SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
X Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year Ended February 22, 1997
OR
Transition report pursuant to section 13 of 15(d) of the Securities
Exchange Act of 1934 for a transition period
Commission File Number 1-4434
GIANT FOOD INC.
(Exact Name of Registrant as specified in its Charter)
Delaware 53-0073545
(State of Incorporation) (IRS Employer Identification No.)
6300 Sheriff Road
Landover, Maryland 20785
(Address of Principal Executive Office)
(301) 341-4100
(Registrant's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Class A Common Stock American Stock Exchange
(Non-Voting) Philadelphia Stock Exchange, Inc.
Par Value $1.00 Pacific Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None<PAGE>
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.
X Yes No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of Registrant's knowledge, on definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
As of May 1, 1997, 250,000 Voting Common Shares were
outstanding, all of which were held by affiliates. Non-Voting Common
Shares outstanding were 59,748,000 and the aggregate market value of the
Non-Voting Common Shares (based upon the closing price of these shares
on the American Stock Exchange) of Giant Food Inc. held by
non-affiliates was approximately $1.9 billion.
State the aggregate market value of the voting stock held
by non-affiliates of the registrant. The aggregate market value shall
be computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified date
within 60 days prior to the date of filing. (See definition of
affiliate in Rule 405.)
Note. If a determination as to whether a particular person
or entity is an affiliate cannot be made without involving
unreasonable effort and expense, the aggregate market value of the
common stock held by non-affiliates may be calculated on the basis
of assumptions reasonable under the circumstances, provided that
the assumptions are set forth in this form.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes No
2<PAGE>
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of each of the
Registrant's classes of Common Stock, as of May 1, 1997 is as follows:
Class A Non-Voting Common Stock ($1.00 par value) 59,748,000
Class AL Voting Common Stock ($1.00 par value) 125,000
Class AC Voting Common Stock ($1.00 par value) 125,000
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by
reference and the Part of the Form 10-K (e.g. Part I, Part II, etc.)
into which the document is incorporated: (1) any annual report to
security holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act
of 1933. The listed documents should be clearly described for
identification purposes (e.g. annual report to security holders of
fiscal year ended December 24, 1980).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report on Form 10-K for the
year ended February 27, 1993 are incorporated by reference in part IV of
this Form 10-K.
Index to Exhibits Page 60
3<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Giant Food Inc. (sometimes herein called "Giant" or the
"Company") was incorporated in Delaware in 1935. The Company, together
with its subsidiaries (Giant of Maryland, Inc.; Giant of Salisbury,
Inc.; Cole Engineering, Inc.; Warex-Jessup, Inc.; Giant Construction
Company, Inc.; LECO, Inc.; Bursil, Inc.; GFS Realty, Inc.; GF McLean
Shopping Center, Inc.; Giant Automatic Money Systems, Inc.; Super G,
Inc.; Montrose Crossing, Inc.; Friendship Macomb SC, Inc.; Bayside
Traffic Services of Maryland, Inc; Giant of Talbot Co., Inc.; Giant of
Cherry Hill, Inc.; and Shaw Community Supermarket, Inc. [85% owned]) and
one affiliate company (Maryland Concession and Vending Company),
operates a chain of 171 supermarkets selling, at retail, food, pharmacy
and general merchandise in Washington, D.C., Maryland, Virginia,
Delaware, New Jersey and Pennsylvania. Of the Company's 171
supermarkets, 110 are in the Washington, D.C. Metropolitan Area,
including surrounding counties of Maryland and Virginia, 42 are in or
near Baltimore, Maryland, and others are in Fredericksburg,
Charlottesville and Warrenton, Virginia; Easton, Salisbury, Frederick,
Prince Frederick, Eldersburg and Westminster, Maryland; Delaware, New
Jersey and Pennsylvania. The Company also operates three freestanding
drug stores.
(b) Financial Information About Industry Segments
There is no financial information reported on industry
segments and lines of business apart from Giant's principal business of
operating supermarkets to sell, at retail, food, pharmacy and general
merchandise. Inasmuch as Giant did not engage in any line of business
which during either of its last three fiscal years accounted for 10% or
more of total sales and revenues, or 10% or more of income before taxes
and extraordinary items computed without deduction of loss resulting
from operations of any line of business, or a loss which equaled or
exceeded 10% of such income, no segment reporting is required. During
each of the last three fiscal years, Giant's retail sales provided in
excess of 90% of its total sales and earnings.
(c) Narrative Description of Business
The majority of the Company's stores are located in
shopping centers, with the average food and food/pharmacy combination
unit generating an annual sales volume of approximately $23,000,000. In
certain of its retail stores the Company has pharmacy units and flower
departments. The Company also operates freestanding drug stores in
Bethesda, and Salisbury, Maryland and Arlington, Virginia. During the
next fiscal year, the Company has planned or will have begun
construction on up to twelve supermarkets. Additionally, four
supermarkets will be extensively remodeled during the upcoming fiscal
year.
4
Giant supermarkets are all self-service and offer a full
line of nationally advertised groceries, meat, produce, dairy products,
seafood, tobacco, flowers, prepared foods and household and non-food
items. Giant also sells beer and wine where permitted. In addition,
Giant sells groceries, frozen foods, bakery products and dairy products
under its own private labels. Unbranded items such as meats and produce
are also sold in Giant's supermarkets. For the fiscal years ended in
February 1997, 1996 and 1995, respectively, the Company's sales were
divided, as follows: meat, delicatessen, dairy and seafood, 22%, 22%
and 22%; grocery and non-food, 68%, 68%, and 69%; fresh produce, 10%,
10% and 9%.
Giant operates a full line service delicatessen in 162
stores. Most of the bakery items such as bread, rolls, cakes, pies and
pastries, marketed under the names of "Heidi," "Super G," and "Giant",
are made in a 250,000 square-foot Company bakery located in Silver
Spring, Maryland. The Company operates three distribution centers of
approximately 1.2 million combined square feet in Landover, Maryland,
one mile from the District of Columbia line. The main center also
houses the Company's executive offices, dairy processing plant, flower
warehouse and ice cube production plant. The Company owns an executive
office building of about 180,000 square feet together with a 750-car
parking garage. Giant also owns a 760,000 square-foot dry grocery
warehouse located in Jessup, Maryland (including a 20,408 square-foot
soft drink bottling plant within that warehouse). Giant also leases a
138,000 square-foot frozen food distribution center and a 60,000 square-
foot ice cream manufacturing facility at the Jessup location.
(i) Giant produces for sale in its supermarkets bakery
goods and dairy products, ice cream, soft drinks and ice cubes. These
items are manufactured by its Bakery, Dairy, Ice Cream Plant, Soft Drink
Bottling Plant and Ice Plant. Giant also provides services such as
check-cashing, issuance of money orders, photographic film developing,
rental of home-care appliances, some catering, and cooperates in such
community-related projects as the sponsoring of "It's Academic," "Apples
for the Students" and other projects and activities related to community
improvement.
Additionally, the Company warehouses and distributes to
its own stores flowers and gifts, snacks and magazines and
pharmaceuticals. The Company also has an in-house advertising agency, a
trucking brokerage operation, a vending-machine business, an import-
export division and also owns or is the controlling general partner of
eighteen shopping centers and five freestanding stores. Revenue from
the Company's construction division from outside construction is not
material. Transfer sales from the above activities and from its
manufacturing and processing operations in support of its retail
operations were about $432 million. Pre-tax profits on these transfer
sales were approximately $53 million, representing about 37% of total
income before income taxes.
(ii) Giant has made no public announcement of any new
product or industry segment which is material or would require the
investment of a material amount of its assets.
5
(iii) Raw materials for Giant's manufacturing and
processing operations are readily available.
(iv) Giant owns approximately 40 trademarks and service
marks registered by it in the U.S. Patent and Trademark Office. Those
which were issued before November 16, 1989 have a term of twenty years
and those registered after November 16, 1989 have a term of ten years.
Each of Giant's registrations may be renewed for successive terms of ten
years so long as each mark is in use. Giant does not own any patents
which are of material importance to its operations. Giant uses its
trademarks to identify and promote its more than 1,500 private label
products. Giant uses its service marks to identify and distinguish its
high quality supermarket and pharmacy services from those of its
competitors. These registrations afford Giant the legal right to use
the marks nationwide.
(v) Giant's sales volume is not materially affected by
seasonality.
(vi) The Company generates sufficient cash from
operations to meet its working capital requirements. The Company does
not anticipate any changes in its working capital requirements during
the next fiscal year.
(vii) Giant's business is not dependent upon a single or
a few customers. Giant does not sell to any single customer or
affiliated group of customers goods or services in an amount which
equals 10% or more of its consolidated sales.
(viii) Giant's business is such that backlog ordering is
not done.
(ix) None of Giant's business is subject to
renegotiation of profits or termination of contracts or subcontracts at
the election of the Government.
(x) The retail food business is highly competitive,
and in the area in which Giant operates, some of the country's leading
chains are represented and compete vigorously with the Company, both in
price and in service. On the basis of figures published in Fortune
magazine, the Company considers itself at least among the first thirteen
in gross sales among retail grocery chains in the United States.
Competition from the other chains, independent grocery store operators
and restaurants and competition which exists with respect to particular
products or groups of products may adversely affect the Company's profit
margins in ensuing years.
(xi) Giant did not spend any material amount on
Company-sponsored research and development activities. In addition,
Giant did not spend during any of the last five fiscal years any
material amount on customer-sponsored research activities relating to
the development of new products, services or techniques or the
improvement of existing products, services or techniques.
6<PAGE>
(xii) Giant's compliance with federal, state, and local
laws which have been enacted or adopted regulating the discharge of
materials into the environment or otherwise relating to the protection
of the environment has not had and is not expected to have any material
effect upon its capital expenditures, its earnings, or its competitive
position.
(xiii) At the end of Fiscal Year 1997, Giant had
approximately 27,000 full-time and part-time associates. Approximately
24,100 or 89% are represented under collective bargaining agreements.
The majority of these associates are subject to new contracts which were
effected in Fiscal Year 1997.
(d) Financial Information About Foreign and
Domestic Operations and Export Sales
The amount of foreign sales and export sales done by Giant
is not material and is therefore not reported.
ITEM 2. PROPERTIES
The Company operates 171 supermarkets (including 130
combination food/pharmacy stores), 110 in the Washington, D.C.
Metropolitan Area, 42 in or near Baltimore, Maryland, and others in
Fredericksburg, Charlottesville and Warrenton, Virginia; Frederick,
Prince Frederick, Easton, Salisbury, Eldersburg and Westminster,
Maryland; Delaware, New Jersey and Pennsylvania.
Ten of the Company's supermarkets are fifteen to twenty
thousand square feet; twenty-seven are between twenty to thirty thousand
square feet; sixteen are thirty to forty thousand square feet; fifty-
four stores are between forty to fifty thousand square feet; thirty-nine
stores are between fifty and sixty thousand square feet, and twenty-five
are over sixty thousand square feet.
The Company also operates three freestanding drug stores.
The Company owns and operates three distribution centers
of approximately 1.2 million combined square feet in Landover, Maryland.
The main center also houses the Company's executive offices (including
an executive office building of approximately 180,000 square feet), its
dairy processing plant, a flower warehouse and an ice cube production
plant. A dry grocery warehouse, containing approximately 760,000 square
feet, is located in Jessup, Maryland. Also located at the Jessup
complex is a 138,000 square-foot frozen food distribution center and a
60,000 square-foot ice cream manufacturing facility. The Landover
complex and the Jessup complex each contain approximately 85 acres. The
Company's bakery is located in Silver Spring, Maryland, in a
Company-owned building containing 250,000 square feet.
7<PAGE>
The Company, through its wholly-owned subsidiary, GFS
Realty, Inc., also owns or is the controlling general partner of
eighteen shopping centers and five freestanding combination food/drug
stores. The shopping centers are located at:
8320 Old Keene Mill Road, Springfield, Virginia
6223 Baltimore National Pike, Baltimore, Maryland
7137 Columbia Pike, Annandale, Virginia
1228 Elden Street, Herndon, Virginia
46 Bureau Drive, Gaithersburg, Maryland
7546 Annapolis Road, Lanham, Maryland
12445 Hedges Run Road, Lakeridge, Virginia
3501 Plank Road, Fredericksburg, Virginia
15791 Columbia Pike, Burtonsville, Maryland
20044 Goshen Road, Gaithersburg, Maryland
7501 Huntsman Blvd., Springfield, Virginia
1454 Chain Bridge Road, McLean, Virginia
12051 Rockville Pike, Rockville, Maryland
Newark and Macomb Streets, N.W., Washington, D.C.
5700 South-East Crain Highway, Upper Marlboro, Maryland
20961 Southbank Street, Sterling, Virginia
10100 Dumfries Road, Manassas, Virginia
382 Egg Harbor Road, Turnersville, New Jersey
The freestanding combination food/drug stores are located
at:
3757 Old Court Road, Pikesville, Maryland
1925 East Joppa Road, Joppa Heights, Maryland
1734 York Road, Lutherville, Maryland
400 East Evesham Road, Cherry Hill, New Jersey
542 Berlin-Cross Keys Road, Winslow Township, New Jersey
In each shopping center, the Company is the largest tenant
occupying approximately 25% to 90% of the space.
The table below sets forth certain information with
respect to changes in the number of the Company's supermarkets
(including combination food/pharmacy stores) during the past five years:
Number at Number at
Fiscal Year Beginning of Year Opened Closed End of Year
February 27, 1993 154 3 2 155
February 26, 1994 155 4 2 157
February 25, 1995 157 4 0 161
February 24, 1996 161 7 2 166
February 22, 1997 166 8 3 171
With the exception of the bakery, the eighteen shopping
centers and the five freestanding combination food/drug stores noted
above, the distribution centers at Landover and the dry grocery
warehouse at Jessup, all the properties occupied by the Company are held
under leases which provide for minimum rentals and, in some cases,
additional rentals based on percentages of sales.
8<PAGE>
At February 22, 1997, the Company had entered into
leases covering stores, warehouses and equipment on which the minimum
annual rentals for the succeeding years are as follows:
Minimum Annual Rentals (In Thousands)
Year Capital Leases Operating Leases
1998 21,219 33,769
1999 21,208 32,024
2000 21,032 31,026
2001 20,926 29,589
2002 20,756 28,784
Later Years 271,988 436,001
ITEM 3. LEGAL PROCEEDINGS
To the best knowledge of the Company and counsel, there
is no litigation pending or threatened which would materially affect
the Company's business or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS
(a) Market Information
Principal markets on which Giant's Class A Common Stock
is traded: American, Philadelphia and Pacific Stock Exchanges.
The table below presents the high and low market prices
for Giant's Class A Common shares.
Common Stock Price Range
Fiscal 1997 Fiscal 1996
Quarter Ended High Low Quarter Ended High Low
May 18 $33.50 $30.38 May 20 $28.25 $22.88
Aug. 10 36.13 33.13 Aug. 12 32.50 27.88
Nov. 2 35.50 32.38 Nov. 4 32.50 30.88
Feb. 22 36.13 31.88 Feb. 24 34.50 30.75
The last sale price of Giant's Class A Common
(Non-Voting) shares on the American Stock Exchange on May 1, 1997 (the
latest most practicable date) was $32.125.
9 <PAGE>
(b) Holders
The approximate number of holders of record for Giant's
Class A Non-Voting Stock as of May 1, 1997: 29,302 (includes street
name shareholders).
The number of holders of record for Giant's Class AL
Voting Stock as of May 1, 1997: 1.
The number of holders of record for Giant's Class AC
Voting Stock as of May 1, 1997: 1.
(c) Dividends
The table below presents dividend information for
Giant's Common shares.
Dividends Declared Per Share of Common Stock
Fiscal 1997 Fiscal 1996
April $.19 April $.185
July .19 July .185
October .19 October .185
January .19 January .185
$.76 $.74
The Promissory Note Purchase Agreement with The
Prudential Insurance Company of America (see Note 4 to the
Consolidated Financial Statements, page 30) includes certain
restrictive covenants which, among other things, prohibit the Company
from paying dividends after February 22, 1986, aggregating more than
50 percent of its cumulative "consolidated net earnings" (as defined
in the Agreement), less the aggregate of dividends paid and less the
net amount expended to repurchase or redeem any of its capital stock
after February 22, 1986. At February 22, 1997, the specified levels
were $101,228,000 in excess of such aggregate amounts of dividends and
distributions. The Company anticipates the continuation of its
current policies of paying dividends.
10<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Year Ended (1), (2), (3)
1997 1996 1995 1994 1993
Sales $3,880,959 $3,860,579 $3,695,627 $3,567,468 $3,472,581
Net Income 85,504 102,153 94,161 95,231(*) 81,506
Earnings per
share $1.43 $1.72 $1.59 $1.60(*) $1.37
Total assets $1,503,525 $1,447,139 $1,416,710 $1,357,813 1,296,600
Long-term debt,
net of current
portion:
Notes and
mortgages 39,039 45,959 57,805 86,068 105,525
Obligations
under capital
leases 144,953 142,863 140,946 141,062 142,831
Total
long-term debt 183,992 188,822 198,751 227,130 248,356
Cash dividends
declared per
Common share $0.76 $0.74 $0.72 $0.70 $0.68
(1) Year ends last Saturday in February.
(2) Thousands of dollars except per-share figures.
(3) Fiscal 1997 results include an adverse impact from a five-
week labor dispute. See Management's Discussion and Analysis of
Financial Condition and Results of Operation.
(*) Reflects impact of change in accounting for income taxes. Change
equaled $3.9 million of income, equal to 7 cents per share.
11<PAGE>
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company operates a chain of retail supermarkets under the name
"Giant" in the Washington, D.C. and Baltimore metropolitan areas and in
other areas of Maryland and Virginia and under the name "Super G" in
Delaware, Pennsylvania and New Jersey. The Company also operates three
free-standing drug stores located in Maryland and Virginia. The Company
produces bakery goods, dairy products, ice cream, soft drinks and ice
cubes for sale in its supermarkets. The Company also has extensive
warehousing and distribution facilities to support its operations.
The Company opened eight food-drug combination stores during the 1997
fiscal year, including five additional Super G stores in New Jersey and
its first Super G store in Pennsylvania. The Company closed a 24,600
square foot food store in Washington, D.C., a 20,000 square foot food
store in Mount Vernon, Virginia, and a 44,760 square foot food-drug store
in Gaithersburg, Maryland. The net effect of these changes was to
increase the Company's total retail footage by 469,000 square feet to 7.6
million, an increase of 6.5% over the prior year. At the end of the
fiscal year, the Company operated 171 stores supermarkets, of which 130
are food-drug combination units and one is a gourmet specialty store.
The Company also operates three freestanding drug stores.
RESULTS OF OPERATIONS
The Company's earnings for fiscal 1997 were $85.5 million or $1.43 per
share, as compared with earnings of $102.2 million or $1.72 per share in
the 1996 fiscal year. Earnings for fiscal 1995 were $94.2 million or
$1.59 per share. Earnings were 2.20% of sales in the 1997 fiscal year,
2.65% of sales in the prior year and 2.55% in fiscal 1995. Earnings
patterns were markedly different in the first three quarters of fiscal
1997 as compared to the fourth quarter. For the first three quarters,
earnings were $67.8 million or $1.14 per share, as compared to total
earnings of $57.3 million or $0.97 per share for the corresponding
periods in fiscal 1996. For the fourth quarter, earnings were $17.7
million or $0.29 per share, as compared to total earnings of $44.9
million and per share earnings of $0.75 in the corresponding period in
fiscal 1996.
12<PAGE>
Sales for the 1997 fiscal year were $3.88 billion compared to sales of
$3.86 billion in the prior year. Same store sales for the 1997 fiscal
year were down $93.1 million or 2.43% as compared to fiscal 1996,
reflecting a significant decline during the fourth quarter both in total
sales and in same store sales as compared to the fourth quarter of fiscal
1996. Sales results for the first three quarters of fiscal 1997, totaled
$2.67 billion, which represented an increase of $71 million, or 2.7%,
over the same period in fiscal 1996. Same store sales during the first
three quarters decreased .24%. Significant factors in this slow growth
in sales were increasing outside competition, low inflation and internal
competition attributable to our opening new stores located near existing
Company stores.
The Company's fourth quarter sales for the 1997 fiscal year totaled
$1,215 million, which represented a decrease of $49 million, or 3.9% over
the same period in fiscal 1996. Same store sales during the fourth
quarter of 1997 decreased 6.9% as compared to fiscal 1996. These
declines in the fourth quarter sales were attributable to a five-week
strike by the Company's truck drivers and, to a lesser extent, to
competition and to the unusually mild winter. The strike caused a
reduction in customer traffic and the closures of the Company's
distribution facilities and processing plants and also required the use
of outside distributing companies to supply merchandise to the stores.
Following the strike, which ended January 19, 1997, the Company
implemented an aggressive promotional discount campaign to reestablish
long standing customer ties. Fourth quarter sales were also affected
adversely by the unusually mild winter season in 1996-1997 as compared to
the severe winter weather in 1995-1996, which had resulted in record
sales.
Sales for the 1996 fiscal year were $3.86 billion, representing an
increase of $165 million or 4.5%, over sales of $3.70 billion for the
1995 fiscal year. Same store sales for the 1996 fiscal year increased
2.3% over fiscal 1995. This increase was principally the result of the
severe winter weather in the fourth quarter of fiscal year 1996, offset
slightly by softening economic conditions and internal competition
attributable to new store openings in fiscal year 1996.
The cost of sales for fiscal 1997 was 70.46% as compared to 70.14% for
fiscal 1996, and 70.21% for fiscal year 1995. The increase, in cost of
sales as a percentage of sales in fiscal 1997 was attributable to strike
related issues and an unusually mild winter and to changes in buying
patterns and product mix. The cost of sales for the first three quarters
of fiscal 1997 was 69.64% compared to 70.32% for the same period in
fiscal 1996. The cost of sales for the fourth quarter of fiscal 1997 was
72.26% compared to 69.75% in the fourth quarter of fiscal 1996. The
higher cost of sales in the fourth quarter was caused by strike and
weather related declines in sales, the increased costs attributable to
the use of outside sources to supply the stores during the strike period
and the price reductions made as a part of the Company's aggressive
discount promotions after the strike period.
13<PAGE>
The Company uses the LIFO method for its nonperishable inventory. During
the last three years, the Company has experienced low to moderate
inflation as it relates to these inventories. This year's LIFO charge of
$4.3 million compares with charges of $4.7 million and $4.6 million for
the two prior fiscal years. As a percentage of sales, the LIFO charges
were .11% in 1997, .12% in 1996, and .12% in 1995.
For many years, the Company has sought to improve its operating results
by engaging in various activities which are used in support of its retail
operations. The Company maintains manufacturing and processing
activities in bakery, dairy, ice cream, beverage and ice cube operations.
Other areas maintained in support of the retail stores are wholesaling
activities including produce, pharmaceutical, snacks, magazine and
vending operations. The Company has also developed support activities in
the area of real estate operations through its GFS Realty subsidiary,
which currently manages twenty-nine shopping centers. Transfer sales
from manufacturing, processing and wholesaling activities approximated
$432 million during fiscal year 1997. The transfer sales represent the
estimated amounts that would have been paid to an outside entity for
these products. The activities associated with these operations
generated approximately $53 million or 37% of the Company's $140.5
million consolidated pre-tax earnings. Both transfer sales and the
associated income were lower in fiscal 1997 than in the prior year
because of the work stoppage that occurred during the five-week strike.
This reduction in transfer sales and the associated income contributed to
the reduction of the Company's margins and net income in the fourth
quarter and for the year.
Selling, general and administrative expenses increased to 25.75% of sales
in fiscal 1997 compared to 25.33% in fiscal 1996 and 25.27% in fiscal
1995. This year's increase was principally caused by the negligible
change in year-to-year sales resulting from the combined effects of the
strike, increased competition, and the milder winter. Other factors
contributing to the increase in general and administrative expenses as a
percent of sales were increases in occupancy costs related to new stores
and the cost of electronic payments (via a debit or credit card) which
continued to grow in fiscal 1997. The effect of the increases in
occupancy costs will be reduced as the planned new stores reach projected
sales levels.
In March 1996, the Company offered a co-branded credit card to its
customers which provided rebates of 3% for purchases made with the card
at Giant or Super G stores and 1% for other purchases made with the card.
This program was well received and was advantageous to the Company
because the issuing bank, M&T Bank of New York, agreed to bear the full
cost of the rebates, and also reimbursed part of the Company's credit
card transaction costs on all purchases made with the card at Giant or
Super G stores. M&T Bank abruptly ended the program in the first year of
the five-year agreement and has asserted that unforseen circumstances
relating to customer payment patterns permitted this action. In order to
maintain the program, the Company now offers a substitute card issued by
Chevy Chase Bank of Maryland. In order to keep the same customer rebate
provision, the Company will share in the cost of the rebates offered for
purchases at Giant or Super G stores with the co-branded card. This
change in terms imposes upon the Company additional costs equal to 2% of
14<PAGE>
all purchases made with the card at Giant or Super G stores. The Company
is seeking the recovery of its increased costs for the remainder of the
term of the M&T Agreement in an arbitration proceeding.
There was a slight decrease in fiscal year 1997 net interest expense,
$6.8 million compared to $7.2 million in the prior year. This was
principally the result of lower outstanding debt due to scheduled
repayments and increased capitalization of interest.
Income before income taxes was $140.5 million for fiscal 1997,
representing 3.62% of sales, compared to $167.8 million, representing
4.35% of sales in the prior year. The decrease of 16.3% in income before
taxes resulted from the strike, increased competition, and the milder
winter, which resulted in negligible growth in total sales volume, as
well as the cost of sales due to alternative procurement and reduced
benefits from manufacturing and wholesaling activities during the strike.
Income before income taxes for the 1995 fiscal year was $155.3 million,
4.20% of sales. The increase in income from fiscal 1995 to fiscal 1996
of $12.5 million, or 8% resulted largely from the weather related
increase in fourth quarter sales and the resulting increase in gross
margins.
The provision for income taxes yielded an effective tax rate of 39.l% for
the current year compared to 39.1% and 39.4% in the respective prior
years.
COMPETITIVE ENVIRONMENT
Competition in the Washington, D.C. and Baltimore metropolitan areas,
where the majority of the Company's stores are located, has increased
considerably over the past several years as additional supermarket chains
and alternative format competitors have entered the market. Further, in
its stores in Pennsylvania, New Jersey and Delaware, the Company is faced
with intense competition from supermarket chains which are more
established in these markets and its operation in these states have not
yet become profitable. The Company is committed to maintaining its
current market share throughout its area of operations by offering
aggressive promotions. Management believes that such promotions, which
also include the programs instituted following the drivers' strike in the
fourth quarter, will put continuing pressure on margins and earnings
which will have to be addressed by cost control measures.
LABOR CONTRACTS
The Company employs approximately 27,000 full and part-time associates of
which approximately 24,100 are represented under collective bargaining
agreements. During the current year the Company completed a renewal of
the labor contract with the Washington area retail clerks' union, which
represents approximately 13,250 associates, six months before its
expiration. The Baltimore area retail clerks, representing approximately
5,700 associates was also settled before its expiration. The new
contracts are effective through March 2000.
15<PAGE>
The work stoppage relating to the truck drivers was settled January 19,
1997 with a new agreement through May 2001. The new agreement with the
truck drivers sustains the Company's options to use alternative methods
of supplying the Company's stores when it is advantageous to the Company.
The contract assures the approximately 300 existing drivers, that they
will not be released because of the Company using alternative delivery
methods. This clause should not materially affect the Company's
operation since it will allow employment of the present drivers while
having the flexibility to use alternative distribution methods. Drivers
hired after January 1997 will have a different wage structure than the
incumbent drivers.
Since the settlement, the Company has successfully negotiated contracts
with five different unions, representing approximately 500 associates.
In each instance the accepted contract was patterned after the financial
aspects of the truck drivers' contract. There was no disruption in the
Company's operation.
The Company has major labor contacts with its bakery and warehouse
associates set to expire this year. The Company has been negotiating its
contracts with approximately 900 bakery associates at the manufacturing
plant and the in-store bakeries which expire in May. The contract with
approximately 1,150 warehouse associates is set to expire in November.
FINANCIAL CONDITION
CASH, CASH EQUIVALENTS, INVESTMENTS AND WORKING CAPITAL
Cash and cash equivalents include highly liquid investments with an
original maturity of three months or less. Short-term investments
consist primarily of United States government and agency securities
purchased with an original maturity of more than three months. As of
February 22, 1997, the Company's cash, cash equivalents and short-term
investments totaled $178 million, compared with $246 million and $250
million at the close of each of the two prior years. The lower cash is
partially attributable to the high inventory level at the end of the
year. Inventory, on a pre-LIFO basis, was up $70 million as compared to
the prior year. A significant portion of the increase was caused by the
strike and the need to establish alternative channels of distribution.
When the strike ended there was still a significant amount of inventory
in the distribution channel. The Company anticipates a reduction to the
inventory level in the coming year.
Net cash provided by operations amounted to $122 million for the current
fiscal year, $199 million for the preceding fiscal year and $203 million
for the 1995 fiscal year. (See Consolidated Statements of Cash Flows for
further details.)
Cash outlays for property, plant and equipment were $146 million for the
current year, and $128 million and $102 million for the prior two years.
These expenditures were related to the additional new stores and
maintaining the existing store base.
16<PAGE>
Working capital at the fiscal year end was $199 million compared with
$209 million and $190 million at the close of the two prior years. The
working capital ratio is 1.55 to 1, compared with 1.62 to 1 and 1.52 to 1
at the end of the two prior years, respectively. Including the LIFO
reserve, working capital would be $289 million currently, a 1.80 to 1
ratio, compared with $295 million, a 1.87 to 1 ratio and $271 million, a
1.74 to 1 ratio at the end of the two prior years, respectively.
CAPITAL EXPENDITURES
The Company plans to open as many as twelve stores in the coming year,
five of which will be in the New Jersey and Pennsylvania areas. Two of
these stores will be in shopping centers developed by GFS Realty, the
Company's real estate subsidiary. Although store development is
unpredictable, the Company believes that this is a reasonable estimate of
anticipated growth. Capital expenditures for the coming year, primarily
made up of new store construction and the remodeling of existing stores,
are expected to be approximately $190 million. This capital expenditure
program is subject to continuing change and review. In the normal course
of operations, the Company replaces stores and closes unprofitable
stores. The Company plans to close four smaller stores over the coming
year. Three of these will be closed because of a new store replacing the
closed units. The impact of future store closings is not expected to be
material. The Company anticipates adding a net of 597,000 square feet of
space, an increase of 7.8%. The Company believes that the liquid assets
on hand plus its cash flow from operations will be sufficient to support
ongoing business levels, including the planned capital expenditure
program, debt service, and dividends.
CAPITALIZATION
Notes and mortgages decreased $6.9 million due to scheduled principal
payments. Scheduled principal amortization during the upcoming 1998
fiscal year is expected to exceed the amount of any new financing during
that year.
At the close of the 1997 fiscal year, shareholders' equity as a
percentage of capitalization (long-term debt plus shareholders' equity)
was 83% compared with 81% and 79% for the prior two fiscal years.
Shareholders' equity at the year end was $874 million, compared with $823
million, a year earlier. Long-term debt consists of $39 million of notes
and mortgages at an average interest cost of 10.2%, and $145 million of
obligations under capital leases. At the close of the prior year, the
comparable balances were $46 million and $143 million, respectively.
17<PAGE>
DIVIDENDS
For the current year, cash dividends of $45.1 million were paid at the
rate of 76 cents per share. For the prior two years dividend payments
were $43.6 million and $42.4 million, at the rate of 74 cents and 72
cents per share. Fiscal year 1997 marks the 38th consecutive year of
dividend payments, beginning in 1959 when the Company went public.
INFLATION AND CHANGING PRICES
Inflation continues to moderately increase costs to the Company including
the cost of merchandise, labor, utilities and the cost of acquiring
property, plant and equipment. The Company uses the LIFO method of
accounting for 83% of its inventories. Under this method, the cost of
merchandise sold approximates current cost and thus reduces the
distortion, if any, in reported income due to increasing costs. The
historical costs of property, plant and equipment recorded by the Company
were incurred over a period of many years. The cost of replacement of
property, plant and equipment is generally greater than the cost on the
books of the Company as a result of inflation that has occurred over the
years since property, plant and equipment were placed in service.
NEW ACCOUNTING STANDARD
The Company will adopt SFAS No. 128, "Earnings Per Share," beginning in
fiscal 1998. The adoption of this standard will not materially affect
the Company's computation of earnings per share but will require the
presentation of additional data.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995-SAFE HARBOR CAUTIONARY
STATEMENT
This Annual Report on Form 10-K contains certain forward-looking
statements regarding the Company's expected results. Such statements are
subject to inherent uncertainties and risk, including among others:
business and economic conditions generally in the Company's operating
regions; pricing pressures and other competitive factors; results of the
Company's programs to reduce costs and relations with union bargaining
units. Consequently, actual events and results may vary significantly
from those included in or contemplated or implied by such statements.
18<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Giant Food Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of cash flows and of changes
in shareholders' equity present fairly, in all material respects, the
financial position of Giant Food Inc. and its subsidiaries at February
22, 1997, February 24, 1996 and February 25, 1995, and the results of
their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
/S/
PRICE WATERHOUSE LLP
Washington, D.C.
March 24, 1997
19
CONSOLIDATED STATEMENTS OF INCOME
Fifty-two weeks ended February 22, 1997, February 24, 1996 and
February 25, 1995
Dollar amounts in thousands except per share
1997 1996 1995
SALES $3,880,959 $3,860,579 $3,695,627
COSTS AND EXPENSES
Cost of sales 2,734,530 2,707,682 2,594,647
Selling, general
and administrative 999,195 977,835 933,786
Interest expense, net 6,779 7,235 13,915
Other income (1,978)
3,740,504 3,692,752 3,540,370
INCOME BEFORE INCOME TAXES 140,455 167,827 155,257
PROVISION FOR INCOME TAXES 54,951 65,674 61,096
NET INCOME $ 85,504 $ 102,153 $ 94,161
EARNINGS PER SHARE $1.43 $1.72 $1.59
The accompanying notes are an integral part of the consolidated financial
statements.
20<PAGE>
CONSOLIDATED BALANCE SHEETS
February 22, 1997, February 24, 1996 and February 25, 1995
Dollar amounts in thousands
ASSETS
1997 1996 1995
CURRENT ASSETS
Cash and cash equivalents $ 40,981 $ 111,133 $ 157,045
Short-term investments (Note 2) 137,096 134,677 92,757
Receivables 53,452 47,771 43,867
Income taxes receivable 8,501
Inventories (Note 3) 291,644 225,801 237,978
Deferred income taxes (Note 5) 22,579 24,003 22,548
Other current assets 3,623 2,886 2,144
Total current assets 557,876 546,271 556,339
PROPERTY, PLANT AND EQUIPMENT (Note 4)
Land 85,109 79,639 66,842
Buildings and improvements 347,921 319,982 295,245
Leasehold improvements 196,243 170,794 157,663
Fixtures and equipment 840,566 802,173 782,394
1,469,839 1,372,588 1,302,144
Less accumulated depreciation 688,238 643,693 609,214
781,601 728,895 692,930
Equipment deposits and construction
in progress 33,886 32,496 27,255
815,487 761,391 720,185
PROPERTY UNDER CAPITAL LEASES, net of
accumulated amortization
(1997, $71,192; 1996, $65,018;
1995, $59,876) (Note 6) 106,565 105,839 105,502
REAL ESTATE HELD FOR FUTURE DEVELOPMENT 11,875 16,902 23,933
OTHER ASSETS 11,722 16,736 10,751
$1,503,525 $1,447,139 $1,416,710
The accompanying notes are an integral part of the consolidated financial
statements.
21
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996 1995
CURRENT LIABILITIES
Current portion of long-term debt
Notes and mortgages (Note 4) $ 6,821 $ 6,846 $ 23,263
Obligations under capital leases (Note 6) 5,839 5,310 4,873
Accounts payable 248,368 219,253 225,829
Accrued expenses
Compensation related 82,741 84,277 82,831
Other 3,955 1,486 2,478
Dividends payable 11,393 11,009 10,663
Income taxes payable 9,061 16,808
Total current liabilities 359,117 337,242 366,745
LONG-TERM DEBT
Notes and mortgages (Note 4) 39,039 45,959 57,805
Obligations under capital leases (Note 6) 144,953 142,863 140,946
183,992 188,822 198,751
OTHER LIABILITIES
Deferred income taxes (Note 5) 12,675 12,543 21,868
Accrued insurance claims 38,482 47,964 35,471
Other 35,606 37,811 38,419
86,763 98,318 95,758
COMMITMENTS AND CONTINGENCIES (Notes 6 and 8)
SHAREHOLDERS' EQUITY (Notes 4 and 7)
Common stock, $1 par, all classes 60,257 60,257 60,257
Capital in excess of par value 2,147 388
Retained earnings 819,060 779,000 720,784
Net unrealized loss on
short-term investments (Note 2) (449) (108) (1,648)
881,015 839,537 779,393
Less Class "A" stock held in treasury,
at cost (1997,285,464 shares; 1996,
702,782 shares; 1995,1,002,464 shares) 7,362 16,780 23,937
873,653 822,757 755,456
$1,503,525 $1,447,139 $1,416,710
The accompanying notes are an integral part of the consolidated financial
statements.
22<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Fifty-two weeks ended February 22, 1997, February 24, 1996 and
February 25, 1995
Dollar amounts in thousands except share amounts
Net unrealized Total
Capital in Treasury stock (loss) gain on Share-
excess of (Class "A") short-term Retained holders'
par value Shares Cost investments earnings equity
Balance,
2-26-94 $ 669,781 $16,862 $670,034 $713,429
Net income 94,161 94,161
Change in accounting
for short-term
investments (Note 2) $ (408) (408)
Change in market value
of short-term
investments (Note 2) (1,240) (1,240)
Purchase of
treasury stock 402,700 8,764 (8,764)
Stock options
exercised (42,052) (1,021) (636) 385
Awards under stock
bonus plan (27,965) (668) (58) 610
Dividends
($.72 per share) (42,717) (42,717)
Balance,
2-25-95 1,002,464 23,937 (1,648) 720,784 755,456
Net income 102,153 102,153
Change in market value
of short-term
investments (Note 2) 1,540 1,540
Stock options
exercised (494) (280,768) (6,705) 6,211
Tax benefit under
stock option
plans 724 724
Awards under stock
bonus plans 158 (18,914) (452) 610
Dividends
($.74 per share) (43,937) (43,937)
Balance,
2-24-96 388 702,782 16,780 (108) 779,000 822,757
23<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - CONTINUED
Fifty-two weeks ended February 22, 1997, February 24, 1996 and
February 25, 1995
Dollar amounts in thousands except share amounts
Net unrealized Total
Capital in Treasury stock (loss) gain on Share-
excess of (Class "A") short-term Retained holders'
par value Shares Cost investments earnings equity
Net income 85,504 85,504
Change in market value
of short-term
investments (Note 2) (341) (341)
Stock options
exercised (227) (503,875) (12,494) 12,267
Treasury stock acquired
upon exercise of
stock options 105,100 3,554 (3,554)
Tax benefit under
stock option
plans 1,850 1,850
Awards under stock
bonus plan 136 (18,543) (478) 614
Dividends
($.76 per share) (45,444) (45,444)
Balance,
2-22-97 $2,147 285,464 $ 7,362 $(449) $819,060 $873,653
Common stock, all classes
Shares Par value
Balance, February 26, 1994 60,256,620 $60,257
Balance, February 25, 1995 60,256,620 60,257
Balance, February 24, 1996 60,256,620 60,257
Balance, February 22, 1997 60,256,620 60,257
The accompanying notes are an integral part of the consolidated financial
statements.
