SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended
January 2, 1999.
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-549
SCHULTZ SAV-O STORES, INC.
(Exact name of registrant
as specified in its charter)
Wisconsin 39-0600405
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2215 Union Avenue
Sheboygan, Wisconsin 53081
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (920) 457-4433
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, $0.05 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate market value of voting stock held by non-affiliates of the registrant
as of March 24, 1999: $97,181,105*.
Number of shares outstanding of the registrant's Common Stock as of March 24,
1999: 6,560,179.
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED HEREIN BY REFERENCE:
1998 Annual Report to Shareholders (incorporated by reference into Parts
II and IV to the extent indicated therein).
Definitive Proxy Statement for 1999 annual meeting of shareholders (to be
filed with the Commission under Regulation 14A within 120 days after the
end of the registrant's fiscal year and, upon such filing, to be
incorporated by reference into Part III to the extent indicated therein).
- - ---------------
* Only excludes shares benefically owned by directors and officers of the
registrant
<PAGE>
PART I
Special Note Regarding Forward-Looking Statements
We make certain "forward-looking statements" in this Form 10-K, such as
statements about our future plans, goals and other events that have not yet
occurred. We intend that these statements will qualify for the safe harbors from
liability provided by the Private Securities Litigation Reform Act of 1995. You
can generally identify these forward-looking statements because we use words
such as we "believe," "anticipate," "expect" or similar words when we make them.
Whether or not these forward-looking statements will be accurate in the future
will depend on certain risks, including risks associated with:
o the presence of intense competition in our marketplace;
o our ability to identify and develop new market locations for
expansion purposes;
o our ability to obtain reasonable vendor marketing funds for
promotional purposes;
o our information technology requirements;
o the continued absence of food price inflation;
o our ability to continue to recruit, train and retain quality
franchise and corporate retail store operators; and
o the potential recognition of repositioning charges resulting from
potential closures, conversions or consolidations of our
franchised and corporate stores, whether due to the competitive
nature of our industry, to the quality of our franchised and
corporate retail store operators or to other factors.
You should consider these risks and factors and the impact they may have when
you evaluate our forward-looking statements. We make these statements based only
on our knowledge and expectations on the date of this Form 10-K. We will not
necessarily update these statements or other information in this Form 10-K based
on future events or circumstances. Please read this entire Form 10-K to better
understand our business and the risks associated with our operations.
Item 1. Business.
General
Schultz Sav-O Stores, Inc. is engaged in distributing food and related
products at wholesale and retail. As of January 2, 1999, we franchised 68 and
owned 18 retail supermarkets under the Piggly Wiggly (R) name. While we have a
presence in some larger metropolitan areas, we have attempted to develop a niche
for serving the food shopping needs of customers in smaller and suburban
communities within our market areas.
We are the primary supplier to our 86 franchised and corporate-owned
Piggly Wiggly supermarkets. We also serve as a wholesaler to a number of
smaller, independently operated retail supermarkets and convenience stores in
our market areas.
We believe that we have established ourselves as a niche food marketer in
small to mid-size markets by delivering the product variety, quality of
perishable products, pricing and promotional programs traditionally found only
in large metropolitan markets. As a hybrid of retailer and wholesaler, we have
created a "virtual chain" of retail stores served by a vertically-integrated
wholesaler. In 1998, our virtual chain had approximately $730 million
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in retail sales. Virtually all Piggly Wiggly supermarkets, both franchised and
owned, participate in a single, coordinated merchandising and advertising
program which typically includes:
o a weekly newspaper ad insert;
o outdoor boards;
o television and radio spots;
o sponsorship of entertainment and charitable events; and
o our Piggly Wiggly Preferred Club (R) Card program.
We believe that this coordinated program allows us to leverage the
combined buying power of all our franchised and corporate stores and deliver a
powerful and effective promotional vehicle for our participating vendor
partners. Additionally, we believe that we provide our franchised stores with
cost-effective administrative support services and financial resources that
enable the operation of efficient, contemporary supermarkets, while the
independent retail ownership of our franchisees provides the entrepreneurial
spirit and community involvement that we believe is an integral part of
marketing in smaller markets. The successful combination of these elements
creates the partnership between us and our franchisee retailers that results in
a virtual chain of coordinated and integrated retail food distribution. By
operating as a virtual chain, we are able to achieve superior performance
compared to traditional wholesalers, yet avoid having to make large direct
capital investments at the retail level to grow our business. The franchisee
retailer, as part of the virtual chain, benefits from lower cost of products and
the coordinated promotional activity normally associated only with larger retail
grocery chains. We believe that this structure enables us to leverage the
favorable elements of both a wholesaler and a retailer, giving us and our
franchisees a unique advantage in our marketplace. We believe that this
advantage has been a key component in our success over the past few years as the
virtual chain concept has evolved.
We supply a variety of products to our franchised and corporate
supermarkets and other wholesale customers, primarily from our warehouse and
distribution center in Sheboygan, Wisconsin. We also provide our franchised and
corporate supermarkets and other customers with fresh, frozen and processed
meat, eggs and deli products from a third-party distribution facility in
Milwaukee, Wisconsin. Through arrangements with several vendors, we also offer a
line of carbonated soft drinks, fruit drinks and drinking and distilled water
under our Springtime (TM) label.
We are a Wisconsin corporation organized in 1912 and maintain our
corporate headquarters at 2215 Union Avenue, Sheboygan, Wisconsin 53081. You can
visit our internet website at http://www.shopthepig.com.
Wholesale Operations
For several years, we have emphasized our more profitable wholesale
distribution business and the associated refinement of our franchise store base
which, combined with our unique marketing and merchandising program, has created
an effective and efficient virtual chain.
We believe that one of the competitive advantages we provide to our
franchised supermarkets through our "virtual chain" strategy is our
value-oriented customer merchandising and community-specific marketing support
program, pursuant to which franchisees participate with corporate stores in
systemwide promotions and other merchandising events. Through a variety of
partnering, merchandising and marketing programs, we benefit our franchisees
through additional sales resulting from heightened consumer name recognition and
in-store merchandising programs, combined with special promotional pricing.
Additional services that we provide to our franchisees include:
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o retail accounting;
o preparation of store payrolls;
o preparation of print, electronic and outdoor media
advertising (including various point- of-sale materials);
o assistance in the selection and analysis of store
locations;
o financing and lease negotiations;
o store design and floor layout;
o merchandising planning;
o equipment selection and sourcing;
o engineering and architectural services;
o retail technology implementation and support;
o labor planning and scheduling; and
o product category supervision.
We provide some of these services as part of the franchise relationship, while
other services are provided under a separate fee arrangement intended to cover
our costs.
As part of implementing our corporate strategy to improve the
profitability of our corporate retail operations, we continue to seek
opportunities to expand and acquire corporate and franchise stores, to convert
or close underperforming stores and to enter new markets. In 1998, we opened one
new market franchise store, replaced one older franchise store, completed
expansions of two existing franchise stores and consolidated two franchise
stores serving the same market. In aggregate, the total number of franchise and
corporate stores remained at 86 at the end of 1998, but total store square
footage increased by approximately 65,000 square feet. In early 1999, we
completed the consolidation of two additional franchise stores and replaced
another franchise store. Renovations and expansions continue at six franchise
operations. These renovations involve four expansions of existing franchise
stores, one replacement franchise unit and development of one new market store.
These projects are expected to increase the square footage of selling space at
such stores by an average of approximately 40%.
The following table shows our development of, and changes in, our
franchised and corporate retail supermarkets for the periods presented:
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<TABLE>
<CAPTION>
Franchise Supermarkets Corporate Supermarkets
==================================== ======================================
Number of 1994 1995 1996 1997 1998 1994 1995 1996 1997 1998
Supermarkets ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
- - ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Year 64 65 66 68 68 21 20 19 16 18
New Market Supermarkets(a) -- 1 1 1 1 -- -- -- 1 --
Replacement Supermarkets(b) 1 3 2 1 1 -- -- -- -- 1
Converted to/from Franchise(c) 1 -- 1 (1) -- (1) -- (1) 1 --
Terminated Operations(d) (1) (3) (2) (2) (2) -- (1) (2) -- (1)
New Franchises(e) -- -- -- 1 -- -- -- -- -- --
End of Year 65 66 68 68 68 20 19 16 18 18
== == == == == == == == == ==
Remodeled Supermarkets(f) 5 6 1 3 2 -- -- -- -- --
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(a) New market supermarkets are newly constructed supermarkets in market
areas not recently served by us.
(b) Replacement supermarkets are newly constructed supermarkets whose
opening corresponds with the closure of a nearby franchised or
corporate supermarket.
(c) Supermarkets that are converted from corporate to franchise units, or
vice versa, are included as reductions to supermarket totals in one
category and corresponding additions to totals in the other category.
(d) Terminated operations represent supermarkets that are no longer going
concerns, including replaced supermarkets.
(e) New franchises are additions to our franchise group, other than through
conversion from corporate supermarkets.
(f) Remodeled supermarkets represent supermarkets that have undergone
substantial expansion and/or remodeling totaling at least $300,000.
</TABLE>
For 1998, we reported record net earnings, net earnings per share and net
earnings as a percentage of sales. The fourth quarter of 1998 was our 24th
consecutive quarter of earnings increases over the prior year. The increase in
earnings and profitability has been principally the result of expanded and
improved operations.
We are the primary supplier to all of our franchised and corporate
supermarkets. We also serve as a wholesaler to other smaller independent retail
stores in our market area, accounting for approximately 2% of our 1998 net
sales.
Franchisees pay us fees, determined by the retail sales of their
supermarkets. We do not charge an initial fee to franchisees for granting a
franchise. Consistent with industry practice, in certain situations, we provide
credit enhancements to certain qualified franchisees by (i) leasing the
franchisee's supermarket premises and, in turn, subleasing the premises to the
franchisee and/or (ii) guaranteeing a portion of the franchisee's bank
borrowings.
As a result of an amendment to our Piggly Wiggly Master Franchise
Agreement entered into in June 1998, we have expanded our franchise territory to
include additional counties in Wisconsin, Illinois and Michigan, as well as
portions of Iowa and Minnesota. We now have exclusive rights to grant Piggly
Wiggly franchises in:
o the entire state of Wisconsin;
o the upper peninsula of Michigan;
o designated counties in northern Illinois;
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o designated counties in southeastern Minnesota; and
o designated counties in eastern Iowa.
We believe that the increase in our franchise territory will provide additional
opportunities for us to pursue our plans to expand the areas that we serve as a
food wholesaler and retailer. Our franchise rights are of unlimited duration and
are not subject to any specific termination provision. We are not required to
pay franchise fees to the current franchisor in the market areas we were able to
serve prior to June 1998. In the new territories in Wisconsin, Minnesota,
Michigan, Iowa and Illinois, we are required to pay franchise fees. The only
other material obligation imposed on us in our expanded franchise territory is
that the supermarkets operated under the Piggly Wiggly and certain other names
must comply with the standards imposed on supermarkets in the Piggly Wiggly
system. We believe that our own franchised and corporate store standards exceed
the Piggly Wiggly system standards.
Retail Operations
Our franchised and corporate supermarkets stock a comprehensive selection
of groceries, frozen foods, prepared foods, fresh produce, meat, poultry, eggs
and dairy products. Our franchised and corporate supermarkets also allocate
display space to non-food items, such as health and beauty aids, housewares,
magazines and periodicals, video cassette rentals, flowers and plants, greeting
cards and general merchandise. Our franchised and corporate supermarkets carry a
broad range of branded merchandise and private-label product alternatives to
branded merchandise. In general, the private-label products carried by our
franchised and corporate supermarkets have lower selling prices, but higher
gross profit margins, than branded merchandise. Consistent with trends generally
within the industry, we continue to experience increases in retail customer
demand for private-label store brands and believe that our Topco-procured line
of branded private-label products is satisfying this consumer trend. See
"Purchasing and Distribution." Based on our internal wholesale price index,
inflation did not have a significant effect on sales between 1998 and 1997,
except with regard to tobacco products.
1998 was our first full year with the Piggly Wiggly Preferred Club (R)
Card, a customer-friendly, card-based marketing program. We designed the Piggly
Wiggly Preferred Club Card to reward current customers and attract new customers
by offering "clipless coupons" on weekly advertised specials and "automatic"
savings on monthly store specials. The card allows us to maintain a valuable,
integrated database that we use to identify our best customers and their
preferences so that the virtual chain of stores can better serve its customers.
We will never sell customer-specific information in our data base for use by
third parties. The card also doubles as a check-cashing and video rental
identification card. Additionally, the Piggly Wiggly Preferred Club Card program
affords the ability to issue point-of-sale coupons redeemable on future
purchases. We believe that the Piggly Wiggly Preferred Club Card and the
coordinated marketing and merchandising program it supports will be key
components to our future growth.
Our franchised supermarkets range in size from 8,340 square feet to
47,000 square feet, with an average of 24,720 square feet. Our corporate
supermarkets range in size from 19,980 square feet to 54,850 square feet, with
an average of 33,945 square feet. All of our franchised and corporate
supermarkets contain several perishable or specialty service departments,
including:
o fresh and processed meat;
o take-home entrees and snacks;
o fresh fruits and vegetables;
o fresh seafood;
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<PAGE>
o delicatessen;
o flowers and plants; and
o baked goods.
Several supermarkets also contain or provide one or more of the following:
o wine and spirit sales;
o video rentals;
o lottery sales;
o photo processing services;
o TicketMaster (R) ticket centers;
o in-house banking services;
o automated teller machines; and
o on-line debit and credit card check-out services.
During 1998, certain of our stores continued to fail to meet certain
financial performance goals. We closed one such store during 1998 as part of a
consolidation with another franchise supermarket. In order to further improve
our results of operations, we continue to evaluate various business alternatives
relating to our underperforming operations, including the sale or conversion of
these stores, closing stores and implementing other operational changes.
Purchasing and Distribution
We purchase groceries in sufficient volume to qualify for favorable price
brackets for most items. We purchase brand name grocery merchandise directly
from the manufacturers or processors and purchase produce, meat and seafood from
a variety of sources. We purchase substantially all of our private label items
and fresh meats through Topco Associates, Inc. Topco is a national purchasing
cooperative whose member-owners consist of 30 regional supermarket chains and
food services organizations who collectively operate approximately 2,200 stores.
According to Topco data, its member-owners accounted for approximately 14% of
United States grocery store sales volume in 1998. In 1998, purchases through
Topco accounted for approximately 15% of our total inventory purchases. We also
purchase store and warehouse equipment and supplies, primarily bags and
packaging material, through Topco. Topco's size and purchasing power enable it
to employ large-volume, low-cost purchasing techniques on behalf of its
member-owners.
We and our direct-contract, third-party distribution center supplied
approximately 79% of the products supplied to our stores in 1998. The remainder
were supplied by direct store delivery vendors. We own our 364,000 square-foot
distribution center in Sheboygan, Wisconsin. With the exception of fresh, frozen
and processed meat, eggs and deli products, we distribute all products that we
supply from our Sheboygan facility. While we perform the buying function, a
third-party contractor in Milwaukee, Wisconsin performs the distribution
services for our meat operations. We believe that this arrangement provides us
with operating cost efficiencies and the ability to expand our wholesale product
offerings and better satisfy wholesale customer delivery schedules through
improved capacity.
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<PAGE>
As described above under "Wholesale Operations," we believe that one of
our competitive advantages is the community-oriented marketing programs that we
provide to franchisees as part of our "virtual chain" strategy. Coordinated
weekly newspaper ad inserts, high-visibility outdoor billboard advertising and
television and radio advertising stress the value and customer service provided
by our local Piggly Wiggly supermarkets. We also sponsor local events and
festivals throughout the marketing area to improve our Piggly Wiggly name
recognition, such as the Midwest's largest fireworks display at Milwaukee's
Summerfest lakefront music festival.
We operate a leased, full-service trucking fleet, which consists of 22
tractors and 41 refrigerated trailers. We augment our transportation
requirements with temporary leasing arrangements as conditions warrant. PW
Trucking, Inc., our wholly-owned subsidiary, provides contract and common
carrier services throughout our operating territory. Revenues from unrelated
parties generated by this business were nominal in 1998 and are expected to be
nominal in 1999.
Competition
The wholesale and retail food industry is highly competitive. At the
wholesale level, we compete with regional and national wholesalers, such as
Fleming Companies, Inc., SuperValu Inc., Roundy's, Inc. and Nash Finch Co. Key
competitive factors include the provision of the following services to franchise
customers:
o credit support;
o advertising;
o accounting and financial services;
o merchandising;
o facilities engineering;
o design and project management; and
o retail technology support.
We believe that our distribution facilities and the wide range of support
and marketing services provided to our franchised and corporate retail
supermarkets allow us to provide prompt and efficient, low-priced, high-quality
products and important supplemental services to our franchised and corporate
supermarkets and other customers.
The degree of competition at the retail level varies with store location.
In most of our franchised and corporate supermarket locations, we compete
primarily with local retail operators, virtually all of whom are affiliated with
competing wholesalers through arrangements similar to those we have with our
franchisees. In some of our supermarket locations, however, we also compete with
national and regional retail chain stores, such as Sentry Food Stores, Pick `N
Save, SuperSaver, Cub Foods, Jewel Food Stores, Dominicks Finer Foods, Copp's
Supermarkets and Kohl's Food Stores. Other competitors include the general
merchandise, wholesale club and supercenter format stores of Wal-Mart Stores,
Inc., K-Mart Corp. and ShopKo Stores, Inc. and others. We believe that the
principal retail competitive factors include:
o price;
o product quality and variety;
o store location and appearance; and
o the quality of a store's perishable product and service
departments.
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<PAGE>
We believe our supermarkets' emphasis on low-cost, high-quality products,
community-based multi-media marketing and merchandising programs and a high
degree of in-store customer service and friendliness provide our franchised and
corporate supermarkets with a competitive advantage in many retail market areas.
Certain of our competitors at both the wholesale and retail level may
have a competitive advantage resulting from utilizing lower-cost, non-union
workforces. Certain of our competitors have greater financial resources and
marketing budgets than we do. Also, certain competitors using the general
merchandise, wholesale club format or supercenter format may choose to carry and
market a less extensive variety of products, which may allow them to sell such
items at a lower per unit cost than we do.
Employees
As of January 2, 1999, we employed approximately 1,700 persons, including
approximately 1,250 in the operation of our corporate retail supermarkets. A
majority of our corporate retail employees are employed on a part-time basis. Of
our remaining employees, approximately 210 are engaged in warehousing and
trucking activities and approximately 240 are corporate and administrative
personnel. Two collective bargaining agreements, covering a total of
approximately 115 employees expire in 1999. We do not currently anticipate any
strikes, work stoppages or slowdowns in connection with renewing such
agreements.
Item 1A. Executive Officers.
<TABLE>
<CAPTION>
Name and Age Positions and Offices with the Company
------------ --------------------------------------
<S> <C>
James H. Dickelman, 51................ Chairman of the Board, President and Chief Executive
Officer
Michael R. Houser, 47................. Executive Vice President - Marketing and Merchandising
John H. Dahly, 58..................... Executive Vice President, Chief Financial Officer and Secretary
William K. Jacobson, 48............... Senior Vice President - Retail Operations and Development and
Assistant Secretary
Kenneth S. Folberg, 38................ Vice President - Logistics and Labor Relations
Armand C. Go, 37...................... Treasurer and Chief Accounting Officer
Larry D. Hayes, 56.................... Vice President - Meat, Bakery and Deli Operations
John S. Kwas, 59...................... Vice President - Grocery Procurement
Thomas J. Timler, 41.................. Vice President - Business Systems Support Group
</TABLE>
Messrs. Dickelman, Houser, Dahly and Jacobson are also members of our
Board of Directors.
Executive officers are generally elected annually at the annual meeting
of our Board of Directors held on the date of our annual meeting of
shareholders. Each executive officer holds office until his successor has been
elected or until his prior death, resignation or removal.
All of our executive officers have served in the positions indicated or
in other management positions with Schultz Sav-O Stores for more than five
years.
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Item 2. Properties.
As is typical in our industry, a substantial portion of our capital
assets are leased. As of January 2, 1999, we leased 17 corporate supermarkets
and owned one supermarket. The leased supermarkets range in size from 19,980 to
54,850 square feet, with an average of 33,220 square feet.
We generally lease our supermarkets from nonaffiliated real estate
developers under long-term leases. Such leases generally contain initial terms
of 15 to 20 years, with several five-year renewal options. None of such existing
lease arrangements contain repurchase options; nor do we own the land underlying
any of such supermarkets. As of January 2, 1999, we subleased 51 of our leased
supermarkets and leased one owned supermarket to independent operators who are
our wholesale customers and franchisees.
Renovations and expansions continue at six franchise operations. These
renovations involve four expansions of existing franchise stores, one
replacement franchise unit and development of one new market store. These
projects are expected to increase the square footage of selling space at such
stores by an average of approximately 40%.
We own our distribution center and headquarters complex in Sheboygan,
Wisconsin which occupies approximately nine acres of a 16-acre site that we own.
The facility provides approximately 30,500 square feet of space for offices and
related activities and approximately 364,000 square feet of warehouse space. We
also lease approximately 14,500 square feet of office space in Sheboygan under a
four-year lease expiring in August 2000, which is used for customer support
services.
We own approximately 5 acres of commercially zoned property in Wisconsin.
We have entered into brokerage arrangements for the sale of this property.
Item 3. Legal Proceedings.
There are no material legal proceedings to which we are a party or to
which any of our property is subject, other than routine litigation incidental
to our business. No material legal proceedings were terminated during the fourth
quarter of 1998.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of our shareholders during the fourth
quarter of 1998.
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<PAGE>
PART II
Item 5. Market for Our Common Stock and Related Shareholder Matters.
Pursuant to our program for compensation of independent directors, we
issued 300 shares of our common stock to each of our three nonemployee directors
(other than those who receive fees for professional services provided to Schultz
Sav-O Stores) on January 28, 1999. Such issuances were exempt from registration
under the Securities Act of 1933 in accordance with Section 4(2) of that act.
Pursuant to General Instruction G to Form 10-K ("Instruction G"), the
other information required by this Item is incorporated herein by reference from
information included under the caption entitled "Common Stock Information" set
forth in our 1998 Annual Report to Shareholders (the "Annual Report").
Item 6. Selected Financial Data.
Pursuant to Instruction G, the information required by this Item is
incorporated herein by reference from information included under the caption
entitled "Five-Year Financial Highlights" set forth in the Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Pursuant to Instruction G, the information required by this Item is
incorporated herein by reference from information included under the caption
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" set forth in the Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We believe that our exposure to market risk related to changes in foreign
currency exchange rates, interest rate fluctuations and trade accounts
receivable is immaterial.
Item 8. Financial Statements and Supplementary Data.
Pursuant to Instruction G, the Consolidated Balance Sheets of the Company
as of January 2, 1999 and January 3, 1998, the Consolidated Statements of
Earnings, Cash Flows and Shareholders' Investment for each of the three fiscal
years in the period ended January 2, 1999, together with the related Notes to
Consolidated Financial Statements (including supplementary financial data), are
incorporated herein by reference from information included under the captions
having substantially the same titles as set forth in the Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company.
Pursuant to Instruction G, the information required by this Item (other
than such information regarding executive officers which appears in Item 1A
hereof and information required by Item 405 of Regulation S-K, which is
inapplicable) is incorporated by reference from information included under the
caption entitled "Election of Directors" set forth in our definitive Proxy
Statement for our 1999 annual meeting of shareholders (the "Proxy Statement").*
* The Proxy Statement will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after the
end of our fiscal year.
Item 11. Executive Compensation.
Pursuant to Instruction G, the information required by this Item is
incorporated by reference from information included under the caption entitled
"Executive Compensation" set forth in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Pursuant to Instruction G, the information required by this Item is
incorporated by reference from information included under the captions entitled
"Stock Ownership of Management and Others" and "Election of Directors" set forth
in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
Pursuant to Instruction G, the information required by this Item is
incorporated by reference from information under the caption entitled
"Compensation Committee and Stock Option Committee Interlocks and Insider
Participation" set forth in the Proxy Statement.
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<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as a part of this Form 10-K:
1. Financial Statements.
Consolidated Balance Sheets as of January 2, 1999 and January 3, 1998
Consolidated Statements of Earnings, Cash Flows and Shareholders'
Investment for the fiscal years 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
The foregoing Financial Statements are incorporated by reference to the
pocket part included in the Company's Annual Report to Shareholders for the
fiscal year ended January 2, 1999.
The additional information referred to under "Financial Statement
Schedules" below is filed as part of this Form 10-K and should be read in
conjunction with the financial statements referred to above.
Page Reference:
Form 10-K
2. Financial Statement Schedules.
Report of Independent Public F-1
Accountants
Schedule VIII - Valuation and F-2
Qualifying Accounts and Reserves
All other schedules have been omitted as not required or not applicable,
or the information required to be shown thereon is included in the financial
statements and related notes.
3. Exhibits and Reports on Form 8-K.
(a) The exhibits filed or incorporated by reference herewith are as
specified in the Exhibit Index included herein.
(b) We filed no reports on Form 8-K during the fourth quarter of fiscal
year 1998.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SCHULTZ SAV-O STORES, INC.
Date: March 25, 1999 By /s/ John H. Dahly
---------------------------
John H. Dahly
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed as of the date above by the following
persons on behalf of the Company in the capacities indicated.
/s/ James H. Dickelman /s/ William K. Jacobson
James H. Dickelman, Chairman of William K. Jacobson, Director
Board, President, Chief Executive Officer
and Director (Principal Executive Officer)
/s/ John H. Dahly /s/ Michael R. Houser
John H. Dahly, Executive Vice President, Michael R. Houser, Director
Chief Financial Officer, Secretary and
Director (Principal Financial Officer)
/s/ Armand C. Go /s/ Martin Crneckiy, Jr.
Armand C. Go, Treasurer and Chief Martin Crneckiy, Jr., Director
Accounting Officer (Principal Accounting
Officer)
/s/ Howard C. Dickelman /s/ R. Bruce Grover
Howard C. Dickelman, Director R. Bruce Grover, Director
/s/ Steven R. Barth
Steven R. Barth, Director
-14-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with generally accepted auditing standards, the
financial statements included in Schultz Sav-O Stores, Inc.'s annual report to
shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 5, 1999. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
the index to financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
February 5, 1999.
<PAGE>
SCHULTZ SAV-O STORES, INC.
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS 1998, 1997 AND 1996
Allowance for Doubtful Accounts--
Changes in the allowance for doubtful accounts are summarized as follows:
1998 1997 1996
-------------- ------------- ------------
Balance, beginning of year $3,950,000 $3,650,000 $2,565,000
Provision charged to earnings 350,000 656,000 987,000
(Writeoffs)/recoveries, net -- (356,000) 98,000
---------- ---------- ----------
Balance, end of year $4,300,000 $3,950,000 $3,650,000
========== ========== ==========
F-2
<PAGE>
EXHIBIT INDEX
SCHULTZ SAV-O STORES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 2, 1999
Exhibit No. Description
----------- -----------
3.1 Restated Articles of Incorporated, as amended. Incorporated
by reference to Exhibit 3.1 to our Annual Report on Form
10-K for the year ended December 31, 1988.
3.2 By-Laws, as amended and restated as of March 16, 1999.
4.1 Restated Articles of Incorporation, as amended (included as
Exhibit 3.1). As summarized in Notes (4) and (8) of the
Notes to Financial Statements incorporated by reference from
our 1998 Annual Report to Shareholders, as part of Parts II
and IV of this Form 10-K, we have various outstanding
long-term debt and capital lease obligations. None of such
obligations individually exceeds 10% of our total assets. We
hereby agree to furnish to the Commission, upon its request,
a copy of each instrument with respect to such obligations.
10.1 Master Franchise Agreement, dated April 23, 1982, between
Commodores Point Terminal Corporation and Piggly Wiggly
Corporation. Incorporated by reference to Exhibit 10.1 to
our Annual Report on Form 10-K for the year ended January 1,
1982.
10.2 Agreement, dated August 1, 1982, between Schultz Sav-O
Stores and Commodores Point Terminal Corporation.
Incorporated by reference to Exhibit 10.2 to our Annual
Report on Form 10-K for the year ended January 1, 1982.
10.3 Amendment to Master Franchise Agreement, dated October 15,
1982, between Schultz Sav-O Stores and Piggly Wiggly
Corporation. Incorporated by reference to Exhibit 10.3 to
our Annual Report on Form 10-K for the year ended January 1,
1982.
10.4 Amendment No. 2 to Piggly Wiggly Master Franchise Agreement,
dated June 3, 1998, between Schultz Sav-O Stores and Piggly
Wiggly Corporation. Incorporated by reference to Exhibit
10.2 to our Quarterly Report on Form 10-Q for the period
ended April 25, 1998.
10.5 Form of Director/Officer Indemnity Agreement. Incorporated
by reference to Exhibit 10.4 to our Annual Report on Form
10-K for the year ended January 2, 1988. This Agreement is
required to be filed as an exhibit to this Form 10-K
pursuant to Item 14(c) of Form 10-K.
E-1
<PAGE>
Exhibit No. Description
----------- -----------
10.6 Form of Key Executive Employment and Severance Agreement,
dated as of October 19, 1990, between Schultz Sav-O Stores
and each of James H. Dickelman, John H. Dahly, and Michael
R. Houser, and dated as of January 31, 1997, between Schultz
Sav-O Stores and William K. Jacobson. Incorporated by
reference to Exhibit 10.5 to our Annual Report on Form 10-K
for the year ended December 29, 1990. This agreement is
required to be filed as an exhibit to this Form 10-K
pursuant to Item 14(c) of Form 10-K.
10.7 Form of amendment to Key Executive Employment and Severance
Agreement between Schultz Sav-O Stores and each of James H.
Dickelman, John H. Dahly, Michael R. Houser, and William K.
Jacobson. Incorporated by reference to Exhibit 10.13 to our
Quarterly Report on Form 10-Q for the period ended July 18,
1998. This agreement is required to be filed as an exhibit
to this Form 10-K pursuant to Item 14(c) of Form 10-K.
10.8 Membership and Licensing Agreement dated August 1, 1973 by
and between Topco Associates, Inc. (Cooperative) and Schultz
Sav-O Stores. Incorporated by reference to Exhibit 10.6 to
our Annual Report on Form 10-K for the year ended December
30, 1996.
10.9 Articles of Incorporation of Topco Associates, Inc.
(Cooperative). Incorporated by reference to Exhibit 10.12 to
our Annual Report on Form 10-K for the year ended December
31, 1988.
10.10 Bylaws of Topco Associates, Inc. (Cooperative), as amended
through June 7, 1996. Incorporated by reference to Exhibit
10.8 to our Annual Report on Form 10-K for the year ended
December 30, 1996.
10.11 1990 Stock Option Plan, as amended and restated as of
October 15, 1998. Incorporated by reference to Exhibit 10.16
to our Quarterly Report on Form 10-Q for the period ended
October 10, 1998. This plan is required to be filed as an
exhibit to this Form 10-K pursuant to Item 14(c) of Form
10-K.
10.12 1995 Equity Incentive Plan, as amended and restated as of
January 28, 1999. This plan is required to be filed as an
exhibit to this Form 10-K pursuant to Item 14(c) of Form
10-K.
10.13 Form of Nonqualified Stock Option Agreement under 1995
Equity Incentive Plan.. This form of agreement is required
to be filed as an exhibit to this Form 10-K pursuant to Item
14(c) of Form 10-K.
10.14 Schultz Sav-O Stores, Inc. Executive Benefit Restoration
Plan. Incorporated by reference to Exhibit 10.10 to our
Annual Report on Form 10-K for the year ended December 31,
1994. This Plan is required to be filed as an exhibit to
this Form 10-K pursuant to Item 14(c) of Form 10-K.
E-2
<PAGE>
Exhibit No. Description
----------- -----------
10.15 Schultz Sav-O Stores, Inc. Officer Annual Incentive Plan, as
amended and restated as of January 28, 1999. This plan is
required to be filed as an exhibit to this Form 10-K
pursuant to Item 14(c) of Form 10-K.
10.16 Loan Agreement, dated as of December 3, 1992, among Schultz
Sav-O Stores, M&I Marshall & Ilsley Bank and Firstar Bank
(Milwaukee), as amended as of December 31, 1998.
13 Portions of the 1998 Annual Report to Shareholders expressly
incorporated by reference into this Form 10-K.
21 Subsidiary of Registrant.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule.
99 Definitive Proxy Statement for 1999 Annual Meeting of
Shareholders (to be filed with the Commission under
Regulation 14A within 120 days after the end of our fiscal
year and, upon such filing, incorporated by reference herein
to the extent indicated in this Form 10-K).
---------------------------------------------
AMENDED AND RESTATED
AS OF 3/16/99
---------------------------------------------
BYLAWS
OF
SCHULTZ SAV-O STORES, INC.
(a Wisconsin corporation)
<PAGE>
ARTICLE I. OFFICES
1.01 Principal and Business Offices. The corporation may have such
principal and other business offices, either within or without the State of
Wisconsin, as the Board of Directors may designate or as the business of the
corporation may require from time to time.
1.02 Registered Office. The registered office of the corporation required
by the Wisconsin Business Corporation Law to be maintained in the State of
Wisconsin may be, but need not be, identical with the principal office in the
State of Wisconsin, and the address of the registered office may be changed from
time to time by the Board of Directors or by the registered agent. The business
office of the registered agent of the corporation shall be identical to such
registered office.
ARTICLE II. SHAREHOLDERS
2.01 Place of Meetings. Meetings of the shareholders of the corporation
shall be held at such place as may be designated from time to time by resolution
of the Board of Directors of the corporation. If no such place is designated,
then the meeting shall be held at the general office of the corporation in
Sheboygan County, Wisconsin.
2.02 Annual Meeting. The annual meeting of the shareholders shall be held
on the second Wednesday of May of each year commencing with the year 1956. If
such day is a legal holiday then the meeting shall be held on the next secular
day.
2.03 Special Meetings. Special meetings of the shareholders may be called
by any officer of the corporation, the Board of Directors, or by the holders of
not less than one tenth of all the shares entitled to vote at the meeting.
2.04 Notice of Shareholders' Meetings. Written notice stating the place,
day and hour of the meeting, and in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than fifty days before the date of the meeting, either personally or by
mail, by or at the direction of the president, the secretary, or the officer or
person calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to the shareholder at his address
as it appears on the stock record books or similar records of the corporation,
with postage thereon prepaid.
2.05 Meetings Without Notice. Any meeting of the shareholders of the
corporation at which all of the shareholders entitled to vote are present,
either in person or by proxy, shall be a legal meeting of the shareholders
without notice. The shareholders may transact any business at such meeting which
may lawfully be transacted at any meeting of the shareholders regularly called
and notified.
