPTION>
November 30, 1997
--------------------------------------------------------------------------------
<S> <C>
Term loan payable to banks due October 31, 2002.
Interest on prime-based loans is payable monthly
in arrears and interest on LIBOR-based loans is
payable at the end of the applicable interest
period; principal payable in 59 monthly
installments of $142,857 beginning December 1,
1997 with the 60th such installment being the
then outstanding principal amount. During the
three weeks ended November 30, 1997 the interest
rates were 8.28% and 9.25% on the LIBOR-based
and prime-based loans, respectively
(collateralized by certain assets of the
Company, including receivables, inventory, and
store equipment) $12,000,000
Revolving loan payable to bank, due October 31,
1999. Interest on prime-based loans is payable
monthly in arrears and interest on LIBOR-based
loans is payable at the end of the applicable
interest period. During the three weeks ended
November 30, 1997, the interest rate was 9.25%
(collateralized by certain assets of the
Company, including receivables, inventory, and
store equipment) 1,000,000
--------------------------------------------------------------------------------
13,000,000
Less: Current portion 1,714,284
--------------------------------------------------------------------------------
$11,285,716
================================================================================
</TABLE>
F-22
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
Principal maturities of long-term debt as of
November 30, 1997:
Fiscal year ending
--------------------------------------------------
1998 $ 1,714,284
1999 2,714,284
2000 1,714,284
2001 1,714,284
2002 5,142,864
--------------------------------------------------
$13,000,000
--------------------------------------------------
(b) In addition to related party capital leases
(Note 4), the Company has other capital
equipment leases. The net book value of all
assets under capital leases is approximately
$1.4 million.
Future net minimum lease payments under
capital leases are as follows:
Fiscal year ending
--------------------------------------------------
1998 $ 537,072
1999 537,072
2000 537,072
2001 256,160
2002 115,704
Thereafter 212,124
--------------------------------------------------
2,195,204
Less: Amount representing interest 428,201
--------------------------------------------------
Present value of net minimum
lease payments 1,767,003
Due within one year 389,809
--------------------------------------------------
Total $1,377,194
==================================================
F-23
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
10. Retirement Plans The Company participates in various defined
contribution multi-employer union pension plans
which are administered jointly by management and
union representatives and which sponsor most full-
time and certain part-time union employees. The
pension expense for these plans approximated
$153,000, $369,000, $697,000 and $849,000 in the 3
weeks ended November 30, 1997, 36 weeks ended
November 9, 1997, and the fiscal years ended 1997
and 1996, respectively. The Company could, under
certain circumstances, be liable for unfunded
vested benefits or other expenses of jointly
administered union/management plans.
11. Stock Option Plans The following stock option plans were carried
forward by The Food Group from Sloan's:
On October 7, 1994, the Company granted the
Chairman a non-qualified stock option to purchase
an aggregate of 275,000 shares of common stock at
a price of $3.75 per share (the fair market value
at that date).
On August 12, 1996, the Company granted the
Chairman a non-qualified stock option to purchase
an aggregate of 250,000 shares of common stock at
a price of $2.875 per share, subject to the
ratification of the Company's stockholders. On
October 30, 1997, the Company's stockholders
ratified the grant.
The Company currently has one incentive grant and
four nonqualified grants under which stock options
may be granted to officers, directors and key
employees of the Company - the 1994 Employee
Incentive Grant (the "1994 Grant"), the 1994
Nonqualified Grant (the "1994 NQ Grant"), the 1995
Chairman's Nonqualified Options (the "Chairman's
Grant"), the 1994 Director's Nonqualified Grant
(the "Directors' Grant"), and the 1994
Nonqualified Recruitment Grant (the "1994
Recruitment Grant"). The options to purchase
common shares generally are issued at fair market
value on the date of the grant, begin vesting on
the date of the grant, and expire ten years from
issuance and are conditioned upon continual
employment during the vesting period.
F-24
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
Under the 1994 Grant and the 1994 NQ Grant, the
Company granted options to purchase up to 100,000
and 35,000 shares of common stock, respectively.
In addition to the one incentive grant, the
Company has granted stock options to certain key
executives and directors. The options vest over
five years and contractual lives of these grants
are similar to that of the incentive plan.
The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and
related interpretations for its stock option
grants. Generally, compensation expense is not
recognized for stock option grants.
In accordance with SFAS No. 123, "Accounting for
Stock-based Compensation", the Company discloses
the pro forma impact of recording compensation
expense utilizing the Black-Scholes model. The
Black-Scholes option valuation model was developed
for use in estimating the fair value of traded
options which have no vesting restrictions and are
fully transferable. In addition, option valuation
models require the input of highly subjective
assumptions including the expected stock price
volatility. Because the Company's stock options
have characteristics significantly different from
those of traded options, and because changes in
the subjective input assumptions can materially
affect the fair value estimate, in management's
opinion, the Black-Scholes model does not
necessarily provide a reliable measure of the fair
value of its stock options.
The accounting provisions of SFAS No. 123 did not
have an effect on the Company's pro forma net
income and earnings per share and thus have not
been presented.
F-25
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
A summary of the status of the Company's stock
options plans is presented below:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
--------------------------------------------------------------------------------
<S> <C> <C>
Balance, February 26, 1995 473,000 4.29
Granted -- --
Exercised -- --
Forfeited (9,000) 5.63
--------- --------
Balance, March 3, 1996 464,000 4.27
Granted -- --
Exercised -- --
Forfeited (8,000) 5.63
--------- --------
Balance, March 2, 1997 456,000 4.24
Granted 325,000 3.36
Exercised -- --
Forfeited (1,000) 5.63
--------- --------
Balance, November 9, 1997 780,000 3.87
Granted -- --
Exercised -- --
Forfeited -- --
--------- --------
Balance, November 30, 1997 780,000 3.87
========= ========
</TABLE>
Options exercisable as of November 30, 1997 and
March 2, 1997 were 773,400 and 442,800,
respectively.
All options prior to November 10, 1997 were
assumed from Sloan's by the Company.
F-26
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
The following table summarizes information as of
November 30, 1997 concerning outstanding and
exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- ---------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3.75 275,000 5.94 3.75 275,000 3.75
5.63 33,000 6.06 5.63 33,000 5.63
5.63 84,000 6.06 5.63 84,000 5.63
3.81 30,000 6.94 3.81 30,000 3.81
3.81 33,000 1.94 3.81 26,400 3.81
2.87 250,000 9.75 2.87 250,000 2.87
5.00 75,000 4.75 5.00 75,000 5.00
--------------------------------------------------------------------------------
2.87-5.63 780,000 6.61 3.87 773,400 6.65
--------------------------------------------------------------------------------
</TABLE>
12. Litigation In June 1994, the United States Federal Trade
Commission (the "FTC") commenced an action
alleging that certain acquisitions consummated by
Mr. John Catsimatidis, Sloan's, and three other
entities (the "Red Apple entities") controlled by
Mr. Catsimatidis, including corporations which
presently own the acquisition stores
(collectively, the "companies") of 32 Sloan's
supermarkets between 1991 and 1993 violated
Federal antitrust laws because the effect of the
acquisitions might be substantially to lessen
competition among supermarkets within four
Manhattan residential neighborhoods. The complaint
indicated that the FTC could seek divestiture of
up to ten supermarkets owned by the companies.
F-27
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
In order to avoid the costs of protracted
litigation in the matter and without admitting
that any antitrust law was violated as alleged in
the complaint, on November 21, 1994, the companies
entered into a settlement agreement against them
(the "Settlement Agreement"). The companies agreed
in the Settlement Agreement that within twelve
months from the date of a final order in the
proceeding they would divest themselves of an
aggregate of six supermarkets in Manhattan, chosen
by them from a list of sixteen supermarkets
specifically designated in the Settlement
Agreement (none of which were owned by Sloan's)
and certain alternate supermarkets referenced in
the Settlement Agreement (five of which were then
owned by Sloan's). Nothing in the Settlement
Agreement required Sloan's to divest itself of any
of its supermarkets, but any supermarkets divested
by Sloan's counted towards satisfaction of the
divesture obligations.
An order embodying the Settlement Agreement was
made effective March 6, 1995 (the "Order").
Pursuant to that Order, for a period of ten years
from March 6, 1995, the companies cannot, without
prior FTC approval, acquire any interest in any
existing supermarket in a designated area. The
Order does not restrict the companies from
acquiring an interest in a supermarket by leasing
or purchasing a new location that at the time of
acquisition (and for six months prior to the
acquisition) is not being operated as a
supermarket.
In March 1996, an application (the "Application")
was made to modify the Order so as to lift the
divesture requirements other than with respect to
one store on the Upper West Side which was not
owned by Sloan's. The FTC approved the divesture
of that store and its divesture was completed on
May 9, 1996. On April 29, 1996, the Application
was revised; and it was further revised in August
and September so as to seek relief solely with
respect to the requirement of divesture of any
supermarkets in the Chelsea section of Manhattan.
On September 13, 1996, the FTC granted the
Application as modified, and deleted the
requirement of divestiture in Chelsea.
Simultaneously, the FTC appointed a trustee to
divest four supermarkets pursuant to the Order, as
modified. The trustee was not granted any
authority to divest until the FTC approved a
trustee agreement between the trustee and the
companies.
F-28
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
Subsequent to the modification of the Order, The
Food Group sold an aggregate of four stores in
compliance with the divestiture of the Order, as
modified. Based thereon, the trustee agreement did
not become effective.
A settlement of FTC claims based on the companies'
failure to divest supermarkets pursuant to the
Order was agreed to, pursuant to which $600,000
was paid to the FTC. The $600,000 payment was not
included in The Food Group or Sloan's.
The companies may at times be involved in various
legal proceedings which are routine and incidental
to the conduct of its business. The companies do
not believe that any of this litigation, either
individually or in the aggregate, could have a
material adverse effect on the financial condition
or results of operations of the companies.
On August 8, 1994, a lawsuit against the Company
and Mr. Catsimatidis was instituted in the United
States District Court for the Southern District of
New York by RMED International, Inc. ("RMED"), a
former stockholder of the Company.
The complaint alleges, among other things, that
RMED and a purported class consisting of persons
who purchased the Company's common stock on or
after March 19, 1993 were damaged by alleged
nondisclosures in certain filings made by the
Company with the Securities and Exchange
Commission between January 1993 and June 1994
relating to an investigation by the FTC. The
complaint alleges that such nondisclosures
constituted violations of Federal and New York
State securities laws, as well as common law
fraud, and seeks damages (including punitive
damages) in an unspecified amount (although in
discovery proceedings, the named plaintiff has
claimed that its damages were approximately
$800,000) as well as costs and disbursements of
the action. On June 2, 1994, the Company issued a
press release which disclosed the FTC action.
In June 1995, Plaintiff filed a motion for class
certification, and discovery was held in abeyance
pending disposition of that motion. The motion was
granted in March 1996. Discovery is now proceeding
and it is scheduled to be completed in June 1998.
Management believes that the lawsuit is without
merit and intends to vigorously defend the action;
however, the outcome cannot be determined.
F-29
<PAGE>
Gristede's Sloan's, Inc.
and Subsidiaries
Notes to Financial Statements
13. Subsequent Events (a) On March 17, 1998, the board of directors
approved an options program whereby key
employees and directors would be granted
options to acquire up to 500,000 shares of the
Company. The options vest ratably over three
years and are exercisable at $2.63.
(b) On June 9, 1998, Mr. John Catsimatidis issued
a limited $1 million guarantee of the
collection of all accounts receivable as of
November 10, 1997. Furthermore, Mr.
Catsimatidis has also agreed not to permit the
level of the Company's liability due to the
affiliate to fall below $1,000,000 prior to
the issuance of fiscal year ending November
29, 1998 audited financial statements.
(c) During 1998, three union contracts covering
approximately 900 employees will expire. The
Company expects to enter into similar
contracts with the unions as they expire.
(d) On February 6, 1998, the Company purchased
substantially all of the assets and assumed
certain of the liabilities of a supermarket
located at 1644 York Avenue, New York, New
York owned by a corporation controlled by Mr.
John Catsimatidis. The purchase price is to be
the value of the supermarket based upon an
appraisal to be conducted by a firm selected
by a committee of independent directors of the
Company less the amount of certain liabilities
assumed by the Company.
F-30
<PAGE>
PART III
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information as of June 1, 1998 with respect to all
directors and executive officers of the Company.
Position with the Company or
Director Other Principal Occupation
Name and Age Since for the Past Five Years
- ------------ ----- -----------------------------
John A. Catsimatidis 1988(2) Chairman of the Board, President and Chief
(49) Executive Officer of the Company since July
28, 1988; Treasurer of the Company from
July 28, 1988 to March 17, 1998; President
and Chief Executive Officer of Red Apple
Group, Inc. (holding company for
supermarket chains) and Chairman of the
Board and Chief Executive Officer and
Director of United Refining Company (a
refiner and retailer of petroleum products)
for more than five years; Director of News
Communications Inc., a public company whose
stock is traded over-the-counter, since
December 4, 1991.
Martin R. Bring 1988 Member of the law firm of Wolf, Block,
(55) Schorr and Solis-Cohen LLP, New York, N.Y.
and predecessor firm for more than five
years.
Frederick Selby 1978 Chairman of Selby Capital Partners
(60) (acquisition and sale of privately owned
firms and divisions of public companies)
for more than five years.
Leroy Hemingway II 1991 Chairman of the Board of The Famous Carpet
(66) Barns of Florida, Inc. (a firm engaged in
retail sales of carpets) and Chairman of
the Board of Hemingway Properties, Inc. (an
owner and operator of shopping centers) for
more than five years.
- --------
(2) Mr. Catsimatidis also served as a director of the Company from November 4,
1986 to November 27, 1987.
13
<PAGE>
Kishore Lall 1997 Director of the Registrant since October,
(50) 1997; Senior Vice President and Head of
Commercial Banking of ABN AMRO Bank, New
York branch from January 1991 until May
1994.
Stuart Spivak -- Executive Vice President and Chief Financial
(61) Officer of the Company since March 17,
1998; Chief Financial Officer of the Food
Group for more than ten years prior
thereto.
Michael Seltzer -- Vice President and Secretary of the Company
(48) since March 17, 1998; Vice President and
Controller of the Food Group for more than
10 years prior thereto.
Franklin Georges -- Treasurer of the Company since March 17,
(43) 1998; Financial consultant to the Food
Group from May 1996 to March 17, 1998;
Controller of Telecom Satellite Systems,
Inc., a privately-held cable television
company, from February 1994 to May 1996;
division accounting manager for K.
Hovnanian Companies, a public real estate
development company, from February 1991 to
February 1994.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires directors and officers of the Company and persons who
own more than 10 percent of the Company's common stock to file with the
Securities and Exchange Commission (the "Commission") initial reports of
ownership and reports of changes in ownership of the common stock. Directors,
officers and more than 10 percent stockholders are required by the Exchange Act
to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the Transition Period ended November 30, 1997, all
Section 16(a) filings applicable to its directors, officers and more than 10
percent beneficial owners were timely filed.
14
<PAGE>
Item 11. EXECUTIVE COMPENSATION.
The following table sets forth for the two fiscal years ended March 2, 1997
and the Transition Period from March 3, 1997 to November 30, 1997 certain
information concerning the compensation paid or accrued to the Chief Executive
Officer of the Company. As of November 30, 1997 there were no persons serving as
executive officers of the Company whose total salary and bonus exceeded $100,000
for the transition period or who were being paid salary during such period at a
rate that would have exceeded $100,000 had the period been for a full year. The
table below does not include any information concerning any person in such
person's capacity as an executive officer of any entity comprising the Food
Group.
<TABLE>
<CAPTION>
Long-term Compensation
-------------------------------------
Annual Compensation Awards Payouts
---------------------------- ----------------------- -------
Other All
annual Restricted other
Name and compen- stock Options LTIP compen-
principal Salary Bonus sation award(s) /Sar's payouts sation
position Year ($) ($) ($) ($) (#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John Catsimatidis, Transition $- $- $- $- - $- $-
Chairman of the Period from
Board, President March 3, 1997
and Chief to November
Executive 30, 1997
Officer
1997 - - - - - - -
1996 - - - - 250,000 - -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stock Options
No stock options were granted to or exercised by Mr. Catsimatidis during
the Transition Period from March 3, 1997 to November 30, 1997. The following
table sets forth certain information with respect to options to purchase Common
Stock held by John Catsimatidis on November 30, 1997.
Number of Unexercised Value of Unexercised
Options Held on in-the-Money Options on
November 30, 1997 November 30, 1997
-------------------------- ---------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------------------------------------------------------------------
John Catsimatidis 525,000/0 0/0
- --------------------------------------------------------------------------------
The closing sales price of the Common Stock on the American Stock Exchange
on November 28, 1997 (the last trading day before November 30, 1997) was $2.25.
On November 30, 1997 Mr. Catsimatidis held options to purchase 275,000 shares of
Common Stock at $3.75 per share and options to purchase 250,000 shares at $2.875
per share.
15
<PAGE>
Compensation of Directors
Non-officer directors receive a quarterly stipend of $1,500 and $500 for
each meeting attended. Directors who serve on committees receive $250 for each
meeting attended.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information regarding ownership of
Common Stock on June 1, 1998 by: (i) each stockholder known to the Company to
own beneficially more than 5% of the outstanding shares of Common Stock; (ii)
each of the Company's directors; and (iii) all officers and directors of the
Company as a group. Except as otherwise indicated, the address of each person is
c/o Gristede's Sloan's, Inc., 823 Eleventh Avenue, New York, N.Y. 10019-3535.
The Company believes that ownership of the shares by the persons named below is
both of record and beneficial and such persons have sole voting and investment
power with respect to the shares indicated.
Name and Address of Number of
Beneficial Owner Shares Percent of Class
- ------------------------------- ------------- ----------------
John Catsimatidis 18,250,650(1) 90.5%
Leroy Hemingway II 18,150(2) *
Frederick Selby 10,910(2) *
Martin Bring 8,800(2) *
Kishore Lall 9,100 *
All officers and directors as a 18,297,610(3) 90.6%
group (8 persons)
- -----
* Less than 1%.
(1) Includes an aggregate of 12,391,574 shares held by corporations controlled
by Mr. Catsimatidis, 2,057 shares held by a profit sharing plan of which
Mr. Catsimatidis is a trustee, 605 shares held by Mr. Catsimatidis as a
trustee of individual retirement accounts and currently exercisable options
to purchase an aggregate of 525,000 shares of Common Stock.
(2) Includes for each of Messrs. Selby, Hemingway and Bring an aggregate of
8,800 shares of Common Stock which may be purchased upon the exercise of
currently exercisable stock options.
(3) Includes an aggregate of 551,400 shares of Common Stock which may be
purchased upon the exercise of currently exercisable stock options.
16
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning the Merger on November 10, 1997 whereby the
Company acquired from corporations directly or indirectly owned by John A.
Catsimatidis, 29 operating Supermarkets, ownership of the tradenames
"Gristede's" and "Sloan's" and the warehouse and distribution business now
operated by City Produce, see Item 1. Business - Recent Developments," which is
incorporated herein by reference. No information is contained herein with
respect to transactions prior to the consummation of the Merger between Mr.
Catsimatidis and any entity which owned any of the 29 Supermarkets or warehouse
and distribution business acquired by the Company in the Merger.
From March 19, 1993 to November 10, 1997 the Company was a party to a
Management Agreement with Group pursuant to which Group supervised all
operations of the Supermarkets then owned by the Company subject to the policy
goals and decisions prescribed by a committee of the independent directors. Such
agreement required the Company to pay to Group a quarterly fee equal to 1-1/4%
of all sales made in or from the Supermarkets and to reimburse Group for all
expenses incurred by Group in the performance of its services under the
agreement. For the Transition Period Group earned a fee of $398,206 under the
agreement.
Under a Management Agreement, dated November 10, 1997 (the "Management
Agreement"), Namdor Inc., a subsidiary of the Company, performs consulting and
managerial services for two supermarkets owned by corporations controlled by
John Catsimatidis. In consideration of such services, Namdor Inc. is entitled to
receive on a quarterly basis a cash payment of one and one-quarter (1.25%)
percent of all sales of inventory and merchandise made at or from the managed
supermarkets.
On February 6, 1998 the Company purchased substantially all of the assets
and assumed certain of the liabilities of a supermarket located at 1644 York
Avenue, New York, New York owned by a corporation controlled by John
Catsimatidis. The purchase price is to be the value of the supermarket based
upon an appraisal to be conducted by a firm selected by a committee of
independent directors of the Company less the amount of certain liabilities
assumed by the Company. The appraisal will be based on, among other things, a
review of the operating statement of the supermarket for the period from
February 6, 1998 to a date no earlier than January 31, 1999. The purchase price
will be subject to adjustment to the extent that the acquired inventory is
greater or less than the sum of trade payables and liabilities for employee
vacation and sick pay that have been assumed by the Company. The purchase price
will be paid at such time and by such method as shall be recommended by a
committee of the independent directors of the Company and approved by the Board
of Directors of the Company, John Catsimatidis abstaining.
Group provides maintenance services to the Company, including supermarket
refrigeration, electrical and equipment maintenance. During the Transition
Period, the Company did not incur expenses for such services.
Prior to its acquisition by the Company in November 1997, City Produce
Distributors, Inc., a corporation indirectly wholly owned and controlled by John
Catsimatidis, sold produce and certain grocery items to the Company at prices
consistent with those obtainable from non-affiliated third parties. During the
Transition Period, such sales aggregated approximately $2,705,135.
Prior to the acquisition by the Company in November 1997 of 29 Supermarkets
from corporations controlled by Mr. Catsimatidis, newspaper advertising for the
Supermarkets was frequently pooled with advertising for such acquired
Supermarkets. In such cases, the Company paid a portion of such advertising
expenses based upon the number of Supermarkets and supermarkets of other
companies
17
<PAGE>
covered in the advertisements. Such amounts allocated to the Company
approximated $130,321 during the Transition Period.
In consideration of accommodations extended to the Company by H.S. Realty Corp.
("H.S. Realty"), a corporation wholly owned by John Catsimatidis which enabled
the Company to consummate the sale of assets of the Company's Howard H. Sweet &
Son Inc. subsidiary ("Sweet") to Tiffco Jewelry and Chain Crafts, Inc.
("Tiffco"), on January 23, 1990, the Company, among other things, advanced to
H.S. Realty approximately $204,000.
The $204,000 advance was originally to be repayable on the earlier of
January 23, 1991 or five days after the sale by H.S. Realty to Tiffco of certain
real property leased to Tiffco by H.S. Realty after the sale of assets. Since
January 23, 1991, the Board of Directors has extended the repayment date of the
advance on an annual basis, the most recent extension being until January 23,
1999 or five days after the sale by H.S. Realty to Tiffco of the Sweet Property.
As of November 30, 1997, H.S. Realty was indebted to the Company on account of
the advance in the amount of $351,776 and such indebtedness was accruing
interest at the rate of 9.75% per annum (1-1/4% per annum over the prime rate of
interest charged by Chemical Bank, N.A. as of November 30, 1997).
Effective as of January 1, 1994, the Company entered into Indemnification
Agreements with each of its directors and officers other than Kishore Lall. The
Company entered into an Indemnification Agreement with Kishore Lall effective as
of October 30, 1997, and also entered into Indemnification Agreements with each
of Stuart Spivak, Michael Seltzer and Franklin Georges effective March 17, 1998.
Said agreements supplement the indemnification provisions of the Company's
By-laws and the Delaware General Corporation Law. The stockholders of the
Company authorized the Company to enter into such agreements with each of its
directors at the Annual Meeting of Stockholders held on August 21, 1987.
The Board of Directors has authorized the Company to enter into such
agreements with each of its officers.
Red Apple Leasing, Inc., a corporation wholly owned by John Catsimatidis,
leases store operating equipment to the Company. For information concerning such
leases, see Note 4 of Notes to the Financial Statements of the Company.
On May 15, 1998, John Catsimatidis issued a limited $1,000,000 guarantee of
the collection of accounts receivable assigned to the Company as a result of the
Merger on November 10, 1997. In order to cover his contingent liability, Mr.
Catsimatidis agreed not to permit the liabilities to Mr. Catsimatidis and
certain of his affiliates which were assumed by the Company in the Merger to
fall below $1,000,000 prior to the issuance of the Company's audited financial
statements for the fiscal year ending November 29, 1998.
By virtue of his ownership of Common Stock (see Item 12. "Security
Ownership of Certain Beneficial Owners and Management") and his position as
Chairman of the Board of the Company, John Catsimatidis may be deemed to be a
"parent" of the Company under rules promulgated by the Commission.
Lowenthal, Landau, Fischer & Bring, P.C., a law firm of which Martin Bring,
a director of the Company, was a member (until the firm merged with Wolf, Block,
Schorr and Solis-Cohen LLP in February 1998), received fees of approximately
$341,279 for rendering legal services to the Company during the Transition
Period.
18
<PAGE>
PART IV
Item 14. EXHIBITS AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
A list of all financial statements filed as part of this report is
contained in the index to Item 8, which index is incorporated herein by
reference.
(2) Financial Statement Schedules
None.
(3) Exhibits
Number Description
- ------ -----------
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
Incorporated by reference to Exhibit 3.1 to the Registrant's Annual
Report on Form 10-K of the fiscal year ended February 28, 1990 (the
"1990 10-K").
3.2 Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant. Incorporated by reference to Exhibit
3.2 to the Registrant's Annual Report on Form 10-KSB for the fiscal
year ended February 27, 1994 (the "1994 10-KSB").
3.3 Amended and Restated Bylaws of the Registrant. Incorporated by
reference to Exhibit 3.2 to the 1990 10-K.
10.1 Form of Indemnification Agreement dated as of January 1, 1994 between
the Registrant and each director of the Registrant. Incorporated by
reference to Exhibit 10.11 to the 1994 10-KSB.
10.2 Form of Indemnification Agreement dated as of January 1, 1994 between
the Registrant and each officer of the Registrant. Incorporated by
reference to Exhibit 10.12 to the 1994 10-KSB.
10.3 1994 Stock Option Plan. Incorporated by reference to Exhibit 10.12 of
the Company's Annual Report on Form 10-KSB for the fiscal year ended
February 26, 1995 ("1995 10-KSB").
10.4 Director Stock Option Plan. Incorporated by reference to Exhibit
10.13 of the Company's 1995 10-KSB.
10.5 Merger Agreement. Incorporated by reference to Exhibit A to the
Company's definitive Proxy Statement for the Special and Annual
Meeting of Stockholders of the Company held on October 31, 1997.
10.6 Loan Agreement dated as of November 7, 1997 between the Company,
European American Bank ("EAB"), Israel Discount Bank of New York
("IDBNY"), Keybank National
19
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Association ("Keybank") and Bank Leumi Trust Company of New York
("Bank Leumi").* All exhibits and schedules to the Loan Agreement are
omitted, but the Registrant undertakes to provide copies of any or
all of the foregoing exhibits and schedules to the Securities and
Exchange Commission upon its request.
10.7 Management Agreement dated November 10, 1997 between Namdor Inc., G
Remainder Corp. and S Remainder Corp.*
10.8 Asset Purchase Agreement between G Remainder Corp. and Gristede's
Operating Corp.* All exhibits and schedules to the Asset Purchase
Agreement are omitted, but the Registrant undertakes to provide
copies of any or all of the foregoing exhibits and schedules to the
Securities and Exchange Commission upon its request.
10.9 First Amendment and Waiver to Loan Agreement dated April 30, 1998
between the Company, IDBNY, Keybank and Bank Leumi.*
10.10 1998 Stock Option Plan.*
10.11 Agreement dated May 15, 1998 between John Catsimatidis and the
Company.*
11. Statement re computation of per share income (loss). Not required.
21. Listing of the Company's subsidiaries all of which are wholly owned
by the Company.
Subsidiaries State of Incorporation
------------ ----------------------
Namdor Inc. New York
SAC Operating Corp. New York
Gristede's Operating Corp. New York
City Produce Operating Corp. New York
RAS Operating Corp. New York
The Registrant has one other wholly-owned subsidiary, the name of which is
omitted herein because as of June 1, 1998 it did not constitute a significant
subsidiary.
23. Consent of BDO Seidman, LLP, Independent Certified Public Accountants.
27. Financial Data Schedule*
(b) Reports on Form 8-K
The Company filed one Current Report on Form 8-K during the last
quarter of the Transition Period. Such Current Report on Form 8-K was filed on
November 12, 1998 to report the Merger and contained certain pro forma financial
information of the Company and the businesses acquired.
- -------------------------------
* Filed herewith.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GRISTEDE'S SLOAN'S, INC.
Dated: June 10, 1998 By: /s/ John A. Catsimatidis
John A. Catsimatidis
Chairman of the Board
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
Signature Title Date
- --------- ----- ----
/s/ John A. Catsimatidis
John A. Catsimatidis Chairman of the Board, President June 10, 1998
and Chief Executive Officer
(Chief Executive Officer and
Chief Operating Officer)
/s/ Martin Bring
Martin Bring Director June 10, 1998
/s/ Frederick Selby
Frederick Selby Director June 10, 1998
/s/ Leroy Hemingway II
Leroy Hemingway II Director June 10, 1998
/s/ Kishore Lall
Kishore Lall Director June 10, 1998
/s/ Stuart Spivak
Stuart Spivak Executive Vice President and
Chief Financial Officer (Chief June 10, 1998
Financial Officer and Chief
Accounting Officer)
21
<PAGE>
GRISTEDE'S SLOAN'S, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE TRANSITION PERIOD FROM MARCH 3, 1997
TO NOVEMBER 30, 1997
EXHIBIT INDEX
Number Description
3.1 Amended and Restated Certificate of Incorporation of the
Registrant. Incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K of the fiscal year ended
February 28, 1990 (the "1990 10-K").
3.2 Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant. Incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended February 27, 1994 (the "1994 10-KSB").
3.3 Amended and Restated Bylaws of the Registrant. Incorporated by
reference to Exhibit 3.2 to the 1990 10-K.
10.1 Form of Indemnification Agreement dated as of January 1, 1994
between the Registrant and each director of the Registrant.
Incorporated by reference to Exhibit 10.11 to the 1994 10-KSB.
10.2 Form of Indemnification Agreement dated as of January 1, 1994
between the Registrant and each officer of the Registrant.
Incorporated by reference to Exhibit 10.12 to the 1994 10-KSB.
10.3 1994 Stock Option Plan. Incorporated by reference to Exhibit 10.12
of the Company's Annual Report on Form 10-KSB for the fiscal year
ended February 26, 1995 ("1995 10-KSB").
10.4 Director Stock Option Plan. Incorporated by reference to Exhibit
10.13 of the Company's 1995 10-KSB.
10.5 Merger Agreement. Incorporated by reference to Exhibit A to the
Company's definitive Proxy Statement for the Special and Annual
Meeting of Stockholders of the Company held on October 31, 1997.
10.6 Loan Agreement dated as of November 7, 1997 between the Company,
European American Bank ("EAB"), Israel Discount Bank of New York
("IDBNY"), Keybank National Association ("Keybank") and Bank Leumi
Trust Company of New York ("Bank Leumi").* All exhibits and
schedules to the Loan Agreement are omitted, but the Registrant
undertakes to provide copies of any or all of the foregoing
exhibits and
- -----------------------
* Filed herewith
-1-
<PAGE>
schedules to the Securities and Exchange Commission upon its
request.
10.7 Management Agreement dated November 10, 1997 between Namdor Inc.,
G Remainder Corp. and S Remainder Corp.*
10.8 Asset Purchase Agreement between G Remainder Corp. and Gristede's
Operating Corp.* All exhibits and schedules to the Asset Purchase
Agreement are omitted, but the Registrant undertakes to provide
copies of any or all of the foregoing exhibits and schedules to
the Securities and Exchange Commission upon its request.
10.9 First Amendment and Waiver to Loan Agreement dated April 30, 1998
between the Company, IDBNY, Keybank and Bank Leumi.*
10.10 1998 Stock Option Plan.*
10.11 Agreement dated May 15, 1998 between John Catsimatidis and the
Company.*
11. Statement re computation of per share income (loss). Not required.
21. Listing of the Company's subsidiaries all of which are wholly
owned by the Company.