24<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fifty-two weeks ended February 22, 1997, February 24, 1996 and
February 25, 1995
Dollar amounts in thousands
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 85,504 $102,153 $ 94,161
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 96,743 93,932 92,704
Amortization of property under capital leases 6,174 5,875 5,833
Compensation expense arising from stock awards 614 610 610
Other adjustments, net 535 1,613 1,724
Net (decrease) increase in cash from changes
in operating assets and liabilities,
detailed below (67,835) (5,528) 7,734
Net cash provided by operating activities 121,735 198,655 202,766
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments (172,820) (73,782)( 40,663)
Proceeds from sales of short-term investments 138,697 19,826 48,805
Proceeds from maturity of
short-term investments 31,141 14,595 12,864
Capital expenditures (145,812)(128,107)(101,664)
Proceeds from dispositions of other assets 13,998
Additions to other assets (9,518) (7,598) (2,938)
Net cash used in investing activities (144,314)(175,066)( 83,596)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes and mortgages (6,945) (28,263) (19,618)
Reduction of obligations under capital leases (4,281) (3,858) (3,525)
Issuance of common stock 8,713 6,211 385
Purchases of treasury stock - - (8,764)
Dividends paid (45,060) (43,591) (42,448)
Net cash used in financing activities (47,573) (69,501) (73,970)
Net (decrease) increase in cash and
cash equivalents (70,152) (45,912) 45,200
Cash and cash equivalents at beginning of year 111,133 157,045 111,845
Cash and cash equivalents at end of year $ 40,981 $111,133 $157,045
25<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Fifty-two weeks ended February 22, 1997, February 24, 1996 and
February 25, 1995
Dollar amounts in thousands
CASH FLOWS FROM CHANGES IN OPERATING ASSETS AND LIABILITIES
1997 1996 1995
(Increase) decrease in assets
Receivables $ (5,681) $(3,904) $ (6,363)
Inventories (65,843) 12,177 (20,402)
Income taxes receivable (8,501) - -
Deferred income taxes 1,645 (2,474) (2,459)
Other current assets (737) (742) 969
Increase (decrease) in liabilities
Accounts payable 29,115 (6,576) (455)
Accrued expenses 933 454 6,833
Income taxes payable (7,211) (7,023) 9,775
Deferred income taxes 132 (9,325) (19,324)
Accrued insurance claims (9,482) 12,493 10,054
Other liabilities (2,205) (608) 29,106
Net cash (used in) provided by changes in
operating assets and liabilities $(67,835) $(5,528) $ 7,734
The accompanying notes are an integral part of the consolidated financial
statements.
26<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifty-two weeks ended February 22, 1997, February 24, 1996 and
February 25, 1995
Dollar amounts in thousands except per share
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Giant Food Inc. (the "Company") operates a chain of 171 supermarkets
selling, at retail, food, pharmacy and general merchandise. The Company
also operates three freestanding drug stores. The majority of the
Company's stores are located in the Washington, D.C. and Baltimore,
Maryland metropolitan areas as well as Pennsylvania, New Jersey and
Delaware. A majority of the Company's workforce is subject to labor
agreements requiring periodic negotiation.
Consolidation: The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Cash equivalents: For financial reporting purposes, cash equivalents
consist of all highly liquid investments purchased with original
maturities of three months or less. At February 22, 1997, such cash
equivalents consist principally of bank repurchase agreements which are
secured fully by United States government securities.
Short-term investments: The Company classifies all of its short-term
investments as available-for-sale. Such short-term investments consist
primarily of United States government and federal agency securities and
are stated at market value, with unrealized gains and losses on such
securities reflected, net of tax, in shareholders' equity. Realized
gains and losses on short-term investments are included in earnings and
are derived using the specific identification method for determining the
cost of securities. It is the Company's intent to maintain a liquid
portfolio to take advantage of investment opportunities; therefore, all
securities are considered to be available-for-sale and are classified as
current assets.
Inventories: Inventories are valued at the lower of cost or market. The
last-in, first-out (LIFO) method is used for determining the cost of
grocery, drug, cosmetic and non-food inventories, while the first-in,
first-out (FIFO) method is used for determining the cost of other
inventories, primarily perishable items. Approximately 83% of the
Company's inventories are valued using the LIFO method.
Property, plant and equipment: Property, plant and equipment are stated
at cost. Depreciation for financial reporting purposes is provided on
the straight-line method over the estimated useful lives of the assets
which results in average depreciation rates of 3%, 6% and 9% for
buildings and improvements, leasehold improvements and furniture and
equipment, respectively. Accelerated methods and lives are used for
income tax reporting purposes.
27 <PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property under capital leases: Property under capital leases, which
consists principally of real property used in the Company's operations,
is recorded at the lower of the present value of the minimum lease
payments or the fair market value of the leased property at the inception
of the lease. Amortization of the leased property is computed using the
straight-line method over the term of the lease.
Real estate held for future development: Real estate held for future
development is stated at cost.
Long-lived assets: The recoverability of long-lived assets is assessed
annually or whenever adverse events and changes in circumstances indicate
that previously anticipated undiscounted cash flows warrant reassessment.
Accrued insurance claims: The Company maintains insurance coverage with
respect to general liability, automobile and workers' compensation risks
under contractual arrangements, subject to specified limitations. The
costs associated with such risks are subject to adjustment based upon the
Company's ultimate claim experience.
Income taxes: The provision for income taxes is determined using the
asset and liability approach. Under this approach, deferred income taxes
represent the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities.
Pre-opening costs: Costs associated with the opening of new stores are
expensed as incurred.
Other income: Other income represents the realized gain from the sale of
the Company's interest in a partnership that operates automatic teller
machines in the Company's stores.
Buying and promotional allowances: Allowances and credits received from
vendors in connection with the Company's buying and merchandising
activities are recognized as earned.
Stock-based compensation: The Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". The Company has provided pro forma disclosures which reflect
the fair value based method of accounting for stock options granted in
1997 and 1996 as required by Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation" (Note 7).
Use of estimates and assumptions: The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates and assumptions.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings per share: Earnings per share is computed based on the weighted
average number of common shares outstanding during each year (59,778,489
shares in 1997, 59,360,234 shares in 1996 and 59,368,068 shares in 1995).
The exercise of outstanding stock options would not result in a material
dilution of earnings per share. The Company is required to adopt SFAS
No. 128 "Earnings Per Share", beginning with the fourth quarter of fiscal
year 1998. This standard requires a dual presentation of earnings per
share and will not have a material effect on the Company's computation of
earnings per share.
Business segments: Substantially all of the Company's assets, sales and
operating income are employed in or derived from a combination of retail
food and drug business in the United States.
Fair value of financial instruments: The carrying amount of the
Company's cash and cash equivalents, receivables, accounts payable and
accrued expenses approximates fair value because of the short maturity
of those instruments. The Company derives the fair value of its short-
term investments based on quoted market prices. The Company estimates
the fair value of its notes and mortgages by discounting the required
future cash flows under such notes and mortgages using borrowing rates at
which similar types of borrowing arrangements could be currently obtained
by the Company.
2. SHORT-TERM INVESTMENTS
Short-term investments consist of the following:
Gross
Unrealized Holding
As of February 22, 1997: Cost (Losses) Gains Fair Value
U.S. Treasury securities $109,775 $ (567) $109,208
Federal agency securities 26,815 (175) 26,640
Corporate bonds and other 1,248 - 1,248
$137,838 $ (742) $137,096
As of February 24, 1996:
U.S. Treasury securities $111,021 $ (168) $110,853
Federal agency securities 22,920 (9) 22,911
Corporate bonds and other 913 913
$134,854 $ (177) $134,677
As of February 25, 1995:
U.S. Treasury securities $ 71,052 $(1,767) $ 69,285
Federal agency securities 18,788 (984) 17,804
Corporate bonds and other 5,653 15 5,668
$ 95,493 $(2,736) $ 92,757
Maturities of short-term investments at February 22, 1997 were as
follows:
Cost Fair Value
Due within one year $ 60,120 $ 60,102
Due after one year through five years 77,718 76,994
$137,838 $137,096
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. INVENTORIES
If the FIFO method had been used, inventories would have been $90,008,
$85,713, and $80,967 higher at the end of 1997, 1996 and 1995,
respectively. Net income would have been higher by $2,616 ($.04 per
share) in 1997, $2,889 ($.05 per share) in 1996, and $2,755 ($.05 per
share) in 1995. The replacement cost of inventories valued at LIFO
approximates FIFO cost.
4. NOTES AND MORTGAGES
Notes and mortgages outstanding at February 22, 1997, February 24, 1996
and February 25, 1995 were as follows:
1997 1996 1995
Notes payable to insurance
company $ 33,560 $ 39,720 $ 50,880
Mortgage notes payable 12,300 13,085 30,188
45,860 52,805 81,068
Less current portion 6,821 6,846 23,263
$ 39,039 $ 45,959 $ 57,805
The insurance company notes are subject to covenants, the more
significant of which restrict the payment of dividends, the creation of
long-term debt and the purchase of Company common stock. At February 22,
1997, approximately $101,228 of consolidated retained earnings were free
of dividend and stock purchase restrictions. The average interest rate
on the insurance company notes is 9.7%.
Mortgage notes are collateralized by real estate which cost $15,599. The
average interest rate on such notes is 11.4%.
Net interest expense was as follows:
1997 1996 1995
Notes and mortgages $ 5,045 $ 6,237 $ 9,211
Lease obligations 16,597 16,140 16,349
Capitalized interest ( 1,731) ( 1,138) ( 900)
19,911 21,239 24,660
Less interest income (13,132) (14,004) (10,745)
$ 6,779 $ 7,235 $ 13,915
Annual maturities of notes and mortgages for the next five years are as
follows: 1998, $6,821; 1999, $6,905; 2000, $7,000; 2001, $2,108; and
2002, $2,230.
The estimated fair value of notes and mortgages is approximately $49,200,
$66,000 and $84,000 at February 22, 1997, February 24, 1996, and February
25, 1995, respectively.
30<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. INCOME TAXES
The provision (benefit) for income taxes consists of:
1997 1996 1995
Current
Federal $44,446 $64,536 $68,767
State 8,728 12,937 14,112
53,174 77,473 82,879
Deferred
Federal 1,466 (9,822) (18,622)
State 311 (1,977) (3,161)
1,777 (11,799) (21,783)
$54,951 $65,674 $61,096
Deferred income tax assets (liabilities) are comprised of the following:
February 22, February 24, February 25,
1997 1996 1995
Current deferred income tax assets:
Employee benefits $ 13,233 $ 13,930 $ 13,030
Promotional allowances 4,461 4,734 4,217
Capitalization of inventory 4,356 3,235 3,521
Other 529 2,104 1,780
22,579 24,003 22,548
Noncurrent deferred income tax assets:
Capital leases 17,414 16,658 15,861
Accrued insurance claims 18,429 21,274 17,688
Pension payments 6,904 5,843 4,191
Capitalization of overhead 4,276 3,812 3,463
Promotional allowances 6,350 8,396 10,590
Other 1,159 485 159
54,532 56,468 51,952
Total deferred tax assets 77,111 80,471 74,500
Noncurrent deferred income tax liabilities:
Depreciation (62,016) (63,820) (68,629)
Acquisition of shopping
center for stock (5,191) (5,191) (5,191)
Total deferred tax liabilities (67,207) (69,011) (73,820)
Net deferred tax asset $ 9,904 $ 11,460 $ 680
The following table reconciles the statutory federal income tax rate to
the Company's effective income tax rate.
1997 1996 1995
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal tax benefit 4.4 4.2 4.5
Other (0.3) (0.1) (0.1)
Effective income tax rate 39.1% 39.1% 39.4%
31<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. COMMITMENTS AND CONTINGENCIES
Leases: The Company leases certain of its warehouse facilities and a
substantial number of its retail store properties under noncancelable
lease agreements for periods ranging from 20 to 30 years. These leases
generally contain optional renewal provisions for one or more periods of
five years each. Substantially all leases covering retail store
properties provide for additional rentals based on sales. Most leases
also require the payment of taxes, insurance and maintenance costs. Data
processing and certain other equipment leases are for terms of two to
five years.
Future minimum lease payments under capital leases and noncancelable
operating leases as of February 22, 1997 are as follows:
Capital Operating
leases leases
1998 $ 21,219 $ 33,769
1999 21,208 32,024
2000 21,032 31,026
2001 20,926 29,589
2002 20,756 28,784
Later years 271,988 436,001
Total minimum lease payments 377,129 $591,193
Less executory costs 188
Net minimum lease payments 376,941
Less imputed interest 226,149
Present value of net
minimum lease payments 150,792
Less current portion 5,839
Long-term obligations under
capital leases $144,953
Minimum lease payments for capital leases have not been reduced by
minimum sublease rentals of $7,719 receivable in the future under
noncancelable subleases.
Net rental expense associated with leases consists of the
following:
1997 1996 1995
Operating leases
Minimum $32,829 $22,369 $19,254
Contingent 7,900 9,142 8,477
Contingent rentals under
capital leases 3,105 3,416 3,418
Gross rental expense 43,834 34,927 31,149
Sublease income (2,458) (2,303) (2,361)
Net rental expense $41,376 $32,624 $28,788
32<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. COMMITMENTS AND CONTINGENCIES (continued)
The Company also leases certain retail space to others under
noncancelable operating lease agreements. Rental income from owned
properties was $11,450 in 1997, $10,395 in 1996, and $8,351 in 1995.
Total future minimum rentals from owned properties as of February 22,
1997 were approximately $66,570.
Contingencies: From time to time, the Company is involved in legal
proceedings that have arisen in the ordinary course of business.
Management, after consulting with legal counsel, is of the opinion that
the outcome of such matters will not have a material impact on the
consolidated financial position of the Company.
7. COMMON STOCK AND EMPLOYEE INCENTIVE PLANS
Shares authorized: Common stock, $1 par value, authorized and
outstanding at year end is as follows:
Outstanding
Class Authorized 1997 1996 1995
"A" non-voting 75,000,000 59,721,156 59,303,838 59,004,156
"AC" voting 125,000 125,000 125,000 125,000
"AL" voting 125,000 125,000 125,000 125,000
75,250,000 59,971,156 59,553,838 59,254,156
Class "A" common stock has all of the rights and privileges pertaining to
other classes of common stock except the right to vote. No dividends may
be declared on any class of common stock without declaring at least an
equal dividend on Class "A" stock. However, dividends may be declared on
Class "A" stock without declaring dividends on any other class of common
stock.
The Company's board of directors has authorized the future repurchase of
up to 500,000 Class "A" common shares at February 22, 1997. The Company
has purchased and accumulated treasury stock in order to accommodate the
needs for registered common stock which may arise in connection with the
exercise of stock options and the award of shares under the stock bonus
plan.
Stock options: The Company has established incentive compensation plans
under which it is authorized to grant both incentive stock options and
non-qualified stock options to approximately 1,350 employees. Options to
purchase the Company's Class "A" common stock are exercisable at a price
equal to the market value of the stock at the date of grant and become
exercisable over one to five years following the grant. All options
expire ten years after date of grant.
The Company had historically granted stock appreciation rights (SARs) in
tandem with options. During the year ended February 24, 1990, the
Company began to grant non-qualified options without tandem SARs. No
options have been granted with tandem SARs since July 1989.
33<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. COMMON STOCK AND EMPLOYEE INCENTIVE PLANS (continued)
Upon exercise of a SAR the holder is entitled to receive cash (or
equivalent value in stock) equal to the amount by which the market value
of the Company's Class "A" common stock on the exercise date exceeds the
exercise price of the related stock options. As SARs are exercised the
corresponding options are canceled and as options are exercised the
corresponding SARs are canceled.
Option and SAR activity is as follows:
Number of Shares Average Option
Options SARs Price
February 26, 1994
Outstanding 2,657,922 510,642 $23.19
1995 Activity
Granted 646,000 - 23.51
Options exercised (41,984) (38,864) 8.91
SARs exercised (44,013) (44,013) 12.60
Canceled (93,890) (8,740) 24.60
February 25, 1995
Outstanding 3,124,035 419,025 23.56
1996 Activity
Granted 732,350 - 27.75
Options exercised (281,299) (49,004) 22.14
SARs exercised (179,057) (179,057) 16.69
Canceled (72,436) (5,216) 24.50
February 25, 1996
Outstanding 3,323,593 185,748 24.94
1997 Activity
Granted 573,400 - 33.40
Options exercised (503,875) (9,679) 24.42
SARs exercised (78,124) (78,124) 18.84
Canceled (139,171) (2,951) 26.08
February 22, 1997
Outstanding 3,175,823 94,994 26.71
Exercisable 1,519,683 94,994 $24.99
Available for future grants 1,174,600 NONE -
34
<PAGE>
7. COMMON STOCK AND EMPLOYEE INCENTIVE PLANS (continued)
The following table summarizes information about options outstanding at
February 22, 1997 for the plans:
Options Outstanding Options Exercisable
Weighted - Average
Remaining Weighted
Number Contractual Number Average
Range of Outstanding Life Exercise Exercisable Exercise
Exercise Prices At 2/22/97 (in years) Price At 2/22/97 Price
$14.78 - 19.81 62,214 2.7 17.99 55,564 17.87
20.00 - 24.94 1,263,409 5.9 22.72 722,759 22.73
25.00 - 29.94 1,062,490 5.6 27.21 687,340 27.36
30.44 - 35.63 787,710 9.0 33.12 54,020 32.36
3,175,823 1,519,683
The weighted-average fair value of options granted during 1997 and 1996
was $8.03 and $7.07, respectively. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes model. The
following weighted-average assumptions are included in the Company's fair
value calculations:
1997 1996
Expected life (years) 6 6
Risk-free interest rate 6.2% 6.3%
Volatility 20.9% 24.3%
Dividend yield 2.8% 3.1%
Under the above models, the total value of stock options granted during
1997 and 1996 was approximately $4,608 and $5,175, respectively, which
would be amortized over the five year option vesting period. Had the
Company determined compensation costs for these plans in accordance with
SFAS No. 123, the Company's pro forma net income would have decreased by
$938 ($0.02 per share) and $421 ($0.01 per share) in 1997 and 1996,
respectively. The SFAS No. 123 method of accounting does not apply to
options granted prior to 1996, and accordingly, the resulting pro forma
compensation cost is not representative of that to be expected in the
future.
Stock awards: The Company has also established an executive stock bonus
plan under which certain officers and managerial employees may be awarded
shares of Class "A" common stock. Charges to income arising from stock
awards were $1,007 in 1997 and $1,000 in each of 1996 and 1995.
8. EMPLOYEE BENEFIT PLANS
Pension and savings plans: The Company maintains a qualified defined
benefit pension plan which covers substantially all non-union employees.
Plan benefits are based on the participants' years of service and average
annual earnings. The Company's policy is to fund the amount expensed for
accounting purposes subject to it being deductible for income tax
purposes. The assets of the qualified defined benefit pension plan at
February 22, 1997 are comprised of approximately 60% equities and
approximately 40% fixed income investments and cash equivalents.
35<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. EMPLOYEE BENEFIT PLANS (continued)
Supplementary defined benefit pension plans covering certain officers are
also maintained. These plans are unfunded and non-qualified. The
pension liability associated with the plans is accrued using the same
actuarial methods and assumptions as those used for the Company's
qualified plan.
The net periodic pension cost for these plans includes the following
components:
1997 1996 1995
Service cost
Qualified plan $ 4,908 $ 4,158 $ 4,512
Supplemental plans 166 151 185
Interest cost
Qualified plan 8,224 8,339 7,254
Supplemental plans 336 337 300
Actual return on assets (15,576) (21,228) (4,873)
Net amortization and deferral
Qualified plan 4,617 12,412 (3,783)
Supplemental plans 212 189 190
Net pension cost $ 2,887 $ 4,358 $ 3,785
The funded status and amounts recognized in the consolidated balance
sheets as of February 22, 1997, February 24, 1996 and February 25, 1995
are as follows:
Qualified plan
1997 1996 1995
Actuarial present value of benefit obligations
Vested benefit obligation $ 81,576 $ 80,908 $58,801
Accumulated benefit obligation $ 91,333 $ 90,570 $66,202
Projected benefit obligation $116,301 $113,415 $89,806
Plan assets at fair value (117,980) (105,956) (87,826)
Projected benefit obligation (less than)
in excess of plan assets (1,679) 7,459 1,980
Unrecognized net gain (loss) 11,153 (1,167) (746)
Unrecognized prior service cost (1,759) (1,927) (1,801)
Unrecognized transition asset 6,100 7,351 8,603
Pension liability recognized in the consolidated
balance sheets $ 13,815 $11,716 $ 8,036
36<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. EMPLOYEE BENEFIT PLANS (continued)
Supplemental plans
1997 1996 1995
Actuarial present value of benefit obligations
Vested benefit obligation $ 3,066 $ 2,805 $ 2,297
Accumulated benefit obligation $ 3,066 $ 2,805 $ 2,297
Projected benefit obligation $ 4,784 $ 4,420 $ 3,811
Plan assets at fair value - - -
Projected benefit obligation in excess of
plan assets 4,784 4,420 3,811
Unrecognized net gain 673 681 982
Unrecognized prior service cost (1,225) (1,354) (1,459)
Unrecognized transition obligation (512) (614) (716)
Pension liability recognized in the
consolidated balance sheets $ 3,720 $ 3,133 $ 2,619
Actuarial assumptions used were as follows:
1997 1996 1995
Discount rate 7.5% 7.5% 8.5%
Rate of increase in
compensation levels 4.0% 4.0% 5.0%
Expected rate of return
on plan assets 9.5% 9.5% 9.0%
Payments are made to union-sponsored, multi-employer pension plans in
accordance with negotiated labor contracts. Charges to income arising
from contributions required under the labor contracts aggregated $18,731,
$19,051 and $18,577 in 1997, 1996 and 1995, respectively.
The Company sponsors a tax deferred savings plan whereby eligible
employees may elect annually to contribute up to 20% of their
compensation, subject to statutory limitations. A non-qualified
supplemental tax deferred savings plan is also maintained for certain
employees. The Company matches a portion of employee contributions.
Charges to income representing the Company's contributions to the plans
were $4,516, $4,259, and $4,033 in 1997, 1996 and 1995, respectively.
Other Benefits:
The Company does not provide any significant postretirement or
postemployment benefits to administrative employees, and postretirement
and postemployment benefits for union employees are covered by union-
sponsored multi-employer plans.
37<PAGE>
9. CASH FLOWS
Net cash flows from operating activities include cash payments for
interest and income taxes as follows:
1997 1996 1995
Interest $21,887 $22,758 $25,953
Income taxes 72,586 84,495 73,104
Non-cash investing and financing activities include capital leases of
$6,900, $6,212 and $3,755 in 1997, 1996 and 1995, respectively.
38<PAGE>
SUPPLEMENTARY FINANCIAL INFORMATION
(a) Selected Quarterly Financial Data (unaudited)
Thousands of Dollars, Except Per Share
Earnings
Fiscal Year Sales Gross Profit Net Income Per Share
1997
1st 12 weeks $ 895,627 $ 271,144 $ 25,783 $ .43
2nd 12 weeks 874,424 269,807 23,172 .39
3rd 12 weeks 896,977 268,743 18,860 .32
Last 16 weeks 1,213,931 336,735 17,689 .29
$ 3,880,959 $ 1,146,429 $ 85,504 $ 1.43
1996
1st 12 weeks $ 869,235 $ 257,626 $ 22,106 $ .37
2nd 12 weeks 856,515 254,057 17,765 .30
3rd 12 weeks 870,666 258,836 17,420 .30
Last 16 weeks 1,264,163 382,378 44,862 .75
$ 3,860,579 $ 1,152,897 $ 102,153 $ 1.72
1995
1st 12 weeks $ 829,697 $ 245,847 $ 20,414 $ .34
2nd 12 weeks 826,400 242,501 14,671 .25
3rd 12 weeks 834,780 250,207 18,561 .31
Last 16 weeks 1,204,750 362,425 40,515 .69
Total $ 3,695,627 $ 1,100,980 $ 94,161 $ 1.59
39<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors
Title of All Positions Year First
Name Age Held with the Company Elected Director
Pete L. Manos 60 President, Chief Executive 1995
Officer, and Chairman
of the Board
Alvin Dobbin 65 Executive Vice President, 1996
Chief Operating Officer,
and Director
Constance M. Unseld 49 Director 1993
Peter F. O'Malley 58 Director 1993
David J. Sainsbury 56 Director 1994
Harry Beckner 68 Director 1994
Rosemary Thorne 45 Director 1996
Raymond A. Mason 60 Director 1996
Michael W. Broomfield 54 Director 1996
The present term of each of the above Directors will expire at the
Annual Meeting of Voting Shareholders currently scheduled for
September 4, 1997.
Millard F. West, Jr. and Morton H. Wilner retired as active directors on
September 6, 1990, on which date they were elected Directors Emeritus.
Messrs. West and Wilner served as Board members 26 and 24 years,
respectively.
40<PAGE>
(b) Identification of Executive Officers
Year First Elected
Name and Position Age Officer Present Office
Pete L. Manos 60 1977 1992 (President)
Chairman of the Board, 1995 (Chief Executive Officer)
President and 1996 (Chairman of the Board)
Chief Executive Officer
Alvin Dobbin 65 1970 1996 (Executive Vice President)
Executive Vice President- 1996 (Chief Operating Officer)
and Chief Operating Officer
David W. Rutstein 52 1978 1981 (Sr. V.P.- General Counsel)
Senior Vice President- 1996 (Chief Admin. Officer)
General Counsel, Chief 1996 (Secretary)
Administrative Officer,
and Secretary
David N. Freedman 67 1982 1985
Senior Vice President-
Corporate Facilities
Roger D. Olson 52 1978 1988
Senior Vice President-
Labor Relations and
Personnel
Robert W. Schoening 50 1985 1988
Senior Vice President-
Information Systems
Samuel E. Thurston 53 1977 1988
Senior Vice President-
Distribution
M. Davis Herriman 58 1985 1996
Senior Vice President-
Grocery, Bakery and Pharmacy Operations
The present term of each of the above Executive Officers will expire at
the first meeting of the Board of Directors subsequent to the Annual
Meeting of Voting Shareholders currently scheduled for September 4,
1997.
41<PAGE>
(c) Identification of Certain Significant Employees
Not applicable.
(d) Family Relationships
Not applicable.
(e) Business Experience
Each of the above-named executive officers of the Company
has been employed by the Company for a period of time in excess of five
years. Their positions with the Company are set forth above in
subsection (b), and the duties of each have been encompassed within the
framework of his respective title since first becoming an officer of the
Company.
The principal occupation, employment, and business
experience during the past five years of each of the Directors and
Directors Emeritus of the Company is set forth below:
Pete L. Manos - see subsection (b) above.
Alvin Dobbin - see subsection (b) above.
Constance M. Unseld is the founder and operator of the
Unselds' School, a state accredited, independent school in Baltimore,
Maryland. She also serves as a member of the Board of Regents of the
University of Maryland system.
Peter F. O'Malley is the founder and current counsel to
the law firm of O'Malley, Miles, Nylen & Gilmore of Prince George's
County, Maryland. He currently serves on the Boards of Directors of
Potomac Electric Power Company, Potomac Capital Investments and Legg
Mason, Inc. The firm of O'Malley, Miles, Nylen & Gilmore is one of a
number of firms which provides legal services to the Company.
David J. Sainsbury is Chairman of J Sainsbury plc where he
has worked since 1963. Mr. Sainsbury is a great-grandson of the founder
of J Sainsbury plc.
Harry G. Beckner was formerly President of Jewel Food
Stores of Chicago, Illinois and Chief Operating Officer of the H.E. Butt
(H.E.B.) grocery company of San Antonio, Texas. He serves on the Boards
of Directors of H.E.B. and Shaw's Supermarkets Inc.
Rosemary P. Thorne serves as Group Finance Director of J
Sainsbury plc. Miss Thorne was recently appointed a non-executive
director of the Board of the Department for Education and Employment.
She is also a member of the Financial Reporting Review Panel, a trustee
of the Prince's Youth Business Trust and an active member of the
prestigious Hundred Group.
42<PAGE>
Raymond A. Mason is the Chairman, President and Chief
Executive Officer of Legg Mason, Inc. He has served as chairman of the
Securities Industry Association, The National Association of Security
Dealers and chairman of the Regional Firms Committee of the New York
Stock Exchange.
Michael Warwick Broomfield is a departmental Director of
J Sainsbury plc who has more than 35 years of service with J Sainsbury
plc.
Millard F. West, Jr., a Director Emeritus of the Company,
is a former Vice-President of the firm of Prudential Securities, Inc.
(Members New York Stock Exchange) and is a former Director of Dewey
Electronics Corporation.
Morton H. Wilner, a Director Emeritus of the Company, is
General Counsel Emeritus of the Armed Forces Benefit Association and
Vice Chairman of A.F.B.A. Industrial Bank. He is also a Trustee
Emeritus, for life, of the University of Pennsylvania.
(f) Involvement in Certain Legal Proceedings
No Director, Director Emeritus or Executive Officer was
involved in any event during the past five years which would be
responsive to this question.
(g) Promoters and Control Persons
Not applicable.
(h) Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission ("SEC")
and the American Stock Exchange initial reports of ownership and reports
of changes in ownership of common stock and other equity securities of
the Company within prescribed time periods. Officers, directors, and
greater than ten-percent shareholders are required by SEC regulation 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 fiscal
year ended February 22, 1997, except for the reports described below,
all Section 16(a) filing requirements applicable to officers, directors,
and greater than ten-percent beneficial owners were met on a timely
basis.
Roger D. Olson inadvertently failed to file a Form 4 with
respect to his indirect beneficial interest in The 1224 Corporation.
The error was corrected by the filing of SEC Form 5 in April 1997.
43<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following tables and narrative text discuss the compensation
paid in Fiscal Year 1997 and the two prior fiscal years to the Company's
Chief Executive Officer and the Company's five other most highly-
compensated executive officers.
Summary Compensation Table
Annual Compensation (1)
Other
Name and Annual
Principal Fiscal Compen-
Position Year Salary Bonus sation(1)
Pete Manos 1997 $520,673 $260,000 $6,002
President 1996 $327,028 $260,000 $6,134
& CEO 1995 $264,207 $133,608 $5,828
David B Sykes (2) 1997 $420,010 $221,258 --
Secretary, Treas. 1996 $401,071 $221,258 $6,134
Sr. V.P. Finance 1995 $387,659 $196,015 $5,858
Alvin Dobbin 1997 $290,141 $160,000 $6,002
Exec. V.P. 1996 $254,431 $150,378 $6,134
& COO 1995 $245,916 $124,363 $5,858
David W. Rutstein 1997 $264,654 $160,000 $6,002
Sr. V.P. 1996 $252,720 $149,363 $6,134
Gen. Counsel, CAO 1995 $244,270 $123,464 $5,858
& Secretary
David N. Freedman 1997 $264,654 $139,363 $6,002
Sr. V.P. 1996 $252,720 $139,363 $6,134
Corporate Facil. 1995 $244,270 $123,464 $5,858
M. Davis Herriman 1997 $217,657 $120,000 $6,002
Sr. V.P. Grocery, 1996 $189,375 $118,807 $6,134
Bakery & Pharmacy 1995 $178,255 $ 90,192 $5,858
(1) Aggregate value of perquisites does not exceed the lesser of
$50,000 or 10% of the total amount of annual salary and bonus. Includes
cash payments for income taxes to each named officer on the value of the
restricted shares and the tax payment itself pursuant to the Non-
Qualified Executive Stock Bonus Plan II.
(2) Mr. Sykes retired from the Company effective August 31, 1996.
44<PAGE>
Long Term Compensation
Options/ All Other
Name and Restricted SAR Compensa-
Principal Fiscal Stock Awards(#) LTIP tion
Position Year Awards(3) (4) Payouts (5)(6)
Pete Manos 1997 $9,388 2,500 0 $12,670
President, 1996 $9,596 102,500 0 $12,670
Chairman & CEO 1995 $9,163 22,500 0 $14,145
David B Sykes 1997 $0 17,500 0 $25,635
Secretary, Treas. 1996 $9,596 17,500 0 $25,635
Sr. V.P. Finance 1995 $9,163 17,500 0 $27,800
Alvin Dobbin 1997 $9,388 14,500 0 $14,506
Exec. V.P. & 1996 $9,596 9,500 0 $14,506
COO 1995 $9,163 9,500 0 $15,879
David N. Freedman 1997 $9,388 9,500 0 $14,985
Sr. V.P. 1996 $9,596 9,500 0 $14,985
Corporate Facil. 1995 $9,163 9,500 0 $16,349
David W. Rutstein 1997 $9,388 9,500 0 $10,373
Sr. V.P. 1996 $9,596 9,500 0 $10,373
Gen. Counsel, CAO 1995 $9,163 9,500 0 $11,737
& Secretary
M. Davis Herriman 1997 $9,388 12,500 0 $ 9,312
Sr. V.P. Grocery, 1996 $9,596 7,500 0 $ 9,312
Bakery & Pharmacy 1995 $9,163 7,500 0 $10,307
(3)The aggregate stock holdings of this group were 15,623.62 shares
and the share value was $32.625 as of February 22, 1997. Dividends are
paid on the stock held under this plan. Does not include 2,715.49
shares which were distributed to David B Sykes on November 15, 1996.
Under this plan, the Company makes an annual contribution not
exceeding the greater of (i) $1,000,000 or (ii) six-tenths of one
percent (0.60%) of the pre-tax earnings of the Company. The Company's
cash contributions are used to purchase shares of Class A non-voting
common stock.
Distributions of those shares will be made to those participants
who meet any of the following conditions: (1) ten years' participation
in the Plan; (2) retirement after attainment of age 62; (3) abolition of
the participant's job; (4) total and complete disability or (5) death.
45
(4) All options granted to participants pursuant to these stock
option plans are issued at 100% of fair market value on the date issued
and may be exercised, on a graduated basis, after the later of one year
from the date of grant or two years' continued employment. All options
terminate 10 years from their date of issuance.
The Company receives no cash consideration for granting options.
In order to acquire shares, the optionee must pay the full purchase
price of the shares being exercised, plus appropriate withholding taxes.
Optionees are not permitted to receive cash for any excess of market
value over option price.
(5) Includes Company matching contributions under Company's tax-
deferred savings plan ("Plan").
Participants in the Plan are permitted to contribute portions of
their compensation, subject to legal limitations, for which the Company
contributes an amount in cash equal to the participant's initial 3% pre-
tax contribution. In addition, the Company provides supplemental
contributions (in the form of Giant Food Inc. Class A common stock) to
match participants' contributions (partially or totally) in excess of 3%
of salary up to 6% of salary. Such Company contributions are limited to
.4% of its pre-tax earnings.
In Fiscal Year 1997 the Company made matching contributions under
the Plan as follows: Mr. Sykes $5,625, Mr. Manos $5,625, Mr. Dobbin
$5,625, Mr. Rutstein $5,625, Mr. Freedman $5,625, and Mr. Herriman
$5,625.
(6) Includes premium payments under the Company's Split Dollar
Insurance Program in which participants are provided with permanent life
insurance owned by the Company. The Company pays for premiums and will
recover amounts equal to its investment in the insurance policies at the
deaths of the participants.
During Fiscal Year 1997 the Company made insurance premium payments
as follows: Mr. Sykes $20,010, Mr. Manos $7,045, Mr. Dobbin $8,881,
Mr. Rutstein $4,748, Mr. Freedman $9,360, and Mr. Herriman $3,687.
46<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR (1)
Individual Grants
Number of
Securities
Underlying % of Total
Options/ Options Exercise
SARs Granted to of Base
Granted Employees Price Expiration
Name (2) in FY 97 ($/Sh) Date
Pete Manos 0 0.00%
David B Sykes 2,500 $32.69 03/01/06
15,000 $34.19 06/03/06
17,500 3.05%
Alvin Dobbin 2,500 $32.69 03/01/06
7,000 $34.19 06/03/06
5,000 $33.94 09/05/06
14,500 2.53%
David Rutstein 2,500 $32.69 03/01/06
7,000 $34.19 06/03/06
9,500 1.66%
David Freedman 2,500 $32.69 03/01/06
7,000 $34.19 06/03/06
9,500 1.66%
M. Davis Herriman 2,500 $32.69 03/01/06
5,000 $34.19 06/03/06
5,000 $33.94 09/05/06
12,500 2.18%
(1) No SARs were awarded in the 1997 Fiscal Year.
(2) Options granted under the 1989 Non-Qualified Stock Option Plan
have a term of up to ten years as determined by the Stock Option Plan
Committee ("Committee"). Options become exercisable after the later of
one year from date of grant or the completion of two years of continued
employment. After such date, optioned shares are exercisable only to
the extent of one-fifth of the total number of optioned shares per year.
After the fourth year, option grants are exercisable in full. The
Committee may prescribe longer time periods and additional requirements
with respect to the exercise of an option and may terminate unexercised
options based on the performance of the employee. No option may be
exercised unless the employee is in the employ of the Company. The
Company is required to withhold income taxes from income realized by an
employee on the exercise of an option. The Company will (i) reduce the
amount of stock issued to reflect the necessary withholding, (ii)
withhold the appropriate tax from other compensation due to the
optionee, or (iii) condition transfer of any stock to the employee on
the payment to the Company of the required taxes.
47<PAGE>
Potential Realizable Value of Assumed
Rates of Stock Price Appreciation for
Option Term (10 Years)
0% 5% 10%
Gain (3) Gain (4) (5) Gain (4) (5)
Name
Pete Manos $0 $ 0 $ 0
David B Sykes $0 $ 51,396 $ 130,249
0 322,529 817,351
$0 $ 373,925 $ 947,599
Alvin Dobbin $0 $ 51,396 $ 130,249
0 150,513 381,430
0 322,529 817,351
$0 $ 373,925 $ 947,599
David Rutstein $0 $ 51,396 $ 130,249
0 149,413 378,641
$0 $ 200,809 $ 508,890
David Freedman $0 $ 51,396 $ 130,249
0 149,413 378,641
$0 $ 200,809 $ 508,890
M. Davis Herriman $0 $ 51,396 $ 130,249
0 107,510 272,450
0 106,723 270,458
$0 $ 265,629 $ 673,157
(3) As shown in this column, no gain to the named officers or all
optionees is possible without appreciation in the price of the Company's
stock, which will benefit all shareholders.
(4) The price of Class A common stock at the end of the ten-year
term of the option grant at a 5% annual appreciation would be $53.25,
$55.69, and 55.28, and at a 10% annual appreciation would be $84.79,
$88.68, and $88.03. These appreciation rates are the result of
calculations required by the Securities and Exchange Commission's rules,
and therefore are not intended to forecast future appreciation, if any,
in the stock price of the Company.