2.06 Voting of Shares. Each outstanding share, entitled to vote, shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders. A shareholder may vote either in person or by proxy appointed in
writing by the shareholder, or by his duly
1
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authorized attorney-in-fact. No proxy shall be valid after eleven months from
the date of its execution, unless otherwise provided in the proxy.
2.07 Quorum. A majority of the shares entitled to vote, represented in
person or by proxy, shall constitute a quorum at the meeting of shareholders. If
a quorum be not present at a meeting, the majority present in person or by proxy
may adjourn from time to time, without notice other than by announcement at the
meeting, until the holders of the amount of shares requisite to constitute a
quorum shall attend. At any such adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting as originally notified.
2.08 Conduct of Meetings. The President and, in his absence, the Vice
President and, in their absence, any shareholder entitled to vote chosen by the
shareholders present shall call the meeting of the shareholders to order and
shall act as chairman of the meeting, and the Secretary of the corporation shall
act as secretary of all meetings of the shareholders, but, in the absence of the
Secretary, the presiding officer may appoint any shareholder entitled to vote to
act as secretary of the meeting.
2.09 Fixing of Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purpose, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than fifty
days and, in case of a meeting of shareholders, not less than ten days prior to
the date on which the particular action requiring such determination of
shareholders is to be taken. If no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders or
shareholders entitled to receive payment of a dividend, the close of business on
the date on which notice of the meeting is mailed or on the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting has been
made as provided in this section, such determination shall be applied to any
adjournment thereof.
ARTICLE III. BOARD OF DIRECTORS
3.01 General Powers and Number. All corporate powers shall be exercised
by or under the authority of, and the business and affairs of the corporation
managed under the direction of, the Board of Directors. The number of directors
of the corporation shall be determined from time to time by the Board of
Directors and shall be divided into three classes designated as Class I, Class
II and Class III, respectively.
At the 1989 annual meeting of shareholders, the directors of Class I
shall be elected for a term to expire at the first annual meeting of
shareholders after their election, and until their successors are elected and
qualify, the directors of Class II shall be elected for a term to expire at the
second annual meeting of shareholders after their election, and until their
successors are elected and qualify, and the directors of Class III shall be
elected for a term to
2
<PAGE>
expire at the third annual meeting of shareholders after their election, and
until their successors are elected and qualify. At each annual meeting of
shareholders after the 1989 annual meeting of shareholders the successors to the
class of directors whose terms shall expire at the time of such annual meeting
shall be elected to hold office until the third succeeding annual meeting of
shareholders, and until their successors are elected and qualify.
A director may be removed by the shareholders only at a meeting
called for the purpose of removing the director, and the meeting notice shall
state that the purpose, or one of the purposes, of the meeting is removal of the
director. A director may be removed from office with or without cause if the
votes cast to remove the director exceeds the number of votes cast not to remove
such director. A director may resign at any time by delivering written notice
which complies with the Wisconsin Business Corporation Law to the Board of
Directors, to the President (in his capacity as chairman of the Board of
Directors) or to the corporation. A director's resignation is effective when the
notice is delivered unless the notice specifies a later effective date.
From time to time, the Board of Directors may elect one or more
former or retiring directors as Directors Emeritus of the corporation. Directors
Emeritus shall be invited to attend and participate in all meetings of the Board
of Directors (and shall be provided with all information and documents provided
to directors generally) but shall not have a vote on any matter before the Board
of Directors and shall not be counted in determining the presence of a quorum at
any meeting of the Board of Directors. Each Director Emeritus of the corporation
shall be deemed a "Director" for purposes of Article VIII of these bylaws and
shall be entitled to such compensation as may be determined by the Board of
Directors.
3.02 Qualifications. Directors need not be residents of the State of
Wisconsin or shareholders of the corporation. No other restrictions, limitations
or qualifications may be imposed on individuals for service as a director.
3.03 Regular Meetings. A regular meeting of the Board of Directors shall
be held without other notice than this bylaw immediately after the annual
meeting of shareholders and each adjourned session thereof. The place of such
regular meeting shall be the same as the place of the meeting of shareholders
which precedes it, or such other suitable place as may be communicated to the
directors at or prior to such meeting of shareholders. To the extent
practicable, the date, time and place, either within or without the State of
Wisconsin, for the holding of additional regular meetings of the Board of
Directors shall be communicated amongst and generally agreed upon by the
directors at any meeting of the Board of Directors.
3.04 Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the President or any two directors. The President
or Secretary may fix any place, either within or without the State of Wisconsin,
as the place for holding any special meeting of the Board of Directors, and if
no other place is fixed the place of the meeting shall be the principal business
office of the corporation in the State of Wisconsin.
3.05 Notice; Waiver. Notice of each special meeting of the Board of
Directors shall be given by written notice delivered or communicated in person,
by telegraph, teletype,
3
<PAGE>
facsimile or other form of wire or wireless communication, or by mail or private
carrier, to each director at his business address or at such other address as
such director shall have designated in writing filed with the Secretary, in each
case not less than twenty-four hours prior to the meeting. The notice need not
prescribe the purpose of the special meeting of the Board of Directors or the
business to be transacted at such meeting. If mailed, such notice shall be
deemed to be effective when deposited in the United States mail so addressed,
with postage thereon prepaid. If notice is given by telegram, such notice shall
be deemed to be effective when the telegram is delivered to the telegraph
company. If notice is given by private carrier, such notice shall be deemed to
be effective when delivered to the private carrier. Whenever any notice whatever
is required to be given to any director of the corporation under the articles of
incorporation or these bylaws or any provision of the Wisconsin Business
Corporation Law, a waiver thereof in writing, signed at any time, whether before
or after the date and time of meeting, by the director entitled to such notice
shall be deemed equivalent to the giving of such notice. The corporation shall
retain any such waiver as part of the permanent corporate records. A director's
attendance at or participation in a meeting waives any required notice to him or
her of the meeting unless the director at the beginning of the meeting or
promptly upon his or her arrival objects to holding the meeting or transacting
business at the meeting and does not thereafter vote for or assent to action
taken at the meeting.
3.06 Quorum. Except as otherwise provided by the Wisconsin Business
Corporation Law or by the articles of incorporation or these bylaws, a majority
of the number of directors specified in Section 3.01 of these bylaws shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors. Except as otherwise provided by the Wisconsin Business Corporation
Law or by the articles of incorporation or by these bylaws, a quorum of any
committee of the Board of Directors created pursuant to Section 3.12 hereof
shall consist of a majority of the number of directors appointed to serve on the
committee. A majority of the directors present (though less than such quorum)
may adjourn any meeting of the Board of Directors or any committee thereof, as
the case may be, from time to time without further notice.
3.07 Manner of Acting. The affirmative vote of a majority of the
directors present at a meeting of the Board of Directors or a committee thereof
at which a quorum is present shall be the act of the Board of Directors or such
committee, as the case may be, unless the Wisconsin Business Corporation Law,
the articles of incorporation or these bylaws require the vote of a greater
number of directors.
3.08 Conduct of Meetings. The Chairman of the Board and, in his absence,
the President and, in his absence, a Vice President in the order provided under
Section 4.07, and in their absence, any director chosen by the directors
present, shall call meetings of the Board of Directors to order and shall act as
chairman of the meeting. The Secretary of the corporation shall act as secretary
of all meetings of the Board of Directors but in the absence of the Secretary,
the presiding officer may appoint any other person present to act as secretary
of the meeting. Minutes of any regular or special meeting of the Board of
Directors shall be prepared and distributed to each director.
4
<PAGE>
3.09 Vacancies. Except as provided below, any vacancy occurring in the
Board of Directors, including a vacancy resulting from an increase in the number
of directors, may be filled by any of the following: (a) the shareholders; (b)
the Board of Directors; or (c) if the directors remaining in office constitute
fewer than a quorum of the Board of Directors, the directors, by the affirmative
vote of a majority of all directors remaining in office. If the vacant office
was held by a director elected by a voting group of shareholders, only the
holders of shares of that voting group may vote to fill the vacancy if it is
filled by the shareholders, and only the remaining directors elected by that
voting group may vote to fill the vacancy if it is filled by the directors. A
vacancy that will occur at a specific later date, because of a resignation
effective at a later date or otherwise, may be filled before the vacancy occurs,
but the new director may not take office until the vacancy occurs. Any vacancy
resulting from a director's death, resignation, removal, disqualification or
otherwise shall be filled for the unexpired portion of such director's term.
3.10 Compensation. The Board of Directors, irrespective of any personal
interest of any of its members, may establish reasonable compensation of all
directors for services to the corporation as directors, officers or otherwise,
or may delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or delegate authority to an
appropriate committee to provide for reasonable pensions, disability or death
benefits, and other benefits or payments, to directors, officers and employees
and to their estates, families, dependents or beneficiaries on account of prior
services rendered by such directors, officers and employees to the corporation.
3.11 Presumption of Assent. A director who is present and is announced as
present at a meeting of the Board of Directors or any committee thereof created
in accordance with Section 3.12 hereof, when corporate action is taken, assents
to the action taken unless any of the following occurs: (a) the director objects
at the beginning of the meeting or promptly upon his or her arrival to holding
the meeting or transacting business at the meeting; (b) the director's dissent
or abstention from the action taken is entered in the minutes of the meeting; or
(c) the director delivers written notice that complies with the Wisconsin
Business Corporation Law of his or her dissent or abstention to the presiding
officer of the meeting before its adjournment or to the corporation immediately
after adjournment of the meeting. Such right of dissent or abstention shall not
apply to a director who votes in favor of the action taken.
3.12 Committees. The Board of Directors, by resolution adopted by the
affirmative vote of a majority of all of the directors then in office, may
create one or more committees, appoint members of the Board of Directors to
serve on the committees and designate other members of the Board of Directors to
serve as alternates. Each committee shall have two or more members who shall,
unless otherwise provided by the Board of Directors, serve at the pleasure of
the Board of Directors. A committee may be authorized to exercise the authority
of the Board of Directors, except that a committee may not do any of the
following: (a) authorize distributions; (b) approve or propose to shareholders
action that the Wisconsin Business Corporation Law requires to be approved by
shareholders; (c) fill vacancies on the Board of Directors or, unless the Board
of Directors provides by resolution that vacancies on a committee shall be
filled by the affirmative vote of the remaining
5
<PAGE>
committee members, on any Board committee; (d) amend the corporation's articles
of incorporation; (e) adopt, amend or repeal bylaws; (f) approve a plan of
merger not requiring shareholder approval; (g) authorize or approve
reacquisition of shares, except according to a formula or method prescribed by
the Board of Directors; and (h) authorize or approve the issuance or sale or
contract for sale of shares, or determine the designation and relative rights,
preferences and limitations of a class or series of shares, except that the
Board of Directors may authorize a committee to do so within limits prescribed
by the Board of Directors. Unless otherwise provided by the Board of Directors
in creating the committee, a committee may employ counsel, accountants and other
consultants to assist it in the exercise of its authority.
3.13 Telephonic Meetings. Except as herein provided and notwithstanding
any place set forth in the notice of the meeting or these bylaws, members of the
Board of Directors (and any committees thereof created pursuant to Section 3.12
hereof) may participate in regular or special meetings by, or through the use
of, any means of communication by which all participants may simultaneously hear
each other, such as by conference telephone. If a meeting is conducted by such
means, then at the commencement of such meeting the presiding officer shall
inform the participating directors that a meeting is taking place at which
official business may be transacted. Any participant in a meeting by such means
shall be deemed present in person at such meeting. If action is to be taken at
any meeting held by such means on any of the following: (a) a plan of merger or
share exchange; (b) a sale, lease, exchange or other disposition of substantial
property or assets of the corporation; (c) a voluntary dissolution or the
revocation of voluntary dissolution proceedings; or (d) a filing for bankruptcy,
then the identity of each director participating in such meeting must be
verified by the disclosure at such meeting by each such director of each such
director's social security number to the secretary of the meeting before a vote
may be taken on any of the foregoing matters. For purposes of the preceding
clause (b), the phrase "sale, lease, exchange or other disposition of
substantial property or assets" shall mean any sale, lease, exchange or other
disposition of property or assets of the corporation having a net book value
equal to 20% or more of the net book value of the total assets of the
corporation on and as of the close of the fiscal year last ended prior to the
date of such meeting and as to which financial statements of the corporation
have been prepared. Notwithstanding the foregoing, no action may be taken at any
meeting held by such means on any particular matter which the presiding officer
determines, in his or her sole discretion, to be inappropriate under the
circumstances for action at a meeting held by such means. Such determination
shall be made and announced in advance of such meeting.
3.14 Action without Meeting. Any action required or permitted by the
Wisconsin Business Corporation Law to be taken at a meeting of the Board of
Directors or a committee thereof created pursuant to Section 3.12 hereof may be
taken without a meeting if the action is taken by all members of the Board or of
the committee. The action shall be evidenced by one or more written consents
describing the action taken, signed by each director or committee member and
retained by the corporation. Such action shall be effective when the last
director or committee member signs the consent, unless the consent specifies a
different effective date.
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<PAGE>
ARTICLE IV. OFFICERS
4.01 Number. The principal officers of the corporation shall be a
Chairman of the Board, President, the number of Vice Presidents as authorized
from time to time by the Board of Directors, a Secretary, and a Treasurer, each
of whom shall be elected by the Board of Directors. Such other officers and
assistant officers as may be deemed necessary may be elected or appointed by the
Board of Directors. The Board of Directors may also authorize any duly
authorized officer to appoint one or more officers or assistant officers. Any
two or more offices may be held by the same person.
4.02 Election and Term of Office. The officers of the corporation to be
elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as is practicable.
Each officer shall hold office until his or her successor shall have been duly
elected or until his or her prior death, resignation or removal.
4.03 Removal. The Board of Directors may remove any officer and, unless
restricted by the Board of Directors or these bylaws, an officer may remove any
officer or assistant officer appointed by that officer, at any time, with or
without cause and notwithstanding the contract rights, if any, of the officer
removed. The election or appointment of an officer does not of itself create
contract rights.
4.04 Resignation. An officer may resign at any time by delivering notice
to the corporation that complies with the Wisconsin Business Corporation Law.
The resignation shall be effective when the notice is delivered, unless the
notice specifies a later effective date and the corporation accepts the later
effective date.
4.05 Vacancies. A vacancy in any principal office because of death,
resignation, removal, disqualification or otherwise, shall be filled by the
Board of Directors for the unexpired portion of the term. If a resignation of an
officer is effective at a later date as contemplated by Section 4.04 hereof, the
Board of Directors may fill the pending vacancy before the effective date if the
Board provides that the successor may not take office until the effective date.
4.06 Chairman of the Board. The Chairman of the Board shall preside when
present at all meetings of directors. He shall also preside at all meetings of
shareholders and shall perform all such other functions and duties as may be
assigned to him by the Board of Directors. He shall also have authority to sign
documents and instruments in the absence of the President.
4.07 President. The President shall be the principal executive officer of
the corporation and, subject to the direction of the Board of Directors, shall
in general supervise and control all of the business and affairs of the
corporation. In the absence of the Chairman of the Board, the President shall,
when present, preside at all meetings of the shareholders and of the Board of
Directors. He shall have authority, subject to such rules as may be prescribed
by the Board of Directors, to appoint such agents and employees of the
corporation as he shall
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<PAGE>
deem necessary, to prescribe their powers, duties and compensation, and to
delegate authority to them. Such agents and employees shall hold office at the
discretion of the President. He shall have authority to sign, execute and
acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock
certificates, contracts, leases, reports and all other documents or instruments
necessary or proper to be executed in the course of the corporation's regular
business, or which shall be authorized by resolution of the Board of Directors;
and, except as otherwise provided by law or the Board of Directors, he may
authorize any Vice President or other officer or agent of the corporation to
sign, execute and acknowledge such documents or instruments in his place and
stead. In general, he shall perform all duties incident to the office of
President and such other duties as may be prescribed by the Board of Directors
from time to time.
4.08 The Vice Presidents. In the absence of the President or in the event
of the President's death, inability or refusal to act, or in the event for any
reason it shall be impracticable for the President to act personally, the Vice
President (or, in the event there be more than one Vice President, the Executive
Vice President, or in his absence the Vice Presidents in the order designated by
the Board of Directors, or in the absence of any designation, then in the order
of their election) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Any Vice President may sign, with the Secretary or Assistant
Secretary, certificates for shares of the corporation; and shall perform such
other duties and have such authority as from time to time may be delegated or
assigned to him or her by the President or by the Board of Directors. The
execution of any instrument of the corporation by any Vice President shall be
conclusive evidence, as to third parties, of his or her authority to act in the
stead of the President.
4.09 The Secretary. The Secretary shall: (a) keep minutes of the meetings
of the shareholders and of the Board of Directors (and of committees thereof) in
one or more books provided for that purpose (including records of actions taken
by the shareholders or the Board of Directors (or committees thereof) without a
meeting); (b) see that all notices are duly given in accordance with the
provisions of these bylaws or as required by the Wisconsin Business Corporation
Law; (c) be custodian of the corporate records and of the seal of the
corporation and see that the seal of the corporation is affixed to all documents
the execution of which on behalf of the corporation under its seal is duly
authorized; (d) maintain a record of the shareholders of the corporation, in a
form that permits preparation of a list of the names and addresses of all
shareholders, by class or series of shares and showing the number and class or
series of shares held by each shareholder; (e) sign with the President, or a
Vice President, certificates for shares of the corporation, the issuance of
which shall have been authorized by resolution of the Board of Directors; (f)
have general charge of the stock transfer books of the corporation; and (g) in
general perform all duties incident to the office of Secretary and have such
other duties and exercise such authority as from time to time may be delegated
or assigned by the President or by the Board of Directors.
4.10 The Treasurer. The Treasurer shall: (a) have charge and custody of
and be responsible for all funds and securities of the corporation; (b) maintain
appropriate accounting records; (c) receive and give receipts for moneys due and
payable to the corporation from any
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source whatsoever, and deposit all such moneys in the name of the corporation in
such banks, trust companies or other depositaries as shall be selected in
accordance with the provisions of Section 5.04; and (d) in general perform all
of the duties incident to the office of Treasurer and have such other duties and
exercise such other authority as from time to time may be delegated or assigned
by the President or by the Board of Directors. If required by the Board of
Directors, the Treasurer shall give a bond for the faithful discharge of his or
her duties in such sum and with such surety or sureties as the Board of
Directors shall determine.
4.11 Assistant Secretaries and Assistant Treasurers. There shall be such
number of Assistant Secretaries and Assistant Treasurers as the Board of
Directors or the President may from time to time authorize. The Assistant
Secretaries may sign with the President or a Vice President certificates for
shares of the corporation the issuance of which shall have been authorized by a
resolution of the Board of Directors. The Assistant Treasurers shall
respectively, if required by the Board of Directors, give bonds for the faithful
discharge of their duties in such sums and with such sureties as the Board of
Directors shall determine. The Assistant Secretaries and Assistant Treasurers,
in general, shall perform such duties and have such authority as shall from time
to time be delegated or assigned to them by the Secretary or the Treasurer,
respectively, or by the President or the Board of Directors.
4.12 Other Assistants and Acting Officers. The Board of Directors and the
President shall have the power to appoint, or to authorize any duly appointed
officer of the corporation to appoint, any person to act as assistant to any
officer, or as agent for the corporation in his or her stead, or to perform the
duties of such officer whenever for any reason it is impracticable for such
officer to act personally, and such assistant or acting officer or other agent
so appointed by the Board of Directors or an authorized officer shall have the
power to perform all the duties of the office to which he or she is so appointed
to be an assistant, or as to which he or she is so appointed to act, except as
such power may be otherwise defined or restricted by the Board of Directors, the
President or the appointing officer.
ARTICLE V. CONTRACTS, LOANS, CHECKS
AND DEPOSITS; SPECIAL CORPORATE ACTS
5.01 Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute or deliver any
instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances. In the absence
of other designation, all deeds, mortgages and instruments of assignment or
pledge made by the corporation shall be executed in the name of the corporation
by the President or one of the Vice Presidents and by the Secretary, an
Assistant Secretary, the Treasurer or an Assistant Treasurer; the Secretary or
an Assistant Secretary, when necessary or required, shall affix the corporate
seal, if any, thereto; and when so executed no other party to such instrument or
any third party shall be required to make any inquiry into the authority of the
signing officer or officers.
5.02 Loans. No indebtedness for borrowed money shall be contracted on
behalf of the corporation and no evidences of such indebtedness shall be issued
in its name unless
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authorized by or under the authority of a resolution of the Board of Directors.
Such authorization may be general or confined to specific instances.
5.03 Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
or under the authority of a resolution of the Board of Directors.
5.04 Deposits. All funds of the corporation not otherwise employed shall
be deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositaries as may be selected by or under the
authority of a resolution of the Board of Directors.
5.05 Voting of Securities Owned by this Corporation. Subject always to
the specific directions of the Board of Directors, (a) any shares or other
securities issued by any other corporation and owned or controlled by this
corporation may be voted at any meeting of security holders of such other
corporation by the President of this corporation if he be present, or in his
absence by any Vice President of this corporation who may be present, and (b)
whenever, in the judgment of the President, or in his absence, of any Vice
President, it is desirable for this corporation to execute a proxy or written
consent in respect to any shares or other securities issued by any other
corporation and owned by this corporation, such proxy or consent shall be
executed in the name of this corporation by the President or one of the Vice
Presidents of this corporation, without necessity of any authorization by the
Board of Directors, affixation of corporate seal, if any, or countersignature or
attestation by another officer. Any person or persons designated in the manner
above stated as the proxy or proxies of this corporation shall have full right,
power and authority to vote the shares or other securities issued by such other
corporation and owned by this corporation the same as such shares or other
securities might be voted by this corporation.
ARTICLE VI. CERTIFICATES FOR SHARES; TRANSFER OF SHARES
6.01 Certificates for Shares. Certificates representing shares of the
corporation shall be in such form, consistent with the Wisconsin Business
Corporation Law, as shall be determined by the Board of Directors. Such
certificates shall be signed by the President or a Vice President and by the
Secretary or an Assistant Secretary. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
corporation. All certificates surrendered to the corporation for transfer shall
be cancelled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and cancelled, except as
provided in Section 6.06.
6.02 Facsimile Signatures and Seal. The seal of the corporation, if any,
on any certificates for shares may be a facsimile. The signature of the
president or Vice President and the Secretary or Assistant Secretary upon a
certificate may be facsimiles if the certificate
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is manually signed on behalf of a transfer agent, or a registrar, other than the
corporation itself or an employee of the corporation.
6.03 Signature by Former Officers. The validity of a share certificate is
not affected if a person who signed the certificate (either manually or in
facsimile) no longer holds office when the certificate is issued.
6.04 Transfer of Shares. Prior to due presentment of a certificate for
shares for registration of transfer the corporation may treat the registered
owner of such shares as the person exclusively entitled to vote, to receive
notifications and otherwise to have and exercise all the rights and power of an
owner. Where a certificate for shares is presented to the corporation with a
request to register for transfer, the corporation shall not be liable to the
owner or any other person suffering loss as a result of such registration of
transfer if (a) there were on or with the certificate the necessary
endorsements, and (b) the corporation had no duty to inquire into adverse claims
or has discharged any such duty. The corporation may require reasonable
assurance that such endorsements are genuine and effective and compliance with
such other regulations as may be prescribed by or under the authority of the
Board of Directors.
6.05 Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the corporation upon the transfer of such shares.
6.06 Lost, Destroyed or Stolen Certificates. Where the owner claims that
certificates for shares have been lost, destroyed or wrongfully taken, a new
certificate shall be issued in place thereof if the owner (a) so requests before
the corporation has notice that such shares have been acquired by a bona fide
purchaser, (b) files with the corporation a sufficient indemnity bond if
required by the Board of Directors or any principal officer, and (c) satisfies
such other reasonable requirements as may be prescribed by or under the
authority of the Board of Directors.
6.07 Consideration for Shares. The Board of Directors may authorize
shares to be issued for consideration consisting of any tangible or intangible
property or benefit to the corporation, including cash, promissory notes,
services performed, contracts for services to be performed or other securities
of the corporation. Before the corporation issues shares, the Board of Directors
shall determine that the consideration received or to be received for the shares
to be issued is adequate. The determination of the Board of Directors is
conclusive insofar as the adequacy of consideration for the issuance of shares
relates to whether the shares are validly issued, fully paid and nonassessable.
The corporation may place in escrow shares issued in whole or in part for a
contract for future services or benefits, a promissory note, or otherwise for
property to be issued in the future, or make other arrangements to restrict the
transfer of the shares, and may credit distributions in respect of the shares
against their purchase price, until the services are performed, the benefits or
property are received or the promissory note is paid. If the services are not
performed, the benefits or property are not received or the promissory note is
not paid, the corporation may cancel, in whole or in part, the shares escrowed
or restricted and the distributions credited.
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6.08 Stock Regulations. The Board of Directors shall have the power and
authority to make all such further rules and regulations not inconsistent with
law as it may deem expedient concerning the issue, transfer and registration of
shares of the corporation.
ARTICLE VII. SEAL
7.01 The Board of Directors may provide for a corporate seal for the
corporation.
ARTICLE VIII. INDEMNIFICATION
8.01 Provision of Indemnification. The corporation shall, to the fullest
extent permitted or required by Sections 180.0850 to 180.0859, inclusive, of the
Wisconsin Business Corporation Law, including any amendments thereto (but in the
case of any such amendment, only to the extent such amendment permits or
requires the corporation to provide broader indemnification rights than prior to
such amendment), indemnify its Directors and Officers against any and all
Liabilities, and advance any and all reasonable Expenses, incurred thereby in
any Proceeding to which any such Director or Officer is a Party because he or
she is or was a Director or Officer of the corporation. The corporation shall
also indemnify an employee who is not a Director or Officer, to the extent that
the employee has been successful on the merits or otherwise in defense of a
Proceeding, for all Expenses incurred in the Proceeding if the employee was a
Party because he or she is or was an employee of the corporation. The rights to
indemnification granted hereunder shall not be deemed exclusive of any other
rights to indemnification against Liabilities or the advancement of Expenses
which a Director, Officer or employee may be entitled under any written
agreement, Board resolution, vote of shareholders, the Wisconsin Business
Corporation Law or otherwise. The corporation may, but shall not be required to,
supplement the foregoing rights to indemnification against Liabilities and
advancement of Expenses under this Section 8.01 by the purchase of insurance on
behalf of any one or more of such Directors, Officers or employees, whether or
not the corporation would be obligated to indemnify or advance Expenses to such
Director, Officer or employee under this Section 8.01. All capitalized terms
used in this Article VIII and not otherwise defined herein shall have the
meaning set forth in Section 180.0850 of the Wisconsin Business Corporation Law.
ARTICLE IX. AMENDMENTS
9.01 By Shareholders. These bylaws may be amended or repealed and new
bylaws may be adopted by the shareholders at any annual or special meeting of
the shareholders at which a quorum is in attendance.
9.02 By Directors. Except as otherwise provided by the Wisconsin Business
Corporation Law, the articles of incorporation or these bylaws, these bylaws may
also be amended or repealed and new bylaws may be adopted by the Board of
Directors provided, however, that the shareholders in adopting, amending or
repealing a particular bylaw may provide therein that the Board of Directors may
not amend, repeal or readopt that bylaw and provided, further, that the Board of
Directors shall have no power to amend or repeal any provisions of Article II.
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9.03 Implied Amendments. Any action taken or authorized by the
shareholders or by the Board of Directors which would be inconsistent with the
bylaws then in effect but which is taken or authorized by affirmative vote of
not less than the number of shares or the number of directors required to amend
the bylaws so that the bylaws would be consistent with such action shall be
given the same effect as though the bylaws had been temporarily amended or
suspended so far, but only so far, as is necessary to permit the specific action
so taken or authorized.
ARTICLE X. SHAREHOLDER PROPOSALS
10.01 Annual Meetings.
(a) Nominations of persons for election to the Board of Directors of
the corporation and the proposal of business to be considered by the
shareholders may be made at an annual meeting of shareholders by any shareholder
of the corporation who (i) is a shareholder of record at the time of giving of
notice provided for in this Section 10.01, (ii) is entitled to vote at the
meeting, and (iii) complies with the notice procedures set forth in this Section
10.01.
(b) For nominations or other business to be properly brought before
an annual meeting of shareholders by a shareholder, such shareholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a shareholder's notice shall be received by the Secretary of the
corporation at the principal offices of the corporation not later than the
earlier of (i) the date 45 days prior to the first anniversary (the "Anniversary
Date") of the date set forth, in the corporation's proxy statement for the last
annual meeting of shareholders held by the corporation, as the date on which the
corporation first mailed definitive proxy materials for such annual meeting of
shareholders and (ii) the later of (x) the date 70 days prior to the annual
meeting of shareholders before which the shareholder providing notice desires to
bring the business set forth in the notice and (y) the date 10 days following
the day on which public announcement of the date of such meeting is first made.
Such shareholder's notice shall be signed by the shareholder of record who
intends to make the nomination or introduce the other business (or his duly
authorized proxy or other representative), shall bear the date of signature of
such shareholder (or proxy or other representative) and shall set forth: (A) the
name and address, as they appear on the corporation's books, of such shareholder
and the beneficial owner or owners, if any, on whose behalf the nomination or
other proposal is made; (B) the class and number of shares of the corporation
that are beneficially owned by such shareholder or beneficial owner or owners;
(C) a representation that such shareholder is a holder of record of shares of
the corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to make the nomination or introduce the other
business specified in the notice; (D) in the case of any proposed nomination for
election or re-election as a director, (i) the name and residential address of
the person or persons to be nominated, (ii) a description of all arrangements or
understandings between such shareholder or beneficial owner or owners and each
nominee and any other person or persons (naming such person or persons) pursuant
to which the nomination is to be made by such shareholder, (iii) such other
information regarding each nominee proposed by such shareholder as would be
required to be disclosed in solicitations of proxies
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for elections of directors, or would be otherwise required to be disclosed, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934
(the "Exchange Act"), including any information that would be required to be
included in a proxy statement filed pursuant to Regulation 14A had the nominee
been nominated by the Board of Directors and (iv) the written consent of each
nominee to be named in a proxy statement and to serve as a director of the
corporation if so elected; and (E) in the case of any other business that such
shareholder proposes to bring before the meeting, (i) a brief description of the
business desired to be brought before the meeting and, if such business includes
a proposal to amend these bylaws, the language of the proposed amendment, (ii)
such shareholder's and beneficial owner's or owners' reasons for conducting such
business at the meeting and (iii) any material interest in such business of such
shareholder and beneficial owner or owners.
(c) Notwithstanding the foregoing provisions of this Section 10.01 to
the contrary, in the event that the number of directors to be elected to the
Board of Directors of the corporation is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased Board of Directors made by the corporation at least 45 days prior
to the Anniversary Date, a shareholder's notice required by this Section 10.01
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be received by the Secretary at
the principal offices of the corporation not later than the close of business on
the 10th day following the day on which such public announcement is first made
by the corporation.
10.02 Special Meetings.
(a) Only such business shall be conducted at a special meeting of the
shareholders of the corporation as is described in the notice of such meeting
sent to shareholders in accordance with Section 2.04 of these bylaws.
(b) Nominations of persons for election to the Board of Directors at
a special meeting of shareholders at which directors are to be elected may be
made a shareholder only if such shareholder (i) is a shareholder of record at
the time of giving of notice of such meeting, (ii) is entitled to vote at the
meeting, and (iii) complies with the notice procedures set forth in this Section
10.02.
(c) Any shareholder desiring to nominate persons for election to the
Board of Directors at such a special meeting shall cause a written notice to be
received by the Secretary of the corporation at the principal offices of the
corporation not earlier than ninety days prior to such special meeting and not
later than the close of business on the later of (x) the date 60 days prior to
such special meeting and (y) the date 10 days following the day on which public
announcement is first made of the date of such special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. Such
written notice shall be signed by the shareholder of record who intends to make
the nomination (or his duly authorized proxy or other representative), shall
bear the date of signature of such shareholder (or proxy or other
representative) and shall set forth: (i) the name and address, as they appear on
the corporation's books, of such shareholder and the beneficial owner or owners,
if any, on whose behalf the nomination is made; (ii) the class and number of
shares of
<PAGE>
the corporation which are beneficially owned by such shareholder or beneficial
owner or owners; (iii) a representation that such shareholder is a holder of
record of shares of the corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to make the nomination specified
in the notice; (iv) the name and residence address of the person or persons to
be nominated; (v) a description of all arrangements or understandings between
such shareholder or beneficial owner or owners and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination is to be made by such shareholder; (vi) such other information
regarding each nominee proposed by such shareholder as would be required to be
disclosed in solicitations of proxies for elections of directors, or would be
otherwise required to be disclosed, in each case pursuant to Regulation 14A
under the Exchange Act, including any information that would be required to be
included in a proxy statement filed pursuant to Regulation 14A had the nominee
been nominated by the Board of Directors; and (vii) the written consent of each
nominee to be named in a proxy statement and to serve as a director of the
corporation if so elected.
10.03 General.
(a) Only persons who are nominated by or at the direction of the
Board of Directors or nominated by shareholders of the corporation in compliance
with the procedures set forth in this Article X shall be eligible to serve as
directors. Only such business shall be conducted at an annual meeting or special
meeting of shareholders as shall have been brought before such meeting by or at
the direction of the Board of Directors or by a shareholder in compliance with
the procedures set forth in this Article X. The chairman of any meeting of
shareholders shall have the power and duty to determine whether a nomination or
any business proposed to be brought before the meeting was made in accordance
with the procedures set forth in this Article X and, if any proposed nomination
or business is not in compliance with this Article X, to declare that such
defective proposal shall be disregarded.
(b) For purposes of this Article X, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(c) In addition to complying with the foregoing provisions of this
Article X, a shareholder shall comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Article X. Nothing in this Article X shall be deemed
to limit the corporation's obligation to include shareholder proposals in its
proxy statement if such inclusion is required by Rule 14a-8 under the Exchange
Act.
EXHIBIT 10.12
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Adopted 12/20/94
Effective 1/30/95
As Amended Through 1/28/99
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SCHULTZ SAV-O STORES, INC.
1995 EQUITY INCENTIVE PLAN
Section 1. Purpose
The purpose of Schultz Sav-O Stores, Inc. 1995 Equity Incentive Plan (the
"Plan") is to promote the best interests of Schultz Sav-O Stores, Inc. (the
"Company") and its shareholders by providing key employees of the Company and
its Affiliates (as defined below) with an opportunity to acquire a, or increase
their, proprietary interest in the Company. It is intended that the Plan will
promote continuity of management and increased incentive and personal interest
in the welfare of the Company by those key employees who are primarily
responsible for shaping and carrying out the long-range plans of the Company and
securing the Company's continued growth and financial success.
