<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1994.
REGISTRATION NO. 33-70610
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DAIRY MART CONVENIENCE STORES, INC.
AND OTHER REGISTRANTS
(SEE TABLE OF OTHER REGISTRANTS BELOW)
(EXACT NAME OF EACH REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-2497894
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE VISION DRIVE
ENFIELD, CONNECTICUT 06082
(203) 741-4444
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF THE REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
---------------
FRANK COLACCINO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DAIRY MART CONVENIENCE STORES, INC.
ONE VISION DRIVE
ENFIELD, CT 06082
(203) 741-4444
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
STANFORD N. GOLDMAN, JR. WILLIAM F. SCHWITTER DORSEY & WHITNEY
SCHATZ & SCHATZ, RIBICOFF & KOTKIN
90 STATE HOUSE SQUARE 350 PARK AVENUE
HARTFORD, CT 06103 NEW YORK, NY 10022
(203) 522-3234 (212) 415-9200
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If the Registrants elect to deliver their latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. [_]
---------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
OTHER REGISTRANTS
<TABLE>
<CAPTION>
EXACT NAME OF STATE OR I.R.S.
REGISTRANT AS OTHER JURISDICTION EMPLOYER
SPECIFIED IN ITS OF INCORPORATION IDENTIFICATION
CHARTER OR ORGANIZATION NUMBER
---------------- ------------------ --------------
<S> <C> <C>
Dairy Mart East, Inc. Rhode Island 04-2741427
Dairy Mart Farms, Inc. Connecticut 06-0937127
Dairy Mart, Inc. Massachusetts 04-2235065
CONNA Corporation Kentucky 61-0960167
The Lawson Company Delaware 36-2998715
D.M. Insurance Limited Bermuda 98-0122232
LMC, Inc. Ohio 34-1225236
SNG of Southern Minnesota, Inc. Ohio 31-0744171
The Lawson Milk Company Ohio 34-0352180
Golden Stores, Inc. Ohio 34-1256236
Lakeside Wholesale, Inc. Ohio 34-1338109
Quik Shops, Inc. Ohio 34-1126799
Open Pantry Properties, Inc. Ohio 34-0898645
Remote Services, Inc. Kentucky 61-0667027
Convenient Industries of America, Inc. Kentucky 61-0567766
Oscar Ewing, Inc. Kentucky 61-0187240
Convenient Gasoline, Inc. New York 61-0667027
Jackson County Grocery Co., Inc. Indiana 35-1460917
Greenwell Grocery Co., Inc. Indiana 61-0999843
CIA Food Marts, Inc. New York 62-0941344
Food Merchandisers, Incorporated North Carolina 56-0889198
Dairy Mart Convenience Stores of Ohio, Inc. Ohio 34-1606435
</TABLE>
<PAGE>
DAIRY MART CONVENIENCE STORES, INC.
CROSS-REFERENCE SHEET
LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY PART I OF FORM S-2
<TABLE>
<CAPTION>
FORM S-2
ITEM NO. CAPTION LOCATION IN PROSPECTUS
-------- ------- ----------------------
<C> <S> <C>
Item 1. Forepart of the
Registration Statement
and Outside Front Cover
Page of Prospectus....... Outside Front Cover Page
Item 2. Inside Front and Outside
Back Cover Pages of
Prospectus............... Inside Front and Outside Back Cover Pages
Item 3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed
Charges.................. Prospectus Summary; Investment
Considerations; Selected Financial Data
Item 4. Use of Proceeds........... Use of Proceeds
Item 5. Determination of Offering
Price.................... Not applicable
Item 6. Dilution.................. Not applicable
Item 7. Selling Security Holders.. Not applicable
Item 8. Plan of Distribution...... Underwriting
Item 9. Description of Securities
to be Registered......... Description of the Notes
Item 10. Interests of Named Experts
and Counsel.............. Not applicable
Item 11. Information with Respect
to the Registrant
(a) ...................... Not applicable
(b) ......................
(1) Description of
Business.......... Prospectus Summary; The Company; Business
(2) Financial State-
ments............. Capitalization; Index to Consolidated
Financial Statements
(3) Industry Segments,
Classes or Similar
Products or Ser-
vices, Foreign and
Domestic Oper-
ations, and Export
Sales............. Prospectus Summary; Business
(4) Market Price of
and Dividends on
the Registrant's
Common Equity and
Related Stock-
holder Matters.... Not Applicable
(5) Selected Financial
Data.............. Selected Financial Data
(6) Supplementary
Financial Informa-
tion.............. Not Applicable
(7) Management's
Discussion and
Analysis of Finan-
cial Condition and
Results of Oper-
tions............. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
(8) Changes in and
Disagreements with
Accountants on
Accounting and
Financial Disclos-
ure............... Not applicable
(c) ...................... Not applicable
Item 12. Incorporation of Certain
Information by Reference. Documents Incorporated by Reference
Item 13. Disclosure of Commission
Position on Indemnifica-
tion for Securities Act
Liabilities.............. Not applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 9, 1994
PRELIMINARY PROSPECTUS
$75,000,000
[LOGO OF DAIRYMART CONVENIENCE STORES, INC. APPEARS HERE]
% SENIOR SUBORDINATED NOTES DUE 2004
INTEREST PAYABLE AND
-----------
Dairy Mart Convenience Stores, Inc. (the "Company") is offering $75,000,000
aggregate principal amount of its % Senior Subordinated Notes due 2004
(the "Notes"). The Notes bear interest at the rate of % per annum, payable
semi-annually on and of each year commencing ,
1994. The Notes are redeemable at the option of the Company, in whole or in
part, at any time after , 1999 at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the date of redemption. In
addition, the Company, at its option, may, for a period of three years from the
date of issuance of the Notes, use the Net Proceeds received by the Company
from a Public Equity Offering to redeem up to $20,000,000 aggregate principal
amount of the Notes at % of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of redemption. Upon a Change of Control of
the Company, each holder of Notes will have the right to require the Company to
repurchase all or any part of such holder's Notes at a purchase price equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of repurchase.
The Notes will be subordinated to all Senior Indebtedness of the Company. At
October 30, 1993, after giving effect to the sale of the Notes and the
application of the net proceeds therefrom, the outstanding amount of Senior
Indebtedness would have been approximately $8.3 million. The Notes will be
unconditionally guaranteed by substantially all of the subsidiaries of the
Company (the "Guarantors"), and the Guarantee of a Guarantor will be
subordinated to all senior indebtedness of such Guarantor. The Company may not
incur any indebtedness that is senior to the Notes and subordinated to Senior
Indebtedness, and no Guarantor may incur any indebtedness that is senior to its
Guarantee and subordinated to senior indebtedness of such Guarantor. See
"Description of the Notes."
The Company's Class A and Class B Common Stock are traded on the NASDAQ
National Market System under the symbols DMCVA and DMCVB.
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note............... 100% % %
- --------------------------------------------------------------------------------
Total.................. $75,000,000 $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from , 1994.
(2) The Company has agreed to indemnify the Underwriter against, and provide
contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting expenses, payable by the Company, estimated at
$ .
-----------
The Notes are being offered by the Underwriter, subject to prior sale, when,
as and if delivered to and accepted by the Underwriter and subject to certain
other conditions as set forth in "Underwriting." It is expected that delivery
of the Notes will be made against payment therefor on or about , 1994
at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York
10167.
BEAR, STEARNS & CO. INC.
THE DATE OF THIS PROSPECTUS IS , 1994.
<PAGE>
{INSIDE FRONT COVER PAGE OF PROSPECTUS}
{INSERT PHOTO}
PICTURED ABOVE IS A DAIRY MART SUPER PUMPER STORE LOCATED IN VERNON,
CONNECTICUT. DAIRY MART'S SUPER PUMPER STORES HAVE AN EXPANDED GASOLINE
PRESENCE AND A SIGNIFICANTLY LARGER STORE SIZE.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
FOR CALIFORNIA RESIDENTS ONLY
WITH RESPECT TO SALES OF THE SECURITIES BEING OFFERED HEREBY TO CALIFORNIA
RESIDENTS, SUCH SECURITIES MAY BE SOLD ONLY TO (1) "ACCREDITED INVESTORS"
WITHIN THE MEANING OF REGULATION D UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), (2) BANKS, SAVINGS AND LOAN ASSOCIATIONS,
TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT COMPANIES REGISTERED UNDER
THE INVESTMENT COMPANY ACT OF 1940, PENSION AND PROFIT SHARING TRUSTS,
CORPORATIONS OR OTHER ENTITIES WHICH, TOGETHER WITH THE CORPORATION'S OR OTHER
ENTITY'S AFFILIATES, HAVE A NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO
THEIR MOST RECENT REGULARLY PREPARED FINANCIAL STATEMENTS (WHICH SHALL HAVE
BEEN REVIEWED, BUT NOT NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT
LESS THAN $14,000,000 AND SUBSIDIARIES OF THE FOREGOING, (3) ANY CORPORATION,
PARTNERSHIP OR ORGANIZATION (OTHER THAN A CORPORATION, PARTNERSHIP OR
ORGANIZATION FORMED FOR THE SOLE PURPOSE OF PURCHASING THE SECURITIES OFFERED
HEREBY) WHO PURCHASES AT LEAST $1,000,000 AGGREGATE AMOUNT OF THE SECURITIES
OFFERED HEREBY, (4) ANY NATURAL PERSON WHO (A) HAS INCOME OF $65,000 AND A NET
WORTH OF $250,000, OR (B) HAS A NET WORTH OF $500,000 (IN EACH CASE, EXCLUDING
HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES), OR (5) ANY "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED UNDER RULE 144A OF THE SECURITIES ACT.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and notes thereto appearing
elsewhere in this Prospectus. As used in this Prospectus, except as the context
otherwise requires, the "Company" or "Dairy Mart" means Dairy Mart Convenience
Stores, Inc., a Delaware corporation, and its subsidiaries. Certain capitalized
terms used but not defined in this summary have the meanings ascribed to them
elsewhere in this Prospectus.
THE COMPANY
Dairy Mart Convenience Stores, Inc., through its subsidiaries, operates one
of the nation's largest convenience store chains. The Company operates or
franchises approximately 1,100 stores under the "Dairy Mart" name in 11 states
located in the Northeast, Midwest and Southeast. Dairy Mart is the largest
operator of traditional convenience stores in Ohio and Kentucky and is a
leading operator of convenience stores in New England. The Company also
manufactures, processes and distributes certain dairy and other products.
Dairy Mart stores offer a wide range of products and services which cater to
the convenience needs of its customers. The stores are typically located in
densely populated, suburban areas on sites which are easily accessible to
customers and provide ample parking. Dairy Mart stores are generally free
standing structures which are well-lit and are designed to encourage customers
to purchase high profit margin products. Approximately 420 Dairy Mart stores
sell gasoline.
RECENT DEVELOPMENTS AND STRATEGIES
In March 1992, DM Associates Limited Partnership, which is controlled by the
Company's senior management, acquired control of the Company from its founder.
Subsequently, management implemented or accelerated the following actions and
strategies designed to improve profitability:
. Opening Super Pumper Stores. The Company has focused its growth strategy
on opening "super pumper" stores. A super pumper store has approximately
four times the gasoline retailing capacity and a significantly larger in-
store retail area than the Company's traditional convenience stores. This
strategy is designed to capitalize on the growth in sales of gasoline by
convenience stores which sales, as reported by the National Association
of Convenience Stores, have grown at a 14.8% compounded annual rate since
1988. The Company's average super pumper store in operation for at least
one year generates approximately $165,000 in annual Store Cash Flow (as
defined), which is approximately four times that of the Company's average
non-super pumper store. The Company currently operates 34 super pumper
stores, which accounted for over 10% of the Company's revenues and EBITDA
(as defined) for the thirty-nine weeks ended October 30, 1993, and plans
to open approximately 20 new super pumper stores in the fiscal year
ending January 28, 1995 and approximately 30 new super pumper stores per
year thereafter for the foreseeable future.
. Upgrading Existing Store Base. Management has developed a plan to upgrade
and remodel approximately 400 stores over the next four years in order to
modernize the stores' look, upgrade their equipment and increase the
space devoted to higher profit margin items, such as fountain drinks,
fast food and deli items. The Company also intends to convert
approximately 40 traditional gasoline convenience stores to super pumper
status over the same period.
. Closing Underperforming Stores. The Company continually evaluates the
performance of all of its stores to identify actions aimed at improving
the Company's overall profitability. Based upon these evaluations, the
Company continues to sell or close certain underperforming stores. Sales
or closures of stores, while reducing revenues, generally do not have an
adverse effect on overall results since a majority of these stores
operate at a loss.
. Consolidating Regional Headquarters. In the fiscal year ended January 29,
1994, the Company implemented a corporate consolidation designed to
eliminate duplicative overhead, improve management oversight and
streamline decision making. By consolidating certain regional
headquarters, the Company expects to achieve approximately $2.0 million
in annual savings, primarily through the reduction of personnel, travel
and communications costs.
3
<PAGE>
. Marketing Excess Dairy Capacity. In March 1992, the Company reversed a
prior policy and began to actively market its excess manufacturing and
processing capacity to third parties, such as wholesalers and
supermarkets. These efforts have resulted in a wholesale arrangement with
a regional brand name ice cream distributor, which has more than doubled
the utilization of the Company's ice cream production capacity since
March 1992.
. Installing Point-of-Sale (POS) System. The Company has initiated a
program to install a point-of-sale (POS) system in all stores within
three years. The Company believes that the POS system will provide
significant benefits and cost reductions, and that Dairy Mart will be
among the first of the larger convenience store chains to implement a
chain-wide POS system. Industry-wide, as reported by the National
Association of Convenience Stores, only 3.5% of all convenience stores
had POS systems at the end of 1992.
THE OFFERING
Issue....................... $75,000,000 principal amount of % Senior
Subordinated Notes due 2004 (the "Notes").
See "Description of the Notes."
Interest Payment Dates...... and of each
year, commencing , 1994.
Optional Redemption......... The Notes will be redeemable at the option of
the Company, in whole or in part, at any
time on or after , 1999 at the re-
demption prices set forth herein, plus ac-
crued and unpaid interest, if any, to the
date of redemption. In addition, the Compa-
ny, at its option, may, for a period of
three years from the date of issuance of the
Notes, use the Net Proceeds (as defined) re-
ceived by the Company from a Public Equity
Offering (as defined) to redeem up to
$20,000,000 aggregate principal amount of
the Notes at % of the principal amount
thereof, plus accrued and unpaid interest,
if any, to the date of redemption. See "De-
scription of the Notes--Redemption."
Ranking..................... The Notes will be subordinated in right of
payment to all existing and future Senior
Indebtedness (as defined) (including indebt-
edness under the New Credit Agreement (as
defined)) and senior in right of payment to
all Subordinated Indebtedness (as defined)
of the Company. At October 30, 1993, on a
pro forma basis after giving effect to the
sale of the Notes and the application of the
net proceeds therefrom, the aggregate amount
of Senior Indebtedness would have been ap-
proximately $8.3 million. Subject to certain
restrictions, the indenture pursuant to
which the Notes will be issued (the "Inden-
ture") permits the Company to incur addi-
tional indebtedness, including Senior In-
debtedness. The Company may not, however,
incur any indebtedness that is senior to the
Notes and subordinated to any Senior Indebt-
edness. See "Description of the Notes--Sub-
ordination" and "Description of the Notes--
Certain Covenants--Limitation on Additional
Indebtedness and New Operating Leases."
4
<PAGE>
Guarantees.................. The Notes will be jointly, severally and un-
conditionally guaranteed (the "Guarantees")
by the Guarantors. Payments by each Guaran-
tor pursuant to its Guarantee are senior in
right of payment to all Guarantor Subordi-
nated Indebtedness (as defined) of such
Guarantor, and are subordinated in right of
payment to the prior payment in full of all
Guarantor Senior Indebtedness (as defined)
of such Guarantor to the same extent and
manner that all payments pursuant to the
Notes are subordinated in right of payment
to the prior payment in full of all Senior
Indebtedness. See "Description of the
Notes--Guarantees."
Change of Control........... If a Change of Control (as defined) occurs,
each holder of Notes will have the right to
require the Company to repurchase such hold-
er's Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest,
if any, to the date of repurchase. See "De-
scription of the Notes--Change of Control."
Certain Covenants........... The Indenture restricts, among other things,
the payment of dividends and other distribu-
tions, investments, the repurchase of capi-
tal stock and the making of certain other
Restricted Payments (as defined) by the Com-
pany and its subsidiaries, the incurrence of
additional indebtedness and new operating
lease obligations by the Company or any of
its subsidiaries, the issuance of preferred
stock by the Company's subsidiaries, the
incurrence of indebtedness by the Company
that is senior to the Notes and subordinated
to Senior Indebtedness of the Company, the
incurrence of indebtedness by any Guarantor
that is senior to its Guarantee and subordi-
nated to its Guarantor Senior Indebtedness,
certain transactions with affiliates, the
creation of certain liens, and certain merg-
ers, consolidations and dispositions of as-
sets. Upon certain dispositions of assets,
the Company will be required first to apply,
subject to certain conditions, the Net Pro-
ceeds therefrom to repay Senior Indebtedness
or to invest in Fixed Assets (as defined) in
the same or substantially similar line of
business as the properties and assets that
were the subject of such asset disposition,
and then to offer to purchase, at 100% of
their principal amount, plus accrued and un-
paid interest, if any, Notes in principal
amount equal to any remaining balance of
such Net Proceeds. See "Description of the
Notes--Certain Covenants."
Use of Proceeds............. The net proceeds received from the sale of
the Notes will be used to repay the entire
outstanding indebtedness under the Existing
Credit Agreement (as defined) and to redeem
in full the Company's outstanding 14.25%
Subordinated Debentures due 2000 (the "Ex-
isting Debentures"). The remaining net pro-
ceeds of approximately $11.0 million will be
used for working capital and general corpo-
rate purposes. See "Use of Proceeds."
5
<PAGE>
SUMMARY FINANCIAL DATA
The following table sets forth summary consolidated financial data and
operating data for the Company for the periods indicated. The Company's summary
consolidated financial data is derived from the Consolidated Financial
Statements of the Company contained elsewhere in this Prospectus. The data as
of and for the thirty-nine weeks ended October 31, 1992 and October 30, 1993 is
not audited; however, in management's opinion, all adjustments, consisting only
of normal recurring adjustments necessary for a fair presentation of the
results of such period, have been reflected therein. The results of operations
for the thirty-nine weeks ended October 30, 1993 are not necessarily indicative
of the results to be expected for the entire fiscal year or any other interim
period. The information set forth in this table is qualified in its entirety
by, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements of the Company and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED(1) THIRTY-NINE WEEKS ENDED
------------------------------------- --------------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 30, OCTOBER 31, OCTOBER 30,
1991 1992 1993 1992 1993
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND ALL
STORE DATA, OTHER THAN SUPER PUMPER TOTAL SALES AND SUPER
PUMPER TOTAL STORE CASH FLOW)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales of the
Company, its
subsidiaries and
franchises(2)......... $807,586 $794,758 $773,766 $587,390 $581,850
Revenues .............. 586,984 571,980 578,767 435,623 450,379
Nonrecurring item...... -- -- (5,200)(3) -- --
Income from
operations(4)......... 14,723 14,660 1,719 (3) 9,123 10,856
Net income (loss) ..... 3,813 4,092 (6,850)(3)(5) (1,442)(5) 3,443
Earnings (loss) per
share................. 0.72 0.75 (1.26) (0.27) 0.62
Ratio of earnings to
fixed charges ........ 1.51x 1.51x -- (6) 1.41x 1.58x
OTHER OPERATING DATA:
Interest expense(7).... $ 8,366 $ 8,260 $ 7,456 $ 5,541 $ 5,751
Capital expenditures .. 14,307(8) 12,521 17,992 14,237 10,905
Depreciation and
amortization ......... 13,358 13,571 13,664 10,529 9,577
EBITDA(9).............. 28,526 28,852 16,323 (3) 20,251 21,067
EBITDA ratio(10)....... 3.41x 3.49x 2.19x 3.65x 3.66x
STORE DATA:
Average weekly inside
sales per store....... $ 9,008 $ 9,144 $ 9,133 $ 9,253 $ 9,368
Average inside store
sales growth.......... 0.24% 1.51% (0.12)% (0.76)% 1.24%
Total number of stores
at end of period...... 1,190 1,134 1,079 1,092 1,053
Average weekly gallons
sold per gas location. 8,128 8,176 8,818 8,769 9,504
Average gasoline
gallonage growth...... (2.88)% 0.59% 7.85% 7.45% 8.38%
Gasoline gross profit
per gallon (in cents). 11.06 9.92 10.16 9.43 11.34
Super pumper total
sales(11)............. 11,521 24,277 47,675 33,531 50,460
Super pumper total
store cash flow(12)... 953 1,839 3,504 2,296 4,049
Super pumper stores at
period end............ 6 16 29 28 34
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 30, 1993
---------------------------
ACTUAL AS ADJUSTED(13)
----------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Net property and equipment........................ $ 92,403 $ 92,403
Total assets...................................... 172,821 185,582
Total debt including capital lease obliga-
tions(14)........................................ 76,823 91,240
Stockholders' equity.............................. 36,420 35,427(15)
<CAPTION>
FISCAL YEAR THIRTY-NINE
ENDED WEEKS ENDED
JANUARY 30, OCTOBER 30,
1993 1993
----------- ---------------
<S> <C> <C>
PRO FORMA FINANCIAL DATA(16):
Adjusted interest expense......................... $ 7,731 $ 6,126
Adjusted EBITDA ratio ............................ 2.07x 3.42x
</TABLE>
6
<PAGE>
NOTES TO SUMMARY FINANCIAL DATA
(1) The Company's fiscal year ends on the Saturday closest to January 31.
(2) Net sales of the Company, its subsidiaries and franchises is comprised of
the Company's revenues plus store sales of franchise locations, and
excludes related franchise fees.
(3) The nonrecurring item for the fiscal year ended January 30, 1993
represents a nonrecurring pretax charge for restructuring (see Note 12 to
the Consolidated Financial Statements). Income from operations and EBITDA
include such nonrecurring charge, and net income (loss) includes the
after-tax effect of this charge. EBITDA would have been $21,523,000
without the nonrecurring charge.
(4) Income from operations excludes gain (loss) on disposition of assets,
interest expense and interest income.
(5) Net loss for the fiscal year ended January 30, 1993 and for the thirty-
nine weeks ended October 31, 1992 includes a net charge for the cumulative
effect of the change in accounting for income taxes of $3,951,000 (see
Note 6 to the Consolidated Financial Statements).
(6) The Company's earnings were inadequate to cover fixed charges by
$5,051,000 for the fiscal year ended January 30, 1993.
(7) Interest expense excludes amortization of deferred financing costs and
includes fees for outstanding letters of credit and unused availability
under the Company's previous and existing revolving credit facilities.
(8) Capital expenditures for the fiscal year ended February 2, 1991 exclude
the acquisition of Stop-N-Go store assets.
(9) EBITDA represents income (loss) before depreciation and amortization,
interest expense and provision for (benefit from) income taxes. EBITDA is
commonly used to analyze companies on the basis of operating performance,
leverage and liquidity. The Company anticipates that EBITDA will be used
to measure the Company's compliance with certain provisions of the New
Credit Agreement (see "Description of the New Credit Agreement--
Covenants"). EBITDA is not intended to represent cash flow for the period
nor has it been prescribed as an alternative to net income as an indicator
of operating performance.
(10) The EBITDA ratio is calculated by dividing EBITDA by interest expense.
(11) Super pumper total sales includes both inside store and gasoline sales for
all super pumper locations.
(12) Super pumper total store cash flow represents both inside store and
gasoline contribution margins before depreciation, amortization, interest,
income taxes and allocation of corporate overhead, for all super pumper
locations.
(13) The as adjusted data assumes that the following had occurred at October
30, 1993: (i) the issuance of $75.0 million aggregate principal amount of
the Notes; (ii) the retirement of $27.2 million aggregate principal amount
of Existing Debentures at 102.8% of such principal amount; (iii) the
repayment of the outstanding term loan of $22.0 million under the Existing
Credit Agreement; (iv) the repayment of outstanding revolving loan
borrowings of $11.4 million under the Existing Credit Agreement; (v) the
write-off of certain previously deferred financing costs associated with
the Existing Debentures and the term and revolving loans under the
Existing Credit Agreement; and (vi) the payment of estimated fees and
expenses related to the offering and sale of the Notes of approximately
$2.6 million.
(14) Includes the current portion of both long-term debt and capital lease
obligations.
(15) Stockholders' equity is adjusted to reflect the write-off of $537,000 of
deferred financing costs (net of related income tax benefit) as a result
of the retirement of the Existing Debentures and the repayment of
outstanding borrowings under the Existing Credit Agreement and a charge of
$456,000 (net of related income tax benefit) for the premium to be paid
related to the retirement of the Existing Debentures.
(16) The pro forma financial data assumes that the actions described in note
(13) above had occurred at the beginning of the fiscal year ended January
30, 1993. Adjusted EBITDA has been increased for interest income (computed
at an assumed rate equal to the effective yield on short-term U.S.
government securities (3.61% per annum as of January 31, 1994)) on the
excess of the estimated net proceeds to the Company from the sale of the
Notes over the average outstanding borrowings under the Existing Credit
Agreement and the Existing Debentures for such periods. Additionally, both
pro forma EBITDA and adjusted interest expense exclude the applicable
components from the Non-Recourse Subsidiary (as defined). Pro forma
interest expense on a consolidated basis (including interest expense of
the Non-Recourse Subsidiary) would have been $8,103,000 and $6,408,000 for
the fiscal year ended January 30, 1993 and the thirty-nine weeks ended
October 30, 1993, respectively.
7
<PAGE>
THE COMPANY
Dairy Mart Convenience Stores, Inc., through its subsidiaries, operates one
of the nation's largest convenience store chains. Founded in 1957, the Company
operates or franchises approximately 1,100 stores under the "Dairy Mart" name
in 11 states located in the Northeast, Midwest and Southeast. Dairy Mart is the
largest operator of traditional convenience stores in Ohio and Kentucky and is
a leading operator of convenience stores in New England. Approximately 420
stores sell gasoline and approximately 340 stores are franchised. The Company
also manufactures, processes and distributes certain dairy and other products.
Dairy Mart stores offer a wide range of products and services which cater to
the convenience needs of its customers, including milk, ice cream, groceries,
beverages, snack foods, candy, deli products, publications, health and beauty
aids, tobacco products, lottery tickets and money orders. The stores are
typically located in densely populated, suburban areas on sites which are
easily accessible to customers and provide ample parking. Dairy Mart stores are
generally free standing structures which are well-lit and are designed to
encourage customers to purchase high profit margin products, such as deli
items, coffee, fountain drinks and other fast food items.
The Company's facilities in Enfield, Connecticut and Cuyahoga Falls, Ohio
manufacture and process milk, fruit juices, and other non-carbonated beverages
which are distributed to stores in the Northeast and the Midwest regions. The
dairy plant in Ohio manufactures and distributes ice cream to most stores. In
the Southeast region, the Company distributes dairy products, tobacco products,
candy and certain other merchandise to stores in Kentucky and Indiana.
The Company is incorporated in Delaware and maintains its principal executive
offices at One Vision Drive, Enfield, Connecticut 06082. The Company's
telephone number is (203) 741-4444.
RECENT DEVELOPMENTS AND STRATEGIES
Super Pumper Stores
The Company's primary growth strategy is to increase its retail gasoline
presence. This strategy is designed to capitalize on the growth in sales of
gasoline by convenience stores, which sales, as reported by the National
Association of Convenience Stores, have grown at a 14.8% compounded annual rate
since 1988. Almost all of the stores recently opened by the Company are retail
units, known as "super pumper" stores, which have approximately four times the
gasoline retailing capacity and a significantly larger in-store retail area
than the Company's traditional convenience stores. The average super pumper
store inside store sales volume is more than one and one-half times greater
than the average non-super pumper store, and the average gasoline sales volume
of super pumper stores is nearly three times greater than Dairy Mart's
traditional gasoline convenience stores. For the last four fiscal quarters, the
average super pumper store in operation for at least one year generated
approximately $165,000 in annual earnings before depreciation, amortization,
interest, income taxes, and allocation of corporate overhead ("Store Cash
Flow"), compared to approximately $40,000 for the Company's average non-super
pumper store. The Company currently operates 34 super pumper stores which
accounted for over 10% of the Company's revenues and EBITDA for the thirty-nine
weeks ended October 30, 1993. As part of its growth strategy, the Company plans
to open approximately 20 new super pumper stores in the fiscal year ending
January 28, 1995 and approximately 30 new super pumper stores per year
thereafter for the foreseeable future. The Company believes that there are
numerous available sites within its operating regions that have the appropriate
demographics and characteristics to support successful super pumper stores.
Upgrading Existing Store Base
Management has developed a plan to upgrade and remodel approximately 400
stores over the next four years in order to modernize the stores' look, upgrade
their equipment and increase the space devoted to higher
8
<PAGE>
profit margin items, such as fountain drinks, fast food and deli items. The
Company also intends to convert approximately 40 traditional gasoline
convenience stores to super pumper status over the same period.
Closing Underperforming Stores
In addition to its strategy of opening super pumper stores, the Company
continually evaluates the performance of each of its stores in order to
identify actions aimed at improving the Company's overall profitability. Based
upon these evaluations, the Company continues to sell or close certain
underperforming stores. The Company considers various factors in deciding to
sell or close stores, including store location, lease term, rental and other
obligations and store performance. Sales or closures of stores, while reducing
revenues, generally do not have an adverse effect on overall results, since a
majority of such stores operate at a loss. Since March 1992, the Company sold
or closed approximately 85 stores.
Consolidating Regional Headquarters
In the fiscal year ended January 29, 1994, the Company implemented a
corporate consolidation designed to eliminate duplicative overhead, improve
management oversight and streamline decision making. The Company had previously
maintained three separate regional administrative facilities, its Midwest and
Southeast facilities having been separately maintained since the acquisition of
two regional convenience store chains in the mid-1980's. By consolidating these
regional headquarters into a modern facility in Enfield, Connecticut, the
Company expects to achieve approximately $2.0 million in annual savings,
primarily through the reduction of personnel, travel and communications costs.
Marketing Excess Dairy Capacity
In March 1992, the Company reversed a prior policy and began to actively
market its excess manufacturing and processing capacity to third parties, such
as wholesalers and supermarkets. These efforts have resulted in a wholesale
arrangement with a regional brand name ice cream distributor, which has more
than doubled the utilization of the Company's ice cream production capacity
since March of 1992. To accommodate additional growth in the sale of ice cream
to third party purchasers, the Company is investing $1.4 million to further
enhance product quality and to improve the efficiency and capacity of its ice
cream production. The Company also intends to continue to pursue sales to third
parties of other products produced at its manufacturing and processing
facilities.
Point-of-Sale (POS) System
The Company has initiated a program to install a point-of-sale (POS) system
in all stores within three years. The Company believes that the POS system
will: (i) provide more accurate and timely information regarding store
operations, including sales and merchandising, and inventory levels and
composition; (ii) reduce paperwork for store managers, thereby allowing them to
spend more time interacting with customers and improving operations; (iii)
decrease administrative overhead, since the input and verification of data will
be automated at both the store and office level; and (iv) improve verification
of product costs and retail pricing. The cost of the POS system, including new
cash registers and personal computers, is currently estimated to be
approximately $7.0 million to $9.0 million, and is anticipated to be funded by
third-party equipment financing. The Company believes it will be among the
first of the larger convenience store chains to implement a chain-wide POS
system. Industry-wide, as reported by the National Association of Convenience
Stores, only 3.5% of all convenience stores had POS systems at the end of 1992.
Purchase of Control by Senior Management
In March 1992, DM Associates Limited Partnership ("DM Associates") acquired
control of the Company from its founder. DM Associates is managed and
controlled by a general partnership, DM Management Associates ("DM
Management"), consisting of four senior officers of the Company, including
Frank Colaccino, the Company's President and Chief Executive Officer, who is
the managing general partner of DM Management. Collectively, these officers
have over 45 years of experience in the convenience store industry.
9
<PAGE>
INVESTMENT CONSIDERATIONS
IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, INVESTORS
SHOULD CONSIDER CAREFULLY THE INFORMATION SET FORTH BELOW BEFORE MAKING AN
INVESTMENT IN THE NOTES OFFERED HEREBY.
LEVERAGE; DEBT SERVICE
At October 30, 1993, on a pro forma basis, after giving effect to the
issuance and sale of the Notes and the application of the net proceeds
therefrom, the Company would have had consolidated long-term indebtedness of
approximately $89.1 million and a ratio of consolidated indebtedness to total
stockholders' equity of 2.5 to 1. See "Capitalization." This substantial degree
of leverage may have adverse consequences on the Company including: (i)
impairment of the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, debt service or other
purposes; (ii) required use of a substantial portion of the Company's cash flow
from operations to make interest and principal payments; (iii) an adverse
effect on the Company's ability to compete with other businesses which may be
less leveraged; and (iv) the Company's increased vulnerability in the event of
a downturn in its businesses.
It is anticipated that the New Credit Agreement will contain numerous
financial and operating covenants and will require periodic repayments of
amounts borrowed thereunder, and all indebtedness thereunder will mature prior
to the maturity of the Notes. See "Description of the New Credit Agreement."
There can be no assurance that the Company will be able to maintain compliance
with the financial covenants that will be contained in the New Credit
Agreement. Failure to meet such financial tests or other covenants would result
in a default thereunder. See "Description of the New Credit Agreement." The
Company expects to generate sufficient cash flow from operations to meet all of
its principal and interest obligations on its and its subsidiaries'
indebtedness, including indebtedness under the Notes and the New Credit
Agreement. However, the Company's ability to satisfy such principal and
interest obligations will depend upon dividends and other intercompany
transfers from its subsidiaries, and will be subject to the successful
implementation of the Company's business strategy and financial, business and
other factors affecting the business and operations of the Company and its
subsidiaries, including factors beyond their control, such as prevailing
economic conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
SUBORDINATION; ENFORCEABILITY OF GUARANTEES
As the Notes are subordinated in right of payment to the prior payment in
full of all Senior Indebtedness, payment of the principal of, premium, if any,
and interest on the Notes will be subordinated, to the extent and in the manner
set forth in the Indenture, to the prior payment in full of all Senior
Indebtedness, including any interest accruing on such Senior Indebtedness
subsequent to the commencement of a bankruptcy, insolvency or similar
proceeding. See "Description of the Notes--Subordination." As of October 30,
1993, on a pro forma basis, after giving effect to the issuance of the Notes
and the consummation of the other transactions described herein, the aggregate
amount of Senior Indebtedness outstanding would have been approximately $8.3
million. It is anticipated that holders of Senior Indebtedness under the New
Credit Agreement will be granted security interests in and liens upon all of
the issued and outstanding shares of capital stock of substantially all of the
subsidiaries of the Company, each of which is a Guarantor. See "Description of
the New Credit Agreement."
All payments pursuant to the Guarantees are subordinated in right of payment
to the prior payment in full of all Guarantor Senior Indebtedness (including
the guarantees by the Guarantors of the obligations of the Company under the
New Credit Agreement) to the same extent and manner that all payments pursuant
to the Notes are subordinated in right of payment to the prior payment in full
of all Senior Indebtedness of the Company. As of October 30, 1993, on a pro
forma basis after giving effect to the issuance of the Notes and the
consummation of the other transactions described herein, the aggregate amount
of Guarantor Senior Indebtedness would have been approximately $8.5 million.
See "Description of the Notes--Subordination--Guarantees." The Guarantees may
be limited or eliminated entirely if creditors seek to have the Guarantees
declared invalid and unenforceable and the payments thereunder declared
voidable. These creditors could attempt to assert, among other things, that the
Guarantees constitute a fraudulent conveyance under state law and/or the
federal Bankruptcy Code. In the event that the Guarantees are not enforceable,
the holders of the Notes would have no right to participate as creditors in the
assets of the Guarantors upon their
10
<PAGE>
liquidation or reorganization, except to the extent that the Company may itself
be a creditor with recognized claims against the Guarantors. In addition,
holders of certain outstanding Guarantor Senior Indebtedness and certain other
creditors have been granted security interests in and liens upon certain
equipment, real property and fixtures of subsidiaries of the Company, including
certain Guarantors. In addition, the Company's ability to effect any required
repurchases of Notes upon the occurrence of a Change of Control or with Excess
Proceeds (as defined) from certain asset dispositions may be limited by the
terms and conditions of instruments governing Senior Indebtedness and by the
subordination provisions of the Indenture.
MANAGEMENT CONTROL OF THE COMPANY
DM Associates, through its ownership of a majority of the Company's Class B
Common Stock, currently controls the voting power to elect five of the seven
members of the Company's Board of Directors. Two directors are currently
elected by the holders of the Company's Class A Common Stock. DM Associates
also controls the voting power to approve any other matter presented for action
by the Company's stockholders, except for matters which by law or by the
Company's certificate of incorporation require approval by the holders of each
class of the Company's Common Stock, or matters which would require approval by
the stockholders voting as a single class and require a vote exceeding the
total voting power of the Company's Common Stock controlled by DM Associates.
DM Associates' acquisition of its controlling interest in the Company was
financed in part with a $7.1 million loan (the "CDA Loan") from the Connecticut
Development Authority ("CDA"), which loan matures on July 31, 1997 and is
secured by a collateral pledge of 1,220,000 shares of the Company's Class B
Common Stock owned by DM Associates (the "CDA Pledged Shares"). If a default
occurs under the loan agreement between DM Associates and CDA, CDA has the
right to sell or otherwise dispose of the CDA Pledged Shares. The sale or
disposition of the CDA Pledged Shares to an unaffiliated third party may result
in a Change of Control. In addition, pursuant to DM Associates' limited
partnership agreement, the limited partners have the right, commencing after
September 12, 1997, to require either a sale or distribution to such limited
partners, of the Company's Common Stock owned by DM Associates if certain
conditions are not satisfied, which sale or distribution could also result in a
Change of Control. See "Certain Transactions--Management Control of the
Company."
ENVIRONMENTAL COMPLIANCE
The Company incurs ongoing costs to comply with federal, state and local
environmental laws and regulations, particularly the comprehensive regulatory
programs governing underground storage tanks ("USTs") used in the Company's
gasoline operations. In addition, in the ordinary course of business, the
Company periodically detects releases of gasoline or other regulated substances
from USTs it owns or operates. In the past three fiscal years ended January 30,
1993, the Company recorded expenses which averaged approximately $1.0 million
annually, net of reimbursements from state trust fund programs, for assessment
and remediation activities in connection with releases into the environment of
regulated substances from USTs at the Company's current or former gasoline
facilities. The Company accrues its estimates of all costs to be incurred for
assessment and remediation for releases at the time they become known. These
accruals are adjusted if and when new information becomes known. Due to the
nature of such releases, the actual costs incurred may vary from these
estimates, and the ongoing costs of assessment and remediation activities may
vary significantly from year to year.
In addition, federal and state regulatory programs mandate that all existing
USTs be upgraded or replaced by December 22, 1998 to meet certain environmental
protection requirements. The Company presently estimates that in addition to
the Company's assessment and remediation costs discussed above, it will make
aggregate capital expenditures ranging from approximately $16.0 million to
$20.0 million over the next five fiscal years to comply with upgrading and
other UST regulatory requirements. The actual costs incurred may vary
substantially from these estimates. See "Business--Environmental Compliance."
STORE EXPANSION
As described herein, the Company currently plans to open approximately 20 new
super pumper stores in the fiscal year ending January 28, 1995 and
approximately 30 new super pumper stores per year thereafter for the
foreseeable future. See "The Company--Recent Developments and Strategies." The
opening of super pumper stores will be dependent upon a number of factors,
including general economic conditions, anticipated
11
<PAGE>
competition in the Company's markets, the availability of desirable locations,
the ability to negotiate and enter into lease, development or acquisition
agreements on acceptable terms and the availability of financing. The
Company's experience has been that super pumper stores contribute positively
to operating income after their first year of operation. There can be no
assurance that the Company will be able to open, operate or acquire super
pumper stores on a timely or profitable basis in accordance with the Company's
current plans.
COMPETITION
The convenience store and retail gasoline industries are highly competitive.
The number and type of competitors vary by location. The Company presently
competes with other convenience stores, large integrated gasoline service
station operators, super market chains, neighborhood grocery stores,
independent gasoline service stations, fast food operations and other similar
retail outlets, some of which are well-recognized national or regional retail
chains. Some of the Company's competitors have greater financial resources
than the Company. Key competitive factors include, among others, location,
ease of access, store management, product selection, pricing, hours of
operation, store safety, cleanliness, product promotions and marketing. See
"Business--Competition."
Gasoline sales are very competitive. The Company competes with both
independent and national brand gasoline stations. Gasoline profit margins have
a significant impact on the Company's earnings. These profit margins are often
influenced by factors beyond the Company's control, such as volatility in the
wholesale gasoline market, and are continually influenced by competition in
each local market area.
EFFECT OF WEATHER ON BUSINESS
The Company believes that weather conditions have a significant effect on
its sales, as convenience store customers are more likely to go to stores to
purchase convenience goods and services, particularly higher profit margin
items such as fast food items, fountain drinks and other beverages, when
weather conditions are favorable. Accordingly, the Company's stores generally
experience significantly higher revenues and profit margins during the warmer
weather months, which fall within the Company's second and third fiscal
quarters. If weather conditions are not favorable in the second and third
fiscal quarters, the Company's performance may be adversely affected.
GOVERNMENT REGULATION AND POTENTIAL LEGISLATION
The Company is subject to numerous federal, state and local laws,
regulations and ordinances. In addition, various federal, state and local
legislative and regulatory proposals are made from time to time to, among
other things, increase the minimum wage payable to employees, and increase
taxes on the retail sale of certain products, such as tobacco products and
alcoholic beverages. Changes to such laws, regulations or ordinances may
adversely affect the Company's performance by increasing the Company's costs
or affecting its sales of certain products. In addition, recent proposed
federal legislation regarding health care reform may increase the Company's
employee health care costs and adversely affect the Company's profitability.
NO PRIOR MARKET FOR THE NOTES
Prior to the offering made hereby, there has been no public market for the
Notes. The Underwriter has advised the Company that, subject to applicable
laws and regulations, it currently intends to make a market in the Notes;
however, the Underwriter is not obligated to do so, and any market making with
respect to the Notes may be discontinued at any time without notice. See
"Underwriting." The Company does not intend to apply for the listing of the
Notes on any securities exchange or on the National Association of Securities
Dealers Automated Quotation System.
USE OF PROCEEDS
The net proceeds from the sale of the Notes are estimated to be
approximately $72.4 million and will be used: (i) to repay all of the amounts
under the Existing Credit Agreement outstanding on the date of the closing of
the sale of the Notes in an aggregate principal amount currently estimated to
be approximately $34.0 million ($33.4 million was outstanding at October 30,
1993); (ii) to redeem all of the approximately $27.9 million aggregate
principal amount of the outstanding Existing Debentures, including the premium
for prepayment thereof; and (iii) for working capital and general corporate
purposes. The amounts owed under the Existing Credit Agreement accrue interest
at the agent bank's prime rate plus 0.25% and mature on February 28, 1996. The
amounts owed under the Existing Debentures accrue interest at 14.25% and
mature in full on November 15, 2000.
12
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
and its subsidiaries as of October 30, 1993 and as adjusted to give effect to
the sale of the Notes and the application of the net proceeds therefrom as
described under "Use of Proceeds". This table is qualified in its entirety by,
and should be read in conjunction with, the Consolidated Financial Statements
of the Company and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
OCTOBER 30, 1993
---------------------------------------------
ACTUAL AS ADJUSTED(1)
-------------------- -----------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C>
Cash on hand.............. $ 6,315 $ 17,346
==================== ====================
Current portion of long-
term debt and capital
lease obligations:
Current maturities of
bank term loan......... $ 7,000 $ --
Current maturities of
equipment financing.... 772 772
Current maturities of
real estate mortgage
notes payable.......... 275 275
Current maturities of
capital lease obliga-
tions.................. 1,128 1,128
-------------------- --------------------
Total current portion
of long-term debt and
capital lease
obligations.......... $ 9,175 $ 2,175
==================== ====================
Long-term debt and capital
lease obligations:
Bank term loan ......... $ 15,000 $ --
Bank revolving loan .... 11,400 --
New revolving credit fa-
cility................. -- 0
% Senior Subordinated
Notes due 2004......... -- 75,000
14.25% Subordinated De-
bentures due 2000...... 27,183 --
Small Business Adminis-
tration debentures(2).. 4,220 4,220
Real estate mortgage
notes payable ......... 5,560 5,560
Equipment financing..... 2,446 2,446
Capital lease obliga-
tions.................. 1,839 1,839
-------------------- --------------------
Total long-term debt
and capital lease ob-
ligations............ 67,648 89,065
-------------------- --------------------
Stockholders' equity:
Class A Common Stock,
par value $0.01 per
share, 20,000,000
shares authorized,
3,264,236 issued....... 32 32
Class B Common Stock,
par value $0.01 per
share, 10,000,000
shares authorized,
2,955,107 issued....... 30 30
Paid-in capital in ex-
cess of par value...... 27,457 27,457
Retained earnings....... 13,906 12,913 (3)
Treasury stock, at cost. (5,005) (5,005)
-------------------- --------------------
Total stockholders'
equity............... 36,420 35,427
-------------------- --------------------
Total capitalization.. $ 104,068 $ 124,492
==================== ====================
</TABLE>
- --------
(1) The as adjusted data assumes that the following had occurred at October 30,
1993: (i) the issuance of $75.0 million aggregate principal amount of the
Notes; (ii) the retirement of $27.2 million aggregate principal amount of
Existing Debentures at 102.8% of such principal amount; (iii) the repayment
of the outstanding term loan of $22.0 million under the Existing Credit
Agreement; (iv) the repayment of outstanding revolving credit loan
borrowings of $11.4 million under the Existing Credit Agreement; (v) the
write-off of certain previously deferred financing costs associated with
the Existing Debentures and the term and revolving credit loans under the
Existing Credit Agreement; (vi) the payment of approximately $2.6 million
in fees and expenses associated with the offering and sale of the Notes;
and (vii) an increase in cash on hand of approximately $11.0 million from
the excess cash proceeds of the offering and sale of the Notes.