(5) The gain is calculated from the exercise price of the options
listed above, $32.69, $34.19, and $33.94 based on the grant date of the
options. Option grants are at 100% of market value on the date of
grant.
48<PAGE>
Aggregated Options/SAR Exercises in Last Fiscal Year
and Fiscal Year End Option SAR/Values (1)
Shares SARs Value
Acquired on Exerc'd Realized
Name Exercise(#) (#) ($)
Pete Manos 0 0 0
David B Sykes 62,500 0 $533,762
Alvin Dobbin 0 0 0
David Rutstein 0 0 0
David Freedman 0 0 0
M. Davis Herriman 0 0 0
Value of Value of
Number of Number of Unexerc'd Unexerc'd
Unexerc'd Unexerc'd In-the-Money In-the-Money
Options/SARs Options/SARs Options/SARs Options/SARs
at FY-End at FY-End at FY-End($) at FY-End($)
Name Exercisable Unexercisable Exercisable Unexercisable
Pete Manos 52,500 105,000 $ 263,950 $ 296,240
David B Sykes 0 17,500 $ 0 $ 0
Alvin Dobbin 20,900 32,100 $ 156,972 $ 130,958
David Rutstein 20,900 27,100 $ 156,972 $ 130,958
David Freedman 20,900 27,100 $ 156,972 $ 130,958
M.D. Herriman 18,500 26,500 $ 138,520 $ 105,530
(1) Value is before taxes. The dollar values are computed by
determining the difference between the fair market value of the
underlying common stock and the exercise price at fiscal year end.
49<PAGE>
PENSION TABLE
Pension Plan:
The Company maintains a tax-qualified defined benefit pension plan for
approximately 2,500 salaried employees. The following table provides an
example of benefits at the normal retirement age of 65 payable as a life
annuity:
Estimated Annual Benefits
Pension from Retirement Plan
Highest Five for Following Number of Years
Year Average of Credited Service*
Earnings 10 20 30
$ 40,000 $ 3,935 $ 8,270 $ 13,004
70,000 7,985 16,670 26,054
100,000 12,035 26,070 39,104
150,000 18,785 39,070 60,854
200,000 25,535 53,070 82,604
250,000 32,285 67,070 104,354
300,000 39,035 81,070 126,104
350,000 45,785 95,070 147,854
400,000 52,535 109,070 169,604
500,000 66,035 137,070 213,104
600,000 79,535 165,070 256,604
700,000 93,035 193,070 300,104
800,000 106,535 221,070 343,604
A participant's annual pension payable to him/her as of his/her normal
retirement date will be equal to:
(i) .85% of "final average earnings" plus .50% of that portion of
final average earnings in excess of "covered compensation" times number
of years of credited service not to exceed 15, plus
(ii) 1.05% of final average earnings plus .50% of that portion of
final average earnings in excess of "covered compensation" times number
of years of credited service over 15, not to exceed 15, plus
(iii) .50% of final average earnings times years of credited service
over 30.
For purposes of determining plan benefits, earnings are the gross cash
compensation provided to a participant, including overtime and bonuses.
Early retirement benefits are payable under the Pension Plan.
Generally, the payment of benefits will be in the form of a straight-
life annuity for participants who are not married and a joint and
survivor annuity for those who are married.
*The amounts shown include benefits payable from the Supplemental
Retirement Arrangements.
50
The number of years of credited service of the executive officers listed
in the remuneration table under the Retirement Plan, determined as of
February 22, 1997 are: Mr. Sykes, 19 years; Mr. Dobbin, 26 years; Mr.
Manos, 26 years; Mr. Rutstein, 19 years, Mr. Freedman, 19 years and Mr.
Herriman 26 years. One of the officers (Mr. Sykes) is currently
receiving retirement payments from the Retirement Plan as required by
law for participants over age 70 1/2. The number of years of credited
service for Mr. Sykes is as of the date retirement benefits commenced.
Supplemental Retirement Arrangements:
An unfunded nonqualified pension plan is currently in effect. For two
of the officers listed in the remuneration table (Messrs. Sykes and
Dobbin), the Excess Benefit Savings Plan provides that in the event that
annual benefits from the Company's Retirement Plan, profit sharing and
thrift plans, and from Social Security do not equal sixty percent (60%)
of the earnings averaged over the five years prior to retirement, a
supplemental pension would be paid so that the total of all benefits,
including Social Security, equals sixty percent (60%). For less than
fifteen years of service, the total benefit is proportionately reduced.
The Excess Benefit Savings Plan also provides a make-up benefit for
those who are impacted by the compensation limitations of IRC Section
410(a)(17) and by the maximum benefit limitations of IRC Section 415.
Compensation of Directors
During Fiscal Year 1997, Directors and Directors Emeritus who were not
employees received an annual fee of $35,000 and a fee of $250 for
committee meetings attended.
Termination of Employment
The Company does not have any arrangements regarding termination of
employment.
Employment Contracts and Termination of Employment and Change-in Control
Arrangements
The Company does not have any employment contracts and termination of
employment and change-in-control arrangements.
Compensation Committee Interlocks and Insider Participation
Mrs. Unseld and Messrs. Beckner and O'Malley comprise the Company's
Officers' Executive Compensation Committee. Mr. O'Malley is of counsel
to the law firm of O'Malley & Miles which represents the Company with
respect to certain legal matters.
51<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
(as of May 1, 1997)
The following table sets forth information with respect
to the ownership of the voting securities of the Company as of May 1,
1997.
Nature
Number of
Title of Shares Beneficial Percent
Name and Address Class of Stock Owned Ownership of Class
The 1224 Corporation(1) Common AC 125,000 Direct 100.0%
6300 Sheriff Road
Landover, Maryland 20785
J Sainsbury (USA)
Holdings Inc. Common AL 125,000 Direct 100.0%
P.O. Box 3566
Portland, Maine 04104
(b) Security Ownership of Management (as of May 1, 1997)
The following table sets forth the number of each class
of equity securities of the Company beneficially owned by each (i)
director, (ii) named executive officers and (iii) Directors and Executive
Officers of the Company as a group as of May 1, 1997.
Nature
Number of
Title of Shares Beneficial Percent
Name and Title Class of Stock Owned Ownership of Class
David J. Sainsbury Common Stock A 0 (2)Direct and 0%
Director (Non-Voting) Indirect
Harry Beckner Common Stock A 1,000 Direct .002%
Director (Non-Voting)
Pete L. Manos Common Stock A 105,265(3) Direct and .176%
President, Chief Indirect
Executive Officer,
Director
Alvin Dobbin Common Stock A 133,489(4) Direct and .223%
Exec. Vice Pres., (Non-Voting) Indirect
Chief Operating
Officer,
Director
Constance M. Unseld Common Stock A 1,000 Direct .002%
Director (Non-Voting)
52
Peter F. O'Malley Common Stock A 2,000 Indirect .003%
Director (Non-Voting)
Rosemary Thorne Common Stock A 0 Direct 0%
Director (Non-Voting)
Raymond A. Mason Common Stock A 1,000 Direct .002%
Director (Non-Voting)
Michael W. Broomfield Common Stock A 0 Direct 0%
Director (Non-Voting)
Millard F. West, Jr. Common Stock A 23,800(5) Indirect .040%
Director Emeritus (Non-Voting)
Morton H. Wilner Common Stock A 10,000 Indirect .017%
Director Emeritus (Non-Voting)
David W. Rutstein Common Stock A 114,838(6) Direct and .192%
Sr. Vice President- (Non-Voting) Indirect
General Counsel,
Chief Administrative
Officer, Secretary
David N. Freedman Common Stock A 111,804(7) Direct and .187%
Sr. Vice President- (Non-Voting) Indirect
Corp. Facilities
M. Davis Herriman Common Stock A 59,867(8) Direct and .100%
Sr. Vice President- (Non-Voting) Indirect
Grocery, Bakery and
Pharmacy
All Directors and Common Stock A 1,338,827 Direct and 2.241%
Officers as a (Non-Voting) Indirect
Group (31 persons)
Common Stock AC 125,000(8) 100.000%
(Voting)
Common Stock AL 125,000(8) 100.000%
(Voting)
NOTES:
(1) Pursuant to the Will of Israel Cohen, the Class AC Voting Common
Stock was transferred to The 1224 Corporation, a Delaware
Corporation. The 1224 Corporation issued all of its non-voting
stock to the Israel Cohen Estate and all of its 500 outstanding
voting shares to four officers of the company, (Pete L. Manos,
Alvin Dobbin, David Rutstein and Roger D. Olson) and to Mr. Cohen's
sister, Lillian Cohen Solomon (100 shares each). The holders of
53<PAGE>
The 1224 Corporation voting stock have the exclusive right to
exercise all the voting rights in the Class AC Voting Common Stock.
(2) Mr. Sainsbury disclaims beneficial ownership of the Common Stock
of the Company beneficially owned by J Sainsbury (USA) Holdings
Inc. Mr. Sainsbury is a director of J Sainsbury plc, the
ultimate parent company of J Sainsbury (USA) Holdings Inc. In
addition to the 125,000 Class AL voting shares listed above,
J Sainsbury (USA) Holdings Inc. owns 9,779,931 Class A non-voting
shares.
(3) Includes 66,500 shares acquirable under stock option plans
within sixty days. Mr. Manos disclaims beneficial ownership of the
Class AC shares held by The 1224 Corporation except for 100 shares.
(4) Includes 29,000 shares acquirable under stock option plans
within sixty days. Mr. Dobbin disclaims beneficial ownership of
the Class AC shares held by the 1224 Corporation except for 100
shares.
(5) Includes 13,000 shares owned by wife for which Mr. West disclaims
beneficial ownership.
(6) Includes 26,900 shares acquirable under stock option plans
within sixty days. Mr. Rutstein disclaims beneficial ownership
of the Class AC shares held by the 1224 Corporation except for 100
shares.
(7) Includes 29,000 shares acquirable under stock option plans within
sixty days.
(8) Includes 25,000 shares acquirable under stock option plans within
sixty days.
(c) Changes in Control
Not applicable.
54<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions with Management and Others
Not applicable
(b) Certain Business Relationships
During the Company's most recent fiscal year, the law firm
of O'Malley & Miles, to which Mr. O'Malley is of counsel, provided
certain legal services to the Company.
(c) Indebtedness of Management
Not applicable.
(d) Transactions with Promoters
Not applicable.
55<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
Page in
Form 10-K
(a) The following documents are filed as part
of this report:
(1) Financial Statements and
supplementary data:
Report of Independent Accountants 19
Consolidated Statements of Income
for the years ended February 22,
1997, February 24,1996, and
February 25, 1995 20
Consolidated Balance Sheets at
February 22, 1997, February 24,
1996, and February 25, 1995 21-22
Consolidated Statements of Changes
in Shareholders' Equity for the years
ended February 22, 1997, February 24,
1996, and February 25, 1995 23-24
Consolidated Statements of Cash Flows
for the years ended February 22, 1997,
February 24, 1996, and February 25,
1995 25-26
Notes to Consolidated Financial
Statements 27-38
Supplementary Financial Information
(unaudited) 39
(2) Financial Statement Schedules:
56<PAGE>
All schedules are omitted because they are not
applicable or the required information is shown in the consolidated
financial statements or notes thereto.
(3) Exhibits:
The Index to Exhibits is on page 60.
(b) Reports on Form 8-K
On August 19, 1996, a report on Form 8-K under Item 5
was filed by the Registrant.
57<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GIANT FOOD INC.
BY: /s/ Pete L. Manos
Pete L. Manos,
Chairman of the Board, President and
Chief Executive Officer
58<PAGE>
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
GIANT FOOD INC.
May 21, 1997 By: /s/ Pete L. Manos
Pete L. Manos
President and Principal Executive Officer
May 21, 1997 By: /s/ Pete L. Manos
Pete L. Manos, Director
May 21, 1997 By:/s/ Alvin Dobbin
Alvin Dobbin, Director
May 21, 1997 By:/s/ David J. Sainsbury
David J. Sainsbury, Director
May 21, 1997 By: /s/ Harry Beckner
Harry Beckner, Director
May 21, 1997 By:/s/ Constance M. Unseld
Constance M. Unseld, Director
May 21, 1997 By: /s/ Peter F. O'Malley
Peter F. O'Malley, Director
May 21, 1997 By: /s/ Raymond A. Mason
Raymond A. Mason, Director
May 21, 1997 By:/s/ Rosemary Thorne
Rosemary Thorne, Director
May 21, 1997 By:/s/ Michael Warwick Broomfield
Michael Warwick Broomfield, Director
59<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit Page No.
3.(i) Articles of 62
Incorporation
3.(ii) By-Laws 69
10.1 1989 Non-Qualified Incorporated by reference
Stock Option Plan to the Company's Form 10-K
filed with the SEC in
May, 1993 for the Fiscal
Year Ended February 27, 1993
10.2 Non-Qualified Executive Incorporated by reference
Stock Bonus Plan to the Company's Form 10-K
filed with the SEC in
May, 1993 for the Fiscal
Year Ended February 27, 1993
10.3 Split Dollar Insurance Incorporated by reference
Program to the Company's Form 10-K
filed with the SEC in
May, 1993 for the Fiscal
Year Ended February 27, 1993
10.4 Supplemental Retirement Incorporated by reference
Plan to the Company's Form 10-K
filed with the SEC in
May, 1993 for the Fiscal
Year Ended February 27, 1993
10.5 Excess Benefit Plan Incorporated by reference
to the Company's Form 10-K
filed with the SEC in
May, 1993 for the Fiscal
Year Ended February 27, 1993
10.6 Giant Food Inc. 9.60%
Promissory Notes Due
October 15, 2001 Note
Agreement with The
Prudential Insurance
Company of America
dated October 28, 1986
("1986 Note Agreement") 79
60<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit Page
10.7 Giant Food Inc. 9.83% Promissory
Notes Due August 4, 2012 Note
Agreement with The Prudential
Insurance Company of America
dated August 4, 1987 ("1987 Note
Agreement") 105
10.8 Letter Agreement dated July 15,
1988 referencing the Note Agreement
dated October 28, 1986 and the Note
Agreement dated August 4, 1987
respectively, each between Giant Food
Inc. and The Prudential Insurance
Company of America 134
10.9 Letter dated August 5, 1991
referencing the Note Agreement
between Giant Food Inc. and The
Prudential Insurance Company of
America dated October 28, 1986, as
amended 136
10.10 Amendment, Assumption and Guarantee
Agreement dated as of February 28,
1992 by and among Giant Food Inc.,
Giant of Landover, Inc., Giant of
Maryland, Inc. and The Prudential
Insurance Company of America 137
10.11 Amendment, Assumption and Guarantee
Agreement dated as of February 27,
1993 by and among Giant Food Inc.,
Giant of Landover, Inc. and The
Prudential Insurance Company of
America 150
11 Computation of Earnings
Per Common Share 163
21 Subsidiaries 164
23 Consent of Independent
Accountants 165
61<PAGE>
EXHIBIT 3.(i)
(As amended on 01/19/96)
COMPOSITE
CERTIFICATE OF INCORPORATION
OF
GIANT FOOD INC.
FIRST. The name of this corporation is GIANT FOOD INC.
SECOND. Its principal office in the State of Delaware is to be
located at 927 Market Street, in the City of Wilmington, County of New
Castle, and its resident agent is Corporation Guarantee and Trust
Company, 927 Market Street, Wilmington, Delaware.
THIRD. The nature of the business and the object and purposes to be
transacted, promoted and carried on are to do any or all of the things
herein mentioned as fully and to the same extent as natural persons might
or could do, and in any part of the world, viz.:
To establish, acquire by purchase, lease or otherwise and to conduct
and operate public markets, stores, and other establishments and to
sub-let, lease and rent spaces therein; to buy, sell and otherwise deal
in and deal with, at wholesale and/or retail and as principal or agent,
farm and garden products, dairy and creamery products and foods, food
stuffs, food products and preparations, groceries, meats, poultry, eggs,
butter, cheese, vegetables, milk, cream, fish, sea foods and edibles of
any and every description, and to engage in any business which may seem
advantageous or useful in connection therewith.
To purchase, take, own, hold, deal in, mortgage or otherwise lien
and to lease, sell, exchange, convey, transfer or in any manner whatever
dispose of real property, within or without the State of Delaware.
To manufacture, purchase or otherwise acquire and to hold, own,
mortgage or otherwise lien, pledge, lease, sell, assign, exchange,
transfer or in any manner dispose of, and to invest, deal and trade in
and with goods, wares, merchandise and personal property of any and every
class and description, within or without the State of Delaware.
To acquire the good will, rights and property and to undertake the
whole or any part of the assets and liabilities of any person, firm,
association or corporation; to pay for the same in cash, the stock of
this company, bonds or otherwise; to hold or in any manner to dispose of
the whole or any part of the property so purchased; to conduct in any
lawful manner the whole or any part of any business so acquired and to
exercise all the powers necessary or convenient in and about the conduct
and management of such business.
62<PAGE>
To guarantee, purchase or otherwise acquire, hold, sell, assign,
transfer, mortgage, pledge or otherwise dispose of leases, shares of the
capital stock, bonds or other evidences of indebtedness created by other
corporations and while the holder of such stock to exercise all the
rights and privileges of ownership, including the right to vote thereon,
to the same extent as a natural person might or could do.
To purchase or otherwise acquire, apply for, register, hold, use,
sell or in any manner dispose of and to grant licenses or other rights in
and in any manner deal with patents, inventions, improvements, processes,
formulas, trade-marks, trade names, rights and licenses secured under
letters patent, copyrights or otherwise.
To enter into, make and perform contracts of every kind for any
lawful purpose, with any person, firm, association or corporation, town,
city, county, body politic, state, territory, government or colony or
dependency thereof.
To borrow money for any of the purposes of the corporation and to
draw, make, accept, endorse, discount, execute, issue, sell, pledge or
otherwise dispose of promissory notes, drafts, bills of exchange,
warrants, bonds, debentures and other negotiable or non-negotiable,
transferable or non-transferable instruments and evidences of
indebtedness and to secure the payment thereof and the interest thereon
by mortgage or pledge, conveyance or assignment in trust of the whole or
any part of the property of the corporation at the time owned or
thereafter acquired.
To purchase, hold, sell and transfer the shares of its capital
stock.
To have one or more offices and to conduct any or all of its
operations and business and to promote its objects within or without the
State of Delaware, without restriction as to place or amount.
To carry on any other business in connection therewith.
To do any or all of the things herein set forth as principal, agent,
contractor, trustee or otherwise, alone or in company with others.
The objects and purposes specified herein shall be regarded as
independent objects and purposes and, except where otherwise expressed,
shall be in no way limited nor restricted by reference to or inference
from the terms of any other clause or paragraph of this certificate of
incorporation.
The foregoing shall be construed both as objects and powers and the
enumeration thereof shall not be held to limit or restrict in any manner
the general powers conferred on this corporation by the laws of the State
of Delaware.
63<PAGE>
FOURTH. The total number of shares of stock which this Corporation
is authorized to issue is Seventy-five Million Two Hundred Fifty Thousand
(75,250,000) shares, all of which total authorized stock shall be of the
par value of One Dollar ($1.00) each, amounting to Seventy-five Million
Two Hundred Fifty Thousand Dollars ($75,250,000). Of the total
authorized stock, One Hundred Twenty-five Thousand (125,000) shares of
the stock of the par value of One Dollar ($1.00) per share, amounting to
One Hundred Twenty-five Thousand Dollars ($125,000), shall be Class AL
Common Stock; One Hundred Twenty-five Thousand (125,000) shares of the
stock of the par value of One Dollar ($1.00) per share, amounting to One
Hundred Twenty-five Thousand Dollars ($125,000), shall be Class AC Common
Stock; and Seventy-five Million (75,000,000) shares of the par value of
One Dollar ($1.00) per share, amounting to Seventy-five Million Dollars
($75,000,00), shall be Class A Common Stock. The rights, privileges, and
conditions following shall attach to the shares aforesaid, viz:"
The Board of Directors may fix or alter from time to time the
dividend rate on the shares of common stock of any class, and may declare
dividends on any class of common stock and not declare dividends on
another class of common stock, and may declare dividends on one class of
common stock at a different rate than that declared on another class of
common stock; provided, however, that the Board of Directors shall not
declare a dividend on the Class AL Common Stock and Class AC Common Stock
at a higher rate than the dividend declared on Class A Common Stock; and
provided further that whenever dividends are declared on the Class AL
Common Stock, dividends at the same rate shall be declared on the Class
AC Common Stock, and whenever dividends are declared on the Class AC
Common Stock, dividends at the same rate shall be declared on the Class
AL Common Stock; and provided further that if the Board of Directors
shall declare dividends payable in shares of the Company's stock of any
class, then all of the holders of common stock shall be considered as one
class, and the holders of all the common stock shall be entitled to
participate ratably, share for share, and without preference of any class
over the other stock dividend so declared.
The holders of Class AL Common Stock shall be entitled to all of the
rights and privileges pertaining to common stock without any limitations,
prohibitions, restrictions, or qualifications except that the holder or
holders of said Class AL Common Stock, in the election of Directors,
shall have the right to vote for and elect four of the nine Directors,
hereinafter provided for, but only one director so elected by said Class
AL Common Stock can be a full time employee of the Corporation.
The holders of Class AC Common Stock shall be entitled to all of the
rights and privileges pertaining to common stock without any limitations,
prohibitions, restrictions, or qualifications except that the holder or
holders of said Class AC Common Stock, in the election of Directors,
shall have the right to vote for and elect five of the nine Directors
hereinafter provided for, but only two directors so elected by said Class
AC Common Stock can be full time employees of the Corporation.
64<PAGE>
Agreements or other writings of or among the record holder or
holders of voting stock of this Corporation, which restrict or limit the
transferability or alienability of all or any part of any class of their
voting stock of this Corporation, shall be binding upon this Corporation,
whether the Corporation is a party thereto or not, provided such
restriction(s) or limitation(s) does not restrain absolutely or
unreasonably the transferability or alienability of such stock, and
provided further that notice of such restriction(s) or limitation(s) is
given to the Corporation by delivery to it, at its principal place of
business, of an executed copy of such agreement(s) or other writing
subscribed to by the record holders of the stock affected thereby. From
and after the receipt of the notice aforesaid, no voting stock of this
Corporation affected by such agreement(s) or other writing shall be
transferred upon the books of the Corporation or reissued by the
Corporation except in conformity with such agreement(s) or other writing.
The holders of Class A Common Stock shall be entitled to all of the
rights and privileges pertaining to common stock without limitations,
prohibitions, restrictions, or qualifications, except that the holder or
holders of Class A Common Stock SHALL HAVE NO VOTING POWERS WHATSOEVER
and they shall not be entitled to notice of meetings of stockholders of
the Corporation. No holder of Class A Common Stock of this Corporation
shall have any preemptive or preferential rights of subscription to any
shares of any class of stock in this Corporation, whether now or
hereafter authorized, and no holder of any common stock of this
Corporation shall have any preemptive or preferential rights of
subscription to any shares of the Class A common stock of this
Corporation, whether now or hereafter authorized and the Class A Common
Stock (but not the other classes of the common stock) may be sold or
issued to such person or persons as the Board of Directors may determine.
At no time shall any shares of Class AC Common Stock be issued
unless at the same time a like number of shares of Class AL Common Stock
be issued, nor shall any shares of Class AL Common Stock be issued unless
at the same time a like number of shares of Class AC Common Stock be
issued. The holders of the Class AC Common Stock shall at all times have
preemptive rights of subscription to any shares of said Class AC Common
Stock hereafter authorized, and the holders of the Class AL Common Stock
shall at all times have preemptive rights of subscription to any shares
of the said Class AL Common Stock hereafter authorized. Nothing herein
contained shall impair or affect the preemptive rights of the Class AL
Common stockholders or of the Class AC Common stockholders in respect to
the issuance of said Class AL Common Stock and said Class AC Common
Stock. At no time shall the preemptive rights of the Class AL Common
stockholders or of the Class AC Common stockholders in respect to the
issuance of the said Class AL Common Stock and the said Class AC Common
Stock be impaired or affected. None of the provisions of this paragraph
shall hereafter be changed except by the affirmative vote of the holders
of a majority of the issued and outstanding shares of the Class AL Common
Stock and the affirmative vote of the holders of a majority of the issued
and outstanding shares of the Class AC Common Stock.
65<PAGE>
The number of Directors of said Corporation is fixed at nine, of
which total number so fixed four thereof shall be elected by the holders
of Class AL Common Stock and five thereof shall be elected by the holders
of the Class AC Common Stock. The holder or holders of each of said
classes of voting stock shall have the right to remove, by a majority
vote and without assigning any cause, the respective Director or
Directors elected by the holders of such class of stock and fill the
vacancy caused by the removal, resignation, or death, or other
contingency affecting such Director or Directors. In case any one or
more Directors be so removed, new Directors may be elected at the same
meeting by the class of stockholders removing said Director or Directors.
The holders of at least 20% of the class of voting stock seeking the
removal of the respective Director or Directors elected by such class or
seeking to fill a vacancy among the respective Director or Directors
elected by such class, shall have the right to call a special meeting of
the stockholders of the Corporation to accomplish this purpose. At a
special meeting so called the holders of a majority of the class of stock
outstanding and entitled to vote seeking the election or removal of its
respective Director of (sic) Directors shall constitute a quorum, and the
only business which shall be taken up is the election or removal of the
Director or Directors as set forth above.
The property and business of the corporation shall be managed and
controlled by the Board of Directors. The Directors need not be
stockholders. The presence of six Directors shall be required to form a
quorum for the conduct of any business of the corporation, provided,
however, that where a waiver of notice of meeting is signed by all nine
Directors, five Directors shall constitute a quorum for the conduct of
the business of the corporation set forth specifically in said waiver of
notice of meeting. In the event of a lack of a quorum where no waiver of
notice has been signed, the President or a majority in interest of the
Directors present, in person or by proxy, may adjourn the meeting and
then direct the Secretary of the corporation to call another meeting of
the Directors upon ten days' notice given by certified mail, return
receipt requested, to each of the Directors at his or her last known post
office address. At this adjourned meeting five Directors shall
constitute a quorum, and any business may be transacted which might have
been transacted at the meeting originally called.
FIFTH. The minimum amount of capital with which it will commence
business is one thousand dollars ($l,000).
SIXTH. The name and place of residence of each of the incorporators
are as follows:
NAME RESIDENCE
S. L. Mackey Wilmington, Delaware
J. Skrivan Wilmington, Delaware
C. O. Layman Wilmington, Delaware
SEVENTH. This corporation is to have perpetual existence.
EIGHTH. The private property of the stockholders shall not be
subject to the payment of corporate debts to any extent whatever.
66
NINTH. In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, the board of directors is expressly
authorized:
To make, alter, amend and repeal the by-laws;
To set apart out of any of the funds of the corporation available
for dividends a reserve or reserves for any proper purpose and to alter
or abolish any such reserve; to authorize and cause to be executed
mortgages and liens upon the property and franchises of this corporation.
To designate, by resolution passed by a majority of the whole board,
one or more committees, each to consist of two or more directors, which
committees, to the extent provided in such resolution or in the by-laws
of the corporation, shall have and may exercise any or all of the powers
of the board of directors in the management of the business and affairs
of this corporation and have power to authorize the seal of this
corporation to be affixed to all papers which may require it.
From time to time to determine whether and to what extent and at
what times and places and under what conditions and regulations the books
and accounts of this corporation, or any of them other than the stock
ledger, shall be open to the inspection of the stock-
holders, and no stockholder shall have any right to inspect any account
or book or document of the corporation, except as conferred by law or
authorized by resolution of the directors or of the stockholders.
To sell, lease or exchange all of its property and assets, including
its good will and its corporate franchises, upon such terms and
conditions and for such consideration, which may be in whole or in part
shares of stock in, and/or other securities of, any other corporation or
corporations, when and as authorized by the affirmative vote of the
holders of a majority of the stock issued and outstanding having voting
power given at a stockholders' meeting duly called for that purpose, or
when authorized by the written consent of the holders of a majority of
the voting stock issued and outstanding.
This corporation may in its by-laws confer powers additional to the
foregoing upon the directors, in addition to the powers and authorities
expressly conferred upon them by law.
TENTH. If the by-laws so provide, the stockholders and directors
shall have power to hold their meetings, to have an office or offices and
to keep the books of this corporation (subject to the provisions of the
statute) outside of the State of Delaware at such places as may from time
to time be designated by the by-laws or by resolution of the directors.
ELEVENTH. This corporation reserves the right to amend, alter,
change or repeal any provision contained in this certificate of
incorporation in the manner now or hereafter prescribed by law and all
rights conferred on officers, directors and stockholders herein are
granted subject to this reservation.
TWELFTH. No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of
67
fiduciary duty as a director; provided, however, that the foregoing
clause shall not apply to any liability (a) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (b)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law, (c) under Section 174 of
the General Corporation Law of the State of Delaware, or (d) for any
transaction from which the director derived an improper personal benefit.
WE, THE UNDERSIGNED, being all of the incorporators, for the purpose
of forming a corporation, in pursuance of an Act of the Legislature of
the State of Delaware entitled "An Act Providing a General Corporation
Law" (approved March 10, l899) and the acts amendatory thereof and
supplemental thereto, do make and file this certificate of incorporation,
hereby declaring and certifying that the facts herein stated are true,
and accordingly hereunto have set our respective hands and seals this
nineteenth day of December, A.D. l935.
In the Presence of S. L. MACKEY (SEAL)
JOHN W. GAILEY J. SKRIVAN (SEAL)
C. O. LAYMAN (SEAL)
-9-
STATE OF DELAWARE )
: SS.
COUNTY OF NEW CASTLE )
BE IT REMEMBERED, that on this nineteenth day of December, A.D.
l935, personally appeared before me, the subscriber, a notary public for
the State and County aforesaid, S. L. Mackey, J. Skrivan and C. O.
Layman, all the parties to the foregoing certificate of incorporation
known to me personally to be such, and severally acknowledged the said
certificate to be their act and deed respectively, and that the facts
therein stated were truly set forth.
GIVEN under my hand and seal of office the day and year aforesaid.
JOHN W. GAILEY
Notary Public
JOHN W. GAILEY
NOTARY PUBLIC
APPOINTED JAN. 17, l935
TERM OF OFFICE 2 YEARS
STATE OF DELAWARE
68<PAGE>
EXHIBIT 3. (ii)
B Y - L A W S
GIANT FOOD INC.
OFFICES
1. The registered office shall be at 11th Fl., Rodney Square North,
in the City of Wilmington, County of New Castle and State of Delaware.
The agent in charge of said office, upon whom process against the
Corporation may be served, is Corporation Guarantee and Trust Company.
2. The Corporation may also have an office at 6300 Sheriff Road,
Landover, Maryland, and also offices at such other places as the Board of
Directors may from time to time appoint or the business of the
Corporation may require.
CORPORATE SEAL
3. The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its incorporation and the words "Incorporated
Delaware."
MEETINGS OF STOCKHOLDERS
4. The annual meeting of stockholders for the election of Directors
shall be held on the first Thursday after Labor Day in each year after
the year 1959, or if that day be a legal holiday, on the next succeeding
secular day, at two o'clock in the afternoon, at which meeting they shall
select by ballot, by cumulative vote, a Board of Directors and may
transact such other business as may come before the meeting.
5. Special meetings of the stockholders may be called at any time
by the President and shall be called by the President or Secretary on the
request in writing or by vote of two of the Directors or at the request
in writing of stockholders of record owning a total of a least twenty
percent in amount of the capital stock outstanding and entitled to vote.
6. All meetings of the stockholders for the election of Directors
shall be held at such place within the District of Columbia or the State
of Maryland as may from time to time be fixed by the Board of Directors.
All other meetings of the stockholders shall be held at such place or
places, within or without the State of Delaware as may from time to time
be fixed by the Board of Directors or as shall be specified and fixed in
the respective notices or waivers of notice thereof.
7. No change of the time or place of a meeting for the election of
Directors, as fixed by the By-Laws, shall be made within sixty days next
before the day on which such election is to be held. In case of any
change in such time or place for such election of Directors, notice
thereof shall be given to each stockholder entitled to vote in person, or
mailed to his last known post office address, at least twenty days before
the election is held.
69<PAGE>
8. A complete list of stockholders entitled to vote, arranged in
alphabetical order, shall be prepared by the Secretary and shall be open
to the examination of any stockholder entitled to vote at the place of
election, for ten days prior thereto, and during the whole time of the
election.
9. Each stockholder entitled to vote shall, at every meeting of the
stockholders, be entitled to one vote in person or by proxy, signed by
him, for each share of voting stock held by him, but no proxy shall be
voted on and after three years from its date, unless it provides for a
longer period. Such right to vote shall be subject to the right of the
Board of Directors to close the transfer books or to fix a record date
for voting stockholders as hereinafter provided and if the Directors
shall not have exercised such right, no share of stock shall be voted on
at any election for Directors which shall have been transferred on the
books of the Corporation within twenty days next preceding such election.
10. Notice of all meetings shall be given by certified mail, return
receipt requested, by the Secretary to each stockholder of record
entitled to vote, at his or her last known post office address, for
annual and special meetings ten days prior thereto.
11. The holders of sixty (60%) percent of the stock outstanding and
entitled to vote shall constitute a quorum. In the event of the lack of
a quorum the Chairman of the meeting or a majority in interest of the
stockholders present in person or represented by proxy may adjourn the
meeting and then direct the Secretary of the Corporation to call another
meeting of the stockholders upon seven days notice given by certified
mail, return receipt requested, to each stockholder of record entitled to
vote at his or her last known post office address. At this adjourned
meeting a majority of the stock outstanding and entitled to vote shall
constitute a quorum. At any such adjourned meeting at which there is
present a majority of the stock outstanding and entitled to vote, any
business may be transacted which might have been transacted at the
meeting originally called.
12. The number of Directors of said Corporation is fixed at nine,
of which total number so fixed four thereof shall be elected by the
holders of Class AL Common Stock and five thereof shall be elected by the
holders of Class AC Common Stock.
13. The property and business of the Corporation shall be managed
and controlled by the Board of Directors. The Directors need not be
stockholders. The presence of six Directors shall be required to form a
quorum for the conduct of any business of the Corporation, provided,
however, that where a waiver of notice of meeting is signed by all nine
Directors, five Directors shall constitute a quorum for the conduct of
the business of the Corporation set forth specifically in said waiver of
notice of meeting. In the event of a lack of a quorum where no waiver of
notice has been signed, the President or a majority in interest of the
Directors present, in person or by proxy, may adjourn the meeting and
then direct the Secretary of the Corporation to call another meeting of
the Directors upon ten days' notice given by certified mail, return
receipt requested, to each of the Directors at his or her last known post
office address. At this adjourned meeting five Directors shall
constitute a quorum, and any business may be transacted which might have
been transacted at the meeting originally called.
70
POWERS OF DIRECTORS
14. The Board of Directors shall have, in addition to such powers
as are hereinafter expressly conferred on it, all such powers as may be
exercised by the Corporation, subject to the provisions of Statute, the
Certificate of Incorporation and the By-Laws.
The Board of Directors shall have the power:
(a) To purchase or otherwise acquire property, rights or privileges
for the Corporation, which the Corporation has power to take, at such
prices and on such terms as the Board of Directors may deem proper.
(b) To pay for such property, rights or privileges in whole or in
part with money, stock, bonds, debentures or other securities of the
Corporation, or by the delivery of other property of the Corporation.
(c) To create, make and issue mortgages, bonds, deeds of trust,
trust agreements and negotiable or transferable instruments and
securities, secured by mortgages or otherwise, and to do every other act
and thing necessary to effectuate the same.
(d) To grant, purchase, or otherwise acquire, hold, sell, assign,
transfer, mortgage, pledge, or otherwise dispose of, leases, capital
stock, bonds, or other evidences of indebtedness created by other
corporations.
(e) To appoint agents, clerks, assistants, factors, employees and
trustees, and to dismiss them at its discretion, to fix their duties and
emoluments and to change them from time to time and to require security
as it may deem proper.
(f) To confer on any officer of the Corporation the power of
selecting, discharging or suspending such employees.
(g) To determine by whom and in what manner the Corporation's
bills, notes, receipts, acceptances, endorsements, checks, and releases,
contracts, or other documents shall be signed.
MEETINGS OF DIRECTORS
15. After each annual election of Directors the newly elected
Directors may meet for the purpose of organization, the election of
officers, and the transaction of other business at such place and time as
shall be fixed by the stockholders at the annual meeting, and, if a
quorum of the Directors be present at such a place and time, no prior
notice of such meeting shall be required to be given to the Directors.
The place and time of such meetings may also be fixed by written consent
of the Directors.
16. Regular meetings of the Directors shall be held
quarter-annually at the office of the Corporation at 6300 Sheriff Road,
Landover, Maryland, or elsewhere and at other times as may be fixed by
resolution of the Board. Ten (10) days notice of regular meetings shall
be required.
71<PAGE>
17. Special meetings of the Directors may be called by the
President on seven days' notice in writing given by certified mail,
return receipt requested, to each Director and shall be called by the
President in like manner on the written request of the Directors.
18. Special meetings of the Directors may be held within or without
the State of Delaware at such place as is indicated in the notice or
waiver of notice thereof.
19. The presence of six of the Directors shall be required to
constitute a quorum. In the event of the lack of a quorum as set forth
above, the President or a majority in interest of the Directors present
in person or by proxy may adjourn the meeting and then direct the
Secretary of the Corporation to call another meeting of the Directors
upon ten days' notice given by certified mail, return receipt requested,
to each of the Directors at his or her last known post office address.
At this adjourned meeting five Directors shall constitute a quorum, and
any business may be transacted which might have been transacted at the
meeting originally called.
COMMITTEES
20. From time to time the Board may appoint from their own number
any committee or committees for any purpose, which shall have such powers
as shall be specified in the resolution of appointment.
COMPENSATION OF DIRECTORS AND
MEMBERS OF COMMITTEES
21. Directors and members of standing committees shall receive such
compensation for attendance at such regular or special meetings as the
Board shall from time to time prescribe.
OFFICERS OF THE CORPORATION
22. The officers of the Corporation shall be a President, an
Executive Vice President, such Senior Vice Presidents and other Vice
Presidents as may be chosen by the Board of Directors, a Secretary, a
Treasurer, and such assistant treasurers, assistant secretaries and other
officers as may from time to time be chosen by the Board of Directors.
No officer need be a Director of the Corporation.
23. The officers of the Corporation shall hold office until their
successors are chosen and qualify in their stead. Any officer chosen or
appointed by the Board of Directors may be removed either with or without
cause at any time by the affirmative vote of a majority of the whole
Board of Directors. If the office of any officer or officers becomes
vacant for any reason, the vacancy shall be filled by the affirmative
vote of a majority of the whole Board of Directors.
72<PAGE>
CHAIRMAN OF THE BOARD
24. The Board of Directors may elect a Chairman of the Board who
shall preside at meetings of the stockholders and of the Board of
Directors and shall perform such other duties as may be prescribed by the
Board of Directors.
DUTIES OF THE PRESIDENT
25. The Corporation shall have a President who shall be the chief
executive officer of the Corporation. He shall have the general duties
and powers of supervision usually vested in the offices of president and
chief executive officer of a corporation. It shall be his duty to see
that all orders and resolutions of the Board of Directors are carried
into effect, and to perform such other duties as may be prescribed by the
Board of Directors. He shall also preside at all meetings of the
Stockholders and of the Board of Directors unless a Chairman of the Board
has been elected.