Section 2. Definitions
As used in the Plan, the following terms shall have the respective
meanings set forth below:
(a) "Affiliate" shall mean any entity that, directly or through one or
more intermediaries, is controlled by, controls, or is under common control
with, the Company.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock or Performance Share granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Commission" shall mean the Securities and Exchange Commission.
(f) "Committee" shall mean the Compensation and Stock Option Committee of
the Board of Directors of the Company (or any other committee thereof designated
by such Board to administer the Plan); provided, however, that the Committee is
composed of not less than two directors, each of whom is a "disinterested
person" within the meaning of Rule 16b-3.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
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(h) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee.
(i) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section 422 of the
Code (or any successor provision thereto).
(j) "Key Employee" shall mean any officer or other key employee of the
Company or of any Affiliate who is responsible for or contributes to the
management, growth or profitability of the business of the Company or any
Affiliate as determined by the Committee in its discretion.
(k) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.
(l) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
(m) "Participating Key Employee" shall mean a Key Employee designated to
be granted an Award under the Plan.
(n) "Performance Period" shall mean, in relation to Performance Shares,
any period for which a performance goal or goals have been established.
(o) "Performance Share" shall mean any right granted under Section 6(d)
of the Plan that will be paid out as a Share (which, in specified circumstances,
may be a Share of Restricted Stock).
(p) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization or
government or political subdivision thereof.
(q) "Released Securities" shall mean Shares of Restricted Stock with
respect to which all applicable restrictions have expired, lapsed or been
waived.
(r) "Restricted Securities" shall mean Awards of Restricted Stock or
other Awards under which issued and outstanding Shares are held subject to
certain restrictions.
(s) "Restricted Stock" shall mean any Share granted under Section 6(c) of
the Plan or, in specified circumstances, a Share paid in connection with a
Performance Share under Section 6(e) of the Plan.
(t) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the Commission
under the Exchange Act, or any successor rule or regulation thereto.
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<PAGE>
(u) "Shares" shall mean shares of common stock of the Company, $0.05 par
value (including the associated Common Stock Purchase Rights), and such other
securities or property as may become subject to Awards pursuant to an adjustment
made under Section 4(b) of the Plan.
(v) "Stock Appreciation Right" shall mean any right granted under Section
6(b) of the Plan.
Section 3. Administration
The Plan shall be administered by the Committee; provided, however, that
if at any time the Committee shall not be in existence, the functions of the
Committee as specified in the Plan shall be exercised by those members of the
Board of Directors of the Company who qualify as "disinterested persons" under
Rule 16b-3. Subject to the terms of the Plan and applicable laws and without
limitation by reason of enumeration, the Committee shall have full discretionary
power and authority to: (i) designate Participating Key Employees; (ii)
determine the type or types of Awards to be granted to each Participating Key
Employee under the Plan; (iii) determine the number of Shares to be covered by
(or with respect to which payments, rights or other matters are to be calculated
in connection with) Awards granted to Participating Key Employees; (iv)
determine the terms and conditions of any Award granted to a Participating Key
Employee; (v) determine whether, to what extent and under what circumstances
Awards granted to Participating Key Employees may be settled or exercised in
cash, Shares, other securities, other Awards or other property, and the method
or methods by which Awards may be settled, exercised, canceled, forfeited or
suspended; (vi) determine whether, to what extent and under what circumstances
cash, Shares, other Awards and other amounts payable with respect to an Award
granted to Participating Key Employees under the Plan shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(vii) interpret and administer the Plan and any instrument or agreement relating
to, or Award made under, the Plan (including, without limitation, any Award
Agreement); (viii) establish, amend, suspend or waive such rules and regulations
and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations and other decisions under or with
respect to the Plan or any Award shall be within the sole discretion of the
Committee, may be made at any time or from time to time, and shall be final,
conclusive and binding upon all Persons, including the Company, any Affiliate,
any Participating Key Employee, any holder or beneficiary of any Award, any
shareholder and any employee of the Company or of any Affiliate.
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<PAGE>
Section 4. Shares Available for Award
(a) Shares Available. Subject to adjustment as provided in Section 4(b):
(i) Number of Shares Available. The number of Shares with respect to
which Awards may be granted under the Plan shall be 1,250,000, subject to the
limitations set forth in Section 6(c)(i).
(ii) Accounting for Awards. The number of Shares covered by an Award
under the Plan, or to which such Award relates, shall be counted on the date of
grant of such Award against the number of Shares available for granting Awards
under the Plan.
(iii) Sources of Shares Deliverable Under Awards. Any Shares
delivered pursuant to an Award may consist, in whole or in part, of authorized
and unissued Shares or of treasury Shares.
(b) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company,
or other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee may, in such manner as it may
deem equitable, adjust any or all of (i) the number and type of Shares subject
to the Plan and which thereafter may be made the subject of Awards under the
Plan; (ii) the number and type of Shares subject to outstanding Awards; and
(iii) the grant, purchase or exercise price with respect to any Award, or, if
deemed appropriate, make provision for a cash payment to the holder of an
outstanding Award; provided, however, in each case, that with respect to Awards
of Incentive Stock Options no such adjustment shall be authorized to the extent
that such authority would cause the Plan to violate Section 422(b) of the Code
(or any successor provision thereto); and provided further that the number of
Shares subject to any Award payable or denominated in Shares shall always be a
whole number.
Section 5. Eligibility
Any Key Employee, including any executive officer or employee-director of
the Company or of any Affiliate, who is not a member of the Committee shall be
eligible to be designated a Participating Key Employee.
Section 6. Awards
(a) Option Awards. The Committee is hereby authorized to grant Options to
Key Employees with the terms and conditions as set forth below and with such
additional terms and conditions, in either case not inconsistent with the
provisions of the Plan, as the Committee shall determine in its discretion.
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<PAGE>
(i) Exercise Price. The exercise price per Share of an Option granted
pursuant to this Section 6(a) shall be determined by the Committee; provided,
however, that such exercise price shall not be less than 100% of the Fair Market
Value of a Share on the date of grant of such Option.
(ii) Option Term. The term of each Option shall be fixed by the
Committee; provided, however, that in no event shall the term of any Option
exceed a period of seven years from the date of its grant.
(iii) Exercisability and Method of Exercise. An Option shall become
exercisable in such manner and within such period or periods and in such
installments or otherwise as shall be determined by the Committee. The Committee
also shall determine the method or methods by which, and the form or forms,
including, without limitation, cash, Shares, other securities, other Awards,
other property or any combination thereof, having a Fair Market Value on the
exercise date equal to the relevant exercise price, in which payment of the
exercise price with respect to any Option may be made or deemed to have been
made.
(iv) Incentive Stock Options. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions of
Section 422 of the Code (or any successor provision thereto) and any regulations
promulgated thereunder. Notwithstanding any provision in the Plan to the
contrary, no Incentive Stock Option may be granted hereunder after the tenth
anniversary of the adoption of the Plan by the Board of Directors of the
Company.
(b) Stock Appreciation Right Awards. The Committee is hereby authorized
to grant Stock Appreciation Rights to Key Employees. Subject to the terms of the
Plan and any applicable Award Agreement, a Stock Appreciation Right granted
under the Plan shall confer on the holder thereof a right to receive, upon
exercise thereof, the excess of (i) the Fair Market Value of one Share on the
date of exercise over (ii) the grant price of the Stock Appreciation Right as
specified by the Committee, which shall not be less than 100% of the Fair Market
Value of one Share on the date of grant of the Stock Appreciation Right. Subject
to the terms of the Plan, the grant price, term, methods of exercise, methods of
settlement (including whether the Participating Key Employee will be paid in
cash, Shares, other securities, other Awards, or other property or any
combination thereof), and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee in its discretion.
The Committee may impose such conditions or restrictions on the exercise of any
Stock Appreciation Right as it may deem appropriate, including, without
limitation, restricting the time of exercise of the Stock Appreciation Right to
specified periods as may be necessary to satisfy the requirements of Rule 16b-3.
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(c) Restricted Stock Awards
(i) Issuance. The Committee is hereby authorized to grant Awards of
Restricted Stock to Key Employees; provided, however, that the aggregate number
of Shares of Restricted Stock granted under the Plan to all Participating Key
Employees as a group shall not exceed 75,000 Shares (such number of Shares
subject to adjustment in accordance with the terms of Section 4(b) hereof) of
the total number of Shares available for Awards under Section 4(a)(i).
(ii) Restrictions. Shares of Restricted Stock granted to
Participating Key Employees shall be subject to such restrictions as the
Committee may impose in its discretion (including, without limitation, any
limitation on the right to vote a Share of Restricted Stock or the right to
receive any dividend or other right or property), which restrictions may lapse
separately or in combination at such time or times, in such installments or
otherwise, as the Committee may deem appropriate in its discretion.
(iii) Registration. Any Restricted Stock granted under the Plan to a
Participating Key Employee may be evidenced in such manner as the Committee may
deem appropriate in its discretion, including, without limitation, book-entry
registration or issuance of a stock certificate or certificates. In the event
any stock certificate is issued in respect of Shares of Restricted Stock granted
under the Plan to a Participating Key Employee, such certificate shall be
registered in the name of the Participating Key Employee and shall bear an
appropriate legend (as determined by the Committee) referring to the terms,
conditions and restrictions applicable to such Restricted Stock.
(iv) Payment of Restricted Stock. At the end of the applicable
restriction period relating to Restricted Stock granted to a Participating Key
Employee, one or more stock certificates for the appropriate number of Shares,
free of restrictions imposed under the Plan, shall be delivered to the
Participating Key Employee or, if the Participating Key Employee received stock
certificates representing the Restricted Stock at the time of grant, the legends
placed on such certificates shall be removed.
(v) Forfeiture. Except as otherwise determined by the Committee in
its discretion, upon termination of employment of a Participating Key Employee
(as determined under criteria established by the Committee in its discretion)
for any reason during the applicable restriction period, all Shares of
Restricted Stock still subject to restriction shall be forfeited by the
Participating Key Employee; provided, however, that the Committee may, when it
finds that a waiver would be in the best interests of the Company, waive in
whole or in part any or all remaining restrictions with respect to Shares of
Restricted Stock held by a Participating Key Employee.
(d) Performance Share Awards
(i) Issuance. The Committee is hereby authorized to grant Awards of
Performance Shares to Key Employees.
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(ii) Performance Goals and Other Terms. The Committee shall determine
in its discretion the Performance Period, the performance goal or goals to be
achieved during any Performance Period, the proportion of payments, if any, to
be made for performance between the minimum and full performance levels, the
restrictions applicable to Shares of Restricted Stock received upon payment of
Performance Shares if Performance Shares are paid in such manner, and any other
terms, conditions and rights relating to a grant of Performance Shares.
Performance goals established by the Committee may be based on one or more
measures such as return on shareholders' equity, earnings or any other standard
or standards deemed relevant by the Committee, measured internally or relative
to other organizations and before or after extraordinary items.
(iii) Rights and Benefits During the Performance Period. The
Committee may provide that, during a Performance Period, a Participating Key
Employee shall be paid cash amounts, with respect to each Performance Share held
by such Participating Key Employee, in the same manner, at the same time, and in
the same amount paid, as a cash dividend on a Share. Participating Key Employees
shall have no voting rights with respect to Performance Shares held by them.
(iv) Adjustments with Respect to Performance Shares. Any other
provision of the Plan to the contrary notwithstanding, the Committee may in its
discretion at any time or from time to time adjust performance goals (up or
down) and minimum or full performance levels (and any intermediate levels and
proportion of payments related thereto), adjust the manner in which performance
goals are measured, or shorten any Performance Period or waive in whole or in
part any or all remaining restrictions with respect to Shares of Restricted
Stock issued in payment of Performance Shares, if the Committee determines that
conditions, including but not limited to, changes in the economy, changes in
competitive conditions, changes in laws or governmental regulations, changes in
generally accepted accounting principles, changes in the Company's accounting
policies, acquisitions or dispositions by the Company or its Affiliates, or the
occurrence of other unusual, unforeseen or extraordinary events, so warrant.
(v) Payment of Performance Shares. As soon as is reasonably
practicable following the end of the applicable Performance Period, one or more
certificates representing the number of Shares equal to the number of
Performance Shares payable shall be registered in the name of and delivered to
the Participating Key Employee; provided, however, that any Shares of Restricted
Stock payable in connection with Performance Shares shall, pending the
expiration, lapse, or waiver of the applicable restrictions, be evidenced in the
manner as set forth in Section 6(c)(iii) hereof.
(e) General
(i) No Consideration for Awards. Awards shall be granted to
Participating Key Employees for no cash consideration unless otherwise
determined by the Committee.
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<PAGE>
(ii) Award Agreements. Each Award granted under the Plan shall be
evidenced by an Award Agreement in such form (consistent with the terms of the
Plan) as shall have been approved by the Committee.
(iii) Awards May Be Granted Separately or Together. Awards to
Participating Key Employees under the Plan may be granted either alone or in
addition to, in tandem with, or in substitution for, any other Award or any
award granted under any other plan of the Company or any Affiliate. Awards
granted in addition to, or in tandem with, other Awards, or in addition to, or
in tandem with, awards granted under any other plan of the Company or any
Affiliate, may be granted either at the same time as or at a different time from
the grant of such other Awards or awards.
(iv) Forms of Payment Under Awards. Subject to the terms of the Plan
and of any applicable Award Agreement, payments or transfers to be made by the
Company or an Affiliate upon the grant, exercise or payment of an Award to a
Participating Key Employee may be made in such form or forms as the Committee
shall determine, and may be made in a single payment or transfer, in
installments, or on a deferred basis, in each case in accordance with rules and
procedures established by the Committee in its discretion. Such rules and
procedures may include, without limitation, provisions for the payment or
crediting of interest on installment or deferred payments.
(v) Limits on Transfer of Options. Except as otherwise provided by
the Board of Directors of the Company or the Committee, Awards granted under the
Plan shall not be transferable other than as designated by the Participating Key
Employee by will, or by the laws of descent and distribution. In the event that
the Board of Directors of the Company or the Committee shall permit a transfer
of an Award, any permitted transferee shall have all of the rights of the
Participating Key Employee under the Plan, as if the Participating Key Employee
had retained such Award.
(vi) Term of Awards. Except as otherwise provided in the Plan, the
term of each Award shall be for such period as may be determined by the
Committee.
(vii) Rule 16b-3 Six-Month Limitations. To the extent required in
order to comply with Rule 16b-3 only, any equity security offered pursuant to
the Plan may not be sold for at least six months after acquisition, except in
the case of death or disability, and any derivative security issued pursuant to
the Plan shall not be exercisable for at least six months, except in case of
death or disability of the holder thereof. Terms used in the preceding sentence
shall, for the purposes of such sentence only, have the meanings, if any,
assigned or attributed to them under Rule 16b-3.
(viii) Share Certificates; Representation. In addition to the
restrictions imposed pursuant to Section 6(c) and Section 6(d) hereof, all
certificates for Shares delivered under the Plan pursuant to any Award or the
exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the rules,
regulations and other requirements of the Commission, Nasdaq Stock Market or any
stock exchange or other market upon which such Shares are then listed or traded,
and any applicable federal or state securities laws, and the Committee may cause
a legend or legends to
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be put on any such certificates to make appropriate reference to such
restrictions. The Committee may require each Participating Key Employee, or
other Person who acquires Shares under the Plan by means of an Award originally
made to a Participating Key Employee to represent to the Company in writing that
such Participating Key Employee, or other Person is acquiring the Shares without
a view to the distribution thereof.
Section 7. Amendment and Termination of the Plan; Correction of Defects and
Omissions
(a) Amendments to and Termination of the Plan. The Board of Directors of
the Company may at any time amend, alter, suspend, discontinue or terminate the
Plan; provided, however, that shareholder approval of any amendment of the Plan
shall also be obtained if otherwise required by: (i) the rules and/or
regulations promulgated under Section 16 of the Exchange Act (in order for the
Plan to remain qualified under Rule 16b-3); (ii) the Code or any rules
promulgated thereunder (in order to allow for Incentive Stock Options to be
granted under the Plan); or (iii) the quotation or listing requirements of the
Nasdaq National Market or any principal securities exchange or market on which
the Shares are then traded (in order to maintain the quotation or listing of the
Shares thereon). Termination of the Plan shall not affect the rights of
Participating Key Employees with respect to Awards previously granted to them,
and all unexpired Awards shall continue in force and effect after termination of
the Plan except as they may lapse or be terminated by their own terms and
conditions.
(b) Correction of Defects, Omissions and Inconsistencies. The Committee
may in its discretion correct any defect, supply any omission or reconcile any
inconsistency in any Award or Award Agreement in the manner and to the extent it
shall deem desirable to carry the Plan into effect.
Section 8. General Provisions
(a) No Rights to Awards. No Key Employee, Participating Key Employee or
other Person shall have any claim to be granted any Award under the Plan, and
there is no obligation for uniformity of treatment of Key Employees,
Participating Key Employees or holders or beneficiaries of Awards under the
Plan. The terms and conditions of Awards need not be the same with respect to
each Participating Key Employee.
(b) Withholding. No later than the date as of which an amount first
becomes includible in the gross income of a Participating Key Employee for
federal income tax purposes with respect to any Award under the Plan, the
Participating Key Employee shall pay to the Company, or make arrangements
satisfactory to the Company regarding the payment of, any federal, state, local
or foreign taxes of any kind required by law to be withheld with respect to such
amount. Unless otherwise determined by the Committee, withholding obligations
arising with respect to Awards to Participating Key Employees under the Plan may
be settled with Shares previously owned by the Participating Key Employee;
provided, however, that the Participating Key Employee may not settle such
obligations with Shares that are part of, or are received upon exercise of, the
Award that gives rise to the withholding requirement. The obligations of the
Company under the Plan shall be conditional on such payment or arrangements, and
the Company and any Affiliate shall, to the extent permitted by
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<PAGE>
law, have the right to deduct any such taxes from any payment otherwise due to
the Participating Key Employee. The Committee may establish such procedures as
it deems appropriate for the settling of withholding obligations with Shares,
including, without limitation, the establishment of such procedures as may be
necessary to satisfy the requirements of Rule 16b-3.
(c) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.
(d) Rights and Status of Recipients of Awards. The grant of an Award
shall not be construed as giving a Participating Key Employee the right to be
retained in the employ of the Company or any Affiliate. Further, the Company or
any Affiliate may at any time dismiss a Participating Key Employee from
employment, free from any liability, or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Award Agreement. Except for
rights accorded under the Plan and under any applicable Award Agreement,
Participating Key Employees shall have no rights as holders of Shares as a
result of the granting of Awards hereunder.
(e) Unfunded Status of the Plan. Unless otherwise determined by the
Committee, the Plan shall be unfunded and shall not create (or be construed to
create) a trust or a separate fund or funds. The Plan shall not establish any
fiduciary relationship between the Company or the Committee and any
Participating Key Employee or other Person. To the extent any Person holds any
right by virtue of a grant under the Plan, such right (unless otherwise
determined by the Committee) shall be no greater than the right of an unsecured
general creditor of the Company.
(f) Governing Law. The validity, construction and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the internal laws of the State of Wisconsin and applicable federal law.
(g) Severability. If any provision of the Plan or any Award Agreement or
any Award is or becomes or is deemed to be invalid, illegal or unenforceable in
any jurisdiction, or as to any Person or Award, or would disqualify the Plan,
any Award Agreement or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the intent of the Plan,
any Award Agreement or the Award, such provision shall be stricken as to such
jurisdiction, Person or Award, and the remainder of the Plan, any such Award
Agreement and any such Award shall remain in full force and effect.
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(h) No Fractional Shares. No fractional Shares or other securities shall
be issued or delivered pursuant to the Plan, any Award Agreement or any Award,
and the Committee shall determine (except as otherwise provided in the Plan)
whether cash, other securities or other property shall be paid or transferred in
lieu of any fractional Shares or other securities, or whether such fractional
Shares or other securities or any rights thereto shall be canceled, terminated
or otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
Section 9. Effective Date of the Plan
The Plan shall be effective as of January 30, 1995 subject to shareholder
approval of the Plan within 12 months following the date of adoption of the Plan
by the Board of Directors, and all Awards granted under the Plan prior to the
date of shareholder approval shall be subject to such approval and the effective
date of such Award grants shall be deemed to be the date of such shareholder
approval.
Section 10. Term of the Plan
No Award shall be granted under the Plan following the fifth anniversary
of its effective date. However, unless otherwise expressly provided in the Plan
or in an applicable Award Agreement, any Award theretofore granted may extend
beyond such date and, to the extent set forth in the Plan, the authority of the
Committee to amend, alter, adjust, suspend, discontinue or terminate any such
Award, or to waive any conditions or restrictions with respect to any such
Award, and the authority of the Board of Directors of the Company to amend the
Plan, shall extend beyond such date.
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EXHIBIT 10.13
SCHULTZ SAV-O STORES, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, made and entered into as of this day of , 199_ (the
"Grant Date"), by and between SCHULTZ SAV-O STORES, INC., a Wisconsin
corporation (the "Company"), and (the "Optionee").
W I T N E S S E T H :
WHEREAS, the terms of the Schultz Sav-O Stores, Inc. 1995 Equity
Incentive Plan (the "Plan"), to the extent not stated herein, are specifically
incorporated by reference in this Agreement and defined terms used herein which
are not otherwise defined shall have the meaning set forth in the Plan;
WHEREAS, the purpose of the Plan is to permit the grant of various
equity-based incentive awards, including options to purchase shares of the
Company's Common Stock, $.05 par value ("Common Stock"), to be granted to
certain key employees of the Company;
WHEREAS, the Optionee is now employed by the Company in a key capacity
and has exhibited judgment, initiative and efforts which have contributed
materially to the successful performance of the Company; and
WHEREAS, the Company desires the Optionee to remain in the Company's
employ and wishes to provide the Optionee with the opportunity to secure or
increase his stock ownership in the Company in order to develop even a stronger
incentive to put forth maximum effort for the continued success and growth of
the Company.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements herein set forth, the parties hereby mutually covenant and agree as
follows:
1. Grant of Options. Subject to the terms and conditions of the Plan and
this Agreement, and shareholder approval of the Plan at the Company's 1995
annual meeting of shareholders, the Company grants to the Optionee this option
(the "Option") to purchase from the Company all or any part of the aggregate
number of ______ shares of Common Stock (the "Optioned Shares"), subject to
adjustment as provided in Paragraph 7. This Option is intended to constitute a
nonqualified stock option and shall not be treated as an incentive stock option
within the meaning of Section 422A of the Internal Revenue Code of 1986, as
amended.
2. Option Price. The option price to be paid for the Optioned Shares
shall be $______ per share, subject to adjustment as provided in Paragraph 7.
The per share option price has been determined by the Compensation and Stock
Option Committee (the "Committee") of the Board of Directors of the Company (the
"Board") to be not less than 100% of the fair market value of the Common Stock
on the Grant Date.
<PAGE>
3. Exercise of Option.
a. Subject to the terms and conditions of the Plan and except as
otherwise provided in this Agreement, this Option may be exercised by the
Optionee while in the employ of the Company, in whole or in part, from time to
time or at any time, beginning on the Grant Date and ending on the seventh
anniversary of the Grant Date (the "Termination Date") in accordance with the
following schedule:
Cumulative Percentage
Elapsed Number of of Optioned Shares
Years After Grant Date Which May be Purchased
---------------------- ----------------------
Less Than One Year 0%
One Year 33-1/3%
Two Years 66-2/3%
Three Years and After 100%
b. If the Optionee is discharged or leaves the employ of the Company for
any reason (other than termination by the Company for "cause," the death or
disability of the Optionee or the retirement of the Optionee), prior to the
Termination Date, this Option, to the extent not theretofore exercised but then
permitted to be exercised under the percentage limitations of Paragraph 3(a),
may be exercised by the Optionee or by his legal representative at any time
within three months after the date of termination of employment upon the tender
to the Company in cash or its equivalent of the full purchase price (and not by
the tender of previously acquired Common Stock), but in no event later than the
Termination Date.
c. If the Optionee dies while he is in the employ of the Company, or if
his employment is terminated by reason of his retirement or his disability prior
to the Termination Date, this Option, to the extent not theretofore exercised
(regardless of the percentage limitations of Paragraph 3(a)), may be exercised
in whole or in part as follows: (i) by the legal representative of the Optionee
at any time within six months after the date of the Optionee's death or (ii) by
the Optionee or his legal representative at any time within three months after
the termination of the Optionee's employment by reason of retirement or
disability, but in no event later than the Termination Date in either case.
d. If the Optionee's employment is terminated by the Company "for cause,"
this Option to the extent not theretofore exercised shall terminate immediately
and shall not be exercisable following such termination of employment. For
purposes of this Paragraph 3, termination by the Company "for cause" shall mean
any termination of the Optionee by reason of any action or omission on the part
of the Optionee which is deemed contrary to the interests of the Company or not
in the interests of the Company, as determined by the Board in its sole
discretion.
e. This Option may be exercised during the life of the Optionee only by
the Optionee (or his legal representative as provided in this Paragraph 3).
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4. Manner of Exercise and Payment. This Option may be exercised only by
written notice to the Company by the Optionee (or his legal representative as
provided in Paragraph 3) of the Optionee's (or such legal representative's)
intent to exercise all or part of this Option, served upon the Secretary of the
Company at its office at Sheboygan, Wisconsin, specifying the number of Optioned
Shares in respect to which this Option is being exercised, accompanied by
payment of the aggregate option price for such Optioned Shares, at the
Optionee's (or such legal representative's) election (except as limited in
Paragraph 3): (a) in cash or by certified check or bank draft to the order of
the Company; (b) by delivering previously acquired shares of Common Stock, duly
endorsed in blank or accompanied by stock powers duly endorsed in blank, valued
at their fair market value at the time of exercise as determined by the
Committee; or (c) by any combination of (a) and (b). For purposes of (b) and (c)
above, the term "previously acquired shares of Common Stock" shall only include
Common Stock owned by the Optionee prior to the exercise of this Option and
shall not include shares of Common Stock which are being acquired pursuant to
the exercise of this Option. Upon receipt of the payment of the aggregate option
price for all of the Optioned Shares so purchased, certificates for such
Optioned Shares shall be issued by or on behalf of the Company to the Optionee.
The Optioned Shares so acquired, upon payment in full of the aggregate option
price, shall be fully paid and nonassessable, except as provided by Section
180.0622(2) (b) of the Wisconsin Statutes.
5. Transferability; Limitations. Subject to the limitations of this
Section 5, this Option shall be transferable, in whole or in part, upon the
surrender of this Option by the Optionee to the Company for one or more new
Options of like tenor representing, in the aggregate, the right to purchase the
number of shares of Common Stock purchasable hereunder, each of such new Options
to represent the right to purchase such number of shares of Common Stock as
shall be designated by the Optionee at the time of such surrender, subject to
the terms and conditions of the Plan and this Option. This Option may only be
transferred by will or by the laws of descent or distribution, or to any member
of the Optionee's "immediate family," as such term is defined in Rule 16a-1(e)
under the Securities Exchange Act of 1934 (the "Exchange Act") or to trusts,
partnerships or other entities established solely for the benefit of members of
the Optionee's immediate family; provided, however, that (x) there may be no
consideration for any such transfer, (y) subsequent transfers of any portion of
this Option must also be in compliance with this Section 5 and (z) promptly
after making any such transfer, the Optionee shall provide to the Company the
Notice of Transfer of Option attached as Exhibit 1 hereto. In the event of such
a permitted transfer of this Option, the transferee shall have all of the rights
of the Optionee under the Plan and this Option, as if the Optionee had retained
this Option. The terms of this Option shall be binding upon the permitted
transferees, executors, administrators, heirs and successors of the Optionee.
6. Tax Withholding.
a. The Company may require as a condition precedent to the issuance
or transfer of any shares of Common Stock upon exercise of this Option that the
Optionee pay to the Company, upon its demand, or otherwise make arrangements
satisfactory to the Company for payment of, such amount as may be requested by
the Company for the purpose of
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satisfying the Company's tax withholding requirement. If the amount so requested
is not so paid or if such arrangements are not made, the Company may refuse to
issue or transfer any Optioned Shares upon exercise of this Option.
b. The Optionee shall be permitted to satisfy the Company's tax
withholding requirements by delivering shares of previously owned Common Stock
having a fair market value (as determined by the Committee) on the date income
is recognized by the Optionee (the "Tax Date") pursuant to the exercise of this
Option equal to the minimum amount required to be withheld. If the number of
shares of Common Stock determined pursuant to the preceding sentence shall
include a fractional share, the number of shares delivered shall be reduced to
the next lower whole number and the Optionee shall deliver to the Company cash
in lieu of such fractional share, in an amount equal to the Common Stock's then
fair market value as determined by the Committee, or otherwise make arrangements
satisfactory to the Company for payment of such amount
7. Adjustment to Optioned Shares and Option Price. In the event of a
capital adjustment resulting from a stock dividend (other than a stock dividend
in lieu of an ordinary cash dividend), stock split, reorganization, spin-off,
split-up or distribution of assets to shareholders, recapitalization, merger,
consolidation, combination or exchange of shares or the like, the Optioned
Shares and the per share option price (but not the aggregate option price for
all Optioned Shares, as adjusted) shall be adjusted in a manner consistent with
such capital adjustment and in accordance with the Plan; provided, however, that
no such adjustment shall require the Company to issue any fractional shares and
the adjustment shall be limited accordingly as determined by the Committee. The
determination of the Committee as to any adjustment shall be final.
8. Transfer Restrictions. The Optioned Shares to be acquired upon
exercise of this Option may not be sold or offered for sale except pursuant to
an effective registration statement under the Securities Act of 1933, as amended
("Act"), or in a transaction which, in the opinion of legal counsel for the
Company, is exempt from the registration provisions of the Act.
9. Status of Optionee. The Optionee shall not be deemed for any purposes
to be a shareholder of the Company with respect to any of the Optioned Shares
except to the extent that this Option shall have been exercised, the aggregate
option price for the Optioned Shares purchased shall have been fully paid and a
stock certificate shall have been issued by or on behalf of the Company
therefor.
10. Employment. It is fully understood that nothing contained in this
Agreement or the Plan shall be deemed to confer upon the Optionee any right to
continue in the employ of the Company, nor to interfere in any way with the
right of the Company to terminate the employment of the Optionee at any time.
11. Interpretation by Committee. As a condition of the granting of this
Option, the Optionee agrees, for himself and his legal representatives, that the
Plan and this Agreement shall be subject to discretionary interpretation by the
Committee and that any interpretation by the Committee of the terms of the Plan
and this Agreement shall be final, binding and
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conclusive on the Optionee and his legal representatives in all respects and
shall not subject to challenge or dispute by the Optionee or his legal
representatives.
12. Change in Control.
a. Notwithstanding any other provision of this Agreement (including,
without limitation, Paragraph 3) upon the occurrence of a Change in Control (as
hereinafter defined) this Option, to the extent then outstanding and
unexercised, shall become immediately exercisable in full for the remainder of
its term, but prior to the Termination Date, and the Optionee shall have the
right for a period of 30 days following the Change in Control to require the
Company to purchase this Option for cash at the aggregate Acceleration Price (as
hereinafter defined) for all Optioned Shares then subject to issuance upon
exercise of this Option; provided, however, that, if then required by the rules
under Section 16 of the Securities Exchange Act of 1934, as amended ("Section 16
Rules"), the Optionee shall have the right to exercise this Option or require
the Company to purchase this Option only if at least six months has elapsed
between the Grant Date and the Change in Control date.
b. The "Acceleration Price" shall be the excess of the highest of the
following over the option price per share set forth in Paragraph 2 (as the same
may be adjusted from time to time pursuant to Paragraph 7) on the Change in
Control date:
(i) the highest reported ask price of the Common Stock, as
reported on NASDAQ or the principal securities exchange or market upon which the
Common Stock is then listed or traded, on or within the 60 days prior to and
including the Change in Control date;
(ii) the highest purchase or sale price of the Common Stock
reported in a Schedule 13D or an amendment thereto as paid or received on or
within the 60 days prior to and including the Change in Control date;
(iii) the highest tender offer price paid or offered for the
Common Stock on or within the 60 days prior to and including the Change in
Control date; and
(iv) the highest cash merger or similar price paid or offered for
the Common Stock on or within the 60 days prior to and including the Change of
Control date.
c. A "Change in Control" (and the Change in Control date) shall be
the occurrence of any one of the following events (certain defined terms used in
this Paragraph 12(c) are defined in Paragraph 12(d)):
(i) the first day of receipt by the Company of a Schedule 13D,
any amendment thereto or notice of a public announcement confirming that any
Person (other than any employee benefit plan of the Company or of any subsidiary
of the Company or any Person organized, appointed or established pursuant to the
terms of any such benefit plan or any Person who is a key employee of the
Company), together with his Affiliates or Associates, is
5
<PAGE>
or becomes the Beneficial Owner of securities representing at least 20% of the
combined voting power of the Company;
(ii) the first day on which two or more of the members of the
Board are not Continuing Directors;
(iii) the day on which the shareholders of the Company approve
(A) any business combination, consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or pursuant to which
shares of the Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the Common
Stock immediately prior to the merger have the same proportionate ownership of
common stock of the surviving corporation immediately after the merger, or (B)
any sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of the
Company; or
(iv) the day on which the shareholders of the Company approve any
plan or proposal for the liquidation or dissolution of the Company.
d. For purposes of this Paragraph 12:
(i) a "Person" shall mean any individual, firm, corporation,
partnership, trust or other entity.
(ii) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act
of 1934, as amended.
(iii) a Person shall be a "Beneficial Owner" of securities (A)
which such Person beneficially owns, directly or indirectly, or (B) which such
Person has the right to acquire (whether such right is exercisable immediately
or only with the passage of time) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of conversion
rights, exchange rights, rights, warrants, options or otherwise, other than if
such Person acquires or has the right to acquire such securities as an
underwriter, broker, dealer or selling group member in connection with the
public or private distribution of such securities pursuant to an underwriting or
similar agreement with the Company.
(iv) "Continuing Directors" means any member of the Board who was
a member of the Board on December 20, 1994, and any successor of a Continuing
Director who is recommended or elected to succeed the Continuing Director by a
majority of the remaining Continuing Directors.
13. Modification. At any time and from time to time the Committee may
direct execution of an instrument providing for the modification, extension or
renewal of this Option; provided, however, that no such modification, extension
or renewal shall (a) confer on the Optionee any right or benefit which could not
be conferred on him by the grant of a new option under the Plan at such time or
(b) alter, impair or adversely affect this Option or Agreement without the
written consent of the Optionee.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Optionee has hereunto affixed his
signature as of the day and year first above written.