13
<PAGE>
(2) The Small Business Administration debentures have been issued by Financial
Opportunities, Inc., a wholly-owned subsidiary of the Company (the "Non-
Recourse Subsidiary"). These debentures are without recourse to the Company
and the Guarantors and are the obligation solely of Financial
Opportunities, Inc.
(3) Adjusted to reflect the write-off of $537,000 of deferred financing costs
(net of related income tax benefit) as a result of the retirement of the
Existing Debentures and the repayment of outstanding borrowings under the
Existing Credit Agreement and a charge of $456,000 (net of related income
tax benefit) for the premium to be paid relating to the retirement of the
Existing Debentures.
14
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data and operating data for the Company for the periods indicated. The
Company's selected historical consolidated financial data is derived from, and
is qualified in its entirety by, the Consolidated Financial Statements of the
Company, including those contained elsewhere in this Prospectus. The data as of
and for the thirty-nine weeks ended October 31, 1992 and October 30, 1993 is
unaudited; however, in management's opinion, all adjustments, consisting only
of normal recurring adjustments necessary for a fair presentation of the
results of such periods, have been reflected therein. The results of operations
for the thirty-nine weeks ended October 30, 1993 are not necessarily indicative
of the results to be expected for the entire fiscal year or any other interim
period. The information set forth in this table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements of the Company and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED (1) THIRTY-NINE WEEKS ENDED
------------------------------------------------------------------ --------------------------
JANUARY 28, FEBRUARY 3, FEBRUARY 2, FEBRUARY 1, JANUARY 30, OCTOBER 31, OCTOBER 30,
1989 1990 1991 1992 1993 1992 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND ALL STORE DATA, OTHER THAN
DATA: SUPER PUMPER TOTAL SALES AND SUPER PUMPER TOTAL STORE CASH FLOW)
Net sales of the Compa-
ny, its subsidiaries
and franchises (2).... $716,859 $741,183 $807,586 $794,758 $773,766 $587,390 $581,850
Revenues .............. 519,876 535,640 586,984 571,980 578,767 435,623 450,379
Nonrecurring items..... -- (2,631)(3) -- -- (5,200)(3) -- --
Income from operations
(4)................... 12,119 8,825 (3) 14,723 14,660 1,719 (3) 9,123 10,856
Net income (loss) ..... 4,106(5) 682 (3) 3,813 4,092 (6,850)(3)(6) (1,442)(6) 3,443
Earnings (loss) per
share................. 0.75 0.13 0.72 0.75 (1.26) (0.27) 0.62
Cash dividends paid per
share................. 0.07 0.02 -- -- -- -- --
Ratio of earnings
to fixed charges (7).. 1.63x 1.10x 1.51x 1.51x -- (7) 1.41x 1.58x
OTHER OPERATING DATA:
Interest expense (8)... $ 7,755 $ 8,220 $ 8,366 $ 8,260 $ 7,456 $ 5,541 $ 5,751
Capital expenditures .. 14,613 8,712 14,307(9) 12,521 17,992 14,237 10,905
Depreciation and amor-
tization ............. 11,098 12,054 13,358 13,571 13,664 10,529 9,577
EBITDA (10)............ 26,611 21,533 (3) 28,526 28,852 16,323 (3) 20,251 21,067
EBITDA ratio (11)...... 3.43x 2.62x 3.41x 3.49x 2.19x 3.65x 3.66x
STORE DATA:
Average weekly inside
sales per store....... $ 8,784 $ 8,986 $ 9,008 $ 9,144 $ 9,133 $ 9,253 $ 9,368
Average inside store
sales growth.......... 0.40% 2.30% 0.24% 1.51% (0.12)% (0.76)% 1.24%
Total number of stores
at end of period...... 1,133 1,105 1,190 1,134 1,079 1,092 1,053
Average weekly gallons
sold per gas location. 8,178 8,369 8,128 8,176 8,818 8,769 9,504
Average gasoline gal-
lonage growth......... (1.02)% 2.34% (2.88)% 0.59% 7.85% 7.45% 8.38%
Gasoline gross profit
per gallon (in cents). 10.30 11.08 11.06 9.92 10.16 9.43 11.34
Super pumper total
sales (12)............ 0 1,984 11,521 24,277 47,675 33,531 50,460
Super pumper total
store cash flow (13).. 0 195 953 1,839 3,504 2,296 4,049
Super pumper total
stores at period end.. 0 1 6 16 29 28 34
BALANCE SHEET DATA (AS
OF PERIOD END):
Net property and equip-
ment.................. $ 70,284 $ 68,227 $ 81,399 $ 82,974 $ 90,643 $ 89,995 $ 92,403
Total assets........... 140,518 149,109 165,068 165,555 174,547 174,654 172,821
Total debt including
capital lease
obligations (14)...... 67,462 66,703 78,576 79,119 81,035 77,531 76,823
Stockholders' equity... 30,049 30,966 34,842 39,100 32,732 38,139 36,420
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR THIRTY-NINE WEEKS
ENDED ENDED
JANUARY 30, 1993 OCTOBER 30, 1993
PRO FORMA FINANCIAL DATA (15): ---------------- -----------------
<S> <C> <C>
Adjusted interest expense................. $7,731 $6,126
Adjusted EBITDA ratio .................... 2.07x 3.42x
</TABLE>
15
<PAGE>
NOTES TO SELECTED FINANCIAL DATA
(1) The Company's fiscal year ends on the Saturday closest to January 31. The
fiscal year ended February 3, 1990 included 53 weeks.
(2) Net sales of the Company, its subsidiaries and franchises is comprised of
the Company's revenues plus store sales of franchise locations and
excludes related franchise fees.
(3) Nonrecurring items represents the following: (i) for the fiscal year
ended January 30, 1993, a $5,200,000 nonrecurring pretax charge for
restructuring (see Note 12 to the Consolidated Financial Statements); and
(ii) for the fiscal year ended February 3, 1990, a $2,500,000 charge
relating to fees and expenses incurred in connection with a proposed
merger agreement which was terminated, an $800,000 charge for severance
and relocation costs associated with the restructuring and consolidation
of certain administrative functions, and a credit of $669,000 resulting
from the settlement of a union pension withdrawal liability. Income from
operations and EBITDA include the net nonrecurring charges for these
fiscal years, and net income (loss) includes the after-tax effect of
these charges. EBITDA would have been $24,164,000 and $21,523,000 for the
fiscal years ended February 3, 1990 and January 30, 1993, respectively,
without the net nonrecurring charges.
(4) Income from operations excludes gain (loss) on disposition of assets,
interest expense and interest income.
(5) Net income for the fiscal year ended January 28, 1989 includes a
nonrecurring gain relating to the sale of warehouse assets and equipment
of $1,539,000 (net of related income tax provision).
(6) Net loss for the fiscal year ended January 30, 1993 and for the thirty-
nine weeks ended October 31, 1992 includes a net charge for the
cumulative effect of the change in accounting for income taxes of
$3,951,000 (see Note 6 to the Consolidated Financial Statements).
(7) For the purpose of determining the ratio of earnings to fixed charges:
(i) earnings consist of income (loss) before income taxes plus fixed
charges, excluding capitalized interest; and (ii) fixed charges consist
of interest expense, capitalized interest and the portion of rental
expense that management deems to be representative of the interest
factor. The Company's earnings were inadequate to cover fixed charges by
$5,051,000 for the fiscal year ended January 30, 1993.
(8) Interest expense excludes amortization of deferred financing costs and
includes fees for outstanding letters of credit and unused availability
under the Company's previous and existing revolving credit facilities.
(9) Capital expenditures for the fiscal year ended February 2, 1991 exclude
the acquisition of Stop-N-Go store assets.
(10) EBITDA represents income (loss) before depreciation and amortization,
interest expense and provision for (benefit from) income taxes. EBITDA is
commonly used to analyze companies on the basis of operating performance,
leverage and liquidity. The Company anticipates that EBITDA will be used
to measure the Company's compliance with certain provisions of the New
Credit Agreement (see "Description of the New Credit Agreement--
Covenants"). EBITDA is not intended to represent cash flow for the period
nor has it been prescribed as an alternative to net income as an
indicator of operating performance.
(11) The EBITDA ratio is calculated by dividing EBITDA by interest expense.
(12) Super pumper total sales includes both inside store and gasoline sales
for all super pumper locations.
(13) Super pumper total store cash flow represents both inside store and
gasoline contribution margins before depreciation, amortization,
interest, income taxes and allocation of corporate overhead, for all
super pumper locations.
(14) Includes the current portion of both long-term debt and capital lease
obligations.
(15) The pro forma financial data assumes that the following had occurred at
the beginning of the fiscal year ended January 30, 1993: (i) the issuance
of $75.0 million aggregate principal amount of the Notes; (ii) the
retirement of $27.2 million aggregate principal amount of Existing
Debentures at 102.8% of such principal amount; (iii) the repayment of the
outstanding term loan of $22.0 million under the Existing Credit
Agreement; and (iv) the repayment of outstanding revolving loan
borrowings of $11.4 million under the Existing Credit Agreement. Adjusted
EBITDA has been increased for interest income (computed at an assumed
rate equal to the effective yield on short-term U.S. government
securities (3.61% per annum as of January 31, 1994)) on the excess of the
estimated net proceeds to the Company from the sale of the Notes over the
average outstanding borrowings under the Existing Credit Agreement and
the Existing Debentures for such periods. Additionally, both pro forma
EBITDA and adjusted interest expense exclude the applicable components
from the Non-Recourse Subsidiary. Pro forma interest expense on a
consolidated basis (including interest expense of the Non-Recourse
Subsidiary) would have been $8,103,000 and $6,408,000 for the fiscal year
ended January 30, 1993 and the thirty-nine weeks ended October 30, 1993,
respectively.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three fiscal quarters ended October 30, 1993 compared to three fiscal quarters
ended October 31, 1992
Revenues for the three fiscal quarters ended October 30, 1993 increased by
$14.8 million or 3.4% from the three fiscal quarters ended October 31, 1992.
This revenue increase was due to higher revenues from the convenience store,
gasoline and manufacturing and distribution areas of the Company. Convenience
store revenues increased to $271.0 million in the first three quarters of the
current fiscal year from $264.3 million in the corresponding period of the
prior fiscal year. This increase was due in part to an average inside store
sales increase of 1.2% for the current fiscal year's first three quarters as
compared to the corresponding period of the prior fiscal year. This increase in
average inside store sales in the current fiscal year's first three quarters
was achieved despite the adverse effect of the tobacco industry's significant
cigarette price reductions, substantially all of which were passed on to the
Company's customers. These cigarette price reductions lowered average inside
store sales by approximately 1.4% for the current fiscal year's first three
quarters. Overall convenience store revenues were also higher due to a change
in the mix of stores in the current fiscal year's first three quarters to
include more Company operated stores and fewer franchise stores, since the
Company records as revenue the gross sales of company operated stores compared
with franchise fees which are a percentage of franchise store sales. This
change in store mix was a result of the Company's ongoing review and evaluation
of its store base to determine whether its stores are best suited as either a
Company operated or franchise location, using economic and non-economic
criteria. Such transfers between Company operated and franchise stores have
occurred and will continue in the ordinary course of business, and generally
result in minimal transfer costs to the Company. The overall increase in the
Company's convenience store revenues was partially offset by decreased revenues
resulting from the closing of forty-three underperforming stores since the end
of the prior year third fiscal quarter. Although such closures had a negative
impact on revenues, they did not have a material adverse effect on the results
of operations, since the majority of stores closed had been operating at a
loss.
The higher gasoline revenues in the first three quarters of the current
fiscal year resulted from an increase in total gasoline gallons sold of 8.9
million gallons. On a per location basis, average gallonage increased by
approximately 8.4% in the current fiscal year's first three quarters. These
gallonage increases were due primarily to the further development of the
Company's new super pumper stores as well as the remodeling and expansion of
gasoline facilities at a number of existing locations. Partially offsetting the
impact of the higher gallonage on total gasoline revenues was a decrease in the
average selling price of gasoline of 3.0 cents per gallon for the current
fiscal year's first three quarters as compared to the corresponding period of
the prior fiscal year.
Manufacturing and distribution revenues increased in the first three quarters
of the current fiscal year due to the introduction of new business, which began
during the second quarter of fiscal 1993. The new business includes the sale of
ice cream to an external distributor as well as the distribution of new product
lines, including cigarettes and candy, to stores in certain marketing areas of
the Company.
Income from operations increased by $1,733,000 for the first three quarters
of the current fiscal year as compared to the corresponding period of the prior
fiscal year. This increase was attributable, in large part, to increased income
from gasoline operations, which was favorably impacted by the higher gasoline
gallons described above, combined with an increase in gasoline gross margins as
compared to the corresponding period of the prior fiscal year. Additionally,
for the current fiscal year's first three quarters the Company incurred lower
operating costs related to compliance with environmental regulations,
reflecting a reduction in the expenses associated with the remediation of the
Company's gasoline locations. Such remediation costs are incurred in the
ordinary course of business and can fluctuate from year to year.
Income from convenience store operations was also higher for the first three
quarters of the current fiscal year due to the increase in average inside store
sales combined with improved product gross margins, partially offset by higher
store operating expenses. The increased product gross margins resulted in part
from a reduction in costs associated with the Company's last-in, first-out
(LIFO) inventory valuation method. This
17
<PAGE>
reduction in the LIFO provision resulted from a current year decrease in
cigarette prices as discussed above, which constitutes one of the Company's
major product categories. The overall increase in product margins for the
current fiscal year's first three quarters was partially offset by a lower
level of marketing allowances, related to monies received from vendors for
specific product promotions, as compared to the prior fiscal year's first three
quarters. The higher store operating expenses in the current fiscal year's
first three quarters were attributable primarily to increased store labor
costs.
The overall increase in income from operations for the current fiscal year's
first three quarters was partially offset by decreased income from foreign
consulting and manufacturing and distribution operations as well as higher
general and administrative costs. Income from foreign consulting operations
decreased primarily due to the recognition of a one-time license fee in the
prior fiscal year's third quarter which was earned upon the start up of the
Company's Mexican joint venture operation. Income from operations in the
Company's manufacturing and distribution operation decreased for the current
fiscal year's first three quarters due primarily to reduced product margins
resulting from an increase in raw product costs without a corresponding
increase in retail dairy prices. This decrease was partially offset by
increased profits realized from the new business described above. General and
administrative expenses increased in the current fiscal year's first three
quarters due in part to increased accruals for management bonuses and profit
sharing, due to the increased earnings in the current fiscal year's first three
quarters as well as the implementation of a new 401(k) employee benefit program
in fiscal 1994. Additionally, the Company increased its provision for bad debt
expense in the current fiscal year. Partially offsetting the above increases,
as well as normal inflationary increases for other general and administrative
expenses, was decreased salaries resulting from the consolidation of the
Company's administrative offices discussed below. Additionally, the Company
incurred reduced costs in the current fiscal year related to legal and
professional fees.
The effective tax rate for the Company was 40% for the first three quarters
of both the current and the prior fiscal years. The Company provides for income
taxes at the effective rate expected to be incurred for the entire year.
Net income for the first three quarters of the current fiscal year was
$3,443,000 or $.62 per share, as compared to a net loss of $1,442,000 or $.27
per share for the same period of the prior year. Included in the net loss for
the prior year's three fiscal quarters was a $3,951,000 charge for the
cumulative effect of a change in accounting for income taxes. (See Note 2 to
the Interim Consolidated Financial Statements.) This one-time cumulative charge
related to the adoption of SFAS No. 109, "Accounting for Income Taxes."
Fiscal 1993 Compared to Fiscal 1992
Revenues for the fiscal year ended January 30, 1993 increased by $6.8 million
or 1.2% from the prior fiscal year ended February 1, 1992. The higher revenues
in fiscal 1993 were due to increased revenues from the Company's convenience
store group as well as its gasoline and international operations, partially
offset by decreased revenues from the Company's manufacturing and distribution
operations.
Convenience store revenues increased from $343.0 million in fiscal 1992 to
$345.4 million in fiscal 1993. This increase was due to a change in the mix of
stores in fiscal 1993 to include more Company operated stores and fewer
franchise stores since the Company records as revenue the gross sales of
Company operated stores compared with recording the lower franchise fees earned
from franchise stores. The overall increase in the Company's convenience store
revenues was partially offset by decreased revenues resulting from the closing
of underperforming stores. Although such closures had a negative impact on
revenues, they did not have a material adverse effect on the results of
operations since the majority of stores closed had been operating at a loss.
Average inside store sales decreased by 0.2% in fiscal 1993 as compared to
fiscal 1992, due in large part to a continuing weak economy as well as adverse
weather conditions, especially in the fiscal 1993 second fiscal quarter, in all
of the Company's major market areas.
The higher gasoline revenues in fiscal 1993 were attributable to an increase
in total gasoline gallons sold. On a per location basis, average gallonage
increased by approximately 8% in fiscal 1993 as compared to fiscal 1992. These
gallonage increases were due primarily to the further development of the
Company's new stores as well as the remodeling and expansion of gasoline
facilities at a number of existing locations. The increased
18
<PAGE>
gallonage was partially offset by a decrease in the average selling price of
gasoline of approximately 2.6 cents per gallon in fiscal 1993.
Revenues from international operations were higher in fiscal 1993 due
primarily to the recognition of a $450,000 one-time license fee earned upon the
start up of the Company's Mexican joint venture operation. The Company will
record its appropriate share of future profit and loss based upon the sales and
performance of this one-third owned Mexican joint venture. However, any future
earnings potential cannot be quantified at this time.
The Company's manufacturing and distribution revenues decreased in fiscal
1993 due to reduced volume resulting from the lower number of stores as well as
the overall decrease in average inside store sales, both of which are discussed
above. This was partially offset by increased revenues resulting from the
introduction of new business, which included the sale of ice cream to an
external distributor as well as the distribution of new product lines,
including cigarettes and candy, to stores in certain marketing areas of the
Company.
Income from operations decreased by $12.9 million for fiscal 1993 as compared
to fiscal 1992. $5.2 million of this decrease was due to a nonrecurring charge
in fiscal 1993 for restructuring expenses related to the downsizing and
consolidation of the Company's administrative offices (see Note 12 to the
Consolidated Financial Statements). The Company anticipates that expense
reductions, including reduced salaries and benefits, travel, telecommunication
costs and other office overhead costs, realized from this restructuring will
approximate $2.0 million annually which should favorably impact income from
operations in future fiscal years once this restructuring is completed.
In addition to the nonrecurring charge, income from operations was also lower
in fiscal 1993 due to decreases from the convenience store and manufacturing
and distribution groups as well as higher general and administrative expenses.
The decrease from the convenience store group resulted primarily from
relatively flat average inside store sales combined with improved product gross
margins which were not sufficient to offset an increase in store operating
expenses. The store operating expense increase resulted primarily from
increased labor expense, higher medical insurance costs and certain
individually large claims incurred in the Company's commercial liability and
worker's compensation insurance programs. Income from operations in the
Company's manufacturing and distribution operations decreased in fiscal 1993
due to reduced volume resulting from the fewer number of stores as well as
reduced product margins resulting from an increase in raw product costs without
a corresponding increase in retail dairy prices. This was partially offset by
profits realized from the introduction of new business described above. The
increase in general and administrative expenses was caused by increases in
group health and commercial liability insurance expense, based on specific
claims experience, as well as normal increases in administrative salaries.
Partially offsetting the decreases in income from operations discussed above
was an increase in income from international operations, resulting primarily
from the recognition of the Mexican joint venture license fee discussed above.
Additionally, income from operations in the Company's gasoline operations was
essentially the same in fiscal 1993 as compared to fiscal 1992. The positive
impact of increased gasoline gallonage described above combined with a slight
increase in gasoline margins of .2 cents per gallon was offset by an increase
in the cost of compliance with environmental regulations due primarily to
remediation requirements at gasoline sites closed by the Company.
Inflation has had little effect on the Company's revenues and income from
operations in fiscal years 1993 and 1992.
Interest expense (net of interest income) decreased by $1,258,000 in fiscal
1993 primarily due to a decrease in average interest rates related to the
Company's variable rate term and revolving loans under the Existing Credit
Agreement.
The Company recorded a net loss on disposition of properties of $433,000 in
fiscal 1993 compared to a net loss of $298,000 in fiscal 1992. The majority of
these losses resulted from the closing of underperforming stores and the
resulting write-off of abandoned fixtures, equipment and leasehold
improvements.
The effective tax rate for the Company was a benefit of 40% for fiscal 1993
as compared to a provision of 42% for fiscal 1992 (See Note 6 to the
Consolidated Financial Statements).
19
<PAGE>
The Company recorded a net loss of $6,850,000, or $1.26 per share, for fiscal
1993 as compared to net income of $4,092,000 or $.75 per share, in fiscal 1992.
In addition to the items discussed above, the net loss in fiscal 1993 was also
partially attributable to a $3,951,000 charge for the cumulative effect of a
change in accounting for income taxes (see Note 6 to the Consolidated Financial
Statements). This one-time cumulative charge related to the adoption of SFAS
No. 109, "Accounting for Income Taxes".
Fiscal 1992 Compared to Fiscal 1991
Revenues for the fiscal year ended February 1, 1992 decreased by $15.0
million or 2.6% from the fiscal year ended February 2, 1991. This decrease was
due to a reduction in revenues from the Company's convenience store group as
well as its gasoline operations, caused primarily by the closing of
underperforming locations during fiscal 1992 and a decrease in the average
selling price of gasoline from $1.15 per gallon in fiscal 1991 to $1.11 per
gallon in fiscal 1992. Partially offsetting these reductions in revenues were
increases resulting from: (1) the inclusion of the acquired Stop-N-Go locations
for the entire fiscal 1992 since these locations were acquired in March and
June of fiscal 1991; (2) the positive store and gasoline revenue impact
resulting from the opening of 6 new stores during fiscal 1992; and (3) an
average inside store sales increase of 1.5% for fiscal 1992 as compared to
fiscal 1991.
Income from operations for the Company decreased by $63,000 in fiscal 1992 as
compared to fiscal 1991. This slight decrease was caused primarily by: (1) a
reduction in gasoline profit margins of 1.1 cents per gallon in fiscal 1992,
mostly resulting from the negative effect of the Gulf War on the Company's
fiscal 1992 first quarter gasoline margins; (2) normal increases in
administrative salaries as well as increased store labor costs resulting from
an April, 1991 adjustment to the national minimum wage; and (3) higher legal
fees incurred in the ordinary course of business. The above decreases were
almost entirely offset by: (1) an increased profit contribution from the
Company's manufacturing and distribution operations, due to a decrease in the
price of raw product, expansion of the Company's ice cream line to most of the
store locations, and the positive impact of increased promotional activity; (2)
decreased group health and commercial liability insurance expense, since fiscal
1991 included higher provisions attributable to specific claims experience; (3)
decreased costs of compliance with environmental regulations related to the
Company's gasoline business; and (4) the positive effect of tight control over
other general and administrative expenses.
Income from operations from the Company's convenience store group and
international operations remained relatively stable in fiscal 1992 as compared
to fiscal 1991. Inflation has had little effect on the Company's revenues and
income from operations in fiscal 1992 and 1991.
Interest expense (net of interest income) decreased by $182,000 in fiscal
1992, primarily due to a decrease in average interest rates related to the
Company's variable rate term and revolving loans under the Existing Credit
Agreement. This decrease was partially offset by an overall increase in the
Company's average revolving and term loan balances thereunder in fiscal 1992 as
compared to fiscal 1991, resulting primarily from the acquisition of Stop-N-Go
assets in March and June of fiscal 1991.
The effective tax rate for the Company was 42% for fiscal 1992, as compared
to 44% for fiscal 1991 (see Note 6 to the Consolidated Financial Statements).
Net income for fiscal 1992 was $4,092,000, as compared to $3,813,000 for
fiscal 1991. On a per share basis, earnings rose from $.72 per share in fiscal
1991 to $.75 per share in fiscal 1992.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates substantial operating cash flow since most of its
revenues are received in cash. Currently, the amount of cash generated from
operations significantly exceeds all of the current debt service requirements
of the Company's long-term debt and capital lease obligations. The capital
expenditures of the Company are primarily funded by the excess cash flow
available after debt service, but have also been funded using mortgage and
equipment financing and/or the revolving line of credit under the Existing
Credit Agreement. Additionally, the Company utilizes its revolving line of
credit to address the seasonality of operations and the timing of certain
working capital disbursements. For the first three fiscal quarters ended
October 30, 1993, the cash flow from operations available after meeting all of
the Company's debt service requirements was insufficient to fund total capital
expenditures due in large part to payments made related to nonrecurring
restructuring expenses (as described below). As a result, the Company obtained
new mortgage and equipment financing.
20
<PAGE>
During both the first three fiscal quarters ended October 30, 1993 and
October 31, 1992, the Company paid its trade payables in an average of 25 days,
which compares to 23 days for the entire fiscal year ended January 30, 1993.
The cash flow of the Company is also favorably impacted by the Company's use of
funds from the sale of money orders, pending weekly remittance of such funds to
the issuer of the money orders. The amount due the issuer each week varies,
depending on the volume and dollar values of money orders issued. At October
30, 1993 and January 30, 1993, $5.9 million and $6.0 million, respectively,
were due the issuer. The Company's remittance obligation to the issuer of the
money orders is primarily secured by an outstanding letter of credit in the
amount of $6.5 million.
During the first three quarters of fiscal 1994, cash generated by operations
was $3.9 million lower than the corresponding period of the prior fiscal year.
This decrease resulted from the payment in the current year of $4.5 million in
expenditures (which were accrued in fiscal 1993) related to severance,
relocation and other personnel related costs associated with the Company's
restructuring, which involved the downsizing and consolidation of three
administrative offices into a new corporate headquarters facility in Enfield,
Connecticut. The majority of these nonrecurring payments have been made in
fiscal 1994. Partially offsetting the effect of the nonrecurring restructuring
payments was the increase in earnings in the current fiscal year. See "Results
of Operations."
Cash used by the Company's investing activities was $5.2 million lower in the
first three fiscal quarters of 1994 as compared to the first three fiscal
quarters of 1993, primarily as a result of the fiscal 1993 purchase of the new
corporate headquarters facility. The Company continues to develop new stores
and remodel existing locations, and the Company is currently expanding its
dairy and ice cream production facilities, capital expenditures for which are
being financed primarily by cash generated from operations and mortgage and
equipment financing. In addition, in order to accelerate the development of new
super pumper stores, the Company may sell and leaseback certain of its existing
super pumper locations and may in the future lease, or sell and leaseback, the
real estate of new super pumper locations. Additionally, the Company estimates
that future capital expenditure requirements to comply with federal and state
underground gasoline storage tank regulations will be approximately $16.0
million to $20.0 million in the aggregate through December, 1998, which cost
could be reduced for locations (especially low volume locations) which may be
closed in lieu of the capital costs of compliance. The Company has also
initiated a program to install in all stores within three years a point-of-sale
(POS) system designed to provide more accurate and timely information regarding
store operations and to decrease administrative overhead. The cost of the POS
system, including new cash registers and personal computers, is currently
estimated to be approximately $7.0 million to $9.0 million, and is anticipated
to be funded by third-party equipment financing. The ultimate amount of
discretionary capital expenditures that the Company will incur in the future
will be determined by the available sources of funds, including, but not
limited to, those described above.
In order to facilitate future growth and to improve the Company's financial
and operating flexibility, the Company is effecting the sale of the Notes,
which will provide funds for general corporate and working capital purposes as
well as reduce the Company's near-term debt amortization requirements. The
Company's maturities on long-term debt for the next five fiscal years, based on
its current debt structure, as well as on a pro forma basis after giving effect
to the sale of the Notes and the application of the proceeds therefrom (see
"Use of Proceeds" and "Capitalization"), are as follows:
<TABLE>
<CAPTION>
AS OF 10-30-93
----------------------
PRO FORMA
FISCAL AS
YEAR ACTUAL ADJUSTED
------ ----------- ----------
<S> <C> <C>
1995............. $ 8,108,000 $1,108,000
1996............. 17,986,000 1,736,000
1997............. 21,448,000 798,000
1998............. 6,026,000 776,000
1999............. 6,855,000 1,605,000
----------- ----------
Total............ $60,423,000 $6,023,000
=========== ==========
</TABLE>
21
<PAGE>
In addition to cash flow from operations, potential mortgage, equipment and
other financing and the available net proceeds from the sale of the Notes, the
Company's sources of liquidity will include borrowing availability under the
New Credit Agreement, pursuant to which $30.0 million will be available for
revolving loans (including up to $15.0 million for letters of credit). The New
Credit Agreement will replace the Existing Credit Agreement. At October 30,
1993, the Existing Credit Agreement included a term loan with an outstanding
balance of $22.0 million and a $15.0 million revolving credit facility with an
outstanding balance of $11.4 million, leaving $3.6 million available for
borrowing thereunder. All outstanding borrowings under the Existing Credit
Agreement mature on February 28, 1996.
As of the date of the issuance of the Notes, the Company does not anticipate
having outstanding borrowings under the New Credit Agreement, but anticipates
that letters of credit will be outstanding thereunder, including, as discussed
above, the letter of credit issued to secure the Company's remittance
obligation to the issuer of money orders. The Company intends to utilize the
New Credit Agreement as needed for working capital and general corporate
purposes, especially to address the seasonality of operations and timing of
certain working capital disbursements. It is anticipated that the loans under
the New Credit Agreement will generally bear interest at a rate of either: (i)
0.25% above the lender's prime rate, as set from time to time; or (ii) 2 1/4%
above LIBOR, at the Company's option. In addition, it is anticipated that all
outstanding indebtedness under the New Credit Agreement will be due and
payable in full on the third anniversary of the execution date of the New
Credit Agreement, and that, provided no default exists under the New Credit
Agreement, such period may be extended for up to two additional one-year
periods at the request of the Company and with the consent of the lenders
thereunder. See "Description of the New Credit Agreement."
BUSINESS
GENERAL
Dairy Mart operates one of the nation's largest convenience store chains.
The Company operates or franchises approximately 1,100 stores under the "Dairy
Mart" name in 11 states located in the Northeast, Midwest and Southeast. Dairy
Mart is the largest operator of traditional convenience stores in Ohio and
Kentucky and is a leading operator of convenience stores in New England.
Approximately 420 stores sell gasoline and approximately 340 stores are
franchised. The Company also manufactures, processes and distributes certain
dairy and other products.
The Company's facilities in Enfield, Connecticut and Cuyahoga Falls, Ohio
manufacture and process milk, fruit juices, and other non-carbonated beverages
which are distributed to stores in the Northeast and Midwest regions. The
dairy plant in Ohio manufactures and distributes ice cream to most stores. In
the Southeast region, the Company distributes dairy products, tobacco
products, candy and certain other merchandise to stores in Kentucky and
Indiana.
The Company's primary growth strategy is to increase its retail gasoline
presence. This strategy is designed to capitalize on the growth in sales of
gasoline by convenience stores which sales, as reported by the National
Association of Convenience Stores, have grown at a 14.8% compounded annual
rate since 1988. As a result, almost all of the stores recently opened by the
Company are retail units, known as "super pumper" stores, which have
approximately four times the gasoline retailing capacity and a significantly
larger in-store size than the Company's traditional convenience stores. The
average super pumper store in operation for at least one year contributes
approximately four times as much in Store Cash Flow as the Company's average
non-super pumper store. The Company plans to open approximately 20 new super
pumper stores in the fiscal year ending January 28, 1995 and approximately 30
new super pumper stores per year thereafter for the foreseeable future.
STORES
The Company's stores are generally located in densely populated suburban
areas, and are situated close to single-family homes and apartments to attract
neighborhood shoppers. Store location, design, lighting and layout are
intended to cater to customers' desire for fast and convenient access.
Approximately 420 locations also sell gasoline, which the Company believes is
an important convenience for customers. Shelving and displays, including
refrigeration units, deli and other fast food counters and displays, are
designed to encourage customers to purchase high profit margin products
including impulse purchase items such as
22
<PAGE>
candy, fountain drinks and ice cream novelties. Stores are located on sites
which are well-lit, easily accessible by customers and provide ample parking.
All of the Company's stores also offer extended hours for additional
convenience, with over one-half of the stores open 24 hours per day. A
traditional Dairy Mart store is typically 2,400 square feet and most are free
standing structures.
As of October 30, 1993, the Company operated and franchised retail
convenience stores in the following three regions of the United States:
<TABLE>
<CAPTION>
NUMBER OF
NORTHEAST REGION STORES
---------
<S> <C>
Massachusetts.................................................. 77
Connecticut.................................................... 67
New York....................................................... 37
Rhode Island................................................... 26
---------
Total Northeast Stores........................................ 207
---------
MIDWEST REGION
Ohio........................................................... 539
Michigan....................................................... 52
Pennsylvania................................................... 42
---------
Total Midwest Stores.......................................... 633
---------
SOUTHEAST REGION
Kentucky....................................................... 170
Indiana........................................................ 18
Tennessee...................................................... 14
North Carolina................................................. 11
---------
Total Southeast Stores........................................ 213
---------
Total Stores................................................ 1,053
=========
</TABLE>
Super Pumper Stores
Super pumper stores are an important part of the Company's strategy to expand
and increase its profitability. Super pumper stores have approximately four
times the gasoline retailing capacity of traditional gasoline convenience
stores. Generally 2,700 square feet, super pumper stores are significantly
larger than the Company's traditional convenience stores. The stores are
designed to devote a greater amount of space to fast food counters, deli areas
and refrigeration display units which attract customers to high profit margin
products such as fountain drinks and fresh made sandwiches. Super pumper stores
are generally located at high-traffic intersections to provide convenient
access to customers, and all have canopies to shield gasoline customers from
inclement weather. As of October 30, 1993, the Company had 34 super pumper
stores, a majority of which have been opened since February, 1992 and all of
which have been opened since the beginning of fiscal 1990. Super pumper store
sales and Store Cash Flow for the four quarters ended October 30, 1993 were
more than double the amounts for fiscal 1992 and accounted for over 10% of the
revenues and EBITDA of the Company for the thirty-nine weeks ended October 30,
1993.
The following table presents summary operating data of super pumper stores
since fiscal 1989:
<TABLE>
<CAPTION>
FISCAL YEARS FOUR QUARTERS
----------------------------------- ENDED OCTOBER 30,
SUPER PUMPER STORES 1989 1990 1991 1992 1993 1993
- ------------------- ---- ------ ------- ------- ------- -----------------
(IN THOUSANDS, EXCEPT TOTAL STORES AT PERIOD END)
<S> <C> <C> <C> <C> <C> <C>
Total Sales............. $ 0 $1,984 $11,521 $24,277 $47,675 $64,604
Total Inside Store
Sales.................. $ 0 $ 942 $ 3,564 $ 7,967 $17,613 $23,514
Total Gallons Sold...... 0 1,042 6,918 14,466 27,462 38,158
Total Store Cash Flow... $ 0 $ 195 $ 953 $1,839 $ 3,504 $ 5,257
Stores at Period End.... 0 1 6 16 29 34
</TABLE>
23
<PAGE>
Upgrading Existing Store Base
Over the next four years, the Company plans to upgrade and remodel up to 400
stores in order to modernize the stores' look, upgrade their equipment and
increase the space devoted to higher profit margin items, such as fountain
drinks and fast food and deli items. Management expects that this remodeling
program will favorably impact the amount of maintenance capital expenditures
required on its existing store base due to the installation of newer, more
reliable equipment. The Company also intends to convert approximately 40
traditional gasoline convenience stores to super pumper status over the same
period. Stores recently upgraded to super pumper status have shown
significantly higher inside store and gasoline sales.
Closing Underperforming Stores
The Company continually evaluates the performance of each of its stores in
order to identify actions aimed at improving the Company's overall
profitability. Based upon these evaluations, the Company continues to sell or
close certain underperforming stores. The Company considers various factors in
deciding to sell or close stores, including store location, lease term, rental
and other obligations and store performance. Sales or closures of stores, while
reducing revenues, generally do not have an adverse effect on overall results,
since a majority of such stores operate at a loss. Since March 1992, the
Company has sold or closed approximately 85 stores.
GASOLINE OPERATIONS
A major part of the Company's growth strategy is to continue to increase its
level of gasoline sales. This strategy enables the Company to significantly
increase a store's total level of sales without a commensurate increase in
overhead. The Company believes that the sale of gasoline at its stores offers a
significant competitive advantage and that customers value this additional
convenience, as supported by a five-year compounded annual growth rate of 14.8%
in gasoline sales by convenience stores, as reported by the National
Association of Convenience Stores. The sales volume of gasoline by the
Company's super pumper stores for the four quarters ended October 30, 1993 was
more than five times the sales volume of gasoline for fiscal 1991. Gasoline
sales accounted for approximately 37% of total revenues of the Company in the
most recently completed fiscal year. As of October 30, 1993, 419 stores sold
gasoline.
The Company's gasoline pricing strategy is designed, in part, to provide
value to customers by offering the same quality gasoline offered by major oil
companies at prices which are generally below nationally advertised brands and
comparable to other convenience store chains. The Company obtains its gasoline
from major oil company suppliers, primarily through spot market purchases, and
believes that there are adequate supplies of fuel available from a number of
sources at competitive prices.
The following table presents certain operating data for the Company's
gasoline operations:
<TABLE>
<CAPTION>
FISCAL YEARS FOUR QUARTERS
------------------------------------------- ENDED
1989 1990 1991 1992 1993 OCTOBER 30, 1993
------- ------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Total Gallons Sold (in
thousands)............. 179,424 185,701 188,930 189,625 196,703 205,684
% Change in Gallons
Sold................... 0.80% 3.50% 1.74% 0.37% 3.73% 4.57%
Average Gasoline Gross
Profit per Gallon (in
cents)................. 10.30 11.08 11.06 9.92 10.16 11.57
</TABLE>
PRODUCT SELECTION
All stores generally offer more than 3,000 food and non-food items limited to
a few, well-known brand names as well as the Company's private label products.
Most of these items would typically be offered in supermarkets. Food items
include a wide variety of products, including canned foods and groceries, dairy
products, beverages, snack items, candy, baked goods and food service items,
such as fountain soft drinks, coffee, hot dogs, deli meats and deli sandwiches
and similar foods. Non-food products and services include gasoline, cigarettes,
health and beauty aids, publications, lottery tickets and money orders. In
addition to
24
<PAGE>
selling well-known brand name products, the stores offer many products that
bear the "Dairy Mart" private label, including milk, bakery products, juices
and other non-carbonated beverages, ice cream and other dairy products such as
dips and cheeses.
In recent years, the Company has been altering the mix of products to
emphasize the sale of items carrying higher profit margins. Central to these
efforts has been the Company's installation of fast food counters, hot dog
grills called "Hot Dog Central" and/or deli areas in approximately 500 stores
over the last three years. Fast food items not only carry higher profit margins
but also tend to lead to the purchase of other high profit margin products and
impulse items, including salty-snacks, candy and beverages. Dairy Mart has
introduced a number of new private label products, including ice cream products
and juices, which generally carry a higher gross profit margin than the
Company's average gross profit margin on comparable products. These private
label products include Dairy Mart's "Party Time" (R) and "Special Occasion" (R)
ice cream.
POS SYSTEM
The Company has initiated a program to install a POS system in all stores
within three years. The Company anticipates that, upon completion of this
program, each store will be equipped with a scanner and with a dedicated
personal computer, into which sales, inventory and other data will be input at
scheduled daily intervals, and then automatically transmitted to the Company's
headquarters. The Company believes that the POS system will: (i) provide more
accurate and timely information regarding store operations, including sales and
merchandising, and inventory levels and composition; (ii) reduce paperwork for
store managers, thereby allowing them to spend more time interacting with
customers and improving operations; (iii) decrease administrative overhead,
since the input and verification of data will be automated at both the store
and office level; and (iv) improve verification of product costs and retail
pricing. The cost of the POS system, including new cash registers and personal
computers, is currently estimated to be approximately $7.0 million to $9.0
million, and is anticipated to be funded by third party equipment financing.
The Company believes it will be among the first of the larger convenience store
chains to implement a chain-wide POS system. Industry-wide, as reported by the
National Association of Convenience Stores, only 3.5% of all convenience stores
had POS systems at the end of 1992.
MANUFACTURING AND DISTRIBUTION OPERATIONS
The Company supplies its stores and most franchised stores through a product
distribution system which includes the Company's own manufacturing,
distribution and processing facilities, and other distributors. Through its
manufacturing, processing and distribution facilities in Connecticut and Ohio,
the Company supplies all of the milk and a substantial portion of the ice
cream, juices and non-carbonated beverages for the stores in the Northeast and
the Midwest. Many other products which are not produced by the Company are
supplied to the Northeast and Midwest regions by one wholesale distributor
under a ten-year contract entered into in February 1988. The Company supplies
the Southeast region stores in large part through its 35,000 square foot
distribution facility located in Louisville, Kentucky.
In fiscal 1993, the Company reversed a prior policy and began to actively
market its excess manufacturing and processing capacity to third parties, such
as wholesalers and supermarkets. These efforts have resulted in a wholesale
arrangement with a regional brand name ice cream distributor which has more
than doubled the utilization of the Company's ice cream production capacity
since March 1992. To accommodate additional growth in the sale of ice cream to
third party purchasers, the Company is investing $1.4 million to further
enhance product quality and to improve the efficiency and capacity of its ice
cream production. The Company also intends to continue to pursue sales to third
parties of other products produced at its manufacturing and processing
facilities.
FRANCHISE OPERATIONS
The Company franchises approximately 340 stores throughout its three
geographic regions. Franchise stores generally follow the same operating
policies as Company stores, and are subject to Company supervision under
franchise agreements. Company operated and franchise stores are of the same
basic store
25
<PAGE>
design and sell substantially the same products. The Company currently
franchises only existing stores. Most franchisees purchase milk, ice cream,
dairy products, fruit juices and other non-carbonated beverages distributed by
the Company and generally purchase other products through the same suppliers
used by the Company.
The Company offers two types of franchising arrangements--the "full"
franchise and the "limited" franchise. Under a full franchise agreement, the
franchisee purchases and owns both the merchandise inventory and the equipment
located in the store, and leases or subleases the store from the Company. Under
a limited franchise agreement, the franchisee owns only the merchandise
inventory while the Company retains ownership of the store equipment. Franchise
fees are higher for limited franchisees. As of October 30, 1993, there were 165
full franchise locations and 175 limited franchise locations.
The Company has recently revised its franchising strategy in order to: (i)
improve the level of retail experience of its new franchisees; and (ii)
increase the level of financial commitment by new franchisees. As part of this
strategy, new franchisees are now required to undergo more rigorous and
thorough interviews and background checks, receive increased levels of
financial and retail training, and typically make larger initial cash payments.
The following table sets forth the number of stores, on both a Company
operated and franchise operated basis, that were opened or acquired, closed or
sold, and transferred between Company operated and franchise operated, during
the last two fiscal years, and during the three fiscal quarters ended October
30, 1993:
<TABLE>
<CAPTION>
FEBRUARY 2, 1992 JANUARY 30, 1993 OCTOBER 30, 1993
------------------------ ------------------------ ------------------------
COMPANY FRANCHISE COMPANY FRANCHISE COMPANY FRANCHISE
OPERATED OPERATED TOTAL OPERATED OPERATED TOTAL OPERATED OPERATED TOTAL
-------- --------- ----- -------- --------- ----- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At beginning of period.. 725 465 1,190 685 449 1,134 709 370 1,079
Opened or acquired...... 6 -- 6 6 -- 6 3 -- 3
Closed or sold.......... (48) (14) (62) (34) (27) (61) (21) (8) (29)
Transferred (net)....... 2 (2) -- 52 (52) -- 22 (22) --
--- --- ----- --- --- ----- --- --- -----
At end of period........ 685 449 1,134 709 370 1,079 713 340 1,053
=== === ===== === === ===== === === =====
</TABLE>
INTERNATIONAL OPERATIONS
The Company conducts business outside the United States as a joint-venturer,
licensor or consultant. Currently, the Company is a party to two agreements
with convenience store operators in South Korea and Mexico, and continues to
pursue similar arrangements in other countries. As with the Company's prior
international arrangements, both such agreements require a specified commitment
of Company personnel, but do not require any significant commitment of capital.
ADVERTISING
To promote a uniform image for all stores, the Company designs and
coordinates advertising for all stores to complement its marketing strategy,
which is derived, in part, from market surveys and research. Largely in
response to such research, the Company recently launched a new advertising
program entitled "Close to Home" which emphasizes the high percentage of
neighborhood locations throughout Dairy Mart's operating regions. In-store,
newspaper, and direct-mail advertising, special promotions and seasonal radio
and television advertising usually feature certain items which can be purchased
at the stores, and frequently include national brand items for which
advertising costs are often supplemented by the national brand suppliers. Sales
promotions are generally established and maintained on a bi-weekly or monthly
basis.
COMPETITION
The convenience store and retail gasoline industries are highly competitive.