EXECUTIVE VICE PRESIDENT
26. The Corporation shall have an Executive Vice President who
shall be the chief operating officer of the Corporation. As the chief
operating officer, he shall report directly to the President and shall
oversee the operational activities of the Corporation. In the absence or
disability of the President, the Executive Vice President shall be vested
with all the powers and required to perform all the duties of the
President.
SENIOR VICE PRESIDENTS AND OTHER VICE PRESIDENTS
27. The Corporation shall have a Senior Vice President who shall be
the chief administrative officer of the Corporation. As the chief
administrative officer, he shall report directly to the President and
shall oversee the non-operational activities of the Corporation.
All other Senior Vice Presidents and other Vice Presidents who shall
be elected by the Board of Directors, shall have the powers and shall
perform such duties as may be prescribed by the Board of Directors or by
the President.
SECRETARY
28. The Secretary shall attend all meetings of the Corporation, the
Board of Directors, and standing committees. He shall act as clerk
thereof and shall record all of the proceedings of such meetings in a
book kept for that purpose. He shall give proper notice of meetings of
stockholders and directors and shall perform such other duties as shall
be assigned to him by the President or the Board of Directors.
73<PAGE>
ASSISTANT SECRETARY
29. The Assistant Secretary shall be vested with all the powers and
required to perform all of the duties of the Secretary in his absence or
disability, and shall perform such other duties as may be prescribed by
the Board of Directors.
TREASURER
30. The Treasurer shall have custody of the funds and securities of
the Corporation and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors.
He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements,
and shall render to the President and Directors, whenever they may
require it, an account of all of his transactions as Treasurer and of the
financial condition of the Corporation, and at the regular meeting of the
Board next preceding the annual stockholders' meeting, a like report for
the preceding year.
He shall keep an account of stock registered and transferred in such
manner and subject to such regulation as the Board of Directors may
prescribe.
He shall give the Corporation a bond, if required by the Board of
Directors, in such sum and in form and with security satisfactory to the
Board of Directors for the faithful performance of the duties of his
office and the restoration to the Corporation, in case of his death,
resignation, or removal from office, of all books, papers, vouchers,
money, and other property of whatever kind in his possession, belonging
to the Corporation. He shall perform such other duties as the Board of
Directors may from time to time prescribe or require.
ASSISTANT TREASURER
31. The Assistant Treasurer shall be vested with and shall have
such of the Treasurer's powers as may be delegated to him by the Board of
Directors, and from time to time he shall perform such duties and have
such powers as are assigned to him by the Board of Directors.
DUTIES OF OFFICERS MAY BE DELEGATED
32. In case of the absence or disability of any officer of the
Corporation or for any other reason deemed sufficient by a majority of
the Board, the Board of Directors may delegate his powers or duties to
any other officer or to any Director for the time being.
CERTIFICATES OF STOCK
33. Certificates of stock of the Corporation shall be signed by, or
in the name of the Corporation by, the president or a vice president, and
74<PAGE>
the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of the Corporation. If such certificate is countersigned (l)
by a transfer agent other than the Corporation or its employee, or (2) by
a registrar other than the Corporation or its employee, then any other
signature on the certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent, or registrar before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such
officer, transfer agent, or registrar at the date of issue.
LOSS OF CERTIFICATE
34. Any person claiming a certificate of stock to be lost or
destroyed shall make an affidavit or affirmation of that fact and
advertise the same in such manner as the Board may require, and shall
give the Corporation a bond of indemnity in form and with one or more
sureties satisfactory to the Board, in at least double the value of such
certificate, whereupon the proper officers may issue a new certificate of
the same tenor with the one alleged to be lost or destroyed, but always
subject to the approval of the Board. A new certificate may be issued
without requiring bond when, in the judgment of the Directors, it is
proper to do so.
INSPECTION OF BOOKS AND ACCOUNTS
35. The books, accounts, and records of the Corporation shall be
open to inspection by any member of the Board of Directors at all times;
stockholders may, in the discretion of the Board, and for a proper cause,
inspect the books of the Corporation at such reasonable times as the
Board of Directors may by resolution designate.
DIRECTOR'S ANNUAL STATEMENT
36. The Board of Directors shall present at each annual meeting,
and when called for by the stockholders at any special meeting of the
stockholders, a full and clear statement of the business and condition of
the Corporation.
TRANSFER OF STOCK
37. All transfers of stock of the Corporation shall be made upon
its books by the holder of the shares in person or by his lawfully
constituted representative, upon surrender of certificates of stock for
cancellation. No voting stock of the Corporation shall be transferred
upon the books of the Corporation except in conformity with agreements or
other writings, if any, of or among the record holder or holders of
voting stock of this Corporation made in conformity with the applicable
provisions of its Articles of Incorporation.
CLOSING OF TRANSFER BOOKS
38. The Board of Directors shall have powers to close the stock
transfer books of the Corporation for a period not exceeding fifty days
preceding the date of any meeting of stockholders, or the date for
75<PAGE>
payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go
into effect, or for a period of not exceeding fifty days in connection
with obtaining the consent of stockholders for any purpose; provided,
however, that in lieu of closing the stock transfer books as aforesaid,
the By-Laws may fix or authorize the Board of Directors to fix in advance
a date not exceeding fifty days for the payment of any dividend, or the
date for the allotment of rights, or the date when any change or
conversion or exchange of capital stock shall go into effect, or a date
in connection with obtaining such consent, as a record date for the
determination of the stockholders entitled to notice of, and to vote, at
any such meeting and any adjournment thereof, or entitled to receive
payment of any such dividend, or to any such allotment of rights, or to
exercise the rights in respect to any such change, conversion, or
exchange of capital stock, or to give such consent, and in such cases
such stockholders as shall be stockholders of record on the date so fixed
shall be entitled to such notice of, and to vote at, such meeting and any
adjournment thereof, or to receive payment of such dividend, or to
receive such allotment of rights, or to exercise such rights, or to give
such consent, as the case may be, notwithstanding any transfer of any
stock on the books of the Corporation after any such record date fixed as
aforesaid.
STOCKHOLDERS OF RECORD
39. The Corporation shall be entitled to treat the holder of record
of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim
to or interest in such share on the part of any other person whether or
not it shall have express or other notice thereof, save as expressly
provided by the Laws of Delaware.
FISCAL YEAR
40. The fiscal year of the Corporation, which commenced April 30,
1972 shall close on February 24, 1973, the last Saturday in February of
1973. Thereafter, the fiscal year of the Corporation shall commence on
the first day after the last Saturday in February and shall close on the
last Saturday in February of the next.
DIVIDENDS
41. The Board of Directors may from time to time declare, and the
Corporation may pay dividends on its outstanding shares of stock in the
manner and upon the terms and conditions provided by law and its Articles
of Incorporation.
CHECKS FOR MONEY
42. All checks, drafts, or orders for the payment of money shall be
signed by the Treasurer or by such other officer or officers as the Board
of Directors may from time to time designate. No check shall be signed
in blank.
76<PAGE>
BOOKS AND RECORDS
43. The books, accounts, and records of the Corporation, except as
otherwise required by the Laws of the State of Delaware, may be kept
within or without the State of Delaware, at such place or places as may
from time to time be designated by the By-Laws or by resolution of the
Directors.
NOTICES
44. Notice required to be given under the provisions of these
By-Laws to any director, officer, or stockholder shall not be construed
to mean personal notice, but may be given in writing by depositing the
same in a post office or letter box, in a post-paid sealed wrapper,
addressed to such stockholder, officer, or director at such address as
appears on the books of the Corporation, and such notice shall be deemed
to be given at the time when the same shall be thus mailed. Any
stockholder, officer, or director may waive, in writing, any notice
required to be given under these By-Laws, whether before or after the
time stated therein.
AMENDMENTS OF BY-LAWS
45. These By-Laws may be amended, altered, repealed, or added to at
any regular meeting of the stockholders or at any special meeting of the
stockholders called for that purpose, by affirmative vote of a majority
of the stock issued and outstanding and entitled to vote.
INDEMNIFICATION OF DIRECTORS OF OFFICERS
46. The Corporation shall, to the full extent permitted by the
provisions of the Delaware General Corporation Law, indemnify directors
and officers of the Corporation. Persons who are not directors or
officers of the Corporation may be indemnified by the Corporation to the
extent permitted by the provisions of the Delaware General Corporation
Law. The rights of indemnification hereunder shall not be exclusive of
any other rights to which those indemnified may be entitled under any
agreement, insurance policy or otherwise."
77<PAGE>
CONTRACTS BETWEEN CORPORATION AND OTHER
ORGANIZATION WITH COMMON DIRECTORS OR OFFICERS
47. No contract or other transaction between this Corporation and
any other association, firm or organization shall in any way be affected
or invalidated by the fact that any of the directors or officers of this
Corporation are pecuniarily or otherwise interested in, or are directors
or officers of such other association, firm, or Corporation; any director
or officer of this Corporation individually may be a party to or may be
pecuniarily or otherwise interested in, any contract or transaction of
this Corporation; and any director of the Corporation who is also a
director or officer of such other Corporation, or who is so interested,
may be counted in determining the existence of a quorum at any meeting of
the Board of Directors of the Corporation which shall authorize or
confirm any such contract or transaction and may vote thereat to
authorize or confirm any such contract or transaction with like force and
effect as if he were not such director or officer of such Corporation or
not so interested; and each and every person who may become a director of
officer of this Corporation is hereby relieved from any liability that
might otherwise exist from thus contracting with this Corporation for the
benefit of himself or any person, firm, association or Corporation in
which he may be any wise interested.
78<PAGE>
EXHIBIT 10.6
GIANT FOOD INC.
9.60% PROMISSORY NOTES DUE OCTOBER 15, 2001
__________________
NOTE AGREEMENT
with
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
Dated: October 28, 1986
TABLE OF CONTENTS
(Not Part of Agreement)
Page
1. Authorization of Issue of Notes . . . . . . . . . . . . . . . . 3
2. Purchase and Sale of Notes . . . . . . . . . . . . . . . . . . 3
3. Conditions of Closing . . . . . . . . . . . . . . . . . . . . 4
3A. Opinion of Purchaser's Special Counsel . . . . . . . . 4
3B. Opinion of Company's Counsel . . . . . . . . . . . . . 4
3C. Representations and Warranties; No Default . . . . . . 5
3D. Accountants' Certificate . . . . . . . . . . . . . . . 5
3E. Purchase Permitted by Applicable Laws. . . . . . . . . 5
3F. Proceedings . . . . . . . . . . . . . . . . . . . . . . 5
4. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4A. Required Prepayments . . . . . . . . . . . . . . . . . 5
4B. Annual Optional Prepayment Without Premium . . . . . . 6
4C. Optional Prepayment in Whole or in Part With Premium . 6
4D. Notice of Prepayment . . . . . . . . . . . . . . . . . 6
4E. Partial Prepayments . . . . . . . . . . . . . . . . . . 7
79
5. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . 7
5A. Financial Statements . . . . . . . . . . . . . . . . . 7
5B. Inspection of Property . . . . . . . . . . . . . . . . 8
5C. Covenant to Secure Notes Equally . . . . . . . . . . . 9
6. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . 9
6A. Working Capital Requirement . . . . . . . . . . . . . . 9
6B. Dividend Limitation . . . . . . . . . . . . . . . . . . 9
6C. Lien, Debt and Other Restrictions . . . . . . . . . . 10
6C(l). Liens . . . . . . . . . . . . . . . . . . . . . . . . 10
6C(2). Debt . . . . . . . . . . . . . . . . . . . . . . . . . 11
6C(3). Loans, Advances, Investments and Contingent Liabilities 11
6C(4). Sale of Stock and Debt of Subsidiaries . . . . . . . . 13
6C(5). Merger and Sale of Assets . . . . . . . . . . . . . . . 13
6C(6). Lease Rentals . . . . . . . . . . . . . . . . . . . . . 14
6C(7). Sale and Lease-Back . . . . . . . . . . . . . . . . . . 14
6C(8). Sale or Discount of Receivables . . . . . . . . . . . . 14
6C(9). Certain Contracts . . . . . . . . . . . . . . . . . . . 14
6D. Issuance of Stock by Subsidiaries . . . . . . . . . . . 15
7. Events of Default . . . . . . . . . . . . . . . . . . . . . . . 15
8. Representations and Warranties . . . . . . . . . . . . . . . . 17
8A. Organization and Qualification . . . . . . . . . . . . 17
8B. Financial Statements . . . . . . . . . . . . . . . . . 17
8C. Actions Pending . . . . . . . . . . . . . . . . . . . . 18
8D. Outstanding Debt . . . . . . . . . . . . . . . . . . . 18
8E. Title to Properties . . . . . . . . . . . . . . . . . . 18
8F. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 18
8G. Conflicting Agreements and Other Matters . . . . . . . 19
8H. Offering of Notes . . . . . . . . . . . . . . . . . . . 19
8I. Regulation G, etc . . . . . . . . . . . . . . . . . . . 19
8J. Pollution and Other Regulations . . . . . . . . . . . . 20
8K. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 20
8L. Governmental Consent . . . . . . . . . . . . . . . . . 20
8M. Disclosure . . . . . . . . . . . . . . . . . . . . . . 21
9. Representation of the Purchaser . . . . . . . . . . . . . . . 21
10. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 21
11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 23
11A. Home Office Payment . . . . . . . . . . . . . . . . . 23
11B. Expenses . . . . . . . . . . . . . . . . . . . . . . . 24
11C. Consent to Amendments . . . . . . . . . . . . . . . . 24
11D. Provisions Applicable if Any Note Sold . . . . . . . . 24
11D(l). Notices to Subsequent Holder . . . . . . . . 25
11D(2). Pro Rata Payments . . . . . . . . . . . . . . 25
11D(3). Consent by Holders of 66-2/3% . . . . . . . . 25
11E. Form, Registration, Transfer and Exchange of Notes . . 25
11F. Persons Deemed Owners . . . . . . . . . . . . . . . . 26
11G. Survivor of Representations and Warranties . . . . . . 26
11H. Successors and Assigns . . . . . . . . . . . . . . . . 26
11I. Notices . . . . . . . . . . . . . . . . . . . . . . . 26
80<PAGE>
11J. Descriptive Headings . . . . . . . . . . . . . . . . . 27
11K. Satisfaction Requirement . . . . . . . . . . . . . . . 27
11L. Governing Law . . . . . . . . . . . . . . . . . . . . 27
11M. Counterparts . . . . . . . . . . . . . . . . . . . . . 27
11N. Amendment of Existing Agreement . . . . . . . . . . . 27
GIANT FOOD INC.
P.O. Box 1804
Washington, D.C. 20013
October 28, 1986
The Prudential Insurance Company
of America
Three Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
Attention: Senior Managing Director in Charge
of the Capital Markets Group
Gentlemen:
The undersigned, GIANT FOOD INC. (herein called the "Company"),
hereby agrees with you as follows:
1. Authorization of Issue of Notes. The Company will authorize
the issue of its promissory notes (herein, together with any notes which
may be issued hereunder in substitution therefor, called the "Notes") in
the aggregate principal amount of $50,000,000, to be dated the date of
issue thereof, to mature October 15, 2001, to bear interest on the unpaid
balances thereof from the date thereof until the principal thereof shall
become due and payable at the rate of 9.60% per annum, and to be
substantially in the form of Exhibit A hereto attached. The term "Note"
shall mean one of the Notes.
2. Purchase and Sale of Notes. The Company hereby agrees to
sell to you and, subject to the terms and conditions herein set forth,
you agree to purchase from the Company two Notes each registered in your
name, the first in the principal amount of $48,000,000 and the second in
the principal amount of $2,000,000, at 100% of the respective principal
amounts thereof. The Company will deliver both Notes to you at the
offices of White & Case, 1155 Avenue of the Americas, New York, New York,
against payment of the purchase price thereof by transfer of immediately
available funds to The National Bank of Washington, Washington, D.C. for
credit to the Company's account, No. 0 000 795, at such bank on the date
of closing with respect to such Notes, which shall be October 28, 1986,
or such earlier date as the Company may designate to you by not less than
5 days' notice in writing.
3. Conditions of Closing. Your obligation to purchase and pay
for the Notes is subject to the satisfaction, on or before the date of
closing, of the following conditions:
81
3A. Opinion of Purchaser's Special Counsel. You shall
have received from Messrs. White & Case, who are acting as special
counsel for you in connection with this transaction, a favorable opinion
satisfactory to you as to: (i) the due organization, existence and good
standing of the Company; (ii) the due authorization (including any
consent of stockholders required by law or by the charter or by-laws of
the Company), execution and delivery and the validity of this Agreement
and the Notes; (iii) the absence of any requirement to register the Notes
under the Federal Securities Act of 1933, as amended; and (iv) such other
matters incident to the matters herein contemplated as you may reasonably
request, including the form of all papers and the validity of all
proceedings. Such opinion shall also state that, based upon such
investigation and inquiry as is deemed relevant and appropriate by such
counsel, the opinion referred to in paragraph 3B is satisfactory in form
and scope to such counsel and, while such investigation and inquiry into
the matters covered by such opinion (other than the matters specified in
clauses (ii) and (iii) above) were not sufficient to enable such counsel
independently to render such opinion, nothing has come to the attention
of such counsel which has caused it to question the legal conclusions
expressed in the opinion referred to in paragraph 3B and such counsel
believe that you are justified in relying on such opinion.
3B. Opinion of Company's Counsel. You shall have received
from Messrs. Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson &
Casey, counsel for the Company, a favorable opinion satisfactory to you
and your special counsel as to the matters specified in paragraph 3A and
as to: (i) the due organization, existence and good standing of each
Subsidiary; (ii) the corporate power of the Company and each Subsidiary
to carry on their respective businesses as then being conducted; (iii)
the due qualification of the Company and each Subsidiary as a foreign
corporation to transact business and the good standing of each in each
jurisdiction where the ownership of property or the nature of the
respective businesses transacted by each makes such qualification
necessary; (iv) the procurement of, or the non-necessity of, any consent
or approval of or other action by any court or administrative or
governmental body in connection with the execution and delivery of this
Agreement and the issuance and sale of the Notes; and (v) the execution
and delivery of this Agreement and the Notes, the offering, issuance and
sale of the Notes and fulfillment of and compliance with the respective
provisions hereof and thereof not conflicting with, or resulting in a
breach of the terms, conditions or provisions of, or constituting a
default under, or resulting in any violation of, or resulting in the
creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary pursuant to, or requiring any authorization, consent,
approval, exemption or other action by or any notice to or filing with
any court or administrative or governmental body (other than routine
filings after the date of such opinion with the Securities and Exchange
Commission and/or State Blue Sky authorities) pursuant to, the charter or
by-laws of the Company or any of its Subsidiaries, any applicable law
(including any securities or Blue Sky law), statute, rule or regulation
or (insofar as is known to such counsel after having made due inquiry
with respect thereto) any agreement, instrument, order, judgment or
decree to which the Company or any of its Subsidiaries is subject.
82<PAGE>
3C. Representations and Warranties; No Default. The
representations and warranties contained in paragraph 8 shall be true on
and as of the date of closing, except to the extent of changes caused by
the transactions herein contemplated; there shall exist on the date of
closing no Event of Default or Default; and the Company shall have
delivered to you an Officer's Certificate, dated the date of closing, to
both such effects.
3D. Accountants' Certificate. The Company shall have
delivered to you the certificate of Laventhol and Horwath, addressed to
you, stating that such firm has reviewed the Federal, State and other
income tax returns of the Company and its Subsidiaries filed for all
fiscal years which have not been examined and reported on by the taxing
authorities or closed by applicable statute, and that, in the opinion of
such firm, such returns properly reflect the Federal, State and other
income taxes of the Company and its Subsidiaries for the periods covered
thereby and the Company has and its Subsidiaries have paid, or set up
adequate reserves for the payment of, all Federal, State and other income
taxes for such fiscal years.
3E. Purchase Permitted by Applicable Laws. The purchase of
and payment for the Notes to be purchased by you on the date of closing
on the terms and conditions herein provided (including the use of the
proceeds of such Notes by the Company) shall not violate any applicable
law or governmental regulation (including, without limitation,
Regulations G, T and X of the Board of Governors of the Federal Reserve
System) and shall not subject you to any tax, penalty, liability or other
onerous condition under or pursuant to any applicable law or governmental
regulation, and you shall have received such certificates or other
evidence as you may request to establish compliance with this condition.
3F. Proceedings. All corporate and other proceedings taken
or to be taken in connection with the transactions contemplated hereby
and all documents incident thereto shall be satisfactory in substance and
form to you and your special counsel, and you and your special counsel
shall have received all such counterpart originals or certified or other
copies of such documents as you or they may reasonably request.
4. Prepayments. The Notes shall be subject to prepayment with
respect to the required prepayments specified in paragraph 4A and also
under any one or more of the circumstances set forth in paragraphs 4B and
4C.
4A. Required Prepayments. Until the Notes shall be paid in
full, the Company shall apply to the prepayment of the Notes, without
premium, the sum of $5,000,000 on October 15 in each of the years 1992 to
2001, inclusive, and such principal amounts of the Notes, together with
interest thereon to the prepayment dates, shall become due on such
prepayment dates.
4B. Annual Optional Prepayment Without Premium. The Notes
shall be subject to prepayment, at the option of the Company, without
premium, on any date on which a prepayment is required to be made by the
provisions of paragraph 4A, in amounts (multiples of $1,000) not
exceeding the amount required to be prepaid on such date pursuant to the
provisions of paragraph 4A, such option to be non-cumulative, provided
83<PAGE>
that the aggregate amount of prepayments under this paragraph 4B, shall
not exceed $10,000,000.
4C. Optional Prepayment in Whole or in Part With Premium.
The Notes shall be subject to prepayment, in whole or from time to time
in part (in multiples of $1,000), at the option of the Company, on any
interest payment date occurring after October 14, 1996, at the following
applicable percentage of the principal amount so prepaid:
If prepaid during the 12 months' period ending on October 14,
Year Percentage
1997 103.20
1998 102.40
1999 101.60
2000 100.80
2001 100.00
; provided, however, that the Company may not make prepayment of the
Notes pursuant to this paragraph 4C unless in the case of any such
prepayment of the Notes, such prepayment is not being made as a part of a
refunding or anticipated refunding operation, by the application,
directly or indirectly, of borrowed funds either (a) having an interest
rate or an interest cost to the Company (computed in accordance with
accepted financial practice) of less than 9.60% per annum, or (b)
evidenced by obligations having a maturity date earlier than the maturity
date of the Notes.
4D. Notice of Prepayment. The Company shall give you
written notice of each prepayment, other than prepayments pursuant to
paragraph 4A, not less than 30 days prior to the prepayment date,
specifying such prepayment date, the principal amount of the Notes to be
prepaid on such date and the paragraph pursuant to which such prepayment
is to be made, whereupon the principal amount of the Notes specified in
such notice, together with interest thereon to the prepayment date and
together with the premium, if any, herein provided, shall become due and
payable on the prepayment date.
4E. Partial Prepayments. Upon any partial prepayment of
the Notes, the principal amount and premium, if any, so prepaid shall be
allocated to all Notes at the time outstanding in proportion to the
outstanding principal amounts thereof, but only in units of $1,000, and
to the extent that such proportionate allocation shall not result in an
even multiple of $1,000, adjustment may be made by the Company to the end
that successive allocations shall result in substantially proportionate
payments; provided, however, in the event that any Note is exchanged for
Notes in smaller denominations pursuant to paragraph 11E, the amount
allocable to the Note exchanged shall be applied on all Notes issued in
exchange therefor either pro rata or by lot in any manner approved by the
Board of Directors of the Company. Upon any partial prepayment of any
Note, such Note shall, at the option of the holder thereof, be either (i)
surrendered to the Company in exchange for a new Note in a principal
amount equal to the principal amount remaining unpaid on the Note
surrendered, and otherwise having the same terms and provisions as the
Note surrendered, or (ii) made available to the Company at the principal
84<PAGE>
office of the original holder of such Note for notation thereon of the
portion of the principal so prepaid, except that, so long as you shall
hold any Note, the Company agrees that you may make notation of any
portion of the principal so prepaid on such Note on your records (subject
to the provisions of paragraph 11A).
5. Affirmative Covenants.
5A. Financial Statements. The Company covenants that, so
long as you shall hold any Note, it will deliver to you in duplicate
(i) as soon as practicable and in any event within 45 days
after the end of each quarterly period (other than the last quarterly
period) in each fiscal year, a consolidated profit and loss statement and
reconciliation of surplus statement of the Company and its Subsidiaries
for the period from the beginning of the current fiscal year to the end
of such quarterly period, and a consolidated balance sheet of the Company
and its Subsidiaries as at the end of such quarterly period, setting
forth in each case in comparative form figures for the corresponding
period in the preceding fiscal year, all in reasonable detail and
certified by an authorized financial officer of the Company, subject to
changes resulting from year-end adjustments;
(ii) as soon as practicable and in any event within 90 days
after the end of each fiscal year, a consolidated profit and loss
statement and reconciliation of surplus statement of the Company and its
Subsidiaries for such year, and a consolidated balance sheet of the
Company and its Subsidiaries as at the end of such year, setting forth in
each case in comparative form corresponding figures from the preceding
annual audit, all in reasonable detail and satisfactory in scope to you
and certified to the Company by independent public accountants of
recognized standing selected by the Company whose certificate shall be in
scope and substance satisfactory to you;
(iii) as soon as practicable, copies of all such financial
statements and reports as it shall send to its stockholders and of all
registration statements and all regular or periodic reports which it is
or may be required to file with the Securities and Exchange Commission or
any governmental body or agency succeeding to the functions of the
Securities and Exchange Commission; and
(iv) with reasonable promptness, such other financial data
as you may reasonably request.
Together with each delivery of financial statements required by clauses
(i) and (ii) above, the Company will deliver to you an Officer's
Certificate setting forth (except to the extent specifically set forth in
such financial statements) the aggregate amount of interest accrued on
Funded and Current Debt of the Company and Subsidiaries (if any) during
the fiscal period covered by such financial statements, the aggregate
amount of rental payments made during such fiscal period by the Company
and Subsidiaries (if any) which were of the kinds subject to the
restrictions of paragraph 6C(6) and the aggregate amount of all rental
payments made during such period by the Company and Subsidiaries (if
any), the dates of the beginning and end of the most recent period of at
85<PAGE>
least 60 consecutive days during which the Company shall have been free
from all Current Debt permitted by clause (iii) of paragraph 6C(2), and
the aggregate amounts of depreciation on physical property charged on the
books of the Company and Subsidiaries (if any) during such fiscal period,
and stating that there exists no Event of Default or Default, or, if any
such Event of Default or Default exists, specifying the nature thereof,
the period of existence thereof and what action the Company proposes to
take with respect thereto. Together with each delivery of financial
statements required by clause (ii) above, the Company will deliver to you
a certificate of said accountants stating that, in making the audit
necessary to the certification of such financial statements, they have
obtained no knowledge of any Event of Default or Default, or, if any such
Event of Default or Default exists, specifying the nature and period of
existence thereof. Such accountants, however, shall not be liable to
anyone by reason of their failure to obtain knowledge of any such Event
of Default or Default. The Company also covenants that forthwith upon
the president or chief financial officer of the Company obtaining
knowledge of an Event of Default or Default under this Agreement, it will
deliver to you an Officer's Certificate specifying the nature thereof,
the period of existence thereof, and what action the Company proposes to
take with respect thereto. You are hereby authorized to deliver a copy
of any financial statement delivered to you pursuant to this paragraph 5A
to any regulatory body having jurisdiction over you.
5B. Inspection of Property. The Company covenants that, so
long as you shall hold any Note, it will permit any Person designated by
you in writing at your expense, to visit and inspect any of the
properties, corporate books and financial records of the Company and its
Subsidiaries, and to discuss the affairs, finances and accounts of any of
such corporations with the principal officers of the Company, all at such
reasonable times and as often as you may reasonably request.
86<PAGE>
5C. Covenant to Secure Notes Equally. The Company
covenants that, if it or any Subsidiary shall create or assume any Lien
upon any of its property or assets, whether now owned or hereafter
acquired, other than Liens excepted by the provisions of paragraph 6C(l)
(unless prior written consent to the creation or assumption thereof shall
have been obtained pursuant to paragraph 11C or paragraph 11D(3) and such
consent shall also contain a waiver of the requirements of this paragraph
5C), it will make or cause to be made effective provision whereby the
Notes will be secured by such Lien equally and ratably with any and all
other Debt thereby secured as long as any such other Debt shall be so
secured.
6. Negative Covenants.
6A. Working Capital Requirement. The Company covenants
that it will not permit Consolidated Working Capital at any time to be
less than $35,000,000.
6B. Dividend Limitation. The Company covenants that it
will not pay or declare any dividend on any class of its stock or make
any other distribution on account of any class of its stock, or redeem,
purchase or otherwise acquire, directly or indirectly, any shares of its
stock (all of the foregoing being herein called "Restricted Payments")
except out of Consolidated Net Earnings Available For Restricted
Payments. "Consolidated Net Earnings" shall mean consolidated gross
revenues of the Company and its Subsidiaries less all operating and non-
operating expenses of the Company and its Subsidiaries including all
charges of a proper character (including current and deferred taxes on
income, provision for taxes on unremitted foreign earnings which are
included in gross revenues, and current additions to reserves), but not
including in gross revenues any gains (net of expenses and taxes
applicable thereto) in excess of losses resulting from the sale,
conversion or other disposition of capital assets (i.e., assets other
than current assets), any gains resulting from the write-up of assets,
any equity of the Company or any Subsidiary in the undistributed earnings
of any corporation which is not a Subsidiary, any earnings of any
corporation acquired by the Company or any Subsidiary through purchase,
merger or consolidation or otherwise for any year prior to the year of
acquisition, or any deferred credits representing the excess of equity in
any Subsidiary at the date of acquisition over the cost of the investment
in such Subsidiary; all determined in accordance with generally accepted
accounting principles. "Consolidated Net Earnings Available For
Restricted Payments" shall mean an amount equal to (1) 50% of
Consolidated Net Earnings for the period (taken as one accounting period)
commencing on February 23, 1986 and terminating at the end of the last
fiscal quarter preceding the date of any proposed Restricted Payment,
less (2) the sum of (a) the aggregate amount of all dividends and other
distributions paid or declared by the Company on any class of its stock
after February 22, 1986, and (b) the excess of the aggregate amount
expended, directly or indirectly, after February 22, 1986, for the
redemption, purchase or other acquisition of any shares of its stock,
over the aggregate amount received after February 22, 1986 as the net
cash proceeds of the sale of any shares of its stock. There shall not be
included in Restricted Payments or in any computation of Consolidated Net
Earnings Available for Restricted Payments: (x) dividends paid, or
87<PAGE>
distributions made, in stock of the Company; or (y) exchanges of stock of
one or more classes of the Company except to the extent that cash or
other value is involved in such exchange. The term "stock" as used in
this paragraph 6B shall include warrants or options to purchase stock.
6C. Lien, Debt and Other Restrictions. The Company
covenants that it will not and will not permit any Subsidiary to:
6C(1). Liens - Create, assume or suffer to exist any Lien upon
any of its property or assets, whether now owned or hereafter acquired
(whether or not provision is made for the equal and ratable securing of
the Notes in accordance with the provisions of paragraph 5C), except
(i) Liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings,
(ii) other Liens incidental to the conduct of its
business or the ownership of its property and assets which were not
incurred in connection with the borrowing of money or the obtaining of
advances or credit, and which do not in the aggregate materially detract
from the value of its property or assets or materially impair the use
thereof in the operation of its business,
(iii) Liens on property or assets of a Subsidiary
to secure obligations of such Subsidiary to the Company or another
Subsidiary,
(iv) any Lien existing on any property of any
corporation at the time it becomes a Subsidiary, or existing prior to the
time of acquisition upon any property acquired by the Company or any
Subsidiary through purchase, merger or consolidation or otherwise,
whether or not assumed by the Company or such Subsidiary, or placed upon
property at the time of acquisition by the Company or any Subsidiary to
secure a portion of the purchase price thereof, or placed upon property
hereafter acquired by the Company or any Subsidiary at the time of, or
within six months after, the acquisition thereof or placed upon property
now owned or hereafter acquired at the time of, or within six months
after, the construction of improvements thereon, to secure a portion of
the purchase price thereof or of the construction costs of such
improvements thereon, as the case may be, provided that (a) any such Lien
shall not encumber any other property of the Company or such Subsidiary,
and (b) the aggregate amount of Debt secured by all such Liens and any
Liens permitted by clause (v) below does not violate the proviso of
clause (v) of paragraph 6C(2), and
(v) any Lien renewing, extending or refunding any
Lien permitted by clause (iv) above, provided that the principal amount
secured is not increased, and the Lien is not extended to other property;
6C(2). Debt - Create, incur or assume any Funded or Current
Debt, except
(i) Funded Debt represented by the Notes and the
8.20% promissory notes issued pursuant to an Agreement dated September
27, 1973, as amended, between the Company and The Prudential Insurance
Company of America,
88<PAGE>
(ii) Funded or Current Debt of any Subsidiary to
the Company or any other Subsidiary,
(iii) other Current Debt of the Company not in
excess of an aggregate principal amount of $10,000,000 at any time
outstanding, provided that the Company shall not create, incur, assume or
suffer to exist any Current Debt permitted by this clause (iii) on any
day unless there shall have been a period of at least 60 consecutive
days, within the 12 months' period immediately preceding such day, during
which the Company shall have been free from all Current Debt permitted by
this clause (iii),
(iv) Funded Debt of the Company if, after giving
effect to the repayment of any other Funded Debt and to the concurrent
repayment of any Funded Debt, the aggregate principal amount of Funded
Debt of the Company at any time outstanding does not exceed an amount
equal to Consolidated Tangible Net Worth, and
(v) Funded or Current Debt of the Company secured
by Liens permitted by the provisions of clauses (iv) and (v) of paragraph
6C(l), provided that the aggregate principal amount of all such Debt at
any time outstanding after giving effect thereto and to any concurrent
repayment shall not exceed an amount equal to 20% of Consolidated
Tangible Net Worth;
6C(3). Loans, Advances, Investments and Contingent Liabilities
- - Make or permit to remain outstanding any loan or advance to, or
guarantee, endorse or otherwise be or become contingently liable,
directly or indirectly, in connection with the obligations, stock or
dividends of, or own, purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution
to, any other Person, except that the Company or any Subsidiary may
(i) make or permit to remain outstanding loans or
advances to any Subsidiary,
(ii) own, purchase or acquire stock, obligations or
securities of a Subsidiary or of a corporation which immediately after
such purchase or acquisition will be a Subsidiary,
(iii) acquire and own stock, obligations or
securities received in settlement of debts (created in the ordinary
course of business) owing to the Company or any Subsidiary,
(iv) own, purchase or acquire prime commercial
paper and certificates of deposit in United States commercial banks
(having capital resources in excess of $50,000,000), in each case due
within one year from the date of purchase, obligations of the United
States Government or any agency thereof, and obligations guaranteed by
the United States Government,
(v) endorse negotiable instruments for collection
in the ordinary course of business,
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(vi) guarantee obligations of Subsidiaries which
are not prohibited by paragraph 6C(2),
(vii) make or permit to remain outstanding loans or
advances to, or guarantee, endorse or otherwise be or become contingently
liable in connection with the obligations, stock or dividends of, or own,
purchase or acquire stock, obligations or securities of, any other
Person, provided that the aggregate principal amount of such loans and
advances, plus the aggregate amount of such contingent liabilities, plus
the aggregate amount of liabilities permitted by clauses (i) and (v) of
paragraph 6C(9), plus the aggregate amount of the investment (at original
cost) in such stock, obligations and securities shall not exceed
$15,000,000 at any time outstanding for the Company and all Subsidiaries,
and further provided that no Subsidiary shall make any loan or advance
to, or acquire any stock, obligations or securities of, the Company, and
(viii) own, purchase or acquire repurchase
agreements either offered by a United States commercial bank or a United
States subsidiary of a foreign bank (in either case having a combined
capital and surplus in excess of $50,000,000) or by a broker/dealer
(having a combined capital and surplus in excess of $50,000,000) that are
fully collateralized by obligations of the United States Government or
any agency thereof or by obligations guarantied by the United States
Government or any agency thereof and held in pledge for the Company or
such Subsidiary;
6C(4). Sale of Stock and Debt of Subsidiaries - Sell or
otherwise dispose of any shares of stock or Funded or Current Debt of any
Subsidiary, except to the Company or another Subsidiary, and except that
all shares of stock and Debt of any Subsidiary at the time owned by or
owed to the Company and all Subsidiaries may be sold as an entirety for a
cash consideration which represents the fair value (as determined in good
faith by the Board of Directors of the Company) at the time of sale of
the shares of stock and Debt so sold, provided that the assets of such
Subsidiary do not constitute a Substantial Part of the consolidated
assets of the Company and all Subsidiaries and that such Subsidiary shall
not have contributed a Substantial Part of Consolidated Net Earnings (as
defined in paragraph 6B) for any of the three fiscal years then most
recently ended, and further provided that, at the time of such sale, such
Subsidiary shall not own, directly or indirectly, any shares of stock or
Debt of any other Subsidiary (unless all of the shares of stock and Debt
of such other Subsidiary owned, directly or indirectly, by the Company
and all Subsidiaries are simultaneously being sold as permitted by this
paragraph 6C(4));
6C(5). Merger and Sale of Assets - Merge or consolidate with
any other corporation or sell, lease or transfer or otherwise dispose of
all or a Substantial Part of its assets, or assets which shall have
contributed a Substantial Part of Consolidated Net Earnings (as defined
in paragraph 6B) for any of the three fiscal years then most recently
ended, to any Person, except that
(i) any Subsidiary may merge with the Company
(provided that the Company shall be the continuing or surviving
corporation) or with any one or more other Subsidiaries,
90<PAGE>
(ii) any Subsidiary may sell, lease, transfer or
otherwise dispose of any of its assets to the Company or another
Subsidiary,
(iii) any Subsidiary may sell or otherwise dispose
of all or substantially all of its assets subject to the conditions
specified in paragraph 6C(4) with respect to a sale of the stock of such
Subsidiary, and
(iv) the Company may merge with any other
corporation, provided that (a) the Company shall be the continuing or
surviving corporation, and (b) the Company as the continuing or surviving
corporation shall not, immediately after such merger, be in default under
this Agreement or the Notes including all covenants herein and therein
contained;
6C(6). Lease Rentals - Enter into any agreement to rent or
lease (as lessee) any real or personal property (other than data
processing equipment) for terms (including renewal options) of more than
three years if after giving effect thereto the aggregate amount of all
annual Lease Rentals payable by Company and its Subsidiaries to lessors
under all such leases will exceed 2.0% of Consolidated Net Sales during
the preceding period of 12 consecutive months;
6C(7). Sale and Lease-Back - Enter into any arrangement with
any bank, insurance company or other lender or investor or to which such
lender or investor is a party providing for the leasing by the Company or
any Subsidiary of real property which has been or is to be sold or
transferred by the Company or any Subsidiary to such lender or investor
or to any Person to whom funds have been or are to be advanced by such
lender or investor on the security of such property or rental obligations
of the Company or any Subsidiary, provided that the Company or any
Subsidiary may sell and lease back any property within one year after the
date of acquisition thereof by the Company or such Subsidiary or within
one year after the date of completion of a new store upon such property;
6C(8). Sale or Discount of Receivables - Sell with recourse,
or discount or otherwise sell for less than the face value thereof, any
of its notes or accounts receivable; or
6C(9). Certain Contracts - Enter into or be a party to
(i) any contract providing for the making of loans,
advances or capital contributions to any Person other than a Subsidiary
(except where the obligation is limited to a fixed maximum amount which
is within the limitations of clause (vii) of paragraph 6C(3)), or for the
purchase of any property from any Person, in each case in order primarily
to enable such Person to maintain working capital, net worth or any other
balance sheet condition or to pay debts, dividends or expenses, or
91<PAGE>
(ii) any contract for the purchase of materials,
supplies or other property or services if such contract (or any related
document) requires that payment for such materials, supplies or other
property or services shall be made regardless of whether or not delivery
of such materials, supplies or other property or services is ever made or
tendered, or
(iii) any contract to rent or lease (as lessee) any
real or personal property (other than leases as permitted by paragraph
6C(7)) if such contract (or any related document) provides that the
obligation to make payments thereunder is absolute and unconditional
under conditions not customarily found in commercial leases then in
general use or requires that the lessee purchase or otherwise acquire
securities or obligations of the lessor, or
(iv) any contract for the sale or use of materials,
supplies or other property, or the rendering of services, if such
contract (or any related document) requires that payment for such
materials, supplies or other property, or the use thereof, or payment for
such services, shall be subordinated to any indebtedness (of the
purchaser or user of such materials, supplies or other property or the
Person entitled to the benefit of such services) owed or to be owed to
any Person, or
(v) any other contract which, in economic effect,
is substantially equivalent to a guarantee, except as permitted by clause
(v) or clause (vi) of paragraph 6C(3) and except where the obligation is
limited to a fixed maximum amount which is within the limitations of
clause (vii) of paragraph 6C(3).