SCHULTZ SAV-O STORES, INC.
By: ___________________________
Title:__________________________
-------------------------------
___________________, Optionee
7
<PAGE>
Exhibit 1
SCHULTZ SAV-O STORES, INC.
NOTICE OF TRANSFER OF STOCK OPTION
This Notice is intended to (i) inform Schultz Sav-O Stores, Inc. (the
"Company"), that ________________ ( the "Optionee") has transferred and assigned
to the transferee named below (the "Transferee"), a member of the Optionee's
"immediate family," as such term is defined in Rule 16a-1(e) of the Securities
Exchange Act of 1934, or a trust, partnership or other entity established solely
for the benefit of members of the Optionee's immediate family, all of the
Optionee's right, title and interest in and to a nonqualified stock option (or
portion thereof described below) to purchase ___________ shares of common stock
of the Company at a price of $_____ per share, originally granted to the
Optionee pursuant to the Nonqualified Stock Option Agreement, dated
_____________, 19__, issued by the Company to the undersigned (the "Option") and
(ii) request the Company to issue a new Option in the name of the Transferee. No
consideration has been or will be received by the Optionee in connection with
this transfer.
The Option has been validly transferred and assigned by the Optionee to
the following:
- - -------------------------------- -------------------------------------
Name of Transferee Street Address, City, State, Zip Code
- - --------------------------------
If entire Option has not been
transferred, number of shares
underlying the portion transferred
- - --------------------------------- ------------------
Signature of Optionee Date of Transfer
- - --------------------------------- -------------------------------------
Signature of Transferee Name
By executing this Notice, the Transferee hereby agrees to comply with and
be subject to the terms and conditions of the Option.
Receipt of this Notice is hereby acknowledged this ___ day of _________,
19__.
SCHULTZ SAV-O STORES, INC.
By
Name:
Title:
As Amended Through
January 28, 1999
SCHULTZ SAV-O STORES, INC.
OFFICER ANNUAL INCENTIVE PLAN
1. Purpose
The purpose of the Schultz Sav-O Stores, Inc. Officer Annual Incentive
Plan ("Plan") is to (a) reward Participants on an individual and team
basis for the achievement of corporate financial goals and objectives
which increase the economic value of the Company for the benefit of all
shareholders; (b) provide competitive levels of compensation to its
executive officers to enable the Company to attract and retain highly
qualified and talented individuals who are able to exert a significant
impact on the economic value of the Company for the benefit of all
shareholders; (c) encourage teamwork and cooperation in the achievement
of corporate financial goals and objectives; and (d) recognize
differences in the performance of individual Participants.
2. Plan Administration
The Compensation and Stock Option Committee of the Board of Directors
(the "Committee") shall have full power, authority and responsibility for
the design, construction, administration and interpretation of the Plan.
The Committee may from time to time or at any time make such decisions
and adopt such rules and regulations for the design, construction,
administration and interpretation of the Plan as it deems appropriate.
Any such decision made by the Committee shall be final, conclusive and
binding upon all Participants and any person claiming under or through
them. A majority of the members of the Committee shall constitute a
quorum. All determinations of the Committee shall be made by at least a
majority of a quorum. Any decision or determination reduced to writing
and signed by all of the members of the Committee shall be fully as
effective as if it had been made by a unanimous vote at a meeting of the
Committee duly called and held.
3. Definitions
3.1 "Base Salary" means the dollar amount of a Participant's annual
base salary actually earned during the Plan Year, without
adjustment for bonuses (hereunder or otherwise), salary deferrals,
value of benefits, stock option or other equity-based incentive
award grants or exercises, imputed income, special payments,
amounts contributed to or earned under the Company's Retirement
Savings Plan or its Executive Benefits Restoration Plan or similar
existing or future plans.
3.2 "Base Salary Percentage" means the percentage arrived at by
dividing a Participant's Base Salary for a specified Plan Year by
the aggregate Base Salaries of all Participants for the same Plan
Year.
<PAGE>
3.3 "Bonus Amount" means a Participant's annual aggregate bonus amount
which is calculated in the manner set forth in Section 5.1.
3.4 "Bonus Pool" means the dollar amount of the cash award pool
established for the specified Plan Year for the distribution of
Bonus Awards to Participants for such Plan Year, calculated as
follows:
Bonus Pool = 10% of the dollar amount of the Current Year EVA + 5%
of the dollar amount of the Incremental EVA + $25,000 for each
percentage point increase, if any, in net sales of the Company for
the specified Plan Year over net sales of the Company in the
preceding Plan Year, each as reflected in the Company's audited
financial statements for such Plan Years, subject to adjustment as
determined by the Board to take into account extraordinary,
unusual or nonrecurring events or circumstances (other than the
acquisition of other supermarkets or businesses).
3.5 "Company Performance Bonus Pool" shall be equal to twenty-five
percent (25%) of the Bonus Pool for the specified Plan Year.
3.6 "Current Year EVA" means the EVA as calculated for the specified
Plan Year.
3.7 "Economic Value Added" or "EVA" means the NOPAT that remains after
subtracting the product of the Threshold Rate of Return multiplied
by the Investment Amount, expressed as follows:
EVA = NOPAT C [Threshold Rate of Return x Investment Amount]
EVA may be positive or negative.
3.8 "Incremental EVA" means the Current Year EVA minus the EVA for the
prior Plan Year. For purposes of calculating Incremental EVA for
the 1995 Plan Year, the EVA for 1994 was $1,128,000. Incremental
EVA may not be negative.
3.9 "Individual Performance Bonus" shall have the meaning set forth in
Section 5.1.
3.10 "Individual Performance Bonus Pool" shall be equal to seventy-five
percent (75%) of the Bonus Pool for the specified Plan Year.
3.11 "Individual Performance Factor" shall have the meaning set forth
in Section 5.2.
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<PAGE>
3.12 "Investment Amount" means the dollar amount of the Company's
average investment for the Plan Year, calculated by adding the
investment reflected on the Company's financial statements as of
the end of each fiscal quarter, and then dividing by four, where
investment is determined as follows:
Investment = indebtedness for borrowed money + shareholders'
investment + obligations under capital leases
3.13 "NOPAT" means the Company's net earnings after tax (without
reduction for any Bonus Amounts or Bonus Pool accrued, paid or
payable under the Plan), plus interest expense after tax for the
Plan Year, all as reflected in the Company's audited financial
statements for the Plan Year.
3.14 "Participant" means an eligible executive officer of the Company
under Section 4.1 who has been selected to participate in the Plan
for the Plan Year pursuant to Section 4.2.
3.15 "Plan Year" means the one-year period coincident with the
Company's applicable fiscal year.
3.16 "Threshold Rate of Return" shall be the target percentage rate of
return on the Investment Amount for the specified Plan Year
established by the Committee at the beginning of each Plan Year
based on the Company's weighted average cost of capital. For the
1995 Plan Year, the Threshold Rate of Return has been established
by the Committee as 9.1%.
4. Eligibility
4.1 Eligible Executive Officers. In general, all executive officers of
the Company (which generally shall include those Company officers
listed as such in the Company's annual report to shareholders) at
the beginning of a Plan Year will be eligible for participation in
the Plan. However, nomination of an executive officer by the Chief
Executive Officer and approval by the Committee will be required
for actual participation.
4.2 Nomination and Approval. Each Plan Year, the Company's Chief
Executive Officer will nominate eligible executive officers to
participate in the Plan for the specified Plan Year. The Committee
will have the final authority to select the Participants for such
Plan Year from among the eligible executive officers nominated by
the Company's Chief Executive Officer. Selection normally will
take place, and will be communicated to each Participant, prior to
or shortly after the beginning of the specified Plan Year.
5. Bonus Amounts; Individual Performance Factors
5.1 Calculation of Bonus Amounts. Each Participant's Bonus Amount for
a specified Plan Year will be equal to his pro-rata portion of the
Company Performance Bonus Pool plus his Individual Performance
Bonus. For any
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<PAGE>
specified Plan Year, a Participant's pro-rata portion of the
Company Performance Bonus Pool shall be equal to the product of
the Participant's Base Salary Percentage multiplied by the Company
Performance Bonus Pool. The Participant's Individual Performance
Bonus shall be equal to the product of the Participant's Base
Salary Percentage multiplied by the Individual Performance Bonus
Pool multiplied by his Individual Performance Factor; provided,
however, that the aggregate Individual Performance Bonuses for all
Participants for a specified Plan Year may not exceed the
Individual Performance Bonus Pool for such Plan Year. If the
aggregate Individual Performance Bonuses for all Participants for
a specified Plan Year would exceed the Individual Performance
Bonus Pool for such Plan Year, then the Committee in its
discretion shall adjust the Participants' Individual Performance
Bonuses so that such aggregate Individual Performance Bonuses will
not exceed the Individual Performance Bonus Pool for such Plan
Year.
5.2 Individual Performance Factor Calculation. Each Participant's
Individual Performance Factor for a Plan Year will be based on the
Participant's accomplishment of individual and/or group financial
and/or other goals or objectives established by the Company's
Chief Executive Officer, with the approval and ratification of the
Committee (or as determined solely by the Committee in the case of
the Company's Chief Executive Officer), as of the beginning of the
specified Plan Year. Whenever possible, individual performance
will be evaluated according to quantifiable or objective
benchmarks of success and the level of the Participant's relative
achievement of such quantifiable benchmarks. An achievement
percentage continuum that ranges from achieving 0% to 150% of the
quantifiable benchmark opportunity will be established and the
Participant's relative level of achievement of such quantifiable
benchmarks will be enumerated accordingly from 0 to 1.5 based on
such continuum. After the end of a Plan Year, the Company's Chief
Executive Officer, with the approval and ratification of the
Committee (or solely by the Committee in the case of the Company's
Chief Executive Officer), will evaluate and rate the Participant's
performance over the Plan Year and the relative contribution of
the Participant to the achievement of the previously established
individual or group financial or other performance goals and
objectives, and this evaluation will result in the Participant's
Individual Performance Factor being determined according to the
following schedule:
Performance Individual
Individual Rating Performance Factor
----------------- ------------------
Very Good 1.5 1.5
Good 1.0
Satisfactory 0.5
Marginal 0.0
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<PAGE>
6. Change in Status During the Plan Year
6.1 New Hire or Promotion
An executive officer who is newly hired or promoted during a
specified Plan Year to an executive officer position which, if
held by the Participant at the beginning of the Plan Year, would
have otherwise allowed the Participant to be eligible for
participation in the Plan will generally not be eligible to
receive a Bonus Amount for such Plan Year; provided, however, that
the Company's Chief Executive Officer, with the approval and
ratification of the Committee (or solely by the Committee in the
case of the Company's Chief Executive Officer) may waive this
policy and allow such executive officer to receive a pro rata
Bonus Amount for such Plan Year based on the percentage of the
Plan Year the executive officer was employed in such eligible
executive officer position (determined based on the actual number
of full months of employment in such executive officer position
during the Plan Year divided by 12). Any such waiver of this
policy will take into account such factors as the executive
officer's contributions to the Company's achievement of corporate
financial goals and objectives in such executive officer position
and the portion of the Plan Year the individual actually spent in
such executive officer position.
6.2 Death, Disability or Retirement
If a Participant's employment as an effective officer is
terminated during a Plan Year by reason of death, disability or
normal or early retirement, the Participant (or his or her heirs
or personal representatives in the case of death) will receive a
pro rata Bonus Amount for such Plan Year based on the percentage
of the Plan Year the Participant was employed in such position
(determined based on the actual number of full months of
employment of such Participant during the Plan Year divided by
12).
6.3 Termination for any Other Reason
If a Participant's employment is terminated during a Plan Year for
any reason other than death, disability or retirement, such
Participant will generally not be eligible to receive a Bonus
Amount for such Plan Year; provided, however, that the Company's
Chief Executive Officer, with the approval and ratification of the
Committee (or solely the Committee in the case of the Company's
Chief Executive Officer) may waive this policy and allow such
Participant to receive a pro-rata Bonus Amount for such Plan Year
based on the percentage of the Plan Year the executive officer was
employed in such eligible executive officer position (determined
based on the actual number of full months of employment in such
executive officer position during the Plan Year divided by 12).
-5-
<PAGE>
7. Administrative Provisions
7.1 Amendments and Terminations. The Company's Board of Directors
shall have the right to modify or amend this Plan in whole or in
part from time to time or at any time, or suspend it or terminate
it entirely; provided, however, that no such modification,
amendment, suspension or termination may, without the consent of
any affected Participants (or beneficiaries of such Participants
in the event of death), reduce the rights of any such Participants
(or beneficiaries, as applicable) to a payment or distribution of
a Bonus Amount already determined and earned under Plan terms in
effect prior to such change. A Participant shall not be deemed to
have earned or have any right to any Bonus Amount for a Plan Year
until completion of that Plan Year and the determination of Bonus
Amounts for such Plan Year by the Company's Chief Executive
Officer and/or the Committee.
7.2 Effect of Award on Other Employee Benefits. By acceptance of a
Bonus Amount, each Participant agrees that such Bonus Amount is
special additional compensation and that it will not affect
adversely any other employee benefit (e.g., Retirement Savings
Plan, Executive Benefits Restoration Plan, life insurance, etc.),
in which the Participant participates or to which he is entitled,
except as provided in Section 7.4 below. The existence of the Plan
or the grant of any Bonus Amounts hereunder shall not restrict the
ability of the Committee or the Board to grant any other
discretionary bonuses to any executive officers, employees or
others outside of the Plan.
7.3 Retirement Programs; Severance Agreements. Bonus Amounts paid
under this Plan shall be included in the Participant's
compensation for purposes of the Company's Retirement Savings
Plan, Executive Benefits Restoration Plan, any other qualified
employee benefit plan and any applicable key executive employment
and severance agreement with the Company.
7.4 No Right to Continued Employment or Additional Bonus Amounts. A
Participant's eligibility for or actual receipt of a Bonus Amount
in any specified Plan Year shall not give the Participant any
right to continued employment with the Company, and the right and
power to dismiss or terminate the employment of the Participant
for any reason whatsoever (other than as otherwise specified in
any applicable contract of employment between the Participant and
the Company) is specifically reserved to the Company. In addition,
the selection of an eligible executive officer as a Participant in
the Plan for any Plan Year shall not require or infer the
inclusion or selection of such person as a Participant for any
subsequent Plan Year or, if such person is subsequently so
included or selected, shall not require that the same Bonus Amount
provided to the Participant under the Plan for an earlier Plan
Year be provided to such Participant for the subsequent Plan Year.
-6-
<PAGE>
7.5 Adjustments to Performance Goals. When a performance goal or
objective is based on Economic Value Added or other quantifiable
financial or accounting measures, it may be appropriate to exclude
certain items in order to properly measure performance. The
Committee in its discretion will decide those items that shall be
considered in adjusting actual results. For example, some types of
items that may be considered for exclusion are:
a. Extraordinary Items. Any gains or losses which will be
treated as extraordinary in the Company's financial
statements under generally accepted accounting principles.
b. Unanticipated Nonrecurring Non-Ordinary Course Items.
Unanticipated, nonrecurring, nonordinary course items such
as:
(i) Gains or losses from the sale or disposal of
real estate or property.
(ii) Gains resulting from insurance recoveries
when such gains relate to claims filed in
prior years.
(iii) Losses resulting from natural catastrophes,
when the cause of the catastrophe is beyond
the control of the Company and did not result
from any failure or negligence on the
Company's part.
(iv) Changes in accounting policies or practices.
7.6 Payment of Bonus Amounts. The Bonus Amounts payable for a Plan
Year as determined by the Chief Executive Officer and/or Committee
shall be distributed by the Company as soon as practicable after
the date of the first public release of the Company's complete
audited financial statements for such Plan Year.
8. Miscellaneous
8.1 Indemnification. Each person who is or who shall have been a
member of the Committee or of the Company's Board of Directors,
shall not be liable for, and shall be indemnified and held
harmless by the Company against and from, any and all loss, cost,
liability or expense (including attorneys' fees and disbursements)
that may be imposed upon or incurred by him or her in connection
with any claim, action, suit or proceeding to which he or she may
be a party by reason of any action taken or failure to act under
or pursuant to the Plan. The foregoing right of indemnification
shall not be exclusive of any other rights of indemnification,
advancement of expenses or reimbursement to which such persons may
be entitled under the Company's Articles of Incorporation,
By-Laws, Indemnity Agreements, as a matter of law under the
Wisconsin
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<PAGE>
Business Corporation Law, under applicable insurance policies or
otherwise, or any other power or authority that the Company may
have to indemnify or reimburse them or hold them harmless.
8.2 Expenses of the Plan. The expenses of administering this Plan
shall be borne by the Company
8.3 Withholding Taxes. The Company shall deduct from all Bonus Amounts
paid or payable under the Plan any federal or state taxes required
by law to be withheld with respect to such payments.
8.4 Non-Transferrable Benefits. Bonus Amounts (or any interests
therein) paid or payable under the Plan are personal to
Participants and are non-transferrable and non-assignable during
the life of a Participant.
8.5 Unsecured Rights. The right of any Participant to receive a Bonus
Amount under the Plan when determined and earned shall be an
unsecured claim against the general assets of the Company and the
Participant shall have no rights in or against any specific assets
of the Company as a result of participation hereunder.
8.6 Powers of Company Not Affected. The existence of the Plan shall
not affect in any way the right or power of the Company, the Board
of Directors or its shareholders to make or authorize any or all
adjustments, recapitalization, reorganizations or other changes in
the Company's capital structure or its business, or any merger or
consolidation of the Company, or dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets
or business or any other corporate act or proceeding, whether of a
similar character or otherwise.
8.7 Governing Law. This Plan shall be construed in accordance with and
governed by the laws of the State of Wisconsin.
8.8 Effective Date. The effective date of the Plan is January 1, 1995.
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EXHIBIT 10.16
LOAN AGREEMENT
THIS AGREEMENT is made as of the 3rd day of December, 1992, by and among
SCHULTZ SAV-O STORES, INC., a Wisconsin corporation ("Borrower"), M&I MARSHALL &
ILSLEY BANK, a Wisconsin banking corporation ("M&I") and FIRSTAR BANK MILWAUKEE,
NATIONAL ASSOCIATION, a national banking association ("Firstar") (collectively,
the "Banks" and individually, a "Bank"). Unless otherwise indicated herein,
capitalized terms shall have the meanings set forth in Section 9 hereof.
WITNESSETH:
WHEREAS, Borrower has available from M&I a $9,000,000 revolving credit
facility (the "Existing M&I Facility") evidenced by a promissory note (the
"Existing M&I Note") in the principal amount of $9,000,000; and
WHEREAS, Borrower has available from Firstar a $7,000,000 revolving
credit facility (the "Existing Firstar Facility" and collectively, with the
Existing M&I Facility, the "Existing Facilities") evidenced by a promissory note
(the "Existing Firstar Note") in the principal amount of $7,000,000; and
WHEREAS, Borrower has requested that the Banks amend and replace the
Existing Facilities with a $9,000,000 revolving line of credit facility from M&I
(the "M&I Line of Credit") and a $7,000,000 revolving line of credit facility
from Firstar (the "Firstar Line of Credit" and collectively, with the M&I Line
of Credit, the "Lines of Credit"); and
WHEREAS, Banks are willing to extend the Lines of Credit to Borrower, but
only on the terms and conditions hereinafter set forth and in reliance on the
representations and warranties of Borrower herein contained.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Lines of Credit. M&I and Firstar each agree to extend to Borrower
revolving credit loans (the "Loans") under the M&I Line of Credit and the
Firstar Line of Credit, respectively, on the terms and conditions hereinafter
set forth in this Agreement. All loans made to Borrower pursuant to the Existing
M&I Facility and the Existing Firstar Facility which are outstanding as of the
date hereof shall be deemed to be for purposes of this Agreement Loans made
pursuant to the M&I Line of Credit and the Firstar Line of Credit, respectively,
as of the date hereof.
(a) Interest. Interest shall accrue on the unpaid principal amount
of the Loans from time to time outstanding at a rate per annum equal to
(i) the Prime Rate or (ii) the Offered Rate from time to time elected by
Borrower, with such rate to be adjusted, and with each such adjustment to
become effective, with each election by
<PAGE>
Borrower at the Prime Rate or the Offered Rate, as the case may be. If
all or a portion of the principal amount of any Loan made hereunder shall
not be paid when due (whether at the stated maturity, by acceleration or
otherwise), any overdue principal amount thereof shall bear interest at a
rate per annum equal to the Prime Rate plus two percent (2%). Interest
shall be payable monthly in arrears on the first day of each month and at
maturity. Interest shall be computed on the basis of a 360-day year for
the actual number of days elapsed. Any change in the interest rate
resulting from a change in the Prime Rate or the Offered Rate shall
become effective as of the opening of business on the day on which such
change in the Prime Rate or the Offered Rate shall become effective. Each
Bank is authorized to debit Borrower's account at such Bank (Account No.
39-4440 in the case of M&I, and Account No. 12520901 in the case of
Firstar) by the amount of any interest payment which is due to such Bank.
(b) Master Notes. Loans made by M&I and Firstar, respectively,
under the M&I Line of Credit and the Firstar Line of Credit,
respectively, shall be evidenced by two promissory notes of Borrower
substantially in the form of Exhibits A-l and A-2 (the "Master Notes")
payable to the order of M&I and Firstar, respectively, and each
representing in the aggregate the obligation of Borrower to pay to M&I
and Firstar, respectively, the lesser of (a) such Bank's Line of Credit
or (b) the aggregate unpaid principal amount of all Loans made by such
Bank, with interest thereon as provided in subsection 1(a). The Master
Notes shall be dated as of the date of this Agreement and shall be stated
to mature on April 30, 1995 (the "Maturity Date"). Upon the execution and
delivery of the Master Notes by Borrower to Banks, the Existing Notes
shall be superseded and replaced by the Master Notes.
(c) Statement of Account. Each Bank shall record on its records
all Loans made to Borrower by such Bank and accrued interest thereon.
Each Bank shall also record all payments made by Borrower to such Bank.
At least once a month, each Bank may render a statement of account
showing as of the date thereof the indebtedness owed to such Bank on its
Line of Credit, debited and credited as set forth above. Unless Borrower
notifies such Bank in writing of an objection to said statement within
thirty (30) days of the receipt of said statement, said statement shall
be deemed correct and accepted by Borrower and conclusively binding upon
Borrower.
(d) Borrowings; Payments. All Loans to Borrower under the Lines of
Credit shall be made only in amounts not less than $50,000. All payments
by Borrower to a Bank with respect to repayment of Loans under such
Bank's Line of Credit shall be made only in amounts of not less than
$50,000; provided that on the Maturity Date Borrower shall repay Banks
all indebtedness outstanding under the Lines of Credit.
(e) Procedure to Change Amount Outstanding. Duly authorized
officers, employees or agents of Borrower designated by Borrower to Banks
in writing, may from time to time, either orally or in writing, contact a
designated officer or employee of either Bank, requesting that such Bank
increase or decrease the total
2
<PAGE>
principal amount outstanding under such Bank's Line of Credit; provided
that at no time shall the principal amount outstanding under such Bank's
Line of Credit exceed such Bank's Total Commitment. Upon compliance with
the terms and conditions hereof, such Bank shall immediately increase or
decrease the principal balance then outstanding under its Line of Credit
by crediting or debiting, whichever is appropriate, the requested amount
from the Borrower's account at such Bank referred to in subsection 1(a),
above. All such requests must be received by such Bank no later than 2:00
p.m. All requests received after that time shall be processed as if
received on the following business day. Each oral request shall be
confirmed in writing by the authorized person making the request and
delivered to such Bank in the manner provided in subsection 10(e), below.
Notwithstanding anything herein to the contrary, neither Bank
shall have an obligation to increase the principal amount outstanding
under its Line of Credit after the Maturity Date, or if any event shall
have occurred which either of itself or with the lapse of time or the
giving of notice, or both, would constitute an Event of Default under
this Agreement.
(f) Reduction of Total Commitments. Borrower may, upon not less
than ten (10) days prior written notice to the affected Bank, reduce such
Bank's Total Commitment in integral multiples of $100,000.00; provided,
such reduction shall be accompanied by a prepayment of Loans made
hereunder by such Bank, together with accrued interest on the amount so
prepaid to the date of such prepayment, to the extent, if any, that the
amount of Loans by such Bank then outstanding exceed the amount of such
Bank's Total Commitment as then reduced. Once reduced pursuant to this
provision, neither Bank's Total Commitment may thereafter be increased by
Borrower.
2. Availability Fee. As additional compensation to the Banks for their
agreement to extend the Lines of Credit to Borrower, Borrower agrees to pay to
each Bank an availability fee (the "Availability Fee") quarterly in arrears on
the first day of each quarterly period (or portion thereof) commencing January
1, 1993 and at maturity. The Availability Fee due to each Bank for any quarterly
period (or portion thereof) shall be an amount equal to the product of (i) the
average daily unused amount of such Bank's Line of Credit available for
disbursement during such period multiplied by (ii) 0.000625. Each Bank's
Availability Fee shall be payable quarterly in arrears commencing January 1,
1993 and every three months thereafter on the first business day of each
calendar quarter until the Maturity Date.
3. Representations and Warranties. In order to induce the Banks to enter
into this Agreement and to make the loans herein provided for, and in
recognition of the fact that the Banks are acting in reliance thereupon,
Borrower hereby covenants, represents and warrants as follows:
(a) Corporate Existence; Corporate Power. Borrower is a
corporation duly organized, validly existing, and in good standing under
the laws of the State of Wisconsin and is duly authorized under all
applicable provisions of law to
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carry on its business as presently conducted. Borrower is duly qualified
as a foreign corporation and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of its property or
the conduct of its business requires such qualification and the failure
to so qualify either individually or in the aggregate would have a
material adverse effect on Borrower's financial condition or the conduct
of its business. Borrower has the corporate power and authority to enter
into, deliver, issue and perform all of its obligations under this
Agreement and the Master Notes and to borrow hereunder.
(b) No Legal Bar; Enforceable Obligations. The execution, delivery
and performance of this Agreement and the Master Notes and any other
agreement, certificate or instrument delivered by Borrower to Banks in
connection with this Agreement, prospective borrowings hereunder and use
of the proceeds thereof by Borrower (i) have been duly authorized by all
necessary corporate action, (ii) are not at variance with or in
contravention of any provisions of the Articles of Incorporation and
By-Laws of Borrower, (iii) will not violate any indenture, contract or
agreement to which Borrower is a party or to which it is subject or any
statute, rule or regulation binding upon Borrower, (iv) will not require
any consent or approval of Borrower's stockholders and (v) will not
result in, or require, the creation or imposition of any Lien on any of
Borrower's properties or revenues pursuant to any requirement of law or
contractual obligation of Borrower except as provided in this Agreement.
This Agreement, the Master Notes and any other agreement, certificate or
instrument delivered by Borrower to Banks in connection with this
Agreement when duly executed and delivered on behalf of the Borrower will
constitute legal, valid and binding obligations of Borrower enforceable
against Borrower in accordance with their terms.
(c) Litigation. Except as set forth on Schedule 1 hereto, Borrower
is not a party to any litigation or administrative proceedings, nor so
far as it is known by Borrower is any litigation or administrative
proceeding threatened against it which would, if adversely determined,
cause any material adverse change in Borrower's financial condition or in
the conduct of its business.
(d) Financial Condition. All copies of financial statements,
documents, contracts, agreements and assignments which Borrower has
furnished to Banks are true and correct in all material respects. There
has been no material change in the property or business operations of
Borrower since the date of the last financial statement delivered to
Banks, except pursuant to the conduct of its ordinary business, and
except as shall have been disclosed in writing by Borrower to Banks prior
to the date of execution of this Agreement. The Banks have previously
been provided with true, correct and complete copies of Note Agreements
dated May 31, 1983 and August 1, 1986 by and between Borrower and
Prudential Insurance Company of America and all amendments thereto
(collectively, the "Note Agreements"). The Note Agreements are in full
force and effect as of the date hereof and Borrower is not in default of
any of its obligations under either of the Note Agreements.
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(e) Taxes. Borrower has paid all federal, state and local taxes
which are required to be paid by it (except for taxes being contested in
good faith by appropriate proceedings and as to which reserves have been
established by Borrower in accordance with GAAP consistently applied,
which reserves and are set forth in Borrower's financial statements).
(f) Securities Laws; Investment Company Act; Board Regulations.
Borrower has filed and will file when due all statements, if any, which
it may be required to file under the provisions of any state or federal
securities laws or regulations. Borrower is not an "investment company"
or a company "controlled" by an "investment company," within the meaning
of the Investment Company Act of 1940, as amended, nor is Borrower
engaged, principally or as one of its important activities, in the
business of extending credit for the purpose of "purchasing" or
"carrying" any "margin stock" within the respective meanings of each of
the quoted terms under Regulation U of the Board of Governors of the
Federal Reserve System as now and from time to time in effect.
(g) Ownership of Property. Borrower owns all of its assets that
appear on its balance sheet free and clear of any Liens, except as
previously disclosed in writing by Borrower to Banks prior to the date
hereof and except for financing leases referred to in Borrower's
financial statements.
(h) Environmental Laws. Except as otherwise provided on Schedule 2
hereto, (i) Borrower is in compliance with all Environmental Laws and all
requirements of law relating to pollution and environmental regulations
in the respective jurisdictions where Borrower is presently doing
business or conducting operations except for those matters where the
failure to comply with all Environmental Laws and such requirements of
law would not have a material adverse effect on the financial condition
or results of operations of Borrower; (ii) to Borrower's knowledge after
reasonable investigation, no Person has caused or permitted materials to
be stored, deposited, treated, recycled or disposed of on, under or at
any real estate owned, leased or occupied by Borrower, which materials,
if known to be present, would require cleanup, removal or some other
remedial action under Environmental Laws; (iii) to Borrower's knowledge
after reasonable investigation, there are not now, nor have there ever
been, tanks or other facilities on, under, or at any real estate owned or
occupied by Borrower which contained materials which, if known to be
present in soils or ground water, would require cleanup, removal or some
other remedial action under Environmental Laws; (iv) to Borrower's
knowledge after reasonable investigation, there are no conditions
existing currently or likely to exist during the term of this loan which
would subject Borrower to damages, penalties, injunctive relief or
cleanup costs under any Environmental Laws or which require or are likely
to require cleanup, removal, remedial action or other response pursuant
to Environmental Laws by Borrower; and (v) Borrower is not subject to any
judgment, decree, order or citation related to or arising out of
Environmental Laws and has not been named or listed as a potentially
responsible party by any governmental body or agency in a matter arising
under any Environmental Laws. Borrower has all permits, licenses and
approvals required
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under Environmental Laws and has paid all fees relating thereto and is in
compliance with all terms and conditions thereof.
(i) ERISA. All Plans maintained by Borrower are in compliance in
all material respects with the applicable provisions of ERISA; Borrower
has not incurred any "accumulated funding deficiency" within the meaning
of Section 302 of ERISA in connection with any Plan; and there has been
no "reportable event" within the meaning of Section 4034(b) of ERISA for
any Plan the occurrence of which would have a material adverse effect on
Borrower, nor has Borrower incurred any material liability to the Pension
Benefit Guaranty Corporation.
4. Affirmative Covenants of Borrower. Borrower covenants and agrees that
so long as the Lines of Credit remain in effect, any Master Note remains
outstanding and unpaid or any amount is owed to the Banks, Borrower shall:
(a) Financial Statements. Deliver to each Bank:
(i) as soon as practicable and in any event within 45 days
after the end of each fiscal quarter in each fiscal year,
statements of earnings and cash flows of the Borrower for the
period from the beginning of the current fiscal year to the end of
such quarterly period, and a balance sheet of Borrower as at the
end of each such quarterly period, setting forth in each case in
comparative form figures for the corresponding period in the
preceding fiscal year, all in reasonable detail and certified by
an authorized financial officer of Borrower, subject to changes
resulting from year-end adjustments;
(ii) as soon as practicable and in any event within 90 days
after the end of each fiscal year, a statement of earnings,
reconciliation of retained earnings, a statement of cash flows and
a balance sheet of Borrower as at the end of such year, setting
forth in each case in comparative form corresponding figures from
the preceding annual audit, all in reasonable detail and
accompanied by an opinion of independent public accountants of
recognized standing selected by Borrower which opinion shall be
without qualification as to the compliance of such statements and
balance sheet with GAAP;
(iii) promptly upon transmission thereof, copies of all
such financial statements, proxy statements, notices and reports
as it shall send to its stockholders and copies of all
registration statements (without exhibits) and all reports which
it files with the Securities and Exchange Commission (or any
governmental body or agency succeeding to the functions of the
Securities and Exchange Commission);
(iv) promptly upon receipt thereof, a copy of all other
reports submitted to Borrower by independent accountants in
connection with any annual, interim or special audit made by them
of the books of Borrower;
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(v) Each Bank may at any time, and without notice to or
consent of Borrower, deliver to any financial institution which is
a participant in the loans which are the subject of this
Agreement, copies of all financial statements, reports, or any
other documents delivered to Banks hereunder; provided, however,
that neither Bank shall participate the loans which are the
subject of this Agreement to any third party (other than an
affiliate of such Bank or its holding company) without the prior
written consent of the Borrower and the other Bank party hereto;
and
(vi) with reasonable promptness, such other financial data
as the Banks may reasonably request. Together with each delivery
of financial statements required by clauses (i) and (ii), above,
Borrower will deliver to each of the Banks a completed Officer's
Certificate substantially in the form attached hereto as Exhibit
B.
Together with each delivery of financial statements required by
clause (ii), above, Borrower will deliver to the Banks a letter
report of said accountants stating that, in making the audit
necessary to the opinion with respect to such financial
statements, they have obtained no knowledge of any Event of
Default or Default, or, if any such Event of Default or Default
exists, specifying the nature and period of existence thereof.
Borrower also covenants that forthwith upon the President or Chief
Financial Officer of Borrower obtaining knowledge of an Event of
Default or Default, it will deliver to the Banks an Officer's
Certificate specifying the nature thereof, the period of existence
thereof, and what action Borrower proposes to take with respect
thereto. Any management letters or other material non-public
financial information provided to the Banks by Borrower pursuant
to this Agreement shall be used only by the Banks, their
respective employees, agents and representatives, and their
respective accountants and auditors in connection with the
administration of this Agreement and the indebtedness hereunder,
and otherwise shall be held in confidence; provided, however, that
nothing herein contained shall be deemed to prohibit any
disclosure to regulatory or governmental authorities required by
applicable law or regulation.
