SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: May 2, 1998.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period __________ to __________.
Commission file number 0-16900
RICHFOOD HOLDINGS, INC.
Incorporated under the laws I.R.S. Employer Identification
of Virginia No. 54-1438602
4860 Cox Road, Suite 300
Glen Allen, Virginia 23060
Telephone Number (804) 915-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
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Common Stock, without par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Purchase Warrants.
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X .
At June 22, 1998, the aggregate market value of all shares of voting stock held
by non-affiliates was $1.02 billion (based upon the last reported sale price of
the Common Stock on that date on the New York Stock Exchange composite tape). In
determining this figure, the Registrant has assumed that all directors and
executive officers are affiliates. Such assumption shall not be deemed
conclusive for any other purpose. The number of shares outstanding of each class
of the Registrant's common stock, as of June 22, 1998, was as follows: Common
Stock, without par value, 47,669,868 shares.
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended May 2, 1998, are incorporated by reference into Parts I, II and IV of this
Form 10-K. Portions of the Registrant's Proxy Statement prepared for use in
connection with the 1998 annual meeting of shareholders are incorporated by
reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
General
Richfood Holdings, Inc. ("Richfood" or the "Company"), a Virginia corporation,
was organized in July 1987 as the successor to a wholesale grocery firm
established in 1935. The Company is headquartered at 4860 Cox Road, Glen Allen,
Virginia 23060.
Richfood is a major integrated food company operating in the Mid-Atlantic region
of the United States. The Company's Wholesale Division supplies a comprehensive
selection of national brand and private label grocery products, dairy products,
frozen foods, fresh produce items, meats, delicatessen and bakery products and
non-food items from its two principal distribution centers. The Company's
distribution centers are strategically located within its operating region and
have capacity to accommodate additional growth. The Company's Wholesale
Division serves approximately 1,400 retail grocery stores, including leading
regional chains and smaller independent retailers throughout the Mid-Atlantic
region, offering its customers a dependable supply and prompt delivery of over
37,000 grocery and non-grocery items at competitive prices.
As a result of recent acquisitions, the Company's Retail Division is now the
second largest food retailer in its Mid-Atlantic operating region. The Retail
Division operates the Metro chain of 17 retail grocery stores in the
metropolitan Baltimore, Maryland area, the 45 store Farm Fresh chain located
primarily in the Hampton Roads region of Virginia, and 38 Shoppers Food
Warehouse stores in the greater Washington, D.C., metropolitan area.
Richfood is focused on achieving sales and earnings growth in both its Wholesale
and Retail Divisions. Management intends to capitalize on the efficiency,
purchasing power and low cost structure of its Wholesale Division to increase
sales to existing customers and to attract new customers, while supporting the
competitive efforts of its wholesale customers through extensive retail support
services. In addition, the Company believes that its recent retail acquisitions
represent significant distribution and logistics opportunities for its core
wholesale business. In its Retail Division, the Company plans to pursue growth
through: new store openings and operational improvements for its Metro chain;
aggressive store remodeling programs and improved advertising and customer
service programs for its Farm Fresh chain; and providing additional customer
services, aggressively pursuing new store sites and achieving
acquisition-related synergies for its Shoppers Food Warehouse chain.
Business Strategy
Since 1990, Richfood's management team has implemented a business strategy
focused on reducing and controlling costs, increasing efficiency and pursuing
profitable growth, including the creation of the Company's Retail Division. The
key elements of the Company's strategy include:
Reducing and Controlling Costs; Increasing Efficiency in Logistics and
Distribution
Management believes that, as a result of its strategic focus on cost control,
logistics and distribution, the Company is now one of the most efficient
wholesale food distributors in the United States. Over the past six fiscal
years, the Company has reduced and controlled costs by (i) capitalizing on its
size to improve its purchasing capabilities, (ii) rationalizing product
purchasing and pricing systems, (iii) implementing a pricing system that
encourages efficient use of the Company's services and (iv) instituting
productivity-based incentives for distribution center associates. Over the same
period, the Company has significantly improved the efficiency of its logistics
and distribution functions by, among other things, implementing state-of-the-art
computer systems related to purchasing, inventory management and fleet loading
and routing. These improvements have permitted the Company to drive
substantially increased volume through its distribution system and to increase
capacity utilization significantly, thereby benefiting from its operating
leverage. In addition, the Company's recent retail acquisitions are expected to
add significant incremental wholesale volume, permitting the Company to better
utilize its existing warehouse capacity.
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Increasing Sales
The Company's purchasing power, low cost structure and efficient service levels
permit the Wholesale Division to offer lower prices and better service to
support the competitive position of its retail customers, while increasing
customer penetration, attracting new customers within its operating region and
supporting customers in their efforts to open new retail sites served by
Richfood.
The Company believes that the success of its Wholesale Division depends in large
part upon the success of its retail customers, including the Company's Retail
Division. Accordingly, the Wholesale Division supports its existing customers,
and pursues its goal of increasing customer penetration and attracting new
customers, by (i) using the Company's purchasing power, low cost structure and
efficient distribution system to provide products to its customers at the lowest
available prices, (ii) assisting its customers in adapting to changes in
consumer preferences and to competition in the marketplace and (iii) offering
its customers a wide variety of retail support services typical of those offered
by large retail chains to their individual stores. As a result of these
initiatives, the Wholesale Division is able to provide its customers with the
competitive advantages associated with large purchasing power and extensive
retail services similar to those of large supermarket chains, while each
customer retains its regional focus and flexibility to respond to local
demographics and market conditions. The Company plans to pursue increased sales
for its Retail Division through new store openings, aggressive store remodeling
programs and improved advertising, promotion and customer service programs.
Pursuing Strategic Acquisitions
Consolidation trends in the food distribution industry present opportunities for
strategic acquisitions by the Company. The Company pursues strategic targets
that are well run, established wholesale and retail operations, with modern
facilities and capacity to accommodate anticipated growth, and that complement
the Company's existing operations and geographic service area. Since 1990, the
Company has completed eight acquisitions, which have more than tripled its
sales, improved its operating leverage, expanded its customer base, enhanced its
presence in various regional markets and resulted in the creation of the Retail
Division. The Company's more recent acquisitions include:
Super Rite
Effective October 15, 1995, the Company completed the acquisition of Super Rite
Foods, Inc. ("Super Rite"), a full service wholesale food distributor supplying
more than 240 retail supermarkets in Pennsylvania, New Jersey, Maryland,
Delaware, Virginia and West Virginia (the "Super Rite Acquisition"). The Super
Rite Acquisition approximately doubled the Company's sales and, with the
acquisition of Super Rite's Metro retail grocery chain in the Baltimore,
Maryland, marketplace, marked the creation of Richfood's Retail Division.
As part of the Richfood/Pennsylvania unit of the Company's Wholesale Division,
Super Rite operates approximately 1.0 million square feet of warehouse space,
including a 635,000 square foot highly efficient, automated distribution center
in Harrisburg, Pennsylvania. Super Rite's distribution system complements the
existing operations of the Richfood/Virginia unit of the Company's Wholesale
Division, and its service area is geographically contiguous with the northern
portion of the area served by Richfood/Virginia's Mechanicsville, Virginia,
distribution center. As a result of the Super Rite Acquisition, the Company has
achieved significant cost savings, operating efficiencies and growth
opportunities resulting from: (i) combining the purchasing volume of both
companies, thereby increasing purchasing power; (ii) centralizing and
eliminating certain duplicative corporate and administrative functions; (iii)
selling private label goods and certain higher-margin product lines to Super
Rite customers that are offered by Richfood/Virginia and the Company's
Norristown, Pennsylvania, fresh produce business but that were previously
offered on a limited basis by Super Rite, such as frozen foods, fresh produce,
meats and delicatessen and dairy products; (iv) consolidating distribution
networks to achieve logistical efficiencies and higher capacity utilization; and
(v) realizing interest expense savings by refinancing certain Super Rite
indebtedness at the lower rates available to the combined Company.
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Norristown
On September 30, 1996, a subsidiary of the Company ("Norristown") acquired
substantially all of the assets and certain liabilities of Norristown Wholesale,
Inc. Norristown, headquartered near Philadelphia, Pennsylvania, supplies a full
line of fresh produce, fruits, vegetables and other perishable food items to
approximately 400 retail supermarkets in Pennsylvania, Delaware, Maryland, New
Jersey and Virginia, most of which represented new accounts for the Company. The
Norristown acquisition permitted Richfood/Pennsylvania to add a complete range
of fresh produce and perishable items, not previously offered by the division,
to its previous assortment of dry grocery, frozen food, cheese and dairy
products. With the acquisition of Norristown, Richfood became one of the largest
procurers of fresh produce on the East Coast.
Farm Fresh
On March 4, 1998, a subsidiary of the Company ("Farm Fresh") completed the
acquisition of substantially all of the assets and the assumption of certain
liabilities of Farm Fresh, Inc. ("Old Farm Fresh"), a privately held supermarket
chain headquartered in Norfolk, Virginia (the "Farm Fresh Acquisition"). The
transaction was effected through a "prepackaged" Chapter 11 bankruptcy
proceeding, which was commenced by Old Farm Fresh in the United States
Bankruptcy Court for the District of Delaware on January 7, 1998. Farm Fresh
operates 45 supermarkets in the Hampton Roads, metropolitan Richmond and
Shenandoah Valley areas of Virginia, primarily under two distinct tradenames and
formats: (i) Farm Fresh, 33 traditional supermarkets averaging approximately
33,000 square feet, offering a full line of grocery items and selected specialty
departments; and (ii) Rack & Sack, 11 super warehouse stores averaging
approximately 55,000 square feet, featuring price sensitive grocery items at
discounted prices. The remaining store is operated under a separate name and
format. Farm Fresh is the second largest supermarket chain in the Hampton Roads
region of Virginia (consisting of the cities of Norfolk, Hampton, Chesapeake and
Virginia Beach), its principal operating area, commanding an approximately 32%
market share. Management believes that Farm Fresh enjoys excellent
locations, strong name recognition and a loyal customer base in the Hampton
Roads region, one of the top twenty U.S. grocery markets.
Shoppers Food Warehouse
Effective May 18, 1998, shortly following the conclusion of the Company's
fiscal year ended May 2, 1998 ("fiscal 1998"), a subsidiary of the Company
acquired all of the outstanding capital stock of Dart Group Corporation
("Dart"), parent company of Shoppers Food Warehouse Corporation
("Shoppers"), for a purchase price of approximately $201 million (the
"Shoppers Acquisition"). Shoppers operates 38 price impact warehouse-style
supermarkets in the metropolitan Washington, D. C. market area and, with a 13%
market share, is the third largest supermarket chain in that marketplace.
Management believes that the Company can increase Shoppers' market share in the
$6 billion Washington, D.C. retail grocery market through, among other things,
providing additional customer services not generally offered in a
warehouse-style format, as well as by aggressively seeking to increase the
number of Shoppers Food Warehouse locations.
As of the effective date of the Shoppers Acquisition, Dart, headquartered in
Landover, Maryland, was comprised of (i) Shoppers, 100% owned by Dart; (ii)
Trak Auto Corporation ("Trak"), a publicly owned retailer of auto parts, 67.1%
owned by Dart; (iii) Crown Books Corporation ("Crown"), a publicly owned
retailer of popular books, 52.3% owned by Dart; and (iv) Total Beverage
Corporation ("Total Beverage"), a discount beverage retailer, 100% owned
by Dart. On May 22, 1998, Dart completed the sale of the common stock of Total
Beverage to an unaffiliated third party for approximately $8.0 million. The
Company intends, as soon as practicable, to cause Dart to divest its
ownership of Crown and Trak. On June 16, 1998, Trak announced that its Board
of Directors had engaged an investment banking firm to assist Trak in
evaluating strategic alternatives intended to maximize shareholder value,
including the potential sale or merger of the company. On July 14, 1998, Crown
filed for protection under Chapter 11 of the United States Bankruptcy Code. The
Company had not assigned any value to Dart's ownership interest in Crown at the
time of the Shoppers Acquisition.
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The Company's substantial growth since 1990 is largely attributable to
acquisitions. While the Company believes that additional acquisition
opportunities consistent with its strategic criteria may arise from time to
time, no assurance can be given that the Company will consummate additional
strategic acquisitions.
Wholesale Operations
The Company's Wholesale Division consists of the following operating divisions:
o Richfood/Virginia, based in Richmond, Virginia, which operates a
1.3 million square foot distribution center that is one of the
largest and most efficient in the industry;
o Richfood/Pennsylvania, which operates two primary distribution
facilities totaling approximately 1.0 million square feet in
Harrisburg, Pennsylvania, including a 635,000 square foot highly
efficient, automated distribution center, and a 150,000 square
foot produce distribution center in Norristown, Pennsylvania; and
o the Richfood Dairy, located in Richmond, which is the largest
fluid dairy in Virginia and consists of a 65,000 square foot
facility capable of processing and packaging over 800,000 gallons
per week of milk and other dairy products, fruit juices, bottled
water and related items.
Management has implemented the regional division structure for the Company's
Wholesale Division to serve properly the unique needs of Richfood's customers in
each of its geographic markets. Each division is headed by a division president,
together with a procurement officer and a distribution and logistics officer, to
oversee regional sales, marketing, procurement, advertising, and distribution
and logistics initiatives. Through its corporate headquarters, the Company
provides technology and support to the divisions on an efficient, centralized
basis, to avoid duplication of functions. Centralized functions include
corporate finance, legal, risk management, certain distribution/logistics and
procurement activities, management information systems, human resources
planning, development of safety and sanitation programs and support of the
Company's retail customers through store planning and development.
Richfood/Virginia includes the operations of Richfood, Inc., which was formed in
1935 and historically was the Company's principal operating subsidiary.
Richfood/Pennsylvania encompasses the operations of three of the Company's
recently acquired subsidiaries -- Super Rite, Norristown and Rotelle, Inc.
("Rotelle"), a frozen food distribution business acquired by the Company in
1994. The Company believes that combining the administrative functions of Super
Rite, Norristown and Rotelle affords opportunities for cost savings through
centralizing and eliminating certain duplicative corporate and administrative
functions and by enhancing opportunities to sell products of each business to
customers of the other. In addition, following the loss of a frozen food
customer in fiscal 1997, the Company decided in fiscal 1998 to close and sell
Rotelle's distribution center located in West Point, Pennsylvania. The Company
believes that its willingness to shed this excess capacity, and shift
Richfood/Pennsylvania's remaining frozen food business to its Harrisburg
distribution center, will permit the Company to recognize substantial cost
savings through better utilization of physical facilities and better operating
leverage.
Customer Base; Principal Markets
The Wholesale Division serves approximately 1,400 retail grocery stores,
including leading regional chains and smaller independent retailers, in
Virginia, Maryland, Pennsylvania, New Jersey, Delaware, North Carolina, West
Virginia, Washington, D.C. and New York. The Company's regional chain customers
are high quality, growth-oriented operations, and include: Giant Food Stores,
Inc. based in Carlisle, Pennsylvania ("Giant of Carlisle"); Genuardi's Super
Markets, Inc. ("Genuardi's"); Ukrop's Super Markets, Inc. ("Ukrop's"); Redner's
Markets, Inc.; Camellia Food Stores, Inc.; and the Company's own Metro, Farm
Fresh and Shoppers Food Warehouse stores. Customer store sizes generally
range from 4,500 square feet to 60,000 square feet. The Company believes that
it is the primary source of supply for most of its wholesale customers.
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The Company's five largest wholesale customers in fiscal 1998 were Giant of
Carlisle, Shoppers, Farm Fresh, Genuardi's and Ukrop's, with Giant of Carlisle,
Shoppers and Farm Fresh (including the period of time prior to the Farm Fresh
Acquisition) accounting for 20%, 10% and 10%, respectively, of fiscal 1998
Wholesale Division sales. The Company has enjoyed long-term supply
relationships with most of its principal customers: Ukrop's, Genuardi's,
Farm Fresh, Giant of Carlisle and Shoppers have been customers of one or more
of the Company's divisions for 50, 31, 26, 18 and seven years, respectively.
Richfood is a party to multi-year supply agreements with most of its larger
wholesale customers that secure the Company's position as principal supplier to
all stores owned by such customers. Such supply agreements generally include
minimum purchase requirements by dollar amount and category of goods and may be
subject to adjustment as the customer acquires or disposes of stores. The
Company's supply agreement with Giant of Carlisle expires in December 1999.
Overall, sales to customers covered by supply agreements and to the Company's
Retail Division accounted for over 80% of fiscal 1998 Wholesale Division
sales.
Management believes that the loss of one of the Company's larger customers could
have a material adverse effect on its business. However, management believes
that the Company's purchasing power, low cost structure and efficient service
levels, coupled with its commitment to the success of its retail customers,
should enable the Company to operate profitably in the event of the loss of a
larger customer and to attract new customers.
Products and Purchasing
The Company supplies a comprehensive selection of national brand and private
label grocery products, dairy products, frozen foods, fresh produce items,
meats, delicatessen and bakery products and non-food items from its two
principal distribution centers. The Company offers its customers a dependable
supply and prompt delivery of over 37,000 grocery and non-grocery items at
competitive prices. The Company's business strategy includes assisting its
retail customers in adapting to changes in consumer preferences and in the
marketplace so they remain competitive. Accordingly, the Company continually
changes and enhances its product offerings to meet changing consumer demands.
The Company supplies more than 35,000 national brand products, which accounted
for approximately 89% of the Company's total wholesale grocery sales in fiscal
1998. The Company also offers private label products to its customers. Private
label products allow retail customers to carry single labels on a store-wide
basis similar to chain stores, while providing consumers a lower-priced
alternative to national brands. The Company currently offers approximately 1,500
private label products to its customers, including approximately 1,300 products
under the "RICHFOOD" label and approximately 130 products under the
budget-priced "ECON" label. The Company also coordinates private labels for
certain regional supermarket chains in the Mid-Atlantic region. In fiscal 1998,
private label products, including private label products packaged for certain
customers, accounted for approximately 11% of the Company's total wholesale
grocery sales.
The Company purchases products for resale from over 1,900 vendors in the United
States and overseas, and is not substantially dependent on any single source of
supply. The Company believes that its size enables it to purchase products at
the lowest available manufacturers' prices. The Company monitors manufacturers'
prices and uses its purchasing power to secure products at the best terms
available. In addition, because the Company maintains purchasing departments
associated with its Richfood/Virginia and Richfood/Pennsylvania operations,
Richfood is able to take advantage of regional buying opportunities. The Company
purchases long-term quantities of inventory items when manufacturers' prices are
advantageous ("forward-buys"). In particular, the Company purchases sufficient
quantities of certain staple items when offered at a discount and if justified
after giving effect to carrying costs.
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Product Pricing
The Company sells products to its customers at landed vendor invoice cost. The
customer is also charged a service fee and a delivery fee based upon the
characteristics of the order. The fee structure includes incentives to encourage
customers to increase their purchases from the Company and to order and accept
merchandise for delivery more efficiently, thereby increasing the Company's
efficiency. Such incentives include minimum delivery fees that encourage
economic order quantities and lower fees for off-peak deliveries. Over the past
several years, the Company's pricing system, together with increased
efficiencies in purchasing operations, have resulted in more
competitively-priced merchandise and have placed the Company and its retail
customers in a stronger market position.
Logistics and Distribution
The Company is highly focused on reducing and controlling costs and on improving
efficiency in the logistics and distribution areas of its business. Over the
past six fiscal years, the Company's management team has implemented
improvements in the logistics and distribution areas of its business that have
permitted Richfood to drive substantially increased volume through its
distribution system and to increase capacity utilization, thereby benefiting
from its operating leverage. These improvements have included: (i) implementing
state-of-the-art computer systems related to purchasing, inventory management
and fleet loading and routing; (ii) instituting a pricing system that encourages
customers to utilize the Company's services efficiently; and (iii) introducing
warehouse management practices that reward workers for enhanced productivity.
Management believes that, as a result of its strategic focus on cost control,
logistics and distribution, the Company is now one of the most efficient
wholesale food distributors in the United States.
The Company distributes its products out of its two principal distribution
centers: Richfood/Virginia's 1.3 million square foot Mechanicsville, Virginia,
distribution center and Richfood/Pennsylvania's 635,000 square foot automated
distribution facility in Harrisburg, Pennsylvania. The Company's customers are
generally located within 200 miles of one of the Company's distribution centers.
Products are delivered to the Company's distribution centers by manufacturers,
common carriers and the Company's own fleet of trucks on return to its
distribution centers from deliveries to customers ("backhauls"). The Company
employs a management information system that enables it to lower its inbound
transportation costs by making optimum use of its own fleet for backhaul
opportunities. In addition, "drop shipments" are sent directly to retailers by
suppliers under programs established by the Company.
The Company produces and distributes catalogs with weekly updates indicating
manufacturers' prices and wholesale prices to customers for each of its more
than 37,000 products. In addition, the Company's sales personnel use
telemarketing to advise customers of periodic special prices and product
offerings. Customers place orders through direct computer links to the Company.
Customers' orders are then assembled in the appropriate distribution center,
shrink-wrapped to ensure order completeness and staged according to the required
delivery sequence.
Products are delivered from the Company's distribution centers to retail
customers by the Company's drivers and contract carriers via trucks leased or
owned by the Company. In dispatching trucks for both pick-ups and deliveries,
the Company employs a computerized routing system designed to optimize delivery
efficiency and minimize drive time, wait time and excess mileage. The Company
currently leases 187 tractors, 202 refrigerated trailers and 335 dry trailers,
and owns 90 tractors, 128 refrigerated trailers and 102 dry trailers. All of the
Company's fleet utilizes on-board computer systems that monitor vehicle speeds,
fuel efficiency, idle time and other statistical information.
Customers are billed for goods sold on a weekly basis with payment generally due
the following week. The Company reviews credit histories on an individual basis
and requires customers to provide collateral to secure outstanding accounts when
appropriate.
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Retail Support
The Company's largest customers generally find it cost efficient to perform
their own retail support services and have selected the Company as a supplier
because of its competitive prices. The Company's smaller customers, however,
generally do not have the resources to perform the retail services that large
national chains provide to their individual stores. The Company offers a wide
variety of retail support services to assist its smaller customers. Customers
decide individually which services to use and are charged a fee for such
services.
Services offered by the Company include retail development, retail sales
consulting, marketing and merchandising assistance, data processing and
customized software, and financial planning and analysis. The Company's retail
development services are focused on store planning and development, and include
advising retailers on site planning through construction, lease negotiation,
product display and promotion. This assistance also includes demographic
studies, engineering support, contracting assistance and layout strategy. Retail
sales counselors assist customers with detailed analyses of their stores'
operations, pricing, advertising, delivery schedules, inventory control and
merchandising plans, to help each customer enhance its competitive position.
Marketing services include developing marketing strategies, designing and
producing signs and flyers and coordinating print and media campaigns. The
Company provides data processing services and customized software to many of its
customers, which allows them to manage accounting functions, time-and-attendance
data and inventories. The Company also assists customers in strategic planning
and capital budgeting as well as in cash management and overall financial
planning.
The Company on occasion provides secured financing to retailers, primarily to
finance store acquisitions, construction and remodeling, generally at a variable
interest rate equal to the prime lending rate plus 2%. The Company has developed
credit criteria intended to ensure that such loans are made only with
appropriate collateral and in situations that are expected to contribute to the
Company's growth. At May 2, 1998, the Company had an aggregate $32.2 million of
secured loans outstanding to its retail customers.
Retail Operations
The Company's Retail Division consists of the following operating divisions:
o Metro, headquartered in the metropolitan Baltimore, Maryland
area, operates fifteen 45,000 to 60,000 square foot "superstores"
under the Metro tradename, and two smaller traditional
supermarkets under the Basics tradename.
o Farm Fresh, headquartered in Norfolk, Virginia, operates 33
traditional supermarkets, averaging approximately 33,000 square
feet, under the Farm Fresh tradename, 11 super warehouse stores,
averaging approximately 55,000 square feet, under the Rack & Sack
name and one store under a separate name and format. Farm Fresh's
stores are located primarily in the Hampton Roads, metropolitan
Richmond and Shenandoah Valley regions of Virginia.
o Shoppers Food Warehouse, headquartered in the metropolitan
Washington, D.C. area, operates 38 price impact warehouse-style
supermarkets. The stores average over 50,000 square feet in size,
with newer units in the 60,000 square foot range.
Metro was acquired in 1995 in connection with the Super Rite Acquisition. More
recently, Farm Fresh was acquired on March 4, 1998, and Shoppers was acquired on
May 18, 1998, shortly after the end of fiscal 1998. See "Business
Strategy--Pursuing Strategic Acquisitions."
The Company's three retail grocery chains operate distinct formats that are
targeted to specific marketing niches in their respective marketplaces. While
each chain retains its distinct format and marketing plan, management believes
that the Retail Division's geographic concentration will permit the Company to
consolidate administrative functions and take advantage of economies of scale.
Since completion of the Farm Fresh Acquisition and the Shoppers Acquisition, the
Company has begun consolidating certain administrative functions of its three
retail grocery chains, which the Company believes affords opportunities for
substantial cost savings through eliminating duplicative corporate and
administrative functions. The Company's Wholesale Division has also benefited
from increased incremental volume as a result of the Farm Fresh Acquisition and
the Shoppers Acquisition.
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Metro
The Company believes that the Metro format offers significant opportunities for
growth. Metro stores feature an expanded selection of higher-margin perishables
and prepared foods together with value-oriented dry groceries and in-store
banking facilities. In 1998, Metro was the second largest grocery retailer in
the Baltimore market. During fiscal 1998, the Retail Division improved and
expanded the Metro chain by opening one new store and remodeling and expanding a
second store, while entering the pharmacy business with the opening of four
"Metro Rx" in-store pharmacies. In addition, the Retail Division conducted a
comprehensive operational review of the entire Metro chain, which was designed
to identify ways to reduce operating costs without sacrificing customer service.
Management expects that changes in Metro's operations that are being implemented
as a result of this study will reduce Metro's costs and should
enhance its profitability.
The Company plans to continue to invest in the Metro chain, with four new store
openings planned for fiscal 1999 and three additional units planned for fiscal
2000, all to be located in the Baltimore, Maryland, market. The Company believes
that additional concentration of stores in the Baltimore market will permit
Metro to better leverage its infrastructure and its advertising and promotional
efforts, which should result in increased profitability.
Farm Fresh
Farm Fresh stores offer a full line of traditional grocery items, carry selected
higher margin non-food items and generally feature specialty departments such as
salad bars, delicatessens, floral shops, hot food shops, catering services,
bakeries, fresh seafood departments, video rentals and, in most cases,
pharmacies and full service branch banks. The stores' specialty departments
are designed to provide a high level of personal service. Rack & Sack stores
operate with higher volumes but with less customer service and lower margins
compared to Farm Fresh stores. To offer the lowest prices to customers, Rack &
Sack stores carry products purchased at large discounts, causing store
offerings to vary depending on product availability. The Company is in the
process of converting its existing Rack & Sack stores in the Hampton Roads
market to the Farm Fresh format.
The Company believes that Farm Fresh has developed a loyal customer base in the
Hampton Roads market over its 40 years of operation, with a reputation as a
market-leader in product variety, fresh meat, fresh produce and poultry. Old
Farm Fresh was subject to substantial capital restraints related to a leveraged
buy-out and, as a result, was unable to capitalize on the chain's strengths or
adequately maintain or expand its store base. Following the acquisition of Farm
Fresh by the Company, management plans to revitalize the chain's strengths
through increased customer services, enhanced advertising and promotion and an
aggressive store remodeling program. Management believes that initial customer
reaction to these new programs has been positive.
Shoppers Food Warehouse
Shoppers Food Warehouse stores are warehouse-style, price impact supermarkets
that are positioned to offer the lowest overall prices in their respective
market areas by passing on to the consumer the savings achieved through
operating efficiencies and lower overhead associated with the warehouse format,
while providing the product selection and quality associated with a conventional
format. By combining higher-end specialty departments with self-service and
discount price features, Shoppers believes that it has established a unique
niche among supermarket operators in the greater Washington, D.C. metropolitan
area. The Company intends to pursue growth and enhanced profitability for
Shoppers by providing additional customer services, aggressively pursuing
additional store sites and achieving acquisition-related synergies.
-8-
<PAGE>
Competition
The food distribution industry is highly competitive. The Company faces
competition from national, regional and local food distributors on the basis of
price, quality and assortment, frequency and reliability of deliveries and the
range and quality of services provided. In addition, the Company's customers and
its own Metro, Farm Fresh and Shoppers Food Warehouse stores compete with retail
supermarket chains that provide their own distribution function, purchasing
directly from producers and distributing products to their supermarkets for sale
to consumers.
The principal competitors of the Company's Wholesale Division include Fleming
Companies, Inc., SuperValu Inc., Nash Finch Company and Burris Foods, Inc. The
primary retail grocery competitors of the Company's wholesale customers and of
its Retail Division include Giant Food, Inc. based in Landover, Maryland, The
Great Atlantic & Pacific Tea Co., Weis Supermarkets, Inc., Safeway Inc., Food
Lion, Inc., Winn Dixie Stores, Inc., The Kroger Co., Harris Teeter, Inc.,
Wal-Mart Stores, Inc. and Hannaford Bros. Co.
The Company believes that it can compete successfully on the wholesale level
while supporting the competitive efforts of its customers by pursuing its
business strategy focused on reducing and controlling costs, increasing
efficiency and pursuing profitable growth. In particular, the Company enhances
its competitive position by using its purchasing power, low cost structure and
efficient distribution system to provide products to its customers at the lowest
available prices, while offering its customers a wide variety of services to
support their competitive position. In addition, the Company expects to continue
to pursue opportunities for customers to acquire additional stores that become
available within and adjacent to the Company's principal service area. The
Company believes that it can compete successfully on the retail level by
permitting its three retail grocery chains to use their distinct formats to
target specific marketing niches in their respective marketplaces, while
offering competitively priced goods to consumers as a result of the purchasing
power of the Company's Wholesale Division.
Employee Relations
Management believes that relations with the Company's associates are excellent.
At May 2, 1998, the Company employed approximately 778 salaried and 8,701
non-salaried associates, compared to 606 salaried and 4,545 non-salaried
associates employed at May 3, 1997.
The Company is party to a four-year collective bargaining agreement that expires
in April 2000 covering its transportation unit employees at the Mechanicsville,
Virginia, distribution center and a five-year collective bargaining agreement
that expires in June 2002 covering employees of its Metro retail chain. The
Company is also party to two four-year collective bargaining agreements, which
expire in July 2000 and September 2001, respectively, covering retail employees
of its Shoppers Food Warehouse chain. The Company is not a party to any other
collective bargaining agreements, nor is it aware of any pending union petitions
related to its employees.
Regulation
The Company is subject to federal, state and local laws and regulations
governing the processing, purchase, handling, sale and transportation of its
products. Management believes that the Company is in material compliance with
all federal, state and local laws and regulations governing its business.
Trademarks and Licenses
The Company owns or licenses various registered trademarks. Federal
registrations for the "RICHFOOD" and "ECON" trademarks have been obtained by the
Company for use on a variety of products distributed by the Company.
Certain Financial Information
Information with respect to the Company's sales, operating profit and financial
condition for each of its past five fiscal years appears in the "Selected
Consolidated Financial Data" referred to in Item 6 of this Form 10-K.
Information with respect to the Company's industry segments is included in Note
14 of the Notes to Consolidated Financial Statements referred to in Item 8 of
this Form 10-K. Information with respect to the Company's working capital
practices appears above under the captions "Business Strategy--Reducing and
Controlling Costs; Increasing Efficiency in Logistics and Distribution" and
"Wholesale Operations--Products and Purchasing," and in the "Financial Review"
referred to in Item 7 of this Form 10-K.
-9-
<PAGE>
ITEM 2. PROPERTIES
The Company's two principal operating facilities are Richfood/Virginia's 1.3
million square foot distribution center located in Mechanicsville, Virginia (the
"Mechanicsville Facility"), and Richfood/Pennsylvania's leased 635,000 square
foot automated distribution facility located in Harrisburg, Pennsylvania (the
"Harrisburg Facility").
The Mechanicsville Facility, one of the largest grocery distribution centers in
the country, is situated on a 400 acre site, of which only 100 acres are
currently utilized. Richfood also has a long-term lease for a 650,000 square
foot warehouse in Chester, Virginia. Richfood utilizes a portion of the Chester
warehouse primarily to accommodate opportunistic bulk purchases and for
additional seasonal storage capacity. The Chester warehouse, which formerly
served as a regional grocery distribution center, is available to supplement the
Mechanicsville Facility to accommodate additional growth.
The Harrisburg Facility is a 635,000 square foot state-of-the-art distribution
center that utilizes fully automated inventory handling equipment. During fiscal
1998, the Company entered into a synthetic lease transaction with respect to the
Harrisburg Facility. In that transaction, the Harrisburg Facility was sold by
the Company's former landlord to an unaffiliated entity, and the Company's
former lease (which expired in 2025) was terminated. The Company's new lease for
the Harrisburg Facility expires in 2003 and includes options to purchase
the facility or to refinance and extend the lease at the end of the initial
term. The Company also operates 160,000 square feet of refrigerated
warehouse space in neighboring Shiremanstown, Pennsylvania, under a lease that
expires in 2015, and 147,000 square feet of dry grocery warehouse space in
Harrisburg, Pennsylvania, under a lease that expires in 2002.
Norristown operates a 150,000 square foot refrigerated produce distribution
center under a lease that expires in 1999. Such lease term may be extended, at
Norristown's option, for an additional year.
The Richfood Dairy, located in Richmond, Virginia, is a 65,000 square foot
facility capable of processing and packaging over 800,000 gallons per week of
milk and other dairy products, fruit juices, bottled water and related items.
This facility is owned by Richfood.
The Company's Retail Division operates approximately 100 retail grocery store
sites in its Mid-Atlantic operating region. Nine of these retail locations are
owned by the Company, with all but one of the remaining stores leased on a
long-term basis with lease terms, including options, typically averaging 10 to
30 years.
Each of the foregoing facilities is well-maintained and in good operating
condition. The Company believes that each of its facilities has adequate
capacity to meet the demands of anticipated growth.
During fiscal 1998, the Company decided to sell Rotelle's 6.3 million cubic
foot automated frozen food distribution center located in West Point,
Pennsylvania. See "Business--Wholesale Operations."
ITEM 3. LEGAL PROCEEDINGS
The Company is party to various legal actions that are incidental to its
business. While the outcome of legal actions cannot be predicted with certainty,
the Company believes that the outcome of any of these proceedings, or all of
them combined, will not have a material adverse effect on its consolidated
financial position or business.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons are executive officers of the Company. Officers serve at
the discretion of the Company's Board of Directors and are elected at each
annual meeting of the Board of Directors.
John E. Stokely, age 45, has served as Chairman of the Board, President and
Chief Executive Officer of the Company since June 1998. Mr. Stokely was formerly
President and Chief Executive Officer of the Company from January 1997 until
June 1998, after serving as President and Chief Operating Officer of the Company
from June 1995 to December 1996. Mr. Stokely was formerly Executive Vice
President-Finance and Administration of the Company from August 1993 to June
1995, Senior Vice President-Finance and Chief Financial Officer of the Company
from April 1991 to August 1993 and Vice President-Finance and Chief Financial
Officer of the Company from August 1990 to April 1991.
John C. Belknap, age 51, was elected Executive Vice President, Chief Financial
Officer and Secretary of the Company in July 1997. Mr. Belknap formerly served
as Executive Vice President and Chief Financial Officer of OfficeMax, Inc., an
office products superstore chain, from December 1995 to June 1997, and as
Executive Vice President and Chief Financial Officer of Zale Corporation, a
retail jewelry store chain, from February 1994 to February 1995. From January
1990 to January 1994 and from February 1995 to December 1995, Mr. Belknap was an
independent financial consultant. From January 1989 to May 1993, Mr. Belknap
also was a director of, and consultant to, Finlay Enterprises, Inc., an operator
of leased fine jewelry departments in major department stores nationwide.
Gary W. Bittner, age 50, was elected President and Chief Operating Officer of
the Company's Richfood/Virginia division in March 1997. Mr. Bittner formerly
served as Regional Vice President of McLane Company, a distributor to
convenience stores, since 1992.
Dale S. Conklin, age 49, was elected President and Chief Operating Officer of
the Company's Richfood/ Pennsylvania division in 1998. Mr. Conklin formerly
served as operating group president of the Minneapolis, Minnesota, LaCrosse,
Wisconsin and Superior, Wisconsin, divisions of Fleming Companies, Inc.
(1996-1997) and division president of the Columbus, Ohio, division of Fleming
Companies, Inc./Scrivner Group (1991-1996).
Alec C. Covington, age 41, was elected President - Wholesale Operations of the
Company in November 1997. Mr. Covington formerly served as Executive Vice
President and Chief Operating Officer - Wholesale Operations of the Company from
January 1997 to November 1997, President and Chief Operating Officer of
Richfood, Inc. from May 1996 to December 1996 and Executive Vice President and
Chief Operating Officer of Richfood, Inc. from October 1995 to May 1996. Prior
to his employment by the Company, Mr. Covington served as President and Chief
Operating Officer of Houchens Industries, Inc. from June 1993 to October 1995,
and as President of the Quincy, Florida division of SuperValu Inc. and President
of the Greenville, Kentucky division of Wetterau, Inc. from 1990 to 1993.
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<PAGE>
Ronald E. Dennis, age 53, was elected President of Farm Fresh in March 1998.
Mr. Dennis formerly served as president of Kash n' Karry Supermarkets (1997) and
division vice president in charge of the Florida division of Albertsons, Inc.
(1977-1997).
David W. Hoover, age 35, was elected Vice President - Finance of the Company in
August 1993. Mr. Hoover formerly served as Director - Planning and Analysis of
the Company from December 1990 to August 1993.
John D. Ryder, age 50, was elected President and Chief Operating Officer of the
Company's Metro chain in October 1995, after serving as President and Chief
Operating Officer of the retail division of Super Rite Foods, Inc. since 1990.
William J. White, age 51, was elected President of Shoppers in September 1997.
Mr. White formerly served as President of Mega Foods from 1995 to 1997 and
President of Piggly Wiggly from 1987 to 1994.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Although the Company
believes that its expectations are based on reasonable assumptions, it can give
no assurance that its goals or strategies will be achieved. Important factors
that could cause actual results to differ materially from those reflected in the
forward looking statements made herein are detailed in Exhibit 99.1 hereto, and
other risks and uncertainties may be detailed from time to time in the Company's
future filings with the Securities and Exchange Commission.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is listed on the New York Stock Exchange and
trades under the symbol "RFH". As of June 25, 1998, there were 1,469 holders of
record of the Company's Common Stock. The information set forth under the
headings "Market Price Range" and "Cash Dividends Declared Per Common Share" and
in the final paragraph of Note 15 of the Notes to Consolidated Financial
Statements, which appears in the Company's Annual Report to Shareholders for
Fiscal 1998 (the "1998 Annual Report"), is incorporated herein by reference.
The Company has paid cash dividends on its Common Stock since September 1991.
The Company expects to continue paying cash dividends on its Common Stock when
justified by the Company's financial condition. The amount of future dividends,
if any, will depend on general business conditions encountered by the Company,
its earnings, financial condition and capital requirements and such other
factors as the Board of Directors of the Company may deem relevant.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing under the caption "Selected Consolidated Financial
Data," which appears in the 1998 Annual Report, is incorporated herein by
reference.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information appearing under the caption "Financial Review," which appears in
the 1998 Annual Report, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and related notes of Richfood Holdings,
Inc. and its subsidiaries, together with the report of Ernst & Young LLP
thereon, which appear in the 1998 Annual Report, are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not required to be included in this Form 10-K in accordance with instruction 1
to Item 304 of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained in the Company's Proxy Statement prepared for use in
connection with the 1998 annual meeting of shareholders (the "1998 Proxy
Statement") under the captions "Nominees for Election to the Board of
Directors," "Board of Directors and Committees" and "Section 16(a) Beneficial
Ownership Reporting Compliance" is incorporated herein by reference. See also
"Executive Officers" at the end of Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the 1998 Proxy Statement under the caption
"Executive Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the 1998 Proxy Statement under the caption
"Security Ownership of Certain Beneficial Owners and Management" is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the 1998 Proxy Statement under the captions
"Certain Relationships and Related Transactions" is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial statements, financial statement schedules and exhibits included in
this Form 10-K:
1. Financial Statements:
The following consolidated financial statements and
independent auditors' report, which appear on pages 18 through
34 of the 1998 Annual Report, are incorporated herein by
reference:
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<PAGE>
Report of Ernst & Young LLP.
Richfood Holdings, Inc. Consolidated Balance Sheets
at May 2, 1998 and May 3, 1997.
Richfood Holdings, Inc. Consolidated Statements of
Earnings for the fiscal years ended May 2, 1998, May
3, 1997 and April 27, 1996.
Richfood Holdings, Inc. Consolidated Statements of
Shareholders' Equity for the fiscal years ended May
2, 1998, May 3, 1997 and April 27, 1996.
Richfood Holdings, Inc. Consolidated Statements of
Cash Flows for the fiscal years ended May 2, 1998,
May 3, 1997 and April 27, 1996.
Notes to Consolidated Financial Statements.
In addition, the report of KPMG Peat Marwick LLP, which is
referred to in the report of Ernst & Young LLP, is filed
herewith as a Financial Statement Schedule.
2. Financial Statement Schedules:
Report of KPMG Peat Marwick LLP
Schedule II Valuation and Qualifying Accounts.
The report of Ernst & Young LLP on Schedule II is included in
the consent filed as Exhibit 23.1 hereto. Schedules other than
those listed above have been omitted because such schedules
are not required or are not applicable.
3. Exhibits:
The exhibits that are required to be filed or incorporated by
reference herein are listed in the Exhibit Index. Exhibits
10.1 to 10.12 hereto constitute management contracts or
compensatory plans or arrangements required to be filed as
exhibits hereto.
(b) Reports on Form 8-K:
1. Current Report on Form 8-K, dated March 4, 1998, reporting (under Item
2 thereof) the acquisition of substantially all of the assets
and assumption of certain liabilities of Farm Fresh, Inc. and
filing (under Item 7 thereof) certain historical financial
statements of the business acquired.
2. Current Report on Form 8-K, dated March 4, 1998, reporting (under Item
5 thereof) the Company's intention to close its West Point,
Pennsylvania, frozen food distribution facility.
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<PAGE>
[LOGO] PEAT MARWICK LLP
Independent Auditors' Report
The Board of Directors and Shareholders
Richfood Holdings, Inc.:
We have audited the consolidated statements of earnings, shareholders' equity
and cash flows of Richfood Holdings, Inc. and subsidiaries for the fiscal year
ended April 27, 1996. In connection with our audit of the consolidated financial
statements, we also have audited the financial statement schedule as listed in
the accompanying index for the fiscal year ended April 27, 1996. The
consolidated financial statements and financial statement schedule give effect
to the merger on October 15, 1995 of a wholly-owned subsidiary of Richfood
Holdings, Inc. with and into Super Rite Corporation, which has been accounted
for using the pooling of interests method as described in note 2 to the
consolidated financial statements. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Richfood Holdings, Inc. and subsidiaries for the fiscal year ended April 27,
1996, in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Richmond, Virginia
June 10, 1996
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<PAGE>
SCHEDULE II
RICHFOOD HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning of Costs and Deductions End of
Description Fiscal Year Expenses and other Fiscal Year
----------- ------------ ---------- ---------- -----------
<S> <C>
For Fiscal Year Ended
May 2, 1998
Deducted from asset accounts:
Allowance for doubtful accounts $5,331 $4,148 $4,432 $5,047
For Fiscal Year Ended
May 3, 1997
Deducted from asset accounts:
Allowance for doubtful accounts 5,573 4,241 4,483 5,331
For Fiscal Year Ended
April 27, 1996
Deducted from asset accounts:
Allowance for doubtful accounts 4,744 6,197 5,368 5,573
</TABLE>
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
RICHFOOD HOLDINGS, INC.
