As filed with the Securities and Exchange Commission on August 22, 1995
Registration No. 33-58999
=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
KASH N' KARRY FOOD STORES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 5411 95-4161591
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification
incorporation) Number)
6422 Harney Road
Tampa, Florida 33610
(813) 621-0200
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive office)
RAYMOND P. SPRINGER
Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
Kash n' Karry Food Stores, Inc.
6422 Harney Road
Tampa, Florida 33610
(813) 621-0200
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
with copies to:
ROBERT S. BOLT, ESQ. LAWRENCE LEDERMAN, ESQ.
Barnett, Bolt, Kirkwood & Long Milbank, Tweed, Hadley & McCloy
601 Bayshore Boulevard, Suite 600 1 Chase Manhattan Plaza
Tampa, Florida 33606 New York, New York 10005
(813) 253-2020 (212) 530-5000
Approximate date of commencement of proposed sale to the
public: From time to time after the effective date of this
Registration Statement, as determined by the Selling Stockholders.
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, check the following box. /x/
(continues on following page)
<PAGE>
(continuation of cover page)
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum Amount
Title of Each Offering Aggregate of
Class of Securities Amount to be Price Offering Regis-
to be Registered Registered(1)Per Share(1) Price(1) tration fee
Common Stock, 4,649,943 $21.25 $98,811,222 $34,072.84(2)
par value
$.01 per share
(1) Estimated solely for purposes of calculating the registration
fee, pursuant to Rule 457.
(2) $20,577.41 of which was previously paid in connection with the
Registration Statement on Form S-1 filed on May 2, 1995. Calculated
after giving effect to the 1,549,970 shares issued pursuant to a 3-for-2
stock split effected in the form of a stock dividend paid on July 17,
1995, based on an estimated offering price per share of $25.25.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to Item 501(b) of Regulation S-K)
The following information sets forth the location in the Prospectus
of information required by Items 1-12, Part I, of Form S-1
Registration Statement, Items Location in Prospectus
and Heading
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus.............Cover Page of Registration
Statement; Outside Front
Cover Page of Prospectus;
Cross Reference Sheet
2. Inside Front and Outside Back
Cover Pages of Prospectus...........Inside Front Cover Page of
Prospectus; Outside Back
Cover Page of Prospectus
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges....................Prospectus Summary; Risk
Factors; Selected
Financial Information
4. Use of Proceeds.....................Not Applicable
5. Determination of Offering Price.....Not Applicable
6. Dilution............................Not Applicable
7. Selling Security Holders............Selling Stockholders
8. Plan of Distribution................Plan of Distribution
9. Description of Securities to be
Registered..........................Outside Front Cover Page of
Prospectus; Prospectus Summary;
Description of Capital Stock
10. Interests of Named Experts
and Counsel........................Not Applicable
11. Information With Respect to the
Registrant.........................Inside Front Cover of Prospectus;
Prospectus Summary; The Company; The
Restructuring; Capitalization;
Selected Financial Information;
Market Price and Dividend Policy;
Management's Discussion and Analysis
of Financial Condition and Results
of Operations; Business; Management;
Certain Relationships and Related
Transactions; Principal Stockholders;
Description of Capital Stock
12. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities ........Not Applicable<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR
TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER
THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 22, 1995
[LOGO]
KASH N' KARRY FOOD STORES, INC.
COMMON STOCK
Up to 4,649,943 shares of Common Stock, par value $.01 per share (the
"Common Stock"), of Kash n' Karry Food Stores, Inc. (the "Company"), may be
offered from time to time by certain holders of the Common Stock
(collectively, the "Selling Stockholders"). See "Selling Stockholders." The
Common Stock offered hereby is listed on the Nasdaq Stock Market's Small Cap
Market under the symbol "KASH." See "Market Price and Dividend Policy."
The Company will not receive any of the proceeds from any sale of Common
Stock offered from time to time by the Selling Stockholders. Any or all of
such Common Stock may be sold by the Selling Stockholders from time to time
(i) to or through underwriters or dealers, (ii) directly to one or more other
purchasers, (iii) through agents on a best-efforts basis, or (iv) through a
combination of any such methods of sale. If required, the names of any
underwriters or agents and the applicable commissions or discounts, along
with pricing information, will be set forth in an accompanying
Prospectus Supplement. See "Plan of Distribution."
SEE "RISK FACTORS" BEGINNING AT PAGE 10 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is _______________, 1995
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street N.W.,
Washington, D.C. 20549, and at certain of the following regional offices:
7 World Trade Center, Suite 1300, New York, New York 10048, and Northwest
Atrium Center, 550 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can also be obtained from the Public Reference
Section of the Commission, 450 Fifth Street N.W., Washington, D.C. 20549, at
prescribed rates. The Common Stock is listed on the Nasdaq Small Cap Market;
accordingly, such reports and other information concerning the Company may
also be inspected at the offices of the Nasdaq Stock Market, 1735 K Street
N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement under
the Securities Act of 1933 (the "Securities Act") with respect to the Common
Stock offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits thereto, certain parts of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
offering of Common Stock, reference is made hereby to such Registration
Statement and exhibits.
2<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and the financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. References in this Prospectus to the "Company" mean Kash n'
Karry Food Stores, Inc., references to "Common Stock" mean the 4,649,943
shares of common stock of the Company, par value $.01 per share, offered
hereby. All financial information set forth herein is presented in
accordance with generally accepted accounting principles ("GAAP"), unless
otherwise noted.
The Company
The Company is among the three largest food retailers in west central
Florida, operating 92 multi-department supermarkets, five conventional
supermarkets and 33 liquor stores under the "Kash n' Karry" name and two
super warehouse stores under the "Save 'n Pack" name, all supported by a
centrally-located warehouse and distribution facility. More than one-half of
the Company's stores are located in the Tampa-St. Petersburg area, which is
Florida's largest retail food sales market, with the balance located between
Gainesville, approximately 130 miles to the north, and Bonita Springs,
approximately 150 miles to the south. The west central Florida area has a
diverse and growing economy, which includes high technology and financial
centers, an insurance industry presence, retirement communities, coastal
resorts and commercial agricultural activity. The region's population is
estimated to be increasing at an annual rate of approximately 2%.
The Company currently operates two distinct store concepts:
. a large, full-service multi-department supermarket under the Kash
n' Karry name, which is designed to operate profitably at lower
sales levels than certain competitors; and
. a super warehouse store under the Save 'n Pack name designed to
serve trade areas with low household income.
The Company has developed, and continues to implement, the following
marketing and operating strategies to promote growth in revenues and
operating cash flow:
Marketing Strategy. The Company emphasizes competitive prices on
everyday items, strong weekly features, high quality perishables and a broad
assortment of both national and corporate brands. The Company's food stores
are open seven days a week, with most operating 24 hours a day. The Company
seeks to be either first or second among its competitors in
3<PAGE>
assortment of branded merchandise, stocking over 29,000 SKU's (stock keeping
units) of national brand and corporate brand items. In addition to a full
range of grocery and general merchandise items, most of the Company's
multi-department supermarkets also feature expanded perishable goods
departments, delicatessens and in-store bakeries, and many contain pharmacies
and full-service seafood, full-service floral and video rental departments.
In 1992, the Company introduced its own corporate brand merchandise.
The Company's corporate brand strategy is to offer a product comparable in
quality to the best-selling national brand at a lower price. The Kash n'
Karry brand item generally sells for approximately 10% less than the
competing best-selling national brand but generates a higher per unit gross
profit contribution to the Company. Over 1,100 SKU's in a wide variety of
product categories carry the Kash n' Karry brand name.
Operations Strategy. The Company believes that up-to-date,
strategically located facilities, well-trained associates and information
management systems are key elements to the Company's future success. The
Company operates a modern, 687,000 square foot warehouse, distribution and
office facility in Tampa with sufficient capacity to service anticipated
store expansion for the foreseeable future. The warehouse enables the
Company to reduce costs by purchasing in large quantities, taking advantage
of special promotional prices offered by vendors and purchasing prior to
impending price increases, and reducing delivery costs through cross docking
and backhauls. The central location of the warehouse facility to its stores
also provides the Company with operating efficiencies.
The Company relies on information technology to enhance operating
efficiency. The Company recently entered into an agreement to outsource its
information systems development in order to minimize costs, accelerate the
implementation period for systems improvements, facilitate future software
upgrades, reduce personnel issues and eliminate equipment lease costs.
Specifically, the agreement provides for the acquisition of new procurement,
billing, labor scheduling and accounts payable systems and new point-of-sale
equipment in the stores within the next 18 months.
The Company also devotes significant resources to personnel training,
utilizes labor scheduling programs to allocate manpower based on anticipated
sales levels, and employs a variety of strategies to minimize inventory
losses. None of the Company's associates is covered by a collective
bargaining agreement.
The principal executive offices of the Company are located at 6422
Harney Road, Tampa, Florida 33610, and its telephone number is (813)
621-0200.
4<PAGE>
The Restructuring
The Company was formed in connection with a leveraged acquisition in
1988. Although the Company consistently generated stable operating cash
flows through its 1993 fiscal year, it experienced net losses for each of the
last five fiscal years and the 22-week period ended January 1, 1995 due
primarily to its highly leveraged position.
On November 9, 1994, the Company filed with the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court") a "prepackaged"
plan of reorganization (the "Prepackaged Plan") pursuant to Chapter 11 of the
U.S. Bankruptcy Code. The Prepackaged Plan was confirmed by the Bankruptcy
Court on December 12, 1994. Under the terms of the Prepackaged Plan, the
Company effected a comprehensive financial restructuring (the
"Restructuring"). As a result of the Restructuring, the Company restructured
its senior debt, converted its subordinated debt into an 85% equity interest
in the Company, and received $10.0 million in cash from Green Equity
Investors, L.P. ("GEI") for the remaining 15% equity interest of the Company.
The Company emerged from bankruptcy on December 29, 1994. For further
information with respect to the Prepackaged Plan and the Restructuring, see
"The Restructuring," "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Risk Factors
The shares offered hereby involve a high degree of risk and should not
be purchased by anyone who cannot afford the loss of their entire investment.
See "Risk Factors."
5<PAGE>
Summary Financial Data
The following table presents summary financial information of the
Company as of and for each of the fiscal years ended on the Sunday nearest to
July 31, 1994, 1993 and 1992, and as of and for the periods ended April 30,
1995, January 1, 1995 and May 1, 1994, and should be read in conjunction
with the financial statements and related notes thereto appearing elsewhere
in this Prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The financial statements as of and for the periods ended April 30,
1995, January 1, 1995 and May 1, 1994, from which the summary financial
data has been derived, have not been audited by independent accountants in
accordance with generally accepted auditing standards, but, in the opinion of
management, the financial statements as of and for the period ended May 1,
1994 include all adjustments, consisting only of normal recurring
adjustments, necessary to summarize fairly the Company's financial position
and results of operations. As discussed herein, the Company's Prepackaged
Plan was consummated on December 29, 1994 (the "Effective Date"). The
financial statements as of and for the periods ended April 30, 1995 and
January 1, 1995 reflect the Company's emergence from Chapter 11 and were
prepared utilizing the principles of fresh-start reporting contained in the
American Institute of Certified Public Accountants' Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code." Operations during the period from the Effective Date through January
1, 1995 had no significant impact on the emergence transactions and as a
result have not been separately identified. As a result of the
implementation of fresh-start accounting, certain of the summary financial
data as of and for the periods ended April 30, 1995 and January 1, 1995 is
not comparable to the summary financial data of prior periods due to the
change in reporting entity resulting from the application of fresh-start
accounting. Therefore, summary financial data for the "Reorganized Company"
has been separately identified from that of the "Predecessor Company."
Results for the periods ended April 30, 1995 or January 1, 1995 are not
necessarily indicative of the results for the full year.
The summary store data have been derived from the Company's management
reporting records.
6<PAGE>
Reorganized Predecessor
Company Company
Period Ended
April 30, January 1, May 1,
1995 1995 1994
(17 weeks) (22 weeks) (39 weeks)
(In Thousands, Except Per Share Amounts)
Statement of Operations Data
Sales . . . . . . . . . . . $356,281 $426,681 $814,607
Cost of sales . . . . . . . 280,662 340,802 647,524
------- ------- -------
Gross profit. . . . . . . . 75,619 85,879 167,083
Selling, general and
administrative expenses . 51,122 68,819 133,846
Depreciation and amortization 8,436 10,234 18,166
Store closing and other costs -- -- 11,016
------ ------ --------
Operating income . . . . . . 16,061 6,826 4,055
Net interest expense (1). . . 9,344 13,719 33,757
------ ------ --------
Income (loss) from operations before
reorganization items, income taxes,
extraordinary items and change in
accounting principle . . . 6,717 (6,893) (29,702)
Reorganization items. . . . . -- (219) --
Provision for income taxes . . 3,189 -- --
Extraordinary items -
gain on debt discharge . . -- 70,166 --
Cumulative effect of change in
accounting principle . . . -- (2,000) --
----- ------- --------
Net income (loss) . . . . . . $ 3,528 $61,054 $(29,702)
===== ======= ========
Income per common share (2), (3) $0.76 -- --
=====
Predecessor Company
Fiscal Year Ended Sunday Nearest July 31, (4)
1994 1993 1992
(In Thousands)
Statement of Operations Data
Sales . . . . . . . . . . . $1,065,165 $1,086,125 $1,071,038
Cost of sales . . . . . . . 845,597 856,156 848,441
---------- ---------- ----------
Gross profit. . . . . . . . 219,568 229,969 222,597
Selling, general and
administrative expenses 176,945 175,177 164,897
Depreciation and amortization 24,112 23,455 20,132
Store closing and other costs 11,016 -- --
---------- ---------- ----------
Operating income. . . . . . 7,495 31,337 37,568
Net interest expense (1). . 45,390 43,257 44,869
---------- ---------- ----------
Net loss. . . . . . . . . . $(37,895) $(11,920) $(7,301)
========== ========== ==========
7<PAGE>
Reorganized Predecessor
Company Company
Period Ended
April 30, January 1, May 1,
1995 1995 1994
(17 weeks) (22 weeks) (39 weeks)
(Dollar Amounts In Thousands)
Balance Sheet Data
Total assets. . . . . . . . $374,865 $381,492 $399,664
Inventories . . . . . . . . 83,206 87,115 84,019
Property and equipment, net 140,496 144,979 162,730
Working capital . . . . . . 11,619 7,045 (1,362)
Total long-term debt and capital
leases (including current
maturities)(5) . . . . . . 225,674 242,786 362,835
Preferred stock . . . . . . -- -- 4,650
Total stockholders'
equity (deficit) . . . . . 50,023 46,495 (52,861)
Other Data
Operating cash flow
(adjusted EBITDA) (6) . . . 24,497 17,060 33,237
Capital expenditures (7) . . 1,509 665 12,841
Store Data
Food stores open at end of
period (8) . . . . . . . . 99 99 101
Avg. selling sq. ft. during period
(in thousands) (9) . . . . 2,903 2,903 3,105
Avg. sales per store week (10) $212 $196 $197
Predecessor Company
Fiscal Year Ended Sunday Nearest July 31, (4)
1994 1993 1992
Balance Sheet Data (Dollar Amounts in Thousands)
Total assets. . . . . . . . $389,893 $423,208 $399,419
Inventories . . . . . . . . 76,094 95,385 91,226
Property and equipment, net 160,491 164,937 145,372
Working capital . . . . . . (12,747) 19,137 26,031
Total long-term debt and capital
leases (including current
maturities) (5) . . . . . 360,121 351,890 316,220
Preferred stock . . . . . . 4,650 4,650 4,650
Total stockholders' deficit (61,054) (23,159) (11,239)
Other Data
Operating cash flow
(adjusted EBITDA) (6) . . $42,623 $54,792 $57,700
Capital expenditures (7) . . 15,471 37,703 15,385
Store Data
Food stores open at end of
period (8) . . . . . . . . 100 115 111
Avg. selling sq. ft. during period
(in thousands) (9) . . . . 3,084 3,100 2,970
Avg. sales per store week (10) $196 $183 $181
8<PAGE>
Notes to Summary Financial Data
(Dollar Amounts In Thousands)
(1) Includes amortization of deferred financing costs of $494, $1,152 and
$2,190 for the 17 weeks ended April 30, 1995, 22 weeks ended January
1, 1995, and 39 weeks ended May 1, 1994, respectively; and $2,950,
$2,850, and $2,932 for the 1994, 1993 and 1992 fiscal years,
respectively.
(2) Restated to reflect the 3-for-2 stock split effected in the form of a
stock dividend paid on July 17, 1995. Based on 4,649,943 shares (the
weighted average number of shares of Common Stock outstanding).
(3) Net income per share of Common Stock is not meaningful prior to January
1, 1995 due to the significant change in the capital structure in
connection with the Restructuring.
(4) The Company's fiscal year is based on a 52/53 week fiscal year ending on
the Sunday nearest to July 31. Therefore, the 1992 fiscal year included
53 weeks of operations. The 1994 and 1993 fiscal years each had 52
weeks of operations.
(5) Total long-term debt includes long-term debt, current maturities of
long-term debt, capital lease obligations and certain other debt.
(6) Represents earnings before net interest expense (which includes
amortization of deferred financing costs), provision for income taxes,
depreciation and amortization, store closing and other costs,
reorganization items, extraordinary items, and cumulative effect of
change in accounting principle. Operating cash flow (adjusted EBITDA)
is presented here as a measure of the Company's debt service ability,
and should not be construed as an alternative to operating income (as
determined in accordance with generally accepted accounting principles)
or to cash flows from operating activities (as determined on the
Statements of Cash Flows in the Company's financial statements).
(7) Capital expenditures consist of cash expenditures, additions to capital
leases and, for the 1994, 1993 and 1992 fiscal years, amounts funded
under the capital improvements revolving credit facility under the Old
Credit Agreement (as defined in "The Restructuring").
(8) Data relating to the number of stores is expressed in actual numbers.
(9) Represents the average of the selling square footage of the Company's
stores on the first and last day of the respective periods. Selling
square footage includes adjacent liquor stores, where applicable, but
does not include backroom and receiving areas.
(10) Represents, for each of the respective periods, sales for such period
divided by the sum of the number of weeks for which each of the
Company's stores was open during such period.
9<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a
high degree of risk. Prospective investors should carefully consider the
following matters, in addition to the other information set forth in this
Prospectus, in connection with an investment in the Common Stock offered
hereby.
History of Net Losses; Reorganization
The Company experienced net losses for each of the last five fiscal
years. The Company's statements of operations reflect a net loss of
approximately $37.9 million for the 1994 fiscal year, $11.9 million for the
1993 fiscal year, $7.3 million for the 1992 fiscal year, $39.0 million for
the 1991 fiscal year, and $25.6 million for the 1990 fiscal year. See
"Selected Financial Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
On November 9, 1994, the Company sought relief pursuant to a
"prepackaged" plan of reorganization under Chapter 11 of the U.S. Bankruptcy
Code to reduce its debt service requirements and overall level of
indebtedness, to realign its capital structure and to provide the Company
with greater liquidity. See "The Restructuring." There can be no assurance
that the Company will operate profitably in its reorganized form.
Tax Considerations
As a result of the Restructuring (as defined in "The Restructuring"), an
ownership change within the meaning of Code section 382(g) occurred with
respect to the Company on December 29, 1994 (the "Change Date").
Accordingly, the Company's ability to carry forward all of the net operating
losses (and "recognized built-in losses," if any), to taxable years beginning
after the Change Date within the meaning of Code section 382(j) (and a
portion of the taxable year which includes the Change Date) will become
subject to an annual limitation under Code sections 382 and 383.
The Company intends to determine the annual limitation under the
provisions of Code section 382(l)(6), which deals with a loss corporation
that exchanges stock for debt and undergoes an ownership change in a
proceeding under Chapter 11. The amount of income that may be offset by the
net operating loss carryovers should generally be limited to an amount
(subject to a proration rule for the taxable year that includes the Effective
Date) equal to the product of (i) the value of the stock of the Company,
determined immediately prior to the Restructuring but increased to take into
account the effect on such value of the issuance of Common Stock to the
holders of Old Subordinated Debentures (as defined in "The Restructuring")
and (ii) the long-term tax-exempt rate, within the meaning of Code section
382(f). This annual limitation will be increased by "recognized built-in
gain," if any. The
10<PAGE>
annual limitation on the Company's ability to carry forward its net operating
losses (and "reorganized built-in losses," if any) may be substantial.
Highly Leveraged Position
Even after the Restructuring, the Company remains highly leveraged. As
of April 30, 1995, the Company had total long-term indebtedness (including
current maturities) of $225.7 million, including $144.1 million of aggregate
principal amount of New Senior Floating Rate Notes and New Senior Fixed Rate
Notes (as defined in "The Restructuring") (collectively, the "New Notes"),
which mature on February 1, 2003, $33.8 million of term loan and revolving
loan indebtedness under the New Credit Agreement (as defined in "The
Restructuring"), $32.4 million of indebtedness under mortgages maturing
between 1999 and 2003, and $15.4 million of capital lease and other
obligations. Under the indentures governing the New Notes, the Company has
the option of paying interest in kind on the New Senior Floating Rate Notes
through August 1, 1995, and on the New Senior Fixed Rate Notes through
February 1, 1996. The Company expects to exercise the payment-in-kind
option, which will increase the principal amount of the New Notes outstanding
by $16.9 million through February 1, 1996 (assuming a 9.0% annual interest
rate on the New Senior Floating Rate Notes and 11.5% on the New Senior Fixed
Rate Notes). If future cash provided by operations is less than currently
expected, the Company may experience difficulty in meeting interest and
principal payments due on outstanding indebtedness and other obligations.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
The degree to which the Company is leveraged could have important
consequences to holders of Common Stock of the Company, including the
following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes may be impaired; (ii) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of the principal of and interest on its existing indebtedness, which
materially decreases the funds available to the Company to finance its
working capital, capital expenditures and business operations generally;
(iii) certain of the Company's borrowings are at variable rates of interest,
which, in the absence of interest rate hedging arrangements, make the Company
vulnerable to increases in interest rates; (iv) the Company's indentures and
New Credit Agreement impose significant financial and operating restrictions
which, if violated, could permit the Company's creditors to accelerate
payments thereunder (see "Risk Factors -- Restrictions Imposed
Under Indebtedness"); (v) the Company is more highly leveraged than its
principal competitors, which may place the Company at a competitive
disadvantage (see "Competition" below); and (vi) the Company's high degree of
leverage may make it vulnerable to economic downturns and may limit its
ability to withstand competitive pressures and adverse changes in government
regulation and to capitalize on significant business opportunities.
11<PAGE>
Restrictions Imposed Under Indebtedness
The New Credit Agreement (as defined in "The Restructuring") and the
indentures governing the New Notes contain numerous limitations, including
restrictions on the ability of the Company to (i) incur additional
indebtedness, (ii) place liens on assets, (iii) sell assets, (iv) engage in
mergers or consolidations, (v) pay dividends and (vi) engage in certain
transactions with affiliates. The New Credit Agreement also requires the
Company to maintain compliance with certain financial covenants. These
limitations and requirements may restrict the ability of the Company to
obtain additional financing for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes.
The ability of the Company to comply with the covenants in its debt
agreements will be dependent on its future financial performance, which will
be subject to prevailing economic conditions and other factors, including
factors beyond the control of the Company. Failure to comply with any of
these covenants could result in a default or event of default under the
relevant debt agreements, permitting lenders to accelerate the maturity of
the indebtedness under such agreements and to foreclose upon any collateral
securing such indebtedness. Any such failure to comply or any default, event
of default or acceleration under any particular indebtedness could also
result in the acceleration of other debt of the Company under agreements that
contain cross-default or cross-acceleration provisions.
Fresh-Start Reporting Presentation
The Company's Prepackaged Plan was confirmed by the U.S. Bankruptcy
Court on December 12, 1994, and consummated on December 29, 1994. In
accordance with the American Institute of Certified Public Accountants'
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code," the Company adopted "fresh-start
reporting." Accordingly, financial statements for periods subsequent to
December 29, 1994 have been prepared on a basis not comparable to prior
periods. The application and impact of "fresh-start reporting" is set forth
in greater detail in the notes to the Company's financial statements, which
are included in this Prospectus. See "Capitalization," "Selected Financial
Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the Company's financial statements, including the
notes thereto.
Competition
The food retailing business is highly competitive. The Company competes
with several national, regional and local supermarket chains, particularly
Publix, Winn-Dixie, Albertson's and Food Lion. The Company is also in
competition with convenience stores, stores owned and operated or otherwise
affiliated with large food wholesalers, unaffiliated independent food stores,
merchandise clubs, discount drugstore chains and discount general merchandise
chains and supercenters.
12<PAGE>
The Company's principal competitors have greater financial resources
than the Company and could use those resources to take steps which could
adversely affect the Company's competitive position and financial
performance. For example, operating results generally and sales growth in
particular were adversely affected by approximately 84 competitive
supermarket openings during the 1994, 1993, 1992 and 1991 fiscal years by
both established competitors and new entrants in the Company's market area.
In fiscal 1995, the Company expects approximately 12 such competitive store
openings, and it is anticipated that these competitive store openings will
continue in the future.
Another example of the highly competitive nature of the food retailing
business is the practice of competitors to reposition their pricing
structure. Over the past several years, each of the Company's major
competitors has changed its pricing practices in a manner that has adversely
affected general retail pricing in the market. Winn-Dixie discontinued
double coupons and introduced its every day low price program in the spring
of 1991. In the spring of 1993, Publix began a campaign focused on
"surprisingly low prices," and Food Lion began a double coupon program which
has since been discontinued. The Company has had to deal with each of these
changes in a manner that has, in some instances, adversely affected its
operating results and may continue to do so in the future.
In addition, the Company's ability to compete may be adversely affected
by its high leverage and the limitations imposed by its debt agreements.
Anti-Takeover Provisions
The Company has adopted a preferred stock purchase rights plan (the
"Rights Plan"). See "Description of Capital Stock -- Certain Anti-Takeover
and Charter Provisions." The Rights Plan is designed to assure that all
stockholders receive fair and equal treatment in the event of any proposed
takeover of the Company. However, the Rights Plan could discourage certain
potential acquisition proposals and could delay or prevent a change in
control of the Company in certain circumstances. As a result, the
stockholders could receive less for their shares than otherwise might be
available in the event of a takeover attempt. The Rights Plan could diminish
the opportunities for a stockholder to participate in tender offers,
including tender offers at a price above the then current market value of the
Common Stock, or proxy contests, and may also inhibit fluctuations in the
market price of the Common Stock that could result from takeover attempts.
In addition, the Board of Directors, without further stockholder approval,
may issue Preferred Stock with such terms as the Board of Directors may
determine, and which could have the effect of delaying or preventing a change
in control of the Company. The issuance of such Preferred Stock could also
adversely affect the voting power of the holders of Common Stock. See
"Description of Capital Stock -- Preferred Stock." The Company is also
afforded the protections of Section 203 of the Delaware General Corporation
Law, which could delay or prevent a change in control of the Company or could
impede a merger, consolidation, takeover or other business combination
involving the Company or discourage a potential acquirer from
13<PAGE>
making a tender offer or otherwise attempting to obtain control of the
Company. See "Description of Capital Stock -- Certain Anti-takeover and
Charter Provisions."
Restrictions on Dividends
On June 14, 1995 the Company declared a 3-for-2 stock split effected in
the form of a stock dividend on its Common Stock, paid on July 17, 1995 to
stockholders of record on June 26, 1995. The Company presently does not
intend to pay cash dividends or make other distributions with respect to the
Common Stock for the foreseeable future. In addition, the New Credit
Agreement and the indentures governing the New Notes contain limitations on
the ability of the Company to pay cash dividends. See "Market Price and
Dividend Policy" and "Description of Capital Stock."
Limited Public Market
On March 2, 1995 the Common Stock was listed for trading on the Nasdaq
Small Cap Market under the symbol "KASH." Prior to such date, there was no
established public trading market for its Common Stock. There is no
assurance that an active trading market in the Common Stock will continue.