(b) Books and Records; Inspection of Property. Keep proper books
of record and account; permit any person designated by the Banks (at
Banks' expense) to visit and inspect any of the properties of Borrower,
to examine the corporate books and financial records of Borrower and make
copies thereof or extracts therefrom and to discuss the affairs, finances
and accounts of Borrower with the principal officers of Borrower, all at
such reasonable times and as often as the Banks may reasonably request.
(c) Maintenance of Property Insurance. Keep its properties,
whether owned or leased, in good condition, repair and working order,
other than property no longer deemed by Borrower necessary for the
conduct of its business; maintain
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<PAGE>
purchased insurance or self-insurance reserves in such amounts and
against such liabilities and hazards as customarily is maintained by
other companies operating similar businesses and together with each
delivery of financial statements under clause (ii) of subsection 4(a) it
will, upon the Banks' request, deliver an Officer's Certificate
specifying the details of such insurance in effect.
(d) Taxes. Pay and discharge all lawful taxes, assessments and
governmental charges upon it or against its properties prior to the date
on which penalties are attached thereto, unless and to the extent only
that such taxes are contested in good faith and by appropriate
proceedings by Borrower and Borrower has established appropriate reserves
for the payment of such taxes in accordance with GAAP.
5. Negative Covenants. Borrower covenants and agrees that so long as the
Lines of Credit remain in effect, any Master Note remains outstanding and unpaid
or any amount is owed the Banks, Borrower shall not, directly or indirectly:
(a) Working Capital. Permit Working Capital at any time to be less
than $5,000,000.
(b) Tangible Net Worth. Permit Tangible Net Worth at any time to
be less than $32,000,000.
(c) Total Liabilities to Net Worth. Permit the ratio of Total
Liabilities to Tangible Net Worth at any time to exceed 2.0 to 1.0.
(d) Fixed Charge Coverage. Permit the Fixed Charge Coverage Ratio
at any time to be less than 2.0 to 1.0
(e) Total Liabilities Plus Contingent Liabilities to Tangible Net
Worth. Permit the ratio of the sum of Total Liabilities plus Contingent
Liabilities to Tangible Net Worth at any time to exceed 2.5 to 1.0.
(f) Restricted Payments. (i) Pay or declare any dividend on any
class of its stock, or (ii) make any other distribution on account of any
class of its stock, or (iii) redeem, purchase or otherwise acquire,
directly or indirectly, any shares of its stock (all of the foregoing
being herein called "Restricted Payments") except out of Net Earnings
Available For Restricted Payments. There shall not be included in
Restricted Payments or in any computation of Net Earnings Available For
Restricted Payments: (x) dividends paid, or distributions made, in stock
of Borrower; or (y) exchanges of stock of one or more classes of
Borrower, except to the extent that cash or other value payable by
Borrower is involved in such exchange; or (z) retirements of stock out of
the proceeds of the simultaneous sale of other stock.
(g) Liens. Create, assume or suffer to exist any Lien upon any of
its property or assets, whether now owned or hereafter acquired, except:
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(i) Liens for taxes not yet due or which are being actively
contested in good faith by appropriate proceedings;
(ii) other Liens incidental to the conduct of its business
or the ownership of its property and assets which were not
incurred in connection with the borrowing of money or the
obtaining of advances or credit, and which do not in the aggregate
materially detract from the value of its property or assets or
materially impair the use thereof in the operation of its
business;
(iii) Liens presently existing that are described in
Schedule 3 hereto;
(iv) Liens in connection with Capital Lease Obligations;
(v) Liens on life insurance policies owned by Borrower
securing policy loans obtained from the insurers under such
policies, provided that (A) the aggregate amount borrowed on each
policy shall not exceed the loan value thereof, and (B) Borrower
shall not incur any liability to repay any such loan;
(vi) other Liens placed upon property being acquired by
Borrower to secure a portion of the purchase price thereof
securing Debt permitted by clause (iv) of subsection 5(h);
(vii) liens in favor of a lender or investor which are
granted in connection with a transaction permitted by subsection
5(1); and
(viii) other Liens; provided the aggregate principal amount
of indebtedness secured by such Liens and incurred in any fiscal
year of Borrower shall not exceed $1,000,000;
provided, however, that if Borrower does create, assume or suffer to exist a
Lien on any of its property other than as permitted above, it will make or cause
to be made an effective provision whereby all indebtedness under this Agreement
will be secured by such liens equally and ratably with any and all other
indebtedness thereby secured so long as any such other indebtedness shall be
secured. Borrower covenants that it will, and will cause its independent public
accountants to, make specific reference to the provisions of this paragraph in
all financial statements of Borrower hereafter delivered to any creditor,
prospective creditor or credit rating agency.
(h) Debt. Create, incur, assume or suffer to exist any Funded
Debt, except:
(i) Funded Debt represented by the Master Notes;
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<PAGE>
(ii) Funded Debt of Borrower not exceeding an aggregate
principal amount of $1,530,000 at any time outstanding pursuant to
the Note Agreements;
(iii) Capital Lease Obligations which are subject to
limitations specified in subsection 5(k);
(iv) other Funded Debt of Borrower not exceeding an
aggregate principal amount of $4,000,000 at any time outstanding;
and
(v) Funded Debt incurred in connection with Liens permitted
by subsection 5(g)(viii).
(i) Loans, Advances, Investments and Contingent Liabilities. Make
or permit to remain outstanding any loan or advance to, or guarantee,
endorse or otherwise be or become contingently liable, directly or
indirectly, in connection with the obligations, stock or dividends of, or
own, purchase or acquire any stock, obligations or securities of, or any
other interest in, or make any capital contribution to, any Person,
except that Borrower may:
(i) acquire and own stock, obligations or securities
received in settlement of debts (created in the ordinary course of
business) owing to Borrower;
(ii) own, purchase or acquire prime commercial paper (or
unrated commercial paper issued by corporate obligors which
support the issuance of such commercial paper through the
availability of a line of credit provided by a United States
commercial bank having capital resources in excess of $50,000,000)
and certificates of deposit due within one year from the date of
purchase and bank repurchase agreements, in United States
commercial banks (having capital resources in excess of
$50,000,000), in each case payable in the United States in United
States dollars, obligations of the United States Government or any
agency thereof, and obligations guaranteed by the United States
Government;
(iii) endorse negotiable instruments for collection in the
ordinary course of business;
(iv) make or permit to remain outstanding travel and other
like advances to officers and employees in the ordinary course of
business;
(v) guarantee, endorse or otherwise be or become
contingently liable, directly or indirectly, in connection with
the obligations of any other person if Borrower shall be and
remain at all times in compliance with subsection 5(e); and
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<PAGE>
(vi) make or permit to remain outstanding loans, advances
and investments in Topco, provided that the aggregate amount of
all such loans, advances and investments (at cost) at any time
outstanding shall not exceed an amount necessary for Borrower to
maintain its membership in Topco in good standing;
(j) Merger and Sale of Assets. Merge or consolidate with any other
corporation or sell, lease or transfer or otherwise dispose of all or a
substantial part of its assets, or assets which shall have contributed
more than 20% of Net Earnings for any of the three fiscal years then most
recently ended, to any Person.
(k) Lease Rentals. Enter into, or permit to remain in effect, any
agreements to rent or lease (as lessee) any real or personal property
(except transportation equipment) for initial terms (including options to
renew or extend any term, whether or not exercised) of more than one year
if after giving effect thereto the aggregate amount of all payments in
any fiscal year payable by Borrower to lessors under all such leases,
minus the aggregate of all rentals received by Borrower in such fiscal
year from all sub-lessees would exceed 1.3% of gross consolidated sales
of Borrower and its Subsidiaries for the preceding fiscal year.
(l) Sale and Lease-Back. Enter into any arrangement with any
lender or investor or to which such lender or investor is a party
providing for the leasing by Borrower of real or personal property which
has been or is to be sold or transferred by Borrower to such lender or
investor or to any Person to whom funds have been or are to be advanced
by such lender or investor on the security of such property or rental
obligations of Borrower except to the extent that any such arrangement
with a lender or investor is made in connection with the development by
the Borrower of a new Retail Outlet and such arrangement is completed
within 18 months after the opening of such new Retail Outlet.
(m) Sale or Discount of Receivables. Sell with recourse, or
discount or otherwise sell for less than the face value thereof, any of
its notes or accounts receivable.
(n) Restrictions on Transactions With Stockholders. Directly or
indirectly, purchase, acquire or lease any property (other than shares of
stock of Borrower) from, or sell, dispose of or lease any property (other
than shares of stock of Borrower) to, or otherwise deal with, in the
ordinary course of business or otherwise (i) any Substantial Stockholder,
or (ii) any corporation in which a Substantial Stockholder owns 5% or
more of the outstanding voting stock, except that such Substantial
Stockholder may be a director, officer or employee of Borrower and may be
paid reasonable compensation in connection therewith.
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(o) Certain Contracts. Enter into or be a party to:
(i) any contract providing for the making of loans,
advances or capital contributions to any Person (except where the
obligation is limited to a fixed maximum amount which is within
the limitations of subsection 5(i)), or for the purchase of any
property from any Person, in each case in order to enable such
Person to maintain working capital, net worth or any other balance
sheet condition or to pay debts, dividends or expenses; or
(ii) any contract for the purchase of materials, supplies
or other property or services if such contract (or any related
document) requires that payment for such materials, supplies or
other property or services shall be made regardless of whether or
not delivery of such materials, supplies or other property or
services is ever made or tendered; or
(iii) any contract for the sale or use of materials,
supplies or other property, or the rendering of services, if such
contract (or any related document) requires that payment for such
materials, supplies or other property, or the use thereof, or
payment for such services, shall be subordinated to any
indebtedness (of the purchaser or user of such materials, supplies
or other property or the Person entitled to the benefit of such
services) owed or to be owed to any Person; provided however, that
nothing contained in this clause (iii) shall prohibit the Borrower
from becoming a general unsecured creditor of another Person in
the ordinary course of business or shall prevent the Borrower from
agreeing to subordinate obligations payable by its franchisees in
favor of third party lenders, as and to the extent required by
such lenders; or
(iv) any other contract which, in economic effect, is
substantially equivalent to a guarantee, except as permitted by,
and within the limitations of, subsection 5(e).
(p) Letters of Credit for Worker's Compensation. Have outstanding
letters of credit issued for the account of Borrower for the benefit of
various states to secure the payment of worker's compensation liability
in such states in an aggregate amount available to be drawn thereunder in
excess of $10,000,000.
(q) Change in Control. Permit any Person or group of Persons
acting in concert (other than affiliates, including without limitation,
employee benefit plans, of the Borrower) to acquire more than 30% of the
Borrower's outstanding voting securities, or permit any two or more
nominees proposed by the Borrower for election to its board of directors
to be defeated in such election pursuant to any single vote of
shareholders of the Borrower.
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6. Event of Default. An "Event of Default" shall be deemed to have
occurred if:
(a) Any representation or warranty made by Borrower in this
Agreement, or in any certificate of Borrower furnished to Banks
hereunder, shall prove to have been incorrect in any material respect as
of the time when made.
(b) If Borrower shall fail to pay any interest or principal on any
Loan when due hereunder, fail to pay any Availability Fees when due
hereunder, or fail to pay when due any principal or interest on any of
its other indebtedness, if any, to Banks, whether at maturity or by
acceleration or otherwise, and such failure shall continue uncured for a
period of ten (10) days after the applicable due date.
(c) Borrower shall default in the performance or observance of any
covenant or agreement contained in this Agreement or in any other
agreement between Borrower and Banks; provided, however, that a breach in
the performance or observance of an affirmative covenant or agreement
contained in Section 4 of this Agreement shall only constitute a default
if the breach remains uncured for a period of thirty (30) days after
written notice thereof from Banks to Borrower.
(d) Borrower shall:
(i) Apply for or consent to the appointment of a receiver,
trustee or liquidator of Borrower or of all or substantial part of
the assets of Borrower;
(ii) Be unable to, or admit in writing its inability to,
pay its debts as they mature;
(iii) Make a general assignment for the benefit of
creditors;
(iv) Be adjudicated bankrupt or insolvent;
(v) File a voluntary petition in bankruptcy or a petition
or an answer seeking reorganization or an arrangement with
creditors or to take advantage of any insolvency law, or an answer
admitting the material allegations of a petition filed against
Borrower in any bankruptcy, reorganization or insolvency
proceeding; or
(vi) Corporate action shall be taken by Borrower for the
purpose of effecting any of the foregoing.
(e) A petition for an order, judgment or decree shall be filed,
without the application, approval or consent of Borrower, with any court
of competent jurisdiction, seeking reorganization of Borrower, or the
appointment of a receiver,
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<PAGE>
trustee or liquidator of Borrower or of all or a substantial part of the
assets of Borrower, and such petition shall remain undismissed for any
period of sixty (60) days.
(f) An Event of Default (as such term is defined in the Note
Agreements) shall have occurred (regardless of whether such occurrence
shall be voluntary or involuntary or come about or be effected by
operation of law or otherwise) under the Note Agreements.
(g) Borrower shall default in the payment of principal or interest
on any obligation (other than obligations hereunder or under the Note
Agreements) for borrowed money in a principal amount greater than or
equal to $250,000 beyond any period of grace provided with respect
thereto or in the performance of any other agreement, term or condition
contained therein or in any agreement or security interest relating to
any such obligation, if the effect of such default is to cause or permit
the holder or holders of such obligation (or a trustee or agent on behalf
of such holder or holders) to cause such obligation to become due prior
to its stated maturity.
(h) A final judgment which, together with other outstanding final
judgments against it, exceeds an aggregate of $100,000 shall be entered
against Borrower and remains outstanding and unsatisfied or unstayed
after sixty (60) days from the date of entry thereof, unless an appeal
has been taken and perfected within the time provided by law and suitable
bond has been provided or other agreement made to stay execution of such
judgment.
7. Rights Upon Default. If the Events of Default specified in Sections
6(d) and 6(e) shall occur, the Banks' obligations to make Loans hereunder shall
immediately terminate and any Loan (with accrued interest thereon) and other
amounts owing under this Agreement and the Master Notes shall immediately become
due and payable. If any other Event of Default shall occur, the Banks may (i) by
notice of default to Borrower, declare the Banks' obligations hereunder
terminated forthwith, whereupon such obligations shall terminate, and/or (ii) by
notice of default to Borrower, declare any Loan and all amounts owing hereunder
and under the Master Notes to be due and payable forthwith, whereupon the same
shall become immediately due and payable. Except as expressly provided above in
this Section, presentment, demand, protest and further notice of any kind are
hereby expressly waived. Notwithstanding the foregoing, the Banks' obligations
to maintain the confidentiality of any nonpublic financial information of
Borrower provided to Banks pursuant to Section 4(a) of this Agreement shall
survive the termination of its other obligations hereunder.
In the event of any occurrence of any Event of Default, Borrower shall
pay all costs and expenses which may be incurred by Banks with respect thereto
and with respect to the collection of any amounts due Banks pursuant hereto or
the enforcement of any provisions hereof, including reasonable attorneys' fees
and expenses of litigation, and all such sums shall be and become part of the
indebtedness pursuant to this Agreement. In addition to and not in lieu of any
other right or remedy they may have at any time, Banks at any time and from time
to time at their election, may (but they shall not be required to) do or perform
or comply with
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or cause to be done or performed or complied with anything which Borrower may be
required to do or comply with under this Agreement if Borrower shall fail to do
so; Borrower shall reimburse Banks upon demand for any reasonable cost or
expense Banks may pay or incur in such respect, together with interest thereon
at the Prime Rate plus two percent (2%) from the date of such demand until paid.
The failure of Banks at any time or from time to time to exercise any right or
remedy, whether arising from or by virtue of any event of default or otherwise,
shall not constitute a waiver of any such right or remedy and shall not impair
the right of Banks to exercise such right or remedy or any other right or remedy
thereafter or to insist upon strict performance. No waiver of any right or
remedy by Banks shall be valid or effective unless made in writing and signed by
an officer of each Bank. Any effective waiver of any right or remedy shall not
be deemed to constitute a waiver of any other right or remedy then existing or
which may thereafter arise or accrue. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law. Upon the
occurrence of any Event of Default, and pursuant to the provisions of this
Section, Banks may sue to enforce the obligations of Borrower pursuant to this
Agreement.
8. Conditions of Disbursement. Banks shall be under no obligation to make
any advances under the Lines of Credit pursuant to this Agreement unless the
following conditions shall have been fulfilled:
(a) The representations and warranties of Borrower contained
herein shall be true at the time of the initial advance and at the time
of each subsequent advance under this Agreement as though such
representations and warranties were made at such time.
(b) Borrower shall have performed and complied with all agreements
and conditions required by this Agreement to be performed or complied
with by it.
(c) Prior to the initial advance under this Agreement Borrower
shall have delivered to Banks an opinion in writing of Borrower's legal
counsel, which counsel shall be acceptable to Banks, dated on or after
the date of this Agreement, to the effect that (i) Borrower is a
corporation duly organized and existing under the laws of the State of
Wisconsin, and has the power and authority to enter into this Agreement
and to make borrowings and execute and deliver the Master Notes as
provided for herein; (ii) the execution and delivery of this Agreement
and compliance with the terms hereof by Borrower and the execution and
delivery of the Master Notes pursuant hereto are not at variance or in
contravention of any provision of the Articles of Incorporation, or
By-Laws of Borrower, or any indenture, contract or agreement of which
such counsel has knowledge after due inquiry, to which Borrower is a
party or to which it is subject (or that any such contravention has been
appropriately waived), or any statute, rule or regulation binding upon
Borrower; (iii) all corporate action necessary to authorize Borrower to
enter into this Agreement, to perform its obligations hereunder,
including the obtaining of the Lines of Credit hereunder, and to execute
and deliver any and all documents necessary to comply with the provisions
of this Agreement has been taken; (iv) this Agreement and the Master
Notes have been duly executed by Borrower;
15
<PAGE>
(v) this Agreement and the Master Notes constitute the legal, valid and
binding obligations of Borrower and are enforceable against Borrower in
accordance with their terms, except for bankruptcy, insolvency, or the
grant of equitable remedies and other standard exceptions; (vi) no
consent of any public body, agency, commission or board is necessary to
the making and assumption of obligations hereunder by Borrower; and (vii)
so far as it is known to such counsel and except as set forth in Schedule
1 to this Agreement, there is no material litigation, and there are no
material proceedings by any public body, agency or authority, pending or
threatened against Borrower.
(d) Borrower shall furnish to Banks copies of its most recent
financial statements prepared in accordance with the provisions of
subsection 4(a).
(e) Borrower shall furnish Banks with certified resolutions of its
Board of Directors authorizing its execution and delivery of this
Agreement and the performance of its obligations and covenants contained
herein.
(f) Borrower shall furnish Banks with a certificate of incumbency
with respect to the persons authorized to execute this Agreement, the
Master Notes, and all other documents to be executed in connection with
the transactions which are the subject of this Agreement.
9. Definitions. For purposes of this Agreement, the following terms shall
have the following meanings:
(a) "Capital Lease Obligations" shall mean all rental obligations
which, under GAAP, are or will be required to be capitalized on the books
of Borrower (including, without limitation, all existing rental
obligations which are required to be so capitalized for calendar or
fiscal years beginning after December 31, 1980), in each case taken at
the amount thereof accounted for as indebtedness (net of interest
expense) in accordance with such principles.
(b) "Contingent Liability" shall mean, as to any Person, any
guarantee of indebtedness or any other obligation of any second Person or
any assurance with respect to the financial condition of any second
Person, whether direct, indirect or contingent, including, without
limitation, (i) any purchase or repurchase agreement or other arrangement
of whatever nature having the effect of assuring or holding harmless any
third Person against loss with respect to any obligation of such second
Person and (ii) any Customer Advances; provided, however, that the term
"Contingent Obligation" shall not include (y endorsements of instruments
for deposit or collection in the ordinary course of business or (z) any
obligations to reimburse an issuer of a letter of credit permitted under
subsection 5(p).
(c) "Current Debt" shall mean any obligation for borrowed money
(and any notes payable and drafts accepted representing extensions of
credit whether or not representing obligations for borrowed money)
payable on demand or within a period of one year from the date of the
creation thereof; provided that any obligation
16
<PAGE>
shall be treated as Funded Debt, regardless of its term, if such
obligation is renewable pursuant to the terms thereof or of a revolving
credit or similar agreement effective for more than one year after the
date of the creation of such obligation, or may be payable out of the
proceeds of a similar obligation pursuant to the terms of such obligation
or of any such agreement. Any obligation secured by a Lien on, or payable
out of the proceeds of such production from, property of Borrower shall
be deemed to be Funded or Current Debt, as the case may be, of Borrower
even though such obligation shall not be assumed by Borrower.
(d) "Customer Advances" shall mean receivables of Borrower,
payable by customers operating Retail Outlets, arising out of sales by
Borrower to such customers of fixtures and equipment, which shall have
remained outstanding for more than thirty (30) consecutive days.
(e) "Environmental Laws" shall mean all federal, state and local
laws including statutes, regulations ordinances, codes, rules and other
governmental restrictions and requirements relating to the discharge,
emission or release of air pollutants, water pollutants or process waste
water or otherwise relating in any way, directly or indirectly, to the
environment or hazardous substances in general or to storage tanks,
petroleum products, PCBs or asbestos, including, but not limited to, the
Federal Solid Waste Disposal Act, the Federal Clean Air Act, the Federal
Clean Water Act, the Federal Resource Conservation Environmental
Responsibility, Cleanup and Liability Act of 1980, regulations of the
Environmental Protection Agency, regulations of the Nuclear Regulatory
Agency, and regulations of any state department of natural resources,
state environmental protection agency or any governmental authority
whatsoever, now or at any time hereafter in effect.
(f) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may, from time to time, be supplemented or amended.
(g) "Fixed Charge Coverage Ratio" shall mean the ratio of (i) the
sum of pre-tax income plus depreciation and amortization plus interest
expense to (ii) the sum of interest expense plus current maturities of
long-term debt plus the current portion of Capital Lease Obligations;
provided, however, that for purposes of calculating the Fixed Charge
Coverage Ratio, there shall be excluded from both the numerator and the
denominator the effects that loans and other financing transactions have
on the Company's results of operations to the extent such loans and
financing transactions relate to financing provided by the Company to or
on behalf of its franchisees.
(h) "Funded Debt" shall mean any obligation payable more than one
year from the date of the creation thereof, which under GAAP is shown on
the balance sheet as a liability (including, without limitation, Capital
Lease Obligations and excluding reserves for deferred income taxes and
other reserves to the extent that such reserves do not constitute an
obligation).
17
<PAGE>
(i) "GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
(j) "Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give
any of the foregoing, any conditional sale or other title retention
agreement, and any lease in the nature thereof).
(k) "Net Earnings" shall mean gross revenues of Borrower less all
operating and non-operating expenses of Borrower including all charges of
a proper character (including current and deferred taxes on income,
provision for taxes on unremitted foreign earnings which are included in
gross revenues, and current additions to reserves), but not including in
gross revenues any gains (net of expenses and taxes applicable thereto)
in excess of losses resulting from the sale, conversion or other
disposition of capital assets (i.e., assets other than current assets),
any gains resulting from the write-up of assets, any equity of Borrower
in the unremitted earnings of any other corporation, or any earnings of
any Person acquired by Borrower through purchase, merger or consolidation
or otherwise for any year prior to the year of acquisition, all
determined in accordance with GAAP.
(l) "Net Earnings Available For Restricted Payments" shall mean an
amount equal to (i) the sum of (A $4,263,000, (B) 40% (or minus 100% in
the case of a deficit) of Net Earnings for the period (taken as one
accounting period) commencing December 29, 1991, and terminating at the
end of the last fiscal quarter preceding the date of any proposed
Restricted Payment, and (C) 100% of the net cash proceeds received by the
Company from the issuance or sale of authorized but unissued shares of
its Common Stock, but only to the extent of the number of such shares
previously acquired in transactions which constituted the making of
Restricted Payments, less (ii) the sum of all Restricted Payments made on
or after December 29, 1991.
(m) "Net Worth" shall mean, as of the time of any determination
thereof, the sum of (A) the par value (or value stated on the books of
Borrower) of the capital stock of all classes of Borrower, plus (or minus
in the case of a deficit) (B) the amount of the surplus, whether capital
or earned, of Borrower, plus (C) the prepaid franchise rights and
trademarks under the Piggly Wiggly Master Franchise Agreement, provided
however, that Net Worth shall not include any intangible assets not
reflected on Borrower's most recent balance sheet; all determined in
accordance with GAAP consistent with those followed in the preparation of
the financial statements referred to in subsection 4 (a).
(n) "Offered Rate" shall mean with respect to each Bank, the rate
of interest per annum from time to time offered by such Bank to Borrower
on Loans. Each Bank shall be entitled to fix and establish its Offered
Rate in its sole and absolute discretion. Upon the request of Borrower,
each Bank shall provide Borrower with a
18
<PAGE>
quotation of its current Offered Rate. Each Bank may make loans at, above
or below its Offered Rate.
(o) "Person" shall mean and include an individual, a partnership,
a joint venture, a corporation, a trust, an unincorporated organization
and a government or any department or agency thereof.
(p) "Plan" shall mean as to any Person any pension plan, including
a "multi-employer plan" as defined in Section 4001(a) (3) of ERISA, that
is covered by Title IV of ERISA and in respect of which that Person or a
Commonly Controlled Entity of that Person is an "employer" as defined in
Section 3(5) of ERISA.
(q) "Prime Rate" shall mean with respect to each Bank, such Bank's
announced prime rate per annum from time to time in effect. Each Bank may
make loans at, above or below its Prime Rate.
(r) "Retail Outlets" shall mean and include stores, engaged in
retail trade, owned or operated by Borrower of the type presently
operated by Borrower and engaged in operations similar to those presently
conducted by Borrower, and such stores owned or operated by customers of
Borrower.
(s) "Substantial Stockholder" shall mean (i) any Person owning,
beneficially or of record, directly or indirectly, either individually or
together with all other Persons to whom such Person is related by blood,
adoption or marriage, stock of Borrower (of any class having ordinary
voting power for the election of directors) aggregating 5% or more of
such voting power or (ii) any Person related by blood, adoption or
marriage to any Person described or coming within the provisions of
clause (i) of this subsection 9(s).
(t) "Tangible Net Worth" shall mean, as of the time of any
determination thereof, the excess of (i) the sum of (A) the par value (or
value stated on the books of Borrower) of the capital stock of all
classes of Borrower, plus (or minus in the case of a deficit) (B) the
amount of the surplus, whether capital or earned, of Borrower, plus (C)
the prepaid franchise rights and trademarks under the Piggly Wiggly
Master Franchise Agreement, over (ii) the sum of treasury stock,
unamortized debt discount and expense, good will, trademarks, trade
names, patents, deferred charges and other intangible assets and any
write-up of the value of any assets after December 28, 1985; all
determined in accordance with GAAP consistent with those followed in the
preparation of the financial statements referred to in subsection 4(a);
provided however, that assets held under Capitalized Leases and leasehold
improvements shall not be classified as intangible assets in determining
the amount of Tangible Net Worth.
(u) "Topco" shall mean Topco Associates, Inc., a cooperative
non-profit buying organization.
19
<PAGE>
(v) "Total Commitment" of M&I shall mean $9,000,000 less the
aggregate amount of reductions, if any, in M&I's Total Commitment
requested by Borrower pursuant to subsection 1(g) and the "Total
Commitment" of Firstar shall mean $7,000,000 less the aggregate amount of
reductions, if any, in Firstar's Total Commitment requested by Borrower
pursuant to subsection 1(g).
(w) "Total Liabilities" shall mean the aggregate of all
liabilities and reserves of every kind and character of Borrower
determined in accordance with GAAP consistent with those followed in the
preparation of the financial statements referred in subsection 3(d).
(x) "Working Capital" shall mean the excess of current assets over
current liabilities of Borrower, both determined in accordance with GAAP
consistent with those followed in the preparation of the financial
statements referred to in subsection 4(a), provided that there shall not
be included in current assets (i) any loans or advances made by Borrower
except travel and other like advances to officers and employees in the
ordinary course of business, nor (ii) any assets known by Borrower to be
located outside (including any amounts at any time outstanding payable by
Persons known by Borrower to be located outside) the United States of
America and Canada, and further provided that current assets shall
include an amount equal to (i) 50% of LIFO reserves included in the
financial statements and footnotes thereto delivered to the Banks
pursuant to subsection 4(a) and (ii) the difference between $16,000,000
and the aggregate principal amount of debt outstanding pursuant to the
Master Notes.
10. Miscellaneous.
(a) The provisions of this Agreement shall inure to the benefit of
and be binding upon any successor to any of the parties hereto and shall
extend and be available to any holder of the Master Notes and renewals
thereof. Borrower may not assign or otherwise transfer its rights under
this Agreement except with the prior written consent of the Banks.
(b) The Banks and the Borrower may, from time to time, enter into
written amendments, supplements or modifications hereto for the purpose
of adding provisions to any agreements, instruments or other documents
hereunder or for the purpose of changing in any manner the rights of the
Banks or of the Company thereunder, and the Banks may execute and deliver
to the Company a written instrument waiving, on such terms and conditions
as the Banks may specify in such instrument, any of the requirements of
this Agreement or any Default or Event of Default and its consequences.
In the case of any waiver, the Company and the Banks shall be restored to
their former position and rights under this Agreement, and any Default or
Event of Default waived shall be deemed to be cured and not continuing.
However, no waiver of a Default or Event of Default shall extend to any
subsequent or other Default or Event of Default, or impair any right
consequent thereon.
20
<PAGE>
No amendment, supplement, modification, or waiver shall be effective
except if in writing and duly executed by both Banks and the Company.
(c) In the event that any date provided herein for any payment by
Borrower shall be a Saturday, Sunday, or legal holiday, such payment date
shall be deemed to be the next business day following such Saturday,
Sunday or legal holiday.
(d) All representations and warranties made herein shall survive
the extension of any advance under this Agreement and the execution and
the delivery of the Master Notes or renewals thereof.
(e) Unless otherwise specified, all notices, requests and demands
to be to or upon the respective parties hereto shall be deemed to be
effective only if in writing or if given by facsimile transmission,
telegraph or telex and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made, in the case of a delivered
notice, when delivered by hand, or, in the case of a mailed notice, when
deposited in the mail, postage prepaid, or in the case of telegraphic
notice, when delivered to the telegraph company, or, in the case of telex
notice, when sent, answer back received, or, in the case of a facsimile
transmission, upon acknowledgement of receipt, addressed as follows, or
to such other address as may be hereafter specified by the respective
parties hereto and any future holders of the Master Notes:
Borrower: Schultz Sav-O Stores, Inc.
2215 Union Avenue
Sheboygan, WI 53081
Attention: Mr. John H. Dahly
Fax: (414) 457-6295
Banks: M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee, WI 53202
Attention: Ms. Gina A. Peter
Fax: (414) 765-7625
Firstar Bank Milwaukee,
National Association
777 East Wisconsin Avenue
Milwaukee, WI 53202
Attention: Mr. Scott D. Roeper
Fax: (414) 765-5062
provided that any notice, request or demand upon the Banks pursuant to
Section 1 hereof shall not be effective until received.
21
<PAGE>
(f) Borrower shall (i) pay or reimburse Banks for all of their
reasonable out-of-pocket costs and expenses incurred in connection with
the negotiation, consideration, development, preparation and/or execution
of and any amendment, supplement or modification to, this Agreement, the
Master Notes or any other document prepared in connection herewith
(whether or not any such amendment, supplement or modification is
effected or consummated), and the consummation of the transactions
contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Banks, (ii) pay and
reimburse Banks for all of their reasonable costs and expenses including,
but not limited to, litigation costs incurred in connection with the
enforcement or preservations of any rights or questions arising under
this Agreement, the Master Notes or any such other document prepared in
connection herewith, including, without limitation, reasonable fees and
disbursements of counsel to Banks, and (iii) pay, indemnify and hold the
Banks harmless from any and all recording and filing fees and any and all
liabilities with respect to or resulting from any delay in paying, stamp,
excise and other taxes, if any, which may be payable or determined to be
payable in connection with the execution and delivery of any consummation
of any of the transactions contemplated by, or any amendment, supplement
or modification of, or any waiver or consent under or in respect of this
Agreement or any such other documents. The obligations in this Paragraph
shall survive repayment of the Master Notes and all other amounts payable
hereunder.
(g) This Agreement, the Master Notes and all other documents
delivered in connection herewith and the rights and obligations of the
parties thereto shall be governed by, and construed and interpreted in
accordance with the laws of the State of Wisconsin. Venue for the
settlement of disputes under this Agreement shall be the United States
District Court for the Eastern District of Wisconsin or the Circuit Court
of Milwaukee County, Wisconsin. Borrower consents to the exercise of
jurisdiction by these courts and of vesting of venue therein.
(h) In addition to any of the rights and remedies provided by law,
or any other rights or remedies provided for in this Agreement or any
document delivered in connection herewith, upon the occurrence of any
Event of Default, Banks are hereby irrevocably authorized, at any time
and from time to time without prior notice to Borrower, any such notice
being expressly waived by Borrower, to set-off, appropriate and apply any
and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims,
in any currency, in each case direct or indirect or contingent or matured
or unmatured, at any time held or owing by the Banks to or for the credit
of the account of Borrower, or any part thereof, in such amounts as Banks
may elect, against and on account of the obligations and liabilities of
Borrower to Banks hereunder or under the Master Notes, and claims of
every nature and description of Banks against Borrower, whether arising
hereunder, under any note or otherwise, that the Banks may elect, whether
or not the Banks have made any demand for payment although such
obligations, liabilities and claims may be contingent or unmatured.
22
<PAGE>
(i) Any provision of this Agreement which is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.
(j) Any term defined herein may, unless the context otherwise
requires, be used in the singular or the plural, depending on the
reference.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SCHULTZ SAV-O STORES, INC.