(Registrant)
By /s/ John E. Stokely
-------------------------
July 31, 1998 John E. Stokely
Chairman of the Board,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated.
<TABLE>
<S> <C>
By /s/ John E. Stokely By /s/ Albert F. Sloan
------------------------------ --------------------------
John E. Stokely Albert F. Sloan
Chairman of the Board, President and Chief Director
Executive Officer
By /s/ Donald D. Bennett By /s/ George H.Thomazin
---------------------------------- ----------------------------
Donald D. Bennett George H. Thomazin
Director Director
By /s/ Roger L. Gregory By /s/ James E. Ukrop
------------------------------- -------------------------
Roger L. Gregory James E. Ukrop
Director Director
By /s/ Grace E. Harris By /s/ Edward Villanueva
------------------------------ -----------------------------
Grace E. Harris Edward Villanueva
Director Director
By /s/ John C. Jamison By /s/ John C. Belknap
------------------------------- --------------------------
John C. Jamison John C. Belknap
Director Executive Vice President and
Chief Financial Officer
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
By /s/ G. Gilmer Minor, III By /s/ David W. Hoover
--------------------------------- --------------------------
G. Gilmer Minor, III David W. Hoover
Director Vice President - Finance
(Principal Accounting Officer)
By /s/ Claude B. Owen, Jr.
------------------------------
Claude B. Owen, Jr.
Director
By /s/ John F. Rotelle
----------------------------
John F. Rotelle
Director
</TABLE>
Each of the above signatures is affixed as of July 31, 1998.
-18-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
2.1 Asset Purchase Agreement, dated as of November 26, 1997, by and among Farm
Fresh, Inc., the Company and FF Acquisition, L.L.C. (1)
2.2 Agreement and Plan of Merger, dated April 9, 1998, among
the Company, DGC Acquisition, Inc. and Dart Group
Corporation. (2) The Registrant agrees to furnish
supplementally to the Securities and Exchange Commission,
upon request, copies of any schedules and exhibits to the
foregoing exhibits that are not filed herewith in
accordance with Item 601(b)(2) of Regulation S-K.
3.1 Amended and Restated Articles of Incorporation of the Company. (3)
3.2 Bylaws of the Company, as amended and restated through June 18, 1998.
10.1 Employment and Severance Benefits Agreement, dated as of April 28, 1996, between
the Company and Donald D. Bennett. (4)
10.2 Employment and Severance Benefits Agreement, dated as of April 28, 1996, between
the Company and John E. Stokely. (4)
10.3 Benefits Continuation Agreement, dated as of April 22, 1998, between the Company
and John E. Stokely.
10.4 Employment Agreement, dated October 13, 1995, between Super Rite Corporation and
John D. Ryder. (4)
10.5 Employment and Severance Benefits Agreement, dated as of
October 6, 1997, between the Company and Ronald E. Dennis.
10.6 Amended and Restated Long-Term Incentive Plan. (5)
10.7 Amended and Restated Omnibus Stock Incentive Plan. (5)
10.8 Amendment to the Amended and Restated Omnibus Stock Incentive Plan. (6)
10.9 Non-Employee Directors' Stock Option Plan. (7)
10.10 Supplemental Executive Retirement Plan and related Trust Agreement. (8)
10.11 Executive Officer Performance Plan. (9)
10.12 Super Rite Corporation 1991 Omnibus Stock Incentive Plan. (10)
10.13 Lease Agreement, dated as of April 20, 1998, between Atlantic Financial Group,
Ltd., as Lessor, and Super Rite Foods, Inc., as Lessee.
10.14 Lease, dated November 1, 1977, originally made between
Safe-Chester Associates, as lessor, and Safeway Stores,
Incorporated, as lessee, as assigned to Richfood.
(11)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.15 Supply Agreement, dated as of August 3, 1997, between Richfood, Inc. and
Ukrop's Super Markets, Inc.
11.1 Statement re computation of net earnings per common share. (12)
12.1 Statement re computation of certain ratios.
13.1 Portions of Richfood Holdings, Inc.'s 1998 Annual Report to Shareholders.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule.
99.1 Cautionary Statements for Purposes of the Safe Harbor Provisions of the
Securities Litigation Reform Act of 1995.
</TABLE>
The Registrant agrees to furnish to the Securities and Exchange Commission, upon
request, copies of those agreements defining the rights of holders of long-term
debt of the Registrant and its subsidiaries that are not filed herewith pursuant
to Item 601(b)(4)(iii) of Regulation S-K.
- --------------------
(1) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended October 18, 1997 (Commission File No.
1-16900).
(2) Incorporated by reference to the Company's Tender Offer Statement on
Schedule 14D-1 dated April 15, 1998 (Commission File No. 5-31136).
(3) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the twelve week period ended July 24, 1993 (Commission File
No. 0-16900).
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended April 27, 1996 (Commission File No. 0-16900).
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended April 30, 1994 (Commission File No. 0-16900).
(6) Incorporated by reference to the Appendix to the Company's Definitive
Proxy Statement on Schedule 14A dated July 30, 1997 (Commission File
No. 1-16900).
(7) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended April 29, 1995 (Commission File No. 0-16900).
(8) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended May 2, 1992 (Commission File No. 0-16900).
(9) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended April 28, 1990 (Commission File No. 0-16900).
<PAGE>
(10) Incorporated by reference to the Company's Registration Statement on
Form S-8 (Commission File No. 33-63447).
(11) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended April 30, 1988 (Commission File No. 0-16900).
(12) Set forth in footnote nine to the Company's Consolidated Financial
Statements, which are incorporated by reference in Part II, Item 8
hereof.
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
RICHFOOD HOLDINGS, INC.
(amended and restated Through June 18, 1998)
ARTICLE I.
Meetings of Shareholders.
1.1 Places of Meetings. All meetings of the shareholders shall be
held at such place, either within or without the Commonwealth of Virginia, as
from time to time may be fixed by the Board of Directors.
1.2 Annual Meetings. Subject to the Board of Directors' ability to
postpone a meeting under Virginia law, the annual meeting and all other meetings
of shareholders shall be held on such date and at such time and place as may be
fixed by the Board of Directors and stated in the notice of the meeting. The
annual meeting shall be held for the purpose of electing Directors and for the
transaction of only such other business as is properly brought before the
meeting in accordance with these bylaws. To be properly brought before an annual
meeting, business must be (i) specified in the notice of annual meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
otherwise properly brought before the annual meeting by or at the direction of
the Board of Directors, or (iii) otherwise properly brought before the annual
meeting by a shareholder. In addition to any other applicable requirements for
business to be properly brought before an annual meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the Secretary.
To be timely, a shareholder's notice must be in writing and delivered or mailed
to and received by the Secretary not less than sixty (60) days before the first
anniversary of the date of the Corporation's proxy statement in connection with
the last annual meeting. A shareholder's notice to the Secretary shall set forth
as to each matter the shareholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of the shareholder proposing such business, (iii)
the class, series and number of the Corporation's shares that are beneficially
owned by the shareholder, and (iv) any material interest of the shareholder in
such business. Notwithstanding anything in these bylaws to the contrary, no
business shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 1.2; provided, however, that nothing in
this Section 1.2 shall be deemed to preclude discussion by any shareholder of
any business properly brought before the annual meeting. In the event that a
shareholder attempts to bring business before an annual meeting without
complying with the provisions of this Section 1.2, the chairman of the meeting
shall declare to the shareholders present at the meeting that the business was
not properly brought before the meeting in accordance with the foregoing
procedures, and such business shall not be transacted.
1.3 Special Meetings. A special meeting of the shareholders for any
purpose or purposes may be called at any time by the Chairman of the Board, the
Vice-Chairman of the Board or the Chief Executive Officer or by a majority of
the Board of Directors. At a special meeting no business shall be transacted and
no corporate action shall be taken other than that stated in the notice of the
meeting.
1.4 Notice of Meetings. Written or printed notice stating the place,
day and hour of every meeting of the shareholders and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
mailed not less than ten nor more than sixty days before the date of the meeting
to each shareholder of record entitled to vote at such meeting, at his address
which appears in the share transfer books of the Corporation. Such further
notice shall be given as may be required by law, but meetings may be held
without notice if all the shareholders entitled to vote at the meeting are
present in person or by proxy or if notice is waived in writing by those not
present, either before or after the meeting.
1.5 Quorum. Any number of shareholders together holding at least a
majority of the votes entitled to be cast by a voting group with respect to the
business to be transacted, who shall be present in person or represented by
proxy at any meeting duly called, shall constitute a quorum of that voting group
for the transaction of business. If less than a quorum shall be in attendance at
the time for which a meeting shall have been called, the meeting may be
adjourned from time to time by a majority of the shareholders present or
represented by proxy without notice other than by announcement at the meeting.
1.6 Voting. At any meeting of the shareholders each shareholder of a
class entitled to vote on any matter coming before the meeting shall, as to such
matter, have that number of votes specified in the Articles of Incorporation, in
person or by proxy, for each share of capital stock of such class standing in
his name on the books of the Corporation on the date, not more than seventy days
prior to such meeting, fixed by the Board of Directors as the record date for
the purpose of determining shareholders entitled to vote. Every proxy shall be
in writing, dated and signed by the shareholder entitled to vote or his duly
authorized attorney-in-fact.
1.7 Inspectors. An appropriate number of inspectors for any meeting
of shareholders may be appointed by the Chairman of such meeting. Inspectors so
appointed will open and close the polls, will receive and take charge of proxies
and ballots and will decide all questions as to the qualifications of voters,
validity of proxies and ballots and the number of votes properly cast.
<PAGE>
ARTICLE II.
Directors.
2.1 General Powers. The property, affairs and business of the
Corporation shall be managed under the direction of the Board of Directors, and,
except as otherwise expressly provided by law, the Articles of Incorporation or
these bylaws, all of the powers of the Corporation shall be vested in such
Board.
2.2 Number of Directors. The number of Directors constituting the
Board of Directors shall be twelve (12)(1), and shall be subject to change as
provided in the Articles of Incorporation.
- --------
(1) The Board of Directors has amended Section 2.2, effective as of August
20, 1998, to reduce the number of Directors to eleven (11).
<PAGE>
2.3 Election and Removal of Directors; Quorum.
(a) Directors shall be elected at each annual meeting
of shareholders to succeed those Directors whose terms have expired and to
fill any vacancies then existing.
(b) Directors shall hold their offices for terms of one
year and until their successors are elected.
(c) Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of the majority of the remaining Directors
though less than a quorum of the Board, and the term of office of any Director
so elected shall expire at the next annual meeting of shareholders and when his
successor is elected.
(d) A majority of the number of Directors elected and
serving shall constitute a quorum for the transaction of meeting at which a
quorum is present shall be the act of the Board of Directors. Less than a quorum
may adjourn any meeting.
(e) Subject to any rights of holders of preferred
shares, only persons who are nominated in accordance with the procedures set
forth in this Section 2.3(e) shall be eligible for election as Directors. Notice
of nominations made by shareholders entitled to vote for the election of
Directors shall be received in writing by the Secretary not less than fifty (50)
nor more than seventy-five (75) days before the first anniversary of the date of
the Corporation's proxy statement in connection with the last meeting of
shareholders called for the election of Directors. Each notice shall set forth
(i) the name, age, business address and, if known, residence address of each
nominee proposed in such notice, (ii) the principal occupation or employment of
each such nominee, and (iii) the number and class of capital shares of the
Corporation beneficially owned by each such nominee. The Secretary shall deliver
all such notices to the Corporation's Nominating Committee, or such other
committee as may be appointed by the Board of Directors from time to time for
such propose, for review. The Nominating Committee shall thereafter make its
recommendation with respect to nominees to the Board of Directors. The chairman
of any meeting of shareholders called for the election of Directors may, if the
facts warrant, determine that a nomination was not made in accordance with the
foregoing procedures, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
(f) No person shall be elected or re-elected as a
Director if at the time of any proposed election or re-election he or she shall
have attained the age of seventy (70) years.
2.4 Chairman and Vice Chairmen of the Board. The Board at its annual
meeting shall elect a Chairman of the Board and may elect one or more
Vice-Chairmen of the Board, each of whom shall hold office until the next annual
meeting and until their successors are elected. The Chairman and any
Vice-Chairman may be removed summarily with or without cause, at any time, by
the Board. Vacancies in such positions may be filled by the Board of Directors.
2.5 Meetings of Directors. An annual meeting of the Board of
Directors shall be held as soon as practicable after the adjournment of the
annual meeting of shareholders at such place as the Board may designate. Other
meetings of the Board of Directors shall be held at places within or without the
Commonwealth of Virginia and at times fixed by resolution of the Board, or upon
call of the Chairman of the Board, any Vice-Chairman of the Board, the Chief
Executive Officer or any one of the Directors. The Secretary or officer
performing the Secretary's duties shall give not less than twenty-four hours'
notice by letter, telegraph or telephone (or in person) of all meetings of the
Board of Directors, provided that notice need not be given of the annual meeting
or of regular meetings held at times and places fixed by resolution of the
Board. Meetings may be held at any time without notice if all of the Directors
are present, or if those not present waive notice in writing either before or
after the meeting. The notice of meetings of the Board need not state the
purpose of the meeting.
2.6 Compensation of Directors. Directors, as such, shall not receive
any stated salary for their services, except that, by resolution of the Board of
Directors, Directors may be paid (i) a retainer in an amount determined by the
Board of Directors for their services as such, (ii) an additional retainer in an
amount determined by the Board of Directors for their services as Chairman of
the Board of Directors or chairman of any special or standing committee of the
Board of Directors, and (iii) a fixed sum and expenses for attendance at each
regular, adjourned, or special meeting of the Board of Directors or any special
or standing committee thereof. Nothing herein contained shall be construed to
preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefor.
2.7 Director Emeritus. The Board of Directors may from time to time
elect one or more Directors Emeritus. Unless otherwise determined by the Board
of Directors, the election of a Director Emeritus shall continue in effect for
the remainder of his or her life. The Chairman of the Board and the Chief
Executive Officer may, at their election, call upon any Director Emeritus from
time to time for advice and consultation on matters of importance to the
Corporation and the Chairman of the Board or the Chief Executive Officer may, on
special occasions, invite any Director Emeritus to attend meetings of the Board
of Directors. In order that the position may be solely an honorary one carrying
with it no obligation for the performance of any specific duties, the provisions
pertaining to Directors contained in the Articles of Incorporation of the
Corporation and in these Bylaws shall not apply to any Director Emeritus.
Directors Emeritus shall not be entitled to receive any compensation from the
Corporation for serving in such capacity.
ARTICLE III.
Committees.
3.1 Executive Committee. The Board of Directors, by resolution
adopted by a majority of the number of Directors fixed in accordance with these
bylaws, may elect an Executive Committee which shall consist of not less than
two Directors, including the Chief Executive Officer. When the Board of
Directors is not in session, the Executive Committee shall have all power vested
in the Board of Directors by law, by the Articles of Incorporation or by these
bylaws, provided that the Executive Committee shall not have power to (i)
approve or recommend to shareholders action that the Virginia Stock Corporation
Act requires to be approved by shareholders; (ii) fill vacancies on the Board or
on any of its committees; (iii) amend the Articles of Incorporation pursuant to
' 13.1-706 of the Virginia Code; (iv) adopt, amend, or repeal the bylaws; (v)
approve a plan of merger not requiring shareholder approval; (vi) authorize or
approve a distribution, except according to a general formula or method
prescribed by the Board of Directors; or (vii) authorize or approve the issuance
or sale or contract for sale of shares, or determine the designation and
relative rights, preferences, and limitations of a class or series of shares,
other than within limits specifically prescribed by the Board of Directors. The
Executive Committee shall report at the next regular or special meeting of the
Board of Directors all action which the Executive Committee may have taken on
behalf of the Board since the last regular or special meeting of the Board of
Directors.
3.2 Audit Committee. The Board of Directors, by resolution adopted by
a majority of the number of Directors fixed in accordance with these bylaws,
shall elect an Audit Committee which shall consist of not less than three
Directors; provided, however, that a majority (and not less than three) of the
Directors constituting the Audit Committee shall be neither (i) officers or
employees of the Corporation or any of its subsidiaries, nor (ii) Affiliates of
any of the Corporation's Customers or any such Customers' subsidiaries. In
addition, the composition of the Committee shall comply with the requirements of
any listing agreement of any securities exchange or association to which the
Corporation is a party. At the time of election of the Committee, the Board of
Directors shall designate (or, in the absence of such designation by the Board,
the members of the Committee shall designate) one of the members of the
Committee to be its Chairman to serve until a successor is designated and
serving. The duties and responsibilities of the Audit Committee shall be set
forth in an Audit Committee Charter which shall be adopted by the Board of
Directors and which may be amended by the Board from time to time.
3.3 Other Committees. The Board of Directors, by resolution adopted
by a majority of the number of Directors fixed in accordance with these bylaws,
may establish such other standing or special committees of the Board as it may
deem advisable, consisting of not less than two Directors. The members, terms
and authority of such committees shall be as set forth in the resolutions
establishing the same.
3.4 Meetings. Regular and special meetings of any Committee
established pursuant to this Article may be called and held subject to the same
requirements with respect to time, place and notice as are specified in these
bylaws for regular and special meetings of the Board of Directors.
3.5 Quorum and Manner of Acting. A majority of the members of any
Committee serving at the time of any meeting thereof shall constitute a quorum
for the transaction of business at such meeting. The action of a majority of
those members present at a Committee meeting at which a quorum is present shall
constitute the act of the Committee.
3.6 Term of Office. Members of any Committee shall be elected as
above provided and shall hold office until their successors are elected by the
Board of Directors or until such Committee is dissolved by the Board of
Directors.
3.7 Resignation and Removal. Any member of a Committee may resign at
any time by giving written notice of his intention to do so to the Chief
Executive Officer or the Secretary of the Corporation, or may be removed, with
or without cause, at any time by such vote of the Board of Directors as would
suffice for his election.
3.8 Vacancies. Any vacancy occurring in a Committee resulting from
any cause whatever may be filled by a majority of the number of Directors fixed
by these bylaws.
<PAGE>
ARTICLE IV.
Officers.
4.1 Election of Officers; Terms. The officers of the Corporation
shall consist of a Chairman of the Board, a Chief Executive Officer, a
President, a Secretary and a Treasurer or Chief Financial Officer. The officers
of the Corporation shall consist of a Chief Executive Officer, a President, a
Secretary and a Treasurer or Chief Financial Officer. Other officers, including
one or more Vice-Presidents (whose seniority and titles, including Executive
Vice-Presidents and Senior Vice-Presidents, may be specified by the Board of
Directors), and assistant and subordinate officers, may from time to time be
elected by the Board of Directors. All officers shall hold office until the next
annual meeting of the Board of Directors and until their successors are elected.
The Chief Executive Officer shall be chosen from among the Directors. The same
individual may simultaneously hold more than one office as the Board of
Directors may determine.
4.2 Removal of Officers; Vacancies. Any officer of the Corporation
may be removed summarily with or without cause, at any time, by the Board of
Directors. Vacancies may be filled by the Board of Directors.
4.3 Duties. The officers of the Corporation shall have such duties as
generally pertain to their offices, respectively, as well as such powers and
duties as are prescribed by law or are hereinafter provided or as from time to
time shall be conferred by the Board of Directors. The Board of Directors may
require any officer to give such bond for the faithful performance of his duties
as the Board may see fit.
4.4 Duties of the Chief Executive Officer. The Chief Executive
Officer shall be primarily responsible for the implementation of policies of the
Board of Directors. He shall have authority over the general management and
direction of the business and operations of the Corporation and its divisions,
if any, subject only to the ultimate authority of the Board of Directors. He
shall be a director, and, except as otherwise provided in these bylaws or in the
resolutions establishing such committees, he shall be ex officio a member of all
Committees of the Board. In the absence of the Chairman and any Vice-Chairman of
the Board, or if there are no such officers, the Chief Executive Officer shall
preside at all corporate meetings. He may sign and execute in the name of the
Corporation share certificates, deeds, mortgages, bonds, contracts or other
instruments except in cases where the signing and the execution thereof shall be
expressly delegated by the Board of Directors or by these bylaws to some other
officer or agent of the Corporation or shall be required by law otherwise to be
signed or executed. In addition, he shall perform such other duties as from time
to time may be assigned to him by the Board of Directors.
4.5 Duties of the President. The President shall have such powers and
duties as may from time to time be assigned to him by the Chief Executive
Officer or the Board of Directors. The President may sign and execute in the
name of the Corporation deeds, mortgages, bonds, contracts or other instruments
authorized by the Board of Directors, except where the signing and execution of
such documents shall be expressly delegated by the Board of Directors or the
Chief Executive Officer to some other officer or agent of the Corporation or
shall be required by law otherwise to be signed or executed. In addition, he
shall perform such other duties as from time to time may be assigned to him by
the Board of Directors.
4.6 Duties of the Vice-Presidents. Each Vice-President, if any, shall
have such powers and duties as may from time to time be assigned to him by the
Chief Executive Officer, the President or the Board of Directors. Any
Vice-President may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts or other instruments authorized by the Board of
Directors, except where the signing and execution of such documents shall be
expressly delegated by the Board of Directors, the Chief Executive Officer or
the President to some other officer or agent of the Corporation or shall be
required by law otherwise to be signed or executed.
4.7 Duties of the Treasurer or Chief Financial Officer. The Treasurer
or Chief Financial Officer shall have charge of and be responsible for all
funds, securities, receipts and disbursements of the Corporation, and shall
deposit all monies and securities of the Corporation in such banks and
depositories as shall be designated by the Board of Directors. He shall be
responsible (i) for maintaining adequate financial accounts and records in
accordance with generally accepted accounting practices; (ii) for the
preparation of appropriate operating budgets and financial statements; (iii) for
the preparation and filing of all tax returns required by law; and (iv) for the
performance of all duties incident to the office of treasurer and such other
duties as from time to time may be assigned to him by the Board of Directors,
the Audit Committee, the Chief Executive Officer or the President. The Treasurer
or Chief Financial Officer may sign and execute in the name of the Corporation
share certificates, deeds, mortgages, bonds, contracts or other instruments,
except in cases where the signing and the execution thereof shall be expressly
delegated by the Board of Directors or by these bylaws to some other officer or
agent of the Corporation or shall be required by law otherwise to be signed or
executed.
4.8 Duties of the Secretary. The Secretary shall act as secretary of
all meetings of the Board of Directors and shareholders of the Corporation. When
requested, he shall also act as secretary of the meetings of the committees of
the Board. He shall keep and preserve the minutes of all such meetings in
permanent books. He shall see that all notices required to be given by the
Corporation are duly given and served; shall have custody of the seal of the
Corporation and shall affix the seal or cause it to be affixed to all share
certificates of the Corporation and to all documents the execution of which on
behalf of the Corporation under its corporate seal is duly authorized in
accordance with law or the provisions of these bylaws; shall have custody of all
deeds, leases, contracts and other important corporate documents; shall have
charge of the books, records and papers of the Corporation relating to its
organization and management as a Corporation; shall see that all reports,
statements and other documents required by law (except tax returns) are properly
filed; and shall in general perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors, the Chief Executive Officer or the President.
4.9 Compensation. The Board of Directors shall have authority to fix
the compensation of all officers of the Corporation.
ARTICLE V.
Capital Stock.
5.1 Certificates. The shares of capital stock of the Corporation
shall be evidenced by certificates in forms prescribed by the Board of Directors
and executed in any manner permitted by law and stating thereon the information
required by law. Transfer agents and/or registrars for one or more classes of
shares of the Corporation may be appointed by the Board of Directors and may be
required to countersign certificates representing shares of such class or
classes. If any officer whose signature or facsimile thereof shall have been
used on a share certificate shall for any reason cease to be an officer of the
Corporation and such certificate shall not then have been delivered by the
Corporation, the Board of Directors may nevertheless adopt such certificate and
it may then be issued and delivered as though such person had not ceased to be
an officer of the Corporation.
5.2 Lost, Destroyed and Mutilated Certificates. Holders of the shares
of the Corporation shall immediately notify the Corporation of any loss,
destruction or mutilation of the certificate therefor, and the Board of
Directors may in its discretion cause one or more new certificates for the same
number of shares in the aggregate to be issued to such shareholder upon the
surrender of the mutilated certificate or upon satisfactory proof of such loss
or destruction, and the deposit of a bond in such form and amount and with such
surety as the Board of Directors may require.
5.3 Transfer of Shares. The shares of the Corporation shall be
transferable or assignable only on the books of the Corporation by the holder in
person or by attorney on surrender of the certificate for such shares duly
endorsed and, if sought to be transferred by attorney, accompanied by a written
power of attorney to have the same transferred on the books of the Corporation.
The Corporation will recognize, however, the exclusive right of the person
registered on its books as the owner of shares to receive dividends and to vote
as such owner.
5.4 Fixing Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purpose, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than seventy
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If no record date is fixed for
the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notices of the meeting are mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof unless the Board of Directors fixes a new
record date, which it shall do if the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting.
ARTICLE VI.
Miscellaneous Provisions.
6.1 Seal. The seal of the Corporation shall consist of a flat-faced
circular die, of which there may be any number of counterparts, on which there
shall be engraved the word "Seal" and the name of the Corporation.
6.2 Fiscal Year. The fiscal year of the Corporation shall end on such
date and shall consist of such accounting periods as may be fixed by the Board
of Directors.
6.3 Checks, Notes and Drafts. Checks, notes, drafts and other orders
for the payment of money shall be signed by such persons as the Board of
Directors from time to time may authorize. When the Board of Directors so
authorizes, however, the signature of any such person may be a facsimile.
6.4 Amendment of Bylaws. Unless proscribed by the Articles of
Incorporation, these bylaws may be amended or altered at any meeting of the
Board of Directors by affirmative vote of a majority of the number of Directors
fixed by these bylaws. The shareholders entitled to vote in respect of the
election of Directors, however, shall have the power to rescind, amend, alter or
repeal any bylaws and to enact bylaws which, if expressly so provided, may not
be amended, altered or repealed by the Board of Directors.
6.5 Voting of Shares Held. Unless otherwise provided by resolution of
the Board of Directors or of the Executive Committee, if any, the Chief
Executive Officer may from time to time appoint an attorney or attorneys or
agent or agents of the Corporation, in the name and on behalf of the
Corporation, to cast the vote which the Corporation may be entitled to cast as a
shareholder or otherwise in any other corporation, any of whose securities may
be held by the Corporation, at meetings of the holders of the shares or other
securities of such other corporation, or to consent in writing to any action by
any such other corporation; and the Chief Executive Officer shall instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent and may execute or cause to be executed on behalf of the
Corporation, and under its corporate seal or otherwise, such written proxies,
consents, waivers or other instruments as may be necessary or proper in the
premises. In lieu of such appointment the Chief Executive Officer may himself
attend any meetings of the holders of shares or other securities of any such
other corporation and there vote or exercise any or all power of the Corporation
as the holder of such shares or other securities of such other corporation.
6.6 Charter Definition of "Customer". The term "Customer", as used in
Article III, Section (B)(3)(a)(vi) of the Company's Articles of Incorporation,
shall mean any person engaged in the sale of grocery products that utilizes the
Company or the Company's subsidiaries as its primary source of supply for such
products. The determination of whether a person utilizes the Company or the
Company's subsidiaries as its primary source of supply shall initially be made
by the officers of the Company and shall be reflected in the books and records
of the Company; provided, that the Board of Directors shall retain the power
pursuant to Article III, Section (B)(3)(b) of the Articles of Incorporation to
determine whether any person is or has ceased to be a Customer.
ARTICLE VII.
Emergency Bylaws.
The emergency bylaws provided in this Article VII shall be operative
during any emergency, notwithstanding any different provision in the preceding
Articles of these bylaws or in the Articles of Incorporation of the Corporation
or in the Virginia Stock Corporation Act (other than those provisions relating
to emergency bylaws). An emergency exists if a quorum of the Corporation's Board
of Directors cannot readily be assembled because of some catastrophic event. To
the extent not inconsistent with these emergency bylaws, the bylaws provided in
the preceding Articles shall remain in effect during such emergency and upon the
termination of such emergency the emergency bylaws shall cease to be operative
unless and until another such emergency shall occur.
During any such emergency:
(a) Any meeting of the Board of Directors may be
called by any officer of the Corporation or by any Director. The notice
thereof shall specify the time and place of the meeting. To the extent feasible,
notice shall be given in accord with Section 2.5 above, but notice may be given
only to such of the Directors as it may be feasible to reach at the time, by
such means as may be feasible at the time, including publication or radio, and
at a time less than twenty-four hours before the meeting if deemed necessary by
the person giving notice. Notice shall be similarly given, to the extent
feasible, to the other persons referred to in (b) below.
(b) At any meeting of the Board of Directors, a quorum
shall consist of a majority of the number of Directors fixed at the time in
accordance with Article II of the bylaws. If the Directors present at any
particular meeting shall be fewer than the number required for such quorum,
other persons present as referred to below, to the number necessary to make up
such quorum, shall be deemed Directors for such particular meeting as determined
by the following provisions and in the following order of priority:
(i) the President, if not already serving as a
Director;
(ii) Vice-Presidents not already serving as
Directors, in the order of their seniority of first election to such offices,
or if two or more shall have been first elected to such offices on the same day,
in the order of their seniority in age;
(iii) All other officers of the Corporation in the
order of their seniority of first election to such offices, or if two or more
shall have been first elected to such offices on the same day, in the order of
their seniority in age; and
(iv) Any other persons that are designated on a list
that shall have been approved by the Board of Directors before the emergency,
such persons to be taken in such order of priority and subject to such
conditions as may be provided in the resolution approving the list.
(c) The Board of Directors, during as well as before any
such emergency, may provide, and from time to time modify, lines of succession
in the event that during such an emergency any or all officers or agents of the
Corporation shall for any reason be rendered incapable of discharging their
duties.
(d) The Board of Directors, during as well as before any
such emergency, may, effective in the emergency, change the principal office, or
designate several alternative offices, or authorize the officers so to do.
No officer, Director or employee shall be liable for action taken in
good faith in accordance with these emergency bylaws.
These emergency bylaws shall be subject to repeal or change by
further action of the Board of Directors or by action of the shareholders,
except that no such repeal or change shall modify the provisions of the next
preceding paragraph with regard to action or inaction prior to the time of such
repeal or change. Any such amendment of these emergency bylaws may make any
further or different provision that may be practical and necessary for the
circumstances of the emergency.
EXHIBIT 10.3
BENEFITS CONTINUATION AGREEMENT
BENEFITS CONTINUATION AGREEMENT (the "Agreement"), dated as of April
22, 1998, between RICHFOOD HOLDINGS, INC., a Virginia corporation (the
"Company"), and JOHN E. STOKELY (the "Employee").
WHEREAS, the Company and the Employee are parties to an Employment and
Severance Benefits Agreement dated as of April 28, 1996 (the "Employment
Agreement"); and
WHEREAS, in recognition of the Employee's substantial contributions to
the Company's record financial and operating results, and in light of the
Company's expectation that the Employee will continue to make substantial
contributions to the Company's future growth and prospects, the Company and the
Employee desire to memorialize certain agreements as set forth herein.
NOW, THEREFORE, in consideration of the premises and intending to be
legally bound, the parties hereto covenant and agree as follows:
1. Post-Employment Benefits. The Company agrees to provide for
the benefit of the Employee, upon the termination of the Employee's employment
with the Company for any reason other than for Cause (as defined in the
Employment Agreement): (a) coverage under life insurance policies consistent
with those currently provided for the benefit of the Employee through age 65;
and (b) coverage under such medical and dental plans as is generally provided
from time to time to the Company's executive employees until the Employee's
death (or, if the Employee is not entitled to participate in such plans under
the terms thereof following the termination of his employment, then under third
party arrangements that provide substantially comparable coverage); provided,
however, that the Company agrees to pay the Employee's portion of the premiums
for all such coverage. The Company's obligation to provide continued coverage in
accordance with the foregoing sentence shall be subject to mitigation to the
extent, and for such periods, that substantially similar coverage is provided by
any successor employer.
2. Relationship to Employment Agreement. This Agreement is
intended to supersede the provisions of Section 7 of the Employment Agreement.
Except for such Section 7, the Employment Agreement remains in full force and
effect in accordance with its terms.
3. Successors; Binding Agreement. (a) The Company will require
any successor (whether direct or indirect, by purchase,
<PAGE>
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as defined herein and any successor
to its business and/or assets that executes and delivers the agreement provided
for in this Section 3 or that otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by the personal or legal representatives, executors, administrators,
successors, heirs, distributees, devises and legatees of the Employee.
4. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Employee and such officer as may be
specifically designated by the Board of Directors of the Company. No waiver by
either party hereto at any time of any breach by the other party hereof of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. This Agreement
constitutes the entire agreement, and supersedes all prior agreements and
understandings, between the parties with respect to the subject matter hereof.
No agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the Commonwealth of Virginia.
5. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
duly executed on its behalf, and the Employee has duly executed this Agreement,
all as of the date first above written.
RICHFOOD HOLDINGS, INC.
By: /s/ Albert F. Sloan
----------------------------
Albert F. Sloan
Chairman, Executive
Compensation Committee
of the Board of Directors
EMPLOYEE:
/s/ John E. Stokely
-----------------------------
JOHN E. STOKELY
EXHIBIT 10.5
EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT
EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT (the "Agreement"), dated as
of October 6, 1997, between RICHFOOD HOLDINGS, INC., a Virginia corporation (the
"Company"), and RONALD E. DENNIS (the "Employee").
WHEREAS, the Company expects that the Employee will make substantial
contributions to the future growth and prospects of the Company's Retail
Division; and
WHEREAS, the Company desires to obtain the services of the Employee;
and
WHEREAS, the Employee desires to be employed by the Company and to
remain in the employ of the Company during the term of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto covenant and agree
as follows:
1. Definitions. When used in this Agreement, the following terms
shall have the meanings specified:
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(a) Cause. "Cause", when referring to a termination of
employment, shall mean: (i) conviction by a court of competent jurisdiction for
a felony; (ii) breach of any material obligation to the Company under any
material agreement concerning any term of employment; or (iii) willful or gross
neglect of duties to the Company (other than by reason of illness or temporary
disability short of Disability) or willful or gross misconduct in the
performance of such duties. All determinations as to whether a termination of
employment is for Cause shall be made in good faith by the Board of Directors of
the Company and shall be binding on the parties hereto.
(b) Change in Control. A "Change in Control" of the
Company shall be deemed to have occurred if: (i) any "person" (as such term is
used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended) becomes the beneficial owner, directly or indirectly, of securities of
the Company representing more than 50% of the aggregate voting power of all
classes of the Company's then-outstanding voting securities; or (ii) the
shareholders of the Company approve (A) a plan of merger, consolidation or share
exchange between the Company and an entity other than a direct or indirect
wholly-owned subsidiary of the Company, or (B) a proposal with respect to the
sale, lease, exchange or other disposal of all, or substantially all, of the
Company's property.
(c) Disability. "Disability" shall mean a condition,
determined on the basis of medical evidence satisfactory to a physician
designated by the Board of Directors of the Company, rendering the Employee, due
to bodily injury or disease or mental illness, unable to perform the duties
pertaining to his employment with the Company on a full-time basis for 180
consecutive days.
2. Term. This Agreement shall continue in full force and effect
for two (2) years following the date first above written (the "Term").
3. Employment by the Company. The Company hereby employees the
Employee to assist in the management of its Retail Division and with
transitional matters related to its planned acquisition of Farm Fresh, Inc.
("Farm Fresh"), it being understood that it is the intention of the parties that
the Employee will be elected President of Farm Fresh upon completion of such
acquisition, with a job description, responsibilities and duties commensurate
with that position. Notwithstanding the foregoing, the parties agree that the
Company may terminate the Employee's employment hereunder at any time
(including, without limitation, upon the Company's failure to complete the
planned acquisition of Farm Fresh), subject to the provisions of Section 5
hereof, it being expressly understood that this Agreement is not intended to
alter the at-will nature of the Company's employment of the Employee. In
consideration of the Company's obligations under this Agreement, the Employee
agrees that (i) he will not voluntarily leave the employ of the Company during
the Term of this Agreement, and (ii) he will devote his full business time and
attention to service to the Company and its subsidiaries commensurate with his
position throughout the Term of this Agreement.
4. Compensation. (a) During the Term of this Agreement and
unless the Employee's employment has been earlier terminated, the Company agrees
to: (i) pay the Employee as compensation for his services an annual base salary
in the amount of Two Hundred Seventy-Five Thousand Dollars ($275,000) per year,
payable in equal periodic installments (less any amounts permitted or required
to be deducted or withheld under applicable law) not less frequently than
monthly; (ii) permit the Employee to participate in the Company's executive
officer annual performance plan, with a participation level of 35% of his base
salary (it being understood that the Employee's award for the first year of his
participation shall be not less than $50,000); (iii) permit the Employee to
participate in such long-term incentive compensation programs as the Company may
make generally available to its executive employees from time to time; (iv)
provide for the benefit of the Employee such vacation, pension and disability
benefits as are, and such coverage under life, accident, medical and dental
plans as is, generally provided from time to time to executive employees of the
Company; and (v) provide the Employee with an automobile consistent with those
provided by the Company to its other executive officers with similar titles and
responsibilities.
(b) As soon as practicable after the date of this
Agreement, the Company shall grant to the Employee, pursuant to the Company's
Omnibus Stock Incentive Plan, 20,000 non-qualified stock options, with
one-fourth of such options to become exercisable on each of the first four
anniversaries of such grant, and with exercise price for such options to equal
the closing price of the Company's Common Stock on the date of this Agreement as
reported on the New York Stock Exchange Composite Tape. Such grant shall be
made pursuant to a form of agreement, and subject to terms and conditions,
currently in effect for such plan and for grants to the Company's executive
officers generally.
5. Termination of Employment; Severance.
(a) By the Company For Cause. The Company may terminate
the Employee's employment under this Agreement at any time for Cause by delivery
of written notice of termination to the Employee (which notice shall specify in
reasonable detail the basis upon which such termination is made). In the event
the Employee's employment is terminated for Cause, all provisions of this
Agreement (other than Sections 6, 7 and 9 through 17 hereof) and the Term shall
be terminated. Upon any such termination, the Employee shall be entitled only
to payment of his earned and unpaid salary to the date of termination, any
earned and unpaid bonus under the Company's executive officer annual performance
plan (or such comparable successor program that may be in effect from time to
time) for the prior year, unreimbursed business and entertainment expenses in
accordance with the Company's policy, and unreimbursed medical, dental and other
employee benefit expenses incurred in accordance with the Company's employee
benefit plans (hereinafter referred to as the "Standard Termination Payments").
(b) Upon Death or Disability. If the Employee dies, all
provisions of this Agreement (other than Sections 6 and 9 through 17 hereof, and
other than rights or benefits arising as a result of such death) and the Term
shall be automatically terminated; provided, however, that the Standard
Termination Payments, together with additional salary payments equal to and in
lieu of the Employee's accrued and unused vacation, shall be paid to the
Employee's surviving spouse or, if none, his estate, and the death benefits
under the Company's employee benefit plans shall be paid in accordance with the
terms of the individual plans. If the Employee becomes Disabled, either the
Company or the Employee may terminate this Agreement and the Term at any time
thereafter. In such event, the Employee shall be entitled to receive his normal
compensation hereunder through the date of such termination, and shall
thereafter be entitled to receive the Standard Termination Payments, together
with additional salary payments equal to and in lieu of the Employee's accrued
and unused vacation and such disability and other employee benefits as may be
provided under the terms of the Company's employee benefit plans.
(c) By the Company Without Cause.
(i) The Company may terminate the Employee's
employment under this Agreement without Cause, and other than by reason of his
death or Disability, by sending written notice of termination to the Employee,
which notice shall specify a date not more than ninety (90) days after the date
of such notice as the effective date of such termination (the "Termination
Date"). From the date of such notice through the Termination Date, the Employee
shall continue to perform the normal duties of his employment hereunder, and
shall be entitled to receive when due all compensation and benefits applicable
to the Employee hereunder. Promptly following the Termination Date, the Company
shall pay the Standard Termination Payments to the Employee. In addition, as a
severance benefit the Company shall continue to pay the Employee his base salary
(as in effect on the Termination Date) from the Termination Date through the
expiration of the Term (which salary shall be paid in a manner consistent with
the Company's payroll practices as in effect on the Termination Date). The
Employee shall have no obligation whatsoever to mitigate any damages, costs or
expenses suffered or incurred by the Company with respect to the severance
obligations set forth in this Section 5(c)(i) and, except as set forth in
subsection (ii) of this Section, no such severance payments received or
receivable by the Employee shall be subject to any reduction, offset, rebate or
repayment as a result of any subsequent employment or other business activity by
the Executive.
(ii) Following any termination of the Employee's
employment pursuant to this Section 5(c), the Company shall also be obligated to
provide continued coverage under the Company's medical, dental and life
insurance benefit plans or arrangements with respect to the Employee from the
Termination Date through the expiration of the Term (or, if the Employee is not
eligible for continuing coverage under the terms of such plans or arrangements,
the Company shall provide substantially similar coverage on an individual basis
for such period). The Company's obligation to provide continued benefits
coverage in accordance with this Section 5(c)(ii) shall be subject to mitigation
to the extent that substantially similar benefits are provided by any successor
employer during such continuation period.
(d) By the Employee. The Employee may terminate his
employment, and any further obligations which Employee may have to perform
services on behalf of the Company hereunder at any time after the date hereof,
by sending written notice of termination to the Company not less than ninety
(90) days prior to the effective date of such termination. During such ninety
(90) day period, the Employee shall continue to perform the normal duties of his
employment hereunder, and shall be entitled to receive when due all compensation
and benefits applicable to the Employee hereunder. Except as provided below, if
the Employee elects to terminate his employment hereunder (other than as a
result of Disability), then the Employee shall be entitled to receive the
Standard Termination Payments, but the Company shall have no further obligation
to make payments or provide benefits to the Employee. Anything in this
Agreement to the contrary notwithstanding, the termination of the Employee's
employment by the Employee within one year after a Change in Control of the
Company shall be deemed to be a termination of the Employee's employment without
Cause by the Company for purposes of this Agreement, and the Employee shall be
entitled to the payments and benefits set forth in Section 5(c) above.
6. Confidentiality. (a) Except as specifically authorized by the
Company in writing, from the date hereof and continuing forever, the Employee
agrees not to (i) disclose any trade secrets or confidential information to any
individual or entity, or otherwise permit any person or entity to obtain or
disclose any trade secrets or confidential information, or (ii) use any trade
secrets or confidential information for the Employee's own financial gain,
whether individually or on behalf of another individual or entity. For purposes
hereof, the phrase "trade secrets and confidential information" means any and
all information relating to any part of the business of the Company or the
business of any affiliate of the Company, provided to the Employee or to which
the Employee has had access, which information is not a matter of public record
or generally known to the public, including, without limitation: (i) financial
information regarding the Company or any affiliate of the Company; (ii)
personnel data, including compensation arrangements, relating to any employee of
the Company or any affiliate of the Company; (iii) internal plans, practices and
procedures of the Company or any affiliate of the Company; (iv) the names,
addresses and requirements of any customers of the Company or any affiliate of
the Company; (v) any other information expressly deemed confidential by the
officers or directors of the Company; and (vi) the terms and conditions of any
supply agreements and other agreements, documents and instruments to which the
Company or any of its affiliates are parties.