Accordingly, no assurance can be given as to the price at which any holder
may sell his Common Stock or whether a liquid market in the Common Stock will
exist at the time of any given sale.
THE COMPANY
The Company is a Delaware corporation, formed as a vehicle for the
October 1988 leveraged acquisition of 121 food and 25 liquor stores in two
separate transactions from Lucky Stores, Inc., a subsidiary of American
Stores Company, and Superx Drugs Corporation, a subsidiary of The Kroger Co.
The Company's original equity capitalization was provided by The Fulcrum III
Limited Partnership and The Second Fulcrum III Limited Partnership
(collectively, the "Fulcrum Partnerships") (the Fulcrum Partnerships are
investment funds managed by Gibbons, Goodwin, van Amerongen, L.P. ("GGvA")
(formerly known as Gibbons, Green, van Amerongen, L.P.)), certain affiliates
of Merrill Lynch & Co., Inc. and members of management. In November 1991,
Green Equity Investors, L.P. ("GEI"), an investment fund managed by Leonard
Green & Partners, L.P., invested $27.7 million in cash in exchange for an
equity interest in the Company. At the same time, the Fulcrum Partnerships
invested an additional $2.3 million and exchanged certain preferred stock of
the Company for common stock of the Company. After the November 1991 equity
infusion, and until the Restructuring was consummated, GEI owned
approximately 60.9%, and the Fulcrum III Partnerships owned approximately
33.8%, of the outstanding Common Stock of the Company.
14<PAGE>
The principal executive offices of the Company are located at 6422
Harney Road, Tampa, Florida 33610, and its telephone number is (813)
621-0200. The Company's symbol for trading on the Nasdaq Small Cap Market is
"KASH."
THE RESTRUCTURING
On November 9, 1994 (the "Petition Date") the Company filed with the
U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court")
a voluntary petition for reorganization under Chapter 11 of the Bankruptcy
Code and a "prepackaged" plan of reorganization (the "Prepackaged Plan").
During the pendency of the bankruptcy case, the Company, with the approval of
the Bankruptcy Court, operated its business in the ordinary course, and paid
all pre-petition and post-petition claims of its general unsecured creditors,
trade creditors and employees in full. The Prepackaged Plan was confirmed by
the Bankruptcy Court on December 12, 1994, and the Company emerged from
bankruptcy on December 29, 1994 (the "Effective Date").
Pursuant to the Prepackaged Plan, on the Effective Date:
(1) Each $1,000 principal amount of the Company's $85.0 million Senior
Floating Rate Notes due August 2, 1996 (the "Old Senior Floating Rate Notes")
was exchanged for (a) new Senior Floating Rate Notes due February 1, 2003
(the "New Senior Floating Rate Notes") in an original principal amount equal
to $1,000 plus 100% of the accrued interest under the Old Senior Floating
Rate Notes from and including February 3, 1994, through but not including the
Petition Date, or, at such holder's election, (b) new 11.5% Senior Fixed Rate
Notes due February 1, 2003 (the "New Senior Fixed Rate Notes") in the same
original principal amount, or, at such holder's election, (c) an amount of
New Senior Floating Rate Notes and an amount of New Senior Fixed Rate Notes
equal, in the aggregate, to 100% of such claim;
(2) Each $1,000 principal amount of the Company's $50.0 million 12 3/8%
Senior Fixed Rate Notes due February 1, 1999 (the "Old Senior Fixed Rate
Notes") was exchanged for (a) New Senior Floating Rate Notes in an original
principal amount equal to $1,000 plus 100% of the accrued interest under the
Old Senior Fixed Rate Notes from and including February 2, 1994, through but
not including the Petition Date, or, at such holder's election, (b) New
Senior Fixed Rate Notes in the same original principal amount, or, at such
holder's election, (c) an amount of New Senior Floating Rate Notes and an
amount of New Senior Fixed Rate Notes equal, in the aggregate, to 100% of
such claim;
(3) the Company's $105.0 million 14% Subordinated Debentures due
February 1, 2001 (the "Old Subordinated Debentures") were exchanged for the
aggregate amount of 2,634,973 (3,952,459 after giving effect to the 3-for-2
stock split in July 1995) shares of newly-issued Common Stock,
representing 85 percent of the Common Stock outstanding on the Effective
Date;
15<PAGE>
(4) GEI invested $10.0 million cash in exchange for 465,000 (697,500
after giving effect to the 3-for-2 stock split in July 1995) shares of
newly-issued Common Stock, representing 15 percent of the Common Stock
outstanding on the Effective Date; and
(5) all of the existing preferred stock, common stock, and options and
warrants to purchase common stock of the Company were extinguished.
Pursuant to the Prepackaged Plan, the Company is required within four
months after the Effective Date, or such longer time as may be required to
prepare the necessary financial statements, to take the necessary steps to
register the newly-issued shares of Common Stock in a "shelf registration,"
to be effective for a period of three years, pursuant to the appropriate
requirements of the Securities and Exchange Commission. The Registration
Statement, of which this Prospectus is a part, has been filed to satisfy that
requirement.
Also pursuant to the Prepackaged Plan, the Company refinanced its
principal bank indebtedness on the Effective Date by entering into a new
Credit Agreement with The CIT Group/Business Credit, Inc., as administrative
agent for itself and certain other lenders (the "New Credit Agreement"). The
New Credit Agreement provides the Company with a 3-year $35.0 million term
loan facility and a 3-year $50.0 million revolving credit facility, and is
secured by liens upon substantially all of the Company's real and personal
property. As a result of such refinancing, the obligations of the Company
under the Credit Agreement dated October 12, 1988, as restated on September
14, 1989, and thereafter amended, with Bank of America National Trust and
Savings Association (as successor by merger to Security Pacific National
Bank), as administrative agent, and certain other senior lenders (the "Old
Credit Agreement"), were satisfied, and the Old Credit Agreement was
terminated. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Financial Condition."
MARKET PRICE AND DIVIDEND POLICY
On March 2, 1995 the Common Stock was listed for trading on the Nasdaq
Small Cap Market under the symbol "KASH." Prior to such date, there was no
established public trading market for its Common Stock. For the period of
March 2, 1995 through August 18, 1995, the range of high and low bids for a
single share of Common Stock was $23.50 - $12.17, as quoted in the Nasdaq
Small Cap Market. The average of the low bid and high ask prices on August
18, 1995 as quoted on the Nasdaq Small Cap Market was $25.25. Such
over-the-market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions. In addition, these quotations have been adjusted to reflect
the 3-for-2 stock split effected in the form of a stock dividend paid on July
17, 1995.
As of August 18, 1995, there were approximately 20 holders of record of
shares of Common Stock.
The Company has not in the past paid cash dividends to its stockholders
and does not intend to pay any cash dividends in the foreseeable future. The
Company's ability to declare cash dividends on its Common Stock is materially
limited by prohibitions or restrictions in the New Credit Agreement and the
indentures governing the New Senior Fixed Rate Notes and the New Senior
Floating Rate Notes. See "Description of Capital Stock."
16<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the
Company as of April 30, 1995 on an actual basis after giving effect to the
transactions in connection with the Restructuring and the application of
fresh-start reporting and the 3-for-2 stock split effected in the form of a
stock dividend paid on July 17, 1995. This table should be read in
conjunction with the detailed information and financial statements and
related notes appearing elsewhere in this Prospectus.
As of April 30, 1995
(dollars in thousands)
Current portion of long-term debt (1). . . . $ 5,583
=======
Long-term debt:
Term Loan Facility. . . . . . . . . . . . . $26,250
Revolving Loan Facility (2) . . . . . . . 7,532
Mortgages payable, bearing interest
at rates from 7.50% to 10.35%,
in equal monthly installments of $355,
with maturities from 1999 through 2003 . . 32,397
Capital lease obligations and other . . . . 15,380
Senior Floating Rate Notes due 2003 . . . . 22,953
11.5% Senior Fixed Rate Notes Due 2003. . . 121,162
Less current portion . . . . . . . . . . . (5,583)
--------
Total long-term debt . . . . . . . . . . . $220,091
--------
Stockholders' equity:
Common Stock of $.01 par value:
authorized 5,500,000 shares;
outstanding 4,649,943 shares . . . . . . . 31
Capital in excess of par value. . . . . . . 46,464
Retained Earnings (3) . . . . . . . . . . . 3,528
--------
Total stockholders' equity . . . . . . . . 50,023
--------
Total capitalization . . . . . . . . . . . $270,114
========
_______________
(1) Includes mortgages payable, $.9 million; and capital lease obligations
and other, $4.7 million. The Company has prepaid a total of $24.9
million on the term loan. Therefore, there is no current portion of the
term loan.
(2) The New Credit Agreement has a revolving credit facility with an
individual sublimit of $25.0 million for letters of credit (of which
$12.6 million were outstanding at April 30, 1995), with a maximum of
the lesser of (i) 85% of eligible receivables and 80% of eligible
inventories (as defined in the New Credit Agreement), or (ii) $50.0
million permitted to be outstanding under the revolving credit facility
at any one time.
(3) Reflects the application of fresh-start reporting.
17<PAGE>
SELECTED FINANCIAL INFORMATION
The following table presents selected financial information of the
Company as of and for each of the fiscal years ended on the Sunday nearest to
July 31, 1994, 1993, 1992, 1991 and 1990 and as of and for the periods ended
April 30, 1995, January 1, 1995 and May 1, 1994, and should be read in
conjunction with the financial statements and related notes thereto appearing
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The financial statements as of and for the periods ended April 30,
1995, January 1, 1995 and May 1, 1994 from which the selected financial
information has been derived, have not been audited by independent
accountants in accordance with generally accepted auditing standards, but, in
the opinion of management, the financial statements as of and for the period
ended May 1, 1994 include all adjustments, consisting only of normal
recurring adjustments, necessary to summarize fairly the Company's financial
position and results of operations. As discussed herein, the Company's
Prepackaged Plan was consummated on December 29, 1994 (the "Effective Date").
The financial statements as of and for the periods ended April 30, 1995 and
January 1, 1995 reflect the Company's emergence from Chapter 11 and were
prepared utilizing the principles of fresh-start reporting contained in the
American Institute of Certified Public Accountants' Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code." Operations during the period from the Effective Date through January
1, 1995 had no significant impact on the emergence transactions and as a
result have not been separately identified. As a result of the
implementation of fresh-start accounting, certain of the selected financial
data as of and for the periods ended April 30, 1995 and January 1, 1995 is
not comparable to the selected financial data of prior periods due to the
change in reporting entity resulting from the application of fresh-start
accounting. Therefore, selected financial data for the "Reorganized Company"
has been separately identified from that of the "Predecessor Company."
Results for the periods ended April 30, 1995 or January 1, 1995 are not
necessarily indicative of the results for the full year.
The selected store data have been derived from the Company's management
reporting records.
18<PAGE>
Reorganized Predecessor
Company Company
Period Ended
April 30, January 1, May 1,
1995 1995 1994
(17 weeks) (22 weeks) (39 weeks)
(In Thousands, Except Per Share Amounts)
Statement of Operations Data
Sales . . . . . . . . . . . $356,281 $426,681 $814,607
Cost of sales . . . . . . . 280,662 340,802 647,524
------- -------- -------
Gross profit. . . . . . . . 75,619 85,879 167,083
Selling, general and
administrative expenses . 51,122 68,819 133,846
Depreciation and amortization 8,436 10,234 18,166
Store closing and other costs -- -- 11,016
------- -------- -------
Operating income . . . . . 16,061 6,826 4,055
Net interest expense (1). . 9,344 13,719 33,757
------- -------- -------
Income (loss) from operations before
reorganization items, income taxes,
extraordinary items and change in
accounting principle . . 6,717 (6,893) (29,702)
Reorganization items. . . . -- (219) --
Provision for income taxes . 3,189 -- --
Extraordinary items -
gain on debt discharge . . -- 70,166 --
Cumulative effect of change in
accounting principle . . . -- (2,000) --
------- -------- -------
Net income (loss) . . . . . . $ 3,528 $61,054 $(29,702)
======= ======== ========
Income per common share (2), (3) $0.76 -- --
===== Predecessor Company
Fiscal Year Ended Sunday Nearest July 31, (4)
1994 1993 1992 1991 1990
Statement of Operations Data (In Thousands)
Sales . . . . . . . . .$1,065,165 $1,086,125 $1,071,038 $1,059,636 $1,039,209
Cost of sales . . . . . . 845,597 856,156 848,441 842,687 831,644
---------- ---------- ---------- ----------- ---------
Gross profit. . . . . . . 219,568 229,969 222,597 216,949 207,565
Selling, general and
administrative expenses 176,945 175,177 164,897 159,359 151,970
Depreciation and
amortization . . . . . 24,112 23,455 20,132 54,435 31,416
Store closing and other
costs . . . . . . . . . 11,016 -- -- -- --
---------- ---------- ---------- ---------- ----------
Operating income. . . . . 7,495 31,337 37,568 3,155 24,179
Net interest expense (1). 45,390 43,257 44,869 45,610 50,692
---------- ---------- ---------- ---------- ----------
Loss from operations before
extraordinary items . . (37,895) (11,920) (7,301) (42,455) (26,513)
---------- ---------- ---------- ---------- ----------
Extraordinary gain -- -- -- 3,427 943
Net loss. . . . . . . . $(37,895) $(11,920) $(7,301) $(39,028) $(25,570)
========== ========== ========== ========== ==========
19<PAGE>
Reorganized Predecessor
Company Company
Period Ended
April 30, January 1, May 1,
1995 1995 1994
(17 weeks) (22 weeks) (39 weeks)
(Dollar Amounts In Thousands)
Balance Sheet Data
Total assets. . . . . . . . $374,865 $381,492 $399,664
Inventories . . . . . . . . 83,206 87,115 84,019
Property and equipment, net 140,496 144,979 162,730
Working capital . . . . . . . 11,619 7,045 (1,362)
Total long-term debt and capital
leases (including current
maturities) (5) . . . . . . 225,674 242,786 362,835
Preferred stock . . . . . . -- -- 4,650
Total stockholders'
equity (deficit) . . . . . . 50,023 46,495 (52,861)
Other Data
Operating cash flow
(adjusted EBITDA) (6) . . . 24,497 17,060 33,237
Capital expenditures (7) . . . 1,509 665 12,841
Store Data
Food stores open at end of
period (8) . . . . . . . . . 99 99 101
Avg. selling sq. ft. during period
(in thousands) (9) . . . . . 2,903 2,903 3,105
Avg. sales per store week (10) $212 $196 $197
Predecessor Company
Fiscal Year Ended Sunday Nearest July 31, (4)
1994 1993 1992 1991 1990
(Dollar Amounts in Thousands)
Balance Sheet Data
Total assets . . . . . . . . $389,893 $423,208 $399,419 $401,860 $455,204
Inventories . . . . . . . . . 76,094 95,385 91,226 92,451 92,474
Property and equipment, net . 160,491 164,937 145,372 146,513 148,100
Working capital . . . . . . . (12,747) 19,137 26,031 15,684 11,959
Total long-term debt and
capital leases (including
current maturities) (5) . . 360,121 351,890 316,220 342,826 337,861
Preferred stock . . . . . . . 4,650 4,650 4,650 45,991 45,991
Total stockholders' deficit . (61,054) (23,159) (11,239) (72,640) (33,609)
Other Data
Operating cash flow
(adjusted EBITDA) (6) . . . $42,623 $54,792 $57,700 $57,590 $55,595
Capital expenditures (7). . . 15,471 37,703 15,385 15,672 16,079
Store Data
Food stores open at end of
period (8). . . . . . . . . 100 115 111 113 112
Avg. selling sq. ft. during
period (in thousands) (9) . 3,084 3,100 2,970 2,949 2,918
Avg. sales per store week(10) $196 $183 $181 $180 $175
20<PAGE>
Notes to Selected Financial Information
(Dollar Amounts in Thousands)
(1) Includes amortization of deferred financing costs of $494, $1,152 and
$2,190 for the 17 weeks ended April 30, 1995, 22 weeks ended January
1, 1995, and 39 weeks ended May 1, 1994, respectively; and $2,950,
$2,850, $2,932, $3,017 and $6,346 for the 1994, 1993, 1992, 1991 and
1990 fiscal years, respectively.
(2) Restated to reflect the 3-for-2 stock split effected in the form of a
stock dividend paid on July 17, 1995. Based on 4,649,943 shares (the
weighted average number of shares of Common Stock outstanding).
(3) Net income per share of Common Stock is not meaningful prior to January
1, 1995 due to the significant change in the capital structure in
connection with the Restructuring.
(4) The Company's fiscal year is based on a 52/53 week fiscal year ending on
the Sunday nearest to July 31. Therefore, the 1992 fiscal year included
53 weeks of operations. The 1994, 1993, 1991 and 1990 fiscal years each
had 52 weeks of operations.
(5) Total long-term debt includes long-term debt, current maturities of
long-term debt, capital lease obligations and certain other debt.
(6) Represents earnings before net interest expense (which includes
amortization of deferred financing costs), provision for income taxes,
depreciation and amortization, store closing and other costs,
reorganization items, extraordinary items, and cumulative effect of
change in accounting principle. Operating cash flow (adjusted EBITDA)
is presented here as a measure of the Company's debt service ability,
and should not be construed as an alternative to operating income (as
determined in accordance with generally accepted accounting principles)
or to cash flows from operating activities (as determined on the
Statements of Cash Flows in the Company's financial statements).
(7) Capital expenditures consist of cash expenditures, additions to capital
leases and, for the 1994, 1993 and 1992 fiscal years, amounts funded
under the capital improvements revolving credit facility under the Old
Credit Agreement (as defined in "The Restructuring").
(8) Data relating to the number of stores is expressed in actual numbers.
(9) Represents the average of the selling square footage of the Company's
stores on the first and last day of the respective periods. Selling
square footage includes adjacent liquor stores where applicable but does
not include backroom and receiving areas.
(10) Represents, for each of the respective periods, sales for such period
divided by the sum of the number of weeks for which each of the
Company's stores was open during such period.
21<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This analysis should be read in conjunction with the financial
statements and related notes thereto included elsewhere in this document.
The Company follows a 52/53 week fiscal year ending on the Sunday nearest to
July 31. The fiscal year ended August 2, 1992 included 53 weeks of
operations. Historical results of operations are given for the Company's
fiscal years ended July 31, 1994, August 1, 1993 and August 2, 1992
(respectively, the "1994, 1993 and 1992 Fiscal Years"), the 17 weeks ended
April 30, 1995 and the 22 weeks ended January 1, 1995 (combined, the "1995
Nine-Month Period"), and the 39 weeks ended May 1, 1994 (the "1994
Nine-Month Period"). On November 9, 1994, the Company filed a voluntary
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code; on
December 12, 1994, the Bankruptcy Court confirmed the Company's "prepackaged"
plan of reorganization. The Prepackaged Plan became effective on December
29, 1994, when the Company emerged from bankruptcy. The financial statements
as of and for the periods ended April 30, 1995 and January 1, 1995 reflect
the Company's emergence from Chapter 11 proceedings and were prepared
utilizing the principles of fresh-start reporting contained in the American
Institute of Certified Public Accountants' Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
(the "SOP 90-7").
Results of Operations of the Company
The discussion below compares the results of operations for the 1995
Nine-Month Period with the 1994 Nine-Month Period. Except as specifically
acknowledged below, management believes that the impact of the Restructuring
and the implementation of fresh-start reporting did not significantly affect
the results of operations for the 1995 Nine-Month Period, and that the
combined operating results of the individual 17-week period and 22-week
period ended April 30, 1995 and January 1, 1995, respectively, are indicative
of the results of operations for the 39-week period ended April 30, 1995.
The following table compares certain income and expense line items as a
percentage of sales:
22<PAGE>
1995 1994
Nine- Nine-
Month Month
Period Period
------ ------
Sales 100.0% 100.0%
Gross Profit 20.6% 20.5%
Selling, General and
administrative expenses 15.3% 16.4%
Depreciation and amortization 2.4% 2.2%
Operating income 2.9% 0.5%
Interest expense 2.9% 4.1%
Income (loss) before income
taxes, reorganization items,
extraordinary item and change
in accounting principle 0.0% (3.6%)
Net income (loss) 8.2%(1) (3.6%)(2)
(1) Net income for the 1995 Nine-Month Period includes a non-recurring
gain on debt discharge (9.0% of sales) offset by other
reorganization items (less than -0.1% of sales), and cumulative
effect of change in accounting principle (-0.3% of sales) recorded
for the 22-week period ended January 1, 1995. Net income, as a
percentage of sales, for the 17 weeks ended April 30, 1995
(post-Restructuring) was 1.0%.
(2) Net income for the 1994 Nine-Month Period included expenses of
$11,016, or 1.4% of sales, applicable to store closing and other
costs.
Sales
Sales for the 1995 Nine-Month Period were $783.0 million, or $31.6
million below the 1994 Nine-Month Period. The decrease in sales for the 1995
Nine-Month Period is primarily attributable to the closure of 17 stores and
the opening of two new stores in the 1994 fiscal year, which had a net
adverse impact on 1995 fiscal year sales, coupled with a decrease of 0.79% in
same store sales for the same period.
Gross Profit
The improvement in gross profit, as a percentage of sales, for the 1995
Nine-Month Period was primarily due to improved perishable margins and
increased efficiencies in store-level product preparation and handling costs.
Partially offsetting these improvements was the receipt of substantially less
promotional funds due in part to the credit restrictions placed on the
Company by its vendors during the nine-month period preceding the Company's
emergence from bankruptcy.
23<PAGE>
Selling, General and Administrative Expenses
The reductions of selling, general and administrative expenses for the
1995 Nine-Month Period were due to lower store labor costs (approximately
0.2% of sales for the 1995 Nine-Month Period), reduced corporate overhead
expenses (approximately 0.3% of sales for the 1995 Nine-Month Period) and
lower advertising expenditures (approximately 0.5% of sales for the 1995
Nine-Month Period) associated with a comprehensive operational restructuring
of the Company initiated during the year; and the elimination of operating
costs associated with stores that were closed during the 1994 fiscal year.
These improvements were partially offset by an increase in workers'
compensation insurance reserves.
Depreciation and Amortization
The increase in depreciation and amortization expenses for the 1995
Nine-Month Period is primarily attributable to increased amortization of
intangible assets.
Store Closing and Other Costs
During the first quarter of fiscal 1994, the Company recorded a
non-recurring charge of $11.0 million. This charge included $1.9 million of
costs associated with a proposed public offering of debt securities and a
proposed real estate-based revolving credit facility, neither of which was
consummated, $4.2 million of favorable lease interests written off in
connection with the closing of 12 underperforming stores, $4.0 million
representing an adjustment to the expected lease liability on closed stores,
net of sublease income, and $.9 million of other store closing and related
expenses.
Interest Expense
Interest expense for the 1994 Nine-Month Period was primarily comprised
of interest under the Old Credit Agreement, the Old Senior Floating Rate
Notes, the Old Senior Fixed Rate Notes, the Old Subordinated Debentures, and
various mortgages and capital leases. For the 1995 Nine-Month Period,
interest expense was incurred on the Old Senior Floating Rate Notes, the Old
Senior Fixed Rate Notes, and the Old Subordinated Debentures through the
Petition Date; and interest expense was incurred on the New Senior Floating
Rate Notes and the New Senior Fixed Rate Notes from the Effective Date
through April 30, 1995. In accordance with the Prepackaged Plan, no interest
was due to the holders of the Old Senior Floating Rate Notes, Old Senior
Fixed Rate Notes, or Old Subordinated Debentures for the period between the
Petition Date and the Effective Date, and therefore no interest expense was
recorded for this period. As provided in the Prepackaged Plan, interest
accrued from and including February 2, 1994, in the case of the Old Senior
Fixed Rate Notes, and from and including February 3, 1994, in the case of the
Old Senior Floating Rate Notes, through the Petition Date, was paid by
issuing
24<PAGE>
additional New Senior Floating Rate Notes and New Senior Fixed Rate
Notes. Interest on the Old Subordinated Debentures accrued from and
including February 2, 1994 through the Petition Date was converted into
stockholders' equity.
Reorganization Costs
In accordance with SOP 90-7, income and costs directly related to the
reorganization have been segregated and are separately disclosed. The major
components consist of adjustments to fair value, gain on extinguishment of
preferred stock, provision for store closing costs, provision for severance
benefits, provision for other restructuring activities, and professional
fees.
Gain on Debt Discharge
The gain on debt discharge reflects the conversion of $105.0 million of
Old Subordinated Debentures, plus accrued interest from and including
February 2, 1994 through the Petition Date, into $39.5 million of
stockholders' equity, resulting in a $70.2 million gain. The gain is
presented net of write-offs and costs associated with the debt discharged.
1994, 1993 and 1992 Fiscal Years
During the three year period ended July 31, 1994, the Company opened
seven new food stores, acquired one food store and three super warehouse food
stores (operating under the "Save 'n Pack" name), and completed major
expansion remodels on three existing food stores. However, sales growth was
constrained primarily by the opening of 54 competitive supermarkets and the
closing of 24 of the Company's stores during this three year period. The
Company experienced a net loss in each of the 1994, 1993 and 1992 Fiscal
Years primarily due to depreciation and amortization resulting from, and
interest costs associated with, financing the 1988 acquisition of the Kash n'
Karry and Superx stores.
The following table sets forth certain items from the Company's
Statements of Operations as a percentage of sales for the periods indicated:
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
July 31, 1994 August 1, 1993 August 2, 1992
Sales 100.00% 100.00% 100.00%
Gross profit 20.6% 21.2% 20.8%
Selling, general
and administrative expenses 16.6% 16.1% 15.4%
Depreciation and amortization 2.3% 2.2% 1.9%
Operating income 0.7% 2.9% 3.5%
Interest expense 4.3% 4.0% 4.2%
Net loss -3.6% -1.1% -0.7%
25<PAGE>
Sales 52 Weeks 52 Weeks 53 Weeks
Ended Ended Ended
July 31, 1994 August 1, 1993 August 2, 1992
Sales (in millions) $1,065 $1,086 $1,071
Number of stores:
Food stores opened or acquired 2 8 1
Food stores closed 17 4 3
Expansion remodels 1 2 --
Total food stores at period end 100 115 111
Average selling square feet during
year (in thousands) 3,084 3,100 2,970
Average sales per store week
(in thousands) $196 $183 $181
The Company maintained a relatively stable level of sales during the
three year period. Sales were positively impacted by opening and acquiring
new stores, expanding and upgrading existing stores and increasing
promotional activities and advertising expenditures. However, sales were
adversely affected by a weak economy, price deflation in certain commodities,
ongoing competitive new store and remodel activity, pricing and promotional
changes by certain competitors, and the closing of 24 of the Company's
stores. Store closings adversely impacted sales, but did not cause a
substantial adverse impact on the Company's operating cash flow.
Gross Profit
Gross profit as a percentage of sales was 20.6% in the 1994 Fiscal Year,
21.2% in the 1993 Fiscal Year, and 20.8% in the 1992 Fiscal Year. The
decrease in gross profit as a percentage of sales from the 1993 Fiscal Year
to the 1994 Fiscal Year was attributable to the impact of eliminating
investment in forward buy inventory (estimated to be approximately 57 basis
points), receipt of fewer promotional funds, and generally lower retail
prices, partially offset by improved perishable margins and efficiencies in
product preparation and handling. The improvement from the 1992 Fiscal Year
to the 1993 Fiscal Year was primarily attributable to the receipt of more
promotional funds and increased efficiencies in product acquisition and
warehousing and distribution operations, partially offset by low inflation
and the competitive factors mentioned above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses of the Company, as a
percentage of sales, were 16.6% in the 1994 Fiscal Year, 16.1% in the 1993
Fiscal Year, and 15.4% in the 1992 Fiscal Year. The increase of $1.8 million
from the 1993 Fiscal Year to the 1994 Fiscal Year was primarily the result of
increased occupancy costs and other expenses related to stores opened,
acquired or remodeled, and an increase in insurance reserves and advertising
expenses, offset by reduced operating costs due to store closings. The
increase as a percentage of sales was attributable to operating costs of
comparable stores in the aggregate declining at a lesser rate than the rate
of sales decline in those stores. The increase, as a percentage of sales,
for the 1993 Fiscal Year compared to the 1992 Fiscal Year was primarily
attributable to certain expenses, such as employee benefits, utilities, and
26<PAGE>
repairs and maintenance, which increased at a faster rate than the rate of
growth in sales, offset partially by lower average cost per hour and improved
labor productivity in the stores.