By: /s/ James H. Dickelman
James H. Dickelman, Chairman,
President and Chief Executive Officer
Attest:
/s/ John H. Dahly
John H. Dahly, Executive Vice President,
Chief Financial Officer, Treasurer and
Secretary
23
<PAGE>
M&I MARSHALL & ILSLEY BANK
By: /s/ Gina A. Peter
Gina A. Peter, Vice President
Attest:
/s/
___________, Vice President (Title)
FIRSTAR BANK MILWAUKEE, NATIONAL ASSOCIATION
By: /s/ Scott Roeper
Scott D. Roeper, Vice President
Attest:
/s/ Stephen Carlton
Stephen E. Carlton (Title)
Commercial Banking Officer
24
<PAGE>
EXHIBITS TO LOAN AGREEMENT
--------------------------
Exhibit A-l Master Note
Exhibit A-2 Master Note
Exhibit B Officer's Certificate
SCHEDULES TO LOAN AGREEMENT
---------------------------
Schedule 1 Litigation
Schedule 2 Environmental Matters
Schedule 3 Existing Liens
25
<PAGE>
Exhibit A-1
MASTER NOTE
Milwaukee, Wisconsin
$9,000,000 December 3, 1992
FOR VALUE RECEIVED, the undersigned, being a Wisconsin
corporation (the "Borrower"), hereby unconditionally promises to pay on the
Maturity Date, to the order of M&I Marshall & Ilsley Bank, a Wisconsin banking
corporation (the "Bank") , at the offices of Bank located at 770 North Water
Street, Milwaukee, Wisconsin 53202, in lawful money of the United States of
America and in immediately available funds, the lesser of (a) the amount of the
M&I Line of Credit or (b) the aggregate unpaid principal amount of all Loans
made by the Bank to the Borrower pursuant to the Agreement (as hereinafter
defined). The Borrower also unconditionally promises to pay interest in like
money at said offices on the unpaid principal amount hereof from time to time
outstanding for the period from and including the date hereof until such amount
shall be paid in full, as provided in the Agreement. The holder of this Master
Note is hereby authorized to record the date and amount of each Loan made by
such holder, and the date and amount of each payment or prepayment of principal,
and any such recordation shall constitute prima facie evidence of the accuracy
of the information so recorded.
This Master Note is one of the Master Notes referred to in the Loan
Agreement, dated as of December 3, 1992, by and between the Borrower, the Bank
and First Wisconsin National Bank of Milwaukee (as amended, modified or
supplemented from time to time, the "Agreement"), is entitled to the benefits
thereof and is subject to optional and mandatory prepayment in whole or in part
as provided therein. All capitalized terms used in this Master Note, unless
herein defined, shall have the meanings assigned to such terms in the Agreement.
Reference is made to the Agreement for relevant terms and provisions which bear
upon this Master Note and the payments hereunder. Upon the occurrence of an
Event of Default as specified in the Agreement, the amounts then remaining
unpaid under this Master Note may be declared to be or may become immediately
due and payable as provided in the Agreement.
No delay or omission on the part of the Bank or any holder hereof in
exercising any right or option herein given to the Bank or any holder hereof in
exercising any right or option herein given to the Bank or holder hereof shall
impair such right or option or be considered as a waiver thereof or acquiescence
in any default hereunder. Borrower hereby waives presentment, demand, notice of
dishonor, protest and all other notices and proceedings required as a condition
for payment or collection hereof.
In the event of default hereunder, Borrower agrees to pay all costs of
collection, including reasonable attorneys' fees.
<PAGE>
This Master Note shall be governed by and construed in accordance with
the laws of the State of Wisconsin.
BORROWER:
SCHULTZ SAV-O STORES, INC.
By: /s/ James H. Dickelman (SEAL)
James H. Dickelman, Chairman,
President and Chief Executive Officer
Attest:
/s/ John H. Dahly
John H. Dahly, Executive Vice
President, Chief Financial Officer,
Treasurer and Secretary
2
<PAGE>
Exhibit A-2
MASTER NOTE
Milwaukee, Wisconsin
$7,000,000 December 3, 1992
FOR VALUE RECEIVED, the undersigned, being a Wisconsin corporation (the
"Borrower"), hereby unconditionally promises to pay on the Maturity Date, to the
order of Firstar Bank Milwaukee, National Association, a national banking
association (the "Bank"), at the offices of Bank located at 777 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202, in lawful money of the United States of
America and in immediately available funds, the lesser of (a) the amount of the
Firstar Line of Credit or (b) the aggregate unpaid principal amount of all Loans
made by the Bank to the Borrower pursuant to the Agreement (as hereinafter
defined). The Borrower also unconditionally promises to pay interest in like
money at said offices on the unpaid principal amount hereof from time to time
outstanding for the period from and including the date hereof until such amount
shall be paid in full, as provided in the Agreement. The holder of this Master
Note is hereby authorized to record the date and amount of each Loan made by
such holder, and the date and amount of each payment or prepayment of principal,
and any such recordation shall constitute prima facie evidence of the accuracy
of the information so recorded.
This Master Note is one of the Master Notes referred to in the Loan
Agreement, dated as of December 3, 1992, by and between the Borrower, the Bank
and M&I Marshall & Ilsley Bank (as amended, modified or supplemented from time
to time, the "Agreement"), is entitled to the benefits thereof and is subject to
optional and mandatory prepayment in whole or in part as provided therein. All
capitalized terms used in this Master Note, unless herein defined, shall have
the meanings assigned to such terms in the Agreement. Reference is made to the
Agreement for relevant terms and provisions which bear upon this Master Note and
the payments hereunder. Upon the occurrence of an Event of Default as specified
in the Agreement, the amounts then remaining unpaid under this Master Note may
be declared to be or may become immediately due and payable as provided in the
Agreement.
No delay or omission on the part of the Bank or any holder hereof in
exercising any right or option herein given to the Bank or any holder hereof in
exercising any right or option herein given to the Bank or holder hereof shall
impair such right or option or be considered as a waiver thereof or acquiescence
in any default hereunder. Borrower hereby waives presentment, demand, notice of
dishonor, protest and all other notices and proceedings required as a condition
for payment or collection hereof.
In the event of default hereunder, Borrower agrees to pay all costs of
collection, including reasonable attorneys' fees.
<PAGE>
This Master Note shall be governed by and construed in accordance with
the laws of the State of Wisconsin.
BORROWER:
SCHULTZ SAV-O STORES, INC.
By: /s/ James H. Dickelman (SEAL)
James H. Dickelman, Chairman,
President and Chief Executive Officer
Attest:
/s/ John H. Dahly
John H. Dahly, Executive Vice
President, Chief Financial Officer,
Treasurer and Secretary
2
<PAGE>
Exhibit B
to
Loan Agreement
_______________ ____ 1992
Ms. Gina Peter Mr. Scott Roeper
Vice President Vice President
M&I Marshall & Ilsley Bank Firstar Bank Milwaukee, N.A.
770 North Water Street 777 East Wisconsin Avenue
Milwaukee, WI 53202-3593 Milwaukee, WI 53202
Dear Gina and Scott:
Pursuant to Section 4(a) of the Loan Agreement (the "Loan Agreement")
dated October __, 1992 among Schultz Sav-O Stores, Inc., M&I Marshall & Ilsley
Bank and Firstar Bank Milwaukee, National Association, the following sets forth
calculations of the Company's compliance with certain of the financial covenants
of the Loan Agreement:
(A) Working Capital Computation (Section 5(a))
Add: Current Assets $
----------
50% of LIFO reserve
included in the Borrower's
financial statements
(Section 9(x)) ----------
Unused portion of
revolving credit availability
(Section 9(x)) ----------
$
-----------
Deduct: Current Liabilities
$
Working Capital -----------
$
Minimum requirement -----------
$ 5,000,000
===========
<PAGE>
Ms. Gina Peter and Mr. Scott Roeper
_______________ ___ 1992
Page 2
(B) Tangible Net Worth (Section 5(b))
Minimum requirement $
-----------
$ 32,000,000
(C) Total Liabilities to Tangible ===========
Net Worth (Section 5(c))
Total liabilities and shareholders'
investment
Less: Shareholders' investment $
-----------
Total Liabilities $
-----------
Ratio of Total Liabilities to $
Tangible Net Worth -----------
to 1.00
Maximum permitted ============
2.00 to 1.00
(D) Fixed Charge Coverage ============
(Section 5(d))
Add: Pretax income $ $
----------- -----------
Depreciation and
amortization -----------
Interest expense -----------
$
===========
Add: Interest expense $
-----------
Long-term debt: current -----------
Capital leases: current -----------
$
============
Fixed Charge Coverage Ratio to 1.00
============
Minimum permitted 2.00 to 1.00
============
<PAGE>
Ms. Gina Peter and Mr. Scott Roeper
_______________ ___ 1992
Page 3
(E) Total Liabilities Plus
Contingent Liabilities to
Tangible Net Worth (Section 5(e))
Add: Total Liabilities $
-----------
Contingent Liabilities:
Notes -----------
Contingent Liabilities:
Leases -----------
Total Liabilities plus
Contingent Liabilities $
===========
Ratio of sum of Total Liabilities
plus Contingent Liabilities to
Tangible Net Worth to 1.00
============
Maximum permitted 2.50 to 1.00
============
(F) Restricted Payments
(Sections 5(f) and 9(n))
Earnings Available for Distribution $ 4,263,000
============
Net Earnings for cumulative period
from December 29, 1991 through most
recent fiscal quarter: $
-----------
40% of Net Earnings $
-----------
100% of net cash proceeds received
from resales of Common Stock previously
acquired in transactions which constituted
the making of Restricted Payments $
-----------
Unrestricted funds $
-----------
Less: Restricted Payments made since
December 29, 1991: $
-----------
Net Earnings Available for Restricted
Payments $
===========
<PAGE>
Ms. Gina Peter and Mr. Scott Roeper
_______________ ___ 1992
Page 4
In accordance with Section 4(a) of the Loan Agreement, I hereby certify,
to the best of my knowledge and belief, that there exists no condition, event or
act which would constitute an Event of Default (as defined in the Loan
Agreement), and there exists no condition, event or act which, with notice or
lapse of time, or both, would constitute an Event of Default.
Very truly yours,
SCHULTZ SAV-O STORES, INC.
/s/ John Dahly
John H. Dahly
Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
/ smb
Enclosure
<PAGE>
SCHEDULE 1
Litigation and Proceedings
1. On November 21, 1991, the Company announced the closing of its
unsuccessful one-year old Bartlett, Illinois corporate-owned Piggly Wiggly Store
and the recording of a reserve of approximately $2,100,000 for anticipated store
closure costs. The store was covered by a twenty year lease. After several
months of informal negotiations to arrive at a mutual settlement to terminate
the lease, the landlord, Bartlett Commons Partnership, an Illinois general
partnership, initiated a complaint on April 28, 1992 in the United States
District Court, Northern District of Illinois, Eastern Division, alleging
damages in excess of $5,000,000, plus its attorneys' fees and costs.
Document requests and notices for depositions have been served in the
case and depositions are now being held.
The Company believes it has liability which could exceed present
reserves. The Company is presently engaged in out-of-court settlement
discussions, which if satisfactorily concluded, would result in an additional
charge to earnings.
If settlement discussions are unsuccessful, the Company intends to
vigorously defend itself, but is unable to completely and accurately assess
final liability.
2. The Company is the sole defendant in a breach of contract lawsuit
pending in the United States District Court for the Western District of Texas,
Economic Dutch Consultants USA, Inc. v. Schultz Sav-O Stores, Inc., Case No.
92-CA-240.
The case arises from equipment leases for video tapes and video players
entered into in 1988 between the Company and Comprehensive Leasing Corporation.
The monthly rental amount for all of the leases combined is approximately
$30,000. The plaintiff claims to be the assignee of Comprehensives' rights under
the leases and sues for $30,000 per month since about August of 1991, when the
initial three-year term of the leases expired and the Company ceased making
payments. Thus, the present amount of plaintiff's claim is in the range of
$450,000 to $500,000.
The Company disputes that the plaintiff is the assignee of the leases and
has asserted a variety of defenses to the claim for payment. The Company has
also asserted a counterclaim seeking damages in the range of $800,000 to
$1,500,000. Plaintiff has challenged the counterclaim. The Company has pending
motions to dismiss the case for lack of jurisdiction and improper venue. If
these motions are granted, the plaintiff could elect to pursue its claims in
Wisconsin, but is unlikely to do so.
In light of the Company's substantial defenses, both procedural and on
the merits, the Company does not presently believe that it has any liability to
the plaintiff.
<PAGE>
3. The City of Mequon, Wisconsin is considering the adoption of a
completely new zoning code which may cause an adverse change in the zoning of
certain commercial real estate owned by the Company at the southeast corner of
Mequon and Wauwatosa Roads. This real estate was acquired by the Company in
settlement of a claim against an individual, and not with the intention of
making it the site of a new store location. The affected parcel has a value
estimated by the Company to be approximately $500,000. The change in zoning
could have an adverse impact on the value of this property. The Company
considers it to be a remote possibility that this proceeding could result in a
material adverse effect on the value of such property.
2
<PAGE>
SCHEDULE 2 - ENVIRONMENTAL MATTERS
The Company has leased a retail store facility as part of a strip center
in downtown Belvidere, Illinois since 1984. While the retail operation is very
successful, the facility and the equipment are in need of major renovation and
the Company desires to expand the store size by approximately 10,000 SF to a
total of 37,000 SF.
In connection with a developer's assessment of the land and facilities,
certain contaminants were found during Phase One and Phase Two environment
tests. Extensive research indicates that the Company and its retail operation
were not a contributing factor to the contamination.
The Company believes it is not responsible for the contamination, and
further improvement of the site and continuation of retail operations will not
increase the contamination or residual risk the Company already has by its mere
presence as a lessee operating a retail grocery store during the past nine
years.
<PAGE>
Schedule 3 - Existing Liens
1. Leases of video rental packages at various store locations, including
videocassette tapes, display cabinets, storage fixtures, video players,
televisions, and signage.
2. Sale-leaseback transactions covering all equipment and fixtures located
at stores in Oshkosh (Aviation Plaza - 2155 South Koeller) and Oak
Creek (2201 East Rawson), Wisconsin.
<PAGE>
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT, made as of this 23rd day of
September, 1994, by and among SCHULTZ SAV-O STORES, INC. ("Borrower"), M&I
MARSHALL & ILSLEY BANK, a Wisconsin banking corporation ("M&I"), and FIRSTAR
BANK MILWAUKEE, NATIONAL ASSOCIATION, a national banking association ("Firstar")
(together with M&I, the "Banks"). Unless otherwise indicated, capitalized terms
used herein and not defined shall have the meanings assigned thereto in the Loan
Agreement described below.
W I T N E S S E T H:
WHEREAS, Borrower, M&I and Firstar are parties to that certain Loan
Agreement dated as of December 3, 1992 (the "Loan Agreement"); and
WHEREAS, Borrower has available a $9,000,000 revolving line of credit
facility with M&I and a $7,000,000 revolving line of credit facility with
Firstar (collectively, the "Lines of Credit"); and
WHEREAS, Borrower and the Banks desire to amend the Loan Agreement to
extend the Maturity Date of the Lines of Credit, to increase the minimum
Tangible Net Worth required to be maintained by the Borrower, to amend the
covenants relating to Liens and Funded Debt and to amend the definition of Net
Earnings Available for Restricted Payments.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Amendment to Section 1(b) (Master Notes). The definition of Maturity
Date in Section 1(b) is amended by deleting "April 30, 1995" and inserting in
lieu thereof "April 30, 1997."
2. Amendment to Section 5(b) (Tangible Net Worth). Section 5(b) of the
Loan Agreement is deleted in its entirety and the following is inserted in lieu
thereof:
"Permit Tangible Net Worth at any time to be less than $36,000,000."
3. Amendment to Section 5(g) (Liens). Section 5(g) is amended by deleting
the word "and" at the end of Subsection 5(g)(viii), by substituting ";" for the
period at the end of Subsection 5(g)(ix) and by adding the following clauses:
<PAGE>
"(x) the lien in favor of The Penn Mutual Life Insurance Company
in the form of a Mortgage securing an obligation not to exceed $3,500,000
on certain real property owned by the Borrower and located at 5328 Grand
Avenue, Gurnee, Illinois (the "Gurnee Mortgage Debt"); and
(xi) the Lien in favor of James M. and Beverly A. Lehrer in the
form of a Land Contract securing an obligation not to exceed $300,000 on
certain real property owned by the Borrower and located at Highway 55 and
County Trunk Highway CE, Kaukauna, Wisconsin (the "Kaukauna Land
Contract") ."
4. Amendment to Section 5(h) (Debt). Section 5(h) is amended by deleting
the word "and" at the end of Subsection 5(h)(iv), by substituting ";" for the
period at the end of Subsection 5(h)(v) and by adding the following clauses:
"(vi) Funded Debt of the Borrower not exceeding an aggregate
principal amount of $3,500,000 due on the Gurnee Mortgage Debt; and (vii)
Funded Debt of the Borrower not exceeding an aggregate principal amount
of $300,000 due on the Kaukauna Land Contract."
5. Amendment to Section 9(1) (Net Earnings Available For Restricted
Payments). The definition of Net Earnings Available For Restricted Payments is
amended by deleting the phrase ". . . (A) $4,263,000, (B) 40% (or minus 100% in
the case of a deficit). . ." and inserting in lieu thereof the phrase ". . . (A)
$7,263,000, (B) 50% (or minus 100% in the case of a deficit). . ."
6. Effective Date. This Amendment is effective as of the date hereof upon
the execution and delivery by the Borrower to the Banks of the following:
(a) This Amendment duly executed by the President and Secretary of
the Borrower; and
(b) A copy of the resolution or resolutions, in form satisfactory
to the Banks and their legal counsel, duly adopted by the Board of
Directors of the Borrower approving this Amendment, certified to be true
and correct by the President and Secretary of the Borrower.
7. Miscellaneous.
(a) Continuance of Loan Documents. Except as specifically amended
by this Amendment, the Loan Agreement and all other instruments,
documents and agreements executed and delivered in connection with the
Loan Agreement (collectively, the "Loan Documents") remain in full force
and effect.
(b) Representations and Warranties. The Borrower represents and
warrants that the execution, delivery and performance of this Amendment
are within the corporate powers of the Borrower, have been duly
authorized by all necessary
2
<PAGE>
corporate action and do not and will not (a) require any consent or
approval of the shareholders of the Borrower; (b) violate any provision
of the Articles of Incorporation or By-laws of the Borrower or of any
law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to the
Borrower; (c) require the consent or approval of, or filing a
registration with, any government body, agency or authority; or (d)
result in any breach of or constitute a default under, or result in the
imposition of any lien, charge or encumbrance upon any property of the
Borrower pursuant to any indenture or other agreement or instrument under
which the Borrower is a party or by which it or its properties may be
bound or affected. The Borrower further represents and warrants that this
Amendment constitutes the legal, valid and binding obligation of the
Borrower enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy or similar laws affecting the
enforceability of creditors' rights generally. In addition, each of the
representations and warranties made by the Borrower in the Loan Agreement
are true and correct as of the date of this Amendment.
(c) References. When any Loan Document is referred to in any other
Loan Document or any of the other documents, instruments or materials
executed and delivered heretofore or hereafter pursuant to the Loan
Agreement, it shall be deemed to refer to such Loan Document as amended
by this Amendment.
(d) Expenses and Attorneys' Fees. The Borrower shall pay all fees
and expenses incurred by the Banks, including the reasonable fees of
counsel, in connection with the preparation of this Amendment, the
consummation of the transactions contemplated by this Amendment and the
protection or enforcement of the rights of the Banks under the Loan
Agreement.
(e) Survival. All agreements, representations and warranties made
in this Amendment or in any documents delivered pursuant to this
Amendment survive the execution of this Amendment and the delivery of any
such document.
(f) Governing Law. This Amendment and the other documents issued
pursuant to this Amendment are governed by the laws of the State of
Wisconsin without reference to the conflict of law principles of such
State.
(g) Counterparts; Headings. This Amendment may be executed in
several counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute one and the same agreement.
Article and Section headings in this Amendment are inserted for
convenience of reference only and shall not constitute a part hereof.
(h) Severability. Any provision of this Amendment that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Amendment or affecting the validity or enforceability of such provision
in any other jurisdiction.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment to Loan Agreement as of the day, month and year first
above-written.
SCHULTZ SAV-O STORES, INC.
By: /s/ James H. Dickelman
James H. Dickelman, Chairman,
President and Chief Executive Officer
Attest:
/s/ John Dahly
John H. Dahly, Executive Vice President,
Chief Financial Officer, Treasurer and
Secretary
M&I MARSHALL & ILSLEY BANK
By: /s/ Gina A. Peter
Gina A. Peter, Vice President
Attest:
/s/ Jeffrey Ticknor
Jeffrey T. Ticknor, Vice President
FIRSTAR BANK MILWAUKEE, NATIONAL ASSOCIATION
By: /s/ Scott Roeper
Scott D. Roeper, Vice President
Attest:
/s/ Caroline Krider
Caroline Krider, Assistant Vice President
4
<PAGE>
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT, made as of this 17th day of
December, 1996, by and among SCHULTZ SAV-O STORES, INC. ("Borrower"), M&I
MARSHALL & ILSLEY BANK, a Wisconsin banking corporation ("M&I"), and FIRSTAR
BANK MILWAUKEE, NATIONAL ASSOCIATION, a national banking association ("Firstar"
and, together with M&I, the "Banks"). Unless otherwise indicated, capitalized
terms used herein and not defined shall have the meanings assigned thereto in
the Loan Agreement described below.
W I T N E S S E T H:
WHEREAS, Borrower, M&I and Firstar are parties to that certain Loan
Agreement dated as of December 3, 1992, as amended by that certain First
Amendment to Loan Agreement dated September 23, 1994 (as so amended, the "Loan
Agreement"); and
WHEREAS, Borrower has available a $9,000,000 revolving line of credit
facility with M&I and a $7,000,000 revolving line of credit facility with
Firstar (collectively, the "Lines of Credit"); and
WHEREAS, Borrower and the Banks desire to amend the Loan Agreement to
extend the Maturity Date of the Lines of Credit.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Amendment to Section 1(b) (Master Notes). The definition of Maturity
Date in Section 1(b) is amended by deleting "April 30, 1997" and inserting in
lieu thereof "April 30, 1998."
2. Effective Date. This Amendment shall be effective upon the execution
and delivery by Borrower to the Banks of the following:
a) This Amendment duly executed by the President and Secretary of
Borrower; and
b) A copy of the resolution or resolutions, in form satisfactory
to the Banks and their legal counsel, duly adopted by the Board of
Directors of Borrower approving this Amendment, certified to be true and
correct by the President and Secretary of Borrower.
<PAGE>
3. Miscellaneous.
a) Continuance of Loan Documents. Except as specifically amended
by this Amendment, the Loan Agreement and all other instruments,
documents and agreements executed and delivered in connection with the
Loan Agreement (collectively, the "Loan Documents") remain in full force
and effect. This Amendment is an amendment and not a novation.
b) Representations and Warranties. Borrower represents and
warrants that the execution, delivery and performance of this Amendment
are within the corporate powers of Borrower, have been duly authorized by
all necessary corporate action and do not and will not (a) require any
consent or approval of the shareholders of Borrower; (b) violate any
provision of the Articles of Incorporation or By-laws of Borrower or of
any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to
Borrower; (c) require the consent or approval of, or filing of a
registration with, any government body, agency or authority; or (d)
result in any breach of or constitute a default under, or result in the
imposition of any lien, charge or encumbrance upon any property of
Borrower pursuant to any indenture or other agreement or instrument under
which Borrower is a party or by which it or its properties may be bound
or affected. Borrower further represents and warrants that this Amendment
constitutes the legal. valid and binding obligation of Borrower
enforceable in accordance with its terms, except as such enforceability
may be limited by bankruptcy or similar laws affecting the enforceability
of creditors' rights generally. In addition, each of the representations
and warranties made by Borrower in the Loan Agreement are true and
correct as of the date of this Amendment.
c) References. When any Loan Document is referred to in any other
Loan Document or any of the other documents, instruments or materials
executed and delivered heretofore or hereafter pursuant to the Loan
Agreement, it shall be deemed to refer to such Loan Document as amended
by this Amendment.
d) Expenses and Attorneys' Fees. In accordance with Section 10(f)
of the Loan Agreement, Borrower shall pay all fees and expenses incurred
by the Banks, including the reasonable fees of counsel, in connection
with the preparation of this Amendment, the consummation of the
transactions contemplated by this Amendment and the protection or
enforcement of the rights of the Banks under the Loan Agreement.
e) Survival. All agreements, representations and warranties made
in this Amendment or in any documents delivered pursuant to this
Amendment shall survive the execution of this Amendment and the delivery
of any such document.
f) Government Law. This Amendment and the other documents issued
pursuant to this Amendment are governed by the laws of the State of
Wisconsin without reference to the conflict of law principles of such
state.
2
<PAGE>
g) Counterparts; Headings. This Amendment may be executed in
several counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute one and the same agreement.
Article and Section headings in this Amendment are inserted for
convenience of reference only and shall not constitute a part hereof.
h) Severability. Any provision of this Amendment that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Amendment or affecting the validity or enforceability of such provision
in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment to Loan Agreement as of the day, month and year first above-written.
SCHULTZ SAV-O STORES, INC.
By: /s/ James H. Dickelman
James H. Dickelman, Chairman,
President and Chief Executive Officer
Attest:
/s/ John Dahly
John H. Dahly, Executive Vice President,
Chief Financial Officer, Treasurer and
Secretary
M&I MARSHALL & ILSLEY BANK
By: /s/ Gina A. Peter
Gina A. Peter, Senior Vice President
Attest:
/s/ Jeffrey Ticknor
Jeffrey T. Ticknor, Vice President
3
<PAGE>
FIRSTAR cBANK MILWAUKEE, NATIONAL ASSOCIATION
By: /s/ Scott Roeper
Scott D. Roeper, First Vice President
Attest:
/s/ Caroline Krider
Caroline Krider, Vice President
4
<PAGE>
THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT, made as of this 14th day of May,
1997, by and among SCHULTZ SAV-O STORES, INC. ("Borrower"), M&I MARSHALL &
ILSLEY BANK, a Wisconsin banking corporation ("M&I"), and FIRSTAR BANK
MILWAUKEE, NATIONAL ASSOCIATION, a national banking association ("Firstar" and,
together with M&I, the "Banks"). Unless otherwise indicated, capitalized terms
used herein and not defined shall have the meanings assigned thereto in the Loan
Agreement described below.
W I T N E S S E T H:
WHEREAS, Borrower, M&I and Firstar are parties to that certain Loan
Agreement dated as of December 3, 1992, as amended by that certain First
Amendment to Loan Agreement dated September 23, 1994 (the "First Amendment") and
that certain Second Amendment to Loan Agreement dated December 17, 1996 (the
"Second Amendment") (as so amended, the "Loan Agreement"); and
WHEREAS, Borrower has available a $9,000,000 revolving line of credit
facility with M&I and a $7,000,000 revolving line of credit facility with
Firstar (collectively, the "Lines of Credit") pursuant to the Loan Agreement;
and
WHEREAS, Borrower and the Banks desire to amend the Loan Agreement to
amend the definitions of Maturity Date and Net Earnings Available For Restricted
Payments.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Amendment to Section 1(b) (Master Notes). The definition of Maturity
Date is amended by deleting "April 30, 1998" and inserting in lieu thereof
"April 30, 1999."
2. Amendment to Section 9(1) (Net Earnings Available For Restricted
Payments). The definition of Net Earnings Available For Restricted Payments is
amended by restating the definition in its entirety as follows:
(1) "Net Earnings Available For Restricted Payments" shall mean an
amount equal to (i) the sum of (A) $12,263,000, (B) 50% (or minus 100% in
the case of a deficit) of Net Earnings for the period (taken as one
accounting period) commencing December 29, 1991, and terminating at the
end of the last fiscal quarter preceding the date of any proposed
Restricted Payment, (C) 100% of the tax benefit realized by the Borrower
as a result of the exercise by employees of stock options of the Borrower
(reflected in the Borrower's Consolidated Statement of Shareholders'
Investment as "Exercise of Stock Options" under the heading "Additional
Paid-in Capital"), and (D) 100% of the net cash proceeds received by the
Company from the issuance or sale
<PAGE>
of authorized but unissued shares of its Common Stock, but only to the
extent of the number of such shares previously acquired in transactions
which constituted the making of Restricted Payments, less (ii) the sum of
all Restricted Payments made on or after December 29, 1991.
3. Effective Date. This Amendment shall be effective upon the execution
and delivery by Borrower to the Banks of the following:
a) This Amendment duly executed by the President and Secretary of
Borrower; and
b) A copy of the resolution or resolutions, in form satisfactory
to the Banks and their legal counsel, duly adopted by the Board of
Directors of Borrower approving this Amendment, certified to be true and
correct by the Secretary of Borrower.
4. Miscellaneous.
a) Continuance of Loan Documents. Except as specifically amended
by this Amendment, the Loan Agreement and all other instruments,
documents and agreements executed and delivered in connection with the
Loan Agreement (collectively, the "Loan Documents") remain in full force
and effect. This Amendment is an amendment and not a novation.
b) Representations and Warranties. Borrower represents and
warrants that the execution, delivery and performance of this Amendment
are within the corporate powers of Borrower, have been duly authorized by
all necessary corporate action and do not and will not (a) require any
consent or approval of the shareholders of Borrower; (b) violate any
provision of the Articles of Incorporation or By-laws of Borrower or of
any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to
Borrower; (c) require the consent or approval of, or filing of a
registration with, any government body, agency or authority; or (d)
result in any breach of or constitute a default under, or result in the
imposition of any lien, charge or encumbrance upon any property of
Borrower pursuant to any indenture or other agreement or instrument under
which Borrower is a party or by which it or its properties may be bound
or affected. Borrower further represents and warrants that this Amendment
constitutes the legal, valid and binding obligation of Borrower
enforceable in accordance with its terms, except as such enforceability
may be limited by bankruptcy or similar laws affecting the enforceability
of creditors' rights generally. In addition, each of the representations
and warranties made by Borrower in the Loan Agreement are true and
correct as of the date of this Amendment except for matters permitted or
contemplated by the Loan Agreement.
c) References. When any Loan Document is referred to in any other
Loan Document or any of the other documents, instruments or materials
executed and
2
<PAGE>
delivered heretofore or hereafter pursuant to the Loan Agreement, it
shall be deemed to refer to such Loan Document as amended by this
Amendment.
d) Expenses and Attorneys' Fees. In accordance with Section 10(f)
of the Loan Agreement, Borrower shall pay all fees and expenses incurred
by the Banks, including the reasonable fees of counsel, in connection
with the preparation of this Amendment, the consummation of the
transactions contemplated by this Amendment and the protection or
enforcement of the rights of the Banks under the Loan Agreement.
e) Survival. All agreements, representations and warranties made
in this Amendment or in any documents delivered pursuant to this
Amendment shall survive the execution of this Amendment and the delivery
of any such document.
f) Government Law. This Amendment and the other documents issued
pursuant to this Amendment are governed by the laws of the State of
Wisconsin without reference to the conflict of law principles of such
state.
g) Counterparts; Headings. This Amendment may be executed in
several counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute one and the same agreement.
Article and Section headings in this Amendment are inserted for
convenience of reference only and shall not constitute a part hereof.
h) Severability. Any provision of this Amendment that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Amendment or affecting the validity or enforceability of such provision
in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment
to Loan Agreement as of the day, month and year first above-written.
SCHULTZ SAV-O STORES, INC.
By: /s/ James H. Dickelman
James H. Dickelman, Chairman, President
and Chief Executive Officer
Attest:
/s/ John Dahly
John H. Dahly, Executive Vice President,
Chief FinancialOfficer, Treasurer and Secretary
3
<PAGE>
M&I MARSHALL & ILSLEY BANK
By: /s/ Gina A. Peter
Gina A. Peter, Senior Vice President
Attest:
/s/ Jeffrey Ticknor
Jeffrey T. Ticknor, Vice President
FIRSTAR BANK MILWAUKEE, NATIONAL ASSOCIATION
By: /s/ Scott Roeper
Scott D. Roeper, First Vice President
Attest:
/s/ Caroline Krider
Caroline Krider, Vice President
4
<PAGE>
FOURTH AMENDMENT TO LOAN AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AGREEMENT, effective as of this 31st day of
December, 1998, by and among SCHULTZ SAV-O STORES, INC. ("Borrower"), M&I
MARSHALL & ILSLEY BANK, a Wisconsin banking corporation ("M&I"), and FIRSTAR
BANK MILWAUKEE, N.A., a national banking association ("Firstar" and, together
with M&I, the "Banks"). Unless otherwise indicated, capitalized terms used
herein and not defined shall have the meanings assigned thereto in the Loan
Agreement described below.
W I T N E S S E T H:
WHEREAS, Borrower, M&I and Firstar are parties to that certain Loan
Agreement dated as of December 3, 1992, as amended by that certain First
Amendment to Loan Agreement dated September 23, 1994, that certain Second
Amendment to Loan Agreement dated December 17, 1996, and that certain Third
Amendment to Loan Agreement dated May 14, 1997 (as so amended, the "Loan
Agreement"); and
WHEREAS, Borrower has available a $9,000,000 revolving line of credit
facility with M&I and a $7,000,000 revolving line of credit facility with
Firstar (collectively, the "Lines of Credit") pursuant to the Loan Agreement;
and
WHEREAS, Borrower and the Banks desire to amend the Loan Agreement to
amend the definitions of Maturity Date and Net Earnings Available For Restricted
Payments and to add a representation and warranty regarding the Year 2000 issue.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Amendment to Section 1(b) (Master Notes). The definition of Maturity
Date is amended by deleting "April 30, 1999" and inserting in lieu thereof
"April 30, 2001."
2. Amendment to Section 9(1) (Net Earnings Available For Restricted
Payments). The definition of Net Earnings Available For Restricted Payments is
amended by restating the definition in its entirety as follows:
(1) "Net Earnings Available For Restricted Payments" shall mean an
amount equal to (i) the sum of (A) $17,263,000, (B) 50% (or minus 100% in
the case of a deficit) of Net Earnings for the period (taken as one
accounting period) commencing December 29, 1991, and terminating at the
end of the last fiscal quarter preceding the date of any proposed
Restricted Payment, (C) 100% of the tax benefit realized by the Borrower
as a result of the exercise by employees of stock options of the Borrower
(reflected in the Borrower's Consolidated Statement of Shareholders'
Investment as "Exercise of Stock Options" under the heading "Additional
Paid-in Capital"), and
<PAGE>
(D) 100% of the net cash proceeds received by the Company from the
issuance or sale of authorized but unissued shares of its Common Stock,
but only to the extent of the number of such shares previously acquired
in transactions which constituted the making of Restricted Payments, less
(ii) the sum of all Restricted Payments made on or after December 29,
1991.
3. Addition of Subsection 3(j). A new subsection 3(j) is hereby added to
the Loan Agreement to read as follows:
(j) Year 2000. The Borrower has reviewed the areas within its
business and operations which could be adversely affected by, and has
developed or is developing a program to address on a timely basis, the
"Year 2000 Issue" (that is, the risk that computer applications used by
the Borrower may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date on
or after December 31, 1999), and has made related appropriate inquiry of
material suppliers and vendors. Based on such review and program, the
Borrower believes that the "Year 2000 Issue" will not have a material
adverse effect on the business, operations, assets, condition (financial
or other) or results of operations of the Borrower. From time to time, at
the request of the Banks, the Borrower shall provide to the Banks such
updated information or documentation as is requested regarding the status
of its efforts to address the Year 2000 Issue.