(b) All writings, records and other documents and things containing
any trade secrets or confidential information in the Employee's custody or
possession shall be the exclusive property of the Company, shall not be copied
and/or removed from the premises of the Company, except in pursuit of the
business of the Company, and shall be delivered to the Company, without
retaining any copies, upon the termination of the Employee's employment or at
any time as requested by the Company.
7. Non-competition Agreement. In consideration of the Company's
agreement to employ the Employee upon the terms and conditions set forth in this
Agreement and the Company's agreement to pay severance benefits under certain
circumstances pursuant to Section 5(c) hereof, the Employee covenants and agrees
that during the Term hereof the Employee shall not, directly or indirectly: (a)
engage in or accept employment with (as a consultant or otherwise), own a
material interest in, or otherwise give assistance to, whether or not for
compensation, any person, firm or corporation (other than an affiliate of a
purchaser of, or successor to, the business of the Company) engaged in the
ownership or management of a business of the type conducted by the Company or
any of its subsidiaries within the geographical areas in which the Company or
any of its subsidiaries compete on the date of such termination; or (b) solicit
or recruit for employment any employee or independent contractor of the Company
or any of its subsidiaries. In the event of any breach of the provisions of
this Section by the Employee, the restrictions set forth herein shall be
extended by a period equal to the duration of such breach.
8. Reimbursement of Certain Expenses. The Company hereby agrees
promptly to reimburse the Employee for all reasonable legal fees and costs
incurred by him in the defense and settlement of that certain suit styled
[identify Food Lion suit].
9. Remedies. The parties hereto agree that each would suffer
irreparable harm from a breach by the other of any of the covenants or
agreements contained herein. Therefore, in the event of the actual or
threatened breach by either party hereto of any of the provisions of this
Agreement, the other party hereto may, in addition and supplementary to other
rights and remedies existing in favor of such party, apply to any court of law
or equity of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce or prevent any violation of the provisions
hereof.
10. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the Company and its affiliates and their successors
and assigns, and shall be binding upon and inure to the benefit of the Employee
and his legal representatives and assigns, provided that in no event shall the
Employee's obligations to perform services for the Company and its affiliates be
delegated or transferred by the Employee. The Company may assign or transfer its
rights hereunder to a successor corporation in the event of a merger,
consolidation or transfer or sale of all or substantially all of the assets of
the Company or of the Company's business (provided, however, that no such
assignment or transfer shall have the effect of relieving the Company of any
liability to the Employee hereunder or under any other agreement or document
contemplated herein), but only if such assignment or transfer does not result in
employment terms, conditions, duties or responsibilities which are or may be
materially different than the terms, conditions, duties or responsibilities of
the Employee hereunder.
11. Modification or Waiver. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be binding or effective for
any purpose unless it is made in a writing signed by the party against whom
enforcement of such amendment, modification, waiver, termination or cancellation
is sought. No course of dealing between or among the parties to this Agreement
shall be deemed to affect or to modify, amend or discharge any provision or term
of this Agreement. No delay on the part of the Company or the Employee in the
exercise of any of their respective rights or remedies shall operate as a waiver
thereof, and no single or partial exercise by the Company or the Employee of any
such right or remedy shall preclude other or further exercises thereof. A
waiver of a right or remedy on any one occasion shall not be construed as a bar
to or waiver of any such right or remedy on any other occasion.
12. Notice. For purposes of this Agreement, notice and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered by hand or by overnight courier
service, or when mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Company:
Richfood Holdings, Inc.
P. O. Box 26967
Richmond, Virginia 23261
Attention: President & Chief Executive Officer
with a copy to:
Gary E. Thompson, Esquire
Hunton & Williams
Riverfront Plaza - East Tower
951 E. Byrd Street
Richmond, VA 23219
If to the Employee:
to his address as reflected from time-to-time in the
personnel records of the Company.
Either party hereto may change its address for purposes of this Section by
furnishing written notice to the other party in accordance herewith, except that
notices of change of address shall be effective only upon receipt.
13. Governing Law; Jurisdiction. This Agreement and all rights,
remedies and obligations hereunder, including, but not limited to, matters of
construction, validity and performance shall be governed by the laws of the
Commonwealth of Virginia without regard to its conflict of laws principles or
rules. To the full extent lawful, each of the Company and the Employee hereby
consents irrevocably to personal jurisdiction, service and venue in connection
with any claim or controversy arising out of this Agreement in the courts of the
Commonwealth of Virginia located in Richmond, Virginia, and in the federal
courts in the Eastern District of Virginia.
14. Severability. Whenever possible each provision and term of
this Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision or term of this Agreement shall
be held to be prohibited by or invalid under such applicable law, then such
provision or term shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating or affecting in any manner whatsoever the
remainder of such provisions or term or the remaining provisions or terms of
this Agreement.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same Agreement.
16. Headings. The headings of the Sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part
hereof and shall not affect the construction or interpretation of this
Agreement.
17. Entire Agreement. This Agreement (together with all documents
and instruments referred to herein) constitutes the entire agreement, and
supersedes all other prior agreements and undertakings, both written and oral,
among the parties with respect to the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf, and the Employee has duly executed this Agreement, all
as of the date first above written.
RICHFOOD HOLDINGS, INC.
By: /s/ John E. Stokely
-------------------
John E. Stokely
President & Chief Executive
Officer
EMPLOYEE:
/s/ Ronald E. Dennis
--------------------
RONALD E. DENNIS
EXHIBIT 10.13
This instrument was prepared by
and upon recordation should be
returned to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Rex Palmer
=============================================================================
LEASE AGREEMENT
Dated as of April 20, 1998
between
ATLANTIC FINANCIAL GROUP, LTD., as Lessor,
and
SUPER RITE FOODS, INC., as Lessee
-------------------------------------------
==============================================================================
<PAGE>
|| TABLE OF CONTENTS
(Lease Agreement)
Page
ARTICLE I. DEFINITIONS............................................... 1
ARTICLE II. LEASE OF LEASED PROPERTY.................................. 1
Section 2.1 Acceptance and Lease of Property.......................... 1
Section 2.2 Acceptance Procedure...................................... 2
ARTICLE III. RENT..................................................... 2
Section 3.1 Basic Rent................................................ 2
Section 3.2 Supplemental Rent......................................... 2
Section 3.3 Method of Payment......................................... 2
Section 3.4 Late Payment.............................................. 3
Section 3.5 Net Lease; No Setoff, Etc................................. 3
Section 3.6 Certain Taxes............................................. 4
Section 3.7 Utility Charges........................................... 5
ARTICLE IV. WAIVERS................................................... 5
ARTICLE V. LIENS; EASEMENTS; PARTIAL CONVEYANCES...................... 6
ARTICLE VI. MAINTENANCE AND REPAIR;ALTERATIONS,
MODIFICATIONS AND ADDITIONS........................ 8
Section 6.1 Maintenance and Repair; Compliance
With Law............................................ 8
Section 6.2 Alterations............................................... 8
Section 6.3 Title to Alterations...................................... 8
ARTICLE VII. USE...................................................... 9
ARTICLE VIII. INSURANCE............................................... 9
ARTICLE IX. ASSIGNMENT AND SUBLEASING................................ 11
ARTICLE X. LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE............... 11
Section 10.1 Event of Loss...................................... 11
Section 10.2 Event of Taking.................................... 12
Section 10.3 Casualty........................................... 13
Section 10.4 Condemnation....................................... 13
Section 10.5 Verification of Restoration and
Rebuilding......................................... 13
Section 10.6 Application of Payments............................ 13
Section 10.7 Prosecution of Awards.............................. 15
Section 10.8 Application of Certain Payments Not Relating
to an Event of Taking.............................. 15
Section 10.9 Other Dispositions................................. 15
Section 10.10 No Rent Abatement.................................. 16
<PAGE>
ARTICLE XI. INTEREST CONVEYED TO LESSEE.............................. 16
ARTICLE XII. EVENTS OF DEFAULT....................................... 21
ARTICLE XIII. ENFORCEMENT............................................ 24
Section 13.1 Remedies........................................... 24
Section 13.2 Remedies Cumulative; Redemption Right;
No Waiver; Consents................................ 27
ARTICLE XIV.SALE, RETURN OR PURCHASE OF LEASED PROPERTY; RENEWAL .... 28
Section 14.1 Lessee's Option to Purchase........................ 28
Section 14.2 Conveyance to Lessee............................... 28
Section 14.3 Acceleration of Purchase Obligation................ 28
Section 14.4 Determination of Purchase Price.................... 29
Section 14.5 Purchase Procedure................................. 29
Section 14.6 Option to Remarket; Surrender Option............... 30
Section 14.7 Rejection of Sale.................................. 33
Section 14.8 Return of Leased Property.......................... 33
Section 14.9 Renewal............................................ 34
ARTICLE XV. LESSEE'S EQUIPMENT....................................... 34
ARTICLE XVI. RIGHT TO PERFORM FOR LESSEE............................. 35
ARTICLE XVII. MISCELLANEOUS.......................................... 35
Section 17.1 Reports............................................ 35
Section 17.2 Binding Effect; Successors and Assigns; Survival... 35
Section 17.3 Quiet Enjoyment.................................... 36
Section 17.4 Notices............................................ 36
Section 17.5 Severability....................................... 37
Section 17.6 Amendment; Complete Agreements..................... 37
Section 17.7 Construction....................................... 37
Section 17.8 Headings........................................... 37
Section 17.9 Counterparts....................................... 37
Section 17.10 GOVERNING LAW...................................... 38
Section 17.11 Discharge of Lessee's Obligations by
its Affiliates..................................... 38
Section 17.12 Liability of Lessor Limited........................ 38
Section 17.13 Estoppel Certificates.............................. 39
Section 17.14 No Joint Venture................................... 39
Section 17.15 No Accord and Satisfaction......................... 39
Section 17.16 No Merger.......................................... 39
Section 17.17 Survival........................................... 40
Section 17.18 Chattel Paper...................................... 40
Section 17.19 Time of Essence.................................... 40
Section 17.20 Recordation of Lease............................... 40
Section 17.21 Investment of Security Funds....................... 40
<PAGE>
APPENDICES AND EXHIBITS
APPENDIX A Defined Terms
EXHIBIT A Legal Description
||
<PAGE>
THIS LEASE AGREEMENT (as from time to time amended or supplemented, this
"Lease"), dated as of April 20, 1998, is between ATLANTIC FINANCIAL GROUP, LTD.,
a Texas limited partnership qualified to do business in Pennsylvania (together
with its successors and assigns hereunder, the "Lessor"), as Lessor, and SUPER
RITE FOODS, INC., a Delaware corporation qualified to do business in
Pennsylvania (together with its successors and permitted assigns hereunder, the
"Lessee"), as Lessee.
PRELIMINARY STATEMENT
A. Lessor will purchase from the Seller a parcel of real property to be
specified by Lessee, together with any improvements thereon.
B. Lessor desires to lease to Lessee, and Lessee desires to lease from
Lessor, such property.
In consideration of the mutual agreements herein contained and other good
and valuable consideration, the receipt and sufficiency of which are hereby
mutually acknowledged, Lessor and Lessee hereby agree as follows:
ARTICLE II.
DEFINITIONS
Terms used herein and not otherwise defined shall have the meanings
assigned thereto in Appendix A hereto for all purposes hereof.
ARTICLE III.
LEASE OF LEASED PROPERTY
Section III.1 On the Closing Date, Lessor, subject to the satisfaction or
waiver of the conditions set forth in Section 3 of the Master Agreement, hereby
agrees to accept delivery from the Seller on the Closing Date of the Land and
Buildings designated by Lessee to be delivered on the Closing Date pursuant to
the terms of the Master Agreement, and simultaneously to lease to Lessee
hereunder for the Lease Term, Lessor's interest in such Land and Buildings, and
Lessee hereby agrees, expressly for the direct benefit of Lessor, commencing on
the Closing Date for the Lease Term, to lease from Lessor Lessor's interest in
the Land and Buildings. The legal description of the Land is set forth on
Exhibit A hereto.
<PAGE>
Section III.2 Acceptance Procedure. Lessor hereby authorizes one or more
employees of Lessee, to be designated by Lessee, as the authorized
representative or representatives of Lessor to accept delivery on behalf of
Lessor of the Leased Property. Lessee hereby agrees that such acceptance of
delivery by such authorized representative or representatives and the execution
and delivery by Lessee on the Closing Date of this Lease shall, without further
act, constitute the irrevocable acceptance by Lessee of the Leased Property for
all purposes of this Lease and the other Operative Documents on the terms set
forth therein and herein, and that the Leased Property shall be deemed to be
included in the leasehold estate of this Lease and shall be subject to the terms
and conditions of this Lease as of the Closing Date. The demise and lease of the
Building pursuant to this Section 2.2 shall include any additional right, title
or interest in the Building which may at any time be acquired by Lessor, the
intent being that all right, title and interest of Lessor in and to the Building
shall at all times be demised and leased to Lessee hereunder.
ARTICLE IV.
RENT
Section IV.1 Basic Rent. Beginning with and including the first Payment
Date occurring after the Closing Date, Lessee shall pay to the Agent, as
assignee of Lessor, the Basic Rent for the Leased Property, in installments,
payable in arrears on each Payment Date during the Lease Term.
Section IV.2 Supplemental Rent. Lessee shall pay to the Agent (as assignee
of Lessor), or to whomever shall be entitled thereto as expressly provided
herein or in any other Operative Document, any and all Supplemental Rent within
five (5) Business Days of the date the same shall become due and payable and in
the event of any failure on the part of Lessee to pay any Supplemental Rent, the
Agent (as assignee of Lessor) shall have all rights, powers and remedies
provided for herein or by law or in equity or otherwise in the case of
nonpayment of Basic Rent. All Supplemental Rent to be paid pursuant to this
Section 3.2 shall be payable in the type of funds and in the manner set forth in
Section 3.3.
<PAGE>
Section IV.3 Method of Payment. Basic Rent shall be paid to the Agent, and
Supplemental Rent (including amounts due under Article XIV hereof) shall be paid
to the Agent (or to such Person as may be entitled thereto) or, in each case, to
such Person as the Agent (or such other Person) shall specify in writing to
Lessee, and at such place as the Agent (or such other Person) shall specify in
writing to Lessee, which specifications by the Agent shall be given by the Agent
at least five (5) Business Days prior to the due date therefor. Each payment of
Basic Rent and payments of Supplemental Rent hereunder shall be made by Lessee
prior to 12:00 p.m. (noon) Atlanta, Georgia time at the place of payment in
funds consisting of lawful currency of the United States of America which shall
be immediately available on the date when such payment shall be due, unless such
date shall not be a Business Day, in which case such payment shall be made on
the next succeeding Business Day.
Section IV.4 Late Payment. If any Basic Rent shall not be paid on the date
when due, Lessee shall pay to the Agent, as Supplemental Rent, interest (to the
maximum extent permitted by law) on such overdue amount from and including the
due date thereof to but excluding the Business Day of payment thereof at the
Overdue Rate.
<PAGE>
Section IV.5 Net Lease; No Setoff, Etc. This Lease is a net lease and
notwithstanding any other provision of this Lease, Lessee shall pay all Basic
Rent and Supplemental Rent, and all costs, charges, taxes (other than taxes and
other items covered by the exclusion described in Section 7.4(b) of the Master
Agreement), assessments and other expenses foreseen or unforeseen, for which
Lessee or any Indemnitee is or shall become liable by reason of Lessee's or such
Indemnitee's estate, right, title or interest in the Leased Property, or that
are connected with or arise out of the acquisition (except the initial costs of
purchase by Lessor of its interest in the Leased Property, which costs, subject
to the terms of the Master Agreement, shall be funded by the Funding Parties
pursuant to the Master Agreement), installation, possession, use, occupancy,
maintenance, ownership, leasing, repairs and rebuilding of, or addition to, the
Leased Property or any portion thereof, and any other amounts payable hereunder
and under the other Operative Documents without counterclaim, setoff, deduction
or defense and without abatement, suspension, deferment, diminution or
reduction, and Lessee's obligation to pay all such amounts throughout the Lease
Term is absolute and unconditional. The obligations and liabilities of Lessee
hereunder shall in no way be released, discharged or otherwise affected for any
reason, including without limitation: (a) any defect in the condition,
merchantability, design, quality or fitness for use of the Leased Property or
any part thereof, or the failure of the Leased Property to comply with all
Applicable Law, including any inability to occupy or use the Leased Property by
reason of such non-compliance; (b) any damage to, removal, abandonment, salvage,
loss, contamination of or Release from, scrapping or destruction of or any
requisition or taking of the Leased Property or any part thereof; (c) any
restriction, prevention or curtailment of or interference with any use of the
Leased Property or any part thereof including eviction; (d) any defect in title
to or rights to the Leased Property or any Lien on such title or rights or on
the Leased Property; (e) any change, waiver, extension, indulgence or other
action or omission or breach in respect of any obligation or liability of or by
Lessor, the Agent or any Lender; (f) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceedings
relating to Lessee, Lessor, any Lender, the Agent or any other Person, or any
action taken with respect to this Lease by any trustee or receiver of Lessee,
Lessor, any Lender, the Agent or any other Person, or by any court, in any such
proceeding; (g) any claim that Lessee has or might have against any Person,
including without limitation, Lessor, any vendor, manufacturer, contractor of or
for any Building or any part thereof, the Agent or any Lender; (h) any failure
on the part of Lessor to perform or comply with any of the terms of this Lease,
any other Operative Document or of any other agreement; (i) any invalidity or
unenforceability or illegality or disaffirmance of this Lease against or by
Lessee or any provision hereof or any of the other Operative Documents or any
provision of any thereof whether or not related to the Transaction; (j) the
impossibility or illegality of performance by Lessee, Lessor or both; (k) any
action by any court, administrative agency or other Governmental Authority; (l)
any restriction, prevention or curtailment of or interference with any use of
the Leased Property or any part thereof; or (m) any other occurrence whatsoever,
whether similar or dissimilar to the foregoing, whether or not Lessee shall have
notice or knowledge of any of the foregoing. Except as specifically set forth in
Article XIV or X of this Lease, this Lease shall be noncancellable by Lessee in
any circumstance whatsoever and Lessee, to the extent permitted by Applicable
Law, waives all rights now or hereafter conferred by statute or otherwise to
quit, terminate or surrender this Lease, or to any diminution, abatement or
reduction of Rent payable by Lessee hereunder. Each payment of Rent made by
Lessee hereunder shall be final and Lessee shall not seek or have any right to
recover all or any part of such payment from Lessor, the Agent, any Lender or
any party to any agreements related thereto for any reason whatsoever. Lessee
assumes the sole responsibility for the condition, use, operation, maintenance,
and management of the Leased Property and Lessor shall have no responsibility in
respect thereof and shall have no liability for damage to the property of either
Lessee or any subtenant of Lessee on any account or for any reason whatsoever,
other than solely by reason of Lessor's or its agent's (other than Lessee) or
employee's willful misconduct or gross negligence.
<PAGE>
Section IV.6 Certain Taxes. Without limiting the generality of Section
3.5, Lessee agrees to pay when due all real estate taxes, personal property
taxes, gross sales taxes, including any sales or lease tax imposed upon the
rental payments hereunder or under a sublease, occupational license taxes, water
charges, sewer charges, assessments of any nature and all other governmental
impositions and charges of every kind and nature whatsoever (the "tax(es)"),
when the same shall be due and payable without penalty or interest; provided,
however, that this Section shall not apply to any of the taxes and other items
covered by the exclusion described in Section 7.4(b) of the Master Agreement. It
is the intention of the parties hereto that, insofar as the same may lawfully be
done, Lessor shall be, except as specifically provided for herein, free from all
expenses in any way related to the Leased Property and the use and occupancy
thereof. Any tax relating to a fiscal period of any taxing authority falling
partially within and partially outside the Lease Term, shall be apportioned and
adjusted between Lessor and Lessee. Lessee covenants to furnish Lessor and the
Agent, upon the Agent's request, within forty-five (45) days after the last date
when any tax must be paid by Lessee as provided in this Section 3.6, official
receipts of the appropriate taxing, authority or other proof satisfactory to
Lessor, evidencing the payment thereof.
So long as no Event of Default has occurred and is continuing, Lessee may
defer payment of a tax so long as the validity or the amount thereof is
contested by Lessee with diligence and in good faith; provided, however, that
Lessee shall pay the tax in sufficient time to prevent delivery of a tax deed.
Such contest shall be at Lessee's sole cost and expense. Lessee covenants to
indemnify and save harmless Lessor, the Agent and each Lender from any actual
and reasonable costs or expenses incurred by Lessor, the Agent or any Lender as
a result of such contest.
Section IV.7 Utility Charges. Lessee agrees to pay or cause to be paid as
and when the same are due and payable all charges for gas, water, sewer,
electricity, lights, heat, power, telephone or other communication service and
any other utility services used, rendered or supplied to, upon or in connection
with the Leased Property.
<PAGE>
ARTICLE V.
WAIVERS
During the Lease Term, Lessor's interest in the Building(s) and the Land
is demised and let by Lessor "AS IS" subject to (a) the rights of any parties in
possession thereof, (b) the state of the title thereto existing at the time
Lessor acquired its interest in the Leased Property, (c) any state of facts
which an accurate survey or physical inspection might show (including the survey
delivered on the Closing Date), (d) all Applicable Law, and (e) any violations
of Applicable Law which may exist upon or subsequent to the commencement of the
Lease Term. LESSEE ACKNOWLEDGES THAT, ALTHOUGH LESSOR WILL OWN AND HOLD TITLE TO
THE LEASED PROPERTY, LESSOR IS NOT RESPONSIBLE FOR THE DESIGN, DEVELOPMENT,
BUDGETING AND CONSTRUCTION OF THE BUILDING(S) OR ANY ALTERATIONS. NEITHER
LESSOR, THE AGENT NOR ANY LENDER HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OR SHALL BE DEEMED TO HAVE ANY
LIABILITY WHATSOEVER AS TO THE VALUE, MERCHANTABILITY, TITLE, HABITABILITY,
CONDITION, DESIGN, OPERATION, OR FITNESS FOR USE OF THE LEASED PROPERTY (OR ANY
PART THEREOF), OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, WITH RESPECT TO THE LEASED PROPERTY (OR ANY PART THEREOF), ALL SUCH
WARRANTIES BEING HEREBY DISCLAIMED, AND NEITHER LESSOR, THE AGENT NOR ANY LENDER
SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN OR THE FAILURE
OF THE LEASED PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY APPLICABLE LAW,
except that Lessor hereby represents and warrants that the Leased Property is
and shall be free of Lessor Liens. As between Lessor and Lessee, Lessee has been
afforded full opportunity to inspect the Leased Property, is satisfied with the
results of its inspections of the Leased Property and is entering into this
Lease solely on the basis of the results of its own inspections and all risks
incident to the matters discussed in the two preceding sentences, as between
Lessor, the Agent or the Lenders on the one hand, and Lessee, on the other, are
to be borne by Lessee. The provisions of this Article IV have been negotiated,
and, except to the extent otherwise expressly stated, the foregoing provisions
are intended to be a complete exclusion and negation of any representations or
warranties by Lessor, the Agent or the Lenders, express or implied, with respect
to the Leased Property, that may arise pursuant to any law now or hereafter in
effect, or otherwise.
ARTICLE VI.
LIENS; EASEMENTS; PARTIAL CONVEYANCES
Lessee shall not directly or indirectly create, incur or assume, any Lien
on or with respect to the Leased Property, the title thereto, or any interest
therein, including any Liens which arise out of the possession, use, occupancy,
construction, repair or rebuilding of the Leased Property or by reason of labor
or materials furnished or claimed to have been furnished to Lessee, or any of
its contractors or agents or by reason of the financing of any personalty or
equipment purchased or leased by Lessee from third parties and not financed by
Lessor or Alterations constructed by Lessee, except, in all cases, Permitted
Liens.
<PAGE>
Notwithstanding the foregoing paragraph, at the request of Lessee, Lessor
(and Agent and the Lenders by accepting an assignment of this Lease) shall, from
time to time during the Lease Term and upon reasonable advance written notice
from Lessee, and receipt of the materials specified in the next succeeding
sentence, consent to and join in any (i) grant of easements, licenses, rights of
way and other rights in the nature of easements, including, without limitation,
utility easements to facilitate Lessee's use, development, construction, repair
and operation of the Leased Property, (ii) release or termination of easements,
licenses, rights of way or other rights in the nature of easements which are for
the benefit of the Land or the Building(s) or any portion thereof, (iii)
dedication or transfer of portions of the Land, not improved with a building,
for road, highway or other public purposes, (iv) execution of agreements for
ingress and egress and amendments to any covenants and restrictions affecting
the Land or the Building(s) or any portion thereof and (v) request to any
Governmental Authority for platting or subdivision or replatting or
resubdivision approval with respect to the Land or any portion thereof or any
parcel of land of which the Land or any portion thereof forms a part or a
request for any variance from zoning or other governmental requirements.
Lessor's obligations pursuant to the preceding sentence shall be subject to the
requirements that:
(a) any such action shall be at the sole cost and expense of Lessee
and Lessee shall pay all actual and reasonable out-of-pocket costs of Lessor,
the Agent and any Lender in connection therewith (including, without limitation,
the reasonable fees of attorneys, architects, engineers, planners, appraisers
and other professionals reasonably retained by Lessor, the Agent or any Lender
in connection with any such action),
(b) Lessee shall have delivered to Lessor and Agent a certificate of
a Responsible Officer of Lessee stating that
(1) such action will not cause the Leased Property, the Land
or any Building or any portion thereof to fail to comply in any material
respect with the provisions of this Lease or any other Operative
Documents, or in any material respect with Applicable Law; and
(2) except as to Alterations required by Applicable Law, such
action will not materially reduce the Fair Market Sales Value, utility or
useful life of the Leased Property, the Land or any Building nor Lessor's
interest therein; and
<PAGE>
(c) in the case of any release or conveyance, if Lessor, the Agent
or any Lender so reasonably requests, Lessee will cause to be issued and
delivered to Lessor and the Agent by the Title Insurance Company an endorsement
to the Title Policy pursuant to which the Title Insurance Company agrees that
its liability for the payment of any loss or damage under the terms and
provisions of the Title Policy will not be affected by reason of the fact that a
portion of the real property referred to in Schedule A of the Title Policy has
been released or conveyed by Lessor.
ARTICLE VII
MAINTENANCE AND REPAIR;
ALTERATIONS, MODIFICATIONS AND ADDITIONS
Section VII.1 Maintenance and Repair; Compliance With Law. Lessee, at its
own expense, shall at all times (a) maintain the Leased Property in good repair
and condition (subject to ordinary wear and tear), in accordance with prudent
industry standards for similar types of property located in the geographical
area where the Leased Property is located and, in any event, in no less a manner
as other similar office/warehouse buildings owned or leased by Lessee or its
Affiliates, (b) make all Alterations in accordance with, and maintain (whether
or not such maintenance requires structural modifications or Alterations) and
operate and otherwise keep the Leased Property in compliance in all material
respects with, all Applicable Laws and insurance requirements, and (c) make all
material repairs, replacements and renewals of the Leased Property or any part
thereof which may be required to keep the Leased Property in the condition
required by the preceding clauses (a) and (b). Lessee shall perform the
foregoing maintenance obligations regardless of whether the Leased Property is
occupied or unoccupied. Lessee waives any right that it may now have or
hereafter acquire to (i) require Lessor, the Agent or any Lender to maintain,
repair, replace, alter, remove or rebuild all or any part of the Leased Property
or (ii) make repairs at the expense of Lessor, the Agent or any Lender pursuant
to any Applicable Law or other agreements or otherwise. NEITHER LESSOR, THE
AGENT NOR ANY LENDER SHALL BE LIABLE TO LESSEE OR TO ANY CONTRACTORS,
SUBCONTRACTORS, LABORERS, MATERIALMEN, SUPPLIERS OR VENDORS FOR SERVICES
PERFORMED OR MATERIAL PROVIDED ON OR IN CONNECTION WITH ANY LEASED PROPERTY OR
ANY PART THEREOF. Neither Lessor, the Agent nor any Lender shall be required to
maintain, alter, repair, rebuild or replace the Leased Property in any way.
Section VII.2 Alterations. Lessee may, without the consent of Lessor, at
Lessee's own cost and expense, make Alterations which do not materially diminish
the value, utility or useful life of the Leased Property.
<PAGE>
Section VII.3 Title to Alterations. Title to all non-severable Alterations
and all Alternations required by Applicable Law or by any applicable insurance
policy shall without further act vest in Lessor (subject to Lessee's right to
remove trade fixtures, refrigeration equipment, racking, conveyor systems,
personal property, equipment and other severable Alterations not required by
Applicable Law or by any insurance policy which were not acquired with funds
advanced by Lessor or any Lender at a time when no Event of Default has occurred
and is continuing, title to all of which shall be vested in Lessee) and shall be
deemed to constitute a part of the Leased Property and be subject to this Lease.
Lessee shall be responsible for the repair of any damage caused by the removal
of any Alteration.
ARTICLE VIII.
USE
Lessee may use the Leased Property or any part thereof for its existing
use and any other lawful purpose, provided that such use does not materially
adversely affect the Fair Market Sales Value, utility, remaining useful life or
residual value of the Leased Property, and does not materially violate or
conflict with, or constitute or result in a material default under, any
Applicable Law or any insurance policy required hereunder. In the event Lessee's
use substantially changes the character of the Building in a manner or to an
extent that, in Lessor's or the Lenders' reasonable opinion, adversely affects
the Fair Market Sales Value and/or marketability of the Leased Property, Lessee
shall, upon the termination or expiration of this Lease, at Lessor's request,
restore the Leased Property to its general character at the Closing Date
(ordinary wear and tear excepted), unless Lessee has purchased the Leased
Property pursuant to the terms of this Lease. Lessee shall not commit or permit
any waste of the Leased Property or any material part thereof.
ARTICLE IX.
INSURANCE
(a) At any time during which any part of the Building or any
Alteration is under construction and as to any part of the Building or any
Alteration under construction, Lessee shall maintain, or cause to be maintained,
at its sole cost and expense, as a part of its blanket policies or otherwise,
"all risks" non-reporting completed value form of builder's risk insurance.
<PAGE>
(b) During the Lease Term, Lessee shall maintain, at its sole cost
and expense, insurance against loss or damage to any Building by fire and other
risks, including comprehensive boiler and machinery coverage, on terms and in
amounts no less favorable than insurance covering other similar properties owned
or leased by Lessee or its Affiliates, but in no event less than the replacement
cost of such Building from time to time.
(c) During the Lease Term, Lessee shall maintain, at its sole cost
and expense, commercial general liability insurance with respect to the Leased
Property. Such insurance shall be on terms and in amounts that are no less
favorable than insurance maintained by Lessee or its Affiliates with respect to
similar properties that it owns or leases, but in no event less than $3,000,000
per occurrence. Such insurance policies shall also provide that Lessee's
insurance shall be considered primary insurance. Nothing in this Article VIII
shall prohibit Lessor, the Agent or any Lender from carrying at its own expense
other insurance on or with respect to the Leased Property, provided that any
insurance carried by Lessor, the Agent or any Lender shall not prevent Lessee
from carrying the insurance required hereby.
(d) Each policy of insurance maintained by Lessee pursuant to
clauses (a) and (b) of this Article IX shall provide that all insurance proceeds
in respect of any loss or occurrence shall be adjusted by Lessee, except (a)
that with respect to any loss, the estimated cost of restoration of which is in
excess of $10,000,000, the adjustment thereof shall be subject to the prior
written approval of the Agent and the insurance proceeds therefor shall be paid
to the Agent for application in accordance with this Lease, and (b) if, and for
so long as an Event of Default exists, all losses shall be adjusted solely by,
and all insurance proceeds shall be paid solely to, the Agent for application
pursuant to this Lease.
(e) On the Closing Date, Lessee shall furnish Lessor with
certificates showing the insurance required under this Article VIII to be in
effect and naming Lessor, the Agent and the Lenders as additional insureds. Such
certificates shall include a provision for thirty (30) days' advance written
notice by the insurer to Lessor and the Agent in the event of cancellation or
expiration or nonpayment of premium with respect to such insurance, and shall
include a customary breach of warranty clause. Lessee shall provide evidence to
Lessor and the Agent that each insurance policy required by this Article VIII
has been renewed prior to the scheduled expiration date therefor.
(f) Each policy of insurance maintained by Lessee pursuant to this
Article VIII shall (1) contain the waiver of any right of subrogation of the
insurer against Lessor, the Agent and the Lenders, and (2) provide that in
respect of the interests of Lessor, the Agent and the Lenders, such policies
shall not be invalidated by any fraud, action, inaction or misrepresentation of
Lessee or any other Person acting on behalf of Lessee.
<PAGE>
(g) All insurance policies carried in accordance with this Article
VIII shall be maintained with insurers rated at least A by A.M. Best & Company,
and in all cases the insurer shall be qualified to insure risks in the State
where such Leased Property is located.
ARTICLE X.
ASSIGNMENT AND SUBLEASING
Lessee may not assign any of its right, title or interest in, to or under
this Lease, except as set forth in the following sentence. Lessee may assign
this Lease to the Guarantor or any Subsidiary (including a Person that becomes a
Subsidiary in connection with such assignment), without the consent of the
Funding Parties, or to any other Person consented to by the Funding Parties
(which consent shall not be unreasonably withheld, conditioned or delayed),
provided that in each case other than an assignment to the Guarantor, the
Guarantor shall have reaffirmed its obligations under the Guaranty in writing.
Lessee may sublease all or any portion of the Leased Property to any Person
without the consent of the Funding Parties, provided that (a) all obligations of
Lessee shall continue in full effect as obligations of a principal and not of a
guarantor or surety, as though no sublease had been made, such sublease shall be
expressly subject and subordinate to this Lease, the Loan Agreement and the
other Operative Documents, and each such sublease shall terminate on or before
the Lease Termination Date and (b) the Guarantor shall have reaffirmed its
obligations under the Guaranty in writing.
Except pursuant to an Operative Document, this Lease shall not be
mortgaged or pledged by Lessee, nor shall Lessee mortgage or pledge any interest
in the Leased Property or any portion thereof. Any such mortgage or pledge shall
be void.
<PAGE>
ARTICLE XI.
LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE
Section XI.1 Event of Loss. Any event (i) which would otherwise
constitute a Casualty during the Base Term, and (ii) which, in the good-faith
judgment of Lessee, renders repair and restoration of the Leased Property
impractical or uneconomical, and (iii) as to which Lessee, within sixty (60)
days after the occurrence of such event, delivers to Lessor an Officer's
Certificate notifying Lessor of such event and of such judgment, shall
constitute an "Event of Loss". In the case of any other event which constitutes
a Casualty, Lessee shall restore the Leased Property pursuant to Section 10.3.
If an Event of Loss other than an Event of Taking shall occur, Lessee shall pay
to Lessor on the next Payment Date occurring not less than 90 days following
delivery of the Officer's Certificate pursuant to clause (iii) above an amount
equal to the Lease Balance. Upon Lessor's receipt of such Lease Balance on such
date, Lessor shall cause Lessor's interest in the Leased Property to be conveyed
to Lessee in accordance with and subject to the provisions of Section 14.5
hereof; upon completion of such purchase, but not prior thereto, this Lease and
all obligations hereunder shall terminate, except with respect to obligations
and liabilities hereunder, actual or contingent, that have arisen or relate to
events occurring on or prior to such date of purchase, or which are expressly
stated herein to survive termination of this Lease.
Upon the consummation of the purchase of the Leased Property pursuant to
this Section 10.1, any proceeds derived from insurance required to be maintained
by Lessee pursuant to this Lease for the Leased Property remaining after payment
of such purchase price shall be paid over to, or retained by, Lessee or as it
may direct, and Lessor shall assign to Lessee, without warranty, all of Lessor's
rights to and interest in insurance required to be maintained by Lessee pursuant
to this Lease.
<PAGE>
Section XI.2 Event of Taking. Any event (i) which constitutes a
Condemnation of all of, or substantially all of, the Leased Property, or (ii)
(A) which would otherwise constitute a Condemnation, (B) which, in the
good-faith judgment of Lessee, renders restoration and rebuilding of the Leased
Property impossible, impractical or uneconomical, and (C) as to which Lessee,
within sixty (60) days after the occurrence of such event, delivers to Lessor an
Officer's Certificate notifying Lessor of such event and of such judgment, shall
constitute an "Event of Taking". In the case of any other event which
constitutes a Condemnation, Lessee shall restore and rebuild the Leased Property
pursuant to Section 10.4. If an Event of Taking shall occur, Lessee shall pay to
Lessor (1) on the next Payment Date occurring not less than ninety (90) days
after the occurrence of such Event of Taking, in the case of an Event of Taking
described in clause (i) above, or (2) on the next Payment Date occurring not
less than ninety (90) days after delivery of the Officer's Certificate pursuant
to clause (ii) above, in the case of an Event of Taking described in clause (ii)
above, an amount equal to the Lease Balance. Upon Lessor's receipt of such Lease
Balance on such date, Lessor shall cause Lessor's interest in the Leased
Property to be conveyed to Lessee in accordance with and subject to the
provisions of Section 14.5 hereof (provided that such conveyance shall be
subject to all rights of the condemning authority); upon completion of such
purchase, but not prior thereto, this Lease and all obligations hereunder shall
terminate, except with respect to obligations and liabilities hereunder, actual
or contingent, that have arisen or relate to events occurring on or prior to
such date of purchase, or which are expressly stated herein to survive
termination of this Lease.
Upon the consummation of the purchase of the Leased Property pursuant to
this Section 10.2, all Awards received by Lessor, after deducting any reasonable
costs incurred by Lessor in collecting such Awards, received or payable on
account of an Event of Taking with respect to the Leased Property during the
Lease Term shall be paid to Lessee, and all rights of Lessor in Awards not then
received shall be assigned to Lessee by Lessor.
Section XI.3 Casualty. If a Casualty shall occur and this Lease is not
terminated pursuant to Section 10.1, Lessee shall rebuild and restore the Leased
Property, and will complete the same prior to the Lease Termination Date,
regardless of whether insurance proceeds received as a result of such Casualty
are sufficient for such purpose, unless Lessee purchases the Leased Property in
accordance with the terms of this Lease.
Section XI.4 Condemnation. If a Condemnation shall occur and this Lease
is not terminated pursuant to Section 10.1, Lessee shall rebuild and restore the
Leased Property, and will complete the same prior to the Lease Termination Date,
unless Lessee purchases the Leased Property in accordance with the terms of this
Lease.
Section XI.5 Verification of Restoration and Rebuilding. In the event of
Casualty or Condemnation in excess of $10,000,000, to verify Lessee's compliance
with the foregoing Sections 10.3 and 10.4, Lessor, the Agent, the Lenders and
their respective authorized representatives may, upon five (5) Business Days'
prior notice to Lessee, make inspections of the Leased Property with respect to
(i) the extent of the Casualty or Condemnation and (ii) the restoration and
rebuilding of the Building and the Land. All actual and reasonable out-of-pocket
costs of such inspections incurred by Lessor, the Agent or any Lender will be
paid by Lessee promptly after written request. No such inspection shall
unreasonably interfere with Lessee's operations or the operations of any other
occupant of the Leased Property. None of the inspecting parties shall have any
duty to make any such inspection or inquiry and none of the inspecting parties
shall incur any liability or obligation by reason of making or not making any
such inspection or inquiry (other than for such inspecting party's gross
negligence or willful misconduct).
<PAGE>
Section XI.6 Application of Payments. All proceeds (except for payments
under insurance policies maintained other than pursuant to Article VIII of this
Lease) received at any time by Lessor, Lessee or the Agent from any Governmental
Authority or other Person with respect to any Condemnation or Casualty to the
Leased Property or any part thereof or with respect to an Event of Loss or an
Event of Taking, plus the amount of any payment that would have been due from an
insurer but for Lessee's self-insurance or deductibles ("Loss Proceeds"), shall
(except to the extent Section 10.9 applies) be applied as follows:
(a) In the event Lessee purchases the Leased Property pursuant to
Section 10.1 or Section 10.2, such Loss Proceeds shall be applied as set
forth in Section 10.1 or Section 10.2, as the case may be;
(b) In the event of a Casualty at such time when no Event of Default
has occurred and is continuing and Lessee is obligated to repair and
rebuild the Leased Property pursuant to Section 10.3, Lessee may, in good
faith and subsequent to the date of such Casualty, certify to Lessor and
to the applicable insurer that no Event of Default has occurred and is
continuing, in which event the applicable insurer shall pay the Loss
Proceeds to Lessee, unless the estimated cost of restoration exceeds
$10,000,000, in which case the Loss Proceeds shall be paid to the Agent,
and shall be promptly released to Lessee upon certification by Lessee to
Lessor and the Agent that Lessee has incurred costs in the amount
requested to be released for the repair and rebuilding of the Leased
Property (and any such funds remaining after completion of such repair and
rebuilding shall be released to Lessee);
(c) In the event of a Condemnation at such time when no Event of
Default has occurred and is continuing and Lessee is obligated to repair
and rebuild the Leased Property pursuant to Section 10.4, Lessor shall
upon Lessee's request assign to Lessee Lessor's interest in any applicable
Awards; and
(d) As provided in Section 10.8, if such section is applicable.
During any period of repair or rebuilding pursuant to this Article X, this
Lease will remain in full force and effect and Basic Rent shall continue to
accrue and be payable without abatement or reduction. Lessee shall maintain
records setting forth information relating to the receipt and application of
payments in accordance with this Section 10.6. Such records shall be kept on
file by Lessee at its offices and shall be made available to Lessor, the Lenders
and the Agent upon request.
<PAGE>
Section XI.7 Prosecution of Awards. (a) If, during the continuance of
any Event of Default, any Condemnation shall occur, Lessee shall give to Lessor
and the Agent promptly, but in any event within thirty (30) days after the
occurrence thereof, written notice of such occurrence and the date thereof,
generally describing the nature and extent of such Condemnation. With respect to
any Event of Taking or any Condemnation, Lessee shall control the negotiations
with the relevant Governmental Authority as to any proceeding in respect of
which Awards are required, under Section 10.6, to be assigned or released to
Lessee, unless an Event of Default shall have occurred and be continuing, in
which case (1) the Agent (or Lessor if the Funded Amounts have been fully paid)
shall control such negotiations; and (2) Lessee hereby irrevocably assigns,
transfers and sets over to Lessor all rights of Lessee to any Award made during
the continuance of an Event of Default on account of any Event of Taking or any
Condemnation and, if there will not be separate Awards to Lessor and Lessee on
account of such Event of Taking or Condemnation, irrevocably authorizes and
empowers the Agent (or Lessor if the Funded Amounts have been fully paid) during
the continuance of an Event of Default, with full power of substitution, in the
name of Lessee or otherwise (but without limiting the obligations of Lessee
under this Article X), to file and prosecute what would otherwise be Lessee's
claim for any such Award and to collect, receipt for and retain the same;
provided, however, that in any event Lessor and the Agent may participate in
such negotiations, and no settlement will be made without the prior consent of
the Agent (or Lessor if the Funded Amounts have been fully paid), not to be
unreasonably withheld.