Depreciation and Amortization
The Company's depreciation and amortization expenses were $24.1 million,
or 2.3% of sales, for the 1994 Fiscal Year; $23.5 million, or 2.2% of sales,
for the 1993 Fiscal Year; and $20.1 million, or 1.9% of sales, for the 1992
Fiscal Year. The increase in depreciation and amortization for the three
year period was attributable to the new stores and major remodels, and
accelerated amortization of favorable lease interests on certain stores
closed during the period.
Interest Expense
Fiscal Year ended Sunday Nearest
July 31,
1994 1993 1992
(In Thousands)
Interest expense, net. . . . . . . . . .$42,917 $41,211 $42,292
Amortization of deferred financing costs 2,950 2,850 2,932
Capitalized interest . . . . . . . . . . . (477) (804) (355)
------- ------- -------
Interest expense, net. . . . . . .$45,390 $43,257 $44,869
======= ======= =======
Interest expense for the 1994 Fiscal Year was primarily comprised of
interest under the Old Credit Agreement, the Old Senior Floating Rate Notes,
the Old Senior Fixed Rate Notes, the Old Subordinated Debentures, various
mortgages and capital leases. The increase in interest expense for the 1994
Fiscal Year was primarily attributable to increased average borrowings under
the revolving credit facility under the Old Credit Agreement, additional
capital leases on store equipment, and slightly higher interest rates on bank
borrowings.
Losses
For the reasons set forth above, the Company experienced net losses of
$37.9 million for the 1994 Fiscal Year, $11.9 million for the 1993 Fiscal
Year, and $7.3 million for the 1992 Fiscal Year.
Financial Condition
Prior to the Petition Date, the Company's Old Credit Agreement
provided for a revolving credit facility with individual sublimits of $30.0
million for working capital loans and $25.0 million for letters of credit,
with a maximum of $50.0 million outstanding under the total facility at any
one time. During the weeks immediately preceding the bankruptcy filing, the
Company, with the approval of its bank lenders, increased its cash position
by fully drawing the remaining availability under its working capital line.
On the Petition Date, the Bankruptcy Court approved the use of cash
collateral and a letter of credit facility of $17.7 million under the Old
Credit Agreement, and additional debtor-in-possession financing provided by
BankAmerica Business Credit, Inc. of $11.2 million, subject to certain terms
27<PAGE>
and conditions. The outstanding borrowings under those facilities were
refinanced on the Effective Date, when the Company entered into the New
Credit Agreement with The CIT Group/Business Credit Inc. ("CIT") and certain
bank lenders to provide a 3-year $35.0 million term loan facility and a
3-year $50.0 million revolving credit facility.
Beginning August 1, 1994, the Company implemented a new short-term
business strategy to improve the Company's financial performance. The focus
of this strategy is to conserve capital, reduce administrative and operating
expenses, and direct management attention toward the operation of existing
stores. During the first nine months of fiscal 1995 the Company
significantly improved its liquidity as a result of the payment moratorium on
interest due on the Old Senior Fixed Rate Notes, Old Senior Floating Rate
Notes, and Old Subordinated Debentures; managing working capital; reducing
operating expenses by $12.0 million on an annualized basis; and limiting
capital expenditures. During the pendency of its bankruptcy case, the
Company operated its business in the ordinary course, and paid all
pre-petition and post-petition claims of the Company's general unsecured
creditors, trade creditors, and employees in full. The provisions of the
Restructuring, which are discussed in footnote 1 to the accompanying
financial statements, had an immediate beneficial impact on the Company's
financial condition, primarily as a result of significantly deleveraging the
Company's balance sheet, as indicated below:
April 30, July 31,
1995 1994
--------- ---------
(Dollar Amounts in Thousands)
Current portion of long-term debt $ 5,583 $ 42,740
Total long-term debt 225,674 360,121
Operating cash flow
(adjusted EBITDA) (1) 50,943 42,623
Total interest expense 27,600 (2) 45,390
Cash interest expense 11,600 (2) 42,440
Capital expenditures 4,729 15,471
Long-term debt/operating cash flow 4.43 8.45
Operating cash flow/total interest expense 1.85 0.94
Operating cash flow/cash interest expense 4.39 1.00
(1) Represents twelve month trailing earnings before net interest
expense (which includes amortization of deferred financing costs), provision
for income taxes, depreciation and amortization, store closing and other
costs, reorganization items, extraordinary items, and cumulative effect of
change in accounting principle. Operating cash flow (adjusted EBITDA) is
presented here as a measure of the Company's debt service ability and should
not be construed as an alternative to operating income (as determined in
accordance with generally accepted accounting principles) or to cash flows
from operating activities (as determined on the Statements of Cash Flows in
the Company's financial statements).
(2) Interest expense for the trailing twelve-month period is not
meaningful due to the payment moratorium on the old senior notes and
subordinated debentures. Therefore, total interest expense and cash interest
expense as shown here represent annualized proforma amounts based on reported
interest expense for the third quarter of fiscal 1995.
28<PAGE>
The Company recently completed a financing of three of its fee-owned
store properties and applied the net proceeds of $9.1 million to the
outstanding balance of the term loan under the New Credit Agreement. The
Company is still actively pursuing an additional refinancing transaction on
eight other mortgaged store properties, which could provide up to an
additional $4.0 million of net proceeds. In addition, in August the Company
exercised its option of paying interest in kind on the New Senior Floating
Rate Notes and the New Senior Fixed Rate Notes, and has the option of paying
in kind the next subsequent semi-annual interest payment on the New Senior
Fixed Rate Notes.
As a result of its increased liquidity and the application of the
proceeds of the financing discussed above, the Company has prepaid a total of
$24.9 million on its term loan. As of August 16, 1995, the outstanding
principal balance under the term loan facility was $4.8 million, and the
Company had $16.7 million in borrowings and $12.8 million in letters of
credit outstanding under the revolving loan facility under the New Credit
Agreement. Within the next sixty days, the Company intends to repay the
remaining balance of its term loan facility and has received a letter of
intent from CIT to simultaneously replace the New Credit Agreement with a new
3-year $50.0 million revolving credit facility with more favorable terms.
Consistent with its short-term business strategy, the Company does not
anticipate opening or acquiring any new stores during the current fiscal
year, but expects that capital expenditures of approximately $6.0 million
will be used to upgrade its existing store facilities, including minor
remodelling projects at 41 stores. The Company's capital expenditure plans
through the end of fiscal 1996 include the completion of two expansion
remodels, eight major remodels, up to 40 minor remodelling projects, and the
construction of two new stores.
In March 1995, the Company entered into a ten year agreement to
outsource its information systems. As a result of the outsourcing agreement,
the Company anticipates that its total annual information systems
expenditures through 2000 will range from approximately $8.6 million to $9.9
million, as compared with total information systems expenditures of $9.5
million and $9.1 million, respectively, for the 1993 and 1994 fiscal years,
and approximately $8.9 million for the 1995 fiscal year. The outsourcing
agreement provides for new application software in the areas of merchandise
procurement, store billings, warehouse control, accounts payable, and labor
tracking/scheduling, as well as new point-of-sale equipment for each store.
Absent the outsourcing agreement, the Company estimates that these system
enhancements would have required approximately $10.0 million in additional
capital outlays during the 1995 and 1996 fiscal years.
The Company has entered into an interest rate swap through August 1995
to reduce its exposure to increases in short-term interest rates on the
majority of its floating rate debt. The full exposure of the swap has been
accrued in the Company's condensed financial statements and there
would be no material impact on the accompanying condensed financial
statements as of April 30, 1995 by liquidating this contract.
Based upon the Company's ability to generate working capital through its
operations and its $50.0 million revolving credit facility, the Company
believes that it has the financial resources necessary to pay its capital
obligations and implement its business plan.
29<PAGE>
Effects of Inflation
The Company's primary costs, inventory and labor, are affected by a
number of factors that are beyond its control, including availability and
price of merchandise, the competitive climate and general and regional
economic conditions. As is typical of the supermarket industry, the Company
has generally been able to maintain margins by adjusting its retail prices,
but competitive conditions may from time to time render it unable to do so
while maintaining its market share.
30<PAGE>
BUSINESS
General
The Company is among the three largest food retailers in west central
Florida, operating 92 multi-department supermarkets, five conventional
supermarkets and 33 liquor stores under the "Kash n' Karry" name and two
super warehouse stores under the "Save 'n Pack" name, all supported by a
centrally-located warehouse and distribution facility. More than one-half of
the Company's stores are located in the Tampa-St. Petersburg area, which is
Florida's largest retail food sales market, with the balance located between
Gainesville, approximately 130 miles to the north, and Bonita Springs,
approximately 150 miles to the south. The west central Florida area has a
diverse and growing economy, which includes high technology and financial
centers, an insurance industry presence, retirement communities, coastal
resorts and commercial agricultural activity. The region's population is
estimated to be increasing at an annual rate of approximately 2%.
Company Store Profile
The following table presents a profile of the Company's stores:
Number of Stores At Fiscal Year End
Total Square
Store Type Footage(1) 1994 1993 1992 1991 1990
---------- ------------ ---- ---- ---- ---- ----
Kash n' Karry Food Stores 40,000--57,000 50 48 42 42 39
25,000--39,999 43(2) 55 57 57 58
less than 25,000 5 9 12 14 15
Save 'n Pack Super
Warehouse Stores 76,000--88,000 2 3 -- -- --
Kash n' Karry Liquor Stores 1,800-- 2,700 33 35 30 31 26
_______________
(1) Includes selling and backroom areas.
(2) Includes one store that was closed subsequent to July 31, 1994.
Supermarket stores
The Company currently operates 92 multi-department supermarkets, with an
average size of approximately 40,000 total square feet. The Company also
operates five conventional supermarkets which average approximately 18,000
total square feet. All of the Company's supermarket stores offer a wide
selection of items typically sold in grocery stores, including staple
groceries, fresh fruits and vegetables, bakery and dairy products,
delicatessen items, frozen foods and fresh meats. Each of the Company's
supermarket stores also sells certain non-food items such as health and
beauty care items, paper and tobacco products, soaps and detergents, drugs,
sundries and housewares. The Company's multi-department stores offer, in
addition, a wider variety of non-food items, including cosmetics and
toiletries, small hardware and a limited selection of soft goods. Most of
the Company's multi-department stores also feature expanded perishable goods
departments, delicatessens and in-store bakeries, and many contain pharmacies
and full-service seafood, full-service floral and video rental departments.
31<PAGE>
All of the Company's stores feature national brands and also carry a
selection of corporate brand merchandise. Most of the Company's food stores
are located in shopping centers. The Company's food stores are open seven
days a week, and most operate 24 hours a day.
Super warehouse stores
In 1993, the Company acquired three super warehouse stores (one of which
was subsequently closed) operating under the "Save 'n Pack" name. The two
existing super warehouse stores, which are 76,000 and 88,000 square feet in
size, respectively, feature among the lowest prices on basic items carried by
supermarkets and are designed to cater to the needs of the low-income
household. In its super warehouse store promotions, the Company encourages
consumers to verify the stores' tag line, "No One Has Lower Prices." The
assortment of packaged goods carried by the super warehouse stores is more
limited than that of a supermarket and is frequently augmented by one-time
purchases of specially priced products that may not be available on a regular
basis. Store decor is austere compared to that of a traditional supermarket,
and product is displayed on warehouse racking and on floor pallets to enhance
productivity and promote a low-price impression. The stores provide a full
complement of perishable departments, including meat, produce, bakery, deli
and fresh seafood, which also feature low prices and are frequently
self-service. The super warehouse stores do not have certain specialty
departments such as pharmacies, video rental departments or full-service
floral departments and do not provide supermarket services such as grocery
bagging, carry-out service, check cashing services and electronic funds
transfer. Because of reduced display, labor and advertising costs and the
more limited services, the Company is able to operate its super warehouse
stores successfully with lower gross margins than the Kash n' Karry
supermarket stores. The super warehouse stores operate 24 hours a day, seven
days a week.
Liquor stores
Each of the Company's 33 liquor stores is located on property adjacent
to one of the Company's supermarket stores and is operated as a department of
such store, although, in accordance with Florida law, each liquor store must
maintain a separate entrance. Liquor stores complement the Company's core
business, as they can be advertised through existing media without
incremental expense, pay supermarket (as compared to shopping center) rents
and benefit from operating and marketing synergies with the adjacent
supermarkets. The liquor stores offer a wide variety of wines, beers and
hard liquors, as well as mixers, soft drinks, snacks, ice and other party
accessories and a limited number of traditional grocery items. Sales from
the Company's liquor stores represent approximately 2% of the Company's total
sales. The Company's liquor stores range in size from 1,800 to 2,700 square
feet, and most are open seven days a week.
32<PAGE>
Operations Strategy
The Company believes that up-to-date, strategically located facilities,
well-trained associates and information management systems are key elements
to the Company's future success. The Company operates a modern, 687,000
square foot warehouse, distribution and office facility in Tampa with
sufficient capacity to service anticipated store expansion for the
foreseeable future. The warehouse enables the Company to reduce costs by
purchasing in large quantities, taking advantage of special promotional
prices offered by vendors and purchasing prior to impending price increases,
and reducing delivery costs through cross docking and backhauls. The central
location of the warehouse facility to its stores also provides the Company
with operating efficiencies.
The Company relies on information technology to enhance operating
efficiency. The Company recently entered into an agreement to outsource its
information systems development in order to minimize costs, accelerate the
implementation period for systems improvements, facilitate future software
upgrades, reduce personnel issues and eliminate equipment lease costs.
Specifically, the agreement provides for the acquisition of new procurement,
billing, labor scheduling and accounts payable systems and new point-of-sale
equipment in the stores within the next 18 months.
Marketing Strategy
The Company emphasizes competitive prices on everyday items, strong
weekly features, high quality perishables and a broad assortment of both
national and corporate brands. The Company's food stores are open seven days
a week, with most operating 24 hours a day. The Company seeks to be either
first or second among its competitors in assortment of branded merchandise,
stocking over 29,000 SKU's (stock keeping units) of national brand and
corporate brand items. In addition to a full range of grocery and general
merchandise items, most of the Company's multi-department supermarkets also
feature expanded perishable goods departments, delicatessens and in-store
bakeries, and many contain pharmacies and full-service seafood, full-service
floral and video rental departments.
In 1992, the Company introduced its own corporate brand merchandise.
The Company's corporate brand strategy is to offer a product comparable in
quality to the best-selling national brand at a lower price. The Kash n'
Karry brand item generally sells for approximately 10% less than the
competing best-selling national brand but generates a higher per unit gross
profit contribution to the Company. Over 1,100 SKU's in a wide variety of
product categories carry the Kash n' Karry brand name.
Competition
The food retailing business is highly competitive. The Company operates
in an environment where more than 90% of sales are by chains. The principal
competitive factors
33<PAGE>
include store locations, product selection and quality, price, cleanliness of
stores, customer service and overall store image. Based on its marketing
research, the Company believes that consumers perceive the Company as having
a favorable value image in the markets that it serves and offering a wide
variety of quality products and services in a pleasant environment. The
Company believes that its competitive strengths include desirable store
locations combined with a strong consumer franchise and efficient warehousing
and distribution facilities.
The Company competes with several national, regional and local
supermarket chains, particularly Publix, Winn-Dixie, Albertson's and Food
Lion. The Company is also in competition with convenience stores, stores
owned and operated or otherwise affiliated with large food wholesalers,
unaffiliated independent food stores, merchandise clubs, discount drugstore
chains and discount general merchandise chains. The Company's principal
competitors have greater financial resources than the Company and could use
those resources to take steps which could adversely affect the Company's
competitive position and financial performance. For example, operating
results generally and sales growth in particular were adversely affected by
approximately eight, 21, 25 and 30 store openings by principal grocery
competitors during the 1994, 1993, 1992 and 1991 fiscal years, respectively.
In the first nine months of fiscal 1995, there were approximately five
such competitive store openings, and it is anticipated that competitive store
openings will continue. Another example of the highly competitive nature of
the food retailing business is the practice of competitors to reposition
their pricing structure. Over the past several years, each of the Company's
major competitors has changed its pricing practices in a manner that has
adversely affected general retail pricing in the market. Winn-Dixie
discontinued double coupons and introduced its everyday low-price program in
the spring of 1991. In the spring of 1993, Publix began a campaign focused
on "surprisingly low prices," and Food Lion began a double coupon program
which has since been discontinued. The Company has had to deal with each of
these changes in a manner that has, in some instances, adversely affected its
operating results and may continue to do so in the future. In addition, the
Company's ability to compete may be adversely affected by its high leverage
and the limitations imposed by the New Credit Agreement and other debt
agreements.
Seasonality
The Company's sales and related inventory levels tend to increase
during the winter months due to the holidays, increased tourism and the
influx of winter residents, and to decrease during the summer months.
Typically, approximately 60% of the Company's operating cash flow is recorded
during the second and third quarters of its fiscal year.
34<PAGE>
Employees
The Company currently employs approximately 3,700 full-time and 5,600
part-time associates, none of whom is covered by a collective bargaining
agreement. The Company believes that it has good relations with its
associates.
Trademarks and Licenses
The Company employs various trademarks, trade names and service marks in
its business, including the "Kash n' Karry" logo and trade name. Except for
"Kash n' Karry" and its derivatives, and "So Much More to Pay Less For!,"
"Kash $aver," "$mart Buy," "Five Star Meat," "Nature Friendly" and "Save 'n
Pack," the Company does not believe that any of such trademarks or service
marks are material to the business of the Company.
Certain governmental licenses and permits, including alcoholic beverage
licenses, health permits and various business licenses, are necessary in the
Company's operations. The Company believes it has all material licenses and
permits necessary to enable it to conduct its business.
Properties
The Company's 92 multi-department supermarkets and five conventional
supermarket stores have an aggregate selling area of approximately three
million square feet. Ten of the food stores (comprising approximately
400,000 square feet) are owned by the Company. The remaining 87 supermarket
stores are leased by the Company. Three of the leased stores are owned by
affiliates of the Company. Six of the leased stores are operated under
long-term ground leases with the Company owning the improvements at such
locations. Seventeen leases expire during the next five years, with the
Company having options to renew all but two. Most of the Company's food
store leases have minimum rentals with additional rentals based on a
percentage of sales.
The Company's two Save 'n Pack super warehouse stores have an aggregate
selling area of approximately 119,000 square feet. One of the stores is
leased, with the remaining store operated under a long-term ground lease with
the Company owning the improvements at the location. Neither of the leases
expires within the next five years.
The Company's liquor stores have an aggregate selling area of
approximately 53,000 square feet. Four of the liquor stores are owned by the
Company. The remaining 29 liquor stores are leased by the Company. Three of
the leases expire during the next five years, with the Company having an
option to renew.
The Company's warehouse, distribution and office facility is located on
53.6 acres of land, which the Company owns.
35<PAGE>
Legal Proceedings
For information regarding the Company's reorganization proceedings under
Chapter 11 of the U.S. Bankruptcy Code, see "The Restructuring" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company has been engaged in various other legal actions and claims
arising in the ordinary course of business. Management believes, after
discussions with legal counsel, that the ultimate outcome of such litigations
and claims will not have a material adverse affect on the Company's financial
position.
36<PAGE>
MANAGEMENT
BOARD OF DIRECTORS
Set forth below is certain information regarding each of the directors
of the Company as of August 18, 1995:
Name Age
Everett L. Buckardt. . . . . . . . . . . . . . . . . 61
John G. Danhakl. . . . . . . . . . . . . . . . . . . 39
John J. Delucca. . . . . . . . . . . . . . . . . . . 52
Jennifer Holden Dunbar . . . . . . . . . . . . . . . 32
Ben Evans. . . . . . . . . . . . . . . . . . . . . . 65
Thomas W. Harberts . . . . . . . . . . . . . . . . . 50
Ronald E. Johnson. . . . . . . . . . . . . . . . . . 45
Robert Spiegel . . . . . . . . . . . . . . . . . . . 58
Peter Zurkow . . . . . . . . . . . . . . . . . . . . 41
Ms. Dunbar, Mr. Evans and Mr. Zurkow comprise the Company's Compensation
Committee, its Stock Option Committee, and its Nominating Committee, and Mr.
Buckardt, Ms. Dunbar, Mr. Evans and Mr. Harberts comprise the Company's Audit
Committee.
Pursuant to an understanding among the Company, Green Equity Investors,
L.P. ("GEI") and the unofficial committee of the holders of the Old Senior
Fixed Rate Notes, the Old Senior Floating Rate Notes and the Old Subordinated
Debentures (the "Bondholder Committee"), as of December 29, 1994 the
Company's Board of Directors was reconstituted to consist of nine members
selected as follows: GEI selected Ms. Dunbar and Christopher V. Walker, the
Bondholder Committee selected Messrs. Buckardt, Delucca, Evans, Harberts,
Spiegel and Zurkow, and the Company selected its then acting Chief Executive
Officer, Anthony R. Petrillo. No such understanding exists as to the
election of directors following the expiration of the terms of the incumbent
directors, or upon their resignation or removal as directors. On March 9,
1995, Mr. Petrillo resigned as a director and Mr. Johnson was appointed to
succeed him. On July 7, 1995, Mr. Walker resigned as a director in
conjunction with his resignation as a general partner of Leonard Green &
Partners, L.P., and on August 18, 1995, John G. Danhakl was appointed to
succeed Mr. Walker.
Biographical Information
Everett L. Buckardt has been a Director of the Company since December
29, 1994. Mr. Buckardt has been Chairman and Chief Executive Officer of
Warehouse Club, Inc. since January 1993. On February 3, 1995, Warehouse
Club, Inc. filed a voluntary petition for reorganization under Chapter 11 of
the U.S. Bankruptcy Code. In 1992, Mr. Buckardt retired from a 33 year
career with Sears Roebuck and Company, where he served in various capacities,
most recently as President of Sears Catalog and Direct Marketing Division.
John G. Danhakl has been a Director of the Company since August 11,
1995. Mr. Danhakl has been a general partner of Leonard Green & Partners,
L.P. since March 1995. He served as a Managing Director of Donaldson,
Lufkin & Jenrette Securities Corporation from 1990 to March 1995.
37<PAGE>
John J. Delucca has been a Director of the Company since December 29,
1994. Mr. Delucca has been the Senior Vice President and Treasurer of RJR
Nabisco since October 1993. He served as Managing Director and Chief
Financial Officer of HASCO Associates, Inc., a Greenwich, Connecticut-based
private holding company, from May 1991 to October 1993, as President and
Chief Financial Officer of the Lexington Group, a workout and restructuring
advisory group, from January 1990 to May 1991, and as Senior Vice President
of Finance and Managing Director of the Trump Group from June 1988 to January
1990. Mr. Delucca is a director of Edison Controls Corp. and Enzo Biochem,
Inc.
Jennifer Holden Dunbar has been a Director of the Company since November
1991. Ms. Dunbar has been a general partner of Leonard Green & Partners,
L.P. since 1994, and was a principal of Leonard Green & Partners, L.P. from
January 1992 to January 1994 and an associate of Leonard Green & Partners,
L.P. from November 1989. Prior to that time, Ms. Dunbar was an associate of
Gibbons, Green, van Amerongen, L.P. and a financial analyst with Morgan
Stanley & Co., Incorporated in its mergers and acquisitions department. Ms.
Dunbar is a director of Big 5 Holdings Inc., UMC Corporation, Thrifty
Payless, Inc., and Thrifty PayLess Holdings, Inc.
Ben Evans has been a Director of the Company since December 29, 1994.
Mr. Evans has been a consultant for the firm of Ernst & Young in its
financial advisory services group since 1989. He is a director of Revco
D.S., Inc., Jamesway Corporation and Megafoods Stores, Inc.
Thomas W. Harberts has been a Director of the Company since December 29,
1994. Mr. Harberts is the owner of Cub Foods, a single outlet retail food
store in Oshkosh, Wisconsin. From 1970 to 1994, he served in various
capacities for Byerly's, an upscale retail food chain based in Minnesota,
most recently as its Chief Executive Officer.
Ronald E. Johnson has been Chairman of the Board of the Company since
March 1995 and has been its President and Chief Executive Officer since
January 1995. Mr. Johnson served as Chief Operating Officer of Farm Fresh
from December 1993 to January 1995 and as its Senior Vice President of Store
Operations from 1990 to 1993.
Robert Spiegel has been a Director of the Company since December 29,
1994. Mr. Spiegel served as Chairman and Chief Executive Officer of RJR
Drug Distributors, a Louisville, Kentucky franchisee of Drug Emporium, from
1984 to 1995. Mr. Spiegel is a director of Graham Field Health Products,
Inc., and Hoenig Group, Inc.
Peter Zurkow has been a Director of the Company since December 29, 1994.
Mr. Zurkow has been a member of the High Yield Department of PaineWebber
Incorporated since August 1994. He was an Associate Managing Director and
served as a portfolio manager in the risk arbitrage department of Wertheim
Schroder for more than five years prior to joining PaineWebber Incorporated.
38<PAGE>
All Directors hold office until their successors are duly elected and
qualified or until their earlier resignation or removal.
Director Compensation
Each member of the Board of Directors (excluding management) receives
$12,500 per year (payable quarterly), plus $2,500 for each Board meeting,
and $1,000 for each meeting of a committee to which such director is a
member, not held on the same day as a Board meeting. In addition, each
director is reimbursed for reasonable and necessary out-of-pocket expenses
incurred in connection with attending such meetings in person. The cash
compensation payable to directors affiliated with Leonard Green & Partners,
L.P. ("LGP") is credited against the annual management fee payable to LGP.
See "Certain Relationships and Related Transactions." As of August 18, 1995,
Ms. Dunbar and Mr. Danhakl are the only directors affiliated with LGP.
On March 9, 1995, the Company adopted the 1995 Non-Employee Director
Stock Option Plan (the "Director Plan"), and, pursuant to the Director Plan,
granted to certain of its directors options to purchase a total amount of
54,000 shares of Common Stock. Messrs. Buckardt, Delucca, Evans, Harberts,
Spiegel and Zurkow each received options to purchase 4,500 shares of Common
Stock for $10.00 per share, vesting on July 30, 1995, and options to purchase
an additional 4,500 shares of Common Stock for $13.33 per share, vesting on
July 28, 1996. All of such options expire on March 8, 2005, or earlier upon
the occurrence of certain events. On the same date, in lieu of granting
options to Ms. Dunbar and Mr. Walker under the Director Plan, the Company
granted to Green Equity Investors, L.P. ("GEI") options to purchase 9,000
shares of Common Stock for $10.00 per share, vesting on July 30, 1995, and
options to purchase an additional 9,000 shares of Common Stock for $13.33 per
share, vesting on July 28, 1996. GEI is a principal stockholder of the
Company. See "Principal Stockholders." The terms of the options granted to
GEI are substantially the same as the terms of the options granted under the
Director Plan.
EXECUTIVE OFFICERS
Set forth below is certain information regarding each of the executive
officers of the Company as of August 18, 1995.
Name Age Position
Ronald E. Johnson. . . 45 Chairman of the Board, President and Chief
Executive Officer
Raymond P. Springer. . 44 Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
Gary M. Shell. . . . . 47 Senior Vice President, Marketing/Nonperishables
Clifford C. Smith Jr.. 35 Senior Vice President, Marketing/Perishables
BJ Mehaffey . . . . . 46 Senior Vice President, Operations
Richard D. Coleman . . 40 Vice President, Controller
39<PAGE>
Biographical Information
See "-- Board of Directors; Biographical Information" for biographical
information concerning Ronald E. Johnson.