The number and type of competitors vary by location. The Company presently
competes with other convenience stores, large integrated gasoline service
station operators, super market chains, neighborhood grocery stores,
independent
26
<PAGE>
gasoline service stations, fast food operations and other similar retail
outlets, some of which are well recognized national or regional retail chains.
Some of the Company's competitors have greater financial resources than the
Company. Key competitive factors include, among others, location, ease of
access, store management, product selection, pricing, hours of operation, store
safety, cleanliness, product promotions and marketing. See "Investment
Considerations--Competition."
SEASONALITY
Weather conditions have a significant effect on the Company's sales, as
convenience store customers are more likely to go to stores to purchase
convenience goods and services, particularly higher profit margin items such as
fast food items, fountain drinks and other beverages, when weather conditions
are favorable. Accordingly, the Company's stores generally experience higher
revenues and profit margins during the warmer weather months, which fall within
the Company's second and third fiscal quarters. See "Investment
Considerations--Effect of Weather on Business."
EMPLOYEES
As of October 30, 1993, exclusive of franchisees and franchisees' employees,
the Company employed, on a full-time or part-time basis, approximately 5,200
employees.
PROPERTIES
Of the 1,053 stores in operation as of October 30, 1993, 123 store locations
were owned by the Company and 930 were leased. In addition, the Company owns 15
locations and is the primary lessee for 54 locations not currently operated as
Dairy Mart stores. The Company's policy is to endeavor to lease or sublease
such locations to third parties.
The Company owns its corporate headquarters facility in Enfield, Connecticut.
This facility is approximately 77,000 square feet and is located on eighty-
eight acres of land. The Company also owns its Northeast region operating
office building and manufacturing and processing plant located in a 33,000
square foot building, and its 200,000 square foot Midwest processing plant and
regional administrative office located in Cuyahoga Falls, Ohio. The Company
leases administrative offices for its Southeast regional offices and leases a
warehouse facility in Louisville, Kentucky.
ENVIRONMENTAL COMPLIANCE
The Company incurs ongoing costs to comply with federal, state and local
environmental laws and regulations, including costs for assessment, compliance,
remediation and certain capital expenditures relating to its gasoline
operations. These laws and regulations relate primarily to underground storage
tanks ("USTs"). The United States Environmental Protection Agency has
established standards for, among other things: (i) maintaining leak detection;
(ii) upgrading UST systems; (iii) taking corrective action in response to
releases; (iv) closing USTs to prevent future releases; (v) keeping appropriate
records; and (vi) maintaining evidence of financial responsibility for taking
corrective action and compensating third parties for bodily injury and property
damage resulting from releases. A number of states in which the Company
operates also have adopted UST regulatory programs.
In the ordinary course of business, the Company periodically detects releases
of gasoline or other regulated substances from USTs it owns or operates. As
part of its program to manage USTs, the Company is involved in environmental
assessment and remediation activities with respect to releases of regulated
substances from its existing and previously operated retail gasoline
facilities. In the prior three fiscal years ended January 30, 1993, the Company
recorded expenses which averaged approximately $1.0 million annually for these
activities, which amounts were net of reimbursements from state trust fund
programs with provisions for sharing or reimbursing certain costs incurred by
UST owners or operators. The Company accrues its estimates of all costs to be
incurred for assessment and remediation for known releases. These
27
<PAGE>
accruals are adjusted if and when new information becomes known. Due to the
nature of such releases, the actual costs of assessment and remediation
activities may vary significantly from year to year.
Under current federal and state regulatory programs, the Company also will be
obligated by December 22, 1998 to upgrade or replace all existing USTs it owns
or operates to meet certain corrosion-, overfill- and spill-protection and
leak-detection requirements. The Company currently is evaluating each site on
an individual basis to determine the type of expenditures required to comply
with these and other requirements under the federal and state UST regulatory
programs.
In addition to ongoing assessment and remediation costs, the Company
presently estimates that it will be required to make capital expenditures,
including those requiring upgrading or replacing of existing USTs, ranging from
approximately $16.0 million to $20.0 million in the aggregate over the next
five fiscal years to comply with current federal and state UST regulations,
which capital expenditures could be reduced for locations (especially low
volume locations) which may be closed in lieu of the capital costs of
compliance.
The Company's estimates of costs to be incurred for environmental assessment
and remediation and for UST upgrading and other regulatory compliance are based
on factors and assumptions that could change due to modifications of regulatory
requirements, detection of unanticipated environmental conditions, or other
unexpected circumstances. As a result, the actual costs incurred may vary
significantly from the estimates noted above.
LEGAL PROCEEDINGS
In the ordinary course of business, the Company is party to various legal
actions which the Company believes are routine in nature and incidental to the
operation of its business. The Company believes that the outcome of the
proceedings to which the Company currently is party will not have a material
adverse effect upon its results of operations or financial condition.
MANAGEMENT
OFFICERS AND DIRECTORS
Set forth below is certain information regarding the directors and certain
officers of the Company:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Frank Colaccino 43 President, Chief Executive Officer and a
Class B Director
Mitchell J. Kupperman 42 Executive Vice President--Human Resources,
Secretary and a Class B Director
Gregory G. Landry 35 Executive Vice President, Chief Financial
Officer and a Class B Director
Robert B. Stein, Jr. 36 Executive Vice President--Store Operations
and a Class B Director
Charles Nirenberg 70 Chairman of the Company and a Class B Di-
rector
Frank W. Barrett 54 Class A Director
Theodore W. Leed 66 Class A Director
Thomas A. Chicoine 44 Vice President--Manufacturing and Distribu-
tion
Lawrence R. Pellegrini 52 Vice President--Real Estate and Construc-
tion
Gregory Wozniak 46 Vice President--Corporate Counsel
Elizabeth A. Yopko 35 Vice President--Corporate Communications
</TABLE>
28
<PAGE>
BACKGROUND OF OFFICERS AND DIRECTORS
Except as noted below, each of the officers of the Company named above has
been employed by the Company for more than the last five (5) years, in areas
similar to or encompassed by their current responsibilities. Each director of
the Company is elected by the shareholders to serve a term of one year and
until the election and qualification of his successor. Each officer is elected
annually by the Board of Directors and serves at the pleasure of the Board.
Mr. Colaccino was elected Chief Executive Officer of the Company effective on
March 12, 1992, and has served as President of the Company since January 1,
1989. He joined the Company in 1976 and was elected Vice President--Real Estate
in 1979, and was elected Vice President--Corporate Development in 1985. During
fiscal year 1989, Mr. Colaccino served as President of CONNA Corporation
(Southeast division). Mr. Colaccino is a member of the National Association of
Convenience Stores (NACS) Board of Directors.
Dr. Kupperman joined the Company in 1983 as Director of Human Resources and
was elected Vice President--Human Resources in January, 1985. He was elected
Executive Vice President--Human Resources and Secretary of the Company as of
January 1, 1989. From January, 1989 until April, 1990, Dr. Kupperman also
served as the General Manager of the Company's Northeast division. Dr.
Kupperman holds a doctoral degree in Educational Administration.
Mr. Landry was elected Executive Vice President of the Company in April, 1992
and has served as Chief Financial Officer since August, 1990. Mr. Landry also
served as Treasurer of the Company from July, 1989 to April, 1991. He joined
the Company in October, 1985 and served as Assistant Treasurer of the Company
and Treasurer of the Northeast division until his appointment as Vice
President--Finance of the Southeast division in 1987. Mr. Landry is a certified
public accountant.
Mr. Stein was elected Executive Vice President--Store Operations in April,
1992 and has also served as Executive Vice President of the Midwest division
since December 1989. Prior to this, Mr. Stein served as Treasurer of the
Company from January, 1989 to June, 1989. He joined the Company in 1983 and
served as Assistant Treasurer and Treasurer of the Northeast division until he
became Vice President--Finance of the Midwest division in 1986. He is a member
of the Ohio Association of Convenience Stores Board of Directors.
Mr. Nirenberg is the founder of the Company. He served as its Chief Executive
Officer and President since its formation in 1957 until January, 1989, when he
resigned as President of the Company, and until March 12, 1992 when he resigned
as Chief Executive Officer. Mr. Nirenberg continues to serve as the Chairman of
the Company.
Mr. Barrett has served as Senior Vice President for Springfield Institution
for Savings since January, 1994. He previously served as Senior Vice President
for Bank of Ireland First Holdings, Inc. from September, 1990 to December,
1993, as Senior Vice President, Connecticut National Bank from May, 1990 to
September, 1990, and as Senior Vice President for Shawmut Bank, N.A. from
January, 1988 to May, 1990. Mr. Barrett also served as President and Chief
Executive Officer of Shawmut Home Bank in Hartford, Connecticut from April,
1987 to December, 1987 and prior to that was Executive Vice President for
Shawmut Worcester County Bank in Worcester, Massachusetts.
Dr. Leed has been for more than five years a professor (and is currently a
professor emeritus) of food marketing at the University of Massachusetts and a
lecturer, author and consultant to numerous companies on the subject of food
merchandising. He holds a doctoral degree in agricultural economics. Dr. Leed
is a principal of Group 7, Inc., a management consulting company.
Mr. Chicoine was elected Vice President--Manufacturing and Distribution in
July, 1989. He previously served the Company in the same capacity from 1985 to
1987. Mr. Chicoine also served in managerial capacities at Massachusetts-based
dairies prior to 1982 and during a period between 1987 and 1989 before
rejoining the Company. He was also Vice President--Manufacturing of The Lawson
Company (Midwest division) from 1982 to 1985. Mr. Chicoine is a member of the
Milk Industry Foundation, Connecticut Food Association and the Southern
Association of Dairy Food Manufacturers.
29
<PAGE>
Mr. Pellegrini joined the Company in December, 1992, and was elected Vice
President--Real Estate. In March, 1993, he was elected Vice President--Real
Estate and Construction. He was formerly a partner in the consulting firm of
Pellegrini and Blair in Springfield, Massachusetts, and Director of Real
Estate, Northeast Division, for the Friendly Ice Cream Corporation.
Mr. Wozniak was elected as a Vice President in December, 1992. He is an
attorney and has served as counsel to the Company since 1985. From 1977 to 1985
he served as counsel to The Lawson Company, which was acquired by the Company
in 1985.
Ms. Yopko joined the Company in 1988 as Vice President--Human Resources of
the Midwest division, which position also encompassed public relations
responsibilities; she was elected Vice President--Corporate Communications of
the Company in April, 1991.
CERTAIN TRANSACTIONS
MANAGEMENT CONTROL OF THE COMPANY
On March 12, 1992, DM Associates acquired 1,858,743 shares of the Class B
Common Stock of the Company from Charles Nirenberg, Chairman of the Company,
his wife Janet Nirenberg, and certain trusts and a foundation controlled by
them. The Class B Common Stock owned directly by DM Associates represents
approximately 66.9% of the issued and outstanding shares of Class B Common
Stock, and 60.9% of the total voting power of both classes of the Company's
Common Stock. The Company has two Classes of Common Stock issued and
outstanding--Class A Common Stock and Class B Common Stock. Each share of Class
B Common Stock has one vote per share, and each share of Class A Common Stock
has one-tenth of a vote per share. With respect to the election of directors,
holders of Class A Common Stock are entitled to elect 25% of the Board of
Directors (rounded up to the nearest whole number) to be elected by the holders
of Common Stock. As a result, DM Associates currently controls a sufficient
number of shares of Class B Common Stock to elect five of the seven members of
the Company's Board of Directors.
DM Associates is controlled by its general partner, DM Management Associates
("DM Management"), which itself is a general partnership. The general partners
of DM Management are: (i) Frank Colaccino, President and Chief Executive
Officer of the Company, who is the managing general partner of DM Management;
(ii) Mitchell J. Kupperman, Executive Vice President--Human Resources of the
Company; (iii) Gregory G. Landry, Executive Vice President and Chief Financial
Officer of the Company; and (iv) Robert B. Stein, Jr., Executive Vice
President--Store Operations of the Company. All of the general partners are
currently directors of the Company.
In addition to the 1,858,743 shares of Class B Common Stock owned by DM
Associates, the general partners of DM Management beneficially own in the
aggregate 100,486 shares of Class B Common Stock and 207,140 shares of Class A
Common Stock (which amounts include currently exercisable stock options), which
represent in the aggregate approximately 3.9% of the total voting power of the
Company's Common Stock.
The source of funds for DM Associates' acquisition of the 1,858,743 shares of
Class B Common Stock included the CDA Loan, which is secured by the 1,220,000
CDA Pledged Shares; 638,743 of the shares of Class B Common Stock owned by DM
Associates have not been pledged to secure the CDA Loan, and represent
approximately 20.9% of the total voting power of the Company's outstanding
Common Stock.
The CDA Loan documents require the consent of CDA before the CDA Pledged
Shares can be voted for certain events or transactions, including dissolution
of the Company, mergers or other acquisitions of the Company or sales of assets
in one fiscal year exceeding $10.0 million other than in the ordinary course of
business or which would cause the Company's tangible capital to fall below
$11.0 million, and certain
30
<PAGE>
amendments to the Company's charter in a manner that would effect a change in
the preference or priority of the shares of Class B Common Stock or which would
violate or result in a default under the CDA Loan Agreement. The CDA Loan
Agreement also provides that a default of the CDA Loan will occur upon certain
events occurring. If a default occurs under the CDA Loan Agreement, CDA has the
right to sell or otherwise dispose of the CDA Pledged Shares, which could
result in a Change of Control of the Company. Unless such a default occurs, DM
Associates has the right to vote the CDA Pledged Shares, subject to having
received the required consents of CDA with respect to certain matters including
all those described above. A default under the CDA loan agreement could occur
if, among others, any of the following events occur: (i) DM Associates fails to
pay the entire principal amount and all accrued interest on the CDA Loan by its
July 31, 1997 maturity date; (ii) the occurrence of an event of default by the
Company under the Existing Credit Agreement, the New Credit Agreement, or any
substitute credit agreement evidencing the Company's principal credit facility,
together with either the termination of any lending commitment thereunder or
the acceleration of the indebtedness due thereunder; and (iii) without CDA's
consent: (a) the taking of certain extraordinary actions by the Company; (b) a
dissolution or liquidation of the Company; or (c) a merger, consolidation or
other acquisition of the Company.
In addition, the limited partnership agreement of DM Associates provides that
if the term of the limited partnership is extended beyond September 12, 1997,
any limited partner whose percentage interest in DM Associates is greater than
30% may sell all or a portion of his or its interest, subject to DM Associates'
right of first refusal to purchase such interest. If DM Associates and such
limited partner do not agree on the terms of acquiring such limited partner's
interest, and there is not a third party purchaser, such limited partner has
the right to: (i) demand the dissolution of DM Associates and the distribution
of its assets to its partners; or (ii) cause such assets to be sold. As DM
Associates' principal asset is its 1,858,743 shares of the Class B Common
Stock, if such a dissolution or sale occurs, a Change of Control could result.
DESCRIPTION OF THE NEW CREDIT AGREEMENT
The Company is party to a credit agreement with Chemical Bank (as successor
to Manufacturers Hanover Trust Company), as agent and a lender, along with
other lenders party thereto dated as of January 9, 1991, as amended (the
"Existing Credit Agreement"), which provides for a $35.0 million term loan and
a $15.0 million revolving credit loan, both of which mature on February 28,
1996. As of October 30, 1993, the outstanding balances of the term loan and the
revolving credit loan were $22.0 million, and $11.4 million, respectively. Part
of the net proceeds from the offering and sale of the Notes will be used to
repay the entire indebtedness outstanding under the Existing Credit Agreement.
On or prior to the completion of the offering made hereby, the Company
intends to enter into a new credit agreement with Fleet Bank, National
Association ("Fleet") and Society National Bank ("Society") (the "New Credit
Agreement").
The following is a summary of the anticipated terms of the New Credit
Agreement. It does not purport to be complete and is subject to and qualified
in its entirety by reference to the provisions of the New Credit Agreement, a
copy of which will be filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. Capitalized terms used herein and not
otherwise defined shall have the respective meanings assigned to them in the
New Credit Agreement.
It is anticipated that the New Credit Agreement will provide for $30.0
million for revolving credit loans (including up to $15.0 million for letters
of credit). It is also anticipated that outstanding amounts under the New
Credit Agreement will be jointly and severally guaranteed by all of the
Guarantors, and will be secured by the pledge of all of the outstanding capital
stock of substantially all of the Company's subsidiaries, all of which are
Guarantors, and by amounts payable to the Company which arise by, from, or were
created by, loans or other extensions of credit by the Company to any of its
subsidiaries, but will not be secured by any
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other assets of the Company or any assets of any of its subsidiaries. The
proceeds of the revolving credit loan under the New Credit Agreement will be
available to finance the Company's working capital requirements and for other
general corporate purposes. Letters of credit under the New Credit Agreement
will be used for general corporate purposes.
It is anticipated that the loans under the New Credit Agreement will
generally bear interest at a rate of either: (i) 0.25% above Fleet's prime
rate, as set from time to time; or (ii) 2 1/4% above LIBOR, at the option of
the Company. It is also anticipated that all outstanding indebtedness under the
New Credit Agreement will be due and payable in full on the third anniversary
of the execution date of the New Credit Agreement and that, provided no default
exists under the New Credit Agreement, such period may be extended for up to
two additional one-year periods at the request of the Company and with the
consent of the lenders thereunder.
Covenants
It is anticipated that the New Credit Agreement will contain certain
restrictive covenants, including, but not limited to, those limiting or
prohibiting incurring other indebtedness, liens, dividends, fundamental changes
(such as mergers, consolidations and liquidations), amendments to the
certificate of incorporation of the Company (except to increase authorized
shares), investments, loans and advances, optional payments and modifications
of debt instruments, sales or leases of property not in the ordinary course of
business, guarantees, capital expenditures, sale and leaseback transactions,
and transactions with affiliates.
It is also anticipated that the New Credit Agreement will require the Company
to satisfy certain financial tests, including the maintenance of specified
ratios of: (i) earnings before interest expense, rent and taxes ("EBIRT") to
interest expense and rent; (ii) EBITDA less capital expenditures paid in cash
to interest expense and; (iii) maximum total debt to EBITDA. Additionally, the
Company will be required to maintain a minimum net worth.
Events of Default
The following, among others, may constitute events of default under the New
Credit Agreement: (i) the Company's nonpayment of any amount due or payable
under the New Credit Agreement or any related loan documents; (ii) a breach,
following any applicable cure periods, of any covenant or agreement under the
New Credit Agreement or any related loan documents by the Company or any of its
subsidiaries; (iii) the Company's or any of its subsidiaries' nonpayment of any
other indebtedness which has an aggregate principal amount in excess of a
specified aggregate principal amount; (iv) the occurrence of certain events by
which such other indebtedness becomes due and payable prior to its expressed
maturity or expiration date; (v) a change of control of the Company; (vi)
certain events of voluntary or involuntary bankruptcy, insolvency, receivership
or reorganization of the Company or any subsidiary of the Company; and (vii)
judgments or decrees entered against the Company or any subsidiary of the
Company involving an aggregate liability of a specified aggregate principal
amount.
DESCRIPTION OF THE NOTES
The Notes will be issued under the Indenture, dated as of , 1994
(the "Indenture"), among the Company, each of the Guarantors and Society
National Bank, as trustee (the "Trustee"), a copy of the form of which is filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
The following summary, which describes certain provisions of the Indenture and
the Notes, does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the Trust Indenture Act of 1939, as amended
(the "TIA"), and all of the provisions of the Indenture and the Notes,
including the definitions therein of terms not defined in this Prospectus and
those terms made a part of the Indenture by reference to
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the TIA as in effect on the date of the Indenture. Certain capitalized terms
used below and in the Indenture are defined under "Certain Definitions" below,
unless otherwise noted. References below to Sections refer to Sections of the
Indenture.
The Notes will be general unsecured senior subordinated obligations of the
Company, subordinate in right of payment to all Senior Indebtedness of the
Company, senior in right of payment to all Subordinated Indebtedness of the
Company and pari passu in right of payment to all senior subordinated
indebtedness of the Company. As described below under "Guarantees," the Notes
will be guaranteed, on a senior subordinated basis, by each of the Guarantors.
The Guarantee of each Guarantor will be general unsecured senior subordinated
obligations of such respective Guarantor, subordinate in right of payment to
all Guarantor Senior Indebtedness of such Guarantor, senior in right of payment
to all Guarantor Subordinated Indebtedness of such Guarantor and pari passu in
right of payment to all senior subordinated indebtedness of such Guarantor.
GENERAL
The Notes are limited in aggregate principal amount to $75,000,000 and will
mature on , 2004. The Notes will bear interest at the rate per annum
stated on the cover page hereof from , 1994, payable semi-annually in
arrears on and of each year, commencing , 1994,
to the persons who are registered holders thereof at the close of business on
the or immediately preceding such interest payment date.
Interest on the Notes will be computed on the basis of a 360-day year of
twelve 30-day months. Principal of, premium, if any, and interest on the Notes
will be payable at the office of the Trustee, but, at the option of the
Company, interest may be paid by check mailed to the registered holders at
their registered addresses. The Notes will be transferable and exchangeable at
the office of the Trustee and will be issued in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple thereof.
REDEMPTION
Optional Redemption. Except as provided in the next succeeding paragraph in
connection with a Public Equity Offering, the Notes may not be redeemed at the
option of the Company prior to , 1999. On or after such date, the
Notes may be redeemed at the option of the Company, in whole, or from time to
time in part, at the following redemption prices (expressed in percentages of
the principal amount), plus accrued interest to the date of redemption, if
redeemed during the twelve-month period beginning of the years
indicated below. (Section 3.01)
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1999..........................
2000..........................
2001..........................
2002 and thereafter........... 100.00
</TABLE>
In addition to the optional redemption of the Notes in accordance with the
provisions of the preceding paragraph, up to $20 million aggregate principal
amount of the Notes will be redeemable, at the option of the Company in whole
or in part, with the Net Proceeds of a Public Equity Offering, at a redemption
price equal to % of the principal amount of the Notes to be redeemed, plus
accrued and unpaid interest to the date of redemption; provided, however, that
no such optional redemption may be effected on or after the third anniversary
of the Issue Date. (Section 3.02) The New Credit Agreement may restrict the
Company's ability to redeem the Notes as described above.
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CHANGE OF CONTROL
At such time as any of the following events has occurred, each of which is
deemed to be a "Change of Control" under the Indenture, each holder of Notes
will have the right to require the Company to repurchase all or any part of
such holder's Notes at a repurchase price equal to 101% of the principal amount
thereof plus accrued interest to the date of repurchase: (i) any "person" or
"group" (as such terms are used in Section 13(d) and 14(d) of the Exchange
Act), other than one or more Permitted Holders or any Person or Persons
controlled by one or more Permitted Holders, is or becomes the "beneficial
owner", directly or indirectly, of more than 50% of the total voting power of
the Voting Stock of the Company; (ii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by
such Board of Directors or whose nomination for election by the shareholders of
the Company was approved by the Directors then still in office who either were
Directors at the beginning of such period or whose election or nomination for
Director was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; (iii) the
direct or indirect, sale, lease, exchange or other transfer of all or
substantially all of the assets of the Company to any "person" (as such term is
used in Section 13(d) or 14(d) of the Exchange Act), provided that the
foregoing shall not apply to the granting of Liens on such assets to the extent
permitted by the Indenture; (iv) the Permitted Holders cease to control at
least 10% of the total voting power of the Voting Stock of the Company; (v) any
acceleration of any Indebtedness under the New Credit Agreement occurs as a
result of a change in the beneficial ownership of the Capital Stock of the
Company; or (vi) the Company consolidates with or merges into another
corporation or any Person consolidates with or merges into the Company, in
either event pursuant to a transaction in which either (A) the outstanding
Voting Stock of the Company is changed into or exchanged for cash, securities
or other property (other than any such transaction where the outstanding Voting
Stock of the Company is changed into or exchanged for Voting Stock of the
surviving corporation which is neither Redeemable Stock nor Exchangeable Stock)
or (B) the holders of a majority of the voting power of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly, less
than a majority of the voting power of the Voting Stock of the surviving
corporation immediately after such transaction. There is little case law
interpreting the phrase "all or substantially all" in the context of an
indenture. Because there is no precise established definition of this phrase,
the ability of a holder of Notes to require the Company to repurchase such
Notes as a result of a sale, lease, exchange or other transfer of all or
substantially all of the Company's assets may be uncertain. (Section 3.08)
Within 30 days following any Change of Control, the Company will mail a
notice to each holder of Notes stating: (i) that a Change of Control has
occurred and that such holder has the right to require the Company to
repurchase all or any part of such holder's Notes at 101% of the aggregate
principal amount thereof plus accrued interest to the date of repurchase; (ii)
the circumstances and relevant facts known to the Company regarding such Change
of Control (including, to the extent applicable, information with respect to
pro forma historical income, cash flow and capitalization after giving effect
to such Change of Control); (iii) the date of repurchase (which will be no
earlier than 30 days nor later than 60 days from the date such notice is mailed
in the event of a Change of Control); and (iv) the instructions, determined by
the Company consistent with the Indenture, that a holder must follow in order
to have its Notes repurchased. (Section 3.08(b))
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder which may
then be applicable in connection with the repurchase of the Notes as a result
of a Change of Control. The Change of Control repurchase feature of the Notes
may in certain circumstances make more difficult or discourage a takeover of
the Company and, thus, the removal of incumbent management. (Section 4.23)
If a Change of Control were to occur, the Company's ability to pay cash to
the holders of Notes upon such repurchase may be limited by the Company's then
existing financial resources, and there can be no assurance that the Company
would have sufficient funds to pay the repurchase price for all Notes tendered
by the holders thereof. Failure of the Company to pay the repurchase price
would create an Event of Default
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(as defined below in "--Defaults") with respect to the Notes. (Section 6.01(1))
The New Credit Agreement may restrict the Company's ability to repurchase the
Notes following a Change of Control. (Section 3.08)
The provisions contained in the Indenture relative to the Company's
obligation to make an offer to repurchase the Notes as a result of a Change of
Control may only be waived or modified with the written consent of the holders
of at least a majority in principal amount of the Notes. (Section 9.02)
SELECTION AND NOTICE
In the event that less than all of the Notes are to be redeemed at any time,
selection of Notes for redemption will be made by the Trustee in compliance
with the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, on a
pro rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided, however, that no Notes shall be redeemed in part in
amounts of less than $1,000. Notice of redemption shall be mailed by first
class mail by the Company or, at the request of the Company, the Trustee at
least 30 but not more than 60 days before the redemption date (which may, in
the case of a redemption in connection with a Public Equity Offering, be
adjusted to the extent necessary and appropriate under the circumstances and
based solely on the timing of the consummation of the Public Equity Offering)
to each holder of Notes to be redeemed at its registered address. If any Note
is to be redeemed in part, the notice of redemption that relates to such Note
shall state the portion of the principal amount thereof to be redeemed. A new
Note in a principal amount equal to the unredeemed portion thereof will be
issued in the name of the holder thereof upon cancellation of the original
Note. On and after the redemption date, interest will cease to accrue on Notes
or portions thereof called for redemption (unless the Company shall default in
the payment of the redemption price or accrued interest). (Section 3.03)
SUBORDINATION
The Indebtedness evidenced by the Notes (including principal, premium, if
any, and interest) is subordinated in right of payment to the prior payment in
full of all Senior Indebtedness. (Section 10.01)
Upon any payment or distribution of assets or securities of the Company in
any dissolution, winding up, total or partial liquidation or reorganization of
the Company, payment of the principal of, premium, if any, and interest on the
Notes will be subordinated, to the extent and in the manner set forth in the
Indenture, to the prior payment in full of all Senior Indebtedness, including
any interest accruing on such Senior Indebtedness subsequent to the
commencement of a bankruptcy, insolvency or similar proceeding. Upon any
default by the Company in the payment of the principal of, premium, if any, or
interest on Senior Indebtedness, when the same becomes due, no payment may be
made on or in respect of the Notes until such default has been cured or waived.
The Indenture also provides that no payment may be made by the Company upon or
in respect of the Notes for the period specified below (the "Payment Blockage
Period") during the continuance of any non-payment event of default with
respect to Senior Indebtedness under the New Credit Agreement ("Significant
Senior Indebtedness") pursuant to which the maturity thereof may be
accelerated. The Payment Blockage Period shall commence on the earlier of (i)
receipt by the Trustee of notice from the trustee or representative for the
holders of any Significant Senior Indebtedness (or the holders of at least a
majority in principal amount of such Significant Senior Indebtedness then
outstanding) or (ii) if such non-payment event of default results from the
acceleration of the Notes, the date of such acceleration, and shall end 179
days thereafter (unless such Payment Blockage period shall be earlier
terminated). In no event will a Payment Blockage Period extend beyond 179 days
from the date the payment on the Notes was due. Not more than one Payment
Blockage Period with respect to the Notes may be commenced during any period of
360 consecutive days. No event of default that existed or was continuing on the
date of the commencement of any Payment Blockage Period with respect to the
Significant Senior Indebtedness initiating such period shall be, or be made,
the basis for the commencement of a second Payment Blockage Period by the
representative for or the holders of such Significant Senior Indebtedness
whether or not within a period of 360 consecutive days. (Section 10.02)
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<PAGE>
As a result of the subordination provisions described above, in the event of
insolvency of the Company, creditors of the Company who are not holders of
Senior Indebtedness may recover less ratably than holders of Senior
Indebtedness and may recover more ratably than holders of the Notes and the
Company may be unable to make all payments due under the Notes.
As of October 30, 1993, after giving effect to the issuance of the Notes and
the application of the net proceeds therefrom, the aggregate amount of Senior
Indebtedness outstanding would have been $8.3 million. In the future, the
Company may issue additional Senior Indebtedness to refinance existing
indebtedness or for other corporate purposes. See "--Certain Covenants--
Limitation on Additional Indebtedness and New Operating Leases."
CERTAIN COVENANTS
Limitation on Additional Indebtedness and New Operating Leases. The Company
may not, and may not permit any of its Subsidiaries to, Incur, directly or
indirectly, any Indebtedness (including Acquired Indebtedness) or enter into
any New Operating Lease, unless the Consolidated Fixed Charge Coverage Ratio
for the Reference Period, determined on the date of issuance of such
Indebtedness or the date of execution of such New Operating Lease, as the case
may be, and after giving effect to: (i) Incurrence of such Indebtedness and (if
applicable) the application of the Net Proceeds thereof to refinance other
Indebtedness as if such Indebtedness was issued and the application of such Net
Proceeds occurred at the beginning of the Reference Period; (ii) Incurrence and
retirement of any other Indebtedness since the last day of the most recent
fiscal quarter of the Company contained in the Reference Period as if such
Indebtedness was Incurred or retired at the beginning of the Reference Period;
and (iii) the execution of such New Operating Lease and any other New Operating
Leases executed since the last day of the most recent fiscal quarter of the
Company contained in the Reference Period as if such New Operating Lease and
any such other New Operating Leases were executed at the beginning of the
Reference Period (it being understood that, for purposes of determining the
Consolidated Fixed Charge Coverage Ratio, New Operating Lease payments shall be
included in Consolidated Operating Lease Payments), is equal to or greater than
the ratio of 2.0 to 1.0. (Section 4.06)
Notwithstanding the preceding paragraph, the Company and the Subsidiaries may
Incur Permitted Indebtedness. (Section 4.06)
Limitation on Restricted Payments. The Company may not, and may not permit
any Subsidiary, directly or indirectly, to (i) declare or pay any dividend or
make any distribution in respect of the Company's or any Subsidiary's Capital
Stock or to the direct or indirect holders of the Company's or any Subsidiary's
Capital Stock (except dividends or distributions payable solely in the
Company's Non-Convertible Capital Stock or in options, warrants or other rights
to purchase the Company's Non-Convertible Capital Stock and except dividends or
distributions payable from a Subsidiary to the Company or a Wholly Owned
Subsidiary which is a Guarantor), (ii) purchase, redeem or otherwise acquire or
retire for value, any Capital Stock of the Company or any Subsidiary, (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment, any Subordinated Indebtedness of the Company or any Indebtedness of a
Subsidiary (other than Guarantor Senior Indebtedness and other than the
Company's 14.25% Subordinated Debentures due 2000) or (iv) make any Investment
in any Subsidiary (except for prepayments of leases of underperforming or
nonutilized convenience stores in the ordinary course of business), the Non-
Recourse Subsidiary (except as permitted by clause (iii) of "--Limitations on
Investments" below) or any other Affiliate of the Company (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment being hereinafter referred to as a "Restricted
Payment"), unless: (A) no Default or Event of Default will have occurred and be
continuing at the time or as a consequence of such Restricted Payment; (B) at
the time of such Restricted Payment, the Company could incur an additional
$1.00 of Indebtedness (not including Permitted Indebtedness) under the covenant
described under "Limitation on Additional Indebtedness"; and (C) such
Restricted Payment, together with the aggregate of all other Restricted
Payments made since May 1, 1993 would not exceed the sum of (x) 50% of
Consolidated Net Income (or if Consolidated Net Income is a deficit minus 100%
of such deficit) accrued on a cumulative basis from May 1,
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<PAGE>
1993 to the end of the most recent fiscal quarter ending prior to the date of
such proposed Restricted Payment, calculated on a cumulative basis as if such
period were a single accounting period; (y) the aggregate Net Proceeds received
by the Company from any Person (other than a Subsidiary and the Non-Recourse
Subsidiary) subsequent to the Issue Date (1) as a result of the issuance of
Capital Stock of the Company (other than Redeemable Stock or Exchangeable
Stock) or (2) as a result of a capital contribution from its shareholders, but,
with respect to any proceeds received by the Company from an employee stock
ownership plan that Incurs any Indebtedness, only to the extent that any such
proceeds are equal to any increase in the Consolidated Net Worth of the Company
resulting from principal repayments made by such employee stock ownership plan
with respect to the Indebtedness Incurred by it to finance the purchase of such
Capital Stock; and (z) the amount by which Indebtedness of the Company is
reduced on the Company's balance sheet upon the conversion or exchange (other
than by a Subsidiary) subsequent to the Issue Date of any Indebtedness of the
Company convertible into or exchangeable for Capital Stock (other than
Redeemable Stock or Exchangeable Stock) of the Company. (Section 4.07)
The foregoing provisions do not prohibit (i) the payment of any dividend in
respect of the Company's or any Subsidiary's Capital Stock within 60 days after
the date of declaration thereof, if on such date of declaration such payment
complied with the provisions of the Indenture and provided that at the time of
payment no other Default or Event of Default has occurred and is continuing;
(ii) the purchase, redemption, acquisition or retirement of any Indebtedness
with the Incurrence of Refinancing Indebtedness permitted under "Limitation on
Additional Indebtedness and New Operating Leases"; (iii) any dividend on shares
of the Company's or any Subsidiary's Capital Stock payable in shares of the
Company's or such Subsidiary's Capital Stock (other than Redeemable Stock or
Exchangeable Stock); and (iv) an Investment by the Company in a Wholly-Owned
Subsidiary which is a Guarantor or a Person who will become a Wholly-Owned
Subsidiary which is a Guarantor as a result of such Investment. (Section 4.07)
Limitation on Investments. The Company may not, and may not permit any
Subsidiary, directly or indirectly, to make any Investment other than (i)
Permitted Investments; (ii) an Investment constituting a Restricted Payment if
such Restricted Payment is permitted by the covenant described under
"Limitation on Restricted Payments"; or (iii) Investments in the Non-Recourse
Subsidiary in an amount not to exceed $2.5 million. (Section 4.08)
Limitation on Liens. The Company may not, and may not permit any Subsidiary,
directly or indirectly, to create, incur, assume or permit to exist any Lien
upon any of its or any Subsidiary's property or assets now owned or hereafter
acquired, other than Liens that are: (i) outstanding immediately prior to the
issuance of the Notes; (ii) Liens securing Indebtedness of a Subsidiary owing
to the Company or a Wholly Owned Subsidiary which is a Guarantor; (iii) Liens
securing Senior Indebtedness of the Company permitted to be Incurred by the
covenant described under "Limitation on Additional Indebtedness and New
Operating Leases"; (iv) Permitted Liens; (v) Liens incurred in connection with
a Sale-Leaseback Transaction permitted under "Limitation on Sale-Leaseback
Transactions"; (vi) Liens on property of a Person existing at the time such
Person is acquired by, merged into or consolidated with the Company or any
Subsidiary (except to the extent such Liens were incurred in connection with,
or in contemplation of, such acquisition, merger or consolidation) which Lien
is not applicable to any Person or the properties or assets of any Person,
other than the Person, or the property or asset of the Person, so acquired; and
(vii) any extension, renewal or replacement (including successive extensions,
renewals or replacements) of Liens permitted by any of clauses (i) through (vi)
above ("Existing Liens"), so long as (A) the Lien does not extend beyond
property or assets of the Company and its Subsidiaries subject to the Existing
Lien and improvements and construction on such property or assets, and (B) the
Indebtedness secured by the Lien does not exceed the Indebtedness secured at
the time by the Existing Lien. (Section 4.09)
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company may not, and may not permit any Subsidiary to, create
or otherwise cause or permit to exist or become effective any encumbrance or
restriction of any kind which restricts the ability of any such Subsidiary to:
(i) pay dividends or make any other distributions on such Subsidiary's Capital
Stock or pay any Indebtedness or other obligation owed to the Company or any
Subsidiary, (ii) make any loans or advances to the Company or any
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Subsidiary, (iii) guaranty the Notes or any renewals or refinancings thereof or
(iv) transfer any of its property or assets to the Company or any Subsidiary,
except, in each case, for such encumbrances or restrictions existing under or
by reason of (1) applicable law, (2) the Indenture, (3) customary nonassignment
provisions of any lease governing a leasehold interest of the Company or any
Subsidiary, (4) any instrument governing Acquired Indebtedness (except to the
extent such Indebtedness was Incurred in connection with, or in contemplation
of, such acquisition) as in effect at the time of acquisition, which
encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property or assets of
the Person, so acquired, (5) Existing Indebtedness, or (6) permitted
Refinancing Indebtedness provided that the encumbrances or restrictions
contained in the agreements governing such Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced, as in effect on the Issue Date. (Section 4.10)
Limitation on Sale-Leaseback Transactions. The Company will not, and will not
permit any Subsidiary to, enter into any Sale-Leaseback Transaction unless at
least one of the following conditions is satisfied: (i) under the provisions
described under "Limitation on Liens" and "Limitation on Additional
Indebtedness and New Operating Leases," the Company or a Subsidiary could
create a Lien on the property to secure Indebtedness in an amount equal to the
Attributable Indebtedness in connection with such Sale-Leaseback Transaction;
or (ii) the net proceeds of such Sale-Leaseback Transaction are at least equal
to the fair market value of such property as determined in good faith by the
Board of Directors of the Company. (Section 4.11)
Limitation on Sales of Assets. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, make any Asset Disposition unless the
Company (or such Subsidiary, as the case may be) receives at the time of such
Asset Disposition consideration which (x) is paid at least 85% in cash and (y)
is at least equal to the fair market value (including the value of all noncash
consideration), as determined in good faith by, and evidenced by a resolution
of, the Board of Directors, if the consideration to be received by the Company
is equal to or greater than $1 million (or, if the consideration to be received
by the Company is less than $1 million but greater than $25,000 (except in the
case of Asset Dispositions to franchisees in the ordinary course of business),
as certified in good faith by two Officers, one of whom shall be the President,
in an Officer's Certificate delivered to the Trustee within 30 Business Days
following such Asset Disposition (no certificate being required for sales as to
which the consideration is $25,000 or less), of the shares and assets subject
to such Asset Disposition; provided, however, that the requirement set forth in
clause (x) above shall not apply to any sale, lease, sublease, transfer or
other disposition of stores to franchisees in the ordinary course of business
or of individual underperforming, nonutilized or obsolete assets by the Company
or any Subsidiary in the ordinary course of business. Within 210 days from the
date of such Asset Disposition (the "Disposition Period"), the Company (or such
Subsidiary, as the case may be) may apply all or any portion of the Net
Available Cash Proceeds from such Asset Disposition to (x) the prepayment of
Senior Indebtedness or (y) an investment in Fixed Assets in the same or
substantially similar line of business as the assets that were the subject of
such Asset Disposition, provided that, if such Net Available Cash Proceeds are
applied to the prepayment of Senior Indebtedness, the related loan commitment,
if any, shall be permanently reduced, except that in the event the Company
repays revolving loans outstanding under the New Credit Agreement with such Net
Available Cash Proceeds, the related loan commitment need not be permanently
reduced so long as the Company reborrows the full amount of the amount so
prepaid and invests such amount in Fixed Assets in the same or substantially
similar line of business as the assets that were the subject of such Asset
Disposition within the Disposition Period. Without limiting the lines of
business which are considered the same or substantially similar for the
purposes hereof, the sale of gasoline, the operation of convenience stores, the
franchising of convenience stores, and the manufacturing, processing and
distribution businesses currently conducted by the Company will be deemed to
qualify as the same or substantially similar lines of business. Notwithstanding
the foregoing, if the Company enters into a written agreement within the
Disposition Period pursuant to which the Company commits to reinvest such Net
Available Cash Proceeds in Fixed Assets in the same or substantially similar
line of business as the assets that were the subject of such Asset Disposition,
the Company shall be permitted to reinvest such Net Available Cash Proceeds
within 90 days from the date of termination of the Disposition Period in
accordance with such written agreement. Any Net Available Cash Proceeds from
any such Asset Disposition that are not applied or invested as provided in the
preceding two
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sentences shall constitute and be referred to herein as "Excess Proceeds." When
(x) any Excess Proceeds arise from the sale, issuance or other disposition of
Capital Stock of a Subsidiary or the Non-Recourse Subsidiary (except to a
Wholly Owned Subsidiary which is a Guarantor) or the sale or other disposition
of all or substantially all of the assets of a Subsidiary or the Non-Recourse
Subsidiary in one transaction or a series of related transactions (except to a
Wholly Owned Subsidiary which is a Guarantor) or (y) the aggregate amount of
Excess Proceeds from all Asset Dispositions (other than those referred to in
clause (x) of this sentence) exceeds $5.0 million, the Company shall make an
Offer (as defined in the following paragraph) to purchase Notes pursuant to and
subject to the conditions of the following paragraph. Notwithstanding the
foregoing, an aggregate of $1.0 million of Net Available Cash Proceeds received
by the Company and/or the Subsidiaries in any fiscal year from Asset
Dispositions, not involving the sale, issuance or other disposition of Capital
Stock of a Subsidiary or the Non-Recourse Subsidiary or the sale or other
disposition of all or substantially all of the assets of a Subsidiary or the
Non-Recourse Subsidiary, shall not be subject to the covenant described in this
paragraph. (Section 4.16)
In the event of an Asset Disposition that requires the purchase of Notes
pursuant to the preceding paragraph, the Company will be required to make an
offer for the Notes (an "Offer") and repurchase Notes tendered pursuant thereto
in an amount equal to the aggregate amount of Excess Proceeds, at a repurchase
price in cash equal to 100% of their principal amount plus accrued interest to
the date of repurchase in accordance with the procedures (including prorating
in the event of oversubscription) set forth in the Indenture. Upon completion
of the repurchase, if any, of Notes pursuant to the Offer, the amount of Excess
Proceeds shall be reset to zero. If the aggregate repurchase price of Notes
tendered pursuant to the Offer is less than the Excess Proceeds allotted to the
repurchase of the Notes, the Company may use the remaining Excess Proceeds for
general corporate purposes. (Section 3.09)
Notwithstanding the foregoing, the Company may not, and may not permit any
Subsidiary to, directly or indirectly, make any Asset Disposition of any of the
Capital Stock of a Subsidiary or the Non-Recourse Subsidiary except pursuant to
an Asset Disposition of all of the Capital Stock of such Subsidiary or the Non-
Recourse Subsidiary. (Section 4.16)
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Subsidiary to, directly or indirectly, enter into or permit to
exist any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company or of any Subsidiary (other than a
Wholly Owned Subsidiary which is a Guarantor) on terms that are less favorable
to the Company or such Subsidiary, as the case may be, than those which might
be obtained at the time of such transaction from unrelated third parties. This
provision will not prohibit the payment of reasonable and customary directors'
fees to directors who are not employees of the Company or the payment of
reasonable compensation to employees of the Company in the ordinary course of
business. Without in any way limiting the foregoing restriction, the Company
will not, and will not permit any Subsidiary to, directly or indirectly, enter
into or permit to exist any transactions or series of related transactions
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with any Affiliate of the Company or of any
Subsidiary (other than a Wholly Owned Subsidiary which is a Guarantor)
involving aggregate payments in excess of $250,000 unless: (i) a committee of
independent members of the Board of Directors of the Company shall approve by
resolution certifying that such transaction or series of transactions comply
with the first sentence of the covenant described in this paragraph; and (ii)
with respect to (A) a transaction or series of transactions involving aggregate
payments equal to or greater than $2.0 million, the Company also receives a
written opinion from a nationally-recognized investment bank with total assets
in excess of $1.0 billion that such transaction or series of transactions is
fair to the Company from a financial point of view; or (B) any purchase, sale,
lease or exchange of real property or Fixed Assets involving aggregate payments
equal to or greater than $2.0 million, in lieu of the opinion referred to in
clause (A), at the option of the Company, the Company also receives an opinion
from a qualified appraisal company, that the value of the property sold,
purchased, leased or exchanged by the Company or any Subsidiary is
substantially equal to (or more favorable to the Company than) the value of the
consideration provided by or to the Company, as the case may be, in respect
thereof. (Section 4.12)
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Limitation on Other Senior Subordinated Indebtedness. The Company will not
incur any Indebtedness which is senior in right of payment to the Notes and is
subordinate or junior in right of payment to the Company's Senior Indebtedness.