4. Effective Date. This Amendment shall be effective upon the execution
and delivery by Borrower to the Banks of the following:
a) This Amendment duly executed by the President and Secretary of
Borrower; and
b) A copy of the resolution or resolutions, in form satisfactory
to the Banks and their legal counsel, duly adopted by the Board of
Directors of Borrower approving this Amendment, certified to be true and
correct by the Secretary of Borrower.
5. Miscellaneous.
a) Continuance of Loan Documents. Except as specifically amended
by this Amendment, the Loan Agreement and all other instruments,
documents and agreements executed and delivered in connection with the
Loan Agreement (collectively, the "Loan Documents") remain in full force
and effect. This Amendment is an amendment and not a novation.
b) Representations and Warranties. Customer represents and
warrants that the execution, delivery and performance of this Amendment
are within the corporate powers of Borrower, have been duly authorized by
all necessary corporate action and do not and will not (a) require any
consent or approval of the shareholders of Borrower; (b) violate any
provision of the Articles of Incorporation or By-laws of Borrower or of
any law, rule, regulation, order, writ, judgment, injunction, decree,
2
<PAGE>
determination or award presently in effect having applicability to
Borrower; (c) require the consent or approval of, or filing of a
registration with, any government body, agency or authority; or (d)
result in any breach of or constitute a default under, or result in the
imposition of any lien, charge or encumbrance upon any property of
Borrower pursuant to any indenture or other agreement or instrument under
which Borrower is a party or by which it or its properties may be bound
or affected. Borrower further represents and warrants that this Amendment
constitutes the legal, valid and binding obligation of Borrower
enforceable in accordance with its terms, except as such enforceability
may be limited by bankruptcy or similar laws affecting the enforceability
of creditors' rights generally. In addition, each of the representations
and warranties made by Borrower in the Loan Agreement are true and
correct as of the date of this Amendment except for matters permitted or
contemplated by the Loan Agreement.
c) References. When any Loan Document is referred to in any other
Loan Document or any of the other documents, instruments or materials
executed and delivered heretofore or hereafter pursuant to the Loan
Agreement, it shall be deemed to refer to such Loan Document as amended
by this Amendment.
d) Expenses and Attorneys' Fees. In accordance with Section 10(f)
of the Loan Agreement, Borrower shall pay all fees and expenses incurred
by the Banks, including the reasonable fees of counsel, in connection
with the preparation of this Amendment, the consummation of the
transactions contemplated by this Amendment and the protection or
enforcement of the rights of the Banks under the Loan Agreement.
e) Survival. All agreements, representations and warranties made
in this Amendment or in any documents delivered pursuant to this
Amendment shall survive the execution of this Amendment and the delivery
of any such document.
f) Governing Law. This Amendment and the other documents issued
pursuant to this Amendment are governed by the laws of the State of
Wisconsin without reference to the conflict of law principles of such
state.
g) Counterparts; Headings. This Amendment may be executed in
several counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute one and the same agreement.
Article and Section headings in this Amendment are inserted for
convenience of reference only and shall not constitute a part hereof.
h) Severability. Any provision of this Amendment that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Amendment or affecting the validity or enforceability of such provision
in any other jurisdiction.
3
<PAGE>
IN WITNESS WHEREOF. the parties hereto have executed this Third
Amendment to Loan Agreement as of the day, month and year first
above-written.
SCHULTZ SAV-O STORES, INC.
By: /s/ James H. Dickelman
James H. Dickelman, Chairman, President
and Chief Executive Officer
Attest:
/s/ Armond Go
Armand C. Go, Treasurer and Chief
Accounting Officer
M&I MARSHALL & ILSLEY BANK
/s/ Jeffrey Ticknor
Jeffrey T. Ticknor, Vice President
FIRSTAR BANK MILWAUKEE, N.A.
By: /s/ Caroline V. Krider
Caroline V. Krider, Vice President
4
<TABLE>
<CAPTION>
Five-Year Financial Highlights
================================================== ============================================================================
(dollars in thousands, except per share data) Fiscal Year (a) (b)
- - -------------------------------------------------- --------------- -------------- -------------- --------------- --------------
1998 1997 1996 1995 1994
- - -------------------------------------------------- --------------- -------------- -------------- --------------- --------------
Consolidated statements of earnings data:
<S> <C> <C> <C> <C> <C>
Net sales $ 484,885 $ 473,006 $ 453,921 $ 439,646 $ 446,362
Gross profit 78,070 73,907 72,429 70,516 73,495
Earnings before income taxes 13,916 12,418 10,512 9,500 8,653
Provision for income taxes 5,398 4,781 4,047 3,660 3,252
Net earnings 8,518 7,637 6,465 5,840 5,401
Earnings per share - basic 1.26 1.11 0.93 0.82 0.70
Earnings per share - diluted 1.23 1.06 0.90 0.79 0.68
Cash dividends per share 0.30 0.27 0.24 0.15 0.07
Weighted average shares and equivalents
outstanding (c) 6,923 7,148 7,187 7,402 7,886
Net earnings-to-sales ratio 1.76% 1.61% 1.42% 1.33% 1.21%
Consolidated balance sheet data (at fiscal
year-end):
Working capital $ 32,884 $ 29,217 $ 28,579 $ 24,855 $ 21,197
Total assets 105,096 98,866 98,204 94,435 94,624
Current obligations under capital leases and
current maturities of long-term debt 792 866 1,047 1,114 1,037
Long-term debt 3,021 3,165 3,375 3,719 4,056
Long-term obligations under capital leases 9,764 11,177 12,368 13,268 14,046
Total shareholders' investment 53,085 50,384 47,035 43,288 41,457
Other data:
Capital additions $ 3,847 $ 4,868 $ 3,420 $ 3,545 $ 3,640
Depreciation and amortization 5,075 4,517 4,451 4,467 4,654
NOTES: (a) The Company's fiscal year ends on the Saturday closest to December
31. The 1997 fiscal year was a 53-week period. All other fiscal
years presented were 52-week periods.
(b) All data should be read in conjunction with the Company's audited
consolidated financial statements and "Management's discussion and
analysis of financial condition and results of operations" as set
forth in this Annual Report.
(c) The weighted average shares and equivalents outstanding for 1997
and prior years have been retroactively restated to account for
the three-for-two stock split on September 5, 1997 and/or for the
two-for-one stock split on September 15, 1995.
</TABLE>
<PAGE>
MANAGEMENT'S RESPONSIBILITIES FOR FINANCIAL REPORTING
The management of Schultz Sav-O Stores, Inc. is responsible for the preparation,
objectivity and integrity of the Company's consolidated financial statements
contained in the Company's 1998 Annual Report to Shareholders. The consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles and include amounts that are based on management's best
estimates and informed judgments.
To help assure that financial information is reliable and assets are
safeguarded, management maintains a system of internal controls and procedures
which it believes is effective in accomplishing these objectives. These controls
and procedures are designed to provide reasonable assurance, at appropriate
costs, that transactions are executed and recorded in accordance with
management's authorization.
The Company's consolidated financial statements have been audited by its
independent public accountants, Arthur Andersen LLP, whose report was based on
audits conducted in accordance with generally accepted auditing standards and is
presented below. As part of its audit, it performs a review of the Company's
system of internal controls for the purpose of determining the amount of
reliance to place on those controls relative to the audit tests it performs.
The Audit Committee of the Board of Directors, composed of directors who are not
officers or employees of the Company, meets periodically with Arthur Andersen
LLP and management to satisfy itself that each is properly discharging its
responsibilities. The independent public accountants have direct access to the
Audit Committee.
James H. Dickelman John H. Dahly Armand C. Go
Chairman, President and Executive Vice President, Treasurer and
Chief Executive Officer Chief Financial Officer Chief Accounting
and Secretary Officer
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Schultz Sav-O Stores, Inc.
We have audited the accompanying consolidated balance sheets of Schultz Sav-O
Stores, Inc. and its subsidiary as of January 2, 1999 and January 3, 1998 and
the related consolidated statements of earnings, cash flows and shareholders'
investment for each of the three fiscal years in the period ended January 2,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Schultz Sav-O
Stores, Inc. and its subsidiary as of January 2, 1999 and January 3, 1998, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended January 2, 1999, in conformity with generally
accepted accounting principles.
Milwaukee, Wisconsin Arthur Andersen LLP
February 5, 1999
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
As of January 2, 1999 and January 3, 1998
- - ----------------------------------------------------------------------------- --------------------- --------------------
Assets 1998 1997
- - ----------------------------------------------------------------------------- --------------------- --------------------
Current assets:
<S> <C> <C>
Cash and equivalents $ 34,334,000 $ 23,124,000
Receivables 6,233,000 9,718,000
Inventories 23,951,000 21,741,000
Other current assets 2,385,000 3,635,000
Deferred income taxes 4,376,000 4,131,000
- - ----------------------------------------------------------------------------- --------------------- --------------------
Total current assets 71,279,000 62,349,000
- - ----------------------------------------------------------------------------- --------------------- --------------------
Noncurrent receivable under capital subleases 6,107,000 7,270,000
Property under capital leases, net 2,499,000 2,786,000
Other noncurrent assets 3,524,000 3,782,000
Property and equipment, net 21,687,000 22,679,000
- - ----------------------------------------------------------------------------- --------------------- --------------------
Total assets $ 105,096,000 $ 98,866,000
============================================================================= ===================== ====================
Liabilities and Shareholders' Investment
- - ----------------------------------------------------------------------------- --------------------- --------------------
Current liabilities:
Accounts payable $ 24,798,000 $ 21,305,000
Accrued salaries and benefits 5,040,000 4,395,000
Accrued insurance 3,020,000 3,095,000
Retail repositioning reserve 685,000 610,000
Other accrued liabilities 4,060,000 2,861,000
Current obligations under capital leases 656,000 665,000
Current maturities of long-term debt 136,000 201,000
- - ----------------------------------------------------------------------------- --------------------- --------------------
Total current liabilities 38,395,000 33,132,000
- - ----------------------------------------------------------------------------- --------------------- --------------------
Long-term obligations under capital leases 9,764,000 11,177,000
Long-term debt 3,021,000 3,165,000
Deferred income taxes 831,000 1,008,000
Shareholders' investment:
Common stock, $0.05 par value, authorized 20,000,000 shares, issued
8,750,342 in 1998 and 1997 438,000 438,000
Additional paid-in capital 14,359,000 13,940,000
Retained earnings 57,792,000 51,299,000
Treasury stock at cost, 2,155,463 shares in 1998 and
1,938,463 shares in 1997 (19,504,000) (15,293,000)
- - ----------------------------------------------------------------------------- --------------------- --------------------
Total shareholders' investment 53,085,000 50,384,000
- - ----------------------------------------------------------------------------- --------------------- --------------------
Total liabilities and shareholders' investment $ 105,096,000 $ 98,866,000
============================================================================= ===================== ====================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
For fiscal years 1998, 1997 and 1996
- - ----------------------------------------------------------- ------------------- ------------------- --------------------
1998 1997 1996
- - ----------------------------------------------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C>
Net sales $ 484,885,000 $ 473,006,000 $ 453,921,000
Cost and expenses:
Cost of products sold 406,815,000 399,099,000 381,492,000
Operating and administrative expenses 64,580,000 61,799,000 61,892,000
- - ----------------------------------------------------------- ------------------- ------------------- --------------------
Operating income 13,490,000 12,108,000 10,537,000
Interest income 1,242,000 1,157,000 842,000
Interest expense (816,000) (847,000) (867,000)
- - ----------------------------------------------------------- ------------------- ------------------- --------------------
Earnings before income taxes 13,916,000 12,418,000 10,512,000
Provision for income taxes 5,398,000 4,781,000 4,047,000
- - ----------------------------------------------------------- ------------------- ------------------- --------------------
Net earnings $ 8,518,000 $ 7,637,000 $ 6,465,000
- - ----------------------------------------------------------- ------------------- ------------------- --------------------
Earnings per share - basic $1.26 $1.11 $0.93
=========================================================== =================== =================== ====================
Earnings per share - diluted $1.23 $1.06 $0.90
=========================================================== =================== =================== ====================
See notes to consolidated financial statements.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For fiscal years 1998, 1997 and 1996
- - ----------------------------------------------------------- ------------------- ------------------- --------------------
1998 1997 1996
- - ----------------------------------------------------------- ------------------- ------------------- --------------------
Cash flows from operating activities
<S> <C> <C> <C>
Net earnings $ 8,518,000 $ 7,637,000 $ 6,465,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 5,075,000 4,517,000 4,451,000
Deferred income taxes (254,000) (609,000) (626,000)
Changes in current assets and liabilities:
Receivables 3,485,000 (4,042,000) (114,000)
Inventories (2,210,000) 1,476,000 (1,858,000)
Other current assets 1,419,000 (551,000) 2,335,000
Accounts payable 3,493,000 741,000 823,000
Accrued liabilities 2,096,000 (935,000) 1,386,000
- - ----------------------------------------------------------- ------------------- ------------------- --------------------
Net cash flows from operating activities 21,622,000 8,234,000 12,862,000
- - ----------------------------------------------------------- ------------------- ------------------- --------------------
Cash flows from investing activities
Capital additions (3,847,000) (4,868,000) (3,420,000)
Receipt of principal amounts under capital subleases 443,000 505,000 581,000
Proceeds from asset sales 103,000 144,000 88,000
Acquisition of retail stores - (2,701,000) -
- - ----------------------------------------------------------- ------------------- ------------------- --------------------
Net cash flows from investing activities (3,301,000) (6,920,000) (2,751,000)
- - ----------------------------------------------------------- ------------------- ------------------- --------------------
Cash flows from financing activities:
Payment for acquisition of treasury stock (5,017,000) (3,835,000) (2,233,000)
Payment of cash dividends (2,025,000) (1,879,000) (1,666,000)
Proceeds from exercise of stock options 806,000 817,000 856,000
Principal payments on capital lease obligations (665,000) (702,000) (777,000)
Principal payments on long-term debt (210,000) (354,000) (337,000)
Repurchase of preferred stock - - (16,000)
- - ----------------------------------------------------------- ------------------- ------------------- --------------------
Net cash flows from financing activities (7,111,000) (5,953,000) (4,173,000)
- - ----------------------------------------------------------- ------------------- ------------------- --------------------
Cash and equivalents:
Net change 11,210,000 (4,639,000) 5,938,000
Balance, beginning of year 23,124,000 27,763,000 21,825,000)
- - ----------------------------------------------------------- ------------------- ------------------- --------------------
Balance, end of year $ 34,334,000 $ 23,124,000 $ 27,763,000
=========================================================== =================== =================== ====================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
For fiscal years 1998, 1997 and 1996
- - -------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
- - -------------------------------------------------------------------------------------------------------------------------------
Preferred Stock, $100 par
<S> <C> <C> <C> <C> <C> <C>
Beginning of year - $ - - $ - 159 $ 16,000
Repurchase of preferred stock - - - - (159) (16,000)
- - -------------------------------------------------------------------------------------------------------------------------------
End of year - - - - - -
===============================================================================================================================
Common Stock, $0.05 par
Beginning of year 8,750,342 438,000 5,833,570 292,000 5,833,570 292,000
Three-for-two stock split effected
in the form of a 50% stock
dividend, net of fractional shares - - 2,916,772 146,000 - -
- - -------------------------------------------------------------------------------------------------------------------------------
End of year 8,750,342 438,000 8,750,342 438,000 5,833,570 292,000
===============================================================================================================================
Additional Paid-in Capital
Beginning of year 13,940,000 13,331,000 12,990,000
Exercise of stock options 419,000 609,000 341,000
- - -------------------------------------------------------------------------------------------------------------------------------
End of year 14,359,000 13,940,000 13,331,000
===============================================================================================================================
Retained Earnings
Beginning of year 51,299,000 45,654,000 40,855,000
Net earnings 8,518,000 7,637,000 6,465,000
Cash dividends
Common stock ($0.30 per share in
1998, $0.27 per share in 1997 and
$0.24 in 1996) (2,025,000) (1,879,000) (1,666,000)
Three-for-two stock split effected
in the form of a 50% stock
dividend, net of fractional shares - (113,000) -
- - -------------------------------------------------------------------------------------------------------------------------------
End of year 57,792,000 51,299,000 45,654,000
===============================================================================================================================
Treasury Stock
Beginning of year (1,938,463) (15,293,000) (1,214,472) (12,242,000) (1,179,972) (10,865,000)
Acquisition of treasury stock (335,050) (5,017,000) (289,856) (3,835,000) (145,800) (2,233,000)
Exercise of stock options 118,050 806,000 173,100 817,000 111,300 856,000
Three-for-two stock split effected
in the form of a 50% stock
dividend, net of fractional shares - - (607,235) (33,000) - -
- - -------------------------------------------------------------------------------------------------------------------------------
End of year (2,155,463) (19,504,000) (1,938,463) (15,293,000) (1,214,472) (12,242,000
===============================================================================================================================
Shareholders' investment, end of year $53,085,000 $ 50,384,000 $ 47,035,000
===============================================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For fiscal years 1998, 1997 and 1996
(1) Description of Business
The Company is engaged in the food distribution business through
franchised and corporate retail supermarkets and as a supplier to independent
food stores. The franchised and corporate retail Piggly Wiggly(R) supermarkets
and independent food stores supplied by the Company are located in eastern
Wisconsin and northeastern Illinois. In an agreement with the owner of the
Piggly Wiggly franchise in 1998, the Company expanded its geographic marketing
area to include all of Wisconsin, Michigan's Upper Peninsula, portions of
Minnesota and Iowa, and additional counties in Illinois.
(2) Summary of Significant Accounting Policies
Fiscal year
The Company's fiscal year ends on the Saturday closest to December 31.
The 1998 and 1996 fiscal years were 52-week periods ended January 2, 1999 and
December 28, 1996, respectively. The 1997 fiscal year was a 53-week period ended
January 3, 1998.
Principles of consolidation
The financial statements include the accounts of Schultz Sav-O Stores,
Inc. and its wholly-owned subsidiary, PW Trucking, Inc. Any intercompany
accounts and transactions have been eliminated.
Cash and equivalents
Cash and equivalents consist of demand deposits at commercial banks and
highly liquid investments with a maturity of three months or less when
purchased. Cash equivalents are stated at cost which approximate market value.
Receivables
Receivables are shown net of allowance for doubtful accounts of
$4,300,000 and $3,950,000 at January 2, 1999 and January 3, 1998, respectively.
Inventories
Inventories, substantially all of which consist of food, groceries and
related products for resale, are stated at the lower of cost or market value.
Cost is determined primarily on the last-in, first-out (LIFO) method. For meat
and produce, cost is determined on the first-in, first-out (FIFO) method. At
January 2, 1999 and January 3, 1998, 78% and 81%, respectively, of all
inventories were accounted for under the LIFO method. The excess of current cost
over the stated LIFO cost of inventory was $10,032,000 and $9,609,000 at January
2, 1999 and January 3, 1998, respectively.
Other current assets
Other current assets at January 2, 1999 and January 3, 1998 consisted of
the following:
- - ----------------------------------------- ----------------- ----------------
1998 1997
- - ----------------------------------------- ----------------- ----------------
Prepaid expenses $1,086,000 $1,209,000
Property held for resale 578,000 1,663,000
Receivable under capital subleases 407,000 443,000
Retail systems and supplies for resale 314,000 320,000
- - ----------------------------------------- ----------------- ----------------
Other current assets $2,385,000 $3,635,000
========================================= ================= ================
Property and equipment, net
Property and equipment are stated at cost. Depreciation is amortized on
the straight-line method over the estimated useful lives of the assets.
Equipment generally has a useful life of 4 to 7 years, computer hardware and
software have a useful life of 3 to 5 years, buildings and land improvements
have a useful life of 10 to 35 years, and leasehold improvements generally has a
useful life of 10 to 20 years. Facility remodeling and upgrade costs on leased
stores are capitalized as leasehold improvements and are amortized over the
shorter of the remaining lease term or the useful life of the asset. Upon
disposal, the appropriate asset cost and accumulated depreciation are retired.
Gains and losses on disposition are included in earnings. Property and
equipment, net, at January 2, 1999 and January 3, 1998 consisted of the
following:
- - ----------------------------- ---------------- ----------------
1998 1997
- - ----------------------------- ---------------- ----------------
Land and buildings $18,731,000 $18,455,000
Leasehold improvements 5,578,000 5,391,000
Equipment and fixtures 33,266,000 33,537,000
- - ----------------------------- ---------------- ----------------
57,575,000 57,383,000
Less accumulated
depreciation and
amortization (35,888,000) (34,704,000)
- - ----------------------------- ---------------- ----------------
Property and equipment, net $21,687,000 $22,679,000
============================= ================ ================
<PAGE>
Other noncurrent assets
Other noncurrent assets at January 2, 1999 and January 3, 1998 consisted
of the following:
- - ---------------------------- ----------------- ----------------
1998 1997
- - ---------------------------- ----------------- ----------------
Long term software, net $1,393,000 $1,299,000
Goodwill, net 836,000 891,000
Other intangibles, net 318,000 409,000
Other 977,000 1,183000
- - ---------------------------- ----------------- ----------------
Total $3,524,000 $3,782,000
============================ ================= ================
Accounts payable
Accounts payable includes $8,225,000 and $7,583,000 at January 2, 1999
and January 3, 1998, respectively, of issued checks that have not cleared the
Company's disbursing bank accounts.
Retail repositioning reserve
Estimated repositioning and termination expenses associated with the
closure, replacement or disposal of stores, consisting primarily of lease
payments, charges to reduce assets to net realizable value and severance
payments, are charged to operating and administrative expenses upon the decision
to close, replace or dispose of a store as soon as the amounts are reasonably
estimated. Due to inherent uncertainties in estimating these repositioning and
termination costs, it is at least reasonably possible that the Company's
estimates may change in the near term.
Supplementary disclosure of cash flow information
Interest and taxes paid included in the Company's cash flow from
operations were as follows:
- - ----------------- ------------- ------------- ---------------
1998 1997 1996
- - ----------------- ------------- ------------- ---------------
Interest paid $ 822,000 $ 878,000 $ 873,000
Taxes paid 4,956,000 5,911,000 4,071,000
- - ----------------- ------------- ------------- ---------------
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Advertising costs
Costs incurred for producing and communicating advertising are generally
expensed when incurred.
New accounting pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
which the Company has adopted for its fiscal 1998. The Company's segment
reporting data are incorporated in these notes to consolidated financial
statements identified as item (13).
In March 1998, the AICPA issued Statement of Position (SOP) 98-1,
"Accounting For the Costs of Computer Software Developed For or Obtained For
Internal Use". SOP 98-1, which the Company is required to adopt in fiscal 1999,
requires the capitalization of certain costs incurred in connection with
developing or obtaining internal use software. The Company currently expenses
all internal software-related costs as incurred. The Company does not anticipate
this SOP 98-1 to have any material effect on its financial statements.
Reclassifications
Certain 1997 and 1996 amounts previously reported have been reclassified
to conform to the 1998 presentation.
(3) Acquisition
In 1997, the Company acquired substantially all of the assets of two
retail supermarkets located in the greater Appleton, Wisconsin area from a
competitor for $2,701,000 in cash. The acquisition was accounted for as a
purchase. Accordingly, the assets of the acquired retail stores were
incorporated with the Company's consolidated balance sheets as of January 3,
1998. The purchase price was allocated based upon the relative fair market
values of assets acquired. The excess of the purchase price over assets acquired
approximated $900,000 and is currently being amortized over 15 years. The
Company financed the acquisition solely through working capital from operations.
One of the stores opened as a corporate store in November 1997 and the second
store was remodeled and opened, also as a corporate store, in August 1998.
(4) Long-Term Debt
The Company has a loan agreement providing unsecured revolving credit
facilities totaling $16,000,000 through April 30, 2001. This arrangement
provides for borrowings at rates not to exceed the bank's prime rate. There are
no compensating balance requirements. There were no borrowings outstanding under
this agreement during 1998 or 1997.
Long-term debt at January 2, 1999 and January 3, 1998 consisted of the
following:
<PAGE>
------------------------------------------------------------
1998 1997
------------------------------------------------------------
Mortgage note, 9.675%, due in
monthly installments of
$33,026 including interest
due through June 2012 $2,990,000 $3,091,000
Land contract, 10.0%, due in
annual installments of
$33,333 through March 2003
167,000 200,000
Term note, 9.91%, due in
quarterly installments of
$55,000 through June 1998 - 75,000
-----------------------------------------------------------
3,157,000 3,366,000
Less current maturities (136,000) (201,000)
- - ------------------------------------------------------------
Long-term debt $3,021,000 $3,165,000
===========================================================
At January 2, 1999, the fair value of the financial instruments were not
materially different from the carrying value. The revolving credit and term note
agreements contain various covenants including, among others, the maintenance of
defined working capital, net worth requirements, certain debt-equity ratios,
restrictions against pledging of or liens upon certain assets, mergers,
significant changes in ownership and limitations on restricted payments.
The total amount of long-term debt due in each of the fiscal years 1999
through 2003 will be $136,000, $156,000, $168,000, $182,000 and $197,000,
respectively, and $2,318,000 from 2004 to 2012. Interest expense consisted of
the following:
------------------------------------------------------------
1998 1997 1996
------------------------------------------------------------
Interest on
long-term debt $315,000 $350,000 $383,000
Imputed
interest-capital 473,000 497,000 484,000
leases
Other 28,000 - -
- - -------------------------------------------------------------
Interest expense $816,000 $847,000 $867,000
============================================================
(5) Income Taxes
The difference between the statutory federal income tax rate and the
effective rate is summarized as follows:
- - -------------------------------------------------------------
1998 1997 1996
- - -------------------------------------------------------------
Federal income tax 34.2% 34.1% 34.0%
State income taxes, net
of federal income tax
benefit 5.2 5.2 5.3
Other, net (0.6) (0.8) (0.8)
- - -------------------------------------------------------------
Effective income tax rate 38.8% 38.5% 38.5%
=============================================================
Components of provision for income taxes consisted of the following:
-----------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------
Currently payable
Federal $4,611,000 $4,433,000 $3,804,000
States 1,041,000 957,000 869,000
Deferred (254,000) (609,000) (626,000)
-----------------------------------------------------------
Provision for
income taxes $5,398,000 $4,781,000 $4,047,000
===========================================================
The components of deferred income tax assets and liabilities at January
2, 1999 and January 3, 1998 were as follows:
-----------------------------------------------------------
1998 1997
-----------------------------------------------------------
Deferred income tax assets:
Bad debt reserve $1,677,000 $1,541,000
Accrued insurance 1,170,000 1,050,000
Capital lease accounting 712,000 694,000
Vacation pay 629,000 570,000
Retail repositioning reserve 267,000 238,000
Other 1,130,000 1,161,000
-----------------------------------------------------------
Total deferred income tax
assets 5,585,000 5,254,000
-----------------------------------------------------------
Deferred income tax
liabilities:
Property and equipment (1,975,000) (1,945,000)
Pension (65,000) (186,000)
-----------------------------------------------------------
Total deferred income tax
liabilities (2,040,000) (2,131,000)
-----------------------------------------------------------
Net deferred income tax asset $3,545,000 $3,123,000
===========================================================
The Company currently has no requirements for a valuation allowance for
its deferred income tax assets. The net deferred income tax asset as of January
2, 1999 and January 3, 1998 were classified in the balance sheet as follows:
- - -------------------------------- -------------- -------------
1998 1997
- - -------------------------------- -------------- -------------
Current deferred income tax
asset $4,376,000 $4,131,000
Noncurrent deferred income tax
liability (831,000) (1,008,000)
- - -------------------------------- -------------- -------------
Net deferred income tax asset $3,545,000 $3,123,000
================================ ============== =============
(6) Commitments and Contingent Liabilities
The Company has projected capital expenditures for fiscal 1999 at
$3,300,000. Commitments approximating $750,000 were made as of January 2, 1999.
As of January 2, 1999, the Company was contingently liable under
guarantees of bank note agreements of wholesale customers totaling $16,051,000.
All of the loan guarantees are substantially collateralized, principally with
<PAGE>
equipment and inventory, and to a lesser extent, with building facilities.
(7) Retirement Plans
The Company has a trusteed retirement savings defined contribution plan,
which includes provisions of Section 401(k) of the Internal Revenue Code, for
the benefit of its non-union eligible employees. Annual provisions are based on
a mandatory 5% of eligible participant compensation and additional amounts at
the sole discretion of the Board of Directors. Provisions for the three fiscal
years ended 1998, 1997 and 1996 were $890,000, $835,000 and $793,000,
respectively. The plan allows participants to make pretax contributions. The
Company then matches certain percentages of employee contributions. The
Company's matching contributions for 1998, 1997 and 1996 were $82,000, $79,000
and $71,000, respectively.
The Company has union-administered multi-employer pension plans covering
all hourly paid employees represented by collective bargaining agreements. Total
pension expense was $1,616,000, $1,456,000 and $1,564,000 in fiscal years 1998,
1997 and 1996, respectively. Complete information with respect to the Company's
portion of plan net assets and the actuarial present value of accumulated plan
benefits is not available.
(8) Leases
The Company leases most of its retail stores under lease agreements with
original lease periods of 15 to 20 years and typically with five-year renewal
options. Exercise of such options is dependent on, among others, the level of
business conducted at the location. Executory costs, such as maintenance and
real estate taxes, are generally the Company's responsibility. In a majority of
situations, the Company will enter into a lease for a store and sublease the
store to a wholesale customer. Additionally, the Company leases transportation
equipment, principally tractors and trailers, corporate office space and certain
office equipment. Some leases contain contingent rental provisions based on
sales volume at retail stores or miles traveled for tractors and trailers.
Contingent rental expense associated with the Company's capital leases and
sublease income was not material to the Company's financial statements.
Capitalized leases were calculated using interest rates appropriate at
the inception of each lease. A summary of real property utilized by the Company
under capital leases at January 2, 1999 and January 3, 1998 was as follows:
-------------------------------------------------------------
1998 1997
-------------------------------------------------------------
Investments in leased property
under capital leases $5,264,000 $5,264,000
Less accumulated amortization (2,765,000) (2,478,000)
-------------------------------------------------------------
Property under capital leases,
net $2,499,000 $2,786,000
=============================================================
Amortization of leased property under capital leases, included in
operating and administrative expenses, amounted to $287,000, $287,000 and
$273,000 in fiscal years 1998, 1997 and 1996, respectively.
The following is a schedule of future minimum lease payments under
capital leases and subleases and the present value of such payments as of
January 2, 1999:
------------------------------------------------------------
Capital Capital
lease sublease
obligations receivables
------------------------------------------------------------
1999 $ 1,884,000 $ 1,189,000
2000 1,841,000 1,126,000
2001 1,841,000 1,127,000
2002 1,841,000 1,127,000
2003 1,852,000 1,137,000
2004-2009 8,744,000 5,740,000
------------------------------------------------------------
Total minimum lease payments 18,003,000 11,446,000
Less interest (7,583,000) (4,932,000)
------------------------------------------------------------
Present value of minimum
lease payments and amounts
receivable 10,420,000 6,514,000
Less current portion (656,000) (407,000)
------------------------------------------------------------
Long-term obligations and
receivable $ 9,764,000 $ 6,107,000
============================================================
The following is a schedule of future minimum lease payments required
under operating leases for retail stores, transportation equipment, corporate
office space and office equipment that have noncancelable lease terms in excess
of one year as of January 2, 1999:
- - ------------------------------------- -----------------------
$ 10,031,000
1999
2000 9,596,000
2001 9,058,000
2002 9,088,000
2003 8,919,000
2004-2017 79,142,000
- - ------------------------------------- -----------------------
125,834,000
Total minimum lease payments
Lease minimum amounts receivable
under noncancelable subleases (94,826,000)
- - ------------------------------------- -----------------------
Net minimum lease payments $ 31,008,000
- - ------------------------------------- -----------------------
<PAGE>
Rental expenses, net of rental income from subleases, for all operating
leases amounted to $4,589,000, $3,912,000 and $3,813,000 in fiscal years 1998,
1997 and 1996, respectively. These amounts include $957,000, $1,029,000 and
$1,012,000, respectively, for contingent rentals.
(9) Stock Option Plans
The Company has stock option plans which provide for the grant of either
incentive or nonqualified stock options to key employees. The exercise price of
each option is equal to the market price of the Company's stock on the date of
grant. Options granted are exercisable for seven years from the date of grant
and vest ratably over the first three years. Such vesting may be accelerated by
the Stock Option Committee of the Board of Directors or upon a change in control
of the Company, as defined by the plans.
Financial Accounting Standard (FAS) No. 123 allows entities to continue
to apply the provisions of APB 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair value-based method defined in FAS No. 123 has been
applied. In fiscal 1996, the Company adopted the disclosure requirements of SFAS
No. 123. Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, the Company's net
earnings would have been reduced to the following pro forma amounts below:
- - ----------------- ------------- -------------- -------------
1998 1997 1996
- - ----------------- ------------- -------------- -------------
Net earnings
As reported $8,518,000 $7,637,000 $6,465,000
Pro forma 8,181,000 7,417,000 6,305,000
- - ----------------- ------------- -------------- -------------
Earnings per
share-diluted
As reported $1.23 $1.06 $0.90
Pro forma 1.18 1.04 0.88
================= ============= ============== =============
Since the compensation cost is reflected over the vesting period of three
years and compensation cost for options granted prior to January 1, 1995 is not
considered, the full impact of calculating the compensation cost under SFAS No.
123 is not reflected in the pro forma net earnings presented above. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1998, 1997 and 1996:
- - ------------------------- ---------- ----------- -----------
1998 1997 1996
- - ------------------------- ---------- ----------- -----------
Dividend yield 2.00% 2.06% 2.50%
Expected volatility 26.81% 25.62% 20.92%
Risk-free interest rate 5.49% 6.36% 5.35%
Expected term of grant 5.5 years 5.5 years 6.0 years
========================= ========== =========== ===========
As of January 2, 1999, no incentive stock options have been granted.
Following is a summary of the status of nonqualified stock options for the
fiscal years 1998, 1997 and 1996:
- - ------------------------------ -------------- ---------------
Weighted
Number average
of shares exercise
prices
- - ------------------------------ -------------- ---------------
Shares under option at
December 30, 1995 705,549 $ 5.15
Granted 132,900 10.50
Exercised (166,950) 5.13
Forfeited (2,799) 5.09
- - ------------------------------ -------------- ---------------
Shares under option at
December 28, 1996 668,700 6.22
Granted 143,700 9.67
Exercised (173,100) 4.72
- - ------------------------------ -------------- ---------------
Shares under option at
January 3, 1998 639,300 7.40
Granted 151,500 15.00
Exercised (118,050) 6.83
- - ------------------------------ -------------- ---------------
Shares under option at
January 2, 1999 672,750 9.21
============================== ============== ===============
Shares reserved for grant at
January 2, 1999 221,400
============================== ============== ===============
Options granted in
January 1999 165,700 $16.13
============================== ============== ===============
When options were exercised, the Company realized certain income tax
benefits. These benefits resulted in a decrease in current income taxes payable
and a corresponding increase in additional paid-in capital.