Subsidiaries State of Incorporation
------------ ----------------------
Namdor Inc. New York
SAC Operating Corp. New York
Gristede's Operating Corp. New York
City Produce Operating Corp. New York
RAS Operating Corp. New York
The Registrant has one other wholly-owned subsidiary, the name of which is
omitted herein because as of June 1, 1998 it did not constitute a significant
subsidiary.
23. Consent of BDO Seidman, LLP, Independent Certified Public
Accountants.
27. Financial Data Schedule*
- -------------------------
* Filed herewith
-2-
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EXHIBIT 10.6
LOAN AGREEMENT
Dated as of November 7, 1997
GRISTEDE'S SLOAN'S, INC., a Delaware corporation having its principal place
of business at 823 Eleventh Avenue, New York, New York 10019 (the "Borrower"),
each of the Subsidiaries of the Borrower listed on Schedule 1 annexed hereto
(individually, a "Guarantor" and collectively, the "Guarantors") (the Borrower
and the Guarantors, collectively, the "Credit Parties"), EUROPEAN AMERICAN BANK,
a New York banking organization, having an office at 335 Madison Avenue, New
York, New York 10017 ("EAB" or a "Bank") ISRAEL DISCOUNT BANK OF NEW YORK, a New
York banking organization, having an office at 511 Fifth Avenue, New York, New
York 10017 ("Israel Discount" or a "Bank"), KEYBANK NATIONAL ASSOCIATION, a
national banking association, having an office at 1377 Motor Parkway, Islandia,
New York 11788 ("Key" or a "Bank") and BANK LEUMI TRUST COMPANY OF NEW YORK, a
New York trust company, having an office at 562 Fifth Avenue, New York, New York
10036 ("Leumi" or a "Bank") and EUROPEAN AMERICAN BANK, as agent for the Banks
(the "Agent") hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Acquisition" means the acquisition by the Borrower directly or indirectly,
by merger or otherwise of (i) twenty nine operating supermarkets, (ii) the
tradenames "Sloan's" and "Gristede's" and (iii) the business of City Produce
Distributors, Inc., all subject to and as provided in the Merger Agreement.
"Affiliate" means, as to any Person (i) a Person which directly or
indirectly controls, or is controlled by, or is under common control with, such
Person; (ii) a Person which directly or indirectly beneficially owns or holds
ten (10%) percent or more of any class of voting stock of, or ten (10%) percent
or more of the equity interest in, such Person; or (iii) a Person ten (10%)
percent or more of the voting stock of which, or ten (10%) or more of the equity
interest of which, is directly or indirectly beneficially owned or held by such
Person. The term control means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise.
<PAGE>
"Agent" means European American Bank, or any bank which succeeds to the
position of Agent, as provided in this Agreement.
"Agreement" means this Loan Agreement, as amended, supplemented or modified
from time to time.
"Asset Sale Recapture Event" means any sale of assets by the Borrower or
any Guarantor other than in the ordinary course of business.
"Asset Sale Recapture Payment" means sixty (60%) percent of the "net
proceeds" of an Asset Sale Recapture Event. In the case of an Asset Sale
Recapture Event in which assets are sold solely for cash, the "net proceeds"
shall be the sales price for the assets less reasonable and customary
out-of-pocket expenses associated with such sale. In the case of an Asset Sale
Recapture Event in which assets are sold for cash and debt, the "net proceeds"
shall be the cash portion of the sale price (but not more than sixty (60%)
percent of the sales price) for the assets less reasonable and customary
out-of-pocket expenses associated with such sale plus an assignment of the
promissory notes representing the non-cash portion of the sale. Said assignment
of the promissory notes shall be terminated when the Agent has received, for
distribution to the Banks, a total of sixty (60%) percent of the proceeds of the
Asset Sale Recapture Event.
"Bank" or "Banks" means one or more, as the context requires, of EAB,
Israel Discount, Key, Leumi and each other lender which becomes a party to this
Agreement.
"Benefit Arrangement" means an employee benefit plan, within the meaning of
Section 3(3) of ERISA, which is neither a Plan nor Multiemployer Plan, and which
is maintained, sponsored or otherwise contributed to by the Borrower or any
ERISA Affiliate.
"Board of Governors" means the Board of Governors of the Federal
Reserve System of the United States of America.
"Business Day" means (i) a day other than a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required by law to
close and (ii) if the relevant day relates to a Eurodollar Loan, an Interest
Period, or notice with respect to a Eurodollar Loan, a day on which dealings in
Dollar deposits are carried on in the London interbank market.
"Capital Lease" means a lease (other than Excludible Capital Leases) which
has been or should be, in accordance with GAAP, capitalized on the books of the
lessee.
"Cash Flow Recapture" means the obligation of the Borrower to make a Cash
Flow Recapture Payment based on the existence of Excess Cash Flow, beginning
with Excess Cash Flow for the fiscal year ending February 28, 1999.
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<PAGE>
"Cash Flow Recapture Payment" means, for any fiscal year of the Borrower,
the lesser of (i) twenty five (25%) percent of Excess Cash Flow for any fiscal
year or (ii) $750,000.00.
"Cleandown Period" means a period, declared by the Borrower to be the
"Cleandown Period", of thirty (30) consecutive days during each fiscal year of
the Borrower, commencing with the Borrower's fiscal year beginning March 2,
1998.
"Collateral" means all property which is subject to, or is to be subject
to, the Liens granted by the Security Agreements.
"Commitment" means, with respect to each Bank, the aggregate obligations of
such Bank to (i) make its proportionate share of Revolving Credit Loans to the
Borrower, (ii) make its proportionate share of the Term Loan to the Borrower,
and (iii) make its proportionate share of the Improvement Term Loans to the
Borrower, in each case pursuant to the terms and conditions of this Agreement,
and in each case in the aggregate Dollar amount set forth in Schedule 1.01-A
annexed hereto.
"Commitment Letter" means the letter from EAB to the Borrower, dated June
11, 1997, as amended, pursuant to which EAB agreed to extend forty four (44%)
percent of a credit facility as described therein to the Borrower and the Agent
agreed to use its best efforts to arrange, structure and syndicate such credit
facility.
"Consolidated Subsidiaries" means, as to any Person, those Subsidiaries of
such Person which are consolidated with such Person in the financial statements
delivered pursuant to Section 5.01(b).
"Consolidated Capital Expenditures" means, as to any Person, the aggregate
amount of any expenditures (including such expenditures financed by purchase
money Debt or secured by purchase money Liens) by such Person and its
Consolidated Subsidiaries for assets (including fixed assets acquired under
Capital Leases) which it is contemplated will be used or usable in fiscal years
subsequent to the year of acquisition, all computed and consolidated in
accordance with GAAP.
"Consolidated Current Liabilities" means, as to any Person, the aggregate
amount of all liabilities of such Person and its Consolidated Subsidiaries
(including tax and other proper accruals) which would be properly classified as
current liabilities, all computed and consolidated in accordance with GAAP.
"Consolidated Funded Debt" means, as to the Borrower and its Consolidated
Subsidiaries, the aggregate of the Funded Debt of the Borrower and its
Consolidated Subsidiaries, computed and consolidated in accordance with GAAP.
"Consolidated Subordinated Debt" means, as to any Person, all of the
Subordinated Debt of such Person and its Consolidated Subsidiaries, computed and
consolidated in accordance with GAAP.
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<PAGE>
"Consolidated Tangible Net Worth" means, as to any Person, the excess of
(i) such Person's Consolidated Total Assets, less all intangible assets properly
classified as such in accordance with GAAP, including, but without limitation,
patents, patent rights, trademarks, trade names, franchises, copyrights,
licenses, permits and goodwill, over (ii) such Person's Consolidated Total
Liabilities.
"Consolidated Total Assets" means, as to any Person, the aggregate net book
value of the assets of such Person and its Consolidated Subsidiaries after all
appropriate adjustments in accordance with GAAP (including without limitation,
reserves for doubtful receivables, obsolescence, depreciation and amortization
and excluding the amount of any write-up or revaluation of any asset).
"Consolidated Total Liabilities" means, as to any Person, all of the
liabilities of such Person and its Consolidated Subsidiaries, including all
items which, in accordance with GAAP, would be included on the liability side of
the balance sheet (other than capital stock, capital surplus and retained
earnings) computed and consolidated in accordance with GAAP.
"Consolidated Total Unsubordinated Liabilities" means, as to any Person,
the excess of (i) such Person's Consolidated Total Liabilities over (ii) such
Person's Consolidated Subordinated Debt.
"Debt" means, as to any Person, (i) all indebtedness or liability of such
Person for borrowed money; (ii) indebtedness of such Person for the deferred
purchase price of property or services (excluding trade obligations); (iii)
obligations of such Person as a lessee under Capital Leases; (iv) current
liabilities of such Person in respect of unfunded vested benefits under any
Plan; (v) obligations of such Person under letters of credit issued for the
account of such Person; (vi) obligations of such Person arising under acceptance
facilities; (vii) obligations secured by any Lien on property owned by such
Person whether or not the obligations have been assumed; and (viii) all other
liabilities for borrowed money and which are recorded as such, or which should
be recorded as such, on such Person's financial statements in accordance with
GAAP.
"Debt Service Ratio" means, as to the Borrower and its Consolidated
Subsidiaries for any period, the ratio of (i) EBITDA for such period to (ii) the
sum of (x) interest expense for such period plus (y) the principal amount of
long term Debt (excluding Revolving Credit Loans and excluding the principal
component of payments on Excludible Capital Leases) scheduled to be paid during
such period. The Debt Service Ratio shall be measured and tested at the end of
each fiscal quarter and for a period covering the four (4) fiscal quarters then
ended.
"Default" means any of the events specified in Section 6.01 of this
Agreement, whether or not any requirement for notice or lapse of time or any
other condition has been satisfied.
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"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Drawdown" means a request by the Borrower and the making of an Improvement
Term Loan by the Banks.
"Drawdown Period" means the period beginning on the date of this Agreement
and ending on October 31, 2000.
"EBITDA" means, as to the Borrower and its Consolidated Subsidiaries for
any period, the sum of (i) net income (excluding extraordinary gains and
losses), plus (ii) interest expense, plus (iii) depreciation expense, plus (iv)
amortization of intangible assets plus (v) federal, state and local income taxes
deducted in calculating net income, in each case measured for the Borrower and
its Consolidated Subsidiaries on a consolidated basis for such period, computed
and consolidated in accordance with GAAP.
"EBITDAR" means, as to the Borrower and its Consolidated Subsidiaries for
any period, the sum of (i) EBITDA, plus (ii) rent expense, in each case measured
for the Borrower and its Consolidated Affiliates on a consolidated basis for
such period, computed and consolidated in accordance with GAAP.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, the regulations promulgated thereunder and the
published interpretations thereof as in effect from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
which together with any other Person would be treated, with such Person, as a
single employer under Section 4001 of ERISA.
"Eurocurrency Reserve Requirement" means, with respect to the Reserve
Adjusted LIBOR Rate for an Interest Period, the aggregate (without duplication)
daily average of the rates (expressed as a decimal fraction) of reserve
requirements in effect on such day (including, without limitation, basic,
marginal, supplemental or emergency reserves) under any regulation (including,
but without limitation, Regulation D) promulgated by the Board of Governors (or
any successor thereto or other governmental authority having jurisdiction over
the Agent) by the Agent against "Eurocurrency liabilities" (as such term is used
in Regulation D), but without benefit or credit for proration, exemptions or
offsets that might otherwise be available to the Agent from time to time under
Regulation D. Without limiting the effect of the foregoing, the Eurocurrency
Reserve Requirement shall reflect any other reserves required to be maintained
by the Agent against (1) any category of liabilities that includes deposits by
reference to which the Reserve Adjusted LIBOR Rate is to be determined; or (2)
any category of extension of credit or other assets that include loans bearing a
Reserve Adjusted LIBOR Rate. As of the date of this Agreement there are no
Eurocurrency Reserve Requirements in effect.
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<PAGE>
"Eurodollar Loan" means a Loan bearing interest at an interest rate
determined with reference to the Reserve Adjusted LIBOR Rate in accordance with
the provisions of Article II hereof.
"Event of Default" means any of the events specified in Section 6.01 of
this Agreement, provided that any requirement for notice or lapse of time or any
other condition has been satisfied.
"Excess Cash Flow" means, as to the Borrower and its Consolidated
Subsidiaries for any fiscal year, the amount calculated as follows: EBITDA for
such fiscal year minus the minimum EBITDA for such fiscal year necessary to meet
the Debt Service Ratio for such year, minus Unfunded Consolidated Capital
Expenditures for such fiscal year.
"Excludible Capital Leases" means those Capital Leases which were
capitalized on the balance sheet of the Borrower on or at March 2, 1997 in the
capitalized principal amount of $1,411,000.00.
"Existing Facility" means the Term Loan, Term Loan I and the Credit Line
Advances (each as defined in the Prior Agreement) made available to Namdor Inc.
by EAB pursuant to the Prior Agreement.
"Federal Funds Effective Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published for such
day (or, if such day is not a Business Day for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Agent from three (3) federal funds brokers
of recognized standing selected by it.
"Fee Letter" means the letter dated June 11, 1997 from EAB to the Borrower
in which the Borrower agreed to pay certain fees in connection with the credit
facility as described therein, as amended.
"Field Audit" means an examination of the books and records of the Borrower
and the Guarantors (exclusive of the Individual Guarantor), to be performed by
employees or other representatives of the Agent.
"Fixed Charge Coverage Ratio" means, as to the Borrower and its
Consolidated Subsidiaries for any period, the ratio of (i) EBITDAR for such
period to (ii) the sum of (x) interest expense for such period plus,(y) rent
expense (including rent for real estate occupancy and for all other operating
leases) for such period, plus (z) the principal amount of long term Debt
(excluding Revolving Credit Loans) scheduled to be paid during such period. The
Fixed Charge Coverage Ratio shall be measured and tested at the end of each
fiscal quarter and for a period covering the four (4) fiscal quarters then
ended.
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"Food Group" means, collectively, those certain assets acquired and those
certain liabilities assumed of Red Apple Supermarkets, Inc., Gristede's
Supermarkets, Inc., Supermarket Acquisition Corp. and City Produce Distributors,
Inc., all as provided for in the Merger Agreement.
"Funded Debt" means, as to any Person, such Debt of such Person which is
(i) all indebtedness or liability for borrowed money; (ii) all indebtedness or
liability for the deferred purchase price of property (excluding trade
obligations); (iii) all obligations for principal as a lessee under Capital
Leases, as determined in accordance with GAAP; (iv) all obligations to reimburse
an issuing bank for the amount of all undrawn letters of credit, unmatured
drafts accepted or other deferred payment obligations incurred under letters of
credit, and (v) all liabilities of such Person under any preferred stock which,
at the option of the holder or upon the occurrence of one or more certain
events, is redeemable by such holder, or which, at the option of such holder is
convertible into Debt.
"Funded Debt to EBITDA Ratio" means, as to the Borrower and its
Consolidated Subsidiaries for any period, the ratio of (i) Consolidated Funded
Debt (as of the last day of such period) to (ii) EBITDA for such period. The
Funded Debt to EBITDA Ratio shall be measured and tested at the end of each
fiscal quarter and, in the case of EBITDA, for a period covering the four (4)
fiscal quarters then ended.
"GAAP" means Generally Accepted Accounting Principles.
"Generally Accepted Accounting Principles" means those generally accepted
accounting principles and practices which are recognized as such by the American
Institute of Certified Public Accountants acting through the Financial
Accounting Standards Board ("FASB") or through other appropriate boards or
committees thereof and which are consistently applied for all periods so as to
properly reflect the financial condition, operations and cash flows of a Person,
except that any accounting principle or practice required to be changed by the
FASB (or other appropriate board or committee of the FASB) in order to continue
as a generally accepted accounting principle or practice may be so changed. Any
dispute or disagreement between the Borrower and the Agent relating to the
determination of Generally Accepted Accounting Principles shall, in the absence
of manifest error, be conclusively resolved for all purposes hereof by the
written opinion with respect thereto, delivered to the Agent, of the independent
accountants selected by the Borrower and approved by the Agent for the purpose
of auditing the periodic financial statements of the Borrower.
"Guarantor" or Guarantors" means one or more of the Guarantors listed on
Schedule 1 of this Agreement, and any other Person (other than the Individual
Guarantor) required to guarantee the obligations of the Borrower in accordance
with Section 5.01(k) of this Agreement.
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"Guaranty" or "Guaranties" means the guaranty or guaranties executed and
delivered by the Guarantors pursuant to Section 3.01(j) or Section 5.01(k) of
this Agreement.
"Hazardous Materials" includes, without limit, any flammable explosives,
radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic
substances, or related materials defined in the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C.
Sections 9601, et seq.), the Hazardous Materials Transportation Act, as amended
(49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act, as
amended (42 U.S.C. Sections 9601 et. seq.), and in the regulations adopted and
publications promulgated pursuant thereto, or any other federal, state or local
environmental law, ordinance, rule or regulation.
"Improvement Term Loan" or "Improvement Term Loans" means, one or more, as
the context requires, of the term loans made by the Banks to the Borrower
pursuant to Section 2.15 of this Agreement.
"Improvement Term Loan Commitment" shall have the meaning given such term
in Section 2.15 of this Agreement.
"Improvement Term Loan Maturity Date" means, for all Improvement Term
Loans, October 31, 2002.
"Improvement Term Loan Note" or "Improvement Term Loan Notes" means one or
more, as the context requires, of the promissory notes of the Borrower payable
to the order of each of the Banks, in substantially the form of Exhibit C
annexed hereto, evidencing the indebtedness of the Borrower to each such Bank
resulting from one or more Improvement Term Loans made by such Bank to the
Borrower pursuant to this Agreement.
"Individual Guarantor" means John Catsimatidis.
"Interest Determination Date" means the date on which a Prime Rate Loan is
converted to a Eurodollar Loan and, in the case of a Eurodollar Loan, the last
day of the applicable Interest Period.
"Interest Payment Date" means (i) as to each Eurodollar Loan, in the case
of Interest Periods of three (3) months or less, the last day of each Interest
Period and in the case of six (6) month Interest Periods, the ninetieth (90th)
day and the last day of such Interest Period and (ii) as to each Prime Rate
Loan, the last Business Day of each month.
"Interest Period" means as to any Eurodollar Loan, the period commencing on
the date of such Eurodollar Loan and ending on the numerically corresponding day
in the calendar month that is one, two, three or six months thereafter, as the
Borrower may elect (or, if there is no numerically corresponding day, on the
last Business Day of such month); provided, however, (i) that no Interest Period
for a Revolving Credit Loan, the Term Loan or an Improvement Term Loan shall end
later than the Revolving Credit Maturity Date, the
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Term Loan Maturity Date or the Improvement Term Loan Maturity Date, respectively
(ii) if any Interest Period would end on a day which shall not be a Business
Day, such Interest Period shall be extended to the next succeeding Business Day
unless such next succeeding Business Day would fall in the next calendar month,
in which case such Interest Period shall end on the next preceding Business Day,
(iii) no Interest Period representing a portion of the principal required to be
paid in accordance with Section 2.10 or Section 2.19 may be selected unless the
outstanding Prime Rate Loans and Eurodollar Loans for which the relevant
Interest Periods end on or prior to the date of such payment are in an aggregate
amount which will be sufficient to make such payment, (iv) interest shall accrue
from and including the first day of such Interest Period to but excluding the
date of payment of such interest, and (v) no Interest Period of particular
duration may be selected by the Borrower if the Agent determines, in its sole,
good faith discretion, that Eurodollar Loans with such maturities are not
generally available.
"Investment" means any stock, evidence of Debt or other security of any
Person, any loan, advance, contribution of capital, extension of credit or
commitment therefor, including without limitation the guaranty of loans made to
others (except for current trade and customer accounts receivable for services
rendered in the ordinary course of business and payable in accordance with
customary trade terms in the ordinary course of business) and any purchase of
(i) any security of another Person or (ii) any business or undertaking of any
Person or any commitment or option to make any such purchase, or any other
investment.
"Leverage Ratio" means, as to the Borrower and its Consolidated Affiliates,
the ratio of (i) Consolidated Total Unsubordinated Liabilities to (ii) the sum
of (x) Consolidated Tangible Net Worth plus (y) Consolidated Subordinated Debt.
"LIBOR Applicable Margin" shall have the meaning set forth in Sections 2.26
of this Agreement.
"LIBOR Rate" means the rate per annum identified as the LIBOR Rate for a
requested Interest Period as published on page 3750 of the Dow Jones Telerate
service.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever, including,
without limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction to evidence any of the
foregoing.
"Loan" or Loans" means Revolving Credit Loans, the Term Loan and the
Improvement Term Loans, or any or all as the context requires,
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and may refer to Prime Rate Loans and/or Eurodollar Loans, as the
context requires.
"Loan Documents" means this Agreement, the Notes, the Security Agreements,
the Pledge Agreements, the Guaranties, the Commitment Letter, the Fee Letter and
any other document executed or delivered
pursuant to this Agreement.
"Material Adverse Change" means, as to any Person, (i) a material adverse
change in the financial condition, business, operations, properties or results
of operations of such Person or (ii) any event or occurrence which is reasonably
likely to have a material adverse effect on the ability of such Person to
perform its obligations under the Loan Documents.
"Maturity Dates" means, collectively, the Revolving Credit Maturity Date,
the Term Loan Maturity Date and the Improvement Term Loan Maturity Dates.
"Merger Agreement" means that certain Merger Agreement dated as of July 14,
1997 among Red Apple Group, Inc., Gristede's Supermarkets, Inc., Red Apple
Supermarkets, Inc., City Produce Distributors, Inc., Supermarket Acquisition
Corp., John A. Catsimatidis, the Borrower, Gristede's Operating Corp., RAS
Operating Corp., SAC Operating Corp. and City Produce Operating Corp., as it may
be amended or supplemented from time to time.
"Multiemployer Plan" means a Plan described in Section 4001(a)(3) of ERISA
which covers employees of the Borrower or any ERISA Affiliate.
"Note" or "Notes" means one or more of the Revolving Credit Notes, the Term
Loan Notes or the Improvement Term Loan Notes as the context requires.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Investments" means, (i) direct obligations of the United States
of America or any governmental agency thereof, or obligations guaranteed by the
United States of America, provided that such obligations mature within one year
from the date of acquisition thereof; (ii) time certificates of deposit having a
maturity of one year or less issued by (x) any of the Banks or (y) any other
commercial bank organized and existing under the laws of the United States or
any state thereof and having aggregate capital and surplus in excess of
$1,000,000,000.00; (iii) money market mutual funds having assets in excess of
$1,000,000,000; (iv) commercial paper rated not less than P-1 or A-1 or their
equivalent by Moody's Investor Services, Inc. ("Moody") or Standard & Poor's
Corporation ("S&P"), respectively; (v) tax exempt securities rated Prime 2 or
better by Moody's or A-1 or better by S&P; (vi) investments, loans or advances
by the Borrower in or to any Guarantor (other than the Individual Guarantor);
(vii) any other Investments, (including, without limitation, loans or advances
to
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employees) in a maximum amount outstanding at any time of $500,000; or (viii)
notes or other evidence of indebtedness from purchasers of assets from the
Borrower or a Guarantor.
"Person" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity or a federal, state or
local government, or a political subdivision thereof or any agency of such
government or subdivision.
"Plan" means any employee benefit plan (excluding a Multiemployer Plan)
which is covered by Title IV of ERISA or is subject to the minimum funding
standards under Section 412 of the Internal Revenue Code of 1986, as amended,
and which is maintained, sponsored or otherwise contributed to by the Borrower
or any ERISA Affiliate.
"Pledge Agreement" or "Pledge Agreements" means the pledge agreement or
pledge agreements executed and delivered by the Borrower and/or one or more
Guarantors pursuant to Section 3.01(n) or 5.01(k) of this Agreement.
"Prime Applicable Margin" shall have the meaning set forth in Section 2.26
of this Agreement.
"Prime Rate" means the fluctuating rate per annum equal to the rate of
interest publicly announced by the Agent at its principal office from time to
time as its Prime Rate, each change in the Prime Rate to be effective on the
date such change is announced to be effective.
"Prime Rate Loan" means a Loan bearing interest at an interest rate
determined with reference to the Prime Rate.
"Prior Agreement" means that certain Loan and Security Agreement dated as
of October 13, 1995 between EAB and Namdor, Inc., as amended.
"Pro Rata Share of the Commitment" means, as to each Bank, the ratio,
expressed as a percentage, of its Commitment to the Total Commitment.
"Prohibited Transaction" means any transaction set forth in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from time
to time.
"Regulation D" means Regulation D of the Board of Governors, as the same
may be amended and in effect from time to time.
"Regulation G" means Regulation G of the Board of Governors, as the same
may be amended and in effect from time to time.
"Regulation T" means Regulation T of the Board of Governors, as the same
may be amended and in effect from time to time.
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"Regulation U" means Regulation U of the Board of Governors, as the same
may be amended and in effect from time to time.
"Regulation X" means Regulation X of the Board of Governors, as the same
may be amended and in effect from time to time.
"Reportable Event" means any of the events set forth in Section
4043 of ERISA.
"Required Banks" means those Banks having, in the aggregate, sixty six and
two thirds (66 2/3%) percent of the Total Commitment.
"Reserve Adjusted LIBOR Rate" means, with respect to any Eurodollar Loan
for any Interest Period, an interest rate per annum determined by the Agent to
be equal to the quotient of (a) the LIBOR Rate divided by (b) a number equal to
1.00 minus the Eurocurrency Reserve Requirement as determined by the Agent on
the date the Reserve Adjusted LIBOR Rate is determined.
"Revolving Credit Loan" or "Revolving Credit Loans" means one or more, as
the context requires, of the revolving credit loans made by the Banks to the
Borrower pursuant to the terms and conditions of this Agreement.
"Revolving Credit Maturity Date" means October 31, 1999.
"Revolving Credit Note" or "Revolving Credit Notes" means one or more, as
the context requires, of the promissory notes of the Borrower payable to the
order of each of the Banks, in substantially the form of Exhibit A annexed
hereto, evidencing the indebtedness of the Borrower to each such Bank resulting
from Revolving Credit Loans made by such Bank to the Borrower pursuant to this
Agreement.
"Security Agreement" or "Security Agreements" means the security agreement
or security agreements executed and delivered by the Borrower and the Guarantors
pursuant to Section 3.01(l) or Section 5.01(k) of this Agreement.
"Subordinated Debt" means Debt of any Person, the repayment of which the
obligee has agreed in writing, or the terms of which provide, such terms to have
been approved by the Agent in advance in writing, shall be subordinate and
junior to the rights of the Banks with respect to Debt owing from such Person to
the Banks.
"Subsidiary" means, as to any Person, any corporation, partnership, limited
liability company, joint venture or other Person whether now existing or
hereafter organized or acquired: (i) in the case of a corporation, of which a
majority of the securities having ordinary voting power for the election of
directors (other than securities having such power only by reason of the
happening of a contingency) are at the time owned by such Person and/or one or
more Subsidiaries of such Person or (ii) in the case of a partnership, limited
liability company, joint venture or similar entity, of which a majority of the
partnership, membership or other
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ownership interests are at the time owned by such Person and/or one or more of
its Subsidiaries.
"Term Loan" or "Term Loans" means one or more, as the context requires, of
the term loans made by the Banks to the Borrower pursuant to the terms and
conditions of this Agreement.
"Term Loan Maturity Date" means October 31, 2002.
"Term Loan Note" or "Term Loan Notes" means one or more, as the context
requires, of the promissory notes of the Borrower payable to the order of each
of the Banks, in substantially the form of Exhibit B annexed hereto, evidencing
the indebtedness of the Borrower to each such Bank resulting from the Term Loan
made by such Bank to the Borrower pursuant to this Agreement.
"Total Commitment" means the aggregate of the Commitments of each of the
Banks, which, on the date of this Agreement, is Twenty Five Million
($25,000,000.00) Dollars.
"Unfunded Consolidated Capital Expenditures" means Consolidated Capital
Expenditures which are not funded by Debt.
"Unused Facility Fee" means the fee payable pursuant to Section 2.06 of
this Agreement.
SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding". All times shall be references to New York City time.
SECTION 1.03. ACCOUNTING TERMS. Except as otherwise herein
specifically provided, each accounting term used herein shall have
the meaning given to it under GAAP.
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ARTICLE II
AMOUNT AND TERMS OF THE LOANS
SECTION 2.01. THE REVOLVING CREDIT LOANS. (a) The Banks agree, severally
but not jointly, on the terms and subject to the conditions of this Agreement,
and in reliance upon the representations and warranties of the Credit Parties
set forth in this Agreement that the Banks will, until the Revolving Credit
Maturity Date, lend to the Borrower such Revolving Credit Loans as the Borrower
may request from time to time, which Loans may be borrowed, repaid and
reborrowed, provided, however, that (x) the aggregate outstanding Revolving
Credit Loans at any one time (other than during the Cleandown Period) shall not
exceed Five Million ($5,000,000.00) Dollars (the "Revolving Credit Commitment")
as the Revolving Credit Commitment may be reduced pursuant to Section 2.07
hereof, (y) the aggregate outstanding Revolving Credit Loans at any time during
each Cleandown Period shall not exceed Two Million Five Hundred Thousand
($2,500,000.00) Dollars and (z) each Bank's pro rata share of Revolving Credit
Loans shall not exceed its Pro Rata Share of the Revolving Credit Commitment.
(b) Each Revolving Credit Loan shall be a Prime Rate Loan or a Eurodollar
Loan (or a combination thereof) as the Borrower may request subject to and in
accordance with Section 2.02. Any Bank may at its option make any Eurodollar
Loan by causing a foreign branch or affiliate to make such Loan, provided that
any exercise of such option shall not affect the obligation of the Borrower to
repay such Loan in accordance with the terms of such Bank's Revolving Credit
Note. Subject to the other provisions of this Agreement, Revolving Credit Loans
of more than one type may be outstanding at the same time provided, however,
that not more than three (3) Eurodollar Loans may be outstanding at any time.
SECTION 2.02. NOTICE OF REVOLVING CREDIT LOANS. (a) The Borrower shall give
the Agent irrevocable written, telex, telephonic (immediately confirmed in
writing) or facsimile notice (i) at least two (2) Business Days prior to each
Revolving Credit Loan comprised in whole or in part of one or more Eurodollar
Loans (subject to Section 2.32 hereof) and (ii) prior to 11:00 a.m. on the day
of each Revolving Credit Loan consisting solely of a Prime Rate Loan. Upon
receipt of such notice, the Agent shall promptly notify each Bank of the
contents thereof and of the amount, type and other relevant information
regarding the Loan requested. Thereupon, each Bank shall, not later than 2:00
p.m., transfer immediately available funds equal to such Bank's share of the
requested borrowing to the Agent, which, provided the conditions of Section 3.01
and 3.02 of this Agreement have been met, shall thereupon transfer immediately
available funds equal to the requested borrowing to the Borrower's account with
the Agent. If a notice of borrowing is received by the Agent after 11:00 a.m. on
a Business Day, such notice shall be deemed to have been given on the next
succeeding Business Day. Any Bank's failure to make any requested Loan shall not
relieve any other Bank of its obligation
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to make such Loan, but neither the Agent nor such other Bank shall be liable for
such failure of the first Bank.
(b) Each notice given pursuant to this Section 2.02 shall specify the date
of such borrowing, the amount thereof and whether such Loan is to be (or what
portion or portions thereof are to be) a Prime Rate Loan or a Eurodollar Loan
and, if such Loan or any portion thereof is to consist of one or more Eurodollar
Loans, the principal amounts thereof and Interest Period or Interest Periods
with respect thereto. If no election as to a type of Loan is specified in such
notice, such Loan (or portion thereof as to which no election is specified)
shall be a Prime Rate Loan. If no election as to the Interest Period is
specified in such notice with respect to any Eurodollar Loan, the Borrower shall
be deemed to have selected an Interest Period of one month's duration and if a
Eurodollar Loan is requested when such Loans are not available, the Borrower
shall be deemed to have requested a Prime Rate Loan.