Raymond P. Springer has been Senior Vice President, Chief Financial
Officer, and Treasurer of the Company since March 1995, and Secretary of the
Company since January 1995. Mr. Springer served as Executive Vice President,
Administration of the Company from October 1988 to March 1995. Mr. Springer
also served as a Director of the Company from October 1988 to July 1991, and
from November 1991 to December 1994.
Gary M. Shell has been Senior Vice President of Marketing of
Nonperishables of the Company since March 1995. Mr. Shell served as Vice
President of Marketing and Merchandising of B. Green & Company, a food
wholesaler and retailer, from May 1991 to February 1995, and as Vice
President of Purchasing and Promotions of Rich Foods, Inc. from 1987 to 1991.
Clifford C. Smith Jr. has been Senior Vice President of Marketing of
Perishables of the Company since March 1995. Mr. Smith served as the
Director of Deli, Bakery and Food Service for Harris-Teeter from 1992 to
March 1995, and as the Vice President of Deli, Bakery and Food Service for
Mayfair Supermarkets, Inc. from 1981 to 1992.
BJ Mehaffey has been Senior Vice President, Operations, of the Company
since July 1995. Mr. Mehaffey served as District Manager of the Grocery
Stores Division of Farm Fresh from 1992 to 1995, and in various capacities
with Bi-Lo Incorporated from 1972 to 1992.
Richard D. Coleman has been Vice President and Controller of the Company
since October 1988, and Director of Risk Management of the Company since
January 1995. From October 1988 to January 1995, Mr. Coleman also served as
Secretary of the Company.
Compensation of Executive Officers
Summary Compensation
The following table sets forth compensation for the fiscal years ended
July 31, 1994, August 1, 1993 and August 2, 1992, respectively, awarded to,
earned by, or paid to the Chief Executive Officer and the acting Chief
Executive Officer of the Company during fiscal year 1994, and the individuals
who, in fiscal year 1994, were the other four most highly compensated
executive officers of the Company (collectively, the "Named Executive
Officers").
40<PAGE>
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
All Other
Name & Principal Position(1) Year Salary(2) Bonus Options Compensation
Ronald J. Floto
Chairman of the Board,
President and
Chief Executive Officer...1994 $346,056 $ 0 0 $ 8,978(3),(4)
1993 248,358 41,400 0 100,990
1992 358,270 267,720 39,485 24,265
Raymond P. Springer
Executive Vice President,
Administration............1994 $177,298 $ 0 0 $ 11,910(3)
1993 131,233 15,000 0 51,832
1992 186,923 87,300 18,120 12,617
Dennis V. Carter
Executive Vice President,
Operations ...............1994 $133,356 $ 0 0 $ 7,514(3)
1993 123,250 17,000 4,162 8,764
1992 139,038 91,665 15,351 9,618
Thomas A. Whipple
Executive Vice President,
Marketing.................1994 $118,331 $ 0 0 $ 3,073(3)
1993 60,923 0 0 787
1992 186,923 87,300 12,165 12,962
Richard D. Coleman
Vice President,
Controller and Secretary..1994 $100,000 $ 0 0 $ 2,574(3)
1993 95,481 5,000 0 6,682
1992 103,846 27,160 4,515 6,948
____________________________
(1) The principal position held by the Named Executive Officers as of July
31, 1994 is given, except in the case of Mr. Floto. Mr. Floto's
employment with the Company terminated on August 1, 1994, and Anthony R.
Petrillo was appointed to replace him on an interim basis. Since the
Restructuring was consummated on December 29, 1994, Ronald E. Johnson
joined the Company as Chairman of the Board, President and Chief
Operating Officer, replacing Mr. Petrillo, Messrs. Carter and Whipple
resigned from the Company, Mr. Springer's title was re-designated as
Senior Vice President, Chief Financial Officer, and Gary M. Shell,
Clifford C. Smith Jr. and BJ Mehaffey became executive officers. The
current annual salaries of Messrs. Johnson, Shell, Smith and Mehaffey
are $325,000, $130,000, $130,000 and $115,000, respectively. During his
tenure as acting Chairman of the Board, President and Chief Executive
Officer, Mr. Petrillo received a weekly salary of $13,462 and a bonus of
$200,000. Mr. Petrillo continues to serve as a consultant to the
Company, for which he is compensated at the rate of $200 per hour.
(2) Includes amounts deferred at the election of the Named Executive
Officers under the Company's Retirement Estates 401(k) Plan (the
"KKRE"), a trusteed defined contribution plan, and its
nonqualified unfunded supplemental salary deferral plan (the
"KESP").
41<PAGE>
(3) Represents (i) matching contributions by the Company under its KKRE of
$2,587 for the benefit of Mr. Floto, $1,292 for the benefit of Mr.
Whipple, $1,321 for the benefit of Mr. Springer, $990 for the benefit of
Mr. Carter and $741 for the benefit of Mr. Coleman; (ii) matching
allocations by the Company under its KESP of $5,175 for the benefit of
Mr. Floto, $1,453 for the benefit of Mr. Whipple, $9,854 for the benefit
of Mr. Springer, $6,075 for the benefit of Mr. Carter and $1,500 for the
benefit of Mr. Coleman; and (iii) above-market interest recorded by the
Company under its KESP of $1,216 for the benefit of Mr. Floto, $328 for
the benefit of Mr. Whipple, $735 for the benefit of Mr. Springer, $449
for the benefit of Mr. Carter and $333 for the benefit of Mr. Coleman.
(4) Mr. Floto filed a proof of claim against the Company seeking payments
allegedly owed to him in connection with his severance from the Company.
The total principal amount of Mr. Floto's claim is not in excess of $1.5
million.
Stock Option Grants in Last Fiscal Year
Prior to the Restructuring, the Company administered two stock option
plans for the benefit of its executive officers and other valued employees --
the Restated 1988 Management Stock Option Plan and the 1991 Management Stock
Option Plan (the "Old Option Plans"). No options were granted in fiscal year
1994 under either of the Old Option Plans. Pursuant to the Prepackaged Plan,
all of the outstanding options under the Old Option Plans were extinguished
on December 29, 1994.
In March 1995, the Company adopted the 1995 Key Employee Stock Option
Plan (the "New Option Plan"), which authorizes the issuance to eligible
participants of options to purchase up to 355,419 shares of Common Stock of
the Company. (Capitalized terms not otherwise defined in this paragraph are
defined in the New Option Plan; the number of shares of Common Stock subject
to options authorized or granted under the New Option Plan has been adjusted
to reflect the 3-for-2 stock split effected in the form of a stock dividend
paid on July 17, 1995.) Thereafter, the Stock Option Committee
granted to certain executive officers options to purchase the aggregate
amount of 248,786 shares of Common Stock under the New Option Plan (the
"Initial Options"). The Initial Options vest in serial increments in the
amount of 20% per year, on the last day of each of the 1995, 1996, 1997, 1998
and 1999 fiscal years of the Company. However, upon the occurrence of a
Merger Event or a Change of Control, the Initial Options become 100% vested.
In addition, upon the termination of Mr. Johnson's employment Without Cause
(as defined in his employment agreement), all of Mr. Johnson's Initial
Options become 100% vested. The Initial Options expire, to the extent not
exercised, on the tenth anniversary of the date of grant. However, upon
termination of an optionee's employment with the Company, all unvested
Initial Options lapse, and all vested Initial Options expire 180 days after
the termination of employment, if such termination is due to the death,
Disability or Retirement of the optionee, or 45 days after the termination of
employment, if such termination is due to any other reason, other than a
Termination for Cause. If a Termination for Cause occurs, all vested and
unvested Initial Options expire immediately. The following table sets forth
certain information with respect to the Initial Options granted to the
executive officers:
42<PAGE>
Number of Securities
Underlying Options Exercise Price
Name Granted (Dollars/Share) Expiration Date
Ronald E. Johnson 50,773 $10.00 March 8, 2005
Raymond P. Springer 45,696 $10.00 March 8, 2005
Gary M. Shell 30,463 $10.00 March 8, 2005
Clifford C. Smith Jr. 30,463 $10.00 March 25, 2005
BJ Mehaffey 30,463 $22.00 July 27, 2005
Richard D. Coleman 15,232 $22.00 July 27, 2005
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End
Option Values
None of the options granted under the Old Option Plans were exercised
before they were extinguished pursuant to the Prepackaged Plan on December
29, 1994. The following table shows information concerning the value of the
unexercised options granted under the Old Option Plans held by the Named
Executive Officers as of July 31, 1994:
Value of
Number of Unexercised
Name Unexercised In-the-Money
Options at Options at
Fiscal Year End Fiscal Year End
Exercisable/ Exercisable/
Unexercisable Unexercisable
Ronald J. Floto -0-/-0- (1)
Thomas A. Whipple 1,877/12,349 (1)
Raymond P. Springer 1,877/18,304 (1)
Dennis V. Carter 1,102/19,697 (1)
Richard D. Coleman 610/4,569 (1)
(1) As of July 31, 1994, the Company had reached an agreement in principle
with the Unofficial Bondholders' Committee with respect to the
Restructuring. Accordingly, the fair market value of the Common Stock
underlying the options was nil and none of the options were
in-the-money. On December 29, 1994, all of such options were
extinguished pursuant to the Prepackaged Plan.
Employment Contracts and Termination of Employment and Change-of-Control
Arrangements
Messrs. Johnson, Shell and Smith have each entered into employment
agreements with the Company for a three-year term. Mr. Johnson's term
commenced in January 1995 and Messrs. Shell's and Smith's terms each
commenced in March 1995. The Company entered into a similar
employment agreement with Mr. Mehaffey for a two and one-half year term
commencing in July 1995. Under the employment agreements, the Company agrees
43<PAGE>
to pay a base salary and to allow the employee to participate proportionally
in all fringe benefit plans available to the most senior executive officers
of the Company from time to time during the term, including the Company's
current bonus plan. Employment under the agreements may be terminated for
cause or without cause in certain circumstances, as defined therein,
including the employee's death or disability. Upon a termination without
cause, the employee is entitled to continuation of salary and, in certain
circumstances, benefits and bonus, through the term of the employment
agreement. Mr. Johnson's agreement also provides that options granted to him
under the New Option Plan will become fully vested upon a termination of his
employment without cause. The agreements also contain certain requirements
of noncompetition, including a requirement of noncompetition for a period of
one year following a termination of employment, other than a termination
without cause.
The Company has severance pay agreements with Raymond P. Springer and
Richard D. Coleman, and with certain other key employees who are not
executive officers of the Company. The severance pay agreements
provide, among other things, that if the employee is terminated without Cause
(as defined therein) in connection with a Change of Control (as defined
therein) then such employee will be entitled to payment based on a certain
percentage of that employee's annual compensation. In the case of Mr.
Springer and Mr. Coleman, the severance payment is based on 100% of their
respective annual compensation (approximately $270,000 in the case of Mr.
Springer, and approximately $130,000 in the case of Mr. Coleman). In the
case of the non-executive officers, the severance payment is based on 50% of
their respective annual compensation.
The Company maintains the Kash n' Karry Retirement Estates ("KKRE"), a
trusteed defined contribution retirement plan. KKRE is a tax savings/profit
sharing plan maintained for the purpose of providing retirement income for
eligible employees of the Company. KKRE is qualified under Section 401(a)
and Section 401(k) of the Internal Revenue Code of 1986, as amended.
Generally, all employees who have attained the age of 21 years and complete
one year of participation service (as defined under KKRE) are eligible to
participate in KKRE. During the 1994 fiscal year, each of the Named
Executive Officers participated in KKRE.
Certain members of senior management and other key employees also
participate in the Kash n' Karry Executive Supplemental Retirement Plan
("KESP"), a non-qualified, unfunded salary deferral plan. During the 1994
fiscal year, each of the Named Executive Officers participated in KESP.
Prior to the beginning of each plan year, a participant may elect to defer an
amount not to exceed 15% of such participant's annual base compensation (as
defined under KESP). The Company matches a certain portion of the amount
deferred by the participant, but the amount of the match may not exceed 6% of
such participant's annual base compensation. The Company records income to
the participant's account at an annual rate as determined by the Board of
Directors, but the rate of such income shall not be less than 8% per annum.
The vested percentage of the amounts recorded in the participant's account
will be paid to the participant upon the earlier of: (i) such participant's
death, disability, retirement or other separation of service from the
Company; (ii) the date the Plan is terminated; or (iii) the date that a
change in control occurs (as defined under KESP).
44<PAGE>
Compensation Committee Interlocks and Insider Participations
The Board of Directors has established a Compensation Committee and a
Stock Option Committee. The Compensation Committee approves compensation
payable to the executive officers and the Stock Option Committee administers
the Company's stock option plans. Currently, Jennifer Holden Dunbar, Ben
Evans and Peter Zurkow comprise both such committees. During the 1994 fiscal
year, Ronald J. Floto, Leonard I. Green, Christopher V. Walker and Edward W.
Gibbons (each of whom was a director during the 1994 fiscal year) performed
the functions of the Compensation Committee and Messrs. Floto, Green and
Gibbons served on the Stock Option Committee.
Mr. Green and Ms. Dunbar are each controlling shareholders of general
partners of LGP, Mr. Danhakl is a general partner of LGP, and Mr. Green is a
former partner of Gibbons, Green, van Amerongen, L.P. ("Gibbons, Green"), now
known as Gibbons, Goodwin, van Amerongen, L.P. ("GGvA"). Mr. Walker is a
former general partner of LGP and of Gibbons, Green. Mr. Gibbons is a
general partner of GGvA. LGP is the general partner of Green Equity
Investors, L.P., which owned 60.9% of the Company's common stock during the
1994 fiscal year, and which currently owns 27.7% of the Company's Common
Stock. See "Principal Stockholders." GGvA is the general partner of the
Fulcrum Partnerships, which collectively owned 33.8% of the Company's common
stock during the 1994 fiscal year. The equity interest of the Fulcrum
Partnerships was extinguished in December 1994 pursuant to the Prepackaged
Plan. Gibbons, Green is a predecessor of GGvA. Mr. Floto was the Chairman
of the Board, President and Executive Officer of the Company until July 29,
1994.
During fiscal 1994, as consideration for the provision of financial
advisory services, the Company agreed to pay an annual fee of $554,000, plus
related out-of-pocket expenses, to LGP and an annual fee of $232,000, plus
related out-of-pocket expenses, to GGvA. From September 1993 through
December 1994, the Company did not pay the annual fees to LGP or GGvA, but
reimbursed them for out-of-pocket expenses billed to the Company. Pursuant
to the Prepackaged Plan, on December 29, 1994 the Company entered into a
Management Services Agreement with LGP, pursuant to which LGP agreed to
provide management, consulting, financial planning and financial advisory
services for a two year term, in consideration for an annual fee of $200,000.
LGP is not required to provide a fixed number of hours of service to the
Company pursuant to the Management Services Agreement. The amount of the
annual fee payable to LGP was determined in the course of negotiations among
LGP, the Company and the Bondholders Committee during the Restructuring. The
Company believes that the fee is not in excess of the fee that would be
charged by an unrelated third party in an arms-length transaction for similar
services.
45<PAGE>
Security Ownership of Management
The following table sets forth as of August 18, 1995, the number and
percentage of all shares of Common Stock owned by each of the directors of
the Company, each of the Named Executive Officers, each of the current
executive officers of the Company, and all directors, Named Executive
Officers and current executive officers as a group.
Number of
Name Shares Owned(1) Percent (2)
Everett L. Buckardt (3) 4,500 *
Dennis V. Carter -0- -0-
Richard D. Coleman (3) 3,046 *
John G. Danhakl (4) 1,295,067 27.5
John J. Delucca (3) 4,500 *
Jennifer Holden Dunbar (4) 1,295,443 27.5
Ben Evans (5) 8,250 *
Ronald J. Floto -0- -0-
Thomas W. Harberts (3) 4,500 *
Ronald E. Johnson (3) 10,155 *
BJ Mehaffey (3) 6,093 *
Gary M. Shell (3) 6,093 *
Clifford C. Smith Jr. (3) 6,093 *
Robert Spiegel (5) 19,500 *
Raymond P. Springer (3) 9,139 *
Thomas A. Whipple -0- -0-
Peter Zurkow (3) 4,500 *
All Directors, Named Executive Officers and
current executive officers as a group
(17 persons) (3) - (5) 1,381,812 29.1
- ----------------------
* Less than 1%
(1) Determined after giving effect to the 3-for-2 stock split effected in
the form of a stock dividend paid on July 17, 1995.
(2) Based on 4,717,423 shares of Common Stock outstanding, which includes
76,619 shares subject to options that are granted and exercisable within
60 days.
46<PAGE>
(3) The number of shares owned by Messrs. Buckardt, Coleman, Delucca,
Harberts, Johnson, Mehaffey, Shell, Smith, Springer and Zurkow consists
of shares that are subject to options granted and exercisable within 60
days under the Company's Director Plan and New Option Plan, as
applicable.
(4) Includes 1,295,067 shares owned by Green Equity Investors, L.P.
(including 9,000 shares subject to an option granted and exercisable
within 60 days), of which Leonard Green & Partners, L.P. ("LGP"), is the
sole general partner. Ms. Dunbar may be deemed to be the beneficial
owner of such shares by reason of her being the controlling shareholder
of a general partner of LGP, and Mr. Danhakl may be deemed to be the
beneficial owner of such shares by reason of his being a general partner
of LGP.
(5) The number of shares owned by Messrs. Evans and Spiegel includes 4,500
shares each that are subject to options granted and exercisable within
60 days under the Company's Director Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1994, 1993, and 1992, respectively, as consideration for
the provision of financial advisory services, the Company agreed to pay an
annual fee of $554,000, plus related out-of-pocket expenses, to Leonard Green
& Partners, L.P. ("LGP"), and an annual fee of $232,000, plus related out-of-
pocket expenses, to Gibbons, Goodwin, van Amerongen, L.P. ("GGvA"). From
September 1993 through December 1994, the Company did not pay the annual fees
to LGP or GGvA, but reimbursed them for out-of-pocket expenses billed to the
Company. Pursuant to the Prepackaged Plan, on December 29, 1994 the Company
entered into a Management Services Agreement with LGP, pursuant to which LGP
agreed to provide management, consulting, financial planning and financial
advisory services for a two year term, in consideration for an annual fee of
$200,000. LGP is not required to spend a fixed number of hours of service to
the Company pursuant to the Management Services Agreement. The amount of the
annual fee payable to LGP was determined in the course of negotiations among
LGP, the Company and the Bondholders Committee during the Restructuring. The
Company believes that the fee is not in excess of the fee that would be
charged by an unrelated third party in an arms-length transaction for similar
services.
LGP is the sole general partner of Green Equity Investors, L.P., which
owned approximately 60.9% of the Company's outstanding common stock
immediately prior to the consummation of the Prepackaged Plan. GGvA is the
general partner of The Fulcrum III Limited Partnership and The Second Fulcrum
III Limited Partnership, which collectively owned 33.8% of the Company's
outstanding common stock immediately prior to the consummation of the
Prepackaged Plan. Jennifer Holden Dunbar, who is a director of the Company,
is the controlling shareholder of a general partner of LGP, and John G.
Danhakl, also a director of the Company, is a general partner of LGP.
47<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of August 18, 1995 (unless otherwise
specified), the name and address of each person known by the Company to be
the beneficial owner of more than five percent of the outstanding Common
Stock (the only class of voting securities of the Company):
Name and Address Number of Shares(1) Percent
American Express Company 978,705(2) 21.1%
American Express Tower
World Financial Center
New York, NY 10285
American Express Financial Corporation 978,705(2) 21.1
IDS Tower 10
Minneapolis, MN 55440
Green Equity Investors, L.P. 1,295,067(3) 27.5
333 S. Grand Avenue
Suite 5400
Los Angeles, CA 90071
IDS Extra Income Fund 828,135(2) 17.8
IDS Tower 10
Minneapolis, MN 55440
The Prudential Insurance Company 653,076(4) 14.0
of America
Prudential Plaza
Newark, NJ 07102-3777
PaineWebber Incorporated 553,602(5) 11.9
1285 Avenue of the Americas
New York, NY 10019
(1) Determined after giving effect to the 3-for-2 stock split effected in
the form of a stock dividend paid on July 17, 1995.
(2) Based upon information supplied by American Express Company, American
Express Financial Corporation and IDS Extra Income Fund, who share
dispositive power over a total of 828,135 shares over which IDS Extra
Income Fund has sole voting power. American Express Company and
American Express Financial Corporation also share dispositive power with
IDS Bond Fund over an additional 150,570 shares over which IDS Bond Fund
has sole voting power. American Express Company has advised the Company
that it disclaims beneficial ownership with respect to all 978,705
shares.
(3) Based upon information supplied by Green Equity Investors, L.P.
Includes 9,000 shares subject to an option granted and exercisable
within 60 days.
48<PAGE>
(4) Based upon information supplied by The Prudential Insurance Company of
America ("Prudential") as of April 24, 1995. Includes 48,349 shares
held for the benefit of clients of Prudential over which Prudential may
have direct or indirect voting and/or investment discretion, with
respect to which Prudential has advised the Company that it disclaims
beneficial ownership.
(5) Based upon information supplied by PaineWebber Incorporated, as of July
7, 1995.
DESCRIPTION OF CAPITAL STOCK
Authorized Capital Stock
The authorized capital stock of the Company consists of 5,500,000 shares
of Common Stock, par value $.01 per share, and 1,000,000 shares of Preferred
Stock, par value $.01 per share. The authorized Preferred Stock includes
35,000 shares of Series A Junior Participating Preferred Stock (the "Series
A Preferred"). As of August 18, 1995, 4,649,943 shares of Common Stock and
no shares of Preferred Stock were outstanding, an additional 320,786 shares
of Common Stock were reserved for issuance pursuant to outstanding options
granted to GEI and to certain directors and executive officers pursuant to
the Director Plan and New Option Plan, and all 35,000 shares of Series A
Preferred were reserved for issuance to the holders of Rights. See
"Management" and "-- Certain Anti-Takeover and Charter Provisions; Rights
Plan."
The following description of those terms and provisions of the capital
stock of the Company which are deemed material to an investment in the Common
Stock is intended to be a summary thereof and does not purport to be a
complete description of the terms and conditions of such capital stock.
Reference is made to the Company's Restated Certificate of Incorporation, the
Certificate of Designations of the Series A Preferred, and the Rights
Agreement dated as of April 13, 1995, as amended June 13, 1995 (as amended,
the "Rights Agreement") between the Company and Shawmut Bank Connecticut,
N.A., as Rights Agent (the "Rights Agent"). Copies of each of the foregoing
documents have been filed as exhibits to the Registration Statement of which
this Prospectus is a part.
Common Stock
Each holder of Common Stock is entitled to one vote per share on all
matters to be voted on by the stockholders, including elections of directors,
and, except as otherwise provided by law or as may be provided with respect
to any series of Preferred Stock created by the Board of Directors from time
to time, the holders of such shares of Common Stock exclusively possess
all voting power. See "Description of Capital Stock -- Preferred Stock."
Holders of Common Stock are not entitled to cumulate their votes.
Subject to certain preferential rights of any outstanding series of
Preferred Stock created by the Board of Directors from time to time, holders
of Common Stock are entitled to dividends and other distributions as and when
declared by the Board of Directors out of assets legally available therefor,
49<PAGE>
and upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock would be entitled to share equally in the
distribution of all of the Company's assets. The holders of Common Stock
have no preemptive rights to purchase shares of Common Stock of the Company.
The transfer agent and registrar for the Company's Common Stock is
Shawmut Bank Connecticut, N.A., of 777 Main Street, MSN 238, Hartford,
Connecticut 06115.
The Common Stock is listed on the Nasdaq Small Cap Market under the
symbol "KASH."
Preferred Stock
Blank check authority
The Board of Directors has the authority, without action by the
stockholders, to issue shares of Preferred Stock in one or more series and,
within certain limitations, to determine the dividend rights, dividend rate,
rights and terms of redemption, liquidation preferences, sinking fund terms,
conversion rights and voting rights of any series of Preferred Stock, the
number of shares constituting any such series, the designation thereof, and
the price therefor.
As of August 18, 1995, the Board of Directors had not authorized the
issuance of any Preferred Stock other than the Series A Preferred. See "--
Series A Preferred."
The Company believes that the ability of its Board of Directors to issue
one or more series of Preferred Stock will provide the Company with
flexibility in structuring possible future financings and acquisitions, and
in meeting other corporate needs which might arise. The authorized shares of
Preferred Stock, as well as Common Stock, will be available for issuance
without further action by the Company's stockholders, unless such action is
required by applicable law or the rules of any exchange or automated
quotation system on which the Company's securities may be listed or traded.
Series A Preferred
There are 35,000 authorized shares of Series A Preferred. As of August
18, 1995, none of the Series A Preferred is outstanding, but all of such
shares are reserved for issuance pursuant to an exercise of Rights. See "--
Certain Anti-Takeover and Charter Provisions; Rights Plan."
The Series A Preferred is not redeemable and has no sinking fund. Each
share of Series A Preferred will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an
aggregate dividend equal to the dividends on 100 shares of Common Stock. In
addition, each share of Series A Preferred will have a liquidation preference
of $100 per share but will be entitled to an aggregate payment of 100 times
the payment made per share of Common Stock. Each share of Series A Preferred
will have 100 votes, voting together with the shares of Common Stock.
Finally, in the event of any merger, consolidation or other transaction in
which shares of Common Stock are exchanged, each share of Series A Preferred
will be entitled to receive 100 times the amount received per share of Common
Stock. These rights are protected by customary anti-dilution provisions.
50<PAGE>
Restrictions on Dividends
The indentures governing the New Senior Fixed Rate Notes and the New
Senior Floating Rate Notes (the "Indentures") provide that the Company will
not, directly or indirectly, (i) declare or pay any dividend on or make any
distributions in respect of the capital stock of the Company or any
Subsidiary thereof (except for (x) dividends or distributions payable solely
to the Company or any Subsidiary of the Company and (y) dividends or
distributions of a Subsidiary of the Company solely on the capital stock of
such Subsidiary), or purchase, redeem or retire for value, or make any
payment on account of the purchase, redemption or other acquisition or
retirement for value of, any capital stock or warrants, rights or options to
purchase such capital stock, (ii) make any principal payment on, or redeem,
repurchase or defease, or otherwise acquire or retire for value, Subordinated
Debt (as defined in the Indentures), prior to any scheduled principal
payment, scheduled sinking fund payment or maturity thereof, or (iii) make
any loan or advance to, or any other Investment (as defined in the
Indentures) in, any of its Affiliates other than a Subsidiary of the Company
(such payments or any other actions described in (i), (ii) and (iii),
collectively, "Restricted Payments") unless (1) at the time of and after
giving effect to the proposed Restricted Payment, no Event of Default (as
defined in the Indentures) or event that, after notice or lapse of time or
both would become an Event of Default, shall have occurred and be continuing,
and (2) at the time of and after giving effect to the proposed Restricted
Payment (the amount of any such payment, if other than cash, to be determined
by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution (as defined in the Indentures)) (A) the
Consolidated Net Worth (as defined in the Indentures) of the Company shall be
at least $75,000,000 and (B) the aggregate amount of all Restricted Payments
after January 29, 1995 shall not exceed 50% of Cumulative Net Available Cash
(as defined in the Indentures) of the Company and (C) the Fixed Charge
Coverage Ratio (as defined in the Indentures) calculated on a pro forma basis
for the full twelve-month period ending on the last day of the Company's
fiscal quarter immediately preceding such proposed Restricted Payment shall
be at least 1.50 to 1. Notwithstanding the foregoing, this provision will
not prohibit the redemption, by the Company, of its common stock (on a fully
diluted basis) from time to time under the terms and conditions of management
equity subscription agreements or stock option agreements and related
exhibits, so long as such redemption does not otherwise result in an Event of
Default or event that, after notice or lapse of time or both, would become an
Event of Default.