In addition, the Indenture provides that no Guarantor will incur any
Indebtedness which is senior in right of any payment to such Guarantor's
obligations under its Guarantee and the Indenture and which is subordinate or
junior in right of payment to Guarantor Senior Indebtedness of such Guarantor.
(Section 4.13)
Additional Guarantors. If the Company or any Subsidiary makes any Investment
having a fair market value exceeding $1,000, in one or a series of related
transactions, in any Subsidiary which is not a Guarantor, or any Subsidiary
which is not a Guarantor holds property or assets (including, without
limitation, cash, businesses, divisions, real property, assets or equipment)
having a fair market value exceeding $1,000, the Company shall cause such
Subsidiary to (i) execute and deliver to the Trustee a supplemental indenture
in form reasonably satisfactory to the Trustee pursuant to which such
Subsidiary shall unconditionally guarantee all of the Company's obligations
under the Notes and the Indenture on the terms set forth in the Indenture and
(ii) deliver to the Trustee an Opinion of Counsel that such supplemental
indenture has been duly executed and delivered by such Subsidiary. Thereafter,
such Subsidiary shall be a Guarantor for all purposes of the Indenture (Section
4.14)
Use of Proceeds. The proceeds of the Notes will be used by the Company in the
manner described in this Prospectus. No part of such proceeds will be used to
purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock. Neither the issuance of any
Note nor the use of the proceeds thereof will violate or be inconsistent with
the provisions of Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System. (Section 4.15)
SEC Reports. The Company and each Guarantor will file with the Trustee and
provide the holders of Notes, within 15 days after it files them with the
Commission, copies of its annual report and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) which the Company or any
Guarantor is required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act. Notwithstanding that the Company may not be required
to remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall continue to file with the Commission and
provide the Trustee and the holders of Notes with such annual reports and such
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) which
are specified in Sections 13 or 15(d) of the Exchange Act. The Company and each
Guarantor also shall comply with the provisions of Section 314(a) of the TIA.
(Section 4.02)
SUCCESSOR COMPANY
Subject to the provisions set forth in the fourth paragraph under
"Guarantees" below, neither the Company nor any Guarantor may consolidate with
or merge with or into, or sell, convey, transfer or lease all or substantially
all of its assets (either in one transaction or a series of transactions) to,
any Person unless: (i) the Person formed by or surviving such consolidation or
merger (if other than the Company or such Guarantor, as the case may be), or to
which such sale, conveyance, transfer or lease shall have been made is
organized and existing under the laws of the United States of America or any
State thereof or the District of Columbia and such entity expressly assumes by
a supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company or such
Guarantor, as the case may be, under the Notes or the Guarantees, as the case
may be, and the Indenture; (ii) immediately prior to and after giving effect to
such transaction (and treating any Indebtedness which becomes an obligation of
such Person or any Subsidiary (including any Guarantor) as a result of such
transaction as having been incurred by such Person or such Subsidiary
(including any Guarantor) at the time of such transaction), no Default or Event
of Default shall have occurred and be continuing; (iii) except with respect to
consolidations, mergers, sales, conveyances, transfers and leases between
Guarantors, immediately after giving effect to such transaction, on a pro forma
basis, such Person would be able to incur an additional $1.00 of Indebtedness
(other than Permitted Indebtedness) under "--Certain Covenants--Limitation on
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Additional Indebtedness and New Operating Leases;" (iv) if the Company is a
party to such consolidation, merger, sale, conveyance, transfer and lease,
immediately after giving effect to such transaction, on a pro forma basis, such
Person has Consolidated Net Worth in an amount which is not less than the
Consolidated Net Worth of the Company immediately prior to such transaction;
(v) if such Guarantor is a party to such consolidation, merger, sale,
conveyance, transfer or lease, immediately after giving effect to such
transaction, on a pro forma basis, the Company has Consolidated Net Worth in an
amount which is not less than its Consolidated Net Worth immediately prior to
such transaction; and (vi) the Company, or such Guarantor, as the case may be,
delivers to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger, sale, conveyance, transfer or
lease and such supplemental indenture comply with the Indenture. Such Person
will be the successor Company, or a successor Guarantor, as the case may be,
but in the case of a sale, conveyance, transfer or lease of all or
substantially all of the assets of the Company or Guarantor, (i) the
predecessor Company will not be released from its obligation to pay the
principal of, premium, if any, and interest on the Notes, and (ii) the
predecessor Guarantor will not be released from its obligation under its
Guarantee. (Section 5.01)
DEFAULTS
An Event of Default is defined in the Indenture as: (i) default for 30 days
in the payment of interest on any Note when due; (ii) default in the payment of
principal of, or premium, if any, on any Note when due at its Stated Maturity,
upon redemption, upon required repurchase, upon declaration or otherwise,
including, without limitation, the failure to repurchase Notes when required as
described under "Change of Control" and "--Certain Covenants--Limitation on
Sale of Assets" above; (iii) default in the performance of, or failure to
comply with, any other covenant or agreement contained in the Notes or the
Indenture for a period of 30 days after written notice by the Trustee or
holders of at least 25% of the aggregate principal amount of Notes outstanding;
(iv) the failure of the Company, any of its Subsidiaries (including any
Guarantor) or the Non-Recourse Subsidiary to pay the principal of any
Indebtedness with a principal amount then outstanding in excess of $500,000,
individually or in the aggregate, when the same becomes due and payable at
final maturity and such failure shall continue after any applicable grace
period specified in the agreement relating to such Indebtedness; or a default
on any such Indebtedness which results in such Indebtedness becoming due and
payable prior to its Stated Maturity; (v) certain events of bankruptcy,
insolvency or reorganization of the Company, a Subsidiary (including any
Guarantor) or the Non-Recourse Subsidiary; (vi) any judgment or decree for the
payment of money in excess of $500,000 (to the extent not covered by insurance)
is rendered against the Company, a Subsidiary (including any Guarantor) or the
Non-Recourse Subsidiary and is not discharged and either (A) an enforcement
proceeding has been commenced by a creditor upon such judgment or decree or (B)
there is a period of 45 days following such judgment or decree during which
such judgment or decree is not discharged, waived or the execution thereof
stayed; (vii) any of the Guarantees shall be held in any judicial proceeding to
be unenforceable or invalid or shall cease for any reason to be in full force
and effect, or any Guarantor, or any person acting by or on behalf of any
Guarantor, shall deny or disaffirm its obligations under its Guaranty; (viii)
failure by the Company or any Subsidiary to comply with the restrictions set
forth under "Successor Company" or "Certain Covenants--Limitations on Sales of
Assets" above; or (ix) failure by the Company to comply with the covenant
described under "Use of Proceeds." (Section 6.01)
If an Event of Default relating to certain events of bankruptcy, insolvency
or reorganization of the Company, a Subsidiary (including any Guarantor) or the
Non-Recourse Subsidiary occurs and is continuing, the principal of and interest
on all the Notes will ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any holders
of the Notes. If any other Event of Default occurs and is continuing, the
Trustee or the holders of at least 25% in principal amount of the outstanding
Notes may declare the principal of and accrued but unpaid interest on all the
Notes to be due and payable. Upon such a declaration, such principal and
interest shall be immediately due and payable. Under certain circumstances, the
holders of a majority in principal amount of the outstanding Notes may rescind
any such acceleration with respect to the Notes and its consequences. (Section
6.02)
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Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium, if any, or interest when due, no holder of a
Note may pursue any remedy with respect to the Indenture, the Guarantees or the
Notes unless (i) such holder has previously given the Trustee notice that an
Event of Default is continuing, (ii) holders of at least 25% in aggregate
principal amount of the Notes have requested the Trustee to pursue the remedy,
(iii) such holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense, (iv) the Trustee has not complied with
such request within 60 days after the receipt thereof and the offer of security
or indemnity and (v) the holders of a majority in aggregate principal amount of
the Notes have not given the Trustee a direction inconsistent with such request
within such 60-day period. Subject to certain restrictions, the holders of a
majority in principal amount of the Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the
rights of any other holder of a Note or that would involve the Trustee in
personal liability. (Sections 4.03, 6.05, 6.06 and 7.01)
The Indenture provides that if a Default occurs and is continuing and is
known to an officer in the Corporate Trust Department of the Trustee, the
Trustee must mail to each holder of the Notes notice of the Default within 60
days after it occurs. Except in the case of a Default in the payment of
principal of, premium, if any, or interest on any Note, the Trustee may
withhold notice if and so long as a committee of its Trust officers determines
that withholding notice is in the interest of the holders of the Notes. In
addition, the Company is required to deliver to the Trustee, within 90 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 10 days after it obtains
knowledge thereof, written notice of any event which would constitute a
Default, its status and what action the Company is taking or proposes to take
in respect thereof. (Sections 6.02, 7.05 and 7.06)
GUARANTEES
The principal of, premium (if any) and interest on the Notes and all other
amounts payable by the Company under the Indenture are unconditionally
guaranteed on a senior subordinated basis, jointly and severally, by the
Guarantors. All payments pursuant to the Guarantees by each Guarantor are (i)
subordinated in right of payment to the prior payment in full of all Guarantor
Senior Indebtedness, to the same extent and manner that all payments pursuant
to the Notes are subordinated in right of payment to the prior payment in full
of all Senior Indebtedness of the Company and (ii) senior in right of payment
to all Guarantor Subordinated Indebtedness. It is anticipated that all of the
Guarantors will also guarantee the Company's obligations under the New Credit
Agreement, and the Company will pledge all of the issued and outstanding shares
of Capital Stock of the Guarantors to secure Indebtedness outstanding under the
New Credit Agreement. As of October 30, 1993 after giving effect to the
issuance of the Notes and the application of the net proceeds therefrom,
Guarantors as a group would have had outstanding Guarantor Senior Indebtedness
of approximately $8.5 million. In the future, the Guarantors may issue
additional Guarantor Senior Indebtedness. See "--Certain Covenants--Limitation
on Additional Indebtedness and New Operating Leases." (Section 11.02)
The obligations of each Guarantor in respect of its Guarantee are limited to
the maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Guarantor and after giving effect to any collections from
or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under the Indenture, will result in the obligations of
such Guarantor in respect of its Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Guarantor
that makes a payment or distribution under its Guarantee shall be entitled to a
contribution from each other Guarantor in an amount pro rata, based on the net
assets of each Guarantor, determined in accordance with GAAP. (Section 11.05)
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Separate financial statements of the Guarantors are not included herein
because each is jointly and severally liable with respect to the Company's
obligations under the Notes and the Indenture, and the operations of the Non-
Recourse Subsidiary are inconsequential to the operations of the Company on a
consolidated basis.
In the event of a sale or other disposition of all or substantially all of
the assets of any Guarantor, by way of merger, consolidation or otherwise, or
all of the Capital Stock of any Guarantor, then such Guarantor (in the event of
a sale or other disposition of all of the Capital Stock of such Guarantor) or
the corporation acquiring the property (in the event of a sale or other
disposition by way of a merger, consolidation or otherwise of all or
substantially all of the assets of such Guarantor) shall be released and
relieved of its obligations under its Guarantee provided that (i) after giving
effect thereto, no Event of Default shall have occurred and be continuing; (ii)
the Company shall apply the Net Available Cash Proceeds of such sale or other
disposition in accordance with the covenant described under "--Certain
Covenants--Limitation on Sales of Assets"; and (iii) such Guarantor has been
unconditionally and fully released in writing from all obligations under
guarantees of other Indebtedness of the Company, each Subsidiary and the Non-
Recourse Subsidiary (including, without limitation, Indebtedness under the New
Credit Agreement). (Section 11.03)
AMENDMENT, SUPPLEMENT, WAIVER
Subject to certain exceptions, the Indenture may be amended or supplemented
with the consent of the holders of a majority in principal amount of the Notes
then outstanding and any past default or compliance with any provisions may be
waived with the consent of the holders of a majority in principal amount of the
Notes then outstanding. However, without the consent of each holder of an
outstanding Note, no amendment or waiver may, among other things, (i) reduce
the amount of Notes whose holders must consent to an amendment or waiver, (ii)
reduce the interest rate of or extend the fixed maturity of any Note, (iii)
reduce the premium payable upon the redemption of any Note or change the time
at which any Note may be redeemed, (iv) make any Note payable in currency other
than that stated in the Note, (v) impair the right of any holder of the Notes
to receive payment of principal and interest on such holder's Notes on or after
the due dates therefor or to institute suit for the enforcement of any payment
on or with respect to such holder's Notes, (vi) impair any provisions relating
to security for or guarantees with respect to the Notes, (vii) make any change
in the subordination provisions of the Indenture, the Notes or the Guarantees
that adversely affects the rights of any holder of Notes, or (viii) make any
change in the amendment or waiver provisions which require the consent of each
holder of Notes. (Section 9.02)
Neither the Company nor any Subsidiary shall, directly or indirectly, pay or
cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any holder of any Notes for or as an inducement to any consent,
waiver or amendment of any terms or provisions of the Notes unless such
consideration is offered to be paid or agreed to be paid to all holders of the
Notes which so consent, waive or agree to amend in the time frame set forth in
solicitation documents relating to such consent, waiver or agreement.
(Section 4.22)
Without the consent of any holder of the Notes, the Company, the Guarantors
and the Trustee may amend or supplement the Indenture to cure any ambiguity,
omission, defect or inconsistency, to provide for the assumption by a successor
corporation of the obligations of the Company and the Guarantor, as the case
may be, under the Indenture, to provide for uncertificated Notes in addition to
or in place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add additional guarantees of the Notes, to add security for
the Notes, to add to the covenants of the Company for the benefit of the
holders of the Notes or to surrender any right or power conferred upon the
Company, to make any change that does not adversely affect the rights of any
holder of the Notes or to comply with any requirement of the Commission in
connection with the qualification of the Indenture under the TIA. (Section
9.01)
The consent of the holders of the Notes is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment. (Section 9.02)
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After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes
or any defect therein, will not impair the validity of the amendment. (Section
9.02)
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Company may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and exchanges. (Section 2.06)
SATISFACTION AND DISCHARGE
The Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of the Indenture
upon compliance with certain enumerated conditions, including the Company
having paid or duly provided for the payment of all sums payable by the Company
under the Indenture and having delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel stating that there has been compliance
with all conditions precedent relating to such satisfaction and discharge.
(Section 8.01)
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Legal Defeasance. In addition, the Indenture provides that the Company may
defease and be discharged from its obligations in respect of the Notes (except
for certain obligations to register the transfer, substitution or exchange of
Notes, to replace stolen, lost or mutilated Notes, rights of the Holders to
receive payments of principal of and interest on the Notes, and rights of the
Holders of the Notes as beneficiaries of the Indenture with respect to the
property so deposited with the Trustee payable to all or any of them and to
maintain an office or agency for payments on and registration of transfer of
the Notes and the rights, obligations and immunities of the Trustee), if the
Company or any Guarantor has irrevocably deposited with the Trustee, in trust
for such purpose, (a) money in an amount, (b) U.S. government securities which
through the payment of principal and interest in accordance with their terms
will provide money in an amount, or (c) a combination thereof, sufficient in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to pay
the principal of (and premium, if any) and interest on the outstanding Notes at
maturity or upon redemption, together with all other amounts payable by the
Company under the Indenture. Such defeasance will become effective 91 days
after such deposit and only if, among other things, (a) no Default or Event of
Default with respect to the Notes has occurred and is continuing on the date of
such deposit or occurs as a result of such deposit or at any time during the
period ending on the 91st day after the date of such deposit; (b) such
defeasance does not result in a breach or violation of, or constitute a default
under, any other agreement or instrument to which the Company or such Guarantor
is a party or by which it is bound; (c) the Company or such Guarantor, as the
case may be, has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent relating to a
defeasance have been complied with; and (d) the Company or any Guarantor, as
the case may be, has delivered to the Trustee (i) either a private Internal
Revenue Service ruling or an Opinion of Counsel based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law
that holders of the Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit, defeasance and discharge and
will be subject to federal income tax with respect to the Notes on the same
amount, in the same manner, and at the same times as would have been the case
if such deposit, defeasance and discharge had not occurred, and (ii) an Opinion
of Counsel to the effect that (A) the deposit shall not result in the Company,
the Trustee or the trust being deemed to be an "investment company" under the
Investment Company Act of 1940, as amended, and (B) such deposit creates a
valid trust in which the holders of the Notes who are not "insiders" for
purposes of any bankruptcy law have the sole beneficial ownership interest or
that the holders of the Notes have a non-avoidable first priority security
interest in
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such trust. Notwithstanding the foregoing, the Company's obligations to pay
principal, premium, if any, and interest on the Notes, and the Guarantors'
obligations under the Guarantees and the Indenture, shall continue until the
Internal Revenue Service ruling or Opinion of Counsel referred to in clause (i)
above is provided with regard to and without reliance upon such obligations
continuing to be obligations of the Company and the Guarantors, respectively.
(Section 8.01)
Covenant Defeasance. The Company will be released from its obligations with
respect to certain covenants contained in the Indenture, including, without
limitation, those described under "Certain Covenants," and any failure to
comply with such covenants will not be an Event of Default, if (a) the Company
deposits or causes to be deposited with the Trustee in trust an amount of cash
or U.S. government securities sufficient to pay and discharge when due the
entire unpaid principal, premium, if any, and interest on all outstanding Notes
and (b) certain other conditions are met. The obligations of the Company under
the Indenture with respect to the Notes, other than with respect to the
covenants and Events of Defaults referred to above, will remain in full force
and effect. (Section 8.01)
CONCERNING THE TRUSTEE
Society National Bank is to be the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the
Notes. (Section 2.03)
The Trustee is a creditor of the Company and certain of the Guarantors, and
is anticipated to be a lender under the New Credit Agreement. The Indenture
contains certain limitations on the rights of the Trustee as a creditor of the
Company and the Guarantors. The Indenture restricts the rights of the Trustee
to obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Trustee
will be permitted to engage in other transactions; however, if it acquires any
conflicting interest (as defined in the Indenture), it must eliminate such
conflict or resign.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
(Section 12.09)
CERTAIN DEFINITIONS
Set forth below are certain of the defined terms used in the Indenture
(Section 1.01)
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Subsidiary (or such Person is merged into the Company or
a Subsidiary) or assumed in connection with the acquisition of properties or
assets from any such Person and not incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary or such acquisition.
"Acquired Operating Lease" means any Operating Lease of a Person existing at
the time such Person becomes a Subsidiary (or such Person is merged into the
Company or a Subsidiary) or assumed in connection with the acquisition of
properties or assets from any such Person after the Issue Date and not entered
into in connection with, or in contemplation of, such Person becoming a
Subsidiary or in contemplation of such acquisition, and includes any
replacements or renewals of any such Operating Lease.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. A
specified Person beneficially owning 30% or more of the voting power of the
Voting Stock of a corporation will be presumed to control such corporation
unless another Person beneficially owns more Voting Stock than such specified
Person beneficially owns and such other Person has actual control.
Notwithstanding the foregoing, the term Affiliate shall not include any Wholly
Owned Subsidiary which is a Guarantor but shall include the Non-Recourse
Subsidiary.
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"Asset Disposition" means any sale, lease, sublease, transfer, issuance or
other disposition (or series of related sales, leases, subleases, transfers,
issuances or dispositions) of shares of Capital Stock of the Company, any
Subsidiary or the Non-Recourse Subsidiary (other than directors' qualifying
shares), property or other assets (each referred to for the purposes of this
definition as a "disposition"), by the Company, any Subsidiary or the Non-
Recourse Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (other than (i) a disposition of inventory
at not less than fair market value in the ordinary course of business, (ii) a
disposition of obsolete assets in the ordinary course of business, (iii) a sale
or issuance of Capital Stock of the Company which is not Exchangeable Stock,
(iv) sales of individual assets in the ordinary course of business having a
fair market value less than, and for consideration less than, $5,000, (v) any
disposition of assets of the Non-Recourse Subsidiary not constituting, together
with any related dispositions by the Non-Recourse Subsidiary, a sale of all or
substantially all of the assets of the Non-Recourse Subsidiary, and (vi) any
disposition to a Wholly Owned Subsidiary which is a Guarantor).
"Attributable Indebtedness" in respect of a Sale-Leaseback Transaction means,
as at the time of the Sale-Leaseback Transaction, the greater of (i) the fair
value of the property subject to such arrangement (as determined in good faith
by the Board of Directors) or (ii) the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such arrangement (including any period for which such lease has
been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i) the sum of the products of
the numbers of years from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness multiplied by the
amount of such principal payment by (ii) the sum of all such principal
payments.
"beneficial owner" has the meaning ascribed thereto in Rules 13d-3 and 13d-5
promulgated by the Commission under the Exchange Act, except that a person
shall be deemed to be the beneficial owner of all shares that such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time; and the terms "beneficial ownership" and
"beneficially owns" have meanings correlative to the foregoing.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Capital Lease Obligations" of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with GAAP; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP; and the stated maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Capital Stock" means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) corporate stock, including any Preferred Stock.
"Code" means the Internal Revenue Code of 1986, as from time to time amended.
"Consolidated Fixed Charge Coverage Ratio" of the Company for any period
means the ratio, on a pro forma basis, of (i) the sum of Consolidated Net
Income, Consolidated Fixed Charges and Consolidated Tax Expense, plus
depreciation, and without duplication, all amortization, in each case, for such
period, of the Company and its subsidiaries (other than the Non-Recourse
Subsidiary) on a consolidated basis, as determined in accordance with GAAP, to
(ii) Consolidated Fixed Charges; provided, that in calculating Consolidated
Fixed Charges on a pro forma basis, any Indebtedness bearing a floating
interest rate shall be computed as if the rate in effect on the date of
computation has been the applicable rate for the entire period and the
aggregate amount of available commitments under any revolving credit facility
(excluding any letter of credit facility) of the Company or any Subsidiary will
be deemed to be outstanding.
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"Consolidated Fixed Charges" of the Company means, for any period, the sum
of: (i) the aggregate amount of interest which, in conformity with GAAP, would
be set opposite the caption "interest expense" or any like caption on an income
statement for the Company and its subsidiaries (other than the Non-Recourse
Subsidiary) on a consolidated basis (including, without limitation, imputed
interest included on Capital Lease Obligations, all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, the net costs associated with any Interest Rate
Agreement, foreign currency exchange agreement, option or futures contract or
other similar agreement or arrangement relating to interest rates or foreign
exchange rates); (ii) an amount equal to one-third of Consolidated Operating
Lease Payments; and (iii) dividends on Preferred Stock of the Company or a
Subsidiary held by Persons other than the Company or a Wholly Owned Subsidiary
which is a Guarantor. For purposes of clause (iii) of the preceding sentence,
dividends shall be deemed to be an amount equal to the actual dividends paid
divided by one minus the applicable combined federal, state and local income
tax rate of the Company (expressed as a decimal), on a consolidated basis, for
the fiscal year immediately preceding the date of the transaction giving rise
to the need to calculate Consolidated Fixed Charges.
"Consolidated Net Income" means, for the Company for any period, the net
income of the Company and its subsidiaries (other than, except as expressly
provided below, the Non-Recourse Subsidiary) determined on a consolidated basis
in accordance with GAAP; however, there will not be included in such
Consolidated Net Income: (i) subject to clause (iv) below, any net income of
the Non-Recourse Subsidiary or any Person which is not a Subsidiary, except
that (A) the Company's equity in the net income of the Non-Recourse Subsidiary
or any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by the Non-
Recourse Subsidiary (including as a result of sales by the Non-Recourse
Subsidiary of Capital Stock pledged or delivered by borrowers who are
franchisees of convenience stores of the Company or any Subsidiary) or any such
Person during such period to the Company or a Guarantor as a dividend or other
distribution (subject, in the case of a dividend or other distribution to a
Guarantor, to the limitations contained in clause (iii) below) and (B) the
Company's equity in a net loss of the Non-Recourse Subsidiary or any such
Person for such period shall be included in determining such Consolidated Net
Income, (ii) any net income (but not net loss) of any Person acquired by the
Company or a Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition; (iii) any net income of any Subsidiary
if such Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Subsidiary,
directly or indirectly, to the Company, except that (A) the Company's equity in
the net income of any such Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Subsidiary during such period to the Company or a Guarantor as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to another Subsidiary, to the limitation contained in this clause)
and (B) the Company's equity in a net loss of any such Subsidiary for such
period shall be included in determining such Consolidated Net Income; (iv) any
gain (but not loss) realized upon the sale or other disposition of any
property, plant or equipment of the Company or its consolidated subsidiaries
(including the Non-Recourse Subsidiary and including pursuant to any Sale-
Leaseback Transaction) which is not sold or otherwise disposed of in the
ordinary course of business and any gain (but not loss) realized upon the sale
or other disposition of any Capital Stock of any Person (except for sales by
the Non-Recourse Subsidiary of Capital Stock pledged or delivered by borrowers
who are franchisees of convenience stores of the Company or any Subsidiary up
to the aggregate amount of cash actually distributed by the Non-Recourse
Subsidiary during such period to the Company or a Guarantor as a dividend or
other distribution); (v) any gains or losses from currency exchange
transactions not in the ordinary course of business consistent with past
practice; (vi) any gains (but not losses) attributable to any extraordinary
items; (vii) all extraordinary expenses, including as a result of the write-off
of deferred loan costs in connection with the application of the proceeds from
the sale of the Notes; (viii) the amount of any premium payable on the
Company's 14.25% Subordinated Debentures Due 2000 as a result of prepayment of
such Debentures with the proceeds of the Notes in accordance with the
Prospectus; and (ix) the cumulative effect of a change in accounting
principles.
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"Consolidated Net Worth" of any Person means the total of the amounts shown
on the balance sheet of such Person and its consolidated subsidiaries
(including, with respect to the Company, the Non-Recourse Subsidiary),
determined on a consolidated basis in accordance with GAAP, as of the end of
the most recent fiscal quarter of such Person ending prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of such Person plus (ii) paid-
in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit, (B) any
amounts attributable to Redeemable Stock (only to the extent such amounts shall
be due prior to the final maturity of the Notes) and (C) any amounts
attributable to Exchangeable Stock.
"Consolidated Operating Lease Payments" means for any Reference Period: (i)
the aggregate amount of all rents paid or payable (net of sublease income) by
the Company or any of its consolidated subsidiaries (other than the Non-
Recourse Subsidiary) under all Operating Leases of the Company or any of its
consolidated subsidiaries, all as determined in accordance with GAAP; (ii) less
$2.5 million.
"Consolidated Tax Expense" means, for the Company for any period, the
provision (benefit) for taxes based on income and profits (or losses) of the
Company and its subsidiaries (other than the Non-Recourse Subsidiary) on a
consolidated basis to the extent such income or profits (or losses) were
included in computing Consolidated Net Income of the Company for such period.
"Default" means any event which is, or after notice or passage of time, or
both, would be, an Event of Default.
"Excess Proceeds" has the meaning set forth in "Certain Covenants--Limitation
on Sales of Assets."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchangeable Stock" means any Capital Stock which is exchangeable or
convertible into another security (other than Capital Stock of the Company
which is neither Exchangeable Stock nor Redeemable Stock).
"Existing Indebtedness" means Indebtedness of the Company and each Subsidiary
in existence on the Issue Date.
"FINOP" means Financial Opportunities, Inc., a Kentucky corporation, licensed
as an SBIC by the SBA, all of the Capital Stock of which is owned by the
Company or a Wholly-Owned Subsidiary.
"Fixed Assets" means assets of the Company, a Subsidiary or a Non-Recourse
Subsidiary which are "fixed assets", as defined in accordance with GAAP.
"Franchise Agreements" means franchise agreements entered into by the Company
or any Subsidiary in the ordinary course of business in connection with the
franchising of the Company's convenience retail stores.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are applicable as of the date of
determination; provided, however, that these definitions and all ratios and
calculations contained in the covenants described under "Certain Covenants--
Limitation on Restricted Payments," "Certain Covenants--Limitation on
Additional Indebtedness and New Operating Leases," "Certain Covenants--
Limitation on Sale-Leaseback Transactions," and "Certain Covenants--Limitation
on Sales of Assets" shall be determined in accordance with GAAP as in effect
and applied by the Company on the Issue Date, consistently applied.
"Guarantee" means the guarantee by a Guarantor of the Company's obligations
under the Notes.
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"Guarantor" means each Subsidiary executing a signature page to the Indenture
on the Issue Date and any Person who becomes a Guarantor as provided in the
covenant described under "Certain Covenants--Additional Guarantors," and any of
their respective successors or assigns.
"Guarantor Senior Indebtedness" means all Indebtedness of the specified
Guarantor under: (i) its guarantee of the Company's obligations under the New
Credit Agreement; and (ii) all additional Indebtedness that is permitted to be
incurred by such Guarantor under the Indenture that is not by its terms
subordinated to or pari passu with the obligations of such Guarantor under its
Guarantee (it being understood that Indebtedness permitted to be incurred by
such Guarantor under the Indenture that is not by its terms subordinated to or
pari passu with the obligations of such Guarantor under its Guarantee shall not
in any event constitute Guarantor Senior Indebtedness if such Indebtedness is
subordinated by its terms to any other Indebtedness that constitutes Guarantor
Senior Indebtedness). Notwithstanding anything to the contrary in the
foregoing, Guarantor Senior Indebtedness shall not include (w) any liability of
such Guarantor for state, local or other taxes, (x) any Indebtedness between or
among such Guarantor, the Company, any other Subsidiary or the Non-Recourse
Subsidiary, (y) any Indebtedness of such Guarantor incurred for the purchase of
goods or materials or for services obtained in the ordinary course of business,
(z) the Company's 14.25% Subordinated Debentures Due 2000. (Section 11.01)
"Guarantor Subordinated Indebtedness" means, with respect to a specified
Guarantor, any Indebtedness of such Guarantor (whether outstanding on the Issue
Date or thereafter Incurred) which is subordinate or junior in right of payment
to the Guarantee of such Guarantor.
"Incurrence" means the incurrence, creation, assumption, issuance, guarantee
of the payment of, or in any other manner becoming liable with respect to, the
payment of, any Indebtedness. "Incur" and "Incurred" shall have a comparable
meaning.
"Indebtedness" means, with respect to any Person, without duplication, (i)
the principal of and premium (if any) in respect of (A) indebtedness of such
Person for money borrowed and (B) indebtedness evidenced by notes, debentures,
bonds or other similar instruments (including purchase money obligations) for
payment of which such Person is responsible or liable; (ii) all Capital Lease
Obligations of such Person; (iii) all obligations of such Person issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance, note
purchase facility or similar credit transaction (other than obligations with
respect to letters of credit securing obligations (other than obligations
described in (i) through (iii) above) entered into in the ordinary course of
business of such Person to the extent such letters of credit are not drawn upon
or, if and to the extent drawn upon, such drawing is reimbursed no later than
the third business day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit); (v) all obligations
of the type referred to in clauses (i) through (iv) of other Persons and all
dividends of other Persons for the payment of which, in either case, such
Person is responsible or liable as obligor, guarantor or otherwise; (vi) all
obligations of the type referred to in clauses (i) through (v) of other Persons
secured by any Lien on any property or asset of such Person (whether or not
such obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount
of the obligation so secured; (vii) Redeemable Stock of such Person; and (viii)
with respect to the Company or any Subsidiary, Preferred Stock of any
Subsidiary (other than Preferred Stock held by the Company or any Wholly Owned
Subsidiary which is a Guarantor); provided, however, that Indebtedness will not
include endorsements of negotiable instruments for collection in the ordinary
course of business.
"Interest Rate Agreement" means the obligation of any Person pursuant to any
interest rate swap agreement, interest rate collar agreement, currency exchange
agreement or other similar agreement or arrangement entered into by such Person
in the ordinary course of business.
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"Investment" in any Person means any loan or advance to, any acquisition of
Capital Stock of, equity interest in, obligation or other security of, or
capital contribution to or other investment in, such Person.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give any security interest in and any filing or other agreement to give
any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Net Available Cash Proceeds" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only
as and when received, but excluding any other consideration received in the
form of assumption by the acquiring Person of Indebtedness or other obligations
relating to such properties or assets or received in any other noncash form)
therefrom, in each case net of all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be accrued as a liability under
GAAP, as a consequence of such Asset Disposition, and in each case net of all
payments made on any Indebtedness which is secured by any assets subject to
such Asset Disposition, in accordance with the terms of any Lien upon or other
security agreement of any kind with respect to such assets, or which must by
its terms, or in order to obtain a necessary consent to such Asset Disposition,
or by applicable law, be repaid out of the proceeds from such Asset
Disposition, and net of all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint ventures as a result
of such Asset Disposition.
"Net Proceeds" means, with respect to a specified transaction, total cash
proceeds net of all customary legal expenses, commissions and other fees and
expenses incurred and all Federal, state, provincial, foreign and local taxes
required to be accrued as a liability under GAAP, as a consequence of, and in
connection with, such transaction.
"New Credit Agreement" means the Credit Agreement dated as of ,
1994, among the Company, Fleet Bank, National Association and Society National
Bank, as such agreement may be amended, supplemented or otherwise modified from
time to time and any agreement evidencing any refunding, replacement,
refinancing or renewal, in whole or in part, of the Indebtedness permitted to
be borrowed thereunder on the date of execution thereof.
"New Operating Leases" means Operating Leases entered into by the Company or
any of its consolidated subsidiaries (other than the Non-Recourse Subsidiary)
following the Issue Date for the purpose of leasing real property, gasoline
equipment or other equipment in connection with the operation of retail
convenience stores not owned, operated or franchised by the Company or any of
its consolidated subsidiaries on or prior to the Issue Date; provided, however,
that the term New Operating Leases shall not be deemed to include Acquired
Operating Leases.
"Non-Convertible Capital Stock" means, with respect to any corporation, any
nonconvertible Capital Stock of such corporation and any Capital Stock of such
corporation convertible solely into nonconvertible common stock of such
corporation which is not Redeemable Stock or Exchangeable Stock; provided,
however, that Non-Convertible Capital Stock does not include any Redeemable
Stock or Exchangeable Stock.
"Non-Recourse Subsidiary" means FINOP, provided that:
(a) no portion of FINOP's Indebtedness or any of its other obligations
(contingent or otherwise), (i) is guaranteed by the Company or any
Subsidiary, (ii) is recourse to or obligates the Company or any Subsidiary
in any way or (iii) subjects any property or asset of the Company or any
Subsidiary, directly or indirectly, contingently or otherwise, to
satisfaction thereof;
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(b) neither the Company nor any Subsidiary has any contract, agreement,
arrangement, understanding with FINOP or is subject to an obligation of any
kind, written or oral, other than on terms no less favorable to the Company
or such Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company;
(c) neither the Company nor any Subsidiary has any obligation (i) to
subscribe for additional shares of Capital Stock or other equity interests
of FINOP or (ii) to maintain or preserve FINOP's financial condition or to
cause FINOP to achieve certain levels of operating results;
(d) FINOP continues to be an SBIC, regulated and licensed as such by the
SBA, and performs no activities or engages in no business other than as an
SBIC;
(e) FINOP maintains a bank account or accounts separate from those of the
Company and each Subsidiary and does not otherwise commingle its funds or
any other properties or assets with those of the Company or any Subsidiary;
(f) the Board of Directors of FINOP contains at least one independent
director who is not an officer, director, employee, shareholder (other than
a shareholder owning less than 1% of the outstanding Capital Stock of any
class of the Company's or any Subsidiary's Capital Stock) or Affiliate of
the Company or any Subsidiary; and
(g) the sum of Indebtedness and aggregate liquidation preference of
Preferred Stock of FINOP does not exceed $20 million, unless at the time of
the Incurrence of additional Indebtedness or the issuance of Preferred
Stock by FINOP, the Consolidated Fixed Charge Coverage Ratio for the
Company is equal to or greater than 2.0 to 1.0.
At the time FINOP ceases to meet any of the requirements set forth above for
characterization as the Non-Recourse Subsidiary, FINOP shall be deemed to be a
Subsidiary for all purposes of the Indenture if, at such time, it is properly
characterized as such in accordance with the definition of "Subsidiary" set
forth below.
"Officer" means with respect to any corporation, the Chairman of the Board,
the Chief Executive Officer, the President, any Vice President, the Treasurer
or the Secretary of such corporation.
"Officers' Certificate" means a written certificate containing the
information specified by the Indenture, signed in the name of the Company, any
Guarantor or other obligor on the Notes, as the case may be, by any two of its
Officers, and delivered to the Trustee.
"Operating Lease" shall mean, as applied to any Person, any lease with
respect to which such Person is the lessee (including, without limitation,
leases which may be terminated by the lessee at any time) of any property
(whether real, personal or mixed) which is not a lease which is required to be
classified and accounted for as a capital lease on the face of the balance
sheet of such Person prepared in accordance with GAAP.
"Opinion of Counsel" means a written opinion containing information specified
by the Indenture rendered by legal counsel who is reasonably acceptable to the
Trustee.
"Permitted Holders" means Frank Colaccino and his Related Parties, or in the
event of the death or mental or physical incapacity of Frank Colaccino, any of
Gregory Landry, Robert Stein or Mitchell Kupperman and their respective Related
Parties.
"Permitted Indebtedness" means (i) Indebtedness incurred by the Company under
the New Credit Agreement as in effect on the Issue Date, provided that such
amount shall be permanently reduced by (x) the amount of any revolving loan
commitment reductions from time to time effected under the New Credit
Agreement, and (y) the amount of any prepayments of such Indebtedness which is
not reborrowed and invested as described in the first proviso under "Limitation
on Sales of Assets," and provided further that the
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aggregate amount of all Indebtedness permitted to be outstanding thereunder at
any one time shall not exceed $30.0 million and the aggregate amount of
Indebtedness evidenced by all letters of credit permitted to be outstanding
thereunder (including the outstanding principal amount of any loans advanced
for drawings thereunder) at any one time shall not exceed $15.0 million; (ii)
guarantees by Subsidiaries of the Company's Indebtedness referred to in clause
(i) of this paragraph; (iii) Existing Indebtedness and Indebtedness represented
by the Notes; (iv) Indebtedness issued to repay, refund or refinance
Indebtedness of the Company or any Subsidiary permitted under clauses (i), (ii)
and (iii) of this paragraph (such Indebtedness being referred to herein as
"Refinancing Indebtedness"), provided such Refinancing Indebtedness (a) does
not exceed the principal or accreted amount of, (b) ranks in right of payment
to the Notes no more than to the same extent as, (c) has an Average Life and
Stated Maturity equal to, or greater than, and (d) shall not provide for any
mandatory redemption, amortization or sinking fund requirements in an amount
greater than or at a time prior to the amounts and times specified with respect
to, the Indebtedness so repaid, refunded or refinanced; (v) intercompany
Indebtedness permitted by the covenant described under "Limitation on
Restricted Payments"; (vi) Indebtedness under Interest Rate Agreements; (vii)
guarantees by the Company or any Wholly Owned Subsidiary which is a Guarantor
of loans (other than loans made by the Non-Recourse Subsidiary) in the ordinary
course of business to franchisees of the Company's or any Subsidiary's
convenience retail stores for the purpose of financing costs of equipment,
leasehold improvements and/or inventory for such stores pursuant to a Franchise
Agreement, provided that the aggregate liability in respect of all such
Indebtedness shall not exceed $5.0 million at any one time under this clause
(vii); (viii) Capitalized Lease Obligations of the Company or any Subsidiary
for the purpose of purchasing or financing personal computers, equipment,
software, supplies and/or other assets necessary for the operation of the
Company's POS System, provided that the aggregate liability in respect of all
such Indebtedness shall not exceed $6.0 million at any time; (ix) Indebtedness
incurred by FINOP at a time when it satisfied the definition of Non-Recourse
Subsidiary or (x) Indebtedness not otherwise permitted in an aggregate
principal amount not in excess of $7.5 million at any one time outstanding.
"Permitted Investments" means (a) certificates of deposit with a maturity of
one year or less issued by U.S. commercial banks having capital and surplus in
excess of $100.0 million; (b) commercial paper with a minimum rating of A1
and/or P1 by Standard & Poor's Corporation and/or Moody's Investors Service,
Inc., respectively; (c) direct obligations of the United States or of a United
States agency with a maturity of one year or less; and (d) shares of money
market mutual or similar funds having assets in excess of $100.0 million.
"Permitted Liens" means with respect to any Person, (i) pledges or deposits
by such Person under workmen's compensation laws, unemployment insurance laws
or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness), utility
services or leases to which such Person is a party, or deposits to secure
public or statutory obligations of such Person or deposits of cash or U.S.
Government bonds to secure surety or appeal bonds to which such Person is a
party, or deposits as security for contested taxes or import duties or for the
payment of rent and incurred in the ordinary course of such Person's business,
(ii) Liens determined by law, such as carriers', warehousemen's, mechanics' and
bankers' Liens and incurred in the ordinary course of such Person's business,
(iii) Liens for taxes not yet subject to penalties for non-payment or which are
being contested in good faith and by appropriate proceedings, if adequate
reserve, as may be required by GAAP, shall have been made therefor, (iv) Liens
in favor of issuers of surety bonds (other than to satisfy any judgment or
judgments) issued pursuant to the request of and for the account of such Person
in the ordinary course of its business and (v) survey exceptions, encumbrances,
easements or reservations of, or rights of others for, rights-of-way, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real properties or Liens
incidental to the conduct of the business of such Person or to the ownership of
its properties and incurred in the ordinary course of such Person's business.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
52
<PAGE>
"POS System" means the automated reporting system to be installed by the
Company in certain of its retail convenience stores for the purpose of entering
into a central data system maintained by the Company certain information with
respect to such stores through the use of personal computers, equipment,
software, supplies and/or other assets located at such stores.
"Preferred Stock" as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred,
as to the payment of dividends or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Public Equity Offering" means an underwritten public offering of common
stock of the Company (other than Redeemable Stock or Exchangeable Stock),
pursuant to an effective registration statement filed pursuant to the
Securities Act of 1933, as amended.
"Redeemable Stock" means any Capital Stock that by its terms or otherwise is
required to be redeemed prior to the first anniversary of the Stated Maturity
of the Notes or is redeemable at the option of the holder thereof any time
prior to the first anniversary of the Stated Maturity of the Notes.
"Reference Period" means, with respect to any computation of the Consolidated
Fixed Charge Coverage Ratio, the most recent four fiscal quarters of the
Company for which internal financial statements of the Company are available
prior to the date of determination of the Consolidated Fixed Charge Coverage
Ratio.
"Registrar" means the office or agency where Notes may be presented for
registration of transfer or for exchange.
"Related Party" with respect to each Permitted Holder means (a) any spouse or
immediate family member of such Permitted Holder or (b) any trust, corporation,
partnership or other entity, all of the beneficiaries, stockholders, partners,
owners or Persons beneficially holding an 80% or more controlling interest of
which consist of Permitted Holders and/or such other Persons referred to in the
immediately preceding clause (a).
"Sale-Leaseback Transaction" means any arrangement relating to property now
owned or hereafter acquired whereby the Company or a Subsidiary transfers such
property to a Person and leases it back from such Person.
"SBA" means Small Business Administration or any successor thereto
established by the Small Business Act, as amended (15 U.S.C., Section 633), or
any successor statute to carry out the policies of that Act.
"SBIC" means a small business investment company approved by the SBA to
operate under the provisions of the Small Business Investment Act of 1958, as
amended (15 U.S.C., Section 662) or any successor statute and issued a license
as provided in Section 681 of that Act.
"Senior Indebtedness" means all Indebtedness of the Company under: (i) the
New Credit Agreement as in effect on the Issue Date; and (ii) all additional
Indebtedness that is permitted under the Indenture that is not by its terms
subordinated to or pari passu with the Notes (it being understood that
Indebtedness permitted under the Indenture that is not by its terms
subordinated to or pari passu with the Notes shall not in any event constitute
Senior Indebtedness if such Indebtedness is subordinated by its terms to any
other Indebtedness that constitutes Senior Indebtedness). Notwithstanding
anything to the contrary in the foregoing, Senior Indebtedness shall not
include (w) the Company's 14.25% Subordinated Debentures Due 2000, (x) any
liability of the Company, any Subsidiary or the Non-Recourse Subsidiary for
state, local or other taxes, (y) any Indebtedness between or among the Company,
any Subsidiary or the Non-Recourse Subsidiary, or (z) any Indebtedness of the
Company, any Subsidiary or the Non-Recourse Subsidiary incurred for the
purchase of goods or materials or for services obtained in the ordinary course
of business (other than Indebtedness incurred under any revolving credit
facility under the New Credit Agreement for such purpose).
53
<PAGE>
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the principal of such security is due
and payable, including pursuant to any mandatory redemption provision.
"Subordinated Indebtedness" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinated or
junior in right of payment to the Notes.
"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interest (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) the Company, (ii) the Company and one or more
Subsidiaries, or (iii) one or more Subsidiaries. Notwithstanding the foregoing,
the Non-Recourse Subsidiary shall not be deemed to be a Subsidiary.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" means, with respect to a corporation, all classes of capital
stock then outstanding of such corporation normally entitled to vote in
elections of directors.
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which
(other than directors' qualifying shares) is owned by the Company or another
Wholly Owned Subsidiary.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
among the Company, the Guarantors, and Bear, Stearns & Co. Inc. (the
"Underwriter"), the Company has agreed to sell to the Underwriter and the
Underwriter has agreed to purchase from the Company, the aggregate principal
amount of the Notes.
The Underwriting Agreement provides that the obligation of the Underwriter to
purchase Notes is subject to certain conditions, and that if any of the Notes
are purchased by the Underwriter pursuant to the Underwriting Agreement, all of
the Notes agreed to be purchased by the Underwriter pursuant to the
Underwriting Agreement must be so purchased.