(c) The Borrower shall have the right, on such notice to the Agent as is
required pursuant to (a) above, (x) to continue any Eurodollar Loan or a portion
thereof into a subsequent Interest Period (subject to availability) and (y) to
convert a Prime Rate Loan into a Eurodollar Loan (subject to availability)
subject to the following:
(i) if a Default or an Event of Default shall have occurred and be
continuing at the time of any proposed conversion or continuation only Interest
Periods of one month's duration shall be available;
(ii) in the case of a continuation or conversion of fewer than all
Loans, the aggregate principal amount of each Eurodollar Loan continued or into
which a Loan is converted shall be in the minimum principal amount of
$1,000,000.00 and in increased integral multiples of $100,000.00;
(iii) each continuation or conversion shall be effected by each Bank
applying the proceeds of the new Loan to the Loan (or portion thereof) being
continued or converted;
(iv) if the new Loan made as a result of a continuation or conversion
shall be a Eurodollar Loan, the first Interest Period with respect thereto shall
commence on the date of continuation or conversion;
(v) each request for a Eurodollar Loan which shall fail to state an
applicable Interest Period shall be deemed to be a request for an Interest
Period of one month's duration and each request for a Eurodollar Loan made when
such Loans are not available shall be deemed to be a request for a Prime Rate
Loan;
(vi) in the event that the Borrower shall not give notice to continue a
Eurodollar Loan as provided above, such Loan shall automatically be converted
into a Prime Rate Loan at the expiration of the then current Interest Period.
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(d) Unless the Agent shall have received notice from a Bank prior to 2:00
p.m. on the requested date, that such Bank will not make available to the Agent
the Loan requested to be made on such date, the Agent may assume that such Bank
has made such Loan available to the Agent on such date in accordance with
Section 2.01(a) and the Agent in its sole discretion may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount
on behalf of such Bank. If and to the extent such Bank shall not have so made
available to the Agent the Loan requested to be made on such date and the Agent
shall have so made available to the Borrower a corresponding amount on behalf of
such Bank, such Bank shall, on demand, pay to the Agent such corresponding
amount together with interest thereon, at the Federal Funds Effective Rate, for
each day from the date such amount shall have been so made available by the
Agent to the Borrower until the date such amount shall have been repaid to the
Agent. If such Bank does not pay such corresponding amount promptly upon the
Agent's demand therefor, the Agent shall promptly notify the Borrower and the
Borrower shall, not later than one (1) Business Day following such notice, repay
such corresponding amount to the Agent together with accrued interest thereon at
the applicable rate or rates provided in Section 2.04.
SECTION 2.03. REVOLVING CREDIT NOTES. (a) Each Revolving Credit Loan shall
be (i) in the case of each Prime Rate Loan in the minimum principal amount of
$250,000.00, and in increased integral multiples of $50,000.00 and (ii) in the
case of each Eurodollar Loan in the minimum principal amount of $1,000,000.00
and in increased integral multiples of $100,000.00 (except that, if any such
Prime Rate Loan so requested shall exhaust the remaining available Revolving
Credit Commitment, such Prime Rate Loan may be in an amount equal to the amount
of the remaining available Revolving Credit Commitment). Each Revolving Credit
Loan shall be evidenced by the Revolving Credit Notes. Each Revolving Credit
Note shall be dated the date hereof and be in the principal amount set forth
next to the applicable Bank's name on the signature pages hereto, and shall
mature on the Revolving Credit Maturity Date, at which time the entire
outstanding principal balance and all interest thereon shall be due and payable.
Each Revolving Credit Note shall be entitled to the benefits and subject to the
provisions of this Agreement.
(b) At the time of the making of each Revolving Credit Loan and at the time
of each payment of principal thereon, each Bank is hereby authorized by the
Borrower to make a notation on the schedule annexed to its Revolving Credit Note
of the date and amount, and the type and Interest Period, if applicable, of the
Revolving Credit Loan or payment, as the case may be. Failure to make a notation
with respect to any Revolving Credit Loan shall not limit or otherwise affect
the obligation of the Borrower hereunder or under the applicable Revolving
Credit Note with respect to such Revolving Credit Loan, and any payment of
principal by the Borrower shall not be affected by the failure to make a
notation thereof on said schedule.
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SECTION 2.04. PAYMENT OF INTEREST ON THE REVOLVING CREDIT NOTES. (a) In the
case of a Prime Rate Loan, interest shall be payable at a rate per annum equal
to the Prime Rate plus the Prime Applicable Margin. Such interest shall be
payable on each Interest Payment Date, commencing with the first Interest
Payment Date after the date of such Prime Rate Loan and on the Revolving Credit
Maturity Date. Any change in the rate of interest on the Revolving Credit Notes
due to a change in the Prime Rate or a change in the Prime Applicable Margin
shall take effect as of the date of such change in the Prime Rate or Prime
Applicable Margin, as applicable.
(b) In the case of a Eurodollar Loan, interest shall be payable at a rate
per annum equal to the Reserve Adjusted LIBOR Rate plus the LIBOR Applicable
Margin. Such interest shall be payable on each Interest Payment Date, commencing
with the first Interest Payment Date after the date of such Eurodollar Loan and
on the Revolving Credit Maturity Date. In the event Eurodollar Loans are
available, the Agent shall determine the rate of interest applicable to each
requested Eurodollar Loan for each Interest Period at 11:00 a.m., New York City
time, or as soon as practicable thereafter, two (2) Business Days prior to the
commencement of such Interest Period and shall use its best efforts to notify
the Borrower and the Banks of the rate of interest so determined. Such
determination shall be conclusive absent manifest error.
(c) All interest shall be paid to the Agent for the pro rata distribution
to the Banks.
SECTION 2.05. USE OF PROCEEDS. The proceeds of the Revolving Credit Loans
shall be used by the Borrower exclusively for working capital. No part of the
proceeds of any Revolving Credit Loan may be used for any purpose that directly
or indirectly violates or is inconsistent with, the provisions of Regulation G,
T, U or X.
SECTION 2.06. PREPAYMENT. (a) The Borrower shall have the right at any time
and from time to time to prepay any Revolving Credit Loan which is a Prime Rate
Loan, in whole or in part, without premium or penalty on irrevocable written
notice to the Agent (to be received by the Agent prior to 12:00 p.m. on the date
such prepayment is to be made) provided, however, that each such prepayment
shall be on a Business Day and shall be in an aggregate principal amount which
is in the minimum amount of $100,000.00 and in increased integral multiples of
$50,000.00.
(b) The Borrower shall have the right at any time and from time to time,
subject to the provisions of this Agreement, including but without limitation
Section 2.30, to prepay any Revolving Credit Loan which is a Eurodollar Loan, in
whole or in part, on three (3) Business Days' prior irrevocable written notice
to the Agent, provided, however, that each such prepayment shall be on a
Business Day and shall be in an aggregate principal amount which is in the
minimum amount of $1,000,000.00 and in increased integral multiples of
$100,000.00.
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(c) The notice of prepayment under this Section 2.06 shall set forth the
prepayment date and the principal amount of the Loan being prepaid and shall be
irrevocable and shall commit the Borrower to prepay such Loan by the amount and
on the date stated therein. All prepayments shall be accompanied by accrued
interest on the principal amount being prepaid to the date of prepayment. Each
prepayment under this Section 2.06 shall be applied first towards unpaid
interest on the amount being prepaid and then towards the principal in whole or
partial prepayment of Loans as specified by the Borrower. In the absence of such
specification, amounts being prepaid shall be applied first to any Prime Rate
Loan then outstanding and then to Eurodollar Loans in the order of the nearest
expiration of their Interest Periods.
(d) At any time that the principal amount of outstanding Revolving Credit
Loans exceed the Revolving Credit Commitment, the Borrower shall prepay so much
of the Revolving Credit Loans as shall exceed the Revolving Credit Commitment.
Any such prepayments shall be applied as set forth in (c) above and if such
prepayments of Revolving Credit Loans shall result in a prepayment of a
Eurodollar Loan other than on the last day of its Interest Period, such
prepayment shall be subject to the reimbursement required by Section 2.30.
SECTION 2.07. THE TERM LOANS. The Banks hereby agree, severally but not
jointly, on the date of this Agreement, and on the terms and conditions and in
reliance upon the representations and warranties of the Credit Parties
hereinafter set forth in this Agreement, to make a Term Loan to the Borrower in
the principal amount of TWELVE MILLION ($12,000,000.00) DOLLARS and the Borrower
agrees to borrow such amount by executing and delivering to the Agent, for
delivery to the Banks, the Term Loan Notes. The Term Loans, or portions thereof,
shall be Prime Rate Loans or Eurodollar Loans (or a combination thereof) as the
Borrower may request subject to and in accordance with Section 2.08 hereof. Any
Bank may at its option make any Eurodollar Loan by causing a foreign branch or
affiliate to make such Loan, provided that any exercise of such option shall not
affect the obligation of the Borrower to repay such Loan in accordance with the
terms of the Notes. Subject to the other provisions of this Agreement, Term
Loans of more than one type may be outstanding at the same time provided,
however, that not more than three (3) Eurodollar Loans may be outstanding at any
time.
SECTION 2.08. NOTICE OF TERM LOAN DESIGNATIONS. (a) The Borrower may elect
to designate the Term Loan (or a portion thereof) as a Prime Rate Loan or a
Eurodollar Loan by so specifying in the irrevocable notice given pursuant to
this Section 2.08; provided, however, that each Eurodollar Loan requested of the
Agent for any specific Interest Period shall be in the minimum principal amount
of $1,000,000.00 and in increased integral multiples of $100,000.00 thereafter.
(b) The Borrower shall give the Agent irrevocable written, telex,
telephonic (immediately confirmed in writing) or facsimile notice
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(i) at least two (2) Business Days' prior to each election to designate each
Term Loan (or a portion thereof) as a Eurodollar Loan, and (ii) prior to 11:00
a.m. on the day of each election to designate each Term Loan (or a portion
thereof) as a Prime Rate Loan, in each case specifying the date (which shall be
a Business Day) thereof and the aggregate principal amount and, if any portion
thereof is to consist of one or more Eurodollar Loans, the respective principal
amounts and Interest Periods for each such Eurodollar Loan; provided that:
(i) if the Borrower shall fail to specify the duration of an Interest
Period with regard to any Eurodollar Loan in its notice, the Interest Period
shall be for a period of one month; and
(ii) if the Borrower shall fail to specify the type of Loan requested,
the request shall be deemed to be a request for a Prime Rate Loan.
(c) Upon receipt of such notice, the Agent shall promptly notify each Bank
of the contents thereof and of the amount, type and other relevant information
regarding the Loan requested.
SECTION 2.09. TERM LOAN NOTES. The Term Loans shall be evidenced by the
Term Loan Notes. The Term Loan Notes shall each be dated the date hereof and
each of the Term Loan Notes shall mature on the Term Loan Maturity Date at which
time the entire outstanding principal balance and all interest thereon shall be
due and payable. The Term Loan Notes shall be entitled to the benefits and
subject to the provisions of this Agreement.
SECTION 2.10 REPAYMENT OF TERM LOAN NOTES. (a) The principal balance of
each of the Term Loan Notes shall be payable in sixty (60) monthly installments,
each due on the last Business Day of each month, beginning on the first such day
after the date hereof and continuing on each such day thereafter. Each of the
first fifty nine (59) such monthly principal installments shall be in an
aggregate amount equal to $142,857.00 and the final such monthly principal
installment shall be in an amount equal to the then aggregate outstanding
principal balance of the Term Loan Notes.
(b) All payments of installments on the Term Loan Notes shall be made to
the Agent for the pro rata distributions to the Banks.
SECTION 2.11 PAYMENT OF INTEREST ON THE TERM LOAN NOTES. (a) In the case of
a Prime Rate Loan, interest shall be payable at a rate per annum equal to the
Prime Rate plus the Prime Applicable Margin. Such interest shall be payable to
the Agent, for the pro rata distribution to the Banks, on each Interest Payment
Date, commencing with the first Interest Payment Date after the date of such
Prime Rate Loan, on each Interest Determination Date and on the Term Loan
Maturity Date. Any change in the rate of interest on the Term Loan Notes due to
a change in the Prime Rate or a change in the Prime Applicable Margin shall take
effect as of the date of such change in the Prime Rate or the Prime Applicable
Margin.
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(b) In the case of a Eurodollar Loan, interest shall be payable at a rate
per annum (computed on the basis of the actual number of days elapsed over a
year of 360 days) equal to the Reserve Adjusted LIBOR Rate plus the LIBOR
Applicable Margin. Such interest shall be payable to the Agent, for the pro rata
distribution to the Banks on each Interest Payment Date, commencing with the
first Interest Payment Date after the date of such Eurodollar Loan, on each
Interest Determination Date and on the Term Loan Maturity Date. The Agent shall
determine the rate of interest applicable to each requested Eurodollar Loan for
each Interest Period at 11:00 a.m., New York City time, or as soon as
practicable thereafter, two (2) Business Days prior to the commencement of such
Interest Period and shall notify the Borrower of the rate of interest so
determined. Such determination shall be conclusive absent manifest error.
SECTION 2.12 CONVERSION AND CONTINUATION OF TERM LOANS. The Borrower shall
have the right, at any time, on such notice to the Agent as set forth in Section
2.08(b) of this Agreement, (i) to continue any part of the Term Loan which is a
Eurodollar Loan or portion thereof into a subsequent Interest Period (subject to
availability) or (ii) to convert part of the Term Loan which is a Prime Rate
Loan into a Eurodollar Loan (subject to availability), subject to the following:
(a) if a Default or Event of Default shall have occurred and be continuing
at the time of any proposed conversion or continuation only Interest Periods of
one month's duration shall be available;
(b) in the case of a continuation or conversion of fewer than all Loans,
the aggregate principal amount of each Eurodollar Loan continued or converted
shall be in the minimum amount of $1,000,000.00 and in increased integral
multiples of $100,000.00;
(c) each continuation or conversion shall be effected by each Bank applying
the proceeds of the new Loan to the Loan (or portion thereof) being continued or
converted;
(d) if the new Loan made as a result of a continuation or conversion shall
be a Eurodollar Loan, the first Interest Period with respect thereto shall
commence on the date of continuation or conversion;
(e) each request for a Eurodollar Loan which shall fail to state an
applicable Interest Period shall be deemed to be a request for an Interest
Period of one month;
(f) unless sufficient Prime Rate Loans are outstanding or other Eurodollar
Loans are outstanding with Interest Periods expiring prior to the next scheduled
installment payment of the Term Loan Notes, and are sufficient to enable the
Borrower to make such installment payments, any Eurodollar Loan, a portion of
which is required to be repaid on any such installment payment date shall be
automatically converted at the end of such Interest Period into a Prime Rate
Loan; and
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(g) in the event that the Borrower shall not give notice to continue a
Eurodollar Loan as provided above, such Loan shall automatically be converted
into a Prime Rate Loan at the expiration of the then current Interest Period.
SECTION 2.13. USE OF PROCEEDS. The proceeds of the Term Loans shall be used
by the Borrower (i) to repay any indebtedness owing to EAB under the Existing
Facility, (ii) to fund the payment of certain liabilities assumed by the
Borrower in connection with the Acquisition, (iii) to fund the costs and
expenses incurred by the Borrower in connection with this Agreement, and (iv) to
finance working capital of the Borrower and to finance working capital of its
Subsidiaries. No part of the proceeds of any Loan may be used for any purpose
that directly or indirectly violates or is inconsistent with, the provisions of
Regulations G, T, U or X.
SECTION 2.14. PREPAYMENT. (a) Subject to the provisions of this Agreement,
the Borrower shall have the right at any time and from time to time to prepay
any part of the Term Loan which is a Prime Rate Loan, in whole or in part,
without premium or penalty on prior irrevocable written notice to the Agent (to
be received by the Agent prior to 12:00 p.m. on the date such prepayment is to
be made) provided, however, that each such prepayment shall be on a Business Day
and shall be in an aggregate minimum principal amount of $100,000.00 and in
increased integral multiples of $50,000.00.
(b) The Borrower shall have the right at any time and from time to time,
subject to the provisions hereof and of Section 2.31, to prepay any part of the
Term Loan which is a Eurodollar Loan, in whole or in part, on three (3) Business
Days prior irrevocable written notice to the Agent, provided, however, that such
prepayment shall be in an aggregate minimum principal amount of $1,000,000.00
and in increased integral multiples of $100,000.00.
(c) Upon the occurrence of any Asset Sale Recapture Event, the Borrower
shall, without demand or notice from the Agent, make an Asset Sale Recapture
Payment. Such payment shall be applied to the Term Loan as set forth in (e)
below.
(d) Upon the existence of Excess Cash Flow for any fiscal year, the
Borrower shall, without demand or notice from the Agent, and not later than the
ninetieth (90th) day after the end of the fiscal year in which the Excess Cash
Flow occurred, make a Cash Flow Recapture Payment. Such payment shall be applied
to the Term Loan as set forth in (e) below.
(e) The notice of prepayment under this Section 2.14 shall set forth the
prepayment date and the principal amount of the Loan being prepaid and shall be
irrevocable and shall commit the Borrower to prepay such Loan by the amount and
on the date stated therein. All prepayments shall be accompanied by (i) accrued
interest on the principal amount being prepaid to the date of prepayment and
(ii) except in the case of (x) Asset Sale Recapture Payments, (y) Cash Flow
Recapture Payments and (z) prepayments made after eighteen (18) months from the
date hereof, a prepayment fee
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of 37.5 basis points on the principal amount being prepaid. Each prepayment
under this Section 2.14 shall be applied first towards unpaid interest on the
principal amount being prepaid and then towards the principal in whole or
partial prepayment of Loans by the Borrower. All prepayments shall be applied
first to any Prime Rate Loans then outstanding and then to Eurodollar Loans
outstanding in the order of the nearest expiration of their Interest Periods.
All partial prepayments of the Term Loans shall be applied to installments of
principal of the Term Loans in the inverse order of maturity. All principal
payments or prepayments shall be made to the Agent for the pro rata distribution
to the Banks.
SECTION 2.15. THE IMPROVEMENT TERM LOANS. The Banks hereby agree, severally
but not jointly, on the date of this Agreement, and on the terms and conditions
and in reliance upon the representations and warranties of the Credit Parties
hereinafter set forth in this Agreement, to make Improvement Term Loans to the
Borrower in the maximum aggregate principal amount of EIGHT MILLION
($8,000,000.00) DOLLARS (the "Improvement Term Loan Commitment") and the
Borrower agrees to borrow such amounts by executing and delivering to the Agent,
for delivery to the Banks, the Improvement Term Loan Notes. The Improvement Term
Loans, or portions thereof, shall be Prime Rate Loans or Eurodollar Loans (or a
combination thereof) as the Borrower may request subject to and in accordance
with Section 2.17 hereof. Any Bank may at its option make any Eurodollar Loan by
causing a foreign branch or affiliate to make such Loan, provided that any
exercise of such option shall not affect the obligation of the Borrower to repay
such Loan in accordance with the terms of the Notes. Subject to the other
provisions of this Agreement, Improvement Term Loans of more than one type may
be outstanding at the same time.
SECTION 2.16. DRAWDOWNS. Each Improvement Term Loan may be advanced in one
or more Drawdowns. The Borrower shall give the Agent irrevocable written telex,
telephonic (immediately confirmed in writing) or facsimile notice by 11:00 a.m.
on the day any Drawdown is requested. On the day of such request, or on the next
Business Day if the notice is received after 11:00 a.m., and provided the
Borrower has satisfied all of the conditions of Sections 3.01 and 3.03, the
Agent will notify each Bank of the request for the Drawdown and each Bank will,
not later than 2:00 p.m., transfer immediately available funds equal to such
Bank's share of the requested Drawdown to the Agent which shall thereupon
transfer immediately available funds equal to the requested Drawdown to the
Borrower's account with the Agent. Any Bank's failure to make any requested
Drawdown shall not relieve any other Bank of its obligation to make such
Drawdown, but neither the Agent nor such other Bank shall be liable for such
failure of the first Bank. Each Drawdown shall be in the minimum aggregate
amount of $250,000.00 and in increased integral multiples of $25,000.00, unless
such Drawdown will exhaust the remaining available Improvement Term Loan
Commitment in which event the Drawdown may be in the remaining available
principal amount of the Improvement Term Loan Commitment.
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SECTION 2.17. NOTICE OF IMPROVEMENT TERM LOAN DESIGNATIONS. (a) The
Borrower may elect to designate an Improvement Term Loan (or a portion thereof)
as a Prime Rate Loan or a Eurodollar Loan by so specifying in the irrevocable
notice given pursuant to this Section 2.17; provided, however, that each
Eurodollar Loan requested of the Agent for any specific Interest Period shall be
in the minimum principal amount of $1,000,000.00 and in increased integral
multiples of $100,000.00 thereafter.
(b) The Borrower shall give the Agent irrevocable written, telex,
telephonic (immediately confirmed in writing) or facsimile notice (i) at least
two (2) Business Days' prior to each election to designate each Improvement Term
Loan (or a portion thereof) as a Eurodollar Loan, and (ii) prior to 11:00 a.m.
on the day of each election to designate each Improvement Term Loan (or a
portion thereof) as a Prime Rate Loan, in each case specifying the date (which
shall be a Business Day) thereof and the aggregate principal amount and, if any
portion thereof is to consist of one or more Eurodollar Loans, the respective
principal amounts and Interest Periods for each such Eurodollar Loan; provided
that:
(i) if the Borrower shall fail to specify the duration of an Interest
Period with regard to any Eurodollar Loan in its notice, the Interest Period
shall be for a period of one month; and
(ii) if the Borrower shall fail to specify the type of Loan requested,
the request shall be deemed to be a request for a Prime Rate Loan.
(c) Upon receipt of such notice, the Agent shall promptly notify each Bank
of the contents thereof and of the amount, type and other relevant information
regarding the Loan requested.
SECTION 2.18. IMPROVEMENT TERM LOAN NOTES. The Improvement Term Loans shall
be evidenced by the Improvement Term Loan Notes. Each Drawdown shall be
evidenced by a separate Improvement Term Loan Note, provided, however, that the
Agent may require that any number of separate Improvement Term Loan Notes and
the Improvement Term Loans evidenced thereby be consolidated into one such
Improvement Term Loan Note and one such Improvement Term Loan. The Improvement
Term Loan Notes shall be dated the date hereof and each of the Improvement Term
Loan Notes shall mature on the Improvement Term Loan Maturity Date at which time
the entire outstanding principal balance and all interest thereon shall be due
and payable. The Improvement Term Loan Notes shall be entitled to the benefits
and subject to the provisions of this Agreement.
SECTION 2.19. REPAYMENT OF IMPROVEMENT TERM LOAN NOTES. (a) The principal
balance of each of the Improvement Term Loan Notes shall be payable in a number
of monthly installments, such number to be equal to the number of full calendar
months between the date of the Improvement Term Loan and the Improvement Term
Loan Maturity Date. Each such installment shall be due on the last Business Day
of each month, beginning on the first such day after the date of each
Improvement Term Loan and continuing on each such day thereafter.
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Each of the monthly principal installments shall be in an aggregate amount equal
to one sixtieth (1/60th) of the original principal amount of the Improvement
Term Loan and the final such monthly principal installment shall be in an amount
equal to the then aggregate outstanding principal balance of the Improvement
Term Loan Notes.
(b) All payments of installments on the Improvement Term Loan Notes shall
be made to the Agent for the pro rata distributions to the Banks.
SECTION 2.20. PAYMENT OF INTEREST ON THE IMPROVEMENT TERM LOAN NOTES. (a)
In the case of a Prime Rate Loan, interest shall be payable at a rate per annum
equal to the Prime Rate plus the Prime Applicable Margin. Such interest shall be
payable to the Agent, for the pro rata distribution to the Banks, on each
Interest Payment Date, commencing with the first Interest Payment Date after the
date of such Prime Rate Loan, on each Interest Determination Date and on the
Improvement Term Loan Maturity Date. Any change in the rate of interest on the
Improvement Term Loan Notes due to a change in the Prime Rate or a change in the
Prime Applicable Margin shall take effect as of the date of such change in the
Prime Rate or the Prime Applicable Margin.
(b) In the case of a Eurodollar Loan, interest shall be payable at a rate
per annum (computed on the basis of the actual number of days elapsed over a
year of 360 days) equal to the Reserve Adjusted LIBOR Rate plus the LIBOR
Applicable Margin. Such interest shall be payable to the Agent, for the pro rata
distribution to the Banks on each Interest Payment Date, commencing with the
first Interest Payment Date after the date of such Eurodollar Loan, on each
Interest Determination Date and on the Improvement Term Loan Maturity Date. The
Agent shall determine the rate of interest applicable to each requested
Eurodollar Loan for each Interest Period at 11:00 a.m., or as soon as
practicable thereafter, two (2) Business Days prior to the commencement of such
Interest Period and shall notify the Borrower of the rate of interest so
determined. Such determination shall be conclusive absent manifest error.
SECTION 2.21. CONVERSION AND CONTINUATION OF IMPROVEMENT TERM LOANS. The
Borrower shall have the right, at any time, on such notice to the Agent as set
forth in Section 2.17(b) of this Agreement, (i) to continue any part of an
Improvement Term Loan which is a Eurodollar Loan or portion thereof into a
subsequent Interest Period (subject to availability) or (ii) to convert any part
of an Improvement Term Loan which is a Prime Rate Loan into a Eurodollar Loan
(subject to availability), subject to the following:
(a) if a Default or Event of Default shall have occurred and be continuing
at the time of any proposed conversion or continuation only Interest Periods of
one month's duration shall be available;
(b) in the case of a continuation or conversion of fewer than all Loans,
the aggregate principal amount of each Eurodollar Loan
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continued or converted shall be in the minimum amount of $1,000,000.00 and in
increased integral multiples of $100,000.00;
(c) each continuation or conversion shall be effected by each Bank applying
the proceeds of the new Loan to the Loan (or portion thereof) being continued or
converted;
(d) if the new Loan made as a result of a continuation or conversion shall
be a Eurodollar Loan, the first Interest Period with respect thereto shall
commence on the date of continuation or conversion;
(e) each request for a Eurodollar Loan which shall fail to state an
applicable Interest Period shall be deemed to be a request for an Interest
Period of one month;
(f) unless sufficient Prime Rate Loans are outstanding or other Eurodollar
Loans are outstanding with Interest Periods expiring prior to the next scheduled
installment payment of the Improvement Term Loan Notes, and are sufficient to
enable the Borrower to make such installment payments, any Eurodollar Loan, a
portion of which is required to be repaid on any such installment payment date
shall be automatically converted at the end of such Interest Period into a Prime
Rate Loan; and
(g) in the event that the Borrower shall not give notice to continue a
Eurodollar Loan as provided above, such Loan shall automatically be converted
into a Prime Rate Loan at the expiration of the then current Interest Period.
SECTION 2.22. USE OF PROCEEDS. The proceeds of the Improvement Term Loans
shall be used by the Borrower exclusively to finance completed improvements to,
and the purchase of equipment for, the Credit Parties' stores and other
facilities, including completed improvements which may have been funded by the
Borrower prior to the date of this Agreement and set forth on Schedule 2.22
hereto. No part of the proceeds of any Improvement Term Loan may be used for any
purpose that directly or indirectly violates or is inconsistent with, the
provisions of Regulations G, T, U or X.
SECTION 2.23. PREPAYMENT. (a) Subject to the provisions of this Agreement,
the Borrower shall have the right at any time and from time to time to prepay
any part of an Improvement Term Loan which is a Prime Rate Loan, in whole or in
part, without premium or penalty on one (1) Business Day's prior irrevocable
written notice to the Agent provided, however, that each such prepayment shall
be on a Business Day and shall be in an aggregate minimum principal amount of
$250,000.00 and in increased integral multiples of $100,000.00.
(b) The Borrower shall have the right at any time and from time to time,
subject to the provisions hereof and of Section 2.31, to prepay any part of an
Improvement Term Loan which is a Eurodollar Loan, in whole or in part, on three
(3) Business Days prior irrevocable written notice to the Agent, provided,
however, that
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such prepayment shall be in an aggregate minimum principal amount of
$1,000,000.00 and in increased integral multiples of $100,000.00.
(c) Upon the occurrence of any Asset Sale Recapture Event, and if the Term
Loan has been paid in full, the Borrower shall, without demand or notice from
the Agent, make an Asset Sale Recapture Payment. Such payment shall be applied
to the Improvement Term Loans as set forth in (e) below.
(d) Upon the existence of Excess Cash Flow for any fiscal year, and if the
Term Loan has been paid in full, the Borrower shall, without demand or notice
from the Agent, and not later than the ninetieth (90th) day after the end of the
fiscal year in which the Excess Cash Flow occurred, make a Cash Flow Recapture
Payment. Such payment shall be applied to the Improvement Term Loans as set
forth in (e) below.
(e) The notice of prepayment under this Section 2.23 shall set forth the
prepayment date and the principal amount of the Improvement Term Loan being
prepaid and shall be irrevocable and shall commit the Borrower to prepay such
Improvement Term Loan by the amount and on the date stated therein. All
prepayments shall be accompanied by (i) accrued interest on the principal amount
being prepaid to the date of prepayment and (ii) except in the case of (x) Asset
Sale Recapture Payments, (y) Cash Flow Recapture Payments and (z) prepayments
made after eighteen (18) months from the date hereof, a prepayment fee of 37.5
basis points on the principal amount being prepaid. Each prepayment under this
Section 2.23 shall be applied first towards unpaid interest on the amount being
prepaid and then towards the principal in whole or partial prepayment of
Improvement Term Loans by the Borrower. All prepayments shall be applied first
to any Prime Rate Loans then outstanding and then to Eurodollar Loans
outstanding in the order of the nearest expiration of their Interest Periods.
All partial prepayments of the Improvement Term Loans shall be applied to
installments of principal of the Improvement Term Loans in the inverse order of
maturity. All principal payments or prepayments shall be made to the Agent for
the pro rata distribution to the Banks.
SECTION 2.24. FEES. (a) The Borrower agrees to pay to the Agent, for the
pro rata distribution to the Banks, from the date each of the conditions of
Section 3.01 of this Agreement has been satisfied and for so long as the
Revolving Credit Commitment or the Improvement Term Loan Commitment remains in
effect, on the last Business Day of each fiscal quarter of the Borrower, and on
any day that the Revolving Credit Commitment or the Improvement Term Loan
Commitment is reduced or terminated, an Unused Facility Fee computed at a rate
per annum equal to one quarter of one (1/4%) percent (computed on the basis of
the actual number of days elapsed over 360 days) on the average daily unused
amount of the Revolving Credit Commitment or the Improvement Term Loan
Commitment, as applicable, such Unused Facility Fee being payable for the fiscal
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quarter of the Borrower, or part thereof, preceding the payment date.
(b) The Borrower agrees to pay to the Agent not later than the third
Business Day after the date of this Agreement, for its services as Agent
hereunder, those fees, charges and expenses as set forth in the Fee Letter and
as the Borrower and the Agent may otherwise mutually agree in a separate
writing.
SECTION 2.25. REDUCTION OF REVOLVING CREDIT COMMITMENT OR IMPROVEMENT TERM
LOAN COMMITMENT. Upon at least three (3) Business Days' prior written notice to
the Agent, the Borrower may irrevocably elect to have the unused Revolving
Credit Commitment or the unused Improvement Term Loan Commitment terminated in
whole or reduced in part provided, however, that any such partial reduction
shall be in a minimum amount of $250,000.00, or whole multiples thereof. The
Revolving Credit Commitment or the unused Improvement Term Loan Commitment, once
terminated or reduced, shall not be reinstated without the express written
approval of the Agent and the Banks. Any reduction to the Revolving Credit
Commitment or the unused Improvement Term Loan Commitment shall be applied pro
rata to the respective Revolving Credit Commitments or the Improvement Term Loan
Commitments of each Bank.