The foregoing provisions shall not be deemed to prohibit (1) the payment
of any dividend within 60 days after the date of declaration thereof, if at
such declaration date such declaration complied with the provisions of the
Indentures, or (2) the redemption, repurchase or other acquisition or
retirement (a "retirement") of any shares of any class of capital stock of
the Company or of any Subsidiary thereof in exchange for (including any such
exchange pursuant to the exercise of a conversion right or privilege in
connection with which cash is paid in lieu of the issuance of fractional
shares or scrip), or out of the proceeds of a substantially concurrent issue
and sale (other than to a Subsidiary of the Company) of, other shares of
capital stock of the Company, or (3) the retirement of Subordinated Debt out
of the proceeds of a substantially concurrent sale (other than to a
Subsidiary of the Company) of shares of capital stock of the Company or
issuance other than to a Subsidiary of the Company of new Indebtedness which
51<PAGE>
has a weighted average life to maturity at least as long as the Stated
Maturity of the New Notes and no sinking fund or scheduled principal payments
prior to the maturity of the New Notes and the payment of which is
subordinated in right of payment and otherwise to the New Notes at least to
the same extent as such Subordinated Debt, or (4) the payment of dividends or
the making of distributions on shares of capital stock of the Company solely
in shares of capital stock of the Company.
The New Credit Agreement provides that the Company will not declare or
make any Dividend Payment (as defined in the New Credit Agreement) at any
time (other than Dividend Payments in respect of the Company's obligations to
repurchase capital stock or Equity Rights (as defined in the New Credit
Agreement) of the Company of retired, terminated or deceased directors,
officers or employees of the Company, provided that (a) the aggregated amount
of such payments in any fiscal year of the Company shall not exceed the sum
of (i) $500,000 plus (ii) for each fiscal year of the Company beginning after
the Effective Date, an amount equal to the excess (if any) of $500,000 over
the amount of such payments made by the Company in its immediately preceding
fiscal year and (b) no such Dividend Payments may be made after the
occurrence and during the continuance of any Default (as defined in the New
Credit Agreement)).
Certain Anti-Takeover and Charter Provisions
Delaware General Corporation Law
The Company is subject to Section 203 of the Delaware General
Corporation Law, as amended ("Section 203"). Section 203 provides that,
subject to certain exceptions specified therein, an "interested stockholder"
of a Delaware corporation shall not engage in any business combination,
including mergers or consolidations or acquisitions of additional shares of
the corporation, with the corporation for a three-year period following the
date that such stockholder becomes an "interested stockholder" unless (i)
prior to such date, the board of directors of the corporation approved either
the business combination or the transaction which resulted in the stockholder
becoming an "interested stockholder," (ii) upon consummation of the
transaction which resulted in the stockholder becoming an "interested
stockholder," the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced
(excluding certain shares), or (iii) on or subsequent to such date, the
business combination is approved by the board of directors of the corporation
and authorized at an annual or special meeting of stockholders by the
affirmative vote of at least 66-2/3% of the outstanding voting stock which is
not owned by the "interested stockholder." Except as otherwise specified in
Section 203, an "interested stockholder" is defined to include (x) any person
that is the owner of 15% or more of the outstanding voting stock of the
corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at
any time within three years immediately prior to the relevant date and (y)
the affiliates and associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
52<PAGE>
thereunder. The Certificate of Incorporation does not exclude the Company
from the restrictions imposed under Section 203. The provisions of Section
203 may encourage companies interested in acquiring the Company to negotiate
in advance with the Board of Directors, since the stockholder approval
requirement would be avoided if a majority of the directors then in office
approve either the business combination or the transaction which results in
the shareholder becoming an interested shareholder. Such provisions also may
have the effect of preventing changes in the management of the Company. It
is possible that such provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.
Severance arrangements
Certain executive officers of the Company have severance arrangements
with the Company, which may have the effect of increasing the costs of
acquiring the Company in a hostile takeover. See "Management -- Termination
of Employment and Change-of-Control Arrangements."
Rights Plan
On April 13, 1995, the Company adopted a preferred stock purchase rights
plan (the "Rights Plan"). Under the Rights Plan, the Board declared a
dividend in the form of one right (a "Right" and, collectively, the "Rights")
for each outstanding share of Common Stock. The dividend was payable on
April 27, 1995 (the "Record Date") and was declared with respect to both the
shares then outstanding and shares that shall become outstanding between the
Record Date and the earliest of the Distribution Date (as defined below) and
the date on which the Rights are redeemed or expire. The certificates
representing any such shares of Common Stock so issued will bear a legend to
the effect that the certificates also evidence the Rights.
Subject to adjustment upon the occurrence of certain events described
below, each Right initially entitled the holder thereof to purchase one
one-hundredth of a share of Series A Preferred (the "Preferred Shares") for
$76.00 (the "Purchase Price"), ten days after a person or group (an
"Acquiring Person") acquires 25% or more of the Company's Common Stock (or,
subject to the terms of the Rights Agreement, more than 29% in the case of
Leonard Green & Partners, L.P. ("LGP") or any person or entity which at any
time purchases all of the shares of Common Stock owned by LGP), or certain
actions are taken in respect of such acquisition. The first date on which
the right to purchase Preferred Shares could be exercised is referred to
herein as the Distribution Date.
The Purchase Price payable, and the number of Preferred Shares or other
securities issuable, upon exercise of the Rights shall be adjusted in the
event (i) of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Shares, (ii) of a grant to holders of the
Preferred Shares of certain rights or warrants to subscribe for or purchase
Preferred Shares at a price, or securities convertible into Preferred Shares
with a conversion price, less than the then-current market price of the
Preferred Shares or (iii) of a distribution to holders of the Preferred
Shares of evidences of indebtedness or assets (excluding regular periodic
cash dividends paid out of earnings or retained earnings or dividends payable
in Preferred Shares) or of subscription rights or warrants (other than those
referred to above).
53<PAGE>
The number of outstanding Rights and the number of one one-hundredths of
a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the shares of Common Stock or a
stock dividend on the shares of Common Stock payable in shares of Common
Stock or subdivisions, consolidations or combinations of shares of the Common
Stock occurring, in any such case, prior to the Distribution Date. As a
result of the 3-for-2 stock split effected in the form of a stock dividend
paid on July 17, 1995 to the stockholders of record on June 26, 1995, the
number of one-hundredths of a Preferred Share issuable upon exercise of each
Right has been adjusted from one to 0.6667.
In the event any person or group becomes an Acquiring Person, each
holder of a Right, other than Rights beneficially owned by the Acquiring
Person (which will thereafter be void), will thereafter have the right to
receive (subject to adjustment) upon exercise that number of shares of Common
Stock having a market value of two times the exercise price of the Right.
In addition, if there is a merger or other business combination between the
Company and an Acquiring Person, or if certain other events occur involving
an Acquiring Person, each Right (if not previously exercised) would entitle
the holder to purchase that number of shares of common stock of the Acquiring
Person which at the time of such transaction will have a market value of two
times the exercise price of the Right.
Prior to the Distribution Date, the Rights cannot be transferred apart
from the Common Stock and will be represented solely by the Common Stock
certificates. If the Distribution Date occurs, separate certificates
representing the Rights will be mailed to holders of the Common Stock as of
such date, and the Rights could then begin to trade separately from the
Common Stock.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding shares of Common Stock, the Company may exchange the Rights
(other than Rights owned by an Acquiring Person, which will have become
void), in whole or in part, at an exchange ratio of one share of Common
Stock, or one one-hundredth of a Preferred Share (or of a share of a class or
series of the Company's preferred stock having equivalent rights, preferences
and privileges), per Right (subject to adjustment).
The Rights are redeemable by the Company at $.01 per Right at any time
prior to the occurrence of the Distribution Date. In the event the Company
receives a written notice from the holder or holders of at least ten percent
of the shares of Common Stock then outstanding directing the Board of
Directors to submit to a vote of stockholders at the Company's next annual
meeting of stockholders a resolution authorizing the redemption of all the
then outstanding Rights at the Redemption Price (the "Resolution") and the
written notice complies with certain procedural requirements, then the Board
of Directors is required to take such actions as are necessary or desirable
to cause the Resolution to be so submitted to a vote of stockholders,
including by including a proposal relating to the adoption of the Resolution
in the Board of Directors' proxy materials relating to such annual meeting of
stockholders. Subject to the requirements of applicable law, the Board of
Directors of the Company may take a position in favor of or opposed to the
adoption of the Resolution, or no position with respect to the Resolution, as
it deems appropriate. If at the annual meeting the Resolution receives the
54<PAGE>
affirmative vote of a majority of the shares of Common Stock outstanding as
of the record date for such annual meeting, and provided that no person or
entity has become an Acquiring Person prior to the redemption date, then all
of the Rights will be redeemed by such stockholder action at the Redemption
Price, effective as of the close of business on the tenth business day
following the date on which the results of the vote on the Resolution at the
annual meeting are certified as official. The Rights will automatically
expire on April 13, 2000 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company.
The Rights will not have any voting rights and will not be entitled to
dividends. The terms of the Rights may be amended without the consent of the
holders of the Rights, provided that after the Distribution Date the
amendment does not adversely affect the interest of the holders.
The Preferred Shares are not redeemable and have no sinking fund. Each
Preferred Share will be entitled to a minimum preferential quarterly dividend
payment of $1 per share but will be entitled to an aggregate dividend equal
to the dividends on 150 shares of Common Stock. In addition, each Preferred
Share will have a liquidation preference of $150 per share but will be
entitled to an aggregate payment of 150 times the payment made per share of
Common Stock. Each Preferred Share will have 150 votes, voting together with
the shares of Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of Common Stock are
exchanged, each Preferred Share will be entitled to receive 150 times the
amount received per share of Common Stock. These rights are protected by
customary anti-dilution provisions, and the foregoing amounts reflect the 3-
for-2 stock split effected in the form of a stock dividend paid on July 17,
1995.
The Rights may have certain anti-takeover effects, which could result in
the Company being less attractive to a potential acquirer. The Rights will
cause substantial dilution to any person or group which becomes an Acquiring
Person or if an Acquiring Person attempts to merge with, or engage in certain
other transactions with, the Company, as a result of which the stockholders
could receive less for their shares than otherwise might be available in the
event of a takeover attempt. The Rights should not, however, interfere with
any merger or other business combination approved by the Company's Board of
Directors prior to the occurrence of a Distribution Date because the Rights
may be redeemed prior to such time.
Limitation of Liability of Directors
The Certificate of Incorporation provides that a director of the Company
will not be personally liable to the Company or its shareholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law, which concerns unlawful payments of
dividends, stock purchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit.
While the Certificate of Incorporation provides directors with
protection from awards for monetary damages for breaches of their duty of
care, it does not eliminate such duty. Accordingly, the Certificate of
55<PAGE>
Incorporation will have no effect on the availability of equitable remedies
such as an injunction or rescission based on a director's breach of his or
her duty of care. The provisions of the Certificate of Incorporation
described above apply to an officer of the Company only if he or she is a
director of the Company and is acting in his or her capacity as director, and
do not apply to officers of the Company who are not directors.
SELLING STOCKHOLDERS
Certain holders of Common Stock (the "Selling Stockholders") may offer
such securities hereby on a continuous or delayed basis pursuant to Rule 415
promulgated under the Securities Act.
The following table sets forth certain information as of August 18, 1995
with respect to each Selling Stockholder for whose account Common Stock may
be sold pursuant to this Prospectus, which information has been furnished to
the Company by the Selling Stockholders and other sources that the Company
has not certified. Because the Selling Stockholders may sell, pursuant to
this Prospectus, all or some part of the Common Stock that they hold, no
estimate can be given as to the amount of Common Stock that will be held by
the Selling Stockholders at any time subsequent to the date of this
Prospectus. See "Plan of Distribution." As of August 18, 1995, none of the
Selling Stockholders except Green Equity Investors, L.P. ("GEI") has had a
material relationship within the past three years with the Company, other
than as a result of the ownership of securities of the Company. For a
discussion of the relationship between GEI and the Company, see "Certain
Relationships and Related Transactions."
Beneficial Ownership Prior Beneficial
to Offering (1) Ownership
After
Number of Percentage Shares Offering
Name of Selling Stockholder Shares(2)of Class Offered Hereby (1), (3)
American Express Company 978,705(4) 21.1 978,705 -0-
American Express Financial
Corporation 978,705(4) 21.1 978,705 -0-
Gregory J. Annick and Nancy
McAnniff Annick, as Trustees
u/a dated December 2, 1994 376 * 376 -0-
Eugene Aspy and Helen
Breland, as joint tenants 15 * 15 -0-
Michael W. Bourlier 37 * 37 -0-
Cede & Co. 4,630,445(5) 99.58 4,630,445 -0-
Jennifer Holden Dunbar, as 376 * 376 -0-
Trustee u/a dated June 23,
1994
56<PAGE>
Mary J. Eichhorn, as Trustee 753 * 753 -0-
u/a dated May 21, 1991 f/b/o
Walter J. Eichhorn, Sr.
Revocable Trust
John D. Evans and Doris D.
Evans, as joint tenants 100 * 100 -0-
Ruth E. Geniesse 75 * 75 -0-
Green Equity Investors, L.P.1,295,067 27.7 1,286,067 9,000
Kathy J. Hodges 75 * 75 -0-
IDS Bond Fund 150,570(4) 3.2 150,570 -0-
IDS Extra Income Fund 828,135(4) 17.8 828,135 -0-
Kray & Co. 7,981 * 7,981 -0-
Lewis J. Lamm 4,141 * 4,141 -0-
Barton Leasoff 526 * 526 -0-
Leon Mastromarchi and 125 * 125 -0-
Robert Bradley, as joint
tenants
Malcom W. Morris, Jr. 264 * 264 -0-
Edward J. Mytkowicz and 940 * 940 -0-
Esther Mytkowicz, as trustee
f/b/o Edward J. Mytkowicz
and Esther Mytkowicz Family
Trust dated April 29, 1980
PaineWebber Incorporated 553,602(6) 11.9 553,602 -0-
Philadep & Co. 1,396 * 1,396 -0-
The Prudential Insurance 653,076(7) 14.0 653,076 -0-
Company of America
Richard H. Rohlwing and 940 * 940 -0-
Linda Rohlwing, as joint
tenants
Ellen M. Skaggs and Delois 187 * 187 -0-
V. Skaggs, as joint tenants
Southeast Frozen Foods Co. 10 * 10 -0-
LP
James R. Underhill 16 * 16 -0-
Meredyth E. Williams 150 * 150 -0-
* Less than 1%
57<PAGE>
(1) Information with respect to beneficial ownership was obtained from the
Selling Stockholders. Except to the extent otherwise provided herein,
the persons named in the table have sole voting and dispositive power
with respect to all shares of Common Stock shown as beneficially owned
by them.
(2) Determined after giving effect to the 3-for-2 stock split effected in
the form of a stock dividend paid on July 17, 1995.
(3) Assumes sale of all, and no other purchases of, Common Stock. See "Plan
of Distribution."
(4) American Express Company, American Express Financial Corporation and IDS
Extra Income Fund share dispositive power over a total of 828,135
shares over which IDS Extra Income Fund has sole voting power. American
Express Company and American Express Financial Corporation also share
dispositive power with IDS Bond Fund over an additional 150,570 shares
over which IDS Bond Fund has sole voting power. American Express
Company has indicated that it disclaims beneficial ownership with
respect to all 978,705 shares.
(5) Includes 1,286,067 shares beneficially owned by Green Equity Investors,
L.P., 828,135 shares and 150,570 shares beneficially owned by
IDS Extra Income Fund and IDS Bond Fund, respectively, over which
American Express Company and American Express Financial Corporation
share dispositive power, 653,076 shares beneficially owned by the
Prudential Insurance Company of America, 553,602 shares beneficially
owned by PaineWebber Incorporated, and 376 shares beneficially owned by
Jennifer Holden Dunbar.
(6) As of July 7, 1995.
(7) As of April 24, 1995.
All of the shares offered hereby were acquired by the Selling
Stockholders (or their authorized assignors) pursuant to the Prepackaged
Plan. The shares of Common Stock are being registered to satisfy a condition
set forth in the Prepackaged Plan. Pursuant to the Prepackaged Plan, the
Company is required to use its best efforts to keep such Registration
Statement continuously effective until the third anniversary of its original
effectiveness. However, there can be no assurance that the Selling
Stockholders will sell any or all of the shares of Common Stock which may be
offered pursuant to this Prospectus.
58<PAGE>
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from the sale by the
Selling Stockholders of the Common Stock offered by this Prospectus. Any or
all of such Common Stock may be sold by the Selling Stockholders from time to
time (i) to or through underwriters or dealers, (ii) directly to one or more
other purchasers, (iii) through agents on a best-efforts basis, or (iv)
through a combination of any such methods of sale. The Selling Stockholders
and any such underwriters, dealers or agents that participate in the
distribution of the Common Stock may be deemed to be underwriters within the
meaning of the Securities Act, and any profit on the sale of the Common Stock
by them, and any discounts, commissions or concessions received by them, may
be deemed to be underwriting discounts and commissions under the Securities
Act. The Common Stock may be sold from time to time in one or more
transactions at a fixed offering price, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. Such prices
will be determined by the Selling Stockholders or by agreement between the
Selling Stockholders and underwriters or dealers. Brokers or dealers acting
in connection with the sale of Common Stock contemplated by this Prospectus
may receive fees or commissions in connection therewith.
At the time a particular offer of Common Stock is made, to the extent
required, a supplement to this Prospectus will be distributed which will
identify and set forth the aggregate number of shares of Common Stock being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, the purchase price paid by any underwriter
for Common Stock purchased from the Selling Stockholders, any discounts,
commissions and other items constituting compensation from the Selling
Stockholders and/or the Company and any discounts, commissions or concessions
allowed or reallowed or paid to dealers, including the proposed selling price
to the public. Each supplement to this Prospectus and, if necessary, a
post-effective amendment to the Registration Statement of which this
Prospectus is a part, will be filed with the Commission to reflect the
disclosure of additional information with respect to the distribution of
Common Stock.
The outstanding Common Stock is, and the Common Stock offered hereby
will be, listed on the Nasdaq Small Cap Market.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of Common Stock may not simultaneously
engage in market making activities with respect to the Common Stock for a
period of nine business days prior to the commencement of such distribution.
In addition and without limiting the foregoing, the Selling Stockholders and
any person participating in the distribution of the Common Stock will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of the Common
Stock by the Selling Stockholders or any such other person.
59<PAGE>
In order to comply with certain states' securities laws, if applicable,
the Common Stock will be sold in such jurisdictions only through registered
or licensed brokers or dealers. In certain states the Common Stock may not
be sold unless it has been registered or qualified for sale in such state, or
unless an exemption from registration or qualification is available.
The Registration Statement, of which the Prospectus is a part, is being
filed by the Company to satisfy a condition set forth in the Prepackaged
Plan. Pursuant to the Prepackaged Plan, the Company is required to use its
best efforts to keep such Registration Statement continuously effective until
the third anniversary of its original effectiveness.
Pursuant to the Prepackaged Plan, the Company has paid or will pay any
and all expenses incident to the performance of or compliance with its
registration obligations, including, among other things, registration and
filing fees, fees and expenses incurred in connection with compliance with
securities or blue sky laws of the applicable states, fees and disbursements
of counsel and independent public accountants for the Company, but excluding
underwriting discounts and commissions, the fees and expenses of counsel to
the Selling Stockholders and transfer taxes, if any.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon by
Milbank, Tweed, Hadley & McCloy.
EXPERTS
The financial statements of the Company as of July 31, 1994 and August
1, 1993 and for the 52 weeks ended July 31, 1994 and August 1, 1993 and the
53 weeks ended August 2, 1992, have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP
("KPMG"), independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
On February 17, 1995, KPMG, the Company's independent accountants who
were previously engaged as the principal accountants to audit the Company's
financial statements, were dismissed. KPMG's report on the financial
statements of the Company for the past two years contained no adverse opinion
or disclaimer of opinion, and were not qualified or modified as to
uncertainty, audit scope, or accounting principles, except that KPMG's report
on the 1994 financial statements of the Company contained a separate
paragraph stating that "Kash n' Karry Food Stores, Inc. has suffered
recurring losses from operations and has a net capital deficiency. As
discussed in note 1 to the financial statements, Kash n' Karry Food Stores,
Inc. filed a pre-packaged petition under Chapter 11 of the United States
Bankruptcy Code on November 9, 1994. These matters raise substantial
doubt about its ability to continue as a going concern. The
60<PAGE>
financial statements do not include any adjustments that might result from
the outcome of this uncertainty." The Company's plan of reorganization was
approved by the bankruptcy court on December 12, 1994 and became effective on
December 29, 1994.
The decision to change accountants was approved by the Board of
Directors of the Company. During the Company's two most recent fiscal years
and any subsequent interim period preceding the dismissal, there were no
disagreements between the Company and KPMG on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to the satisfaction of KPMG would have
caused KPMG to make reference to the subject matter of the disagreement in
connection with its report. Also, during the aforementioned period, there
occurred no "reportable event" within the meaning of Item 304(a)(1)(v) of
Regulation S-K of the Commission.
On February 17, 1995, the Company engaged Coopers & Lybrand, L.L.P. as
the principal accountants to audit the Company's financial statements for the
fiscal year ending July 30, 1995. The Company did not consult with Coopers
& Lybrand, L.L.P. regarding accounting advice prior to its engagement.
61<PAGE>
INDEX TO FINANCIAL STATEMENTS
UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
Page
Condensed Balance Sheets as of
April 30, 1995, and July 31, 1994 . . . . . . . . . . . . . . . . F-3
Condensed Statements of Operations for the 13 weeks ended
April 30, 1995, and the 13 weeks ended May 1, 1994 . . . . . . . .F-5
Condensed Statements of Operations for the 17 weeks ended
April 30, 1995, the 22 weeks ended January 1, 1995,
and the 39 weeks ended May 1, 1994 . . . . . . . . . . . . . . . .F-6
Condensed Statements of Cash Flows for the 17 weeks ended
April 30, 1995, the 22 weeks ended January 1, 1995,
and the 39 weeks ended May 1, 1994 . . . . . . . . . . . . . . . .F-7
Notes to Condensed Financial Statements. . . . . . . . . . . . . . . . F-9
AUDITED FINANCIAL STATEMENTS
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . F-15
Balance Sheets as of July 31, 1994 and August 1, 1993. . . . . . . . . F-16
Statements of Operations for the fiscal years ended July 31, 1994,
August 1, 1993 and August 2, 1992 . . . . . . . . . . . . . . . . F-17
Statement of Stockholders' Deficit for the fiscal years ended July 31, 1994,
August 1, 1993 and August 2, 1992 . . . . . . . . . . . . . . . . F-18
Statements of Cash Flows for the fiscal years ended July 31, 1994,
August 1, 1993 and August 2, 1992 . . . . . . . . . . . . . . . . F-19
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . F-21
F-1<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Page
Pro Forma Financial Information. . . . . . . . . . . . . . . . . . . . .F-36
Unaudited Pro Forma Statement of Operations
for the fiscal year ended July 31, 1994 . . . . . . . . . . . . . .F-37
Unaudited Pro Forma Statement of Operations
for the 22 weeks ended January 1, 1995 . . . . . . . . . . . . . . F-38
Notes to Unaudited Pro Forma Statement of Operations . . . . . . . . . .F-39
F-2<PAGE>
KASH N' KARRY FOOD STORES, INC.
BALANCE SHEETS
(Dollar Amounts in Thousands, Except Per Share Amounts)
ASSETS
Reorganized Predecessor
Company Company
-----------------------
April 30, July 31,
1995 1994
-----------------------
(Unaudited)
(Note 1)
Current assets:
Cash and cash equivalents $ 7,244 $ 6,852
Accounts receivable 6,745 8,084
Inventories 83,206 76,094
Prepaid expenses and other current assets 3,433 12,805
--------- ---------
Total current assets 100,628 103,835
Property and equipment, at cost, less
accumulated depreciation 140,496 160,491
Favorable lease interests, less accumulated
amortization of $692 and $13,543 29,262 12,312
Deferred financing costs, less accumulated
amortization of $242 and $22,572 3,983 12,630
Reorganization value in excess of amount allocable
to identifiable assets, less accumulated
amortization of $1,757 at April 30, 1995 97,573 --
Excess of cost over net assets acquired, less
accumulated amortization of $16,288 at
July 31, 1994 -- 96,758
Other assets 2,923 3,867
--------- ---------
Total assets $374,865 $389,893
========= =========
See accompanying notes to condensed financial statements.
F-3<PAGE>
KASH N' KARRY FOOD STORES, INC.
BALANCE SHEETS
(Dollar Amounts in Thousands, Except Per Share Amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Reorganized Predecessor
Company Company
-----------------------
April 30, July 31,
1995 1994
-----------------------
(Unaudited)
(Note 1)
Current liabilities:
Current portion of long-term debt $ 5,583 $ 42,740
Accounts payable 40,900 34,908
Accrued payroll and benefits 9,308 5,579
Accrued interest 6,889 15,849
Taxes, other than income 4,578 6,056
Other accrued expenses 21,751 11,450
--------- ---------
Total current liabilities 89,009 116,582
Long-term debt, less current obligations 220,091 317,381
Other long-term liabilities 15,742 12,334
Old Series B Cumulative Preferred Stock of $.01 par
value and a stated value of $100 a share.
Authorized 50,000 shares; 38,750 shares
outstanding at July 31, 1994. -- 3,875
Old Series C Convertible Preferred Stock of
$.01 par value. Authorized 100,000 shares;
77,500 shares outstanding at July 31, 1994. -- 775
Stockholders' equity (deficit):
New Common Stock of $.01 par value.
Authorized 5,500,000 shares; 4,649,943
shares outstanding at April 30, 1995. 31 --
Old Common Stock of $.01 par value.
Authorized 4,000,000 shares; 2,819,589
shares outstanding at July 31, 1994. -- 28
Capital in excess of par value 46,464 77,695
Retained earnings (deficit) 3,528 (138,740)
Less cost of treasury stock - 2,437 shares
at July 31, 1994 -- (37)
--------- ---------
Total stockholders' equity (deficit) 50,023 (61,054)
--------- ---------
Total liabilities & stockholders' equity $374,865 $389,893
========= =========
See accompanying notes to condensed financial statements.
F-4<PAGE>
KASH N' KARRY FOOD STORES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)
Reorganized Predecessor
Company Company
----------- --------------
Thirteen Thirteen
Weeks Ended Weeks Ended
April 30, May 1,
1995 1994
----------- -----------
Sales $269,927 $279,806
Cost of sales 211,722 221,608
--------- -----------
Gross profit 58,205 58,198
Selling, general and
administrative expenses 38,896 43,719
Depreciation and amortization 6,457 6,055
--------- -----------
Operating income 12,852 8,424
Interest expense 6,942 11,244
--------- -----------
Income (loss) before income taxes 5,910 (2,820)
Provision for income taxes 3,189 --
--------- ----------
Net income (loss) $ 2,721 $ (2,820)
========= ==========
Net income per common share -
primary (A)(B) $ 0.59
Net income per common share -
fully-diluted (B)(C) $ 0.56
=========
(A) Based on a weighted average number of shares of common stock of
4,649,943 outstanding.
(B) Net income per common share is not meaningful prior to January 1, 1995
due to the significant change in the capital structure in connection
with the Restructuring.
(C) Based on a weighted average number of shares of common stock of
4,829,799 outstanding.
See accompanying notes to condensed financial statements.