6D. Issuance of Stock by Subsidiaries. The Company
covenants that it will not permit any Subsidiary to issue, sell or
dispose of any shares of any class of its stock (other than directors'
qualifying shares) except to the Company or another Subsidiary.
7. Events of Default. If any of the following events shall
occur and be continuing for any reason whatsoever (and whether such
occurrence shall be voluntary or involuntary or come about or be effected
by operation of law or otherwise):
(i) if the Company defaults in the payment of any principal
of any Note when the same shall become due, either by the terms thereof
or otherwise as herein provided; or
(ii) if the Company defaults in the payment of any interest
on any Note for more than 10 days after the date due; or
(iii) if the Company or any Subsidiary defaults in any
payment of principal of or interest on any other obligation for money
borrowed or received as an advance for which it is liable in excess of
$50,000 (or any Capitalized Lease Obligations, any obligation under
conditional sale or other title retention agreement, any obligation
issued or assumed as full or partial payment for property whether or not
secured by purchase money mortgage or any obligation under notes payable
92<PAGE>
or drafts accepted representing extensions of credit relating to an
amount in excess of $50,000) beyond any period of grace provided with
respect thereto, or defaults in the performance of any other agreement,
term or condition contained in any agreement under which any such
obligation is created (or if any other default under any such agreement
shall occur and be continuing) if the effect of such default is to cause,
or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, such obligation to become due
prior to its stated maturity; or
(iv) if any representation or warranty made by the Company
herein or in any writing furnished in connection with or pursuant to this
Agreement shall be false in any material respect on the date as of which
made; or
(v) if the Company defaults in the performance or
observance of any agreement contained in paragraph 6, or
(vi) if the Company defaults in the performance or
observance of any other agreement, term or condition contained herein and
such default shall not have been remedied within 30 days after written
notice thereof shall have been received by the Company from you; or
(vii) if the Company or any Subsidiary makes an assignment
for the benefit of creditors or admits in writing its inability to pay
its debts generally as they become due; or
(viii) if any decree or order for relief in respect of the
Company or any Subsidiary is entered under any bankruptcy,
reorganization, compromise, arrangement, insolvency, readjustment of
debt, dissolution or liquidation or similar law, whether now or hereafter
in effect (herein called the "Bankruptcy Law"), of any jurisdiction; or
(ix) if the Company or any Subsidiary petitions or applies
to any tribunal for, or consents to, the appointment of, or taking
possession by, a trustee, receiver, custodian, liquidator or similar
official of the Company or any Subsidiary, or of any substantial part of
the assets of the Company or any Subsidiary, or commences a voluntary
case under the Bankruptcy Law of the United States or any proceedings
(other than proceedings for the voluntary liquidation and dissolution of
a Subsidiary) relating to the Company or any Subsidiary under the
Bankruptcy Law of any other jurisdiction; or
(x) if any such petition or application is filed, or any
such proceedings are commenced, against the Company or any Subsidiary and
the Company or such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or decree
is entered appointing any such trustee, receiver, custodian, liquidator
or similar official, or approving the petition in any such proceedings,
and such order, judgment or decree remains unstayed and in effect for
more than 30 days; or
93<PAGE>
(xi) if any order, judgment or decree is entered in any
proceedings against the Company decreeing the dissolution of the Company
and such order, judgment or decree remains unstayed and in effect for
more than 60 days; or
(xii) if any order, judgment or decree is entered in any
proceeding against the Company or any Subsidiary decreeing a split-up of
the Company or such Subsidiary which requires the divestiture of a
Substantial Part, or the divestiture of the stock of a Subsidiary whose
assets constitute a Substantial Part, of the consolidated assets of the
Company and its Subsidiaries or which requires the divestiture of assets,
or stock of a Subsidiary, which shall have contributed a Substantial Part
of Consolidated Net Earnings (as defined in paragraph 6B) for any of the
three fiscal years then most recently ended, and such order, judgment or
decree remains unstayed and in effect for more than 60 days;
then (a) if such event is an Event of Default specified in clause (viii),
(ix) or (x) of this paragraph 7, all of the Notes at the time outstanding
shall automatically become immediately due and payable together with
interest accrued thereon without presentment, demand, protest or notice
of any kind, all of which are hereby waived by the Company, and (b) if
such event is an Event of Default specified in any other clause of this
paragraph 7, the holder or holders of at least two-thirds of the
principal amount of the Notes outstanding may, at its or their option and
in addition to any right, power or remedy permitted by law or equity, by
notice in writing to the Company, declare all of the Notes to be, and all
of the Notes shall thereupon be and become, forthwith due and payable
together with interest accrued thereon without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by
the Company.
8. Representations and Warranties. The Company represents,
covenants and warrants:
8A. Organization and Qualification. The Company is a
corporation duly organized and existing in good standing under the laws
of the State of Delaware, each Subsidiary is duly organized and existing
in good standing under the laws of the jurisdiction in which
incorporated, and the Company has and each Subsidiary has the corporate
power to own its respective property and to carry on its respective
business as now being conducted, and the Company is and each Subsidiary
is duly qualified as a foreign corporation to do business and in good
standing in every jurisdiction in which the nature of the respective
business conducted by it makes such qualification necessary.
8B. Financial Statements. The Company has furnished you
with the following financial statements, identified by a principal
financial officer of the Company: (i) Consolidated Balance Sheets of the
Company and its Subsidiaries dated February 23, 1985 and February 22,
1986, and Consolidated Statements of Earnings, Capital Stock, Retained
Earnings and Changes in Financial Position of the Company and its
Subsidiaries for the fiscal years ended on such dates, all certified by
Laventhol and Horwath; and (ii) Consolidated Balance Sheets of the
94<PAGE>
Company and its Subsidiaries as at May 17, 1986 and at August 9, 1986,
and Consolidated Statements of Earnings, Capital Stock, Retained Earnings
and Changes in Financial Position of the Company and its Subsidiaries for
the twelve and twenty-four week periods respectively ended on such dates,
prepared by the Company. Such financial statements (including any
related schedules and/or notes) are complete and correct (subject, as to
interim statements, to changes resulting from audits and year-end
adjustments) and have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the periods
involved and show all liabilities, direct and contingent, of the Company
and its Subsidiaries. The Balance Sheets fairly present the condition of
the Company and its Subsidiaries as at the dates thereof, and the
Statements of Earnings, Capital Stock, Retained Earnings and Changes in
Financial Position fairly present the results of the operations of the
Company and its Subsidiaries for the periods indicated. There has been
no material adverse change in the condition, financial or otherwise, of
the Company or its Subsidiaries since May 17, 1986.
8C. Actions Pending. There is no action, suit,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries before any
court, arbitrator or administrative or governmental body which might
result in any material adverse change in the business or condition of the
Company or such Subsidiary.
8D. Outstanding Debt. Neither the Company nor any of its
Subsidiaries has outstanding any Funded or Current Debt, on a
consolidated basis, except Debt permitted by paragraph 6C(2). There
exists no default under the provisions of any instrument evidencing such
Debt or of any agreement relating thereto.
8E. Title to Properties. The Company has, and each of its
Subsidiaries has, good and marketable title to its respective real
properties (other than properties which it leases) and good title to all
of its other respective properties and assets, including the properties
and assets reflected in the balance sheet as at May 17, 1986 hereinabove
described (other than properties and assets disposed of in the ordinary
course of business), subject to no Lien of any kind except Liens
permitted by paragraph 6C(1). The Company and its Subsidiaries enjoy
peaceful and undisturbed possession under all leases necessary in any
material respect for the operation of their respective properties and
assets, none of which contains any unusual or burdensome provisions which
might materially affect or impair the operation of such properties and
assets. All such leases are valid and subsisting and are in full force
and effect.
8F. Taxes. The Company has and each of its Subsidiaries
has filed all Federal, State and other income tax returns which, to the
best knowledge of the officers of the Company, are required to be filed,
and each has paid all taxes as shown on said returns and on all
assessments received by it to the extent that such taxes have become due.
Federal, State and other income tax returns of the Company and its
Subsidiaries have been examined and reported on by the taxing authorities
or closed by applicable statutes and satisfied for all fiscal years prior
to and including the fiscal year ended on or about February 23, 1980.
95
8G. Conflicting Agreements and Other Matters. Neither the
Company nor any of its Subsidiaries is a party to any contract or
agreement or subject to any charter or other corporate restriction which
materially and adversely affects its business, property or assets, or
financial condition. Neither the execution nor delivery of this
Agreement nor of the Notes, nor the offering, issuance and sale of the
Notes, nor fulfillment of nor compliance with the terms and provisions
hereof and of the Notes will conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under, or
result in any violation of, or result in the creation of any Lien upon
any of the properties or assets of the Company or any of its Subsidiaries
pursuant to, or require any consent, approval or other action by any
court or administrative or governmental body pursuant to, the charter or
by-laws of the Company or any of its Subsidiaries, any award of any
arbitrator or any agreement (including any agreement with stockholders),
instrument, order, judgment, decree, statute, law, rule or regulation to
which the Company or any of its Subsidiaries is subject. Neither the
Company nor any of its Subsidiaries is a party to, or otherwise subject
to any provision contained in, any instrument evidencing indebtedness of
the Company or such Subsidiary, any agreement relating thereto or any
other contract or agreement (including its charter) which limits the
amount of, or otherwise imposes restrictions on the incurring of, Debt of
the Company of the type to be evidenced by the Notes.
8H. Offering of Notes. Neither the Company nor any agent
acting on its behalf has, directly or indirectly, offered the Notes or
any similar security of the Company for sale to, or solicited any offers
to buy the Notes or any similar security of the Company from, or
otherwise approached or negotiated with respect thereto with, any Person
or Persons other than yourself, and neither the Company nor any agent
acting on its behalf has taken or will take any action which would
subject the issuance or sale of the Notes to the provisions of Section 5
of the Securities Act of 1933, as amended, or to the provisions of any
securities or Blue Sky law of any applicable jurisdiction.
8I. Regulation G, etc. Neither the Company nor any
Subsidiary owns or has any present intention of acquiring any "margin
stock" as defined in Regulation G (12 CFR Part 207) of the Board of
Governors of the Federal Reserve System (herein called "margin stock").
The proceeds of sale of the Notes to you will be used to fund a store
expansion and modernization program. None of such proceeds will be used,
directly or indirectly, for the purpose of purchasing or carrying any
margin stock or for the purpose of reducing or retiring any indebtedness
which was originally incurred to purchase or carry a margin stock or for
any other purpose which might constitute this transaction a "purpose
credit" within the meaning of said Regulation G. Neither the Company nor
any agent acting on its behalf has taken or will take any action which
might cause this Agreement or the Notes to violate Regulation G,
Regulation T or any other regulation of the Board of Governors of the
Federal Reserve System or to violate the Securities Exchange Act of 1934,
as amended, in each case as in effect now or as the same may hereafter be
in effect.
96<PAGE>
8J. Pollution and Other Regulations. The Company and each
of its Subsidiaries is exercising its best efforts to comply with all
laws and regulations relating to pollution and environmental control,
equal employment opportunity and employee safety in all jurisdictions in
which the Company and each of its Subsidiaries is presently doing
business, and the Company will use its best efforts to comply and to
cause each of its Subsidiaries to comply with all such laws and
regulations which may be legally imposed in the future in jurisdictions
in which the Company or any Subsidiary may then be doing business.
8K. ERISA. No accumulated funding deficiency (as defined
in section 302 of ERISA and section 412 of the Code), whether or not
waived, exists with respect to any Plan (other than a Multiemployer
Plan). No liability to the Pension Benefit Guaranty Corporation has been
or is expected by the Company to be incurred with respect to any Plan
(other than a Multiemployer Plan) by the Company or any of its
Subsidiaries which is or would be materially adverse to the Company and
its Subsidiaries taken as a whole. Neither the Company nor any of its
Subsidiaries has incurred or presently expects to incur any withdrawal
liability under Title IV of ERISA with respect to any Multiemployer Plan
which is or would be materially adverse to the Company and its
Subsidiaries taken as a whole. The execution and delivery of this
Agreement and the issue and sale of the Notes will not involve any
transaction which is subject to the prohibitions of section 406 of ERISA
or in connection with which a tax could be imposed pursuant to section
4975 of the Code. The representation by the Company in the next
preceding sentence is made in reliance upon and subject to the accuracy
of your representation in paragraph 9 as to the source of the funds to be
used to pay the purchase price of the Notes to be purchased by you. As
used in this paragraph 8K, the term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended; the term "Code" shall
mean the Internal Revenue Code of 1954, as amended; the term "Plan" shall
mean an "employee pension benefit plan" (as defined in section 3 of
ERISA) which is or has been established or maintained, or to which
contributions are or have been made, by the Company or by any trade or
business, whether or not incorporated, which, together with the Company,
is under common control, as described in section 414(b) or (c) of the
Code; and the term "Multiemployer Plan" shall mean any Plan which is a
"multiemployer plan" (as such term is defined in section 4001(a)(3) of
ERISA).
8L. Governmental Consent. Neither the nature of the
Company or of any Subsidiary, nor any of their respective businesses or
properties, nor any relationship between the Company or any Subsidiary
and any other Person, nor any circumstance in connection with the offer,
issue, sale or delivery of the Notes is such as to require any
authorization, consent, approval, exemption or other action by or notice
to or filing with any court or administrative or governmental body (other
than routine filings after the date of closing with the Securities and
Exchange Commission and/or state Blue Sky authorities) in connection with
the execution and delivery of this Agreement, the offer, issue, sale or
delivery of the Notes or fulfillment of or compliance with the terms and
provisions hereof or of the Notes.
97<PAGE>
8M. Disclosure. Neither this Agreement nor any other
document, certificate or statement furnished to you by or on behalf of
the Company in connection herewith contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements contained herein and therein not misleading. There
is no fact peculiar to the Company or any of its Subsidiaries which
materially adversely affects or in the future may (so far as the Company
can now foresee) materially adversely affect the business, property or
assets, or financial condition of the Company or any of its Subsidiaries
which has not been set forth in this Agreement or in the other documents,
certificates and statements furnished to you by or on behalf of the
Company prior to the date hereof in connection with the transactions
contemplated hereby.
9. Representation of the Purchaser. You represent and in making
this sale to you it is specifically understood and agreed that you are
acquiring the Notes for the purpose of investment and not with a view to
or for sale in connection with any distribution thereof, provided that
the disposition of your property shall at all times be and remain within
your control. You also represent that no part of the funds being used by
you to pay the purchase price of the Notes hereunder constitutes assets
allocated to any separate account (as defined in Section 3 of ERISA)
maintained by you in which any employee benefit plan (as defined in
Section 3 of ERISA), other than employee benefit plans named on a list
which has been furnished by you to the Company, participates to the
extent of 5% or more.
10. Definitions. For the purpose of this Agreement, the
following terms shall have the following meanings:
10A. "Person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
10B. "Subsidiary" shall mean any corporation organized
under the laws of any State of the United States of America, Canada, or
any Province of Canada, which conducts the major portion of its business
in the United States of America or Canada, and all of the stock of every
class of which, except directors' qualifying shares, shall, at the time
as of which any determination is being made, be owned by the Company
either directly or through Subsidiaries.
10C. "Funded Debt" shall mean any obligation payable more
than one year from the date of the creation thereof, which under
generally accepted accounting principles is shown on the balance sheet as
a liability (including without limitation Capitalized Lease Obligations
and excluding reserves for deferred income taxes and other reserves to
the extent that such reserves do not constitute an obligation). "Current
Debt" shall mean any obligation for borrowed money (and any notes payable
and drafts accepted representing extension of credit whether or not
representing obligations for borrowed money) payable on demand or within
a period of one year from the date of the creation thereof; provided that
any obligation shall be treated as Funded Debt, regardless of its term,
if such obligation is renewable pursuant to the terms thereof or of a
revolving credit or similar agreement effective for more than one year
98<PAGE>
after the date of the creation of such obligation, or may be payable out
of the proceeds of a similar obligation pursuant to the terms of such
obligation or of any such agreement. Any obligation secured by a Lien
on, or payable out of the proceeds of production from, property of the
Company or any Subsidiary shall be deemed to be Funded or Current Debt,
as the case may be, of the Company or such Subsidiary even though such
obligation shall not be assumed by the Company or such Subsidiary.
"Debt" shall mean Funded Debt and/or Current Debt, as the case may be.
10D. "Consolidated Working Capital" shall mean the excess of
consolidated current assets over consolidated current liabilities of the
Company and its Subsidiaries, both determined in accordance with
generally accepted accounting principles consistent with those followed
in the preparation of the financial statements referred to in clause (i)
of paragraph 8B, provided that there shall not be included in current
assets (i) any loans or advances made by the Company or any Subsidiary
except travel and other like advances to officers and employees in the
ordinary course of business, nor (ii) any assets located outside
(including any amounts payable by Persons located outside) the United
States of America and Canada.
10E. "Consolidated Net Sales" shall mean merchandise sales
less discounts, returns and allowances, plus carrying charges and other
revenue received in the regular course of business of the Company and its
Subsidiaries, all determined on a consolidated basis in accordance with
generally accepted accounting principles.
10F. "Event of Default" shall mean any of the events
specified in paragraph 7, provided that there has been satisfied any
requirement in connection with such event for the giving of notice, or
the lapse of time, or the happening of any further condition, event or
act, and "Default" shall mean any of such events, whether or not any such
requirement has been satisfied.
10G. "Officer's Certificate" shall mean a certificate
signed in the name of the Company by its President, one of its Vice
Presidents or its Treasurer.
10H. "Lien" shall mean any mortgage, pledge, security
interest encumbrance, lien or charge of any kind (including any
conditional sale or other title retention agreement, any lease in the
nature thereof, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction).
10I. "Lease Rentals" shall mean the aggregate annual rental
payments not including any amount payable by the lessee for property
taxes, maintenance, income taxes, insurance, percentage rentals,
assessments, water rates and similar charges.
10J. "Substantial Part" shall mean, when used with respect
to assets, more than 10% of the consolidated assets of the Company and
all Subsidiaries, and, when used with respect to Consolidated Net
Earnings (as defined in paragraph 6B) for any period, more than 10% of
Consolidated Net Earnings (as defined in paragraph 6B) for such period.
99<PAGE>
10K. "Consolidated Tangible Net Worth" shall mean, as of
the time of any determination thereof, the excess of (1) the sum of (i)
the par value (or value stated on the books of the Company) of the
capital stock of all classes of the Company, plus (or minus in the case
of a surplus deficit) (ii) the amount of the consolidated surplus,
whether capital or earned, of the Company and its Subsidiaries, over (2)
the sum of treasury stock, unamortized debt discount and expense, good
will, trademarks, trade names, patents, deferred charges and other
intangible assets and any write-up of the value of any assets after
February 22, 1986; all determined on a consolidated basis for the Company
and all Subsidiaries in accordance with generally accepted accounting
principles consistent with those followed in the preparation of the
financial statements referred to in clause (i) of paragraph 8B.
10L. "Capitalized Lease Obligation" shall mean any rental
obligation which, under generally accepted accounting principles, is or
will be required to be capitalized on the books of the Company or any
Subsidiary, taken at the amount thereof accounted for as indebtedness
(net of interest expense) in accordance with such principles.
11. Miscellaneous.
11A. Home Office Payment. The Company agrees that, as long as
you shall hold any Note, it will make payments of principal thereof and
interest and premium, if any, thereon, which comply with the terms of
this Agreement, by bank wire transfer of immediately available funds for
credit to your account #050-52-557 in Morgan Guaranty Trust Company of
New York, 15 Broad Street, New York, N.Y., or such other account as you
may designate in writing, notwithstanding any contrary provision herein
or in any Note with respect to the place of payment; provided, however,
that with respect to the Note purchased by you in the principal amount of
$2,000,000 pursuant to paragraph 2 (and any Note or Notes issued in
exchange therefor) payments of principal thereof and interest and
premium, if any, thereon, which comply with the terms of this Agreement,
shall be made by bank wire transfer of immediately available funds for
credit to your account #050-53-360 in Morgan Guaranty Trust Company of
New York, 15 Broad Street, New York, N.Y. Each such bank wire transfer
shall set forth the name of the Company, the full title (including the
coupon rate and final maturity date) of the Notes, a reference to
"security no. 374478XA8", and the due date and application (as between
principal and interest) of the payment being made. You agree that,
before disposing of any Note, you will make a notation thereon of all
principal payments previously made thereon and of the date to which
interest thereon has been paid, and will notify the Company of the name
and address of the transferee of such Note.
11B. Expenses. The Company agrees, whether or not the
transaction hereby contemplated shall be consummated, to pay, and save
you harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with this transaction, including all stamp
and other taxes (including any intangible personal property tax, together
with interest and penalties, if any, and any income tax payable by you in
respect of any reimbursement therefor) which may be payable in respect of
the execution and delivery of this Agreement or the execution, delivery
or acquisition of any Note issued under or pursuant to this Agreement,
100<PAGE>
all stenographic and duplication costs and the fees and expenses of your
special counsel in connection with this Agreement, the transaction
contemplated hereby and any modification of, or consent under, this
Agreement, and the cost and expenses, including attorneys' fees, incurred
by you in enforcing any of your rights hereunder or thereunder, including
without limitation costs and expenses incurred in any bankruptcy case.
The obligations of the Company under this paragraph 11B shall survive
transfer by you and payment of any Note.
11C. Consent to Amendments. This Agreement may be amended,
and the Company may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, if the Company shall
obtain your prior written consent to such amendment, action or omission
to act. Each holder of any Note at the time or thereafter outstanding
shall be bound by any consent authorized by this paragraph 11C or
paragraph 11D(3), whether or not such Note shall have been marked to
indicate such consent, but any Note issued thereafter may contain a
reference, or bear a notation referring, to any such consent. No course
of dealing between the Company and the holder of any Note nor any delay
in exercising any rights hereunder or under any Note shall operate as a
waiver of any rights of any holder of such Note. As used herein and in
the Note, the term "this Agreement" and references thereto shall mean
this Agreement as it may, from time to time, be amended or supplemented.
11D. Provisions Applicable if Any Note Sold. In the event
that you shall sell or otherwise transfer any Note or any part thereof to
any Person other than the Company, the following provisions shall apply:
11D(l). Notices to Subsequent Holder - If any Note shall have
been transferred to another holder pursuant to paragraph 11E and such
holder shall have designated in writing the address to which
communications with respect to such Note shall be mailed, all notices,
certificates, requests, statements and other documents required or
permitted to be delivered to you by any provision hereof shall also be
delivered to each such holder, except that financial statements and other
documents provided for in paragraph 5A need not be delivered to any such
holder holding less than 10% of the aggregate principal amount of Notes
from time to time outstanding.
11D(2). Pro Rata Payments - All interest payments and payments
or prepayments of principal and premium (if any) shall be made and
applied pro rata on all Notes outstanding including, for the purpose of
this paragraph 11D(2) only, all Notes acquired by the Company or any
Subsidiary other than by prepayment in accordance with the terms of this
Agreement.
11D(3). Consent by Holders of 66-2/3% - Any consent, notice or
demand required or permitted to be given by you by any provision hereof
shall be sufficient if given by the holder or holders of at least two-
thirds of the principal amount of Notes at the time outstanding except
that, without the written consent of the holder or holders of all Notes
at the time outstanding, no amendment to this Agreement shall extend the
maturity of any Note, or reduce the principal, rate of interest or any
premium payable with respect to any Note, or affect the time or amount of
101<PAGE>
any required prepayments, or reduce the proportion of the principal
amount of the Notes required with respect to any consent.
11E. Form, Registration, Transfer and Exchange of Notes.
The Notes are issuable only as registered Notes without coupons in the
denominations of $1,000 and any integral multiple of $1,000. The Company
shall keep at its principal office a register in which the Company shall
provide for the registration of Notes and of transfer of Notes. Upon
surrender for registration of transfer of any Note at the office of the
Company, the Company shall, at its expense, execute and deliver one or
more new Notes of like tenor and of a like aggregate principal amount
registered in the name of the designated transferee or transferees. At
the option of the holder of any Note, such Note may be exchanged for
other Notes of like tenor and of any authorized denominations, of a like
aggregate principal amount, upon surrender of the Note to be exchanged at
the office of the Company. Whenever any Notes are so surrendered for
exchange, the Company shall, at its expense, execute and deliver the
Notes which the Note holder making the exchange is entitled to receive.
Every Note presented or surrendered for registration of transfer shall be
duly endorsed, or be accompanied by a written instrument of transfer duly
executed, by the holder of such Note or his attorney duly authorized in
writing. Any Note or Notes issued in exchange for any Note or upon
transfer thereof shall carry the rights to unpaid interest and interest
to accrue which were carried by the Note so exchanged or transferred, and
neither gain nor loss of interest shall result from any such transfer or
exchange. Upon receipt of written notice from you or other evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Note held by you and, in the case of any such loss,
theft or destruction, upon receipt of your unsecured indemnity agreement,
or other indemnity reasonably satisfactory to the Company, or in the case
of any mutilation upon surrender and cancellation of such Note, the
Company will make and deliver a new Note, of like tenor, in lieu of the
lost, stolen, destroyed or mutilated Note. In fulfilling its duties
under this paragraph 11E, the Company shall be under no duty to make any
investigation or inquiry as to any statements contained or matters
referred to in any resolution, notice, telegram, request, consent,
waiver, certificate, statement, affidavit, voucher, bond or other paper
or document tendered to it which it shall in good faith believe to be
genuine and to have been passed or signed by the proper board, body or
person, but may accept and rely upon the same as conclusive evidence of
the truth and accuracy of the matters therein referred to, and shall be
protected and shall incur no liability in acting or proceeding in good
faith in reliance thereon.
11F. Persons Deemed Owners. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name
any Note is registered as the owner and holder of such Note for the
purpose of receiving payment of principal of and interest and premium (if
any) on such Note and for all other purposes whatsoever, whether or not
such Note shall be overdue, and the Company shall not be affected by
notice to the contrary.
11G. Survivor of Representations and Warranties. All
representations and warranties contained herein or made in writing by the
Company in connection herewith shall survive the execution and delivery
102<PAGE>
of this Agreement and of the Notes, regardless of any investigation made
by you or on your behalf.
11H. Successors and Assigns. All covenants and agreements
in this Agreement contained by or on behalf of either of the parties
hereto shall bind and inure to the benefit of the respective successors
and assigns of the parties hereto whether so expressed or not.
11I. Notices. All communications provided for hereunder
shall be sent by first class mail and, if to you, addressed to you in the
manner (except as otherwise provided in paragraph 11A with respect to
payments of principal of and interest and premium, if any, on the Notes)
in which this letter is addressed, and if to the Company, at P.O. Box
1804, Washington, D.C. 20013, with a copy to the offices of the Company
at 6300 Sheriff Road, Landover, MD 20785, or to such other address with
respect to either party as such party shall notify the other in writing.
11J. Descriptive Headings. The descriptive headings of the
several paragraphs of this Agreement are inserted for convenience only
and do not constitute a part of this Agreement.
11K. Satisfaction Requirement. If any agreement,
certificate or other writing, or any action taken or to be taken, is by
the terms of this Agreement required to be satisfactory to you, the
determination of such satisfaction shall be made by you in your sole and
exclusive judgment exercising good faith.
11L. Governing Law. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be
governed by the law of the State of New York. This Agreement may not be
changed orally, but (subject to the provisions of paragraphs 11C and
11D(3)) only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
11M. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed
an original, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one such counterpart.
11N. Amendment of Existing Agreement. The covenants set
forth in paragraphs 5A and 6 of the Note Agreement dated September 27,
1973, as amended, between the Company and you, pursuant to which the
8.20% Notes were issued and sold to you, are hereby amended in their
entirety so as to read as set forth, respectively, in paragraphs 5A and 6
of this Agreement, and defined terms and cross references used in
paragraphs 5A and 6 of such Note Agreement, as amended hereby, shall be
deemed, respectively, to have the respective meanings ascribed thereto
in, and to refer to paragraphs in this Agreement. Paragraph 4D of such
Note Agreement is hereby amended so as to include the Notes issued or to
be issued under this Agreement in the term "Notes" as used in the proviso
to said paragraph 4D.
103<PAGE>
If you are in agreement with the foregoing, please sign the
form of acceptance on the enclosed counterpart of this letter and return
the same to the undersigned, whereupon this letter shall become a binding
agreement between you and the undersigned.
Very truly yours,
GIANT FOOD INC.
By
[Title] Sr. Vice President-Finance
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By
[Title] Vice President
104<PAGE>
EXHIBIT 10.7
[CONFORMED COPY]
GIANT FOOD INC.
9.83% PROMISSORY NOTES DUE AUGUST 4, 2012
_______________
NOTE AGREEMENT
with
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
Dated: August 4, 1987
105<PAGE>
TABLE OF CONTENTS
Page
1. Authorization of Issue of Notes. . . . . . . . . . . . . . . . 1
2. Purchase and Sale of Notes . . . . . . . . . . . . . . . . . . 1
3. Conditions of Closing . . . . . . . . . . . . . . . . . . . . 1
3A. Opinion of Purchaser's Special Counsel . . . . . . . . 2
3B. Opinion of Company's Counsel . . . . . . . . . . . . . 2
3C. Representations and Warranties; No Default . . . . . . 3
3D. Accountants' Certificate . . . . . . . . . . . . . . . 3
3E. Purchase Permitted by Applicable Laws . . . . . . . . 3
3F. Proceedings . . . . . . . . . . . . . . . . . . . . . 3
4. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . 3
4A. Required Prepayments . . . . . . . . . . . . . . . . 3
4B. Optional Prepayment in Whole or in Part With Premium . 4
4C. Notice of Prepayment . . . . . . . . . . . . . . . . . 4
4D. Partial Prepayments . . . . . . . . . . . . . . . . . . 4
5. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . 5
5A. Financial Statements . . . . . . . . . . . . . . . . . 5
5B. Inspection of Property . . . . . . . . . . . . . . . . 6
5C. Covenant to Secure Notes Equally . . . . . . . . . . . 7
6. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . 7
6A. Working Capital Requirement . . . . . . . . . . . . . . 7
6B. Dividend Limitation . . . . . . . . . . . . . . . . . . 7
6C. Lien, Debt and Other Restrictions . . . . . . . . . . . 8
6C(l) Liens . . . . . . . . . . . . . . . . . . . . . . . . . 8
6C(2) Debt . . . . . . . . . . . . . . . . . . . . . . . . . 9
6C(3) Loans, Advances, Investments and Contingent Liabilities 9
6C(4) Sale of Stock and Debt of Subsidiaries . . . . . . . . 11
6C(5) Merger and Sale of Assets . . . . . . . . . . . . . . 11
6C(6) Lease Rentals . . . . . . . . . . . . . . . . . . . . 12
6C(7) Sale and Lease-Back . . . . . . . . . . . . . . . . . 12
6C(8) Sale or Discount of Receivables . . . . . . . . . . . 12
6C(9) Certain Contracts . . . . . . . . . . . . . . . . . . 12
6D. Issuance of Stock by Subsidiaries . . . . . . . . . . 13
7. Events of Default . . . . . . . . . . . . . . . . . . . . . . 13
8. Representations and Warranties . . . . . . . . . . . . . . . . 15
8A. Organization and Qualification . . . . . . . . . . . . 15
8B. Financial statements . . . . . . . . . . . . . . . . . 15
8C. Actions Pending . . . . . . . . . . . . . . . . . . . 16
8D. Outstanding Debt . . . . . . . . . . . . . . . . . . . 16
8E. Title to Properties . . . . . . . . . . . . . . . . . 16
8F. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 17
8G. Conflicting Agreements and Other Matters . . . . . . . 17
8H. Offering of Notes . . . . . . . . . . . . . . . . . . 17
8I. Regulation G, etc. . . . . . . . . . . . . . . . . . . 17
106<PAGE>
8J. Pollution and Other Regulations . . . . . . . . . . . 18
8K. ERISA . . . . . . . . . . . . . . . . . . . . . . . . 18
8L. Governmental Consent . . . . . . . . . . . . . . . . . 19
8M. Disclosure . . . . . . . . . . . . . . . . . . . . . . 19
9. Representation of the Purchaser . . . . . . . . . . . . . . . 19
10. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 19
11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 21
11A. Home Office Payment . . . . . . . . . . . . . . . . . 21
11B. Expenses . . . . . . . . . . . . . . . . . . . . . . . 22
11C. Consent to Amendments . . . . . . . . . . . . . . . . 22
11D. Provisions Applicable if Any Note Sold . . . . . . . . 23
11D(1) Notices to Subsequent Holder . . . . . . . . . . . . . 23
11D(2) Pro Rata Payments . . . . . . . . . . . . . . . . . . 23
11D(3) Consent by Holders of 66-2/3% . . . . . . . . . . . . 23
11E. Form, Registration, Transfer and Exchange of Notes . . 23
11F. Persons Deemed Owners . . . . . . . . . . . . . . . . 24
11G. Survival of Representations and Warranties . . . . . . 24
11H. Successors and Assigns . . . . . . . . . . . . . . . . 24
11I. Notices . . . . . . . . . . . . . . . . . . . . . . . 24
11J. Descriptive Headings . . . . . . . . . . . . . . . . . 25
11K. Satisfaction Requirement . . . . . . . . . . . . . . . 25
11L. Governing Law . . . . . . . . . . . . . . . . . . . . 25
11M. Counterparts . . . . . . . . . . . . . . . . . . . . . 25
11N. Amendment of Existing Agreement . . . . . . . . . . . 25
EXHIBIT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
EXHIBIT B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
GIANT FOOD INC.
P.O. Box 1804
Washington, D.C. 20013
August 4, 1987
The Prudential Insurance Company
of America
Three Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
Attention: Senior Managing Director in Charge
of the Capital Markets Group
Gentlemen:
The undersigned, GIANT FOOD INC. (herein called the "Company"),
hereby agrees with you as follows:
1. Authorization of Issue of Notes. The Company will authorize
the issue of its promissory notes (herein, together with any notes which
may be issued hereunder in substitution therefor, called the "Notes") in
107<PAGE>
the aggregate principal amount of $29,000,000, to be dated the date of
issue thereof, to mature August 4, 2012, to bear interest on the unpaid
balances thereof from the date thereof until the principal thereof shall
become due and payable at the rate of 9.83% per annum, and to be
substantially in the form of Exhibit A hereto attached. The term "Note"
shall mean one of the Notes.
2. Purchase and Sale of Notes. The Company hereby agrees to sell
to you and, subject to the terms and conditions herein set forth, you
agree to purchase from the Company two Notes each registered in your
name, the first in the principal amount of $26,272,000 and the second in
the principal amount of $2,728,000 at 100% of the respective principal
amounts thereof. The Company will deliver both Notes to you at the
offices of White & Case, 1155 Avenue of the Americas, New York, New York,
against payment of the purchase price thereof by transfer of immediately
available funds to The National Bank of Washington, Washington, D.C. for
credit to the Company's account, No. 0 000 795, at such bank on the date
of closing with respect to such Notes, which shall be August 4, 1987, or
such earlier date as the Company may designate to you by not less than 5
days' notice in writing.
3. Conditions of Closing. Your obligation to purchase and pay for
the Notes is subject to the satisfaction, on or before the date of
closing, of the following conditions:
3A. Opinion of Purchaser's Special Counsel. You shall have
received from Messrs. White & Case, who are acting as special counsel for
you in connection with this transaction, a favorable opinion satisfactory
to you as to: (i) the due organization, existence and good standing of
the Company; (ii) the due authorization (including any consent of
stockholders required by law or by the charter or by-laws of the
Company), execution and delivery and the validity of this Agreement and
the Notes; (iii) the absence of any requirement to register the Notes
under the Federal Securities Act of 1933, as amended; and (iv) such other
matters incident to the matters herein contemplated as you may reasonably
request, including the form of all papers and the validity of all
proceedings. Such opinion shall also state that, based upon such
investigation and inquiry as is deemed relevant and appropriate by such
counsel, the opinion referred to in paragraph 3B is satisfactory in form
and scope to such counsel and, while such investigation and inquiry into
the matters covered by such opinion (other than the matters specified in
clauses (ii) and (iii) above) were not sufficient to enable such counsel
independently to render such opinion, nothing has come to the attention
of such counsel which has caused it to question the legal conclusions
expressed in the opinion referred to in paragraph 3B and such counsel
believe that you are justified in relying on such opinion.
3B. Opinion of Company's Counsel. You shall have received
from Messrs. Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson &
Casey, counsel for the Company, a favorable opinion satisfactory to you
and your special counsel as to the matters specified in paragraph 3A and
as to: (i) the due organization, existence and good standing of each
Subsidiary; (ii) the corporate power of the Company and each Subsidiary
to carry on their respective businesses as then being conducted; (iii)
the due qualification of the Company and each subsidiary as a foreign
108<PAGE>
corporation to transact business and the good standing of each in each
jurisdiction where the ownership of property or the nature of the
respective businesses transacted by each makes such qualification
necessary; (iv) the procurement of, or the non-necessity of, any consent
or approval of or other action by any court or administrative or
governmental body in connection with the execution and delivery of this
Agreement and the issuance and sale of the Notes; and (v) the execution
and delivery of this Agreement and the Notes, the offering, issuance and
sale of the Notes and fulfillment of and compliance with the respective
provisions hereof and thereof not conflicting with, or resulting in a
breach of the terms, conditions or provisions of, or constituting a
default under, or resulting in any violation of, or resulting in the
creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary pursuant to, or requiring any authorization, consent,
approval, exemption or other action by or any notice to or filing with
any court or administrative or governmental body (other than routine
filings after the date of such opinion with the Securities and Exchange
Commission and/or State Blue Sky authorities) pursuant to, the charter or
by-laws of the Company or any of its Subsidiaries, any applicable law
(including any securities or Blue Sky law), statute, rule or regulation
or (insofar as is known to such counsel after having made due inquiry
with respect thereto) any agreement, instrument, order, judgment or
decree to which the Company or any of its Subsidiaries is subject.