SECTION 2.26. APPLICABLE MARGIN. The Prime Applicable Margin and the LIBOR
Applicable Margin shall each be determined on the basis of the Borrower's Funded
Debt to EBITDA Ratio, as calculated based on the Borrower's consolidated
financial statements for its most recent fiscal year or quarter. The Prime
Applicable Margin and the LIBOR Applicable Margin shall be determined as
follows:
(i) The initial Prime Applicable Margin shall be 75 basis points and
the initial LIBOR Applicable Margin shall be 250 basis points, and each
shall be applicable until delivery of the Borrower's consolidated financial
statements for its fiscal year ending March 1, 1998 pursuant to Section
5.01(b) hereof.
Beginning with delivery of the Borrower's financial statements for the
fiscal year ending March 1, 1998, and for each fiscal quarter thereafter:
(ii) If the Borrower's Funded Debt to EBITDA Ratio as of the end of
such fiscal year or quarter is less than 1.50 to 1.00, the Prime Applicable
Margin shall be -0- basis points and the LIBOR Applicable Margin shall be
175 basis points.
(iii) If the Borrower's Funded Debt to EBITDA Ratio as of the end of
such fiscal year or quarter is equal to or greater than 1.50 to 1.00 but
less than 2.00 to 1.00, the Prime Applicable Margin shall be 50 basis
points and the LIBOR Applicable Margin shall be 225 basis points.
(iv) If the Borrower's Funded Debt to EBITDA Ratio as of the end of
such fiscal year or quarter is equal to or greater than 2.00 to 1.00, the
Prime Applicable Margin shall be 75 basis
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points and the LIBOR Applicable Margin shall be 250 basis points.
The Agent shall determine the Applicable Margins within five (5) Business
Days of its receipt of all required financial statements and certificates.
Upon the occurrence and during the continuance of a Default or an Event of
Default the Prime Applicable Margin and the LIBOR Applicable Margin may, as a
result of changes in the Borrower's Funded Debt to EBITDA Ratio, increase but
will not decrease.
SECTION 2.27. EUROCURRENCY RESERVE REQUIREMENT. It is understood that the
cost to the Banks of making or maintaining Eurodollar Loans may fluctuate as a
result of the applicability of, or change in, the Eurocurrency Reserve
Requirement. The Borrower agrees to pay to the Agent on behalf of the Banks from
time to time, as provided in Section 2.28 below, such amounts as shall be
necessary to compensate each Bank for the portion of the cost of making or
maintaining any Eurodollar Loans made by it resulting from any change in the
Eurocurrency Reserve Requirement, it being understood that the rates of interest
applicable to Eurodollar Loans hereunder have been determined on the basis of
the Eurocurrency Reserve Requirement in effect at the time of determination of
the Reserve Adjusted LIBOR Rate and that such rates do not reflect costs imposed
on each Bank in connection with any change to the Eurocurrency Reserve
Requirement. It is agreed that for purposes of this paragraph the Eurodollar
Loans made hereunder shall be deemed to constitute Eurocurrency Liabilities as
defined in Regulation D and to be subject to the reserve requirements of
Regulation D without benefit or credit of proration, exemptions or offsets which
might otherwise be available to each Bank from time to time under Regulation D.
SECTION 2.28. INCREASED COSTS. If, after the date of this Agreement, the
adoption of, or any change in, any applicable law, regulation, rule or
directive, or any interpretation thereof by any authority charged with the
administration or interpretation thereof:
(i) subjects any Bank to any tax with respect to the Notes, the Total
Commitment or on any amount paid or to be paid under or pursuant to this
Agreement or the Notes (other than any tax measured by or based upon the overall
net income of such Bank);
(ii) changes the basis of taxation of payments to any Bank of any
amounts payable hereunder (other than any tax measured by or based upon the
overall net income of such Bank);
(iii) imposes, modifies or deems applicable any reserve, capital
adequacy or deposit requirements against any assets held by, deposits with or
for the account of, or loans made by, any Bank; or
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(iv) imposes on the Agent or any Bank, any other condition affecting
the Notes or this Agreement; and the result of any of the foregoing is to
increase the cost to the Agent or any Bank of maintaining this Agreement or
making the Loans, or to reduce the amount of any payment (whether of principal,
interest or otherwise) receivable by the Agent or any Bank or to require the
Agent or any Bank to make any payment on or calculated by reference to the gross
amount of any sum received by them, in each case by an amount which the Agent in
its sole, reasonable judgment deems material, then and in any such case:
(a) the Agent shall promptly advise the Borrower of such event,
together with the date thereof, the amount of such increased cost or
reduction or payment and the way in which such amount has been calculated;
and
(b) the Borrower shall pay to the Agent on behalf of itself or such
Bank, within ten (10) days after the advice referred to in subsection (a)
hereinabove, such an amount or amounts as will compensate the Agent or such
Bank for such additional cost, reduction or payment for so long as the same
shall remain in effect.
The determination of the Agent as to additional amounts payable pursuant to
this Section 2.28 shall be conclusive evidence of such amounts absent manifest
error and if made in good faith.
SECTION 2.29. CAPITAL ADEQUACY. If the Agent or any Bank shall have
reasonably determined that, subsequent to the date hereof, any change in the
applicability of any law, rule, regulation or guideline, or the adoption after
the date hereof of any other law, rule, regulation or guideline regarding
capital adequacy, or any change in any of the foregoing or in the interpretation
or administration of any of the foregoing by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Agent or such Bank (or any lending office of such
Bank) or the Agent's or such Bank's holding company with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the Agent's or such Bank's capital or
on the capital of the Agent's or such Bank's holding company, if any, as a
consequence of its obligations hereunder to a level below that which the Agent
or such Bank or the Agent's or such Bank's holding company could have achieved
but for such adoption, change or compliance (taking into consideration the
Agent's or such Bank's policies and the policies of the Agent's or such Bank's
holding company with respect to capital adequacy) by an amount deemed by the
Agent or such Bank to be material, then from time to time the Borrower shall pay
to the Agent on behalf of the Agent or such Bank such additional amount or
amounts as will reasonably compensate the Agent or such Bank or its or their
holding company or companies for any such reduction suffered.
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SECTION 2.30. CHANGE IN LEGALITY. (a) Notwithstanding anything to the
contrary contained elsewhere in this Agreement, if any change after the date
hereof in law, rule, regulation, guideline or order, or in the interpretation
thereof by any governmental authority charged with the administration thereof,
shall make it unlawful for any of the Banks to make or maintain any Eurodollar
Loan or to give effect to its obligations as contemplated hereby with respect to
a Eurodollar Loan, then, by written notice to the Borrower, the Agent, on behalf
of such Bank may:
(i) declare that Eurodollar Loans will not thereafter be made
by such Bank hereunder, whereupon the Borrower shall be prohibited from
requesting such Eurodollar Loans from such Bank hereunder unless such
declaration is subsequently withdrawn; and
(ii) require that, subject to the provisions of Section 2.31,
all outstanding Eurodollar Loans made by it be converted to a Prime
Rate Loan, whereupon all of such Eurodollar Loans shall be
automatically converted to a Prime Rate Loan as of the effective date
of such notice as provided in paragraph (b) below.
(b) For purposes of this Section 2.30, a notice to the Borrower by the
Agent pursuant to paragraph (a) above shall be effective, for the purposes of
paragraph (a) above, if lawful, and if any Eurodollar Loans shall then be
outstanding, on the last day of the then current Interest Period; otherwise,
such notice shall be effective on the date of receipt by the Borrower.
SECTION 2.31. FUNDING LOSSES. The Borrower agrees to compensate each Bank
for any loss or expense which such Bank may sustain or incur as a consequence of
(a) default by the Borrower in payment when due of the principal amount of or
interest on any Eurodollar Loan, (b) default by the Borrower in making a
borrowing of, conversion into or continuation of Eurodollar Loans after the
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (c) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (d) the making of a prepayment of Eurodollar
Loans on a day which is not the last day of an Interest Period with respect
thereto, including, without limitation, in each case, any such loss or expense
arising from the reemployment of funds obtained by it or from amounts payable by
such Bank to lenders of funds obtained by it in order to make or maintain such
Loans. Such compensation shall include an amount equal to the excess, if any, of
(i) the amount of interest which would have accrued on the amount so prepaid, or
not so borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein, excluding, the LIBOR Applicable Margin included therein, if any,
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over (ii) the amount of interest (as reasonably determined by such Bank) which
would have accrued to such Bank on such amount by placing such amount on deposit
for a comparable period with leading banks in the interbank eurodollar market.
This covenant shall survive the termination of this Agreement and the payment of
the Loans and all other amounts payable hereunder for a period of ninety (90)
days from the date of termination of this Agreement and the payment of the Loans
and all other amounts payable hereunder. When claiming under this Section 2.31,
the claiming Bank shall provide to the Borrower a statement, signed by an
officer of such Bank, explaining the amount of any such loss or expense
(including the calculation of such amount), which statement shall, in the
absence of manifest error, and provided it is made in good faith be conclusive
evidence of such amounts with respect to the parties hereto.
SECTION 2.32. CHANGE IN LIBOR; AVAILABILITY OF RATES. In the event, and on
each occasion, that, on the day the interest rate for any Eurodollar Loan is to
be determined, the Agent shall have determined in good faith (which
determination, absent manifest error, shall be conclusive and binding upon the
Borrower) that dollar deposits in the amount of the principal amount of the
requested Eurodollar Loan are not generally available in the London interbank
market, or that the rate at which such dollar deposits are being offered will
not adequately and fairly reflect the cost to the Banks of making or maintaining
the principal amount of such Eurodollar Loan during such Interest Period, such
Eurodollar Loan shall be unavailable. The Agent shall, as soon as practicable
thereafter, given written, telex or telephonic notice of such determination of
unavailability to the Borrower. Any request by the Borrower for an unavailable
Eurodollar Loan shall be deemed to have been a request for a Prime Rate Loan.
After such notice shall have been given and until the Agent shall have notified
the Borrower that the circumstances giving rise to such unavailability no longer
exist, each subsequent request for an unavailable Eurodollar Loan shall be
deemed to be a request for a Prime Rate Loan.
SECTION 2.33. AUTHORIZATION TO DEBIT BORROWER'S ACCOUNT. The Agent is
hereby authorized to debit the Borrower's account maintained with the Agent for
(i) all scheduled payments of principal and/or interest or fees under the Notes,
(ii) the Agent's fees, and (iii) all other amounts due hereunder; all such
debits to be made on the days such payments are due in accordance with the terms
hereof.
SECTION 2.34. LATE CHARGES, DEFAULT INTEREST. (a) If the Borrower shall
default in the payment of any principal installment of or interest on any Loan,
or any other amount becoming due hereunder, upon the consent and determination
of the Required Banks, the Borrower shall pay to the Agent for the pro rata
distribution to the Banks interest, to the extent permitted by law, on such
defaulted amount up to the date of actual payment (after as well as before
judgment) at an increased rate per annum (computed on the basis of the actual
number of days elapsed over a year of
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360 days) of up to a rate equal to three (3%) percent in excess of the interest
rate otherwise in effect with respect to the type of Loan in connection with
which the required payments have not been made.
(b) Upon the occurrence and during the continuation of an Event of
Default, upon the consent and determination of the Required Banks, the Borrower
shall pay to the Agent, for the pro rata distribution to the Banks, interest, to
the extent permitted by law, on the Loans outstanding (after as well as before
judgment) at an increased rate per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) of up to a rate equal to three
(3%) percent in excess of the interest rate otherwise in effect hereunder.
SECTION 2.35. Payments. All payments by the Borrower hereunder or under the
Notes shall be made in U.S. dollars in immediately available funds at the office
of the Agent by 2:00 p.m. on the date on which such payment shall be due.
SECTION 2.36. Interest Adjustments. (a) If the provisions of this Agreement
or the Notes would at any time otherwise require payment by the Borrower to any
Bank of any amount of interest in excess of the maximum amount then permitted by
applicable law the interest payments shall be reduced to the extent necessary so
that such Bank shall not receive interest in excess of such maximum amount. To
the extent that, pursuant to the foregoing sentence, the Agent shall receive
interest payments on behalf of the Banks hereunder or under the Notes in an
amount less than the amount otherwise provided, such deficit (hereinafter called
the "Interest Deficit") will cumulate and will be carried forward (without
interest) until the termination of this Agreement. Interest otherwise payable to
any Bank hereunder or under the Notes for any subsequent period shall be
increased by such maximum amount of the Interest Deficit that may be so added
without causing such Bank to receive interest in excess of the maximum amount
then permitted by applicable law.
(b) The amount of the Interest Deficit at the time of any complete
payment of the Loans at that time outstanding (other than an optional prepayment
thereof) shall be cancelled and not paid.
SECTION 2.37. Interest Rate Hedge Contract. Upon the request of the
Required Banks, the Borrower shall enter into interest rate hedge agreements
with a term of two (2) years with the Agent, an affiliate of the Agent or any
other bank reasonably acceptable to the Agent (and, in the case of such other
bank, shall deliver copies of the hedge agreements to the Agent) to purchase
interest rate caps for a maximum notional value of $10,000,000.00.
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ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. CONDITIONS PRECEDENT TO THE MAKING OF THE INITIAL REVOLVING
CREDIT LOAN, THE INITIAL DRAWDOWN AND THE TERM LOAN. The obligation of the Banks
to make the initial Revolving Credit Loans, the initial Drawdown and the Term
Loan contemplated by this Agreement are each subject to the condition precedent
that the Agent and the Banks shall have received from the Borrower and the
Guarantors on or before the date of this Agreement the following, each dated
such day, in form and substance satisfactory to the Agent and its counsel:
(a) A Revolving Credit Note, duly executed by the Borrower and payable to
the order of each of the Banks.
(b) A Term Loan Note, duly executed by the Borrower and payable to the
order of each of the Banks.
(c) An Improvement Term Loan Note, duly executed by the Borrower and
payable to the order of each of the Banks.
(d) Certified (as of the date of this Agreement) copies of (i) the
resolutions of the Board of Directors of the Borrower authorizing the Loans and
authorizing and approving this Agreement and the other Loan Documents and the
execution, delivery and performance thereof, (ii) the resolutions of the
shareholders of the Borrower approving the Acquisition, and (iii) all documents
evidencing other necessary corporate action and governmental approvals, if any,
with respect to this Agreement and the other Loan Documents.
(e) Certified (as of the date of this Agreement) copies of the resolutions
of the Boards of Directors and the shareholders of each of the Guarantors,
authorizing and approving this Agreement, their Guaranties and any other Loan
Document applicable to the Guarantors, and the execution, delivery and
performance thereof and certified copies of all documents evidencing other
necessary corporate action and governmental approvals, if any, with respect to
this Agreement, their Guaranties and the other Loan Documents.
(f) A certificate of the Secretary or an Assistant Secretary (attested to
by another officer) of the Borrower certifying: (i) the names and true
signatures of the officer or officers of the Borrower authorized to sign this
Agreement, the Notes and the other Loan Documents to be delivered hereunder on
behalf of the Borrower; and (ii) a copy of the Borrower's by-laws as complete
and correct on the date of this Agreement.
(g) A Certificate of the Secretary or an Assistant Secretary (attested to
by another officer) of each of the Guarantors certifying (i) the names and true
signatures of the officer or officers of the Guarantors authorized to sign this
Agreement, their Guaranties and any other Loan Documents to be delivered
hereunder
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on behalf of the Guarantors; (ii) a copy of each of the Guarantors' by-laws as
complete and correct on the date of this Agreement; and (iii) the stock
ownership of each Guarantor.
(h) Copies of the certificate of incorporation and all amendments thereto
of the Borrower and the Guarantors certified in each case by the Secretary of
State (or equivalent officer) of the state of incorporation of each of the
Borrower and the Guarantors and a certificate of existence and good standing
with respect to the Borrower and the Guarantors from the Secretary of State (or
equivalent officer) of the state of incorporation of the Borrower and the
Guarantors) and from the Secretary of State (or equivalent officer) of any state
in which the Borrower or the Guarantors are authorized to do business.
(i) An opinion of Lowenthal, Landau, Fischer & Bring, P.C., counsel for the
Borrower and the Guarantors as to certain matters referred to in Article IV
hereof and as to such other matters as the Agent or its counsel may reasonably
request.
(j) From each of the Guarantors, an executed Guaranty.
(k) From the Individual Guarantor, an executed guaranty in the form of
Exhibit E annexed hereto.
(l) From the Borrower and each of the Guarantors, an executed Security
Agreement giving to the Agent, on behalf of the Banks a first priority security
interest in all assets of the Borrower and the Guarantors including, but not
limited to, all personal property, equipment, fixtures, inventory, accounts,
chattel paper and general intangibles all whether now owned or hereafter
acquired (the "Collateral"). Such Collateral shall not include the Borrower's or
any Guarantor's interest as a tenant under any leases of real estate.
(m) From the Borrower and each of the Guarantors, UCC-1 filings perfecting
the Agent's security interests in the Collateral.
(n) From the Borrower and any Guarantor which owns all or any of the stock
of another Guarantor or any Subsidiary of the Borrower, a Pledge Agreement
granting to the Agent, on behalf of the Banks, a first priority security
interest in all of the stock in such Guarantor and/or Subsidiary.
(o) From the Borrower and any Guarantor executing and delivering a Pledge
Agreement, the stock certificate(s) for the shares pledged thereunder, together
with a stock power executed in blank.
(p) Intentionally omitted.
(q) Intentionally omitted.
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(r) A property damage insurance policy for the Collateral in the amount of
the replacement value of the Collateral naming the Agent as loss payee with
insurance companies acceptable to the Agent. The policies shall provide for
thirty (30) days notice to the Agent of cancellation or change.
(s) From the Borrower, copies of all of the Borrower's credit agreements,
loan agreements, indentures, mortgages and other documents relating to the
extension of credit.
(t) From the Borrower, evidence satisfactory to the Agent and its counsel
that the Acquisition has closed.
(u) Receipt and satisfactory review by the Agent and the Banks of the
reaffirmation dated October 30, 1997 to the opinion of Coopers and Lybrand LLP
dated July 14, 1997, together with any revisions or additions thereto, such
reaffirmation, revisions or additions to reflect no opinions, assumptions, facts
or other data which the Agent and the Banks reasonably determine to be
materially and adversely different from the opinion previously delivered.
(v) From the Borrower, the fees and expenses to be paid pursuant to this
Agreement, the Commitment Letter and the Fee Letter.
(w) The Agent and the Banks shall, prior to the date of this Agreement,
have completed their due diligence reviews of the Borrower, the results of which
shall be satisfactory to the Agent and the Banks in their sole discretion.
(x) The following statements shall be true and the Agent shall have
received a certificate signed by the President or Chief Financial Officer of the
Borrower dated the date hereof, stating that:
(i) The representations and warranties contained in Article IV of
this Agreement and in the other Loan Documents are true and correct on and as of
such date; and
(ii) No Default or Event of Default has occurred and is continuing, or
would result from the making of the initial Revolving Credit Loans or the Term
Loan.
(y) All legal matters incident to this Agreement and the Loan transactions
contemplated hereby shall be reasonably satisfactory to Cullen and Dykman,
counsel to the Agent.
(z) Receipt by the Agent of such other approvals, opinions or documents as
the Agent or its counsel may reasonably request.
SECTION 3.02. CONDITIONS PRECEDENT TO ALL REVOLVING CREDIT LOANS. The
obligation of the Banks to make each Revolving Credit Loan shall be subject to
the further condition precedent that on the date of such Revolving Credit Loan:
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(a) The following statements shall be true and the Agent shall have
received a certificate signed by the President or the Chief Financial Officer of
the Borrower dated the date of such Revolving Credit Loan, stating that:
(i) The representations and warranties contained in Article IV of
this Agreement and in the other Loan Documents are true and correct in all
material respects on and as of such date as though made on and as such date
(provided that the representation made in Section 4.01(f) shall be deemed made
as to the then most recent fiscal year and interim period financial statements
delivered to the Agent and the Banks and any other representation that refers to
a specific date shall be restated as of such date); and
(ii) No Default or Event of Default has occurred and is continuing,
or would result from such Revolving Credit Loan.
(b) The Agent shall have received such other approvals, opinions or
documents as the Agent or its counsel may reasonably request.
SECTION 3.03. CONDITIONS PRECEDENT TO THE MAKING OF ALL DRAWDOWNS. The
obligation of each Bank to make its share of each Drawdown shall be subject to
the condition precedent that the Agent and the Banks shall have received on or
before the date of such Loans all of the documents required by Section 3.01 and
each of the following, in form and substance satisfactory to the Agent and its
counsel:
(a) The following statements shall be true and the Agent shall have
received a certificate signed by the President or the Chief Financial Officer of
the Borrower dated the date of such Loan:
(i) Stating that the representations and warranties contained in
Article IV of this Agreement and in the other Loan Documents are true and
correct in all material respects on and as of such date as though made on and as
of such date (provided that the representation made in Section 4.01(f) shall be
deemed made as to the then most recent fiscal year and interim period financial
statements delivered to the Agent and the Banks and any other representation
that refers to a specific date shall be restated as of such date);
(ii) Stating that no Default or Event of Default has occurred and is
continuing, or would result from the making of the Drawdown;
(iii) Describing the goods and/or services being financed with the
Drawdown, together with the name and address of each vendor receiving $25,000.00
or more of the proceeds of such Drawdown; and
(iv) Stating that the improvements being financed with the Drawdown
have been completed and paid for in full and/or that the
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equipment being financed with the Drawdown has been delivered and paid for in
full.
(b) Additional Documentation. The Agent shall have received such other
approvals, opinions, or documents as the Agent or its counsel may reasonably
request, including, but without limitation, copies of invoices and other
documentation reasonably satisfactory to the Agent evidencing the completion of
the store improvements or the purchase of equipment financed with such Drawdown.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES. On the date of this Agreement
and on each date that the Borrower requests a Revolving Credit Loan or an
Improvement Term Loan, the Borrower and each of the Guarantors represent and
warrant as follows:
(a) Subsidiaries. On the date hereof, the only Subsidiaries of the Borrower
or a Guarantor are those set forth on Schedule 4.01(a) annexed hereto, which
Schedule accurately sets forth with respect to each such Subsidiary, its name
and address, any other addresses at which it conducts business, its state of
incorporation and each other jurisdiction in which it is qualified to do
business and the identity and share holdings of its stockholders. Except as set
forth on Schedule 4.01(a), all of the issued and outstanding shares of each
Subsidiary which are owned by the Borrower or a Guarantor are owned by the
Borrower or such Guarantor free and clear of any mortgage, pledge, lien or
encumbrance. Except as set forth on Schedule 4.01(a), there are not outstanding
any warrants, options, contracts or commitments of any kind entitling any Person
to purchase or otherwise acquire any shares of common or capital stock or other
equity interest of the Borrower or any Guarantor or any Subsidiary of the
Borrower or a Guarantor, nor are there outstanding any securities which are
convertible into or exchangeable for any shares of the common or capital stock
of the Borrower or any Guarantor or any Subsidiary of the Borrower or a
Guarantor.
(b) Good Standing. The Borrower and the Guarantors are each corporations
duly incorporated, validly existing and in good standing under the laws of the
States of their respective incorporation and each has the corporate power to own
their assets and to transact the business in which they are presently engaged
and are duly qualified and are in good standing in such other jurisdictions
where failure to qualify or otherwise maintain such standing could result in a
Material Adverse Change in the Borrower or in the Borrower and the Guarantors,
taken as a whole.
(c) Due Execution, Etc. The execution, delivery and performance by the
Borrower and each Guarantor of the Loan Documents to which they are a party are
within the Borrower's and the Guarantors' corporate power and have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the stockholders of the Borrower or Guarantors other
than those already obtained; (ii) do not contravene the Borrower's or any of the
Guarantors' certificates of incorporation, charters or by-laws; (iii) violate
any provision of any law, rule, regulation, contractual restriction, order,
writ, judgment, injunction, or decree, determination or award binding on or
affecting the Borrower or any Guarantor; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement, or any
other agreement, lease or instrument to which the Borrower or any Guarantor is a
party or by which it or its
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properties may be bound or affected; or (v) result in, or require, the creation
or imposition of any Lien (other than the Lien of the Loan Documents) upon or
with respect to any of the properties now owned or hereafter acquired by the
Borrower or any Guarantor.
(d) No Consents Required. No authorization or approval or other action by,
and no notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by the Borrower or
any Guarantor of any Loan Document to which it is a party, except
authorizations, approvals, actions, notices or filings which have been obtained,
taken or made, as the case may be.
(e) Validity and Enforceability. The Loan Documents when delivered
hereunder will have been duly executed and delivered on behalf of the Borrower
and each Guarantor, as the case may be, and will be legal, valid and binding
obligations of the Borrower and each Guarantor, as the case may be, enforceable
against the Borrower or such Guarantor in accordance with their respective terms
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws or equitable principles
affecting the enforcement of creditors rights.
(f) Financial Statements. The consolidated financial statements of the
Borrower and its Consolidated Subsidiaries for the fiscal year ended March 2,
1997, and for the most recent interim fiscal period, and the combining financial
statements of the Borrower and the Food Group for the fiscal year ended March 2,
1997, copies of which have been furnished to the Agent and the Banks, fairly
present the financial condition of the Borrower and its Consolidated
Subsidiaries and the Borrower and the Food Group as at such dates and the
results of operations of the Borrower and its Consolidated Subsidiaries and the
Borrower and the Food Group for the periods ended on such dates, all in
accordance with GAAP, and since such dates there has been (i) other than as set
forth in Schedule 4.01(f) hereto, no material increase in the liabilities of the
Borrower and its Consolidated Subsidiaries or the Food Group and (ii) no
Material Adverse Change in the Borrower or any of its Consolidated Subsidiaries
or the Food Group.
(g) No Litigation. Except as disclosed in Schedule 4.01(g), there is no
pending or, to the Borrower's knowledge, threatened in writing, action,
proceeding or investigation affecting the Borrower, any Guarantor or any
Subsidiary of the Borrower or a Guarantor, before any court, governmental agency
or arbitrator, which either in one case or in the aggregate, is reasonably
likely to result in a Material Adverse Change in the Borrower or in the Borrower
and the Guarantors, taken as a whole.
(h) Taxes. The Borrower and each Guarantor have filed all federal, state
and local tax returns required to be filed and have paid all taxes, assessments
and governmental charges and levies thereon to be due, including interest and
penalties. Other than as set forth in Schedule 4.01(h) hereto, the federal
income tax liability of the Borrower and each Guarantor has been finally
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determined and satisfied for all taxable years up to and including the taxable
year ending March 3, 1996.
(i) Licenses, Etc. The Borrower, each Guarantor and each Subsidiary of the
Borrower or each Guarantor possess all licenses, permits, franchises, patents,
copyrights, trademarks and trade names, or rights thereto, to conduct their
respective businesses substantially as now conducted and as presently proposed
to be conducted, and, to their knowledge, neither the Borrower, any Guarantor
nor any such Subsidiary are in violation of any similar rights of others.
(j) Burdensome Agreements. Neither the Borrower nor any of the Guarantors
are a party to any indenture, loan or credit agreement or any other agreement,
lease or instrument or subject to any charter, corporate or partnership
restriction which could result in a Material Adverse Change in the Borrower or
in the Borrower and the Guarantors, taken as a whole. Neither the Borrower nor
any Guarantor is in default in any respect in the performance, observance, or
fulfillment of any of the obligations or covenants contained in any agreement or
instrument material to its business.
(k) Margin Stock. The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation G, T, U or X), and no proceeds of any Loan will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock or in any other way which will cause
the Borrower to violate the provisions of Regulations G, T, U or X.
(l) Compliance With Laws. The Borrower, each Guarantor and each Subsidiary
of the Borrower or a Guarantor are in compliance with all federal and state laws
and regulations in all jurisdictions where the failure to comply with such laws
or regulations could result in a Material Adverse Change in the Borrower or in
the Borrower and the Guarantors, taken as a whole.
(m) ERISA. The Borrower, each Guarantor, each Subsidiary of the Borrower or
a Guarantor and each ERISA Affiliate are in compliance with all applicable
provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction has
occurred and is continuing with respect to any Benefit Arrangement or Plan (and
to the best of their knowledge, to any Multiemployer Plan); no notice of intent
to terminate a Plan has been filed nor has any Plan been terminated; no
circumstances exist which constitute grounds under Section 4042 of ERISA
entitling the PBGC to institute proceedings to terminate, or appoint a trustee
to administrate a Plan, nor has the PBGC instituted any such proceedings;
neither the Borrower, any Guarantor, any Subsidiary of the Borrower or a
Guarantor, nor any ERISA Affiliate has completely or partially withdrawn under
Sections 4201 or 4204 of ERISA from a Multiemployer Plan. The Borrower, each
Guarantor, each Subsidiary of the Borrower or a Guarantor and each ERISA
Affiliate:
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(i) have met their minimum funding requirements under ERISA with
respect to all of their Plans;
(ii) have made when due any and all payments required to be made under
any agreement relating to a Multiemployer Plan and that to the best of their
knowledge, each Multiemployer Plan is able to pay benefits thereunder when due;
(iii) represent that for all Plans, the present fair market value of
all Plan assets exceeds the present value of all vested benefits under each
Plan, as determined on the most recent valuation date of the Plan, determined on
Financial Accounting Statements 35 and 36 basis for such Plan;
(iv) represent that to the extent that any Benefit Arrangement is
insured, they have paid when due all premiums required to be paid; and to the
extent that any Benefit Arrangement is funded other than with insurance, they
have made when due all contributions required to be paid;
(v) represent that for each Benefit Arrangement, Plan, and to the best
of their knowledge each Multiemployer Plan, that neither the Borrower, any
Guarantor, any such Subsidiary nor any ERISA Affiliate has incurred any
liability to the PBGC under ERISA.
(n) Hazardous Materials. The Borrower, each Guarantor and each Subsidiary
of the Borrower or a Guarantor are in compliance with all federal, state or
local laws, ordinances, rules, regulations or policies governing Hazardous
Materials and neither the Borrower, any Guarantor nor any such Subsidiary has
used Hazardous Materials on, from, or affecting any property now owned or
occupied or hereafter owned or occupied by the Borrower, any Guarantor or any
such Subsidiary in any manner which violates federal, state or local laws,
ordinances, rules, regulations or policies governing the use, storage,
treatment, transportation, manufacture, refinement, handling, production or
disposal of Hazardous Materials, and to the Borrower's, Guarantors' and such
Subsidiaries' knowledge, no prior owner of any such property or any tenant,
subtenant, prior tenant or prior subtenant have used Hazardous Materials on,
from or affecting such property in any manner which violates federal, state or
local laws, ordinances, rules, regulations, or policies governing the use,
storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials.
(o) Use of Proceeds. The proceeds of the Revolving Credit Loans, the Term
Loan and the Improvement Term Loans shall be used exclusively for the purposes
set forth in Section 2.05, Section 2.15 and Section 2.23, respectively of this
Agreement.
(p) No Liens. The properties and assets of the Borrower and the Guarantors
are not subject to any Lien other than those described in Section 5.02(a)
hereof.
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(q) Casualties. Neither the business nor the properties of the Borrower,
any Guarantor or any Subsidiary of the Borrower or a Guarantor are affected by
any fire, explosion, accident, strike, hail, earthquake, embargo, act of God or
of the public enemy, or other casualty (whether or not covered by insurance),
which could result in a Material Adverse Change in the Borrower or in the
Borrower and the Guarantors, taken as a whole.
(r) Solvency of Guarantors. The liability of the Guarantors as a result of
the execution of their respective Guaranties and the execution of this Agreement
shall not cause the liabilities (including contingent liabilities) of each of
the Guarantors to exceed the fair saleable value of their respective assets.
(s) Advantage to Guarantors. The Guarantors acknowledge they have derived
or expect to derive a financial or other advantage from the Loans obtained by
the Borrower from the Banks.