F-5<PAGE>
KASH N' KARRY FOOD STORES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)
Reorganized Predecessor
Company Company
----------- --------------------------
Seventeen Twenty-Two Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended
April 30, January 1, May 1,
1995 1995 1994
----------- ----------- -----------
Sales $356,281 $426,681 $814,607
Cost of sales 280,662 340,802 647,524
--------- ----------- ----------
Gross profit 75,619 85,879 167,083
Selling, general and
administrative expenses 51,122 68,819 133,846
Depreciation and amortization 8,436 10,234 18,166
Store closing and other costs -- -- 11,016
--------- --------- ----------
Operating income 16,061 6,826 4,055
Interest expense 9,344 13,719 33,757
--------- --------- ----------
Income (loss) before reorganization
items, income taxes, extra-
ordinary item and change in
accounting principle 6,717 (6,893) (29,702)
Reorganization items -- (219) --
--------- --------- ----------
Income (loss) before income taxes,
extraordinary item and change
in accounting principle 6,717 (7,112) (29,702)
Provision for income taxes 3,189 -- --
--------- --------- ----------
Income (loss) before extra-
ordinary item and change
in accounting principle 3,528 (7,112) (29,702)
Extraordinary item - gain on
debt discharge -- 70,166 --
Cumulative effect of change in
accounting principle -
postretirement medical benefits -- (2,000) --
--------- --------- ----------
Net income (loss) $ 3,528 $ 61,054 $ (29,702)
========= ========= ==========
Net income per common share (A)(B) $ 0.76
=========
(A) Based on a weighted average number of shares of common stock of
4,649,943 outstanding.
(B) Net income per common share is not meaningful prior to January 1, 1995
due to the significant change in the capital structure in connection
with the Restructuring.
See accompanying notes to condensed financial statements.
F-6<PAGE>
KASH N' KARRY FOOD STORES, INC.
STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Reorganized Predecessor
Company Company
-----------------------------------
Seventeen Twenty-Two Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended
April 30, January 1, May 1,
1995 1995 1994
----------- ----------------------
Net cash flow from operating activities:
Net income (loss) $ 3,528 $61,054 $(29,702)
Adjustments to reconcile net income
(loss) to net cash provided
by operating activities:
Depreciation and amortization,
excluding deferred financing costs 8,436 10,234 18,166
Store closing and other costs -- -- 11,016
Amortization of deferred financing costs 494 1,152 2,190
Provision for income taxes 3,189 -- --
Reorganization items -- 219 --
Change in accounting principle -- 2,000 --
Gain on discharge of debt -- (70,166) --
(Increase) decrease in assets:
Accounts receivable (983) 2,322 3,591
Inventories 3,908 (5,917) 11,366
Prepaid expenses and other assets (403) (194) (418)
Increase (decrease) in liabilities:
Accounts payable 4,192 1,800 (1,515)
Accrued expenses and other
liabilities 3,309 9,083 (8,841)
--------- -------- ---------
Net cash provided by
operating activities 25,670 11,587 5,853
---------- -------- ---------
Cash used by investing activities:
Additions to property and equipment (1,509) (665) (8,322)
Leased/financed asset additions -- -- (4,519)
Proceeds from sale of property and
equipment -- -- 429
---------- -------- ---------
Net cash used by investing
activities (1,509) (665) (12,412)
---------- -------- ---------
See accompanying notes to condensed financial statements.
F-7<PAGE>
KASH N' KARRY FOOD STORES, INC.
STATEMENTS OF CASH FLOWS
(Continued)
(In Thousands)
(Unaudited)
Reorganized Predecessor
Company Company
-----------------------------------
Seventeen Twenty-Two Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended
April 30, January 1, May 1,
1995 1995 1994
----------- ----------------------
Cash provided (used) by financing activities:
Borrowings under revolving loan facility $ 4,200 $ 15,800 $ 15,700
Borrowings under term loan facility -- 35,000 --
Additions to obligations under
capital leases and notes payable -- -- 7,146
Repayments on revolving loan facility (11,168) (43,700) (2,900)
Repayments on term loan facility (8,750) (17,228) (2,925)
Repayments of other long-term liabilities (1,937) (7,363) (6,076)
Sale of Common Stock -- 10,000 --
Other financing activities (251) (9,294) (980)
--------- --------- ----------
Net cash provided (used) by
financing activities (17,906) (16,785) 9,965
--------- --------- ----------
Net increase (decrease) in cash
and cash equivalents 6,255 (5,863) 3,406
Cash and cash equivalents at beginning
of period 989 6,852 2,145
--------- --------- ----------
Cash and cash equivalents at end of period $ 7,244 $ 989 $ 5,551
========= ========= ==========
See accompanying notes to condensed financial statements.
F-8<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands)
(Unaudited)
1. On September 3, 1994, the Company began to solicit acceptances of all
impaired parties of a restructuring of the Company which would be implemented
through the consummation of a "prepackaged" plan of reorganization under
Chapter 11 of the United States Bankruptcy Code (the "Restructuring"). As a
result of this solicitation, the voting requirements prescribed by Section
1126 of the Bankruptcy Code were satisfied, and on November 9, 1994 (the
"Petition Date") the Company filed with the Bankruptcy Court a voluntary
petition for reorganization under Chapter 11 of the Bankruptcy Code. On
December 12, 1994, the Bankruptcy Court confirmed the plan of reorganization,
and the Company emerged from bankruptcy on December 29, 1994 (the "Effective
Date"). During the pendency of the bankruptcy case, the Company, with the
Bankruptcy Court's approval, operated its business in the ordinary course,
and paid all pre-petition and post-petition claims of the Company's general
unsecured creditors, trade creditors and employees in full. In connection
with the Restructuring:
(i) Each $1,000 principal amount of the Company's Old Senior Floating
Rate Notes was exchanged for (a) new Senior Floating Rate Notes due February
1, 2003 (the "New Senior Floating Rate Notes") in an original principal
amount equal to $1,000 plus 100% of the accrued interest under the Old Senior
Floating Rate Notes from and including February 3, 1994, through but not
including the Petition Date, or, at such holder's election, (b) new 11.5%
Senior Fixed Rate Notes due February 1, 2003 (the "New Senior Fixed Rate
Notes") in the same original principal amount, or, at such holder's election,
(c) an amount of New Senior Floating Rate Notes and an amount of New Senior
Fixed Rate Notes equal, in the aggregate, to 100% of such claim;
(ii) Each $1,000 principal amount of the Company's Old Senior Fixed
Rate Notes was exchanged for (a) New Senior Floating Rate Notes in an
original principal amount equal to $1,000 plus 100% of the accrued interest
under the Old Senior Fixed Rate Notes from and including February 2, 1994,
through but not including the Petition Date, or, at such holder's election,
(b) New Senior Fixed Rate Notes in the same original principal amount, or, at
such holder's election, (c) an amount of New Senior Floating Rate Notes and
an amount of New Senior Fixed Rate Notes equal, in the aggregate, to 100% of
such claim;
(iii) the Old Subordinated Debentures were exchanged for newly-issued
common stock of the Company representing 85 percent of the common stock
outstanding on the Effective Date;
(iv) Green Equity Investors, L.P. invested $10,000 cash in exchange for
newly-issued common stock of the Company representing 15 percent of the
common stock outstanding on the Effective Date;
(v) the Company entered into a new credit agreement with The CIT
Group/Business Credit, Inc. as Administrative Agent, and the lenders under
its old bank credit agreement; and
F-9<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands)
(Unaudited)
(vi) all of the existing preferred stock, common stock, and options and
warrants to purchase common stock of the Company was extinguished.
2. The condensed financial statements presented herein have been prepared
in accordance with the instructions to Form 10-Q and do not include all of
the information and note disclosures required by generally accepted
accounting principles. These statements should be read in conjunction with
the fiscal 1994 Form 10-K filed by the Company. The accompanying condensed
financial statements have not been audited by independent accountants in
accordance with generally accepted auditing standards, but in the opinion of
management the condensed financial statements for the period ended May 1,
1994 includes all adjustments, consisting only of normal recurring
adjustments, necessary to summarize fairly the Company's financial position
and results of operations.
The condensed financial statements as of and for the period ended
April 30, 1995 reflect the Company's emergence from Chapter 11 and were
prepared according to the principles of fresh start reporting contained in
American Institute of Certified Public Accountants' Statement of Position
90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" ("SOP 90-7"). Operations during the period from the Effective Date
through January 1, 1995 had no significant impact on the emergence
transactions and as a result have not been separately identified. As a
result of the implementation of fresh start accounting, the Company's
condensed financial statements as of and for the period ended April 30, 1995
are not comparable to the Company's condensed financial statements of prior
periods. Results for the periods ended April 30, 1995 or January 1, 1995 are
not necessarily indicative of the results for the full year.
The total reorganization value assigned to the Company's assets was
estimated based on a ten-year projection of cash flow before debt service
requirements discounted back to present value using a discount rate of 13.3%
(representing the estimated weighted cost of capital), as well as by
analyzing market cash flow multiples and applying a cash flow multiple of six
to the Company's adjusted 12-month trailing cash flows. After extensive
negotiations between independent investment banking firms representing the
Company and an ad hoc committee of bondholders, the reorganization value was
agreed to by the parties and confirmed by the Bankruptcy Court. The excess
of the reorganization value over the value of the identifiable assets is
reported as "Reorganization Value in Excess of Amounts Allocable to
Identifiable Assets" and is being amortized over twenty years. Under the
principles of fresh start accounting, the Company's total assets were
recorded at this assumed reorganization value, with the reorganization value
allocated to identifiable tangible and intangible assets on the basis of
their estimated fair value. In addition, the Company's accumulated deficit
was eliminated.
The effect of the Restructuring and the implementation of fresh start
accounting on the Company's condensed balance sheet as of January 1, 1995 was
as follows:
F-10<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands)
(Unaudited)
Fresh
Start
Pre-Fresh Balance
Start Balance Adjustments Sheet
Sheet January of Fair Value January
1, 1995 Restructuring Adjustment 1, 1995
(A) (B)
------------- ------------- ---------- --------
Cash and cash equivalents $ 9,166 $ (8,177) $ -- $ 989
Accounts receivable 5,762 -- -- 5,762
Inventories 82,011 -- 5,104 87,115
Prepaid expenses and other
current assets 3,088 -- -- 3,088
--------- --------- --------- --------
Total current assets 100,027 (8,177) 5,104 96,954
Property and equipment, net 162,754 -- (17,775) 144,979
Favorable lease interests, net 11,673 -- 18,280 29,953
Deferred financing costs 17,769 (7,456) (6,088) 4,225
Reorganization value in
excess of amounts alloc-
able to identifiable
assets -- -- 102,519 102,519
Excess of cost over net
assets acquired 95,560 -- (95,560) --
Other assets 4,360 -- (1,498) 2,862
--------- --------- --------- --------
Total assets $392,143 $(15,633) $ 4,982 $381,492
========= ========== ========= ========
Current liabilities, excluding
current portion of long-
term debt $ 82,983 $(12,617) $ 6,779 $ 77,145
Long-term debt, including
current obligations 366,231 (119,486) (3,959) 242,786
Other long-term liabilities 6,226 -- 8,840 15,066
Redeemable preferred stock 4,650 (4,650) -- --
Common stock 28 3 -- 31
Treasury stock (37) 37 -- --
Capital in excess of par value 77,695 (31,231) -- 46,464
Accumulated deficit (145,633) 152,311 (6,678) --
--------- --------- --------- --------
Total liabilities
and stockholders'
equity $392,143 $(15,633) $ 4,982 $381,492
========= ========== ========= ========
(A) To record the transactions applicable to the Restructuring as outlined
in footnote 1 and eliminate the deficit in accumulated deficit.
(B) To record the adjustments to state assets and liabilities at fair value,
and to record the cumulative effect of $2,000 of adopting SFAS No. 106 as of
the Effective Date in accordance with SOP 90-7.
F-11<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands)
(Unaudited)
3. Inventories consist of merchandise held for resale and are stated at the
lower of cost or market; cost is determined using average cost, which
approximates the first-in, first-out (FIFO) method.
4. The Company had a policy of classifying capital expenditures to be
refinanced within one year as prepaid expenses and other current assets.
These amounts have been classified as property and equipment at April 30,
1995. At July 31, 1994, prepaid expenses and other current assets included
$9,987 of expenditures for construction in progress expected to be financed
within one year.
5. Long-term debt consists of the following:
April 30, July 31,
1995 1994
----------- --------
New term loan and revolving
credit facilities (A) $ 33,782 $ --
Old bank term and revolving
credit facilities (A) -- 59,629
New Senior Floating
Rate Notes (B) 22,953 --
New Senior Fixed Rate
Notes (C) 121,162 --
Old Senior Floating
Rate Notes (B) -- 85,000
Old Senior Fixed
Rate Notes (C) -- 50,000
Subordinated Debentures -- 105,000
Mortgages payable 32,397 34,368
Capital lease obligations and other 15,380 26,124
--------- ---------
Long-term debt including
current portion 225,674 360,121
Less current portion (5,583) (42,740)
--------- ---------
Long-term debt $220,091 $317,381
========= =========
(A) In connection with the Restructuring, the Company entered into a new
term loan and revolving credit agreement (the "New Credit Agreement") on
December 29, 1994. At April 30, 1995, the Company's New Credit Agreement
provides for borrowings of up to $26,250 under a term loan facility (with
quarterly principal repayments of $1,750 and a $14,000 repayment due when the
facility terminates on December 29, 1997) and a $50,000 revolving credit
facility with a $25,000 sublimit for letters of credit. At April 30, 1995,
the Company had $7,532 in borrowings under the working capital line, and had
$12,558 of letters of credit issued against the revolving credit facility.
F-12<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands)
(Unaudited)
Amounts outstanding under the term facility bear interest (11.5% at April 30,
1995) equal to the prime rate (as defined) plus 250 basis points. Amounts
outstanding under the revolving credit facility bear interest (10.0% at April
30, 1995) equal to the prime rate plus 100 basis points.
(B) The New Senior Floating Rate Notes mature on February 1, 2003, and bear
interest (7.31% at April 30, 1995) payable August 1, 1995, and semiannually
thereafter, at a rate equal to six-month LIBOR (as defined in the New Senior
Floating Rate Note Indenture) plus 200 basis points. The New Senior Floating
Rate Notes are redeemable in whole or in part, at the option of the Company,
on not less than 30 nor more than 60 days' prior notice in amounts of $1,000
or an integral multiple thereof, at 100% of the principal amount and unpaid
interest, if any, to the redemption date. Through August 1, 1995, all
interest on the New Senior Floating Rate Notes may, at the option of the
Company, be paid by issuing in lieu of cash additional New Senior Floating
Rate Notes in an aggregate principal amount equal to the amount of interest
due. The Old Senior Floating Rate Notes bore interest (5.88% at July 31,
1994) payable semiannually, at a rate equal to six-month LIBOR plus 250 basis
points.
(C) The New Senior Fixed Rate Notes mature on February 1, 2003, and bear
interest at 11.5% per annum, payable semiannually. The New Senior Fixed Rate
Notes are redeemable in whole or in part, at the option of the Company, on
not less than 30 nor more than 60 days' prior notice in amounts of $1,000 or
an integral multiple thereof, at 100% of the principal amount and unpaid
interest, if any, to the redemption date. Through February 1, 1996, all
interest on the New Senior Fixed Rate Notes may, at the option of the
Company, be paid by issuing in lieu of cash additional New Senior Fixed Rate
Notes in an aggregate principal amount equal to the amount of interest due.
The Old Senior Fixed Rate Notes bore interest, payable semiannually, at an
annual rate of 12.375%.
(D) The Company has prepaid the term loan through May 1, 1996. Therefore,
there is no current portion of the term loan.
6. Reorganization items included in the condensed statements of operations
consist of the following items:
Adjustments to fair
value $ 5,551
Gain on extinguishment
of preferred stock 4,650
Provision for store
closing costs (2,500)
Provision for severance
benefits (3,220)
Provision for other
restructuring activities (3,180)
Professional fees (1,520)
--------
$ (219)
F-13<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands)
(Unaudited)
7. The Company has a retiree medical plan under which medical coverage is
available to current retirees and those active employees who, on August 1,
1993, had attained age 65 with at least 15 years of service. In accordance
with SOP 90-7, which the Company adopted on the Effective Date of the
Restructuring, the provisions of Financial Accounting Standards Board
Statement 106 "Employers' Accounting for Postretirement Benefits Other Than
Pensions" were also adopted as of that date. The following table sets forth
the projected actuarial present value of unfunded postretirement benefit
obligations for the plan at April 30, 1995:
Accumulated postretirement
benefit obligation:
Retirees $1,908
Fully eligible active
plan participants 85
-------
Accrued postretirement
benefit obligation $1,993
=======
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0%.
8. The difference between the provision for income taxes as reported and
the amount calculated by applying the statutory federal and state rates to
net income before taxes primarily relates to the tax effect of the
amortization of Reorganization Value in Excess of Amounts Allocable to
Identifiable Assets.
9. Certain items in the condensed statement of cash flows for the
twenty-two weeks ended January 1, 1995 have been reclassified.
10. During the first quarter of fiscal 1994, the Company recorded a
non-recurring charge of $11,016 which reflects expenses associated with a
program of closing twelve underperforming stores and expensing costs
associated with unsuccessful financing activities.
11. On June 14, 1995, the Company declared a 3-for-2 stock split, effected
in the form of a 50% stock dividend payable on July 17, 1995 to the holders
of record on June 26, 1995. Amounts in the condensed financial statements
reflect this transaction.
F-14<PAGE>
Independent Auditors' Report
The Board of Directors
Kash n' Karry Food Stores, Inc.:
We have audited the accompanying balance sheets of Kash n' Karry
Food Stores, Inc. as of July 31, 1994 and August 1, 1993, and the
related statements of operations, stockholders' deficit, and cash
flows for the fifty-two weeks ended July 31, 1994 and August 1,
1993, and fifty-three weeks ended August 2, 1992. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Kash n'
Karry Food Stores, Inc. at July 31, 1994 and August 1, 1993, and
the results of its operations and its cash flows for the fifty-two
weeks ended July 31, 1994 and August 1, 1993, and fifty-three weeks
ended August 2, 1992, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming
that Kash n' Karry Food Stores, Inc. will continue as a going
concern. However, Kash n' Karry Food Stores, Inc. has suffered
recurring losses from operations and has a net capital deficiency.
As discussed in Note 1 to the financial statements, Kash n' Karry
Food Stores, Inc. filed a pre-packaged petition under Chapter 11 of
the United States Bankruptcy Code on November 9, 1994 and these
matters raise substantial doubt about its ability to continue as a
going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
- -----------------------------------
Tampa, Florida
September 16, 1994, except with respect to
Notes 1 and 5, which are as of November 9, 1994
F-15<PAGE>
KASH N' KARRY FOOD STORES, INC.
BALANCE SHEETS
(Dollar Amounts in Thousands, Except Per Share Amounts)
ASSETS
July 31, August 1,
1994 1993
-------- ---------
Current assets:
Cash and cash equivalents $ 6,852 $ 2,145
Accounts receivable 8,084 10,888
Inventories 76,094 95,385
Prepaid expenses and other current assets 12,805 13,151
-------- --------
Total current assets 103,835 121,569
Property and equipment, at cost, net 160,491 164,937
Favorable lease interests, less accumulated
amortization of $13,543 and $7,506 12,312 18,349
Deferred financing costs, less accumulated
amortization of $22,572 and $19,622 12,630 15,153
Excess of cost over net assets acquired, less
accumulated amortization of $16,288 and $13,457 96,758 99,589
Other assets 3,867 3,611
-------- --------
Total assets $389,893 $423,208
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 42,740 $ 22,628
Accounts payable 34,908 42,561
Accrued expenses 38,934 37,243
-------- --------
Total current liabilities 116,582 102,432
Long-term debt, less current portion 317,381 329,262
Other long-term liabilities 12,334 10,023
Series B Cumulative Preferred Stock of $.01
par value and a stated value of $100 a share.
Authorized 50,000 shares; 38,750 shares
outstanding. 3,875 3,875
Series C Convertible Preferred Stock of $.01
par value. Authorized 100,000 shares; 77,500
shares outstanding. 775 775
Stockholders' deficit:
Common Stock of $.01 par value. Authorized
4,000,000 and 3,200,000 shares; 2,819,589
shares outstanding. 28 28
Capital in excess of par value 77,695 77,695
Accumulated deficit (138,740) (100,845)
Less cost of Treasury Stock - 2,437 shares (37) (37)
-------- --------
Total stockholders' deficit (61,054) (23,159)
-------- --------
Total liabilities and stockholders' deficit $389,893 $423,208
======== ========
See accompanying notes to financial statements.
F-16<PAGE>
KASH N' KARRY FOOD STORES, INC.
STATEMENTS OF OPERATIONS
(In Thousands)
Fifty-two Fifty-two Fifty-three
Weeks Ended Weeks Ended Weeks Ended
July 31, 1994 August 1, 1993 August 2, 1992
------------- -------------- --------------
Sales $1,065,165 $1,086,125 $1,071,038
Cost of sales 845,597 856,156 848,441
---------- ---------- ----------
Gross profit 219,568 229,969 222,597
Selling, general and administrative
expenses 176,945 175,177 164,897
Depreciation and amortization 24,112 23,455 20,132
Store closing and other costs 11,016 -- --
---------- ---------- ----------
Operating income 7,495 31,337 37,568
Interest expense (net of interest
income of $4, $1 and $25) 45,390 43,257 44,869
---------- ---------- ----------
Net loss (37,895) (11,920) (7,301)
Undeclared dividends on
Preferred Stock 464 464 474
---------- ---------- ----------
Loss attributable to
Common Stock $ (38,359) $ (12,384) $ (7,775)
========== ========== ==========
See accompanying notes to financial statements.
F-17<PAGE>
KASH N' KARRY FOOD STORES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
Fiscal Years Ended July 31, 1994,
August 1, 1993 and August 2, 1992
(Dollar Amounts In Thousands)
Capital
in Excess
Common of Par Accumulated Treasury
Stock Value Deficit Stock Total
------ --------- ----------- -------- ---------
Balance at July 28, 1991 $ 9 $ 8,994 $(81,624) $ (19) $(72,640)
Purchase of 250 shares
for Treasury -- -- -- (3) (3)
Reclassification of Series
A Preferred Stock to -- 40,000 -- (11) 39,989
Common Stock
Conversion of 11,250 shares
of Series B Preferred
Stock and 22,500 shares
of Series C Preferred
Stock to 22,500 shares
of Common Stock -- 1,350 -- -- 1,350
Sale of 1,859,531 shares
of Common Stock for cash 19 27,347 -- -- 27,366
Loss for period -- -- (7,301) -- (7,301)
---- ------- --------- ----- --------
Balance at August 2, 1992 $ 28 $77,691 $(88,925) $ (33) $(11,239)
Purchase of 2,713 shares
for Treasury -- -- -- (40) (40)
Sale of 2,436 shares
of Treasury Stock -- 4 -- 36 40
Loss for period -- -- (11,920) -- (11,920)
---- ------- --------- ----- --------
Balance at August 1, 1993 $ 28 $77,695 $(100,845) $ (37) $(23,159)
Loss for period -- -- (37,895) -- $(37,895)
---- ------- --------- ----- --------
Balance at July 31, 1994 $ 28 $77,695 $(138,740) $ (37) $(61,054)
==== ======= ========= ===== ========
See accompanying notes to financial statements.
F-18<PAGE>
KASH N' KARRY FOOD STORES, INC.
STATEMENTS OF CASH FLOWS
(In Thousands)
Fifty-two Fifty-two Fifty-three
Weeks Ended Weeks Ended Weeks Ended
July 31, 1994 August 1,1993 August 2, 1992
------------- ------------- --------------
Net cash flows from
operating activities:
Net loss $ (37,895) $ (11,920) $ (7,301)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation and amortization,
excluding deferred
financing costs 24,112 23,455 20,132
Store closing and other costs 11,016 -- --
Amortization of deferred
financing costs 2,950 2,850 2,932
Senior Subordinated Extendible
Reset Notes ("Reset Notes")
issued in lieu of cash interest -- -- 2,222
(Increase) decrease in assets:
Accounts receivable 2,804 (3,778) (2,090)
Inventories 19,291 (4,159) 1,225
Prepaid expenses and
other assets (278) (5,426) (842)
Increase (decrease) in liabilities:
Accounts payable (7,653) 3,722 3,283
Accrued expenses and
other liabilities (1,565) (3,684) 822
--------- --------- --------
Net cash provided by
operating activities 12,782 1,060 20,383
--------- --------- --------
Cash provided (used) by investing
activities:
Additions to property and equipment (10,942) (13,103) (11,660)
Leased asset additions (4,529) (24,600) (3,725)
Sale of property and equipment 504 91 570
--------- --------- --------
Net cash used by investing
activities (14,967) (37,612) (14,815)
--------- --------- --------
See accompanying notes to financial statements.
F-19<PAGE>
KASH N' KARRY FOOD STORES, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
(In Thousands)
Fifty-two Fifty-two Fifty-three
Weeks Ended Weeks Ended Weeks Ended
July 31, 1994 August 1,1993 August 2, 1992
------------- ------------- --------------
Cash provided (used) by financing
activities:
Borrowings under term and
revolving loan facilities 17,700 38,100 16,000
Additions to obligations under
capital leases and notes payable 5,230 14,867 3,725
Sale of Senior Notes -- -- 49,750
Sale of Common Stock (net of
Treasury Stock transactions
and transaction costs) -- -- 27,362
Repurchase of Reset Notes -- -- (32,426)
Repayments of term and revolving
loan facilities (5,488) (12,881) (62,497)
Repayments of other long-term
liabilities (9,212) (4,415) (3,632)
Financing costs (1,338) (1,453) (3,160)
--------- --------- ---------
Net cash provided (used)
by financing activities 6,892 34,218 (4,878)
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 4,707 (2,334) 690
Cash and cash equivalents at
beginning of year 2,145 4,479 3,789
--------- --------- ---------
Cash and cash equivalents at
the end of year $ 6,852 $ 2,145 $ 4,479
========= ========= =========
See accompanying notes to financial statements.
F-20<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Amounts)
(1) Subsequent Event.
On September 3, 1994, the Company began to solicit acceptances of all
impaired parties of a restructuring of the Company which would be implemented
through the consummation of a "prepackaged" plan of reorganization under
Chapter 11 of the United States Bankruptcy Code (the "Plan"). As a result of
such solicitation, the voting requirements prescribed by Section 1126 of the
Bankruptcy Code were satisfied, and the Company filed with the Bankruptcy
Court a voluntary petition for reorganization under Chapter 11 of the
Bankruptcy Code, and is seeking, as promptly as is practicable, confirmation
by the Bankruptcy Court of the Plan. During the pendency of the bankruptcy
case, the Company intends to operate its business in the ordinary course, and
to pay all pre-petition claims of the Company's secured lenders, general
unsecured creditors, trade creditors and employees in full. The Plan also
provides that:
(i) Each $1,000 principal amount of the Company's Old Senior Floating
Rate Notes would be exchanged for (a) new Senior Floating Rate Notes due
February 1, 2003 (the "New Senior Floating Rate Notes") in an original
principal amount equal to $1,000 plus 100% of the accrued interest under the
Old Senior Floating Rate Notes from and including February 3, 1994, through
but not including the petition date, or, at such holder's election, (b) new
11.5% Senior Fixed Rate Notes due February 1, 2003 (the "New Senior Fixed
Rate Notes") in the same original principal amount, or, at such holder's
election, (c) an amount of New Senior Floating Rate Notes and an amount of
New Senior Fixed Rate Notes equal, in the aggregate, to 100% of such claim.
(ii) Each $1,000 principal amount of the Company's Old Senior Fixed
Rate Notes would be exchanged for (a) New Senior Floating Rate Notes in an
original principal amount equal to $1,000 plus 100% of the accrued interest
under the Old Senior Fixed Rate Notes from and including February 2, 1994,
through but not including the petition date, or, at such holder's election,
(b) New Senior Fixed Rate Notes in the same original principal amount, or, at
such holder's election, (c) an amount of New Senior Floating Rate Notes and
an amount of New Senior Fixed Rate Notes equal, in the aggregate, to 100% of
such claim.