The Underwriter has advised the Company that it proposes to offer the Notes
to the public at the public offering price set forth on the cover page of this
Prospectus, and in part to certain selected dealers at such price less a
concession not in excess of % of the principal amount thereof. The Underwriter
may allow, and such dealers may reallow, a concession not in excess of % of
the principal amount thereof to certain other dealers. After the initial public
offering, the public offering price, concession and reallowance may be changed.
The Company has no plans to list the Notes on any securities exchange or on
the National Association of Securities Dealers Automated Quotation System. The
Company has been advised by the Underwriter that it presently intends to make a
market in the Notes; however, the Underwriter is not obligated to do so. Any
such market-making activity may be discontinued at any time for any reason,
without notice. There can be no assurance that an active market for the Notes
will develop or if a market does develop, at what prices the Notes will trade.
If such a market were to develop, the Notes could trade at prices that may be
higher or lower than the initial offering price thereof, depending on many
factors, including prevailing interest rates, general economic conditions, the
Company's operating results and the market for similar debt securities. To
54
<PAGE>
the extent that an active trading market for the Notes does not develop, the
liquidity and trading prices for the Notes may be adversely affected. See
"Investment Considerations--No Prior Market for the Notes."
The Company has agreed in the Underwriting Agreement to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments that the Underwriter may be
required to make in respect thereof.
CERTAIN LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Schatz & Schatz, Ribicoff & Kotkin, Hartford, Connecticut. Certain
legal matters with respect to this offering are being passed upon for the
Underwriter by Dorsey & Whitney (a partnership including professional
corporations), New York, New York.
EXPERTS
The Consolidated Financial Statements and schedules of the Company included
in or incorporated by reference into this Prospectus have been audited by
Arthur Andersen & Co., Independent Public Accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-2 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Notes and the Guarantees offered hereby to which reference is hereby made. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement. The
Registration Statement may be inspected at the office of the Commission at 450
Fifth Street, N.W., Washington, DC 20549, and copies thereof may be obtained
from the Commission at prescribed rates. Statements made in this Prospectus as
to the contents of any contract, agreement or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract, agreement or document filed or incorporated by reference as an
exhibit to the Registration Statement.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Reports, proxy and information statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
DC 20549 and at the Commission's regional offices at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, DC 20549 at prescribed rates. In addition,
such reports, proxy and information statements and other information concerning
the Company may also be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, DC 20006.
While the Notes are outstanding, the Company will furnish holders of the
Notes with annual reports containing audited consolidated financial statements
and quarterly reports containing unaudited interim consolidated financial
information.
55
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the Commission pursuant to the Exchange
Act are incorporated by reference into this Prospectus:
1. Annual Report of the Company on Form 10-K for the fiscal year ended
January 30, 1993, as amended by Form 10-K/A Amendment No. 1.
2. Quarterly report of the Company on Form 10-Q for the fiscal quarter
ended May 1, 1993 as amended by Form 10-Q/A Amendment No. 1.
3. Quarterly report of the Company on Form 10-Q for the fiscal quarter
ended July 31, 1993 as amended by Form 10-Q/A Amendment No. 1.
4. Quarterly report of the Company on Form 10-Q for the fiscal quarter
ended October 30, 1993.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any statement modified or superseded shall not be deemed, except as modified or
superseded, to constitute part of this Prospectus.
The Company will provide to each person to whom this Prospectus is delivered,
including any beneficial owner of Notes, upon written or oral request of such
person, a copy of the documents incorporated by reference into this Prospectus
(not including exhibits to such documents unless the exhibits are specifically
incorporated by reference into the documents which this Prospectus
incorporates). Requests for such documents should be directed to the Company at
Dairy Mart Convenience Stores, Inc., One Vision Drive, Enfield, Connecticut
06082; Attention: Investor Relations, telephone number (203) 741-4444.
56
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Operations for the three fiscal quarters ended
October 31, 1992 and October 30, 1993................................... F-2
Consolidated Balance Sheets as of January 30, 1993 and October 30, 1993.. F-3
Consolidated Statements of Cash Flows for the three fiscal quarters ended
October 31, 1992 and October 30, 1993................................... F-4
Notes to Interim Consolidated Financial Statements....................... F-5
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants................................. F-7
Consolidated Statements of Operations and Retained Earnings for each of
the years in the three-year period ended January 30, 1993............... F-8
Consolidated Balance Sheets as of February 1, 1992 and January 30, 1993.. F-9
Consolidated Statements of Cash Flows for each of the years in the three-
year period ended January 30, 1993...................................... F-10
Notes to Consolidated Financial Statements............................... F-11
</TABLE>
F-1
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE FISCAL
QUARTERS ENDED
---------------------------------
OCTOBER 31, 1992 OCTOBER 30, 1993
---------------- ----------------
<S> <C> <C>
Net Sales of the Company, Its Subsidiaries
and Franchises.............................. $587,390 $581,850
======== ========
Revenues..................................... $435,623 $450,379
Cost of sales................................ 318,019 327,847
-------- --------
Gross profit............................... 117,604 122,532
Store operating expenses..................... 83,545 86,426
General and administrative expenses.......... 24,936 25,250
-------- --------
Income from operations..................... 9,123 10,856
Interest expense............................. (5,541) (5,751)
Interest income.............................. 931 575
Gain (loss) on disposition of properties,
net......................................... (332) 59
-------- --------
Income before income taxes and cumulative
effect of change in accounting for income
taxes..................................... 4,181 5,739
Provision for income taxes................... 1,672 2,296
-------- --------
Income before cumulative effect of change
in accounting for income taxes............ 2,509 3,443
Cumulative effect of change in accounting for
income taxes (Note 2)....................... (3,951) --
-------- --------
Net income (loss).......................... $ (1,442) $ 3,443
======== ========
Weighted average shares outstanding.......... 5,415 5,519
======== ========
Earnings (loss) per share:
Before cumulative effect of change in
accounting for income taxes................. $ .46 $ .62
Cumulative effect of change in accounting for
income taxes (Note 2)....................... (.73) --
-------- --------
Earnings (loss) per share.................. $ (.27) $ .62
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 30, 1993 OCTOBER 30, 1993
---------------- ----------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Current Assets:
Cash....................................... $ 6,483 $ 6,315
Accounts and notes receivable.............. 11,069 10,020
Inventory.................................. 26,857 27,392
Prepaid expenses and other current assets.. 2,306 2,891
Deferred income taxes...................... 4,045 2,735
-------- --------
Total current assets..................... 50,760 49,353
-------- --------
Property and Equipment:
Land and improvements...................... 14,134 15,117
Buildings and leaseholds................... 51,659 53,860
Equipment.................................. 71,191 75,014
-------- --------
136,984 143,991
Less--Accumulated depreciation............. 46,341 51,588
-------- --------
Net property and equipment............... 90,643 92,403
-------- --------
Property Under Capital Leases, net........... 2,433 1,938
-------- --------
Other Assets:
Goodwill, net.............................. 11,316 11,049
Franchise and operating rights, net........ 8,009 7,745
Favorable leases purchased, net............ 602 548
Notes receivable........................... 3,607 2,667
Other...................................... 7,177 7,118
-------- --------
Total other assets....................... 30,711 29,127
-------- --------
Total assets................................. $174,547 $172,821
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt.......... $ 7,803 $ 8,047
Current portion of capital lease obliga-
tions..................................... 1,087 1,128
Accounts payable........................... 27,768 29,069
Accrued expenses........................... 13,599 15,177
Accrued restructuring expenses............. 5,200 661
-------- --------
Total current liabilities................ 55,457 54,082
-------- --------
Long-Term Debt, less current portion......... 69,645 65,809
-------- --------
Capital Lease Obligations, less current por-
tion........................................ 2,500 1,839
-------- --------
Other Liabilities and Deferred Credits....... 5,352 5,488
-------- --------
Deferred Income Taxes........................ 8,861 9,183
-------- --------
Commitments and Contingencies (Note 6)
Stockholders' Equity:
Class A Common Stock....................... 32 32
Class B Common Stock....................... 30 30
Paid-in capital in excess of par value..... 27,212 27,457
Retained earnings.......................... 10,463 13,906
Treasury stock, at cost.................... (5,005) (5,005)
-------- --------
Total stockholders' equity............... 32,732 36,420
-------- --------
Total liabilities and stockholders' equity... $174,547 $172,821
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE FISCAL
QUARTERS ENDED
---------------------------------
OCTOBER 31, 1992 OCTOBER 30, 1993
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ (1,442) $ 3,443
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting
for income taxes........................ 3,951 --
Payment of accrued restructuring
expenses................................ -- (4,539)
Depreciation and amortization............ 10,529 9,577
Decrease in store fixed assets resulting
from franchising activities............. -- 65
(Decrease) increase in deferred income
taxes................................... (983) 1,632
(Gain) loss on other disposition of
properties, net......................... 332 (59)
Decrease in accounts and notes
receivable.............................. 2,339 1,049
Increase in inventory.................... (3,917) (535)
Increase in accounts payable............. 4,676 1,301
Increase in other current assets and
liabilities, net........................ 1,739 993
(Decrease) increase in other noncurrent
liabilities and deferred credits........ (274) 136
-------- -------
Net cash provided by operating activities.... 16,950 13,063
-------- -------
Cash flows from investing activities:
Purchase of property and equipment......... (14,237) (10,905)
Proceeds from sale of property and
equipment................................. 919 1,665
Proceeds from long-term notes receivable... 1,185 1,104
Increase in long-term notes receivable..... (925) (164)
Increase in other assets................... (1,177) (717)
-------- -------
Net cash used by investing activities........ (14,235) (9,017)
-------- -------
Cash flows from financing activities:
Repayment of term debt..................... (4,000) (7,000)
Increase (decrease) in revolving loan, net. 3,800 (400)
Additional long-term debt.................. -- 4,476
Repayment of other long-term debt and
capital lease obligations................. (1,388) (1,535)
Increases in common stock and paid-in
capital................................... 481 245
-------- -------
Net cash used by financing activities........ (1,107) (4,214)
-------- -------
Increase (decrease) in cash.................. 1,608 (168)
Cash at beginning of fiscal year............. 4,854 6,483
-------- -------
Cash at end of third fiscal quarter.......... $ 6,462 $ 6,315
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 30, 1993
(UNAUDITED)
The unaudited interim consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules
and regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. The information
furnished reflects all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods
presented, and which are of a normal, recurring nature. It is suggested that
these interim consolidated financial statements be read in conjunction with the
audited consolidated financial statements and the notes thereto included on
pages F-8 through F-19 of this Prospectus.
1. ACCOUNTING POLICIES
The financial statements included herein have been prepared in accordance
with the accounting policies described in Note 1 to the January 30, 1993
audited consolidated financial statements included on pages F-11 and F-12 of
this Prospectus. Certain prior year amounts have been reclassified to conform
to the presentation used for the current year.
2. FEDERAL AND STATE INCOME TAXES
The Company adopted the provisions of SFAS No. 109 effective February 2, 1992
and recorded a charge of $3,951,000 in the prior fiscal year's first quarter
ended May 2, 1992, which decreased earnings per share for the first three
fiscal quarters ended October 31, 1992 by $.73, for the cumulative effect of
this change in accounting principle. As a result of this change, the Company
also adjusted the carrying value of certain assets and recorded additional
depreciation and amortization expense of $391,000 for the three fiscal quarters
ended October 31, 1992.
3. CHANGES IN CAPITAL ACCOUNTS
An analysis of the capital stock accounts for the three fiscal quarters ended
October 30, 1993 follows:
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------------
PAID-
CLASS A SHARES CLASS B SHARES IN CAPITAL
ISSUED AT ISSUED AT IN EXCESS OF
$.01 PAR VALUE $.01 PAR VALUE AMOUNT PAR VALUE
-------------- -------------- ------- ------------
<S> <C> <C> <C> <C>
Balance January 30, 1993.... 3,173,802 2,971,318 $61,453 $27,211,806
Employee stock purchase
plan....................... 22,622 -- 226 99,770
Stock options exercised..... 2,812 48,789 516 145,612
Exchange of Class B shares
for Class A shares......... 65,000 (65,000) -- --
--------- --------- ------- -----------
Balance October 30, 1993.... 3,264,236 2,955,107 $62,195 $27,457,188
========= ========= ======= ===========
</TABLE>
As of October 30, 1993, there were 521,625 shares of Class A Common Stock and
175,957 shares of Class B Common Stock held as treasury stock at an aggregate
cost of $5,004,847, leaving 2,742,611 Class A shares and 2,779,150 Class B
shares outstanding.
4. EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares
outstanding, including the dilutive effect of stock options, if appropriate and
material, during each period.
F-5
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 30, 1993
(UNAUDITED)
5. SEASONALITY
The results of operations for the three fiscal quarters ended October 30,
1993 are not necessarily indicative of results to be expected for the full
fiscal year. The convenience store industry in the Company's marketing areas
experiences a higher percentage of revenues and profit margins during the
summer months than during the winter months. Historically, the Company has
achieved higher earnings in its second and third fiscal quarters, as compared
to its first and fourth fiscal quarters.
6. COMMITMENTS AND CONTINGENCIES
The Company has various commitments and contingencies as described in Note 11
to the January 30, 1993 audited consolidated financial statements included on
page F-18 of this Prospectus.
In addition to those commitments and contingencies, the Company has certain
environmental contingencies related to the ongoing costs to comply with
federal, state and local environmental laws and regulations, including costs
for assessment, compliance, remediation and certain capital expenditures
related to its gasoline operations. In the ordinary course of business, the
Company is involved in environmental assessment and remediation activities with
respect to releases of regulated substances from its existing and previously
operated retail gasoline facilities. The Company accrues its estimates of all
costs to be incurred for assessment and remediation for known releases. These
accruals are adjusted if and when new information becomes known. Due to the
nature of such releases, the actual costs of assessment and remediation
activities may vary significantly from year to year. Additionally, under
current federal and state regulatory programs, the Company will be obligated by
December, 1998 to upgrade or replace all existing underground storage tanks
("USTs") it owns or operates. The Company presently estimates that it will be
required to make capital expenditures related to the upgrading or replacing of
USTs ranging from approximately $16.0 million to $20.0 million in the aggregate
through December, 1998, which capital expenditures could be reduced for
locations which may be closed in lieu of the capital costs of compliance.
The Company's estimates of costs to be incurred for environmental assessment
and remediation and for UST upgrading and other regulatory compliance are based
on factors and assumptions that could change due to modifications of regulatory
requirements, detection of unanticipated environmental conditions or other
unexpected circumstances.
F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of Dairy Mart Convenience
Stores, Inc.:
We have audited the accompanying consolidated balance sheets of Dairy Mart
Convenience Stores, Inc. (a Delaware corporation) and subsidiaries as of
January 30, 1993 and February 1, 1992 and the related consolidated statements
of operations and retained earnings and cash flows for each of the three years
in the period ended January 30, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dairy Mart Convenience Stores,
Inc. and subsidiaries as of January 30, 1993 and February 1, 1992 and the
results of their operations and their cash flows for each of the three years in
the period ended January 30, 1993, in conformity with generally accepted
accounting principles.
As discussed in Notes 1 and 6 of notes to consolidated financial statements,
effective February 2, 1992, the Company changed its method of accounting for
income taxes.
Hartford, Connecticut Arthur Andersen & Co.
April 29, 1993
F-7
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED FEBRUARY 2, 1991, FEBRUARY 1, 1992 AND JANUARY 30, 1993
<TABLE>
<CAPTION>
1991 1992 1993
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net Sales of the Company, Its
Subsidiaries and Franchises...... $ 807,586 $ 794,758 $ 773,766
============= ============= =============
Revenues.......................... $ 586,984 $ 571,980 $ 578,767
Cost of sales..................... 429,084 415,981 425,180
------------- ------------- -------------
Gross profit.................... 157,900 155,999 153,587
Store operating expenses.......... 111,094 109,071 112,249
General and administrative
expenses......................... 32,083 32,268 34,419
Nonrecurring charge for
restructuring (Note 12).......... -- -- 5,200
------------- ------------- -------------
Income from operations.......... 14,723 14,660 1,719
Interest expense.................. (8,273) (8,122) (7,330)
Interest income................... 750 781 1,247
Loss on disposition of properties,
net.............................. (398) (298) (433)
------------- ------------- -------------
Income (loss) before income
taxes and cumulative effect of
change in accounting for income
taxes.......................... 6,802 7,021 (4,797)
Benefit from (provision for)
income taxes..................... (2,989) (2,929) 1,898
------------- ------------- -------------
Income (loss) before cumulative
effect of change in accounting
for income taxes............... 3,813 4,092 (2,899)
Cumulative effect of change in
accounting for income taxes
(Note 6)......................... -- -- (3,951)
------------- ------------- -------------
Net income (loss)............... $ 3,813 $ 4,092 $ (6,850)
============= ============= =============
Earnings (loss) per share:
Before cumulative effect of
change in accounting for income
taxes.......................... $ .72 $ .75 $ (.53)
Cumulative effect of change in
accounting for income
taxes (Note 6)................. -- -- (.73)
------------- ------------- -------------
Earnings (loss) per share......... $ .72 $ .75 $ (1.26)
============= ============= =============
Retained earnings, beginning of
year............................. $ 9,408 $ 13,221 $ 17,313
Net income (loss)................. 3,813 4,092 (6,850)
------------- ------------- -------------
Retained earnings, end of year.... $ 13,221 $ 17,313 $ 10,463
============= ============= =============
</TABLE>
- --------
Note: Excise taxes approximating $17,472,000, $21,230,000 and $23,855,000
collected from customers on retail gasoline sales are included in
Revenues and Cost of sales for fiscal years 1991, 1992 and 1993,
respectively.
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 1, 1992 AND JANUARY 30, 1993
<TABLE>
<CAPTION>
1992 1993
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
ASSETS
------
<S> <C> <C>
Current Assets:
Cash..................................................... $ 4,854 $ 6,483
Accounts and notes receivable............................ 12,507 11,069
Inventory................................................ 24,131 26,857
Prepaid expenses and other current assets................ 3,349 2,306
Deferred and refundable income taxes..................... 1,370 4,045
-------- --------
Total current assets................................... 46,211 50,760
-------- --------
Property and Equipment:
Land and improvements.................................... 11,477 14,134
Buildings and leaseholds................................. 44,842 51,659
Equipment................................................ 64,629 71,191
-------- --------
120,948 136,984
Less--Accumulated depreciation........................... 37,974 46,341
-------- --------
Net property and equipment............................. 82,974 90,643
-------- --------
Property Under Capital Leases, net of accumulated amortiza-
tion of $3,804 and $4,834................................. 3,463 2,433
-------- --------
Other Assets:
Goodwill, net of accumulated amortization of $2,151 and
$2,509.................................................. 11,674 11,316
Franchise and operating rights, net of accumulated amor-
tization of $1,783 and $2,135........................... 8,361 8,009
Favorable leases purchased, net of accumulated amortiza-
tion of $4,382 and $4,790............................... 1,010 602
Notes receivable......................................... 4,624 3,607
Other.................................................... 7,238 7,177
-------- --------
Total other assets..................................... 32,907 30,711
-------- --------
Total assets............................................... $165,555 $174,547
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt........................ $ 4,447 $ 7,803
Current portion of capital lease obligations............. 1,149 1,087
Accounts payable......................................... 25,482 27,768
Accrued expenses......................................... 12,484 13,599
Accrued restructuring expenses........................... -- 5,200
-------- --------
Total current liabilities.............................. 43,562 55,457
-------- --------
Long-Term Debt, less current portion above................. 69,986 69,645
-------- --------
Capital Lease Obligations, less current portion above...... 3,537 2,500
-------- --------
Other Liabilities and Deferred Credits..................... 4,205 5,352
-------- --------
Deferred Income Taxes...................................... 5,165 8,861
-------- --------
Commitments and Contingencies (Note 11)
Stockholders' Equity:
Class A Common Stock, par value $.01, 20,000,000 shares
authorized,
3,085,459 and 3,173,802 issued.......................... 31 32
Class B Common Stock, par value $.01, 10,000,000 shares
authorized,
2,973,693 and 2,971,318 issued.......................... 30 30
Paid-in capital in excess of par value................... 26,731 27,212
Retained earnings........................................ 17,313 10,463
Treasury stock, at cost.................................. (5,005) (5,005)
-------- --------
Total stockholders' equity............................. 39,100 32,732
-------- --------
Total liabilities and stockholders' equity................. $165,555 $174,547
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 2, 1991, FEBRUARY 1, 1992 AND JANUARY 30, 1993
<TABLE>
<CAPTION>
1991 1992 1993
------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................. $ 3,813 $ 4,092 $ (6,850)
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting
for income taxes........................... -- -- 3,951
Accrued restructuring expenses.............. -- -- 5,200
Depreciation and amortization............... 13,358 13,571 13,664
Increase (decrease) in deferred income
taxes...................................... 196 1,231 (3,647)
Decrease in store fixed assets resulting
from franchising activities................ 893 679 --
Loss on other disposition of properties..... 398 298 433
(Increase) decrease in accounts and notes
receivable................................. (2,079) (3,377) 1,438
Decrease (increase) in inventory............ 354 2,244 (2,726)
(Decrease) increase in accounts payable..... (1,483) (4,360) 2,286
Decrease (increase) in other current assets
and liabilities, net....................... 3,531 (2,107) 1,090
(Decrease) increase in other noncurrent
liabilities and deferred credits........... (251) (24) 1,147
------- --------- ---------
Net cash provided by operating activities....... 18,730 12,247 15,986
------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment............ (14,307) (12,521) (17,992)
Acquisition of Stop-N-Go assets............... (16,191) -- --
Proceeds from sale of property and equipment.. 1,432 623 1,603
Increase in long-term notes receivable........ (1,371) (1,791) (1,057)
Proceeds from long-term notes receivable...... 1,135 1,042 2,074
Increase in intangibles and other assets...... (2,468) (1,116) (1,383)
------- --------- ---------
Net cash used by investing activities........... (31,770) (13,763) (16,755)
------- --------- ---------
Cash flows from financing activities:
Issuance (repayment) of term debt............. 35,000 (2,000) (4,000)
(Decrease) increase in revolving loan, net.... (23,500) 2,900 5,400
Additional long-term debt..................... 1,194 1,736 2,327
Repayment of other long-term debt and capital
lease obligations............................ (1,807) (1,881) (1,811)
Repurchase of subordinated debentures......... -- (380) --
Treasury stock purchases...................... (65) -- --
Other increases in common stock and paid-in
capital...................................... 128 166 482
------- --------- ---------
Net cash provided by financing activities....... 10,950 541 2,398
(Decrease) increase in cash..................... (2,090) (975) 1,629
Cash at beginning of year....................... 7,919 5,829 4,854
------- --------- ---------
Cash at end of year............................. $ 5,829 $ 4,854 $ 6,483
======= ========= =========
Supplemental disclosures:
Cash paid during the year--
Interest...................................... $ 8,534 $ 8,064 $ 7,191
Income taxes.................................. 2,369 2,453 1,535
Noncash investing and financing activities--
Capital lease obligations..................... 986 168 --
======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 2, 1991, FEBRUARY 1, 1992 AND JANUARY 30, 1993
1. SIGNIFICANT ACCOUNTING POLICIES:
Corporate organization and consolidation--The accompanying financial
statements include the accounts of Dairy Mart Convenience Stores, Inc. and its
subsidiaries (the Company). All intercompany transactions have been eliminated.
Nature of business--The Company owns, operates and franchises convenience
retail stores, a number of which also sell gasoline. The Company also
manufactures and distributes certain dairy and other products for sale at the
majority of these locations.
Fiscal year--The Company's fiscal year ends on the Saturday closest to
January 31.
Inventory--Store and manufacturing and distribution inventory is stated
primarily at the lower of last-in, first-out (LIFO) cost or market. Gasoline
inventory is stated at the lower of first-in, first-out (FIFO) cost or market.
Property and depreciation--Property is stated at cost and is depreciated on
the straight-line basis for financial reporting purposes over the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings.................................................... 15-40 years
Equipment.................................................... 5-20 years
</TABLE>
Leaseholds are depreciated primarily over 10-25 years or the life of the
lease.
Goodwill and franchise and operating rights--Goodwill represents the excess
of cost over fair value of net assets purchased and is being amortized on a
straight-line basis over a period of 40 years. Franchise and operating rights
represent the value of franchise relationships purchased in connection with
past acquisitions and are being amortized on a straight-line basis over a
period of 40 years. The Company assesses the recoverability of these
intangibles by determining whether the amortization of the goodwill and
franchise and operating rights balances over the remaining lives can be
recovered through projected future results. At this time, the Company is
profitable, after exclusion of one-time restructuring charges, and expects full
recoverability. Therefore, it is the Company's belief that no impairment of
goodwill and franchise and operating rights has occurred.
Favorable leases purchased--The cost of favorable leases purchased in
connection with past acquisitions is being amortized over the remaining terms
of the leases.
Computer software costs--The Company capitalizes the costs incurred for the
purchase or development of computer software, and amortizes them over a five
year period. As of January 30, 1993 and February 1, 1992, the Company had
capitalized, net of accumulated amortization, $1,212,000 and $1,297,000 of such
costs, which are included in the accompanying Consolidated Balance Sheets as
other assets.
Income taxes--Effective February 2, 1992, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Prior to the implementation of SFAS No.
109, the Company accounted for income taxes using the deferral method as
required by Accounting Principles Board Opinion No. 11.
Self insurance reserves--The Company is self-insured for certain property and
liability, and accident and health insurance risks and establishes reserves for
estimated outstanding claims based on its historical claims experience and
reviews by loss reserve specialists. The Company has purchased insurance
coverage for losses that may occur above certain levels. As of January 30, 1993
and February 1, 1992, the Company has established reserves for these risks of
$6,231,000 and $5,687,000, which are recorded on a present value basis using a
discount rate of 8%.
F-11
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 2, 1991, FEBRUARY 1, 1992 AND JANUARY 30, 1993
Revenue recognition--The Company recognizes revenues as earned, including
franchise revenues. Franchise revenues represent a percentage of franchise
store sales remitted to the Company on a weekly or monthly basis, as well as
revenues derived from initial fees and the gain on sale of store assets to
franchisees. Net Sales of the Company, its Subsidiaries and Franchises is
comprised of the Company's revenues plus store sales of franchise locations and
excludes related franchise fees.
Store preopening and closing costs--Expenditures of a non-capital nature
associated with opening a new store are expensed as incurred. At the time of
the decision to close a store, estimated unrecoverable costs are charged to
expense. Such costs include the net book value of abandoned fixtures,
equipment, leasehold improvements and a provision for the present value of
future lease obligations, less estimated sub-rental income.
Earnings per share--Earnings per share have been calculated based on the
weighted average number of shares outstanding and the effect of stock options,
if dilutive, during each period. The number of shares used in the calculations
for earnings per share were 5,422,971, 5,467,514 and 5,315,189 for the years
ended January 30, 1993, February 1, 1992 and February 2, 1991, respectively.
Reclassifications--Certain prior year amounts in the Consolidated Financial
Statements have been reclassified to conform to the presentation used for the
current year.
2. ACCOUNTS AND NOTES RECEIVABLE:
A summary of accounts and notes receivable as of February 1, 1992 and January
30, 1993 is as follows:
<TABLE>
<CAPTION>
1992 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Franchise accounts receivable............................... $ 5,652 $ 4,555
Franchise notes receivable.................................. 4,846 3,967
Other....................................................... 7,816 7,807
------- -------
18,314 16,329
Less allowance for doubtful accounts and notes.............. 1,183 1,653
------- -------
Net accounts and notes receivable........................... 17,131 14,676
Less noncurrent notes receivable............................ 4,624 3,607
------- -------
Current accounts and notes receivable....................... $12,507 $11,069
======= =======
</TABLE>
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures
about Fair Value of Financial Instruments," requires companies to disclose
market value information related to financial instruments including accounts
and notes receivable. The carrying amount of current accounts and notes
receivable approximates fair value because of the short maturity of those
receivables. The fair value of the Company's noncurrent notes receivable is
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for
the same remaining maturities. As of January 30, 1993, the carrying amount of
noncurrent notes receivable approximates the fair value.
F-12
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 2, 1991, FEBRUARY 1, 1992 AND JANUARY 30, 1993
3. INVENTORY:
A summary of inventory as of February 2, 1991, February 1, 1992 and January
30, 1993 is as follows:
<TABLE>
<CAPTION>
1991 1992 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Inventory valued at FIFO cost........................ $30,555 $28,781 $32,265
LIFO reserve......................................... (4,180) (4,650) (5,408)
------- ------- -------
Inventory primarily valued at LIFO cost.............. $26,375 $24,131 $26,857
======= ======= =======
</TABLE>
The LIFO reserve reflects the difference between stating the inventory at
historical LIFO cost and the more current FIFO cost. The LIFO reserve increased
by $758,000 in 1993, $470,000 in 1992 and $808,000 in 1991. Had the FIFO method
been used, cost of sales would have been reduced and gross profit would have
increased by these amounts. Earnings (loss) per share would have been increased
(decreased) by ($.08) in 1993, $.05 in 1992 and $.09 in 1991, had the FIFO
method been used.
During 1993, 1992 and 1991 the Company liquidated certain LIFO inventory that
was carried at lower costs prevailing in prior years. The effect of this
liquidation was to increase net income or decrease net loss by approximately
$60,000 ($.01 per share) in 1993, $61,000 ($.01 per share) in 1992 and $63,000
($.01 per share) in 1991.
4. LONG-TERM DEBT:
At January 30, 1993, the Company had the following long-term debt:
<TABLE>
<CAPTION>
INTEREST MATURITY
RATE (FISCAL YEAR) TOTAL CURRENT LONG-TERM
------------- ------------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Bank term loan........... Prime + 1/4% 1994-1997 $29,000 $7,000 $22,000
Subordinated debentures.. 14.25% 1996-2001 27,183 -- 27,183
Bank revolving loan...... Prime + 1/4% 1997 11,800 -- 11,800
Small Business Adminis-
tration debentures...... 7.9%-10.7% 1996-2002 4,220 -- 4,220
Equipment financing...... 6.5%-8.6% 1996-2000 2,812 610 2,202
Real estate mortgage
notes payable........... 6.7%-12.0% 1994-2012 2,433 193 2,240
------- ------ -------
$77,448 $7,803 $69,645
======= ====== =======
</TABLE>
In January 1991, the Company entered into a credit agreement with a group of
banks which provides for a $35,000,000 term loan and a $15,000,000 revolving
credit loan. The term loan is being repaid in semi-annual installments which
began August 31, 1991, with the final installment due and payable on February
28, 1996. The outstanding balance of the revolving credit loan is due and
payable on February 28, 1996. The credit agreement provides for interest
payments based on the agent bank's prime rate plus 1/4%. At January 30, 1993,
the agent bank's prime rate was 6%. The loan agreement also provides for a
commitment fee of 3/8% on any unused portion of the revolving credit loan.
Among other restrictions, the credit agreement restricts the Company from
paying cash dividends and repurchasing Company stock and subordinated
debentures and contains financial covenants relating to specified levels of:
earnings before interest, rent and taxes to interest and rent; cash flow to
debt service; and senior liabilities to net worth; as well as the maintenance
of minimum tangible capital. In connection with the credit agreement, the
Company has pledged as collateral capital stock of certain subsidiary
corporations of the Company, as well as a security interest in any loans made
between the Company and its subsidiaries.
F-13
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 2, 1991, FEBRUARY 1, 1992 AND JANUARY 30, 1993
The Company originally issued $35,000,000 principal amount of subordinated
debentures in November, 1985. Since that date, the Company has repurchased
$7,817,000 principal amount of these debentures. The gain on these repurchases
has not been material after deducting the write-off of related deferred bond
financing costs. The subordinated debentures are redeemable during the period
November 15, 1990 through November 15, 1995, at rates starting at 107% of
principal amount, reduced each year by 1.4%. The Company must redeem $5,250,000
principal amount of debentures annually commencing November 15, 1995 until
final payment becomes due November 15, 2000, after considering amounts
repurchased by the Company.
SFAS No. 107 requires companies to disclose market value information related
to debt based on trade prices, if available, or rates available to the Company
for debt with similar terms and maturities. As of January 30, 1993, the fair
value of the bank term loan, bank revolving loan and Small Business
Administration debentures approximated the carrying amount. As of January 30,
1993, the fair value of the subordinated debentures was approximately
$28,300,000.
Maturities on long-term debt for the next five years are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- --------------
(IN THOUSANDS)
<S> <C>
1994......................................................... $ 7,803
1995......................................................... 7,858
1996......................................................... 17,716
1997......................................................... 21,592
1998......................................................... 5,753
</TABLE>
5. LEASES:
The Company leases operating properties, including store locations and office
space, under various lease agreements expiring through 2011. Certain of these
locations are sublet to the Company's franchisees.
A summary of future minimum lease payments and sublease receipts at January
30, 1993 is as follows:
<TABLE>
<CAPTION>
NET
CAPITAL OPERATING OPERATING OPERATING
PAYABLE/RECEIVABLE IN FISCAL YEAR ENDING LEASES LEASES SUBLEASES LEASES
- ---------------------------------------- ------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1994..................................... $1,390 $14,067 $ 4,117 $ 9,950
1995..................................... 1,150 11,199 3,057 8,142
1996..................................... 376 7,834 2,011 5,823
1997..................................... 348 5,309 1,227 4,082
1998..................................... 308 3,097 838 2,259
Thereafter............................... 1,249 6,777 640 6,137
------ ------- ------- -------
Total minimum............................ 4,821 $48,283 $11,890 $36,393
======= ======= =======
Less amounts representing interest and
executory costs......................... 1,234
------
Present value of minimum lease payments.. $3,587
======
</TABLE>
Rental expense for all operating leases is as follows:
<TABLE>
<CAPTION>
1991 1992 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Leases............................................... $14,404 $15,579 $15,573
Less subleases....................................... 4,328 4,656 4,659
------- ------- -------
Net.................................................. $10,076 $10,923 $10,914
======= ======= =======
</TABLE>
F-14
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 2, 1991, FEBRUARY 1, 1992 AND JANUARY 30, 1993
6. FEDERAL AND STATE INCOME TAXES:
The Company adopted the provisions of SFAS No. 109 effective February 2, 1992
and recorded a charge of $3,951,000 for the fiscal year ended January 30, 1993
which decreased earnings per share by $.73 for the cumulative effect of this
change in accounting principle. The Company also adjusted the carrying value of
certain assets and recorded additional depreciation and amortization expense of
$452,000 as a result of this change.
The provision for (benefit from) income taxes for the fiscal years ended
February 2, 1991, February 1, 1992 and January 30, 1993 is as follows:
<TABLE>
<CAPTION>
1991 1992 1993
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current provision
Federal............................................ $2,591 $1,215 $ 1,309
State and local.................................... 202 483 440
------ ------ -------
Total current provision.......................... 2,793 1,698 1,749
------ ------ -------
Deferred provision (benefit)
Federal............................................ (428) 930 (3,118)
State and local.................................... 624 301 (529)
------ ------ -------
Total deferred provision (benefit)............... 196 1,231 (3,647)
------ ------ -------
Total provision (benefit)............................ $2,989 $2,929 $(1,898)
====== ====== =======
</TABLE>
A reconciliation of the difference between the statutory federal income tax
rate and the effective income tax rate follows:
<TABLE>
<CAPTION>
PERCENT OF PRETAX INCOME
------------------------------
1991 1992 1993
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax rate............ 34% 34% (34)%
Increase (decrease) from:
State income tax provision (benefit), net
of federal tax effect..................... 8 7 (1)
Nondeductible depreciation and amortization
of acquired assets........................ 3 4 2
Targeted jobs credit....................... (3) (3) (7)
Sale or writedown of assets creating
capital losses, net of utilization........ 2 -- --
-------- -------- --------
Effective income tax rate.................... 44% 42% (40)%
======== ======== ========
</TABLE>
Deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Significant deferred tax assets (liabilities) at January 30, 1993
are as follows:
<TABLE>
<CAPTION>
1993
--------------
(IN THOUSANDS)
<S> <C>
Capitalized leases............................................ $ 306
Depreciation and amortization................................. (11,474)
Vacation accrual.............................................. 402
Inventory (LIFO).............................................. (1,628)
Reserve for asset valuations.................................. 677
Insurance reserves not deductible for tax purposes............ 1,586
Income deferred for financial statement purposes.............. 778
Reserve for closed stores and renovation...................... 667
Accrued restructuring expenses................................ 2,111
Tax credit carryforwards...................................... 1,855
Other......................................................... (96)
--------
Net deferred tax liability.................................... $ (4,816)
========
</TABLE>
F-15
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 2, 1991, FEBRUARY 1, 1992 AND JANUARY 30, 1993
As of January 30, 1993, the Company had alternative minimum tax credits
aggregating approximately $400,000 which carryforward indefinitely for federal
income tax purposes. These credits can be used in the future to the extent that
the Company's regular tax liability exceeds its liability calculated under the
alternative minimum tax system. In addition, the Company had approximately
$1,455,000 of targeted jobs credit carryforwards that expire from fiscal 2006
to 2008. No valuation allowance for deferred tax assets was provided as of
January 30, 1993.
The Company and its subsidiaries file a consolidated federal income tax
return but generally file separate state income tax returns. As of January 30,
1993, the Company had net operating loss carryforwards for state income tax
purposes of approximately $415,000 which expire, if unused, from fiscal 1994 to
2007.
7. CAPITAL STOCK:
An analysis of the capital stock accounts follows:
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------
PAID-
CLASS A SHARES CLASS B SHARES IN CAPITAL
ISSUED AT $.01 ISSUED AT $.01 IN EXCESS OF
PAR VALUE PAR VALUE AMOUNT PAR VALUE
-------------- -------------- ------- ------------
<S> <C> <C> <C> <C>
Balance February 3, 1990.... 2,306,815 2,484,985 $47,918 $26,450,180
Employee stock options exer-
cised...................... -- 12,250 123 41,650
Employee stock purchase
plan....................... 15,954 -- 160 84,763
Exchange of Class B shares
for Class A shares......... 45,900 (45,900) -- --
--------- --------- ------- -----------
Balance February 2, 1991.... 2,368,669 2,451,335 48,201 26,576,593
Employee stock options exer-
cised...................... 2,187 14,275 165 69,522
Employee stock purchase
plan....................... 16,889 -- 169 99,240
Exchange of Class B shares
for Class A shares......... 101,400 (101,400) -- --
Five-for-Four Stock Split... 596,314 609,483 12,058 (12,058)
Other....................... -- -- -- (2,681)
--------- --------- ------- -----------
Balance February 1, 1992.... 3,085,459 2,973,693 60,593 26,730,616
Employee stock options exer-
cised...................... 70,313 -- 703 389,518
Employee stock purchase
plan....................... 15,655 -- 157 91,672
Exchange of Class B shares
for Class A shares......... 2,375 (2,375) -- --
--------- --------- ------- -----------
Balance January 30, 1993.... 3,173,802 2,971,318 $61,453 $27,211,806
========= ========= ======= ===========
</TABLE>
Dividends may be declared and paid on Class A Common Stock without being paid
on Class B Common Stock. No dividend may be paid on Class B Common Stock
without equal amounts paid concurrently on Class A Common Stock. Holders of
Class A Common Stock have one-tenth vote per share and are entitled to elect
25% of the Board of Directors so long as the number of outstanding shares of
Class A Common Stock is at least 10% of the total of all shares of Common Stock
outstanding. Holders of Class B Common Stock have one vote per share. Holders
of Class B Common Stock have the right to convert their shares at any time for
an equivalent number of shares of Class A Common Stock.
In June 1986, the stockholders approved an Employee Stock Purchase Plan. The
plan, as amended in June, 1992, provides that employees may purchase quarterly,
through payroll deductions, up to 250 shares of Class A Common Stock at 85% of
the market value. Of the original 1,250,000 shares provided for under this
plan, 1,116,920 shares remain available for issuance as of January 30, 1993.
As of January 30, 1993, February 1, 1992 and February 2, 1991, the Company
held 521,625 shares of Class A Common Stock and 175,957 shares of Class B
Common Stock as treasury shares.
F-16
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 2, 1991, FEBRUARY 1, 1992 AND JANUARY 30, 1993
8. STOCK OPTION PLANS:
The Company adopted Stock Option Plans in 1983, 1985 and 1990 providing for
the granting to employees of up to an aggregate of 226,875 shares of Class B
Common Stock and 750,000 shares of Class A Common Stock. The Company granted
incentive stock options pursuant to these Plans totalling 10,000, 150,000 and
115,000 in fiscal 1993, 1992 and 1991, respectively. At January 30, 1993, the
Company had available for grant under these Plans options to purchase 20,495
shares of Class B Common Stock and 175,750 shares of Class A Common Stock,
after considering the lapse of options previously granted. In addition to the
incentive stock options granted under the above Plans, the Company has granted
non-qualified stock options which are not part of a specific plan. A summary of
activity for all stock options during the fiscal year ended January 30, 1993 is
as follows:
<TABLE>
<CAPTION>
OPTIONS NET OPTIONS OPTIONS
OUTSTANDING OPTIONS OUTSTANDING EXERCISABLE
STOCK FEBRUARY 1, GRANTED OPTIONS JANUARY 30, JANUARY 30,
PLAN OR FISCAL YEAR TYPE OPTION PRICE 1992 (LAPSED) EXERCISED 1993 1993
- ------------------- ------- ------------ ----------- -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Incentive Stock Options:
1983 Plan Class B $2.73 to $ 5.50 91,783 (275) -- 91,508 91,508
1985 Plan Class A $6.20 to $10.75 324,875 (13,062) (10,313) 301,500 246,500
1990 Plan Class A $4.60 to $ 7.25 241,875 7,500 (30,000) 219,375 71,875
------- ------- ------- ------- -------
Total Incentive Stock Options............ 658,533 (5,837) (40,313) 612,383 409,883
------- ------- ------- ------- -------
Non-qualified Stock Options:
1986 Class B $4.00 12,750 -- -- 12,750 12,750
1987 Class A $8.80 11,250 -- -- 11,250 11,250
1991 Class A $6.20 30,000 -- (30,000) -- --
1991 Class A $4.60 5,000 -- -- 5,000 5,000
------- ------- ------- ------- -------
Total Non-qualified Stock Options........ 59,000 -- (30,000) 29,000 29,000
------- ------- ------- ------- -------
Total Stock Options.................... 717,533 (5,837) (70,313) 641,383 438,883
======= ======= ======= ======= =======
</TABLE>
9. GASOLINE OPERATIONS:
A summary of gasoline operations for the three years ended February 2, 1991,
February 1, 1992 and January 30, 1993 is as follows:
<TABLE>
<CAPTION>
1991 1992 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Gasoline gallons sold............................ 188,930 189,625 196,703
Gasoline revenues................................ $217,159 $211,152 $214,087
Cost of gasoline sold............................ 196,268 192,340 194,110
Depreciation..................................... 1,636 1,789 1,916
Capital expenditures............................. 4,343 2,118 2,128
Net book value of gasoline equipment............. 11,417 12,161 12,373
</TABLE>
F-17
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 2, 1991, FEBRUARY 1, 1992 AND JANUARY 30, 1993
10. EMPLOYEE BENEFIT PLANS:
The Company provides benefits to qualified employees through a defined
contribution profit sharing plan. Contributions under this plan are made
annually in amounts determined by the Company's Board of Directors. Annual
contributions were $100,000, $400,000 and $675,000 for fiscal 1993, 1992 and
1991, respectively.
Effective January 1, 1993, the profit sharing plan was amended pursuant to
section 401(k) of the Internal Revenue Code enabling eligible employees to
contribute up to 15% of their annual compensation to the plan, with the
Company matching 25% of such contributions up to 6% of the employees' annual
compensation. The Company does not offer any additional postretirement and
postemployment benefits to its employees.
11. COMMITMENTS AND CONTINGENCIES:
At January 30, 1993, the Company is contingently liable for outstanding
letters of credit amounting to $9,719,000. The Company is also contingently
liable as guarantor on certain loans obtained by convenience store operators
to finance the purchase of equipment and initial inventory in the approximate
amount of $2,300,000 at January 30, 1993. In consideration of these
guarantees, the Company participates with the lending institutions in the
interest paid on these obligations which are secured by inventory and
equipment owned by the convenience store operators.
On February 26, 1988, the Company entered into agreements for the wholesale
supply of various grocery items to its Northeast and Midwest region stores.
Under the supply agreement, the Company is obligated to annually purchase a
minimum amount of merchandise for a period of ten years. The level of
purchases was achieved during the first five years of the agreement and
management believes it is readily achievable for the balance of the agreement.
Prices to be charged by the supplier must be competitive.
The Company is party to an employment agreement with the Chairman of the
Company for a five year term that began on February 2, 1992 and ends on
January 31, 1997, unless terminated earlier. Under the employment agreement,
Mr. Nirenberg receives an annual salary of $500,000, payable in installments
according to the Company's normal compensation policy, plus customary fringe
benefits.
The Company is party to a number of lawsuits which have arisen in the
ordinary course of business. Management does not believe the outcome of this
litigation will have a material impact on the Company's results of operations
or financial position.
12. NONRECURRING CHARGE FOR RESTRUCTURING:
Subsequent to January 30, 1993, the Company announced that it is downsizing
and consolidating its three administrative offices into its new Corporate
headquarters facility in Enfield, Connecticut. The Company historically
maintained administrative offices in Enfield, Connecticut, Louisville,
Kentucky and Cuyahoga Falls, Ohio. As part of the restructuring the Company
will be relocating certain employees as well as separating certain other
individuals. The Company has recorded a nonrecurring charge of $5,200,000
primarily related to severance, relocation and other personnel related costs
associated with the Company's restructuring.