3C. Representations and Warranties; No Default. The
representations and warranties contained in paragraph 8 shall be true on
and as of the date of closing, except to the extent of changes caused by
the transactions herein contemplated; there shall exist on the date of
closing no Event of Default or Default; and the Company shall have
delivered to you an Officer's Certificate, dated the date of closing, to
both such effects.
3D. Accountants' Certificate. The Company shall have
delivered to you the certificate of Laventhol and Horwath, addressed to
you, stating that such firm has reviewed the Federal, State and other
income tax returns of the Company and its Subsidiaries filed for all
fiscal years which have not been examined and reported on by the taxing
authorities or closed by applicable statute, and that, in the opinion of
such firm, such returns properly reflect the Federal, State and other
income taxes of the Company and its Subsidiaries for the periods covered
thereby and the Company has and its Subsidiaries have paid, or set up
adequate reserves for the payment of, all Federal, State and other income
taxes for such fiscal years.
3E. Purchase Permitted by Applicable Laws. The purchase
of and payment for the Notes to be purchased by you on the date of
closing on the terms and conditions herein provided (including the use of
the proceeds of such Notes by the Company) shall not violate any
applicable law or governmental regulation (including, without limitation,
Regulations G, T and X of the Board of Governors of the Federal Reserve
System) and shall not subject you to any tax, penalty, liability or other
onerous condition under or pursuant to any applicable law or governmental
regulation, and you shall have received such certificates or other
evidence as you may request to establish compliance with this condition.
109<PAGE>
3F. Proceedings. All corporate and other proceedings
taken or to be taken in connection with the transactions contemplated
hereby and all documents incident thereto shall be satisfactory in
substance and form to you and your special counsel, and you and your
special counsel shall have received all such counterpart originals or
certified or other copies of such documents as you or they may reasonably
request.
4. Prepayments. The Notes shall be subject to prepayment with
respect to the required prepayments specified in paragraph 4A and also
under any one or more of the circumstances set forth in paragraph 4B.
4A. Required Prepayments. Until the Notes shall be paid in
full, the Company shall apply to the prepayment of the Notes, without
premium, the sum of $1,160,000 on August 4 in each of the years 1988 to
2012, inclusive, and such principal amounts of the Notes, together with
interest thereon to the prepayment dates, shall become due on such
prepayment dates.
4B. Optional Prepayment in Whole or in Part With Premium.
The Notes shall be subject to prepayment, in whole or from time to time
in part (in multiples of $1,000), at the option of the company, on any
interest payment date occurring after August 3, 2000, at the following
applicable percentage of the principal amount so prepaid:
If prepaid during the 12 months' period ending on August 3,
Year Percentage
2001 104.33
2002 103.93
2003 103.54
2004 103.15
2005 102.75
2006 102.36
2007 101.97
2008 101.57
2009 101.18
2010 100.79
2011 100.39
2012 100.00
; provided, however, that the Company may not make prepayment of the
Notes pursuant to this paragraph 4B unless in the case of any such
prepayment of the Notes, such prepayment is not being made as a part of a
refunding or anticipated refunding operation, by the application,
directly or indirectly, of borrowed funds either (a) having an interest
rate or an interest cost to the Company (computed in accordance with
accepted financial practice) of less than 9.83% per annum, or (b)
evidenced by obligations having a maturity date earlier than the maturity
date of the Notes.
4C. Notice of Prepayment. The Company shall give you
written notice of each prepayment, other than prepayments pursuant to
110<PAGE>
paragraph 4A, not less than 30 days prior to the prepayment date,
specifying such prepayment date, the principal amount of the Notes to be
prepaid on such date, whereupon the principal amount of the Notes
specified in such notice, together with interest thereon to the
prepayment date and together with the premium, if any, herein provided,
shall become due and payable on the prepayment date.
4D. Partial Prepayments. Upon any partial prepayment of
the Notes, the principal amount and premium, if any, so prepaid shall be
allocated to all Notes at the time outstanding in proportion to the
outstanding principal amounts thereof, but only in units of $1,000, and
to the extent that such proportionate allocation shall not result in an
even multiple of $1,000, adjustment may be made by the Company to the end
that successive allocations shall result in substantially proportionate
payments; provided, however, in the event that any Note is exchanged for
Notes in smaller denominations pursuant to paragraph 11E, the amount
allocable to the Note exchanged shall be applied on all Notes issued in
exchange therefor either pro rata or by lot in any manner approved by the
Board of Directors of the Company. Upon any partial prepayment of any
Note, such Note shall, at the option of the holder thereof, be either (i)
surrendered to the Company in exchange for a new Note in a principal
amount equal to the principal amount remaining unpaid on the Note
surrendered, and otherwise having the same terms and provisions as the
Note surrendered, or (ii) made available to the Company at the principal
office of the original holder of such Note for notation thereon of the
portion of the principal so prepaid, except that, so long as you shall
hold any Note, the Company agrees that you may make notation of any
portion of the principal so prepaid on such Note on your records (subject
to the provisions of paragraph 11A).
5. Affirmative Covenants.
5A. Financial Statements. The Company covenants that, so
long as you shall hold any Note, it will deliver to you in duplicate
(i) as soon as practicable and in any event within 45 days
after the end of each quarterly period (other than the last quarterly
period) in each fiscal year, a consolidated profit and loss statement,
reconciliation of surplus statement and source and application of funds
statement of the Company and its Subsidiaries for the period from the
beginning of the current fiscal year to the end of such quarterly period,
and a consolidated balance sheet of the Company and its Subsidiaries as
at the end of such quarterly period, setting forth in each case in
comparative form figures for the corresponding period in the preceding
fiscal year, all in reasonable detail and certified by an authorized
financial officer of the Company, subject to changes resulting from year-
end adjustments;
(ii) as soon as practicable and in any event within 90 days
after the end of each fiscal year, a consolidated profit and loss
statement, reconciliation of surplus statement and source and application
of funds statement of the Company and its Subsidiaries for such year, and
a consolidated balance sheet of the Company and its Subsidiaries as at
the end of such year, setting forth in each case in comparative form
corresponding figures from the preceding annual audit, all in reasonable
111<PAGE>
detail and satisfactory in scope to you and certified to the Company by
independent public accountants of recognized standing selected by the
Company whose certificate shall be in scope and substance satisfactory to
you;
(iii) as soon as practicable, copies of all such financial
statements and reports as it shall send to its stockholders and of all
registration statements and all regular or periodic reports which it is
or may be required to file with the Securities and Exchange Commission or
any governmental body or agency succeeding to the functions of the
Securities and Exchange Commission; and
(iv) with reasonable promptness, such other financial data
as you may reasonably request.
Together with each delivery of financial statements required by clauses
(i) and (ii) above, the Company will deliver to you an Officer's
Certificate setting forth (except to the extent specifically set forth in
such financial statements) the aggregate amount of interest accrued on
Funded and Current Debt of the Company and Subsidiaries (if any) during
the fiscal period covered by such financial statements, the aggregate
amount of rental payments made during such fiscal period by the Company
and Subsidiaries (if any) which were of the kinds subject to the
restrictions of paragraph 6C(6) and the aggregate amount of all rental
payments made during such period by the Company and Subsidiaries (if
any), the dates of the beginning and end of the most recent period of at
least 60 consecutive days during which the Company shall have been free
from all Current Debt permitted by clause (iii) of paragraph 6C(2), and
the aggregate amounts of depreciation on physical property charged on the
books of the Company and Subsidiaries (if any) during such fiscal period,
and stating that there exists no Event of Default or Default, or, if any
such Event of Default or Default exists, specifying the nature thereof,
the period of existence thereof and what action the Company proposes to
take with respect thereto. Together with each delivery of financial
statements required by clause (ii) above, the Company will deliver to you
a certificate of said accountants stating that, in making the audit
necessary to the certification of such financial statements, they have
obtained no knowledge of any Event of Default or Default, or, if any such
Event of Default or Default exists, specifying the nature and period of
existence thereof. Such accountants, however, shall not be liable to
anyone by reason of their failure to obtain knowledge of any such Event
of Default or Default. The Company also covenants that forthwith upon
the President or chief financial officer of the Company obtaining
knowledge of an Event of Default or Default under this Agreement, it will
deliver to you an Officer's Certificate specifying the nature thereof,
the period of existence thereof, and what action the Company proposes to
take with respect thereto. You are hereby authorized to deliver a copy
of any financial statement delivered to you pursuant to this paragraph 5A
to any regulatory body having jurisdiction over you.
5B. Inspection of Property. The Company covenants that, so
long as you shall hold any Note, it will permit any Person designated by
you in writing at your expense, to visit and inspect any of the
properties, corporate books and financial records of the Company and its
Subsidiaries, and to discuss the affairs, finances and accounts of any of
112<PAGE>
such corporations with the principal officers of the Company, all at such
reasonable times and as often as you may reasonably request.
5C. Covenant to Secure Notes Equally. The Company
covenants that, if it or any Subsidiary shall create or assume any Lien
upon any of its property or assets, whether now owned or hereafter
acquired, other than Liens excepted by the provisions of paragraph 6C(l)
(unless prior written consent to the creation or assumption thereof shall
have been obtained pursuant to paragraph 11C or paragraph 11D(3) and such
consent shall also contain a waiver of the requirements of this paragraph
5C), it will make or cause to be made effective provision whereby the
Notes will be secured by such Lien equally and ratably with any and all
other Debt thereby secured as long as any such other Debt shall be so
secured.
6. Negative Covenants.
6A. Working Capital Requirement. The Company covenants
that it will not permit Consolidated Working Capital at any time to be
less than $35,000,000.
6B. Dividend Limitation. The Company covenants that it
will not pay or declare any dividend on any class of its stock or make
any other distribution on account of any class of its stock, or redeem,
purchase or otherwise acquire, directly or indirectly, any shares of its
stock (all of the foregoing being herein called "Restricted Payments")
except out of Consolidated Net Earnings Available For Restricted
Payments. "Consolidated Net Earnings" shall mean consolidated gross
revenues of the Company and its Subsidiaries less all operating and non-
operating expenses of the company and its Subsidiaries including all
charges of a proper character (including current and deferred taxes on
income provision for taxes on unremitted foreign earnings which are
included in gross revenues, and current additions to reserves), but not
including in gross revenues any gains (net of expenses and taxes
applicable thereto) in excess of losses resulting from the sale,
conversion or other disposition of capital assets (i.e., assets other
than current assets), any gains resulting from the write-up of assets,
any equity of the Company or any Subsidiary in the undistributed earnings
of any corporation which is not a Subsidiary, any earnings of any
corporation acquired by the Company or any Subsidiary through purchase,
merger or consolidation or otherwise for any year prior to the year of
acquisition, or any deferred credits representing the excess of equity in
any Subsidiary at the date of acquisition over the cost of the investment
in such Subsidiary; all determined in accordance with generally accepted
accounting principles. "Consolidated Net Earnings Available For
Restricted Payments" shall mean an amount equal to (1) 50% of the sum of
(a) Consolidated Net Earnings for the period (taken as one accounting
period) commencing on February 23, 1986 and terminating at the end of the
last fiscal quarter preceding the date of any proposed Restricted
Payment, and (b) the excess, if any, of the aggregate amount received
after February 22, 1986 as the net cash proceeds of the sale of any
shares of its stock over the aggregate amount expended, directly or
indirectly, after February 22, 1986, for the redemption, purchase or
other acquisition of any shares of its stock, less (2) the sum of (a) the
aggregate amount of all dividends and other distributions paid or
113<PAGE>
declared by the Company on any class of its stock after February 22,
1986, and (b) the excess, if any, of the aggregate amount expended,
directly or indirectly, after February 22, 1986, for the redemption,
purchase or other acquisition of any shares of its stock, over the
aggregate amount received after February 22, 1986 as the net cash
proceeds of the sale of any shares of its stock. There shall not be
included in Restricted Payments or in any computation of Consolidated Net
Earnings Available for Restricted Payments: (x) dividends paid, or
distributions made, in stock of the Company; or (y) exchanges of stock of
one or more classes of the Company except to the extent that cash or
other value is involved in such exchange. The term "stock" as used in
this paragraph 6B shall include warrants or options to purchase stock.
6C. Lien, Debt and Other Restrictions. The Company
covenants that it will not and will not permit any Subsidiary to:
6C(l) Liens - Create, assume or suffer to exist any Lien upon
any of its property or assets, whether now owned or hereafter acquired
(whether or not provision is made for the equal and ratable securing of
the Notes in accordance with the provisions of paragraph 5C), except
(i) Liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings,
(ii) other Liens incidental to the conduct of its
business or the ownership of its property and assets which were not
incurred in connection with the borrowing of money or the obtaining of
advances or credit, and which do not in the aggregate materially detract
from the value of its property or assets or materially impair the use
thereof in the operation of its business,
(iii) Liens on property or assets of a Subsidiary to
secure obligations of such Subsidiary to the Company or another
Subsidiary,
(iv) any Lien existing on any property of any
corporation at the time it becomes a Subsidiary, or existing prior to the
time of acquisition upon any property acquired by the Company or any
Subsidiary through purchase, merger or consolidation or otherwise,
whether or not assumed by the Company or such Subsidiary, or placed upon
property at the time of acquisition by the Company or any Subsidiary to
secure a portion of the purchase price thereof, or placed upon property
hereafter acquired by the Company or any subsidiary at the time of, or
within six months after, the acquisition thereof or placed upon property
now owned or hereafter acquired at the time of, or within six months
after, the construction of improvements thereon, to secure a portion of
the purchase price thereof or of the construction costs of such
improvements thereon, as the case may be, provided that (a) any such Lien
shall not encumber any other property of the Company or such Subsidiary,
and (b) the aggregate amount of Debt secured by all such Liens and any
Liens permitted by clause (v) below does not violate the proviso of
clause (v) of paragraph 6C(2), and
(v) any Lien renewing, extending or refunding any
Lien permitted by clause (iv) above, provided that the principal amount
114
secured is not increased, and the Lien is not extended to other property;
6C(2) Debt - Create, incur or assume any Funded or Current
Debt, except
(i) Funded Debt represented by the Notes, the 8.20%
promissory notes issued pursuant to a Note Agreement, dated September 27,
1973, as amended, and the 9.60% promissory notes issued pursuant to a
Note Agreement, dated October 28, 1986, as amended, each between the
Company and you,
(ii) Funded or Current Debt of any Subsidiary to
the Company or any other Subsidiary,
(iii) other Current Debt of the Company not in
excess of an aggregate principal amount of $10,000,000 at any time
outstanding, provided that the Company shall not create, incur, assume or
suffer to exist any Current Debt permitted by this clause (iii) on any
day unless there shall have been a period of at least 60 consecutive
days, within the 12 months' period immediately preceding such day, during
which the Company shall have been free from all Current Debt permitted by
this clause (iii),
(iv) Funded Debt of the Company if, after giving
effect to the repayment of any other Funded Debt and to the concurrent
repayment of any Funded Debt, the aggregate principal amount of Funded
Debt of the Company at any time outstanding does not exceed an amount
equal to Consolidated Tangible Net Worth, and
(v) Funded or Current Debt of the Company secured
by Liens permitted by the provisions of clauses (iv) and (v) of paragraph
6C(l), provided that the aggregate principal amount of all such Debt at
any time outstanding after giving effect thereto and to any concurrent
repayment shall not exceed an amount equal to 20% of Consolidated
Tangible Net Worth;
6C(3) Loans, Advances, Investments and Contingent
Liabilities - Make or permit to remain outstanding any loan or advance
to, or guarantee, endorse or otherwise be or become contingently liable,
directly or indirectly, in connection with the obligations, stock or
dividends of, or own, purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution
to, any other Person, except that the Company or any Subsidiary may
(i) make or permit to remain outstanding loans or
advances to any Subsidiary,
(ii) own, purchase or acquire stock, obligations or
securities of a Subsidiary or of a corporation which immediately after
such purchase or acquisition will be a Subsidiary,
(iii) acquire and own stock, obligations or
securities received in settlement of debts (created in the ordinary
course of business) owing to the Company or any Subsidiary,
115<PAGE>
(iv) own, purchase or acquire prime commercial paper
and certificates of deposit in United States commercial banks (having
capital resources in excess of $50,000,000), in each case due within one
year from the date of purchase, obligations of the United States
Government or any agency thereof, and obligations guaranteed by the
United States Government,
(v) endorse negotiable instruments for collection
in the ordinary course of business,
(vi) guarantee obligations of Subsidiaries which are
not prohibited by paragraph 6C(2),
(vii) make or permit to remain outstanding loans or
advances to, or guarantee, endorse or otherwise be or become contingently
liable in connection with the obligations, stock or dividends of, or own,
purchase or acquire stock, obligations or securities of, any other
Person, provided that the aggregate principal amount of such loans and
advances, plus the aggregate amount of such contingent liabilities, plus
the aggregate amount of liabilities permitted by clauses (i) and (v) of
paragraph 6C(9), plus the aggregate amount of the investment (at original
cost) in such stock, obligations and securities shall not exceed
$15,000,000 at any time outstanding for the Company and all subsidiaries,
and further provided that no Subsidiary shall make any loan or advance
to, or acquire any stock, obligations or securities of, the Company, and
(viii) own, purchase or acquire repurchase agreements
either offered by a United States commercial bank or a United States
subsidiary of a foreign bank (in either case having a combined capital
and surplus in excess of $50,000,000) or by a broker-dealer (having a
combined capital and surplus in excess of $50,000,000) that are fully
collateralized by obligations of the United States Government or any
agency thereof or by obligations guarantied by the United States
Government or any agency thereof and held in pledge for the Company or
such Subsidiary;
6C(4) Sale of Stock and Debt of Subsidiaries - Sell or
otherwise dispose of any shares of stock or Funded or Current Debt of any
Subsidiary, except to the Company or another Subsidiary, and except that
all shares of stock and Debt of any Subsidiary at the time owned by or
owed to the Company and all Subsidiaries may be sold as an entirety for a
cash consideration which represents the fair value (as determined in good
faith by the Board of Directors of the Company) at the time of sale of
the shares of stock and Debt so sold, provided that the assets of such
Subsidiary do not constitute a Substantial Part of the consolidated
assets of the Company and all Subsidiaries and that such Subsidiary shall
not have contributed a Substantial Part of Consolidated Net Earnings (as
defined in paragraph 6B) for any of the three fiscal years then most
recently ended, and further provided that, at the time of such sale, such
Subsidiary shall not own, directly or indirectly, any shares of stock or
Debt of any other Subsidiary (unless all of the shares of stock and Debt
of such other Subsidiary owned, directly or indirectly, by the Company
and all Subsidiaries are simultaneously being sold as permitted by this
paragraph 6C(4));
116<PAGE>
6C(5) Merger and Sale of Assets - Merge or consolidate with
any other corporation or sell, lease or transfer or otherwise dispose of
all or a Substantial Part of its assets, or assets which shall have
contributed a Substantial Part of Consolidated Net Earnings (as defined
in paragraph 6B) for any of the three fiscal years then most recently
ended, to any Person, except that
(i) any Subsidiary may merge with the Company
(provided that the Company shall be the continuing or surviving
corporation) or with any one or more other Subsidiaries,
(ii) any Subsidiary may sell, lease, transfer or
otherwise dispose of any of its assets to the Company or another
Subsidiary,
(iii) any subsidiary may sell or otherwise dispose of
all or substantially all of its assets subject to the conditions
specified in paragraph 6C(4) with respect to a sale of the stock of such
Subsidiary, and
(iv) the Company may merge with any other
corporation, provided that (a) the Company shall be the continuing or
surviving corporation, and (b) the Company as the continuing or surviving
corporation shall not, immediately after such merger, be in default under
this Agreement or the Notes including all covenants herein and therein
contained;
6C(6) Lease Rentals - Enter into any agreement to rent or
lease (as lessee) any real or personal property (other than data
processing equipment) for terms (including renewal options) of more than
three years if after giving effect thereto the aggregate amount of all
annual Lease Rentals payable by Company and its Subsidiaries to lessors
under all such leases will exceed 2.0% of Consolidated Net Sales during
the preceding period of 12 consecutive months;
6C(7) Sale and Lease-Back - Enter into any arrangement with
any bank, insurance company or other lender or investor or to which such
lender or investor is a party providing for the leasing by the Company or
any Subsidiary of real property which has been or is to be sold or
transferred by the Company or any Subsidiary to such lender or investor
or to any Person to whom funds have been or are to be advanced by such
lender or investor on the security of such property or rental obligations
of the Company or any Subsidiary, provided that the Company or any
Subsidiary may sell and lease back any property within one year after the
date of acquisition thereof by the Company or such Subsidiary or within
one year after the date of completion of a new store upon such property;
6C(8) Sale or Discount of Receivables - Sell with recourse,
or discount or otherwise sell for less than the face value thereof, any
of its notes or accounts receivable; or
6C(9) Certain Contracts - Enter into or be a party to
(i) any contract providing for the making of loans,
advances or capital contributions to any Person other than a Subsidiary
117
(except where the obligation is limited to a fixed maximum amount which
is within the limitations of clause (vii) of paragraph 6C(3)), or for the
purchase of any property from any Person, in each case in order primarily
to enable such Person to maintain working capital, net worth or any other
balance sheet condition or to pay debts, dividends or expenses, or
(ii) any contract for the purchase of materials,
supplies or other property or services if such contract (or any related
document) requires that payment for such materials, supplies or other
property or services shall be made regardless of whether or not delivery
of such materials, supplies or other property or services is ever made or
tendered, or
(iii) any contract to rent or lease (as lessee) any
real or personal property (other than leases as permitted by paragraph
6C(7)) if such contract (or any related document) provides that the
obligation to make payments thereunder is absolute and unconditional
under conditions not customarily found in commercial leases then in
general use or requires that the lessee purchase or otherwise acquire
securities or obligations of the lessor, or
(iv) any contract for the sale or use of materials,
supplies or other property, or the rendering of services, if such
contract (or any related document) requires that payment for such
materials, supplies or other property, or the use thereof, or payment for
such services, shall be subordinated to any indebtedness (of the
purchaser or user of such materials, supplies or other property or the
Person entitled to the benefit of such services) owed or to be owed to
any Person, or
(v) any other contract which, in economic effect,
is substantially equivalent to a guarantee, except as permitted by clause
(v) or clause (vi) of paragraph 6C(3) and except where the obligation is
limited to a fixed maximum amount which is within the limitations of
clause (vii) of paragraph 6C(3).
6D. Issuance of Stock by Subsidiaries. The Company
covenants that it will not permit any Subsidiary to issue, sell or
dispose of any shares of any class of its stock (other than directors'
qualifying shares) except to the Company or another Subsidiary.
7. Events of Default. If any of the following events shall occur
and be continuing for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by
operation of law or otherwise):
(i) if the Company defaults in the payment of any principal
of any Note when the same shall become due, either by the terms thereof
or otherwise as herein provided; or
(ii) if the Company defaults in the payment of any interest
on any Note for more than 10 days after the date due; or
(iii) if the Company or any Subsidiary defaults in any
payment of principal of or interest on any other obligation for money
118<PAGE>
borrowed or received as an advance for which it is liable in excess of
$50,000 (or any Capitalized Lease Obligations, any obligation under
conditional sale or other title retention agreement, any obligation
issued or assumed as full or partial payment for property whether or not
secured by purchase money mortgage or any obligation under notes payable
or drafts accepted representing extensions of credit relating to an
amount in excess of $50,000) beyond any period of grace provided with
respect thereto, or defaults in the performance of any other agreement,
term or condition contained in any agreement under which any such
obligation is created (or if any other default under any such agreement
shall occur and be continuing) if the effect of such default is to cause,
or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, such obligation to become due
prior to its stated maturity; or
(iv) if any representation or warranty made by the Company
herein or in any writing furnished in connection with or pursuant to this
Agreement shall be false in any material respect on the date as of which
made; or
(v) if the Company defaults in the performance or
observance of any agreement contained in paragraph 6; or
(vi) if the Company defaults in the performance or
observance of any other agreement, term or condition contained herein and
such default shall not have been remedied within 30 days after written
notice thereof shall have been received by the Company from you; or
(vii) if the Company or any Subsidiary makes an assignment
for the benefit of creditors or admits in writing its inability to pay
its debts generally as they become due; or
(viii) if any decree or order for relief in respect of the
Company or any Subsidiary is entered under any bankruptcy,
reorganization, compromise, arrangement, insolvency, readjustment of
debt, dissolution or liquidation or similar law, whether now or hereafter
in effect (herein called the "Bankruptcy Law"), of any jurisdiction; or
(ix) if the Company or any Subsidiary petitions or applies
to any tribunal for, or consents to, the appointment of, or taking
possession by, a trustee, receiver, custodian, liquidator or similar
official of the Company or any Subsidiary, or of any substantial part of
the assets of the Company or any Subsidiary, or commences a voluntary
case under the Bankruptcy Law of the United States or any proceedings
(other than proceedings for the voluntary liquidation and dissolution of
a Subsidiary) relating to the Company or any Subsidiary under the
Bankruptcy Law of any other jurisdiction; or
(x) if any such petition or application is filed, or any
such proceedings are commenced, against the Company or any Subsidiary and
the Company or such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or decree
is entered appointing any such trustee, receiver, custodian, liquidator
or similar official, or approving the petition in any such proceedings,
119
and such order, judgment or decree remains unstayed and in effect for
more than 30 days; or
(xi) if any order, judgment or decree is entered in any
proceedings against the Company decreeing the dissolution of the Company
and such order, judgment or decree remains unstayed and in effect for
more than 60 days; or
(xii) if any order, judgment or decree is entered in any
proceeding against the Company or any Subsidiary decreeing a split-up of
the Company or such Subsidiary which requires the divestiture of a
Substantial Part, or the divestiture of the stock of a Subsidiary whose
assets constitute a Substantial Part, of the consolidated assets of the
Company and its Subsidiaries or which requires the divestiture of assets,
or stock of a Subsidiary, which shall have contributed a Substantial Part
of Consolidated Net Earnings (as defined in paragraph 6B) for any of the
three fiscal years then most recently ended, and such order, judgment or
decree remains unstayed and in effect for more than 60 days;
then (a) if such event is an Event of Default specified in clauses
(viii), (ix) or (x) of this paragraph 7, all of the Notes at the time
outstanding shall automatically become immediately due and payable
together with interest accrued thereon without presentment, demand,
protest or notice of any kind, all of which are hereby waived by the
Company, and (b) if such event is an Event of Default specified in any
other clause of this paragraph 7, the holder or holders of at least two-
thirds of the principal amount of the Notes outstanding may, at its or
their option and in addition to any right, power or remedy permitted by
law or equity, by notice in writing to the Company, declare all of the
Notes to be, and all of the Notes shall thereupon be and become,
forthwith due and payable together with interest accrued thereon without
presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Company.
8. Representations and Warranties. The Company represents,
covenants and warrants:
8A. Organization and Qualification. The Company is a
corporation duly organized and existing in good standing under the laws
of the State of Delaware, each Subsidiary is duly organized and existing
in good standing under the laws of the jurisdiction in which
incorporated, and the Company has and each Subsidiary has the corporate
power to own its respective property and to carry on its respective
business as now being conducted, and the Company is and each Subsidiary
is duly qualified as a foreign corporation to do business and in good
standing in every jurisdiction in which the nature of the respective
business conducted by it makes such qualification necessary.
8B. Financial statements. The Company has furnished you
with the following financial statements, identified by a principal
financial officer of the Company: (i) Consolidated Balance Sheets of the
Company and its Subsidiaries dated February 22, 1986 and February 28,
1987, and Consolidated Statements of Earnings, Capital Stock, Retained
Earnings and Changes in Financial Position of the Company and its
Subsidiaries for the fiscal years ended on such dates, all certified by
120<PAGE>
Laventhol and Horwath; and (ii) a Consolidated Balance Sheet of the
Company and its Subsidiaries as at May 23, 1987, and Consolidated
Statements of Earnings, Capital Stock, Retained Earnings and Changes in
Financial Position of the Company and its Subsidiaries for the twelve
week period ended on such date, prepared by the Company. Such financial
statements (including any related schedules and/or notes) are complete
and correct (subject, as to interim statements, to changes resulting from
audits and year-end adjustments) and have been prepared in accordance
with generally accepted accounting principles consistently followed
throughout the periods involved and show all liabilities, direct and
contingent, of the Company and its Subsidiaries. The Balance Sheets
fairly present the condition of the Company and its Subsidiaries as at
the dates thereof, and the Statements of Earnings, Capital Stock,
Retained Earnings and Changes in Financial Position fairly present the
results of the operations of the Company and its Subsidiaries for the
periods indicated. There has been no material adverse change in the
condition, financial or otherwise, of the Company or its Subsidiaries
since February 28, 1987.
8C. Actions Pending. There is no action, suit,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries before any
court, arbitrator or administrative or governmental body which might
result in any material adverse change in the business or condition of the
Company or such Subsidiary.
8D. Outstanding Debt. Neither the Company nor any of its
Subsidiaries has outstanding any Funded or Current Debt, on a
consolidated basis, except Debt permitted by paragraph 6C(2). There
exists no default under the provisions of any instrument evidencing such
Debt or of any agreement relating thereto.
8E. Title to Properties. The Company has, and each of its
Subsidiaries has, good and marketable title to its respective real
properties (other than properties which it leases) and good title to all
of its other respective properties and assets, including the properties
and assets reflected in the balance sheet as at May 23, 1987 hereinabove
described (other than properties and assets disposed of in the ordinary
course of business), subject to no Lien of any kind except Liens
permitted by paragraph 6C(l). The Company and its Subsidiaries enjoy
peaceful and undisturbed possession under all leases necessary in any
material respect for the operation of their respective properties and
assets, none of which contains any unusual or burdensome provisions which
might materially affect or impair the operation of such properties and
assets. All such leases are valid and subsisting and are in full force
and effect.
8F. Taxes. The Company has and each of its Subsidiaries
has filed all Federal, State and other income tax returns which, to the
best knowledge of the officers of the company, are required to be filed,
and each has paid all taxes as shown on said returns and on all
assessments received by it to the extent that such taxes have become due.
Federal, State and other income tax returns of the Company and its
Subsidiaries have been examined and reported on by the taxing authorities
121<PAGE>
or closed by applicable statutes and satisfied for all fiscal years prior
to and including the fiscal year ended on or about February 23, 1980.
8G. Conflicting Agreements and Other Matters. Neither the
Company nor any of its Subsidiaries is a party to any contract or
agreement or subject to any charter or other corporate restriction which
materially and adversely affects its business, property or assets, or
financial condition. Neither the execution nor delivery of this
Agreement nor of the Notes, nor the offering, issuance and sale of the
Notes, nor fulfillment of nor compliance with the terms and provisions
hereof and of the Notes will conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under, or
result in any violation of, or result in the creation of any Lien upon
any of the properties or assets of the Company or any of its Subsidiaries
pursuant to, or require any consent, approval or other action by any
court or administrative or governmental body pursuant to, the charter or
by-laws of the Company or any of its Subsidiaries, any award of any
arbitrator or any agreement (including any agreement with stockholders),
instrument, order, judgment, decree, statute, law, rule or regulation to
which the Company or any of its Subsidiaries is subject. Neither the
Company nor any of its Subsidiaries is a party to, or otherwise subject
to any provision contained in, any instrument evidencing indebtedness of
the Company or such Subsidiary, any agreement relating thereto or any
other contract or agreement (including its charter) which limits the
amount of, or otherwise imposes restrictions on the incurring of, Debt of
the Company of the type to be evidenced by the Notes except as set forth
in the agreements listed in Exhibit B attached hereto.
8H. Offering of Notes. Neither the Company nor any agent
acting on its behalf has, directly or indirectly, offered the Notes or
any similar security of the Company for sale to, or solicited any offers
to buy the Notes or any similar security of the Company from, or
otherwise approached or negotiated with respect thereto with, any Person
or Persons other than yourself, and neither the Company nor any agent
acting on its behalf has taken or will take any action which would
subject the issuance or sale of the Notes to the provisions of Section 5
of the Securities Act of 1933, as amended, or to the provisions of any
securities or Blue Sky law of any applicable jurisdiction.
8I. Regulation G, etc. Neither the Company nor any
Subsidiary owns or has any present intention of acquiring any "margin
stock" as defined in Regulation G (12 CFR Part 207) of the Board of
Governors of the Federal Reserve System (herein called "margin stock").
The proceeds of sale of the Notes to you will be used to fund
construction of two shopping centers, a warehouse and a supermarket.
None of such proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin stock or for the purpose of
reducing or retiring any indebtedness which was originally incurred to
purchase or carry a margin stock or for any other purpose which might
constitute this transaction a "purpose credit" within the meaning of said
Regulation G. Neither the Company nor any agent acting on its behalf has
taken or will take any action which might cause this Agreement or the
Notes to violate Regulation G, Regulation T or any other regulation of
the Board of Governors of the Federal Reserve System or to violate the
122<PAGE>
Securities Exchange Act of 1934, as amended, in each case as in effect
now or as the same may hereafter be in effect.
8J. Pollution and Other Regulations. The Company and each
of its Subsidiaries is exercising its best efforts to comply with all
laws and regulations relating to pollution and environmental control,
equal employment opportunity and employee safety in all jurisdictions in
which the Company and each of its Subsidiaries is presently doing
business, and the Company will use its best efforts to comply and to
cause each of its Subsidiaries to comply with all such laws and
regulations which may be legally imposed in the future in jurisdictions
in which the Company or any Subsidiary may then be doing business.
8K. ERISA. No accumulated funding deficiency (as defined
in section 302 of ERISA and section 412 of the Code), whether or not
waived, exists with respect to any Plan (other than a Multiemployer
Plan). No liability to the Pension Benefit Guaranty Corporation has been
or is expected by the Company to be incurred with respect to any Plan
(other than a Multiemployer Plan) by the Company or any of its
Subsidiaries which is or would be materially adverse to the Company and
its Subsidiaries taken as a whole. Neither the Company nor any of its
Subsidiaries has incurred or presently expects to incur any withdrawal
liability under Title IV of ERISA with respect to any Multiemployer Plan
which is or would be materially adverse to the Company and its
Subsidiaries taken as a whole. The execution and delivery of this
Agreement and the issue and sale of the Notes will not involve any
transaction which is subject to the prohibitions of section 406 of ERISA
or in connection with which a tax could be imposed pursuant to section
4975 of the Code. The representation by the Company in the next
preceding sentence is made in reliance upon and subject to the accuracy
of your representation in paragraph 9 as to the source of the funds to be
used to pay the purchase Price of the Notes to be purchased by you. As
used in this paragraph 8K, the term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended; the term "Code" shall
mean the Internal Revenue Code of 1986, as amended; the term "Plan" shall
mean an "employee pension benefit plan" (as defined in section 3 of
ERISA) which is or has been established or maintained, or to which
contributions are or have been made, by the Company or by any trade or
business, whether or not incorporated, which, together with the Company,
is under common control, as described in section 414(b) or (c) of the
Code; and the term "Multiemployer Plan" shall mean any Plan which is a
"multiemployer plan" (as such term is defined in section 4001(a)(3) of
ERISA).
8L. Governmental Consent. Neither the nature of the
Company or of any Subsidiary, nor any of their respective businesses or
properties, nor any relationship between the Company or any Subsidiary
and any other Person, nor any circumstance in connection with the offer,
issue, sale or delivery of the Notes is such as to require any
authorization, consent, approval, exemption or other action by or notice
to or filing with any court or administrative or governmental body (other
than routine filings after the date of closing with the Securities and
Exchange Commission and/or state Blue Sky authorities) in connection with
the execution and delivery of this Agreement, the offer, issue, sale or
123<PAGE>
delivery of the Notes or fulfillment of or compliance with the terms and
provisions hereof or of the Notes.
8M. Disclosure. Neither this Agreement nor any other
document, certificate or statement furnished to you by or on behalf of
the Company in connection herewith contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements contained herein and therein not misleading. There
is no fact peculiar to the Company or any of its Subsidiaries which
materially adversely affects or in the future may (so far as the Company
can now foresee) materially adversely affect the business, property or
assets, or financial condition of the Company or any of its Subsidiaries
which has not been set forth in this Agreement or in the other documents,
certificates and statements furnished to you by or on behalf of the
Company prior to the date hereof in connection with the transactions
contemplated hereby.
9. Representation of the Purchaser. You represent and in making
this sale to you it is specifically understood and agreed that you are
acquiring the Notes for the purpose of investment and not with a view to
or for sale in connection with any distribution thereof, provided that
the disposition of your property shall at all times be and remain within
your control. You also represent that no part of the funds being used by
you to pay the purchase price of the Notes hereunder constitutes assets
allocated to any separate account (as defined in Section 3 of ERISA)
maintained by you in which any employee benefit plan (as defined in
Section 3 of ERISA), other than employee benefit plans identified on a
list which has been furnished by you to the Company, participates to the
extent of 5% or more.
10. Definitions. For the purpose of this Agreement, the following
terms shall have the following meanings:
10A. "Person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
10B. "Subsidiary" shall mean any corporation organized
under the laws of any State of the United States of America, Canada, or
any Province of Canada, which conducts the major portion of its business
in the United States of America or Canada, and all of the stock of every
class of which, except directors' qualifying shares, shall, at the time
as of which any determination is being made, be owned by the Company
either directly or through Subsidiaries.
10C. "Funded Debt" shall mean any obligation payable more
than one year from the date of the creation thereof, which under
generally accepted accounting principles is shown on the balance sheet as
a liability (including without limitation Capitalized Lease Obligations
and excluding reserves for deferred income taxes and other reserves to
the extent that such reserves do not constitute an obligation). "Current
Debt" shall mean any obligation for borrowed money (and any notes payable
and drafts accepted representing extensions of credit whether or not
representing obligations for borrowed money) payable on demand or within
a period of one year from the date of the creation thereof; provided that
124<PAGE>
any obligation shall be treated as Funded Debt, regardless of its term,
if such obligation is renewable pursuant to the terms thereof or of a
revolving credit or similar agreement effective for more than one year
after the date of the creation of such obligation, or may be payable out
of the proceeds of a similar obligation pursuant to the terms of such
obligation or of any such agreement. Any obligation secured by a Lien
on, or payable out of the proceed of production from, property of the
Company or any Subsidiary shall be deemed to be Funded or Current Debt as
the case may be, of the Company or such Subsidiary even though such
obligation shall not be assumed by the Company or such Subsidiary.
"Debt" shall mean Funded Debt and/or Current Debt, as the case may be.