(iii) the Old Subordinated Debentures would be exchanged for
newly-issued common stock of the Company representing 85 percent of the
common stock to be outstanding on the effective date of the Plan (the
"Effective Date");
(iv) Green Equity Investors, L.P., would invest $10 million cash in
exchange for newly-issued common stock of the Company representing 15 percent
of the common stock to be outstanding on the Effective Date; and
(v) all of the existing preferred stock, common stock, and options and
warrants to purchase common stock of the Company would be extinguished.
See also Footnote 5 - "Long-Term Debt," Footnote 6 - "Redeemable Preferred
Stock," Footnote 7 - "Common Stock," Footnote 8 - "Stock Option Plans," and
Footnote 10 - "Income Taxes."
F-21<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Amounts)
(2) Summary of Significant Accounting Policies
Fiscal Year End. The Company follows a 52/53 week fiscal year ending on
the Sunday nearest July 31. The fiscal year ended August 2, 1992 included 53
weeks of operations.
Inventories. Inventories consist of merchandise held for resale and are
stated at the lower of cost or market; cost is determined using average cost,
which approximates the first-in, first-out (FIFO) method.
Prepaid Expenses and Other Current Assets. Prepaid expenses and other
current assets include expenditures for construction in progress expected to
be financed ($9,987 at July 31, 1994 and $9,246 at August 1, 1993) and
prepaid expenses to be recognized over the next twelve months.
Depreciation, Amortization, and Maintenance and Repairs. Depreciation
is provided principally using the composite method based on the estimated
useful lives of the respective asset groups. Amortization of leasehold
improvements is based on the estimated useful lives or the remaining lease
terms, whichever is shorter. Property under capital leases consists of
buildings and fixtures and equipment. Interest costs of property under
development are capitalized during the development period. Capitalized
amounts were $477, $804, and $355 for the fiscal years ended July 31, 1994,
August 1, 1993, and August 2, 1992, respectively. The approximate annual
rates used to compute depreciation and amortization are:
Rate
----
Buildings and improvements 5%
Fixtures and equipment 10%
Transportation equipment 25%
Leasehold improvements 8%
Maintenance and repairs are charged to expense as incurred. The Company
capitalizes expenditures for renewals and betterments.
Favorable Lease Interests. Favorable lease interests represent the
present value of the excess of current market rental rates over rents that
existed under the Company's operating leases of store locations as of October
12, 1988. Such costs are amortized on the straight-line method over the
average life of the favorable leases, which was approximately 20 years.
Deferred Financing Costs. Deferred financing costs represent fees and
expenses related to various financing activities and are amortized on a
straight-line basis over the life of the related debt and classified as
interest expense.
Excess of Cost Over Net Assets Acquired. Excess of cost over net assets
acquired represents the excess of amounts paid over the fair value of net
assets acquired, and is being amortized over forty years. As discussed in
Footnote 1, the Company filed a voluntary petition for reorganization under
Chapter 11 of the Bankruptcy Code. Management of the Company believes that,
F-22<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Amounts)
based on the proposed restructuring, the excess of cost over net assets
acquired has not been permanently impaired, and that an appropriate valuation
of such amounts is reflected in the accompanying financial statements as of
July 31, 1994 and August 1, 1993.
Costs of Opening and Closing Stores. Preopening costs of new stores are
charged to expense in the year the store opens. These costs are primarily
labor to stock the store, preopening advertising, store supplies and other
expendable items. When operations are discontinued and a store is closed,
the remaining investment, net of realizable value, is charged against
earnings, and, for leased stores, a provision is made for the remaining lease
liability, net of expected sublease income.
Store Closing and Other Costs. During the first quarter of fiscal 1994
the Company recorded a non-recurring charge of $11,016. This charge included
$1,900 of costs associated with unsuccessful financing activities, $4,159 of
favorable lease interests written off in connection with the closing of
twelve underperforming stores, $4,000 representing an adjustment to the
expected lease liability on closed stores, net of sublease income, and $957
of other store closing and related expenses.
Income Taxes. The Company is in a loss position for income tax
purposes, and, consequently, no income taxes have been provided. The
Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS
109") as of August 2, 1993. No cumulative effect of this change in
accounting was required as of August 2, 1993 and prior years' financial
statements have not been restated to apply the provisions of SFAS 109. The
effect on prior years' financial statements of retroactively implementing
SFAS 109 would be immaterial.
Interest Rate Hedge Agreements. The Company enters into interest rate
hedging agreements which involve the exchange of fixed and floating rate
interest payments periodically over the life of such agreements without the
exchange of the underlying principal amounts. The differential to be paid or
received is accrued as interest rates change and is recognized over the life
of the agreements as an adjustment to interest expense.
Cash and Cash Equivalents. The Company considers all highly liquid
investment instruments with a maturity of three months or less when purchased
to be cash equivalents. There were no cash equivalents at July 31, 1994 or
August 1, 1993.
Cash interest paid (excluding financing costs) was $41,545, $41,675, and
$39,202, for the fiscal years ended July 31, 1994, August 1, 1993, and August
2, 1992, respectively.
F-23<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Amounts)
(3) Property and Equipment
Property and equipment is summarized as follows: July 31, August 1,
1994 1993
-------- ---------
Land $ 19,543 $ 18,713
Buildings and improvements 63,517 56,421
Fixtures and equipment 100,717 104,686
Transportation equipment 2,593 2,595
Leasehold improvements 28,402 25,957
Construction in progress 4,115 4,275
-------- --------
218,887 212,647
Less accumulated depreciation (70,196) (61,831)
-------- --------
148,691 150,816
Property under capital leases
(less accumulated amortization
of $11,154 and $8,032) 11,800 14,121
-------- --------
$160,491 $164,937
======== ========
(4) Accrued Expenses
Accrued expenses consist of the following: July 31, August 1,
1994 1993
-------- ---------
Accrued payroll and benefits $ 5,579 $ 4,492
Accrued interest 15,849 15,080
Taxes, other than income 6,056 5,708
Accrued insurance reserves 4,886 5,684
Other accrued expenses 6,564 6,279
-------- --------
$ 38,934 $ 37,243
======== ========
F-24<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Amounts)
(5) Long-Term Debt
Long-term debt consists of the following: July 31, August 1,
1994 1993
-------- ---------
Bank term and revolving loan facilities (a) $ 59,629 $ 47,417
Senior Floating Rate Notes (b) 85,000 85,000
Senior Fixed Rate Notes (c) 50,000 50,000
Subordinated Debentures (d) 105,000 105,000
Mortgages payable, bearing interest at rates
from 7.50% to 10.35%, in equal monthly
installments of $355, with maturities
from 1999 through 2003 (e) 34,368 34,772
Capital lease obligations 13,877 16,999
Other 12,247 12,702
-------- --------
Long-term debt including current portion 360,121 351,890
Less current portion (f) (42,740) (22,628)
-------- --------
Long-term debt $317,381 $329,262
======== ========
(a) At July 31, 1994, the Bank Credit Agreement (as amended and
restated) provides for borrowings of up to $17,229 under a term loan facility
(with principal repayments varying from $1,463 to $4,409 per quarter until
the Bank Credit Agreement terminates in April 1996), and a revolving credit
facility with individual sublimits of $30,000 for working capital, $25,000
for letters of credit, and $13,700 for capital improvement loans, with a
maximum of $60,000 outstanding under the revolving credit facility at any
time. At July 31, 1994, the Company had $28,700 in borrowings under the
working capital line, $13,700 in borrowings under the capital improvement
line, and had $16,358 of letters of credit issued against the revolving
credit facility. On August 1, 1994, the outstanding balance of capital
improvement loans converted into a term loan amortizing to maturity in April
1996 (with principal repayments varying from $1,713 to $2,283 per quarter)
and the maximum borrowings under the revolving credit facility was reduced to
$50,000.
Amounts outstanding under the Bank Credit Agreement bear interest
(8.36% at July 31, 1994) equal to the bank's prime rate plus 1.0%. Prior to
December 15, 1993, amounts outstanding under the Bank Credit Agreement bore
interest (6.27% at August 1, 1993) equal to, at the Company's option, (1) the
bank's prime rate plus 1.0%, (2) the certificate of deposit rate plus 2.25%
or (3) the Eurodollar rate plus 2.0%.
(b) The Senior Floating Rate Notes mature on August 2, 1996, and bear
interest (5.88% at July 31, 1994 and August 1, 1993) payable semiannually, at
a rate equal to six-month LIBOR (as defined in the Senior Floating Rate Note
Indenture) plus 250 basis points. The Senior Floating Rate Notes are
redeemable in whole or in part (subject to a minimum redemption of $9,000),
at the option of the Company, on any interest payment date at a redemption
price equal to 101% of the principal amount with accrued interest to the
redemption date.
F-25<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Amounts)
(c) The Senior Fixed Rate Notes mature on February 1, 1999, and bear
interest at 12.375% per annum, payable semiannually. The Senior Fixed Rate
Notes will be subject to redemption, otherwise than through operation of the
sinking fund, at any time on and after February 1, 1996 or from time to time
thereafter, at the option of the Company, as a whole or in part, on not less
than 30 nor more than 60 days notice, at the following redemption prices
(expressed as percentages of the principal amount), if redeemed during the
12-month period beginning February 1, of the years indicated:
Redemption
Year Price
---- ----------
1996 104.125%
1997 102.000%
1998 100.000%
and thereafter at 100% of the principal amount, together in the case of any
such redemption with accrued interest to the redemption date. The Senior
Fixed Rate Notes are subject to redemption on February 1, 1998 through the
operation of a sinking fund, at a redemption price equal to the principal
amount and accrued interest at the redemption date. The sinking fund
provides for the redemption in such year of $25,000 aggregate principal
amount of the Senior Fixed Rate Notes, calculated to retire 50% of the notes
prior to maturity. Senior Fixed Rate Notes acquired or redeemed by the
Company (other than through the operation of the sinking fund) may be
credited against sinking fund requirements. The Senior Fixed Rate Notes are
also subject to mandatory redemption upon a change in control of the Company
(as defined in the Senior Fixed Rate Note Indenture).
(d) The Subordinated Debentures will mature on February 1, 2001, and
bear interest, payable semiannually, at the rate of 14% per annum. The
Subordinated Debentures are redeemable, in whole or in part, at the option of
the Company, at any time and from time to time on and after February 1, 1994
at the following redemption prices together with accrued interest to the date
of redemption:
Year Redemption Price
---- ----------------
1994 106.22%
1995 104.67%
1996 103.11%
1997 101.56%
1998 100.00%
Mandatory sinking fund payments on the Subordinated Debentures, commencing
February 1, 1999, are calculated to retire 50% of the original principal
amount prior to maturity.
(e) In September 1989, the Company completed a $17,000 mortgage
financing of its warehouse, distribution, and office facility; in November
1989, seven fee-owned store properties were mortgaged for $13,200; and in
January 1990, an additional fee-owned store property was mortgaged for
$2,000. The net proceeds of these transactions were used to reduce existing
bank debt. Final payments of $12,529 and $13,895 are due October 1999 and
November 1999, respectively, on these mortgages.
F-26<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Amounts)
(f) Approximate principal payments for the next five fiscal years are:
Senior Capital
Year Ending Term Loans Notes Mortgages Leases Other Total*
- ----------- ---------- ------- --------- ------- ------ -------
1995 $11,504 $ -- $ 1,260 $4,114 $2,162 $19,040
1996 19,425 -- 960 4,357 949 25,691
1997 -- 85,000 1,057 2,694 752 89,503
1998 -- 25,000 1,163 734 640 27,537
1999 -- 25,000 1,282 370 540 27,192
* Does not include $28,700 outstanding under the working capital line at
July 31, 1994. The revolving credit facility under the Bank Credit Agreement
requires the Company to pay down its outstanding working capital borrowings
for a 30 day period in each fiscal year to an average daily balance not to
exceed $5,000 with all such borrowings required to be repaid prior to
termination of the Bank Credit Agreement in April 1996. Therefore, the
Company classifies any outstanding balance in excess of $5,000 as current
portion of long-term debt. In August 1994, the outstanding balance of
capital improvement loans of $13,700 converted into a term loan amortizing to
maturity in April 1996, and these amounts are included as term loans in the
table above.
The Bank Credit Agreement, which is secured by a pledge of substantially
all assets of the Company, requires the Company to maintain a minimum net
worth and to satisfy certain other financial ratios, and provides for certain
restrictions on nonstock distributions and certain other restrictions. The
Senior Floating Rate Notes, the Senior Fixed Rate Notes, the Subordinated
Debentures, and certain other of the Company's indebtedness also contain
compliance covenants that are less restrictive than the covenants under the
Bank Credit Agreement. Due to the non-recurring charges incurred during the
first quarter as well as its operating performance, the Company breached
several financial covenants under its Bank Credit Agreement for each of the
reporting periods during the fiscal year ended July 31, 1994. The Company
has received all necessary waivers from the banks through the petition date
discussed in Note 1. Additionally, the Company has not paid $2,511, $3,094,
and $7,350 in interest due on the Senior Floating Rate Notes, the Senior
Fixed Rate Notes, and the Subordinated Debentures, respectively. These
amounts have been accrued on the accompanying financial statements, and as
provided in the plan of reorganization discussed in Footnote 1, all interest
on the Senior Floating Rate Notes and the Senior Fixed Rate Notes which is
accrued and unpaid as of the date the Company filed its voluntary petition
with the Bankruptcy Court shall be capitalized into New Senior Floating Rate
Notes or New Senior Fixed Rate Notes and all interest which is accrued and
unpaid on the Subordinated Debentures will be converted into equity. Given
the automatic stay provisions of the Chapter 11 filing discussed in Note 1
the creditors discussed above are not able to declare these obligations in
default and currently due. Therefore, certain portions of these obligations
have been classified as long-term debt in the July 31, 1994 balance sheet.
F-27<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Amounts)
The Company has entered into a series of interest rate hedging
transactions to reduce its exposure to fluctuations in short-term interest
rates on the majority of its floating rate indebtedness. Financial
Accounting Standards Board Statement of Financial Accounting Standards No.
107 (SFAS 107), "Disclosures about Fair Value of Financial Instruments",
requires disclosure of estimated fair values of financial instruments,
whether recognized or not in the balance sheets, for which it is practical to
estimate such value. In calculating the fair value of each material class of
financial instrument, the value is estimated by the Company to be the current
carrying value adjusted to estimate the cost to liquidate the financial
instruments. The Company does not intend to dispose of a significant portion
of its financial instruments and thus any aggregate unrealized gains and
losses should not be interpreted as a forecast of future earnings or cash
flows. The Company estimates the cost to liquidate its interest rate hedging
agreements to be approximately $2,600 at July 31, 1994. Carrying value is
considered a reasonable estimate of the fair value of the remainder of the
Company's financial instruments. Fair value estimates do not include the
value of nonfinancial instruments, such as fixed assets, the value of
customer relationships and various other factors. As a result, these fair
values are not comprehensive and, therefore, do not reflect the underlying
value of the Company.
(6) Redeemable Preferred Stock
The Series B Preferred Stock shareholders are entitled to receive, when,
as, and if declared by the Board of Directors of the Company, cash dividends
at the rate of 12% per annum on the face amount per share, and such dividends
shall be cumulative and shall accrue whether or not earned or declared from
the date of issue or from the most recent preceding dividend payment date
through which dividends have been paid, as the case may be. Cumulative
undeclared dividends are $2,562 from October 12, 1988 through July 31, 1994.
Shares of Series B Preferred Stock are not entitled to any voting rights with
respect to matters voted on by stockholders of the Company, except as
otherwise required by Delaware law.
The Series C Preferred Stock ranks junior to all classes and series of
stock of the Company other than Common Stock. The holders of Common Stock
and Series C Preferred Stock are entitled to share equally in such dividends
(other than dividends in Common Stock) as may be declared by the Board of
Directors and paid by the Company out of funds legally available therefor.
Upon the voluntary or involuntary liquidation, dissolution or winding up of
the Company, the holders of shares of Series C Preferred Stock shall be
entitled, before any payment is made in respect of the Common Stock, to be
paid a liquidation preference in cash equal to $4.00 per share. After
payment of the liquidation preference to the holders of the Series C
Preferred Stock, the holders of shares of Common Stock then outstanding shall
be entitled to be paid an amount in cash equal to $4.00 per share, following
which each outstanding share of Series C Preferred Stock and Common Stock
shall share in the distribution of the remaining assets of the Company, each
share of Series C Preferred Stock being entitled to the amount it would have
received had it been converted to Common Stock immediately prior to such
distribution. Except
F-28<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Amounts)
as otherwise provided by Delaware law, holders of Series C Preferred Stock
have no right to vote for the election of directors or on any other matters
that may be submitted to a vote of the Company's stockholders except in the
case of a proposal to merge or consolidate the Company with or into another
entity, to sell, lease or exchange all or substantially all of the assets of
the Company as an entirety, to dissolve or liquidate the Company or to adopt
a plan to do any of the foregoing. In any such event, holders of shares of
Series C Preferred Stock shall be entitled to one vote per share and shall
vote together as a class with the Common Stock and not as a separate class.
The payment of cash dividends by the Company is prohibited by the terms
of the Bank Credit Agreement and restricted by the Indentures relating to the
Company's Senior Floating Rate Notes, Senior Fixed Rate Notes and
Subordinated Debentures.
The Company has certain mandatory redemption requirements applicable to
the Series B Preferred Stock, and certain repurchase obligations on the
Series B Preferred Stock and Series C Preferred Stock, provided that such
redemption or repurchase does not, among other things, violate any terms of
an existing or future financing agreement. The Company's current Bank Credit
Agreement and its current Indentures prohibit or significantly restrict the
redemption or repurchase by the Company of any shares of its capital stock.
However, due to these redemption requirements, preferred stock has been
excluded from the stockholders' deficit section of the accompanying balance
sheets. If or when such redemption or repurchase is allowed to occur, the
Company, at its option, may consummate the transaction in the form of cash or
by issuing subordinated notes.
(7) Common Stock
In November 1991, Green Equity Investors, L.P. ("GEI"), an investment
fund managed by Leonard Green & Partners, L.P. ("LGP"), purchased 1,716,967
newly issued shares of the Company's Common Stock, or approximately 55.4% on
a fully-diluted basis, for $27,700 in cash and The Fulcrum III Limited
Partnership and The Second Fulcrum III Limited Partnership (collectively, the
"Fulcrum Partnerships"), investment funds managed by Gibbons, Goodwin, van
Amerongen ("GGvA"), collectively purchased 142,564 newly issued shares of the
Company's Common Stock, or approximately 4.5% on a fully-diluted basis, for
$2,300 in cash. Contemporaneously, a majority of the holders of the
Company's Series A Preferred Stock voted to amend the Company's Certificate
of Incorporation to reclassify each share of Series A Preferred Stock and all
cumulative and unpaid dividends thereon into one-tenth (1/10) of a share of
Common Stock. As a result of the reclassification, all shares of Series A
Preferred Stock, together with all cumulative and unpaid dividends thereon,
were converted into an aggregate of 40,000 shares of Common Stock,
representing 1.3% of the Common Stock, on a fully-diluted basis. In
addition, the Fulcrum Partnerships exchanged shares of the Company's Series
B Preferred Stock, and all cumulative and unpaid dividends thereon, and
Series C Preferred Stock for Common Stock. As a result, cumulative
undeclared dividends as of the date of these transactions were reduced from
$16,648 to $1,304.
F-29 <PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Amounts)
In February 1994, GEI loaned the Company $2,000 in cash in exchange for
warrants to purchase 63,235 shares of Common Stock. At the time of this
transaction, the warrant was deemed to have nominal value, and therefore no
adjustment was made to equity in the accompanying financial statements.
(8) Stock Option Plans
Certain key employees, including all executive officers, are eligible to
receive nonqualified stock options to purchase Common Stock under the
Restated 1988 Management Stock Option Plan (the "1988 Option Plan") and/or
the 1991 Management Stock Option Plan (the "1991 Option Plan" and, together
with the 1988 Option Plan, the "Option Plans"). Options granted under the
1988 Option Plan have an exercise price of the greater of 85% of fair market
value at the date of grant or $10 per share and options granted under the
1991 Option Plan have an exercise price of (a) $16.13 per share for options
granted within 30 days of the approval of the 1991 Option Plan by the
stockholders of the Company and (b) thereafter at 100% of the fair market
value at the date of grant. The 1988 Option Plan terminates at the end of
the Company's 1995 fiscal year and the 1991 Option Plan terminates on
November 26, 2001. A three-person committee of the Board of Directors (the
"Option Committee"), which includes one officer of the Company, administers
both Option Plans. The Option Committee designates the class of employees
eligible to participate in the Option Plans and, during each fiscal year of
the Option Plans, designates eligible employees who will be granted options
and the number of shares subject to such options. Members of the Option
Committee are eligible to receive options.
The Option Plans provide for tenure-vesting based upon a participant's
employment with the Company and, in addition, the 1988 Option Plan provides
for performance-vesting based on the Company meeting certain earnings
targets. Once exercised, the transfer of the shares subject to the options
will be restricted pursuant to the terms of a Restricted Stock Agreement to
be entered into among the Company and each holder.
A summary of changes in the Option Plans for the fiscal years ended July
31, 1994, August 1, 1993, and August 2, 1992, are presented below:
1988 Option Plan
Fiscal Year
-----------
1994 1993 1992
---- ---- ----
Stock options outstanding
at beginning of year 27,147 27,976 28,924
Granted -- -- --
Exercised -- -- --
Forfeited 1,136 829 948
F-30<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Amounts)
Outstanding at end
of year 26,011 27,147 27,976
Exercisable at end
of year 25,061 18,255 15,972
Average option price
per share $11.45 $11.54 $11.50
Reserved for future
grant -- -- --
1991 Option Plan
Fiscal Year
-----------
1994 1993 1992
---- ---- ----
Stock options outstanding
at beginning of year 118,597 110,722 --
Granted -- 8,875 110,722
Exercised -- -- --
Forfeited 1,000 1,000 --
Outstanding at
end of year 117,597 118,597 110,722
Exercisable at
end of year -- -- --
Average option price
per share $16.16 $16.16 $16.13
Reserved for future
grant 1,000 1,000 8,875
For the 1988 Option Plan, compensation expense is determined based on
the difference between the fair market value (as determined by the Option
Committee) and exercise price upon performance-vesting, such compensation
expense to be recognized over the tenure-vesting period on a pro rata basis.
For the 1991 Option Plan, options are granted at the fair market value
of Common Stock (as determined by the Option Committee) at the date of grant
and therefore no compensation expense will be recorded.
F-31<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Amounts)
(9) Leases
The Company leases certain stores, other facilities and equipment under
leases that are not cancelable. Such leases generally contain renewal
options exercisable at the Company's option. In addition to minimum rental
payments, certain leases provide for payments of taxes, maintenance and
percentage rentals based upon sales in excess of stipulated amounts. The
future minimum payments under leases that are not cancelable, as of July 31,
1994, are:
Operating Capital
Year Ending in leases leases
-------------- --------- --------
1995 $ 23,200 $ 5,430
1996 22,900 5,238
1997 21,800 3,163
1998 20,600 1,030
1999 20,400 965
Thereafter 212,400 2,329
-------- --------
Total minimum lease payments $321,300 18,155
========
Less portion representing interest (4,278)
Present value of net minimum lease payments at --------
July 31, 1994 $13,877
========
Total rent expense was $26,642, $25,475, and $24,059 for the fiscal
years ended July 31, 1994, August 1, 1993, and August 2, 1992, respectively.
Included in total rent expense are percentage rents totaling $241, $446, and
$534, for 1994, 1993, and 1992, respectively.
(10) Income Taxes
The Company has reported a pretax loss for all fiscal years since
October 12, 1988, and, consequently, no income tax expense has been reported.
Financial Accounting Standards Board Statement 109 (SFAS 109) was adopted by
the Company as of August 2, 1993. There was no cumulative effect of this
change in accounting for income taxes determined as of August 2, 1993. Prior
years' financial statements have not been restated to apply the provisions of
SFAS 109. The effect on prior years' financial statements of retroactively
implementing SFAS 109 would be immaterial.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of July
31, 1994 are presented as follows:
F-32<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Amounts)
Deferred tax assets:
Inventory, principally due to reserves and
additional costs inventoried for tax purposes
pursuant to the Tax Reform Act of 1986 $ 900
Insurance and other reserves 8,100
Net operating loss carryforward 35,000
General business credit carryforward 1,600
Charitable contributions carryforward 3,200
Other, net 1,800
--------
Total gross deferred tax assets 50,600
Less valuation allowance (50,600)
--------
Net deferred tax assets $ --
========
Upon adoption of SFAS 109, effective August 2, 1993, the Company
determined a valuation allowance requirement in the amount of $36,200. The
valuation allowance as of July 31, 1994 has been determined to be $50,600,
resulting in a change in the valuation allowance in the amount of $14,400.
The Company has net operating loss ("NOL") carryforwards for federal
income tax purposes of $93,000 which are available to offset future taxable
income, if any, through the year 2009. The Company has general business
credit carryforwards of $1,600 which are also available to reduce future
federal income taxes, if any, through the year 2009. The Company anticipates
that, in connection with the restructuring discussed in Footnote 1, it will
undergo an ownership change pursuant to Internal Revenue Code Section 382
that will result in an annual limitation on the amount of the NOL and general
business credit carryforwards that the Company may utilize to offset future
federal taxable income. In addition, should the Company fail to emerge from
bankruptcy by December 31, 1994, its NOL and general business credit
carryforwards will be eliminated to the extent of any income realized from
the cancellation of debt by the Company.
(11) Supplementary Statements of Operations Information
Supplementary Statements of Operations information is as follows:
Fifty-two Fifty-two Fifty-three
Weeks Ended Weeks Ended Weeks Ended
July 31, 1994 August 1, 1993 August 2, 1992
-------------- -------------- --------------
Amortization of:
Lease interests $ 6,037 $ 2,576 $ 1,293
Deferred financing costs 2,950 2,850 2,932
Goodwill 2,831 2,832 2,886
------- ------- -------
Total amortization of
intangible assets $11,818 $ 8,258 $ 7,111
======= ======= =======
Advertising costs $14,099 $13,530 $12,428
======= ======= =======
F-33<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Amounts)
(12) Employee Benefit Plans
Kash n' Karry Retirement Estates ("KKRE"), a trusteed defined
contribution retirement plan, was authorized by the Company's Board of
Directors in 1988. KKRE is a tax savings/profit sharing plan maintained
primarily for the purpose of providing retirement income for eligible
employees of the Company. KKRE is qualified under Section 401(a) and Section
401(k) of the Internal Revenue Code of 1986. Generally, all employees who
have attained the age of 21 years and complete one year of participation
service (as defined under KKRE) are eligible to participate in KKRE.
Participants may, subject to certain federal limitations, elect to defer an
amount not to exceed 15% of their base compensation and have such amount
contributed to KKRE. The Company may match all or a portion of the
participant's deferred compensation, but the amount of the matching
contribution may not exceed 3% of such participant's compensation.
Additional non-matching contributions may be made to KKRE by the Company in
such amount as determined by the Company's Board of Directors based on the
Company's operating performance. Funds that participants elect to defer are
invested, at the participant's option, into various investment accounts. The
vested percentage of the amounts allocated to a participant's account will be
payable to the participant upon such participant's death, disability,
retirement, or other separation of service from the Company. Plan expenses
were $573, $573, and $461, for the fiscal years ended July 31, 1994, August
1, 1993, and August 2, 1992, respectively.
Kash n' Karry Executive Supplemental Retirement Plan ("KESP"), a non-
qualified, unfunded salary deferral plan, was authorized by the Company's
Board of Directors in November 1989. Certain Key Employees (as defined under
KESP) of the Company as selected by its Board of Directors participate in
KESP. Currently, nineteen Key Employees participate in KESP. Prior to the
beginning of each plan year, a participant may elect to defer an amount not
to exceed 15% of such participant's annual base compensation (as defined
under KESP). The Company will match a certain portion of the amount deferred
by the participant, but the amount of the match may not exceed 6% of such
participant's annual base compensation. The Company will record income to
the participant's account at an annual rate (11% for the 1994, 1993 and 1992
plan years) as determined by the Company's Board of Directors, but the rate
of such income shall not be less than 8% per annum.