(t) Credit Agreements. Schedule 4.01(t) is a complete and correct list of
all credit agreements, indentures, purchase agreements, guaranties, Capital
Leases, and other investments, agreements and arrangements presently in effect
providing for or relating to extensions of credit (including agreements and
arrangements for the issuance of letters of credit or for acceptance financing)
in respect of which the Borrower or any Guarantor is in any manner directly or
contingently obligated, and the maximum principal or face amounts of the credit
in question, outstanding or to be outstanding, are correctly stated, and all
Liens of any nature given or agreed to be given as security therefor are
correctly described or indicated in such Schedule and neither the Borrower nor
any Guarantor is in default with respect to its obligations thereunder.
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ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. AFFIRMATIVE COVENANTS. So long as (i) the Total Commitment
shall be in effect or (ii) any amount shall remain outstanding under any of the
Notes, the Borrower and each of the Guarantors will, unless the Required Banks
shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply, and cause each Subsidiary of the
Borrower or a Guarantor to comply, with all applicable laws, rules, regulations
and orders, where the failure to so comply could result in a Material Adverse
Change in the Borrower or in the Borrower and the Guarantors, taken as a whole.
(b) Reporting Requirements. Furnish to the Agent and each of the Banks:
(i) Annual Financial Statements. As soon as available and in any event
not later than the date it is required to be filed with the Securities and
Exchange Commission, a copy of Form 10-K for each fiscal year of the Borrower,
including the audited consolidated financial statements of the Borrower and its
Consolidated Affiliates for such year, including a balance sheet with a related
statement of income and retained earnings and statement of cash flows, all in
reasonable detail and setting forth in comparative form the figures for the
previous fiscal year, together with an unqualified opinion, prepared by BDO
Seidman, LLP or such other independent certified public accountants selected by
the Borrower and reasonably satisfactory to the Agent, all such financial
statements to be prepared in accordance with GAAP.
(ii) Quarterly Financial Statements. As soon as available and in any
event not later than the date it is required to be filed with the Securities and
Exchange Commission, a copy of Form 10-Q for each fiscal quarter of the
Borrower, including the consolidated financial statements of the Borrower and
its Consolidated Affiliates for such quarter and for year to date, including a
balance sheet with a related statement of income and retained earnings and a
statement of cash flows, all in reasonable detail and setting forth in
comparative form the figures for the comparable quarter and comparable year to
date period for the previous fiscal year, all such financial statements to be
prepared by management of the Borrower in accordance with GAAP.
(iii) Consolidating Financial Statements. (1) As soon as available and
in any event within ninety (90) days after the end of each fiscal year of the
Borrower and within sixty (60) days after the end of each of the first three
fiscal quarters of the Borrower, a copy of the consolidating financial
statements of the Borrower and its operating Subsidiaries for such year or
quarter, including balance sheets with related statements of income and retained
earnings and statements of cash flows, all in reasonable detail and setting
forth in comparative form the figures for the previous
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fiscal year or previous fiscal quarter, all such financial statements to be
prepared by management of the Borrower in accordance with GAAP, and (2) as soon
as available and in any event within sixty (60) days after the end of each
fiscal quarter the Borrower (including the fourth fiscal quarter), a copy of a
financial schedule showing EBITDA operating results by store location for such
quarter, prepared by management of the Borrower.
(iv) Form 8-K. As soon as it is filed, a copy of the Form 8-K filed by
the Borrower with the Securities and Exchange Commission with respect to the
Acquisition, together with all financial statements and schedules related
thereto.
(v) Management Letters. Promptly upon receipt thereof, copies of any
reports submitted to the Borrower or any Guarantor by independent certified
public accountants in connection with examination of the financial statements of
the Borrower and each Guarantor made by such accountants.
(vi) Certificate of No Default. Simultaneously with the delivery of
the financial statements referred to in Section 5.01(b)(i) and (ii), a
certificate of the President or the Chief Financial Officer of the Borrower (1)
certifying that no Default or Event of Default has occurred and is continuing,
or if a Default or Event of Default has occurred and is continuing, a statement
as to the nature thereof and the action which is proposed to be taken with
respect thereto; and (2) with computations demonstrating compliance with the
covenants contained in Section 5.03.
(vii) Notice of Litigation. Promptly after the commencement thereof,
notice of all actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency, or instrumentality, domestic or
foreign, affecting the Borrower, any Guarantor or any Subsidiary of the Borrower
or a Guarantor which, if determined adversely to the Borrower, any Guarantor or
any such Subsidiary could result in a Material Adverse Change in the Borrower
and the Guarantors, taken as a whole.
(viii) Notice of Defaults and Events of Default. As soon as possible
and in any event within five (5) days after the occurrence of each Default or
Event of Default, a written notice setting forth the details of such Default or
Event of Default and the action which is proposed to be taken by the Borrower
with respect thereto.
(ix) ERISA Reports. Promptly after the filing or receiving thereof,
copies of all reports, including annual reports, and notices which the Borrower
any Guarantor and any Subsidiary of the Borrower or a Guarantor, files with or
receives from the PBGC or the U.S. Department of Labor under ERISA; and as soon
as possible after the Borrower, any Guarantor or any such Subsidiary knows or
has reason to know that any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or that the PBGC or the Borrower, any
Guarantor or any such Subsidiary has instituted or will institute proceedings
under Title IV of ERISA to
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terminate any Plan, the Borrower or such Guarantor will deliver to the Agent a
certificate of the President or the Chief Financial Officer of the Borrower or
such Guarantor setting forth details as to such Reportable Event or Prohibited
Transaction or Plan termination and the action the Borrower or such Guarantor
proposes to take with respect thereto.
(x) Reports to Other Creditors. Promptly after the furnishing thereof,
copies of any statement or report furnished to any other party pursuant to the
terms of any indenture, loan, or credit or similar material agreement and not
otherwise required to be furnished to the Agent pursuant to any other clause of
this Section 5.01(b).
(xi) Proxy Statements, Etc. Promptly after the sending or filing
thereof, copies of all proxy statements, financial statements and reports which
the Borrower or any Guarantor sends to its public stockholders, and copies of
all regular, periodic, and special reports, and all registration statements
which the Borrower or any Guarantor files with the Securities and Exchange
Commission or any governmental authority which may be substituted therefor, or
with any national securities exchange.
(xii) Personal Financial Statements. At least once in each calendar
year, and not later than fifteen (15) months after the last delivery of such
financial statement, a copy of the personal financial statement of the
Individual Guarantor dated as of date not more than six (6) months prior to the
date of delivery.
(xiii) Lease Status Certificate. As soon as available and in any event
within sixty (60) days after the end of each fiscal quarter, a certificate from
the chief financial officer of the Borrower setting forth the Credit Parties'
payment status for all leases of real property, in form and substance reasonable
satisfactory to the Agent.
(xiv) General Information. Such other information respecting the
condition or operations, financial or otherwise, of the Borrower, any Guarantor
or any Subsidiary of the Borrower or a Guarantor as the Bank may from time to
time reasonably request.
(c) Taxes. Pay and discharge, and cause its Subsidiaries to pay and
discharge, all taxes, assessments and governmental charges upon it or them, its
or their income and its or their properties prior to the dates on which
penalties are attached thereto, unless and only to the extent that (i) such
taxes shall be contested in good faith and by appropriate proceedings by the
Borrower, any Guarantor or any such Subsidiary, as the case may be, and (ii)
there be adequate reserves therefor in accordance with GAAP entered on the books
of the Borrower, any Guarantor or any such Subsidiary.
(d) Corporate Existence. Preserve and maintain, and cause its Subsidiaries
to preserve and maintain, their corporate existence and good standing in the
jurisdiction of their incorporation and the rights, privileges and franchises of
the Borrower, each
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Guarantor and each such Subsidiary in each case where failure to so preserve or
maintain could result in a Material Adverse Change in the Borrower or any of the
Guarantors.
(e) Maintenance of Properties and Insurance. (i) Keep, and cause any
Subsidiaries to keep, the respective properties and assets (tangible or
intangible) that are useful and necessary in its business, in good working order
and condition, reasonable wear and tear excepted; and (ii) maintain, and cause
any Subsidiaries to maintain, insurance with financially sound and reputable
insurance companies or associations in such amounts and covering such risks as
are usually carried by companies engaged in similar businesses and owning
properties doing business in the same general areas in which the Borrower, any
Guarantors and any such Subsidiaries operate.
(f) Books of Record and Account. Keep and cause any Subsidiaries to keep,
adequate records and proper books of record and account in which complete
entries will be made in a manner to enable the preparation of financial
statements in accordance with GAAP, reflecting all financial transactions of the
Borrower, the Guarantors, and any such Subsidiaries.
(g) Visitation; Field Audit. (a) From time to time, permit the Agent or any
of the Banks or any agents or representatives thereof, to examine and make
copies of and abstracts from the books and records of, and visit the properties
of, the Borrower or any Guarantor and to discuss the affairs, finances and
accounts of the Borrower or any Guarantor with any of the respective executive
officers or directors of the Borrower or such Guarantor or the Borrower's or
such Guarantor's independent accountants.
(b) From time to time, allow the Bank to conduct, and cooperate with
the Bank in connection therewith, a Field Audit. The expense of such Field Audit
shall be for the account of the Borrower, provided that as long as no Default or
Event of Default exists, the cost of such Field Audits shall not exceed
$5,000.00 in any fiscal year of the Borrower.
(c) Any Field Audits or other visitations shall be made during normal
business hours and on reasonable notice. The Agent shall use its best efforts to
preserve the confidentiality of any non-public information obtained by it.
(h) Performance and Compliance with Other Agreements. Perform and comply
with each of the provisions of each and every agreement the failure to perform
or comply with which would be reasonably likely to result in a Material Adverse
Change in the Borrower or in the Borrower and the Guarantors, taken as a whole.
(i) Pension Funding. Comply with the following and cause each ERISA
Affiliate of the Borrower, any Guarantor or any Subsidiary of the Borrower or a
Guarantor to comply with the following:
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(i) engage solely in transactions which would not subject any of such
entities to either a civil penalty assessed pursuant to Section 502(i) of
ERISA or a tax imposed by Section 4975 of the Internal Revenue Code in
either case in an amount in excess of $25,000.00;
(ii) make full payment when due of all amounts which, under the
provisions of any Plan or ERISA, the Borrower, any Guarantor, any such
Subsidiary or any ERISA Affiliate of any of same is required to pay as
contributions thereto;
(iii) all applicable provisions of the Internal Revenue Code and the
regulations promulgated thereunder, including but not limited to Section
412 thereof, and all applicable rules, regulations and interpretations of
the Accounting Principles Board and the Financial Accounting Standards
Board;
(iv) not fail to make any payments in an aggregate amount greater than
$25,000.00 to any Multiemployer Plan that the Borrower, any Guarantor, any
such Subsidiary or any ERISA Affiliate may be required to make under any
agreement relating to such Multiemployer Plan, or any law pertaining
thereto; or
(v) not take any action regarding any Plan which could result in the
occurrence of a Prohibited Transaction.
(j) Licenses. Maintain at all times, and cause each Subsidiary to maintain
at all times, all licenses or permits necessary to the conduct of its business
or as may be required by any governmental agency or instrumentality thereof, the
failure to maintain would be reasonably likely to result in a Material Adverse
Change in the Borrower or in the Borrower and the Guarantors, taken as a whole.
(k) New Subsidiaries and Affiliates. Cause any Affiliate of the Borrower or
any Guarantor formed after the date of this Agreement, to (x) become a guarantor
of all obligations of the Borrower under this Agreement and the other Loan
Documents, (y) to secure its obligations with a security interest in all of its
personal property and (z) become a party to this Agreement. The parent company
of any such Affiliate shall pledge its shares in such Affiliate to the Agent for
the benefit of the Banks.
(l) Agent's Fees. Pay to the Agent (i) an annual administrative fee, and
(ii) those fees (other than the annual administrative fee), in each case as set
forth in the Fee Letter.
(m) Trademarks. The Borrower shall deliver or cause to be delivered to the
Bank certified copies of all trademarks owned by the Borrower and the Guarantors
within thirty (30) days of the date of this Agreement. The Borrower and the
Guarantors, as the case may be, shall enter into a Trademark Security Agreement
for each of such trademarks within thirty (30) days of the date hereof.
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SECTION 5.02. NEGATIVE COVENANTS. So long as (i) the Total Commitment shall
be in effect or (ii) any amount shall remain outstanding under any of the Notes,
neither the Borrower nor any of the Guarantors will, without the written consent
of the Required Banks:
(a) Liens, Etc. Create, incur, assume or suffer to exist, any Lien, upon or
with respect to any of its properties, now owned or hereafter acquired, except:
(i) Liens in favor of the Banks securing Debt permitted by Section
5.02;
(ii) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or if due and payable if they are being
contested in good faith by appropriate proceedings and for which appropriate
reserves are maintained;
(iii) Liens imposed by law, such as mechanics', materialmen's,
landlords', warehousemen's, and carriers' Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due or which are being contested in good faith by appropriate proceedings
and for which appropriate reserves have been established;
(iv) Liens under workers' compensation, unemployment insurance, Social
Security, or similar legislation;
(v) Liens, deposits, or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), public or statutory obligations,
surety, stay, appeal, indemnity, performance or other similar bonds, or other
similar obligations arising in the ordinary course of business;
(vi) Liens described in Schedule 5.02(a), provided that no such Liens
shall be renewed, extended or refinanced except for the refinance of the then
outstanding balance of Debt secured by such Lien;
(vii) Judgment and other similar Liens arising in connection with
court proceedings (other than those described in Section 6.01(f)), provided (i)
the execution or other enforcement of such Liens is effectively stayed and the
claims secured thereby are being actively contested in good faith and by
appropriate proceedings, or (ii) any such judgment is fully covered by
insurance;
(viii) Easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere with the
Borrower's or a Guarantor's occupation, use and enjoyment of the property or
assets encumbered thereby in the normal course of its business or materially
impair the value of the property subject thereto; and
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(ix) Purchase money Liens on any property hereafter acquired or the
assumption of any Lien on property (excluding leases for the use or occupation
of real property) existing at the time of such acquisition, or a Lien incurred
in connection with any conditional sale or other title retention agreement or a
Capital Lease, provided that:
(1) Any property subject to any of the foregoing is acquired by
the Borrower or any Guarantor in the ordinary course of its respective business
and the Lien on any such property is created contemporaneously with such
acquisition;
(2) The obligation secured by any Lien so created, assumed, or
existing shall not exceed one hundred (100%) percent of lesser of cost or fair
market value of the property acquired as of the time of the Borrower or any
Guarantor acquiring the same;
(3) Each such Lien shall attach only to the property so acquired
and fixed improvements thereon;
(4) The Debt secured by all such Liens shall not exceed
$2,500,000.00 at any time outstanding in the aggregate; and
(5) The obligation secured by such Lien is permitted by the
provisions of Section 5.02(b) and the related expenditure is permitted by the
provisions of Section 5.03(b).
(b) Debt. Create, incur, assume, or suffer to exist, any Debt, except:
(i) Debt of the Borrower under this Agreement or the Notes;
(ii) Debt described in Schedule 5.02(b), provided that no such Debt
shall be renewed, extended or refinanced except for the refinance of the then
outstanding balance of such Debt;
(iii) Accounts payable to trade creditors for goods or services and
current operating liabilities (other than for borrowed money), in each case
incurred and paid in the ordinary course of business, unless contested in good
faith and by appropriate proceedings;
(iv) Debt of the Borrower or any Guarantor secured by purchase money
Liens permitted by Section 5.02(a)(ix); and
(v) Inter Company Debt
(c) Lease Obligations. Create, incur, assume, or suffer to exist any
obligation as lessee for the rental or hire of any real or personal property,
except (i) Capital Leases permitted by Section 5.02(a); (ii) leases existing on
the date of this Agreement and any extensions or renewals thereof; (iii) leases
for the use and occupancy of real property (other than leases described in
clause (i) or (ii)) which do not, in the aggregate, require the
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Borrower and the Guarantors to make payments (including taxes, insurance,
maintenance, and similar expenses which the Borrower or any Guarantor is
required to pay under the terms of any lease) in any fiscal year of the Borrower
in excess of that amount of incremental "Average Annual Cost" during each fiscal
year of the Borrower set forth in the schedule below, it being the intent of
this clause (iii) that the Borrower may enter into such leases which add not
more than such amounts of incremental "Average Annual Cost" in each fiscal year,
and (iv) all other operating leases (other than leases described in (i), (ii) or
(iii)), which do not, in the aggregate, require the Borrower and the Guarantors
to make annual payments under such leases in excess of $1,000,000.00 in the
aggregate over the term of this Agreement. For purposes hereof, "Average Annual
Cost" shall mean the total amount to be paid by the lessee under any lease over
the term of such lease, for any and all purposes, including rent, escalations,
taxes, operating costs, pass throughs, electric and other utility costs,
commissions, build-outs, and all other amounts payable to or for the benefit of
the lessor divided by the term of the lease, in years.
Real Estate Leases
------------------
Fiscal Year Ending in Average Annual Cost
--------------------- -------------------
1998 $500,000.00*
1999 $1,500,000.00
2000 $2,000,000.00
2001 and thereafter $3,000,000.00
*for the period beginning with the date of this Agreement
(d) Merger. Merge into, or consolidate with or into, or have merged into
it, any Person (for the purpose of this subsection (d), the acquisition or sale
by the Borrower or any Guarantor by lease, purchase or otherwise, of all, or
substantially all, of the common stock or the assets of any Person or of it
shall be deemed a merger of such Person with the Borrower or any Guarantor)
other than a merger of a Subsidiary into its parent corporation and other than
as contemplated by the Acquisition.
(e) Sale of Assets, Etc. Sell, assign, transfer, lease or otherwise dispose
of any of its assets, (including a saleleaseback transaction) with or without
recourse, except for (i) inventory disposed of in the ordinary course of
business; (ii) the sale or other disposition of assets no longer used or useful
in the conduct of its business; and (iii) upon notice to the Agent, rights as a
tenant under leases of real estate provided that (x) not more than one (1) such
lease shall be sold during each fiscal year of the Borrower and (y) the Borrower
complies with the provisions of Section 2.23(c) of this Agreement.
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(f) Investments, Etc. Make any Investment other than Permitted Investments.
(g) Transactions With Affiliates. Except in the ordinary course of business
and pursuant to the reasonable requirements of the Borrower's, a Guarantor's or
a Subsidiary's business and upon fair and reasonable terms no less favorable to
the Borrower, or the Guarantor or the Subsidiary than would be obtained in a
comparable arm's length transaction with a Person not an Affiliate, enter into
any transaction, including, without limitation, the purchase, sale, or exchange
of property or the rendering of any service, with any Affiliate.
(h) Prepayment of Outstanding Debt. Pay, in whole or in part, any
outstanding Debt (other than the Loans) of the Borrower or any Guarantor which
by its terms is not then due and payable.
(i) Guarantees. Guaranty, or in any other way become directly or
contingently obligated for any Debt of any other Person (including any
agreements relating to working capital maintenance, take or pay contracts or
similar arrangements) other than (i) the endorsement of negotiable instruments
for deposit in the ordinary course of business; (ii) guarantees existing on the
date hereof and set forth in Schedule 5.02(i) annexed hereto, or (iii)
guarantees of Debt permitted hereunder.
(j) Change of Business. Materially alter the nature of its business.
(k) Fiscal Year. Change the ending date of its fiscal year.
(l) Losses. Incur a net loss for (i) the period beginning on the date of
this Agreement and ending on March 1, 1998 or (ii) any fiscal year thereafter.
(m) Accounting Policies. Change any accounting policies, except as
permitted by GAAP.
(n) Change of Tax Status. Change its tax reporting status as a C
corporation.
(o) Change in Ownership. Fail or cease to maintain the ownership by John
Catsimatidis, directly or indirectly, of a majority of such classes of voting
stock of the Borrower and the Guarantors such as would enable the holder thereof
to elect a majority of the members of the Board of Directors of the Borrower and
each Guarantor.
(p) Management. Fail to retain John Catsimatidis in a reasonably active
full time capacity in the management of the Borrower and Guarantors.
(q) Hazardous Material. The Borrower, each Guarantor and each Subsidiary of
the Borrower or a Guarantor shall not cause or permit any property owned or
occupied by the Borrower, any Guarantor or
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any such Subsidiary to be used to generate, manufacture, refine, transport,
treat, store, handle, dispose, transfer, produce or process Hazardous Materials,
except in compliance with all applicable federal, state and local laws or
regulations nor shall the Borrower, any Guarantor or any such Subsidiary cause
or permit, as a result of any intentional or unintentional act or omission on
the part of the Borrower, any Guarantor or any such Subsidiary or any tenant or
subtenant, a release of Hazardous Materials onto any property owned or occupied
by the Borrower, any Guarantor or any such Subsidiary or onto any other
property. The Borrower, each Guarantor and each such Subsidiary shall not fail
to comply with all applicable federal, state and local laws, ordinances, rules
and regulations, whenever and by whomever triggered, and shall not fail to
obtain and comply with, any and all approvals, registrations or permits required
thereunder. The Borrower and the Guarantors shall execute any documentation
reasonably required by the Agent in connection with the representations,
warranties and covenants contained in this paragraph and Section 4.01 of this
Agreement.
SECTION 5.03. FINANCIAL REQUIREMENTS. So long as (i) the Total Commitment
shall be in effect or (ii) any amount shall remain outstanding under any of the
Notes:
(a) Minimum Consolidated Tangible Net Worth. The Borrower and Guarantors
will maintain at all times a Consolidated Tangible Net Worth ("TNW") of not less
than the following, to be tested quarterly:
Period Minimum TNW
------ -----------
From the date of this Agreement $12,500,000.00
until May 30, 1998
From May 31, 1998 until $14,500,000.00
May 29, 1999
From May 30, 1999 until $16,500,000.00
May 27, 2000
From May 28, 2000 and $18,500,000.00
thereafter.
(b) Unfunded Consolidated Capital Expenditures. The Borrower, the
Guarantors and their respective Subsidiaries will not make Unfunded Consolidated
Capital Expenditures in excess of the amounts set forth below in the aggregate
during any fiscal year:
Fiscal Year Ending In Amount
- --------------------- ------
1998 $500,000.00*
1999 $1,000,000.00
2000 $1,250,000.00
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2001 $1,500,000.00
*for the period beginning with the date of this Agreement
(c) Leverage Ratio. The Borrower and the Guarantors will at all times
maintain a Leverage Ratio, to be tested quarterly, of not greater than the
following:
Period Leverage Ratio
------ --------------
From the date of this Agreement 3.00 to 1.00
until May 30, 1998
From May 31, 1998 until 2.50 to 1.00
May 29, 1999
From May 30, 1999 until 2.25 to 1.00
May 27, 2000
From May 28, 2000 and 2.00 to 1.00
thereafter.
(d) Funded Debt to EBITDA Ratio. The Borrower and Guarantors will maintain
at all times on a consolidated basis, a Funded Debt to EBITDA Ratio, to be
tested quarterly, of not greater than the following:
Period Funded Debt to EBITDA Ratio
------ ---------------------------
From August 30, 1998 until 2.50 to 1.0
August 28, 1999
From August 29, 1999 until 2.25 to 1.0
August 26, 2000
From August 27, 2000 and 2.00 to 1.00
thereafter.
(e) Fixed Charge Coverage Ratio. The Borrower and Guarantors will maintain
at all times, beginning with the fiscal quarter ending May 31, 1998, on a
consolidated basis, a minimum Fixed Charge Coverage Ratio of not less than 1.25
to 1.0, such ratio to be tested quarterly.
(f) Debt Service Ratio. The Borrower and Guarantors will maintain at all
times, beginning with the fiscal quarter ending May 31, 1998, on a consolidated
basis, a minimum Debt Service Ratio of not less than 1.50 to 1.0, such ratio to
be tested quarterly.
(g) Minimum EBITDA. The Borrower and the Guarantors shall have minimum
EBITDA of $2,000,000.00 for the last nine months of fiscal year 1998.
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ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT. If any of the following events ("Events of
Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any installment of principal of, or
interest on, any of the Notes when due, or any fees or other amounts owed in
connection with this Agreement; or
(b) Any representation or warranty made by the Borrower or any Guarantor
herein or in the Loan Documents or which is contained in any certificate,
document, opinion, or financial or other statement furnished at any time under
or in connection with any Loan Document shall prove to have been incorrect in
any material respect when made; or
(c) The Borrower or any Guarantor shall fail to perform any term, covenant,
or agreement contained in this Agreement in any other Loan Document (other than
the Notes) on its part to be performed or observed; or
(d) The Borrower, any Guarantor, or any Subsidiary of the Borrower or a
Guarantor shall fail to pay any Debt in a minimum outstanding principal balance
of $250,000.00 (excluding Debt evidenced by the Notes) of the Borrower, any
Guarantor or any such Subsidiary (as the case may be), or any interest or
premium thereon, when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Debt; or any other default under any agreement or instrument
relating to any such Debt, or any other event shall occur and shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such default or event is to accelerate the maturity
of such Debt; or any such Debt shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof; or
(e) The Borrower, any Guarantor or any Subsidiary of the Borrower or a
Guarantor shall generally not pay its Debts as such Debts become due, or shall
admit in writing its inability to pay its Debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding shall be
instituted by or against the Borrower, any Guarantor or any such Subsidiary
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its Debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, or other similar official for
it or for any substantial part of its property and if instituted against the
Borrower, any Guarantor or any such Subsidiary shall remain
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undismissed for a period of 30 days; or the Borrower, any Guarantor or any such
Subsidiary shall take any action to authorize any of the actions set forth above
in this subsection (e); or
(f) Any judgment or order or combination of judgments or orders for the
payment of money, in excess of $500,000.00 in the aggregate, which sum shall not
be subject to full, complete and effective insurance coverage, shall be rendered
against the Borrower, any Guarantor or any Subsidiary of the Borrower or a
Guarantor and either (i) enforcement proceedings shall have been commenced by
any creditor upon such judgment or order or (ii) there shall be any period of 90
consecutive days during which a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect; or
(g) Any Guarantor shall fail to perform or observe any term or provision of
its Guaranty or any representation or warranty made by any Guarantor (or any of
its officers or partners) in connection with such Guarantor's Guaranty shall
prove to have been incorrect in any material respect when made; or
(h) Any of the following events occur or exist with respect to the
Borrower, any Guarantor, any Subsidiary of the Borrower or a Guarantor, or any
ERISA Affiliate: (i) any Prohibited Transaction involving any Plan; (ii) any
Reportable Event with respect to any Plan; (iii) the filing under Section 4041
of ERISA of a notice of intent to terminate any Plan or the termination of any
Plan; (iv) any event or circumstance that might constitute grounds entitling the
PBGC to institute proceedings under Section 4042 of ERISA for the termination
of, or for the appointment of a trustee to administer, any Plan, or the
institution of the PBGC of any such proceedings; (v) complete or partial
withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or the
reorganization insolvency, or termination of any Multiemployer Plan; and in each
case above, such event or condition, together with all other events or
conditions, if any, could in the opinion of the Agent subject the Borrower, any
Guarantor, any such Subsidiary or any ERISA Affiliate to any tax, penalty, or
other liability to a Plan, a Multiemployer Plan, the PBGC, or otherwise (or any
combination thereof) which in the aggregate exceeds or may exceed $500,000.00;
or
(i) This Agreement or any other Loan Document, at any time after its
execution and delivery and for any reason, ceases to be in full force and effect
in all material respects or shall be declared to be null and void, or the
validity or enforceability of any document or instrument delivered pursuant to
this Agreement shall be contested by the Borrower, any Guarantor or any party to
such document or instrument or the Borrower, any Guarantor or any party to such
document or instrument shall deny that it has any or further liability or
obligation under any such document or instrument; or
(j) An event of default specified in any Loan Document other than this
Agreement shall have occurred and be continuing.
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SECTION 6.02. REMEDIES ON DEFAULT. Upon the occurrence and continuance of
an Event of Default the Agent may, and at the request of the Required Banks
shall, by notice to the Borrower take any or all of the following actions: (i)
terminate the Commitment, (ii) declare the Notes, all interest thereon and all
other amounts payable under this Agreement to be forthwith due and payable,
whereupon the Commitment shall be terminated, the Notes, all such interest, and
all such other amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Borrower and (iii) proceed to enforce its rights
whether by suit in equity or by action at law, whether for specific performance
of any covenant or agreement contained in this Agreement or any Loan Document,
or in aid of the exercise of any power granted in either this Agreement or any
Loan Document or proceed to obtain judgment or any other relief whatsoever
appropriate to the enforcement of its rights, or proceed to enforce any other
legal or equitable right which the Agent or the Banks may have by reason of the
occurrence of any Event of Default hereunder or under any Loan Document,
provided, however, upon the occurrence of an Event of Default referred to in
Section 6.01(e), the Commitment shall be immediately terminated, the Notes, all
interest thereon, and all other amounts payable under this Agreement shall be
immediately due and payable without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower.
Any amounts collected pursuant to action taken under this Section 6.02 shall be
applied to the payment of, first, any costs incurred by the Agent in taking such
action, including but without limitation reasonable attorneys fees and expenses,
second, to payment of the accrued interest on the Notes and third, to payment of
the unpaid principal of the Notes.
SECTION 6.03. REMEDIES CUMULATIVE. No remedy conferred upon or reserved to
the Agent or the Banks hereunder or in any Loan Document is intended to be
exclusive of any other available remedy, but each and every such remedy shall be
cumulative and in addition to every other remedy given under this Agreement or
any Loan Document or now or hereafter existing at law or in equity. No delay or
omission to exercise any right or power accruing upon any Event of Default shall
impair any such right or power or shall be construed to be a waiver thereof, but
any such right and power may be exercised from time to time and as often as may
be deemed expedient. In order to entitle the Agent or the Banks to exercise any
remedy reserved in this Article VI, it shall not be necessary to give any
notice, other than such notice as may be herein expressly required in this
Agreement or in any Loan Document.
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ARTICLE VII
THE AGENT; RELATIONS AMONG BANKS AND BORROWER
SECTION 7.01. APPOINTMENT, POWERS AND IMMUNITIES OF AGENT. Each Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under any other Loan Document with such powers as are specifically delegated to
the Agent by the terms of this Agreement and any other Loan Document, together
with such other powers as are reasonably incidental thereto. The Agent shall
have no duties or responsibilities except those expressly set forth in this
Agreement and any other Loan Document, and shall not by reason of this Agreement
be a trustee or fiduciary for any Bank. The Agent shall not be responsible to
the Banks for any recitals, statements, representations or warranties made by
the Borrower or the Guarantors, or any officer or official of the Borrower or
Guarantors, or any of them, or any other Person contained in this Agreement or
any other Loan Document, or in any certificate or other document or instrument
referred to or provided for in, or received by any of them under, this Agreement
or any other Loan Document, or for the value, legality, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or any other document or instrument referred to or provided for herein
or therein, except as explicitly provided herein, or for the failure by the
Borrower, the Guarantors, or any of them to perform any of their or its
respective obligations hereunder or thereunder. The Agent may employ agents and
attorneys-in-fact and shall not be responsible, except as to money or securities
received by it or its authorized agents, for the negligence or misconduct of any
such agents or attorneys-in-fact selected by it with reasonable care. Except as
otherwise explicitly provided herein, neither the Agent nor any of its
directors, officers, employees or agents shall be liable or responsible to any
Bank for any action taken or omitted to be taken by it or them hereunder or
under any other Loan Document or in connection herewith or therewith, except for
its or their own gross negligence or wilful misconduct. The Borrower shall pay
any fee agreed to in writing by the Borrower and the Agent with respect to the
Agent's services hereunder.