Exercise prices for options outstanding as of January 2, 1999 ranged from
$4.42 to $15.00. The weighted average remaining contractual life of these
options is approximately 4 1/2 years. Nonqualified stock options outstanding at
January 2, 1999 were exercisable for 402,750 shares.
(10) Preferred Stock
The Company has 3,000 shares of preferred stock authorized. Prior to
1995, all of the shares were issued and outstanding. In fiscal years 1995 and
1996, the Company repurchased all of the shares issued. Therefore, at January 2,
1999 and January 3, 1998, no shares of preferred stock were issued nor
outstanding.
<PAGE>
The Company also has 1,000,000 shares of $0.05 par value class B
preferred stock authorized, none of which has been issued. These shares are
issuable in such series and with such relative rights and preferences as may be
determined from time to time by the Board of Directors.
(11) Common Stock
On July 25, 1997, the Board of Directors authorized a three-for-two
common stock split, effected in the form of a 50% stock dividend distributed on
September 5, 1997 to shareholders of record on August 20, 1997. All historical
share amounts, per share amounts, stock option data and market prices of the
Company's common stock prior to the dividend distribution date have been
restated to retroactively reflect the stock split.
Prior to January 6, 1999, common shares issued and issuable included one
associated common stock purchase right which entitled shareholders to purchase
one share of common stock from the Company at an exercise price equivalent to
$14 per share. The rights became exercisable after a person acquired beneficial
ownership of 20% or more of the Company's common stock. The rights did not have
any voting rights and would have been redeemed at a price of $0.0067 per right.
On January 6, 1999, these rights expired pursuant to their terms.
(12) Earnings Per Share
Basic earnings per share is computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per share is computed by dividing net earnings by the weighted
average number of shares of common stock outstanding and common stock
equivalents during the year. Common stock equivalents used in computing diluted
earnings per share related to stock options which, if exercised, would have a
dilutive effect on earnings per share.
The Company's calculations of earnings per share-basic and earnings per
share-diluted were as follows:
- - ------------------- ------------ ------------ -------------
1998 1997 1996
- - ------------------- ------------ ------------ -------------
Net earnings
available for
common
shareholders $8,518,000 $7,637,000 $6,465,000
Weighted average
shares
outstanding 6,749,000 6,871,000 6,944,000
Earnings per
share-basic $1.26 $1.11 $0.93
- - ------------------- ------------ ------------ -------------
Net earnings
available for
common
shareholders $8,518,000 $7,637,000 $6,465,000
Weighted average
shares
outstanding 6,749,000 6,871,000 6,944,000
Stock options'
dilutive effect 174,000 277,000 243,000
Weighted average
shares and
equivalents
outstanding 6,923,000 7,148,000 7,187,000
Earnings per
share-diluted $1.23 $1.06 $0.90
- - ------------------- ------------ ------------ -------------
(13) Segment Reporting
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 131, "Disclosures about Segments of An Enterprise and Related
Information," which the Company has adopted for its fiscal 1998. Based on
management responsibility, the Company has identified two business segments,
wholesale and retail, in which it operates.
The wholesale segment represents the Company's business activities
relating to food wholesale distribution. At January 2, 1999, the Company
provided products to 68 franchised units, 18 corporate stores and a number of
independent retail stores. The wholesale segment includes warehousing,
transportation and other logistical functions, and derives its revenues
primarily from the sale of groceries, produce, dairy, meat and cigarette
products to the Company's franchised, corporate and independent retail
customers. The retail segment relates to the Company's retail supermarket
activities. Revenues are realized through the sale of groceries, dairy, produce,
meat, bakery, deli and other merchandise by the Company's corporate retail
stores to retail consumers.
The accounting policies of the two segments are the same as those
described in the Summary of Significant Accounting Policies. The Company's
management utilizes several measurement tools in evaluating each segment's
performance and each segment's resource requirements. However, the principal
measurement tools are consistent with the Company's consolidated financial
statements and accordingly are reported on a similar basis. Wholesale operating
profits on sales through the Company's corporate stores are allocated to the
retail segment. The "corporate" heading includes corporate-related items,
principally cash and equivalents. As it relates to operating income, "corporate"
heading includes corporate-related items allocated to the appropriate segments.
<PAGE>
Summarized financial information concerning the Company's reportable
segments is shown in the following table (in thousands).
- - ------------------------ ------------ ------------ ------------
Sales 1998 1997 1996
- - ------------------------ ------------ ------------ ------------
Wholesale sales $ 404,047 $ 399,197 $ 382,354
Intracompany sales (123,912) (107,988) (103,886)
Net wholesale sales 280,135 291,209 278,468
Retail sales 204,750 181,797 175,453
- - ------------------------ ------------ ------------ ------------
Total $ 484,885 $ 473,006 $ 453,921
======================== ============ ============ ============
- - ------------------------ ------------ ------------ ------------
Operating Income 1998 1997 1996
- - ------------------------ ------------ ------------ ------------
Wholesale $ 9,749 $ 9,029 $ 8,499
Retail 3,741 3,079 2,038
Total operating income
13,490 12,108 10,537
Interest income 1,242 1,157 842
Interest expense (816) (847) (867)
- - ------------------------ ------------ ------------ ------------
Earnings before income
taxes $ 13,916 $ 12,418 $ 10,512
- - ------------------------ ------------ ------------ ------------
- - ------------------------ ------------ ------------ ------------
Capital Expenditures 1998 1997 1996
- - ------------------------ ------------ ------------ ------------
Wholesale $ 149 $ 365 $ 378
Retail 2,443 3,628 1,087
Corporate 1,255 875 1,955
- - ------------------------ ------------ ------------ ------------
Total $ 3,847 $ 4,868 $ 3,420
======================== ============ ============ ============
- - ------------------------ ------------ ------------ ------------
Depreciation and
Amortization 1998 1997 1996
- - ------------------------ ------------ ------------ ------------
Wholesale $ 818 $ 985 $ 950
Retail 2,338 1,881 2,095
Corporate 1,919 1,651 1,406
- - ------------------------ ------------ ------------ ------------
Total $ 5,075 $ 4,517 $ 4,451
======================== ============ ============ ============
- - ------------------------ ------------ ------------ ------------
Identifiable Assets 1998 1997 1996
- - ------------------------ ------------ ------------ ------------
Wholesale $ 32,040 $ 32,244 $ 42,655
Retail 26,550 25,972 21,073
Corporate 46,506 40,650 34,476
- - ------------------------ ------------ ------------ ------------
Total $ 105,096 $ 98,866 $ 98,204
======================== ============ ============ ============
<PAGE>
Unaudited Quarterly Financial Information
The Company generally includes sixteen weeks in its first quarter and
twelve weeks in each subsequent quarter. In fiscal 1997, the fourth quarter
consisted of thirteen weeks. Summarized quarterly and annual financial
information for fiscal years 1998 and 1997 follows:
<TABLE>
<CAPTION>
- - ---------------------------------------------------- ----------------------------------------------------------------------
(dollars and shares in thousands, except per share Fiscal Year Ended January 2, 1999
data)
- - ---------------------------------------------------- ----------------------------------------------------------------------
First Second Third Fourth Year
- - --------------------------------------- ---------------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales $142,142 $114,068 $112,550 $116,125 $484,885
Gross profit 23,063 18,450 18,091 18,466 78,070
Net earnings 1,711 2,025 1,994 2,788 8,518
Earnings per share - basic 0.25 0.30 0.29 0.42 1.26
Earnings per share - diluted 0.24 0.29 0.29 0.41 1.23
Weighted average shares and
equivalents outstanding 7,140 7,014 6,937 6,773 6,923
- - --------------------------------------- ---------------- ---------------- ---------------- ---------------- ---------------
<CAPTION>
- - ---------------------------------------------------- ----------------------------------------------------------------------
(dollars and shares in thousands, except per share Fiscal Year Ended January 3, 1998
data)
- - ---------------------------------------------------- ----------------------------------------------------------------------
First Second Third Fourth Year
- - -------------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net sales $138,826 $109,844 $105,826 $118,510 $473,006
Gross profit 22,077 17,197 16,417 18,216 73,907
Net earnings 1,587 1,791 1,734 2,525 7,637
Earnings per share - basic 0.23 0.26 0.25 0.37 1.11
Earnings per share - diluted 0.22 0.25 0.24 0.35 1.06
Weighted average shares and
equivalents outstanding 7,104 7,051 7,026 7,293 7,255
- - -------------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
Common Stock Information
The Company's common stock is traded over-the-counter on the Nasdaq Stock
Market under the symbol SAVO. There are approximately 1,000 beneficial holders
of the Company's common stock. An analysis of the high and low last sale stock
prices by quarter and for the last three years are as follows:
<TABLE>
<CAPTION>
- - ------------ ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
First Second Third Fourth Year
- - ------------ ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
High Low High Low High Low High Low High Low
- - ------------ ---------- ----------- ---------- ----------- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $17.75 $15.00 $17.50 $15.50 $16.00 $15.13 $16.50 $15.50 $17.75 $15.00
1997 11.50 9.33 12.50 10.67 17.00 12.25 16.50 15.13 17.00 9.33
1996 11.00 9.33 10.00 8.17 9.00 8.17 10.00 8.67 11.00 8.17
- - ------------ ---------- ----------- ---------- ----------- ----------- ---------- ----------- ---------- ----------- ----------
Cash dividends paid per share were:
<CAPTION>
- - ---------------- ------------------ ------------------ ------------------ ------------------ ------------------
First Second Third Fourth Year
- - ---------------- ------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
1998 $0.07 $0.07 $0.08 $0.08 $0.30
1997 0.06 0.07 0.07 0.07 0.27
1996 0.05 0.05 0.07 0.07 0.24
- - ---------------- ------------------ ------------------ ------------------ ------------------ ------------------
</TABLE>
Under the Company's loan agreements, approximately $11.9 million of
retained earnings were available for the payment of cash dividends, stock
repurchases and other restricted payments at January 2, 1999.
o 1997 and 1996 stock prices and dividend information have been adjusted to
reflect the three-for-two stock split effected in the form of a 50% stock
dividend on September 5, 1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this press release are "forward-looking statements"
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can generally be identified as such because the context of the
statement will include words such as the Company "believes," "anticipates,"
"expects" or words of similar import. Similarly, statements that describe the
Company's future plans, objectives, strategies or goals are also forward-looking
statements. Such forward-looking statements are subject to certain risks and
uncertainties including, but not limited, to the following: (1) presence of
intense competitive market activity in the Company's market areas; (2) ability
to identify and develop new market locations for expansion purposes; (3)
continuing ability to obtain reasonable vendor marketing funds for promotional
purposes; (4) ongoing advancing information technology requirements; (5) ongoing
nominal food price inflation; (6) the Company's ability to continue to recruit,
train and retain quality franchise and corporate retail store operators; and (7)
the potential recognition of repositioning charges resulting from potential
closures, conversions and consolidations of retail stores due principally to the
competitive nature of the industry and to the quality of the Company's retail
store operators. Shareholders, potential investors and other readers are urged
to consider these factors carefully in evaluating the forward-looking statements
and are cautioned not to place undue reliance on such forward-looking
statements. The forward-looking statements made herein are only made as of the
date of this report and the Company undertakes no obligation to publicly update
such forward-looking statements to reflect subsequent events or circumstances.
Results of Operations
The following table sets forth certain items from the Company's Consolidated
Statements of Earnings as a percent of net sales and the year-to-year percentage
changes in the amounts of such line items.
<TABLE>
<CAPTION>
- - -------------------------------------- -------------------------------------------------- --- ---------------------------------
Percent of net sales Percentage change
- - -------------------------------------- -------------------------------------------------- --- ---------------------------------
1998 1997
1998 1997 1996 vs. 1997 vs. 1996
- - -------------------------------------- ---------------- ---------------- ---------------- --- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 2.5% 4.2%
Cost of products sold 83.9% 84.4% 84.0% 1.9% 4.6%
Operating and administrative expenses
13.3% 13.1% 13.6% 4.5% (0.2%)
Earnings before income taxes 2.9% 2.6% 2.3% 12.1% 18.1%
Net earnings 1.8% 1.6% 1.4% 11.5% 18.1%
- - -------------------------------------- ---------------- ---------------- ---------------- --- ---------------- ----------------
</TABLE>
<PAGE>
1998 vs. 1997
Net Sales
Net sales for the 52-week period ended January 2, 1999 increased 2.5% to
$484.9 million, compared to $473.0 million for the 53-week period ended January
3, 1998. Sales for 1998, adjusted for the extra week in fiscal 1997, increased
4.5% compared to the prior year. Fiscal 1998 sales surpassed the Company's
previous record sales for a 52-week year. While the Company's total sales were
$484.9 million in 1998, the Company's "virtual chain" of 86 stores generated
retail volume approximating $730 million in 1998.
Wholesale sales in 1998 increased 1.2% to $404.0 million, compared to
$399.2 million in 1997. On a comparative 52-week period, 1998 wholesale sales
increased 3.2% over 1997. The improvement in wholesale sales volume was
principally attributable to the opening of one new corporate store in Appleton,
Wisconsin in October 1997; the replacement of two noncompetitive corporate
Appleton stores with expanded and remodeled facilities as part of the
acquisition from a competitor; the opening of one new market store in Poynette,
Wisconsin in January 1998; and the completion of franchise facility projects in
Howards Grove, Waupaca and Lomira, Wisconsin in 1998. Wholesale sales was,
however, negatively impacted by the closure of the Plover facility in September
1997 and the conversion of one Oshkosh store from franchise to corporate in
October 1997. There are currently six additional facility projects in various
phases of planning or construction, with completions scheduled throughout the
first six months of 1999. These projects involve four major franchise expansion
projects in Beaver Dam, Kiel, Crivitz and Randolph, Wisconsin; one replacement
franchise store in Fort Atkinson, Wisconsin; and one new market franchise unit
in Cottage Grove, Wisconsin. The four expansion stores, upon completion, will
increase their aggregate square footage of selling space by approximately 40%.
Based on the Company's internal wholesale price index, except for tobacco
products, inflation did not have a significant effect on sales between years.
Retail sales improved 12.6% to $204.8 million in 1998, compared to $181.8
million in 1997. On a comparative 52-week period, 1998 retail sales increased
14.8% compared to fiscal 1997. The improvement in retail sales volume was
principally attributable to the opening of the three new Appleton corporate
stores. This improvement was, however, offset by the two closed stores. The
Company's retail sales volume was also positively impacted by the Oshkosh store
that was converted from franchise to corporate in October 1997. Finally, during
fiscal 1998, the Company continued to recognize the benefits of the Piggly
Wiggly Preferred Club(R) electronic card marketing program. This unique card
marketing program continues to grant special incentives to higher purchase level
shoppers and it continues to reward customers with weekly savings without
clipping in-ad coupons. Additionally, customers are encouraged to return to
Piggly Wiggly supermarkets with special "Pig Deal" next trip savings offers
issued automatically by participating manufacturers. This card marketing program
is available to all of the Company's "virtual chain" stores.
Cost of Products Sold
Cost of products sold, as a percent of sales, decreased 0.5% to 83.9% in
1998 from 84.4% in 1997. This decrease was a direct result of increased higher
margin corporate retail sales due principally to the net one additional
corporate store in Appleton and the additional corporate store in Oshkosh since
October 1997. Lower margin net wholesale sales as a percentage of sales
decreased to 57.8% compared to 61.6% in 1997. Conversely, higher margin retail
sales as a percentage of sales increased to 42.2% compared to 38.4% in 1997.
Based solely on current franchise projects outstanding, the Company anticipates
the wholesale sales percentage to increase nominally in 1999.
Operating and Administrative Expenses
Fiscal 1998 operating and administrative expenses, as a percentage of
sales, increased to 13.3%, compared to 13.1% in 1997. This increase of 0.2%, or
$2.8 million, was principally attributable to higher operating expenses relating
to the additional stores in Appleton and Oshkosh. Fiscal 1998 depreciation
attributable to retail increased to $2.3 million from $1.9 million in 1997. This
increase in retail operating expenses was partially offset by lower
administrative expenses in the wholesale segment. During 1998, particularly in
the last two quarters, the Company experienced lower provisions for workers
compensation and general liability due to reduced frequency and severity of
claims. The Company's
<PAGE>
overall experience ratio has improved due to improved loss control programs.
Due to the highly competitive nature of the industry, certain franchise
operators and corporate retail stores continue to experience operational
difficulties in their respective marketplaces. As a result, the Company
continues to incur receivable realization charges from a number of
underperforming franchise operators. During fiscal 1998, the Company incurred
realization charges relating to wholesale bad debts and retail subsidies
totaling $1.5 million, compared to $2.0 million in 1997. Although certain
franchise retail operations have improved, the Company continues to evaluate
various business initiatives relating to the operations of its underperforming
stores. These initiatives include, but are not limited to, the sale and
subsequent conversion of these stores, the closure of these supermarkets or the
implementation of other operational changes. As with prior years, implementation
of any of these options can result in the Company incurring certain
repositioning or restructuring charges involving the termination costs of
replaced, closed or sold stores. These actions can negatively impact earnings
results in the short-term, but the Company believes that such actions will help
improve the Company's long-term profitability. Fiscal 1998 and 1997
repositioning charges totaled $0.2 million and $1.1 million, respectively. The
fiscal 1998 repositioning costs were principally attributable to the occupancy
costs of closing and terminating two franchise operations in Wisconsin. Fiscal
1997 repositioning charges were more significant due principally to the $0.7
million costs relating to the Company's closing of the Plover franchised store
and the $0.3 million charge for closing the Company's two noncompetitive stores
in Appleton.
Net Earnings
The Company's fiscal 1998 operating income increased 11.4% to $13.5
million, compared to $12.1 million in 1997. After allocating wholesale operating
profits on sales through the Company's corporate stores to the Company's retail
segment, the wholesale segment recognized $9.7 million in operating income while
the retail segment recognized $3.7 million. Fiscal 1998 earnings before income
taxes increased 12.1% to $13.9 million, compared to $12.4 million in 1997. As a
percent of sales, earnings before income taxes increased to 2.9% in 1998 from
2.6% in 1997.
Net earnings for 1998 increased 11.5% to $8.5 million, compared to $7.6
million in 1997. With continuing improvements in sales and productivity, the
Company's net earnings-to-sales ratio for 1998 improved to 1.8%, compared to
1.6% for fiscal 1997. The Company's net earnings-to-sales ratio ranks as one of
the best in its industry. Additionally, the Company has had earnings performance
of 24 consecutive quarters showing increased earnings over the prior year's
quarter.
Diluted earnings per share increased 16.0% to $1.23 from $1.06 in 1997.
On a percentage basis, diluted earnings per share increased more than net
earnings due to additional share repurchases in fiscal 1998 which reduced the
weighted average shares and equivalents outstanding.
1997 vs. 1996
Net Sales
Net sales for the 53-week period ended January 3, 1998 increased 4.2% to
$473.0 million, compared to $453.9 million for the 52-week period ended December
28, 1996. Sales, adjusted for the extra week in fiscal 1997, increased 2.3%
compared to 1996. Wholesale volume in 1997 increased 4.4% to $399.2 million,
compared to $382.4 million in 1996. Retail sales increased 3.6% to $181.8
million in 1997, compared to $175.5 million in 1996. On a comparative 52 week
period, 1997 wholesale and retail sales increased 2.4% and 1.7%, respectively,
from 1996. The improvement in sales volume in 1997 was attributable to the
increased business volume resulting from the October 1997 completion of the
two-year implementation of the Piggly Wiggly Preferred Club electronic card
marketing program. Fiscal 1997 sales also benefited from additions and
enhancements to the Company's "virtual chain" base of franchised and corporate
supermarkets. In April 1997, the Company converted an independent operator in
Milton, Wisconsin from a competing wholesaler into a Piggly Wiggly franchise
unit. In October 1997, the Company converted a franchise unit in Oshkosh,
Wisconsin into a corporate retail supermarket. During fiscal 1997, the Company
also completed one new market corporate store, one new market franchise store,
one replacement franchise store and three additions to existing franchise
stores.
<PAGE>
These completed projects added approximately 115,000 of aggregate store selling
space. In fiscal 1997, sales were negatively impacted by closures of two
underperforming corporate stores and one underperforming franchise unit and the
impact of additional competitive activity due to new stores in certain markets.
At January 3, 1998, the Company had 68 franchised and 18 corporate supermarkets,
compared to 68 franchised and 16 corporate stores at December 28 ,1996. Based on
the Company's internal wholesale price index, inflation did not have a
significant effect on sales between years.
In the fall of 1997, the Company acquired two operating supermarkets in
the Menasha and Appleton, Wisconsin market areas from a competitor. The Company
renovated the Menasha store subsequent to the purchase and the Company opened
this corporate store in November 1997 and closed its noncompetitive south side
Appleton store. The Company then temporarily closed the acquired Appleton store
for renovation. This newly renovated store was opened in August 1998. Upon its
completion, the Company closed its noncompetitive north side Appleton store.
These two replacement corporate supermarkets aggregated 85,000 square feet of
store selling space, an increase of 93% over the combined 44,000 square feet of
the closed units.
Cost of Products Sold
Fiscal 1997 cost of products sold, as a percent of sales, increased 0.4%
to 84.4%, compared to 84.0% in 1996. This increase was principally a direct
result of the increased ratio of lower margin wholesale sales to total sales.
The percentage of net wholesale sales to total sales increased to 61.6% in 1997,
compared to 61.3% in 1996.
Operating and Administrative Expenses
Operating and administrative expenses, as a percent of sales, decreased
0.5% to 13.1% in 1997 from 13.6% in 1996. Total operating and administrative
expenses in 1997 decreased due principally to the closing of two smaller
underperforming corporate retail stores in the fall of 1996. Additionally, the
Company experienced lower provisions for self-insured health and casualty
programs due to reduced frequency and severity of claims. These decreases were
particularly evident during the fourth quarter of 1997. Total depreciation and
amortization expense between years were comparable at approximately $4.5
million. However, depreciation attributable to retail decreased by about 10%
between years due principally to the closures of two corporate stores in the
fall of 1996. Certain variable operating expenses, such as wages and salaries,
increased due to higher sales volume.
Due to the competitive nature of the industry, certain franchise
operators and corporate retail stores continued to experience operational
difficulties in their respective marketplaces. As a result, the Company
continued to incur significant receivable realization charges from a number of
underperforming franchise operators. Total 1997 and 1996 realization charges
relating to wholesale bad debts and retail subsidies were $2.0 million and $2.3
million, respectively. For 1997 and 1996, retail repositioning and restructuring
charges amounted to $1.1 million and $0.3 million, respectively. The increase in
retail repositioning costs in 1997 compared to 1996 was principally attributable
to (1) the closure of an underperforming franchise supermarket in Plover,
Wisconsin during 1997 resulting in a $700,000 pretax charge to operations; and
(2) the closing and termination costs relating to two smaller noncompetitive
corporate stores that were replaced by the two acquired stores from a competitor
resulting in a $300,000 pretax charge to operations. Additionally, the Company
incurred charges approximating $300,000 relating to market development and
start-up costs due to the opening of the new market corporate store in Appleton,
Wisconsin and the conversion of the acquired Menasha supermarket into the Piggly
Wiggly format.
Net Earnings
The Company's 1997 earnings before income taxes increased 18.1% to $12.4
million, compared to $10.5 million in 1996. As a percent of sales, earnings
before income taxes increased to 2.6% in 1997 from 2.3% in 1996. After
allocating to the retail segment the wholesale operating profits on sales made
to the Company's corporate stores, the wholesale segment contributed $9.0
million and $8.5 million to 1997 and 1996 pretax earnings, respectively.
Additionally, retail segment contributed $3.1 million and $2.0 million,
respectively, to the 1997 and 1996 pretax earnings. Net earnings for 1997
increased 18.1% to $7.6 million compared $6.5 million in 1996. With continued
improvements in sales volume and productivity, the Company's net
earnings-to-sales
<PAGE>
ratio for 1997 improved to 1.6%, compared to 1.4% for 1996. Additionally, 1997
diluted earnings per share increased 17.8% to $1.06 from $0.90 in 1996.
Liquidity and Capital Resources
The Company's favorable 1998 operating results continued to enhance its
strong financial position. During fiscal 1997, the primary source of liquidity
was cash generated from operations. Total cash generated from operations for
fiscal 1998 was $21.6 million, compared to $8.2 million in 1997. Cash flow from
operations increased significantly between years due principally to the decrease
in outstanding receivables from franchise operators. This was due in large part
to timing of cash receipts and the minimal balance for short-term financing
support for purchase of facilities and equipment for new stores. In fiscal 1998,
the balance of the short-term financing support was less than $100,000; in
fiscal 1997, the balance was $2.4 million. Although inventory levels based on
replacement cost increased by $2.6 million, this increment overall did not
negatively affect cash flows due to the corresponding increase in accounts
payable.
Net cash outflows for investing activities totaled $3.3 million in 1998
compared to $6.9 million in 1997. This decrease in outflows was attributable to
the $2.7 million outlay the Company incurred in 1997 in acquiring two retail
stores from a competitor. Additionally, total capital expenditures decreased to
$3.8 million in 1998, compared to $4.9 million in 1997. Of the total capital
expenditures of $3.8 million, the Company invested $2.4 million for retail
upgrades. For 1999, the Company's capital budget is estimated at $3.3 million,
of which $750,000 has been committed as of January 2, 1999. Of this $3.3 million
total, the Company has allocated $1.5 million for retail upgrades, $750,000 for
technology hardware and software, and $325,000 for distribution upgrades. The
Company expects to finance these projects from internally generated capital.
Net cash outflows for financing activities were $7.1 million in 1998
compared to $6.0 million in 1997. Total stock repurchases was higher in 1998 due
in large part to a block repurchase of 235,000 shares from an affiliate at
$14.50 per share. In September 1998, the Company completed its existing $5.0
million stock repurchase program that commenced in January 1997. This was the
Company's fourth announced stock repurchase program over the past seven years
that have been fully completed by the Company. The Company's Board of Directors
subsequently authorized a new stock repurchase program permitting the Company to
repurchase up to an additional $5.0 million of its common stock from time to
time in the open market, pursuant to privately negotiated transactions, or
otherwise. As of January 2, 1999, the full authorized amount remains available
for stock repurchase. Since the first stock repurchase program commenced in
January 1992, the Company has repurchased over 2.2 million shares, or
approximately 25%, of its issued common stock.
In summary, cash and equivalents for fiscal 1998 increased $11.2 million,
resulting in a year-end balance of $34.3 million. Of this year-end cash balance,
approximately $25 million was invested in short-term investments with maturities
of less than three months, such as taxable money market funds and commercial
paper with strong credit ratings. The Company does not use any form of
derivative securities for hedging or for other reasons.
The Company is generally the prime lessee of new retail store facilities,
which it then subleases to independent franchise operators. All new facilities
in 1998 were financed by operating lease agreements The Company also leases
transportation equipment, principally tractors and trailers, corporate office
space and certain office equipment. Some leases contain contingent rental
provisions based on sales volume at retail stores or miles traveled for
transportation equipment. Contingent rentals for 1998 and 1997 were both
approximately $1.0 million. At January 2, 1999, the Company had recorded $10.0
million of minimum lease payments required to be paid under operating leases in
1999 and $6.5 million of amounts receivable under noncancelable subleases in
1999. Additionally, at January 2, 1999, the Company had $9.8 million of
long-term capital lease obligations, $6.1 million of which represented
noncurrent receivables from wholesale customers under capital leases.
The Company typically provides short-term financing support to its
wholesale customers for the purchase of facilities and equipment for new or
remodeled stores. After being provided, this financing support is subsequently
refinanced, typically through banks, with the Company being reimbursed. As part
of the financing program, the Company had contingent liabilities under bank note
guarantees totaling $16.1 million at January 2, 1999.
<PAGE>
All of the loan guarantees are substantially collateralized, principally with
equipment and inventory and, to a lesser extent, with building facilities.
At January 2, 1999, the Company's ratio of total liabilities to
shareholders' investment was 0.98, which was very comparable to 0.96 at January
3, 1998. At January 2, 1999, the Company had available the entire amount of its
unsecured revolving bank credit facilities totaling $16.0 million.
The Company believes its cash, working capital and debt-to-equity
positions continue to compare very favorably to most industry competitors.
Additionally, the Company believes that its financial condition and cash flow
from operations will continue to provide it with adequate long-term flexibility
to finance anticipated capital requirements without adversely impacting its
financial position or liquidity.
Year 2000 Issues
The Company is dependent on computer hardware, software and other
business systems ("IT systems") and non-information technology systems, such as
communication equipment, tractors and trailers, refrigeration controllers,
scales, and other equipment containing embedded microprocessor technology
("non-IT systems"). The Company uses these IT and non-IT systems in several
critical operating areas including product procurement and merchandising, retail
store and warehouse distribution operations; inventory order entry and labor
management; and accounting, administrative and maintenance systems.
In 1997, the Company began evaluating its IT and non-IT systems in order
to identify and adjust date sensitive systems for year 2000 compliance. As part
of this undertaking, the Company established a team, headed by the Company's
Vice President of Business Systems Support Group. The team is staffed primarily
with internal professionals within the business systems group and some outside
consultants on an as-needed basis. The team leader reports periodically on the
year 2000 status to the Company's Executive Committee and its Board of
Directors.
The team developed a plan to assess its IT and non-IT systems for year
2000 compliance requirements. The plan consists of three main project phases:
(1) to make an inventory listing of all IT and non-IT systems that may be
subject to the year 2000 issue along with an assessment as to the scope of the
issue as it related to these systems; (2) to remediate any and all year 2000
compliance problems; and (3) to test, validate and implement systems subsequent
to remediation.
At the end of the first quarter of 1998, the Company had substantially
completed the first phase of the project. An inventory list of all systems have
been identified and documented. Nearly half of all IT and non-IT systems
previously identified have also been remediated at this time. The Company
believes it will complete all remaining remediation efforts for existing systems
over the next few months. Insofar as testing, validation and implementation are
concerned, the Company has tested some of its core IT systems and has determined
that they are projected to be year 2000 compliant by mid-1999. With regard to
non-IT systems, the Company also expects these systems to be year 2000 compliant
in 1999. The Company estimates it will cost less than $500,000 to become year
2000 compliant approximately $350,000 of which will be charged to operations in
1999.
As part of its year 2000 project, the Company has identified business
relationships with third parties, including suppliers, vendors, financial
institutions and other service providers, which the Company believes are
critical to its business operations. The Company has been communicating with
these third parties through correspondence and/or interviews to ascertain the
extent to which they are addressing their year 2000 compliance issues. The
Company will continue to assess and monitor the progress of these third parties
in resolving year 2000 issues. The Company undertakes a certain amount of risk
by relying on the third parties' own year 2000 assessment. Because of this, the
Company believes that a key vendor's failure to resolve its year 2000 issues is
the most likely worst case scenario for the Company. Such failure could result
in the Company not being able to procure products from a key vendor on a timely
basis. The Company does not expect this most likely worst case scenario to have
a material adverse impact on its core retail and wholesale businesses due
principally to the Company's network of alternative suppliers and vendors. The
Company will, however, develop contingency plans to work with these key third
parties in 1999.
Company Business
The Company is engaged in distributing food and related products at
wholesale and retail. At January 2,
<PAGE>
1999, the Company franchised 68 and operated 18 corporate retail supermarkets
under the Piggly Wiggly name in its eastern and northeastern Illinois market
areas. In a 1998 agreement with Piggly Wiggly Company, owner of the national
Piggly Wiggly franchise, the Company expanded its exclusive geographic marketing
and operating area to include all of Wisconsin, Michigan's Upper Peninsula,
portions of Minnesota and Iowa, and additional counties in Illinois.
The Company is the prime supplier to its franchised and corporate
supermarkets. The Company also serves as a wholesaler to other smaller
independent retail store in its market areas. The Company supplies grocery,
frozen food, dairy and produce to its customers through its 364,000 square foot
distribution center in Sheboygan, Wisconsin. Also, the Company provides its
customers with fresh, froze and processed meats, eggs and deli items through a
third party distribution facility in Milwaukee, Wisconsin on a contract basis.
The Company employs approximately 1,700 persons, nearly 1,250 of whom are
employed in the corporate retail segment operations. A majority of the Company's
retail employees are employed on a part-time basis. Of the Company's remaining
employees, approximately 210 are engaged in warehousing, distribution and
trucking activities, and nearly 240 are corporate and administrative personnel.
EXHIBIT 21
Subsidiary of the Registrant
The only subsidiary of Schultz Sav-O Stores, Inc. is PW Trucking, Inc., a
Wisconsin corporation.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Schultz Sav-O Stores, Inc.:
As independent public accountants, we hereby consent to the incorporation of our
reports, included and incorporated by reference in this Form 10-K, into the
Company's previously filed Form S-8 Registration Statement, File No. 33-34991.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SCHULTZ SAV-O STORES, INC. AS OF AND FOR
THE YEAR ENDED JANUARY 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> JAN-02-1999
<CASH> 34,334,000
<SECURITIES> 0
<RECEIVABLES> 6,233,000 <F1>
<ALLOWANCES> 0 <F1>
<INVENTORY> 23,951,000
<CURRENT-ASSETS> 71,279,000
<PP&E> 57,575,000
<DEPRECIATION> 35,888,000
<TOTAL-ASSETS> 105,096,000
<CURRENT-LIABILITIES> 38,395,000
<BONDS> 3,021,000
0
0
<COMMON> 438,000
<OTHER-SE> 52,647,000
<TOTAL-LIABILITY-AND-EQUITY> 105,096,000
<SALES> 484,885,000
<TOTAL-REVENUES> 484,885,000
<CGS> 406,815,000
<TOTAL-COSTS> 0 <F2>
<OTHER-EXPENSES> 64,580,000 <F2>
<LOSS-PROVISION> 0 <F2>
<INTEREST-EXPENSE> 816,000
<INCOME-PRETAX> 13,916,000
<INCOME-TAX> 5,398,000
<INCOME-CONTINUING> 8,518,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,518,000
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.23
<FN>
<F1> Net of "Allowances for doubtful accounts".
<F2> Amounts included in "Other costs and expenses".
</FN>
</TABLE>