The vested percentage of the amounts recorded in the participant's
account will be paid to the participant upon the earlier of: (i) such
participant's death, disability, retirement, or other separation of service
from the Company; (ii) the date the plan is terminated; or (iii) the date
that a change in control occurs (as defined under KESP). Expense for this
plan was $135, $149, and $172, for the fiscal years ended July 31, 1994,
August 1, 1993, and August 2, 1992, respectively.
F-34<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Amounts)
(13) Commitments and Contingencies
The Company had letters of credit outstanding totaling $16,358 and
$19,118 at July 31, 1994 and August 1, 1993, respectively, which amounts have
been reflected as reductions of the available revolving loan facility as of
those dates. These letters of credit primarily guarantee various insurance
and financing activities.
(14) Related Party Transactions
Leonard Green & Partners ("LGP"), the sole general partner of Green
Equity Investors, L.P., which owns approximately 55.4% of the Company's
Common Stock on a fully-diluted basis, received a closing fee on November 26,
1991 as compensation in connection with its equity investment in the Company
and was also reimbursed for its out-of-pocket expenses. In addition, as
consideration for the provision of ongoing financial advisory services, the
Company agreed to pay LGP an annual fee plus related out-of-pocket expenses.
Three of the Company's Directors are general partners of LGP. The Company has
made $143, $598 and $489 in such payments for the fiscal years ended July 31,
1994, August 1, 1993 and August 2, 1992, respectively.
Gibbons, Goodwin, van Amerongen ("GGvA"), the sole general partner of
The Fulcrum III and The Second Fulcrum III Limited Partnerships, which
combined own approximately 30.7% of the Company's Common Stock on a
fully-diluted basis, received a closing fee on November 26, 1991 as
compensation in connection with its equity investment in the Company and was
also reimbursed for its out-of-pocket expenses. In addition, GGvA receives,
as consideration for the provision of ongoing financial advisory services, an
annual fee plus related out-of-pocket expenses. One of the Company's
Directors is a general partner of GGvA. The Company made total payments to
GGvA for on-going services of $42, $235, and $262, for the fiscal years ended
July 31, 1994, August 1, 1993, and August 2, 1992, respectively.
F-35<PAGE>
KASH N' KARRY FOOD STORES, INC.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements have been
prepared using the principles of "fresh-start" accounting pursuant to the
American Institute of Certified Public Accountants Statement of Position No.
90-7, entitled "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOS No. 90-7"). The unaudited pro forma statements of
operations of the Company for the fiscal year ended July 31, 1994 and for the
22-week period ended January 1, 1995, respectively, give effect to the
Restructuring as if it had occurred on August 2, 1993. The pro forma data
are not necessarily indicative of the financial position or results of
operations that would have been reported had the Restructuring occurred on
the dates referred to, nor are they necessarily indicative of the financial
position or results of operations to be expected in the future. Neither KPMG
Peat Marwick LLP, the Company's previous independent auditors, nor Coopers &
Lybrand, L.L.P., the Company's current independent auditors, have examined,
reviewed or compiled the pro forma information and, consequently, do not
express an opinion or any other form of assurance or other association with
respect thereto.
The pro forma data should be read together with the other information
contained herein under the headings "Selected Financial Data," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of the Company and the notes
thereto.
F-36<PAGE>
KASH N' KARRY FOOD STORES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
Fifty-Two Weeks Ended July 31, 1994
(In Thousands, Except Share and Per Share Amounts)
July 31, Pro Forma Pro Forma
1994 Adjustments Reorganized
---------- ----------- -----------
Sales $1,065,165 $ $1,065,165
Cost of sales 845,597 845,597
---------- --------- ----------
Gross profit 219,568 219,568
Selling, general and
administrative expenses 176,945 176,945
Depreciation and amortization 24,112 (2,832)(a) 26,406
5,126 (b)
Store closing and other costs 11,016 11,016
---------- --------- ----------
Operating income 7,495 5,201
Interest expense, net 45,390 (14,700)(c) 34,386
(11,289)(d)
16,000 (e)
(2,423)(f)
1,408 (g)
---------- --------- ----------
Loss before income taxes (37,895) (29,185)
Income taxes -- --
---------- --------- ----------
Net loss (37,895) (29,185)
Undeclared dividends on preferred stock (464) 464 (h) --
---------- ----------
Net loss attributable to common stock $ (38,359) $ (29,185)
========== ==========
Pro forma loss per common share $ (6.28)
==========
Weighted average common shares outstanding 4,649,943
==========
F-37<PAGE>
KASH N' KARRY FOOD STORES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
Twenty-Two Weeks Ended January 1, 1995
(In Thousands, Except Share and Per Share Amounts)
January 1 Pro Forma Pro Forma
1995 Adjustments Reorganized
---------- ----------- -----------
Sales $426,681 $ $426,681
Cost of sales 340,802 340,802
---------- --------- --------
Gross profit 85,879 85,879
Selling, general and
administrative expenses 68,819 68,819
Depreciation and amortization 10,234 (1,198)(a) 11,205
2,169 (b)
---------- --------- ----------
Operating income 6,826 5,855
Interest expense, net 13,719 (6,219)(c) 9,064
(4,776)(d)
6,769 (e)
(1,025)(f)
596 (g)
---------- --------- ----------
Loss before income taxes (6,893) (3,209)
Income taxes -- --
---------- ----------
Net loss (i) (6,893) (3,209)
========== ===========
Pro forma loss per common share $(0.69)
===========
Weighted average common shares
outstanding 4,649,943
===========
F-38<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(Dollar Amounts In Thousands)
The following notes set forth an explanation of the assumptions used in
preparing the unaudited pro forma Statement of Operations. The pro forma
adjustments are based on management's best estimates using information
currently available.
The pro forma Statement of Operations has been prepared based on the
post-restructuring capital structure of the Company, which was 4,649,943
shares of $.01 common stock with an approximate market value of $10 per
share. Market value is based on a multiple of projected operating cash flow
(which is the methodology most often used to value grocery businesses) less
the long-term debt of the Company, and was the approximate trading value of
the shares when they began trading publicly subsequent to December 29, 1994.
(a) To reflect the elimination of amortization on previously capitalized
excess of cost over fair value of net assets acquired.
(b) To reflect the amortization of reorganizational value in excess of
amounts allocated to net assets totaling $102,521 over 20 years.
(c) To reflect the elimination of interest expense occurred at 14% on the
$105,000 Old Subordinated Debentures.
(d) To reflect the elimination of interest expense on the Old Senior Fixed
Rate Notes and Old Senior Floating Rate Notes.
(e) To reflect interest expense on New Senior Fixed Rate Notes of $121,162
at 11.5% and on New Senior Floating Rate Notes of $22,953 at 9.0%.
(f) To reflect the elimination of amortization on deferred transaction costs
related to the Old Credit Agreement and the $105,000 Old Subordinated
Debentures and the Old Senior Floating Rate Notes and Old Senior Fixed
Rate Notes.
(g) To reflect the amortization of transaction costs related to the New Bank
Credit Agreement.
(h) To reflect the elimination of undeclared dividends on Old Equity
Interests.
(i) Does not include the effect of the non-recurring adjustments applicable
to fresh-start accounting in connection with the Restructuring, which
are indicated below:
Gain on debt discharge $ 70,166
Cumulative effect of change
in accounting principle ( 2,000)
Reorganization items ( 219)
F-39<PAGE>
No dealer, salesperson or any other
person has been authorized to give
any information or to make any
representations in connection with
this offering other than those
contained in this Prospectus, and,
if given or made, such information
or representations must not be
relied upon as having been so [Logo]
authorized. This Prospectus does
not constitute an offer to sell or
a solicitation of an offer to
buy by anyone in any jurisdiction
in which such offer or solicitation KASH N' KARRY
is not authorized or in which such FOOD STORES, INC.
person making such offer or solicitation
is not qualified to do so or to any
person to whom it is unlawful to
make such offer or solicitation.
Neither the delivery of this
Prospectus nor any sale hereunder
shall, under any circumstances,
create any implication that there
has been no change in the affairs
of the Company since the date
hereof or that the information
contained herein is correct as of
any time subsequent to its date.
Common Stock
TABLE OF CONTENTS
Page
Available Information. . . .
Prospectus Summary . . . . .
Risk Factors . . . . . . . .
The Company. . . . . . . . .
The Restructuring. . . . . .
Market Price and Dividend Policy
Capitalization . . . . . . .
Selected Financial Information
Management's Discussion and Analysis PROSPECTUS
of Financial Condition and
Results of Operations . . .
Business . . . . . . . . . .
Management . . . . . . . . .
Certain Relationships and
Related Transactions . . .
Principal Stockholders . . .
Description of Capital Stock
Selling Stockholders . . . .
Plan of Distribution . . . .
Legal Matters. . . . . . . .
Experts. . . . . . . . . . .
Index to Financial Statements F-1
________________, 1995
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the fees and expenses payable in
connection with the sale of the Common Stock being registered. The Company
will pay all such fees and expenses. All amounts are estimates except for
the registration fee.
SEC Registration Fee . . . . . . . . $ 34,072.84
Accounting fees and expenses . . . . 32,000.00
Legal fees and expenses . . . . . . 65,000.00
Printing fees and expenses . . . . . 650.00
------------
Total . . . . . . . . . . . $131,722,84
============
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law ("DGCL") permits a
Delaware corporation to indemnify any person who is or was a director,
officer, employee and agent of the corporation, or who is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against actual and reasonable expenses
(including attorneys' fees) incurred by such person in connection with any
action, suit or proceeding if (i) he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and (ii) in the case of a criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful. Except as ordered by
a court, no indemnification shall be made in connection with any proceeding
brought by or in the right of the Company where the person involved is
adjudged to be liable to the Company.
Article XV of the Bylaws of the Company provides for indemnification of
the officers and directors of the Company to the full extent permitted by
law, as now in effect or later amended.
The Company has entered into indemnity agreements with each of its
directors and executive officers. The indemnity agreements generally
indemnify such persons against liabilities arising out of their service in
their capacities as directors, officers, employees or agents of the Company.
The Company may from time to time enter into indemnity agreements with
additional individuals who become officers and/or directors of the Company.
Section 145 of the DGCL further authorizes a corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
II-1<PAGE>
the corporation as a director, officer, employee or agent of another
corporation or enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would otherwise have the power to indemnify
him under Section 145. The Company maintains policies insuring the Company's
directors and executive officers against certain liabilities for actions
taken in such capacities, including liabilities under the Securities Act.
Article Seventh of the Company's Restated Certificate of Incorporation
limits under certain circumstances the liability of the Company's directors
for a breach of their fiduciary duty as directors. These provisions do not
eliminate the liability of a director (i) for a breach of the director's duty
of loyalty to the Company or its shareholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL (relating to the declaration of
dividends and purchase or redemption of shares in violation of the DGCL), or
(iv) for any transaction from which the director derived an improper personal
benefit.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company as to which indemnification is being
sought nor is the Company aware of any threatened litigation that may result
in claims for indemnification by any officer, director or employee of the
Company.
Item 15. Recent Sales of Unregistered Securities
On November 9, 1994, the Company filed with the United States Bankruptcy
Court for the District of Delaware a "prepackaged" plan of reorganization
(the "Prepackaged Plan") pursuant to Chapter 11 of the U.S. Bankruptcy Code.
The Prepackaged Plan was confirmed by the Bankruptcy Court on December 12,
1994. Pursuant to the Prepackaged Plan, on December 29, 1994 the Company
issued 2,634,973 shares of Common Stock to the holders of its $105.0 million
14% Subordinated Debentures due February 1, 2001 (the "Old Subordinated
Debentures"), in exchange for the Old Subordinated Debentures, and issued
465,000 shares of its Common Stock to Green Equity Investors, L.P., its
former majority shareholder, in consideration for the sum of $10.0 million.
In addition, holders of the Company's $85.0 million Senior Floating Rate
Notes due August 2, 1996 and its $50.0 million 12 3/8% Senior Fixed Rate
Notes due February 1, 1999, exchanged such notes for $23.0 million aggregate
principal amount of new Senior Floating Rate Notes due February 1, 2003 and
$121.1 million aggregate principal amount of new 11.5% Senior Fixed Rate
Notes due February 1, 2003 (collectively, the "New Senior Notes").
The Common Stock and New Senior Notes issued pursuant to the Prepackaged
Plan were issued in reliance upon Section 1145(a) of the U.S. Bankruptcy Code
under an order confirming the Company's Prepackaged Plan. This section
provides an independent exemption from the registration requirement for the
offer and sale of securities of a debtor issued under a plan of
reorganization. The requirements for relying upon the exemption under
Section 1145(a) of the Bankruptcy Code -- i.e., (i) issuance of securities
under a plan of reorganization; (ii) issuance of securities by the debtor;
and (iii) issuance of securities in exchange or principally in exchange for
claims or interests -- have been satisfied and the Prepackaged Plan was
confirmed by the Bankruptcy Court.
II-2<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) The following exhibits are filed as part of this Registration
Statement:
Exhibit No. Description
2 First Amended Plan of Reorganization filed by the Company with the
United States Bankruptcy Court of the District of Delaware on
November 9, 1994, as amended by notices of technical modifications
thereto filed on November 9, 1994, and December 12, 1994
(previously filed as Exhibit 2 to the Company's Quarterly Report on
Form 10-Q for the period ended October 30, 1994, which exhibit is
hereby incorporated by reference).
3(i)(a) Restated Certificate of Incorporation filed with the Delaware
Secretary of State on December 29, 1994 (previously filed as
Exhibit 3(i) to the Company's Quarterly Report on Form 10-Q for the
period ended January 29, 1995, which exhibit is hereby incorporated
by reference).
3(i)(b) Certificate of Designations of Series A Junior Participating
Preferred Stock filed with the Secretary of State of the State of
Delaware on April 26, 1995 (previously filed as Exhibit 3(i)(b) to
the Company's Registration Statement on Form S-1, Registration No.
33-58999, which exhibit is hereby incorporated by reference).
3(ii)(a) Bylaws adopted October 12, 1988 (previously filed as Exhibit
3(ii)(a) to the Company's Quarterly Report on Form 10-Q for the
period ended January 29, 1995, which exhibit is hereby incorporated
by reference).
3(ii)(b) First Amendment to Bylaws adopted July 30, 1991 (previously filed
as Exhibit 3(ii)(b) to the Company's Quarterly Report on Form 10-Q
for the period ended January 29, 1995, which exhibit is hereby
incorporated by reference).
3(ii)(c) Second Amendment to Bylaws adopted December 29, 1994 (previously
filed as Exhibit 3(ii)(c) to the Company's Quarterly Report on Form
10-Q for the period ended January 29, 1995, which exhibit is hereby
incorporated by reference).
3(ii)(d) Third Amendment to Bylaws adopted April 13, 1995 (previously filed
as Exhibit 3(ii)(d) to the Company's Quarterly Report on Form 10-Q
for the period ended April 30, 1995, which exhibit is hereby
incorporated by reference).
4.1 Indenture dated as of December 29, 1994, between the Company and
Shawmut Bank Connecticut, N.A., as Trustee, relating to 11.5%
Senior Fixed Rate Notes due 2003 (previously filed as Exhibit 4.1
to the Company's Quarterly Report on Form 10-Q for the period ended
January 29, 1995, which exhibit is hereby incorporated by
reference).
4.2 Indenture dated as of December 29, 1994, between the Company and
IBJ Schroder Bank & Trust Company, as Trustee, relating to Senior
Floating Notes due 2003 (previously filed as Exhibit 4.2 to the
II-3<PAGE>
Company's Quarterly Report on Form 10-Q for the period ended
January 29, 1995, which exhibit is hereby incorporated by
reference).
4.3(a) Rights Agreement dated as of April 13, 1995 between the Company and
Shawmut Bank Connecticut, N.A., as Rights Agent (previously filed
as Exhibit 1 to the Company's Current Report on Form 8-K dated
April 13, 1995, which exhibit is hereby incorporated by reference).
4.3(b) First Amendment to Rights Agreement dated as of June 13, 1995
(previously filed as Exhibit 4.3(b) to the Company's Quarterly
Report on Form 10-Q for the period ended April 30, 1995, which
exhibit is hereby incorporated by reference).
4.4 Specimen form of Common Stock certificate (previously filed as
Exhibit 4.4 to the Company's Registration Statement on Form S-1,
Registration No. 33-58999, which exhibit is hereby incorporated
by reference).
5 Opinion of Milbank, Tweed, Hadley & McCloy re: legality (filed
herewith).
10.1 Credit Agreement dated as of December 29, 1994, among the Company,
certain lenders, The CIT Group/Business Credit, Inc., as
administrative agent, and Bank of America National Trust and
Savings Association, as co-agent (previously filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the period ended
January 29, 1995, which exhibit is hereby incorporated by
reference).
10.2 Mortgage, Fixture Filing, Security Agreement and Assignment of
Rents between the Company, as mortgagor, and Sun Life Insurance Co.
of America, as mortgagee, dated as of September 7, 1989 (previously
filed as Exhibit 28.1(a) to the Company's Quarterly Report on Form
10-Q for the period ended October 29, 1989, which exhibit is hereby
incorporated by reference).
10.3 Mortgage between the Company, as mortgagor, and Ausa Life Insurance
Company, as mortgagee, dated as of November 21, 1989 (previously
filed as Exhibit 28.2(a) to the Company's Quarterly Report on Form
10-Q for the period ended October 29, 1989, which exhibit is hereby
incorporated by reference).
10.4 Trademark License Agreement dated as of October 12, 1988 between
the Company and Lucky Stores, Inc. (previously filed as Exhibit
10.11 to the Company's Registration Statement on Form S-1,
Registration No. 33-25621, which exhibit is hereby incorporated by
reference).
10.5(a) Services Agreement dated as of March 1, 1995 between the Company
and GSI Outsourcing Corporation (previously filed as Exhibit
10.5(a) to the Company's Registration Statement on Form S-1,
Registration No. 33-58999, which exhibit is hereby incorporated
by reference).
II-4<PAGE>
10.5(b) First Amendment to Services Agreement between the Company and GSI
Outsourcing Corporation (previously filed as Exhibit 10.5(b) to the
Company's Registration Statement on Form S-1, Registration No. 33-
58999, which exhibit is hereby incorporated by reference).
10.6 Form of Indemnity Agreement between the Company and its directors
and certain of its officers (previously filed as Exhibit 10.3 to
the Company's Registration Statement on Form S-1, Registration No.
33-25621, which exhibit is hereby incorporated by reference).
10.7(a) 1995 Non-Employee Director Stock Option Plan adopted on March 9,
1995 (previously filed as Exhibit 10.7(a) to the Company's
Registration Statement on Form S-1, Registration No. 33-58999,
which exhibit is hereby incorporated by reference).
10.7(b) Form of Non-Qualified Stock Option Agreement entered into between
the Company and certain directors, as optionees, pursuant to the
1995 Non-Employee Director Stock Option Plan (previously filed as
Exhibit 10.7(b) to the Company's Registration Statement on Form S-
1, Registration No. 33-58999, which exhibit is hereby
incorporated by reference).
10.8 Non-Qualified Stock Option Agreement dated as of January 17, 1995,
between the Company and Green Equity Investors, L.P. (previously
filed as Exhibit 10.8 to the Company's Registration Statement on
Form S-1, Registration No. 33-58999, which exhibit is hereby
incorporated by reference).
10.9 Management Services Agreement dated as of December 29, 1994, by and
between the Company and Leonard Green & Partners (previously filed
as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
the period ended January 29, 1995, which exhibit is hereby
incorporated by reference).
10.10 Employment Agreement dated as of January 24, 1995, between the
Company and Ronald Johnson (previously filed as Exhibit 10.10 to
the Company's Registration Statement on Form S-1, Registration No.
33-58999, which exhibit is hereby incorporated by reference).
10.11 Employment Agreement dated as of March 6, 1995, between the Company
and Gary M. Shell (previously filed as Exhibit 10.11 to the
Company's Registration Statement on Form S-1, Registration No. 33-
58999, which exhibit is hereby incorporated by reference).
10.12 Employment Agreement dated as of March 16, 1995, between the
Company and Cliff Smith (previously filed as Exhibit 10.12 to the
Company's Registration Statement on Form S-1, Registration No. 33-
58999, which exhibit is hereby incorporated by reference).
10.13 Incentive Compensation Plan adopted on October 26, 1994 (previously
filed as Exhibit 10.13 to the Company's Registration Statement on
Form S-1, Registration No. 33-58999, which exhibit is hereby
incorporated by reference).
II-5<PAGE>
10.14 Amended and Restated Kash n' Karry Retirement Estates and Trust
(401(k) Plan) dated October 14, 1993, effective as of January 1,
1992 (previously filed as Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the period ended August 1, 1993, which
exhibit is hereby incorporated by reference).
10.15(a) Form of Deferred Compensation Agreement dated as of December 21,
1989 between the Company and key employees and a select group of
management (KESP) (previously filed as Exhibit 28.3(a) to the
Company's Quarterly Report on Form 10-Q for the period ended
January 28, 1990, which exhibit is hereby incorporated by
reference).
10.15(b) Master First Amendment to Deferred Compensation Agreements, dated
as of November 11, 1991 between the Company and the key employees
party thereto (previously filed as Exhibit 28.3 to the Company's
Quarterly Report on Form 10-Q for the period ended November 3,
1991, which exhibit is hereby incorporated by reference).
10.15(c) Master Second Amendment to Deferred Compensation Agreements, dated
as of December 30, 1993 between the Company and the key employees
party thereto (previously filed as Exhibit 10.13(d) to the
Company's Quarterly Report on Form 10-Q for the period ended
January 30, 1994, which exhibit is hereby incorporated by
reference).
10.15(d) Master Third Amendment to Deferred Compensation Agreements, dated
as of September 2, 1994, between the Company and the key employees
party thereto (previously filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended January 29,
1995, which exhibit is hereby incorporated by reference).
10.16(a) 1995 Key Employee Stock Option Plan (previously filed as Exhibit
10.16(a) to the Company's Registration Statement on Form S-1,
Registration No. 33-58999, which exhibit is hereby incorporated
by reference).
10.16(b) Non-Qualified Stock Option Agreement dated March 9, 1995 between
the Company and Ronald E. Johnson (previously filed as Exhibit
10.16(b) to the Company's Registration Statement on Form S-1,
Registration No. 33-58999, which exhibit is hereby incorporated
by reference).
10.16(c) Form of Non-Qualified Stock Option Agreement entered into between
the Company and certain key employees, as optionees, pursuant to
the 1995 Key Employee Stock Option Plan (previously filed as
Exhibit 10.16(c) to the Company's Registration Statement on Form S-
1, Registration No. 33-58999, which exhibit is hereby
incorporated by reference).
11 Statement re computation of per share earnings (previously filed
as Exhibit 11 to Amendment No. 1 to the Company's Registration
Statement on Form S-1, Registration No. 33-58999, which exhibit
is hereby incorporated by reference).
II-6<PAGE>
16 Letter re change in certifying accountant (previously filed as
Exhibit 16 to the Company's Current Report on Form 8-K dated
February 17, 1995, which exhibit is hereby incorporated by
reference).
23.1 Consent of Milbank, Tweed, Hadley & McCloy (included in
Exhibit 5).
23.2 Consent of KPMG Peat Marwick, LLP (filed herewith).
24 Power of Attorney (included in signature page to the Company's
Registration Statement on Form S-1, Registration No. 33-58999,
which exhibit is hereby incorporated by reference).
27 Financial Data Schedule (previously filed in electronic format
only as Exhibit 27 to Amendment No. 1 to the Company's Registration
Statement on Form S-1, Registration No. 33-58999, which exhibit
is hereby incorporated by reference).
II-7<PAGE>
Item 17. Undertakings
1. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to its Certificate of Incorporation,
Bylaws or otherwise, the registrant has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
2. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 2 to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Tampa, State of Florida, on August 22, 1995.
KASH N' KARRY FOOD STORES, INC.
By: /s/ Ronald E. Johnson
------------------------------------
Ronald E. Johnson
Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Capacity Date
/s/ Ronald E. Johnson
- ---------------------
Ronald E. Johnson Chairman of the Board, August 22, 1995
President and Chief Executive
Officer
(principal executive officer)
/s/ Raymond P. Springer
- -----------------------
Raymond P. Springer Senior Vice President, August 22, 1995
Chief Financial Officer
(principal financial officer)
/s/ Richard D. Coleman
- ----------------------
Richard D. Coleman Vice President, Controller August 22, 1995
(principal accounting officer)
*
- -----------------------
Everett L. Buckardt Director August 22, 1995
<PAGE>
- ------------------------
John G. Danhakl Director August 22, 1995
*
- ------------------------
John J. Delucca Director August 22, 1995
- ------------------------
Jennifer Holden Dunbar Director August 22, 1995
- ------------------------
Ben Evans Director August 22, 1995
*
- ------------------------
Thomas W. Harberts Director August 22, 1995
*
- ------------------------
Robert Spiegel Director August 22, 1995
*
- ------------------------
Peter Zurkow Director August 22, 1995
*By: /s/ Ronald E. Johnson
----------------------------
Ronald E. Johnson, pursuant
to Power of Attorney
The Board of Directors
Kash n' Karry Food Stores, Inc.:
We consent to the use of our report included herein and to the
reference to our firm under the heading "Experts" in the
prospectus.
Our report dated September 16, 1994, except with respect to Notes
1 and 5, which are as of November 9, 1994, contains an explanatory
paragraph that states that "the Company has suffered recurring
losses from operations and has a net capital deficiency. As
discussed in Note 1 to the financial statements, Kash n' Karry Food
Stores, Inc. filed a pre-packaged petition under Chapter 11 of the
United States Bankruptcy Code on November 9, 1994 and these matters
raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty."
/s/ KPMG Peat Marwick LLP
_ _ _ _ _ _ _ _ _ _ _ _ _
Tampa, Florida
August 22, 1995
August 21, 1995
Kash n' Karry Food Stores, Inc.
6422 Harney Road
Tampa, Florida 33610
Re: Registration Statement on Form S-1
of Kash n' Karry Food Stores, Inc.
(Registration No. 33-58999)
Ladies and Gentlemen:
We have acted as special counsel to Kash n' Karry Food
Stores, Inc., a Delaware corporation (the "Company"), in connection
with the preparation and filing with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as
amended, of a Registration Statement on Form S-1, No. 33-58999 (the
"Registration Statement"), providing for the registration on behalf
of certain selling securityholders of 4,649,943 shares of Common
Stock, par value $.01 per share (the "Common Stock") of the
Company.
In rendering the opinion expressed below, we have
examined (i) the Restated Certificate of Incorporation and ByLaws
of the Company as currently in effect; (ii) the Registration
Statement; (iii) certain resolutions adopted by the Board of
Directors of the Company; and (iv) such other documents, records
and papers as we have deemed necessary as a basis for the opinions
expressed below. We are familiar with the corporate proceedings
heretofore taken by the Company in connection with the
authorization, registration, issuance and sale of the Common Stock.
As to various questions of fact material to such opinion we have,
when relevant facts were not independently established, relied upon
certifications by officers of the Company and other appropriate
persons and statements contained in the Registration Statement.
Based on the foregoing, and having regard to legal
considerations we deem relevant, we are of the opinion that the
Common Stock has been legally issued and is fully paid and
nonassessable.
The foregoing opinion is limited to matters involving the
General Corporation Law of the State of Delaware, and we do not
express any opinion as to the laws of any other jurisdiction.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the references to this
firm under the caption "Legal Matters" in the Prospectus forming a
part of the Registration Statement, without admitting that we are
experts, within the meaning of the Act or the rules and regulations
of the Commission issued thereunder, with respect to any part of
the Registration Statement, including this exhibit.
Very truly yours,
/s/ Milbank, Tweed, Hadley & McCloy
RSR/LL