F-18
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
FEBRUARY 2, 1991, FEBRUARY 1, 1992 AND JANUARY 30, 1993
13. BUSINESS ACQUISITION:
The Company acquired for cash the assets of 110 Stop-N-Go convenience food
stores on March 16, 1990, and the assets of 27 Stop-N-Go convenience food
stores on June 21, 1990, bringing the total number of stores aquired to 137.
The cost of the acquisitions approximated $16,191,000 (including inventory)
which cost was allocated based on the fair market value of the assets acquired.
The excess of acquisition costs over the assigned value of assets acquired was
recorded as goodwill. No operating results of Stop-N-Go have been included with
those of the Company prior to the dates of acquisitions.
The following unaudited pro forma information represents the results of
operations of the Company as if the Stop-N-Go stores were included with the
operations of the Company for the entire fiscal year ended February 2, 1991:
<TABLE>
<CAPTION>
1991
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNT)
<S> <C>
Revenues........................................... $603,218
Net income......................................... 3,670
Earnings per share................................. .69
</TABLE>
F-19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON, DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS ABOUT
THE COMPANY, THE NOTES, THE OFFERING MADE HEREBY OR ANY OTHER MATTER AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE NOTES
OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE OF THE NOTES OFFERED HEREBY SHALL, UNDER ANY CIRCUMSTANC-
ES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
The Company............................................................... 8
Investment Considerations................................................. 10
Use of Proceeds........................................................... 12
Capitalization............................................................ 13
Selected Financial Data................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 22
Management................................................................ 28
Certain Transactions...................................................... 30
Description of the New Credit Agreement................................... 31
Description of the Notes.................................................. 32
Underwriting.............................................................. 54
Certain Legal Matters..................................................... 55
Experts................................................................... 55
Available Information..................................................... 55
Documents Incorporated by Reference....................................... 56
Index to Consolidated Financial Statements................................ F-1
</TABLE>
UNTIL , 1994 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTIC-
IPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$75,000,000
[LOGO OF DAIRY MART CONVENIENCE STORES, INC. APPEARS HERE]
% SENIOR SUBORDINATED
NOTES DUE 2004
----------------
PROSPECTUS
----------------
BEAR, STEARNS & CO. INC.
, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses of the issuance and distribution of
the Notes being registered, all of which will be paid by the Company:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $25,000
Printing, postage, and mailing...................................
Legal fees and expenses..........................................
Rating agencies' fees............................................
Accounting fees and expenses.....................................
Blue sky fees and expenses (including counsel fees)..............
NASD............................................................. 8,500
Trustee, transfer agent and registrar fees.......................
Miscellaneous....................................................
-------
Total........................................................ $
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware ("DGCL")
provides that a corporation has the power to indemnify its officers and
directors against the expenses, including attorney's fees, judgments, fines or
settlement amounts, actually and reasonably incurred by them in connection with
the defense of any action by reason of being or have been directors or
officers, if such person shall have acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, except that if such action shall be in the right of the
corporation, no such indemnification shall be provided as to any claim, issue
or matter as to which such person shall have been judged to have been liable to
the corporation unless and to the extent that the Court of Chancery of the
State of Delaware, or another court in which the suit was brought, shall
determine upon application that, in view of all of the circumstances of the
case, such person is fairly and reasonably entitled to indemnity. The Company's
certificate of incorporation provides for indemnification of its directors and
officers to the fullest extent permitted by the DGCL.
As permitted by Section 102 of the DGCL, the Company's certificate of
incorporation provides that no director shall be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director
other than: (i) for breaches of the director's duty of loyalty to the Company
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) for the
unlawful payment of dividends or unlawful stock purchases or redemptions under
Section 174 of the DGCL; and (iv) for any transaction from which the director
derived an improper personal benefit.
The Company has purchased a liability insurance policy which insures: (i) the
Company, under certain circumstances, in the event it indemnifies a director or
officer of the Company or the subsidiary pursuant to the foregoing provisions
of the certificate of incorporation or by-laws of the Company or otherwise; and
(ii) directors and officers, under certain circumstances, against liability and
costs (including the cost of defending any action) incurred by directors or
officers in their capacity as such.
ITEM 16. EXHIBITS.
The exhibits set forth on the Exhibit Index on page E-1 of this Registration
Statement are filed as part of this Registration Statement.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
1. That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
2. For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994.
Dairy Mart Convenience Stores, Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Frank W. Barrett Director February 9, 1994
- ------------------------------------
Frank W. Barrett
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
Director February 9, 1994
- ------------------------------------
Theodore W. Leed
Director February 9, 1994
- ------------------------------------
Charles Nirenberg
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
Dairy Mart East, Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
Dairy Mart Farms, Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
Dairy Mart, Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
CONNA Corporation
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
The Lawson Company
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
D.M. Insurance Limited
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
LMC, Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
SNG of Southern Minnesota, Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
The Lawson Milk Company
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
Golden Stores, Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-13
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
Lakeside Wholesale, Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-14
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
Quik Shops, Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-15
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
Open Pantry Properties, Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-16
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
Remote Services, Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-17
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
Convenient Industries of America, Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-18
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
Oscar Ewing, Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-19
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
Convenient Gasoline, Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-20
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
Jackson County Grocery Co., Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-21
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
Greenwell Grocery Co., Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-22
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
CIA Food Marts, Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-23
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
Food Merchandisers, Incorporated
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-24
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF ENFIELD, STATE OF CONNECTICUT, ON THIS 9th DAY OF
FEBRUARY, 1994
Dairy Mart Convenience Stores of Ohio,
Inc.
By /s/ Frank Colaccino
----------------------------------
Frank Colaccino
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank Colaccino President, Chief Executive Officer February 9, 1994
- ------------------------------------ and Director (Principal
Frank Colaccino Executive Officer)
/s/ Gregory G. Landry Executive Vice President, Chief February 9, 1994
- ------------------------------------ Financial Officer, and Director
Gregory G. Landry (Principal Financial and
Accounting Officer)
/s/ Mitchell J. Kupperman Director February 9, 1994
- ------------------------------------
Mitchell J. Kupperman
/s/ Robert B. Stein, Jr. Director February 9, 1994
- ------------------------------------
Robert B. Stein, Jr.
</TABLE>
II-25
<PAGE>
GRAPHICS APPENDIX LIST
----------------------
EDGAR Version Typeset Version
- ------------- ---------------
Shown on the inside front cover of
the Prospectus will be a color photo of
a Dairy Mart super pumper store located
in Vernon, Connecticut.
Shown on the inside back cover of
the Prospectus will be a map of the
eleven states in which Dairy Mart
operates stores, as well as the more
than 550 communities where the Company
does business. In addition, the map
highlights the location of the
Company's corporate headquarters,
regional offices and dairy plants and
distribution center.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION OF DOCUMENT NUMBER
------- ----------------------- ----------
<C> <S> <C>
1 Form of Underwriting Agreement among the Company, the
Guarantors, and the Underwriter.
*4.1 Form of Indenture dated , 1994, among the Com-
pany, the Guarantors and Society National Bank, as
trustee, relating to the % Senior Subordinated
Notes due 2004 being registered.
*4.2 Form of % Senior Subordinated Note due 2004 and
form of Notation of Guarantee (included in Exhibit
4.1).
*5 Opinion of Schatz & Schatz, Ribicoff & Kotkin as to the
validity of the Notes and Guarantees being registered.
10.1 Credit Agreement dated as of January 9, 1991, among the
Company, Manufacturers Hanover Trust Company (prede-
cessor to Chemical Bank) and other financial institu-
tions ("Existing Credit Agreement") was filed as Ex-
hibit 10.5 to the Company's Form 10-K for the fiscal
year ended February 2, 1991, and is incorporated
herein by reference. The First Amendment dated as of
May 10, 1991 and the Second Amendment and Waiver dated
as of February 6, 1992, both of which amended the Ex-
isting Credit Agreement, were filed as Exhibit 10.1 to
the Company's Form 10-K for the fiscal year ended Feb-
ruary 1, 1992, and are incorporated herein by refer-
ence. The Third Amendment dated as of December 11,
1992 and the Fourth Amendment dated as of April 29,
1993, both of which further amended the Existing
Credit Agreement, were filed as Exhibit 10.1 to the
Company's Form 10-K for the fiscal year ended January
30, 1993, and are incorporated herein by reference.
The Fifth Amendment dated as of January 31, 1994, fur-
ther amending the Existing Credit Agreement, is in-
cluded as Exhibit 10.1 hereto.
*10.2 Credit Agreement among the Company, Fleet Bank, Na-
tional Association and Society National Bank dated as
of , 1994.
10.3 Amended and Restated 1985 Incentive Stock Option Plan.
Form of Incentive Stock Option Agreement was filed as
part of Exhibit 10.4 to the Company's annual report on
Form 10-K for the fiscal year ended January 30, 1988,
and is incorporated herein by reference.
10.4 1983 Incentive Stock Option Plan and form of Incentive
Stock Option Agreement thereunder were filed as Exhib-
its 4.1 and 4.2, respectively, to the Company's Regis-
tration Statement on Form S-8 (File No. 33-8209) filed
on August 26, 1986, and are incorporated herein by
reference.
10.5 1990 Stock Option Plan and forms of qualified and non-
qualified stock option agreements thereunder were
filed as Exhibit 10.4 to the Company's Form 10-K for
the fiscal year ended February 2, 1991, and are incor-
porated herein by reference.
10.6 Employment Agreement between the Company and Charles
Nirenberg, dated December 5, 1991, was filed as Ex-
hibit 10.5 to the Company's Form 10-K for the fiscal
year ended February 1, 1992, and is incorporated
herein by reference.
12 Statement concerning computation of ratios of earnings
to fixed charges.
23.1 Consent of Arthur Andersen & Co.
*23.2 Consent of Schatz & Schatz, Ribicoff & Kotkin (included
in Exhibit 5).
25 Statement of eligibility and qualification of Society
National Bank as Trustee on
Form T-1.
</TABLE>
- --------
* To be filed by amendment
E-1
<PAGE>
Exhibit 1
$75,000,000
DAIRY MART CONVENIENCE STORES, INC.
__% SENIOR SUBORDINATED NOTES DUE 2004
UNDERWRITING AGREEMENT
_________ __, 1994
BEAR, STEARNS, & CO. INC.
245 Park Avenue
New York, New York 10167
Dear Sirs:
Dairy Mart Convenience Stores, Inc., a Delaware corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to Bear Stearns & Co. Inc. (the "Underwriter"), $75,000,000
aggregate principal amount of its __% Senior Subordinated Notes due 2004 (the
"Notes"), to be issued pursuant to an Indenture dated as of ________ __, 1994
(the "Indenture") among the Company, the Company's subsidiaries who are
signatories hereto (collectively, the "Guarantors") and Society National Bank,
as trustee (the "Trustee"). The guaranties provided by the Guarantors pursuant
to the Indenture are herein referred to as the "Guaranties." The Notes and the
Guaranties are herein collectively referred to as the "Securities" and the
Company and the Guarantors are herein collectively referred to as the
"Registrants." The Securities are more fully described in the Registration
Statement referred to below and in the Indenture, a copy of which has been filed
as an Exhibit to such Registration Statement.
1. REPRESENTATIONS AND WARRANTIES OF THE REGISTRANTS. The Registrants,
-------------------------------------------------
jointly and severally, represent and warrant to, and agree with, the
Underwriters that:
(a) The Registrants have prepared and filed with the Securities and
Exchange Commission (the "Commission"), pursuant to the Securities Act of 1933,
as amended (the "Securities Act"), and the rules and regulations promulgated by
the Commission thereunder (the "Regulations"), a registration statement on Form
S-2 (File No. 33-70610) relating to the Securities and ___ amendments to
such
<PAGE>
registration statement, including in each case a preliminary prospectus.
The Registrants meet the requirements for use of Form S-2 under the Securities
Act for registration of the Securities thereunder. After the execution and
delivery of this Agreement, the Company will file with the Commission either (i)
prior to the effectiveness of such registration statement, a further amendment
thereto, including therein a final prospectus, or (ii) after the effectiveness
of such registration statement, a final prospectus in accordance with Rules 430A
and 424(b)(1) of the Regulations; the documents so filed in either case to
include all Rule 430A Information (as hereinafter defined) and to conform, in
content and form, to the last printer's proof thereof furnished to and approved
by the Underwriters immediately prior to such filing. As used in this
Agreement, (i) the term "Effective Date" means the date that the registration
statement hereinabove referred to is declared effective by the Commission, (ii)
the term "Registration Statement" means such registration statement as last
amended prior to the time the same was declared effective by the Commission,
including all Rule 430A Information deemed to be included therein at the
Effective Date pursuant to Rule 430A of the Regulations and all financial
statements, schedules and exhibits, (iii) the term "Rule 430A Information" means
information with respect to the Securities and the public offering thereof
permitted, pursuant to the provisions of paragraph (a) of Rule 430A of the
Regulations, to be omitted from the form of prospectus included in the
Registration Statement at the time it is declared effective by the Commission,
(iv) the term "Prospectus" means the form of final prospectus relating to the
Securities first filed with the Commission pursuant to Rule 424(b) of the
Regulations or, if no filing pursuant to Rule 424(b) is required, the form of
final prospectus included in the Registration Statement at the Effective Date,
and (v) the term "preliminary prospectus" means any preliminary prospectus (as
described in Rule 430 of the Regulations) with respect to the Securities that
omits Rule 430A Information.
(b) At the time of the effectiveness of the Registration Statement or the
effectiveness of any post-effective amendment to the Registration Statement,
when the Prospectus is first filed with the Commission pursuant to Rule 424(b)
of the Regulations, when any supplement to or amendment of the Prospectus is
filed with the Commission, and at the Closing Date (as hereinafter defined), the
Registration Statement and, if filed at such time, the Prospectus and any
amendments thereof and supplements thereto complied and will comply in all
material respects with the applicable provisions of the Securities Act and the
Regulations and with the Trust Indenture Act of 1939, as amended, and the rules
and regulations thereunder (the "Trust Indenture Act") and does not and will not
contain an untrue statement of a material fact and will not omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein (in the case of the Prospectus, in light of the circumstances
under which they were made) not misleading. When any related preliminary
prospectus was first filed with the Commission (whether filed as part of the
Registration Statement or pursuant to Rule 424(a) of the Regulations) and when
any amendment thereof or supplement thereto was first
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filed with the Commission, such preliminary prospectus and any amendments
thereof and supplements thereto complied in all material respects with the
applicable provisions of the Act and the Regulations and did not contain an
untrue statement of a material fact and did not omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
documents incorporated by reference in the Prospectus, when they became
effective or were filed with the Commission, as the case may be, conformed in
all material respects to the requirements of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable,
and the rules and regulations of the Commission thereunder, and none of such
documents contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading. No representation and warranty is made in this
subsection (b), however, with respect to any information contained in or omitted
from the Registration Statement or the Prospectus or any related preliminary
prospectus or any amendment thereof or supplement thereto in reliance upon and
in conformity with information furnished in writing to the Registrants by or on
behalf of the Underwriters as herein stated expressly for inclusion therein.
The Registrants acknowledge that the statements set forth under the heading
"Underwriting" constitute the only information relating to the Underwriters
furnished in writing to the Registrants by the Underwriters specifically for
inclusion in the Registration Statement.
(c) Arthur Andersen & Co., which has certified certain financial
statements and supporting schedules included and incorporated by reference in
the Registration Statement and whose reports are filed with the Commission as
part of the Registration Statement, are independent public accountants as
required by the Act and the Regulations.
(d) Each Registrant and Financial Opportunities, Inc. is a corporation,
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Each Registrant has all requisite corporate power
and authority and all necessary consents, approvals, authorizations, orders,
registrations, qualifications, licenses and permits of and from all public,
regulatory or governmental agencies and bodies, to own, lease and operate its
properties and conduct its business as now being conducted and as described in
the Registration Statement and the Prospectus, except where the failure to have
such consents, approvals, authorizations, orders, registrations, qualifications,
licenses and permits will not have a material adverse effect on the business,
prospects, properties, operations, condition (financial or other) or results of
operations of such Registrant (a "Material Adverse Effect"). Each Registrant
is duly qualified to transact business and is in good standing as a foreign
corporation in each jurisdiction where the character of its activities requires
such qualification except where the failure to be so qualified would not have a
Material Adverse Effect.
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(e) Each Registrant has all requisite corporate power and authority to
enter into this Agreement and the Indenture and to perform its obligations
hereunder. This Agreement and the Indenture have been duly and validly
authorized, executed and delivered by each Registrant and constitutes the legal,
valid and binding agreements of each Registrant, enforceable against such
Registrant in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity), and except to the
extent that rights to indemnification and contribution hereunder may be limited
by state or federal securities laws or the public policy underlying such laws.
(f) The Company has all requisite corporate power and authority to execute
and to issue and deliver the Notes to the Underwriter and to perform its
obligations thereunder. The Notes have been duly and validly authorized,
executed, authenticated, issued and delivered and constitute legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
(g) The Guarantors have all requisite corporate power and authority to
execute and to issue and deliver the Guaranties to the Underwriters and to
perform their respective obligations thereunder. The Guaranties have been duly
and validly authorized, executed and delivered by the Guarantors and constitute
a legal, valid and binding obligation of the Guarantors, enforceable against the
Guarantors in accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(h) No action has been taken, no order has been issued and, to the best of
each Registrant's knowledge, no statute, rule or regulation has been enacted or
adopted by any governmental agency which prevents the issuance of the
Securities, suspends the effectiveness of the Registration Statement, prevents
or suspends the use of any preliminary Registration Statement, prevents or
suspends the use of any preliminary prospectus or suspends the offering or sale
of the Securities in any
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jurisdiction designated by the Underwriter pursuant to paragraph (d) of Section
4 hereof; no injunction, restraining order or order of any nature by a federal
or state court of competent jurisdiction has been issued which would prevent the
issuance of the Securities, and no action, suit or proceeding is pending against
or, to the best of each Registrant's knowledge, is threatened or contemplated
against any Registrant before any court or arbitrator or any governmental body,
agency or official, domestic or foreign, which, if adversely determined, would
(i) result in any of the foregoing actions, (ii) interfere with or adversely
affect the issuance of the Securities, or (iii) in any manner draw into question
the validity of this Agreement, the Indenture or the Securities.
(i) The execution, delivery and performance of this Agreement, the
Indenture and the Securities and the consummation of the transactions
contemplated thereby by each Registrant party thereto, including the issuance,
sale and delivery of the Securities, will not (A) conflict with or result in a
breach of any of the terms and provisions of, or constitute a default (or an
event which with notice or lapse of time, or both, would constitute a default)
or require consent under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of any Registrant pursuant to
the terms of any agreement, instrument, franchise, license or permit to which
such Registrant is a party or by which such Registrant or its properties or
assets may be bound or subject, or (B) violate or conflict with (1) any
provision of the certificate of incorporation or by-laws of any Registrant, (2)
any judgment, decree, order binding upon any Registrant or any of its properties
or assets, or (3) any statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over any
Registrant or any of its properties or assets. No consent, approval,
authorization, order, registration, filing, qualification, license or permit of
or with any court or any public, governmental or regulatory agency or body
having jurisdiction over any Registrant or any of its properties or assets is
required for the execution, delivery and performance by such Registrant of this
Agreement, the Indenture or the Securities and the consummation by such
Registrant of the transactions contemplated hereby and thereby, including the
execution, authentication, issuance, sale and delivery of the Securities, except
for (1) such as may be required under state and foreign securities or Blue Sky
laws in connection with the purchase and distribution of the Securities by the
Underwriters, and (2) such as have been made or obtained under the Securities
Act and the Trust Indenture Act.
(j) The Indenture has been duly qualified under, and complies as to form
in all material respects with, the Trust Indenture Act.
(k) The Securities and the Indenture conform to the descriptions thereof
contained in the Registration Statement and the Prospectus.
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<PAGE>
(l) The Company had, at October 30, 1993, an authorized and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
All of the issued and outstanding shares of capital stock of the Company have
been duly and validly authorized and issued and are fully paid and
nonassessable. All of the issued and outstanding shares of capital stock of
each of the Guarantors have been duly and validly authorized and issued, are
fully paid and non-assessable, and are owned, directly or through subsidiaries,
by the Company, free and clear of any liens, security interests, claims,
charges, encumbrances, restrictions on transfer, shareholders agreements, voting
agreements or trusts or other defects of title of any kind whatsoever
(collectively, "Liens"). Except as described in the Registration Statement or
in any document incorporated by reference therein, there are no outstanding
options to purchase, or rights or warrants to subscribe for, or any securities
or obligations convertible into or exchangeable for, or any contracts or
commitments to issue or sell, any shares of capital stock of the Registrants.
(m) Except as described in the Registration Statement or in any document
incorporated by reference therein, no Registrant has any subsidiary companies or
interests in any partnerships, associations or other entities.
(n) Each Registrant has good and marketable title to its respective
properties, free and clear of all Liens, except (i) as do not materially
interfere with the use made and proposed to be made of such properties, (ii) as
referred to in the Registration Statement (including the notes to the financial
statements included therein), or (iii) as could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. Each
Registrant occupies its leased properties under valid and binding leases
conforming to the descriptions thereof set forth in the Registration Statement.
(o) The Company maintains reasonably adequate insurance with third party
carriers or is self-insured with respect to the properties, business and
operations of the Company and its subsidiaries (including each Registrant).
(p) Each Registrant has performed all of its obligations required to be
performed by it and is not, and at the Closing Date will not be, in default,
under any contract or other instrument to which such Registrant is a party or by
which it or its property is bound or affected, except such defaults which,
individually or in the aggregate, could not have a Material Adverse Effect. To
the best knowledge of each Registrant, no other party under any contract or
other instrument to which it is a party is in default in any respect thereof,
except such defaults which would not have a Material Adverse Effect. No
Registrant is, or at the Closing Date will be, in violation of any provisions of
its Certificate of Incorporation or by-laws.
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<PAGE>
(q) Subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change, in the business, prospects, properties, operations, condition (financial
or other) or results of operations of any Registrant, whether or not arising
from transactions in the ordinary course of business (a "Material Adverse
Change"), and since the date of the latest balance sheet presented in the
Registration Statement and the Prospectus, no Registrant has incurred any
material liabilities or obligations, direct or contingent, or entered into any
transaction not in the ordinary course of business, and there has not been any
material change, on a consolidated basis, in the capital stock, short-term debt
or long-term debt of the Registrants. There is no legal or governmental
proceeding pending or, to the best knowledge of any Registrant, threatened or
contemplated to which such Registrant is or may be a party or to which the
business or property of such Registrant is or may be the subject which might
result in any Material Adverse Change or which is required to be disclosed in
the Registration Statement and the Prospectus and which is not so disclosed.
(r) There is no contract or document concerning any Registrant of a
character required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement which is
not so described or filed as required. All such contracts or documents to which
such Registrant is a party have been duly authorized, executed and delivered by
such Registrant, constitute legal, valid and binding agreements of such
Registrant and are enforceable against such Registrant in accordance with the
terms thereof, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and to principles of equity. The descriptions in
the Registration Statement, the Prospectus and in any document incorporated by
reference therein of any such legal and governmental proceedings and contracts
and other documents, insofar as such descriptions or statements constitute
summaries of the proceedings or documents referred to therein, fairly present
the information called for with respect to such proceedings or documents.
(s) The financial statements, schedules and the related notes of the
Registrants included or incorporated by reference in the Registration Statement
and the Prospectus comply in all material respects with the requirements of the
Securities Act, the Exchange Act, and the rules and regulations promulgated
thereunder, as the case may be, and present fairly the financial position,
results of operations and cash flows of the Registrants, as of the dates and for
the periods specified therein. Such financial statements (including the related
notes and schedules) of the Registrants have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods specified therein except as disclosed in the Registration
Statement and the Prospectus, subject in the case of interim statements to
normal year-end audit adjust-
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<PAGE>
ments. The other financial information and statistical data set forth in the
Prospectus have been prepared on an accounting basis consistent with such
financial statements.
(t) Each Registrant owns, or is licensed or otherwise has the right to
use, all trademarks, trade names, patents and copyrights used in or necessary
for the conduct of its business subject to such limitations which, individually
or in the aggregate, would not have a Material Adverse Effect. No claims have
been asserted by any person to the use of any trademarks, trade names, patents
or copyrights, except as disclosed in the Registration Statement and Prospectus
and except for such claims which, individually or in the aggregate, could not
have a Material Adverse Effect. The use, in connection with the business and
operations of such Registrant, of such trademarks, trade names, patents and
copyrights does not, to the best of such Registrant's knowledge, infringe on the
rights of any person, except such infringements which, individually or in the
aggregate, would not have a Material Adverse Effect.
(u) No Registrant is involved in any labor dispute or, to the best of such
Registrant's knowledge, is any dispute imminent, other than routine disciplinary
and grievance matters. No Registrant is aware (without any independent
verification) of any existing or imminent labor disturbance by the employees of
any of its principal suppliers or customers which could reasonably be expected
to result in any Material Adverse Change.
(v) Each approval, consent, order, authorization, designation, declaration
or filing by or with any regulatory, administrative or other governmental body
necessary in connection with the execution and delivery by the Registrant of
this Agreement and the Indenture and the consummation of the transactions herein
and therein contemplated (except such additional steps as may be required by the
Securities Act, the Trust Indenture Act or the National Association of
Securities Dealers, Inc. (the "NASD"), or as may be necessary to qualify the
Securities for public offering by the Underwriter under state securities or Blue
Sky laws) has been obtained or made and is in full force and effect.
(w) The business and operations of each Registrant have been and are being
conducted in compliance in all respects with all applicable laws, rules and
regulations of all public and private authorities having jurisdiction over such
Registrant, except for such noncompliance which will not have a Material Adverse
Effect. Each Registrant possesses, from each appropriate agency, commission,
board and governmental body or authority, whether state, local or federal
(including, without limitation, the U.S. Food and Drug Administration and the
U.S. Small Business Administration), and is operating in compliance with, all
licenses, permits, authorizations, approvals, exemptions, rulings, franchises
and rights as are necessary for such Registrant to engage in the businesses
conducted by it, except where the failure to possess or operate in compliance
with any of the foregoing will not have a Material Adverse Effect. No
proceedings on the part of such agencies,
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<PAGE>
commissions, boards or governmental bodies or authorities are pending or
threatened which might result in the suspension, revocation or limitation of any
such licenses, permits, authorizations, approvals, exemptions, rulings,
franchises and rights, except for such proceedings which will not have a
Material Adverse Effect. Each Registrant has made all filings, and has given
all notices, required by applicable laws, rules and regulations with all
appropriate agencies, commissions, boards and governmental bodies or authorities
(including, without limitation, all filings and notices required to be made or
given in connection with the franchise operations of any Registrant), except
where the failure to make such filings or give such notices will not have a
Material Adverse Effect.
(x) The Company maintains a system of internal accounting controls on
behalf of all Registrants sufficient to provide reasonable assurance that: (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(y) All tax returns required to be filed by any Registrant in any
jurisdiction have been so filed, and all taxes, including withholding taxes,
penalties and interest, assessments, fees and other charges due or claimed to be
due from such entities have been paid, other than: (i) those being contested in
good faith and for which adequate reserves have been provided or those currently
payable without penalty or interest, or (ii) those which will not have a
Material Adverse Effect. No proposed additional tax assessments have been
asserted in writing against any Registrant which will have a Material Adverse
Effect.
(z) Except as disclosed in the Registration Statement, each Registrant is
in compliance with all applicable federal, state and local laws, ordinances.
regulations, permits, orders, policies and other requirements relating to
protection of human safety and health (including occupational safety and health)
or the environment or imposing liability or standards of conduct concerning any
Hazardous Material (as hereinafter defined) (collectively, "Environmental
Laws"), except, in each case, where such noncompliance, individually or in
aggregate, would not have a Material Adverse Effect. The term "Hazardous
Material" as used in this Registration Statement means any: "hazardous
substance" as defined by the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, 40 U.S.C. (S)(S) 9601 et seq., (ii) any
"hazardous waste" as defined by the Resource Conservation and Recovery Act
("RCRA"), as amended, 42 U.S.C. (S)(S) 6901 et seq., (iii) petroleum, petroleum
product or constituent thereof, or other "regulated substance" under Title C of
RCRA, and (iv) any other material, pollutant, contaminant or
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dangerous or toxic chemical, the use, release, threatened release or other
handling of which is regulated under any applicable Environmental Law or
otherwise may impose any duty or liability, including, without limitation,
polychlorinated biphenyls, urea formaldehyde, asbestos and asbestos-containing
materials, radioactive materials, radon and explosives.
(aa) Each Registrant has registered with applicable governmental
authorities, each and every underground storage tank that it is required to
register under applicable Environmental Laws; has provided all required notices
of any release or threatened release of any Hazardous Materials; has obtained
all necessary permits or other approvals; has complied with all operating,
reporting and financial assurance requirements; and otherwise has satisfied all
other requirements imposed by any governmental authorities regarding each such
tank, except, in such case, such instances which will not have a Material
Adverse Effect. With respect to each release or threatened release of any
Hazardous Material of which any Registrant is aware, each Registrant has either
completed any and all Corrective Action, as hereinafter defined, necessary in
connection with such release or threatened release, or to the extent any such
Corrective Action has not been completed, each Registrant is proceeding to
complete said Corrective Action in accordance with the directives of each
governmental authority with jurisdiction over said Corrective Action and in
compliance with Environmental Laws. The term "Corrective Action" as used in
this Registration Statement means any testing, sampling or other investigation;
remedial action or other cleanup activities; and any other response to the
release or threatened release of a Hazardous Material.
(bb) Except as described in the Registration Statement, no Environmental
Costs, as hereinafter defined, that may have a Material Adverse Effect will be
incurred by any Registrant to comply with any Environmental Law with respect to
which the Registrant is not currently in compliance, to satisfy any future
requirements of any Environmental Law which have been established as of the date
hereof, or to complete any Corrective Action. The term "Environmental Costs" as
used in this Registration Statement means any and all costs and expenses
necessary: (i) to correct any violation or alleged violation of, or otherwise
comply with, any applicable Environmental Law; (ii) to complete any Corrective
Action; (iii) to pay any fines, penalties or other sanctions imposed by any
governmental authority in connection with any Environmental Law or Corrective
Action; and (iv) to compensate anyone for any personal injury, property damage,
natural resource damage, or other loss, expense or liability involving any
environmental matter.
(cc) There is no liability or alleged liability, or to the best knowledge
of any Registrant, any threatened or potential liability of any kind, including,
without limitation, any liability imposing any Environmental Costs, of any
Registrant arising out of or resulting from: (i) the presence or release or
threatened release of any Hazardous Material into any environmental media from,
within, below, on or
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at any location, whether or not currently or formerly owned by any Registrant;
or (ii) any violation or alleged violation of any Environmental Law, (x) which
liability or alleged, threatened or potential liability is required to be
disclosed in the Registration Statement, other than as disclosed therein, or (y)
which liability or alleged, threatened or potential liability, individually or
in aggregate, would have a Material Adverse Effect.
(dd) To the best knowledge of any Registrant, there are no releases or
threatened releases of Hazardous Materials into any environmental media at any
location currently or formerly owned, operated or otherwise used by or
affiliated with any Registrant which will have a Material Adverse Effect that
has not been reported to governmental authorities and is not disclosed in the
Registration Statement; and no lien has been attached or filed against any
Registrant, or any property currently or formerly owned, operated or otherwise
used by or affiliated with any Registrant in favor of any governmental or
private entity in connection with the presence or release or threatened release
of any Hazardous Material, any violation or alleged violation of any
Environmental Law, or any imposition or threatened or potential imposition of
Environmental Costs.
(ee) The Registrants on a consolidated basis are, and each of such
entities is, Solvent, and will, after the issuance, guaranty and sale of the
Securities as contemplated under this Agreement and the Indenture, and assuming
the incurrence of the maximum amount of borrowings under the Registrants' credit
facilities (as in effect on the Closing Date and as described in the
Registration Statement and the Prospectus and after taking into account any
rights of contribution among the Guarantors and any limitations on the
obligations of the Guarantors under the Guaranties), be Solvent. "Solvent"
means, with respect to any entity, that as of the date of determination (i) the
then fair saleable value of the property of such entity is (y) greater than the
then total amount of liabilities (including guaranties and other contingent
liabilities) of such entity and (z) greater than the amount that will be
required to pay such entity's probable liability on such entity's existing debts
as they become absolute and matured, (ii) such entity's property is not an
unreasonably small capital, and (iii) such entity does not intend to or believe
that it will incur debts beyond its ability to pay such debts as they mature.
(ff) Each Registrant is in compliance in all respects with all applicable
laws, rules and regulations affecting the employment of its employees,
including, without limitation, those relating to wages, hours, collective
bargaining, discrimination and the payment of social security and similar
employment-related taxes, except for such noncompliance which will not have a
Material Adverse Effect. All Plans (as defined below) applicable to any
employee of any Registrant have been consistently administered in accordance
with their terms in all respects, except where the failure to so administer such
Plans will not have a Material Adverse Effect. To the extent required either as
a matter of law or to obtain the intended tax treatment and tax
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benefits, all Plans comply in all material respects with the requirements of the
Employee Retirement Income Security Act of 1974 ("ERISA") and the Internal
Revenue Code of 1986. All required filings, disclosures and contributions have
been made with respect to all Plans, except where the failure to make such
filings, disclosures or contributions will not have a Material Adverse Effect.
Except as disclosed in the Registration Statement, no Registrant contributes (or
has ever contributed) to any multiemployer plan, as defined in Section 3(37) of
ERISA, and no Registrant has any actual or potential liabilities under Section
4201 of ERISA for any complete or partial withdrawal from any multiemployer
plan, other than as described on Schedule I hereto. The term "Plans" includes
all material employee benefit plans as defined in Section 3(3) of ERISA and all
other material benefits arrangements (including, without limitation, any
program, agreement, policy or commitment providing for insurance coverage,
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, life, health, disability or accident
benefits) applicable to the employees of any Registrant to which any Registrant
contributed or had committed to implement for employees prior to the date of
this Agreement.
(gg) There are no holders of securities of any Registrant who, pursuant to
any agreement, understanding or otherwise, have any right to have securities of
such Registrant registered under the Securities Act in connection with the
offering contemplated by the Prospectus.
(hh) No Registrant is, or as a result of the transactions contemplated by
the Prospectus would be, required to make any filing or to register under the
Investment Company Act of 1940, as amended, or is or will become a "holding
company" or a "subsidiary company" of a "registered holding company," as defined
in the Public Utility Holding Company Act of 1935, as amended.
(ii) Neither the Company nor any agent acting on its behalf has or will
take any action which might cause this Agreement or the issuance, execution or
delivery of the Securities to violate Regulation G (12 C.F.R. Part 207),
Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224), insofar
as said Regulation applies to Regulations G and U of the Board of Governors of
the Federal Reserve System.
(jj) None of the proceeds from the issuance of the Securities will be
loaned to, invested in or otherwise used to provide funds to DM Insurance
Limited.
(kk) The descriptions in the Prospectus under the captions
"Capitalization", "Certain Transactions," "Description of the New Credit
Agreement," and "Description of the Notes" are true and correct in all material
respects and fairly present the information required to be disclosed therein.
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(ll) No statement, representation, warranty or covenant made by the
Registrants in this Agreement or made in any certificate or document required by
this Agreement to be delivered to the Underwriters was or will be, when made,
inaccurate, untrue or incorrect in any material respect.
(mm) Any certificate signed by any officer of any Registrant and delivered
to you or to your counsel shall be deemed a representation and warranty by all
Registrants to the Underwriters as to the matters covered thereby.
(nn) Financial Opportunities, Inc. is an indirect, wholly owned
subsidiary of theCompany;
(oo) No portion of Financial Opportunities, Inc.'s indebtedness or any of
its other obligations (contingent or otherwise), (i) is guaranteed by any
Registrant, (ii) is recourse to or obligates any Registrant in any way or (iii)
subjects any property or asset of any Registrant, directly or indirectly,
contingently or otherwise, to satisfaction thereof;
(pp) No Registrant has any contract, arrangement, understanding with
Financial Opportunities, Inc. or is subject to an obligation of any kind,
written or oral, other than on terms no less favorable to such Registrant than
those that might be obtained at the time from persons or entities that are not
affiliates of the Company;
(qq) No Registrant has any obligation i) to subscribe for additional
shares of capital stock or other equity interests of Financial Opportunities,
Inc. or (ii) to maintain or preserve Financial Opportunities, Inc.'s financial
condition or to cause Financial Opportunities, Inc. to achieve certain levels of
operating results;
(rr) Financial Opportunities, Inc. is an SBIC (as defined in the
Registration Statement), regulated and licensed as such by the SBA, and performs
no activities or engages in no business other than as an SBIC (as defined in the
Registration Statement);
(ss) Financial Opportunities, Inc. maintains a bank account or accounts
separate from those of each Registrant and does not otherwise commingle its
funds or any other properties or assets with those of any Registrant;
(tt) The Board of Directors of FINOP contains at least one independent
director who is not an officer, director, employee, shareholder (other than a
shareholder owning less than 1% of the outstanding capital stock of any class of
any Registrant's capital stock) or affiliate of any Registrant; and
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(uu) the sum of indebtedness and aggregate liquidation preference of
preferred stock of Financial Opportunities, Inc. does not exceed $20 million.
(vv) Except for the Guarantors and Financial Opportunities, Inc. and
except as set forth on Schedule II hereto, the Company has no subsidiaries.
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES. Subject to the terms
---------------------------------------------
and conditions and in reliance upon the representations and warranties of the
Registrants herein set forth, (i) the Company agrees to sell to the Underwriter,
and the Underwriter agrees to purchase from the Company, at a purchase price of
___% of the principal amount thereof, plus accrued interest from ____________,
1994 to the Closing Date (as defined below), the $75,000,000 aggregate principal
amount of the Notes, and (ii) the Company agrees to pay to the Underwriter a
commission equal to ___% of $75,000,000 aggregate principal amount of the Notes.
Delivery of and payment of the purchase price for the Securities shall be
made in the offices of Bear, Stearns & Co. Inc. at 245 Park Avenue, New York,
New York 10167, or at such other location as may be mutually acceptable. Such
delivery and payment shall be made at 10:00 a.m., New York time, on _______ ,
1994, or at such other time as shall be agreed upon by the Underwriter and the
Company. The time and date of such delivery and payment are herein called the
"Closing Date." Delivery of the Securities shall be made to the Underwriter for
their account against payment of the purchase price for the Securities by
certified or official bank check payable in New York Clearing House funds or
similar next day funds to the order of the Company.
The Securities shall be in definitive form and registered in such name or
names and in such authorized denominations as the Underwriter may request in
writing at least two full business days prior to the Closing Date. The Company
will permit the Underwriter to examine and package such Securities for delivery
at least one full business day prior to the Closing Date.
3. OFFERING. Upon the Underwriter's authorization of the release of the
--------
Securities, the Underwriter proposes to offer the Securities for sale to the
public upon the terms set forth in the Prospectus.
4. COVENANTS OF THE REGISTRANTS: The Registrants, jointly and severally,
----------------------------
agree with the Underwriter as follows:
(a) If the Registration Statement has not yet been declared effective, the
Registrants will use their best efforts to cause the Registration Statement and
any amendments thereto to become effective as promptly as possible, and if Rule
430A is used or the filing of the Prospectus is otherwise required under Rule
424(b), they will file the Prospectus (properly completed if Rule 430A has been
used) pursuant to
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Rule 424(b) within the time period prescribed by the Regulations and will
provide evidence satisfactory to the Underwriter of such timely filing.
The Company will notify the Underwriter immediately (and if requested by
the Underwriter, will confirm such notice in writing): (i) when the Registration
Statement and any amendments thereto become effective; (ii) of any request by
the Commission for any amendment of or supplement to the Registration Statement
or the Prospectus or for any additional information; (iii) of the mailing or the
delivery to the Commission for filing of any amendment of or supplement to the
Registration Statement or the Prospectus; (iv) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement, or
any post-effective amendment thereto or of the initiation, or the threatening,
of any proceedings therefor; (v) of the receipt of any comments from the
Commission; and (vi) of the receipt by the Registrants of any notification with
respect to the suspension of the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for that
purpose. If the Commission shall propose or enter a stop order at any time, the
Registrants will use their best efforts to prevent the issuance of any such stop
order and, if issued, to obtain the lifting of such order as soon as possible.
The Registrants will not file any amendment or supplement to the
Registration Statement, whether before or after the time when it becomes
effective, or make any amendment or supplement to the Prospectus of which the
Underwriter shall not previously have been advised and provided a copy within
two business days prior to the filing thereof or to which the Underwriters shall
reasonably object; and the Registrants will prepare and file with the
Commission, promptly upon the Underwriter's reasonable request, any amendment
to the Registration Statement or supplement to the Prospectus which may be
necessary or advisable in connection with the distribution of the Securities by
the Underwriters, and the Registrants will use their reasonable best efforts to
cause the same to become effective as promptly as possible.
(b) Promptly after the Registration Statement becomes effective, and from
time to time thereafter for such period as a prospectus is required by law to be
delivered, the Registrants will furnish to the Underwriter, without charge, as
many copies of the Prospectus (and of any amendment or supplement to the
Prospectus) as the Underwriters may reasonably request for the purposes
contemplated by the Securities Act or the Regulations. The Registrants consent
to the use of the Prospectus and any amendment or supplement thereto by the
Underwriter and by all dealers to whom the Securities may be sold, both in
connection with the offering or sale of the Securities and for such period of
time thereafter as the Prospectus is required by law to be delivered in
connection therewith.
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<PAGE>
(c) If during the period specified in paragraph (b) any event shall occur
as a result of which, in the judgment of the Company or in the opinion of the
Underwriter's counsel, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances as of the date of the Prospectus and when the Prospectus is
delivered to a purchaser, not misleading, or if it is necessary to amend or
supplement the Prospectus to comply with any law, forthwith the Registrants will
notify the Underwriter and promptly prepare and file with the Commission an
appropriate amendment or supplement to the Prospectus so that the statements in
the Prospectus, as so amended or supplemented, will not, in the light of the
circumstances as of the date of the Prospectus and when it is so delivered, be
misleading, or so that the Prospectus will comply with law, and to furnish to
the Underwriter, and to such dealers as they shall specify without charge such
number of copies thereof as the Underwriter may reasonably request. The
Registrants will use best efforts to have any such amendment to the Registration
Statement declared effective as soon as possible.
(d) Prior to any public offering of the Securities, the Registrants will
cooperate with the Underwriter and their counsel in connection with the
registration or qualification of the Securities for offer and sale by them and
by dealers under the state and foreign securities or Blue Sky laws of such
jurisdictions as they may reasonably request, and the Registrants will continue
such qualification in effect so long as required for distribution of the
Securities and file such consents to service of process or other documents as
may be necessary in order to effect such registration or qualification.
(e) So long as any of the Securities are outstanding, the Registrants will
(i) mail as soon as reasonably practicable after the end of each fiscal year to
the registered holders of the Securities a financial report of the Company and
its subsidiaries (including the Guarantors) on a consolidated basis (and a
similar financial report of all unconsolidated subsidiaries, if any), all such
financial reports to include a consolidated balance sheet, a consolidated
statement of operations, a consolidated statement of cash flows and a
consolidated statement of shareholders' equity as of the end of and for such
fiscal year, together with comparable information as of the end of and for the
preceding year, certified by independent certified public accountants, and (ii)
mail and make generally available as soon as practicable after the end of each
quarterly period (except for the last quarterly period of each fiscal year) to
the registered holders of the Securities a consolidated balance sheet, a
consolidated statement of operations and consolidated statement of cash flows
(and similar financial reports of all unconsolidated subsidiaries, if any) as of
the end of and for such period, and for the period from the beginning of such
year to the close of such quarterly period, together with comparable information
for the corresponding periods of the preceding year.
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(f) During the period referred to in paragraph (e), the Registrants will
mail to the Underwriter as soon as available a copy of each report or other
publicly available information concerning the Company and its subsidiaries
(including the Guarantors) which is mailed or otherwise made available to its
securityholders of any class or filed with the Commission.
(g) The Registrants will promptly deliver to the Underwriter three signed
copies of the Registration Statement, including exhibits and all amendments
thereto, and the Registrants will promptly deliver to the Underwriter such
number of copies of any preliminary prospectus, the Prospectus, the Registration
Statement, and all amendments of and supplements to such documents, if any, as
the Underwriter may reasonably request.
(h) The Registrants will comply with all of the provisions of any
undertakings contained in the Registration Statement.
(i) The Registrants will make generally available to holders of the
Securities as soon as may be practicable but in no event later than the last day
of the fifteenth full calendar month following the fiscal quarter in which the
effective date of the Registration Statement falls, an earnings statement (which
need not be audited but shall be in reasonable detail) covering a period of at
least 12 months commencing after the effective date, and satisfying the
provisions of Section 11(a) of the Act (including Rule 158 of the Rules and
Regulations); provided that a separate earnings statement need not be provided
--------
with respect to any Registrant (other than the Company) if the earnings
statement of the Company that is so made available includes the earnings of such
Registrant on a consolidated basis and such earnings statement satisfies such
provisions with respect to such Registrant.
(j) To the extent applicable, prior to the Closing Date, the Company shall
furnish to the Underwriter, as soon as they have been prepared and are
available, copies of any unaudited interim financial statements of the Company
and its subsidiaries (including the Guarantors), for any periods subsequent to
the periods covered by the financial statements appearing in the Registration
Statement and the Prospectus.
(k) During a period of 60 days from the date of the Prospectus, no
Registrant will, without the Underwriter's prior written consent, issue, sell,
offer or agree to sell, or otherwise dispose of, directly or indirectly, any
debt securities of any Registrant.