(b) Notwithstanding the foregoing, Lessee may prosecute, and Lessor shall
have no interest in, any claim with respect to Lessee's personal property and
equipment not financed by Lessor and Lessee's relocation expenses.
Section XI.8 Application of Certain Payments Not Relating to an Event of
Taking. In case of a requisition for temporary use of all or a portion of the
Leased Property which is not an Event of Taking, this Lease shall remain in full
force and effect, without any abatement or reduction of Basic Rent, and the
Awards for the Leased Property shall, unless an Event of Default has occurred
and is continuing, be paid to Lessee.
<PAGE>
Section XI.9 Other Dispositions. Notwithstanding the foregoing provisions
of this Article X, so long as an Event of Default shall have occurred and be
continuing, any amount that would otherwise be payable to or for the account of,
or that would otherwise be retained by, Lessee pursuant to this Article X shall
be paid to the Agent (or Lessor if the Funded Amounts have been fully paid) as
security for the obligations of Lessee under this Lease and, at such time
thereafter as no Event of Default shall be continuing, such amount, with the
earnings thereon, if any, shall be paid promptly to Lessee to the extent not
previously applied by Lessor or the Agent in accordance with the terms of this
Lease or the other Operative Documents.
Section XI.10 No Rent Abatement. Rent shall not abate hereunder by reason
of any Casualty, any Event of Loss, any Event of Taking or any Condemnation of
the Leased Property, and Lessee shall continue to perform and fulfill all of
Lessee's obligations, covenants and agreements hereunder notwithstanding such
Casualty, Event of Loss, Event of Taking or Condemnation until the Lease
Termination Date.
ARTICLE XII.
INTEREST CONVEYED TO LESSEE
(a) It is the intent of the parties hereto that: (i) this Lease
constitutes an "operating lease" pursuant to Statement of Financial Accounting
Standards No. 13, as amended, for purposes of Lessee's financial reporting, and
(ii) for purposes of Federal, state and local income tax, the transaction
contemplated by this Lease is a financing arrangement and transfers ownership in
the Leased Property to the Lessee.
(b) Insofar as the transactions hereby are intended to be a financing
arrangement, it is the intent of the parties hereto that (i) the obligations of
the Lessee under the Lease to pay Basic Rent and Supplemental Rent (other than
Supplemental Rent related to indemnity payments) or the Lease Balance in
connection with any purchase of the Leased Property pursuant to this Lease shall
be treated as payments of interest on and principal of, respectively, loans from
the Lessor and the Lenders to the Lessee, and (ii) this Lease grants, subject to
Permitted Liens, a security interest and mortgage or deed of trust or lien, as
the case may be, in the Leased Property to the Lessor and the Lenders to secure
Lessee's performance under and payment of all amounts due to the Agent and the
Funding Parties under this Lease and the other Operative Documents.
<PAGE>
(c) Specifically, without limiting the generality of subsection (b) of
this Article XI, the Lessor and the Lessee intend and agree that with respect to
the nature of the transactions evidenced by this Lease in the context of the
exercise of remedies under the Operative Documents, including, without
limitation, in the case of any insolvency or receivership proceedings or a
petition under the United States bankruptcy laws or any other applicable
insolvency laws or statute of the United States of America or any State or
Commonwealth thereof affecting the Lessee or the Lessor or any enforcement or
collection actions, the transactions evidenced by this Lease are loans made by
the Lessor and the Lenders as unrelated third party lenders to the Lessee
secured by the Leased Property (it being understood that Lessee hereby
mortgages, grants, conveys, assigns, warrants, transfers and sets over to the
Lessor, and grants a security interest in, the Leased Property (consisting of a
fee mortgage with respect to Lessor's fee interest in the Land and Buildings) to
the Lessor and the Lenders to secure such loans, effective on the date hereof,
in each case subject to Permitted Liens, to have and to hold such interests in
the Leased Property unto the Lessor and the Lenders and their respective
successors and assigns, forever, provided always that these presents are upon
the express condition that, if all amounts due under this Lease shall have been
paid and satisfied in full and all obligations of the Lessor, the Agent and the
Lenders under the Operative Documents to advance funds shall have been
terminated, then this instrument and the estate hereby granted shall cease and
become void).
<PAGE>
(d) Specifically, but without limiting the generality of subsection (b) of
this Article XI, the Lessor and the Lessee further intend and agree that, for
the purpose of securing the Lessee's obligations for the repayment of the
above-described loans from the Lessor and the Lenders to the Lessee, (i) this
Lease shall also be deemed to be a security agreement and financing statement
within the meaning of Article 9 of the Uniform Commercial Code and a real
property mortgage or deed of trust; (ii) the conveyance provided for hereby
shall be deemed to be a grant by the Lessee to the Lessor and the Lenders of a
mortgage lien and security interest in all of the Lessee's right, title and
interest in and to the Leased Property and all proceeds of the conversion,
voluntary or involuntary, of the foregoing into cash, investments, securities or
other property, whether in the form of cash, investments, securities or other
property (consisting of a fee mortgage with respect to Lessor's fee interest in
the Land and Building) to the Lessor and the Lenders to secure such Loans,
effective on the date hereof, to have and to hold such interests in the Leased
Property unto the Lessor and the Lenders and their respective successors and
assigns, forever, provided always that these presents are upon the express
condition that, if all amounts due under this Lease to the Agent and the Funding
Parties shall have been paid and satisfied in full and all obligations of the
Lessor, the Agent and the Lenders under the Operative Documents to advance funds
shall have been terminated, then this instrument and the estate hereby granted
shall cease and become void; (iii) the possession by the Lessor or any of its
agents of notes and such other items of property as constitute instruments,
money, negotiable documents or chattel paper shall be deemed to be "possession
by the secured party" for purposes of perfecting the security interest pursuant
to Section 9-305 of the Uniform Commercial Code; and (iv) notifications to
Persons holding such property, and acknowledgments, receipts or confirmations
from financial intermediaries, bankers or agents (as applicable) of the Lessee
shall be deemed to have been given for the purpose of perfecting such security
interest under Applicable Law. The Lessor and the Lessee shall, to the extent
consistent with this Lease, take such actions and execute, deliver, file and
record such other documents, financing statements, mortgages and deeds of trust
as may be necessary to ensure that, if this Lease were deemed to create a
security interest in the Leased Property in accordance with this Section, such
security interest would be deemed to be a perfected security interest of first
priority under Applicable Law and will be maintained as such throughout the
Lease Term.
(e) Without limiting any other remedies set forth in this Lease, in the
event that a court of competent jurisdiction rules that this Lease constitutes a
mortgage, deed of trust or other secured financing as is the intent of the
parties (to the extent that the transactions contemplated hereby are intended to
be a financing arrangement), then the Lessor and the Lessee agree that the
following terms shall apply:
(A) If an Event of Default has occurred and is continuing, the
Lessor may, either in person or by an agent or court-appointed receiver, and
without regard to the adequacy of its security:
(i) commence an action to foreclose this instrument or
specifically enforce any of the covenants hereof;
(ii) enter upon and take possession of the Leased Property or any
part thereof and do any acts which it deems necessary or desirable
(including without limitation the construction of improvements and the
making of alterations) to preserve the value, marketability or rentability
of the Leased Property or any part thereof or interest therein, increase
the income therefrom or protect the lien and security hereof;
(iii) with or without entering upon and taking possession of the
Leased Property (A) direct, or cause the Lessee to direct, all tenants or
other obligors under all leases to pay all rents directly to the Lessor,
(B) collect all rents as the same become due and payable, (C) take such
action as the Lessor shall deem necessary or desirable in order to enforce
the provisions of any lease and (D) amend, modify, extend, enter into or
terminate any lease or waive performance by any tenant or other obligor
thereunder of any provision thereof, in the name of the Lessee or
otherwise;
<PAGE>
(iv) bring an appropriate action from time to time to recover any
sums required to be paid by the Lessee under the terms of this instrument
as they become due, without regard to whether or not any other sums
secured by this instrument shall be due, and without prejudice to the
right of the Lessor thereafter to bring an action of mortgage foreclosure,
or any other action, for any Event of Default existing at the time the
earlier action was commenced; or
(v) exercise any other remedy available to it hereunder, at law or
in equity.
(B) If an Event of Default shall have occurred and be continuing,
the Lessor, as a matter of right and without notice to the Lessee, shall have
the right to apply to any court having jurisdiction to appoint a receiver or
receivers of the Leased Property, and the Lessee hereby irrevocably consents to
any such appointment. Any such receiver(s) shall have all of the usual powers
and duties of receivers in like or similar cases and all of the powers and
duties of the Lessor in case of entry as provided above, and shall continue as
such and exercise such powers until the date of confirmation of the sale of the
Property unless such receivership is sooner terminated.
<PAGE>
(f) SOLELY FOR THE PURPOSE OF OBTAINING POSSESSION OF THE SUBJECT
PROPERTY AT ANY TIME WHEN AN EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING,
THE LESSEE HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS ANY ATTORNEY, PROTHONOTARY
OR CLERK OF ANY COURT OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA OR
ELSEWHERE, AS ATTORNEY FOR THE LESSEE AND ALL PERSONS CLAIMING UNDER OR THROUGH
THE LESSEE, AS OF ANY TERM OR TIME, TO COMMENCE AN AMICABLE ACTION IN EJECTMENT
FOR POSSESSION OF THE LEASED PROPERTY AND TO APPEAR IN SUCH COURT FOR AND TO
CONFESS JUDGMENT AGAINST THE LESSEE, AND AGAINST ALL PERSONS CLAIMING UNDER OR
THROUGH THE LESSEE, IN FAVOR OF THE LESSOR, FOR RECOVERY BY THE LESSOR OF
POSSESSION THEREOF, FOR WHICH THIS INSTRUMENT, OR A COPY THEREOF VERIFIED BY
AFFIDAVIT, SHALL BE A SUFFICIENT WARRANT; AND THEREUPON A WRIT OF POSSESSION MAY
IMMEDIATELY BE ISSUED FOR POSSESSION OF THE PROPERTY, WITHOUT ANY PRIOR WRIT OR
PROCEEDING WHATSOEVER, AND WITHOUT ANY STAY OF EXECUTION. THE LESSEE HEREBY
IRREVOCABLY WAIVES AND RELEASES ALL ERRORS IN SAID PROCEEDINGS AND IN THE ENTRY
OF ANY JUDGMENT RESULTING THEREFROM, STAY OF EXECUTION, THE RIGHT OF INQUISITION
AND EXTENSION OF TIME OF PAYMENT. IF FOR ANY REASON AFTER SUCH ACTION HAS BEEN
COMMENCED IT SHALL BE DISCONTINUED, OR POSSESSION OF THE LEASED PROPERTY SHALL
REMAIN IN OR BE RESTORED TO THE LESSEE, THE LESSOR SHALL HAVE THE RIGHT FOR THE
SAME EVENT OF DEFAULT OR ANY SUBSEQUENT EVENT OF DEFAULT TO BRING ONE OR MORE
FURTHER AMICABLE ACTIONS AS ABOVE PROVIDED TO RECOVER POSSESSION OF THE LEASED
PROPERTY. THE LESSOR MAY BRING AN AMICABLE ACTION IN EJECTMENT AND CONFESS
JUDGMENT THEREIN BEFORE OR AFTER THE INSTITUTION OF PROCEEDINGS TO FORECLOSE
THIS INSTRUMENT, OR AFTER ENTRY OF JUDGMENT THEREIN, OR AFTER SHERIFF SALE OF
THE SUBJECT PROPERTY IN WHICH THE LESSOR IS THE SUCCESSFUL BIDDER. THE
AUTHORIZATION TO PURSUE SUCH PROCEEDINGS FOR OBTAINING POSSESSION AND TO CONFESS
JUDGMENT THEREIN IS AN ESSENTIAL PART OF THE REMEDIES FOR ENFORCEMENT OF THIS
INSTRUMENT AND SHALL SURVIVE ANY EXECUTION SALE TO THE LESSOR.
THE LESSEE EXPRESSLY ACKNOWLEDGES THAT THIS IS A COMMERCIAL
TRANSACTION, THAT THE FOREGOING PROVISION FOR CONFESSION OF JUDGMENT HAS BEEN
READ, UNDERSTOOD AND VOLUNTARILY AGREED TO BY THE LESSEE AND THAT BY AGREEING TO
SUCH PROVISION THE LESSEE IS WAIVING IMPORTANT LEGAL RIGHTS, INCLUDING ANY RIGHT
TO NOTICE OR A HEARING WHICH MIGHT OTHERWISE BE REQUIRED BEFORE ENTRY OF
JUDGMENT HEREUNDER.
(g) The Lessee hereby waives the benefit of all appraisement,
valuation, extension, reinstatement and redemption laws now or hereafter in
force and all rights of marshalling in the event of any sale of the Leased
Property or any interest therein. Notwithstanding the foregoing, should the
Lessor commence an action for the foreclosure of the mortgage created by this
Article XI, the Lessee shall have the right, at any time prior to the sale of
the Leased Property by the sheriff, to redeem the Leased Property by payment of
the Lease Balance and any other amounts due and owing by the Lessee to the Agent
or the Funding Parties under the Operative Documents.
<PAGE>
(h) The Lessor shall be entitled to enforce payment of the
indebtedness and performance of the obligations secured hereby and to exercise
all rights and powers under this instrument or under any of the other Operative
Documents or other agreement or any laws now or hereafter in force,
notwithstanding some or all of the obligations secured hereby may now or
hereafter be otherwise secured, whether by mortgage, security agreement, pledge,
lien, assignment or otherwise. Neither the acceptance of this instrument nor its
enforcement, shall prejudice or in any manner affect the Lessor's right to
realize upon or enforce any other security now or hereafter held by the Lessor,
it being agreed that the Lessor shall be entitled to enforce this instrument and
any other security now or hereafter held by the Lessor in such order and manner
as the Lessor may determine in its absolute discretion. No remedy herein
conferred upon or reserved to the Lessor is intended to be exclusive of any
other remedy herein or by law provided or permitted, but each shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute. Every power or remedy
given by any of the Operative Documents to the Lessor or to which it may
otherwise be entitled, may be exercised, concurrently or independently, from
time to time and as often as may be deemed expedient by the Lessor. In no event
shall the Lessor, in the exercise of the remedies provided in this instrument
(including, without limitation, in connection with the assignment of rents to
Lessor, or the appointment of a receiver and the entry of such receiver on to
all or any part of the Leased Property), be deemed a "mortgagee in possession,"
and the Lessor shall not in any way be made liable for any act, either of
commission or omission, in connection with the exercise of such remedies, except
for its gross negligence and willful misconduct.
(i) (1) In the event that a court of competent jurisdiction rules that
this instrument constitutes a mortgage, deed of trust or other secured financing
as is the intent of the parties to the extent that the transactions contemplated
hereby are intended to be a financing arrangement, this instrument shall be
deemed to be an Open-End Mortgage as defined in 42 Pa. C.S.A. ' 8143(f) and, as
such, is entitled to the benefits of Senate Bill 693, 1989 session of the
General Assembly of Pennsylvania (the "Act") as codified at 42 Pa. C.S.A. '8143
et seq. The parties to this instrument intend that, in addition to any other
debt or obligations secured hereby, this instrument shall secure unpaid balances
of advances made pursuant to the Operative Documents after this instrument is
left for recordation with the Recorder's Office of the County where the Leased
Property is located, whether such advances are made pursuant to an obligation of
the Lessor or otherwise. The maximum amount of unpaid indebtedness secured by
this instrument is $58,000,000.00, which indebtedness may consist of present and
future loans made under the Operative Documents, interest thereon, fees payable
pursuant thereto, advances made with respect to the Leased Property for the
payment of, among other things, taxes, assessments, maintenance charges,
insurance premiums and the like, and costs and expenses, including but not
limited to attorney's fees, incurred for the protection of the Leased Property
or the lien and security of this instrument or by reason of an Event of Default.
ARTICLE XIII.
EVENTS OF DEFAULT
The following events shall constitute Events of Default (whether any such
event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any Governmental
Authority):
<PAGE>
(a) Lessee shall fail to make any payment of Basic Rent when due, and such
failure shall continue for three (3) or more Business Days;
(b) Lessee shall fail to make any payment of Rent (other than Basic Rent)
or any other amount payable hereunder or under any of the other Operative
Documents (other than Basic Rent and other than as set forth in clause (c)), and
such failure shall continue for a period of ten (10) days;
(c) Lessee shall fail to pay the Lease Balance when due pursuant to
Section 10.1, 10.2, 14.1 or 14.2, or Lessee shall fail to pay the Recourse
Deficiency Amount when required pursuant to Article XIV, or the Guarantor shall
fail to comply with Section 5.26 of the Master Agreement;
(d) Lessee shall fail to maintain insurance as required by Article VIII
hereof, and such failure shall continue until the earlier of (i) 30 days after
written notice thereof from Lessor and (ii) the day immediately preceding the
date on which any applicable insurance coverage would otherwise lapse or
terminate;
(e) the Guarantor or any of its Subsidiaries (including Lessee) shall (i)
default in the payment of any Debt the aggregate outstanding amount of which
Debt is in excess of $10,000,000 beyond the period of grace, if any, provided in
the instrument or agreement under which such Debt was created, (ii) default in
the payment of an amount due under a synthetic or other structured lease (other
than this Lease) the aggregate implied principal amount of which lease
calculated in accordance with applicable Federal income tax laws and regulations
is in excess of $10,000,000 beyond the period of grace, if any, provided in the
instrument or agreement under which such lease was created, or (iii) default in
the observance or performance of any other agreement or condition relating to
any such Debt or any such lease or contained in any instrument or agreement
evidencing, securing or relating thereto or any other event shall occur or
condition exist, the effect of which default or other event or condition is to
cause, or to permit the holder or holders of such Debt or such lease (or a
trustee or agent on behalf of such holder or holders) to cause, with the giving
of notice if required, any such Debt or any such lease to become due prior to
its stated maturity (any applicable grace period having expired);
<PAGE>
(f) the Guarantor or any Subsidiary (including Lessee) shall (i) commence
a voluntary case under the federal bankruptcy laws (as now or hereafter in
effect), (ii) file a petition seeking to take advantage of any other laws,
domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding
up or composition for adjustment of debts, (iii) consent to or fail to contest
in a timely and appropriate manner any petition filed against it in an
involuntary case under such bankruptcy laws or other laws, (iv) apply for or
consent to, or fail to contest in a timely and appropriate manner, the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
or liquidator of itself or of a substantial part of its property, domestic or
foreign, (v) admit in writing its inability to pay its debts as they become due,
(vi) make a general assignment for the benefit of creditors, or (vii) take any
corporate action for the purpose of authorizing any of the foregoing;
(g) A case or other proceeding shall be commenced against the Guarantor or
any Subsidiary (including Lessee) in any court of competent jurisdiction seeking
(i) relief under the federal bankruptcy laws (as now or hereafter in effect) or
under any other laws, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or adjustment of debts, or (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like for Lessee or any
Subsidiary or for all or any substantial part of their respective assets,
domestic or foreign, and such case or proceeding shall continue undismissed or
unstayed for a period of sixty (60) consecutive days, or an order granting the
relief requested in such case or proceeding (including, but not limited to, an
order for relief under such federal bankruptcy laws) shall be entered;
(h) any representation or warranty by Lessee or the Guarantor in any
Operative Document or in any certificate or document delivered to Lessor, the
Agent or any Lender pursuant to any Operative Document shall have been incorrect
in any material respect when made;
(i) the Guarantor shall repudiate or terminate the Guaranty, or the
Guaranty shall at any time cease to be in full force and effect or cease to be
the legal, valid and binding obligation of Lessee;
(j) Lessee or the Guarantor shall fail in any material respect to timely,
perform or observe any covenant, condition or agreement (not included in clause
(a), (b), (c), (d), (e), (f), (g), (h) or (i) of this Article XII) to be
performed or observed by it hereunder or under any other Operative Document and
such failure shall continue for a period of 30 days after Lessee's or the
Guarantor's, as the case may be, receipt of written notice thereof from Lessor,
the Agent or any Lender;
<PAGE>
(k) Any person or group of persons (within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, as amended) shall obtain ownership or
control in one or more series of transactions of thirty percent (30%) or more of
the common stock or thirty percent (30%) or more of the voting power of the
Guarantor entitled to vote in the election of members of the board of directors
of the Guarantor or there shall have occurred under any indenture or other
instrument evidencing any Debt in excess of $10,000,000 any Achange in control@
(as defined in such indenture or other evidence of Debt) obligating the
Guarantor to repurchase, redeem or repay all or any part of the Debt provided
for therein (any such event, a AChange in Control@);
(l) The occurrence of any of the following events: (i) the Guarantor or
any ERISA Affiliate fails to make full payment when due of all amounts which,
under the provisions of any Pension Plan or Section 412 of the Code, the
Guarantor or any ERISA Affiliate is required to pay as contributions thereto,
except in cases in which a failure to make such payment is not reasonably likely
to result, in any given instance or in the aggregate, in liability of the
Guarantor or any ERISA Affiliate in excess of $25,000,000, (ii) an accumulated
funding deficiency in excess of $25,000,000 occurs or exists, whether or not
waived, with respect to any Pension Plan, (iii) a Termination Event or (iv) the
Guarantor or any ERISA Affiliate as employers under one or more Multiemployer
Plan makes a complete or partial withdrawal from any such Multiemployer Plan and
the plan sponsor of such Multiemployer Plans notifies such withdrawing employer
that such employer has incurred a withdrawal liability requiring payments in an
amount exceeding $25,000,000; and
(m) A judgment or order for the payment of money which causes the
aggregate amount of all such judgments to exceed $10,000,000 in any Fiscal Year
shall be entered against the Guarantor or any of its Subsidiaries (including
Lessee) by any court and such judgment or order shall continue undischarged or
unstayed for a period of thirty (30) days.
ARTICLE XIV.
ENFORCEMENT
Section XIV.1 Remedies. Upon the occurrence and during the continuance of
any Event of Default, Lessor may do one or more of the following as Lessor in
its sole discretion shall determine, without limiting any other right or remedy
Lessor may have on account of such Event of Default (including, without
limitation, the obligation of Lessee to purchase the Leased Property as set
forth in Section 14.3):
<PAGE>
(a) Lessor may, by notice to Lessee, terminate this Lease as of the date
specified in such notice; however, (A) no reletting, reentry or taking of
possession of the Leased Property by Lessor will be construed as an election on
Lessor's part to terminate this Lease unless a written notice of such intention
is given to Lessee, (B) notwithstanding any reletting, reentry or taking of
possession, Lessor may at any time thereafter elect to terminate this Lease for
a continuing Event of Default, and (C) no act or thing done by Lessor or any of
its agents, representatives or employees and no agreement accepting a surrender
of the Leased Property shall be valid unless the same be made in writing and
executed by Lessor;
(b) Lessor may (i) demand that Lessee, and Lessee shall upon the written
demand of Lessor, return the Leased Property promptly to Lessor in the manner
and condition required by, and otherwise in accordance with all of the
provisions of, Articles VI and XIV hereof as if the Leased Property were being
returned at the end of the Lease Term, and Lessor shall not be liable for the
reimbursement of Lessee for any costs and expenses incurred by Lessee in
connection therewith and (ii) without prejudice to any other remedy which Lessor
may have for possession of the Leased Property, and to the extent and in the
manner permitted by Applicable Law, enter upon the Leased Property and take
immediate possession of (to the exclusion of Lessee) the Leased Property or any
part thereof and expel or remove Lessee and any other person who may be
occupying the Leased Property, by summary proceedings or otherwise, all without
liability to Lessee for or by reason of such entry or taking of possession,
whether for the restoration of damage to property caused by such taking or
otherwise and, in addition to Lessor's other damages, Lessee shall be
responsible for the actual and reasonable costs and expenses of reletting,
including brokers' fees and the reasonable costs of any alterations or repairs
made by Lessor;
<PAGE>
(c) Lessor may (i) sell all or any part of the Leased Property at public
or private sale, as Lessor may determine, free and clear of any rights of Lessee
and, except as required by Applicable Law, without any duty to account to Lessee
with respect to such action or inaction or any proceeds with respect thereto
(except to the extent required by clause (ii) below if Lessor shall elect to
exercise its rights thereunder) in which event Lessee's obligation to pay Basic
Rent hereunder for periods commencing after the date of such sale shall be
terminated or proportionately reduced, as the case may be; and (ii) if Lessor
shall so elect, demand that Lessee pay to Lessor, and Lessee shall pay to
Lessor, on the date of such sale, as liquidated damages for loss of a bargain
and not as a penalty (the parties agreeing that Lessor's actual damages would be
difficult to predict, but the aforementioned liquidated damages represent a
reasonable approximation of such amount) (in lieu of Basic Rent due for periods
commencing on or after the Payment Date coinciding with such date of sale (or,
if the sale date is not a Payment Date, the Payment Date next preceding the date
of such sale)), an amount equal to (a) the excess, if any, of (1) the sum of (A)
all Rent due and unpaid to and including such Payment Date and (B) the Lease
Balance, computed as of such date, over (2) the net proceeds of such sale (that
is, after deducting all costs and expenses incurred by Lessor, the Agent or any
Lender incident to such conveyance (including, without limitation, all costs,
expenses, fees, premiums and taxes described in Section 14.5(b))); plus (b)
interest at the Overdue Rate on the foregoing amount from such Payment Date
until the date of payment;
(d) Lessor may, at its option, not terminate this Lease, and continue to
collect all Basic Rent, Supplemental Rent, and all other amounts (including,
without limitation, the Lease Balance) due Lessor (together with all costs of
collection) and enforce Lessee's obligations under this Lease as and when the
same become due, or are to be performed, and at the option of Lessor, upon any
abandonment of the Leased Property by Lessee or re-entry of same by Lessor,
Lessor may, in its sole and absolute discretion, elect not to terminate this
Lease with respect thereto and may make such reasonable alterations and
necessary repairs in order to relet the Leased Property, and relet the Leased
Property or any part thereof for such term or terms (which may be for a term
extending beyond the term of this Lease) and at such rental or rentals and upon
such other terms and conditions as Lessor in its reasonable discretion may deem
advisable; and upon each such reletting all rentals actually received by Lessor
from such reletting shall be applied to Lessee's obligations hereunder in such
order, proportion and priority as Lessor may elect in Lessor's sole and absolute
discretion. If such rentals received from such reletting during any Rent Period
are less than the Rent to be paid during that Rent Period by Lessee hereunder,
Lessee shall pay any deficiency, as calculated by Lessor, to Lessor on the
Payment Date for such Rent Period;
<PAGE>
(e) If the Leased Property has not been sold, Lessor may, whether or not
Lessor shall have exercised or shall thereafter at any time exercise any of its
rights under paragraph (b), (c) or (d) of this Article XIII with respect to the
Leased Property, demand, by written notice to Lessee specifying a date (the
"Final Rent Payment Date") not earlier than 30 days after the date of such
notice, that Lessee purchase, on the Final Rent Payment Date, the Leased
Property in accordance with the provisions of Sections 14.2, 14.4 and 14.5;
provided, however, that (1) such purchase shall occur on the date set forth in
such notice, notwithstanding the provision in Section 14.2 calling for such
purchase to occur on the Lease Termination Date; and (2) Lessor's obligations
under Section 14.5(a) shall be limited to delivery of a special warranty deed
and quit claim bill of sale of the Leased Property, without recourse or
warranty, but free and clear of Lessor Liens;
(f) Lessor may exercise any other right or remedy that may be available to
it under Applicable Law, or proceed by appropriate court action (legal or
equitable) to enforce the terms hereof or to recover damages for the breach
hereof. Separate suits may be brought to collect any such damages for any Rent
Period(s), and such suits shall not in any manner prejudice Lessor's right to
collect any such damages for any subsequent Rent Period(s), or Lessor may defer
any such suit until after the expiration of the Lease Term, in which event such
suit shall be deemed not to have accrued until the expiration of the Lease Term;
or
(g) Lessor may retain and apply against Lessor's damages all sums which
Lessor would, absent such Event of Default, be required to pay to, or turn over
to, Lessee pursuant to the terms of this Lease.
<PAGE>
Section XIV.2 Remedies Cumulative; Redemption Right; No Waiver; Consen.
To the extent permitted by, and subject to the mandatory requirements of,
Applicable Law, each and every right, power and remedy herein specifically given
to Lessor or otherwise in this Lease shall be cumulative and shall be in
addition to every other right, power and remedy herein specifically given or now
or hereafter existing at law, in equity or by statute, and each and every right,
power and remedy whether specifically herein given or otherwise existing may be
exercised from time to time and as often and in such order as may be deemed
expedient by Lessor, and the exercise or the beginning of the exercise of any
power or remedy shall not be construed to be a waiver of the right to exercise
at the same time or thereafter any right, power or remedy. Notwithstanding the
foregoing or any provision of Article XI, so long as Lessee purchases the Leased
Property in accordance with Sections 14.2, 14.4 and 14.5 (including the payment
of the Lease Balance in cash) prior to the sale of the Leased Property by the
sheriff, the Lessor shall have neither the right to conclude the sheriff's sale
nor the right to exercise any other remedy set forth in Article XI or Section
13.1. No delay or omission by Lessor in the exercise of any right, power or
remedy or in the pursuit of any remedy shall impair any such right, power or
remedy or be construed to be a waiver of any default on the part of Lessee or to
be an acquiescence therein. Lessor's consent to any request made by Lessee shall
not be deemed to constitute or preclude the necessity for obtaining Lessor's
consent, in the future, to all similar requests. No express or implied waiver by
Lessor of any Event of Default shall in any way be, or be construed to be, a
waiver of any future or subsequent Potential Event of Default or Event of
Default. To the extent permitted by Applicable Law, Lessee hereby waives any
rights now or hereafter conferred by statute or otherwise that may require
Lessor to sell, lease or otherwise use the Leased Property or part thereof in
mitigation of Lessor's damages upon the occurrence of an Event of Default or
that may otherwise limit or modify any of Lessor's rights or remedies under this
Article XIII.
ARTICLE XV.
SALE, RETURN OR PURCHASE OF LEASED PROPERTY; RENEWAL
Section XV.1 Lessee's Option to Purchase. Subject to the terms, conditions
and provisions set forth in this Article XIV, Lessee shall have the option (the
"Purchase Option"), to be exercised as set forth below, to purchase from Lessor,
Lessor's interest in the Leased Property. Such option must be exercised by
written notice to Lessor not later than twelve months prior to the Lease
Termination Date which notice shall be irrevocable; such notice shall specify
the date that such purchase shall take place, which date shall be a date
occurring not less than thirty (30) days after such notice or the Lease
Termination Date (whichever is earlier). If the Purchase Option is exercised
pursuant to the foregoing, then, subject to the provisions set forth in this
Article XIV, on the applicable purchase date or the Lease Termination Date, as
the case may be, Lessor shall convey to Lessee, and Lessee shall purchase from
Lessor, Lessor's interest in the Leased Property in accordance with Section
14.5.
Section XV.2 Conveyance to Lessee. Unless (a) Lessee shall have properly
exercised the Purchase Option and purchased the Leased Property pursuant to
Section 14.1 hereof, or (b) Lessee shall have properly exercised the Remarketing
Option or the Surrender Option and shall have fulfilled all of the conditions of
Section 14.6 hereof, then, subject to the terms, conditions and provisions set
forth in this Article XIV, Lessee shall purchase from Lessor, and Lessor shall
convey to Lessee, on the Lease Termination Date all of Lessor's interest in the
Leased Property in accordance with Section 14.5. Lessee may designate, in a
notice given to Lessor not less than ten (10) Business Days prior to the closing
of such purchase (time being of the essence), the transferee to whom the
conveyance shall be made (if other than to Lessee), in which case such
conveyance shall (subject to the terms and conditions set forth herein) be made
to such designee; provided, however, that such designation of a transferee shall
not cause Lessee to be released, fully or partially, from any of its obligations
under this Lease.
<PAGE>
Section XV.3 Acceleration of Purchase Obligation. Lessee shall be
obligated to purchase Lessor's interest in the Leased Property immediately,
automatically and without notice upon the occurrence of any Event of Default
specified in clause (f) or (g) of Article XII, for the purchase price set forth
in Section 14.4. Upon the occurrence and during the continuance of any other
Event of Default, Lessee shall be obligated to purchase Lessor's interest in the
Leased Property for the purchase price set forth in Section 14.4 upon notice of
such obligation from Lessor.
Section XV.4 Determination of Purchase Price. Upon the purchase by Lessee
of Lessor's interest in the Leased Property upon the exercise of the Purchase
Option or pursuant to Section 14.2 or 14.3, the purchase price for the Leased
Property shall be an amount equal to the Lease Balance as of the closing date
for such purchase, plus any amount due pursuant to Section 7.5 of the Master
Agreement as a result of such purchase.
Section XV.5 Purchase Procedure. (a) If Lessee shall purchase Lessor's
interest in the Leased Property pursuant to any provision of this Lease, (i)
Lessee shall accept from Lessor and Lessor shall convey the Leased Property by a
duly executed and acknowledged special warranty deed and quit claim bill of sale
of the Leased Property in recordable form, (ii) upon the date fixed for any
purchase of Lessor's interest in the Leased Property hereunder, Lessee shall pay
to the order of the Agent the Lease Balance, plus any amount due pursuant to
Section 7.5 of the Master Agreement as a result of such purchase by wire
transfer of immediately available funds, and (iii) Lessor will execute and
deliver to Lessee such other documents, including releases, termination
agreements and termination statements, as may be legally required or as may be
reasonably requested by Lessee in order to effect such conveyance, free and
clear of Lessor Liens and the Liens of the Operative Documents.
(b) Lessee shall, at Lessee's sole cost and expense, obtain all required
governmental and regulatory approval and consents and shall make such filings as
required by Applicable Law, and Lessor shall cooperate with Lessee upon Lessor's
request in connection therewith; in the event that Lessor is required by
Applicable Law to take any action in connection with such purchase and sale,
Lessee shall pay all costs incurred by Lessor in connection therewith. In
addition, all charges incident to such conveyance, including, without
limitation, Lessee's reasonable attorneys' fees, Lessor's reasonable attorneys'
fees, commissions, Lessee's and Lessor's escrow fees, recording fees, title
insurance premiums and all applicable documentary transfer or other transfer
taxes and other taxes required to be paid in order to record the transfer
documents that might be imposed by reason of such conveyance and the delivery of
such deed shall be borne entirely and paid by Lessee.
<PAGE>
(c) Upon expiration or termination of this Lease resulting in conveyance
of Lessor's interest in the title to the Leased Property to Lessee, there shall
be no apportionment of rents (including, without limitation, water rents and
sewer rents), taxes, insurance, utility charges or other charges payable with
respect to the Leased Property, all of such rents, taxes, insurance, utility or
other charges due and payable with respect to the Leased Property prior to
termination being payable by Lessee hereunder and all due after such time being
payable by Lessee as the then owner of the Leased Property.
Section XV.6 Option to Remarket; Surrender Option. Subject to the
fulfillment of each of the conditions set forth in this Section 14.6, Lessee
shall have the option to either (i) market the Leased Property for Lessor (the
"Remarketing Option") or (ii) surrender the Leased Property to Lessor (the
"Surrender Option").
Lessee's effective exercise and consummation of the Remarketing Option or
the Surrender Option, as the case may be, shall be subject to the due and timely
fulfillment of each of the following provisions, the failure of any of which
shall render the Remarketing Option or the Surrender Option, as the case may be,
and Lessee's exercise thereof null and void, in which event, Lessee shall be
obligated to perform its obligations under Section 14.2.
(a) Not later than twelve months prior to the Lease Termination
Date, Lessee shall give to Lessor and the Agent written notice of Lessee's
exercise of the Remarketing Option or the Surrender Option, as the case
may be, which exercise shall be irrevocable and shall state whether Lessee
has exercised the Remarketing Option or the Surrender Option.
(b) Not later than ten (10) Business Days prior to the Lease
Termination Date, Lessee shall deliver to Lessor and the Agent an
environmental assessment of the Leased Property dated not later than
forty-five (45) days prior to the Lease Termination Date. Such
environmental assessment shall be prepared by an environmental consultant
approved by the Required Funding Parties, shall be in form, detail and
substance reasonably satisfactory to the Required Funding Parties, and
shall otherwise indicate the environmental condition of the Leased
Property to be the same as described in the Environmental Audit.
<PAGE>
(c) On the date of Lessee's notice to Lessor and the Agent of
Lessee's exercise of the Remarketing Option or the Surrender Option, as
the case may be, no Event of Default or Potential Event of Default shall
exist, and thereafter, no Event of Default or Potential Event of Default
shall exist under this Lease.
(d) Lessee shall have completed all Alterations, restoration and
rebuilding of the Leased Property pursuant to Sections 6.1, 6.2, 10.3 and
10.4 (as the case may be) and shall have fulfilled all of the conditions
and requirements in connection therewith pursuant to said Sections, in
each case by the date on which Lessor and the Agent receive Lessee's
notice of Lessee's exercise of the Remarketing Option or the Surrender
Option, as the case may be (time being of the essence), regardless of
whether the same shall be within Lessee's control.
(e) Lessee shall promptly provide any maintenance records relating
to the Leased Property to Lessor, the Agent and any potential purchaser
upon request, and shall otherwise do all things necessary to deliver
possession of the Leased Property to the purchaser. Lessee shall allow
Lessor, the Agent and any potential purchaser access to the Leased
Property for the purpose of inspecting the same during regular business
hours (or as otherwise agreed by Lessee).
(f) On the Lease Termination Date, Lessee shall surrender the Leased
Property in accordance with Section 14.8 hereof.
(g) In connection with any such sale of the Leased Property pursuant
to the Remarketing Option, Lessee will provide to the purchaser all
customary "seller's" indemnities, representations and warranties regarding
title, absence of Liens (except Lessor Liens) and the condition of the
Leased Property, including, without limitation, an environmental indemnity
identical in all material respects to the environmental indemnity set
forth in Section 7.2 of the Master Agreement. Lessee shall fulfill all of
the requirements set forth in clause (b) of Section 14.5, and such
requirements are incorporated herein by reference. As to Lessor, any such
sale shall be made on an "as is, with all faults" basis without
representation or warranty by Lessor, other than the absence of Lessor
Liens.
<PAGE>
(h) In connection with any such sale of Leased Property, Lessee
shall pay directly, and not from the sale proceeds, all prorations,
credits, costs and expenses of the sale of the Leased Property, whether
incurred by Lessor, any Lender, the Agent or Lessee, including without
limitation, the cost of all title insurance, surveys, environmental
reports, appraisals, transfer taxes, Lessor's and the Agent's attorneys'
fees, Lessee's attorneys' fees, commissions, escrow fees, recording fees,
and all applicable documentary and other transfer taxes.
(i) Lessee shall pay to the Agent on the Lease Termination Date (or
to such other Person as Agent shall notify Lessee in writing, or in the
case of Supplemental Rent, to the Person entitled thereto) an amount equal
to the Recourse Deficiency Amount, plus all Basic Rent and Supplemental
Rent, and all other amounts hereunder which have accrued prior to or as of
such date and remain unpaid, in the type of funds specified in Section 3.3
hereof.
<PAGE>
If Lessee has exercised the Remarketing Option, the following additional
provisions shall apply: During the period commencing on the date twelve months
prior to the scheduled expiration of the Lease Term, Lessee shall, as
nonexclusive agent for Lessor, use commercially reasonable efforts to sell
Lessor's interest in the Leased Property and will attempt to obtain the highest
purchase price therefor. All such marketing of the Leased Property shall be at
Lessee's sole expense. Lessee shall submit all bids to Lessor and the Agent and
Lessor and the Agent will have the right to review the same and the right to
submit any one or more bids. All bids shall be on an all-cash basis. In no event
shall the Agent be required to accept a bid submitted by Lessee or any
Subsidiary or Affiliate of Lessee. The written offer must specify the Lease
Termination Date as the closing date. If, and only if, the selling price (net of
closing costs and prorations, as reasonably estimated by the Agent) is less than
an amount equal to the Lease Balance at such time minus the Recourse Deficiency
Amount, then Lessor or the Agent may, in its sole and absolute discretion, by
notice to Lessee, reject such offer to purchase, in which event the parties will
proceed according to the provisions of Section 14.7 [Rejection of Sale] hereof.
If neither Lessor nor the Agent rejects such purchase offer as provided above,
the closing of such purchase of the Leased Property by such purchaser shall
occur on the Lease Termination Date, contemporaneously with Lessee's surrender
of the Leased Property in accordance with Section 14.8 hereof, and the gross
proceeds of the sale (i.e., without deduction for any marketing, closing or
other costs, prorations or commissions) shall be paid directly to the Agent;
provided, however, that if the sum of the gross proceeds from such sale plus the
Recourse Deficiency Amount paid by Lessee on the Lease Termination Date pursuant
to Section 14.6(i), minus any and all costs and expenses (including broker fees,
appraisal costs, legal fees and transfer taxes) incurred by the Agent or Lessor
in connection with the marketing of the Leased Property or the sale thereof
exceeds the Lease Balance as of such date, then the excess shall be paid to
Lessee on the Lease Termination Date. Lessee shall have no right, power or
authority to bind Lessor in connection with any proposed sale of the Leased
Property.
Section XV.7 Rejection of Sale. Notwithstanding anything contained
herein to the contrary, if Lessor or the Agent rejects the purchase offer for
the Leased Property as provided in Section 14.6, then (a) Lessee shall pay to
the Agent the Recourse Deficiency Amount pursuant to Section 14.6(i), (b) Lessor
shall retain title to the Leased Property, and (c) in addition to Lessee's other
obligations hereunder, Lessee will reimburse Lessor and the Agent, within ten
(10) Business Days after written request, for all reasonable costs and expenses
incurred by Lessor or Agent during the period ending on the first anniversary of
the Lease Termination Date in connection with the marketing, sale, closing or
transfer of the Leased Property, which obligation shall survive the Lease
Termination Date and the termination or expiration of this Lease.
<PAGE>
Section XV.8 Return of Leased Property. If Lessor retains title to the
Leased Property pursuant to Section 14.7 hereof or Lessee has properly exercised
the Surrender Option, then Lessee shall, on the Lease Termination Date, and at
its own expense, return possession of the Leased Property to Lessor for
retention by Lessor or, if Lessee properly exercises the Remarketing Option and
fulfills all of the conditions of Section 14.6 hereof and neither Lessor nor the
Agent rejects such purchase offer pursuant to Section 14.6, then Lessee shall,
on such Lease Termination Date, and at its own cost, transfer possession of the
Leased Property to the independent purchaser thereof, in each case by
surrendering the same into the possession of Lessor or such purchaser, as the
case may be, free and clear of all Liens other than Lessor Liens, in as good
condition as it was on the Closing Date (as modified by Alterations permitted by
this Lease), ordinary wear and tear excepted, and in compliance in all material
respects with Applicable Law. Lessee shall, on and within a reasonable time
before and after the Lease Termination Date, cooperate with Lessor and the
independent purchaser of the Leased Property in order to facilitate the
ownership and operation by such purchaser of the Leased Property after the Lease
Termination Date, which cooperation shall include the following, all of which
Lessee shall do on or before the Lease Termination Date or as soon thereafter as
is reasonably practicable: providing all available books and records regarding
the maintenance and ownership of the Leased Property and all know-how, data and
technical information relating thereto, providing a copy of the plans and
specifications for all of the Buildings, granting or assigning all licenses (to
the extent assignable) necessary for the operation and maintenance of the Leased
Property, and cooperating in seeking and obtaining all necessary Governmental
Action. Lessee shall have also paid the cost of all Alterations commenced prior
to the Lease Termination Date. The obligations of Lessee under this Article XIV
shall survive the expiration or termination of this Lease.