10D. "Consolidated Working Capital" shall mean the excess of
consolidated current assets over consolidated current liabilities of the
Company and its Subsidiaries, both determined in accordance with
generally accepted accounting principles consistent with those followed
in the preparation of the financial statements referred to in clause (i)
of paragraph 8B, provided that there shall not be included in current
assets (i) any loans or advances made by the Company or any Subsidiary
except travel and other like advances to officers and employees in the
ordinary course of business, nor (ii) any assets located outside
(including any amounts payable by Persons located outside) the United
States of America and Canada.
10E. "Consolidated Net Sales" shall mean merchandise sales
less discounts, returns and allowances, plus carrying charges and other
revenue received in the regular course of business of the Company and its
Subsidiaries, all determined on a consolidated basis in accordance with
generally accepted accounting principles.
10F. "Event of Default" shall mean any of the events
specified in paragraph 7, provided that there has been satisfied any
requirement in connection with such event for the giving of notice, or
the lapse of time, or the happening of any further condition, event or
act, and "Default" shall mean any of such events, whether or not any such
requirement has been satisfied.
10G. "Officer's Certificate" shall mean a certificate signed
in the name of the Company by its President, one of its Vice Presidents
or its Treasurer.
10H. "Lien" shall mean any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (including any
conditional sale or other title retention agreement, any lease in the
nature thereof, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction).
10I. "Lease Rentals" shall mean the aggregate annual rental
payments not including any amount payable by the lessee for property
taxes, maintenance, income taxes, insurance, percentage rentals,
assessments, water rates and similar charges.
125<PAGE>
10J. "Substantial Part" shall mean, when used with respect
to assets, more than 10% of the consolidated assets of the Company and
all Subsidiaries, and, when used with respect to Consolidated Net
Earnings (as defined in paragraph 6B) for any period, more than 10% of
Consolidated Net Earnings (as defined in paragraph 6B) for such period.
10K. "Consolidated Tangible Net Worth" shall mean, as of
the time of a Y determination thereof, the excess of (1) the sum of (i)
the par value (or value stated on the books of the Company) of the
capital stock of all classes of the Company, plus (or minus in the case
of a surplus deficit) (ii) the amount of the consolidated surplus,
whether capital or earned, of the Company and its Subsidiaries, over (2)
the sum of treasury stock, unamortized debt discount and expense, good
will, trademarks, trade names, patents, deferred charges and other
intangible assets and any write-up of the value of any assets after
February 22, 1986; all determined on a consolidated basis for the Company
and all Subsidiaries in accordance with generally accepted accounting
principles consistent with those followed in the preparation of the
financial statements referred to in clause (i) of paragraph 8B.
10L. "Capitalized Lease Obligation" shall mean any rental
obligation which, under generally accepted accounting principles, is or
will be required to be capitalized on the books of the Company or any
Subsidiary, taken at the amount thereof accounted for as indebtedness
(net of interest expense) in accordance with such principles.
11. Miscellaneous.
11A. Home Office Payment. The Company agrees that, as long
as you shall hold any Note, it will make payments of principal thereof
and interest and premium, if any, thereon, which comply with the terms of
this Agreement, by bank wire transfer of immediately available funds for
credit to your account #050-54-460 in Morgan Guaranty Trust Company of
New York, 15 Broad Street, New York, N.Y., or such other account as you
may designate in writing, notwithstanding any contrary provision herein
or in any Note with respect to the place of payment; provided, however,
that with respect to the Note purchased by you in the principal amount of
$2,728,000 pursuant to paragraph 2 (and any Note or Notes issued in
exchange therefor) payments of principal thereof and interest and
premium, if any, thereon, which comply with the terms of this Agreement,
shall be made by bank wire transfer of immediately available funds for
credit to your account #050-53-360 in Morgan Guaranty Trust Company of
New York, 15 Broad Street, New York, N.Y. Each such bank wire transfer
shall set forth the name of the Company, the full title (including the
coupon rate and final maturity date) of the Notes, a reference to
"security no. 374478XB6", and the due date and application (as between
principal and interest) of the payment being made. You agree that,
before disposing of any Note, you will make a notation thereon of all
principal payments previously made thereon and of the date to which
interest thereon has been paid, and will notify the Company of the name
and address of the transferee of such Note.
11B. Expenses. The Company agrees, whether or not the
transaction hereby contemplated shall be consummated, to pay, and save
you harmless against liability for the payment of, all out-of-pocket
126<PAGE>
expenses arising in connection with this transaction, including all stamp
and other taxes (including any intangible personal property tax, together
with interest and penalties, if any, and any income tax payable by you in
respect of any reimbursement therefor) which may be payable in respect of
the execution and delivery of this Agreement or the execution, delivery
or acquisition of any Note issued under or pursuant to this Agreement,
all stenographic and duplication costs and the fees and expenses of your
special counsel in connection with this Agreement, the transaction
contemplated hereby and any modification of, or consent under, this
Agreement, and the cost and expenses, including attorneys' fees, incurred
by you in enforcing any of your rights hereunder or thereunder, including
without limitation costs and expenses incurred in any bankruptcy case.
The obligations of the Company under this paragraph 11B shall survive
transfer by you and payment of any Note.
11C. Consent to Amendments. This Agreement may be amended,
and the Company may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, if the Company shall
obtain your prior written consent to such amendment, action or omission
to act. Each holder of any Note at the time or thereafter outstanding
shall be bound by any consent authorized by this paragraph 11C or
paragraph 11D(3), whether or not such Note shall have been marked to
indicate such consent, but any Note issued thereafter may contain a
reference, or bear a notation referring, to any such consent. No course
of dealing between the Company and the holder of any Note nor any delay
in exercising any rights hereunder or under any Note shall operate as a
waiver of any rights of any holder of such Note. As used herein and in
the Note, the term "this Agreement" and references thereto shall mean
this Agreement as it may, from time to time, be amended or supplemented.
11D. Provisions Applicable if Any Note Sold. In the event
that you shall sell or otherwise transfer any Note or any part thereof to
any Person other than the Company, the following provisions shall apply:
11D(1) Notices to Subsequent Holder - If any Note shall have
been transferred to another holder pursuant to paragraph 11E and such
holder shall have designated in writing the address to which
communications with respect to such Note shall be mailed, all notices,
certificates, requests, statements and other documents required or
permitted to be delivered to you by any provision hereof shall also be
delivered to each such holder, except that financial statements and other
documents provided for in paragraph 5A need not be delivered to any such
holder holding less than 10% of the aggregate principal amount of Notes
from time to time outstanding.
11D(2) Pro Rata Payments - All interest payments and payments
or prepayments of principal and premium (if any) shall be made and
applied pro rata on all Notes outstanding including, for the purpose of
this paragraph 11D(2) only, all Notes acquired by the Company or any
Subsidiary other than by prepayment in accordance with the terms of this
Agreement.
11D(3) Consent by Holders of 66-2/3% - Any consent, notice or
demand required or permitted to be given by you by any provision hereof
127<PAGE>
shall be sufficient if given by the holder or holders of at least two-
thirds of the principal amount of Notes at the time outstanding except
that, without the written consent of the holder or holders of all Notes
at the time outstanding, no amendment to this Agreement shall extend the
maturity of any Note, or reduce the principal, rate of interest or any
premium payable with respect to any Note, or affect the time or amount of
any required prepayments, or reduce the proportion of the principal
amount of the Notes required with respect to any consent.
11E. Form, Registration, Transfer and Exchange of Notes.
The Notes are issuable only as registered Notes without coupons in the
denominations of $1,000 and any integral multiple of $1,000. The Company
shall keep at its principal office a register in which the Company shall
provide for the registration of Notes and of transfer of Notes. Upon
surrender for registration of transfer of any Note at the office of the
Company, the Company shall, at its expense, execute and deliver one or
more new Notes of like tenor and of a like aggregate principal amount
registered in the name of the designated transferee or transferees. At
the option of the holder of any Note, such Note may be exchanged for
other Notes of like tenor and of any authorized denominations, of a like
aggregate principal amount, upon surrender of the Note to be exchanged at
the office of the Company. Whenever any Notes are so surrendered for
exchange, the Company shall, at its expense, execute and deliver the
Notes which the Noteholder making the exchange is entitled to receive.
Every Note presented or surrendered for registration of transfer shall be
duly endorsed, or be accompanied by a written instrument of transfer duly
executed, by the holder of such Note or his attorney duly authorized in
writing. Any Note or Notes issued in exchange for any Note or upon
transfer thereof shall carry the rights to unpaid interest and interest
to accrue which were carried by the Note so exchanged or transferred, and
neither gain nor loss of interest shall result from any such transfer or
exchange. Upon receipt of written notice from you or other evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Note held by you and, in the case of any such loss,
theft or destruction, upon receipt of your unsecured indemnity agreement,
or other indemnity reasonably satisfactory to the Company, or in the case
of any mutilation upon surrender and cancellation of such Note, the
Company will make and deliver a new Note, of like tenor, in lieu of the
lost, stolen, destroyed or mutilated Note. In fulfilling its duties
under this paragraph 11E, the Company shall be under no duty to make any
investigation or inquiry as to any statements contained or matters
referred to in any resolution, notice, telegram, request, consent,
waiver, certificate, statement, affidavit, voucher, bond or other paper
or document tendered to it which it shall in good faith believe to be
genuine and to have been passed or signed by the proper board, body or
person, but may accept and rely upon the same as conclusive evidence of
the truth and accuracy of the matters therein referred to, and shall be
protected and shall incur no liability in acting or proceeding in good
faith in reliance thereon.
11F. Persons Deemed Owners. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name
any Note is registered as the owner and holder of such Note for the
purpose of receiving payment of principal of and interest and premium (if
any) on such Note and for all other purposes whatsoever, whether or not
128<PAGE>
such Note shall be overdue, and the Company shall not be affected by
notice to the contrary.
11G. Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by the
Company in connection herewith shall survive the execution and delivery
of this Agreement and of the Notes, regardless of any investigation made
by you or on your behalf.
11H. Successors and Assigns. All covenants and agreements
in this Agreement contained by or on behalf of either of the parties
hereto shall bind and inure to the benefit of the respective successors
and assigns of the parties hereto whether so expressed or not.
11I. Notices. All communications provided for hereunder
shall be sent by first class mail and, if to you, addressed to you in the
manner (except as otherwise provided in paragraph 11A with respect to
payments of principal of and interest and premium, if any, on the Notes)
in which this letter is addressed, and if to the Company, at P.O. Box
1804, Washington, D.C. 20013, with a copy to the offices of the Company
at 6300 Sheriff Road, Landover, MD 20785, or to such other address with
respect to either party as such party shall notify the other in writing.
11J. Descriptive Headings. The descriptive headings of the
several paragraphs of this Agreement are inserted for convenience only
and do not constitute a part of this Agreement.
11K. Satisfaction Requirement. If any agreement,
certificate or other writing, or any action taken or to be taken, is by
the terms of this Agreement required to be satisfactory to you, the
determination of such satisfaction shall be made by you in your sole and
exclusive judgment exercising good faith.
11L. Governing Law. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be
governed by the law of the State of New York. This Agreement may not be
changed orally, but (subject to the provisions of paragraphs 11C and
11D(3)) only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
11M. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed
an original, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one such counterpart.
11N. Amendment of Existing Agreement. Paragraph 4C of the
Note Agreement, dated October 28, 1986, between the Company and you,
pursuant to which the 9.60% promissory notes were issued and sold to you,
is hereby amended so as to include the Notes issued or to be issued under
this Agreement in the term "Notes" as used in clause (b) of the proviso
to said paragraph 4C.
129<PAGE>
If you are in agreement with the foregoing, please sign the
form of acceptance on the enclosed counterpart of this letter and return
the same to the undersigned, whereupon this letter shall become a binding
agreement between you and the undersigned.
Very truly yours,
GIANT FOOD INC.
By David B. Sykes
Title: Sr. Vice President -
Finance
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By Mary Patricia Fraher
Title: Vice President
130<PAGE>
EXHIBIT A
GIANT FOOD INC.
PROMISSORY NOTE
No.
$ New York, New York
[date]
FOR VALUE RECEIVED, the undersigned, GIANT FOOD INC. (herein called
the "Company"), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA or
registered assigns, the principal sum of
DOLLARS
on August 4, 2012, with interest (computed on the basis of a 360-day year
- -- 30-day month) (a) on the unpaid balance thereof at the rate of 9.83%
per annum from the date hereof, payable semi-annually on the fourth day
of February and August in each year, commencing with the February 4 or
August 4 next succeeding the date hereof, until the principal hereof
shall have become due and payable, and (b) on any overdue payment
(including any overdue prepayment) of principal and, to the extent
permitted by applicable law, any overdue payment of interest, payable
semi-annually as aforesaid (or, at the option of the registered holder
hereof, on demand), at a rate per annum, from time to time equal to the
greater of (i) 10.83% or (ii) the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York from time to time in New York
City as its Prime Rate.
Payments of both principal and interest are to be made to the office
of Morgan Guaranty Trust Company of New York, 15 Broad Street, New York,
New York, or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America.
This Note is one of the Notes issued pursuant to an Agreement dated
August 4, 1987 between the Company and The Prudential Insurance Company
of America and is entitled to the benefits thereof. As provided in said
Agreement, this Note is subject to prepayment, in whole or in part, in
certain cases without premium and in other cases with a premium as
specified in said Agreement.
131<PAGE>
Exhibit A
page 2
As provided in said Agreement, upon surrender of this Note for
registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder hereof or
his attorney duly authorized in writing, a new Note for a like principal
amount will be issued to, and registered in the name of, the transferee.
Prior to due presentment for registration of transfer, the Company may
treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
The Company agrees to make prepayments of principal on the dates and
in the amounts specified in said Agreement.
In case an Event of Default, as defined in said Agreement, shall
occur and be continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner and with the affect
provided in said Agreement.
GIANT FOOD INC.
By
President
By
Treasurer
132<PAGE>
EXHIBIT B
LIST OF AGREEMENTS RESTRICTING DEBT
1. The Note Agreement, dated September 27, 1973, as amended, between
Giant Food Inc. (the "Company") and The Prudential Insurance Company of
America ("Prudential"), providing for the issuance of the Company's 8.20%
promissory notes due September 1, 1989.
2. The Note Agreement, dated October 28, 1986, as amended, between
the Company and Prudential, providing for the issuance of the Company's
9.60% promissory notes due October 15, 2001.
3. The Revolving Credit and Term Loan Agreement dated as of March
23, 1987, as amended, among the Company, The National Bank of Washington,
Equitable Bank, N.A., Marine Midland Bank (Delaware), National
Association, Manufacturers Hanover Trust Company (the "Banks") and The
National Bank of Washington, as agent for the Banks.
133<PAGE>
EXHIBIT 10.8
July 15, 1988
Giant Food Inc.
P.O. Box 1804
Washington, D.C. 20013
Attn: David B. Sykes
Secretary, Treasurer and
Senior Vice President - Finance
Gentlemen:
Reference is made to (i) the Note Agreement dated September 27,
1973 (the "1973 Agreement"), (ii) the Note Agreement dated October 28,
1986 (the "1986 Agreement") and (iii) the Note Agreement dated August 4,
1987 (the "1987 Agreement"), each between Giant Food, Inc. (the
"Company") and The Prudential Insurance Company of America ("Prudential")
and as heretofore amended.
Pursuant to the Company's request and subject to the Company's
written acceptance hereof, Prudential consents and agrees that:
(a) paragraph 6C(3)(viii) of the 1973 Agreement shall be amended to read
in its entirety as follows:
"(viii) make or permit to remain outstanding loans or advances to,
or guarantee, endorse or otherwise be or become contingently liable in
connection with the obligations, stock or dividends of, or own, purchase
or acquire stock, obligations or securities of, any other Person,
provided that the aggregate principal amount of such loans and advances,
plus the aggregate amount of such contingent liabilities, plus the
aggregate amount of liabilities permitted by clauses (i) and (v) of
paragraph 6C(9), plus the aggregate amount of the investment (at original
cost) in such stock, obligations and securities shall not exceed
$5,000,000 at any time outstanding for the Company and all Subsidiaries,
and further provided that no Subsidiary shall make any loan or advance
to, or acquire any stock, obligations or securities of, the Company;"
(b) paragraph 6(c)(3)(vii) of each of the 1986 Agreement and the 1987
Agreement shall be amended to read in its entirety as follows:
"(vii) make or permit to remain outstanding loans or advances to,
or guarantee, endorse or otherwise be or become contingently liable in
connection with the obligations, stock or dividends of, or own, purchase
or acquire stock, obligations or securities of, any other Person,
provided that the aggregate principal amount of such loans and advances,
plus the aggregate amount of such contingent liabilities, plus the
aggregate amount of liabilities permitted by clauses (i) and (v) of
paragraph 6C(9), plus the aggregate amount of the investment (at original
cost) in such stock, obligations and securities shall not exceed
$5,000,000 at any time outstanding for the Company and all Subsidiaries,
and further provided that no Subsidiary shall make any loan or advance
134<PAGE>
to, or acquire stock, obligations or securities of, the Company, and"
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same
to the undersigned, whereupon this letter shall become a binding
agreement between the Company and Prudential.
Very truly yours,
The Prudential Insurance
Company of America
by
Name:
Title:
The foregoing agreement is hereby
accepted as of the date first
above written.
GIANT FOOD, INC.
By
Name:
Title:
Date:
135<PAGE>
EXHIBIT 10.9
August 5, 1991
Giant Food Inc.
P.O. Box 1804
Washington, D.C. 20013
Attn: David B. Sykes
Secretary, Treasurer and
Senior Vice President - Finance
Gentlemen:
Reference is made to the note agreement between Giant Food Inc. (the
"Company") and The Prudential Insurance Company of America
("Prudential"), dated October 28, 1986, as amended (the "1986
Agreement"), pursuant to which the Company issued and sold, and
Prudential purchased, the Company's 9.6% promissory note due October 15,
2001, in the aggregate principal amount of $50,000,000 (the "2001
Notes").
Further reference is made to the note agreement between the Company and
Prudential, dated August 4, 1987, as amended (the "1987 Agreement", and
together with the 1986 Agreement, the "Agreements"), pursuant to which
the Company issued and sold, and Prudential purchased, the Company's
9.83% promissory notes due August 4, 2012, in the aggregate principal
amount of $29,000,000 (the "2012 Notes").
Pursuant to the request of the Company and the provisions of paragraph
11C of the Agreements, Prudential hereby consents that clause (vii) of
paragraph 6C(3) of the Agreements is hereby amended by striking
"$5,000,000" and by substituting "$15,000,000".
Very truly yours,
The Prudential Insurance
Company of America
by
Vice President
136<PAGE>
EXHIBIT 10.10
AMENDMENT, ASSUMPTION AND GUARANTY AGREEMENT
This Amendment, Assumption and Guaranty Agreement dated as of
February 28, 1992 is entered into by and among Giant Food Inc., a
Delaware corporation (the "Guarantor"), Giant of Landover, Inc., a
Maryland corporation ("Obligor") and The Prudential Insurance Company of
America, a New Jersey mutual insurance company ("Prudential").
WHEREAS the Guarantor and Prudential have entered into (i) a Note
Agreement dated October 28, 1986 (as amended by the letter agreements
dated October 27, 1987, July 15, 1988 and August 5, 1991, the "1986 Note
Agreement"), pursuant to which the Guarantor issued and sold and
Prudential purchased the Guarantor's 9.60% Promissory Notes due October
15, 2001 in the aggregate principal amount of $50,000,000 (the "9.60%
Notes") and (ii) a Note Agreement dated August 4, 1987 (as amended by the
letter agreements dated October 27, 1987, July 15, 1988 and August 5,
1991, the "1987 Note Agreement"), pursuant to which the Guarantor issued
and sold and Prudential purchased the Guarantor's 9.83% Promissory Notes
due August 4, 2012 in the aggregate principal amount of $29,000,000 (the
"9.83% Notes") (the 1986 Note Agreement and the 1987 Note Agreement are
referred to herein, collectively, as the "Note Agreements" and the 9.60%
Notes and the 9.83% Notes are referred to herein, collectively, as the
"GFI Notes"); and
WHEREAS the Guarantor wishes to (i) transfer a Substantial Part (as
that term is defined in the Note Agreements) of its assets to Obligor, a
newly formed wholly-owned Subsidiary of the Guarantor, and (ii) merge two
other Subsidiaries, Giant of D.C., Inc. and Giant of Virginia, Inc., with
and into Obligor, so as to simplify management and operating
relationships and achieve certain administrative cost savings (the
transactions described in clauses (i) and (ii) above are referred to
herein as the "Transactions"); and
WHEREAS paragraph 6C(5) of the Note Agreements prohibits the
Guarantor from transferring a Substantial Part of its assets to any
person; and
WHEREAS in order to induce Prudential to consent to the
Transactions, the Guarantor has agreed to Guarantee all obligations of
Obligor under this Agreement, the Note Agreements and the Obligor Notes
(as defined below);
NOW THEREFORE, pursuant to the terms and subject to the conditions
set forth herein, the Guarantor, Obligor and Prudential hereby agree as
follows:
1. Definitions. Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Note Agreements.
2. Assignment and Assumption; Issuance of Obligor Notes;
Exchange of GFI Notes for Obligor Notes. (i) In accordance with that
certain General Assignment of Assets and Agreement with General
137<PAGE>
Undertaking as approved by the Board of Directors of Guarantor on
February 27, 1992, and approved by the Board of Directors of Obligor by
unanimous written consent, the Guarantor hereby assigns and delegates to
Obligor all of its rights, duties, obligations and liabilities under the
Note Agreements and under the GFI Notes and Obligor hereby assumes such
rights, duties, obligations and liabilities and agrees to be obligated
thereunder as if it had been a party to the Note Agreements and had
originally issued the GFI Notes pursuant thereto; provided, however, that
the provisions of paragraphs 5, 6 and 8 of the Note Agreements shall
continue to apply to the Guarantor and its Subsidiaries and in accordance
with paragraph 4 hereof the Guarantor shall be liable as Guarantor of the
obligation of Obligor under the Note Agreements and the Obligor Notes.
(ii) Obligor will authorize the issue of (A) its promissory notes
(together with any notes which may be issued hereunder and under the 1986
Note Agreement in substitution therefor, called the "Obligor 9.60%
Notes") bearing interest at the rate of 9.60% per annum due October 15,
2001 in an aggregate principal amount of $50,000,000 to be substantially
in the form of Exhibit A hereto and (ii) its promissory notes (together
with any notes which may be issued hereunder and under the 1987 Note
Agreement in substitution therefor, called the "Obligor 9.83% Notes")
bearing interest at the rate of 9.83 % per annum due August 4, 2012 in an
aggregate principal amount of $24,360,000 to be substantially in the form
of Exhibit B hereto. The Obligor 9.83% Notes and the Obligor 9.60% Notes
are referred to herein as the "Obligor Notes".
(iii) Upon receipt of the Obligor Notes, Prudential will promptly
deliver to Guarantor for cancellation the GFI Notes.
3. Amendments to Note Agreements. The Note Agreements are
hereby amended as follows:
3A. Clauses (iii), (iv) and (v) of paragraph 6C(2) of the Note
Agreements are hereby amended and restated to read as follows:
"(iii) other Current Debt of the Company or the Obligor not
in excess of an aggregate principal amount of $10,000,000 at any time
outstanding, provided that neither the Company nor the Obligor shall
create, incur, assume or suffer to exist any Current Debt permitted by
this clause (iii) on any day unless there shall have been a period of at
least 60 consecutive days within the 12 months' period immediately
preceding such day, during which the Company and the Obligor shall have
been free from all Current Debt permitted by this clause (iii)",
"(iv) Funded Debt of the Company or the Obligor if, after
giving effect to the repayment of any other Funded Debt and to the
concurrent repayment of any Funded Debt, the aggregate principal amount
of Funded Debt of the Company and the Obligor at any time outstanding
does not exceed an amount equal to Consolidated Tangible Net Worth," and
"(v) Funded Debt and Current Debt of the Company or the
Obligor secured by Liens permitted by the provisions of clauses (iv) and
(v) of paragraph 6C(1), provided that the aggregate principal amount of
all such Debt at any time outstanding after giving effect thereto and to
138<PAGE>
any concurrent repayment shall not exceed an amount equal to 20% of
Consolidated Tangible Net Worth."
3B. Clauses (i), (ii) and (iii) of paragraph 6C(5) of the Note
Agreements are hereby amended and restated as follows:
"(i) any Subsidiary (other than the Obligor) may merge with
the Company or the Obligor (provided that the Company or the Obligor
shall be the continuing or surviving corporation) or any one or more
other Subsidiaries, and the Obligor may merge with the Company;"
"(ii) any Subsidiary (other than the Obligor) may sell,
lease, transfer or otherwise dispose of any of its assets to the Company
or the Obligor or another Subsidiary, and the Obligor may sell, lease,
transfer or otherwise dispose of any of its assets to the Company and may
sell, transfer or otherwise dispose of inventory to another Subsidiary in
the ordinary course of business;"
"(iii) any Subsidiary (other than the Obligor) may sell or
otherwise dispose of all or substantially all of its assets subject to
the conditions specified in paragraph 6C(4) with respect to a sale of the
stock of such Subsidiary."
3C. Clause (iv) of paragraph 6C(5) of the Note Agreements is
hereby amended by deleting ";"at the end thereof and inserting ", and" in
its place.
3D. Paragraph 6C(5) is hereby amended by adding the following
clause at the end thereof:
"(v) Obligor may merge with or into a wholly-owned Subsidiary
subject to the following conditions precedent: (A) immediately after
giving effect to such merger, no Event of Default or Default shall have
occurred or be continuing, (B) the surviving or continuing corporation
(if other than the Obligor) shall have assumed all of the obligations of
Obligor hereunder and under the Notes pursuant to an assumption agreement
in form and substance satisfactory to the Required Holders, (C) the
holders of the Notes shall have received a satisfactory opinion of
counsel for the Company to the effect that this Agreement and the Notes
are enforceable against the surviving corporation and as to such other
matters as the Required Holders may request and (D) the holders of the
Notes shall have received evidence satisfactory to them that the guaranty
of the Company shall continue in full force and effect after such
merger;"
3E. Paragraph 10 of the Note Agreements is hereby amended by
adding the following after paragraph 10L:
"10M. 'Guaranty' shall mean the Guaranty of the Company of the
obligations of the Obligor under the Notes and this Agreement included in
paragraph 4 of that certain Amendment, Assumption and Guaranty Agreement
dated as of February 28, 1992 among the Company, the Obligor and The
Prudential Insurance Company of America pursuant to which the Obligor
assumed the obligations of the Company under this Agreement and the Notes
139<PAGE>
and the Company guaranteed the Obligor's obligations hereunder and
thereunder."
"10N. 'Obligor' shall mean Giant of Landover, Inc., a Maryland
corporation and a wholly-owned Subsidiary of the Company."
"10O. 'Required Holders' shall mean the holder or holders of 66
2/3% of the principal amount of the Notes from time to time outstanding."
3F. From and after the effective date of this Agreement, the
term "Notes" in the Note Agreements shall mean the Obligor Notes. Except
as amended hereby, the Note Agreements shall continue in full force and
effect as in effect on the effective date of this Agreement.
3G. Paragraph 7 of the Note Agreements is hereby amended by
inserting the words "or the Obligor" after the words "the Company" in
clauses (i), (ii), (iv), (vi) and (xi) thereof.
4. Guaranty Agreement.
4A. Guaranty. The Guarantor hereby irrevocably and
unconditionally guarantees to each holder from time to time of any of the
Obligor Notes, the due and punctual payment in full of (i) the principal
of, premium, if any, and interest on, and any other amounts due under,
the Obligor Notes when and as the same shall become due and payable
(whether at stated maturity or by required or optional prepayment or by
acceleration or otherwise) and (ii) any other sums which may become due
under the terms and provisions of this Agreement, the Note Agreements, as
amended by this Agreement (the "Amended Note Agreements") and the Obligor
Notes (all such obligations described in clauses (i) and (ii) above are
herein called the "Guaranteed Obligations"). The guaranty in the
preceding sentence is an absolute, present and continuing guaranty of
payment and not of collectibility and is in no way conditional or
contingent upon any attempt to collect from or upon any other action,
occurrence or circumstance whatsoever. In the event that Obligor shall
fail so to pay any of such Guaranteed Obligations, the Guarantor agrees
to pay the same when due to the holders of the Obligor Notes entitled
thereto, without demand, presentment, protest or notice of any kind, in
lawful money of the United States of America, at the place for payment
specified in the Obligor Notes and the Amended Note Agreements. Each
default in payment of principal of, premium, if any, or interest on any
Obligor Note shall give rise to a separate cause of action hereunder and
separate suits may be brought hereunder as each cause of action arises.
The Guarantor hereby agrees that the Obligor Notes issued in connection
herewith and with the Amended Note Agreements may make reference to this
guaranty.
The Guarantor hereby agrees to pay and to indemnify and save the holders
of the Obligor Notes harmless from and against any damage, loss, cost or
expense (including attorneys' fees) which such holder may incur or be
subject to as a consequence, direct or indirect, of (i) any breach by the
Guarantor or by Obligor of any warranty, covenant, term or condition in,
or the occurrence of any default under, this Agreement, the Obligor Notes
or the Amended Note Agreements, together with all expenses resulting from
the compromise or defense of any claims or liabilities arising as a
140<PAGE>
result of any such breach or default, and (ii) any legal action commenced
to challenge the validity of this Agreement or the provisions of this
paragraph 4, the Obligor Notes or the Amended Note Agreements.
4B. Obligations Absolute. The obligations of the Guarantor
hereunder shall be primary, absolute, irrevocable and unconditional,
irrespective of the validity, regularity or enforceability of this
Agreement, the Obligor Notes or of the Amended Note Agreements, shall not
be subject to any counterclaim, set off, deduction or defense based upon
any claim the Guarantor may have against Obligor or any holder of the
Obligor Notes or otherwise, and shall remain in full force and effect
without regard to, and shall not be released, discharged or in any way
affected by, any circumstance or condition whatsoever (whether or not the
Guarantor shall have any knowledge or notice thereof), including, without
limitation: (a) any amendment, modification of or supplement to this
Agreement (other than paragraph 4 hereof, which shall require the
Guarantor's prior written consent), the Amended Note Agreements, the
Obligor Notes or any other instrument referred to therein (except that
the obligations of the Guarantor hereunder shall apply to this Agreement,
the Amended Note Agreements, the Obligor Notes or such other instruments
as so amended, modified or supplemented) or any assignment or transfer of
any thereof or of any interest therein, or any furnishing, acceptance or
release of any security for the Obligor Notes, (b) any waiver, consent,
extension, indulgence or other action or inaction under or in respect of
the Obligor Notes or in respect of the Amended Note Agreements; (c) any
bankruptcy, insolvency, readjustment, composition, liquidation or similar
proceeding with respect to Obligor or its property; (d) any merger,
amalgamation or consolidation of the Guarantor or of Obligor into or with
any other corporation or any sale, lease or transfer of any or all of the
assets of the Guarantor or of Obligor to any person; (e) any failure on
the part of Obligor for any reason to comply with or perform any of the
terms of any other agreement with the Guarantor; or (f) any other
circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor. The Guarantor covenants that its
obligations hereunder will not be discharged except by payment in full of
all of the Guaranteed Obligations.
4C. Waiver. The Guarantor unconditionally waives to the fullest
extent permitted by law, (a) notice of acceptance hereof, of any action
taken or omitted in reliance hereon and of any defaults by Obligor in the
payment of any amounts due under the Obligor Notes or the Amended Note
Agreements, and of any of the matters referred to in paragraph 4B hereof,
(b) all notices which may be required by statute, rule of law or
otherwise to preserve any of the rights of each holder from time to time
of the Obligor Notes against the Guarantor, including, without
limitation, presentment to or demand for payment from Obligor or the
Guarantor with respect to any Obligor Note, notice to Obligor or to the
Guarantor of default or protest for nonpayment or dishonor and the filing
of claims with a court in the event of the bankruptcy of Obligor, (c) any
right to the enforcement, assertion or exercise by any holder of the
Obligor Notes of any right, power or remedy conferred in this Agreement,
the Amended Note Agreements or the Obligor Notes, (d) any requirement or
diligence on the part of any holder of the Obligor Notes and (e) any
other act or omission or thing or delay to do any other act or thing
which might in any manner or to any extent vary the risk of the Guarantor
141<PAGE>
or which might otherwise operate as a discharge of the Guarantor.
4D. Obligations Unimpaired. The Guarantor authorizes the
holders of the Obligor Notes, without notice or demand to the Guarantor
and without affecting its obligations hereunder, from time to time (a) to
renew, compromise, extend, accelerate or otherwise change the time for
payment of, or otherwise change the terms of, all or any part of this
Agreement (other than this paragraph 4), the Obligor Notes, the Amended
Note Agreements or any other instrument referred to herein or therein,
(b) to take and hold security for the payment of the Obligor Notes, for
the performance of the guaranty contained in this paragraph 4 or
otherwise for the indebtedness guaranteed hereby and to exchange,
enforce, waive and release any such security, (c) to apply any such
security and to direct the order or manner of sale thereof as the holders
of the Obligor Notes in their sole discretion may determine, (d) to
obtain additional or substitute endorsers or guarantors, (e) to exercise
or refrain from exercising any rights against Obligor and others, and (f)
to apply any sums, by whomsoever paid or however realized, to the payment
of the principal of, premium, if any, and interest on the Obligor Notes
and any other Guaranteed Obligation hereunder. The Guarantor waives any
right to require the holders of the Obligor Notes to proceed against any
additional or substitute endorsers or guarantors or to pursue or exhaust
any security provided by Obligor, the Guarantor or any other person or to
pursue any other remedy available to such holders.
4E. Subrogation. The Guarantor will not exercise any rights
which it may have acquired by way of subrogation under this paragraph 4,
by any payment made hereunder or otherwise, or accept any payment on
account of such subrogation rights, or any rights of reimbursement or
indemnity or any rights or recourse to any security for the Obligor Notes
or this paragraph 4 unless and until all of the obligations, undertakings
or conditions to be performed or observed by Obligor pursuant to the
Obligor Notes, the Amended Note Agreements and this Agreement at the time
of the Guarantor's exercise of any such right shall have been performed,
observed or paid in full.
For a period of one year after the payment in full of the Guaranteed
Obligations, the Guarantor hereby waives (x) all rights of subrogation
which it may at any time otherwise have as a result of this paragraph 4
(whether, statutory or otherwise) to the claims of the holders of the
Obligor Notes against Obligor or any other guarantor of the Guaranteed
Obligations (each referred to herein as the "Other Party") and all
contractual, statutory or common law rights of reimbursement,
contribution or indemnity from any Other Party which it may at any time
otherwise have as a result of this paragraph 4; (y) any right to enforce
any other remedy which the holders of the Obligor Notes now have or may
hereafter have against any Other Party, any endorser or any other
guarantor of all or any part of the Guaranteed Obligations; and (z) all
claims (as such term is defined in the Bankruptcy Code) it may at any
time otherwise have against any Other Party arising from any transaction
whatsoever, including without limitation its right to assert or enforce
any such claims.
4F. Reinstatement of Guaranty. The guaranty contained in this
142<PAGE>
paragraph 4 shall continue to be effective, or be reinstated, as the case
may be, if and to the extent at any time payment, in whole or in part, of
any of the sums due to any holder of the Obligor Notes for principal,
premium, if any, or interest on the Obligor Notes or any of the other
Guaranteed Obligations is rescinded or must otherwise be restored or
returned by such holder upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of Obligor, or upon or as a result of the
appointment of a custodian, receiver, trustee or other officer with
similar powers with respect to Obligor or any substantial part of its
property, or otherwise, all as though such payments had not been made.
If an event permitting the acceleration of the maturity of the principal
amount of the Obligor Notes shall at any time have occurred and be
continuing and such acceleration shall at such time be prevented or the
right of any holder of an Obligor Note to receive any payment under any
Obligor Note shall at such time be delayed or otherwise affected by
reason of the pendency against Obligor of a case or proceeding under a
bankruptcy or insolvency law, the Guarantor agrees that, for purposes of
this paragraph 3 and its obligations thereunder, the maturity of such
principal amount shall be deemed to have been accelerated with the same
effect as if the holders of the Obligor Notes had accelerated the same in
accordance with the terms of the Amended Note Agreements, and the
Guarantor shall forthwith pay such accelerated principal amount, accrued
interest and premium, if any, thereon and any other amounts guaranteed
under this paragraph 4.
4G. Rank of Guaranty. The Guarantor agrees that its obligations
under this paragraph 4 shall rank at least pari passu with all other
unsecured senior obligations of the Guarantor now or hereafter existing.
4H. Additional Covenants of the Guarantor. The Guarantor hereby
acknowledges and agrees that it will continue to be bound by the
provisions of paragraphs 5 and 6 of the Note Agreements, as amended by
this Agreement.
4I. Representations and Warranties of the Guarantor. The
Guarantor represents and warrants as follows:
(a) The representations and warranties described in paragraph
8 of the Note Agreements, as amended by this Agreement, are true and
correct on the effective date of this Agreement as if made on such date
provided that paragraph 8B shall relate to the Consolidated Balance
Sheets of the Guarantor and its Subsidiaries dated February 24, 1990 and
February 23, 1991 and Consolidated Statements of Earnings, Capital Stock,
Retained Earnings and Changes in Financial Position of the Guarantor and
its Subsidiaries for the fiscal years ended on such dates and the
Consolidated Balance Sheets of the Guarantor and its Subsidiaries as at
November 2, 1991 and February 23, 1991 and Consolidated Statements of
Income of the Guarantor and its Subsidiaries for the thirty-six and
twelve week periods ended on November 2, 1991 and November 3, 1990 and
the Consolidated Statements of Cash Flows of the Guarantor and its
Subsidiaries for the thirty-six week periods ended on such dates.
(b) No Default or Event of Default has occurred or is continuing on
the effective date of this Agreement.
(c) The execution, delivery and performance of this Agreement have
143<PAGE>
been duly authorized by all necessary corporate action on the part of the
Guarantor. This Agreement has been duly and validly executed and
delivered and constitutes the legal, valid and binding obligation of the
Guarantor, enforceable against it in accordance with its terms, subject
to (i) applicable bankruptcy, insolvency, moratorium, reorganization,
receivership and similar laws affecting the rights and remedies of
creditors generally, and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at
law).
4J. Term of Guaranty. The guaranty contained in this paragraph
4 and all covenants and agreements of the Guarantor contained therein
shall continue in full force and effect and shall not be discharged until
such time as all of the Guaranteed Obligations shall be paid or otherwise
discharged in full.
4K. Survival. All warranties, representations and covenants
made by the Guarantor in this paragraph 4 or in any certificate or other
instrument delivered by it or on its behalf under this Agreement shall be
considered to have been relied upon by the holders of the Obligor Notes
and shall survive the execution and delivery of this Guaranty Agreement,
regardless of any investigation made by the holders of the Obligor Notes,
or on their behalf.
4L. Further Assurances. The Guarantor hereby agrees to execute
and deliver all such instruments and take all such action as the holders
of the Obligor Notes may from time to time reasonably request in order to
effectuate fully the purposes of the guaranty contained in this paragraph
4.