SECTION 7.02. RELIANCE BY AGENT. The Agent shall be entitled to rely upon
any certification, notice or other communication (including any thereof by
telephone, telex, telegram or cable) believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal counsel, independent accountants and
other experts selected by the Agent with reasonable care. The Agent may deem and
treat each Bank as the holder of the Loans made by it for all purposes hereof
unless and until a notice of the permitted transfer thereof satisfactory to, the
Agent signed by such Bank shall have been furnished to the Agent but the Agent
shall not be required to deal with any Person who has acquired a participation
in any Loan from a Bank. As to any matters not expressly provided for by this
Agreement or any other Loan
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Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions signed by the
Required Banks, and such instructions of the Required Banks and any action taken
or failure to act pursuant thereto shall be binding on all of the Banks and any
other holder of all or any portion of any Loan.
SECTION 7.03. DEFAULTS. The Agent shall not be deemed to have knowledge of
the occurrence of a Default or Event of Default (other than the non-payment of
principal of or interest on the Loans) unless the Agent has actual knowledge of
any Default or Event of Default or has received notice from a Bank or the
Borrower specifying such Default or Event of Default and stating that such
notice is a "Notice of Default." In the event that the Agent receives such a
notice of, or otherwise has actual knowledge of the occurrence of a Default or
Event of Default, the Agent shall give prompt notice thereof to the Banks (and
shall give each Bank prompt notice of each such non-payment). The Agent shall
(subject to Section 7.08) take such action with respect to such Default or Event
of Default which is continuing as shall be directed by the Required Banks;
provided that, unless and until the Agent shall have received such directions,
the Agent may take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interest of the Banks; and provided further that the Agent shall not be required
to take any such action which it determines to be contrary to law.
SECTION 7.04. RIGHTS OF AGENT AS A BANK. With respect to the Loans made by
it, the Agent in its capacity as a Bank hereunder shall have the same rights and
powers hereunder as any other Bank and may exercise the same as though it were
not acting as the Agent, and the term "Bank" or "Banks" shall, unless the
context otherwise indicates, include the Agent in its capacity as a Bank. The
Agent or any Bank and their respective Affiliates may (without having to account
therefor to any other Bank except as otherwise expressly provided in this
Agreement) accept deposits from, lend money to (on a secured or unsecured
basis), and generally engage in any kind of banking, trust or other business
with, the Borrower, the Guarantors or any of them (and any of their Affiliates);
provided that no payment or lien priority shall be given to the Agent or to any
Bank for any other transaction without the express written approval of all of
the other Banks. In the case of EAB, it may do so as if it were not acting as
the Agent, and the Agent may accept fees and other consideration from the
Borrower, the Guarantors or any of them for services in connection with this
Agreement or otherwise without having to account for the same to the Banks.
Although the Agent or a Bank or any of their respective Affiliates may in the
course of such relationships and relationships with other Persons acquire
information about the Borrower, the Guarantors, their Affiliates and such other
Persons, neither the Agent nor such Bank shall have any duty to the other Banks
or the Agent to disclose such information to the other Banks or the Agent except
as otherwise provided herein with respect to the occurrence of an Event of
Default.
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SECTION 7.05. INDEMNIFICATION OF AGENT. The Banks agree to indemnify the
Agent (to the extent not reimbursed under Section 8.04 or under the applicable
provisions of any other Loan Document, but without limiting the obligations of
the Borrower and Guarantors under Section 8.04 or such provisions), ratably in
accordance with their respective percentages of the Total Commitment (without
giving effect to any participation in all or any portion of the Total Commitment
sold by them to any other Person), for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of this Agreement, any other Loan Document or any other documents contemplated
by or referred to herein or the transactions contemplated hereby or thereby
(including, without limitation, the costs and expenses which the Borrower and
Guarantors are obligated to pay under Section 8.04 or under the applicable
provisions of any other Loan Document but excluding, unless a Default or Event
of Default has occurred, normal administrative costs and expenses incidental to
the performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents or instruments; provided
that no Bank shall be liable for any of the foregoing to the extent they arise
from the gross negligence or wilful misconduct of the party to be indemnified.
SECTION 7.06. DOCUMENTS. It is the responsibility of the Borrower to
forward to each Bank, on or before the due dates set forth herein, a copy of
each report, notice or other document required by this Agreement or any other
Loan Document to be delivered to the Agent. The Agent is not responsible for
forwarding such information to the Banks.
SECTION 7.07. NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank agrees that
it has, independently and without reliance on the Agent or any other Bank, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of the Borrower, the Guarantors and their Subsidiaries and
decision to enter into this Agreement and that it will, independently and
without reliance upon the Agent or any other Bank, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement
or any other Loan Document. The Agent shall not be required to keep itself
informed as to the performance or observance by the Borrower or Guarantors of
this Agreement or any other Loan Document or any other document referred to or
provided for herein or therein or to inspect the properties or books of the
Borrower, the Guarantors or any Subsidiary. Except for notices, reports and
other documents and information expressly required to be furnished to the Banks
by the Agent hereunder, the Agent shall not have any duty or responsibility to
any other Bank to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of the Borrower, the
Guarantors or any Subsidiary (or any of their Affiliates) which may come into
the
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possession of the Agent or of its Affiliates. The Agent shall not be required to
file this Agreement, any other Loan Document or any document or instrument
referred to herein or therein, or record or give notice of this Agreement, any
other Loan Document or any document or instrument referred to herein or therein,
to any Person.
SECTION 7.08. FAILURE OF AGENT TO ACT. Except for action expressly required
of the Agent hereunder, the Agent shall in all cases be fully justified in
failing or refusing to act hereunder unless it shall have received further
assurances (which may include cash collateral) of the indemnification
obligations of the Banks under Section 7.05 in respect of any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action.
SECTION 7.09. RESIGNATION OF AGENT. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving written notice thereof to the Banks and the Borrower. Upon any
such resignation, the Required Banks shall have the right to appoint a successor
Agent which shall have an office in New York State and shall be subject to the
reasonable approval of the Borrower. If no successor Agent shall have been so
appointed by the Required Banks and shall have accepted such appointment within
30 days after the retiring Agent's giving of notice of resignation, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent, which
shall be a bank which has an office in New York, New York. The Required Banks or
the retiring Agent, as the case may be, shall upon the appointment of a
Successor Agent promptly so notify the Borrower, the Guarantors and the other
Banks. Upon the acceptance of any appointment as Agent hereunder by a successor
Agent, such successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations hereunder.
After any retiring Agent's resignation as Agent, the provisions of this Article
7 shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent.
SECTION 7.10. AMENDMENTS CONCERNING AGENCY FUNCTION. The Agent shall not be
bound by any waiver, amendment, supplement or modification of this Agreement or
any other Loan Document which affects its duties hereunder or thereunder unless
it shall have given its prior written consent thereto.
SECTION 7.11. LIABILITY OF AGENT. The Agent shall not have any liabilities
or responsibilities to the Borrower, the Guarantors or any of them on account of
the failure of any Bank to perform its obligations hereunder or to any Bank on
account of the failure of the Borrower, the Guarantors or any of them to perform
their or its obligations hereunder or under any other Loan Document.
SECTION 7.12. TRANSFER OF AGENCY FUNCTION. Without the consent of the
Borrower, the Guarantors or any Bank, the Agent may
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at any time or from time to time transfer its functions as Agent hereunder to
any of its offices wherever located, provided that the Agent shall promptly
notify the Borrower, the Guarantors and the Banks thereof.
SECTION 7.13. WITHHOLDING TAXES. Each Bank represents that it is entitled
to receive any payments to be made to it hereunder without the withholding of
any tax and will furnish to the Agent such forms, certifications, statements and
other documents as the Agent may request from time to time to evidence such
Bank's exemption from the withholding of any tax imposed by any jurisdiction or
to enable the Agent to comply with any applicable laws or regulations relating
thereto. Without limiting the effect of the foregoing, if any Bank is not
created or organized under the laws of the United States of America or any state
thereof, in the event that the payment of interest by the Borrower is treated
for U.S. income tax purposes as derived in whole or in part from sources from
within the U.S., such Bank will furnish to the Agent Form 4224 or Form 1001 of
the Internal Revenue Service, or such other forms, certifications, statements or
documents, duly executed and completed by such Bank as evidence of such Bank's
exemption from the withholding of U.S. tax with respect thereto. The Agent shall
not be obligated to make any payments hereunder to such Bank in respect of any
Loan until such Bank shall have furnished to the Agent the requested form,
certification, statement or document.
SECTION 7.14. SEVERAL OBLIGATIONS AND RIGHTS OF BANKS. The failure of any
Bank to make any Loan to be made by it on the date specified therefor shall not
relieve any other Bank of its obligation to make its Loan on such date, but no
Bank shall be responsible for the failure of any other Bank to make a Loan to be
made by such other Bank.
SECTION 7.15. PRO RATA TREATMENT OF LOANS, ETC. Except to the extent
otherwise provided, each prepayment and payment of principal of or interest on
Loans of a particular type and a particular Interest Period shall be made to the
Agent for the account of the Banks holding Loans of such type and Interest
Period pro rata in accordance with the respective unpaid principal amounts of
such Loans of such Interest Period held by such Banks.
SECTION 7.16. SHARING OF PAYMENTS AMONG BANKS. If a Bank shall obtain
payment of any principal of or interest on any Loan made by it through the
exercise of any right of setoff, banker's lien, counterclaim, or by any other
means, it shall share such payment with the other Banks and the amount of such
payment shall be applied to reduce the Loans of all the Banks pro rata in
accordance with the unpaid principal on the Loans held by each of them, and make
such other adjustments from time to time as shall be equitable to the end that
all the Banks shall share the benefit of such payment (net of any expenses which
may be incurred by such Bank in obtaining or preserving such benefit) pro rata
in accordance with the unpaid principal and interest on the Loans held by each
of them. To such end the Banks shall make appropriate adjustments among
themselves if such payment is rescinded or must
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otherwise be restored. Nothing contained herein shall require any Bank to
exercise any such right or shall affect the right of any Bank to exercise, and
retain the benefits of exercising, any such right with respect to any other
indebtedness of the Borrower. Notwithstanding the foregoing or any other
provision of this Agreement, no right or remedy of any Bank relating to any
assets of the Borrower (including real property, improvements or fixtures) not
covered by this Agreement or the Loan Documents shall in any way be affected by
this Agreement or otherwise with respect to any other indebtedness of the
Borrower to any of the Banks.
SECTION 7.17. NONRECEIPT OF FUNDS BY AGENT. Unless the Agent shall have
received notice from a Bank prior to the date on which such Bank is to provide
funds to the Agent for a Loan to be made by such Bank that such Bank will not
make available to the Agent such funds, the Agent may assume that such Bank has
made such funds available to the Agent on the date of such Loan, and the Agent
in its sole discretion may, but shall not be obligated to, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent that such Bank shall not have so made such funds available
to the Agent, such Bank agrees to repay to the Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Agent, at the customary rate set by the Agent for the correction
of errors among banks for three Business Days and thereafter at the Prime Rate.
If such Bank shall repay to the Agent such corresponding amount, such amount so
repaid shall constitute such Bank's Loan for purposes of this Agreement. If such
Bank does not pay such corresponding amount forthwith upon Agent's demand
therefor, the Agent shall promptly notify the Borrower, and the Borrower shall
immediately pay such corresponding amount to the Agent with interest thereon,
for each day from the date such amount is made available to the Borrower until
the date such amount is repaid to the Agent, at the rate of interest applicable
at the time to such proposed Loan.
Unless the Agent shall have received notice from the Borrower prior to the
date on which any payment is due to the Banks hereunder that the Borrower will
not make such payment in full, the Agent may assume that the Borrower has made
such payment in full to the Agent on such date and the Agent in its sole
discretion may, but shall not be obligated to, in reliance upon such assumption,
cause to be distributed to each Bank on such due date an amount equal to the
amount then due such Bank. If and to the extent the Borrower shall not have so
made such payment in full to the Agent, each Bank shall repay to the Agent
forthwith on demand such amount distributed to such Bank together with interest
thereon, for each day from the date such amount is distributed to such Bank
until the date such Bank repays such amount to the Agent, at the customary rate
set by the Agent for the correction of errors among banks for three Business
Days and thereafter at the Prime Rate.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. AMENDMENTS. Etc. Except as otherwise expressly provided in
this Agreement, any provision of this Agreement may be amended or modified only
by an instrument in writing signed by the Borrower, the Guarantors, the Agent
and the Required Banks, and any provision of this Agreement may be waived by the
Borrower (if such provision requires performance by the Agent or the Banks) or
by the Agent acting with the consent of the Required Banks (if such provision
requires performance by the Borrower); provided that no amendment, modification
or waiver shall, unless by an instrument signed by all of the Banks or by the
Agent acting with the consent of all of the Banks: (a) increase or extend the
term of the Revolving Credit Commitment or the Total Commitment or the Loans,
(b) extend the date fixed for the payment of principal of or interest on any
Loan, (c) reduce the amount of any payment of principal thereof or the rate at
which interest is payable thereon or any fee payable hereunder, (d) alter the
terms of this Section 8.01, (e) amend the definition of the term "Required
Banks", (f) change the fees payable to any Bank except as otherwise provided
herein, (g) permit the Borrower to transfer or assign any of its obligations
hereunder or under the Loan Documents, (h) amend the provisions of Article 7
hereof, (i) release the Individual Guarantor from his Guaranty or amend any of
the provisions thereof, (j) release any Guarantor from its Guaranty or amend any
of the provisions thereof, (k) give any payment priority to any Person
(including any of the Banks) over amounts due in connection with the Loans, or
(l) release any Collateral (other than as permitted by the Security Agreement).
No failure on the part of the Agent or any Bank to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof or preclude
any other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
SECTION 8.02. NOTICES, ETC. All notices and other communications provided
for hereunder shall be in writing (including telegraphic communication) and
mailed via certified mail, telegraphed, sent by overnight mail delivery service,
sent by facsimile or delivered, if to the Borrower or any Guarantor, at the
address of the Borrower or Guarantor, as the case may be, set forth at the
beginning of this Agreement with a copy to Martin Bring, Esq. of Lowenthal,
Landau, Fisher and Bring, P.C., 250 Park Avenue, New York, New York 10177 and if
to the Agent or any Bank, at the address of the Agent or such Bank set forth at
the beginning of this Agreement to the attention of Gristede's Sloan's, Inc.
Account Officer, or, as to each party, at such other address as shall be
designated by such party in a written notice complying as to delivery with the
terms of this Section 8.02 to the other parties. All such notices and
communications shall be effective when mailed, telegraphed or delivered, except
that notices to the Bank shall not be effective until received by the Bank.
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SECTION 8.03. NO WAIVER, REMEDIES. No failure on the part of the Agent or
any Bank to exercise, and no delay in exercising, any right, power or remedy
under any Loan Document, shall operate as a waiver thereof; nor shall any single
or partial exercise of any right under any Loan Document preclude any other or
further exercise thereof or the exercise of any other right. The remedies
provided in the Loan Documents are cumulative and not exclusive of any remedies
provided by law.
SECTION 8.04. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on
demand all reasonable, out of pocket costs and expenses of the Agent in
connection with the preparation, execution, delivery and administration of this
Agreement, the Notes and any other Loan Documents, including, without
limitation, the reasonable fees and expenses of counsel for the Agent with
respect thereto and with respect to advising the Banks as to their respective
rights and responsibilities under this Agreement, and all costs and expenses, if
any (including reasonable counsel fees and expenses), in connection with the
enforcement of this Agreement, the Notes and any other Loan Documents. The
Borrower shall at all times protect, indemnify, defend and save harmless the
Agent and the Banks from and against any and all claims, actions, suits and
other legal proceedings, and liabilities, obligations, losses, damages,
penalties, judgments, costs, expenses or disbursements which the Agent or the
Banks may, at any time, sustain or incur by reason of or in consequence of or
arising out of the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby. The Borrower acknowledges that it is
the intention of the parties hereto that this Agreement shall be construed and
applied to protect and indemnify the Agent and the Banks against any and all
risks involved in the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, all of which risks are
hereby assumed by the Borrower, including, without limitation, any and all risks
of the acts or omissions, whether rightful or wrongful, of any present or future
de jure or de facto government or governmental authority, provided that the
Borrower shall not be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Agent or any Bank's gross negligence or willful
misconduct. The provisions of this Section 8.04 shall survive the payment of the
Notes and the termination of this Agreement.
SECTION 8.05. RIGHT OF SET-OFF. Upon (i) the occurrence and during the
continuance of any Event of Default and (ii) the declaration of the making of
the Notes due and payable pursuant to the provisions of Section 6.02, the Banks
each are hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by the Banks to or for the credit or the account
of the Borrower or any Guarantor against any and all of the obligations of the
Borrower or any Guarantor now or hereafter existing under this Agreement and the
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Notes, irrespective of whether or not the Agent or the Banks shall have made any
demand under this Agreement or the Term Loan Notes and although such obligations
may be unmatured. The rights of the Banks under this Section are in addition to
all other rights and remedies (including, without limitation, other rights of
set-off) which the Agent and the Banks may have.
SECTION 8.06. BINDING EFFECT. This Agreement shall become effective when it
shall have been executed by the Borrower, the Guarantors, the Agent and the
Banks.
SECTION 8.07. SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower may not assign or
otherwise transfer any of its rights under this Agreement without the prior
written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Pro Rata
Share of the Commitment or any or all of its Loans. In the event of any such
grant by a Bank of a participating interest to a Participant, whether or not
upon notice to the Borrower and the Agent, such Bank shall remain responsible
for the performance of its obligations hereunder, and the Borrower and the Agent
shall continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement. Any agreement pursuant
to which any Bank may grant such a participating interest shall provide that
such Bank shall retain the sole right and responsibility to enforce the
obligations of the Borrower hereunder including, without limitation, the right
to approve any amendment, modification or waiver of any provision of this
Agreement. An assignment or other transfer which is not permitted by subsection
(c) or (d) below shall be given effect for purposes of this Agreement only to
the extent of a participating interest granted in accordance with this
subsection (b).
(c) (i) Any Bank may at any time assign to one or more banks or other
institutions (each an"Assignee") all, or a proportionate part (equivalent to an
initial Commitment of not less than $4,000,000) of all, of its rights and
obligations under this Agreement and the Notes, and such Assignee shall assume
such rights and obligations, pursuant to an Assignment and Assumption Agreement
in substantially the form of Exhibit D hereto executed by such Assignee and such
transferor Bank, with, so long as no Default or Event of Default has occurred
and is continuing, (and subject to) the subscribed consent of the Borrower,
which shall not be unreasonably withheld, and the Agent; provided that if an
Assignee is an affiliate of such transferor Bank, no such consent shall be
required. Upon execution and delivery of such instrument and payment by such
Assignee to such transferor Bank of an amount equal to the purchase price agreed
between such transferor bank and such Assignee, such Assignee shall be a Bank
party to this Agreement and shall have all the rights and obligations of a Bank
with a Commitment as set forth in such instrument of assumption, and the
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transferor Bank shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any party shall be
required.
(ii) Upon the consummation of any assignment pursuant to this
subsection (c), the transferor Bank, the Agent and the Borrower shall make
appropriate arrangements so that, if required, a new Note or Notes is issued to
the Assignee. In connection with any such assignment, the transferor Bank shall
pay to the Agent an administrative fee for processing such assignment in the
amount of $3,500.00. If the Assignee is not incorporated under the laws of the
United States of America or a state thereof, it shall deliver to the Borrower
and the Agent certification as to exemption from deduction or withholding of any
Unites States federal income taxes in accordance with Section 7.13.
(d) Any Bank may at any time assign all or any portion of its rights under
this Agreement and its Notes to a Federal Reserve Bank. No such assignment shall
release the transferor Bank from its obligations hereunder.
SECTION 8.08. FURTHER ASSURANCES. The Borrower and each Guarantor agree at
any time and from time to time at its expense, upon request of the Agent, the
Banks or their respective counsel, to promptly execute, deliver, or obtain or
cause to be executed, delivered or obtained any and all further instruments and
documents and to take or cause to be taken all such other action the Agent or
any Bank may reasonably deem desirable in obtaining the full benefits of this
Agreement.
SECTION 8.09. SECTION HEADINGS, SEVERABILITY, ENTIRE AGREEMENT. Section and
subsection headings have been inserted herein for convenience only and shall not
be construed as part of this Agreement. Every provision of this Agreement and
each Loan Document is intended to be severable; if any term or provision of this
Agreement, any Loan Document, or any other document delivered in connection
herewith shall be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions hereof or
thereof shall not in any way be affected or impaired thereby. All exhibits and
schedules to this Agreement shall be annexed hereto and shall be deemed to be
part of this Agreement. This Agreement and the exhibits and schedules attached
hereto embody the entire Agreement and understanding between the Borrower, the
Guarantors, the Agent and the Banks and supersede all prior agreements and
understandings relating to the subject matter hereof provided, however, that to
the extent that the provisions of the Commitment Letter and/or the Fee Letter
are not inconsistent with the provisions of this Agreement and the other Loan
Documents but are cumulative with respect thereto, such provisions of the
Commitment Letter and the Fee Letter shall survive the execution and delivery of
this Agreement.
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SECTION 8.10. GOVERNING LAW. This Agreement, the Notes and all other Loan
Documents shall be governed by, and construed in accordance with, the laws of
the State of New York.
SECTION 8.11. WAIVER OF JURY TRIAL. The Borrower, each Guarantor, the Agent
and the Banks waive all rights to trial by jury on any cause of action directly
or indirectly involving the terms, covenants or conditions of this Agreement or
any Loan Document.
SECTION 8.12. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts and by different 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
EUROPEAN AMERICAN BANK, as Agent
By: /s/ Kevin Lord
--------------------------
Kevin Lord
Vice President
EUROPEAN AMERICAN BANK
By: /s/ Kevin Lord
--------------------------
Kevin Lord
Vice President
ISRAEL DISCOUNT BANK OF NEW YORK
By: /s/ Lisa L. Ba
--------------------------
Name: Lida L. Ba
Title: Senior Vice President
By: /s/ Scott Fishbein
--------------------------
Name: Scott Fishbein
Title: Vice President
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KEYBANK NATIONAL ASSOCIATION
By: /s/ Joseph F. Burns
--------------------------
Name: Joseph F. Burns
Title: Vice President
BANK LEUMI TRUST COMPANY OF NEW YORK
By: /s/ Richard Silverstein
--------------------------
Name: Richard Silverstein
Title: First Vice President
By: /s/ John Koenigsberg
--------------------------
Name: John Koenigsberg
Title: Vice President
GRISTEDE'S SLOAN'S, INC.
By: /s/ John Catsimatidis
--------------------------
John Catsimatidis
Chief Executive Officer
CITY PRODUCE OPERATING CORP.
By: /s/ John Catsimatidis
--------------------------
John Catsimatidis
President
GRISTEDE'S OPERATING CORP.
By: /s/ John Catsimatidis
--------------------------
John Catsimatidis
President
NAMDOR INC.
By: /s/ John Catsimatidis
--------------------------
John Catsimatidis
President
RAS OPERATING CORP.
By: /s/ John Catsimatidis
--------------------------
John Catsimatidis
President
SAC OPERATING CORP.
By: /s/ John Catsimatidis
--------------------------
John Catsimatidis
President
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EXHIBIT 10.7
NAMDOR INC.
823 Eleventh Avenue
New York, New York 10019
November 10, 1997
G Remainder Corp.
S Remainder Corp.
823 Eleventh Avenue
New York, New York 10019
Gentlemen:
This Agreement sets forth certain consulting and managerial services
that are to be performed by Namdor Inc. (the "Company") for the benefit of G
Remainder Corp. ("G Corp.") and S Remainder Corp. ("S Corp."). Reference to the
"Managed Stores" shall be deemed to mean the supermarkets identified in Exhibit
A attached hereto.
Each of G Corp. and S Corp. (individually referred to as an "Owner" and
collectively referred to as the "Owners") desires that the Company perform
certain consulting and management services on behalf of the Managed Stores owned
by such Owner. The Company hereby agrees to render certain consulting and
managerial services (hereinafter collectively referred to as the "Management
Services") in the management and operation of the Managed Stores, subject to the
terms and conditions as hereinafter set forth.
In performing the Management Services, the Company shall have, and is
hereby granted, full and complete authority, subject to the policy decisions and
goals prescribed by the Owners, to manage the Managed Stores under the name
"Sloan's" or "Gristede's" or under such other name as G Corp. shall from time to
time deem appropriate, and to do everything and to take such action necessary
for the conduct of business in the Managed Stores and for the purchasing of
merchandise and equipment for the operation of the Managed Stores consistent
with the policy decisions and goals prescribed from time to time by the Owners.
By means of example and not of limitation, the Management Services shall include
the following:
- Supervising the operation of the Managed Stores, including, but
not limited to, the following: purchasing inventory, merchandise
and equipment for the Managed Stores in the ordinary course of
business; maintaining the operating books and accounting records
of the Managed Stores; conducting sale and promotional
activities; and supervising all merchandising and advertising
activities, all in the ordinary course of business;
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- Supervising the hiring and firing of employees, agents, and the
dealing with independent contractors as the Company shall deem
necessary, convenient, advantageous or proper to the operation
of the business at the Managed Stores;
- Applying for such licenses and permits as the Company may
determine to be necessary, convenient, advantageous or proper for
the operation of the Managed Stores;
- Implementing the selling prices and gross margin goals set by
the Owners from time to time in consultation with the Company,
all as may be deemed necessary, convenient, advantageous or
proper for the operation of the business at the Managed Stores;
- Negotiating and recommending to the Owners contracts for the
purchase, sale or disposition of merchandise and equipment at
retail or wholesale, upon such terms as the Company in
consultation with the Owners, shall determine to be necessary,
convenient, advantageous or proper.
- Negotiating and recommending to the Owners contracts of any type
and description for services that the Company in consultation
with the Owners may determine from time to time to be necessary,
convenient or advantageous to the operation of the business at
the Managed Stores.
- Negotiating and recommending to the Owners leases for personal
property and/or real property including, without limitation, for
the real property of which the Managed Stores form a part, all
as the Company in consultation with the Owners may determine
from time to time to be necessary, convenient, advantageous or
proper.
- Obtaining and maintaining insurance policies as the Company in
consultation with the Owners may deem necessary, convenient,
advantageous or proper for the operation of the business at the
Managed Stores, naming itself and the Owners as insured parties.
- To perform such other Management Services as the Owners may from
time to time request for the operation of the business at the
Managed Stores.
In performing the Management Services, the Company shall use such
management and marketing methods as it may deem advisable or appropriate from
time to time. The Company shall report to the Owners on a regular weekly basis,
and at such other times as the Owners may determine. In consultation with the
Owners, the Company may determine what merchandise and equipment shall be
purchased, from whom the merchandise and equipment may be purchased, and where
such merchandise and equipment shall be stored, warehoused, distributed, sold,
or otherwise disposed. In the absence of any showing of gross negligence or
willful misconduct, the Company, its directors, officers, employees, agents and
affiliates shall be deemed to be released from, and is hereby released from, any
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liability resulting from its performance of the Management Services.
The Company agrees that all monies belonging to the Owners, bank
accounts and/or savings accounts maintained in the Company's own name on behalf
of the Owners and/or in the name of the Owners will be kept separate from and
will not be commingled with monies and/or accounts of the Company, the Owners
and/or any other company.
The Owners hereby agrees to indemnify, defend and hold harmless the
Company, its directors, officers, employees, agents and affiliates and their
successors and assigns, from and against all claims, actions or causes of
action, assessments, demands, losses, damages, judgments, settlements,
liabilities, costs and expenses, including, without limitation, costs and legal
or other expenses for investigating or defending any action or threatened
actions, interest, penalties, and reasonable attorneys' fees and expenses of any
nature whatsoever, whether actual or consequential (collectively, "Damages")
asserted against, resulting to, imposed upon or incurred by the Company,
directly or indirectly, by reason of the Company's performance of the Management
Services, except that the Owners shall be responsible for any Damages directly
resulting from the gross negligence or willful misconduct of the Company, its
directors, officers, employees, agents and affiliates. The Company, on one hand,
and the Owners, on the other hand, shall promptly notify the other or others of
the existence of any claim, demand or other matter to which the indemnification
obligations may apply. The Company shall give the Owners reasonable opportunity
to defend the same at its own expense and with counsel of its own selection;
provided that the Company may participate in such defense with its own counsel
at its own expense.
In consideration of the Company's performance of the Management
Services, the Owners shall pay to the Company an amount equal to one and
one-quarter percent (1-1/4%) of all sales of inventory and merchandise made at,
in or from the Managed Stores owned by the Owners (hereinafter referred to as
the "Management Fee"). Within thirty (30) days following the end of each three
(3) month period commencing December 31, 1997, payment of the Management Fee for
such partial period shall be paid to the Company.
The Company may, at any reasonable time and from time to time during
the term of this Agreement, and for a period of six (6) months following the
termination of this Agreement for any cause whatsoever, audit the books and
records of the Owners pertaining to all sales made at, in or from the Managed
Stores. The Owners shall cooperate with the Company and shall make all such
books and records available to the Company. If any audit discloses that an Owner
understated the amount of sales and/or underpaid the Management Fee due, such
Owner shall pay to the Company the amount due within seven (7) days after the
Company demands payment thereof, together with interest at the highest rate
permitted by law. In the event any audit discloses an error in excess of two
percent (2%), the applicable Owner shall also pay the Company the cost of the
audit within seven (7) days after demand therefor.
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In addition to payment of the Management Fee, each Owner shall
reimburse the Company for any and all reasonable expenses incurred and/or paid
for by the Company relating in any way to the rendering of the Management
Services to such Owner. Said reimbursement shall be made within (7) days
following receipt of notice requesting same.
This Agreement shall commence on November 3, 1997 (the "Effective
Date") and shall end on the first anniversary of the Effective Date; provided,
however, that the term of this Agreement shall automatically be extended as to
the Company and each Owner for additional one year periods unless either the
Company or such Owner shall have given the other notice that it does not wish to
extend this Agreement not later than ninety (90) days prior to the end of the
then current term. The giving of such notice by or to one Owner shall not affect
the term of the Agreement as to the other Owner.
Wherever in this Agreement the Company has the right or obligation to
take any action for or on behalf of itself and/or any Owner, including, without
limitation, the filing of applications for licenses and permits, the Company is
hereby granted the right to take said action or perform said obligation in its
own name and/or that of the Owner. Each Owner shall fully cooperate with the
Company and in furtherance of the foregoing shall, without limitation, furnish
on a timely basis such data, documents, information and assistance and make such
appearances as may be required by the Company. If any such action may only be
taken and maintained, or any such obligation may only be performed, by an Owner,
then such Owner shall do so at the request of the Company.
The terms and conditions of this Agreement shall inure to the
successors and assigns of the Company and each of the Owners.
This Agreement constitutes the entire agreement between the Owners and
the Company concerning Management Services to be performed by the Company for
and on behalf of the Owners and shall be deemed to supersede and replace all
prior agreements, understandings and undertakings, whether oral or written.
If this Agreement correctly expresses your understanding of the terms
and conditions under and by which Management Services will continue to be
performed by the Company, kindly so indicate by signing all of the enclosed
copies and by returning two (2) fully executed copies to the attention of Stuart
Spivak at the Company at the address indicated on this letterhead.
Very truly yours,
NAMDOR INC.
By: /s/ John A. Catsimatidis
--------------------------
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This 10th day of November, 1997, each of the undersigned hereby acknowledges and
agrees to the foregoing terms and conditions.
G REMAINDER CORP.
By: /s/ John A. Catsimatidis
--------------------------
John A. Catsimatidis
Chairman of the Board
S REMAINDER CORP.
By: /s/ John A. Catsimatidis
--------------------------
John A. Catsimatidis
Chairman of the Board
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EXHIBIT A
List of Managed Stores
----------------------
1644 York Avenue, New York, New York
105 East 39th Street, New York, New York
8 East 48th Street, New York, New York
1350 First Avenue, New York, New York
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EXHIBIT 10.8
ASSET PURCHASE AGREEMENT
This AGREEMENT, dated February 6, 1998, is made by and between G
REMAINDER CORP., a New York corporation, with its principal executive offices at
823 Eleventh Avenue, New York, New York 10019-3535 ("Seller") and GRISTEDE'S
OPERATING CORP., a New York corporation, with its principal executive offices at
823 Eleventh Avenue, New York, New York 10019-3535 ("Buyer").
W I T N E S S E T H :
I. Definitions.
When used in this Agreement, the following terms shall have the meanings
specified:
Agreement. "Agreement" shall mean this Asset Purchase Agreement, together
with the Exhibits attached hereto, as the same shall be amended from time to
time in accordance with the terms hereof which Exhibits are herein incorporated
by reference.