Section XV.9 Renewal. Subject to the conditions set forth herein, Lessee
may, by written notice to Lessor and the Agent given not later than twelve
months and not earlier than sixteen months, prior to the Lease Termination Date
then in effect, renew this Lease, for up to five years commencing on the date
following the Lease Termination Date then in effect, provided that Lessee may
only exercise such renewal option two times. No later than the date that is 45
days after the date the request to renew has been delivered to each of Lessor
and the Agent, the Agent will notify Lessee whether or not Lessor and the
Lenders consent to such renewal request (which consent, in the case of Lessor
and the Lenders, may be granted or denied in their sole discretion, and may be
conditioned on such conditions precedent as may be specified by Lessor and the
Lenders). If the Agent fails to respond within such time frame, such failure
shall be deemed to be a rejection of such request. If the Agent notifies Lessee
of Lessor's and the Lenders' consent to such renewal, such renewal shall be
effective.
<PAGE>
ARTICLE XVI.
LESSEE'S EQUIPMENT
After any repossession of the Leased Property (whether or not this Lease
has been terminated), as a result of the exercise of the Surrender Option or
otherwise, Lessee, at its expense and so long as such removal of such Alteration
shall not result in a violation of Applicable Law, shall, within a reasonable
time after such repossession or within sixty (60) days after Lessee's receipt of
Lessor's written request (whichever shall first occur), remove all of Lessee's
trade fixtures, refrigeration equipment, racking, conveyor systems, personal
property and equipment from the Leased Property (to the extent that the same can
be readily removed from the Leased Property without causing material damage to
the Leased Property); provided, however, that Lessee shall not remove any such
trade fixtures, refrigeration equipment, racking, conveyor systems, personal
property or equipment that has been financed by Lessor under the Operative
Documents or otherwise constituting Leased Property (or that constitutes a
replacement of such property). Any of Lessee's trade fixtures, refrigeration
equipment, racking, conveyor systems, personal property and equipment not so
removed by Lessee within such period shall be considered abandoned by Lessee,
and title thereto shall without further act vest in Lessor, and may be
appropriated, sold, destroyed or otherwise disposed of by Lessor without notice
to Lessee and without obligation to account therefor and Lessee will pay Lessor,
upon written demand, all reasonable costs and expenses incurred by Lessor in
removing, storing or disposing of the same and all costs and expenses incurred
by Lessor to repair any damage to the Leased Property caused by such removal.
Lessee will immediately repair at its expense all damage to the Leased Property
caused by any such removal (unless such removal is effected by Lessor, in which
event Lessee shall pay all reasonable costs and expenses incurred by Lessor for
such repairs). Lessor shall have no liability in exercising Lessor's rights
under this Article XV, nor shall Lessor be responsible for any loss of or damage
to Lessee's personal property and equipment, except for loss or damage resulting
from Lessor's gross negligence or willful misconduct.
ARTICLE XVII.
RIGHT TO PERFORM FOR LESSEE
If Lessee shall fail to perform or comply with any of its agreements
contained herein, Lessor may perform or comply with such agreement (provided
that, unless there is imminent danger of cancellation or termination of
insurance, or forfeiture or material damage to the Leased Property or Lessor's
interest therein, Lessor shall give Guarantor five (5) Business Days' prior
notice of its intent to so perform or comply), and Lessor shall not thereby be
deemed to have waived any default caused by such failure, and the amount of such
payment and the amount of the expenses of Lessor (including actual and
reasonable attorneys' fees and expenses) incurred in connection with such
payment or the performance of or compliance with such agreement, as the case may
be, shall be deemed Supplemental Rent, payable by Lessee to Lessor within thirty
(30) days after written demand therefor.
ARTICLE XVIII.
MISCELLANEOUS
Section XVIII.1 Reports. To the extent required under Applicable Law and
to the extent it is reasonably practical for Lessee to do so, Lessee shall
prepare and file in timely fashion, or, where such filing is required to be made
by Lessor or it is otherwise not reasonably practical for Lessee to make such
filing, Lessee shall prepare and deliver to Lessor (with a copy to the Agent)
within a reasonable time prior to the date for filing and Lessor shall file, any
material reports with respect to the condition or operation of the Leased
Property that shall be required to be filed with any Governmental Authority.
<PAGE>
Section XVIII.2 Binding Effect; Successors and Assigns; Survival. The
terms and provisions of this Lease, and the respective rights and obligations
hereunder of Lessor and Lessee, shall be binding upon their respective
successors, legal representatives and assigns (including, in the case of Lessor,
any Person to whom Lessor may transfer any Leased Property or any interest
therein in accordance with the provisions of the Operative Documents), and inure
to the benefit of their respective permitted successors and assigns, and the
rights hereunder of the Agent and the Lenders shall inure (subject to such
conditions as are contained herein) to the benefit of their respective permitted
successors and assigns. Lessee hereby acknowledges that Lessor has assigned all
of its right, title and interest to, in and under this Lease to the Agent and
the Lenders, and that all of Lessor's rights hereunder may be exercised by the
Agent so long as any Lender's Funded Amount remains unpaid in whole or in part.
Section XVIII.3 Quiet Enjoyment. Lessor covenants that it will not
interfere in Lessee's or any of its permitted sublessees' quiet use and
enjoyment of the Leased Property in accordance with this Lease during the Lease
Term, so long as no Event of Default has occurred and is continuing. Such right
of quiet use and enjoyment is independent of, and shall not affect, Lessor's
rights otherwise to initiate legal action to enforce the obligations of Lessee
under this Lease.
Section XVIII.4 Notices. Unless otherwise specified herein, all notices,
offers, acceptances, rejections, consents, requests, demands or other
communications to or upon the respective parties hereto shall be in writing and
shall be deemed to have been given as set forth in Section 8.2 of the Master
Agreement. All such notices, offers, acceptances, rejections, consents,
requests, demands or other communications shall be addressed as follows or to
such other address as any of the parties hereto may designate by written notice:
If to Lessee:
3900 Industrial Road
Harrisburg, Pennsylvania 17110
with a copy to:
Richfood Holdings, Inc.
4860 Cox Road, Suite 300
Richmond, Virginia 23060
Attn: Chief Financial Officer
If to Lessor:
1000 Ballpark Way,
Suite 304
Arlington, Texas 76011
<PAGE>
Section XVIII.5 Severability. Any provision of this Lease that shall be
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction, and Lessee shall remain
liable to perform its obligations hereunder except to the extent of such
unenforceability. To the extent permitted by Applicable Law, Lessee hereby
waives any provision of law that renders any provision hereof prohibited or
unenforceable in any respect.
Section XVIII.6 Amendment; Complete Agreemetns. Neither this Lease nor any
of the terms hereof may be terminated, amended, supplemented, waived or modified
orally, except by an instrument in writing signed by Lessor and Lessee in
accordance with the provisions of Section 8.4 of the Master Agreement. This
Lease, together with the other Operative Documents, is intended by the parties
as a final expression of their lease agreement and as a complete and exclusive
statement of the terms thereof, all negotiations, considerations and
representations between the parties having been incorporated herein and therein.
No course of prior dealings between the parties or their officers, employees,
agents or Affiliates shall be relevant or admissible to supplement, explain, or
vary any of the terms of this Lease or any other Operative Document. Acceptance
of, or acquiescence in, a course of performance rendered under this or any prior
agreement between the parties or their Affiliates shall not be relevant or
admissible to determine the meaning of any of the terms of this Lease or any
other Operative Document. No representations, undertakings, or agreements have
been made or relied upon in the making of this Lease other than those
specifically set forth in the Operative Documents.
Section XVIII.7 Construction. This Lease shall not be construed more
strictly against any one party, it being recognized that both of the parties
hereto have contributed substantially and materially to the preparation and
negotiation of this Lease.
Section XVIII.8 Headings. The Table of Contents and headings of the
various Articles and Sections of this Lease are for convenience of reference
only and shall not modify, define or limit any of the terms or provisions
hereof.
<PAGE>
Section XVIII.9 Counterparts. Subject to Section 17.18, this Lease may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
Section XVIII.10 GOVERNING LAW. THIS LEASE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA,
WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES, EXCEPT AS TO MATTERS RELATING TO
THE CREATION OF THE LEASEHOLD ESTATES HEREUNDER AND THE EXERCISE OF RIGHTS AND
REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE COMMONWEALTH OF PENNSYLVANIA. WITHOUT LIMITING
THE FOREGOING, IN THE EVENT THAT THIS LEASE IS DEEMED TO CONSTITUTE A FINANCING,
THE LAWS OF THE STATE OF GEORGIA, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES, SHALL GOVERN THE CREATION, TERMS AND PROVISIONS OF THE INDEBTEDNESS
EVIDENCED HEREBY, BUT THE LIEN CREATED HEREBY AND THE ENFORCEMENT OF SAID LIEN
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
COMMONWEALTH OF PENNSYLVANIA.
Section XVIII.11 Discharge of Lessee's Obligations by its Affiliates.
Lessor agrees that performance of any of Lessee's obligations ates hereunder by
one or more of Lessee's Affiliates or one or more of Lessee's sublessees of the
Leased Property or any part thereof shall constitute performance by Lessee of
such obligations to the same extent and with the same effect hereunder as if
such obligations were performed by Lessee, but no such performance shall excuse
Lessee from any obligation not performed by it or on its behalf under the
Operative Documents.
<PAGE>
Section XVIII.12 Liability of Lessor Limited. Except as otherwise
expressly provided below in this Section 17.12, it is expressly understood and
agreed by and between Lessee, Lessor and their respective successors and assigns
that nothing herein contained shall be construed as creating any liability of
Lessor or any of its Affiliates or any of their respective officers, directors,
employees or agents, individually or personally, to perform any covenant, either
express or implied, contained herein, all such liability, if any, being
expressly waived by Lessee and by each and every Person now or hereafter
claiming by, through or under Lessee, and that, so far as Lessor or any of its
Affiliates or any of their respective officers, directors, employees or agents,
individually or personally, is concerned, Lessee and any Person claiming by,
through or under Lessee shall look solely to the right, title and interest of
Lessor in the Leased Property and any proceeds from Lessor's sale or encumbrance
thereof (provided, however, that Lessee shall not be entitled to any double
recovery) for the performance of any obligation under this Lease and under the
Operative Documents and the satisfaction of any liability arising therefrom,
provided that Lessor shall be liable for actual damages resulting from its or
any of its Affiliate's gross negligence, willful misconduct, misrepresentation
and breach of its covenants set forth in Section 5.29 or 5.30 of the Master
Agreement.
Sectin XVIII.13 Estoppel Certificates. Each party hereto agrees that at
any time and from time to time during the Lease Term, it will promptly, but in
no event later than thirty (30) days after request by the other party hereto,
execute, acknowledge and deliver to such other party or to any prospective
purchaser (if such prospective purchaser has signed a commitment or letter of
intent to purchase the Leased Property or any part thereof or any Note),
assignee or mortgagee or third party designated by such other party, a
certificate stating (a) that this Lease is unmodified and in force and effect
(or if there have been modifications, that this Lease is in force and effect as
modified, and identifying the modification agreements); (b) the date to which
Basic Rent has been paid; (c) whether or not there is any existing default by
Lessee in the payment of Basic Rent or any other sum of money hereunder, and
whether or not there is any other existing default by either party with respect
to which a notice of default has been served, and, if there is any such default,
specifying the nature and extent thereof; (d) whether or not, to the actual
knowledge of the signer, there are any setoffs, defenses or counterclaims
against enforcement of the obligations to be performed hereunder existing in
favor of the party executing such certificate and (e) other items that may be
reasonably requested; provided that no such certificate may be requested unless
the requesting party has a good faith reason for such request.
Section XVIII.14 No Joint Venture. Any intention to create a joint venture
or partnership relation between Lessor and Lessee is hereby expressly
disclaimed.
Section XVIII.15 No Accord and Satisfaction. The acceptance by Lessor of
any sums from Lessee (whether as Basic Rent or otherwise) in amounts which are
less than the amounts due and payable by Lessee hereunder is not intended, nor
shall be construed, to constitute an accord and satisfaction of any dispute
between Lessor and Lessee regarding sums due and payable by Lessee hereunder,
unless Lessor specifically deems it as such in writing.
<PAGE>
Section XVIII.16 No Merger. In no event shall the leasehold interests,
estates or rights of Lessee hereunder, or of the holder of any Notes secured by
a security interest in this Lease, merge with any interests, estates or rights
of Lessor in or to the Leased Property, it being understood that such leasehold
interests, estates and rights of Lessee hereunder, and of the holder of any
Notes secured by a security interest in this Lease, shall be deemed to be
separate and distinct from Lessor's interests, estates and rights in or to the
Leased Property, notwithstanding that any such interests, estates or rights
shall at any time or times be held by or vested in the same person, corporation
or other entity.
Section XVIII.17 Survival. The obligations of Lessee to be performed under
this Lease prior to the Lease Termination Date and the obligations of Lessee
pursuant to Article III, Articles X, XI, XIII, Sections 14.2, 14.3, 14.4, 14.5,
14.8, Articles XIV, XV, and XVI, and Sections 17.10 and 17.12 shall survive the
expiration or termination of this Lease. The extension of any applicable statute
of limitations by Lessor, Lessee, the Agent or any Indemnitee shall not affect
such survival.
Section XVIII.18 Chattel Paper. To the extent that this Lease constitutes
chattel paper (as such term is defined in the Uniform Commercial Code in any
applicable jurisdiction), no security interest in this Lease may be created
through the transfer or possession of any counterpart other than the original
counterpart, which shall be identified as the original counterpart by the
receipt of the Agent.
Section XVIII.19 Time of Essence. Time is of the essence of this Lease.
Section XVIII.20 Recordation of Lease. Lessee will, at its expense, cause
this Lease or memorandum of lease (if permitted by Applicable Law) to be
recorded in the proper office or offices in the States and the municipalities in
which the Land is located. Lessor agrees to execute and deliver a memorandum of
lease, provided it is reasonably satisfactory to Lessor.
<PAGE>
Section XVIII.21 Investment of Security Funds. Any amounts not payable to
Lessee pursuant to any provision of Article VIII, X or XIV or this Section 17.21
solely because an Event of Default shall have occurred and be continuing shall
be held by the Agent as security for the obligations of Lessee under this Lease
and the Master Agreement. At such time as no Event of Default shall be
continuing, such amounts, net of any amounts previously applied to Lessee's
obligations hereunder or under the Master Agreement, shall be paid to Lessee.
Any such amounts which are held by the Agent pending payment to Lessee shall
until paid to Lessee, as provided hereunder or, as long as the Loan Agreement is
in effect, until applied against Lessee's obligations herein and under the
Master Agreement and distributed as provided in the Loan Agreement or herein
(after the Loan Agreement is no longer in effect) in connection with any
exercise of remedies hereunder, be invested by the Agent or Lessor, as the case
may be as directed from time to time in writing by Lessee (provided, however, if
an Event of Default has occurred and is continuing it will be directed by the
Agent) and at the expense and risk of Lessee, in investments approved by the
Agent. Any gain (including interest received) realized as the result of any such
investment (net of any fees, commissions and other expenses, if any, incurred in
connection with such investment) shall be applied in the same manner as the
principal invested.
[Signature page follows]
<PAGE>
IN WITNESS WHEREOF, the undersigned have each caused this Lease Agreement
to be duly executed and delivered and attested by their respective officers
thereunto duly authorized as of the day and year first above written.
Witnessed by: SUPER RITE FOODS, INC.
as Lessee
__________________________ By____________________________
Name: Name:
Title:
__________________________
Name:
<PAGE>
ATLANTIC FINANCIAL GROUP, LTD., as Lessor
By: Atlantic Financial Managers,
Witnessed by: Inc., its General Partner
__________________________ By____________________________
Name: Name:
Title:
___________________________
Name:
<PAGE>
STATE OF
: SS:
COUNTY OF :
On this, the day of , 1998, before me, a Notary Public in
and for the above-named State and County, the undersigned officer, personally
appeared , who acknowledged self to be the of
Atlantic Financial Managers, Inc., a Texas corporation and the general partner
of Atlantic Financial Group, Ltd., a Texas limited partnership, and that s/he as
such officer, being authorized to do so, executed the foregoing instrument for
the purpose therein contained by signing the name of the limited partnership
by self as the of its corporate general partner.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_____________________
Notary Public
(SEAL)
My commission expires: _________________________
<PAGE>
STATE OF )
) SS.:
COUNTY OF )
I HEREBY CERTIFY that on this day, before me, an officer duly authorized
in the state aforesaid and in the county aforesaid to take acknowledgments,
personally appeared _____________ and ________________________, to me known to
be the _______ of SUPER RITE FOODS, INC., a Delaware corporation, who are
described in and who executed the foregoing instrument and who are either
personally known to me or produced ___________ as identification, and who
acknowledged before me that they executed the same for the purposes expressed
therein.
WITNESS my hand and official seal in the county and state aforesaid this
__________ day of April, 1998.
(Notary Signature)
(NOTARY SEAL)
(Notary Name Printed)
NOTARY PUBLIC
<PAGE>
APPENDIX A
to
Master Agreement, Lease and
Loan Agreement
DEFINITIONS AND INTERPRETATION
A. Interpretation. In each Operative Document, unless a clear
contrary intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are
permitted by the Operative Documents;
(iii) reference to any gender includes each other gender;
(iv) reference to any agreement (including any Operative Document),
document or instrument means such agreement, document or instrument as
amended, supplemented or modified and in effect from time to time in
accordance with the terms thereof and, if applicable, the terms of the
other Operative Documents and reference to any promissory note includes
any promissory note which is an extension or renewal thereof or a
substitute or replacement therefor;
(v) reference to any Applicable Law means such Applicable Law as
amended, modified, codified, replaced or reenacted, in whole or in part,
and in effect from time to time, including rules and regulations
promulgated thereunder and reference to any section or other provision of
any Applicable Law means that provision of such Applicable Law from time
to time in effect and constituting the substantive amendment,
modification, codification, replacement or reenactment of such section or
other provision;
(vi) reference in any Operative Document to any Article, Section,
Appendix, Schedule or Exhibit means such Article or Section thereof or
Appendix, Schedule or Exhibit thereto;
(vii) "hereunder", "hereof", "hereto" and words of similar import
shall be deemed references to an Operative Document as a whole and not to
any particular Article, Section or other provision hereof;
<PAGE>
(viii) "including" (and with correlative meaning "include") means
including without limiting the generality of any description preceding
such term;
(ix) "or" is not exclusive; and
(x) relative to the determination of any period of time, "from"
means "from and including" and "to" means "to but excluding".
C. Accounting Terms. In each Operative Document, unless expressly
otherwise provided, accounting terms shall be construed and interpreted, and
accounting determinations and computations shall be made, in accordance with
GAAP.
D. Conflict in Operative Documents. If there is any conflict between any
Operative Documents, such Operative Document shall be interpreted and construed,
if possible, so as to avoid or minimize such conflict but, to the extent (and
only to the extent) of such conflict, the Master Agreement shall prevail and
control.
E. Legal Representation of the Parties. The Operative Documents were
negotiated by the parties with the benefit of legal representation and any rule
of construction or interpretation otherwise requiring the Operative Document to
be construed or interpreted against any party shall not apply to any
construction or interpretation hereof or thereof.
F. Defined Terms. Unless a clear contrary intention appears, terms defined
herein have the respective indicated meanings when used in each Operative
Document.
"A Loan" means the A Percentage of the aggregate Fundings made pursuant to
the Loan Agreement and the Master Agreement.
"A Note" is defined in Section 2.2 of the Loan Agreement.
"A Percentage" means 85%.
"Address" means with respect to any Person, its address set forth in
Schedule 8.2 to the Master Agreement or such other address as it shall have
identified to the parties to the Master Agreement in writing.
"Adjusted LIBOR Rate" means the LIBOR Rate adjusted to include (if imposed
upon any Funding Party) the cost, in basis points, of any applicable reserve
requirements of the Board of Governors of the Federal Reserve System (or any
successor), applicable to "Eurocurrency Liabilities" pursuant to Regulation D or
other then-applicable regulations of the Board of Governors.
<PAGE>
"Affiliate" means, with respect to any Person, any other Person (other
than a Subsidiary of such first Person) which directly or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, such first Person or any of its Subsidiaries. The term "control"
means (a) the power to vote five percent (5%) or more of the securities or other
equity interests of a Person having ordinary voting power, or (b) the
possession, directly or indirectly, of any other power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
"After-Tax Basis" means (a) with respect to any payment to be received by
an Indemnitee (which, for purposes of this definition, shall include any Tax
Indemnitee), the amount of such payment supplemented by a further payment or
payments so that, after deducting from such payments the amount of all Taxes
(net of any current credits, deductions or other Tax benefits arising from the
payment by the Indemnitee of any amount, including Taxes, for which the payment
to be received is made) imposed currently on the Indemnitee by any Governmental
Authority or taxing authority with respect to such payments, the balance of such
payments shall be equal to the original payment to be received and (b) with
respect to any payment to be made by any Indemnitee, the amount of such payment
supplemented by a further payment or payments so that, after increasing such
payment by the amount of any current credits or other Tax benefits realized by
the Indemnitee under the laws of any Governmental Authority or taxing authority
resulting from the making of such payments, the sum of such payments (net of
such credits or benefits) shall be equal to the original payment to be made;
provided, however, for the purposes of this definition, and for purposes of any
payment to be made to either the Lessee or an Indemnitee on an after-tax basis,
it shall be assumed that (i) federal, state and local taxes are payable at the
highest combined marginal federal and state statutory income tax rate (taking
into account the deductibility of state income taxes for federal income tax
purposes) applicable to corporations from time to time and (ii) such Indemnitee
or the Lessee has sufficient income to utilize any deductions, credits (other
than foreign tax credits, the use of which shall be determined on an actual
basis) and other Tax benefits arising from any payments described in clause (b)
of this definition.
"Agent" means SunTrust Bank, Atlanta, a Georgia banking corporation, in
its capacity as agent under the Master Agreement and the Loan Agreement.
"Alterations" means fixtures, alterations, improvements, modifications
and additions to the Leased Property.
<PAGE>
"Applicable Law" means all applicable provisions of constitutions, laws,
statutes, ordinances, rules, treaties, regulations, permits, licenses,
approvals, interpretations and orders of courts or Governmental Authorities and
all orders and decrees of all courts and arbitrators.
"Applicable Margin" means (i) means on the Closing Date, Category 5 and
(ii) thereafter shall be determined by reference to the Consolidated Funded Debt
to Consolidated EBITDA ratio of the Guarantor in accordance with the following
table:
Consolidated Funded Debt to Applicable
Consolidated EBITDA Ratio Category Applicable Margin
Base Rate + LIBOR Rate +
Less than or equal to Category 1 0% .400%
2.0 to 1
Greater than 2.0 to 1 Category 2 0% .500%
but less than or
equal to 2.5 to 1
Greater than 2.5 to 1 Category 3 0% .625%
but less than or
equal to 3.0 to 1
Greater than 3.0 to 1 Category 4 0% .750%
but less than or
equal to 3.5 to 1
Greater than 3.5 to 1 Category 5 0% 1.00%
The Applicable Margin shall be automatically adjusted by the Agent on the fifth
Business Day after the receipt by the Agent of a compliance certificate from the
Guarantor evidencing a change in the Consolidated Funded Debt to Consolidated
EBITDA ratio of the Guarantor which would cause a change in the Applicable
Margin in accordance with the preceding table. In the event that the Guarantor
does not enter into an amendment to the Credit Agreement providing for, among
other things, the pricing set forth above and a pledge of the stock of the
Guarantor's Subsidiaries within 90 days of the Closing Date, each Applicable
Margin for LIBOR Rate Advances shall be increased by 0.10%.
"Appraisal" is defined in Section 3.1 of the Master Agreement.
"Appraiser" means an MAI appraiser satisfactory to the Agent and the
Lessor.
"Assignment and Acceptance" is defined in Section 6.2(a) of the Master
Agreement.
<PAGE>
"Assignment of Lease and Rents" means the Assignment of Lease and Rents,
dated as of the Closing Date, from the Lessor to the Agent, substantially in the
form of Exhibit B to the Master Agreement.
"Awards" means any award or payment received by or payable to the Lessor
or the Lessee on account of any Condemnation or Event of Taking (less the actual
costs, fees and expenses incurred in the collection thereof, for which the
Person incurring the same shall be reimbursed from such award or payment).
"B Loan" means the B Percentage of the aggregate Fundings made pursuant to
the Loan Agreement and the Master Agreement.
"B Note" is defined in Section 2.2 of the Loan Agreement.
"B Percentage" means 11.5%.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended.
"Base Rate" means, at any time, the higher of (a) the Prime Rate or (b)
the Federal Funds Rate plus 2 of 1%; each change in the Base Rate shall take
effect simultaneously with the corresponding change or changes in the Prime Rate
or the Federal Funds Rate.
"Base Rate Advance" means any portion of the Funded Amounts bearing
interest or Yield based upon the Base Rate.
"Base Term" means (a) the period commencing on the Closing Date and ending
on the fifth (5th) anniversary of the Closing Date or (b) such shorter period as
may result from earlier termination of the Lease as provided therein.
"Basic Rent" means the rent payable pursuant to Section 3.1 of the Lease,
determined in accordance with the following: each installment of Basic Rent
payable on any Payment Date shall be in an amount equal to the sum of (i) the
interest accrued on the Loans during the Rent Period ending on such Payment Date
pursuant to the Loan Agreement, plus (ii) the Yield accrued during the Rent
Period ending on such Payment Date.
"Board of Directors", with respect to a corporation, means either the
Board of Directors or any duly authorized committee of that Board which pursuant
to the by-laws of such corporation has the same authority as that Board as to
the matter at issue.
<PAGE>
"Building" means the buildings, structures and improvements located or to
be located on the Land, along with all fixtures used or useful in connection
with the operation of the Leased Property, including, without limitation, all
furnaces, boilers, compressors, elevators, fittings, pipings, connectives,
conduits, ducts, partitions, equipment and apparatus of every kind and
description now or hereafter affixed or attached or used or useful in connection
with the Building, all equipment financed by the Lessor and/or the Lenders and
all Alterations (including all restorations, repairs, replacements and
rebuilding of such buildings, improvements and structures) thereto (but in each
case excluding trade fixtures, equipment, refrigeration equipment, racking and
conveyor systems financed other than by the Lessor or the Lenders).
"Business Day" means any day other than a Saturday, Sunday or other day on
which banks are required or authorized to be closed for business in Atlanta,
Georgia.
"Capital Asset" means, with respect to the Guarantor and its Subsidiaries,
any asset that should, in accordance with GAAP, be classified and accounted for
as a capital asset on a Consolidated balance sheet of the Guarantor and its
Subsidiaries.
"Capital Lease" means, with respect to the Guarantor and its Subsidiaries,
any lease of any property that should, in accordance with GAAP, be classified
and accounted for as a capital lease on a Consolidated balance sheet of the
Guarantor and its Subsidiaries.
"Casualty" means an event of damage or casualty relating to all or part of
the Leased Property that does not constitute an Event of Loss.
"Claims" means liabilities, obligations, damages, losses, demands,
penalties, fines, claims, actions, suits, judgments, proceedings, settlements,
utility charges, costs, expenses and disbursements (including, without
limitation, reasonable legal fees and expenses) of any kind and nature
whatsoever.
"Closing Date" means the date on which the Leased Property is acquired by
the Lessor from the Seller and the Funding occurs under the Master Agreement.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations thereunder, each as amended, supplemented or otherwise modified.
<PAGE>
"Commitment" means as to each Funding Party, its obligation to make
Fundings as investments in the Leased Property, or to make Loans to the Lessor,
as the case may be, in an aggregate amount not to exceed at any one time
outstanding the amount set forth for such Funding Party on Schedule 2.2 to the
Master Agreement.
"Commitment Percentage" means as to any Funding Party, at a particular
time, the percentage of the aggregate Commitments of all Funding Parties in
effect at such time constituted by such Funding Party's Commitment, as such
percentage is shown for such Funding Party on Schedule 2.2 to the Master
Agreement (as it may be adjusted from time to time pursuant to Section 6 of the
Master Agreement).
"Competitor" means any Person who derives a material portion of its
revenues from grocery wholesaling or retailing operations.
"Condemnation" means any condemnation, requisition, confiscation, seizure
or other taking or sale of the use, occupancy or title to the Leased Property or
any part thereof in, by or on account of any actual eminent domain proceeding or
other action by any Governmental Authority or other Person under the power of
eminent domain, which in any case does not constitute an Event of Taking. A
Condemnation shall be deemed to have "occurred" on the earliest of the dates
that use, occupancy or title is taken.
"Consolidated" means, when used with reference to financial statements or
financial statement items of the Guarantor and its Subsidiaries, such statements
or items on a consolidated basis in accordance with applicable principles of
consolidation under GAAP.
"Consolidated EBITDA" means, for any period and without duplication, the
Consolidated net income of the Guarantor and its Subsidiaries for such period
plus the aggregate amount deducted in determining such Consolidated net income
for such period with respect to interest, taxes, depreciation and amortization;
provided that, in calculating Consolidated EBITDA for any period, (i) any
Subsidiary acquired during such period shall be treated as if it were a
Subsidiary for the entire period and (ii) any non-cash gains or losses resulting
from the sale, conversion or other disposition of assets, any gains or losses
resulting from the write-up or write-down of assets, any equity in the
unremitted earnings of any company which is not a Wholly-Owned Subsidiary and
any other non-cash extraordinary items shall be disregarded.
<PAGE>
"Consolidated EBITDAR" means, for any period and without duplication, the
Consolidated net income of the Guarantor and its Subsidiaries for such period
plus the aggregate amount deducted in determining such Consolidated net income
for such period with respect to interest, taxes, depreciation, amortization and
net rent (including, without limitation, rent under synthetic and other
structured leases); provided that, in calculating Consolidated EBITDAR for any
period, (i) any Subsidiary acquired during such period shall be treated as if it
were a Subsidiary for the entire period, and (ii) any non-cash gains or losses
resulting from the sale, conversion or other disposition of assets, any gains or
losses resulting from the write-up or write-down of assets, any equity in the
unremitted earnings of any company which is not a Wholly-Owned Subsidiary and
any other non-cash extraordinary items shall be disregarded.
"Consolidated Fixed Charges" means, for any period and without
duplication, the sum of the Consolidated interest expense (including, without
limitation, the portion of any obligation under Capital Leases allocable to
Consolidated interest expense in accordance with GAAP) of the Guarantor and its
Subsidiaries for such period, the Consolidated net rent expense (including,
without limitation, rent expense under synthetic and other structured leases) of
the Guarantor and its Subsidiaries for such period, the Consolidated current
maturities of long-term debt of the Guarantor and its Subsidiaries as of the end
of such period, and the Consolidated obligations of the Guarantor and its
Subsidiaries with respect to the principal components of payments under Capital
Leases which were payable during such period.
"Consolidated Funded Debt" means, at any date and without duplication, the
sum of (i) the Consolidated Debt of the Guarantor and its Subsidiaries of the
types described in clauses (a), (b), (c) and (d) of the definition of Debt at
such date (including current maturities of such Debt), and (ii) the aggregate
implied principal amount of synthetic and other structured leases of the
Guarantor and its Subsidiaries at such date calculated in accordance with
applicable Federal income tax laws and regulations.
"Consolidated Net Tangible Assets" means, at any date and without
duplication, the aggregate amount of assets of the Guarantor and its
Subsidiaries (less applicable reserves and other properly deductible items)
after deducting therefrom (i) all current liabilities, and (ii) all goodwill,
trade names, trademarks, patents, unamortized debt discount and expense and
other like intangibles, all as set forth on the most recent balance sheet of the
Guarantor and its Subsidiaries and computed in accordance with GAAP.
<PAGE>
"Contractual Obligation", as applied to any Person, means any provision of
any Securities issued by that Person or any indenture, mortgage, deed of trust,
contract, undertaking, agreement, instrument or other document to which that
Person is a party or by which it or any of its properties is bound or to which
it or any of its properties is subject (including, without limitation, any
restrictive covenant affecting any of the properties of such Person).
"Credit Agreement" means the Credit Agreement, dated as of February 27,
1998, by and among the Guarantor, the lenders party thereto, First Union
National Bank, as administrative agent, Crestar Bank, as syndicating agent, and
SunTrust Bank, Atlanta, as documentation agent, together with any replacements
thereof.
"Debt" means, with respect to the Guarantor and its Subsidiaries at any
date and without duplication, the sum of the following calculated in accordance
with GAAP: (a) all liabilities, obligations and indebtedness for borrowed money
including but not limited to obligations evidenced by bonds, debentures, notes
or other similar instruments of any such Person, (b) all obligations to pay the
deferred purchase price of property or services of any such Person, except trade
payables arising in the ordinary course of business, (c) all obligations of any
such Person as lessee with respect to the principal components of Capital
Leases, (d) all Debt of any other Person secured by a Lien on any asset of any
such Person, (e) all Guaranty Obligations of any such Person, (f) all
obligations, contingent or otherwise, of any such Person relative to the face
amount of letters of credit, whether or not drawn, including without limitation
any reimbursement obligation with respect thereto, and banker's acceptances
issued for the account of any such Person and (g) all obligations incurred by
any such Person pursuant to Hedging Agreements.
"Deed" means a Special Warranty Deed, dated the Closing Date, from the
Seller to the Lessor, conveying the Leased Property.
"Eligible Assignee" means, with respect to any assignment of the rights,
interests and obligations of a Lender under the Master Agreement, a Person that
at the time of such assignment is not itself or through a Subsidiary a
Competitor and is (a) a commercial bank organized under the laws of the United
States or any state thereof or under the laws of a country which is a member of
the Organization for Economic Cooperation and Development, having combined
capital and surplus in excess of $500,000,000, (b) a finance company, insurance
company or other financial institution which in the ordinary course of business
extends credit of the type extended hereunder and that has total assets in
excess of $1,000,000,000, (c) already a Lender (whether as an original party to
the Master Agreement or as the assignee of another Lender), (d) the successor
(whether by transfer of assets, merger or otherwise) to all or substantially all
of the commercial lending business of the assigning Lender, or (e) any other
Person that has been approved in writing as an Eligible Assignee by the
Guarantor and the Agent.
<PAGE>
"Employee Benefit Plan" means any employee benefit plan within the meaning
of Section 3(3) of ERISA which (a) is maintained for employees of the Guarantor
or any ERISA Affiliate or (b) has at any time within the preceding six years
been maintained for the employees of the Guarantor or any current or former
ERISA Affiliate.
"Environmental Audit" means a Phase I Environmental Assessment, dated no
more than 60 days prior to the Closing Date, by an environmental services firm
selected by the Lessee and reasonably satisfactory to the Funding Parties.
"Environmental Laws" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations and orders of courts or Governmental Authorities, relating to
the protection of human health or the environment, including, but not limited
to, requirements pertaining to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation, handling, reporting, licensing,
permitting, investigation or remediation of Hazardous Materials.
"Environmental Permits" means all permits, licenses, authorizations,
certificates and approvals of Governmental Authorities required by Environmental
Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, and the
rules and regulations thereunder, each as amended, supplemented or otherwise
modified.
"ERISA Affiliate" means any Person who together with the Guarantor is
treated as a single employer within the meaning of Section 414(b), (c), (m) or
(o) of the Code or Section 4001(b) of ERISA.
"Eurodollar Reserve Percentage" means, for any day, the percentage
(expressed as a decimal and rounded upwards, if necessary, to the next higher
1/100th of 1%) which is in effect for such day as prescribed by the Federal
Reserve Board (or any successor) for determining the maximum reserve requirement
(including without limitation any basic, supplemental or emergency reserves) in
respect of Eurocurrency liabilities or any similar category of liabilities for a
member bank of the Federal Reserve System in New York City.
"Event of Default" means any event or condition designated as an "Event of
Default" in Article XII of the Lease.
"Event of Loss" is defined in Section 10.1 of the Lease.
"Event of Taking" is defined in Section 10.2 of the Lease.
<PAGE>
"Fair Market Rental Value" means the fair market rental value as
determined by an independent appraiser selected by the Lessee and reasonably
acceptable to the Agent that would be obtained in an arm's-length lease between
an informed and willing lessee and an informed and willing lessor, in either
case under no compulsion to lease, and neither of which is related to the Lessor
or Lessee for the lease of the Leased Property on the terms set forth, or
referred to, in the Lease. Such fair market rental value shall be calculated as
the value for the use of the Leased Property to be leased in place at the Land,
assuming, in the determination of such fair market rental value, that the Leased
Property is in the condition and repair required to be maintained by the terms
of the Lease.
"Fair Market Sales Value" means, with respect to the Leased Property or
any portion thereof, the fair market sales value as determined by an independent
appraiser selected by the Lessee and reasonably acceptable to by the Agent that
would be obtained in an arm's-length transaction between an informed and willing
buyer (other than a lessee currently in possession) and an informed and willing
seller, under no compulsion, respectively, to buy or sell and neither of which
is related to the Lessor or Lessee, for the purchase of the Leased Property.
Such fair market sales value shall be calculated as the value for the use of the
Leased Property, assuming, in the determination of such fair market sales value,
that the Leased Property is in the condition and repair required to be
maintained by the terms of the Lease.
"Federal Funds Rate" means, the rate per annum (rounded upwards, if
necessary, to the next higher 1/100th of 1%) representing the daily effective
federal funds rate as quoted by the Agent and confirmed in Federal Reserve Board
Statistical Release H.15 (519) or any successor or substitute publication
selected by the Agent. If, for any reason, such rate is not available, then
"Federal Funds Rate" shall mean a daily rate which is determined, in the opinion
of the Agent, to be the rate at which federal funds are being offered for sale
in the national federal funds market at 9:00 a.m. (Atlanta time). Rates for
weekends or holidays shall be the same as the rate for the most immediate
preceding Business Day.
"Final Rent Payment Date" is defined in Section 13.1(e) of the Lease.
"Fiscal Year" means the fiscal year of the Guarantor and its Subsidiaries
ending on the Saturday nearest April 30.
"Funded Amount" means, as to the Lessor, the outstanding balance of the
Lessor's Invested Amount (excluding the Yield thereon), and, as to each Lender,
the outstanding principal of such Lender's Loans.
<PAGE>
"Funding" means any funding by the Funding Parties pursuant to
Section 2.2 of the Master Agreement.
"Funding Parties" means the Lessor and the Lenders, collectively.
"Funding Party Balance" means (i) for the Lessor as of any date of
determination, an amount equal to the sum of the outstanding Lessor's Invested
Amount, all accrued and unpaid Yield on such outstanding Lessor's Invested
Amount, all unpaid related fees owing to the Lessor under the Operative
Documents, and all other related amounts owing to the Lessor by the Lessee under
the Operative Documents, and (ii) for any Lender as of any date of
determination, an amount equal to the sum of the outstanding related Loans of
such Lender, all accrued and unpaid interest thereon, all unpaid related fees
owing to such Lender under the Operative Documents, and all other amounts owing
to such Lender by the Lessee under the Operative Documents.
"Funding Request" is defined in Section 2.2 of the Master Agreement.
"GAAP" means generally accepted accounting principles, as recognized from
time to time by the American Institute of Certified Public Accountants and the
Financial Accounting Standards Board, consistently applied and maintained on a
consistent basis for the Guarantor and its Subsidiaries throughout the period
indicated and consistent with the prior financial practice of the Guarantor and
its Subsidiaries.
"General Partner" means Atlantic Financial Managers, Inc., a Texas
corporation.
"Governmental Action" means all permits, authorizations, registrations,
consents, approvals, waivers, exceptions, variances, orders, judgments, decrees,
licenses, exemptions, publications, filings, notices to and declarations of or
with, or required by, any Governmental Authority, or required by any Applicable
Law and shall include, without limitation, all citings, environmental and
operating permits and licenses that are required for the use, occupancy, zoning
and operation of the Leased Property.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities.
<PAGE>
"Governmental Authority" means any nation, province, state or political
subdivision thereof, and any government or any Person exercising executive,
legislative, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Guarantor" means Richfood Holdings, Inc., a Virginia corporation.
"Guaranty" means the Guaranty, dated as of April 20, 1998 by the Guarantor
in favor of the Funding Parties.
"Guaranty Obligation" means, with respect to the Guarantor and its
Subsidiaries, without duplication, any obligation, contingent or otherwise, of
any such Person pursuant to which such Person has directly or indirectly
guaranteed any Debt or other similar obligation of any other Person and, without
limiting the generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of any such Person (a) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to keep
well, to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement condition or otherwise) or (b) entered into for the
purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term Guaranty
Obligation shall not include endorsements for collection or deposit in the
ordinary course of business.
"Hazardous Material" means any substance, waste or material which is
toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise hazardous, including petroleum, crude oil or any fraction
thereof, petroleum derivatives, by products and other hydrocarbons, or which is
or becomes regulated under any Environmental Law by any Governmental Authority,
including any agency, department, commission, board or instrumentality of the
United States, any jurisdiction in which a Leased Property is located or any
political subdivision thereof and also including, without limitation, asbestos,
urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs") and radon
gas.
"Hedging Arrangement" means any agreement with respect to an interest rate
swap, collar, cap, floor or a forward rate agreement or other agreement
regarding the hedging of interest rate risk exposure executed in connection with
hedging the interest rate exposure of the Guarantor, and any confirming letter
executed pursuant to such hedging agreement.
<PAGE>
"Indemnitee" means the Agent (in its individual capacity and in its
capacity as Agent), each Lender, the Lessor, and their respective Affiliates,
successors, permitted assigns, permitted transferees, employees, officers,
directors and agents; provided, however, that in no event shall the Lessee be an
Indemnitee.
"Indemnitee Group" means the respective Affiliates, employees, officers,
directors and agents of the Agent (in its individual capacity), each Lender or
the Lessor, as applicable; provided, however, that in no event shall the Lessee
be a member of the Indemnitee Group.
"Land" means the land described in Appendix A to the Lease.
"Lease" means the Lease Agreement, dated as of April 20, 1998, between the
Lessee and the Lessor.
"Lease Balance" means as of any date of determination, an amount equal to
the aggregate sum of the outstanding Funded Amounts of all Funding Parties, all
accrued and unpaid interest on the Loans, all accrued and unpaid Yield on the
Lessor's Invested Amounts, all unpaid fees owing to the Funding Parties under
the Operative Documents, and all other amounts owing to the Funding Parties by
the Lessee under the Operative Documents.
"Lease Term" with respect to the Lease means (a) the Base Term, as it may
be renewed pursuant to Section 14.9 of the Lease or (b) such shorter period as
may result from earlier termination of the Lease as provided therein.
"Lease Termination Date" means the last day of the Lease Term, as the same
may be accelerated pursuant to the Lease.
"Leased Property" means the Land and the Building(s).
"Lender Basic Rent" means, for any Rent Period under the Lease, the
aggregate amount of interest accrued on the Loans pursuant to Section 2.5 of the
Loan Agreement during such Rent Period.
"Lenders" means such financial institutions as are, or who may hereafter
become, parties to the Loan Agreement as Lenders to the Lessor.