5. Conditions to Effectiveness. This Agreement shall become
effective upon satisfaction of the following conditions precedent:
(i) The Guarantor, Obligor and Prudential shall have caused this
Agreement to be duly executed by their respective authorized officers,
(ii) the Obligor and the Guarantor shall have duly executed and
delivered to Prudential the Obligor Notes,
(iii) Prudential shall have received an opinion of counsel for
the Guarantor and the Obligor to the effect that this Agreement and the
Obligor Notes have been duly authorized, executed and delivered by the
Guarantor and Obligor and are enforceable against each of them in
accordance with their respective terms, and as to such other matters as
Prudential may request,
(iv) Prudential shall have received a copy of the charter of
Obligor, certified as true and correct and having been filed in the state
of incorporation of Obligor, and
(v) The Guarantor shall have paid $10,000 to the account of
PruCapital Management, Inc. at Morgan Guaranty Trust Company of New York,
Account No. 050-53-305 (ABA No. 021-000-238), as a structuring fee.
6. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original but all of which
144<PAGE>
together shall constitute one instrument.
7. Notices. For purposes of paragraph 11I of the Note
Agreements, communications sent to Obligor shall be sent to it at P.O.
Box 1804, Washington, D.C. 20013, with a copy to the offices of the
Guarantor at 6300 Sheriff Road, Landover, MD 20785, or to such other
address with respect to any party as such party shall notify the others
in writing.
8. Construction. The section and subsection headings in this
Agreement are for convenience of reference only and shall neither be
deemed to be a part of this Agreement nor modify, define, expand or limit
any of the terms or provisions hereof.
9. Severability. If any provision of this Agreement, or the
application thereof to any person or circumstances, shall, for any reason
or to any extent, be invalid or unenforceable, such invalidity or
unenforceability shall not in any manner affect or render invalid or
unenforceable the remainder of this Agreement, and the application of
that provision to other persons or circumstances shall not be affected
but, rather, shall be enforced to the extent permitted by applicable law.
10. Successors. The terms and provisions of this Agreement
shall be binding upon and inure to the benefit of the Guarantor, Obligor
and the holders from time to time of the Notes and their respective
permitted successors, transferees and assigns.
11. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE
GOVERNED BY, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their respective authorized officers as of the date first
above written.
GIANT FOOD INC.
By:
Name:
Title:
GIANT OF LANDOVER, INC.
By:
Name:
Title:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:
Name:
Title:
145<PAGE>
Exhibit A
GIANT OF LANDOVER, INC.
PROMISSORY NOTE
GUARANTEED BY GIANT FOOD INC.
No. _____
$________ February 28, 1992
FOR VALUE RECEIVED, the undersigned, GIANT OF LANDOVER, INC. (herein
called the "Company"), a corporation organized and existing under the
laws of the State of Maryland, hereby promises to pay to
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
or registered assigns, the principal sum of
__________ DOLLARS
On October 15, 2001, with interest (computed on the basis of a 360-
day year -- 30-day month) (a) on the unpaid balance thereof at a rate of
9.60% per annum from the date hereof, payable semi-annually on the
fifteenth day of April and October in each year, commencing with the
April 15 or October 15 next succeeding the date hereof, until the
principal hereof shall have become due and payable, and (b) on any
overdue payment (including any overdue prepayment) of principal and, to
the extent permitted by applicable law, any overdue payment of interest,
payable semi-annually as aforesaid (or at the option of the registered
holder hereof, on demand), at a rate per annum, from time to time equal
to the greater of (i) 10.60% or (ii) the rate of interest publicly
announced by Morgan Guaranty Trust Company of New York from time to time
in New York City as its Prime Rate.
Payments of both principal and interest are to be made to the office
of Morgan Guaranty Trust Company of New York, 15 Broad Street, New York,
New York, or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America.
This Note is one of the Notes issued pursuant to an Agreement dated
October 28, 1986 between Giant Food Inc. and The Prudential Insurance
Company of America (as amended by the letter agreements dated October 27,
1987, July 15, 1988 and August 5, 1991 and by the Amendment, Assumption
and Guaranty Agreement dated as of February 28, 1992, among the Company,
Giant Food Inc., as Guarantor and The Prudential Insurance Company of
America) and is entitled to the benefits thereof. As provided in said
Agreement, this Note is subject to prepayment, in whole or in part, in
certain cases without premium and in other cases with a premium as
specified in said Agreement.
As provided in said Agreement, upon surrender of this Note for
registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder hereof or
his attorney duly authorized in writing, a new Note for a like principal
amount will be issued to, and registered in the name of, the transferee.
146<PAGE>
Prior to due presentment for registration of transfer, the Company may
treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
The Company agrees to make prepayments of principal on the dates and
in the amounts specified in said Agreement.
In case an Event of Default, as defined in said Agreement, shall
occur and be continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner and with the effect
provided in said Agreement.
GIANT OF LANDOVER, INC.
By:
President
By:
Treasurer
The obligations of the Company under this Note and under said
Agreement are irrevocably and unconditionally guaranteed by Giant Food
Inc. (the "Guarantor") in accordance with the terms set forth in the
Amendment, Assumption and Guaranty Agreement dated as of February 28,
1992 among the Company, the Guarantor and The Prudential Insurance
Company of America.
GIANT FOOD INC., as Guarantor
By:
President
By:
Treasurer
147<PAGE>
Exhibit B
GIANT OF LANDOVER, INC.
PROMISSORY NOTE
GUARANTEED BY GIANT FOOD INC.
No. ______
$________ February 28, 1992
FOR VALUE RECEIVED, the undersigned, GIANT OF LANDOVER, INC. (herein
called the "Company"), a corporation organized and existing under the
laws of the State of Maryland, hereby promises to pay to
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
or registered assigns, the principal sum of
DOLLARS
on August 4, 2012, with interest (computed on the basis of a 360-day year
- -- 30-day month) (a) on the unpaid balance thereof at the rate of 9.83%
per annum from the date hereof, payable semi-annually on the fourth day
of February and August in each year, commencing with the February 4 or
August 4 next succeeding the date hereof, until the principal hereof
shall have become due and payable, and (b) on any overdue payment
(including any overdue prepayment) of principal and, to the extent
permitted by applicable law, any overdue payment of interest, payable
semi-annually as aforesaid (or, at the option of the registered holder
hereof, on demand), at a rate per annum, from time to time equal to the
greater of (i) 10.83% or (ii) the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York from time to time in New York
City as its Prime Rate.
Payments of both principal and interest are to be made to the office
of Morgan Guaranty Trust Company of New York, 15 Broad Street, New York,
New York or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America.
This Note is one of the Notes issued pursuant to an Agreement dated
August 4, 1987 between Giant Food Inc. and The Prudential Insurance
Company of America (as amended by the letter agreements dated October 27,
1987, July 15, 1988, and August 5, 1991 and by the Amendment, Assumption
and Guaranty Agreement dated as of February 28, 1992, among the Company,
Giant Food Inc., as Guarantor, and The Prudential Insurance Company of
America) and is entitled to the benefits thereof. As provided in said
Agreement, this Note is subject to prepayment, in whole or in part, in
certain cases without premium and in other with a premium as specified in
said Agreement.
As provided in said Agreement, upon surrender of this Note for
registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder hereof or
his attorney duly authorized in writing, a new Note for a like principal
amount will be issued to, and registered in the name of, the transferee.
Prior to due presentment for registration of transfer, the Company may
treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
148
The Company agrees to make prepayments of principal on the dates and
in the amounts specified in said Agreement.
In case an Event of Default, as defined in said Agreement, shall
occur and be continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner and with the effect
provided in said Agreement.
GIANT OF LANDOVER, INC.
By:
President
By:
Treasurer
The obligations of the Company under this Note and under said
Agreement are irrevocably and unconditionally guaranteed by Giant Food
Inc. (the 'Guarantor') in accordance with the terms set forth in the
Amendment, Assumption and Guaranty Agreement dated as of February 28,
1992 among the Company, the Guarantor and The Prudential Insurance
Company of America.
GIANT FOOD, INC.
By:
President
By:
Treasurer
149<PAGE>
EXHIBIT 10.11
AMENDMENT, ASSUMPTION AND GUARANTY AGREEMENT
This Amendment, Assumption and Guaranty Agreement dated as of
February 28, 1992 is entered into by and among Giant Food Inc., a
Delaware corporation (the "Guarantor"), Giant of Landover, Inc., a
Maryland corporation ("Obligor") and The Prudential Insurance Company of
America, a New Jersey mutual insurance company ("Prudential").
WHEREAS the Guarantor and Prudential have entered into (i) a Note
Agreement dated October 28, 1986 (as amended by the letter agreements
dated October 27, 1987, July 15, 1988 and August 5, 1991, the "1986 Note
Agreement"), pursuant to which the Guarantor issued and sold and
Prudential purchased the Guarantor's 9.60% Promissory Notes due October
15, 2001 in the aggregate principal amount of $50,000,000 (the "9.60%
Notes") and (ii) a Note Agreement dated August 4, 1987 (as amended by the
letter agreements dated October 27, 1987, July 15, 1988 and August 5,
1991, the "1987 Note Agreement'), pursuant to which the Guarantor issued
and sold and Prudential purchased the Guarantor's 9.83% Promissory Notes
due August 4, 2012 in the aggregate principal amount of $29,000,000 (the
"9.83 % Notes") (the 1986 Note Agreement and the 1987 Note Agreement are
referred to herein, collectively, as the "Note Agreements" and the 9.60%
Notes and the 9.83% Notes are referred to herein, collectively, as the
"GFI Notes"); and
WHEREAS the Guarantor wishes to (i) transfer a Substantial Part (as
that term is defined in the Note Agreements) of its assets to Obligor, a
newly formed wholly-owned Subsidiary of the Guarantor, and (ii) merge two
other Subsidiaries, Giant of D.C., Inc. and Giant of Virginia, Inc., with
and into Obligor, so as to simplify management and operating
relationships and achieve certain administrative cost savings (the
transactions described in clauses (i) and (ii) above are referred to
herein as the "Transactions"); and
WHEREAS paragraph 6C(5) of the Note Agreements prohibits the
Guarantor from transferring a Substantial Part of its assets to any
person; and
WHEREAS in order to induce Prudential to consent to the
Transactions, the Guarantor has agreed to Guarantee all obligations of
Obligor under this Agreement, the Note Agreements and the Obligor Notes
(as defined below);
NOW THEREFORE, pursuant to the terms and subject to the conditions
set forth herein, the Guarantor, Obligor and Prudential hereby agree as
follows:
1. Definitions. Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Note Agreements.
2. Assignment and Assumption; Issuance of Obligor Notes;
Exchange of GFI Notes for Obligor Notes. (i) In accordance with that
certain General Assignment of Assets and Agreement with General
150<PAGE>
Undertaking as approved by the Board of Directors of Guarantor on
February 27, 1992, and approved by the Board of Directors of Obligor by
unanimous written consent, the Guarantor hereby assigns and delegates to
Obligor all of its rights, duties, obligations and liabilities under the
Note Agreements and under the GFI Notes and Obligor hereby assumes such
rights, duties, obligations and liabilities and agrees to be obligated
thereunder as if it had been a party to the Note Agreements and had
originally issued the GFI Notes pursuant thereto; provided, however, that
the provisions of paragraphs 5, 6 and 8 of the Note Agreements shall
continue to apply to the Guarantor and its Subsidiaries and in accordance
with paragraph 4 hereof the Guarantor shall be liable as a Guarantor of
the obligations of Obligor under the Note Agreements and Obligor Notes.
(ii) Obligor will authorize the issue of (A) its promissory notes
(together with any notes which may be issued hereunder and under the 1986
Note Agreement in substitution therefor, called the "Obligor 9.60%
Notes") bearing interest at the rate of 9.60% per annum due October 15,
2001 in an aggregate principal amount of $50,000,000 to be substantially
in the form of Exhibit A hereto and (ii) its promissory notes (together
with any notes which may be issued hereunder and under the 1987 Note
Agreement in substitution therefor, called the "Obligor 9.83% Notes")
bearing interest at the rate of 9.83 % per annum due August 4, 2012 in an
aggregate principal amount of $24,360,000 to be substantially in the form
of Exhibit B hereto. The Obligor 9.83% Notes and the Obligor 9.60% Notes
are referred to herein as the "Obligor Notes".
(iii) Upon receipt of the Obligor Notes, Prudential will promptly
deliver to Guarantor for cancellation the GFI Notes.
3. Amendments to Note Agreements. The Note Agreements are
hereby amended as follows:
3A. Clauses (iii), (iv) and (v) of paragraph 6C(2) of the Note
Agreements are hereby amended and restated to read as follows:
"(iii) other Current Debt of the Company or the Obligor not
in excess of an aggregate principal amount of $10,000,000 at any time
outstanding, provided that neither the Company nor the Obligor shall
create, incur, assume or suffer to exist any Current Debt permitted by
this clause (iii) on any day unless there shall have been a period of at
least 60 consecutive days within the 12 months' period immediately
preceding such day, during which the Company and the Obligor shall have
been free from all Current Debt permitted by this clause (iii)",
"(iv) Funded Debt of the Company or the Obligor if, after
giving effect to the repayment of any other Funded Debt and to the
concurrent repayment of any Funded Debt, the aggregate principal amount
of Funded Debt of the Company and the Obligor at any time outstanding
does not exceed an amount equal to Consolidated Tangible Net Worth," and
"(v) Funded Debt and Current Debt of the Company or the
Obligor secured by Liens permitted by the provisions of clauses (iv) and
(v) of paragraph 6C(1), provided that the aggregate principal amount of
all such Debt at any time outstanding after giving effect thereto and to
any concurrent repayment shall not exceed an amount equal to 20% of
151<PAGE>
Consolidated Tangible Net Worth."
3B. Clauses (i), (ii) and (iii) of paragraph 6C(5) of the Note
Agreements are hereby amended and restated as follows:
"(i) any Subsidiary (other than the Obligor) may merge with
the Company or the Obligor (provided that the Company or the Obligor
shall be the continuing or surviving corporation) or any one or more
other Subsidiaries, and the Obligor may merge with the Company;"
"(ii) any Subsidiary (other than the Obligor) may sell,
lease, transfer or otherwise dispose of any of its assets to the Company
or the Obligor or another Subsidiary, and the Obligor may sell, lease,
transfer or otherwise dispose of any of its assets to the Company and may
sell, transfer or otherwise dispose of inventory to another Subsidiary in
the ordinary course of business;"
"(iii) any Subsidiary (other than the Obligor) may sell or
otherwise dispose of all or substantially all of its assets subject to
the conditions specified in paragraph 6C(4) with respect to a sale of the
stock of such Subsidiary."
3C. Clause (iv) of paragraph 6C(5) of the Note Agreements is
hereby amended by deleting ";"at the end thereof and inserting ", and" in
its place.
3D. Paragraph 6C(5) is hereby amended by adding the following
clause at the end thereof:
"(v) Obligor may merge with or into a wholly-owned
Subsidiary subject to the following conditions precedent: (A) immediately
after giving effect to such merger, no Event of Default or Default shall
have occurred or be continuing, (B) the surviving or continuing
corporation (if other than the Obligor) shall have assumed all of the
obligations of Obligor hereunder and under the Notes pursuant to an
assumption agreement in form and substance satisfactory to the Required
Holders, (C) the holders of the Notes shall have received a satisfactory
opinion of counsel for the Company to the effect that this Agreement and
the Notes are enforceable against the surviving corporation and as to
such other matters as the Required Holders may request and (D) the
holders of the Notes shall have received evidence satisfactory to them
that the guaranty of the Company shall continue in full force and effect
after such merger;"
3E. Paragraph 10 of the Note Agreements is hereby amended by
adding the following after paragraph 10L:
"10M. 'Guaranty' shall mean the Guaranty of the Company of the
obligations of the Obligor under the Notes and this Agreement included in
paragraph 4 of that certain Amendment, Assumption and Guaranty Agreement
dated as of February 28, 1992 among the Company, the Obligor and The
Prudential Insurance Company of America pursuant to which the Obligor
assumed the obligations of the Company under this Agreement and the Notes
and the Company guaranteed the Obligor's obligations hereunder and
thereunder."
152
"10N. 'Obligor' shall mean Giant of Landover, Inc., a Maryland
corporation and a wholly-owned Subsidiary of the Company."
"10O. 'Required Holders' shall mean the holder or holders of 66
2/3% of the principal amount of the Notes from time to time outstanding."
3F. From and after the effective date of this Agreement, the
term "Notes" in the Note Agreements shall mean the Obligor Notes. Except
as amended hereby, the Note Agreements shall continue in full force and
effect as in effect on the effective date of this Agreement.
3G. Paragraph 7 of the Note Agreements is hereby amended by
inserting the words "or the Obligor" after the words "the Company" in
clauses (i), (ii), (iv), (vi) and (xi) thereof.
4. Guaranty Agreement.
4A. Guaranty. The Guarantor hereby irrevocably and
unconditionally guarantees to each holder from time to time of any of the
Obligor Notes, the due and punctual payment in full of (i) the principal
of, premium, if any, and interest on, and any other amounts due under,
the Obligor Notes when and as the same shall become due and payable
(whether at stated maturity or by required or optional prepayment or by
acceleration or otherwise) and (ii) any other sums which may become due
under the terms and provisions of this Agreement, the Note Agreements, as
amended by this Agreement (the "Amended Note Agreements") and the Obligor
Notes (all such obligations described in clauses (i) and (ii) above are
herein called the "Guaranteed Obligations"). The guaranty in the
preceding sentence is an absolute, present and continuing guaranty of
payment and not of collectibility and is in no way conditional or
contingent upon any attempt to collect from or upon any other action,
occurrence or circumstance whatsoever. In the event that Obligor shall
fail so to pay any of such Guaranteed Obligations, the Guarantor agrees
to pay the same when due to the holders of the Obligor Notes entitled
thereto, without demand, presentment, protest or notice of any kind, in
lawful money of the United States of America, at the place for payment
specified in the Obligor Notes and the Amended Note Agreements. Each
default in payment or princpal of, premium, if any, or interest on any
Obligor Note shall give rise to a separate cause of action hereunder and
separate suits may be brought hereunder as each cause of action arises.
The Guarantor hereby agrees that the Obligor Notes issued in connection
herewith and with the Amended Note Agreements may make reference to this
guaranty.
The Guarantor hereby agrees to pay and to indemnify and save the holders
of the Obligor Notes harmless from and against any damage, loss, cost or
expense (including attorneys' fees) which such holder may incur or be
subject to as a consequence, direct or indirect, of (i) any breach by the
Guarantor or by Obligor of any warranty, covenant, term or condition in,
or the occurrence of any default under, this Agreement, the Obligor Notes
or the Amended Note Agreements, together with all expenses resulting from
the compromise or defense of any claims or liabilities arising as a
result of any such breach or default, and (ii) any legal action commenced
to challenge the validity of this Agreement or the provisions of this
paragraph 4, the Obligor Notes or the Amended Note Agreements.
153<PAGE>
4B. Obligations Absolute. The obligations of the Guarantor
hereunder shall be primary, absolute, irrevocable and unconditional,
irrespective of the validity, regularity or enforceability of this
Agreement, the Obligor Notes or of the Amended Note Agreements, shall not
be subject to any counterclaim, setoff, deduction or defense based upon
any claim the Guarantor may have against Obligor or any holder of the
Obligor Notes or otherwise, and shall remain in full force and effect
without regard to, and shall not be released, discharged or in any way
affected by, any circumstance or condition whatsoever (whether or not the
Guarantor shall have any knowledge or notice thereof), including, without
limitation: (a) any amendment, modification of or supplement to this
Agreement (other than paragraph 4 hereof, which shall require the
Guarantor's prior written consent), the Amended Note Agreements, the
Obligor Notes or any other instrument referred to therein (except that
the obligations of the Guarantor hereunder shall apply to this Agreement,
the Amended Note Agreements, the Obligor Notes or such other instruments
as so amended, modified or supplemented) or any assignment or transfer of
any thereof or of any interest therein, or any furnishing, acceptance or
release of any security for the Obligor Notes, (b) any waiver, consent,
extension, indulgence or other action or inaction under or in respect of
the Obligor Notes or in respect of the Amended Note Agreements; (c) any
bankruptcy, insolvency, readjustment, composition, liquidation or similar
proceeding with respect to Obligor or its property; (d) any merger,
amalgamation or consolidation of the Guarantor or of Obligor into or with
any other corporation or any sale, lease or transfer of any or all of the
assets of the Guarantor or of Obligor to any person; (e) any failure on
the part of Obligor for any reason to comply with or perform any of the
terms of any other agreement with the Guarantor; or (f) any other
circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor. The Guarantor covenants that its
obligations hereunder will not be discharged except by payment in full of
all of the Guaranteed Obligations.
4C. Waiver. The Guarantor unconditionally waives to the fullest
extent permitted by law, (a) notice of acceptance hereof, of any action
taken or omitted in reliance hereon and of any defaults by Obligor in the
payment of any amounts due under the Obligor Notes or the Amended Note
Agreements, and of any of the matters referred to in paragraph 4B hereof,
(b) all notices which may be required by statute, rule of law or
otherwise to preserve any of the rights of each holder from time to time
of the Obligor Notes against the Guarantor, including, without
limitation, presentment to or demand for payment from Obligor or the
Guarantor with respect to any Obligor Note, notice to Obligor or to the
Guarantor of default or protest for nonpayment or dishonor and the filing
of claims with a court in the event of the bankruptcy of Obligor, (c) any
right to the enforcement, assertion or exercise by any holder of the
Obligor Notes of any right, power or remedy conferred in this Agreement,
the Amended Note Agreements or the Obligor Notes, (d) any requirement or
diligence on the part of any holder of the Obligor Notes and (e) any
other act or omission or thing or delay to do any other act or thing
which might in any manner or to any extent vary the risk of the Guarantor
or which might otherwise operate as a discharge of the Guarantor.
4D. Obligations Unimpaired. The Guarantor authorizes the
holders of the Obligor Notes, without notice or demand to the Guarantor
154
and without affecting its obligations hereunder, from time to time (a) to
renew, compromise, extend, accelerate or otherwise change the time for
payment of, or otherwise change the terms of, all or any part of this
Agreement (other than this paragraph 4), the Obligor Notes, the Amended
Note Agreements or any other instrument referred to herein or therein,
(b) to take and hold security for the payment of the Obligor Notes, for
the performance of the guaranty contained in this paragraph 4 or
otherwise for the indebtedness guaranteed hereby and to exchange,
enforce, waive and release any such security, (c) to apply any such
security and to direct the order or manner of sale thereof as the holders
of the Obligor Notes in their sole discretion may determine, (d) to
obtain additional or substitute endorsers or guarantors, (e) to exercise
or refrain from exercising any rights against Obligor and others, and (f)
to apply any sums, by whomsoever paid or however realized, to the payment
of the principal of, premium, if any, and interest on the Obligor Notes
and any other Guaranteed Obligation hereunder. The Guarantor waives any
right to require the holders of the Obligor Notes to proceed against any
additional or substitute endorsers or guarantors or to pursue or exhaust
any security provided by Obligor, the Guarantor or any other person or to
pursue any other remedy available to such holders.
4E. Subrogation. The Guarantor will not exercise any rights
which it may have acquired by way of subrogation under this paragraph 4,
by any payment made hereunder or otherwise, or accept any payment on
account of such subrogation rights, or any rights of reimbursement or
indemnity or any rights or recourse to any security for the Obligor Notes
or this paragraph 4 unless and until all of the obligations, undertakings
or conditions to be performed or observed by Obligor pursuant to the
Obligor Notes, the Amended Note Agreements and this Agreement at the time
of the Guarantor's exercise of any such right shall have been performed,
observed or paid in full.
For a period of one year after the payment in full of the Guaranteed
Obligations, the Guarantor hereby waives (x) all rights of subrogation
which it may at any time otherwise have as a result of this paragraph 4
(whether, statutory or otherwise) to the claims of the holders of the
Obligor Notes against Obligor or any other guarantor of the Guaranteed
Obligations (each referred to herein as the "Other Party") and all
contractual, statutory or common law rights of reimbursement,
contribution or indemnity from any Other Party which it may at any time
otherwise have as a result of this paragraph 4; (y) any right to enforce
any other remedy which the holders of the Obligor Notes now have or may
hereafter have against any Other Party, any endorser or any other
guarantor of all or any part of the Guaranteed Obligations; and (z) all
claims (as such term is defined in the Bankruptcy Code) it may at any
time otherwise have against any Other Party arising from any transaction
whatsoever, including without limitation its right to assert or enforce
any such claims.
4F. Reinstatement of Guaranty. The guaranty contained in this
paragraph 4 shall continue to be effective, or be reinstated, as the case
may be, if and to the extent at any time payment, in whole or in part, of
any of the sums due to any holder of the Obligor Notes for principal,
premium, if any, or interest on the Obligor Notes or any of the other
155<PAGE>
Guaranteed Obligations is rescinded or must otherwise be restored or
returned by such holder upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of Obligor, or upon or as a result of the
appointment of a custodian, receiver, trustee or other officer with
similar powers with respect to Obligor or any substantial part of its
property, or otherwise, all as though such payments had not been made.
If an event permitting the acceleration of the maturity of the principal
amount of the Obligor Notes shall at any time have occurred and be
continuing and such acceleration shall at such time be prevented or the
right of any holder of an Obligor Note to receive any payment under any
Obligor Note shall at such time be delayed or otherwise affected by
reason of the pendency against Obligor of a case or proceeding under a
bankruptcy or insolvency law, the Guarantor agrees that, for purposes of
this paragraph 3 and its obligations thereunder, the maturity of such
principal amount shall be deemed to have been accelerated with the same
effect as if the holders of the Obligor Notes had accelerated the same in
accordance with the terms of the Amended Note Agreements, and the
Guarantor shall forthwith pay such accelerated principal amount, accrued
interest and premium, if any, thereon and any other amounts guaranteed
under this paragraph 4.
4G. Rank of Guaranty. The Guarantor agrees that its obligations
under this paragraph 4 shall rank at least pari passu with all other
unsecured senior obligations of the Guarantor now or hereafter existing.
4H. Additional Covenants of the Guarantor. The Guarantor hereby
acknowledges and agrees that it will continue to be bound by the
provisions of paragraphs 5 and 6 of the Note Agreements, as amended by
this Agreement.
4I. Representations and Warranties of the Guarantor. The
Guarantor represents and warrants as follows:
(a) The representations and warranties described in paragraph 8 of
the Note Agreements, as amended by this Agreement, are true and correct
on the effective date of this Agreement as if made on such date provided
that paragraph 8B shall relate to the Consolidated Balance Sheets of the
Guarantor and its Subsidiaries dated February 24, 1990 and February 23,
1991 and Consolidated Statements of Earnings, Capital Stock, Retained
Earnings and Changes in Financial Position of the Guarantor and its
Subsidiaries for the fiscal years ended on such dates and the
Consolidated Balance Sheets of the Guarantor and its Subsidiaries as at
November 2, 1991 and February 23, 1991 and Consolidated Statements of
Income of the Guarantor and its Subsidiaries for the thirty-six and
twelve week periods ended on November 2, 1991 and November 3, 1990 and
the Consolidated Statements of Cash Flows of the Guarantor and its
Subsidiaries for the thirty-six week periods ended on such dates.
(b) No Default or Event of Default has occurred or is continuing on
the effective date of this Agreement.
(c) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary corporate action on the part of the
Guarantor. This Agreement has been duly and validly executed and
delivered and constitutes the legal, valid and binding obligation of the
156<PAGE>
Guarantor, enforceable against it in accordance with its terms, subject
to (i) applicable bankruptcy, insolvency, moratorium, reorganization,
receivership and similar laws affecting the rights and remedies of
creditors generally, and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at
law).
4J. Term of Guaranty. The guaranty contained in this paragraph
4 and all covenants and agreements of the Guarantor contained therein
shall continue in full force and effect and shall not be discharged until
such time as all of the Guaranteed Obligations shall be paid or otherwise
discharged in full.
4K. Survival. All warranties, representations and covenants
made by the Guarantor in this paragraph 4 or in any certificate or other
instrument delivered by it or on its behalf under this Agreement shall be
considered to have been relied upon by the holders of the Obligor Notes
and shall survive the execution and delivery of this Guaranty Agreement,
regardless of any investigation made by the holders of the Obligor Notes,
or on their behalf.
4L. Further Assurances. The Guarantor hereby agrees to execute
and deliver all such instruments and take all such action as the holders
of the Obligor Notes may from time to time reasonably request in order to
effectuate fully the purposes of the guaranty contained in this paragraph
4.
5. Conditions to Effectiveness. This Agreement shall become
effective upon satisfaction of the following conditions precedent:
(i) The Guarantor, Obligor and Prudential shall have caused this
Agreement to be duly executed by their respective authorized officers,
(ii) the Obligor and the Guarantor shall have duly executed and
delivered to Prudential the Obligor Notes,
(iii) Prudential shall have received an opinion of counsel for
the Guarantor and the Obligor to the effect that this Agreement and the
Obligor Notes have been duly authorized, executed and delivered by the
Guarantor and Obligor and are enforceable against each of them in
accordance with their respective terms, and as to such other matters as
Prudential may request,
(iv) Prudential shall have received a copy of the charter of
Obligor, certified as true and correct and having been filed in the state
of incorporation of Obligor, and
(v) The Guarantor shall have paid $10,000 to the account of
PruCapital Management, Inc. at Morgan Guaranty Trust Company of New York,
Account No. 050-53-305 (ABA No. 021-000-238), as a structuring fee.
6. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original but all of which
together shall constitute one instrument.
157<PAGE>
7. Notices. For purposes of paragraph 11I of the Note
Agreements, communications sent to Obligor shall be sent to it at P.O.
Box 1804, Washington, D.C. 20013, with a copy to the offices of the
Guarantor at 6300 Sheriff Road, Landover, MD 20785, or to such other
address with respect to any party as such party shall notify the others
in writing.
8. Construction. The section and subsection headings in this
Agreement are for convenience of reference only and shall neither be
deemed to be a part of this Agreement nor modify, define, expand or limit
any of the terms or provisions hereof.
9. Severability. If any provision of this Agreement, or the
application thereof to any person or circumstances, shall, for any reason
or to any extent, be invalid or unenforceable, such invalidity or
unenforceability shall not in any manner affect or render invalid or
unenforceable the remainder of this Agreement, and the application of
that provision to other persons or circumstances shall not be affected
but, rather, shall be enforced to the extent permitted by applicable law.
10. Successors. The terms and provisions of this Agreement
shall be binding upon and inure to the benefit of the Guarantor, Obligor
and the holders from time to time of the Notes and their respective
permitted successors, transferees and assigns.
11. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE
GOVERNED BY, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their respective authorized officers as of the date first
above written.
GIANT FOOD INC.
By:
Name:
Title:
GIANT OF LANDOVER, INC.
By:
Name:
Title:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:
Name:
Title:
158
Exhibit A
GIANT OF LANDOVER, INC.
PROMISSORY NOTE
GUARANTEED BY GIANT FOOD INC.
No. _____
$________ February 28, 1992
FOR VALUE RECEIVED, the undersigned, GIANT OF LANDOVER, INC. (herein
called the "Company"), a corporation organized and existing under the
laws of the State of Maryland, hereby promises to pay to
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
or registered assigns, the principal sum of
__________ DOLLARS
On October 15, 2001, with interest (computed on the basis of a 360-
day year -- 30-day month) (a) on the unpaid balance thereof at a rate of
9.60% per annum from the date hereof, payable semi-annually on the
fifteenth day of April and October in each year, commencing with the
April 15 or October 15 next succeeding the date hereof, until the
principal hereof shall have become due and payable, and (b) on any
overdue payment (including any overdue prepayment) of principal and, to
the extent permitted by applicable law, any overdue payment of interest,
payable semi-annually as aforesaid (or at the option of the registered
holder hereof, on demand), at a rate per annum, from time to time equal
to the greater of (i) 10.60% or (ii) the rate of interest publicly
announced by Morgan Guaranty Trust Company of New York from time to time
in New York City as its Prime Rate.
Payments of both principal and interest are to be made to the office
of Morgan Guaranty Trust Company of New York, 15 Broad Street, New York,
New York, or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America.
This Note is one of the Notes issued pursuant to an Agreement dated
October 28, 1986 between Giant Food Inc. and The Prudential Insurance
Company of America (as amended by the letter agreements dated October 27,
1987, July 15, 1988 and August 5, 1991 and by the Amendment, Assumption
and Guaranty Agreement dated as of February 28, 1992, among the Company,
Giant Food Inc., as Guarantor and The Prudential Insurance Company of
America) and is entitled to the benefits thereof. As provided in said
Agreement, this Note is subject to prepayment, in whole or in part, in
certain cases without premium and in other cases with a premium as
specified in said Agreement.
As provided in said Agreement, upon surrender of this Note for
registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder hereof or
159<PAGE>
his attorney duly authorized in writing, a new Note for a like principal
amount will be issued to, and registered in the name of, the transferee.
Prior to due presentment for registration of transfer, the Company may
treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
The Company agrees to make prepayments of principal on the dates and
in the amounts specified in said Agreement.
In case an event of Default, as defined in said Agreement, shall
occur and be continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner and with the effect
provided in said Agreement.
GIANT OF LANDOVER, INC.
By:
President
By:
Treasurer
The obligations of the Company under this Note and under said
Agreement are irrevocably and unconditionally guaranteed by Giant Food
Inc. (the "Guarantor") in accordance with the terms set forth in the
Amendment, Assumption and Guaranty Agreement dated as of February 28,
1992 among the Company, the Guarantor and The Prudential Insurance
Company of America.
GIANT FOOD INC., as Guarantor
By:
President
By:
Treasurer
160<PAGE>
Exhibit B
GIANT OF LANDOVER, INC.
PROMISSORY NOTE
GUARANTEED BY GIANT FOOD INC.
No. ______
$________ February 28, 1992
FOR VALUE RECEIVED, the undersigned, GIANT OF LANDOVER, INC. (herein
called the "Company"), a corporation organized and existing under the
laws of the State of Maryland, hereby promises to pay to
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
or registered assigns, the principal sum of
DOLLARS
on August 4, 2012, with interest (computed on the basis of a 360-day year
- -- 30-day month) (a) on the unpaid balance thereof at the rate of 9.83%
per annum from the date hereof, payable semi-annually on the fourth day
of February and August in each year, commencing with the February 4 or
August 4 next succeeding the date hereof, until the principal hereof
shall have become due and payable, and (b) on any overdue payment
(including any overdue prepayment) of principal and, to the extent
permitted by applicable law, any overdue payment of interest, payable
semi-annually as aforesaid (or, at the option of the registered holder
hereof, on demand), at a rate per annum, from time to time equal to the
greater of (i) 10.83% or (ii) the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York from time to time in New York
City as its Prime Rate.
Payments of both principal and interest are to be made to the office
of Morgan Guaranty Trust Company of New York, 15 Broad Street, New York,
New York or such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America.
This Note is one of the Notes issued pursuant to an Agreement dated
August 4, 1987 between Giant Food Inc. and The Prudential Insurance
Company of America (as amended by the letter agreements dated October 27,
1987, July 15, 1988, and August 5, 1991 and by the Amendment, Assumption
and Guaranty Agreement dated as of February 28, 1992, among the Company,
Giant Food Inc., as Guarantor, and The Prudential Insurance Company of
America) and is entitled to the benefits thereof. As provided in said
Agreement, this Note is subject to prepayment, in whole or in part, in
certain cases without premium and in other with a premium as specified in
said Agreement.
As provided in said Agreement, upon surrender of this Note for
registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder hereof or
his attorney duly authorized in writing, a new Note for a like principal
amount will be issued to, and registered in the name of, the transferee.
Prior to due presentment for registration of transfer, the Company may
treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
161
The Company agrees to make prepayments of principal on the dates and
in the amounts specified in said Agreement.
In case an Event of Default, as defined in said Agreement, shall
occur and be continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner and with the effect
provided in said Agreement.
GIANT OF LANDOVER, INC.
By:
President
By:
Treasurer
The obligations of the Company under this Note and under said
Agreement are irrevocably and unconditionally guaranteed by Giant Food
Inc. (the 'Guarantor') in accordance with the terms set forth in the
Amendment, Assumption and Guaranty Agreement dated as of February 28,
1992 among the Company, the Guarantor and The Prudential Insurance
Company of America.
GIANT FOOD, INC.
By:
President
By:
Treasurer
162<PAGE>
GIANT FOOD INC. AND SUBSIDIARIES EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
FIFTY-TWO WEEKS ENDED FEBRUARY 22, 1997, FEBRUARY 24, 1996, AND
FEBRUARY 25, 1995
1997 1996 1995
Primary:
Earnings:
Net income $ 85,504,000 $ 102,153,000 $ 94,161,000
Shares:
Weighted average number of
common shares outstanding 59,778,489 59,360,234 59,368,068
Assuming exercise of options,
using average market price,
reduced by the number of shares
which could have been purchased
with the proceeds from
exercise of such options 720,920 575,351 143,665
Weighted average number of common
shares outstanding, as adjusted 60,499,409 59,935,585 59,511,733
Primary earnings per common share $1.41 $1.70 $1.58
Assuming full dilution:
Earnings:
Net income $85,504,000 $102,153,000 $94,161,000
Shares:
Weighted average number of
common shares outstanding 59,778,489 59,360,234 59,368,068
Assuming exercise of options,
using higher of ending or
average market price, reduced
by the number of shares which
could have been purchased with
the proceeds from exercise
of such options 745,429 673,656 168,075
Weighted average number of common
shares outstanding, as adjusted 60,523,918 60,033,890 59,536,143
Fully diluted earnings
per common share $1.41 $1.70 $1.58
Note: This calculation is submitted in accordance with Regulation S-K
item 601(b)(11) although not required by footnote 2 to paragraph 14
of APB Opinion No. 15 because it results in dilution of less than
3%.
163<PAGE>
EXHIBIT 21
GIANT FOOD INC. AND SUBSIDIARIES
Subsidiaries
State of
Subsidiary Incorporation
Giant of Maryland, Inc. Maryland
Giant of Salisbury, Inc. Maryland
Giant Construction Company, Inc. District of Columbia
GF McLean Shopping Center, Inc. Virginia
GFS Realty, Inc. Delaware
Warex-Jessup, Inc. Maryland
Bursil, Inc. Delaware
Cole Engineering, Inc. (formerly Cole Carpets, Inc.)Maryland
LECO, Inc. (formerly Viva Pharmaceuticals, Inc.) Delaware
Giant Automatic Money Systems, Inc. Maryland
Shaw Community Supermarket, Inc.(1) District of Columbia
Bayside Traffic Services of Maryland, Inc. Maryland
Super G, Inc. Maryland
Montrose Crossing, Inc. Maryland
Friendship Macomb SC, Inc. District of Columbia
Giant of Talbot Co., Inc. Maryland
Giant of Cherry Hill, Inc. New Jersey
(1) Giant Food Inc. owns 85% of the voting
securities of Shaw Community Supermarket, Inc.,
and 100% of the voting securities of all other
subsidiaries.
164<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-64745, 33-33049 and 33-21992) and in the
Prospectuses constituting part of the Registration Statements on Forms
S-3 (Nos. 33-40851 and 33-45261) of Giant Food Inc. of our report dated
March 24, 1997 appearing on page 19 of this Form 10-K.
/s/
PRICE WATERHOUSE LLP
Washington, D.C.
May 20, 1997
165
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