Assumed Capex Liabilities. "Assumed Capex Liabilities" shall mean those
outstanding liabilities set forth on Schedule 1A attached hereto which were
incurred in connection with the refurbishment of the Store during the period
from August 1, 1997 to February 6, 1998.
Assumed Liabilities. "Assumed Liabilities" shall mean only those
liabilities, obligations, duties, expenses and costs of the Seller which the
Buyer shall assume and which are listed on Schedule 1B attached hereto.
Base Purchase Price. "Base Purchase Price" shall mean the amount computed
in accordance with Schedule 2 attached hereto.
<PAGE>
Bill of Sale. "Bill of Sale" shall mean the Bill of Sale, in the form of
Exhibit A attached hereto, by which the Seller conveys to the Buyer good and
marketable title to the Fixed Assets, the Licenses, the Records and the
Inventory free and clear of all liens and encumbrances.
Buyer. "Buyer" shall mean Gristede's Operating Corp., a New York
corporation.
Closing. "Closing" shall mean the conference to be held at 10:00 A.M., New
York, New York time, on the Closing Date or at such other time and at such place
as the parties shall agree, at which the transactions contemplated by this
Agreement shall be consummated.
Closing Date. "Closing Date" shall mean the date the Closing shall occur
pursuant to Section 11 of this Agreement.
Code. "Code" shall mean the Internal Revenue Code of 1986, as amended.
Contracts. "Contracts" shall mean those, but only those agreements,
service, utility and maintenance contracts, commitments, purchase orders and
work orders in connection with the business of operating the Stores listed on
Schedule 3 to this Agreement (and any other contracts pertaining to either the
equipment located in any Store or to the provision of services to the Store)
which the Buyer shall assume from and after the Closing Date.
Contract Assignment. "Contract Assignment" shall mean the Assignment and
Assumption of Contracts, in the form of Exhibit B attached hereto, by which the
Seller assigns the Contracts to the Buyer and the Buyer assumes the obligations
of the Seller under the Contracts from and after the Closing Date.
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Employee Plans. "Employee Plans" shall mean the employee benefit plans,
including, but not limited to, any bonus, profit sharing, retirement, stock
purchase, stock option, flexible compensation, hospitalization, medical
insurance, severance and pension plans established and maintained by the Seller
pursuant to the Union Contracts, or otherwise, a complete list of which is set
forth on Schedule 4.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
Fixed Assets. "Fixed Assets" shall mean all machinery, equipment,
furniture, fixtures, leasehold improvements and other items of tangible personal
property located at or used in the operation of the Store on the Closing Date
(whether or not owned by the Seller on the date hereof), including, but not
limited to, those items listed on Schedule 5 hereto and including transferable
warranties, if any, pertaining thereto.
Inventory. "Inventory" shall mean all inventory of supplies and all
inventory of merchandise owned by the Seller and located at the Store for sale
to customers in the ordinary course of business as of the Closing Date.
Inventory Value. "Inventory Value" shall mean the value of the Inventory
which shall equal the amount of Trade Payables attributable to the purchase of
the Inventory by the Seller.
Laws. "Laws" shall have the meaning set forth in Section 8.7.
Licenses. "Licenses" shall mean all transferable licenses, permits,
certificates, approvals, authorizations, variances and consents issued or
granted by governmental and quasi-governmental bodies, officers and authorities
in respect of the ownership, occupancy, use and operation of any of the
Purchased Assets, all of which licenses, permits, etc. are listed on Schedule 6
annexed hereto and made a part hereof. Licenses to sell
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alcoholic beverages are not listed on Schedule 6 and are not within the meaning
of the term "Licenses" because they are not transferable.
Lien. "Lien" shall mean any mortgage, lien, pledge, adverse claim, levy,
charge, security interest or other encumbrance in or on, or any interest or
title of any vendor, lessor, lender or other secured party to a party under any
conditional sale or other title retention agreement or lease in the nature
thereof with respect to any property or asset owned or held by such party.
Losses. "Losses" shall mean all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries and deficiencies, including
interest, penalties and reasonable attorneys' fees, incurred by a party to be
indemnified under Section 18 or 19, as the case may be.
MPPAA. "MPPAA" shall mean the Multiemployer Pension Plan Amendments Act of
1980, as amended.
PBGC. "PBGC" shall mean the Pension Benefit Guaranty Corporation.
Post-Closing Adjustment Date. "Post-Closing Adjustment Date" shall mean the
date which is 60 days after the Closing Date, on or by which certain adjustments
to the consideration to be paid by the Buyer pursuant to Section 3 of this
Agreement shall be made and paid.
Purchased Assets. "Purchased Assets" shall mean the Contracts, the Fixed
Assets, the Inventory, the Real Property Leases, the Licenses and the Records.
Purchase Price. "Purchase Price" shall mean the purchase price for the
Purchased Assets calculated in accordance with Section 3.1 hereof.
Real Property Lease. "Real Property Lease" shall mean all of the Seller's
right, title and interest in and to the Lease, dated June 1, 1986, between
Gristede's
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Supermarkets, Inc. ("GSI") and Betty Garsky and Joyce Gellis, as Trustees of a
Trust executed under the Last Will and Testament of Samuel Garsky, as amended by
a First Amendment and Extension of Lease, dated as of May 1, 1997, between 500A
East 87th Street, LLC, the successor in interest to the landlord, and GSI, and
as assigned to Seller on November 7, 1997.
Real Property Lease Assignment. "Real Property Lease Assignment" shall mean
the Assignment and Assumption of Real Property Lease in the form annexed hereto
as Exhibit C.
Records. "Records" shall mean those, but only those, books, documents and
records relating to the operation of the Store.
Seller. "Seller" shall mean G Remainder Corp., a New York corporation.
Store. "Store" shall mean the store located at 1644 York Avenue, New York,
New York.
Trade Payables. "Trade Payables" shall mean those trade payables of Seller
set forth on a list to be delivered to Buyer on or before the Post-Closing
Adjustment Date.
Union Contracts. "Union Contracts" shall mean those contracts listed on
Schedule 7 attached hereto.
V&S Obligations. "V&S Obligations" shall mean all accrued obligations of
the Seller to employees of the Store for vacation and sick pay as of the Closing
Date to be set forth on a list to be delivered to Buyer on or before the
Post-Closing Adjustment Date.
II. Purchase and Sale.
A. Subject to the terms and conditions hereof and in reliance upon the
representations and warranties contained in this Agreement, the Seller hereby
agrees to sell, transfer, convey, assign and deliver to the Buyer and the Buyer
agrees to purchase, acquire and assume from the Seller, effective as of the
Closing Date, all of the Purchased Assets.
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B. It is specifically understood and agreed that the Buyer is not
assuming any of the obligations, liabilities, costs or expenses of the Seller
other than the Assumed Liabilities. The Seller will pay, satisfy and/or
discharge all liens or other encumbrances, not expressly assumed by the Buyer
upon the business conducted at the Store or upon the Purchased Assets whether or
not such liens or encumbrances are filed or recorded prior to the Closing Date.
III. Consideration For Purchase.
A. The purchase price payable by the Buyer to the Seller for all of
the Purchased Assets (the "Purchase Price") shall be the difference between (a)
the Base Purchase Price and (b) the amount of the Assumed Capex Liabilities,
adjusted by any amounts to be credited or debited against such price in
accordance with other sections of this Agreement. The Base Purchase Price shall
be calculated in accordance with the procedure set forth in, and shall be
allocated in accordance with, Schedule 2 annexed hereto.
B. The Purchase Price shall be payable by the Buyer at such time and
by such method (cash, issuance to Seller of a note or other securities or any
combination of the foregoing) as shall be recommended by a committee of
independent directors of GSI and approved by the Board of Directors of GSI, John
Catsimatidis abstaining.
C. To the extent that the sum of the Trade Payables and V&S
Obligations assumed by the Buyer exceeds the Inventory Value the Purchase Price
shall be reduced dollar for dollar.
IV. Assignments, Subleases and Consents.
A. On the Closing Date, the Seller agrees to assign to Buyer and Buyer
agrees to assume from the Seller the Real Property Lease. Such assignment and
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assumption of Real Property Lease shall be effected at the Closing by Buyer and
the Seller joining in the execution of the Real Property Lease Assignment.
B. The Seller will use its best efforts to secure any required
consents to any assignment of the Real Property Lease to Buyer where such
consents are required by the terms of such Real Property Lease. The Seller will
use its best efforts to have the landlord under such Real Property Lease sign an
estoppel and consent letter in form and substance satisfactory to the Buyer. To
the extent that Buyer's cooperation is necessary or desirable to secure consent,
Buyer shall provide such cooperation including, but not limited to, providing
financial statements and other financial information and information regarding
its intended use or disposition of the Store to the lessor. However, Buyer shall
not be obligated to accept any change to a term or provision of the Real
Property Lease in order to receive any necessary consent.
C. On the Closing Date, the Seller agrees to assign to the Buyer each
Contract, and the Buyer agrees to assume from and after the Closing Date the
Seller's obligations under each Contract. Such assignment to the Buyer shall be
effected at the Closing by the Buyer and the Seller joining in the execution of
the Contract Assignment.
D. The Seller will use its best efforts to secure all consents to the
assignment to the Buyer of each Contract where such consent to assignment is
required by the terms of such Contract, or otherwise. It is further understood
by the Buyer that third parties may not consent to the assignment of Contracts
without the cooperation of the Buyer in providing financial information and/or
other information. If requested, such information shall be supplied to any such
third party by the Buyer. The Buyer shall not be obligated to accept any change
to a term or provision of a Contract in order to receive a consent to the
assignment thereof. If the Seller is unable to secure consent as aforesaid, the
Buyer may elect to take an
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assignment of such Contract or elect to take possession of the Store without
such Contract. The parties hereby agree that the assignment of the Real Property
Lease pertaining to the Store shall proceed notwithstanding the Seller's
inability to effectuate the assignment of any Contract relating to the Store.
V. Inventory. The Buyer and Seller agree that the Inventory Value shall
equal the value of all Trade Payables attributable to the purchase of the
Inventory by the Seller.
VI. Adjustments.
A. Subject to earlier determination and adjustment, on the
Post-Closing Adjustment Date, the real property taxes (including taxes paid
directly and by way of additional rent) and assessments relating to the Store
noticed of record prior to the Closing Date, personal property taxes, minimum
rent and additional rent (other than percentage rent), water, gas, electricity
and other utilities, common area maintenance reimbursements to lessors, local
business or other license fees or taxes, merchants association dues and like
charges, vending machine, video game machines and ride revenues, if any, shall
be prorated on a three hundred sixty (360) day basis as of the Closing Date. If
the real estate tax rate for the current tax year is not established by the
Closing Date, the prorations shall be made based on the basis of the rate in
effect for the prior tax year and then adjusted for the current year as soon as
the tax rate is established.
B. At the Closing, Buyer shall reimburse the Seller for the amount of
the security deposit with accrued interest, if any, to the landlord under the
Real Property Lease and the Seller shall assign to Buyer all rights to such
security deposit with accrued interest, if any. The Seller shall pre-pay rent
under the Real Property Lease and fees and other charges under each Contract
through the end of the calendar month or such other period in which the Closing
Date occurs, but the Buyer shall reimburse the Seller for such rent or fees
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and charges accrued from the Closing Date through the end of such month or such
other period as a part of the Post-Closing Adjustment Date proration described
in Section 6.1. The reimbursement shall be based on a 30-day month, i.e., the
Buyer shall reimburse the Seller in an amount equal to the prepaid rent times a
fraction, the numerator of which is the number of days from the Closing Date to
the 30th day of the month (regardless of how many actual days there are in the
month), inclusive, and the denominator of which is 30. The Seller shall request
final readings on all utilities as of the Closing Date and shall be responsible
for all utilities consumed prior to the Closing. If for any reason readings are
not made as of the Closing Date, then utility charges shall be prorated based
upon average daily utility charges reflected in the last statement for each
utility paid by the Seller.
VII. Risk of Loss. Until the Closing Date, all risk of loss of or damage to
the assets to be transferred or to be sold to the Buyer hereunder shall be borne
by the Seller. To the extent that the Real Property Lease and Contracts require
the Seller to maintain fire and extended coverage insurance, the Seller
represents that it maintains insurance covering its contractual obligations to
maintain the same.
VIII. Representations, Warranties and Agreements of the Seller. The Seller
represents, warrants, covenants and agrees that:
A. Title of Assets. The Seller has on the Closing Date good and
marketable title to all of the Fixed Assets (which are not leased), the Records,
the Licenses and the Inventory, free and clear of all Liens.
B. Taxes. The Seller shall pay or cause to be paid, before becoming
delinquent, all sales, use or other taxes and indebtedness owed or incurred by
the Seller as to any of the property or assets being conveyed hereunder, except
amounts being contested by the Seller in good faith or for which Seller has
provided adequate reserves for payment.
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C. Lease. The Real Property Lease, an original of which is being
delivered to the Buyer at the Closing, is true, accurate and complete and has
not been modified, amended or changed from its original terms; the Seller is not
now, nor, with the passage of time, will be, in default and has not received
notice of any default under the Real Property Lease, and on the Closing Date is
in substantial compliance with all of the terms and conditions of such Real
Property Leases on the part of the Seller to be performed or observed. The Real
Property Lease is on the Closing Date, in full force and effect in accordance
with its terms.
D. Notice of Condemnation. As of the date hereof, the Seller has
received no notice of any existing or proposed condemnation proceedings in
respect of all or any portion of any property relating to the Store which would
have a material adverse effect on the Seller's use of such leased premises.
E. Corporate Authority. The Seller has full corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby. The Board of Directors and the shareholder of the Seller
have taken all action required by law, the Seller's Certificate of
Incorporation, as amended, its By-Laws or otherwise to be taken by them to
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, and this Agreement is a valid and binding
agreement of the Seller enforceable in accordance with its terms, except that:
(1) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights; and
(2) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses
and to
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the discretion of the court before which any proceeding therefore may
be brought.
F. Consent of Third Parties. Subject to receipt of the consents and
approvals referred to in Section 4, the execution and delivery of this
Agreement, the performance by Seller of its obligations under this Agreement and
the documents contemplated hereunder and the consummation of the transactions
contemplated hereby or thereby will not (i) violate or conflict with the
Certificate of Incorporation or By-laws of Seller; (ii) conflict with, or result
in the breach or termination of, or constitute a default or require any
approval, waiver or consent under, any lease, agreement, commitment or other
instrument, or any order, judgment or decree, to which Seller is a party or by
which Seller or any of its properties is bound; or (iii) constitute a violation
of any Law (as defined in Section 8.7) applicable to Seller. No consent,
registration, application, approval, permit, license or authorization of, or
designation, declaration or filing with, any public or governmental authority is
required on the Seller's part in connection with the execution and delivery of
this Agreement and the documents contemplated hereunder and the consummation of
the transactions contemplated hereby and thereby.
G. Compliance with Laws. The business and operation of the Store has
been, and is, on the date hereof, being conducted in accordance with all
applicable laws, rules and regulations of all authorities ("Laws"), except those
which do not (either individually or in the aggregate) materially, adversely
affect the Store or its business. Performance of this Agreement will not result
in any breach of, or constitute a default under, or result in the imposition of,
any Lien or encumbrance upon the Store under any arrangement, agreement, lease
or other financial instrument to which the Seller is a party or by which it is
bound or affected and will not violate the Certificate of Incorporation, or the
By-Laws, of the Seller;
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provided, however, that no representation or warranty is given as to the effect
of the assignment of the Real Property Lease to the Buyer and/or the subsequent
operation of the Store by the Buyer without the parties having obtained any
required consent by the landlord to the Real Property Lease.
H. Contracts and Union Contracts. True, accurate and complete copies
of all of the Contracts and the Union Contracts have been furnished to the Buyer
or will be furnished to the Buyer prior to the Closing Date. Such Contracts and
Union Contracts have not been and, prior to the Closing Date, will not be,
amended, modified or changed, and are and as of the Closing Date, will be, in
full force and effect. There has been no claim of default under any Contract or
Union Contract by any party thereto which has not been cured and there exists no
event which alone, or with notice or the lapse of time or both, would constitute
a default under any Contract or Union Contract by any party thereto. All sums
due and payable under the Contracts up to the Closing Date have been or will be
paid in full prior to or on the Closing Date.
I. Work Stoppages. There are no current work stoppages, strikes or any
material violations of any Union Contracts with respect to the Store and none
which occurred within the past six (6) months.
J. Safety Violations. To the extent that the Seller has received any
notification from any governmental authority or is otherwise aware that it is in
material violation of any applicable health, sanitation, fire, environmental,
safety, building, zoning or other law, ordinance or regulation in respect of the
Store or the structures or equipment relating thereto, the Seller has remedied
such violation prior to the Closing Date.
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K. Court Orders and Judgments. There are, as of the date hereof, no
court orders or judgments negatively impacting the operation of the Store in the
ordinary course, or affecting the transfer of the Purchased Assets.
L. No Restrictions on Authority of the Seller. There are no corporate,
contractual, statutory or other restrictions of any kind upon the power and
authority of the Seller to the transfer, sale, assignment, conveyance and
delivery of assets, properties and business as contemplated by this Agreement,
and no action by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality is necessary to provide
such power or authority.
M. Licenses. The Licenses (which, among other licenses, do not include
licenses to sell alcoholic beverages) held as of the Closing Date will
constitute all licenses needed or required in connection with the ownership,
occupancy, and operation of the Purchased Assets for their present uses.
N. Fixed Assets. All of the Fixed Assets and, if they do not
constitute Fixed Assets hereunder, all of the electrical, mechanical, plumbing,
HVAC and fire detection systems, if any, of the Store, are as of the Closing
Date in working order and operable condition.
O. Hazardous Waste. To the best of the Seller's knowledge after
reasonable inquiry, there are no hazardous wastes or toxic substances located
on, in or under the Store and the Store has not been used for the storage of any
oils, petroleum by-products (other than cleaning agents, insecticides and
similar substances customarily utilized by building maintenance personnel or
customarily sold in supermarkets in New York City) or other hazardous materials.
For purposes of this Agreement, hazardous waste shall include, without
limitation, any hazardous substance as defined in 42 U.S.C.A. ss.9601(14), as
amended from
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time to time through the Closing Date. During Seller's lease thereof, the Store
has not been used as a waste storage or disposal site and, to the best of the
Seller's knowledge after reasonably diligent inquiry, the Store has not been
used as a waste storage or disposal site prior to the Seller's ownership.
P. Utilities. All utilities that are required for the full and
complete occupancy and use of the Store, including, without limitation,
electricity, sanitary sewers, storm sewers and drainage, water, public
telephones and similar systems have been connected to the Store and as of the
Closing Date are in working order.
Q. Employee Benefit Plans. Except for the Employee Plans, the Seller
does not maintain any other bonus, pension, profit sharing, retirement, stock
purchase, stock option, flexible compensation, hospitalization, medical
insurance, vacation pay, severance pay or any other similar plan or practice,
including, but not limited to, any welfare or pension benefit plan as defined in
Section 3(1) and 3(2) of ERISA, respectively, whether formal or informal or
written or unwritten, which is in effect with respect to any employee or former
employee of the Seller or which is maintained by the Seller or to which the
Seller contributes or is required to contribute. To the best knowledge of the
Seller, with respect to all Employee Plans: (i) all contributions required to be
made (including obligations accrued up to the Closing Date) to all Employee
Plans by the Seller up to the Closing Date, have been paid or will be paid by
the Seller on or before the Closing Date, (ii) consummation of the transactions
contemplated herein will not give rise to any material withdrawal liability with
respect to a multiemployer plan under MPPAA regarding the Employee Plans, (iii)
neither any of such Employee Plans, nor any trust created thereunder, nor any
trustee or administrator thereof (including the Seller or any of its affiliated
companies) has engaged in any prohibited transaction which has subjected or
could subject any of such Employee Plans to any liability
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which is material to such Union Plan for any tax imposed under Section 4975 of
the Code or penalty imposed under Section 502(i) of ERISA, (iv) no "reportable
event," within the meaning of Section 4043 of ERISA, or any other event or
condition, has occurred with respect to any such Employee Plan which presents a
material risk of the termination of any such Employee Plan, including, but not
limited to, a termination by action of the PBGC and (v) no suits, actions or
other litigations (excluding claims for benefits incurred in the ordinary course
of Employee Plan activities) are pending or threatened with respect to any such
Employee Plan which individually or in the aggregate are reasonably likely to
have a material adverse impact on any such Employee Plan or the business of the
Seller.
R. COBRA Indemnification and Information. The Seller shall pay and be
liable to Buyer and shall assume, indemnify, defend, and hold harmless Buyer
from and against and in respect of any and all losses, damages, liabilities,
taxes, and sanctions imposed upon, incurred by, or assessed against Buyer and
any of its employees that arise under the Consolidated Omnibus Budget
Reconciliation Act of 1984 ("COBRA") and the Code, interest and penalties,
costs, and expenses (including, without limitation, disbursements and reasonable
legal fees incurred in connection therewith, and in seeking indemnification
therefor, in any amounts or expenses required to be paid or incurred in
connection with any action, suit, proceeding, claim, appeal, demand, assessment,
or judgment) arising by reason of or relating to any failure to comply with the
continuation health care coverage of COBRA and Section 601 through 608 of ERISA
which failure occurred with respect to any current or prior employee of Seller
or any qualified beneficiary of such employee (as defined in COBRA) on or prior
to the Closing Date or as otherwise required as a result of the transactions or
matters contemplated by this Agreement.
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S. Unemployment Insurance. Buyer shall have the right (to be
determined by the Buyer in its sole discretion) of transferring the Seller's
unemployment insurance experience rating with respect to those employees of
Seller subsequently retained by the Buyer. In connection therewith, Buyer has
the right to audit and approve the payroll information furnished to the New York
State Unemployment Insurance Division in connection with the sale of the
Purchased Assets. Buyer shall determine in its sole discretion the method of
effecting this transaction and Seller agrees to cooperate fully with Buyer and
shall promptly furnish such payroll information as shall be requested from time
to time by Buyer.
T. Disclosures. No representation or warranty by Seller in this
Agreement or any other document furnished by Seller in connection herewith
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact required to be disclosed hereunder or
thereunder.
IX. Representations, Warranties and Representations of the Buyer.
A. Corporate Authority. The Buyer represents and warrants that the
Buyer has full corporate power and authority to enter into this Agreement and to
carry out the transactions contemplated hereby. The Board of Directors of the
Buyer has taken all action required by law, the Buyer's Certificate of
Incorporation, its By-Laws or otherwise to be taken by Buyer to authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, and this Agreement is a valid and binding
agreement of the Buyer enforceable in accordance with its terms, except that:
a. such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights; and
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b. the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
B. No Restrictions on Authority of the Buyer. Except for such
restrictions as shall have been waived, there are no corporate, contractual,
statutory or other restrictions of any kind upon the power and authority of the
Buyer to the purchase and acceptance of assets, properties and business as
contemplated by this Agreement, and no action by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality is necessary to provide such power or authority.
C. Disclosures. No representation or warranty by the Buyer in this
Agreement or any other document furnished by the Buyer in connection herewith
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact required to be disclosed hereunder or
thereunder.
X. Statutory and Regulatory Filings. Promptly after the date hereof, the
Seller and the Buyer shall, if necessary, prepare and file in connection with
the assignment of the Real Property Lease, all documentation required to be
filed under the New York State Real Property Transfer Tax Law. The parties shall
furnish to each other such necessary information and reasonable assistance as
the other shall require in connection with its compliance with the provisions of
the New York Real Property Transfer Tax Law.
XI. Closing. The Closing Date shall be the date of this Agreement.
XII. Sales and Use Taxes; Transfer Taxes.
A. The Buyer shall be solely responsible, absent an available
exemption, for any sales and use taxes (including interest and penalties)
applicable to the transfer of the Purchased Assets. The Seller and the Buyer
shall jointly prepare a schedule of sales tax due
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as a result of the transfer of the Purchased Assets. Such tax will be collected
by the Seller from the Buyer on or before the Post-Closing Adjustment Date (in
the form of a check) and will be remitted by the Seller to the appropriate
taxing authority. If there is any different valuation of Purchased Assets by the
taxing authority, the Buyer will pay such tax directly to the taxing authority
and will hold the Seller harmless from and against any claims arising as a
result of the imposition of the tax, its collection and/or remittance.
B. The Seller shall be solely responsible, absent any available
exemption, for transfer taxes payable in connection with the assignment of the
Real Property Lease. Transfer taxes will be collected by the Buyer from the
Seller on or before the Post-Closing Adjustment Date (in the form of a check)
and will be remitted by the Buyer to the appropriate taxing authorities. If
there is any different determination of one or more of the transfer taxes due,
the Seller will pay such taxes directly to the taxing authority and will hold
the Buyer harmless from and against any claims arising as a result of the
imposition of the taxes, their collection and/or remittance.
XIII. Notices. All notices provided for in this Agreement shall be in
writing and sent by certified mail, return receipt requested, by Federal
Express, Express Mail or other overnight delivery service reputed to be
reliable, or by personal delivery to the parties at the address set forth in the
preamble to this Agreement or to such other addresses of which one party shall
have given notice to the other party in the manner prescribed herein. Notices
shall be deemed given when sent.
XIV. Seller's Employees. To the extent scheduled as an Assumed Liability on
or before the Post-Closing Adjustment Date, the Buyer shall assume all accrued
but unpaid, vacation, sick and personal days due to each of Seller's employees
for his/her employment with the Seller at the Store for all periods of time
prior to the Closing Date and be given a credit
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therefor against the Purchase Price. Other than as set forth herein, the Buyer
is not assuming any obligation or liability for any events occurring prior to
the Closing Date arising out of, resulting from or based upon the Union
Contracts or the performance or non-performance by the Seller of its obligations
thereunder.
XV. Bulk Sales Law. The Buyer hereby waives compliance by the Seller with
the provisions of the Bulk Sales Law of the State of New York contained in
Article 6 of the Uniform Commercial Code in effect in the State of New York. The
Seller agrees to indemnify the Buyer against, and hold it harmless from, any
claims of the creditor or creditors of Seller or any entity or affiliate of the
Seller arising out of any failure to comply with any bulk sales law of any
jurisdiction in respect of any of the assets and properties purchased by or
otherwise transferred to the Buyer pursuant to this Agreement.
XVI. Further Assurances. From time to time, without further consideration,
each of the parties hereto will execute and deliver such documents as the other
party hereto may reasonably request in form and substance reasonably
satisfactory to the other party in order more effectively to consummate the
transactions contemplated hereby and to vest in the Buyer good and marketable
title to the assets being conveyed hereunder.
XVII. Survival of Representations. All representations, warranties,
covenants and agreements made by any party in this Agreement or pursuant hereto
shall survive for a period of three years from the close of business on the
Closing Date.
XVIII. Indemnification by the Seller.
A. The Seller shall indemnify, defend and hold harmless the Buyer
against any and all Losses (other than economic losses from unprofitable
operations of the Store for any period of time during which the Buyer shall
operate the Store provided that such losses are not the result of or related to
the breach by the Seller of any representation made by
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the Seller hereunder) that the Buyer shall incur or suffer, which arise out of,
result from or relate to:
(1) the Seller's operation of the Store prior to the Closing
Date, including all Losses arising from all debts, liabilities, all
liabilities under the Union Contracts and Employee Plans prior to the
Closing Date and all obligations and commitments of the Seller, of
whatever nature, whether absolute, contingent or otherwise, other than
the Assumed Liabilities, and
(ii) any breach of or failure by the Seller to perform any
of its representations, warranties, covenants or agreements in this
Agreement or any schedule, certificate, exhibit or other instrument
furnished or to be furnished under this Agreement within three years
of the Closing Date, including, but not limited to, any obligation
incurred by the Seller to pay transfer tax and any finder's fee or
brokerage commission in connection with this transaction.
B. In determining the amount of any loss, there shall be excluded
therefrom the amount attributable thereto of any insurance recoveries by the
Buyer. The total amount of potential liability of the Seller for all Losses
(other than Losses resulting from the assertion of liability against the Buyer
by third parties, the indemnification of which shall not be subject to any
limitation) shall not exceed the Purchase Price.
C. The Buyer shall notify the Seller within 15 days after receiving
notice thereof of the existence of any claim, demand or other matter to which
the Seller's indemnification obligation would apply and shall give the Seller a
reasonable opportunity to defend the same at its own expense and with counsel of
its own selection; provided, that the Buyer shall also have the right to
participate in the defense at its own expense. If the Seller
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shall fail to defend, the Buyer shall have the right, but not the obligation, to
undertake the defense of, and to compromise or settle (exercising reasonable
business judgment), the claim or other matter on behalf of and for the account
of the Seller.
XIX. Indemnification by the Buyer.
A. The Buyer shall indemnify, defend and hold harmless the Seller
against any and all Losses that the Seller shall incur or suffer, which arise
out of, result from, or relate to:
(1) the Buyer's operation of the Store from and after the
Closing Date,
(ii) any breach of or failure by the Buyer to perform any of
its representations, warranties, covenants or agreements in this
Agreement within three years after the Closing Date, including, but
not limited to, any obligation incurred by the Buyer to pay a finder's
fee or brokerage commission in connection with this transaction.
B. In determining the amount of any Loss, there shall be excluded
therefrom the amount attributable thereto of any insurance recoveries by the
Seller.
C. The Seller shall notify the Buyer within 15 days after receiving
notice thereof of the existence of any claim, demand or other matter to which
the Buyer's indemnification obligation would apply and shall give the Buyer a
reasonable opportunity to defend the same at its own expense and with counsel of
its own selection; provided that the Seller shall also have the right to
participate in the defense at its own expense. If the Buyer shall fail to
defend, the Seller shall have the right, but not the obligation, to undertake
the defense of, and to compromise or settle (exercising reasonable business
judgment), the claim or other matter on behalf of and for the account of the
Buyer.
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XX. Entire Agreement. This Agreement contains the entire agreement between
the parties hereto and may not be modified except by a writing signed by the
party to be bound thereby.
XXI. Applicable Laws. This Agreement shall be construed in accordance with,
and be governed by, the laws of the State of New York.
XXII. Successors or Assigns. This Agreement may not be assigned by either
party.
XXIII. Counterparts. This Agreement may be executed in counterparts at one
time or at different times and irrespective of the date of execution between the
parties named herein, it shall be deemed to have been executed as of the date
first above written and constitute one agreement.
XXIV. Exhibits and Schedules. Any exhibit or schedule which is not attached
to this Agreement or which has not been completed at the time of the execution
of this Agreement shall, at the time of its attachment, be deemed to be a part
hereof for all purposes as of the date of this Agreement.
IN WITNESS WHEREOF, the Seller and the Buyer have caused this Asset
Purchase Agreement to be duly executed as of the date first above written.
G REMAINDER CORP.
By: /s/ John A. Catsimatidis
--------------------------
John A. Catsimatidis
Chairman of the Board
GRISTEDE'S OPERATING CORP.