"Lending Office" with respect to any Funding Party means the office listed
for such Funding Party on Schedule 8.2 of the Master Agreement.
"Lessee" is defined in the preamble to the Master Agreement.
"Lessor" is defined in the preamble to the Master Agreement.
"Lessor Basic Rent" means, for any Rent Period, the Yield accrued on
the Invested Amounts during such Rent Period.
<PAGE>
"Lessor Liens" means Liens on or against the Leased Property or any
portion thereof, the Lease, any other Operative Document or any payment of Rent
(a) which result from any act or omission of, or any Claim against, the Lessor
or any of its Affiliates (including the General Partner)unrelated to the
transactions contemplated by the Operative Documents or that results from a
violation by the Lessor of the Operative Documents or (b) which result from any
Tax owed by the Lessor or any of its Affiliates (including the General Partner),
except any Lien arising pursuant to Section 5.30 of the Master Agreement and any
Tax for which the Lessee is obligated to indemnify (including, without
limitation, in the foregoing exception, any assessments with respect to the
Leased Property noted on the related Title Policy or assessed in connection with
any construction or development by the Lessee).
"Lessor Side Letter" means the letter agreement between Lessor and Lessee,
dated as of April 20, 1998.
"Lessor's Invested Amount" means the amounts funded by the Lessor pursuant
to Section 2 of the Master Agreement that are not proceeds of Loans by a Lender.
"LIBOR" means the rate of interest per annum determined on the basis of
the rate for deposits in Dollars in minimum amounts of at least $5,000,000 for a
period equal to the applicable Rent Period which appears on the Telerate Page
3750 at approximately 11:00 a.m. (London time) two (2) Business Days prior to
the first day of the applicable Rent Period (rounded upward, if necessary, to
the nearest one-sixteenth of one percent (1/16%)). If, for any reason, such rate
does not appear on Telerate Page 3750, then "LIBOR" shall be determined by the
Agent to be the arithmetic average (rounded upward, if necessary, to the nearest
one-sixteenth of one percent (1/16%)) of the rate per annum at which deposits in
Dollars would be offered by first class banks in the London interbank market to
the Agent at approximately 11:00 a.m. (London time) two (2) Business Days prior
to the first day of the applicable Rent Period for a period equal to such Rent
Period and in an amount substantially equal to the amount of the applicable
Funded Amounts.
"LIBOR Rate" means a rate per annum (rounded upward, if necessary, to the
next higher 1/100th of 1%) determined by the Agent pursuant to the following
formula:
LIBOR Rate = LIBOR
---------------------------------
1 - Eurodollar Reserve Percentage
"LIBOR Rate Advance" means any portion of the Funded Amounts bearing
interest or Yield based upon the LIBOR Rate.
<PAGE>
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind with respect to such asset.
For the purposes of this definition, a Person shall be deemed to own subject to
a Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, Capital Lease or other
title retention agreement relating to such asset.
"Loan" shall have the meaning specified in Section 2.1 of the Loan
Agreement.
"Loan Agreement" means the Loan Agreement, dated as of April 20, 1998,
among the Lessor, the Agent and the Lenders.
"Loan Documents" means the Loan Agreement, the Notes, the Assignment of
Lease and Rents, the Mortgage and all documents and instruments executed and
delivered in connection with each of the foregoing.
"Loan Event of Default" means any of the events specified in Section 5.1
of the Loan Agreement, provided that any requirement for the giving of notice,
the lapse of time, or both, or any other condition, event or act has been
satisfied.
"Loan Potential Event of Default" means any event, condition or failure
which, with notice or lapse of time or both, would become a Loan Event of
Default.
"Loss Proceeds" is defined in Section 10.6 of the Lease.
"Master Agreement" means the Master Agreement, dated as of April 20, 1998,
among the Guarantor, the Lessee, the Lessor, the Agent and the Lenders.
"Material Adverse Change" means a material adverse change in the condition
(financial or otherwise), operations, business, properties or financial
prospects of the Guarantor or of the Guarantor and its Subsidiaries, taken as a
whole.
"Material Adverse Effect" means a material adverse effect upon the
condition (financial or otherwise), operations, performance, business, financial
prospects or properties of the Guarantor, or the Guarantor and its Subsidiaries,
taken as a whole, or the ability of the Lessee or the Guarantor to perform its
obligations under the Operative Documents or the value, utility or useful life
of the Leased Property, or the validity, enforceability or legality of any of
the Operative Documents, or the priority, perfection or status of any Funding
Party's interest in the Leased Property.
<PAGE>
"Material Contract" means (a) any multi-year supply agreement with a
customer producing revenue in excess of $50,000,000 per year or any other
contract or other agreement, written or oral, of the Guarantor or any of its
Subsidiaries involving monetary liability of or to any such Person in an amount
in excess of $10,000,000 per year, or (b) any other contract or agreement,
written or oral, of the Guarantor or any of its Subsidiaries the failure to
comply with which could reasonably be expected to have a Material Adverse
Effect.
"Mortgage" means that certain mortgage, deed of trust or security deed,
dated as of the Closing Date, by the Lessor to the Agent, in the form of Exhibit
C attached to the Master Agreement, with such modifications as are satisfactory
to the Lessor and the Agent in conformity with Applicable Law to assure
customary remedies in favor of the Agent in the jurisdiction where the Leased
Property is located.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which the Guarantor or any ERISA Affiliate is making or
is accruing an obligation to make contributions or has made or has accrued an
obligation to make contributions within the preceding six years.
"Notes" means the A Notes and the B Notes issued by the Lessor under the
Loan Agreement, and any and all notes issued in replacement or exchange therefor
in accordance with the provisions thereof.
"Obligations" means, all amounts owed by, and obligations of, the Lessor
to the Lenders or the Agent under the Loan Agreement, Notes and other Operative
Documents.
"Officer's Certificate" of a Person means a certificate signed by a
Responsible Officer.
"Officer's Compliance Certificate" is defined in Section 5.1(c) of the
Master Agreement.
"Operative Documents" means the Master Agreement, the Guaranty, the Deed,
the Lease, the Notes, the Loan Agreement, the Assignment of Lease and Rents, the
Mortgage and the other documents delivered in connection with the transactions
contemplated by the Master Agreement.
<PAGE>
"Overdue Rate" means the lesser of (a) the highest interest rate permitted
by Applicable Law and (b) an interest rate per annum (calculated on the basis of
a 365-day (or 366-day, if appropriate) year equal to (i) in the case of each
LIBOR Rate Advance, 2.0% in excess of the rate then applicable to such LIBOR
Rate Advance until the end of the applicable Rent Period and thereafter 2.0%
above the Base Rate in effect from time to time and (ii) in the case of Base
Rate Advances, 2.0% above the Base Rate in effect from time to time.
"Partnership Agreement" means the Agreement of Limited Partnership of AFG,
dated as of February 28, 1996, among Atlantic Financial Managers, Inc., as
general partner, and the persons listed on Schedule A thereto as limited
partners.
"Payment Date" means the last day of each Rent Period (and, if such Rent
Period exceeds 3 months, the third month anniversary of the first day of such
Rent Period).
"Payment Date Notice" is defined in Section 2.3(c) of the Master
Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Pension Plan" means any Employee Benefit Plan, other than a Multiemployer
Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of
the Code and which (a) is maintained for employees of the Guarantor or any ERISA
Affiliate or (b) has at any time within the preceding six years been maintained
for the employees of the Guarantor or any of their current or former ERISA
Affiliates.
<PAGE>
"Permitted Liens" means the following: (a) the respective rights and
interests of the Lessee, the Lessor, the Agent and any Lender, as provided in
the Operative Documents (and it is understood that the Lease shall be recorded
before, and shall be prior to, the Mortgage), (b) Liens for Taxes either not yet
due or being contested in good faith and by appropriate proceedings, so long as
enforcement thereof is stayed pending such proceedings, (c) materialmen's,
mechanics', workers', repairmen's, employees' or other like Liens arising after
the Closing Date in the ordinary course of business for amounts either not yet
due or being contested in good faith and by appropriate proceedings, so long as
enforcement thereof is stayed pending such proceedings, (d) Liens arising after
the Closing Date out of judgments or awards with respect to which at the time an
appeal or proceeding for review is being prosecuted in good faith, so long as
the enforcement thereof has been stayed pending such appeal or review, (e)
easements, rights of way, reservations, servitudes and rights of others against
the Land which do not materially and adversely affect the value or the utility
of the Leased Property, (f) other Liens incidental to the conduct of Lessee's
business which were not incurred in connection with the borrowing of money or
the obtaining of advances or credit and which do not in the aggregate materially
detract from the value of the Leased Property or materially impair the use
thereof,(g) assignments, leases and subleases expressly permitted by the
Operative Documents, (h) Lessor Liens, and (i) exceptions shown on the Title
Policy.
"Person" means an individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, nonincorporated
organization or government or any agency or political subdivision thereof.
"Potential Event of Default" means any event, condition or failure which,
with notice or lapse of time or both, would become an Event of Default.
"Prime Rate" means, at any time, the rate of interest per annum publicly
announced from time to time by the Agent as its prime rate. Each change in the
Prime Rate shall be effective as of the opening of business on the day such
change in the Prime Rate occurs. The parties hereto acknowledge that the rate
announced publicly by the Agent as its Prime Rate is an index or base rate and
shall not necessarily be its lowest or best rate charged to its customers or
other banks.
"Purchase Option" is defined in Section 14.1(a) of the Lease.
"Purchase Price" means $56,263,019.
"Recourse Deficiency Amount" means, as of any date of determination
thereof, the sum of (i) the aggregate principal amount of the A Loans then
outstanding, plus (ii) all accrued and unpaid interest on the A Loans.
"Regulations" means the income tax regulations promulgated from time to
time under and pursuant to the Code.
"Release" means the release, deposit, disposal or leak of any Hazardous
Material into or upon or under any land or water or air, or otherwise into the
environment, including, without limitation, by means of burial, disposal,
discharge, emission, injection, spillage, leakage, seepage, leaching, dumping,
pumping, pouring, escaping, emptying, placement and the like.
"Release Date" means the earlier of (i) the date that the Lease Balance
has been paid in full, and (ii) the date on which the Agent gives notice to the
Lessor that the Lenders release any and all interest they may have in the Leased
Property, and all proceeds thereof, and any rights to direct, consent or deny
consent to any action by the Lessor with respect to the Leased Property.
<PAGE>
"Remarketing Option" is defined in Section 14.6 of the Lease.
"Rent" means Basic Rent and Supplemental Rent, collectively.
"Rent Period" means (x) in the case of Base Rate Advances, means the
period from, and including, the first day of a calendar month to, but excluding,
the first day of the next succeeding calendar month (or, if earlier, the date of
the conversion of such Base Rate Advance to a LIBOR Rate Advance pursuant to
Section 2.3 of the Master Agreement) and (y) in the case of LIBOR Rate Advances,
either a 1, 2, 3 or 6 month period; provided that:
(a) The initial Rent Period for any Funding shall commence on the
Closing Date, and each Rent Period occurring thereafter in respect of such
Funding shall commence on the day on which the immediately preceding Rent
Period expires;
(b) If any Rent Period would otherwise expire on a day which is not
a Business Day, such Rent Period shall expire on the next succeeding
Business Day, provided that if any Rent Period in respect of LIBOR Rate
Advances would otherwise expire on a day that is not a Business Day but is
a day of the month after which no further Business Day occurs in such
month, such Rent Period shall expire on the immediately preceding Business
Day;
(c) Any Rent Period in respect of LIBOR Rate Advances which begins
on a day for which there is no numerically corresponding day in the
calendar month at the end of such Rent Period shall, subject to paragraph
(d) below, expire on the last Business Day of such calendar month;
(d) No Rent Period shall extend beyond the Lease Termination Date;
and
(e) There shall be no more than eight (8) Rent Periods outstanding
at any one time.
"Report" is defined in Section 7.6 of the Master Agreement.
"Required Lenders" means, at any time, Lenders holding an aggregate
outstanding principal amount of Loans equal to at least 51% of the aggregate
outstanding principal amount of all Loans.
"Required Funding Parties" means, at any time, Funding Parties holding an
aggregate outstanding principal amount of Funded Amounts equal to at least 51%
of the aggregate outstanding principal amount of all Funded Amounts.
<PAGE>
"Requirements of Law" means, as to any Person, the charter and by-laws or
other organizational or governing documents of such Person, and any law, rule or
regulation, permit, approval, authorization, license or variance, order or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject, including, without
limitation, the Securities Act, the Securities Exchange Act, Regulations G, T, U
and X of the Board of Governors of the Federal Reserve System, and any building,
environmental or land use requirement or permit or occupational safety or health
law, rule or regulation.
"Responsible Officer" means the Chairman or Vice Chairman of the Board of
Directors, the Chairman or Vice Chairman of the Executive Committee of the Board
of Directors, the President, any Senior Vice President or Executive Vice
President, any Vice President, the Secretary, any Assistant Secretary, the
Treasurer, or any Assistant Treasurer.
"SEC" means the United States Securities and Exchange Commission.
"Securities" means any stock, shares, voting trust certificates, bonds,
debentures, notes or other evidences of indebtedness, secured or unsecured,
convertible, subordinated or otherwise, or in general any instruments commonly
known as "securities", or any certificates of interest, shares, or
participations in temporary or interim certificates for the purchase or
acquisition of, or any right to subscribe to, purchase or acquire any of the
foregoing.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Seller" means G.F. Lucknow Associates, a Pennsylvania limited
partnership.
"Senior Debt Rating" means the senior debt rating assigned to the
Guarantor from time to time by S&P or, if no senior debt rating is so assigned,
the corporate debt rating assigned to the Guarantor from time to time by S&P.
<PAGE>
"Significant Subsidiary" means (i) Richfood, Inc., Rotelle, Inc.,
SuperRite Corporation, SuperRite Foods, Inc., Foodarama Incorporated, and (ii)
each other Subsidiary, whether now existing or hereafter formed or acquired,
which now or at any time hereafter owns three percent (3%) or more
of Consolidated Net Tangible Assets.
"Solvent" means, as to any Person and its Subsidiaries on a particular
date, that any such Person (a) has capital sufficient to carry on its business
and transactions and all business and transactions in which it is about to
engage and is able to pay its debts as they mature, (b) owns property having a
value, both at fair valuation and at present fair saleable value, greater than
the amount required to pay its probable liabilities (including contingencies),
and (c) does not believe that it will incur debts or liabilities beyond its
ability to pay such debts or liabilities as they mature.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill
Companies, Inc., or any successor rating agency thereto.
"Subordinated Debt" means the Debt described on Schedule 4.2(t) designated
as Subordinated Debt and any other Debt of the Guarantor or any Subsidiary the
payment of which is subordinated to the payment of the obligations of the
Guarantor under the Operative Documents.
<PAGE>
"Subsidiary" means as to any Person, any corporation, partnership, limited
liability company or other entity of which more than fifty percent (50%) of the
outstanding capital stock or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other managers of such
corporation, partnership, limited liability company or other entity is at the
time, directly or indirectly, owned by such Person (irrespective of whether, at
the time, capital stock or other ownership interests of any other class or
classes of such corporation, partnership, limited liability company or other
entity shall have or might have voting power by reason of the happening of any
contingency). Unless otherwise qualified, references to "Subsidiary" or
"Subsidiaries" herein shall refer to those of the Guarantor. Notwithstanding the
foregoing, the term "Subsidiary" shall not include any "Equity Store" or Person
participating in the Business Development Program. For purposes of this
definition, (a) "Equity Store" means a Person in which the Guarantor or any of
its Subsidiaries has invested capital or to which it has made loans in
accordance with the business practice of the Guarantor and its Subsidiaries of
making equity investments in Persons, and making or guaranteeing loans to such
Persons, for the purpose of assisting such Persons in acquiring, remodeling,
refurbishing, expanding or operating one or more retail grocery stores and
pursuant to which such Persons are permitted or required to reduce the
Guarantor's or the Subsidiary's equity interest to a minority position over
time, and (b) "Business Development Program" means the business practice of the
Guarantor and its Subsidiaries of making or guaranteeing loans to, or making
equity investments in, third parties engaged in the retail grocery business in
exchange for long-term supply agreements with the Guarantor or any Subsidiary.
"Supplemental Rent" means any and all amounts, liabilities and obligations
other than Basic Rent which the Lessee assumes or agrees or is otherwise
obligated to pay under the Lease or any other Operative Document (whether or not
designated as Supplemental Rent) to the Lessor, the Agent, any Lender or any
other party, including, without limitation, amounts under Article XVI of the
Lease, and indemnities and damages for breach of any covenants, representations,
warranties or agreements, and all overdue or late payment charges in respect of
any Funded Amount.
"Surrender Option" is defined in Section 14.6 of the Lease.
"Tax" or "Taxes" is defined in Section 7.4 of the Master Agreement.
"Tax Indemnitee" means the Lessor, the Agent, each Lender and their
respective Affiliates, successors, permitted assigns, permitted transferees,
employees, officers, directors and agents thereof, provided, however, that in no
event shall the Lessee be a Tax Indemnitee.
<PAGE>
"Termination Event" means any of the following events which results or is
reasonably likely to result, either in any given instance or in the aggregate
with one or more other such events, in a Material Adverse Effect or in liability
of the Guarantor or any Subsidiary in excess of $25,000,000: (a) a "Reportable
Event" described in Section 4043 of ERISA, or (b) the withdrawal of the Lessee
or any ERISA Affiliate from a Pension Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) the
termination of a Pension Plan, the filing of a notice of intent to terminate a
Pension Plan or the treatment of a Pension Plan amendment as a termination under
Section 4041 of ERISA, or (d) the institution of proceedings to terminate, or
the appointment of a trustee with respect to, any Pension Plan by the PBGC, or
(e) any other event or condition which would constitute grounds under Section
4042(a) of ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan, or (f) the partial or complete withdrawal of the
Guarantor or any ERISA Affiliate from a Multiemployer Plan, or (g) the
imposition of a Lien pursuant to Section 412 of the Code or Section 302 of
ERISA, or (h) any event or condition which results in the reorganization or
insolvency of a Multiemployer Plan under Sections 4241 or 4245 of ERISA, or (i)
any event or condition which results in the termination of a Multiemployer Plan
under Section 4041A of ERISA or the institution by the PBGC of proceedings to
terminate a Multiemployer Plan under Section 4042 of ERISA.
"Title Insurance Company" means the company that has or will issue the
title policies with respect to the Leased Property, which company shall be
selected by the Lessee and shall be reasonably acceptable to the Funding
Parties.
"Title Policy" is defined in Section 3.1 of the Master Agreement.
"Transaction" means all the transactions and activities referred to in
or contemplated by the Operative Documents.
"Transaction Expenses" means the fees and expenses, including legal fees
and disbursements, incurred by the Guarantor, the Lessee, the Lessor or the
Agent in connection with closing the Transaction.
"UCC" means the Uniform Commercial Code of Georgia, as in effect from time
to time.
"Wholly-Owned" means, with respect to a Subsidiary, that all of the shares
of capital stock or other ownership interests of such Subsidiary (other than
qualifying shares held by directors) are, directly or indirectly, owned or
controlled by the Guarantor and/or one or more of its Wholly-Owned Subsidiaries.
"Yield" is defined in Section 2.3 of the Master Agreement.
EXHIBIT 10.14
SUPPLY AGREEMENT
DATED AS OF AUGUST 3, 1997
BETWEEN
RICHFOOD, INC.
AND
UKROP'S SUPER MARKETS, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Section 1. Definitions......................................................................................... 1
Section 2. Purchase and Supply Commitments..................................................................... 3
2.1 Purchases of Products............................................................................. 3
2.2 Orders and Deliveries............................................................................. 3
2.3 Private Label..................................................................................... 4
2.4 Force Majeure..................................................................................... 4
Section 3. Pricing............................................................................................ 5
3.1 Product Pricing; Fees; Other Terms................................................................ 5
3.2 Revision of Certain Fees.......................................................................... 6
Section 4. Richfood Covenants................................................................................. 6
4.1 General Covenants................................................................................. 6
4.2 Covenant to Supply................................................................................ 7
4.3 Service Levels.................................................................................... 8
Section 5. Company Covenants; Security for Payment Under Certain Circumstances................................. 8
5.1 General Covenants................................................................................. 8
5.2 Annual Financial Statements; Notice of Security Events............................................ 9
5.3 Security for Payment Under Certain Circumstances.................................................. 10
Section 6. Term; Cancellation; Consideration For Agreement; Liquidated Damages................................. 11
6.1 Term.............................................................................................. 11
6.2 Cancellation...................................................................................... 11
6.3 Consideration for Agreement....................................................................... 12
6.4 Liquidated Damages................................................................................ 12
Section 7. Notices............................................................................................. 14
Section 8. Benefit and Assignment.............................................................................. 15
Section 9. Stores Covered; Right of First Refusal.............................................................. 15
9.1 Stores Covered.................................................................................... 15
9.2 Grant of Right of First Refusal................................................................... 15
Section 10. Miscellaneous Provisions........................................................................... 18
10.1 Entire Agreement................................................................................. 18
10.2 Severability..................................................................................... 18
10.3 Headings......................................................................................... 18
10.4 Time is of the Essence........................................................................... 18
10.5 Confidentiality.................................................................................. 19
10.6 Governing Law.................................................................................... 19
Signatures.......................................................................................................20
EXHIBITS:
Exhibit A -- Current Ukrop's Stores
Exhibit B -- Richfood Selling Program
<PAGE>
SUPPLY AGREEMENT
Supply Agreement (the "Agreement"), made as of the 3rd day of
August, 1997, by and between RICHFOOD, INC., a Virginia corporation
("Richfood"), having its principal office at 8258 Richfood Road, P. O. Box
26967, Richmond, Virginia 23261, and UKROP'S SUPER MARKETS, INC., a Virginia
corporation (the "Company"), having its principal office at 600 Southlake
Boulevard, Richmond, Virginia 23236.
W I T N E S S E T H:
WHEREAS, the Company desires to have Richfood supply certain
products and provide certain services to the Company for all retail stores
operated or to be operated by the Company and its affiliates within Richfood's
service area, and the Company desires to purchase such products and services
from Richfood on the terms and conditions contained herein; and
WHEREAS, Richfood is a full line supplier capable of supplying
the Company's requirements for products and services as contemplated in this
Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual promises and agreements contained herein, the receipt and adequacy of
which are hereby acknowledged, the parties hereto agree as follows:
<PAGE>
Section 1. Definitions. The following terms shall have the
meanings specified when used in this Agreement:
"Change in Control" shall be deemed to have occurred if at any
time the Shareholders (and their respective spouses, parents, children,
grandchildren, siblings, mothers and fathers-in-law, sons and daughters-in-law,
brothers and sisters-in-law, and any trust established for the sole benefit of
and controlled by any of the foregoing) cease to own beneficially, directly or
indirectly, at least two-thirds of the issued and outstanding shares of voting
common stock of the Company.
"Purchase Obligation" shall mean the Company's obligation,
subject to all of the terms and conditions of this Agreement, to purchase from
Richfood after the date hereof goods for resale in the Stores with a net cost
(after all applicable discounts and rebates) of $1.2 billion, and to pay
Richfood for such goods in accordance with the terms of this Agreement.
"Security Event" shall mean the occurrence and continuation of
(a) a Change in Control, or (b) any non-waived event of default or any event
which, with the giving of notice or lapse of time, would constitute an event of
default under (i) any agreement(s) for borrowed money or instrument(s)
evidencing money borrowed or other payment obligations or liabilities with
respect to which the Company is an obligor, debtor or guarantor, (ii) any
security issued by the Company or any subsidiary or other entity controlled by
the Company, or (iii) any material lease of real or personal property or any
other contract material to the Company's operations to which the Company is a
party; provided, however, that the matters specified in this clause (b) shall
not constitute a Security Event if the matter(s) involved represent an aggregate
liability of less than $5.0 million.
"Shareholders" shall mean the individuals identified as such
on the signature page to this Agreement, being the holders of all of the issued
and outstanding voting common stock of the Company.
"Stores" shall have the meaning given in Section 9.2 hereof.
A schedule of those Stores currently being operated by the Company is set forth
as Exhibit A hereto.
SECTION 2. PURCHASE AND SUPPLY COMMITMENTS
2.1 Purchase of Products.The Company agrees that, subject to
the provisions of Section 2.4 below, it shall utilize Richfood as its principal
source of wholesale supply for the Stores for each of its fiscal quarters during
the term of this Agreement.
2.2. Orders and Deliveries. The Company shall place orders
for goods in accordance with such procedures as Richfood and the Company may
mutually agree upon from time to time. Goods will be delivered to the Stores for
which the Company orders the goods, unless the Company otherwise reasonably
directs. Delivery schedules on a basis competitive with other full line
suppliers within the Company's market shall be mutually agreed upon, and shall
be mutually reviewed periodically to ensure efficient delivery services.
Notwithstanding the foregoing, it is expressly understood that the Company shall
have the right to accept delivery of goods at Richfood's dock and make separate
arrangements for the transportation of such goods. The parties acknowledge that
Richfood's obligation to supply goods hereunder shall not be construed to
constitute an obligation to supply any particular item or class of items to the
Company.
2.3. Private Label. Subject to the other terms and conditions
of this Agreement, Richfood agrees to supply the Company's requirements for the
Company's "TOPCO" private label and "TOPCO" controlled brand goods hereunder;
provided, however, that upon any termination of this Agreement, the Company
shall promptly purchase all stocks of such private label and controlled brand
goods held by Richfood or which Richfood is committed to purchase, at a purchase
price equal to Richfood's then current sales price, together with all stocks of
printed labels for such goods held by Richfood or its suppliers, at a purchase
price equal to the cost for such labels.
2.4. Force Majeure. Notwithstanding any other provision of
this Agreement, in the event that producers or manufacturers establish
allocations or restrictions on quantities of goods available to Richfood, or if
service at the facilities of either Richfood or the Company is interrupted by
reason of labor disputes (including lockouts), riots, insurrection, war, adverse
weather, acts of God, electrical or mechanical malfunction, shortages or
unavailability of equipment or supplies or labor, or other causes beyond the
reasonable control of either Richfood or the Company, whether similar or
dissimilar to the foregoing (collectively, a "Delay"), the performance of the
affected party shall be excused to the extent, but only to the extent, it is
delayed, hindered or prevented by any such Delay. In the event a Delay that
excuses one party's performance hereunder results in a complete cessation of
purchases by the Company or sales by Richfood for a period of 120 consecutive
days, then the other party may, at its option, terminate this Agreement by
giving notice of termination on or before the 15th day following the expiration
of such 120 day period pursuant to Section 7 hereof.
Section 3. Pricing. Richfood's overall prices and terms to
the Company shall be at least as favorable as the prices and terms offered by
Richfood to other chain customers served by Richfood's Virginia Division, and
shall be determined in accordance with the following provisions: .
3.1 Product Pricing; Fees; Other Terms.
(a) Product pricing, fees, billing and payment terms and
certain other terms and conditions governing Richfood's sale of goods and
provision of services to the Company hereunder shall be determined on the basis
described in Exhibit B (Richfood Selling Program) attached hereto, it being
understood that: (i) the fee schedules included in Section A of Exhibit B may
only be revised by Richfood in accordance with Section 3.2 of this Agreement;
and (ii) all other provisions of Exhibit B are subject to revision by Richfood
from time to time and shall be binding on the parties hereto as so revised, so
long as such revisions apply to all other chain customers served by Richfood's
Virginia Division.
(b) In the event that the Company shall fail to pay Richfood
in accordance with the payment terms governing any shipment of goods (other than
in connection with a dispute between the parties arising in the ordinary course
of business with respect to invoicing or similar matters, which dispute is then
being negotiated in good faith) then Richfood, in addition to its rights under
Section 6.2 of this Agreement, may suspend shipments to the Company for so long
as such failure remains uncured.
3.2 Revision of Certain Fees. From and after the second
anniversary of the effective date of this Agreement and upon thirty (30) days'
prior written notice to the Company, Richfood may revise from time to time the
fee schedules set forth in Section A of Exhibit B hereto for warehousing and
delivery services and other support services to reflect changes in Richfood's
fuel, utilities and insurance costs, provided that any such revisions shall be
mutually agreed upon by Richfood and the Company (it being understood that it is
the intent of the parties that any such increases shall reflect the extent, if
any, by which increases in such fuel, utilities and insurance costs exceed the
percentage increase after the date hereof in the Commerce Department's "Consumer
Price Index -- All Food Goods" as published from time to time).
Section 4. Richfood Covenants
4.1 General Covenants. Richfood hereby represents and warrants
to the Company that: (i) Richfood is a corporation duly incorporated, validly
existing and in good standing under the laws of the Commonwealth of Virginia
with full corporate power to enter into this Agreement and to perform its
obligations hereunder; (ii) the execution, delivery and performance by Richfood
of this Agreement are within the corporate power of Richfood and have been duly
authorized by all necessary corporate action of Richfood; (iii) the execution,
delivery and performance by Richfood of this Agreement do not and will not
conflict with or violate any law, judgment, order or decree binding on Richfood
or the Articles of Incorporation or Bylaws of Richfood or any contract or
agreement to which Richfood is a party or by which it is bound; (iv) no consent
of any person, and no notice to, filing or registration with, or authorization,
consent or approval of, any governmental, regulatory or self-regulatory agency
is necessary or required to be made or obtained by Richfood in connection with
the execution and delivery by Richfood of this Agreement or the performance by
Richfood of its obligations hereunder; (v) this Agreement constitutes a valid
and binding obligation of Richfood, enforceable against Richfood in accordance
with its terms; and (vi) there is no litigation, arbitration proceeding,
governmental investigation, citation or action of any kind pending or, to the
knowledge of Richfood, proposed or threatened against Richfood or relating to
the business, assets or properties of Richfood which, if adversely determined,
would materially and adversely affect the ability of Richfood to perform its
obligations hereunder.
4.2. Covenant Supply. During the term hereof, Richfood shall
maintain on hand inventories of goods of a type and quantity sufficient to
satisfy the normal and customary needs of a retail supermarket chain of the size
and character of the Company. Subject to the terms and conditions of this
Agreement, Richfood shall promptly fill all the Company orders for goods.
Richfood shall maintain throughout the term of this Agreement an efficient
distribution network servicing the geographic area in which the Stores are
presently operated.
4.3. Service Levels. Richfood agrees that, subject to the
provisions of Section 2.4 hereof, it will provide in-stock service levels on
available items to the Company at no less than 96% of the Company's
requirements.
Section 5. Company Covenants; Security For Payment Under
Certain Circumstances.
5.1 General Covenants. The Company hereby represents and
warrants to Richfood that: (i) the Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the Commonwealth of
Virginia with full corporate power to enter into this Agreement and to perform
its obligations hereunder; (ii) the execution, delivery and performance by the
Company of this Agreement are within the corporate power of the Company and have
been duly authorized by all necessary corporate action of the Company; (iii) the
execution, delivery and performance by the Company of this Agreement do not and
will not conflict with or violate any law, judgment, order or decree binding on
the Company or the Articles of Incorporation or Bylaws of the Company or any
contract or agreement to which the Company is a party or by which it is bound;
(iv) no consent of any person, and no notice to, filing or registration with, or
authorization, consent or approval of, any governmental, regulatory or
self-regulatory agency is necessary or required to be made or obtained by the
Company in connection with the execution and delivery by the Company of this
Agreement or the performance by the Company of its obligations hereunder; (v)
this Agreement constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms; and (vi) there is
no litigation, arbitration proceeding, governmental investigation, citation or
action of any kind pending or, to the knowledge of the Company, proposed or
threatened against the Company or relating to the business, assets or properties
of the Company which, if adversely determined, would materially and adversely
affect the ability of the Company to perform its obligations hereunder.
5.2 Annual Financial Statements; Notice of Security
Events. (a) As soon as available, the Company shall provide to Richfood copies
of its audited consolidated balance sheet as of the end of such year, and the
related audited consolidated statements of earnings, changes in stockholders'
equity and cash flows, together with the corresponding figures as of the end of,
and for, the previous fiscal year. All such financial statements shall be
audited by independent certified public accountants of recognized standing and
certified by them as having been prepared in accordance with generally accepted
accounting principles consistently applied. Such financial statements shall be
accompanied by a certificate signed by the chief financial or accounting officer
of the Company to the effect that such financial statements fairly present the
financial condition and results of operations of the Company in conformity with
generally accepted accounting principles consistently applied.
(b) During such time as this Agreement remains in effect, the
Company shall notify Richfood promptly upon the occurrence of any Security Event
or any event that, with the giving of notice or passage of time, would
constitute a Security Event.
5.3. Security for Payment Under Certain Circumstances. Upon
the occurrence and during the continuation of any Security Event, the Company
shall provide Richfood, at the Company's sole expense, with a duly perfected
first priority security interest in shares of common stock of Richfood Holdings,
Inc. (or such other collateral that may be mutually acceptable to Richfood and
the Company) with a fair market value (determined by reference to the closing
price for such common stock as reported on the New York Stock Exchange composite
tape for the twenty trading days preceding the date of such pledge) equal to at
least 100% of the sum of (i) the amount of the Company's average maximum account
payable balance to Richfood from time to time for purchases through Richfood,
plus (ii) the amount that would then be payable as liquidated damages under
Section 6.4 upon any termination of this Agreement. Upon the termination of all
outstanding Security Events, Richfood shall fully cooperate with the Company to
cause the release of any security interest granted hereunder.
Section 6. Term; Cancellation; Consideration For Agreement;
Liquidated Damages
6.1. Term. The term of this Agreement shall commence on the
date hereof and shall expire, without any further action by the parties hereto,
on such date that the Company has satisfied the Purchase Obligation.
6.2. Cancellation. Either Richfood or the Company may cancel
this Agreement: (i) immediately upon the filing of a petition for relief by the
other party in a voluntary proceeding under applicable federal or state
bankruptcy law or like laws for the protection of debtors or upon the
application of the other party to any court or administrative agency of
competent jurisdiction for the appointment of a receiver or trustee for the
administration of such party's affairs; (ii) upon the filing of a petition for
relief with respect to the other party in an involuntary proceeding under
applicable federal or state bankruptcy law or like laws for the protection of
debtors or upon the application by a third party to any court or administrative
agency of competent jurisdiction for the appointment of a receiver or trustee
for the administration of the affairs of the other party, if such petition or
application is not dismissed within thirty days; or (iii) following the breach
of any material obligation hereunder by the other party, if such breach is not
cured within thirty days following notice thereof to the breaching party. In
addition, Richfood may cancel this Agreement following any failure by the
Company to pay Richfood in accordance with the payment terms governing any
shipment of goods (other than in connection with a dispute between the parties
arising in the ordinary course of business with respect to invoicing or similar
matters, which dispute is then being negotiated in good faith), if such failure
is not cured within seven days after the due date for such payment. Cancellation
shall be effected by the delivery of notice of cancellation in accordance with
Section 7 hereof.
6.3 Consideration for Agreement. In consideration of the
respective obligations of the parties hereunder, Richfood hereby agrees to pay
to the Company by wire transfer of immediately available funds upon the
execution hereof the sum of [Redacted Pursuant To Rule 24b-2 Under The
Securities Exchange Act, As Amended](the "Incentive Payment"), such Incentive
Payment being subject to refund as liquidated damages upon early termination of
this Agreement as set forth in Section 6.4 hereof.
6.4. Liquidated Damages. (a) The parties understand that
Richfood's commitment to supply the specified requirements of the Company will
require an allocation of resources by Richfood that would not be practical if
the Company were to purchase less than such specified requirements from
Richfood. The parties agree that the Company's failure to perform its
obligations hereunder will cause damage to Richfood that will be difficult or
impossible to prove accurately and, therefore, with the intention of providing a
fair and reasonable formula to calculate the amount of such damage, the parties
agree that upon Richfood's cancellation of this Agreement pursuant to Section
6.2 of this Agreement, the Company will pay Richfood as liquidated damages an
amount equal to two hundred percent (200%) of the pro rata portion of the
Incentive Payment attributable to the balance of the term hereof. The pro rata
portion of the Incentive Payment attributable to the balance of the term hereof
shall be calculated by multiplying the amount of the Incentive Payment by a
fraction, the numerator of which shall equal $1.2 billion minus the dollar
amount of the Company's purchases of goods from Richfood for resale in the
Stores after the date hereof (after all applicable discounts and rebates), and
the denominator of which shall be $1.2 billion.
(b) Interest shall accrue on amounts payable hereunder from
thirty (30) days following the date of termination until paid at the prime rate
as established from time to time by Crestar Bank, Richmond, Virginia, plus 2%,
or the maximum rate legally permissible, if less. Upon payment of the amounts
specified in this Section 6.4, the Company shall have no further liability to
Richfood hereunder, it being understood that the provisions of this Section 6.4
constitute the sole remedy of Richfood with respect to any violation of the
terms of this Agreement by the Company; provided, however, that payment of the
amounts provided in this Section 6.4 shall not excuse the obligations of the
Company to pay the purchase price for any goods purchased through Richfood, to
refund any C.E.S. earnings under the circumstances specified in Exhibit B hereto
or to make any other payment specifically provided for herein.
Section 7. Notices
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to be duly given upon receipt
if delivered personally or sent by registered or certified mail, postage
prepaid, return receipt requested, air courier or telecopy, addressed as
follows:
(a) If to Richfood:
Richfood, Inc.
P. O. Box 26967
Richmond, Virginia 23261
Attention: President & Chief Executive Officer
With a Copy to:
Hunton & Williams
Riverfront Plaza, East Tower
951 E. Byrd Street
Richmond, Virginia 23219
Attention: Gary E. Thompson, Esq.
(b) If to the Company:
Ukrop's Super Markets, Inc.
600 Southlake Boulevard
Richmond, Virginia 23236
Attn: Vice Chairman & Chief Executive Officer
With a Copy to:
Ukrop's Super Markets, Inc.
600 Southlake Boulevard
Richmond, Virginia 23236
Attn: Chief Financial Officer
or to such other address as may be specified by any party in a notice to the
other party in accordance with this Section.
Section 8. Benefit And Assignment
The terms and provisions of this Agreement shall bind, and be
enforceable by or against, the parties hereto and their successors and permitted
assigns. Subject to Section 9.2 hereof, the rights and obligations of either
party to this Agreement shall be automatically assigned in their entirety to any
successor to all or substantially all of the property or business of such party
(by operation of law or otherwise); provided, however, that no such assignment
shall release either party hereto from liability hereunder. This Agreement may
not be otherwise assigned.
Section 9. Stores Covered; Right Of First Refusal.
9.1 Stores Covered. This Agreement will apply to all retail
stores now or hereafter operated under any trade name by the Company or any
other entity controlling, controlled by, or under common control with the
Company, that are located within the geographic area served by Richfood (the
"Stores"); provided, however, that no retail stores owned by an unaffiliated
third party at the time such person acquires a controlling interest in the
Company will be subject to this Agreement solely by virtue of such ownership.
9.2 Grant of Right of First Refusal. (a) The Company agrees that
it will not sell, lease, transfer, assign or otherwise alienate, by operation of
law or otherwise, the assets or business of any Store (the foregoing being
collectively referred to as a "Store Sale"), except for (i) sales of inventory
and equipment in the ordinary course of business, (ii) sales of Stores in
transactions accounted for as sale-leasebacks in accordance with generally
accepted accounting principles, where the term of the Company's lease for such
Store is reasonably expected to extend beyond the term of this Agreement, (iii)
sales of Stores (including, without limitation, the Company's Walmsley Store)
that have been or will be replaced by another Store, which replacement Store is
located within the marketing area of the Store to be sold and (iv) bona fide
sales made in compliance with subsection (c) of this Section.
(b)(i) The Shareholders jointly and severally agree that they
will not sell, transfer, pledge, hypothecate, divide, assign, grant options on
or otherwise alienate, by operation of law or otherwise, any shares of voting
common stock of the Company (the foregoing being collectively referred to as a
"Stock Transfer"), and (ii) the Company and the Shareholders jointly and
severally agree that the Company will not issue any additional shares of its
voting common stock or grant any rights, options or warrants with respect to any
shares of its voting common stock (the foregoing being collectively referred to
as a "Stock Issuance"), except for (A) Stock Transfers and Stock Issuances which
do not, individually or in the aggregate, result in a Change in Control, (B)
Stock Issuances pursuant to employee benefit plans or arrangements or pursuant
to a bona fide public offering registered under the Securities Act of 1933, as
amended, (C) Stock Transfers by will or by operation of the laws of descent or
distribution upon the death of the Shareholder, provided that such shares shall
remain subject to the terms of this Section, and (D) Stock Issuances and Stock
Transfers pursuant to a bona fide sale made in compliance with subsection (c) of
this Section.
(c) The Company and the Shareholders jointly and severally
agree that before any Store Sale, Stock Transfer or Stock Issuance not otherwise
permitted by subsections (a) or (b) hereof, the Company or the Shareholder, as
the case may be, will first deliver a written offer of sale with respect thereto
to Richfood. If within twenty (20) days following the delivery of such offer,
Richfood and the Company or the Shareholder, as the case may be, are unable to
reach agreement as to the terms for the purchase and sale of such Store or
Shares by Richfood, then the Company or the Shareholder may offer such Store or
Shares for sale to any other person. In the event that the Company or the
Shareholder receive a bona fide offer to purchase such Store or Shares from a
third party that the Company or the Shareholder considers acceptable, the
Company or the Shareholder shall deliver another written offer to Richfood to
sell such Store or Shares to Richfood, specifying the terms of such bona fide
offer and identifying the person or persons by whom such offer was made.
Richfood shall have twenty (20) days following receipt of such reoffer to
purchase such Store or Shares on the terms of such bona fide offer. Richfood's
acceptance of any offer or reoffer shall be made by delivery of written notice
to the Company or the Shareholder, as the case may be, in accordance with
Section 7 hereof. Any Store or Shares not purchased by Richfood following a
reoffer may be sold to the person identified as having made the bona fide offer
in accordance with the terms thereof; provided, however, that if such sale is
not consummated within ninety (90) days after the date of the expiration of the
reoffer to Richfood, the Company's and the Shareholder's right to consummate
such sale without again complying with this subsection shall terminate.
Section 10. Miscellaneous Provisions.
10.1 Entire Agreement. This Agreement supersedes any prior
agreements between the parties with respect to the subject matter hereof and
contains all of the agreements between the parties concerning the subject matter
hereof. No prior representations, agreements or understandings pertaining to the
same shall be of any force or effect. The terms and provisions hereof cannot be
altered, changed or modified except by written agreement signed by each of the
parties hereto.
10.2 Severability. If any provision of this Agreement shall be
held by a court of law to be invalid, void or illegal, the remaining provisions
hereof shall be severable and remain in full force and effect in accordance with
their respective terms.
10.3 Headings. The headings contained in this Agreement are
inserted for convenience and reference only. They do not constitute a part of
this Agreement and do not define, limit or describe the scope or intent of the
particular paragraphs to which they refer.
10.4 Time is of the Essence. Time is of the essence of this
Agreement, but no delay or failure of either party to exercise any right
hereunder, or to insist upon strict compliance with the terms and provisions
hereof, shall constitute a waiver of any right hereunder or a waiver of the
right thereafter to insist upon strict compliance with the terms and provisions
hereof.
10.5 Confidentiality. No party hereto shall disclose or
furnish information to any other person, firm or corporation with respect to any
of the terms of this Agreement, any suppliers of goods hereunder or the pricing
of such goods, nor shall any party hereto disclose any financial or operating
information disclosed to it hereunder or in connection herewith, except with the
express prior written consent of the other parties or as required by law
(including specifically any required filings with the Securities and Exchange
Commission), and except that any party hereto may disclose the terms of this
Agreement to its lenders and financial advisors who agree to keep any such
information confidential.