(l) To the extent permitted by applicable law, the Registrants hereby
waive and will not claim the benefit of any usury laws against any holder of
Securities.
(m) Promptly, but in no event later than ______ from the date hereof, the
Company shall cause each of the subsidiaries of the Company described on
Schedule II hereto to be dissolved in accordance with the laws of such
subsidiaries' respective jurisdictions of incorporation.
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<PAGE>
5. PAYMENT OF EXPENSES. Whether or not the transactions contemplated in
-------------------
this Agreement are consummated or this Agreement is terminated, the Registrants
hereby agree to pay all costs and expenses incident to the performance of the
obligations of the Registrants hereunder, including, without limitation, those
in connection with: (i) preparing, printing, duplicating, filing and
distributing the Registration Statement, as originally filed and all amendments
thereof (including all exhibits thereto), any preliminary prospectus, the
Prospectus and any amendments thereof or supplements thereto (including, without
limitation, fees and expenses of the Registrants' accountants and counsel), the
Indenture, the underwriting documents (including this Agreement), and all other
documents related to the public offering of the Securities (including those
supplied to the Underwriters in quantities as hereinabove stated); (ii) the
issuance, transfer and delivery of the Securities to the Underwriter, including
any transfer or other taxes payable thereon; (iii) the qualification of the
Securities under state and foreign securities or Blue Sky laws and the
eligibility of the Securities for investment under state and foreign law,
including the costs of printing and mailing a preliminary and final "Blue Sky
Survey" and a "Legal Investment Memorandum" and the reasonable fees and
disbursements of the Underwriter's counsel in relation thereto; (iv) the filing
fees of the Commission and the NASD relating to the Registration Statement and
the Securities; (v) "roadshow," travel and other expenses incurred by the
Company in connection with the marketing and sale of the Securities; (vi) the
rating of the Securities by one or more rating agencies; and (vii) the fees and
expenses of the Trustee and any agent of the Trustee and the fees and
disbursements of counsel for the Trustee in connection with the Indenture and
the Securities.
6. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The Underwriter's
------------------------------------ ------------
obligations to purchase and pay for the Securities shall be subject to the
following conditions:
(a) Notification by the Commission that the Registration Statement has
become effective shall be received by the Underwriters not later than 5:00 p.m.,
New York City time, on the date of this Agreement or at such later date and time
as shall be consented to in writing by the Underwriters and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made on a
timely basis.
(b) (i) No action shall have been taken and no statute, rule or
regulation or order shall have been enacted, adopted or issued which would as of
the Closing Date prevent the issuance of the Securities; (ii) no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall be pending or threatened by the
Commission; (iii) no order suspending the effectiveness of the Registration
Statement or the qualification or registration of the Securities under the
securities or Blue Sky laws of any jurisdiction shall be in effect and no
proceeding for such purpose shall be pending before or threatened or
contemplated by the Commission or the authorities
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<PAGE>
of any such jurisdiction; (iv) any request for additional information on the
part of the staff of the Commission or any such authorities shall have been
complied with to the satisfaction of the staff of the Commission or such
authorities; and (v) after the date hereof, no amendment or supplement to the
Registration Statement or the Prospectus shall have been filed unless a copy
thereof was first submitted to the Underwriter and the Underwriter does not
reasonably object thereto, and the Underwriter shall have received a
certificate, dated the Closing Date and signed by the Chief Executive Officer or
the Chairman of the Board of Directors of the Company and the Chief Financial
officer of the Company (who may rely upon the best of their information and
belief), to the effect of clauses (i), (ii), (iii) and (iv).
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus: (i) there shall not have occurred a
Material Adverse Change with respect to any Registrant; (ii) no Registrant shall
have sustained any material loss or interference with its business or properties
from fire, explosion, flood or other casualty, whether or not covered by
insurance, or from any labor dispute or any court or legislative or other
governmental action, order or decree if, in the reasonable judgment of the
Underwriter, any such development makes it impracticable or inadvisable to
consummate the sale and delivery of the Securities by the Underwriters at the
initial public offering price; and (iii) no Registrant shall have incurred any
material liability or obligation, direct or contingent, other than those
reflected in the Registration Statement or incurred in the ordinary course of
business and not required to be disclosed therein.
(d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted against any of the Registrants or any of its
officers or directors in their capacities as such, before or by any Federal,
state or local court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling, decision or finding could have a Material Adverse Effect.
(e) Each of the representations and warranties of the Registrants
contained herein shall be true and correct in all material respects at the
Closing Date and all covenants and agreements contained herein to be performed
on the part of the Registrants at or prior to the Closing Date shall have been
duly performed, fulfilled or complied with in all material respects.
(f) The Underwriter shall have received an opinion, dated the Closing Date
and satisfactory in form and substance to counsel for the Underwriters, from
Schatz & Schatz, Ribicoff & Kotkin, special counsel to the Registrants, to the
effect set forth in Exhibit A.
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<PAGE>
(g) The Underwriter shall have received an opinion, dated the Closing Date
and satisfactory in form and substance to counsel for the Underwriter, from
Gregory Wozniak, Esq., General Counsel to the Company, to the effect set forth
in Exhibit B.
(h) The Underwriter shall have received an opinion, dated the Closing
Date, from Dorsey & Whitney, counsel to the Underwriters, with respect to the
Registration Statement, the Prospectus, this Agreement, the Securities and the
Indenture, which opinion shall be reasonably satisfactory in all respects to the
Underwriter.
(i) The Underwriter shall have received a certificate, dated the Closing
Date, signed by each of the Chief Executive Officer and the Chief Financial
Officer of the Company and each Guarantor, in form and substance satisfactory to
the Underwriter, based upon the best of their knowledge, to the effect that:
(x) Each signer of such certificate has examined the Registration
Statement, the Prospectus, and all documents incorporated by
reference therein and (A) as of the date of such certificate,
such documents do not contain an untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein (in
the case of the Prospectus, in the light of the circumstances
under which they were made) not misleading, and (B) since the
Effective Date, no event has occurred as a result of which it is
necessary to amend or supplement the Prospectus in order to make
the statements therein, in light of the circumstances under which
they were made, not untrue or misleading in any material respect.
(y) Each of the representations and warranties of the Registrants
contained in this Agreement are, at the time such certificate is
dated, true and correct in all material respects.
(z) Each of the covenants required to be performed by the Registrants
herein on or prior to the date of such certificate has been duly,
timely and fully performed in all material respects and each
condition herein required to be satisfied or fulfilled on or
prior to the date of such certificate has been duly, timely and
fully satisfied or fulfilled in all material respects.
(j) The Securities shall be qualified for sale in such jurisdictions as
the Underwriter may reasonably request, each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing
Date.
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<PAGE>
(k) At the time this Agreement is executed and at the Closing Date, the
Underwriter shall have received a letter from Arthur Andersen & Co., independent
public accountants for the Registrants, dated, respectively, as of the date of
this Agreement and as of the Closing Date, addressed to the Underwriter and in
form and substance satisfactory to the Underwriter, to the effect that: (i) they
are independent public accountants with respect to the Registrants within the
meaning of the Securities Act and the Regulations and stating that the answer to
Item 10 of the Registration Statement is correct insofar as it relates to such
accountants; (ii) stating that, in their opinion, the financial statements and
schedules of the Registrants included or incorporated by reference in the
Registration Statement and the Prospectus and covered by their opinions included
or incorporated by reference therein comply as to form in all material respects
with the applicable accounting requirements of the Securities Act, the Exchange
Act and the rules and regulations promulgated thereunder; (iii) on the basis of
procedures (but not an audit made in accordance with generally accepted auditing
standards) performed by such accountants consisting of a reading of the
October 30, 1993 unaudited interim financial statements of the Registrant, a
reading of the minutes of meetings and consents of the stockholder and board
of directors of the Company and the committees of such board, inquiries of
officers and other employees of the Company who have responsibility for
financial and accounting matters and other specified procedures and inquiries
(including procedures specified by the American Institute of Certified Public
Accountants for a review of interim financial information (including interim
financial information incorporated by reference in the Registration Statement)
as described in SAS No. 71, Interim Financial Information) to a date not more
than five business days prior to the date of such letter, nothing has come to
their attention that would cause them to believe that: (A) the unaudited
financial statements as of October 30, 1993 of the Registrants presented or
incorporated by reference in the Registration Statement and the Prospectus, if
any, do not comply as to form in all material respects with the applicable
accounting requirements of the Securities Act and the Regulations or that such
unaudited financial statements are not presented fairly, in all material
respects, in conformity with generally accepted accounting principles applied
on a basis consistent with that of the audited financial statement contained
or incorporated by reference in the Registration Statement and Prospectus; (B)
with respect to the period subsequent to October 30, 1993, there were, as of
the date of the most recent available unaudited monthly financial statements
of the Registrants, and as of a specified date not more than five business
days prior to the date of such letter, any changes in the capital stock, long-
term indebtedness, current portion of long-term indebtedness or working
capital of the Registrants or any decrease in the stockholder's equity of the
Registrants, in each case as compared with the amounts shown in the most
recent balance sheets presented in the Registration Statement and the
Prospectus, except for changes or decreases which the Registration Statement
and the Prospectus disclose have occurred or may occur or which are set forth
in such letter; or (C) that during the period from October 30, 1993,
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1994 to the date of the most recent available unaudited monthly financial
statements of the Registrants and to a specified date not more than five
business days prior to the date of such letter, there was any decrease, as
compared with the corresponding period in the prior fiscal year, in total
revenues, net income before interest and taxes or net income, except for
decreases which the Registration Statement and the Prospectus disclose have
occurred or may occur or which are set forth in such letter; and (iv) stating
that they have compared specific dollar amounts, numbers of shares, percentages
of revenues and earnings, and other financial information pertaining to the
Registrants set forth in the Registration Statement and the Prospectus, which
have been specified by the Underwriter prior to the date of this Agreement, to
the extent that such amounts, numbers, percentages, and information may be
derived from the general accounting and financial records of the Registrants or
from schedules furnished by the Company, and excluding any questions requiring
an interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate procedures
specified by the Underwriter (which procedures do not constitute an audit in
accordance with generally accepted auditing standards) set forth in such letter,
and found them to be in agreement.
(l) There shall not have occurred any downgrading, nor shall any notice
have been given of any intended or potential downgrading or of any review for a
possible change that does not indicate the direction of the possible change, in
the rating preliminarily accorded the Securities by any "nationally recognized
statistical rating organization," as such term is defined for purposes of Rule
436(g)(2) under the Act.
(m) Concurrently on the Closing Date, the Company shall have executed and
delivered a new or amended credit agreement replacing or amending its current
Credit Agreement on the terms described in the Prospectus.
(n) The Registrants shall have furnished to the Underwriter such
certificates and other documents, in addition to those specifically mentioned
herein, as the Underwriter may have reasonably requested as to the accuracy and
completeness at the Closing Date of any statement in the Registration Statement
or the Prospectus, as to the accuracy at the Closing Date of the representations
and warranties of the Registrants herein, as to the performance by the
Registrants of their respective obligations hereunder or as to the fulfillment
of the conditions precedent to the obligations hereunder of the Underwriter.
If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as required by this Agreement, or if any of the certificates,
opinions, written statements or letters furnished to the Underwriter or to the
Underwriter's counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to the Underwriter, and
to the Underwriter's
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<PAGE>
counsel, all of the Underwriter's obligations hereunder may be cancelled by the
Underwriter at, or at any time prior to, the Closing Date. Notice of such
cancellation shall be given to the Company in writing, or by telephone, telex or
telegraph, confirmed in writing.
7. INDEMNIFICATION.
---------------
(a) The Registrants, jointly and severally, agree to indemnify and hold
harmless the Underwriter, their respective directors, officers, employees and
agents and each person, if any, who controls the Underwriter within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, against any and
all losses, liabilities, claims, damages and reasonable out-of-pocket expenses
whatsoever (including, but not limited to, reasonable attorneys' fees and any
and all reasonable expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and subject to the penultimate sentence of clause (d) of this
Section 7, any and all amounts paid in settlement of any claim or litigation),
joint or several, to which the Underwriter or any such person may become subject
under the Securities Act, the Exchange Act, the Trust Indenture Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement, as originally filed or any amendment thereof, or any related
preliminary prospectus or the Prospectus, or in any supplement thereto or
amendment thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of the preliminary
prospectus or the Prospectus, in light of the circumstances under which they
were made) not misleading; provided, however, that the Registrants will not be
liable in any such case to the extent, but only to the extent, that any such,
loss, liability, claim, damage or expense arises out of or is based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Registrants by or on behalf of the Underwriter
expressly for inclusion therein. This indemnity agreement will be in addition
to any liability which the Registrants may otherwise have, including, under this
Agreement.
(b) The Underwriter agrees to indemnify and hold harmless each Registrant,
its directors, its officers, employees and agents and each other person, if any,
who controls such Registrant within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against any losses, liabilities, claims,
damages and expenses whatsoever (including but not limited to attorneys' fees
and any and all out-of-pocket expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever and subject to the penultimate sentence of clause (d) of this
Section 7,
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<PAGE>
any and all amounts paid in settlement of any claim or litigation), joint or
several, to which they or any of them may become subject under the Securities
Act, the Exchange Act, the Trust Indenture Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, as originally filed
or any amendment thereof, or any related preliminary prospectus or the
Prospectus, or in any amendment thereof or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
(in the case of a preliminary prospectus or the Prospectus, in light of the
circumstances under which they were made) not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Registrants by or on
behalf of the Underwriter expressly for inclusion therein; provided, however,
-------- -------
that in no case shall the Underwriter be liable or responsible for any amount in
excess of the underwriting commission received by the Underwriter. This
indemnity will be in addition to any liability which the Underwriter may
otherwise have, including, under this Agreement.
(c) The Registrants acknowledge that the statements set forth under the
heading "Underwriting" in the preliminary prospectus and the Prospectus
constitute the only information relating to the Underwriter furnished in writing
to the Registrants by the Underwriter expressly for inclusion in the
Registration Statement, the preliminary prospectus or the Prospectus.
(d) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof. No
indemnification provided for in Section 7(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(d) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
idemnifying party or parties from any liability which it or they may have to the
idemnified party for contribution or otherwise than on account of the
provisions of Section 7(a) or (b). In case any such action or proceeding is
brought against any indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein, and, to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless: (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in connection
with the defense of such
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<PAGE>
action; (ii) the indemnifying parties shall not have retained counsel for the
defense of such action within a reasonable time after notice of commencement of
the action; or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are different
from or additional to those available to one or all of the indemnifying parties
(in which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses shall be borne by the indemnifying parties.
The indemnifying parties shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) at any time
for the indemnified parties, which firm shall be designated in writing by the
indemnified parties. Anything in this subsection to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
-------- -------
that such consent will not be unreasonably withheld. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is a party and indemnification has been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability or claims that are the subject
matter of such proceeding.
8. CONTRIBUTION. In order to provide for contribution in circumstances
------------
in which the indemnification provided for in Section 7 hereof is for any reason
held to be unavailable from any indemnifying party or is insufficient to hold
harmless a party indemnified thereunder, each indemnifying party shall
contribute to the aggregate losses, claims, damages, liabilities and
out-of-pocket expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses suffered by the Registrants, any
contribution received by the Registrants from persons, other than the
Underwriter, who may also be liable for contribution, including persons who
control the Registrants within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act, officers of the Registrants, who had
signed the Registration Statement and directors of the Registrants) to which
such indemnifying person may be subject, in such proportions as is appropriate
to reflect the relative benefits received by the Registrants, on the one hand,
and the Underwriter, on the other, from the offering of the Securities or, if
such allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 7 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above, but also
-25-
<PAGE>
the relative fault of the Registrants, on the one hand, and the Underwriter, on
the other, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Registrants, on
the one hand, and the Underwriter, on the other, shall be deemed to be in the
same proportion as (x) the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the
Company, and (y) the underwriting discounts and commissions received by the
Underwriter respectively, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault of the Registrants and of the
Underwriter shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement, of a material fact or the omission or
alleged omission to state a material fact related to information supplied by the
Registrants or the Underwriter and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Registrants and the Underwriter agree that it would not be just
and equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above. Notwithstanding the
provisions of this Section 8, (i) in no case shall the Underwriter be
responsible for any amount in excess of the underwriting commissions and
discounts received by the Underwriter hereunder (net of reimbursement reimbursed
by the Underwriter of any fees, costs and expenses which the Registrants are
otherwise required to pay hereunder, and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, the directors, officers,
employees and agents of the Underwriter and each person, if any, who controls
the Underwriter within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act shall have the same rights to contribution as the Underwriter,
and the directors, officers, employees and agents of each Registrant and each
person, if any, who controls such Registrant within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, shall have the same rights to
contribution as such Registrant, subject in each case to clauses (i) and (ii) of
this Section 8. Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect of which a claim for contribution may be made against another party
or parties under this Section 8, notify such party or parties from whom
contribution may be sought, but the omission to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have under this Section 8 or otherwise. No party
shall be liable for contribution with respect to any action or claim settled
without its consent; provided, however, that such consent will not be
-------- -------
unreasonably withheld.
-26-
<PAGE>
9. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS.
------------------------------------------
All representations and warranties, covenants and agreements of the
Underwriter and the Registrants contained in this Agreement, including the
agreements contained in Section 5, the indemnity agreements contained in Section
7 and the contribution agreements contained in Section 8, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of the Underwriter or any controlling person thereof or by or on behalf
of the Registrants, any of its officers and directors or any controlling person
thereof, and shall survive delivery of any payment for the Securities to and by
the Underwriter. The representations contained in Section 1 and the agreements
contained in Sections 5, 7, 8 and 10(d) hereof shall survive the termination of
this Agreement including pursuant to Section 10 hereof.
10. EFFECTIVE DATE AND TERMINATION.
------------------------------
(a) This Agreement shall become effective upon the later of (i) the
execution and delivery of this Agreement by the parties hereto, and (ii) receipt
of notification by the Registrants and the Underwriter of the effectiveness of
the Registration Statement under the Securities Act and the Regulations.
(b) The Underwriter shall have the right to terminate this Agreement at
any time prior to the Closing Date if any of the following has occurred or, in
their opinion, is likely to occur: (i) since the respective dates as of which
information is given in the Registration Statement on the date it is first
declared effective or since the date of this Agreement, any adverse change or
development involving a prospective adverse change in or affecting particularly
the condition (financial or otherwise) of the Registrants or the earnings,
affairs or prospects of the Registrants, whether or not arising in the ordinary
course of business which would, in the Underwriter's judgment, make it
impracticable to market or deliver the Securities on the terms and in the manner
contemplated in the Prospectus; (ii) any domestic or international event or act
or occurrence has materially disrupted, or in the Underwriter's judgment will in
the immediate future materially disrupt, securities markets; (iii) trading on
the New York or American Stock Exchanges shall have been suspended, or minimum
or maximum prices for trading shall have been fixed, or maximum changes for
prices for securities shall have been retired, on the New York or American Stock
Exchanges by the New York or American Stock Exchanges or by order of the
Commission or any other governmental authority having jurisdiction; (iv) the
United States becomes engaged in hostilities or there is an escalation of
hostilities involving the United States or there is a declaration of a national
emergency or war by the United States; (v) a banking moratorium has been
declared by a state or federal authority, or a moratorium in foreign exchange
trading by major international banks or persons has been declared; (vi) any new
restriction materially adversely affecting the distribution of the Securities
shall have become effective; or (vii) there shall have been such change in the
market for the securities
-27-
<PAGE>
of the Company or securities in general or in political, financial or economic
conditions as in the Underwriter's judgment makes it inadvisable to proceed with
the offering, sale and delivery of the Securities on the terms contemplated by
the Prospectus.
(c) Any notice of termination pursuant to this Section 10 shall be by
telephone or telecopy confirmed in writing by letter.
(d) If the sale of the Securities provided for herein is not consummated
because any condition to the obligations of the Underwriter set forth in Section
6 hereof is not satisfied, because this Agreement is terminated pursuant to
Section 10(b)(i) hereof or because of any failure, refusal or inability on the
part of the Registrants to perform all obligations and satisfy all conditions on
their part to be performed or satisfied hereunder, the Registrants will
reimburse the Underwriter upon demand for all out-of-pocket expenses (including
fees and disbursements of their counsel) that shall have been incurred by them
in connection with the proposed purchase and sale of the Securities.
11. NOTICE. All communications hereunder, except as may be otherwise
------
specifically provided herein, shall be in writing and, shall be mailed,
delivered, or telecopied and confirmed in writing:
(i) if to the Underwriter, at:
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, N.Y. 10167
Attention: Corporate Finance Department
Telecopy No.: (212) 272-4918
with a copy to:
William F. Schwitter, Esq.
Dorsey & Whitney
350 Park Avenue
New York, NY 10022
Telecopy No.: (212) 888-0018
(ii) if to the Registrants, at:
One Vision Drive
Enfield, CT 06082
Attention: Frank Colaccino
Telecopy No.: (203) 741-4487)
-28-
<PAGE>
with a copy to:
Stanford N. Goldman, Jr., Esq.
Schatz & Schatz, Ribicoff & Kotkin
90 State House Square
Hartford, CT 06103
Telecopy No.: (203) 246-1225
12. PARTIES. This Agreement shall inure solely to the benefit of, and
--------
shall be binding upon, the Underwriter and the Registrants and the controlling
persons, directors, officers, employees and agents referred to in Sections 7 and
8, and their respective successors and assigns, and no other person (except
holders of Securities to the extent provided in Section 4(l)) shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
The term successors and assigns shall not include a purchaser, in its capacity
as such, of Securities from the Underwriter solely as a result of such purchase.
13. APPLICABLE LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE IN
--------------
THE STATE OF NEW YORK. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND
THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY
PROVISIONS RELATING TO CONFLICTS OF LAWS.
14. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
15. SEVERABILITY. In case any provision is this Agreement shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
16. WAIVER OF JURY TRIAL. The Registrants and the Underwriter each hereby
--------------------
irrevocably waive any right they may have to a trial by jury in respect of any
claim based upon or arising out of this Agreement or the transactions
contemplated hereby.
-30-
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriter and the Registrants, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between us.
Very truly yours,
DAIRY MART CONVENIENCE STORES, INC.
By :
--------------------------------------------
Name:
Title:
GUARANTORS:
DAIRY MART EAST, INC.
By :
--------------------------------------------
Name:
Title:
DAIRY MART FARMS, INC.
By :
---------------------------------------------
Name:
Title:
DAIRY MART, INC.
By :
---------------------------------------------
Name:
Title:
-31-
<PAGE>
CONNA CORPORATION
By :
---------------------------------------------
Name:
Title:
THE LAWSON COMPANY
By :
---------------------------------------------
Name:
Title:
D.M. INSURANCE LIMITED
By :
---------------------------------------------
Name:
Title:
LMC, INC.
By :
---------------------------------------------
Name:
Title:
SNG OF SOUTHERN MINNESOTA, INC.
By :
---------------------------------------------
Name:
Title:
-32-
<PAGE>
THE LAWSON MILK COMPANY
By :
---------------------------------------------
Name:
Title:
GOLDEN STORES, INC.
By :
---------------------------------------------
Name:
Title:
LAKESIDE WHOLESALE, INC.
By :
---------------------------------------------
Name:
Title:
QUIK SHOPS, INC.
By :
---------------------------------------------
Name:
Title:
OPEN PANTRY PROPERTIES, INC.
By :
---------------------------------------------
Name:
Title:
-33-
<PAGE>
REMOTE SERVICES, INC.
By :
---------------------------------------------
Name:
Title:
CONVENIENT INDUSTRIES OF
AMERICA, INC.
By :
---------------------------------------------
Name:
Title:
OSCAR EWING, INC.
By :
---------------------------------------------
Name:
Title:
CONVENIENT GASOLINE, INC.
By :
---------------------------------------------
Name:
Title:
JACKSON COUNTY GROCERY CO., INC.
By :
---------------------------------------------
Name:
Title:
-34-
<PAGE>
GREENWELL GROCERY CO., INC.
By :
---------------------------------------------
Name:
Title:
CIA FOOD MARTS, INC.
By :
---------------------------------------------
Name:
Title:
FOOD MERCHANDISERS, INCORPORATED
By :
---------------------------------------------
Name:
Title:
DAIRY MART CONVENIENCE STORES
OF OHIO, INC.
By :
---------------------------------------------
Name:
Title:
Accepted, as of the date first above written.
UNDERWRITER:
BEAR, STEARNS & CO. INC.
By:
------------------------------------------
Name:
Title:
-35-
<PAGE>
EXHIBIT A
FORM OF OPINION OF SPECIAL COUNSEL TO THE REGISTRANTS
(i) Each Registrant is a corporation, duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization.
(ii) Each Registrant has all requisite corporate power and authority to
enter into this Agreement and the Indenture and to perform its obligations
hereunder. This Agreement and the Indenture have been duly and validly
authorized, executed and delivered by each Registrant and constitutes the legal,
valid and binding agreements of each Registrant, enforceable against such
Registrant in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity), and except to the
extent that (x) rights to indemnification and contribution hereunder may be
limited by state or federal securities laws or the public policy underlying such
laws, and (y) the waiver of the right to a jury trial may not be enforceable.
(iii) The Company has all requisite corporate power and authority to
execute and to issue and deliver the Notes to the Underwriter and to perform its
obligations thereunder. The Notes have been duly and validly authorized,
executed, authenticated, issued and delivered and constitute legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
(iv) The Guarantors have all requisite corporate power and authority
to execute and to issue and deliver the Guaranties to the Underwriter and to
perform their respective obligations thereunder. The Guaranties have been duly
and validly authorized, executed and delivered by the Guarantors and constitute
a legal, valid and binding obligation of the Guarantors, enforceable against the
Guarantors in accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights
A-1
<PAGE>
and remedies generally and subject, as to enforceability, to general principles
of equity, including principles of commercial reasonableness, good faith and
fair dealing (regardless of whether enforcement is sought in a proceeding at law
or in equity).
(v) The Underwriter will receive good, valid and marketable title to
the Securities being sold by the Registrants, free and clear of all Liens.
(vi) No taxes or fees are required to be paid under United States or
Connecticut law with respect to the execution of the Indenture by the
Registrants and the execution, issuance and delivery of the Securities.
(vii) To the best of such counsel's knowledge, no action has been
taken, no order has been issued and, no statute, rule or regulation has been
enacted or adopted by any governmental agency which prevents the issuance of the
Securities, suspends the effectiveness of the Registration Statement, prevents
or suspends the use of any preliminary Registration Statement, prevents or
suspends the use of any preliminary prospectus or suspends the offering or sale
of the Securities in any jurisdiction designated by the Underwriter pursuant to
paragraph (d) of Section 4 of this Agreement; no injunction, restraining order
or order of any nature by a federal or state court of competent jurisdiction has
been issued which would prevent the issuance of the Securities, and no action,
suit or proceeding is pending against or is threatened or contemplated against
any Registrant before any court or arbitrator or any governmental body, agency
or official, domestic or foreign, which, if adversely determined, would (i)
result in any of the foregoing actions, (ii) interfere with or adversely affect
the issuance of the Securities, or (iii) in any manner draw into question the
validity of this Agreement, the Indenture or the Securities.
(viii) The execution, delivery and performance of this Agreement, the
Indenture and the Securities and the consummation of the transactions
contemplated thereby by each Registrant party thereto, including the issuance,
sale and delivery of the Securities, will not (A) conflict with or result in a
breach of any of the terms and provisions of, or constitute a default (or an
event which with notice or lapse of time, or both, would constitute a default)
or require consent under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of any Registrant pursuant to
the terms of any agreement, instrument, franchise, license or permit known to
such counsel to which such Registrant is a party or by which such Registrant or
its properties or assets may be bound or subject, or (B) violate or conflict
with (1) any provision of the certificate of incorporation or by-laws of any
Registrant, (2) any judgment, decree, order binding upon any Registrant or any
of its properties or assets of which such counsel is aware, or (3) any United
States or Connecticut statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company
or any of its properties or assets or, to the best knowledge of such counsel,
A-2
<PAGE>
any other Registrant or any of its properties or assets. No consent, approval,
authorization, order, registration, filing, qualification, license or permit of
or with any United States, Connecticut or to the best knowledge of such counsel,
any other, court or any public, governmental or regulatory agency or body having
jurisdiction over the Company or any of its properties or assets or, to the best
knowledge of such counsel, any other Registrant or any of its properties or
assets, is required for the execution, delivery and performance by such
Registrant of this Agreement, the Indenture or the Securities and the
consummation by such Registrant of the transactions contemplated hereby and
thereby, including the execution, authentication, issuance, sale and delivery of
the Securities, except for (1) such as may be required under state and foreign
securities or Blue Sky laws in connection with the purchase and distribution of
the Securities by the Underwriter (as to which such counsel need express no
opinion), and (2) such as have been made or obtained under the Securities Act
and the Trust Indenture Act.
(ix) The Indenture has been duly qualified under and complies as to
form in all material respects with the Trust Indenture Act.
(x) The Securities and the Indenture conform to the descriptions
thereof contained in the Registration Statement and the Prospectus.
(xi) The Company had, at October 30, 1993, an authorized and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
All of the issued and outstanding shares of capital stock of the Company has
been duly and validly authorized and issued and are fully paid and
nonassessable. To the best knowledge of such counsel, all of the issued and
outstanding shares of capital stock of each of the Guarantors are owned,
directly or through subsidiaries, by the Company, free and clear of any Liens.
Except as described in the Registration Statement, to the best of such counsel's
knowledge, there are no outstanding options to purchase, or rights or warrants
to subscribe for, or any securities or obligations convertible into or
exchangeable for, or any contracts or commitments to issue or sell, any shares
of capital stock of the Registrants.
(xii) Except as described in the Registration Statement or in the
documents incorporated by reference therein, to the best of such counsel's
knowledge, no Registrant has any subsidiary companies or interests in any
partnerships, associations or other entities.
(xiii) To the best knowledge of such counsel, each Registrant has
performed all of its obligations required to be performed by it and is not, and
at the Closing Date will not be, in default, under any contract or other
instrument known to such counsel to which such Registrant is a party or by which
it or its property is bound or affected, except such defaults which,
individually or in the aggregate, could not have a Material Adverse Effect. To
the best knowledge of such counsel, no other party
A-3
<PAGE>
under any contract or other instrument known to such counsel to which any
Registrant is a party is in default in any respect thereof. No Registrant is,
or at the Closing Date will be, in violation of any provisions of its
Certificate of Incorporation or by-laws.
(xiv) There is no contract or document known to such counsel concerning
any Registrant of a character required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement which is not so described or filed as required. The descriptions in
the Registration Statement, the Prospectus and in any document incorporated by
reference therein of any such legal and governmental proceedings and contracts
and other documents, insofar as such descriptions or statements constitute
summaries of the proceedings or documents referred to therein, fairly present
the information called for with respect to such proceedings or documents.
(xv) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Registrant of this Agreement and the Indenture and the consummation of the
transactions herein and therein contemplated (except such additional steps as
may be required by the Securities Act, the Trust Indenture Act or the NASD, or
as may be necessary to qualify the Securities for public offering by the
Underwriter under state securities or Blue Sky laws, as to which such counsel
need express no opinion) has been obtained or made and is in full force and
effect.
(xvi) There are no holders of securities of any Registrant who,
pursuant to any agreement or understanding known to such counsel, or otherwise,
have any right to have securities of such Registrant registered under the
Securities Act in connection with the offering contemplated by the Prospectus.
(xvii) No Registrant is, or as a result of the transactions contemplated
by the Prospectus would be, required to make any filing or to register under the
Investment Company Act of 1940, as amended, is or will become a "holding
company" or a "subsidiary company" of a "registered holding company," as defined
in the Public Utility Holding Company Act of 1935, as amended.
(xviii) Neither the Company nor any agent acting on its behalf has or
will take any action which might cause this Agreement or the issuance, execution
or delivery of the Securities to violate Regulation G (12 C.F.R. Part 207),
Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224), insofar
as said Regulation applies to Regulations G and U of the Board of Governors of
the Federal Reserve System.
(xix) The descriptions in the Prospectus under the captions "Certain
Transactions," Description of the New Credit Agreement," and "Description of
the
A-4
<PAGE>
Notes" are true and correct in all material respects and fairly present the
information required to be disclosed therein.
(xx) The Registration Statement, as of the effective date, and the
Prospectus (other than the financial statements and schedules and other
financial, statistical and accounting data included therein, as to which no
opinion need be rendered), as of its issue date and as of the Closing Date,
complied and complies as to form in all material respects with the requirements
of the Securities Act and the Regulations and the Trust Indenture Act and the
rules and regulations promulgated thereunder.
(xxi) The documents incorporated by reference in the Prospectus as
amended or supplemented (other than the financial statements and schedules and
other financial, statistical and accounting data included or incorporated by
reference therein, as to which such counsel need express no opinion), when they
became effective or were filed with the Commission, as the case may be, complied
as to form in all material respects with the requirements of the Securities Act
or the Exchange Act, as applicable, and the rules and regulations promulgated
thereunder.
(xxii) The descriptions in the Prospectus of federal law, Connecticut
law and the General Corporation Law of the State of Delaware (the "GCL"), are
accurate in all material respects and fairly present the information required to
be disclosed therein, and such counsel does not know of any federal law,
Connecticut law or GCL, required to be disclosed in the Prospectus that is not
disclosed as required.
(xxiii) The Registration Statement is effective under the Securities Act,
and, to the best knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus thereof has been issued and no proceedings therefor have been
initiated or threatened by the Commission and all filings required by Rule
424(b) of the Regulations have been made.
Such counsel shall also state that it has also participated in the
preparation of the Registration Statement, the Prospectus and the documents
incorporated by reference therein and has generally reviewed and discussed in
conferences with directors, officers and other representatives of the Company,
representatives of the Underwriter and Underwriter' Counsel, and representatives
of the Company's auditors, the contents of the Registration Statement, the
Prospectus, and such incorporated documents and related matters, and no facts
have come to the attention of such counsel that lead such counsel to believe
that the Registration Statement and the Prospectus included therein, on the
effective date thereof, and such incorporated documents, when they were filed
with the Commission, as the case may be, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements contained therein not misleading, or that
the Prospectus, on the date thereof or on
A-5
<PAGE>
the Closing Date, contained or contains an untrue statement of a material fact
or omitted or omits to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no view with respect to the financial statements
and schedules and the other financial, statistical and accounting data included
in the Registration Statement or the Prospectus).
With respect to the enforceability opinions contained in paragraphs (ii),
(iii) and (iv) above, such counsel may assume that the laws of the State of New
York are identical to the laws of the State of Connecticut.
A-6
<PAGE>
EXHIBIT B
FORM OF OPINION OF GENERAL COUNSEL TO THE COMPANY
(i) To the best knowledge of such counsel, each Registrant has all
requisite corporate power and authority and all necessary consents, approvals,
authorizations, orders, registrations, qualifications, licenses and permits of
and from all public, regulatory or governmental agencies and bodies, to own,
lease and operate its properties which are material to the conduct of its
business as now being conducted and as described in the Registration Statement
and the Prospectus. Each Registrant is duly qualified to transact business and
is in good standing as a foreign corporation in each jurisdiction where the
character of its activities requires such qualification except where the failure
to be so qualified would not have a Material Adverse Effect.
(ii) All of the issued and outstanding shares of capital stock of the
Company has been duly and validly authorized and issued and are fully paid and
nonassessable. All of the issued and outstanding shares of capital stock of
each of the Guarantors have been duly and validly authorized and issued and are
owned, directly or through subsidiaries, by the Company, free and clear of any
Liens. Except as described in the Registration Statement or in the documents
incorporated by reference therein, there are no outstanding options to purchase,
or rights or warrants to subscribe for, or any securities or obligations
convertible into or exchangeable for, or any contracts or commitments to issue
or sell, any shares of capital stock of the Registrants.
(iii) Except as described in the Registration Statement and on Schedule
II to the Underwriting Agreement, no Registrant has any subsidiary companies or
interests in any partnerships, associations or other entities.
(iv) There is no contract or document concerning any Registrant of a
character required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement which is
not so described or filed as required. All such contracts or documents to which
such Registrant is a party have been duly authorized, executed and delivered by
such Registrant, constitute legal, valid and binding agreements of such
Registrant.
(v) The business and operations of each Registrant have been and are
being conducted in compliance in all respects with all applicable laws, rules
and regulations of all public and private authorities having jurisdiction over
such Registrant, except for such noncompliance which will not have a Material
Adverse Effect. Each Registrant possesses, from each appropriate agency,
commission, board and governmental body or authority, whether state, local or
federal (including, without limitation, the U.S. Food and Drug Administration
and the U.S. Small
B-1
<PAGE>
Business Administration), and is operating in compliance with, all licenses,
permits, authorizations, approvals, exemptions, rulings, franchises and rights
as are necessary for such Registrant to engage in the businesses conducted by
it, except where the failure to possess or operate in compliance with any of the
foregoing will not have a Material Adverse Effect. No proceedings on the part
of such agencies, commissions, boards or governmental bodies or authorities are
pending or, to the best knowledge of such counsel, threatened which might result
in the suspension, revocation or limitation of any such licenses, permits,
authorizations, approvals, exemptions, rulings, franchises and rights, which
suspension, revocation or limitation will have a Material Adverse Effect. Each
Registrant has made all filings required by applicable laws, rules and
regulations with all appropriate agencies, commissions, boards and governmental
bodies or authorities (including, without limitation, all filings and notices
required to be made or given in connection with the franchise operations of any
Registrant), except where the failure to make such filings will not have a
Material Adverse Effect.
(vi) Except as disclosed in the Registration Statement, to the best
knowledge of such counsel, each Registrant is in compliance with all applicable
Environmental Laws, except, in each case, where such noncompliance, singly or in
the aggregate, would not have a Material Adverse Effect.
(vii) To the best of knowledge of such counsel, there is no liability
or alleged liability, any threatened or potential liability of any kind,
including without limitation any liability imposing any Environmental Costs, of
any Registrant arising out of or resulting from: (i) the presence or release or
threatened release of any Hazardous Material into any environmental media from,
within, below,on or at any location, whether or not currently or formerly owned
by any Registrant; or (ii) any violation or alleged violation of any
Environmental Law, (x) which liability or alleged, threatened or potential
liability is required to be disclosed in the Registration Statement, other than
as disclosed therein, or (y) which liability or alleged, threatened or potential
liability, individually or in aggregate, would have a Material Adverse Effect.
(viii) To the best knowledge of such counsel, each Registrant is in
compliance in all respects with all applicable laws, rules and regulations
affecting the employment of its employees, including, without limitation, those
relating to wages, hours, collective bargaining, discrimination and the payment
of social security and similar employment-related taxes, except for such
noncompliance which will not have a Material Adverse Effect. All Plans
applicable to any employee of any Registrant have been consistently administered
in accordance with their terms in all respects, except where the failure to so
administer such Plans will not have a Material Adverse Effect. To the extent
required either as a matter of law or to obtain the intended tax treatment and
tax benefits, all Plans comply in all material respects with the requirements of
the Employee Retirement Income Security Act of
B-2
<PAGE>
1974 ("ERISA") and the Internal Revenue Code of 1986. All required filings,
disclosures and contributions have been made with respect to all Plans, except
where the failure to make such filings, disclosures or contributions will not
have a Material Adverse Effect. Except as disclosed in the Registration
Statement, no Registrant contributes (or has ever contributed) to any
multiemployer plan, as defined in Section 3(37) of ERISA, and no Registrant has
any actual or potential liabilities under Section 4201 of ERISA for any complete
or partial withdrawal from any multiemployer plan, other than as described on
Schedule II to this Agreement.
(ix) Financial Opportunities, Inc. is an indirect, wholly owned
subsidiary of the Company.
(x) No portion of Financial Opportunities, Inc.'s indebtedness or any
of its other obligations (contingent or otherwise), (i) is guaranteed by any
Registrant, (ii) is recourse to or obligates any Registrant in any way or (iii)
subjects any property or asset of any Registrant, directly or indirectly,
contingently or otherwise, to satisfaction thereof.
(xi) No Registrant has any contract, arrangement, understanding with
Financial Opportunities, Inc. or is subject to an obligation of any kind,
written or oral, other than on terms no less favorable to such Registrant than
those that might be obtained at the time from persons or entities that are not
affiliates of the Company.
(xii) No Registrant has any obligation (i) to subscribe for additional
shares of capital stock or other equity interests of Financial Opportunities,
Inc. or (ii) to maintain or preserve Financial Opportunities, Inc.'s financial
condition or to cause Financial Opportunities, Inc. to achieve certain levels of
operating results.
(xiii) Financial Opportunities, Inc. is an SBIC (as defined in the
Registration Statement), regulated and licensed as such by the SBA, and performs
no activities or engages in no business other than as an SBIC (as defined in the
Registration Statement).
B-3
<PAGE>
SCHEDULE I
TO
UNDERWRITING AGREEMENT
(i) On November 20, 1989, Central States, Southeast and Southwest
Areas Pension Fund (the "Fund"), the Company and The Lawson Company
(collectively "Dairy Mart") entered into a settlement agreement whereby
the Fund and Dairy Mart settled Dairy Mart's partial withdrawal
liability for its withdrawal from the Fund for the International
Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of
America Locals 336 and 348. The total settlement amount of $2,460,000
was paid in full.
(ii) Oscar Ewing Inc., a wholly-owned subsidiary of CONNA Corporation
(collectively "CONNA"), recently entered into a new labor agreement with
Teamsters Local 748 which agreement expires in March, 1996. Under the
agreement, CONNA makes contributions on behalf of its employees to the
Fund. Withdrawal is not currently contemplated; however, if withdrawal
were to occur, Dairy Mart estimates, based upon recent calculations,
that withdrawal liabilities would not exceed $350,000.
<PAGE>
Exhibit 10.1
FIFTH AMENDMENT
FIFTH AMENDMENT (this "Amendment") dated as of January 31, 1994 to the
---------
Credit Agreement dated as of January 9, 1991 (as amended, modified, waived or
otherwise supplemented from time to time, the "Credit Agreement"), among DAIRY
----------------
MART CONVENIENCE STORES, INC., a Delaware corporation (the "Company"), the
-------
several banks, including Chemical Bank, as successor by merger with
Manufacturers Hanover Trust Company ("Chemical"), Fleet Bank, National
--------
Association, as assignee of the New Connecticut Bank & Trust Company, N.A.
("Fleet"), and PNC Bank, Kentucky, Inc., formerly known as Citizens Fidelity
-----
Bank and Trust Company ("PNC Kentucky"), and other financial institutions from
------------
time to time parties to this Agreement (the "Banks") and Chemical, as agent for
-----
the Banks hereunder (in such capacity, the "Agent").
-----
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company has requested and the Agent and the Banks have
agreed to amend certain provisions of the Credit Agreement in the manner
provided below;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. As used in this Amendment, terms defined in
-------------
the preamble hereof and the recitals hereto are used herein as so defined and,
unless otherwise defined herein, terms defined in the Credit Agreement are used
herein as therein defined. Unless otherwise indicated, all Section and
subsection references are to the Credit Agreement.
SECTION 2. Amendment to Subsection 6.7 (e). Clause (e) of subsection 6.
-------------------------------
7 is hereby amended by inserting, on the last line thereof immediately prior to
the semi-colon, the following:
"(net of all reimbursements which have been, or are reasonably anticipated
to be, made to the Company or its Subsidiaries in respect of such amounts)".
SECTION 3. Amendment to Subsection 7.4 (b). Clause (b) of subsection 7.
-------------------------------
4 is hereby amended by increasing the amount stated on the seventh line thereof
from "$12,000,000" to "$15,000,000".
SECTION 4. Amendment to Subsection 8 (j). Clause (j) of Section 8 is
-----------------------------
hereby amended by inserting, on the last line thereof immediately prior to the
semi-colon, the following:
<PAGE>
2
"(net of all reimbursements which have been, or are reasonably anticipated to
be, made to the Company or its Subsidiaries in respect of such amounts)".
SECTION 5. Representations and Warranties. After giving effect to this
------------------------------
Amendment, the Company hereby confirms, reaffirms and restates the
representations and warranties set forth in Section 4 of the Credit Agreement as
if made on and as of the date hereof, provided that such representations and
--------
warranties shall and hereby are amended so that all references in such Section 4
to "this Agreement" shall be deemed to refer both to the Credit Agreement as
amended by this Admendment and to this Amendment.
SECTION 6. Conditions to Effectiveness. This Amendment shall become
---------------------------
effective upon receipt by the Agent of counterparts of this Amendment, duly
executed and delivered by the Company, each Designated Subsidiary and the Banks.
SECTION 7. Miscellaneous. Except as expressly amended herein, the
-------------
Credit Agreement shall continue to be, and shall remain, in full force and
effect in accordance with its terms. This Amendment may be executed by the
parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to consititute one and the same
instrument. The Company agrees to pay or reimburse the Agent for all its
out-of-pocket costs and expenses incurred in connection with the development,
preparation and execution of this Amendment including, without limitation, the
fees and disbursements of counsel to the Agent. THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
<PAGE>
3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered in New York, New York by their properly and duly
authorized officers as of the day and year first above written.
DAIRY MART CONVENIENCE STORES, INC.
By: /s/ Gregory G. Landry
--------------------------------
Title: GREGORY G. LANDRY
EXECUTIVE VICE PRESIDENT
CHEMICAL BANK, as Agent and as a Bank
By:________________________________
Title:
FLEET BANK, NATIONAL ASSOCIATION
By:________________________________
Title:
PNC BANK, KENTUCKY, INC.