By: /s/ John A. Catsimatidis
--------------------------
John A. Catsimatidis
Chairman of the Board
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EXHIBIT 10.9
FIRST AMENDMENT AND WAIVER TO LOAN AGREEMENT
THIS FIRST AMENDMENT AND WAIVER ("Amendment") made this 30th day of April,
1998 among GRISTEDE'S SLOAN'S, INC., a Delaware corporation having its principal
place of business at 823 Eleventh Avenue, New York, New York 10019 (the
"Borrower"), each of the Subsidiaries of the Borrower listed on Schedule 1
annexed to the Agreement (as hereinafter defined) (individually, a "Guarantor"
and collectively, the "Guarantors") (the Borrower and the Guarantors,
collectively, the "Credit Parties"), EUROPEAN AMERICAN BANK, a New York banking
organization, having an office at 335 Madison Avenue, New York, New York 10017
("EAB" or a "Bank") ISRAEL DISCOUNT BANK OF NEW YORK, a New York banking
organization, having an office at 511 Fifth Avenue, New York, New York 10017
("Israel Discount" or a "Bank"), KEYBANK NATIONAL ASSOCIATION, a national
banking association, having an office at 1377 Motor Parkway, Islandia, New York
11788 ("Key" or a "Bank") and BANK LEUMI USA (formerly known as Bank Leumi Trust
Company of New York), a New York trust company, having an office at 562 Fifth
Avenue, New York, New York 10036 ("Leumi" or a "Bank") and EUROPEAN AMERICAN
BANK, as agent for the Banks (the "Agent").
W I T N E S S E T H :
WHEREAS, the Credit Parties, the Banks and the Agent entered into a Loan
Agreement dated as of the 7th day of November, 1997 (hereinafter the
"Agreement"); and
WHEREAS, the Banks have made loans to the Borrower as evidenced by certain
notes of the Borrower and specifying interest to be paid thereon; and
WHEREAS, the Borrower has requested that the Agent and the Banks:
(i) waive the Default caused by the failure of the Borrower to deliver
the consolidating financial statements required by Sections 5.01(b)(ii) and
(iii) of the Agreement;
(ii) waive the Default caused by the failure of the Borrower to
deliver the lease status certificate required by Section 5.01(b)(xiii) of the
Agreement;
(iii) consent to the Borrower's request to change its fiscal year
ending date from the Sunday nearest to February 28 of each year to the Sunday
nearest November 30 of each year, to be effective November 30, 1997;
(iv) amend the timing of the calculation of the Applicable Margin as
set forth herein;
(iv) amend certain of the financial covenants contained in the
Agreement as set forth herein.
<PAGE>
NOW, THEREFORE, in consideration of Ten ($10.00) Dollars and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Credit Parties, the Banks and the Agent do hereby agree as
follows:
1. Defined Terms. As used in this Amendment, capitalized terms, unless
otherwise defined, shall have the meanings set forth in the Agreement.
2. Representations and Warranties. As an inducement for the Bank to enter
into this Amendment, the Credit Parties each represent and warrant as follows:
A. That with respect to the Agreement and the Loan Documents executed
in connection therewith and herewith:
(i) There are no defenses or offsets to the Borrower's or any
Guarantor's obligations under the Agreement as amended hereby, the
Notes or any of the Loan Documents or any other agreements in favor of
the Bank referred to in the Agreement, and if any such defenses or
offsets exist without the knowledge of the Borrower or any Guarantor,
the same are hereby waived.
(ii) All of the representations and warranties made by the
Borrower and any Guarantor in the Agreement as amended hereby are true
and correct in all material respects as if made on the date hereof,
except for those made with respect to a particular date, which such
representations and warranties are restated as of the date of this
Amendment to be true and correct in all material respects as of such
date; and provided further that the representations and warranties set
forth in Section 4.01(f) of the Agreement shall relate to the draft
internally prepared (subject to year end audit adjustments)
consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries for the fiscal year ended November 30, 1997.
(iii) The outstanding aggregate principal balance of the Loans as
evidenced by the Notes was $18,092,859.00 on May 4, 1998 and interest
has been paid through April 30, 1998.
3. Amended Definitions. The following definitions in Article I of the
Agreement are hereby amended to read as follows:
"'Cash Flow Recapture' means the obligation of the Borrower to make a
Cash Flow Recapture Payment based on the existence of Excess Cash
Flow, beginning with Excess Cash Flow for the fiscal year ending
November 29, 1998."
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"'Cleandown Period' means a period, declared by the Borrower to be the
"Cleandown Period", of thirty (30) consecutive days during each fiscal
year of the Borrower, commencing with the Borrower's fiscal year
beginning December 1, 1997."
"'Debt Service Ratio' means, as to the Borrower and its Consolidated
Subsidiaries for any period, the ratio of (i) EBITDA for such period
to (ii) the sum of (x) interest expense for such period plus (y) the
principal amount of long term Debt (excluding Revolving Credit Loans
and excluding the principal component of payments on Excludible
Capital Leases) scheduled to be paid during such period. The Debt
Service Ratio shall be measured and tested at the end of each fiscal
quarter commencing with the fiscal quarter ending May 31, 1998 and for
a period covering (i) the two (2) fiscal quarters then ended as of the
fiscal quarter ended May 31, 1998, (ii) the three (3) fiscal quarters
then ended as of the fiscal quarter ended August 30, 1998, and (iii)
the four (4) fiscal quarters then ended at all times thereafter
commencing with the fiscal year ending November 29, 1998."
"'Fixed Charge Coverage Ratio' means, as to the Borrower and its
Consolidated Subsidiaries for any period, the ratio of (i) EBITDAR for
such period to (ii) the sum of (x) interest expense for such period
plus,(y) rent expense (including rent for real estate occupancy and
for all other operating leases) for such period, plus (z) the
principal amount of long term Debt (excluding Revolving Credit Loans)
scheduled to be paid during such period. The Fixed Charge Coverage
Ratio shall be measured and tested at the end of each fiscal quarter
commencing with the fiscal quarter ending May 31, 1998 and for a
period covering (i) the two (2) fiscal quarters then ended as of the
fiscal quarter ended May 31, 1998, (ii) the three (3) fiscal quarters
then ended as of the fiscal quarter ended August 30, 1998, and (iii)
the four (4) fiscal quarters then ended at all times thereafter
commencing with the fiscal year ending November 29, 1998."
"'Funded Debt to EBITDA Ratio' means, as to the Borrower and its
Consolidated Subsidiaries for any period, the ratio of (i)
Consolidated Funded Debt (as of the last day of such period) to (ii)
EBITDA for such period. The Funded Debt to EBITDA Ratio shall be
measured and tested at the end of each fiscal quarter and, in the case
of EBITDA, for the periods covering (i) the one fiscal quarter then
ended as of March 1, 1998 (which amount shall be annualized), (ii) the
two (2) fiscal quarters then ended as of May 31, 1998 (which amount
shall be
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<PAGE>
annualized), (iii) the three (3) fiscal quarters then ended as of
August 30, 1998 (which amount shall be annualized), and (iv) the four
(4) fiscal quarters then ended at all times thereafter commencing with
the fiscal year ending November 29, 1998."
4. Amendments. The following amendments are hereby made to the Agreement:
(a) Section 2.26 of the Agreement is hereby deleted in its entirety
and replaced as follows:
"SECTION 2.26. Applicable Margin. The Prime Applicable Margin and the
LIBOR Applicable Margin shall each be determined on the basis of the
Borrower's Funded Debt to EBITDA Ratio, as calculated based on the
Borrower's consolidated financial statements for its most recent
fiscal year or quarter. The Prime Applicable Margin and the LIBOR
Applicable Margin shall be determined as follows:
(i) The initial Prime Applicable Margin shall be 75 basis points
and the initial LIBOR Applicable Margin shall be 250 basis points, and
each shall be applicable until delivery of the Borrower's consolidated
financial statements for its fiscal quarter ending March 1, 1998
pursuant to Section 5.01(b) hereof.
Beginning with delivery of the Borrower's financial statements
for the fiscal quarter ending March 1, 1998, and for each fiscal year
or quarter thereafter:
(ii) If the Borrower's Funded Debt to EBITDA Ratio as of the end
of such fiscal year or quarter is less than 1.50 to 1.00, the Prime
Applicable Margin shall be -0- basis points and the LIBOR Applicable
Margin shall be 175 basis points.
(iii) If the Borrower's Funded Debt to EBITDA Ratio as of the end
of such fiscal year or quarter is equal to or greater than 1.50 to
1.00 but less than 2.00 to 1.00, the Prime Applicable Margin shall be
50 basis points and the LIBOR Applicable Margin shall be 225 basis
points.
(iv) If the Borrower's Funded Debt to EBITDA Ratio as of the end
of such fiscal year or quarter is equal to or greater than 2.00 to
1.00, the Prime Applicable Margin shall be 75 basis points and the
LIBOR Applicable Margin shall be 250 basis points.
-4-
<PAGE>
The Agent shall determine the Applicable Margins within five (5)
Business Days of its receipt of all required financial statements and
certificates. Changes to the Applicable Margins, if any, will be
effective as of the date of determination thereof by the Agent.
Upon the occurrence and during the continuance of a Default or an
Event of Default the Prime Applicable Margin and the LIBOR Applicable
Margin may, as a result of changes in the Borrower's Funded Debt to
EBITDA Ratio, increase but will not decrease."
(b) Section 5.02(c) of the Agreement is hereby deleted in its entirety
and replaced as follows:
"(c) Lease Obligations. Create, incur, assume, or suffer to exist any
obligation as lessee for the rental or hire of any real or personal
property, except (i) Capital Leases permitted by Section 5.02(a); (ii)
leases existing on the date of this Agreement and any extensions or
renewals thereof; (iii) leases for the use and occupancy of real
property (other than leases described in clause (i) or (ii)) which do
not, in the aggregate, require the Borrower and the Guarantors to make
payments (including taxes, insurance, maintenance, and similar
expenses which the Borrower or any Guarantor is required to pay under
the terms of any lease) in any fiscal year of the Borrower in excess
of that amount of incremental "Average Annual Cost" during each fiscal
year of the Borrower set forth in the schedule below, it being the
intent of this clause (iii) that the Borrower may enter into such
leases which add not more than such amounts of incremental "Average
Annual Cost" in each fiscal year, and (iv) all other operating leases
(other than leases described in (i), (ii) or (iii)), which do not, in
the aggregate, require the Borrower and the Guarantors to make annual
payments under such leases in excess of $1,000,000.00 in the aggregate
over the term of this Agreement. For purposes hereof, "Average Annual
Cost" shall mean the total amount to be paid by the lessee under any
lease over the term of such lease, for any and all purposes, including
rent, escalations, taxes, operating costs, pass throughs, electric and
other utility costs, commissions, build-outs, and all other amounts
payable to or for the benefit of the lessor divided by the term of the
lease, in years.
-5-
<PAGE>
Real Estate Leases
Fiscal Year
Ending in Average Annual Cost
1997 $500,000.00*
1998 $1,500,000.00
1999 $2,000,000.00
2000 and thereafter $3,000,000.00
*for the period beginning with the date of the Agreement"
(c) Section 5.02(l) of the Agreement is hereby deleted in its entirety
and replaced as follows:
"(l) Losses. Incur a net loss (i) the period beginning on the date of
this Agreement and ending on March 1, 1998, or (ii) for any fiscal
year thereafter, including but not limited to the fiscal year ending
November 29, 1998."
(d) Section 5.03(b) of the Agreement is hereby deleted in its entirety
and replaced as follows:
"(b) Unfunded Consolidated Capital Expenditures. The Borrower, the
Guarantors and their respective Subsidiaries will not make Unfunded
Consolidated Capital Expenditures in excess of the amounts set forth
below in the aggregate during any fiscal year:
Fiscal Year
Ending in Average Annual Cost
1997 $500,000.00*
1998 $1,000,000.00
1999 $1,250,000.00
2000 and thereafter $1,500,000.00
*for the period beginning with the date of the Agreement"
5. Waivers and Consent. (a) The Agent and the Banks each hereby waive the
following Defaults under the Agreement:
(i) the failure of the Borrower to deliver the consolidated
financial statements required by Section 5.01(b)(i) of the Agreement provided
that such statements are delivered not later than May 13, 1998;
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<PAGE>
(ii) the failure of the Borrower to deliver the consolidated
financial statements required by Section 5.01(b)(ii) of the Agreement provided
that such statements are delivered not later than May 28, 1998;
(iii) the failure of the Borrower to deliver the consolidating
financial statements required by Section 5.01(b)(iii) of the Agreement provided
that such statements are delivered not later than May 28, 1998;
(iv) the failure of the Borrower to deliver the lease status
certificate required by Section 5.01(b)(xiii) of the Agreement provided that
such certificate is delivered not later than May 28, 1998.
(b) The Agent and the Banks hereby consent to the Borrower's request
to change its fiscal year ending date from the Sunday nearest to February 28 of
each year to the Sunday nearest November 30 of each year, to be effective
November 30, 1997.
6. Effectiveness. This Amendment shall become effective upon the occurrence
of the following events and the receipt and satisfactory review by the Agent and
its counsel of the following documents:
(a) The Agent and each Bank shall have received this Amendment, duly
executed by the Borrower and each Guarantor.
(b) The Agent shall have received copies of any and all modifications
of the documentation referred to in Section 3.01 of the Agreement which could
result in a Material Adverse Change.
(c) The Agent shall have been paid, on behalf of the Banks, an
amendment fee in the amount of $15,000.00.
7. Governing Law. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
8. Counterparts. This Amendment may be executed in any number of
counterparts and by different 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.
9. Ratification. Except as hereby amended, the Agreement and all other Loan
Documents executed in connection therewith shall remain in full force and effect
in accordance with their originally stated terms and conditions. The Agreement
and all other Loan Documents executed in connection therewith, as amended
hereby, are in all respects ratified and confirmed.
10. Waiver of Jury Trial. The Borrower, each Guarantor, the Agent and the
Banks waive all rights to trial by jury on any cause of action directly or
indirectly involving the terms, covenants or conditions of this Amendment or any
Loan Document.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the year and date first above written.
EUROPEAN AMERICAN BANK, as Agent
By: /s/ George L Stirling
----------------------------
George L. Stirling
Vice President
EUROPEAN AMERICAN BANK
By: /s/ George L Stirling
----------------------------
George L. Stirling
Vice President
ISRAEL DISCOUNT BANK OF NEW YORK
By: /s/ Scott Fishbein
----------------------------
Name: Scott Fishbein
Title: Vice President
By:
----------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION
By: /s/ Joseph Burns
----------------------------
Name: Joseph Burns
Title: Vice President
BANK LEUMI USA
By: /s/ John Koenigsberg
----------------------------
Name: John Koenigsberg
Title: Vice President
By:
----------------------------
Name:
Title:
GRISTEDE'S SLOAN'S, INC.
By: /s/ John Catsimatidis
----------------------------
John Catsimatidis
Chief Executive Officer
CITY PRODUCE OPERATING CORP.
By: /s/ John Catsimatidis
----------------------------
John Catsimatidis
President
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<PAGE>
GRISTEDE'S OPERATING CORP.
By: /s/ John Catsimatidis
----------------------------
John Catsimatidis
President
NAMDOR INC.
By: /s/ John Catsimatidis
----------------------------
John Catsimatidis
President
RAS OPERATING CORP.
By: /s/ John Catsimatidis
----------------------------
John Catsimatidis
President
SAC OPERATING CORP.
By: /s/ John Catsimatidis
----------------------------
John Catsimatidis
President
-9-
<PAGE>
EXHIBIT 10.10
1998 STOCK OPTION PLAN
OF
GRISTEDE'S SLOAN'S, INC.
1. Purpose
The purpose of this Stock Option Plan (the "Plan") of Gristede's Sloan's,
Inc., a Delaware corporation (the "Company"), is to secure for the Company and
its stockholders the benefits arising from stock ownership by selected key
employees of the Company or its subsidiaries, directors, consultants or other
persons ("Participants") as the Board of Directors of the Company, or a
committee thereof constituted for the purpose, may from time to time determine.
The Plan will provide a means whereby (i) such employees (including employees
who are directors) may purchase shares of the Common Stock of the Company
pursuant to options that will qualify as "incentive stock options" under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") and (ii) such
employees, directors, consultants or other person may purchase shares of the
Common Stock of the Company pursuant to "non-qualified stock options."
2. Administration
2.1 The Plan shall be administered by the Board of Directors of the Company
(the "Board of Directors") or by one or more committees of the Board of
Directors (the "Committee") each composed solely of two or more "Non-Employee
Directors", as that term is defined in Rule 16b-3(b)(3) of the General Rules and
Regulations under the Securities Exchange Act of 1934 (the "Exchange Act"), of
the Company. Any action of the Board of Directors or the Committee with respect
to administration of the Plan shall be taken by a majority vote or written
consent of its members. No person on the Board of Directors or Committee shall
participate in any matter pertaining to him.
2.2 Subject to the provisions of the Plan, the Board of Directors or the
Committee shall have authority (i) to construe and interpret the Plan, (ii) to
define the terms used therein, (iii) to prescribe, amend and rescind rules and
regulations relating to the Plan, (iv) to determine the individuals to whom and
the time or times at which options shall be granted, whether any options granted
will be incentive stock options or non-qualified stock options, the number of
shares to be subject to each option, the exercise price of an option, the number
of installments, if any, in which each option may be exercised, and the duration
of each option, (v) to approve and determine the duration of leaves of absence
which may be granted to Participants without constituting a termination of their
employment for the purposes of the Plan, and (vi) to make all other
determinations necessary or advisable for the administration of the Plan. All
determinations and interpretations made by the Board of Directors or the
Committee shall be binding and conclusive on all Participants in the Plan and
their legal representatives and beneficiaries.
<PAGE>
3. Shares Subject to the Plan
Subject to adjustment as provided in Paragraph 14 hereof, the shares to be
issued under the Plan shall consist of the Company's Common Stock. The aggregate
number of shares of common stock, par value $.02 per share of the Company
("Shares") which may be issued upon exercise of all options under the Plan shall
not exceed 500,000, subject to adjustment as provided in Paragraph 14. If any
option granted under the Plan shall expire or terminate for any reason, without
having been exercised in full, the unpurchased shares subject thereto shall
again be available for options to be granted under the Plan.
4. Eligibility and Participation
4.1 All regular salaried employees of the Company or any subsidiary
corporation (as defined in Section 424(f) of the Code) shall be eligible to
receive incentive stock options and non-qualified stock options. Directors of
the Company or any subsidiary corporation, consultants and other persons who are
not regular salaried employees of the Company or any subsidiary corporation are
not eligible to receive incentive stock options, but are eligible to receive
non-qualified stock options.
4.2 No incentive stock options may be granted to any employee who, at the
time the incentive stock option is granted, owns shares possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company (or of its subsidiary corporations as defined in Section 424(f) of the
Code), unless the exercise price of such incentive stock option is at least one
hundred ten percent of the fair market value of the Common Stock, determined by
fair market value as of the date each respective option is granted in accordance
with Paragraph 7, and such incentive stock option by its terms is not
exercisable after the expiration of five years from the date such incentive
stock option is granted. In addition, and anything to the contrary contained in
this Plan notwithstanding, no employee of the Company shall be granted in any
calendar year options to purchase more than 100,000 Shares.
4.3 The aggregate fair market value of the Common Stock for which incentive
stock options granted to any one employee under this Plan or any other incentive
stock option plan of the Company which may by their terms first become
exercisable during any calendar year shall not exceed $100,000, determined by
fair market value as of the date each respective option is granted.
4.4 All options granted under the Plan shall be granted within ten years
from March 17, 1998.
5. Duration of Options
Each option and all rights associated therewith shall expire on such date
as the Board of Directors or the Committee may determine, but in no event later
than ten years from the date on which the option is granted, and shall be
subject to earlier termination as provided herein.
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<PAGE>
6. Price and Exercise of Options
6.1 Subject to Paragraph 4.2, the purchase price of the Common Stock
covered by each option shall be determined by the Board of Directors or the
Committee, but in the case of an incentive stock option shall not be less than
one hundred percent of the fair market value of such Common Stock on the date
the incentive stock option is granted. The purchase price of the Common Stock
upon exercise of an option shall be paid in full at the time of exercise (i) in
cash or by certified or cashier's check payable to the order of the Company,
(ii) by cancellation of indebtedness owed by the Company to the Participant,
(iii) by delivery of shares of Common Stock of the Company already owned by, and
in the possession of the Participant, (iv) if authorized by the Board of
Directors or the Committee or if specified in the option being exercised, by a
promissory note made by the Participant in favor of the Company, subject to
terms and conditions determined by the Board of Directors or the Committee,
secured by the Common Stock, issuable upon exercise, and in compliance with
applicable law (including, without limitation, state, corporate and federal
requirements), (v) by any combination thereof, or (vi) in such other manner as
the Board of Directors or the Committee may specify in order to facilitate the
exercise of options by the holders thereof. Shares of Common Stock used to
satisfy the exercise price of an option shall be valued at their fair market
value determined in accordance with Paragraph 7 hereof.
6.2 No option granted under this Plan shall be exercisable if such exercise
would involve a violation of any applicable law or regulation (including without
limitation, federal and state securities laws and regulations). Each option
shall be exercisable in such installments during the period prior to its
expiration date as the Board of Directors or Committee shall determine;
provided, however, that unless otherwise determined by the Board of Directors or
Committee, if the Participant shall not in any given installment period purchase
all of the shares which the Participant is entitled to purchase in such
installment period, then such Participant's right to purchase any shares not
purchased in such installment period shall continue until the expiration date or
sooner termination of the Participant's option. No option may be exercised for a
fraction of a share and no partial exercise of any option may be for less than
ten shares.
7. Fair Market Value of Common Stock
The "Fair Market Value of a Share of Common Stock" of the Company shall be
defined and determined as follows:
(a) If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the National Market of the
National Association of Securities Dealers, Inc. Automated Quotation ("Nasdaq")
System, the Fair Market Value of a Share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the greatest volume of
trading in Common Stock) on the date of grant, as reported in The Wall Street
Journal or such other source as the Board deems reliable;
(b) If the Common Stock is quoted on Nasdaq (but not on the National Market
thereof) or regularly quoted by a recognized securities dealer but selling
prices are not reported, the Fair Market Value of a Share of Common Stock shall
be the mean between the high bid
-3-
<PAGE>
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(c) In the absence of an established market for the Common Stock, the Fair
Market Value thereof shall be determined in good faith by the Board.
8. Withholding Tax
Upon (i) the disposition of shares of Common Stock acquired pursuant to the
exercise of an incentive stock option granted pursuant to the Plan within two
years of the granting of the incentive stock option or within eighteen months
after exercise of the incentive stock option, or (ii) the exercise of a
non-qualified stock option, the Company shall have the right to require such
employee or other person, and such employee or other person, by accepting the
options granted under the Plan agrees, to pay the Company the amount of any
taxes which the Company may be required to withhold with respect thereto. In the
event of (i) or (ii), then such employee or other person may elect to pay the
amount of any taxes which the Company may be required to withhold by delivering
to the Company shares of the Company's Common Stock having a fair market value
determined in accordance with Paragraph 7 equal to the withholding tax
obligation determined by the Company. Such shares so delivered may be either
shares withheld by the Company upon the exercise of the option or other shares.
Such election shall comply with all applicable laws (including without
limitation, state, corporate and federal requirements).
9. Nontransferability
An option granted under the Plan shall, by its terms, be nontransferable by
the holder either voluntarily or by operation of law, other than by will or the
laws of descent and distribution and shall be exercisable during the holder's
lifetime only by the holder, regardless of any community property interest
therein of the spouse of the holder, or such spouse's successors in interest. If
the spouse of the holder shall have acquired a community property interest in an
option, the holder, or the holder's permitted successors in interest, may
exercise the option on behalf of the spouse of the holder or such spouse's
successors in interest.
10. Holding of Stock After Exercise of Option
Shares shall not be issued pursuant to the exercise of an option unless the
exercise of such option and the issuance and delivery of such Shares pursuant
thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, state securities laws, and the
requirements of any stock exchange yon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute
-4-
<PAGE>
such Shares, if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions of
law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
11. Termination of Employment
If a holder of an incentive stock option ceases to be employed by the
Company or one of its subsidiary corporations (as defined in Section 424(f) of
the Code) for any reason other than the holder's death or permanent disability
(within the meaning of Section 22(e)(3) of the Code), the holder's incentive
stock options shall immediately become void and of no further force or effect;
provided, however, that within three months after the date the holder ceases to
be an employee of the Company or such subsidiary such incentive stock option may
be exercised to the extent exercisable on the date of such cessation of
employment. A leave of absence approved in writing by the Board of Directors or
the Committee shall not be deemed a termination of employment for the purposes
of this Paragraph 11, but no incentive stock option may be exercised during any
such leave of absence, except during the first three months thereof. Termination
of employment or other relationship with the Company by the holder of a
non-qualified stock option will have the effect specified in the individual
option agreement or certificate of grant as determined by the Board of Directors
or the Committee.
12. Death or Permanent Disability of Option Holder
If the holder of an incentive stock option dies or becomes permanently
disabled while the option holder is employed by the Company or one of its
subsidiary corporations (as defined in Section 424(f) of the Code), the holder's
option shall expire one year after the date of such death or permanent
disability unless by its terms it expires sooner. During such period after
death, such incentive stock option may, to the extent that it remains
unexercised (but exercisable by the holder according to such option's terms)
upon the date of such death, be exercised by the person or persons to whom the
option holder's right under the incentive stock option shall pass by the option
holder's will or by the laws of descent and distribution. The death or permanent
disability of a holder of a non-qualified stock option will have the effect
specified in the individual option agreement or certificate of grant as
determined by the Board of Directors or the Committee.
13. Privileges of Stock Ownership
No person entitled to exercise any option granted under the Plan shall have
any of the rights or privileges of a stockholder of the Company in respect of
any shares of Common Stock issuable upon exercise of such option until
certificates representing such shares shall have been issued and delivered. No
shares shall be issued and delivered upon exercise of any option unless and
until, in the opinion of counsel for the Company there shall have been full
compliance with any applicable registration requirements of the Act, any
applicable listing requirements of any national securities exchange on which the
Common Stock is then listed,
-5-
<PAGE>
and any other requirements of law or of any regulatory bodies having
jurisdiction over such issuance and delivery.
14. Adjustments
14.1 If the outstanding shares of Common Stock of the Company are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company through a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of shares as to which options may
be granted under this Plan. A corresponding adjustment changing the number or
kind of shares allocated to unexercised options or portions thereof, which shall
have been granted prior to any such change, shall likewise be made. Any such
adjustment in the outstanding options shall be made without change to the
aggregate purchase price applicable to the unexercised portion of the option but
with a corresponding adjustment in the purchase price for each share covered by
the option.
14.2 Notwithstanding the foregoing, the Board of Directors or the Committee
may provide in writing in connection with such transaction for any or all of the
foregoing alternatives (separately or in combination): (i) for options therefore
granted to become immediately exercisable; (ii) for the assumption by the
successor corporation of the options theretofore granted or the substitution by
such corporation for such options or new stock options covering the stock of the
successor corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices; and (iii) for the
continuance of the Plan by such successor corporation in which event the Plan
and the options theretofore granted shall continue in the manner and under the
terms so provided.
14.3 Adjustments under this Paragraph 14 shall be made by the Board of
Directors or Committee, whose determination as to what adjustments shall be
made, and the extent thereof, shall be final, binding and conclusive. No
fractional shares of stock shall be issued under the Plan on any such
adjustment.
15. Amendment and Termination of Plan
15.1 The Board of Directors or the Committee may at any time suspend or
terminate the Plan. The Board of Directors or the Committee may also at any time
amend or revise the terms of the Plan, provided, however, that if stockholder
approval is required pursuant to Rule 16b-3 or another Rule of the General Rules
and Regulations under the Exchange Act, no such amendment or revision to (i)
increase the maximum number of shares which may be acquired pursuant to options,
granted under the Plan, (ii) change the minimum purchase price set forth in
Paragraph 4.2 and 6, (iii) increase the maximum term of options provided for in
Paragraph 5, or (iv) change the designation of persons eligible to receive
options or as provided in Paragraph 4, shall become effective until such
stockholder approval of such amendment or revision is obtained.
15.2 No amendment, suspension or termination of the Plan shall, without the
consent of the holder, alter or impair any rights or obligations under any
option or theretofore granted under the Plan.
-6-
<PAGE>
16. Effective Date of Plan
16.1 No option may be granted under the Plan unless and until (i) the
options and underlying shares have been registered under the Act and qualified
with the appropriate state regulatory agencies, or (ii) the Company has been
advised by counsel that such options and underlying shares are exempt from such
registration and/or qualification.
16.2 The Plan shall be effective as of March 17, 1998, the date on which it
was approved by the Board. However, notwithstanding any other provisions
contained herein, the Plan and all stock options granted under the Plan shall be
void if the Plan is not approved at the next Annual Meeting of Stockholders by
the holders of a majority of the outstanding voting stock of the Company (voting
as a single class) present, or represented, and entitled to vote at a meeting of
such stockholders duly held in accordance with the Delaware General Corporation
Law. No stock option issued under the Plan shall become exercisable in whole or
in part until the Plan is so approved by stockholders.
17. Reservation of Shares
The Company, during the term of this Plan, will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
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<PAGE>
EXHIBIT 10.11
JOHN A. CATSIMATIDIS
823 Eleventh Avenue
New York, New York 10019
Gristede's Sloan's, Inc.
823 Eleventh Avenue
New York, N.Y. 10019
May 15, 1998
Ref: Audit of Gristede's Sloan's Inc. Financial Statements for the
Fiscal Year Ended 11/30/97
Gentlemen:
On November 10, 1997, Gristede's Sloan's, Inc. ("GRI") acquired 29
supermarkets and City Produce Distributors, Inc (collectively, the "Food Group")
from entities wholly owned directly or indirectly by myself (the "Acquisition").
The total consideration for the Acquisition was $40 million--and was paid by GRI
issuing $36 million in common stock and assuming $4 million in liabilities owed
by the Food Group to myself or entities wholly owned by myself (the
"Intercompany Liabilities").
In connection with the Acquisition, GRI acquired (i) the inventories
located at the Food Group stores, (ii) various Food Group vendor trade
receivables, and (iii) certain other Food Group assets. In turn, GRI assumed an
equivalent amount of Food Group trade vendor payables and certain other Food
Group liabilities.
GRI's audited financial statements for FYE 11/30/97 indicate that as of
such date, GRI had approximately $3.3 million in vendor trade receivables that
were acquired from the Food Group pursuant to the Acquisition (the
"Receivables").
Notwithstanding an aggregate $300,000 reserve against aggregate GRI
receivables of approximately $5.1 million outstanding at 11/30/97, should any
portion of the Receivables, net of amounts applied against the $300,000 reserve,
be deemed by GRI's auditors BDO Seidman, LLP, to be uncollectible at GRI's next
fiscal year end date of 11/29/98 (the "Net Uncollectible Receivables"), I agree
to have such Net Uncollectible Receivables offset, dollar for dollar, against
the Intercompany Liabilities, provided however that the aggregate amount of such
offsets do not exceed $1 million. Subsequent recoveries against the Net
Uncollectible Receivables shall be available to pay Intercompany Liabilities.
<PAGE>
Gristede's Sloan's, Inc.
Page 2
I agree not to permit the level of Intercompany Liabilities on GRI's books
to fall below $1 million prior to the issuance of GRI's audited FYE 11/29/98
financial statements, to cover any contingent liability herein.
Sincerely,
/s/ John Catsimatidis
John Catsimatidis
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Sloan's Supermarkets, Inc.
New York, New York
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 dated January 23, 1996, relating to the consolidated
financial statements appearing in the Company's Annual Report on Form 10-K for
the transition period from March 3, 1997 to November 30, 1997.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
June 10, 1998
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<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> Nov-30-1997
<PERIOD-START> Nov-10-1997
<PERIOD-END> Nov-30-1997
<CASH> $88,970
<SECURITIES> $0
<RECEIVABLES> $5,410,026
<ALLOWANCES> $300,000
<INVENTORY> $16,221,465
<CURRENT-ASSETS> $22,919,917
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<CURRENT-LIABILITIES> $19,999,985
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$0
$0
<COMMON> $392,732
<OTHER-SE> $14,277,290
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<SALES> $9,225,123
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<CGS> $5,731,065
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<OTHER-EXPENSES> $0
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $82,586
<INCOME-PRETAX> $170,616
<INCOME-TAX> $30,000
<INCOME-CONTINUING> $140,616
<DISCONTINUED> $0
<EXTRAORDINARY> $0
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<NET-INCOME> $140,616
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
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