10.6 Governing Law. This Agreement shall be governed by and
construed and interpreted in accordance with the laws of the Commonwealth of
Virginia as applicable to contracts to be performed wholly within such
Commonwealth.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day and year first above written.
RICHFOOD, INC.
By: /s/ John E. Stokely
--------------------
Title: President & Chief
Executive Officer
UKROP'S SUPER MARKETS, INC.
By: /s/ James E. Ukrop
------------------
Title: Vice Chairman & Chief
Executive Officer
<PAGE>
The undersigned, being all of the Shareholders, hereby execute
this Agreement to confirm that they agree to and shall be bound by the right of
first refusal set forth in Section 9.2 hereof:
THE SHAREHOLDERS:
/s/Joseph Ukrop /s/ Robert S. Ukrop
- --------------- -------------------
Name: Joseph Ukrop Name: Robert S. Ukrop
/s/ James E. Ukrop /s/ Robert S. Ukrop, Jr.
- ------------------ ------------------------
Name: James E. Ukrop Name: Robert S. Ukrop, Jr.
/s/ R. Scott Ukrop /s/ Jacquelin M. Ukrop
- ------------------ ----------------------
Name: R. Scott Ukrop Name: Jacquelin M. Ukrop
/s/ Joseph E. Ukrop
- -------------------
Name: Joseph E. Ukrop
JOSEPH AND JACQUELIN UKROP TRUST
/s/ James E. Ukrop /s/ Jeffrey B. Ukrop
- ------------------ --------------------
Name: James E. Ukrop, Name: Jeffrey B. Ukrop
Co-Trustee
/s/ Robert S. Ukrop /s/ Nancy Jo Ukrop
- ------------------- ------------------
Name: Robert S. Ukrop, Name: Nancy Jo Ukrop
Co-Trustee
JAMES E. UKROP TRUST ROBERT S. UKROP TRUST
/s/ Barbara B. Ukrop /s/ Jayne B. Ukrop
- -------------------- ------------------
Name: Barbara B. Ukrop, Trustee Name: Jayne B. Ukrop,
Trustee
</TABLE>
EXHIBIT 12.1
RICHFOOD HOLDINGS, INC.
COMPUTATION OF CERTAIN RATIOS
The following relates to the ratio computations in the portions of the Company's
fiscal 1998 Annual Report to Shareholders incorporated by reference herein.
Net earnings as a percent of sales = Net earnings divided by sales.
Book value per share = Total shareholders' equity divided by the shares of
common stock outstanding at fiscal year end.
Working capital = Current assets minus current liabilities.
Current ratio = Current assets divided by current liabilities.
Inventory turnover = Cost of goods sold divided by average inventories.
Average inventories was computed by adding the inventories at the
beginning of the fiscal year to the inventories at the end of the
fiscal year and dividing this sum by two.
Return on average assets = Net earnings divided by average total assets.
Average total assets was computed by adding the total assets at the
beginning of the fiscal year to the total assets at the end of the
fiscal year and dividing this sum by two.
Debt to equity ratio = Total debt, including capital lease obligations and
current maturities, divided by total shareholders' equity.
Return on average shareholders' equity = Net earnings divided by average
shareholders' equity. Average shareholders' equity was computed by
adding the shareholders' equity at the beginning of the fiscal year to
the shareholders' equity at the end of the fiscal year and dividing
this sum by two.
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
FINANCIAL REVIEW
The following discussion of the Company's consolidated results of operations and
financial position should be read in conjunction with the Consolidated Financial
Statements and notes thereto included in this annual report. References in the
following discussion are to the fiscal years ended May 2, 1998 ("fiscal 1998"),
May 3, 1997 ("fiscal 1997"), and April 27, 1996 ("fiscal 1996").
On March 4, 1998, a wholly-owned subsidiary of the Company acquired
substantially all of the assets and assumed certain liabilities of Farm
Fresh, Inc. ("Farm Fresh"), a privately-held supermarket chain headquartered
in Norfolk, Virginia (the "Farm Fresh Acquisition"). The Company accounted
for the acquisition under the purchase method of accounting and, accordingly,
the results of operations of the acquired business have been included in the
Company's Consolidated Statement of Earnings since the date of acquisition.
See Notes 2 and 6 to the Consolidated Financial Statements and Liquidity and
Capital Resources for a further discussion of the Farm Fresh Acquisition.
Subsequent to fiscal 1998, on May 18, 1998, a wholly-owned subsidiary of
the Company acquired all of the outstanding shares of Dart Group Corporation
("Dart") for $160 per share, net to the seller in cash, or approximately $201.0
million (the "Dart Acquisition"). Dart, headquartered in Landover, Maryland was
comprised, at the time of acquisition, of Shoppers Food Warehouse Corporation
("Shoppers"), a 100% owned chain of 37 price impact supermarkets operating in
the greater Washington, DC metropolitan area; Trak Auto Corporation ("Trak"), a
publicly-owned retailer of auto parts (67.1% owned by Dart); Crown Books
Corporation ("Crown"), a publicly-owned retailer of popular books (52.3% owned
by Dart), and Total Beverage Corporation ("Total Beverage"), a discount beverage
retailer (100% owned by Dart). The Company will account for the acquisition
under the purchase method of accounting in fiscal 1999 and, accordingly, the
results of operations of the acquired business will be included in the Company's
Consolidated Statement of Earnings from the date of acquisition.
On May 22, 1998, the stock of Total Beverage was sold by Dart to a third
party for approximately $8 million. The Company intends to divest its ownership
of Dart's remaining non-core assets, including Trak and Crown, within one year
of the acquisition date. See Note 16 to the Consolidated Financial Statements
and Liquidity and Capital Resources for a further discussion of the Dart
Acquisition.
Results of Operations
Comparison of Fiscal 1998 with Fiscal 1997
Sales of $3,203.7 million for fiscal 1998 consisted of $3,021.1 million of
wholesale grocery sales and $425.5 million of retail grocery sales. Wholesale
grocery sales included $242.9 million of sales to the Company's retail grocery
division. Wholesale grocery sales decreased $259.1 million, or 7.9%, from sales
of $3,280.2 million for fiscal 1997. The Company's results of operations for
fiscal 1998 included fifty-two weeks of operations, compared to fifty-three
weeks in fiscal 1997. Excluding the effect of the additional week in fiscal
1997, wholesale grocery sales would have decreased approximately $197.7 million,
or 6.1%. This decrease was primarily attributable to the expiration in June 1997
of the Company's frozen food supply agreement with Acme Markets, Inc. ("Acme").
Acme represented approximately $182 million of sales in fiscal 1997, as compared
to approximately $13 million in fiscal 1998.
Retail grocery sales for fiscal 1998, which consisted of sales by the
Company's Metro/Basics and Farm Fresh stores, of $425.5 million increased $87.0
million, or 25.7%, over sales of $338.5 million for fiscal 1997. Excluding the
effect of the additional week in fiscal 1997, retail grocery sales would have
increased $92.8 million, or 27.9%. This increase was primarily attributable to
sales generated by the Farm Fresh grocery stores, which were acquired on March
4, 1998, of $100.1 million. Sales for the Metro/Basics retail grocery stores
increased 0.7% on a comparable store basis in fiscal 1998, compared to fiscal
1997. As a result of the Company's strategy of focusing on the expansion of the
Metro format, which resulted in the Company selling one Basics store (August
1996), closing a second Basics store (March 1997) and temporarily closing a
third (July 1997 to November 1997) until its conversion to the Metro format was
complete, Metro/Basics' total sales decreased 2.1% in fiscal 1998.
Gross margin increased to 11.59% of sales for fiscal 1998 from 10.50% of
sales for fiscal 1997. The increase in gross margin as a percent of sales was
primarily attributable to the Company's wholesale division taking advantage of
certain buying opportunities during fiscal 1998 and the inclusion of Farm
Fresh's higher retail gross margins since the March 4, 1998 acquisition date.
Operating and administrative expenses were 8.01% of sales in fiscal 1998,
compared to 7.41% of sales in fiscal 1997. The increase in operating and
administrative
13
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
FINANCIAL REVIEW (Continued)
expenses as a percent of sales was primarily attributable to the inclusion of
Farm Fresh's higher retail operating and administrative expense ratio since
the March 4, 1998 acquisition date.
The Company's operating results for fiscal 1998 included a one-time charge
of $24.2 million for restructuring costs associated with the Company's plan to
restructure its Pennsylvania frozen food operations. The plan included closing
the Company's West Point, Pennsylvania, frozen food distribution facility and
transferring the related operations to the Company's Harrisburg, Pennsylvania,
distribution facility to eliminate excess capacity in its frozen food
operations. The restructuring charge included $17.8 million related to the
write-down of the West Point facility to its estimated fair value less selling
costs and the write-off of related goodwill. The remainder of the charge
primarily related to employee separation costs and certain non-cancelable
leases. See Note 7 to the Consolidated Financial Statements for a further
discussion of the restructuring charge.
Interest expense decreased to $6.0 million in fiscal 1998 from $7.2
million in fiscal 1997. The decrease was primarily due to the Company's ability
to generate strong cash flow from operations which resulted in lower average
debt levels during the first three quarters of fiscal 1998, compared to the same
periods in fiscal 1997. In addition, on April 1, 1997, the Company redeemed the
remaining $47.5 million outstanding principal amount of its 10 5/8% Senior
Subordinated Notes due April 2002 ("Senior Subordinated Notes"). The decrease in
interest expense was offset in part by increased interest expense in the fourth
quarter of fiscal 1998 compared to the same period in fiscal 1997. During the
fourth quarter of fiscal 1998, the Company incurred incremental interest expense
of approximately $1.8 million as a result of its March 4, 1998, Farm Fresh
Acquisition.
The Company's effective income tax rate was 38.0% in fiscal 1998, compared
to 39.8% in fiscal 1997. Excluding the effect of the restructuring charge, the
effective tax rate for fiscal 1998 would have been 38.4%.
The fiscal 1997 extraordinary loss, net of tax, of $1.9 million related
to the early redemption of the remaining $47.5 million outstanding principal
amount of the Company's Senior Subordinated Notes and was primarily comprised
of the amount paid in excess of par value and the write-off of related deferred
financing costs.
Excluding the effects of the one-time charge for restructuring costs
related to the closure of the Company's West Point, Pennsylvania, facility in
fiscal 1998 and the effect of the extraordinary loss related to early
extinguishment of certain debt in fiscal 1997, earnings for fiscal 1998 were
$69.2 million, or $1.45 per share, assuming dilution, a 12.8% increase over
earnings of $61.4 million, or $1.29 per share, assuming dilution, for fiscal
1997. Net earnings, including the effects of the one-time charge for
restructuring costs and the extraordinary loss, were $54.7 million, or $1.15 per
share, assuming dilution, for fiscal 1998, compared to $59.5 million, or $1.25
per share, assuming dilution, for fiscal 1997.
Comparison of Fiscal 1997 with Fiscal 1996
Sales of $3,411.6 million for fiscal 1997 consisted of $3,280.2 million of
wholesale grocery sales and $338.5 million of retail grocery sales. Wholesale
grocery sales included $207.1 million of sales to the Company's retail grocery
division. Wholesale grocery sales increased $183.2 million, or 5.9%, over sales
of $3,097.0 million for fiscal 1996. The Company's results of operations for
fiscal 1997 included fifty-three weeks of operations, compared to fifty-two
weeks in fiscal 1996. Excluding the effect of the additional week in fiscal
1997, wholesale grocery sales would have increased $121.8 million, or 3.9%. This
increase was primarily attributable to sales of $65.2 million recorded by
Norristown Wholesale, Inc. ("Norristown") after its acquisition by the Company
on September 30, 1996, and incremental sales to new and existing customers.
Retail grocery sales for fiscal 1997, which consisted of sales by the
Company's Metro/Basics stores, of $338.5 million increased $15.7 million, or
4.9%, over sales of $322.8 million for fiscal 1996. Excluding the effect of the
additional week in fiscal 1997, retail grocery sales would have increased $9.9
million, or 3.1%. This increase was primarily attributable to the opening of one
new Metro store in September 1996, the inclusion of a full year of sales from
two additional stores opened late in fiscal 1996 and incremental sales resulting
from the Company's conversion of former Basics stores to the Metro format. Sales
for the retail grocery division decreased 1.0% on a comparable store basis in
fiscal 1997, compared to fiscal 1996, primarily due to the impact of competitive
store openings.
Gross margin increased to 10.50% of sales for fiscal 1997 from 10.04% of
sales for fiscal 1996. Operating and administrative expenses were 7.41% of
sales in fiscal 1997, compared to 7.28% of sales in fiscal 1996. The
increases in gross margin and operating and administrative expenses as a
percent of sales were primarily attributable to the inclusion of Norristown's
higher gross margin and operating expense ratio produce business in fiscal 1997
results.
14
<PAGE>
The Company's operating results for fiscal 1996 included a one-time charge
for merger and integration costs of $12.0 million in connection with the
Company's acquisition of Super Rite Corporation, a full service wholesale and
retail food distributor headquartered in Harrisburg, Pennsylvania, effective
October 15, 1995 (the "Super Rite Acquisition"). This charge primarily related
to transaction costs associated with the Super Rite Acquisition, severance costs
and costs related to the conversion of certain Basics locations to the Metro
store format, including write-offs of property and equipment. See Note 2 to the
Consolidated Financial Statements for a further discussion of the Super Rite
Acquisition.
Interest expense decreased to $7.2 million in fiscal 1997 from $12.4
million in fiscal 1996. The decrease was primarily due to lower average debt
levels in fiscal 1997, compared to fiscal 1996. On April 1, 1997, the Company
redeemed the remaining $47.5 million outstanding principal amount of its Senior
Subordinated Notes.
The Company's effective income tax rate was 39.8% in fiscal 1997, compared
to 42.8% in fiscal 1996. The higher effective income tax rate for fiscal 1996
was primarily attributable to certain nondeductible merger and integration costs
associated with the Super Rite Acquisition.
The extraordinary loss, net of tax, of $2.2 million for fiscal 1996
primarily related to the repurchase, at market prices above par, of $27.5
million principal amount of Senior Subordinated Notes and was primarily
comprised of the amount paid in excess of par value and the write-off of related
deferred financing costs.
Excluding the effects of the extraordinary losses related to early
extinguishment of certain debt in fiscal 1997 and fiscal 1996, and the effects
of the one-time charge for merger and integration costs related to the Super
Rite Acquisition in fiscal 1996, earnings for fiscal 1997 were $61.4 million, or
$1.29 per share, assuming dilution, a 30.5% increase over earnings of $47.0
million, or $1.00 per share, assuming dilution, for fiscal 1996. Net earnings,
including the effects of the extraordinary losses and the one-time charge for
merger and integration costs, were $59.5 million, or $1.25 per share, assuming
dilution, for fiscal 1997, compared to $37.1 million, or $0.78 per share,
assuming dilution, for fiscal 1996.
Liquidity and Capital Resources
Cash and cash equivalents were $40.0 million at May 2, 1998, compared to $10.4
million at May 3, 1997. Working capital was $54.3 million at May 2, 1998, and
$21.9 million at May 3, 1997. The increase in working capital was primarily due
to an increase in cash and cash equivalents and the net working capital
investment attributable to the Farm Fresh retail grocery stores acquired on
March 4, 1998. During fiscal 1998, the Company's working capital needs were
financed primarily through cash provided by operations. In addition, at May 2,
1998, the Company had a $250 million, five-year senior unsecured revolving
credit facility (the "$250 million facility") and a $100 million, 364-day,
senior unsecured revolving credit facility (the "$100 million facility").
Proceeds from the $250 million facility were used primarily to fund the Farm
Fresh Acquisition. At May 2, 1998, $192.0 million of borrowings remained
outstanding under the $250 million facility.
Subsequent to May 2, 1998, on May 12, 1998, the Company entered into $450
million senior unsecured credit facilities consisting of an unsecured $250
million, five-year revolving credit facility and an unsecured $200 million,
18-month term loan, proceeds from which were used to finance the Dart
Acquisition, repay outstanding balances of $192.0 million under the Company's
$250 million facility and provide funds for other general corporate purposes. In
addition, the Company assumed $200 million of Shoppers 9 3/4% Senior Notes due
2004 in connection with the Dart Acquisition. See Notes 6 and 16 to the
Consolidated Financial Statements for a further discussion of long-term debt and
the Dart Acquisition.
Operating Activities
The Company's operations continue to generate significant cash to support the
Company's growth. Net cash provided by operating activities for fiscal 1998 was
$112.4 million. This amount primarily consisted of net earnings of $54.7
million, depreciation and amortization of $32.1 million and the $23.3 million
non-cash component of the Company's restructuring charge.
Net cash provided by operating activities was $116.1 million and $89.6
million for fiscal 1997 and 1996, respectively. These amounts primarily
consisted of net earnings of $59.5 million in fiscal 1997 and $37.1 million in
fiscal 1996, and depreciation and amortization of $29.2 million in fiscal 1997
and $27.1 million in fiscal 1996.
Investing Activities
Net cash used for investing activities was $258.0 million for fiscal 1998, $61.4
million for fiscal 1997 and $20.3 million for fiscal 1996. Net cash used for
investing activities included acquisitions made by the Company and consisted of
approximately $222 million for the Farm Fresh Acquisition in fiscal 1998 and
approximately $26 million for the Company's purchase of Norristown in fiscal
1997.
Capital expenditures were $22.2 million for fiscal 1998, $15.4 million for
fiscal 1997 and $14.8 million for fiscal 1996. Capital expenditures for the
wholesale grocery division of $11.7 million for fiscal 1998, $9.4 million for
15
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
FINANCIAL REVIEW (Continued)
fiscal 1997 and $9.5 million for fiscal 1996 consisted primarily of the purchase
of material handling equipment and improvements to the Company's distribution
centers and fluid dairy plant. Capital expenditures for the retail grocery
division of $10.5 million for fiscal 1998, $6.0 million for fiscal 1997 and $5.3
million for fiscal 1996 consisted primarily of capital employed for the
conversion of existing Basics stores to the Metro format and one new Metro store
in both fiscal 1998 (opened April 1998) and fiscal 1997 (opened September 1996).
The Company anticipates that fiscal 1999 capital expenditures will be
approximately $90 million and will include approximately $66 million and $24
million for the Company's retail and wholesale grocery divisions, respectively.
During 1998, the Company significantly increased its presence in the retail
grocery segment through its Farm Fresh and Dart acquisitions. The fiscal 1999
retail capital expenditures budget primarily includes the conversion of six Farm
Fresh warehouse format stores to its new conventional store format, four new
Metro stores and one new Shoppers store.
The fiscal 1999 wholesale capital expenditures budget reflects the
Company's commitment to maintaining and enhancing its low-cost operations. The
Company plans to invest approximately $8 million in fiscal 1999 to expand the
Company's Harrisburg, Pennsylvania distribution center to accommodate growth in
the frozen and perishables lines of its business. Budgeted capital expenditures
for the wholesale grocery division also include material handling equipment and
additional investments in logistics and distribution technology.
Financing Activities
Net cash provided by financing activities was $175.2 million for fiscal 1998.
Net cash used for financing activities was $61.7 million for fiscal 1997 and
$81.2 million for fiscal 1996.
During fiscal 1998, the Company financed the Farm Fresh Acquisition
through borrowings under the $250 million facility, of which $192.0 million
remained outstanding at May 2, 1998. During fiscal 1998, the Company made
principal payments on long-term debt and capital lease obligations of $12.1
million which primarily consisted of a $9.0 million principal repayment on its
6.15% Senior Notes due July 1, 2000 ("Senior Notes"). During fiscal 1997, the
Company made $58.6 million of principal payments on long-term debt and capital
lease obligations including the redemption of the remaining $47.5 million
principal amount of Senior Subordinated Notes on April 1, 1997, and the first
$9.0 million principal payment on the Senior Notes. During fiscal 1996, the
Company reduced its total debt by $80.8 million. This reduction primarily
related to the repayment of outstanding borrowings under a $25.0 million
revolving credit facility and a $25.0 million term loan facility, as well as the
early extinguishment of $27.5 million of Senior Subordinated Notes.
The Company's total debt increased to $269.8 million at May 2, 1998, from
$42.7 million at May 3, 1997. This increase was primarily attributable to the
Company's fiscal 1998 Farm Fresh Acquisition. Shareholders' equity increased to
$324.2 million at May 2, 1998, from $258.7 million at May 3, 1997. The ratio of
total debt to equity was 0.83 to 1 at May 2, 1998, and 0.17 to 1 at May 3, 1997.
The ratio of total debt to total capitalization (defined as total debt plus
shareholders' equity) increased to 0.45 to 1 at May 2, 1998 from 0.14 to 1 at
May 3, 1997.
The Company increased the cash dividend on its common stock to $0.16 per
share in fiscal 1998 from $0.12 per share in fiscal 1997 and $0.08 per share in
fiscal 1996. Cash dividends paid were $7.1 million in fiscal 1998, $5.2 million
in fiscal 1997, and $2.9 million in fiscal 1996.
The Company believes that it has the ability to continue to generate
adequate funds from its operations, and through borrowings under its existing
long-term debt facilities, to maintain its competitive position and expand its
business.
Year 2000 Compliance
During 1997, the Company developed, and began implementing, a strategic
long-term information technology plan to upgrade its core application systems.
Concurrently, it has developed, and is implementing, a plan to ensure that its
information systems are year 2000 compliant. The Company believes that with the
currently planned system conversions and upgrades, as well as certain additional
modifications to existing software, the Company will achieve year 2000
compliance without any significant operational problems related to the Company's
information systems. Amounts expended, or to be expended, exclusively to ensure
year 2000 compliance are not expected to be material to the Company's
consolidated results of operations or financial position. The Company is also
communicating with significant suppliers, customers, financial institutions and
others with which it does business to validate year 2000 compliance.
16
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended
- ---------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands, May 2, May 3, April 27, April 29, April 30,
except per share data) 1998(a) 1997(c) 1996 1995(d) 1994
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Operations:
Sales $3,203,731 $3,411,625 $3,250,868 $2,992,735 $2,545,676
Gross margin 371,226 358,326 326,307 297,715 250,441
Operating and administrative expenses 256,660 252,885 236,661 216,099 186,912
Restructuring costs 24,179(b) -- -- -- --
Merger and integration costs -- -- 11,993(e) -- --
Loss on disposal of assets -- -- -- -- 13,148(g)
Interest expense 6,013 7,166 12,354 18,312 17,534
Earnings before income taxes and
extraordinary loss 88,185 101,947 68,529 66,643 36,025
Earnings before extraordinary loss 54,706 61,351 39,215 39,218 21,371
Extraordinary loss, net of tax -- (1,882)(f) (2,164)(f) -- --
Net earnings 54,706 59,469 37,051 39,218 21,371
Net earnings as a percent of sales 1.71% 1.74% 1.14% 1.31% 0.84%
- ---------------------------------------------------------------------------------------------------------------------------
Per Common Share Data:
Earnings before extraordinary loss $ 1.15 $ 1.30 $ 0.84 $ 0.84 $ 0.47
Net earnings 1.15 1.26 0.79 0.84 0.47
Earnings before extraordinary loss --
assuming dilution 1.15 1.29 0.83 0.83 0.46
Net earnings-- assuming dilution 1.15 1.25 0.78 0.83 0.46
Cash dividends declared 0.16 0.12 0.08 0.07 0.05
Book value 6.80 5.46 4.25 3.43 2.61
Market price range-- High 32 28 1/8 22 13 1/3 12 1/6
-- Low 19 7/8 18 5/8 13 9 8 1/2
- ---------------------------------------------------------------------------------------------------------------------------
Financial Position:
Working capital $ 54,337 $ 21,868 $ 40,828 $ 72,780 $ 84,926
Total assets 908,851 581,480 564,261 580,770 487,904
Total debt 269,771 42,725 97,743 178,531 181,576
Shareholders' equity 324,214 258,650 199,562 160,330 121,868
- ---------------------------------------------------------------------------------------------------------------------------
Financial Ratios and Other Data:
Current ratio 1.18 to 1 1.08 to 1 1.16 to 1 1.31 to 1 1.47 to 1
Inventory turnover 15.81 18.73 18.90 18.80 16.18
Return on average assets 7.3% 10.4% 6.5% 7.3% 4.4%
Debt to equity ratio 0.83 to 1 0.17 to 1 0.49 to 1 1.11 to 1 1.49 to 1
Return on average shareholders' equity 18.8% 26.0% 20.6% 27.8% 19.7%
Weighted average common
shares outstanding 47,528,161 47,290,092 46,825,107 46,711,389 45,771,755
Weighted average common
shares outstanding --
assuming dilution 47,742,554 47,558,480 47,190,273 47,005,601 46,259,419
Number of employees at fiscal year-end 9,479 5,151 4,925 4,600 4,639
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
In fiscal 1998, the Company adopted Statement of Financial Accounting Standards
No. 128 - Earnings per share ("SFAS No. 128"). SFAS No. 128 established new
standards for computing and presenting earnings per share and requires reporting
of both basic and diluted earnings per share. Earnings for all prior periods
have been restated to conform to the provisions of SFAS No. 128. All historical
financial data presented has been restated to reflect Richfood Holdings, Inc.'s
October 15, 1995, acquisition of Super Rite Corporation which was accounted for
as a pooling of interests (see Note 2 to the Consolidated Financial Statements).
All references to common share and per common share data for previously reported
periods have been adjusted to reflect the 3-for-2 common stock split in fiscal
1997 and the 2-for-1 common stock split in fiscal 1994.
(a) Results for fiscal 1998 reflect the acquisition of Farm Fresh, Inc. on
March 4, 1998 (See Note 2 to the Consolidated Financial Statements).
(b) See Note 7 to the Consolidated Financial Statements and Financial Review
for further discussion.
(c) Fiscal 1997 was a 53-week year. Results for fiscal 1997 reflect the
acquisition of Norristown Wholesale, Inc., on September 30, 1996 (see Note
2 to the Consolidated Financial Statements).
(d) Results for fiscal 1995 reflect the acquisitions of Rotelle, Inc. on August
23, 1994, and the Wholesale Division of Camellia Food Stores, Inc. on April
3, 1995.
(e) See Note 2 to the Consolidated Financial Statements and Financial Review
for further discussion.
(f) See Note 6 to the Consolidated Financial Statements and Financial Review
for further discussion.
(g) The fiscal 1994 loss on disposal of assets related to the write-down of
assets of closed retail grocery stores.
17
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Richfood Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Richfood
Holdings, Inc. and subsidiaries as of May 2, 1998 and May 3, 1997, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for the fiscal years then ended. 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. The consolidated
statements of earnings, shareholders' equity and cash flows of Richfood
Holdings, Inc. and subsidiaries for the fiscal year ended April 27, 1996 were
audited by other auditors whose report, dated June 10, 1996, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Richfood Holdings, Inc. and subsidiaries at May 2, 1998 and May 3, 1997, and the
consolidated results of their operations and their cash flows for the fiscal
years then ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Richmond, Virginia
June 15, 1998
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The Board of Directors and Shareholders
Richfood Holdings, Inc.:
The integrity and objectivity of the consolidated financial statements and
related financial information in this report are the responsibility of
management of the Company. The consolidated financial statements have been
prepared in conformity with generally accepted accounting principles and
include, when necessary, the best estimates and judgments of management.
Management is responsible for maintaining internal controls, at
appropriate cost, designed to provide reasonable assurance that assets are
safeguarded, transactions are executed in accordance with management's
authorization and financial records provide a reliable basis for the preparation
of the consolidated financial statements. The Company's year-end consolidated
financial statements are audited by our independent auditors. The annual audit
includes consideration of the Company's internal controls to the extent required
by generally accepted auditing standards to enable our independent auditors to
determine the nature, timing and extent of their audit procedures. Management
also maintains a staff of internal auditors who evaluate the adequacy of, and
investigate the adherence to, internal controls and related policies and
procedures.
The Audit Committee of the Board of Directors, consisting of outside
directors, meets periodically with the independent auditors, internal auditors
and management to review matters relating to the Company's financial reporting,
the adequacy of the internal controls and the scope and results of audit work.
Our independent auditors and the internal auditors have unrestricted access to
the Audit Committee.
/s/ John E. Stokely /s/ John C. Belknap
- ------------------------ -------------------------
John E. Stokely John C. Belknap
Chairman of the Board, Executive Vice President and
President and Chief Financial Officer
Chief Executive Officer
18
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended
- ------------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands, May 2, Percent May 3, Percent April 27, Percent
except per share data) 1998 of Sales 1997 of Sales 1996 of Sales
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Sales $3,203,731 100.00% $3,411,625 100.00% $3,250,868 100.00%
Costs and expenses:
Cost of goods sold 2,832,505 88.41 3,053,299 89.50 2,924,561 89.96
Operating and administrative
expenses 256,660 8.01 252,885 7.41 236,661 7.28
Restructuring costs 24,179 0.76 -- -- -- --
Merger and integration costs -- - -- -- 11,993 0.37
Interest expense 6,013 0.19 7,166 0.21 12,354 0.38
Interest income (3,811) (0.12) (3,672) (0.11) (3,230) (0.10)
- ------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes
and extraordinary loss 88,185 2.75 101,947 2.99 68,529 2.11
Income taxes 33,479 1.04 40,596 1.19 29,314 0.90
- ------------------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary
loss 54,706 1.71 61,351 1.80 39,215 1.21
Extraordinary loss, net of tax -- -- (1,882) (0.06) (2,164) (0.07)
- ------------------------------------------------------------------------------------------------------------------------------
Net earnings 54,706 1.71% $ 59,469 1.74% $ 37,051 1.14%
==============================================================================================================================
Earnings per common share:
Earnings before
extraordinary loss $ 1.15 $ 1.30 $ 0.84
Extraordinary loss, net of tax -- (0.04) (0.05)
- ------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 1.15 $ 1.26 $ 0.79
==============================================================================================================================
Earnings per common share-
assuming dilution:
Earnings before
extraordinary loss $ 1.15 $ 1.29 $ 0.83
Extraordinary loss, net of tax -- (0.04) (0.05)
- ------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 1.15 $ 1.25 $ 0.78
==============================================================================================================================
Cash dividends declared
per common share $ 0.16 $ 0.12 $ 0.08
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
19
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
May 2, May 3,
(Dollar amounts in thousands) 1998 1997
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 39,968 $ 10,416
Receivables, less allowance for doubtful
accounts of $3,393 (fiscal 1997 - $3,445) 101,454 104,739
Inventories 194,875 163,510
Other current assets 20,675 14,426
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 356,972 293,091
- ---------------------------------------------------------------------------------------------------------------------------
Notes receivable, less allowance for doubtful
accounts of $1,654 (fiscal 1997 - $1,886) 22,767 34,639
Assets held for sale 26,342 --
Property and equipment, net 187,288 121,594
Goodwill, net 263,369 87,520
Other assets 52,113 44,636
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $908,851 $581,480
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt and capital lease obligations $ 16,684 $ 10,656
Accounts payable 209,009 209,207
Accrued expenses and other current liabilities 76,942 51,360
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 302,635 271,223
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt and capital lease obligations 253,087 32,069
Deferred credits and other 28,915 19,538
Shareholders' equity:
Preferred stock, no par value:
Authorized shares - 5,000,000;
none issued or outstanding -- --
Common stock, no par value:
Authorized shares - 90,000,000;
issued and outstanding shares 47,658,964
(fiscal 1997 - 47,401,770) 90,729 72,258
Retained earnings 233,485 186,392
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 324,214 258,650
Commitments and contingent liabilities (Notes 5, 6 and 13)
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $908,851 $581,480
===========================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
20
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock Retained
(Dollar amounts in thousands) Shares Dollars Earnings Total
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Balance at April 29, 1995 46,799,495 $63,978 $ 96,352 $160,330
Net earnings -- -- 37,051 37,051
Effect of change in fiscal year end of
pooled company -- -- 2,548 2,548
Issuance of common stock under employee
stock incentive plans 233,086 1,675 -- 1,675
Proceeds from short-swing profits -- 1,628 -- 1,628
Shares canceled/surrendered (44,979) (317) -- (317)
Cash dividends declared on common stock -- -- (3,353) (3,353)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at April 27, 1996 46,987,602 66,964 132,598 199,562
Net earnings -- -- 59,469 59,469
Issuance of common stock under employee
stock incentive plans 534,361 7,230 -- 7,230
Shares canceled/surrendered (120,193) (1,936) -- (1,936)
Cash dividends declared on common stock -- -- (5,675) (5,675)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at May 3, 1997 47,401,770 72,258 186,392 258,650
Net earnings -- -- 54,706 54,706
Warrants issued -- 14,415 -- 14,415
Issuance of common stock under employee
stock incentive plans 257,194 4,056 -- 4,056
Cash dividends declared on common stock -- -- (7,613) (7,613)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at May 2, 1998 47,658,964 $90,729 $233,485 $324,214
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
21
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended
- ---------------------------------------------------------------------------------------------------------------------------
May 2, May 3, April 27,
(Dollar amounts in thousands) 1998 1997 1996
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Operating activities:
Net earnings $ 54,706 $ 59,469 $ 37,051
Adjustments to conform fiscal year of pooled company:
Net earnings -- -- 2,548
Non-cash components -- -- 1,959
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Restructuring charge, non-cash component 23,314 -- --
Depreciation and amortization 32,072 29,234 27,089
Provision for doubtful accounts 4,148 4,241 6,197
Deferred income taxes (2,741) 7,702 (2,051)
Extraordinary loss -- loss on debt extinguishment,
non-cash component -- 663 1,116
Other, net 28 289 (63)
Changes in operating assets and liabilities, net of effects of
acquisitions:
Receivables 6,300 (622) 564
Inventories 12,552 (353) (19,405)
Other current assets 3,041 (987) 643
Accounts payable, accrued expenses and other liabilities (21,035) 16,424 33,903
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 112,385 116,060 89,551
- ---------------------------------------------------------------------------------------------------------------------------
Investing activities:
Acquisitions, net of cash acquired (222,067) (26,098) --
Purchases of property and equipment (22,194) (15,415) (14,781)
Issuance of notes receivable (11,227) (22,266) (16,805)
Collections on notes receivable 7,246 10,511 13,988
Other, net (9,801) (8,091) (2,727)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (258,043) (61,359) (20,325)
- ---------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net proceeds from (repayments of) revolving credit facilities 192,000 -- (25,000)
Principal payments on long-term debt and capital lease obligations (12,136) (58,633) (55,788)
Proceeds from issuance of common stock under employee
stock incentive plans and other 2,474 2,130 2,545
Cash dividends paid on common stock (7,128) (5,197) (2,949)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 175,210 (61,700) (81,192)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 29,552 (6,999) (11,966)
Cash and cash equivalents at beginning of fiscal year 10,416 17,415 29,381
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of fiscal year $ 39,968 $ 10,416 $ 17,415
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
22
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
1. Summary of Significant Accounting Policies
Principles of Consolidation and Presentation
The Consolidated Financial Statements of Richfood Holdings, Inc. and
subsidiaries (the "Company") as of and for the fiscal years ended May 2, 1998
("fiscal 1998") and May 3, 1997 ("fiscal 1997") and for the fiscal year ended
April 27, 1996 ("fiscal 1996") include the accounts of Richfood Holdings, Inc.
and all subsidiaries after the elimination of significant intercompany
transactions and balances. See Note 2 for information on the restatement of the
Consolidated Financial Statements for the fiscal 1996 business combination that
was accounted for as a pooling of interests.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from these estimates. Certain amounts in
the prior year financial statements have been reclassified to conform with the
current year presentation.
Fiscal Year
The Company reports on a 52-53 week fiscal year ending the Saturday nearest
April 30. Fiscal 1998 and fiscal 1996 each consist of 52 weeks. Fiscal 1997
consists of 53 weeks.
Cash and Cash Equivalents
Cash equivalents of $38,552 and $10,321 at May 2, 1998 and May 3, 1997,
respectively, consist of money market funds and commercial paper. For purposes
of the Consolidated Statements of Cash Flows, the Company considers all highly
liquid investments with initial maturities of three months or less to be cash
equivalents.
Inventories
The Company values inventories at the lower of cost or market with the cost of
the majority of inventories determined using the last-in, first-out ("LIFO")
method. Cost for the remaining inventories is determined using the first-in,
first-out ("FIFO") method.
Assets Held for Sale
Assets held for sale are carried at the lower of carrying amount or estimated
fair value less costs to sell. Assets held for sale at May 2, 1998 primarily
consist of the Company's West Point, Pennsylvania frozen food distribution
facility (Note 7) and a 200,000 square foot distribution center located in
Norfolk, Virginia, which was acquired in connection with the acquisition of
substantially all of the assets and assumption of certain liabilities of Farm
Fresh, Inc. during fiscal 1998 (Note 2). The Company is currently marketing
these facilities.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets to be held and
used and goodwill for impairment when events or changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable. An
evaluation is made periodically and is based on such factors as the occurrence
of a significant event, a significant change in the environment in which the
business operates or if the expected future undiscounted net cash flows would
become less than the carrying amount of the asset. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if an adjustment to fair
value is required. The Company reports long-lived assets and certain
identifiable intangibles to be disposed of at the lower of carrying amount or
estimated fair value less costs to sell.
In the fourth quarter of fiscal 1998, the Company implemented a
restructuring plan that included the closure of the West Point, Pennsylvania
frozen food distribution facility. In conjunction with this restructuring plan,
the Company recorded an impairment loss of approximately $17,800 associated with
this facility and the related goodwill (Note 7).
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the respective assets. In general, the estimated useful lives
for computing depreciation are 20 to 45 years for buildings, 10 to 15 years for
leasehold improvements, and 3 to 15 years for vehicles, fixtures and equipment.
Leased property meeting certain criteria is capitalized and the present value
of the related lease payment is recorded as a liability. Amortization of
capitalized leased assets is computed using the straight line method over the
term of the lease.
23
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except per share data)
Goodwill and Other Assets
The excess of cost over the fair value of net assets of businesses acquired
(goodwill) is amortized on a straight-line basis over 40 years. Goodwill is
shown net of accumulated amortization of $20,572 and $17,164 at May 2, 1998 and
May 3, 1997, respectively. The increase in goodwill from May 3, 1997 to May 2,
1998 is primarily due to the Company's acquisition of substantially all of the
assets and assumption of certain liabilities of Farm Fresh, Inc. (Note 2).
Other assets primarily consist of supply agreements, the prepaid pension
asset (Note 11) and lease acquisition costs. The supply agreements generally
provide that the Company will be the principal supplier for the customers and
generally include minimum purchase requirements by product category. Supply
agreements are recorded at their acquisition cost and are amortized on a
straight-line basis over the terms of the respective supply agreements. Supply
agreements included in other assets were $19,758 (net of $10,326 accumulated
amortization) and $18,638 (net of $20,391 accumulated amortization) at May 2,
1998 and May 3, 1997, respectively. An evaluation of the recorded value for
supply agreements is made periodically and is based on such factors as the
relationship with the applicable customer and expectations as to future revenues
under the applicable contract. Lease acquisition costs incurred are amortized on
a straight-line basis over the terms of the respective leases.
Store Pre-opening Costs
Costs associated with the Company opening new retail stores are charged to
expense as incurred.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement and
tax bases of existing assets and liabilities. Deferred tax assets and
liabilities are measured using income tax rates expected to apply to taxable
income in the years in which the temporary differences are expected to be
recovered or settled.
Stock-Based Compensation
In fiscal 1997, the Company adopted the disclosure-only requirements of
Statement of Financial Accounting Standards No. 123 - Accounting for Stock-Based
Compensation ("SFAS No. 123"). As permitted by the provisions of SFAS No. 123,
the Company continues to account for stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
Fair Value of Financial Instruments
Financial instruments include cash and cash equivalents, accounts and notes
receivable, accounts payable and long-term debt and capital lease obligations
reported in the Consolidated Balance Sheets. The carrying amounts for cash and
cash equivalents, accounts receivable, accounts payable and certain notes
receivable approximate fair value at May 2, 1998 and May 3, 1997 because of the
short-term nature of these financial instruments. The carrying amount of certain
notes receivable, which are subject to variable interest rates, approximates
fair value at May 2, 1998 and May 3, 1997 due to the variable interest rates
related to these financial instruments. The fair values of long-term debt with
fixed interest rates and capital lease obligations approximate their carrying
values at May 2, 1998 and May 3, 1997.
Earnings per Common Share
In the third quarter of fiscal 1998, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings per Share" ("SFAS No. 128"). SFAS No. 128
established new standards for computing and presenting earnings per share and
requires reporting of both basic and diluted earnings per share. Earnings per
share for all prior periods have been restated to conform to the provisions of
SFAS No. 128.
Basic earnings per common share amounts are computed based on earnings
divided by the weighted average number of common shares outstanding during the
respective periods presented. Diluted earnings per common share amounts are
computed based on earnings divided by the weighted average number of common
shares (and stock options and warrants that represent potential common shares)
outstanding during the respective periods presented.
A reconciliation of the numerators and denominators used in the basic and
diluted per-share computations is presented in Note 9.
Common Stock Split
On August 29, 1996, the Company's Board of Directors declared a three-for-two
common stock split payable September 30, 1996, to shareholders of record on
September 16, 1996 ("common stock split"). All references to common share and
per common share data in the Consolidated Financial Statements and in the Notes
to the Consolidated Financial Statements for all previously reported periods
have been adjusted to reflect the common stock split.
24
<PAGE>
2. Merger and Acquisitions
On March 4, 1998, a wholly-owned subsidiary of the Company acquired
substantially all of the assets and assumed certain liabilities of Farm Fresh,
Inc., a privately-held supermarket chain headquartered in Norfolk, Virginia
("Farm Fresh"). The Company did not assume Farm Fresh's indebtedness for
borrowed money or lease obligations for previously closed stores or stores that
were closed in connection with the transaction. At the time of the acquisition,
Farm Fresh was the third largest customer of the Company's Wholesale Division.
The purchase price consisted of approximately $222,000 cash, plus capital
leases assumed with a fair value of approximately $47,000, plus 1.5 million
warrants for the purchase of the Company's common stock at an exercise price
equal to $25 per share with a term of five years following issuance. The final
amount of cash consideration is subject to adjustment, which has not been
finalized, based on the amount of Farm Fresh's working capital at the time of
closing. The purchase price was financed primarily with borrowings under
revolving credit facilities (Note 6). The Company accounted for the acquisition
under the purchase method of accounting and, accordingly, the results of
operations of the acquired business have been included in the Company's
Consolidated Statement of Earnings since the date of acquisition. The purchase
price has been allocated to the assets acquired and the liabilities assumed
based upon their respective fair values at the date of acquisition. The excess
of purchase price over the fair value of net assets acquired of approximately
$179,000 is being amortized on a straight-line basis over 40 years.
The following unaudited pro forma financial information presents a summary
of consolidated results of operations of the Company and Farm Fresh as if the
acquisition had occurred at the beginning of fiscal 1997, with pro forma
adjustments to give effect to amortization of goodwill, interest expense on
acquisition debt and certain other adjustments, together with related tax
effects. This pro forma information is presented for informational purposes only
and is not necessarily indicative of the combined results of operations which
would actually have occurred had the transaction been consummated on that date
or which may be obtained in the future.