By:________________________________
Title:
<PAGE>
4
Each of the undersigned Designated Subsidiaries hereby
acknowledges the provisions of the foregoing Fifth Amendment and consents
thereto:
CONNA CORPORATION
By: /s/ Gregory G. Landry
_______________________________
Title: GREGORY G. LANDRY
EXECUTIVE VICE PRESIDENT
THE LAWSON COMPANY
By: /s/ Gregory G. Landry
_______________________________
Title: GREGORY G. LANDRY
EXECUTIVE VICE PRESIDENT
DAIRY MART FARMS, INC.
By: /s/ Gregory G. Landry
_______________________________
Title: GREGORY G. LANDRY
EXECUTIVE VICE PRESIDENT
DAIRY MART EAST, INC.
By: /s/ Gregory G. Landry
_______________________________
Title: GREGORY G. LANDRY
EXECUTIVE VICE PRESIDENT
DAIRY MART, INC.
By: /s/ Gregory G. Landry
_______________________________
Title: GREGORY G. LANDRY
EXECUTIVE VICE PRESIDENT
FINANCIAL OPPORTUNITIES, INC.
By: /s/ Gregory G. Landry
_______________________________
Title: GREGORY G. LANDRY
EXECUTIVE VICE PRESIDENT
REMOTE SERVICES, INC.
By: /s/ Gregory G. Landry
_______________________________
Title: GREGORY G. LANDRY
EXECUTIVE VICE PRESIDENT
CONVENIENT INDUSTRIES OF AMERICA, INC.
By: /s/ Gregory G. Landry
_______________________________
Title: GREGORY G. LANDRY
EXECUTIVE VICE PRESIDENT
<PAGE>
5
CIA FOOD MARTS, INC.
By: /s/ Gregory G. Landry
-------------------------------
Title: GREGORY G. LANDRY
EXECUTIVE VICE PRESIDENT
QUIK SHOPS, INC.
By: /s/ Gregory G. Landry
-------------------------------
Title: GREGORY G. LANDRY
EXECUTIVE VICE PRESIDENT
<PAGE>
EXHIBIT 12
DAIRY MART CONVENIENCE STORES, INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
FISCAL YEAR ENDED ENDED
----------------------------------------------------------- -----------------------
JANUARY 28, FEBRUARY 3, FEBRUARY 2, FEBRUARY 1, JANUARY 30, OCTOBER 31, OCTOBER 30,
1989 1990 1991 1992 1993 1992 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income from continuing
operations........... $ 4,106 $ 682 $ 3,813 $ 4,092 $(2,899) $ 2,509 $ 3,443
Provision for (benefit
from) income taxes... 3,652 577 2,989 2,929 (1,898) 1,672 2,296
------- ------- ------- ------- ------- ------- -------
Earnings before
income taxes....... 7,758 1,259 6,802 7,021 (4,797) 4,181 5,739
Fixed charges......... 12,411 12,854 13,239 13,683 13,183 9,711 9,809
Less: capitalized in-
terest............... -- -- -- -- 254 194 56
------- ------- ------- ------- ------- ------- -------
Net fixed charges... 12,411 12,854 13,239 13,683 12,929 9,517 9,753
------- ------- ------- ------- ------- ------- -------
Earnings available
for fixed charges.. $20,169 $14,113 $20,041 $20,704 $ 8,132 $13,698 $15,492
======= ======= ======= ======= ======= ======= =======
Fixed charges:
Interest expense...... $ 7,755 $ 8,220 $ 8,366 $ 8,260 $ 7,456 $ 5,541 $ 5,751
Amortization of de-
ferred financing
costs................ 92 92 72 230 282 169 198
Capitalized interest.. -- -- -- -- 254 194 56
Portion of rents
representative of the
interest factor...... 4,564 4,542 4,801 5,193 5,191 3,807 3,804
------- ------- ------- ------- ------- ------- -------
Total fixed charges. $12,411 $12,854 $13,239 $13,683 $13,183 $ 9,711 $ 9,809
======= ======= ======= ======= ======= ======= =======
Ratio of earnings to
fixed charges........ 1.63 1.10 1.51 1.51 0.62(1) 1.41 1.58
======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
(1) For the fiscal year ended January 30, 1993 the Company's earnings were
inadequate to cover fixed charges by $5,051,000. The deficit was calculated
by taking the difference between earnings available for fixed charges and
total fixed charges.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN & CO.
Arthur Andersen & Co.
Hartford, Connecticut
February 7, 1994
<PAGE>
Exhibit 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM T-1
- --------------------------------------------------------------------------------
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
- --------------------------------------------------------------------------------
SOCIETY NATIONAL BANK
---------------------
(Exact name of Trustee as specified in its charter)
National Banking Association 34-0797057
- ---------------------------------- -----------------------------------------
(State of Incorporation (I.R.S. Employer Identification No.)
if not a National Bank)
127 Public Square, Cleveland, Ohio 44114
- ---------------------------------- -----------------------------------------
(Address of principal executive (Zip Code)
offices)
DAIRY MART CONVENIENCE STORES, INC.
- --------------------------------------------------------------------------------
(Exact Name of Obligor as specified in its charter)
Delaware 04-2497894
- ---------------------------------- -----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Vision Drive
Enfield, Connecticut 06082
- ---------------------------------- -----------------------------------------
(Address of principal executive (Zip Code)
offices)
____% Senior Subordinated Notes due 2004
- --------------------------------------------------------------------------------
(Title of the Indenture Securities)
<PAGE>
Item 1. General Information
- ------- -------------------
Furnish the following information as to the trustee --
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency, Washington, D.C.
Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor and Underwriters
- ------- ------------------------------------------
If the obligor is an affiliate of the trustee, describe such
affiliation.
The obligor is not an affiliate of the trustee.
No responses are included for Items 3 - 15 of this Form T-1 because the Obligor
is not in default as provided under Item 13.
Item 16. List of Exhibits
- -------- ----------------
List below all exhibits filed as a part of this statement of
eligibility and qualification.
1. Exhibit T1A(a) A copy of the Amended Articles of Association of
Society National Bank as now in effect.
2. Exhibit T1A(b) Certificate of Authority of Trustee to Commence
Business.
3. Exhibit T1A(c) Authorization of the Trustee to exercise
Corporate Trust Powers.
4. Exhibit T1B A copy of By-Laws of Society National Bank as
now in effect.
5. Exhibit T1C A copy of each Indenture referred to in Item 4.
Not Applicable.
---------------
6. Exhibit T1D The Trustee's consent required by Section 321(b)
of the Trust Indenture Act of 1939.
7. Exhibit T1E A copy of the latest report of condition of the
Trustee published pursuant to law or the
requirements of its supervising or
<PAGE>
examining authority.
8. Exhibit T1F A copy of any order pursuant to which the
foreign trustee is authorized to act as sole
trustee under indentures qualified or to be
qualified under the Act. Not Applicable.
---------------
9. Exhibit T1G Foreign trustees are required to furnish a
consent to service of process (see Rule 10a-4
under the Act). Not Applicable.
---------------
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, Society National Bank, a national banking association organized and
existing under the laws of the United States of America, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Cleveland, and State of Ohio on
the 2nd day of February, 1994.
SOCIETY NATIONAL BANK
By: /s/ C. M. Nagy
-------------------------
C. M. Nagy
Its: Vice President
(Corporate Seal Appears Here)
[Corporate Seal]
ATTEST:
By: /s/ D. Kovach
------------------------------------
D. Kovach
Its: Assistant Secretary
<PAGE>
EXHIBIT T1A(a)
EXHIBIT A
---------
SOCIETY NATIONAL BANK
---------------------
AMENDED
-------
ARTICLES OF ASSOCIATION
-----------------------
First. The title of this Association shall be Society National Bank.
-----
Second. The main office of this Association shall be in Cleveland, Ohio,
------
County of Cuyahoga. The general business of this Association shall be conducted
at its main office and its branches.
Third. The Board of Directors of this Association shall consist of not
-----
less than five nor more than twenty-five members, the exact number of Directors
within such minimum and maximum limits to be fixed and determined from time to
time by resolution of a majority of the full Board of Directors or by resolution
of the shareholders at any annual or special meeting thereof. In accordance
with 12 U.S.C. Section 72, each director, during the full term of his or her
directorship, shall own in his or her own right either shares of capital stock
of the Association the aggregate par value of which is not less than $1,000 or
an equivalent interest, as determined by the Comptroller of the Currency, in any
company which has control over the Association within the meaning of 12 U.S.C.
Section 1841. Unless otherwise provided by the laws of the United States, any
vacancy in the Board of Directors for any reason, including an increase in the
number thereof, may be filled by action of the Board of Directors.
Fourth. The annual meeting of the shareholders for the election of
------
Directors and the transaction of whatever other business may be brought before
said meeting shall be held at the main office or such other place as the Board
of Directors may designate, on the day of each year specified therefor in the
Bylaws, but if no election is held on that day, it may be held on any subsequent
day according to the provisions of law, and all elections shall be held
according to such lawful regulations as may be prescribed by the Board of
Directors.
Fifth. The amount of authorized capital stock of this Association shall
-----
be One Hundred Ninety-two Million Four Hundred Sixty-two Thousand Five Hundred
Dollars ($192,462,500) divided into 1,924,625 shares of common stock of the par
value of One Hundred Dollars ($100) per share but said capital stock may be
increased or decreased from time to time, in accordance with the provisions of
the laws of the United States.
No holder of shares of capital stock of any class of this Association shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of this Association, whether now or hereafter authorized, or to
any obligations convertible into stock of this Association, issued or sold, nor
any right of subscription to any thereof other than such,
<PAGE>
if any, as the Board of Directors, in its discretion, may from time to time
determine and at such price as the Board of Directors may from time to time fix.
This Association, at any time and from time to time, may authorize and
issue debt obligations, whether or not Subordinated, without the approval of
shareholders.
Sixth. The Board of Directors shall appoint one of its members President
-----
of this Association, who shall be Chairman of the Board, unless the Board
appoints another Director to be the Chairman. The Board of Directors shall
have the power to appoint one or more Vice Presidents and to appoint a Cashier
and such other officers and employees as may be required to transact the
business of this Association.
The Board of Directors shall have the power to define the duties of the
officers and employees of this Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of this
Association shall be made; to manage and administer the business and affairs of
this Association; to make all Bylaws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
Seventh. The Board of Directors shall have the power to change the
-------
location of the main office to any other place within the limits of Cleveland,
Ohio, without the approval of the shareholders but subject to the approval of
the Comptroller of the Currency, and shall have the power to establish or change
the location of any branch or branches of the Association to any other location,
without the approval of the shareholders but subject to the approval of the
Comptroller of the Currency.
Eighth. The corporate existence of this Association shall continue until
------
terminated in accordance with the laws of the United States.
Ninth. The Board of Directors of this Association, or any shareholders
-----
owning, in the aggregate, not less than 10 percent (10%) of the stock of this
Association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of time, place,
and purpose of every annual and special meeting of the shareholders shall be
given by first-class mail, postage prepaid, mailed at least ten days prior to
the date of such meeting to each shareholder of record at his address as shown
upon the books of this Association, except as to any shareholder who has
specifically waived notice of such meeting.
Tenth. (a) This Association shall indemnify, to the full extent permitted
-----
or authorized by the Ohio General Corporation Law as it may from time to time
be amended, any person made or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative, by reason of the fact that he is or was a
director, officer, or employee of this Association, or is or was serving at the
request of this Association as a director, trustee, officer, or employee of
another association,
<PAGE>
corporation, partnership, joint venture, trust, or other enterprise; in the case
of a person serving at the request of this Association, such request shall be
evidenced by a resolution of the Board of Directors or a duly-authorized
committee thereof or by a writing executed by an officer of this Association
pursuant to a resolution of the Board of Directors or a duly-authorized
committee thereof. In the case of a merger into this Association of a
constituent association which, if its separate existence had continued, would
have been required to indemnify directors, officers, or employees in specified
situations prior to the merger, any person who served as a director, officer, or
employee of the constituent association, or served at the request of the
constituent association as a director, trustee, officer, or employee of another
association, corporation, partnership, joint venture, trust, or other
enterprise, shall be entitled to indemnification by this Association (as the
surviving association) for acts, omissions, or other events or occurrences
prior to the merger to the same extent he would have been entitled to
indemnification by the constituent association if its separate existence had
continued. The indemnification provided by this TENTH shall not be deemed
exclusive of any other rights to which any person seeking indemnification may be
entitled by law or under these Articles or the Bylaws, or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, or employee and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
(b) Notwithstanding division (a) of this TENTH, no director,
officer, or employee of this Association shall be indemnified against expenses,
including attorneys' fees, penalties or other payments incurred in an
administrative proceeding or action instituted by the Comptroller of the
Currency or other appropriate bank regulatory agency when such proceeding or
action results in a final order assessing civil money penalties against, or
requiring affirmative action of, such director, officer, or employee in the form
of payments to this Association.
(c) This Association may purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters of credit,
or self-insurance on behalf of or for any person who is or was a director,
officer, employee, or agent of this Association, or is or was serving at the
request of this Association as a director, trustee, officer, employee, or agent
of another association, corporation, partnership, joint venture, trust, or other
enterprise, against any liability asserted against him and incurred by him in
any capacity, or arising out of his status as such, whether or not this
Association would have the power to indemnify him against liability under the
provisions of this TENTH or of the Ohio General Corporation Law; provided,
however, such insurance shall explicitly exclude insurance coverage for a formal
order assessing civil money penalties against a director, officer, or employee
of this Association as a result of an administrative proceeding or action
instituted by the Comptroller of the Currency or other appropriate bank
regulatory agency. Insurance may be purchased from or maintained with a person
in which this Association has a financial interest.
(d) Expenses (including attorney's fees) incurred by a director in
defending any action, suit, or proceeding referred to in division (a) of this
TENTH commenced or threatened against the director for any action or failure to
act as a director shall be paid by this Association, as
<PAGE>
they are incurred, in advance of final disposition of the action, suit, or
proceeding upon receipt of an undertaking by or on behalf of the director in
which he agrees both (i) to repay the amount if it is proved by clear and
convincing evidence in a court of competent jurisdiction that his action or
failure to act involved an act or omission undertaken with deliberate intent to
cause injury to this Association or undertaken with reckless disregard for the
best interests of this Association and (ii) to reasonably cooperate with this
Association concerning the action, suit, or proceeding. The provisions of this
paragraph shall not apply if the only liability asserted against the director in
such action, suit, or proceeding is for (i) the payment of a dividend or
distribution, or the making of a distribution of assets to shareholders, or the
purchase or redemption of this Association's own shares, contrary in any such
case to law or these Articles of Association, or (ii) a distribution of assets
to shareholders during the winding up of the affairs of the Association, on
dissolution or otherwise, without the payment of all known obligations of the
Association, or without making adequate provision therefor.
Expenses (including attorney's fees) incurred by a director (to the extent the
expenses are not required to be advanced pursuant to the preceding paragraph),
officer, or employee in defending any action, suit, or proceeding referred to in
division (a) of this TENTH may be paid by this Association, as they are
incurred, in advance of final disposition of the action, suit, or proceeding, as
authorized by the Board of Directors in the specific case, upon receipt of an
undertaking by or on behalf of the director, officer, or employee to repay the
amount if it is ultimately determined that he is not entitled to be indemnified
by this Association.
(e) Notwithstanding division (d) of this TENTH, expenses, including
attorneys' fees, incurred by a present or former director, officer, or employee
of this Association in defending an administrative proceeding or action
instituted by the Comptroller of the Currency or other appropriate bank
regulatory agency that seeks a final order assessing civil money penalties or
requiring affirmative action by an individual or individuals in the form of
payments to this Association, may be paid by this Association as they are
incurred in advance of the final disposition of the action, suit, or proceeding,
only in the event that:
(i) the Board of Directors of this Association, in good faith, determines
in writing that all of the following conditions are met:
(A) the director, officer, or employee has a substantial likelihood
of prevailing on the merits;
(B) in the event the director, officer, or employee does not prevail,
he will have the financial capability to reimburse this
Association;
(C) all applicable laws and regulations affecting loans to the
director, officer, or employee will be complied with in the event
reimbursement is required;
(D) payment of expenses by this Association will not adversely affect
this Association's safety and soundness; and
<PAGE>
Exhibit T1A(b)
A certificate of the Comptroller of the Currency appears on this page.
<PAGE>
Exhibit T1A(c)
A certificate of the Comptroller of the Currency appears on this page.
<PAGE>
EXHIBIT T1B
The following Bylaws were adopted by the Board of Directors of Society
National Bank on July 16, 1992.
BYLAWS OF
SOCIETY NATIONAL BANK
---------------------
ARTICLE I
MEETING OF SHAREHOLDERS
-----------------------
Section 1. Annual Meeting. The annual meeting of shareholders for the election
- --------- --------------
of Directors, and the transaction of whatever other business may properly come
before the meeting, shall be held at the main office of the Bank, or such other
place authorized by the Board of Directors or the Chairman of the Board, on the
Thursday after the third Wednesday in January of each year, or such other date
authorized by the Board of Directors or the Chairman of the Board. If, for any
cause, the election of Directors is not held on that day, the Board of Directors
shall order the election to be held on some subsequent day, as soon thereafter
as practicable, according to the provisions of law, and notice thereof shall be
given in the manner herein provided for the annual meeting.
Section 2. Special Meetings. Except as otherwise specifically provided by
- --------- ----------------
statute, special meetings of the shareholders may be called for any purpose at
any time by the Chairman of the Board, the President, the Board of Directors, or
by any shareholder or shareholders owning, in the aggregate, not less than ten
per centum (10%) of the stock of the Bank.
Section 3. Notice of Meetings. Unless otherwise provided by law, these Bylaws,
- --------- ------------------
or the Articles of Association, a notice of the time, place, and purpose of
every annual meeting and every special meeting of the shareholders shall be
given by first-class mail, postage prepaid, mailed not less than ten days nor
more than sixty days prior to the date of such meeting, to each shareholder of
record at such shareholder's address as shown upon the books of the Bank. The
attendance of any shareholder at a shareholder meeting without protesting,
prior to or at the commencement of the meeting, the lack of proper notice,
shall be deemed a waiver by such shareholder of notice of such meeting.
Section 4. Proxies. Shareholders may vote at any meeting of the shareholders
- --------- -------
by proxies duly authorized in writing, but no officer or employee of this Bank
may act as a proxy. Proxies shall be valid only for one meeting, to be
specified therein, and any adjournments of such meeting. Proxies shall be dated
and shall be filed in the Bank's records. The person appointed as proxy need
not be a shareholder. Unless the writing appointing a proxy otherwise provides,
the presence at a meeting of the person who appointed a proxy shall not operate
to revoke the appointment. Notice to the Bank, in writing or in open meeting,
of the revocation of the appointment of a proxy shall not affect any vote or act
previously taken or authorized by such proxy.
<PAGE>
Section 5. Quorum; Adjournment. Except as may otherwise be provided by law, at
- --------- -------------------
any meeting of the shareholders, the holders of shares entitling them to
exercise a majority of the voting power of the Bank present in person or by
proxy shall constitute a quorum for such meeting; provided, however, that no
action required by law to be authorized or taken by a designated proportion of
the shares may be authorized or taken by a lesser proportion; provided, further,
that, if a quorum is not present, the holders of a majority of the voting shares
represented thereat may adjourn such meeting or any adjournment thereof. If any
meeting is adjourned, notice of such adjournment need not be given if the time
and place to which such meeting is adjourned are fixed and announced at such
meeting.
Section 6. Voting Power; Cumulative Voting. In voting on issues at meetings of
- --------- -------------------------------
shareholders, except on the election of Directors, each shareholder shall be
entitled to one vote for each share of stock held. A majority of votes cast
shall decide each issue submitted to the shareholders at any meeting, except in
cases where by law or by the Articles of Association a larger vote is required.
In all elections of Directors, each shareholder shall have the right to vote the
number of shares owned by such shareholder for as many persons as there are
Directors to be elected, or to cumulate such shares and give one candidate as
many votes as the number of Directors multiplied by the number of such
shareholder's shares shall equal, or to distribute them on the same principle
among as many candidates as such shareholder chooses.
Section 7. Record of Shareholders and Votes. At any meeting of the
- --------- --------------------------------
shareholders, a record showing the names of shareholders present and the number
of shares of stock held by each, the names of shareholders represented by proxy
and the number of shares held by each, and the names of the proxies shall be
made. This record also shall show the number of shares voted on each action
taken, including the number of shares voted for each candidate for the Board of
Directors. This record shall be included in the minute book of the Bank.
ARTICLE II
BOARD OF DIRECTORS
------------------
Section 1. Authority. The Board of Directors shall have power to manage and
- --------- ---------
administer the business and affairs of the Bank. Except as expressly limited by
law, all corporate powers of the Bank shall be vested in and exercised by or
under the authority of the Board of Directors.
Section 2. Number. The Board of Directors shall consist of not less than five
- --------- ------
nor more than twenty-five members; the exact number within such minimum and
maximum limits shall be fixed and determined from time to time by resolution of
a majority of the full Board of Directors or by resolution of the shareholders
at any meeting thereof; provided, however, that a majority of the full Board of
Directors may not increase the number of Directors to a number which exceeds by
more than: (i) two the number of Directors last fixed and determined by the
shareholders where such number was fifteen or less, or (ii) four the number of
Directors last fixed and determined by the shareholders where such number was
sixteen or more.
<PAGE>
Section 3. Election of Directors; Vacancies. The Directors shall be elected at
- --------- --------------------------------
each annual meeting of shareholders or at a special meeting called for the
purpose of electing Directors. Any vacancy or vacancies occurring in the Board
of Directors, including vacancies created by an increase in the numbers of
Directors, shall be filled by appointment by the remaining Directors at any
regular or special meeting of the Board, and any Director or Directors so
appointed shall hold office until the next election. Each person elected or
appointed a Director must take the oath of such office in the form prescribed
by the Comptroller of the Currency. No person elected or appointed a Director
shall exercise the functions of such office until he has taken such oath. The
Bank shall transmit evidence of such oath or oaths to the Comptroller of the
Currency.
Section 4. Term of Office; Resignations. Directors shall hold office until the
- --------- ----------------------------
next annual meeting of shareholders or until their successors are elected and
have qualified, or until their earlier resignation, removal from office, or
death. Any Director may resign at any time by oral statement to that effect
made at a meeting of the Board of Directors, or in a writing to that effect
delivered to the Secretary of an Assistant Secretary of the Bank; such
resignation shall take effect immediately or at such other time as the Director
may specify at such meeting or in such writing. At a meeting of shareholders
called expressly for that purpose, any director or the entire Board of Directors
may be removed, with or without cause, by a vote of the holders of a majority of
the shares then entitled to vote at an election of directors. If permitted by
law, the majority of the Board of Directors may remove a director for cause.
Section 5. Organization Meeting. Following the annual meeting of shareholders,
- --------- --------------------
the Directors-elect shall hold an organization meeting for the purpose of
appointing officers and transacting such other business as properly may come
before the meeting. Such organization meeting shall be held on the day of the
election or as soon thereafter as practicable and, in any event, within thirty
days thereof. Notice of such meeting need not be given if held on the day of
the election.
Section 6. Regular Meetings. Regular meetings of the Board of Directors shall
- --------- ----------------
be held, without notice, on the Thursday after the third Wednesday of each
month, at the main office of the Bank or at such other times and places
authorized by the Board of Directors, the Chairman of the Board, or in such
person's absence, a Vice Chairman of the Board. When any regular meeting of the
Board falls upon a holiday, the meeting shall be held on the next banking
business day unless the Board shall designate some other day.
Section 7. Special Meetings. Special meetings of the Board of Directors may be
- --------- ----------------
called by the Chairman of the Board, by the President, or at the request of
three or more Directors. Notice of special meetings, stating the time and place
thereof, and whether telephone or similar communications equipment will be
utilized, shall be given in person or by mailing, telephoning, or telegraphing
such notice at least 24 hours prior to the meeting; provided, however, that
attendance of any Director at such meeting without protesting, prior to or at
the commencement of the meeting, the lack of proper notice, shall be deemed a
waiver by such Director of notice of such meeting. Notice of a meeting may be
waived in writing or by telegram either before or after such meeting. Unless
otherwise indicated in the notice of the meeting, any business may be transacted
at such meeting.
<PAGE>
Section 8. Quorum; Adjournment. A quorum of the Board of Directors shall
- --------- -------------------
consist of a majority of the Directors then in office; provided that a majority
of the Directors then present at a meeting duly held, whether or not a quorum is
present, may adjourn such meeting from time to time. If any meeting is
adjourned, notice of such adjournment need not be given if the time and place to
which such meeting is adjourned are fixed and announced at such meeting. At
each meeting of the Board of Directors at which a quorum is present, all issues
shall be determined by a majority vote of those present except as otherwise
expressly provided in these Bylaws or by law. A Director cannot vote or
otherwise act by proxy at a meeting of the Board of Directors.
ARTICLE III
OFFICERS
--------
Section 1. Election and Designation of Officers. The Board of Directors shall
- --------- ------------------------------------
elect or appoint a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary, and such other officers as the Board may deem
necessary. The Chairman of the Board and the President shall be members of the
Board of Directors. The Board of Directors may delegate the authority to
appoint and dismiss officers to officers of the Bank or to a committee composed
of such officers. Any two or more offices may be held by the same person, but
no officer shall execute, acknowledge, or verify any instrument in more than
one capacity if the instrument is required to be executed, acknowledged, or
verified by two or more officers. The Board of Directors shall approve the
compensation of officers, except that the Board of Directors may delegate to a
committee of the Board of Directors, or to officers of the Bank, authority for
approving officers' compensation.
Section 2. Term of Office; Vacancies. The officers of the Bank shall hold
- --------- -------------------------
office until their successors are elected or appointed and qualified, except in
the case of resignation, dismissal or removal from office, or death. The Board
of Directors may dismiss or remove any officer at any time, with or without
cause, by a majority vote of the Directors then in office, without prejudice to
the contract rights of such officer; an election or appointment of an officer
shall not of itself create any contract rights. Any vacancy in any office may
be filled in the manner provided herein for the election or appointment of
office. The Board of Directors is not required to annually elect or appoint
officers.
Section 3. Chairman of the Board. The Chairman of the Board shall preside at
- --------- ---------------------
all meetings of shareholders and the Board of Directors. He also shall serve
the Bank in such capacity and perform such other duties as may be assigned to
him, from time to time, by the Board of Directors. In the absence of, or at the
direction of, the Chairman of the Board, the President, or such other Director
designated by the Chairman of the Board, shall preside at a meeting of the
shareholders or the Board of Directors, as the case may be.
Section 4. President. The President shall have general executive powers over
- --------- ---------
the management and business of the Bank, subject to the direction of the Board
of Directors and the Chairman of the Board.
<PAGE>
Section 5. Vice Presidents. Each Vice President shall have such powers and
- --------- ---------------
duties as may be assigned to him by the Board of Directors or as otherwise
provided for herein; the Board of Directors may authorize one of the Vice
Presidents to perform the duties of the President in the President's absence or
if the President is unable to act.
Section 6. Secretary. The Board of Directors shall appoint a Secretary or
- --------- ---------
other designated officer (who, in the absence of a Cashier, shall have all the
powers and duties of a Cashier) who shall be Secretary of the Board and of the
Bank. The Secretary shall give or provide for giving of all notices required by
law or these Bylaws to be given, shall be custodian of the corporate seal,
records, documents, and papers of the Bank, shall keep accurate minutes of all
meetings covered by these Bylaws, and shall perform such other duties as may be
assigned from time to time by the Board of Directors.
Section 7. Other Officers. Other officers shall have such powers and duties as
- --------- --------------
may be assigned by the Board of Directors.
Section 8. Delegation of Duties. The Board of Directors is authorized to
- --------- --------------------
delegate the assignment of the duties of any officer, to control the action of
the officers, and to require the performance of duties in addition to those
mentioned herein, to any other officer.
ARTICLE IV
COMMITTEES
----------
Section 1. Executive Committee. The Board of Directors may appoint an
- --------- -------------------
Executive Committee which shall consist of the Chairman of the Board, the
President, and not less than three other Directors. Each member of the Board of
Directors who is not a member of the Committee shall be an alternate and, at the
request of the officer who is to preside at the meeting, may serve in the place
of any regular member who is unable to attend a committee meeting for any
reason. The Chairman of the Board shall preside at all meetings of the
Committee; if such officer is absent, a Vice Chairman shall preside. If none of
these officers is available, the President shall preside. If none of the
foregoing persons is available, the non-officer Director members of the
Executive Committee shall select a Director, who need not be an officer, to
preside.
Section 2. Powers of Executive Committee. The Executive Committee shall have
- --------- -----------------------------
and may exercise, as far as permitted by law, all the powers and authority of
the Board of Directors and other committees of the Board of Directors between
meetings of such Board or such committees. At each meeting of the Board of
Directors, the minutes of all previous meetings of the Executive Committee not
theretofore submitted to the Board shall be presented for review and
ratification by the Board. Any action of the Board disapproving any prior
action of the Executive Committee shall not affect the rights of third parties
dealing with the Bank, if such rights have attached by virtue of action of the
Executive Committee within the scope of the corporate powers of the Bank.
<PAGE>
Section 3. Other Committees. The Board of Directors may, by resolutions
- --------- ----------------
adopted by a majority of the full Board, establish one or more other
committees; each committee shall consist of two or more members of the Board of
Directors which, to the extent provided in such resolution or resolutions or in
these Bylaws, shall have and may exercise the powers of the Board of Directors
in the management of the business and affairs of the Bank and may have the power
to authorize the seal of the Bank to be affixed to all papers which may require
it. Such committee or committees shall have such name or names as may be stated
in these Bylaws or as may be determined from time to time by resolution adopted
by the Board of Directors. The Board of Directors may designate one or more
Directors as alternate members of any committee, who may serve in the place of
any regular member who is unable to attend a committee meeting for any reason.
Each committee shall keep regular minutes of its meetings and present such
minutes of review to the Board of Directors.
Section 4. Notice of Meetings. Meetings of the Board committees shall be held
- --------- ------------------
at the principal office of the Bank in the City of Cleveland, or at such other
place as may be designated in the notice of the meeting at any time upon call
by the Chairman of the Board, the Vice Chairman of the Board, the President, or
the Chairman of the Committee. Notice of each such meeting shall be given to
each member of the Committee in person or by mailing, telephoning, or
telegraphing such notice at least 24 hours prior to the meeting; provided,
however, that attendance by any Director at such meeting, without protesting
prior to or at the commencement of such meeting, the lack of proper notice shall
be deemed a waiver by such Director of the notice of such meeting. Notice of
the meeting may be waived in writing or by telegram by any member either before
or after such meeting. Unless otherwise indicated in the notice of the meeting,
any business may be transacted at such meeting.
ARTICLE V
TRUSTS
------
Section 1. Trust Department. There shall be a department of the Bank known as
- --------- ----------------
the Trust Department or similar name which shall perform the fiduciary
responsibilities of the Bank.
Section 2. Trust Department Files. There shall be maintained in the Trust
- --------- ----------------------
Department files containing all fiduciary records necessary to assure that its
fiduciary responsibilities have been properly undertaken and discharged.
Section 3. Trust Investments. Funds held in a fiduciary capacity shall be
- --------- -----------------
invested in accordance with the instrument establishing the fiduciary
relationship and local law. Where such instrument does not specify the
character and class of investments to be made and does not vest in the Bank
discretion in the matter, funds held pursuant to such instrument shall be
invested in investments in which corporate fiduciaries may invest under local
law.
<PAGE>
ARTICLE VI
RECORD DATES
------------
The Board of Directors may fix, or authorize the Chairman of the Board or the
President to fix, a record date for any lawful purpose. The record date for the
purpose of the determination of the shareholders who are entitled to receive
notice of or to vote at a meeting of shareholders shall continue to be the
record date for all adjournments of such meeting. The Board of Directors may
close the share transfer books against transfer of shares during the whole or
any part of the period provided for in this Article, including the date of the
meeting of shareholders and the period ending with the date, if any, to which
the meeting is adjourned.
ARTICLE VII
CERTIFICATES FOR SHARES
-----------------------
Section 1. Form of Certificates and Signatures. Each holder of shares shall be
- --------- -----------------------------------
entitled to one or more certificates signed by the Chairman of the Board, the
President or a Vice President, and by the Secretary or an Assistant Secretary.
The signature of any of such officers of the Bank may be a facsimile, engraved,
stamped, or printed. In case any such officer whose legal or facsimile
signature has been placed upon such certificate ceases to be such officer before
the certificate is delivered, such certificate nevertheless shall be effective
in all respects when delivered.
Section 2. Transfer of Shares. Shares of the Bank shall be transferable upon
- --------- ------------------
the books of the Bank by the holders thereof, in person, or by a duly authorized
attorney, upon surrender and cancellation of certificates for a like number of
shares of the same class, with duly executed assignment and power of transfer
endorsed thereon or attached thereto, and with such proof of the authenticity of
such signatures to such certificates and power of transfer as the Bank or its
agents may reasonably require.
Section 3. Corporate Seal. The following is an impression of the seal adopted
- --------- --------------
by the Board of Directors of the Bank.
(to be inserted)
Any officer shall have authority to affix the corporate seal to any document
requiring such seal and to attest the same. Failure to affix the seal to any
instrument executed on behalf of the Bank shall not affect the validity of such
instrument unless such action is required by law.
<PAGE>
ARTICLE VIII
BANKING HOURS
-------------
The main office and branch offices of the Bank shall be open for business upon
such days of the year and for such hours as the Board of Directors or the
officers of the Bank may from time to time determine.
ARTICLE IX
MISCELLANEOUS
-------------
Section 1. Fiscal Year. The fiscal year of the Bank shall be the calendar
- --------- -----------
year.
Section 2. Definitions. The word "person" wherever used in these Bylaws shall
- --------- -----------
be taken to mean and include individuals, partnerships, associations, and
corporations when the text so requires. "Vice President", as used in these
Bylaws, shall include Vice Chairman and such titles as Senior Executive Vice
President, Executive Vice President, and Senior Vice President. Words of the
singular number shall be taken to include the plural and those of the plural
number shall be taken to include the singular whenever appropriate. Nouns and
pronouns of the masculine gender shall include the feminine whenever
appropriate.
Section 3. Execution of Instruments. The Chief Executive Officer may from time
- --------- ------------------------
to time prescribe in writing the authority of the officers, employees, and
agents of the Bank with respect to the making, execution, and delivery in the
name and on behalf of the Bank of documents and instruments in writing necessary
to the transaction of its business, whether in a fiduciary capacity or
otherwise, and with respect to the approval orally, or by conduct other than
signing of agreements, of transactions in the name and on behalf of the Bank
necessary to the carrying out of the business of the Bank; provided, however,
that if the Chief Executive Officer fails to take such action, the Board of
Directors shall, by resolution, establish such authorities in writing. Where
any such resolution or any such writing has been certified by the Secretary or
an Assistant Secretary as to its full force and effect, any instrument executed
or transaction effected in conformity with such resolution or such writing may
be relied upon by any person. Authority granted to officers, employees, and
agents of the Bank, pursuant to this Section 3 shall apply to all documents,
instruments, and conduct relating to any entity for which the Bank is a
successor in interest, whether by merger or otherwise.
Section 4. Use of Communications Equipment at Meetings. Members of the Board
- --------- -------------------------------------------
of Directors may participate in regular or special meetings of the Board of
Directors, and members of committees appointed by the Board of Directors may
participate in regular or special meetings of those committees, through use of
conference telephone or similar communications equipment, as long as all members
participating in such meeting can hear one another.
<PAGE>
Section 5. Action Without a Meeting. Any action which may be taken at a
- --------- ------------------------
meeting of the Bank's shareholders, Board of Directors, or committee of the
Board of Directors, may be taken without a meeting by the unanimous vote of
approval of, and in a writing or writings signed by, all of the Bank's
shareholders, Directors, or committee members, respectively, entitled to notice
of such meeting; such writing or writings shall be included in the minute book
of the Bank.
Section 6. Waivers of Notice. Any shareholder or Director may waive the giving
- --------- -----------------
of any notice required to be given to him under these Bylaws.
Section 7. Telegram. Any action required or permitted to be taken hereunder by
- --------- --------
telegram may be taken by telex, fax, or similar communication equipment.
Section 8. Records. The Articles of Association, these Bylaws, and the
- --------- -------
proceedings of all meetings of the shareholders, the Board of Directors, and
committees of the Board, shall be recorded in appropriate minute books provided
for that purpose. The minutes of each meeting shall be signed by the Secretary,
an Assistant Secretary, or other officer appointed to act as secretary of the
meeting.
Section 9. Interest Rates and Assessments and Loans. The Bank may assess and
- --------- ----------------------------------------
collect from borrowers interest at any rate agreed upon by the Bank and the
borrower as specified in the loan agreement. In addition to such interest, the
Bank may assess and collect any dues, fines, premiums, or other assessments on
loans made in such amount as may be agreed upon in the loan agreement,
including, but not limited to, the following: origination fees; guarantee fees
or charges for any insurance protecting a creditor against a borrower's default
or other credit loss; late, default, or delinquency charges; deferment charges;
annual or other periodic membership fees; charges for returned checks and other
forms of payment; overlimit charges; cash advance fees; stop payment fees; ATM,
electronic, or similar interchange access fees; transaction fees; currency
conversion charges; fees for replacement of credit cards, access checks, or
other access devices; minimum charges; research charges; charges for providing
documentation or other evidence; credit, property, or other types of insurance
premiums, including premiums for insurance in lieu of perfecting a security
interest; collection costs; court costs; attorney's fees; applications fees;
credit report fees; investigation fees; commitment fees; finder's fees; broker
fees; assumption fees; processing fees; credit report fees; investigation fees;
points; survey and appraisal fees; title examination and report fees; title
insurance premiums; abstract of title fees; escrow fees; trustee fees; official
fees and taxes; filing and recording fees; fees for taking or releasing a
security interest; document preparation and notarization fees; prepayment fees.
ARTICLE X
AMENDMENTS
----------
These Bylaws may be amended, altered, or repealed, at any regular or special
meeting of the Board of Directors, by a vote of a majority of the whole number
of the Directors.
<PAGE>
A certificate of the Board of Governors of the Federal Reserve System appears on
this page.
<PAGE>
EXHIBIT T1D
Consent for Records of Governmental Agencies
to be Made Available to the Commission
--------------------------------------
The undersigned, Society National Bank, of Cleveland, Ohio pursuant to
Section 321(b) of the Trust Indenture Act of 1939, hereby authorizes the
Board of Governors of the Federal Reserve System, the Federal Reserve Banks, the
Treasury Department, the Comptroller of the Currency and the Federal Deposit
Insurance Corporation, under such conditions as they may prescribe, to make
available to the Commission such reports, records, or other information as they
may have available with respect to the undersigned as a prospective trustee
under an indenture to be qualified under the aforesaid Trust Indenture Act of
1939 and to make through their examiners or other employees for the use of the
Commission, examinations of the undersigned prospective Trustee.
The undersigned also, pursuant to Section 321(b) of said Trust Indenture
Act of 1939, consents that reports of examination by the Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Commission upon request therefor.
Dated this 2nd day of February, 1994.
SOCIETY NATIONAL BANK
By: /s/ C. M. Nagy
----------------------------------
C. M. NAGY, Vice President
[Corporate Seal]
ATTEST:
/s/ D. Kovach
- ----------------------------------
D. Kovach, Assistant Secretary
<PAGE>
Legal Title of Bank: Society National Bank Call Date: 12/31/93
Address: 127 Public Square ST-BK: 39-1495
City, State Zip: Cleveland, OH 44114-1306 FFIEC 031
FDIC Certificate No.: 1 7 5 3 4 Page RC-1
---------
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED
SAVINGS BANKS FOR DECEMBER 31, 1993
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
--------
C400 (less than) -
----------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ASSETS //////////////////
1. Cash and balances due from depository institutions (from Schedule RC-A): //////////////////
a. Noninterest-bearing balances and currency and coin(1).................................. 0081 1,170,605 1.a.
b. Interest-bearing balances(2)........................................................... 0071 147 1.b.
2. Securities (from Schedule RC-B)........................................................... 0390 4,697,949 2.
3. Federal funds sold and securities purchased under agreements to resell in domestic offices //////////////////
of the bank and of its Edge and Agreement subsidiaries, and in IBFs: //////////////////
a. Federal funds sold .................................................................... 0276 199,485 3.a.
b. Securities purchased under agreements to resell........................................ 0277 228,652 3.b.
4. Loans and lease financing receivables: -------------------------- //////////////////
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 14,856,796 ////////////////// 4.a.
b. LESS: Allowance for loan and lease losses.................... RCFD 3123 407,938 ////////////////// 4.b.
c. LESS: Allocated transfer risk reserve........................ RCFD 3128 0 ////////////////// 4.c.
d. Loans and leases, net of unearned income, -------------------------- //////////////////
allowance, and reserve (item 4.a minus 4.b and 4.c).................................... 2125 14,448,858 4.d.
5. Assets held in trading accounts........................................................... 2146 35,462 5.
6. Premises and fixed assets (including capitalized leases).................................. 2145 333,562 6.
7. Other real estate owned (from Schedule RC-M).............................................. 2150 36,419 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M).. 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding.............................. 2155 19,218 9.
10. Intangible assets (from Schedule RC-M).................................................... 2143 109,209 10.
11. Other assets (from Schedule RC-F)......................................................... 2160 538,631 11.
12. Total assets (sum of items 1 through 11).................................................. 2170 21,808,197 12.
--------------------
- -------------
</TABLE>
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held in trading accounts.
<PAGE>
Legal Title of Bank: Society National Bank Call Date: 12/31/93
Address: 127 Public Square ST-BK: 39-1495
City, State Zip: Cleveland, OH 44114-1306 FFIEC 031
FDIC Certification No.: 1 7 5 3 4 Page RC-2
---------
SCHEDULE RC--CONTINUED
<TABLE>
<CAPTION>
------------------------
Dollar Amounts in Thousands ////////// Bil Mil Thou
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LIABILITIES ////////////////////////
13. Deposits: ////////////////////////
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part 1)....... RCON 2200 13,710,001 13.a.
----------------------------
(1) Noninterest-bearing(1).................................. RCON 6631 3,370,845 //////////////////////// 13.a.(1)
(2) Interest-bearing........................................ RCON 6636 10,339,156 //////////////////////// 13.a.(2)
----------------------------
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, ////////////////////////
part II)................................................................................ RCFN 2200 2,495,533 13.b
----------------------------
(1) Noninterest-bearing..................................... RCFN 6631 0 //////////////////////// 13.b.(1)
(2) Interest-bearing........................................ RCFN 6636 2,495,533 //////////////////////// 13.b.(2)
----------------------------
14. Federal funds purchased and securities sold under agreements to repurchase in domestic ////////////////////////
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: ////////////////////////
a. Federal funds purchased................................................................. RCFD 0278 1,760,997 14.a.
b. Securities sold under agreements to repurchase.......................................... RCFD 0279 393,857 14.b.
15. Demand notes issued to the U.S. Treasury................................................... RCON 2840 405,000 15.
16. Other borrowed money....................................................................... RCFD 2850 802,185 16.
17. Mortgage indebtedness and obligations under capitalized leases............................. RCFD 2910 10,399 17.
18. Bank's liability on acceptances executed and outstanding................................... RCFD 2920 9,218 18.
19. Subordinated notes and debentures.......................................................... RCFD 3200 398,646 19.
20. Other liabilities (from Schedule RC-G)..................................................... RCFD 2930 344,425 20.
21. Total liabilities (sum of items 13 through 20)............................................. RCFD 2948 20,330,261 21.
////////////////////////
22. Limited-life preferred stock and related surplus........................................... RCFD 3282 0 22.
EQUITY CAPITAL ////////////////////////
23. Perpetual preferred stock and related surplus.............................................. RCFD 3838 0 23.
24. Common stock............................................................................... RCFD 3230 206,863 24.
25. Surplus (exclude all surplus related to preferred stock)................................... RCFD 3839 707,165 25.
26. a. Undivided profits and capital reserves.................................................. RCFD 3632 563,908 26.a.
b. LESS: Net unrealized loss on marketable equity securities............................... RCFD 0297 0 26.b.
27. Cumulative foreign currency translation adjustments........................................ RCFD 3284 0 27
28. Total equity capital (sum of items 23 through 27).......................................... RCFD 3210 1,477,936 28.
29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, ////////////////////////
and 28).................................................................................... RCFD 3300 21,808,198 29.
------------------------
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the Number
most comprehensive level of auditing work performed for the bank by independent external ----------------
auditors as of any date during 1992................................................................ RCFD 6724 N/A M.1.
----------------
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors (may
be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- --------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
<PAGE>
GRAPHICS APPENDIX LIST
----------------------
EDGAR Version Typeset Version
- ------------- ---------------
(The following items appear in
EXHIBIT 25)
Description of Exhibit T1A(b) A certificate of the Comptroller of
the Currency, dated March 26, 1980, to
the effect that First National Bank of
Clermont County, Clermont, Ohio, merged
with and into Society National Bank of
Cleveland, Cleveland, Ohio, effective
as of March 21, 1980, under the charter
of Society National Bank of Cleveland
and under the title "Society National
Bank," and granting approval to
operate branches of Society National
Bank of Cleveland.
Description of Exhibit T1A(c) A certificate of the Comptroller of
the Currency, dated March 21, 1980, to
the effect that Society National Bank
was authorized to act in all fiduciary
capacities permitted by the laws of the
United States.
Description of certificate of the A certificate of the Board of
Board of Governors of the Federal Governors of the Federal Reserve
Reserve System System, dated December 17, 1958, to the
effect that Society National Bank of
Cleveland was granted the authority to
act in fiduciary capacities.