Fiscal Year Ended
- --------------------------------------------------------------
May 2, May 3,
1998 1997
- --------------------------------------------------------------
Sales $ 3,494,488 $3,838,932
Net earnings 52,290 59,533
Net earnings per
common share $ 1.10 $ 1.26
Net earnings per common
share--assuming dilution $ 1.10 $ 1.25
- --------------------------------------------------------------
On September 30, 1996, a wholly-owned subsidiary of the Company acquired
substantially all of the assets and assumed certain liabilities of Norristown
Wholesale, Inc. ("Norristown"), a wholesale distributor of produce and other
perishable food items headquartered in Norristown, Pennsylvania. Assets acquired
primarily consisted of inventory, accounts receivable, warehouse and
transportation equipment and a customer list. The Company also assumed the lease
for Norristown's transportation fleet. The Company accounted for the acquisition
under the purchase method of accounting and, accordingly, the results of
operations of the acquired business have been included in the Company's
Consolidated Statements of Earnings since the date of acquisition. The purchase
price of the acquisition was approximately $26,000.
On October 15, 1995, Super Rite Corporation ("Super Rite"), a full service
wholesale and retail grocery distributor headquartered in Harrisburg,
Pennsylvania, became a wholly-owned subsidiary of Richfood Holdings, Inc.
("Richfood") and each outstanding share of common stock of Super Rite was
converted into the right to acquire 1.0205 shares of common stock of Richfood
(1.53 shares adjusted for the common stock split). Under the terms of the
merger, Richfood issued 9,770,188 shares of common stock (14,655,282 shares
adjusted for the common stock split) to the shareholders of Super Rite and
outstanding options to acquire shares of Super Rite common stock were converted
into options to acquire approximately 230,000 shares of Richfood common stock
(345,000 shares adjusted for the common stock split).
The merger was accounted for using the pooling of interests method and,
accordingly, the Consolidated Financial Statements for periods prior to October
15, 1995 have been restated to include the accounts of Super Rite. In addition,
as a result of the merger, the Company recorded a one-time charge for merger and
integration costs of $11,993 in the third quarter of fiscal 1996. During fiscal
1996, $5,473 of the merger and integration accrual was utilized. The remaining
accrual of $6,520 at April 27, 1996 was substantially utilized during fiscal
1997. No accrual remains at May 2, 1998.
25
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except per share data)
3. Inventories
At May 2, 1998 and May 3, 1997, approximately 76% and 84%, respectively, of
total inventories were valued using the LIFO method. Costs for the remaining
inventories were determined using the FIFO method. If all inventories were
valued at the lower of FIFO cost or market, inventories would have been higher
by approximately $7,653 at May 2, 1998 and $8,062 at May 3, 1997, and net
earnings would have been (lower) higher by approximately $(253) for fiscal 1998,
$(12) for fiscal 1997, and $821 for fiscal 1996. FIFO value of inventories
approximates their replacement cost.
4. Notes Receivable
The Company's notes receivable are due principally from customers and relate
primarily to financing for store acquisitions and improvements. The majority of
such notes bear interest at the prime rate plus 2% (10.5% at May 2, 1998) and
have remaining terms ranging from 1 to 10 years. Collateral securing such notes
varies, but may include inventory, equipment, fixtures, accounts receivable,
contract rights, personal assets and pledges of Richfood common stock.
Receivables shown in current assets include $7,754 and $6,883 at May 2, 1998 and
May 3, 1997, respectively, related to current maturities of these notes
receivable.
5. Property and Equipment and Leases
Property and equipment are summarized as follows:
May 2, May 3,
1998 1997
- ------------------------------------------------------------
Land $ 12,276 $ 5,452
Buildings 62,272 64,116
Fixtures and equipment 126,644 112,052
Leasehold improvements 41,892 28,920
Trucks and autos 12,711 14,977
Assets under capital leases:
Truck fleet 1,375 2,726
Buildings 41,140 --
Other 4,060 2,670
- ------------------------------------------------------------
302,370 230,913
Less accumulated depreciation
and amortization 115,082 109,319
- ------------------------------------------------------------
Property and equipment, net $187,288 $121,594
- ------------------------------------------------------------
Depreciation and amortization expense relating to property and equipment
and assets under capital leases was approximately $18,820, $16,700, and $15,200
for fiscal 1998, fiscal 1997 and fiscal 1996, respectively. Capital lease
obligations have imputed interest rates that are principally at 6.5% and are due
in varying amounts through fiscal 2022.
Future minimum lease payments under capital leases at May 2, 1998 are as
follows:
Lease
Fiscal Year Obligations
- ----------------------------------------------------------------
1999 $ 8,043
2000 7,445
2001 5,660
2002 4,788
2003 4,709
Thereafter 42,427
- ----------------------------------------------------------------
Total future minimum lease payments 73,072
Less amount representing interest 24,966
- ----------------------------------------------------------------
Present value of minimum capital
lease payments 48,106
Less current installments of obligations
under capital leases 5,019
- ----------------------------------------------------------------
Long-term obligations under capital leases $43,087
- ----------------------------------------------------------------
The Company leases certain warehouse, office and storage facilities,
equipment and retail stores under noncancelable operating leases that expire
within 24 years from May 2, 1998 and have renewal options from 5 to 50 years.
The majority of the leases provide for the payment of taxes, insurance and
maintenance (and contingent rentals based on sales volume, in the case of retail
store leases) by the Company. The Company subleases certain retail stores to
third parties.
As of May 2, 1998, minimum rentals to be paid and minimum sublease rentals
to be received on noncancelable operating leases with remaining terms greater
than one year are as follows:
Minimum Minimum Net
Lease Sublease Minimum
Rentals To Rentals To Lease
Fiscal Year Be Paid Be Received Rentals
- ------------------------------------------------------------
1999 $ 30,921 $ 4,130 $ 26,791
2000 28,764 3,272 25,492
2001 26,062 2,150 23,912
2002 24,831 1,771 23,060
2003 80,511 1,510 79,001
Thereafter 114,780 4,018 110,762
- ------------------------------------------------------------
Total $ 305,869 $ 16,851 $ 289,018
26
<PAGE>
Total annual rental expense is as follows:
Fiscal Year Ended
- -------------------------------------------------------------
May 2, May 3, April 27,
1998 1997 1996
- -------------------------------------------------------------
Minimum rentals $30,854 $27,886 $27,977
Less sublease income (5,226) (6,962) (8,174)
- -------------------------------------------------------------
Rental expense $25,628 $20,924 $19,803
In connection with various guarantees of certain customer store leases,
the Company is contingently liable, in the event of customer nonperformance, for
future lease payments with a present value of approximately $37,000 at May 2,
1998. The related leases expire at varying dates over the next 23 years.
6. Long-term Debt and Capital Lease Obligations
Long-term debt, including capital lease obligations, consists of the following:
May 2, May 3,
1998 1997
- ----------------------------------------------------------------
$250,000, five year, senior unsecured
revolving credit facility, average
effective interest rate of 5.91%, due
February 2003 $192,000 $ --
Senior Notes, unsecured, interest rate
of 6.15%, due July 1998 to July 2000 27,000 36,000
Obligations under capital leases
(Note 5) 48,106 2,782
Other long-term debt 2,665 3,943
- ----------------------------------------------------------------
Total long-term debt and capital
lease obligations 269,771 42,725
Less current installments 16,684 10,656
- ----------------------------------------------------------------
Long-term debt and capital lease
obligations, net of current
installments $253,087 $32,069
- ----------------------------------------------------------------
On February 27, 1998, the Company entered into an agreement with a
syndicate of commercial banks that provided a $250,000, five-year, senior
unsecured revolving credit facility (the "$250,000 facility") and a $100,000,
364-day, senior unsecured revolving credit facility (the "$100,000 facility").
Proceeds from these facilities were used primarily to fund the Farm Fresh
acquisition. Subsequent to May 2, 1998, these facilities were refinanced, on a
long-term basis, with proceeds from new senior unsecured credit facilities under
which the Company may borrow an aggregate amount of up to $450,000 (Note 16).
In July 1993, the Company issued $45,000 aggregate principal amount of
6.15% Senior Notes (the "Senior Notes"), due over a term of seven years. The
Senior Notes require semiannual interest payments and annual sinking fund
payments consisting of principal of $9,000 plus accrued interest from July 1996
through July 2000. The Senior Notes also include an optional redemption
provision whereby the Company may elect to redeem all, or any portion, of the
debt prior to maturity subject to certain make-whole provisions. The Senior
Notes contain covenants for certain subsidiaries that, among other things, limit
the incurrence of additional indebtedness; prohibit certain liens on assets;
require maintenance of minimum net worth; limit the ability to transfer funds to
Richfood Holdings, Inc. in the form of loans, advances or cash dividends and
require certain financial ratios to be met as of each quarter end. The Company
is in compliance with all such covenants at May 2, 1998.
In April 1992, the Company issued $75,000 aggregate principal amount of
10 5/8% Senior Subordinated Notes, due 2002. During fiscal 1996, the Company
repurchased, at market prices above par, $27,475 of the Senior Subordinated
Notes, and in April 1997, the first permitted optional redemption date, the
Company redeemed the remaining $47,525 at a redemption price of 105.31% of par.
The Company primarily used cash on hand, supplemented by borrowings under
revolving credit facilities, to fund the repurchase and early redemption of the
Senior Subordinated Notes. The fiscal 1997 redemption and the fiscal 1996
repurchase resulted in extraordinary losses of $1,882 and $2,164, respectively,
net of tax benefits of $1,308 and $1,733, respectively. The extraordinary losses
are comprised of amounts paid in excess of par value and the write-off of
related deferred financing costs.
Future principal repayments on long-term debt subsequent to fiscal 1998,
excluding obligations under capital leases, are as follows: fiscal
1999--$11,665; fiscal 2000--$9,000; and fiscal 2001--$9,000. Borrowings of
$192,000 outstanding under the $250,000 facility were refinanced subsequent to
May 2, 1998 (Note 16) and are excluded from the above future principal
repayments.
As of May 2, 1998, the Company issued $13,302 in standby letters of
credit, primarily for self-insurance purposes. These letters of credit are
subject to annual renewal and will be replaced with similar letters of credit in
the normal course of business.
Interest payments made under long-term debt and capital leases were
$5,363, $7,973 and $11,671 for fiscal 1998, fiscal 1997 and fiscal 1996,
respectively.
27
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except per share data)
7. Restructuring
In the fourth quarter of fiscal 1998, the Company announced a plan to
restructure its Pennsylvania frozen foods operations, which reduced fiscal 1998
earnings before taxes by $24,179. The implementation of the plan included
closing the Company's West Point, Pennsylvania frozen food distribution facility
and transferring related operations to the Company's Harrisburg, Pennsylvania
distribution facility.
The aggregate charges included $17,820 for asset impairment and $6,359 for
activities under the restructuring plan. The asset impairment charge included
$14,616 to write-down the West Point facility and related equipment to fair
value less estimated costs to sell and $3,204 to write-off the unamortized
goodwill associated with the Company's West Point operations. The estimated fair
value less costs to sell the West Point facility of approximately $20,700 is
classified as assets held for sale at May 2, 1998. Management expects the
facility to be sold within the next eighteen months. At May 2, 1998,
approximately $5,494 remains in the accrual to be utilized for certain
non-cancelable leases, employee separation costs and other obligations that will
extend beyond fiscal 1998.
8. Income Taxes
The components of income tax expense (benefit) related to earnings before income
taxes and extraordinary loss are as follows:
Fiscal Year Ended
- --------------------------------------------------------------
May 2, May 3, April 27,
1998 1997 1996
- --------------------------------------------------------------
Current:
Federal $31,460 $27,800 $26,767
State 4,760 5,094 4,598
- --------------------------------------------------------------
36,220 32,894 31,365
Deferred:
Federal (801) 6,941 (1,370)
State (1,940) 761 (681)
- --------------------------------------------------------------
(2,741) 7,702 (2,051)
- --------------------------------------------------------------
Income taxes $33,479 $40,596 $29,314
- --------------------------------------------------------------
Income tax payments,
net of refunds received $29,812 $40,074 $26,517
- --------------------------------------------------------------
Income tax expense differs from the amounts resulting from applying the
statutory federal income tax rate to earnings before income taxes and
extraordinary loss as follows:
Fiscal Year Ended
- ----------------------------------------------------------------
May 2, May 3, April 27,
1998 1997 1996
- ----------------------------------------------------------------
Taxes computed using
federal statutory rate 35.00% 35.00% 35.00%
State income taxes, net of
federal income tax benefit 2.07 3.73 4.98
Nondeductibility of goodwill
amortization expense 0.97 0.74 2.58
Other, net (0.08) 0.35 0.22
- -------------------------------------------------------------
Effective tax rate 37.96% 39.82% 42.78%
- -------------------------------------------------------------
Deferred income taxes for fiscal 1998 and fiscal 1997 reflect the income
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of deferred tax assets and liabilities at May
2, 1998 and May 3, 1997 are as follows:
May 2, May 3,
1998 1997
- -------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts $ 2,256 $ 1,907
Inventories -- 446
Deferred revenue 2,697 2,301
Accrued expenses 14,198 11,678
Other 3,944 4,329
- -------------------------------------------------------------------------
Total deferred tax assets 23,095 20,661
- -------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment-
depreciation (11,188) (16,303)
Goodwill (8,128) --
Inventories (1,302) --
Retirement plans (444) (2,522)
Other (1,284) (3,466)
- -------------------------------------------------------------------------
Total deferred tax liabilities (22,346) (22,291)
- -------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 749 $ (1,630)
- -------------------------------------------------------------------------
Net current deferred tax assets $ 15,197 $ 10,671
Net noncurrent deferred tax liabilities (14,448) (12,301)
- -------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 749 $ (1,630)
- -------------------------------------------------------------------------
28
<PAGE>
9. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Fiscal Year Ended
- -----------------------------------------------------------------------------------------------------
May 2, May 3, April 27,
1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C>
Numerator:
Earnings before
extraordinary loss $54,706 $61,351 $ 39,215
Extraordinary loss,
net of tax -- (1,882) (2,164)
- -----------------------------------------------------------------------------------------------------
Net earnings $54,706 $59,469 $ 37,051
- -----------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic
earnings per share-
weighted average
common shares 47,528,161 47,290,092 46,825,107
Effect of dilutive securities:
Stock options 209,831 268,388 365,166
Warrants 4,562 -- --
- -----------------------------------------------------------------------------------------------------
Dilutive securities 214,393 268,388 365,166
- -----------------------------------------------------------------------------------------------------
Denominator for diluted
earnings per share-
adjusted weighted
average shares 47,742,554 47,558,480 47,190,273
- -----------------------------------------------------------------------------------------------------
Earnings per common
share:
Earnings before
extraordinary loss $ 1.15 $ 1.30 $ 0.84
Extraordinary loss,
net of tax -- (0.04) (0.05)
- ---------------------------------------------------------------------------------------------------
Net earnings $ 1.15 $ 1.26 $ 0.79
- -----------------------------------------------------------------------------------------------------
Earnings per common share - assuming dilution:
Earnings before
extraordinary loss $ 1.15 $ 1.29 $ 0.83
Extraordinary loss,
net of tax -- (0.04) (0.05)
- ------------------------------------------------------------------------------------------------------
Net earnings $ 1.15 $ 1.25 $ 0.78
- ------------------------------------------------------------------------------------------------------
</TABLE>
Options to purchase 53,000, 224,800 and 366,075 shares of common stock at
weighted-average exercise prices of $26.97, $23.77 and $17.26 per share were
outstanding in fiscal 1998, fiscal 1997 and fiscal 1996, respectively, but were
not included in the computation of diluted earnings per share because the
options' exercise prices were greater than the average market prices of the
common shares and, therefore, would be antidilutive.
Under the Company's Amended and Restated Omnibus Stock Incentive Plan,
dated July 1997, (the "Omnibus Plan"), with respect to Incentive Awards granted
for the three fiscal year performance cycle that commenced on May 4, 1997,
certain employees would be entitled to receive 23,800 shares of common stock at
May 2, 1998. These contingently issuable shares are not included in the
computation of diluted earnings per share because certain performance goals and
other necessary vesting conditions had not been satisfied as of May 2, 1998.
10. Stock Options, Warrants and Other
The Omnibus Plan authorizes the granting of a maximum of 2,250,000 shares of
Richfood common stock (subject to adjustment to reflect certain dilutive
events), in the form of shares of restricted common stock, incentive stock
options and nonqualified stock options with or without stock appreciation
rights, stock awards and performance shares, to certain employees. Options to
purchase Richfood common stock are granted at a price no less than the fair
market value of the stock on the date of grant (if the option is an incentive
stock option) or 50% of the fair market value of the stock on the date of grant
(if the option is a nonqualified stock option). Options may be exercised at such
times and subject to such conditions as may be prescribed by the Company at the
time of grant. The maximum period in which an option may be exercised is
determined by the Company at the time of grant and cannot exceed ten years.
Options outstanding under the Omnibus Plan vest in equal installments over a
four-year period and have a term of ten years from date of grant. Options to
purchase approximately 555,000 shares of common stock remain outstanding under
the Omnibus Plan at May 2, 1998. Approximately 1,689,000 and 2,000,000 shares of
common stock remained available for grant at May 2, 1998 and May 3, 1997,
respectively.
The Company's Non-Employee Directors' Stock Option Plan (the "Directors'
Stock Plan") authorizes the granting of a maximum of 112,500 shares of Richfood
common stock (subject to adjustment to reflect certain dilutive events) in the
form of nonqualified stock options. The Directors' Stock Plan provides for each
eligible director to receive, on September 1 of each year, an option to purchase
1,500 shares of common stock. Options to purchase Richfood common stock are
granted at the fair market value of the stock on the date of grant, vest in
equal installments over a four-year period and have a term of ten years. Options
to purchase approximately 53,000 shares of common stock remain outstanding under
the Directors' Stock Plan at May 2, 1998. Approximately 56,000 and 68,000 shares
of common stock remained available for grant at May 2, 1998 and May 3, 1997,
respectively.
29
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in
thousands, except per share data)
At May 2, 1998, there were options to purchase approximately 628,000
shares of Richfood common stock outstanding that were granted under other
employee incentive stock plans. The Company does not anticipate any future
grants under these plans.
Pro forma information regarding net earnings and earnings per share is
required by SFAS No. 123, and has been determined based on the fair value at the
grant date for options awarded in fiscal years 1998, 1997 and 1996 consistent
with the provisions of SFAS No. 123. The fair value of each option grant is
estimated using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants during fiscal years 1998, 1997 and
1996:
- ------------------------------------------------------------------------------
Dividend Expected Risk Free
Yield Volatility Life Interest Rate
- ------------------------------------------------------------------------------
Fiscal 1998 0.60% 0.18 5 years 5.80%
Fiscal 1997 0.50% 0.18 5 years 6.29%
Fiscal 1996 0.50% 0.18 5 years 5.90%
- ------------------------------------------------------------------------------
The Black-Scholes option valuation model requires the input of highly
subjective assumptions including expectations of future dividends and stock
price volatility. The assumptions are only used for making the required fair
value estimate and should not be considered as indicators of future dividend
policy or stock price appreciation. For purposes of the pro forma disclosures,
the estimated fair value of the options is amortized to pro forma expense over
the options' vesting period. The pro forma effect on net earnings for fiscal
years 1998, 1997 and 1996 does not take into consideration pro forma
compensation expense related to grants made prior to fiscal 1996 and,
accordingly, may not be indicative of the pro forma effect on net earnings in
future years. If the Company had elected to recognize compensation expense
related to its stock options granted in fiscal years 1998, 1997 and 1996 in
accordance with the provisions of SFAS No. 123, the decrease in net earnings and
net earnings per common share would have been less than 2%.
A summary of the number of shares (in thousands) subject to outstanding
stock options and related information is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
- --------------------------------------------------------------------------------
May 2, May 3, April 27,
1998 1997 1996
- --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price Shares
- --------------------------------------------------------------------------------
<S> <C>
Outstanding -
beginning
of year 1,184 $14.68 1,404 $ 9.82 1,350
Granted 342 24.47 356 23.19 401
Exercised (265) 8.21 (492) 6.39 (233)
Canceled (25) 20.01 (84) 18.17 (114)
- --------------------------------------------------------------------------------
Outstanding -
end of year 1,236 $18.67 1,184 $14.68 1,404
- --------------------------------------------------------------------------------
Price range -
end of year $ 2.55- $ 2.55- $ 2.55-
$28.38 $25.33 $18.33
- --------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of each option granted during fiscal years
1998 and 1997 was $7.15 and $8.28, respectively. The number and weighted average
fair value of shares of nonvested restricted stock granted during fiscal year
1997 was 37,500 and $21.92 per share, respectively.
Information regarding the shares (in thousands) subject to outstanding
stock options at May 2, 1998 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Weighted
Range of Remaining Average Average
exercise prices Shares Contractual Life Exercise Price Shares Exercise Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------
$ 2.55 - $ 6.04 115 4 years $ 5.20 115 $ 5.20
$10.33 - $14.33 172 6 years $10.42 117 $10.40
$16.17 - $18.33 291 7 years $17.20 176 $17.21
$21.38 - $28.38 658 9 years $23.83 88 $23.04
- ----------------------------------------------------------------------------------------------------------------------
$ 2.55 - $28.38 1,236 8 years $18.67 496 $13.85
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
On March 4, 1998, in conjunction with the acquisition of substantially all
of the assets and assumption of certain liabilities of Farm Fresh, Inc. (Note
2), the Company issued warrants to purchase 1,500,000 shares of the Company's
common stock at $25 per share as part of the purchase consideration. The
warrants are immediately exercisable and will expire five years from the date of
issuance. The estimated fair market value of the warrants at the date of
issuance, approximately $14,415, was valued as part of the total purchase
consideration. As of May 2, 1998, all of these warrants remained outstanding.
11. Retirement Plans
All of the Company's wholesale and corporate employees are covered by defined
benefit plans. The funded status of the plans is as follows:
<TABLE>
<CAPTION>
May 2, 1998 May 3, 1997
- ---------------------------------------------------------------------------------------------------------------------------
Assets Exceed Accumulated Benefits Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets Accumulated Benefits Exceed Assets
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Actuarial present value of vested
benefit obligation $36,795 $ 6,832 $27,513 $ 4,695
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation $39,218 $ 6,832 $29,220 $ 4,927
- ---------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets $70,435 $ 4,494 $57,721 $ 3,771
Projected benefit obligation 52,829 6,832 41,893 4,927
- ---------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 17,606 (2,338) 15,828 (1,156)
Unrecognized net transition (liability) asset (4,522) 2,142 (4,192) 596
Unrecognized prior service cost -- -- 152 --
Unrecognized net gain (3,200) -- (2,283) --
Minimum liability -- (1,977) -- (546)
- ---------------------------------------------------------------------------------------------------------------------------
Net pension asset (liability) $ 9,884 $(2,173) $ 9,505 $(1,106)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's retirement plans cover employees who meet certain age and
service requirements. Retirement benefits vest under the various plans after
five years of service and are based on years of service and either average final
compensation, or a fixed dollar payment per month. The Company's funding policy
has been to contribute annually an amount actuarially determined to provide the
plans with sufficient assets to meet future benefit payment requirements. Plan
assets under the various plans at May 2, 1998 consist of equity securities,
preferred stock, U.S. government and agency obligations, mortgage-backed
securities, corporate obligations and mutual funds.
The following are the components of net retirement (benefit) expense
related to the defined benefit plans:
Fiscal Year Ended
- ---------------------------------------------------------------
May 2, May 3, April 27,
1998 1997 1996
- ---------------------------------------------------------------
Service cost -- present value
of benefits earned during
the year $ 2,528 $ 2,710 $ 2,440
Interest cost on projected
benefit obligation 3,548 3,315 3,087
Actual return on plan assets (14,969) (4,787) (6,325)
Net amortization and deferral 8,660 (1,193) 811
- ---------------------------------------------------------------
Net retirement (benefit)
expense $ (233) $ 45 $ 13
- ---------------------------------------------------------------
The weighted average discount rate assumed by the Company ranged from
7.00% to 7.75% and the projected increase in compensation ranged from 5% to 6%
for all years presented. The Company assumed an expected long-term rate of
return of 9% for all years presented.
The Company maintains a nonqualified, unfunded supplemental retirement
plan for selected management personnel. Supplemental retirement plan benefits
vest after specified years of service requirements are met and are based on
years of service and average final compensation. The Company established a trust
that maintains life insurance policies to serve as a financing source for the
plan. The cash surrender value of the life insurance policies was $1,440 at May
2, 1998 and $1,198 at May 3, 1997. The projected benefit obligation for the plan
was $2,617 at May 2, 1998 and $2,350 at May 3, 1997.
The Company maintains defined contribution plans under section 401(k) of
the Internal Revenue Code. These plans are offered to substantially all
employees who meet certain age and service requirements and allow for
participant pre-tax contributions and employer matching contributions. The
Company contributed $633, $664 and $655 to the plans for fiscal 1998, fiscal
1997 and fiscal 1996, respectively.
31
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except per share data)
Certain retail employees are covered under a union-sponsored, collectively
bargained, multi-employer pension plan. The Company's contribution to this plan
was $353, $371 and $346 in fiscal 1998, fiscal 1997 and fiscal 1996,
respectively.
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132 - Employers' Disclosures
about Pensions and Other Postretirement Benefits ("SFAS No. 132"). SFAS No. 132
revises the disclosure requirements for pensions and other postretirement
benefits. The Company will adopt SFAS No. 132 for the fiscal year ending May 1,
1999.
12. Significant Customers
Sales to three wholesale customers accounted for 19%, 10% and 8% of the
Company's sales in fiscal 1998, 17%, 9% and 9% of sales in fiscal 1997 and 16%,
9% and 11% of sales in fiscal 1996. The Company maintains a supply agreement
with its largest customer, which expires in December 1999. The Company acquired
its third largest customer, Farm Fresh, on March 4, 1998 (Note 2) and
accordingly, sales to Farm Fresh noted above only include sales made prior to
the acquisition date. The Company acquired its second largest customer, Shoppers
Food Warehouse Corporation, on May 18, 1998 (Note 16).
13. Litigation And Related Matters
The Company is party to various legal actions that are incidental to its
business. While the outcome of legal actions cannot be predicted with certainty,
the Company believes that the outcome of any of these proceedings, or all of
them combined, will not have a material adverse effect on its consolidated
financial position or business.
14. Industry Segments
At May 2, 1998, the Company operated a wholesale grocery segment and a retail
grocery segment. The Company's wholesale grocery segment provides a full
range of grocery, dairy, frozen food, produce and meat products to the
Company's retail segment, chains and independent retailers throughout the
Mid-Atlantic region. The Company's retail grocery segment sells directly to
the consumer. Sales by industry segment include sales to unaffiliated
customers, as reported in the Consolidated Statements of Earnings, and sales
between industry segments, which are accounted for on terms comparable to
unaffiliated customers.
Operating profit represents sales, less cost of goods sold and operating
and administrative expenses. Identifiable assets by segment, except for
goodwill, are those assets used directly in the operations of that unit.
The following is industry segment information:
Fiscal Year
- -------------------------------------------------------------------------
May 2, May 3, April 27,
1998 1997 1996
- -------------------------------------------------------------------------
Sales:
Wholesale grocery $3,021,124 $3,280,229 $3,096,997
Retail grocery 425,512 338,471 322,787
Intersegment sales (242,905) (207,075) (168,916)
- -------------------------------------------------------------------------
Total sales $3,203,731 $3,411,625 $3,250,868
- -------------------------------------------------------------------------
Operating profit:
Wholesale grocery $ 115,832 $ 108,413 $ 90,882
Retail grocery 7,099 5,027 5,551
General corporate
expenses (8,365) (7,999) (6,787)
- -------------------------------------------------------------------------
Total operating profit 114,566 105,441 89,646
- -------------------------------------------------------------------------
Restructuring costs 24,179 -- --
Merger and integration
costs -- -- 11,993
Interest expense 6,013 7,166 12,354
Interest income (3,811) (3,672) (3,230)
- -------------------------------------------------------------------------
Earnings before income
taxes and extra-
ordinary loss $ 88,185 $ 101,947 $ 68,529
- -------------------------------------------------------------------------
Identifiable assets:
Wholesale grocery $ 491,928 $ 512,227 $ 494,266
Retail grocery 416,923 69,253 69,995
- -------------------------------------------------------------------------
Total identifiable
assets $ 908,851 $ 581,480 $ 564,261
- -------------------------------------------------------------------------
Depreciation and
amortization:
Wholesale grocery $ 25,628 $ 23,355 $ 21,092
Retail grocery 6,444 5,879 5,997
- -------------------------------------------------------------------------
Total depreciation
and amortization $ 32,072 $ 29,234 $ 27,089
- -------------------------------------------------------------------------
Capital expenditures:
Wholesale grocery $ 11,650 $ 9,368 $ 9,518
Retail grocery $ 10,544 6,047 5,263
- -------------------------------------------------------------------------
Total capital
expenditures $ 22,194 $ 15,415 $ 14,781
- -------------------------------------------------------------------------
32
<PAGE>
15. Selected Quarterly Data (Unaudited)
Summarized quarterly financial information for the quarters indicated and market
price and dividend information for the Company's common stock are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended May 2, 1998
- ---------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
(12 Weeks) (12 Weeks) (12 Weeks) (16 Weeks)
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Sales $739,125 $719,474 $ 743,951 $1,001,181
Gross margin 79,392 78,497 82,123 131,214
Net earnings 14,506 15,010 17,580 7,610
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings per common share $ 0.31 $ 0.32 $ 0.37 $ 0.16
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings per common share - assuming dilution $ 0.30 $ 0.31 $ 0.37 $ 0.16
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends declared per common share $ 0.04 $ 0.04 $ 0.04 $ 0.04
- ---------------------------------------------------------------------------------------------------------------------------
Market price range:
Low $ 19 7/8 $21 11/16 $22 1/2 $ 26 3/16
High $26 3/16 $ 26 1/2 $28 15/16 $ 32
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended May 3, 1997
- ---------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
(12 Weeks) (12 Weeks) (12 Weeks) (17 Weeks)
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Sales $753,383 $ 739,640 $ 807,272 $1,111,330
Gross margin 77,899 77,620 85,493 117,314
Earnings before extraordinary loss 12,445 12,572 15,000 21,334
Extraordinary loss, net of tax -- -- -- (1,882)
Net earnings 12,445 12,572 15,000 19,452
- ---------------------------------------------------------------------------------------------------------------------------
Earnings per common share:
Earnings before extraordinary loss $ 0.26 $ 0.27 $ 0.32 $ 0.45
Extraordinary loss -- -- -- (0.04)
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings $ 0.26 $ 0.27 $ 0.32 $ 0.41
- ---------------------------------------------------------------------------------------------------------------------------
Earnings per common share - assuming dilution:
Earnings before extraordinary loss $ 0.26 $ 0.26 $ 0.31 $ 0.45
Extraordinary loss -- -- -- (0.04)
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings $ 0.26 $ 0.26 $ 0.31 $ 0.41
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends declared per common share $ 0.03 $ 0.03 $ 0.03 $ 0.03
- ---------------------------------------------------------------------------------------------------------------------------
Market price range:
Low $ 21 1/3 $ 21 11/12 $ 21 5/8 $ 18 5/8
High $ 24 1/4 $ 25 5/12 $ 28 1/8 $ 25 1/4
</TABLE>
The Company's common stock was listed on the New York Stock Exchange
(NYSE) on December 6, 1996. Market price information for the periods after
listing on the NYSE reflect the sales prices of the common stock on the NYSE
composite tape. Prior to listing on the NYSE, the Company's common stock was
traded in the over-the-counter market and was quoted through The Nasdaq National
Market. Market price information for periods prior to listing on the NYSE
reflects inter-dealer prices, without retail mark-up, mark-down or commission,
and may not necessarily represent actual transactions.
33
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except per share data)
16. Subsequent Events
On May 18, 1998, a wholly-owned subsidiary of the Company acquired all of the
outstanding shares of Dart Group Corporation ("Dart") for $160 per share, net to
the seller in cash, or approximately $201,000 (the "Dart Acquisition"). Dart,
headquartered in Landover, Maryland was comprised, at the time of acquisition of
Shoppers Food Warehouse Corporation ("Shoppers"), a 100% owned chain of 37 price
impact supermarkets operating in the greater Washington, DC metropolitan area;
Trak Auto Corporation ("Trak"), a publicly-owned retailer of auto parts (67.1%
owned by Dart); Crown Books Corporation ("Crown"), a publicly-owned retailer of
popular books (52.3% owned by Dart), and Total Beverage Corporation ("Total
Beverage"), a discount beverage retailer (100% owned by Dart). The Company will
account for the acquisition under the purchase method of accounting in fiscal
1999 and the purchase price will be allocated to the underlying assets and
liabilities based upon their estimated fair values. In connection with the Dart
Acquisition, the Company also assumed $200,000 in principal amount of Shoppers 9
3/4% Senior Notes due 2004.
On May 22, 1998, the stock of Total Beverage was sold by Dart to a third
party for approximately $8,000. The Company intends to divest its ownership of
Dart's remaining non-core assets, including Trak and Crown, within one year of
the acquisition date.
The Dart Acquisition was financed with proceeds from $450,000 senior
unsecured credit facilities (the "Facilities"), consisting of a $250,000,
five-year revolving credit facility (the "Revolver") and a $200,000, 18-month
term loan (the "Term Loan"). The Facilities replaced the $250,000 facility and
the $100,000 facility (Note 6) and repaid the outstanding balance of $192,000
under the $250,000 facility.
The initial interest rate on the Revolver is based on LIBOR plus a margin
of 0.75%, which was equal to 6.41% at May 12, 1998. In addition, the
Revolver requires an initial annual facility fee of 0.25% of the commitment
amount. Thereafter, the interest rate and facility fee will float based upon
the Company's Total Debt/EBITDA ratio. Applicable ranges for the interest
rate are LIBOR plus a margin of 0.25% to 0.75%. Applicable ranges for the
facility fee are 0.15% to 0.25%.
The initial rate on the Term Loan is based on LIBOR plus a margin of
1.00%, which was equal to 6.66% at May 12, 1998. Thereafter, the interest rate
will float based upon LIBOR plus a margin of 0.75% to 1.00%, determined by the
Company's Total Debt/ EBITDA ratio. Under the terms of the Facilities, the
Company has agreed to maintain certain Fixed Charge Coverage and Total Funded
Debt to EBITDA ratios. The Facilities also contain covenants that limit the
incurrence of additional indebtedness and prohibit certain liens on assets.
34
EXHIBIT 21.1
RICHFOOD CONSOLIDATED GROUP
(As of May 2, 1998)
Subsidiaries of Richfood Holdings, Inc. [Virginia]
Richfood, Inc. [Virginia]
Rotelle, Inc. [Pennsylvania]
Market Funding, Inc. [Delaware]
Market Insurance Company, Ltd. [Bermuda]
Market Transportation Services, Inc. [Delaware]
Super Rite Foods, Inc. [Delaware]
Penn Perishables, Inc. [Virginia]
FF Acquisition, L.L.C. d/b/a Farm Fresh [Virginia]
DGC Acquisition, Inc. [Delaware]
Pack `N Save Holdings, Inc. [Virginia]
GV Holdings, Inc. [Delaware]
Subsidiaries of Richfood, Inc. [Virginia]
Market Improvement Corporation [Virginia]
Market Insurance Agency, Inc. [Virginia]
G.W.M. Holdings, Inc. [Virginia]
Rich-Temps, Inc. [Virginia]
Maryland Retail Services, Inc. [Virginia]
Retail Funding Corporation [Virginia]
Market Leasing Company [Virginia]
MFFL, Inc. [Virginia]
Market Brands, Inc. [Delaware]
<PAGE>
Subsidiaries of Rotelle, Inc. [Pennsylvania]
Rotelle Management, Inc. [Pennsylvania]
Spring House Leasing, Inc. [Pennsylvania]
Penn Brands, Inc. [Delaware]
Subsidiaries of Super Rite Foods, Inc. [Delaware]
Foodarama Incorporated [Delaware]
SRF Subsidiary Corporation [Delaware]
Subsidiaries of Foodarama Incorporated [Delaware]
Foodarama, Inc. [Maryland]
Foodarama Group, Inc. [Maryland]
Midway Markets of Delaware, Inc. [Delaware]
Food-A-Rama-G.U., Inc. [Maryland]
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report on Form 10-K
of Richfood Holdings, Inc. of our report dated June 15, 1998, included in the
May 2, 1998 Annual Report to Shareholders of Richfood Holdings, Inc.
Our audits also included the financial statement schedule of Richfood Holdings,
Inc. as of May 2, 1998 and May 3, 1997 and for the fiscal years then ended
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein as of May 2, 1998 and
May 3, 1997 and for the fiscal years then ended.
We also consent to the incorporation by reference in the following Registration
Statements on Form S-8 of our report dated June 15, 1998, with respect to the
consolidated financial statements of Richfood Holdings, Inc., incorporated
herein by reference, and our report included in the preceding paragraph with
respect to the financial statement schedule of Richfood Holdings, Inc. included
in this Annual Report on Form 10-K for the fiscal year ended May 2, 1998:
Registration
Statement
Number Plan Name
- --------------------------------------------------------------------------------
33-41210 Richfood Holdings, Inc. Long-Term Incentive Plan
33-41570 Richfood Holdings, Inc. Savings and Stock Ownership Plan
33-43652 Richfood Holdings, Inc. Omnibus Stock Incentive Plan
33-55299 Richfood Holdings, Inc. Non-Employee Directors' Stock Option Plan
33-63447 Super Rite Corporation 1991 Omnibus Stock Incentive Plan
333-01251 Super Rite Foods, Inc. Employee Investment Opportunity Plan
333-01253 Super Rite Foods, Inc. Employee Investment Opportunity Plan
for Retail Union Employees
333-16411 Richfood Holdings, Inc. Amended and Restated Omnibus Stock
Incentive Plan
/s/ ERNST & YOUNG LLP
Richmond, Virginia
July 27, 1998
INDEPENDENT AUDITORS' REPORT
KPMG PEAT MARWICK LLP
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Richfood Holdings, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
33-41210, 33-41570, 33-43652, 33-55299, 33-63447, 333-1251, 333-1253 and
333-16411) on Form S-8 of Richfood Holdings, Inc. of our report dated June 10,
1996, relating to the consolidated statements of earnings, shareholders' equity,
cash flows and financial statement schedule of Richfood Holdings, Inc. and
subsidiaries for the fiscal year ended April 27, 1996, which report is included
in the May 2, 1998 annual report on Form 10-K of Richfood Holdings, Inc. The
consolidated financial statements give effect to the merger on October 15, 1995
of a wholly-owned subsidiary of Richfood Holdings, Inc. with and into Super Rite
Corporation, which has been accounted for using the pooling of interests method
as described in note 2 to the consolidated financial statements.
/s/ KPMG Peat Marwick LLP
Richmond, Virginia
July 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED MAY 2, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-2-1998
<PERIOD-END> MAY-2-1998
<CASH> 39,968
<SECURITIES> 0
<RECEIVABLES> 104,847
<ALLOWANCES> 3,393
<INVENTORY> 194,875
<CURRENT-ASSETS> 356,972
<PP&E> 302,370
<DEPRECIATION> 115,082
<TOTAL-ASSETS> 908,851
<CURRENT-LIABILITIES> 302,635
<BONDS> 0
90,729
0
<COMMON> 0
<OTHER-SE> 233,485
<TOTAL-LIABILITY-AND-EQUITY> 908,851
<SALES> 3,203,731
<TOTAL-REVENUES> 3,203,731
<CGS> 2,832,505
<TOTAL-COSTS> 2,832,505
<OTHER-EXPENSES> 256,660
<LOSS-PROVISION> 24,179
<INTEREST-EXPENSE> 6,013
<INCOME-PRETAX> 88,185
<INCOME-TAX> 33,479
<INCOME-CONTINUING> 54,706
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,706
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
EXHIBIT 99.1
Cautionary Statements for Purposes of the Safe Harbor Provisions of the
Securities Litigation Reform Act of 1995
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "Act"), Richfood Holdings, Inc. (the
"Company") is filing cautionary statements identifying important factors that
could cause the Company's actual results to differ materially from those
projected in forward looking statements made by, or on behalf of, the Company.
When used in this Annual Report on Form 10-K for the fiscal year ended May 2,
1998, and in future filings by the Company with the Securities and Exchange
Commission, in the Company's press releases, other communications, and in oral
statements made by or with the approval of an authorized executive officer, the
words or phrases "will likely result", "are expected to ", "will continue", "is
anticipated", "estimated", "project", "believe", or similar expressions are
intended to identify forward-looking statements within the meaning of the Act.
The following cautionary statements are for use as a readily available written
reference document in connection with forward looking statements as defined in
the Act. These factors are in addition to any other cautionary statements,
written or oral, which may be made or referred to in connection with any such
forward looking statement.
Wholesale Business Risks
The Company's sales and earnings at wholesale are dependent on the Company's
ability to retain existing customers and attract new customers as well as its
ability to control costs. While the Company believes that its purchasing power,
low cost structure and efficient service levels, coupled with its commitment to
the success of its retail customers, should enable it to attain its goals,
certain factors could adversely impact the Company's results, including: a
decline of its independent retailer customer base due to competition and other
factors; a loss of corporate retail sales due to increased competition and other
risks detailed more fully below; consolidations of retailers or competitors; any
increased self-distribution by chain retailers; increases in operating costs;
the possibility that the Company will incur additional costs and expenses due to
integration and rationalization of acquired businesses; and entry of new or
non-traditional distribution systems into the industry.
Risks of Strategic Acquisitions and Expansions
The Company intends to continue to grow its wholesale and retail segments
through strategic acquisitions and expansions. Strategic acquisitions involve a
number of special risks, including: making acquisitions at acceptable rates of
return; the diversion of management's attention to assimilation of the
operations and personnel of the acquired business; potential adverse short-term
effects on the Company's operating results; and amortization of acquired
intangible assets. In addition, while the Company believes that additional
acquisition opportunities consistent with its strategic criteria may arise from
time to time, no assurance can be given that the Company will consummate
additional strategic acquisitions. Expansion is also subject to a number of
risks, including the adequacy of the Company's capital resources; the location
of suitable store or distribution center sites and the negotiation of acceptable
lease terms; the ability to hire, train and integrate employees; and possible
costs and other risks of integrating or adapting operational systems.
Retail Business Risks
The Company's retail segment faces risks which may prevent the Company from
maintaining or increasing retail sales and earnings, including competition from
other retail chains, supercenters, non-traditional competitors, and emerging
alternative formats in markets where the Company has a retail concentration.
Liquidity
Management expects that the Company will continue to generate adequate funds
from its operations and through borrowings under existing long-term credit
<PAGE>
facilities to maintain its competitive position and to expand its business.
However, if significant additional funds are necessary in connection with
acquisitions, or if capital spending significantly exceeds anticipated capital
needs, additional funding could be required from other sources, which could
adversely impact the Company's borrowing costs and future financial flexibility.
Litigation
While the Company believes that it is currently not subject to any litigation
that will have a material adverse effect on its financial position or results of
operations, the costs and other effects of legal and administrative cases and
proceedings and settlements are impossible to predict with certainty. The
current environment for litigation involving food wholesalers may increase the
risk of litigation being commenced against the Company. The Company would incur
the costs of defending any such litigation whether or not any claim had merit.
The foregoing should not be construed as exhaustive and the Company disclaims
any obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
